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HomeMy WebLinkAbout2016-02-01 City Council Agenda PacketCITY OF PALO ALTO CITY COUNCIL February 1, 2016 Regular Meeting Council Chambers 6:00 PM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Thursday preceding the meeting. 1 February 1, 2016 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. PUBLIC COMMENT Members of the public may speak to agendized items; up to three minutes per speaker, to be determined by the presiding officer. If you wish to address the Council on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers, and deliver it to the City Clerk prior to discussion of the item. You are not required to give your name on the speaker card in order to speak to the Council, but it is very helpful. TIME ESTIMATES Time estimates are provided as part of the Council's effort to manage its time at Council meetings. Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. To ensure participation in a particular item, we suggest arriving at the beginning of the meeting and remaining until the item is called. HEARINGS REQUIRED BY LAW Applicants and/or appellants may have up to ten minutes at the outset of the public discussion to make their remarks and up to three minutes for concluding remarks after other members of the public have spoken. Call to Order Study Session 6:00-7:00 PM 1. Study Session on National, State and Local Trends on the Impact of Arts and Culture Special Orders of the Day 7:00-7:15 PM 2. Community Partner Presentation: West Bay Opera at the Lucie Stern Community Theater Agenda Changes, Additions and Deletions City Manager Comments 7:15-7:25 PM Oral Communications 7:25-7:40 PM Members of the public may speak to any item NOT on the agenda. Council reserves the right to limit the duration of Oral Communications period to 30 minutes. 2 February 1, 2016 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Consent Calendar 7:40-7:45 PM Items will be voted on in one motion unless removed from the calendar by three Council Members. 3. Finance Committee Recommends Adoption of a Budget Amendment Ordinance Closing the Fiscal Year 2015 Budget, Including Authorization of Transfers to Reserves, and Approval of the Fiscal Year 2015 Comprehensive Annual Financial Report (CAFR) 4. Approval of the Fifth Amendment to Extend the Lease With Thoits Bros., Inc. at 285 Hamilton Avenue, Suite 100 for a Period of 14 Months and Approval of the Second Amendment to Extend the Sublease With Thoits Bros., Inc., 285 Hamilton Avenue, Suite 200 for a Period of 14 Months for use by the City Development Center 5. Finance Committee Recommendation for Council to Review and Accept Information on the new Government Accounting Standards Board Pension Reporting Standards Known as GASB 68 6. Approval of Police Department Purchase of Multi-Band Portable Radios for the Police and Fire Departments in an Amount not to Exceed $625,000 7. Amend the Fiscal Year 2016 Adopted Municipal Fee Schedule to add a Secondhand Dealer Licensing Fee 8. Adoption of Annual Amendments to the Employment Agreements Between the City of Palo Alto and Council Appointed Officers (City Manager, City Attorney, City Auditor and City Clerk) 9. SECOND READING: Adoption of an Ordinance Amending Palo Alto Municipal Code Chapter 4.60 (Business Registration Program) to Exempt Very Small Businesses, Very Small Non-Profits, and Religious Organizations With no Ancillary Business on Site From the Business Registration Program (FIRST READING: January 19, 2016 PASSED: 8-0 Kniss absent) 10. Agreement with Empowerment Institute on Cool Block Small Pilot Program (Continued From January 25, 2016) 3 February 1, 2016 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Action Items Include: Reports of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Reports of Officials, Unfinished Business and Council Matters. 