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HomeMy WebLinkAbout2015-02-09 City Council Agenda PacketCITY OF PALO ALTO CITY COUNCIL FEBRUARY 9, 2015 Regular Meeting Council Chambers 6:00 PM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Thursday preceding the meeting. 1 February 9, 2015 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. PUBLIC COMMENT Members of the public may speak to agendized items; up to three minutes per speaker, to be determined by the presiding officer. If you wish to address the Council on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers, and deliver it to the City Clerk prior to discussion of the item. You are not required to give your name on the speaker card in order to speak to the Council, but it is very helpful. TIME ESTIMATES Time estimates are provided as part of the Council's effort to manage its time at Council meetings. Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. To ensure participation in a particular item, we suggest arriving at the beginning of the meeting and remaining until the item is called. HEARINGS REQUIRED BY LAW Applications and/or appellants may have up to ten minutes at the outset of the public discussion to make their remarks and up to three minutes for concluding remarks after other members of the public have spoken. Call to Order Study Session 6:00-7:15 PM 1.Study Session on Railroad Quiet Zones in Palo Alto Agenda Changes, Additions and Deletions City Manager Comments 7:15-7:25 PM Oral Communications 7:25-7:40 PM Members of the public may speak to any item NOT on the agenda. Council reserves the right to limit the duration of Oral Communications period to 30 minutes. Presentation 2 February 9, 2015 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Consent Calendar 7:40-7:45 PM Items will be voted on in one motion unless removed from the calendar by three Council Members. 2. Finance Committee Recommendation to Accept Macias Gini & O'Connell's Audit of the City of Palo Alto's Financial Statements as of June 30, 2014 and Management Letter 3. Finance Committee Recommendation to Adopt an Ordinance Authorizing the Closing of the Fiscal Year 2014 Budget, Including Re- appropriation Requests, Closing Completed Capital Projects and Authorizing Transfers to Reserves, and Approval of the Fiscal Year 2014 Comprehensive Annual Financial Report (CAFR) 4. Approval of a Contract Amendment in the Amount of $63,000 to Contract No. C14149978 With Dyett and Bhatia Urban and Regional Planners for Additional Data Collection and Analysis Related to Downtown Retail and Residential Uses 5. Authorization to Operate the Golf Course from March 1, 2015 to June 30, 2015 and Adoption of a Budget Amendment Ordinance to Increase Golf Course Revenues Estimate in the Amount of $106,000, Provide Additional Appropriation of $289,424 in Budget for Expenses, and Reduce the Operating Loss Reserve by $183,424 6. Policy and Services Committee Recommendation of Changes to the Board and Commission Recruitment Program Including Adoption of an Ordinance Re-aligning Terms on the Architectural Review Board, the Historic Resources Board, the Parks and Recreation Commission and the Planning and Transportation Commission; Adoption of a Resolution Re-aligning Terms on the Storm Drain Oversight Committee; Allowing for Remote Board and Commission Interviews; Limit Applicants to One Board or Commission Each Recruitment 7. SECOND READING: Adoption of an Ordinance Increasing Council Salary From $600/Month to $1,000/Month, Effective January 1, 2017 (First Reading: January 20, 2015 PASSED: 6-3 DuBois, Filseth, Scharff no) 8. Approval of Technical Amendments to the Below Market Rate Housing Agreement, Exhibit C-3 to the Mayfield Development Agreement Between the City and Stanford University 3 February 9, 2015 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. 9. Adoption of a Resolution to Amend and Correct Salary Schedules for: Management, Professional and Confidential Employees (M&P), Fire Chief Association (FCA), and Utilities Managers of Palo Alto Professional Association (UMPAPA); Adoption of an Ordinance to Update the Fiscal Year 2015 Table of Organization 10. Confirmation of Appointment of Rob De Geus as Director of Community Services Department Action Items Include: Reports of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Reports of Officials, Unfinished Business and Council Matters. 7:45-9:00 PM 11. Discussion and Direction to Staff Regarding Establishment of an Office/R&D Annual Growth Limit (Item Continued from January 26, 2015) 9:00-9:30 PM 12. Public Hearing: Proposed Changes in Development Impact Fees: Adoption of Resolution Setting New Public Safety Facility and General Government Facility Impact Fee Levels as Approved by Council on December 15, 2014 9:30-10:00 PM 13. Colleagues Memo from Council Members Berman, Burt, DuBois, and Wolbach Regarding a City-Wide Minimum Wage Ordinance 10:00-10:30 PM 14. Colleagues Memo From Council Members Berman, Burt, Holman, and Kniss Recommending Adoption of a Resolution Urging CalPERS Divestment from Fossil Fuel Companies Inter-Governmental Legislative Affairs Council Member Questions, Comments and Announcements Members of the public may not speak to the item(s) Closed Session 10:30-11:15 PM Public Comments: Members of the public may speak to the Closed Session item(s); three minutes per speaker. 15. CONFERENCE WITH CITY ATTORNEY/LEGAL COUNSEL ANTICIPATED LITIGATION (as defendant) Subject: Claim of Eileen A. Staats, filed January 5, 2015 (Telephone User Tax) Authority: California Government Code section 54956.9(d)(2) 4 February 9, 2015 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Adjournment AMERICANS WITH DISABILITY ACT (ADA) Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance. 5 February 9, 2015 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Additional Information Standing Committee Meetings Council Retreat Agenda January 31, 2015 Policy and Services Committee Meeting February 10, 2015 City Council Meeting Cancellation February 16, 2015 Finance Committee Meeting Cancellation February 17, 2015 Mayor State of the City Address February 18, 2015 Schedule of Meetings Schedule of Meetings Tentative Agenda Tentative Agenda Informational Report City of Palo Alto's Energy Risk Management Report for the First Quarter, Fiscal Year 2015 Public Letter to Council Set 1 Set 2 Set 3 City of Palo Alto (ID # 5491) City Council Staff Report Report Type: Study Session Meeting Date: 2/9/2015 Summary Title: Study Session on Railroad Quiet Zones Title: Study Session on Railroad Quiet Zones in Palo Alto From: City Manager Lead Department: Planning and Community Environment Recommendation This Study Session provides an opportunity for City Council discussion regarding quiet zones and no action is recommended. Executive Summary In the spring of 2014, a group of citizens, primarily located near the Alma Street Caltrain crossing, began asking the City of Palo Alto to consider implementing a quiet zone at that intersection. Following that initial request, Planning & Community Environment staff began evaluating quiet zones and gathering information for a City Council discussion. Quiet zones are defined by the Federal Railroad Administration (FRA) as: “a section of a rail line at least one-half mile in length that contains one or more consecutive public highway-rail grade crossings at which locomotive horns are not routinely sounded when trains are approaching the crossings. The prohibited use of train horns at quiet zones only applies to trains when approaching and entering crossings and does not include train horn use within passenger stations or rail yards. Train horns may be sounded in emergency situations or to comply with other railroad or FRA rules even within a quiet zone. Quiet zone regulations also do not eliminate the use of locomotive bells at crossings.” Reference: http://www.fra.dot.gov/Page/P0689 Following communication with Caltrain staff on the matter, City staff was referred to LeeAnn Dickson, a Grade Crossing Manager at United States Department of Transportation Federal Railroad Administration. Ms. Dickson provided City staff with valuable information regarding the technical requirements for the establishment of a quiet zone. Those technical requirements are listed below: City of Palo Alto Page 1 Per the FRA, if any one of the following four Supplemental Safety Measures (SSM’s) is implemented, an at-grade crossing is automatically eligible to become a quiet zone regardless of its Quiet Zone Risk Index (QZRI) score: 1. Installing quad gates o Four gates per crossing instead of two 2. Median Barriers o 100 ft. continuous barriers (provisions exist for barriers as short as 60 ft. in certain scenarios) 3. Converting from facilitating two-way traffic to one-way traffic 4. Eliminating the grade crossing (i.e. closing it) If a given city chooses to implement one or more of the above referenced intersection improvements, the city has the right to implement a quiet zone. The right of a city to implement a quiet zone is not dependent on the rail operators impacted by the establishment of a quiet zone. Essentially, a quiet zone can be implemented by any city at a given intersection so long as that city goes through the proper noticing and comment procedure. The noticing and comment procedure required by the FRA includes providing all stakeholders with a 60-day Notice of Intent (NOI) that the city is seeking to establish a quiet zone at a given intersection and following the NOI process a 21 day Notice of Establishment (NOE) must be provided to those operating in the corridor. It has been the position of Caltrain that they are willing to work with local municipalities if they seek to establish a quiet zone- however, Caltrain’s position thus far has been that if a quiet zone is established in the corridor that the local agency would assume liability for any incidents that occur at a quiet zone intersection. That said, City staff has not been able to obtain any written policy on this matter from Caltrain. It’s also important to reiterate that even if a quiet zone is established a railroad engineer operating in the corridor may blow the horn of his or her train at any time if there is a perceived or real safety threat. Therefore, quiet zones reduce train horn noise at a given intersection but do not eliminate it. For additional technical information regarding quiet zones published by the FRA please see Attachment A. Background According to the California Public Utilities Commission (CPUC) website, “the FRA Train Horn Rule (49 CFR Part 222) became effective on June 24, 2005. This rule provides a step-by-step process to determine what can be done to offset the City of Palo Alto Page 2 lack of a train horn, to calculate the risk reduction associated with potential improvements, to formally document the silencing of the train horns and officially establish a quiet zone.” Reference: http://www.cpuc.ca.gov/PUC/safety/Rail/Crossings/quietzones.htm According to the CPUC, as of April 2013 there are 36 established FRA quiet zones in California affecting 181 crossings; however, none currently exist in the Caltrain corridor. In the fall of 2013, San Mateo did an extensive study on quiet zones and the potential implementation of quiet zones in San Mateo. From that study (Attachment B) came three significant findings: 1. The city has the right to establish a quiet zone(s) if it chooses to do so. 2. From the data San Mateo collected, it did not appear that train horns violate the federal limit on train horn noise. 3. Federal regulations do not prevent a lawsuit against the City in the event of an incident at a given quiet zone intersection if the city is the originator of the quiet zone. According to Caltrain staff, San Mateo did not pursue any quiet zones due to infrastructure costs and potential liability costs. Legal Aspects to the Establishment of Quiet Zones in Palo Alto The question whether or not to implement quiet zones is, at its core, a question of policy. From a legal perspective, there is no legal prohibition on the creation of quiet zones. However, the City !ttorney’s Office, after careful review of relevant case law and statutes, has concluded that the establishment of quiet zones may increase the City’s exposure to potential liability. While we are not aware of any reported case in which a city was deemed solely liable based upon its implementation a quiet zone, application of basic tort law suggests that a city might well be subject to increased liability for doing so. While federal regulations require the City to implement new safety measures to offset the effect of reduction in a core safety measure - the sound of the train’s horn blowing - the federal statute contains no safe harbor from suit for compliance. At the very least, the City may face a marginal increase in litigation costs to defend against novel theories of liability advanced by persons injured in quiet zones. Finally, while the City maintains excess liability insurance coverage to cover judgments over a certain dollar threshold, the City may nevertheless be compelled to undertake significant self- insurance costs relating to quiet zones, as insurance carriers for other cities have required express carve-outs for claims and actions related to quiet zones. Resource Impact City of Palo Alto Page 3 If the City is interested in pursuing one or more quiet zones, the City will need to provide funding for design and implementation of the necessary improvements. Policy Implications The Comprehensive Plan supports efforts to address noise pollution (Policy N-40) and encourages the Joint Powers Board to pursue train technologies to reduce train whistle noise (Program N-57), but does not speak to quiet zones per se. The principal policy issues worthy of consideration in the discussion of quiet zones are (1) whether there is a real or perceived relationship between train horns and safety that could be compromised if one or more quiet zones are established; and (2) is the potential for reduced noise if train engineers refrain from blowing their horn worth the cost of improvements and potential increase in liability to the City? Environmental Review This is a discussion item and no action is proposed that would require review pursuant to the California Environmental Quality Act (CEQA). Attachments:  A - FRA Quiet Zone Brochure_9-2013(PDF)  B - San Mateo Train Horn Noise Assessment Update_9-11-2013 (PDF) City of Palo Alto Page 4                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Guide to the Quiet Zone Establishment Process Purpose of the Guide This brochure was developed to serve as a guide for local decision makers seeking a greater understanding of train horn sounding requirements and how to establish quiet zones. Its purpose is to provide a general overview and thus does not contain every detail about the quiet zone establishment process. For more detailed and authoritaƟve informaƟon, the reader is encouraged to review the official regulaƟons governing the use of locomoƟve horns at public highway‐rail grade crossings and the establishment of quiet zones that are contained in 49 CFR Part 222. A copy of the rule can be downloaded or printed at hƩp://www.fra.dot.gov/eLib/Details/L02809. About Quiet Zones FRA is commiƩed to reducing the number of collisions at highway‐rail grade crossings, while establishing a consistent standard for communiƟes who opt to preserve or enhance quality of life for their residents by establishing quiet zones within which rouƟne use of train horns at crossings is prohibited. Federal regulaƟon requires that locomoƟve horns begin sounding 15–20 seconds before entering public highway‐rail grade crossings, no more than one‐quarter mile in advance. Only a public authority, the governmental enƟty responsible for traffic control or law en‐ forcement at the crossings, is permiƩed to create quiet zones. A quiet zone is a secƟon of a rail line at least one‐half mile in length that contains one or more consecuƟve public highway‐rail grade crossings at which locomoƟve horns are not rouƟnely sounded when trains are approaching the crossings. The prohibited use of train horns at quiet zones only applies to trains when approaching and entering crossings and does not include train horn use within passenger staƟons or rail yards. Train horns may be sounded in emergency situaƟons or to comply with other railroad or FRA rules even within a quiet zone. Quiet zone regulaƟons also do not eliminate the use of locomoƟve bells at crossings. Therefore, a more appropriate descripƟon of a designated quiet zone would be a “reduced train horn area.” CommuniƟes wishing to establish quiet zones must work through the appropriate public authority that is responsible for traffic control or law enforcement at the crossings. 2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Historical Context Guide to the Quiet Zone Establishment Process Historically, railroads have sounded locomoƟve horns or whistles in advance of grade crossings and under other circumstances as a universal safety precauƟon. Some States allowed local communiƟes to create whistle bans where the train horn was not rouƟnely sounded. In other States, communiƟes created whistle bans through informal agreements with railroads. In the late 1980’s, FRA observed a significant increase in nighƫme train‐vehicle collisions at certain gated highway‐rail grade crossings on the Florida East Coast Railway (FEC) at which nighƫme whistle bans had been established in accordance with State statute In 1991, FRA issued Emergency Order #15 requiring trains on the FEC to sound their horns again. The number and rate of collisions at affected crossings returned to pre‐whistle ban levels. In 1994, Congress enacted a law that required FRA to issue a Federal regulaƟon requiring the sounding of locomoƟve horns at public highway‐rail grade crossings. It also gave FRA the ability to provide for excepƟons to that requirement by allowing communiƟes under some circumstances to establish "quiet zones." The Train Horn Rule became effecƟve on June 24, 2005. The rule set naƟonwide standards for the sounding of train horns at public highway‐rail grade crossings. This rule changed the criteria for sounding the horn from distance‐based to Ɵme‐based. It also set limits on the volume of a train horn. The rule also established a process for communiƟes to obtain relief from the rouƟne sounding of train horns by providing criteria for the establishment of quiet zones. LocomoƟve horns may sƟll be used in the case of an emergency and to comply with Federal regulaƟons or certain railroad rules. 3                                                                                                                                                                                                     POINTS OF CONTACT General QuesƟons: Inga Toye, 202‐493‐6305 Debra Chappell, 202‐493‐6018 Ron Ries, 202‐493‐6285 Regional Contacts Region 1 ConnecƟcut, Maine, MassachuseƩs, New Hampshire, New Jersey, New York, Rhode Island, and Vermont 1‐800‐724‐5991 Region 2 Delaware, Maryland, Ohio, Pennsylvania, Virginia, West Virginia , and Washington, D.C. 1‐800‐724‐5992 Region 3 Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee 1‐800‐724‐5993 Region 4 Illinois, Indiana, Michigan, Minnesota, and Wisconsin 1‐800‐724‐5040 Region 5 Arkansas, Louisiana, New Mexico, Oklahoma, and Texas 1‐800‐724‐5995 Region 6 Colorado, Iowa, Kansas, Missouri, and Nebraska 1‐800‐724‐5996 Region 7 Arizona, California, Nevada, and Utah 1‐800‐724‐5997 Region 8 Alaska, Idaho, Montana, North Dakota, South Dakota, Oregon, Washington, and Wyoming 1‐800‐724‐5998 9                                                                             Rail – Moving America Forward The mission of the Federal Railroad AdministraƟon is to enable the safe, reliable, and efficient movement of people and goods for a strong America, now and in the future. U.S. Department of TransportaƟon Federal Railroad AdministraƟon 1200 New Jersey Avenue S.E. Washington, DC 20590 Telephone: 202‐493‐6299 www.fra.dot.gov Follow FRA on Facebook and TwiƩer September 2013 10 CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR February 9, 2015 The Honorable City Council Attention: Finance Committee Palo Alto, California Finance Committee Recommendation to Accept Macias Gini & O'Connell's Audit of the City of Palo Alto's Financial Statements as of June 30, 2014 and Management Letter The Office of the City Auditor recommends acceptance of Macias Gini & O’Connell’s Audit of the City of Palo Alto’s Financial Statements as of June 30, 2014 and Management Letter. At its meeting on December 2, 2014, the Finance Committee approved and unanimously recommended the City Council accept this report. The Finance Committee minutes are included in this packet. Respectfully submitted, Harriet Richardson City Auditor ATTACHMENTS:  Attachment A: Macias Gini & O'Connell's Audit of the City of Palo Alto's Financial Statements as of June 30, 2014 and Management Letter (PDF)  Attachment B: Finance Committee Meeting Minutes Excerpt (December 2, 2014) (PDF) Department Head: Harriet Richardson, City Auditor Page 2 CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR December 2, 2014 The Honorable City Council Attention: Finance Committee Palo Alto, California Macias Gini & O'Connell's Audit of the City of Palo Alto's Financial Statements as of June 30, 2014 and Management Letter RECOMMENDATION We recommend the Finance Committee review and forward to the City Council for approval the City of Palo Alto’s audited financial statements for the fiscal year ended June 30, 2014, and the accompanying reports provided by Macias Gini & O’Connell LLP. DISCUSSION The City Charter requires that the City Council, through the City Auditor, to engage an independent certified public accounting firm to conduct the annual financial audit. The selected firm reports the results of the audit, in writing, to the City Council. Macias Gini & O’Connell LLP, a certified public accounting firm based in Sacramento, California, conducted the audits of the City’s financial statements for the fiscal year ended June 30, 2014. The Administrative Services Department provides the Comprehensive Annual Financial Report (CAFR) and Single Audit Report, including the following Independent Auditor’s Reports, to the Finance Committee:  Independent Auditor’s Reports on the Financial Statements (CAFR)  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 (Single Audit Report)  Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by OMB Circular A‐133 (Single Audit Report) We are providing copies of the following financial statements and reports, as prepared by MGO:  Report to the City Council (the “Management Letter”) – Attachment A  Independent Accountant’s Report on Applying Agreed-Upon Procedures Related to the Article XIII-B Appropriations Limit for the year ended June 30, 2014 – Attachment B  Pedestrian/Bicycle Facilities Grants, Metropolitan Transportation Commission, Transportation Development Act Funds, Article III, Independent Auditor’s Reports, Financial Statements and Supplementary Information for the year ended June 30, 2014 – Attachment C Attachment A Page 2  General Obligation Bonds, Capital Projects Fund (a Fund of the City of Palo Alto), Independent Auditor’s Reports, Financial Statements, and Independent Accountant’s Report for the year ended June 30, 2014 – Attachment D  Palo Alto Public Improvement Corporation (a Component Unit of the City of Palo Alto), Annual Financial Report for the year ended June 30, 2014 – Attachment E  Regional Water Quality Control Plant, Independent Auditor’s Report and Financial Statements for the year ended June 30, 2014 – Attachment F  Cable TV Franchise – Independent Auditor’s Report and Statements of Franchise Revenues and Expenditures for the years ended December 31, 2013 and 2012 – Attachment G I would like to express appreciation to Macias Gini & O’Connell, and Laura Kuryk and her staff in the Administrative Services Department for their hard work and cooperation during the audit. Respectfully submitted, Harriet Richardson City Auditor ATTACHMENTS:  Attachment A: Report to the City Council FY2014 (PDF)  Attachment B: GANN Report FY2014 (PDF)  Attachment C: TDA Report FY2014 (PDF)  Attachment D: GO Bonds Report FY2014 (PDF)  Attachment E: Public Improvement Corp FY2014 (PDF)  Attachment F: RWQCP FY2014 (PDF)  Attachment G: Cable TV Franchise Report FY2014 (PDF) Department Head: Harriet Richardson, City Auditor Attachment A Page 3 Attachment A   CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2014 Attachment A CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2014 Table of Contents Page(s) Transmittal Letter ........................................................................................................................................... i Required Communications ......................................................................................................................... 1-4 Current Year Recommendations ................................................................................................................ 5-6 Status of Prior Year Recommendations ..................................................................................................... 7-8 Attachment A i Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California In planning and performing our audit of 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, 2014, in accordance with auditing standards generally accepted in the United States of America, we considered the City’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Following this letter, we have included a report on required communications to those charged with governance, as required by auditing standards generally accepted in the United States of America. This communication is intended solely for the information and use of the Mayor and City Council, the Finance Committee, management and others within the City, and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 17, 2014 Attachment A This page is intentionally left blank. Attachment A CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2014 1 REQUIRED COMMUNICATIONS 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 (City) as of and for the year ended June 30, 2014. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated July 30, 2014. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the City’s basic financial statements. The City implemented three new Governmental Accounting Standards Board (GASB) pronouncements, consisting of GASB Statement No. 65, Items Previously Reported as Assets and Liabilities (GASB 65); GASB Statement No. 66, Technical Corrections – 2012 – an amendment of GASB Statements No. 10 and No. 62; and GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. As of July 1, 2013, the City implemented GASB 65 and restated beginning net position by $1.1 million and $0.7 million to write off unamortized bond issuance costs that were previously reported as assets in governmental activities and business-type activities, respectively. Further, the unamortized loss on refunding of debt of $0.4 million was reclassified from contra liabilities to deferred outflows of resources in three major enterprise funds – Water, Gas and Storm Drainage. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were:  Fair value of investments. The City’s investments are generally carried at fair value, which is defined as the amount that the City could reasonably expect to receive for an investment in a current sale between a willing buyer and a willing seller and is generally measured by quoted market prices.  Estimated allowance for losses on notes and loans receivable. The allowance for losses on notes and loans receivable was based on management’s estimate regarding the likelihood of collectability.  Useful life estimates for capital assets. The estimated useful lives of capital assets were based on management’s estimate of the economic life of its capital assets. Attachment A CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2014 2 REQUIRED COMMUNICATIONS (Continued)  Accrued landfill closure/post-closure costs. The City has estimated, based on a study conducted by consultants, the closure/post-closure costs of the Palo Alto landfill based on what it would cost to perform all currently mandated closure and post-closure care. Actual closure and post-closure care costs may be higher due to inflation variances, changes in technology, or changes in State or federal regulations.  Valuation of the net other postemployment benefits (OPEB) asset. The net OPEB asset is the amount of cumulative City contributions that exceeded the actuarially determined annual required contributions, which is based upon certain approved actuarial assumptions.  Annual required contributions to pension and other postemployment benefit plans. The City is required to contribute to its pension and OPEB plans at an actuarially determined rate and to measure these benefit costs based upon certain approved actuarial assumptions.  Claims loss reserve. The City is exposed to a variety of risks of loss due to general liability, workers’ compensation and other claims and records an estimate of these losses based on actuarial studies performed by third party actuaries. These studies are prepared based on the City’s prior claims history, which is used as a basis for extrapolating losses for known and incurred but not reported claims. Actual loss experience may vary from these estimates. We evaluated the key factors and assumptions used to develop the accounting estimates described above in determining that they are reasonable in relation to the City’s basic financial statements taken as a whole. Certain financial statements disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were the disclosure of the City’s Pension Plans in Note 11, the Retiree Health Benefits in Note 12 and the Commitments and Contingencies in Note 16. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Below is a table that summarizes the uncorrected misstatements of the financial statements. Management has determined that their effects are immaterial, both individually and in the aggregate, to each opinion unit’s financial statements taken as a whole. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. Attachment A CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2014 3 REQUIRED COMMUNICATIONS (Continued) Summary of Uncorrected Financial Statement Misstatements: Index Fund Description Debit Credit For Fund Financial Statements PJE 2014.1 Capital Accounts Receivable 657,749$ PJE 2014.1 Projects Deferred Inflows of Resources (unavailable revenue)657,749$ Fund (To accrue intergovernmental revenue earned by the City as of June 30, 2014 and to defer recognition, as the receipt of the reimbursement was not collected within the City's availability period of 90 days for governmental funds.) For Government-Wide Financial Statements PJE 2014.1 Governmental Accounts Receivable 657,749$ PJE 2014.1 Activities Revenue - Capital Grant Revenue for Public Works 657,749$ (To accrue intergovernmental revenue earned by the City as of June 30, 2014.) Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated November 17, 2014. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Attachment A CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2014 4 REQUIRED COMMUNICATIONS (Continued) Other Matters We applied certain limited procedures to Management’s Discussion and Analysis, which is required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards, as required by the Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory and statistical sections, which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on it. Attachment A CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2014 5 CURRENT YEAR RECOMMENDATIONS Item # 2014-001 – Informational Comment New Pension Accounting Standards In June 2012, the Governmental Accounting Standards Board (GASB) approved Statement No. 68, Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27. This statement primarily relates to reporting by governments that provide pensions to their employees and is effective for fiscal years beginning after June 15, 2014. Key changes include the following:  Separating how the accounting and financial reporting is determined from how pensions are funded.  Employers with defined benefit pension plans will recognize a net pension liability and pension expense, as defined by the standard, in their government-wide, proprietary and fiduciary fund financial statements, as applicable.  Incorporating ad hoc cost-of-living adjustments and other ad hoc postemployment benefit changes into projections of benefit payments, if an employer’s past practice and future expectations of granting them indicate they are essentially automatic.  Using a discount rate that blends (a) the expected long-term rate of return on pension plan investments to projected benefit payments for which plan assets are expected to be available to make projected benefit payments, and, if applicable, (b) the interest rate on a tax-exempt 20-year AA/Aa-or higher rated municipal bond index to projected benefit payments for which plan assets are not expected to be available for long-term investment in a qualified trust.  Adopting a single actuarial cost allocation method – entry age normal – rather than the current choice among six actuarial cost methods.  Requiring more extensive note disclosures and required supplementary information. The City will be subject to the provisions of this statement beginning with the fiscal year ending June 30, 2015. GASB Statement No. 68 replaces the requirements of GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, and GASB Statement No. 50, Pension Disclosures, as they relate to pensions that are administered through trusts or similar arrangements meeting certain criteria. GASB Statement No. 68 changes the existing framework for accounting and financial reporting of pension costs and obligations of defined benefit pension plans and enhances note disclosures and required supplementary information for both defined benefit and defined contribution pension plans. Recommendation It is likely that these new pension standards will dramatically change the City’s financial statements and disclosures related to its pension plans, and may result in the recognition of a significant net pension liability. We recommend the City start planning and coordinating for the impact of these new pension standards by working closely with CalPERS, the auditors and the actuaries (plan actuaries and, if necessary, a separate consulting actuary) and by developing methodologies for recording the pension information when it becomes available. Management’s Response We are aware that GASB No. 68 will dramatically change the financial statements and disclosures related to the City’s pension plans, and will result in the recognition of a significant net pension liability. In order to prepare, City staff has been reading published materials, attending seminars and webinars, and communicating with CalPERS and our auditors on the timing and nature of information that will be required. Attachment A CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2014 6 CURRENT YEAR RECOMMENDATIONS (Continued) Item 2014-002 – Informational Comment Uniform Guidance for Federal Awards The Office of Management and Budget (OMB) published new guidance for federal award programs, OMB Uniform Guidance: Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, commonly referred to as the “Uniform Guidance”, on December 26, 2013. The new guidance is a key component of a larger federal effort to more effectively focus federal grant resources on improving performance and outcomes while ensuring the financial integrity of taxpayer dollars. By streamlining eight federal regulations into a single, comprehensive policy guide, the government can better administer grants and other types of financial assistance by decreasing the administrative burden for recipients and reducing the risk of waste, fraud and abuse. The new requirements will become effective a year after its issuance, December 26, 2014, and the City’s annual single audit for fiscal year ending June 30, 2016 will be subject to the provisions of the Uniform Guidance. Federal agencies must implement policies and procedures by promulgating regulations to be effective December 26, 2014. The City must apply the requirements of the Uniform Guidance to any new federal awards made after December 26, 2014 and to additional funding to existing awards made after that date. Of particular importance are the provisions for procurement, time and effort reporting, and subrecipient monitoring. We recommend that the City analyze the Uniform Guidance and work closely with its grantor agencies to determine what system changes are needed to comply with the new grant management requirements beginning on December 26, 2014. The Council on Financial Assistance Reform (COFAR) and OMB have conducted webcasts about the Uniform Guidance, which are now archived at www.cfo.gov/COFAR. COFAR has also published Frequently Asked Questions for New Uniform Guidance at 2 CFR 200, which may provide additional guidance to the City. Management’s Response We are aware that OMB has published new guidance for federal award programs which will affect the City’s annual single audit for the fiscal year ending June 30, 2016. City staff is preparing by reading published materials and attending seminars and webinars. City staff will be working closely with grantors to ensure compliance with new requirements. Attachment A CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2014 7 STATUS OF PRIOR YEAR RECOMMEDATIONS 2011-01 - 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. City’s 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’s Chief Information Officer (CIO), 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. Current Year Status: In Progress. The CIO budgeted for the development of a disaster recovery plan in FY13. The project was initiated in March 2013. In January 2014, the City engaged Moss Adams LLP to conduct a Disaster Relief – Business Continuity Planning analysis for critical IT services, such as SAP, GIS, Internet services, e-mail services, and network services. As a result, the City has issued an RFP to hire qualified vendors to implement the recommendations. This is expected to be completed by June 2015. 2011-03 - 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’s 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’s 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. Attachment A CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2014 8 STATUS OF PRIOR YEAR RECOMMEDATIONS (CONTINUED) 2011-03 - A Comprehensive IT Risk Assessment Has Not Been Performed (continued) (Significant Deficiency) Current Year Status: In Progress. The City’s ISM has conducted a preliminary security assessment to identify areas of improvement. As of April 2014, the ISM has initiated an Information Security Risk Assessment project with Information Security Risk Assessment (ISRA) project plan. Expected completion of ISRA is June 2015. 2011-04 - 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’s 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’s network and financial data at increased risk of unauthorized access. We recommend the City’s 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 Current Year Status: In progress. ISM will meet with the owners of following application and request them to comply with the newly developed password policy v2.5:  Class – Parks & Recs  Chameleon – Animal Services  Horizon – Library  Accela – Plan Expected completion date is December 31, 2014. Attachment A  CITY OF PALO ALTO, CALIFORNIA Independent Accountant’s Report on Applying Agreed–Upon Procedures Related to the Article XIII-B Appropriations Limit For the Year Ended June 30, 2014 Attachment A 1 Independent Accountant’s Report on Applying Agreed-Upon Procedures Related to the Article XIII-B Appropriations Limit Honorable Mayor and the Members of the City Council, of City of Palo Alto, California We have performed the procedures enumerated below to the accompanying Appropriations Limit Worksheet of the City of Palo Alto, California (City), for the year ended June 30, 2014. These procedures, which were agreed to by the City and the League of California Cities (as presented in the publication entitled Agreed-Upon Procedures Applied to the Appropriations Limitation Prescribed by Article XIIIB of California Constitution), were performed solely to assist the City in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. The City’s management is responsible for the Appropriations Limit Worksheet. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as follows: 1. We obtained the completed worksheets setting forth the calculations necessary to establish the City’s appropriations limit and compared the limit and annual adjustment factors included in those worksheets to the limit and annual adjustment factors that were adopted by resolution of the City Council. We also compared the population and inflation options included in the aforementioned worksheets to those that were selected by a recorded vote of the City Council. Finding: No exceptions were noted as a result of our procedures. 2. For the accompanying Appropriations Limit Worksheet, we added last year’s limit to total adjustments, and compared the resulting amount to this year’s limit. Finding: No exceptions were noted as a result of our procedures. 3. We compared the current year information presented in the accompanying Appropriations Limit Worksheet to the worksheets described in No. 1 above. Finding: No exceptions were noted as a result of our procedures. 4. We compared the prior year appropriations limit presented in the accompanying Appropriations Limit Worksheet to the prior year appropriations limit adopted by the City Council. Finding: No exceptions were noted as a result of our procedures. Attachment A 2 We were not engaged to, and did not conduct an audit, the objective of which would be the expression of an opinion on the Appropriations Limit Worksheet. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. No procedures have been performed with respect to the determination of the appropriations limit for the base year, as defined by Article XIIIB of the California Constitution. This report is intended solely for the information and use of the City Council and City management and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited. Walnut Creek, California November 17, 2014 Attachment A CITY OF PALO ALTO, CALIFORNIA Appropriations Limit Worksheet For the Year Ended June 30, 2014 3 2012-2013 appropriations limit, as adopted 125,012,860$ Adjustment factors: Population 1.0157 Inflation 1.0512 Total adjustment factors (rounded) 1.0677 Total adjustments 8,463,851 2013-2014 appropriation limit, as adopted 133,476,711$ Attachment A   CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grants Metropolitan Transportation Commission Transportation Development Act Funds, Article III Independent Auditor’s Reports, Financial Statements and Supplementary Information For the Year Ended June 30, 2014 Attachment A CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grants Metropolitan Transportation Commission Transportation Development Act Funds, Article III For the Year Ended June 30, 2014 Table of Contents Page Independent Auditor’s Report ................................................................................................................... 1 Financial Statements Balance Sheet ................................................................................................................................... 3 Statement of Revenues, Expenditures, and Changes in Fund Balance (Deficit) ............................. 4 Notes to the Financial Statements .................................................................................................... 5 Supplementary Information Schedule of Construction Projects with Capital Outlay Expenditures............................................. 7 Internal Control and Compliance Section 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 and the Transportation Development Act............................................... 9 Attachment A 1 Independent Auditor’s Report Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California Report on the Financial Statements We have audited the accompanying financial statements of the Pedestrian/Bicycle Facilities Grants (Grants) made to the City of Palo Alto, California (City), by the Metropolitan Transportation Commission, Transportation Development Act Funds, Article III, as of and for the year ended June 30, 2014, and the related notes to the financial statements, as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibilities Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Attachment A 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Grants as of June 30, 2014, and the changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As described in Note 1 to the financial statements, the financial statements of the Grants are intended to present the financial position and the changes in financial position of only that portion of the governmental activities and the major governmental fund of the City that is attributable to the activities of the Grants. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 2014, and changes in its financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements. The accompanying schedule of construction projects with capital outlay expenditures (Schedule) is presented for purposes of additional analysis and is not a required part of the financial statements. The Schedule is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied 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 Schedule is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards and the Transportation Development Act, we have also issued our report dated November 17, 2014 on our consideration of the City’s internal control over the Grants’ 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 the 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 the Transportation Development Act in considering the City’s internal control over the Grants’ financial reporting and compliance. Walnut Creek, California November 17, 2014 Attachment A CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grants Metropolitan Transportation Commission Transportation Development Act Funds, Article III Balance Sheet June 30, 2014 Assets Due from the Metropolitan Transportation Commission 15,000$ Liabilities Due to the City of Palo Alto 15,000$ Deferred inflows of resources Unavailable Revenue 15,000 Fund balance (deficit) Unassigned (15,000) Total liabilities, deferred inflows of resources and fund balance (deficit)15,000$ See accompanying notes to the financial statements. 3 Attachment A CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grants Metropolitan Transportation Commission Transportation Development Act Funds, Article III Statement of Revenues, Expenditures, and Changes in Fund Balance (Deficit) For the Year Ended June 30, 2014 Revenues Grant 55,597$ Expenditures Capital outlay 55,597 Change in fund balance (deficit) - Fund Balance (Deficit) - beginning of year (15,000) Fund Balance (Deficit) - end of year (15,000)$ See accompanying notes to the financial statements. 4 Attachment A CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grants Metropolitan Transportation Commission Transportation Development Act Funds, Article III Notes to the Financial Statements For the Year Ended June 30, 2014 5 NOTE 1 – DESCRIPTION OF REPORTING ENTITY The accompanying financial statements are prepared from the accounts and financial transactions of the City of Palo Alto, California (City) for the projects funded under the Transportation Development Act of 1971 (TDA) Article III of the State of California, which include the construction of pedestrian and bicycle paths. The financial statements do not purport to present the financial position or changes in financial position of the City. The projects represent a portion of the accounts of the City and, as such, are included in the City’s basic financial statements. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation The Pedestrian/Bicycle Facilities Grants (Grants) have been accounted for in the capital project fund, which is a major governmental fund type and is included in the City’s basic financial statements. The capital project fund accounts for resources used for acquisition and construction of capital facilities by the City, with the exception of those assets financed by proprietary funds. (b) Basis of Accounting The accompanying financial statements have been prepared on the modified accrual basis of accounting. Under the modified accrual basis of accounting, expenditures are recorded when the related governmental fund liabilities are incurred. Grant revenues, which are received as reimbursement for specific purposes or projects, are recognized when they become measurable and available (received within 60 days after year-end). (c) Fund Balance (Deficit) The City reports fund balance for governmental funds in specific classifications (nonspendable, restricted, committed, assigned and unassigned) based on the extent to which the City is bound to the constraints on the specific purposes for which funds can be spent. At June 30, 2014, the Grants reported a fund balance deficit of $15,000. The fund balance deficit will be cured once the grant reimbursement becomes available to repay the funds advanced from the City. (d) Due to the City of Palo Alto Cash has been advanced to the Grants’ projects for expenditures paid by the City’s major capital projects fund for the benefit of the TDA Article III projects. The projects are obligated to immediately repay these advances upon receipt of reimbursement from the Metropolitan Transportation Commission. Attachment A CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grants Metropolitan Transportation Commission Transportation Development Act Funds, Article III Notes to the Financial Statements For the Year Ended June 30, 2014 6 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (e) Deferred inflows of resources A deferred inflow of resources is defined as an acquisition of net position or fund balances applicable to a future reporting period and will not be recognized as an inflow of resources (revenue) until that time. The reimbursement from the Metropolitan Transportation Commission.that are not yet available are recorded as deferred inflows of resources since the balances are not current financial resources. NOTE 3 – COMPLIANCE REQUIREMENTS The TDA is defined at Chapter 4 of the California Public Utilities Code commencing with Section 99200. Funds received pursuant to Section 99235 of the TDA (Article 3) may only be used for facilities provided for exclusive use by the project. NOTE 4 – SECTION 99301 – INTEREST EARNED ON ALLOCATED FUNDS The City incurred and paid expenditures prior to the receipt of the Grant reimbursements; as a result, no interest was earned on Grant funds. Attachment A Ti t l e o f P r o j e c t Pr o j e c t Nu m b e r A w a r d s Ca r r i e d O v e r fr o m P r i o r Y e a r C u r r e n t Y e a r All o c a t i o n / (R e c i s s i o n ) T o t a l A w a r d s Cu m u l a t i v e Ca p i t a l O u t l a y Ex p e n d i t u r e s a s of J u n e 3 0 , 2 0 1 3 C u r r e n t Y e a r Ca p i t a l O u t l a y Ex p e n d i t u r e s Cu m u l a t i v e Ca p i t a l O u t l a y Ex p e n d i t u r e s a s of J u n e 3 0 , 2 0 1 4 St a t u s o f Pr o j e c t TD A 1 1 - 1 2 B i c y c l e D e t e c t i o n a t T r a f f i c S i g n a l s 12 0 0 1 0 4 2 55 , 5 9 7 $ - $ 55 , 5 9 7 $ - $ 55 , 5 9 7 $ 55 , 5 9 7 $ C o m p l e t e d TD A 1 2 - 1 3 F a b i a n W a y E n h a n c e d B i k e L a n e I m p r o v e m e n t s 13 0 0 1 0 2 7 43 , 3 5 9 - 43 , 3 5 9 15 , 0 0 0 - 15 , 0 0 0 On - g o i n g TD A 1 3 - 1 4 C h a r l e s t o n " C o n n e c t i o n C o r r i d o r " P a t h w a y I m p r o v e m e n t P r o j e c t 1 4 0 0 1 0 3 9 - 82 , 7 1 2 82 , 7 1 2 - - - O n - g o i n g 98 , 9 5 6 $ 82 , 7 1 2 $ 18 1 , 6 6 8 $ 15 , 0 0 0 $ 55 , 5 9 7 $ 70 , 5 9 7 $ Th e f o l l o w i n g s c h e d u l e i d e n t i f i e s t h e p r o j e c t s w i t h c a p i t a l o u t l a y e x p e n d i t u r e s d u r i n g f i s c a l y e a r 2 0 1 4 : Sc h e d u l e o f C o n s t r u c t i o n P r o j e c t s w i t h C a p i t a l O u t l a y E x p e n d i t u r e s Fo r t h e Y e a r E n d e d J u n e 3 0 , 2 0 1 4 CI T Y O F P A L O A L T O , C A L I F O R N I A Pe d e s t r i a n / B i c y c l e F a c i l i t i e s G r a n t s Me t r o p o l i t a n T r a n s p o r t a t i o n C o m m i s s i o n Tr a n s p o r t a t i o n D e v e l o p m e n t A c t F u n d s , A r t i c l e I I I 7 Attachment A 8 This page is left intentionally blank. Attachment A 9 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 Governmental Auditing Standards and the Transportation Development Act Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the accompanying financial statements of the Pedestrian/Bicycle Facilities Grants (Grants) made to the City of Palo Alto, California (City), by the Metropolitan Transportation Commission, Transportation Development Act Funds, Article III, as of and for the year ended June 30, 2014, and the related notes to the financial statements, and have issued our report thereon dated November 17, 2014. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over the Grants’ financial reporting (internal control) to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control 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 that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exists that have not been identified. Attachment A 10 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Grants’ financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, including the applicable statutes, rules and regulations of the Transportation Development Act, including Section 6666 of Title 21, of the California Code of Regulations, and the allocation instructions and resolutions of the Metropolitan Transportation Commission, 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 or the Transportation Development Act. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control over compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Walnut Creek, California November 17, 2014 Attachment A   CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund of the City of Palo Alto) Independent Auditor’s Reports, Financial Statements, and Independent Accountant’s Report For the Year Ended June 30, 2014 Attachment A CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund of the City of Palo Alto) For the Year Ended June 30, 2014 Table of Contents Page Independent Auditor’s Report ................................................................................................................... 1 Financial Statements: Balance Sheet ......................................................................................................................................... 3 Statement of Revenues, Expenditures and Changes in Fund Balance .................................................... 4 Notes to the Financial Statements ........................................................................................................... 5 Other Reports: 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 ....................................... 9 Independent Accountant’s Report on Compliance with Measure N .................................................... 11 Status of Current Year and Prior Year Findings ................................................................................... 13 Attachment A 1 Independent Auditor’s Report The Honorable Mayor and Members of the City Council of the City of Palo Alto Palo Alto, California Report on the Financial Statements We have audited the accompanying financial statements of the City of Palo Alto General Obligation Bonds Capital Projects Fund (Fund), a fund of the City of Palo Alto, California (City), as of and for the year ended June 30, 2014, and the related notes to the financial statements, as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Fund as of June 30, 2014, and the changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Attachment A 2 Emphasis of a Matter As discussed in Note 2(a) to the financial statements, the financial statements present only the Fund and do not purport to, and do not, present fairly the financial position of the City as of June 30, 2014, and the changes in its financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 17, 2014 on our consideration of the City’s internal control over the Fund’s financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over the Fund’s financial reporting and compliance. Walnut Creek, California November 17, 2014 Attachment A Assets Restricted cash and investments (Note 3)19,368,023$ Liabilities and Fund Balance Liabilities: Accounts payable and accrued liabilities 5,180,282$ Fund Balance: Restricted for capital projects 14,187,741 Total liabilities and fund balance 19,368,023$ CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND Balance Sheet June 30, 2014 (A Fund of the City of Palo Alto) See accompanying notes to financial statements. 3 Attachment A Revenues Investment income 47,579$ Expenditures Capital outlay: Downtown Library 580 Mitchell Park Library and Community Center 2,864,959 Main Library new construction and improvements 15,180,921 Temporary Facility 284,262 Total capital outlay 18,330,722 Debt service - interest and fiscal charges 82,370 Total expenditures 18,413,092 Net change in fund balance (18,365,513) Fund balance, beginning of the year 32,553,254 Fund balance, end of year 14,187,741$ Changes in Fund Balance For the Year Ended June 30, 2014 CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND Statement of Revenues, Expenditures and (A Fund of the City of Palo Alto) See accompanying notes to financial statements. 4 Attachment A CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund of the City of Palo Alto) Notes to the Financial Statements For the Year Ended June 30, 2014 5 NOTE 1 – BACKGROUND On November 4, 2008, more than two thirds of registered voters of the City of Palo Alto (City) approved Measure N and authorized the issuance and sale of general obligation bonds not to exceed $76,000,000 to be used to construct a new energy-efficient Mitchell Park Library and Community Center, expand and renovate the Main Library, and renovate the Downtown Library. Funds will also be used to provide additional space to expand library collections, add new children’s and group program areas, replace outdated lighting, provide modern ventilation and air conditioning systems and ensure seismic safety and enhance disabled access. On June 9, 2010, the City issued General Obligation Bonds, Election of 2008, Series 2010 (2010 Library Bonds) to finance the costs of constructing a new energy efficient, environmentally friendly Mitchell Park Library and Community Center, renovating and expanding Main Library, and renovating the Downtown Library, including enhancements at all three facilities for seismic safety and disabled access, expanded space for library collections, meeting and study areas, and new air conditioning, ventilation and lighting systems (Project). Proceeds from the 2010 Library Bonds included par of $55,305,000 and a premium on issue of $3,766,208 for a total of $59,071,208. During the fiscal year ended June 30, 2013, the City issued General Obligation Bonds, Election of 2008, Series 2013A (2013A Library Bonds) for the remaining authorized amount of $20,695,000. The premium on issue was $1,011,615 for the total proceeds of $21,706,615. Specific projects approved by the City Council to be funded by the 2010 and 2013A Library Bonds proceeds are as follows: Amended Budget Expenditures Not Charged to Bond Proceeds Cumulative Bond Eligible Expenditures Encumbrances Outstanding Project Balance Remaining Downtown Library Improvements 4,208,225$ 356,987$ 4,163,174$ 45,051$ -$ Mitchell Park Library 48,300,843 1,864,673 39,619,458 5,642,996 3,038,389 Library and Community Center Temporary Facility 639,858 155,529 504,597 23,861 111,400 Temporary Main Library 622,863 42,355 513,693 4,888 104,282 Main Library New Construction and Improvements 24,453,096 841,665 17,473,271 6,826,158 153,667 Total 78,224,885$ 3,261,209$ 62,274,193$ 12,542,954$ 3,407,738$ Project As of June 30, 2014 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (a) Reporting Entity The accompanying financial statements present only the financial position and the changes in financial position of the General Obligation Bonds Capital Projects Fund (Fund) and do not purport to, and do not, present fairly the City’s financial position as of June 30, 2014, and the changes in its financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Attachment A CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund of the City of Palo Alto) Notes to the Financial Statements For the Year Ended June 30, 2014 6 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Basis of Presentation A capital projects fund (governmental fund) is used to account for the City’s General Obligation Bond Projects activities. Capital projects funds are used to account for financial resources (e.g., bond proceeds and investment income) that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition of land or acquisition and construction of major governmental facilities. This fund is a set of self-balancing accounts which comprise its assets, liabilities, fund balance, revenues and expenditures. (c) Basis of Accounting Basis of accounting refers to when revenues and expenditures are recognized. The projects are accounted for in a governmental fund type, and the modified accrual basis of accounting is used. Under the modified accrual basis, revenues are recognized when they become measurable and available as net current assets. Expenditures are recognized when they are incurred. The City considers revenues susceptible to accrual to be available if the revenues are collected within ninety days after year-end, except for property taxes, which are available if collected within sixty days after year-end. (d) Fund Balance Fund balance is reported in specific classifications (nonspendable, restricted, committed, assigned and unassigned), which create a hierarchy primarily based on the extent to which the Fund is bound to the constraints of the specific purposes for which funds can be spent. The Fund only has restricted fund balance at June 30, 2014. Restricted fund balance includes amounts when constraints placed on use of resources are either: (1) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (2) imposed by law through constitutional provisions or enabling legislation. The City will spend the most restricted dollars in accordance with restrictions imposed before less restricted resources in the following order: (a) committed; (b) assigned and (c) unassigned. (e) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts and disclosures. Accordingly, actual results may differ from those estimates. Attachment A CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund of the City of Palo Alto) Notes to the Financial Statements For the Year Ended June 30, 2014 7 NOTE 3 – RESTRICTED CASH AND INVESTMENTS The Fund’s investments are carried at fair value, as required by generally accepted accounting principles. The Fund 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 revenues for that fiscal year. (a) Project Fund Investment Policy Pursuant to terms of the 2010 and 2013A Library Bonds trust agreement, bond proceeds to be used for project costs were remitted to and are maintained by the City as agent for the bondholders. The City’s Investment Policy allows it to invest in a variety of types of investments subject to maturity maximums, concentration limitations, and minimum credit quality requirements. Allowed investment types are limited to investments permitted by subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code, which includes U.S. federal securities and the California Asset Management Program (CAMP) Pool. CAMP Pool is an investment pool offered by the California Asset Management Trust (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. CAMP Pool’s investments are limited to investments permitted by subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code. The Fund reports its investment in Federal Home Loan Bank at the fair value. The Fund reports its investments in CAMP Pool at the fair value amounts provided by CAMP, which is the same as the value of the pool share. (b) Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will 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 Fund’s investments to market interest rate fluctuations is provided by the following table that shows the distribution of the Fund’s investments by maturity: Investment Type Amount Maturities Credit Rating California Asset Management Program Pool 11,356,920$ 37 Days Not rated Federal Home Loan Bank 8,000,320 25 Days AA+ Cash held with U.S. Bank 10,783 Not Applicable Not Applicable (c) Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Attachment A 8 This page is left intentionally blank. Attachment A 9 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 The Honorable Mayor and Members of the City Council of the City of Palo Alto Palo Alto, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the City of Palo Alto General Obligation Bonds Capital Projects Fund (Fund), a fund of the City of Palo Alto, California (City), as of and for the year ended June 30, 2014, and the related notes to the financial statements, and have issued our report thereon dated November 17, 2014. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over the Fund’s financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Attachment A 10 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Fund’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. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Walnut Creek, California November 17, 2014 Attachment A 11 Independent Accountant’s Report on Compliance with Measure N The Honorable Mayor and Members of the City Council of the City of Palo Alto Palo Alto, California We have examined the City of Palo Alto’s (City) compliance with certain provisions of Measure N for the year ended June 30, 2014 as follows: a) Proceeds from the sale of general obligation bonds (Bonds) were used only for the purposes specified in Measure N; b) Proceeds from the Bonds were deposited into a Library/Community Center Project Construction Fund held by the City; and c) The Administrative Services Director of the City filed an annual report with the City Council commencing not later than November 1, 2014, containing pertinent information regarding the amount of funds collected and expended, as well as the status of the Library/Community Center project listed in the Measure. Management is responsible for the City’s compliance with those requirements. Our responsibility is to express an opinion on the City’s compliance based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included 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 examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the City’s compliance with specified requirements. In our opinion, the City complied, in all material respects, with the aforementioned requirements for the year ended June 30, 2014. This report is intended solely for the information and use of the City Council, the Oversight Committee, the City Auditor and the City’s management and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 17, 2014 Attachment A 12 This page is left intentionally blank. Attachment A CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund to the City of Palo Alto) Status of Current Year and Prior Year Findings For the Year Ended June 30, 2014 13 Current Year Findings: No matters were noted. Status of Prior Year Findings: No matters were noted. Attachment A  PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Annual Financial Report For the Year Ended June 30, 2014 Attachment A PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) For the Year Ended June 30, 2014 Table of Contents Page Independent Auditor’s Report ................................................................................................................... 1 Management’s Discussion and Analysis (Unaudited) .............................................................................. 3 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position ................................................................................................................... 5 Statement of Activities ....................................................................................................................... 6 Fund Financial Statements: Balance Sheet ..................................................................................................................................... 7 Statement of Revenues, Expenditures and Changes in Fund Balance ................................................ 8 Notes to the Basic Financial Statements .................................................................................................. 9 Attachment A 1 Independent Auditor’s Report The Honorable Mayor and Members of the City Council of the City of Palo Alto, California We have audited the accompanying financial statements of the governmental activities and the major fund of Palo Alto Public Improvement Corporation (Corporation), a component unit of the City of Palo Alto, California (City), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Corporation’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and the major fund of the Corporation as of June 30, 2014, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Attachment A 2 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 3 through 4 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Walnut Creek, California November 17, 2014 Attachment A PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Management’s Discussion & Analysis (Unaudited) For the Year Ended June 30, 2014 3 The Palo Alto Public Improvement Corporation (Corporation), a component unit of the City of Palo Alto (City), follows the provisions of Governmental Accounting Standards Board (GASB) Statement No. 34 (GASB 34), Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments. The Corporation is controlled by the City and was organized to assist the City in financing public improvements. The Corporation issues debt and turns the proceeds of the debt over to the City under lease agreements that provide a revenue source for the repayment of this debt. The Corporation has one debt issue outstanding and has turned the proceeds over to the City, which pledged certain lease payments as collateral for this debt as discussed in Note 4 to the financial statements. FISCAL YEAR 2014 FINANCIAL HIGHLIGHTS GASB 34 requires the issuance of government-wide financial statements as well as fund financial statements. The government-wide financial statements report the balance of the Corporation’s long-term debt while the individual fund statements do not. In fiscal year 2002, the Corporation issued its 2002B Downtown Parking Improvements Certificates of Participation (COPs) in the amount of $3.6 million. In fiscal year 2005, a partial redemption was completed by placing excess construction and debt service reserve funds into an escrow account to defease $900 thousand of the 2002B Downtown Parking Improvements COPs. As of June 30, 2014, the 2002B Downtown Parking Improvements COPs comprise the Corporation’s outstanding debt. At the government-wide level, interest and fiscal agent charges were $99 thousand for fiscal year 2014, a decrease of $8 thousand from the prior year. The interest for leases on the assets securing this COP issue was $101 thousand, a decrease of $8 thousand from the prior year. The interest on leases from the City exceeded interest expense by $3 thousand, thereby resulting in an increase in net position of $3 thousand over the prior year. The Corporation ended fiscal year 2014 with total assets of $1.7 million, a decrease of $0.1 million from the prior year. Total assets consist of $251 thousand in cash and investments and $1.4 million of leases receivable from the City of Palo Alto. Total liabilities were $1.5 million, a decrease of $0.1 million from the prior year, and included $176 thousand of current liabilities as well as $1.3 million of long-term debt due in more than one year. At the fund level, the Corporation’s revenues nearly equaled the expenditures. As of June 30, 2014, the Corporation had one fund, the Debt Service Fund, which reported a $251 thousand restricted fund balance. Attachment A PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Management’s Discussion & Analysis (Unaudited) For the Year Ended June 30, 2014 4 OVERVIEW OF THE CORPORATION’S BASIC FINANCIAL STATEMENTS The Basic Financial Statements are in two parts: 1) Management’s discussion and analysis (this part), 2) The basic financial statements, which include the government-wide and the fund financial statements, along with the notes to these financial statements. The basic financial statements comprise the government-wide financial statements and the fund financial statements. These two sets of financial statements provide two different views of the Corporation’s financial activities and financial positions, both short-term and long-term. The government-wide financial statements provide a long-term view of the Corporation’s activities as a whole, and comprise the statement of net position and the statement of activities. The statement of net position provides information about the financial position of the Corporation as a whole, including all its long-term liabilities on the full accrual basis, similar to that used by corporations. The statement of activities provides information about all the Corporation’s revenues and expenses on the full accrual basis, with the emphasis on measuring net revenues or expenses of the Corporation’s program. The statement of activities explains in detail the change in net position for the year. The fund financial statements report the Corporation’s operations in more detail than the corporate-wide statements and focus primarily on the short-term activities of the debt service fund. Fund financial statements measure only current revenues and expenditures; current assets, liabilities and fund balances; and they exclude capital assets and long-term debt. Together, these statements along with the notes to the financial statements are called the basic financial statements. DEBT ADMINISTRATION The Corporation issues debt in the form of COPs for future lease receipts from the City of Palo Alto. Legally, these COP issues are the Corporation’s debt only; the City is liable only for the payment of the amounts set forth in the lease securing each COP issue. As of June 30, 2014, the Corporation has one outstanding debt related to the 2002B Downtown Parking Improvement projects with an outstanding balance of $1.4 million. ECONOMIC OUTLOOK AND MAJOR INITIATIVES The economy of the City of Palo Alto and its major initiatives for the coming year are discussed in detail in the City’s Comprehensive Annual Financial Report. CONTACTING THE CORPORATION’S FINANCIAL MANAGEMENT These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with a general overview of the Corporation’s finances. Questions about these financial statements should be directed to the Finance Department of the City of Palo Alto, 250 Hamilton Avenue, CA 94301. Attachment A Assets Cash and investments held for operations 12,845$ Cash and investments held by trustee 237,955 Investment in leases to the City of Palo Alto 1,430,000 Total assets 1,680,800 Liabilities Interest payable 30,983 Long-term debt: Due in one year 145,000 Due in more than one year 1,285,000 Total liabilities 1,460,983 Net Position Restricted for debt service 219,817$ PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Statement of Net Position June 30, 2014 See accompanying notes to financial statements. 5 Attachment A Expenses Interest and fiscal agent charges 98,583$ Program revenues Interest on leases from the City of Palo Alto 101,400 Net program revenues 2,817 General Revenues Investment earnings 21 Change in net position 2,838 Net position, beginning of the year 216,979 Net position, end of the year 219,817$ PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Statement of Activities For the Year Ended June 30, 2014 See accompanying notes to financial statements. 6 Attachment A Assets Cash and investments held for operations 12,845$ Cash and investments held by trustee 237,955 Investment in leases to City of Palo Alto 1,430,000 Total assets 1,680,800$ Deferred Inflows of Resources Unavailable lease receipt from the City of Palo Alto 1,430,000$ Fund balance Restricted for debt service 250,800 Total liabilities and fund balance 1,680,800$ Reconciliation of fund balance to net position Fund balance restricted for debt service 250,800$ Accrual adjustment to remove deferred inflows of resources from the balance sheet 1,430,000 Some liabilities, including bonds payable, are not due and payable in the the current period and therefore are not reported in the funds: Interest payable (30,983) Long-term debt due within one year (145,000) Long-term debt due in more than one year (1,285,000) Net position of governmental activities 219,817$ PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Balance Sheet June 30, 2014 Debt Service Fund See accompanying notes to financial statements. 7 Attachment A Revenues: Lease receipts from the City of Palo Alto: Principal 130,000$ Interest 101,400 Investment earnings 21 Total revenues 231,421 Expenditures: Debt service: Principal repayment 130,000 Interest and fiscal agent charges 101,400 Total expenditures 231,400 Net change in fund balance 21 Fund balance, beginning of the year 250,779 Fund balance, end of the year 250,800$ Reconciliation of net change in fund balance to change in net position Net change in fund balance - debt serivce fund 21$ Amounts reported for governmental activities in the statement of activities are different because: Repayment of bond principal is an expenditure in the governmental funds, but in the statement of net position the repayment reduces long-term liabilities. 130,000 Some amounts reported in the statement of revenues, expenditures and changes in fund balances reflect the collection of an asset which are not includable as revenues on the statement of activities. Change in deferred inflows of resources (130,000) Change in interest payable 2,817 Change in net position of governmental activities 2,838$ PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Statement of Revenues, Expenditures and Changes in Fund Balance For the Year Ended June 30, 2014 Debt Service Fund See accompanying notes to financial statements. 8 Attachment A PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to the Basic Financial Statements For the Year Ended June 30, 2014 9 NOTE 1 – DESCRIPTION OF REPORTING ENTITY The Palo Alto Public Improvement Corporation (the Corporation) was incorporated in September 1983 under the General Nonprofit Corporation Law of the State of California to acquire, construct and lease capital improvement projects. The Corporation is exempt from federal income taxes under Section 501(c)(4) of the Internal Revenue Code. The Corporation provides financing of public capital improvements for the City through the issuance of Certificates of Participation (COPs), a form of debt which allows investors to participate in a stream of future lease payments. Proceeds from the COPs are used to construct projects which are leased to the City for lease payments which are sufficient in timing and amount to meet the debt service requirements of the COPs. The Corporation is an integral part of the City of Palo Alto (City). It primarily services the City and its governing body is composed of the City Council. Therefore, the financial data of the Corporation has also been included as a blended component unit within the City’s comprehensive annual financial report for the year ended June 30, 2014. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation Government-wide Statements: The statement of net position and the statement of activities include the financial activities of the Corporation. Eliminations have been made to minimize the double counting of internal activities. The statement of activities presents a comparison between direct expenses and program revenues for each function of the Corporation’s activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs, and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including interest earnings, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the Corporation’s funds. The emphasis of fund financial statements is on major individual funds, of which the Corporation only reports one debt service fund. (b) Major Fund Major funds are defined as funds that have either assets, liabilities, revenues or expenditures equal to ten percent of their fund-type total and five percent of the grand total. The Corporation has one fund which is reported as a major governmental fund in the accompanying financial statements: Debt Service Fund – This fund accounts for debt service payments on the Corporation’s long-term debt. (c) Investment in Leases Improvements financed by the Corporation are leased to the City for their entire estimated useful life and will become the City property at the conclusion of the lease during the year ended June 30, 2022. The Corporation therefore records the present value of the lease and considers the leased improvement to have been sold for this amount when leased. Attachment A PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to the Basic Financial Statements For the Year Ended June 30, 2014 10 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Net Position The government-wide financial statements utilize a net position presentation. Net position is further categorized as net investment in capital assets, restricted and/or unrestricted. As of June 30, 2014, the entire net position was considered restricted. Restricted Net Position – This category presents external restrictions imposed by creditors, grantors, contributors or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation. (e) Deferred Inflows of Resources A deferred inflow of resources is defined as an acquisition of net position or fund balances applicable to a future reporting period and will not be recognized as an inflow of resources (revenue) until that time. On the governmental fund balance sheet, the lease receipts from the City corresponding to the debt are recorded as deferred inflows of resources since the balances are not current financial resources. The City considers revenues susceptible to accrual to be available if the revenues are collected within ninety days after year-end, except for property taxes, which are available if collected within sixty days after year-end. (f) Fund Balances At June 30, 2014, the Corporation’s governmental funds’ fund balances include the following classification: Restricted Fund Balance – includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. (g) Estimates The preparation of basic financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. (h) New Accounting Standards Implemented GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, clarifies the appropriate reporting of deferred outflows of resources and deferred inflows of resources to ensure consistency in financial reporting. As of July 1, 2013, the Corporation adopted this GASB statement and reclassified the revenues that were not collected within the availability period from liability to deferred inflows of resources in the government fund financial statements. Attachment A PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to the Basic Financial Statements For the Year Ended June 30, 2014 11 NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE Under the provisions of the Corporation’s COP issues, a Trustee holds and invests the Corporation’s cash held for purposes of bond reserves. (a) Interest Rate Risk Interest rate risk is the risk that a change in market interest rates will adversely affect the fair value of an investment. Normally, the longer it takes an investment to reach maturity, the greater will be that investment’s sensitivity to changes in market rates. Information about the sensitivity of the fair values of the Corporation’s investments to market interest rate fluctuations is provided by the following table that shows the distribution of the Corporation’s investments by maturity: Investment Type Amount Maturity Date Credit Rating Money Market Mutual Fund 237,955$ 38 days AAAm (b) Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The actual ratings as of June 30, 2014 for the Money Market Mutual Funds is AAAm, as provided by Moody’s Investors Services. (c) Investment Policy The Corporation 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 Corporation fails to meet its obligation under these debt issues. The California Government Code requires these funds to be invested in accordance with bond indentures or State statutes. All these funds have been invested as permitted under the Code. The Investment Policy is described in detail in the City of Palo Alto Comprehensive Annual Financial Report. The table below identifies the investment types that are authorized by the City’s Investment Policy. The table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit risk and concentration of credit risk. The table addresses investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the City rather than by the general provisions of the City’s investment policy. Attachment A PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to the Basic Financial Statements For the Year Ended June 30, 2014 12 NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE (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 10 years (*) N/A No Limit (A) No Limit Certificates of Deposit 10 years (*) N/A 20% 10% of the par value of portfolio Bankers Acceptances 180 days N/A 30% $5 million Commercial Paper 270 days A-1 15% $3 million (B) Local Agency Investment Fund N/A N/A No Limit $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 No Limit No Limit Mutual Funds N/A N/A 20%10% Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million Medium-Term Corporate Notes 5 years AA 10% $5 million 10 years (*) AA/AA2 10% No Limit (A) (B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution. (*) The maximum maturity is based on the Investment Policy that is approved by the City Council and is less restrictive than the California Governmental Code. Authorized Investment Type Bonds of State of California Municipal Agencies Callable and multi-step securities are limited to no more than 25% of the par value of the portfolio, provided that: 1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step-up" are known at the time of purchase, 3) the entire face value of the security is redeemed at the call date.   Attachment A PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to the Basic Financial Statements For the Year Ended June 30, 2014 13 NOTE 4 – CERTIFICATES OF PARTICIPATION The Corporation’s changes in long-term debt are presented below: Balance Balance Amount due June 30, 2013 Retirements June 30, 2014 in one year Governmental Activity Debt: Certificates of Participation 2002B Downtown Parking 2-4%; due 03/01/2022 1,560,000$ 130,000$ 1,430,000$ 145,000$ On January 16, 2002, the Corporation issued the 2002B Downtown Parking Improvements Certificates of Participation (2002B COPs) in the amount of $3.6 million to finance the construction of certain improvements to the non-parking area contained in the City’s Bryant/Florence Garage complex. Principal payments are due annually on March 1 and interest payments semi-annually on March 1 and September 1 and are payable from lease revenues received from the City from available funds. The 2002B COPs are payable and secured by lease revenues received by the Corporation from any City of Palo Alto General Fund revenue source. Future annual debt service on the 2002B COPs is expected to be provided by the lease receipts discussed above, and is shown below: For the Year Interest Total Ending June 30, Principal Payment Payment 2015 145,000$ 92,950$ 237,950$ 2016 150,000 83,526 233,526 2017 160,000 73,776 233,776 2018 170,000 63,376 233,376 2019 185,000 52,326 237,326 2020 - 2022 620,000 82,226 702,226 1,430,000$ 448,180$ 1,878,180$ Attachment A  CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Independent Auditor’s Report and Financial Statements For the Year Ended June 30, 2014 Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT For the Year Ended June 30, 2014 Table of Contents Page Independent Auditor’s Report ................................................................................................................... 1 Financial Statements: Statement of Net Expenditures ............................................................................................................... 3 Statement of Quarterly Billings .............................................................................................................. 4 Notes to the Financial Statements ........................................................................................................... 5 Attachment A 1 Independent Auditor’s Report The Honorable Mayor and Members of the City Council of the City of Palo Alto Palo Alto, California We have audited the accompanying financial statements of the City of Palo Alto Regional Water Quality Control Plant (Plant), an enterprise operation of the City of Palo Alto, California (City), for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Plant’s financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the financial reporting provisions of the Basic Agreement between the City, the City of Mountain View and the City of Los Altos for the Acquisition, Construction and Maintenance of a Joint Sewer System, dated October 10, 1968, and subsequent letters of agreement dated December 5, 1977, January 14, 1980, April 9, 1985, July 3, 1990, July 31, 1992 and March 16, 1998, as described in Note 2 to the financial statements. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Attachment A 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues, expenditures and quarterly billings of the Plant for the year ended June 30, 2014, in accordance with the financial reporting provisions of the Basic Agreement between the City, the City of Mountain View and the City of Los Altos for the Acquisition, Construction and Maintenance of a Joint Sewer System, dated October 10, 1968, and subsequent letters of agreement dated December 5, 1977, January 14, 1980, April 9, 1985, July 3, 1990, July 31, 1992 and March 16, 1998, described in Note 2 to the financial statements. Basis of Accounting As discussed in Note 2 to the financial statements, the financial statements are prepared in accordance with the financial reporting provisions of the Basic Agreements between the City, City of Mountain View and the City of Los Altos, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Restriction on Use This report is intended solely for the information and use of the City Council and management of the Cities of Palo Alto, Mountain View and Los Altos, and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 17, 2014 Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Statement of Net Expenditures City of City of City of Total Mountain View Los Altos Palo Alto Direct Expenditures: Source control program 1,075,218$ 416,647$ 111,608$ 546,963$ Public outreach 77,138 29,891 8,007 39,240 Permitting and enforcement 1,064,727 290,230 17,172 757,325 Operations and maintenance 11,709,460 4,537,416 1,215,442 5,956,602 System improvement CIP (Note 3) 3,252,622 1,260,391 337,622 1,654,609 Total Direct Expenditures 17,179,165 6,534,575 1,689,851 8,954,739 Indirect Administrative Expenditures (Note 4): Source control program 725,716 281,215 75,329 369,172 Public outreach 1,089 422 113 554 Permitting and enforcement 411,477 267,904 15,852 127,721 Operations and maintenance 2,314,768 896,973 240,273 1,177,522 Total Indirect Administrative Expenditures 3,453,050 1,446,514 331,567 1,674,969 Debt Service Expenditures (Note 5): Refunding 1990 Series A Bonds 283,420 144,544 22,107 116,769 1999 Wastewater Treatment New Project 541,932 205,338 51,321 285,273 2009 State Water Resource Loan 555,726 210,565 52,627 292,534 Total Debt Service Expenditures 1,381,078 560,447 126,055 694,576 Total Expenditures 22,013,293 8,541,536 2,147,473 11,324,284 Deduct Joint Systems Revenues (Note 6) (365,520) (141,639) (37,941) (185,940) Net Expenditures 21,647,773$ 8,399,897$ 2,109,532$ 11,138,344$ For the Year Ended June 30, 2014 See accompanying notes to the financial statements. 3 Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Statement of Quarterly Billings City of City of Mountain View Los Altos Billings by Quarter, Beginning: - July 1, 2013 1,895,430$ 476,765$ October 1, 2013 2,179,296 544,771 January 1, 2014 1,895,430 476,765 April 1, 2014 2,171,800 534,730 Total quarterly billings 8,141,956 2,033,031 Net expenditures 8,399,897 2,109,532 Excess of total billings over net expenditures (257,941)$ (76,501)$ For the Year Ended June 30, 2014 See accompanying notes to the financial statements. 4 Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements For the Year Ended June 30, 2014 5 NOTE 1 – THE REPORTING ENTITY The Cities of Palo Alto, Mountain View and Los Altos (the Members) participate jointly in the cost of maintaining and operating the Regional Water Quality Control Plant and related system (the Plant). The Members share the original costs of acquisition and construction of the Plant in the same proportions as the allocation of capacity rights to them. The City of Palo Alto (the City) is the owner and administrator of the Plant. The Cities of Mountain View and Los Altos are entitled to use a portion of the capacity of the Plant for a period of 50 years as set forth in the Basic Agreement between the City, the City of Mountain View and the City of Los Altos for Acquisition, Construction and Maintenance of a Joint Sewer System dated October 10, 1968 and subsequent letters of agreement dated December 5, 1977, January 14, 1980, April 9, 1985, July 3, 1990, July 31, 1992 and March 16, 1998. The original agreement, as amended, may terminate any time after 50 years provided that written notice of withdrawal is tendered ten years preceding the date of withdrawal. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Plant is an enterprise that is operated by the City and its operations are accounted for as an enterprise fund in the City’s basic financial statements. The accompanying financial statements are intended to present the Plant’s net expenditures and quarterly billings by the Plant to the Cities of Mountain View and Los Altos pursuant to the agreement of the Members as described above and are not intended to be a complete presentation of the Plant’s financial position or results of operations. Additionally, the capital cost and the outstanding debt of the Plant are not presented in these statements but are presented in the basic financial statements of the City. In prior years, commitments representing operating encumbrances with suppliers were included as part of the billing to the Plant’s partners. Starting in fiscal year 2014, the Plant did not include commitments in their billing to partners. As a result, the expenditures in the statement of net expenditures represent actual costs incurred and the statement no longer includes a provision for the change in commitments. Plant expenditures, and joint system revenues, debt service and industrial waste compliance expenditures are shared by the Members based on agreed upon allocation percentages. The expenditures and, including indirect administrative expenditures (see Note 4), are allocated to each of the Members based primarily on their respective percentages of the annual sewage flow and treatment needed for suspended solids, chemical oxygen demand and ammonia. Revenues from services, fines and penalties are allocated to each of the Members in the same proportions as those of expenditures. Debt service payments are allocated based on percentages established at the time of bond issuance. Industrial waste compliance (Public Outreach and permitting and enforcement) charges are allocated to Members primarily based on upon the number of industries and efforts required to maintain compliance with sewage use ordinances and other regulations from Environmental Protection Agency. Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements (continued) For the Year Ended June 30, 2014 6 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The percentages used for the year ended June 30, 2014, to allocate expenditures and revenues were: City of City of City of Mountain View Los Altos Palo Alto Public outreach, source control program, operations and maintenance, system improvement CIP and joint system revenues 38.75% 10.38% 50.87% Debt services expenditures: Refunding 1990 Series A Bonds 51.00% 7.80% 41.20% 1999 Wastewater Treatment New Project 37.89% 9.47% 52.64% 2009 State Water Resources Loan 37.89% 9.47% 52.64% Permitting and enforcement 37.81% 2.24% 59.95% The City is allocated 50.87% of total usage of the treatment plant. The City does not fully utilize its percentage allocation. Therefore, the City has entered into separate contracts to allocate portions of its excess to other entities. Fiscal year 2014 allocations are as follows: East Palo Alto Sanitary District 6.24% Stanford University 6.31% Town of Los Altos Hills 1.41% Remaining City percentages 36.91% Total 50.87% The agreement the City has with the above entities has no effect on the partnership agreement between the Members. Billings are made in advance and are based on the adopted budget for the plant and estimated sewage flow. Excess billings (over) under net expenditures are offset against the subsequent year payments during the second quarter of the subsequent fiscal year. NOTE 3 – SYSTEM IMPROVEMENT CIP (MINOR CAPITAL) The basic agreement between the Members, dated October 10, 1968, provides that the administrator of the Plant is responsible for capital additions. These capital additions should be for the replacement of obsolete or worn-out units, or minor capital additions to improve the efficiency of the Plant’s operations. Per an addendum to the agreement dated March 16, 1998, the Members agreed that capital additions should not exceed $1.9 million in 1998-99 (base year). For future years, the base year amount will be adjusted annually based on increases to the Consumer Price Index-Urban Wage Earners and Clerical Workers for the San Francisco-Oakland-San Jose area. For fiscal year 2013-14, the adjusted capital additions limit is $2,800,893. Actual System Improvement CIP expenditures amounted to $3,252,622 for fiscal year 2014. Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements (continued) For the Year Ended June 30, 2014 7 NOTE 4 – INDIRECT ADMINISTRATIVE EXPENDITURES Indirect expenditures include those costs allocated from the City’s General Fund administrative services, which supports all operating departments of the City. Other indirect expenses are administrative charges from the City’s Internal Services Funds. These allocations are applied on a uniform basis throughout the City. The allocations are in accordance with the subsequent letter of agreement dated April 9, 1985. NOTE 5 – DEBT SERVICE EXPENDITURES Debt service expenditures include principal repayments, interest expense and amortization of bond discount reduced by any interest income earned from investments with the fiscal agent, related to the 1999 Series A Bonds (split for the portions used for the “New Project” and refunding of the 1990 Series A Bonds) and the 2009 State Water Resources loan. In prior years, the City, City of Mountain View, City of Los Altos, Town of Los Altos Hills, East Palo Alto Sanitary District and Stanford University agreed to issue bonds (1999 Series A Bonds) to finance the rehabilitation of the Wastewater Treatment System’s two sludge incinerators and to refund the existing 1990 Series A Bonds. In October 2009, the City approved the 2009 State Water Resources Loan to finance the Ultraviolet Disinfection Project. The outstanding principal amount of debts as of June 30, 2014are allocated as follows: 1999 Wastewater Refunding of 2009 Treatment 1990 Series A State Water New Project Bonds Resources Loan Total City of Palo Alto 1,553,111$ 533,521$ 2,884,164$ 4,970,796$ City of Mountain View 1,542,124 1,088,384 2,863,758 5,494,266 City of Los Altos 385,429 166,459 715,750 1,267,638 East Palo Alto Sanitary District 310,948 253,956 577,437 1,142,341 Stanford University 214,082 87,498 397,556 699,136 Town of Los Altos Hills 64,306 4,268 119,418 187,992 Total 4,070,000$ 2,134,086$ 7,558,083$ 13,762,169$ 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 May 1, 2013, Ambac Financial emerged from bankruptcy protection which had been filed under Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. The City is not certain about the effect of the proceedings, if any, on the Surety Bond. Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements (continued) For the Year Ended June 30, 2014 8 NOTE 6 – JOINT SYSTEM REVENUES The Plant’s joint system revenues for the year ended June 30, 2014 total $365,520, which consisted of the following: Salt water marsh services 7,500$ Laboratory services from the City's Water Fund 58,660 Septic hauling services 240,731 Other revenues 58,629 365,520$ NOTE 7 – RELATED PARTY TRANSACTIONS During fiscal year 2014, the Plant paid the City $2,218,178 for utility costs. Such costs are included in the Statement of Net Expenditures as source control program, permitting and enforcement, and operations and maintenance expenditures. Vehicle replacement charges of $51,957 were paid to the City’s Equipment Replacement Fund, which is included in the Statement of Net Expenditures as operations and maintenance expenditures. Attachment A  CABLE TV FRANCHISE Independent Auditor’s Report and Statements of Franchise Revenues and Expenditures For the Years Ended December 31, 2013 and 2012 Attachment A CABLE TV FRANCHISE For the Years Ended December 31, 2013 and 2012 Table of Contents Page(s) Independent Auditor’s Report .................................................................................................................... 1-2 Financial Statements: Statements of Franchise Revenues and Expenditures ............................................................................. 3 Notes to the Financial Statements ........................................................................................................ 4-5 Attachment A 1 Independent Auditor’s Report Honorable Mayor and Members of the City Council of the City of Palo Alto Palo Alto, California We have audited the accompanying Statements of Franchise Revenues and Expenditures of the Cable TV Franchise (Franchise) for the years ended December 31, 2013 and 2012, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the financial reporting provisions of the Amended and Restated Joint Exercise of Powers Agreement signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the County of Santa Clara and the Town of Atherton for the provision of cable television and video services as described in Note 1 of the financial statements. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and expenditures of the Franchise for the years ended December 31, 2013 and 2012, in accordance with the financial reporting provisions of the Amended and Restated Joint Exercise of Powers Agreement signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the County of Santa Clara, and the Town of Atherton for the provision of cable television and video services, described in Note 1 to the financial statements. Attachment A 2 Basis of Accounting As discussed in Note 1 to the financial statements, the financial statements are prepared in accordance with the financial reporting provisions of the Amended and Restated Joint Exercise of Powers Agreement signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the County of Santa Clara, and the Town of Atherton, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Restriction on Use This report is intended solely for the information and use of the governing bodies and management of the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the County of Santa Clara and the Town of Atherton, and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 17, 2014 Attachment A 2013 2012 Revenues: Franchise fees $ 1,738,703 $ 1,691,763 Expenditures: Franchise administration 37,672 56,250 Consulting fees 4,335 3,600 Total expenditures 42,007 59,850 Net receipts $ 1,696,696 $ 1,631,913 Amount Percent Amount Percent Allocation of Net Receipts: City of Palo Alto $ 832,656 49.1% $ 810,493 49.7% City of Menlo Park 450,460 26.5% 429,336 26.3% City of East Palo Alto 165,557 9.8% 160,212 9.8% Town of Atherton 120,600 7.1% 114,205 7.0% County of Santa Clara 94,067 5.5% 85,227 5.2% County of San Mateo 33,356 2.0% 32,440 2.0% Total $ 1,696,696 100.0% $ 1,631,913 100.0% CABLE TV FRANCHISE Statements of Franchise Revenues and Expenditures For the Years Ended December 31, 2013 and 2012 2013 2012 See accompanying notes to the financial statements. 3 Attachment A CABLE TV FRANCHISE Notes to the Financial Statements For the Years Ended December 31, 2013 and 2012 4 NOTE 1 – JOINT OPERATING AGREEMENT AND BASIS OF ACCOUNTING In July 1983, a Joint Exercise of Powers Agreement was entered into by and between the Cities of Palo Alto, Menlo Park, East Palo Alto, the Counties of San Mateo and Santa Clara, and the Town of Atherton (Members) for the purpose of obtaining a state-of-the-art cable service for residents, businesses, and institutions, within each of their jurisdictions in the most efficient and economical manner possible. On August 9, 2000, the City of Palo Alto (City), acting on behalf of the Members, signed a Franchise Agreement with TCI Cablevision of California, Inc., a wholly owned subsidiary of AT&T Broadband (AT&T), third party contractor, which was granted a non-exclusive franchise to construct, operate, maintain and repair a cable television system within the Members jurisdictions. In 2002, the Franchise Agreement was transferred from AT&T to Comcast Corporation (Comcast). TCI Cablevision of California, Inc. also signed an asset purchase agreement with Cable Communications Cooperative of Palo Alto, Inc. (CCCOPA), the former cable television system operator/owner, and acquired the system. In October 1988, the Members entered into a Joint Operating Agreement in which the City was granted the power and the authority to administer and coordinate the activities of the franchise and exercise the rights and responsibilities of the City pursuant to the Franchise Agreement. The activities are administered by the City and are accounted for within the General Fund and the Technology Fund of the City’s basic financial statements. The program is accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual (both measurable and available) and expenditures are recognized when the liability is incurred. On January 1, 2007, the Digital Infrastructure and Video Competition Act (DIVCA) went into effect. Under DIVCA, cable and video service franchises are now granted exclusively by the California Public Utilities Commission (Commission) rather than by local franchising entities. On March 30, 2007, the Commission granted AT&T a statewide franchise. Comcast was allowed to seek a state franchise after January 1, 2008, when another state franchise holder (in this case AT&T) entered the local market. On January 2, 2008, the Commission granted Comcast a state franchise. On June 9, 2009, the Members approved an amended and restated Joint Exercise of Powers Agreement, in substitution of the existing Joint Exercise of Powers Agreement and the Joint Operating Agreement, to reflect changes in the law due to DIVCA and to continue to allow the City to administer the cable and video franchise enforcement and monitoring process for state franchise holders. The accompanying financial statements are intended to present the Franchise’s revenues and expenditures pursuant to the Joint Exercise of Powers Agreement and are not intended to be a complete presentation of the Franchise’s financial position or results of operations. As compensation for services under the state franchise agreements, AT&T and Comcast pay annual franchise fees in an amount equal to 5% of annual gross revenues, taking into account a reasonable adjustment for bad debts. From these fees the City is first reimbursed for out-of-pocket franchise administration costs. The remaining fees are distributed to each Member according to the percentage of revenues derived from the residents and businesses in each of the entities compared to revenues in total. Attachment A CABLE TV FRANCHISE Notes to the Financial Statements For the Years Ended December 31, 2013 and 2012 5 NOTE 2 – PRIOR FRANCHISE SETTLEMENTS A prior Franchise Agreement with CCCOPA was set to expire on March 24, 2001. On June 21, 1999, the City hired a cable communications consultant and retained the services of a law firm to assist in the franchise renewal process. On July 31, 2000, CCCOPA reimbursed the City $185,000 toward the actual costs incurred as part of the franchise renewal efforts. On July 24, 2000, the City reached a settlement with CCCOPA in the amount of $220,000 to resolve outstanding claims resulting from CCCOPA’s alleged failure to fully perform under the prior Franchise Agreement. On November 22, 2004, the City reached a settlement agreement with Comcast regarding cable plant construction claims in the amount of $175,000. This money was to be used towards the institutional network connection costs. In 2006, the City conducted a franchise compliance audit performed by the City Auditor’s Office. A settlement was reached in the amount of $155,391. In addition, CCCOPA paid the City a $250,000 grant to acquire, install, and/or maintain equipment to be used in connection with an institutional network defined in the Franchise Agreement. The settlements and grant have been deposited and are being held by the City and earning interest. The City has since spent a part of the balance on various projects including installing and maintaining the institutional network equipment. As of December 31, 2013, the remaining balance on deposit with the City, including $5,186 in interest receivable, was $791,240. Attachment A FINANCE COMMITTEE MINUTES Page 1 of 2 Special Meeting Tuesday, December 2, 2014 Chairperson Berman called the meeting to order at 6:08 P.M. in the Council Chambers, 250 Hamilton Avenue, Palo Alto, California. Present: Berman (Chair), Burt, Holman, Kniss Absent: Oral Communications None. Agenda Items 2. Macias Gini & O'Connell's Audit of the City of Palo Alto's Financial Statements as of June 30, 2014 and Management Letter. Harriet Richardson, City Auditor, reported the Office of the City Auditor coordinated the annual financial audit as required by the City Charter and the Municipal Code. Macias, Gini & O'Connell (MGO) issued an unmodified opinion for all of the City's basic financial statements. That meant the financial statements were presented fairly in all material respects. MGO made two recommendations for the current year, both pertained to determining actions the City needed to take to comply with new statements issued by the Governmental Accounting Standards Board (GASB). MGO also reported on the status of four prior-year recommendations which pertained to the City's Information Technology (IT) Department. David Bullock, Macias Gini & O'Connell's (MGO), explained that an unmodified opinion was the highest level of assurance that could be provided by auditors. Restatements resulted from implementing new GASB standards. All estimates were listed in the financial statements. MGO's testing did not disclose material misstatements. MGO passed on one misstatement as they did not believe it was material to the financial statements. Nothing negative occurred during the year. The two current recommendations were not deficiencies but informational. GASB 68, new reporting standards for pensions, would significantly change the reporting of Attachment B MINUTES Page 2 of 2 Finance Committee Special Meeting Final Minutes 12/2/2014 pensions in financial statements. With respect to the prior year recommendations, the City had been strategically addressing them as a whole. Three remaining items were noted as in progress; although, there was some question whether the Disaster Recovery Plan was in progress or complete. MOTION: Vice Mayor Kniss moved, seconded by Chair Berman to approve the report on the financial statements as of June 30, 2014. Council Member Burt was unsure whether the Motion contained the correct action. Council Member Berman advised that the Finance Committee should forward the financial statements to the Council rather than approve them. MOTION WITHDRAWN BY THE MAKER AND SECONDER MOTION: Council Member Kniss moved, seconded by Chair Berman to recommend to the City Council approval of the City of Palo Alto’s audited financial statements for the Fiscal Year ending June 30, 2014, and the accompanying reports provided by Macias Gini & O’Connell LLP. MOTION PASSED: 4-0 Attachment B City of Palo Alto (ID # 5446) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/9/2015 City of Palo Alto Page 1 Summary Title: Close Fiscal Year 2014 Budget and Approve Fiscal Year 2014 CAFR Title: Finance Committee Recommendation to Adopt an Ordinance Authorizing the Closing of the Fiscal Year 2014 Budget, Including Re- appropriation Requests, Closing Completed Capital Projects and Authorizing Transfers to Reserves, and Approval of the Fiscal Year 2014 Comprehensive Annual Financial Report (CAFR) From: City Manager Lead Department: Administrative Services Recommendation The Finance Committee and Staff recommend that Council:  Adopt the attached Budget Amendment Ordinance (Attachment A) authorizing closing of the Budget for the Fiscal Year ending June 30, 2014 including the transfer of remaining balances to or drawing from the appropriate reserves and the transfer of the General Fund surplus of $4.0 million from the General Fund to the Infrastructure Reserve in the Capital Projects Fund; and  Authorize the re-appropriation of FY 2014 funds into the FY 2015 Budget (Exhibit 2, Attachment A to CMR #4962); and  Close completed Capital Improvement Projects (Exhibit 3, Attachment A to CMR #4962).  Approve the City’s 2014 Comprehensive Annual Financial Report (CAFR), Attachment B to CMR #4962. An electronic copy is available at: www.cityofpaloalto.org/gov/depts/asd/financialreporting, and hard copies are available at the Administrative Services Department upon request. Background As is customary, the City Council is required to close out the City’s financial results at the end of each fiscal year. At its December 2, 2014 meeting, the Finance Committee unanimously City of Palo Alto Page 2 approved closing of Fiscal Year 2014 (Attachment C). Financial Highlights for FY 2014  General Fund ended on a positive note, with $8.7 million increase to the Budget Stabilization Reserve (BSR) from June 30, 2013 to June 30, 2014 due to excess revenue and expenditure savings. In accordance with the City Council approved infrastructure Plan, the attached Budget Amendment Ordinance includes a recommendation to transfer $4.0 million from the General Fund to the Infrastructure Reserve in the Capital Projects Fund. As approved as part of the FY 2015 Adopted Budget, $1.7 million of FY 2014 budget surplus funds are carried forward to FY 2015 for FY 2015 Operating Budget one-time expenditures.  Enterprise Fund highlights include: o Water Fund implemented a rate increase of 7 percent effective July 1, 2013. o Enterprise Funds combined ended the year with an increase in net position of $4.6 million.  The City received a “clean” audit opinion for FY 2014 from the external audit firm, Macias Gini & O’Connell LLP, Certified Public Accountants, a firm hired by the City Auditor. The City also received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association for its FY 2013 CAFR- the 20th consecutive year. Details that were presented at the December 2, 2014 meeting are included in Attachment C and minutes from the meeting are included in Attachment D. Attachments:  Attachment A: Ordinance of the Council of the City of Palo Alto Authorizing Closing of the Budget for the Fiscal Year Ending June 30, 2014 (DOCX)  Exhibit 1 - Proposed Fiscal Year 2014 Year End Adjustments (PDF)  Exhibit 2 - Reappropriations (PDF)  Exhibit 3 - Year End CIP Adjustments (XLSX)  Attachment B: FY 2014 Comprehensive Annual Financial Report (CAFR) (PDF)  Attachment C: Finance Committee Report, Dec. 2, 2014, Close Fiscal Year 2014 Budget and Approve Fiscal Year 2014 CAFR (PDF)  Attachment D: Excerpt from the December 2, 2014 Finance Committee Minutes (PDF) ATTACHMENT A Page of 4 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, 2014 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 10, 2013 did adopt a budget for Fiscal Year 2014; and B. Fiscal Year 2014 has ended and the financial results, although subject to post- audit adjustment, are now available. SECTION 2. Pursuant to Section 2.28.080 of the Palo Alto Municipal Code, the City Manager during Fiscal Year 2014 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 2014 appropriations which on July 1, 2013 were encumbered by properly executed, but uncompleted, purchase orders or contracts. SECTION 3. The Council hereby approves adjustments to the Fiscal Year 2014 budget as shown on attached Exhibit 1. SECTION 4. The Council hereby re-appropriates Fiscal Year 2014 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 2015 budget. ATTACHMENT A Page of 4 2 SECTION 5. The Fiscal Year 2014 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 2015 budget. SECTION 6. The City Manager is authorized and directed: A. To close the Fiscal Year 2014 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 2014 budget as adopted or amended by ordinance of the Council; and B. To close and adjust various 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 fund the Budget Stabilization Reserve in accordance with the General Fund Reserves Policy adopted by the City Council. SECTION 7. The General Fund Budget Stabilization Reserve is hereby decreased by the sum of Four Million One Hundred Twenty Seven Thousand Six Hundred Eighty Two Dollars ($4,127,682) as described in Exhibit 1. SECTION 8. The Water Rate Stabilization Reserve is hereby decreased by the sum of Six Million Nine Hundred Seventy Nine Thousand Six Hundred Ninety Seven Dollars ($6,979,697) as described in Exhibit 1. SECTION 9. The Electric Distribution Rate Stabilization Reserve is hereby decreased by the sum of Three Hundred Seventeen Thousand Five Hundred Six Dollars ($317,506) as described in Exhibit 1. SECTION 10. The Fiber Optics Rate Stabilization Reserve is hereby decreased by the sum of Five Hundred Nineteen Thousand Dollars ($519,000) as described in Exhibit 1. SECTION 11. The Gas Distribution Rate Stabilization Reserve is hereby decreased by the sum of Eight Hundred Forty One Thousand One Hundred Ninety Six ($841,196) as described in Exhibit 1. SECTION 12. The Gas Supply Rate Stabilization Reserve is hereby decreased by the sum of One Hundred Seventy Four Thousand Dollars ($174,000) as described in Exhibit 1. SECTION 13. The Wastewater Treatment Rate Stabilization Reserve is hereby increased by the sum of Four Thousand Six Hundred Sixty Dollars ($4,660) as described in Exhibit 1. ATTACHMENT A Page of 4 3 SECTION 14. The Refuse Rate Stabilization Reserve is hereby decreased by the sum of Nine Hundred Seventy Seven Dollars ($977) as described in Exhibit 1. SECTION 15. The Storm Drainage Rate Stabilization Reserve is hereby decreased by the sum of One Thousand Five Hundred Thirty Four Dollars ($1,534) as described in Exhibit 1. SECTION 16. The University Avenue Parking Permit Fund is hereby increased by Two Thousand Ten Dollars ($2,010) as described in Exhibit 1. SECTION 17. The California Avenue Parking Permit Fund is hereby increased by Three Hundred Dollars ($300) as described in Exhibit 1. SECTION 18. The Federal Equitable Sharing Fund is hereby decreased by Two Thousand Nine Hundred Sixty Dollars ($2,960) as described in Exhibit 1. SECTION 19. The State Deferred Revenue Fund is hereby decreased by Two Thousand One Hundred Ninety Eight ($2,198) as described in Exhibit 1. SECTION 20. The Stanford/El Camino Fund is hereby decreased by Four Hundred Ten Thousand Dollars ($410,000) as described in Exhibit 1. SECTION 21. The Public Art Fund is hereby decreased by Four Thousand Six Hundred Sixty One Dollars ($4,661) as described in Exhibit 1. SECTION 20. The Law Enforcement Services Fund is hereby decreased by Two Hundred Twenty Seven Thousand Seven Hundred Ten Dollars ($227,710) as described in Exhibit 1. SECTION 21. The Law Enforcement Block Grant Fund is hereby decreased by Eight Hundred Twelve Dollars ($812) as described in Exhibit 1. SECTION 22. The Technology Fund is hereby decreased by Eight Hundred Nineteen Thousand Three Hundred Seventy Eight Dollars ($819,378) as described in Exhibit 1. SECTION 23. The Capital Projects Fund Reserve is hereby decreased by Three Million, Eight Hundred Fourteen Thousand Four Hundred Dollars ($3,841,400) as described in Exhibit 1. SECTION 24. Upon completion of the independent audit, detailed financial statements reflecting the changes made by the Sections 7 through 18 of this ordinance shall be published as part of the annual financial report of the City as required by Article ATTACHMENT A Page of 4 4 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 27. 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: ABSTENTIONS: ABSENT: ATTEST: ________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ________________________ ____________________________ City Attorney City Manager ____________________________ Director of Administrative Service ATTACHMENT A, EXHIBIT 1 Pages 1 of 7 11/19/2014 General Fund 2014 Category Amount Description GENERAL FUND Transfer to the Technology Fund 63,000 Increase the Transfer to the Technology Fund by $63,000 to adjust for the actual amount of the Technology Fee collected in the General Fund in Fiscal Year 2014 ($1,163,000). Transfer to IR 4,000,000 Transfer an additional $4 million to the Infrastructure Reserve in accordance with the City Council approved Infrastructure Plan (June 9, 2014) Salary and Benefits (1,106,000) Allocate funding for salary increases to General Fund Departments Salary and Benefits 1,000,000 Allocate Departmental Salary Savings to Non-Departmental Direct Charges 148,682 Increase costs for the sale of water to the City. 4,105,682 (4,105,682) Salary and Benefits (149,000) Allocate Departmental Salary Savings to Non-Departmental (149,000) 149,000 Salary and Benefits (52,000) Allocate Departmental Salary Savings to Non-Departmental (52,000) 52,000 CITY MANAGER Salary and Benefits 60,000 Allocate funding for salary increases from Non-Departmental 60,000 (60,000) COMMUNITY SERVICES Rents and Leases 84,000 To recognize revenue for the Byrant Street rent 84,000 Salary and Benefits (408,000) Allocate Departmental Salary Savings to Non-Departmental (408,000) 492,000 FIRE Salary and Benefits 453,000 Allocate funding for salary increases from Non-Departmental 453,000 ADMINISTRATIVE SERVICES Use Changes Net Changes To (From) Reserves Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves CITY AUDITOR Source Changes CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves Use Changes NON-DEPARTMENTAL Use Changes Use Changes ATTACHMENT A, EXHIBIT 1 Pages 2 of 7 11/19/2014 General Fund 2014 Category Amount Description CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET (453,000) LIBRARY Salary and Benefits (155,000) Allocate salary and benefits savings to the Police Department Salary and Benefits (166,000) Allocate Departmental Salary Savings to Non-Departmental (321,000) 166,000 Salary and Benefits 593,000 Allocate funding for salary increases from Non-Departmental Salary and Benefits 155,000 Allocate salary and benefit savings from the Library Department 748,000 (593,000) Salary and Benefits (225,000) Allocate Departmental Salary Savings to Non-Departmental (225,000) 225,000 Total General Fund Changes to BSR (4,127,682) Reimbursements 4,000,000 Increase transfer from the General Fund in accordance with the City Council approved Infrastructure Plan (June 9, 2014) Source Changes Changes 4,000,000 CIP 158,600 Combined impact from adjustments to projects as outlined in Attachment A, Exhibit 3 Use Changes 158,600 3,841,400 Capital Fund Infrastructure Reserve Net Changes To (From) Reserves Net Changes To (From) Reserves Use Changes POLICE PUBLIC WORKS Use Changes Net Changes To (From) Reserves GENERAL FUND CIP (CAPITAL PROJECTS FUND) Net Changes To (From) Reserves Net Changes To (From) Reserves Use Changes ATTACHMENT A, EXHIBIT 1 11/19/2014 Enterprise Funds 2014 Cost Center Cost Element Category Amount Description ENTERPRISE FUNDS ELECTRIC FUND Direct Charges (494) Decrease costs for the sale of water to the City. CIP (1,817,000) Changes in CIP Projects (See Atttachment A, Exhibit 3 for more detail) Use Changes (1,817,494) Net Changes To (From) Reserves 1,817,494 Fund Balancing Entries 20000020 38040 1,817,494 Change in Electric Operating Fund Balance Total Electric Fund 1,817,494 FIBER OPTICS FUND CIP 23,000 Changes in CIP Projects (See Atttachment A, Exhibit 3 for more detail) Use Changes 23,000 Net Changes To (From) Reserves (23,000) Fund Balancing Entries 20000020 38040 (23,000)Change in Fund Balance Total Fiber Optics Fund (23,000) GAS FUND Salary and Benefits 54,000 Increase costs to cover additional labor expenses related to pension and medical CIP 80,000 Changes in CIP Projects (See Atttachment A, Exhibit 3 for more detail) Utility Purchases 120,000 Increase costs to cover additional gas commodity purchases Direct Charges 196 Increase costs for the sale of water to the City. Use Changes 254,196 Net Changes To (From) Reserves (254,196) Fund Balancing Entries 20000050 38170 (174,000)Change in Gas Supply Fund Balance 20000040 38040 (80,196)Change in Gas Operating Fund Balance Total Gas Fund (254,196) CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET ATTACHMENT A, EXHIBIT 1 11/19/2014 Enterprise Funds 2014 Cost Center Cost Element Category Amount Description CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET WATER FUND 7 Reimbursements 200,508 Increase revenue for the sale of water to the City. Source Changes Changes 200,508 CIP 81,000 Changes in CIP Projects (See Atttachment A, Exhibit 3 for more detail) Direct Charges 6,205 Increase costs for the sale of water to the City. Use Changes 87,205 Net Changes To (From) Reserves 113,303 Fund Balancing Entries 20000060 38040 113,303 Change in Fund Balance Total Water Fund 113,303 20021103 30010 Direct Charges (4,660) Decrease costs for the sale of water to the City. Use Changes (4,660) Net Changes To (From) Reserves 4,660 Fund Balancing Entries 20000070 38040 4,660 Change in Fund Balance Total Wastewater Treatment Fund 4,660 REFUSE FUND Direct Charges 977 Increase costs for the sale of water to the City. Use Changes 977 Net Changes To (From) Reserves (977) Fund Balancing Entries 50050001 38040 (977)Change in Fund Balance Total Refuse Fund (977) STORM DRAINAGE FUND Direct Charges 1,534 Increase costs for the sale of water to the City. Use Changes 1,534 Net Changes To (From) Reserves (1,534) Fund Balancing Entries 50050001 38040 (1,534)Change in Fund Balance Total Storm Drainage Fund (1,534) WASTEWATER TREATMENT FUND ATTACHMENT A, EXHIBIT 1 11/19/2014 Other Funds 2014 Category Amount Description Direct Charges (2,010) Decrease costs for the sale of water to the City. Use Changes (2,010) 2,010 Direct Charges (300) Decrease costs for the sale of water to the City. Use Changes (300) 300 Non-Capital 2,960 Increase to cover additional non-capital p-card expenses for FY 2014 Use Changes 2,960 (2,960) Operating Transfer 2,198 Transfer to General Fund Use Changes 2,198 (2,198) Interagency 410,000 Cost sharing expense between City of Palo Alto and County of Santa Clara for service level improvements on Oregon Expressway Use Changes 410,000 (410,000) Salaries & Benefits 4,661 Increase costs to cover additional labor expenses Use Changes 4,661 (4,661) Facilities & Equipment 227,710 Citizen Options for Public Safety (COPS) Grant funding from the State of California used to purchase front line law enforcement equipment Use Changes 227,710 (227,710) STANFORD/EL CAMINO FUND Net Changes To (From) Reserves CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET SPECIAL REVENUE FUNDS CALIFORNIA AVENUE PARKING PERMIT FUND Net Changes To (From) Reserves UNIVERSITY AVENUE PARKING PERMIT FUND Net Changes To (From) Reserves STATE DEFERRED REVENUE Net Changes To (From) Reserves FED EQUITABLE SHARING Net Changes To (From) Reserves PUBLIC ART FUND Net Changes To (From) Reserves LAW ENFORCEMENT SERVICES FUND Net Changes To (From) Reserves ATTACHMENT A, EXHIBIT 1 11/19/2014 Other Funds 2014 Category Amount Description CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET Facilities & Equipment 812 Increase costs to cover additional non-capital p-card expenses Use Changes 812 (812) Transfer from the General Fund 63,000 Increase the Transfer from the General Fund by $63,000 to adjust for the actual amount of the Technology Fee collected in the General Fund in Fiscal Year 2014 ($1,163,000). Source Changes 63,000 Contract Services 710,000 Increase costs to cover technology related contractual services Facilities & Equipment 172,000 Increase costs to cover radio and communication equipment purchasesDirect Charges 378 Increase costs for the sale of water to the City. Use Changes 882,378 (819,378) TECHNOLOGY FUND Net Changes To (From) Reserves INTERNAL SERVICE Net Changes To (From) Reserves LAW ENFORCEMENT BLOCK GRANT Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014) General Fund Department Fund Amount Preliminarily Approved Reappropriation Justification Commitment Item City Manager's Office General Fund 35,000 Business Registry Certificate Program: At the April 29, 2014 City Council meeting, the Council approved a recommendation to fund a Business Registry Certificate (BRC) Ordinance and Fee Program as a full cost-recovery replacement/enhancement of the existing Use Certificate Process, with funds from the City Council Contingency. Staff has not been able to work on this project due to other competing priorities and the funding becoming available late in the fiscal year. Staff committed to return to Council before December 30, 2014 for approval of the BRC ordinance and program implementation and launch. CMR #4619 31070 City Manager's Office General Fund 25,000 Electric Vehicle Consultant: At the May 13, 2014 Policy and Services Committee Meeting, an ordinance was approved requiring all new multi-family residential and non-residential construction to provide for current or future installation of electric vehicle (EV) chargers at the recommendation of the Electric Vehicle Supply Equipment Task Force. Funding was appropriated from the City Manager's Contingency to hire a consultant to implement this direction and guide developers in technical equipment decision making as well as provide training to staff during the review process; however, since this was not approved until the end of Fiscal Year 2014, staff could not complete the contract before the end of the fiscal year. CMR #4719 31070 City Manager's Office General Fund 25,000 Ecological Footprint Analysis: A study is needed to assess the demand and consumption of resources by the City as a whole compared to the availability of resources in the ecosystem surrounding and supporting the City. The results will provide a Palo Alto Consumption Land Use Matrix (CLUM) and the data from the CLUM will be used for the subsequent Climate Action Plan, that is scheduled to be presented to the Council in fall 2014. Funding was appropriated from the City Manager's Contingency to conduct this study; however, the project was not able to be done in Fiscal Year 2014. 31070 Community Services General Fund 297,834 Teen Programs: At the June 2, 2014 City Council meeting, the Council approved a recommendation from the Policy and Services Committee to use the net revenue collected from 455 Bryant Street in Fiscal Years 2009 through 2013 ($213,834) to fund Teen Programs for Fiscal Year 2015. Per Council action, the fund balance of $213,834 is to be reappropriated in addition to the $84,000 in Fiscal Year 2014 proceeds for a total of $297,834. A long-term expenditure plan will be brought to Council in fall 2014, including use the estimated revenue for Fiscal Year 2015 of $84,000. CMR #4776 33000 Development Services/Fire General Fund 50,000 Digitize Fire Prevention Records: This funding will be used to digitize historical records in the Fire Prevention Bureau (FPB), and implement an electronic records management system for historical and future documents with collaboration from the Information Technology (IT) Department. This funding was appropriated in the Fire Department as part of the Fiscal Year 2014 Operating Budget; however, the IT Department is still developing a citywide electronic records management strategy. As part of the Fiscal Year 2015 Operating Budget, FPB was moved from the Fire Department to the Development Services Department. Reappropriation of these funds will allow FPB to digitize and move their records into an electronic records management system once IT implements a citywide solution. 31990 Attachment A, Exhibit 2 - Reappropriations.xlsx 1 11/18/2014,4:28 PM Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014) Department Fund Amount Preliminarily Approved Reappropriation Justification Commitment Item Library General Fund 600,000 Library Publications: In Fiscal Year 2012, the library received a donation of $1.9 million from the Palo Alto Library Foundation of which $1.4 million was appropriated to the CIP and the balance of $500,000 was appropriated to the General Fund for the purchase of library collection materials (CMR #2258). The remaining General Fund balance of $100,000 has been reappropriated through Fiscal Year 2014 in anticipation of completion of the new Mitchell Park library. In addition, a second donation of $1.2 million was received from the Palo Alto Library Foundation in Fiscal Year 2014 (CMR #4092) of which $500,000 is requested for reappropriation in anticipation of completion of the new Rinconada library in Fiscal Year 2015. The balance of $100,000 from #2258 and $500,000 from #4092, for a total of $600,000, will be used for the purchase of collection materials in Fiscal Year 2015 in order to provide library patrons with the most current publications and productions. 32230 People Strategy and Operations General Fund 50,000 Temporary Salaries: Two employees, one working as a Human Resources Assistant and one working as a Labor Relations Manager will be out on maternity leave for approximately six months in Fiscal Year 2015. The PSO Department will have no vacant positions to start Fiscal Year 2015 to generate savings to hire temporary positions. Reappropriating Fiscal Year 2014 vacancy savings will allow PSO to hire temporary staff to backfill for the vacancies in Fiscal Year 2015. 30030 People Strategy and Operations General Fund 165,000 Management Development: Savings from Fiscal Year 2013 was carried forward to Fiscal Year 2014 to develop a citywide management training program; however, staffing resources were not available in Fiscal Year 2014 in PSO to implement the program. PSO is fully staffed going into Fiscal Year 2015, so this funding will be used for training programs in the following areas: Civics and Citizen Engagement, Leadership and Talent Exchange, Budget, Finance and Procurement, Interpersonal communication, Ethics and legal awareness, Presentation Skills, Business Writing, Time Management, Project management, Change Management, SkillSoft for Computer skills, Safety & Security and Personal and Professional Development. 33140 People Strategy and Operations General Fund 25,000 Wellness Program: Funding will be used to create a holistic, accessible and fun employee wellness program that encourages and supports healthy eating, work life balance, and an active lifestyle. The City launched an RFP several months ago, and the Department has received several responses and is in the process of reviewing the proposals; however, a vendor was unable to be selected in Fiscal Year 2014. Planning & Community Environment General Fund 256,596 Comprehensive Plan: The Comprehensive Plan update is a large project involving significant community engagement. The Plan is scheduled for completion at the end of 2015. Funds were budgeted in FY 2014 and $56,596 is available for reappropriation in addition to the Council approved a BAO on March 17, 2014 for an additional $200,000. These expenses include meetings, advertising, supplies, note taking, and additional professional services to address unanticipated events CMR #4554 31020 Attachment A, Exhibit 2 - Reappropriations.xlsx 2 11/18/2014,4:28 PM Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014) Department Fund Amount Preliminarily Approved Reappropriation Justification Commitment Item Police General Fund 78,000 Police Utilization Study: In Fiscal Year 2013, funding was allocated for the department to hire a consultant to conduct a utilization study of overall police operations; however the study was not completed due to competing workload demands. The funds were reappropriated to Fiscal Year 2014 to conduct the study; however, the Technical Services Division had many other projects that took precedence (Tri-City Computer Aided Dispatch, Records Management System, Patrol Vehicle Mobile Audio Video, etc.) and were again unable to conduct the utilization study. Reappropriation of these funds will allow Technical Services staff to determine the scope of the study, integrate it into their workload, and hire a consultant to conduct the study in Fiscal Year 2015. 31990 1,607,430$ Total General Fund Reappropriations Other Funds Fund Fund Rec. Amount Reappropriation Justification Airport 530 50,000 Airport Legal Outside Counsel: Council has directed staff to take over the Palo Alto Airport prior to the end of the lease (2017) with the County of Santa Clara. The 2015 Adopted Operating Budget has assumed a Fiscal Year 2015 takeover. There are numerous documents that need to be written, negotiated, and approved by the City Council prior to the City taking back ownership of the operations. This reappropriation will allow for outside legal counsel that is anticipated due to the workload of the City Attorney's Office and specific expertise needed in this transaction. 31010 Capital Improvement Fund 471 65,000 Long Range CCTV Cameras: Reappropriating these funds will allow the Fire Department to purchase a fire weather camera to replace the current outdated camera that is mounted by Fire Station 8 in Foothill Park. This funding was originally appropriated as part of the FD-13000 CIP to replace the existing fire weather camera and add a second camera with thermal detection capabilities to act as an early warning system for fires in the foothills south of Palo Alto. The technology needs for the project were reevaluated in Fiscal Year 2014, and it was determined that the current funding will only be able fund the replacement of the fire weather camera. Reappropriation of these funds will allow for the purchase of the replacement camera in Fiscal Year 2015. The second thermal detection camera will be brought back for Council consideration in the future as a separate CIP. 38790 Storm Drainage Fund 528 45,000 Storm Drainage Pump Station: This reappropriation will allow for a repair to one of the 24' pumps at the Storm Pump Station located at the Airport. During a routine inspection, it was recently discovered that water was leading from one of the pumps, which could lead to larger damages. The repair was not completed in Fiscal Year 2014 as a portion of the funding was used for design and configuration of storm software, a maintenance contract for storm software, and debris disposal. Funding will be used, in conjunction with Fiscal Year 2015 approved funding, to repair the pump in Fiscal Year 2015. 31990 Technology Fund 682 35,000 Council Chambers Voting System Replacement: Reappropriating these funds will allow for the replacement of the existing analog voting system in the Council Chambers, which is over 20 years old and no longer supported by the manufacturer. This project was unable to be completed in Fiscal Year 2014 due to other infrastructure and technology related projects that took precedence. This project needs to be done separately from the other technology upgrades to the Council Chambers, scheduled for Fiscal Year 2016, because there will be no way to electronically record the votes if the system fails. 31230 Attachment A, Exhibit 2 - Reappropriations.xlsx 3 11/18/2014,4:28 PM Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014) Department Fund Amount Preliminarily Approved Reappropriation Justification Commitment Item Technology Fund 682 50,000 Virtual Private Network Upgrade: Reappropriating these funds will allow the IT Department to complete upgrades to the Virtual Private Network (VPN) in order to enhance the security and scalability of the computing network, create additional functionality and access of mobile devices to the network, and ensure the City can upgrade to the most current operating system. This project was approved as part of the application replacement funding in the Fiscal Year 2014 Budget; however, it was unable to be completed due to other infrastructure and technology related projects that took precedence. 31290 Technology Fund 682 275,000 Virtual Private Cloud: Reappropriating these funds will allow the IT Department to implement a primary and redundant storage area network through the Virtual Private Cloud. This project was approved as part of the infrastructure replacement funding in the Fiscal Year 2014 Budget, and the Department was going to award the project prior to the end of Fiscal Year 2014; however, a vendor could not be selected to meet that deadline. This funding will allow the project to be awarded at one of the first Council Meetings of Fiscal Year 2015, and allow the Department time to select the best vendor. 35600 Technology Fund 682 - Application Maintenance: Reappropriating these funds will allow the Information Technology (IT) Department to fund maintenance and support costs, that are unbudgeted elsewhere in the City, for various technology applications that are used by other City departments and need to be upgraded to maintain functionality. 31290 520,000$ Total Other Funds Reappropriations 2,127,430$ Total- All Reappropriations Attachment A, Exhibit 2 - Reappropriations.xlsx 4 11/18/2014,4:28 PM Attachment A, Exhibit 3 Project Funding Title Number Revenue Expense Source Comments ADDITIONAL APPROPRIATIONS Art Center Electrical and Mechanical Upgrades PF-07000 $ 13,000 Reduction to PF-93009 To transfer funds from PF-93009 (Americans with Disabilities Act Compliance) to cover expenditures at year end. Transportation and Parking Improvements PL-12000 $ 46,000 Reduction to Infrastructure Reserve Increase to project due to higher than anticipated expenditures. Children's Theater Replacement & Expansion AC-09001 $ 7,600 Reduction to Infrastructure Reserve Increase to project due to higher than anticipated expenditures. Temporary Main Library PE-11012 $ 123,000 Reduction to Infrastructure Reserve To transfer funds from PE-11000 (Main Library Construction) to cover expenditures at year end. Dimmer Replacement and Lighting System CC-09001 $ 6,000 Reduction to Infrastructure Reserve Increase to project due to higher than anticipated expenditures. Safe Routes to Schools PL-00026 $ 38,000 Reduction to Infrastructure Reserve Increase to project due to higher than anticipated expenditures. Curb and Gutter Repair PO-12001 $ 61,000 Reduction to Infrastructure Reserve Increase to project due to higher than anticipated expenditures. Total $ - $ 294,600 REDUCTION IN APPROPRIATIONS Americans With Disabilities Act Compliance PF-93009 $ (13,000)Increase to PF-07000 To transfer funds to PF-07000 (Art Center Electrical and Mechanical Upgrades) to cover expenditures at year end. Main Library Construction PE-11000 $ (123,000)Increase to PE-11012 To transfer funds to PE-11000 (Temporary Main Library) to cover expenditures at year end. Total $ (136,000) TOTAL GENERAL FUND CIP YEAR-END ADJUSTMENTS $ - $ 158,600 FY 2014 CIP Year-end Adjustments CAPITAL PROJECT FUND 1 of 4 1/12/2015 Attachment A, Exhibit 3 Project Funding Title Number Revenue Expense Source Comments FY 2014 CIP Year-end Adjustments ADDITIONAL APPROPRIATIONS EL-89044 $ 18,000 Increase to project due to higher than anticipated expenditures. Total $ - $ 18,000 REDUCTION IN APPROPRIATIONS EL-10008 $ (130,000)Reduction as project being placed on hold. EL-10009 $ (300,000)Reduction as project being placed on hold. EL-11014 $ (400,000)Reduction as project being placed on hold. EL-89028 $ (700,000)Reduction as project being placed on hold. EL-89038 $ (305,000)Reduction as project being placed on hold. Total $ - $ (1,835,000) TOTAL ELECTRIC FUND CIP MID-YEAR ADJUSTMENTS 0 $ (1,817,000) ELECTRIC FUND 2 of 4 1/12/2015 Attachment A, Exhibit 3 Project Funding Title Number Revenue Expense Source Comments FY 2014 CIP Year-end Adjustments ADDITIONAL APPROPRIATIONS Directional Boring Machine GS-02013 $ 18,000 Gas Fund Reserves Increase to project due to higher than anticipated expenditures. Directional Boring Equipment GS-03007 $ 2,000 Gas Fund Reserves Increase to project due to higher than anticipated expenditures. Gas System, Customer Connections GS-80017 $ 60,000 Gas Fund Reserves Increase to project due to higher than anticipated expenditures. Total $ - $ 80,000 TOTAL GAS FUND CIP YEAR-END ADJUSTMENTS $ - $ 80,000 ADDITIONAL APPROPRIATIONS Fiber Optics Customer Connections FO-10000 $ 23,000 Fiber Optics Fund Reserves Increase to project due to higher than anticipated expenditures. Total $ - $ 23,000 TOTAL FIBER OPTICS FUND CIP YEAR-END ADJUSTMENTS $ - $ 23,000 ADDITIONAL APPROPRIATIONS Wastewater Collection Rehabilitation/Augmentation Project 22 WC-09001 $ 140,000 Reduction to WC-10002 To transfer funds from WC-10002 (Wastewater Collection Rehabilitation/Augmentation Project 23) to cover expenditures at year end. Total -$ 140,000$ REDUCTION IN APPROPRIATIONS Wastewater Collection Rehabilitation/Augmentation Project 23 WC-10002 $ (140,000)Increase to WC-09001 To transfer funds to WC-09001 (Wastewater Collection Rehabilitation/Augmentation Project 22) to cover expenditures at year end. Total $ (140,000) TOTAL WASTEWATER COLLECTION FUND CIP YEAR-END ADJUSTMENTS $ - $ - FIBER OPTICS FUND WASTEWATER COLLECTION FUND GAS FUND 3 of 4 1/12/2015 Attachment A, Exhibit 3 Project Funding Title Number Revenue Expense Source Comments FY 2014 CIP Year-end Adjustments ADDITIONAL APPROPRIATIONS Turnouts Regulator WS-07000 $ 74,000 Decrease to WS-08001 To transfer funds from WS-08001 (Wastewater Reservoir Coating) to cover expenditures at year end. Emergency Water Supply WS-08002 $ 157,000 Decrease to WS-09000 To transfer funds from WS-09000 (Seismic Water Tank) to cover expenditures at year end. Water System, Customer Connections WS-80013 $ 81,000 Water Reserves Increase to project due to higher than anticipated expenditures. Total -$ 312,000$ REDUCTION IN APPROPRIATIONS Water Reservoir Coating WS-08001 (74,000)$ Increase to WS-07000 To transfer funds to WS-07000 (Turnouts Regulator) to cover expenditures at year end. Seismic Water Tank WS-09000 (157,000)$ Increase to WS-08002 To transfer funds to WS-08002 (Emergency Water Supply) to cover expenditures at year end. Total -$ (231,000)$ TOTAL WATER FUND CIP YEAR-END ADJUSTMENTS -$ 81,000$ WATER FUND 4 of 4 1/12/2015 2013-2014 Comprehensive Annual Financial Report City of Palo Alto, California FISCAL YEAR ENDEDJune 30, 2014 Fiscal Year Ended June 30, 2014 2013-2014 Comprehensive Annual Financial Report Prepared by: Administrative Services Department City of Palo Alto, California CITY OF PALO ALTO  For the Year Ended June 30, 2014    Table of Contents   Page  INTRODUCTORY SECTION:   Transmittal Letter .................................................................................................................................... i   City Officials ........................................................................................................................................... vi   Organizational Structure ....................................................................................................................... vii   Administrative Services Organization .................................................................................................. viii   GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... ix    FINANCIAL SECTION:   Independent Auditor’s Report .............................................................................................................. 1      Management’s Discussion and Analysis    (Required Supplementary Information – Unaudited) ...................................................................... 5   Basic Financial Statements   Government‐wide Financial Statements:   Statement of Net Position ....................................................................................................... 29   Statement of Activities ............................................................................................................ 31   Governmental Fund Financial Statements:   Balance Sheet .......................................................................................................................... 33  Reconciliation of the Balance Sheet of Governmental Funds to         the Statement of Net Position ‐ Governmental Activities ................................................. 34   Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 35   Reconciliation of the Statement of Revenues, Expenditures and Changes   in Fund Balances of Governmental Funds to the Statement of Activities –          Governmental Activities ................................................................................................... 36   Statement of Revenues, Expenditures and Changes in Fund Balance –    Budget and Actual – General Fund ................................................................................... 37   Proprietary Fund Financial Statements:   Statement of Net Position ....................................................................................................... 38   Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 40   Statement of Cash Flows ......................................................................................................... 42   Fiduciary Fund Financial Statement:   Statement of Fiduciary Net Position ....................................................................................... 44   Index to the Notes to the Basic Financial Statements ................................................................. 45   Notes to the Basic Financial Statements ...................................................................................... 47  CITY OF PALO ALTO  For the Year Ended June 30, 2014    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 ............................................................. 118   Internal Service Funds:   Combining Statement of Fund Net Position .......................................................................... 120   Combining Statement of Revenues, Expenses and    Changes in Fund Net Position ......................................................................................... 121   Combining Statement of Cash Flows ..................................................................................... 122   Fiduciary Funds:   Statement of Changes in Assets and Liabilities – All Agency Funds ...................................... 124  STATISTICAL SECTION:   Financial Trends:   Net Position by Component ......................................................................................................... 127   Changes in Net Position ............................................................................................................... 128   Fund Balances of Governmental Funds ....................................................................................... 130   Changes in Fund Balances of Governmental Funds ..................................................................... 132  CITY OF PALO ALTO  For the Year Ended June 30, 2014    Table of Contents (Continued)   Page   Revenue Capacity:   Electric Operating Revenue by Source ......................................................................................... 133   Supplemental Disclosure for Water Utilities ............................................................................... 134   Assessed Value of Taxable Property ............................................................................................ 135   Property Tax Rates, All Overlapping Governments ..................................................................... 136   Property Tax Levies and Collections ............................................................................................ 137   Principal Property Taxpayers ....................................................................................................... 138   Assessed Valuation and Parcels by Land Use .............................................................................. 139   Per Parcel Assessed Valuation of Single Family Residential ........................................................ 140   Debt Capacity:   Ratio of Outstanding Debt by Type .............................................................................................. 141   Computation of Direct and Overlapping Debt ............................................................................. 142   Computation of Legal Bonded Debt Margin ................................................................................ 143   Revenue Bond Coverage .............................................................................................................. 144   Demographic and Economic Information:    Taxable Transactions by Type of Business ................................................................................... 145   Demographic and Economic Statistics ......................................................................................... 146   Principal Employers...................................................................................................................... 147   Operating Information:   Operating Indicators by Function/Program ................................................................................. 148   Capital Asset Statistics by Function/Program .............................................................................. 150   Full‐Time Equivalent City Government Employees by Function .................................................. 152  SINGLE AUDIT SECTION:   Index to the Single Audit Report .................................................................................................. 153  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 ........................................ 155   Independent Auditor’s Report on Compliance for Each Major Program and                         Report on Internal Control Over Compliance Required by OMB Circular A‐133 .................. 157   Schedule of Expenditures of Federal Awards .............................................................................. 159   Notes to the Schedule of Expenditures of Federal Awards ......................................................... 160   Schedule of Findings and Questioned Costs ................................................................................ 161   Schedule of Prior Years Findings and Questioned Costs ............................................................. 162       Introduction   ……….………………………………………………………………… City of Palo Alto   i   Transmittal Letter…………………………………………………...…  November 17, 2014  THE HONORABLE CITY COUNCIL  Palo Alto, California    Attention:  Finance Committee  COMPREHENSIVE ANNUAL FINANCIAL REPORT  YEAR ENDED JUNE 30, 2014      Members of the Council and Citizens of Palo Alto:    I am pleased to present the Comprehensive Annual Financial Report (CAFR) for the fiscal year ended  June 30, 2014 in accordance with Article III, Section 16 and Article IV, Section 13 of the City of Palo  Alto Charter.  The format and content of this CAFR comply with the principles and standards of  accounting and financial reporting adopted by the Governmental Accounting Standards Board (GASB)  and contains all information needed for readers to gain a reasonable understanding of City of Palo  Alto financial affairs.  Management takes sole responsibility for the completeness and reliability of  the information contained in this report based upon a comprehensive framework of internal control  that it has established for this purpose.  The objective of internal controls is to provide reasonable,  rather than absolute, assurance that the financial statements are free of any material misstatements.    The City of Palo Alto’s financial statements have been audited by Macias Gini & O’Connell LLP,  Certified Public Accountants.  The goal of the audit is to obtain reasonable assurance that the  financial statements are free of material misstatements and are fairly presented in conformity with  generally accepted accounting principles (GAAP).  Macias Gini & O’Connell issued an unmodified  opinion for the fiscal year ended June 30, 2014.  Their report is presented as the first component of  the financial section of this report.    In addition, Macias Gini & O’Connell conducted the federally mandated “Single Audit” designed to  meet the special needs of federal grantor agencies.  The standards governing the Single Audit require  the independent auditor to report on the fair presentation of the financial statements, government’s  internal controls and compliance with legal requirements.  These reports are included in the Single  Audit section of the CAFR.     An overview of the City’s financial activities for the fiscal year is discussed in detail in the  Management’s Discussion and Analysis (MD&A) section of the CAFR. MD&A complements this  transmittal letter and should be read in conjunction with it.      City of Palo Alto Office of the City Manager    Introduction  ……….………………………………………………………………… ii    City of Palo Alto  CITY OF PALO ALTO PROFILE  Palo Alto was incorporated in 1894 and named after a majestic coastal redwood tree which lives  along the San Francisquito Creek where early Spanish explorers settled.  Located between the cities  of San Francisco and San Jose, Palo Alto is a largely built‐out community of approximately 67,000  residents.  Palo Alto delivers a full range of municipal services and public utilities under the council‐ manager form of government and offers an outstanding quality of life for its residents.  It covers an  area of twenty‐six square miles and has dedicated almost one‐third of the area to open spaces of  parks and wildlife preserves.  Public facilities include five libraries, four community centers, a cultural  arts center, an adult and children’s theater, a junior museum and zoo, and a golf course.  The City  provides a diverse array of human services for seniors and youth, an extensive continuing education  program, concerts, exhibits, team sports and special events.  The independent Palo Alto Unified  School District (PAUSD) has achieved state and national recognition for the excellence of its  programs.    City Council:  The 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. Council is the  appointing authority for the positions of City Manager and three other officials, the City Attorney,  City Clerk, and City Auditor, all of whom report to the Council.     Finance Committee:  While retaining the authority to approve all actions, the City Council has  established a subcommittee to consider and make recommendations on matters referred to it by the  Council relating to finance, budget, audits, capital planning and debt.  Staff provides the Finance  Committee and Council with reports such as the CAFR, quarterly budget‐versus‐actual results, and  investment and performance measure reports, which are utilized in their review of the City’s  financial position.    FISCAL/ECONOMIC CONDITIONS AND OUTLOOK  Employment Trends:  The City of Palo Alto is located in the heart of Silicon Valley and is adjacent to  Stanford University, one of the premier institutions of higher education in the nation which has  produced much of the talent that founded many successful high‐tech companies in Palo Alto and  Silicon Valley.  With varied and relatively stable employers such as Stanford University, Stanford  Medical Center, Palo Alto Medical Foundation, Palo Alto Unified School District, Stanford Shopping  Center and businesses such as Hewlett‐Packard, VMware, Tesla, Palantir and Space Systems Loral,  Palo Alto has enjoyed diverse employment and revenue bases.  At the end of Fiscal Year (FY) 2014,  the City’s unemployment rate had dropped to 2.8 percent from 3.6 percent the prior year, as  compared to Santa Clara County’s unemployment rate of 5.4 percent, and the state’s unemployment  rate of 7.4 percent.    Real Estate Market:  In its most recent annual report, the Santa Clara County Assessor’s Office noted  that Santa Clara County’s 2014/2015 assessment roll increased 6.8 percent, from $335 billion to $357  billion ‐ “the third highest roll growth in County history.”   The assessment roll growth was balanced  throughout the County, with the highest growth rate in Milpitas at 9.7 percent and the lowest in  Monte Sereno at 5.3 percent.  Palo Alto’s assessment roll growth rate was 6.5 percent.  Property  sales and new construction were the primary factors contributing to the robust growth. With its  highly regarded school district, well‐educated and high‐income population, cultural amenities, and  Introduction   ……….………………………………………………………………… City of Palo Alto   iii   the presence of Stanford University, the City’s real estate values have typically been shielded from  major price swings.    Local Trends:  The solid recovery from the Great Recession is anticipated to continue, as the majority  of national, state, regional and local economic indicators point toward continuously improving  economic growth.  In the past two years, we have witnessed a continuing gradual increase in  economically sensitive revenue sources such as sales and documentary transfer taxes.  The robust  local economy and job growth are also driving increases in other revenues, particularly transient  occupancy tax and permit and license revenues.    Overall, funding sources are expected to be sufficient to cover projected FY 2015 expenses, as  forecasted in the City’s Adopted Budget.  The City Council adopted a General Fund budget with  expenses of $171.1 million for FY 2015, an increase of 7.1 percent from the prior year Adopted  Budget.  Citywide, full‐time equivalent (FTE) benefited positions are increasing by 14.45 positions, or  1.4 percent, however the total budgeted position count for FY 2015 is still well below the number of  FTEs employed a decade ago.  Pension and health care costs continue to rise.     Employer pension  rates will increase substantially beginning in FY 2016 as a result of changes in the actuarial method  for calculating pension rates that were adopted by the CalPERS Board of Administration.  The most  recent CalPERS valuations show unfunded liabilities for pension and retiree health benefits in the  range of $439 million, a significant increase from the prior valuation as a result of CalPERS changing  amortization and smoothing policies to use market value of assets instead of actuarial value.  The  City has proactively taken steps over the past several years to mitigate increased costs by negotiating  increased employee contributions to the CalPERS retirement plan.  Also, implementation of a second  tier retirement plan in 2011 and adoption of the state‐mandated third tier pension benefit plan in  2013 will help mitigate future pension cost increases.  Similarly, the City is negotiating provisions  such as capping the City’s health care contributions as an additional measure to decrease the rate of  health care cost growth.    Economic growth has increased the demand for housing, parking, and other City services.  These  issues were reflected in the setting of City Council priorities for 2014:     Comprehensive Planning and action on land use and transportation: the Built Environment,  Transportation, Mobility, Parking, and Livability   Infrastructure Strategy and Funding   Technology and the Connected City    In keeping with these priorities, City Council has approved funding for enhanced shuttle services and  establishment of a Transportation Management Authority.  A newly formed Office of Sustainability  will oversee various sustainability initiatives, and the Public Art Program has been expanded to  facilitate oversight of the public art component of construction projects and manage the City’s  portable art collection.  Major initiatives on the horizon include assuming management and control  of the Palo Alto Airport in August 2014 and a significant reconfiguration of the Palo Alto Municipal  Golf Course which will enhance playing conditions, improve wetland areas and achieve flood control.    The City’s infrastructure needs have been quantified as a result of a major effort by the Infrastructure  Blue Ribbon Commission (IBRC), and the recently formed Council Infrastructure Committee.  The  Committee has proposed a five year plan to spend $126 million on infrastructure, which includes  projects such as a new Public Safety Building, a Bike and Pedestrian plan, and a downtown parking  garage.  These projects will be funded partially by debt to be repaid with a proposed increase in the     Introduction  ……….………………………………………………………………… iv    City of Palo Alto  transient occupancy tax (TOT) rate and the TOT from newly opened hotels, and from other sources  such as impact fees and Stanford University Medical Center development agreement monies.  The  City has taken steps to fund its infrastructure needs by increasing General Fund transfers by $2.2  million annually since 2013 for “keep up” costs.  In addition, as a result of sound fiscal management  and reserve policies, General Fund surpluses of $7.6 million in FY 2012, $8.9 million in FY 2013, and  $4.0 million in FY 2014 were transferred to the Infrastructure Reserve.     The City’s Enterprise Funds implemented minimal rate changes in FY 2014.  There were no changes in  electric, gas, wastewater and refuse rates.  Water rates increased by 7 percent effective July 1, 2013.   The Fiber Optics and Storm Drainage Funds both implemented a 2.2 percent rate increase effective  July 1, 2013 for inflation based on the Consumer Price Index.    Long Range Financial Forecast:  The City of Palo Alto produces a 10 year General Fund Long Range  Financial Forecast (LRFF) annually.  This comprehensive report analyzes local, state, and federal  economic conditions, short and long‐term revenue and expense trends, and addresses challenges  such as funding retiree medical benefits 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.    The City Council is conscientious and proactive in its financial planning.  While the LRFF projects  General Fund surplus positions over the next ten years, the Council remains fiscally prudent in  approving new ongoing costs that will increase the City’s budget.  Further, the City maintains a  General Fund Budget Stabilization Reserve (BSR) level of 15 to 20 percent of the General Fund  operating budget, with a targeted goal of 18.5 percent.  City Council approval is required to set this  reserve balance lower than 15 percent.  For FY 2014, after transferring $4.0 million to the  Infrastructure Reserve, the remaining BSR balance is $35.1 million, or 20.5 percent.  $1.7 million was  set aside to balance the FY 2015 Operating Budget due to one‐time costs for expanded shuttle  service, establishing a Transportation Management Authority and the Our Palo Alto program, and  providing an additional loan to the Airport Fund.  The remaining BSR balance of $33.4 million is  within reserve guidelines at 19.5 percent.  Both Moody’s and Standard and Poor’s (S&P) awarded  their highest credit rating of Triple A to the City’s general obligation debt.  This rating has been  awarded to only a few cities in California.      SIGNIFICANT EVENTS AND ACCOMPLISHMENTS    The City of Palo Alto is a community dedicated to meeting the social, cultural, recreational,  educational, commercial and retail needs of its citizens and businesses.  As such, open space,  education, recreational facilities, cultural events and safe streets and neighborhoods are important  aspects of the community, and the City has been recognized for its accomplishments with a variety of  awards and recognitions over the past year:     Named as #5 on the Top 100 Best Places to Live and #8 on the Top 10 Best Cities for Kids by  Livability.com, a website that ranks quality of life amenities of America’s small and mid‐sized  cities;   Awarded the Beacon Award for efforts and leadership in addressing climate change and  achieving greenhouse gas reductions and energy savings;  Introduction   ……….………………………………………………………………… City of Palo Alto   v    Named as a 2014 Top Innovator by the Urban Libraries Council for the Library’s makeX: Teen  Mobile Makerspace, a teen‐designed “third space” for middle and high school aged teens;   Named as the 2014 Most Electric Vehicle Ready Community;   Awarded the 2014 Best Solar Collaboration Award for streamlining the solar approval  process;   Awarded the MetLife Foundation Community‐Police Partnership Award for crafting an  extraordinary partnership with Downtown Streets Team, Business and Professional  Association, Parking Committee and the Police Department to improve community safety;   Named as the #1 digital city in America in its population size for its adoption of innovative  technologies such as Open Data, PaloAlto311, Nextdoor and Police ride‐a‐longs via Twitter,  all of which advance and facilitate interaction between City staff, the community, businesses  and visitors; and   Awarded the 2013 Dr. Teng‐chung Wu Pollution Prevention Award to the City’s Regional  Water Quality Control Plant for being a leader in emerging pollutants research, education  and programming.    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 2014  CAFR will be submitted to the GFOA award program to be considered for this distinguished financial  reporting award.   Acknowledgments:  This CAFR reflects the hard work, talent and commitment of the staff members  of the Administrative Services Department.  This document could not have been accomplished  without their efforts and each contributor deserves sincere appreciation.  Management wishes to  acknowledge the support of Laura Kuryk, Accounting Manager, and the 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, 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 and Finance Committee for their  dedication to directing the financial affairs of the City in a responsible, professional and progressive  manner.   Respectfully submitted,  LALO PEREZ, JAMES KEENE,  Chief Financial Officer                                                                                     City Manager     Introduction  ……….………………………………………………………………… vi    City of Palo Alto  City of Palo Alto City Officials ………………………….…………                                                                                Finance Committee  Marc Berman, Chair  Patrick Burt  Karen Holman  Liz Kniss Policy and Services Committee    Gail A. Price, Chair  Larry Klein  Gregory Scharff  Greg Schmid  Council‐Appointed Officers    City Manager  James Keene    City Attorney  Molly Stump    City Clerk  Donna Grider    City Auditor  Harriet Richardson  City Council    Nancy Shepherd, Mayor  Liz Kniss, Vice‐Mayor  Marc Berman  Patrick Burt  Karen Holman  Larry Klein  Gail A. Price  Gregory Scharff  Greg Schmid    Introduction   ……….………………………………………………………………… City of Palo Alto   vii   Assistant City Manager   (2) Vacant  City Attorney  Molly Stump  City Manager James Keene  City Auditor Harriet Richardson  City Clerk Donna Grider  City of Palo Alto Organization ……………………………………                                                                            Palo Alto Residents City Council Community Services  Greg Betts, Director  Administrative Services   Lalo Perez, Chief Financial Officer  Fire  Eric Nickel, Chief  People Strategy and Operations   Kathryn Shen, Director  Police  Dennis Burns, Chief Planning & Community Environment   Hillary Gitelman, Director  Utilities   Valerie Fong, Director  Public Works   Mike Sartor, Director  Library  Monique le Conge‐Ziesenhenne,  Director  Development Services   Peter Pirnejad, Director  Chief Communications Officer  Claudia Keith  Office of Emergency Services Kenneth Dueker, Director  Office of Sustainability  Gil Friend, Chief Sustainability Officer  Information Technology   Jonathan Reichental,   Chief Information Officer     Introduction  ……….………………………………………………………………… viii    City of Palo Alto  Administrative Services Organization …………………………  Administrative Division Treasury Division  Accounting Division Budget Division  Purchasing Division Real Estate Division  Mission Statement    To provide proactive administrative and technical support to  City departments and decision makers, and to safeguard and  facilitate the optimal use of City resources.  Administrative Services Department  Introduction   ……….………………………………………………………………… City of Palo Alto   ix   Government Finance Officers Association of   the United States and Canada – Award …...…  1 Independent Auditor’s Report Honorable Mayor and the Members of the City Council of City of Palo Alto, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2014, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Change in Accounting Principles As discussed in Note 1(m) to the basic financial statements, effective July 1, 2013, the City adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the GASB who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, statistical section and the schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. 3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 17, 2014 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Walnut Creek, California November 17, 2014 4 This page is left intentionally blank.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 5 Management’s Discussion and Analysis  Management’s Discussion and Analysis (MD&A) provides an overview of the City of Palo Alto’s financial  performance for the fiscal year ended June 30, 2014. To obtain a complete understanding of the City’s financial  condition, this document should be read in conjunction with the accompanying Transmittal Letter and Basic  Financial Statements.    Financial Highlights     The assets and deferred outflows of resources of the City of Palo Alto (City) exceeded its liabilities at  the close of Fiscal Year (FY) 2014 by $1,387.1 million.  Of this amount, $454.2 million represents  unrestricted net position, which may be used to meet the government’s ongoing obligations to  citizens and creditors.    At the close of FY 2014, the City’s governmental funds reported combined fund balances of $214.0  million, an increase of $3.1 million from prior year.  Approximately 17.1 percent of this amount, or  $36.7 million, is unassigned fund balance and available for spending at the government’s discretion.   At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned  and unassigned components of fund balance) for the General Fund was $42.1 million, or 27.5 percent  of total general fund expenditures, including transfers.   The City’s total outstanding long‐term debt decreased by $5.5 million during the current fiscal year  due primarily to scheduled debt retirement.   As of July 1, 2013, the City implemented GASB Statement No. 65, Items Previously Reported as Assets  and Liabilities. FY 2013 balances were restated to reflect the impact, as detailed in Note 1(m).    OVERVIEW OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR)  The CAFR is presented in six sections:     An introductory section that includes the Transmittal Letter and general information   Management’s Discussion and Analysis   The Basic Financial Statements that include the Government‐wide and Fund Financial  Statements, along with the Notes to these statements   Supplemental Information   Statistical Information    Single Audit  Basic Financial Statements  The Basic Financial Statements contain the Government‐wide Financial Statements, the Fund Financial  Statements and the Notes to these financial statements.  This report also includes supplementary information  intended to furnish additional detail to support the Basic Financial Statements.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 6 For certain entities and funds, the City acts solely as a depository agent. For example, the City has several  Assessment Districts for which it produces fiduciary statements detailing the cash balances and activities of  these districts. These entities are independent, and their balances are excluded from the City’s government‐ wide financial statements.   Government‐wide Financial Statements  The Government‐wide Financial Statements provide a longer‐term view of the City’s activities as a whole.   They include the Statement of Net Position and the Statement of Activities.      The Statement of Net Position includes the City’s capital assets and long‐term liabilities on a full accrual basis  of accounting similar to that used by private sector companies. Over time, increases or decreases in net  position may serve as a useful indicator of whether the financial position of the City is improving or  deteriorating.      The Statement of Activities provides information about the City’s revenues and expenses on a full accrual  basis, with an emphasis on measuring net revenues or expenses for each of the City’s programs. The  Statement of Activities explains in detail the change in net position for the year.  All changes in net position  are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of  related cash flows.      The amounts in the Statement of Net Position and the Statement of Activities are separated into  Governmental and Business‐type Activities in order to provide a summary of each type of activity.     Governmental Activities ‐ All of the City’s basic services are considered to be governmental activities. Included  in basic services are the City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative  Services, People Strategy and Operations, Public Works, Planning and Community Environment, Public Safety,  Community Services, and Library. These services are supported by general City revenues such as taxes, and by  specific program revenues such as fees and grants.     The City’s governmental activities also include the activities of the Palo Alto Public Improvement Corporation,  which is a separate legal entity financially accountable to the City.     Business‐type Activities ‐ All of the City’s enterprise activities are reported as business‐type activities,  including Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm  Drainage and Airport. Unlike governmental services, these services are intended to recover all or a significant  portion of their costs through user fees and charges, except for the Airport which is currently supported by a  long‐term advance from the General Fund, as discussed in Note 4.    The Government‐wide Financial Statements can be found on pages 29‐31 of this report.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 7 Fund Financial Statements  The Fund Financial Statements provide detailed information about each of the City’s most significant funds  called major funds. The concept of major funds and the determination of which are major funds, was  established by Governmental Accounting Standards Board (GASB) Statement No. 34 and replaced the concept  of combining like funds and presenting them in total. Therefore, each major fund is presented individually,  with all non‐major funds combined in a single column on each fund statement. Subordinate schedules display  these non‐major funds in more detail. Major funds present the major activities of the City for the year.  The  General Fund is always considered a major fund, but other funds may change from year to year as a result of  changes in the pattern of City activities.     The Fund Financial Statements display the City’s operations in more detail than the Government‐wide  Financial Statements. Their focus is primarily on the short‐term activities of the City’s General Fund and other  major funds such as Capital Projects, Water Services, Electric Services, Fiber Optics, Gas Services, Wastewater  Collection Services, Wastewater Treatment Services, Refuse Services, Storm Drainage Services and Airport.    Budget and actual financial comparison information is presented only for the General Fund.     Fund Financial Statements include Governmental, Enterprise, Internal Service and Agency Funds.    Governmental Funds  Governmental Fund Financial Statements are prepared on the modified accrual basis of accounting, which  means they measure only current financial resources and uses. Capital assets and other long‐lived assets,  along with long‐term liabilities, are presented only in the Government‐wide Financial Statements. In FY 2014,  the City had two major governmental funds, the General Fund and the Capital Projects Fund.  Data from the  other governmental funds are combined into a single aggregated presentation.  Individual fund data for each  of these non‐major governmental funds is provided in the Supplemental section of this report.     Because the focus of governmental funds is narrower than that of the Government‐wide Financial Statements,  it is useful to compare the information presented for governmental funds with similar information presented  for governmental activities in the Government‐wide Financial Statements.  By doing so, readers may better  understand the long‐term impact of the government’s near‐term financing decisions.  Both the Governmental  Fund Balance Sheet and the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund  Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental  activities.    The Governmental Fund Financial Statements can be found on pages 33‐37 of this report.    Proprietary Funds  Enterprise and Internal Service Fund Financial Statements are prepared on the full accrual basis of accounting,  similar to that used by private sector companies. These statements include all of their assets, deferred  outflows of resources and liabilities, both current and long‐term.     Since the City’s Internal Service Funds provide goods and services exclusively to the City’s governmental and  business‐type activities, their activities are only reported in total at the fund level.  Internal Service Funds,  such as Technology and General Benefits, cannot be considered major funds because their revenues are  derived from other City funds. Revenues between funds are eliminated in the Government‐wide Financial  Statements, and any related profits or losses in Internal Service Funds are returned to the activities in which  they were created, along with any residual net assets of the Internal Service Funds.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 8 The Proprietary Fund Financial Statements can be found on pages 38‐43 of this report.  Fiduciary Funds  The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Off‐Street  Parking Assessment District.  In this role, the City holds money collected from property owners and awaiting  transfer to the districts’ bond trustees. The City’s fiduciary activities are reported in the separate Statement  of Fiduciary Net Position and the supplemental Agency Funds Statement of Changes in Assets and Liabilities.  These activities are excluded from the City’s other financial statements because the City cannot utilize these  assets to finance its own operations.    The Fiduciary Fund Financial Statements can be found on page 44 of this report.  Notes to the Financial Statements  The Notes provide additional information that is necessary to acquire a full understanding of the data provided  in the Government‐wide and Fund Financial Statements.  The Notes to the financial statements can be found  on pages 47‐99 of this report.      Other Information  The combining statements referred to earlier in connection with non‐major Governmental Funds and Internal  Service Funds, are presented immediately following the Notes to the financial statements.  Combining  statements and individual fund statements and schedules can be found on pages 101‐124 of this report.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 9 Financial Analysis of Government‐wide Financial Statements  This section focuses on the City’s net position and changes in net position of its governmental and business‐ type activities for the fiscal year ending June 30, 2014.  As noted earlier, the City’s total assets exceed total  liabilities by $1,387.1 million at the end of the fiscal year, an improvement in net position of $52.8 million.   STATEMENT OF NET POSITION As of June 30, 2014 (in millions)  2014 2013 * 2014 2013 * 2014 2013 * Cash and investments 271.8$   261.9$   269.5$    266.0$    541.3$       527.9$       Other assets 55.8 58.4 34.3 42.3 90.1            100.7          Capital assets 452.6 428.9 545.5 522.2 998.1 951.1  Total Assets 780.2     749.2     849.3      830.5      1,629.5      1,579.7      Unamortized loss from refunding ‐             ‐            0.4          0.5          0.4              0.5              Total Deferred Outflows of Resources ‐             ‐            0.4          0.5          0.4              0.5              Long‐term debt 80.9 82.6 76.2 80.0 157.1 162.6 Other liabilities 56.9 52.1 28.8 31.2 85.7 83.3 Total Liabilities 137.8     134.7     105.0      111.2      242.8         245.9                   Net Position           Net investment in capital assets 386.7 378.1 473.8 446.1 860.5 824.2 Restricted 68.3 71.7 4.1 4.1 72.4 75.8 Unrestricted 187.4 164.7 266.8 269.6 454.2 434.3 Total Net Position 642.4$   614.5$   744.7$   719.8$   1,387.1$    1,334.3$    * FY 2013 balances have been restated for GASB Statement No. 65 implementation. Governmental Activities Business‐type Activities Government‐wide Totals The largest portion of the City’s net position (62.0 percent) is its investment in capital assets such as land,  buildings, infrastructure and vehicles, less any related outstanding debt that was used to acquire those assets.   The City uses these capital assets to provide a variety of services to its citizens.  Accordingly, these assets are  not available for future spending.  Although the City’s investment in capital assets is reported net of related  debt, it should be noted that the resources used to repay this debt must be provided from other sources, since  the capital assets themselves cannot be used to liquidate these liabilities.    The restricted portion of the City’s net position (5.2 percent) represents resources that are subject to external  restrictions on how they may be used.  The remaining balance of $454.2 million, representing 32.8 percent of  the City’s net position, is unrestricted and may be used to meet the government’s ongoing obligations to its  citizens and creditors.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 10 At the end of the current fiscal year, the City is able to report positive balances in all reported categories of  net position, both for the government as a whole, and for its separate governmental and business‐type  activities.  The same situation held true for the prior fiscal year.    Components of the $52.8 million increase in total net position are discussed in the following sections for  governmental activities and business‐type activities.  Governmental Activities – Net Position  The following analysis focuses on the net position and changes in net position of the City’s Governmental  Activities, presented in the Government‐wide Statement of Net Position and Statement of Activities.  GOVERNMENTAL ACTIVITIES Net Position at June 30 (in millions) Increase/  2014 2013 *(Decrease) Cash and investments 271.8$    261.9$    9.9$         Other assets 55.8 58.4 (2.6) Capital assets 452.6 428.9 23.7  Total Assets 780.2      749.2      31.0         Long‐term debt 80.9 82.6 (1.7) Other liabilities 56.9 52.1 4.8 Total Liabilities 137.8      134.7      3.1                  Net Position     Net investment in capital assets 386.7 378.1 8.6 Restricted 68.3 71.7 (3.4) Unrestricted 187.4 164.7 22.7 Total Net Position 642.4$   614.5$   27.9$       * FY 2013 balances have been restated for GASB Statement No. 65 implementation. The City’s Governmental Activities total net position increased $27.9 million to $642.4 million as of June 30,  2014. Changes in assets and liabilities were a result of the following:   Cash balance increased $9.9 million primarily due to collection of the $3.2 million Maybell loan and  an increase in accounts payable of $5.0 million for Library capital expenditures.   Other assets decreased $2.6 million primarily due to collection of the Maybell loan.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 11  Capital assets net of depreciation increased $23.7 million due to continued construction of the  Mitchell Park Library and Community Center ($4.2 million) and the Main Library ($11.7 million), and  net additions to the City’s network of roadways and sidewalks ($2.3 million).   Investment in capital assets increased $8.6 million to $386.7 million.  Restricted net position  decreased $3.4 million to $68.3 million. Unrestricted net position increased $22.7 million to $187.4  million.   Unrestricted net position represents current net assets available to finance subsequent year  operations and other expenditures approved by City Council.  Governmental Activities – Revenues  The table below shows that Governmental Activities revenues totaled $166.4 million in FY 2014, a decrease  of $3.9 million from prior year revenues of $170.3 million.   GOVERNMENTAL ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2014 2013 (Decrease) Program Revenues: Charges for services 54.0$      75.8$      (21.8)$      Operating grants and contributions 5.4 5.0 0.4 Capital grants and contributions 0.9 0.5 0.4 Total Program Revenues 60.3        81.3        (21.0)       General Revenues: Property tax 35.3 31.9 3.4 Sales tax 29.4 25.6 3.8 Utility user tax 11.0 10.9 0.1            Transient occupancy tax 12.3 10.8 1.5 Documentary transfer tax 7.8 6.8 1.0 Other tax 1.8 3.7 (1.9) Investment earnings 5.9 (1.2) 7.1 Rents and miscellaneous 2.6 0.5 2.1 Total General Revenues 106.1 89.0 17.1 Total Revenues 166.4$   170.3$   (3.9)$         Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 12 Total Program Revenues decreased $21.0 million from the prior year due to the following:   $8.6 million decrease in developer impact, housing in‐lieu, and transportation mitigation fees, all of  which vary depending on volume and magnitude of development projects.   $11.7 million decrease in receipts from a Development Agreement with Stanford Hospital Clinics,  Lucile Salter Packard Children’s Hospital at Stanford and the Board of Trustees of the Leland Stanford  Junior University (SUMC Parties).  This was a one‐time payment received from SUMC in the prior fiscal  year.    Program Revenues such as charges for services, operating grants and contributions, and capital grants and  contributions are generated from or restricted to each activity.    General Revenues increased $17.1 million, or 19.2 percent, from the prior year, $7.1 million of which was due  to an increase in fair value of the investment portfolio at June 30.  Further analysis of general revenues can  be found in the Financial Analysis of Governmental Funds section of the MD&A.  Governmental Activities – Revenues by Source  The chart below presents revenues by source for Governmental Activities. General Revenues are composed  of taxes and other revenues not specifically generated by, or restricted to, individual activities. All tax revenues  and investment earnings are included in General Revenues.  Program Revenues 36% Property Tax 21% Sales Tax 18% Utility User Tax 7% Transient Occupancy  Tax 7% Documentary Transfer Tax 5% Other 6% Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 13 Governmental Activities – Expenses  The table below presents a comparison of FY 2014 and FY 2013 expenses by function, and interest and other  expense.  Total Governmental Activities functional expense was $155.5 million in FY 2014, an increase of $15.8  million, or 11.3 percent.  Of this increase, $7.3 million was a result of General Fund expenditures and the  variance drivers are explained in more detail in the Fund Financial Statements section of the MD&A.  The  remaining $8.5 million variance is due primarily to fixed asset related activities such as depreciation and asset  retirements.   GOVERNMENTAL ACTIVITIES Expenses and Change in Net Position for the Year Ended June 30 (in millions) Increase/ Activities 2014 2013 *(Decrease) City Council 0.4$        0.1$        0.3$         City Manager 2.2 1.2 1.0 City Attorney 1.8 1.6 0.2 City Clerk 0.6 0.3 0.3 City Auditor 0.5 0.5 0.0 Administrative Services 11.3 7.6 3.7 People Strategy and Operations 1.3 1.4 (0.1) Public Works 24.6 20.8 3.8 Planning and Community Environment 14.9 13.6 1.3 Public Safety 62.9 59.5 3.4 Community Services 23.8 22.7 1.1 Library 7.8 7.3 0.5 Interest and Other Expense 3.4 3.1 0.3 Total Functional Expense 155.5 139.7 15.8 Increase in Net Position    before Transfers 10.8 30.7 (19.9) Transfers in 17.1 19.3 (2.2)     Change in Net Position 27.9 50.0 (22.1) Net Position, Beginning,614.5 565.1 49.4 Restatement due to GASB 65 ‐             (0.6)         0.6            Net Position, Ending 642.4$   614.5$   27.9$       * FY 2013 balances have been restated for GASB Statement No. 65 implementation.   Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 14 Governmental Activities – Functional Expenses  The functional expenses chart below includes only current year expenses. It does not include capital outlays,  as those are added to the City’s capital assets.  Functions which comprise 1 percent or less of total expenses  are combined into the All Other category in the chart below.  All Other includes City Council, City Manager,  City Attorney, City Clerk, City Auditor and People Strategy and Operations.      Administrative Services 7% Public Works 16% Interest and Other  Expense 2% Planning and Community  Environment 10% Public Safety 41% Community Services 16% Library 5% All Other 3% Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 15 Business‐type Activities – Net Position  The following analysis focuses on the net position and changes in net position of the City’s Business‐type  Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.  Increase/  2014 2013 *(Decrease) Cash and investments 269.5$    266.0$    3.5$         Other assets 34.3 42.3 (8.0) Capital assets 545.5 522.2 23.3  Total Assets 849.3      830.5      18.8         Unamortized loss from refunding 0.4           0.5           (0.1)          Total Deferred Outflows of Resources 0.4          0.5          (0.1)          Long‐term debt 76.2 80.0 (3.8) Other liabilities 28.8 31.2 (2.4) Total Liabilities 105.0      111.2      (6.2)                 Net Position     Net investment in capital assets 473.8 446.1 27.7 Restricted 4.1 4.1 0.0 Unrestricted 266.8 269.6 (2.8) Total Net Position 744.7$   719.8$   24.9$       * FY2013 balances have been restated for GASB Statement No. 65 implementation. BUSINESS‐TYPE ACTIVITIES Net Position at June 30 (in millions) The City’s Business‐type Activities total net position increased $24.9 million to $744.7 million as of  June 30, 2014.     Other assets decreased $8.0 million primarily as a result of lower accounts receivable balances of $5.7 million.   