HomeMy WebLinkAboutStaff Report 11880
City of Palo Alto (ID # 11880)
City Council Staff Report
Report Type: Action Items Meeting Date: 1/11/2021
City of Palo Alto Page 1
Summary Title: Approval of FY2020 Financial Statements, FY2020 Annual
Financials Report, & FY2020 Budget Amendments
Title: Approval of the Macias Gini & O’Connell’s Audit of the City of Palo
Alto’s Financial Statements as of June 30, 2020 and the Managemen t Letter;
FY 2020 Comprehensive Annual Financial Report (CAFR); & FY 2020 Budget
Amendments in Various Funds
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Finance Committee and Staff recommend that the City Council approve:
1. The City of Palo Alto’s audited financial statements for the fiscal year ended June 30,
2020, and the accompanying reports provided by Macias Gini & O’Connell (“MGO”) LLP
(Office of the City Auditor Report) Attachment I. Reports include:
a. Report to the City Council (the “Management Letter”)
b. Cable TV Franchise, Independent Auditor’s Report and Statements of Franchise
Revenues and Expenses for the years ended December 31, 2019 and 2018
c. Palo Alto Public Improvement Corporation (a component unit of the City of Palo
Alto) Annual Financial Report for the year ended June 30, 2020
d. Regional Water Quality Control Plant, Independent Auditor’s Report and
Financial Statements for the year ended June 30, 2020
e. Independent Accountant’s Report on Applying Agreed-Upon Procedures related
to the Article XIII-B Appropriations (GANN) Limit for the year ended June 30,
2020
2. The Fiscal Year (FY) 2020 Comprehensive Annual Financial Report (CAFR), included in CMR
#11741 with corrected section Attachment II and III respectively.
An electronic copy is available at:
https://www.cityofpaloalto.org/gov/depts/asd/reporting.asp.
3. Amendments to the Fiscal Year 2020 Budget Appropriation Ordinance for various funds as
identified in CMR #11741 Recommended Amendments to the City Manager’s FY 2020
City of Palo Alto Page 2
Budget (Attachment II) as Attachment B – Exhibit 1 and various capital projects as
identified in Attachment B – Exhibit 2.
Hard copies of linked reports within this recommendation are available upon request.
SUMMARY
At the December 1, 2020 Finance Committee meeting, the Committee reviewed two staff
reports: one transmitted by the City Auditor’s Office and one by the City Manager’s Office via
the Administrative Services Department for the Committee to review, approve, and forward to
the City Council for approval. The action minutes from the Committee meeting are attached for
reference (Attachment C). The reports and approval information are as follows:
• The Finance Committee voted unanimously to accept the Office of the City Auditor:
Discussion and Recommendation to the City Council to Accept the Macias Gini &
O’Connell’s Audit of the City of Palo Alto’s Financial Statements as of June 30, 2020 and
Management Letter.
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• The Finance Committee also voted unanimously to approve the Fiscal Year (FY) 2020
Comprehensive Annual Financial Report (CAFR) – Attachment A. The Committee
approved 2-1 vote to approve FY 2020 Budget Amendments in Various Funds –
Attachment B. (Chair Tanaka dissenting)
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These reports transmitted the City’s FY 2020 financials through the Comprehensive Annual
Financial Report (CAFR) for the year ending June 30, 2020. As is customary, the City Council is
required to close out the City’s financial results at the end of each fiscal year. As per the City
Council’s practice, an item without unanimous approval by a Committee shall be placed as an
action item for the City Council’s consideration.
Overall, the City ended the year a net positive position despite of the financial impacts of
COVID-19 and no current year findings were reported.
As outlined in the staff report to the Committee, the General Fund Budget Stabilization Reserve
(BSR) is $35.9 million which is 18.2 percent of the FY 2021 Adopted General Fund budgeted
expenses and $0.5 million below the City Council target level of $36.4 million, or 18.5 percent of
General Fund expenses. As such, there are no recommended allocations or adjustments of
“excess” BSR funds.
At the Finance Committee discussion surrounding the recommended adjustments to capital
project funding levels were reviewed; most specifically a recommended adjustment to realign
the timing of expenses incurred for New Public Safety Building (PE-15001). Overall, the total
City of Palo Alto Page 3
project budget remains at $118.0 million over the life of the project, as adopted in the FY 2021
Capital Budget. Project costs incurred in FY 2020 were higher than anticipated for items such as
tieback easements, geotechnical services, third party storm drain design review,
telecommunications design, interdepartmental building permit fees, and staff project
management. The recommended action realigns the timing of the expenditures by reducing the
project budget in FY 2021 by $0.8 million (action approved by Council in CMR 11526) and
appropriates the $0.8 million in FY 2020 when the costs were incurred.
Fire Station 3 Replacement (PE-15003) – The encumbrance remaining on the construction
contract represents the full amount of the contract; however, the delays on the project led to
increased costs for construction administration and management. Staff is pursuing assessment
of liquidated damages from the construction contractor, which would bring the overall project
budget back to the $10.1 million budget as adopted in the FY 2021 Capital Budget. The project
closeout, including assessment of liquidated damages, is in process.
Electric Customer Connections (EL-89028) and Water System Customer Connections (WS-
80013) – The number of connection requests implemented in these reoccurring capital projects
were higher than estimated causing the expenses in these projects to increase. Reimbursement
revenue from customers offset these increases; however, due to the timing of t he
reimbursements not occurring in the same fiscal year, budget adjustments are recommended in
FY 2020 to offset the increased expenses.
Stakeholder Engagement
This report has been prepared by the Administrative Service Department Accounting division
and coordinated with the Office of the City Auditor and the Office of Management and Budget.
Resource Impact
The actions recommended in CMR 11741 (Attachment II), Attachment B, both Exhibits 1 and 2,
recommend adjustments to the FY 2020 appropriated level of funds to align budgeted levels
with year-end activities. Overall, these transactions ensure all funds remain in a positive
financial picture.
Environmental Review
This is not a project for purposes of the California Environmental Quality Act (CEQA).
Attachments:
• Attachment I: Office of the City Auditor Finance Committee Report, Transmittal of
MGO's Audit of the City of Palo Alto’s Financial Statements
• Attachment II: Staff Report #11741, Approval of FY2020 CAFR & Budget Amendments
• Attachment III: At Place Memorandum, Clerical Corrections to CMR #11741
• Attachment A - FY2020 CAFR
• Attachment IV: Action Minutes, Finance Committee 12/1/2020
• Attachment B- Recommended FY20 Year-end Clean-up Actions
CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR
December 1, 2020
The Honorable City Council
Palo Alto, California
Discussion and Recommendation to the City Council Accept the
Macias Gini & O’Connell’s Audit of the City of Palo Alto’s Financial
Statements as of June 30, 2020 and the Management Letter
RECOMMENDATION
The City Auditor recommends that the Finance Committee review and forward to the City
Council for approval the City of Palo Alto’s audited financial statements for the fiscal year
ended June 30, 2020 and the accompanying reports provided by Macias Gini & O’Conn ell LLP.
DISCUSSION
The City Charter requires that the City Council, through the City Auditor, engage an
independent public accounting firm to conduct the annual financial audit. The selected firm
reports the results of the audit, in writing, to the City Council. Macias Gini & O’Connell LLP, a
certified public accounting firm, conducted the audits of the City’s financial statements for the
fiscal year ended June 30, 2020.
The Administrative Services Department provides the Comprehensive Annual Financial Report
(CAFR), including the following Independent Auditor’s report, to the finance committee:
•Independent Auditor’s Reports on the Financial Statements (CAFR pgs. 1-3)
Note that as of October 30, 2020, guidance necessary for the completion of the Singl e Audit
had not yet been released by the Office of Management and Budget (OMB). The Single Audit
will be completed within the statutory deadline of March 2021.
The City Auditor is providing copies of the following financial statements and reports as
prepared by MGO:
•Auditor’s Report to the City Council (the “Management Letter”) – Schedule A
•Cable TV Franchise, Independent Auditor’s Report and Statements of Franchise
Revenues and Expenses for the Years Ended December 31, 2018 and 2019 – Schedule B
•Palo Alto Public Improvement Corporation Annual Financial Report for the Year Ended
June 30, 2020 – Schedule C
•Regional Water Quality Control Plant Independent Auditor’s Report and Financial
Statements for the Year Ended June 30, 2020 – Schedule D
•Independent Accountant’s Report on Applying Agreed-Upon Procedures Related to the
Article XIII-B Appropriations Limit for the Year Ended June 30, 2020 – Schedule E
ATTACHMENT I
Page 2
Macias Gini & O’Connell LLP issued a clean opinion on each audit report and reported no
findings within the Agreed-Upon Procedures report.
The City Auditor would like to express appreciation to Macias Gini & O’Connell LLC, Kiely Nose,
and her staff in the Administrative Services Department for their hard work and cooperation
during the audit.
Respectfully submitted,
Kyle O’Rourke
City Auditor and Senior Manager, Baker Tilly
ATTACHMENTS:
• Schedule A - Auditor's Report to the City Council (PDF)
• Schedule B - Cable TV Franchise Audit Report (PDF)
• Schedule C - Palo Alto Public Improvement Corporation Annual Financial Report (PDF)
• Schedule D - Regional Water Quality Control Plant Audit Report (PDF)
• Schedule E - Agreed Upon Procedures Related to the Article Xlll-B Appropriations Limit
(PDF)
Department Head: Kyle ORourke,
Page 3
CITY OF PALO ALTO, CALIFORNIA
Report to the City Council
For the Year Ended June 30, 2020
CITY OF PALO ALTO, CALIFORNIA
Report to the City Council
For the Year Ended June 30, 2020
Table of Contents
Page(s)
Transmittal Letter ........................................................................................................................................... i
Required Communications ............................................................................................................................ 1
Summary of Uncorrected Financial Statements Misstatements .................................................................... 5
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
i
Honorable Mayor and the Members of
the City Council of the City of Palo Alto
Palo Alto, California
We have audited the financial statements of the governmental activities, the business-type activities, each
major fund, and the aggregate remaining fund information of City of Palo Alto, California (City), as of
and for the year ended June 30, 2020, and the related notes to the financial statements, which collectively
comprise the City’s basic financial statements. Professional standards require that we communicate to you
the information related to our audit discussed on pages 1 through 5.
In planning and performing our audit of the basic financial statements of the City as of and for the year
ended June 30, 2020, in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States, we considered the City’s internal control over
financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the
circumstances for the purpose of expressing our opinions on the financial statements, but not for the
purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do
not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination
of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement
of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A
reasonable possibility exists when the likelihood of an event occurring is either reasonably possible or
probable as defined as follows:
Reasonably possible. The chance of the future event or events occurring is more than remote but less
than likely.
Probable. The future event or events are likely to occur.
Our consideration of internal control was for the limited purpose described in the second paragraph and
was not designed to identify all deficiencies in internal control that might be material weaknesses. Given
these limitations, during our audit we did not identify any deficiencies in internal control that we consider
to be material weaknesses. However, material weaknesses may exist that have not been identified.
The purpose of this communication, which is an integral part of our audit, is to describe, for management
and those charged with governance, the scope of our testing of internal control and the results of that
testing. Accordingly, this communication is not intended to be and should not be used for any other
purpose. This report is a matter of public record and this does not limit the distribution of this report.
Walnut Creek, California
October 30, 2020
ii
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council
For the Year Ended June 30, 2020
1
REQUIRED COMMUNICATIONS
We have audited the basic financial statements of the City as of and for the year ended June 30, 2020, and
have issued our report thereon dated October 30, 2020. Professional standards require that we advise you
of the following matters relating to our audit.
Our Responsibility in Relation to the Financial Statement Audit
As communicated in our engagement letter dated April 1, 2020, our responsibility, as described by
professional standards, is to form and express opinions about whether the financial statements that have
been prepared by management with your oversight are presented fairly, in all material respects, in
accordance with accounting principles generally accepted in the United States of America. Our audit of
the financial statements does not relieve you or management of your respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain
reasonable, rather than absolute, assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial
reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the
purpose of determining our audit procedures and not to provide any assurance concerning such internal
control.
We are also responsible for communicating significant matters related to the audit that are, in our
professional judgment, relevant to your responsibilities in overseeing the financial reporting process.
However, we are not required to design procedures for the purpose of identifying other matters to
communicate to you.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously communicated to
you.
Compliance with All Ethics Requirements Regarding Independence
The engagement team, others in our firm, as appropriate, our firm, and our network firms have complied
with all relevant ethical requirements regarding independence.
Qualitative Aspects of the City’s Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the
significant accounting policies adopted by the City is included in Note 1 to the basic financial statements.
As described in Note 1(n) to the City’s basic financial statements, the City implemented Governmental
Accounting Standards Board (GASB) Statement No. 95, Postponement of the Effective Dates of Certain
Authoritative Guidance. Implementation of this statement did not have a significant impact on the City’s
financial statements for the fiscal year ended June 30, 2020.
CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2020
2
No matters have come to our attention that would require us, under professional standards, to inform you
about (1) the methods used to account for significant unusual transactions and (2) the effect of significant
accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance
or consensus.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management’s current judgments. Those judgments are normally based on knowledge and
experience about past and current events and assumptions about future events. Certain accounting
estimates are particularly sensitive because of their significance to the financial statements and because of
the possibility that future events affecting them may differ markedly from management’s current
judgments.
The most sensitive accounting estimates affecting the City’s basic financial statements were:
Fair value of investments. The City’s investments are generally carried at fair value, which is
defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The City’s investments
are primarily classified as level 2 of the fair value hierarchy established by GASB Statement
No. 72 and are valued using prices determined by the use of matrix pricing techniques maintained
by the pricing vendors for these securities. The City’s investment in the money market mutual
funds, California Local Agency Investment Fund and California Asset Management Program are
not subject to the fair value hierarchy.
Estimated allowance for losses on notes and loans receivable. The allowance for losses on notes
and loans receivable is based on the types of loans (e.g. forgivable, deferred, grant, or amortizing)
and management’s estimate regarding the likelihood of collectability based on loan provisions
and collateral.