7:45-8:45 PM 11. Approval of 2016 Basement Construction Dewatering Program Changes and Other Related Issues 8:45-9:45 PM 12. Adoption of an Ordinance to add Section 10.50.085 (Eligibility Areas) and to Amend Section 10.50.090 (Modification or Termination of Districts) of the Palo Alto Municipal Code Relating to Residential Parking Programs; Adoption of a Resolution Amending Resolution 9473 to Implement Phase 2 of the Downtown Residential Preferential Parking (RPP) District Pilot Program; Approval of Contract Amendment to SP Plus for $94,000 for Additional Services for Parking Permits and On-Site Customer Service, Approval of Contract Amendment to SERCO for $60,000 for Enforcement of Expanded Area of Downtown RPP District, Approval of Contract Amendment to McGuire Pacific Constructors for $154,500 for Construction Services for Expanded Area of Downtown RPP District, Approval of Budget Amendments in the General Fund, Residential Parking Permit Fund, and Capital Improvement Fund, Approval of the RPP Administrative Guidelines. These Actions are Exempt From the California Environmental Quality Act (CEQA) Pursuant to Sections 15061(b)(3) and 15301 of the CEQA Guidelines 9:45-10:15 PM 13. Approval of a Twenty Five (25) Year Lease Agreement Between the City of Palo Alto and the Museum of American Heritage (MOAH) for the City Owned Property at 351 Homer Avenue, Palo Alto 10:15-10:30 PM 14. PUBLIC HEARING: Adoption of an Emergency Ordinance of the Council of the City of Palo Alto Adding Chapter 9.16 (Medical Marijuana Cultivation and Delivery) to Title 9 (Public Peace, Morals and Safety) of the Palo Alto Municipal Code to Prohibit Medical Marijuana Cultivation and Delivery in Palo Alto Pursuant to California Assembly Bills 243 and 266 and Senate Bill 643. This Action is Exempt Under Section 15061(b)(3) of the California Environmental Quality Act Inter-Governmental Legislative Affairs Council Member Questions, Comments and Announcements Members of the public may not speak to the item(s) 4 February 1, 2016 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Adjournment AMERICANS WITH DISABILITY ACT (ADA) Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance. 5 February 1, 2016 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Additional Information Standing Committee Meetings Finance Committee Meeting February 2, 2016 Schedule of Meetings Schedule of Meetings Tentative Agenda Tentative Agenda Informational Report City of Palo Alto Investment Activity Report for the Second Quarter, Fiscal Year 2016 Public Letters to Council Set 1 City of Palo Alto (ID # 6505) City Council Staff Report Report Type: Study Session Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Study Session on National, State and Local Trends on the Impact of Arts and Culture Title: Study Session on National, State and Local Trends on the Impact of Arts and Culture From: City Manager Lead Department: Community Services Recommendation This is a study session; no Council action is required. Discussion The City of Palo Alto’s support and sponsorship of the arts and culture ensures broad access to culture in our community. The benefits, however, only begin there. The arts also improve the City in terms of their impact on education, youth well-being, economic and community development, and healthcare. This study session will feature national arts leader, Randy Cohen, of Americans for the Arts, and Craig Watson, Executive Director of the California Arts Council, for a presentation on national, state and local trends regarding the impact of the creative sector in every fabric of the community. Biographies  Randy Cohen is Vice President of Research and Policy at Americans for the Arts, the nation's advocacy organization for the arts. A member of the staff since 1991, Randy stands out as one of the most noted experts in the field of arts funding, research, policy, and using the arts to address community development issues. He publishes The National Arts Index, the annual measure of the health and vitality of arts as well as the two premier economic studies of the arts industry—Arts & Economic Prosperity, the national impact study of nonprofit arts organizations and their audiences; and Creative Industries, an annual mapping study of the nation’s 750,000 arts establishments and their employees. Randy led the development of the National Arts Policy Roundtable, an annual convening of leaders who focus on the advancement of American culture, City of Palo Alto Page 2 launched in 2006 in partnership with Robert Redford and the Sundance Institute. In the late 1990’s, Randy collaborated with the President’s Committee on the Arts and the Humanities to create Coming Up Taller, the White House report on arts programs for youth-at-risk; and the U.S. Department of Justice to produce the Youth ARTS Project, the first national study to statistically document the impact of arts programs on at-risk youth. A sought after speaker, Randy has given speeches in 49 states, and regularly appears in the news media—including the Wall Street Journal, The New York Times, and on C-SPAN, CNN, CNBC, and NPR. The mission for the Americans for the Arts is: to serve, advance, and lead the network of organizations and individuals who cultivate, promote, sustain, and support the arts in America. Connecting your best ideas and leaders from the arts, communities, and business, together we can work to ensure that every American has access to the transformative power of the arts.  