The lower accounts receivable balances are due primarily to:   $2.6 million in Electric Fund due to $0.9 million adjustment for a meter malfunction, with the  remainder due to a timing difference in billing of routes.   $2.1 million in Wastewater Treatment Fund due to the Regional Water Quality Control Plant (RWQCP)  discontinuing its practice of invoicing partners for encumbrances.  Capital assets increased $23.3 million to $545.5 million in FY 2014 as a result of Water, Electric and Gas  infrastructure improvements. Additions include $9.9 million of capital improvements in Water, $7.7 million of  capital improvements in Electric, and $5.7 million of capital improvements in Gas.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 16 Net investment in capital assets increased $27.7 million to $473.8 million.   Unrestricted net position of $266.8 million, a decrease of $2.8 million from the prior year, represents 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 (RSR) of $136.3 million,  the Electric special projects (Calaveras) reserve for stranded costs of $51.8 million, and the emergency plant  replacement reserve of $7.0 million.  Business‐type Activities – Revenues  The table below presents the revenues for each of the City’s Business‐type Activities or Enterprise Funds. The  City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse,  Storm Drainage and Airport Funds, which are major funds and are presented in the Basic Financial Statements.    BUSINESS‐TYPE ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2014 2013 (Decrease) Program Revenues: Charges for services 273.0$    272.8$    0.2$         Operating grants and contributions 0.5           0.6           (0.1) Capital grants and contributions 2.0 2.2 (0.2) Total Program Revenues 275.5      275.6      (0.1)          General Revenues: Investment earnings (loss)6.4 (2.8) 9.2 Total General Revenues 6.4 (2.8) 9.2 Total Revenues 281.9$   272.8$   9.1$         Business‐type Activities revenues totaled $281.9 million, an increase of $9.1 million from the prior year.   Program revenues were flat year over year.  Investment earnings increased $9.2 million from the prior year  due to an increase in fair value of the investment portfolio at June 30.          Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 17 Business‐type Activities – Expenses  The table below presents a comparison of the FY 2014 and FY 2013 expenses for the City’s Business‐type  Activities. Encumbrances and reappropriations are not included.  BUSINESS‐TYPE ACTIVITIES Expenses and Change in Net Position for the Year Ended June 30 (in millions) Increase/ Business‐type Activities 2014 2013 *(Decrease) Water 31.6$      30.7$      0.9$         Electric 113.0 106.5 6.5 Fiber Optics 1.7 1.4 0.3 Gas 26.9 26.8 0.1 Wastewater Collection 13.2 14.3 (1.1) Wastewater Treatment 21.0 20.6 0.4 Refuse 28.4 28.6 (0.2) Storm Drainage 3.6 3.7 (0.1) Airport 0.5 0.2 0.3 Total Functional Expense 239.9 232.8 7.1 Increase in Net Position    before Transfers 42.0 40.0 2.0 Transfers out (17.1) (19.2) 2.1     Change in Net Position 24.9 20.8 4.1 Net Position, Beginning 719.8 699.8 20.0 Restatement due to GASB 65 ‐             (0.8)         0.8 Net Position, Ending 744.7$   719.8$   24.9$       * FY 2013 balances have been restated for GASB Statement No. 65 implementation. Business‐type Activities expenses increased $7.1 million for a total of $239.9 million. Year over year expenses  were significantly affected by the following events:   Electric Fund expenses increased $6.5 million primarily due to increased energy purchase costs.   Wastewater Collection expenses decreased $1.1 million due to the RWQCP discontinuing its practice  of invoicing partners for encumbrances.   Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 18 FUND FINANCIAL STATEMENTS   Financial Analysis of Governmental Funds  As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance‐related  legal requirements.    Governmental Funds  The focus of the City’s Governmental Funds is to provide information on near‐term inflows, outflows, and  balances of spendable resources.  Such information is useful in assessing the City’s financing requirements.  In  particular, the unassigned fund balance may serve as a useful measure of a government’s net resources  available for discretionary use as it represents the portion of fund balance not yet limited to use for a particular  purpose by either an external party, the City itself, or an entity that has been delegated authority by the City  Council to assign resources for use.    As of June 30, 2014, the City’s Governmental Funds reported combined fund balances of $214.0 million, an  increase of $3.1 million from the prior year.  Approximately 17.1 percent, or $36.7 million, constitutes  unassigned fund balance, which is available for spending at the government’s discretion.  The remainder of  the fund balance is either non‐spendable, restricted, committed, or assigned to indicate that it is: 1) not in  spendable form ($21.1 million); 2) restricted for particular purposes ($68.5 million); 3) committed for  particular purposes ($27.1 million); or 4) assigned for particular purposes ($60.6 million).    Governmental Fund revenues decreased $6.1 million, or 3.6 percent, from prior year to $164.7 million.   Revenues in the General Fund increased $9.1 million and Capital Projects Fund revenue increased $1.4 million.   Other Governmental Funds revenue decreased by $16.5 million primarily due to $11.7 million less in receipts  from SUMC Parties Development Agreement, and a decrease in developer impact and other fees.    Governmental Fund expenditures were $179.1 million, an increase of $18.9 million from the prior year.  General Fund expenditures increased $7.3 million, Capital Projects Fund expenditures increased by $7.0  million, and Non‐major Fund expenditures increased by $4.6 million.  Details of significant changes are  discussed in the following sections.  General Fund   Balance Sheet  The General Fund is the primary operating fund of the City.  At the end of the current fiscal year, fund balance  of the General Fund was $48.3 million, compared to $42.1 million in the prior year.  The fund balance has  been classified as $6.2 million non‐spendable, $5.4 million assigned, and $36.7 million unassigned.  Of the  unassigned amount, $35.1 million is designated by the Council for budget stabilization.  $1.7 million will be  used to fund one‐time expenses in the FY 2015 Operating Budget.  The remaining balance of $33.4 million  represents 19.5 percent of FY 2015 expenditures and operating transfers which is within the reserve guidelines  set by City Council.  Excess funds totaling $4.0 million were transferred to the Infrastructure Reserve in the  Capital Projects Fund, as allowed by the General Fund Reserve Policy.            Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 19 Statement of Revenues, Expenditures and Changes in Fund Balance    Revenues  The City’s General Fund revenues totaled $141.7 million in FY 2014. This represents an increase of $9.1 million,  or 6.9 percent, compared to the prior year.  The year over year change in significant revenue sources is noted  in the following table.        GENERAL FUND Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2014 2013 (Decrease) Property tax 30.6$      28.7$      1.9$          Sales tax 29.4 25.6 3.8 Utility user tax 11.0 10.9 0.1 Transient occupancy tax 12.2 10.8 1.4 Documentary transfer tax 7.8 6.8 1.0 Charges for services 24.0 26.7 (2.7) Permits and licenses 7.0 7.6 (0.6) Rental income 14.2 12.9 1.3 All other 5.5 2.6 2.9 Total Revenues 141.7$    132.6$    9.1$              Property tax revenue increased by $1.9 million, or 6.6 percent, over FY 2013 for a total of $30.6 million.  The  City’s property assessment roll growth of 6.5 percent was supplemented by better than expected receipts  from secured property taxes.    Sales tax revenue increased by $3.8 million, or 14.8 percent, over FY 2013 levels for a total of $29.4 million.   The increase was driven by strong retail activity in auto, electronic equipment, apparel store, restaurant, and  service station sales.     Transient occupancy tax continued to increase, and ended the year $1.4 million, or 13.0 percent, higher than  prior year due to strong business activity and increasing occupancy and room rates.    Documentary transfer tax increased $1.0 million to $7.8 million primarily due to a small number of high dollar  commercial property transactions.      Charges for services totaled $24.0 million in FY 2014, a decrease of $2.7 million from the prior year.  The  decrease was primarily due to reduced golf course revenues of $0.8 million resulting from the course  reconfiguration project, reduced other fees of $0.6 million due to a one‐time adjustment to deposit accounts  in the prior year, and reduced net cable franchise fees of $0.7 million due to prior year under accrual of  expense.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 20 Rental income increased from prior year by $1.3 million due to increased revenue from Enterprise and Internal  Service Funds for renting space at City facilities.    All other revenue increased from prior year by $2.9 million to $5.5 million.  The increase is due to an increase  in fair value of the investment portfolio at June 30.    Expenditures  General Fund expenditures totaled $134.5 million for FY 2014 compared to $127.2 in the prior year.  This  amount excludes encumbrances and reappropriations.  The year over year change for major functions is noted  in the following table:      GENERAL FUND Expenditures for the Year Ended June 30 (in millions) Increase/ Expenditures by Function 2014 2013 (Decrease) Administrative Services 3.0$        3.1$        (0.1)$        Public Works 11.5 11.5 ‐              Planning and Community Environment 13.2 11.8 1.4 Public Safety 61.7 59.5 2.2 Community Services 22.5 21.5 1.0 Library 7.3 6.9 0.4 Non‐Departmental 8.0 7.4 0.6 All other 7.3 5.5 1.8 Total Expenditures 134.5$   127.2$   7.3$             The increase from prior year of $7.3 million, or 5.7 percent, is comprised mainly of the following items:   Police salary expenditure has increased $0.7 million primarily due to fewer vacancies in the current  year.   Police disability expenditure has increased $0.6 million due to several significant long‐term cases.   Fire overtime expense has increased $0.7 million due to coverage for vacancies and long‐term injuries,  and support for succession planning and career development.   All other category has increased $1.8 million due to reduced cost plan revenue from other funds, and  increased Library expenditures for books of $0.4 million.   Planning and Community Environment expenditures have increased as a result of contract services  that were necessary due to increased development activity and the complexity of development  projects.    Transfers out for FY 2014 were $18.8 million compared to $25.1 million in the prior year.  Of the $6.3 million  decrease, $4.9 million was a decrease in the amount of year‐end surplus funds transferred from the General  Fund to the Infrastructure Reserve in the Capital Projects Fund.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 21 General Fund – Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual    Original budget compared to final budget  Revenues were originally budgeted at $143.0 million and were revised upward by $11.7 million.  Of this  increase, $5.6 million was to adjust for encumbrances.  Revenue categories that were adjusted are shown in  the table below.    GENERAL FUND Budgeted Revenues for the Year Ended June 30 (in millions) Original Final Increase/ Budgeted Revenues Budget Budget (Decrease) Sales tax 23.8$         27.3$      3.5$         Transient occupancy tax 11.5 12.3 0.8 Documentary transfer tax 5.7 7.4 1.7 Charges for services 24.3  22.7 (1.6) Rental income 12.9 14.0 1.1 All other 54.3 54.9 0.6 132.5 138.6 6.1 Charges to other funds 10.5 10.5 ‐              Prior year encumbrances and appropriations 5.6 5.6 Total Budgeted Revenues 143.0$      154.7$   11.7$           Adjustments to the original budget were based on the following:   Sales tax was increased by $3.5 million primarily due to unexpected receipts from a single vendor in  the first two quarters of the year.   Transient occupancy tax was increased by $0.8 million due to higher occupancy rates, increased  average daily room rates, and increased business and visitor activity.   Documentary transfer tax was increased by $1.7 million based on increased real estate transactions  and higher transaction values.   Charges for services revenue was decreased by $1.6 million primarily due to reduced Stanford Fire  Services revenue of $0.8 million, reduced Development Services revenue of $0.4 million to provide  for unearned revenue at June 30, and reduced Golf Course revenue of $0.2 million due to the course  reconfiguration project.   Rental income was increased by $1.1 million due to additional rent from various Enterprise and  Internal Service Funds for space used at City facilities.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 22 Actual revenues of $141.4 million were $2.8 million higher than final budgeted revenues of $138.6 million due  primarily to sales tax revenue which was $2.1 million higher due to stronger than anticipated retail sales.    Expenditures were originally budgeted at $145.6 million and were revised upward by $8.0 million for a final  budgeted amount of $153.6 million, as shown in the table below.  GENERAL FUND Budgeted Expenditures for the Year Ended June 30 (in millions) Original Final Increase/ Actuals, plus Budgeted Expenditures Budget Budget (Decrease) Encumbrances City Attorney 2.5$           3.1$         0.6$         3.1$                     City Manager 2.5             3.1           0.6           3.1                       Community Services 22.7           23.9         1.2           23.4                     Public Safety 61.0           63.6         2.6           63.4                     Planning and Community Enviornment 13.6           15.1         1.5           14.6                     Public Works 13.8           14.4         0.6           14.1                     All other 29.5           30.4         0.9           30.1                     Total Budgeted Expenditures 145.6$      153.6$    8.0$         151.8                  Less: Charges to Other Funds (10.9)                   Less: Encumbrances (6.4) Net General Fund Expenditures 134.5$                    Adjustments of $8.0 million to the original budget were primarily due to the following:   $5.6 million for carry‐forward of encumbrances from prior year.   $0.5 million adjustment for Measure D Ballot Measure in November 2014.   $0.2 million for Community Services park maintenance.      The final budgeted expenditure amount of $153.6 million compares to the actual expenditures plus  encumbrances of $151.8 million, a difference of $1.8 million.  The lower than budgeted expenditures were  primarily due to non‐salary budget savings across General Fund departments.    Transfers out were originally budgeted at $14.1 million, with the final budget number at $19.1 million, an  increase of $5.0 million.  The increase was due to an additional $4.0 million transfer to the Infrastructure  Reserve and $1.0 million transfer of collected Technology Enhancement Fees to the Information Technology  Fund.  The actual transfers out for the year were $18.8 million, a difference of $0.3 million from final budget.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 23 Capital Projects Fund  Capital Projects Fund expenditures and other uses were $37.4 million in FY 2014, an increase of $6.8 million  from the prior year driven by construction and renovation of Mitchell Park Library and Community Center and  Main Library. 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.  Financial Analysis of Enterprise Funds   At June 30, 2014, the City’s Enterprise Funds reported total net position of $742.4 million, an increase of $24.4  million or 3.4 percent over the prior year. The increase was primarily from the Water, Fiber Optics, Gas and  Wastewater Collection Funds for $11.0 million, $3.1 million, $3.3 million and $3.5 million, respectively.   Further analysis is noted in the following section.  Unrestricted net position for the Enterprise Funds totaled  $264.4 million, a 1.1 percent decrease from FY 2013.    Following is a table which compares the year over year change in net position for each of the Enterprise Funds:    ENTERPRISE FUNDS Change in Net Position for the Year Ended June 30 (in millions) Increase/ Fund Name 2014 2013 (Decrease) Water 11.0$         6.8$         4.2$          Electric 1.7 1.9 (0.2) Fiber Optics 3.1 2.8 0.3 Gas 3.3  1.3 2.0 Wastewater Collection 3.5 2.5 1.0 Wastewater Treatment (1.9) 0.8 (2.7) Refuse 2.2 2.3 (0.1) Storm Drainage 2.7 2.3 0.4 Airport (0.5) (0.2) (0.3) Total Change in Net Position 25.1$         20.5$      4.6$            The most significant factors in the year over year change in net position for Enterprise Funds are as follows:   Water change in net position for the year was $11.0 million, an increase of $4.2 million from the prior  year.  The increase is primarily due to a $2.5 million increase in operating revenues resulting from a 7  percent rate increase effective July 2013 and a $1.2 million increase in investment earnings.  The  ending RSR balance is $20.1 million, an increase of $2.9 million from prior year.   Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 24  Gas ended the year with change in net position of $3.3 million, compared to $1.3 million in the prior  year, an increase of $2.0 million.  The increase is due to a $0.8 million decrease in operating expenses  for the cross‐bore project and increased investment earnings of $1.1 million.  The ending RSR balance  is $16.0 million, an increase of $4.7 million from prior year.    Wastewater Collection ended the year with change in net position of $3.5 million compared to $2.5  million in the prior year.  The increased change in net position is primarily due to decreased operating  costs resulting from the RWQCP discontinuing its practice of invoicing partners for encumbrances.   The ending RSR balance is $7.3 million, an increase of $3.2 million from prior year.     Wastewater Treatment ended the year with a change in net position of negative $1.9 million,  compared to $0.8 million change in net position in FY 2013.  The decrease of $2.7 million is due to the  RWQCP discontinuing its practice of invoicing partners for encumbrances.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 25 CAPITAL ASSETS  GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.   Infrastructure includes roads, bridges, signals and similar assets used by the entire population.  The table  below shows capital assets and the amount of accumulated depreciation for these assets for Governmental  and Business‐type Activities.  Further detail can be found in Note 6 to the financial statements.    Increase/  2014 2013 (Decrease) Governmental Activities Capital Assets Land and improvements 79.0$      79.0$      ‐$            Street trees 15.2 15.4 (0.2) Construction in progress 89.9 69.2 20.7 Buildings and improvements 134.6 133.7 0.9 Intangible assets 3.8 3.8           ‐ Equipment 11.9 10.9 1.0 Roadway network 291.3 282.3 9.0 Recreation and open space network 27.6 24.9 2.7 Less accumulated depreciation (215.1) (203.8) (11.3) Internal Service Fund Assets   Construction in progress 3.1 1.4 1.7 Equipment 51.1 50.9 0.2 Less accumulated depreciation (39.8) (38.8) (1.0) Total Governmental Activities 452.6$    428.9$    23.7$       Business‐type Activities Land 5.0$         5.0$         ‐$            Construction in progress 122.2 118.2 4.0 Buildings and improvements 34.1 33.3 0.8 Transmission, distribution and treatment systems 675.8 642.1 33.7 Less accumulated depreciation (291.6) (276.4) (15.2) Total Business‐type Activities 545.5$    522.2$    23.3$       CAPITAL ASSETS AT JUNE 30 (in millions) Governmental Activities’ capital assets net of depreciation increased by $23.7 million from the prior year.  The  increase was primarily due to construction of Mitchell Park Library and Community Center, improvements to  the Main Library such as upgrades of structural, electrical and mechanical systems, and street and sidewalk  improvements throughout the City.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 26 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 funding mechanisms.  The Commission issued  a report in December 2011 in which they identified “keep up” needs and capital expenditure “new and  replacement” needs.  Subsequently, a Council Infrastructure Committee was formed, and they proposed a  five year spending plan of $126.0 million for infrastructure projects.  In June 2014 City Council approved the  Committee’s project list and their funding plan which consists of projected increases in transient occupancy  tax revenues from opening of new hotels, a two percent increase in the tax, and other sources such as the  SUMC Development Agreement and the Infrastructure Reserve portion of the Capital Projects Fund.  The City  is funding “keep up” costs from the General Fund at the rate of $2.2 million per year and, as a result of sound  fiscal management and reserve policies, General Fund surpluses totaling $20.5 million over the past three  years were transferred to the Infrastructure Reserve.    Major Governmental Activities’ capital projects that are currently in progress, and the remaining capital  commitment of each, are as follows:   Mitchell Park Library and Community Center ‐ $5.6 million   Main Library ‐ $6.8 million   California Avenue Transit Hub Corridor ‐ $0.8 million  Business‐type Activities’ capital assets net of depreciation increased by $23.3 million over FY 2013.  The  increase is due to Water, Electric and Gas infrastructure improvements.    Major Business‐type Activities’ capital projects that are currently in progress, and the remaining capital  commitment of each, are as follows:   Seismic water system upgrade for Water Fund ‐ $2.4 million   Gas main replacement project for Gas Fund ‐ $6.3 million   Plant equipment replacement for Wastewater Treatment Fund ‐ $3.5 million   Wastewater Collection Fund rehabilitation/augmentation project ‐ $1.1 million    The City depreciates its capital assets over their estimated useful lives, as required by GASB 34.  The purpose  of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable  portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable  lives are in Note 6.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 27 DEBT ADMINISTRATION  Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements.  At June 30, 2014, the  City’s debt was comprised of the following:  LONG‐TERM DEBT AT JUNE 30 (in millions) Increase/  2014 2013 (Decrease) Governmental Activities General Long‐Term Obligations Certificates of Participation  2002B Downtown Parking Improvements 1.5$         1.6$         (0.1)$        General Obligation Bonds      2010 52.5 53.5 (1.0) 2013A 20.7 20.7 0.0 2011 Lease Purchase Agreement 2.0 2.4 (0.4)  Add: unamortized premium 4.2 4.4 (0.2) Total Governmental 80.9$      82.6$      (1.7)$        Business‐type Activities Enterprise Long‐Term Obligations Utility Revenue Bonds       1995 Series A3.3$         3.8$         (0.5)  1999 Refunding 11.0 11.6 (0.6) 2009 Series A31.6         32.5         (0.9) 2011 Refunding 14.3         15.2         (0.9) Add: unamortized premium 0.9           1.0           (0.1) Energy Tax Credit Bonds 2007 Series A0.8           0.9           (0.1) Less: unamortized discount (0.1) (0.1)‐              State Water Resources Loan 2007 6.8           7.2           (0.4) 2009 7.6           7.9           (0.3) Total Business‐type 76.2$      80.0$      (3.8)$        Long‐term debt decreased $5.5 million, $5.1 million of which was due to debt retirements in accordance with  repayment schedules.  The remaining $0.4 million was due to reclassification of unamortized loss on refunding  of debt to deferred outflow of resources.    As noted in the Statistical Section of the CAFR, the combined direct debt ratio to assessed valuation for the  General Fund is 0.32 percent compared to the allowable legal debt margin of 15 percent.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 28 SPECIAL ASSESSMENT DISTRICT DEBT  Special assessment districts throughout different parts of the City have also issued debt to finance  infrastructure and facilities construction exclusively in their districts. As of June 30, 2014, the City had no  special assessment district debt with City commitment outstanding.    ECONOMIC OUTLOOK  The economy of the City is discussed in the accompanying Transmittal Letter.  CONTACTING THE CITY’S FINANCIAL MANAGEMENT  The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the  City’s finances. Questions about this report should be directed to the Administrative Services Department, at  250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by email at:  adminsvcs@cityofpaloalto.org.  This report and other financial reports can be viewed on the City of Palo Alto  website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative Services,  and select Financial Reporting. Within Financial Reporting, there are links to reports by title and reporting  date.   CITY OF PALO ALTO Statement of Net Position June 30, 2014 (Amounts in thousands) Governmental Business‐Type  Activities Activities Total ASSETS: Cash and investments available for operations (Note 3)252,280$          259,286$           511,566$           Receivables, net: Accounts and intergovernmental 9,985                26,640               36,625               Interest receivable 1,355                1,352                 2,707                 Notes and loans receivable (Note 5)18,520              ‐                     18,520               Internal balances (Note 4)(1,429)              1,429                 ‐                     Net OPEB asset (Note 12)22,610              ‐                     22,610               Due from other government agencies ‐                    4,500                 4,500                 Inventory of materials and supplies, prepaids and deposits 4,741                488                    5,229                 Restricted cash and investments with fiscal agents (Note 3)19,606              4,166                 23,772               Restricted cash for post‐closure landfill (Note 3)‐                    5,907                 5,907                 Capital assets (Note 6): Nondepreciable 190,691           127,152            317,843            Depreciable, net of accumulated depreciation 261,912           418,343            680,255            Total assets 780,271           849,263            1,629,534         DEFERRED OUTFLOWS OF RESOURCES: Unamortized loss from refunding ‐                    412                    412                    LIABILITIES: Accounts payable and accruals 14,456              15,540               29,996               Accrued salaries and benefits 3,154                1,465                 4,619                 Unearned revenue 2,384                352                    2,736                 Accrued compensated absences (Note 1): Due in one year 3,912                ‐                     3,912                 Due in more than one year 6,286                ‐                     6,286                 Claims payable (Note 14): Due in one year 5,665                ‐                     5,665                 Due in more than one year 21,088              ‐                     21,088               Accrued landfill closure liability and post‐closure care (Note 9): Due in more than one year ‐                    11,363               11,363               Long‐term debt (Note 7): Due in one year 2,106                3,909                 6,015                 Due in more than one year 78,807              72,291               151,098            Total liabilities 137,858           104,920            242,778            NET POSITION (Note 10): Net Investment in capital assets 386,696           473,795            860,491            Restricted for: Special revenue programs 59,946              ‐                     59,946               Debt service 6,940                4,166                 11,106               Nonexpendable ‐ Eyerly Family 1,445                ‐                     1,445                 Total restricted net position 68,331              4,166                 72,497               Unrestricted 187,386           266,794            454,180            Total net position $           642,413 $           744,755 $       1,387,168  See accompanying notes to the basic financial statements. 29 30  This page is left intentionally blank.    CITY OF PALO ALTO Statement of Activities For the Year Ended June 30, 2014 (Amounts in thousands) Net (Expense) Revenue and Program Revenues Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Business‐Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental Activities: City Council 387$                   ‐$                   ‐$                   ‐$                   (387)$                  ‐$                   (387)$            City Manager 2,180                  ‐                     ‐                    ‐                    (2,180)                ‐                     (2,180)         City Attorney 1,797                  ‐                     ‐                    ‐                    (1,797)                ‐                     (1,797)         City Clerk 641                     ‐                     ‐                    ‐                    (641)                   ‐                     (641)             City Auditor 489                     ‐                     ‐                    ‐                    (489)                   ‐                     (489)             Administrative Services 11,388                4,055                 ‐                    917                   (6,416)                ‐                     (6,416)         People Strategy and Operations 1,346                  ‐                     ‐                    ‐                    (1,346)                ‐                     (1,346)         Public Works 24,577                1,093                 3,628                ‐                    (19,856)              ‐                     (19,856)       Planning and Community Environment 14,926                12,896               1,289                ‐                    (741)                   ‐                     (741)             Public Safety 62,883                14,902               366                   ‐                    (47,615)              ‐                     (47,615)       Community Services 23,822                20,882               ‐                    ‐                    (2,940)                ‐                     (2,940)         Library 7,758                  166                    77                     ‐                    (7,515)                ‐                     (7,515)         Interest on long‐term debt 3,367                  ‐                     ‐                    ‐                    (3,367)                ‐                     (3,367)         Total Governmental Activities 155,561              53,994               5,360                917                   (95,290)               ‐                     (95,290)       Business‐Type Activities: Water 31,593                40,291               549                   995                   ‐                     10,242                10,242         Electric 113,004              121,916             ‐                    ‐                    ‐                     8,912                  8,912           Fiber Optics 1,661                  4,485                 ‐                    ‐                    ‐                     2,824                  2,824           Gas 26,869                35,737               ‐                    ‐                    ‐                     8,868                  8,868           Wastewater Collection 13,235                15,599               ‐                    1,010                ‐                     3,374                  3,374           Wastewater Treatment 21,018                18,460               ‐                    ‐                    ‐                     (2,558)                 (2,558)         Refuse 28,413                30,297               ‐                    ‐                    ‐                     1,884                  1,884           Storm Drainage 3,644                  6,183                 ‐                    ‐                    ‐                     2,539                  2,539           Airport 466                     ‐                     ‐                    ‐                    ‐                     (466)                   (466)             Total Business‐Type Activities 239,903              272,968             549                   2,005                 ‐                     35,619                35,619         Total 395,464$            326,962$           5,909$               2,922$               (95,290)              35,619                (59,671)       General Revenues: Taxes: Property tax 35,299               ‐                     35,299         Sales tax 29,424               ‐                     29,424         Utility user tax 11,008               ‐                     11,008         Transient occupancy tax 12,255               ‐                     12,255         Documentary transfer tax 7,811                 ‐                     7,811           Other taxes 1,849                 ‐                     1,849           Investment earnings 5,859                 6,379                  12,238         Miscellaneous 2,575                 ‐                     2,575           Transfers (Note 4)17,103               (17,103)               ‐               Total general revenues and transfers              123,183 (10,724)               112,459      Change in net position 27,893               24,895                52,788         Net position, beginning of year, as previously reported 615,574            720,583              1,336,157   Restatement (Note 1(m))(1,054)                (723)                   (1,777)         Net position, beginning of year, as restated 614,520            719,860              1,334,380   Net position, end of year 642,413$           744,755$            1,387,168$  See accompanying notes to the basic financial statements. 31 32  This page is left intentionally blank.    CITY OF PALO ALTO Governmental Funds Balance Sheet June 30, 2014 (Amounts in thousands) Capital Other Total General Projects Governmental Governmental Fund Fund Funds Funds ASSETS: Cash and investments available for operations (Note 3)42,013$          57,841$          77,434$           177,288$         Receivables, net: Accounts and intergovernmental 8,761              177                 412                  9,350                Interest receivable 642                 8                     341                  991                   Notes and loans receivable (Note 5)900                 ‐                  17,620            18,520             Prepaid items 352                 ‐                  ‐                   352                   Advance to other fund (Note 4)935                 ‐                  ‐                   935                   Inventory of materials and supplies 4,001               ‐                  ‐                   4,001                Restricted cash and investments with fiscal agents (Note 3)‐                  19,368           238                  19,606             Total assets 57,604$          77,394$          96,045$           231,043$         LIABILITIES AND FUND BALANCES: Liabilities: Accounts payable and accruals 4,094$            7,459$            122$                 11,675$           Accrued salaries and benefits 2,852              112                 17                    2,981                Unearned revenue 2,348              36                    ‐                   2,384                Total liabilities 9,294              7,607              139                  17,040             Fund balances (Note 10): Nonspendable: Notes and loans receivable 900                  ‐                  13,424            14,324             Prepaid items 352                 ‐                  ‐                   352                   Inventories 4,001              ‐                  ‐                   4,001                Advance to other fund 935                 ‐                  ‐                   935                   Eyerly family ‐                  ‐                  1,445               1,445                Restricted for:  Transportation mitigation ‐                  ‐                  10,616            10,616             Federal revenue ‐                  ‐                  4,457               4,457                Street improvement ‐                  ‐                  758                  758                   Local law enforcement ‐                  ‐                  113                  113                   Library bond project ‐                  15,006           ‐                   15,006             Public benefit ‐                  ‐                  30,578            30,578             Debt service ‐                  ‐                  6,940               6,940                Committed for: Developer impact fees ‐                  ‐                  11,085            11,085             Housing in‐lieu ‐                  ‐                  14,491            14,491             Special districts ‐                  ‐                  1,457               1,457                Downtown business ‐                  ‐                  112                  112                   Assigned for: Unrealized gains on investments 672                  ‐                  430                  1,102                Infrastructure ‐                  3,383               ‐                   3,383                Capital projects ‐                  51,398           ‐                   51,398             Other general government purposes 4,760               ‐                  ‐                   4,760                Unassigned for: Budget Stabilization 35,083           ‐                  ‐                   35,083             Reappropriations 1,607              ‐                  ‐                   1,607                Total fund balances 48,310           69,787           95,906            214,003           Total liabilities and fund balances 57,604$          77,394$          96,045$           231,043$         See accompanying notes to the basic financial statements. 33 CITY OF PALO ALTO Reconciliation of the Balance Sheet of Governmental Funds to  the Statement of Net Position ‐ Governmental Activities June 30, 2014 Total fund balances reported on the governmental funds balance sheet 214,003$       Amounts reported  for governmental activities in the statement of net position are different from those reported in the governmental funds balance sheet because of the following: Capital assets used in governmental activities are not current assets or financial  resources and therefore are not reported in the governmental funds (Note 6)452,603         Internal service funds are used by management to charge the costs of activities  such as insurance, equipment acquisition and maintenance, and certain  employee benefits to individual funds.  The assets and liabilities of the  internal service funds are therefore included in governmental activities in  the statement of net position (excludes capital assets reported above)58,134           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 (1,414)           Long‐term debt (Note 7)(80,913)          Net position of governmental activities 642,413$       (Amounts in thousands) See accompanying notes to the basic financial statements. 34 CITY OF PALO ALTO Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2014 (Amounts in thousands) Capital Other General Projects Governmental Fund Fund Funds Total REVENUES: Property tax 30,587$           ‐$                  4,712$             35,299$           Special assessments ‐                   ‐                   94                    94                    Sales tax 29,424            ‐                   ‐                   29,424            Utility user tax 11,008           ‐                   ‐                   11,008            Transient occupancy tax 12,255           ‐                   ‐                   12,255            Documentary transfer tax 7,811              ‐                   ‐                   7,811               Other taxes and fines 2,136              ‐                   2,095                4,231               Charges for services 23,962           ‐                   ‐                   23,962            From other agencies 768                 4,324              608                  5,700               Permits and licenses 6,950              ‐                   2,040                8,990               Investment earnings 1,327              1,059              1,839                4,225               Rental income 14,215           ‐                   5                       14,220            Other revenue 1,240              741                 5,490                7,471               Total revenues 141,683         6,124              16,883             164,690          EXPENDITURES: Current: City Council 382                 ‐                   ‐                   382                  City Manager 2,125              ‐                   ‐                   2,125               City Attorney 1,793              ‐                   ‐                   1,793               City Clerk 635                 ‐                   ‐                   635                  City Auditor 487                 ‐                   ‐                   487                  Administrative Services 3,033              ‐                   177                  3,210               People Strategy and Operations 1,329              ‐                   ‐                   1,329               Public Works 11,548           ‐                   891                  12,439            Planning and Community Environment 13,209           ‐                   1,552                14,761            Public Safety 61,742           ‐                   286                  62,028            Community Services 22,511           ‐                   133                  22,644            Library 7,340              ‐                   ‐                   7,340               Non‐Departmental 7,984              ‐                   151                  8,135               Capital outlay ‐                  37,035           ‐                   37,035            Debt service: Principal 374                 ‐                   1,150                1,524               Interest and fiscal charges 55                   82                    3,059                3,196               Total expenditures 134,547         37,117           7,399                179,063          EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 7,136              (30,993)          9,484                (14,373)           OTHER FINANCING SOURCES (USES): Transfers in (Note 4)17,912           23,086           685                  41,683            Transfers out (Note 4)(18,815)          (260)                (5,100)              (24,175)           Total other financing sources (uses)(903)                22,826           (4,415)              17,508            Change in fund balances 6,233              (8,167)            5,069                3,135               FUND BALANCES, BEGINNING OF YEAR 42,077           77,954           90,837             210,868          FUND BALANCES, END OF YEAR 48,310$          69,787$          95,906$           214,003$         See accompanying notes to the basic financial statements. 35 CITY OF PALO ALTO Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances  of Governmental Funds to the Statement of Activities ‐ Governmental Activities For the Year Ended June 30, 2014 Net change in fund balances ‐ total governmental funds 3,135$           Amounts reported for governmental activities in the statement of activities are different from those reported in the governmental funds because of the following: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of these assets are capitalized and allocated over their estimated useful lives and reported as depreciation expense.  Therefore, the activities associated with  capital assets are as follows: Capital outlay added back to fund balance for current year additions 37,589           Depreciation expense is deducted from fund balance (depreciation expense is net of  internal service fund depreciation of $2,544 (Note 6), which has already been allocated through the internal service fund activities below (11,229)         Disposal of capital assets (3,502)           Principal payments on long‐term liabilities are reported as expenditures in governmental funds when paid.  The governmental activities, however, report principal payments as  a reduction of long‐term debt on the statement of net position.  Interest accrued on  long‐term debt and amortization of bond issuance costs and premiums do not require  the use of current financial resources and therefore are not reported as expenditures  in governmental funds.  Therefore, the activities associated with long‐term debt are as follows: Principal paid during the year 1,524             Change in interest payable (329)               Amortization of bond premium 158                Internal service funds are used by management to charge the costs of activities, such  as insurance, equipment acquisition and maintenance, and employees benefits to  individual funds.  The portion of the net revenue of these internal service  funds arising out of their transactions with governmental funds is reported with  governmental activities.547                Change in net position of governmental activities 27,893$        (Amounts in thousands) See accompanying notes to the basic financial statements. 36 Variance with Budgeted Amounts Final Budget Actual, plus Positive Original Final Encumbrances (Negative) 23,846$       27,352$       29,424$        2,072$          29,613        30,251        30,587          336               11,545        12,318        12,255          (63)                Documentary transfer tax 5,699          7,395          7,811            416               11,013        11,386        11,008          (378)             2,107          2,107          2,136            29                 24,379        22,741        23,962          1,221           8,346          7,952          6,950            (1,002)          769              769              1,042            273               12,891        14,004        14,215          211               252              345              768                423               2,010          2,000          1,240            (760)             132,470      138,620      141,398        2,778           10,574        10,574        10,947          373               ‐               5,571          5,584            13                 143,044      154,765      157,929        3,164           2,453          3,137          3,111            26                 1,088          1,058          1,027            31                 1,258          1,282          1,122            160               497              709              580                129               2,499          3,092          3,078            14                 7,280          7,363          7,244            119               22,700        23,888        23,402          486               60,962        63,628        63,403          225               3,265          3,761          3,622            139               7,793          8,254          8,072            182               13,608        15,150        14,637          513               13,751        14,380        14,138          242               8,496          7,907          8,413            (506)             145,650      153,609      151,849        1,760           (2,606)         1,156          6,080            4,924           17,529        17,910        17,912          2                   (14,069)       (19,139)       (18,815)         324               3,460          (1,229)         (903)              326               854$            (73)$             5,177            5,250$          Unrealized gain/loss on investments 285                 Current year encumbrances/reappropriations 6,355             Prior year encumbrances/reappropriations (5,584)            6,233             42,077           48,310$         REVENUES: CITY OF PALO ALTO General Fund Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual For the Year Ended June 30, 2014 (Amounts in thousands) Charges to other funds Sales tax Property tax Transient occupancy tax Utility user tax Other taxes, fines and penalties Charges for services Permits and licenses Investment earnings Rental income From other agencies Other revenues Public Safety Prior year encumbrances and reappropriations Total revenues EXPENDITURES: Current: City Attorney City Auditor City Clerk City Council City Manager Administrative Services Community Services Total other financing sources (uses) People Strategy and Operations Library Planning and Community Environment Public Works Non‐Departmental Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES):  Transfers in Transfers out FUND BALANCE AT BEGINNING OF YEAR, GAAP BASIS FUND BALANCE AT END OF YEAR, GAAP BASIS EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES, BUDGETARY BASIS Adjustment to Budgetary Basis: CHANGE IN FUND BALANCE, GAAP BASIS See accompanying notes to the basic financial statements. 37 Fiber Water Electric Optics Gas ASSETS: Current assets: Cash and investments available for operations (Note 3)35,770$          133,501$        19,616$           28,113$           Accounts receivable, net 5,012              11,225            443                   2,386                Interest receivable 180                 677                 91                      158                   Due from other government agencies ‐                  ‐                  ‐                    ‐                    Inventory of materials and supplies ‐                  ‐                  ‐                    ‐                    Restricted cash and investments with fiscal agents (Note 3)3,331               ‐                  ‐                    835                   Restricted cash for landfill closure (Note 3)‐                  ‐                  ‐                    ‐                    Total current assets 44,293            145,403         20,150              31,492              Noncurrent assets: Due from other government agencies ‐                  ‐                  ‐                    ‐                    Deposit ‐                  113                 ‐                    ‐                    Prepaid expense 125                 ‐                  ‐                    ‐                    Capital assets (Note 6): Nondepreciable 51,100            18,562            1,256                13,523              Depreciable, net 61,826            158,603         6,259                83,902              Net OPEB asset (Note 12)‐                  ‐                  ‐                    ‐                    Total noncurrent assets 113,051         177,278         7,515                97,425              Total assets 157,344         322,681         27,665              128,917           DEFERRED OUTFLOWS OF RESOURCES: Unamortized loss from refunding 155                 ‐                  ‐                    202                   LIABILITIES: Current liabilities: Accounts payable and accruals 3,911              4,575              185                   2,349                Accrued salaries and benefits 204                 476                 32                      224                   Unearned revenue ‐                  ‐                  ‐                    ‐                    Accrued compensated absences (Note 1)‐                  ‐                  ‐                    ‐                    Current portion of revenue bonds (Note 7)1,404              100                 ‐                    536                   Accrued claims payable (Note 14)‐                  ‐                  ‐                    ‐                    Total current liabilities 5,519              5,151              217                   3,109                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)37,822            657                 ‐                    7,906                Total noncurrent liabilities 37,822            657                 ‐                    7,906                Total liabilities 43,341            5,808              217                   11,015              NET POSITION (Note 10): Net Investment in capital assets 73,700            176,408         7,515                88,983              Restricted for debt service 3,331               ‐                  ‐                    835                   Unrestricted (deficit)37,127            140,465         19,933              28,286              Total net position 114,158$        316,873$        27,448$           118,104$         Some amounts reported for Business‐type Activities in the statement of net position are different because certain Internal Service Fund net positions are included with Business‐type Activities Net position reported in Business‐type Activities Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Net Position June 30, 2014 (Amounts in thousands) See accompanying notes to the basic financial statements. 38 Governmental Activities ‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 15,465$           13,760$           5,148$             7,802$             111$                259,286$        74,992$            1,798                2,100                3,035               641                  ‐                  26,640            635                    74                      81                      53                     37                    1                      1,352              364                    ‐                    300                    ‐                   ‐                  ‐                  300                 ‐                     ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   388                    ‐                    ‐                    ‐                   ‐                  ‐                  4,166              ‐                     ‐                    ‐                    5,907               ‐                  ‐                  5,907              ‐                     17,337              16,241              14,143             8,480              112                 297,651         76,379               ‐                    4,200                ‐                   ‐                  ‐                  4,200              ‐                     ‐                    ‐                    ‐                   ‐                  ‐                  113                 ‐                     ‐                    250                   ‐                   ‐                  ‐                  375                 ‐                     20,563              7,925                5,875               8,348              ‐                  127,152         3,094                 54,278              31,449              244                  21,782            ‐                  418,343         11,259               ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   22,610               74,841              43,824              6,119               30,130            ‐                  550,183         36,963               92,178              60,065              20,262             38,610            112                 847,834         113,342            ‐                    ‐                    ‐                   55                    ‐                  412                 ‐                     605                   1,200                2,330               336                 49                    15,540            1,367                 135                   273                   76                     39                    6                      1,465              173                    ‐                    ‐                    ‐                   352                 ‐                  352                 ‐                     ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   3,912                 77                      1,252                ‐                   540                 ‐                  3,909              ‐                     ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   5,665                 817                   2,725                2,406               1,267              55                    21,266            11,117               ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   6,286                 ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   21,088               ‐                    ‐                    ‐                   ‐                  935                 935                 ‐                     ‐                    ‐                    11,363             ‐                  ‐                  11,363            ‐                     901                   18,490              ‐                   6,515              ‐                  72,291            ‐                     901                   18,490              11,363             6,515              935                 84,589            27,374               1,718                21,215              13,769             7,782              990                 105,855         38,491               73,863              24,132              6,119               23,075            ‐                  473,795         14,353               ‐                    ‐                    ‐                   ‐                  ‐                  4,166              ‐                     16,597              14,718              374                  7,808              (878)                264,430         60,498               90,460$           38,850$           6,493$             30,883$          (878)$               742,391         74,851$            2,364               744,755$         Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 39 Fiber Water Electric Optics Gas OPERATING REVENUES: Sales of utilities: Customers 36,387$      106,056$    3,598$       33,990$       City departments 2,061         3,225          749             852             Surplus energy ‐             336             ‐              ‐              Service connection charges and miscellaneous 982            2,327          131             654             Charges for services ‐             ‐               ‐              ‐              Other 861            9,972          7                 241             Total operating revenues 40,291       121,916      4,485          35,737        OPERATING EXPENSES: Purchase of utilities: Retail 15,705       68,089        ‐              14,325        Surplus energy ‐             697             ‐              ‐              Administrative and general 4,044         6,172          399             4,041          Engineering (operating)381            1,280          ‐              352             Resource management and energy efficiency 570            6,726          ‐              1,012          Operations and maintenance 4,986         9,489          909             4,119          Rent 2,192         3,860          51               429             Depreciation and amortization 1,734         7,504          303             2,282          Claims payments and changes in estimated self‐insurance liability ‐             ‐               ‐              ‐              Refund of charges for services ‐              ‐               ‐              ‐              Compensated absences and other benefits ‐             ‐               ‐              ‐              Total operating expenses 29,612       103,817      1,662          26,560        Operating income (loss)10,679       18,099        2,823          9,177          NONOPERATING REVENUES (EXPENSES): Investment earnings 975            3,122          433             706             Interest expense (1,915)        (8,924)         ‐              (282)            Loss on disposal of capital assets (66)             (271)            ‐              (27)              Other nonoperating revenues 549            ‐               ‐              ‐              Total nonoperating revenues (expenses)(457)           (6,073)         433             397             Income (loss) before transfers and capital contributions 10,222       12,026        3,256          9,574          Capital contributions 995            ‐               ‐              ‐              Transfers in (Note 4)271            1,089          ‐              151             Transfers out (Note 4)(530)           (11,460)       (134)            (6,417)         Change in net position 10,958       1,655          3,122          3,308          NET POSITION (DEFICIT), BEGINNING OF YEAR, AS PREVIOUSLY REPORTED 103,595     315,262      24,326       114,901      RESTATEMENT (Note 1(m))(395)           (44)               ‐              (105)            NET POSITION (DEFICIT), BEGINNING OF YEAR, AS RESTATED 103,200     315,218      24,326       114,796      NET POSITION (DEFICIT), END OF YEAR 114,158$   316,873$    27,448$     118,104$    Some amounts reported for Business‐type Activities in the statement of activities are different because certain  Internal Service Fund activities are included with Business‐type Activities Change in net position reported in Business‐type Activities Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2014 (Amounts in thousands) See accompanying notes to the basic financial statements. 40 Governmental Activities‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 14,518$     11,292$       26,045$     5,717$       ‐$           237,603$     ‐$                 69               6,915           790            346            ‐            15,007        ‐                   ‐              ‐               ‐             ‐            ‐            336             ‐                   693             ‐               ‐             ‐            ‐            4,787          ‐                   ‐              ‐               ‐             ‐            ‐            ‐              77,167             319             253              3,462         120           ‐            15,235        472                  15,599       18,460         30,297       6,183        ‐            272,968      77,639             6,863          ‐               13,943       ‐            ‐            118,925      ‐                   ‐              ‐               ‐             ‐            ‐            697             ‐                   1,322          ‐               1,889         559           417           18,843        10,766             310             1,801           225            410           ‐            4,759          ‐                   ‐              ‐               ‐             305           ‐            8,613          ‐                   2,570          15,589         9,103         955           ‐            47,720        21,481             217             ‐               2,629         33             ‐            9,411          ‐                   1,907          2,858           13              897           ‐            17,498        2,544               ‐              ‐               ‐             ‐            ‐            ‐              3,232               ‐              ‐               ‐             ‐            ‐            ‐              71                     ‐              ‐               ‐             ‐            ‐            ‐              40,337             13,189       20,248         27,802       3,159        417           226,466      78,431             2,410          (1,788)          2,495         3,024        (417)          46,502        (792)                 339             364              257            178           5               6,379          1,634               (54)              (573)             (617)           (436)          (49)            (12,850)       ‐                   ‐              ‐               ‐             ‐            ‐            (364)            (155)                 ‐              ‐               ‐             ‐            ‐            549             42                     285             (209)             (360)           (258)          (44)            (6,286)         1,521               2,695          (1,997)          2,135         2,766        (461)          40,216        729                  1,010          ‐               ‐             ‐            ‐            2,005          ‐                   42               59                 124            14             ‐            1,750          1,413               (241)            ‐               (29)             (42)            ‐            (18,853)       (1,818)              3,506          (1,938)          2,230         2,738        (461)          25,118        324                  86,972       40,906         4,263         28,188     (417)          74,527                               (18)              (118)             ‐             (43)            ‐            ‐                                     86,954       40,788         4,263         28,145     (417)          74,527                               90,460$     38,850$       6,493$      30,883$    (878)$        74,851$           (223)             24,895$        Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 41 Fiber Water Electric Optics Gas Cash flows from operating activities: Cash received from customers 37,939$    111,361$  4,639$       34,689$     Cash refunds to customers ‐            ‐            ‐              ‐              Cash payments to suppliers for goods and services (25,910)    (87,661)    (1,015)        (21,911)      Cash payments to employees (4,011)      (6,097)      (398)           (4,018)        Internal activity‐ receipts (payment) from (to) other funds 2,061       3,225       749             852             Other receipts 861           9,972       7                 241             Net cash provided by (used in)  operating activities 10,940     30,800     3,982         9,853         Cash flows from noncapital financing activities: Receipt of loans from other funds ‐            ‐            ‐              ‐              Interest subsidy received from Build America Bond 549           ‐            ‐              ‐              Transfers in 271           1,089       ‐              151             Transfers out (530)         (11,460)    (134)           (6,417)        Cash flows provided by (used in) noncapital financing activities 290           (10,371)    (134)           (6,266)        Cash flows from capital and related financing activities: Acquisition and construction of capital assets (8,149)      (12,175)    (507)           (8,879)        Proceeds from sale of capital assets ‐            24             ‐              ‐              Capital grants and contributions 995           ‐            ‐              ‐              Principal paid on long‐term debt (1,360)      (100)         ‐              (520)           Interest paid on long‐term debt (1,905)      (8,923)      ‐              (282)           Cash flows used in capital and related financing activities (10,419)    (21,174)    (507)           (9,681)        Cash flows from investing activities: Interest received 982           3,228       428             758             Cash flows from investing activities 982           3,228       428             758             Net change in cash and cash equivalents 1,793       2,483       3,769         (5,336)        Cash and cash equivalents, beginning of year 37,308     131,018   15,847       34,284       Cash and cash equivalents, end of year $     39,101 $   133,501  $     19,616  $     28,948  Financial statement presentation: Cash and investments available for operations 35,770$    133,501$  19,616$     28,113$     Cash and investments with fiscal agent 3,331       ‐            ‐              835             Cash and cash equivalents, end of year 39,101$    133,501$  19,616$     28,948$     Reconciliation of operating income (loss) to  net cash provided by (used in) operating activities: Operating income (loss)10,679$    18,099$    2,823$       9,177$       Adjustments to reconcile operating income (loss) to  net cash provided by (used in) operating activities: Depreciation and amortization 1,734       7,504       303             2,282         Other ‐            ‐            ‐              ‐              Change in assets and liabilities: Accounts receivable 570           2,642       910             45               Inventory of materials and supplies ‐            ‐            ‐              ‐              Deposit ‐            (45)            ‐              ‐              Net OPEB asset ‐            ‐            ‐              ‐              Accounts payable and accruals (2,076)      2,525       (55)              (1,674)        Accrued salaries and benefits 33             75             1                 23               Accrued compensated absences ‐            ‐            ‐              ‐              Unearned revenue ‐            ‐            ‐              ‐              Landfill closure and post‐closure care ‐            ‐            ‐              ‐              Accrued claims payable ‐            ‐            ‐              ‐              Net cash provided by (used in)  operating activities $     10,940 $     30,800  $       3,982  $       9,853  Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Cash Flows For the Year Ended June 30, 2014 (Amounts in thousands) See accompanying notes to the basic financial statements. 42 Governmental Activities‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 15,434$     13,480$     26,423$    5,445$      ‐$          249,410$  77,945$               ‐              ‐              ‐            ‐            ‐            ‐            (71)                       (9,961)        (18,789)      (25,589)    (1,823)      ‐            (192,659)  (21,697)               (1,295)        ‐              (1,885)      (554)         (395)         (18,653)    (52,575)               69               6,915         790           346           ‐            15,007     (4,224)                  319             253             3,630       120           ‐            15,403     42                        4,566         1,859         3,369       3,534       (395)         68,508     (580)                     ‐              ‐              ‐            ‐            325           325           ‐                       ‐              ‐              ‐            ‐            ‐            549           ‐                       42               59               124           14             ‐            1,750       1,413                   (241)           ‐              (29)            (42)            ‐            (18,853)    (1,818)                  (199)           59               95             (28)            325           (16,229)    (405)                     (5,075)        (3,253)        (1,661)      (1,451)      ‐            (41,150)    (3,652)                  ‐              ‐              ‐            ‐            ‐            24             150                      1,010         300             ‐            ‐            ‐            2,305       ‐                       (74)              (1,216)        ‐            (510)         ‐            (3,780)      ‐                       (53)              (556)           (618)         (435)         (49)            (12,821)    ‐                       (4,192)        (4,725)        (2,279)      (2,396)      (49)            (55,422)    (3,502)                  354             381             256           180           5               6,572       1,657                   354             381             256           180           5               6,572       1,657                   529             (2,426)        1,441       1,290       (114)         3,429       (2,830)                              14,936       16,186       9,614       6,512       225           265,930   77,822                  $     15,465  $     13,760 $     11,055 $       7,802 $          111 $   269,359  $             74,992  15,465$     13,760$     5,148$      7,802$      111$          259,286$  74,992$               ‐              ‐              5,907       ‐            ‐            10,073     ‐                       15,465$     13,760$     11,055$    7,802$      111$          269,359$  74,992$               2,410$       (1,788)$      2,495$      3,024$      (417)$        46,502$    (792)$                   1,907         2,858         13             897           ‐            17,498     2,544                   ‐              ‐              ‐            ‐            ‐            ‐            42                        223             2,188         378           21             ‐            6,977       306                      ‐              ‐              ‐            ‐            ‐            ‐            204                      ‐              ‐              ‐            ‐            ‐            (45)            ‐                       ‐              ‐              ‐            ‐            ‐            ‐            (759)                     (1)                (1,440)        311           (120)         21             (2,509)      (918)                     27               41               4               5               1               210           18                        ‐              ‐              ‐            ‐            ‐            ‐            (233)                     ‐              ‐              ‐            (293)         ‐            (293)         ‐                       ‐              ‐              168           ‐            ‐            168           ‐                       ‐              ‐              ‐            ‐            ‐            ‐            (992)                      $       4,566  $       1,859 $       3,369 $       3,534 $         (395) $     68,508  $                 (580) Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 43 Agency Funds ASSETS: Cash and investments available for operations (Note 3)2,919$          Restricted cash and investments with fiscal agents (Note 3)2,541            Account receivable 9                    Interest receivable 14                  Total assets 5,483$          LIABILITIES: Due to bondholders 4,724$          Due to other governments 759                Total liabilities 5,483$          CITY OF PALO ALTO Statement of Fiduciary Net Position June 30, 2014 (Amounts in thousands) See accompanying notes to the basic financial statements. 44 CITY OF PALO ALTO  Index to the Notes to the Basic Financial Statements   For the Year Ended June 30, 2014    45    Page    1. Summary of Significant Accounting Policies ........................................................................... 47  2. Budgets and Budgetary Accounting ........................................................................................ 56  3. Cash and Investments ............................................................................................................. 57  4. Interfund Transactions ............................................................................................................ 61  5. Notes and Loans Receivable .................................................................................................... 63  6. Capital Assets .......................................................................................................................... 69  7. General Long‐Term Obligations .............................................................................................. 73  8. Special Assessment Debt ......................................................................................................... 80  9. Landfill Closure and Post‐Closure Care ................................................................................... 81  10. Net Position and Fund Balances .............................................................................................. 82  11. Pension Plans ........................................................................................................................... 84  12. Retiree Health Benefits ........................................................................................................... 88  13. Deferred Compensation Plan .................................................................................................. 91  14. Risk Management .................................................................................................................... 92  15. Joint Ventures .......................................................................................................................... 93  16. Commitments and Contingencies ........................................................................................... 96  17. Subsequent Event .................................................................................................................... 99    Notes are essential to present fairly the information contained in the overview level of the basic financial  statements.  Narrative explanations are intended to communicate information that is not readily apparent  or cannot be included in the statements themselves, and to provide additional disclosures as required by  the Governmental Accounting Standards Board.    46   This page is left intentionally blank.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    47   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    The City of Palo Alto (the City) was incorporated in 1894 and operates as a charter city, having had its first  charter granted by the State of California in 1909.  The City operates under the Council‐Manager form of  government and provides the following services: public safety (police and fire), public works, electric, fiber  optics, water, gas, wastewater, storm drain, refuse, golf course, planning and zoning, general  administration services, library, open space and science, recreational and human services.    (a) Reporting Entity    The City is governed by a nine‐member council, elected by City residents.  The City is legally  separate and fiscally independent, which means it can issue debt, set and modify budgets and  fees, and sue or be sued.  The accompanying basic financial statements present the financial  activities of the City, which is the primary government presented, along with the financial  activities of its component unit, which is an entity for which the City is financially accountable.   Although a separate legal entity, a blended component unit is, in substance, part of the City’s  operations and is reported as an integral part of the City’s financial statements.  The City’s  component unit described below is blended.    The Palo Alto Public Improvement Corporation (the Corporation) provides financing of public  capital improvements for the City through the issuance of Certificates of Participation (COPs), a  form of debt that allows investors to participate in a stream of future lease payments.  Proceeds  from the COPs are used to construct projects that are leased to the City.  The lease payments are  sufficient in timing and amount to meet the debt service requirements of the COPs.  The Board of  Directors of the Corporation is composed of the same members as the City Council. The  Corporation is controlled by the City, which performs all accounting and administrative functions  for the Corporation.  The financial activities of the Corporation are included in the Downtown  Parking Improvement Debt Service Fund.    Financial statements for the Corporation may be obtained from the City of Palo Alto,  Administrative Services Department, 4th Floor, 250 Hamilton Avenue, Palo Alto, CA  94301.    (b) Basis of Presentation     The City’s basic financial statements are prepared in conformity with accounting principles  generally accepted in the United States of America.  The Governmental Accounting Standards  Board (GASB) is the acknowledged standard setting body for establishing accounting and financial  reporting standards followed by governmental entities in the United States.          These standards require that the financial statements described below be presented:    Government‐wide Statements: The Statement of Net Position and the Statement of Activities  display information about the primary government and its component unit.  These statements  include the financial activities of the overall City government, except for fiduciary activities.   Eliminations have been made to minimize the double counting of internal activities.  However,  interfund goods and services transactions have not been eliminated in the consolidation process.   These statements distinguish between the governmental and business‐type activities of the City.   Governmental activities generally are financed through taxes, intergovernmental revenues, and CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    48   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (b) Basis of Presentation (Continued)    other non‐exchange transactions.  Business‐type activities are financed in whole or in part by fees  charged to external parties.    The Statement of Activities presents a comparison between direct expenses and program  revenues for each segment of the business‐type activities of the City and for each function of the  City’s governmental activities.  Direct expenses are those that are specifically associated with a  program or function and, therefore, are clearly identifiable to a particular function.  Program  revenues include: (a) charges paid by the recipients for goods and services offered by the  programs, (b) grants and contributions that are restricted to meeting the operational needs of a  particular program, and (c) fees, grants and contributions that are restricted to financing the  acquisition or construction of capital assets.  Revenues that are not classified as program  revenues, including all taxes, are presented as general revenues.    Fund Financial Statements: The fund financial statements provide information about the City’s  funds, including fiduciary funds and its blended component unit.  Separate statements for each  fund category – governmental, proprietary and fiduciary – are presented.  The emphasis of fund  financial statements is on major individual governmental and enterprise funds, each of which is  displayed in a separate column.  All remaining governmental and internal service funds are  aggregated and reported as non‐major funds.    Proprietary fund operating revenues, such as utilities sales and charges for services, result from  exchange transactions associated with the principal activity of the fund.  Exchange transactions  are those in which each party receives and gives up essentially equal values.  Nonoperating  revenues, such as subsidies and investment earnings, result from non‐exchange transactions or  ancillary activities.    Operating expenses for enterprise funds and internal service funds include the cost of sales and  services, administrative expenses, and depreciation on capital assets.  All expenses not meeting  this definition are reported as nonoperating expenses.    (c) Major Funds and Other Funds    The City’s major governmental and enterprise funds need to be identified and presented  separately in the fund financial statements.  All other funds, called non‐major funds, are combined  and reported in a single column, regardless of their fund type.    Major funds are defined as funds that have either assets and deferred outflows of resources,  liabilities and deferred inflows of resources, revenues or expenditures/expenses equal to at least  10 percent of their fund type total and at least 5 percent of the grand total.  The General Fund is  always a major fund.  The City may also select other funds it believes should be presented as major  funds on a qualitative basis.    The City reported the following major governmental funds in the accompanying financial  statements:     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    49   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds and Other Funds (Continued)    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.  These funds are:    Water Services Fund – This fund accounts for all financial transactions relating to the City’s water  service.  Services are on a user‐charge basis to residents and business owners located in the City.    Electric Services Fund – This fund accounts for all financial transactions relating to the City’s  electric service.  Services are on a user‐charge basis to residents and business owners located in  the City.    Fiber Optics Fund – This fund accounts for all financial transactions relating to the City’s fiber  optics service.  Services are on a user‐charge basis to licensees located in the City.    Gas Services Fund – This fund accounts for all financial transactions relating to the City’s gas  service.  Services are on a user‐charge basis to residents and business owners located in the City.    Wastewater Collection Services Fund – This fund accounts for all financial transactions relating  to the City’s wastewater collection service.  Services are on a user‐charge basis to residents and  business owners located in the City.    Wastewater Treatment Services Fund – This fund accounts for all financial transactions relating  to the City’s wastewater treatment.  Services are on a user‐charge basis to residents and business  owners located in the City.    Refuse Services Fund – This fund accounts for all financial transactions relating to the City’s refuse  service.  Services are on a user‐charge basis to residents and business owners located in the City.    Storm Drainage Services Fund – This fund accounts for all financial transactions relating to the  City’s storm drainage service.  Services are on a user‐charge basis to residents and business  owners located in the City.    Airport Fund – This fund accounts for all financial transactions relating to the Palo Alto Airport  (PAO).  The City assumed control over operation of PAO from the County of Santa Clara, effective  August 11, 2014.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    50   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds and Other Funds (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 revenue is  from reimbursement of fleet replacement and maintenance costs allocated to each department  by usage of vehicle.    Technology – This fund accounts for replacement and upgrade of technology, and covers four  primary areas used by all City departments: desktop, infrastructure, applications, and technology  research and development.  The source of revenue is from reimbursement of costs for support  provided to other departments.    Printing and Mailing Services – This fund accounts for central duplicating, printing and mailing  services provided to all City departments.  The source of revenue for this fund is from  reimbursement of costs for services and supplies purchased by other departments.    General Benefits – This fund accounts for the administration of compensated absences and health  benefits.    Workers’ Compensation Insurance Program – This fund accounts for the administration of the  City’s self‐insured workers’ compensation program.    General Liability Insurance Program – This fund accounts for the administration of the City’s self‐ insured general liability program.    Retiree Health Benefits – This fund accounts for retiree health benefits.    Fiduciary Funds – These funds account for assets held by the City, an agent for assessment  districts, and members of the Cable Joint Powers Authority.  These funds are custodial in nature  and do not involve measurement of results of operations.  The City maintains three agency funds.   The financial activities of these funds are excluded from the government‐wide financial  statements, but are presented in separate fiduciary fund financial statements.  Agency funds  apply the accrual basis of accounting but do not have a measurement focus.          CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    51   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds and Other Funds (Continued)  California Avenue Parking Assessment District – This fund accounts for the receipts and  disbursements associated with the 1993 Parking District No. 92‐13 Assessment Bonds.    Cable Joint Powers Authority – This fund accounts for the activities of the cable television system  on behalf of the members.    University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the  receipts and disbursements associated with the 2012 Limited Obligation Refunding Improvement  Bonds.     (d) Basis of Accounting    The government‐wide and proprietary fund financial statements are reported using the economic  resources measurement focus and the full accrual basis of accounting.  Revenues are recorded  when earned and expenses are recorded at the time liabilities are incurred, regardless of when  the related cash flows take place.    Governmental funds are reported using the current financial resources measurement focus and  the modified accrual basis of accounting.  Under this method, revenues are recognized when  measurable and available.  The City considers revenues susceptible to accrual reported in the  governmental funds to be available if the revenues are collected within ninety days after year‐ end, except for property taxes, which are available if collected within sixty days after year‐end.    Expenditures are recorded when the related fund liability is incurred, except for principal and  interest on general long‐term debt, claims and judgments, and compensated absences, which are  recognized as expenditures to the extent they have matured.  General capital asset acquisitions  are reported as expenditures in governmental funds.  Proceeds of general long‐term debt and  acquisitions under capital leases are reported as other financing sources.      Revenues susceptible to accrual include taxes, intergovernmental revenues, interest and charges  for services.    Grant revenues are recognized in the fiscal year in which all eligibility requirements are met.   Under the terms of grant agreements, the City may fund certain programs with a combination of  cost‐reimbursement grants, categorical block grants, and general revenues.  Thus, both restricted  and unrestricted net position may be available to finance program expenditures.  The City’s policy  is to first apply restricted grant resources to such programs, followed by general revenues if  necessary.    Certain indirect costs are included in program expenses reported for individual functions and  activities.  Transactions representing the exchange of interfund goods and services have also been  included.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    52   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (e)  Cash and Cash Equivalents    Restricted and unrestricted pooled cash and investments held in the City Treasury, and other  unrestricted investments invested by the City Treasurer, are considered cash equivalents for  purposes of the statement of cash flows because the City’s cash management pool and funds  invested by the City Treasurer possess the characteristics of demand deposit accounts. Other  restricted and unrestricted investments with maturities of less than three months at the time of  purchase are considered cash equivalents for purposes of the statement of cash flows.    (f)  Investments    The City’s investments are carried at fair value, 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  reports the effects of these adjustments in investment earnings 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) Prepaid items     Prepaid items are recorded at cost.  Using the consumption method, prepaid items are recorded  as expenditures over the period that service is provided.    (i) Compensated Absences     The liability for compensated absences includes the vested portion of vacation, sick leave, and  overtime compensation pay.  The City’s liability for accrued compensated absences is recorded in  the General Benefits Internal Service Fund.  The fund is reimbursed through payroll charges to all  other funds.  Earned but unpaid vacation and overtime compensation pay are recognized as an  expense or expenditure in the proprietary and governmental fund types when earned because  the City has provided financial resources for the full amount through its budgetary process.   Vested accumulated sick pay is paid in the event of termination due to disability and, under certain  conditions, is specified in employment agreements.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    53   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (i) Compensated Absences (Continued)   During the fiscal year ended June 30, 2014, changes to the compensated absences were as follows  (in thousands):    Beginning balance 10,431$       Additions 6,484            Payments (6,717)          Ending balance 10,198$       Current portion 3,912$            (j) Property Tax    Santa Clara County (the County) assesses properties and bills, collects, and distributes property  taxes to the City.  The County remits the entire amount levied and handles all delinquencies,  retaining interest and penalties.    The County assesses property values, levies bills and collects taxes as follows:    Secured Unsecured Lien Dates January 01 January 01 Levy Dates October 01 July 01 Due Dates 50% on November 01 Upon receipt of billing 50% on February 01 Delinquent after December 10 (for November)August 31 April 10 (for February)    The term “unsecured” refers to taxes on personal property other than real estate, land and  buildings.  These taxes are secured by liens on the property being taxed.  Property tax revenues  are recognized by the City in the fiscal year they are assessed, provided they become available as  defined previously within sixty days after year‐end.    (k) Deferred Outflows of Resources and Deferred Inflows of Resources  A deferred outflow of resources is the consumption of net position that is applicable to a future  reporting period. A deferred inflow of resources is defined as an acquisition of net position  applicable to a future reporting period. Furthermore, GASB No. 65 reclassified certain items that  were previously reported as assets and liabilities to deferred outflows of resources and deferred  inflows of resources.  Refer to Note 1(m) for the impact of this statement on the City’s financial  statements.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    54   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  (l) Rounding    All amounts included in the basic financial statements and footnotes are presented to the nearest  thousand.  (m) Effects of New Pronouncements     As of July 1, 2013, the City implemented the following GASB Statements:      GASB Statement No. 65 issued March 2012, Items Previously Reported as Assets and Liabilities  amends the financial statement element classification of certain items previously reported as  assets and liabilities to be consistent with the definitions in Concepts Statements No. 4, Elements  of Financial Statements. It also provides other financial reporting guidance related to deferred  outflows of resources and deferred inflows of resources, such as changes in the determination of  the major fund calculations and limiting the use of the term deferred in financial statement  presentations. Gains or losses between the net book value of debt and funds placed in escrow to  defease that debt are considered as deferred inflows or outflows of resources, respectively, and  are amortized over the remaining life of either the refunded debt or the refunding debt,  whichever is shorter.    As of July 1, 2013, the City implemented this Statement and restated beginning net position by  $1.1 million and $0.7 million to write off unamortized bond issuance costs that were previously  reported as assets in governmental activities and business‐type activities, respectively. Further,  unamortized loss on refunding of debts of $0.4 million was reclassified from contra liabilities to  deferred outflows of resources in three major enterprise funds – Water, Gas and Storm Drainage.     GASB Statement No. 66 was issued in March 2012, Technical Corrections – 2012 – an amendment  of GASB Statements No. 10 and No. 62, to resolve conflicting accounting and financial reporting  guidance that could diminish the consistency of financial reporting. As of July 1, 2013, the City  adopted this Statement, which does not have a significant impact on the City’s financial  statements.     GASB issued Statement No. 70 in April 2013, Accounting and Financial Reporting for Nonexchange  Financial Guarantees. Nonexchange financial guarantees are financial guarantees from a  government for obligations of another entity. Statement No. 70 requires a government that  extends a nonexchange financial guarantee to recognize a liability when qualitative factors and  historical data indicate that it is more likely than not that the government will be required to make  a payment on the guarantee. Statement No. 70 also specifies the information required to be  disclosed by governments that extend nonexchange financial guarantees and also new disclosure  requirements. As of July 1, 2013, the City adopted this Statement, which does not have a  significant impact on the City’s financial statements.           CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    55   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (m) 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:      GASB Statement No. 68 issued June 2012, Accounting and Financial Reporting for Pensions – an  amendment of GASB Statement No. 27, establishes accounting and financial reporting  requirements for pension plans that are administered through trusts. Statement No. 68 requires  governments participating in single and agent multiple employer defined benefit plans to  recognize a liability equal to net pension liability. Net pension liability is required to be measured  as of a date no later than the end of the employer’s prior fiscal year (the measurement date),  consistently applied from period to period. Pension expense and deferred outflows of resources  and deferred inflows of resources related to pensions that are required to be recognized by an  employer primarily result from changes in the components of net pension liability—that is,  changes in the total pension liability and in the pension plan’s fiduciary net position. It requires  that most changes in net pension liability be included in pension expense in the period of change.  The effects of certain other changes in the net pension liability are required to be included in  pension expense over current and future periods. It also requires that notes to financial  statements of single and agent employers include descriptive information, such as types of  benefits provided and number and classes of employees covered by the benefit terms, sources of  changes in net pension liability for the current year, significant assumptions and other inputs used  in valuations and the valuation date. The Statement also requires the government to present  required supplementary information for each of the ten most recent fiscal years. Requirements  of this Statement are effective for the City’s fiscal year ending June 30, 2015.    During January 2014, GASB issued Statement No. 69, Government Combinations and Disposals of  Government Operations. It establishes accounting related to government combinations and  disposals of government operations.  Government combinations include mergers, acquisitions,  and transfers of operations. Statement No. 69 also establishes the required financial statement  disclosure for government combinations and disposals of government operations. The  requirements of this Statement are effective for the City’s fiscal year ending June 30, 2015.  During November 2013, GASB issued Statement No. 71, Pension Transition for Contributions Made  Subsequent to the Measurement Date – an amendment of GASB Statement No. 68. This Statement  improves the accounting and financial reporting by addressing an issue in Statement No. 68. The  issue relates to amounts associated with contributions, if any, made by a state or local  government employer or nonemployer contributing entity to a defined benefit pension plan after  the measurement date of the government’s beginning net pension liability. The requirements of  this Statement are effective for the City’s fiscal year ending June 30, 2015.             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    56   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (n)  Use of Estimates    The accompanying basic financial statements have been prepared on the modified accrual and  accrual basis of accounting in accordance with generally accepted accounting principles.  This  requires management to make estimates and assumptions that affect the amounts reported in  the financial statements and accompanying notes. Actual results could differ from those  estimates.        NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING     1. The City Manager submits proposed operating and capital budgets to the City Council for the fiscal  year commencing the following July 1.  The operating budget includes proposed expenditures and the  means of financing them.  2. Public hearings are conducted to obtain comments on the proposed budgets.  3. The Budget is approved with the adoption of a budget ordinance for all funds except Agency Funds.  4. Per the Palo Alto Municipal Code, only the City Manager is authorized to reallocate funds from  contingency accounts maintained in the General Fund.  Additional appropriations to departments in  the General Fund, or to total appropriations for all other budgeted funds, or transfers of  appropriations between funds, require approval by the City Council.  Amendments to budgeted  revenue and expenditures are added to or subtracted from the Adopted Budget and the resulting  totals are reflected as Adjusted Budget amounts.  5. As defined in the Palo Alto Municipal Code, expenditures may not exceed budgeted appropriations at  the department level for the General Fund, and at the fund level for Enterprise, Special Revenue and  Debt Service Funds.  6. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting  principles (GAAP), except that unrealized gains or losses are not recognized as investment earnings  on a budgetary basis and encumbrances are treated as budgetary expenditures when incurred.  7. Expenditures for the Capital Projects Fund are budgeted and maintained at a project level for the life  of the project.  Budget to actual comparisons for these expenditures have been excluded from the  accompanying financial statements.         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    57   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 252,280$         259,286$         2,919$             514,485$          Restricted for post‐closure landfill ‐                    5,907               ‐                    5,907 Held with fiscal agents 19,606             4,166               2,541               26,313              Total cash and investments 271,886$         269,359$         5,460$             546,705$             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, 2014    58   NOTE 3 – CASH AND INVESTMENTS (Continued)    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 of  these funds have been invested as permitted under the Code and the investment policy approved by the  City Council.    Maximum  Maturity  Minimum  Credit Quality  Maximum  Percentage  of Portfolio Maximum  Investment in  One Issuer U.S. Government Securities 10 years (*) N/A No Limit No Limit U.S. Federal Agency Securities (C) 10 years (*) N/A No Limit (A) No Limit Certificates of Deposit 10 years (*) N/A 20% 10% of the par  value of  portfolio Bankers Acceptances 180 days (D) N/A (D) 30% $5 million Commercial Paper 270 days A‐1 15% $3 million (B) Local Agency Investment Fund N/A N/A No Limit $50 million per  account Short‐Term Repurchase Agreements 1 year N/A No Limit No Limit City of Palo Alto Bonds N/A N/A No Limit No Limit Money Market Mutual Funds N/A N/A (E) No Limit No Limit Mutual Funds (F)N/A N/A 20%10% Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million Medium‐Term Corporate Notes 5 years AA 10% $5 million 10 years (*) AA/AA2 10% No Limit (A) (B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution. Debt Agreements: (C)  (D) (E) (F) (*)The maximum maturity is based on the Investment Policy that is approved by the City Council and is less  restrictive than the California Government Code.  Utility Revenue Bonds 2011 Refunding and University Avenue Parking Bond 2012 are allowed to invest in the  California Asset Management Program. Authorized Investment Type Bonds of State of California  Municipal Agencies Callable and multi‐step securities are limited to no more than 25% of the par value of the portfolio, provided that:  1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step‐up" are  known at the time of purchase, 3) the entire face value of the security is redeemable at the call date. Utility Revenue Bonds 2011 Refunding and 1999 Refunding allow general obligations of states with a minimum  credit quality rating of A2/A by Moody's and Standard & Poor's. Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum credit quality rating of A‐1/P‐1 by  Moody's and Standard & Poor's and maturing after no more than 360 days.  Utility Revenue Bonds 1995 Series A  limit the maximum maturity to 365 days. Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a  minimum credit quality rating of AAAm or AAAm‐G by Standard & Poor's. CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    59   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 its fair value  is 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 Investment Less Than  One Year One to  Three Years  Three to  Five Years Over  Five Years Total U.S. Federal Agency Securities 55,445$        113,015$     142,698$     138,181$     449,339$      U.S. Treasury Notes ‐                     ‐                     6,891            4,345            11,236           Local Government Bonds ‐                   ‐                   ‐                   5,711           5,711             Money Market Mutual Funds 7,336          ‐                   ‐                   ‐                    7,336             Negotiable Certificates of Deposit ‐                   245             9,364          1,465           11,074           California Asset Management Program 21,885        ‐                   ‐                   ‐                    21,885           Local Agency Investment Fund 38,043        ‐                   ‐                   ‐                    38,043           Total Investments 122,709$     113,260$     158,953$     149,702$     544,624         Cash in bank and on hand 2,081            Total Cash and Investments 546,705$      Maturities     Local Agency Investment Fund  The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California  Government Code Section 16429 under the oversight of the Treasurer of the State of California.  LAIF  management calculates the fair value and cost of the entire LAIF pool.  The City adjusts its cost basis  invested in LAIF to fair value based on this ratio.  The fair value of the City’s position in the pool is the  same as the value of the pool share. The balance available for withdrawal on demand is based on  accounting records maintained by LAIF, which are recorded on an amortized cost basis.  At June 30, 2014,  LAIF had a weighted average maturity of 232 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, 2014, the fair value approximated the City’s cost. CAMP had a weighted average  maturity of 41 days.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    60   NOTE 3 – CASH AND INVESTMENTS (Continued)    Money market mutual funds are available for withdrawal on demand and at June 30, 2014, had a weighted  average maturity of 34 days.    Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations  At June 30, 2014, the City’s investments (including investments held by bond trustees) include U.S. Federal  Agency Callable Securities in the amount of $121.1 million that are highly sensitive to interest rate  fluctuations (to a greater degree than already indicated in the information provided in the previous page).   These securities are subject to early redemption at par in a period of declining interest rates.      Credit Risk  Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the  investment.  This is measured by the assignment of a rating by a nationally recognized statistical rating  organization.  Presented below is the actual rating as provided by Standard & Poor’s investment rating  system as of June 30, 2014, for each investment type (in thousands):    Type of Investment Rating Total U.S. Federal Agency Securities AA+ 449,339$          Local Government Bonds AAA 5,711                Money Market Mutual Funds AAAm 7,336                Total Investments 462,386            Not Applicable:  U.S. Treasury Notes 11,236              Not Rated: California Asset Management Program 21,885              Local Agency Investment Fund 38,043              Negotiable Certificates of Deposit 11,074              Cash in bank and on hand 2,081                Total Cash and Investments 546,705$              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, 2014  (in thousands):   Investments Reporting Type  Fair Value at Year‐End  Federal Home Loan Bank U.S. Federal Agency Securities 156,621$                           Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 85,624                               Federal National Mortgage Corporation U.S. Federal Agency Securities 73,129                               Federal Farm Credit Bank U.S. Federal Agency Securities 54,575                               Federal Home Loan Mortgage Corporation U.S. Federal Agency Securities 47,270                                CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    61   NOTE 3 – CASH AND INVESTMENTS (Continued)    Custodial Credit Risk  California law requires banks and savings and loan institutions to pledge government securities with a  market value of 110 percent of the City’s cash on deposit or first trust deed mortgage notes with a value  of 150 percent of the deposit as collateral for these deposits.  Under California Law, this collateral is  considered held in the City’s name and places the City ahead of general creditors of the institution.  The  City has waived collateral requirements for the portion of deposits covered by federal deposit insurance.    The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to  a transaction, the City will not be able to recover the value of its investment or collateral securities that  are in the possession of another party.  The City’s Investment Policy limits its exposure to custodial credit  risk by requiring that all security transactions entered into by the City be conducted on a delivery‐versus‐ payment basis.  Securities are to be held by a third‐party custodian.        NOTE 4 – INTERFUND TRANSACTIONS      Transfers Between Funds  With Council approval, resources may be transferred from one City fund to another.  The purpose of the  majority of transfers is to subsidize a fund.  Less often, a transfer may be made to open or close a fund.   Transfers between City funds during FY 2014 were as follows (in thousands):     Fund Making Transfer Amount  Transferred General Fund Nonmajor Governmental Funds 424$                  A Electric Services Fund 11,203               A Gas Services Fund 5,811                 A Internal Service Funds 474                    A Capital Projects Fund General Fund 17,235               B Nonmajor Governmental Funds 4,676                 B Water Services Fund 142                    B Electric Services Fund 134                    B Fiber Optics Fund 133                    B Gas Services Fund 134                    B Wastewater Collection Fund 133                    B Internal Service Funds 499                    B Nonmajor Governmental Funds General Fund 384                    A Capital Projects Fund 260                    B Water Services Fund 27                       A Internal Service Funds 14                       A Subtotal 41,683                Fund Receiving Transfer   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    62   NOTE 4 – INTERFUND TRANSACTIONS (Continued)      Fund Making Transfer Amount  Transferred Water Services Fund Gas Services Fund 92                       B Wastewater Collection Fund 92                       B Internal Service Funds 87                       C Electric Services Fund General Fund 33                       D Water Services Fund 333                    B Gas Services Fund 333                    B Internal Service Funds 390                    C Gas Services Fund Internal Service Funds 151                    C Refuse Services Fund Storm Drainage Services Fund 36                       D Internal Service Funds 88                       C Wastewater Collection Fund Internal Service Funds 42                       C Wastewater Treatment Fund Internal Service Funds 59                       C Storm Drainage Services Fund Internal Service Funds 14                       C Internal Service Funds General Fund 1,163                 E Water Services Fund 28                       B Electric Services Fund 123                    B Gas Services Fund 47                       B Wastewater Collection Fund 16                       B Refuse Services Fund 29                       B Storm Drainage Services Fund 6                         B Fiber Optics Fund 1                         B Subtotal 3,163                  Total 44,846$              The reasons for these transfers are set forth below: (A) Transfer to reimburse governmental funds for costs incurred for the benefit of funds making the transfer. (B) Allocation of funds to construct capital assets. (C) Transfer to refund replacement charges. (D) Transfer to reimburse the Utility Funds for costs incurred for the benefit of funds making the transfer. (E) Transfer to reimburse Internal Service Funds for costs incurred for the benefit of the fund making the   transfer. Fund Receiving Transfer      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    63   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 the Airport Enterprise Fund to facilitate the transition of PAO control from  County of Santa Clara to the City. The Council approved a General Fund loan of $300,000 to the Airport  Enterprise Fund for environmental analysis, and legal and personnel costs related to 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, after six years.  On July 1, 2012, the City Council approved  an additional $310,000 short‐term loan from the General Fund with the same interest and repayment  terms for transition costs.  A further $325,000 was loaned on July 1, 2013 with the same interest terms  and repayment terms of ten years.  As of June 30, 2014, the total outstanding principal amount is  $935,000.     Internal Balances  Internal balances represent the net interfund receivables and payables remaining after the elimination of  all such balances within governmental and business‐type activities.        NOTE 5 – NOTES AND LOANS RECEIVABLE     At June 30, 2014, the City’s notes and loans receivable totaled (in thousands):    Palo Alto Housing Corporation: Oak Manor Townhouse 334$                 Tree House Apartments 5,343                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 100                   Community Working Group, Inc.1,280                Opportunity Center Associates, L.P.750                   Home Rehabilitation Loans 66                     Executive Relocation Assistance Loans 900                   Below Market Rate Assessment Loans 53                     Stevenson Housing Fire Alarm 48                     Oak Manor Townhouse Water System 114                   Lytton Gardens Assisted Living 101                   Emergency Housing Consortium 75                     Alma Gardens Apartments 1,150                2811‐2825 Alma Street Acquisition 1,290                Palo Alto Family Housing, 801 Alma Street 6,810                Total Notes and Loans 33,205              Less: Valuation Allowance (14,685)            Total Notes and Loans, Net 18,520$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    64   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 Palo Alto Housing Corporation Apartments, Inc.  (PAHCA, Inc.) to assist in the acquisition of an apartment complex to be used to provide rental housing for  low and very low income households.  This loan bears interest at 3 percent, is due in annual installments  until 2017 and is collateralized by a subordinated deed of trust.  Under the terms of the loan agreement,  annual loan payments are forgiven if the Corporation meets the objective of this project.  During the year  ended June 30, 2014, the objective was met.  The annual loan payment was forgiven for the calendar year  ended December 31, 2013.    Tree House Apartments  In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. for the purchase of the  real property located at 488 West Charleston Road. The loan shall accrue simple interest at the rate of  three percent per annum. The loan consists of $1.8 million funded by Community Development Block  Grant funds and $1 million 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, 2014, the outstanding balance  for Tree House Apartments in aggregate is $5.3 million. Principal and interest payments will be deferred  for 55 years.  However, if the borrower has earned extra income, and if it is acceptable to the other entities  providing final permanent sources of funds, payment of interest and principal based on the City’s  proportionate share of the project’s residual receipts from net operating income shall be made by the  borrower.  In no event shall full payment be made by the borrower later than concurrently with the  expiration or earlier termination of the loan agreement, which is 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 interest at 3 percent after 2010.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    65   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Alma Single Room Occupancy Development  On December 13, 1996, the City loaned $2.2 million to Alma Place Associates, L.P. for development of a  107‐unit single room occupancy development.  This loan bears interest at 3 percent and is collateralized  by a subordinated deed of trust.  Loan payments were deferred until May 2014.  The principal balance is  due in 2041.    Barker Hotel  On April 12, 1994, the City loaned a total of $2.1 million for the preservation, rehabilitation and expansion  of a low‐income, single occupancy hotel.  This loan was funded by three sources: $400,000 from the  Housing In‐Lieu Fund, $1 million from HOME Investment Partnership Program Funds, and $670,000 from  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 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 will be forgiven if the borrower satisfactorily  complies with all terms and conditions of the loan agreement.    Sheridan Apartments  On December 8, 1998, the City loaned $2.5 million to 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 Palo Alto Housing Corporation.  Annual loan payments were deferred until Palo  Alto Housing Corporation accumulated $1 million in the 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, L.P.  On August 18, 2003, in connection with the loan to Oak Court Apartments, L.P. discussed in the next  section, the City loaned $5.9 million to 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.  Note  payments are due annually after 55 years, or beginning in 2058, unless Palo Alto Housing Corporation  elects to extend the note until 2102, as defined in the regulatory agreement.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    66   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    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.    Maybell Apartments  On November 28, 2012, the City agreed to loan Palo Alto Housing Corporation $3.2 million for the purpose  of acquisition and development of an affordable rental housing project at 567‐595 Maybell Ave. The loan  bears simple interest at the rate of 3 percent per annum commencing with the date of the permanent  closing. On April 28, 2014, the City collected the outstanding amount of $3.2 million for the Maybell loan.    Palo Alto Gardens Apartments  On April 22, 1999, the City loaned $1 million to Mid‐Peninsula Housing Coalition (the Coalition) for the  purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing.  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 of $100,000 is due in 2039.    Community Working Group, Inc.  On May 13, 2002, the City loaned $1.3 million to Community Working Group, Inc. for predevelopment,  relocation and acquisition of land for development of an 89‐unit complex and homeless service center for  very low income households.  The loan 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 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.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    67   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Executive Relocation Assistance Loans  The City Council may authorize a mortgage loan as part of a relocation assistance package to executive  staff.  The loans are secured by first deeds of trust, and interest is adjusted annually based on the rate of  return of invested funds of the City for the year ended June 30 plus one‐quarter of 1 percent.  Principal  and interest payments are due bi‐weekly.  Employees must pay any outstanding balance on their loans  within a certain period after ending employment with the City.  As of June 30, 2014, 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, 2014 was approximately $356,000.  The home  suffered substantial fire damage on May 3, 2014.  The loss is covered by insurance and an assessment is  being made as to whether the home will be rebuilt.    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, 2014 is approximately $427,000.  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, 2014 was approximately $117,000.    Below Market Rate Assessment Loans  In December 2002, the City loaned $53,000 to below market rate homeowners with low incomes and/or  very limited assets for capital repairs, special assessments and improvements of their properties.  The  loans bear interest at 3 percent and are secured by a deed of trust on each property.  Loan payments are  deferred until 2032.  In 2014, the City did not receive interest payments.    Stevenson Housing Fire Alarm  In December 2006, the City agreed to loan up to $48,000 to Palo Alto Senior Housing Project, Inc. to repair  and upgrade the existing fire alarm system at 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, 2014, 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 an allocation of $113,672 to Palo Alto Housing Corporation  Apartments, Inc (PAHCA, Inc) to replace the water pipes. Repayment of the loan will not be required unless  the property is sold, the program is terminated or purpose of the program is changed without City’s  approval prior to July 1, 2033. The loan for this project is subordinated to the existing City loan with  PAHCA, Inc dated January 7, 1991 for the acquisition of the project site, which is discussed earlier in this  section.        CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    68   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Lytton Gardens Assisted Living  In June 2005, the City loaned $101,000 to Community Housing, Inc. to upgrade and modernize the existing  kitchens at the senior residential facility known as Lytton Gardens Assisted Living.  The loan 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.    Emergency Housing Consortium  In November 2005, the City agreed to loan up to $75,000 to Emergency Housing Consortium to cover  architectural expenses that will be incurred in rehabilitating and expanding the property.  The loan 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 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 complies with all terms and conditions of the agreement.    2811‐2825 Alma Street Acquisition  On October 9, 2011, the City agreed to loan $1.3 million to PAHC Properties Corporation (PAHC) to acquire  properties on Alma Street for the purpose of developing an affordable rental housing project. The loan  bears simple interest of 3 percent, with an option to forgive the loan at maturity as long as PAHC maintains  the affordability restrictions. Provided PAHC is not in default of the agreement, no principal payments  shall be due and interest shall not begin to accrue until the closing of the project’s permanent funding.  Principal and interest payments are payable during the term of the agreement on a “residual receipt”  basis as described in the agreement.    Palo Alto Family Housing, 801 Alma Street  On February 14, 2011, the City agreed to loan Palo Alto Family, LP up to $9.3 million for the purposes of  predevelopment expenses and acquiring certain real property for the Alma Street Affordable Multi‐Family  Rental Housing Project. The loan bears simple interest of 3 percent. Principal and interest are due and  payable during the term of the agreement on a “residual receipt” basis as described in the agreement.  Except in the case of default, all remaining principal and interest shall be payable on the Restriction  Termination Date as defined in the agreement. As of June 30, 2014, the outstanding amount is $6.8  million.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    69   NOTE 6 – CAPITAL ASSETS    Valuation  Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not  available.  Contributed capital assets are valued at their estimated fair value on the date contributed.  The  City’s policy is to capitalize all assets when costs are equal to or exceed $5,000 and the useful life exceeds  one year.  Infrastructure assets are capitalized when costs are equal to or exceed $100,000.    Proprietary fund capital assets are recorded at cost including significant interest costs incurred under  restricted tax‐exempt borrowings, which finance the construction of capital assets.  These interest costs,  net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the  cost of capital assets during the construction period.  Maintenance and repairs are expensed as incurred.    The City has recorded all its public domain capital assets, consisting of roadway and recreation and open  space, in its government‐wide financial statements.  GASB Statement No. 34 requires that all capital assets  with limited useful lives be depreciated over their estimated useful lives.  Alternatively, the “modified  approach” may be used for certain capital assets.  Depreciation is not provided under this approach, but  all expenditures on these assets are expensed unless they are additions or improvements.  The City has  elected to use the depreciation method for its capital assets.  The purpose of depreciation is to spread the  cost of capital assets equitably among all users over the life of those assets.  The amount charged to  depreciation expense each year represents that year’s pro rata share of the cost of capital assets.    Depreciation of capital assets is charged as an expense against operations each year and the total amount  of depreciation taken over the years, called accumulated depreciation, is reported on the statement of  net position as a reduction in the book value of capital assets.    Depreciation is calculated using the straight line method, which means the cost of the asset is divided by  its expected useful life in years, and the result is charged to expense each year until the asset is fully  depreciated.  The City has assigned the useful lives listed below to capital assets.    Governmental Activities Years Buildings and structures 20 ‐ 30 Equipment: Computer equipment 3 ‐ 5 Office machinery and equipment 5 Machinery and equipment 5 ‐ 30 Intangible assets ‐ software 5‐20 Roadway network: 5 ‐ 40 Recreation and open space network: 25 ‐ 40 Business‐type Activities Buildings and structures 25 ‐ 60 Vehicles and heavy equipment 3 ‐ 10 Machinery and equipment 10 ‐ 50 Transmission, distribution and treatment systems 10 ‐ 100 Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots,  traffic signage, and bridges Includes major park facilities, park trails, bike paths and medians   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    70   NOTE 6 – CAPITAL ASSETS (Continued)    General Capital Assets  Changes in the City’s general capital assets during the year ended June 30, 2014 were (in thousands):     Balance Balance July 1, 2013 Additions Retirements Transfers June 30, 2014 Governmental activities Nondepreciable capital assets: Land and improvements 79,047$           ‐$                      ‐$                     ‐$                     79,047$               Street trees 15,319             102                   (244)                 ‐                        15,177                 Intangible assets ‐ Easement 3,567               ‐                         ‐                        ‐                        3,567                    Construction in progress 69,218             37,035             (3,258)             (13,189)           89,806                 Total nondepreciable capital assets 167,151           37,137             (3,502)             (13,189)           187,597               Depreciable capital assets: Buildings and structures 133,711           95                      ‐                        794                  134,600               Intangible assets ‐ Software 279                   ‐                         ‐                        ‐                        279                       Equipment 10,912             357                   ‐                        649                  11,918                 Roadway network 282,298           ‐                         ‐                        9,002               291,300               Recreation and open space network 24,888             ‐                         ‐                        2,744               27,632                 Total depreciable capital assets 452,088           452                   ‐                        13,189            465,729               Less accumulated depreciation: Buildings and structures (68,191)           (3,171)              ‐                        ‐                        (71,362)                Intangible assets ‐ Software (76)                    (65)                    ‐                        ‐                        (141)                      Equipment (7,108)              (386)                  ‐                        ‐                        (7,494)                  Roadway network (120,383)         (6,734)              ‐                        ‐                        (127,117)             Recreation and open space network (8,089)              (873)                  ‐                        ‐                        (8,962)                  Total accumulated depreciation (203,847)         (11,229)            ‐                        ‐                        (215,076)             Depreciable capital assets, net 248,241           (10,777)            ‐                        13,189            250,653               Internal service fund capital assets Construction in progress 1,413               1,683                (2)                     ‐                        3,094                    Equipment 50,919             1,975                (1,764)             ‐                        51,130                 Less accumulated depreciation (38,782)           (2,544)              1,455               ‐                        (39,871)                Net internal service fund capital assets 13,550             1,114                (311)                 ‐                        14,353                 Governmental activities capital assets, net 428,942$        27,474$           (3,813)$           ‐$                     452,603$                CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    71   NOTE 6 – CAPITAL ASSETS (Continued)    Business‐type Capital Assets  Changes in the City’s enterprise fund capital assets during the year ended June 30, 2014 were  (in thousands):    Balance Balance July 1, 2013 Additions Retirements Transfers June 30, 2014 Business‐type activities Nondepreciable capital assets: Land and improvements 4,971$             ‐$                     ‐$                            ‐$                       4,971$                 Construction in progress 118,176          41,058            ‐                              (37,053)             122,181               Total nondepreciable capital assets 123,147          41,058            ‐                              (37,053)             127,152               Depreciable capital assets: Buildings and structures 33,380             ‐                       ‐                              731                   34,111                 Transmission, distribution and treatment systems 642,149          63                    (2,676)                    36,322              675,858               Total depreciable capital assets 675,529          63                    (2,676)                    37,053              709,969               Less accumulated depreciation: Buildings and structures (9,199)              (649)                ‐                              ‐                         (9,848)                  Transmission, distribution and treatment systems (267,224)         (16,869)           2,315                     ‐                         (281,778)             Total accumulated depreciation (276,423)         (17,518)           2,315                     ‐                         (291,626)             Depreciable capital assets, net 399,106          (17,455)           (361)                       37,053              418,343               Business‐type activities capital assets, net 522,253$       23,603$         (361)$                    ‐$                       545,495$           Capital Asset Contributions  Some capital assets may be acquired using federal and state grant funds, or they may be contributed by  developers or other governments. Generally accepted accounting principles require that these  contributions be accounted for as revenues at the time the capital assets are contributed.    Depreciation Allocation  Depreciation expense was charged to functions and programs based on their usage of the related assets.   The amount allocated to each function or program is as follows (in thousands):    Governmental Activities Business‐type Activities City Manager 42$                 Water 1,759$            City Attorney 2                    Electric 7,498              Administrative Services 1                    Fiber Optics 303                  Community Services 1,117            Gas 2,313              Public Safety 331                Wastewater Collection 1,907              Public Works 9,225            Wastewater Treatment 2,855              Planning and Community Environment 135                Refuse 13                    Library 376                Storm Drainage 870                  Internal Service Funds 2,544             13,773$         17,518$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    72   NOTE 6 – CAPITAL ASSETS (Continued)    Construction In Progress  Construction in progress as of June 30, 2014 is comprised of the following (in thousands):  Governmental Activities Expended to June 30, 2014  Mitchell Park Library & Community Center 40,218$                      Main Library Construction & Improvements 18,366                        Art Center Electrical & Mech Upgrades 8,015                          Civic Center Infrastructure Improvements 6,528                          Telephone Infrastructure and Network 1,698                          California Avenue‐Transit Hub Corridor 1,471                          VRF 1,396                          Transportation and Parking Improvements 996                             Furniture/Technology for Library Bond Prj 969                             Street Maintenance 969                             Highway 101 Pedestrian/Bicycle Overpass 961                             Eleanor Pardee Park Improvement 738                             Golf Reconfig and Baylands Athletic Center 737                             Curb & Gutter Improvement 662                             Library & Comm Center Temp Facilities 630                             Magical Bridge Playground 613                             Park Restroom Installation 569                             City Hall First Floor Renovation 524                             Other Construction In Progress 6,840                          Total Governmental Activiites Construction In Progress 92,900$                      Business‐type Activites  Expended to         June 30, 2014 Water system extension replacements and improvements 40,590$                      Gas system extension replacements and improvements 7,306                          Sewer system rehabilitation and extensions 5,256                          Electric distribution system improvements 4,503                          Water quality control plant equipment replacement and lab facilities 3,713                          Storm drainage structural and water quality improvements 2,239                          Other electrical improvements projects 821                             Other construction in progress 57,753                        Total Business‐type Activities Construction In Progress 122,181$                         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    73   NOTE 6 – CAPITAL ASSETS (Continued)    Construction In Progress  Allocations of business‐type activity administration and general expenses of $11.4 million have been  capitalized and included in amounts expended to June 30, 2014.    Major governmental capital projects that are currently in progress, and the remaining capital commitment  of each, are as follows:   California Avenue Transit Hub Corridor ‐ $0.8 million   Main Library ‐ $6.8 million   Mitchell Park Library and Community Center ‐ $5.6 million     Major business‐type capital projects that are currently in progress, and the remaining capital commitment  of each, are as follows:   Seismic water system upgrade for Water Fund ‐ $2.4 million   Gas main replacement project for Gas Fund ‐ $6.3 million   Plant equipment replacement for Wastewater Treatment Fund ‐ $3.5 million   Wastewater Collection Fund rehabilitation/augmentation project ‐ $1.1 million        NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS    Long‐Term Obligations  Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt.        The City’s long‐term debt issues and transactions, other than special assessment debt discussed in Note 8,  are as follows (in thousands):    Original Balance Balance Current Issue Amount July 1, 2013 Additions Retirements June 30, 2014 Portion Governmental Activities Debt: General Long‐Term Obligations:  2002B Downtown Parking Improvements, Certificates of Participation, 2 ‐ 4%, due 03/01/2022 3,555$              1,560$              ‐$                     130$               1,430$                145$         General Obligation Bonds 2010, 2 ‐ 5%, due 08/01/2040 55,305              53,540              ‐                       1,020              52,520                1,050        2011 Lease‐Purchase Agreement 3,222               2,400               ‐                     374                 2,026                  383         General Obligation Bonds 2013A, 2 ‐ 5%, due 08/01/2043 20,695              20,695              ‐                        ‐                       20,695                370           Add: Unamortized Premium ‐                        4,400               ‐                     158                 4,242                  158         Total Governmental Activities Debt 82,777$          82,595$          ‐$                    1,682$            80,913$              2,106$           CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    74   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)      Original Issue  Amount  Balanace  July 1, 2013, as  reclassed Additions Retirements Balance,  June 30, 2014 Current  'Portion Business‐type Activities Debt: Enterprise Long‐Term Obligations: Utility Revenue Bonds 1995 Series A,  5.00‐6.25%, due 06/01/2020 8,640$                 3,779$                 ‐$                          445$                     3,334$                 475$                      1999 Refunding,  3.25‐5.25%, due 06/01/2024 17,735                 11,585                 ‐                            605                       10,980                 635                        2009 Series A,  1.80‐5.95%, due 06/01/2035 35,015                 32,500                 ‐                            885                       31,615                 915                        2011 Refunding,  1.80‐5.95%, due 06/01/2035 17,225                 15,240                  ‐                            945                       14,295                 975                        Add: Unamortized Premium ‐                            980                       ‐                            70                         910                       ‐                             Energy Tax Credit Bonds 2007 Series A, 0%, Due 12/15/2021 1,500                   900                     ‐                          100                     800                      100                       Less: Unamortized Discount (49)                        ‐                            (6)                          (43)                        ‐                             State Water Resources Loans 2007, 0%, due 06/30/2029 9,000                   7,200                 ‐                          450                     6,750                  450                       2009, 2.6%, due 11/30/2030 8,500                   7,909                   ‐                            350                       7,559                   359                        Total Business‐type Activities Debt 97,615$               80,044$               ‐$                          3,844$                 76,200$               3,909$                    Description of Long‐Term Debt Issues    2002B Downtown Parking Improvements Project Certificates of Participation (COPs) – On January 16,  2002, the City issued $3.6 million of COPs to finance the construction of certain improvements to the non‐ parking area contained in the City’s Bryant/Florence Garage complex.  Principal payments are due  annually on March 1 and interest payments semi‐annually on March 1 and September 1, and are payable  from lease revenues received by the Corporation from the City’s available funds.    2010 General Obligation Bonds (GO bonds) – On June 30, 2010, the City issued $55.3 million of GO bonds  to finance costs for constructing a new Mitchell Park Library and Community Center, as well as making  substantial improvements to the 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 bonds ends upon repayment of the $52.5 million  principal and $40.6 million interest as the remaining debt service on the GO bonds, which is scheduled to  occur in FY 2041.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    75   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    2013A General Obligation Bonds – On June 30, 2013, the City issued $20.7 million of GO bonds to finance  costs for constructing a new Mitchell Park Library and Community Center, as well as making substantial  improvements to the 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 bonds ends upon repayment of the $20.7 million  principal and $15.2 million interest as the remaining debt service on the GO bonds, which is scheduled to  occur in FY 2044.    2011 Lease‐Purchase Agreement – On August 2, 2011, the City entered into a master lease‐purchase  agreement with JP Morgan Chase Bank, N.A. to finance redemption of the 1998 Golf Course COPs.  The  lease is secured by a first priority security interest in twenty‐one Fire Department emergency vehicles.   Lease proceeds were $3.2 million.  Principal payments are due annually on September 1 and interest  payments are due semi‐annually on September 1 and March 1 at a rate of 2.49 percent, payable from  General Fund revenues.    1995 Utility Revenue Bonds, Series A – The City issued $8.6 million of Utility Revenue Bonds on February  1, 1995 to finance certain extensions and improvements to the City’s Storm Drainage and Surface Water  System.  The Bonds are special obligations of the City payable solely from and secured by a pledge of and  lien upon the revenues derived by the City from the funds, services and facilities of all Enterprise Funds  except the Refuse Services Fund, Fiber Optics Fund and Airport Fund. Principal payments are payable  annually on June 1 and interest payments semi‐annually on June 1 and December 1. A $2.9 million 6.3  percent term bond is due June 1, 2020.    As required by the Indenture, the City established a debt service reserve fund for the Bonds (the “Reserve  Account”), with a minimum funding level requirement in the Reserve Account (the “Reserve  Requirement”).  At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit  into the Reserve Account of a surety bond (the “Surety Bond”) in the amount of $685,340 issued by Ambac  Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).    On May 1, 2013, Ambac Financial emerged from bankruptcy protection, which had been filed under  Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation  proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. No assurance can be  made regarding the claims paying ability of Ambac Assurance on the surety bonds described above.    The pledge of future Net Revenues for the above bonds ends upon repayment of the $3.3 million principal  and $0.8 million interest as the remaining debt service on the bonds, which is scheduled to occur in FY  2020. For FY 2014, Net Revenues, including operating revenues and non‐operating interest earnings,  amounted to $243.9 million; operating costs, including operating expenses but not interest, depreciation  or amortization, amounted to $179.4 million. Net Revenues available for debt service amounted to $64.5  million, which represented coverage of 94.7 times over the $0.7 million in debt service.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    76   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    1999 Utility Revenue and Refunding Bonds – The City issued $17.7 million of Utility Revenue Bonds on  June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue  Bonds, Series A, and to finance rehabilitation of 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 May 1, 2013, Ambac Financial emerged from bankruptcy protection, which had been filed under  Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation  proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. No assurance can be  made regarding the claims paying ability of Ambac Assurance on the surety bonds described above.     The pledge of future Net Revenues for the above bonds ends upon repayment of the $11.0 million  principal and $3.8 million interest as the remaining debt service on the bonds, which is scheduled to occur  in FY 2024. For FY 2014, Net Revenues, including operating revenues and non‐operating interest earnings,  amounted to $41.1 million; operating costs, including operating expenses but not interest, depreciation  or amortization, amounted to $30.9 million. Net Revenues available for debt service amounted to $10.2  million, which represents coverage of 8.44 times over the $1.2 million in debt service.    2007 Electric System Clean Renewable Energy Tax Credit Bonds, Series A – In October 2007, the City  issued $1.5 million of Electric Utility Clean Renewable Energy Tax Credit Bonds (CREBs), 2007 Series A, to  finance the City’s photovoltaic solar panel project. The CREBs do not bear interest. In lieu of receiving  periodic interest payments, bondholders are allowed annual federal income tax credits in an amount  equal to a credit rate for such CREBs multiplied by the outstanding principal amount of the CREBs owned  by the bondholders. The CERBs 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.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    77   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    The pledge of future Electric Fund Net Revenues ends upon repayment of the $0.8 million remaining debt  service on the bonds, which is scheduled to occur in FY 2022. For FY 2014, Net Revenues, including  operating revenues and non‐operating interest earnings, amounted to $125.0 million; operating costs,  including operating expenses but not interest, depreciation or amortization, amounted to $96.3 million.  Net Revenues available for debt service amounted to $28.7 million, which represented coverage of  287 times over the $0.1 million in debt service.    2009 Water Revenue Bonds, Series A – On October 6, 2009, the City issued $35.0 million of Water  Revenue Bonds to finance certain improvements to the City’s water utility system. Principal payments are  due annually on June 1, and interest payments are due semi‐annually on June 1 and December 1 from  1.80 percent to 5.95 percent. The 2009 Revenue Bonds are secured by net revenues generated by the  Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build America  Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (“Build America  Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury equal to 35  percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues is  senior to the lien on Net Revenues securing the 2009 Bonds and the 2011 Bonds. The City received subsidy  payments amounting to $549 thousand, which represents 33.5 percent of the interest payments due on  December 1 and June 1.    The pledge of future Net Revenues for the above bonds ends upon repayment of the $31.6 million  principal and $22.2 million interest as the remaining debt service on the bonds, which is scheduled to  occur in FY 2035. For FY 2014, Net Revenues, including operating revenues and non‐operating interest  earnings, amounted to $41.3 million; operating costs, including operating expenses but not interest,  depreciation or amortization, amounted to $27.9 million. Net Revenues available for debt service  amounted to $13.4 million, which represented coverage of 5.22 times over the $2.6 million in debt service.    2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease  Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002 Bonds)  on a current basis. The 2002 Bonds were issued to finance improvement to the City’s municipal water  utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually on June  1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The 2011 Bonds  are secured by net revenues generated by the Water Services and Gas Services Funds.     The pledge of future Net Revenues of the above bonds ends upon repayment of the $14.3 million principal  and $3.2 million interest as remaining debt service on the bonds, which is scheduled to occur in FY 2035.  For FY 2014, Net Revenues, including operating revenues and non‐operating interest earnings, amounted  to $77.7 million; operating costs, including operating expenses but not interest, depreciation or  amortization, amounted to $52.2 million. Net Revenues available for debt service amounted to $25.5  million, which represented coverage of 17.6 times over the $1.5 million in debt service.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    78   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    2007 State Water Resources Loan – In October 2007, the City approved a $9 million loan agreement with  State Water Resources Control Board (SWRCB) to finance the City’s Mountain View/Moffett Area  reclaimed water pipeline project. Under the terms of the contract, the City has agreed to repay $9 million  to the State in exchange for receiving $7.5 million in proceeds to be used to fund the Project. The  difference between the repayment obligation and proceeds amounts to $1.5 million and represents in‐ substance interest on the outstanding balance. Principal payments are payable annually on June 30.     Concurrently with the loan, the City entered into various other agreements including a cost sharing  arrangement with the City of Mountain View. Pursuant to that agreement, City of Mountain View agreed  to finance a portion of the project with a $6 million loan repayable to the City. This loan has been recorded  as “Due from other government agencies” in the accompanying financial statements.    2009 State Water Resources Loan – In October 2009, the City approved an $8.5 million loan agreement  with SWRCB to finance the City’s Ultraviolet Disinfection project. Principal and interest payments are  payable annually on November 30.    Debt Service Requirements (in thousands):  Debt service requirements are shown below for all long‐term debt.    For the Year Ending  June 30 Principal Interest Total Principal Interest Total 2015 1,948$             3,402$           5,350$            3,909$           3,109$                7,018$             2016 1,995               3,337             5,332              4,049            2,972                 7,021               2017 2,066               3,260             5,326            4,198            2,818                 7,016              2018 2,156               3,170             5,326              4,363            2,656                 7,019               2019 2,251               3,073             5,324              4,533            2,445                 6,978               2020‐2024 9,940               14,055           23,995            25,285          9,602                 34,887             2025‐2029 11,620             11,616           23,236            15,291          5,471                 20,762             2030‐2034 14,625             8,571             23,196            11,285          2,649                 13,934             2035‐2039 18,160             4,938             23,098            2,420            144                    2,564               2040‐2044 11,910             887                 12,797             ‐                        ‐                            ‐                        Total 76,671$          56,309$         132,980$       75,333$         31,866$              107,199$         Governmental Activities Business‐Type Activities           CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    79   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    Debt Call Provisions  Long‐term debt as of June 30, 2014 is callable on the following terms and conditions:    Initial Call Date Governmental Activities Long‐Term Debt 2002B Certificates of Participation 03/01/11 (2) 2010 General Obligation Bonds $6.595 million due 08/01/2032 08/01/31 (3) $4.890 million due 08/01/2034 08/01/33 (3) $17.725 million due 08/01/2040 08/01/35 (3) Business‐Type Activities Long‐Term Debt Utility Revenue Bonds 1999 Refunding 06/01/09 (1) 2011 Refunding 06/01/21 (1)     (1)  Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on the  initial call date. The call price declines subsequent to the initial date.   (2)  Callable in any order specified by the City at par plus a premium of 1 percent beginning on the initial  call date. The call price declines subsequent to the initial date.    (3)  Callable in any order specified by the City at par value plus any accrued interest beginning on the  initial call date.    Leasing Arrangements  COPs and Capital Leases are issued for the purpose of financing the construction or acquisition of projects  defined in each leasing arrangement. Projects are leased to the City for lease payments which, together  with unspent proceeds of the leasing arrangement, will be sufficient to meet the debt service obligations  of the leasing arrangement. At the termination of the leasing arrangement, title to the project will pass to  the City.    Leasing arrangements are similar to debt in that they allow investors to participate in a share of  guaranteed payments made by the City. Because they are similar to debt, the present value of the total  payments to be made by the City is recorded as long‐term debt. The City’s leasing arrangements are  included in long‐term obligations discussed above.    Conduit Financing  On December 15, 1996, the City acted as a financial intermediary in order to assist Lytton Gardens Health  Care Center in issuing Insured Revenue Refunding Bonds. The Bonds are payable solely from revenues  collected by Lytton Gardens Health Care Center. The City has not included these bonds in its basic financial  statements since it is not legally or morally obligated for the repayment of the bonds. At June 30, 2014,  the amount of bonds outstanding was $3.2 million.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    80   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, 2014, the District’s outstanding debt amounted to  $330 thousand.    On February 29, 2012, the University Avenue Area Off‐Street Parking Assessment District issued Limited  Obligation Refunding Improvement Bonds (2012 Bonds), but the City has no legal or moral liability with  respect to the payment of this debt, which is secured only by assessments on properties in this District.  Therefore, this debt is not included in Governmental Activities long‐term debt of the City. At  June 30, 2014, the District’s outstanding debt amounted to $29.4 million. The proceeds from the 2012  Bonds, combined with available Assessment Funds, were used to redeem the outstanding University  Avenue Area Off‐Street Parking Assessment District Series 2001‐A and Series 2002‐A Bonds.           CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    81   NOTE 9 – LANDFILL CLOSURE AND POST‐CLOSURE CARE    State and federal laws and regulations require the City to 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 $0.9 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 that is currently filled to capacity and ceased  accepting waste after July 28, 2011. Phase IIC closure is under way and is expected to be completed by  late summer 2015. The 30 years of post‐closure maintenance costs will be paid after the state certifies  the Phase IIC closure.    In accordance with state regulations, a final closure and post‐closure maintenance plan was approved by  state and local regulatory agencies in 2014. 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 2014 and FY 2013 were $11.4 and $11.2 million,  respectively. Changes in the liability for landfill closure and post‐closure costs are the result of an annual  inflation factor that is applied to the estimated costs.    The City is required by state and federal laws and regulations to make annual funding contributions to  finance closure and post‐closure care. The City’s financial assurance for the $5.5 million post‐closure  maintenance is a pledge of revenue agreement with California Integrated Waste Management Board. The  $5.9 million closure liability is under the enterprise fund mechanism. The City is in compliance with these  requirements for the year ended June 30, 2014.    The landfill closure balance as of June 30, 2014 comprised the following (in thousands):    Funding Mechanism Closure 5,907$             Cash on hand Post‐closure care 5,456               Future revenues Balance 11,363$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    82   NOTE 10 – NET POSITION AND FUND BALANCES    Net Position  Net Position is the excess of the City’s assets and deferred outflows of resources over its liabilities. Net  position is divided into three categories that are described below:    Net Investment in Capital Assets describes the portion of net position, which is represented by current net  book value of the City’s capital assets, less the outstanding balance of any debt issued to finance these  assets.    Restricted describes the portion of net position that is reduced by liabilities related to restricted assets.  Generally a liability relates to restricted assets if the asset results from a resource flow that also results in  the recognition of a liability or if the liability will be liquidated with the restricted assets reported.    Unrestricted describes the portion of net position which is not restricted as to use.    Fund Balances  As prescribed by GASB Statement No. 54, governmental funds report fund balances in classifications based  primarily on the extent to which the City is bound to honor constraints on the specific purposes for which  amounts in the funds can be spent. Fund balances for governmental funds are made up of the following:    Nonspendable – This category is comprised of amounts that are: (a) not in spendable form, or (b) legally  or contractually required to be maintained intact. The “not in spendable form” criterion includes items  that are not expected to be converted to cash, for example: prepaid items, and long‐term notes  receivable. The corpus of the permanent fund is contractually required to be maintained intact.    Restricted – This category is comprised of amounts that can be spent only for the specific purposes  stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions  may effectively be changed or lifted only with the consent of resource providers.    Committed – This category is comprised of amounts that can only be used for the specific purposes  determined by the action that constitutes the most binding constraint (i.e. ordinance) of the City’s highest  level of decision‐making authority, the City Council. Commitments may be changed or lifted only by the  City taking the same formal action that imposed the constraint originally.      Assigned – This category is comprised of amounts intended to be used by the City for specific purposes  that are neither restricted nor committed. Intent is expressed by the City Council or the City Manager, to  whom the City Council has delegated the authority to assign amounts to be used for specific purposes.    Unassigned –This category is the residual classification for the General Fund and includes all amounts not  contained in the other classifications. Unassigned amounts are technically available for any purpose.  Other governmental funds may report negative unassigned fund balance, which occurs when a fund has  a residual deficit after allocation of fund balance to the nonspendable, restricted or committed categories.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    83   NOTE 10 – NET POSITION AND FUND BALANCES (Continued)    The fund balances of all governmental funds are presented by the above mentioned categories on the  face of the financial statements.  In circumstances when an expenditure is made for a purpose for which  amounts are available in multiple fund balance categories, fund balance is depleted in the order of  restricted, committed, assigned, and unassigned.    The General Fund Budget Stabilization Reserve (BSR) is established by authority of the General Fund  Reserve Policy, which is approved by the City Council and included in the City’s annual adopted budget.  The BSR is maintained in the range of 15 to 20 percent of General Fund expenditures and operating  transfers, with a target of 18.5 percent.  Any reserve level below 15 percent requires City Council approval.   At the discretion of the City Manager, a reserve balance above 18.5 percent may be transferred to the  Infrastructure Reserve within the Capital Projects Fund.  The purpose of the General Fund BSR is to fund  unbudgeted, unanticipated one‐time costs.  The BSR is not meant to fund ongoing, recurring General Fund  expenditures.    The Capital Projects Fund Infrastructure Reserve (IR) is the portion of capital projects assigned fund  balance not yet adopted for a specific project. It does not include potential outside funding for adopted  projects.      As of June 30, 2014 total outstanding encumbrances related to governmental activities were $6.4 million  for the General Fund, $28.1 million for the Capital Projects Fund, and $0.7 million for the Special Revenue  Funds.  General Fund encumbrances are reserved for the following governmental activities:  Planning &  Community Environment $1.8 million, Public Works $1.1 million, Community Services $1.2 million, Public  Safety $1.0 million, Library $0.7 million, and administrative departments $1.7 million.    Enterprise Funds  At June 30, 2014, Enterprise Fund unrestricted net position (in thousands) were as follows:    Water Electric Fiber Optics Gas Wastewater  Collection Wastewater  Treatment Refuse Storm  Drainage Airport Total Unrestricted Rate stabilization Supply ‐$                      61,679$           ‐$                     5,924$         ‐$                    ‐$                   ‐$                ‐$              ‐$             67,603$           Distribution ‐                         8,369                ‐                        10,057         ‐                      ‐                     ‐                   ‐                 ‐                18,426             Operations 20,132             ‐                        18,415            ‐                   7,285             5,483            (1,640)       1,601       (1,039)     50,237             20,132             70,048            18,415            15,981        7,285             5,483            (1,640)       1,601       (1,039)     136,266           Emergency plant replacement 1,000                1,000               1,000               1,000          1,000             1,980             ‐                   ‐                 ‐                6,980                Electric special projects ‐                         51,838            ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                51,838             Reappropriations 10,847             8,715               301                  1,488          6,858             2,118            61               4,493       50             34,931             Commitments 5,148                5,737               217                  9,817          1,454             4,578            985            1,714       111          29,761             Underground loan ‐                         734                  ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                734                   Notes and loans ‐                         ‐                        ‐                        ‐                   ‐                      559               ‐                   ‐                 ‐                559                   Landfill corrective action ‐                         ‐                        ‐                        ‐                   ‐                      ‐                     701            ‐                 ‐                701                   Public benefit program ‐                         2,064               ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                2,064                Central Valley Project 329                  ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                329                   Geng Road Reserve ‐                         ‐                        ‐                        ‐                   ‐                      ‐                     267            ‐                 ‐                267                   Total 37,127$           140,465$        19,933$          28,286$      16,597$        14,718$       374$          7,808$    (878)$      264,430$             The City Council has set aside unrestricted net position for general contingencies, and future capital and  debt service expenditures including operating and capital contingencies for unusual or emergency  expenditures.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    84   NOTE 10 – NET POSITION AND FUND BALANCES (Continued)    Internal Service Funds  At June 30, 2014, Internal Service Funds unrestricted net position (in thousands) were as follows:    Vehicle  Replacement  and  Maintenance Technology Printing and  Mailing  Services General  Benefits Workers'  Compensation  Insurance  Program General  Liabilities  Insurance  Program Retiree Health  Benefits Total Unrestricted net position: Commitments 1,689$               1,990$               87$                     47$                     77$                     25$                      ‐$                   3,915$                Future catastrophic losses ‐                      ‐                     ‐                     ‐                     124                     1,560                 ‐                     1,684                  Retiree health care ‐                     ‐                     ‐                     ‐                     ‐                     ‐                     26,837               26,837                Capital projects 3,458                 6,651                 ‐                     ‐                     ‐                     ‐                     ‐                     10,109                Available 6,358                 10,281               (83)                     1,397                 ‐                     ‐                     ‐                     17,953                Total 11,505$            18,922$            4$                       1,444$               201$                  1,585$               26,837$            60,498$                 Commitments represent the portion of net position set aside for open purchase orders.   Future catastrophic losses represent the portion of net position to be used for unforeseen future losses.  Retiree health care represents the portion of net position set aside to defer future costs of retiree health  care coverage.   Capital projects represent the portion of net position set aside for adopted capital projects.      NOTE 11 – PENSION PLANS    CalPERS Safety and Miscellaneous Employees’ Plans  Substantially all permanent City employees are eligible to participate in pension plans offered by 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, age at retirement and final compensation  salary. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30  by CalPERS.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    85   NOTE 11 – PENSION PLANS (Continued)    The Plans’ provisions and benefits in effect at June 30, 2014, as determined by the valuation dated June 30,  2011, are summarized as follows:    Safety Plan Safety Plan Safety Plan Fire Fighters, Fire Chiefs Association, Fire Fighters,Police Officers, Police Officers, Police Management Fire Chiefs Association Police Management Hire Date Before 6/8/12 Hire Date on or After 6/8/12 Hire Date on or After 12/8/12 Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Full retirement age 50 551 551 Monthly benefits, as a % of annual salary 3%3%3% Required employee contribution rates 9% 9% 9% Required employer contribution rates 34.716% 34.716% 34.716% 1 Employees can retire at age 50 with reduced benefits of 2.4% ‐ 2.88%. Miscellaneous Plan Miscellaneous Plan Hire Date Before 7/17/10 Hire Date on or After 7/17/10 Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life Full retirement age2 55 60 Monthly benefits, as a % of annual salary2 2.7%2.0% ‐ 2.418% Required employee contribution rates 8%7% Required employer contribution rates 25.536%25.536% 2 Employees can retire at age 50 with reduced benefits of 2.0% ‐  2.56% if hired before 7/17/10, or 1.092% ‐ 1.874% if hired on or after 7/17/10.     Contributions are collected through payroll deductions and the City remits those contributions to CalPERS.     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 2014, 2013 and  2012 were $31.9, $28.6 and $27.7 million, respectively. The City made these contributions as required,  together with certain immaterial amounts required as the result of the payment of overtime and other  additional employee compensation.    The City uses the actuarially determined percentages of payroll to calculate and pay contributions to  CalPERS. This results in no net pension obligations or unpaid contributions.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    86   NOTE 11 – PENSION PLANS (Continued)    Annual Pension Costs representing the payment of annual required contributions determined by CalPERS  for the last three fiscal years were as follows (in thousands):    Fiscal Year Ended Annual  Pension Cost  (APC) Percent of  APC  Contributed Net Pension  Obligation Safety Plan June 30, 2012 7,324$            100%‐$                  June 30, 2013 7,871               100%‐                    June 30, 2014 8,323               100%‐                    Miscellaneous Plan June 30, 2012 15,687$          100%‐$                  June 30, 2013 15,801            100%‐                    June 30, 2014 16,209            100%‐                        CalPERS uses the 15 year smoothed market method of valuing the Plan assets. An investment rate of  return of 7.50 percent is assumed, including inflation at 2.75 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 a 30 year rolling  period, except for special gains and losses in fiscal years 2009 through 2011 which are being amortized  over fixed and declining 30 year periods.     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  actuarial value (which differs from market value) and funding progress of the Plans 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 June 30,  Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll 2011 313,184$          254,305$        58,879$          81.2% 22,774$       258.5% 2012 327,608            258,661          68,947            79.0% 20,920          329.6% 2013 338,666            233,417          105,249          68.9% 21,258          495.1% Miscellaneous Plan: Valuation Date June 30,  Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll 2011 552,716$          434,985$        117,731$       78.7% 60,298$       195.2% 2012 576,182            447,819          128,363          77.7% 62,910          204.0% 2013 602,540            412,228          190,312          68.4% 64,440          295.3% Actuarial Actuarial   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    87   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 6/30/2013* 6/30/2011** 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 Not available 30 Years as of the Valuation Date  Asset Valuation Method Market Value 15 Year Smoothed Market  Actuarial Assumptions: Investment Rate of Return 7.50% (net of administrative  expenses)  7.50% (net of administrative  expenses)  Projected Salary Increases 3.30% to 14.20% depending on age,  service, and type of employment  3.30% to 14.20% depending on age,  service, and type of employment  Inflation 2.75%2.75% Payroll Growth 3.00%3.00% Individual Salary Growth A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  2.75% and an annual production  growth of 0.25%. A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  2.75% and an annual production  growth of 0.25%. Miscellaneous Plan Valuation Date 6/30/2013* 6/30/2011** 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 Not available 21 Years as of the Valuation Date  Asset Valuation Method Market Value 15 Year Smoothed Market  Actuarial Assumptions: Investment Rate of Return 7.50% (net of administrative  expenses)  7.50% (net of administrative  expenses)  Projected Salary Increases 3.30% to 14.20% depending on age,  service, and type of employment  3.30% to 14.20% depending on age,  service, and type of employment  Inflation 2.75% 2.75% Payroll Growth 3.00% 3.00% Individual Salary Growth A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  2.75% and an annual production  growth of 0.25%. A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  2.75% and an annual production  growth of 0.25%. * The June 30, 2013 valuations, which are the most recent valuations, were used to disclose the funded status. ** The June 30, 2011 valuations were used to determine the contribution requirements for FY 2014.     Audited annual financial statements and six‐year trend information are available from CalPERS at P.O. Box  942703, Sacramento, CA 94229‐2709.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    88   NOTE 12 – RETIREE HEALTH BENEFITS    In addition to providing pension benefits, the City participates in the California Public Employees’ Medical  and Health Care Act program to provide certain health care benefits for retired employees. Employees  who retire directly from the City are eligible for retiree health benefits if they retire on or after age 50  with 5 years of service and are receiving a monthly pension from CalPERS. Details of benefits provided to  retirees are noted in the following tables:       Unit Hired  Before Retiree  Coverage1 Dependent  Coverage Retired on  or After Retiree  Contribution Management & Professional2 1/1/2004 100% 100% 5/1/2011 10% Police Management2 1/1/2004 100% 100% 5/1/2011 10% Fire Fighters2 1/1/2004 100% 100% 12/1/2011 10% Fire Chiefs Association2 1/1/2004 100% 100% 1/1/2013 10% SEIU 1/1/2005 100% 100% 5/1/2011 Flat rate4 Police Officers3 1/1/2006 100% 100% N/A 0% Utilities Managers & Professional2 1/1/2004 100% 100% 5/1/2011 10% 2 Effective 1/1/2007 plan capped at the second highest CalPERS Bay Area Basic plan premium. 3 Effective 3/1/2009 plan capped at the second highest CalPERS Bay Area Basic plan premium. 4 Effective 4/1/2014 City pays $688 for employee, $1,375 for employee +1, $1,788 for family. Unit Hired on or  After Retiree  Coverage1 Dependent  Coverage2 Management & Professional 1/1/2004 50%‐100% Max. 90% Police Management 1/1/2004 50%‐100% Max. 90% Fire Fighters 1/1/2004 50%‐100% Max. 90% Fire Chiefs Association 1/1/2004 50%‐100% Max. 90% SEIU 1/1/2005 50%‐100% Max. 90% Police Officers 1/1/2006 50%‐100% Max. 90%    specified employer contribution, with the City portion increasing by 5% for each additional year of service credit.  2 Maximun of 90% once employee completes 20 years of service. 1 100% of benefits if the employee has five years CalPERS service credit and the employee retired from the City. 1 Employees with ten years of CalPERS service, at least five of which are at the City of Palo Alto, receive 50% of the Retiree contributions for units with the following hire dates are determined by Government Code   Section 22893, 20 year graduated schedule:         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    89   NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    During FY 2008, the City elected to participate in an irrevocable trust to provide a funding mechanism for  retiree health benefits. The Trust, California Employers’ Retirees Benefit Trust (CERBT), is administrated  by CalPERS and managed by a separately appointed board, which is not under control of the City Council.  This Trust is not considered a component unit of the City.    Funding Policy and Actuarial Assumptions  The City’s policy is to prefund these benefits by accumulating assets in the Trust Fund discussed above  pursuant to City Council Resolution. The annual required contribution (ARC) was determined as part of a  June 30, 2011 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) 7.61 percent investment rate of  return, (b) 3.25 percent projected annual salary increase, (c) actuarial value of assets, (d) inflation rate of  3 percent, and (e) health care cost trend data as noted in the following table:     Year Non‐Medicare Medicare 2013 9.0% 9.4% 2014 8.5% 8.9% 2015 8.0% 8.0% 2016 7.5% 7.8% 2017 7.0% 7.2% 2018 6.5% 6.7% 2019 6.0% 6.1% 2020 5.5% 5.6% 2021+ 5.0% 5.0%    The most current funded status of the plan was determined as part of the June 30, 2013 actuarial  valuation. Actuarial assumptions used for the June 30, 2013 actuarial valuation were the same as those  used for the June 30, 2011 actuarial valuation.     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 unfunded actuarial accrued liability for retiree health  benefits is being amortized as a level percentage of projected payroll using a 30 year closed amortization  period.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    90   NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    Generally accepted accounting principles permit assets to be treated as other post employment benefit  (OPEB) assets and deducted from the Actuarial Accrued Liability when such assets are placed in an  irrevocable trust or equivalent arrangement. During the year ended June 30, 2014, 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 13,035$           Amortization on the Net OPEB Asset 1,989                Interest on the Net OPEB Asset (1,769)               Annual OPEB Cost 13,255              Contributions made: Contributions to OPEB Trust 6,697                Contributions to Retirees 4,056                City portion of current year premiums paid*3,261                Total contributions made 14,014              Change in Net OPEB Asset 759                   Net OPEB Asset, beginning of year 21,851              Net OPEB Asset, end of year 22,610$             * FY 2014 premiums for 905 retirees.    Shortly after year‐end, the City contributed an additional $2.8 million to the Trust.    The Plan’s annual OPEB cost and actual contributions for the past three years ended June 30 are set forth  below (in thousands):  Fiscal Year Annual OPEB  Cost Actual  Contribution Percentage  of OPEB  Cost Net OPEB  Obligation  (Asset) June 30, 2012 13,058$           11,323$          87% (21,271)$         June 30, 2013 13,194             13,774            104% (21,851)           June 30, 2014 13,255             14,014            106% (22,610)              CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    91   NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    The Schedule of Funding Progress presents multi‐year trend information about whether the actuarial  value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for  benefits. Trend data from the actuarial studies is presented below (in thousands):    Valuation Date Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll January 1, 2011 165,660$        40,213$          125,447$   24.3% 80,664$       155.5% June 30, 2011 * 168,053           44,774            123,279      26.6% 81,785          150.7% June 30, 2013 203,642           60,070            143,572      29.5% 81,785          175.5% * 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.     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 2014 2013 Net Position, beginning of year 27,233$         26,265$          Interest earnings 51                  78                   Unrealized gain/(loss) on investments 12                  (142)               Interdepartmental charges 11,635           12,986           Retiree health benefits (12,094)         (11,954)          Net Position, end of year 26,837$         27,233$                  NOTE 13 – DEFERRED COMPENSATION PLAN    City employees may defer a portion of their compensation under City sponsored Deferred Compensation  Plans created in accordance with Internal Revenue Code Section 457. Under these Plans, participants are  not taxed on the deferred portion of their compensation until distributed to them. Distributions may be  made only at termination, retirement, death or in an emergency as defined by the Plans.    The laws governing deferred compensation plan assets require plan assets to be held by a Trust for the  exclusive benefit of plan participants and their beneficiaries. Since the assets held under these plans are  not the City’s property and are not subject to City control, they have been excluded from these financial  statements.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    92   NOTE 14 – RISK MANAGEMENT    Coverage  The City provides dental coverage to employees through a City plan, which is administered by a third party  service agent. The City is self‐insured for the dental claims.    The City has a workers’ compensation insurance policy with coverage up to the statutory limit set by the  State of California. The City retains the risk for the first $500,000 in losses for each accident and employee  under this policy.    The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to  $1.0 million per loss.     The City’s property, boiler, and machinery insurance policy has various deductibles and various coverage  based on the type of property.    The City is a member of the Authority for California Cities Excess Liability (ACCEL), which provides excess  general liability, including auto liability, insurance coverage up to $100 million per occurrence. The City  retains the risk for the first $1.0 million in losses for each occurrence under this policy.    ACCEL was established for the purpose of creating a risk management pool for central California  municipalities. ACCEL is governed by a Board of Directors consisting of representatives of its member  cities. The board controls the operations of ACCEL, including selection of claims management, general  administration and approval of the annual budget.    The City’s deposits with ACCEL equal the ratio of the City’s payroll to the total 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, 2014, the City paid $0.8 million to ACCEL for current year coverage.    Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,  California 94110.    Claims Liability  The City provides for the uninsured portion of claims and judgments in the General Benefits and Insurance  Internal Service Funds. Claims and judgments, including a provision for claims incurred but not reported,  and claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount  of the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it  has retained the risk for the deductible or uninsured portion of these claims.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    93   NOTE 14 – RISK MANAGEMENT (Continued)    The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation  claims, as discussed above. Dental liability is based on a percentage of current year actual expense.   General and workers’ compensation liabilities are based on the results of actuarial studies, and include  amounts for claims incurred but not reported as follows as of June 30 (in thousands):    2014 2013 Beginning balance 27,745$          27,466$           Liability for current and prior fiscal years claims and  claims incurred but not reported (IBNR)3,232               3,531                Claims paid (4,224)              (3,252)               Ending balance 26,753$          27,745$           Current portion 5,665$             6,663$              Year Ended June 30     The City has not incurred a claim that has exceeded its insurance coverage limits in any of the last three  years, nor have there been any significant reductions in insurance coverage.         NOTE 15 – JOINT VENTURES  General  The City participates in joint ventures through Joint Powers Authorities (JPAs) established under the Joint  Exercise of Powers Act of the State of California. As separate legal entities, these JPAs exercise full powers  and authorities within the scope of the related Joint Powers Agreement, including the preparation of  annual budgets, accountability for all funds, the power to make and execute contracts and the right to  sue and be sued. Obligations and liabilities of the JPAs 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.      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    94   NOTE 15 – JOINT VENTURES (Continued)    During the year ended June 30, 2014, the City incurred expenses totaling $71.7 million for purchased  power and assessments earned by NCPA.    The City’s interest in NCPA projects and reserves, as computed by NCPA, was $7.5 million at June 30, 2014.  This amount represents the City’s portion of funds, which resulted from the settlement with third parties  of issues with financial consequences and reconciliations of several prior years’ budgets for programs. It  is recognized that all the funds credited to the City are linked to the collection of revenue from the City’s  ratepayers, or to the settlement of disputes relating to electric power supply and that the money was  collected from the City’s ratepayers to pay power bills. Additionally, the NCPA Commission identified and  approved the funding of specific reserves for working capital, accumulated employees’ post‐retirement  medical benefits, and billed property taxes for the geothermal project. The Commission also identified a  number of contingent liabilities that may or may not be realized, the cost of which in most cases is difficult  to estimate at this time. One such contingent liability is the steam field depletion, which will require  funding to cover debt service and operational costs in excess of the expected value of the electric power.  The General Operating Reserve (GOR) is intended to minimize the number and amount of individual  reserves needed for each project, protect NCPA’s financial condition and maintain its credit worthiness.  The GOR funds of $1.5 million are left on deposit with NCPA as a reserve against these contingencies  identified by NCPA.    Members of NCPA may participate in an individual project of NCPA without obligation for any other  project. Member assessments collected for one project may not be used to finance other projects of NCPA  without the member’s permission.    Geothermal Projects  A purchased power agreement with NCPA obligated the City for 6.2 percent and 6.2 percent, respectively,  of the operating costs and debt service of the two NCPA 110‐megawatt geothermal 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, 2014 is $85.6 million. The City’s participation in this project was 6.2 percent, or $5.3million.    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, 2014, the book value of this  Project’s plant, equipment and other assets was $465 million, while its long‐term debt totaled $398.6  million and other liabilities totaled $60.9 million. The City’s share of the Project’s long‐term debt  amounted to $91.2 million at that date.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    95   NOTE 15 – JOINT VENTURES (Continued)    Geothermal Public Power Line  In 1983, NCPA, the Sacramento Municipal Utility District, the City of Santa Clara and the Modesto Irrigation  District (Joint Owners) initiated studies for a Geothermal Public Power Line (GPPL), which would carry  power generated at several existing and planned geothermal plants in The Geysers area to a location  where the Joint Owners could receive it for transmission to their load centers. NCPA has an 18.5 percent  share of this Project and the City has an 11.1 percent participation in NCPA’s share. In 1989, the  development of the proposed Geothermal Public Power Line was discontinued because NCPA was able to  contract for sufficient transmission capacity to meet its needs in The Geysers.    However, because the project financing provided funding for an ownership interest in a Pacific Gas &  Electric (PG&E) transmission line, a central dispatch facility and a performance bond pursuant to the  Interconnection Agreement with PG&E, as well as an ownership interest in the proposed GPPL, NCPA  issued $16 million in long‐term, fixed‐rate revenue bonds in November 1989 to defease the remaining  variable rate refunding bonds used to refinance this project. The City is obligated to pay its 11.1 percent  share of the related debt service, but debt service costs are covered through NCPA billing mechanisms  that allocate the costs to members based on use of the facilities and services.    At June 30, 2014, the book value of this Project’s plant, equipment and other assets was zero, and its long‐ term debt totaled zero.     NCPA’s financial statements can be obtained from NCPA, 180 Cirby Way, Roseville, CA 95678.    Transmission Agency of Northern California (TANC)  The City is a member of a joint powers agreement with 14 other entities in Transmission Agency of  Northern California (TANC). TANC’s purpose is to provide electrical transmission or other facilities for the  use of its members. While governed by its members, none of TANC’s obligations are those of its members  unless expressly assumed by them. The City was obligated to pay 4 percent of TANC’s debt‐service and  operating costs. However, a Resolution was approved authorizing the execution of a Long‐Term Layoff  Agreement (LTLA) between the Cities of Palo Alto and Roseville. These two agencies desired to “layoff”  their entitlement rights to the California‐Oregon Transmission Project (COTP) (and Roseville’s South of  Tesla entitlement rights) for a period of 15 years to those acquiring Members (Sacramento Municipal  Utility District, Turlock Irrigation District, and Modesto Irrigation District). The effective date of this  Agreement was February 1, 2009. As a result, the City is not obligated to pay TANC’s debt‐service and  operating costs starting February 1, 2009, for a period of fifteen years.     TANC has issued four series of Revenue Bonds and Commercial Paper Notes totaling $421.4 million as of  June 30, 2014 and $93.8 million of Commercial Paper debt backed by a Letter of Credit. The City’s share  of these debts is zero due to the LTLA mentioned above.    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, 2014    96   NOTE 15 – JOINT VENTURES (Continued)    Bay Area Water Supply and Conservation Agency (BAWSCA)   The City is a member of a regional water district with 26 other entities, the Bay Area Water Supply and  Conservation Agency (BAWSCA).  BAWSCA was created on May 27, 2003 to represent the interests of 24  cities and water districts and two private utilities in Alameda, Santa Clara and San Mateo counties that  purchase water on a wholesale basis from the San Francisco regional water system.  It has the power to  issue debt and plan, finance, construct, and operate water supply, transmission, reclamation, and  conservation projects on behalf of its members.      In 2013 the City participated in a debt issuance by BAWSCA.  The debt was issued to repay certain long‐ term costs associated with the San Francisco Public Utilities Commission (SFPUC) water supply contract.   The City’s share of the annual debt service is approximately $1.9 million per year, but will vary based on  annual water purchases of the City compared to other BAWSCA agencies.     BAWSCA’s financial statements can be obtained from BAWSCA, 155 Bovet Road, Suite 650, San Mateo,  California 94402.        NOTE 16 – COMMITMENTS AND CONTINGENCIES    Palo Alto Unified School District – The City leases a portion of the former Cubberley School site and twelve  extended day care sites from Palo Alto Unified School District (PAUSD). The lease is part of a larger  agreement, which includes a covenant not to develop certain properties owned by 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. The rent may vary from year to year depending on the  actual number of days used.  Should any new law or regulation require the expenditure of work in excess  of $250,000, per the terms of the lease, the City and PAUSD may renegotiate the lease. This lease is  cancelable upon 90 days’ written notice in the event funds are not appropriated by the City. In addition,  the lease is contingent upon authorization by the Palo Alto electorate if it exceeds the City’s Proposition  4 (GANN) appropriations limitation in any fiscal year. Lease expenditures for the year ended June 30, 2014,  amounted to $7.3 million. Future minimum annual lease and covenant payments for the year ending  June 30, 2015 is $3.6 million.             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    97   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    GreenWaste of Palo Alto – GreenWaste of Palo Alto continues as the City’s contractor for waste  collection, transportation, and processing services. The agreement has a term of eight years, expiring June  30, 2017, with an option to extend the contract to 2021. The base compensation for GreenWaste is  adjusted annually based on CPI indicators stipulated in the contract. In FY 2014 payments to GreenWaste  were $10.9 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, 2014. If the City initiates the termination of the  contracts, it is required to pay the other partners their unamortized contribution towards the capital  assets.    Solid Waste Materials Recovery and Transfer Station (SMaRT Station) – On June 9, 1992, the City, along  with the City of Mountain View, signed a Memorandum of Understanding (MOU) with the City of  Sunnyvale (Sunnyvale) to participate in the construction and operation of the SMaRT station, which  recovers recyclable materials from the municipal solid waste delivered from participating cities. Per the  MOU, the City has a capacity share of 21.3 percent of this facility and reimburses its proportionate capacity  share of design, construction and operation costs to Sunnyvale.    On December 1, 1992, the Sunnyvale Financing Authority issued $24.6 million in revenue bonds to finance  the design and construction costs of the SMaRT Station. 