Depreciation estimates for capital assets, including depreciation methods and useful lives
assigned to depreciable assets. The estimated useful lives of capital assets were determined
based on the nature of the capital assets and management’s estimate of the economic life of the
assets.
Landfill post-closure liability. The City has estimated, based on a study conducted by consultants,
the post-closure costs of the Palo Alto landfill based on what it would cost to perform all
currently mandated post-closure care. Actual post-closure care costs may be higher due to
inflation variances, changes in technology, or changes in State or federal regulations.
Net pension and Other Postemployment Benefits (OPEB) liabilities, contributions, expenses, and
other related balances. These balances for pension and OPEB are based on actuarial valuations,
which incorporate actuarial methods and assumptions adopted by the City, performed by the
California Public Employees’ Retirement System’s and the City’s independent actuaries,
respectively.
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.
CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2020
3
We evaluated the key factors and assumptions used to develop the accounting estimates described above
and determined that it is reasonable in relation to the basic financial statements taken as a whole and in
relation to the applicable opinion units.
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because
of their significance to financial statement users. The most sensitive disclosures affecting the financial
statements were the disclosure of Pension Plans in Note 11, Other Post-Employment Benefits (OPEB) in
Note 12, Commitments and Contingencies in Note 16, and Uncertainties in Note 17.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of the
audit.
Corrected and Uncorrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known and likely
misstatements identified during the audit, other than those that we believe are trivial, and communicate
them to the appropriate level of management. Further, professional standards require us to also
communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of
transactions, account balances or disclosures, and the financial statements as a whole and each applicable
opinion unit. The accompanying Summary of Uncorrected Financial Statements Misstatements
summarizes uncorrected financial statement misstatements whose effects in the current and prior periods,
as determined by management, are immaterial, both individually and in the aggregate, to the financial
statements taken as a whole and each applicable opinion unit.
In addition, professional standards require us to communicate to you all material, corrected misstatements
that were brought to the attention of management as a result of our audit procedures. None of the
misstatements identified by us as a result of our audit procedures and corrected by management were
material, either individually or in the aggregate, to the financial statements taken as a whole or applicable
opinion units.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter,
whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing
matter, which could be significant to the City’s financial statements or the auditor’s report. No such
disagreements arose during the course of the audit.
Representations Requested from Management
We have requested certain written representations from management, which are included in the letter
dated October 30, 2020.
CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2020
4
Management’s Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting
matters. Management informed us that, and to our knowledge, there were no consultations with other
accountants regarding auditing and accounting matters.
Other Significant Matters, Findings, or Issues
In the normal course of our professional association with the City, we generally discuss a variety of
matters, including the application of accounting principles and auditing standards, operating and
regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of
material misstatement. None of the matters discussed resulted in a condition to our retention as the City’s
auditors.
Other Matters
We applied certain limited procedures to the management’s discussion and analysis, the schedules of
changes in net pension liability and related ratios, the schedules of pension contributions, the schedule of
changes in net OPEB liability and related ratios, and the schedule of employer OPEB contributions, which
are required supplementary information (RSI) that supplements the basic financial statements. Our
procedures consisted of inquiries of management regarding the methods of preparing the information and
comparing the information for consistency with management’s responses to our inquiries, the basic
financial statements, and other knowledge we obtained during our audit of the basic financial statements.
We did not audit the RSI and do not express an opinion or provide any assurance on the RSI.
We were engaged to report on the combining and individual nonmajor fund financial statements and
schedules, which accompany the financial statements but are not RSI. With respect to this supplementary
information, we made certain inquiries of management and evaluated the form, content, and methods of
preparing the information to determine that the information complies with accounting principles generally
accepted in the United States of America, the method of preparing it has not changed from the prior
period, and the information is appropriate and complete in relation to our audit of the financial statements.
We compared and reconciled the supplementary information to the underlying accounting records used to
prepare the financial statements or to the financial statements themselves.
We were not engaged to report on the introductory and statistical sections, which accompany the financial
statements but are not RSI or supplementary information. Such information has not been subjected to the
auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not
express an opinion or provide any assurance on it.
Our responsibility also includes communicating to you any information which we believe is a material
misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its
manner of presentation, is materially inconsistent with the information, or manner of its presentation,
appearing in the financial statements.
CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2020
5
SUMMARY OF UNCORRECTED FINANCIAL STATEMENTS MISSTATEMENTS
Debit Credit
Current Year Adjustment #1
Beginning Net Position 12,611,640$
Expenses - Public Works 12,611,640$
(Government-wide Governmental Activities - To adjust expenses for capital assets improperly capitalized in
prior years and written off during the year ended June 30, 2020. The net position and capital assets
balances were corrected as of June 30, 2020.)
6
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CABLE TV FRANCHISE
Independent Auditor’s Report and
Statements of Franchise Revenues and Expenses
For the Years Ended December 31, 2019 and 2018
CABLE TV FRANCHISE
Independent Auditor’s Report and Statements of Franchise Revenues and Expenses
For the Years Ended December 31, 2019 and 2018
Table of Contents
Page
Independent Auditor’s Report ....................................................................................................................... 1
Financial Statements:
Statements of Franchise Revenues and Expenses ................................................................................... 3
Notes to the Financial Statements ........................................................................................................... 4
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1
Independent Auditor’s Report
Honorable Mayor and Members
of the City Council of the City of Palo Alto
Palo Alto, California
We have audited the accompanying Statements of Franchise Revenues and Expenses of the Cable TV
Franchise (Franchise) for the years ended December 31, 2019 and 2018, and the related notes to the
financial statements, which collectively comprise the Franchise’s financial statements as listed in the table
of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with the financial reporting provisions of the Amended and Restated Joint Exercise of Powers
Agreement signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of
Menlo Park, the County of San Mateo, the County of Santa Clara, and the Town of Atherton as described
in Note 1 to the financial statements. Management is also responsible for the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of financial statements that
are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
revenues and expenses of the Franchise for the years ended December 31, 2019 and 2018, in accordance
with the financial reporting provisions of the Amended and Restated Joint Exercise of Powers Agreement
signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park,
the County of San Mateo, the County of Santa Clara, and the Town of Atherton as described in Note 1 to
the financial statements.
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 this matter.
Emphasis of a Matter
As discussed in Note 3 to the financial statements, in March 2020, the World Health Organization
declared coronavirus COVID-19 a global pandemic. The City of Palo Alto and the Franchise expect this
outbreak to adversely impact the Franchise’s revenues and operations for future reporting periods. The
City of Palo Alto and the Franchise are not able to predict the duration or magnitude of the adverse results
of the outbreak and its effects on the Franchise or results of operations. Our opinion is not modified with
respect to this matter.
Restriction on Use
This report is intended solely for the information and use of the governing bodies and management of the
City of Palo Alto, the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the
County of Santa Clara, and the Town of Atherton, and is not intended to be and should not be used by
anyone other than these specified parties.
Walnut Creek, California
October 30, 2020
2019 2018
Revenues:
Franchise fees $ 1,679,591 $ 1,763,182
Expenses:
Franchise administration 69,790 47,144
Consulting fees 12,650 6,278
Total expenses 82,440 53,422
Net revenues $ 1,597,151 $ 1,709,760
Amount Percent Amount Percent
Allocated Net Revenues:
City of Palo Alto $ 762,686 47.8% $ 824,236 48.2%
City of Menlo Park 428,867 26.8%455,822 26.7%
City of East Palo Alto 165,082 10.3%172,521 10.1%
Town of Atherton 131,766 8.3%137,686 8.1%
County of Santa Clara 86,425 5.4%90,855 5.3%
County of San Mateo 22,325 1.4%28,640 1.7%
Total allocated net revenues $ 1,597,151 100.0% $ 1,709,760 100.0%
CABLE TV FRANCHISE
Statements of Franchise Revenues and Expenses
For the Years Ended December 31, 2019 and 2018
2019 2018
See accompanying notes to the financial statements.
3
CABLE TV FRANCHISE
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2018
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), a third party contractor, which was granted a non-exclusive franchise to construct, operate,
maintain and repair a cable television system within the Members jurisdictions. In 2002, the Franchise
Agreement was transferred from AT&T to Comcast Corporation (Comcast).
TCI Cablevision of California, Inc. also signed an asset purchase agreement with Cable Communications
Cooperative of Palo Alto, Inc. (CCCOPA), the former cable television system operator/owner, and
acquired the system.
In October 1988, the Members entered into a Joint Operating Agreement in which the City was granted
the power and the authority to administer and coordinate the activities of the franchise and exercise the
rights and responsibilities of the City pursuant to the Franchise Agreement. The activities are
administered by the City and are accounted for within the City’s Agency Fund. The program is accounted
for using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recorded
when earned and expenses are recognized when the liability is incurred.
On January 1, 2007, the Digital Infrastructure and Video Competition Act (DIVCA) went into effect.
Under DIVCA, cable and video service franchises are now granted exclusively by the California Public
Utilities Commission (Commission) rather than by local franchising entities. On March 30, 2007, the
Commission granted AT&T a statewide franchise. Comcast was allowed to seek a State franchise after
January 1, 2008, when another State franchise holder (in this case AT&T) entered the local market. On
January 2, 2008, the Commission granted Comcast a State franchise.
On June 9, 2009, the Members approved an Amended and Restated Joint Exercise of Powers Agreement,
in substitution of the existing Joint Exercise of Powers Agreement and the Joint Operating Agreement, to
reflect changes in the law due to DIVCA and to continue to allow the City to administer the cable and
video franchise enforcement and monitoring process for State franchise holders.
The accompanying financial statements are prepared in accordance with the financial reporting provisions
of the Amended and Restated Joint Exercise of Powers Agreement between the Members, which is a
basis of accounting other than accounting principles generally accepted in the United States of America,
and are not intended to be a complete presentation of the Franchise’s financial position or results of
operations.
As compensation for services under the State franchise agreements, AT&T and Comcast pay annual
franchise fees in an amount equal to 5% of annual gross revenues, 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.
CABLE TV FRANCHISE
Notes to the Financial Statements (Continued)
For the Years Ended December 31, 2019 and 2018
5
NOTE 2 – PRIOR FRANCHISE SETTLEMENTS
A prior Franchise Agreement with CCCOPA was set to expire on March 24, 2001. On June 21, 1999, the
City hired a cable communications consultant and retained the services of a law firm to assist in the
franchise renewal process. On July 31, 2000, CCCOPA reimbursed the City $185,000 toward the actual
costs incurred as part of the franchise renewal efforts.
On July 24, 2000, the City reached a settlement with CCCOPA in the amount of $220,000 to resolve
outstanding claims resulting from CCCOPA’s alleged failure to fully perform under the prior Franchise
Agreement.
On November 22, 2004, the City reached a settlement agreement with Comcast regarding cable plant
construction claims in the amount of $175,000. This money was to be used towards the institutional
network connection costs.
In 2006, the City conducted a franchise compliance audit performed by the City Auditor’s Office. A
settlement was reached in the amount of $155,391. In addition, CCCOPA paid the City a $250,000 grant
to acquire, install, and/or maintain equipment to be used in connection with an institutional network
defined in the Franchise Agreement.
In 2016, the City Auditor discovered that AT&T and Comcast did not consistently calculate the fees due
in accordance with DIVCA and the municipal code of each of the cable joint powers members. As a result
of the audit, the City received a settlement from AT&T in the amount of $75,647 in 2016. Additionally,
the City received a settlement from Comcast in the amount of $25,000 in 2019.
The settlements and grant have been deposited and are being held by the City and earning interest. The
City has since spent a part of the balance on various projects including installing and maintaining the
institutional network equipment. As of December 31, 2019 and 2018, the remaining balances on deposit
with the City were $760,344 and $684,471, respectively. These balances include interest receivable of
$4,316 and $2,940 at December 31, 2019 and 2018, respectively.
NOTE 3 – SUBSEQUENT EVENT
In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This
contagious disease outbreak, which has continued to spread, and any related adverse public health
developments, has adversely affected organizations and its workforces, as well as the economy and
financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal
operations of many governmental organizations, including the City and the Cable TV Franchise
(Franchise). The City and the Franchise expects this outbreak to adversely impact revenues and
operations for future reporting periods. It is not possible for the City and the Franchise to predict the
duration or magnitude of the adverse results of the outbreak and its effects on the Franchise or results of
operations.
PALO ALTO PUBLIC IMPROVEMENT
CORPORATION
(A Component Unit of the City of Palo Alto)
Annual Financial Report
For the Year Ended June 30, 2020
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Annual Financial Report
For the Year Ended June 30, 2020
Table of Contents
Page
Independent Auditor’s Report ................................................................................................................... 1
Management’s Discussion and Analysis (Unaudited) .............................................................................. 3
Basic Financial Statements
Government-wide Financial Statements:
Statement of Net Position ................................................................................................................... 5
Statement of Activities ....................................................................................................................... 6
Debt Service Fund Financial Statements:
Balance Sheet ..................................................................................................................................... 7
Statement of Revenues, Expenditures and Changes in Fund Balance ................................................ 8
Notes to the Basic Financial Statements .................................................................................................. 9
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1
Independent Auditor’s Report
The Honorable Mayor and
Members of the City Council of the
City of Palo Alto, California
We have audited the accompanying financial statements of the governmental activities and the major fund
of Palo Alto Public Improvement Corporation (Corporation), a component unit of the City of Palo Alto,
California (City), as of and for the year ended June 30, 2020, 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, 2020, 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.
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
October 30, 2020
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, 2020
3
The Palo Alto Public Improvement Corporation (Corporation), a component unit of the City of Palo Alto
(City), follows the provisions of Governmental Accounting Standards Board (GASB) Statement No. 34,
Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local
Governments. The Corporation is controlled by the City and was organized to assist the City in financing
public improvements. The Corporation issues debt and turns the proceeds of the debt over to the City
under lease agreements that provide a revenue source for the repayment of this debt. The Corporation has
two outstanding debts and has turned over the proceeds to the City, which pledged certain lease payments
as collateral for this debt as discussed in Note 4 to the financial statements.