Craig Watson is the Executive Director of the California Arts Council, Sacramento, CA, since 2011. As the director, he is the first in the agency’s history, after an extensive national search, to be hired directly by the Council rather than by Gubernatorial appointment. He came to the Council after serving as executive director of the Arts Council for Long Beach. Before that, he enjoyed a long career in the telecommunications field and held senior executive positions in Rhode Island, New York, and California. Earlier, his arts career included service at the Sonoma County Arts Council, Rural Arts Services (Northern California), and Santa Barbara Arts Services. Watson has experience as a visual artist as well. He studied fine arts at Occidental College, trained as a sculptor, and worked with renowned artist Christo on Running Fence in Sonoma. He has served on the board of the Western States Arts Foundation and currently sits on the governance board for CREATE CA, California's "collective impact" model working to reverse years of arts education cutbacks in public education. He also was the founding Board Chair of the Armory Center for the Arts in Pasadena, an international model for community-based arts learning. The mission of the California Arts Council is: Advancing California through the arts and creativity. Californians thrive from public belief in, and support for creativity and the arts. To that end, we envision a California where:  the lives of all Californians are enriched by access to and participation in a diverse spectrum of artists and arts and cultural experiences;  the arts are woven into the fabric of daily life—promoting civic engagement, encouraging collective problem solving and building bridges across cultures;  the arts enjoy strong, sustained public support;  the arts ecosystem reflects contributions from all of California’s diverse populations; City of Palo Alto Page 3  our students are provided with quality arts education so that they can reach their full potential, including advanced education;  streets, neighborhoods, and communities are revitalized, enriched and enlivened by art and culture;  creative industries are recognized as crucial to the economy;  public and private resources for the arts increase and are sustained to more effectively serve the people of California;  Californians’ artistic contributions mark the long-term legacy of the state;  the California Arts Council is recognized as an innovative and cutting-edge agency and known as a regional leader among state arts agencies for its exemplary work on behalf of all Californians; and  the California Arts Council is a source for policy development and builds a strong foundation for the arts in our state. City of Palo Alto (ID # 6354) City Council Staff Report Report Type: Special Orders of the Day Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Partnership Presentation: West Bay Opera Title: Community Partner Presentation: West Bay Opera at the Lucie Stern Community Theater From: City Manager Lead Department: Community Services José Luis Moskovich, General Director of West Bay Opera, will make a presentation with video and production images, outlining the Opera’s current Season and their history in successfully staging great performances at the Lucie Stern Theatre. West Bay Opera was founded by Henry Holt in 1955. Originally called the Little Opera Guild, the company began presenting fully staged operatic performances. Under the leadership of Mr. Holt, who was succeeded by his wife, Maria Holt, and then by the present director, Jose Luis Moscovich, West Bay Opera has grown steadily. In 1974, the West Bay Orchestra was established. In 1982, the company acquired space for rehearsals, offices, a