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, 2014, is $1.5 million. During the year ended June 30, 2014, 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 $1.4 million as of  June 30, 2014. During the year ended June 30, 2014, the City paid $0.2 million as its portion of current  debt service.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    98   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    UTILITIES ENERGY RESOURCE MANAGEMENT    Electric Power Supply Purchase Agreements – The City has numerous power purchase agreements with  power producers to purchase capacity and energy to supply a portion of its load requirements. As of  June 30, 2014, the approximate minimum obligations for the contracts, assuming the energy or gas is  delivered over the next five years, are as follows:    Year Projected Obligation  2015 $71.3 million  2016 $61.3 million  2017 $62.1 million  2018 $62.5 million  2019 $62.9 million    Contractual Commitments beyond 2019 (Electricity) – Several of the City’s purchase power and  transmission contracts extend beyond the five‐year summary presented above. These contracts expire  between 2021 and 2046 and provide for power under various terms and conditions.  The City estimates  that its annual minimum commitments under the contracts, assuming the energy is delivered, ranges  between $63.4 million in 2020 and $3.1 million in 2046.  The City’s largest purchase power source is the  Western Base Resource contract, whereby the City receives 12.31 percent of the amount of energy made  available by Western, after meeting Central Valley Project use requirements.  The Western contract  expires on December 31, 2024.     San Francisco Public Utilities Commission – The City purchases water for delivery to its customers from  San Francisco Public Utilities Commission (SFPUC) under a contract terminating in 2034.  The City’s  wholesale water rate under this contract is determined by a ratemaking process under the authority of  SFPUC.  The City is prohibited from purchasing from other water suppliers under this contract, though it  is not prohibited from using ground water.  The City’s cost of water under this contract is projected to  increase from $2.93 per hundred cubic feet (CCF) in FY 2015 to $4.31 per CCF in FY 2021 as SFPUC  completes an upgrade to its regional water system facilities under its Water System Improvement  Program (WSIP).       Contingent Liabilities  Many of the uncertainties faced by the Utilities Department as an aftermath of the 2000‐2001 energy  crisis have been resolved. The Ninth Circuit Court determined that 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 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.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    99   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    On April 29, 2010, 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.     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.    Grant Programs  The City participates in Federal and State grant programs. These programs have been audited by the City’s  independent auditors in accordance with the provisions of the Federal Single Audit Act amendments of  1996 and applicable State requirements. No costs were questioned as a result of these audits; however,  these programs are still subject to further examination by the grantors and the amount, if any, of  expenditures which may be disallowed by the granting agencies cannot be determined at this time. The  City expects such amounts, if any, to be immaterial.        NOTE 17 – SUBSEQUENT EVENT    Assumption of Control of the Palo Alto Municipal Airport  On August 11, 2014, sponsorship, operation and management of the Palo Alto Airport was transferred to  the City from the County of Santa Clara.  The Airport is situated on City land and the City is taking over  various agreements with airport tenants, licensees, permit holders and users, the Federal Aviation  Administration and the State Lands Commission.                100   This page is left intentionally blank.  Special Debt Revenue Service Permanent Funds Funds Fund Total ASSETS: Cash and investments: Available for operations 69,320$       6,675$         1,439$          77,434$        Cash and investments with fiscal agents ‐              238               ‐                238               Receivables, net: Accounts 385              27                ‐                412               Interest 334              ‐              7                   341               Notes 17,620        ‐              ‐                17,620         Total assets 87,659$       6,940$         1,446$          96,045$        Liabilities: Accounts payable and accruals 121$            ‐$             1$                  122$             Accrued salaries and benefits 17                ‐              ‐                17                 Total liabilities 138              ‐              1                   139               Fund balances: Nonspendable Notes and loans receivable 13,424        ‐              ‐               13,424         Eyerly family ‐              ‐              1,445           1,445           Restricted Transportation mitigation 10,616        ‐              ‐               10,616         Federal revenue 4,457          ‐              ‐               4,457           Street improvement 758              ‐              ‐               758               Local law enforcement 113              ‐              ‐               113               Debt service ‐              6,940          ‐               6,940           Public benefit 30,578        ‐              ‐               30,578         Committed Developer impact fee 11,085        ‐              ‐               11,085         Housing In‐Lieu 14,491        ‐              ‐               14,491         Special districts 1,457          ‐              ‐               1,457           Downtown business 112              ‐              ‐               112               Assigned Unrealized gain on investment 430              ‐              ‐               430               Total fund balances 87,521        6,940          1,445           95,906         Total liabilities and fund balances 87,659$       6,940$         1,446$          96,045$        LIABILITIES AND FUND BALANCES: CITY OF PALO ALTO Non‐major Governmental Funds Combining Balance Sheet June 30, 2014 (Amounts in thousands) 101 Special Debt Revenue Service Permanent Funds Funds Fund Total REVENUES: Property tax ‐$             4,712$         ‐$              4,712$          Special assessments 94                ‐              ‐                94                 Other taxes and fines 2,095          ‐              ‐                2,095           From other agencies: Community Development Block Grants 468               ‐              ‐                468               State of California 140              ‐              ‐                140               Permits and licenses University Avenue Parking 1,762          ‐              ‐                1,762           California Avenue Parking 206               ‐              ‐                206               Other permits and licenses 72                ‐              ‐                72                 Investment earnings 1,806          ‐              33                  1,839           Rental income 5                  ‐              ‐                5                   Other: Housing In‐Lieu ‐ residential 1,640          ‐              ‐                1,640           Other fees 3,850          ‐              ‐                3,850           Total revenues 12,138        4,712          33                  16,883         EXPENDITURES: Current: Administrative Services 177              ‐              ‐                177               Public Works 891              ‐              ‐                891               Planning and Community Environment 1,552           ‐              ‐                1,552           Public safety 286               ‐              ‐                286               Community Services 133              ‐              ‐                133               Non‐Departmental 145              ‐              6                    151               Debt service: Principal retirement ‐              1,150          ‐                1,150           Interest and fiscal charges ‐              3,059          ‐                3,059           Total expenditures 3,184          4,209          6                    7,399           EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 8,954          503              27                  9,484           OTHER FINANCING SOURCES (USES): Transfers in 454              231              ‐                685               Transfers out (5,100)         ‐              ‐                (5,100)          Total other financing sources (uses)(4,646)         231              ‐                (4,415)          Change in fund balances 4,308          734              27                  5,069           FUND BALANCES, BEGINNING OF YEAR 83,213        6,206          1,418            90,837         FUND BALANCES, END OF YEAR 87,521$       6,940$         1,445$          95,906$        CITY OF PALO ALTO Non‐major Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2014 (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.    Asset Seizure  This fund accounts for seized property and funds associated with drug trafficking. Under California  Assembly Bill No. 4162, the monies are released to the City for specific expenditures related to law  enforcement activities.    Developer Impact Fee  This fund accounts for fees imposed on new developments to be used for parks, community centers and  libraries.    Downtown Business Development District  The Downtown Business Development District Fund was established to account for the activities of the  Palo Alto Downtown Business Development District, which was established to enhance the viability of the  downtown business district.    Public Benefit  This fund accounts for the activities of the SUMC Parties Development Agreement (DA) whereby SUMC  will enhance and expand their facilities and the City will grant SUMC the right to develop the facilities in  accordance with the DA.  Street Federal Housing Special Improvement Revenue In‐Lieu Districts ASSETS: Cash and investments: Available for operations 559$               162$               14,561$          1,478$             Receivables: Accounts 199                158                ‐                  ‐                   Interest 3                     ‐                 63                   6                       Notes ‐                 4,196             13,424            ‐                   Total assets 761$               4,516$            28,048$         1,484$             Liabilities: Accounts payable and accruals ‐$                59$                 47$                  10$                  Accrued salaries and benefits ‐                 ‐                 ‐                  17                    Total liabilities ‐                 59                  47                   27                    Fund balances: Nonspendable Notes and loans receivables ‐                 ‐                 13,424            ‐                   Restricted Transportation mitigation ‐                 ‐                 ‐                  ‐                   Federal revenue ‐                 4,457             ‐                  ‐                   Street improvement 758                ‐                 ‐                  ‐                   Local law enforcement ‐                 ‐                 ‐                  ‐                   Public benefit ‐                 ‐                 ‐                  ‐                   Committed Developer impact fee ‐                 ‐                 ‐                  ‐                   Housing In‐Lieu ‐                 ‐                 14,491            ‐                   Special districts ‐                 ‐                 ‐                  1,457               Downtown business ‐                 ‐                 ‐                  ‐                   Assigned Unrealized gain on investment 3                     ‐                 86                   ‐                   Total fund balances 761                4,457             28,001            1,457               Total liabilities and fund balances 761$               4,516$            28,048$         1,484$             LIABILITIES AND FUND BALANCES: CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Balance Sheet June 30, 2014 (Amounts in thousands) 104 Downtown Business Transportation Local Law Asset Developer Development Public  Mitigation Enforcement Seizure Impact Fee District Benefit Total 10,631$          83$                  2$                   11,101$       112$               30,631$          69,320$       ‐                   28                    ‐                  ‐               ‐                 ‐                  385               49                    1                       ‐                  53                1                     158                 334               ‐                   ‐                   ‐                  ‐               ‐                 ‐                  17,620         10,680$          112$                2$                   11,154$       113$               30,789$          87,659$       ‐$                 ‐$                 ‐$                ‐$             ‐$                5$                    121$             ‐                   ‐                   ‐                  ‐               ‐                 ‐                  17                 ‐                   ‐                   ‐                  ‐               ‐                 5                      138               ‐                   ‐                   ‐                  ‐               ‐                 ‐                  13,424         10,616             ‐                   ‐                  ‐               ‐                 ‐                  10,616         ‐                   ‐                   ‐                  ‐               ‐                 ‐                  4,457            ‐                   ‐                   ‐                  ‐               ‐                 ‐                  758               ‐                   111                  2                      ‐               ‐                 ‐                  113               ‐                   ‐                   ‐                  ‐               ‐                 30,578            30,578         ‐                   ‐                   ‐                  11,085        ‐                 ‐                  11,085         ‐                   ‐                   ‐                  ‐               ‐                 ‐                  14,491         ‐                   ‐                   ‐                  ‐               ‐                 ‐                  1,457            ‐                   ‐                   ‐                  ‐               112                ‐                  112               64                    1                       ‐                  69                1                     206                 430               10,680             112                  2                      11,154        113                30,784            87,521         10,680$          112$                2$                   11,154$       113$               30,789$          87,659$       105 Street Federal Housing Special Improvement Revenue In‐Lieu Districts REVENUES: Special assessments ‐$                ‐$                ‐$                 ‐$                 Other taxes and fines 2,083             ‐                 ‐                   12                    From other agencies: Community Development Block Grants ‐                 468                ‐                   ‐                  State of California ‐                 ‐                 ‐                   ‐                  Permits and licenses University Avenue Parking ‐                 ‐                 ‐                   1,762              California Avenue Parking ‐                 ‐                 ‐                   206                 Other permits and licenses ‐                 ‐                 ‐                   72                    Investment earnings 11                   (5)                    496                  29                    Rental income ‐                 ‐                 5                       ‐                  Other Housing In‐Lieu ‐ residential ‐                 ‐                 1,640               ‐                  Other fees ‐                 205                ‐                   ‐                  Total revenues 2,094             668                2,141               2,081              EXPENDITURES: Current: Administrative Services ‐                 ‐                 ‐                   177                 Public Works ‐                 ‐                 ‐                   891                 Planning and Community Environment ‐                 667                374                  101                 Public safety ‐                 ‐                 ‐                   ‐                  Community Services ‐                 ‐                 ‐                   ‐                  Non‐Departmental ‐                 22                   31                     7                      Total expenditures ‐                 689                405                  1,176              EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 2,094             (21)                 1,736               905                 OTHER FINANCING SOURCES (USES): Transfers in ‐                 ‐                 ‐                   194                 Transfers out (1,917)           (2)                    ‐                   (764)                Total other financing sources (uses)(1,917)           (2)                    ‐                   (570)                Change in fund balances 177                (23)                 1,736               335                 FUND BALANCES, BEGINNING OF YEAR 584                4,480             26,265             1,122              FUND BALANCES, END OF YEAR 761$               4,457$            28,001$          1,457$             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, 2014 (Amounts in thousands) 106 Downtown Business Transportation Local Law Asset Developer Development Public Mitigation Enforcement Seizure Impact Fee District Benefit Total ‐$                 ‐$                 ‐$                ‐$                94$                 ‐$                 94$               ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  2,095            ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  468               ‐                   140                  ‐                  ‐                 ‐                 ‐                  140               ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  1,762            ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  206               ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  72                 222                  5                       ‐                  284                3                     761                 1,806            ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  5                    ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  1,640            2,008               ‐                   ‐                  1,637             ‐                 ‐                  3,850            2,230               145                  ‐                  1,921             97                   761                 12,138          ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  177               ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  891               410                  ‐                   ‐                  ‐                 ‐                 ‐                  1,552            ‐                   286                  ‐                  ‐                 ‐                 ‐                  286               ‐                   ‐                   ‐                  5                     ‐                 128                 133               ‐                   ‐                   ‐                  ‐                 85                   ‐                  145               410                  286                  ‐                  5                     85                   128                 3,184            1,820               (141)                 ‐                  1,916             12                   633                 8,954            ‐                   ‐                   ‐                  260                ‐                 ‐                  454               (435)                 ‐                   ‐                  (782)               ‐                 (1,200)            (5,100)           (435)                 ‐                   ‐                  (522)               ‐                 (1,200)            (4,646)           1,385               (141)                 ‐                  1,394             12                   (567)                4,308            9,295               253                  2                      9,760             101                31,351            83,213          10,680$          112$                2$                    11,154$         113$               30,784$          87,521$        107 Street Improvement Federal Revenue Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) REVENUES: Special assessments ‐$          ‐$              ‐$          ‐$           ‐$              ‐$           Other taxes and fines 1,905       2,083           178          ‐            ‐                ‐            Charges for services ‐           ‐               ‐           ‐            ‐                ‐            From other agencies: Community Development Block Grants ‐           ‐               ‐           455           468               13              State of California ‐           ‐               ‐           ‐            ‐                ‐            Other revenue from other agencies ‐           ‐               ‐           112           ‐                (112)          Permits and licenses University Avenue Parking ‐           ‐               ‐           ‐            ‐                ‐            California Avenue Parking ‐           ‐               ‐           ‐            ‐                ‐            Other permits and licenses ‐           ‐               ‐           ‐            ‐                ‐            Investment earnings 23             11                (12)           ‐            (5)                  (5)              Rental income ‐           ‐               ‐           ‐            ‐                ‐            Other: Housing In‐Lieu ‐ residential ‐           ‐               ‐           ‐            ‐                ‐            Other fees ‐           ‐               ‐           ‐            205               205           Total revenues 1,928       2,094           166          567           668               101           EXPENDITURES: Current: Administrative Services ‐           ‐               ‐           ‐            ‐                ‐            Public Works ‐           ‐               ‐           ‐            ‐                ‐            Planning and Community Environment ‐           ‐               ‐           847           667               180           Public safety ‐ Police ‐           ‐               ‐           ‐            ‐                ‐            Community Services ‐           ‐               ‐           ‐            ‐                ‐            Non‐Departmental ‐           ‐               ‐           ‐            22                 (22)            Total expenditures ‐           ‐               ‐           847           689               158           Excess (deficiency) of revenues  over (under) expenditures 1,928       2,094           166          (280)          (21)                259           OTHER FINANCING SOURCES (USES): Transfers in ‐           ‐               ‐           ‐            ‐                ‐            Transfers out (1,917)     (1,917)         ‐           (2)              (2)                  ‐            Total other financing sources (uses)(1,917)     (1,917)         ‐           (2)              (2)                  ‐            Change in fund balances 11$           177              166$         (282)$         (23)                259$          FUND BALANCES, BEGINNING OF YEAR 584              4,480              FUND BALANCES, END OF YEAR 761$             4,457$           (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, 2014 108 Housing In‐Lieu Special Districts Transportation Mitigation Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) ‐$           ‐$               ‐$           ‐$          ‐$              ‐$          ‐$          ‐$               ‐$           ‐             ‐                 ‐            43              12                (31)           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            1,518        1,762           244          ‐           ‐                 ‐            ‐             ‐                 ‐            195           206              11             ‐           ‐                 ‐            ‐             ‐                 ‐            37              72                35             ‐           ‐                 ‐            161            496                335           23              29                6               174          222                48              ‐             5                     5                 ‐            ‐               ‐           ‐           ‐                 ‐            4,120         1,640             (2,480)      ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           625          2,008             1,383        4,281         2,141             (2,140)      1,816        2,081           265          799          2,230             1,431        ‐             ‐                 ‐            204           177              27             ‐           ‐                 ‐            ‐             ‐                 ‐            1,138        891              247          ‐           ‐                 ‐            725            374                351           175           101              74             410          410                ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            26              ‐               26             ‐           ‐                 ‐            178            31                  147           143           7                   136          ‐           ‐                 ‐            903            405                498           1,686        1,176           510          410          410                ‐            3,378         1,736             (1,642)      130           905              775          389          1,820             1,431        ‐             ‐                 ‐            194           194              ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            (763)          (764)             (1)             (435)         (435)               ‐            ‐             ‐                 ‐            (569)          (570)             (1)             (435)         (435)               ‐            3,378$       1,736             (1,642)$     (439)$        335              774$         (46)$          1,385             1,431$       26,265          1,122           9,295              28,001$        1,457$         10,680$         109 Local Law Enforcement Asset Seizure Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Revenues: Special assessments ‐$          ‐$              ‐$          ‐$           ‐$              ‐$           Other taxes and fines ‐           ‐               ‐           ‐            ‐                ‐            Charges for services ‐           ‐               ‐           ‐            ‐                ‐            From other agencies: Community Development Block Grants ‐           ‐               ‐           ‐            ‐                ‐            State of California ‐           140              140          ‐            ‐                ‐            Other revenue from other agencies ‐           ‐               ‐           ‐            ‐                ‐            Permits and licenses University Avenue Parking ‐           ‐               ‐           ‐            ‐                ‐            California Avenue Parking ‐           ‐               ‐           ‐            ‐                ‐            Other permits and licenses ‐           ‐               ‐           ‐            ‐                ‐            Return on investments 6               5                   (1)             ‐            ‐                ‐            Rental income ‐           ‐               ‐           ‐            ‐                ‐            Other: Housing In‐Lieu ‐ residential ‐           ‐               ‐           ‐            ‐                ‐            Other fees ‐           ‐               ‐           ‐            ‐                ‐            Total revenues 6               145              139          ‐            ‐                ‐            Expenditures: Current: Administrative Services ‐           ‐               ‐           ‐            ‐                ‐            Public Works ‐           ‐               ‐           ‐            ‐                ‐            Planning and Community Environment ‐           ‐               ‐           ‐            ‐                ‐            Public safety ‐ Police 319          286              33             ‐            ‐                ‐            Community Services ‐           ‐               ‐           ‐            ‐                ‐            Non‐Departmental 3               ‐               3                ‐            ‐                ‐            Total expenditures 322          286              36             ‐            ‐                ‐            Excess (deficiency) of revenues  over (under) expenditures (316)         (141)             175          ‐            ‐                ‐            Other financing sources (uses): Transfers in ‐           ‐               ‐           ‐            ‐                ‐            Transfers out ‐               ‐           ‐            ‐                ‐            Total other financing sources (uses)‐           ‐               ‐           ‐            ‐                ‐            Change in fund balances (316)$        (141)             175$         ‐$           ‐                ‐$           Fund balances, beginning of year 253              2                     Fund balances, end of year 112$             2$                  (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, 2014 110 Developer Impact Fee Downtown Business Improvement District Public Benefit Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) ‐$           ‐$               ‐$           154$         94$               (60)$          ‐$          ‐$               ‐$           ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            137            284                147           2                3                   1               679          761                82              ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            947            1,637             690           6                ‐               (6)             ‐           ‐                 ‐            1,084         1,921             837           162           97                (65)           679          761                82              ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            5                 5                      ‐            ‐            ‐               ‐           289          128                161           ‐             ‐                 ‐            230           85                145          ‐           ‐                 ‐            5                 5                      ‐            230           85                145          289          128                161           1,079         1,916             837           (68)            12                80             390          633                243           260            260                ‐            ‐            ‐               ‐           ‐           ‐                 ‐            (782)           (782)               ‐            ‐            ‐               ‐           (1,200)     (1,200)           ‐            (522)           (522)               ‐            ‐            ‐               ‐           (1,200)     (1,200)           ‐            557$          1,394             837$          (68)$          12                80$           (810)$        (567)               243$          9,760             101              31,351           11,154$        113$             30,784$         111   112   This page is left intentionally blank.   113   NON‐MAJOR GOVERNMENTAL FUNDS    DEBT SERVICE FUNDS     Downtown Parking Improvement  This fund accounts for revenues received from the General Fund to provide payment of principal and  interest associated with the 2002B Downtown Parking Improvement Certificate of Participation as they  become due.    Library Projects  This fund accounts for revenues received from property taxes to provide payment of principal and interest  associated with the 2010 and 2013A General Obligation Bonds as they become due.  CITY OF PALO ALTO Non‐major Debt Service Funds Combining Balance Sheet June 30, 2014 (Amounts in thousands) Downtown Parking Library Improvement Projects Total ASSETS: Cash and investments: Available for operations 13$                  6,662$            6,675$             Cash and investments with fiscal agents 238                 ‐                  238                   Receivables: Accounts ‐                 27                    27                     Total assets 251$               6,689$            6,940$             FUND BALANCES: Debt service 251$               6,689$            6,940$             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, 2014 (Amounts in thousands) Downtown Parking Library Improvement Projects Total REVENUES: Property tax ‐$                4,712$            4,712$             EXPENDITURES: Debt service: Principal retirement 130                 1,020             1,150               Interest and fiscal charges 101                 2,958             3,059               Total expenditures 231                 3,978             4,209               (DEFICIENCY) OF REVENUES (UNDER) EXPENDITURES (231)               734                  503                   OTHER FINANCING SOURCES (USES): Transfers in 231                 ‐                  231                   Change in fund balances ‐                 734                  734                   FUND BALANCES, BEGINNING OF YEAR 251                 5,955             6,206               FUND BALANCES, END OF YEAR 251$               6,689$            6,940$             115 Downtown Parking Improvement Library Projects Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) REVENUES: Special assessments ‐$         ‐$             ‐$         3,938$      4,712$         774$         Total revenues ‐           ‐              ‐           3,938       4,712           774           EXPENDITURES: Debt service: Principal retirement 130          130             ‐           1,020       1,020           ‐            Interest and fiscal charges 101          101             ‐           3,023       2,958           65             Total expenditures 231          231             ‐           4,043       3,978           65             Excess (deficiency) of revenues  over (under) expenditures (231)        (231)            ‐           (105)         734              839           OTHER FINANCING SOURCES (USES): Transfers in 231          231             ‐           ‐            ‐               ‐            Total other financing sources (uses)231          231             ‐           ‐            ‐               ‐            Change in fund balances ‐$         ‐              ‐$         (105)$        734              839$         FUND BALANCES, BEGINNING OF YEAR 251             5,955            FUND BALANCES, END OF YEAR 251$            6,689$          (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, 2014 116 117  NON‐MAJOR GOVERNMENTAL FUNDS    PERMANENT FUND    Eyerly Family  This fund accounts for the revenues received from assets donated by Mr. and Mrs. Fred Eyerly for the City  and or its citizenry.    Eyerly Family Permanent Fund Variance Actual, plus Positive Budget Encumbrances (Negative) REVENUES: Investment earnings 34$              33$               (1)$                EXPENDITURES: Current: Non‐Departmental ‐              6                   (6)                  Excess (deficiency) of revenues  over (under) expenditures 34                27                 (7)                  Change in fund balance 34$              27                 (7)$                FUND BALANCE, BEGINNING OF YEAR 1,418           FUND BALANCE, END OF YEAR 1,445$          (Amounts in thousands) CITY OF PALO ALTO Non‐major Permanent Fund Schedule of Revenues, Expenditures and Changes in Fund Balance ‐  Budget and Actual For the Year Ended June 30, 2014 118 119  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 Benefits  This fund accounts for the retiree health benefits.      Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total ASSETS: Current Assets: Cash and investments: Available for operations 11,078$      19,229$     12$             12,665$     20,964$     6,899$        4,145$        74,992$      Accounts receivable, net 31                ‐             ‐             35              ‐             473             96               635             Interest receivable 55                102            ‐             57              95              30               25               364             Inventory of materials and supplies 388              ‐             ‐             ‐             ‐             ‐              ‐              388             Total current assets 11,552        19,331      12              12,757      21,059      7,402          4,266           76,379       Noncurrent Assets: Capital assets: Nondepreciable 1,396           1,698         ‐             ‐             ‐             ‐              ‐              3,094          Depreciable, net 10,977        279            3                ‐             ‐             ‐              ‐              11,259       Net OPEB asset ‐               ‐             ‐             ‐             ‐             ‐              22,610        22,610       Total noncurrent assets 12,373        1,977         3                ‐             ‐             ‐              22,610        36,963       Total assets 23,925        21,308      15              12,757      21,059      7,402          26,876        113,342     LIABILITIES: Current Liabilities: Accounts payable and accruals ‐               263            8                989            68              ‐              39               1,367          Accrued salaries and benefits 39                133            ‐             1                ‐             ‐              ‐              173             Accrued compensated absences 8                  13              ‐             3,891         ‐             ‐              ‐              3,912          Accrued claims payable ‐ current ‐               ‐             ‐             146            3,230         2,289          ‐              5,665          Total current liabilities 47                409            8                5,027         3,298         2,289          39               11,117       Noncurrent liabilities: Accrued compensated absences ‐               ‐             ‐             6,286         ‐             ‐              ‐              6,286          Accrued claims payable ‐               ‐             ‐             ‐             17,560      3,528          ‐              21,088       Total noncurrent liabilities ‐               ‐             ‐             6,286         17,560      3,528          ‐              27,374       Total liabilities 47                409            8                11,313      20,858      5,817          39               38,491       NET POSITION: Net Investment in capital assets 12,373        1,977         3                 ‐             ‐             ‐              ‐              14,353       Unrestricted 11,505        18,922      4                1,444         201            1,585          26,837        60,498       Total net position 23,878$      20,899$     7$               1,444$       201$           1,585$        26,837$      74,851$      CITY OF PALO ALTO Internal Service Funds Combining Statement of Fund Net Position June 30, 2014 (Amounts in thousands) 120 Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total OPERATING REVENUES: Charges for services 7,335$        11,300$     1,328$       41,870$     3,239$       460$            11,635$      77,167$      Other ‐               ‐             ‐             ‐             ‐             472             ‐              472             Total operating revenues 7,335           11,300      1,328         41,870      3,239         932             11,635        77,639       OPERATING EXPENSES: Administrative and general 1,157           6,207         848            249            737            1,051          517             10,766       Operations and maintenance 3,582           5,234         477            126            485            ‐              11,577        21,481       Depreciation and amortization 2,116           425            3                ‐             ‐             ‐              ‐              2,544          Claim payments and change in estimated self‐insured liability ‐               ‐             ‐             1,491         2,451         (710)           ‐              3,232          Refund of charges for services 62                9                ‐             ‐             ‐             ‐              ‐              71               Compensated absences and other benefits ‐               ‐             ‐             40,337      ‐             ‐              ‐              40,337       Total operating expenses 6,917           11,875      1,328         42,203      3,673         341             12,094        78,431       Operating income (loss)418              (575)          ‐             (333)          (434)          591             (459)            (792)           NONOPERATING REVENUES (EXPENSES): Investment earnings 262              485            1                266            434            123             63               1,634          Loss on disposal of capital assets (110)            (45)             ‐             ‐             ‐             ‐              ‐              (155)           Other nonoperating revenues 42                 ‐             ‐             ‐             ‐             ‐              ‐              42               Total nonoperating revenues (expenses)194              440            1                266            434            123             63               1,521          Income (loss) before transfers 612              (135)          1                (67)             ‐             714             (396)            729             Transfers in ‐               1,413         ‐             ‐             ‐             ‐              ‐              1,413          Transfers out ‐               (1,818)       ‐             ‐             ‐             ‐              ‐              (1,818)        Change in net position 612              (540)          1                (67)             ‐             714             (396)            324             NET POSITION, BEGINNING OF YEAR 23,266        21,439      6                1,511         201            871             27,233        74,527       NET POSITION, END OF YEAR 23,878$      20,899$     7$               1,444$       201$           1,585$        26,837$      74,851$      CITY OF PALO ALTO Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2014 (Amounts in thousands) 121 Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total Cash flows from operating activities: Cash received from customers 7,489$         11,300$      1,328$        41,861$      3,239$        959$            11,769$       77,945$       Cash refunds to customers (62)              (9)               ‐             ‐             ‐             ‐               ‐              (71)              Cash payments to suppliers for goods and services (3,330)          (5,771)        (492)           (42)             (485)           ‐               (11,577)       (21,697)      Cash payments to employees (1,147)          (6,196)        (852)           (40,818)     (706)           (1,051)          (1,805)          (52,575)      Cash payments for judgments and claims ‐              ‐             ‐             (1,488)        (1,964)        (772)             ‐              (4,224)         Other cash receipts 42                 ‐             ‐             ‐             ‐             ‐               ‐              42                Cash flows provided by (used in)  operating activities 2,992           (676)           (16)             (487)           84               (864)             (1,613)          (580)            Cash flows from noncapital financing activities: Transfers in ‐              1,413          ‐             ‐             ‐             ‐               ‐              1,413          Transfers out ‐              (1,818)        ‐             ‐             ‐             ‐               ‐              (1,818)         Cash flows provided by noncapital financing activities ‐              (405)           ‐             ‐             ‐             ‐               ‐              (405)            Cash flows from capital and related financing activities: Acquisition of capital assets (2,734)          (918)           ‐             ‐             ‐             ‐               ‐              (3,652)         Proceeds from sale of capital assets 150             ‐             ‐             ‐             ‐             ‐               ‐              150             Cash flows (used in)  capital and related financing activities (2,584)          (918)           ‐             ‐             ‐             ‐               ‐              (3,502)         Cash flows from investing activities: Interest received 263             492            1                 268            442            126              65                1,657          Net change in cash and cash equivalents 671             (1,507)        (15)             (219)           526            (738)             (1,548)          (2,830)         Cash and cash equivalents, beginning of year 10,407         20,736       27               12,884       20,438       7,637           5,693           77,822        Cash and cash equivalents, end of year  $      11,078 $      19,229 $              12 $      12,665 $      20,964  $         6,899  $         4,145 $      74,992  Reconciliation of operating income (loss) to net cash flows provided by (used in) operating activities: Operating income (loss)418$           (575)$          ‐$            (333)$          (434)$          591$            (459)$          (792)$           Adjustments to reconcile operating income (loss)  to net cash provided by (used in) operating activities: Depreciation 2,116           425            3                 ‐             ‐             ‐               ‐              2,544          Other 42                 ‐             ‐             ‐             ‐             ‐               ‐              42                Change in assets and liabilities: Accounts receivable 154              ‐             ‐             (9)               ‐             27                 134             306             Inventory of materials and supplies 281             (77)             ‐             ‐             ‐             ‐               ‐              204             Net OPEB asset ‐              ‐             ‐             ‐             ‐             ‐               (759)            (759)            Accounts payable and accruals (29)              (460)           (15)             84               31                ‐               (529)            (918)            Accrued salaries and benefits 5                  16               (4)               1                 ‐             ‐               ‐              18                Accrued compensated absences 5                  (5)                ‐             (233)            ‐             ‐               ‐              (233)            Accrued claims payable ‐              ‐             ‐             3                 487            (1,482)          ‐              (992)            Cash flows provided by (used in)  operating activities 2,992$         (676)$          (16)$            (487)$          84$             (864)$           (1,613)$       (580)$           CITY OF PALO ALTO Internal Service Funds Combining Statement of Cash Flows For the Year Ended June 30, 2014 (Amounts in thousands) 122 123  FIDUCIARY FUNDS    INTRODUCTION  Fiduciary Funds are used to account for assets held by the City acting in a fiduciary capacity for other  entities and individuals. The funds are operated to carry out the specific actions required by the trust  agreements, ordinances and other governing regulations.    Fiduciary Funds are presented separately from the Citywide and Fund financial statements.    Agency Funds are custodial in nature and do not involve measurement of results of operations. The City  maintains three agency funds, as follows:    California Avenue Parking Assessment District  This fund accounts for receipts and disbursements associated with the 1993 Parking District No. 92‐13  Assessment Bonds.    Cable Joint Powers Authority  The fund was established to account for the activities of the cable television system on behalf of the  members.    University Avenue Area Off‐Street Parking Assessment District  The fund accounts for the receipts and disbursements associated with the Series 2012 Limited Obligation  Refunding Improvement Bonds.      CITY OF PALO ALTO All Agency Funds Statement of Changes in Assets and Liabilities For the Year Ended June 30, 2014 Balance Balance California Avenue Parking Assessment District June 30, 2013 Additions Deletions June 30, 2014 ASSETS: Cash and investments available for operations 189$                  ‐$                   9$                        180$                   LIABILITIES: Due to bondholders 189$                  ‐$                   9$                        180$                   Cable Joint Powers Authority ASSETS: Cash and investments available for operations 869$                  ‐$                   114$                   755$                   Interest receivable 5                        ‐                    1                         4                          Total assets 874$                  ‐$                   115$                   759$                   LIABILITIES: Due to other governments 874$                  ‐$                   115$                   759$                   ASSETS: Cash and investments available for operations 2,015$               ‐$                   31$                     1,984$                Cash and investments with fiscal agents 2,542                 ‐                    1                         2,541                  Accounts receivable 30                      ‐                    21                       9                          Interest receivable 11                      ‐                    1                         10                        Total assets 4,598$               ‐$                   54$                     4,544$                LIABILITIES: Due to bondholders 4,598$               ‐$                   54$                     4,544$                Total Agency Funds ASSETS: Cash and investments available for operations 3,073$               ‐$                   154$                   2,919$                Cash and investments with fiscal agents 2,542                 ‐                    1                         2,541                  Accounts receivable 30                      ‐                    21                       9                          Interest receivable 16                      ‐                    2                         14                        Total assets 5,661$               ‐$                   178$                   5,483$                LIABILITIES: Due to bondholders 4,787$               ‐$                   63$                     4,724$                Due to other governments 874                   ‐                    115                    759                     Total liabilities 5,661$               ‐$                   178$                   5,483$                (Amounts in thousands) University Avenue Area  Off‐Street Parking Assessment District 124 125  STATISTICAL SECTION    The statistical section contains comprehensive statistical data, which relates to physical, economic, social  and political characteristics of the City. It is intended to provide users with a broader and more complete  understanding of the City and its financial affairs than is possible from the financial statements and  supporting schedules included in the financial section.    In this section, readers will find comparative information related to the City’s revenue sources,  expenditures, property tax valuations, levies and collections, general obligation bonded debt, utility  revenue debt service, and demographics. Where available, the comparative information is presented for  the last ten fiscal years.    In addition, this section presents information related to the City’s legal debt margin computation, principal  taxpayers, notary and security bond coverages, and other miscellaneous statistics pertaining to services  provided by the City.    In contrast to the financial section, the statistical section information is not usually subject to independent  audit.    Financial Trends  These schedules contain trend information to help the reader understand how the City’s financial  performance and well‐being have changed over time:   Net Position by Component   Changes in Net Position   Fund Balances of Governmental Funds   Changes in Fund Balances of Governmental Funds    Revenue Capacity  These schedules contain information to help the reader assess the City’s most significant local revenue  sources, property tax and electric charges:   Electric Operating Revenue by Source   Supplemental Disclosure for Water Utilities    Assessed Value of Taxable Property   Property Tax Rates, All Overlapping Governments   Property Tax Levies and Collections   Principal Property Taxpayers   Assessed Valuation and Parcels by Land Use   Per Parcel Assessed Valuation of Single Family Residential    Debt Capacity  These schedules present information to help the reader assess the affordability of the City’s current levels  of outstanding debt and the City’s ability to issue additional debt in the future:   Ratio of Outstanding Debt by Type   Computation of Direct and Overlapping Debt   Computation of Legal Bonded Debt Margin   Revenue Bond Coverage    126  STATISTICAL SECTION    Demographic and Economic Information  These schedules offer demographic and economic indicators to help the reader understand the  environment within which the City’s financial activities take place:   Taxable Transactions by Type of Business   Demographic and Economic Statistics   Principal Employers    Operating Information  These schedules contain service and infrastructure data to help the reader understand how the  information in the City’s financial report relates to the services the City provides and the activities it  performs:   Operating Indicators by Function/Program   Capital Asset Statistics by Function/Program   Full‐Time Equivalent City Government Employees by Function    Sources  Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual  Financial Reports for the relevant year.    2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Governmental Activities Investment in capital assets 305,225$      311,335$        326,411$        343,537$         356,657$        369,499$        364,747$        370,111$         378,047$        386,696$         Restricted 27,273          29,885             32,576             27,428             36,632             34,323             16,437             52,934             71,717             68,331              Unrestricted 117,301        123,823          127,190          130,460           118,133          102,199          134,722          142,102           165,810          187,386           Total Governmental Activities Net Position 449,799$      465,043$        486,177$        501,425$         511,422$        506,021$        515,906$        565,147$         615,574$        642,413$         Business‐type Activities Investment in capital assets 303,473$      318,738$        342,922$        370,303$         384,313$        399,317$        416,418$        437,151$         446,597$        473,795$         Restricted 1,750            1,732               1,732               1,732                1,732               4,300                ‐                         ‐                        4,060               4,166                Unrestricted 215,128        228,032          230,912          226,539           208,025          232,420          253,740          262,602           269,926          266,794           Total Business‐type Activities Net Position 520,351$      548,502$        575,566$        598,574$         594,070$        636,037$        670,158$        699,753$         720,583$        744,755$         Primary Government Investment in capital assets 608,698$      630,073$        669,333$        713,840$         740,970$        768,816$        781,165$        807,262$         824,644$        860,491$         Restricted 29,023          31,617             34,308             29,160             38,364             38,623             16,437             52,934             75,777             72,497              Unrestricted 332,429        351,855          358,102          356,999           326,158          334,619          388,462          404,704           435,736          454,180           Total Primary Government Net Position 970,150$      1,013,545$     1,061,743$     1,099,999$     1,105,492$     1,142,058$     1,186,064$     1,264,900$     1,336,157$     1,387,168$      Source:  Annual Financial Statements, Statement of Net Position Fiscal Year Ended June 30 CITY OF PALO ALTO Net Position by Component Last Ten Fiscal Years (Amounts in thousands) (Accrual basis of accounting) $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Primary Government Investment in capital assets Restricted Unrestricted 127 PROGRAM REVENUES 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Governmental Activities Charges for services City Attorney 22$                   22$               13$               16$               12$               53$               ‐$                     ‐$                     ‐$                     ‐$                    City Clerk ‐                        2                    ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                      Administrative Services 480                   627               835               870               726               984               2,889              1,647              15,629            4,055             People Strategy and Operations ‐                        ‐                     11                  ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                      Public Works 573                   805               968               1,310            1,169            1,258            2,419              1,008              1,314              1,093             Planning & Community Environment 4,090               5,509            6,267            5,498            4,704            4,813            7,237              31,491            28,768            12,896           Public Safety 12,356             13,256          13,789          13,692          14,670          14,337          15,274            15,658            16,139            14,902           Community Services 7,592               10,803          9,128            10,314          8,522            8,729            7,724              11,365            13,808            20,882           Library 133                   129               146               176               177               199               480                  1,600              187                  166                Operating grants and contributions 3,677               3,976            5,642            4,029            3,599            4,829            2,884              3,441              5,038              5,360             Capital grants and contributions 804                   3,156           1,756          1,930          3,810          1,280          1,903            1,064              515                 917              Total Governmental Activities Program Revenues 29,727             38,285          38,555          37,835          37,389          36,482          40,810            67,274            81,398            60,271           Business‐type Activities Charges for services Water 21,041             21,108          23,495          26,510          27,120          26,259          26,624            31,467            37,746            40,291           Electric 88,737             119,418       102,549       103,833       119,320       121,900       122,109          118,886          121,805          121,916        Fiber Optics1 ‐                         ‐                     ‐                     ‐                     3,336            3,105            3,322              3,662              4,382              4,485             Gas 31,206             36,977          42,221          49,021          47,838          44,450          43,584            41,774            34,633            35,737           Wastewater Collection 12,041             13,801          14,848          15,102          14,486          15,136          15,094            14,942            16,077            15,599           Wastewater Treatment 15,982             18,778          16,957          22,889          28,425          16,915          18,830            22,200            21,528            18,460           Refuse 23,387             24,795          25,532          28,805          29,101          28,568          30,469            30,645            30,583            30,297           Storm Drainage 2,484               5,174            5,181            5,450            5,505            5,647            5,796              5,892              6,053              6,183             External Services 766                   854               789               112               ‐                     ‐                     ‐                       ‐                       ‐                       ‐                      Operating grants and contributions ‐                        ‐                     ‐                     ‐                     ‐                     361               610                  605                  572                  549                Capital grants and contributions ‐                        ‐                    756             1,594          639             475             3,004            1,526              2,224             2,005           Total Business‐type Activities  Program Revenues 195,644           240,905       232,328       253,316       275,770       262,816       269,442          271,599          275,603          275,522        Total Primary Government  Program Revenues 225,371$         279,190$     270,883$     291,151$     313,159$     299,298$     310,252$       338,873$       357,001$       335,793$      EXPENSES Governmental Activities City Council 130$                 141$             180$             323$             394$             455$             15$                  345$               94$                  387$              City Manager 1,725               1,563            1,760            2,273            2,085            2,399            1,842              1,960              1,237              2,180             City Attorney 2,653               2,598            2,390            2,653            2,575            2,621            953                  1,656              1,642              1,797             City Clerk 770                   945               900               1,241            1,098            1,369            803                  908                  330                  641                City Auditor 764                   843               838               1,379            2,053            2,601            138                  235                  464                  489                Administrative Services2 6,982               6,972            6,419            15,477          17,784          17,893          9,888              10,100            7,614              11,388           People Strategy and Operations 2,410               2,546            2,472            2,806            3,448            3,707            1,346              1,071              1,420              1,346             Public Works 16,400             17,596          16,645          18,565          21,270          18,658          19,357            14,568            20,816            24,577           Planning & Community Environment 10,162             9,931            12,929          16,388          12,940          12,114          15,031            12,074            13,549            14,926           Public Safety 40,543             42,158          43,391          50,126          52,487          55,799          58,996            62,817            59,452            62,883           Community Services 17,240             17,296          15,729          17,736          19,862          17,171          22,845            21,915            22,705            23,822           Library 4,835               5,323            5,347            6,321            6,244            6,143            6,920              7,323              7,319              7,758             Non‐departmental2 12,474             10,400          12,133           ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                      Interest on long term debt 693                   512              477             438             404             370             2,742            2,575              2,562             3,367           Total Governmental Activities Expenses 117,781           118,824       121,610       135,726       142,644       141,300       140,876          137,547          139,204          155,561        Business‐type Activities Water 14,969             15,881          16,794          18,842          20,271          21,037          24,268            29,093            30,707            31,593           Electric 73,051             91,570          99,294          108,032       122,268       107,910       100,130          102,030          106,438          113,004        Fiber Optics1 ‐                         ‐                     ‐                     ‐                     1,284            1,407            1,561              1,489              1,437              1,661             Gas 26,656             29,107          30,690          37,211          34,603          32,498          32,051            28,878            26,749            26,869           Wastewater Collection 8,907               11,005          10,085          12,023          14,875          10,696          12,275            14,825            14,313            13,235           Wastewater Treatment 17,457             16,747          15,901          18,902          36,896          13,466          19,731            20,712            20,635            21,018           Refuse 24,959             26,989          25,372          28,827          37,217          28,119          30,684            31,900            28,542            28,413           Storm Drainage 3,336               2,673            2,517            3,202            2,943            2,491            3,229              3,103              3,703              3,644             Airport ‐                        ‐                     ‐                     ‐                     ‐                     ‐                     31                    153                  246                  466                External Services 760                   868              767             984             ‐                   ‐                   ‐                      ‐                       ‐                      ‐                    Total Business‐type Activities Expenses 170,095           194,840       201,420       228,023       270,357       217,624       223,960          232,183          232,770          239,903        Total Primary Government Expenses 287,876$         313,664$     323,030$     363,749$     413,001$     358,924$     364,836$       369,730$       371,974$       395,464$      CITY OF PALO ALTO Changes in Net Position Last Ten Fiscal Years (Accrual basis of accounting) (Amounts in thousands) Fiscal Year Ended June 30 128 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 NET (EXPENSE)/REVENUE Governmental Activities (88,054)$          (80,539)$      (83,055)$      (97,891)$      (105,255)$    (104,818)$    (100,066)$      (70,273)$        (57,806)$        (95,290)$       Business‐type Activities 25,549             46,065         30,908        25,293        5,413          45,192        45,482          39,416            42,833           35,619         Total Primary Government Net (Expense)/Revenue (62,505)$          (34,474)$      (52,147)$      (72,598)$      (99,842)$      (59,626)$      (54,584)$        (30,857)$        (14,973)$        (59,671)$       GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities Taxes Property tax 16,657$           18,731$       21,466$       23,084$       25,432$       25,981$       29,156$          30,104$          31,929$          35,299$        Sales tax 19,308             20,315          22,194          22,623          20,089          17,991          20,746            22,132            25,606            29,424           Utility user tax 7,269               8,759            9,356            10,285          11,030          11,295          10,851            10,834            10,861            11,008           Transient occupancy tax 5,686               6,393            6,709            7,976            7,111            6,858            8,082              9,664              10,794            12,255           Other taxes 5,580               7,033            6,293            6,261            3,364            4,055            8,156              8,173              10,504            9,660             Investment earnings 4,988               2,567            8,747            12,313          8,525            6,514            3,500              6,238              (1,228)             5,859             Rents and miscellaneous 12,997             10,440          13,670          11,896          15,682          12,729          12,377            14,943            518                  2,575             Transfers 14,064             21,545         15,754        18,701        24,020        13,994        17,083          17,426            19,249           17,103         Total Governmental Activities 86,549             95,783          104,189       113,139       115,253       99,417          109,951          119,514          108,233          123,183        Business‐type Activities Investment earnings 8,093               3,631            11,910          16,416          14,103          10,769          5,722              7,605              (2,754)             6,379             Special item (21,500)            ‐                     ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                      Transfers (14,064)            (21,545)       (15,754)      (18,701)      (24,020)      (13,994)      (17,083)         (17,426)           (19,249)          (17,103)       Total Business‐type Activities (27,471)            (17,914)        (3,844)           (2,285)           (9,917)           (3,225)           (11,361)           (9,821)             (22,003)           (10,724)         Total Primary Government 59,078$           77,869$       100,345$     110,854$     105,336$     96,192$       98,590$          109,693$       86,230$          112,459$      CHANGE IN NET POSITION Governmental Activities (1,505)$            15,244$       21,134$       15,248$       9,998$          (5,401)$        9,885$            49,241$          50,427$          27,893$        Business‐type Activities (1,922)              28,151         27,064        23,008        (4,504)         41,967        34,121          29,595            20,830           24,895         Total Primary Government Change in Net Position (3,427)$            43,395$       48,198$       38,256$       5,494$          36,566$       44,006$          78,836$          71,257$          52,788$        Notes:1Prior to 2009, Fiber Optics was included in Electric. 2Beginning in 2008, includes Non‐departmental expenses. Source: Annual Financial Statements, Statement of Activities   Fiscal Year Ended June 30 129 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 General Fund Nonspendable 3,931$      4,052$      5,002$      7,286$      6,476$      6,581$      6,085$      6,007$      5,749$      6,188$       Assigned 3,401         3,914         6,855         4,851         6,100         7,295         6,235         6,400         5,415         5,432          Unassigned 24,498      26,251      27,551      30,278      30,648      27,581      31,859      29,616      30,913      36,690       Total General Fund 31,830$    34,217$    39,408$    42,415$    43,224$    41,457$    44,179$    42,023$    42,077$    48,310$     Source: Annual Financial Statements, Balance Sheet Fiscal Year Ended June 30 CITY OF PALO ALTO Fund Balances of Governmental Funds (General Fund) Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ Th o u s a n d s Nonspendable Assigned Unassigned 130 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 All Other Governmental Funds Nonspendable ‐$                 ‐$                 ‐$                731$          1,308$       1,402$        1,422$        11,112$     18,189$     14,869$      Restricted 1,522         1,822         1,540         1,406         1,412         55,400        50,646        61,324        84,688        68,468         Committed 7,521         18,430       22,883       15,207       22,043       16,962        24,775        14,284        20,400        27,145         Assigned 57,336       46,723       41,684       44,116       36,629       38,538        20,114        33,264        45,514        55,211         Total All Other Governmental Funds 66,379$    66,975$    66,107$    61,460$    61,392$    112,302$   96,957$     119,984$   168,791$   165,693$    Source: Annual Financial Statements, Balance Sheet Fiscal Year Ended June 30 CITY OF PALO ALTO Fund Balances of Governmental Funds (All Other Governmental Funds) Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ Th o u s a n d s Nonspendable Restricted Committed Assigned 131 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Revenues Property tax 16,657$           18,731$         21,466$       23,084$       25,432$       25,981$       29,248$       30,216$           32,040$       35,393$        Sales tax 19,308             20,315           22,194         22,623         20,089         17,991         20,746         22,132              25,606         29,424          Other taxes and fines 22,037             25,840           26,215         27,385         24,843         25,063         27,890         29,231              32,141         35,305          Charges for services 17,159             18,672           19,929         19,610         19,837         19,775         22,311         46,273              38,976         23,962          From other agencies 2,757               5,931              3,448            4,300            5,984            3,035            1,614            1,116                4,109            5,700             Permits and licenses 3,183               4,305              4,711            4,761            4,033            4,408            5,433            7,136                8,218            8,990             Interest and rentals 14,968             13,776           17,750         20,507         19,183         19,045         16,553         18,583              12,136         18,445          Other revenue 4,269               4,058              7,503            4,713            6,223            4,724            8,624            12,739              17,570         7,471             Total Revenues 100,338           111,628         123,216       126,983       125,624       120,022       132,419       167,426           170,796       164,690        Expenditures Administration1 14,509             14,299           14,399       16,250       16,002       17,353       8,351           9,412                8,291          9,961           Public Works 9,060               9,036              9,256            10,072         10,064         9,787            11,317         11,304              11,489         12,439          Planning and Community Environment 9,692               9,292              11,874         9,861            10,462         9,480            10,309         11,966              13,474         14,761          Public Safety 38,732             40,393           42,451         48,650         48,957         51,022         58,874         62,418              59,537         62,028          Community Services 16,298             19,740           16,533         17,138         17,451         16,451         20,029         20,860              21,661         22,644          Library 4,800               5,170              5,260            6,219            5,985            5,900            6,509            7,072                6,902            7,340             Non‐departmental 9,028               10,389           12,122         14,089         10,765         10,149         7,352            6,819                4,567            8,135             Special revenue and capital projects 21,317             13,243           17,478         21,626         21,485         22,006         35,486         29,154              29,542         37,035          Debt service ‐ principal payments 785                   810                 850               885               800               840               870               1,743                1,489            1,524             Debt service ‐interest and fiscal fees 583                   523                 489               451               416               382               1,815            2,757                2,659            3,196             Payment to bond refunding escrow ‐                        ‐                       ‐                     ‐                     ‐                     ‐                     ‐                     586                   540               ‐                      Total Expenditures 124,804           122,895         130,712       145,241       142,387       143,370       160,912       164,091           160,151       179,063        Excess (Deficiency) of Revenues Over (Under) Expenditures (24,466)           (11,267)          (7,496)          (18,258)        (16,763)        (23,348)        (28,493)        3,335                10,645         (14,373)         Other Financing Sources (Uses) Transfers in 60,429             26,640           27,701         33,437         39,903         34,835         30,323         47,200              50,343         41,683          Transfers out (46,622)           (12,390)          (15,882)        (16,819)        (22,399)        (21,415)        (14,352)        (29,782)            (33,833)        (24,175)         Other ‐                        ‐                       ‐                     ‐                     ‐                     ‐                     (101)              ‐                         ‐                     ‐                      Proceeds from long term debt ‐                        ‐                       ‐                     ‐                     ‐                     59,071         ‐                     3,222                21,706         ‐                      Payments to refund bond escrow (1,038)              ‐                       ‐                     ‐                     ‐                     ‐                     ‐                     (3,104)               ‐                     ‐                      Total Other Financing Sources (Uses)12,769             14,250           11,819         16,618         17,504         72,491         15,870         17,536              38,216         17,508          Net Change in Fund Balances (11,697)$         2,983$           4,323$         (1,640)$        741$             49,143$       (12,623)$     20,871$           48,861$       3,135$          Debt Service as a Percentage of Non‐Capital Expenditures 1.3% 1.2% 1.2% 1.1% 1.0% 1.0% 2.2% 3.5% 3.2% 3.3% Notes: Source: Annual Financial Statements, Governmental Funds, Statement of Revenues, Expenditures and Changes in Fund Balances 1Comprised of the following departments: City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative Services and PS&O. CITY OF PALO ALTO Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) Fiscal Year Ended June 30 132 Commercial and Fiscal Year Residential Industrial City of Palo Alto Total 2005 13,009$             56,683$                 2,289$                       71,981$                   2006 14,973               67,389                   2,492                         84,854                     2007 15,150               68,214                   2,466                         85,830                     2008 16,109               72,632                   2,571                         91,312                     2009 17,939               83,710                   2,823                         104,472                   2010 19,898               89,315                   2,890                         112,103                   2011 19,848               88,076                   2,991                         110,915                   2012 20,328               85,895                   3,352                         109,575                   2013 19,951               86,998                   3,265                         110,214                   2014 18,744               88,419                   3,225                         110,388                   529 Bryant Street LLC Technology City of Palo Alto Municipal Communications & Power Industries (CPI)Research Hewlett‐Packard Company Computer Space Systems/Loral Satellite & Satellite Systems Stanford University Property Management Stanford Hospital & Clinics Hospital Varian Medical Systems, Inc.Manufacturing Veterans Admin Hospital Hospital VMware, Inc.Computer Number Kilowatt‐hour of Customers Sales (kWh)Revenue Residential 26,439               182,227,583         18,744$                      Commercial 2,556                  470,229,174         65,244                        Industrial 120                     213,768,135         23,175                        CPA/Other 224                     84,559,258           3,225                          Total 29,339               950,784,150       110,388$                  City of Palo Alto Power Purchase  Western Area Power Administration 27% Forward Market Purchases 43% Wind Energy 11% Landfill Gas Energy 8% Northern California Power Agency Hydroelectric 5% Short‐Term Market 6% Note: Source: City of Palo Alto, Utilities and Accounting Departments *The top ten customers accounted for approximately 39.5% of total kWh consumption (375,172,708 kWh) and  35.7% of revenue ($40,928,901). The largest customer accounted for 8.3% of total kWh consumption and 7.4% of  revenue. The smallest customer accounted for 1.4% of total kWh consumption and 1.3% of revenue. Revenue includes all utilities (metered and non‐metered), revenue adjustments, and Primary Voltage discount.  Revenue does not include CEC surcharge, UUT, Solar and Rap discounts and deposits. Parts of this schedule are  provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue Bond and are not  required by Governmental Accounting Standards Board (GASB).  CITY OF PALO ALTO Electric Operating Revenue by Source Last Ten Fiscal Years (Amounts in thousands) Top Ten Electric Customers by Revenue* Customer (alphabetical order)Type of Business 133 The top ten customers total consumption is 846,932 CCF with revenue of $6,628,575. This amount accounts for approximately 16.8% of total consumption and 16.3% of revenue. The largest customer (other than the City of Palo Alto) accounted for 2.1% of  consumption and 2.1% of revenue. The smallest customer accounted for 0.8% of consumption and 0.7% of revenue. Note: Source:City of Palo Alto, Utilities Department CITY OF PALO ALTO Supplemental Disclosure for Water Utilities Fiscal Year 2014 Top Ten Largest Water Utility Customers (alphabetical order) City of Palo Alto Hewlett‐Packard Company VMware Inc. This schedule is provided as required by the Continuing Disclosure Agreement for  the City's Utility Revenue Bond and is not required by Governmental Accounting  Standards Board (GASB).  Palo Alto Hills Golf & Country Club Palo Alto Unified School District Oak Creek Apartments Stanford Hospital & Clinics Stanford West Management Veterans Admin Hospital Space Systems/Loral, Inc. 134 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Net Local Secured Roll Land 7,075,300$        7,941,482$        8,725,485$        9,497,746$        10,420,139$      11,007,650$      11,011,160$      11,352,993$      12,255,515$      13,357,851$           Improvements 7,722,660          8,364,668          8,915,623          9,453,436          10,527,617        10,752,671        10,962,928        11,703,597        12,381,306        12,984,735             Personal property 220,585              174,666              213,154              228,875              303,688              288,148              241,280              257,436              287,296              307,499                  15,018,545        16,480,816        17,854,262        19,180,057        21,251,444        22,048,469        22,215,368        23,314,026        24,924,117        26,650,085             Less: Exemptions net of state aid (1,402,039)         (1,595,871)         (1,639,856)         (1,797,327)         (1,871,292)         (1,809,119)         (1,757,241)         (2,346,728)         (2,589,653)         (2,610,521)              Total Net Local Secured Roll 13,616,506        14,884,945        16,214,406        17,382,730        19,380,152        20,239,350        20,458,127        20,967,298        22,334,464        24,039,564             Public utilities 4,150                  4,084                  3,923                  3,174                  2,573                  2,573                  2,573                  2,573                  2,573                  2,573                       Unsecured property 1,354,310          1,361,117          1,391,284          1,536,584          1,702,884          1,638,436          1,495,574          1,516,837          1,355,970          1,493,922               Total Assessed Value 14,974,966$      16,250,146$      17,609,613$      18,922,488$      21,085,609$      21,880,359$      21,956,274$      22,486,708$      23,693,007$      25,536,059$           Total Direct Tax Rate 1%1%1%1%1%1%1%1%1%1% Note: The State Constitution requires property to be assessed at 100% of the most recent purchase price, plus an increment of no more than 2% annually, plus any local over‐rides. These values are considered to be full market values. Source:  County of Santa Clara Assessor's Office CITY OF PALO ALTO Assessed Value of Taxable Property Last Ten Fiscal Years (Amounts in thousands) Fiscal Year Ended June 30 $13,000,000 $15,000,000 $17,000,000 $19,000,000 $21,000,000 $23,000,000 $25,000,000 $27,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ Th o u s a n d s Total Assessed Value 135 Basic County Total County County Hospital City Library Santa Clara Direct and Fiscal Wide Retirement G.O. Bond G.O. Bond Valley Water School Community Overlapping Year Levy Levy (Measure A)1 (Measure N)2 District District College Rates 2005 1.00       0.0388           ‐                   ‐                    0.0092             0.0680        0.0129             1.13               2006 1.00       0.0388          ‐                   ‐                    0.0078             0.0526        0.0119             1.11               2007 1.00       0.0388          ‐                   ‐                    0.0072             0.0720        0.0346             1.15               2008 1.00       0.0388          ‐                   ‐                    0.0071             0.0702        0.0113             1.13               2009 1.00       0.0388          ‐                   ‐                    0.0061             0.0674        0.0123             1.12               2010 1.00       0.0388          0.0122             ‐                    0.0074             0.0686        0.0322             1.16               2011 1.00       0.0388          0.0095             0.0171             0.0072             0.0751        0.0326             1.18               2012 1.00       0.0388          0.0047             0.0155             0.0064             0.0742        0.0297             1.17               2013 1.00       0.0388          0.0051             0.0129             0.0069             0.0718        0.0287             1.16               2014 1.00       0.0388          0.0035             0.0177             0.0070             0.0655        0.0290             1.16               Notes:1The County General Obligation Bond (Measure A) was passed in 2008 to fund the seismic upgrade of the Santa Clara Valley Medical Center. Rates were first levied for the 2009‐10 fiscal year. 2The City of Palo Alto General Obligation Bond (Measure N) was passed in 2008 to fund the construction and  renovation of three of the City's libraries. Rates were first levied for the 2010‐11 fiscal year. Source: County of Santa Clara, Tax Rates and Information CITY OF PALO ALTO Property Tax Rates All Overlapping Governments Last Ten Fiscal Years  $1.10  $1.12  $1.14  $1.16  $1.18  $1.20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Rate per $100 of Assessed Value 136 Fiscal Year Total Tax Percentage Collections in Percentage of Ended June 30 Levy1 for FY Amount of Levy Subsequent Years2 Amount Levy 2005 16,657$         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% 2012 26,494            26,494         100%‐                                   26,494       100% 2013 28,742            28,742         100%‐                                   28,742       100% 2014 30,587            30,587         100%‐                                   30,587       100% Notes: Source:Annual Financial Statements, Government Funds, Statement of Revenues, Expenditures and Changes in Fund Balances. 1During fiscal year 1995, the County of Santa Clara began providing the City 100% of its tax levy  under an agreement which allows the county to keep all interest and delinquency charges  collected. 2Effective fiscal year 1994, the City is on the Teeter Plan, under which the County of Santa Clara  pays the full tax levy due. All prior delinquent taxes were also received in that fiscal year. CITY OF PALO ALTO Property Tax Levies and Collections Last Ten Fiscal Years (Amounts in thousands) Collected within the  Fiscal Year of the Levy Total Collections to Date 137 Taxable  Assessed  Value Rank Percentage of  Total Taxable  Assessed Value Taxable  Assessed  Value Rank Percentage of  Total Taxable  Assessed Value Leland Stanford Jr. University 3,689,653$    1 14.4%2,508,150$   1 16.7% Loral Space & Communications 252,085          2 1.0%196,954         2 1.3% EOSII Palo Alto Technology Center LLC 118,769          3 0.5% Whisman Ventures, LLC 109,311          4 0.4% Pacific Hotel Development Venture LP 81,729            5 0.3% Ronald & Ann Williams Charitable Foundation 61,179            6 0.2% PPC Forest Towers LLC 55,323            7 0.2% Blackhawk Parent, LLC 52,224            8 0.2% 529 Bryant St. LLC 44,358            9 0.2% Park Village Peninsula LLC 39,008            10 0.2% Agilent Technologies 70,688           3 0.5% Harbor Investment Partners 61,997           4 0.4% Hamilton Associates 37,335           5 0.2% 505 Hamilton Avenue Partners 36,358           6 0.2% California Pacific Commercial Corp.34,492           7 0.2% Thoits Bros Inc.28,596           8 0.2% Hyatt Equities LLC 25,944           9 0.2% Inspire Real Estate Holdings 22,500           10 0.2% Total 4,503,639$    17.6%3,023,014$   20.2% Total City Taxable Assessed Value: FY 2014 25,536,059$   FY 2005 14,974,966$   Source: California Municipal Statistics, Inc. Fiscal Year 2014 Fiscal Year 2005 Taxpayer CITY OF PALO ALTO Principal Property Taxpayers Current Year and Nine Years Ago (Amounts in thousands) 138 2013‐2014 No. of Assessed % of No. of % of Taxable % of Valuation1 Total Parcels Total Parcels Total Non‐Residential: Agricultural/forest 34,972,534$           0.15 % 48          0.23 % 32          0.16 % Commercial 1,217,725,581        5.07 459        2.23 454        2.25 Professional/office 2,963,762,320        12.33 520        2.53 503        2.49 Industrial/research & development 1,759,861,882        7.32 189        0.92 182        0.90 Recreational 41,605,067             0.17 14          0.07 12          0.06 Government/social/institutional 35,141,795             0.15 113        0.55 45          0.22 Miscellaneous 6,840,061                0.03 18        0.09 17          0.08 Subtotal Non‐Residential 6,059,909,240$      25.21 % 1,361     6.62 % 1,245     6.17 % Residential: Single family residence 14,208,622,113$   59.11 % 14,926   72.60 % 14,879   73.72 % Condominium/townhouse 1,911,246,785        7.95 3,006     14.62 3,000     14.86 Mobile Home 56,727                     0.00 7             0.03 7             0.03 2‐4 Residential units 375,813,638           1.56 512        2.49 512        2.54 5+ Residential units 1,316,514,149        5.48 335        1.63 310        1.54 Subtotal Residential 17,812,253,412$   74.10 % 18,786   91.38 % 18,708   92.70 % Vacant Parcels 167,401,061$         0.70 % 412        2.00 % 229        1.13 % Total 24,039,563,713$   100       % 20,559   100        % 20,182   100 % Notes: This schedule is provided as required by the Continuing Disclosure Agreement for the City's General Obligation 2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board (GASB). Therefore, ten years of comparison data is not presented. 1Local secured assessed valuation, excluding tax‐exempt property. Source: California Municipal Statistics, Inc. CITY OF PALO ALTO Assessed Valuation and Parcels by Land Use As of June 30, 2014 139 No. of Taxable Average Parcels1 Assessed Valuation Single Family Residential 14,879 $954,945 No. of % of Cumulative % of Cumulative Taxable Total % of Total Total Total % of Total Parcels1 Parcels Parcels Valuation Valuation Valuation 1,563       10.50    10.50           122,339,273$            0.86         0.86              1,890       12.70    23.21           259,842,687              1.83         2.69              918           6.17       29.38           228,694,427              1.61         4.30              760           5.11       34.48           264,491,238              1.86         6.16              749           5.03       39.52           337,588,409              2.38         8.54              796           5.35       44.87           437,697,563              3.08         11.62            683           4.59       49.46           443,390,894              3.12         14.74            608           4.09       53.55           454,451,425              3.20         17.94            688           4.62       58.17           585,819,332              4.12         22.06            682           4.58       62.75           647,931,889              4.56         26.62            615           4.13       66.89           644,701,712              4.54         31.16            529           3.56       70.44           606,657,478              4.27         35.43            506           3.40       73.84           632,593,803              4.45         39.88            503           3.38       77.22           678,992,569              4.78         44.66            431           2.90       80.12           624,094,603              4.39         49.05            390           2.62       82.74           604,251,717              4.25         53.30            311           2.09       84.83           512,381,113              3.61         56.91            277           1.86       86.69           484,873,179              3.41         60.32            202           1.36       88.05           372,949,891              2.62         62.95            225           1.51       89.56           438,425,123              3.09         66.03            1,553       10.44  100.00      4,826,453,788         33.97       100.00        14,879     100.00  14,208,622,113$       100.00      Notes: Source: California Municipal Statistics, Inc. This schedule is provided as required by the Continuing Disclosure Agreement for the City's General  Obligation 2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board  (GASB). Therefore, ten years of comparison data is not presented. 1Improved single family residential parcels. Excludes condominiums and parcels with multiple family  units. $1,900,000‐1,999,999 $2,000,000 and greater Total $1,800,000‐1,899,999 $700,000‐799,999 $800,000‐899,999 $900,000‐999,999 $1,000,000‐1,099,999 $1,100,000‐1,199,999 $1,200,000‐1,299,999 $1,300,000‐1,399,999 $1,400,000‐1,499,999 $1,500,000‐1,599,999 $1,600,000‐1,699,999 $1,700,000‐1,799,999 $600,000‐699,999 $14,208,622,113 $710,650 2013‐2014 Assessed Valuation $0‐99,999 $100,000‐199,999 $200,000‐299,999 $300,000‐399,999 $400,000‐499,999 $500,000‐599,999 Assessed Valuation Assessed Valuation CITY OF PALO ALTO Per Parcel Assessed Valuation of Single Family Residential As of June 30, 2014 2013‐2014 Median 140 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 10,625$    9,915$      9,175$      8,405$      7,605$      6,765$      5,895$      1,685$      1,560$      1,430$       ‐                  ‐                  ‐                  ‐                  ‐                 55,305      55,305      54,540      74,235      73,215       325            225            115             ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  2011 Lease‐Purchase Agreement ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                 2,764         2,400         2,026          Add: unamortized premium ‐                  ‐                  ‐                  ‐                  ‐                 3,766         3,640         3,514         4,400         4,242          ‐                 ‐                 ‐                 ‐                 ‐                 (571)           ‐                 ‐                 ‐                 ‐                  10,950      10,140      9,290         8,405         7,605         65,265      64,840      62,503      82,595      80,913       44,735      43,325      41,859      40,334      38,744      72,104      69,551      65,879      63,104      60,224       Energy Tax Credits ‐                  ‐                  ‐                 1,400         1,300         1,200         1,100         1,000         900            800             State Water Resources Loan ‐                  ‐                  ‐                 5,629         9,000         13,080      16,696      15,900      15,109      14,309       (1,137)       (1,037)       (972)           (1,053)       (2,479)       (2,737)       (229)           580            543            867             43,598      42,288      40,887      46,310      46,565      83,647      87,118      83,359      79,656      76,200       Outstanding Debt 54,548$    52,428$    50,177$   54,715$   54,170$   148,912$ 151,958$ 145,862$  162,251$ 157,113$  1.89% 1.69% 1.51% 1.53% 1.50% 4.48% 4.10% 3.61% 3.80% 3.39% Population (actual)61,674      62,148      62,615      63,367      64,484      65,408      64,417      65,544      66,368      66,861       0.88$         0.84$         0.80$         0.86$         0.84$         2.28$         2.36$         2.23$         2.44$         2.35$          Notes: Sources: State of California, Department of Finance (population) California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income) Annual Financial Statements, Note 7 General Long‐Term Obligations and Note 8 Special Assessment Debt Debt Per Capita 1See the schedule of Demographic and Economic Statistics for personal income data. Per capita personal income is only available for Santa Clara  County, therefore personal income is the product of the countywide per capita amount and the City's population. County of Santa Clara (assessed valuation) 2The City adopted GASB Statement No. 65 in FY 2014 and wrote off accumulated bond issuance costs. Prior years have not been restated. Percentage of Personal Income1 Certificates of Participation General Obligation Bonds Special Assessment Debt Less: unamortized discount/ issuance costs2 Total Governmental Activities Business‐type Activities Utility Revenue Bonds Less: unamortized discount/ issuance costs2 Total Business‐type Activities Total Primary Government Governmental Activities CITY OF PALO ALTO Ratio of Outstanding Debt by Type Last Ten Fiscal Years (Amounts in thousands) Fiscal Year Ended June 30 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ Th o u s a n d s Total Governmental Activities Total Business‐type Activities 141 2013‐2014 Assessed Valuation 25,536,058,396$      Percentage Amount Applicable Applicable Total Debt to City of to City of Outstanding Palo Alto1 Palo Alto Santa Clara County 804,700,000$           7.64%61,438,845$               Foothill‐DeAnza Community College District 613,179,288             22.53% 138,124,766               Palo Alto Unified School District 319,849,249             89.48% 286,197,910               Fremont Union High School District 290,570,108             0.02%63,925                         Los Gatos Joint Union High School District 41,805,000                0.01%5,853                            Mountain View‐Los Altos Union High School District 65,436,599                0.91%596,127                       Cupertino Union School District 261,223,462             0.04%94,040                         Los Altos School District 76,158,560                0.99%753,208                       Mountain View‐Whisman School District 46,000,000                0.84%384,100                       Saratoga Union School District 40,224,483                0.03%12,470                         Whisman School District 23,045,269                2.14%493,399                       City of Palo Alto 77,457,000                100%77,457,000                 El Camino Hospital District 140,010,000           0.09% 126,009                      City of Palo Alto Special Assessment Bonds 29,745,000              100% 29,745,000                Santa Clara Valley Water District Benefit Assessment District 115,045,000           7.64% 8,783,686                   Total Direct and Overlapping Tax and Assessment Debt 604,276,338              757,814,320             7.63% 57,859,123                             375,419,144 7.64%                 28,663,252                    9,730,000 7.64%                       742,886                 13,468,694 22.53%                   3,033,958                    7,925,000 0.01%                           1,110                    4,170,000 0.91%                         37,989                    5,240,000 0.03%                           1,624  City of Palo Alto Certificates of Participation                   1,430,000 100%                   1,430,000  City of Palo Alto 2011 Lease Purchase Agreement                   2,026,000 100%                   2,026,000                    3,275,000 7.63%                       250,046  Midpeninsula Regional Open Space Park District General Fund Obligations 133,209,717           13.19%                 17,574,358   $            111,620,346                   40,732,468   $              70,887,878   $            675,164,216  Ratio to  Assessed Valuation Total Direct Debt 0.32%80,913,000$               Total Overlapping Debt 2.33%594,251,216               Total Direct and Overlapping Debt 2.64%675,164,216$             Notes: 1Percentage of overlapping agency's assessed valuation located within boundaries of the city 2Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non‐bonded capital lease obligations. Source: California Municipal Statistics, Inc. Santa Clara County Pension Obligations Santa Clara County Board of Education Certificates of Participation Foothill‐DeAnza Community College District Certificates of Participation Los Gatos‐Saratoga Joint Union High School District Certificates of Participation Santa Clara County General Fund Obligations CITY OF PALO ALTO Computation of Direct and Overlapping Debt As of June 30, 2014 Direct and Overlapping Tax and Assessment Debt Direct and Overlapping General Fund Debt Mountain View‐Los Altos Union High School District Certificates of Participation Saratoga Union High School District Certificates of Participation Less: Santa Clara County supported obligations Total Net Direct and Overlapping General Fund Debt Overlapping debt is the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. The amount of debt of each  unit applicable to the reporting unit is arrived at by 1) determining what percentage of the total assessed value of the overlapping jurisdiction  lies within the limits of the reporting unit, and 2) applying this percentage to the total debt of the overlapping jurisdiction.   Santa Clara County Vector Control District Certificates of Participation Total Gross Direct and Overlapping General Fund Debt Total Combined Debt 142 Assessed  Valuation: Secured property assessed value, net of exempt real property 25,536,059$        Bonded Debt Limit (3.75% of Assessed Value) 1 957,602               Direct Debt: Certificates of Participation 1,430                   Lease Purchase Agreement 2,026                   General Obligation bonds 73,215                 Total Direct Debt 76,671                 Less: Amount of Debt Not Subject to Limit 2 3,456                     Total Net Debt Applicable to Limit 73,215               Legal Bonded Debt Margin 884,387$            Total Bonded Total Net Debt Legal Total Net Debt Ratio of Net General Fiscal Assessed Debt Limit Applicable to Bonded Debt Applicable to the Debt to Bonded Debt Year Value (AV)(3.75% of AV)Limit Margin Population Debt as a %Assessed Value Per Capita 2005 14,974,966$        561,561$             ‐$                          561,561$            61,674              0.00%‐                    0.00 2006 16,250,144          609,380                ‐                            609,380              62,148              0.00%‐                    0.00 2007 17,609,613          660,360                ‐                            660,360              62,615              0.00%‐                    0.00 2008 18,922,488          709,593                ‐                            709,593              63,367              0.00%‐                    0.00 2009 21,085,609          790,710                ‐                            790,710              64,484              0.00%‐                    0.00 2010 21,880,359          820,513                55,305                 765,208              65,408              6.74%0.0025                  0.85 2011 21,956,274          823,360                55,305                 768,055              64,417              6.72%0.0025                  0.86 2012 22,486,708          843,252                54,540                 788,712              65,544              6.47%0.0024                  0.83 2013 23,693,007          888,488                74,235                 814,253              66,368              8.36%0.0031                  1.12 2014 25,536,059          957,602                73,215                 884,387              66,861              7.65%0.0029                  1.10 Notes: Source: CITY OF PALO ALTO Computation of Legal Bonded Debt Margin As of June 30, 2014 (Amounts in thousands) 1California Government Code, Section 43605 sets the debt limit at 15% of the assessed value of all real and personal property of the City. Because  this Code section was enacted when assessed value was 25% of market value, the limit is calculated at one‐fourth, or 3.75%. This legal debt margin  applies to General Obligation debt. Prior year limits have been adjusted to conform to the current year methodology. 2In accordance with California Government Code Section 43605, only the City's General Obligation bonds are subject to the legal debt limit of 15%.  Enterprise Fund debt is not subject to legal debt margin. Annual Financial Statements, Assessed Value of Taxable Property and Note 7 General Long‐Term Obligations Total Assessed Value for FY 2005 was restated due to correction of data. 143 Less: Net Revenue Fiscal Gross Direct Operating Available for Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio 2005 171,493$     147,123$              24,370$                1,365$          2,257$          3,622$          6.73                     2006 213,337       143,703                69,634                   1,410            2,203            3,613            19.27                  2007 203,146       151,196                51,950                   1,465            2,147            3,612            14.38                  2008 219,801       173,620                46,181                   1,525            2,088            3,613            12.78                  2009 242,693       180,880                61,813                   1,590            2,024            3,614            17.10                  2010 230,308       171,320                58,988                   1,755            1,954            3,709            15.90                  2011 234,278       151,641                82,637                   2,655            3,261            5,916            13.97                  2012 235,160       169,777                65,383                   2,945            2,959            5,904            11.07                  2013 237,842       173,510                64,332                   2,875            3,167            6,042            10.65                  2014 239,948       176,718                63,230                   2,980            3,073            6,053            10.45                  Notes:1Airport, Refuse and Fiber Optics funds have no debt and are therefore excluded from this schedule. 2Excludes depreciation and amortization expense. 3Excludes federal interest subsidy. Source: City of Palo Alto, Accounting Department Debt Service CITY OF PALO ALTO Revenue Bond Coverage Business‐type Activities1 Last Ten Fiscal Years (Amounts in thousands) $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ Th o u s a n d s Net Revenue Available for Debt Service Total Debt Service 144 Fiscal Year 2005 2,621             2,206           1,176        1,310         356             533            317            3,590         7,105            19,214          2006 2,664             2,306           1,168        1,346         370             595            392            4,244         7,104            20,189          2007 2,751             2,486           1,109        1,485         374             602            203            5,075         7,139            21,224          2008 2,685             2,566           1,685        1,497         349             622            405            4,682         6,797            21,288          2009 2,251             2,443           1,431        1,258         315             493            214            4,284         6,635            19,324          2010 2,215             2,418           1,402        1,254         343             549            219            4,458         5,556            18,414          2011 2,374             2,621           1,564        1,292         381             630            242            4,873         6,322            20,299          2012 2,445             2,937           1,590        1,492         387             722            257            5,049         7,034            21,913          2013 2,478             3,160           1,465        1,656         424             765            259            4,056         13,729          27,992          2014 2,097             3,541           1,555        2,041         392             772            444            4,845         9,890            25,577          Source: California State Board of Equalization, compiled by MuniServices LLC Sales Tax Rates for the Fiscal Year ended June 30, 2014 State Rate:6.00% Local (County/City) Rates: Palo Alto (State‐City or County Operations) 0.75% State/Palo Alto (Fiscal Recovery Fund to pay off Economic Recovery Bonds 2004)0.25% Sate (Local Public Safety Fund to support local criminal justice activities 1993)0.50% Special District Tax Rates: Santa Clara County Transit District (SCCT)0.50% Santa Clara County Valley Transportation Authority (SCVT)0.50% Santa Clara VTA BART Operating and Maintenance Transactions and Use Tax (SVTB)0.125% Santa Clara Retail Transactions and Use Tax (SCCR)0.125% Total Sales and Use Tax Rate:8.750% Source: California State Board of Equalization Food  Markets Service  Stations Drug  Stores Other  Retail All Other Apparel  Stores CITY OF PALO ALTO Taxable Transactions by Type of Business Last Ten Fiscal Years (Amounts in thousands) Total ECONOMIC SEGMENT Department  Stores Restaurants Furniture/  Appliance Department Stores 8% Restaurants 14% Furniture/ Appliance 6% Apparel Stores 8% Food Markets 1% Service Stations 3% Drug Stores 2% Other Retail 19% All Other 39% Fiscal Year 2014 145 Santa Clara Santa Clara City of Palo Alto City of Palo Alto Santa Clara City Population County Total County Per Capita Fiscal City of Palo Alto Unemployment School County as a Percentage of Personal Income Personal Income Year Population Rate Enrollment Population County Population (in thousands)(in thousands) 2005 61,674                    2.8%10,527                   1,759,585                  3.51% 82,300,000$         46,772$                    2006 62,148                    2.5%10,607                   1,773,258                  3.50% 88,300,000           49,795                      2007 62,615                    2.6%11,056                   1,808,056                  3.46% 96,100,000           53,151                      2008 63,367                    3.5%11,329                   1,837,075                  3.45% 103,500,000         56,340                      2009 64,484                    6.5%11,329                   1,857,621                  3.47% 104,300,000         *56,147                     * 2010 65,408                    6.2%11,565                   1,880,876                  3.48% 95,500,000           *50,774                     * 2011 64,417                    5.3%12,024                   1,781,427                  3.62% 102,600,000         *57,594                     * 2012 65,544                    4.7%12,286                   1,816,486                  3.61% 111,900,000         *61,602                     * 2013 66,368                    3.6%12,396                   1,842,254                  3.60% 118,600,000         *64,378                     * 2014 66,861                    2.8%12,483                   1,868,558                  3.58%129,600,000         *69,358                     * Note: Data on personal income and per capita personal income is only available for Santa Clara County. Source: California State Department of Finance (population) State Employment Development Office (unemployment rate) Palo Alto Unified School District (school enrollment) * California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income). Forecasts from prior years are updated annually. CITY OF PALO ALTO Demographic and Economic Statistics Last Ten Fiscal Years  60,000  61,000  62,000  63,000  64,000  65,000  66,000  67,000  68,000 City Population  10,000  10,500  11,000  11,500  12,000  12,500  13,000 School Enrollment 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%City Unemployment Rate 146 Number of  Employees Rank Percentage of  Total City  Employment Number of  Employees Rank Percentage of  Total City  Employment Stanford University 11,128         1 8.9%9,821           1 7.0% Stanford University Medical Center/Hospital 5,886           2 4.7%5,025           2 3.6% Lucile Packard Children's Hospital 4,215           3 3.4%3,326           4 2.4% VMware Inc.3,509           4 2.8% SAP 3,500           5 2.8% Veteran's Affairs Palo Alto Health Care System 3,000           6 2.4%3,500           3 2.5% Space Systems/Loral 2,720           7 2.2%1,700           7 1.2% Hewlett‐Packard Company 2,500           8 2.0%2,001           5 1.4% Colubris Networks, Inc.2,201           9 1.8% Palo Alto Medical Foundation 2,200           10 1.8%2,000           6 1.4% Wilson Sonsini Goodrich & Rosati 1,500           8 1.1% Palo Alto Unified School District 1,304           9 0.9% City of Palo Alto 1,074           10 0.8% Total 40,859         32.8%31,251         22.3% Estimated Total City Day Population: FY 2014 125,000        FY 2008 140,000        Notes: Source:   1Comparable data was not available until FY 2008.  AtoZdatabases, http://facts.stanford.edu/governance.html, http://facts.stanford.edu/hospital.html, www.lpch.org/aboutus/, The City  of Palo Alto, A Report to Our Citizens. CITY OF PALO ALTO Principal Employers Current Year and Six Years Ago FY 2014 FY 20081 Employer Available data sources have been shown to be unreliable in the past. These numbers will be refined with the creation of a City business  registry. 147 2004 2005 2006 2007 2008 Governmental activities Community Services Number of theater performances 175                        172                        183                        171                        166                         Total hours of athletic field usage2 ‐                           65,748                 65,791                 70,769                   63,212                  Number of rounds of golf 83,728                   78,410                   76,000                   76,241                   74,630                    Enrollment in recreation classes (includes summer camps 16,435                   15,127                   14,768                   14,460                   13,851                    Planning and Community Environment Planning applications completed 409                        327                        390                        299                        257                         Building permits issued 3,236                     3,081                     3,081                     3,136                     3,046                      Green Building permit applications processed3 ‐                            ‐                            ‐                             ‐                             ‐                            Caltrain average weekday boarding 2,825                     3,264                     3,882                     4,132                     4,589                      Police Calls for service 52,489                   52,233                   57,017                   60,079                   58,742                    Total arrests 2,577                     2,134                     2,530                     3,059                     3,253                      Parking citations issued 47,860                   52,235                   56,502                   57,222                   50,706                    Animal Services Number of service calls 3,575                     4,994                     2,861                     2,990                     3,059                      Number of sheltered animals 3,780                     3,514                     3,839                     3,578                     3,532                      Fire Calls for service 6,675                     6,414                     6,897                     7,236                     7,723                      Number of fire incidents 248                        224                        211                        221                        192                         Number of fire inspections 793                        1,488                     899                        1,021                     1,277                      Library  Total number of cardholders 50,171                   52,001                   55,909                   53,099                   53,740                    Total number of items in collection 267,693                264,511                260,468                270,755                279,403                 Total checkouts 1,314,790             1,282,888             1,280,547             1,414,509             1,542,116              Public Works Street resurfacing (lane miles)17                          20                          20                          32                          27                           Number of potholes repaired 2,907                     3,221                     2,311                     1,188                     1,977                      Sq. ft. of sidewalk replaced or permanently repaired 115,352                132,430                126,574                94,620                   83,827                    Number of trees planted 242                        164                        263                        164                        188                         Total tons of waste landfilled 61,266                   60,777                   59,276                   59,938                   61,866                    Tons of materials recycled 49,268                   50,311                   56,013                   56,837                   52,196                    Business‐type activities Electric Number of customer accounts 28,482                   28,556                   28,653                   28,684                   29,024                    Residential MWH consumed 158,099                161,440                161,202                162,405                162,680                 Gas Number of customer accounts 23,216                   23,301                   23,353                   23,357                   23,502                    Residential therms consumed 11,700,335           12,299,158           11,745,883           11,759,842           11,969,151            Water Number of customer accounts 19,557                   19,605                   19,645                   19,726                   19,942                    Residential water consumption (CCF)3,000,645             2,686,507             2,647,758             2,807,477             2,746,980              Wastewater collection Number of customer accounts 21,830                   21,763                   21,784                   21,789                   21,970                    Millions of gallons processed 8,238                     8,497                     8,972                     8,853                     8,510                      Notes: 2Some data not available. Source: City of Palo Alto Performance Report (formerly the Service Efforts and Accomplishments Report) 1Ten most recent years available. 3In FY 2009, a new Green Building Program was established under the City's Green Building Ordinance to build a new  generation of efficient buildings in Palo Alto that are environmentally responsible and healthy places in which to live and work. CITY OF PALO ALTO Operating Indicators by Function/Program Last Ten Fiscal Years1 Fiscal Year Ended June 30 FUNCTIONS/PROGRAMS 148 2009 2010 2011 2012 2013 159                        174                        175                        175                        184                         45,762                   41,705                   42,687                   44,226                   ‐ 72,170                   69,791                   67,381                   65,653                   60,153                    13,091                   12,880                   12,310                   11,703                   11,598                    273                        226                        238                        204                        307                         2,543                     2,847                     3,559                     3,320                     3,682                      341                        556                        961                        887                        1,037                      4,863                     4,796                     5,501                     5,730                     5,469                      53,275                   55,860                   52,159                   51,086                   54,628                    2,612                     2,451                     2,288                     2,212                     2,274                      49,996                   42,591                   40,426                   41,875                   43,877                    2,873                     2,692                     2,804                     3,051                     2,909                      3,422                     3,147                     3,323                     3,379                     2,675                      7,549                     7,468                     7,555                     7,796                     7,904                      239                        182                        165                        186                        150                         1,028                     1,526                     1,807                     1,654                     2,069                      54,878                   51,969                   53,246                   60,283                   51,007                    293,735                298,667                314,154                306,361                277,749                 1,633,955             1,624,785             1,476,648             1,559,932             1,512,975              23                          32                          29                          40                          36                           3,727                     3,149                     2,986                     3,047                     2,726                      56,909                   54,602                   71,174                   72,787                   82,118                    250                        201                        150                        143                        245                         68,228                   48,955                   38,524                   43,947                   45,411                    49,911                   48,811                   56,586                   51,725                   47,941                    28,527                   29,430                   29,708                   29,545                   29,299                    159,899                163,098                160,318                160,604                156,411                 23,090                   23,724                   23,816                   23,915                   23,659                    11,003,088           11,394,712           11,476,609           11,522,999           10,834,793            19,442                   20,134                   20,248                   20,317                   20,043                    2,566,962             2,415,467             2,442,415             2,513,595             2,521,930              21,210                   22,231                   22,320                   22,421                   22,152                    7,958                     8,184                     8,652                     8,130                     7,546                      Fiscal Year Ended June 30 149 2005 2006 2007 2008 FUNCTION/PROGRAM Public Safety Fire: Fire Stations 8               8               8                8                 Fire Apparatus 25            25            25             23              Police: Police Stations 1               1               1                1                 Police Patrol Vehicles 30            30            30             30              Community Services Acres ‐ Downtown/Urban Parks 170          170          157           157            Acres ‐ Open Space 3,731       3,731       3,744       3,744         Parks and Preserves 35            35            36             36              Golf Course 1               1               1                1                 Tennis Courts 52            52            51             51              Athletic Center 1               1               4                4                 Community Centers 4               4               4                4                 Theaters 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               3                3                 Libraries Libraries 5               5               5                5                 Public Works: Number of Trees Maintained 35,096     34,841     34,556     35,058        Electric Utility1 Miles of Overhead Lines 225          217          194           193            Miles of Underground Lines 188          210          252           253            Water Utility Miles of Water Mains 226          217          217           217            Gas Utility Miles of Gas Mains 207          207          207           207            Waste Water Miles of Sanitary Sewer Lines 202          202          202           202            Note: Source: City of Palo Alto 1The City of Palo Alto Utilities Department recently completed the conversion of its electric system maps  to a GIS mapping system database. Therefore, the distances reported for FY 11/12 and forward are more  accurate than the distances reported in previous years. CITY OF PALO ALTO Capital Asset Statistics by Function/Program Last Ten Fiscal Years  Fiscal Year Ended June 30 150 2009 2010 2011 2012 2013 2014 8                 8                 8               7               77 28              28              27            29            28 28 1                 1                 1               1               11 30              30              30            30            30 30 157            157            157          157          157 157 3,744         3,744         3,744       3,744       3744 3744 36              36              36            36            36 36 1                 1                 1               1               11 51              51              51            51            51 51 4                 4                 4               4               44 4                 4                 4               4               44 3                 3                 3               3               33 1                 1                 1               1               11 1                 1                 1               1               11 1                 1                 1               1               11 3                 3                 3               3               33 5                 5                 5               5               55 34,991       35,025       34,977     34,874     34,907     34,741        193            193            193          223          222 223 253            253            253          245          246 249 214            214            214          234          233          236             207            205            205          210          210          214             207            207            207          217          217          217             Fiscal Year Ended June 30 151 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Governmental Funds         General Fund: Administrative 96       97       99        98       98        89        83        83        85        83         Community Services 98       99       97        96       97        94        74        74        74        74         Office of Emergency Services5 ‐           ‐           ‐            ‐           ‐            ‐            ‐            ‐            ‐           3           Fire 126     127     127      127     127      123      121      122      119      116       Library 44       44       44        44       44        42        41        41        41        42         Planning and Community Environment 53       53       53        53       53        49        44        43        48        49         Police 165     164     163      163     164      161      157      157      154      155       Public Works1 68       68       68        68       69        64        59        56        57        56         Subtotal General Fund 650     652     651      649     652      622      579      576      578      578       All Other Funds: Capital Projects Fund 20       20       20        20       21        24        24        24        26        27         Special Revenue Fund 1          1          1          1          1          1          2          2          2          9           Total Governmental Funds 671     673     672      670     674      647      605      602      606      614       Enterprise Funds Public Works2 113     113     113      113     113      115      115      115      104      99         Utilities3 234     236     235      235     238      242      251      251      254      255       External Services4 6          6          6          6          ‐           ‐           ‐           ‐           ‐           ‐            Total Enterprise Funds 353     355     354      354     351      357      366      366      358      354       Internal Service Funds Printing and Mailing 4          5          4          4          4          4          2          2          2          2           Technology 30       30       30        30       31        31        30        30        31        32         Vehicle Replacement 16       16       16        16       16        16        16        16        17        17         Total Internal Service Funds 50       51       50        50       51        51        48        48        50        51         Total 1,074 1,079 1,076 1,074 1,076 1,055 1,019 1,016 1,014  1,019   1Fleet and Facilities Management 2Refuse, Storm Drainage, Wastewater Treatment Numbers adjusted for rounding purposes. Source: City of Palo Alto ‐ Fiscal Year 2014 Adopted Operating Budget 5Effective in 2014, emergency services and disaster preparation activities have been removed from the Fire Department and  are now shown in newly created Office of Emergency Services. 4Effective in 2009, External Services was dissolved. 5 FTEs were eliminated and 1 FTE was transferred to the Technology  Fund. CITY OF PALO ALTO Full‐Time Equivalent City Government Employees by Function Last Ten Fiscal Years Full Time Equivalent Employees as of June 30 3Electric, Gas, Wastewater Collection, Water 0 200 400 600 800 1,000 1,200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Fu l l  Ti m e  Eq u i v a l e n t s Governmental Funds Enterprise Funds Internal Service Funds 152 CITY OF PALO ALTO  Index to the Single Audit Report  For the Year Ended June 30, 2014  153   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 ..................................... 155    Independent Auditor’s Report on Compliance for Each Major Federal Program and   Report on Internal Control Over Compliance Required by OMB Circular A‐133 ................................... 157    Schedule of Expenditures of Federal Awards ........................................................................................... 159    Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 160    Schedule of Findings and Questioned Costs ............................................................................................. 161    Schedule of Prior Years Findings and Questioned Costs ........................................................................... 162    154                            This page is intentionally left blank.    155  Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated November 17, 2014. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 156  Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Walnut Creek, California November 17, 2014   157  Independent Auditor’s Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by OMB Circular A-133 Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California Report on Compliance for Each Major Federal Program We have audited the City of Palo Alto’s, California (City) compliance with the types of compliance requirements described in the OMB 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, 2014. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 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 on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2014. 158  Report on Internal Control Over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for each major federal program 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. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that were not identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Walnut Creek, California November 17, 2014 Grantor Federal Identifying CFDA Subrecipients Grantor/Pass‐Through Grantor/Program Title Number Number  Expenditures  Expenditures  U.S. Department of Agriculture Pass‐through from California Emergency Management Agency (CalEMA) CA Fire Assitance Agreement 6022‐9 10.09‐FI‐11052012‐150 50,542$                ‐$                        U.S Department of Housing and Urban Development Direct CDBG ‐ Entitlement Grants Cluster Community Development Block Grants/Entitlement Grants B‐10‐MC‐06‐0020 14.218 672,923                574,221                 U.S. Department of Interior Direct ARRA ‐ Water Reclamation and Reuse Program R10AP20003 15.504 5,599                     ‐                          U.S. Department of Justice Direct Equitable Sharing Program CA0431200 16.CA0431200 2,315                     ‐                          U.S. Department of Transportation Pass‐through from State of California Department of Transportation Highway Planning and Construction HSIPL‐5100(014)20.205 898,474                ‐                          Highway Planning and Construction STPL‐5100(019)20.205 544,927                ‐                          Highway Planning and Construction BRLS‐5100(017)20.205 117,770                ‐                          Subtotal 1,561,171             ‐                          Pass‐through from Santa Clara Valley Transportation Authority Highway Planning and Construction CML‐5100(018)20.205 69,548                   ‐                          Total Highway Planning and Construction 1,630,719             ‐                          National Endowment for the Arts Direct NEA Research:  Art Works 197662 45.024 11,300                   ‐                          Institute of Museum and Library Services Pass‐through from California State Library  Grants to States LS‐00‐11‐0005‐11 45.310 65,710                   ‐                          U.S. Department of Homeland Security Direct    National Urban Search and Rescue Response System EMW‐2011‐CA‐K00047 97.025 16,705                   ‐                          Pass‐through from Santa Clara County Office of Emergency Services     Homeland Security Grant Program 13‐31307 97.067 14,900                   ‐                          Total U.S. Department of Homeland Security 31,605                   ‐                          TOTAL EXPENDITURES OF FEDERAL AWARDS 2,470,713$           574,221$               CITY OF PALO ALTO Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2014 See Notes to the Schedule of Expenditures of Federal Awards 159 CITY OF PALO ALTO  Notes to the Schedule of Expenditures of Federal Awards  For the Year Ended June 30, 2014 160  NOTE 1 – REPORTING ENTITY    The schedule of expenditures of federal awards (the Schedule) includes expenditures of federal awards  for the City of Palo Alto, California (City), and its component unit as disclosed in the notes to the basic  financial statements.    NOTE 2 – BASIS OF ACCOUNTING    Basis of accounting refers to when revenues and expenditures or expenses are recognized in the  accounts and reported in the financial statements, regardless of measurement focus applied. All  governmental funds are accounted for using the modified accrual basis of accounting. All proprietary  funds are accounted for using the accrual basis of accounting. Expenditures of federal awards reported  in the Schedule are recognized when incurred and all eligibility requirements have been met.     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, 2014  161  Section I ‐ Summary of Auditor’s Results    Financial Statements  Type of auditor’s report issued on the   basic financial statements of the City:    Unmodified  Internal control over financial reporting:    Material weakness(es) identified? No   Significant deficiency(ies) identified?   None reported  Noncompliance material to the financial statements  noted?    No  Federal Awards   Internal control over major programs:    Material weakness(es) identified? No   Significant deficiency(ies) identified?   None reported  Type of auditor’s report issued on compliance for  major programs:    Unmodified  Any audit findings disclosed that are required to be  reported in accordance with section 510(a) of OMB  Circular A‐133?    No  Identification of Major Programs: 14.218 CDBG – Entitlement Grants Cluster  20.205 Highway Planning and Construction    Dollar threshold used to distinguish between type A  and type B programs:      $300,000  Auditee qualified as a low‐risk auditee? Yes    Section II – Financial Statements Findings  No findings reported.  Section III ‐ Federal Award Findings and Questioned Costs  No findings reported.  CITY OF PALO ALTO  Schedule of Prior Years Findings and Questioned Costs  For the Year Ended June 30, 2014  162  Schedule of Prior Year Findings and Questioned Costs    Finding #SA 2013‐01    Procurement, Suspension and Debarment    Federal Program Title: Highway Planning and Construction    Federal Catalog Number:  20.205    Condition: The City did not contain a certification within the contract  showing that the contractor was not suspended or debarred,  nor was there any evidence that the City verified that the  contractor was not suspended or debarred by checking the  Excluded Parties List System (EPLS) maintained by the General  Services Administration.  The amount reimbursed by the federal  grant for this contract was $144,081.       Status of Corrective Action Plan: In progress. Due to an unexpected staffing change, the City will  hire a new management analyst to draft the policy and  procedures to document the proper verification.            ...………………………………………………………………………. City of Palo Alto 163 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 City of Palo Alto 250 Hamilton Avenue, Palo Alto, CA 94301 P 650.329.2100 W cityofpaloalto.org 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. 30% post-consumer recycled City of Palo Alto (ID # 4962) Finance Committee Staff Report Report Type: Action Items Meeting Date: 12/2/2014 City of Palo Alto Page 1 Summary Title: Close Fiscal Year 2014 Budget and Approve Fiscal Year 2014 CAFR Title: Recommendation to Adopt an Ordinance Authorizing the Closing of the Fiscal Year 2014 Budget, Including Reappropriation Requests, Closing Completed Capital Projects and Authorizing Transfers to Reserves, and Approval of the Fiscal Year 2014 Comprehensive Annual Financial Report (CAFR) From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the Finance Committee review and forward to the City Council for its approval 1. The attached Budget Amendment Ordinance (Attachment A) and associated exhibits to: a. Close the Fiscal Year (FY) 2014 Budget including the transfer of remaining balances to or drawing from the appropriate reserves and the transfer of the General Fund surplus of $4.0 million from the General Fund to the Infrastructure Reserve in the Capital Projects Fund (Exhibit 1); and b. Authorize re-appropriation of FY 2014 funds into the FY 2015 Budget (Exhibit 2); and c. Close completed capital improvement projects (Exhibit 3). 2. The City’s FY 2014 Comprehensive Annual Financial Report (CAFR) (Attachment B). Financial Highlights for FY 2014 – General Fund  FY 2014 ended on a positive note with $8.7 million increase to the Budget Stabilization Reserve (BSR) from June 30, 2013 to June 30, 2014 due to excess revenue and expenditure savings.  In accordance with the City Council approved infrastructure Plan, the attached Budget Amendment Ordinance includes a recommendation to transfer $4.0 million from the General Fund to the Infrastructure Reserve in the Capital Projects Fund. City of Palo Alto Page 2  As approved as part of the FY 2015 Adopted Budget, $1.7 million of one-time FY 2014 budget surplus funds are carried forward to FY 2015 for FY 2015 Operating Budget one-time expenditures. Financial Highlights for FY 2014 – Enterprise Funds  Water Fund implemented a rate increase of 7 percent effective July 1, 2013.  Enterprise Funds combined ended the year with an increase in net position of $4.6 million. It should also be noted that the City received a “clean” audit opinion for FY 2014 from the external audit firm, Macias Gini & O’Connell LLP (MGO), Certified Public Accountants, a firm hired by the City Auditor. Once again, the City was awarded the prestigious GFOA award for Excellence in Financial Reporting for FY 2013 – the 20th consecutive year. Background The City’s fiscal year closes on June 30, at which time its financial records are closed for the year and financial reports are prepared. The reports, along with the City’s financial data, are audited by MGO. MGO issues an audit opinion on the financial position of the City’s activities and, together with the City’s financial statements and other information, this comprises the City’s Comprehensive Annual Financial Report. The attached Budget Amendment Ordinance (Attachment A) and related exhibits to this Staff Report provide the necessary documents for closing the FY 2014 Budget and reauthorizing FY 2014 funds to FY 2015. In addition, they provide detailed information on the City’s financial activities for FY 2014 and highlight key fiscal issues affecting the City of Palo Alto. The Management’s Discussion and Analysis (MD&A) section of the CAFR (Attachment B) also provides a discussion and analysis of the City’s current fiscal health, and includes financial statements and analysis that is compared to the prior year, along with capital asset and debt administration data. Discussion Economic Environment The City is now in a solid recovery mode from the impact of the Great Recession. There has been a rebound in economically sensitive revenue sources such as sales tax, which is being driven by strong retail activity in auto, electronics, and department store sales. Increased business traffic to the City and an active real estate market are resulting in higher transient occupancy tax and documentary transfer tax revenues. The City has been proactively taking steps the past few years to align expenses with revenues through employee compensation savings, service and program realignments, and revenue enhancements. The City Council adopted a General Fund expenditure budget of $171.1 million for FY 2015, an increase of 7.1 percent from the prior year adopted budget. One of the primary drivers of increased expenditures for FY 2015 are pension and retiree medical costs, which City of Palo Alto Page 3 continue to trend upward. The City has been mitigating the upward trend by taking measures such as negotiating increased employee contributions to the PERS retirement plan, implementing a second tier retirement plan, and capping the City’s share of health care premiums. In spite of these measures, the City still faces a significant long-term liability for pension and retiree medical costs. The combined unfunded liability reported in the June 30, 2014 CAFR is $439 million. Funded ratios based on Market Value of Assets for the Safety and Miscellaneous plans based on June 2013 actuarial valuations are 68.9 percent and 68.4 percent respectively, and 29.5 percent for the retiree medical plan based on the June 2013 actuarial valuation. The City continues to fully fund its annual required contribution for these liabilities. An irrevocable trust fund for retiree medical benefits was authorized by the City Council in May 2007 with initial funding of $32.8 million in March 2008. Subsequent contributions of $21.6 million and investment earnings of $21.5 million have increased the trust balance to almost $76 million as of August 2014. The $76 million balance in the trust fund equates to an estimated 35 percent funded level for retiree medical as of August 2014. The City is facing a significant backlog in infrastructure investment. A newly formed Council Infrastructure Committee has taken up the Infrastructure Blue Ribbon commission (IBRC) report, and has proposed a five year plan for infrastructure projects and funding sources. As recommended by the IBRC, the General Fund has been contributing $2.2 million annually since FY 2013 for “keep up” needs, and has also transferred a total of $20.5 million General Fund surplus funds to the Infrastructure Reserve over the past three fiscal years. Further, in June 2014, the City Council approved an Infrastructure Plan in the amount of $126 million. The funding plan for this infrastructure investment assumed voter approval of a Transient Occupancy Tax increase from 12 percent to 14 percent, which the voters approved on Nov. 4, 2014 per the unofficial results from the Santa Clara County Registrar of Voters. Reappropriations: On October 20, 2014, the City Council preliminarily approved the FY 2014 reappropriation requests as summarized in Exhibit 2. FY 2014 reappropriation requests total $2,127,430 and are categorized as follows: Timing and Workload Delays - Certain projects were delayed due to competing workload demands, appropriation of funds late in the fiscal year, or other unanticipated delays. Examples of projects in this category include the Police Utilization Study, Airport Legal Outside Counsel, Comprehensive Plan, Business Registry Certificate Program, Ecological Footprint Analysis, Virtual Private Network Upgrade, Virtual Private Clout, and Council Chambers Voting System Replacement. Capital Projects with no Expenditures in FY 2014 or FY 2013 - The Long Range CCTV Cameras capital project has not had funds expended for two years; however, staff still intends to complete the project. City of Palo Alto Page 4 Library Materials - Savings were realized in the area of Library Materials in FY 2014 in anticipation of the 2015 openings of Mitchell Park Library and the Rinconada Library. These funds, from the Palo Alto Library Foundation, will allow for the library to purchase publications and materials for library patrons. Teen Programs - At the June 2, 2014 City Council meeting, the City Council approved a recommendation from the Policy and Services Committee to use the net revenue collected from 455 Bryant Street in Fiscal Years 2009 through 2013 ($213,834) to fund Teen Programs. Per City Council action/direction, the net revenue from prior years in the amount of $213,834 in addition to $84,000 for FY 2014 for a total of $297,834 for reappropriation. A long term expenditure plan will be brought to the City Council in fall 2014, including the use of estimated FY 2015 revenue of $84,000. Management and Professional Development funds - A number of City employees, as part of their compensation plan, are eligible for certain professional development and self- improvement activities. These funds are available to certain employees for civic and professional association memberships, conference participation and travel, educational programs, certain tuition costs and professional and trade journal subscriptions, and are recommended to be carried over to FY 2015 to improve and supplement the job and professional skills of employees. Results by Fund General Fund Reserves At the end of the current fiscal year, as outlined in the CAFR, the fund balance of the General Fund was $48.3 million, an increase of $6.2 million from the prior year. The $48.3 million balance is comprised of several reserves: the Budget Stabilization Reserve (BSR), encumbrances, notes and loans, inventory, prepaid items, unrealized gain on investments, and reappropriations. At the close of FY 2014, there was a General Fund surplus of $10.2 million. After adjusting all other non-BSR reserve balances, the remaining $8.7 million was added to the BSR balance. Based on prior City Council direction, staff recommends a transfer of $4.0 million to the Infrastructure Reserve in the Capital Projects Fund. The year over year change in General Fund reserve balances on an accounting basis is summarized in the following table. City of Palo Alto Page 5 ($ in millions) Balance Net From Transfer to Balance 06/30/13 Operations Infrastructure 06/30/14 Budget Stabilization Reserve 30,357$ 8,726$ (4,000)$ 35,083$ Other Reserves: Encumbrances 5,029 (269) 4,760 Reappropriations 556 1,051 1,607 Notes and loans receivable 1,540 295 1,835 Prepaid items 645 (293)352 Inventories 3,564 437 4,001 Unrealized gains on investments 386 286 672 Total General Fund Reserves 42,077$ 10,233$ (4,000)$ 48,310$ GENERAL FUND RESERVE SUMMARY FISCAL YEAR 2014 Accounting Basis The $35.1 million BSR balance on an accounting basis includes unrealized gain on investment in the amount of $285,000. On a budgetary basis, the unrealized gain on investment is deducted, which leaves a BSR balance of $34.8 million to be carried forward to FY 2015. The approval of the FY 2015 Adopted General Fund Budget assumed a FY 2014 General Fund surplus of $1.7 million to be carried forward to FY 2015 for one-time FY 2015 expenditures. Therefore, $1.7 million of the BSR balance of $34.8 million carried forward will be used to pay for FY 2015 Operating Budget one-time expenditures. This will leave an available BSR balance of $33.1 million on a budgetary basis, or 19.33 percent of FY 2015 adopted budgeted expenditures and operating transfers. This BSR level is within Council’s approved reserve guidelines. During FY 2015, the City Council approved various net adjustments to the BSR in the amount of $390,000 such as funding for the Climate Action Plan, increase to the loan to the Airport Fund, and adjustments to the Golf Operating budget. After these adjustments, the current BSR balance is $32.7 million or 19.10 percent of the FY 2015 adopted budget expenditures. The following graph provides a snapshot of the General Fund BSR balance and percentage of budgeted expenditures for the past ten years. Additional information regarding the City’s General Fund BSR reserve policy can be found in the FY 2015 Adopted Budget document. City of Palo Alto Page 6 $21.1 $22.7 $27.5 $26.1 $24.7 $27.4 $26.5 $27.1 $30.4 $31.2 $0 $5 $10 $15 $20 $25 $30 $35 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Fiscal Year General Fund BSR Balance FY 2005-2014 From the FY 2015 Adopted Operating Budget ($ in millions) Infrastructure Reserve As discussed, this report includes a recommendation to transfer $4.0 million from the FY 2014 budget surplus to the Infrastructure Reserve. With this recommended transfer of $4.0 million, the City has transferred a total of $20.5 million in year-end surplus funds from the General Fund to the Infrastructure Reserve since 2012. The Infrastructure Reserve (IR) balance fluctuates due to timing differences in the receipt of grant funds and reimbursements, and the timing of adjustments to close projects. An example is the Golf Course renovation project which calls for debt financing in addition to a San Francisquito Creek JPA contribution totaling over $9 million which is expected to be received once the project goes forward. As of June 30, 2014 the IR balance was $3.4 million. City of Palo Alto Page 7 General Fund Revenues Total General Fund revenues for FY 2014 were $152.3 million which represents an increase of $7.8 million or 5.4 percent in comparison to FY 2013. The table below compares the year over year changes in each of the major tax revenue categories. As shown, the receipts from major tax increased by $8.2 million or 10 percent from FY 2013 to FY 2014. Category FY 2013 FY 2014 % Change Property tax $ 28,742 $30,587 6.4% Sales tax 25,606 29,424 14.9% Utility user tax 10,861 11,008 1.3% Transient occupancy tax 10,794 12,255 13.5% Documentary transfer tax 6,810 7,811 14.7% Total $82,813 $91,085 10.0% Sales, transient occupancy, and documentary transfer taxes are economically sensitive revenue streams, and all of those categories experienced double digit growth over the prior year. The following chart depicts the relative contribution of each tax category over the past six years (2009 through 2014). Sales tax in FY 2009 made up 30.9 percent of the total tax revenues and in FY 2014 has grown to 32.3 percent. Likewise, documentary transfer tax revenue is now 8.6 percent of tax revenue totals compared to 8.2 percent in FY 2009. City of Palo Alto Page 8 General Fund Tax Revenues Actual Fiscal Years 2009 – 2014 General Fund Expenditures General Fund expenditures for FY 2014, including encumbrances and transfers, totaled $170.7 million, an increase of $1.0 million from the prior year. The FY 2014 Adopted Budget of $159.7 million was increased to the Final Adjusted Budget amount of $172.7 million. Actual expenditures were $2.0 million, or 1.2 percent less than the Final Adjusted Budget. The following chart compares actual departmental costs, including encumbrances, over the past six years and budgeted cost for FY 2015. The chart does not include operating transfers out to other funds. City of Palo Alto Page 9 General Fund Departments Actual Expenditures Fiscal Years 2009 – 2014 (including encumbrances) ($ in thousands) Overall, the General Fund had approximately $79,000 in salary and benefits savings, which was within 0.08 percent of the Adjusted Salary and Benefit budget of $98.1 million. Actions recommended as part of this report reallocate funds from the salary reserve to several departments; salary savings within departments; and salary savings to non-departmental. In FY 2014, assumed salary savings in the General Fund were budgeted in the non-departmental section of the budget. The Fire and Police Departments exceeded their overtime budgets by $812,000 (46 percent) and $212,000 (14 percent) respectively. Although there was sufficient vacancy savings within departments, and elsewhere in the General Fund to absorb these overages, overtime spending for public safety continues to exceed budget and will be reexamined as part of the development of the FY 2016 Operating Budget. Capital Projects Fund The Capital Projects Fund ended the year with a fund balance of $69.8 million, which is comprised of the following: City of Palo Alto Page 10 Fund Balance Component Amount ($ in millions) Restricted for Library projects $ 15,006 Assigned for all other Capital projects 51,398 Infrastructure Reserve 3,383 Total Capital Projects Fund Balance $ 69,787 Restricted for Library projects of $15.0 million is the portion of fund balance dedicated to remaining Library expenditures as approved in the FY 2014 Adopted Capital Budget, and those expenditures will be paid for with cash from bond proceeds. If expenditures for the Library projects exceed the Adopted Budget amounts, they will be funded from the Infrastructure Reserve. Non-bondable expenditures such as salaries and benefits are already funded from the Infrastructure Reserve, as established at the time of the bond issuance. Assigned for all other Capital projects of $51.3 million represents the amount of unspent funds associated with Adopted Capital projects other than Library projects. Outside funding sources such as grants, donations, and future debt issues are not factored into this component of fund balance until they are actually received. Thus, all capital projects are considered to be fully funded from existing cash resources. Infrastructure Reserve (IR) of $3.4 million is the balance remaining after all Adopted Capital project expenditures have been satisfied, without regard to anticipated future funding sources such as grants, donations, and debt issues for existing Adopted Capital projects. This presents the most conservative and fiscally prudent view of the IR balance. The IR balance will increase as a result of:  savings from completed or cancelled projects;  surplus funds transferred from the General Fund;  receipt of reimbursable grants, donations, or debt issuances related to existing adopted projects. Enterprise Funds At June 30, 2014 the City’s Enterprise Funds reported total net position of $742.3 million, an increase of $24.3 million, or 3.4 percent compared with the prior year. The change in net position for each of the Enterprise Funds is detailed in the following table. City of Palo Alto Page 11 Enterprise Funds Change in Net Position for the Year Ended June 30 (in Millions) Increase/ Fund Name 2014 2013 (Decrease) Water 11.0$ 6.8$ 4.2$ Electric 1.7 1.9 (0.2) Fiber Optics 3.1 2.8 0.3 Gas 3.3 1.3 2.0 Wastewater Collection 3.5 2.5 1.0 Wastewater Treatment (1.9)0.8 (2.7) Refuse 2.2 2.3 (0.1) Storm Drainage 2.7 2.3 0.4 Airport (0.5)(0.2)(0.3) Total Change in Net Assets 25.1$ 20.5$ 4.6$ The total Change in Net Assets of $25.1 million, an increase of $4.6 million from the prior year, was primarily due to the Water Fund rate increase and increased investment earnings due to a favorable cost to market adjustment at year-end. More detailed changes are discussed in the MD&A section of the CAFR. Residential Affordable Housing Fund – Return of Maybell Loan The Palo Alto Housing Corporation returned $720,220, which staff deposited in the Residential Housing Fund. This amount was for the Maybell project that was not approved. The funds originally came from the Stanford University Medical Center Development Agreement funding to be used for affordable housing. The $720,220 will remain in the Residential Affordable Housing Fund until an appropriate affordable housing project is identified and the funds are approved by the City Council for use on the project. In 2013, Council also approved a $2.6 million short-term loan for Maybell out of the Stanford funds. This loan was not needed, consequently the funds were not transferred to the housing fund and they remain part of the Stanford funds. Questica Budget System Update In June 2014, the City Council approved a contract with Questica, Inc. to implement a best-in- class budget system. This new system will be used to develop the City’s annual operating and capital budgets, long-range financial forecast, labor cost modeling, and financial budget to actual reports. In addition to these elements, staff engaged with Questica to pioneer the development of a fee module that will automatically calculate most of the City’s 1,000 municipal fees in accordance with state law and City policy. Prior to Questica, the City City of Palo Alto Page 12 developed its annual operating and capital budgets, General Fund Long Range Financial Forecast (LRFF), and labor negotiation costing analysis through email processes, spreadsheets, an unsupported capital budget publication software, and SAP. Municipal Fees were documented on individual spreadsheets. Budget data, including budget numbers and related analysis, was kept in different systems and file types, increasing the risk of version control issues and inconsistent data, and decreasing the ability to collaboratively develop the budget with City departments. In July 2014, Office of Management and Budget staff met with Questica representatives to kick- off the budget system implementation and, to date, has reached the following milestones: (1) importing of FY 2014 operating and budget data and five years of prior year actual data; (2) configuration of the system; (3) importing of capital data from SAP and the unsupported capital budget publication software; and (4) preview of Questica to select departments to solicit feedback regarding user needs and functionality. The results of the Questica preview were positive and departments expressed excitement to collaboratively engage in future budget processes, model data, and take advantage of the streamlined workflow processes. OMB staff will incorporate department feedback into the department roll-out process scheduled for December 2014. The next major implementation step consists of developing and building the overnight interface with SAP for budget to actual reporting. This feature which will be implemented by July 1, 2015 will allow departments to monitor actual to budgeted expenditures with an accessible interface and to submit and approve administrative budget change requests with an online process. Separately from acquiring and implementing the City’s new budget system, staff also evaluated options for implementing a new Infrastructure Management System as outlined in recommendations from the Infrastructure Blue Ribbon Committee. One of these recommendations included the long-term budgeting (depending on the life cycle of various types of infrastructure) of infrastructure maintenance and replacement. Staff evaluated various potential systems and found that the new budget system can serve as this long-term financial planning tool. In August, Questica also released a separate performance measure and management module which allows staff to link performance and financial data, enter or upload performance data from other systems, and visualize the data via dash boards. The current system the City acquired provides rudimentary performance measure input fields and a dashboard functionality. However, it does not allow staff to link performance with financial data. As discussed by the City Auditor with the Policy and Services Committee at the September 9, 2014 meeting, the Auditor’s Office and City departments spend an extraordinary amount of time on data compiling and analysis using spreadsheets. Per the City Auditor, her office spends approximately 1,600 staff hours to produce the annual performance report. Further, the annual performance report includes many measures, which link performance and financial data. City of Palo Alto Page 13 Therefore, to allow for the implementation of the performance measure and management module, streamline the annual Performance Report, and address the IBRC recommendation, staff intends to bring forward an amendment to the Questica contract for City Council consideration in December 2014, which will amend the license agreement for the system from seat licenses to a site license. A site license allows unlimited access to as many employees as necessary. With this change, many authorized department users versus one or two central contacts in each department can enter, view, and analyze financial, budgetary, and performance data and set up their own dashboards to more effectively manage the part of the organization they are responsible for. Questica has identified the City of Palo Alto as one of their clients with the most advanced use of performance measures and is offering the City a substantive discount on the acquisition of the site license. With the acquisition of Questica, the City paid $130,000 in seat license cost. The regular site license cost is $250,000. If the City signs on to the performance measure and management model, Questica has offered the City to reduce its one-time site license cost by $90,000 from $250,000 to $160,000. So, the additional cost for the site license is $30,000. If the City were to purchase minimal additional seat licenses to effectively implement the IBRC recommendation, streamline the annual performance report process, and link financial and performance data, the cost over the life of the contract would be greater as will be detailed in the forthcoming CMR regarding the Questica contract amendment. Environmental Review This is not a project for purposes of the California Environmental Quality Act. Attachments:  Attachment A: Fiscal Year 2014 Year End BAO (DOCX)  Exhibit 1 to BAO - Proposed Fiscal Year 2014 Year End Adjustments (PDF)  Exhibit 2 to BAO - Reappropriations (PDF)  Exhibit 3 to BAO - Year End CIP Adjustments (PDF)  Exhibit 4 to BAO - General Fund Budget to Actual (PDF)  Attachment B: FY2014 Comprehensive Annual Financial Report (CAFR) (PDF) ATTACHMENT A Page of 4 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, 2014 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 10, 2013 did adopt a budget for Fiscal Year 2014; and B. Fiscal Year 2014 has ended and the financial results, although subject to post- audit adjustment, are now available. SECTION 2. Pursuant to Section 2.28.080 of the Palo Alto Municipal Code, the City Manager during Fiscal Year 2014 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 2014 appropriations which on July 1, 2013 were encumbered by properly executed, but uncompleted, purchase orders or contracts. SECTION 3. The Council hereby approves adjustments to the Fiscal Year 2014 budget as shown on attached Exhibit 1. SECTION 4. The Council hereby re-appropriates Fiscal Year 2014 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 2015 budget. ATTACHMENT A Page of 4 2 SECTION 5. The Fiscal Year 2014 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 2015 budget. SECTION 6. The City Manager is authorized and directed: A. To close the Fiscal Year 2014 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 2014 budget as adopted or amended by ordinance of the Council; and B. To close and adjust various 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 fund the Budget Stabilization Reserve in accordance with the General Fund Reserves Policy adopted by the City Council. SECTION 7. The General Fund Budget Stabilization Reserve is hereby decreased by the sum of Four Million One Hundred Twenty Seven Thousand Six Hundred Eighty Two Dollars ($4,127,682) as described in Exhibit 1. SECTION 8. The Water Rate Stabilization Reserve is hereby decreased by the sum of Six Million Nine Hundred Seventy Nine Thousand Six Hundred Ninety Seven Dollars ($6,979,697) as described in Exhibit 1. SECTION 9. The Electric Distribution Rate Stabilization Reserve is hereby decreased by the sum of Three Hundred Seventeen Thousand Five Hundred Six Dollars ($317,506) as described in Exhibit 1. SECTION 10. The Fiber Optics Rate Stabilization Reserve is hereby decreased by the sum of Five Hundred Nineteen Thousand Dollars ($519,000) as described in Exhibit 1. SECTION 11. The Gas Distribution Rate Stabilization Reserve is hereby decreased by the sum of Eight Hundred Forty One Thousand One Hundred Ninety Six ($841,196) as described in Exhibit 1. SECTION 12. The Gas Supply Rate Stabilization Reserve is hereby decreased by the sum of One Hundred Seventy Four Thousand Dollars ($174,000) as described in Exhibit 1. SECTION 13. The Wastewater Treatment Rate Stabilization Reserve is hereby increased by the sum of Four Thousand Six Hundred Sixty Dollars ($4,660) as described in Exhibit 1. ATTACHMENT A Page of 4 3 SECTION 14. The Refuse Rate Stabilization Reserve is hereby decreased by the sum of Nine Hundred Seventy Seven Dollars ($977) as described in Exhibit 1. SECTION 15. The Storm Drainage Rate Stabilization Reserve is hereby decreased by the sum of One Thousand Five Hundred Thirty Four Dollars ($1,534) as described in Exhibit 1. SECTION 16. The University Avenue Parking Permit Fund is hereby increased by Two Thousand Ten Dollars ($2,010) as described in Exhibit 1. SECTION 17. The California Avenue Parking Permit Fund is hereby increased by Three Hundred Dollars ($300) as described in Exhibit 1. SECTION 18. The Federal Equitable Sharing Fund is hereby decreased by Two Thousand Nine Hundred Sixty Dollars ($2,960) as described in Exhibit 1. SECTION 19. The State Deferred Revenue Fund is hereby decreased by Two Thousand One Hundred Ninety Eight ($2,198) as described in Exhibit 1. SECTION 20. The Stanford/El Camino Fund is hereby decreased by Four Hundred Ten Thousand Dollars ($410,000) as described in Exhibit 1. SECTION 21. The Public Art Fund is hereby decreased by Four Thousand Six Hundred Sixty One Dollars ($4,661) as described in Exhibit 1. SECTION 20. The Law Enforcement Services Fund is hereby decreased by Two Hundred Twenty Seven Thousand Seven Hundred Ten Dollars ($227,710) as described in Exhibit 1. SECTION 21. The Law Enforcement Block Grant Fund is hereby decreased by Eight Hundred Twelve Dollars ($812) as described in Exhibit 1. SECTION 22. The Technology Fund is hereby decreased by Eight Hundred Nineteen Thousand Three Hundred Seventy Eight Dollars ($819,378) as described in Exhibit 1. SECTION 23. The Capital Projects Fund Reserve is hereby decreased by Three Million, Eight Hundred Fourteen Thousand Four Hundred Dollars ($3,841,400) as described in Exhibit 1. SECTION 24. Upon completion of the independent audit, detailed financial statements reflecting the changes made by the Sections 7 through 18 of this ordinance shall be published as part of the annual financial report of the City as required by Article ATTACHMENT A Page of 4 4 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 27. 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: ABSTENTIONS: ABSENT: ATTEST: ________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ________________________ ____________________________ City Attorney City Manager ____________________________ Director of Administrative Service Category Amount Description GENERAL FUND Transfer to the Technology Fund 63,000 Increase the Transfer to the Technology Fund by $63,000 to adjust for the actual amount of the Technology Fee collected in the General Fund in Fiscal Year 2014 ($1,163,000). Transfer to IR 4,000,000 Transfer an additional $4 million to the Infrastructure Reserve in accordance with the City Council approved Infrastructure Plan (June 9, 2014) Salary and Benefits (1,106,000) Allocate funding for salary increases to General Fund Departments Salary and Benefits 1,000,000 Allocate Departmental Salary Savings to Non-Departmental Direct Charges 148,682 Increase costs for the sale of water to the City. 4,105,682 (4,105,682) Salary and Benefits (149,000) Allocate Departmental Salary Savings to Non-Departmental (149,000) 149,000 Salary and Benefits (52,000) Allocate Departmental Salary Savings to Non-Departmental (52,000) 52,000 CITY MANAGER Salary and Benefits 60,000 Allocate funding for salary increases from Non-Departmental 60,000 (60,000) COMMUNITY SERVICES Rents and Leases 84,000 To recognize revenue for the Byrant Street rent 84,000 Salary and Benefits (408,000) Allocate Departmental Salary Savings to Non-Departmental (408,000) 492,000 FIRE Salary and Benefits 453,000 Allocate funding for salary increases from Non-Departmental 453,000 ADMINISTRATIVE SERVICES Use Changes Net Changes To (From) Reserves Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves CITY AUDITOR Source Changes CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves Use Changes NON-DEPARTMENTAL Use Changes Use Changes Exhibit 1 Category Amount Description CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET (453,000) LIBRARY Salary and Benefits (155,000) Allocate salary and benefits savings to the Police Department Salary and Benefits (166,000) Allocate Departmental Salary Savings to Non-Departmental (321,000) 166,000 Salary and Benefits 593,000 Allocate funding for salary increases from Non-Departmental Salary and Benefits 155,000 Allocate salary and benefit savings from the Library Department 748,000 (593,000) Salary and Benefits (225,000) Allocate Departmental Salary Savings to Non-Departmental (225,000) 225,000 Total General Fund Changes to BSR (4,127,682) Reimbursements 4,000,000 Increase transfer from the General Fund in accordance with the City Council approved Infrastructure Plan (June 9, 2014) Source Changes Changes 4,000,000 CIP 158,600 Combined impact from adjustments to projects as outlined in Attachment A, Exhibit 3 Use Changes 158,600 3,841,400 Capital Fund Infrastructure Reserve Net Changes To (From) Reserves Net Changes To (From) Reserves Use Changes POLICE PUBLIC WORKS Use Changes Net Changes To (From) Reserves GENERAL FUND CIP (CAPITAL PROJECTS FUND) Net Changes To (From) Reserves Net Changes To (From) Reserves Use Changes Attachment B, Exhibit 1 Cost Center Cost Element Category Amount Description ENTERPRISE FUNDS ELECTRIC FUND Direct Charges (494) Decrease costs for the sale of water to the City. CIP (1,817,000) Changes in CIP Projects (See Atttachment A, Exhibit 3 for more detail) Use Changes (1,817,494) Net Changes To (From) Reserves 1,817,494 Fund Balancing Entries 20000020 38040 1,817,494 Change in Electric Operating Fund Balance Total Electric Fund 1,817,494 FIBER OPTICS FUND CIP 23,000 Changes in CIP Projects (See Atttachment A, Exhibit 3 for more detail) Use Changes 23,000 Net Changes To (From) Reserves (23,000) Fund Balancing Entries 20000020 38040 (23,000)Change in Fund Balance Total Fiber Optics Fund (23,000) GAS FUND Salary and Benefits 54,000 Increase costs to cover additional labor expenses related to pension and medical CIP 80,000 Changes in CIP Projects (See Atttachment A, Exhibit 3 for more detail) Utility Purchases 120,000 Increase costs to cover additional gas commodity purchases Direct Charges 196 Increase costs for the sale of water to the City. Use Changes 254,196 Net Changes To (From) Reserves (254,196) Fund Balancing Entries 20000050 38170 (174,000)Change in Gas Supply Fund Balance 20000040 38040 (80,196)Change in Gas Operating Fund Balance Total Gas Fund (254,196) CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET Attachment B, Exhibit 1 Cost Center Cost Element Category Amount Description CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET WATER FUND 7 Reimbursements 200,508 Increase revenue for the sale of water to the City. Source Changes Changes 200,508 CIP 81,000 Changes in CIP Projects (See Atttachment A, Exhibit 3 for more detail) Direct Charges 6,205 Increase costs for the sale of water to the City. Use Changes 87,205 Net Changes To (From) Reserves 113,303 Fund Balancing Entries 20000060 38040 113,303 Change in Fund Balance Total Water Fund 113,303 20021103 30010 Direct Charges (4,660) Decrease costs for the sale of water to the City. Use Changes (4,660) Net Changes To (From) Reserves 4,660 Fund Balancing Entries 20000070 38040 4,660 Change in Fund Balance Total Wastewater Treatment Fund 4,660 REFUSE FUND Direct Charges 977 Increase costs for the sale of water to the City. Use Changes 977 Net Changes To (From) Reserves (977) Fund Balancing Entries 50050001 38040 (977)Change in Fund Balance Total Refuse Fund (977) STORM DRAINAGE FUND Direct Charges 1,534 Increase costs for the sale of water to the City. Use Changes 1,534 Net Changes To (From) Reserves (1,534) Fund Balancing Entries 50050001 38040 (1,534)Change in Fund Balance Total Storm Drainage Fund (1,534) WASTEWATER TREATMENT FUND Attachment B, Exhibit 1 Category Amount Description Direct Charges (2,010) Decrease costs for the sale of water to the City. Use Changes (2,010) 2,010 Direct Charges (300) Decrease costs for the sale of water to the City. Use Changes (300) 300 Non-Capital 2,960 Increase to cover additional non-capital p-card expenses for FY 2014 Use Changes 2,960 (2,960) Operating Transfer 2,198 Transfer to General Fund Use Changes 2,198 (2,198) Interagency 410,000 Cost sharing expense between City of Palo Alto and County of Santa Clara for service level improvements on Oregon Expressway Use Changes 410,000 (410,000) Salaries & Benefits 4,661 Increase costs to cover additional labor expenses Use Changes 4,661 (4,661) Facilities & Equipment 227,710 Citizen Options for Public Safety (COPS) Grant funding from the State of California used to purchase front line law enforcement equipment Use Changes 227,710 (227,710) STANFORD/EL CAMINO FUND Net Changes To (From) Reserves CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET SPECIAL REVENUE FUNDS CALIFORNIA AVENUE PARKING PERMIT FUND Net Changes To (From) Reserves UNIVERSITY AVENUE PARKING PERMIT FUND Net Changes To (From) Reserves STATE DEFERRED REVENUE Net Changes To (From) Reserves FED EQUITABLE SHARING Net Changes To (From) Reserves PUBLIC ART FUND Net Changes To (From) Reserves LAW ENFORCEMENT SERVICES FUND Net Changes To (From) Reserves Attachment B, Exhibit 1 Category Amount Description CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET Facilities & Equipment 812 Increase costs to cover additional non-capital p-card expenses Use Changes 812 (812) Transfer from the General Fund 63,000 Increase the Transfer from the General Fund by $63,000 to adjust for the actual amount of the Technology Fee collected in the General Fund in Fiscal Year 2014 ($1,163,000). Source Changes 63,000 Contract Services 710,000 Increase costs to cover technology related contractual services Facilities & Equipment 172,000 Increase costs to cover radio and communication equipment purchasesDirect Charges 378 Increase costs for the sale of water to the City. Use Changes 882,378 (819,378) TECHNOLOGY FUND Net Changes To (From) Reserves INTERNAL SERVICE Net Changes To (From) Reserves LAW ENFORCEMENT BLOCK GRANT Attachment B, Exhibit 1 Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014) General Fund Department Fund Amount Preliminarily Approved Reappropriation Justification Commitment Item City Manager's Office General Fund 35,000 Business Registry Certificate Program: At the April 29, 2014 City Council meeting, the Council approved a recommendation to fund a Business Registry Certificate (BRC) Ordinance and Fee Program as a full cost-recovery replacement/enhancement of the existing Use Certificate Process, with funds from the City Council Contingency. Staff has not been able to work on this project due to other competing priorities and the funding becoming available late in the fiscal year. Staff committed to return to Council before December 30, 2014 for approval of the BRC ordinance and program implementation and launch. CMR #4619 31070 City Manager's Office General Fund 25,000 Electric Vehicle Consultant: At the May 13, 2014 Policy and Services Committee Meeting, an ordinance was approved requiring all new multi-family residential and non-residential construction to provide for current or future installation of electric vehicle (EV) chargers at the recommendation of the Electric Vehicle Supply Equipment Task Force. Funding was appropriated from the City Manager's Contingency to hire a consultant to implement this direction and guide developers in technical equipment decision making as well as provide training to staff during the review process; however, since this was not approved until the end of Fiscal Year 2014, staff could not complete the contract before the end of the fiscal year. CMR #4719 31070 City Manager's Office General Fund 25,000 Ecological Footprint Analysis: A study is needed to assess the demand and consumption of resources by the City as a whole compared to the availability of resources in the ecosystem surrounding and supporting the City. The results will provide a Palo Alto Consumption Land Use Matrix (CLUM) and the data from the CLUM will be used for the subsequent Climate Action Plan, that is scheduled to be presented to the Council in fall 2014. Funding was appropriated from the City Manager's Contingency to conduct this study; however, the project was not able to be done in Fiscal Year 2014. 31070 Community Services General Fund 297,834 Teen Programs: At the June 2, 2014 City Council meeting, the Council approved a recommendation from the Policy and Services Committee to use the net revenue collected from 455 Bryant Street in Fiscal Years 2009 through 2013 ($213,834) to fund Teen Programs for Fiscal Year 2015. Per Council action, the fund balance of $213,834 is to be reappropriated in addition to the $84,000 in Fiscal Year 2014 proceeds for a total of $297,834. A long-term expenditure plan will be brought to Council in fall 2014, including use the estimated revenue for Fiscal Year 2015 of $84,000. CMR #4776 33000 Development Services/Fire General Fund 50,000 Digitize Fire Prevention Records: This funding will be used to digitize historical records in the Fire Prevention Bureau (FPB), and implement an electronic records management system for historical and future documents with collaboration from the Information Technology (IT) Department. This funding was appropriated in the Fire Department as part of the Fiscal Year 2014 Operating Budget; however, the IT Department is still developing a citywide electronic records management strategy. As part of the Fiscal Year 2015 Operating Budget, FPB was moved from the Fire Department to the Development Services Department. Reappropriation of these funds will allow FPB to digitize and move their records into an electronic records management system once IT implements a citywide solution. 31990 Attachment A, Exhibit 2 - Reappropriations.xlsx 1 11/18/2014,4:28 PM Attachment C, Exhibit 2xExhibit 2 Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014) Department Fund Amount Preliminarily Approved Reappropriation Justification Commitment Item Library General Fund 600,000 Library Publications: In Fiscal Year 2012, the library received a donation of $1.9 million from the Palo Alto Library Foundation of which $1.4 million was appropriated to the CIP and the balance of $500,000 was appropriated to the General Fund for the purchase of library collection materials (CMR #2258). The remaining General Fund balance of $100,000 has been reappropriated through Fiscal Year 2014 in anticipation of completion of the new Mitchell Park library. In addition, a second donation of $1.2 million was received from the Palo Alto Library Foundation in Fiscal Year 2014 (CMR #4092) of which $500,000 is requested for reappropriation in anticipation of completion of the new Rinconada library in Fiscal Year 2015. The balance of $100,000 from #2258 and $500,000 from #4092, for a total of $600,000, will be used for the purchase of collection materials in Fiscal Year 2015 in order to provide library patrons with the most current publications and productions. 32230 People Strategy and Operations General Fund 50,000 Temporary Salaries: Two employees, one working as a Human Resources Assistant and one working as a Labor Relations Manager will be out on maternity leave for approximately six months in Fiscal Year 2015. The PSO Department will have no vacant positions to start Fiscal Year 2015 to generate savings to hire temporary positions. Reappropriating Fiscal Year 2014 vacancy savings will allow PSO to hire temporary staff to backfill for the vacancies in Fiscal Year 2015. 30030 People Strategy and Operations General Fund 165,000 Management Development: Savings from Fiscal Year 2013 was carried forward to Fiscal Year 2014 to develop a citywide management training program; however, staffing resources were not available in Fiscal Year 2014 in PSO to implement the program. PSO is fully staffed going into Fiscal Year 2015, so this funding will be used for training programs in the following areas: Civics and Citizen Engagement, Leadership and Talent Exchange, Budget, Finance and Procurement, Interpersonal communication, Ethics and legal awareness, Presentation Skills, Business Writing, Time Management, Project management, Change Management, SkillSoft for Computer skills, Safety & Security and Personal and Professional Development. 33140 People Strategy and Operations General Fund 25,000 Wellness Program: Funding will be used to create a holistic, accessible and fun employee wellness program that encourages and supports healthy eating, work life balance, and an active lifestyle. The City launched an RFP several months ago, and the Department has received several responses and is in the process of reviewing the proposals; however, a vendor was unable to be selected in Fiscal Year 2014. Planning & Community Environment General Fund 256,596 Comprehensive Plan: The Comprehensive Plan update is a large project involving significant community engagement. The Plan is scheduled for completion at the end of 2015. Funds were budgeted in FY 2014 and $56,596 is available for reappropriation in addition to the Council approved a BAO on March 17, 2014 for an additional $200,000. These expenses include meetings, advertising, supplies, note taking, and additional professional services to address unanticipated events CMR #4554 31020 Attachment A, Exhibit 2 - Reappropriations.xlsx 2 11/18/2014,4:28 PM Attachment C, Exhibit 2 Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014) Department Fund Amount Preliminarily Approved Reappropriation Justification Commitment Item Police General Fund 78,000 Police Utilization Study: In Fiscal Year 2013, funding was allocated for the department to hire a consultant to conduct a utilization study of overall police operations; however the study was not completed due to competing workload demands. The funds were reappropriated to Fiscal Year 2014 to conduct the study; however, the Technical Services Division had many other projects that took precedence (Tri-City Computer Aided Dispatch, Records Management System, Patrol Vehicle Mobile Audio Video, etc.) and were again unable to conduct the utilization study. Reappropriation of these funds will allow Technical Services staff to determine the scope of the study, integrate it into their workload, and hire a consultant to conduct the study in Fiscal Year 2015. 31990 1,607,430$ Total General Fund Reappropriations Other Funds Fund Fund Rec. Amount Reappropriation Justification Airport 530 50,000 Airport Legal Outside Counsel: Council has directed staff to take over the Palo Alto Airport prior to the end of the lease (2017) with the County of Santa Clara. The 2015 Adopted Operating Budget has assumed a Fiscal Year 2015 takeover. There are numerous documents that need to be written, negotiated, and approved by the City Council prior to the City taking back ownership of the operations. This reappropriation will allow for outside legal counsel that is anticipated due to the workload of the City Attorney's Office and specific expertise needed in this transaction. 31010 Capital Improvement Fund 471 65,000 Long Range CCTV Cameras: Reappropriating these funds will allow the Fire Department to purchase a fire weather camera to replace the current outdated camera that is mounted by Fire Station 8 in Foothill Park. This funding was originally appropriated as part of the FD-13000 CIP to replace the existing fire weather camera and add a second camera with thermal detection capabilities to act as an early warning system for fires in the foothills south of Palo Alto. The technology needs for the project were reevaluated in Fiscal Year 2014, and it was determined that the current funding will only be able fund the replacement of the fire weather camera. Reappropriation of these funds will allow for the purchase of the replacement camera in Fiscal Year 2015. The second thermal detection camera will be brought back for Council consideration in the future as a separate CIP. 38790 Storm Drainage Fund 528 45,000 Storm Drainage Pump Station: This reappropriation will allow for a repair to one of the 24' pumps at the Storm Pump Station located at the Airport. During a routine inspection, it was recently discovered that water was leading from one of the pumps, which could lead to larger damages. The repair was not completed in Fiscal Year 2014 as a portion of the funding was used for design and configuration of storm software, a maintenance contract for storm software, and debris disposal. Funding will be used, in conjunction with Fiscal Year 2015 approved funding, to repair the pump in Fiscal Year 2015. 31990 Technology Fund 682 35,000 Council Chambers Voting System Replacement: Reappropriating these funds will allow for the replacement of the existing analog voting system in the Council Chambers, which is over 20 years old and no longer supported by the manufacturer. This project was unable to be completed in Fiscal Year 2014 due to other infrastructure and technology related projects that took precedence. This project needs to be done separately from the other technology upgrades to the Council Chambers, scheduled for Fiscal Year 2016, because there will be no way to electronically record the votes if the system fails. 31230 Attachment A, Exhibit 2 - Reappropriations.xlsx 3 11/18/2014,4:28 PM Attachment C, Exhibit 2 Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014) Department Fund Amount Preliminarily Approved Reappropriation Justification Commitment Item Technology Fund 682 50,000 Virtual Private Network Upgrade: Reappropriating these funds will allow the IT Department to complete upgrades to the Virtual Private Network (VPN) in order to enhance the security and scalability of the computing network, create additional functionality and access of mobile devices to the network, and ensure the City can upgrade to the most current operating system. This project was approved as part of the application replacement funding in the Fiscal Year 2014 Budget; however, it was unable to be completed due to other infrastructure and technology related projects that took precedence. 31290 Technology Fund 682 275,000 Virtual Private Cloud: Reappropriating these funds will allow the IT Department to implement a primary and redundant storage area network through the Virtual Private Cloud. This project was approved as part of the infrastructure replacement funding in the Fiscal Year 2014 Budget, and the Department was going to award the project prior to the end of Fiscal Year 2014; however, a vendor could not be selected to meet that deadline. This funding will allow the project to be awarded at one of the first Council Meetings of Fiscal Year 2015, and allow the Department time to select the best vendor. 35600 Technology Fund 682 -Application Maintenance: Reappropriating these funds will allow the Information Technology (IT) Department to fund maintenance and support costs, that are unbudgeted elsewhere in the City, for various technology applications that are used by other City departments and need to be upgraded to maintain functionality. 