FINANCIAL HIGHLIGHTS
GASB Statement No. 34 requires the issuance of government-wide financial statements as well as fund
financial statements. The government-wide financial statements report the balance of the Corporation’s
long-term debt while the individual fund statements do not.
In fiscal year 2002, the Corporation issued its 2002B Downtown Parking Improvements Certificates of
Participation (2002B COPs) in the amount of $3.6 million. In fiscal year 2018, the City issued 2018
Capital Improvement Project and Refinancing Certificates of Participation (2018 COPs) in the amount of
$9.0 million to refinance the 2002B COPs remaining balance of $805 thousand, and also to fund the Palo
Alto Municipal Golf Course renovations.
In fiscal year 2019, the City issued the 2019 California Avenue Parking Garage tax exempt Series A and
taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million
plus $4.9 million premium, and $10.6 million, respectively. The 2019A and 2019B COPs are issued to
fund the construction of the new California Avenue parking garage.
As of June 30, 2020, the 2018 COPs and 2019A and 2019B COPs comprise the Corporation’s
outstanding debt.
At the government-wide level, the interest and fiscal agent charges were $1.9 million for fiscal year 2020,
an increase of $0.9 million from the prior year. The interest on leases from the City of Palo Alto was $1.9
million, an increase of $0.9 million from the prior year. The increases of interest and fiscal charges and
interest on leases are due to the full year of interest incurred for the 2019A and 2019B COPs issued
during mid-year of fiscal year 2019.
The Corporation ended fiscal year 2020 with total assets of $50.8 million, a decrease of $0.9 million from
the prior year. Total assets consisted of $38 thousand in cash and investments, $351 thousand of lease
interest receivable from the City of Palo Alto, and $50.4 million of investment in leases to the City of
Palo Alto. The total liabilities were $50.8 million, a decrease of $0.9 million from the prior year. The
decreases of assets and liabilities resulted from the scheduled repayment of the 2008 COPs and 2019A
and 2019 B COPs.
At the fund level, the Corporation’s revenues exceeded the expenditures by $4 thousand. As of
June 30, 2020, the Corporation had one fund, the Debt Service Fund, which reported a $38 thousand
restricted fund balance.
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Management’s Discussion & Analysis (Unaudited) (Continued)
For the Year Ended June 30, 2020
4
OVERVIEW OF THE CORPORATION’S BASIC FINANCIAL STATEMENTS
The annual financial report is comprised of two parts:
1) Management’s discussion and analysis (this part),
2) The basic financial statements, which include the government-wide and the fund financial statements,
along with the notes to these financial statements.
The basic financial statements comprise the government-wide financial statements and the fund financial
statements. These two sets of financial statements provide two different views of the Corporation’s
financial activities and financial positions, both short-term and long-term.
The government-wide financial statements provide a long-term view of the Corporation’s activities as a
whole, and comprise the statement of net position and the statement of activities. The statement of net
position provides information about the financial position of the Corporation as a whole, including all its
long-term liabilities on the full accrual basis, similar to that used by corporations. The statement of
activities provides information about all the Corporation’s revenues and expenses on the full accrual
basis, with the emphasis on measuring net revenues or expenses of the Corporation’s program. The
statement of activities explains in detail the change in net position for the year.
The fund financial statements report the Corporation’s operations in more detail than the corporate-wide
statements and focus primarily on the short-term activities of the debt service fund. Fund financial
statements measure only current revenues and expenditures; current assets, liabilities and fund balances;
and they exclude capital assets and long-term debt.
Together, these statements along with the notes to the financial statements are called the basic financial
statements.
DEBT ADMINISTRATION
The Corporation issues debt in the form of Certificates of Participation (COPs) to be repaid from future
lease receipts from the City. Legally, these COPs issues are the Corporation’s debt only; the City is liable
only for the payment of the amounts set forth in the lease securing each debt issue.
As of June 30, 2020, the Corporation has the following outstanding debt: 2018 COPs and 2019A and
2019B COPs, with outstanding principal balances of $8.8 million and $37.0 million, respectively.
ECONOMIC OUTLOOK AND MAJOR INITIATIVES
The economy of the City and its major initiatives for the coming year are discussed in detail in the City’s
Comprehensive Annual Financial Report.
CONTACTING THE CORPORATION’S FINANCIAL MANAGEMENT
These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with
a general overview of the Corporation’s finances. Questions about these financial statements should be
directed to the Finance Department of the City of Palo Alto, 250 Hamilton Avenue, Palo Alto, CA 94301.
Assets
Cash held for operations 4,000$
Cash and investments held by trustee 34,078
Lease interest receivable 350,754
Investment in leases to the City of Palo Alto 50,435,892
Total assets 50,824,724
Liabilities
Interest payable 350,754
Long-term debt:
Due in one year 1,007,571
Due in more than one year 49,428,321
Total liabilities 50,786,646
Net Position
Restricted for debt service 38,078$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Net Position
June 30, 2020
See accompanying notes to financial statements.
5
Expenses
Interest and fiscal agent charges 1,944,741$
Program revenues
Interest on leases from the City of Palo Alto 1,947,048
Net program revenues 2,307
General revenues
Investment earnings 1,428
Change in net position 3,735
Net position, beginning of the year 34,343
Net position, end of the year 38,078$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Activities
For the Year Ended June 30, 2020
See accompanying notes to financial statements.
6
Assets
Cash held for operations 4,000$
Cash and investments held by trustee 34,078
Lease interest receivable 350,754
Investment in leases to City of Palo Alto 50,435,892
Total assets 50,824,724$
Deferred Inflows of Resources
Unavailable lease receipts from the City of Palo Alto 50,786,646$
Fund balance
Restricted for debt service 38,078
Total deferred inflows of resources and fund balance 50,824,724$
Reconciliation of fund balance to net position
Fund balance restricted for debt service 38,078$
Long-term receivables are not available to pay for current period expenditures
and are considered unavailable on the governmental fund balance sheet 50,786,646
Some liabilities, including bonds payable, are not due and payable in
the current period and therefore are not reported in the Fund:
Interest payable (350,754)
Long-term debt due within one year (1,007,571)
Long-term debt due in more than one year (49,428,321)
Net position of governmental activities 38,078$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Balance Sheet
June 30, 2020
Debt Service Fund
See accompanying notes to financial statements.
7
Revenues:
Lease receipts from the City of Palo Alto:
Principal 555,000$
Interest 2,307,898
Others 2,307
Investments earnings 1,428
Total revenues 2,866,633
Expenditures:
Debt service:
Principal repayment 555,000
Interest and fiscal agent charges 2,307,898
Total expenditures 2,862,898
Net change in fund balance 3,735
Fund balance, beginning of the year 34,343
Fund balance, end of the year 38,078$
Reconciliation of net change in fund balance to change in net position
Net change in fund balance - debt service fund 3,735$
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 liabilites. 555,000
Interest accrued on long-term debt and amortization of bond premium do not
require the use of current financial resources and therefore are not reported
as expenditures in governmental funds.
Change in interest payable 170,586
Amortization of bond premium 192,571
Some amounts reported in the statement of revenues, expenditures and changes
in fund balances reflect the timing of collection of assets which are
not includable as revenues on the statement of activities.
Lease receipt for bond principal repayment (555,000)
Lease receipt for interest payment (170,586)
Impact of bond premium amortization on lease receipt (192,571)
Change in net position of governmental activities 3,735$
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, 2020
Debt Service Fund
See accompanying notes to financial statements.
8
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, 2020
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, 2020.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
Government-wide Statements: The statement of net position and the statement of activities include the
financial activities of the Corporation. Eliminations have been made to minimize the double counting of
internal activities.
The statement of activities presents a comparison between direct expenses and program revenues for each
function of the Corporation’s activities. Direct expenses are those that are specifically associated with a
program or function and, therefore, are clearly identifiable to a particular function. Program revenues
include (a) charges paid by the recipients of goods or services offered by the programs, and (b) grants and
contributions that are restricted to meeting the operational or capital requirements of a particular program.
Revenues that are not classified as program revenues, including investment earnings, are presented as
general revenues.
Fund Financial Statements: The fund financial statements provide information about the Corporation’s
funds. The emphasis of fund financial statements is on major individual funds, of which the Corporation
only reports one debt service fund.
(b) Major Fund
Major funds are defined as funds that have either assets, liabilities, revenues or expenditures equal to ten
percent of their fund-type total and five percent of the grand total. The Corporation has one fund which is
reported as a major governmental fund in the accompanying financial statements as follows:
Debt Service Fund – This fund accounts for debt service payments on the Corporation’s long-term debt.
(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 on November 1, 2048. The Corporation
therefore records the present value of the lease and considers the leased improvement to have been sold
for this amount when leased.
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2020
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, 2020, 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, 2020, the Corporation’s governmental fund’s fund balances include the following
classification:
Restricted Fund Balance – includes amounts that can be spent only for the specific purposes stipulated by
external resource providers, constitutionally or through enabling legislation. Restrictions may effectively
be changed or lifted only with the consent of resource providers.
(g) Effects of New Pronouncements
The Corporation is currently analyzing its accounting practices to determine the potential impact on the
financial statements for the following Governmental Accounting Standards Board (GASB) Statement:
In June 2017, the GASB issued Statement No. 87, Leases. The objective of this statement is to better
meet the information needs of financial statement users by improving accounting and financial reporting
for leases by governments. This Statement increases the usefulness of governments’ financial statements
by requiring recognition of certain lease assets and liabilities for leases that previously were classified as
operating leases and recognized as inflows of resources or outflows of resources based on the payment
provisions of the contract. It establishes a single model for lease accounting based on the foundational
principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is
required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to
recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and
consistency of information about governments’ leasing activities. The requirements of this statement are
effective for the Corporation’s fiscal year ending June 30, 2022.
(h) 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.
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2020
11
NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE
(a) Interest Rate Risk
Interest rate risk is the risk that a change in market interest rates will adversely affect the fair value of an
investment. Normally, the longer it takes an investment to reach maturity, the greater will be that
investment’s sensitivity to changes in market rates. Information about the sensitivity of the fair values of
the Corporation’s investments to market interest rate fluctuations is provided by the following table that
shows the distribution of the Corporation’s investments by maturity:
Investment Type Amount Maturity Date
Money Market Mutual Fund 34,078$ 45 days
Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder
of the investment. This is measured by the assignment of a rating by a nationally recognized statistical
rating organization. As of June 30, 2020, the Corporation’s investments in money market mutual funds
are rated AAAm by Standard & Poor’s.
(b) Fair Value Hierarchy
The City categorizes its fair value measurements within the fair value hierarchy established by generally
accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value
of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are
significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The
Corporation’s investments in money market mutual funds are not subject to the fair value hierarchy.
(c) Investment Policy
The Corporation must maintain required amounts of cash and investments by trustee under the terms of
certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the
Corporation fails to meet its obligation under these debt issues. The California Government Code (Code)
requires these funds to be invested in accordance with bond indentures or State statutes. All these funds
have been invested as permitted under the Code. The Investment Policy is described in detail in the City’s
Comprehensive Annual Financial Report.
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2020
12
NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE (Continued)
The table below identifies the investment types that are authorized by the City’s Investment Policy. The
table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit
risk and concentration of credit risk.
Maximum
Maturity
Minimum
Credit Quality
Maximum
Percentage
of Portfolio
Maximum
Investment in
One Issuer
U.S. Government Securities 10 years (*) N/A No Limit No Limit
U.S. Government Agency Securities 10 years (*) N/A No Limit (A) No Limit
Certificates of Deposit 10 years (*) N/A 20% 10% of the par
value of
portfolio
Bankers Acceptances 180 days N/A 30% $5 million
Commercial Paper 270 days A-1 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit $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 30% No Limit
Supranational 5 years AA/AA2 20% 10% of the par
value of
portfolio
(A)
(B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution.
(*) The maximum maturity is based on the Investment Policy that is approved by the City Council
and is less restrictive than the California Governmental Code.
Authorized Investment Type
Bonds of State of California Municipal
Agencies & Other U.S. States
Callable and multi-step securities are limited to no more than 25% of the par value of the portfolio, provided
that: 1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step-
up" are known at the time of purchase, and 3) the entire face value of the security is redeemed at the call
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2020
13
NOTE 4 – CERTIFICATES OF PARTICIPATION
The Corporation’s changes in long-term debt are presented below:
Balance Balance Amount due
June 30, 2019 Retirements June 30, 2020 in one year
Certificates of Participation
2018 Capital Improvement Project
2.20-4.22%, due 11/1/2047 8,935,000$ 180,000$ 8,755,000$ 185,000$
2019 California Ave. Parking Garage
Series A & B
2.5%-5%, due 11/1/2048 37,370,000 375,000 36,995,000 630,000
Add: Unamortized Premium 4,878,463 192,571 4,685,892 192,571
Total 51,183,463$ 747,571$ 50,435,892$ 1,007,571$
On June 1, 2018, the City issued the 2018 Capital Improvement Project and Refinancing Certificates of
Participation (2018 COPs) in the amount of $9.0 million to fully refinance the 2002B COPs and to fund
the renovation of the Palo Alto Municipal Golf Course. Principal payments are due annually on
November 1 and interest payments semi-annually at various rates on May 1 and November 1. The 2018
COPs are secured by lease revenues received by the Corporation from any City’s General Fund revenue
source.
On March 21, 2019, the City issued the 2019 California Avenue Parking Garage tax exempt Series A and
taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million
plus $4.9 million premium, and $10.6 million, respectively, for the construction of the new California
Avenue Parking Garage. Principal payments are due annually on November 1 and interest payments
semi-annually at various rates on May 1 and November 1. The 2019A and 2019B COPs are secured by
lease revenues received by the Corporation from any City’s General Fund revenue source.