costume shop and storage on Lambert Avenue in Palo Alto. Since that time, in partnership with the City, West Bay Opera (WBO) annually presents three fully staged productions at the Lucie Stern Theatre. WBO is one of the City’s three theatre partners, along with Theatre Works and Palo Alto Players. These partnerships provide high quality performing arts programs for the community and the City provides the facilities at no cost. City of Palo Alto (ID # 6377) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Close FY 2015 Budget and Approve FY 2015 CAFR Title: Recommendation to Adopt a Budget Amendment Ordinance Closing the Fiscal Year 2015 Budget, Including Authorization of Transfers to Reserves, and Approval of the Fiscal Year 2015 Comprehensive Annual Financial Report (CAFR) From: City Manager Lead Department: Administrative Services Recommendation The Finance Committee and Staff recommend that Council:  Adopt the attached Budget Amendment Ordinance (Attachment A) and associated exhibits which close the Fiscal Year (FY) 2015 Budget, including recommended appropriation adjustments and the transfer of $5.1 million of FY 2015 surplus funds from the General Fund to the Infrastructure Reserve in the Capital Projects Fund; and  Approve the City’s 2015 Comprehensive Annual Financial Report (CAFR), Attachment B. An electronic copy is available at: www.cityofpaloalto.org/gov/depts/asd/financialreporting, and hard copies are available at the Administrative Services Department upon request. Background As is customary, the City Council is required to close out the City’s financial results at the end of each fiscal year. At its November 17, 2015 meeting, the Finance Committee unanimously approved closing of the 2015 fiscal year (Attachment C). Financial Highlights for FY 2015  General Fund ended FY 2015 with a surplus position of $18.7 million and, after transferring $5.1 million to the Infrastructure Reserve, the remaining surplus of $13.6 million has been added to the Budget Stabilization Reserve (BSR) in the General Fund. Staff recommendations for utilization of the $13.6 million surplus are as follows: o $1.0 million - pending transfer to the Roth Building Historical Rehabilitation Reserve in the Capital Projects Fund as approved in CMR #5879; City of Palo Alto Page 2 o $2.1 million – FY 2016 one-time expenditures approved in Adopted Budget; o $2.2 million – Budget Amendment Ordinances approved to date or scheduled to be approved; o $7.0 million ($3.3 million of which is from dedicated Transient Occupancy Tax receipts generated from newly opened hotels and the two percent tax increase) – Transfer to Infrastructure Reserve for approved projects; and o $1.3 million – Potential funding for a Pension Trust Fund pending approval by Council. The remaining BSR balance in the General Fund is $34.6 million, which is the BSR balance approved in the FY 2016 Adopted Budget and represents 18.7 percent of FY 2016 approved expenditures.  Enterprise Funds ended the year in surplus positions, however the ongoing drought is negatively impacting results, most notably affecting the Water and Electric Funds.  Government Accounting Standards Board Statement No. 68 was implemented effective for FY 2015. Net pension liabilities of $208.7 million in Governmental Activities and $81.1 million in Enterprise and Internal Service Funds were recorded in the Statement of Net Position, which directly reduces the unrestricted net positions of the Enterprise and Internal Service Funds. The pension liability of each Fund is disclosed in the Proprietary Funds Statement of Net Position and the impact on each Fund’s net position is disclosed in Note 10 of the CAFR.  The City received a “clean” audit opinion for FY 2015 from the external audit firm, Macias Gini & O’Connell LLP. The City also received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association for its FY 2014 CAFR. Details that were presented at the November 17, 2015 meeting are included in Attachment C. Environmental Review The enactment of this ordinance is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. Attachments:  Attachment A: Budget Amendment Ordinance Closing the Fiscal Year 2015 Budget (DOCX)  Attachment A: Exhibits 1-4 Proposed Fiscal Year 2015 Year-End Adjustments (PDF)  Attachment A: Exhibit 5 General Fund Budget vs Actuals (XLSX)  Attachment B: 