31290 520,000$ Total Other Funds Reappropriations 2,127,430$ Total- All Reappropriations Attachment A, Exhibit 2 - Reappropriations.xlsx 4 11/18/2014,4:28 PM Attachment C, Exhibit 2 Project Funding Title Number Revenue Expense Source Comments ADDITIONAL APPROPRIATIONS Art Center Electrical and Mechanical Upgrades PF-07000 $13,000 Reduction to PF-93009 To transfer funds from PF-93009 (Americans with Disabilities Act Compliance) to cover expenditures at year end. Transportation and Parking Improvements PL-12000 $46,000 Reduction to Infrastructure Reserve Increase to project due to higher than anticipated expenditures. Children's Theater Replacement & Expansion AC-09001 $7,600 Reduction to Infrastructure Reserve Increase to project due to higher than anticipated expenditures. Temporary Main Library PE-11012 $ 123,000 Reduction to Infrastructure Reserve To transfer funds from PE-11000 (Main Library Construction) to cover expenditures at year end. Dimmer Replacement and Lighting System CC-09001 $6,000 Reduction to Infrastructure Reserve Increase to project due to higher than anticipated expenditures. Safe Routes to Schools PL-00026 $38,000 Reduction to Infrastructure Reserve Increase to project due to higher than anticipated expenditures. Curb and Gutter Repair PO-12001 $61,000 Reduction to Infrastructure Reserve Increase to project due to higher than anticipated expenditures. Total $- $ 294,600 REDUCTION IN APPROPRIATIONS Americans With Disabilities Act Compliance PF-93009 $(13,000) Increase to PF-07000 To transfer funds to PF-07000 (Art Center Electrical and Mechanical Upgrades) to cover expenditures at year end. Main Library Construction PE-11000 $ (123,000) Increase to PE-11012 To transfer funds to PE-11000 (Temporary Main Library) to cover expenditures at year end. Total $ (136,000) TOTAL GENERAL FUND CIP YEAR-END ADJUSTMENTS $- $ 158,600 FY 2014 CIP Year-end Adjustments CAPITAL PROJECT FUND Project Funding Title Number Revenue Expense Source Comments FY 2014 CIP Year-end Adjustments ADDITIONAL APPROPRIATIONS EL-89044 $ 18,000 Increase to project due to higher than anticipated expenditures. Total $ - $ 18,000 REDUCTION IN APPROPRIATIONS EL-10008 $ (130,000) Reduction as project being placed on hold. EL-10009 $ (300,000) Reduction as project being placed on hold. EL-11014 $ (400,000) Reduction as project being placed on hold. EL-89028 $ (700,000) Reduction as project being placed on hold. EL-89038 $ (305,000) Reduction as project being placed on hold. Total $ - $ (1,835,000) TOTAL ELECTRIC FUND CIP MID-YEAR ADJUSTMENTS 0 $ (1,817,000) ELECTRIC FUND Attachment D, Exhibit 3 Project Funding Title Number Revenue Expense Source Comments FY 2014 CIP Year-end Adjustments ADDITIONAL APPROPRIATIONS Directional Boring Machine GS-02013 $ 18,000 Gas Fund Reserves Increase to project due to higher than anticipated expenditures. Directional Boring Equipment GS-03007 $ 2,000 Gas Fund Reserves Increase to project due to higher than anticipated expenditures. Gas System, Customer Connections GS-80017 $ 60,000 Gas Fund Reserves Increase to project due to higher than anticipated expenditures. Total $ - $ 80,000 TOTAL GAS FUND CIP YEAR-END ADJUSTMENTS $ - $ 80,000 ADDITIONAL APPROPRIATIONS Fiber Optics Customer Connections FO-10000 $ 23,000 Fiber Optics Fund Reserves Increase to project due to higher than anticipated expenditures. Total $ - $ 23,000 TOTAL FIBER OPTICS FUND CIP YEAR-END ADJUSTMENTS $ - $ 23,000 ADDITIONAL APPROPRIATIONS Wastewater Collection Rehabilitation/Augmentation Project 22 WC-09001 $ 140,000 Reduction to WC-10002 To transfer funds from WC-10002 (Wastewater Collection Rehabilitation/Augmentation Project 23) to cover expenditures at year end. Total -$ 140,000$ REDUCTION IN APPROPRIATIONS Wastewater Collection Rehabilitation/Augmentation Project 23 WC-10002 $ (140,000) Increase to WC-09001 To transfer funds to WC-09001 (Wastewater Collection Rehabilitation/Augmentation Project 22) to cover expenditures at year end. Total $ (140,000) TOTAL WASTEWATER COLLECTION FUND CIP YEAR-END ADJUSTMENTS $ - $ - FIBER OPTICS FUND WASTEWATER COLLECTION FUND GAS FUND Attachment D, Exhibit 3 Project Funding Title Number Revenue Expense Source Comments FY 2014 CIP Year-end Adjustments ADDITIONAL APPROPRIATIONS Turnouts Regulator WS-07000 $ 74,000 Decrease to WS-08001 To transfer funds from WS-08001 (Wastewater Reservoir Coating) to cover expenditures at year end. Emergency Water Supply WS-08002 $ 157,000 Decrease to WS-09000 To transfer funds from WS-09000 (Seismic Water Tank) to cover expenditures at year end. Water System, Customer Connections WS-80013 $ 81,000 Water Reserves Increase to project due to higher than anticipated expenditures. Total -$ 312,000$ REDUCTION IN APPROPRIATIONS Water Reservoir Coating WS-08001 (74,000)$ Increase to WS-07000 To transfer funds to WS-07000 (Turnouts Regulator) to cover expenditures at year end. Seismic Water Tank WS-09000 (157,000)$ Increase to WS-08002 To transfer funds to WS-08002 (Emergency Water Supply) to cover expenditures at year end. Total -$ (231,000)$ TOTAL WATER FUND CIP YEAR-END ADJUSTMENTS -$ 81,000$ WATER FUND Attachment D, Exhibit 3 Exhibit 4 11/18/14 FY 2014 FY 2014 FY 2014 FY 2014 FY 2014 FY 2014 FY 2014 Adopted Adjusted CAFR Basis Allocated Encum+ Budgetary Variance Budget Budget Rev/Exp Charges Reapprop Rev/Exp Adj Budget Revenues Sales Tax 23,846 27,352 29,424 n/a 29,424 2,072 Property Tax 29,613 30,251 30,587 n/a 30,587 336 Transient Occupancy Tax 11,545 12,318 12,255 n/a 12,255 (63) Documentary Transfer Tax 5,699 7,395 7,811 n/a 7,811 416 Utility Users Tax 11,013 11,386 11,008 n/a 11,008 (378) Other Taxes and Fines 2,107 2,107 2,136 n/a 2,136 29 Charges for Services 24,379 22,741 23,366 n/a 23,366 625 Permits and Licenses 8,346 7,952 7,546 n/a 7,546 (406) Return on Investment 769 769 1,042 n/a 1,042 273 Rental Income 12,891 14,004 14,215 n/a 14,215 211 From Other Agencies 252 345 768 n/a 768 423 Charges to Other Funds 10,574 10,574 -10,947 n/a 10,947 373 Other Revenues 2,010 2,000 1,240 -n/a 1,240 (760) Total Revenues 143,044 149,194 141,398 10,947 n/a 152,345 3,151 Add: Operating Transfers In 17,529 17,910 17,912 n/a 17,912 2 Prior Year Encum & Reapprop 5,571 5,585 n/a 5,585 14 Total Source of Funds 160,573 172,675 159,310 16,532 n/a 175,842 3,167 Expenditures City Attorney 2,453 3,137 2,459 101 551 3,111 26 City Auditor 1,088 1,058 965 51 11 1,027 31 City Clerk 1,258 1,282 980 132 10 1,122 159 City Council 497 709 493 1 86 580 129 City Manager 2,499 3,092 2,754 108 216 3,078 13 Administrative Services 7,280 7,363 6,699 394 151 7,244 119 Community Services 22,700 23,888 17,868 4,699 835 23,402 487 Public Safety 60,962 63,628 57,111 5,350 942 63,403 225 People Strategy & Operations 3,265 3,761 2,962 167 493 3,622 139 Library 7,793 8,254 6,675 665 732 8,072 182 Planning & Community Environment 13,608 15,150 12,199 1,065 1,373 14,637 513 Public Works 13,751 14,380 10,557 2,626 955 14,138 242 Non-Departmental 1,228 639 1,142 -- 1,142 (503) Cubberley Lease 7,268 7,268 7,271 --7,271 (3) Total Expenditures 145,650 153,609 130,135 15,359 6,355 151,849 1,760 Add: Operating Trans Out 843 1,905 1,581 -1,581 324 Transfer to Infrastructure 13,226 17,234 17,234 -17,234 0 Total Use of Funds 159,719 172,748 148,950 15,359 6,355 170,664 2,085 Net Surplus/(Deficit)854 (73) 10,360 1,173 (6,355) 5,178 5,251 CAFR Reconciliation:Unrealized gain/loss on investments 285 Current year encumbrance/reappropriations 6,355 Prior Year encumbrances/reappropriations (5,585) CAFR Net Income 6,233 GENERAL FUND SUMMARY ($000s) 2013-2014 Comprehensive Annual Financial Report City of Palo Alto, California FISCAL YEAR ENDEDJune 30, 2014 Fiscal Year Ended June 30, 2014 2013-2014 Comprehensive Annual Financial Report Prepared by: Administrative Services Department City of Palo Alto, California CITY OF PALO ALTO  For the Year Ended June 30, 2014    Table of Contents   Page  INTRODUCTORY SECTION:   Transmittal Letter .................................................................................................................................... i   City Officials ........................................................................................................................................... vi   Organizational Structure ....................................................................................................................... vii   Administrative Services Organization .................................................................................................. viii   GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... ix    FINANCIAL SECTION:   Independent Auditor’s Report .............................................................................................................. 1      Management’s Discussion and Analysis    (Required Supplementary Information – Unaudited) ...................................................................... 5   Basic Financial Statements   Government‐wide Financial Statements:   Statement of Net Position ....................................................................................................... 29   Statement of Activities ............................................................................................................ 31   Governmental Fund Financial Statements:   Balance Sheet .......................................................................................................................... 33  Reconciliation of the Balance Sheet of Governmental Funds to         the Statement of Net Position ‐ Governmental Activities ................................................. 34   Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 35   Reconciliation of the Statement of Revenues, Expenditures and Changes   in Fund Balances of Governmental Funds to the Statement of Activities –          Governmental Activities ................................................................................................... 36   Statement of Revenues, Expenditures and Changes in Fund Balance –    Budget and Actual – General Fund ................................................................................... 37   Proprietary Fund Financial Statements:   Statement of Net Position ....................................................................................................... 38   Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 40   Statement of Cash Flows ......................................................................................................... 42   Fiduciary Fund Financial Statement:   Statement of Fiduciary Net Position ....................................................................................... 44   Index to the Notes to the Basic Financial Statements ................................................................. 45   Notes to the Basic Financial Statements ...................................................................................... 47  CITY OF PALO ALTO  For the Year Ended June 30, 2014    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 ............................................................. 118   Internal Service Funds:   Combining Statement of Fund Net Position .......................................................................... 120   Combining Statement of Revenues, Expenses and    Changes in Fund Net Position ......................................................................................... 121   Combining Statement of Cash Flows ..................................................................................... 122   Fiduciary Funds:   Statement of Changes in Assets and Liabilities – All Agency Funds ...................................... 124  STATISTICAL SECTION:   Financial Trends:   Net Position by Component ......................................................................................................... 127   Changes in Net Position ............................................................................................................... 128   Fund Balances of Governmental Funds ....................................................................................... 130   Changes in Fund Balances of Governmental Funds ..................................................................... 132  CITY OF PALO ALTO  For the Year Ended June 30, 2014    Table of Contents (Continued)   Page   Revenue Capacity:   Electric Operating Revenue by Source ......................................................................................... 133   Supplemental Disclosure for Water Utilities ............................................................................... 134   Assessed Value of Taxable Property ............................................................................................ 135   Property Tax Rates, All Overlapping Governments ..................................................................... 136   Property Tax Levies and Collections ............................................................................................ 137   Principal Property Taxpayers ....................................................................................................... 138   Assessed Valuation and Parcels by Land Use .............................................................................. 139   Per Parcel Assessed Valuation of Single Family Residential ........................................................ 140   Debt Capacity:   Ratio of Outstanding Debt by Type .............................................................................................. 141   Computation of Direct and Overlapping Debt ............................................................................. 142   Computation of Legal Bonded Debt Margin ................................................................................ 143   Revenue Bond Coverage .............................................................................................................. 144   Demographic and Economic Information:    Taxable Transactions by Type of Business ................................................................................... 145   Demographic and Economic Statistics ......................................................................................... 146   Principal Employers...................................................................................................................... 147   Operating Information:   Operating Indicators by Function/Program ................................................................................. 148   Capital Asset Statistics by Function/Program .............................................................................. 150   Full‐Time Equivalent City Government Employees by Function .................................................. 152  SINGLE AUDIT SECTION:   Index to the Single Audit Report .................................................................................................. 153  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 ........................................ 155   Independent Auditor’s Report on Compliance for Each Major Program and                         Report on Internal Control Over Compliance Required by OMB Circular A‐133 .................. 157   Schedule of Expenditures of Federal Awards .............................................................................. 159   Notes to the Schedule of Expenditures of Federal Awards ......................................................... 160   Schedule of Findings and Questioned Costs ................................................................................ 161   Schedule of Prior Years Findings and Questioned Costs ............................................................. 162       Introduction   ……….………………………………………………………………… City of Palo Alto   i   Transmittal Letter…………………………………………………...…  November 17, 2014  THE HONORABLE CITY COUNCIL  Palo Alto, California    Attention:  Finance Committee  COMPREHENSIVE ANNUAL FINANCIAL REPORT  YEAR ENDED JUNE 30, 2014      Members of the Council and Citizens of Palo Alto:    I am pleased to present the Comprehensive Annual Financial Report (CAFR) for the fiscal year ended  June 30, 2014 in accordance with Article III, Section 16 and Article IV, Section 13 of the City of Palo  Alto Charter.  The format and content of this CAFR comply with the principles and standards of  accounting and financial reporting adopted by the Governmental Accounting Standards Board (GASB)  and contains all information needed for readers to gain a reasonable understanding of City of Palo  Alto financial affairs.  Management takes sole responsibility for the completeness and reliability of  the information contained in this report based upon a comprehensive framework of internal control  that it has established for this purpose.  The objective of internal controls is to provide reasonable,  rather than absolute, assurance that the financial statements are free of any material misstatements.    The City of Palo Alto’s financial statements have been audited by Macias Gini & O’Connell LLP,  Certified Public Accountants.  The goal of the audit is to obtain reasonable assurance that the  financial statements are free of material misstatements and are fairly presented in conformity with  generally accepted accounting principles (GAAP).  Macias Gini & O’Connell issued an unmodified  opinion for the fiscal year ended June 30, 2014.  Their report is presented as the first component of  the financial section of this report.    In addition, Macias Gini & O’Connell conducted the federally mandated “Single Audit” designed to  meet the special needs of federal grantor agencies.  The standards governing the Single Audit require  the independent auditor to report on the fair presentation of the financial statements, government’s  internal controls and compliance with legal requirements.  These reports are included in the Single  Audit section of the CAFR.     An overview of the City’s financial activities for the fiscal year is discussed in detail in the  Management’s Discussion and Analysis (MD&A) section of the CAFR. MD&A complements this  transmittal letter and should be read in conjunction with it.      City of Palo Alto Office of the City Manager    Introduction  ……….………………………………………………………………… ii    City of Palo Alto  CITY OF PALO ALTO PROFILE  Palo Alto was incorporated in 1894 and named after a majestic coastal redwood tree which lives  along the San Francisquito Creek where early Spanish explorers settled.  Located between the cities  of San Francisco and San Jose, Palo Alto is a largely built‐out community of approximately 67,000  residents.  Palo Alto delivers a full range of municipal services and public utilities under the council‐ manager form of government and offers an outstanding quality of life for its residents.  It covers an  area of twenty‐six square miles and has dedicated almost one‐third of the area to open spaces of  parks and wildlife preserves.  Public facilities include five libraries, four community centers, a cultural  arts center, an adult and children’s theater, a junior museum and zoo, and a golf course.  The City  provides a diverse array of human services for seniors and youth, an extensive continuing education  program, concerts, exhibits, team sports and special events.  The independent Palo Alto Unified  School District (PAUSD) has achieved state and national recognition for the excellence of its  programs.    City Council:  The 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. Council is the  appointing authority for the positions of City Manager and three other officials, the City Attorney,  City Clerk, and City Auditor, all of whom report to the Council.     Finance Committee:  While retaining the authority to approve all actions, the City Council has  established a subcommittee to consider and make recommendations on matters referred to it by the  Council relating to finance, budget, audits, capital planning and debt.  Staff provides the Finance  Committee and Council with reports such as the CAFR, quarterly budget‐versus‐actual results, and  investment and performance measure reports, which are utilized in their review of the City’s  financial position.    FISCAL/ECONOMIC CONDITIONS AND OUTLOOK  Employment Trends:  The City of Palo Alto is located in the heart of Silicon Valley and is adjacent to  Stanford University, one of the premier institutions of higher education in the nation which has  produced much of the talent that founded many successful high‐tech companies in Palo Alto and  Silicon Valley.  With varied and relatively stable employers such as Stanford University, Stanford  Medical Center, Palo Alto Medical Foundation, Palo Alto Unified School District, Stanford Shopping  Center and businesses such as Hewlett‐Packard, VMware, Tesla, Palantir and Space Systems Loral,  Palo Alto has enjoyed diverse employment and revenue bases.  At the end of Fiscal Year (FY) 2014,  the City’s unemployment rate had dropped to 2.8 percent from 3.6 percent the prior year, as  compared to Santa Clara County’s unemployment rate of 5.4 percent, and the state’s unemployment  rate of 7.4 percent.    Real Estate Market:  In its most recent annual report, the Santa Clara County Assessor’s Office noted  that Santa Clara County’s 2014/2015 assessment roll increased 6.8 percent, from $335 billion to $357  billion ‐ “the third highest roll growth in County history.”   The assessment roll growth was balanced  throughout the County, with the highest growth rate in Milpitas at 9.7 percent and the lowest in  Monte Sereno at 5.3 percent.  Palo Alto’s assessment roll growth rate was 6.5 percent.  Property  sales and new construction were the primary factors contributing to the robust growth. With its  highly regarded school district, well‐educated and high‐income population, cultural amenities, and  Introduction   ……….………………………………………………………………… City of Palo Alto   iii   the presence of Stanford University, the City’s real estate values have typically been shielded from  major price swings.    Local Trends:  The solid recovery from the Great Recession is anticipated to continue, as the majority  of national, state, regional and local economic indicators point toward continuously improving  economic growth.  In the past two years, we have witnessed a continuing gradual increase in  economically sensitive revenue sources such as sales and documentary transfer taxes.  The robust  local economy and job growth are also driving increases in other revenues, particularly transient  occupancy tax and permit and license revenues.    Overall, funding sources are expected to be sufficient to cover projected FY 2015 expenses, as  forecasted in the City’s Adopted Budget.  The City Council adopted a General Fund budget with  expenses of $171.1 million for FY 2015, an increase of 7.1 percent from the prior year Adopted  Budget.  Citywide, full‐time equivalent (FTE) benefited positions are increasing by 14.45 positions, or  1.4 percent, however the total budgeted position count for FY 2015 is still well below the number of  FTEs employed a decade ago.  Pension and health care costs continue to rise.     Employer pension  rates will increase substantially beginning in FY 2016 as a result of changes in the actuarial method  for calculating pension rates that were adopted by the CalPERS Board of Administration.  The most  recent CalPERS valuations show unfunded liabilities for pension and retiree health benefits in the  range of $439 million, a significant increase from the prior valuation as a result of CalPERS changing  amortization and smoothing policies to use market value of assets instead of actuarial value.  The  City has proactively taken steps over the past several years to mitigate increased costs by negotiating  increased employee contributions to the CalPERS retirement plan.  Also, implementation of a second  tier retirement plan in 2011 and adoption of the state‐mandated third tier pension benefit plan in  2013 will help mitigate future pension cost increases.  Similarly, the City is negotiating provisions  such as capping the City’s health care contributions as an additional measure to decrease the rate of  health care cost growth.    Economic growth has increased the demand for housing, parking, and other City services.  These  issues were reflected in the setting of City Council priorities for 2014:     Comprehensive Planning and action on land use and transportation: the Built Environment,  Transportation, Mobility, Parking, and Livability   Infrastructure Strategy and Funding   Technology and the Connected City    In keeping with these priorities, City Council has approved funding for enhanced shuttle services and  establishment of a Transportation Management Authority.  A newly formed Office of Sustainability  will oversee various sustainability initiatives, and the Public Art Program has been expanded to  facilitate oversight of the public art component of construction projects and manage the City’s  portable art collection.  Major initiatives on the horizon include assuming management and control  of the Palo Alto Airport in August 2014 and a significant reconfiguration of the Palo Alto Municipal  Golf Course which will enhance playing conditions, improve wetland areas and achieve flood control.    The City’s infrastructure needs have been quantified as a result of a major effort by the Infrastructure  Blue Ribbon Commission (IBRC), and the recently formed Council Infrastructure Committee.  The  Committee has proposed a five year plan to spend $126 million on infrastructure, which includes  projects such as a new Public Safety Building, a Bike and Pedestrian plan, and a downtown parking  garage.  These projects will be funded partially by debt to be repaid with a proposed increase in the     Introduction  ……….………………………………………………………………… iv    City of Palo Alto  transient occupancy tax (TOT) rate and the TOT from newly opened hotels, and from other sources  such as impact fees and Stanford University Medical Center development agreement monies.  The  City has taken steps to fund its infrastructure needs by increasing General Fund transfers by $2.2  million annually since 2013 for “keep up” costs.  In addition, as a result of sound fiscal management  and reserve policies, General Fund surpluses of $7.6 million in FY 2012, $8.9 million in FY 2013, and  $4.0 million in FY 2014 were transferred to the Infrastructure Reserve.     The City’s Enterprise Funds implemented minimal rate changes in FY 2014.  There were no changes in  electric, gas, wastewater and refuse rates.  Water rates increased by 7 percent effective July 1, 2013.   The Fiber Optics and Storm Drainage Funds both implemented a 2.2 percent rate increase effective  July 1, 2013 for inflation based on the Consumer Price Index.    Long Range Financial Forecast:  The City of Palo Alto produces a 10 year General Fund Long Range  Financial Forecast (LRFF) annually.  This comprehensive report analyzes local, state, and federal  economic conditions, short and long‐term revenue and expense trends, and addresses challenges  such as funding retiree medical benefits 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.    The City Council is conscientious and proactive in its financial planning.  While the LRFF projects  General Fund surplus positions over the next ten years, the Council remains fiscally prudent in  approving new ongoing costs that will increase the City’s budget.  Further, the City maintains a  General Fund Budget Stabilization Reserve (BSR) level of 15 to 20 percent of the General Fund  operating budget, with a targeted goal of 18.5 percent.  City Council approval is required to set this  reserve balance lower than 15 percent.  For FY 2014, after transferring $4.0 million to the  Infrastructure Reserve, the remaining BSR balance is $35.1 million, or 20.5 percent.  $1.7 million was  set aside to balance the FY 2015 Operating Budget due to one‐time costs for expanded shuttle  service, establishing a Transportation Management Authority and the Our Palo Alto program, and  providing an additional loan to the Airport Fund.  The remaining BSR balance of $33.4 million is  within reserve guidelines at 19.5 percent.  Both Moody’s and Standard and Poor’s (S&P) awarded  their highest credit rating of Triple A to the City’s general obligation debt.  This rating has been  awarded to only a few cities in California.      SIGNIFICANT EVENTS AND ACCOMPLISHMENTS    The City of Palo Alto is a community dedicated to meeting the social, cultural, recreational,  educational, commercial and retail needs of its citizens and businesses.  As such, open space,  education, recreational facilities, cultural events and safe streets and neighborhoods are important  aspects of the community, and the City has been recognized for its accomplishments with a variety of  awards and recognitions over the past year:     Named as #5 on the Top 100 Best Places to Live and #8 on the Top 10 Best Cities for Kids by  Livability.com, a website that ranks quality of life amenities of America’s small and mid‐sized  cities;   Awarded the Beacon Award for efforts and leadership in addressing climate change and  achieving greenhouse gas reductions and energy savings;  Introduction   ……….………………………………………………………………… City of Palo Alto   v    Named as a 2014 Top Innovator by the Urban Libraries Council for the Library’s makeX: Teen  Mobile Makerspace, a teen‐designed “third space” for middle and high school aged teens;   Named as the 2014 Most Electric Vehicle Ready Community;   Awarded the 2014 Best Solar Collaboration Award for streamlining the solar approval  process;   Awarded the MetLife Foundation Community‐Police Partnership Award for crafting an  extraordinary partnership with Downtown Streets Team, Business and Professional  Association, Parking Committee and the Police Department to improve community safety;   Named as the #1 digital city in America in its population size for its adoption of innovative  technologies such as Open Data, PaloAlto311, Nextdoor and Police ride‐a‐longs via Twitter,  all of which advance and facilitate interaction between City staff, the community, businesses  and visitors; and   Awarded the 2013 Dr. Teng‐chung Wu Pollution Prevention Award to the City’s Regional  Water Quality Control Plant for being a leader in emerging pollutants research, education  and programming.    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 2014  CAFR will be submitted to the GFOA award program to be considered for this distinguished financial  reporting award.   Acknowledgments:  This CAFR reflects the hard work, talent and commitment of the staff members  of the Administrative Services Department.  This document could not have been accomplished  without their efforts and each contributor deserves sincere appreciation.  Management wishes to  acknowledge the support of Laura Kuryk, Accounting Manager, and the 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, 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 and Finance Committee for their  dedication to directing the financial affairs of the City in a responsible, professional and progressive  manner.   Respectfully submitted,  LALO PEREZ, JAMES KEENE,  Chief Financial Officer                                                                                     City Manager     Introduction  ……….………………………………………………………………… vi    City of Palo Alto  City of Palo Alto City Officials ………………………….…………                                                                                Finance Committee  Marc Berman, Chair  Patrick Burt  Karen Holman  Liz Kniss Policy and Services Committee    Gail A. Price, Chair  Larry Klein  Gregory Scharff  Greg Schmid  Council‐Appointed Officers    City Manager  James Keene    City Attorney  Molly Stump    City Clerk  Donna Grider    City Auditor  Harriet Richardson  City Council    Nancy Shepherd, Mayor  Liz Kniss, Vice‐Mayor  Marc Berman  Patrick Burt  Karen Holman  Larry Klein  Gail A. Price  Gregory Scharff  Greg Schmid    Introduction   ……….………………………………………………………………… City of Palo Alto   vii   Assistant City Manager   (2) Vacant  City Attorney  Molly Stump  City Manager James Keene  City Auditor Harriet Richardson  City Clerk Donna Grider  City of Palo Alto Organization ……………………………………                                                                            Palo Alto Residents City Council Community Services  Greg Betts, Director  Administrative Services   Lalo Perez, Chief Financial Officer  Fire  Eric Nickel, Chief  People Strategy and Operations   Kathryn Shen, Director  Police  Dennis Burns, Chief Planning & Community Environment   Hillary Gitelman, Director  Utilities   Valerie Fong, Director  Public Works   Mike Sartor, Director  Library  Monique le Conge‐Ziesenhenne,  Director  Development Services   Peter Pirnejad, Director  Chief Communications Officer  Claudia Keith  Office of Emergency Services Kenneth Dueker, Director  Office of Sustainability  Gil Friend, Chief Sustainability Officer  Information Technology   Jonathan Reichental,   Chief Information Officer     Introduction  ……….………………………………………………………………… viii    City of Palo Alto  Administrative Services Organization …………………………  Administrative Division Treasury Division  Accounting Division Budget Division  Purchasing Division Real Estate Division  Mission Statement    To provide proactive administrative and technical support to  City departments and decision makers, and to safeguard and  facilitate the optimal use of City resources.  Administrative Services Department  Introduction   ……….………………………………………………………………… City of Palo Alto   ix   Government Finance Officers Association of   the United States and Canada – Award …...…  1 Independent Auditor’s Report Honorable Mayor and the Members of the City Council of City of Palo Alto, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2014, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Change in Accounting Principles As discussed in Note 1(m) to the basic financial statements, effective July 1, 2013, the City adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the GASB who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, statistical section and the schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. 3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 17, 2014 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Walnut Creek, California November 17, 2014 4 This page is left intentionally blank.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 5 Management’s Discussion and Analysis  Management’s Discussion and Analysis (MD&A) provides an overview of the City of Palo Alto’s financial  performance for the fiscal year ended June 30, 2014. To obtain a complete understanding of the City’s financial  condition, this document should be read in conjunction with the accompanying Transmittal Letter and Basic  Financial Statements.    Financial Highlights     The assets and deferred outflows of resources of the City of Palo Alto (City) exceeded its liabilities at  the close of Fiscal Year (FY) 2014 by $1,387.1 million.  Of this amount, $454.2 million represents  unrestricted net position, which may be used to meet the government’s ongoing obligations to  citizens and creditors.    At the close of FY 2014, the City’s governmental funds reported combined fund balances of $214.0  million, an increase of $3.1 million from prior year.  Approximately 17.1 percent of this amount, or  $36.7 million, is unassigned fund balance and available for spending at the government’s discretion.   At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned  and unassigned components of fund balance) for the General Fund was $42.1 million, or 27.5 percent  of total general fund expenditures, including transfers.   The City’s total outstanding long‐term debt decreased by $5.5 million during the current fiscal year  due primarily to scheduled debt retirement.   As of July 1, 2013, the City implemented GASB Statement No. 65, Items Previously Reported as Assets  and Liabilities. FY 2013 balances were restated to reflect the impact, as detailed in Note 1(m).    OVERVIEW OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR)  The CAFR is presented in six sections:     An introductory section that includes the Transmittal Letter and general information   Management’s Discussion and Analysis   The Basic Financial Statements that include the Government‐wide and Fund Financial  Statements, along with the Notes to these statements   Supplemental Information   Statistical Information    Single Audit  Basic Financial Statements  The Basic Financial Statements contain the Government‐wide Financial Statements, the Fund Financial  Statements and the Notes to these financial statements.  This report also includes supplementary information  intended to furnish additional detail to support the Basic Financial Statements.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 6 For certain entities and funds, the City acts solely as a depository agent. For example, the City has several  Assessment Districts for which it produces fiduciary statements detailing the cash balances and activities of  these districts. These entities are independent, and their balances are excluded from the City’s government‐ wide financial statements.   Government‐wide Financial Statements  The Government‐wide Financial Statements provide a longer‐term view of the City’s activities as a whole.   They include the Statement of Net Position and the Statement of Activities.      The Statement of Net Position includes the City’s capital assets and long‐term liabilities on a full accrual basis  of accounting similar to that used by private sector companies. Over time, increases or decreases in net  position may serve as a useful indicator of whether the financial position of the City is improving or  deteriorating.      The Statement of Activities provides information about the City’s revenues and expenses on a full accrual  basis, with an emphasis on measuring net revenues or expenses for each of the City’s programs. The  Statement of Activities explains in detail the change in net position for the year.  All changes in net position  are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of  related cash flows.      The amounts in the Statement of Net Position and the Statement of Activities are separated into  Governmental and Business‐type Activities in order to provide a summary of each type of activity.     Governmental Activities ‐ All of the City’s basic services are considered to be governmental activities. Included  in basic services are the City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative  Services, People Strategy and Operations, Public Works, Planning and Community Environment, Public Safety,  Community Services, and Library. These services are supported by general City revenues such as taxes, and by  specific program revenues such as fees and grants.     The City’s governmental activities also include the activities of the Palo Alto Public Improvement Corporation,  which is a separate legal entity financially accountable to the City.     Business‐type Activities ‐ All of the City’s enterprise activities are reported as business‐type activities,  including Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm  Drainage and Airport. Unlike governmental services, these services are intended to recover all or a significant  portion of their costs through user fees and charges, except for the Airport which is currently supported by a  long‐term advance from the General Fund, as discussed in Note 4.    The Government‐wide Financial Statements can be found on pages 29‐31 of this report.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 7 Fund Financial Statements  The Fund Financial Statements provide detailed information about each of the City’s most significant funds  called major funds. The concept of major funds and the determination of which are major funds, was  established by Governmental Accounting Standards Board (GASB) Statement No. 34 and replaced the concept  of combining like funds and presenting them in total. Therefore, each major fund is presented individually,  with all non‐major funds combined in a single column on each fund statement. Subordinate schedules display  these non‐major funds in more detail. Major funds present the major activities of the City for the year.  The  General Fund is always considered a major fund, but other funds may change from year to year as a result of  changes in the pattern of City activities.     The Fund Financial Statements display the City’s operations in more detail than the Government‐wide  Financial Statements. Their focus is primarily on the short‐term activities of the City’s General Fund and other  major funds such as Capital Projects, Water Services, Electric Services, Fiber Optics, Gas Services, Wastewater  Collection Services, Wastewater Treatment Services, Refuse Services, Storm Drainage Services and Airport.    Budget and actual financial comparison information is presented only for the General Fund.     Fund Financial Statements include Governmental, Enterprise, Internal Service and Agency Funds.    Governmental Funds  Governmental Fund Financial Statements are prepared on the modified accrual basis of accounting, which  means they measure only current financial resources and uses. Capital assets and other long‐lived assets,  along with long‐term liabilities, are presented only in the Government‐wide Financial Statements. In FY 2014,  the City had two major governmental funds, the General Fund and the Capital Projects Fund.  Data from the  other governmental funds are combined into a single aggregated presentation.  Individual fund data for each  of these non‐major governmental funds is provided in the Supplemental section of this report.     Because the focus of governmental funds is narrower than that of the Government‐wide Financial Statements,  it is useful to compare the information presented for governmental funds with similar information presented  for governmental activities in the Government‐wide Financial Statements.  By doing so, readers may better  understand the long‐term impact of the government’s near‐term financing decisions.  Both the Governmental  Fund Balance Sheet and the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund  Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental  activities.    The Governmental Fund Financial Statements can be found on pages 33‐37 of this report.    Proprietary Funds  Enterprise and Internal Service Fund Financial Statements are prepared on the full accrual basis of accounting,  similar to that used by private sector companies. These statements include all of their assets, deferred  outflows of resources and liabilities, both current and long‐term.     Since the City’s Internal Service Funds provide goods and services exclusively to the City’s governmental and  business‐type activities, their activities are only reported in total at the fund level.  Internal Service Funds,  such as Technology and General Benefits, cannot be considered major funds because their revenues are  derived from other City funds. Revenues between funds are eliminated in the Government‐wide Financial  Statements, and any related profits or losses in Internal Service Funds are returned to the activities in which  they were created, along with any residual net assets of the Internal Service Funds.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 8 The Proprietary Fund Financial Statements can be found on pages 38‐43 of this report.  Fiduciary Funds  The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Off‐Street  Parking Assessment District.  In this role, the City holds money collected from property owners and awaiting  transfer to the districts’ bond trustees. The City’s fiduciary activities are reported in the separate Statement  of Fiduciary Net Position and the supplemental Agency Funds Statement of Changes in Assets and Liabilities.  These activities are excluded from the City’s other financial statements because the City cannot utilize these  assets to finance its own operations.    The Fiduciary Fund Financial Statements can be found on page 44 of this report.  Notes to the Financial Statements  The Notes provide additional information that is necessary to acquire a full understanding of the data provided  in the Government‐wide and Fund Financial Statements.  The Notes to the financial statements can be found  on pages 47‐99 of this report.      Other Information  The combining statements referred to earlier in connection with non‐major Governmental Funds and Internal  Service Funds, are presented immediately following the Notes to the financial statements.  Combining  statements and individual fund statements and schedules can be found on pages 101‐124 of this report.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 9 Financial Analysis of Government‐wide Financial Statements  This section focuses on the City’s net position and changes in net position of its governmental and business‐ type activities for the fiscal year ending June 30, 2014.  As noted earlier, the City’s total assets exceed total  liabilities by $1,387.1 million at the end of the fiscal year, an improvement in net position of $52.8 million.   STATEMENT OF NET POSITION As of June 30, 2014 (in millions)  2014 2013 * 2014 2013 * 2014 2013 * Cash and investments 271.8$   261.9$   269.5$    266.0$    541.3$       527.9$       Other assets 55.8 58.4 34.3 42.3 90.1            100.7          Capital assets 452.6 428.9 545.5 522.2 998.1 951.1  Total Assets 780.2     749.2     849.3      830.5      1,629.5      1,579.7      Unamortized loss from refunding ‐             ‐            0.4          0.5          0.4              0.5              Total Deferred Outflows of Resources ‐             ‐            0.4          0.5          0.4              0.5              Long‐term debt 80.9 82.6 76.2 80.0 157.1 162.6 Other liabilities 56.9 52.1 28.8 31.2 85.7 83.3 Total Liabilities 137.8     134.7     105.0      111.2      242.8         245.9                   Net Position           Net investment in capital assets 386.7 378.1 473.8 446.1 860.5 824.2 Restricted 68.3 71.7 4.1 4.1 72.4 75.8 Unrestricted 187.4 164.7 266.8 269.6 454.2 434.3 Total Net Position 642.4$   614.5$   744.7$   719.8$   1,387.1$    1,334.3$    * FY 2013 balances have been restated for GASB Statement No. 65 implementation. Governmental Activities Business‐type Activities Government‐wide Totals The largest portion of the City’s net position (62.0 percent) is its investment in capital assets such as land,  buildings, infrastructure and vehicles, less any related outstanding debt that was used to acquire those assets.   The City uses these capital assets to provide a variety of services to its citizens.  Accordingly, these assets are  not available for future spending.  Although the City’s investment in capital assets is reported net of related  debt, it should be noted that the resources used to repay this debt must be provided from other sources, since  the capital assets themselves cannot be used to liquidate these liabilities.    The restricted portion of the City’s net position (5.2 percent) represents resources that are subject to external  restrictions on how they may be used.  The remaining balance of $454.2 million, representing 32.8 percent of  the City’s net position, is unrestricted and may be used to meet the government’s ongoing obligations to its  citizens and creditors.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 10 At the end of the current fiscal year, the City is able to report positive balances in all reported categories of  net position, both for the government as a whole, and for its separate governmental and business‐type  activities.  The same situation held true for the prior fiscal year.    Components of the $52.8 million increase in total net position are discussed in the following sections for  governmental activities and business‐type activities.  Governmental Activities – Net Position  The following analysis focuses on the net position and changes in net position of the City’s Governmental  Activities, presented in the Government‐wide Statement of Net Position and Statement of Activities.  GOVERNMENTAL ACTIVITIES Net Position at June 30 (in millions) Increase/  2014 2013 *(Decrease) Cash and investments 271.8$    261.9$    9.9$         Other assets 55.8 58.4 (2.6) Capital assets 452.6 428.9 23.7  Total Assets 780.2      749.2      31.0         Long‐term debt 80.9 82.6 (1.7) Other liabilities 56.9 52.1 4.8 Total Liabilities 137.8      134.7      3.1                  Net Position     Net investment in capital assets 386.7 378.1 8.6 Restricted 68.3 71.7 (3.4) Unrestricted 187.4 164.7 22.7 Total Net Position 642.4$   614.5$   27.9$       * FY 2013 balances have been restated for GASB Statement No. 65 implementation. The City’s Governmental Activities total net position increased $27.9 million to $642.4 million as of June 30,  2014. Changes in assets and liabilities were a result of the following:   Cash balance increased $9.9 million primarily due to collection of the $3.2 million Maybell loan and  an increase in accounts payable of $5.0 million for Library capital expenditures.   Other assets decreased $2.6 million primarily due to collection of the Maybell loan.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 11  Capital assets net of depreciation increased $23.7 million due to continued construction of the  Mitchell Park Library and Community Center ($4.2 million) and the Main Library ($11.7 million), and  net additions to the City’s network of roadways and sidewalks ($2.3 million).   Investment in capital assets increased $8.6 million to $386.7 million.  Restricted net position  decreased $3.4 million to $68.3 million. Unrestricted net position increased $22.7 million to $187.4  million.   Unrestricted net position represents current net assets available to finance subsequent year  operations and other expenditures approved by City Council.  Governmental Activities – Revenues  The table below shows that Governmental Activities revenues totaled $166.4 million in FY 2014, a decrease  of $3.9 million from prior year revenues of $170.3 million.   GOVERNMENTAL ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2014 2013 (Decrease) Program Revenues: Charges for services 54.0$      75.8$      (21.8)$      Operating grants and contributions 5.4 5.0 0.4 Capital grants and contributions 0.9 0.5 0.4 Total Program Revenues 60.3        81.3        (21.0)       General Revenues: Property tax 35.3 31.9 3.4 Sales tax 29.4 25.6 3.8 Utility user tax 11.0 10.9 0.1            Transient occupancy tax 12.3 10.8 1.5 Documentary transfer tax 7.8 6.8 1.0 Other tax 1.8 3.7 (1.9) Investment earnings 5.9 (1.2) 7.1 Rents and miscellaneous 2.6 0.5 2.1 Total General Revenues 106.1 89.0 17.1 Total Revenues 166.4$   170.3$   (3.9)$         Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 12 Total Program Revenues decreased $21.0 million from the prior year due to the following:   $8.6 million decrease in developer impact, housing in‐lieu, and transportation mitigation fees, all of  which vary depending on volume and magnitude of development projects.   $11.7 million decrease in receipts from a Development Agreement with Stanford Hospital Clinics,  Lucile Salter Packard Children’s Hospital at Stanford and the Board of Trustees of the Leland Stanford  Junior University (SUMC Parties).  This was a one‐time payment received from SUMC in the prior fiscal  year.    Program Revenues such as charges for services, operating grants and contributions, and capital grants and  contributions are generated from or restricted to each activity.    General Revenues increased $17.1 million, or 19.2 percent, from the prior year, $7.1 million of which was due  to an increase in fair value of the investment portfolio at June 30.  Further analysis of general revenues can  be found in the Financial Analysis of Governmental Funds section of the MD&A.  Governmental Activities – Revenues by Source  The chart below presents revenues by source for Governmental Activities. General Revenues are composed  of taxes and other revenues not specifically generated by, or restricted to, individual activities. All tax revenues  and investment earnings are included in General Revenues.  Program Revenues 36% Property Tax 21% Sales Tax 18% Utility User Tax 7% Transient Occupancy  Tax 7% Documentary Transfer Tax 5% Other 6% Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 13 Governmental Activities – Expenses  The table below presents a comparison of FY 2014 and FY 2013 expenses by function, and interest and other  expense.  Total Governmental Activities functional expense was $155.5 million in FY 2014, an increase of $15.8  million, or 11.3 percent.  Of this increase, $7.3 million was a result of General Fund expenditures and the  variance drivers are explained in more detail in the Fund Financial Statements section of the MD&A.  The  remaining $8.5 million variance is due primarily to fixed asset related activities such as depreciation and asset  retirements.   GOVERNMENTAL ACTIVITIES Expenses and Change in Net Position for the Year Ended June 30 (in millions) Increase/ Activities 2014 2013 *(Decrease) City Council 0.4$        0.1$        0.3$         City Manager 2.2 1.2 1.0 City Attorney 1.8 1.6 0.2 City Clerk 0.6 0.3 0.3 City Auditor 0.5 0.5 0.0 Administrative Services 11.3 7.6 3.7 People Strategy and Operations 1.3 1.4 (0.1) Public Works 24.6 20.8 3.8 Planning and Community Environment 14.9 13.6 1.3 Public Safety 62.9 59.5 3.4 Community Services 23.8 22.7 1.1 Library 7.8 7.3 0.5 Interest and Other Expense 3.4 3.1 0.3 Total Functional Expense 155.5 139.7 15.8 Increase in Net Position    before Transfers 10.8 30.7 (19.9) Transfers in 17.1 19.3 (2.2)     Change in Net Position 27.9 50.0 (22.1) Net Position, Beginning,614.5 565.1 49.4 Restatement due to GASB 65 ‐             (0.6)         0.6            Net Position, Ending 642.4$   614.5$   27.9$       * FY 2013 balances have been restated for GASB Statement No. 65 implementation.   Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 14 Governmental Activities – Functional Expenses  The functional expenses chart below includes only current year expenses. It does not include capital outlays,  as those are added to the City’s capital assets.  Functions which comprise 1 percent or less of total expenses  are combined into the All Other category in the chart below.  All Other includes City Council, City Manager,  City Attorney, City Clerk, City Auditor and People Strategy and Operations.      Administrative Services 7% Public Works 16% Interest and Other  Expense 2% Planning and Community  Environment 10% Public Safety 41% Community Services 16% Library 5% All Other 3% Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 15 Business‐type Activities – Net Position  The following analysis focuses on the net position and changes in net position of the City’s Business‐type  Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.  Increase/  2014 2013 *(Decrease) Cash and investments 269.5$    266.0$    3.5$         Other assets 34.3 42.3 (8.0) Capital assets 545.5 522.2 23.3  Total Assets 849.3      830.5      18.8         Unamortized loss from refunding 0.4           0.5           (0.1)          Total Deferred Outflows of Resources 0.4          0.5          (0.1)          Long‐term debt 76.2 80.0 (3.8) Other liabilities 28.8 31.2 (2.4) Total Liabilities 105.0      111.2      (6.2)                 Net Position     Net investment in capital assets 473.8 446.1 27.7 Restricted 4.1 4.1 0.0 Unrestricted 266.8 269.6 (2.8) Total Net Position 744.7$   719.8$   24.9$       * FY2013 balances have been restated for GASB Statement No. 65 implementation. BUSINESS‐TYPE ACTIVITIES Net Position at June 30 (in millions) The City’s Business‐type Activities total net position increased $24.9 million to $744.7 million as of  June 30, 2014.     Other assets decreased $8.0 million primarily as a result of lower accounts receivable balances of $5.7 million.   The lower accounts receivable balances are due primarily to:   $2.6 million in Electric Fund due to $0.9 million adjustment for a meter malfunction, with the  remainder due to a timing difference in billing of routes.   $2.1 million in Wastewater Treatment Fund due to the Regional Water Quality Control Plant (RWQCP)  discontinuing its practice of invoicing partners for encumbrances.  Capital assets increased $23.3 million to $545.5 million in FY 2014 as a result of Water, Electric and Gas  infrastructure improvements. Additions include $9.9 million of capital improvements in Water, $7.7 million of  capital improvements in Electric, and $5.7 million of capital improvements in Gas.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 16 Net investment in capital assets increased $27.7 million to $473.8 million.   Unrestricted net position of $266.8 million, a decrease of $2.8 million from the prior year, represents 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 (RSR) of $136.3 million,  the Electric special projects (Calaveras) reserve for stranded costs of $51.8 million, and the emergency plant  replacement reserve of $7.0 million.  Business‐type Activities – Revenues  The table below presents the revenues for each of the City’s Business‐type Activities or Enterprise Funds. The  City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse,  Storm Drainage and Airport Funds, which are major funds and are presented in the Basic Financial Statements.    BUSINESS‐TYPE ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2014 2013 (Decrease) Program Revenues: Charges for services 273.0$    272.8$    0.2$         Operating grants and contributions 0.5           0.6           (0.1) Capital grants and contributions 2.0 2.2 (0.2) Total Program Revenues 275.5      275.6      (0.1)          General Revenues: Investment earnings (loss)6.4 (2.8) 9.2 Total General Revenues 6.4 (2.8) 9.2 Total Revenues 281.9$   272.8$   9.1$         Business‐type Activities revenues totaled $281.9 million, an increase of $9.1 million from the prior year.   Program revenues were flat year over year.  Investment earnings increased $9.2 million from the prior year  due to an increase in fair value of the investment portfolio at June 30.          Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 17 Business‐type Activities – Expenses  The table below presents a comparison of the FY 2014 and FY 2013 expenses for the City’s Business‐type  Activities. Encumbrances and reappropriations are not included.  BUSINESS‐TYPE ACTIVITIES Expenses and Change in Net Position for the Year Ended June 30 (in millions) Increase/ Business‐type Activities 2014 2013 *(Decrease) Water 31.6$      30.7$      0.9$         Electric 113.0 106.5 6.5 Fiber Optics 1.7 1.4 0.3 Gas 26.9 26.8 0.1 Wastewater Collection 13.2 14.3 (1.1) Wastewater Treatment 21.0 20.6 0.4 Refuse 28.4 28.6 (0.2) Storm Drainage 3.6 3.7 (0.1) Airport 0.5 0.2 0.3 Total Functional Expense 239.9 232.8 7.1 Increase in Net Position    before Transfers 42.0 40.0 2.0 Transfers out (17.1) (19.2) 2.1     Change in Net Position 24.9 20.8 4.1 Net Position, Beginning 719.8 699.8 20.0 Restatement due to GASB 65 ‐             (0.8)         0.8 Net Position, Ending 744.7$   719.8$   24.9$       * FY 2013 balances have been restated for GASB Statement No. 65 implementation. Business‐type Activities expenses increased $7.1 million for a total of $239.9 million. Year over year expenses  were significantly affected by the following events:   Electric Fund expenses increased $6.5 million primarily due to increased energy purchase costs.   Wastewater Collection expenses decreased $1.1 million due to the RWQCP discontinuing its practice  of invoicing partners for encumbrances.   Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 18 FUND FINANCIAL STATEMENTS   Financial Analysis of Governmental Funds  As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance‐related  legal requirements.    Governmental Funds  The focus of the City’s Governmental Funds is to provide information on near‐term inflows, outflows, and  balances of spendable resources.  Such information is useful in assessing the City’s financing requirements.  In  particular, the unassigned fund balance may serve as a useful measure of a government’s net resources  available for discretionary use as it represents the portion of fund balance not yet limited to use for a particular  purpose by either an external party, the City itself, or an entity that has been delegated authority by the City  Council to assign resources for use.    As of June 30, 2014, the City’s Governmental Funds reported combined fund balances of $214.0 million, an  increase of $3.1 million from the prior year.  Approximately 17.1 percent, or $36.7 million, constitutes  unassigned fund balance, which is available for spending at the government’s discretion.  The remainder of  the fund balance is either non‐spendable, restricted, committed, or assigned to indicate that it is: 1) not in  spendable form ($21.1 million); 2) restricted for particular purposes ($68.5 million); 3) committed for  particular purposes ($27.1 million); or 4) assigned for particular purposes ($60.6 million).    Governmental Fund revenues decreased $6.1 million, or 3.6 percent, from prior year to $164.7 million.   Revenues in the General Fund increased $9.1 million and Capital Projects Fund revenue increased $1.4 million.   Other Governmental Funds revenue decreased by $16.5 million primarily due to $11.7 million less in receipts  from SUMC Parties Development Agreement, and a decrease in developer impact and other fees.    Governmental Fund expenditures were $179.1 million, an increase of $18.9 million from the prior year.  General Fund expenditures increased $7.3 million, Capital Projects Fund expenditures increased by $7.0  million, and Non‐major Fund expenditures increased by $4.6 million.  Details of significant changes are  discussed in the following sections.  General Fund   Balance Sheet  The General Fund is the primary operating fund of the City.  At the end of the current fiscal year, fund balance  of the General Fund was $48.3 million, compared to $42.1 million in the prior year.  The fund balance has  been classified as $6.2 million non‐spendable, $5.4 million assigned, and $36.7 million unassigned.  Of the  unassigned amount, $35.1 million is designated by the Council for budget stabilization.  $1.7 million will be  used to fund one‐time expenses in the FY 2015 Operating Budget.  The remaining balance of $33.4 million  represents 19.5 percent of FY 2015 expenditures and operating transfers which is within the reserve guidelines  set by City Council.  Excess funds totaling $4.0 million were transferred to the Infrastructure Reserve in the  Capital Projects Fund, as allowed by the General Fund Reserve Policy.            Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 19 Statement of Revenues, Expenditures and Changes in Fund Balance    Revenues  The City’s General Fund revenues totaled $141.7 million in FY 2014. This represents an increase of $9.1 million,  or 6.9 percent, compared to the prior year.  The year over year change in significant revenue sources is noted  in the following table.        GENERAL FUND Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2014 2013 (Decrease) Property tax 30.6$      28.7$      1.9$          Sales tax 29.4 25.6 3.8 Utility user tax 11.0 10.9 0.1 Transient occupancy tax 12.2 10.8 1.4 Documentary transfer tax 7.8 6.8 1.0 Charges for services 24.0 26.7 (2.7) Permits and licenses 7.0 7.6 (0.6) Rental income 14.2 12.9 1.3 All other 5.5 2.6 2.9 Total Revenues 141.7$    132.6$    9.1$              Property tax revenue increased by $1.9 million, or 6.6 percent, over FY 2013 for a total of $30.6 million.  The  City’s property assessment roll growth of 6.5 percent was supplemented by better than expected receipts  from secured property taxes.    Sales tax revenue increased by $3.8 million, or 14.8 percent, over FY 2013 levels for a total of $29.4 million.   The increase was driven by strong retail activity in auto, electronic equipment, apparel store, restaurant, and  service station sales.     Transient occupancy tax continued to increase, and ended the year $1.4 million, or 13.0 percent, higher than  prior year due to strong business activity and increasing occupancy and room rates.    Documentary transfer tax increased $1.0 million to $7.8 million primarily due to a small number of high dollar  commercial property transactions.      Charges for services totaled $24.0 million in FY 2014, a decrease of $2.7 million from the prior year.  The  decrease was primarily due to reduced golf course revenues of $0.8 million resulting from the course  reconfiguration project, reduced other fees of $0.6 million due to a one‐time adjustment to deposit accounts  in the prior year, and reduced net cable franchise fees of $0.7 million due to prior year under accrual of  expense.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 20 Rental income increased from prior year by $1.3 million due to increased revenue from Enterprise and Internal  Service Funds for renting space at City facilities.    All other revenue increased from prior year by $2.9 million to $5.5 million.  The increase is due to an increase  in fair value of the investment portfolio at June 30.    Expenditures  General Fund expenditures totaled $134.5 million for FY 2014 compared to $127.2 in the prior year.  This  amount excludes encumbrances and reappropriations.  The year over year change for major functions is noted  in the following table:      GENERAL FUND Expenditures for the Year Ended June 30 (in millions) Increase/ Expenditures by Function 2014 2013 (Decrease) Administrative Services 3.0$        3.1$        (0.1)$        Public Works 11.5 11.5 ‐              Planning and Community Environment 13.2 11.8 1.4 Public Safety 61.7 59.5 2.2 Community Services 22.5 21.5 1.0 Library 7.3 6.9 0.4 Non‐Departmental 8.0 7.4 0.6 All other 7.3 5.5 1.8 Total Expenditures 134.5$   127.2$   7.3$             The increase from prior year of $7.3 million, or 5.7 percent, is comprised mainly of the following items:   Police salary expenditure has increased $0.7 million primarily due to fewer vacancies in the current  year.   Police disability expenditure has increased $0.6 million due to several significant long‐term cases.   Fire overtime expense has increased $0.7 million due to coverage for vacancies and long‐term injuries,  and support for succession planning and career development.   All other category has increased $1.8 million due to reduced cost plan revenue from other funds, and  increased Library expenditures for books of $0.4 million.   Planning and Community Environment expenditures have increased as a result of contract services  that were necessary due to increased development activity and the complexity of development  projects.    Transfers out for FY 2014 were $18.8 million compared to $25.1 million in the prior year.  Of the $6.3 million  decrease, $4.9 million was a decrease in the amount of year‐end surplus funds transferred from the General  Fund to the Infrastructure Reserve in the Capital Projects Fund.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 21 General Fund – Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual    Original budget compared to final budget  Revenues were originally budgeted at $143.0 million and were revised upward by $11.7 million.  Of this  increase, $5.6 million was to adjust for encumbrances.  Revenue categories that were adjusted are shown in  the table below.    GENERAL FUND Budgeted Revenues for the Year Ended June 30 (in millions) Original Final Increase/ Budgeted Revenues Budget Budget (Decrease) Sales tax 23.8$         27.3$      3.5$         Transient occupancy tax 11.5 12.3 0.8 Documentary transfer tax 5.7 7.4 1.7 Charges for services 24.3  22.7 (1.6) Rental income 12.9 14.0 1.1 All other 54.3 54.9 0.6 132.5 138.6 6.1 Charges to other funds 10.5 10.5 ‐              Prior year encumbrances and appropriations 5.6 5.6 Total Budgeted Revenues 143.0$      154.7$   11.7$           Adjustments to the original budget were based on the following:   Sales tax was increased by $3.5 million primarily due to unexpected receipts from a single vendor in  the first two quarters of the year.   Transient occupancy tax was increased by $0.8 million due to higher occupancy rates, increased  average daily room rates, and increased business and visitor activity.   Documentary transfer tax was increased by $1.7 million based on increased real estate transactions  and higher transaction values.   Charges for services revenue was decreased by $1.6 million primarily due to reduced Stanford Fire  Services revenue of $0.8 million, reduced Development Services revenue of $0.4 million to provide  for unearned revenue at June 30, and reduced Golf Course revenue of $0.2 million due to the course  reconfiguration project.   Rental income was increased by $1.1 million due to additional rent from various Enterprise and  Internal Service Funds for space used at City facilities.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 22 Actual revenues of $141.4 million were $2.8 million higher than final budgeted revenues of $138.6 million due  primarily to sales tax revenue which was $2.1 million higher due to stronger than anticipated retail sales.    Expenditures were originally budgeted at $145.6 million and were revised upward by $8.0 million for a final  budgeted amount of $153.6 million, as shown in the table below.  GENERAL FUND Budgeted Expenditures for the Year Ended June 30 (in millions) Original Final Increase/ Actuals, plus Budgeted Expenditures Budget Budget (Decrease) Encumbrances City Attorney 2.5$           3.1$         0.6$         3.1$                     City Manager 2.5             3.1           0.6           3.1                       Community Services 22.7           23.9         1.2           23.4                     Public Safety 61.0           63.6         2.6           63.4                     Planning and Community Enviornment 13.6           15.1         1.5           14.6                     Public Works 13.8           14.4         0.6           14.1                     All other 29.5           30.4         0.9           30.1                     Total Budgeted Expenditures 145.6$      153.6$    8.0$         151.8                  Less: Charges to Other Funds (10.9)                   Less: Encumbrances (6.4) Net General Fund Expenditures 134.5$                    Adjustments of $8.0 million to the original budget were primarily due to the following:   $5.6 million for carry‐forward of encumbrances from prior year.   $0.5 million adjustment for Measure D Ballot Measure in November 2014.   $0.2 million for Community Services park maintenance.      The final budgeted expenditure amount of $153.6 million compares to the actual expenditures plus  encumbrances of $151.8 million, a difference of $1.8 million.  The lower than budgeted expenditures were  primarily due to non‐salary budget savings across General Fund departments.    Transfers out were originally budgeted at $14.1 million, with the final budget number at $19.1 million, an  increase of $5.0 million.  The increase was due to an additional $4.0 million transfer to the Infrastructure  Reserve and $1.0 million transfer of collected Technology Enhancement Fees to the Information Technology  Fund.  The actual transfers out for the year were $18.8 million, a difference of $0.3 million from final budget.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 23 Capital Projects Fund  Capital Projects Fund expenditures and other uses were $37.4 million in FY 2014, an increase of $6.8 million  from the prior year driven by construction and renovation of Mitchell Park Library and Community Center and  Main Library. 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.  Financial Analysis of Enterprise Funds   At June 30, 2014, the City’s Enterprise Funds reported total net position of $742.4 million, an increase of $24.4  million or 3.4 percent over the prior year. The increase was primarily from the Water, Fiber Optics, Gas and  Wastewater Collection Funds for $11.0 million, $3.1 million, $3.3 million and $3.5 million, respectively.   Further analysis is noted in the following section.  Unrestricted net position for the Enterprise Funds totaled  $264.4 million, a 1.1 percent decrease from FY 2013.    Following is a table which compares the year over year change in net position for each of the Enterprise Funds:    ENTERPRISE FUNDS Change in Net Position for the Year Ended June 30 (in millions) Increase/ Fund Name 2014 2013 (Decrease) Water 11.0$         6.8$         4.2$          Electric 1.7 1.9 (0.2) Fiber Optics 3.1 2.8 0.3 Gas 3.3  1.3 2.0 Wastewater Collection 3.5 2.5 1.0 Wastewater Treatment (1.9) 0.8 (2.7) Refuse 2.2 2.3 (0.1) Storm Drainage 2.7 2.3 0.4 Airport (0.5) (0.2) (0.3) Total Change in Net Position 25.1$         20.5$      4.6$            The most significant factors in the year over year change in net position for Enterprise Funds are as follows:   Water change in net position for the year was $11.0 million, an increase of $4.2 million from the prior  year.  The increase is primarily due to a $2.5 million increase in operating revenues resulting from a 7  percent rate increase effective July 2013 and a $1.2 million increase in investment earnings.  The  ending RSR balance is $20.1 million, an increase of $2.9 million from prior year.   Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 24  Gas ended the year with change in net position of $3.3 million, compared to $1.3 million in the prior  year, an increase of $2.0 million.  The increase is due to a $0.8 million decrease in operating expenses  for the cross‐bore project and increased investment earnings of $1.1 million.  The ending RSR balance  is $16.0 million, an increase of $4.7 million from prior year.    Wastewater Collection ended the year with change in net position of $3.5 million compared to $2.5  million in the prior year.  The increased change in net position is primarily due to decreased operating  costs resulting from the RWQCP discontinuing its practice of invoicing partners for encumbrances.   The ending RSR balance is $7.3 million, an increase of $3.2 million from prior year.     Wastewater Treatment ended the year with a change in net position of negative $1.9 million,  compared to $0.8 million change in net position in FY 2013.  The decrease of $2.7 million is due to the  RWQCP discontinuing its practice of invoicing partners for encumbrances.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 25 CAPITAL ASSETS  GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.   Infrastructure includes roads, bridges, signals and similar assets used by the entire population.  The table  below shows capital assets and the amount of accumulated depreciation for these assets for Governmental  and Business‐type Activities.  Further detail can be found in Note 6 to the financial statements.    Increase/  2014 2013 (Decrease) Governmental Activities Capital Assets Land and improvements 79.0$      79.0$      ‐$            Street trees 15.2 15.4 (0.2) Construction in progress 89.9 69.2 20.7 Buildings and improvements 134.6 133.7 0.9 Intangible assets 3.8 3.8           ‐ Equipment 11.9 10.9 1.0 Roadway network 291.3 282.3 9.0 Recreation and open space network 27.6 24.9 2.7 Less accumulated depreciation (215.1) (203.8) (11.3) Internal Service Fund Assets   Construction in progress 3.1 1.4 1.7 Equipment 51.1 50.9 0.2 Less accumulated depreciation (39.8) (38.8) (1.0) Total Governmental Activities 452.6$    428.9$    23.7$       Business‐type Activities Land 5.0$         5.0$         ‐$            Construction in progress 122.2 118.2 4.0 Buildings and improvements 34.1 33.3 0.8 Transmission, distribution and treatment systems 675.8 642.1 33.7 Less accumulated depreciation (291.6) (276.4) (15.2) Total Business‐type Activities 545.5$    522.2$    23.3$       CAPITAL ASSETS AT JUNE 30 (in millions) Governmental Activities’ capital assets net of depreciation increased by $23.7 million from the prior year.  The  increase was primarily due to construction of Mitchell Park Library and Community Center, improvements to  the Main Library such as upgrades of structural, electrical and mechanical systems, and street and sidewalk  improvements throughout the City.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 26 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 funding mechanisms.  The Commission issued  a report in December 2011 in which they identified “keep up” needs and capital expenditure “new and  replacement” needs.  Subsequently, a Council Infrastructure Committee was formed, and they proposed a  five year spending plan of $126.0 million for infrastructure projects.  In June 2014 City Council approved the  Committee’s project list and their funding plan which consists of projected increases in transient occupancy  tax revenues from opening of new hotels, a two percent increase in the tax, and other sources such as the  SUMC Development Agreement and the Infrastructure Reserve portion of the Capital Projects Fund.  The City  is funding “keep up” costs from the General Fund at the rate of $2.2 million per year and, as a result of sound  fiscal management and reserve policies, General Fund surpluses totaling $20.5 million over the past three  years were transferred to the Infrastructure Reserve.    Major Governmental Activities’ capital projects that are currently in progress, and the remaining capital  commitment of each, are as follows:   Mitchell Park Library and Community Center ‐ $5.6 million   Main Library ‐ $6.8 million   California Avenue Transit Hub Corridor ‐ $0.8 million  Business‐type Activities’ capital assets net of depreciation increased by $23.3 million over FY 2013.  The  increase is due to Water, Electric and Gas infrastructure improvements.    Major Business‐type Activities’ capital projects that are currently in progress, and the remaining capital  commitment of each, are as follows:   Seismic water system upgrade for Water Fund ‐ $2.4 million   Gas main replacement project for Gas Fund ‐ $6.3 million   Plant equipment replacement for Wastewater Treatment Fund ‐ $3.5 million   Wastewater Collection Fund rehabilitation/augmentation project ‐ $1.1 million    The City depreciates its capital assets over their estimated useful lives, as required by GASB 34.  The purpose  of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable  portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable  lives are in Note 6.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 27 DEBT ADMINISTRATION  Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements.  At June 30, 2014, the  City’s debt was comprised of the following:  LONG‐TERM DEBT AT JUNE 30 (in millions) Increase/  2014 2013 (Decrease) Governmental Activities General Long‐Term Obligations Certificates of Participation  2002B Downtown Parking Improvements 1.5$         1.6$         (0.1)$        General Obligation Bonds      2010 52.5 53.5 (1.0) 2013A 20.7 20.7 0.0 2011 Lease Purchase Agreement 2.0 2.4 (0.4)  Add: unamortized premium 4.2 4.4 (0.2) Total Governmental 80.9$      82.6$      (1.7)$        Business‐type Activities Enterprise Long‐Term Obligations Utility Revenue Bonds       1995 Series A3.3$         3.8$         (0.5)  1999 Refunding 11.0 11.6 (0.6) 2009 Series A31.6         32.5         (0.9) 2011 Refunding 14.3         15.2         (0.9) Add: unamortized premium 0.9           1.0           (0.1) Energy Tax Credit Bonds 2007 Series A0.8           0.9           (0.1) Less: unamortized discount (0.1) (0.1)‐              State Water Resources Loan 2007 6.8           7.2           (0.4) 2009 7.6           7.9           (0.3) Total Business‐type 76.2$      80.0$      (3.8)$        Long‐term debt decreased $5.5 million, $5.1 million of which was due to debt retirements in accordance with  repayment schedules.  The remaining $0.4 million was due to reclassification of unamortized loss on refunding  of debt to deferred outflow of resources.    As noted in the Statistical Section of the CAFR, the combined direct debt ratio to assessed valuation for the  General Fund is 0.32 percent compared to the allowable legal debt margin of 15 percent.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 28 SPECIAL ASSESSMENT DISTRICT DEBT  Special assessment districts throughout different parts of the City have also issued debt to finance  infrastructure and facilities construction exclusively in their districts. As of June 30, 2014, the City had no  special assessment district debt with City commitment outstanding.    ECONOMIC OUTLOOK  The economy of the City is discussed in the accompanying Transmittal Letter.  CONTACTING THE CITY’S FINANCIAL MANAGEMENT  The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the  City’s finances. Questions about this report should be directed to the Administrative Services Department, at  250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by email at:  adminsvcs@cityofpaloalto.org.  This report and other financial reports can be viewed on the City of Palo Alto  website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative Services,  and select Financial Reporting. Within Financial Reporting, there are links to reports by title and reporting  date.   CITY OF PALO ALTO Statement of Net Position June 30, 2014 (Amounts in thousands) Governmental Business‐Type  Activities Activities Total ASSETS: Cash and investments available for operations (Note 3)252,280$          259,286$           511,566$           Receivables, net: Accounts and intergovernmental 9,985                26,640               36,625               Interest receivable 1,355                1,352                 2,707                 Notes and loans receivable (Note 5)18,520              ‐                     18,520               Internal balances (Note 4)(1,429)              1,429                 ‐                     Net OPEB asset (Note 12)22,610              ‐                     22,610               Due from other government agencies ‐                    4,500                 4,500                 Inventory of materials and supplies, prepaids and deposits 4,741                488                    5,229                 Restricted cash and investments with fiscal agents (Note 3)19,606              4,166                 23,772               Restricted cash for post‐closure landfill (Note 3)‐                    5,907                 5,907                 Capital assets (Note 6): Nondepreciable 190,691           127,152            317,843            Depreciable, net of accumulated depreciation 261,912           418,343            680,255            Total assets 780,271           849,263            1,629,534         DEFERRED OUTFLOWS OF RESOURCES: Unamortized loss from refunding ‐                    412                    412                    LIABILITIES: Accounts payable and accruals 14,456              15,540               29,996               Accrued salaries and benefits 3,154                1,465                 4,619                 Unearned revenue 2,384                352                    2,736                 Accrued compensated absences (Note 1): Due in one year 3,912                ‐                     3,912                 Due in more than one year 6,286                ‐                     6,286                 Claims payable (Note 14): Due in one year 5,665                ‐                     5,665                 Due in more than one year 21,088              ‐                     21,088               Accrued landfill closure liability and post‐closure care (Note 9): Due in more than one year ‐                    11,363               11,363               Long‐term debt (Note 7): Due in one year 2,106                3,909                 6,015                 Due in more than one year 78,807              72,291               151,098            Total liabilities 137,858           104,920            242,778            NET POSITION (Note 10): Net Investment in capital assets 386,696           473,795            860,491            Restricted for: Special revenue programs 59,946              ‐                     59,946               Debt service 6,940                4,166                 11,106               Nonexpendable ‐ Eyerly Family 1,445                ‐                     1,445                 Total restricted net position 68,331              4,166                 72,497               Unrestricted 187,386           266,794            454,180            Total net position $           642,413 $           744,755 $       1,387,168  See accompanying notes to the basic financial statements. 29 30  This page is left intentionally blank.    CITY OF PALO ALTO Statement of Activities For the Year Ended June 30, 2014 (Amounts in thousands) Net (Expense) Revenue and Program Revenues Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Business‐Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental Activities: City Council 387$                   ‐$                   ‐$                   ‐$                   (387)$                  ‐$                   (387)$            City Manager 2,180                  ‐                     ‐                    ‐                    (2,180)                ‐                     (2,180)         City Attorney 1,797                  ‐                     ‐                    ‐                    (1,797)                ‐                     (1,797)         City Clerk 641                     ‐                     ‐                    ‐                    (641)                   ‐                     (641)             City Auditor 489                     ‐                     ‐                    ‐                    (489)                   ‐                     (489)             Administrative Services 11,388                4,055                 ‐                    917                   (6,416)                ‐                     (6,416)         People Strategy and Operations 1,346                  ‐                     ‐                    ‐                    (1,346)                ‐                     (1,346)         Public Works 24,577                1,093                 3,628                ‐                    (19,856)              ‐                     (19,856)       Planning and Community Environment 14,926                12,896               1,289                ‐                    (741)                   ‐                     (741)             Public Safety 62,883                14,902               366                   ‐                    (47,615)              ‐                     (47,615)       Community Services 23,822                20,882               ‐                    ‐                    (2,940)                ‐                     (2,940)         Library 7,758                  166                    77                     ‐                    (7,515)                ‐                     (7,515)         Interest on long‐term debt 3,367                  ‐                     ‐                    ‐                    (3,367)                ‐                     (3,367)         Total Governmental Activities 155,561              53,994               5,360                917                   (95,290)               ‐                     (95,290)       Business‐Type Activities: Water 31,593                40,291               549                   995                   ‐                     10,242                10,242         Electric 113,004              121,916             ‐                    ‐                    ‐                     8,912                  8,912           Fiber Optics 1,661                  4,485                 ‐                    ‐                    ‐                     2,824                  2,824           Gas 26,869                35,737               ‐                    ‐                    ‐                     8,868                  8,868           Wastewater Collection 13,235                15,599               ‐                    1,010                ‐                     3,374                  3,374           Wastewater Treatment 21,018                18,460               ‐                    ‐                    ‐                     (2,558)                 (2,558)         Refuse 28,413                30,297               ‐                    ‐                    ‐                     1,884                  1,884           Storm Drainage 3,644                  6,183                 ‐                    ‐                    ‐                     2,539                  2,539           Airport 466                     ‐                     ‐                    ‐                    ‐                     (466)                   (466)             Total Business‐Type Activities 239,903              272,968             549                   2,005                 ‐                     35,619                35,619         Total 395,464$            326,962$           5,909$               2,922$               (95,290)              35,619                (59,671)       General Revenues: Taxes: Property tax 35,299               ‐                     35,299         Sales tax 29,424               ‐                     29,424         Utility user tax 11,008               ‐                     11,008         Transient occupancy tax 12,255               ‐                     12,255         Documentary transfer tax 7,811                 ‐                     7,811           Other taxes 1,849                 ‐                     1,849           Investment earnings 5,859                 6,379                  12,238         Miscellaneous 2,575                 ‐                     2,575           Transfers (Note 4)17,103               (17,103)               ‐               Total general revenues and transfers              123,183 (10,724)               112,459      Change in net position 27,893               24,895                52,788         Net position, beginning of year, as previously reported 615,574            720,583              1,336,157   Restatement (Note 1(m))(1,054)                (723)                   (1,777)         Net position, beginning of year, as restated 614,520            719,860              1,334,380   Net position, end of year 642,413$           744,755$            1,387,168$  See accompanying notes to the basic financial statements. 31 32  This page is left intentionally blank.    CITY OF PALO ALTO Governmental Funds Balance Sheet June 30, 2014 (Amounts in thousands) Capital Other Total General Projects Governmental Governmental Fund Fund Funds Funds ASSETS: Cash and investments available for operations (Note 3)42,013$          57,841$          77,434$           177,288$         Receivables, net: Accounts and intergovernmental 8,761              177                 412                  9,350                Interest receivable 642                 8                     341                  991                   Notes and loans receivable (Note 5)900                 ‐                  17,620            18,520             Prepaid items 352                 ‐                  ‐                   352                   Advance to other fund (Note 4)935                 ‐                  ‐                   935                   Inventory of materials and supplies 4,001               ‐                  ‐                   4,001                Restricted cash and investments with fiscal agents (Note 3)‐                  19,368           238                  19,606             Total assets 57,604$          77,394$          96,045$           231,043$         LIABILITIES AND FUND BALANCES: Liabilities: Accounts payable and accruals 4,094$            7,459$            122$                 11,675$           Accrued salaries and benefits 2,852              112                 17                    2,981                Unearned revenue 2,348              36                    ‐                   2,384                Total liabilities 9,294              7,607              139                  17,040             Fund balances (Note 10): Nonspendable: Notes and loans receivable 900                  ‐                  13,424            14,324             Prepaid items 352                 ‐                  ‐                   352                   Inventories 4,001              ‐                  ‐                   4,001                Advance to other fund 935                 ‐                  ‐                   935                   Eyerly family ‐                  ‐                  1,445               1,445                Restricted for:  Transportation mitigation ‐                  ‐                  10,616            10,616             Federal revenue ‐                  ‐                  4,457               4,457                Street improvement ‐                  ‐                  758                  758                   Local law enforcement ‐                  ‐                  113                  113                   Library bond project ‐                  15,006           ‐                   15,006             Public benefit ‐                  ‐                  30,578            30,578             Debt service ‐                  ‐                  6,940               6,940                Committed for: Developer impact fees ‐                  ‐                  11,085            11,085             Housing in‐lieu ‐                  ‐                  14,491            14,491             Special districts ‐                  ‐                  1,457               1,457                Downtown business ‐                  ‐                  112                  112                   Assigned for: Unrealized gains on investments 672                  ‐                  430                  1,102                Infrastructure ‐                  3,383               ‐                   3,383                Capital projects ‐                  51,398           ‐                   51,398             Other general government purposes 4,760               ‐                  ‐                   4,760                Unassigned for: Budget Stabilization 35,083           ‐                  ‐                   35,083             Reappropriations 1,607              ‐                  ‐                   1,607                Total fund balances 48,310           69,787           95,906            214,003           Total liabilities and fund balances 57,604$          77,394$          96,045$           231,043$         See accompanying notes to the basic financial statements. 33 CITY OF PALO ALTO Reconciliation of the Balance Sheet of Governmental Funds to  the Statement of Net Position ‐ Governmental Activities June 30, 2014 Total fund balances reported on the governmental funds balance sheet 214,003$       Amounts reported  for governmental activities in the statement of net position are different from those reported in the governmental funds balance sheet because of the following: Capital assets used in governmental activities are not current assets or financial  resources and therefore are not reported in the governmental funds (Note 6)452,603         Internal service funds are used by management to charge the costs of activities  such as insurance, equipment acquisition and maintenance, and certain  employee benefits to individual funds.  The assets and liabilities of the  internal service funds are therefore included in governmental activities in  the statement of net position (excludes capital assets reported above)58,134           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 (1,414)           Long‐term debt (Note 7)(80,913)          Net position of governmental activities 642,413$       (Amounts in thousands) See accompanying notes to the basic financial statements. 34 CITY OF PALO ALTO Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2014 (Amounts in thousands) Capital Other General Projects Governmental Fund Fund Funds Total REVENUES: Property tax 30,587$           ‐$                  4,712$             35,299$           Special assessments ‐                   ‐                   94                    94                    Sales tax 29,424            ‐                   ‐                   29,424            Utility user tax 11,008           ‐                   ‐                   11,008            Transient occupancy tax 12,255           ‐                   ‐                   12,255            Documentary transfer tax 7,811              ‐                   ‐                   7,811               Other taxes and fines 2,136              ‐                   2,095                4,231               Charges for services 23,962           ‐                   ‐                   23,962            From other agencies 768                 4,324              608                  5,700               Permits and licenses 6,950              ‐                   2,040                8,990               Investment earnings 1,327              1,059              1,839                4,225               Rental income 14,215           ‐                   5                       14,220            Other revenue 1,240              741                 5,490                7,471               Total revenues 141,683         6,124              16,883             164,690          EXPENDITURES: Current: City Council 382                 ‐                   ‐                   382                  City Manager 2,125              ‐                   ‐                   2,125               City Attorney 1,793              ‐                   ‐                   1,793               City Clerk 635                 ‐                   ‐                   635                  City Auditor 487                 ‐                   ‐                   487                  Administrative Services 3,033              ‐                   177                  3,210               People Strategy and Operations 1,329              ‐                   ‐                   1,329               Public Works 11,548           ‐                   891                  12,439            Planning and Community Environment 13,209           ‐                   1,552                14,761            Public Safety 61,742           ‐                   286                  62,028            Community Services 22,511           ‐                   133                  22,644            Library 7,340              ‐                   ‐                   7,340               Non‐Departmental 7,984              ‐                   151                  8,135               Capital outlay ‐                  37,035           ‐                   37,035            Debt service: Principal 374                 ‐                   1,150                1,524               Interest and fiscal charges 55                   82                    3,059                3,196               Total expenditures 134,547         37,117           7,399                179,063          EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 7,136              (30,993)          9,484                (14,373)           OTHER FINANCING SOURCES (USES): Transfers in (Note 4)17,912           23,086           685                  41,683            Transfers out (Note 4)(18,815)          (260)                (5,100)              (24,175)           Total other financing sources (uses)(903)                22,826           (4,415)              17,508            Change in fund balances 6,233              (8,167)            5,069                3,135               FUND BALANCES, BEGINNING OF YEAR 42,077           77,954           90,837             210,868          FUND BALANCES, END OF YEAR 48,310$          69,787$          95,906$           214,003$         See accompanying notes to the basic financial statements. 35 CITY OF PALO ALTO Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances  of Governmental Funds to the Statement of Activities ‐ Governmental Activities For the Year Ended June 30, 2014 Net change in fund balances ‐ total governmental funds 3,135$           Amounts reported for governmental activities in the statement of activities are different from those reported in the governmental funds because of the following: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of these assets are capitalized and allocated over their estimated useful lives and reported as depreciation expense.  Therefore, the activities associated with  capital assets are as follows: Capital outlay added back to fund balance for current year additions 37,589           Depreciation expense is deducted from fund balance (depreciation expense is net of  internal service fund depreciation of $2,544 (Note 6), which has already been allocated through the internal service fund activities below (11,229)         Disposal of capital assets (3,502)           Principal payments on long‐term liabilities are reported as expenditures in governmental funds when paid.  The governmental activities, however, report principal payments as  a reduction of long‐term debt on the statement of net position.  Interest accrued on  long‐term debt and amortization of bond issuance costs and premiums do not require  the use of current financial resources and therefore are not reported as expenditures  in governmental funds.  Therefore, the activities associated with long‐term debt are as follows: Principal paid during the year 1,524             Change in interest payable (329)               Amortization of bond premium 158                Internal service funds are used by management to charge the costs of activities, such  as insurance, equipment acquisition and maintenance, and employees benefits to  individual funds.  The portion of the net revenue of these internal service  funds arising out of their transactions with governmental funds is reported with  governmental activities.547                Change in net position of governmental activities 27,893$        (Amounts in thousands) See accompanying notes to the basic financial statements. 36 Variance with Budgeted Amounts Final Budget Actual, plus Positive Original Final Encumbrances (Negative) 23,846$       27,352$       29,424$        2,072$          29,613        30,251        30,587          336               11,545        12,318        12,255          (63)                Documentary transfer tax 5,699          7,395          7,811            416               11,013        11,386        11,008          (378)             2,107          2,107          2,136            29                 24,379        22,741        23,962          1,221           8,346          7,952          6,950            (1,002)          769              769              1,042            273               12,891        14,004        14,215          211               252              345              768                423               2,010          2,000          1,240            (760)             132,470      138,620      141,398        2,778           10,574        10,574        10,947          373               ‐               5,571          5,584            13                 143,044      154,765      157,929        3,164           2,453          3,137          3,111            26                 1,088          1,058          1,027            31                 1,258          1,282          1,122            160               497              709              580                129               2,499          3,092          3,078            14                 7,280          7,363          7,244            119               22,700        23,888        23,402          486               60,962        63,628        63,403          225               3,265          3,761          3,622            139               7,793          8,254          8,072            182               13,608        15,150        14,637          513               13,751        14,380        14,138          242               8,496          7,907          8,413            (506)             145,650      153,609      151,849        1,760           (2,606)         1,156          6,080            4,924           17,529        17,910        17,912          2                   (14,069)       (19,139)       (18,815)         324               3,460          (1,229)         (903)              326               854$            (73)$             5,177            5,250$          Unrealized gain/loss on investments 285                 Current year encumbrances/reappropriations 6,355             Prior year encumbrances/reappropriations (5,584)            6,233             42,077           48,310$         REVENUES: CITY OF PALO ALTO General Fund Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual For the Year Ended June 30, 2014 (Amounts in thousands) Charges to other funds Sales tax Property tax Transient occupancy tax Utility user tax Other taxes, fines and penalties Charges for services Permits and licenses Investment earnings Rental income From other agencies Other revenues Public Safety Prior year encumbrances and reappropriations Total revenues EXPENDITURES: Current: City Attorney City Auditor City Clerk City Council City Manager Administrative Services Community Services Total other financing sources (uses) People Strategy and Operations Library Planning and Community Environment Public Works Non‐Departmental Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES):  Transfers in Transfers out FUND BALANCE AT BEGINNING OF YEAR, GAAP BASIS FUND BALANCE AT END OF YEAR, GAAP BASIS EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES, BUDGETARY BASIS Adjustment to Budgetary Basis: CHANGE IN FUND BALANCE, GAAP BASIS See accompanying notes to the basic financial statements. 37 Fiber Water Electric Optics Gas ASSETS: Current assets: Cash and investments available for operations (Note 3)35,770$          133,501$        19,616$           28,113$           Accounts receivable, net 5,012              11,225            443                   2,386                Interest receivable 180                 677                 91                      158                   Due from other government agencies ‐                  ‐                  ‐                    ‐                    Inventory of materials and supplies ‐                  ‐                  ‐                    ‐                    Restricted cash and investments with fiscal agents (Note 3)3,331               ‐                  ‐                    835                   Restricted cash for landfill closure (Note 3)‐                  ‐                  ‐                    ‐                    Total current assets 44,293            145,403         20,150              31,492              Noncurrent assets: Due from other government agencies ‐                  ‐                  ‐                    ‐                    Deposit ‐                  113                 ‐                    ‐                    Prepaid expense 125                 ‐                  ‐                    ‐                    Capital assets (Note 6): Nondepreciable 51,100            18,562            1,256                13,523              Depreciable, net 61,826            158,603         6,259                83,902              Net OPEB asset (Note 12)‐                  ‐                  ‐                    ‐                    Total noncurrent assets 113,051         177,278         7,515                97,425              Total assets 157,344         322,681         27,665              128,917           DEFERRED OUTFLOWS OF RESOURCES: Unamortized loss from refunding 155                 ‐                  ‐                    202                   LIABILITIES: Current liabilities: Accounts payable and accruals 3,911              4,575              185                   2,349                Accrued salaries and benefits 204                 476                 32                      224                   Unearned revenue ‐                  ‐                  ‐                    ‐                    Accrued compensated absences (Note 1)‐                  ‐                  ‐                    ‐                    Current portion of revenue bonds (Note 7)1,404              100                 ‐                    536                   Accrued claims payable (Note 14)‐                  ‐                  ‐                    ‐                    Total current liabilities 5,519              5,151              217                   3,109                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)37,822            657                 ‐                    7,906                Total noncurrent liabilities 37,822            657                 ‐                    7,906                Total liabilities 43,341            5,808              217                   11,015              NET POSITION (Note 10): Net Investment in capital assets 73,700            176,408         7,515                88,983              Restricted for debt service 3,331               ‐                  ‐                    835                   Unrestricted (deficit)37,127            140,465         19,933              28,286              Total net position 114,158$        316,873$        27,448$           118,104$         Some amounts reported for Business‐type Activities in the statement of net position are different because certain Internal Service Fund net positions are included with Business‐type Activities Net position reported in Business‐type Activities Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Net Position June 30, 2014 (Amounts in thousands) See accompanying notes to the basic financial statements. 38 Governmental Activities ‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 15,465$           13,760$           5,148$             7,802$             111$                259,286$        74,992$            1,798                2,100                3,035               641                  ‐                  26,640            635                    74                      81                      53                     37                    1                      1,352              364                    ‐                    300                    ‐                   ‐                  ‐                  300                 ‐                     ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   388                    ‐                    ‐                    ‐                   ‐                  ‐                  4,166              ‐                     ‐                    ‐                    5,907               ‐                  ‐                  5,907              ‐                     17,337              16,241              14,143             8,480              112                 297,651         76,379               ‐                    4,200                ‐                   ‐                  ‐                  4,200              ‐                     ‐                    ‐                    ‐                   ‐                  ‐                  113                 ‐                     ‐                    250                   ‐                   ‐                  ‐                  375                 ‐                     20,563              7,925                5,875               8,348              ‐                  127,152         3,094                 54,278              31,449              244                  21,782            ‐                  418,343         11,259               ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   22,610               74,841              43,824              6,119               30,130            ‐                  550,183         36,963               92,178              60,065              20,262             38,610            112                 847,834         113,342            ‐                    ‐                    ‐                   55                    ‐                  412                 ‐                     605                   1,200                2,330               336                 49                    15,540            1,367                 135                   273                   76                     39                    6                      1,465              173                    ‐                    ‐                    ‐                   352                 ‐                  352                 ‐                     ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   3,912                 77                      1,252                ‐                   540                 ‐                  3,909              ‐                     ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   5,665                 817                   2,725                2,406               1,267              55                    21,266            11,117               ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   6,286                 ‐                    ‐                    ‐                   ‐                  ‐                  ‐                   21,088               ‐                    ‐                    ‐                   ‐                  935                 935                 ‐                     ‐                    ‐                    11,363             ‐                  ‐                  11,363            ‐                     901                   18,490              ‐                   6,515              ‐                  72,291            ‐                     901                   18,490              11,363             6,515              935                 84,589            27,374               1,718                21,215              13,769             7,782              990                 105,855         38,491               73,863              24,132              6,119               23,075            ‐                  473,795         14,353               ‐                    ‐                    ‐                   ‐                  ‐                  4,166              ‐                     16,597              14,718              374                  7,808              (878)                264,430         60,498               90,460$           38,850$           6,493$             30,883$          (878)$               742,391         74,851$            2,364               744,755$         Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 39 Fiber Water Electric Optics Gas OPERATING REVENUES: Sales of utilities: Customers 36,387$      106,056$    3,598$       33,990$       City departments 2,061         3,225          749             852             Surplus energy ‐             336             ‐              ‐              Service connection charges and miscellaneous 982            2,327          131             654             Charges for services ‐             ‐               ‐              ‐              Other 861            9,972          7                 241             Total operating revenues 40,291       121,916      4,485          35,737        OPERATING EXPENSES: Purchase of utilities: Retail 15,705       68,089        ‐              14,325        Surplus energy ‐             697             ‐              ‐              Administrative and general 4,044         6,172          399             4,041          Engineering (operating)381            1,280          ‐              352             Resource management and energy efficiency 570            6,726          ‐              1,012          Operations and maintenance 4,986         9,489          909             4,119          Rent 2,192         3,860          51               429             Depreciation and amortization 1,734         7,504          303             2,282          Claims payments and changes in estimated self‐insurance liability ‐             ‐               ‐              ‐              Refund of charges for services ‐              ‐               ‐              ‐              Compensated absences and other benefits ‐             ‐               ‐              ‐              Total operating expenses 29,612       103,817      1,662          26,560        Operating income (loss)10,679       18,099        2,823          9,177          NONOPERATING REVENUES (EXPENSES): Investment earnings 975            3,122          433             706             Interest expense (1,915)        (8,924)         ‐              (282)            Loss on disposal of capital assets (66)             (271)            ‐              (27)              Other nonoperating revenues 549            ‐               ‐              ‐              Total nonoperating revenues (expenses)(457)           (6,073)         433             397             Income (loss) before transfers and capital contributions 10,222       12,026        3,256          9,574          Capital contributions 995            ‐               ‐              ‐              Transfers in (Note 4)271            1,089          ‐              151             Transfers out (Note 4)(530)           (11,460)       (134)            (6,417)         Change in net position 10,958       1,655          3,122          3,308          NET POSITION (DEFICIT), BEGINNING OF YEAR, AS PREVIOUSLY REPORTED 103,595     315,262      24,326       114,901      RESTATEMENT (Note 1(m))(395)           (44)               ‐              (105)            NET POSITION (DEFICIT), BEGINNING OF YEAR, AS RESTATED 103,200     315,218      24,326       114,796      NET POSITION (DEFICIT), END OF YEAR 114,158$   316,873$    27,448$     118,104$    Some amounts reported for Business‐type Activities in the statement of activities are different because certain  Internal Service Fund activities are included with Business‐type Activities Change in net position reported in Business‐type Activities Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2014 (Amounts in thousands) See accompanying notes to the basic financial statements. 40 Governmental Activities‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 14,518$     11,292$       26,045$     5,717$       ‐$           237,603$     ‐$                 69               6,915           790            346            ‐            15,007        ‐                   ‐              ‐               ‐             ‐            ‐            336             ‐                   693             ‐               ‐             ‐            ‐            4,787          ‐                   ‐              ‐               ‐             ‐            ‐            ‐              77,167             319             253              3,462         120           ‐            15,235        472                  15,599       18,460         30,297       6,183        ‐            272,968      77,639             6,863          ‐               13,943       ‐            ‐            118,925      ‐                   ‐              ‐               ‐             ‐            ‐            697             ‐                   1,322          ‐               1,889         559           417           18,843        10,766             310             1,801           225            410           ‐            4,759          ‐                   ‐              ‐               ‐             305           ‐            8,613          ‐                   2,570          15,589         9,103         955           ‐            47,720        21,481             217             ‐               2,629         33             ‐            9,411          ‐                   1,907          2,858           13              897           ‐            17,498        2,544               ‐              ‐               ‐             ‐            ‐            ‐              3,232               ‐              ‐               ‐             ‐            ‐            ‐              71                     ‐              ‐               ‐             ‐            ‐            ‐              40,337             13,189       20,248         27,802       3,159        417           226,466      78,431             2,410          (1,788)          2,495         3,024        (417)          46,502        (792)                 339             364              257            178           5               6,379          1,634               (54)              (573)             (617)           (436)          (49)            (12,850)       ‐                   ‐              ‐               ‐             ‐            ‐            (364)            (155)                 ‐              ‐               ‐             ‐            ‐            549             42                     285             (209)             (360)           (258)          (44)            (6,286)         1,521               2,695          (1,997)          2,135         2,766        (461)          40,216        729                  1,010          ‐               ‐             ‐            ‐            2,005          ‐                   42               59                 124            14             ‐            1,750          1,413               (241)            ‐               (29)             (42)            ‐            (18,853)       (1,818)              3,506          (1,938)          2,230         2,738        (461)          25,118        324                  86,972       40,906         4,263         28,188     (417)          74,527                               (18)              (118)             ‐             (43)            ‐            ‐                                     86,954       40,788         4,263         28,145     (417)          74,527                               90,460$     38,850$       6,493$      30,883$    (878)$        74,851$           (223)             24,895$        Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 41 Fiber Water Electric Optics Gas Cash flows from operating activities: Cash received from customers 37,939$    111,361$  4,639$       34,689$     Cash refunds to customers ‐            ‐            ‐              ‐              Cash payments to suppliers for goods and services (25,910)    (87,661)    (1,015)        (21,911)      Cash payments to employees (4,011)      (6,097)      (398)           (4,018)        Internal activity‐ receipts (payment) from (to) other funds 2,061       3,225       749             852             Other receipts 861           9,972       7                 241             Net cash provided by (used in)  operating activities 10,940     30,800     3,982         9,853         Cash flows from noncapital financing activities: Receipt of loans from other funds ‐            ‐            ‐              ‐              Interest subsidy received from Build America Bond 549           ‐            ‐              ‐              Transfers in 271           1,089       ‐              151             Transfers out (530)         (11,460)    (134)           (6,417)        Cash flows provided by (used in) noncapital financing activities 290           (10,371)    (134)           (6,266)        Cash flows from capital and related financing activities: Acquisition and construction of capital assets (8,149)      (12,175)    (507)           (8,879)        Proceeds from sale of capital assets ‐            24             ‐              ‐              Capital grants and contributions 995           ‐            ‐              ‐              Principal paid on long‐term debt (1,360)      (100)         ‐              (520)           Interest paid on long‐term debt (1,905)      (8,923)      ‐              (282)           Cash flows used in capital and related financing activities (10,419)    (21,174)    (507)           (9,681)        Cash flows from investing activities: Interest received 982           3,228       428             758             Cash flows from investing activities 982           3,228       428             758             Net change in cash and cash equivalents 1,793       2,483       3,769         (5,336)        Cash and cash equivalents, beginning of year 37,308     131,018   15,847       34,284       Cash and cash equivalents, end of year $     39,101 $   133,501  $     19,616  $     28,948  Financial statement presentation: Cash and investments available for operations 35,770$    133,501$  19,616$     28,113$     Cash and investments with fiscal agent 3,331       ‐            ‐              835             Cash and cash equivalents, end of year 39,101$    133,501$  19,616$     28,948$     Reconciliation of operating income (loss) to  net cash provided by (used in) operating activities: Operating income (loss)10,679$    18,099$    2,823$       9,177$       Adjustments to reconcile operating income (loss) to  net cash provided by (used in) operating activities: Depreciation and amortization 1,734       7,504       303             2,282         Other ‐            ‐            ‐              ‐              Change in assets and liabilities: Accounts receivable 570           2,642       910             45               Inventory of materials and supplies ‐            ‐            ‐              ‐              Deposit ‐            (45)            ‐              ‐              Net OPEB asset ‐            ‐            ‐              ‐              Accounts payable and accruals (2,076)      2,525       (55)              (1,674)        Accrued salaries and benefits 33             75             1                 23               Accrued compensated absences ‐            ‐            ‐              ‐              Unearned revenue ‐            ‐            ‐              ‐              Landfill closure and post‐closure care ‐            ‐            ‐              ‐              Accrued claims payable ‐            ‐            ‐              ‐              Net cash provided by (used in)  operating activities $     10,940 $     30,800  $       3,982  $       9,853  Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Cash Flows For the Year Ended June 30, 2014 (Amounts in thousands) See accompanying notes to the basic financial statements. 42 Governmental Activities‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 15,434$     13,480$     26,423$    5,445$      ‐$          249,410$  77,945$               ‐              ‐              ‐            ‐            ‐            ‐            (71)                       (9,961)        (18,789)      (25,589)    (1,823)      ‐            (192,659)  (21,697)               (1,295)        ‐              (1,885)      (554)         (395)         (18,653)    (52,575)               69               6,915         790           346           ‐            15,007     (4,224)                  319             253             3,630       120           ‐            15,403     42                        4,566         1,859         3,369       3,534       (395)         68,508     (580)                     ‐              ‐              ‐            ‐            325           325           ‐                       ‐              ‐              ‐            ‐            ‐            549           ‐                       42               59               124           14             ‐            1,750       1,413                   (241)           ‐              (29)            (42)            ‐            (18,853)    (1,818)                  (199)           59               95             (28)            325           (16,229)    (405)                     (5,075)        (3,253)        (1,661)      (1,451)      ‐            (41,150)    (3,652)                  ‐              ‐              ‐            ‐            ‐            24             150                      1,010         300             ‐            ‐            ‐            2,305       ‐                       (74)              (1,216)        ‐            (510)         ‐            (3,780)      ‐                       (53)              (556)           (618)         (435)         (49)            (12,821)    ‐                       (4,192)        (4,725)        (2,279)      (2,396)      (49)            (55,422)    (3,502)                  354             381             256           180           5               6,572       1,657                   354             381             256           180           5               6,572       1,657                   529             (2,426)        1,441       1,290       (114)         3,429       (2,830)                              14,936       16,186       9,614       6,512       225           265,930   77,822                  $     15,465  $     13,760 $     11,055 $       7,802 $          111 $   269,359  $             74,992  15,465$     13,760$     5,148$      7,802$      111$          259,286$  74,992$               ‐              ‐              5,907       ‐            ‐            10,073     ‐                       15,465$     13,760$     11,055$    7,802$      111$          269,359$  74,992$               2,410$       (1,788)$      2,495$      3,024$      (417)$        46,502$    (792)$                   1,907         2,858         13             897           ‐            17,498     2,544                   ‐              ‐              ‐            ‐            ‐            ‐            42                        223             2,188         378           21             ‐            6,977       306                      ‐              ‐              ‐            ‐            ‐            ‐            204                      ‐              ‐              ‐            ‐            ‐            (45)            ‐                       ‐              ‐              ‐            ‐            ‐            ‐            (759)                     (1)                (1,440)        311           (120)         21             (2,509)      (918)                     27               41               4               5               1               210           18                        ‐              ‐              ‐            ‐            ‐            ‐            (233)                     ‐              ‐              ‐            (293)         ‐            (293)         ‐                       ‐              ‐              168           ‐            ‐            168           ‐                       ‐              ‐              ‐            ‐            ‐            ‐            (992)                      $       4,566  $       1,859 $       3,369 $       3,534 $         (395) $     68,508  $                 (580) Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 43 Agency Funds ASSETS: Cash and investments available for operations (Note 3)2,919$          Restricted cash and investments with fiscal agents (Note 3)2,541            Account receivable 9                    Interest receivable 14                  Total assets 5,483$          LIABILITIES: Due to bondholders 4,724$          Due to other governments 759                Total liabilities 5,483$          CITY OF PALO ALTO Statement of Fiduciary Net Position June 30, 2014 (Amounts in thousands) See accompanying notes to the basic financial statements. 44 CITY OF PALO ALTO  Index to the Notes to the Basic Financial Statements   For the Year Ended June 30, 2014    45    Page    1. Summary of Significant Accounting Policies ........................................................................... 47  2. Budgets and Budgetary Accounting ........................................................................................ 56  3. Cash and Investments ............................................................................................................. 57  4. Interfund Transactions ............................................................................................................ 61  5. Notes and Loans Receivable .................................................................................................... 63  6. Capital Assets .......................................................................................................................... 69  7. General Long‐Term Obligations .............................................................................................. 73  8. Special Assessment Debt ......................................................................................................... 80  9. Landfill Closure and Post‐Closure Care ................................................................................... 81  10. Net Position and Fund Balances .............................................................................................. 82  11. Pension Plans ........................................................................................................................... 84  12. Retiree Health Benefits ........................................................................................................... 88  13. Deferred Compensation Plan .................................................................................................. 91  14. Risk Management .................................................................................................................... 92  15. Joint Ventures .......................................................................................................................... 93  16. Commitments and Contingencies ........................................................................................... 96  17. Subsequent Event .................................................................................................................... 99    Notes are essential to present fairly the information contained in the overview level of the basic financial  statements.  Narrative explanations are intended to communicate information that is not readily apparent  or cannot be included in the statements themselves, and to provide additional disclosures as required by  the Governmental Accounting Standards Board.    46   This page is left intentionally blank.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    47   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    The City of Palo Alto (the City) was incorporated in 1894 and operates as a charter city, having had its first  charter granted by the State of California in 1909.  The City operates under the Council‐Manager form of  government and provides the following services: public safety (police and fire), public works, electric, fiber  optics, water, gas, wastewater, storm drain, refuse, golf course, planning and zoning, general  administration services, library, open space and science, recreational and human services.    (a) Reporting Entity    The City is governed by a nine‐member council, elected by City residents.  The City is legally  separate and fiscally independent, which means it can issue debt, set and modify budgets and  fees, and sue or be sued.  The accompanying basic financial statements present the financial  activities of the City, which is the primary government presented, along with the financial  activities of its component unit, which is an entity for which the City is financially accountable.   Although a separate legal entity, a blended component unit is, in substance, part of the City’s  operations and is reported as an integral part of the City’s financial statements.  The City’s  component unit described below is blended.    The Palo Alto Public Improvement Corporation (the Corporation) provides financing of public  capital improvements for the City through the issuance of Certificates of Participation (COPs), a  form of debt that allows investors to participate in a stream of future lease payments.  Proceeds  from the COPs are used to construct projects that are leased to the City.  The lease payments are  sufficient in timing and amount to meet the debt service requirements of the COPs.  The Board of  Directors of the Corporation is composed of the same members as the City Council. The  Corporation is controlled by the City, which performs all accounting and administrative functions  for the Corporation.  The financial activities of the Corporation are included in the Downtown  Parking Improvement Debt Service Fund.    Financial statements for the Corporation may be obtained from the City of Palo Alto,  Administrative Services Department, 4th Floor, 250 Hamilton Avenue, Palo Alto, CA  94301.    (b) Basis of Presentation     The City’s basic financial statements are prepared in conformity with accounting principles  generally accepted in the United States of America.  The Governmental Accounting Standards  Board (GASB) is the acknowledged standard setting body for establishing accounting and financial  reporting standards followed by governmental entities in the United States.          These standards require that the financial statements described below be presented:    Government‐wide Statements: The Statement of Net Position and the Statement of Activities  display information about the primary government and its component unit.  These statements  include the financial activities of the overall City government, except for fiduciary activities.   Eliminations have been made to minimize the double counting of internal activities.  However,  interfund goods and services transactions have not been eliminated in the consolidation process.   These statements distinguish between the governmental and business‐type activities of the City.   Governmental activities generally are financed through taxes, intergovernmental revenues, and CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    48   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (b) Basis of Presentation (Continued)    other non‐exchange transactions.  Business‐type activities are financed in whole or in part by fees  charged to external parties.    The Statement of Activities presents a comparison between direct expenses and program  revenues for each segment of the business‐type activities of the City and for each function of the  City’s governmental activities.  Direct expenses are those that are specifically associated with a  program or function and, therefore, are clearly identifiable to a particular function.  Program  revenues include: (a) charges paid by the recipients for goods and services offered by the  programs, (b) grants and contributions that are restricted to meeting the operational needs of a  particular program, and (c) fees, grants and contributions that are restricted to financing the  acquisition or construction of capital assets.  Revenues that are not classified as program  revenues, including all taxes, are presented as general revenues.    Fund Financial Statements: The fund financial statements provide information about the City’s  funds, including fiduciary funds and its blended component unit.  Separate statements for each  fund category – governmental, proprietary and fiduciary – are presented.  The emphasis of fund  financial statements is on major individual governmental and enterprise funds, each of which is  displayed in a separate column.  All remaining governmental and internal service funds are  aggregated and reported as non‐major funds.    Proprietary fund operating revenues, such as utilities sales and charges for services, result from  exchange transactions associated with the principal activity of the fund.  Exchange transactions  are those in which each party receives and gives up essentially equal values.  Nonoperating  revenues, such as subsidies and investment earnings, result from non‐exchange transactions or  ancillary activities.    Operating expenses for enterprise funds and internal service funds include the cost of sales and  services, administrative expenses, and depreciation on capital assets.  All expenses not meeting  this definition are reported as nonoperating expenses.    (c) Major Funds and Other Funds    The City’s major governmental and enterprise funds need to be identified and presented  separately in the fund financial statements.  All other funds, called non‐major funds, are combined  and reported in a single column, regardless of their fund type.    Major funds are defined as funds that have either assets and deferred outflows of resources,  liabilities and deferred inflows of resources, revenues or expenditures/expenses equal to at least  10 percent of their fund type total and at least 5 percent of the grand total.  The General Fund is  always a major fund.  The City may also select other funds it believes should be presented as major  funds on a qualitative basis.    The City reported the following major governmental funds in the accompanying financial  statements:     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    49   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds and Other Funds (Continued)    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.  These funds are:    Water Services Fund – This fund accounts for all financial transactions relating to the City’s water  service.  Services are on a user‐charge basis to residents and business owners located in the City.    Electric Services Fund – This fund accounts for all financial transactions relating to the City’s  electric service.  Services are on a user‐charge basis to residents and business owners located in  the City.    Fiber Optics Fund – This fund accounts for all financial transactions relating to the City’s fiber  optics service.  Services are on a user‐charge basis to licensees located in the City.    Gas Services Fund – This fund accounts for all financial transactions relating to the City’s gas  service.  Services are on a user‐charge basis to residents and business owners located in the City.    Wastewater Collection Services Fund – This fund accounts for all financial transactions relating  to the City’s wastewater collection service.  Services are on a user‐charge basis to residents and  business owners located in the City.    Wastewater Treatment Services Fund – This fund accounts for all financial transactions relating  to the City’s wastewater treatment.  Services are on a user‐charge basis to residents and business  owners located in the City.    Refuse Services Fund – This fund accounts for all financial transactions relating to the City’s refuse  service.  Services are on a user‐charge basis to residents and business owners located in the City.    Storm Drainage Services Fund – This fund accounts for all financial transactions relating to the  City’s storm drainage service.  Services are on a user‐charge basis to residents and business  owners located in the City.    Airport Fund – This fund accounts for all financial transactions relating to the Palo Alto Airport  (PAO).  The City assumed control over operation of PAO from the County of Santa Clara, effective  August 11, 2014.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    50   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds and Other Funds (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 revenue is  from reimbursement of fleet replacement and maintenance costs allocated to each department  by usage of vehicle.    Technology – This fund accounts for replacement and upgrade of technology, and covers four  primary areas used by all City departments: desktop, infrastructure, applications, and technology  research and development.  The source of revenue is from reimbursement of costs for support  provided to other departments.    Printing and Mailing Services – This fund accounts for central duplicating, printing and mailing  services provided to all City departments.  The source of revenue for this fund is from  reimbursement of costs for services and supplies purchased by other departments.    General Benefits – This fund accounts for the administration of compensated absences and health  benefits.    Workers’ Compensation Insurance Program – This fund accounts for the administration of the  City’s self‐insured workers’ compensation program.    General Liability Insurance Program – This fund accounts for the administration of the City’s self‐ insured general liability program.    Retiree Health Benefits – This fund accounts for retiree health benefits.    Fiduciary Funds – These funds account for assets held by the City, an agent for assessment  districts, and members of the Cable Joint Powers Authority.  These funds are custodial in nature  and do not involve measurement of results of operations.  The City maintains three agency funds.   The financial activities of these funds are excluded from the government‐wide financial  statements, but are presented in separate fiduciary fund financial statements.  Agency funds  apply the accrual basis of accounting but do not have a measurement focus.          CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    51   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds and Other Funds (Continued)  California Avenue Parking Assessment District – This fund accounts for the receipts and  disbursements associated with the 1993 Parking District No. 92‐13 Assessment Bonds.    Cable Joint Powers Authority – This fund accounts for the activities of the cable television system  on behalf of the members.    University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the  receipts and disbursements associated with the 2012 Limited Obligation Refunding Improvement  Bonds.     (d) Basis of Accounting    The government‐wide and proprietary fund financial statements are reported using the economic  resources measurement focus and the full accrual basis of accounting.  Revenues are recorded  when earned and expenses are recorded at the time liabilities are incurred, regardless of when  the related cash flows take place.    Governmental funds are reported using the current financial resources measurement focus and  the modified accrual basis of accounting.  Under this method, revenues are recognized when  measurable and available.  The City considers revenues susceptible to accrual reported in the  governmental funds to be available if the revenues are collected within ninety days after year‐ end, except for property taxes, which are available if collected within sixty days after year‐end.    Expenditures are recorded when the related fund liability is incurred, except for principal and  interest on general long‐term debt, claims and judgments, and compensated absences, which are  recognized as expenditures to the extent they have matured.  General capital asset acquisitions  are reported as expenditures in governmental funds.  Proceeds of general long‐term debt and  acquisitions under capital leases are reported as other financing sources.      Revenues susceptible to accrual include taxes, intergovernmental revenues, interest and charges  for services.    Grant revenues are recognized in the fiscal year in which all eligibility requirements are met.   Under the terms of grant agreements, the City may fund certain programs with a combination of  cost‐reimbursement grants, categorical block grants, and general revenues.  Thus, both restricted  and unrestricted net position may be available to finance program expenditures.  The City’s policy  is to first apply restricted grant resources to such programs, followed by general revenues if  necessary.    Certain indirect costs are included in program expenses reported for individual functions and  activities.  Transactions representing the exchange of interfund goods and services have also been  included.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    52   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (e)  Cash and Cash Equivalents    Restricted and unrestricted pooled cash and investments held in the City Treasury, and other  unrestricted investments invested by the City Treasurer, are considered cash equivalents for  purposes of the statement of cash flows because the City’s cash management pool and funds  invested by the City Treasurer possess the characteristics of demand deposit accounts. Other  restricted and unrestricted investments with maturities of less than three months at the time of  purchase are considered cash equivalents for purposes of the statement of cash flows.    (f)  Investments    The City’s investments are carried at fair value, 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  reports the effects of these adjustments in investment earnings 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) Prepaid items     Prepaid items are recorded at cost.  Using the consumption method, prepaid items are recorded  as expenditures over the period that service is provided.    (i) Compensated Absences     The liability for compensated absences includes the vested portion of vacation, sick leave, and  overtime compensation pay.  The City’s liability for accrued compensated absences is recorded in  the General Benefits Internal Service Fund.  The fund is reimbursed through payroll charges to all  other funds.  Earned but unpaid vacation and overtime compensation pay are recognized as an  expense or expenditure in the proprietary and governmental fund types when earned because  the City has provided financial resources for the full amount through its budgetary process.   Vested accumulated sick pay is paid in the event of termination due to disability and, under certain  conditions, is specified in employment agreements.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    53   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (i) Compensated Absences (Continued)   During the fiscal year ended June 30, 2014, changes to the compensated absences were as follows  (in thousands):    Beginning balance 10,431$       Additions 6,484            Payments (6,717)          Ending balance 10,198$       Current portion 3,912$            (j) Property Tax    Santa Clara County (the County) assesses properties and bills, collects, and distributes property  taxes to the City.  The County remits the entire amount levied and handles all delinquencies,  retaining interest and penalties.    The County assesses property values, levies bills and collects taxes as follows:    Secured Unsecured Lien Dates January 01 January 01 Levy Dates October 01 July 01 Due Dates 50% on November 01 Upon receipt of billing 50% on February 01 Delinquent after December 10 (for November)August 31 April 10 (for February)    The term “unsecured” refers to taxes on personal property other than real estate, land and  buildings.  These taxes are secured by liens on the property being taxed.  Property tax revenues  are recognized by the City in the fiscal year they are assessed, provided they become available as  defined previously within sixty days after year‐end.    (k) Deferred Outflows of Resources and Deferred Inflows of Resources  A deferred outflow of resources is the consumption of net position that is applicable to a future  reporting period. A deferred inflow of resources is defined as an acquisition of net position  applicable to a future reporting period. Furthermore, GASB No. 65 reclassified certain items that  were previously reported as assets and liabilities to deferred outflows of resources and deferred  inflows of resources.  Refer to Note 1(m) for the impact of this statement on the City’s financial  statements.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    54   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  (l) Rounding    All amounts included in the basic financial statements and footnotes are presented to the nearest  thousand.  (m) Effects of New Pronouncements     As of July 1, 2013, the City implemented the following GASB Statements:      GASB Statement No. 65 issued March 2012, Items Previously Reported as Assets and Liabilities  amends the financial statement element classification of certain items previously reported as  assets and liabilities to be consistent with the definitions in Concepts Statements No. 4, Elements  of Financial Statements. It also provides other financial reporting guidance related to deferred  outflows of resources and deferred inflows of resources, such as changes in the determination of  the major fund calculations and limiting the use of the term deferred in financial statement  presentations. Gains or losses between the net book value of debt and funds placed in escrow to  defease that debt are considered as deferred inflows or outflows of resources, respectively, and  are amortized over the remaining life of either the refunded debt or the refunding debt,  whichever is shorter.    As of July 1, 2013, the City implemented this Statement and restated beginning net position by  $1.1 million and $0.7 million to write off unamortized bond issuance costs that were previously  reported as assets in governmental activities and business‐type activities, respectively. Further,  unamortized loss on refunding of debts of $0.4 million was reclassified from contra liabilities to  deferred outflows of resources in three major enterprise funds – Water, Gas and Storm Drainage.     GASB Statement No. 66 was issued in March 2012, Technical Corrections – 2012 – an amendment  of GASB Statements No. 10 and No. 62, to resolve conflicting accounting and financial reporting  guidance that could diminish the consistency of financial reporting. As of July 1, 2013, the City  adopted this Statement, which does not have a significant impact on the City’s financial  statements.     GASB issued Statement No. 70 in April 2013, Accounting and Financial Reporting for Nonexchange  Financial Guarantees. Nonexchange financial guarantees are financial guarantees from a  government for obligations of another entity. Statement No. 70 requires a government that  extends a nonexchange financial guarantee to recognize a liability when qualitative factors and  historical data indicate that it is more likely than not that the government will be required to make  a payment on the guarantee. Statement No. 70 also specifies the information required to be  disclosed by governments that extend nonexchange financial guarantees and also new disclosure  requirements. As of July 1, 2013, the City adopted this Statement, which does not have a  significant impact on the City’s financial statements.           CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    55   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (m) 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:      GASB Statement No. 68 issued June 2012, Accounting and Financial Reporting for Pensions – an  amendment of GASB Statement No. 27, establishes accounting and financial reporting  requirements for pension plans that are administered through trusts. Statement No. 68 requires  governments participating in single and agent multiple employer defined benefit plans to  recognize a liability equal to net pension liability. Net pension liability is required to be measured  as of a date no later than the end of the employer’s prior fiscal year (the measurement date),  consistently applied from period to period. Pension expense and deferred outflows of resources  and deferred inflows of resources related to pensions that are required to be recognized by an  employer primarily result from changes in the components of net pension liability—that is,  changes in the total pension liability and in the pension plan’s fiduciary net position. It requires  that most changes in net pension liability be included in pension expense in the period of change.  The effects of certain other changes in the net pension liability are required to be included in  pension expense over current and future periods. It also requires that notes to financial  statements of single and agent employers include descriptive information, such as types of  benefits provided and number and classes of employees covered by the benefit terms, sources of  changes in net pension liability for the current year, significant assumptions and other inputs used  in valuations and the valuation date. The Statement also requires the government to present  required supplementary information for each of the ten most recent fiscal years. Requirements  of this Statement are effective for the City’s fiscal year ending June 30, 2015.    During January 2014, GASB issued Statement No. 69, Government Combinations and Disposals of  Government Operations. It establishes accounting related to government combinations and  disposals of government operations.  Government combinations include mergers, acquisitions,  and transfers of operations. Statement No. 69 also establishes the required financial statement  disclosure for government combinations and disposals of government operations. The  requirements of this Statement are effective for the City’s fiscal year ending June 30, 2015.  During November 2013, GASB issued Statement No. 71, Pension Transition for Contributions Made  Subsequent to the Measurement Date – an amendment of GASB Statement No. 68. This Statement  improves the accounting and financial reporting by addressing an issue in Statement No. 68. The  issue relates to amounts associated with contributions, if any, made by a state or local  government employer or nonemployer contributing entity to a defined benefit pension plan after  the measurement date of the government’s beginning net pension liability. The requirements of  this Statement are effective for the City’s fiscal year ending June 30, 2015.             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    56   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (n)  Use of Estimates    The accompanying basic financial statements have been prepared on the modified accrual and  accrual basis of accounting in accordance with generally accepted accounting principles.  This  requires management to make estimates and assumptions that affect the amounts reported in  the financial statements and accompanying notes. Actual results could differ from those  estimates.        NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING     1. The City Manager submits proposed operating and capital budgets to the City Council for the fiscal  year commencing the following July 1.  The operating budget includes proposed expenditures and the  means of financing them.  2. Public hearings are conducted to obtain comments on the proposed budgets.  3. The Budget is approved with the adoption of a budget ordinance for all funds except Agency Funds.  4. Per the Palo Alto Municipal Code, only the City Manager is authorized to reallocate funds from  contingency accounts maintained in the General Fund.  Additional appropriations to departments in  the General Fund, or to total appropriations for all other budgeted funds, or transfers of  appropriations between funds, require approval by the City Council.  Amendments to budgeted  revenue and expenditures are added to or subtracted from the Adopted Budget and the resulting  totals are reflected as Adjusted Budget amounts.  5. As defined in the Palo Alto Municipal Code, expenditures may not exceed budgeted appropriations at  the department level for the General Fund, and at the fund level for Enterprise, Special Revenue and  Debt Service Funds.  6. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting  principles (GAAP), except that unrealized gains or losses are not recognized as investment earnings  on a budgetary basis and encumbrances are treated as budgetary expenditures when incurred.  7. Expenditures for the Capital Projects Fund are budgeted and maintained at a project level for the life  of the project.  Budget to actual comparisons for these expenditures have been excluded from the  accompanying financial statements.         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    57   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 252,280$         259,286$         2,919$             514,485$          Restricted for post‐closure landfill ‐                    5,907               ‐                    5,907 Held with fiscal agents 19,606             4,166               2,541               26,313              Total cash and investments 271,886$         269,359$         5,460$             546,705$             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, 2014    58   NOTE 3 – CASH AND INVESTMENTS (Continued)    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 of  these funds have been invested as permitted under the Code and the investment policy approved by the  City Council.    Maximum  Maturity  Minimum  Credit Quality  Maximum  Percentage  of Portfolio Maximum  Investment in  One Issuer U.S. Government Securities 10 years (*) N/A No Limit No Limit U.S. Federal Agency Securities (C) 10 years (*) N/A No Limit (A) No Limit Certificates of Deposit 10 years (*) N/A 20% 10% of the par  value of  portfolio Bankers Acceptances 180 days (D) N/A (D) 30% $5 million Commercial Paper 270 days A‐1 15% $3 million (B) Local Agency Investment Fund N/A N/A No Limit $50 million per  account Short‐Term Repurchase Agreements 1 year N/A No Limit No Limit City of Palo Alto Bonds N/A N/A No Limit No Limit Money Market Mutual Funds N/A N/A (E) No Limit No Limit Mutual Funds (F)N/A N/A 20%10% Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million Medium‐Term Corporate Notes 5 years AA 10% $5 million 10 years (*) AA/AA2 10% No Limit (A) (B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution. Debt Agreements: (C)  (D) (E) (F) (*)The maximum maturity is based on the Investment Policy that is approved by the City Council and is less  restrictive than the California Government Code.  Utility Revenue Bonds 2011 Refunding and University Avenue Parking Bond 2012 are allowed to invest in the  California Asset Management Program. Authorized Investment Type Bonds of State of California  Municipal Agencies Callable and multi‐step securities are limited to no more than 25% of the par value of the portfolio, provided that:  1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step‐up" are  known at the time of purchase, 3) the entire face value of the security is redeemable at the call date. Utility Revenue Bonds 2011 Refunding and 1999 Refunding allow general obligations of states with a minimum  credit quality rating of A2/A by Moody's and Standard & Poor's. Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum credit quality rating of A‐1/P‐1 by  Moody's and Standard & Poor's and maturing after no more than 360 days.  Utility Revenue Bonds 1995 Series A  limit the maximum maturity to 365 days. Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a  minimum credit quality rating of AAAm or AAAm‐G by Standard & Poor's. CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    59   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 its fair value  is 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 Investment Less Than  One Year One to  Three Years  Three to  Five Years Over  Five Years Total U.S. Federal Agency Securities 55,445$        113,015$     142,698$     138,181$     449,339$      U.S. Treasury Notes ‐                     ‐                     6,891            4,345            11,236           Local Government Bonds ‐                   ‐                   ‐                   5,711           5,711             Money Market Mutual Funds 7,336          ‐                   ‐                   ‐                    7,336             Negotiable Certificates of Deposit ‐                   245             9,364          1,465           11,074           California Asset Management Program 21,885        ‐                   ‐                   ‐                    21,885           Local Agency Investment Fund 38,043        ‐                   ‐                   ‐                    38,043           Total Investments 122,709$     113,260$     158,953$     149,702$     544,624         Cash in bank and on hand 2,081            Total Cash and Investments 546,705$      Maturities     Local Agency Investment Fund  The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California  Government Code Section 16429 under the oversight of the Treasurer of the State of California.  LAIF  management calculates the fair value and cost of the entire LAIF pool.  The City adjusts its cost basis  invested in LAIF to fair value based on this ratio.  The fair value of the City’s position in the pool is the  same as the value of the pool share. The balance available for withdrawal on demand is based on  accounting records maintained by LAIF, which are recorded on an amortized cost basis.  At June 30, 2014,  LAIF had a weighted average maturity of 232 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, 2014, the fair value approximated the City’s cost. CAMP had a weighted average  maturity of 41 days.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    60   NOTE 3 – CASH AND INVESTMENTS (Continued)    Money market mutual funds are available for withdrawal on demand and at June 30, 2014, had a weighted  average maturity of 34 days.    Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations  At June 30, 2014, the City’s investments (including investments held by bond trustees) include U.S. Federal  Agency Callable Securities in the amount of $121.1 million that are highly sensitive to interest rate  fluctuations (to a greater degree than already indicated in the information provided in the previous page).   These securities are subject to early redemption at par in a period of declining interest rates.      Credit Risk  Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the  investment.  This is measured by the assignment of a rating by a nationally recognized statistical rating  organization.  Presented below is the actual rating as provided by Standard & Poor’s investment rating  system as of June 30, 2014, for each investment type (in thousands):    Type of Investment Rating Total U.S. Federal Agency Securities AA+ 449,339$          Local Government Bonds AAA 5,711                Money Market Mutual Funds AAAm 7,336                Total Investments 462,386            Not Applicable:  U.S. Treasury Notes 11,236              Not Rated: California Asset Management Program 21,885              Local Agency Investment Fund 38,043              Negotiable Certificates of Deposit 11,074              Cash in bank and on hand 2,081                Total Cash and Investments 546,705$              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, 2014  (in thousands):   Investments Reporting Type  Fair Value at Year‐End  Federal Home Loan Bank U.S. Federal Agency Securities 156,621$                           Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 85,624                               Federal National Mortgage Corporation U.S. Federal Agency Securities 73,129                               Federal Farm Credit Bank U.S. Federal Agency Securities 54,575                               Federal Home Loan Mortgage Corporation U.S. Federal Agency Securities 47,270                                CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    61   NOTE 3 – CASH AND INVESTMENTS (Continued)    Custodial Credit Risk  California law requires banks and savings and loan institutions to pledge government securities with a  market value of 110 percent of the City’s cash on deposit or first trust deed mortgage notes with a value  of 150 percent of the deposit as collateral for these deposits.  Under California Law, this collateral is  considered held in the City’s name and places the City ahead of general creditors of the institution.  The  City has waived collateral requirements for the portion of deposits covered by federal deposit insurance.    The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to  a transaction, the City will not be able to recover the value of its investment or collateral securities that  are in the possession of another party.  The City’s Investment Policy limits its exposure to custodial credit  risk by requiring that all security transactions entered into by the City be conducted on a delivery‐versus‐ payment basis.  Securities are to be held by a third‐party custodian.        NOTE 4 – INTERFUND TRANSACTIONS      Transfers Between Funds  With Council approval, resources may be transferred from one City fund to another.  The purpose of the  majority of transfers is to subsidize a fund.  Less often, a transfer may be made to open or close a fund.   Transfers between City funds during FY 2014 were as follows (in thousands):     Fund Making Transfer Amount  Transferred General Fund Nonmajor Governmental Funds 424$                  A Electric Services Fund 11,203               A Gas Services Fund 5,811                 A Internal Service Funds 474                    A Capital Projects Fund General Fund 17,235               B Nonmajor Governmental Funds 4,676                 B Water Services Fund 142                    B Electric Services Fund 134                    B Fiber Optics Fund 133                    B Gas Services Fund 134                    B Wastewater Collection Fund 133                    B Internal Service Funds 499                    B Nonmajor Governmental Funds General Fund 384                    A Capital Projects Fund 260                    B Water Services Fund 27                       A Internal Service Funds 14                       A Subtotal 41,683                Fund Receiving Transfer   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    62   NOTE 4 – INTERFUND TRANSACTIONS (Continued)      Fund Making Transfer Amount  Transferred Water Services Fund Gas Services Fund 92                       B Wastewater Collection Fund 92                       B Internal Service Funds 87                       C Electric Services Fund General Fund 33                       D Water Services Fund 333                    B Gas Services Fund 333                    B Internal Service Funds 390                    C Gas Services Fund Internal Service Funds 151                    C Refuse Services Fund Storm Drainage Services Fund 36                       D Internal Service Funds 88                       C Wastewater Collection Fund Internal Service Funds 42                       C Wastewater Treatment Fund Internal Service Funds 59                       C Storm Drainage Services Fund Internal Service Funds 14                       C Internal Service Funds General Fund 1,163                 E Water Services Fund 28                       B Electric Services Fund 123                    B Gas Services Fund 47                       B Wastewater Collection Fund 16                       B Refuse Services Fund 29                       B Storm Drainage Services Fund 6                         B Fiber Optics Fund 1                         B Subtotal 3,163                  Total 44,846$              The reasons for these transfers are set forth below: (A) Transfer to reimburse governmental funds for costs incurred for the benefit of funds making the transfer. (B) Allocation of funds to construct capital assets. (C) Transfer to refund replacement charges. (D) Transfer to reimburse the Utility Funds for costs incurred for the benefit of funds making the transfer. (E) Transfer to reimburse Internal Service Funds for costs incurred for the benefit of the fund making the   transfer. Fund Receiving Transfer      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    63   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 the Airport Enterprise Fund to facilitate the transition of PAO control from  County of Santa Clara to the City. The Council approved a General Fund loan of $300,000 to the Airport  Enterprise Fund for environmental analysis, and legal and personnel costs related to 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, after six years.  On July 1, 2012, the City Council approved  an additional $310,000 short‐term loan from the General Fund with the same interest and repayment  terms for transition costs.  A further $325,000 was loaned on July 1, 2013 with the same interest terms  and repayment terms of ten years.  As of June 30, 2014, the total outstanding principal amount is  $935,000.     Internal Balances  Internal balances represent the net interfund receivables and payables remaining after the elimination of  all such balances within governmental and business‐type activities.        NOTE 5 – NOTES AND LOANS RECEIVABLE     At June 30, 2014, the City’s notes and loans receivable totaled (in thousands):    Palo Alto Housing Corporation: Oak Manor Townhouse 334$                 Tree House Apartments 5,343                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 100                   Community Working Group, Inc.1,280                Opportunity Center Associates, L.P.750                   Home Rehabilitation Loans 66                     Executive Relocation Assistance Loans 900                   Below Market Rate Assessment Loans 53                     Stevenson Housing Fire Alarm 48                     Oak Manor Townhouse Water System 114                   Lytton Gardens Assisted Living 101                   Emergency Housing Consortium 75                     Alma Gardens Apartments 1,150                2811‐2825 Alma Street Acquisition 1,290                Palo Alto Family Housing, 801 Alma Street 6,810                Total Notes and Loans 33,205              Less: Valuation Allowance (14,685)            Total Notes and Loans, Net 18,520$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    64   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 Palo Alto Housing Corporation Apartments, Inc.  (PAHCA, Inc.) to assist in the acquisition of an apartment complex to be used to provide rental housing for  low and very low income households.  This loan bears interest at 3 percent, is due in annual installments  until 2017 and is collateralized by a subordinated deed of trust.  Under the terms of the loan agreement,  annual loan payments are forgiven if the Corporation meets the objective of this project.  During the year  ended June 30, 2014, the objective was met.  The annual loan payment was forgiven for the calendar year  ended December 31, 2013.    Tree House Apartments  In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. for the purchase of the  real property located at 488 West Charleston Road. The loan shall accrue simple interest at the rate of  three percent per annum. The loan consists of $1.8 million funded by Community Development Block  Grant funds and $1 million 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, 2014, the outstanding balance  for Tree House Apartments in aggregate is $5.3 million. Principal and interest payments will be deferred  for 55 years.  However, if the borrower has earned extra income, and if it is acceptable to the other entities  providing final permanent sources of funds, payment of interest and principal based on the City’s  proportionate share of the project’s residual receipts from net operating income shall be made by the  borrower.  In no event shall full payment be made by the borrower later than concurrently with the  expiration or earlier termination of the loan agreement, which is 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 interest at 3 percent after 2010.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    65   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Alma Single Room Occupancy Development  On December 13, 1996, the City loaned $2.2 million to Alma Place Associates, L.P. for development of a  107‐unit single room occupancy development.  This loan bears interest at 3 percent and is collateralized  by a subordinated deed of trust.  Loan payments were deferred until May 2014.  The principal balance is  due in 2041.    Barker Hotel  On April 12, 1994, the City loaned a total of $2.1 million for the preservation, rehabilitation and expansion  of a low‐income, single occupancy hotel.  This loan was funded by three sources: $400,000 from the  Housing In‐Lieu Fund, $1 million from HOME Investment Partnership Program Funds, and $670,000 from  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 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 will be forgiven if the borrower satisfactorily  complies with all terms and conditions of the loan agreement.    Sheridan Apartments  On December 8, 1998, the City loaned $2.5 million to 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 Palo Alto Housing Corporation.  Annual loan payments were deferred until Palo  Alto Housing Corporation accumulated $1 million in the 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, L.P.  On August 18, 2003, in connection with the loan to Oak Court Apartments, L.P. discussed in the next  section, the City loaned $5.9 million to 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.  Note  payments are due annually after 55 years, or beginning in 2058, unless Palo Alto Housing Corporation  elects to extend the note until 2102, as defined in the regulatory agreement.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    66   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    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.    Maybell Apartments  On November 28, 2012, the City agreed to loan Palo Alto Housing Corporation $3.2 million for the purpose  of acquisition and development of an affordable rental housing project at 567‐595 Maybell Ave. The loan  bears simple interest at the rate of 3 percent per annum commencing with the date of the permanent  closing. On April 28, 2014, the City collected the outstanding amount of $3.2 million for the Maybell loan.    Palo Alto Gardens Apartments  On April 22, 1999, the City loaned $1 million to Mid‐Peninsula Housing Coalition (the Coalition) for the  purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing.  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 of $100,000 is due in 2039.    Community Working Group, Inc.  On May 13, 2002, the City loaned $1.3 million to Community Working Group, Inc. for predevelopment,  relocation and acquisition of land for development of an 89‐unit complex and homeless service center for  very low income households.  The loan 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 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.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    67   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Executive Relocation Assistance Loans  The City Council may authorize a mortgage loan as part of a relocation assistance package to executive  staff.  The loans are secured by first deeds of trust, and interest is adjusted annually based on the rate of  return of invested funds of the City for the year ended June 30 plus one‐quarter of 1 percent.  Principal  and interest payments are due bi‐weekly.  Employees must pay any outstanding balance on their loans  within a certain period after ending employment with the City.  As of June 30, 2014, 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, 2014 was approximately $356,000.  The home  suffered substantial fire damage on May 3, 2014.  The loss is covered by insurance and an assessment is  being made as to whether the home will be rebuilt.    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, 2014 is approximately $427,000.  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, 2014 was approximately $117,000.    Below Market Rate Assessment Loans  In December 2002, the City loaned $53,000 to below market rate homeowners with low incomes and/or  very limited assets for capital repairs, special assessments and improvements of their properties.  The  loans bear interest at 3 percent and are secured by a deed of trust on each property.  Loan payments are  deferred until 2032.  In 2014, the City did not receive interest payments.    Stevenson Housing Fire Alarm  In December 2006, the City agreed to loan up to $48,000 to Palo Alto Senior Housing Project, Inc. to repair  and upgrade the existing fire alarm system at 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, 2014, 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 an allocation of $113,672 to Palo Alto Housing Corporation  Apartments, Inc (PAHCA, Inc) to replace the water pipes. Repayment of the loan will not be required unless  the property is sold, the program is terminated or purpose of the program is changed without City’s  approval prior to July 1, 2033. The loan for this project is subordinated to the existing City loan with  PAHCA, Inc dated January 7, 1991 for the acquisition of the project site, which is discussed earlier in this  section.        CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    68   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Lytton Gardens Assisted Living  In June 2005, the City loaned $101,000 to Community Housing, Inc. to upgrade and modernize the existing  kitchens at the senior residential facility known as Lytton Gardens Assisted Living.  The loan 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.    Emergency Housing Consortium  In November 2005, the City agreed to loan up to $75,000 to Emergency Housing Consortium to cover  architectural expenses that will be incurred in rehabilitating and expanding the property.  The loan 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 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 complies with all terms and conditions of the agreement.    2811‐2825 Alma Street Acquisition  On October 9, 2011, the City agreed to loan $1.3 million to PAHC Properties Corporation (PAHC) to acquire  properties on Alma Street for the purpose of developing an affordable rental housing project. The loan  bears simple interest of 3 percent, with an option to forgive the loan at maturity as long as PAHC maintains  the affordability restrictions. Provided PAHC is not in default of the agreement, no principal payments  shall be due and interest shall not begin to accrue until the closing of the project’s permanent funding.  Principal and interest payments are payable during the term of the agreement on a “residual receipt”  basis as described in the agreement.    Palo Alto Family Housing, 801 Alma Street  On February 14, 2011, the City agreed to loan Palo Alto Family, LP up to $9.3 million for the purposes of  predevelopment expenses and acquiring certain real property for the Alma Street Affordable Multi‐Family  Rental Housing Project. The loan bears simple interest of 3 percent. Principal and interest are due and  payable during the term of the agreement on a “residual receipt” basis as described in the agreement.  Except in the case of default, all remaining principal and interest shall be payable on the Restriction  Termination Date as defined in the agreement. As of June 30, 2014, the outstanding amount is $6.8  million.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    69   NOTE 6 – CAPITAL ASSETS    Valuation  Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not  available.  Contributed capital assets are valued at their estimated fair value on the date contributed.  The  City’s policy is to capitalize all assets when costs are equal to or exceed $5,000 and the useful life exceeds  one year.  Infrastructure assets are capitalized when costs are equal to or exceed $100,000.    Proprietary fund capital assets are recorded at cost including significant interest costs incurred under  restricted tax‐exempt borrowings, which finance the construction of capital assets.  These interest costs,  net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the  cost of capital assets during the construction period.  Maintenance and repairs are expensed as incurred.    The City has recorded all its public domain capital assets, consisting of roadway and recreation and open  space, in its government‐wide financial statements.  GASB Statement No. 34 requires that all capital assets  with limited useful lives be depreciated over their estimated useful lives.  Alternatively, the “modified  approach” may be used for certain capital assets.  Depreciation is not provided under this approach, but  all expenditures on these assets are expensed unless they are additions or improvements.  The City has  elected to use the depreciation method for its capital assets.  The purpose of depreciation is to spread the  cost of capital assets equitably among all users over the life of those assets.  The amount charged to  depreciation expense each year represents that year’s pro rata share of the cost of capital assets.    Depreciation of capital assets is charged as an expense against operations each year and the total amount  of depreciation taken over the years, called accumulated depreciation, is reported on the statement of  net position as a reduction in the book value of capital assets.    Depreciation is calculated using the straight line method, which means the cost of the asset is divided by  its expected useful life in years, and the result is charged to expense each year until the asset is fully  depreciated.  The City has assigned the useful lives listed below to capital assets.    Governmental Activities Years Buildings and structures 20 ‐ 30 Equipment: Computer equipment 3 ‐ 5 Office machinery and equipment 5 Machinery and equipment 5 ‐ 30 Intangible assets ‐ software 5‐20 Roadway network: 5 ‐ 40 Recreation and open space network: 25 ‐ 40 Business‐type Activities Buildings and structures 25 ‐ 60 Vehicles and heavy equipment 3 ‐ 10 Machinery and equipment 10 ‐ 50 Transmission, distribution and treatment systems 10 ‐ 100 Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots,  traffic signage, and bridges Includes major park facilities, park trails, bike paths and medians   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    70   NOTE 6 – CAPITAL ASSETS (Continued)    General Capital Assets  Changes in the City’s general capital assets during the year ended June 30, 2014 were (in thousands):     Balance Balance July 1, 2013 Additions Retirements Transfers June 30, 2014 Governmental activities Nondepreciable capital assets: Land and improvements 79,047$           ‐$                      ‐$                     ‐$                     79,047$               Street trees 15,319             102                   (244)                 ‐                        15,177                 Intangible assets ‐ Easement 3,567               ‐                         ‐                        ‐                        3,567                    Construction in progress 69,218             37,035             (3,258)             (13,189)           89,806                 Total nondepreciable capital assets 167,151           37,137             (3,502)             (13,189)           187,597               Depreciable capital assets: Buildings and structures 133,711           95                      ‐                        794                  134,600               Intangible assets ‐ Software 279                   ‐                         ‐                        ‐                        279                       Equipment 10,912             357                   ‐                        649                  11,918                 Roadway network 282,298           ‐                         ‐                        9,002               291,300               Recreation and open space network 24,888             ‐                         ‐                        2,744               27,632                 Total depreciable capital assets 452,088           452                   ‐                        13,189            465,729               Less accumulated depreciation: Buildings and structures (68,191)           (3,171)              ‐                        ‐                        (71,362)                Intangible assets ‐ Software (76)                    (65)                    ‐                        ‐                        (141)                      Equipment (7,108)              (386)                  ‐                        ‐                        (7,494)                  Roadway network (120,383)         (6,734)              ‐                        ‐                        (127,117)             Recreation and open space network (8,089)              (873)                  ‐                        ‐                        (8,962)                  Total accumulated depreciation (203,847)         (11,229)            ‐                        ‐                        (215,076)             Depreciable capital assets, net 248,241           (10,777)            ‐                        13,189            250,653               Internal service fund capital assets Construction in progress 1,413               1,683                (2)                     ‐                        3,094                    Equipment 50,919             1,975                (1,764)             ‐                        51,130                 Less accumulated depreciation (38,782)           (2,544)              1,455               ‐                        (39,871)                Net internal service fund capital assets 13,550             1,114                (311)                 ‐                        14,353                 Governmental activities capital assets, net 428,942$        27,474$           (3,813)$           ‐$                     452,603$                CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    71   NOTE 6 – CAPITAL ASSETS (Continued)    Business‐type Capital Assets  Changes in the City’s enterprise fund capital assets during the year ended June 30, 2014 were  (in thousands):    Balance Balance July 1, 2013 Additions Retirements Transfers June 30, 2014 Business‐type activities Nondepreciable capital assets: Land and improvements 4,971$             ‐$                     ‐$                            ‐$                       4,971$                 Construction in progress 118,176          41,058            ‐                              (37,053)             122,181               Total nondepreciable capital assets 123,147          41,058            ‐                              (37,053)             127,152               Depreciable capital assets: Buildings and structures 33,380             ‐                       ‐                              731                   34,111                 Transmission, distribution and treatment systems 642,149          63                    (2,676)                    36,322              675,858               Total depreciable capital assets 675,529          63                    (2,676)                    37,053              709,969               Less accumulated depreciation: Buildings and structures (9,199)              (649)                ‐                              ‐                         (9,848)                  Transmission, distribution and treatment systems (267,224)         (16,869)           2,315                     ‐                         (281,778)             Total accumulated depreciation (276,423)         (17,518)           2,315                     ‐                         (291,626)             Depreciable capital assets, net 399,106          (17,455)           (361)                       37,053              418,343               Business‐type activities capital assets, net 522,253$       23,603$         (361)$                    ‐$                       545,495$           Capital Asset Contributions  Some capital assets may be acquired using federal and state grant funds, or they may be contributed by  developers or other governments. Generally accepted accounting principles require that these  contributions be accounted for as revenues at the time the capital assets are contributed.    Depreciation Allocation  Depreciation expense was charged to functions and programs based on their usage of the related assets.   The amount allocated to each function or program is as follows (in thousands):    Governmental Activities Business‐type Activities City Manager 42$                 Water 1,759$            City Attorney 2                    Electric 7,498              Administrative Services 1                    Fiber Optics 303                  Community Services 1,117            Gas 2,313              Public Safety 331                Wastewater Collection 1,907              Public Works 9,225            Wastewater Treatment 2,855              Planning and Community Environment 135                Refuse 13                    Library 376                Storm Drainage 870                  Internal Service Funds 2,544             13,773$         17,518$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    72   NOTE 6 – CAPITAL ASSETS (Continued)    Construction In Progress  Construction in progress as of June 30, 2014 is comprised of the following (in thousands):  Governmental Activities Expended to June 30, 2014  Mitchell Park Library & Community Center 40,218$                      Main Library Construction & Improvements 18,366                        Art Center Electrical & Mech Upgrades 8,015                          Civic Center Infrastructure Improvements 6,528                          Telephone Infrastructure and Network 1,698                          California Avenue‐Transit Hub Corridor 1,471                          VRF 1,396                          Transportation and Parking Improvements 996                             Furniture/Technology for Library Bond Prj 969                             Street Maintenance 969                             Highway 101 Pedestrian/Bicycle Overpass 961                             Eleanor Pardee Park Improvement 738                             Golf Reconfig and Baylands Athletic Center 737                             Curb & Gutter Improvement 662                             Library & Comm Center Temp Facilities 630                             Magical Bridge Playground 613                             Park Restroom Installation 569                             City Hall First Floor Renovation 524                             Other Construction In Progress 6,840                          Total Governmental Activiites Construction In Progress 92,900$                      Business‐type Activites  Expended to         June 30, 2014 Water system extension replacements and improvements 40,590$                      Gas system extension replacements and improvements 7,306                          Sewer system rehabilitation and extensions 5,256                          Electric distribution system improvements 4,503                          Water quality control plant equipment replacement and lab facilities 3,713                          Storm drainage structural and water quality improvements 2,239                          Other electrical improvements projects 821                             Other construction in progress 57,753                        Total Business‐type Activities Construction In Progress 122,181$                         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    73   NOTE 6 – CAPITAL ASSETS (Continued)    Construction In Progress  Allocations of business‐type activity administration and general expenses of $11.4 million have been  capitalized and included in amounts expended to June 30, 2014.    Major governmental capital projects that are currently in progress, and the remaining capital commitment  of each, are as follows:   California Avenue Transit Hub Corridor ‐ $0.8 million   Main Library ‐ $6.8 million   Mitchell Park Library and Community Center ‐ $5.6 million     Major business‐type capital projects that are currently in progress, and the remaining capital commitment  of each, are as follows:   Seismic water system upgrade for Water Fund ‐ $2.4 million   Gas main replacement project for Gas Fund ‐ $6.3 million   Plant equipment replacement for Wastewater Treatment Fund ‐ $3.5 million   Wastewater Collection Fund rehabilitation/augmentation project ‐ $1.1 million        NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS    Long‐Term Obligations  Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt.        The City’s long‐term debt issues and transactions, other than special assessment debt discussed in Note 8,  are as follows (in thousands):    Original Balance Balance Current Issue Amount July 1, 2013 Additions Retirements June 30, 2014 Portion Governmental Activities Debt: General Long‐Term Obligations:  2002B Downtown Parking Improvements, Certificates of Participation, 2 ‐ 4%, due 03/01/2022 3,555$              1,560$              ‐$                     130$               1,430$                145$         General Obligation Bonds 2010, 2 ‐ 5%, due 08/01/2040 55,305              53,540              ‐                       1,020              52,520                1,050        2011 Lease‐Purchase Agreement 3,222               2,400               ‐                     374                 2,026                  383         General Obligation Bonds 2013A, 2 ‐ 5%, due 08/01/2043 20,695              20,695              ‐                        ‐                       20,695                370           Add: Unamortized Premium ‐                        4,400               ‐                     158                 4,242                  158         Total Governmental Activities Debt 82,777$          82,595$          ‐$                    1,682$            80,913$              2,106$           CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    74   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)      Original Issue  Amount  Balanace  July 1, 2013, as  reclassed Additions Retirements Balance,  June 30, 2014 Current  'Portion Business‐type Activities Debt: Enterprise Long‐Term Obligations: Utility Revenue Bonds 1995 Series A,  5.00‐6.25%, due 06/01/2020 8,640$                 3,779$                 ‐$                          445$                     3,334$                 475$                      1999 Refunding,  3.25‐5.25%, due 06/01/2024 17,735                 11,585                 ‐                            605                       10,980                 635                        2009 Series A,  1.80‐5.95%, due 06/01/2035 35,015                 32,500                 ‐                            885                       31,615                 915                        2011 Refunding,  1.80‐5.95%, due 06/01/2035 17,225                 15,240                  ‐                            945                       14,295                 975                        Add: Unamortized Premium ‐                            980                       ‐                            70                         910                       ‐                             Energy Tax Credit Bonds 2007 Series A, 0%, Due 12/15/2021 1,500                   900                     ‐                          100                     800                      100                       Less: Unamortized Discount (49)                        ‐                            (6)                          (43)                        ‐                             State Water Resources Loans 2007, 0%, due 06/30/2029 9,000                   7,200                 ‐                          450                     6,750                  450                       2009, 2.6%, due 11/30/2030 8,500                   7,909                   ‐                            350                       7,559                   359                        Total Business‐type Activities Debt 97,615$               80,044$               ‐$                          3,844$                 76,200$               3,909$                    Description of Long‐Term Debt Issues    2002B Downtown Parking Improvements Project Certificates of Participation (COPs) – On January 16,  2002, the City issued $3.6 million of COPs to finance the construction of certain improvements to the non‐ parking area contained in the City’s Bryant/Florence Garage complex.  Principal payments are due  annually on March 1 and interest payments semi‐annually on March 1 and September 1, and are payable  from lease revenues received by the Corporation from the City’s available funds.    2010 General Obligation Bonds (GO bonds) – On June 30, 2010, the City issued $55.3 million of GO bonds  to finance costs for constructing a new Mitchell Park Library and Community Center, as well as making  substantial improvements to the 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 bonds ends upon repayment of the $52.5 million  principal and $40.6 million interest as the remaining debt service on the GO bonds, which is scheduled to  occur in FY 2041.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    75   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    2013A General Obligation Bonds – On June 30, 2013, the City issued $20.7 million of GO bonds to finance  costs for constructing a new Mitchell Park Library and Community Center, as well as making substantial  improvements to the 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 bonds ends upon repayment of the $20.7 million  principal and $15.2 million interest as the remaining debt service on the GO bonds, which is scheduled to  occur in FY 2044.    