Future annual debt service on the outstanding debt is shown below:
For the Year Interest Total
Ending June 30, Principal Payment Payment
2021 815,000$ 2,093,576$ 2,908,576$
2022 835,000 2,070,960 2,905,960
2023 860,000 2,043,531 2,903,531
2024 890,000 2,007,303 2,897,303
2025 925,000 1,965,358 2,890,358
2026-2030 5,340,000 9,114,927 14,454,927
2031-2035 6,735,000 7,681,819 14,416,819
2036-2040 8,515,000 5,856,277 14,371,277
2041-2045 10,785,000 3,533,896 14,318,896
2046-2049 10,050,000 861,385 10,911,385
45,750,000$ 37,229,032$ 82,979,032$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2020
14
NOTE 4 – CERTIFICATES OF PARTICIPATION (Continued)
Events of Default and Acceleration Clauses
Generally, the Corporation is considered to be in default if the Corporation fails to pay the principal of
and interest on the outstanding long-term debt when become due and payable. If an event of default has
occurred and is continuing, the principal of the long-term debt, together with the accrued interest, may be
declared due and payable immediately.
CITY OF PALO ALTO
REGIONAL WATER QUALITY
CONTROL PLANT
Independent Auditor’s Report
and Financial Statements
For the Year Ended June 30, 2020
CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Independent Auditor’s Report and Financial Statements
For the Year Ended June 30, 2020
2
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
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1
Independent Auditor’s Report
The Honorable Mayor and Members
of the City Council of the City of Palo Alto
Palo Alto, California
We have audited the accompanying financial statements of the City of Palo Alto Regional Water Quality
Control Plant (Plant), an enterprise operation of the City of Palo Alto, California, for the year ended
June 30, 2020, and the related notes to the financial statements, which collectively comprise the Plant’s
financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with the financial reporting provisions of the Basic Agreement between the City of Palo Alto,
the City of Mountain View and the City of Los Altos for the Acquisition, Construction and Maintenance
of a Joint Sewer System, dated October 10, 1968, as amended by addenda dated December 5, 1977,
January 14, 1980, April 9, 1985, May 30, 1991, July 31, 1992, March 16, 1998, April 15, 2009 and
October 17, 2016 (collectively, the “Basic Agreement”), as described in Note 2 to the financial
statements. Management is also responsible for the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
revenues, expenditures and quarterly billings of the Plant for the year ended June 30, 2020, in accordance
with the financial reporting provisions of the Basic Agreement as described in Note 2 to the financial
statements.
2
Basis of Accounting
As discussed in Note 2 to the financial statements, the financial statements are prepared in accordance
with the financial reporting provisions of the Basic Agreement, which is a basis of accounting other than
accounting principles generally accepted in the United States of America. Our opinion is not modified
with respect to this matter.
Restriction on Use
This report is intended solely for the information and use of the City Council and management of the
Cities of Palo Alto, Mountain View and Los Altos, and is not intended to be and should not be used by
anyone other than these specified parties.
Walnut Creek, California
October 30, 2020
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 1,468,227$ 611,223$ 159,156$ 697,848$
Public outreach 157,098 65,400 17,029 74,669
Permitting and enforcement 1,140,357 297,523 17,501 825,333
Operations and maintenance 16,249,033 6,764,472 1,761,396 7,723,165
System improvement CIP (Note 3) 2,655,244 1,105,378 287,828 1,262,038
Total Direct Expenditures 21,669,959 8,843,996 2,242,910 10,583,053
Indirect Administrative Expenditures (Note 4):
Source control program 949,167 395,138 102,890 451,139
Public outreach 2,755 1,147 299 1,309
Permitting and enforcement 367,435 274,637 16,155 76,643
Operations and maintenance 3,545,143 1,475,842 384,294 1,685,007
Total Indirect Administrative Expenditures 4,864,500 2,146,764 503,638 2,214,098
Debt Service Expenditures (Note 5):
Refunding 1990 Series A Bonds 282,106 143,874 22,004 116,228
1999 Wastewater Treatment New Project 540,051 204,625 51,143 284,283
2009 State Water Resource Loan 555,726 210,565 52,627 292,534
2017 State Water Resource Loan 1,091,863 413,708 103,399 574,756
Total Debt Service Expenditures 2,469,746 972,772 229,173 1,267,801
Total Expenditures 29,004,205 11,963,532 2,975,721 14,064,952
Deduct Joint Systems Revenues (Note 6) (329,056) (136,986) (35,670) (156,400)
Net Expenditures 28,675,149$ 11,826,546$ 2,940,051$ 13,908,552$
For the Year Ended June 30, 2020
See accompanying notes to the financial statements.
3
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, 2019 2,667,191$ 691,333$
October 1, 2019 2,916,579 752,102
January 1, 2020 2,667,191 691,333
April 1, 2020 3,390,526 859,679
Total billings 11,641,487 2,994,447
Net expenditures 11,826,546 2,940,051
Excess (deficit) of total billings over (under) net expenditures (185,059)$ 54,396$
For the Year Ended June 30, 2020
See accompanying notes to the financial statements.
4
CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements
For the Year Ended June 30, 2020
5
NOTE 1 – THE REPORTING ENTITY
The Cities of Palo Alto, Mountain View and Los Altos (the Members) participate jointly in the cost of
maintaining and operating the Regional Water Quality Control Plant and related system (the Plant). The
Members share the original costs of acquisition and construction of the Plant in the same proportions as
the allocation of capacity rights to them. The City of Palo Alto (the City) is the owner and administrator
of the Plant. The Cities of Mountain View and Los Altos are entitled to use a portion of the capacity of
the Plant, as set forth in the Basic Agreement between the City of Palo Alto, the City of Mountain View
and the City of Los Altos (collectively, the “Members”) for the Acquisition, Construction and
Maintenance of a Joint Sewer System dated October 10, 1968, as amended by addenda dated December 5,
1977, January 14, 1980, April 9, 1985, May 30, 1991, July 31, 1992, March 16, 1998, April 15, 2009 and
October 17, 2016 (collectively, the “Basic Agreement”). The Basic Agreement will terminate on
December 31, 2060, unless a written notice of withdrawal is tendered ten years preceding the date of
withdrawal.
Effective October 17, 2016, the Members entered into an amendment to approve the projects for planning
and design of the primary sedimentation tanks, the fixed film reactors, a new laboratory and
Environmental Service building, and the design and construction of a sludge dewatering and load-out
facility (the Projects). The Members also authorized the City to pursue State Revolving Fund loans from
the State Water Resources Control Board to fund the costs of the Projects.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Plant is an enterprise that is operated by the City and its operations are accounted for as an enterprise
fund in the City’s basic financial statements. The financial statements are prepared in accordance with the
financial reporting provisions of the Basic Agreement, which is a basis of accounting other than
accounting principles generally accepted in the United States of America. The accompanying financial
statements are intended to present the Plant’s net expenditures and quarterly billings by the Plant to the
Cities of Mountain View and Los Altos pursuant to the agreement of the Members as described above and
are not intended to be a complete presentation of the Plant’s financial position or results of operations.
Additionally, the capital cost and the outstanding debt of the Plant are not presented in these statements
but are presented in the basic financial statements of the City.
Plant expenditures, joint system revenues, debt service and industrial waste compliance expenditures are
shared by the Members based on agreed upon allocation percentages. The expenditures, including indirect
administrative expenditures (see Note 4), are allocated to each of the Members based primarily on their
respective percentages of the annual sewage flow and treatment needed for suspended solids, chemical
oxygen demand and ammonia. Revenues from services, fines and penalties are allocated to each of the
Members in the same proportions as those of expenditures. Debt service payments are allocated based on
percentages established at the time of bond issuance. Industrial waste compliance (public outreach and
permitting and enforcement) charges are allocated to Members primarily based on upon the number of
industries and efforts required to maintain compliance with sewage use ordinances and other regulations
from Environmental Protection Agency.
CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements (Continued)
For the Year Ended June 30, 2020
6
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The percentages used for the year ended June 30, 2020, to allocate expenditures and revenues were as
follows:
City of City of City of
Mountain View Los Altos Palo Alto
Public outreach, source control program,
operations and maintenance, system improvement 41.63% 10.84% 47.53%
CIP, and joint system revenues
Permitting and enforcement 37.95% 2.23% 59.82%
Debt services expenditures:
1999 Utility Refunding Bonds
1999 Wastewater Treatment New Project 37.89% 9.47% 52.64%
Refunding 1990 Series A Bonds 51.00% 7.80% 41.20%
2009 State Water Resources Loan 37.89% 9.47% 52.64%
2017 State Water Resources Loan 37.89% 9.47% 52.64%
The City is allocated 47.53% 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 2020 allocations are as follows:
East Palo Alto Sanitary District 6.34%
Stanford University 4.61%
Town of Los Altos Hills 2.01%
Remaining City percentages 34.57%
Total 47.53%
The agreement the City has with the above entities has no effect on the partnership agreement between
the Members.
Billings are made in advance and are based on the adopted budget for the plant and estimated sewage
flow. Excess (deficit) billings over (under) net expenditures are offset against the payments during the
second quarter of the subsequent fiscal year.
NOTE 3 – SYSTEM IMPROVEMENT CIP
The basic agreement between the Members, dated October 10, 1968, provides that the administrator of the
Plant is responsible for capital additions. These capital additions should be for the replacement of obsolete
or worn-out units, or minor capital additions to improve the efficiency of the Plant’s operations. Per the
addendum to the agreement dated March 16, 1998, the Members agreed that capital additions should not
exceed $1.9 million in 1998-99 (base year). For future years, the base year amount will be adjusted
annually based on increases to the Consumer Price Index-Urban Wage Earners and Clerical Workers for
the San Francisco-Oakland-San Jose area. For fiscal year 2020, the adjusted capital additions limit is
$3,301,236. Actual System Improvement CIP expenditures amounted to $2,655,244 for fiscal year 2020.
As of June 30, 2020, the commitments for minor capital additions, including unspent capital additions, is
$5,243,105 which have been carried forward to fiscal year 2021.
CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements (Continued)
For the Year Ended June 30, 2020
7
NOTE 4 – INDIRECT ADMINISTRATIVE EXPENDITURES
Indirect expenditures include those costs allocated from the City’s General Fund administrative services,
which supports all operating departments of the City. Other indirect expenses are administrative charges
from the City’s Internal Services Funds. These allocations are applied on a uniform basis throughout the
City. The allocations are applied in accordance with the subsequent letter of agreement dated
April 9, 1985.
NOTE 5 – DEBT SERVICE EXPENDITURES
Debt service expenditures include principal repayments, interest expense and amortization of bond
discount reduced by any interest income earned from investments with the fiscal agent, related to the
1999 Series A Bonds (split for the portions used for the “New Project” and refunding of the 1990 Series
A Bonds) and the 2009 and 2017 State Water Resources loans.
In June 1999, the City, City of Mountain View, City of Los Altos, Town of Los Altos Hills, East Palo
Alto Sanitary District, and Stanford University agreed to issue bonds (1999 Series A Bonds) to finance
the rehabilitation of the Wastewater Treatment System’s two sludge incinerators and to refund the 1990
Series A Bonds.
In October 2009, the City and the State Water Resources Control Board (SWRCB) executed an agreement
for the 2009 State Water Resources Loan to finance the Ultraviolet Disinfection Project.
In June 2017, the City and SWRCB executed an agreement for State Water Resources Loan for an award
up to $30 million, 30 years at 1.8% to finance the project replacing the sewage sludge “bio-solids”
incinerators at the Plant. On September 13, 2017, the City and SWRCB amended the original agreement
of the 2017 SRF loan to lower the total amount to $29.7 million and the due date of the last debt service
payment be May 31, 2049. Under the terms of the amended agreement, a portion of the loan amount,
$4.0 million, is federally funded and the obligation balance was adjusted.
The new facility will dewater the bio-solids and allow it to be loaded onto trucks and taken offsite for
further treatment until further treatment units can be built onsite. The Plant provides treatment and
disposal for wastewater for the City, City of Mountain View, City of Los Altos, Town of Los Altos Hills,
East Palo Alto Sanitary District, and Stanford University. Though the City is the recipient of the loan, the
City’s agreement with the partner agencies oblige them to pay their proportionate share of the principal
and interest of this loan. The City’s share of the loan payment is 38.2% with the partner agencies paying
61.8%.
CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements (Continued)
For the Year Ended June 30, 2020
8
NOTE 5 – DEBT SERVICE EXPENDITURES (Continued)
The principal amount of the debt outstanding as of June 30, 2020 are allocated as follows:
1999 Wastewater Refunding of 2009 2017
Treatment 1990 Series A State Water State Water
New Project Bonds Resources Loan Resources Loan Total
City of Palo Alto 715,500$ 246,636$ 2,006,354$ 9,349,411$ 12,317,901$
City of Mountain View 710,438 503,138 1,992,158 9,283,260 12,488,994
City of Los Altos 177,563 76,951 497,908 2,320,202 3,072,624
East Palo Alto Sanitary District 143,250 117,399 401,691 1,871,842 2,534,182
Stanford University 98,625 40,448 276,557 1,288,729 1,704,359
Town of Los Altos Hills 29,625 1,973 83,072 387,109 501,779
Total 1,875,000$ 986,545$ 5,257,740$ 24,500,553$ 32,619,838$
1999 Utility Revenue Refunding Bonds
NOTE 6 – JOINT SYSTEM REVENUES
The Plant’s joint system revenues for the year ended June 30, 2020 total $329,056 which consisted of the
following:
Septic hauling services 279,614$
Other miscellaneous revenues 5,682
Salt water marsh services 7,500
Interdepartment services 7,313
Utility service to other utility funds 36,599
Bad debt expense (7,652)
329,056$
NOTE 7 – RELATED PARTY TRANSACTIONS
During fiscal year 2020, the Plant paid the City $1,984,858 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 $54,373 were paid to the City’s Vehicle
Replacement and Maintenance Internal Services Fund, which is included in the Statement of Net
Expenditures as operations and maintenance expenditures.