2014-2015 Comprehensive Annual Financial Report (PDF)  Attachment C: Finance Committee Report, November 17 2015, Close Fiscal Year 2015 Budget and Approve 2015 CAFR (PDF)  Attachment D: Excerpt minutes from the 11-17-15 Finance Committee Meeting (PDF) ATTACHMENT A Page of 4 1 ORDINANCE NO. XXXXX ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AUTHORIZING CLOSING OF THE BUDGET FOR THE FISCAL YEAR ENDING JUNE 30, 2015 The Council of the City of Palo Alto does ordain as follows: SECTION 1. The Council of the City of Palo Alto finds and determines as follows: A. Pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto and as set forth in Section 2.28.070 of the Palo Alto Municipal Code, the Council on June 16, 2014 did adopt a budget for Fiscal Year 2015; and B. Fiscal Year 2015 has ended and the financial results, although subject to post- audit adjustment, are now available. SECTION 2. Pursuant to Section 2.28.080 of the Palo Alto Municipal Code, the City Manager during Fiscal Year 2015 did amend the budgetary accounts of the City of Palo Alto to reflect: A. Additional appropriations authorized by ordinance of the City Council. B. Amendments to employee compensation plans adopted by the City Council. C. Transfers of appropriations from the contingent accounts as authorized by the City Manager. D. Redistribution of appropriations between divisions, cost centers, and objects within various departments as authorized in accordance with Policy 1-31 Budget Change Requests. E. Fiscal Year 2015 appropriations which on July 1, 2014 were encumbered by properly executed, but uncompleted, purchase orders or contracts. SECTION 3. The Council hereby approves adjustments to the Fiscal Year 2015 budget as shown on attached Exhibit 1. SECTION 4. The City Manager is authorized and directed: A. To close the Fiscal Year 2015 budget accounts in all funds and departments and, as required by the Charter of the City of Palo Alto, to make such interdepartmental and inter-fund transfers in the 2015 budget as outlined in this ordinance; and ATTACHMENT A Page of 4 2 B. To fund the Budget Stabilization Reserve in accordance with the General Fund Reserves Policy adopted by the City Council. SECTION 5. The General Fund Budget Stabilization Reserve is hereby increased by the sum of Eighteen Million Six Hundred and Forty Five Thousand Dollars ($18,645,000), attributable to a combination of higher than anticipated revenues and expenditure savings realized during Fiscal Year 2015. SECTION 6. The General Fund Budget Stabilization Reserve is hereby decreased by the sum of Five Million One Hundred and Thirty Three Thousand One Hundred and Thirty Dollars ($5,133,130) due to increased transfers to the Technology Fund of Forty Six Thousand One Hundred and Thirty Dollars ($46,130) and the Capital Improvement Fund of Five Million and Eighty Seven Thousand Dollars ($5,087,000), as described in Exhibit 1. SECTION 7. The Airport Fund Ending Fund Balance is hereby decreased by the sum of Five Thousand Dollars ($5,000) as described in Exhibit 1. SECTION 8. The Federal Equitable Sharing Fund Ending Fund Balance is hereby decreased by the sum of Six Thousand Dollars ($6,000) as described in Exhibit 1. SECTION 9. The Technology Fund Reserve is hereby increased by the sum of Forty Six Thousand One Hundred and Thirty Dollars ($46,130) as described in Exhibit 1. SECTION 10. The Gas Distribution Rate Stabilization Reserve is hereby decreased by the sum of Two Hundred Fifty Six Thousand Five Hundred and Forty Two Dollars ($256,542) as described in Exhibit 1. SECTION 11. The Wastewater Collection Rate Stabilization Reserve is hereby decreased by the sum of Forty Two Thousand Nine Hundred and Twelve Dollars ($42,912) as described in Exhibit 1. SECTION 12. The Water Rate Stabilization Reserve is hereby decreased by the sum of Two Hundred Seventeen Thousand Three Hundred and Nineteen Dollars ($217,319) as described in Exhibit 1. SECTION 13. The Wastewater Treatment Rate Stabilization Reserve is hereby decreased by the sum of Fourteen Thousand Eight Hundred and Ninety Nine Dollars ($14,899) as described in Exhibit 1. SECTION 14. The Refuse Fund is hereby decreased by Forty One Thousand One Hundred and Six Dollars ($41,106) as described in Exhibit 1. ATTACHMENT A Page of 4 3 SECTION 15. The Electric Fund Rate Stabilization Reserve is hereby decreased