2011 Lease‐Purchase Agreement – On August 2, 2011, the City entered into a master lease‐purchase  agreement with JP Morgan Chase Bank, N.A. to finance redemption of the 1998 Golf Course COPs.  The  lease is secured by a first priority security interest in twenty‐one Fire Department emergency vehicles.   Lease proceeds were $3.2 million.  Principal payments are due annually on September 1 and interest  payments are due semi‐annually on September 1 and March 1 at a rate of 2.49 percent, payable from  General Fund revenues.    1995 Utility Revenue Bonds, Series A – The City issued $8.6 million of Utility Revenue Bonds on February  1, 1995 to finance certain extensions and improvements to the City’s Storm Drainage and Surface Water  System.  The Bonds are special obligations of the City payable solely from and secured by a pledge of and  lien upon the revenues derived by the City from the funds, services and facilities of all Enterprise Funds  except the Refuse Services Fund, Fiber Optics Fund and Airport Fund. Principal payments are payable  annually on June 1 and interest payments semi‐annually on June 1 and December 1. A $2.9 million 6.3  percent term bond is due June 1, 2020.    As required by the Indenture, the City established a debt service reserve fund for the Bonds (the “Reserve  Account”), with a minimum funding level requirement in the Reserve Account (the “Reserve  Requirement”).  At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit  into the Reserve Account of a surety bond (the “Surety Bond”) in the amount of $685,340 issued by Ambac  Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).    On May 1, 2013, Ambac Financial emerged from bankruptcy protection, which had been filed under  Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation  proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. No assurance can be  made regarding the claims paying ability of Ambac Assurance on the surety bonds described above.    The pledge of future Net Revenues for the above bonds ends upon repayment of the $3.3 million principal  and $0.8 million interest as the remaining debt service on the bonds, which is scheduled to occur in FY  2020. For FY 2014, Net Revenues, including operating revenues and non‐operating interest earnings,  amounted to $243.9 million; operating costs, including operating expenses but not interest, depreciation  or amortization, amounted to $179.4 million. Net Revenues available for debt service amounted to $64.5  million, which represented coverage of 94.7 times over the $0.7 million in debt service.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    76   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    1999 Utility Revenue and Refunding Bonds – The City issued $17.7 million of Utility Revenue Bonds on  June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue  Bonds, Series A, and to finance rehabilitation of 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 May 1, 2013, Ambac Financial emerged from bankruptcy protection, which had been filed under  Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation  proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. No assurance can be  made regarding the claims paying ability of Ambac Assurance on the surety bonds described above.     The pledge of future Net Revenues for the above bonds ends upon repayment of the $11.0 million  principal and $3.8 million interest as the remaining debt service on the bonds, which is scheduled to occur  in FY 2024. For FY 2014, Net Revenues, including operating revenues and non‐operating interest earnings,  amounted to $41.1 million; operating costs, including operating expenses but not interest, depreciation  or amortization, amounted to $30.9 million. Net Revenues available for debt service amounted to $10.2  million, which represents coverage of 8.44 times over the $1.2 million in debt service.    2007 Electric System Clean Renewable Energy Tax Credit Bonds, Series A – In October 2007, the City  issued $1.5 million of Electric Utility Clean Renewable Energy Tax Credit Bonds (CREBs), 2007 Series A, to  finance the City’s photovoltaic solar panel project. The CREBs do not bear interest. In lieu of receiving  periodic interest payments, bondholders are allowed annual federal income tax credits in an amount  equal to a credit rate for such CREBs multiplied by the outstanding principal amount of the CREBs owned  by the bondholders. The CERBs 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.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    77   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    The pledge of future Electric Fund Net Revenues ends upon repayment of the $0.8 million remaining debt  service on the bonds, which is scheduled to occur in FY 2022. For FY 2014, Net Revenues, including  operating revenues and non‐operating interest earnings, amounted to $125.0 million; operating costs,  including operating expenses but not interest, depreciation or amortization, amounted to $96.3 million.  Net Revenues available for debt service amounted to $28.7 million, which represented coverage of  287 times over the $0.1 million in debt service.    2009 Water Revenue Bonds, Series A – On October 6, 2009, the City issued $35.0 million of Water  Revenue Bonds to finance certain improvements to the City’s water utility system. Principal payments are  due annually on June 1, and interest payments are due semi‐annually on June 1 and December 1 from  1.80 percent to 5.95 percent. The 2009 Revenue Bonds are secured by net revenues generated by the  Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build America  Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (“Build America  Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury equal to 35  percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues is  senior to the lien on Net Revenues securing the 2009 Bonds and the 2011 Bonds. The City received subsidy  payments amounting to $549 thousand, which represents 33.5 percent of the interest payments due on  December 1 and June 1.    The pledge of future Net Revenues for the above bonds ends upon repayment of the $31.6 million  principal and $22.2 million interest as the remaining debt service on the bonds, which is scheduled to  occur in FY 2035. For FY 2014, Net Revenues, including operating revenues and non‐operating interest  earnings, amounted to $41.3 million; operating costs, including operating expenses but not interest,  depreciation or amortization, amounted to $27.9 million. Net Revenues available for debt service  amounted to $13.4 million, which represented coverage of 5.22 times over the $2.6 million in debt service.    2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease  Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002 Bonds)  on a current basis. The 2002 Bonds were issued to finance improvement to the City’s municipal water  utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually on June  1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The 2011 Bonds  are secured by net revenues generated by the Water Services and Gas Services Funds.     The pledge of future Net Revenues of the above bonds ends upon repayment of the $14.3 million principal  and $3.2 million interest as remaining debt service on the bonds, which is scheduled to occur in FY 2035.  For FY 2014, Net Revenues, including operating revenues and non‐operating interest earnings, amounted  to $77.7 million; operating costs, including operating expenses but not interest, depreciation or  amortization, amounted to $52.2 million. Net Revenues available for debt service amounted to $25.5  million, which represented coverage of 17.6 times over the $1.5 million in debt service.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    78   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    2007 State Water Resources Loan – In October 2007, the City approved a $9 million loan agreement with  State Water Resources Control Board (SWRCB) to finance the City’s Mountain View/Moffett Area  reclaimed water pipeline project. Under the terms of the contract, the City has agreed to repay $9 million  to the State in exchange for receiving $7.5 million in proceeds to be used to fund the Project. The  difference between the repayment obligation and proceeds amounts to $1.5 million and represents in‐ substance interest on the outstanding balance. Principal payments are payable annually on June 30.     Concurrently with the loan, the City entered into various other agreements including a cost sharing  arrangement with the City of Mountain View. Pursuant to that agreement, City of Mountain View agreed  to finance a portion of the project with a $6 million loan repayable to the City. This loan has been recorded  as “Due from other government agencies” in the accompanying financial statements.    2009 State Water Resources Loan – In October 2009, the City approved an $8.5 million loan agreement  with SWRCB to finance the City’s Ultraviolet Disinfection project. Principal and interest payments are  payable annually on November 30.    Debt Service Requirements (in thousands):  Debt service requirements are shown below for all long‐term debt.    For the Year Ending  June 30 Principal Interest Total Principal Interest Total 2015 1,948$             3,402$           5,350$            3,909$           3,109$                7,018$             2016 1,995               3,337             5,332              4,049            2,972                 7,021               2017 2,066               3,260             5,326            4,198            2,818                 7,016              2018 2,156               3,170             5,326              4,363            2,656                 7,019               2019 2,251               3,073             5,324              4,533            2,445                 6,978               2020‐2024 9,940               14,055           23,995            25,285          9,602                 34,887             2025‐2029 11,620             11,616           23,236            15,291          5,471                 20,762             2030‐2034 14,625             8,571             23,196            11,285          2,649                 13,934             2035‐2039 18,160             4,938             23,098            2,420            144                    2,564               2040‐2044 11,910             887                 12,797             ‐                        ‐                            ‐                        Total 76,671$          56,309$         132,980$       75,333$         31,866$              107,199$         Governmental Activities Business‐Type Activities           CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    79   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    Debt Call Provisions  Long‐term debt as of June 30, 2014 is callable on the following terms and conditions:    Initial Call Date Governmental Activities Long‐Term Debt 2002B Certificates of Participation 03/01/11 (2) 2010 General Obligation Bonds $6.595 million due 08/01/2032 08/01/31 (3) $4.890 million due 08/01/2034 08/01/33 (3) $17.725 million due 08/01/2040 08/01/35 (3) Business‐Type Activities Long‐Term Debt Utility Revenue Bonds 1999 Refunding 06/01/09 (1) 2011 Refunding 06/01/21 (1)     (1)  Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on the  initial call date. The call price declines subsequent to the initial date.   (2)  Callable in any order specified by the City at par plus a premium of 1 percent beginning on the initial  call date. The call price declines subsequent to the initial date.    (3)  Callable in any order specified by the City at par value plus any accrued interest beginning on the  initial call date.    Leasing Arrangements  COPs and Capital Leases are issued for the purpose of financing the construction or acquisition of projects  defined in each leasing arrangement. Projects are leased to the City for lease payments which, together  with unspent proceeds of the leasing arrangement, will be sufficient to meet the debt service obligations  of the leasing arrangement. At the termination of the leasing arrangement, title to the project will pass to  the City.    Leasing arrangements are similar to debt in that they allow investors to participate in a share of  guaranteed payments made by the City. Because they are similar to debt, the present value of the total  payments to be made by the City is recorded as long‐term debt. The City’s leasing arrangements are  included in long‐term obligations discussed above.    Conduit Financing  On December 15, 1996, the City acted as a financial intermediary in order to assist Lytton Gardens Health  Care Center in issuing Insured Revenue Refunding Bonds. The Bonds are payable solely from revenues  collected by Lytton Gardens Health Care Center. The City has not included these bonds in its basic financial  statements since it is not legally or morally obligated for the repayment of the bonds. At June 30, 2014,  the amount of bonds outstanding was $3.2 million.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    80   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, 2014, the District’s outstanding debt amounted to  $330 thousand.    On February 29, 2012, the University Avenue Area Off‐Street Parking Assessment District issued Limited  Obligation Refunding Improvement Bonds (2012 Bonds), but the City has no legal or moral liability with  respect to the payment of this debt, which is secured only by assessments on properties in this District.  Therefore, this debt is not included in Governmental Activities long‐term debt of the City. At  June 30, 2014, the District’s outstanding debt amounted to $29.4 million. The proceeds from the 2012  Bonds, combined with available Assessment Funds, were used to redeem the outstanding University  Avenue Area Off‐Street Parking Assessment District Series 2001‐A and Series 2002‐A Bonds.           CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    81   NOTE 9 – LANDFILL CLOSURE AND POST‐CLOSURE CARE    State and federal laws and regulations require the City to 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 $0.9 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 that is currently filled to capacity and ceased  accepting waste after July 28, 2011. Phase IIC closure is under way and is expected to be completed by  late summer 2015. The 30 years of post‐closure maintenance costs will be paid after the state certifies  the Phase IIC closure.    In accordance with state regulations, a final closure and post‐closure maintenance plan was approved by  state and local regulatory agencies in 2014. 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 2014 and FY 2013 were $11.4 and $11.2 million,  respectively. Changes in the liability for landfill closure and post‐closure costs are the result of an annual  inflation factor that is applied to the estimated costs.    The City is required by state and federal laws and regulations to make annual funding contributions to  finance closure and post‐closure care. The City’s financial assurance for the $5.5 million post‐closure  maintenance is a pledge of revenue agreement with California Integrated Waste Management Board. The  $5.9 million closure liability is under the enterprise fund mechanism. The City is in compliance with these  requirements for the year ended June 30, 2014.    The landfill closure balance as of June 30, 2014 comprised the following (in thousands):    Funding Mechanism Closure 5,907$             Cash on hand Post‐closure care 5,456               Future revenues Balance 11,363$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    82   NOTE 10 – NET POSITION AND FUND BALANCES    Net Position  Net Position is the excess of the City’s assets and deferred outflows of resources over its liabilities. Net  position is divided into three categories that are described below:    Net Investment in Capital Assets describes the portion of net position, which is represented by current net  book value of the City’s capital assets, less the outstanding balance of any debt issued to finance these  assets.    Restricted describes the portion of net position that is reduced by liabilities related to restricted assets.  Generally a liability relates to restricted assets if the asset results from a resource flow that also results in  the recognition of a liability or if the liability will be liquidated with the restricted assets reported.    Unrestricted describes the portion of net position which is not restricted as to use.    Fund Balances  As prescribed by GASB Statement No. 54, governmental funds report fund balances in classifications based  primarily on the extent to which the City is bound to honor constraints on the specific purposes for which  amounts in the funds can be spent. Fund balances for governmental funds are made up of the following:    Nonspendable – This category is comprised of amounts that are: (a) not in spendable form, or (b) legally  or contractually required to be maintained intact. The “not in spendable form” criterion includes items  that are not expected to be converted to cash, for example: prepaid items, and long‐term notes  receivable. The corpus of the permanent fund is contractually required to be maintained intact.    Restricted – This category is comprised of amounts that can be spent only for the specific purposes  stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions  may effectively be changed or lifted only with the consent of resource providers.    Committed – This category is comprised of amounts that can only be used for the specific purposes  determined by the action that constitutes the most binding constraint (i.e. ordinance) of the City’s highest  level of decision‐making authority, the City Council. Commitments may be changed or lifted only by the  City taking the same formal action that imposed the constraint originally.      Assigned – This category is comprised of amounts intended to be used by the City for specific purposes  that are neither restricted nor committed. Intent is expressed by the City Council or the City Manager, to  whom the City Council has delegated the authority to assign amounts to be used for specific purposes.    Unassigned –This category is the residual classification for the General Fund and includes all amounts not  contained in the other classifications. Unassigned amounts are technically available for any purpose.  Other governmental funds may report negative unassigned fund balance, which occurs when a fund has  a residual deficit after allocation of fund balance to the nonspendable, restricted or committed categories.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    83   NOTE 10 – NET POSITION AND FUND BALANCES (Continued)    The fund balances of all governmental funds are presented by the above mentioned categories on the  face of the financial statements.  In circumstances when an expenditure is made for a purpose for which  amounts are available in multiple fund balance categories, fund balance is depleted in the order of  restricted, committed, assigned, and unassigned.    The General Fund Budget Stabilization Reserve (BSR) is established by authority of the General Fund  Reserve Policy, which is approved by the City Council and included in the City’s annual adopted budget.  The BSR is maintained in the range of 15 to 20 percent of General Fund expenditures and operating  transfers, with a target of 18.5 percent.  Any reserve level below 15 percent requires City Council approval.   At the discretion of the City Manager, a reserve balance above 18.5 percent may be transferred to the  Infrastructure Reserve within the Capital Projects Fund.  The purpose of the General Fund BSR is to fund  unbudgeted, unanticipated one‐time costs.  The BSR is not meant to fund ongoing, recurring General Fund  expenditures.    The Capital Projects Fund Infrastructure Reserve (IR) is the portion of capital projects assigned fund  balance not yet adopted for a specific project. It does not include potential outside funding for adopted  projects.      As of June 30, 2014 total outstanding encumbrances related to governmental activities were $6.4 million  for the General Fund, $28.1 million for the Capital Projects Fund, and $0.7 million for the Special Revenue  Funds.  General Fund encumbrances are reserved for the following governmental activities:  Planning &  Community Environment $1.8 million, Public Works $1.1 million, Community Services $1.2 million, Public  Safety $1.0 million, Library $0.7 million, and administrative departments $1.7 million.    Enterprise Funds  At June 30, 2014, Enterprise Fund unrestricted net position (in thousands) were as follows:    Water Electric Fiber Optics Gas Wastewater  Collection Wastewater  Treatment Refuse Storm  Drainage Airport Total Unrestricted Rate stabilization Supply ‐$                      61,679$           ‐$                     5,924$         ‐$                    ‐$                   ‐$                ‐$              ‐$             67,603$           Distribution ‐                         8,369                ‐                        10,057         ‐                      ‐                     ‐                   ‐                 ‐                18,426             Operations 20,132             ‐                        18,415            ‐                   7,285             5,483            (1,640)       1,601       (1,039)     50,237             20,132             70,048            18,415            15,981        7,285             5,483            (1,640)       1,601       (1,039)     136,266           Emergency plant replacement 1,000                1,000               1,000               1,000          1,000             1,980             ‐                   ‐                 ‐                6,980                Electric special projects ‐                         51,838            ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                51,838             Reappropriations 10,847             8,715               301                  1,488          6,858             2,118            61               4,493       50             34,931             Commitments 5,148                5,737               217                  9,817          1,454             4,578            985            1,714       111          29,761             Underground loan ‐                         734                  ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                734                   Notes and loans ‐                         ‐                        ‐                        ‐                   ‐                      559               ‐                   ‐                 ‐                559                   Landfill corrective action ‐                         ‐                        ‐                        ‐                   ‐                      ‐                     701            ‐                 ‐                701                   Public benefit program ‐                         2,064               ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                2,064                Central Valley Project 329                  ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                329                   Geng Road Reserve ‐                         ‐                        ‐                        ‐                   ‐                      ‐                     267            ‐                 ‐                267                   Total 37,127$           140,465$        19,933$          28,286$      16,597$        14,718$       374$          7,808$    (878)$      264,430$             The City Council has set aside unrestricted net position for general contingencies, and future capital and  debt service expenditures including operating and capital contingencies for unusual or emergency  expenditures.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    84   NOTE 10 – NET POSITION AND FUND BALANCES (Continued)    Internal Service Funds  At June 30, 2014, Internal Service Funds unrestricted net position (in thousands) were as follows:    Vehicle  Replacement  and  Maintenance Technology Printing and  Mailing  Services General  Benefits Workers'  Compensation  Insurance  Program General  Liabilities  Insurance  Program Retiree Health  Benefits Total Unrestricted net position: Commitments 1,689$               1,990$               87$                     47$                     77$                     25$                      ‐$                   3,915$                Future catastrophic losses ‐                      ‐                     ‐                     ‐                     124                     1,560                 ‐                     1,684                  Retiree health care ‐                     ‐                     ‐                     ‐                     ‐                     ‐                     26,837               26,837                Capital projects 3,458                 6,651                 ‐                     ‐                     ‐                     ‐                     ‐                     10,109                Available 6,358                 10,281               (83)                     1,397                 ‐                     ‐                     ‐                     17,953                Total 11,505$            18,922$            4$                       1,444$               201$                  1,585$               26,837$            60,498$                 Commitments represent the portion of net position set aside for open purchase orders.   Future catastrophic losses represent the portion of net position to be used for unforeseen future losses.  Retiree health care represents the portion of net position set aside to defer future costs of retiree health  care coverage.   Capital projects represent the portion of net position set aside for adopted capital projects.      NOTE 11 – PENSION PLANS    CalPERS Safety and Miscellaneous Employees’ Plans  Substantially all permanent City employees are eligible to participate in pension plans offered by 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, age at retirement and final compensation  salary. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30  by CalPERS.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    85   NOTE 11 – PENSION PLANS (Continued)    The Plans’ provisions and benefits in effect at June 30, 2014, as determined by the valuation dated June 30,  2011, are summarized as follows:    Safety Plan Safety Plan Safety Plan Fire Fighters, Fire Chiefs Association, Fire Fighters,Police Officers, Police Officers, Police Management Fire Chiefs Association Police Management Hire Date Before 6/8/12 Hire Date on or After 6/8/12 Hire Date on or After 12/8/12 Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Full retirement age 50 551 551 Monthly benefits, as a % of annual salary 3%3%3% Required employee contribution rates 9% 9% 9% Required employer contribution rates 34.716% 34.716% 34.716% 1 Employees can retire at age 50 with reduced benefits of 2.4% ‐ 2.88%. Miscellaneous Plan Miscellaneous Plan Hire Date Before 7/17/10 Hire Date on or After 7/17/10 Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life Full retirement age2 55 60 Monthly benefits, as a % of annual salary2 2.7%2.0% ‐ 2.418% Required employee contribution rates 8%7% Required employer contribution rates 25.536%25.536% 2 Employees can retire at age 50 with reduced benefits of 2.0% ‐  2.56% if hired before 7/17/10, or 1.092% ‐ 1.874% if hired on or after 7/17/10.     Contributions are collected through payroll deductions and the City remits those contributions to CalPERS.     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 2014, 2013 and  2012 were $31.9, $28.6 and $27.7 million, respectively. The City made these contributions as required,  together with certain immaterial amounts required as the result of the payment of overtime and other  additional employee compensation.    The City uses the actuarially determined percentages of payroll to calculate and pay contributions to  CalPERS. This results in no net pension obligations or unpaid contributions.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    86   NOTE 11 – PENSION PLANS (Continued)    Annual Pension Costs representing the payment of annual required contributions determined by CalPERS  for the last three fiscal years were as follows (in thousands):    Fiscal Year Ended Annual  Pension Cost  (APC) Percent of  APC  Contributed Net Pension  Obligation Safety Plan June 30, 2012 7,324$            100%‐$                  June 30, 2013 7,871               100%‐                    June 30, 2014 8,323               100%‐                    Miscellaneous Plan June 30, 2012 15,687$          100%‐$                  June 30, 2013 15,801            100%‐                    June 30, 2014 16,209            100%‐                        CalPERS uses the 15 year smoothed market method of valuing the Plan assets. An investment rate of  return of 7.50 percent is assumed, including inflation at 2.75 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 a 30 year rolling  period, except for special gains and losses in fiscal years 2009 through 2011 which are being amortized  over fixed and declining 30 year periods.     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  actuarial value (which differs from market value) and funding progress of the Plans 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 June 30,  Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll 2011 313,184$          254,305$        58,879$          81.2% 22,774$       258.5% 2012 327,608            258,661          68,947            79.0% 20,920          329.6% 2013 338,666            233,417          105,249          68.9% 21,258          495.1% Miscellaneous Plan: Valuation Date June 30,  Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll 2011 552,716$          434,985$        117,731$       78.7% 60,298$       195.2% 2012 576,182            447,819          128,363          77.7% 62,910          204.0% 2013 602,540            412,228          190,312          68.4% 64,440          295.3% Actuarial Actuarial   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    87   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 6/30/2013* 6/30/2011** 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 Not available 30 Years as of the Valuation Date  Asset Valuation Method Market Value 15 Year Smoothed Market  Actuarial Assumptions: Investment Rate of Return 7.50% (net of administrative  expenses)  7.50% (net of administrative  expenses)  Projected Salary Increases 3.30% to 14.20% depending on age,  service, and type of employment  3.30% to 14.20% depending on age,  service, and type of employment  Inflation 2.75%2.75% Payroll Growth 3.00%3.00% Individual Salary Growth A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  2.75% and an annual production  growth of 0.25%. A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  2.75% and an annual production  growth of 0.25%. Miscellaneous Plan Valuation Date 6/30/2013* 6/30/2011** 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 Not available 21 Years as of the Valuation Date  Asset Valuation Method Market Value 15 Year Smoothed Market  Actuarial Assumptions: Investment Rate of Return 7.50% (net of administrative  expenses)  7.50% (net of administrative  expenses)  Projected Salary Increases 3.30% to 14.20% depending on age,  service, and type of employment  3.30% to 14.20% depending on age,  service, and type of employment  Inflation 2.75% 2.75% Payroll Growth 3.00% 3.00% Individual Salary Growth A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  2.75% and an annual production  growth of 0.25%. A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  2.75% and an annual production  growth of 0.25%. * The June 30, 2013 valuations, which are the most recent valuations, were used to disclose the funded status. ** The June 30, 2011 valuations were used to determine the contribution requirements for FY 2014.     Audited annual financial statements and six‐year trend information are available from CalPERS at P.O. Box  942703, Sacramento, CA 94229‐2709.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    88   NOTE 12 – RETIREE HEALTH BENEFITS    In addition to providing pension benefits, the City participates in the California Public Employees’ Medical  and Health Care Act program to provide certain health care benefits for retired employees. Employees  who retire directly from the City are eligible for retiree health benefits if they retire on or after age 50  with 5 years of service and are receiving a monthly pension from CalPERS. Details of benefits provided to  retirees are noted in the following tables:       Unit Hired  Before Retiree  Coverage1 Dependent  Coverage Retired on  or After Retiree  Contribution Management & Professional2 1/1/2004 100% 100% 5/1/2011 10% Police Management2 1/1/2004 100% 100% 5/1/2011 10% Fire Fighters2 1/1/2004 100% 100% 12/1/2011 10% Fire Chiefs Association2 1/1/2004 100% 100% 1/1/2013 10% SEIU 1/1/2005 100% 100% 5/1/2011 Flat rate4 Police Officers3 1/1/2006 100% 100% N/A 0% Utilities Managers & Professional2 1/1/2004 100% 100% 5/1/2011 10% 2 Effective 1/1/2007 plan capped at the second highest CalPERS Bay Area Basic plan premium. 3 Effective 3/1/2009 plan capped at the second highest CalPERS Bay Area Basic plan premium. 4 Effective 4/1/2014 City pays $688 for employee, $1,375 for employee +1, $1,788 for family. Unit Hired on or  After Retiree  Coverage1 Dependent  Coverage2 Management & Professional 1/1/2004 50%‐100% Max. 90% Police Management 1/1/2004 50%‐100% Max. 90% Fire Fighters 1/1/2004 50%‐100% Max. 90% Fire Chiefs Association 1/1/2004 50%‐100% Max. 90% SEIU 1/1/2005 50%‐100% Max. 90% Police Officers 1/1/2006 50%‐100% Max. 90%    specified employer contribution, with the City portion increasing by 5% for each additional year of service credit.  2 Maximun of 90% once employee completes 20 years of service. 1 100% of benefits if the employee has five years CalPERS service credit and the employee retired from the City. 1 Employees with ten years of CalPERS service, at least five of which are at the City of Palo Alto, receive 50% of the Retiree contributions for units with the following hire dates are determined by Government Code   Section 22893, 20 year graduated schedule:         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    89   NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    During FY 2008, the City elected to participate in an irrevocable trust to provide a funding mechanism for  retiree health benefits. The Trust, California Employers’ Retirees Benefit Trust (CERBT), is administrated  by CalPERS and managed by a separately appointed board, which is not under control of the City Council.  This Trust is not considered a component unit of the City.    Funding Policy and Actuarial Assumptions  The City’s policy is to prefund these benefits by accumulating assets in the Trust Fund discussed above  pursuant to City Council Resolution. The annual required contribution (ARC) was determined as part of a  June 30, 2011 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) 7.61 percent investment rate of  return, (b) 3.25 percent projected annual salary increase, (c) actuarial value of assets, (d) inflation rate of  3 percent, and (e) health care cost trend data as noted in the following table:     Year Non‐Medicare Medicare 2013 9.0% 9.4% 2014 8.5% 8.9% 2015 8.0% 8.0% 2016 7.5% 7.8% 2017 7.0% 7.2% 2018 6.5% 6.7% 2019 6.0% 6.1% 2020 5.5% 5.6% 2021+ 5.0% 5.0%    The most current funded status of the plan was determined as part of the June 30, 2013 actuarial  valuation. Actuarial assumptions used for the June 30, 2013 actuarial valuation were the same as those  used for the June 30, 2011 actuarial valuation.     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 unfunded actuarial accrued liability for retiree health  benefits is being amortized as a level percentage of projected payroll using a 30 year closed amortization  period.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    90   NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    Generally accepted accounting principles permit assets to be treated as other post employment benefit  (OPEB) assets and deducted from the Actuarial Accrued Liability when such assets are placed in an  irrevocable trust or equivalent arrangement. During the year ended June 30, 2014, 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 13,035$           Amortization on the Net OPEB Asset 1,989                Interest on the Net OPEB Asset (1,769)               Annual OPEB Cost 13,255              Contributions made: Contributions to OPEB Trust 6,697                Contributions to Retirees 4,056                City portion of current year premiums paid*3,261                Total contributions made 14,014              Change in Net OPEB Asset 759                   Net OPEB Asset, beginning of year 21,851              Net OPEB Asset, end of year 22,610$             * FY 2014 premiums for 905 retirees.    Shortly after year‐end, the City contributed an additional $2.8 million to the Trust.    The Plan’s annual OPEB cost and actual contributions for the past three years ended June 30 are set forth  below (in thousands):  Fiscal Year Annual OPEB  Cost Actual  Contribution Percentage  of OPEB  Cost Net OPEB  Obligation  (Asset) June 30, 2012 13,058$           11,323$          87% (21,271)$         June 30, 2013 13,194             13,774            104% (21,851)           June 30, 2014 13,255             14,014            106% (22,610)              CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    91   NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    The Schedule of Funding Progress presents multi‐year trend information about whether the actuarial  value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for  benefits. Trend data from the actuarial studies is presented below (in thousands):    Valuation Date Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll January 1, 2011 165,660$        40,213$          125,447$   24.3% 80,664$       155.5% June 30, 2011 * 168,053           44,774            123,279      26.6% 81,785          150.7% June 30, 2013 203,642           60,070            143,572      29.5% 81,785          175.5% * 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.     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 2014 2013 Net Position, beginning of year 27,233$         26,265$          Interest earnings 51                  78                   Unrealized gain/(loss) on investments 12                  (142)               Interdepartmental charges 11,635           12,986           Retiree health benefits (12,094)         (11,954)          Net Position, end of year 26,837$         27,233$                  NOTE 13 – DEFERRED COMPENSATION PLAN    City employees may defer a portion of their compensation under City sponsored Deferred Compensation  Plans created in accordance with Internal Revenue Code Section 457. Under these Plans, participants are  not taxed on the deferred portion of their compensation until distributed to them. Distributions may be  made only at termination, retirement, death or in an emergency as defined by the Plans.    The laws governing deferred compensation plan assets require plan assets to be held by a Trust for the  exclusive benefit of plan participants and their beneficiaries. Since the assets held under these plans are  not the City’s property and are not subject to City control, they have been excluded from these financial  statements.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    92   NOTE 14 – RISK MANAGEMENT    Coverage  The City provides dental coverage to employees through a City plan, which is administered by a third party  service agent. The City is self‐insured for the dental claims.    The City has a workers’ compensation insurance policy with coverage up to the statutory limit set by the  State of California. The City retains the risk for the first $500,000 in losses for each accident and employee  under this policy.    The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to  $1.0 million per loss.     The City’s property, boiler, and machinery insurance policy has various deductibles and various coverage  based on the type of property.    The City is a member of the Authority for California Cities Excess Liability (ACCEL), which provides excess  general liability, including auto liability, insurance coverage up to $100 million per occurrence. The City  retains the risk for the first $1.0 million in losses for each occurrence under this policy.    ACCEL was established for the purpose of creating a risk management pool for central California  municipalities. ACCEL is governed by a Board of Directors consisting of representatives of its member  cities. The board controls the operations of ACCEL, including selection of claims management, general  administration and approval of the annual budget.    The City’s deposits with ACCEL equal the ratio of the City’s payroll to the total 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, 2014, the City paid $0.8 million to ACCEL for current year coverage.    Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,  California 94110.    Claims Liability  The City provides for the uninsured portion of claims and judgments in the General Benefits and Insurance  Internal Service Funds. Claims and judgments, including a provision for claims incurred but not reported,  and claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount  of the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it  has retained the risk for the deductible or uninsured portion of these claims.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    93   NOTE 14 – RISK MANAGEMENT (Continued)    The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation  claims, as discussed above. Dental liability is based on a percentage of current year actual expense.   General and workers’ compensation liabilities are based on the results of actuarial studies, and include  amounts for claims incurred but not reported as follows as of June 30 (in thousands):    2014 2013 Beginning balance 27,745$          27,466$           Liability for current and prior fiscal years claims and  claims incurred but not reported (IBNR)3,232               3,531                Claims paid (4,224)              (3,252)               Ending balance 26,753$          27,745$           Current portion 5,665$             6,663$              Year Ended June 30     The City has not incurred a claim that has exceeded its insurance coverage limits in any of the last three  years, nor have there been any significant reductions in insurance coverage.         NOTE 15 – JOINT VENTURES  General  The City participates in joint ventures through Joint Powers Authorities (JPAs) established under the Joint  Exercise of Powers Act of the State of California. As separate legal entities, these JPAs exercise full powers  and authorities within the scope of the related Joint Powers Agreement, including the preparation of  annual budgets, accountability for all funds, the power to make and execute contracts and the right to  sue and be sued. Obligations and liabilities of the JPAs 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.      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    94   NOTE 15 – JOINT VENTURES (Continued)    During the year ended June 30, 2014, the City incurred expenses totaling $71.7 million for purchased  power and assessments earned by NCPA.    The City’s interest in NCPA projects and reserves, as computed by NCPA, was $7.5 million at June 30, 2014.  This amount represents the City’s portion of funds, which resulted from the settlement with third parties  of issues with financial consequences and reconciliations of several prior years’ budgets for programs. It  is recognized that all the funds credited to the City are linked to the collection of revenue from the City’s  ratepayers, or to the settlement of disputes relating to electric power supply and that the money was  collected from the City’s ratepayers to pay power bills. Additionally, the NCPA Commission identified and  approved the funding of specific reserves for working capital, accumulated employees’ post‐retirement  medical benefits, and billed property taxes for the geothermal project. The Commission also identified a  number of contingent liabilities that may or may not be realized, the cost of which in most cases is difficult  to estimate at this time. One such contingent liability is the steam field depletion, which will require  funding to cover debt service and operational costs in excess of the expected value of the electric power.  The General Operating Reserve (GOR) is intended to minimize the number and amount of individual  reserves needed for each project, protect NCPA’s financial condition and maintain its credit worthiness.  The GOR funds of $1.5 million are left on deposit with NCPA as a reserve against these contingencies  identified by NCPA.    Members of NCPA may participate in an individual project of NCPA without obligation for any other  project. Member assessments collected for one project may not be used to finance other projects of NCPA  without the member’s permission.    Geothermal Projects  A purchased power agreement with NCPA obligated the City for 6.2 percent and 6.2 percent, respectively,  of the operating costs and debt service of the two NCPA 110‐megawatt geothermal 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, 2014 is $85.6 million. The City’s participation in this project was 6.2 percent, or $5.3million.    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, 2014, the book value of this  Project’s plant, equipment and other assets was $465 million, while its long‐term debt totaled $398.6  million and other liabilities totaled $60.9 million. The City’s share of the Project’s long‐term debt  amounted to $91.2 million at that date.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    95   NOTE 15 – JOINT VENTURES (Continued)    Geothermal Public Power Line  In 1983, NCPA, the Sacramento Municipal Utility District, the City of Santa Clara and the Modesto Irrigation  District (Joint Owners) initiated studies for a Geothermal Public Power Line (GPPL), which would carry  power generated at several existing and planned geothermal plants in The Geysers area to a location  where the Joint Owners could receive it for transmission to their load centers. NCPA has an 18.5 percent  share of this Project and the City has an 11.1 percent participation in NCPA’s share. In 1989, the  development of the proposed Geothermal Public Power Line was discontinued because NCPA was able to  contract for sufficient transmission capacity to meet its needs in The Geysers.    However, because the project financing provided funding for an ownership interest in a Pacific Gas &  Electric (PG&E) transmission line, a central dispatch facility and a performance bond pursuant to the  Interconnection Agreement with PG&E, as well as an ownership interest in the proposed GPPL, NCPA  issued $16 million in long‐term, fixed‐rate revenue bonds in November 1989 to defease the remaining  variable rate refunding bonds used to refinance this project. The City is obligated to pay its 11.1 percent  share of the related debt service, but debt service costs are covered through NCPA billing mechanisms  that allocate the costs to members based on use of the facilities and services.    At June 30, 2014, the book value of this Project’s plant, equipment and other assets was zero, and its long‐ term debt totaled zero.     NCPA’s financial statements can be obtained from NCPA, 180 Cirby Way, Roseville, CA 95678.    Transmission Agency of Northern California (TANC)  The City is a member of a joint powers agreement with 14 other entities in Transmission Agency of  Northern California (TANC). TANC’s purpose is to provide electrical transmission or other facilities for the  use of its members. While governed by its members, none of TANC’s obligations are those of its members  unless expressly assumed by them. The City was obligated to pay 4 percent of TANC’s debt‐service and  operating costs. However, a Resolution was approved authorizing the execution of a Long‐Term Layoff  Agreement (LTLA) between the Cities of Palo Alto and Roseville. These two agencies desired to “layoff”  their entitlement rights to the California‐Oregon Transmission Project (COTP) (and Roseville’s South of  Tesla entitlement rights) for a period of 15 years to those acquiring Members (Sacramento Municipal  Utility District, Turlock Irrigation District, and Modesto Irrigation District). The effective date of this  Agreement was February 1, 2009. As a result, the City is not obligated to pay TANC’s debt‐service and  operating costs starting February 1, 2009, for a period of fifteen years.     TANC has issued four series of Revenue Bonds and Commercial Paper Notes totaling $421.4 million as of  June 30, 2014 and $93.8 million of Commercial Paper debt backed by a Letter of Credit. The City’s share  of these debts is zero due to the LTLA mentioned above.    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, 2014    96   NOTE 15 – JOINT VENTURES (Continued)    Bay Area Water Supply and Conservation Agency (BAWSCA)   The City is a member of a regional water district with 26 other entities, the Bay Area Water Supply and  Conservation Agency (BAWSCA).  BAWSCA was created on May 27, 2003 to represent the interests of 24  cities and water districts and two private utilities in Alameda, Santa Clara and San Mateo counties that  purchase water on a wholesale basis from the San Francisco regional water system.  It has the power to  issue debt and plan, finance, construct, and operate water supply, transmission, reclamation, and  conservation projects on behalf of its members.      In 2013 the City participated in a debt issuance by BAWSCA.  The debt was issued to repay certain long‐ term costs associated with the San Francisco Public Utilities Commission (SFPUC) water supply contract.   The City’s share of the annual debt service is approximately $1.9 million per year, but will vary based on  annual water purchases of the City compared to other BAWSCA agencies.     BAWSCA’s financial statements can be obtained from BAWSCA, 155 Bovet Road, Suite 650, San Mateo,  California 94402.        NOTE 16 – COMMITMENTS AND CONTINGENCIES    Palo Alto Unified School District – The City leases a portion of the former Cubberley School site and twelve  extended day care sites from Palo Alto Unified School District (PAUSD). The lease is part of a larger  agreement, which includes a covenant not to develop certain properties owned by 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. The rent may vary from year to year depending on the  actual number of days used.  Should any new law or regulation require the expenditure of work in excess  of $250,000, per the terms of the lease, the City and PAUSD may renegotiate the lease. This lease is  cancelable upon 90 days’ written notice in the event funds are not appropriated by the City. In addition,  the lease is contingent upon authorization by the Palo Alto electorate if it exceeds the City’s Proposition  4 (GANN) appropriations limitation in any fiscal year. Lease expenditures for the year ended June 30, 2014,  amounted to $7.3 million. Future minimum annual lease and covenant payments for the year ending  June 30, 2015 is $3.6 million.             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    97   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    GreenWaste of Palo Alto – GreenWaste of Palo Alto continues as the City’s contractor for waste  collection, transportation, and processing services. The agreement has a term of eight years, expiring June  30, 2017, with an option to extend the contract to 2021. The base compensation for GreenWaste is  adjusted annually based on CPI indicators stipulated in the contract. In FY 2014 payments to GreenWaste  were $10.9 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, 2014. If the City initiates the termination of the  contracts, it is required to pay the other partners their unamortized contribution towards the capital  assets.    Solid Waste Materials Recovery and Transfer Station (SMaRT Station) – On June 9, 1992, the City, along  with the City of Mountain View, signed a Memorandum of Understanding (MOU) with the City of  Sunnyvale (Sunnyvale) to participate in the construction and operation of the SMaRT station, which  recovers recyclable materials from the municipal solid waste delivered from participating cities. Per the  MOU, the City has a capacity share of 21.3 percent of this facility and reimburses its proportionate capacity  share of design, construction and operation costs to Sunnyvale.    On December 1, 1992, the Sunnyvale Financing Authority issued $24.6 million in revenue bonds to finance  the design and construction costs of the SMaRT Station. 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, 2014, is $1.5 million. During the year ended June 30, 2014, 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 $1.4 million as of  June 30, 2014. During the year ended June 30, 2014, the City paid $0.2 million as its portion of current  debt service.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    98   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    UTILITIES ENERGY RESOURCE MANAGEMENT    Electric Power Supply Purchase Agreements – The City has numerous power purchase agreements with  power producers to purchase capacity and energy to supply a portion of its load requirements. As of  June 30, 2014, the approximate minimum obligations for the contracts, assuming the energy or gas is  delivered over the next five years, are as follows:    Year Projected Obligation  2015 $71.3 million  2016 $61.3 million  2017 $62.1 million  2018 $62.5 million  2019 $62.9 million    Contractual Commitments beyond 2019 (Electricity) – Several of the City’s purchase power and  transmission contracts extend beyond the five‐year summary presented above. These contracts expire  between 2021 and 2046 and provide for power under various terms and conditions.  The City estimates  that its annual minimum commitments under the contracts, assuming the energy is delivered, ranges  between $63.4 million in 2020 and $3.1 million in 2046.  The City’s largest purchase power source is the  Western Base Resource contract, whereby the City receives 12.31 percent of the amount of energy made  available by Western, after meeting Central Valley Project use requirements.  The Western contract  expires on December 31, 2024.     San Francisco Public Utilities Commission – The City purchases water for delivery to its customers from  San Francisco Public Utilities Commission (SFPUC) under a contract terminating in 2034.  The City’s  wholesale water rate under this contract is determined by a ratemaking process under the authority of  SFPUC.  The City is prohibited from purchasing from other water suppliers under this contract, though it  is not prohibited from using ground water.  The City’s cost of water under this contract is projected to  increase from $2.93 per hundred cubic feet (CCF) in FY 2015 to $4.31 per CCF in FY 2021 as SFPUC  completes an upgrade to its regional water system facilities under its Water System Improvement  Program (WSIP).       Contingent Liabilities  Many of the uncertainties faced by the Utilities Department as an aftermath of the 2000‐2001 energy  crisis have been resolved. The Ninth Circuit Court determined that 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 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.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2014    99   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    On April 29, 2010, 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.     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.    Grant Programs  The City participates in Federal and State grant programs. These programs have been audited by the City’s  independent auditors in accordance with the provisions of the Federal Single Audit Act amendments of  1996 and applicable State requirements. No costs were questioned as a result of these audits; however,  these programs are still subject to further examination by the grantors and the amount, if any, of  expenditures which may be disallowed by the granting agencies cannot be determined at this time. The  City expects such amounts, if any, to be immaterial.        NOTE 17 – SUBSEQUENT EVENT    Assumption of Control of the Palo Alto Municipal Airport  On August 11, 2014, sponsorship, operation and management of the Palo Alto Airport was transferred to  the City from the County of Santa Clara.  The Airport is situated on City land and the City is taking over  various agreements with airport tenants, licensees, permit holders and users, the Federal Aviation  Administration and the State Lands Commission.                100   This page is left intentionally blank.  Special Debt Revenue Service Permanent Funds Funds Fund Total ASSETS: Cash and investments: Available for operations 69,320$       6,675$         1,439$          77,434$        Cash and investments with fiscal agents ‐              238               ‐                238               Receivables, net: Accounts 385              27                ‐                412               Interest 334              ‐              7                   341               Notes 17,620        ‐              ‐                17,620         Total assets 87,659$       6,940$         1,446$          96,045$        Liabilities: Accounts payable and accruals 121$            ‐$             1$                  122$             Accrued salaries and benefits 17                ‐              ‐                17                 Total liabilities 138              ‐              1                   139               Fund balances: Nonspendable Notes and loans receivable 13,424        ‐              ‐               13,424         Eyerly family ‐              ‐              1,445           1,445           Restricted Transportation mitigation 10,616        ‐              ‐               10,616         Federal revenue 4,457          ‐              ‐               4,457           Street improvement 758              ‐              ‐               758               Local law enforcement 113              ‐              ‐               113               Debt service ‐              6,940          ‐               6,940           Public benefit 30,578        ‐              ‐               30,578         Committed Developer impact fee 11,085        ‐              ‐               11,085         Housing In‐Lieu 14,491        ‐              ‐               14,491         Special districts 1,457          ‐              ‐               1,457           Downtown business 112              ‐              ‐               112               Assigned Unrealized gain on investment 430              ‐              ‐               430               Total fund balances 87,521        6,940          1,445           95,906         Total liabilities and fund balances 87,659$       6,940$         1,446$          96,045$        LIABILITIES AND FUND BALANCES: CITY OF PALO ALTO Non‐major Governmental Funds Combining Balance Sheet June 30, 2014 (Amounts in thousands) 101 Special Debt Revenue Service Permanent Funds Funds Fund Total REVENUES: Property tax ‐$             4,712$         ‐$              4,712$          Special assessments 94                ‐              ‐                94                 Other taxes and fines 2,095          ‐              ‐                2,095           From other agencies: Community Development Block Grants 468               ‐              ‐                468               State of California 140              ‐              ‐                140               Permits and licenses University Avenue Parking 1,762          ‐              ‐                1,762           California Avenue Parking 206               ‐              ‐                206               Other permits and licenses 72                ‐              ‐                72                 Investment earnings 1,806          ‐              33                  1,839           Rental income 5                  ‐              ‐                5                   Other: Housing In‐Lieu ‐ residential 1,640          ‐              ‐                1,640           Other fees 3,850          ‐              ‐                3,850           Total revenues 12,138        4,712          33                  16,883         EXPENDITURES: Current: Administrative Services 177              ‐              ‐                177               Public Works 891              ‐              ‐                891               Planning and Community Environment 1,552           ‐              ‐                1,552           Public safety 286               ‐              ‐                286               Community Services 133              ‐              ‐                133               Non‐Departmental 145              ‐              6                    151               Debt service: Principal retirement ‐              1,150          ‐                1,150           Interest and fiscal charges ‐              3,059          ‐                3,059           Total expenditures 3,184          4,209          6                    7,399           EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 8,954          503              27                  9,484           OTHER FINANCING SOURCES (USES): Transfers in 454              231              ‐                685               Transfers out (5,100)         ‐              ‐                (5,100)          Total other financing sources (uses)(4,646)         231              ‐                (4,415)          Change in fund balances 4,308          734              27                  5,069           FUND BALANCES, BEGINNING OF YEAR 83,213        6,206          1,418            90,837         FUND BALANCES, END OF YEAR 87,521$       6,940$         1,445$          95,906$        CITY OF PALO ALTO Non‐major Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2014 (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.    Asset Seizure  This fund accounts for seized property and funds associated with drug trafficking. Under California  Assembly Bill No. 4162, the monies are released to the City for specific expenditures related to law  enforcement activities.    Developer Impact Fee  This fund accounts for fees imposed on new developments to be used for parks, community centers and  libraries.    Downtown Business Development District  The Downtown Business Development District Fund was established to account for the activities of the  Palo Alto Downtown Business Development District, which was established to enhance the viability of the  downtown business district.    Public Benefit  This fund accounts for the activities of the SUMC Parties Development Agreement (DA) whereby SUMC  will enhance and expand their facilities and the City will grant SUMC the right to develop the facilities in  accordance with the DA.  Street Federal Housing Special Improvement Revenue In‐Lieu Districts ASSETS: Cash and investments: Available for operations 559$               162$               14,561$          1,478$             Receivables: Accounts 199                158                ‐                  ‐                   Interest 3                     ‐                 63                   6                       Notes ‐                 4,196             13,424            ‐                   Total assets 761$               4,516$            28,048$         1,484$             Liabilities: Accounts payable and accruals ‐$                59$                 47$                  10$                  Accrued salaries and benefits ‐                 ‐                 ‐                  17                    Total liabilities ‐                 59                  47                   27                    Fund balances: Nonspendable Notes and loans receivables ‐                 ‐                 13,424            ‐                   Restricted Transportation mitigation ‐                 ‐                 ‐                  ‐                   Federal revenue ‐                 4,457             ‐                  ‐                   Street improvement 758                ‐                 ‐                  ‐                   Local law enforcement ‐                 ‐                 ‐                  ‐                   Public benefit ‐                 ‐                 ‐                  ‐                   Committed Developer impact fee ‐                 ‐                 ‐                  ‐                   Housing In‐Lieu ‐                 ‐                 14,491            ‐                   Special districts ‐                 ‐                 ‐                  1,457               Downtown business ‐                 ‐                 ‐                  ‐                   Assigned Unrealized gain on investment 3                     ‐                 86                   ‐                   Total fund balances 761                4,457             28,001            1,457               Total liabilities and fund balances 761$               4,516$            28,048$         1,484$             LIABILITIES AND FUND BALANCES: CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Balance Sheet June 30, 2014 (Amounts in thousands) 104 Downtown Business Transportation Local Law Asset Developer Development Public  Mitigation Enforcement Seizure Impact Fee District Benefit Total 10,631$          83$                  2$                   11,101$       112$               30,631$          69,320$       ‐                   28                    ‐                  ‐               ‐                 ‐                  385               49                    1                       ‐                  53                1                     158                 334               ‐                   ‐                   ‐                  ‐               ‐                 ‐                  17,620         10,680$          112$                2$                   11,154$       113$               30,789$          87,659$       ‐$                 ‐$                 ‐$                ‐$             ‐$                5$                    121$             ‐                   ‐                   ‐                  ‐               ‐                 ‐                  17                 ‐                   ‐                   ‐                  ‐               ‐                 5                      138               ‐                   ‐                   ‐                  ‐               ‐                 ‐                  13,424         10,616             ‐                   ‐                  ‐               ‐                 ‐                  10,616         ‐                   ‐                   ‐                  ‐               ‐                 ‐                  4,457            ‐                   ‐                   ‐                  ‐               ‐                 ‐                  758               ‐                   111                  2                      ‐               ‐                 ‐                  113               ‐                   ‐                   ‐                  ‐               ‐                 30,578            30,578         ‐                   ‐                   ‐                  11,085        ‐                 ‐                  11,085         ‐                   ‐                   ‐                  ‐               ‐                 ‐                  14,491         ‐                   ‐                   ‐                  ‐               ‐                 ‐                  1,457            ‐                   ‐                   ‐                  ‐               112                ‐                  112               64                    1                       ‐                  69                1                     206                 430               10,680             112                  2                      11,154        113                30,784            87,521         10,680$          112$                2$                   11,154$       113$               30,789$          87,659$       105 Street Federal Housing Special Improvement Revenue In‐Lieu Districts REVENUES: Special assessments ‐$                ‐$                ‐$                 ‐$                 Other taxes and fines 2,083             ‐                 ‐                   12                    From other agencies: Community Development Block Grants ‐                 468                ‐                   ‐                  State of California ‐                 ‐                 ‐                   ‐                  Permits and licenses University Avenue Parking ‐                 ‐                 ‐                   1,762              California Avenue Parking ‐                 ‐                 ‐                   206                 Other permits and licenses ‐                 ‐                 ‐                   72                    Investment earnings 11                   (5)                    496                  29                    Rental income ‐                 ‐                 5                       ‐                  Other Housing In‐Lieu ‐ residential ‐                 ‐                 1,640               ‐                  Other fees ‐                 205                ‐                   ‐                  Total revenues 2,094             668                2,141               2,081              EXPENDITURES: Current: Administrative Services ‐                 ‐                 ‐                   177                 Public Works ‐                 ‐                 ‐                   891                 Planning and Community Environment ‐                 667                374                  101                 Public safety ‐                 ‐                 ‐                   ‐                  Community Services ‐                 ‐                 ‐                   ‐                  Non‐Departmental ‐                 22                   31                     7                      Total expenditures ‐                 689                405                  1,176              EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 2,094             (21)                 1,736               905                 OTHER FINANCING SOURCES (USES): Transfers in ‐                 ‐                 ‐                   194                 Transfers out (1,917)           (2)                    ‐                   (764)                Total other financing sources (uses)(1,917)           (2)                    ‐                   (570)                Change in fund balances 177                (23)                 1,736               335                 FUND BALANCES, BEGINNING OF YEAR 584                4,480             26,265             1,122              FUND BALANCES, END OF YEAR 761$               4,457$            28,001$          1,457$             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, 2014 (Amounts in thousands) 106 Downtown Business Transportation Local Law Asset Developer Development Public Mitigation Enforcement Seizure Impact Fee District Benefit Total ‐$                 ‐$                 ‐$                ‐$                94$                 ‐$                 94$               ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  2,095            ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  468               ‐                   140                  ‐                  ‐                 ‐                 ‐                  140               ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  1,762            ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  206               ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  72                 222                  5                       ‐                  284                3                     761                 1,806            ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  5                    ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  1,640            2,008               ‐                   ‐                  1,637             ‐                 ‐                  3,850            2,230               145                  ‐                  1,921             97                   761                 12,138          ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  177               ‐                   ‐                   ‐                  ‐                 ‐                 ‐                  891               410                  ‐                   ‐                  ‐                 ‐                 ‐                  1,552            ‐                   286                  ‐                  ‐                 ‐                 ‐                  286               ‐                   ‐                   ‐                  5                     ‐                 128                 133               ‐                   ‐                   ‐                  ‐                 85                   ‐                  145               410                  286                  ‐                  5                     85                   128                 3,184            1,820               (141)                 ‐                  1,916             12                   633                 8,954            ‐                   ‐                   ‐                  260                ‐                 ‐                  454               (435)                 ‐                   ‐                  (782)               ‐                 (1,200)            (5,100)           (435)                 ‐                   ‐                  (522)               ‐                 (1,200)            (4,646)           1,385               (141)                 ‐                  1,394             12                   (567)                4,308            9,295               253                  2                      9,760             101                31,351            83,213          10,680$          112$                2$                    11,154$         113$               30,784$          87,521$        107 Street Improvement Federal Revenue Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) REVENUES: Special assessments ‐$          ‐$              ‐$          ‐$           ‐$              ‐$           Other taxes and fines 1,905       2,083           178          ‐            ‐                ‐            Charges for services ‐           ‐               ‐           ‐            ‐                ‐            From other agencies: Community Development Block Grants ‐           ‐               ‐           455           468               13              State of California ‐           ‐               ‐           ‐            ‐                ‐            Other revenue from other agencies ‐           ‐               ‐           112           ‐                (112)          Permits and licenses University Avenue Parking ‐           ‐               ‐           ‐            ‐                ‐            California Avenue Parking ‐           ‐               ‐           ‐            ‐                ‐            Other permits and licenses ‐           ‐               ‐           ‐            ‐                ‐            Investment earnings 23             11                (12)           ‐            (5)                  (5)              Rental income ‐           ‐               ‐           ‐            ‐                ‐            Other: Housing In‐Lieu ‐ residential ‐           ‐               ‐           ‐            ‐                ‐            Other fees ‐           ‐               ‐           ‐            205               205           Total revenues 1,928       2,094           166          567           668               101           EXPENDITURES: Current: Administrative Services ‐           ‐               ‐           ‐            ‐                ‐            Public Works ‐           ‐               ‐           ‐            ‐                ‐            Planning and Community Environment ‐           ‐               ‐           847           667               180           Public safety ‐ Police ‐           ‐               ‐           ‐            ‐                ‐            Community Services ‐           ‐               ‐           ‐            ‐                ‐            Non‐Departmental ‐           ‐               ‐           ‐            22                 (22)            Total expenditures ‐           ‐               ‐           847           689               158           Excess (deficiency) of revenues  over (under) expenditures 1,928       2,094           166          (280)          (21)                259           OTHER FINANCING SOURCES (USES): Transfers in ‐           ‐               ‐           ‐            ‐                ‐            Transfers out (1,917)     (1,917)         ‐           (2)              (2)                  ‐            Total other financing sources (uses)(1,917)     (1,917)         ‐           (2)              (2)                  ‐            Change in fund balances 11$           177              166$         (282)$         (23)                259$          FUND BALANCES, BEGINNING OF YEAR 584              4,480              FUND BALANCES, END OF YEAR 761$             4,457$           (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, 2014 108 Housing In‐Lieu Special Districts Transportation Mitigation Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) ‐$           ‐$               ‐$           ‐$          ‐$              ‐$          ‐$          ‐$               ‐$           ‐             ‐                 ‐            43              12                (31)           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            1,518        1,762           244          ‐           ‐                 ‐            ‐             ‐                 ‐            195           206              11             ‐           ‐                 ‐            ‐             ‐                 ‐            37              72                35             ‐           ‐                 ‐            161            496                335           23              29                6               174          222                48              ‐             5                     5                 ‐            ‐               ‐           ‐           ‐                 ‐            4,120         1,640             (2,480)      ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           625          2,008             1,383        4,281         2,141             (2,140)      1,816        2,081           265          799          2,230             1,431        ‐             ‐                 ‐            204           177              27             ‐           ‐                 ‐            ‐             ‐                 ‐            1,138        891              247          ‐           ‐                 ‐            725            374                351           175           101              74             410          410                ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            26              ‐               26             ‐           ‐                 ‐            178            31                  147           143           7                   136          ‐           ‐                 ‐            903            405                498           1,686        1,176           510          410          410                ‐            3,378         1,736             (1,642)      130           905              775          389          1,820             1,431        ‐             ‐                 ‐            194           194              ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            (763)          (764)             (1)             (435)         (435)               ‐            ‐             ‐                 ‐            (569)          (570)             (1)             (435)         (435)               ‐            3,378$       1,736             (1,642)$     (439)$        335              774$         (46)$          1,385             1,431$       26,265          1,122           9,295              28,001$        1,457$         10,680$         109 Local Law Enforcement Asset Seizure Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Revenues: Special assessments ‐$          ‐$              ‐$          ‐$           ‐$              ‐$           Other taxes and fines ‐           ‐               ‐           ‐            ‐                ‐            Charges for services ‐           ‐               ‐           ‐            ‐                ‐            From other agencies: Community Development Block Grants ‐           ‐               ‐           ‐            ‐                ‐            State of California ‐           140              140          ‐            ‐                ‐            Other revenue from other agencies ‐           ‐               ‐           ‐            ‐                ‐            Permits and licenses University Avenue Parking ‐           ‐               ‐           ‐            ‐                ‐            California Avenue Parking ‐           ‐               ‐           ‐            ‐                ‐            Other permits and licenses ‐           ‐               ‐           ‐            ‐                ‐            Return on investments 6               5                   (1)             ‐            ‐                ‐            Rental income ‐           ‐               ‐           ‐            ‐                ‐            Other: Housing In‐Lieu ‐ residential ‐           ‐               ‐           ‐            ‐                ‐            Other fees ‐           ‐               ‐           ‐            ‐                ‐            Total revenues 6               145              139          ‐            ‐                ‐            Expenditures: Current: Administrative Services ‐           ‐               ‐           ‐            ‐                ‐            Public Works ‐           ‐               ‐           ‐            ‐                ‐            Planning and Community Environment ‐           ‐               ‐           ‐            ‐                ‐            Public safety ‐ Police 319          286              33             ‐            ‐                ‐            Community Services ‐           ‐               ‐           ‐            ‐                ‐            Non‐Departmental 3               ‐               3                ‐            ‐                ‐            Total expenditures 322          286              36             ‐            ‐                ‐            Excess (deficiency) of revenues  over (under) expenditures (316)         (141)             175          ‐            ‐                ‐            Other financing sources (uses): Transfers in ‐           ‐               ‐           ‐            ‐                ‐            Transfers out ‐               ‐           ‐            ‐                ‐            Total other financing sources (uses)‐           ‐               ‐           ‐            ‐                ‐            Change in fund balances (316)$        (141)             175$         ‐$           ‐                ‐$           Fund balances, beginning of year 253              2                     Fund balances, end of year 112$             2$                  (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, 2014 110 Developer Impact Fee Downtown Business Improvement District Public Benefit Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) ‐$           ‐$               ‐$           154$         94$               (60)$          ‐$          ‐$               ‐$           ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            137            284                147           2                3                   1               679          761                82              ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            947            1,637             690           6                ‐               (6)             ‐           ‐                 ‐            1,084         1,921             837           162           97                (65)           679          761                82              ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            ‐             ‐                 ‐            ‐            ‐               ‐           ‐           ‐                 ‐            5                 5                      ‐            ‐            ‐               ‐           289          128                161           ‐             ‐                 ‐            230           85                145          ‐           ‐                 ‐            5                 5                      ‐            230           85                145          289          128                161           1,079         1,916             837           (68)            12                80             390          633                243           260            260                ‐            ‐            ‐               ‐           ‐           ‐                 ‐            (782)           (782)               ‐            ‐            ‐               ‐           (1,200)     (1,200)           ‐            (522)           (522)               ‐            ‐            ‐               ‐           (1,200)     (1,200)           ‐            557$          1,394             837$          (68)$          12                80$           (810)$        (567)               243$          9,760             101              31,351           11,154$        113$             30,784$         111   112   This page is left intentionally blank.   113   NON‐MAJOR GOVERNMENTAL FUNDS    DEBT SERVICE FUNDS     Downtown Parking Improvement  This fund accounts for revenues received from the General Fund to provide payment of principal and  interest associated with the 2002B Downtown Parking Improvement Certificate of Participation as they  become due.    Library Projects  This fund accounts for revenues received from property taxes to provide payment of principal and interest  associated with the 2010 and 2013A General Obligation Bonds as they become due.  CITY OF PALO ALTO Non‐major Debt Service Funds Combining Balance Sheet June 30, 2014 (Amounts in thousands) Downtown Parking Library Improvement Projects Total ASSETS: Cash and investments: Available for operations 13$                  6,662$            6,675$             Cash and investments with fiscal agents 238                 ‐                  238                   Receivables: Accounts ‐                 27                    27                     Total assets 251$               6,689$            6,940$             FUND BALANCES: Debt service 251$               6,689$            6,940$             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, 2014 (Amounts in thousands) Downtown Parking Library Improvement Projects Total REVENUES: Property tax ‐$                4,712$            4,712$             EXPENDITURES: Debt service: Principal retirement 130                 1,020             1,150               Interest and fiscal charges 101                 2,958             3,059               Total expenditures 231                 3,978             4,209               (DEFICIENCY) OF REVENUES (UNDER) EXPENDITURES (231)               734                  503                   OTHER FINANCING SOURCES (USES): Transfers in 231                 ‐                  231                   Change in fund balances ‐                 734                  734                   FUND BALANCES, BEGINNING OF YEAR 251                 5,955             6,206               FUND BALANCES, END OF YEAR 251$               6,689$            6,940$             115 Downtown Parking Improvement Library Projects Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) REVENUES: Special assessments ‐$         ‐$             ‐$         3,938$      4,712$         774$         Total revenues ‐           ‐              ‐           3,938       4,712           774           EXPENDITURES: Debt service: Principal retirement 130          130             ‐           1,020       1,020           ‐            Interest and fiscal charges 101          101             ‐           3,023       2,958           65             Total expenditures 231          231             ‐           4,043       3,978           65             Excess (deficiency) of revenues  over (under) expenditures (231)        (231)            ‐           (105)         734              839           OTHER FINANCING SOURCES (USES): Transfers in 231          231             ‐           ‐            ‐               ‐            Total other financing sources (uses)231          231             ‐           ‐            ‐               ‐            Change in fund balances ‐$         ‐              ‐$         (105)$        734              839$         FUND BALANCES, BEGINNING OF YEAR 251             5,955            FUND BALANCES, END OF YEAR 251$            6,689$          (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, 2014 116 117  NON‐MAJOR GOVERNMENTAL FUNDS    PERMANENT FUND    Eyerly Family  This fund accounts for the revenues received from assets donated by Mr. and Mrs. Fred Eyerly for the City  and or its citizenry.    Eyerly Family Permanent Fund Variance Actual, plus Positive Budget Encumbrances (Negative) REVENUES: Investment earnings 34$              33$               (1)$                EXPENDITURES: Current: Non‐Departmental ‐              6                   (6)                  Excess (deficiency) of revenues  over (under) expenditures 34                27                 (7)                  Change in fund balance 34$              27                 (7)$                FUND BALANCE, BEGINNING OF YEAR 1,418           FUND BALANCE, END OF YEAR 1,445$          (Amounts in thousands) CITY OF PALO ALTO Non‐major Permanent Fund Schedule of Revenues, Expenditures and Changes in Fund Balance ‐  Budget and Actual For the Year Ended June 30, 2014 118 119  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 Benefits  This fund accounts for the retiree health benefits.      Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total ASSETS: Current Assets: Cash and investments: Available for operations 11,078$      19,229$     12$             12,665$     20,964$     6,899$        4,145$        74,992$      Accounts receivable, net 31                ‐             ‐             35              ‐             473             96               635             Interest receivable 55                102            ‐             57              95              30               25               364             Inventory of materials and supplies 388              ‐             ‐             ‐             ‐             ‐              ‐              388             Total current assets 11,552        19,331      12              12,757      21,059      7,402          4,266           76,379       Noncurrent Assets: Capital assets: Nondepreciable 1,396           1,698         ‐             ‐             ‐             ‐              ‐              3,094          Depreciable, net 10,977        279            3                ‐             ‐             ‐              ‐              11,259       Net OPEB asset ‐               ‐             ‐             ‐             ‐             ‐              22,610        22,610       Total noncurrent assets 12,373        1,977         3                ‐             ‐             ‐              22,610        36,963       Total assets 23,925        21,308      15              12,757      21,059      7,402          26,876        113,342     LIABILITIES: Current Liabilities: Accounts payable and accruals ‐               263            8                989            68              ‐              39               1,367          Accrued salaries and benefits 39                133            ‐             1                ‐             ‐              ‐              173             Accrued compensated absences 8                  13              ‐             3,891         ‐             ‐              ‐              3,912          Accrued claims payable ‐ current ‐               ‐             ‐             146            3,230         2,289          ‐              5,665          Total current liabilities 47                409            8                5,027         3,298         2,289          39               11,117       Noncurrent liabilities: Accrued compensated absences ‐               ‐             ‐             6,286         ‐             ‐              ‐              6,286          Accrued claims payable ‐               ‐             ‐             ‐             17,560      3,528          ‐              21,088       Total noncurrent liabilities ‐               ‐             ‐             6,286         17,560      3,528          ‐              27,374       Total liabilities 47                409            8                11,313      20,858      5,817          39               38,491       NET POSITION: Net Investment in capital assets 12,373        1,977         3                 ‐             ‐             ‐              ‐              14,353       Unrestricted 11,505        18,922      4                1,444         201            1,585          26,837        60,498       Total net position 23,878$      20,899$     7$               1,444$       201$           1,585$        26,837$      74,851$      CITY OF PALO ALTO Internal Service Funds Combining Statement of Fund Net Position June 30, 2014 (Amounts in thousands) 120 Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total OPERATING REVENUES: Charges for services 7,335$        11,300$     1,328$       41,870$     3,239$       460$            11,635$      77,167$      Other ‐               ‐             ‐             ‐             ‐             472             ‐              472             Total operating revenues 7,335           11,300      1,328         41,870      3,239         932             11,635        77,639       OPERATING EXPENSES: Administrative and general 1,157           6,207         848            249            737            1,051          517             10,766       Operations and maintenance 3,582           5,234         477            126            485            ‐              11,577        21,481       Depreciation and amortization 2,116           425            3                ‐             ‐             ‐              ‐              2,544          Claim payments and change in estimated self‐insured liability ‐               ‐             ‐             1,491         2,451         (710)           ‐              3,232          Refund of charges for services 62                9                ‐             ‐             ‐             ‐              ‐              71               Compensated absences and other benefits ‐               ‐             ‐             40,337      ‐             ‐              ‐              40,337       Total operating expenses 6,917           11,875      1,328         42,203      3,673         341             12,094        78,431       Operating income (loss)418              (575)          ‐             (333)          (434)          591             (459)            (792)           NONOPERATING REVENUES (EXPENSES): Investment earnings 262              485            1                266            434            123             63               1,634          Loss on disposal of capital assets (110)            (45)             ‐             ‐             ‐             ‐              ‐              (155)           Other nonoperating revenues 42                 ‐             ‐             ‐             ‐             ‐              ‐              42               Total nonoperating revenues (expenses)194              440            1                266            434            123             63               1,521          Income (loss) before transfers 612              (135)          1                (67)             ‐             714             (396)            729             Transfers in ‐               1,413         ‐             ‐             ‐             ‐              ‐              1,413          Transfers out ‐               (1,818)       ‐             ‐             ‐             ‐              ‐              (1,818)        Change in net position 612              (540)          1                (67)             ‐             714             (396)            324             NET POSITION, BEGINNING OF YEAR 23,266        21,439      6                1,511         201            871             27,233        74,527       NET POSITION, END OF YEAR 23,878$      20,899$     7$               1,444$       201$           1,585$        26,837$      74,851$      CITY OF PALO ALTO Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2014 (Amounts in thousands) 121 Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total Cash flows from operating activities: Cash received from customers 7,489$         11,300$      1,328$        41,861$      3,239$        959$            11,769$       77,945$       Cash refunds to customers (62)              (9)               ‐             ‐             ‐             ‐               ‐              (71)              Cash payments to suppliers for goods and services (3,330)          (5,771)        (492)           (42)             (485)           ‐               (11,577)       (21,697)      Cash payments to employees (1,147)          (6,196)        (852)           (40,818)     (706)           (1,051)          (1,805)          (52,575)      Cash payments for judgments and claims ‐              ‐             ‐             (1,488)        (1,964)        (772)             ‐              (4,224)         Other cash receipts 42                 ‐             ‐             ‐             ‐             ‐               ‐              42                Cash flows provided by (used in)  operating activities 2,992           (676)           (16)             (487)           84               (864)             (1,613)          (580)            Cash flows from noncapital financing activities: Transfers in ‐              1,413          ‐             ‐             ‐             ‐               ‐              1,413          Transfers out ‐              (1,818)        ‐             ‐             ‐             ‐               ‐              (1,818)         Cash flows provided by noncapital financing activities ‐              (405)           ‐             ‐             ‐             ‐               ‐              (405)            Cash flows from capital and related financing activities: Acquisition of capital assets (2,734)          (918)           ‐             ‐             ‐             ‐               ‐              (3,652)         Proceeds from sale of capital assets 150             ‐             ‐             ‐             ‐             ‐               ‐              150             Cash flows (used in)  capital and related financing activities (2,584)          (918)           ‐             ‐             ‐             ‐               ‐              (3,502)         Cash flows from investing activities: Interest received 263             492            1                 268            442            126              65                1,657          Net change in cash and cash equivalents 671             (1,507)        (15)             (219)           526            (738)             (1,548)          (2,830)         Cash and cash equivalents, beginning of year 10,407         20,736       27               12,884       20,438       7,637           5,693           77,822        Cash and cash equivalents, end of year  $      11,078 $      19,229 $              12 $      12,665 $      20,964  $         6,899  $         4,145 $      74,992  Reconciliation of operating income (loss) to net cash flows provided by (used in) operating activities: Operating income (loss)418$           (575)$          ‐$            (333)$          (434)$          591$            (459)$          (792)$           Adjustments to reconcile operating income (loss)  to net cash provided by (used in) operating activities: Depreciation 2,116           425            3                 ‐             ‐             ‐               ‐              2,544          Other 42                 ‐             ‐             ‐             ‐             ‐               ‐              42                Change in assets and liabilities: Accounts receivable 154              ‐             ‐             (9)               ‐             27                 134             306             Inventory of materials and supplies 281             (77)             ‐             ‐             ‐             ‐               ‐              204             Net OPEB asset ‐              ‐             ‐             ‐             ‐             ‐               (759)            (759)            Accounts payable and accruals (29)              (460)           (15)             84               31                ‐               (529)            (918)            Accrued salaries and benefits 5                  16               (4)               1                 ‐             ‐               ‐              18                Accrued compensated absences 5                  (5)                ‐             (233)            ‐             ‐               ‐              (233)            Accrued claims payable ‐              ‐             ‐             3                 487            (1,482)          ‐              (992)            Cash flows provided by (used in)  operating activities 2,992$         (676)$          (16)$            (487)$          84$             (864)$           (1,613)$       (580)$           CITY OF PALO ALTO Internal Service Funds Combining Statement of Cash Flows For the Year Ended June 30, 2014 (Amounts in thousands) 122 123  FIDUCIARY FUNDS    INTRODUCTION  Fiduciary Funds are used to account for assets held by the City acting in a fiduciary capacity for other  entities and individuals. The funds are operated to carry out the specific actions required by the trust  agreements, ordinances and other governing regulations.    Fiduciary Funds are presented separately from the Citywide and Fund financial statements.    Agency Funds are custodial in nature and do not involve measurement of results of operations. The City  maintains three agency funds, as follows:    California Avenue Parking Assessment District  This fund accounts for receipts and disbursements associated with the 1993 Parking District No. 92‐13  Assessment Bonds.    Cable Joint Powers Authority  The fund was established to account for the activities of the cable television system on behalf of the  members.    University Avenue Area Off‐Street Parking Assessment District  The fund accounts for the receipts and disbursements associated with the Series 2012 Limited Obligation  Refunding Improvement Bonds.      CITY OF PALO ALTO All Agency Funds Statement of Changes in Assets and Liabilities For the Year Ended June 30, 2014 Balance Balance California Avenue Parking Assessment District June 30, 2013 Additions Deletions June 30, 2014 ASSETS: Cash and investments available for operations 189$                  ‐$                   9$                        180$                   LIABILITIES: Due to bondholders 189$                  ‐$                   9$                        180$                   Cable Joint Powers Authority ASSETS: Cash and investments available for operations 869$                  ‐$                   114$                   755$                   Interest receivable 5                        ‐                    1                         4                          Total assets 874$                  ‐$                   115$                   759$                   LIABILITIES: Due to other governments 874$                  ‐$                   115$                   759$                   ASSETS: Cash and investments available for operations 2,015$               ‐$                   31$                     1,984$                Cash and investments with fiscal agents 2,542                 ‐                    1                         2,541                  Accounts receivable 30                      ‐                    21                       9                          Interest receivable 11                      ‐                    1                         10                        Total assets 4,598$               ‐$                   54$                     4,544$                LIABILITIES: Due to bondholders 4,598$               ‐$                   54$                     4,544$                Total Agency Funds ASSETS: Cash and investments available for operations 3,073$               ‐$                   154$                   2,919$                Cash and investments with fiscal agents 2,542                 ‐                    1                         2,541                  Accounts receivable 30                      ‐                    21                       9                          Interest receivable 16                      ‐                    2                         14                        Total assets 5,661$               ‐$                   178$                   5,483$                LIABILITIES: Due to bondholders 4,787$               ‐$                   63$                     4,724$                Due to other governments 874                   ‐                    115                    759                     Total liabilities 5,661$               ‐$                   178$                   5,483$                (Amounts in thousands) University Avenue Area  Off‐Street Parking Assessment District 124 125  STATISTICAL SECTION    The statistical section contains comprehensive statistical data, which relates to physical, economic, social  and political characteristics of the City. It is intended to provide users with a broader and more complete  understanding of the City and its financial affairs than is possible from the financial statements and  supporting schedules included in the financial section.    In this section, readers will find comparative information related to the City’s revenue sources,  expenditures, property tax valuations, levies and collections, general obligation bonded debt, utility  revenue debt service, and demographics. Where available, the comparative information is presented for  the last ten fiscal years.    In addition, this section presents information related to the City’s legal debt margin computation, principal  taxpayers, notary and security bond coverages, and other miscellaneous statistics pertaining to services  provided by the City.    In contrast to the financial section, the statistical section information is not usually subject to independent  audit.    Financial Trends  These schedules contain trend information to help the reader understand how the City’s financial  performance and well‐being have changed over time:   Net Position by Component   Changes in Net Position   Fund Balances of Governmental Funds   Changes in Fund Balances of Governmental Funds    Revenue Capacity  These schedules contain information to help the reader assess the City’s most significant local revenue  sources, property tax and electric charges:   Electric Operating Revenue by Source   Supplemental Disclosure for Water Utilities    Assessed Value of Taxable Property   Property Tax Rates, All Overlapping Governments   Property Tax Levies and Collections   Principal Property Taxpayers   Assessed Valuation and Parcels by Land Use   Per Parcel Assessed Valuation of Single Family Residential    Debt Capacity  These schedules present information to help the reader assess the affordability of the City’s current levels  of outstanding debt and the City’s ability to issue additional debt in the future:   Ratio of Outstanding Debt by Type   Computation of Direct and Overlapping Debt   Computation of Legal Bonded Debt Margin   Revenue Bond Coverage    126  STATISTICAL SECTION    Demographic and Economic Information  These schedules offer demographic and economic indicators to help the reader understand the  environment within which the City’s financial activities take place:   Taxable Transactions by Type of Business   Demographic and Economic Statistics   Principal Employers    Operating Information  These schedules contain service and infrastructure data to help the reader understand how the  information in the City’s financial report relates to the services the City provides and the activities it  performs:   Operating Indicators by Function/Program   Capital Asset Statistics by Function/Program   Full‐Time Equivalent City Government Employees by Function    Sources  Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual  Financial Reports for the relevant year.    2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Governmental Activities Investment in capital assets 305,225$      311,335$        326,411$        343,537$         356,657$        369,499$        364,747$        370,111$         378,047$        386,696$         Restricted 27,273          29,885             32,576             27,428             36,632             34,323             16,437             52,934             71,717             68,331              Unrestricted 117,301        123,823          127,190          130,460           118,133          102,199          134,722          142,102           165,810          187,386           Total Governmental Activities Net Position 449,799$      465,043$        486,177$        501,425$         511,422$        506,021$        515,906$        565,147$         615,574$        642,413$         Business‐type Activities Investment in capital assets 303,473$      318,738$        342,922$        370,303$         384,313$        399,317$        416,418$        437,151$         446,597$        473,795$         Restricted 1,750            1,732               1,732               1,732                1,732               4,300                ‐                         ‐                        4,060               4,166                Unrestricted 215,128        228,032          230,912          226,539           208,025          232,420          253,740          262,602           269,926          266,794           Total Business‐type Activities Net Position 520,351$      548,502$        575,566$        598,574$         594,070$        636,037$        670,158$        699,753$         720,583$        744,755$         Primary Government Investment in capital assets 608,698$      630,073$        669,333$        713,840$         740,970$        768,816$        781,165$        807,262$         824,644$        860,491$         Restricted 29,023          31,617             34,308             29,160             38,364             38,623             16,437             52,934             75,777             72,497              Unrestricted 332,429        351,855          358,102          356,999           326,158          334,619          388,462          404,704           435,736          454,180           Total Primary Government Net Position 970,150$      1,013,545$     1,061,743$     1,099,999$     1,105,492$     1,142,058$     1,186,064$     1,264,900$     1,336,157$     1,387,168$      Source:  Annual Financial Statements, Statement of Net Position Fiscal Year Ended June 30 CITY OF PALO ALTO Net Position by Component Last Ten Fiscal Years (Amounts in thousands) (Accrual basis of accounting) $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Primary Government Investment in capital assets Restricted Unrestricted 127 PROGRAM REVENUES 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Governmental Activities Charges for services City Attorney 22$                   22$               13$               16$               12$               53$               ‐$                     ‐$                     ‐$                     ‐$                    City Clerk ‐                        2                    ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                      Administrative Services 480                   627               835               870               726               984               2,889              1,647              15,629            4,055             People Strategy and Operations ‐                        ‐                     11                  ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                      Public Works 573                   805               968               1,310            1,169            1,258            2,419              1,008              1,314              1,093             Planning & Community Environment 4,090               5,509            6,267            5,498            4,704            4,813            7,237              31,491            28,768            12,896           Public Safety 12,356             13,256          13,789          13,692          14,670          14,337          15,274            15,658            16,139            14,902           Community Services 7,592               10,803          9,128            10,314          8,522            8,729            7,724              11,365            13,808            20,882           Library 133                   129               146               176               177               199               480                  1,600              187                  166                Operating grants and contributions 3,677               3,976            5,642            4,029            3,599            4,829            2,884              3,441              5,038              5,360             Capital grants and contributions 804                   3,156           1,756          1,930          3,810          1,280          1,903            1,064              515                 917              Total Governmental Activities Program Revenues 29,727             38,285          38,555          37,835          37,389          36,482          40,810            67,274            81,398            60,271           Business‐type Activities Charges for services Water 21,041             21,108          23,495          26,510          27,120          26,259          26,624            31,467            37,746            40,291           Electric 88,737             119,418       102,549       103,833       119,320       121,900       122,109          118,886          121,805          121,916        Fiber Optics1 ‐                         ‐                     ‐                     ‐                     3,336            3,105            3,322              3,662              4,382              4,485             Gas 31,206             36,977          42,221          49,021          47,838          44,450          43,584            41,774            34,633            35,737           Wastewater Collection 12,041             13,801          14,848          15,102          14,486          15,136          15,094            14,942            16,077            15,599           Wastewater Treatment 15,982             18,778          16,957          22,889          28,425          16,915          18,830            22,200            21,528            18,460           Refuse 23,387             24,795          25,532          28,805          29,101          28,568          30,469            30,645            30,583            30,297           Storm Drainage 2,484               5,174            5,181            5,450            5,505            5,647            5,796              5,892              6,053              6,183             External Services 766                   854               789               112               ‐                     ‐                     ‐                       ‐                       ‐                       ‐                      Operating grants and contributions ‐                        ‐                     ‐                     ‐                     ‐                     361               610                  605                  572                  549                Capital grants and contributions ‐                        ‐                    756             1,594          639             475             3,004            1,526              2,224             2,005           Total Business‐type Activities  Program Revenues 195,644           240,905       232,328       253,316       275,770       262,816       269,442          271,599          275,603          275,522        Total Primary Government  Program Revenues 225,371$         279,190$     270,883$     291,151$     313,159$     299,298$     310,252$       338,873$       357,001$       335,793$      EXPENSES Governmental Activities City Council 130$                 141$             180$             323$             394$             455$             15$                  345$               94$                  387$              City Manager 1,725               1,563            1,760            2,273            2,085            2,399            1,842              1,960              1,237              2,180             City Attorney 2,653               2,598            2,390            2,653            2,575            2,621            953                  1,656              1,642              1,797             City Clerk 770                   945               900               1,241            1,098            1,369            803                  908                  330                  641                City Auditor 764                   843               838               1,379            2,053            2,601            138                  235                  464                  489                Administrative Services2 6,982               6,972            6,419            15,477          17,784          17,893          9,888              10,100            7,614              11,388           People Strategy and Operations 2,410               2,546            2,472            2,806            3,448            3,707            1,346              1,071              1,420              1,346             Public Works 16,400             17,596          16,645          18,565          21,270          18,658          19,357            14,568            20,816            24,577           Planning & Community Environment 10,162             9,931            12,929          16,388          12,940          12,114          15,031            12,074            13,549            14,926           Public Safety 40,543             42,158          43,391          50,126          52,487          55,799          58,996            62,817            59,452            62,883           Community Services 17,240             17,296          15,729          17,736          19,862          17,171          22,845            21,915            22,705            23,822           Library 4,835               5,323            5,347            6,321            6,244            6,143            6,920              7,323              7,319              7,758             Non‐departmental2 12,474             10,400          12,133           ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                      Interest on long term debt 693                   512              477             438             404             370             2,742            2,575              2,562             3,367           Total Governmental Activities Expenses 117,781           118,824       121,610       135,726       142,644       141,300       140,876          137,547          139,204          155,561        Business‐type Activities Water 14,969             15,881          16,794          18,842          20,271          21,037          24,268            29,093            30,707            31,593           Electric 73,051             91,570          99,294          108,032       122,268       107,910       100,130          102,030          106,438          113,004        Fiber Optics1 ‐                         ‐                     ‐                     ‐                     1,284            1,407            1,561              1,489              1,437              1,661             Gas 26,656             29,107          30,690          37,211          34,603          32,498          32,051            28,878            26,749            26,869           Wastewater Collection 8,907               11,005          10,085          12,023          14,875          10,696          12,275            14,825            14,313            13,235           Wastewater Treatment 17,457             16,747          15,901          18,902          36,896          13,466          19,731            20,712            20,635            21,018           Refuse 24,959             26,989          25,372          28,827          37,217          28,119          30,684            31,900            28,542            28,413           Storm Drainage 3,336               2,673            2,517            3,202            2,943            2,491            3,229              3,103              3,703              3,644             Airport ‐                        ‐                     ‐                     ‐                     ‐                     ‐                     31                    153                  246                  466                External Services 760                   868              767             984             ‐                   ‐                   ‐                      ‐                       ‐                      ‐                    Total Business‐type Activities Expenses 170,095           194,840       201,420       228,023       270,357       217,624       223,960          232,183          232,770          239,903        Total Primary Government Expenses 287,876$         313,664$     323,030$     363,749$     413,001$     358,924$     364,836$       369,730$       371,974$       395,464$      CITY OF PALO ALTO Changes in Net Position Last Ten Fiscal Years (Accrual basis of accounting) (Amounts in thousands) Fiscal Year Ended June 30 128 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 NET (EXPENSE)/REVENUE Governmental Activities (88,054)$          (80,539)$      (83,055)$      (97,891)$      (105,255)$    (104,818)$    (100,066)$      (70,273)$        (57,806)$        (95,290)$       Business‐type Activities 25,549             46,065         30,908        25,293        5,413          45,192        45,482          39,416            42,833           35,619         Total Primary Government Net (Expense)/Revenue (62,505)$          (34,474)$      (52,147)$      (72,598)$      (99,842)$      (59,626)$      (54,584)$        (30,857)$        (14,973)$        (59,671)$       GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities Taxes Property tax 16,657$           18,731$       21,466$       23,084$       25,432$       25,981$       29,156$          30,104$          31,929$          35,299$        Sales tax 19,308             20,315          22,194          22,623          20,089          17,991          20,746            22,132            25,606            29,424           Utility user tax 7,269               8,759            9,356            10,285          11,030          11,295          10,851            10,834            10,861            11,008           Transient occupancy tax 5,686               6,393            6,709            7,976            7,111            6,858            8,082              9,664              10,794            12,255           Other taxes 5,580               7,033            6,293            6,261            3,364            4,055            8,156              8,173              10,504            9,660             Investment earnings 4,988               2,567            8,747            12,313          8,525            6,514            3,500              6,238              (1,228)             5,859             Rents and miscellaneous 12,997             10,440          13,670          11,896          15,682          12,729          12,377            14,943            518                  2,575             Transfers 14,064             21,545         15,754        18,701        24,020        13,994        17,083          17,426            19,249           17,103         Total Governmental Activities 86,549             95,783          104,189       113,139       115,253       99,417          109,951          119,514          108,233          123,183        Business‐type Activities Investment earnings 8,093               3,631            11,910          16,416          14,103          10,769          5,722              7,605              (2,754)             6,379             Special item (21,500)            ‐                     ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                      Transfers (14,064)            (21,545)       (15,754)      (18,701)      (24,020)      (13,994)      (17,083)         (17,426)           (19,249)          (17,103)       Total Business‐type Activities (27,471)            (17,914)        (3,844)           (2,285)           (9,917)           (3,225)           (11,361)           (9,821)             (22,003)           (10,724)         Total Primary Government 59,078$           77,869$       100,345$     110,854$     105,336$     96,192$       98,590$          109,693$       86,230$          112,459$      CHANGE IN NET POSITION Governmental Activities (1,505)$            15,244$       21,134$       15,248$       9,998$          (5,401)$        9,885$            49,241$          50,427$          27,893$        Business‐type Activities (1,922)              28,151         27,064        23,008        (4,504)         41,967        34,121          29,595            20,830           24,895         Total Primary Government Change in Net Position (3,427)$            43,395$       48,198$       38,256$       5,494$          36,566$       44,006$          78,836$          71,257$          52,788$        Notes:1Prior to 2009, Fiber Optics was included in Electric. 2Beginning in 2008, includes Non‐departmental expenses. Source: Annual Financial Statements, Statement of Activities   Fiscal Year Ended June 30 129 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 General Fund Nonspendable 3,931$      4,052$      5,002$      7,286$      6,476$      6,581$      6,085$      6,007$      5,749$      6,188$       Assigned 3,401         3,914         6,855         4,851         6,100         7,295         6,235         6,400         5,415         5,432          Unassigned 24,498      26,251      27,551      30,278      30,648      27,581      31,859      29,616      30,913      36,690       Total General Fund 31,830$    34,217$    39,408$    42,415$    43,224$    41,457$    44,179$    42,023$    42,077$    48,310$     Source: Annual Financial Statements, Balance Sheet Fiscal Year Ended June 30 CITY OF PALO ALTO Fund Balances of Governmental Funds (General Fund) Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ Th o u s a n d s Nonspendable Assigned Unassigned 130 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 All Other Governmental Funds Nonspendable ‐$                 ‐$                 ‐$                731$          1,308$       1,402$        1,422$        11,112$     18,189$     14,869$      Restricted 1,522         1,822         1,540         1,406         1,412         55,400        50,646        61,324        84,688        68,468         Committed 7,521         18,430       22,883       15,207       22,043       16,962        24,775        14,284        20,400        27,145         Assigned 57,336       46,723       41,684       44,116       36,629       38,538        20,114        33,264        45,514        55,211         Total All Other Governmental Funds 66,379$    66,975$    66,107$    61,460$    61,392$    112,302$   96,957$     119,984$   168,791$   165,693$    Source: Annual Financial Statements, Balance Sheet Fiscal Year Ended June 30 CITY OF PALO ALTO Fund Balances of Governmental Funds (All Other Governmental Funds) Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ Th o u s a n d s Nonspendable Restricted Committed Assigned 131 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Revenues Property tax 16,657$           18,731$         21,466$       23,084$       25,432$       25,981$       29,248$       30,216$           32,040$       35,393$        Sales tax 19,308             20,315           22,194         22,623         20,089         17,991         20,746         22,132              25,606         29,424          Other taxes and fines 22,037             25,840           26,215         27,385         24,843         25,063         27,890         29,231              32,141         35,305          Charges for services 17,159             18,672           19,929         19,610         19,837         19,775         22,311         46,273              38,976         23,962          From other agencies 2,757               5,931              3,448            4,300            5,984            3,035            1,614            1,116                4,109            5,700             Permits and licenses 3,183               4,305              4,711            4,761            4,033            4,408            5,433            7,136                8,218            8,990             Interest and rentals 14,968             13,776           17,750         20,507         19,183         19,045         16,553         18,583              12,136         18,445          Other revenue 4,269               4,058              7,503            4,713            6,223            4,724            8,624            12,739              17,570         7,471             Total Revenues 100,338           111,628         123,216       126,983       125,624       120,022       132,419       167,426           170,796       164,690        Expenditures Administration1 14,509             14,299           14,399       16,250       16,002       17,353       8,351           9,412                8,291          9,961           Public Works 9,060               9,036              9,256            10,072         10,064         9,787            11,317         11,304              11,489         12,439          Planning and Community Environment 9,692               9,292              11,874         9,861            10,462         9,480            10,309         11,966              13,474         14,761          Public Safety 38,732             40,393           42,451         48,650         48,957         51,022         58,874         62,418              59,537         62,028          Community Services 16,298             19,740           16,533         17,138         17,451         16,451         20,029         20,860              21,661         22,644          Library 4,800               5,170              5,260            6,219            5,985            5,900            6,509            7,072                6,902            7,340             Non‐departmental 9,028               10,389           12,122         14,089         10,765         10,149         7,352            6,819                4,567            8,135             Special revenue and capital projects 21,317             13,243           17,478         21,626         21,485         22,006         35,486         29,154              29,542         37,035          Debt service ‐ principal payments 785                   810                 850               885               800               840               870               1,743                1,489            1,524             Debt service ‐interest and fiscal fees 583                   523                 489               451               416               382               1,815            2,757                2,659            3,196             Payment to bond refunding escrow ‐                        ‐                       ‐                     ‐                     ‐                     ‐                     ‐                     586                   540               ‐                      Total Expenditures 124,804           122,895         130,712       145,241       142,387       143,370       160,912       164,091           160,151       179,063        Excess (Deficiency) of Revenues Over (Under) Expenditures (24,466)           (11,267)          (7,496)          (18,258)        (16,763)        (23,348)        (28,493)        3,335                10,645         (14,373)         Other Financing Sources (Uses) Transfers in 60,429             26,640           27,701         33,437         39,903         34,835         30,323         47,200              50,343         41,683          Transfers out (46,622)           (12,390)          (15,882)        (16,819)        (22,399)        (21,415)        (14,352)        (29,782)            (33,833)        (24,175)         Other ‐                        ‐                       ‐                     ‐                     ‐                     ‐                     (101)              ‐                         ‐                     ‐                      Proceeds from long term debt ‐                        ‐                       ‐                     ‐                     ‐                     59,071         ‐                     3,222                21,706         ‐                      Payments to refund bond escrow (1,038)              ‐                       ‐                     ‐                     ‐                     ‐                     ‐                     (3,104)               ‐                     ‐                      Total Other Financing Sources (Uses)12,769             14,250           11,819         16,618         17,504         72,491         15,870         17,536              38,216         17,508          Net Change in Fund Balances (11,697)$         2,983$           4,323$         (1,640)$        741$             49,143$       (12,623)$     20,871$           48,861$       3,135$          Debt Service as a Percentage of Non‐Capital Expenditures 1.3% 1.2% 1.2% 1.1% 1.0% 1.0% 2.2% 3.5% 3.2% 3.3% Notes: Source: Annual Financial Statements, Governmental Funds, Statement of Revenues, Expenditures and Changes in Fund Balances 1Comprised of the following departments: City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative Services and PS&O. CITY OF PALO ALTO Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) Fiscal Year Ended June 30 132 Commercial and Fiscal Year Residential Industrial City of Palo Alto Total 2005 13,009$             56,683$                 2,289$                       71,981$                   2006 14,973               67,389                   2,492                         84,854                     2007 15,150               68,214                   2,466                         85,830                     2008 16,109               72,632                   2,571                         91,312                     2009 17,939               83,710                   2,823                         104,472                   2010 19,898               89,315                   2,890                         112,103                   2011 19,848               88,076                   2,991                         110,915                   2012 20,328               85,895                   3,352                         109,575                   2013 19,951               86,998                   3,265                         110,214                   2014 18,744               88,419                   3,225                         110,388                   529 Bryant Street LLC Technology City of Palo Alto Municipal Communications & Power Industries (CPI)Research Hewlett‐Packard Company Computer Space Systems/Loral Satellite & Satellite Systems Stanford University Property Management Stanford Hospital & Clinics Hospital Varian Medical Systems, Inc.Manufacturing Veterans Admin Hospital Hospital VMware, Inc.Computer Number Kilowatt‐hour of Customers Sales (kWh)Revenue Residential 26,439               182,227,583         18,744$                      Commercial 2,556                  470,229,174         65,244                        Industrial 120                     213,768,135         23,175                        CPA/Other 224                     84,559,258           3,225                          Total 29,339               950,784,150       110,388$                  City of Palo Alto Power Purchase  Western Area Power Administration 27% Forward Market Purchases 43% Wind Energy 11% Landfill Gas Energy 8% Northern California Power Agency Hydroelectric 5% Short‐Term Market 6% Note: Source: City of Palo Alto, Utilities and Accounting Departments *The top ten customers accounted for approximately 39.5% of total kWh consumption (375,172,708 kWh) and  35.7% of revenue ($40,928,901). The largest customer accounted for 8.3% of total kWh consumption and 7.4% of  revenue. The smallest customer accounted for 1.4% of total kWh consumption and 1.3% of revenue. Revenue includes all utilities (metered and non‐metered), revenue adjustments, and Primary Voltage discount.  Revenue does not include CEC surcharge, UUT, Solar and Rap discounts and deposits. Parts of this schedule are  provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue Bond and are not  required by Governmental Accounting Standards Board (GASB).  CITY OF PALO ALTO Electric Operating Revenue by Source Last Ten Fiscal Years (Amounts in thousands) Top Ten Electric Customers by Revenue* Customer (alphabetical order)Type of Business 133 The top ten customers total consumption is 846,932 CCF with revenue of $6,628,575. This amount accounts for approximately 16.8% of total consumption and 16.3% of revenue. The largest customer (other than the City of Palo Alto) accounted for 2.1% of  consumption and 2.1% of revenue. The smallest customer accounted for 0.8% of consumption and 0.7% of revenue. Note: Source:City of Palo Alto, Utilities Department CITY OF PALO ALTO Supplemental Disclosure for Water Utilities Fiscal Year 2014 Top Ten Largest Water Utility Customers (alphabetical order) City of Palo Alto Hewlett‐Packard Company VMware Inc. This schedule is provided as required by the Continuing Disclosure Agreement for  the City's Utility Revenue Bond and is not required by Governmental Accounting  Standards Board (GASB).  Palo Alto Hills Golf & Country Club Palo Alto Unified School District Oak Creek Apartments Stanford Hospital & Clinics Stanford West Management Veterans Admin Hospital Space Systems/Loral, Inc. 134 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Net Local Secured Roll Land 7,075,300$        7,941,482$        8,725,485$        9,497,746$        10,420,139$      11,007,650$      11,011,160$      11,352,993$      12,255,515$      13,357,851$           Improvements 7,722,660          8,364,668          8,915,623          9,453,436          10,527,617        10,752,671        10,962,928        11,703,597        12,381,306        12,984,735             Personal property 220,585              174,666              213,154              228,875              303,688              288,148              241,280              257,436              287,296              307,499                  15,018,545        16,480,816        17,854,262        19,180,057        21,251,444        22,048,469        22,215,368        23,314,026        24,924,117        26,650,085             Less: Exemptions net of state aid (1,402,039)         (1,595,871)         (1,639,856)         (1,797,327)         (1,871,292)         (1,809,119)         (1,757,241)         (2,346,728)         (2,589,653)         (2,610,521)              Total Net Local Secured Roll 13,616,506        14,884,945        16,214,406        17,382,730        19,380,152        20,239,350        20,458,127        20,967,298        22,334,464        24,039,564             Public utilities 4,150                  4,084                  3,923                  3,174                  2,573                  2,573                  2,573                  2,573                  2,573                  2,573                       Unsecured property 1,354,310          1,361,117          1,391,284          1,536,584          1,702,884          1,638,436          1,495,574          1,516,837          1,355,970          1,493,922               Total Assessed Value 14,974,966$      16,250,146$      17,609,613$      18,922,488$      21,085,609$      21,880,359$      21,956,274$      22,486,708$      23,693,007$      25,536,059$           Total Direct Tax Rate 1%1%1%1%1%1%1%1%1%1% Note: The State Constitution requires property to be assessed at 100% of the most recent purchase price, plus an increment of no more than 2% annually, plus any local over‐rides. These values are considered to be full market values. Source:  County of Santa Clara Assessor's Office CITY OF PALO ALTO Assessed Value of Taxable Property Last Ten Fiscal Years (Amounts in thousands) Fiscal Year Ended June 30 $13,000,000 $15,000,000 $17,000,000 $19,000,000 $21,000,000 $23,000,000 $25,000,000 $27,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ Th o u s a n d s Total Assessed Value 135 Basic County Total County County Hospital City Library Santa Clara Direct and Fiscal Wide Retirement G.O. Bond G.O. Bond Valley Water School Community Overlapping Year Levy Levy (Measure A)1 (Measure N)2 District District College Rates 2005 1.00       0.0388           ‐                   ‐                    0.0092             0.0680        0.0129             1.13               2006 1.00       0.0388          ‐                   ‐                    0.0078             0.0526        0.0119             1.11               2007 1.00       0.0388          ‐                   ‐                    0.0072             0.0720        0.0346             1.15               2008 1.00       0.0388          ‐                   ‐                    0.0071             0.0702        0.0113             1.13               2009 1.00       0.0388          ‐                   ‐                    0.0061             0.0674        0.0123             1.12               2010 1.00       0.0388          0.0122             ‐                    0.0074             0.0686        0.0322             1.16               2011 1.00       0.0388          0.0095             0.0171             0.0072             0.0751        0.0326             1.18               2012 1.00       0.0388          0.0047             0.0155             0.0064             0.0742        0.0297             1.17               2013 1.00       0.0388          0.0051             0.0129             0.0069             0.0718        0.0287             1.16               2014 1.00       0.0388          0.0035             0.0177             0.0070             0.0655        0.0290             1.16               Notes:1The County General Obligation Bond (Measure A) was passed in 2008 to fund the seismic upgrade of the Santa Clara Valley Medical Center. Rates were first levied for the 2009‐10 fiscal year. 2The City of Palo Alto General Obligation Bond (Measure N) was passed in 2008 to fund the construction and  renovation of three of the City's libraries. Rates were first levied for the 2010‐11 fiscal year. Source: County of Santa Clara, Tax Rates and Information CITY OF PALO ALTO Property Tax Rates All Overlapping Governments Last Ten Fiscal Years  $1.10  $1.12  $1.14  $1.16  $1.18  $1.20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Rate per $100 of Assessed Value 136 Fiscal Year Total Tax Percentage Collections in Percentage of Ended June 30 Levy1 for FY Amount of Levy Subsequent Years2 Amount Levy 2005 16,657$         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% 2012 26,494            26,494         100%‐                                   26,494       100% 2013 28,742            28,742         100%‐                                   28,742       100% 2014 30,587            30,587         100%‐                                   30,587       100% Notes: Source:Annual Financial Statements, Government Funds, Statement of Revenues, Expenditures and Changes in Fund Balances. 1During fiscal year 1995, the County of Santa Clara began providing the City 100% of its tax levy  under an agreement which allows the county to keep all interest and delinquency charges  collected. 2Effective fiscal year 1994, the City is on the Teeter Plan, under which the County of Santa Clara  pays the full tax levy due. All prior delinquent taxes were also received in that fiscal year. CITY OF PALO ALTO Property Tax Levies and Collections Last Ten Fiscal Years (Amounts in thousands) Collected within the  Fiscal Year of the Levy Total Collections to Date 137 Taxable  Assessed  Value Rank Percentage of  Total Taxable  Assessed Value Taxable  Assessed  Value Rank Percentage of  Total Taxable  Assessed Value Leland Stanford Jr. University 3,689,653$    1 14.4%2,508,150$   1 16.7% Loral Space & Communications 252,085          2 1.0%196,954         2 1.3% EOSII Palo Alto Technology Center LLC 118,769          3 0.5% Whisman Ventures, LLC 109,311          4 0.4% Pacific Hotel Development Venture LP 81,729            5 0.3% Ronald & Ann Williams Charitable Foundation 61,179            6 0.2% PPC Forest Towers LLC 55,323            7 0.2% Blackhawk Parent, LLC 52,224            8 0.2% 529 Bryant St. LLC 44,358            9 0.2% Park Village Peninsula LLC 39,008            10 0.2% Agilent Technologies 70,688           3 0.5% Harbor Investment Partners 61,997           4 0.4% Hamilton Associates 37,335           5 0.2% 505 Hamilton Avenue Partners 36,358           6 0.2% California Pacific Commercial Corp.34,492           7 0.2% Thoits Bros Inc.28,596           8 0.2% Hyatt Equities LLC 25,944           9 0.2% Inspire Real Estate Holdings 22,500           10 0.2% Total 4,503,639$    17.6%3,023,014$   20.2% Total City Taxable Assessed Value: FY 2014 25,536,059$   FY 2005 14,974,966$   Source: California Municipal Statistics, Inc. Fiscal Year 2014 Fiscal Year 2005 Taxpayer CITY OF PALO ALTO Principal Property Taxpayers Current Year and Nine Years Ago (Amounts in thousands) 138 2013‐2014 No. of Assessed % of No. of % of Taxable % of Valuation1 Total Parcels Total Parcels Total Non‐Residential: Agricultural/forest 34,972,534$           0.15 % 48          0.23 % 32          0.16 % Commercial 1,217,725,581        5.07 459        2.23 454        2.25 Professional/office 2,963,762,320        12.33 520        2.53 503        2.49 Industrial/research & development 1,759,861,882        7.32 189        0.92 182        0.90 Recreational 41,605,067             0.17 14          0.07 12          0.06 Government/social/institutional 35,141,795             0.15 113        0.55 45          0.22 Miscellaneous 6,840,061                0.03 18        0.09 17          0.08 Subtotal Non‐Residential 6,059,909,240$      25.21 % 1,361     6.62 % 1,245     6.17 % Residential: Single family residence 14,208,622,113$   59.11 % 14,926   72.60 % 14,879   73.72 % Condominium/townhouse 1,911,246,785        7.95 3,006     14.62 3,000     14.86 Mobile Home 56,727                     0.00 7             0.03 7             0.03 2‐4 Residential units 375,813,638           1.56 512        2.49 512        2.54 5+ Residential units 1,316,514,149        5.48 335        1.63 310        1.54 Subtotal Residential 17,812,253,412$   74.10 % 18,786   91.38 % 18,708   92.70 % Vacant Parcels 167,401,061$         0.70 % 412        2.00 % 229        1.13 % Total 24,039,563,713$   100       % 20,559   100        % 20,182   100 % Notes: This schedule is provided as required by the Continuing Disclosure Agreement for the City's General Obligation 2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board (GASB). Therefore, ten years of comparison data is not presented. 1Local secured assessed valuation, excluding tax‐exempt property. Source: California Municipal Statistics, Inc. CITY OF PALO ALTO Assessed Valuation and Parcels by Land Use As of June 30, 2014 139 No. of Taxable Average Parcels1 Assessed Valuation Single Family Residential 14,879 $954,945 No. of % of Cumulative % of Cumulative Taxable Total % of Total Total Total % of Total Parcels1 Parcels Parcels Valuation Valuation Valuation 1,563       10.50    10.50           122,339,273$            0.86         0.86              1,890       12.70    23.21           259,842,687              1.83         2.69              918           6.17       29.38           228,694,427              1.61         4.30              760           5.11       34.48           264,491,238              1.86         6.16              749           5.03       39.52           337,588,409              2.38         8.54              796           5.35       44.87           437,697,563              3.08         11.62            683           4.59       49.46           443,390,894              3.12         14.74            608           4.09       53.55           454,451,425              3.20         17.94            688           4.62       58.17           585,819,332              4.12         22.06            682           4.58       62.75           647,931,889              4.56         26.62            615           4.13       66.89           644,701,712              4.54         31.16            529           3.56       70.44           606,657,478              4.27         35.43            506           3.40       73.84           632,593,803              4.45         39.88            503           3.38       77.22           678,992,569              4.78         44.66            431           2.90       80.12           624,094,603              4.39         49.05            390           2.62       82.74           604,251,717              4.25         53.30            311           2.09       84.83           512,381,113              3.61         56.91            277           1.86       86.69           484,873,179              3.41         60.32            202           1.36       88.05           372,949,891              2.62         62.95            225           1.51       89.56           438,425,123              3.09         66.03            1,553       10.44  100.00      4,826,453,788         33.97       100.00        14,879     100.00  14,208,622,113$       100.00      Notes: Source: California Municipal Statistics, Inc. This schedule is provided as required by the Continuing Disclosure Agreement for the City's General  Obligation 2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board  (GASB). Therefore, ten years of comparison data is not presented. 1Improved single family residential parcels. Excludes condominiums and parcels with multiple family  units. $1,900,000‐1,999,999 $2,000,000 and greater Total $1,800,000‐1,899,999 $700,000‐799,999 $800,000‐899,999 $900,000‐999,999 $1,000,000‐1,099,999 $1,100,000‐1,199,999 $1,200,000‐1,299,999 $1,300,000‐1,399,999 $1,400,000‐1,499,999 $1,500,000‐1,599,999 $1,600,000‐1,699,999 $1,700,000‐1,799,999 $600,000‐699,999 $14,208,622,113 $710,650 2013‐2014 Assessed Valuation $0‐99,999 $100,000‐199,999 $200,000‐299,999 $300,000‐399,999 $400,000‐499,999 $500,000‐599,999 Assessed Valuation Assessed Valuation CITY OF PALO ALTO Per Parcel Assessed Valuation of Single Family Residential As of June 30, 2014 2013‐2014 Median 140 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 10,625$    9,915$      9,175$      8,405$      7,605$      6,765$      5,895$      1,685$      1,560$      1,430$       ‐                  ‐                  ‐                  ‐                  ‐                 55,305      55,305      54,540      74,235      73,215       325            225            115             ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  2011 Lease‐Purchase Agreement ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                 2,764         2,400         2,026          Add: unamortized premium ‐                  ‐                  ‐                  ‐                  ‐                 3,766         3,640         3,514         4,400         4,242          ‐                 ‐                 ‐                 ‐                 ‐                 (571)           ‐                 ‐                 ‐                 ‐                  10,950      10,140      9,290         8,405         7,605         65,265      64,840      62,503      82,595      80,913       44,735      43,325      41,859      40,334      38,744      72,104      69,551      65,879      63,104      60,224       Energy Tax Credits ‐                  ‐                  ‐                 1,400         1,300         1,200         1,100         1,000         900            800             State Water Resources Loan ‐                  ‐                  ‐                 5,629         9,000         13,080      16,696      15,900      15,109      14,309       (1,137)       (1,037)       (972)           (1,053)       (2,479)       (2,737)       (229)           580            543            867             43,598      42,288      40,887      46,310      46,565      83,647      87,118      83,359      79,656      76,200       Outstanding Debt 54,548$    52,428$    50,177$   54,715$   54,170$   148,912$ 151,958$ 145,862$  162,251$ 157,113$  1.89% 1.69% 1.51% 1.53% 1.50% 4.48% 4.10% 3.61% 3.80% 3.39% Population (actual)61,674      62,148      62,615      63,367      64,484      65,408      64,417      65,544      66,368      66,861       0.88$         0.84$         0.80$         0.86$         0.84$         2.28$         2.36$         2.23$         2.44$         2.35$          Notes: Sources: State of California, Department of Finance (population) California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income) Annual Financial Statements, Note 7 General Long‐Term Obligations and Note 8 Special Assessment Debt Debt Per Capita 1See the schedule of Demographic and Economic Statistics for personal income data. Per capita personal income is only available for Santa Clara  County, therefore personal income is the product of the countywide per capita amount and the City's population. County of Santa Clara (assessed valuation) 2The City adopted GASB Statement No. 65 in FY 2014 and wrote off accumulated bond issuance costs. Prior years have not been restated. Percentage of Personal Income1 Certificates of Participation General Obligation Bonds Special Assessment Debt Less: unamortized discount/ issuance costs2 Total Governmental Activities Business‐type Activities Utility Revenue Bonds Less: unamortized discount/ issuance costs2 Total Business‐type Activities Total Primary Government Governmental Activities CITY OF PALO ALTO Ratio of Outstanding Debt by Type Last Ten Fiscal Years (Amounts in thousands) Fiscal Year Ended June 30 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ Th o u s a n d s Total Governmental Activities Total Business‐type Activities 141 2013‐2014 Assessed Valuation 25,536,058,396$      Percentage Amount Applicable Applicable Total Debt to City of to City of Outstanding Palo Alto1 Palo Alto Santa Clara County 804,700,000$           7.64%61,438,845$               Foothill‐DeAnza Community College District 613,179,288             22.53% 138,124,766               Palo Alto Unified School District 319,849,249             89.48% 286,197,910               Fremont Union High School District 290,570,108             0.02%63,925                         Los Gatos Joint Union High School District 41,805,000                0.01%5,853                            Mountain View‐Los Altos Union High School District 65,436,599                0.91%596,127                       Cupertino Union School District 261,223,462             0.04%94,040                         Los Altos School District 76,158,560                0.99%753,208                       Mountain View‐Whisman School District 46,000,000                0.84%384,100                       Saratoga Union School District 40,224,483                0.03%12,470                         Whisman School District 23,045,269                2.14%493,399                       City of Palo Alto 77,457,000                100%77,457,000                 El Camino Hospital District 140,010,000           0.09% 126,009                      City of Palo Alto Special Assessment Bonds 29,745,000              100% 29,745,000                Santa Clara Valley Water District Benefit Assessment District 115,045,000           7.64% 8,783,686                   Total Direct and Overlapping Tax and Assessment Debt 604,276,338              757,814,320             7.63% 57,859,123                             375,419,144 7.64%                 28,663,252                    9,730,000 7.64%                       742,886                 13,468,694 22.53%                   3,033,958                    7,925,000 0.01%                           1,110                    4,170,000 0.91%                         37,989                    5,240,000 0.03%                           1,624  City of Palo Alto Certificates of Participation                   1,430,000 100%                   1,430,000  City of Palo Alto 2011 Lease Purchase Agreement                   2,026,000 100%                   2,026,000                    3,275,000 7.63%                       250,046  Midpeninsula Regional Open Space Park District General Fund Obligations 133,209,717           13.19%                 17,574,358   $            111,620,346                   40,732,468   $              70,887,878   $            675,164,216  Ratio to  Assessed Valuation Total Direct Debt 0.32%80,913,000$               Total Overlapping Debt 2.33%594,251,216               Total Direct and Overlapping Debt 2.64%675,164,216$             Notes: 1Percentage of overlapping agency's assessed valuation located within boundaries of the city 2Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non‐bonded capital lease obligations. Source: California Municipal Statistics, Inc. Santa Clara County Pension Obligations Santa Clara County Board of Education Certificates of Participation Foothill‐DeAnza Community College District Certificates of Participation Los Gatos‐Saratoga Joint Union High School District Certificates of Participation Santa Clara County General Fund Obligations CITY OF PALO ALTO Computation of Direct and Overlapping Debt As of June 30, 2014 Direct and Overlapping Tax and Assessment Debt Direct and Overlapping General Fund Debt Mountain View‐Los Altos Union High School District Certificates of Participation Saratoga Union High School District Certificates of Participation Less: Santa Clara County supported obligations Total Net Direct and Overlapping General Fund Debt Overlapping debt is the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. The amount of debt of each  unit applicable to the reporting unit is arrived at by 1) determining what percentage of the total assessed value of the overlapping jurisdiction  lies within the limits of the reporting unit, and 2) applying this percentage to the total debt of the overlapping jurisdiction.   Santa Clara County Vector Control District Certificates of Participation Total Gross Direct and Overlapping General Fund Debt Total Combined Debt 142 Assessed  Valuation: Secured property assessed value, net of exempt real property 25,536,059$        Bonded Debt Limit (3.75% of Assessed Value) 1 957,602               Direct Debt: Certificates of Participation 1,430                   Lease Purchase Agreement 2,026                   General Obligation bonds 73,215                 Total Direct Debt 76,671                 Less: Amount of Debt Not Subject to Limit 2 3,456                     Total Net Debt Applicable to Limit 73,215               Legal Bonded Debt Margin 884,387$            Total Bonded Total Net Debt Legal Total Net Debt Ratio of Net General Fiscal Assessed Debt Limit Applicable to Bonded Debt Applicable to the Debt to Bonded Debt Year Value (AV)(3.75% of AV)Limit Margin Population Debt as a %Assessed Value Per Capita 2005 14,974,966$        561,561$             ‐$                          561,561$            61,674              0.00%‐                    0.00 2006 16,250,144          609,380                ‐                            609,380              62,148              0.00%‐                    0.00 2007 17,609,613          660,360                ‐                            660,360              62,615              0.00%‐                    0.00 2008 18,922,488          709,593                ‐                            709,593              63,367              0.00%‐                    0.00 2009 21,085,609          790,710                ‐                            790,710              64,484              0.00%‐                    0.00 2010 21,880,359          820,513                55,305                 765,208              65,408              6.74%0.0025                  0.85 2011 21,956,274          823,360                55,305                 768,055              64,417              6.72%0.0025                  0.86 2012 22,486,708          843,252                54,540                 788,712              65,544              6.47%0.0024                  0.83 2013 23,693,007          888,488                74,235                 814,253              66,368              8.36%0.0031                  1.12 2014 25,536,059          957,602                73,215                 884,387              66,861              7.65%0.0029                  1.10 Notes: Source: CITY OF PALO ALTO Computation of Legal Bonded Debt Margin As of June 30, 2014 (Amounts in thousands) 1California Government Code, Section 43605 sets the debt limit at 15% of the assessed value of all real and personal property of the City. Because  this Code section was enacted when assessed value was 25% of market value, the limit is calculated at one‐fourth, or 3.75%. This legal debt margin  applies to General Obligation debt. Prior year limits have been adjusted to conform to the current year methodology. 2In accordance with California Government Code Section 43605, only the City's General Obligation bonds are subject to the legal debt limit of 15%.  Enterprise Fund debt is not subject to legal debt margin. Annual Financial Statements, Assessed Value of Taxable Property and Note 7 General Long‐Term Obligations Total Assessed Value for FY 2005 was restated due to correction of data. 143 Less: Net Revenue Fiscal Gross Direct Operating Available for Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio 2005 171,493$     147,123$              24,370$                1,365$          2,257$          3,622$          6.73                     2006 213,337       143,703                69,634                   1,410            2,203            3,613            19.27                  2007 203,146       151,196                51,950                   1,465            2,147            3,612            14.38                  2008 219,801       173,620                46,181                   1,525            2,088            3,613            12.78                  2009 242,693       180,880                61,813                   1,590            2,024            3,614            17.10                  2010 230,308       171,320                58,988                   1,755            1,954            3,709            15.90                  2011 234,278       151,641                82,637                   2,655            3,261            5,916            13.97                  2012 235,160       169,777                65,383                   2,945            2,959            5,904            11.07                  2013 237,842       173,510                64,332                   2,875            3,167            6,042            10.65                  2014 239,948       176,718                63,230                   2,980            3,073            6,053            10.45                  Notes:1Airport, Refuse and Fiber Optics funds have no debt and are therefore excluded from this schedule. 2Excludes depreciation and amortization expense. 3Excludes federal interest subsidy. Source: City of Palo Alto, Accounting Department Debt Service CITY OF PALO ALTO Revenue Bond Coverage Business‐type Activities1 Last Ten Fiscal Years (Amounts in thousands) $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ Th o u s a n d s Net Revenue Available for Debt Service Total Debt Service 144 Fiscal Year 2005 2,621             2,206           1,176        1,310         356             533            317            3,590         7,105            19,214          2006 2,664             2,306           1,168        1,346         370             595            392            4,244         7,104            20,189          2007 2,751             2,486           1,109        1,485         374             602            203            5,075         7,139            21,224          2008 2,685             2,566           1,685        1,497         349             622            405            4,682         6,797            21,288          2009 2,251             2,443           1,431        1,258         315             493            214            4,284         6,635            19,324          2010 2,215             2,418           1,402        1,254         343             549            219            4,458         5,556            18,414          2011 2,374             2,621           1,564        1,292         381             630            242            4,873         6,322            20,299          2012 2,445             2,937           1,590        1,492         387             722            257            5,049         7,034            21,913          2013 2,478             3,160           1,465        1,656         424             765            259            4,056         13,729          27,992          2014 2,097             3,541           1,555        2,041         392             772            444            4,845         9,890            25,577          Source: California State Board of Equalization, compiled by MuniServices LLC Sales Tax Rates for the Fiscal Year ended June 30, 2014 State Rate:6.00% Local (County/City) Rates: Palo Alto (State‐City or County Operations) 0.75% State/Palo Alto (Fiscal Recovery Fund to pay off Economic Recovery Bonds 2004)0.25% Sate (Local Public Safety Fund to support local criminal justice activities 1993)0.50% Special District Tax Rates: Santa Clara County Transit District (SCCT)0.50% Santa Clara County Valley Transportation Authority (SCVT)0.50% Santa Clara VTA BART Operating and Maintenance Transactions and Use Tax (SVTB)0.125% Santa Clara Retail Transactions and Use Tax (SCCR)0.125% Total Sales and Use Tax Rate:8.750% Source: California State Board of Equalization Food  Markets Service  Stations Drug  Stores Other  Retail All Other Apparel  Stores CITY OF PALO ALTO Taxable Transactions by Type of Business Last Ten Fiscal Years (Amounts in thousands) Total ECONOMIC SEGMENT Department  Stores Restaurants Furniture/  Appliance Department Stores 8% Restaurants 14% Furniture/ Appliance 6% Apparel Stores 8% Food Markets 1% Service Stations 3% Drug Stores 2% Other Retail 19% All Other 39% Fiscal Year 2014 145 Santa Clara Santa Clara City of Palo Alto City of Palo Alto Santa Clara City Population County Total County Per Capita Fiscal City of Palo Alto Unemployment School County as a Percentage of Personal Income Personal Income Year Population Rate Enrollment Population County Population (in thousands)(in thousands) 2005 61,674                    2.8%10,527                   1,759,585                  3.51% 82,300,000$         46,772$                    2006 62,148                    2.5%10,607                   1,773,258                  3.50% 88,300,000           49,795                      2007 62,615                    2.6%11,056                   1,808,056                  3.46% 96,100,000           53,151                      2008 63,367                    3.5%11,329                   1,837,075                  3.45% 103,500,000         56,340                      2009 64,484                    6.5%11,329                   1,857,621                  3.47% 104,300,000         *56,147                     * 2010 65,408                    6.2%11,565                   1,880,876                  3.48% 95,500,000           *50,774                     * 2011 64,417                    5.3%12,024                   1,781,427                  3.62% 102,600,000         *57,594                     * 2012 65,544                    4.7%12,286                   1,816,486                  3.61% 111,900,000         *61,602                     * 2013 66,368                    3.6%12,396                   1,842,254                  3.60% 118,600,000         *64,378                     * 2014 66,861                    2.8%12,483                   1,868,558                  3.58%129,600,000         *69,358                     * Note: Data on personal income and per capita personal income is only available for Santa Clara County. Source: California State Department of Finance (population) State Employment Development Office (unemployment rate) Palo Alto Unified School District (school enrollment) * California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income). Forecasts from prior years are updated annually. CITY OF PALO ALTO Demographic and Economic Statistics Last Ten Fiscal Years  60,000  61,000  62,000  63,000  64,000  65,000  66,000  67,000  68,000 City Population  10,000  10,500  11,000  11,500  12,000  12,500  13,000 School Enrollment 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%City Unemployment Rate 146 Number of  Employees Rank Percentage of  Total City  Employment Number of  Employees Rank Percentage of  Total City  Employment Stanford University 11,128         1 8.9%9,821           1 7.0% Stanford University Medical Center/Hospital 5,886           2 4.7%5,025           2 3.6% Lucile Packard Children's Hospital 4,215           3 3.4%3,326           4 2.4% VMware Inc.3,509           4 2.8% SAP 3,500           5 2.8% Veteran's Affairs Palo Alto Health Care System 3,000           6 2.4%3,500           3 2.5% Space Systems/Loral 2,720           7 2.2%1,700           7 1.2% Hewlett‐Packard Company 2,500           8 2.0%2,001           5 1.4% Colubris Networks, Inc.2,201           9 1.8% Palo Alto Medical Foundation 2,200           10 1.8%2,000           6 1.4% Wilson Sonsini Goodrich & Rosati 1,500           8 1.1% Palo Alto Unified School District 1,304           9 0.9% City of Palo Alto 1,074           10 0.8% Total 40,859         32.8%31,251         22.3% Estimated Total City Day Population: FY 2014 125,000        FY 2008 140,000        Notes: Source:   1Comparable data was not available until FY 2008.  AtoZdatabases, http://facts.stanford.edu/governance.html, http://facts.stanford.edu/hospital.html, www.lpch.org/aboutus/, The City  of Palo Alto, A Report to Our Citizens. CITY OF PALO ALTO Principal Employers Current Year and Six Years Ago FY 2014 FY 20081 Employer Available data sources have been shown to be unreliable in the past. These numbers will be refined with the creation of a City business  registry. 147 2004 2005 2006 2007 2008 Governmental activities Community Services Number of theater performances 175                        172                        183                        171                        166                         Total hours of athletic field usage2 ‐                           65,748                 65,791                 70,769                   63,212                  Number of rounds of golf 83,728                   78,410                   76,000                   76,241                   74,630                    Enrollment in recreation classes (includes summer camps 16,435                   15,127                   14,768                   14,460                   13,851                    Planning and Community Environment Planning applications completed 409                        327                        390                        299                        257                         Building permits issued 3,236                     3,081                     3,081                     3,136                     3,046                      Green Building permit applications processed3 ‐                            ‐                            ‐                             ‐                             ‐                            Caltrain average weekday boarding 2,825                     3,264                     3,882                     4,132                     4,589                      Police Calls for service 52,489                   52,233                   57,017                   60,079                   58,742                    Total arrests 2,577                     2,134                     2,530                     3,059                     3,253                      Parking citations issued 47,860                   52,235                   56,502                   57,222                   50,706                    Animal Services Number of service calls 3,575                     4,994                     2,861                     2,990                     3,059                      Number of sheltered animals 3,780                     3,514                     3,839                     3,578                     3,532                      Fire Calls for service 6,675                     6,414                     6,897                     7,236                     7,723                      Number of fire incidents 248                        224                        211                        221                        192                         Number of fire inspections 793                        1,488                     899                        1,021                     1,277                      Library  Total number of cardholders 50,171                   52,001                   55,909                   53,099                   53,740                    Total number of items in collection 267,693                264,511                260,468                270,755                279,403                 Total checkouts 1,314,790             1,282,888             1,280,547             1,414,509             1,542,116              Public Works Street resurfacing (lane miles)17                          20                          20                          32                          27                           Number of potholes repaired 2,907                     3,221                     2,311                     1,188                     1,977                      Sq. ft. of sidewalk replaced or permanently repaired 115,352                132,430                126,574                94,620                   83,827                    Number of trees planted 242                        164                        263                        164                        188                         Total tons of waste landfilled 61,266                   60,777                   59,276                   59,938                   61,866                    Tons of materials recycled 49,268                   50,311                   56,013                   56,837                   52,196                    Business‐type activities Electric Number of customer accounts 28,482                   28,556                   28,653                   28,684                   29,024                    Residential MWH consumed 158,099                161,440                161,202                162,405                162,680                 Gas Number of customer accounts 23,216                   23,301                   23,353                   23,357                   23,502                    Residential therms consumed 11,700,335           12,299,158           11,745,883           11,759,842           11,969,151            Water Number of customer accounts 19,557                   19,605                   19,645                   19,726                   19,942                    Residential water consumption (CCF)3,000,645             2,686,507             2,647,758             2,807,477             2,746,980              Wastewater collection Number of customer accounts 21,830                   21,763                   21,784                   21,789                   21,970                    Millions of gallons processed 8,238                     8,497                     8,972                     8,853                     8,510                      Notes: 2Some data not available. Source: City of Palo Alto Performance Report (formerly the Service Efforts and Accomplishments Report) 1Ten most recent years available. 3In FY 2009, a new Green Building Program was established under the City's Green Building Ordinance to build a new  generation of efficient buildings in Palo Alto that are environmentally responsible and healthy places in which to live and work. CITY OF PALO ALTO Operating Indicators by Function/Program Last Ten Fiscal Years1 Fiscal Year Ended June 30 FUNCTIONS/PROGRAMS 148 2009 2010 2011 2012 2013 159                        174                        175                        175                        184                         45,762                   41,705                   42,687                   44,226                   ‐ 72,170                   69,791                   67,381                   65,653                   60,153                    13,091                   12,880                   12,310                   11,703                   11,598                    273                        226                        238                        204                        307                         2,543                     2,847                     3,559                     3,320                     3,682                      341                        556                        961                        887                        1,037                      4,863                     4,796                     5,501                     5,730                     5,469                      53,275                   55,860                   52,159                   51,086                   54,628                    2,612                     2,451                     2,288                     2,212                     2,274                      49,996                   42,591                   40,426                   41,875                   43,877                    2,873                     2,692                     2,804                     3,051                     2,909                      3,422                     3,147                     3,323                     3,379                     2,675                      7,549                     7,468                     7,555                     7,796                     7,904                      239                        182                        165                        186                        150                         1,028                     1,526                     1,807                     1,654                     2,069                      54,878                   51,969                   53,246                   60,283                   51,007                    293,735                298,667                314,154                306,361                277,749                 1,633,955             1,624,785             1,476,648             1,559,932             1,512,975              23                          32                          29                          40                          36                           3,727                     3,149                     2,986                     3,047                     2,726                      56,909                   54,602                   71,174                   72,787                   82,118                    250                        201                        150                        143                        245                         68,228                   48,955                   38,524                   43,947                   45,411                    49,911                   48,811                   56,586                   51,725                   47,941                    28,527                   29,430                   29,708                   29,545                   29,299                    159,899                163,098                160,318                160,604                156,411                 23,090                   23,724                   23,816                   23,915                   23,659                    11,003,088           11,394,712           11,476,609           11,522,999           10,834,793            19,442                   20,134                   20,248                   20,317                   20,043                    2,566,962             2,415,467             2,442,415             2,513,595             2,521,930              21,210                   22,231                   22,320                   22,421                   22,152                    7,958                     8,184                     8,652                     8,130                     7,546                      Fiscal Year Ended June 30 149 2005 2006 2007 2008 FUNCTION/PROGRAM Public Safety Fire: Fire Stations 8               8               8                8                 Fire Apparatus 25            25            25             23              Police: Police Stations 1               1               1                1                 Police Patrol Vehicles 30            30            30             30              Community Services Acres ‐ Downtown/Urban Parks 170          170          157           157            Acres ‐ Open Space 3,731       3,731       3,744       3,744         Parks and Preserves 35            35            36             36              Golf Course 1               1               1                1                 Tennis Courts 52            52            51             51              Athletic Center 1               1               4                4                 Community Centers 4               4               4                4                 Theaters 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               3                3                 Libraries Libraries 5               5               5                5                 Public Works: Number of Trees Maintained 35,096     34,841     34,556     35,058        Electric Utility1 Miles of Overhead Lines 225          217          194           193            Miles of Underground Lines 188          210          252           253            Water Utility Miles of Water Mains 226          217          217           217            Gas Utility Miles of Gas Mains 207          207          207           207            Waste Water Miles of Sanitary Sewer Lines 202          202          202           202            Note: Source: City of Palo Alto 1The City of Palo Alto Utilities Department recently completed the conversion of its electric system maps  to a GIS mapping system database. Therefore, the distances reported for FY 11/12 and forward are more  accurate than the distances reported in previous years. CITY OF PALO ALTO Capital Asset Statistics by Function/Program Last Ten Fiscal Years  Fiscal Year Ended June 30 150 2009 2010 2011 2012 2013 2014 8                 8                 8               7               77 28              28              27            29            28 28 1                 1                 1               1               11 30              30              30            30            30 30 157            157            157          157          157 157 3,744         3,744         3,744       3,744       3744 3744 36              36              36            36            36 36 1                 1                 1               1               11 51              51              51            51            51 51 4                 4                 4               4               44 4                 4                 4               4               44 3                 3                 3               3               33 1                 1                 1               1               11 1                 1                 1               1               11 1                 1                 1               1               11 3                 3                 3               3               33 5                 5                 5               5               55 34,991       35,025       34,977     34,874     34,907     34,741        193            193            193          223          222 223 253            253            253          245          246 249 214            214            214          234          233          236             207            205            205          210          210          214             207            207            207          217          217          217             Fiscal Year Ended June 30 151 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Governmental Funds         General Fund: Administrative 96       97       99        98       98        89        83        83        85        83         Community Services 98       99       97        96       97        94        74        74        74        74         Office of Emergency Services5 ‐           ‐           ‐            ‐           ‐            ‐            ‐            ‐            ‐           3           Fire 126     127     127      127     127      123      121      122      119      116       Library 44       44       44        44       44        42        41        41        41        42         Planning and Community Environment 53       53       53        53       53        49        44        43        48        49         Police 165     164     163      163     164      161      157      157      154      155       Public Works1 68       68       68        68       69        64        59        56        57        56         Subtotal General Fund 650     652     651      649     652      622      579      576      578      578       All Other Funds: Capital Projects Fund 20       20       20        20       21        24        24        24        26        27         Special Revenue Fund 1          1          1          1          1          1          2          2          2          9           Total Governmental Funds 671     673     672      670     674      647      605      602      606      614       Enterprise Funds Public Works2 113     113     113      113     113      115      115      115      104      99         Utilities3 234     236     235      235     238      242      251      251      254      255       External Services4 6          6          6          6          ‐           ‐           ‐           ‐           ‐           ‐            Total Enterprise Funds 353     355     354      354     351      357      366      366      358      354       Internal Service Funds Printing and Mailing 4          5          4          4          4          4          2          2          2          2           Technology 30       30       30        30       31        31        30        30        31        32         Vehicle Replacement 16       16       16        16       16        16        16        16        17        17         Total Internal Service Funds 50       51       50        50       51        51        48        48        50        51         Total 1,074 1,079 1,076 1,074 1,076 1,055 1,019 1,016 1,014  1,019   1Fleet and Facilities Management 2Refuse, Storm Drainage, Wastewater Treatment Numbers adjusted for rounding purposes. Source: City of Palo Alto ‐ Fiscal Year 2014 Adopted Operating Budget 5Effective in 2014, emergency services and disaster preparation activities have been removed from the Fire Department and  are now shown in newly created Office of Emergency Services. 4Effective in 2009, External Services was dissolved. 5 FTEs were eliminated and 1 FTE was transferred to the Technology  Fund. CITY OF PALO ALTO Full‐Time Equivalent City Government Employees by Function Last Ten Fiscal Years Full Time Equivalent Employees as of June 30 3Electric, Gas, Wastewater Collection, Water 0 200 400 600 800 1,000 1,200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Fu l l  Ti m e  Eq u i v a l e n t s Governmental Funds Enterprise Funds Internal Service Funds 152 CITY OF PALO ALTO  Index to the Single Audit Report  For the Year Ended June 30, 2014  153   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 ..................................... 155    Independent Auditor’s Report on Compliance for Each Major Federal Program and   Report on Internal Control Over Compliance Required by OMB Circular A‐133 ................................... 157    Schedule of Expenditures of Federal Awards ........................................................................................... 159    Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 160    Schedule of Findings and Questioned Costs ............................................................................................. 161    Schedule of Prior Years Findings and Questioned Costs ........................................................................... 162    154                            This page is intentionally left blank.    155  Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated November 17, 2014. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 156  Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Walnut Creek, California November 17, 2014   157  Independent Auditor’s Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by OMB Circular A-133 Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California Report on Compliance for Each Major Federal Program We have audited the City of Palo Alto’s, California (City) compliance with the types of compliance requirements described in the OMB 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, 2014. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 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 on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2014. 158  Report on Internal Control Over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for each major federal program 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. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that were not identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Walnut Creek, California November 17, 2014 Grantor Federal Identifying CFDA Subrecipients Grantor/Pass‐Through Grantor/Program Title Number Number  Expenditures  Expenditures  U.S. Department of Agriculture Pass‐through from California Emergency Management Agency (CalEMA) CA Fire Assitance Agreement 6022‐9 10.09‐FI‐11052012‐150 50,542$                ‐$                        U.S Department of Housing and Urban Development Direct CDBG ‐ Entitlement Grants Cluster Community Development Block Grants/Entitlement Grants B‐10‐MC‐06‐0020 14.218 672,923                574,221                 U.S. Department of Interior Direct ARRA ‐ Water Reclamation and Reuse Program R10AP20003 15.504 5,599                     ‐                          U.S. Department of Justice Direct Equitable Sharing Program CA0431200 16.CA0431200 2,315                     ‐                          U.S. Department of Transportation Pass‐through from State of California Department of Transportation Highway Planning and Construction HSIPL‐5100(014)20.205 898,474                ‐                          Highway Planning and Construction STPL‐5100(019)20.205 544,927                ‐                          Highway Planning and Construction BRLS‐5100(017)20.205 117,770                ‐                          Subtotal 1,561,171             ‐                          Pass‐through from Santa Clara Valley Transportation Authority Highway Planning and Construction CML‐5100(018)20.205 69,548                   ‐                          Total Highway Planning and Construction 1,630,719             ‐                          National Endowment for the Arts Direct NEA Research:  Art Works 197662 45.024 11,300                   ‐                          Institute of Museum and Library Services Pass‐through from California State Library  Grants to States LS‐00‐11‐0005‐11 45.310 65,710                   ‐                          U.S. Department of Homeland Security Direct    National Urban Search and Rescue Response System EMW‐2011‐CA‐K00047 97.025 16,705                   ‐                          Pass‐through from Santa Clara County Office of Emergency Services     Homeland Security Grant Program 13‐31307 97.067 14,900                   ‐                          Total U.S. Department of Homeland Security 31,605                   ‐                          TOTAL EXPENDITURES OF FEDERAL AWARDS 2,470,713$           574,221$               CITY OF PALO ALTO Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2014 See Notes to the Schedule of Expenditures of Federal Awards 159 CITY OF PALO ALTO  Notes to the Schedule of Expenditures of Federal Awards  For the Year Ended June 30, 2014 160  NOTE 1 – REPORTING ENTITY    The schedule of expenditures of federal awards (the Schedule) includes expenditures of federal awards  for the City of Palo Alto, California (City), and its component unit as disclosed in the notes to the basic  financial statements.    NOTE 2 – BASIS OF ACCOUNTING    Basis of accounting refers to when revenues and expenditures or expenses are recognized in the  accounts and reported in the financial statements, regardless of measurement focus applied. All  governmental funds are accounted for using the modified accrual basis of accounting. All proprietary  funds are accounted for using the accrual basis of accounting. Expenditures of federal awards reported  in the Schedule are recognized when incurred and all eligibility requirements have been met.     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, 2014  161  Section I ‐ Summary of Auditor’s Results    Financial Statements  Type of auditor’s report issued on the   basic financial statements of the City:    Unmodified  Internal control over financial reporting:    Material weakness(es) identified? No   Significant deficiency(ies) identified?   None reported  Noncompliance material to the financial statements  noted?    No  Federal Awards   Internal control over major programs:    Material weakness(es) identified? No   Significant deficiency(ies) identified?   None reported  Type of auditor’s report issued on compliance for  major programs:    Unmodified  Any audit findings disclosed that are required to be  reported in accordance with section 510(a) of OMB  Circular A‐133?    No  Identification of Major Programs: 14.218 CDBG – Entitlement Grants Cluster  20.205 Highway Planning and Construction    Dollar threshold used to distinguish between type A  and type B programs:      $300,000  Auditee qualified as a low‐risk auditee? Yes    Section II – Financial Statements Findings  No findings reported.  Section III ‐ Federal Award Findings and Questioned Costs  No findings reported.  CITY OF PALO ALTO  Schedule of Prior Years Findings and Questioned Costs  For the Year Ended June 30, 2014  162  Schedule of Prior Year Findings and Questioned Costs    Finding #SA 2013‐01    Procurement, Suspension and Debarment    Federal Program Title: Highway Planning and Construction    Federal Catalog Number:  20.205    Condition: The City did not contain a certification within the contract  showing that the contractor was not suspended or debarred,  nor was there any evidence that the City verified that the  contractor was not suspended or debarred by checking the  Excluded Parties List System (EPLS) maintained by the General  Services Administration.  The amount reimbursed by the federal  grant for this contract was $144,081.       Status of Corrective Action Plan: In progress. Due to an unexpected staffing change, the City will  hire a new management analyst to draft the policy and  procedures to document the proper verification.            ...………………………………………………………………………. City of Palo Alto 163 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 City of Palo Alto 250 Hamilton Avenue, Palo Alto, CA 94301 P 650.329.2100 W cityofpaloalto.org 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. 