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, 2020
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1
Independent Accountant’s Report on
Applying Agreed-Upon Procedures Related to
the Article XIII-B Appropriations Limit
Honorable Mayor and the Members
of the City Council, of
City of Palo Alto, California
We have performed the procedures enumerated below to the accompanying Appropriations Limit
Worksheet of the City of Palo Alto, California (City), which were agreed to by the City and recommended
by the California Committee on Municipal Accounting (CCMA) (as presented in the CCMA White Paper
titled Agreed-upon Procedures Applied to the Appropriations Limitation Prescribed by Article XIII-B of
the California Constitution), on the City’s calculation of the appropriations limit in accordance with Section
1.5 of Article XIII-B of the California Constitution for the year ended June 30, 2020. The City management
is responsible for the Appropriation Limit Worksheet. The sufficiency of these procedures is solely the
responsibility of the City. 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 and associated findings are as follows:
1. We obtained the completed worksheets setting forth the calculations necessary to establish the
City’s appropriations limit and compared the limit and annual adjustment factors included in those
worksheets to the limit and annual adjustment factors that were adopted by resolution of the City
Council. We also compared the population and inflation options included in the aforementioned
worksheets to those that were selected by a recorded vote of the City Council.
Finding: No exceptions were noted as a result of our procedures.
2. For the accompanying Appropriations Limit Worksheet, we added the prior year appropriations
limit to the total adjustments and compared the resulting amount to the current year appropriations
limit.
Finding: No exceptions were noted as a result of our procedures.
3. We agreed the current year information presented in the accompanying Appropriations Limit
Worksheet to the appropriate supporting worksheets described in No. 1 above.
Finding: No exceptions were noted as a result of our procedures.
4. We agreed the prior year appropriations limit presented in the accompanying Appropriations Limit
Worksheet to the prior year appropriations limit adopted by the City Council.
Finding: No exceptions were noted as a result of our procedures.
2
This agreed-upon procedures engagement was conducted in accordance with attestation standards
established by the American Institute of Certified Public Accountants. We were not engaged to and did not
conduct an examination or review, the objective of which would be the expression of an opinion or
conclusion, respectively, on the Appropriations Limit Worksheet. Accordingly, we do not express such an
opinion or conclusion. Had we performed additional procedures, other matters might have come to our
attention that would have been reported to you. No procedures have been performed with respect to the
determination of the appropriations limit for the base year, as defined by Article XIII-B of the California
Constitution.
This report is intended solely for the information and use of the Mayor, City Council, and City’s
management and is not intended to be and should not be used by anyone other than these specified parties.
Walnut Creek, California
October 30, 2020
CITY OF PALO ALTO, CALIFORNIA
Appropriations Limit Worksheet
For the Year Ended June 30, 2020
3
2018-2019 appropriation limit, as adopted 165,810,000$
Adjustment factors:
Population (1)1.0033
Inflation (2)1.0385
Total adjustment factors (rounded) (3)1.0419
Total adjustments (rounded) 6,950,000
2019-2020 appropriation limit, as adopted 172,760,000$
(1) The population factor may be based on the change in population of 1) the City or 2) the County of Santa
Clara, as provided by the State of California’s Department of Finance. The population factor adopted
by the City for the current year appropriation limit represents the change in population of the County
of Santa Clara.
(2) The inflation factor may be based on 1) the change in per capita personal income for the State of
California, as provided by the State of California’s Department of Finance; or 2) the change in the
assessed valuation due to new non-residential construction within the City. The inflation factor adopted
by the City for the current year appropriation limit represents the change in per capita personal income.
(3) The total adjustment factor is calculated by multiplying the population factor by the inflation factor.
City of Palo Alto (ID # 11741)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/1/2020
City of Palo Alto Page 1
Council Priority: Fiscal Sustainability
Summary Title: Approval of FY 2020 Comprehensive Annual Financial Report
(CAFR) & Budget Amendments
Title: Recommendation to the City Council to Approve the Fiscal Year (FY)
2020 Comprehensive Annual Financial Report (CAFR) and FY 2020 Budget
Amendments in Various Funds
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee forward to the City Council for its approval:
1.The City’s FY 2020 Comprehensive Annual Financial Report (CAFR) (Attachment C); and
2.Amend the Fiscal Year (FY) 2020 Budget Appropriation Ordinance for various funds as
identified in the attached Recommended Amendments to the City Manager’s FY2020
Budget (Operating Budget: Attachment B – Exhibit 1; Capital Budget: Attachment B –
Exhibit 2).
Financial Highlights for FY 2020
Government-wide
At the close of FY 2020, the City’s overall Net Position remains positive despite of the financial
impacts of COVID-19. The Statement of Activities (p.29 of the attached CAFR) reports
Governmental Activities (the City’s basic services which are generally funded by taxes, and by
specific program revenues such as fees and grants) Net Position at $440.6 million, a $9.4
million decrease from the prior year, and Business-Type Activities (the City’s enterprise
activities which are funded in whole or in part by fees charged to external parties) Net Position
at $785.0 million, a $43.5 million increase. Various factors contributed to these changes,
including accounting adjustments required by the Governmental Accounting Standards Board
(GASB). Financial highlights by fund category can be found in the Discussion section of this
report.
ATTACHMENT II
City of Palo Alto Page 2
General Fund
The General Fund ended with a $35.9 million Budget Stabilization Reserve (BSR), a $18.9
million, or 34.5 percent, decrease when compared to FY 2019. The BSR decreased mainly due
to a $13.4 million shortfall of revenue to expense resulting from the COVID-19 shelter in place
orders. The shelter in place orders impacted the City’s revenue from sales tax, transient
occupancy tax, and charges for services.
The General Fund ended FY 2020 with a $2.9 million surplus when compared to the
assumptions used in the development of the FY 2021 Adopted Operating Budget and the
rebalancing adjustments for FY 2020 approved by the City Council in June 2020 as a result of
the financial impacts of COVID-19 (Staff Report #11328). The primary driver of the surplus was
the overall expense savings realized across all the departments, and the largest variances were
experienced in the Planning and Development Services department and Non -Departmental. As
of June 30, 2020, the BSR is $35.9 million, which is 18.2 percent of the FY 2021 Adopted General
Fund budgeted expenses and $0.5 million below the City Council target level of $36.4 million, or
18.5 percent of General Fund expenses.
Enterprise Funds
The City’s Enterprise Funds, except for the Refuse fund, ended the year in surplus positions. The
Refuse Fund ended with a net loss due to lower revenues resulting from the reduction of
services of commercial and industrial customers due to COVID-19 shelter in place order and an
increase in reimbursement to GreenWaste of Palo Alto for new waste collection vehicles.
Internal Service Funds
Internal Service Funds ended the fiscal year with $80.3 million fund balance. All funds showed
positive balances except the Printing and Mailing which reported a $0.4 million nega tive
balance due to the pension liability per GASB 68 and OPEB liability per GASB 75. Once adjusted
for these noncash transactions, the Printing and Mailing fund remains with a positive fund
balance.
Background
The City’s fiscal year ends on June 30, at which time its financial records are closed for the year
and financial reports are prepared. The reports, along with the City’s financial data, are audited
by Macias Gini & O’Connell LLP (MGO), Certified Public Accountants, a firm hired by the City
Auditor. MGO issues an audit opinion on the financial position of the City’s activities and,
together with the City’s financial statements and other information; this comprises the City’s
Comprehensive Annual Financial Report (CAFR) that can be found in Attachment C.
Attachment B outlines recommended amendments to the FY 2020 Budget. These
recommended actions close the fiscal year by reallocating and realigning budget to
reappropriate funds or adjust transfers between operating and capital funds. The General F und
Summary found in Attachment A, provides detailed information of the fund’s activity this year.
City of Palo Alto Page 3
The CAFR includes government-wide statements and fund level financial statements that
provide a snapshot of fund balances and activity for the year. An overview of financial results,
information on how to navigate the CAFR document, and highlights of key fiscal issues affecting
the City can be found in the Management’s Discussion and Analysis (MD&A) section (CAFR p. 5).
The MD&A also provides a discussion and analysis of the City’s current fiscal health and
includes financial statements and analysis that is compared to the prior year, along with capital
asset and debt administration data.
In addition, staff has prepared and attached a budgetary basis summar y of General Fund
Revenues and Expenditures to provide a snapshot of the fund’s revenue and expenditures by
department (Attachment A). The Discussion section of this staff report includes Results by Fund
which discusses position of fund balances, major revenue sources, and expense highlights.
Financial Results
Government-wide Statements
Statement of Net Position
The Statement of Net Position presents information on all the City’s assets plus deferred
outflows of resources, and liabilities plus deferred inflows of resources, with the reported as
net position.
The City’s net position was $1,225.6 billion on June 30, 2020 compared to the balance of
$1,191.5 billion on June 30, 2019. Of the total increase of $34.1 million, or 2.9 percent, $43.5
million is from business-type activities partially offset by a decrease of $9.4 million from
governmental activities.
The largest portion of the City’s net position ($1,118.7 billion or 91.2 percent) is its net
investment in capital assets such as land, buildings, infrastructure and vehicles, less any related
outstanding debt that was used to acquire these assets. The restricted portion of the City’s net
position ($48.7 million - or 4.0 percent) represents resources that are subject to external
restrictions on how they may be used. The remaining balance of $58.2 million, across all funds,
representing 4.8 percent of the City’s net position, is unrestricted and may be used to meet the
City’s ongoing obligations to its citizens and creditors.
The unrestricted net position for the governmental activities portion is negative due to
recognition of the net pension liabilities as required by GASB Statement No. 68 and net OPEB
liabilities a required by GASB Statement No. 75. The deficit of $101.4 million in FY 2020 for the
governmental activities included the impact of $291.9 million for the net pension liabilities and
the related deferred inflows and outflows of resources and $93.2 million for the Net OPEB
liabilities and the related deferred inflows and outflows of resou rces.
City of Palo Alto Page 4
STATEMENT OF NET POSITION
As of June 30, 2020
(in millions)
2020 2019 2020 2019 2020 2019
Cash and investments 342.8$ 354.0$ 277.4$ 253.4$ 620.2$ 607.4$
Other assets 60.5 69.8 52.8 51.3 113.3 121.1
Capital assets 596.3 566.1 693.2 673.5 1,289.5 1,239.6
Deferred outflows 55.8 63.4 21.1 21.7 76.9 85.1
Total assets and deferred outflows 1,055.4 1,053.3 1,044.5 999.9 2,099.9 2,053.2
Net pension and OPEB liabilities 416.3 417.3 153.7 154.4 570.0 571.7
Long-term debt 112.5 115.1 74.5 74.2 187.0 189.3
Other liabilities 61.5 63.8 21.7 26.6 83.2 90.4
Deferred inflows 24.5 7.1 9.6 3.2 34.1 10.3
Total Liabilities 614.8 603.4 259.5 258.4 874.3 861.8
Net Position
Net investment in capital assets 497.4 493.7 621.3 602.1 1,118.7 1,095.8
Restricted 44.6 45.6 4.1 4.0 48.7 49.7
Unrestricted (101.4)(89.4)159.6 135.4 58.2 46.0
Total Net Position 440.6$ 449.9$ 785.0$ 741.5$ 1,225.6$ 1,191.5$
Governmental Business-type Government-wide
Activities Activities Totals
Statement of Activities
The major sources of the City’s revenues are Program Revenues and General Revenues.
Program Revenues consist of charges for services (both governmental and business type
activities) as well as operating and capital grants and contributions. General Revenues include
property tax, sales tax, utility user tax, transient occupancy tax, documentary transfer tax, other
taxes and miscellaneous revenue.
Revenues for the City in FY 2020 were $584.7 million, a decrease of $20.9 million or 3.5 percent
compared to FY 2019, due to a $25.1 million decrease in Governmental Activities that is
partially offset by a $4.2 million increase from Business Activities. Governmental Activities
decreased $25.1 million mainly due to decreases in sales tax, transient occupancy tax,
development and related activities, reduced programs and classes, and the closure of the golf
course caused by the COVID-19 shelter in place order. Business Activities revenue increased
$4.2 mainly due to rate increases in the Electric, Water, Wastewater collection, and Storm
Drainage Funds, increased billing for capital, operating and sewage costs in the Wastewater
Treatment Fund partially offset by decrease in Gas Fund revenues caused by the COVID-19
shelter in place order.
City of Palo Alto Page 5
Expenses for the City in FY 2020 were $550.6 million, an increase of $21.0 million or 4 percent
compared to FY 2019, due to an $8.6 million increase from Governmental Activities and a $12.5
million increase from Business-type expenses. The increase in Governmental Activities expense
is driven by an adjustment to capital assets that was offset by disposal of capital asset expense.
During this fiscal year, staff reviewed capital asset balances and determined that certain
expenses, specifically repair and maintenance costs, should not have been capitalized per
GAAP. The expense to correct these balances was recorded as part of Public Works functional
expenses. The expense increase in Business Activities is driven by several cost categories and
resulted in higher costs compared to prior year, including salaries and benefits, transmission
costs in Electric Fund, and reimbursement to GreenWaste of Palo for new waste collection
vehicles in Refuse Fund. These increases were partially offset by a decrease of lower
commodity purchase costs due to lower than expected natural gas prices and transportation
costs in Gas Fund.