by Six Thousand Eight Hundred and Forty Four Dollars ($6,844) as described in Exhibit 1. SECTION 16. The Vehicle Replacement Fund is hereby decreased by Four Thousand Four Hundred and Forty Two Dollars ($4,442) as described in Exhibit 1. SECTION 17. The Capital Improvement Fund Infrastructure Reserve is hereby increased by Five Million, Twenty Nine Thousand Two Hundred and Seventy Six Dollars ($5,029,276) as described in Exhibit 1. SECTION 18. Upon completion of the independent audit, detailed financial statements reflecting the changes made by the Sections 7 through 18 of this ordinance shall be published as part of the annual financial report of the City as required by Article III, Section 16, of the Charter of the City of Palo Alto and in accordance with generally accepted accounting principles. SECTION 19. As specified in Section 2.28.080(a) of the Palo Alto Municipal Code, a two-thirds vote of the City Council is required to adopt this ordinance. SECTION 20. The Council of the City of Palo Alto hereby finds that the enactment of this ordinance is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. SECTION 21. As provided in Section 2.04.330 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. // // // // // // // // // // // // // // // // // // ATTACHMENT A Page of 4 4 INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: ________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ________________________ ____________________________ City Attorney City Manager ____________________________ Director of Administrative Service ATTACHMENT A, EXHIBIT 1 Pages 1 of 4 11/5/2015General Fund 2014 Category Amount Description GENERAL FUND Transfer to Technology Fund 46,130 Increase the Transfer to the Technology Fund by $46,130 to adjust for the actual amount of the Technology Surcharge Fee collected in the General Fund in Fiscal Year 2015 ($1,060,925). 46,130 (46,130) General Expense (17,800) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017. (17,800) 17,800 General Expense (3,500) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017. (3,500) 3,500 Non Salary and benefits 25,000 Allocate savings from the Community Services Department to offset higher than anticipated contractual services costs associated with the annual audit of the City's finances. Funding for this annual need will be reviewed, and a recommendation to increase the allocation may be included in future budget cycles. General Expense (1,000) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017. 24,000 (24,000) General Expense (3,400) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017. (3,400) 3,400 CITY MANAGER General Expense (2,700) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017.(2,700) 2,700 Net Changes To (From) Reserves CITY AUDITOR Use Changes Net Changes To (From) Reserves CITY CLERK Use Changes Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves Use Changes Attachment A, Exhibit 1 CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET NON-DEPARTMENTAL Use Changes Net Changes To (From) Reserves ADMINISTRATIVE SERVICES Use Changes Net Changes To (From) Reserves CITY ATTORNEY ATTACHMENT A, EXHIBIT 1 Pages 2 of 4 11/5/2015General Fund 2014 Category Amount Description Attachment A, Exhibit 1 CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET COMMUNITY SERVICES (125,000) Allocate Departmental non-salary savings to the City Auditor's Office and Planning and Community Environment Department to fund various unanticipated expenses. General Expense (4,700) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017. (129,700) 129,700 DEVELOPMENT SERVICES General Expense (5,000) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017.(5,000) 5,000 General Expense 60,600 Reallocate management development savings from various general fund departments to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017. 60,600 (60,600) Use Changes Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves HUMAN RESOURCES Use Changes Net Changes To (From) Reserves ATTACHMENT A, EXHIBIT 1 Pages 3 of 4 11/5/2015General Fund 2014 Category Amount Description Attachment A, Exhibit 1 CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET LIBRARY 339,985 Recognizes donation ($320,000) and grant ($19,485) funds received by the Library Department during Fiscal Year 2015 as detailed in the Fiscal Year 2015 Reappropriations CMR approved by Council on Nov. 2, 2015. 