30% post-consumer recycled Excerpt   Page 1 of 5  Attachment D  Special Meeting Tuesday, December 2, 2014 Chairperson Berman called the meeting to order at 6:08 P.M. in the Council Chambers, 250 Hamilton Avenue, Palo Alto, California. Present: Berman (Chair), Burt, Holman, Kniss Absent: 3. Recommendation to Adopt an Ordinance Authorizing the Closing of the Fiscal Year 2014 Budget, Including Reappropriation Requests, Closing Completed Capital Projects and Authorizing Transfers to Reserves, and Approval of the Fiscal Year 2014 Comprehensive Annual Financial Report (CAFR). David Ramberg, Assistant Director of Administrative Services, reported major tax revenues had grown while expenses were under Budget. A clean audit pointed to sound financial management. Laura Kuryk, Accounting Manager, advised that tax revenue sources outperformed expectations in Fiscal Year (FY) 2014. There was double digit year-over-year growth in Sales Tax, Transient Occupancy Tax (TOT), and Documentary Transfer Tax. Sales Tax grew from 16 percent in FY 2012 and 15 percent in FY 2014 over 2013. Total FY 2014 revenue exceeded the Adjusted Budget by $2.8 million, or 2 percent. FY 2014 actual expenses of $151.8 million were $1.8 million, 1.1 percent, less than the Adjusted Budget. Savings were due to non-salary budget savings across General Fund departments. The City proactively contained expenses, notably through negotiations with labor groups. Pension and retiree medical costs would continue to rise in future years as a result of increasing plan costs and changes to actuarial assumptions and methods. The City proactively implemented a second pension tier and increased employee contributions to mitigate increasing costs. Public Safety Department overtime exceeded Budget for FY 2014 by $1 million. The shortfall was absorbed through vacancy savings and other means. The Public Safety Department Budget would be reexamined as the FY 2016 Budget was developed. In the first quarter of FY 2015, Police Department overtime had decreased by 14 percent and Fire Department overtime increased by 9 percent. The Budget Stabilization Reserve (BSR) Fund opened the year with a balance of $30.3 million. The BSR surplus for FY 2014 was $8.726 million before transferring any excess to the Infrastructure Reserve Fund. Staff recommended $4  Page 2 of 5  Finance Committee Special Meeting  Minutes 12/2/2014  million be transferred to the Infrastructure Reserve Fund, leaving a BSR Fund balance of $35.1 million. $1.7 million would be carried forward to FY 2015 and used for one-time expenditures, leaving an accounting basis balance of $33.4 million, 19.5 percent of the FY 2015 Adopted Budget expenditures and operating transfers. The 19.5 percent fell within the City's established reserve guidelines. Chair Berman inquired about the established range for reserves. Lalo Perez, Chief Financial Officer and Director of Administrative Services, responded 15 percent to 20 percent with a target of 18.5 percent. Ms. Kuryk continued that $7.6 million in FY 2013 and $8.9 million in FY 2012 were transferred to the Infrastructure Reserve for a total of $20.5 million, including the $4 million transfer proposed for FY 2014. As of June 30, 2014, the Infrastructure Reserve balance was $3.4 million. If all existing adopted projects were completed as budgeted and without further funding, there would be $3.4 million in cash and in the Infrastructure Reserve. All Enterprise Funds had surpluses from operations in FY 2014 with the exception of the Airport Fund and the Wastewater Treatment Fund. The Wastewater Treatment Fund totaled a negative $1.9 million due to a one- time change in the Water Quality Control Plant's process for invoicing partners. All Enterprise Funds were in a positive Rate Stabilization Reserve (RSR) position as of June 30, 2014, with the exception of the Refuse Fund and the Airport Fund. The Refuse Fund had a negative RSR created by virtue of the reserve for landfill closure. FY 2014 results improved from negative $2.8 million to negative $1.6 million. The Airport Fund continued to show a negative RSR. The Airport Fund would begin generating a revenue stream in the first quarter FY 2015; however, net deficits could continue for some time. Mr. Perez remarked that changes in compensation and increases in revenue were some factors that resulted in surpluses. Over the past four years, the City had dedicated the vast majority of excess revenue to infrastructure for a total of $20.5 million. Policies implemented by the Council had assisted with the infrastructure deficit. Vice Mayor Kniss inquired about the next steps for a new Public Safety Building and Fire Station remodeling. James Keene, City Manager, reported Staff was in the second stage of reviewing site options for the Public Safety Building. After the new year, Staff would meet with the Council and discuss site options. Mr. Sartor could speak to the scheduling and staging of projects included in the infrastructure plan.  Page 3 of 5  Finance Committee Special Meeting  Minutes 12/2/2014  Vice Mayor Kniss felt the community wanted to know the status of projects. She understood the TOT increase was the last step in being prepared to begin projects. Mike Sartor, Director of Public Works, advised that the FY 2015 Budget contained funds to start the design for replacement of Fire Station Number 3. Staff identified a project team and were putting together a Request for Proposals (RFP) for consultant support for design work. Staff reviewed potential sites for the Public Safety Building and planned to return to the Council with options for sites and costs of land. Following that, Staff would identify a project team and develop a contract for design work. Vice Mayor Kniss asked if sites with merit were available. Mr. Sartor answered yes. Staff identified four sites that were usable for a Public Safety Building. Vice Mayor Kniss inquired about a timeframe for discussion with the Council. Mr. Sartor indicated Staff would provide a review of sites in January or February 2015. Vice Mayor Kniss hoped to have a report by February. Mr. Sartor would do his best to return by February. Mr. Keene requested the Finance Committee (Committee) provide a recommendation as to whether Staff should interface with the Finance Committee or the Policy and Services Committee. Much of the discussion and work would concern prioritizing a schedule. Staff could provide ongoing reports to a Council Committee and periodic reports to the Council. Chair Berman recommended Staff check-in with the full Council and request direction regarding the best process for proceeding with capital items. Vice Mayor Kniss commented that the paragraph in the middle of Packet Page 211 was misleading regarding the backlog of projects. Mr. Perez would provide a status report on projects not funded. Council Member Burt questioned whether next steps for the Infrastructure Plan should be addressed through the Committee or some other method. That question should be posed to the Council shortly after the first of the year. It could be included in the Council Retreat. He was interested in a discussion of potentially implementing a reserve fund to cover unfunded pension liabilities for retiree medical. That too could be included at the Council Retreat. A few years ago, the City reduced the number of its  Page 4 of 5  Finance Committee Special Meeting  Minutes 12/2/2014  employees to assist with balancing the Budget. The number of employees was returning to previous levels; therefore, the Council should discuss appropriate staffing levels and impacts on long-term financial planning. Council Member Holman noted department Budgets had increased from 2009 to 2014 and suggested Staff provide an explanation for those increases. The information did not note that the Council approved Budget Amendment Ordinances (BAO). She did not recall seeing the percentage of the Budget that resulted from BAOs or how Staff accounted for them. She inquired whether Staff could better anticipate BAOs. Mr. Perez reported Staff was aware of some BAOs but not the amount. Staff could look at trends. Sometimes BAOs resulted from Council directions. Council Member Holman suggested Staff track BAOs and provide a list of anticipated items with a range of costs during the Budget process. Mr. Keene advised that the majority of BAOs occurred within the existing Budget; funds were moved from one source to another. A BAO did not necessarily add to costs. Explanations of what drives changes were typically identified within the Budget document. Mr. Perez added that Staff provided the status of BAOs to date during the quarterly report. Chair Berman inquired whether the BSR ending balance on June 30, 2014 included the $1.7 million earmarked for FY 2014 one-time expenditures. Ms. Kuryk replied that it did not include the $1.7 million. Chair Berman asked if the BSR 19.5 percent was based on $35 million or $35 million less $1.7 million. Ms. Kuryk explained that the $35.1 million amount represented 20.5 percent. After transferring $1.7 million, the BSR would be at 19.5 percent. Chair Berman inquired about the City Manager's actions when BSR reached 18.5 percent. Mr. Perez reported the City Manager had the discretion to recommend transferring funds to the Infrastructure Reserve. The Council directed Staff to make the transfer for FY 2014. Chair Berman inquired about the percentage of the beginning balance on July 1, 2013, $30.3 million. Mr. Perez calculated 18.5 to 19 percent.  Page 5 of 5  Finance Committee Special Meeting  Minutes 12/2/2014  Chair Berman recalled the decision to request a 2 percent TOT increase resulted in a funding gap of $10 million. Mr. Perez clarified that the final amount was $7 million. Chari Berman stated that the $1.7 million would represent about 25 percent of the $7 million. If the BSR were decreased to 18.5 percent, another $1.7 million would be available to help close that gap. He was not recommending the City do that, but everyone should be aware of the long-term gap in the Infrastructure Funding Plan. Mr. Perez recommended the hold a discussion on the topic, because several factors affected funding. Projected costs could have changed. Chair Berman asked if Mr. Perez meant costs for infrastructure items. Mr. Perez replied yes. Revenues could be higher or lower than expected. Staff needed to analyze whether lowering the BSR target would affect the City's credit rating in light of the City issuing several million dollars of debt. Decision should be made in light of the bigger context. Chair Berman had received public comments regarding Staff's workload. Staff's workload increased because of fewer employees and the many ongoing projects. The community expected high quality services as well as more programs and projects. MOTION: Council Member Burt moved, seconded by Council Member Holman to recommend to the City Council adoption of an Ordinance authorizing the closing of the Fiscal Year 2014 Budget, including Reappropriation Requests, closing completed Capital Projects and authorizing transfers to reserves, and approval of the fiscal year 2014 Comprehensive Annual Financial Report (CAFR). Council Member Burt remarked that the City had a trend of increasing strength and had been investing additional funding in infrastructure projects. He looked forward to the implementation of investments. MOTION PASSED: 4-0 City of Palo Alto (ID # 5464) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/9/2015 City of Palo Alto Page 1 Summary Title: Contract Amendment for Dyett & Bhatia Title: Approval of a Contract Amendment in the Amount of $63,000 to Contract No. C14149978 With Dyett and Bhatia Urban and Regional Planners for Additional Data Collection and Analysis Related to Downtown Retail and Residential Uses From: City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that Council approve and authorize the City Manager or designee to amend the existing contract with Dyett & Bhatia Urban & Regional Planners to add $63,000 for a total contract amount not to exceed $263,000 for further data and analysis related to the Downtown Cap Study and its integration into the pending Comprehensive Plan Update process. Executive Summary In October 2013, the City Council awarded a contract for the Downtown Development Cap Study (Phase 1) to Dyett & Bhatia Urban & Regional Planners. As part of that study, Dyett & Bhatia performed detailed data collection and analysis of non-residential developments in the Downtown area. Phase I has been completed and the Council received the resulting reports in June 2014 and January 2015. Now, additional Downtown data is needed focusing on retail and residential uses. At the December 8, 2014 meeting on the Comprehensive Plan, Council directed staff to explore retail preservation issues by gathering data and stakeholder input, and return to Council for direction on preparation of a related ordinance(s). In addition, the City’s adopted Housing Element commits the City to exploring elimination of housing sites identified on south El Camino and San Antonio Avenue in exchange for new sites or higher densities in the California Avenue and Downtown areas. The contract amendment will task the consultant with an analysis of downtown retail as well as downtown’s residential capacity. Dyett & Bhatia Urban & Regional Planners, as prime consultant, with Economic Planning Systems, Inc. (EPS), as sub consultant, have familiarity and understanding of Palo Alto City of Palo Alto Page 2 Downtown land use issues, real estate market trends, and parking and traffic conditions from preparing the Downtown Cap Study Phase One studies. Background City Council awarded the contract for the Downtown Development Cap Study Phase 1 to Dyett and Bhatia Urban and Regional Planners, in October 2013, and the study was completed over the course of 2014. The study included background research and analysis of existing land use and development trends, parking and traffic conditions and the theoretical and realistic capacity of Downtown Palo Alto for non-residential development. The Council specifically deferred a discussion of policy implications (Phase 2 of the study) until a later date and the Comprehensive Plan Update has become the forum for discussions related to the relative merits of growth management programs like the “cap” instituted in Comprehensive Plan Program L-8. In the course of discussions regarding the Comprehensive Plan process this summer, the City Council requested that staff concurrently consider ordinance changes to preserve ground floor retail, necessitating data collection and stakeholder discussions in the City’s retail districts. The City Council also adopted an updated Housing Element which commits the City to assess the potential for removing housing sites in the San Antonio/South El Camino Real areas, requiring an analysis of the potential for residential development in Downtown. Discussion Dyett & Bhatia Urban & Regional Planners (as prime consultant) recently completed Phase 1 of the Downtown Development Cap Study for the City of Palo Alto. They have familiarity with economic conditions and land use issues of Downtown Palo Alto and understand the community context through their experience working on the Development Cap project. Their team of sub consultants also has knowledge and experience evaluating local as well as regional real estate market conditions. Deliverables under this proposed contract modification will include two memoranda: a residential build out and market assessment memorandum and a retail analysis memorandum with findings from detailed zoning based retail capacity analysis and retail market assessment. A detail of the work scope is provided in Attachment B. Timeline Immediately upon execution of a contract amendment, staff will meet with the consultants to initiate the scope of work described in Attachment B. Staff expects the retail market assessment and capacity analysis to be completed within one or two months after commencement followed by residential market analysis to be completed by April/May of 2015. Resource Impact City of Palo Alto Page 3 Sufficient funding is available in the Planning and Community Environment Department FY 2015 budget for the retail and residential market assessment and capacity study. Policy Implications The culture of Palo Alto demands ample data and analysis to inform decision making. Undertaking the proposed assessment of retail trends and residential capacity would continue to address Comprehensive Plan Program L-8 (re-evaluate the Downtown cap) and L-9 (monitor the effectiveness of ground floor retail requirements), and would inform implementation of Housing Element Program H2.2.5 (identify more transit-rich sites including the downtown and consider exchanging for sites along San Antonio and South El Camino Real). Environmental Review The recommended action in this report is exempt from the provisions of the California Environmental Quality Act (CEQA). Specifically, this action would authorize the city to conduct a land use study that will help inform future decisions. No action, change or impact to the environment will occur as a direct result of this decision. Accordingly, the project is exempt pursuant to CEQA Guidelines Section 15262 (Feasibility and Planning Studies) and Section 15061(b)(3) (the “Common Sense exception”). Attachments:  Attachment A: Dyett & Bhatia Contract Amendment (PDF)  Attachment B: Scope of Work (PDF) 1 of 10 Revision April 28, 2014 AMENDMENT NO. 1 TO CONTRACT NO. C14149978 BETWEEN THE CITY OF PALO ALTO AND DYETT & BHATIA, URBAN AND REGIONAL PLANNERS This Amendment No. 1 to Contract No. C14149978 (“Contract”) is entered into February 2, 2015, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and DYETT & BHATIA, URBAN AND REGIONAL PLANNERS, a California corporation, located at 755 Samsome Street, Suite 400, San Francisco, California, Telephone (415) 956-4300 ("CONSULTANT"). R E C I T A L S A. The Contract was entered into between the parties for the provision of evaluation of existing and projected parking, traffic and land use conditions in the downtown Palo Alto. B. CITY intends to increase compensation of $200,000.00 by $63,000.00 to $263,000.00 for additional studies as specified and incorporated into EXHIBIT “A” SCOPE OF SERVICES. C. The parties wish to amend the Contract. NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the parties agree: SECTION 1. Section 4 is hereby amended to read as follows: “SECTION 4. NOT TO EXCEED COMPENSATION. The compensation to be paid to CONSULTANT for performance of the Services described in Exhibit “A”, including both payment for professional services and reimbursable expenses, shall not exceed Two Hundred Fifty Three Thousand Dollars ($253,000.00). In the event Additional Services are authorized, the total compensation for Services, Additional Services and reimbursable expenses shall not exceed Two Hundred Sixty Three Thousand Dollars ($263,000.00). The applicable rates and schedule of payment are set out in Exhibit “C-1”, entitled “HOURLY RATE SCHEDULE,” which is attached to and made a part of this Agreement. Additional Services, if any, shall be authorized in accordance with and subject to the provisions of Exhibit “C”. CONSULTANT shall not receive any compensation for Additional Services performed without the prior written authorization of CITY. Additional Services shall mean any work that is determined by CITY to be necessary for the proper completion of the Project, but which is not included within the Scope of Services described in Exhibit “A”.” DocuSign Envelope ID: 6ADAEA73-7F71-4581-AEA2-CD1864D617A1 ATTACHMENT A 2 of 10 Revision April 28, 2014 SECTION 2. The following exhibit(s) to the Contract is/are hereby amended to read as set forth in the attachment(s) to this Amendment, which are incorporated in full by this reference: a. Exhibit “A” entitled “SCOPE OF SERVICES”. b. Exhibit “B” entitled “SCHEDULE OF PERFORMANCE”. c. Exhibit “C” entitled “COMPENSATION”. d. Exhibit “C1” entitled “HOURLY RATE SCHEDULE”. SECTION 3. Except as herein modified, all other provisions of the Contract, including any exhibits and subsequent amendments thereto, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have by their duly authorized representatives executed this Amendment on the date first above written. CITY OF PALO ALTO APPROVED AS TO FORM: DYETT & BHATIA, URBAN AND REGIONAL PLANNERS Attachments: EXHIBIT "A": SCOPE OF SERVICES EXHIBIT "B": RATE SCHEDULE EXHIBIT “C” COMPENSATION EXHIBIT “C1” HOURLY RATE SCHEDULE DocuSign Envelope ID: 6ADAEA73-7F71-4581-AEA2-CD1864D617A1 President 3 of 10 Revision April 28, 2014 EXHIBIT “A” SCOPE OF SERVICES Per Amendment No. 1, EXHIBIT “A” is hereby modified to incorporate the following additional scope of services. PROJECT UNDERSTANDING AND APPROACH CONSULTANT and Economic & Planning Systems, Inc.(SUB-CONSULTANT) recently completed Phase 1 of the Downtown Development Cap Study for CITY, which consisted of background research and analysis of land use and development trends, parking, and economic conditions in Downtown Palo Alto following implementation of the non-residential development cap policy established in 1986. The final deliverable included an assessment of current and potential future non-residential development in Downtown Palo Alto, based on an analysis of remaining development capacity under current zoning, physical and regulatory constraints to development, and the market potential for and financial feasibility of new development. CITY now wishes to see additional analysis of this nature completed for two additional land use types: residential and retail. For residential, CITY seeks to understand the potential of the Downtown area to accommodate more residential development, both in general over the long term to support a mixed use, vibrant urban core, as well as in the short/medium term (the upcoming Housing Element cycle) to support housing units in the Housing Element currently allocated to the San Antonio/South El Camino Real area. Residential uses were excluded from the original downtown development cap, and consequently, largely excluded from the study recently completed. This effort would supplement the work previously completed with a similar type of analysis. CITY is also concerned about the trend in conversions of retail space to non-retail uses, particularly office uses, in the Downtown area off University Avenue. In particular, small-scale “mom and pop” stores appear to be most affected. Retail, as a non-residential use, was included in the overall analysis of supply and demand for non-residential space in Downtown; this effort would parse out buildout potential for retail as a subset of commercial uses overall. CITY is beginning the process of considering a Retail Preservation Ordinance; the work completed under this project would help inform that effort. PROPOSED SCOPE OF WORK Task 1: Project Kickoff A. Kickoff meeting with staff to review objectives and data (CONSULTANT & SUB- CONSULTANT). At the kickoff meeting with staff, the team will finalize the scope, budget, deliverables, and schedule. Data sources—and potential gaps in data—will also be identified and discussed. Task 2: Residential Analysis A. Zoning-based Residential Buildout Analysis (CONSULTANT)  CONSULTANT will review current zoning regulations pertaining to residential uses (mixed use; high density, etc.) that apply to the Downtown, including parking requirements and DocuSign Envelope ID: 6ADAEA73-7F71-4581-AEA2-CD1864D617A1 4 of 10 Revision April 28, 2014 development standards.  Using the parcel-based existing land use database developed as part of Phase I of the Downtown Cap Study, CONSULTANT will calculate existing residential units (both in single-use and mixed- use developments) and density and map their distribution.  CONSULTANT will calculate the potential additional residential units allowed under the current zoning, both the theoretical maximum and reasonable range, accounting for physical and regulatory constraints and likely sites for redevelopment. Where applicable, potential bonus density will also be taken into account. The parking required for additional residential units will also be calculated based on current standards. CONSULTANT will provide an assessment of likely development constraints, including parking potentially provided on- site.  CONSULTANT will evaluate the housing unit potential in the Downtown relative to the sites inventory prepared for the Draft Housing Element and assess whether Downtown sites can accommodate units (at the appropriate density) previously allocated to the San Antonio/South El Camino Real area, understanding that the unit capacities on Housing Element sites is less than the maximum number of units that the zoning would permit. The remaining capacity for residential units beyond allocation of these sites will then be calculated. This analysis will also consider what residential density increases, if any, would be necessary to support additional housing sites currently located in the San Antonio/South El Camino Real area, as well as the impact of State density bonus laws on the total number of units if affordable housing were to be provided. B. Residential Market Assessment (SUB-CONSULTANT)  SUB-CONSULTANT will provide a review of recently developed and pipeline residential and residential mixed-use projects, including for-sale and rental products, within the Downtown, local, and broader regional housing markets. The purpose of the review is to characterize the range of housing projects that are being pursued by the development community. SUB-CONSULTANT will consider the scale and intensity of these projects and their market performance (e.g., values, occupancy rates). These data will provide examples of the types of residential development that might be market supported in Downtown Palo Alto in the future. Potential constraints to housing development Downtown, such as project value relative to other uses, parcel size, and the presence of existing residential uses also will be considered. Further, this task will supply data that inform the financial analysis of project feasibility described below.  SUB-CONSULTANT will prepare a high-level financial analysis that illustrates the feasibility of developing new housing projects in Downtown Palo Alto. The analysis will rely on “static” pro forma financial analysis that considers the value of new development projects relative to the cost of development. As part of this analysis, SUB-CONSULTANT will explore the potential for zoning that allows for higher density development to incentivize new housing projects.  SUB-CONSULTANT will provide guidance to CONSULTANT regarding economic and financial factors that will influence the potential of Downtown sites that may be well-positioned for residential or residential mixed-use development.  SUB-CONSULTANT will provide findings to CONSULTANT in a memorandum to be incorporated into the final combined memorandum (see sub-task 2C). C. Draft and Final Residential Buildout Memorandum (CONSULTANT, with SUB-CONSULTANT contribution)  CONSULTANT will provide a draft memorandum of findings (combined CONSULTANT and SUB-CONSULTANT analyses) that will arrive at a reasonable buildout range for residential DocuSign Envelope ID: 6ADAEA73-7F71-4581-AEA2-CD1864D617A1 5 of 10 Revision April 28, 2014 development based on the two lines of analysis: zoning/development capacity, and market demand. The memorandum will also provide recommendations regarding potential zoning changes (such as allowable density, FAR, or mix of FAR within mixed use buildings; or potential incentive structures) that would foster additional residential development and increase its desirability relative to other uses Downtown. The draft will be provided for CITY review and comment (up to two rounds of review).  Based on consolidated comments, the team will prepare the final residential analysis memorandum (CONSULTANT). Task 3: Retail Analysis A. Zoning-Based Retail Capacity Analysis (CONSULTANT)  CONSULTANT will review zoning regulations pertaining to retail use (ground floor combining district and others) and review CITY progress towards establishing a retail preservation ordinance with staff.  Using the parcel-based existing land use database developed as part of Phase I of the Downtown Cap Study, CONSULTANT will calculate existing retail floor area and map distribution. In particular, the mapping will identify which retail areas are “protected” (i.e., where current zoning requires the presence of ground-floor retail) versus “unprotected” (i.e. where retail is allowed but not required).  CONSULTANT will calculate potential additional retail development potential based on zoning, site capacity, and other development constraints, focusing on the “unprotected” retail areas, as these are most sensitive to development/redevelopment pressures. Parking that is required to support additional retail development will also be calculated. Stronger and relatively weaker retail sites will be identified, based on a combination of factors such as location and parcel size, in order to help develop a site-based understanding of greatest retail vulnerability. B. Retail Market Assessment (SUB-CONSULTANT)  SUB-CONSULTANT will characterize the mix of retail uses in the Downtown. This retail overview will rely on well-accepted third party data sources (e.g., Nielsen Claritas) as well a data made available by CITY, existing land use parcel data assembled during Phase I of the Development Cap study, and other sources as available. It is anticipated that the retail mix will be reported based on estimated sales volumes by retail store format. Information on the retail distribution by store size and type also will be provided to the extent possible.  SUB-CONSULTANT will coordinate with CONSULTANT and CITY, as well as contact local real estate brokers, to identify examples of use conversions that have occurred within the Downtown, including retail-to-office, retail-to-business service/other non-retail) conversions, and basement storage-to-active use conversions. While not exhaustive, these examples should identify subareas of the Downtown where retail and basement uses are vulnerable to conversion pressure.  SUB-CONSULTANT will study, to the degree that available data from CoStar Group allow, retail lease rates in subareas of the Downtown. These lease rates will be compared to lease rates for office uses, as a means of illustrating the economic incentive that landlords have to re- tenant with office users when existing leases expire.  SUB-CONSULTANT will assist with the design and execution of a Downtown stakeholder focus group intended to elucidate community opinion concerning retail supply and diversity, as well as opportunities and constraints. DocuSign Envelope ID: 6ADAEA73-7F71-4581-AEA2-CD1864D617A1 6 of 10 Revision April 28, 2014  SUB-CONSULTANT will make findings and recommendations, including strategies that CITY might employ to sustain and evolve the retail marketplace Downtown.  SUB-CONSULTANT will provide findings to CONSULTANT in a memorandum to be incorporated into the final combined memorandum (see sub-task 3C) C. Draft and Final Retail Analysis Memorandum (CONSULTANT, with SUB-CONSULTANT contribution)  CONSULTANT will provide a draft memorandum of findings (combined CONSULTANT and SUB-CONSULTANT analyses) that will arrive at projections and findings pertaining to retail development and conversion based on the two lines of analysis – zoning/development capacity, and market demand. The draft will be provided for CITY review and comment (up to two rounds of review). The memorandum will also provide potential strategies and recommendations that CITY might employ to sustain and evolve the retail marketplace Downtown, and inform its development of a Retail Preservation Ordinance.  Based on consolidated comments, the team will prepare the final retail analysis memorandum. D. Additional Tasks (CONSULTANT, SUB-CONSULTANT).  Given the nature of the project, additional tasks may arise that will be performed only at written directive from CITY. Meetings CONSULTANT budget covers CONSULTANT and SUB-CONSULTANT attendance at a total of up to three meetings. These could consist of a combination of staff, Focus Group, and Planning & Transportation Commission meetings, as outlined below, for a total of no more than three:  Kickoff with staff (1 meeting)  Downtown development cap Focus Group, or retail-specific focus group (1 meeting)  Planning & Transportation Commission (1 meeting) We are available to participate in additional meetings with staff via conference call at no additional charge. DocuSign Envelope ID: 6ADAEA73-7F71-4581-AEA2-CD1864D617A1 7 of 10 Revision April 28, 2014 EXHIBIT “B” SCHEDULE OF PERFORMANCE Per Amendment No. 1, EXHIBIT “B” is hereby modified to incorporate the following Schedule of Performance. CONSULTANT shall perform the Services so as to complete each milestone within the number of days/weeks specified below. The time to complete each milestone may be increased or decreased by mutual written agreement of the project managers for CONSULTANT and CITY so long as all work is completed within the term of the Agreement Task Start/End Time Total Weeks from NTP Task 1: Project Kickoff Start week 0, end week 1 1 week Task 2: Residential Market Assessment Start week 1, end week 6 6 weeks Task 3: Retail Analysis Start week 5, end week 10 10 weeks DocuSign Envelope ID: 6ADAEA73-7F71-4581-AEA2-CD1864D617A1 8 of 10 Revision April 28, 2014 EXHIBIT “C” COMPENSATION The CITY agrees to compensate the CONSULTANT for professional services performed in accordance with the terms and conditions of this Agreement, and as set forth in the budget schedule below. Compensation shall be calculated based on the hourly rate schedule attached as exhibit C-1 up to the not to exceed budget amount for each task set forth below. The compensation to be paid to CONSULTANT under this Agreement for all services described in Exhibit “A” (“Basic Services”) and reimbursable expenses shall not exceed $263,000.00. CONSULTANT agrees to complete all Basic Services, including reimbursable expenses, within this amount. Any work performed or expenses incurred for which payment would result in a total exceeding the maximum amount of compensation set forth herein shall be at no cost to the CITY. CONSULTANT shall perform the tasks and categories of work as outlined and budgeted below. The CITY’s Project Manager may approve in writing the transfer of budget amounts between any of the tasks or categories listed below provided the total compensation for Basic Services, including reimbursable expenses, does not exceed $263,000.00. BUDGET SCHEDULE NOT TO EXCEED AMOUNT Task 1 $8,978.00 (Start Up, Review & Community Engagement Plan) Task 2 (Existing Condition & Trends Evaluations) $41,672.00 Task 3 (Growth Projections) $80,895.00 Task 4 (Surveys on Parking Habits & Employment Density) $33,130.00 Task 5 (Stakeholders Task Meetings) $8,430.00 Task 6 (Focus Groups Meetings) $7,740.00 Task 7 (Planning & transportation Commission, City Council Meetings) $7,570.00 DocuSign Envelope ID: 6ADAEA73-7F71-4581-AEA2-CD1864D617A1 9 of 10 Revision April 28, 2014 Task 7 (Community Workshop Open House $9,690.00 Meetings) Task 8 (Amendment No. 1, Additional Studies) $52,530.00 Sub-total Basic Services $250,635.00 Total Basic Services and Reimbursable expenses $2,365.00 Additional Services $10,000.00 Maximum Total Compensation $263,000.00 REIMBURSABLE EXPENSES The administrative, overhead, secretarial time or secretarial overtime, word processing, photocopying, in-house printing, insurance and other ordinary business expenses are included within the scope of payment for services and are not reimbursable expenses. CITY shall reimburse CONSULTANT for the following reimbursable expenses at cost. Expenses for which CONSULTANT shall be reimbursed are: A. Travel outside the San Francisco Bay area, including transportation and meals, will be reimbursed at actual cost subject to the City of Palo Alto’s policy for reimbursement of travel and meal expenses for City of Palo Alto employees. B. Long distance telephone service charges, cellular phone service charges, facsimile transmission and postage charges are reimbursable at actual cost. All requests for payment of expenses shall be accompanied by appropriate backup information. Any expense anticipated to be more than $2,365.00 shall be approved in advance by the CITY’s project manager. ADDITIONAL SERVICES The CONSULTANT shall provide additional services only by advanced, written authorization from the CITY. The CONSULTANT, at the CITY’s project manager’s request, shall submit a detailed written proposal including a description of the scope of services, schedule, level of effort, and CONSULTANT’s proposed maximum compensation, including reimbursable expense, for such services based on the rates set forth in Exhibit C-1. The additional services scope, schedule and maximum compensation shall be negotiated and agreed to in writing by the CITY’s Project Manager and CONSULTANT prior to commencement of the services. Payment for additional services is subject to all requirements and restrictions in this Agreement DocuSign Envelope ID: 6ADAEA73-7F71-4581-AEA2-CD1864D617A1 10 of 10 Revision April 28, 2014 Hours Fee Hours Fee Hours Fee Hours Fee Total Hours Total Fee D&B $1,050 20 $3,500 20 $3,500 18 $3,150 64 $11,200 Principal $175 6 Senior Associate $140 0 $0 20 $2,800 20 $2,800 0 $0 40 $5,600 Assistant Planner $75 0 $0 48 $3,600 48 $3,600 0 $0 96 $7,200 GIS $115 0 $0 8 $920 8 $920 0 $0 16 $1,840 Admin $70 0 $0 8 $560 8 $560 0 $0 16 $1,120 Reimbursables $50 $200 $250 Subtotal 6 $1,100 104 $11,380 104 $11,380 18 $3,350 232 $27,210 EPS Managing Principal $250 0 $0 4 $1,000 4 $1,000 0 $0 8 $2,000 Executive VP $215 4 $860 20 $4,300 26 $5,590 16 $3,440 66 $14,190 Research Analyst $120 0 $0 35 $4,200 40 $4,800 0 $0 75 $9,000 Production Staff $85 0 $0 2 $170 2 $170 0 $0 4 $340 Reimbursables $50 $110 $100 $260 Subtotal 4 $910 61 $9,670 72 $11,670 16 $3,540 153 $25,790 Grand Total Additional Services Total with Additional Services 10 $2,010 165 $21,050 176 $23,050 34 $6,890 385 $53,000 $10,000 $63,000 Per Amendment No. 1, EXHIBIT “C1” is hereby modified to incorporate the following Hourly Rate Schedule. Task 1 Kickoff Task 2 Residential Task 3 Retail Meetings (Focus Group,PTC) Notes: Reimbursable Costs includes mileage, meals and other travel expenses; printing; data purchase. Direct costs are billed at no markup. Mileage is billed at the IRS- permitted maximum. CONSULTANT reserves the right to reallocate budget between tasks and/or personnel provided the overall budget does not change. DocuSign Envelope ID: 6ADAEA73-7F71-4581-AEA2-CD1864D617A1 Certificate of Completion Envelope Number: 6ADAEA737F714581AEA2CD1864D617A1 Status: Completed Subject: Please DocuSign this document: C14149978 CONTRACT AMENDMENT NO 1.pdf Source Envelope: Document Pages: 10 Signatures: 1 Envelope Originator: Certificate Pages: 4 Initials: 0 Chris Anastole AutoNav: Enabled EnvelopeId Stamping: Enabled 250 Hamilton Ave Palo Alto , CA 94301 chris.anastole@cityofpaloalto.org IP Address: 199.33.32.254 Record Tracking Status: Original 1/15/2015 4:21:09 PM PT Holder: Chris Anastole chris.anastole@cityofpaloalto.org Location: DocuSign Signer Events Signature Timestamp Rajeev Bhatia rajeev@dyettandbhatia.com President Security Level: Email, Account Authentication (None)Using IP Address: 50.193.44.189 Sent: 1/15/2015 4:25:55 PM PT Viewed: 1/15/2015 4:48:07 PM PT Signed: 1/15/2015 4:48:53 PM PT Electronic Record and Signature Disclosure: Accepted: 1/15/2015 4:48:07 PM PT ID: 93f815af-6ef0-400c-9592-8bdffbeb8056 In Person Signer Events Signature Timestamp Editor Delivery Events Status Timestamp Agent Delivery Events Status Timestamp Intermediary Delivery Events Status Timestamp Certified Delivery Events Status Timestamp Carbon Copy Events Status Timestamp Robin Ellner robin.ellner@cityofpaloalto.org Security Level: Email, Account Authentication (None) Sent: 1/15/2015 4:48:54 PM PT Electronic Record and Signature Disclosure: Not Offered ID: Notary Events Timestamp Envelope Summary Events Status Timestamps Envelope Sent Hashed/Encrypted 1/15/2015 4:48:54 PM PT Certified Delivered Security Checked 1/15/2015 4:48:54 PM PT Signing Complete Security Checked 1/15/2015 4:48:54 PM PT Completed Security Checked 1/15/2015 4:48:54 PM PT Electronic Record and Signature Disclosure CONSUMER DISCLOSURE From time to time, City of Palo Alto (we, us or Company) may be required by law to provide to you certain written notices or disclosures. 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Proposed Scope of Work and Budget for Additional Services – Downtown Cap Study Prepared for the City of Palo Alto by Dyett & Bhatia (D&B) and Economic & Planning Systems (EPS) PROJECT UNDERSTANDING AND APPROACH D&B (as prime consultant) and EPS (as subconsultant) recently completed Phase 1 of the Downtown Development Cap Study for the City of Palo Alto, which consisted of background research and analysis of land use and development trends, parking, and economic conditions in Downtown Palo Alto following implementation of the non-residential development cap policy established in 1986. The final deliverable included an assessment of current and potential future non-residential development in Downtown Palo Alto, based on an analysis of remaining development capacity under current zoning, physical and regulatory constraints to development, and the market potential for and financial feasibility of new development. The City now wishes to see additional analysis of this nature completed for two additional land use types: residential and retail. For residential, the City seeks to understand the potential of the Downtown area to accommodate more residential development, both in general over the long term to support a mixed use, vibrant urban core, as well as in the short/medium term (the upcoming Housing Element cycle) to support housing units in the Housing Element currently allocated to the San Antonio/South El Camino Real area. Residential uses were excluded from the original downtown development cap, and consequently, largely excluded from the study recently completed. This effort would supplement the work previously completed with a similar type of analysis. The City is also concerned about the trend in conversions of retail space to non-retail uses, particularly office uses, in the Downtown area off University Avenue. In particular, small-scale “mom and pop” stores appear to be most affected. Retail, as a non-residential use, was included in the overall analysis of supply and demand for non-residential space in Downtown; this effort would parse out buildout potential for retail as a subset of commercial uses overall. The City is beginning the process of considering a Retail Preservation Ordinance; the work completed under this project would help inform that effort. PROPOSED SCOPE OF WORK Task 1: Project Kickoff A. Kickoff meeting with staff to review objectives and data (D&B, EPS). At the kickoff meeting with staff, the team will finalize the scope, budget, deliverables, and schedule. Data sources—and potential gaps in data—will also be identified and discussed. ATTACHMENT B City of Palo Alto 2 Task 2: Residential Analysis A. Zoning-based Residential Buildout Analysis (D&B) • D&B will review current zoning regulations pertaining to residential uses (mixed use; high density, etc.) that apply to the Downtown, including parking requirements and development standards. • Using the parcel-based existing land use database developed as part of Phase I of the Downtown Cap Study, D&B will calculate existing residential units (both in single-use and mixed-use developments) and density and map their distribution. • D&B will calculate the potential additional residential units allowed under the current zoning, both the theoretical maximum and reasonable range, accounting for physical and regulatory constraints and likely sites for redevelopment. Where applicable, potential bonus density will also be taken into account. The parking required for additional residential units will also be calculated based on current standards. D&B will provide an assessment of likely development constraints, including parking potentially provided on- site. • D&B will evaluate the housing unit potential in the Downtown relative to the sites inventory prepared for the Draft Housing Element and assess whether Downtown sites can accommodate units (at the appropriate density) previously allocated to the San Antonio/South El Camino Real area, understanding that the unit capacities on Housing Element sites is less than the maximum number of units that the zoning would permit. The remaining capacity for residential units beyond allocation of these sites will then be calculated. This analysis will also consider what residential density increases, if any, would be necessary to support additional housing sites currently located in the San Antonio/South El Camino Real area, as well as the impact of State density bonus laws on the total number of units if affordable housing were to be provided. B. Residential Market Assessment (EPS) • EPS will provide a review of recently developed and pipeline residential and residential mixed-use projects, including for-sale and rental products, within the Downtown, local, and broader regional housing markets. The purpose of the review is to characterize the range of housing projects that are being pursued by the development community. EPS will consider the scale and intensity of these projects and their market performance (e.g., values, occupancy rates). These data will provide examples of the types of residential development that might be market supported in Downtown Palo Alto in the future. Potential constraints to housing development Downtown, such as project value relative to other uses, parcel size, and the presence of existing residential uses also will be considered. Further, this task will supply data that inform the financial analysis of project feasibility described below. • EPS will prepare a high-level financial analysis that illustrates the feasibility of developing new housing projects in Downtown Palo Alto. The analysis will rely on “static” pro forma financial analysis that considers the value of new development projects relative to the cost of development. As part of this analysis, EPS will explore the potential for zoning that allows for higher density development to incentivize new housing projects. Downtown Cap Study: Proposal for Additional Services 3 • EPS will provide guidance to D&B regarding economic and financial factors that will influence the potential of Downtown sites that may be well-positioned for residential or residential mixed-use development. • EPS will provide findings to D&B in a memorandum to be incorporated into the final combined memorandum (see sub-task 2C). C. Draft and Final Residential Buildout Memorandum (D&B, with EPS contribution) • D&B will provide a draft memorandum of findings (combined D&B and EPS analyses) that will arrive at a reasonable buildout range for residential development based on the two lines of analysis: zoning/development capacity, and market demand. The memorandum will also provide recommendations regarding potential zoning changes (such as allowable density, FAR, or mix of FAR within mixed use buildings; or potential incentive structures) that would foster additional residential development and increase its desirability relative to other uses Downtown. The draft will be provided for City review and comment (up to two rounds of review). • Based on consolidated comments, the team will prepare the final residential analysis memorandum (D&B). Task 3: Retail Analysis A. Zoning-Based Retail Capacity Analysis (D&B) • D&B will review zoning regulations pertaining to retail use (ground floor combining district and others) and review City progress towards establishing a retail preservation ordinance with staff. • Using the parcel-based existing land use database developed as part of Phase I of the Downtown Cap Study, D&B will calculate existing retail floor area and map distribution. In particular, the mapping will identify which retail areas are “protected” (i.e., where current zoning requires the presence of ground-floor retail) versus “unprotected” (i.e. where retail is allowed but not required). • D&B will calculate potential additional retail development potential based on zoning, site capacity, and other development constraints, focusing on the “unprotected” retail areas, as these are most sensitive to development/redevelopment pressures. Parking that is required to support additional retail development will also be calculated. Stronger and relatively weaker retail sites will be identified, based on a combination of factors such as location and parcel size, in order to help develop a site-based understanding of greatest retail vulnerability. B. Retail Market Assessment (EPS) • EPS will characterize the mix of retail uses in the Downtown. This retail overview will rely on well-accepted third party data sources (e.g., Nielsen Claritas) as well a data made available by the City, existing land use parcel data assembled during Phase I of the Development Cap study, and other sources as available. It is anticipated that the retail mix will be reported based on estimated sales volumes by retail store format. Information on the retail distribution by store size and type also will be provided to the extent possible. City of Palo Alto 4 • EPS will coordinate with D&B and the City, as well as contact local real estate brokers, to identify examples of use conversions that have occurred within the Downtown, including retail-to-office, retail-to-business service/other non-retail) conversions, and basement storage-to-active use conversions. While not exhaustive, these examples should identify subareas of the Downtown where retail and basement uses are vulnerable to conversion pressure. • EPS will study, to the degree that available data from CoStar Group allow, retail lease rates in subareas of the Downtown. These lease rates will be compared to lease rates for office uses, as a means of illustrating the economic incentive that landlords have to re- tenant with office users when existing leases expire. • EPS will assist with the design and execution of a Downtown stakeholder focus group intended to elucidate community opinion concerning retail supply and diversity, as well as opportunities and constraints. • EPS will make findings and recommendations, including strategies that the City might employ to sustain and evolve the retail marketplace Downtown. • EPS will provide findings to D&B in a memorandum to be incorporated into the final combined memorandum (see sub-task 3C) C. Draft and Final Retail Analysis Memorandum (D&B, with EPS contribution) • D&B will provide a draft memorandum of findings (combined D&B and EPS analyses) that will arrive at projections and findings pertaining to retail development and conversion based on the two lines of analysis – zoning/development capacity, and market demand. The draft will be provided for City review and comment (up to two rounds of review). The memorandum will also provide potential strategies and recommendations that the City might employ to sustain and evolve the retail marketplace Downtown, and inform its development of a Retail Preservation Ordinance. • Based on consolidated comments, the team will prepare the final retail analysis memorandum. D. Additional Tasks (D&B, EPS). • Given the nature of the project, additional tasks may arise that will be performed only at written directive from the City. Meetings Our budget covers D&B and EPS attendance at a total of up to three meetings. These could consist of a combination of staff, Focus Group, and Planning & Transportation Commission meetings, as outlined below, for a total of no more than three: • Kickoff with staff (1 meeting) • Downtown development cap Focus Group, or retail-specific focus group (1 meeting) • Planning & Transportation Commission (1 meeting) We are available to participate in additional meetings with staff via conference call at no additional charge. Downtown Cap Study: Proposal for Additional Services 5 SCHEDULE Following receipt of a signed contract and Notice to Proceed (NTP), we anticipate that the above scope of work can be completed in 10 weeks. So long as all tasks in the scope of work are completed, the time to complete each task or milestone may be increased or decreased, and/or the order in which technical tasks are performed may be changed (i.e. Task 3 may precede Task 2), per mutual written agreement between D&B’s project manager and the City’s project manager. Our proposed schedule is the following: Task Start/End Time Total Weeks from NTP Task 1: Project Kickoff Start week 0, end week 1 1 week Task 2: Residential Market Assessment Start week 1, end week 6 6 weeks Task 3: Retail Analysis Start week 5, end week 10 10 weeks BUDGET Our proposed budget for the above scope of work is $63,000, including additional services that will be completed only at written directive from the City. Total hours and fees for D&B and EPS are on the table that follows. The budget covers all personnel labor and overhead costs, direct costs, and delivery of products identified in the Scope of Work. The fee will not be exceeded provided there are no changes to the Scope of Work. Direct costs and subconsultant fees are billed with no administrative markup or handling fee. We have budgeted for all of the tasks with a level of effort that we believe is necessary to meet the project objectives. If desired, we are happy to work with you to reallocate our budget/efforts, and/or negotiate fees for additional tasks, to arrive at a scope and budget that better meets the City’s needs. Palo Alto Development Cap: Additional Studies Proposed Budget, January 9, 2015 Rate Hours Fee Hours Fee Hours Fee Hours Fee Total Hours Total Fee D&B Principal $175 6 $1,050 20 $3,500 20 $3,500 18 $3,150 64 $11,200 Senior Associate $140 0 $0 20 $2,800 20 $2,800 0 $0 40 $5,600 Assistant Planner $75 0 $0 48 $3,600 48 $3,600 0 $0 96 $7,200 GIS $115 0 $0 8 $920 8 $920 0 $0 16 $1,840 Admin $70 0 $0 8 $560 8 $560 0 $0 16 $1,120 Direct Costs $50 $200 $250 Subtotal 6 $1,100 104 $11,380 104 $11,380 18 $3,350 232 $27,210 EPS Managing Principal $250 0 $0 4 $1,000 4 $1,000 0 $0 8 $2,000 Executive VP $215 4 $860 20 $4,300 26 $5,590 16 $3,440 66 $14,190 Research Analyst $120 0 $0 35 $4,200 40 $4,800 0 $0 75 $9,000 Production Staff $85 0 $0 2 $170 2 $170 0 $0 4 $340 Direct Costs $50 $110 $100 $260 Subtotal 4 $910 61 $9,670 72 $11,670 16 $3,540 153 $25,790 Grand Total 10 $2,010 165 $21,050 176 $23,050 34 $6,890 385 $53,000 Additional Services $10,000 Total with Additional Services $63,000 Notes: D&B reserves the right to reallocate budget between tasks and/or personnel provided the overall budget does not change. Meetings (Focus Group, PTC)Task 2: ResidentialTask 1: Kickoff Task 3: Retail Direct Costs includes mileage, meals and other travel expenses; printing; data purchase. Direct costs are billed at no markup. Mileage is billed at the IRS-permitted maximum. City of Palo Alto (ID # 5431) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/9/2015 City of Palo Alto Page 1 Summary Title: Golf Course Budget Amendment Ordinance Title: Authorization to Operate the Golf Course from March 1, 2015 to June 30, 2015 and Adoption of a Budget Amendment Ordinance to Increase Golf Course Revenues Estimate in the Amount of $106,000, Provide Additional Appropriation of $289,424 in Budget for Expenses, and Reduce the Operating loss Reserve by $183,424 From: City Manager Lead Department: Community Services Recommendation Staff recommends that Council authorize staff to keep the Golf Course open from March 1, 2015 to June 30, 2015 and adopt the attached Budget Amendment Ordinance (BAO) (Attachment A) to fund Golf Course operation by amending the Community Services Department operating budget in the amount of $106,000 in revenues and $289,424 in expenses, offset with a reduction of the FY 2016 Golf Course Operating Loss Reserve in the amount of $183,424. Executive Summary On September 22, 2014, the City Council rejected all bids received on April 15, 2014 for construction of the Palo Alto Municipal Golf Course Reconfiguration Project (Project), Capital Improvement Program Project PG-13003 due to delays in securing required regulatory permits from state and federal resource agencies. In addition, Council adopted a Budget Amendment Ordinance (BAO) (Attachment B) amending the Community Services Department operating budget in the amount of $708,495 in revenues and $168,036 in expenses to fund operation of the Golf Course from September 1, 2014 to February 28, 2015 and establishing a FY 2016 Golf Course Operating Loss Reserve in the General Fund in the amount of $540,459. The FY 2016 Golf Course Operating Loss Reserve was set up to offset anticipated revenue loss during the closure of the Golf Course anticipated for City of Palo Alto Page 2 Fiscal Year 2016. Since September 2014, staff has continued to work with the state and federal resource agencies in an effort to obtain the permits required for construction of the Project. While progress has been made with respect to permitting for the related San Francisquito Creek Joint Powers Authority’s (JPA) flood protection project adjacent to the Golf Course, we have not been successful to-date in securing permits for the Project. Resource agency staff continue to focus their limited resources on permitting the JPA project and other high-priority emergency/life-safety projects. Due to staffing and workload constraints impacting the resource agencies, it is difficult to predict exactly when the permits for the Project will be issued, but staff anticipates receiving the permits in calendar year 2015. This report recommends that Council approve a BAO to fund operation of the Golf Course from March 1, 2015 to June 30, 2015. Once regulatory permits are approved, staff will return to Council to initiate Project construction as soon as possible. Background The Golf Course design, environmental impact report (EIR), and construction bid documents are all complete and ready for re-bidding of the Project as soon as regulatory permits are approved. Implementation of the Project requires the acquisition of regulatory permits from state and federal resource agencies. Specifically, the Project requires a Section 404 Permit from the U.S. Army Corps of Engineers (Corps) (which also involves consultation with the U.S. Fish and Wildlife Service with respect to potential impacts to federally-listed endangered species) and a Section 401 Water Quality Certification from the California Regional Water Quality Control Board (Water Board). Permit applications for the Project were submitted to the agencies on December 23, 2013. As described to Council in the September 22, 2014 staff report, it has proven to be extremely challenging to secure the required permits for the Project. Staff has made a concerted effort to work cooperatively with resource agency staff over the past year, responding promptly to their comments and requests for information and making frequent overtures offering assistance to expedite the permitting process. Staff (including the city manager and city attorney) has also worked directly with resource agency executive managers, local state legislators, JPA staff, and outside counsel in an City of Palo Alto Page 3 effort to speed up the issuance of permits. A summary of the key communications between City staff and resource agency staff regarding the Project permit applications is provided for information as Attachment C. The primary issue that has delayed issuance of the Project permits has been the resource agency staff’s insistence on withholding the permits until they have permitted the JPA’s Bay-to-Highway 101 Flood Protection Project. In particular, Water Board staff have until recently insisted that the JPA consider taking more of the City-owned Golf Course land for the creek widening project, because they believed that further widening of the creek might reduce the volume of creek overflow into the environmentally-sensitive Faber Tract marsh and thereby lessen impacts to endangered species that inhabit the marsh. At an October 31, 2014 special meeting of the Water Board, Executive Officer Bruce Wolfe stated that the Water Board would no longer request that more City-owned Golf Course land be used for creek widening, agreeing that the JPA had provided an abundance of evidence that using more Golf Course land would not improve the flood protection project. Mr. Wolfe also announced that his staff would begin drafting the certification of the JPA flood protection project immediately. He further clarified, however, that the Water Board could not issue the Section 401 Water Quality Certification until the Corps posted the JPA’s Corps permit application for public comment. He estimated that the certification for the flood protection project would be issued within two weeks following the Corps’ public posting of the application. The Corps posted the JPA’s permit application for public comment on December 18, 2014, with the comment period running through January 16, 2015. While the Section 401 Water Quality Certification has not yet been issued by the Water Board, Water Board staff have been in contact with the JPA and it appears that issuance of the Certification is imminent. The Corps will also need to post the permit application for the Project for public comment before the Water Board will issue the Section 401 Certification. Unfortunately, staff at the Corps has repeatedly advised City staff that they are short-staffed and are unable to advance the posting of the Project application; moreover they are unable or unwilling to provide a timeline for when we can expect to have our application posted. City staff has prepared a draft posting for the Project for the Corps with the hope that this might help Corps staff overcome their workload constraints. Staff has also had discussions with management staff at the Corps requesting that they expedite the posting of the public notice. To City of Palo Alto Page 4 date the Corps has not posted the Project for public comment. Discussion In this section of the report, staff discusses the regulatory permit process and status, construction timeline and cost impacts relative to various potential scenarios for permit issuance, Golf Course operational finances during pre- construction, and revised Golf Course pro-formas. Regulatory permit process and status The regulatory permit process is the critical path milestone controlling our ability to commence construction of the Project. As stated earlier, the Golf Course design, EIR, and construction bid documents are all completed and ready for re- bidding of the Project pending acquisition of regulatory permits. Consequently, pursuing permit approval is staff’s highest priority. The City must secure two regulatory permits (Section 401 Water Quality Certification from the Water Board and a Section 404 Permit from the Corps) prior to re-advertising the Project for construction bids. Below is a summary of the remaining steps in the permitting process: 1. Corps posts a Public Notice seeking public comment on the Section 404 permit application during a 30-day comment period. 2. Water Board issues Section 401 Water Quality Certification. 3. Corps consults with US Fish & Wildlife Service regarding potential Project impacts to endangered species. 4. Corps issues Section 404 permit. Construction timeline and cost At this time it remains infeasible to identify a definitive schedule for the re- bidding of the Project given that the ability to proceed with the Project is tied directly to the permitting process, which is beyond the City’s direct control. Based on the difficulties caused by initially bidding the Project prematurely, staff recommends that the Project not be re-advertised for construction bids until the required regulatory permits have been secured. Staff provides two potential schedule scenarios below. The first scenario assumes permit approval by March 1, 2015. This is the latest date that would allow Project construction to start in summer 2015. Any further delays in permit acquisition would cause the Project to be postponed until the end of the year (as outlined in Scenario B below) due to City of Palo Alto Page 5 seasonal constraints on grading and turf installation. At this time, staff believes that it is unrealistic to assume that permits will be secured in time to achieve the Scenario A schedule. It is presented here, nevertheless, as the ideal schedule to be compared with the more realistic Scenario B schedule. Scenario A Timeline Weeks Milestones 2/2/15 0 Issue a Request for Qualifications (RFQ) 3/3/15 4 Due date for contractor pre-qualification submittals 3/9/15 1 Advertise project for construction bids 4/21/15 6 Bid opening date 5/11/15 3 City Council award of construction contract 6/1/15 3 Issue Notice to Proceed to contractor 7/1/15 4 Close Golf Course, begin construction activity Fall /Winter 2016 18 months Open new Golf Course to the public The second scenario assumes permit approval by August 1, 2015: Scenario B Timeline Weeks Milestones 7/1/15 0 Issue a Request for Qualifications (RFQ) 7/28/15 4 Due date for contractor pre-qualification submittals 8/3/15 1 Advertise project for construction bids 9/15/15 6 Bid opening date 10/12/15 4 City Council award of construction contract 11/2/15 3 Issue Notice to Proceed to contractor 11/30/15 4 Close Golf Course, begin construction activity Fall 2017 21 months Open new Golf Course to the public The cost of construction is subject to many economic factors. Staff has observed price increases for irrigation equipment over the past year, and the improved City of Palo Alto Page 6 economy has increased the number of golf course projects in construction, which has in turn driven up bid prices. Although it is difficult to predict the prices that contractors will bid when the Project is advertised again for competitive bids, golf course architect Forrest Richardson estimates that the delay in starting construction may increase costs by between $575,000 and $1.58 million (7 to 18%) from the lowest responsible bid received in April 2014, depending upon which schedule scenario actually occurs. He estimates that the Project cost under Scenario B would be approximately 3.5% higher than Scenario A. Staff will endeavor to keep bid prices as low as possible by conducting a new round of bidder pre-qualification in hopes of attracting new qualified golf course builders to the bidders pool. Attachment D shows the estimated construction cost for scenarios A and B. Budget Amendment Ordinance for Extended Golf Course Operation in FY 2015 The Golf Course was modified and shortened in August 2013 to accommodate the stockpiling of imported soil for the Project and the JPA’s flood protection project. To accommodate the soil stockpile area, several holes on the Golf Course were shortened, reducing the par score of the course from 72 to 67. The course remains open for public play. While the pre-construction Golf Course is a shorter course, it remains playable and allows golfers to complete a round of golf in less time than in the past. The golf course is still an 18-hole golf course with two par 5, nine par 4 and seven par 3 holes. To date, approximately 300,000 cubic yards of imported soil have been delivered to the Golf Course. It is anticipated that we will receive all the imported soil needed for the JPA flood protection project and the Golf Course Project by April 30, 2015, generating revenue in excess of $1 million to be applied towards the cost of the Project In September, the Council approved that the Golf Course will be open until March 2015. As part of this approval, Council adjusted the budget for the Golf Course, which increased estimated revenues and related expenditures. Net revenues in the amount of $540,459 were set aside in the FY 2016 Golf Course Operating Loss Reserve to offset future revenue loss when the Golf Course will be closed for construction. However, as acquisition of permits from the Water Board and the Corps remains unresolved, staff recommends that the Council approve another Budget Amendment Ordinance (BAO) (Attachment A) to provide funding for the Golf Course to potentially remain open to the public in its interim state for the remainder of the FY 2015. The BAO would amend the Community Services City of Palo Alto Page 7 Department operating budget in the amount of $106,000 in revenues and $289,424 in expenses to fund Golf Course operations from March 1, 2015 to June 30, 2015. Primarily due to the inclement weather, less golf course rounds were played than anticipated in December 2014. Based on six months’ golf course activity for the current fiscal year, staff anticipates that less revenue will be generated for FY 2015 than anticipated in the September Budget Amendment Ordinance. Therefore, the net increase in costs of $183,424 is recommended to be offset with a reduction in the FY 2016 Golf Course Operating Loss Reserve. In an effort to promote the Golf Course during this pre-construction period and help create excitement and enthusiasm for the future Baylands-themed course, the Golf Course Management Team is continuing to creatively market the Golf Course. The Golf Course Management Team is made up of City staff, contracted Golf Professional Brad Lozares, Valley Crest golf course maintenance staff, Bay Café staff, Golf Course Architect Forrest Richardson, and members of the Golf Course Advisory Committee. Marketing of the Golf Course uses social media, print advertising and other promotional strategies to tell a compelling story about the rich history of Palo Alto’s Golf Course and the innovative plans for the future. The marketing efforts have included the following discounts and special offers among others:  Loyalty Cards – Play 5 rounds and get 1 free  Two-for-one green fee offers  Saturday and Sunday – Kids play free with one paid adult  Good Deed Gift Certificates  Distribution of Bridge to the Future bookmarks for special pricing on par 67 layout  Golf Now third party booking engine utilization  Weekly email blasts to club members  Nine and Dine offers for 9 hole only players  Driving Range loyalty card - Buy 10 buckets and get 1 free  Banners installed on range netting to promote that we are fully open for business  Special sales for senior discount cards  Special sales for unior monthly play card to be used on weekends  New simplified fee signage City of Palo Alto Page 8  Contact all local golf clubs and former tournament directors to notify that course remains open In spite of efforts to encourage and promote golf play at the Golf Course, the temporary conditions render it compromised in the market. There are many golfing options on the Peninsula to choose from, and the shorter temporary conditions of the Palo Alto Municipal Golf Course make it very difficult to attract customers and to price golf rounds in a way that will result in full cost recovery of the Golf Course’s operational expenses. In FY 2015, assuming Council approval of the attached BAO, the Golf Course will be subsidized by $1,070,330. Revised Golf Course Pro-Forma The delay in Project implementation also impacts financial projections beyond the current fiscal year. Staff has prepared revised projections for the performance of the Golf Course in the five years following completion of construction Based upon the Project implementation Scenario A, of the Project (Attachment E). As stated earlier in the report, Scenario A is unfortunately increasingly unlikely. If the regulatory permits are not certified by March 9th staff will include a revised Golf Course Pro Forma as part of the FY 2016 budget submittal that assumes a January 2016 construction start date (Scenario B). Staff’s projections of the performance of the Golf Course after construction remain more conservative than those provided in the National Golf Foundation’s (NGF) 2012 financial analysis. While the Golf Course may perform as well or better than the NGF projections, staff has provided a more conservative projection as a cautionary measure. Staff believes that a more conservative pro forma is prudent as the more time that elapses since the 2012 NGF projections were prepared, the less reliable the projections are likely to be. The reconfigured Golf Course is still anticipated to fully recover operating costs by the second year after reopening, but by less optimistic margins than those projected by NGF. Below is a summary the pro-forma for Scenario A Scenario A Pro forma – Close by July 1, 2015, re-open by September 1 2016. Revised to include project delay, BAO to operate the Golf Course through FY 2015, increased project costs and subsequent increased debt. In thousands of dollars. Scenarios FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 Revenue 1.8 1.3 0.17 2.3 3.0 3.1 3.2 3.3 Expenses 2.4 2.4 1.7 2.9 3.0 3.0 2.9 2.9 Net Loss/ Income (0.6) (1.1) (1.5) (0.6) 0.02 0.05 0.3 0.40 City of Palo Alto Page 9 Rounds of Golf 47,000 31,000 0 49,000 67000 69000 71000 73000 Resource Impact The resource impact to FY 2015 is estimated to be an increase of revenue by $106,000 and an increase in expected expenses by $289,424. The net increase in expenses in the amount of $183,424 is recommended to be offset with a reduction to the FY 2016 Golf Operating Loss Reserve. Environmental Review An Environmental Impact Report (EIR) was prepared to evaluate the potential impacts of the Palo Alto Municipal Golf Course Reconfiguration Project and to identify the appropriate mitigation measures in accordance with the provisions of the California Environmental Quality Act (CEQA). Council, acting on behalf of the City of Palo Alto in its role as lead agency for purposes of CEQA, adopted a resolution on February 3, 2014, certifying the final EIR for the project. Attachments:  Att A - BAO XXXX - Golf Course (PDF)  Att B - BAO Sept 22 2014 (DOC)  Att C - Key Milestone Dates for the Golf Course Reconfiguration Project Permitting Process (PDF)  Att D - Memo Forrest Richardson (PDF)  Att E - Golf Course Pro Forma 2-2015 (PDF) 1 5478/mb Revised September 20, 2013 Ordinance No. XXXX ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE GENERAL FUND BUDGET FOR FISCAL YEAR 2015 TO INCREASE GOLF COURSE REVENUE ESTIMATES BY $106,000, PROVIDE AN ADDITIONAL APPROPRIATION OF $289,424 IN THE COMMUNITY SERVICES DEPARTMENT BUDGET FOR GOLF COURSE OPERATIONS, AND REDUCE THE FISCAL YEAR 2016 GOLF COURSE OPERATING LOSS RESERVE BY $183,424. 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, the Council on June 16, 2014 did adopt a budget for Fiscal Year 2015; and B. As part of the approval of the Fiscal Year 2014 Adopted Capital Budget, the City Council approved the Golf Course Reconfiguration Project; and C. The Fiscal Year 2015 Adopted Operating Budget assumed the closure of the Golf Course effective July 1, 2014; and D. In anticipation of the Golf Course Reconfiguration Project, the City applied for permits from the State Water Board; and E. Due to delays in receiving permit approval which has delayed construction as well as contractual obligations with the City’s concessionaires at the Golf Course, in June 2014 the City Council authorized an additional appropriation of $324,800 offset by commensurate revenues to keep the Golf Course open for a two-month period to allow the State Water Board to issue regulatory permits; and F. In September 2014, due to continued delays in receiving permit approval, the City rejected all bids for the Golf Course Reconfiguration Project. At that time, the City Council approved interim funding for Golf Course operations through February 2015 and established the Fiscal Year 2016 Golf Course Operating Loss Reserve; and G. Therefore, staff is requesting an additional appropriation to keep the Golf Course open through June 2015 offset with a reduction of the FY 2016 Golf Course Operating Loss Revenue in the amount of $156,792 to fund Golf Couse operations through the end of Fiscal Year 2015. SECTION 2. The revenue estimate for Charges for Services in the Community Services Department for Golf Course operations is hereby increased by One Hundred Six Thousand Dollars ($106,000). ATTACHMENT A 2 5478/mb Revised September 20, 2013 SECTION 3. The Community Services Department expenditure budget for Golf Course operations is hereby increased by Two Hundred Eighty Nine Thousand Four Hundred Twenty Four Dollars ($289,424). SECTION 4. The Golf Course Operating Loss Reserve is hereby reduced in the amount of One Hundred Eighty Three Thousand Four Hundred Twenty Four Dollars ($183,424). SECTION 5. 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 6. As provided in Section 2.04.330 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. SECTION 7. The actions taken in this ordinance do not constitute a project requiring environmental review under the California Environmental Quality Act (CEQA). INTRODUCED AND PASSED: Enter Date Here AYES: NOES: ABSENT: ABSTENTIONS: NOT PARTICIPATING: ATTEST: ____________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ____________________________ ____________________________ Senior Assistant City Attorney City Manager ___________________________ Director of Community Services ____________________________ Director of Administrative Services Attachment B ORDINANCE NO. xxxx ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE GENERAL FUND BUDGET FOR FISCAL YEAR 2015 TO INCREASE GOLF COURSE REVENUE ESTIMATES BY $708,495, PROVIDE AN ADDITIONAL APPROPRIATION OF $168,036 IN THE COMMUNITY SERVICES DEPARTMENT BUDGET FOR GOLF COURSE OPERATIONS, AND ESTABLISH AN FY 2016 GOLF COURSE OPERATING LOSS RESERVE FOR FUTURE GOLF COURSE OPERATIONS FROM THE NET REVENUE OF GOLF COURSE OPERATIONS IN THE AMOUNT OF $540,459. 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, the Council on June 16, 2014 did adopt a budget for Fiscal Year 2015; and B. As part of the approval of the Fiscal Year 2014 Adopted Capital Budget, the City Council approved the Golf Course Reconfiguration Project; and C. The Fiscal Year 2015 Adopted Operating Budget assumed the closure of the Golf Course effective July 1, 2014; and D. In anticipation of the Golf Course Reconfiguration Project, the City applied for permits from the State Water Board; and E. Due to delays in receiving permit approval which has delayed construction as well as contractual obligations with the City’s concessionaires at the Golf Course, in June 2014 the City Council authorized an additional appropriation of $324,800 offset by commensurate revenues to keep the Golf Course open for a two-month period to allow the State Water Board to issue regulatory permits; and F. Due to continued delays in receiving permit approval, staff has rejected all bids for the Golf Course Reconfiguration Project and will reissue a Request for Proposals (RFP) in the fall of 2014, for a projected construction start date of March 1, 2015; and G. Therefore, staff is requesting an additional appropriation to keep the Golf Course open through February 2015; and H. In anticipation of future needs due to the closure of the Golf Course, establish an FY 2016 Golf Course Operating Loss Reserve in the General Fund from the net revenue from Golf Course Operations. SECTION 2. The revenue estimate for Charges for Services in the Community Services Department for Golf Course operations is hereby increased by Seven Hundred Eight Thousand Four Hundred Ninety Five ($708,495). SECTION 3. The Community Services Department expenditure budget for Golf Course operations is hereby increased by One Hundred Sixty Eight Thousand Thirty Six ($168,036). SECTION 4. A Golf Course Operating Loss Reserve is hereby established in the General Fund in the amount of Five Hundred Forty Thousand Four Hundred Fifty Nine ($540,459). SECTION 5. 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 6. As provided in Section 2.04.330 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. SECTION 7. The actions taken in this ordinance do not constitute a project requiring environmental review under the California Environmental Quality Act (CEQA). INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: City Manager City Attorney Director of Community Services Director of Administrative Services           Attachment C    Key Milestone dates for Palo Alto Municipal Golf Course Reconfiguration Project permitting  process  06/3/2013 Notice of Availability of the Draft Environmental Impact Report for the Golf  Course Reconfiguration Project was submitted to the State Clearinghouse.  Start  of public comment period.  08/01/2014 Close of public comment period for the Draft EIR.  The Regional Water Quality  Control Board staff did not provide comment on the Draft EIR.  10/30/2013 E‐mail and voice mail request to Water Board staff for a site meeting to review  the proposed design and mitigation measures for the Golf Course  Reconfiguration Project in preparation for a permit submittal.  10/31/2013 Water Board staff declines meeting invitation and states that it is premature for  us to submit a permit application because of the uncertainty surrounding the  JPA’s permit application for their flood control project.  12/23/2013 Submittal of application for Section 401 Water Quality Certification to the Water  Board  01/16/2014 First Letter of Incomplete Application received from Water Board  01/31/2014 City issues response to 1st Letter of Incomplete Application  02/28/2014 Second Letter of Incomplete Application received from Water Board  03/03/2014 Palo Alto City Council certifies Final Environmental Impact Report for the Golf  Course Reconfiguration Project  04/07/2014 City issues response to 2nd Letter of Incomplete Application  04/15/2014 Construction bids received for Golf Course Reconfiguration Project  04/30/2014 Letter from US Army Corps of Engineers accepting the City’s delineation of  jurisdictional wetlands on the Palo Alto Municipal Golf Course  05/01/2014 Third Letter of Incomplete Application received from Water Board  05/16/2014 City issues response to 3rd Letter of Incomplete Application  05/28/2014 Voice mail from Brian Wines indicating that there will be a fourth Letter of  Incomplete Application coming from the Water Board (no such letter was ever  received)    06/02/2014‐ Series of e‐mails between Joe Teresi and Brian Wines clarifying permit   06/11/2014 application and responding to questions from Brian Wines  06/11/2014 Last correspondence from Water Board – Email from Brian Wines noting that  there was a fire at his personal residence and that he would be out of the office  for an undisclosed period  07/10/2014 City of Palo Alto’s application for Section 401 Water Quality Certification posted  to the Water Board web site for public comment  07/29/2014 Duininck Golf notified that its low construction bid was being rejected due to  lack of project permits  07/31/2014 Close of public comment period for City of Palo Alto’s application for Section 401  Water Quality Certification  09/22/2014 Official rejection of Golf Course Reconfiguration Project construction bids by Palo  Alto City Council  12/04/2014 Letter from Jim Keene to Water Board Executive Officer Bruce Wolfe requesting  action on the Section 401 Water Quality Certification  12/12/2014 E‐mail from Bruce Wolfe to Jim Keene advising that the Water Board is  committed to issuing the Section 401 Certification once the Corps posts its public  notice for the Golf Course Project  01/12/2015 Mike Sartor discussion with Corps supervisor Katerina Galacatos requesting  action on the Corps Section 404 permit  01/20/2015 City provides draft copy of a Public Notice to the Corps for posting to the web  and starting the public comment period    M E M O Date: January 9th, 2015 To: Rob De Geus, Joe Teresi From: Forrest Richardson, Dale Siemens Re: Palo Alto Golf Course / Schedule Scenarios and Associated Impacts We have reviewed the proposed schedule scenarios “A” and “B” for implementing the golf course improvement work. Below are comments on each scenario along with associated probable cost impacts. Scenario “A” Scenario “A” shows a construction start date of July 1st, 2015 following five (5) months of qualification, bidding, contractor selection and issuance of a Notice to Proceed. We recommend finding a way to lessen this period by as much as 30 days in order to accelerate the start of construction work. There are associated positive impacts that an earlier construction start will have. These include: • Better ability to get grading work completed before seasonal rains (grading work is now greater in scope because the stockpile is larger in volume) • Less costly SWPPP measures to winterize the construction site following grading • Assurances of sod and sprig production in 2015 to be ready for 2016 planting • Potentially better bid responses (lower potential costs to the City) with bidding earlier in 2015 as opposed to later There are likely cost impacts associated with a start date in mid-2015. Below we have summarized these cost impacts using probable cost ranges derived from (a) the Probable Cost Estimate that was updated in anticipation of a mid-2014 construction start date, (b) bids received by the City in 2014, (c) changes to the earth moving scope based on the volume of material likely to placed in the stockpile, and (d) market influences that we foresee in 2015: SCENARIO “A” COST IMPACTS (Base Construction Costs) Base Bid (incorporating cost-savings as previously approved) $8,700,000 to $8,900,000 Additional Items (incorporating previously approved “add” items) 200,000 to 240,000 Additional Grading Costs (260,000 c.y. @ ±$2.00/c.y.) 390,000 to 650,000 Market Cost Impacts (labor and materials @± 5%) 348,000 to 522,000 Cost Savings (incorporating previously approved “deduct” items plus value engineering to restroom structure)* - (340,000) to - (360,000) Projected Base Construction Costs (range) $ 9,298,000 to $ 9,952,000 Summary: Scenario “A” is likely to have a base construction cost impact to the City of approximately 7 to 14% higher than the lowest bid received following bidding in April 2014. This translates to a potential project increase (base construction costs) of approximately 25% of the Probable Cost Estimate as updated in November 2013. The project construction cost is offset by revenue to the City of approximately $1,100,000 generated from soil importation to the site. Note: Project management costs, professional services, contingency and loss of revenue are not included in the above estimates. * The restroom structure is now planned to be fabricated off-site to meet City requirements, and then delivered to the site by a specialty contractor. Scenario “B” Scenario “B” shows a construction start date of December 15th, 2015 following five (5) months of qualification, bidding, contractor selection and issuance of a Notice to Proceed. An earlier start date in 2015 is not necessarily beneficial as any start date from October through the following Spring is not likely to produce efficient earthwork progress due to rains and associated site conditions. A start date during this time will, however, enable the Contractor to get some work completed and may allow completion in 2016 given extremely favorable weather conditions. There are likely cost impacts associated with a start date in late-2015. Below we have summarized these cost impacts using probable cost ranges derived from (a) the Probable Cost Estimate that was updated in anticipation of a mid-2014 construction start date, (b) bids received by the City in 2014, (c) changes to the earth moving scope based on the volume of material likely to placed in the stockpile, (d) market influences that we foresee in 2015, and (e) impacts due to a longer project duration (21 months): SCENARIO “B” COST IMPACTS (Base Construction Costs) Base Bid (incorporating cost-savings as previously approved) $8,700,000 to $8,900,000 Additional Items (incorporating previously approved “add” items) 200,000 to 240,000 Additional Grading Costs (260,000 c.y. @ ±$2.00/c.y.) 390,000 to 650,000 Market Cost Impacts (labor and materials @± 6%) 435,000 to 623,000 Cost Savings (incorporating previously approved “deduct” items plus value engineering to restroom structure)* - (340,000) to - (360,000) Project Duration Impacts 200,000 to 250,000 Projected Base Construction Costs (range) $ 9,585,000 to $ 10,303,000 Summary: Scenario “B” is likely to have a cost impact to the City of approximately 10 to 18% higher than the lowest bid received following bidding in April 2014. This translates to a potential project increase (base construction costs) of approximately 30% of the Probable Cost Estimate as updated in November 2013. The project construction cost is offset by revenue to the City of approximately $1,100,000 generated from soil importation to the site. Note: Project management costs, professional services, contingency and loss of revenue are not included in the above estimates. * The restroom structure is now planned to be fabricated off-site to meet City requirements, and then delivered to the site by a specialty contractor. Scenario “B” Alternative Discussion: Scenario “B” may be alternatively scheduled to install turf in both 2016 and 2017, thus splitting the growing season between two seasons. (In Scenario “A” it is assumed that all, or most, grassing will occur in 2016.) Cost impacts of a split grassing schedule for Scenario “B” would need to be evaluated based on the additional cost for more sod vs. less winterization (from Fall 2016 to Spring 2017), plus associated benefits of any earlier opening date that may be realized. As noted, it may be possible to complete work in 2016 if weather conditions are extremely favorable and additional investment in sod (versus sprigging) is made by the City. The advantages of this approach may be an earlier opening. All such decisions deserve further analysis. Conclusion The probable costs here are assumptive in nature and are based on what we are seeing in the current golf construction market. Since bidding the Palo Alto Golf Course work in early 2014 we have been involved in three competitive bids. The results of these recent bids are evident that the period of “aggressive” bidding has lapsed. We are now experiencing bids that are higher as a result of qualified golf builders being busier and a market that is finding ways to finance projects stalled in previous years. Certified golf course builders (those deemed qualified by the City for this work) are even busier than smaller contractors. This plays heavily into the assumptive cost increases we forecast for the work. The largest impact to cost is the unfortunate situation of now having stockpiled the full volume of imported materials to the site. This impact, at approximately $500,000 in either Scenario “A” or “B”, is unavoidable given the delay in permits and a project start. The efficiencies of having a predominant volume of the imported material placed across the existing golf course footprint is now not at play. The benefit has been a continued golf operation for the public, although it has resulted in losses due to the uncertainty and temporary layout necessitated by the ever increasing stockpile area. There may be a positive benefit to now having all the soil material onsite in that it simplifies the Contractor’s scope of work and removes the potential coordination burden (and associated risks upon the City) that were associated with City’s direct involvement in the soil import to the golf course builder during the construction process. During the past several months we have been active in evaluating potential cost-saving measures to help offset the costs associated with permit delays. We will continue to do so in the coming months before permits— and approval to proceed — are in place. PALO ALTO GOLF COURSE PRO FORMA ATTACHMENT E Revised Golf Course Budget - Open July 2014 through June 2015 GOLF COURSE FINANCIAL SUMMARY FY 2013 FY 2014 FY 2015 FY 2015 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 ACTUALS Actuals Adopted Budget Golf Course open July - Feb, closed March-June BAO to keep Golf Course open March - June 30, 2015 REVISED Golf Course Budget Open July - June REVISED Golf Course closed July - June REVISED Golf Course closed July - Aug, open Sept PROPOSED PROPOSED PROPOSED PROPOSED BUDGET BUDGET BUDGET BUDGET BUDGET BUDGET BUDGET BUDGET BUDGET REVENUES Tournament fees 1,670 4,037 0 5,000 5,000 0 2,400 2,500 2,500 2,500 2,500 Green fees (Monthly play cards )1,781,405 1,103,410 787,509 0 787,509 0 1,573,650 2,162,760 2,227,320 2,291,880 2,356,440 Driving range 343,883 313,633 208,553 61,000 269,553 80,000 283,050 353,400 364,002 374,922 386,170 Cart/club rentals 279,795 225,310 141,033 40,000 181,033 0 249,225 332,300 342,269 352,537 363,113 Other fees 24,319 20,075 12,000 0 12,000 1,760 12,700 25,000 25,000 25,000 25,000 Proshop lease 27,248 25,051 22,000 0 22,000 21,520 28,500 30,700 30,700 31,300 31,300 Restaurant lease 48,880 53,487 23,400 0 23,400 23,400 49,800 49,800 52,290 52,290 52,290 Restaurant Utilities 21,600 16,260 18,000 0 18,000 18,000 27,000 27,400 27,400 27,900 27,900 Interest Income - Debt Service 25,700 0 25,900 25,900 25,900 25,900 25,900 25,900 Total Revenue 2,554,500 1,761,263 1,212,495 106,000 1,318,495 170,580 2,252,225 3,009,760 3,097,381 3,184,229 3,270,613 EXPENDITURES Operating Expenses Salaries & Benefits 134,948 122,634 150,173 (25,000)125,173 169,500 165,700 173,200 181,000 189,100 197,600 Advertising & Publishing 11,307 7,916 7,500 2,500 10,000 30,000 30,000 30,000 30,000 30,000 30,000 Supplies and Materials 3,292 6,986 7,500 0 7,500 45,100 45,800 46,500 47,200 47,900 48,600 General Expense 1,014 1,038 1,000 0 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Facilities Repairs & Maintenance 7,259 1,438 5,000 6,438 22,300 22,600 22,900 23,200 23,500 23,900 Water Expense 381,966 319,204 260,000 0 260,000 296,000 184,500 188,000 197,000 206,000 215,500 Other Direct Charges 48,448 46,126 56,034 0 56,034 33,200 42,100 42,700 43,300 43,900 44,600 Indirect Charges 93,702 36,099 45,783 0 45,783 83,280 105,700 107,300 108,900 110,500 113,900 Subtotal 681,936 540,003 529,428 (17,500)511,928 680,380 597,400 611,600 631,600 651,900 675,100 Contract Services Golf Maintenance 808,801 780,755 657,340 167,660 825,000 419,415 821,135 796,262 820,150 820,150 820,150 Miscellaneous 18,566 8,462 24,030 0 24,030 0 10,000 10,000 10,000 10,000 10,000 Range fees 130,676 119,181 108,606 (6,176)102,430 68,000 56,610 70,680 72,800 74,984 77,234 Cart rentals 112,083 86,034 56,413 16,000 72,413 0 49,845 66,460 68,454 70,507 72,623 Club rentals 5,951 4,666 0 0 5,700 5,800 5,900 6,000 6,100 6,200 Fixed Management Fees 339,045 338,292 240,384 104,940 345,324 30,500 255,084 300,000 300,000 300,000 300,000 Green Fees to Golf Professional (5%) 0 0 0 0 0 0 78,683 108,138 111,366 114,594 117,822 Credit Card Fees 38,000 30,000 17,000 7,000 24,000 0 33,047 45,418 46,774 48,129 49,485 Subtotal 1,453,121 1,367,390 1,103,773 289,424 1,393,197 523,615 1,310,203 1,402,858 1,435,544 1,444,465 1,453,514 Total Operating Expenses 2,135,057 1,907,393 1,633,201 271,924 1,905,125 1,203,995 1,907,603 2,014,458 2,067,144 2,096,365 2,128,614 Net Income From Operations 419,443 (146,130)(420,706)(165,924)(586,630)(1,033,415)344,622 995,302 1,030,237 1,087,864 1,141,999 Debt and Other Charges 1998 Debt Service 428,180 429,020 428,194 0 428,194 430,800 423,200 432,300 431,200 0 0 New 2014 Debt Service 0 0 511,342 511,342 511,342 511,342 511,342 Cost Plan Charges 23,871 26,224 30,485 0 30,485 32,009 33,610 35,290 37,055 38,907 40,853 Capital Reserve 0 0 0 0 0 0 229,188 235,644 Subtotal - Debt and Other Charges 452,051 455,244 458,679 0 458,679 462,809 968,151 978,932 979,596 779,437 787,838 Net Income (Loss)(32,608)(601,374)(879,385)(165,924)(1,045,309)(1,496,224)(623,529)16,370 50,641 308,427 354,161 Golf Rounds 58,000 46,527 31,000 31,000 0 48,750 67,000 69,000 71,000 73,000 CITY OF PALO ALTO OFFICE OF THE CITY CLERK February 9, 2015 The Honorable City Council Palo Alto, California Policy and Services Committee Recommendation of Changes to the Board and Commission Recruitment Program Including Adoption of an Ordinance Re-aligning Terms on the Architectural Review Board, the Historic Resources Board, the Parks and Recreation Commission and the Planning and Transportation Commission; Adoption of a Resolution Re-aligning Terms on the Storm Drain Oversight Committee; Allowing for Remote Board and Commission Interviews; Limit Applicants to One Board or Commission Each Recruitment Recommended Motion: Policy and Services Committee and Staff recommend that Council approve the following recommendation for changes to the Board and Commission recruitment program including; 1. Adopt the Proposed Ordinance (Attachment A) extending terms on the Architectural Review Board, the Historic Resources Board, the Parks and Recreation Commission and the Planning and Transportation from expiration dates on October 31 of various years to December 15 of various years; 2. Adopt the Proposed Resolution (Attachment B) extending terms on the Storm Drain Oversight Committee from expiration dates on October 31 of various years to December 15 of various years; 3. Allow Board and Commission applicants, who are out of town on scheduled interview dates, to participate in the interview process remotely, using Skype or similar telepresence technology; 4. Limit applicants to apply for one Board or Commission during each recruitment. Page 2 Background Staff proposed the above changes to the Board and Commission Recruitment Program to the Policy and Services Committee on December 16, 2014 (Attachment C). The above requested changes are the result of situations that have arisen over the past several years. In order to streamline the process, we made the proposed changes to the program. Following discussion, the Policy and Services Committee moved that the above recommendations be forwarded to the full Council. Attached are the Excerpt minutes from the December 16, 2014 Policy and Services Committee meeting (Attachment D). ATTACHMENTS:  Attachment: A: Proposed Ordinance Re-aligning ARB, HRB, PARC, PTC Terms (PDF)  Attachment: B: Proposed Resolusion Re-aligning SDOC Terms (DOCX)  Attachment: C: 12-16-2014 Policy and Services Staff Report (PDF)  Attachment: D: 12-16-2014 Policy and Services Minutes Excerpt (DOC) Department Head: Beth Minor, Acting City Clerk Page 3 *NOT YET APPROVED* ORDINANCE NO. _____ Ordinance Amending Municipal Code Sections 2.16.070, 2.20.020, 2.21.025, 2.25.030, 2.27.020 to Change the Start of Terms on the Architectural Review Board, the Historic Resources Board, the Parks and Recreation Commission and the Planning and Transportation Commission from November 1st to December 16th 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: SECTION 2. Section 2.16.070 (Schedule of Appointments) of Chapter 2.16 (Boards and Commissions Generally) of the Palo Alto Municipal Code is hereby amended to read as follows: “(a) The City Council shall review applications to fill vacancies in the following boards and commissions in April of each year: (1) Human Relations Commission (Chapter 2.22) (2) Library Advisory Commission (Chapter 2.24) (3) Public Art Commission (Chapter 2.18) (4) Utilities Advisory Commission (Chapter 2.23) (b) The City Council shall review applications to fill vacancies in the following boards and commissions in October December of each year: (1) Architectural Review Board (Chapter 2.21) (2) Historic Resources Board (Chapter 2.27) (3) Parks and Recreation Commission (Chapter 2.25) (4) Planning and Transportation Commission (Chapter 2.20). (c) The City Council shall fill vacancies in all other boards and commissions in April or October December of each year, at its discretion. (d) The City Council may fill mid-term vacancies during the next regularly scheduled recruitment for the board or commission or may hold a special recruitment, at its discretion. Special recruitments shall be subject to the requirements of Section 2.16.060. SECTION 3. Section 2.20.020 (Term of Office) of Chapter 2.20 (Planning and Transportation Commission) of the Palo Alto Municipal Code is hereby amended to read as follows: “Terms of office on the Planning and Transportation Commission shall be four years. Effective January 1, 20146, terms of office due to expire on July October 31 of each year shall be extended to expire on October 31December 15 of the same year, and thereafter terms of office shall commence on the first sixteenth day of NovemberDecember. If a successor is unavailable, a member may remain in office until his or her successor is appointed.” 150129 sh 0140128 1 *NOT YET APPROVED* SECTION 4. Section 2.21.025 (Term of Office) of Chapter 2.21 (Architectural Review Board) of the Palo Alto Municipal Code is hereby amended to read as follows: “Terms of office on the Architectural Review Board shall be three years. Effective January 1, 20164, the terms of office due to expire on September October 310 of each year shall be extended to expire on October December 1531 of the same year, and thereafter terms of office shall commence on the first sixteenth day of NovemberDecember. If a successor is unavailable, a member may remain in office until his or her successor is appointed.” SECTION 5. Section 2.25.030 (Term of Office) of Chapter 2.25 (Parks and Recreation Commission) of the Palo Alto Municipal Code is hereby amended to read as follows: “Terms of office on the parks and recreation commission shall be three years. Commission appointments shall be staggered so that in each three-year cycle three members are appointed to serve during the first year, four members are appointed to serve during the second year, and no members are appointed to serve during the third year. Effective January 1, 20164, terms of office due to expire on December October 31 of each year shall be lengthened to expire on October December 1531 of the following same year, and thereafter terms of office shall commence on the first sixteenth day of NovemberDecember. If a successor is unavailable, a member may remain in office until his or her successor is appointed.” SECTION 6. Section 2.27.020 (Term of Office) of Chapter 2.27 (Historic Resources Board) of the Palo Alto Municipal Code is hereby added to read as follows: “Terms of office on the Historic Resources Board shall be three years. Terms shall be staggered so that three positions are refilled one year, and four positions are refilled two years later. Effective January 1, 20164, terms of office due to expire on May October 31 of each year shall be extended to expire on October December 315 of the same year, and thereafter terms of office shall commence on the first sixteenth day of NovemberDecember. If a successor is unavailable, a member may remain in office until his or her successor is appointed.” // // // // // // // 150129 sh 0140128 2 *NOT YET APPROVED* SECTION 7. This ordinance shall be effective on the thirty-first day after the date of its adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ____________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ____________________________ ____________________________ City Attorney City Manager ____________________________ Director of Administrative Services 150129 sh 0140128 3 121009 Resolution No. ________ Resolution of Intention of the Council of the City of Palo Alto to Realign Terms of Office for the Storm Drain Oversight Committee R E C I T A L S A. WHEREAS, on April 26, 2005, the property owners approved a storm drainage fee increase for storm drain capital improvements and program enhancements; and B. WHEREAS, on November 14, 2005, the City Council approved Resolution No. 8573, establishing a Storm Drain Oversight Committee to monitor and review the use of increased storm drainage fees; and C. WHEREAS, on April 9, 2013, the Policy and Services Committee approved a recommendation to realign the terms of office of all City boards and commissions to end in April or October of each year; C.D. WHEREAS, on December 16, 2014, the Policy and Services Committee approved a recommendation to realign the terms of office of City boards and commissions ending October 31 to end on December 15 of each year; NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as follows: SECTION 1. Effective January 1, 20164, terms of office due to expire on December October 31 of each year shall be lengthened to expire on October December 1531 of the following same year, and thereafter terms of office shall commence on the first sixteenth day of NovemberDecember. If a successor is unavailable, a member may remain in office until his or her successor is appointed. SECTION 2. The Council finds that this is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: Formatted: List Paragraph, No bullets ornumbering, Tab stops: Not at 0.81" 121009 ATTEST: __________________________ _____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: __________________________ _____________________________ Deputy City Attorney City Manager _____________________________ Director of _____________________________ Director of Administrative Services CITY OF PALO ALTO OFFICE OF THE CITY CLERK December 16, 2014 The Honorable City Council Palo Alto, California Discussion of Possible Changes to the Board and Commission Recruitment Program Recommendation Staff recommends that Policy and Services Committee consider changes to the Board and Commission recruitment process. These changes include, 1. allowing Board and Commission applicants to participate in the interview process remotely; 2. scheduling Board and Commission appointments after City Council election during City Council election years and; 3. limiting applicants to apply for one Board or Commission during each recruitment. Remote Board and Commission Interviews Background On Wednesday, October 22, 2014 the City Council was scheduled to interview seven applicants for two positions on the Planning and Transportation Commission, see Page One of Staff Report (Attachment A). Prior to the meeting, one applicant arranged to participate via teleconference. Due to travel delays, the applicant was not able to participate in the interview process, see City Council Minutes (Attachment B). Page 2 Discussion Staff is requesting direction regarding future scheduling of remote Board and Commission applicant interviews. Options for remote participation include teleconference and/or video conference. The ability to schedule remote participation for Board and Commission applicants during the interview process would increase the likelihood that Council is able to interview all applicants it wishes to consider for appointments. City Council Protocols and Procedures allow for remote City Council participation by City Council Members, “in the event of extraordinary events such as a medical, family or similar emergency requiring a Council Member’s absence.” Scheduling Board and Commission Appointments after Election Background In the Fall of 2014, Staff conducted a recruitment to fill two terms on the Architectural Review Board (ARB), four terms on the Historic Resources Board (HRB), and two terms on the Planning and Transportation Commission (PTC). All eight expiring terms ended Friday October 31, 2014. Appointments were scheduled for Monday, October 20, 2014. During the period leading up to the November 4, 2014 City Council election, one Council Candidate submitted an application to serve on the Architectural Review Board. In order to avoid any real or perceived conflict of interest during the Board and Commission appointment process, appointments to the ARB, HRB and PTC were postponed until after the election on Monday, November 10, 2014. Two ARB Members continued past the Friday, October 31, 2014 expiration of their respective terms to attend the Wednesday, October 5, ARB Page 3 meeting. Four HRB Members continued past the Friday, October 31, 2014 expiration of their respective terms to attend the Thursday, October 6, HRB meeting. Due to PTC not meeting, their members were not asked to continue serving past the expiration of their terms. Boards and Commissions with member terms ending October 31: Architectural Review Board Parks and Recreation Commission Planning and Transportation Commission Storm Drain Oversight Committee Utilities Advisory Commission Discussion Postponing appointments to Boards and Commissions until after elections requires Board and Commission members with expired terms to continue serving beyond their appointed service. This could be a hardship for those asked to continue serving past the expiration of their term. If Council desires the ending dates of the above Boards and Commissions could be changed to November 30. This could then eliminate issues during election years. Limiting Applicants to One Board or Commission Background During the Fall 2014 Board and Commission recruitment, several individuals submitted applications to more than one Board or Commission. Two individuals submitted applications for the Architectural Review Board (ARB) and the Planning and Transportation Commission (PTC). Another applicant submitted applications to the ARB, Historic Resources Board (HRB) and the PTC. On Monday, October 6, 2014 City Council voted to require each applicant to select one Board or Commission application for consideration by City Page 4 Council, see City Council Action Minutes (Attachment C). Staff contacted applicants, who selected which application they wanted considered by City Council. Discussion Limiting individuals to apply for one Board or Commission encourages applicants to more carefully consider which Board or Commission is most appropriate for their background and is of most interest to them. Additional Board and Commission Information See Attachment D for a table listing membership requirements for each Board and Commission. Staff Impact These potential changes to the Board and Commission recruitment process will not have an impact on staff resources. Environmental Review This is not a project requiring environmental review. ATTACHMENTS:  Attachment A: 10/22/2014 Special City Council Meeting Agenda Item 1, Staff Report Excerpt (PDF)  Attachment B: 10/22/2014 City Council Meeting Minutes (PDF)  Attachment C: 10/6/2014 City Council Meeting Action Minutes (PDF)  Attachment D: Board and Commission Membership Requirements (XLSX) Page 5 Department Head: Beth Minor, Acting City Clerk Page 6 CITY OF PALO ALTO OFFICE OF THE CITY CLERK October 22, 2014 The Honorable City Council Palo Alto, California Interviews of Candidates for the Planning and Transportation Commission On Monday, October 6, 2014 City Council selected the following applicants to interview for the Planning and Transportation Commission. Portions of the Palo Alto Municipal Code describing requirements for serving on the Planning and Transportation Commission are included for reference. Planning and Transportation Commission 2.20.010 Membership. There is created a planning and transportation commission composed of seven members who are not council members, officers or employees of the city, who are residents of the city, and who shall be appointed by the city council. (Ord. 4606 § 1 (part), 1999) There are two terms ending October 31, 2018 on the Planning and Transportation Commission. The seven* Planning and Transportation Commission applicants to be interviewed are as follows: 15 minute interviews Jeff Schneble 6:00 p.m. Asher Waldfogel 6:15 p.m. Claude Ezran 6:30 p.m. Lyn Tillery 6:45 p.m. Arthur Keller 7:00 p.m. Adrian Fine 7:15 p.m. Yekaterina Vershov Downing 7:45 p.m. *The City Council will interview C James Schmidt on Wednesday, October 15, 2014 for these terms on the Planning and Transportation Commission. Valerie Driscoll and Richard Schoelerman withdrew their applications to the Planning and Transportation Commission. 1 Packet Pg. 3 CITY OF PALO ALTO CITY COUNCIL FINAL MINUTES Page 1 of 1 Special Meeting October 22, 2014 The City Council of the City of Palo Alto met on this date in the Council Conference Room at 6:02 P.M. Present: Berman arrived at 6:04 P.M., Burt, Holman, Klein, Kniss, Price, Scharff arrived at 6:13 P.M., Schmid, Shepherd Absent: ORAL COMMUNICATIONS None SPECIAL ORDERS OF THE DAY 1. Interviews of Candidates for the Planning and Transportation Commission. The City Council interviewed the following applicants: Lyn Tillery Asher Waldfogel Claude Ezran Arthur Keller (Incumbent) Adrian Fine Yekaterina Vershov Downing ADJOURNMENT: The meeting was adjourned at 7:38 P.M. CITY OF PALO ALTO CITY COUNCIL Action Minutes Page 1 of 7 Regular Meeting October 6, 2014 The City Council of the City of Palo Alto met on this date in the Council Chambers at 6:00 P.M. Present: Berman, Burt, Holman, Kniss, Price, Scharff, Schmid, Shepherd Absent: Klein STUDY SESSION 1. City Council Study Session with Senator Jerry Hill. 2. Planned Community (PC) Zoning Reform. SPECIAL ORDERS OF THE DAY 3. Selection of Applicants to Interview on October 15, 2014 for the Architectural Review Board and the Historic Resources Board, and Selection of Applicants to Interview on October 22, 2014 for the Planning and Transportation Commission. MOTION: Mayor Shepherd moved, seconded by Council Member Price to move Agenda Item Number 3 to the end of the meeting before the Closed Sessions. MOTION PASSED: 8-0 Klein absent 4. Community Partnership Presentation by Gamble Gardens. AGENDA CHANGES, ADDITIONS AND DELETIONS MOTION: Council Member Price moved, seconded by Council Member Berman to move Agenda Item Number 18 - Policy Discussion on Whether to Conduct a Closed Session Prior to an Open Session to Discuss the 2014- 2015 Management & Professional Compensation Plan; Possible Referral to ACTION MINUTES Page 2 of 7 City Council Meeting Action Minutes: 10/06/14 Policy & Services Regarding Closed/Open Session Practice for Compensation Matters, to a date uncertain. MOTION PASSED: 8-0 Klein absent MINUTES APPROVAL MOTION: Council Member Price moved, seconded by Vice Mayor Kniss to approve the minutes of August 18, 2014. Council Member Scharff registered a no vote on these minutes, because he felt they should be verbatim. SUBSTITUTE MOTION: Council Member Burt moved, seconded by Council Member Holman to continue approval of the minutes, to allow Council Members to provide corrections, to the October 20, 2014 Council meeting. SUBSTITUTE MOTION PASSED: 8-0 Klein absent CONSENT CALENDAR MOTION: Vice Mayor Kniss moved, seconded by Council Member Berman to approve Agenda Item Numbers 5-15. Council Member Schmid registered a no vote on Agenda Item Number 5. 5. Staff and Utilities Advisory Commission Recommendation that the City Council Adopt a Resolution 9454 entitled “Resolution of the Council of the City of Palo Alto Approving Revisions to the City of Palo Alto Energy Risk Management Policy.” 6. Approval of a Water Enterprise Fund Professional Services Contract with G&E Engineering Systems, Inc. in a Not to Exceed Amount of $268,400 for the Performance of a Water System Condition Assessment Master Study and a Seismic Master Study (WS-11003). 7. Approval of Amendment to the Lease with R&T Restaurant Corporation for Palo Alto Municipal Golf Course Restaurant, 1875 Embarcadero Road and Adoption of Related Budget Amendment Ordinance 5273 entitled “Budget Amendment Ordinance of the Council of the City of Palo Alto in the General Fund.” ACTION MINUTES Page 3 of 7 City Council Meeting Action Minutes: 10/06/14 8. Approval of a Contract with the San Francisquito Creek Joint Powers Authority in the Amount of $500,000 for the Baylands Levee Improvements Feasibility Study, Capital Improvement Program Project PE-15028. 9. Approval of a Purchase Order with Owen Equipment in a Not to Exceed Amount of $785,469 for the Purchase of Two Vacuum/Flush Trucks (Scheduled Vehicle and Equipment Replacement Capital Improvement Program VR-13000). 10. Resolution 9461 entitled “Resolution of the Council of the City of Palo Alto Extending the Crescent Park No Overnight Parking Boundaries and Program Trial for Additional 12 Months.” 11. Response to the Notice of Preparation of an Environmental Impact Report for the City of East Palo Alto General Plan Update. 12. Request for Approval of a Three-Year Blanket Purchase Order with Granite Rock Company in the Total Amount of $1,060,830 to be the Primary Supplier of Asphalt Concrete Products and Request for Approval of a Three-Year Blanket Purchase Order with Granite Construction Company in the Total Amount of $270,000 to be the Secondary Supplier of Asphalt Concrete Products, with Both Blanket Purchase Orders Supplying the Public Works and Utilities Departments From September 22, 2014 through September 21, 2017 (Continued From September 22, 2014). 13. Ordinance 5274 entitled “Ordinance of the Council of the City of Palo Alto Amending Section 2.28.090 (Lapse of Appropriation) of Chapter 2.28 (Fiscal Procedures), Repealing Section 2.08.145 (Consultation with City Auditor) and Amending Section 2.08.150 (Department of Administrative Services) of Section 2.08 (Officers and Departments) (First Reading: September 22, 2014 PASSED: 9-0).” 14. Approval of Annual Williamson Act Contracts and Acceptance of Nonrenewal Notice from Midpeninsula Regional Open Space District for 5061, 5065, 22601 Skyline Boulevard. 15. Adoption of an Ordinance Creating a Business Registry in the City of Palo Alto and Adoption of a Budget Amendment Ordinance 5275 entitled “Budget Amendment Ordinance of the Council of the City of Palo Alto for Fiscal Year 2015 for Costs Related to the Implementation ACTION MINUTES Page 4 of 7 City Council Meeting Action Minutes: 10/06/14 of a Business Registration Program for all Businesses Occupying Commercial Space Within the City and Amendment to the Municipal Fee Schedule and Administrative Penalty Schedule.” MOTION PASSED for Agenda Item Number 5: 7-1 Schmid no, Klein absent MOTION PASSED for Agenda Item Numbers 6-15: 8-0 Klein absent ACTION ITEMS 16. Public Hearing: Adoption of an Ordinance Establishing Underground Utility District No. 46 (Arastradero Road/ El Camino Real/ W. Charleston Road) by amending Section 12.16.02 of the Palo Alto Municipal Code. Public Hearing opened at 9:36 P.M. Public Hearing closed at 9:37 P.M. MOTION: Council Member Price moved, seconded by Council Member Burt to adopt the Ordinance to create Underground Utility District No. 46 and thereby amending section 12.16.02 of the Palo Alto Municipal Code. MOTION PASSED: 8-0 Klein absent 17. Council Review and Direction to Staff Regarding the Risk Assessment for Storing and Handling Hazardous Materials at 607-811 Hansen Way (CPI) and Possible Zoning Ordinance Amendments. MOTION: Council Member Price moved, seconded by Vice Mayor Kniss to direct Staff to prepare a draft Ordinance for review by the Planning and Transportation Commission (PTC) and consideration by the City Council in early 2015. The Ordinance should amend the list of uses in the Zoning Code to explicitly identify plating shops, prohibit plating shop uses within a specific distance of residential uses and residential zoning districts, and incorporate an amortization schedule based on updated information on the value of affected investments. INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER to: 1) identify uses from similar operations with similar hazards; 2) identify additional incompatible adjacent uses (schools, retail, restaurant); 3) identify appropriate volume of hazardous materials ACTION MINUTES Page 5 of 7 City Council Meeting Action Minutes: 10/06/14 thresholds and possibly establishing tiers in the Ordinance for facilities covered; and 4) have AECOM review the ENVIRON analysis of the most extreme risk scenarios. INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER to direct Staff to return to Council with an informational report before the end of 2014 on the status. MOTION AS AMENDED PASSED: 8-0 Klein absent 18. Policy Discussion on Whether to Conduct a Closed Session Prior to an Open Session to Discuss the 2014-2015 Management & Professional Compensation Plan; Possible Referral to Policy & Services Regarding Closed/Open Session Practice for Compensation Matters. 3. Selection of Applicants to Interview on October 15, 2014 for the Architectural Review Board and the Historic Resources Board, and Selection of Applicants to Interview on October 22, 2014 for the Planning and Transportation Commission. MOTION: Council Member Scharff moved, seconded by Vice Mayor Kniss to: 1) interview all candidates; and 2) have the candidates who have applied for multiple boards or commissions to pick one board or commission they want to be interviewed for. MOTION PASSED: 8-0 Klein absent 19. Cubberley Community Center Lease Status and Update. MOTION: Council Member Scharff moved, seconded by Council Member Berman to have Council move into the Closed Session. MOTION PASSED: 8-0 Klein absent INTER-GOVERNMENTAL LEGISLATIVE AFFAIRS None CITY MANAGER COMMENTS City Manager, James Keene reported that this week is Fire Prevention Week and this month is Breast Cancer Awareness Month. There is a provocative ACTION MINUTES Page 6 of 7 City Council Meeting Action Minutes: 10/06/14 public art project that includes 20 signs placed throughout the downtown area, that pose different questions regarding the City and living here. COUNCIL MEMBER QUESTIONS, COMMENTS AND ANNOUNCEMENTS None The City Council went into the Closed Session at 11:43 P.M. CLOSED SESSION 20. CONFERENCE WITH REAL PROPERTY NEGOTIATORS, CALIFORNIA GOVERNMENT CODE SECTION 54956.8 Properties: Cubberley Community Center, 4000 Middlefield Road, Palo Alto 94306 (including 8 acres owned by the City of Palo Alto and remaining acres owned by the Palo Alto Unified School District); and Ventura School site, 3990 Ventura Court, Palo Alto 94306 Agency Negotiators: James Keene, Lalo Perez, Joe Saccio, Hamid Ghaemmaghami, Greg Betts, Rob De Geus, Thomas Fehrenbach, Molly Stump Negotiating Parties: City of Palo Alto and Palo Alto Unified School District Under Negotiation: Lease and/or Purchase/Sale* *Purchase/sale is listed to comply with Brown Act legal requirements, and includes other transactions such as easements, options, rights of first refusal and land exchanges. The City is not considering selling any of its interests in Cubberley or Ventura. 21. CONFERENCE WITH CITY ATTORNEY - EXISTING LITIGATION Subject: Sterling Park, L.P. v. City of Palo Alto, et al. Santa Clara County Superior Court, Case No.109-CV-154134 Subject Authority: Government Code section 54956.9 The City Council reconvened from the Closed Session at 12:25 A.M. and Mayor Shepherd announced there was no reportable action. ACTION MINUTES Page 7 of 7 City Council Meeting Action Minutes: 10/06/14 ADJOURNMENT: The meeting was adjourned at 12:25 A.M. Name Members Palo Alto Residency Requirement Membership Requirements Municipal Code Term Expiration Architectural Review Board 5 No ...at least three of whom shall be architects, landscape architects, building designers or other design professionals 2.21.010 October 31 Historic Resources Board 7 For 1 Members shall have demonstrated interest in and knowledge of history, architecture or historic preservation. One member shall be an owner/occupant of a category 1 or 2 historic structure, or of a structure in a historic district; three members shall be architects, landscape architects, building designers or other design professionals and at least one member shall possess academic education or practical experience in history or a related field 2.27.010 April 30 Human Relations Commission 7 All 2.22.010 April 30 Library Advisory Commission 5 All Each member of the commission shall have a demonstrated interest in public library matters 2.24.010 April 30 Library Bond Oversight Committee 5 No ...a resident of Palo Alto, an employee of a business located in Palo Alto, or an owner of real property within the City Resolution 8906 April 30 Parks and Recreation Commission 7 All Each member of the commission shall have a demonstrated interest in parks, open space and recreation matters 2.25.010 October 31 Planning and Transportation Commission 7 All 2.20.010 October 31Public Art Commission 7 No 2.18.010 April 30 Storm Drain Oversight Committee 5 No ...be a resident of Palo Alto, an employee of a business located in Palo Alto or an owner of real property within the City Resolution 8573 October 31 Utilities Advisory Commission 7 For 6 Each member of the commission shall be a utility customer or the authorized representative of a utility customer 2.23.010 October 31 Board and Commission Membership Requirements POLICY AND SERVICES COMMITTEE MINUTES EXCERPT 1 Special Meeting Tuesday, December 16, 2014 Chairperson Price called the meeting to order at 6:0 P.M. in the Council Conference Room, 250 Hamilton Avenue, Palo Alto, California. Present: Klein (arrived at 6:13), Price (Chair), Scharff, Schmid Absent: 1. Discussion of Possible Changes to the Board and Commission Recruitment Program. Beth Minor, Acting City Clerk, clarified the recruitment process had undergone some changes because of Council recommended input. The recruitment changed to twice a year with applications being accepted all year long. Staff was seeking the following changes to the process; 1) allow Board and Commission applicants to participate in their interview remotely, 2) move the selection of appointments to after the election on City Council election years, and 3) limiting applicants the ability to apply for one Board or Commission per recruitment. She provided background to explain the issues; 1) the remote access for City Council Members was set on an emergency basis, and 2) during the 2014 recruitment an applicant had applied for City Council and Commission at the same time. Staff was suggesting changing the selection process of the recruitment on election years to after the close of the election or change the recruitment for the October cycle to the end of November. A consistent issue over the years was applicants applying for multiple seats simultaneously. Council Member Scharff did not support applicants participating remotely. He recommended changing the end of term date to December 15th rather than November 30th. He supported limiting the applicants ability to apply to one Board or Commission during each recruitment. Chair Price asked what the December 15th date was in reference to. Council Member Scharff stated changing the term of the commissioner to December 15 from October 31st. With the date change they could attend the final Council meeting of the year as a commissioner. MINUTES 2 Policy & Services Committee Final Minutes December 16, 2014 Chair Price confirmed the term would end on December 15th but the recruitment process would begin earlier. Council Member Scharff agreed the incoming commissioners could be appointed but would not take position until after December 15th. Ms. Minor stated that was part of the current process to avoid overlap of seated members. Council Member Schmid agreed with Council Member Scharff on the matter of remote interviews. He requested to announce the scheduled interview dates as early as possible to avoid the need for the applicants to remote in. Ms. Minor said Staff began the recruitment process six weeks in advance of the term end date. Scheduling the dates of interviews was dependent upon Council’s schedule. She recommended reviewing the tentative agenda farther out to project the possible dates for interviews. Council Member Schmid asked how the recruitment for October 31st was set when the Historic Resources Board (HRB) just selected four new members but their recruitment was not until the Fall. Ms. Minor explained during the transition of biennial recruitments there was a lagging Commission that needed to be moved to accommodate the change in cycle. Council Member Schmid asked if the HRB was in October or had been moved to April. Ms. Minor said she would review the dates but believed the full HRB Commission recruitment was October 31st. Council Member Schmid had concern with 80 percent of the Commission being termed out on a single recruitment cycle. Ms. Minor explained in a normal recruitment the terms were staggered the same as Council. Council Member Schmid asked Staff to review the HRB schedule and verify the staggering of the terms. Ms. Minor agreed. Council Member Schmid did not have an issue with moving the term date to December 15th. He was in favor of limiting applicants to applying for one position per recruitment. MINUTES 3 Policy & Services Committee Final Minutes December 16, 2014 Ms. Minor stated Staff would reiterate to the applicants Council had determined one application per seat per recruitment. Staff would change the recruitment process to be clear. Chair Price felt there should be an option for remote interviews because there were individuals in the community with demanding schedules. She believed if it was a technical issue there were ways to overcome them. She agreed to changing the term date and limiting the application to one Commission. Council Member Klein stated there should be language in the recruitment protocols to discourage applicants from remotely interviewing. If there was to be a remote interview there should be verification the applicant is out of town or has a medical reason. Ms. Minor agreed to change the language. Council Member Scharff stated if there was a remote interview it would be acceptable if there was a Skype or a visual type technology utilized. Ms. Minor noted the change of remote interviewing to Skype or similar technology. MOTION: Council Member Scharff moved, seconded by Council Member Klein that the Policy & Services Committee approve the following changes to the Board and Commission recruitment process: 1. allow Board and Commission applicants to participate in the interview process remotely as long as they were available through Skype or similar technology and they need to be out of town; 2. change the term expiration date from October 31st to December 15th and; 3. limit applicants to apply for one Board or Commission during each recruitment. Council Member Schmid requested Staff review the HRB for term expiration dates. MOTION PASSED: 4-0 Ms. Minor noted Staff would bring the item before Council under the Consent Calendar later in 2015. CITY OF PALO ALTO OFFICE OF THE CITY CLERK February 9, 2015 The Honorable City Council Palo Alto, California SECOND READING: Policy and Services Recommendation to Adopt an Ordinance Increasing Council Salary From $600/Month to $1,000/Month, Effective January 1, 2017 (First Reading: January 20, 2015 PASSED: 6-3 DuBois, Filseth, Scharff no) The attached Ordinance was first heard by the Council on January 20, 2015. No changes were made during the first reading. It is being brought forward for the second reading. ATTACHMENTS:  Attachment A: Council Salary Ordinance (PDF) Department Head: Beth Minor, Acting City Clerk Page 2 ATTACHMENT C NOT YET ADOPTED 1 Ordinance No. ____  Ordinance of the Council of the City of Palo Alto Amending Chapter 2.04 of the Palo Alto  Municipal Code to Increase the Salary of Council Members Effective January 2017 and to Clarify  Council Expense Allowances        The Council of the City of Palo Alto does ORDAIN as follows:      SECTION 1.  Findings and Declarations.  The City Council finds and declares as follows:    A. Article III, Section 17 of the Charter of the City of Palo Alto provides that  compensation may be paid to council members in amounts not to exceed those provided by general  law.    B. Council member salaries were last set in 2001 by Ordinance No. 4692 in the  amount of six hundred dollars ($600) per month.    C. General law permits salaries to be increased at a rate not to exceed 5% for each  calendar year from the operative date of the last salary adjustment.  The increase permitted under state  law for an effective date of January 1, 2017 is four hundred fifty dollars ($450) per month, for a  maximum permissible compensation of one thousand fifty dollars ($1,050) per month.    D. From time to time, the Council adopts by resolution a travel and expense policy  for council members, including expense reimbursement limits for the Mayor and Vice Mayor.     SECTION 2.   Section 2.04.350 (Expense allowance for council members) of Chapter 2.04 (Council  Organization and Procedure) of Title 2 (Administrative Code) of the Palo Alto Municipal Code is hereby  amended to read as follows:      “Section 2.04.350 Expense allowance for council members    The council may by resolution adopt a travel and expense policy providing a schedule  for expense allowances for its members and an amount shall be included in the council  budget to reimburse members of the council for expenses incurred in their service as  members of the council. Notwithstanding the above, the mayor shall receive $200.00  per month for expenses and the vice‐mayor shall receive $50.00 per month for expenses  incurred in filling these offices.”      SECTION 3.   Section 2.04.360 (Salary of council members) of Chapter 2.04 (Council  Organization and Procedure) of Title 2 (Administrative Code) of the Palo Alto Municipal Code is hereby  amended to read as follows:      “Section 2.04.360 Salary of council members    The salary of the council members shall be $600.00 per month.  Effective January 1,  2017, the salary of the council members shall be $1,000 per month.     SECTION 4.   If any section, subsection, clause or phrase of this Ordinance is for any  reason declared invalid, such declaration shall not affect the validity of the remaining portion or  sections of the Ordinance.  The Council hereby declares that it should have adopted the  Ordinance and each section, subsection, sentence, clause or phrase thereof irrespective of the  ATTACHMENT C NOT YET ADOPTED 2 fact that any one or more sections, subsections, sentences, clauses or phrases be declared  invalid.     SECTION 5.   This ordinance shall be effective on the thirty‐first day after the date of its  adoption.     SECTION 6.  The Council of the City of Palo Alto hereby finds that this is not a project under  the California Environmental Quality Act and, therefore, no environmental impact assessment is  necessary.    INTRODUCED:  PASSED:  AYES:  NOES:  ABSENT:  ABSTENTIONS:  ATTEST:      ___________________________    ____________________________  City Clerk       Mayor    APPROVED AS TO FORM:    APPROVED:    ____________________________    ____________________________  Deputy City Attorney     City Manager            ____________________________          Director of Administrative Services    City of Palo Alto (ID # 5504) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/9/2015 City of Palo Alto Page 1 Summary Title: Approve Amended BMR Agreement Title: Approval of Technical Amendments to the Below Market Rate Housing Agreement, Exhibit C-3 to the Mayfield Development Agreement Between the City and Stanford University From: City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that Council approve and authorize the City Manager or his designee to sign a revised Below Market Rate Housing Agreement (Exhibit A) as well as related documents required for construction of the approved project at 2500 El Camino Real, and find that the revised agreement is consistent with the Mayfield Development Agreement between the City and Stanford University. Executive Summary The Mayfield Development Agreement between the City and Stanford University provided for the construction of affordable housing, and consistent with this agreement, the City approved construction of a 70-unit below market rate project at 2500 El Camino Real in 2014. Now the Below Market Rate (BMR) Housing Agreement included as an exhibit to the Mayfield Development Agreement must be executed before Stanford University and the developer of the project, Related California (Related), can conclude their transaction, obtain financing, and construct the project. The BMR Housing Agreement is the regulatory tool used by the City to ensure the long term affordability of the units. As envisioned in the Development Agreement (Paragraph 12 of Exhibit C-2), technical changes are needed to bring the original BMR agreement into conformance with the tax credit programs being used to finance the project. (A blacklined version of the BMR Agreement showing the changes is included as Attachment B.) Concurrently, the City and Stanford propose to amend the section of the agreement related to local preferences to expand the preference to include Palo Alto households that have been displaced or threatened with displacement. Other changes to the preference section reflect Stanford’s decision not to offer a preference to Stanford employees, and minor edits to the City of Palo Alto Page 2 preference for those who live or work in Palo Alto. The City Attorney and the City’s outside counsel for housing matters have reviewed the proposed changes and believe they are consistent with the intent and substance of the Mayfield Development Agreement and with the approval granted to the project at 2500 El Camino Real. Discussion In May 2005, the City Council entered into a Development Agreement (Mayfield DA) with Stanford University (Stanford) which granted rights to Stanford for certain specified developments in the agreement. One of the developments of the Mayfield DA was Stanford agreed to lease the Mayfield site on the corner of Page Mill Road and El Camino Real to the City for fifty-one (51) years to be used as a public soccer complex. In exchange for the lease, the City allowed Stanford to develop 250 units of housing along California Avenue and El Camino Real with the requirement that a portion of the 250 units be set aside as Below Market Rate (BMR) housing. Stanford had the option of providing 50 BMR units interspersed throughout the entire development or develop 70 BMR units in a separate development as outlined in the DA. The DA included BMR Agreements for both the 50 unit and 70 unit options as exhibits. Stanford opted for the seventy unit option to be developed at their El Camino site, and this project was approved by the City in 2014. Related California (Related) is the developer for the affordable development and plans on using tax credits to help fund the project. City staff has been working with Related staff in finalizing the necessary documents, including the BMR Agreement, in support of tax credit financing. While reviewing the draft BMR Agreement, written in 2004, it was apparent that the draft did not reflect newer requirements of the tax credit programs. The Development Agreement anticipated this possibility and, in paragraph 12 of Exhibit C-2 (“Paragraph 12,”), provided for subordination of the BMR Agreement to LIHTC rules, as long as certain basic requirements of the BMR Agreement were not changed. Staff determined that the revisions needed to reflect current tax credit requirements, although extensive in terms of the amount of text to be removed or modified, do not change the basic requirements of the BMR Agreement. Section 5.2 of the BMR Agreement stipulates a preference/priority provision for persons who live or work in the City of Palo Alto, and states that Stanford “may give priority” to or work at Stanford. With the proposed changes, the parties would amend this section of the agreement to expand the preferences to include Palo Alto households that have been displaced or threatened with displacement, to reflect Stanford’s decision not to give priority for Stanford employees, and the City’s clarification that the preference for people who live or work in the City extends to people who work without compensation or regularly volunteer. All of these changes are favorable to the City. City of Palo Alto Page 3 Timeline Execution of the revised BMR Agreement is required as soon as possible to allow for financing and construction of the approved affordable housing project. Resource Impact The proposed action does not materially affect the Mayfield Development Agreement and will allow the developer to obtain financing for an approved housing project. Policy Implications The proposed action would expand the local preference for those who live or work in Palo Alto to those displaced or threatened with displacement. Environmental Review The requested action would not materially alter the adopted Development Agreement, which was reviewed pursuant to the California Environmental Quality Act (CEQA). Thus no additonal review is required. Attachments:  Attachment A: BMR Agreement Stanford and CPA (DOCX)  Attachment B: BMR Agreement between Stanford and City of Palo Alto Redlined Version (DOC) 1 This document is recorded for the benefit of the City of Palo Alto and is entitled to be recorded free of charge in accordance with Section 6103 of the Government Code After Recordation, mail to: OFFICE OF THE CITY ATTORNEY 250 Hamilton Avenue Palo Alto, CA 94301 BELOW MARKET RATE HOUSING AGREEMENT BETWEEN STANFORD UNIVERSITY AND CITY OF PALO ALTO 2450, 2470, and 2500 El Camino Real Palo Alto, California A.P.N. Nos. 142-20-013, 142-20-014, 142-20-047 THIS AGREEMENT, made and executed this ____________ day of February 2015, by and between the CITY OF PALO ALTO, a municipal corporation of the State of California, hereinafter referred to as "City", and THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California, hereinafter referred to as “Stanford”; W I T N E S S E T H: WHEREAS, City and Stanford have entered into a Development Agreement that was recorded in the Official Records of Santa Clara County on June 28, 2005, as document number 18444398 (the “Development Agreement”); and ATTACHMENT A 2 WHEREAS, Stanford is the owner of certain real property situated in the City of Palo Alto, County of Santa Clara, State of California, which is commonly described by street address and Assessor's parcel numbers as set forth in the title of this document, and more particularly described in Exhibit A attached hereto and incorporated herein by this reference, (the "El Camino Sites"); and WHEREAS, Stanford has chosen, under the terms of the Development Agreement, to satisfy its obligations under the Development Agreement and the provisions of the City of Palo Alto Below Market Rate ("BMR") Program (as then set forth in Program H-36 of the City of Palo Alto Housing Element) by providing 70 units of BMR housing on the El Camino Sites; NOW, THEREFORE, the parties hereto mutually covenant and agree as follows: 1.0 BMR COMMITMENT: Stanford shall provide 70 units of BMR rental housing (the "BMR Units") on the El Camino Sites in accordance with the terms of this Agreement (the "project"). The project shall be constructed in accordance with Exhibit C-2 of the Development Agreement. Stanford shall operate and maintain the project as approved and constructed and in accordance with this Agreement. During the term of this Agreement, Stanford shall not subdivide or combine units without the approval of the City. City accepts the performance of this Agreement in full satisfaction of Stanford's obligations to provide BMR Units under the Development Agreement, including section 5.5 thereof, in connection with the construction of the 250 units of Housing required under the Development Agreement. All units shall be rented and occupied as provided herein. 2.0 DURATION OF AGREEMENT TO PROVIDE BMR HOUSING: This agreement shall be in effect for fifty-five (55) years from the first day of the calendar month immediately following the date of issuance of the first certificate of occupancy for the project, and thereafter this Agreement shall be of no force or effect and the rents charged shall no longer be regulated or controlled by City and Stanford shall no longer be required to maintain and operate the project in accordance with this Agreement, or the City's BMR Program. 3.0 AGE RESTRICTIONS PROHIBITED: In the rental of BMR Units, neither Stanford nor its assignees shall discriminate against 3 households with children or on the basis of the age of renters, or occupants. 4.0 DISTRIBUTION OF BMR UNITS: The Very Low-Income Units shall be proportionately distributed among the different unit types in the Project (by number of bedrooms) and by floor and location in the building(s). For example, if there are 30% one-bedroom units, 40% two-bedroom units and 30% three bedroom units, then the 14 required Very Low-Income Units would be distributed by unit type as follows (results are rounded): o 4 - One-bedroom units (30% of 14) o 6 - Two-bedroom units ( 40% of 14) o 4 - Three-bedroom units (30% of 14) 5.0 HOUSEHOLD QUALIFICATION AND SELECTION; WAITING LIST: 5.1 Qualifications. In order to be eligible to rent a BMR Unit, the prospective tenant must meet the qualifications regarding income, assets and minimum household size at the time of commencing occupancy and annually thereafter. The qualifications and related procedures are set forth in detail in Section 7.0 below. 5.2 Priority for Palo Alto Workers and Residents. Priority for all BMR units shall be given to those eligible households who have been displaced, or are threatened to be displaced, from housing within the city limits of the City of Palo Alto and to those eligible households with at least one household member who either lives or works , with or without monetary compensation, within the city limits of the City of Palo Alto. 5.3 Waiting List. Stanford shall maintain a waiting list or advertise vacancies for the BMR Units and provide information to prospective BMR applicants. Alternatively subject to the City's consent, Stanford may contract with a qualified organization such as the Palo Alto Housing Corporation to maintain a waiting list. Nevertheless, Stanford shall be solely responsible for the actual selection of BMR households, consistent with Section 5.2, and may conduct Stanford's normal tenant screening process. 5.4 Information. Upon request by an interested person, Stanford shall provide information about the BMR rental program and the BMR Units, including the waiting list. Upon submittal of an application to rent a BMR Unit, Stanford shall provide to the 4 applicant information regarding the conditions and restrictions applicable to occupancy of the BMR Units in the Project. Such information shall include: the Base Rents as herein defined applicable to new households, the rules for calculation of annual rent increases, minimum occupancy standards for BMR Units, the qualifying income, asset, and other limitations for initial and continued occupancy, the process to certify compliance with those limitations and the annual recertification process, the requirement to offer a one-year lease, the BMR waiting list procedures and Stanford's standards for household screening, and other relevant information. Penalties for a household's noncompliance with the BMR Program rules and requirements shall also be explained in the informational materials provided by Stanford. 6.0 AFFORDABILITY AND OCCUPANCY STANDARDS; QUALIFYING INCOME LIMITS; RENTS. All units shall be occupied and rented as follows: 6.1. Affordability Standards. 6.1.1 Very Low-Income Units. Fourteen (14) BMR Units shall be rented to qualified Very Low-Income Households (annual gross household income that is less than or equal to the qualifying limits for households earning 50% of Santa Clara County median income, adjusted for actual household size, which is set forth by regulation of TCAC) at rents controlled by this Agreement. 6.1.2. Low-Income Units. The balance of the BMR Units constructed (except an unit to be occupied by a resident manager) shall be designated and rented to qualified Low- Income Households (annual gross household income that is less than or equal to the qualifying limits for households earning 60% of Santa Clara County median income, adjusted for actual household size, which is set forth by regulation of TCAC) at rents controlled by this Agreement. 6.1.3. Affordability Standards. The income limits used in this Section 6.1 and in Section 6.4 to establish maximum rents are summarized in the following table: AFFORDABILITY STANDARDS FOR BMR HOUSEHOLDS 5 Designation of the BMR Unit Affordability Standards at Household’s First Occupancy Affordability Standards at Annual Recertification Very Low-Income Unit Equal to or less than 50% of Area Median Income Equal to or less than 70% of Area Median Income Low-Income Unit Equal to or less than 60% of Area Median Income Equal to or less than 84% of Area Median Income 6.1.4. Reserved. 6.1.5 Alternatives. In-lieu of compliance with the qualifying income limits established in Section 6.1, Stanford may elect to comply with income limits, established pursuant to a formula or method of calculation adopted by the City after the effective date of the Development Agreement and in effect at the time of the application for Architectural Review Approval for the Project, and generally applicable to 100% BMR rental housing projects in the City. 6.2 Initial Rents. 6.2.1. Calculation of Initial Rents. All of the Initial Base Rents for Units in a building shall be effective on the first day of occupancy of the first BMR Unit in the building to be occupied. The first day of a calendar month following said first day of occupancy shall be the "Start Date”. The Initial Base Rents shall be calculated in accordance with this Section 6.2 based on the current maximum rent limits published by the California Tax Credit Allocation Committee (“TCAC”) for Santa Clara County as of the date the Project receives an allocation of federal low income housing tax credits from the TCAC, unless the project developer elects to set the gross rent floor as of the date of placement in service of the Project, in which case the initial rents shall be based on the current maximum rent limits published by TCAC as of the date the project is placed in service under Section 42 of the Internal Revenue Code of 1986, as amended ("Initial Calculation Date"). The Initial Base Rents shall include rents for each type of BMR Unit (One- bedroom, Two - bedroom, etc.) and income classification, as provided in 6 sections 6.1.1 and 6.1.2. (Low- Income and Very Low- Income). 6.2.2 Alternate Standard. If City subsequently adopts a different method for determining rents, generally applicable to Low-Income Households or Very Low-Income Households in other 100% affordable BMR rental housing projects, that permits a higher rent, Stanford may elect to use that method to set these rents. 6.2.3 Assumed Household Size for Calculation of Initial Base Rents. The following household size shall be assumed or each type of BMR Unit for purposes of calculating the Initial Base Rent: Unit Type One-bedroom units Two-bedroom units Three-bedroom units Four-bedroom units Assumed Household Size 1.5-persons 3-persons 4.5-persons 6-persons 6.3. Increases in Rents. The Rent for each BMR Unit shall be re-determined annually, in accordance with the procedure set forth in section 6.4, and, after Stanford’s delivery of thirty (30) day written notice to a tenant, the Rent charged to each household may be increased to the approved rent effective upon expiration of such thirty (30) day notice period (the “Rent Adjustment Date”). The results of these re-determinations are referred to as the "Base Rents." 6.4. Procedure for Re-determination of Rents. The re- determined Base Rent effective after each Rent Adjustment Date shall be the maximum annual rent published by TCAC for such year for Santa Clara County for the applicable income limit and bedroom count, and adjusted as necessary to reflect the assumed household size for that type of unit pursuant to section 6.2.3, provided that the increase or adjustment in rent will be no greater than the increase or adjustment permitted under Section 42(g) of the Internal Revenue Code. 7 6.5 Rents After Vacancy. When a BMR Unit is vacated and rented to a new household, the rent to be paid by the new household shall be the then current Base Rent. 6.6 Charges Included in BMR Rent. Rent calculated in accordance with this section 6 is the total maximum monthly charge that may be paid by the household for occupancy of the BMR unit, including the value of utility services that are not separately metered to each unit, and of assigned parking and of storage lockers. 6.7. Rents After Re-certification. Rents also may be adjusted as a result of an annual recertification as provided in section 7.0 below. 6.8 Occupancy Standards; Household Size. The minimum household size for each unit type shall be: Unit Type One-bedroom units Two-bedroom units Three-bedroom units Four-bedroom units Minimum Household Size One-person Two-persons Three-persons Four-persons Stanford may establish maximum household sizes for each unit type, which shall not be less than two persons per bedroom plus one person; e.g., for a 3-bedroom unit, a maximum of 7 persons. 7.0 REVIEW OF TENANT QUALIFICATIONS & INCOME CERTIFICATIONS. 7.1 Qualifications. Applicants for BMR Units must meet qualifications regarding income, assets and minimum household size standards. The applicable residency and / or work location preferences must also be verified. Each existing BMR household must be recertified annually to verify that the household continues to meet the applicable qualifications in order to continue to be eligible to pay BMR rent and occupy a BMR Unit 7.2 Procedures. The procedures of the HUD Section 8 rental assistance program, or successor program, shall be followed in conducting the income certifications, except as modified by the City to meet the requirements of the BMR program. Stanford shall obtain the appropriate documentation from applicants and tenants, make its determinations of annual income and other 8 qualifications and of each household's initial and continued eligibility for the BMR program prior to the execution (or renewal) of the rental agreement or lease for the BMR Unit. Stanford shall not permit a new BMR tenant to occupy a BMR Unit prior to completion and satisfaction of the qualification and income certification process and requirements. 7.3. Certified Households. If Stanford determines that a household remains eligible for the BMR Unit, the tenancy continues in accordance with the provisions of this Agreement and the applicable rental agreement or lease. 7.4. Increases in Household Income. In the event the household income of a Very-Low Income Household or a Low-Income Household is determined at the time of annual recertification for a Unit to exceed the qualifying income limits for a Very-Low Income Household or a Low-Income Household, as applicable, such household shall remain eligible to continue to rent the BMR Unit in accordance with Section 42 of the Internal Revenue Code, the California Health and Safety Code and the California Tax Credit Allocation Committee Regulations, as such may be amended from time to time. 7.5 Reserved. 7.6 Failure to Meet Minimum Household Size. If Stanford determines that an otherwise qualified BMR household no longer meets the minimum household size standard for the BMR Unit that it occupies (e.g., because one or more household members have established permanent residency at another location), the household will no longer be eligible to occupy a unit of the type then occupied and the provisions of section 7.6.1 apply. 7.6.1. Notice. In such case, Stanford shall give the household written notice that: A) The household is no longer eligible to occupy the BMR Unit; B) The household will be required (i) to move to the next available BMR Unit for which it qualifies under the household size standards within ten (10) days of receipt of written notice that the unit is available, or (ii) to vacate the project within sixty days of receipt of such notice; and 9 7.6.2. Re-renting of BMR Unit. Stanford shall rent the vacated BMR Unit to a qualified household in accordance with this Agreement. 8.0 ANNUAL REPORT. Stanford shall prepare and submit to the City, or the City's designee, an annual report in a form specified by City on the status of the BMR Units and compliance with the requirements of the Development Agreement and this Agreement. This report will recap all activity related to the provision of BMR Units for the year, identify corrective actions taken or ongoing to ensure compliance and finally, recap all rent increases and income limit adjustments implemented during the preceding calendar year. 9.0 DECENNIAL REVIEW OF BMR REQUIREMENTS. During the calendar year following the tenth (10) anniversary of the Start Date and every ten years thereafter, Stanford may request a review and modification' of the terms, or amendment of this Agreement. City shall have sole discretion to accept or reject any and all requested modifications or amendments. The parties may amend this Agreement only by a writing duly executed by both and recorded. 10.0 COMPLIANCE WITH OTHER LAWS INCLUDING CITY'S ONE-YEAR LEASE LAW. All applicable State and local laws and ordinances affecting the operation of rental housing apply to the operations of the BMR Units. Notwithstanding any language to the contrary in Section 9.68.020(d) of the Palo Alto Municipal Code, the provisions of PAMC Chapter 9.68, as set forth in the Modified 2003 Rules, including the requirement to offer each household a one- year lease, shall apply to the BMR Units. Notwithstanding anything to the contrary contained herein, all provisions contained herein shall be subject to compliance with all laws, rules, regulations, ordinances and statutes relating to or governing federal low income housing tax credits, including, but not limited to, Section 42 of the Internal Revenue Code, the California Health and Safety Code and the California Tax Credit Allocation Committee Regulations, as each may be amended from time to time. 11.0 ENFORCEMENT. 11.1 Responsibility. Stanford shall be solely responsible for enforcement of the terms of the tenancy, and the rental agreement or lease. 10 11.2 Enforcement of the BMR Rental Program and Penalties for Noncompliance. The City reserves the right to monitor and audit Stanford's compliance with this Agreement at any time. If non-compliance is evident, City may give Stanford written notice and an appropriate period of time to remedy any areas of noncompliance. If compliance, or evidence indicating appropriate action toward compliance, cannot be provided within six months to the satisfaction of the City, City reserves the right to perform, review or monitor any of the activities necessary to cure the non-compliance and ensure the satisfactory operation of the BMR rental program. City may contract with a third party to perform these tasks. Stanford shall reimburse City for the actual cost of City's (or its contractor's) time and overhead for as long as City must assume responsibility for these tasks. 12.0 REQUIRED INCORPORATION IN RENTAL AGREEMENT OR LEASE. Each lease or rental agreement for a ·BMR Unit shall require the household to cooperate in the annual re-certification and to provide information necessary to verify the continued eligibility of the household to reside in the BMR Unit. Each household shall be given a copy of this Agreement and shall be required to sign an acknowledgement of receipt of this information and of their understanding of these requirements. 13.0 PROGRAM ADMINISTRATOR. The Department of Planning and Community Development administers the BMR Program. Currently, the City's contract program administrator for the Program is the Palo Alto Housing Corporation. The City may assign any or all of its administrative duties including review, approval and monitoring to a program administrator or other designee. 14.0 RECORDS, MONITORING AND REPORTS. Stanford shall maintain records, in a form satisfactory to the City, to demonstrate compliance with this BMR Regulatory Agreement. 16. BINDING ON SUCCESSORS. The terms, covenants and conditions of this shall run with the land and shall apply to, and shall bind, the heirs, successors, executors, administrators, assigns, contractors, and subcontractors of the parties. 17. COSTS AND ATTORNEYS' FEES. The prevailing party in any action or arbitration brought to enforce the terms of this or arising out of this may recover from the other party its reasonable costs and attorneys• fees expended in connection with such an action or arbitration. 11 18. NOTICES. Unless otherwise specified in this, notices hereunder shall be given in writing and mailed, postage prepaid by certified mail, addressed as follows: To City: Office of the City Clerk City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 Copy to: Director of Planning and Community Environment City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 To Stanford: Stanford Office of Real Estate 3160 Porter Drive, Suite 200 Palo Alto, CA 94304 Attention: Managing Director, Real Estate Copy to: Office of the General Counsel Building 170, 3rd Floor, Main Quad P.O. Box 20386 Stanford, CA 94305-2038 The address of a party may be changed from time to time by written notice given to the other party in the manner set forth herein. Notices given in the manner set forth herein shall be deemed received five days after deposit in the mail. Notices may also be delivered personally and if so, shall be deemed received upon delivery. 19. INTERPRETATION: This Agreement is intended to implement the Development Agreement and the Project Approvals, as defined therein, and it shall be construed accordingly. (signatures begin on following page) 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate the day and year first above written. APPROVED AS TO FORM: _____________________________ Cara Silver, Senior Asst. City Attorney APPROVED: _____________________________ Hillary Gitelman, Director of Planning and Community Environment A.P.N. Nos: 142-20-013 142-20 014 142-20-047 CITY OF PALO ALTO _____________________________ James Keene, City Manager (signatures continue on following page) 13 THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY By: _________________________ Title: _______________________ _____________________________ 14 ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of ______________________________) On __________________ before me, _______________________________ (insert name and title of the officer) personally appeared ______________________________ who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature ______________________________ (Seal) 15 ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of ______________________________) On __________________ before me, _______________________________ (insert name and title of the officer) personally appeared ______________________________ who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature ______________________________ (Seal) 16 Exhibit “A” Legal Description All that certain real property in the City of Palo Alto, County of Santa Clara, State of California, described as follows: Being the lands described in that certain Memorandum of Lease by and between The Board of Trustees of the Leland Stanford Junior University, a body having corporate powers under the laws of the State of California, as Lessor, and Santa Clara Commercial Corporation, a California corporation, as Lessee said Lease was recorded June 16, 1961 in Book 5201 at Page 32, Official Records of Santa Clara county; and being also a portion of that certain Memorandum of Lease, by and between The Board of Trustees of the Leland Stanford Junior University a body having corporate powers under the laws of the State of California, as Lessor, and Hamnic Investment Company, Inc., a California corporation, as Lessee, said Lease was recorded October 1, 1960 in Book 5025 at Page 363, Official Records of said County; and being also a portion of that certain Memorandum of Lease, by and between The Board of Trustees of the Leland Stanford Junior University a body having corporate powers under the laws of the State of California, as Lessor, and Alson Investment Company, a California corporation, as Lessee, said Lease was recorded November 5, 1959 in Book 4598, Page 631, Official Records of said County, more particularly described as follows: Commencing at a concrete highway monument set on the southwesterly line of El Camino Real (State Highway), opposite Engineer’s Station 144+27.00 as surveyed by the California Division of Highways, as said southwesterly line was established by that certain Final Order of Condemnation entered in the Superior Court of the State of California, in and for the County of Santa Clara in that certain action entitled “The People of the State of California acting by and through the Department of Public Works, Plaintiff, vs. The Board of Trustees of the Leland Stanford Junior University, et al, Defendant”, Case No. 39384, a certified copy of which Order was recorded on July 7, 1930 in Book 520 at Page 571, Official Records of said County, said monument also marks the point of intersection of said 17 southwesterly line of that certain 1289 acre tract of land described in the Deed from Evelyn c. Crosby, et al to Leland Stanford, recorded September 8, 1885 in Book 80 of Deeds at Page 382, Records of Santa Clara County; Thence leaving said highway monument and along said southwesterly line of El Camino Real, being 100.00 feet in width, North 56°39’00” West, 3043.49 feet; Thence leaving said line of El Camino Real (100.00 feet in width), South 33°21’00” West, 20.00 feet to the most easterly corner of said lands of Santa Clara Commercial Corporation (6237 O.R. 33), said corner being also a point on the southwesterly line of El Camino Real, presently being 120.00 feet width, as said southwesterly line was established by that certain Final Order of Condemnation entered in the Superior Court of the State of California, in and for the County of Santa Clara in that certain action entitled “The People of the State of California acting by and through the Department of Public Works, Plaintiff vs. The Board of Trustees of the Leland Stanford Junior University, et al, Defendant”, Case No. 125122, a certified copy of which Order was recorded on April 25, 1961 in Book 5147 at Page 464, Official Records of said County, said corner being also the TRUE POINT OF BEGINNING of this description; Thence from said True Point of Beginning, South 33°21’00” West, 280.00 feet to the most southerly corner of said lands of Santa Clara Commercial Corporation (6237 O.R. 33); Thence leaving said southerly corner and along the southwesterly line of said lands of Santa Clara Commercial Corporation, and along the southwesterly line of said lands of Hamnic Investment Company, Inc. (5025 O.R. 363), and along the southwesterly line of said lands of Alson Investment Company (4598 O.R. 631), North 56°39’00” West, 280.00 feet to the most westerly corner of said lands of Alson Investment Company; Thence leaving said westerly corner and along the northwesterly line of said lands of Alson Investment Company (4598 O.R. 631), North 33°21’00” East, 280.00 feet to said southwesterly line of El Camino Real (120.00 feet in width), as said southwesterly 18 line was established by said Final Order of Condemnation (5147 O.R. 464); Thence along said southwesterly line of El Camino Real, South 56°39’00” East, 280.00 feet to the TRUE POINT OF BEGINNING of this description. 1 05012 syn 0091544 Exhibit C-3 (For 70 BMR Unit Alternative) This document is recorded for the benefit of the City of Palo Alto and is entitled to be recorded free of charge in accordance with Section 6103 of the Government Code After Recordation, mail to: OFFICE OF THE CITY ATTORNEY 250 Hamilton Avenue Palo Alto, CA 94301 BELOW MARKET RATE HOUSING AGREEMENT BETWEEN STANFORD UNIVERSITY AND CITY OF PALO ALTO 2450, 2470, and 2500 El Camino Real [and 505 California Avenue] Palo Alto, California A.P.N. Nos. 142-20-013, 142-20-014, 142-20-047 [, and 142-20-012] [Note: Include bracketed address and APN only if included in Project. If not used, delete brackets and inapplicable address and APN. Delete this Note.] THIS AGREEMENT, made and executed this ____________ day of _______________________ 20__,February 2015, by and between the CITY OF PALO ALTO, a municipal corporation of the State of California, hereinafter referred to as "City", and THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California, hereinafter referred to as “Stanford”; W I T N E S S E T H: ATTACHMENT B 2 05012 syn 0091544 WHEREAS, City and Stanford have entered into a Development Agreement that was recorded in the Official Records of Santa Clara County on__________________200__, June 28, 2005, as document number _______18444398 (the “Development Agreement”); and WHEREAS, Stanford is the owner of certain real property situated in the City of Palo Alto, County of Santa Clara, State of California, which is commonly described by street address and Assessor's parcel numbers as set forth in the title of this document, and more particularly described in Exhibit A attached hereto and incorporated herein by this reference, (the "El Camino Sites"); and WHEREAS, Stanford has chosen, under the terms of the Development Agreement, to satisfy its obligations under the Development Agreement and the provisions of the City of Palo Alto Below Market Rate ("BMR") Program (as then set forth in Program H-36 of the City of Palo Alto Housing Element) by providing 70 units of BMR housing on the El Camino Sites; NOW, THEREFORE, the parties hereto mutually covenant and agree as follows: 1.0 BMR COMMITMENT: Stanford shall provide 70 units of BMR rental housing (the "BMR Units") on the El Camino Sites in accordance with the terms of this Agreement (the "project"). The project shall be constructed in accordance with Exhibit C-2 of the Development Agreement. Stanford shall operate and maintain the project as approved and constructed and in accordance with this Agreement. During the term of this Agreement, Stanford shall not subdivide or combine units without the approval of the City. City accepts the performance of this Agreement in full satisfaction of Stanford's obligations to provide BMR Units under the Development Agreement, including section 5.5 thereof, in connection with the construction of the 250 units of Housing required under the Development Agreement. All units shall be rented and occupied as provided herein. 2.0 DURATION OF AGREEMENT TO PROVIDE BMR HOUSING: This agreement shall be in effect for [fifty-nine (59) years} [fifty-five (55) years] from the first day of the calendar month immediately following the date of issuance of the first certificate of occupancy for the project, and thereafter this Agreement shall be of no force or effect and the rents charged shall no longer be regulated or controlled by City and Stanford shall no longer 3 05012 syn 0091544 be required to maintain and operate the project in accordance with this Agreement, or the City's BMR Program. [Note: Use 55 year term only if all of the BMR Units are restricted units under a tax credit regulation agreement with at least a 55-year term. Delete brackets and inapplicable term. Delete this Note.] 3.0 AGE RESTRICTIONS PROHIBITED: In the rental of BMR Units, neither Stanford nor its assignees shall discriminate against households with children or on the basis of the age of renters, or occupants. 4.0 DISTRIBUTION OF BMR UNITS: The Very Low-Income Units shall be proportionately distributed among the different unit types in the Project (by number of bedrooms) and by floor and location in the building(s). For example, if there are 30% one-bedroom units, 40% two-bedroom units and 30% three bedroom units, then the 14 required Very Low-Income Units would be distributed by unit type as follows (results are rounded): o 4 - One-bedroom units (30% of 14) o 6 - Two-bedroom units ( 40% of 14) o 4 - Three-bedroom units (30% of 14) 5.0 HOUSEHOLD QUALIFICATION AND SELECTION; WAITING LIST: 5.1 Qualifications. In order to be eligible to rent a BMR Unit, the prospective tenant must meet the qualifications regarding income, assets and minimum household size at the time of commencing occupancy and annually thereafter. The qualifications and related procedures are set forth in detail in Section 7.0 below. 5.2 Priority for Palo Alto Workers and Residents; Stanford Workers Outside of City. To the extent permitted by law, priority. Priority for all BMR units shall be given to those eligible households who have been displaced, or are threatened to be displaced, from housing within the city limits of the City of Palo Alto and to those eligible households with at least one household member who either lives or works , with or without monetary compensation, within the city limits of the City of Palo Alto, provided, that for no more than 30% of the units, Stanford may give priority to households whose members neither work nor live in Palo Alto but which include at least one 4 05012 syn 0091544 individual who is both (1) an employee of Stanford University and (2) not a student at the University. Stanford shall inform the City every five years of the percentage of the units occupied by Stanford households. "Stanford households" are those with no adult member employed within the City of Palo Alto and at least one adult member employed by Stanford outside of the City of Palo Alto. Provided, households that initially qualified on the basis of a Palo Alto residential preference shall never be reclassified as Stanford households.If a unit becomes vacant, Stanford may rent to a Stanford household if, and only if, by doing so the total number of Stanford households does not exceed 30% of the BMR Units. 5.3 Waiting List. Stanford shall maintain a waiting list or advertise vacancies for the BMR Units and provide information to prospective BMR applicants. Alternatively subject to the City's consent, Stanford may contract with a qualified organization such as the Palo Alto Housing Corporation to maintain a waiting list. Nevertheless, Stanford shall be solely responsible for the actual selection of BMR households, consistent with Section 5.2, and may conduct Stanford's normal tenant screening process. 5.4 Information. Upon request by an interested person, Stanford shall provide information about the BMR rental program and the BMR Units, including the waiting list. Upon submittal of an application to rent a BMR Unit, Stanford shall provide to the applicant information regarding the conditions and restrictions applicable to occupancy of the BMR Units in the Project. Such information shall include: the Base Rents as herein defined applicable to new households, the rules for calculation of annual rent increases, minimum occupancy standards for BMR Units, the qualifying income, asset, and other limitations for initial and continued occupancy, the process to certify compliance with those limitations and the annual recertification process, the requirement to offer a one-year lease, the BMR waiting list procedures and Stanford's standards for household screening, and other relevant information. Penalties for a household's noncompliance with the BMR Program rules and requirements shall also be explained in the informational materials provided by Stanford. 6.0 AFFORDABILITY AND OCCUPANCY STANDARDS; QUALIFYING INCOME LIMITS; RENTS. All units shall be occupied and rented as follows: 5 05012 syn 0091544 6.1. Affordability Standards. 6.1.1 Very Low-Income Units. Fourteen (14) BMR Units shall be rented to qualified Very Low-Income Households (annual gross household income at or below 50 percent of the Area Median Income for Santa Clara County, as determined by the U.S. Department of Housing and Urban Development [sometimes the "AMI"])that is less than or equal to the qualifying limits for households earning 50% of Santa Clara County median income, adjusted for actual household size, which is set forth by regulation of TCAC) at rents controlled by this Agreement. 6.1.2. Low-Income Units. The balance of the BMR Units constructed (except an unit to be occupied by a resident manager) shall be designated and rented to qualified Low- Income Households (annual gross household income at or below 60 percent of the AMIthat is less than or equal to the qualifying limits for households earning 60% of Santa Clara County median income, adjusted for actual household size, which is set forth by regulation of TCAC) at rents controlled by this Agreement. 6.1.3. Affordability Standards. The income limits used in this Section 6.1 and in Section 6.4 to establish maximum rents are summarized in the following table: AFFORDABILITY STANDARDS FOR BMR HOUSEHOLDS Designation of the BMR Unit Affordability Standards at Household’s First Occupancy Affordability Standards at Annual Recertification Very Low-Income Unit Equal to or less than 50% of Area Median Income Equal to or less than 70% of Area Median Income Low-Income Unit Equal to or less than 60% of Area Median Income Equal to or less than 84% of Area Median Income 6.1.4. Basic Qualifying Income Limits. The affordability Standards assume a 4-person household. The 6 05012 syn 0091544 Standard applicable to a particular BMR Unit is adjusted to reflect the size of the household occupying the BMR Unit; this adjusted Limit is sometimes referred to below as the "Basic Qualifying Income Limits." The Basic Qualifying Income Limits are used to determine the eligibility of a household for a BMR Unit. The following factors are applied to adjust the 4-person household Area Median Income to derive Basic Qualifying Income Limits for smaller and larger households.Reserved. 1-person household: 70% 2-person household: 80% 3-person household: 90% 4-person household: Base% 5-person household: 108% 6-person household: 116% 7-person household: 124% 8-person household: 132% For households larger than 8-persons, the factors are increased by eight percent per additional person. All income limits are rounded to the nearest $50. 6.1.4.1 Example. For example, assuming an AMI of $80,000, the Affordability Standard for a Very Low-Income Unit would be $40,000 [0.50 x $80,000], but the Basic Qualifying Income Limit for a 2-person household would be $32,000 [$40,000 x 0.80]. In order to qualify to rent the Very Low-Income Unit, the income of the household could be no more than $32,000. 6.1.5 Alternatives. In-lieu of compliance with the Basic Qualifying Income Limitsqualifying income limits established in Section 6.1, Stanford may elect to comply with income limits, established pursuant to a formula or method of calculation adopted by the City after the effective date of the Development Agreement and in effect at the time of the application for Architectural Review Approval for the Project, and generally applicable to 100% BMR rental housing projects in the City. 6.2 Initial Rents. 6.2.1. Calculation of Initial Rents. All of the Initial Base Rents for Units in a building shall be effective on the first day of occupancy of the first BMR 7 05012 syn 0091544 Unit in the building to be occupied. The first day of a calendar month following said first day of occupancy shall be the "Start Date”. The Initial Base Rents shall be calculated in accordance with this Section 6.2 based on the most current information reasonably available as of the first day of a calendar month after the issuance of the first building permit for the Project and preceding the Start Date that is chosen by Stanfordcurrent maximum rent limits published by the California Tax Credit Allocation Committee (“TCAC”) for Santa Clara County as of the date the Project receives an allocation of federal low income housing tax credits from the TCAC, unless the project developer elects to set the gross rent floor as of the date of placement in service of the Project, in which case the initial rents shall be based on the current maximum rent limits published by TCAC as of the date the project is placed in service under Section 42 of the Internal Revenue Code of 1986, as amended ("Initial Calculation Date"). The Initial Base Rents shall include rents for each type of BMR Unit (One- bedroom, Two - bedroom, etc.) and income classification, as provided in sections 6.1.1 and 6.1.2. (Low- Income and Very Low- Income). The Initial Base Rents shall be 30% of the Basic Qualifying Income Limit for each type of unit, adjusted as necessary to reflect the assumed household size for that type of unit pursuant to section 6.2.3 below. 6.2.1.2 Example. The Initial Base Rent for a hypothetical Low-Income 2-bedroom unit would be $1,080, derived as follows: AMI multiplied by the Low-Income percentage (§ 6.1.2) multiplied by the factor for assumed occupancy of 3 persons (§6.1.4 and § 6.2.3) x30% (§ 6.2.1) divided by 12 months or [$80,000 x 60% x 90% x30% ÷ 12 = Rent.] 6.2.1.3. Example. The Initial Base Rent for a one bedroom Very Low-Income Unit using the assumed household size (1.5 persons) and an AMI of $80,000 would be $750 per month; i.e., thirty percent of the affordability standard (§ 6.2.1) multiplied by AMI, multiplied by the Very Low Income percentage (§ 6.1.1) multiplied by the factor for assumed occupancy (§6.1.4 and § 6.2.3) divided by 12 months (30% X [$80,000 X 50% x 75%) ÷ 12). 6.2.2 Alternate Standard. If City subsequently adopts a different method for determining rents, generally 8 05012 syn 0091544 applicable to Low-Income Households or Very Low-Income Households in other 100% affordable BMR rental housing projects, that permits a higher rent, Stanford may elect to use that method to set these rents. 6.2.3 Assumed Household Size for Calculation of Initial Base Rents. The following household size shall be assumed or each type of BMR Unit for purposes of calculating the Initial Base Rent: Unit Type One-bedroom units Two-bedroom units Three-bedroom units Four-bedroom units Assumed Household Size 1.5-persons 3-persons 4.5-persons 6-persons 6.3. Increases in Rents. The Rent for each BMR Unit shall be re-determined annually, in accordance with the procedure set forth in section 6.4 (including the cap on increases in section 6.4.6),6.4, and, after the requiredStanford’s delivery of thirty (30) day written notice is givento a tenant, the Rent charged to each household may be increased to the approved rent effective on the anniversary of the Start Date (the "upon expiration of such thirty (30) day notice period (the “Rent Adjustment Date") or at such later date as may be provided in the applicable rental agreement or lease”). The results of these re-determinations are referred to as the "Base Rents." 6.4. Procedure for Re-determination of Rents. The re- determined Base Rent effective after each Rent Adjustment Date shall be the maximum annual rent published by TCAC for such year for Santa Clara County for the applicable income limit and bedroom count, and adjusted as necessary to reflect the assumed household size for that type of unit pursuant to section 6.2.3, provided that the increase or adjustment in rent will be no greater than the increase or adjustment permitted under Section 42(g) of the Internal Revenue Code. 6.4.1 Annual Increase in Base Rent. The re-determined Base Rent effective each Rent Adjustment Date shall be the sum of the previous Base Rent plus an increase equal to the increase in the CPI (defined below) for the applicable 9 05012 syn 0091544 period (defined below) or the affordable rent re-determined in accordance with section 6.2, except using the current Calculation Date (defined below), whichever is less, but in no event less than the previous Base Rent. 6.4.1.1 CPI Defined. The "CPI" is the Consumer Price Index for All Urban Consumers - Rent Residential for the San Francisco, Oakland, San Jose area as published by the Bureau of Labor Statistics, or if that Index is no longer published by its successor or, if none, by another generally accepted index subject to approval by the City, which approval shall not be unreasonably withheld. 6.4.1.2 Applicable Period Defined. The "applicable period" is the period beginning with the preceding Calculation Date and ending with the current Calculation Date, which normally will be 12 months. For the initial year of any tenancy, the annual rent increase percentage shall be prorated, as necessary to account for the first applicable period being more or less than 12 months. For example, if the Initial Calculation Date is eight months before the current Calculation Date, and the CPI increase over that time period was 6%, the permissible increase would be 4% [8/12 x 6%]. 6.4.2 Proposed Base Rents. No later than 115 days prior to a Rent Adjustment Date, Stanford may submit to the Director of Planning and Community Environment (the "Director") a schedule showing proposed Base Rents calculated in accordance with this section 6.4. using the most current information reasonably available as of the first day of the calendar month immediately preceding the submission of the proposed rents, which shall be the "Calculation Date" used in the current re-determination of rents. The submission shall show for each type of BMR Unit in each affordability category, (a) the current Rent, (b) the applicable period, (c) the CPI increase during the applicable period, (d) the rent that would result from an increase equal to the CPI increase, (e) the maximum affordable rent calculated as provided in section 6.2 as of the Calculation Date, and (f) the proposed re-determined Base Rent, being the lower of (d) and (e). The submission shall also include work papers showing the derivation and calculation of (b), (c) and (e). 6.4.3. City Action. If the Director does not approve or disapprove the proposed Base Rents within 45 days of 10 05012 syn 0091544 receipt by City, the proposed rents shall be deemed approved. If the proposed rent for any type of BMR Unit is disapproved, the Director shall inform Stanford .in writing of the reasons for its disapproval of the proposed rent and of the rent that City approves for that type of BMR Unit. Base Rents approved, deemed approved or approved in connection with a denial of a request for a higher rent are sometimes referred to below as "Approved Rent." 6.4.4 Appeal. In the event of a disapproval, Stanford may appeal the decision to the City Manager and also implement any lesser approved by the Director on the Rent Adjustment Date and shall become the new Base Rent, which shall not constitute a waiver of its right to appeal. The City Manager shall promptly render his decision on the appeal and Stanford may implement the decision upon thirty days written notice to the affected households, but in no event before the Rent Adjustment Date. 6.4.5 Approved Rent. The Approved Rent is the maximum rent Stanford may charge for the 12-month period following the Rent Adjustment Date; provided Stanford must give each affected BMR household 60-day's written notice of increase. 6.4.6 Limit on Rent Increase. Notwithstanding anything to the contrary in this Agreement, Stanford shall not increase the rent of an existing qualified very low- or low income household by a percentage that exceeds the percentage increase in the certified gross income of the household in the applicable period, except that the annual increase shall never be less than one-half of the percentage increase in the CPI during the applicable period. 6.4.7 Example of Determination of Permitted Increase and New Base Rent. The following is a sample, hypothetical calculation of an annual rent increase for a BMR Unit with a previous Base Rent of $1,512 per month: A) The CPI available as of Calculation Date is: 242.5 B) Less the CPI on the preceding Calculation Date (one year earlier) is: 225.2 C) The difference is: 17.3 11 05012 syn 0091544 D) 17.3 / 225.2 = .00768 = 7.7%, the increase in CPI E) The new Base Rent will be $1,628 [the previous Base Rent of $1,512 plus an increase of 7.7%, rounded] assuming that amount does not exceed the affordable rent re-determined as provided in section 6.4.2(e). F) The Actual Rent charged to each household will be the new Base Rent, but not more than the previous Base rent increased by the percentage increase in the certified income of the household over the applicable period. G) Assuming a unit occupied by a household the income of which increased by 5.0% (which is less than the CPI increase) over the applicable period, the increase allowed would be 5% or $76.00 [previous Base Rent of $1,512.00 x 5.0% = $76.00 (rounded).] and the new Base Rent for that unit would be $1,588.00 ($1,512 + $76) 6.5 Rents After Vacancy. When a BMR Unit is vacated and rented to a new household, the rent to be paid by the new household shall be the then current Base Rent. 6.6 Charges Included in BMR Rent. Rent calculated in accordance with this section 6 is the total maximum monthly charge that may be paid by the household for occupancy of the BMR unit, including the value of utility services that are not separately metered to each unit, and of assigned parking and of storage lockers. 6.7. Rents After Re-certification. Rents also may be adjusted as a result of an annual recertification as provided in section 7.0 below. 6.8 Occupancy Standards; Household Size. The minimum household size for each unit type shall be: Unit Type One-bedroom units Two-bedroom units Three-bedroom units Four-bedroom units Minimum Household Size One-person Two-persons Three-persons Four-persons 12 05012 syn 0091544 Stanford may establish maximum household sizes for each unit type, which shall not be less than two persons per bedroom plus one person; e.g., for a 3-bedroom unit, a maximum of 7 persons. 7.0 REVIEW OF TENANT QUALIFICATIONS & INCOME CERTIFICATIONS. 7.1 Qualifications. Applicants for BMR Units must meet qualifications regarding income, assets and minimum household size standards. The applicable residency and / or work location preferences must also be verified. Each existing BMR household must be recertified annually to verify that the household continues to meet the applicable qualifications in order to continue to be eligible to pay BMR rent and occupy a BMR Unit 7.2 Procedures. The procedures of the HUD Section 8 rental assistance program, or successor program, shall be followed in conducting the income certifications, except as modified by the City to meet the requirements of the BMR program. Stanford shall obtain the appropriate documentation from applicants and tenants, make its determinations of annual income and other qualifications and of each household's initial and continued eligibility for the BMR program prior to the execution (or renewal) of the rental agreement or lease for the BMR Unit. Stanford shall not permit a new BMR tenant to occupy a BMR Unit prior to completion and satisfaction of the qualification and income certification process and requirements. 7.3. Certified Households. If Stanford determines that a household remains eligible for the BMR Unit, the tenancy continues in accordance with the provisions of this Agreement and the applicable rental agreement or lease. 7.4. Households That Become Ineligible Because of Increased Household Income. If Stanford determines that a household's incomeIncreases in Household Income. In the event the household income of a Very-Low Income Household or a Low-Income Household is determined at the time of the annual recertification exceeds the then-current Basic Qualifying Income Limits for recertification for a Low-Income Unit (calculated as set forth in sections 6.1.3 and 6.1.4), then the household is no longerannual recertification for a Unit to exceed the qualifying income limits for a Very-Low Income Household or a Low-Income Household, as applicable, such household shall remain eligible to continue to occupy a BMR Unit in the Project and the provisions of section 7.4.1 shall apply.rent the BMR Unit in accordance with Section 42 of the Internal Revenue Code, the 13 05012 syn 0091544 California Health and Safety Code and the California Tax Credit Allocation Committee Regulations, as such may be amended from time to time. 7.4.1 Notice. Stanford shall give the household written notice that the household is no longer eligible to occupy a BMR Unit in the project and that: A) The rent will be increased to market rent in sixty (60) days; and B) The household must vacate the BMR Unit within six (6) months of the date of the notice of ineligibility, or at the end of the term of the household's rental agreement or lease term, whichever is later. 7.4.2 Re-rent of BMR Unit. When the BMR Unit is vacated, Stanford shall rent the BMR Unit to a qualified household in accordance with this Agreement. 7.5 Re-designation of Very Low-Income Household as Low Income and Household Related Rent Increase. If Stanford determines that the income of a household that is occupying a Very Low-Income Unit exceeds the then-current Basic Qualifying Income Limit for recertification for a Very Low-Income Household (calculated as set forth in sections 6.1.3 and 6.1.4), the household is no longer eligible to continue to pay a Very Low Income rents in the project and the provisions of sections 7.5.1 and 7.5.2 shall apply.Reserved. 7.5.1 Notice. Stanford shall give the household written notice that the household is no longer eligible to pay a Very Low-Income rents and that A) Its tenancy is being reclassified as a Low- Income Household; and B) The rent will be increased to the current Base Rent for a Low-Income BMR Unit in sixty (60) days; 7.5.2. Re-renting of Available Low-Income BMR Unit. Stanford shall designate and rent the next available vacant BMR Low-Income Unit of that type as a Very Low-Income Unit in accordance with this Agreement 7.6 Failure to Meet Minimum Household Size. If Stanford determines that an otherwise qualified BMR household no longer 14 05012 syn 0091544 meets the minimum household size standard for the BMR Unit that it occupies (e.g., because one or more household members have established permanent residency at another location), the household will no longer be eligible to occupy a unit of the type then occupied and the provisions of section 7.6.1 apply. 7.6.1. Notice. In such case, Stanford shall give the household written notice that: A) The household is no longer eligible to occupy the BMR Unit; B) The household will be required (i) to move to the next available BMR Unit for which it qualifies under the household size standards within ten (10) days of receipt of written notice that the unit is available, or (ii) to vacate the project within sixty days of receipt of such notice; and 7.6.2. Re-renting of BMR Unit. Stanford shall rent the vacated BMR Unit to a qualified household in accordance with this Agreement. 8.0 ANNUAL REPORT. Stanford shall prepare and submit to the City, or the City's designee, an annual report in a form specified by City on the status of the BMR Units and compliance with the requirements of the Development Agreement and this Agreement. This report will recap all activity related to the provision of BMR Units for the year, identify corrective actions taken or ongoing to ensure compliance and finally, recap all rent increases and income limit adjustments implemented during the preceding calendar year. 9.0 DECENNIAL REVIEW OF BMR REQUIREMENTS. During the calendar year following the tenth (10) anniversary of the Start Date and every ten years thereafter, Stanford may request a review and modification' of the terms, or amendment of this Agreement. City shall have sole discretion to accept or reject any and all requested modifications or amendments. The parties may amend this Agreement only by a writing duly executed by both and recorded. 10.0 COMPLIANCE WITH OTHER LAWS INCLUDING CITY'S ONE-YEAR LEASE LAW. All applicable State and local laws and ordinances affecting the operation of rental housing apply to the operations of the BMR Units. Notwithstanding any language to the contrary in Section 9.68.020(d) of the Palo Alto Municipal Code, the provisions of PAMC Chapter 9.68, as set forth in the 15 05012 syn 0091544 Modified 2003 Rules, including the requirement to offer each household a one- year lease, shall apply to the BMR Units. Notwithstanding anything to the contrary contained herein, all provisions contained herein shall be subject to compliance with all laws, rules, regulations, ordinances and statutes relating to or governing federal low income housing tax credits, including, but not limited to, Section 42 of the Internal Revenue Code, the California Health and Safety Code and the California Tax Credit Allocation Committee Regulations, as each may be amended from time to time. 11.0 ENFORCEMENT. 11.1 Responsibility. Stanford shall be solely responsible for enforcement of the terms of the tenancy, and the rental agreement or lease. 11.2 Enforcement of the BMR Rental Program and Penalties for Noncompliance. The City reserves the right to monitor and audit Stanford's compliance with this Agreement at any time. If non-compliance is evident, City may give Stanford written notice and an appropriate period of time to remedy any areas of noncompliance. If compliance, or evidence indicating appropriate action toward compliance, cannot be provided within six months to the satisfaction of the City, City reserves the right to perform, review or monitor any of the activities necessary to cure the non-compliance and ensure the satisfactory operation of the BMR rental program. City may contract with a third party to perform these tasks. Stanford shall reimburse City for the actual cost of City's (or its contractor's) time and overhead for as long as City must assume responsibility for these tasks. 12.0 REQUIRED INCORPORATION IN RENTAL AGREEMENT OR LEASE. Each lease or rental agreement for a ·BMR Unit shall require the household to cooperate in the annual re-certification and to provide information necessary to verify the continued eligibility of the household to reside in the BMR Unit. Each household shall be given a copy of this Agreement and shall be required to sign an acknowledgement of receipt of this information and of their understanding of these requirements. 13.0 PROGRAM ADMINISTRATOR. The Department of Planning and Community Development administers the BMR Program. Currently, the City's contract program administrator for the Program is the Palo Alto Housing Corporation. The City may assign any or all of its administrative duties including review, approval and monitoring to a program administrator or other designee. 16 05012 syn 0091544 14.0 RECORDS, MONITORING AND REPORTS. Stanford shall maintain records, in a form satisfactory to the City, to demonstrate compliance with this BMR Regulatory Agreement. 