City of Palo Alto Page 6
2020 2019
Increase /
(Decrease)
Revenues
Program Revenues 428.6$ 435.8$ (7.2)$
General Revenues 156.1 169.8 (13.7)
Total Revenues 584.7$ 605.6$ (20.9)$
Expenses
Governmental Activities
City Council 0.2$ 0.3$ (0.1)
City Manager 3.6 3.3 0.3
City Attorney 2.8 3.1 (0.3)
City Clerk 0.8 0.8 (0.0)
City Auditor 0.6 1.1 (0.5)
Administrative Services 15.9 19.2 (3.3)
Human Resources 3.1 3.0 0.1
Public Works 45.6 36.6 9.0
Planning and Development Services 21.7 24.8 (3.1)
Office Of Transportation 4.7 0.0 4.7
Police 50.9 49.8 1.1
Fire 41.3 39.4 1.9
Community Services 34.1 36.8 (2.7)
Library 13.0 12.6 0.4
Interest and Other Expense 4.7 3.7 1.0
Business Type Activities
Water 43.0 40.6 2.4
Electric 142.4 139.6 2.8
Fiber Optics 2.8 2.5 0.3
Gas 27.2 30.9 (3.7)
Wastewater Collection 18.9 17.3 1.6
Wastewater Treatment 28.8 27.1 1.7
Refuse 36.9 30.4 6.5
Storm Drainage 5.5 4.9 0.6
Airport 2.1 1.8 0.3
Total Expenses 550.6$ 529.6$ 21.0$
Change in Net Position 34.1$ 76.0$ (41.9)$
Statement of Activities for the Year Ended June 30
(in millions)
City of Palo Alto Page 7
Capital Assets
The City’s capital assets for its governmental and business-type activities as of June 30, 2020,
amounts to $1,289.5 billion (net of accumulated depreciation), which is a $49.9 million
increase, or 4 percent increase, compared to FY 2019. The increase was primarily due to various
projects such as Charleston/Arastradero Corridor, New Public Safety Building, California Avenue
Parking Garage and Transmission, Distribution and Treatment systems for the various City
utility services.
Increase/
2020 2019 (Decrease)
Governmental activites
Land and improvements 82.2$ 77.6$ 4.6
Street trees 14.8 14.7 0.1
Construction in progress 142.1 107.0 35.1
Building and improvements 251.1 247.3 3.8
Intangible assets 3.8 3.8 (0.0)
Equipment 79.2 74.9 4.3
Roadway network 335.2 334.3 0.9
Recreation and open space network 35.2 35.2 -
Less accumulated depreciation (347.3) (328.7) 18.6
Business-Type Activities
Land 5.0 5.0 -
Construction in progress 121.1 158.0 (36.9)
Buildings and improvements 74.0 68.3 5.7
Capital Leases 0.5 0.5 -
Infrastructure 0.6 0.6 -
Transmission, distribution and treatment systems 884.8 822.4 62.4
Less accumulated depreciation (392.8) (381.3) 11.5
Total Capital Assets 1,289.5$ 1,239.6$ 49.9$
CAPITAL ASSETS AT JUNE 30
(in millions)
City of Palo Alto Page 8
Long Term Debt
As of June 30, 2020, the City’s long-term obligations totaled $808.1 million. The long-term
obligations for the City include debt, claims payable, compensated absences, pension, other
post-employment benefit (OPEB) obligations, and land fill closure.
Increase/
2020 2019 (Decrease)
Governmental Activities
General Obligation Bonds 62.1$ 64.0$ (1.9)$
Certificates of Participation 50.5 51.2 (0.7)
Claims payable 29.7 28.4 1.3
Compensated Absences 14.2 12.3 1.9
Net pension liability 325.8 312.0 13.8
Net OPEB liability 90.5 105.3 (14.8)
Business-type Activities
Utility Revenue Bonds 40.6$ 44.4$ (3.8)$
Energy Tax Credit Bonds 0.1 0.2 (0.1)
State Water Resources Loan 33.8 29.6 4.2
Landfill post-closure 7.1 7.0 0.1
Net pension liability 117.2 111.9 5.3
Net OPEB liability 36.5 42.5 (6.0)
Total long term liabilities 808.1$ 808.8$ (0.7)$
LONG-TERM DEBT AT JUNE 30
(in millions)
Fund Financial Statements
General Fund
General Fund Reserves
At the end of the current fiscal year, fund balance of the General Fund was $61.9 million. The
$61.9 million fund balance is comprised of several reserves: the BSR, reappropriations, notes
and loans, inventory, prepaid items, and other general government special purpose reserves
(this includes reserves for encumbrances, donations, and Excess ERAF). As described in the BSR
reserve (City’s general reserve) policy approved by the Council, the reserve is to remain
between 15 and 20 percent of the General Fund operating budget, with a target goal of 18.5
percent. Any reserve balance in excess of the 18.5 percent target may be transferred to the
Infrastructure Reserve (IR) in the Capital Projects Fund at the discretion of the Ci ty Manager.
City of Palo Alto Page 9
The FY 2021 Adopted Operating Budget projected a $33.0 million BSR balance as of June 30,
2020, compared to the actual balance of $35.9 million (this is a component of the General
Fund, fund balance noted above). This is $2.9 million above e stimates; however, at $35.9
million the BSR is still $0.5 million below the Council’s 18.5 percent target of the FY 2021
Adopted expenses of $36.4 million. As such, there are no recommended allocations or
adjustments of any “excess” BSR funds as part of this report.
General Fund Revenues
General Fund revenues for FY 2020 were $180.4 million, which is $16.7 million or 8.5 percent
lower than the prior year. Year over year changes in each of the major tax revenue categories
are summarized in the following table.
Category FY 2020 FY 2019 % Change
Increase (Decrease)
Property tax $ 51,089 $ 47,327 8.0%
Sales tax 30,563 36,508 (16.3%)
Utility user tax 16,140 16,402 (1.6%)
Transient occupancy tax 18,553 25,649 (27.7%)
Documentary transfer tax 6,903 6,923 (0.3%)
Property tax revenue increased $3.8 million or 8.0 percent, due to increased property assessed
value growth and a $1.2 million increase compared to prior year of the ERAF distribution from
the County of Santa Clara. These higher assessed values reflected the continued robust
commercial and residential real estate markets during this period. Unlike other tax revenue,
property taxes are not yet impacted from COVID-19.
Sales tax receipts were $5.9 million, or 16.3 percent lower compared to the prior fiscal year,
due to economic disruptions caused by COVID-19. In the last quarter of FY 2020, the shelter in
place order resulted in closure of populous locations and economic engines in the City such as
downtown core, California Avenue, Stanford Shopping Center and other related business
activities that significantly impacted the sales tax. A portion of the decrease is due to timing
difference in receipts rather than performance. The State has offered certain businesses the
option to defer sales tax payments through interest free payment plans. This plan allows large
businesses to delay their sales and use taxes remittance for ninety days and small businesses to
defer remittance over twelve months. In addition, FY 2019 receipts were higher by $0.7 million
due to delay of distribution of sales tax in FY 2018 from California Department of Tax Fee
Administration (CDTFA) resulting from the transition of the new technology and collection
process.
Utility user tax revenues were $0.3 million, or 1.6 percent, lower compared to the prior year
due to lower consumption of both utility commodity and telephone caused by COVID -19. The
utility commodity rate increase for FY 2020 offsets with lower consumption.
Transient occupancy tax (TOT) ended the year $7.0 million, or 27.7 percent, lower than prior
City of Palo Alto Page 10
year. In November 2018, Measure E was approved by voters to increase the TOT by 1.5 percent,
from 14 percent to 15.5 percent. The new tax rate was implemented April 2019 however TOT
began to decline almost a year ago by 3.1 percent and worsened as a result of COVID-19.
During shelter in place in the last quarter of FY 2020, almost a dozen hotels, which represent 30
percent of available rooms, fully suspended operations. The remaining hotels’ last quarter
occupancy rate were in the low double digits and the average room rates dropped by over half.
For the fiscal year, average occupancy and daily room rate was 61 percent and $265,
respectively. The entire 15.5 percent TOT rate from new hotels, plus 3.5 percent from all other
hotels, has been allocated to the Infrastructure Plan pursuant to City Council direction. The
following is a comparative breakdown of the allocation of transient occupancy tax receipts:
FY 2020 FY 2019 % Change
Increase (Decrease)
General Fund: $ 11,567 $ 16,957 (31.8%)
Infrastructure Plan:
New hotels – 12% 2,793 4,423 (36.9%)
All hotels – 3.5% 4,193 4,269 (1.8%)
Subtotal Infrastructure 6,986 8,692 (19.6%)
Total TOT Receipts $ 18,553 $ 25,649 (27.7%)
Documentary transfer tax had no significant change from FY 2019 to FY 2020 though in the last
quarter of FY 2020 receipts declined by 40.9 percent and the number of sales declined 28.2
percent. Overall, the number of transactions for FY2020 were lower than FY 2019 by 13.6
percent. This revenue source is volatile since it is highly dependent on sales volume and the mix
of commercial and residential sales.
Charges for services decreased $3.2 million or 11.7 percent. The decrease was primarily due to
reduced programs and classes ($1.6 million), closure of golf course ($0.6 million) and fewer plan
reviews and inspections ($1.0 million) during the initial phases of COVID-19 shelter in place
order and limited operations afterwards.
All other revenues decreased from prior year by $2.9 million primarily due to the $2.4 million
sale of the former City Manager’s house in FY 2019 which was co-owned by the City.
City of Palo Alto Page 11
The following is a chart which depicts the relative contribution of each tax category over the
past seven years (2014 through 2020), as well as the current budgeted year (2021).
General Fund Tax Revenues
Actual Fiscal Years 2014 – 2020
Budget Fiscal Year 2021
($ in thousands)
0 25,000 50,000 75,000 100,000 125,000 150,000
FY 2021 Budget
FY 2020 Actual
FY 2019 Actual
FY 2018 Actual
FY 2017 Actual
FY 2016 Actual
FY 2015 Actual
FY 2014 Actual
FY 2021
Budget
FY 2020
Actual
FY 2019
Actual
FY 2018
Actual
FY 2017
Actual
FY 2016
Actual
FY 2015
Actual
FY 2014
Actual
Property Tax 52,000 51,089 47,327 42,839 39,381 36,607 34,117 30,587
Sales Tax 20,500 30,563 36,508 31,091 29,923 30,018 29,675 29,424
Utility User Tax 15,100 16,140 16,402 15,414 14,240 12,469 10,861 11,008
Trans Occ Tax 14,900 18,553 25,649 24,937 23,477 22,366 16,699 12,255
Doc Transfer Tax 4,700 6,903 6,923 9,229 7,491 6,266 10,384 7,811
General Fund Expenditures
General Fund expenditures for FY 2020, including encumbrances and reappropriations, totaled
$202.1 million; an increase of 4.7 percent from the prior year. The Adopted Budget of $196.8
million was increased to the Final Adjusted Budget amount of $206.4 million, primarily due to
the expenditure of prior year encumbered and reappropriated balances; increases for several
departments throughout the year also occurred based on City Council direction per
recommendations contained in City Manager Reports.
The following is a chart which compares actual departmental costs, including encumbrances
and reappropriations, excluding Cubberley lease over the past seven years and budgeted costs
for FY 2021.
City of Palo Alto Page 12
General Fund Departments
Actual Expenditures Fiscal Years 2014– 2020 (including reappropriations and encumbrances)
Budgeted Expenditures Fiscal Year 2021
($ in thousands)
0 20 40 60 80 100 120 140 160 180 200
FY 2021 Budget
FY 2020 Actual
FY 2019 Actual
FY 2018 Actual
FY 2017 Actual
FY 2016 Actual
FY 2015 Actual
FY 2014 Actual
FY 2021
Budget
FY 2020
Actual
FY 2019
Actual
FY 2018
Actual
FY 2017
Actual
FY 2016
Actual
FY 2015
Actual
FY 2014
Actual
Public Safety 75,340 83,616 77,592 75,975 72,815 65,005 62,459 63,403
Community Services 28,362 31,489 30,201 28,395 26,573 25,262 23,902 23,402
Admin Depts 25,637 28,169 29,304 23,538 22,157 22,059 19,771 19,784
Public Works 18,427 18,932 17,928 18,908 17,475 15,084 14,210 14,138
Planning and Development
Services 17,386 21,098 22,606 23,006 22,400 21,784 20,361 14,637
Office Of Transportation 1,904 2,360 -
Library 8,421 10,092 9,491 9,357 9,266 8,217 8,144 8,072
The Development Services Department was combined with the Planning and Community Environment in FY 2020 and renamed
to the Planning and Development Services Department.
The Office of Transportation department, which previously was a division of the Planning and Community Environment
Department was established in FY 2020.
City of Palo Alto Page 13
Capital Projects Fund
The Capital Projects Fund ended the year with a fund balance o f $83.6 million, which are
comprised of the following:
Fund Balance Component Amount
($ in millions)
Restricted for Library projects $ 598
Reserved for Roth Building rehabilitation 5,146
Reserved for Cubberley expenditures 4,203
Restricted for California Avenue Parking Garage 12,980
Assigned for all other Capital projects 60,704
Total Capital Projects Fund Balance $ 83,631
Restricted for Library projects $0.6 million is the portion of fund balance dedicated to
remaining Library expenditures which, if considered bond expenses will be paid for with cash
from Bond proceeds. Non-bondable expenditures such as salaries and benefits are funded from
the Infrastructure Reserve, as established at the time of the bond issuance. The library project
is already completed but a roof defects need to be fixed using this reserve.
Restricted for California Avenue Parking Garage $13.0 million represents the remaining bond
funding dedicated to the construction of the new California Avenue parking garage.
Assigned for all other Capital projects of $60.7 million represents the amount of unspent funds
associated with Adopted Capital projects and other noted items. Outside funding sources such
as grants, donations and future debt issues are not factore d into this component of the fund
balance until they are actually received.
Enterprise Funds
The City’s Enterprise Funds reported a total Net Position of $781.1 million, a $39.6 million
increase from the prior year. The overall change in Net Position was driven by the Electric Fund,
Water Fund, and Airport Fund. The table below summarizes the overall change in Net Position
for each Enterprise Fund. Compared to FY 2019, the Change in Net Position for Enterprise funds
decreased $14.8 million driven primarily by the Gas Fund and Refuse Fund – details of these
funds are summarized following this table.
City of Palo Alto Page 14
ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2020 2019 (Decrease)
Water 8.0$ 8.0$ -$
Electric 18.6 19.0 (0.4)
Fiber Optics 2.9 3.5 (0.6)
Gas 3.0 5.3 (2.3)
Wastewater Collection 2.1 3.3 (1.2)
Wastewater Treatment 0.3 1.5 (1.2)
Refuse (3.1)4.9 (8.0)
Storm Drainage 2.2 2.3 (0.1)
Airport 5.6 6.6 (1.0)
Total Change in Net Position 39.6$ 54.4$ (14.8)$
The Gas Fund decreased $2.3 million compared to prior year due to decrease in revenues as a
result of lower consumption; increase in operating expenses partially offset by the decrease in
commodity purchase costs due to lower than expected natural gas prices and transportation
costs.
The change in net position for Wastewater Collection Fund decreased $1.2 million due to higher
operating expenses offset by the increase in revenues because of the 7.0 percent rate increase
effective July 1, 2019.
The change in net position for Wastewater Treatment Fund decreased $1.2 million due to
increase in operating expenses because of higher sewage treatment operation and
maintenance cost offset by the increase in revenues resulting from higher partner’s billing.
The Refuse Fund decreased by $8.0 million due to lower revenues from the reduction of
services by commercial and industrial customers due to COVID-19 and increase in GreenWaste
of Palo Alto charges for reimbursement of new waste collection vehicles.
The table below details the Change in Unrestricted Net Position in the Enterprise Funds.
Enterprise Fund Rate Stabilization, Operations and o ther reserve balances are shown in detail in
the CAFR (CAFR p. 84, Footnote 10). Overall, except for the Wastewater Treatment Fund and
the Airport Fund, each Enterprise Funds maintained a positive unrestricted net position balance
as of June 30, 2020. Adjustments for the Pension Reserve (as required by GASB Pronouncement
No. 68) and OPEB Reserve (as required by GASB Pronouncement No. 75) total $142.4 million for
all Enterprise Funds and reduce each fund’s unrestricted net position.
City of Palo Alto Page 15
The Wastewater Treatment Fund reflects a $10.5 million Unrestricted Reserve deficit and is
driven by $28.3 million in Pension Reserves and OPEB Reserves negative adjustments.
The Airport Fund reports a $4.4 million deficit net position which is attributed to the $1.3
million Pension Reserve and OPEB Reserve adjustments. Second, the fund deficit in the Airport
Fund is also a result of cumulative fund deficits over the life of the fund as fiscal operations at
the airport stabilize and capital projects near completion. The $5.6 mi llion change in net
position of Airport Fund in current year is not driven by operations but due to $5.5 million
grants received in current year. The General Fund transferred a series of advances totaling $3.1
million for “start-up” costs for the airport and repayment to the General Fund started in FY
2020.
Enterprise Funds
Change in Unrestricted (Deficit) Net Position
(in Millions)
Increase/
Fund Name 2020 2019 (Decrease)
Water 28.2$ 25.5$ 2.7$
Electric 83.6 69.8 13.8
Fiber Optics 33.0 30.2 2.8
Gas 8.5 7.5 1.0
Wastewater Collection 1.2 2.2 (1.0)
Wastewater Treatment (10.5)(13.8)3.3
Refuse 12.1 15.1 (3.0)
Storm Drainage 4.0 1.9 2.1
Airport (4.4)(3.3)(1.1)
Total Change in Reserves (Unrestricted)155.7$ 135.3$ 20.4$
Resource Impact
Recommended actions in the report will align the FY 2020 appropriations with final financial
activities as outlined in Attachment B. Overall, the City ended the FY 2020 in a positive net
position and in certain areas where net reserves were higher than estimated in the
development of the FY 2021 Adopted budget, those additional funds will be included as part of
the FY 2021 budget balancing and rate setting act ivities.
Stakeholder Engagement
The review and writing of this report was coordinated among various divisions within the
Administrative Services Department, and the actions recommended in this report were
discussed and communicated to the impacted departments.
City of Palo Alto Page 16
Environmental Review
This is not a project for purposes of the California Environmental Quality Act.
Attachments:
• Attachment A: Budget to Actuals
• Attachment B: Recommended FY20 Year-end Clean-up Actions
• Attachment C: City of Palo Alto FY2020 Comprehensive Annual Financial Report
GENERAL FUND SUMMARY ($000s)
FY 2020 FY 2020 FY 2020 FY 2020 FY 2020 FY 2020 FY 2020
Adopted Adjusted Rev/Exp Allocated Encum / Actual Actual to
Budget Budget Actuals Charges Reappropriation Rev/Exp Adj Budget
Variance
Revenues
Sales Tax 34,346 30,617 30,563 30,563 (54)
Property Tax 48,634 50,853 51,089 51,089 236
Transient Occupancy Tax 29,309 19,425 18,553 18,553 (871)
Documentary Transfer Tax 8,369 6,676 6,903 6,903 227
Utility User Tax 17,581 16,133 16,140 16,140 7
Other Taxes, Fines and penalties 2,032 1,237 1,172 1,172 (64)
Charges for Services 30,127 25,196 24,127 24,127 (1,068)
Permits and Licenses 8,667 6,597 7,467 7,467 870
Investment Earnings 1,433 1,433 1,480 1,480 47
Rental Income 16,326 16,041 15,964 15,964 (77)
From Other Agencies 2,756 3,245 3,783 518 4,301 1,057
Charges to Other Funds 10,908 10,908 11,099 11,099 190
Other Revenues 587 619 585 - 585 (34)
Total Revenues 211,076 188,980 177,828 11,099 518 189,445 465
Add: Operating Transfers In 20,999 20,840 20,840 20,840 -
Prior Year Encum / Reappropriation 6,469 6,469 6,469 -
Total Source of Funds 232,075 216,289 205,137 11,099 518 216,754 465
Expenditures
3,387 3,896 2,509 1,013 268 3,789 107
City Auditor 1,235 1,157 680 259 42 981 176
City Clerk 1,346 1,402 815 319 52 1,186 216
City Council 498 542 214 111 89 414 128
City Manager 4,546 4,718 3,273 1,073 325 4,671 47
Administrative Services 8,519 8,770 5,960 2,321 234 8,515 255
Community Services 30,929 31,591 29,603 197 1,689 31,489 103
Fire 34,889 36,773 36,440 163 169 36,772 1
Human Resources 3,902 4,107 2,792 1,095 107 3,994 113
Library 10,314 10,187 9,988 - 104 10,092 95
Office of Transportation 2,312 2,733 2,052 - 308 2,360 373
Planning and Development Services 20,356 22,021 19,269 328 1,501 21,098 923
Police 46,369 46,845 45,679 577 589 46,844 1
Public Works 19,142 19,357 13,577 3,643 1,713 18,932 425
Non-Departmental 2,744 5,874 3,722 - 898 4,618 1,255
Cubberley Lease 6,284 6,438 6,385 - 6,385 53
Total Expenditures 196,773 206,412 182,956 11,099 8,088 202,141 4,271
Add: Operating Trans Out 5,023 8,049 8,049 - 8,049 -
Transfer to Infrastructure 28,962 24,172 24,172 - 24,172 -
Total Use of Funds 230,758 238,633 215,177 11,099 8,088 234,362 4,271
Net Surplus/(Deficit) 1,317 (22,344) (10,040) - 8,088 (17,608) 4,736
Attachment A
Statement of Revenues, Expenditures and Change in Fund Balance - Budget and Actual
City Attorney
Department Adjustment Adjustment
GENERAL FUND (102)
City Manager's
Office
Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to
offset departments with higher than anticipated expenses in FY 2020.
-$ (780,000)$
Fire Salaries & Benefits
This action reallocates funding as a result of higher than anticipated salary expenses in FY
2020. These higher anticipated expenditures are due to a number of variables including the
Department continuing to hire ahead for its recruit academy in an attempt to reduce sworn
vacancies. In addition, payments for disability/worker's compansation were higher than
budgeted. These overages were partially offset by overtime savings.
-$ 764,000$
Non-
Departmental
Transient Occupancy Tax/Transfer to Capital Improvement Fund
This action decreases the transfer to the Capital Improvement Fund as it relates to Transient
Occupancy Tax (TOT) revenues earmarked for city-wide infrastructure improvements due to
lower than anticipated TOT collections.
(171,173)$ (171,173)$
Police Salaries & Benefits
This action reallocates funding as a result of higher than anticipated salary expenses in FY
2020. This overage is primarily due to preliminary budget adjustments in Q3 2020 that
reduced the Police Department budget by $350,000 for anticipated expense savings (CMR
11328). These savings did not materialize due to a number of variables including use of
overtime for significant vacancies in the Dispatch and Patrol teams, and response to
protests.
-$ 392,000$
Public Works Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to
offset departments with higher than anticipated expenses in FY 2020.
-$ (376,000)$
GENERAL FUND (102) SUBTOTAL (171,173)$ (171,173)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
CAPITAL IMPROVEMENT FUNDS
GENERAL FUND CAPITAL IMPROVEMENT FUND (471)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 811,000$
Capital Transfer from General Fund
This action decreases the transfer from the General Fund related to TOT revenue Council
earmarked to use for city-wide infrastructure improvements due to actual revenue collected
being lower than budgeted in FY 2020.
(171,173)$ -$
Capital Transfer to Parkland Dedication Fee Fund
This action transfers funding back to the Parkland Dedication Fee Fund that was intended to
be used for the Turf Management Plan capital project (PG-18002). This project was defunded
as part of the development of the 2021-2025 Capital Improvement Plan (CIP) due to budget
constraints and a reprioritization of projects.
-$ 100,000$
Capital Transfer to Parks Develpoment Impact Fee Fund
This action transfers funding back to the Parks Development Impact FeeFund that was
intended to be used for the Baylands Athletic Center 10.5 Acre Expamnsion Plan capital
project (PG-19001). This project was defunded as part of the development of the 2021-2025
CIP due to budget constraints and a reprioritization of projects.
-$ 85,000$
Capital Transfer to California Avenue Parking Garage COP Fund
This action transfers funding to the California Avenue Parking Garage (Certificates of
Participation) COP Fund to fund the debt services costs associated with the issuance of the
New California Avenue Area Parking Garage (PE-18000) COP funding. This funding was
previously budgeted to be spent directly in the Capital Improvment Fund. A corresponding
action reduces the debt service payment budgeted in the Capital Improvement Fund.
-$ 2,335,000$
Capital Transfer from Gas Tax Fund
This action increases the transfer from the Gas Tax Fund due to actual revenue collected being
higher than budgeted in FY 2020. A corresponding transfer is recommended from the Gas Tax
Fund to the Capital Improvement Fund. The funding will be appropriated to the Street
Maintenance capital project (PE-86070) as part of the FY 2021 Mid-Year Budget Review.
156,270$ -$
Capital Debt Service Payments
This action reduces funding for the debt service costs associated with the issuance of the 2019
California Avenue Parking Garage COP funding. Corresponding actions in this report transfer
funding for these costs to the California Avenue Parking Garage COP Fund and appropriate
funding for the debt service costs to be paid out of the California Avenue Parking Garage COP
Fund.
(2,335,000)$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (1,010,903)$
GENERAL FUND CAPITAL IMPROVEMENT FUND (471) SUBTOTAL (14,903)$ (14,903)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
CAPITAL IMPROVEMENT FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
CUBBERLEY PROPERTY INFRASTRUCTURE FUND (472)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 13,400$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (13,400)$
CUBBERLEY PROPERTY INFRASTRUCTURE FUND (472) SUBTOTAL -$ -$
Department Adjustment Adjustment
ENTERPRISE FUNDS
ELECTRIC FUND (513 & 523)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 594,200$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (594,200)$
ELECTRIC FUND (513 & 523) SUBTOTAL -$ -$
STORMWATER MANGEMENT FUND (528)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 16,000$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (16,000)$
STORMWATER MANGEMENT FUND (528) SUBTOTAL -$ -$
WATER FUND (522)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 260,000$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (260,000)$
WATER FUND (522) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
INTERNAL SERVICE FUNDS
INFORMATION TECHNOLOGY FUND (682)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 3,400$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (3,400)$
INFORMATION TECHNOLOGY FUND (682) SUBTOTAL -$ -$
WORKERS' COMPENSATION FUND (688)
Non-
Departmental
Charges to Other Funds
This action increases the estimate for charges to other funds by $1,300,000 ($870,000 in the
General Fund) due to an updated actuarial analysis in August 2020 for workers' compensation
that have been incurred but not reported (IBNR) being $3.4 million higher than budgeted. Of
this amount, $1.3 million was charged to departments to offset this exense and ensure positive
fund balance. Departments had sufficient savings at the end of FY 2020 to support the
additional costs and did not require budgetary adjustments.
1,300,000$ -$
Non-
Departmental
Liability Insurance
This action increases the appropriation for liability insurance expense by $900,000 due to an
updated actuarial analysis in August 2020 for general liabilities that have been incurred but not
reported (IBNR) being $3.4 million higher than budgeted. The additional liability expense has
been fully recognized in FY 2020 and has been partially recovered through additional
allocations to departments. Due to sufficient savings elsewhere in the General Liability Fund a
reduced adjustment of $0.9 million is recommended for the additional liability expense.
-$ 900,000$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 400,000$
WORKERS' COMPENSATION FUND (688) SUBTOTAL 1,300,000$ 1,300,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
GAS TAX FUND (231)
Non-
Departmental
State of California Revenue: SB1/Transfer to Capital Improvement Fund
This action increases the revenue estimate for State of California SB1 allocations to align with
higher than anticipated actuals during the period. In FY 2020, the total allocation to the City
was $1,310,000 which was $156,000 higher than preliminary estimates from the State
Department of Finance. Funding from SB1 is earmarked for transportation and traffic-related
capital projects and was used during the period to partially fund the Street Maintenance Capital
Improvement Project (PE-86070). The additional revenues are recommended to offset an
additional appropriation to this project through a corresponding transfer from the Gas Tax Fund
to the Capital Fund.