16. BINDING ON SUCCESSORS. The terms, covenants and conditions of this shall run with the land and shall apply to, and shall bind, the heirs, successors, executors, administrators, assigns, contractors, and subcontractors of the parties. 17. COSTS AND ATTORNEYS' FEES. The prevailing party in any action or arbitration brought to enforce the terms of this or arising out of this may recover from the other party its reasonable costs and attorneys• fees expended in connection with such an action or arbitration. 18. NOTICES. Unless otherwise specified in this, notices hereunder shall be given in writing and mailed, postage prepaid by certified mail, addressed as follows: To City: Office of the City Clerk City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 Copy to: Director of Planning and Community Environment City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 To Stanford: Stanford Management CompanyOffice of Real Estate 3160 Porter Drive, Suite 200 Palo Alto, CA 94304 Attention: Managing Director, Real Estate 2770 Sand Hill Road Menlo Park, CA 94025 Copy to: Office of the General Counsel 105 Encinal Hall Building 170, 3rd Floor, Main Quad P.O. Box 20386 Stanford, CA 94305-2038 17 05012 syn 0091544 The address of a party may be changed from time to time by written notice given to the other party in the manner set forth herein. Notices given in the manner set forth herein shall be deemed received five days after deposit in the mail. Notices may also be delivered personally and if so, shall be deemed received upon delivery. 19. INTERPRETATION: This Agreement is intended to implement the Development Agreement and the Project Approvals, as defined therein, and it shall be construed accordingly. (signatures begin on following page) 18 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate the day and year first above written. APPROVED AS TO FORM: _____________________________ Cara Silver, Senior Asst. City Attorney APPROVED: _____________________________ Assistant City Manager _____________________________ Hillary Gitelman, Director of Planning and Community Environment A.P.N. Nos: 142-20-013 142-20 014 142-20-047 142-20-012 CITY OF PALO ALTO _____________________________ James Keene, City Manager (signatures continue on following page) 19 THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY By: Stanford Management Company By: _________________________ Name: _______________________Title: _______________________ Its _________________________ Taxpayer Identification No. _____________________________ 20 05012 syn 0091544 ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of ______________________________) On __________________ before me, _______________________________ (insert name and title of the officer) personally appeared ______________________________ who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature ______________________________ (Seal) 21 05012 syn 0091544 ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of ______________________________) On __________________ before me, _______________________________ (insert name and title of the officer) personally appeared ______________________________ who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature ______________________________ (Seal) 22 05012 syn 0091544 Exhibit “A” Legal Description All that certain real property in the City of Palo Alto, County of Santa Clara, State of California, described as follows: Being the lands described in that certain Memorandum of Lease by and between The Board of Trustees of the Leland Stanford Junior University, a body having corporate powers under the laws of the State of California, as Lessor, and Santa Clara Commercial Corporation, a California corporation, as Lessee said Lease was recorded June 16, 1961 in Book 5201 at Page 32, Official Records of Santa Clara county; and being also a portion of that certain Memorandum of Lease, by and between The Board of Trustees of the Leland Stanford Junior University a body having corporate powers under the laws of the State of California, as Lessor, and Hamnic Investment Company, Inc., a California corporation, as Lessee, said Lease was recorded October 1, 1960 in Book 5025 at Page 363, Official Records of said County; and being also a portion of that certain Memorandum of Lease, by and between The Board of Trustees of the Leland Stanford Junior University a body having corporate powers under the laws of the State of California, as Lessor, and Alson Investment Company, a California corporation, as Lessee, said Lease was recorded November 5, 1959 in Book 4598, Page 631, Official Records of said County, more particularly described as follows: Commencing at a concrete highway monument set on the southwesterly line of El Camino Real (State Highway), opposite Engineer’s Station 144+27.00 as surveyed by the California Division of Highways, as said southwesterly line was established by that certain Final Order of Condemnation entered in the Superior Court of the State of California, in and for the County of Santa Clara in that certain action entitled “The People of the State of California acting by and through the Department of Public Works, Plaintiff, vs. The Board of Trustees of the Leland Stanford Junior University, et al, Defendant”, Case No. 39384, a certified copy of which Order was recorded on July 7, 1930 in Book 520 at Page 571, Official Records of said County, said 23 05012 syn 0091544 monument also marks the point of intersection of said southwesterly line of that certain 1289 acre tract of land described in the Deed from Evelyn c. Crosby, et al to Leland Stanford, recorded September 8, 1885 in Book 80 of Deeds at Page 382, Records of Santa Clara County; Thence leaving said highway monument and along said southwesterly line of El Camino Real, being 100.00 feet in width, North 56°39’00” West, 3043.49 feet; Thence leaving said line of El Camino Real (100.00 feet in width), South 33°21’00” West, 20.00 feet to the most easterly corner of said lands of Santa Clara Commercial Corporation (6237 O.R. 33), said corner being also a point on the southwesterly line of El Camino Real, presently being 120.00 feet width, as said southwesterly line was established by that certain Final Order of Condemnation entered in the Superior Court of the State of California, in and for the County of Santa Clara in that certain action entitled “The People of the State of California acting by and through the Department of Public Works, Plaintiff vs. The Board of Trustees of the Leland Stanford Junior University, et al, Defendant”, Case No. 125122, a certified copy of which Order was recorded on April 25, 1961 in Book 5147 at Page 464, Official Records of said County, said corner being also the TRUE POINT OF BEGINNING of this description; Thence from said True Point of Beginning, South 33°21’00” West, 280.00 feet to the most southerly corner of said lands of Santa Clara Commercial Corporation (6237 O.R. 33); Thence leaving said southerly corner and along the southwesterly line of said lands of Santa Clara Commercial Corporation, and along the southwesterly line of said lands of Hamnic Investment Company, Inc. (5025 O.R. 363), and along the southwesterly line of said lands of Alson Investment Company (4598 O.R. 631), North 56°39’00” West, 280.00 feet to the most westerly corner of said lands of Alson Investment Company; Thence leaving said westerly corner and along the northwesterly line of said lands of Alson Investment Company (4598 O.R. 631), North 33°21’00” East, 280.00 feet to said southwesterly line of El Camino Real (120.00 feet in width), as said southwesterly 24 05012 syn 0091544 line was established by said Final Order of Condemnation (5147 O.R. 464); Thence along said southwesterly line of El Camino Real, South 56°39’00” East, 280.00 feet to the TRUE POINT OF BEGINNING of this description. Document comparison by Workshare Compare on Friday, January 23, 2015 11:06:15 AM Input: Document 1 ID interwovenSite://VMLADMSSERVER/LAIDB/50099591/1 Description #50099591v1<LAIDB> - BMR Agreement SU and CPA (2) Document 2 ID interwovenSite://VMLADMSSERVER/LAIDB/50099591/7 Description #50099591v7<LAIDB> - BMR Agreement SU and CPA (2) Rendering set Standard Legend: Insertion Deletion Moved from Moved to Style change Format change Moved deletion Inserted cell Deleted cell Moved cell Split/Merged cell Padding cell Statistics: Count Insertions 79 Deletions 89 Moved from 4 Moved to 4 Style change 0 Format changed 0 Total changes 176 City of Palo Alto (ID # 5456) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/9/2015 City of Palo Alto Page 1 Summary Title: Amend and correct salaries and salary schedule for Management, Professional and Confidential (M&P), Title: Adoption of a Resolution to Amend and Correct Salary Schedules for: Management, Professional and Confidential Employees (M&P), Fire Chief Association (FCA), and Utilities Managers of Palo Alto Professional Association (UMPAPA); Adoption of an Ordinance to Update the Fiscal Year 2015 Table of Organization From: City Manager Lead Department: Human Resources Recommended Motion I move that Council adopt the attached resolution (Attachment A) amending the salary schedules 1) Management, Professional, and Confidential employees; 2) Utilities Managers of Palo Alto Professional Association (“UMPAPA”); and 3) Fire Chiefs’ Association (“FCA”), to incorporate full salary ranges to comply with CalPERS regulations: and to correct salaries for one position in FCA and one position in Management & Professional, and to add one UMPAPA position previously approved in the 2015 budget. I further move that Council adopt the attached ordinance (Attachment B) updating the Fiscal Year 2015 Table of Organization to reflect various previously approved reclassifications and title changes. Recommendation Staff recommends that Council approve amended salary schedules for 1) Management, Professional, and Confidential employees (M&P) to correct salary ranges for the Chief Sustainability Officer and Deputy Fire Chief/Fire Marshal and to add range minimums and maximums for all positions to comply with recent CalPERS regulations, 2) the Utilities Managers of Palo Alto Professional Association (UMPAPA) salary schedule to add the new position of Principal Management Analyst and add range minimums and maximums for all positions to comply with recent CalPERS regulations, and 3) the Fire Chiefs’ Association to add the Training Battalion Chief and add range minimums and maximums for all positions to comply with recent CalPERS regulations. The position changes and salary ranges were previously approved with the City of Palo Alto Page 2 2015 budget and December 2014 adoption of the Management and Professional Compensation Plan, and this resolution reflects administrative clean-up to ensure that the salary schedules are accurate and fully up to date. In addition, staff recommends that the Council approve an ordinance amending the Fiscal Year 2015 Table of Organization to reflect various position reclassifications and title changes resulting from the Management Compensation Plan approved in December 2014. Discussion A. Resolutions Adopting Revised Salary Schedules Under the Public Employees’ Retirement Law (PERL), CalPERS has adopted regulations requiring contracting agencies like the City of Palo Alto to adopt publically available pay schedules. In particular, CalPERS regulations require that a salary schedule must show “the pay rate for each identified position, which may be stated as a single amount or as multiple amounts within a range.” The City’s historical practice for the M&P, UMPAPA, and FCA salary schedules has been to list the “midpoint” pay rate for each classification in the salary schedule, with the text of the plans or MOAs providing that the full salary range for those positions was 20% below to 20% above that midpoint rate. After the City approved the Management Compensation Plan in December, CalPERS contacted staff to advise that it required salary schedules showing the full range available, not just the midpoint. The attached resolution includes salary schedules for all three groups that reflect the minimum and maximum salaries, as well as the midpoint for all positions. In addition to the full salary ranges, the salary schedules also include the following group- specific changes: 1. For Management and Professional, corrections to the salary ranges for the Chief Sustainability Officer and Deputy Fire Chief/Fire Marshal. The salaries for these two positions were listed inaccurately in the salary schedule included with the materials approved on December 8, 2014 for the Compensation Plan for Management and Professional personnel. 2. For UMPAPA, adding the position of Principal Management Analyst. This position was approved and added when the 2015 budget was adopted in June 2014, and the revised salary schedule will reflect this addition. 3. For FCA, adding the position of Training Battalion Chief. This position was approved and added when the 2015 budget was adopted in June 2014, and the revised salary schedule will reflect this addition. City of Palo Alto Page 3 Ordinance Amending the Table of Organization Changes The table of organization is part of the budget and lists each City job title and the full-time equivalent (“FTE”) positions allocated to each job. When position titles change or FTEs are reclassified or reallocated, the Table of Organization must be amended to match those changes. Historically, staff has brought changes to the table of organization only at the midyear and annual budget adoptions for administrative simplicity. However, given the number of required changes to the table of organization resulting from the Management Compensation Plan adopted in December 2014 and the clean-up changes described in this report, staff is recommending amending the table of organization at this time to reflect those changes. These changes are only needed to update the Table of Organization; funding was already appropriated in the Fiscal Year 2015 Adopted Budget. The proposed adjustments include the following: General Fund  Administrative Services Department o Reclassify 0.70 Senior Management Analyst to Manager Revenue Collections  City Attorney’ Office o Reclassify 1.00 FTE Legal Services Administrator to Senior Management Analyst  Community Services Department o Reclassify 1.00 Manager Community Services Senior Programs to Manager Human Services  Development Services o Title Change 0.07 FTE Project Manager Trees to Project Manager  Fire Department o Reclassify 1.00 FTE Fire Captain to 40 Hour Training Fire Captain  Planning and Community Environment Department o Title Change 0.20 FTE Senior Project Engineer to Manager Parking  Police Department o Title Change 2.00 FTE Public Safety Manager I to Public Safety Program Manager o Title Change 1.00 FTE Public Safety Manager II to Public Safety Communications Manager  Public Works Department o Title Change 1.18 FTE Project Manager Trees to Project Manager Enterprise Funds  Utilities Department o Title Change 0.75 FTE Project Manager Trees to Project Manager City of Palo Alto Page 4 o Reclassify 1.00 FTE Senior Project Engineer to Senior Engineer Other Funds  Capital Improvement Fund o Title Change 0.70 FTE Senior Project Engineer to Manager Parking  Information Technology Fund o Reclassify 1.00 FTE Management Analyst to Senior Business Analyst o Reclassify 1.00 FTE Principle Management Analyst to Principal Business Analyst  Print and Mail Fund o Reclassify 0.10 Senior Management Analyst to Manager Revenue Collections  Special Revenue Funds o Title Change 0.10 FTE Senior Project Engineer to Manager Parking o Reclassify 0.20 Senior Management Analyst to Manager Revenue Collections Resource Impact The recommended amendments are administrative in nature and are consistent with the Adopted FY2015 Budget and Council policy direction. Environmental Review Adoption of the attached resolution and ordinance are not projects for the purposes of the California Environmental Quality Act and therefore no environmental review is required. Attachments:  Attachment: Attachment A Resolution Amending Various Salary Schedules (PDF)  Attachment: Resolution Exhibit 1 (PDF)  Attachment: Resolution Exhibit 2 (PDF)  Attachment: Attachment B Ordinance Amending Table of Organization FY15 (PDF)  Attachment: Resolution Exhibit 3 (PDF)  Attachment: Table_of_Organization_Modified_1-22-15 (PDF) *NOT YET APPROVED* 1 Resolution No. ____  Resolution of the Council of the City of Palo Alto Amending Salary  Schedules for the Management, Professional, and Confidential Unit,  the Utilities Managers of Palo Alto Professional Association, and the  Palo Alto Fire Chiefs’ Association  The Council of the City of Palo Alto RESOLVES as follows:  SECTION 1.      The Salary Schedule attached to the 2014‐2016 Compensation  Plan for Management and Professional Personnel, as adopted by Resolution No. 9476, is hereby  amended as set forth in Exhibit “1”, attached hereto and incorporated herein by reference.  SECTION 2.      The Salary Schedule for the Utilities Managers of Palo Alto  Professional Association, as imposed by Resolution No. 9359 (CMR 3939) and 9432, is hereby  amended as set forth in Exhibit “2”, attached hereto and incorporated herein by reference.  SECTION 3.      The Salary Schedule in the 2012‐2014 Memorandum of  Agreement with the Palo Alto Fire Chiefs’ Association, as adopted and amended by Resolution  Nos. 9234 and 9287 (CMR 3147) is hereby amended as set forth in Exhibit “3”, attached hereto  and incorporated herein by reference, effective with the pay period including July 1, 2014.  SECTION 4. The Council finds that this is not a project under the California  Environmental Quality Act and, therefore, no environmental impact assessment is necessary.  INTRODUCED AND PASSED:   AYES: NOES: ABSENT:   ABSTENTIONS:  ATTEST:  ___________________________  ______________________________  City Clerk Mayor  APPROVED AS TO FORM:  APPROVED:  ___________________________  ______________________________  City Attorney City Manager  _____________________________  Director of Administrative Services  ____________________________  Chief People Officer Attachment A Job Code Classifications Grade  Codes Min Hourly  Rate Mid Point Hourly Rate Max Hourly  Rate Approx Mid‐Point  Monthly Approx. Mid‐Point Annual Salary FLSA Status 190 Accountant 690P $31.30 $39.12 $46.95 $6,781 $81,370 Non-Exempt 76 Administrative Assistant 750P $27.00 $33.74 $40.49 $5,848 $70,179 Exempt 132 Assistant Chief of Police 100A $71.79 $89.73 $107.68 $15,553 $186,638 Exempt 108 Assistant City Attorney 165A $60.85 $76.06 $91.28 $13,184 $158,205 Exempt 109 Assistant City Clerk 630M $35.41 $44.26 $53.12 $7,672 $92,061 Exempt 107 Assistant City Manager/Chief Operating Officer 20E $74.57 $93.21 $111.86 $16,156 $193,877 Exempt 73 Assistant Director Administrative Services 120A $61.36 $76.69 $92.03 $13,293 $159,515 Exempt 126 Assistant Director Community Services 150A $58.73 $73.41 $88.10 $12,724 $152,693 Exempt 1007 Assistant Director Human Resources 155A $56.77 $70.96 $85.16 $12,300 $147,597 Exempt 2001 Assistant Director Library Services 160A $56.18 $70.22 $84.27 $12,171 $146,058 Exempt 10 Assistant Director Planning & Community Environment 130A $60.17 $75.21 $90.26 $13,036 $156,437 Exempt 143 Assistant Director Public Works 140A $59.48 $74.34 $89.21 $12,886 $154,627 Exempt 168 Assistant Fleet Manager 585M $37.21 $46.51 $55.82 $8,062 $96,741 Exempt 102 Assistant Manager WQCP 240D $48.08 $60.09 $72.11 $10,416 $124,987 Exempt 30 Assistant to the City Manager 390M $46.46 $58.07 $69.69 $10,065 $120,786 Exempt 118 Chief Building Official 290M $57.09 $71.36 $85.64 $12,369 $148,429 Exempt 2008 Chief Communications Officer 135A $59.85 $74.81 $89.78 $12,967 $155,605 Exempt 112 Chief Planning Official 220D $51.02 $63.77 $76.53 $11,053 $132,642 Exempt 95 Chief Procurement Officer 235D $48.27 $60.33 $72.40 $10,457 $125,486 Exempt 2010 Chief Sustainability Officer 435M $52.11 $65.13 $78.16 $11,289 $135,470 Exempt 82 Chief Transportation Official 204M $53.68 $67.10 $80.52 $11,631 $139,568 Exempt 96 Claims Investigator 660P $32.88 $41.10 $49.32 $7,124 $85,488 Exempt 24 Communication Specialist 615M $35.61 $44.51 $53.42 $7,715 $92,581 Exempt 89 Contracts Administrator 585P $37.21 $46.51 $55.82 $8,062 $96,741 Exempt 186 Coordinator Library Circulation 675M $31.36 $39.19 $47.03 $6,793 $81,515 Non-Exempt 191 Deputy Chief/Fire Marshall 125A $60.63 $75.78 $90.94 $13,135 $157,622 Exempt City of Palo Alto  Management, Professional and Confidential Salary Schedule  Effective pay period including 07/01/2014 Resolution Exhibit 1 Job Code Classifications Grade  Codes Min Hourly  Rate Mid Point Hourly Rate Max Hourly  Rate Approx Mid‐Point  Monthly Approx. Mid‐Point Annual Salary FLSA Status 9 Deputy City Attorney 480P $43.15 $53.93 $64.72 $9,348 $112,174 Exempt 71 Deputy City Clerk 720M $28.36 $35.45 $42.54 $6,145 $73,736 Exempt 195 Deputy Director Technical Services Division 200D $60.45 $75.56 $90.68 $13,097 $157,165 Exempt 20 Deputy Fire Chief 110A $63.17 $78.96 $94.76 $13,686 $164,237 Exempt 81 Director Administrative Services/Chief Financial Officer 50E $71.48 $89.35 $107.22 $15,487 $185,848 Exempt 72 Director Community Services 45E $72.03 $90.03 $108.04 $15,605 $187,262 Exempt 1012 Director Development Services 145A $63.24 $79.05 $94.86 $13,702 $164,424 Exempt 133 Director Human Resources/Chief People Officer 55E $68.12 $85.15 $102.18 $14,759 $177,112 Exempt 128 Director Information Technology/Chief Information Officer 25E $74.44 $93.04 $111.65 $16,127 $193,523 Exempt 131 Director Libraries 60E $67.42 $84.27 $101.13 $14,607 $175,282 Exempt 2005 Director Office of Emergency Services 215D $52.89 $66.11 $79.34 $11,459 $137,509 Exempt 49 Director Office of Management and Budget 120A $61.36 $76.69 $92.03 $13,293 $159,515 Exempt 134 Director Planning & Community Environment 40E $72.20 $90.24 $108.29 $15,642 $187,699 Exempt 135 Director Public Works/City Engineer 30E $73.12 $91.40 $109.68 $15,843 $190,112 Exempt 121 Director Utilities 10E $93.72 $117.14 $140.57 $20,304 $243,651 Exempt 2002 Division Head Library Services 260D $44.12 $55.15 $66.18 $9,559 $114,712 Exempt 172 Division Manager Open Space, Parks & Golf 245D $47.43 $59.28 $71.14 $10,275 $123,302 Exempt 1005 Executive Assistant to the City Manager 705M $30.54 $38.17 $45.81 $6,616 $79,394 Exempt 139 Fire Chief 35E $72.72 $90.90 $109.08 $15,756 $189,072 Exempt 163 Hearing Officer 480M $43.15 $53.93 $64.72 $9,348 $112,174 Exempt 101 Human Resources Representative 735P $27.67 $34.58 $41.50 $5,994 $71,926 Exempt 90 Landscape Architect Park Planner 510M $41.07 $51.33 $61.60 $8,897 $106,766 Exempt 2015 Legal Fellow 755P $35.31 $44.13 $52.96 $7,649 $91,790 Exempt 171 Management Analyst 585M $37.21 $46.51 $55.82 $8,062 $96,741 Exempt 79 Manager Accounting 235D $48.27 $60.33 $72.40 $10,457 $125,486 Exempt 2007 Manager Airport 210D $52.90 $66.12 $79.35 $11,461 $137,530 Exempt 38 Manager Communications 525M $40.07 $50.08 $60.10 $8,681 $104,166 Exempt 154 Manager Community Services 630M $35.41 $44.26 $53.12 $7,672 $92,061 Exempt 169 Manager Community Services Sr Program 585M $37.21 $46.51 $55.82 $8,062 $96,741 Exempt 1013 Manager Development Center 495M $42.10 $52.62 $63.15 $9,121 $109,450 Exempt 63 Manager Economic Development 220D $51.02 $63.77 $76.53 $11,053 $132,642 Exempt 44 Manager Employee Benefits 450M $43.60 $54.49 $65.39 $9,445 $113,339 Exempt Resolution Exhibit 1 Job Code Classifications Grade  Codes Min Hourly  Rate Mid Point Hourly Rate Max Hourly  Rate Approx Mid‐Point  Monthly Approx. Mid‐Point Annual Salary FLSA Status 45 Manager Employee Relations & Training 235D $48.27 $60.33 $72.40 $10,457 $125,486 Exempt 93 Manager Environmental Control Program 419M $44.64 $55.80 $66.96 $9,672 $116,064 Exempt 127 Manager Fleet 255D $44.70 $55.87 $67.05 $9,684 $116,210 Exempt 2018 Manager Human Services 540M $39.09 $48.86 $58.64 $8,469 $101,629 Exempt 32 Manager Information Technology 230D $49.34 $61.67 $74.01 $10,689 $128,274 Exempt 2006 Manager Information Technology Security 420M $44.74 $55.92 $67.11 $9,693 $116,314 Exempt 158 Manager Laboratory Services 495M $42.10 $52.62 $63.15 $9,121 $109,450 Exempt 78 Manager Library Services 565M $36.75 $45.93 $55.12 $7,961 $95,534 Exempt 92 Manager Maintenance Operations 469M $41.24 $51.54 $61.85 $8,934 $107,203 Exempt 26 Manager Parking 345M $48.26 $60.32 $72.39 $10,455 $125,466 Exempt 51 Manager Planning 435M $44.69 $55.86 $67.04 $9,682 $116,189 Exempt 103 Manager Real Property 235D $48.27 $60.33 $72.40 $10,457 $125,486 Exempt 2011 Manager Revenue Collections 250D $45.34 $56.67 $68.01 $9,823 $117,874 Exempt 160 Manager Solid Waste 330M $48.82 $61.02 $73.23 $10,577 $126,922 Exempt 86 Manager Urban Forestry 436M $43.30 $54.12 $64.95 $9,381 $112,570 Exempt 178 Manager Water Quality Control Plant 205D $54.32 $67.90 $81.48 $11,769 $141,232 Exempt 39 Manager Watershed Protection 330M $48.82 $61.02 $73.23 $10,577 $126,922 Exempt 1008 Office of Emergency Services Coordinator 525M $40.07 $50.08 $60.10 $8,681 $104,166 Exempt 100 Performance Auditor 585M $37.21 $46.51 $55.82 $8,062 $96,741 Exempt 148 Police Chief 15E $80.86 $101.07 $121.29 $17,519 $210,226 Exempt 2016 Principal Business Analyst 310M $51.45 $64.31 $77.18 $11,147 $133,765 Exempt 2003 Principal Management Analyst 360M $51.23 $64.03 $76.84 $11,099 $133,182 Exempt 2009 Project Manager 570M $37.46 $46.82 $56.19 $8,115 $97,386 Exempt 166 Public Safety Program Manager 585M $37.21 $46.51 $55.82 $8,062 $96,741 Exempt 2012 Public Safety Communications Manager 540M $39.09 $48.86 $58.64 $8,469 $101,629 Exempt 117 Senior Accountant 555M $38.14 $47.67 $57.21 $8,263 $99,154 Exempt 152 Senior Assistant City Attorney 105A $66.93 $83.66 $100.40 $14,501 $174,013 Exempt 2013 Senior Business Analyst - M 420M $44.74 $55.92 $67.11 $9,693 $116,314 Exempt 11 Senior Deputy City Attorney 375M $47.63 $59.53 $71.44 $10,319 $123,822 Exempt 187 Senior Engineer 300M $51.29 $64.11 $76.94 $11,112 $133,349 Exempt 106 Senior Executive Assistant 450M $43.60 $54.49 $65.39 $9,445 $113,339 Exempt 157 Senior Human Resources Administrator 545M $38.00 $47.50 $57.00 $8,233 $98,800 Exempt Resolution Exhibit 1 Job Code Classifications Grade  Codes Min Hourly  Rate Mid Point Hourly Rate Max Hourly  Rate Approx Mid‐Point  Monthly Approx. Mid‐Point Annual Salary FLSA Status 14 Senior Management Analyst 465M $43.56 $54.44 $65.33 $9,436 $113,235 Exempt 130 Senior Performance Auditor 510M $41.07 $51.33 $61.60 $8,897 $106,766 Exempt 53 Senior Project Manager 300M $51.29 $64.11 $76.94 $11,112 $133,349 Exempt 33 Senior Technologist 420M $44.74 $55.92 $67.11 $9,693 $116,314 Exempt 155 Superintendent Animal Services 540M $39.09 $48.86 $58.64 $8,469 $101,629 Exempt 83 Superintendent Community Services 480M $43.15 $53.93 $64.72 $9,348 $112,174 Exempt 161 Supervisor Facilities Management 600M $36.39 $45.48 $54.58 $7,883 $94,598 Exempt 113 Supervisor Inspection and Surveying 540M $39.09 $48.86 $58.64 $8,469 $101,629 Exempt 146 Supervisor Warehouse 660M $32.88 $41.10 $49.32 $7,124 $85,488 Exempt 181 Supervisor Water Quality Control Operations 525M $40.07 $50.08 $60.10 $8,681 $104,166 Exempt 184 Veterinarian 555M $38.14 $47.67 $57.21 $8,263 $99,154 Exempt Confidential Classifications Job Code Classifications Grade  Codes Min Hourly  Rate Mid Point Hourly Rate Max Hourly  Rate Approx Mid‐Point  Monthly Salary Approx. Mid‐Point Annual Salary FLSA Status 905 Human Resource Assistant - Confidential 830C $23.86 $29.82 $35.79 $5,169 $62,026 Non-Exempt 903 Legal Secretary-Confidential 820C $24.45 $30.56 $36.68 $5,297 $63,565 Non-Exempt 67 Secretary to City Attorney 800C $29.07 $36.33 $43.60 $6,297 $75,566 Exempt 1004 Senior Legal Secretary - Confidential 810C $27.00 $33.74 $40.49 $5,848 $70,179 Non-Exempt Resolution Exhibit 1 Job Code FLSA Status Classifications Grade  Codes Min Hourly  Rate Mid Point  Hourly Rate Max Hourly  Rate Approx Mid‐Point  Monthly Salary Approx. Mid‐Point Annual  Salary 190 Non-Exempt Accountant 690P $32.08 $40.10 $48.12 $6,951 $83,408 76 Exempt Administrative Assistant 750P $27.68 $34.59 $41.51 $5,996 $71,947 132 Exempt Assistant Chief of Police 100A $73.59 $91.98 $110.38 $15,943 $191,318 108 Exempt Assistant City Attorney 165A $62.38 $77.97 $93.57 $13,515 $162,178 109 Exempt Assistant City Clerk 630M $36.30 $45.37 $54.45 $7,864 $94,370 107 Exempt Assistant City Manager/Chief Operating Officer 20E $76.44 $95.55 $114.66 $16,562 $198,744 73 Exempt Assistant Director Administrative Services 120A $62.89 $78.61 $94.34 $13,626 $163,509 126 Exempt Assistant Director Community Services 150A $60.20 $75.25 $90.30 $13,043 $156,520 1007 Exempt Assistant Director Human Resources 155A $58.20 $72.74 $87.29 $12,608 $151,299 2001 Exempt Assistant Director Library Services 160A $57.59 $71.98 $86.38 $12,477 $149,718 10 Exempt Assistant Director Planning & Community Environment 130A $61.68 $77.10 $92.52 $13,364 $160,368 143 Exempt Assistant Director Public Works 140A $60.96 $76.20 $91.44 $13,208 $158,496 168 Exempt Assistant Fleet Manager 585M $38.15 $47.68 $57.22 $8,265 $99,174 102 Exempt Assistant Manager WQCP 240D $49.28 $61.60 $73.92 $10,677 $128,128 30 Exempt Assistant to the City Manager 390M $47.63 $59.53 $71.44 $10,319 $123,822 118 Exempt Chief Building Official 290M $58.52 $73.15 $87.78 $12,679 $152,152 2008 Exempt Chief Communications Officer 135A $61.36 $76.69 $92.03 $13,293 $159,515 112 Exempt Chief Planning Official 220D $52.30 $65.37 $78.45 $11,331 $135,970 95 Exempt Chief Procurement Officer 235D $49.48 $61.84 $74.21 $10,719 $128,627 2010 Exempt Chief Sustainability Officer 435M $53.41 $66.76 $80.12 $11,572 $138,861 82 Exempt Chief Transportation Official 204M $55.03 $68.78 $82.54 $11,922 $143,062 96 Exempt Claims Investigator 660P $33.71 $42.13 $50.56 $7,303 $87,630 24 Exempt Communication Specialist 615M $36.51 $45.63 $54.76 $7,909 $94,910 89 Exempt Contracts Administrator 585P $38.15 $47.68 $57.22 $8,265 $99,174 186 Non-Exempt Coordinator Library Circulation 675M $32.14 $40.17 $48.21 $6,963 $83,554 191 Exempt Deputy Chief/Fire Marshall 125A $62.15 $77.68 $93.22 $13,465 $161,574 9 Exempt Deputy City Attorney 480P $44.23 $55.28 $66.34 $9,582 $114,982 City of Palo Alto  Management, Professional and Confidential Salary Schedule  Effective pay period including 07/01/2015 Resolution Exhibit 1 Job Code FLSA Status Classifications Grade  Codes Min Hourly  Rate Mid Point  Hourly Rate Max Hourly  Rate Approx Mid‐Point  Monthly Salary Approx. Mid‐Point Annual  Salary 71 Exempt Deputy City Clerk 720M $29.08 $36.34 $43.61 $6,299 $75,587 195 Exempt Deputy Director Technical Services Division 200D $61.96 $77.45 $92.94 $13,425 $161,096 20 Exempt Deputy Fire Chief 110A $64.76 $80.94 $97.13 $14,030 $168,355 81 Exempt Director Administrative Services/Chief Financial Officer 50E $73.28 $91.59 $109.91 $15,876 $190,507 72 Exempt Director Community Services 45E $73.84 $92.29 $110.75 $15,997 $191,963 1012 Exempt Director Development Services 145A $64.83 $81.03 $97.24 $14,045 $168,542 133 Exempt Director Human Resources/Chief People Officer 55E $69.83 $87.28 $104.74 $15,129 $181,542 128 Exempt Director Information Technology/Chief Information Officer 25E $76.30 $95.37 $114.45 $16,531 $198,370 131 Exempt Director Libraries 60E $69.11 $86.38 $103.66 $14,973 $179,670 2005 Exempt Director Office of Emergency Services 215D $54.22 $67.77 $81.33 $11,747 $140,962 49 Exempt Director Office of Management and Budget 120A $62.89 $78.61 $94.34 $13,626 $163,509 134 Exempt Director Planning & Community Environment 40E $74.00 $92.50 $111.00 $16,033 $192,400 135 Exempt Director Public Works/City Engineer 30E $74.96 $93.69 $112.43 $16,240 $194,875 121 Exempt Director Utilities 10E $96.06 $120.07 $144.09 $20,812 $249,746 2002 Exempt Division Head Library Services 260D $45.23 $56.53 $67.84 $9,799 $117,582 172 Exempt Division Manager Open Space, Parks & Golf 245D $48.62 $60.77 $72.93 $10,533 $126,402 1005 Exempt Executive Assistant to the City Manager 705M $31.31 $39.13 $46.96 $6,783 $81,390 139 Exempt Fire Chief 35E $74.55 $93.18 $111.82 $16,151 $193,814 163 Exempt Hearing Officer 480M $44.23 $55.28 $66.34 $9,582 $114,982 101 Exempt Human Resources Representative 735P $28.36 $35.45 $42.54 $6,145 $73,736 90 Exempt Landscape Architect Park Planner 510M $42.10 $52.62 $63.15 $9,121 $109,450 2015 Exempt Legal Fellow 755P $36.20 $45.24 $54.29 $7,842 $94,099 69 Exempt Legal Services Administrator 555M $39.19 $48.98 $58.78 $8,490 $101,878 171 Exempt Management Analyst 585M $38.15 $47.68 $57.22 $8,265 $99,174 79 Exempt Manager Accounting 235D $49.48 $61.84 $74.21 $10,719 $128,627 2007 Exempt Manager Airport 210D $54.23 $67.78 $81.34 $11,749 $140,982 38 Exempt Manager Communications 525M $41.08 $51.34 $61.61 $8,899 $106,787 154 Exempt Manager Community Services 630M $36.30 $45.37 $54.45 $7,864 $94,370 169 Exempt Manager Community Services Sr Program 585M $38.15 $47.68 $57.22 $8,265 $99,174 1013 Exempt Manager Development Center 495M $43.16 $53.94 $64.73 $9,350 $112,195 63 Exempt Manager Economic Development 220D $52.30 $65.37 $78.45 $11,331 $135,970 44 Exempt Manager Employee Benefits 450M $44.69 $55.86 $67.04 $9,682 $116,189 45 Exempt Manager Employee Relations & Training 235D $49.48 $61.84 $74.21 $10,719 $128,627 Resolution Exhibit 1 Job Code FLSA Status Classifications Grade  Codes Min Hourly  Rate Mid Point  Hourly Rate Max Hourly  Rate Approx Mid‐Point  Monthly Salary Approx. Mid‐Point Annual  Salary 93 Exempt Manager Environmental Control Program 419M $45.76 $57.20 $68.64 $9,915 $118,976 127 Exempt Manager Fleet 255D $45.82 $57.27 $68.73 $9,927 $119,122 2018 Exempt Manager Human Services 540M $40.08 $50.09 $60.11 $8,682 $104,187 32 Exempt Manager Information Technology 230D $50.58 $63.22 $75.87 $10,958 $131,498 2006 Exempt Manager Information Technology Security 420M $45.86 $57.32 $68.79 $9,935 $119,226 158 Exempt Manager Laboratory Services 495M $43.16 $53.94 $64.73 $9,350 $112,195 78 Exempt Manager Library Services 565M $37.67 $47.08 $56.50 $8,161 $97,926 92 Exempt Manager Maintenance Operations 469M $42.27 $52.83 $63.40 $9,157 $109,886 26 Exempt Manager Parking 345M $49.47 $61.83 $74.20 $10,717 $128,606 51 Exempt Manager Planning 435M $45.81 $57.26 $68.72 $9,925 $119,101 103 Exempt Manager Real Property 235D $49.48 $61.84 $74.21 $10,719 $128,627 2011 Exempt Manager Revenue Collections 250D $46.48 $58.09 $69.71 $10,069 $120,827 160 Exempt Manager Solid Waste 330M $50.04 $62.55 $75.06 $10,842 $130,104 86 Exempt Manager Urban Forestry 436M $44.39 $55.48 $66.58 $9,617 $115,398 178 Exempt Manager Water Quality Control Plant 205D $55.68 $69.60 $83.52 $12,064 $144,768 39 Exempt Manager Watershed Protection 330M $50.04 $62.55 $75.06 $10,842 $130,104 1008 Exempt Office of Emergency Services Coordinator 525M $41.08 $51.34 $61.61 $8,899 $106,787 100 Exempt Performance Auditor 585M $38.15 $47.68 $57.22 $8,265 $99,174 148 Exempt Police Chief 15E $82.88 $103.60 $124.32 $17,957 $215,488 2016 Exempt Principal Business Analyst 310M $52.74 $65.92 $79.11 $11,426 $137,114 2003 Exempt Principal Management Analyst 360M $52.52 $65.64 $78.77 $11,378 $136,531 2009 Exempt Project Manager 570M $38.40 $48.00 $57.60 $8,320 $99,840 166 Exempt Public Safety Program Manager 585M $38.15 $47.68 $57.22 $8,265 $99,174 2012 Exempt Public Safety Communications Manager 540M $40.08 $50.09 $60.11 $8,682 $104,187 117 Exempt Senior Accountant 555M $39.10 $48.87 $58.65 $8,471 $101,650 152 Exempt Senior Assistant City Attorney 105A $68.61 $85.76 $102.92 $14,865 $178,381 2013 Exempt Senior Business Analyst - M 420M $45.86 $57.32 $68.79 $9,935 $119,226 11 Exempt Senior Deputy City Attorney 375M $48.82 $61.02 $73.23 $10,577 $126,922 187 Exempt Senior Engineer 300M $52.58 $65.72 $78.87 $11,391 $136,698 106 Exempt Senior Executive Assistant 450M $44.69 $55.86 $67.04 $9,682 $116,189 157 Exempt Senior Human Resources Administrator 545M $38.96 $48.69 $58.43 $8,440 $101,275 14 Exempt Senior Management Analyst 465M $44.65 $55.81 $66.98 $9,674 $116,085 130 Exempt Senior Performance Auditor 510M $42.10 $52.62 $63.15 $9,121 $109,450 Resolution Exhibit 1 Job Code FLSA Status Classifications Grade  Codes Min Hourly  Rate Mid Point  Hourly Rate Max Hourly  Rate Approx Mid‐Point  Monthly Salary Approx. Mid‐Point Annual  Salary 53 Exempt Senior Project Manager 300M $52.58 $65.72 $78.87 $11,391 $136,698 33 Exempt Senior Technologist 420M $45.86 $57.32 $68.79 $9,935 $119,226 155 Exempt Superintendent Animal Services 540M $40.08 $50.09 $60.11 $8,682 $104,187 83 Exempt Superintendent Community Services 480M $44.23 $55.28 $66.34 $9,582 $114,982 161 Exempt Supervisor Facilities Management 600M $37.30 $46.62 $55.95 $8,081 $96,970 113 Exempt Supervisor Inspection and Surveying 540M $40.08 $50.09 $60.11 $8,682 $104,187 146 Exempt Supervisor Warehouse 660M $33.71 $42.13 $50.56 $7,303 $87,630 181 Exempt Supervisor Water Quality Control Operations 525M $41.08 $51.34 $61.61 $8,899 $106,787 184 Exempt Veterinarian 555M $39.10 $48.87 $58.65 $8,471 $101,650 Confidential Classifications Job Code FLSA Status Classifications Grade  Codes Min Hourly  Rate Mid Point  Hourly Rate Max Hourly  Rate Approx Mid‐Point  Monthly Salary Approx. Mid‐Point Annual  Salary 905 Non-Exempt Human Resource Assistant - Confidential 830C $24.46 $30.57 $36.69 $5,299 $63,586 903 Non-Exempt Legal Secretary-Confidential 820C $25.07 $31.33 $37.60 $5,431 $65,166 67 Exempt Secretary to City Attorney 800C $29.80 $37.24 $44.69 $6,455 $77,459 1004 Non-Exempt Senior Legal Secretary - Confidential 810C $27.68 $34.59 $41.51 $5,996 $71,947 Resolution Exhibit 1 Effective 11/30/2013 ** Updated 12/30/2014** Job Code Classifications Grade Codes Min Hourly Rate Mid Point Hourly Rate Max Hourly Rate Approx Mid- Point Monthly Salary Annual Salary 2076 Administrative Assistant - U 700 $30.08 $37.59 $45.11 $6,516 $78,187 1002 Assistant Director Utilities - Customer Support 230 $63.42 $79.27 $95.13 $13,740 $164,882 1003 Assistant Director Utilities - Engineering 190 $70.46 $88.07 $105.69 $15,265 $183,186 6 Assistant Director Utilities - Operations 210 $70.46 $88.07 $105.69 $15,265 $183,186 65 Assistant Director Utilities - Resource Management 190 $70.46 $88.07 $105.69 $15,265 $183,186 84 Division Manager/Manager of Communications 380 $45.72 $57.14 $68.57 $9,904 $118,851 129 Engineering Manager, Electric 231 $60.48 $75.59 $90.71 $13,102 $157,227 120 Engineering Manager, Water, Gas & Wastewater 231 $60.48 $75.59 $90.71 $13,102 $157,227 179 Manager, Customer Service and Meter Reading 300 $48.56 $60.70 $72.84 $10,521 $126,256 185 Manager, Electric Operations 270 $59.22 $74.02 $88.83 $12,830 $153,962 1114 Manager, Utilities Credit & Collection 300 $48.56 $60.70 $72.84 $10,521 $126,256 150 Manager, Utilities Marketing Services 300 $48.56 $60.70 $72.84 $10,521 $126,256 156 Manager, Utilities Operations WGW 290 $59.14 $73.92 $88.71 $12,813 $153,754 48 Manager, Utilities Telecommunications 250 $53.47 $66.83 $80.20 $11,584 $139,006 **TBD Principal Management Analyst - U TBD $46.93 $58.66 $70.40 $10,168 $122,013 13 Senior Business Analyst 340 $43.86 $54.82 $65.79 $9,502 $114,026 188 Senior Electrical Engineer 291 $55.33 $69.16 $83.00 $11,988 $143,853 2187 Senior Engineer - U 710 $52.64 $65.79 $78.95 $11,404 $136,843 2014 Senior Management Analyst - U 350 $42.74 $53.42 $64.11 $9,259 $111,114 64 Sr. Resource Planner 271 $54.02 $67.52 $81.03 $11,703 $140,442 27 Supervising Electrical Project Engineer 341 $51.42 $64.27 $77.13 $11,140 $133,682 28 Supervising Project Engineer 360 $47.75 $59.68 $71.62 $10,345 $124,134 1115 Supervisor, Inspection Services 390 $36.72 $45.89 $55.07 $7,955 $95,465 1011 Utilities Compliance Manager 290 $59.14 $73.92 $88.71 $12,813 $153,754 114 Utilities Supervisor 680 $51.32 $64.14 $76.97 $11,118 $133,411 **TBD Utility Safety Officer TBD $34.91 $43.63 $52.36 $7,563 $90,750 UMPAPA Salary Schedule  Resolution Exhibit 2 Effective 11/30/2013 ** Updated 12/30/2014**  ATTACHMENT B – NOT YET ADOPTED  ORDINANCE NO. ________    ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO  AMENDING THE TABLE OF ORGANIZATION FOR FISCAL  YEAR 2015 TO INCORPORATE TECHNICAL CORRECTIONS    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. As part of its Budget Amendment Ordinance No. 5255 adopting the Fiscal Year 2015 Budget,  Council adopted the Fiscal Year 2015 Table of Organization.    B. As a result of subsequent Council actions, a number of technical corrections to the Fiscal  Year 2015 Table of Organization are necessary.  These changes are only needed to update  the Table of Organization; funding has been appropriated in the Fiscal Year 2015 Adopted  Budget.    SECTION 2.  The Table of Organization shall be amended as provided in Exhibit “1”.    SECTION 3. As provided in Section 2.04.330 of the Palo Alto Municipal Code, this ordinance shall  become effective upon adoption.    SECTION 4. The Council finds that adoption of this ordinance is not a project under the California  Environmental Quality Act and, therefore, no environmental impact assessment is necessary.    INTRODUCED AND PASSED:  AYES:  NOES:  ABSTENTIONS:  ABSENT:    ATTEST:      APPROVED:                City Clerk      Mayor    APPROVED AS TO FORM:               City Manager          Deputy City Attorney           Director of Administrative Services  Palo Alto Fire Chief's Association 2012 Salary Schedule effective 07/01/2012 **updated 01/26/2015 Non-Shift Job Code Classifications Grade Codes Min Hourly Rate Mid Hourly Rate Control Point Hourly Rate Approx Control Point Monthly Approx. Control Point Annual Salary 018 Battalion Chief 40-hour workweek 28 $55.02 $64.19 $73.35 $12,715 $152,577 015 Battalion Chief EMT 40-hour workweek 28E $56.52 $65.94 $75.35 $13,061 $156,730 066 Emergency Medical Svc Chief 28 $55.02 $64.19 $73.35 $12,715 $152,577 017 Emergency Medical Svc Chief-EMT 28E $56.52 $65.94 $75.35 $13,061 $156,730 698 Emergency Medical Services Director 39 $49.41 $57.64 $65.87 $11,417 $137,010 2019 Battalion Chief EMT, Training 40-hour workweek 28E $56.52 $65.94 $75.35 $13,061 $156,730 Shift Job Code Classifications Grade Codes Min Hourly Rate Mid Hourly Rate Control Point Hourly Rate Approx Control Point Monthly Approx. Control Point Annual Salary 116 Battalion Chief 56-hour workweek 28 $37.43 $43.67 $49.90 $8,650 $103,797 016 Battalion Chief EMT 56-hour workweek 28E $38.45 $44.86 $51.26 $12,440 $149,278 CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET 427 Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % General Fund Administrative Services Account Specialist 7.00 7.00 5.95 5.95 5.95 0.00 0.00% Account Specialist-Lead 5.00 5.00 4.59 4.59 4.59 0.00 0.00% Accountant 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Administrative Assistant 0.93 1.00 1.00 1.00 1.00 0.00 0.00% Administrative Associate III 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Assistant Director Administrative Services 1.50 1.80 1.65 1.65 1.65 0.00 0.00% Buyer 1.95 1.95 2.00 2.00 2.00 0.00 0.00% Chief Procurement Officer 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Contracts Administrator 1.40 1.40 1.70 1.70 1.70 0.00 0.00% Director Administrative Services/CFO 0.50 0.55 0.70 0.70 0.70 0.00 0.00% Director Office of Management and Budget 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Accounting 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Real Property 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Revenue Collections 0.00 0.00 0.00 0.00 0.70 0.70 0.00% Payroll Analyst 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Principal Management Analyst 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Accountant 3.00 3.00 3.00 3.00 3.00 0.00 0.00% Senior Financial Analyst 4.81 6.10 5.90 0.00 0.00 -5.90 (100.00)% Senior Management Analyst 0.00 0.00 0.00 5.90 5.20 5.20 (11.86)% Storekeeper-Lead 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Warehouse Supervisor 0.50 0.50 0.50 0.50 0.50 0.00 0.00% Total Administrative Services 37.69 39.30 37.99 37.99 37.99 0.00 0.00% City Attorney Assistant City Attorney 1.00 1.00 1.00 1.00 1.00 0.00 0.00% City Attorney 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Claims Investigator 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Legal Fellow 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Legal Services Administrator 1.00 1.00 1.00 1.00 0.00 -1.00 (100.00)% Secretary To City Attorney 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Assistant City Attorney 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Senior Deputy City Attorney 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Legal Secretary - Confidential 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Management Analyst 0.00 0.00 0.00 0.00 1.00 1.00 0.00% Total City Attorney 9.00 9.00 9.00 10.00 10.00 1.00 11.11% 428 CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET City Auditor Administrative Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% City Auditor 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Performance Auditor 0.00 0.50 0.50 0.50 0.50 0.00 0.00% Senior Performance Auditor 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Total City Auditor 4.00 4.50 4.50 4.50 4.50 0.00 0.00% City Clerk Administrative Associate III 3.00 3.00 2.00 2.00 2.00 0.00 0.00% Assistant City Clerk 1.00 1.00 1.00 1.00 1.00 0.00 0.00% City Clerk 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Deputy City Clerk 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Hearing Officer 0.75 0.75 0.75 0.75 0.75 0.00 0.00% Total City Clerk 6.75 6.75 5.75 5.75 5.75 0.00 0.00% City Manager Administrative Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Administrative Associate I 0.50 0.00 0.00 0.00 0.00 0.00 0.00% Administrative Associate III 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Assistant City Manager 1.00 1.00 1.00 2.00 2.00 1.00 100.00% Assistant to the City Manager 1.55 1.05 1.00 0.00 0.00 -1.00 (100.00)% Chief Communications Officer 0.00 1.00 1.00 1.00 1.00 0.00 0.00% Chief Sustainability Officer 0.00 0.00 0.05 0.05 0.05 0.00 0.00% City Manager 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Deputy City Manager 0.50 0.50 0.00 0.00 0.00 0.00 0.00% Executive Assistant to the City Manager 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Management Analyst 0.50 0.00 0.00 0.00 0.00 0.00 0.00% Manager Communications 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Economic Development 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Total City Manager 10.05 9.55 9.05 9.05 9.05 0.00 0.00% Community Services Administrative Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Administrative Associate III 0.75 0.75 0.75 0.75 0.75 0.00 0.00% Assistant Director Community Services 1.00 1.00 2.00 2.00 2.00 0.00 0.00% Building Serviceperson 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Building Serviceperson-Lead 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Coordinator Recreation Programs 4.00 4.00 4.00 4.00 4.00 0.00 0.00% Director Community Services 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Division Manager Open Space, Parks & Golf 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET 429 Division Manager, Recreations & Golf 1.00 1.00 0.00 0.00 0.00 0.00 0.00% Heavy Equipment Operator 0.00 0.00 0.07 0.07 0.07 0.00 0.00% Inspector, Field Services 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Junior Museum & Zoo Educator 2.25 2.25 2.25 2.75 2.75 0.50 22.22% Management Analyst 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Management Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Community Services 6.00 6.00 5.00 5.00 5.00 0.00 0.00% Manager Community Services Sr Prgm 3.00 3.00 4.00 5.00 4.00 0.00 0.00% Manager Human Services 0.00 0.00 0.00 0.00 1.00 1.00 0.00% Park Maintenance - Lead 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Park Maintenance Person 6.00 6.00 6.00 6.00 6.00 0.00 0.00% Park Ranger 5.00 5.00 5.00 5.00 5.00 0.00 0.00% Parks/Golf Crew-Lead 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Producer Arts/Science Programs 12.00 11.75 11.75 11.75 11.75 0.00 0.00% Program Assistant I 7.50 7.50 6.75 6.75 6.75 0.00 0.00% Program Assistant II 3.00 3.00 4.00 4.00 4.00 0.00 0.00% Senior Management Analyst 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Sprinkler System Repairer 4.00 4.00 4.00 4.00 4.00 0.00 0.00% Superintendent Community Services 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Supervisor Recreation Programs 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Theater Specialist 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Volunteer Coordinator 0.50 0.50 0.75 0.75 0.75 0.00 0.00% Total Community Services 74.00 73.75 74.32 75.82 75.82 1.50 2.02% Development Services Administrative Assistant 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Administrative Associate II 0.00 0.00 0.00 3.02 3.02 3.02 0.00% Administrative Associate III 0.00 0.00 0.00 1.01 1.01 1.01 0.00% Assistant Director Public Works 0.00 0.00 0.00 0.02 0.02 0.02 0.00% Associate Engineer 0.00 0.00 0.00 0.16 0.16 0.16 0.00% Associate Planner 0.00 0.00 0.00 0.90 0.90 0.90 0.00% Building Inspector Specialist 0.00 0.00 0.00 3.00 3.00 3.00 0.00% Building/Planning Technician 0.00 0.00 0.00 1.80 1.80 1.80 0.00% Chief Building Official 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Chief Planning Official 0.00 0.00 0.00 0.20 0.20 0.20 0.00% Code Enforcement Officer 0.00 0.00 0.00 0.50 0.50 0.50 0.00% Deputy Chief/Fire Marshal 0.00 0.00 0.00 0.84 0.84 0.84 0.00% Development Project Coordinator II 0.00 0.00 0.00 2.00 2.00 2.00 0.00% Development Project Coordinator III 0.00 0.00 0.00 3.00 3.00 3.00 0.00% Development Services Director 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Engineer 0.00 0.00 0.00 0.62 0.62 0.62 0.00% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % 430 CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET Engineer Technician III 0.00 0.00 0.00 2.10 2.10 2.10 0.00% Fire Fighter 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Fire Inspector 0.00 0.00 0.00 4.00 4.00 4.00 0.00% Hazardous Materials Inspector 0.00 0.00 0.00 1.89 1.89 1.89 0.00% Industrial Waste Inspector 0.00 0.00 0.00 0.01 0.01 0.01 0.00% Industrial Waste Investigator 0.00 0.00 0.00 0.21 0.21 0.21 0.00% Inspector, Field Services 0.00 0.00 0.00 0.70 0.70 0.70 0.00% Management Analyst 0.00 0.00 0.00 0.01 0.01 0.01 0.00% Manager Development Center 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Manager Environmental Control Prgm 0.00 0.00 0.00 0.10 0.10 0.10 0.00% Manager Planning 0.00 0.00 0.00 1.80 1.80 1.80 0.00% Manager Urban Forestry 0.00 0.00 0.00 0.04 0.04 0.04 0.00% Manager Watershed Protection 0.00 0.00 0.00 0.05 0.05 0.05 0.00% Planner 0.00 0.00 0.00 0.80 0.80 0.80 0.00% Planning Arborist 0.00 0.00 0.00 0.25 0.25 0.25 0.00% Plans Check Engineer 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Project Engineer 0.00 0.00 0.00 0.15 0.15 0.15 0.00% Project Manager 0.00 0.00 0.00 0.00 0.07 0.07 0.00% Project Manager Trees 0.00 0.00 0.00 0.07 0.00 0.00 0.00% Senior Engineer 0.00 0.00 0.00 0.68 0.68 0.68 0.00% Senior Industrial Waste Investigator 0.00 0.00 0.00 0.01 0.01 0.01 0.00% Senior Management Analyst 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Senior Planner 0.00 0.00 0.00 0.40 0.40 0.40 0.00% Senior Technologist 0.00 0.00 0.00 0.50 0.50 0.50 0.00% Supervisor Inspection And Surveying 0.00 0.00 0.00 0.27 0.27 0.27 0.00% Surveyor, Public Works 0.00 0.00 0.00 0.47 0.47 0.47 0.00% Total Development Services 0.00 0.00 0.00 38.58 38.58 38.58 0.00% Library Administrative Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Assistant Director Library Services 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Business Analyst 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Coordinator Library Programs 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Director Libraries 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Division Head Library Services 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Librarian 5.00 5.00 5.00 6.70 6.70 1.70 34.00% Library Assistant 5.50 5.50 5.50 4.50 4.50 -1.00 (18.18)% Library Associate 4.00 5.00 5.00 7.00 7.00 2.00 40.00% Library Specialist 8.00 7.00 7.00 7.00 7.00 0.00 0.00% Management Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Library Services 4.00 4.00 4.00 4.00 4.00 0.00 0.00% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET 431 Senior Librarian 7.75 8.25 8.25 8.50 8.50 0.25 3.03% Total Library 41.25 41.75 41.75 44.70 44.70 2.95 7.07% Office of Sustainability Assistant to the City Manager 0.00 0.50 0.00 0.00 0.00 0.00 0.00% Chief Sustainability Officer 0.00 0.00 0.50 0.50 0.50 0.00 0.00% Total Office of Sustainability 0.00 0.50 0.50 0.50 0.50 0.00 0.00% People Strategy and Operations Administrative Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Assistant Director Human Resources 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Director Human Resources/CPO 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Human Resources Assistant - Confidential 5.00 4.00 4.00 4.00 4.00 0.00 0.00% Human Resources Representative 2.00 3.00 2.00 2.00 2.00 0.00 0.00% Manager Employee Benefits 0.00 0.00 1.00 1.00 1.00 0.00 0.00% Manager Employee Relations 0.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Human Resources Administrator 5.00 4.00 4.00 4.00 4.00 0.00 0.00% Senior Management Analyst 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Total People Strategy and Operations 16.00 16.00 16.00 16.00 16.00 0.00 0.00% Planning and Community Environment Administrative Assistant 1.00 1.00 2.00 1.00 1.00 -1.00 (50.00)% Administrative Associate I 0.50 1.00 1.00 1.00 1.00 0.00 0.00% Administrative Associate II 3.80 3.80 3.80 1.00 1.00 -2.80 (73.68)% Administrative Associate III 1.00 1.00 2.00 2.00 2.00 0.00 0.00% Administrator Planning & Community Environment 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Assistant Building Official 1.00 1.00 0.00 0.00 0.00 0.00 0.00% Assistant Director Planning & Community Environment 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Associate Engineer 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Associate Planner 0.00 0.00 1.00 0.10 0.10 -0.90 (90.00)% Building Inspector 4.00 4.00 0.00 0.00 0.00 0.00 0.00% Building Inspector Specialist 1.00 1.00 3.00 0.00 0.00 -3.00 (100.00)% Building/Planning Technician 2.00 2.00 2.00 0.20 0.20 -1.80 (90.00)% Business Analyst 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Chief Building Official 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Chief Planning Official 0.00 1.00 1.00 0.80 0.80 -0.20 (20.00)% Chief Transportation Official 1.00 1.00 0.90 0.50 0.50 -0.40 (44.44)% Code Enforcement Officer 2.00 2.00 2.00 1.50 1.50 -0.50 (25.00)% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % 432 CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET Coordinator Transportation System Management 0.50 0.50 0.50 0.90 0.90 0.40 80.00% Deputy City Manager 0.50 0.50 0.00 0.00 0.00 0.00 0.00% Development Project Coordinator II 0.00 0.00 2.00 0.00 0.00 -2.00 (100.00)% Development Project Coordinator III 0.00 3.00 3.00 0.00 0.00 -3.00 (100.00)% Development Services Director 0.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Director Planning/Community Environment 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Engineer 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Engineer Technician III 1.00 1.00 0.00 0.00 0.00 0.00 0.00% Management Analyst 0.00 0.50 0.40 0.40 0.40 0.00 0.00% Manager Development Center 0.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Manager Parking 0.00 0.00 0.00 0.00 0.20 0.20 0.00% Manager Planning 2.00 1.00 2.00 1.20 1.20 -0.80 (40.00)% Planner 5.75 3.75 3.75 3.15 3.15 -0.60 (16.00)% Plans Check Engineer 2.00 2.00 1.00 0.00 0.00 -1.00 (100.00)% Plans Examiner 0.00 1.00 0.00 0.00 0.00 0.00 0.00% Project Engineer 1.00 1.00 1.00 1.65 1.65 0.65 65.00% Senior Management Analyst 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Senior Planner 5.00 7.00 7.00 7.60 7.60 0.60 8.57% Senior Project Engineer 0.00 0.00 1.00 0.20 0.00 -1.00 (100.00)% Supervisor Building Inspection 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Total Planning and Community Environment 43.05 49.05 49.35 28.20 28.20 -21.15 (42.86)% Public Safety Training Battalion Chief 0.00 0.00 0.00 1.00 1.00 1.00 0.00% 40-Hour Training Captain 1.00 1.00 1.00 0.00 1.00 0.00 0.00% Administrative Assistant 1.00 1.00 2.00 2.00 2.00 0.00 0.00% Administrative Associate II 7.00 7.00 6.00 5.00 5.00 -1.00 (16.67)% Animal Control Officer 4.50 3.50 4.00 3.00 3.00 -1.00 (25.00)% Animal Control Officer - Lead 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Animal Services Specialist II 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Assistant Police Chief 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Battalion Chief 56-Hour Workweek 3.00 3.00 3.00 3.00 3.00 0.00 0.00% Business Analyst 1.00 1.00 2.00 2.00 2.00 0.00 0.00% Code Enforcement Officer 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Communications Technician 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Community Service Officer 8.50 8.50 8.50 8.50 8.50 0.00 0.00% Court Liaison Officer 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Crime Analyst 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Deputy Chief/Fire Marshal 0.84 0.84 0.84 0.00 0.00 -0.84 (100.00)% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET 433 Deputy Director Technical Services Division 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Deputy Fire Chief 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Director Office of Emergency Services 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Emergency Medical Services Data Specialist 0.00 1.00 1.00 1.00 1.00 0.00 0.00% Emergency Medical Services Director 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Fire Apparatus Operator 30.00 30.00 30.00 30.00 30.00 0.00 0.00% Fire Captain 27.00 22.00 22.00 22.00 21.00 -1.00 (4.45)% Fire Chief 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Fire Fighter 45.00 41.00 41.00 40.00 40.00 -1.00 (2.44)% Fire Inspector 3.00 4.00 4.00 0.00 0.00 -4.00 (100.00)% Geographic Information System Specialist 0.00 1.00 1.00 1.00 1.00 0.00 0.00% Hazardous Materials Inspector 1.90 1.90 1.90 0.01 0.01 -1.89 (99.47)% Office of Emergency Services Coordinator 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Police Agent 19.00 19.00 19.00 19.00 19.00 0.00 0.00% Police Captain 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Police Chief 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Police Lieutenant 5.00 5.00 5.00 5.00 5.00 0.00 0.00% Police Officer 49.00 49.00 50.00 50.00 50.00 0.00 0.00% Police Records Specialist - Lead 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Police Records Specialist II 6.00 6.00 6.00 6.00 6.00 0.00 0.00% Police Sergeant 14.00 14.00 14.00 14.00 14.00 0.00 0.00% Program Assistant 0.00 1.00 1.00 1.00 1.00 0.00 0.00% Program Assistant II 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Property Evidence Technician 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Public Safety Dispatcher I 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Public Safety Dispatcher II 14.00 14.00 14.00 14.00 14.00 0.00 0.00% Public Safety Dispatcher-Lead 5.00 5.00 4.00 4.00 4.00 0.00 0.00% Public Safety Communications Manager 0.00 0.00 0.00 0.00 1.00 1.00 0.00 Public Safety Manager I 3.00 3.00 3.00 2.00 0.00 -3.00 (100.00)% Public Safety Manager II 0.00 0.00 0.00 1.00 0.00 -1.00 (100.00)% Public Safety Program Manager 0.00 0.00 0.00 0.00 2.00 2.00 0.00% Senior Management Analyst 1.00 2.00 2.00 2.00 2.00 0.00 0.00% Superintendent Animal Services 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Supervisor Animal Services 1.00 0.00 0.00 0.00 0.00 0.00 0.00% Veterinarian 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Veterinarian Technician 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Volunteer Coordinator 0.50 0.50 0.00 0.00 0.00 0.00 0.00% Total Public Safety 278.24 272.24 273.24 264.51 264.51 -8.73 (3.19)% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % 434 CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET Public Works Account Specialist 0.04 0.00 0.00 0.00 0.00 0.00 0.00% Accountant 0.02 0.00 0.00 0.00 0.00 0.00 0.00% Administrative Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Administrative Associate I 0.70 0.50 0.60 0.60 0.60 0.00 0.00% Administrative Associate II 1.80 2.85 2.65 2.63 2.63 -0.02 (0.75)% Assistant Director Public Works 1.10 1.30 1.30 1.28 1.28 -0.02 (1.54)% Associate Engineer 0.10 0.10 0.30 0.30 0.30 0.00 0.00% Building Serviceperson 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Building Serviceperson-Lead 2.00 2.00 1.80 1.80 1.80 0.00 0.00% Director Public Works/City Engineer 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Electrician 1.00 1.00 0.80 0.80 0.80 0.00 0.00% Engineer 0.30 0.30 0.30 0.30 0.30 0.00 0.00% Engineer Technician III 3.30 3.30 3.20 1.20 1.20 -2.00 (62.50)% Equipment Operator 3.46 3.46 3.46 3.46 3.46 0.00 0.00% Facilities Carpenter 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Facilities Maintenance-Lead 2.00 2.00 1.85 1.85 1.85 0.00 0.00% Facilities Mechanic 6.00 6.00 5.55 5.55 5.55 0.00 0.00% Facilities Painter 2.00 2.00 1.75 1.75 1.75 0.00 0.00% Heavy Equipment Operator 1.90 1.90 2.13 2.13 2.13 0.00 0.00% Heavy Equipment Operator-Lead 0.85 0.85 0.85 0.85 0.85 0.00 0.00% Inspector, Field Services 1.00 1.00 1.33 0.83 0.83 -0.50 (37.59)% Management Analyst 0.55 0.60 0.60 0.60 0.60 0.00 0.00% Manager Maintenance Operations 1.72 2.10 1.95 1.95 1.95 0.00 0.00% Manager Urban Forestry 1.00 1.00 1.00 0.96 0.96 -0.04 (4.00)% Planning Arborist 1.00 1.00 1.00 0.75 0.75 -0.25 (25.00)% Project Engineer 0.20 0.20 0.30 0.30 0.30 0.00 0.00% Project Manager 0.75 1.25 1.70 0.45 1.63 -0.07 (4.12)% Project Manager Trees 0.00 0.00 0.00 1.18 0.00 0.00 0.00% Senior Accountant 0.02 0.00 0.00 0.00 0.00 0.00 0.00% Senior Engineer 0.20 1.10 1.20 1.47 1.47 0.27 22.50% Senior Financial Analyst 0.16 0.16 0.16 0.00 0.00 -0.16 (100.00)% Senior Management Analyst 0.90 0.95 0.95 1.11 1.11 0.16 16.84% Senior Project Manager 1.00 0.10 0.10 0.10 0.10 0.00 0.00% Supervisor Inspection And Surveying 0.80 0.80 0.80 0.53 0.53 -0.27 (33.75)% Surveying Assistant 0.78 0.78 0.00 0.00 0.00 0.00 0.00% Surveyor, Public Works 0.78 0.78 0.78 0.31 0.31 -0.47 (60.26)% Traffic Control Maintainer I 1.94 1.94 1.94 1.94 1.94 0.00 0.00% Traffic Control Maintainer II 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Traffic Control Maintainer-Lead 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Tree Maintenance Specialist 2.00 1.00 1.00 1.00 1.00 0.00 0.00% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET 435 Tree Trim/Line Clear 7.00 7.00 7.00 7.00 7.00 0.00 0.00% Tree Trim/Line Clear - Lead 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Total Public Works 56.37 57.32 56.35 52.98 52.98 -3.37 (5.98)% Total General Fund 576.40 579.71 577.80 588.58 588.58 10.78 1.87% Enterprise Funds Public Works Account Specialist 0.46 0.45 0.45 0.45 0.45 0.00 0.00% Accountant 0.23 0.40 0.40 0.40 0.40 0.00 0.00% Administrative Associate I 0.00 0.00 0.10 0.10 0.10 0.00 0.00% Administrative Associate II 3.20 2.15 2.15 2.15 2.15 0.00 0.00% Administrative Associate III 0.00 0.00 0.10 0.10 0.10 0.00 0.00% Administrator, Refuse 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Assistant Director Environmental Service 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Assistant Director Public Works 0.75 0.30 0.30 1.30 1.30 1.00 333.33% Assistant Manager WQCP 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Assistant to the City Manager 0.10 0.10 0.00 0.00 0.00 0.00 0.00% Associate Engineer 3.30 3.00 1.50 1.35 1.35 -0.15 (10.00)% Associate Planner 1.00 1.00 0.00 0.00 0.00 0.00 0.00% Business Analyst 0.13 0.13 0.13 0.13 0.13 0.00 0.00% Buyer 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Chemist 3.00 3.00 3.00 3.00 3.00 0.00 0.00% Chief Sustainability Officer 0.00 0.00 0.10 0.10 0.10 0.00 0.00% Coordinator Public Works Projects 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Coordinator Zero Waste 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Deputy Chief/Fire Marshal 0.08 0.08 0.08 0.08 0.08 0.00 0.00% Electrician 3.00 3.00 3.00 3.00 3.00 0.00 0.00% Electrician - Lead 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Engineer 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Engineer Technician III 1.40 1.30 0.30 0.20 0.20 -0.10 (33.33)% Environmental Specialist 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Equipment Operator 0.54 0.54 0.54 0.54 0.54 0.00 0.00% Hazardous Materials Inspector 0.04 0.04 0.04 0.04 0.04 0.00 0.00% Heavy Equipment Operator 5.90 1.90 1.61 1.61 0.61 -1.00 (62.11%) Heavy Equipment Operator-Lead 3.15 2.15 1.86 1.86 0.86 -1.00 (53.76%) Industrial Waste Inspector 2.00 2.00 3.00 2.99 2.99 -0.01 (0.33)% Industrial Waste Investigator 2.00 2.00 2.00 1.79 1.79 -0.21 (10.50)% Laboratory Technician WQC 2.50 2.50 2.50 3.00 3.00 0.50 20.00% Landfill Technician 0.00 1.00 1.00 1.00 1.00 0.00 0.00% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % 436 CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET Maintenance Mechanic 7.00 7.00 7.00 7.00 7.00 0.00 0.00% Management Analyst 1.20 1.20 1.30 2.30 2.30 1.00 76.92% Manager Airport 0.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Environmental Control Program 3.00 3.00 3.00 3.90 3.90 0.90 30.00% Manager Laboratory Services 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Maintenance Operations 1.38 1.00 0.96 0.96 0.96 0.00 0.00% Manager Solid Waste 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Water Quality Control Plant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Watershed Protection 1.00 1.00 1.00 0.95 0.95 -0.05 (5.00)% Program Assistant I 2.00 1.00 1.00 1.00 1.00 0.00 0.00% Program Assistant II 1.00 2.00 2.00 2.00 2.00 0.00 0.00% Project Engineer 2.00 2.00 1.85 1.81 1.81 -0.04 (2.16)% Project Manager 0.00 0.00 0.35 0.35 0.35 0.00 0.00% Refuse Disp Atten 4.00 0.00 0.00 0.00 0.00 0.00 0.00% Senior Accountant 0.23 0.30 0.30 0.30 0.30 0.00 0.00% Senior Chemist 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Engineer 2.25 1.90 1.80 1.76 1.76 -0.04 (2.22)% Senior Financial Analyst 0.16 0.16 0.16 0.00 0.00 -0.16 (100.00)% Senior Industrial Waste Investigator 0.00 0.00 1.00 0.99 0.99 -0.01 (1.00)% Senior Management Analyst 0.10 0.05 0.05 0.21 0.21 0.16 320.00% Senior Mechanic 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Operator WQC 6.00 6.00 6.00 6.00 6.00 0.00 0.00% Senior Technologist 1.13 1.13 1.13 1.13 1.13 0.00 0.00% Storekeeper 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Street Maintenance Assistant 2.00 2.00 0.00 0.00 0.00 0.00 0.00% Street Sweeper Operator 7.00 7.00 5.96 5.96 0.96 -5.00 (83.89%) Supervisor Public Works 1.00 0.00 0.00 0.00 0.00 0.00 0.00% Supervisor WQCP Operations 3.00 3.00 3.00 3.00 3.00 0.00 0.00% Surveying Assistant 0.11 0.11 0.00 0.00 0.00 0.00 0.00% Surveyor, Public Works 0.11 0.11 0.11 0.11 0.11 0.00 0.00% Technologist 0.00 0.00 1.00 1.00 1.00 0.00 0.00% Traffic Control Maintainer I 0.06 0.06 0.06 0.06 0.06 0.00 0.00% WQC Plant Operator II 17.00 17.00 16.00 16.00 16.00 0.00 0.00% Total Public Works 114.51 104.06 99.19 99.98 92.98 -6.21 (6.26%) Utilities Account Specialist 2.50 2.55 2.55 2.55 2.55 0.00 0.00% Accountant 0.75 0.60 0.60 0.60 0.60 0.00 0.00% Administrative Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Administrative Associate I 2.00 2.00 1.00 0.00 0.00 -1.00 (100.00)% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET 437 Administrative Associate II 7.00 7.00 6.00 6.00 6.00 0.00 0.00% Assistant Director Administrative Services 0.10 0.00 0.25 0.25 0.25 0.00 0.00% Assistant Director Utilities Customer Support Services 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Assistant Director Utilities Engineering 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Assistant Director Utilities Operations 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Assistant to the City Manager 0.35 0.35 0.00 0.00 0.00 0.00 0.00% Associate Engineer 0.00 0.00 0.50 0.50 0.50 0.00 0.00% Asst Director Utilities/Resource Management 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Business Analyst 4.87 5.87 5.87 5.87 5.87 0.00 0.00% Cathodic Protection Technician Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Cathodic Technician 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Cement Finisher 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Chief Sustainability Officer 0.00 0.00 0.35 0.35 0.35 0.00 0.00% Contracts Administrator 1.00 1.00 0.70 0.70 0.70 0.00 0.00% Coordinator Utility Projects 4.00 4.00 6.00 7.00 7.00 1.00 16.67% Coordinator Utility Safety & Security 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Customer Service Representative 5.00 5.00 6.00 6.00 6.00 0.00 0.00% Customer Service Specialist 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Customer Service Specialist-Lead 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Deputy Chief/Fire Marshal 0.08 0.08 0.08 0.08 0.08 0.00 0.00% Director Administrative Services/CFO 0.15 0.25 0.20 0.20 0.20 0.00 0.00% Director Utilities 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Electric Project Engineer 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Electric Underground Inspector 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Electric Underground Inspector-Lead 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Electrician 14.00 14.00 14.00 0.00 0.00 -14.00 (100.00)% Electrician - Lead 6.00 6.00 6.00 0.00 0.00 -6.00 (100.00)% Electrician Assistant I 5.00 4.00 4.00 4.00 4.00 0.00 0.00% Engineer 4.00 4.00 4.00 4.00 4.00 0.00 0.00% Engineer Manager - Electric 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Engineer Manager - WGW 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Engineer Technician III 3.00 3.00 3.00 4.00 4.00 1.00 33.33% Equipment Operator 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Gas System Technician 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Gas System Technician II 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Hazardous Materials Inspector 0.06 0.06 0.06 0.06 0.06 0.00 0.00% Heavy Equipment Operator 9.00 8.00 8.70 8.70 8.70 0.00 0.00% Inspector, Field Services 4.00 5.00 4.00 4.00 4.00 0.00 0.00% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % 438 CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET Lineperson/Cable Spl 11.00 11.00 11.00 11.00 11.00 0.00 0.00% Lineperson/Cable Spl-Lead 4.00 4.00 4.00 4.00 4.00 0.00 0.00% Maintenance Mechanic-Welding 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Manager Communications 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Customer Service & Meter Reading 1.00 1.00 2.00 1.00 1.00 -1.00 (50.00)% Manager Electric Operations 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Utility Marketing Services 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Utility Operations WGW 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager Utility Telecommunication 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Manager, Utilities Credit & Collection 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Marketing Engineer 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Meter Reader 6.00 6.00 6.00 6.00 6.00 0.00 0.00% Meter Reader-Lead 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Metering Technician 0.00 0.00 0.00 3.00 3.00 3.00 0.00% Metering Technician - Lead 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Offset Equipment Operator 0.48 0.48 0.48 0.48 0.48 0.00 0.00% Overhead Underground Troubleman 0.00 2.00 2.00 2.00 2.00 0.00 0.00% Planner 0.30 0.30 0.30 0.30 0.30 0.00 0.00% Power Engineer 3.00 3.00 3.00 3.00 3.00 0.00 0.00% Principal Management Analyst 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Program Assistant I 3.00 3.00 2.50 2.50 2.50 0.00 0.00% Project Engineer 5.00 5.00 5.00 5.00 5.00 0.00 0.00% Project Manager 0.00 0.75 0.75 0.00 0.75 0.00 0.00% Project Manager Trees 0.00 0.00 0.00 0.75 0.00 0.00 0.00% Resource Planner 5.00 5.00 5.00 5.00 5.00 0.00 0.00% Restoration Lead 1.00 1.00 1.00 1.00 1.00 0.00 0.00% SCADA Technologist 0.00 0.00 0.00 2.00 2.00 2.00 0.00% Senior Accountant 0.75 0.70 0.70 0.70 0.70 0.00 0.00% Senior Business Analyst 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Senior Deputy City Attorney 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Electrical Engineer 4.00 4.00 4.00 4.00 4.00 0.00 0.00% Senior Engineer 0.00 0.00 0.00 4.00 5.00 5.00 0.00% Senior Financial Analyst 1.60 1.40 1.40 0.00 0.00 -1.40 (100.00)% Senior Management Analyst 1.00 1.00 1.00 2.40 2.40 1.40 140.00% Senior Marketing Analyst 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Mechanic 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Performance Auditor 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Project Engineer 4.00 4.00 5.00 1.00 0.00 -5.00 (100.00)% Senior Resource Planner 7.00 7.00 6.00 6.00 6.00 0.00 0.00% Senior Technologist 0.87 0.87 0.87 0.87 0.87 0.00 0.00% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET 439 Senior Utility Field Service Representative 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Senior Water System Operator 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Storekeeper 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Street Light, Traffic Signal and Fiber Apprentice 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Street Light, Traffic Signal and Fiber Technician 0.00 0.00 0.00 4.00 4.00 4.00 0.00% Street Light, Traffic Signal and Fiber- Lead 0.00 0.00 0.00 2.00 2.00 2.00 0.00% Substation Electrician 0.00 0.00 0.00 6.00 6.00 6.00 0.00% Substation Electrician-Lead 0.00 0.00 0.00 2.00 2.00 2.00 0.00% Supervising Electric Project Engineer 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Supervising Project Engineer 1.00 1.00 0.00 0.00 0.00 0.00 0.00% Supervisor Water Trans 1.00 0.00 0.00 0.00 0.00 0.00 0.00% Supervisor WGW 5.00 0.00 0.00 0.00 0.00 0.00 0.00% Supervisor, Inspection Services 0.00 0.00 1.00 1.00 1.00 0.00 0.00% Tree Maintenance Specialist 1.75 1.00 1.00 1.00 1.00 0.00 0.00% Utilities Compliance Manager 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Utilities Supervisor 5.00 11.00 11.00 11.00 11.00 0.00 0.00% Utility Account Representative 4.00 4.00 4.00 4.00 4.00 0.00 0.00% Utility Comp Tech 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Utility Comp Tech-Lead 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Utility Credit/Collection Specialist 1.00 1.00 2.00 2.00 2.00 0.00 0.00% Utility Engineer Estimator 4.00 5.00 5.00 5.00 5.00 0.00 0.00% Utility Field Services Representative 5.00 5.00 5.00 5.00 5.00 0.00 0.00% Utility Install/Representative 12.00 12.00 12.00 12.00 12.00 0.00 0.00% Utility Install/Representative - Lead 5.00 5.00 5.00 5.00 5.00 0.00 0.00% Utility Install/Representative Assistant 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Utility Key Account Representative 3.00 3.00 3.00 3.00 3.00 0.00 0.00% Utility Locator 3.00 3.00 3.00 3.00 3.00 0.00 0.00% Utility Safety Officer 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Utility System Operator 5.00 5.00 5.00 5.00 5.00 0.00 0.00% Utility Install Repair Lead-Welding Cert 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Utility Install Repair-Welding Cert 3.00 3.00 3.00 3.00 3.00 0.00 0.00% Warehouse Supervisor 0.50 0.50 0.50 0.50 0.50 0.00 0.00% Water Meter Cross Connection Technician 3.00 3.00 2.00 2.00 2.00 0.00 0.00% Water System Operator II 4.00 4.00 4.00 4.00 4.00 0.00 0.00% Total Utilities 251.11 253.76 255.36 258.36 258.36 3.00 1.17% Total Enterprise Funds 365.62 357.82 354.55 358.34 351.34 -3.21 (0.91%) Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % 440 CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET Other Funds Capital Administrative Associate I 0.80 1.00 0.80 0.80 0.80 0.00 0.00% Administrative Associate III 1.00 1.00 0.90 0.89 0.89 -0.01 (1.11)% Assistant Director Public Works 0.15 0.15 0.15 0.15 0.15 0.00 0.00% Associate Engineer 0.60 0.90 2.70 2.69 2.69 -0.01 (0.37)% Cement Finisher 3.00 3.00 3.00 3.00 3.00 0.00 0.00% Cement Finisher Lead 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Chief Transportation Official 0.00 0.00 0.00 0.50 0.50 0.50 0.00% Contracts Administrator 0.60 0.60 0.60 0.60 0.60 0.00 0.00% Coordinator Transportation System Management 0.00 0.00 0.00 0.10 0.10 0.10 0.00% Engineer 2.70 2.70 2.70 2.08 2.08 -0.62 (22.96)% Engineer Technician III 2.30 2.40 0.50 0.50 0.50 0.00 0.00% Heavy Equipment Operator 0.20 0.20 0.20 0.20 0.20 0.00 0.00% Inspector, Field Services 0.00 0.00 0.67 0.47 0.47 -0.20 (29.85)% Landscape Architect Park Planner 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Management Analyst 1.25 1.50 1.50 1.49 1.49 -0.01 (0.67)% Manager Maintenance Operations 0.90 0.90 0.90 0.90 0.90 0.00 0.00% Manager Parking 0.00 0.00 0.00 0.00 0.70 0.70 0.00% Program Assistant I 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Project Engineer 3.80 3.80 4.85 5.09 5.09 0.24 4.95% Project Manager 0.50 1.00 1.20 1.20 1.20 0.00 0.00% Senior Engineer 2.55 2.00 2.00 1.09 1.09 -0.91 (45.50)% Senior Financial Analyst 0.60 0.60 0.60 0.00 0.00 -0.60 (100.00)% Senior Management Analyst 0.00 0.00 0.00 0.60 0.60 0.60 0.00% Senior Project Engineer 0.00 0.00 0.00 0.70 0.00 0.00 0.00% Senior Project Manager 0.00 0.90 0.90 0.90 0.90 0.00 0.00% Supervisor Inspection And Surveying 0.20 0.20 0.20 0.20 0.20 0.00 0.00% Surveying Assistant 0.11 0.11 0.00 0.00 0.00 0.00 0.00% Surveyor, Public Works 0.11 0.11 0.11 0.11 0.11 0.00 0.00% Total Capital 24.37 26.07 27.48 27.26 27.26 -0.22 (0.80)% Information Technology Administrative Assistant 1.07 1.00 1.00 1.00 1.00 0.00 0.00% Assistant Director Administrative Services 0.40 0.20 0.10 0.10 0.10 0.00 0.00% Business Analyst 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Desktop Technician 5.00 5.00 5.00 5.00 5.00 0.00 0.00% Director Administrative Services/CFO 0.35 0.20 0.10 0.10 0.10 0.00 0.00% Director Information Technology/CIO 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Management Analyst 0.50 1.00 1.00 1.00 0.00 -1.00 (100.00)% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET 441 Manager Information Technology 3.00 4.00 4.00 4.00 4.00 0.00 0.00% Manager Information Technology Security 0.00 1.00 1.00 1.00 1.00 0.00 0.00% Principal Business Analyst 0.00 0.00 0.00 0.00 1.00 1.00 0.00% Principal Management Analyst 0.00 0.00 0.00 1.00 0.00 0.00 0.00% Senior Business Analyst 2.00 2.00 2.00 0.00 2.00 0.00 0.00% Senior Financial Analyst 0.09 0.00 0.00 0.00 0.00 0.00 0.00% Senior Management Analyst 0.00 0.00 0.00 2.00 1.00 1.00 0.00% Senior Technologist 13.00 12.00 12.00 13.50 13.50 1.50 12.50% Technologist 3.00 3.00 4.00 2.00 2.00 -2.00 (50.00)% Total Information Technology 30.41 31.40 32.20 31.70 31.70 -0.50 (1.55)% Printing and Mailing Fund Buyer 0.05 0.05 0.00 0.00 0.00 0.00 0.00% Manager Revenue Collections 0.00 0.00 0.00 0.00 0.10 0.10 0.00% Offset Equipment Operator 1.52 1.52 1.52 1.52 1.52 0.00 0.00% Senior Financial Analyst 0.00 0.10 0.10 0.00 0.00 -0.10 (100.00)% Senior Management Analyst 0.00 0.00 0.00 0.10 0.00 0.00 0.00% Total Printing and Mailing Fund 1.57 1.67 1.62 1.62 1.62 0.00 0.00% Special Revenue Funds Account Specialist 0.50 0.50 1.55 1.55 1.55 0.00 0.00% Account Specialist-Lead 0.00 0.00 0.41 0.41 0.41 0.00 0.00% Administrative Associate II 0.20 0.20 0.40 0.20 0.20 -0.20 (50.00)% Building Serviceperson-Lead 0.00 0.00 0.20 0.20 0.20 0.00 0.00% Chief Transportation Official 0.00 0.00 0.10 0.00 0.00 -0.10 (100.00)% Community Service Officer 0.50 0.50 0.50 0.50 0.50 0.00 0.00% Electrician 0.00 0.00 0.20 0.20 0.20 0.00 0.00% Facilities Maintenance-Lead 0.00 0.00 0.15 0.15 0.15 0.00 0.00% Facilities Mechanic 0.00 0.00 0.45 0.45 0.45 0.00 0.00% Facilities Painter 0.00 0.00 0.25 0.25 0.25 0.00 0.00% Heavy Equipment Operator 0.00 0.00 0.29 0.29 0.29 0.00 0.00% Heavy Equipment Operator-Lead 0.00 0.00 0.29 0.29 0.29 0.00 0.00% Manager Community Services Senior Program 0.00 0.00 0.00 1.00 1.00 1.00 100.00% Manager Maintenance Operations 0.00 0.00 0.19 0.19 0.19 0.00 0.00% Manager Parking 0.00 0.00 0.00 0.00 0.10 0.10 0.00% Manager Revenue Collections 0.00 0.00 0.00 0.00 0.20 0.20 0.00% Planner 0.95 0.95 0.95 0.75 0.75 -0.20 (21.05)% Senior Financial Analyst 0.00 0.00 0.20 0.00 0.00 -0.20 (100.00)% Senior Management Analyst 0.00 0.00 0.00 0.20 0.00 0.00 0.00% Senior Project Engineer 0.00 0.00 0.00 0.10 0.00 0.00 0.00% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % 442 CITY OF PALO ALTO FISCAL YEAR 2015 ADOPTED BUDGET Street Maintenance Assistant 0.00 0.00 2.00 2.00 2.00 0.00 0.00% Street Sweeper Operator 0.00 0.00 1.04 1.04 1.04 0.00 0.00% Total Special Revenue Funds 2.15 2.15 9.17 9.77 9.77 0.60 6.45% Vehicle Replacement Fund Administrative Associate III 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Assistant Director Public Works 0.00 0.25 0.25 0.25 0.25 0.00 0.00% Assistant Fleet Manager 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Equipment Maintenance Service Per 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Fleet Services Coordinator 2.00 2.00 2.00 2.00 2.00 0.00 0.00% Management Analyst 0.00 0.20 0.20 0.20 0.20 0.00 0.00% Manager Fleet 1.00 1.00 1.00 1.00 1.00 0.00 0.00% Mobile Service Technician 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Motor Equipment Mechanic II 7.00 7.00 7.00 6.00 6.00 -1.00 (14.29)% Motor Equipment Mechanic-Lead 0.00 0.00 0.00 2.00 2.00 2.00 0.00% Project Manager 0.00 0.00 0.00 1.00 1.00 1.00 0.00% Senior Financial Analyst 0.08 0.08 0.08 0.00 0.00 -0.08 (100.00)% Senior Fleet Services Coordinator 1.00 1.00 1.00 0.00 0.00 -1.00 (100.00)% Senior Management Analyst 0.00 0.00 0.00 0.08 0.08 0.08 0.00% Total Vehicle Replacement Fund 16.08 16.53 16.53 16.53 16.53 0.00 0.00% Total Other 74.58 77.82 87.00 86.88 86.88 -0.12 (0.01)% Total Citywide Positions 1,016.60 1,015.35 1,019.35 1,033.80 1,026.80 7.45 0.73% Table of Organization FY 2012 Actuals FY 2013 Actuals FY 2014 Adopted Budget FY 2015 Adopted Budget FY 2015 Modified Budget FY 2015 Change FTE FY 2015 Change % City of Palo Alto (ID # 5527) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/9/2015 City of Palo Alto Page 1 Summary Title: Confirmation of Appointment of CSD Director Title: Confirmation of Appointment of Rob De Geus as Director of Community Services Department From: City Manager Lead Department: Human Resources RECOMMENDATION The City Manager recommends that the City Council approve the appointment of Rob De Geus as Director of Community Services. BACKGROUND Municipal Code Section 2.08.020 requires that the City Council approve the City Manager’s appointments to certain positions, including the Director of Community Services Department (CSD). DISCUSSION Rob De Geus was selected as a result of a national search conducted by the executive recruitment firm of Ralph Andersen & Associates. The City received 79 applications for the CSD Director position. Eight candidates were interviewed by two panels, made up of staff and community members. The City Manager selected Mr. De Geus based on his interviews and the recommendations of the interview panels and enthusiastically offered him the position, which he has accepted. Mr. De Geus is currently the Acting Director of CSD, and has worked for the City of Palo Alto in Community Services for 14 years in successive recreation, business and management positions. His starting date will be February 10, 2015. Please see the attached press release which outlines Mr. De Geus’s extensive experience. Mr. De Geus will be an outstanding addition to the Community Services Department at a very important time for the City. City of Palo Alto Page 2 RESOURCE IMPACT The annual salary for the Director of Community Services will be $185,000. Mr. De Geus’ employment as the Director will be at will, and all other benefits and terms are consistent with the Management & Professional Compensation Plan approved by Council. Attachments:  A: Rob de Geus - Press Release (DOC) NEWS RELEASE Contact: Claudia Keith Chief Communications Officer 650/329-2607 claudia.keith@cityofpaloalto.org January 29, 2015 For Immediate Release Rob de Geus Named Palo Alto Director of Community Services Palo Alto, CA – City Manager James Keene announced today that he has selected Rob de Geus to serve as the City’s next Director of Community Services, and will bring his appointment to the City Council on Feb. 9 for confirmation. He is a senior manager within Palo Alto’s Community Services Department and is currently serving as the Acting Director. The selection was made following a national search and recruitment process that included extensive input from the community. “Rob is the right person at the right time to lead Community Services in the City of Palo Alto,” said City Manager James Keene. “A community panel made up of Parks and Recreation commissioners, neighborhood representatives, and the executive leadership team of department heads all agreed that Rob was the top candidate. He is well respected and valued in our community and will continue to build on the strong relationships and programs that he has developed since he joined Palo Alto.” Born and raised in Melbourne, Australia, de Geus has always had a passion for parks, recreation and the arts. He joined the City of Palo Alto in 2000 as a Recreation Coordinator, and over the past 15 years has held positions of increasing responsibilities within the Community Services Department. He served as an Assistant Director of the Parks and Recreation division prior to being named as Acting Director following the retirement of department head Greg Betts. In that time de Geus has managed many functional areas of the department including Parks and Recreation programs, Special Events, Palo Alto Junior Museum and Zoo, Municipal Golf Course, Community Centers, Aquatics and Youth and Teen programs, among other services. Areas of focus and passion for de Geus include community health and wellbeing, accessibility, innovative public private partnerships and public service. A valued liaison to numerous Palo Alto boards, commissions and interest groups including the Parks and Recreation Commission, Palo Alto Recreation Foundation, and Golf Advisory Board, de Geus has been a key member of the collaborative work of Project Safety Net, and also serves as a board member of the Palo Alto Family YMCA. “Palo Alto is an exceptional city and it is an honor and privilege to service the residents and community,” said de Geus. “I look forward to working with citizens and staff on a wide variety of programs, services and park projects to continue improving the quality of life in Palo Alto.” He holds a bachelor’s degree in Business and master’s degree in Public Administration from San Jose State University. His salary will be $185,000. City of Palo Alto (ID # 5518) City Council Staff Report Report Type: Action Items Meeting Date: 2/9/2015 Summary Title: Establishment of an Office/R&D Annual Growth Limit - continuation Title: Discussion and Direction to Staff Regarding Establishment of an Office/R&D Annual Growth Limit (Item Continued from January 26) From: City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that the City Council discuss its objectives and issues associated with establishment of an annual limit on office/R&D development, and provide direction to staff regarding next steps which may include: 1. identifying alternative approaches or annual limits on office/R&D development that can be further defined and evaluated as part of the Comprehensive Plan Update process, for example: a. an annual limit of 35,000 or 50,000 net new square feet of office/R&D per year, with a competitive process for project approvals each year that applications exceed the limit; and/or b. slowing the pace of office/R&D development by imposing a more robust impact fee program. 2. Identifying zoning changes or requirements that can be considered for adoption on an interim basis until an annual limit or alternative approach to addressing the pace of office/R&D development can be adopted concurrent with the Comprehensive Plan Update. For example: a. requiring on-site parking, funding for a transportation management association, or other approaches to address traffic and parking demand associated with development; or b. a temporary reduction in allowable office densities (floor area ratio or FAR). Executive Summary One of the intriguing policy ideas that came up during the Comprehensive Plan workshops in the summer of 2014 was the idea that the City should somehow moderate or meter the pace of City of Palo Alto Page 1 non-residential development. The idea was to manage growth by having an annual limit on office development, rather than by relying on an overall multi-year cumulative “cap” on non- residential square footage like the one that the current Comprehensive Plan establishes for the Downtown (Program L-8) and the City (Policy L-8). This idea was advanced by staff as a concept worthy of exploration during the Comprehensive Plan Update. Then on December 8, 2014, the City Council directed staff to schedule a Council work session to give them an opportunity to consider and discuss the idea further. Tonight’s work session responds to this directive and this staff report focuses on a couple of big-picture questions, which could guide the Council’s discussion; Specifically:  What are the objectives of establishing an annual limit program, and are there various ways those objectives could be met?  What issues would have to be resolved to establish such a program? In addition, staff expects that the City Council will wish to discuss potential interim measures that can be pursued until an annual limit (or alternative approach) can be adopted. These interim measures could include new requirements for office/R&D development proposals (e.g. on-site parking, transportation management association funding, or a reduction in FAR unless affordable housing is included as part of a mixed use development.) Supporting information includes a memo (first prepared for the December 8, 2014 Council meeting) summarizing annual limit programs in three other jurisdictions, and another memo describing two datasets that are available to inform the Council’s discussion about the annual rate of office/R&D development over time. (See Attachments A and B) Background Please see Attachment A for background information regarding other jurisdictions with some form of annual growth limit on non-residential development. Attachment A also discusses the potential timing for establishment of an annual limit, and outlines some of the issues that would have to be resolved to put a limit in place. Please see Attachment B for background information regarding datasets available to characterize the pace of non-residential development over time in Palo Alto, as well as the sum total of pending (“pipeline”) development applications; It’s also important to recognize that increases in employment, which are credited with creating additional traffic and parking demand, are not directly proportional to new development of office/R&D. This is because there are other types of non-residential development that generate jobs (as explained in Attachment B) and, more importantly, the number of employees per square foot of existing building space fluctuates over time based on the economic climate and the demand for office space. The true relationship between jobs and square footage in Palo Alto will not be fully understood until the business registry is in place for one or two City of Palo Alto Page 2 business cycles. As noted in Attachment B, the City has approved significant medical uses which will come on line, related mostly to the Stanford Hospital Project, and have impacts in the coming years, although this report does not propose or discuss limits on such uses. This report also does not propose or discuss limits on housing development as such regulations can be legally problematic and staff was not directed to pursue these. Discussion Development and establishment of a growth management program with annual development restrictions will require careful consideration of program objectives, pros/cons, as well as the issues and mechanics of the program. Some initial thoughts on these topics are provided below for the Council’s consideration; What are the objectives of establishing an annual limit program, and are there various ways those objectives could be met? Attendees at the Comprehensive Plan workshops last summer expressed some frustration that the current Comprehensive Plan’s approach to growth management (i;e; an overall “cap” on non-residential development) has been ineffective at moderating the pace of growth and development in the robust economic recovery following the “great recession;” Based on this frustration and an examination of growth management strategies in use elsewhere in California, attendees suggested planning scenarios with a growth management program that moderated or metered the rate of development rather than the overall amount. This focus on the rate of development had its genesis in the impacts associated with increased employment in the City as experienced by Palo Alto residents. Impacts include traffic congestion/delay, parking demand, increased housing costs, and more. Additionally, an annual limit can be response to the ups and downs of the business cycle. Thus, the objective of an annual limit program would be to moderate the rate of non- residential development so as to reduce the rate of employment growth, reduce related impacts and allow for effective mitigation of residual impacts. Establishing an annual limit program could also ensure that the development approved under the program meets stringent requirements related to “good” planning and design, public benefit, etc., etc. Program objectives could be met by establishing an annual limit on square footage such as the one in San Francisco and Walnut Creek, or by establishing a limit on net new auto trips such as the one in Santa Monica. (All three examples are cited in Attachment A). Alternatively, this objective could be met by establishing new, stringent requirements on development, and/or by increasing the cost of development to better compensate for its impacts, for example by significantly adjusting housing and transportation impact City of Palo Alto Page 3 fees. (In theory, once the business registry is in place, the City could also consider ways to directly regulate new employment, but staff would need to do some additional research into the legal and implementation issues associated with this approach, as well as any comparable programs in other jurisdictions.) What issues would have to be resolved to establish such a program? As indicated in Attachment A, there are quite a number of issues that would need to be resolved if the City Council wished to adopt an annual limit on office/R&D development, not least of which would be to decide what the limit should be, and what procedures should be used to implement the limit on an annual basis. Staff has provided some initial thoughts on each below. What should the annual limit be? The data in Attachment B has been provided to inform this discussion and show that the rate of non-residential development in Palo Alto has varied over time. Specifically, if the Congestion Management Program (CMP) data is used, the annual rate of office/R&D development has been around 34,000 square feet per year if you look at the period from 2001-2015, about 67,000 square feet per year if you look at the period from 2008-2015, and about -2,800 square feet per year if you look at the period from 2001 to 2007 (because non-residential space was removed and replaced with housing in this period). The CMP data set separates office/R&D from other non-residential uses, including retail and medical office, and thus may provide a better basis for this discussion than the monitoring data which was initially presented in the August 29, 2014 Existing Conditions Report. (The August data set, which has been updated in Attachment B, presents the combined non-residential square footage within nine planning areas that are a legacy of the 1989 Citywide Study.) What should be the process and criteria for receiving and considering applications? Attachment A provides some explanation of the approaches in Walnut Creek, which uses a first-come-first served staff-implemented approach, and San Francisco, which has relied on their Planning Commission to decide between competing proposals using specific criteria in times when pending applications have exceeded the available allocation of square footage. Should there be a geographic component to the program? The City has historically monitored and regulated downtown Palo Alto separately from the rest of the City and should consider whether this continues to be a valuable practice. Should some areas of the City or types/sizes of projects be exempt? Walnut Creek exempts a business park where they would like development to occur from their program. Palo Alto does not have a comparable area where development is desired and where that development would not cause the impacts that the annual develop limit is intended to address. Nonetheless, the idea of exempting areas that are some distance City of Palo Alto Page 4 from residential areas could be explored further. Also, the idea of exempting small projects (less than 5,000 square feet?) could be explored as a way to protect the City’s reputation for supporting innovation and start-up businesses. Further, limited exemptions for vacant properties or highly under-utilized properties might be necessary in order to avoid legal challenges. Should unused allocations roll forward for some period of time? If the allocations were to roll forward indefinitely (as in San Francisco), there may be concerns as to whether the program objectives had been addressed. However, if unused allocations roll forward for at least several years (as in Walnut Creek), it would serve to level-out volatile economic upswings and downturns. How would applications already in the “pipeline” be handled? This would depend on how and when an annual limit is established and will require careful consideration. How would the City ensure continued conformance with the Permit Streamlining Act? We can look to San Francisco and Walnut Creek as models. In San Francisco, completed applications that did not receive an allocation under the annual limit are either continued to the next allocation period or denied, depending on the wishes of the applicant. What changes would be needed to the City’s Comprehensive Plan and zoning? Please see the Policy Implications section below for a brief overview. What would the potential impacts and benefits of the program be? As noted in the Timeline section below, conceptual approach(s) developed by the City Council will be reviewed to determine their potential fiscal and environmental impacts and benefits to the extent feasible. Timeline Adoption of an annual limit on office/R&D development would require considerable discussion and deliberations by the City Council and is likely to be controversial, requiring significant outreach to stakeholders and the community at large. Stanford University has already pointed out how the annual rate of development in the Research Park has fluctuated dramatically over time, and that opportunities would have been lost to Stanford and Palo Alto if an annual limit had constrained development in certain years. Because of the potential for controversy and the need for ample community input, staff assumes that the City Council would like to explore a couple of different approaches/annual limits, and that these would be defined in the first few months of 2015 and evaluated as part of the Comprehenisve Plan Update process. Next steps in the Comprehensive Plan Update process include a community “summit” in May 2015, preparation of a program-level environmental analysis (Draft EIR) and a fiscal study that can be used to inform community City of Palo Alto Page 5 discussions and decision making. The current schedule calls for completion and adoption of the Comprehensive Plan Update and concurrent zoning changes in the first part of 2016. Given this timeline, staff expects that the City Council will wish to discuss potential interim measures (such as those suggested earlier in this report) that can be pursued until an annual limit (or alternative approach) can be adopted. Resource Impact As noted above, adoption of an annual limit on office/R&D development would require considerable discussion and deliberations by the City Council. These deliberations in turn would require considerable staff support and analysis. Also, if a growth management program with an annual limit on office/R&D development is ultimately adopted, implementation of the program each year will require considerable staff time and time on the City Council’s agenda; The City may also wish to contract with a third party to conduct an independent review of competing proposals that seek an allocation under the annual limit. Larger fiscal impacts of a growth management program will have to be assessed carefully. At a minimum, the assessment will have to consider likely reductions in permit revenues and impact fees, potential longterm impacts to the City’s tax revenues and expenses, and a qualitative discussion of the impact on the City’s overall economic “climate;” The extent and nature of fiscal impacts will, of course, depend on the approach(es) that the City Council elects to consider, and the analysis can potentially be combined with a fiscal study of other policy choices inherent in the Comprehensive Plan Update. Planning staff is currently working with staff in the Administrative Services Department to define the scope of this study, which will have to look at expected revenues from commercial and residential property taxes, sales taxes and other sources, as well as the cost of services over time. Preparation of some kind of interim ordinance for the City Council’s consideration and adoption for the period during which an annual office/R&D limit (or other approach) is being analyzed, is potentially time consuming and resource intensive. Thus it may affect delivery of other priorities. Policy Implications If the City adopts a growth management program with an annual limit on office/R&D development, the program would effectively implement Comprensive Plan Policy B-1: “Use a variety of planning and regulatory tools, including growth limits, to ensure that business change is compatible with the needs of Palo Alto neighborhoods.” Nonetheless, it is likely that a new growth management program would require an amendment to the Comprehensive Plan as well as the City’s Municipal Code; The Comprehensive Plan amendment would likely modify or replace policies and programs that establish an overall “cap” on non-residential development in the Downtown (Program L-8) and the Citywide planning areas identified on Comprehensive Plan Map L-6 (Policy L-8), and would also have to City of Palo Alto Page 6 consider compatibility with policies like Policy B-9: “Encourage new businesses that meet the business and economic goals to locate in Palo Alto.” The Municipal Code amendment would have to establish the procedures and standards associated with the new growth management program. Environmental Review This work session is intended for City Council discussion and direction to staff. No final action will be taken and thus no review is required under the California Environmental Quality Act (CEQA). If the Council elects to proceed with establishment of an annual limit or another growth management program at some time in the future, that decision (in the form of implementing policies and regulations) will require CEQA review. Adoption of an interim ordinance or other temporary zoning requirement may also require environmental review depending on the duration and scope of the changes. The level and complexity of environmental review will depend on the nature of the program(s) and its potential to directly or indirectly stimulate a particular kind of development or focus development in a specific area. For example, limiting the development of office/R&D in Palo Alto could stimulate housing development if property owners see that as a way to increase the value of their property. Also, the City would have to consider whether limiting the development of office/R&D development in Palo Alto could focus additonal office/R&D development in adjacent communities.1 Attachments:  Attachment A: Memorandum Regarding Annual Limit on Office/R&D (PDF)  Attachment B: Comp. Plan Memo on Growth Trends (PDF)  Attachment C: Documents Received "At Places" at the January 26, 2015 City Council meeting (PDF) 1 While CEQA does not require a lead agency to speculate where specfic impacts cannot be reasonably anticipated, the City would have to at least consider this question. City of Palo Alto Page 7 Attachment A CITY OF PALO ALTO MEMORANDUM TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER & DIRECTOR OF PLANNING & COMMUNITY ENVIRONMENT AGENDA DATE: December 8, 2014 ID#: 5286 SUBJECT: COMPREHENSIVE PLAN UPDATE & ZONING CHANGES: ANNUAL LIMIT ON OFFICE/R&D DEVELOPMENT At the November 3, 2014 City Council meeting, a Councilmember asked whether the suggested Council work session regarding establishment of an annual limit on office/R&D could consider adoption of an annual limit as an interim ordinance. Subsequently, the same Councilmember also asked staff to provide information regarding other jurisdictions with annual office limits immediately, rather than as preparation for the January work session. This memo responds to both questions/requests and will be supplemented by additional staff analysis and a staff recommendation in advance of the January work session. Specifically, staff and the City Council will have to explore a number of issues when considering establishment of an annual limit on office/R&D development. At a minimum, these include the following: (1) what the annual limit should be; (2) what the process and criteria for receiving and considering applications should be (i.e. should applications be considered in the order received, or based on some criteria establishing preferences; what should those criteria be?); (3) whether there should be a geographic component to the program; (4) whether some areas of the City or types/sizes of projects should be exempt; (5) whether unused allocations should roll forward for some period of time; (6) how to handle applications already in the “pipeline-” (7) how to ensure continued conformance with the Permit Streamlining Act; (8) necessary changes to the City’s Comprehensive Plan and zoning; and (9) potential impacts and benefits. CAN THE COUNCIL CONSIDER AN ANNUAL OFFICE CAP AS AN INTERIM ORDINANCE? The short answer is yes, the Council could consider adoption of an annual cap on office/R&D development under the provision in State law (Government Code Section 65858) which allows cities to temporarily prohibit any uses that may be in conflict with a contemplated general plan, specific plan, or zoning proposal that the city is studying or intends to study within a reasonable time. To enact an interim ordinance, a 4/5 vote (8 votes) would be required, and the City Council would have to make legislative findings that there is a current and immediate threat to the public health, safety, or welfare, and that the approval of additional development would result in that threat to public health, safety, or welfare. An interim ordinance is effective for 45 days, after which it may be extended, but in no instance may it be in effect for over two years. An interim ordinance does not require review by the Planning and Transportation Commission and many are exempt from review under the California Environmental Quality Act (CEQA). This is because interim ordinances are temporary and many, in practice, perpetuate the status quo. To the extent this is not the case, additional review may be required. It should be noted again, however, that there are many complexities that would need to be resolved to establish an annual office limit, suggesting that considerable time and effort will be involved. Whether it’s adopted as an interim ordinance or concurrent with the Comprehensive Plan Update, an annual limit is also likely to cause concern by property owners in areas zoned for commercial use, resulting in the need for extended outreach, public hearings, and etc. Stanford University has already voiced its concerns about the effect that an annual office limit could have on the Research Park. WHAT OTHER JURISDICTIONS HAVE AN ANNUAL OFFICE CAP? Earlier this year, the City’s Comprehensive Plan consultants, Placeworks, gathered information regarding a number of growth management systems used by California jurisdictions to meter the amount or pace of non-residential development. They identified communities that, like Palo Alto, have some kind of cap on non-residential development (for example Cupertino), as well as communities that have attempted to cap residential development (for example Pleasanton). Page 2 December 2, 2014 Memo RE: Annual Limit on Office/R&D Placeworks identified Walnut Creek and Santa Monica as two jurisdictions that have implemented programs to govern the pace of non-residential development, and these programs are summarized below, along with the program in place in San Francisco. These three examples are presented for background information only, and are not intended as a recommendation to adopt one or more of these strategies. As the Placeworks staff observed, any program adopted in Palo Alto would need a high degree of customization to fit its unique local conditions. In addition, if a program is developed for Palo Alto, it would require careful legal analysis to ensure that it can operate effectively in tandem with the State’s Permit Streamlining Act and withstand legal challenge. Walnut Creek Walnut Creek has regulated commercial growth since 1985, when voters approved Measure H, a growth-control initiative that would have limited or prevented non-residential development until traffic congestion at major intersections improved. Measure H was a reaction to resident concerns about traffic and the construction in the late 1970s and early 1980s, when a number of large commercial office buildings in downtown Walnut Creek, primarily around the Walnut Creek BART station. A major local landowner sued the City, and the case eventually went to the California Supreme Court. In 1990, the Court ruled that Measure H was invalid because it functioned as a zoning ordinance but conflicted with the City’s adopted General Plan, which called for Walnut Creek to be a regional job and retail center. Although Measure H was invalidated, the City continued to regulate the amount of commercial and residential development allowed each year, acknowledging the residents’ desire to meter growth in Walnut Creek. In 1993, the City Council adopted a Growth Limitation Program that limited new commercial growth to 75,000 square feet per year, metered in increments of 150,000 square feet every 2 years, and was adopted for 10 years. The program helped the City to limit growth to 620,000 square feet of new commercial development in the first 10 years (1993-2003), and was extended through 2015 in the City’s 2005 General Plan Update. The Growth Limitation Program excludes the Shadelands Business Park.1 1. Does the system include an annual limit on non-residential approvals? If so, how is that set? Changed? Enforced? 1 City of Walnut Creek, Walnut Creek General Plan 2025, page 4-13. Available online at http://www.walnut- creek.org/citygov/depts/cd/planning/documents/general plan 2025.asp. Page 3 December 2, 2014 Memo RE: Annual Limit on Office/R&D Yes. The Walnut Creek Growth Management Program includes a cap of 75,000 commercial square feet/year metered in 2-year increments. Therefore allocations for 150,000 square feet of commercial development are available in each two year cycle. The cap is set in the General Plan (which incorporated an earlier Growth Limitation Program from the 1990s). It is enforced by the Planning Division. Staff tracks available allocation and a building permit cannot be issued unless an allocation is available. If the building permit is allowed to expire prior to construction, the allocation is revoked and returns to the pool. Unused allocations from one cycle are rolled over to the next cycle. Project applicants get credit for any existing commercial SF that would be demolished with construction of their project. 2. Does the system include a competitive point system pitting projects against each other? Are any categories of project exempted (e.g. certain type of industry, projects under 10k sf)? How much flexibility is there? There is no “beauty contest” type competition. Allocations are awarded on a first-come, first-served basis when the project planner deems a project application complete. Development in the Shadelands Business Park on the eastern edge of the City and specific types of Community Facilities are exempt from the Growth Management Program. Additionally, the Planning Manager can grant exemptions to larger, more complex projects so that their allocation can be reserved for longer than the 12-month period for which allocations are usually reserved. The system had a fair degree of flexibility built in – not in the cap, but rather in how it is calculated and implemented. Calculating the cap in 2-year increments of up to 150,000 sf offers some flexibility; as does carrying forward the unused allocation. In addition, the system allows project applicants to reserve allocations as soon as their application is deemed complete, with the possibility of having that reservation extended at the discretion of the Planning Manager for larger, more complex projects. Santa Monica Goal T19 in the Santa Monica Land Use and Circulation Element (LUCE) of the Santa Monica General Plan (adopted in 2010) is to “Create an integrated transportation and land use program that seeks to limit total peak period vehicle trips with a Santa Monica origin or destination to 2009 levels.” This goal is also known as the “No Net New Evening Peak Period Vehicle Trips” goal. The LUCE focuses not only on reducing vehicle trips, but also on encourage walking, bicycling and transit use, creating pedestrian-oriented neighborhoods, and reducing greenhouse gas emissions. The LUCE foresees the creation of a multi-modal transportation system and “identifies local strategies to manage trips, treating the entire City as an integrated Page 4 December 2, 2014 Memo RE: Annual Limit on Office/R&D transportation management system with aggressive requirements for trip reduction, transit enhancements, pedestrian and bike improvements, and shared parking. Transportation demand management (TDM) programs that reduce automobile travel demand and incentivize alternative modes such as carpool, vanpools, and shuttles, walking, bicycling, and shared parking are all encouraged.”2 The LUCE calls for the City to manage new trips from new development and reduce trips from existing major employers. New trips must be offset through the development of new transportation infrastructure providing alternatives to automobile travel, including public transit, bicycling, ridesharing, and walking. The LUCE also contains a list of transportation policies, projects, and programs that are necessary to accommodate projected growth with no net increase in PM peak hour vehicle trips through 2030. The LUCE identifies the establishment of fees as a tool to manage vehicle trips and increase alternative transportation options. The LUCE states that “New projects will be required to minimize the trips they generate and contribute fees to mitigate their new trips.” However, the LUCE also states that “To achieve the No Net New Trips goal, developers cannot be expected to have every project generate zero trips by itself;” rather, developers will pay mitigation fees that will fund capital improvement projects citywide, such that the net impact of each development project ultimately is zero. Fees will be used for improvements that benefit the City’s transportation system overall, such as additional buses to increase frequency, improved walking routes and new bike lanes.”3 The provision that the City as a whole will achieve no net new trips by 2030, but that individual projects will not be required to generate no net new trips, has created some confusion and concern among Santa Monica residents as the LUCE is implemented. 1. Does the system include an annual limit on non-residential approvals? If so, how is that set? Changed? Enforced? No. Santa Monica’s growth management program resembles a performance measure, rather than an annual limit, and the City is still developing the zoning ordinance that will implement the program set forth in its General Plan. 2 City of Santa Monica, Transportation Impact Fee Nexus Study (Final), April 2012. Page 1-3. Available online at http://www.smgov.net/uploadedFiles/Departments/PCD/Transportation/Developers/Santa-Monica-Nexus- Study.pdf 3 City of Santa Monica, Land Use and Circulation Element, July 2010. Page 4.0-12. Available online at http://www.smgov.net/uploadedFiles/Departments/PCD/Plans/General-Plan/Land-Use-and-Circulation- Element.pdf Page 5 December 2, 2014 Memo RE: Annual Limit on Office/R&D 2. Does the system include a competitive point system pitting projects against each other? Are any categories of project exempted (e.g. certain type of industry, projects under 10k sf)? How much flexibility is there? It does not appear that Santa Monica envisions projects competing against each other for allocations. Instead, projects that cannot achieve the “No Net New Trips” goal on their own can pay into a fund for investments that will offset their trips. San Francisco San Francisco’s Downtown Plan dates from 1985 and included the City’s first annual cap on office development, which was intended as a temporary measure. This original office cap was modified and extended by the voters when Proposition M was adopted in 1986. The annual growth limit is codified in Section 320-25 of the City’s Zoning Code and from time to time, the City’s Planning Commission has adopted implementing policies and procedures. 1. Does the system include an annual limit on approvals? If so, how is that set? Changed? Enforced? San Francisco has two office caps, one for small projects and one for larger ones. The “small” cap is 75,000 square feet per year and applies to projects between 25,000 and 50,000 square feet. The “large” cap is 875,000 square feet per year and applies to projects over 50,000 square feet. The two annual office limits were set by the voters and cannot be changed except with voter approval, although the Planning Commission has been able to adopt implementing policies and procedures as needed. Unused allocations roll forward indefinitely, and the annual cap has only been a constraint on development in periods like the dot com boom, when new office development proposals exceeded the available allocation. In the current tech boom, San Francisco is once again in this situation and the Planning Department has started discussions about policies and procedures to implement the annual limit. 2. Does the system include a competitive point system pitting projects against each other? Are there any categories of project exempted (e.g. certain type of industry, projects under 10k sf)? How much flexibility is there? Prop M itself did not include a competitive system, but the City Planning Commission has had to establish procedures to compare and select among projects when the number of projects exceed the available allocation. For example, in the 1990s, the City conducted a “beauty contest” in which large office projects competed with each other for the annual allocation. Each application was subject to analysis and environmental Page 6 December 2, 2014 Memo RE: Annual Limit on Office/R&D review, and the Planning Commission compared the projects to each other before approving one or more. Applicants whose projects were not approved had the choice to either request continuance to the next evaluation period, or to have their projects denied. The Planning Department has recently begun discussing implementation of a revised competitive process, which is expected to focus on “good planning” issues such as proximity to transit and housing displacement rather than aesthetics or public benefits. In fact, Prop M prohibits the City from considering monetary contributions in any competition, by stating that “Payments, other than those provided for under applicable ordinances, which may be made to a transit or housing fund of the City, shall not be considered.” Office projects less than 25,000 square feet are exempted from San Francisco’s annual limit, as are City projects. State, Federal, Port, and Redevelopment Agency projects are not exempt, and reduce the allocation available for private development projects. Page 7 December 2, 2014 Memo RE: Annual Limit on Office/R&D Attachment B - CITY OF PALO ALTO MEMORANDUM TO: HILLARY GITELMAN, Director, Planning & Community Environment FROM: ROLAND RIVERA, Land Use Analyst DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT AGENDA DATE: January 26, 2015 ID#: 5404 SUBJECT: Background information and data sets associated with establishment of an annual limit on office/R&D development. Per your request, the following data analysis describes the data sets regarding non-residential development that are available to inform discussions of an “annual limit” on office/R&D. The analysis presents two data sets: one grew out of Policy L-8 of our current Comprehensive Plan and the other derives from Santa Clara County’s Congestion Management Program (CMP). Key element of the approved work program for the Comprehensive Plan Update involve establishing baseline conditions utilizing new development data and identifying a realistic growth rate for development through 2030. Understanding the details and some of the limitations of the Commercial Growth Limit specified in the Comprehensive Plan Policy L-8 data set may be useful in both endeavors. Another, more straightforward, data set is derived from the City’s annual report to the Santa Clara County Valley Transportation Authority (VTA). The CMP’s Annual Land Use Monitoring Report requires that Member Agencies provide the VTA with information on all development projects approved/entitled during the fiscal year. Please review the following background information and summaries on the data sets and let me know if you have any questions. Thank you. 1989 Citywide Study and the Comprehensive Plan Policy L-8 Data A Citywide Study adopted in 1989 was an important summation of the numerous planning studies that were undertaken by the City in the 1980's. The focus of these studies was to address non-residential development and ways to improve the provision of housing and the jobs/housing imbalance. At the time, the City was experiencing commercial growth but residential growth was very limited. The 1989 Citywide Study divided the City's non-residential areas into nine analysis areas (1989 Citywide Study Area Map), which were subsequently adopted as Map L-6 in the current Comprehensive Plan. The development potential for Palo Alto identified in the Citywide Study was 3,257,900 square feet; however, that development potential did not include some Planned Community zones and public facilities such as City Offices and the Veteran's Administration Hospital, which were termed “not- monitored areas.” In 1996, the City Council asked the Policy and Services Committee to study the issue of Citywide non- residential development "limit" for the nine analysis areas and determine how to incorporate thelimit into the Comprehensive Plan. On April 1996, the City Council approved the Policy and Services Committee's recommendation to include the Citywide Study's overall future development square footage within Policy L-8 and Program L-7 into the Comprehensive Plan. POLICY L-8: Maintain a limit of 3,257,900 square feet of new non-residential development for the nine planning areas evaluated in the 1989 Citywide Land Use and Transportation Study, with the understanding that the City Council may make modifications for specific properties that allow modest additional growth. Such additional growth will count towards the 3,257,900 maximum. PROGRAM L-7: Establish a system to monitor the rate of non-residential development and traffic conditions related to both residential and non-residential development at key intersections including those identified in the 1989 Citywide Study and additional intersections identified in the Comprehensive Plan EIR. If the rate of growth reaches the point where the citywide development maximum might be reached, the City will reevaluate development policies and regulations. Policy L-8 aims to "Maintain a limit of 3,257,900 square feet of new non-residential development for the nine planning areas evaluated in the 1989 Citywide Land Use and Transportation Study," and Program L- 7 implements Policy L-8 by establishing a system to monitor the rate of non-residential development in the areas identified in the 1989 Citywide Land Use and Transportation study. Importantly, Program L-7 calls for monitoring non-residential development within the nine planning area boundaries but does not distinguish between the different types of non-residential development within those areas. Attachment A presents the annual monitoring data for all types of non-residential development collected pursuant to Program L-7 from 1989 to the present and total square footages are shown below. In both cases, the non-residential square footage is net floor area and does not include floor area that replaces demolished floor area.1 Table 1, Non-Residential Development Potential in the Nine Planning Areas per Policy L-8 Development Potential per Comprehensive Plan Policy L-8 Net square feet increase 1989 to December 2014 for the nine planning areas* Remaining in Growth Monitoring Development Potential 3,257,900 1,400,367 1,857,533 *Non-Residential net change in square feet based on Planning Entitlements from 1989 -2014. Data excludes Mayfield Development Agreement Projects which demolishes approximately 323k of non-residential square feet and replaces 300k of demolished square feet into Stanford Research Park Source: Planning and Community Environment, December 22, 2014 As shown in Attachment A, when non-residential development projects currently in the entitlement process (“pipeline projects”) are included, an additional 139,524 non-residential square feet could be entitled or approved within the nine planning areas, affecting the totals as shown below. Table 2, Non-Residential Development Potential in the Nine Planning Areas per Policy L-8 with “Pipeline Projects” Development Potential After Citywide Study Net square feet increase 1989 to December 2014 for the nine planning areas including Pipeline Projects* Remaining in Growth Monitoring Development Potential 3,257,900 1,539,891 1,718,009 *Non-Residential net change in square feet based on Planning Entitlements from 1989 -2014 and current pipeline projects. Data excludes Mayfield Development Agreement Projects which demolishes approximately 323k of non-residential square feet and replaces 300k of demolished square feet into Stanford Research Park. Source: Planning and Community Environment, December 22, 2014 As noted before, there are areas within the nine planning areas that are considered “not monitored” including some Planned Community zones and public facilities. Approvals within the “not monitored” areas currently amount to approximately 1million square feet which includes expansion of the Veterans Administration Hospital, Palo Alto Medical Foundation, Stanford Cancer Research Center and other facilities identified as “not monitored” in Map L-6. One of these “not monitored” areas includes the Stanford University Medical Center (SUMC) facility. On June 6, 2011, Council amended Policy L-8 to include language exempting the Medical Center’s expansion from the policy and amended Map L-6 to expand the “not-monitored” area to be coterminous with the boundaries of the “Hospital District” zoning district. The 1.3 million square feet entitled SUMC expansion is not reflected in Attachment A or 1 Attachment A is an updated version of the Table 8-3 in the August 29, 2014 Existing Conditions Report. An error has been corrected in data for years 2001, 2008, 2012, and 2013 and “pipeline” information has been updated as described further later in this memo. Table 8-3 of the Existing Conditions Report because build-out and occupancy is expected in the future. If it had been included, the 1.3 million square feet SUMC expansion would be listed as ‘not-monitored’ in the year 2011, when the development agreement was approved. Assuming all pipeline projects are entitled, the net square feet increase within the last 27 years (1989- 2015) could be approximately 1.5 million square feet or an average annual increase of approximately 57,000 square feet per year. The following table details average annual non-residential growth within the nine planning areas. Table 3: Annual Average Non-Residential Growth within the Nine Planning Areas per Policy L-8 Years Total Non-Residential net square feet increase Average Annual Growth (total/# of years) 1989 – 2015 1,539,891 57,033 1989 – 2007 721,074 37,951 2008 – 2015 818,817 102,352 Source: Planning and Community Environment, December 22, 2014 Projects converting non-residential to residential uses, such as 901 San Antonio Ave, 901 and 1101 East Meadow Blvd, Hyatt Rickey’s (4219 El Camino Real), contributed to the significantly lower non- residential development from 1998-2007. Policy L-8, Program L-7, and Attachment A can inform discussions regarding the amount and pace of non-residential development, but there are significant limitations to the data which should be understood. First, as noted above, Policy L-8 and the monitoring program do not distinguish between various types of non-residential development, so the square footages presented include retail and medical offices as well as general office/R&D. Secondly, monitoring is limited to the nine planning areas as defined by Map L-6, and the City increasingly has seen some development outside of these areas. For example, the project at 441 Page Mill Road which will be considered by the City Council in January, falls outside of the nine planning areas and thus is not included in the “pipeline” numbers presented here. Source: Planning and Community Environment, December 22, 2014 The CMP dataset can inform the discussions regarding non-residential development, and does not have some of the disadvantages of the Policy L-8 data described above. The CMP dataset contains citywide development information, and is collected by fiscal year as opposed to calendar year. But it does provide useful information about different non-residential land use categories. Table 5, below summarizes the key points of the Policy L-8 and the CMP datasets. Table 5: Summary of Policy L-8 and CMP Datasets Policy L-8 Dataset CMP Dataset Timeline 1989-2014 plus 2015 pipeline projects FY 2001-FY 2014 plus 2015 pipeline projects Geography Nine Planning Areas as shown on Map L-6 Citywide Non-Residential Land Use Categories Total of all Non-Residential square footage Contains information on Different Non-Residential Land Use Categories (e.g. retail, office/R&D, Hotel, etc) Exemptions Areas within the nine planning areas that are considered “not monitored” including some Planned Community zones and public facilities. None Source: Planning and Community Environment, December 22, 2014 "U U B D I N F O U  # 20 1 3 M o n i t o r i n g a n d C o n f o r m a n c e Ex h i b i t 4 Pa g e 1 o f 1 AN N U A L L A N D - U S E M O N I T O R I N G S U M M A R Y Me m b e r A g e n c y : Ci t y o f P a l o A l t o Mo n i t o r i n g P e r i o d : 07 / 0 1 / 1 2 - 0 6 / 3 0 / 1 3 1 2 3 4 5 TA Z * L- U NU M B E R O F D W E L L I N G U N I T S NU M B E R O F CO M M E R C I A L / I N D U S T R I A L SQ U A R E F E E T NU M B E R O F A C R E S (Z o n i n g C h a n g e O n l y ) 3a 3b 3 c 4a 4 b 4 c 5a 5 b 5 c Nu m b e r Cl a s s Ap p r o v e d Re m o v e d Ne t A d d e d Ap p r o v e d Re m o v e d Ne t A d d e d Ap p r o v e d Re m o v e d Ne t A d d e d 42 9 C3 12 7 , 0 6 3 22 8 , 9 8 6 -1 0 1 , 9 2 3 43 1 C5 19 , 9 6 0 0 19 , 9 6 0 43 1 R2 2 0 2 43 7 C5 14 , 5 6 7 4, 5 8 8 9, 9 7 9 44 3 P3 31 3 5 3 24 6 7 8 66 7 5 45 8 C5 0 67 , 0 0 0 -6 7 , 0 0 0 45 8 M2 11 6 , 0 0 0 0 11 6 , 0 0 0 46 5 C3 0 1. 5 7 -1 . 5 7 46 5 P2 1. 5 7 0 1. 5 7 46 5 P2 51 , 9 4 8 0 51 , 9 4 8 46 6 R2 3 3 0 49 9 P1 2, 3 1 9 0 2, 3 1 9 51 4 M1 5, 6 7 2 1, 9 4 1 3, 7 3 1 51 7 R1 0 0. 6 2 -0 . 6 2 51 7 C2 3, 2 5 0 2, 5 2 2 72 8 0. 6 2 0 0. 6 2 52 0 C5 0 3, 2 0 0 -3 , 2 0 0 52 0 C6 22 , 9 5 7 0 22 , 9 5 7 52 2 C5 27 7 5 0 27 7 5 52 2 R1 1 0 1 52 7 P1 4, 1 3 2 0 4, 1 3 2 53 5 P2 0 50 , 0 0 0 -5 0 , 0 0 0 53 5 C6 50 , 0 0 0 0 50 , 0 0 0 CM P A n n u a l M o n i t o r i n g C o n f o r m a n c e R e q u i r e m e n t s Ju n e 2 0 1 3 Attachment D - City of Palo Alto (ID # 5461) City Council Staff Report Report Type: Action Items Meeting Date: 2/9/2015 City of Palo Alto Page 1 Summary Title: Resolution to Implement New Development Impact Fees Title: Public Hearing: Proposed Changes in Development Impact Fees: Adoption of Resolution Setting New Public Safety Facility and General Government Facility Impact Fee Levels as Approved by Council on December 15 2014 From: City Manager Lead Department: Administrative Services RECOMMENDATION Staff recommends that Council adopt the attached Resolution (Attachment A), setting new Public Safety Facility and General Government Facility Impact fees at 75 percent of maximum levels, as directed by Council on December 15, 2014 when it adopted the implementing Ordinance. The packet presented to Council on December 15, 2014 is included as Attachment B. BACKGROUND AND DISCUSSION On December 15, 2014 Council conducted a first reading of the proposed ordinance implementing the new Public Safety Facilities and General Government Facilities fees (Attachment C), and then conducted a second reading of the ordinance on January 12, 2015. Council also directed staff on December 15 to prepare a resolution that sets the fees at the rate of 75 percent of the maximum amount justified by the Nexus Study and bring it back to Council shortly. That Resolution is attached (Attachment A), and Staff requests that Council adopt the Resolution tonight. The Public Safety Facility and General Government Facility Impact fees are recommended to be established at 75% of the legally justified maximum. Palo Alto, like most cities, has historically set its fee levels at a rate below the legal maximum. This practice further immunizes fees from legal challenges in the event development does not occur at the precise time and rate assumed in the nexus study. The proposed rate levels are outlined in the table below. City of Palo Alto Page 2 NEW IMPACT FEE RATES Impact Fee Residential Fees (per unit) Non-Residential Fees (per 1,000 square feet) Single Family Multi- Unit Commercial Office/ Institutional Industrial Public Safety Facilities $996 $797 $557 $743 $186 General Govt. Facilities $1,255 $1,004 $702 $937 $234 TOTAL $2,251 $1,801 $1,259 $1,680 $420 Resolutions imposing new (or increased fees) go into effect 61 days after adoption (Government Code 66017). The new fees would apply to new development that has not received building permits before the start of the 61-day wait period. Council has the option to revisit these and any other Development Impact Fees in the coming years, given any significant new information, and potentially adjust fee levels. For example, if the City finds a site for the Public Safety Building with funding requirements greater than the projected $57 million, or if information from the business registry determines that the fee ratio between business and residents is different from that assumed in this Nexus Study, a new Nexus Study may be prepared and fee revisions approved. The staff report and attachments presented to Council on December 15, 2014 are included as Attachment B. RESOURCE IMPACT Projected revenues from the two fees over 25 years are $7.8 million from the Public Safety Facilities fee and $9.8 million from the General Government Facilities fee, for a total of $17.6 million. That translates to an average of $0.7 million per year. ENVIRONMENTAL REVIEW Rate Setting is not considered a project for purposes of the California Environmental Quality Act. Attachments:  Attachment A: Resolution (PDF)  Attachment B: CMR ID #5396 from December 15, 2014 (PDF) City of Palo Alto Page 3  Attachment C: Ordinance Implementing Public Safety and Government Facility Impact Fee (PDF) Not Yet Approved Resolution No _____ Resolution of the Council of the City of Palo Alto Amending the City’s Fee Schedule to Adopt Rates for the Public Safety Facility Development Fee and the General Government Facility Development Fee R E C I T A L S A. Pursuant to Chapter 16.58 of the Municipal Code, the City levied development impact fees upon new development in order to fund costs associated with public facilities needed to provide services to such development. B. Section 16.58.080 of the Municipal Code authorizes the levy of a Public Safety Facility Development Fee to fund police and fire facilities (including fire apparatus and vehicles) and a General Government Facility Development Fee to fund facilities associated with municipal administration. Collectively, these fees are referred to in this Resolution as the “Fees.” C. At the request of the City, David Taussig & Associates has prepared a report entitled “Development Impact Fee Justification Study, City of Palo Alto”, dated December 10, 2014 (the “Study”). The Study (i) identifies planned public safety and general government facilities (the “Facilities”) eligible for funding through the Fees, (ii) studies facility costs that are allocable to new development; and (iii) recommends rate schedules for the Fees that will equitably charge such costs to new development. The Study is on file in the Office of the City Clerk, available for public inspection, adopted by the City Council, and incorporated herein by reference. D. On February 9, 2015, the City Council held a public hearing regarding the proposed rates for the Fees. E. The City Council now desires to set rates for the Fees and to amend the City’s Fee Schedule to include such rates. The Council of the City of Palo Alto RESOLVES as follows: SECTION 1. The rates for the Fees shall be as set forth in Attachment “A” to this Resolution, which is incorporated herein by reference and adopted as an amendment to the municipal fee schedule. These rates may be revised by resolution or ordinance of the City Council SECTION 2. The City Council finds that (i) there is a reasonable relationship between the need for the Facilities and the development projects on which the Fees will be imposed; (ii) there is a reasonable relationship between the Fees’ use and development projects on which the Fees will be imposed; and (iii) the Fees do not exceed the estimated reasonable cost of providing the Facilities. The basis for these 1 141208 jb 0131292 Attachment A Not Yet Approved findings are set forth in more detail in the Study, and the City Council adopts such basis as set forth in the Study. SECTION 3. The rates set by this Resolution shall be effective on the sixty-first day following its adoption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: APPROVED: _________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: ____________________________ City Manager _________________________ Senior Assistant City Attorney ____________________________ Director of Planning and Community Environment ____________________________ Director of Administrative Services 2 141208 jb 0131292 Not Yet Approved NEW IMPACT FEE RATES* Impact Fee Residential Fees (per unit) Non-Residential Fees (per 1,000 square feet) Single Family Multi- Unit Commercial Office/ Institutional Industrial Public Safety Facilities $996 $797 $557 $743 $186 General Govt. Facilities $1,255 $1,004 $702 $937 $234 TOTAL $2,251 $1,801 $1,259 $1,680 $420 *These rates shall become effective 61 days after Council adoption of Resolution 3 141208 jb 0131292 City of Palo Alto (ID # 5396) City Council Staff Report Report Type: Consent Calendar Meeting Date: 12/15/2014 City of Palo Alto Page 1 Summary Title: Proposed Changes in Development Impact Fees Title: Proposed Changes in Development Impact Fees: Adoption of Ordinance Amending Chapter 16.58 Implementing New Public Safety Facility and General Government Facility Impact Fees And Direction to Draft Resolution Setting Initial Impact Fee Rates at 75 Percent of Levels Identified in Nexus Study From: City Manager Lead Department: Administrative Services RECOMMENDATION Staff recommends that Council review the recommended new Public Safety Facility and General Government Facility impact fees, as revised and discussed below. In addition, staff recommends that Council approve the revised Public Safety Facility Needs List contained in the Nexus Study; adopt the ordinance amending Chapter 16.58 implementing new Public Safety Facility and General Government Facility impact fees (Attachment D); and direct staff to prepare a resolution setting the fee amounts at 75 percent of maximum levels supported by the Nexus Study. BACKGROUND AND DISCUSSION At its November 3, 2014 discussion of two new Development Impact Fees, Council questioned the Public Safety Facilities Needs List used in the fee calculations, because after Council approved that list on March 3, 2014, it subsequently approved an Infrastructure Funding Plan which included full funding for the Public Safety Building and for Fire Station #3. These items were still listed on the Needs List as needing funding. Council requested that staff remove those items from the Needs List. Council’s second concern was the density assumptions for non-residential categories – particularly office space, which was assumed to have a density of 2.5 employees per 1,000 square feet. Council requested that the assumption be changed to 4.0 employees per 1,000 square feet to match the Downtown Assessment District’s parking requirement of 1 space per 250 square feet of office space. Council therefore referred the item back to the Finance Committee. However, due to the need City of Palo Alto Page 2 for the consultant, David Taussig & Associates (DTA), to update the Nexus Study with the changes requested by Council, the report was not ready in time for the December 2 Finance Committee Meeting, and the Finance Committee recommended that staff bring the item directly back to Council on December 15. Staff has revised the Nexus Study and fee calculations to include the two requested changes (Attachment C). Council has the option to revisit these and any other Development Impact Fees in the next couple years, given any significant new information, and potentially adjust fee levels. For example, if the City found a site for the Public Safety Building with funding requirements greater than the projected $57 million, or if information from the business registry determines that the fee ratio between business and residents is different from that assumed in this Nexus Study, a new Nexus Study could be prepared and fee revisions approved. Change #1: Public Safety Project Funding Needs The original Public Safety Fee calculations were based on a Project Needs List approved by Council on March 3, 2014. Since then, Council approved an Infrastructure Project Funding Proposal (CMR #4889) that funded the Public Safety Building and Fire Station 3. In addition, on November 4, voters approved a 2 percent increase in the Transient Occupancy Tax which confirmed the funding model included in the Infrastructure Proposal. This funding model assumes that the TOT and other revenues will fully fund the Public Safety Building and Fire Station 3 and that additional impact fees from new development will not be assessed. At Council’s request, Staff directed DTA to revise the Public Safety Needs List accordingly, as shown below: City of Palo Alto Page 3 REVISED PUBLIC SAFETY FACILITIES NEEDS LIST THROUGH 2035 – USED IN REVISED NEXUS STUDY (DOLLARS IN MILLIONS) Facility Name Total Cost for Facility Off-setting Revenues Net Cost to City 1 Public Safety Building $57.00 ($57.00) $0 2 Fire Station 3 $6.70 ($6.70) $0 3 Fire Station 4 $7.50 $0 $7.50 4 BC Van (x2) $0.20 $0 $0.20 5 Fire Trucks (x2) $2.00 $0 $2.00 6 Type III Engine (x2) $0.80 $0 $0.80 7 Training Tower & Related Land Acquis. $8.00 $0 $8.00 8 Type 1 Engine (x8) – 2024 $4.20 $0 $4.20 9 Ambulances (x4) – 2022-2025 $1.30 $0 $1.30 10 Vehicles (Van, Trucks, Engines, Ambul.) $8.50 $0 $8.50 Total Public Safety Facilities $96.20 $63.70 $32.50 Change #2: Employee Density Assumptions The original Nexus Study presented November 3 2014 assumed the following employee densities:  Commercial Use - 3 employees per 1,000 square feet  Office/Institutional Use – 2.5 employees per 1,000 square feet  Industrial Use – 1.0 employee per 1,000 square feet These assumptions were derived from the Urban Land Institute as well as DTA’s Public Works Database, which tracks over a decade of proposed and completed projects throughout the State. This database has been cross-referenced with data from the Natelson Company and other economics firms. It is DTA’s standard operating assumption as it pertains to non- residential use. Also note that each employee is assumed to require 50% of the cost of services of a resident. So 3 employees translates to 1.5 persons served, etc. While Nexus Studies typically incorporate more general State data, more specific local data provides more accuracy. Palo Alto’s downtown zoning ordinance requires 1 parking space per City of Palo Alto Page 4 250 square feet of new office space, implying a 4-employees-per-1,000 square feet density. The zoning ordinance also establishes requirements for other commercial uses and zoning districts. In the ongoing Downtown Cap study, the Department of Planning and Community Environment (PCE) had hoped to develop an updated employment density for downtown office space via a business survey. However results of the survey were inconclusive, suggesting that implementation of the business registry will be required in order to attain more accurate employment density data. While it is likely that Palo Alto’s downtown office density is more than 4 employees per 1,000 square feet, staff believes using the current zoning code requirement, rather than the lower State average, is a more accurate metric. The Revised Nexus Study (Attachment C) includes the following non-residential density assumptions:  Commercial Use - 3 employees per 1,000 square feet [unchanged]  Office/Institutional Use – 4.0 employees per 1,000 square feet  Industrial Use – 1.0 employee per 1,000 square feet [unchanged] The revised version of the maximum fee levels and projected revenues is as follows: REVISED PROPOSED MAXIMUM FEE LEVELS Proposed Impact Fee Proposed Residential Fees Proposed Non-Residential Fees (per unit) (per 1,000 sq ft) Single Family Multi- Family Commercial Office/Inst’l Industrial Public Safety Facility $1,328 $1,062 $743 $991 $248 General Govt. Facilities $1,673 $1,339 $936 $1,249 $312 TOTAL $3,001 $2,401 $1,679 $2,240 $560 Residents per HH/Employees per 1,000 sq ft* 2.68 2.12 3.0 4.0 1.0 FEE per Person Served** $1,120 $1,133 $560 $560 $560 *From page 10 of the DTA Development Impact Fee Justification Study - NOTE THAT NON-RESIDENTIAL PERSONS SERVED are equivalent of 50% of one RESIDENTIAL person served. **Multi-Family Fee per Person Served is 1% higher than the rest, due to rounding error (as per DTA). City of Palo Alto Page 5 REVISED PROJECTED NEW MAXIMUM FEE REVENUES THROUGH 2035 (Dollars in Millions) Proposed Impact Fee Residential Fee Revenue Non-Residential Fee Revenue TOTAL S Single Family Multi- Family Commercia l Office/Inst’ l Industria l Public Safety Facility $3.39 $1.67 $0.66 $3.61 $1.03 $10.36 General Govt. Facilities $4.27 $2.10 $0.84 $4.56 $1.30 $13.06 TOTAL $7.66 $3.77 $1.50 $8.17 $2.33 $23.42 TOTAL BY RES./NON-RES. $11.43 $11.99 % RES./NON-RES. 48.8% 51.2% To compare with the original proposed fee maximums and projected revenues, here were those presented on November 3: ORIGINAL PROPOSED MAXIMUM FEE LEVELS Proposed Impact Fee Proposed Residential Fees Proposed Non-Residential Fees (per unit) (per 1,000 sq ft) Single Family Multi- Family Commercial Office/Inst’l Industrial Public Safety Facility $2,893 $2,314 $1,619 $1,349 $540 General Govt. Facilities $1,673 $1,339 $936 $780 $312 TOTAL $4,566 $3,653 $2,556 $2,130 $852 Residents per HH/Employees per 1,000 sq ft* 2.68 2.12 3.0 2.5 1.0 FEE per Person Served** $1,704 $1,723 $852 $852 $852 *From page 10 of the DTA Development Impact Fee Justification Study - NOTE THAT NON- RESIDENTIAL PERSONS SERVED are equivalent of 50% of one RESIDENTIAL person served. **Multi-Family Fee per Person Served is 1% higher than the rest, due to rounding error (as per DTA). City of Palo Alto Page 6 ORIGINAL PROJECTED NEW MAXIMUM FEE REVENUES THROUGH 2035 (Dollars in Millions) Proposed Impact Fee Residential Fee Revenue Non-Residential Fee Revenue TOTALS Single Family Multi- Family Commercial Office/Inst’l Industrial Public Safety Facility $7.38 $3.64 $1.45 $7.88 $2.24 $22.58 General Govt. Facilities $4.27 $2.10 $0.84 $4.56 $1.30 $13.06 TOTAL $11.65 $5.74 $2.28 $12.43 $3.54 $35.64 TOTAL BY RES./NON-RES. $17.39 $18.25 % RES./NON-RES. 48.8% 51.2% CONCLUSION Staff respectfully requests that Council conduct a first reading of the proposed ordinance implementing the new Public Safety Facilities and General Government Facilities fees (Attachment D). Further Council is asked to direct staff to prepare a resolution that sets the fees at the rate of 75 percent of the maximum amount justified by the Nexus Study and bring it back to Council shortly. Adoption of new impact fees requires a noticed public hearing and at that hearing, Council would have the opportunity to ask questions about the revised Nexus Study and resulting fee calculations. Resolutions imposing new (or increased fees) go into effect 60 days after adoption (Government Code 66017). The new fees would apply to new development that has not received building permits before the start of the 60-day wait period. ENVIRONMENTAL REVIEW Rate Setting is not considered a project for purposes of the California Environmental Quality Act. Attachments:  Attachment A: CMR #5049 from November 3, 2014 Council Meeting with Attachments (PDF)  Attachment B: City Council Minutes from 11-3-14 (PDF)  Attachment C: FY 2014-15 Impact Fees (PDF)  Attachment C: Revised Nexus Study (PDF)  Attachment D: Ordinance Implementing Public Safety and Government Facility Impact Fee (PDF) City of Palo Alto (ID # 5049) City Council Staff Report Report Type: Action Items Meeting Date: 11/3/2014 City of Palo Alto Page 1 Summary Title: Proposed Changes in Development Impact Fees Title: Finance Committee Recommends Proposed Changes in Development Impact Fees: Direction to Draft Ordinance Implementing New Public Safety Facility and General Government Facilities Impact Fees From: City Manager Lead Department: Administrative Services RECOMMENDATION The Finance Committee and Staff recommend that the Council review and approve the recommended new Public Safety Facility and General Government Facility impact fees at 75 percent of the maximum allowable level and direct staff to draft an implementing ordinance. BACKGROUND AND DISCUSSION On May 6, 2014 the Finance Committee passed by a vote of 3 to 1 the following motion: MOTION: Vice Mayor Kniss moved, seconded by Chair Berman that the Finance Committee recommend the City Council review the Development Impact Fee (DIF) Justification Study prepared by David Taussig & Associates and approve the recommended new Public Safety Facility and General Government Facility impact fees at 75 percent of the maximum allowable level. The information presented to Finance Committee that evening may be found in Attachment A, and minutes from the Finance Committee’s discussion may be found in Attachment B. Staff was scheduled to come to the full Council on May 19 following the May 6 Finance Committee meeting, but the item was postponed when other agenda items ran long. The June 2014 Council schedule was packed, the July recess followed, and then staff vacations and consultant schedule conflicts impeded an August Council date. This item was then put on the tentative agenda for September, and then October, but other agenda items were deemed more pressing. Since the original May Council date, the impact fees currently in place have been updated for FY 2015. Attachment C shows the FY 2015 fee levels. City of Palo Alto Page 2 Please note the following corrections and additions to CMR #4697 (Attachment A), as requested by the Finance Committee and discussed by staff. I. Correction: Page 5, Paragraph 1 of Staff Report #4697 should be replaced with the following paragraph (changes underlined): Council members may note that Public Safety Building (PSB) needs are listed at $57 million. Staff acknowledges that there are discussions underway regarding earmarking new hotel revenues for the PSB, and that the needs list above excludes such funds. Staff proposes that for now Council consider that need unfunded, and when the City Council approves the funding for the PSB – if it is finalized before the new fees are implemented-- the resulting fee can be recalculated and reduced to reflect the offsetting revenue source. II. Clarification Regarding Source of Palo Alto Jobs Data: Finance Committee members were concerned about the recommended fees’ allocation between residential and non-residential properties. Specifically, there was concern that the jobs data used in the calculations might be unreliable. For example, the data on page 10 of David Taussig & Associates (DTA) Development Impact Fee Justification Study assumed 93,295 employees in Palo Alto at present, whereas there are other estimates as high as 120,000. Finance Committee members wanted greater detail on how the numbers were derived, given the fact that the City does not have a Business License Tax or Registry Fee, by which aggregate jobs data could be gathered. The consultant used demographic data from Planning and Community Environment (PCE) staff which had taken into account Association of Bay Area Government’s data along with PCE staff’s knowledge of Palo Alto trends. PCE staff had, in fact, modified the ABAG projections before forwarding them to DTA. Staff since received further clarification regarding the specific source of the jobs data used in the original ABAG projections. According to PCE staff: Most jurisdictions, including ABAG, rely on a Census product called Longitudinal Employer-Household Dynamics (LEHD) which is currently the best available information on where, type and number of jobs for smaller geographic areas such as Palo Alto (as opposed to Metropolitan Statistical Areas such as San Jose, Oakland, and San Francisco). LEHD is updated annually and the latest data set is for the year 2011. According to the LEHD web site, the LEHD program “is part of the Center for Economic Studies at the U.S. Census Bureau. The LEHD program produces new, cost effective, public-use information combining federal, state and Census Bureau data on employers and employees...” Staff concluded that these sources are credible and therefore adequate as a basis for DTA’s calculations, until such time as employment data are gathered via a Business Registry Fee. City of Palo Alto Page 3 III. Clarification Regarding Fee Split Between Residential and Nonresidential Uses: Finance Committee members were concerned that the proposed fee levels might be unfairly allocated between residential and nonresidential uses, and that residential developments would pay more than their fair share, and nonresidential development would pay less than theirs. According to DTA, their fee calculations are based on a standard industry assumption that each employee counts as 50% of a “person served,” since employees tend to demand fewer City services than residents. This convention determines the fee levels only. DTA looked at the projected residential growth and the projected job growth, and divided the needed revenue (based on projected capital needs) over the anticipated number of new units (in terms of new houses and new commercial square footage) to set the fees. Given the proposed fee levels, the split in projected revenues from the new fees would be 48.8% from residential development and 51.2% from non-residential development, rather than “60/40” as had been discussed at the Finance Committee meeting. IV. Reformulation of Table Comparing Benchmarked City Fees with Palo Alto’s: Based on Finance Committee members’ feedback, the tables on page 4 of CMR #4697 should be replaced with the following table: The table above shows that although Palo Alto’s single-family fees are high compared to the comparison cities’ fees, when taken as a percentage of single-family home prices, Palo Alto’s fees are reasonable. V. Correction in Table Showing Current DIF Fund Balances: The table found on page 5 of CMR #4697 showing our current Impact Fee Fund Balances (as of fiscal year-end 2013) should read as follows (correction underlined): City of Palo Alto Page 4 Fee Net Funds Available (Thous. of $$) Parks 1,616 Community Centers 5,381 Libraries 678 Residential Housing in-Lieu 4,630 Commercial Housing In-Lieu 3,569 Parkland Dedication 2,051 Citywide Transportation 3,141 Water & Wastewater 2,225 Charleston/Arastradero 569 Stanford Research Park/El Camino 3,847 San Antonio/West Bayshore 829 University Ave. Parking Assessment District 658 VI. Fee Split Among Non-Residential Categories: Another concern of Council Members was that the proposed non-residential fees are broken out by Commercial, Office/Institutional, and Industrial categories; while our current fees are broken out by Commercial/Industrial and Hotel/Motel categories. The question was raised as to why DTA and staff were introducing the new categories with the new fees. DTA explained that the new (proposed) categories are standard fee categories among California cities and reflect the varying demand for City services generated from different non-residential uses. In fact, DTA was unfamiliar with other cities splitting Hotel/Motel usage from other non- residential uses. Staff recommends retaining the new categories for the new fees. Beyond the above clarifications and corrections, the remaining information in Attachment A is valid and may be used to inform Council’s discussion. Attachments:  Attachment A: CMR #4697 from May 6, 2014 Finance Committee with Attachments (PDF)  Attachment B: Excerpt Minutes from May 6, 2014 Finance Committee Meeting (PDF)  Attachment C: FY 2014-15 Impact Fees (PDF) City of Palo Alto (ID # 4697) Finance Committee Staff Report Report Type: Action Items Meeting Date: 5/6/2014 City of Palo Alto Page 1 Summary Title: Proposed Changes in Development Impact Fees Title: Proposed Changes in Development Impact Fees: Implementation of New Public Safety Facility and General Government Facilities Fees From: City Manager Lead Department: Administrative Services RECOMMENDATION Staff requests that the Finance Committee review and discuss the attached “Development Impact Fee Justification Study” prepared by David Taussig & Associates (DTA) (see Attachment A). The report presents proposed maximum fee levels for a new Public Safety Facility Impact Fee and for a new General Government Facilities Impact Fee. Through this process, the Committee and the City Council may determine the following: (a) whether to levy each of the proposed new fees, (b) at what level to set the fee(s), up to and including the maximum allowable fee, and (c) what if any exemptions should be included. MOTION The Finance Committee has reviewed the Development Impact Fee (DIF) Justification Study prepared by David Taussig & Associates and recommends that the Council review the report and approve the recommended new Public Safety Facility and General Government Facility impact fees at 75 percent of the maximum allowable level. BACKGROUND Staff presented to the Finance Committee on November 5, 2013 a list of anticipated Project Needs throughout the City between now and 2035. Staff then presented the list along with additional information requested by the Finance Committee to the City Council on March 3, 2014. Council approved the Project Needs List that evening, so the consultant was able to proceed with calculating the recommended maximum fee levels for certain areas. Process for Developing the Project Needs List: City of Palo Alto Page 2 For several months before the November 5, 2013 Finance Committee meeting, staff assembled an extensive list of projected capital needs for the following categories: Transportation, Public Safety, General Government Facilities, Parks and Recreation, and Libraries. The Administrative Services Department and DTA consulted with City staff of all relevant departments, the IBRC report and the follow-up discussions with the Council Infrastructure Committee, and the Proposed and Adopted CIP Budgets for Fiscal Year 2014. Staff also conducted a series of inter- department meetings to discuss the draft list of projects and any new developments—such as changes in funding or changed cost estimates-- that may have arisen in the intervening weeks. It is important to note that the evaluation of the City’s housing impact fees is not included in DTA’s current contract scope, but is included as a program under the Updated Housing Element, recently adopted by City Council. The list was limited by the following criteria: each project must be “non-speculative” – that is, seriously considered, not just a nice-to-have; have a useful life of over 5 years, and have all offsetting revenues deducted. In addition, given the built-out nature of the City, only a small percentage of the cost of the projects could be allocated to new development. For example, staff’s list of unfunded projected needs for Parks added up to $39 million. Given the Association of Bay Area Governments’ and Planning and Community Environment staff’s projected population growth rates, in the next 20 years about 15% of the City’s parks users will be brought in by new development. The remaining 85% will be “existing users.” Therefore only 15% or about $6 million of those costs could be allocated to the development impact fee. That $6 million is already largely covered by the Parks fee at its current level. The remaining $33 million would have to be funded by the General Fund or by “existing users.” That raises the bar quite high for the amount of funding needed to justify a new or increased fee. In advance of the November meeting with the Finance Committee, DTA determined that the total project needs for Parks and Recreation (at $39 million) and Libraries (at $0.3 million) would not merit an increase in current fees. In fact, the current fee levels should be adequate to fund the new list of needs along with the needs anticipated at the last Impact Fee update. As a result, staff presented Council with a proposed list of projects in the remaining categories: Transportation, Public Safety facilities and General Government facilities. After the Council Meeting on March 3, DTA determined that the Transportation-related project needs, totaling $91.2 million, also would be adequately met by the fees already in place. That left General Government facilities and Public Safety Facilities as the two fee opportunities DTA analyzed in its Fee Justification Study. The following table shows all the categories of fees currently in place in Palo Alto, which ones were included in the Benchmarking study, and which ones were included in the fee updates, and if they were not, when they are expected to be updated. City of Palo Alto Page 3 DTA completed this draft fee recommendation report on April 15. Staff has had the opportunity to review the recommendations and consider them in relation to total impact fees currently in place and the impact to prospective developers. Note that DTA had completed earlier a benchmarking study of Development Impact Fees (DIFs) in neighboring communities. (See Attachment F.) The following chart summarizes the benchmark information with and without the proposed new fees for Palo Alto. City of Palo Alto Page 4 The chart above shows that Palo Alto’s total DIFs are quite a bit higher than the average of the other benchmarked cities. However, taken as a percentage of home prices within the cities, the comparison is more reasonable. The following chart shows the total fees – including the potential new fees - by category as a percentage of average single-family home sale price. The City of Palo’s current DIFs are outlined in Attachment B. Developments may be exempt from all or some impact fees, depending upon the intended use. For instance, 100% affordable housing projects (not a mix of market rate and below market rate) are exempt from current impact fees, as are home remodels or expansions. (Planning and Community Environment is considering whether that exemption needs to be tightened.) Attachment C shows the exempted groups for each of the current fees. Staff recommends that Council maintain the same general exemptions for the new fees. Note that an earlier version of the Current Impact Fees provided to Council on March 3, 2014 contained an inaccuracy: for Parkland Dedication Fees, it indicated that the fees applied only to “Residential Subdivisions of over 50 parcels.” In fact, the statute indicates that the required parkland per unit applies to all residential development, but the in-lieu fees are available only to subdivisions of less than 50 parcels. The version in Attachment B includes the corrected text. The Needs List (see Attachment E), approved by Council on March 3 2014, identifies the City’s projected capital needs through 2035 within the selected categories. As discussed above, this list is a pared-down version of a more extensive review conducted by staff of all the DIF City of Palo Alto Page 5 categories: Transportation, Public Safety, General Government Facilities, Parks and Recreation, and Libraries. Council members may note that Public Safety Building (PSB) needs are listed at $57 million. Staff acknowledges that there are discussions underway regarding earmarking a proposed 2 percent Transient Occupancy Tax increase as a revenue stream for the PSB, and that the needs list above excludes such funds. Staff proposes that for now Council consider that need unfunded, and when the City Council approves the funding for the PSB – if it is finalized before the new fees are implemented-- the resulting fee can be recalculated and reduced to reflect the offsetting revenue source. RESOURCE IMPACT Development Impact Fees provide funding for capital improvements to mitigate the impacts of new development in the community. The revenues received each year vary based on the amount of development (both residential and non-residential) occurring in Palo Alto during that timeframe. Recommended changes to the fees will be presented to Council for approval in future meetings. DTA’s analysis projected revenue impacts over the next 20 years, assuming maximum fee levels, of $22.6 million for Public Safety facilities and $13.1 million for General Government facilities, for a total of $35.6 million. If Council sets the fees at 75 percent of maximum, combined revenues would be in the $27 million range. Actual revenues will vary depending on the specific fee levels approved by Council as well as with year-by-year development activity. The following table summarizes the fund balances for the City’s existing impact fees as of June 30, 2013: Fee Bal. June 30, 2013 (Thous. of $$) Commitments & Encumbrances (Thous. of $$) Net Funds Available (Thous. of $$) Parks 1,626 10 1,616 Community Centers 5,396 15 5,381 Libraries 680 3 678 Residential Housing in-Lieu 14,935 10,306 4,630 Commercial Housing In-Lieu 10,017 6,448 3,569 Parkland Dedication 2,057 6 2,051 Citywide Transportation 3,149 8 3,141 Water & Wastewater 2,225 0 2,225 Charleston/Arastradero 572 3 569 Stanford Research Park/El Camino 3,847 0 3,847 San Antonio/West Bayshore 829 0 829 University Ave. Parking Assessment District 660,852 2,891 657,961 City of Palo Alto Page 6 Staff recommends that some of the net funds listed above be dedicated to relevant infrastructure needs. Specific fund allocations will be included in the Proposed FY 2015 Budget. POLICY IMPLICATIONS Council has the authority to charge new development for its relative share of the cost of specific public facilities, as calculated based on a Nexus Study. Council also has the authority, for policy reasons, to restructure fees based on articulated City policies. The information provided in this report allows Council to take the next step towards re-evaluating and adjusting the City’s Development Impact Fees. Attachments:  Attachment A: Draft Development Impact Fee Justification Study by David Taussig & Assoc. (PDF)  Attachment B: Current Development Impact Fees (PDF)  Attachment C: Current Exemptions from Palo Alto Development Impact Fees (DOCX)  Attachment D: Excerpt Minutes from City Council meeting of March 3, 2014 (PDF)  Attachment E: Public Facilities Needs List (PDF)  Attachment F: Charts from Benchmarking Study (DOCX) B. C. DRAFT DEVELOPMENT IMPACT FEE JUSTIFICATION STUDY CITY OF PALO ALTO APRIL 29,2014 Prepared by: DAVID TAUSSIG &ASSOCIATES,INC. 2250 HYDE STREET,5TH FLOOR SAN FRANCISCO,CALIFORNIA 94109 (800)969-4382 ASSOCIATES,INC. Public Finance Public Private Partnerships Urban Economics TAUSSIG Newport Beach San Francisco Riverside Fresno Chicago, Illinois Dallas, Texas DAVID & City of Palo Alto TOC Development Impact Fee Justification Study April 29, 2014 TABLE OF CONTENTS SECTION PAGE EXECUTIVE SUMMARY...............................................................................................................1 SECTION I.INTRODUCTION ..................................................................................................3 SECTION II.LEGAL REQUIREMENTS TO JUSTIFY DEVELOPMENT IMPACT FEES ..................4 SECTION III.DEMOGRAPHICS ................................................................................................8 SECTION IV.THE NEEDS LIST...............................................................................................12 SECTION V.METHODOLOGY USED TO CALCULATE FEES ...................................................15 A.PUBLIC SAFETY FACILITIES......................................................................................................17 B.GENERAL GOVERNMENT FACILITIES .........................................................................................22 SECTION VI.SUMMARY OF FEES..........................................................................................25 APPENDICES APPENDIX A:FEE DERIVATION WORKSHEETS EXECUTIVE SUMMARY City of Palo Alto Page 1 Development Impact Fee Justification Study April 29, 2014 In order to adequately plan for new development and identify the public facilities and costs associated with mitigating the direct and cumulative impacts of new development, David Taussig & Associates, Inc. (“DTA”) was retained by the City of Palo Alto (the “City”) to prepare an AB 1600 Fee Justification Study (the “Fee Study”) for specific categories of public improvements not currently covered by the City’s Fee Program. The Fee Study is intended to comply with Section 66000 et. seq.of the Government Code, which was enacted by the State of California in 1987, by identifying additional public facilities required by new development (“Future Facilities”) and determining the level of fees that may be imposed to pay the costs of the Future Facilities.Fee amounts have been determined that will finance Public Safety and General Government facilities at levels identified by the various City departments as being necessary to meet the needs of new development through buildout in 2035.The Future Facilities and associated construction costs are identified in the Needs List, which is included in Section IV of the Fee Study.A description of the methodology used to calculate the fees is included in Section V.All new development may be required to pay its “fair share”of the cost of the new infrastructure through the development fee program. ORGANIZATION OF THE REPORT Section I of this report provides an introduction to the Fee Study including a brief description of City surroundings, and background information on development fee financing.Section II provides an overview of the legal requirements for implementing and imposing the fee amounts identified in the Fee Study.Section III includes a discussion of projected new development and demand variables such as future population and employment, assuming current growth trends in housing, commercial, and industrial development extrapolated through buildout in 2035.Projections of future development are based on data provided by the City and the City’s 2007 Comprehensive Plan.1 Section IV includes a description of the Needs List, which identifies the facilities needed to serve new development through buildout in 2035 that are eligible for funding by the impact fees.The Needs List provides the total estimated facilities costs, offsetting revenues, net costs to the City,and costs allocated to new development for all facilities listed in the Needs List.This list is a compilation of projects and costs identified by various City departments.Section V discusses the findings required under the Mitigation Fee Act and requirements necessary to be satisfied when establishing, increasing,or imposing a fee as a condition of new development, and satisfies the nexus requirements for each facility included as part of this study.Section V also contains the description of the methodology used to determine the fees for all facility types.Finally,Section VI includes a summary of the proposed fees justified by this Fee Study.Appendix A includes the calculations used to determine the various fee levels. IMPACT FEE SUMMARY The total fee amounts required to finance new development’s share of the costs of facilities identified in the Needs List are summarized in Table ES-1 below.Fees within this Fee Study reflect the maximum fee levels that may be imposed on new development. 1 City of Palo Alto, Comprehensive Plan (1998) and Comprehensive Plan Amendment (in progress). EXECUTIVE SUMMARY City of Palo Alto Page 2Development Impact Fee Justification Study April 29, 2014 TABLE ES-1 DEVELOPMENT IMPACT FEE SUMMARY EXEMPTIONS California Government Code permits fee exemptions for affordable housing and senior housing at the discretion of local jurisdictions.Such fee exemptions are a policy matter that should be based on the consideration of the greater public good provided by the use exempted from the fee. SECTION I: INTRODUCTION City of Palo Alto Page 3 Development Impact Fee Justification Study April 29, 2014 Part of the San Francisco Metropolitan Area,the City of Palo Alto (“City”or “Palo Alto”)is located approximately 35 miles south of San Francisco within the County of Santa Clara. Named after the coastal redwood tree that grows along San Francisquito Creek, the City is more than 100 years old,encompassing an area roughly the size of 26 square miles and boasting approximately 30,000 housing units, more than 65,000 residents, and over 90,000 jobs.Yet despite the City’s mature and largely developed nature, the presence of excellent schools, the world’s finest employment centers and job creators, and high quality of life marks across the board, make the City incredibly attractive to new residential and non-residential development and re-development. For instance, the average homes sales price recorded in the City in February 2014 was nearly $2.0 million. Thus, in order to adequately plan for new development and identify the public facilities and costs associated with mitigating the direct and cumulative impacts of new development, David Taussig & Associates, Inc.(“DTA”) was retained by the City to prepare an AB 1600 Fee Justification Study (the “Fee Study”)for specific categories of public improvements not currently covered by the City’s Fee Program. Impact fees are calculated here using updated information on development and City facilities. Moreover, the methods used to calculate impact fees in this study are intended to satisfy all legal requirements governing such fees, including provisions of the U. S. Constitution, the California Constitution, and the California Mitigation Fee Act (Government Code Sections 66000 et.seq.).Impact fees calculated in this report are intended to complement the City’s existing impact fees. More specifically, the Fee Study is intended to comply with Section 66000 et.seq.of the Government Code, which was enacted by the State of California in 1987, by identifying additional public facilities required by new development (“Future Facilities”) and determining the level of fees that may be imposed to pay the costs of the Future Facilities.Fee amounts have been determined that will finance facilities at levels identified by the various City departments as deemed necessary to meet the needs of new development.The Future Facilities and associated construction costs are identified in the Needs List, which is included in Section IV of the Fee Study.All new development may be required to pay its “fair share”of the cost of the new infrastructure through the development fee program. The fees are calculated to fund the cost of facilities needed to meet the needs of new development.The steps followed in the Fee Study include: 1.Demographic Assumptions:Identify future growth that represents the increased demand for facilities. 2.Facility Needs and Costs:Identify the amount of public facilities required to support the new development and the costs of such facilities.Facilities costs and the Needs List are discussed in Section IV. 3.Cost Allocation:Allocate costs per equivalent dwelling unit. 4.Fee Schedule:Calculate the fee per residential unit or per non-residential square foot. SECTION II: LEGAL REQUIREMENTS TO JUSTIFY DEVELOPMENT IMPACT FEES City of Palo Alto Page 4Development Impact Fee Justification Study April 29, 2014 The levy of impact fees is one authorized method of financing the public facilities necessary to mitigate the impacts of new development.A fee is “a monetary exaction, other than a tax or special assessment, which is charged by a local agency to the applicant in connection with approval of a development project for the purpose of defraying all or a portion of the cost of public facilities related to the development project...”(California Government Code, Section 66000).A fee may be levied for each type of capital improvement required for new development, with the payment of the fee typically occurring prior to the beginning of construction of a dwelling unit or non-residential building.Fees are often levied at final map recordation, issuance of a certificate of occupancy, or more commonly, at building permit issuance.However, Assembly Bill (“AB”) 2604 (Torrico) which was signed into law in August 2008, encourages public agencies to defer the collection of fees until close of escrow to an end user in an attempt to assist California’s troubled building industry. AB 1600, which created Section 66000 et.seq.of the Government Code was enacted by the State of California in 1987. In 2006, Government Code Section 66001 was amended to clarify that a fee cannot include costs attributable to existing deficiencies, but can fund costs used to maintain the existing level of service (“LOS”)or meet an adopted level of service that is consistent with the general plan. Section 66000 et seq.of the Government Code thus requires that all public agencies satisfy the following requirements when establishing, increasing,or imposing a fee as a condition of new development: 1.Identify the purpose of the fee.(Government Code Section 66001(a)(1)) 2.Identify the use to which the fee will be put.(Government Code Section 66001(a)(2)) 3.Determine that there is a reasonable relationship between the fee’s use and the type of development on which the fee is to be imposed.(Government Code Section 66001(a)(3)) 4.Determine how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is to be imposed. (Government Code Section 66001(a)(4)) 5.Discuss how there is a reasonable relationship between the amount of the fee and the cost of the public facility or portion of the public facility attributable to the development on which the fee is imposed. This section presents each of these items as they relate to the imposition of the proposed fees in the City of Palo Alto. SECTION II: LEGAL REQUIREMENTS TO JUSTIFY DEVELOPMENT IMPACT FEES City of Palo Alto Page 5Development Impact Fee Justification Study April 29, 2014 A.PURPOSE OF THE FEE (GOVERNMENT CODE SECTION 66001(A)(1)) New residential and non-residential development within the City will generate additional residents and employees who will require additional public facilities.Land for these facilities will have to be acquired and public facilities and equipment will have to be expanded, constructed,or purchased to meet this increased demand. The Fee Study has been prepared in response to the projected direct and cumulative effect of future development.Each new development will contribute to the need for new public facilities.Without future development many of the new public facilities on the Needs List would not be necessary as the existing facilities are generally adequate for the City’s present population.In instances where facilities would be built regardless of new development, the costs of such facilities have been allocated to new and existing development based on their respective level of benefit. The proposed impact fee will be charged to all future development, irrespective of location, within the City.Even future “in-fill”development projects contribute to impacts on public facilities because they are an interactive component of a much greater universe of development located throughout the City of Palo Alto.First, the property owners and/or the tenants associated with any new development in the City can be expected to place additional demands on Palo Alto’s facilities funded by the fee.Second, these property owners and tenants are dependent on and, in fact, may not have chosen to utilize their development, except for residential, retail,employment, and recreational opportunities located nearby on other existing and future development.Third, the availability of residents, employees, and customers throughout the City has a growth-inducing impact without which some of the “in-fill” development would not occur.As a result, all development projects within Palo Alto contribute to the cumulative impacts of development. The impact fees will be used for the acquisition, installation, and construction of public facilities identified on the Needs Lists to mitigate the direct and cumulative impacts of new development within the City. B.THE USE TO WHICH THE FEE IS TO BE PUT (GOVERNMENT CODE SECTION 66001(A)(2)) The fee will be used for the acquisition, installation, and construction of the public facilities identified on the Needs Lists, included in Section IV of the Fee Study and other appropriate costs to mitigate the direct and cumulative impacts of new development in the City.The fee will provide a source of revenue to Palo Alto to allow for the acquisition, installation, and construction of public facilities, which in turn will both preserve the quality of life in the City and protect the health, safety, and welfare of the existing and future residents and employees. SECTION II: LEGAL REQUIREMENTS TO JUSTIFY DEVELOPMENT IMPACT FEES City of Palo Alto Page 6Development Impact Fee Justification Study April 29, 2014 C.DETERMINE THAT THERE IS A REASONABLE RELATIONSHIP BETWEEN THE FEE’S USE AND THE TYPE OF DEVELOPMENT PROJECT UPON WHICH THE FEE IS IMPOSED (BENEFIT RELATIONSHIP)(GOVERNMENT CODE SECTION 66001(A)(3)) As discussed in Section A above, it is the projected direct and cumulative effect of future development that has prompted the preparation of the Fee Study.Each development will contribute to the need for new public facilities.Without future development,the City would have no need to construct many of the public facilities on the Needs List.For all other facilities, the costs have been allocated to both existing and new development based on their level of benefit.Even future “in-fill”development projects, which may be adjacent to existing facilities, further burden existing public facilities.Consequently, all new development within Palo Alto,irrespective of location, contributes to the direct and cumulative impacts of development on public facilities and creates the need for new facilities to accommodate growth. The fees will be expended for the acquisition, installation, and construction of the public facilities identified on the Needs List and other authorized uses, as that is the purpose for which the fee is collected.As previously stated, all new development creates either a direct impact on public facilities or contributes to the cumulative impact on public facilities.Moreover, this impact is generally equalized among all types of development because it is the increased demands for public facilities created by the future residents and employees that create the impact upon existing facilities. For the aforementioned reasons, new development benefits from the acquisition, construction, and installation of the facilities on the Needs Lists. D.DETERMINE HOW THERE IS A REASONABLE RELATIONSHIP BETWEEN THE NEED FOR THE PUBLIC FACILITY AND THE TYPE OF DEVELOPMENT PROJECT UPON WHICH THE FEE IS IMPOSED (IMPACT RELATIONSHIP) (GOVERNMENT CODE SECTION 66001(A)(4)) As previously stated, all new development within the City, irrespective of location, contributes to the direct and cumulative impacts of development on public facilities and creates the need for new facilities to accommodate growth.Without future development, many of the facilities on the Needs Lists would not be necessary.For certain other facilities, the costs have been allocated to both existing and new development based on their level of benefit. For the reasons presented herein, there is a reasonable relationship between the need for the public facilities included on the Needs List and all new development within Palo Alto. SECTION II: LEGAL REQUIREMENTS TO JUSTIFY DEVELOPMENT IMPACT FEES City of Palo Alto Page 7Development Impact Fee Justification Study April 29, 2014 E.THE RELATIONSHIP BETWEEN THE AMOUNT OF THE FEE AND THE COST OF THE PUBLIC FACILITIES ATTRIBUTABLE TO THE DEVELOPMENT UPON WHICH THE FEE IS IMPOSED (“ROUGH PROPORTIONALITY” RELATIONSHIP)(GOVERNMENT CODE 66001(A) As set forth above, all new development within the City impacts public facilities. Moreover, each individual development project and its related increase in population and/or employment, along with the cumulative impacts of all development in Palo Alto, will adversely impact existing facilities.Thus, imposition of the fee to finance the facilities on the Needs Lists is an efficient, practical, and equitable method of permitting development to proceed in a responsible manner. New development impacts facilities directly and cumulatively.In fact, without any future development, the acquisition, construction, and/or installation of many of the facilities on the Needs Lists would not be necessary as existing City facilities are generally adequate.Even new development located adjacent to existing facilities will utilize and benefit from facilities on the Needs List. The proposed fee amounts are roughly proportional to the impacts resulting from new development based on the analyses contained in Section V.Thus there is a reasonable relationship between the amount of the fee and the cost of the facilities. SECTION III: DEMOGRAPHICS City of Palo Alto Page 8 Development Impact Fee Justification Study April 29, 2014 In order to determine the public facilities needed to serve new development as well as establish fee amounts to fund such facilities, the City provided DTA with projections of future population and development within Palo Alto.DTA categorized developable residential land uses as Single Family and Multi-Family.Developable non-residential land uses within the City’s commercial, office,and industrial zones are categorized as Commercial, Office/Institutional,and Industrial respectively. Additional details are included in the table below.Based on these designations, DTA established fees for the following five (5)land use categories to acknowledge the difference in impacts resulting from various land uses and to make the resulting fee program implementable. LAND USE CLASSIFICATION FOR FEE STUDY DEFINITION Single Family Includes single family detached homes Multi-Family Includes buildings with attached residential units including apartments, town homes, condominiums, and all other residential units not classified as Single Family Detached Commercial Includes, but is not limited to, buildings used as the following: Retail Service-oriented business activities Department stores, discount stores, furniture/appliance outlets, home improvement centers Entertainment centers Sub-regional and regional shopping centers Office/Institutional Includes, but is not limited to, buildings used as the following: Business/professional office Professional medical offices and hospitals Schools Industrial Includes, but is not limited to, buildings used as the following: Light manufacturing, warehouse/distribution, wholesaling; Large-scale warehouse retail Service commercial activities Public uses, arterial roadways and freeways providing automobile and public transit access Automobile dealerships Support commercial services The City of Palo Alto’s Comprehensive Plan1 (the “Comprehensive Plan”)demographics were used as estimates of the number of housing units and nonresidential building square feet to be built in the City.In addition, the Comprehensive Plan was used to project the additional population generated from new development.However, Comprehensive Plan Update data was also reviewed in light of projections prepared by the Association of Bay Area Governments (“ABAG”). 1 City of Palo Alto, Comprehensive Plan (1998).See also Comprehensive Plan Amendment (in progress). SECTION III: DEMOGRAPHICS City of Palo Alto Page 9Development Impact Fee Justification Study April 29, 2014 Notably, DTA attempted to utilize metrics (e.g. average household size) that standardized existing demographics with the projections found in the Comprehensive Plan. Future residents and employees will create additional demand for facilities that existing public facilities cannot accommodate.In order to accommodate new development in an orderly manner, while maintaining the current quality of life in the City, the facilities on the Needs List (Section IV), as reviewed and approved by the City Council on March 3, 2014,will need to be constructed.For those facilities that are needed to mitigate demand from new development, facility costs have been allocated to new development only.In those instances when it has been determined that the new facilities will serve both existing and new development, facility costs have been allocated based on proportionate benefit (see Equivalent Dwelling Unit discussion in Section V). The following sections summarize the existing and future development figures that were used in calculating the impact fees. 1.EXISTING POPULATION FOR LAND USE CATEGORIES According to information provided by the City of Palo Alto, and generally confirmed by the California Employment Development Department –Demographic Research Unit, there are 17,614 existing Single Family units and 10,843 existing Multi-Family units within the City. DTA has used the following demographic information provided by the City of Palo Alto and the Comprehensive Plan which assume resident-per-unit factors of 2.68 and 2.12 per Single Family unit and Multi-Family unit, respectively.Therefore, the City population is generally comprised of 70,193 residents living in 28,457 Single Family and Multi-Family homes. Table 1 below summarizes the existing demographics for the residential land uses. TABLE 1 CITY OF PALO ALTO ESTIMATED EXISTING RESIDENTIAL DEVELOPMENT DTA has also utilized the following non-residential demographic information provided by the City of Palo Alto which assumes existing City non-residential land uses utilize employees-per-thousand-square-foot factors of 3.00, 2,50 and 1.00 employees per 1,000 building square feet of Commercial, Office/Institutional, and Industrial, SECTION III: DEMOGRAPHICS City of Palo Alto Page 10Development Impact Fee Justification Study April 29, 2014 respectively.This results in 11,662 existing Commercial employees,63,534 existing Office/Institutional employees, and 18,099 existing Industrial City employees,as shown in Table 2 below.Each of these figures are generally confirmed by data from the Association of Bay Area Governments (“ABAG”) and the U.S. Census Bureau. Importantly,for many of the facilities considered in this Fee Study,EDUs are calculated based on the number of residents or employees (“Persons Served”)generated by each land use class.“Persons Served”equal Residents plus 50% of Employees,and is a customary industry practice designed to capture the reduced levels of service demanded by employees.For existing Persons Served estimates, please reference Table 2 below. TABLE 2 CITY OF PALO ALTO ESTIMATED EXISTING NON-RESIDENTIAL DEVELOPMENT 1 Persons served equal Residents plus 50% of employees. 2.FUTURE POPULATION FOR NEW LAND USE CATEGORIES (2035) According to information provided by the City of Palo Alto,and confirmed by ABAG, there are projected to be an additional 6,839 Single Family units and 3,331 Multi- Family units within the City-wide area at 2035, the time horizon utilized for this Fee Study. DTA has used the following demographic information provided by the City of Palo Alto which assumes future resident-per-unit factors of 2.68 and 2.12 per Single Family unit and Multi-Family unit, respectively. This results in an additional 10,170 residents living in 4,123 Single Family and Multi-Family homes within the City. Table 3 on the following page summarizes the future demographics for the residential land uses. TABLE 3 CITY OF PALO ALTO FUTURE RESIDENTIAL DEVELOPMENT SECTION III: DEMOGRAPHICS City of Palo Alto Page 11Development Impact Fee Justification Study April 29, 2014 In terms of non-residential property, Palo Alto expects to generate 21,428 future jobs, which can be broken down into 2,679 jobs relating to Commercial development, 14,592 jobs for Office/Institutional development, and 4,157 jobs for Industrial development within the City. The City of Palo Alto provided the projected employment discussed above, which results in estimated employees-per-thousand-square-foot factors of 3.00,2,50,and 1.00 employees per 1,000 building square feet of Commercial, Office/Institutional, and Industrial, respectively,as shown in Table 4 below. Again,for many of the facilities considered in this Fee Study, EDUs are calculated based on the number of residents or employees (“Persons Served”)generated by each land use class.“Persons Served”equal Residents plus 50% of Employees,and is a customary industry practice designed to capture the reduced levels of service demanded by employees.For future Persons Served estimates, please reference Table 4 below. TABLE 4 CITY OF PALO ALTO FUTURE NON-RESIDENTIAL DEVELOPMENT 1 Persons served equal Residents plus 50% of employees. Importantly, the land use categories that have been discussed above are consistent with (i) growth projections prepared by the City for the Comprehensive Plan, and (ii) land uses generally included in other development impact fee programs of the City. 3.EQUIVALENT DWELLING UNIT (EDU)PROJECTIONS Equivalent Dwelling Units (“EDU”) are a means of quantifying different land uses in terms of their equivalence to a residential dwelling unit, where equivalence is measured in terms of potential infrastructure use or benefit for each type of public facility.Since nearly all of the facilities proposed to be financed by the levy of impact fees will serve both residential and non-residential property, DTA projected the number of future EDUs based on the number of residents or employees generated by each land use class.For other facilities, different measures, such as number of trips, more accurately represent the benefit provided to each land use type.The EDU projections for each facility are shown in the fee derivation worksheets in Appendix A. SECTION IV: THE NEEDS LIST City of Palo Alto Page 12 Development Impact Fee Justification Study April 29, 2014 Identification of the facilities to be financed is a critical component of any development impact fee program.In the broadest sense,the purpose of impact fees is to protect the public health, safety, and general welfare by providing for adequate public facilities.