156,270$ 156,270$
GAS TAX FUND (231) SUBTOTAL 156,270$ 156,270$
HAMILTON AVENUE - PUBLIC BENEFIT FUND (235)
Planning &
Development
Services
Unit Resale Revenue
This action increases the estimate for unit resales as result of higher than anticipated revenues
in FY 2020. Revenues in this fund were established through a developer deposit of $500,000 for
the senior housing project on Hamilton Avenue ("The Hamilton") to provide funding for senior
services. Additional revenue is generated through interest earnings and 2.5 percent of the sales
price of units.
239,000$ -$
Planning &
Development
Services
Grants & Subsides
This action increases the grants and subsidies appropriation as result of slightly higher than
anticipated expenses in FY 2020. Grant & Subsidy expenditures in this fund are attributable to
accumulated interest earnings that are required to be paid to the Avenidas agency (formerly
Senior Coordinating Council) to provide services to seniors.
-$ 8,500$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 230,500$
HAMILTON AVENUE - PUBLIC BENEFIT FUND (235) SUBTOTAL 239,000$ 239,000$
PARKLAND DEDICATION FEE FUND (209)
Community
Services
Transfer from Capital Improvement Fund
This action transfers funding from the Capital Improvement Fund that was intended to be used
for the Turf Management Plan capital project (PG-18002). This project was defunded as part of
the development of the 2021-2025 Capital Improvement Plan (CIP) due to budget constraints
and a reprioritization of projects.
100,000$ -$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 100,000$
PARKLAND DEDICATION FEE FUND (209) SUBTOTAL 100,000$ 100,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
PARKS DEVELOPMENT IMPACT FEE FUND (210)
Community
Services
Transfer from Capital Improvement Fund
This action transfers funding from the Capital Improvement Fund that was intended to be used
for the Baylands Athletic Center 10.5 Acre Expamnsion Plan capital project (PG-19001). This
project was defunded as part of the development of the 2021-2025 CIP due to budget
constraints and a reprioritization of projects.
85,000$ -$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 85,000$
PARKS DEVELOPMENT IMPACT FEE FUND (210) SUBTOTAL 85,000$ 85,000$
PUBLIC ART FUND (207)
Community
Services
Public Art Fee Revenue
This action increases the estimate for Art Fees as result of higher than anticipated revenues in
FY 2020.
185,000$ -$
Community
Services
Salaries & Benefits
This action increases the salaries and benefits appropriation as result of slightly higher than
anticipated expenses in FY 2020.
-$ 1,700$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 183,300$
PUBLIC ART FUND (207) SUBTOTAL 185,000$ 185,000$
PUBLIC SERVICES DONATION FUND (191)
Various Donations Revenue/Non-Salary Expenses
This action increases the appropriation for expenses in the Public Services Donation Fund to
align with FY 2020 year end expense and encumbered funds. Donations in this fund are for
activities such as parks and open space activities, art center programs, and animal care services.
A corresponding adjustment to revenue reflecting higher than budgeted donations is
recommended to offset this increase.
65,000$ 41,000$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 24,000$
PUBLIC SERVICES DONATION FUND (191) SUBTOTAL 65,000$ 65,000$
Department Adjustment Adjustment
DEBT SERVICE & AGENCY TRUST FUNDS
2019 CALIFORNIA AVENUE PARKING GARAGE COP FUND (362)
Administrative
Services
Transfer from Capital Improvement Fund/Debt Service Payments
This action transfers funding from the Capital Improvement Fund to fund the debt services
costs associated with the issuance of the New California Avenue Area Parking Garage (PE-
18000) COP funding. This action also appropriates funding for principal and interest payments
in order to repay the debt service associated with the COP funding. These debt service
payments were previously budgeted in the Capital Improvement Fund.
2,335,000$ 2,335,000$
2019 CALIFORNIA AVENUE PARKING GARAGE COP FUND (362) SUBTOTAL 2,335,000$ 2,335,000$
EYERLY TRUST FUND (774)
Administrative
Services
Investment Income/General Expense (Special Events)
This action increases the interest income revenue collected in this fund to align the budget with
the actual revenue collected. A corresponding increase to the appropriation for General
Expenses within the fund is also recommended to align budget levels with actual expenditures
in FY 2020.
12,000$ 7,000$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 5,000$
EYERLY TRUST FUND (774) SUBTOTAL 12,000$ 12,000$
UNIVERSITY AVENUE PARKING ASSESSMENT AGENCY FUND (775)
Administrative
Services
Special Asessment District Fees/Contract Services
This action increases the Special Assessment District Fee revenue collected in this fund to align
the budget with the actual revenue collected. A corresponding increase to the appropriation for
Contract Services within the fund is also recommended to align budget levels with actual
expenditures in FY 2020.
21,000$ 6,000$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 15,000$
UNIVERSITY AVENUE PARKING ASSESSMENT AGENCY FUND (775) SUBTOTAL 21,000$ 21,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Project
Number Title Revenue Expense Comments
AS-10000 Capital Improvement Fund
Administration
$ (453,981) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
AC-86017 Art in Public Places $ 44,500 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
AC-18001 JMZ Renovation $ 123,600 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
FD-14002 Fire Ringdown System Replacement $ 7,000 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
FD-20000 Cardiac Monitor Replacement $ 24,161 Adjustment to shift a Transfer from the Utility
Administration Fund to FY 2020 to align with
project expenditures.
OS-00001 Open Space Trails and Amenities $ 62,200 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-17008 City Hall Floor 4 Remodel $ 1,380 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-17009 City Hall Floor 5 Remodel $ 7,600 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-19003 Birch Street Improvements $ 136,120 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-20001 City Bridge Improvements $ 6,370 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PF-14002 Fire Station 1 Improvements $ 330 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-06001 Athletic Courts Resurfacing $ 8,000 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-17000 Baylands Comprehensive Conservation
Plan
$ 2,400 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PL-19000 Emergency Vehicle Traffic Signal
Preemption System Pilot
$ 26,420 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-15003 Fire Station No. 3 Replacements $ 394,100 Adjustment to allocate Salaries and Benefits
($3,900) and increase project ($390,200) due to
higher than anticipated expenditures in FY 2020.
PE-14015 Lucie Stern Buildings Mechanical and
Electrical Upgrades
$ (251,000) Adjustment to allocate unspent expenses due to
project competion in FY 2020.
PL-15004 Downtown Parking Wayfinding $ (139,200) Adjustment to allocate unspent expenses due to
project competion in FY 2020.
PE-15001 New Public Safety Building $ 811,000 Adjustment to increase project due to higher than
anticipated expenditures in FY 2020.
Total $ - $ 811,000
ATTACHMENT B, EXHIBIT 2
CAPITAL IMPROVEMENT FUND
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 CAPITAL IMPROVEMENT PROGRAM
Project
Number Title Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 CAPITAL IMPROVEMENT PROGRAM
CB-19000 Cubberley Track and Field Replacement $ 13,400 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 13,400
ELECTRIC FUND
EL-02010 SCADA System Upgrade $ 5,200 Increase to project due to higher than anticipated
expenditures.
EL-89028 Electric Customer Connections $ 589,000 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 594,200
SD-20000 Storm Drain Pump Station $ 16,000 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 16,000
TE-01012 IT Disaster Recovery $ 3,400 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 3,400
WS-80013 Water System, Customer Connections $ 260,000 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 260,000
$ - $ 1,698,000 TOTAL CIP ADJUSTMENTS
CUBBERLEY PROPERTY INFRASTRUCTURE FUND
STORMWATER MANAGEMENT FUND
TECHNOLOGY FUND
WATER FUND
COMPREHENSIVE
ANNUAL
FINANCIAL
REPORT
City of Palo Alto, California
Fiscal Year Ended
June 30, 2020
The engine is the heart of an airplane, but the pilot is its soul – Walter A. Raleigh
is accepting applications for the position of
Airport Manager
LINK
1 of 2
TO: HONORABLE COUNCIL MEMBERS
FROM: KIELY NOSE, ADMMINISTRATIVE SERVICES DIRECTOR
DATE: FINANCE COMMITTEE MEETING DECEMBER 1, 2020
SUBJECT: RECOMMENDATION TO THE CITY COUNCIL TO APPROVE THE FY 2020
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) & FY2020 BUDGET
AMENDMENTS IN VARIOUS FUNDS
In reviewing the staff report (CMR #11741), staff noticed an inadvertent error in the “Statement
of Net Position” and ensuing write up for “Government Wide Statements – Statement of Net
Position.” The revised table and language below corrects for this clerical error. It is important
to note that the CAFR document itself is accurate, this is only a clerical error in the staff report.
CORRECTED SECTION
Financial Results
Government-wide Statements
Statement of Net Position
The Statement of Net Position presents information on all the City’s assets plus deferred
outflows of resources, and liabilities plus deferred inflows of resources, with the reported as
net position.
The City’s net position was $1,225.6 billion on June 30, 2020 compared to the balance of
$1,191.5 billion on June 30, 2019. Of the total increase of $34.1 million, or 2.9 percent, $43.5
million is from business-type activities partially offset by a decrease of $9.4 million from
governmental activities.
The largest portion of the City’s net position ($1,118.7 billion or 91.2 percent) is its net
investment in capital assets such as land, buildings, infrastructure and vehicles, less any related
outstanding debt that was used to acquire these assets. The restricted portion of the City’s net
position ($77.4 million - or 6.3 percent) represents resources that are subject to external
restrictions on how they may be used. The remaining balance of $29.5 million, across all funds,
representing 2.4 percent of the City’s net position, is unrestricted and may be used to meet the
City’s ongoing obligations to its citizens and creditors.
2
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The unrestricted net position for the governmental activities portion is negative due to
recognition of the net pension liabilities as required by GASB Statement No. 68 and net OPEB
liabilities a required by GASB Statement No. 75. The deficit of $130.1 million in FY 2020 for the
governmental activities included the impact of $291.9 million for the net pension liabilities and
the related deferred inflows and outflows of resources and $93.2 million for the Net OPEB
liabilities and the related deferred inflows and outflows of resources.
STATEMENT OF NET POSITION
As of June 30, 2020
(in millions)
2020 2019 2020 2019 2020 2019
Cash and investments 342.8$ 354.0$ 277.4$ 253.4$ 620.2$ 607.4$
Other assets 60.5 69.8 52.8 51.3 113.3 121.1
Capital assets 596.3 566.1 693.2 673.5 1,289.5 1,239.6
Deferred outflows 55.8 63.4 21.1 21.7 76.9 85.1
Total assets and deferred outflows 1,055.4 1,053.3 1,044.5 999.9 2,099.9 2,053.2
Net pension and OPEB liabilities 416.3 417.3 153.7 154.4 570.0 571.7
Long-term debt 112.5 115.1 74.5 74.2 187.0 189.3
Other liabilities 61.5 63.8 21.7 26.6 83.2 90.4
Deferred inflows 24.5 7.1 9.6 3.2 34.1 10.3
Total Liabilities and deferred inflows 614.8 603.4 259.5 258.4 874.3 861.8
Net Position
Net investment in capital assets 497.4 493.7 621.3 602.1 1,118.7 1,095.8
Restricted 73.3 59.7 4.1 4.0 77.4 63.7
Unrestricted (130.1)(103.4)159.6 135.4 29.5 32.0
Total Net Position 440.6$ 450.0$ 785.0$ 741.5$ 1,225.6$ 1,191.5$
Governmental Business-type Government-wide
Activities Activities Totals
_______________________ _________________________
Kiely Nose Ed Shikada
Director of Administrative Services City Manager
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FINANCE COMMITTEE
ACTION MINUTES
Page 1 of 2
Regular Meeting
December 1, 2020
The Finance Committee of the City of Palo Alto met on this date in Virtual
Teleconference at 7:01 P.M.
Present: DuBois, Kniss, Tanaka
Absent:
Agenda Items
1. Discussion and Recommendation to the City Council to Accept Macias
Gini & O’Connell’s Audit of the City of Palo Alto’s Financial Statements
as of June 30, 2020 and the Management Letter.
MOTION: Council Member Kniss moved, seconded by Vice Mayor DuBois to
recommend the City Council approve the City of Palo Alto’s audited financial
statements for the fiscal year ending June 30, 2020 and the accompanying
reports provided by Macias Gini & O’Connell LLP.
MOTION PASSED: 3-0
2. Recommendation to the City Council to Approve the Fiscal Year (FY)
2020 Comprehensive Annual Financial Report (CAFR) and FY 2020
Budget Amendments in Various Funds.
MOTION: Council Member Kniss moved, seconded by Vice Mayor DuBois to
recommend that the City Council approve the City’s Fiscal Year 2020
Comprehensive Annual Financial Report (CAFR).
MOTION PASSED: 3-0
MOTION: Council Member Kniss moved, seconded by Vice Mayor DuBois to
recommend that the City Council approve amendments to the Fiscal Year (FY)
2020 Budget Appropriation Ordinance for various funds as identified in the
attached Recommended Amendments to the City Manager’s FY 2020 Budget.
MOTION PASSED: 2-1 Tanaka no
ACTION MINUTES
Page 2 of 2
Finance Committee Meeting
Action Minutes: 12/1/2020
3. Staff and the Utilities Advisory Commission Recommend the Finance
Committee Recommend the City Council Approve the 2025 Base
Resource Power Supply Contract for the Central Valley Project With
Western Area Power Administration to Preserve the City's Options to
Maintain, Terminate, or Reduce its Allocation Until June 30, 2024.
MOTION: Vice Mayor DuBois moved, seconded by Council Member Kniss to
recommend that the City Council approves the extension of the City of Palo
Alto’s current electricity supply contract, which is the 2025 Base Resource
Contract for the Central Valley Project (CVP) with the Western Area Power
Administration (WAPA) titled, “Contract 20-SNR-02365 United States
Department of Energy Western Area Power Administration Sierra Nevada
Region contract for electric service base resource with City of Palo Alto” for
the full amount of generation available (12.06299% share), to preserve the
City’s options to maintain, terminate, or reduce its allocation until June 30,
2024, to be reviewed by Council before the expiration date as part of the
integrated resources plan.
MOTION PASSED: 3-0
Adjournment: The meeting was adjourned at 10:00 P.M.