“Public Facilities”per Government Code Section 66000 includes “public improvements and community amenities.” Government Code Section 66000 requires the identification of those facilities for which impact fees are going to be used as the key financing mechanism.Identification of the facilities may be made in an applicable general or specific plan, other public documents, or by reference to a Capital Improvement Program (“CIP”). DTA has worked closely with City staff to develop the list of facilities to be included in the Fee Study (“the Needs List”).Additionally, the Needs List was reviewed and approved by the City Council on March 3, 2014 at a public hearing.For purposes of the City’s fee program, the Needs List is intended to be the official public document identifying the facilities eligible to be financed, in whole or in part, through the levy of a development impact fee on new development within Palo Alto.The Needs List is organized by facility element (or type) and includes a cost section consisting of six (6)columns, which are defined in Table 5 below: TABLE 5 CITY OF PALO ALTO NEEDS LIST EXPLANATION OF COST SECTION Column Title Contents Source Total Cost for Facility The total estimated facility cost including engineering, design, construction, land acquisition, and equipment (as applicable) City Offsetting Revenues to New & Existing Development Share of Total Offsetting Revenues allocated to new and existing development City Net Cost to City The difference between the Total Cost and the Offsetting Revenues (column 1 plus column 2) Calculated by DTA Percent of Cost Allocated to New Development Net Cost Allocated to New Development based on New Development’s Share of Facilities Calculated by DTA Net Cost Allocated to New Development The Net Cost to City Multiplied by the Percentage Cost Allocated to New Development Calculated by DTA Policy Background or Objective Identifies policy source or rationale for facility need City Council or Comprehensive Plan SECTION IV: THE NEEDS LIST City of Palo Alto Page 13Development Impact Fee Justification Study April 29, 2014 DTA surveyed City staff on required facilities needed to serve new development as a starting point for its fee calculations.As part of the survey, DTA conducted extensive research with City departments such as Planning, Public Works, Parks & Recreation, Library, Transportation, etc.,and then narrowed the focus to those facility needs that were deemed most timely and prudent to include in the Fee Study.More specifically, the survey included the project description, justification, public benefit, estimated costs, and project financing for each proposed facility.Through regular discussions between DTA and City staff, the Needs List has gone through multiple series of revisions to fine-tune the needs, costs, and methodologies used in allocating the costs for each facility.For purposes of the fee program, it was determined that a planning horizon through 2035 would be appropriate.Importantly, escalations in project construction costs could be included in future fee increases that would need to be approved by the Palo Alto City Council. The final Needs List is shown on the following page. SECTION IV: THE NEEDS LIST City of Palo Alto Page 14Development Impact Fee Justification Study April 29, 2014 SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 15 Development Impact Fee Justification Study April 29, 2014 Pursuant to the nexus requirements of Government Code 66000, a local agency is required to “determine how there is a reasonable relationship between the amount of the fee and the cost of the public facility or portion of the public facility attributable to the development on which the fee is imposed.”It is impossible to precisely determine the impact that a specific new residential unit, commercial project, or industrial development will have on existing facilities.Additionally, predicting future residents’or employees’specific behavioral patterns, park and transportation, and health and welfare requirements is extremely difficult, and would involve numerous assumptions that are subject to substantial variation.Recognizing these limitations, the Legislature drafted AB 1600 to specifically require that a “reasonable” relationship be determined, not a direct cause and effect relationship. There are many methods or ways of calculating fees, but they are all based on determining the cost of needed improvements and assigning those costs equitably to various types of development.Each of the fee calculations employs the concept of an Equivalent Dwelling Unit (“EDU”) or Equivalent Benefit Unit (“EBU”)to allocate benefit among the five (5)land use classes.EDUs are a means of quantifying different land uses in terms of their equivalence to a residential dwelling unit, where equivalence is measured in terms of potential infrastructure use or benefit for each type of public facility.For many of the facilities considered in this Fee Study, EDUs are calculated based on the number of residents or employees (“Persons Served”)generated by each land use class.For other facilities, different measures, such as number of trips, more accurately represent the benefit provided to each land use class.Table 6 below shows total existing and projected EDUs or EBUs by facility type. Notably,“Persons Served”equal Residents plus 50% of Employees,and is a customary industry practice designed to capture the reduced levels of service demanded by employees. TABLE 6 CITY OF PALO ALTO CITY EQUIVALENT DWELLING UNITS The following sections present the reasonable relationship for benefit, impact,and rough proportionality tests for each fee element (i.e.,public safety and general government) and the analysis undertaken to apportion costs for each type of facility on the Needs List.More detailed fee calculation worksheets for each type of facility are included in Appendix A. Importantly, since the level of service (“LOS”)being requested for new development by City department heads is above the existing service level for certain types of facility, the cost of the new facilities has been carefully apportioned between existing and new development in the following manner: SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 16Development Impact Fee Justification Study April 29, 2014 1.New development was assigned 100% of the cost for a LOS that is equivalent to the existing LOS within the City. 2.The cost of the incremental difference between the new, higher LOS being requested by the City and the existing LOS was then allocated between existing development and new development, based on the relative number of equivalent dwelling units (“EDUs”) assigned to existing development and new development. SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 17Development Impact Fee Justification Study April 29, 2014 A.PUBLIC SAFETY FACILITIES The Public Safety element includes those facilities used by the City to protect life and property. In order to serve new development through buildout in 2035, the City identified the need for two (2)new fire stations. One (1)of the two (2)fire stations, and the equipment required to service this fire station, is needed to serve new development almost exclusively and will be funded 100% by new development, while the other fire station will serve both new and existing development.Thus, the cost of the incremental difference between the new, higher LOS being requested by the City and the existing LOS has been allocated between existing development and new development, based on the relative number of EDUs assigned to existing development and new development. Additionally, there is a need for other facilities,public safety specialty vehicles,and training stations to serve both existing and projected development.Therefore, the costs of these facilities have been allocated between existing development and new development based on their percentage of build out EDUs. TABLE 7 PUBLIC SAFETY FACILITIES ELEMENT Identify Purpose of Fee Public Safety Facilities Identify Use of Fee Construction,acquisition and/or upgrade of Police and Fire Facilities and equipment Demonstrate how there is a reasonable relationship between the need for the public facility, the use of the fee, and the type of development project on which the fee is imposed New residential and non-residential development will generate additional residents and employees who will require additional service calls increasing the need for trained Police and Fire personnel. Buildings and vehicles used to provide these services will have to be expanded, constructed,or purchased to meet this increased demand.Thus a reasonable relationship exists between the need for Public Safety facilities and the impact of residential and non-residential development.The Public Safety fees collected from new development will be used exclusively for public safety purposes. SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 18Development Impact Fee Justification Study April 29, 2014 Table 8 below identifies the facilities proposed to be funded in whole or in part with the collection of Public Safety fees.Costs are based on estimates provided by the City. TABLE 8 PUBLIC SAFETY FACILITIES FACILITY COSTS Calculation Methodology Fee amounts for this element were calculated for both residential and non-residential land uses as detailed in Appendix A.Each land use classification was assigned an EDU factor which was derived from the number of Persons Served, which again is defined as the persons per household (for residential units)and 50% of the number of employees per 1,000 building square feet of each category of non-residential development. Public Safety Building Improvements According to the City,it has been determined that this facility is needed to serve new development.Currently,this proposed facility is operating at an appropriate and acceptable level of service; therefore,the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out.Consequently, 84.81%of the costs will be allocated to existing development and 15.19% of the costs will be allocated to new development. SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 19Development Impact Fee Justification Study April 29, 2014 TABLE 9 PUBLIC SAFETY BUILDING IMPROVEMENT COST ALLOCATION SUMMARY Fire Station Improvements According to the City,it has been determined that these facilities are needed to serve new development.Currently, these facilities are generally operating at an appropriate and acceptable level of service, though less so than many of the other public safety facilities and improvements; therefore,the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out.Consequently, 46.85% of the costs will be allocated to existing development and 53.15% of the costs will be allocated to new development. TABLE 10 FIRE STATION IMPROVEMENTS COST ALLOCATION SUMMARY Public Safety Vehicles According to the City,it has been determined that these facilities are needed to serve new development.Currently, these facilities are generally operating at an appropriate and acceptable level of service; therefore,the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out.Consequently, 69.63% of the costs will be allocated to existing development and 30.37% of the costs will be allocated to new development. SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 20Development Impact Fee Justification Study April 29, 2014 TABLE 11 PUBLIC SAFETY VEHICLES COST ALLOCATION SUMMARY Public Safety Training Tower Modernization According to the City,it has been determined that this facility modernization is needed to serve new development.Currently,this facility is operating at an appropriate and acceptable level of service; therefore,the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out.Consequently, 84.81% of the costs will be allocated to existing development and 15.19% of the costs will be allocated to new development. TABLE 12 PUBLIC SAFETY TRAINING TOWER MODERNIZATION COST ALLOCATION SUMMARY Fee Amounts Table 13 presents a summary of the derivation of EDUs, fee amounts,and the costs financed by fees for the Public Safety Facilities on the Needs List.The details of the fee calculation are presented in Appendix A. SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 21Development Impact Fee Justification Study April 29, 2014 TABLE 13 PUBLIC SAFETY FACILITIES FEE DERIVATION SUMMARY Based on the development projections in Appendix A, the fee amounts presented in Table 13 will finance 23.47% of the net costs of the Public Safety Facilities identified on the Needs List.The remaining 76.53% of the net costs of facilities will be funded through other sources. SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 22Development Impact Fee Justification Study April 29, 2014 B.GENERAL GOVERNMENT FACILITIES The General Government Facilities Element includes those facilities used by the City to provide basic governmental services and public facilities maintenance services, exclusive of public safety. TABLE 14 GENERAL GOVERNMENT FACILITIES Identify Purpose of Fee General Government Service Facilities Identify Use of Fee Modernization of City Office and Building Improvements and Replacement of Municipal Services Center. Demonstrate how there is a reasonable relationship between the need for the public facility, the use of the fee, and the type of development project on which the fee is imposed New residential and non-residential development in the City will generate additional residents and employees who will increase the demand for services,including municipal services and general government functions.Population and growth has a direct impact on the need for government services and facilities, thus a reasonable relationship exists between new development and government facilities, which will have to be acquired to meet the increased demand.Fees collected from new development will be used exclusively for the City Government Service Facilities on the Needs List. TABLE 15 GENERAL GOVERNMENT FACILITIES COST SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 23Development Impact Fee Justification Study April 29, 2014 Calculation Methodology Fee amounts for this element were calculated for both residential and non-residential land uses as detailed in Appendix A.Each land use classification was assigned an EDU factor which was derived from the number of Persons Served, which again is defined as the persons per household (for residential units)and 50% of the number of employees per 1,000 building square feet of each category of non-residential development. CITY OFFICE AND BUILDING IMPROVEMENTS According to the City,it has been determined that these facilities are needed to serve new development.Currently, these facilities are operating at an appropriate and acceptable level of service; therefore,the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out.Consequently, 84.81% of the costs will be allocated to existing development and 15.19% of the costs will be allocated to new development as presented in Table 16 below. TABLE 16 CITY OFFICE AND BUILDING IMPROVEMENTS COST ALLOCATION SUMMARY Municipal Services Center Replacement According to the City,it has been determined that these facilities are needed to serve new development.Currently, these facilities are operating at an appropriate and acceptable level of service; therefore,the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out.Consequently, 84.81% of the costs will be allocated to existing development and 15.19% of the costs will be allocated to new development as presented in Table 17 below. SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 24Development Impact Fee Justification Study April 29, 2014 TABLE 17 MUNICIPAL SERVICES CENTER REPLACEMENT COST ALLOCATION SUMMARY Fee Amounts Table 18 presents a summary of the derivation of EDUs, fee amounts and the costs financed by fees for the general government facilities on the Needs List.The details of the fee calculation are presented in Appendix A. TABLE 18 GENERAL GOVERNMENT FACILITIES FEE DERIVATION SUMMARY Based on the development projections in Appendix A, the fee amounts presented in Table 18 will finance 15.19% of the net costs of the General Government Facilities identified on the Needs List.The remaining 84.81% of the net costs of facilities will be funded through other sources. SECTION VI: SUMMARY OF FEES City of Palo Alto Page 25 Development Impact Fee Justification Study April 29, 2014 The total fee amounts to finance new development’s share of the costs of facilities in the Needs Lists are summarized in Tables 19 & 20 below. TABLE 19 DEVELOPMENT IMPACT FEE SUMMARY TABLE 20 DEVELOPMENT IMPACT FEE SUMMARY http://localhost/resources/home/Clients/Palo Alto/AB 1600 -2012/AB 1600 Update/DIFReport DRAFT v.8.docx Appendix A Fee Derivation Worksheets I. Inventory of Existing Facilities Facility Type Quantity Facility Units Public Safety Building (Replacement)0 Square Feet Fire Stations (Modernized)5 Integrated Facility Vehicles (Van, Trucks, Engines, Ambulances)18 No. of Vehicles Training Tower (Modernized)0 Integrated Facility Public Safety Facilities NA NA II. Existing EDU Calculation [a][d] Number of [b][c]Total Units/Persons Served per Unit/EDUs per Unit/Number of EDUs Land Use Type Non-Res. 1,000 SF 1,000 Non-Res. SF Per 1,000 Non-Res. SF [a]*[c] Single Family Residential 17,614 2.68 1.00 17,614 Multi Family Residential 10,843 2.12 0.79 8,577 Commercial 3,887 1.50 0.56 2,176 Office/Institutional 25,414 1.25 0.47 11,853 Industrial 18,099 0.50 0.19 3,377 Total 43,597 III. Existing Facility Standard Quantity Facility Type Quantity Facility Units per 1,000 EDU's Public Safety Building (Replacement)0 Square Feet 0 Fire Stations (Modernized)5 Integrated Facility 0.11 Vehicles (Van, Trucks, Engines, Ambulances)18 No. of Vehicles 0.41 Training Tower (Modernized)0 Integrated Facility 0 Public Safety Facilities NA NA NA IV. Future EDU Calculation [a][b][d] Number of Residents per Unit/[c]Total Units/Employees per EDUs per Number of EDUs Land Use Type Non-Res. 1,000 SF [1]Non-Res. 1,000 SF [2]Unit/per 1,000 Non-Res. SF [a]*[c] Single Family Residential 2,552 2.68 1.00 2,552 Multi Family Residential 1,571 2.12 0.80 1,257 Commercial 893 1.50 0.56 500 Office/Institutional 5,837 1.25 0.47 2,722 Industrial 4,157 0.50 0.19 776 Total 7,807 V. Proposed Inventory, Cost, and Service Standard Quantity Facility Type Quantity Facility Units Facility Cost per 1,000 EDU's Public Safety Building (Replacement)44,850 Square Feet $57,000,000 5,745.17 Fire Stations (Modernized)2 Integrated Facility $14,200,000 0.26 Vehicles (Van, Trucks, Engines, Ambulances)18 No. of Vehicles $17,000,000 2.31 Training Tower (Modernized)1 Integrated Facility $8,000,000 0.13 Offsetting Revenues $0 Total Cost of Public Safety Facilities $96,200,000 VI. Allocation of Public Safety Facilities to Existing & New Development (based on total EDUs) A.1 Public Safety Building Improvements [a][b][c][d][e][f][g] Existing Total Future SF Allocated 100%Proposed Service SF per EDU SF Beyond Existing Total Proposed SF Per EDU's To New Development [3]Standard Per Beyond Existing Service Standard [4] New SF 1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.00 7,806.55 0.00 5,745.17 5,745.17 44,850.00 44,850.00 City of Palo Alto Public Safety Fee Calculation A - 1 City of Palo Alto Public Safety Fee Calculation A.2 SF Beyond Existing Service Standard Split Between New and Existing, plus Facility Units allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%38,038.73 NA 38,038.73 New Development 7,807 15.19%6,811.27 0.00 6,811.27 Total 51,404 100.00%44,850.00 44,850.00 A.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type SF Cost Allocated Facility Cost Existing 38,039 84.81%$48,343,543New Development 6,811 15.19%$8,656,457 Total 44,850 100.00%$57,000,000 B.1 Fire Station Improvements [a][b][c][d][e][f][g] Existing Total Future Facility Units Allocated 100%Proposed Service Facility Units per EDU Facility Units Beyond Total Proposed Facility Units Per EDU's To New Development [3]Standard Per Beyond Existing Existing Service Standard [4]New Facility Units1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.11 7,806.55 0.90 0.26 0.14 1.10 2.00 B.2 Facility Units Beyond Existing Service Standard Split Between New and Existing, plus Facility Units allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%0.94 NA 0.94 New Development 7,807 15.19%0.17 0.90 1.06 Total 51,404 100.00%1.10 2.00 B.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type New Facility Units Cost Allocated Facility Cost Existing 0.94 46.85%$6,652,177New Development 1.06 53.15%$7,547,823 Total 2.00 100.00%$14,200,000 C.1 Public Safety Vehicles [a][b][c][d][e][f][g] Existing Total Future Facility Units Allocated 100%Proposed Service Facility Units per EDU Facility Units Beyond Total Proposed Facility Units Per EDU's To New Development [3]Standard Per Beyond Existing Existing Service Standard [4]New Facility Units1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.41 7,806.55 3.22 2.31 1.89 14.78 18.00 C.2 Facility Units Beyond Existing Service Standard Split Between New and Existing, plus Facility Units allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%12.53 NA 12.53 New Development 7,807 15.19%2.24 3.22 5.47 Total 51,404 100.00%14.78 18.00 A - 2 City of Palo Alto Public Safety Fee Calculation C.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type Facility Units Cost Allocated Facility Cost Existing 12.53 69.63%$11,836,499 New Development 5.47 30.37%$5,163,501 Total 18.00 100.00%$17,000,000 D.1 Public Safety Training Tower (Modernized) [a][b][c][d][e][f][g] Existing Total Future Facility Units Allocated 100%Proposed Service Facility Units per EDU Facility Units Beyond Total Proposed Facility Units Per EDU's To New Development [3]Standard Per Beyond Existing Existing Service Standard [4]New Facility Units 1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.00 7,806.55 0.00 0.13 0.13 1.00 1.00 D.2 Facility Units Beyond Existing Service Standard Split Between New and Existing, plus Facility Units allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%0.85 NA 0.85 New Development 7,807 15.19%0.15 0.00 0.15 Total 51,404 100.00%1.00 1.00 D.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type Facility Units Cost Allocated Facility Cost Existing 0.85 84.81%$6,785,059 New Development 0.15 15.19%$1,214,941 Total 1.00 100.00%$8,000,000 Section Cost Allocated Total Cost Per VI Facility Type to New Development Future EDU's EDU E.1 Public Safety Facilities $22,582,723 7,807 $2,892.79 Offsetting Revenues $0 7,807 $0.00 Total $22,582,723 $2,892.79 VIII. Development Impact Fee per Unit or per 1,000 Non-Res. SF EDUs Per Fees Per Number of Units/Cost Financed by Land Use Type Unit/1,000 Non-Res. SF Unit/1,000 Non-Res. SF Non-Res. 1,000 SF DIF Single Family Residential 1.00 $2,893 2,552 $7,382,429 Multi Family Residential 0.80 $2,314 1,571 $3,635,639 Commercial 0.56 $1,619 893 $1,445,601 Office/Institutional 0.47 $1,349 5,837 $7,875,517 Industrial 0.19 $540 4,157 $2,243,537 Total Allocated to New Development $22,582,723 Outside Funding Responsibility $73,617,277 Total Cost of Public Safety Facilities $96,200,000 Notes: [1] Expected Housing Units based on data provided by the City of Palo Alto's Planning Department, confirmed by ABAG. [2] Average Household Size Based on information obtained from the California Department of Finance (2013), City, and U.S. Census Bureau. [3] Allocates 100% to new development square feet or equipment necessary to fund existing service standard for new residents. [4] Denotes proposed service standard in excess to that currently provided to existing residents. VII. Summary Cost Data A - 3 I. Inventory of Existing Facilities Facility Type Quantity Facility Units City Office & Building Improvements (Modernized)0 Square Feet Municipal Services Center Replacement 0 Square Feet City Office & Building Improvements NA NA II. Existing EDU Calculation [a][d] Number of [b][c]Total Units/Persons Served per Unit/EDUs per Unit/Number of EDUs Land Use Type Non-Res. 1,000 SF 1,000 Non-Res. SF Per 1,000 Non-Res. SF [a]*[c] Single Family Residential 17,614 2.68 1.00 17,614 Multi Family Residential 10,843 2.12 0.79 8,577 Commercial 3,887 1.50 0.56 2,176 Office/Institutional 25,414 1.25 0.47 11,853 Industrial 18,099 0.50 0.19 3,377 Total 43,597 III. Existing Facility Standard Quantity Facility Type Quantity Facility Units per 1,000 EDU's City Office & Building Improvements (Modernized)0 Square Feet 0 Municipal Services Center Replacement 0 Square Feet 0 City Office & Building Improvements NA NA NA IV. Future EDU Calculation [a][b][d] Number of Residents per Unit/[c]Total Units/Employees per EDUs per Number of EDUs Land Use Type Non-Res. 1,000 SF [1]Non-Res. 1,000 SF [2]Unit/per 1,000 Non-Res. SF [a]*[c] Single Family Residential 2,552 2.68 1.00 2,552 Multi Family Residential 1,571 2.12 0.80 1,257 Commercial 893 1.50 0.56 500 Office/Institutional 5,837 1.25 0.47 2,722 Industrial 4,157 0.50 0.19 776 Total 7,807 V. Proposed Inventory, Cost, and Service Standard Quantity Facility Type Quantity Facility Units Facility Cost per 1,000 EDU's City Office & Building Improvements (Modernized)21,481 Square Feet $25,556,000 2,751.66 Municipal Services Center Replacement 83,000 Square Feet $60,450,000 10,632.09 Offsetting Revenues $0 Total Cost of General Government Facilities $86,006,000 VI. Allocation of General Government Facilities to Existing & New Development (based on total EDUs) A.1 City Office & Building Improvements [a][b][c][d][e][f][g] Existing Total Future SF Allocated 100%Proposed Service SF per EDU SF Beyond Existing Total Proposed SF Per EDU's To New Development [3]Standard Per Beyond Existing Service Standard [4] New SF 1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.00 7,806.55 0.00 2,751.66 2,751.66 21,481.00 21,481.00 A.2 SF Beyond Existing Service Standard Split Between New and Existing, plus SF allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%18,218.73 NA 18,218.73 New Development 7,807 15.19%3,262.27 0.00 3,262.27 Total 51,404 100.00%21,481.00 21,481.00 City of Palo Alto General Government Fee Calculation A - 4 City of Palo Alto General Government Fee Calculation A.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type SF Cost Allocated Facility Cost Existing 18,218.73 84.81%$21,674,870 New Development 3,262.27 15.19%$3,881,130 Total 21,481.00 100.00%$25,556,000 B.1 Municipal Services Center Replacement [a][b][c][d][e][f][g] Existing Total Future SF Allocated 100%Proposed Service SF per EDU SF Beyond Existing Total Proposed SF Per EDU's To New Development [3]Standard Per Beyond Existing Service Standard [4] New SF 1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.00 7,806.55 0.00 10,632.09 10,632.09 83,000.00 83,000.00 B.2 Facility Units Beyond Existing Service Standard Split Between New and Existing, plus SF allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%70,394.98 NA 70,394.98 New Development 7,807 15.19%12,605.02 0.00 12,605.02 Total 51,404 100.00%83,000.00 83,000.00 B.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type New Facility Units Cost Allocated Facility Cost Existing 70,394.98 84.81%$51,269,599 New Development 12,605.02 15.19%$9,180,401 Total 83,000.00 100.00%$60,450,000 Section Cost Allocated Total Cost Per VI Facility Type to New Development Future EDU's EDU C.1 City Office & Building Improvements $13,061,531 7,807 $1,673.15 Offsetting Revenues $0 7,807 $0.00 Total $13,061,531 $1,673.15 VIII. Development Impact Fee per Unit or per 1,000 Non-Res. SF EDUs Per Fees Per Number of Units/Cost Financed by Land Use Type Unit/1,000 Non-Res. SF Unit/1,000 Non-Res. SF Non-Res. 1,000 SF DIF Single Family Residential 1.00 $1,673 2,552 $4,269,893 Multi Family Residential 0.80 $1,339 1,571 $2,102,803 Commercial 0.56 $936 893 $836,116 Office/Institutional 0.47 $780 5,837 $4,555,089 Industrial 0.19 $312 4,157 $1,297,630 Total Allocated to New Development $13,061,531 Outside Funding Responsibility $72,944,469 Total Cost of General Government Facilities $86,006,000 Notes: [1] Expected Housing Units based on data provided by the City of Palo Alto's Planning Department, confirmed by ABAG. [2] Average Household Size Based on information obtained from the California Department of Finance (2013), City, and U.S. Census Bureau. [3] Allocates 100% to new development square feet or equipment necessary to fund existing service standard for new residents. [4] Denotes proposed service standard in excess to that currently provided to existing residents. VII. Summary Cost Data A - 5 Existing EDU Calculation Service Factor (Residents and Employees) Residents per Unit**/ Number of Persons Served per EDUs per Unit/Total Land Use Type Persons Served *1,000 Non-Res. SF per 1,000 Non-Res. SF Number of EDUs Single Family Residential 47,206 2.68 1.00 17,614 Multi Family Residential 22,987 2.12 0.80 8,674 Commercial 5,831 1.50 0.56 2,176 Office/Institutional 31,767 1.25 0.47 11,853 Industrial 9,050 0.50 0.19 3,377 Total 116,840 43,694 * Source: David Taussig & Associates; City of Palo Alto Comprehensive Plan, U.S. Census Bureau QuickFacts (American Community Survey). ** Persons Served = Residents plus 50% of Employees, customary industry practice designed to capture the reduced levels of service demanded by employees. Future EDU Calculation Service Factor (Future Residents and Employees) Residents per Unit**/ Number of Persons Served per EDUs per Unit/Total Land Use Type Persons Served *1,000 Non-Res. SF per 1,000 Non-Res. SF Number of EDUs Single Family Residential 6,839 2.68 1.00 2,552 Multi Family Residential 3,331 2.12 0.80 1,257 Commercial 1,339 1.50 0.56 500 Office/Institutional 7,296 1.25 0.47 2,722 Industrial 2,079 0.50 0.19 776 Total 20,884 7,807 * Source: David Taussig & Associates; City of Palo Alto Comprehensive Plan, U.S. Census Bureau QuickFacts (American Community Survey). ** Persons Served = Residents plus 50% of Employees, customary industry practice designed to capture the reduced levels of service demanded by employees. City of Palo Alto EBU & EDU Calculation Year to Build-Out (2035) A - 6 Public Finance Public Private Partnerships Urban Economics 2250 Hyde Street 5th Floor San Francisco, CA 94109 Phone (800) 969-4382 City of Palo Alto Development Impact Fees As per FY 2014 Adopted Municipal Fee Schedule page 17-3, with revisions Type of Project Parks Community Centers Libraries Housing Total Fees (NIC Transp.)Transportation Residential - New Homes Only* Single family < 3,000 sq. feet $10,638/residence $2,758/residence $963/residence EXEMPT $14,359/res. $3,197 per net new PM peak hr trip Single family >3,000 sq. feet $15,885/residence $4,129/residence $1,434/residence EXEMPT $21,448/res. $3,197 per net new PM peak hr trip Multi-family </= 900 sq. feet $3,521/unit $916/unit $316/unit EXEMPT $4,753/unit $3,197 per net new PM peak hr trip Multi-family >900 sq. feet $6,963/unit $1,815/unit $565/unit EXEMPT $9,343/unit $3,197 per net new PM peak hr trip Non-residential Commercial/Industrial $4,517 per 1,000 sq ft or fraction thereof $255 per 1,000 sq ft or fraction thereof $243 per 1,000 sq ft or fraction thereof $18.89 per sq ft $23.89 per net new sq ft $3,197 per net new PM peak hr trip Hotel/Motel $2,043 per 1,000 sq ft or fraction thereof $115 per 1,000 sq ft or fraction thereof $102 per 1,000 sq ft or fraction thereof $18.89 per sq ft $21.15 per net new sq ft $3,197 per net new PM peak hr trip Residential Subdivisions Single-family Multi-family Special Zones Traffic Impact Fee Stanford Research Park/El Camino Real CS Zone $11.08 per net new sq ft San Antonio/West Bayshore Area $2.28 per sq ft Charleston/Arastradero Commercial $0.34 per sq ft Charleston/Arastradero Residential $1,168 per unit Parking in-lieu fee for Downtown Assessment District $60,750 per parking space Notes: "Single-family" is defined as a single dwelling unit that does not share a common wall with another dwelling unit **In-Lieu Parkland Dedication Fee is an option only for projects of < 50 parcels. Fee Category Parkland Dedication Fee** *Square footage refers to living area, not lot size. 531 sq ft of parkland/unit or $58,366/unit in-lieu fee 366 sq ft of parkland/unit or $40,187/unit in-lieu fee Attachment C ACTION ITEMS 8. From Finance Committee Review of Development Impact Fees: List of Public Facilities Capital Needs. Lalo Perez, Administrative Services Director and Chief Financial Officer, indicated Staff was asked to review Development Impact Fees (DIF). Information was introduced at the Finance Committee a few months prior. Nathan Perez, Vice President of David Taussig and Associates (DTA), reported DIF were not taxes, special assessments, or user fees. DIF could not be used to cover ongoing operations, maintenance costs, and the like. Per AB 1600, DIF were an attempt to allow municipalities to recover their fair share from new development. DIF had a nexus requirement and could not be arbitrary. DIF required a great deal of demographic research and costing of projected facilities throughout the timeframe of the Nexus Study update. The current study covered the timeframe through 2035. Previously the City asked DTA to provide a comparative survey of DIF for peer communities to Palo Alto. There were not many peer communities to Palo Alto. Sometimes information was difficult to obtain, because staff in other cities were not always helpful. Per the Finance Committee's request, DTA reviewed DIF as a percentage of average home sales price. With the $1.5 million average home price in December 2013, Palo Alto was in line with other cities on the Peninsula. DTA recommended updating the Citywide transportation fee, adding a public safety fee for the Public Safety Building, and adding a general government fee for larger municipal offices and capital improvements. DTA sought the Council's approval of the needs list. Following Council approval of the needs list, DTA would calculate fee levels and then prepare a draft and/or final Nexus Study for review. If the final study reflected updates to fees, they would be incorporated via City Ordinance and could be a source for additional revenue in the future. Mr. Lalo Perez noted the Infrastructure Committee was working on funding for infrastructure projects. Some of the numbers on the needs list would not align to the infrastructure item later in the Agenda. Staff requested the Council focus on the list itself. The cost and funding sources would be updated as decisions were made. The needs list contained more projects than the infrastructure project list, because the Infrastructure Committee was considering projects that were not fundable with existing City funds. Staff compiled the needs list beginning with projects that were currently in the Capital Improvement Program (CIP). The needs list was a snapshot in time for projects likely to be undertaken. Staff initially had an effective date of July 1. It became evident in Finance Committee discussions that Staff needed more time to review the project list. The Finance Committee questioned why the water, sewer and storm drain fee connections seemed to Page 9 of 31 City Council Meeting Minutes: 03/03/14 be higher than surrounding benchmarked cities. In 2008, the Council approved an increase in fees be phased in over three years based upon a fee analysis. The resetting of that fee was based on a complete analysis of the total cost including projected needs for infrastructure. The City provided an exemption for residential remodeling. The Finance Committee also questioned the possibility of changing the residential remodeling exemption. Council Member Burt, Chair of the Finance Committee in 2013, reported the Finance Committee recommended the topic be an action item in order to provide adequate transparency and additional opportunity for public participation and Council comment. Three main areas dominated the Finance Committee's discussion: 1) whether the transportation fee was adequate; 2) why the wastewater fee was higher than surrounding cities; and 3) should the City have a public safety or fire fee. The Finance Committee did not want to limit Council discussion to those three topics. Vice Mayor Kniss requested the Finance Committee's determination as to why the City did not have a public safety or fire fee. Council Member Burt stated the Finance Committee did not make a determination. Vice Mayor Kniss asked why the City did not have a public safety or fire fee. Council Member Burt noted the Finance Committee discussed that. Vice Mayor Kniss wanted to know what would be required for the City to develop a public safety or fire fee. The City was always searching for ways to augment revenue. Mr. Nathan Perez needed the Council's approval of the needs list in order to develop fees. DTA would then utilize demographic information and cost to arrive at estimated fees. To calculate a fee, the costs in any given category were divided by generally the number of dwelling units projected over the horizon of the fee update. Vice Mayor Kniss felt the Council first should determine whether or not the City needed such a fee. She understood Council Member Burt wanted Council feedback. She wanted to know what the Council needed to do to get a policy on the table and then to decide whether or not to implement a fee. Mr. Lalo Perez referenced Attachment A of DTA's report, Item B Public Safety facilities. The first item was the Public Safety Building (PSB). At the time that the listing was compiled, the Council had multiple options for funding a PSB. Once the Council made decisions regarding a funding source, the $57 million amount in the table could change to $0. A fully funded project could Page 10 of 31 City Council Meeting Minutes: 03/03/14 not be contained in the needs list. As the Council made decisions, Staff could calculate an amount for a potential fee. Council Member Scharff asked if DTA would recommend changes to fee amounts based on the Nexus Study. Mr. Nathan Perez explained that consultants typically did not recommend new fees that were less than existing fees. The Council retained the authority to charge less than the existing fee amount. Council Member Scharff noted the City's park fee was substantially less than park fees charged in other cities. He inquired whether the Nexus Study would suggest the maximum park fee the City could charge. Mr. Nathan Perez reported the Nexus Study would utilize the costs noted in Attachment A divided by demographic numbers to calculate a projected fee moving forward. Park fees were omitted from the list because he understood that park fees would not be increased based upon total costs. Mr. Lalo Perez explained that most of the projects identified for parks was funded through the CIP. The net cost for identified park projects was very low. Community Services and Public Works Departments were approximately one year away from completing a Master Plan for parks; therefore Staff did not have a full picture of parks needs. Council Member Scharff did not believe Staff was ready to move forward with the study. He asked why a purchase of land for parks was not included in the needs list. Mr. Nathan Perez surveyed every City department for a list of projects. The threshold for needs for parks would not result in a higher fee. Council Member Scharff felt there were many needs for parks over the next 30 years. He was not comfortable moving forward on that basis. Mr. Nathan Perez reported the parks list of projects was inclusive, but the ultimate cost of the facilities on that list would not be great enough to increase the fee. Council Member Scharff asked if the list contained all the facilities, including additional parks, that could possibly be needed. Staff presented information before completing the Master Plan for parks. Mr. Lalo Perez noted the Council in the future could consider any fees that were not adjusted at the current time and have the Master Plan as a source. Page 11 of 31 City Council Meeting Minutes: 03/03/14 If the Council delayed its decision, it could lose the opportunity of adjusting other fees at the current time. Council Member Scharff asked if the Council could carve out the parks fee and return to it in the future. Mr. Nathan Perez answered yes. Parks could be omitted at the current time and the fee would remain the same. DTA could either add new categories or increase other categories as applicable. Council Member Scharff reiterated that the parks fee would remain in place and the Council could review it at a later time. Mr. Keene indicated the Council typically reviewed DIF every two to four years. Staff could perform the review more often if the Council directed them to do so. Council Member Scharff asked why Cubberley was not included in the needs list. Mr. Lalo Perez reported the needs for Cubberley were not fully known. Council Member Scharff stated the amount for a PSB was not known, and asked how that discussion was different from Cubberley. Mr. Lalo Perez explained that the review of DIF had been delayed because of the number of pending decisions. At the current time, the Council was more likely to make a decision regarding the PSB than Cubberley. Cubberley needed a great deal of negotiation and discussion. To include Cubberley in the needs list, Staff needed a degree of certainty that a project would occur. Council Member Scharff inquired whether the needs list was a vision for the community through 2035 or simply a list of projects that needed a funding source. He did not see a consistent methodology. Mr. Keene commented that the goal was to set a fee that was applied in a given year to a new construction project. The Council could adjust fees each year. Nothing precluded the Council from marginally adjusting one area without reviewing all areas. Mr. Nathan Perez noted the recommendations considered the total cost per category. Given the lack of dollars in some categories, DTA determined that updates could be better discussed at a later time. Mr. Keene reported the needs list did not contain all definite unfunded capital needs or community facilities. The Council could set a policy Page 12 of 31 City Council Meeting Minutes: 03/03/14 direction to add those needs. At the same time, DIF were practically applied when a building permit was obtained. If the Council delayed adjustments on recommended categories to obtain information for all categories, then the City would lose revenue from increased fees for recommended categories. Moving forward on some categories was in the City's best interests even if the Council acknowledged it needed additional information for other categories. Council Member Scharff understood the City Manager suggested reviewing DIF more frequently. He asked if more projects should be contained in the needs list even though they could be removed from the list by November 2014. Mr. Lalo Perez acknowledged that Staff should have given the Council the full list of areas considered so the Council could appreciate the extensive review. The full list for parks and recreation facilities contained 33 items totaling a net cost of $57 million and included $6 million for athletic fields at the Golf Course, $11 million for a City gymnasium, Cubberley field restrooms, Cubberley roof replacement, Cubberley mechanical and electrical upgrades, and Cubberley tennis courts. Even after including those dollar figures, the analysis determined that an increased fee was not warranted. Council Member Scharff stated rates did not necessarily decrease. Mr. Nathan Perez responded correct. The Council retained authority to charge less. Council Member Scharff asked if the City was forced to lower the rate because cost amounts were insufficient to maintain the current fee amount. Mr. Nathan Perez replied no. Council Member Scharff inquired whether legally the Council was required to reduce an existing fee. Mr. Nathan Perez indicated the law did not specifically state that. City departments did an excellent job of reviewing projects. He did not encourage benchmarking or finding a certain number that would result in increased DIF. Staff developed a list of needs that did not meet the threshold to increase rates. It could happen in a few years, at which time the rates could be updated. Council Member Scharff inquired whether a decision was made on the three issued mentioned at the Finance Committee meeting. Page 13 of 31 City Council Meeting Minutes: 03/03/14 Mr. Nathan Perez remarked that if the Council chose to eliminate big-ticket items from the list, then they would be removed from the list prior to calculating fees. Council Member Scharff added that some big-ticket items needed to be added to the list prior to calculating fees. Council Member Burt mentioned a transportation fee, a wastewater fee, and a public safety fee. The question was whether they would be included in the study to determine a fee. Mr. Lalo Perez reported a transportation fee would be studied because the net cost of many of the projects was relatively stable. Several projects, especially the PSB, might be eliminated resulting in a low amount of costs and a smaller fee. The Council should proceed with consideration of a transportation fee until it made the final decisions on those projects. The general government facilities fee could proceed, because MSC funding sources were unclear. Council Member Scharff asked why the MSC with an approximate cost of $300 million was not included in the list. Mr. Lalo Perez Staff explained that the dollar amount was not reliable and was part of the CIP process. Council Member Holman noted that parking impact fees were not included on the list to be increased and had not been updated since 1989. The in-lieu parking fee for Downtown development was updated in 1995 and recommended for update. She asked why those were not included on the list. Mr. Nathan Perez agreed that those fees may need to be updated. Zonal fees were outside the scope of DTA's contract. Mr. Lalo Perez explained that Staff was reviewing fees in manageable groups and would continue the process with all fees. Council Member Holman stated the definition of home demolition needed to be changed, because of the exemption from impact fees and the lack of proper assessment for property taxes. She inquired about the number of projects that were more than 50 parcels in reference to page 87, Residential Subdivisions of Over 50 Parcels. Mr. Lalo Perez did not have an answer but would report back. Council Member Holman felt the number should be lower, certainly not 50 as she could not think of a single project over 50 parcels. She asked if a California Avenue in-lieu fee was outside the scope of the presentation. Page 14 of 31 City Council Meeting Minutes: 03/03/14 Mr. Lalo Perez answered yes. Council Member Holman concurred with Council Member Scharff's comments regarding parks. She inquired whether Staff presented the impact fee to the Parks and Recreation Commission for consideration. Mr. Lalo Perez replied no. That had not been a part of the process. Council Member Holman suggested Staff not be married to process. The chart was all based on residential information. Mr. Keene noted non-residential, commercial and industrial could be found in the middle of the chart. Council Member Holman had nothing to compare non-residential information to as the chart was not provided in the packet. It was important to know how Palo Alto tracked with other communities. Mr. Lalo Perez would include that information in future Staff Reports. Council Member Holman inquired whether Staff could provide that information when the item returned to the Council. Mr. Nathan Perez replied yes. Council Member Holman noted the Staff Report did not contain the chart referenced in the Finance Committee Minutes, which made it difficult to follow the discussion. The chart appeared to be misleading because it included the sewer hookup fee in the water, sewer, and storm drain fee. Mr. Nathan Perez could reflect it either way. It was an outlier in otherwise consistent data. Council Member Holman felt it should at least have a footnote. Mr. Lalo Perez indicated each agency within Santa Clara County set fees in different manners. Mr. Nathan Perez reported the comparison was difficult because Palo Alto suggested a larger water main diameter than other cities. Each city had different requirements that had to be considered in a comparison. Council Member Holman was unsure whether commercial and industrial was lower than residential. Mr. Nathan Perez would provide that data. Palo Alto was relatively lower compared to peer communities on the non-residential side. Page 15 of 31 City Council Meeting Minutes: 03/03/14 Council Member Klein inquired about the amount of money collected and the length of time required to collect sufficient funds to construct a PSB. Mr. Nathan Perez did not believe the City would collect sufficient funding over the timeframe of the study. Fees would assist with funding but would not solely fund a $57 million project. The cost of the project had to be allocated between existing and new development. Using 25 percent for new development, the fee would finance a maximum of $15 million. Council Member Klein inquired about the source of 25 percent. Mr. Nathan Perez explained that 25 percent was an approximation for discussion. It generally considered existing versus future demographics. Council Member Klein assumed that new construction, both commercial and residential, would result in 1-2 percent of existing stock. Mr. Nathan Perez concurred. Palo Alto was largely built out. The Nexus Study could result in a figure closer to 15-20 percent. Council Member Klein clarified that 15-20 percent was over the 20-year period. Utilizing gross numbers, the most a fee devoted to the PSB would generate was 20 percent of the cost over 20 years. Mr. Nathan Perez agreed. Council Member Klein calculated the present value to be a quarter of that or 5 percent. That fee would generate only a few million of the needed $57 million. Mr. Nathan Perez concurred. Council Member Klein inquired about the amount of funds collected from DIF. Mr. Lalo Perez did not have a cumulative total, but the transportation fee collected $600,000 and the wastewater fee collected $1.3 million. Council Member Klein asked about the time period over which those collections spanned. Mr. Lalo Perez reported funds had to be utilized within a five-year period. Council Member Klein noted the report was delivered to Staff in May 2012, and asked why Staff delayed presenting it to the Council for 22 months. Page 16 of 31 City Council Meeting Minutes: 03/03/14 Mr. Lalo Perez indicated the lack of a Budget Director prevented the project from being a high priority for Staff. Council Member Klein believed the City had cost itself money because the project was not presented sooner. Mr. Lalo Perez agreed there could have been a loss of revenue on the transportation side. He did not know whether Staff would have had a good inventory of projects if the project was presented sooner. Council Member Klein inquired whether Staff could have hired a temporary person with sufficient skills to shepherd the project. Mr. Lalo Perez explained that such a person would need a certain amount of internal knowledge to navigate the multitude of departments and personnel to obtain data. Council Member Price recalled Mr. Nathan Perez's comments regarding cities not being forthcoming with information. She inquired whether the various city categories in the chart of comparative survey results was a true picture of all fees. Mr. Nathan Perez reported it was a true picture except for the City of Santa Clara. Council Member Price felt the information contained significant gaps, and asked if Mr. Nathan Perez was comfortable with the information. Mr. Nathan Perez replied yes. Council Member Price asked if the information was complete. Mr. Nathan Perez responded yes. Affordable housing was the one category that was charged incredibly differently across all cities. The affordable housing category was sometimes difficult to equalize on a per unit basis. Council Member Price concurred with other comments regarding adding Cubberley to the list. This was a phased approach to DIF, because the Council was attempting to determine a logical and proper methodology. She inquired whether Mr. Nathan Perez's experience included situations where DIF contained automatic Cost of Living Adjustment (COLA). Mr. Nathan Perez reported that was quite common. Mr. Lalo Perez added that COLA was utilized when fees were below 100 percent. The Council policy was not to set some fees at 100 percent. The Page 17 of 31 City Council Meeting Minutes: 03/03/14 Council was concerned about total impacts to projects. That was the reason Staff did not mention use of an inflator. Council Member Price asked if Staff considered cumulative impacts rather than built-in adjustments for each category. Mr. Lalo Perez indicated that was the Finance Committee's focus. Council Member Price suggested Staff include more clarification points in the chart. In facility costs or estimated facility costs, Staff should note the baseline year. She inquired whether Mr. Nathan Perez was aware of the Council's sensitivity to projected rates of growth promulgated by different agencies. Mr. Nathan Perez answered yes. Council Member Price asked if his assumptions were consistent with Council policies. Mr. Nathan Perez replied yes. Mayor Shepherd indicated the impact fees were for a new unit of housing. She viewed the project as an effort to capture brand new fire stations and police stations. There was a parks policy which Staff followed. MOTION: Mayor Shepherd moved, seconded by Vice Mayor Kniss to approve the Development Impact Fee (DIF) Project Needs List prior to having the City’s consultant prepare the quantitative analyses and narratives needed to update some categories of the City’s Development Impact Fees. Mayor Shepherd expected the discussion would evolve and recognized that the Council would need to make decisions regarding infrastructure. Vice Mayor Kniss agreed the discussion would continue. Staff asked the Council to approve a particular recommendation. Council Member Burt noted the Committee reviewed DIF in early November 2013. Since that time, the Council had moved forward with infrastructure projects. The Finance Committee was interested in vetting thoroughly a number of major areas. Because of changes over the last five months, returning the item to the Finance Committee for an update could be appropriate. SUBSTITUTE MOTION: Council Member Burt moved, seconded by Council Member Scharff to return this item to the Finance Committee to be re- evaluated. Page 18 of 31 City Council Meeting Minutes: 03/03/14 Council Member Burt reiterated that a number of projects had changed since the Finance Committee reviewed DIF. Returning the item to the Finance Committee would not require a great deal of Staff time. He wished to move the item forward rapidly and integrate the study with changes made in infrastructure planning. Council Member Scharff felt a more thorough vetting by the Finance Committee would be productive and would save time. Mr. Keene reported returning the item to the Finance Committee would require some direction to Staff. Staff and DTA could continue with the rational nexus component. Staff could work more quickly with clear direction from the Council about specific gaps in the capital facilities needs plan. Council Member Klein was aghast that the Finance Committee would require six months to vet the item. He requested Council Member Burt amend the Substitute Motion to indicate the Finance Committee would provide a recommendation to the Council, hopefully on the Consent Calendar, within 60 days. Council Member Burt felt 90 days would be reasonable. Council Member Klein wished the Finance Committee would complete its review prior to beginning Budget hearings. Perhaps the Finance Committee could provide a recommendation by May 15, 2014. Council Member Burt requested the City Manager comment. Council Member Klein suggested the Finance Committee would have more work than Staff would have in vetting the item. Council Member Burt noted Staff needed to reflect changes made by the Infrastructure Committee, input from the Finance Committee, and input from the Council discussion. Council Member Klein agreed to the item returning to the Council in three months, by the Council's first meeting in June. Council Member Burt concurred. The item might be imperfect at that time, but it would be more contemporary. Council Member Scharff preferred to wait for work to be complete than to have imperfect information. He questioned whether the item should return on the Consent Calendar. Page 19 of 31 City Council Meeting Minutes: 03/03/14 Council Member Klein indicated a return on the Consent Calendar was only a hope. He wanted to see an item returned to the Council by the first meeting in June 2014. Mr. Keene explained that if the Finance Committee identified other capital facility objectives, then that would require a rigorous analysis by Staff. Projects should not be driven by a desire to set a new fee. The same Staff would be working on this item and the Budget. Council Member Scharff would agree to the Finance Committee hearing the item in May 2014. The Finance Committee could decide it was not ready for the Council at that time. He did want the Finance Committee to hear the item prior to beginning the Budget. Council Member Klein expressed concern that the item had already been delayed two years as that cost the City money. Council Member Scharff felt acting too quickly could also cost the City money. Council Member Klein believed if the Finance Committee did not finish the item prior to beginning Budget hearings, then it would have a good excuse not to work on it. INCORPORATED INTO THE SUBSTITUTE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER to direct Staff to bring this back to the Council on Consent Calendar, contingent on a unanimous vote by the Finance Committee, and to return to the Council by the first meeting in June 2014 with whatever portion is ready. Council Member Holman requested Staff answer questions such as the meaning of residential subdivision of over 50 parcels. She inquired about the basis for Mr. Nathan Perez stating commercial impact fees appeared to be low compared to other communities. She suggested the Finance Committee complete as much work as soon as possible and then determine whether a second phase of work was needed. Mayor Shepherd indicated the Finance Committee would have to make that determination. Council Member Burt agreed with the Finance Committee having the discretion to bring some or all of the item to the Council at the same time. The item would return on the Consent Calendar only if there was unanimous approval by the Finance Committee. Page 20 of 31 City Council Meeting Minutes: 03/03/14 Council Member Schmid agreed with many of Council Member Scharff's comments. The Council was assessing DIF by utilizing the current CIP. Using the CIP allowed the Council to determine the real expenditure for the range of infrastructure needs at a point in time. The Council should not chase itself by going back to the Finance Committee and removing some items. The goal was to get a picture at one point time and use that as a framework. Council Member Price inquired whether Staff had sufficient information and guidance to make some progress on this item, to make changes. Mr. Keene reported if the work at the Finance Committee was anything like the current discussion, Staff would not return for a long time. The Amendment to the Substitute Motion was important. Staff did not provide a meaningful response about the amount of work needed for this item. Staff work needed to be contained if the Council wanted action at the current time or in three months. The Council would have to settle for something less than all the topics mentioned during the Council discussion. To do the work correctly, Staff would need additional involvement from the Planning Department, which was involved in many other Council projects. Council Member Berman indicated Council Member Schmid's comments were profound in that the Council could be chasing itself in trying to find the perfect list of projects. He inquired whether the Finance Committee would remove projects that were on the infrastructure list and maybe add projects that had not been identified. Mr. Lalo Perez stated that was his understanding. Staff would focus on the three areas in their recommendation, rather than everything else. Council Member Berman asked if the PSB would be removed from the list if the Council decided to fully fund it regardless of the item returning to the Finance Committee. Mr. Lalo Perez answered yes. Council Member Berman asked when the analysis would be completed if the item was not returned to the Finance Committee. Mr. Nathan Perez reported the goal would be to provide estimated fees for the categories discussed to Staff within a month, and then to review those fees with the Finance Committee or the Council. He wished to provide fee levels as soon as possible. Council Member Berman inquired whether projects contingent upon a community vote would remain on the list. Page 21 of 31 City Council Meeting Minutes: 03/03/14 Mr. Nathan Perez responded yes. Council Member Berman would support the Motion, because the information was sufficient. Mr. Nathan Perez added that if the PSB were removed in two months, he would have to redo everything because the PSB was such a large project. Council Member Klein would not support the Substitute Motion because of the language regarding the Finance Committee providing whatever portion was ready. Mayor Shepherd would not support the Substitute Motion. Council Member Schmid articulated the situation well. The changes the Council made with regard to infrastructure would be reflected in the list without returning the item to the Finance Committee for review. SUBSTITUTE MOTION AS AMENDED FAILED: 3-6 Burt, Holman, Scharff yes MOTION PASSED: 8-1 Holman no Council Member Holman inquired when Staff could provide requested information regarding fees. Mayor Shepherd indicated Staff could provide the information outside the Council meeting due to the lack of time. She inquired whether the Council would have sufficient time to address Agenda Item Number 10, naming the Main Library. Mr. Keene announced naming of the Main Library would be continued to a date uncertain. MOTION: Council Member Scharff moved, seconded by Vice Mayor Kniss to discuss Agenda Item No. 11 prior to Agenda Item Number 9. MOTION PASSED: 7-2 Schmid, Shepherd no Mr. Keene requested a time check-in at 10:00 P.M. to determine whether Staff could be excused from the meeting. 11. Infrastructure Project and Funding Plan. Richard Hackmann, Management Analyst, recalled that the Infrastructure Committee met three times since the item was last before the Council on December 9, 2013. The Infrastructure Committee recommended the Council Page 22 of 31 City Council Meeting Minutes: 03/03/14 {1}{2}{3} Facility Name Total Cost for Facility Off-setting Revenues Net Cost to City A. PUBLIC SAFETY FACILITIES 1. Police Facilities 1 Public Safety Building ("PSB") - Replace (44,850 square feet)$57,000,000 $0 $57,000,000 Subtotal $57,000,000 $0 $57,000,000 2. Fire Facilities 2 Fire Station 3 (Rinconada Park - built 1948) - Replace $6,700,000 $0 $6,700,000 3 Fire Station 4 (Meadow/Middlefield - built 1953) - Replace $7,500,000 $0 $7,500,000 5 BC Van (x 2)$200,000 $0 $200,000 6 Fire Trucks (x 2)$2,000,000 $0 $2,000,000 7 Type III Engine (x 2)$800,000 $0 $800,000 8 Training Tower & Related Land Acquisition $8,000,000 $0 $8,000,000 9 Type I Engine (x 8) - 2024 $4,200,000 $0 $4,200,000 10 Ambulances (x 4) - 2022-2025 $1,300,000 $0 $1,300,000 11 Vehicles (Van, Trucks, Engines, Ambulances)$8,500,000 $0 $8,500,000 Subtotal $39,200,000 $0 $39,200,000 12 Pubic Safety Revenues not yet Committed $0 $0 TOTAL PUBLIC SAFETY FACILITIES $96,200,000 $0 $96,200,000 1 Information Technology Upgrades $750,000 ($75,000)$675,000 2 Buildings Systems Improvements $6,300,000 ($100,000)$6,200,000 3 Civic Center Plaza Deck $16,000,000 $0 $16,000,000 4 Municipal Services Center Improvements (through 2020) $ 1,991,000 $0 $1,991,000 5 Municipal Services Center - Replace (after 2020)$93,000,000 ($32,550,000)$60,450,000 6 Ventura Buildings Improvements $690,000 $0 $690,000 7 General Government Revenues not yet Committed $0 $0 TOTAL GENERAL GOVERNMENT FACILITIES 118,731,000$ (32,725,000)$ 86,006,000$ GRAND TOTAL $214,931,000 -$32,725,000 $182,206,000 B. GENERAL GOVERNMENT FACILITIES (COMMUNITY CENTER, INFORMATION TECHONOLOGY, PUBLIC ART, ETC.) ATTACHMENT E CITY OF PALO ALTO DEVELOPMENT IMPACT FEE PROGRAM PUBLIC FACILITIES NEEDS LIST THROUGH 2035 1 Attachment F Attachment F Attachment F Finance Committee Minutes Special Meeting Tuesday, May 6, 2014 Chair Berman called the meeting to order at 8:17 P.M. in the Council Chambers, 250 Hamilton Avenue, Palo Alto, California. Present: Berman (Chair), Burt, Holman, Kniss Absent: ORAL COMMUNICATIONS None. AGENDA ITEMS 1. Proposed Changes in Development Impact Fees: Implementation of New Public Safety Facility and General Government Facilities Fees. Lalo Perez, Chief Financial Officer, reported Staff began the process of reviewing Development Impact Fees (DIF) with a benchmark study conducted by David Taussig & Associates (DTA). The process called for development of a project needs list. From the net project cost of needs, only 15 percent could be attributed to new development. The vast majority of funds were allocated to current residents. Staff suggested the Finance Committee (Committee) focus on two new fees. In November 2013, the Committee recommended the project needs list be forwarded to the Council. The Council accepted the list of projects for the two new DIFs. In April 2014, DTA completed a nexus study and developed two new fees, one for a Public Safety Facility and one for General Government Facilities. Staff recommended the Committee review the fees and make a recommendation to the Council. DTA did not recommend changes to existing DIFs. Nathan Perez, David Taussig & Associates, developed DIF amounts that satisfied legal and technical requirements of Government Code Section 66000, also known as the Fee Mitigation Act and Assembly Bill 1600 (AB 1600). The goal of AB 1600 was to demand that new development only pay its fair share. Existing deficiencies could not be charged to new development. The fee calculation employed the concept of an Equivalent Dwelling Unit (EDU) to equalize or normalize impacts of residential versus non-residential development. The Planning Department provided 1 Minutes demographics, and he confirmed them generally against Association of Bay Area Governments (ABAG) and U.S. Census data. The nexus for the proposed DIFs was that new development demanded public safety and general government facilities. Mr. L. Perez recommended the Committee adopt the two DIFs at 75 percent, consistent with current DIFs. He corrected a statement on Packet Page 7 in that the revenue for a Public Safety Building would be derived from the Transient Occupancy Tax (TOT) increase on new hotels only. MOTION: Vice Mayor Kniss moved, seconded by Chair Berman that the Finance Committee recommend the City Council review the Development Impact Fee (DIF) Justification Study prepared by David Taussig & Associates and approve the recommended new Public Safety Facility and General Government Facility impact fees at 75 percent of the maximum allowable level. Vice Mayor Kniss understood existing homes would not be affected by new DIFs. Council Member Holman recalled inquiring about commercial impact fee rates and learning that commercial rates were low. That was not reflected in the Staff Report. The chart for Total Fees as an Average of Average Home Price included office, retail, and industrial fees. Those numbers and percentages were low. She asked how Staff accounted for those differences. The descriptions for charts on Packet Pages 6 and 34 were different. The presentation stated different classifications of non-residential use had different demand. Daytime demand for emergency services was much greater than nighttime demand, which indicated that non-residential demand was greater than residential demand. Fees for non-residential appeared to be low. Mr. N. Perez believed the grouping was a product of charging the affordable housing fee to commercial only and then industrial, research, and development. Folks were not typically interested in industrial fees. Council Member Holman inquired whether office was not charged an affordable housing fee. Mr. N. Perez responded yes, the affordable housing fee was not charged to office. It was grouped in that manner because the $17.90 charge was not levied on office. The current proposed fee structure was approximately 60 residential/40 non-residential. That could be modified, but it was within the range of acceptable. Tilting it toward non-residential posed problems, because some residents were employees and they were the same people 2 May 6, 2014 Minutes demanding daytime services. Bi-furcating it would be very difficult. DTA typically employed a service factor of 50 percent to account for that. Chair Berman asked if Council Member Holman was questioning whether the City's office, retail and industrial fee was lower than other communities' fees. Council Member Holman clarified that she was asking whether the City was low compared to demand being created and low compared to other communities. Mr. N. Perez viewed fees by category and then rolled them into a non- residential fee. Non-residential fees as a whole could be low compared to peer cities. Council Member Holman stated the Committee was considering implementing two fees, one of which is for public safety. There was a direct relationship. James Keene, City Manager, asked if Council Member Holman wanted to know whether the City's non-resident fees for public facilities and public safety were low in comparison to other cities. Mr. N. Perez did not believe non-residential public safety and general government fees were low. Chair Berman interpreted the table differently. The City was lower than other communities on residential and higher than other communities on office and commercial. For example, the City's retail/industrial was twice the average of the other eight cities. Council Member Burt referred to the table heading "total fees as percent of average home price," and asked why office fees or retail/industrial fees would be correlated to home price. Mr. Keene indicated the heading was wrong. Nancy Nagel, Senior Management Analyst, explained that DTA presented the residential fees as a percentage of home price. She extrapolated from that and also looked at non-residential as a way of comparing communities. Non-residential properties could pay more in Palo Alto possibly for the same reasons that home prices were elevated in Palo Alto. Council Member Burt did not understand the impact of average home price in eight other cities on office and retail/industrial, and inquired about the comparison. 3 May 6, 2014 Minutes Ms. Nagel advised it was the average home price of all eight cities. Mr. Keene clarified that Council Member Burt was inquiring about the office component. Ms. Nagel utilized per 1,000 square feet for the percentages. Mr. Keene reported the fees were 1.2 percent of the cost per 1,000 square feet. Ms. Nagel stated that the fees per 1,000 square feet of office were 1.2 percent of the average home price in the other cities. Council Burt did not see the relevance of that information. Mr. N. Perez understood the information indicated office space would cost more generally. Mr. Keene interpreted the data to mean Palo Alto's fees were significantly higher than the average fees per square foot in the eight other cities. Vice Mayor Kniss asked Council Member Holman if she felt fees were too low and should be altered. Council Member Holman believed fees were too low. The presentation discussed residential and non-residential development in a couple of places. The fourth paragraph on page 4 of the Staff Report stated in part, Staff's list of unfunded projected needs, given ABAG and Staff's projected population growth rates ...." Population growth rates spoke to residential. She questioned the impacts from office increases. She did not understand whether the City was charging the correct rates for non-residential. Mr. N. Perez considered the differential between existing and new. The most important point was like comparisons. Palo Alto had great jobs data, so DTA reviewed the existing number of jobs versus the bump to 2035. Council Member Burt stated the City had relatively poor data. The Council held significant community and Staff discussions regarding the uncertainty of jobs data from various sources. If Mr. N. Perez had good jobs data, the Council wanted to hear it. Mr. N. Perez indicated Staff provided him with jobs data. He meant the data was good relative to data provided by other communities. 4 May 6, 2014 Minutes Council Member Burt reported that the City did not have a business registry or a business license tax. Mr. Keene reiterated that Mr. N. Perez received data from Staff that was good relative to the data other jurisdictions gave him. That did not mean that within Palo Alto the data was viewed as good. In commercial just as in residential, the number of people determined service levels. The Committee was interested in more accurate data regarding the business/commercial side of the employee base. Once the City instituted a business registry and obtained more specific employee counts, Staff and the Council would automatically consider changing DIF methodologies. Council Member Burt explained that Palo Alto was one of a small number of cities that had neither a business registry nor a business license tax. Those were fundamental vehicles by which other cities gathered data. He did not understand how the City had better data when it lacked the most valuable tool in gathering data. He needed Staff to reconcile Mr. N. Perez's understanding that he received solid data on jobs and the Council's understanding that Staff did not have that data. Mr. N. Perez was utilizing the differential or margin of difference. To the degree there was a flaw in existing data and it was carried through to future projections, the flaw would be equalized. Council Member Burt felt the 60/40 ratio may not apply either, because the City's jobs to resident ratio was quite different from almost every other city as well. It was not just the differential moving forward; it was the baseline as well. Mr. Keene clarified that the consultant made a qualitative statement about the data. He would prefer to discuss methodologies. Council Member Burt could agree to continuing the discussion if the Committee began with that premise. If the premise was that the City had good data, he could not agree to continue. Mr. Keene believed the consultant drew conclusions based on factors other than Staff indicating the data was good. He inquired whether a lack of good data would change Mr. N. Perez's recommendations. Mr. N. Perez responded no. Council Member Holman was trying to understand the information and the basis for the recommendation. She inquired about the City's daytime population. 5 May 6, 2014 Minutes Mr. Keene asked if she wanted the non-resident population as well. Council Member Holman requested daytime population compared to nighttime population. Mr. Keene reported daytime population included workers who did not live in Palo Alto, and asked if that was the figure she wanted. Council Member Holman replied yes. She wanted to know why residential paid 60 percent and non-residential 40 percent of fees when the City had 99,000 office workers and 65,000 residents. Mr. Keene did not know the exact number for daytime population. Mr. Steve Levy reported the City had the highest jobs to resident ratio in the state at more than 3:1. It would be fair to say that a 60/40 split would not be a normal distribution for Palo Alto. Council Member Holman reiterated that 60/40 was the recommendation. Those were her concerns about the foundation of the recommendations. Council Member Burt had heard 99,000 and 120,000 for daytime population. He inquired whether the normal split of fees would be 60 percent residential and 40 percent commercial. Mr. N. Perez indicated the fees as calculated were 60/40. Council Member Burt asked if that was a typical approximation for other cities. Mr. N. Perez advised other cities would have a higher residential burden, perhaps 75/25 or 70/30. Council Member Burt remarked that the City had a baseline of residents who remained in the community during the day. The higher service level served both the baseline of residents during the day and workers. He inquired about assumptions or base figures utilized for number of workers in calculating the 60/40 baseline. Mr. N. Perez utilized 65,000 to 75,000 existing residents and approximately 90,000 existing jobs. For 2035, he assumed an additional 10,000 residents and an additional 20,000 jobs. Council Member Burt asked if a jobs figure of 120,000 would change calculations. 6 May 6, 2014 Minutes Mr. N. Perez reported it would not change the existing versus new, assuming projections for the future would be based on the same data. The number of jobs would change the burden between residential and non-residential. There were two elements to the calculations, and the Committee was discussing the second one. Council Member Burt inquired whether the baseline would change. Mr. N. Perez replied yes. Council Member Burt asked if the proportionate increase was the second consideration. Mr. N. Perez answered yes. The percentage as the existing incremental differential would not change it. If the gradient remained roughly the same, then it would not really change the burden. Council Member Burt inquired whether a significantly higher number of existing daytime workers than used in calculating other fees would change the calculations for the amount the City charged commercial currently. Mr. N. Perez would need to know the employee count for the target year and the percentage increase. The important component was the differential. Council Member Burt understood the issues to be whether the City had been charging the correct fees and what fees should be charged in the future. The City had a critical need for data. Mr. N. Perez had never seen a 50/50 split. A 50/50 split would create backlash from developers. Council Member Burt asked if Mr. N. Perez had worked with other communities that had twice as many workers as residents. Mr. N. Perez answered of course not. Council Member Burt felt Palo Alto was an anomaly in terms of the job to resident ratio. Because Palo Alto was different from other cities, he struggled with comparing Palo Alto to other communities. Mr. N. Perez advised that counting an employee as 50 percent of a resident was an industry standard. He could examine changing that; however he would have reservations. If there was a different service factor, he could 7 May 6, 2014 Minutes investigate and rerun the numbers. There was a defensibility to being a unique community; however, he had never seen a fee study like that. Council Member Burt asked if Mr. N. Perez stated the rule of thumb was one worker equaled 50 percent of a resident. Mr. N. Perez responded yes. Council Member Burt stated that a 60/40 split would not be correct for 65,000 residents and 120,000 workers. Mr. N. Perez concurred. Analyzing the workers was very difficult. Mr. L. Perez understood the Committee's concerns. The Committee could make decisions based on the current data and direct Staff to return in two years when new demographics and data sets were available. Mr. Keene supported that as the City could update and enhance fees at a later time. If the Committee recommended fees outside the norm, then Staff would need to perform sophisticated modeling to defend moving outside the norm. He recommended the Committee adopt improvements now and direct Staff to return later with updates as better information became available. Mr. N. Perez advised Staff was conscientious about the data they gave him. He did not see that very often. Council Member Holman noted jobs numbers had been published on the City's web site and other places. Defensibility was an important criteria. Fair share was an exceedingly important criteria. Residents recognized that they subsidized non-residential development in the community. Everybody should be responsible for their fair share; as best the City could calculate fair share. AMENDMENT: Council Member Holman moved, seconded by Council Member XX to split the residential and non-residential impact fees to 50/50 from 60/40. Vice Mayor Kniss felt 50/50 might be more fair, but she did not believe the City could defend it. The Committee's responsibility was to deliver the data to the Council along with a recommendation that in the future non- residential should bear more of the burden. AMENDMENT FAILED DUE TO LACK OF SECOND 8 May 6, 2014 Minutes Council Member Holman would vote against the Motion. Other Council Members would share her questions. She did not see the recommendation as fair share. A great deal of information was available regarding the unique jobs/housing imbalance. Council Member Burt did not support the Amendment because the Committee did not have sufficient data to make a determination. A 50/50 split would be based upon an assumption of slightly more than 120,000 workers. The Committee did not have that data. That would not be a new industry standard; that would be a new assumption on the data. He inquired about a timeline for updates regarding data. Mr. Keene reported that a business registry would be the most direct path to obtaining good data. He did not recall the timeframe for instituting a business registry. A year would be a realistic timeframe to collect sufficient data to conduct a good comparison. Staff would need an additional six months to determine how to apply data, how to factor it, and other variables. Not having a clear methodology or not being able to draw a clear nexus placed the City in an awkward position. Council Member Burt did not hear a response regarding the 90,000 worker assumption. That was outside the range of figures he had heard over an extensive period of time. Mr. Keene would verify that information. Council Member Burt suggested using the mean or a conservative number. Mr. N. Perez did not indicate that was outside the range of his understanding. Mr. Keene advised that Staff was working to align all variable data points generated over time. That could be done in the near term and would go beyond the impact fee discussion. Mr. N. Perez reported the 50/50 target was the reason AB 1600 was enacted. He could not target a specific number. He could work with Staff about the service factor and run additional numbers. He would not provide something that was 50/50. MOTION PASSED: 3-1 Holman no 9 May 6, 2014 City of Palo Alto Development Impact Fees As per FY 2015 Adopted Municipal Fee Schedule pages 23-1 and 23-2 Type of Project Parks Community Centers Libraries Housing Total Fees (NIC Transp.)Transportation Residential - New Homes Only* Single family < 3,000 sq. feet $11,180/residence $2,898/residence $1,012/residence EXEMPT $15,090/res. $3,354 per net new PM peak hr trip Single family >3,000 sq. feet $16,695/residence $4,339/residence $1,507/residence EXEMPT $22,541/res. $3,354 per net new PM peak hr trip Multi-family </= 900 sq. feet $3,700/unit $963/unit $332/unit EXEMPT $4,995/unit $3,354 per net new PM peak hr trip Multi-family >900 sq. feet $7,318/unit $1,907/unit $604/unit EXEMPT $9,829/unit $3,354 per net new PM peak hr trip Non-residential Commercial/Industrial $4,748 per 1,000 sq ft or fraction thereof $268 per 1,000 sq ft or fraction thereof $255 per 1,000 sq ft or fraction thereof $19.31 per sq ft $23.89 per net new sq ft $3,354 per net new PM peak hr trip Hotel/Motel $2,147 per 1,000 sq ft or fraction thereof $121 per 1,000 sq ft or fraction thereof $107 per 1,000 sq ft or fraction thereof $19.31 per sq ft $21.15 per net new sq ft $3,354 per net new PM peak hr trip Residential Subdivisions Single-family Multi-family Public Art Fee*** 1% of first $100 mill. const. valuation; 0.9% of valuation above $1 mill. Special Zones Traffic Impact Fee Stanford Research Park/El Camino Real CS Zone $11.64 per net new sq ft San Antonio/West Bayshore Area $2.40 per sq ft Charleston/Arastradero Commercial $0.36 per sq ft Charleston/Arastradero Residential $1,225 per unit Parking in-lieu fee for Downtown Assessment District Notes: "Single-family" is defined as a single dwelling unit that does not share a common wall with another dwelling unit ***Public Art Fee applies to residential projects of 5 units or more and new commercial projects with a floor area of at least 10,000 sq ft and a construction value of at least $200,000. **In-Lieu Parkland Dedication Fee is an option only for projects of < 50 parcels. (Larger projects must dedicate land.) Certain Residential Projects and New Commercial Projects*** Fee Category Parkland Dedication Fee** *Square footage refers to living area, not lot size. 531 sq ft of parkland/unit or $56,736/unit in-lieu fee 366 sq ft of parkland/unit or $39,106/unit in-lieu fee $63,848 per parking space Excerpt City Council Minutes 11/03/2014 116-029 Special Meeting November 3, 2014 12.Finance Committee Recommends Proposed Changes in Development Impact Fees: Direction to Draft Ordinance Implementing New Public Safety Facility and General Government Facilities Impact Fees. Lalo Perez, Administrative Services Director, recalled in March 2014 Staff presented a list of projects that justified implementation of a Public Safety Facility fee and a General Government Facilities fee. Staff presented a nexus study to the Finance Committee in May 2014 and recommended setting fees at 75 percent of the maximum level. At-places was a memorandum regarding the setting of fees. Because the Finance Committee voted 3 to 1 in support of the recommendation, the item was placed on the Agenda as an Action Item. The Finance Committee expressed concerns regarding the residential fee being unfairly high. Although fees were split approximately 60/40 between residential and non-residential uses, the fee based on per person served was closer to a 50/50 split. Table 19 summarized projected income from new fees, which also demonstrated a more equal distribution of fees between residential and non-residential uses. One challenge was the lack of data regarding number of employees; however, Staff hoped the Business Registry would provide better data. The Finance Committee was also concerned about the category breakdown. Existing fees included a category that was different from the categories proposed for the new fees. Categories for existing fees were implemented more than ten years ago. Since that time, categories were standardized and Staff proposed use of the standardized categories. Categories for existing fees could not be changed to standardized categories unless the fee itself was changed. Should the Council approve the new fees, Staff would return with an Ordinance authorizing the new fees and a Resolution setting the fees. Fees would be effective 60 days after adoption of the Ordinance and would apply to new developments that had not received building permits prior to the expiration of the 60-day period. Council Member Berman reported the Finance Committee's discussion primarily concerned the number of jobs in Palo Alto and the ratio of fees charged to residential and non-residential uses. He inquired whether Staff Attachment B MINUTES 11/03/2014 116- 30 received new information to determine the ratio was 49 percent for residential uses and 51 percent for non-residential uses. Mr. Perez clarified that Staff's presentation to the Finance Committee did not sufficiently explain the ratio. Council Member Berman noted the Finance Committee voted 3 to 1 in favor of the Staff recommendation. Mayor Shepherd requested additional comment concerning the Finance Committee's discussion of a 60/40 fee split. Council Member Berman recommended Members of the Finance Committee share the concerns they raised at the meeting. He requested Staff explain changes that resulted in the 60/40 split shifting to a 49/51 split. Mr. Perez explained that the proposed residential fees and non-residential fees as stated in Table 20 resulted in the 60/40 split discussed at the Finance Committee meeting. Calculating the fee per person served resulted in the 49/51 split. The Finance Committee wanted a 50/50 split; however, the consultant expressed concerns about that. Council Member Berman added that the City could not choose a ratio and make the fee fit that ratio. Mr. Perez indicated Staff did not have good data regarding the number of employees. The Finance Committee discussed delaying the new fees until good data was available. Council Member Berman remarked that the per person served calculation provided a different analysis of the ratio. Mr. Perez advised that the projected revenue from the two new fees would be split approximately 50/50 between residential and non-residential uses. Council Member Berman suggested the fees could be adjusted once reliable data was obtained through the Business Registry. Mr. Perez indicated an adjustment of the fees would require a new nexus study utilizing new data. The Finance Committee discussed the multiple sources of job and employee numbers. James Keene, City Manager, reported the City had an established body of work and tried and true methodologies. The recommendation was to impose the fees and to begin collecting revenue. He wanted to obtain the highest MINUTES 11/03/2014 116- 31 accuracy possible; however, that would be achieved in the future. Staff was committed to a possible adjustment of the fees. Council Member Klein inquired about the time period for collecting the $35.64 million dollars stated in Table 19. Mr. Perez responded through 2035. Council Member Klein stated Table 19 indicated collections of $22.5 million, approximately half the estimated cost of a new Public Safety Building. He asked about the accounting procedure for collecting fees after construction of the building. Mr. Perez advised that the Council could adjust the fee downward so that net expenses matched fees collected or allow the fee to continue at the same level. Council Member Klein offered a hypothetical scenario of constructing a Public Safety Building in the next 12-18 months through other funding sources. He asked what would happen with the fee for the following 20 years. Mr. Perez explained that identified revenue must be reduced from the amount of the expense. The Council would have to reset the fee to the net amount that was unfunded. Mr. Keene inquired whether future fees could repay an expense paid from other sources. Nathan Perez, Vice President of David Taussig and Associates, clarified that fees could repay debt service or fund other public safety capital facilities with a useful life of more than five years. Council Member Klein requested Mr. Perez assume there were no other facilities. Mr. N. Perez reported that the Government Code required the City to credit fees if there were no other capital needs on which to spend the fee in five years. Council Member Klein asked if the City could borrow against the fee. Mr. N. Perez replied yes. Mr. Perez clarified that the challenge in borrowing against the fee was predictability of the fee revenue for a credit rating. MINUTES 11/03/2014 116- 32 Council Member Klein believed the City would have to identify other public safety capital needs in order to utilize the fee. The fee would not have an impact on the Public Safety Building if it was constructed in the next year or two. Mr. Perez commented that only 15 percent of the cost could be allocated to a development impact fee. Variables of cost and time would require Staff to revisit the whole process. Council Member Klein calculated the fee could contribute $7.5 million towards the $50 million cost of a Public Safety Building. Nancy Nagel, Senior Management Analyst agreed that $7.5 million would be the maximum amount projected from collection of the fee over 20 years. Mr. N. Perez suggested the amount would be $8 million, because collection was a product of the pace of development in Palo Alto. If the Public Safety Building was constructed at a lower cost than estimated, then the nexus study would be incorrect. He vetted the cost of the needs list with Staff who typically provided conservative cost amounts. Council Member Schmid was interested in equivalent dwelling units. Table 19 indicated the amount was split roughly 50/50, because non-residential uses were growing twice as fast as residential uses. Therefore, non- residential uses were in essence paying half the amount of residential. The Fire Study and Police Blotter seemed to imply that public safety was spending roughly half their time on the daytime population. He questioned the need for residents to pay twice as much as visitors when visitors consumed more City services. Mr. Keene clarified that the City was collecting a fee for capital facilities rather than operating costs. The volume of calls for service did not directly correlate with the need to invest in facilities. The Council could not utilize service calls to determine who benefited from City services. Mr. N. Perez added that there was a tension between relative fee levels and absolute fee amounts. If the amount collected from fees was approximately 50/50, then the tension became more balanced. Council Member Schmid was concerned that the resident equivalent paid twice as much as a business equivalent. Ms. Nagel explained that the non-residential fee was calculated per 1,000 square feet. Residential fees were calculated per unit or home or multiple MINUTES 11/03/2014 116- 33 family unit. Those two calculations were not the same, because 1,000 square feet assumed a certain number of employees. A single family home was assumed to house 2.7 people. A single family home would pay $4,500 for both fees at the maximum level. A commercial space would pay only $2,500, but paid for only 1.5 people. Council Member Schmid noted 1,000 square feet was assumed to hold 4 people for a commercial space. Mr. N. Perez reported the term equivalent dwelling unit did not necessarily mean 1,000 residential square feet equaled a dwelling unit. It was a method to standardize measurements for purposes of allocations within the residential categories. Council Member Schmid expressed concern that assumptions utilized in developing standards did not match the characteristics of Palo Alto. He asked if the statement on Packet Page 474 regarding the affordable housing fee not being charged to office was true. Mr. N. Perez advised that according to Municipal Code Section 16.47 it was not charged to office. Council Member Schmid remarked that office would account for twice the number of people added to the daytime population, yet it did not pay a housing fee. The report indicated a review of housing fees was not performed, because it was covered in the Housing Element. The Housing Element did not currently contain a housing fee. He asked why a nexus study for housing was not performed. Mr. Perez indicated a housing study was not performed, because it was a different fee. Each impact fee was required to have its own nexus and review. The housing fee would be presented to the Council separately with its own nexus study. Mr. N. Perez added that housing nexus studies were under litigation at every level of California courts. Molly Stump, City Attorney, reported a housing nexus study was under way. The study would review both residential and non-residential fees. Council Member Schmid felt the Council continued to make decisions regarding development impact fees without data. A preliminary review of transportation indicated fees were adequate. He requested the basis for stating transportation fees were adequate. MINUTES 11/03/2014 116- 34 Mayor Shepherd noted the Agenda Item concerned only the Public Safety Facility fee and the General Government Facilities fee. Council Member Schmid believed the Council was being asked to approve the matrix. Mr. Perez clarified that Staff did not recommend changes or seek action regarding any fees other than the Public Safety Facility and General Government Facilities fees. Council Member Schmid asked if it was appropriate to state other fees did not need review. Mayor Shepherd stated that was not a part of the Agenda Item. Other fees would be presented to the Council in the future. Council Member Schmid asked why they were mentioned in the Staff Report. Mayor Shepherd explained that Staff utilized data approved by the Council earlier in the year. Mr. Perez clarified that in the past the Council had requested a cumulative total of impact fees to determine whether a fee of 75 percent of the maximum amount allowed was appropriate. Staff did not make a recommendation for those fees. Council Member Schmid inferred the study made a discretionary decision when it stated a preliminary review indicated fees were adequate for parks, housing, and transportation. He inquired whether the study did not make a discretionary decision. Mr. Perez reiterated that a housing study would be presented separately. Council Member Schmid inquired about a transportation study. Mr. Keene presumed fees were not adequate for transportation, but could provide a separate update on transportation in the future. Staff wanted to add two fees to every development project and begin collecting funds. As Staff obtained refined data, they would revisit the fees and adjust them. Council Member Schmid asked if a vote supporting the item would endorse the statement that a preliminary review indicated other fees were adequate. Mr. Perez was not recommending any changes to those fees. MINUTES 11/03/2014 116- 35 Mr. Keene advised that approval of the item would not be an endorsement of the statement. Mr. Perez reported the Council in March 2014 reviewed fees in conjunction with a list of needs. For example, the Council discussed changing the parks fee; however, the cost of projects on the needs list was not high enough to justify changing the fee. Council Member Schmid remarked that the March Council discussion was the preliminary review. Council Member Scharff reviewed the Council process for placing Committee recommendations on the Consent Calendar or as an Action Item. The Staff recommendation was for Council review and approval of the recommended new Public Safety Facility fee and the General Government Facilities fee. That was not the question or the Motion before the Finance Committee. Staff should be requesting the Council to review the report and provide input. He inquired whether the Council was to approve the report or the fees. Ms. Stump reported Council acceptance or approval of the report was irrelevant. If the Council wished to implement the fees, then it needed to direct Staff to return with an Ordinance to establish the fees. The Finance Committee sought direction to draft an Ordinance. Council Member Scharff asked if Staff or the Finance Committee sought that direction. Ms. Stump corrected her statement to Finance Staff rather than Finance Committee. Council Member Scharff understood capital projects with identified sources of revenue could not be considered in a nexus study. Mr. Perez concurred. Council Member Scharff stated the Council had identified sources of revenue for the Public Safety Building, Fire Station Number 3, and Fire Station Number 4. He did not understand how the nexus study could be accurate if the City had identified sources of revenue. Mr. Perez reported the Council could direct Staff to remove any project for which it believed revenues were guaranteed. Staff did not wish to make that assumption. Council Member Scharff asked if the Council discussed that. MINUTES 11/03/2014 116- 36 Mr. Perez answered yes, and Staff understood the Council was in the process of drafting a funding plan. The question was whether that funding plan would materialize. The Transient Occupancy Tax (TOT) measure probably would be approved by the voters; however, a recession could significantly reduce that funding source. Staff would remove any project as directed by the Council and return with an Ordinance containing an adjusted fee. Mr. N. Perez explained that some of the information regarding the Public Safety Building was less guaranteed or more speculative at the time he drafted the needs list in 2013. Council Member Scharff asked if Mr. Perez drafted the needs list prior to the Council identifying funds for the Public Safety Building. Mr. N. Perez developed the needs list in 2013. In 2013 he and Staff collected data regarding facilities and cost estimates. Mayor Shepherd understood impact fees were utilized to support facilities that would be used more because of an increase in population. She expected facilities to be built and a fee collected because additional people caused more wear and tear on facilities. She asked how that was factored into a fee. The capital improvement would begin to fail at some point. Mr. N. Perez indicated impact fees could be utilized to replace and modernize facilities or to purchase furniture, fixtures, and equipment (FFE), but not to operate and maintain facilities. Mayor Shepherd commented that fees would be used for those types of things going forward. Mr. N. Perez advised that impact fees became less and less of a tool as the City became built out and the allocation to new development dwindled. Mayor Shepherd remarked that placing restrictions on commercial space could result in collecting even fewer fees. Stephanie Munoz felt the presentation assumed some issues not in evidence. A Public Safety Building would always be a problem, because the communications center was inadequate with respect to earthquake safety. Much of that had been taken care of through the mobile unit. Council Member Holman referred to the two charts on Packet Page 418 regarding office fees and retail/industrial fees and the at-places memorandum regarding commercial and office/institutional and industrial. She asked what was commercial and where was retail. MINUTES 11/03/2014 116- 37 Mr. N. Perez reported retail was commercial. Council Member Holman inquired about reasons for retail paying more than office/institutional when retail had fewer employees per 1,000 square feet than general office. The City utilized and considered an outdated measure of 4 employees per 1,000 square feet. The report utilized 1.5 persons served per 1,000 square feet for commercial, 1.25 persons served per 1,000 square feet for general office, and 0.5 person served per 1,000 square feet for industrial. She did not believe that could be supported. Mr. N. Perez indicated multiplying those by 2 would result in 3 employees for retail, 2.5 employees for office, and 1 employee for industrial. Council Member Holman asked why retail would have more than office. Mr. N. Perez explained that typically retail served more people than office. Council Member Holman believed that was not the case in Palo Alto. She asked if he used generalized numbers. Utilizing one number to calculate parking demand and a totally different number to calculate the fees did not make sense. Mr. N. Perez had not seen the parking figures. Council Member Holman stated it was a basic aspect of the City's Municipal Code. To a skeptical person, the report appeared to manipulate the numbers of persons served per 1,000 square feet to justify an even number across the different sectors. She referred to the Minutes found on Packet Page 464 regarding Palo Alto being relatively lower compared to peer communities on the non-residential side. She stated that Council Member Schmid had asked if approving the fees would also accept the fee rates in the tables. The Council should not accept the other fees. Mr. Keene asked if the Council was approving the other fees. Mr. N. Perez answered no. Staff recommended adding the Public Safety Facility and General Government Facilities fees to the list of fees. Council Member Holman wished to ensure the Council was not accepting the other fees. Mr. Keene reported a Motion would not have the Council accept or acknowledge existing fees. When the Council took a specific action on a MINUTES 11/03/2014 116- 38 specific Motion, that action did not automatically readopt or acknowledge every item in the Staff Report. Council Member Holman asked about a means to arrive at some number that was logical, defensible, and fair. Mr. Keene indicated Staff and the consultant were clear that the existing data and its alignment with the practice of setting fees supported the recommendation. Staff acknowledged the potential to obtain refined data that could support different conclusions in a year or two. Council Member Scharff's point was slightly different and pertained to the amount of yield the City could achieve over a 20-year period. The total amount of $96 million included many projects on which fees could be collected for two years. After two years, Staff could determine the nexus study was incorrect and recommend adjusting the fee. Staff did not have a confident answer for providing data methodology to support a significantly different conclusion. The Council should proceed with the basic methodology for now or not proceed. Mayor Shepherd noted the City was not collecting the fee currently, and the Council was not reviewing the methodology for collecting the fee. The Council was directing Staff to draft an Ordinance. She asked if Council Member Holman was concerned about the methodology. The breakdown between residential and commercial was one element of that. She asked if Council Member Holman was concerned about the calculation of the fee. Council Member Holman was concerned about both aspects. She did not wish to do nothing, but was having difficulty determining what to do. Mayor Shepherd added that Staff would return with an Ordinance for Council review. Council Member Holman stated without some kind of clarity regarding what the Council expected Staff to provide, the current discussion was pointless. Council Member Burt concurred with a need for clarification. He inquired whether fees were calculated based upon facility needs and revenue sources. Mr. Perez answered yes. Council Member Burt advised that infrastructure planning and the impact fees were developed in parallel over the past year and a half. The two were not reconciled in the late spring or early summer of 2014. When the Finance Committee discussed the item, the Council had not allocated revenue MINUTES 11/03/2014 116- 39 sources for public facility needs. Staff should recalculate the basis in facility needs after the election. Mr. N. Perez commented that amounts always changed. Council Member Burt clarified that amounts did not change to such a great extent. From the $96 million listed for public safety facilities, $57 million for the Public Safety Building should be removed. Mr. N. Perez asked if the amount was 100 percent non-speculative. Mr. Keene felt Staff should return with the item. The Infrastructure Funding Plan occurred subsequent to development of the fees. The Public Safety Building could cost more than estimated. The Council did not fund all items on the infrastructure projects list; therefore, the fee revenues could be reallocated to other projects. Council Member Burt added that the Council could decide to fund 85 percent of the Public Safety Building with funds previously identified. Based upon existing policy direction, the Public Safety Building and Fire Station Number 3 did not belong on the list of needs. That alone was sufficient reason to return the item for redirection. He inquired about the source for 1.25 persons served per 1,000 square feet contained in Table 20. Mr. N. Perez advised that it was a standard California metric. Council Member Burt noted the City's Zoning Code used a standard of 4 people per 1,000 square feet. The Council had discussed whether that number was too low. The difference was not a nominal amount, and ensuing calculations flowed from that number. Mr. N. Perez explained that 2.5 was the number of employees per 1,000 square feet. The 1.25 was the number of persons served per 1,000 square feet. Council Member Burt inquired whether Mr. Perez was discounting the number by 50 percent. Mr. N. Perez responded yes, because an employee was weighted as 50 percent of a resident. Council Member Burt believed the Council wanted to return both items for recalculation based upon office density. A second issue was public safety needs that lacked a revenue source. MINUTES 11/03/2014 116- 40 Mr. Keene felt comfortable with reviewing public safety facilities to determine the amount of funding that could be set aside for collecting a fee. The distribution of that fee would be affected by other changes. Staff could review one component of the non-residential office piece in a short period, but not necessarily the whole range of issues related to residential versus non-residential. Staff would review the general Infrastructure Funding Plan in relation to the fee. Council Member Burt asked if the item would return to the Council or the Finance Committee. Mr. Keene indicated that would be the Council's discretion. MOTION: Council Member Burt moved, seconded by Council Member Berman to return to Finance Committee for review of both the appropriate non-residential densities and corresponding calculations and review public safety needs that do not have identified revenue sources. Council Member Berman believed additional information had created more questions to which the Council needed answers. The Finance Committee considered fees on May 6, 2014. The Infrastructure Committee developed the Infrastructure Funding Plan in early August 2014. A great deal had changed since then. The Council needed a better understanding of numbers in Tables 19 and 20. Council Member Klein chastised Staff and the Finance Committee for their poor review of the issues. The amount of fees collected over a short period of time was not significant in comparison to a $57 million Public Safety Building. Staff's reasons for delaying the item were not defensible. He requested the City Attorney provide a definition of "without an identified revenue source." The Council could consider creating a gap that could be filled by the fee. The Council had not made legal promises regarding funding of the fire station needs. The City would depend on the consultant's expertise in a lawsuit; therefore, the Council had to rely on his methodology or reject the fees. Council Member Holman inquired about the timing of returning the item to the Finance Committee and then the Council. Mr. Perez would attempt to present it at the December 16 meeting. Mr. Keene could not make a commitment with respect to a timeline. Vice Mayor Kniss stated the item should not have been presented to the Council. She wanted the item to return quickly to prevent continued loss of MINUTES 11/03/2014 116- 41 revenue and requested the item be presented to the Finance Committee at its next meeting. Mayor Shepherd noted $22,000 of the fees collected through 2023 could support public safety needs. She wanted to understand if the Infrastructure Funding Plan included revenues from the fees. Mr. Keene would present the item as soon as possible. Staff could respond to the Infrastructure Funding Plan component of the Motion more easily than the methodological component. Staff would consider bifurcating the two components. MOTION PASSED: 9-0 City of Palo Alto Development Impact Fees As per FY 2015 Adopted Municipal Fee Schedule pages 23-1 and 23-2 Type of Project Parks Community Centers Libraries Housing Total Fees (NIC Transp.)Transportation Residential - New Homes Only* Single family < 3,000 sq. feet $11,180/residence $2,898/residence $1,012/residence EXEMPT $15,090/res. $3,354 per net new PM peak hr trip Single family >3,000 sq. feet $16,695/residence $4,339/residence $1,507/residence EXEMPT $22,541/res. $3,354 per net new PM peak hr trip Multi-family </= 900 sq. feet $3,700/unit $963/unit $332/unit EXEMPT $4,995/unit $3,354 per net new PM peak hr trip Multi-family >900 sq. feet $7,318/unit $1,907/unit $604/unit EXEMPT $9,829/unit $3,354 per net new PM peak hr trip Non-residential Commercial/Industrial $4,748 per 1,000 sq ft or fraction thereof $268 per 1,000 sq ft or fraction thereof $255 per 1,000 sq ft or fraction thereof $19.31 per sq ft $23.89 per net new sq ft $3,354 per net new PM peak hr trip Hotel/Motel $2,147 per 1,000 sq ft or fraction thereof $121 per 1,000 sq ft or fraction thereof $107 per 1,000 sq ft or fraction thereof $19.31 per sq ft $21.15 per net new sq ft $3,354 per net new PM peak hr trip Residential Subdivisions Single-family Multi-family Public Art Fee*** 1% of first $100 mill. const. valuation; 0.9% of valuation above $1 mill. Special Zones Traffic Impact Fee Stanford Research Park/El Camino Real CS Zone $11.64 per net new sq ft San Antonio/West Bayshore Area $2.40 per sq ft Charleston/Arastradero Commercial $0.36 per sq ft Charleston/Arastradero Residential $1,225 per unit Parking in-lieu fee for Downtown Assessment District Notes: "Single-family" is defined as a single dwelling unit that does not share a common wall with another dwelling unit ***Public Art Fee applies to residential projects of 5 units or more and new commercial projects with a floor area of at least 10,000 sq ft and a construction value of at least $200,000. **In-Lieu Parkland Dedication Fee is an option only for projects of < 50 parcels. (Larger projects must dedicate land.) Certain Residential Projects and New Commercial Projects*** Fee Category Parkland Dedication Fee** *Square footage refers to living area, not lot size. 531 sq ft of parkland/unit or $56,736/unit in-lieu fee 366 sq ft of parkland/unit or $39,106/unit in-lieu fee $63,848 per parking space B. C. DEVELOPMENT IMPACT FEE JUSTIFICATION STUDY CITY OF PALO ALTO DECEMBER 10, 2014 Prepared by: DAVID TAUSSIG & ASSOCIATES, INC. 2250 HYDE STREET, 5TH FLOOR SAN FRANCISCO, CALIFORNIA 94109 (800) 969-4382 ASSOCIATES, INC. Public Finance Public Private Partnerships Urban Economics TAUSSIG Newport Beach San Francisco Riverside Fresno Chicago, Illinois Dallas, Texas DAVID & Attachment C City of Palo Alto TOC Development Impact Fee Justification Study December 10, 2014 TABLE OF CONTENTS SECTION PAGE EXECUTIVE SUMMARY ............................................................................................................... 1 SECTION I. INTRODUCTION .................................................................................................. 3 SECTION II. LEGAL REQUIREMENTS TO JUSTIFY DEVELOPMENT IMPACT FEES .................. 4 SECTION III. DEMOGRAPHICS ................................................................................................ 8 SECTION IV. THE NEEDS LIST ............................................................................................... 12 SECTION V. METHODOLOGY USED TO CALCULATE FEES ................................................... 15 A. PUBLIC SAFETY FACILITIES ...................................................................................................... 17 B. GENERAL GOVERNMENT FACILITIES ......................................................................................... 21 SECTION VI. SUMMARY OF FEES .......................................................................................... 24 APPENDICES APPENDIX A: FEE DERIVATION WORKSHEETS EXECUTIVE SUMMARY City of Palo Alto Page 1 Development Impact Fee Justification Study December 10, 2014 In order to adequately plan for new development and identify the public facilities and costs associated with mitigating the direct and cumulative impacts of new development, David Taussig & Associates, Inc. (“DTA”) was retained by the City of Palo Alto (the “City”) to prepare an AB 1600 Fee Justification Study (the “Fee Study”) for specific categories of public improvements not currently covered by the City’s Fee Program. The Fee Study is intended to comply with Section 66000 et. seq. of the Government Code, which was enacted by the State of California in 1987, by identifying additional public facilities required by new development (“Future Facilities”) and determining the level of fees that may be imposed to pay the costs of the Future Facilities. Fee amounts have been determined that will finance Public Safety and General Government facilities at levels identified by the various City departments as being necessary to meet the needs of new development through buildout in 2035. The Future Facilities and associated construction costs are identified in the Needs List, which is included in Section IV of the Fee Study. A description of the methodology used to calculate the fees is included in Section V. All new development may be required to pay its “fair share” of the cost of the new infrastructure through the development fee program. ORGANIZATION OF THE REPORT Section I of this report provides an introduction to the Fee Study including a brief description of City surroundings, and background information on development fee financing. Section II provides an overview of the legal requirements for implementing and imposing the fee amounts identified in the Fee Study. Section III includes a discussion of projected new development and demand variables such as future population and employment, assuming current growth trends in housing, commercial, and industrial development extrapolated through buildout in 2035. Projections of future development are based on data provided by the City and the City’s 2007 Comprehensive Plan.1 Section IV includes a description of the Needs List, which identifies the facilities needed to serve new development through buildout in 2035 that are eligible for funding by the impact fees. The Needs List provides the total estimated facilities costs, offsetting revenues, net costs to the City, and costs allocated to new development for all facilities listed in the Needs List. This list is a compilation of projects and costs identified by various City departments. Section V discusses the findings required under the Mitigation Fee Act and requirements necessary to be satisfied when establishing, increasing, or imposing a fee as a condition of new development, and satisfies the nexus requirements for each facility included as part of this study. Section V also contains the description of the methodology used to determine the fees for all facility types. Finally, Section VI includes a summary of the proposed fees justified by this Fee Study. Appendix A includes the calculations used to determine the various fee levels. IMPACT FEE SUMMARY The total fee amounts required to finance new development’s share of the costs of facilities identified in the Needs List are summarized in Table ES-1 below. Fees within this Fee Study reflect the maximum fee levels that may be imposed on new development. 1 City of Palo Alto, Comprehensive Plan (1998) and Comprehensive Plan Amendment (in progress). EXECUTIVE SUMMARY City of Palo Alto Page 2 Development Impact Fee Justification Study December 10, 2014 TABLE ES-1 DEVELOPMENT IMPACT FEE SUMMARY EXEMPTIONS California Government Code permits fee exemptions for affordable housing and senior housing at the discretion of local jurisdictions. Such fee exemptions are a policy matter that should be based on the consideration of the greater public good provided by the use exempted from the fee. Single Family Multi-Family Commercial Office/Institutional Industrial $1,328 $1,062 $743 $991 $248 $1,673 $1,339 $936 $1,249 $312 $3,001 $2,401 $1,680 $2,239 $560 Total City Facilities Non-Residential (Per 1,000 BSF) Public Safety Facilities General Government Facilities Residential (Per Unit) SECTION I: INTRODUCTION City of Palo Alto Page 3 Development Impact Fee Justification Study December 10, 2014 Part of the San Francisco Metropolitan Area, the City of Palo Alto (“City” or “Palo Alto”) is located approximately 35 miles south of San Francisco within the County of Santa Clara. Named after the coastal redwood tree that grows along San Francisquito Creek, the City is more than 100 years old, encompassing an area roughly the size of 26 square miles and boasting approximately 30,000 housing units, more than 65,000 residents, and over 90,000 jobs. Yet despite the City’s mature and largely developed nature, the presence of excellent schools, the world’s finest employment centers and job creators, and high quality of life marks across the board, make the City incredibly attractive to new residential and non-residential development and re-development. For instance, the average homes sales price recorded in the City in February 2014 was nearly $2.0 million. Thus, in order to adequately plan for new development and identify the public facilities and costs associated with mitigating the direct and cumulative impacts of new development, David Taussig & Associates, Inc. (“DTA”) was retained by the City to prepare an AB 1600 Fee Justification Study (the “Fee Study”) for specific categories of public improvements not currently covered by the City’s Fee Program. Impact fees are calculated here using updated information on development and City facilities. Moreover, the methods used to calculate impact fees in this study are intended to satisfy all legal requirements governing such fees, including provisions of the U. S. Constitution, the California Constitution, and the California Mitigation Fee Act (Government Code Sections 66000 et. seq.). Impact fees calculated in this report are intended to complement the City’s existing impact fees. More specifically, the Fee Study is intended to comply with Section 66000 et. seq. of the Government Code, which was enacted by the State of California in 1987, by identifying additional public facilities required by new development (“Future Facilities”) and determining the level of fees that may be imposed to pay the costs of the Future Facilities. Fee amounts have been determined that will finance facilities at levels identified by the various City departments as deemed necessary to meet the needs of new development. The Future Facilities and associated construction costs are identified in the Needs List, which is included in Section IV of the Fee Study. All new development may be required to pay its “fair share” of the cost of the new infrastructure through the development fee program. The fees are calculated to fund the cost of facilities needed to meet the needs of new development. The steps followed in the Fee Study include: 1. Demographic Assumptions: Identify future growth that represents the increased demand for facilities. 2. Facility Needs and Costs: Identify the amount of public facilities required to support the new development and the costs of such facilities. Facilities costs and the Needs List are discussed in Section IV. 3. Cost Allocation: Allocate costs per equivalent dwelling unit. 4. Fee Schedule: Calculate the fee per residential unit or per non-residential square foot. SECTION II: LEGAL REQUIREMENTS TO JUSTIFY DEVELOPMENT IMPACT FEES City of Palo Alto Page 4 Development Impact Fee Justification Study December 10, 2014 The levy of impact fees is one authorized method of financing the public facilities necessary to mitigate the impacts of new development. A fee is “a monetary exaction, other than a tax or special assessment, which is charged by a local agency to the applicant in connection with approval of a development project for the purpose of defraying all or a portion of the cost of public facilities related to the development project...” (California Government Code, Section 66000). A fee may be levied for each type of capital improvement required for new development, with the payment of the fee typically occurring prior to the beginning of construction of a dwelling unit or non-residential building. Fees are often levied at final map recordation, issuance of a certificate of occupancy, or more commonly, at building permit issuance. However, Assembly Bill (“AB”) 2604 (Torrico) which was signed into law in August 2008, encourages public agencies to defer the collection of fees until close of escrow to an end user in an attempt to assist California’s troubled building industry. AB 1600, which created Section 66000 et. seq. of the Government Code was enacted by the State of California in 1987. In 2006, Government Code Section 66001 was amended to clarify that a fee cannot include costs attributable to existing deficiencies, but can fund costs used to maintain the existing level of service (“LOS”) or meet an adopted level of service that is consistent with the general plan. Section 66000 et seq. of the Government Code thus requires that all public agencies satisfy the following requirements when establishing, increasing, or imposing a fee as a condition of new development: 1. Identify the purpose of the fee. (Government Code Section 66001(a)(1)) 2. Identify the use to which the fee will be put. (Government Code Section 66001(a)(2)) 3. Determine that there is a reasonable relationship between the fee’s use and the type of development on which the fee is to be imposed. (Government Code Section 66001(a)(3)) 4. Determine how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is to be imposed. (Government Code Section 66001(a)(4)) 5. Discuss how there is a reasonable relationship between the amount of the fee and the cost of the public facility or portion of the public facility attributable to the development on which the fee is imposed. This section presents each of these items as they relate to the imposition of the proposed fees in the City of Palo Alto. SECTION II: LEGAL REQUIREMENTS TO JUSTIFY DEVELOPMENT IMPACT FEES City of Palo Alto Page 5 Development Impact Fee Justification Study December 10, 2014 A. PURPOSE OF THE FEE (GOVERNMENT CODE SECTION 66001(A)(1)) New residential and non-residential development within the City will generate additional residents and employees who will require additional public facilities. Land for these facilities will have to be acquired and public facilities and equipment will have to be expanded, constructed, or purchased to meet this increased demand. The Fee Study has been prepared in response to the projected direct and cumulative effect of future development. Each new development will contribute to the need for new public facilities. Without future development many of the new public facilities on the Needs List would not be necessary as the existing facilities are generally adequate for the City’s present population. In instances where facilities would be built regardless of new development, the costs of such facilities have been allocated to new and existing development based on their respective level of benefit. The proposed impact fee will be charged to all future development, irrespective of location, within the City. Even future “in-fill” development projects contribute to impacts on public facilities because they are an interactive component of a much greater universe of development located throughout the City of Palo Alto. First, the property owners and/or the tenants associated with any new development in the City can be expected to place additional demands on Palo Alto’s facilities funded by the fee. Second, these property owners and tenants are dependent on and, in fact, may not have chosen to utilize their development, except for residential, retail, employment, and recreational opportunities located nearby on other existing and future development. Third, the availability of residents, employees, and customers throughout the City has a growth-inducing impact without which some of the “in-fill” development would not occur. As a result, all development projects within Palo Alto contribute to the cumulative impacts of development. The impact fees will be used for the acquisition, installation, and construction of public facilities identified on the Needs Lists to mitigate the direct and cumulative impacts of new development within the City. B. THE USE TO WHICH THE FEE IS TO BE PUT (GOVERNMENT CODE SECTION 66001(A)(2)) The fee will be used for the acquisition, installation, and construction of the public facilities identified on the Needs Lists, included in Section IV of the Fee Study and other appropriate costs to mitigate the direct and cumulative impacts of new development in the City. The fee will provide a source of revenue to Palo Alto to allow for the acquisition, installation, and construction of public facilities, which in turn will both preserve the quality of life in the City and protect the health, safety, and welfare of the existing and future residents and employees. SECTION II: LEGAL REQUIREMENTS TO JUSTIFY DEVELOPMENT IMPACT FEES City of Palo Alto Page 6 Development Impact Fee Justification Study December 10, 2014 C. DETERMINE THAT THERE IS A REASONABLE RELATIONSHIP BETWEEN THE FEE’S USE AND THE TYPE OF DEVELOPMENT PROJECT UPON WHICH THE FEE IS IMPOSED (BENEFIT RELATIONSHIP) (GOVERNMENT CODE SECTION 66001(A)(3)) As discussed in Section A above, it is the projected direct and cumulative effect of future development that has prompted the preparation of the Fee Study. Each development will contribute to the need for new public facilities. Without future development, the City would have no need to construct many of the public facilities on the Needs List. For all other facilities, the costs have been allocated to both existing and new development based on their level of benefit. Even future “in-fill” development projects, which may be adjacent to existing facilities, further burden existing public facilities. Consequently, all new development within Palo Alto, irrespective of location, contributes to the direct and cumulative impacts of development on public facilities and creates the need for new facilities to accommodate growth. The fees will be expended for the acquisition, installation, and construction of the public facilities identified on the Needs List and other authorized uses, as that is the purpose for which the fee is collected. As previously stated, all new development creates either a direct impact on public facilities or contributes to the cumulative impact on public facilities. Moreover, this impact is generally equalized among all types of development because it is the increased demands for public facilities created by the future residents and employees that create the impact upon existing facilities. For the aforementioned reasons, new development benefits from the acquisition, construction, and installation of the facilities on the Needs Lists. D. DETERMINE HOW THERE IS A REASONABLE RELATIONSHIP BETWEEN THE NEED FOR THE PUBLIC FACILITY AND THE TYPE OF DEVELOPMENT PROJECT UPON WHICH THE FEE IS IMPOSED (IMPACT RELATIONSHIP) (GOVERNMENT CODE SECTION 66001(A)(4)) As previously stated, all new development within the City, irrespective of location, contributes to the direct and cumulative impacts of development on public facilities and creates the need for new facilities to accommodate growth. Without future development, many of the facilities on the Needs Lists would not be necessary. For certain other facilities, the costs have been allocated to both existing and new development based on their level of benefit. For the reasons presented herein, there is a reasonable relationship between the need for the public facilities included on the Needs List and all new development within Palo Alto. SECTION II: LEGAL REQUIREMENTS TO JUSTIFY DEVELOPMENT IMPACT FEES City of Palo Alto Page 7 Development Impact Fee Justification Study December 10, 2014 E. THE RELATIONSHIP BETWEEN THE AMOUNT OF THE FEE AND THE COST OF THE PUBLIC FACILITIES ATTRIBUTABLE TO THE DEVELOPMENT UPON WHICH THE FEE IS IMPOSED (“ROUGH PROPORTIONALITY” RELATIONSHIP) (GOVERNMENT CODE 66001(A) As set forth above, all new development within the City impacts public facilities. Moreover, each individual development project and its related increase in population and/or employment, along with the cumulative impacts of all development in Palo Alto, will adversely impact existing facilities. Thus, imposition of the fee to finance the facilities on the Needs Lists is an efficient, practical, and equitable method of permitting development to proceed in a responsible manner. New development impacts facilities directly and cumulatively. In fact, without any future development, the acquisition, construction, and/or installation of many of the facilities on the Needs Lists would not be necessary as existing City facilities are generally adequate. Even new development located adjacent to existing facilities will utilize and benefit from facilities on the Needs List. The proposed fee amounts are roughly proportional to the impacts resulting from new development based on the analyses contained in Section V. Thus there is a reasonable relationship between the amount of the fee and the cost of the facilities. SECTION III: DEMOGRAPHICS City of Palo Alto Page 8 Development Impact Fee Justification Study December 10, 2014 In order to determine the public facilities needed to serve new development as well as establish fee amounts to fund such facilities, the City provided DTA with projections of future population and development within Palo Alto. DTA categorized developable residential land uses as Single Family and Multi-Family. Developable non-residential land uses within the City’s commercial, office, and industrial zones are categorized as Commercial, Office/Institutional, and Industrial respectively. Additional details are included in the table below. Based on these designations, DTA established fees for the following five (5) land use categories to acknowledge the difference in impacts resulting from various land uses and to make the resulting fee program implementable. LAND USE CLASSIFICATION FOR FEE STUDY DEFINITION Single Family Includes single family detached homes Multi-Family Includes buildings with attached residential units including apartments, town homes, condominiums, and all other residential units not classified as Single Family Detached Commercial Includes, but is not limited to, buildings used as the following:  Retail  Service-oriented business activities  Department stores, discount stores, furniture/appliance outlets, home improvement centers  Entertainment centers  Sub-regional and regional shopping centers Office/Institutional Includes, but is not limited to, buildings used as the following:  Business/professional office  Professional medical offices and hospitals  Schools Industrial Includes, but is not limited to, buildings used as the following:  Light manufacturing, warehouse/distribution, wholesaling;  Large-scale warehouse retail  Service commercial activities  Public uses, arterial roadways and freeways providing automobile and public transit access  Automobile dealerships  Support commercial services The City of Palo Alto’s Comprehensive Plan1 (the “Comprehensive Plan”) demographics were used as estimates of the number of housing units and nonresidential building square feet to be built in the City. In addition, the Comprehensive Plan was used to project the additional population generated from new development. However, Comprehensive Plan Update data was also reviewed in light of projections prepared by the Association of Bay Area Governments (“ABAG”). 1 City of Palo Alto, Comprehensive Plan (1998). See also Comprehensive Plan Amendment (in progress). SECTION III: DEMOGRAPHICS City of Palo Alto Page 9 Development Impact Fee Justification Study December 10, 2014 Notably, DTA attempted to utilize metrics (e.g. average household size) that standardized existing demographics with the projections found in the Comprehensive Plan. Future residents and employees will create additional demand for facilities that existing public facilities cannot accommodate. In order to accommodate new development in an orderly manner, while maintaining the current quality of life in the City, the facilities on the Needs List (Section IV), as reviewed and approved by the City Council on March 3, 2014, and at subsequent Council and Finance Committee meetings, will need to be constructed. For those facilities that are needed to mitigate demand from new development, facility costs have been allocated to new development only. In those instances when it has been determined that the new facilities will serve both existing and new development, facility costs have been allocated based on proportionate benefit (see Equivalent Dwelling Unit discussion in Section V). The following sections summarize the existing and future development figures that were used in calculating the impact fees. 1. EXISTING POPULATION FOR LAND USE CATEGORIES According to information provided by the City of Palo Alto, and generally confirmed by the California Employment Development Department – Demographic Research Unit, there are 17,614 existing Single Family units and 10,843 existing Multi-Family units within the City. DTA has used the following demographic information provided by the City of Palo Alto and the Comprehensive Plan which assume resident-per-unit factors of 2.68 and 2.12 per Single Family unit and Multi-Family unit, respectively. Therefore, the City population is generally comprised of 70,193 residents living in 28,457 Single Family and Multi-Family homes. Table 1 below summarizes the existing demographics for the residential land uses. TABLE 1 CITY OF PALO ALTO ESTIMATED EXISTING RESIDENTIAL DEVELOPMENT DTA has also utilized the following non-residential demographic information provided by the City of Palo Alto which assumes existing City non-residential land uses utilize employees-per-thousand-square-foot factors of 4.00, 3.00 and 1.00 employees per 1,000 building square feet of Office/Institutional, Commercial, and Industrial, Residential Land Use Existing Residents Existing Housing Units Average Household Size Single Family Residential 47,206 17,614 2.68 Multi-Family Residential 22,987 10,843 2.12 Total/Average 70,193 28,457 NA SECTION III: DEMOGRAPHICS City of Palo Alto Page 10 Development Impact Fee Justification Study December 10, 2014 respectively. This results in 11,662 existing Commercial employees, 63,534 existing Office/Institutional employees, and 18,099 existing Industrial City employees, as shown in Table 2 below. Each of these figures are generally confirmed by data from the Association of Bay Area Governments (“ABAG”) and the U.S. Census Bureau. Importantly, for many of the facilities considered in this Fee Study, EDUs are calculated based on the number of residents or employees (“Persons Served”) generated by each land use class. “Persons Served” equal Residents plus 50% of Employees, and is a customary industry practice designed to capture the reduced levels of service demanded by employees. For existing Persons Served estimates, please reference Table 2 below. TABLE 2 CITY OF PALO ALTO ESTIMATED EXISTING NON-RESIDENTIAL DEVELOPMENT 1 Persons served equal Residents plus 50% of employees. 2. FUTURE POPULATION FOR NEW LAND USE CATEGORIES (2035) According to information provided by the City of Palo Alto, and confirmed by ABAG, there are projected to be an additional 2,552 Single Family units and 1,571 Multi- Family units within the City-wide area at 2035, the time horizon utilized for this Fee Study. DTA has used the following demographic information provided by the City of Palo Alto which assumes future resident-per-unit factors of 2.68 and 2.12 per Single Family unit and Multi-Family unit, respectively. This results in an additional 10,170 residents living in 4,123 Single Family and Multi-Family homes within the City. Table 3 on the following page summarizes the future demographics for the residential land uses. TABLE 3 CITY OF PALO ALTO FUTURE RESIDENTIAL DEVELOPMENT Commercial 11,662 3.00 1.50 5,831 Office/Institutional 63,534 4.00 2.00 31,767 Industrial 18,099 1.00 0.50 9,050 Total/Average 93,295 NA NA 46,648 Persons Served per 1,000 BSF Existing Persons Served 1Non-Residential Land Use Employees per 1,000 BSF Existing Employees Residential Land Use Projected Residents Projected Housing Units Average Household Size Single Family Residential 6,839 2,552 2.68 Multi-Family Residential 3,331 1,571 2.12 Total/Average 10,170 4,123 NA SECTION III: DEMOGRAPHICS City of Palo Alto Page 11 Development Impact Fee Justification Study December 10, 2014 In terms of non-residential property, Palo Alto expects to generate 21,428 future jobs, which can be broken down into 2,679 jobs relating to Commercial development, 14,592 jobs for Office/Institutional development, and 4,157 jobs for Industrial development within the City. The City of Palo Alto provided the projected employment discussed above, which results in estimated employees-per-thousand-square-foot factors of 4.00, 3,00, and 1.00 employees per 1,000 building square feet of Office/Institutional, Commercial, and Industrial, respectively, as shown in Table 4 below. Again, for many of the facilities considered in this Fee Study, EDUs are calculated based on the number of residents or employees (“Persons Served”) generated by each land use class. “Persons Served” equal Residents plus 50% of Employees, and is a customary industry practice designed to capture the reduced levels of service demanded by employees. For future Persons Served estimates, please reference Table 4 below. TABLE 4 CITY OF PALO ALTO FUTURE NON-RESIDENTIAL DEVELOPMENT 1 Persons served equal Residents plus 50% of employees. Importantly, the land use categories that have been discussed above are consistent with (i) growth projections prepared by the City for the Comprehensive Plan, and (ii) land uses generally included in other development impact fee programs of the City. 3. EQUIVALENT DWELLING UNIT (EDU) PROJECTIONS Equivalent Dwelling Units (“EDU”) are a means of quantifying different land uses in terms of their equivalence to a residential dwelling unit, where equivalence is measured in terms of potential infrastructure use or benefit for each type of public facility. Since nearly all of the facilities proposed to be financed by the levy of impact fees will serve both residential and non-residential property, DTA projected the number of future EDUs based on the number of residents or employees generated by each land use class. For other facilities, different measures, such as number of trips, more accurately represent the benefit provided to each land use type. The EDU projections for each facility are shown in the fee derivation worksheets in Appendix A. Commercial 2,679 3.00 1.50 1,339 Office/Institutional 14,592 4.00 2.00 7,296 Industrial 4,157 1.00 0.50 2,079 Total/Average 21,428 NA NA 10,714 Future Persons Served 1Non-Residential Land Use Employees per 1,000 BSF Future Employees Persons Served per 1,000 BSF SECTION IV: THE NEEDS LIST City of Palo Alto Page 12 Development Impact Fee Justification Study December 10, 2014 Identification of the facilities to be financed is a critical component of any development impact fee program. In the broadest sense, the purpose of impact fees is to protect the public health, safety, and general welfare by providing for adequate public facilities. “Public Facilities” per Government Code Section 66000 includes “public improvements and community amenities.” Government Code Section 66000 requires the identification of those facilities for which impact fees are going to be used as the key financing mechanism. Identification of the facilities may be made in an applicable general or specific plan, other public documents, or by reference to a Capital Improvement Program (“CIP”). DTA has worked closely with City staff to develop the list of facilities to be included in the Fee Study (“the Needs List”). Additionally, the Needs List was reviewed and approved by the City Council on March 3, 2014 at a public hearing, and further evaluated during several later public hearings. For purposes of the City’s fee program, the Needs List is intended to be the official public document identifying the facilities eligible to be financed, in whole or in part, through the levy of a development impact fee on new development within Palo Alto. The Needs List is organized by facility element (or type) and includes a cost section consisting of six (6) columns, which are defined in Table 5 below: TABLE 5 CITY OF PALO ALTO NEEDS LIST EXPLANATION OF COST SECTION Column Title Contents Source Total Cost for Facility The total estimated facility cost including engineering, design, construction, land acquisition, and equipment (as applicable) City Offsetting Revenues to New & Existing Development Share of Total Offsetting Revenues allocated to new and existing development City Net Cost to City The difference between the Total Cost and the Offsetting Revenues (column 1 plus column 2) Calculated by DTA Percent of Cost Allocated to New Development Net Cost Allocated to New Development based on New Development’s Share of Facilities Calculated by DTA Net Cost Allocated to New Development The Net Cost to City Multiplied by the Percentage Cost Allocated to New Development Calculated by DTA Policy Background or Objective Identifies policy source or rationale for facility need City Council or Comprehensive Plan SECTION IV: THE NEEDS LIST City of Palo Alto Page 13 Development Impact Fee Justification Study December 10, 2014 DTA surveyed City staff on required facilities needed to serve new development as a starting point for its fee calculations. As part of the survey, DTA conducted extensive research with City departments such as Planning, Public Works, Parks & Recreation, Library, Transportation, etc., and then narrowed the focus to those facility needs that were deemed most timely and prudent to include in the Fee Study. More specifically, the survey included the project description, justification, public benefit, estimated costs, and project financing for each proposed facility. Through regular discussions between DTA and City staff, the Needs List has gone through multiple series of revisions to fine-tune the needs, costs, and methodologies used in allocating the costs for each facility. For purposes of the fee program, it was determined that a planning horizon through 2035 would be appropriate. Importantly, escalations in project construction costs could be included in future fee increases that would need to be approved by the Palo Alto City Council. The final Needs List is shown on the following page. SECTION IV: THE NEEDS LIST City of Palo Alto Page 14 Development Impact Fee Justification Study December 10, 2014 {1}{2}{3}{4}{5}{6} Facility Name Total Cost for Facility Off-setting Revenues Net Cost to City Percent of Cost Allocated to New Development Cost Allocated to New Development Policy Background or Objective A. PUBLIC SAFETY 1. Police Facilities 1 Public Safety Building ("PSB") - Replace (44,850 square feet)$57,000,000 ($57,000,000)$0 0.00%$0 Comprehensive Plan Subtotal $57,000,000 $0 $0 0.00%$0 2. Fire Facilities 2 Fire Station 3 (Rinconada Park - built 1948) - Replace $6,700,000 ($6,700,000)$0 0.00%$0 Comprehensive Plan 3 Fire Station 4 (Meadow/Middlefield - built 1953) - Replace $7,500,000 $0 $7,500,000 53.15%$3,986,532 Comprehensive Plan 4 BC Van (x 2)$200,000 $0 $200,000 30.37%$60,747 Comprehensive Plan 5 Fire Trucks (x 2)$2,000,000 $0 $2,000,000 30.37%$607,472 Comprehensive Plan 6 Type III Engine (x 2)$800,000 $0 $800,000 30.37%$242,989 Comprehensive Plan 7 Training Tower & Related Land Acquisition $8,000,000 $0 $8,000,000 15.19%$1,214,943 Comprehensive Plan 8 Type I Engine (x 8) - 2024 $4,200,000 $0 $4,200,000 30.37%$1,275,690 Comprehensive Plan 9 Ambulances (x 4) - 2022-2025 $1,300,000 $0 $1,300,000 30.37%$394,856 Comprehensive Plan 10 Miscellaneous Upgrades (Van, Trucks, Engines, Ambulances)$8,500,000 $0 $8,500,000 30.37%$2,581,754 Comprehensive Plan Subtotal $39,200,000 $0 $32,500,000 31.89%$10,364,983 11 $0 $0 NA $0 TOTAL PUBLIC SAFETY FACILITIES $96,200,000 ($63,700,000)$32,500,000 31.89%$10,364,983 B. GENERAL GOVERNMENT FACILITIES #REF! 1 Information Technology Upgrades $750,000 ($75,000)$675,000 15.19%$102,511 Comprehensive Plan 2 Buildings Systems Improvements $6,300,000 ($100,000)$6,200,000 15.19%$941,581 Comprehensive Plan 3 Civic Center Plaza Deck $16,000,000 $0 $16,000,000 15.19%$2,429,886 Comprehensive Plan 4 Municipal Service Center Improvements (Immediate)$1,991,000 $0 $1,991,000 15.19%$302,369 Comprehensive Plan 5 Municipal Services Center - Replace $93,000,000 ($32,550,000)$60,450,000 15.19%$9,180,413 Comprehensive Plan 6 Ventura Buildings Improvements $690,000 $0 $690,000 15.19%$104,789 Comprehensive Plan 7 $0 $0 NA $0 TOTAL GENERAL GOVERNMENT FACILITIES $118,731,000 ($32,725,000)$86,006,000 15.19%$13,061,548 Total all Facilities $214,931,000 ($96,425,000)$118,506,000 19.77%$23,426,531 DEVELOPMENT IMPACT FEE PROGRAM CITY OF PALO ALTO PUBLIC FACILITIES NEEDS LIST THROUGH 2035 General Government Revenues not yet Committed Public Safety Revenues not yet Committed SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 15 Development Impact Fee Justification Study December 10, 2014 Pursuant to the nexus requirements of Government Code 66000, a local agency is required to “determine how there is a reasonable relationship between the amount of the fee and the cost of the public facility or portion of the public facility attributable to the development on which the fee is imposed.” It is impossible to precisely determine the impact that a specific new residential unit, commercial project, or industrial development will have on existing facilities. Additionally, predicting future residents’ or employees’ specific behavioral patterns, park and transportation, and health and welfare requirements is extremely difficult, and would involve numerous assumptions that are subject to substantial variation. Recognizing these limitations, the Legislature drafted AB 1600 to specifically require that a “reasonable” relationship be determined, not a direct cause and effect relationship. There are many methods or ways of calculating fees, but they are all based on determining the cost of needed improvements and assigning those costs equitably to various types of development. Each of the fee calculations employs the concept of an Equivalent Dwelling Unit (“EDU”) or Equivalent Benefit Unit (“EBU”) to allocate benefit among the five (5) land use classes. EDUs are a means of quantifying different land uses in terms of their equivalence to a residential dwelling unit, where equivalence is measured in terms of potential infrastructure use or benefit for each type of public facility. For many of the facilities considered in this Fee Study, EDUs are calculated based on the number of residents or employees (“Persons Served”) generated by each land use class. For other facilities, different measures, such as number of trips, more accurately represent the benefit provided to each land use class. Table 6 below shows total existing and projected EDUs or EBUs by facility type. Notably, “Persons Served” equal Residents plus 50% of Employees, and is a customary industry practice designed to capture the reduced levels of service demanded by employees. TABLE 6 CITY OF PALO ALTO CITY EQUIVALENT DWELLING UNITS The following sections present the reasonable relationship for benefit, impact, and rough proportionality tests for each fee element (i.e., public safety and general government) and the analysis undertaken to apportion costs for each type of facility on the Needs List. More detailed fee calculation worksheets for each type of facility are included in Appendix A. Importantly, since the level of service (“LOS”) being requested for new development by City department heads is above the existing service level for certain types of facility, the cost of the new facilities has been carefully apportioned between existing and new development in the following manner: Countywide Facility Type Service Factor Existing EDUs/EBUs Projected EDUs/EBUs Total Public Safety Facilities Persons Served 43,597 7,807 51,404 General Government Facilities Persons Served 43,597 7,807 51,404 SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 16 Development Impact Fee Justification Study December 10, 2014 1. New development was assigned 100% of the cost for a LOS that is equivalent to the existing LOS within the City. 2. The cost of the incremental difference between the new, higher LOS being requested by the City and the existing LOS was then allocated between existing development and new development, based on the relative number of equivalent dwelling units (“EDUs”) assigned to existing development and new development. SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 17 Development Impact Fee Justification Study December 10, 2014 A. PUBLIC SAFETY FACILITIES The Public Safety element includes those facilities used by the City to protect life and property. Critically, there is also a need for other facilities, public safety specialty vehicles, and training stations to serve both existing and projected development. Therefore, the costs of these facilities have been allocated between existing development and new development based on their percentage of built-out EDUs. TABLE 7 PUBLIC SAFETY FACILITIES ELEMENT Identify Purpose of Fee Public Safety Facilities Identify Use of Fee Construction, acquisition and/or upgrade of Police and Fire Facilities and equipment Demonstrate how there is a reasonable relationship between the need for the public facility, the use of the fee, and the type of development project on which the fee is imposed New residential and non-residential development will generate additional residents and employees who will require additional service calls increasing the need for trained Police and Fire personnel. Buildings and vehicles used to provide these services will have to be expanded, constructed, or purchased to meet this increased demand. Thus a reasonable relationship exists between the need for Public Safety facilities and the impact of residential and non-residential development. The Public Safety fees collected from new development will be used exclusively for public safety purposes. Table 8 below identifies the facilities proposed to be funded in whole or in part with the collection of Public Safety fees. Costs are based on estimates provided by the City, as well as considerations of dedicated, off-setting revenues (as provided for the Public Safety Building and Fire Station 3 following the Infrastructure Funding Proposal approved on June 9, 2014 and the hotel tax increase approved in the most recent election). SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 18 Development Impact Fee Justification Study December 10, 2014 TABLE 8 PUBLIC SAFETY FACILITIES FACILITY COSTS Calculation Methodology Fee amounts for this element were calculated for both residential and non- residential land uses as detailed in Appendix A. Each land use classification was assigned an EDU factor which was derived from the number of Persons Served, which again is defined as the persons per household (for residential units) and 50% of the number of employees per 1,000 building square feet of each category of non-residential development. Fire Station Improvements According to the City, it has been determined that these facilities are needed to serve new development. Currently, these facilities are generally operating at an appropriate and acceptable level of service, though less so than many of the other public safety facilities and improvements; therefore, the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out. Consequently, 46.85% of the costs will be allocated to existing development and 53.15% of the costs will be allocated to new development. Public Safety Facilities Facility Cost Public Safety Building ("PSB") - Replace (44,850 square feet)$0 Fire Station 3 (Rinconada Park - built 1948) - Replace $0 Fire Station 4 (Meadow/Middlefield - built 1953) - Replace $7,500,000 BC Van (x 2)$200,000 Fire Trucks (x 2)$2,000,000 Type III Engine (x 2)$800,000 Training Tower & Related Land Acquisition $8,000,000 Type I Engine (x 8) - 2024 $4,200,000 Ambulances (x 4) - 2022-2025 $1,300,000 Miscellaneous Upgrades (Van, Trucks, Engines, Ambulances)$8,500,000 Public Safety Revenues not yet Committed $0 TOTAL PUBLIC SAFETY FACILITIES $32,500,000 SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 19 Development Impact Fee Justification Study December 10, 2014 TABLE 9 FIRE STATION IMPROVEMENTS COST ALLOCATION SUMMARY Public Safety Vehicles According to the City, it has been determined that these facilities are needed to serve new development. Currently, these facilities are generally operating at an appropriate and acceptable level of service; therefore, the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out. Consequently, 69.63% of the costs will be allocated to existing development and 30.37% of the costs will be allocated to new development. TABLE 10 PUBLIC SAFETY VEHICLES COST ALLOCATION SUMMARY Public Safety Training Tower Modernization According to the City, it has been determined that this facility modernization is needed to serve new development. Currently, this facility is operating at an appropriate and acceptable level of service; therefore, the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out. Consequently, Fire Station Improvments Percentage Allocated to New Development Number of New Facility Units Allocated Facility Cost Allocated Existing Development 46.85%0.94 $3,513,468 New Development 53.15%1.06 $3,986,532 Total 100%2.00 $7,500,000 Public Safety Vehicles Percentage Allocated to New Development Number of New Facility Units Allocated Facility Cost Allocated Existing Development 69.63%12.53 $11,836,492 New Development 30.37%5.47 $5,163,508 Total 100%18.00 $17,000,000 SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 20 Development Impact Fee Justification Study December 10, 2014 84.81% of the costs will be allocated to existing development and 15.19% of the costs will be allocated to new development. TABLE 11 PUBLIC SAFETY TRAINING TOWER MODERNIZATION COST ALLOCATION SUMMARY Fee Amounts Table 12 presents a summary of the derivation of EDUs, fee amounts, and the costs financed by fees for the Public Safety Facilities on the Needs List. The details of the fee calculation are presented in Appendix A. TABLE 12 PUBLIC SAFETY FACILITIES FEE DERIVATION SUMMARY Based on the development projections in Appendix A, the fee amounts presented in Table 12 will finance 31.89% of the net costs of the Public Safety Facilities identified on the Needs List. The remaining 68.11% of the net costs of facilities will be funded through other sources. Public Safety Training Tower Modernization Percentage Allocated to New Development Number of New Facility Units Allocated Facility Cost Allocated Existing Development 84.81%0.85 $6,785,057 New Development 15.19%0.15 $1,214,943 Total 100%1.00 $8,000,000 Land Use Type EDUs Per Unit/1,000 Non-Res. SF Fee per Unit/1,000 Non-Res. SF Cost Financed by Fees Single Family Residential 1.00 $1,328 $3,388,371 Multi Family Residential 0.80 $1,062 $1,668,677 Commercial 0.56 $743 $663,499 Office/Institutional 0.75 $991 $3,614,702 Industrial 0.19 $248 $1,029,734 $10,364,983 $22,135,017 $32,500,000 Total Allocation to New Development: Outside Funding Responsibility: Total Facilities Costs: SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 21 Development Impact Fee Justification Study December 10, 2014 B. GENERAL GOVERNMENT FACILITIES The General Government Facilities Element includes those facilities used by the City to provide basic governmental services and public facilities maintenance services, exclusive of public safety. TABLE 13 GENERAL GOVERNMENT FACILITIES Identify Purpose of Fee General Government Service Facilities Identify Use of Fee Modernization of City Office and Building Improvements and Replacement of Municipal Services Center. Demonstrate how there is a reasonable relationship between the need for the public facility, the use of the fee, and the type of development project on which the fee is imposed New residential and non-residential development in the City will generate additional residents and employees who will increase the demand for services, including municipal services and general government functions. Population and growth has a direct impact on the need for government services and facilities, thus a reasonable relationship exists between new development and government facilities, which will have to be acquired to meet the increased demand. Fees collected from new development will be used exclusively for the City Government Service Facilities on the Needs List. TABLE 14 GENERAL GOVERNMENT FACILITIES COST General Government Facilities Facility Cost Information Technology Upgrades $675,000 Buildings Systems Improvements $6,200,000 Civic Center Plaza Deck $16,000,000 Municipal Service Center Improvements (Immediate)$1,991,000 Municipal Services Center - Replace $60,450,000 Ventura Buildings Improvements $690,000 General Government Revenues not yet Committed $0 TOTAL GENERAL GOVERNMENT FACILITIES $86,006,000 SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 22 Development Impact Fee Justification Study December 10, 2014 Calculation Methodology Fee amounts for this element were calculated for both residential and non-residential land uses as detailed in Appendix A. Each land use classification was assigned an EDU factor which was derived from the number of Persons Served, which again is defined as the persons per household (for residential units) and 50% of the number of employees per 1,000 building square feet of each category of non-residential development. CITY OFFICE AND BUILDING IMPROVEMENTS According to the City, it has been determined that these facilities are needed to serve new development. Currently, these facilities are operating at an appropriate and acceptable level of service; therefore, the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out. Consequently, 84.81% of the costs will be allocated to existing development and 15.19% of the costs will be allocated to new development as presented in Table 15 below. TABLE 15 CITY OFFICE AND BUILDING IMPROVEMENTS COST ALLOCATION SUMMARY Municipal Services Center Replacement According to the City, it has been determined that these facilities are needed to serve new development. Currently, these facilities are operating at an appropriate and acceptable level of service; therefore, the costs of facilities have been allocated to new development and existing development based on their percentage of their expected facility usage at build out. Consequently, 84.81% of the costs will be allocated to existing development and 15.19% of the costs will be allocated to new development as presented in Table 16 below. City Office and Building Improvements Percentage Allocated to New Development Total Square Feet Allocated Facility Cost Allocated Existing Development 84.81%18,219 $21,674,865 New Development 15.19%3,262 $3,881,135 Total 100%21,481 $25,556,000 SECTION V: METHODOLOGY USED TO CALCULATE FEES City of Palo Alto Page 23 Development Impact Fee Justification Study December 10, 2014 TABLE 16 MUNICIPAL SERVICES CENTER REPLACEMENT COST ALLOCATION SUMMARY Fee Amounts Table 17 presents a summary of the derivation of EDUs, fee amounts and the costs financed by fees for the general government facilities on the Needs List. The details of the fee calculation are presented in Appendix A. TABLE 17 GENERAL GOVERNMENT FACILITIES FEE DERIVATION SUMMARY Based on the development projections in Appendix A, the fee amounts presented in Table 17 will finance 15.19% of the net costs of the General Government Facilities identified on the Needs List. The remaining 84.81% of the net costs of facilities will be funded through other sources. Municipal Services Center Replacement Percentage Allocated to New Development Number of New Facility Units Allocated Facility Cost Allocated Existing Development 84.81%70,395 $51,269,587 New Development 15.19%12,605 $9,180,413 Total 100%83,000 $60,450,000 Land Use Type EDUs Per Unit/1,000 Non-Res. SF Fee per Unit/1,000 Non-Res. SF Cost Financed by Fees Single Family Residential 1.00 $1,673 $4,269,893 Multi Family Residential 0.80 $1,339 $2,102,803 Commercial 0.56 $936 $836,116 Office/Institutional 0.75 $1,249 $4,555,107 Industrial 0.19 $312 $1,297,630 $13,061,548 $72,944,452 $86,006,000 Total Facilities Costs: Total Allocation to New Development: Outside Funding Responsibility: SECTION VI: SUMMARY OF FEES City of Palo Alto Page 24 Development Impact Fee Justification Study December 10, 2014 The total fee amounts to finance new development’s share of the costs of facilities in the Needs Lists are summarized in Tables 18 & 19 below. TABLE 18 DEVELOPMENT IMPACT FEE SUMMARY TABLE 19 DEVELOPMENT IMPACT FEE SUMMARY http://localhost:9010/resources/Clients/Palo Alto/AB 1600 - 2012/AB 1600 Update/DIFReport DRAFT v.11A.docx Single Family Multi-Family Commercial Office/Institutional Industrial $3,388,371 $1,668,677 $663,499 $3,614,702 $1,029,734 $4,269,893 $2,102,803 $836,116 $4,555,107 $1,297,630 $7,658,264 $3,771,480 $1,499,615 $8,169,808 $2,327,364 Total Non-Residential Public Safety Facilities General Government Facilities City Facilities Residential Single Family Multi-Family Commercial Office/Institutional Industrial $1,328 $1,062 $743 $991 $248 $1,673 $1,339 $936 $1,249 $312 $3,001 $2,401 $1,680 $2,239 $560 Total City Facilities Non-Residential (Per 1,000 BSF) Public Safety Facilities General Government Facilities Residential (Per Unit) Appendix A Fee Derivation Worksheets I. Inventory of Existing Facilities Facility Type Quantity Facility Units Public Safety Building (Replacement)0 Square Feet Fire Stations (Modernized)5 Integrated Facility Vehicles (Van, Trucks, Engines, Ambulances)18 No. of Vehicles Training Tower (Modernized)0 Integrated Facility Public Safety Facilities NA NA II. Existing EDU Calculation [a][d] Number of [b][c]Total Units/Persons Served per Unit/EDUs per Unit/Number of EDUs Land Use Type Non-Res. 1,000 SF 1,000 Non-Res. SF Per 1,000 Non-Res. SF [a]*[c] Single Family Residential 17,614 2.68 1.00 17,614 Multi Family Residential 10,843 2.12 0.79 8,577 Commercial 3,887 1.50 0.56 2,176 Office/Institutional 15,883 2.00 0.75 11,853 Industrial 18,099 0.50 0.19 3,377 Total 43,597 III. Existing Facility Standard Quantity Facility Type Quantity Facility Units per 1,000 EDU's Public Safety Building (Replacement)0 Square Feet 0 Fire Stations (Modernized)5 Integrated Facility 0.11 Vehicles (Van, Trucks, Engines, Ambulances)18 No. of Vehicles 0.41 Training Tower (Modernized)0 Integrated Facility 0 Public Safety Facilities NA NA NA IV. Future EDU Calculation [a][b][d] Number of Residents per Unit/[c]Total Units/Employees per EDUs per Number of EDUs Land Use Type Non-Res. 1,000 SF [1]Non-Res. 1,000 SF [2]Unit/per 1,000 Non-Res. SF [a]*[c] Single Family Residential 2,552 2.68 1.00 2,552 Multi Family Residential 1,571 2.12 0.80 1,257 Commercial 893 1.50 0.56 500 Office/Institutional 3,648 2.00 0.75 2,722 Industrial 4,157 0.50 0.19 776 Total 7,807 V. Proposed Inventory, Cost, and Service Standard Quantity Facility Type Quantity Facility Units Facility Cost per 1,000 EDU's Public Safety Building (Replacement)44,850 Square Feet $0 5,745.17 Fire Stations (Modernized)2 Integrated Facility $7,500,000 0.26 Vehicles (Van, Trucks, Engines, Ambulances)18 No. of Vehicles $17,000,000 2.31 Training Tower (Modernized)1 Integrated Facility $8,000,000 0.13 Offsetting Revenues $0 Total Cost of Public Safety Facilities $32,500,000 VI. Allocation of Public Safety Facilities to Existing & New Development (based on total EDUs) A.1 Public Safety Building Improvements [a][b][c][d][e][f][g] Existing Total Future SF Allocated 100%Proposed Service SF per EDU SF Beyond Existing Total Proposed SF Per EDU's To New Development [3]Standard Per Beyond Existing Service Standard [4] New SF 1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.00 7,806.56 0.00 5,745.17 5,745.17 44,850.00 44,850.00 City of Palo Alto Public Safety Fee Calculation City of Palo Alto Public Safety Fee Calculation A.2 SF Beyond Existing Service Standard Split Between New and Existing, plus Facility Units allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%38,038.73 NA 38,038.73 New Development 7,807 15.19%6,811.27 0.00 6,811.27 Total 51,404 100.00%44,850.00 44,850.00 A.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type SF Cost Allocated Facility Cost Existing 38,039 84.81%$0New Development 6,811 15.19%$0 Total 44,850 100.00%$0 B.1 Fire Station Improvements [a][b][c][d][e][f][g] Existing Total Future Facility Units Allocated 100%Proposed Service Facility Units per EDU Facility Units Beyond Total Proposed Facility Units Per EDU's To New Development [3]Standard Per Beyond Existing Existing Service Standard [4]New Facility Units1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.11 7,806.56 0.90 0.26 0.14 1.10 2.00 B.2 Facility Units Beyond Existing Service Standard Split Between New and Existing, plus Facility Units allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%0.94 NA 0.94 New Development 7,807 15.19%0.17 0.90 1.06 Total 51,404 100.00%1.10 2.00 B.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type New Facility Units Cost Allocated Facility Cost Existing 0.94 46.85%$3,513,468New Development 1.06 53.15%$3,986,532 Total 2.00 100.00%$7,500,000 C.1 Public Safety Vehicles [a][b][c][d][e][f][g] Existing Total Future Facility Units Allocated 100%Proposed Service Facility Units per EDU Facility Units Beyond Total Proposed Facility Units Per EDU's To New Development [3]Standard Per Beyond Existing Existing Service Standard [4]New Facility Units1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.41 7,806.56 3.22 2.31 1.89 14.78 18.00 C.2 Facility Units Beyond Existing Service Standard Split Between New and Existing, plus Facility Units allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%12.53 NA 12.53 New Development 7,807 15.19%2.24 3.22 5.47 Total 51,404 100.00%14.78 18.00 City of Palo Alto Public Safety Fee Calculation C.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type Facility Units Cost Allocated Facility Cost Existing 12.53 69.63%$11,836,492 New Development 5.47 30.37%$5,163,508 Total 18.00 100.00%$17,000,000 D.1 Public Safety Training Tower (Modernized) [a][b][c][d][e][f][g] Existing Total Future Facility Units Allocated 100%Proposed Service Facility Units per EDU Facility Units Beyond Total Proposed Facility Units Per EDU's To New Development [3]Standard Per Beyond Existing Existing Service Standard [4]New Facility Units 1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.00 7,806.56 0.00 0.13 0.13 1.00 1.00 D.2 Facility Units Beyond Existing Service Standard Split Between New and Existing, plus Facility Units allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%0.85 NA 0.85 New Development 7,807 15.19%0.15 0.00 0.15 Total 51,404 100.00%1.00 1.00 D.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type Facility Units Cost Allocated Facility Cost Existing 0.85 84.81%$6,785,057 New Development 0.15 15.19%$1,214,943 Total 1.00 100.00%$8,000,000 Section Cost Allocated Total Cost Per VI Facility Type to New Development Future EDU's EDU E.1 Public Safety Facilities $10,364,983 7,807 $1,327.73 Offsetting Revenues $0 7,807 $0.00 Total $10,364,983 $1,327.73 VIII. Development Impact Fee per Unit or per 1,000 Non-Res. SF EDUs Per Fees Per Number of Units/Cost Financed by Land Use Type Unit/1,000 Non-Res. SF Unit/1,000 Non-Res. SF Non-Res. 1,000 SF DIF Single Family Residential 1.00 $1,328 2,552 $3,388,371 Multi Family Residential 0.80 $1,062 1,571 $1,668,677 Commercial 0.56 $743 893 $663,499 Office/Institutional 0.75 $991 3,648 $3,614,702 Industrial 0.19 $248 4,157 $1,029,734 Total Allocated to New Development $10,364,983 Outside Funding Responsibility $22,135,017 Total Cost of Public Safety Facilities $32,500,000 Notes: [1] Expected Housing Units based on data provided by the City of Palo Alto's Planning Department, confirmed by ABAG. [2] Average Household Size Based on information obtained from the California Department of Finance (2013), City, and U.S. Census Bureau. [3] Allocates 100% to new development square feet or equipment necessary to fund existing service standard for new residents. [4] Denotes proposed service standard in excess to that currently provided to existing residents. VII. Summary Cost Data I. Inventory of Existing Facilities Facility Type Quantity Facility Units City Office & Building Improvements (Modernized)0 Square Feet Municipal Services Center Replacement 0 Square Feet City Office & Building Improvements NA NA II. Existing EDU Calculation [a][d] Number of [b][c]Total Units/Persons Served per Unit/EDUs per Unit/Number of EDUs Land Use Type Non-Res. 1,000 SF 1,000 Non-Res. SF Per 1,000 Non-Res. SF [a]*[c] Single Family Residential 17,614 2.68 1.00 17,614 Multi Family Residential 10,843 2.12 0.79 8,577 Commercial 3,887 1.50 0.56 2,176 Office/Institutional 15,883 2.00 0.75 11,853 Industrial 18,099 0.50 0.19 3,377 Total 43,597 III. Existing Facility Standard Quantity Facility Type Quantity Facility Units per 1,000 EDU's City Office & Building Improvements (Modernized)0 Square Feet 0 Municipal Services Center Replacement 0 Square Feet 0 City Office & Building Improvements NA NA NA IV. Future EDU Calculation [a][b][d] Number of Residents per Unit/[c]Total Units/Employees per EDUs per Number of EDUs Land Use Type Non-Res. 1,000 SF [1]Non-Res. 1,000 SF [2]Unit/per 1,000 Non-Res. SF [a]*[c] Single Family Residential 2,552 2.68 1.00 2,552 Multi Family Residential 1,571 2.12 0.80 1,257 Commercial 893 1.50 0.56 500 Office/Institutional 3,648 2.00 0.75 2,722 Industrial 4,157 0.50 0.19 776 Total 7,807 V. Proposed Inventory, Cost, and Service Standard Quantity Facility Type Quantity Facility Units Facility Cost per 1,000 EDU's City Office & Building Improvements (Modernized)21,481 Square Feet $25,556,000 2,751.66 Municipal Services Center Replacement 83,000 Square Feet $60,450,000 10,632.08 Offsetting Revenues $0 Total Cost of General Government Facilities $86,006,000 VI. Allocation of General Government Facilities to Existing & New Development (based on total EDUs) A.1 City Office & Building Improvements [a][b][c][d][e][f][g] Existing Total Future SF Allocated 100%Proposed Service SF per EDU SF Beyond Existing Total Proposed SF Per EDU's To New Development [3]Standard Per Beyond Existing Service Standard [4] New SF 1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.00 7,806.56 0.00 2,751.66 2,751.66 21,481.00 21,481.00 A.2 SF Beyond Existing Service Standard Split Between New and Existing, plus SF allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%18,218.73 NA 18,218.73 New Development 7,807 15.19%3,262.27 0.00 3,262.27 Total 51,404 100.00%21,481.00 21,481.00 City of Palo Alto General Government Fee Calculation City of Palo Alto General Government Fee Calculation A.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type SF Cost Allocated Facility Cost Existing 18,218.73 84.81%$21,674,865 New Development 3,262.27 15.19%$3,881,135 Total 21,481.00 100.00%$25,556,000 B.1 Municipal Services Center Replacement [a][b][c][d][e][f][g] Existing Total Future SF Allocated 100%Proposed Service SF per EDU SF Beyond Existing Total Proposed SF Per EDU's To New Development [3]Standard Per Beyond Existing Service Standard [4] New SF 1,000 EDU's [a]*[b]1,000 EDU's [d]-[a][b]*[e][c]+[f] 0.00 7,806.56 0.00 10,632.08 10,632.08 83,000.00 83,000.00 B.2 Facility Units Beyond Existing Service Standard Split Between New and Existing, plus SF allocated 100% to New Development Facility Units Split Facility Units Number of Percentage of Total Between New and Existing Allocated 100% To Total Facility Units Facility Type EDU's EDU's Development New Development Allocated Existing 43,597 84.81%70,394.97 NA 70,394.97 New Development 7,807 15.19%12,605.03 0.00 12,605.03 Total 51,404 100.00%83,000.00 83,000.00 B.3 Cost Allocated Between Existing and New Development Total Number of Percentage of Facility Type New Facility Units Cost Allocated Facility Cost Existing 70,394.97 84.81%$51,269,587 New Development 12,605.03 15.19%$9,180,413 Total 83,000.00 100.00%$60,450,000 Section Cost Allocated Total Cost Per VI Facility Type to New Development Future EDU's EDU C.1 City Office & Building Improvements $13,061,548 7,807 $1,673.15 Offsetting Revenues $0 7,807 $0.00 Total $13,061,548 $1,673.15 VIII. Development Impact Fee per Unit or per 1,000 Non-Res. SF EDUs Per Fees Per Number of Units/Cost Financed by Land Use Type Unit/1,000 Non-Res. SF Unit/1,000 Non-Res. SF Non-Res. 1,000 SF DIF Single Family Residential 1.00 $1,673 2,552 $4,269,893 Multi Family Residential 0.80 $1,339 1,571 $2,102,803 Commercial 0.56 $936 893 $836,116 Office/Institutional 0.75 $1,249 3,648 $4,555,107 Industrial 0.19 $312 4,157 $1,297,630 Total Allocated to New Development $13,061,548 Outside Funding Responsibility $72,944,452 Total Cost of General Government Facilities $86,006,000 Notes: [1] Expected Housing Units based on data provided by the City of Palo Alto's Planning Department, confirmed by ABAG. [2] Average Household Size Based on information obtained from the California Department of Finance (2013), City, and U.S. Census Bureau. [3] Allocates 100% to new development square feet or equipment necessary to fund existing service standard for new residents. [4] Denotes proposed service standard in excess to that currently provided to existing residents. VII. Summary Cost Data Existing EDU Calculation Service Factor (Residents and Employees) Residents per Unit**/ Number of Persons Served per EDUs per Unit/Total Land Use Type Persons Served *1,000 Non-Res. SF per 1,000 Non-Res. SF Number of EDUs Single Family Residential 47,206 2.68 1.00 17,614 Multi Family Residential 22,987 2.12 0.80 8,674 Office/Institutional 31,767 2.00 0.75 11,853 Commercial 5,831 1.50 0.56 2,176 Industrial 9,050 0.50 0.19 3,377 Total 116,840 43,694 * Source: David Taussig & Associates; City of Palo Alto Comprehensive Plan, U.S. Census Bureau QuickFacts (American Community Survey), Palo Alto Zoning Ordinance. ** Persons Served = Residents plus 50% of Employees, customary industry practice designed to capture the reduced levels of service demanded by employees. Future EDU Calculation Service Factor (Future Residents and Employees) Residents per Unit**/ Number of Persons Served per EDUs per Unit/Total Land Use Type Persons Served *1,000 Non-Res. SF per 1,000 Non-Res. SF Number of EDUs Single Family Residential 6,839 2.68 1.00 2,552 Multi Family Residential 3,331 2.12 0.80 1,257 Office/Institutional 7,296 2.00 0.75 2,722 Commercial 1,339 1.50 0.56 500 Industrial 2,079 0.50 0.19 776 Total 20,884 7,807 * Source: David Taussig & Associates; City of Palo Alto Comprehensive Plan, U.S. Census Bureau QuickFacts (American Community Survey), Palo Alto Zoning Ordinance. ** Persons Served = Residents plus 50% of Employees, customary industry practice designed to capture the reduced levels of service demanded by employees. City of Palo Alto EBU & EDU Calculation Year to Build-Out (2035) Public Finance Public Private Partnerships Urban Economics 2250 Hyde Street 5th Floor San Francisco, CA 94109 Phone (800) 969-4382 NOT YET APPROVED Ordinance No. _____ Ordinance of the Council of the City of Palo Alto Amending Chapter 16.58 of the Palo Alto Municipal Code Establishing a Public Safety Facility Development Fee and a General Government Facility Development Fee The Council of the City of Palo Alto does ORDAIN as follows: SECTION 1. Findings. The City Council finds and declares that: (a) Section 66000 et seq. of the California Government Code authorizes the City to levy fees upon development projects to defray all or a portion of the costs of public improvements and public services related to the development project. Such fees are commonly known as “development impact fees.” (b) The City currently imposes development impact fees to fund a portion of the costs of park, community center, and library facilities that will serve new developments. (c) New developments also are served by public safety facilities and general government facilities. (d) The City Council desires to impose development impact fees to fund a portion of the costs of such facilities. SECTION 2. Chapter 16.58 of the Municipal Code, which is currently captioned as “Chapter 16.58 Development Impact Fees for Parks, Community Centers and Libraries” is recaptioned as “Chapter 16.58 Development Impact Fees” SECTION 3. Chapter 16.58 of the Palo Alto Municipal Code is hereby amended by adding Section 16.58.080 to read as follows: “Section 16.58.080 – Public Safety and Government Facility Fees (a) In addition to the fees established by Section 16.58.020, the following fees are hereby established and shall be imposed as a condition of the approval of, or permit for, any new development, whether residential or nonresidential, except as otherwise exempted by this chapter: (i) a Public Safety Facility Development Fee, to fund police and fire facilities (including fire apparatus and vehicles) and (ii) a General Government Facility Development Fee, to fund facilities associated with municipal administration. (b) The fees imposed by this section shall be charged in in an amount as set forth in the municipal fee schedule. 1 141208 jb 0131291 ATTACHMENT D NOT YET APPROVED (c) A Public Safety Facility Development Fee Fund and a General Government Facility Development Fee Fund are hereby established. Such funds shall be administered in connection with the fees imposed by this section in the manner set forth in Section 16.58.050. (d) Any fee imposed by this section shall be effective on the sixty-first day following the adoption of an ordinance or resolution amending the municipal fee schedule to include a rate for that fee.” SECTION 4. If any provision or clause of this ordinance or the application thereof to any person or circumstance is held to be invalid by any court of competent jurisdiction, such invalidity shall not affect any other provision or clause of this ordinance, and to that end, the provisions and clauses of this ordinance are severable. SECTION 5. This ordinance shall be effective on the thirty first day after the date of its adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ____________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ____________________________ ____________________________ Senior Assistant City Attorney City Manager ____________________________ Director of Planning & Community Environment ____________________________ Director of Administrative Services 2 141208 jb 0131291 NOT YET APPROVED Ordinance No. _____ Ordinance of the Council of the City of Palo Alto Amending Chapter 16.58 of the Palo Alto Municipal Code Establishing a Public Safety Facility Development Fee and a General Government Facility Development Fee The Council of the City of Palo Alto does ORDAIN as follows: SECTION 1. Findings. The City Council finds and declares that: (a) Section 66000 et seq. of the California Government Code authorizes the City to levy fees upon development projects to defray all or a portion of the costs of public improvements and public services related to the development project. Such fees are commonly known as “development impact fees.” (b) The City currently imposes development impact fees to fund a portion of the costs of park, community center, and library facilities that will serve new developments. (c) New developments also are served by public safety facilities and general government facilities. (d) The City Council desires to impose development impact fees to fund a portion of the costs of such facilities. SECTION 2. Chapter 16.58 of the Municipal Code, which is currently captioned as “Chapter 16.58 Development Impact Fees for Parks, Community Centers and Libraries” is recaptioned as “Chapter 16.58 Development Impact Fees” SECTION 3. Chapter 16.58 of the Palo Alto Municipal Code is hereby amended by adding Section 16.58.080 to read as follows: “Section 16.58.080 – Public Safety and Government Facility Fees (a) In addition to the fees established by Section 16.58.020, the following fees are hereby established and shall be imposed as a condition of the approval of, or permit for, any new development, whether residential or nonresidential, except as otherwise exempted by this chapter: (i) a Public Safety Facility Development Fee, to fund police and fire facilities (including fire apparatus and vehicles) and (ii) a General Government Facility Development Fee, to fund facilities associated with municipal administration. (b) The fees imposed by this section shall be charged in in an amount as set forth in the municipal fee schedule. 1 141208 jb 0131291 ATTACHMENT D NOT YET APPROVED (c) A Public Safety Facility Development Fee Fund and a General Government Facility Development Fee Fund are hereby established. Such funds shall be administered in connection with the fees imposed by this section in the manner set forth in Section 16.58.050. (d) Any fee imposed by this section shall be effective on the sixty-first day following the adoption of an ordinance or resolution amending the municipal fee schedule to include a rate for that fee.” SECTION 4. If any provision or clause of this ordinance or the application thereof to any person or circumstance is held to be invalid by any court of competent jurisdiction, such invalidity shall not affect any other provision or clause of this ordinance, and to that end, the provisions and clauses of this ordinance are severable. SECTION 5. This ordinance shall be effective on the thirty first day after the date of its adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ____________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ____________________________ ____________________________ Senior Assistant City Attorney City Manager ____________________________ Director of Planning & Community Environment ____________________________ Director of Administrative Services 2 141208 jb 0131291 CITY OF PALO ALTO OFFICE OF THE CITY CLERK February 9, 2015 The Honorable City Council Palo Alto, California Colleagues Memo from Council Members Berman, Burt, DuBois, and Wolbach Regarding a City-Wide Minimum Wage Ordinance RECOMMENDATION We ask our Council Colleagues to refer this colleague’s memo to the Policy and Services Committee, supported by appropriate staff as determined by the City Manager, to analyze and make recommendations to the City Council on a City-Wide Minimum Wage Ordinance. BACKGROUND State law currently requires a minimum wage for all industries of not less than $9.00 per hour, which will increase to $10.00 per hour after January 1, 2016. In response to our higher regional cost of living and growing gap between minimum wages and the cost of living in Silicon Valley, the cities of Mountain View, Sunnyvale and San Jose have recently adopted local minimum wage ordinances. If minimum wages were adjusted based on local costs of living, they would be considerably higher in Palo Alto and the peninsula than most elsewhere in the state. Recently, the Santa Clara County Cities Association made minimum wage issues one of their 2015 priorities. Despite our general affluence, along with high costs of living and working in Palo Alto, we currently have the same minimum wage as low cost regions of California and lower minimum wages than some neighboring cities. PURPOSE Our lowest wage workers perform valued services in Palo Alto and often have to work multiple jobs with long commutes to barely make ends meet. A local minimum wage would be a modest step in supporting these workers who are vital to maintaining the services we value and that are essential to our local economy. In addition, the strength of our community and society relies on maintaining a level of economic fairness and opportunity for all. This measure will be a modest but constructive step towards providing adequate income for all workers. PROPOSAL The Council is being asked to: 1) Refer the matter to the Policy and Services Committee. Direct the City Manager and City Attorney to provide adequate staff support for the analysis and recommendations, modeled after ordinances in Sunnyvale and Mountain View. 2) Request the Policy and Services Committee to recommend to the City Council terms of a local minimum wage ordinance that would set a near term base wage, inflationary adjustments and long term goals. Page 2 3) Request the Policy and Services Committee to explore with the City Manager and City Attorney and make recommendations to Council regarding a strategy for outreach/education, investigation and enforcement of violations. RESOURCE IMPACT Staff impacts to develop an ordinance are anticipated to be low based upon reliance on similar ordinances in Mountain View and Sunnyvale as models. If Council adopts an ordinance, resources will be required to educate businesses and workers, investigate complaints and bring enforcement actions. Resources and strategies should be explored by the Policy and Services Committee, with recommendations to Council. Department Head: Beth Minor, Acting City Clerk Carnahan, David From: Sent: To: Subject: Steve Rock <rockjs@sbcglobal.net> Monday, January 26, 2015 12:42 PM Council, City Minimum Wage Increase CITY OF PALO ALTO. GA GITY CLERK'S OFJiHjE 15 JAN 26 PM 3: 97 I urge you to vote for a minimum wage in Palo Alto significantly higher than the state minimum wage. 1) The cost of living in Palo Alto is much higher than the state average 2) The state minimum wage has not kept up with inflation. 3) People who work should be able to live on their wages and not need govt. subsidies 4) The increased costs to employers is very small. $1/hr is 1.6 cents/minute. A 6 minutes of service would thus cost about 10 cents more. This is a trivial amount in Palo Alto. Who would go to a neighboring city, with all the time and expenses of travel to "save" a few cents? 5) It is the just and moral thing to have more equality in our society. -Steve Stephen Rock 3872 Nathan Way Palo Alto CA 94303 ser84@columbia.edu CITY OF PALO ALTO OFFICE OF THE CITY CLERK February 9, 2015 The Honorable City Council Palo Alto, California Colleagues Memo From Council Members Berman, Burt, Holman, and Kniss Recommending Adoption of a Resolution Urging CalPERS Divestment from Fossil Fuel Companies Goal We ask our Council Colleagues to adopt the attached resolution urging CalPERS to divest its holdings in fossil fuel companies from statewide pension investments. Background On November 2nd, 2014, the United Nations Intergovernmental Panel on Climate Change (IPCC) released “Climate Change 2014: Synthesis Report.” The Report found that “[w]arming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia.” In addition, “recent anthropogenic emissions of greenhouse gases are the highest in history.” The threat of climate change is real, and “[c]ontinued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems.” Palo Alto has been a pioneer in the effort to reduce greenhouse gas emissions and combat climate change. In 2007, the City drafted a Climate Protection Plan that set ambitious goals to reduce carbon emissions in Palo Alto and expressed an intention to “share its experiences with other cities around the world as part of an effort to address the environmental crisis of our time.” In 2013, Palo Alto was one of the first cities in the country to achieve a carbon neutral electric supply portfolio. This commitment to best practices and combating climate change is one that is shared in our community as evidenced by Palo Alto Green, the nation’s top-ranked voluntary renewable energy program before it became obsolete and was retired in 2013. Palo Alto is currently considering efforts to become a 100% carbon neutral city. Recommendation Palo Alto is a member of the California Public Employees' Retirement System (CalPERS), the largest public pension fund in the United States with approximately $300 billion in assets. In Page 2 addition, Palo Alto is a member of the California Employers Retiree Benefit Trust, which is also managed by CalPERS, with assets totaling approximately $4 billion. The value of Palo Alto’s assets managed by CalPERS is in excess of $705 million (as of June 30, 2013, which is the most recent actuarial report). The City of Palo Alto has an obligation to invest its assets in a way that will protect and promote the health, safety, and well being of its residents. Although we have outsourced our retiree investment portfolio to CalPERS, we have not abrogated our obligation to insist that our assets are invested responsibly and aligned with the values of our residents and the city’s policy directions. Just as our policies and actions seek to create a carbon free community, our investments should promote technologies that counteract human contributions to climate change. At the launch of the IPCC report, UN Secretary General Ban Ki-moon revealed that he has been urging large companies and pension funds to turn their investments away from fossil fuels and towards renewable energy. “I’m asking them – please reduce your investments in coal and fossil fuel based economy to renewable energy.” We agree, which is why we’re requesting that CalPERS divest from fossil fuel companies and move current energy investments from large greenhouse gas emitters to clean energy. While we believe strongly that Palo Alto’s investments should reflect its values, it is important that we achieve a strong return on our investments as well. We believe these objectives are complementary. Fossil fuel divestment is sound pension fund investment practice, as the value of fossil fuel investments will decrease as governments act to limit carbon emissions. Studies show that fossil free portfolios would have performed better than the benchmark indices. According to a recent report by the Aperio Group, “[w]hen the idea of fossil fuel screening gets floated, the first thing an [investment] committee would want to know is the impact on return, especially whether screening imposes any penalty. The research data on a wide range of social and environmental screening show no such penalty.” To date, CalPERS has not acted to divest its holdings in fossil fuel companies and shift its focus to the renewable energy economy. With this resolution, we request that it do so. We urge our colleagues to join us and support its adoption. RESOURCE IMPACT The staff impact of adopting this resolution can easily be accommodated within existing staff resources and work plan. ATTACHMENTS:  Attachment A: CalPERS Divestment Resolution (DOC) Page 3 Department Head: Beth Minor, Acting City Clerk Page 4 1 Resolution No. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO URGING CALPERS TO DIVEST FROM PUBLICLY TRADED FOSSIL FUEL COMPANIES WHEREAS, the climate crisis is a serious threat to current and future generations here in Palo Alto and around the world; and WHEREAS, the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report found that global warming is already causing costly disruption of human and natural systems throughout the world including the melting of Arctic ice, the ocean’s rise in acidity, flooding and drought; and WHEREAS, almost every government in the world has agreed through the 2009 Copenhagen Accord that any warming above a 2°C (3.6°F) rise would be unsafe, and that humans can only pour about 565 more gigatons of carbon dioxide into the atmosphere to maintain this limit; and WHEREAS, for the purposes of this ordinance, a “fossil fuel company” shall be defined as any of the two hundred publicly-traded companies with the largest coal, oil, and gas reserves as measured by the gigatons of carbon dioxide that would be emitted if those reserves were extracted and burned, as listed in the Carbon Tracker Initiative’s “Unburnable Carbon” report; and WHEREAS, in its “Unburnable Carbon” report, the Carbon Tracker Initiative found that fossil fuel companies possess proven fossil fuel reserves that would release approximately 2,795 gigatons of CO2 if they are burned, which is five times the amount that can be released without exceeding 2°C of warming; and WHEREAS, the City of Palo Alto has a responsibility to protect the lives and livelihoods of its inhabitants from the threat of climate change; and WHEREAS, the City of Palo Alto believes that its investments should support a future where all citizens can live healthy lives without the negative impacts of a warming environment; and WHEREAS, studies have shown that fossil free portfolios would have performed better than benchmark indices. NOW, THEREFORE, BE IT RESOLVED, by the Council of the City of Palo Alto that the Council requests CalPERS to join the City in these efforts and: 1. Immediately instruct its asset managers to stop any new investment in companies and corporations whose operations involve the extraction of fossil fuels; and 2. Ensure that none of its directly held or commingled assets include holdings in fossil fuel public equities and corporate bonds on or after January 1, 2020; and 3. Publish quarterly updates beginning July 1, 2015, available to the public, detailing progress made towards full divestment. 2 INTRODUCED AND PASSED: FEBRUARY 9, 2015 AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ______________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ______________________________ City Attorney City Manager 3