339,985 339,985 Increases the non-salary allocation for the Library Department due to donation and grant funds received during Fiscal Year 2015. 339,985 - OFFICE OF EMERGENCY SERVICES General Expense (800) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017. (800) 800 Non Salary and benefits 100,000 Allocate savings from the Community Services Department to offset higher than anticipated Printing and Mailing charges, attributable to high level of project notification cards mailed to residents. General Expense (600) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017. 99,400 (99,400) General Expense (3,900) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017. (3,900) 3,900 General Expense (17,200) Reallocate departmental management development savings to the Human Resources Department to reappropriate funds for city-wide training needs in Fiscal Year 2017. (17,200) 17,200 Total General Fund Changes to BSR (46,130) Use Changes Net Changes To (From) Reserves POLICE Use Changes Net Changes To (From) Reserves PUBLIC WORKS Use Changes Net Changes To (From) Reserves PLANNING AND COMMUNITY ENVIRONMENT Use Changes Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves Source Changes ATTACHMENT A, EXHIBIT 1 Pages 4 of 4 11/5/2015General Fund 2014 Category Amount Description Attachment A, Exhibit 1 CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET Transfer from the General Fund 5,087,000 Increases the transfer from the General Fund for capital infrastructure projects, resulting from the Fiscal Year 2015 surplus. Funds will be held in the Infrastructure Reserve, but are intended to be used for the Building Systems Improvements ($750,000), Baylands Boardwalk ($2.1 million), Embarcadero Traffic Signal Design Phase II ($237,000), and yet to be identified needs ($2.0 million). Source Changes 5,087,000 57,724 Combined impact from adjustments to projects as outlined in Attachment A, Exhibit 4 Use Changes 57,724 5,029,276 Capital Fund Infrastructure ReserveNet Changes To (From) Reserves GENERAL FUND CIP (CAPITAL PROJECTS FUND) ATTACHMENT A, EXHIBIT 2 11/5/2015 Enterprise Funds 2014 Category Amount Description ENTERPRISE FUNDS ELECTRIC FUND-Operating CIP 6,844 Changes in CIP Projects (See Attachment A, Exhibit 4 for more detail). Use Changes 6,844 Net Changes To (From) Reserves (6,844) AIRPORT ENTERPRISE FUND 5,000 Increases funding for contractual services due to higher than anticipated expenditures during Fiscal Year 2015 Use Changes 5,000 Net Changes To (From) Reserves (5,000) GAS FUND - CIP 256,542 Changes in CIP Projects (See Attachment A, Exhibit 4 for more detail). Use Changes 256,542 - Net Changes To (From) Reserves 256,542 Attachment A, Exhibit 2 CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET ATTACHMENT A, EXHIBIT 2 11/5/2015 Enterprise Funds 2014 Category Amount Description Attachment A, Exhibit 2 CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET 42,912 Changes in CIP Projects (See Attachment A, Exhibit 4 for more detail). Use Changes 42,912 Net Changes To (From) Reserves (42,912) WATER FUND 7 217,319 Changes in CIP Projects (See Attachment A, Exhibit 4 for more detail). Use Changes 217,319 Net Changes To (From) Reserves (217,319) 14,899 Changes in CIP Projects (See Attachment A, Exhibit 4 for more detail). Use Changes 14,899 Net Changes To (From) Reserves (14,899) REFUSE FUND 41,106 Changes in CIP Projects (See Attachment A, Exhibit 4 for more detail). Use Changes 41,106 Net Changes To (From) Reserves (41,106) WASTEWATER TREATMENT FUND WASTEWATER COLLECTION FUND ATTACHMENT A, EXHIBIT 3 11/5/2015 Other Funds 2014 Category Amount Description Facilities and Equipment 6,000 Increases funding for Facilities and Equipment due to higher than anticipated expenditures during Fiscal Year 2015. Use Changes 6,000 (6,000) Transfer from General Fund 46,130 Increase the Transfer from the General Fund by $46,130 to adjust for the actual amount of the Technology Surcharge Fee collected in the General Fund in Fiscal Year 2015 ($1,060,925). Source Changes 46,130 46,130 4,442 Changes in CIP Projects (See Attachment A, Exhibit 4 for more detail). Use Changes 4,442 (4,442) Net Changes To (From) Reserves Attachment A, Exhibit 3 CITY OF PALO ALTO YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET SPECIAL REVENUE FUNDS FED EQUITABLE SHARING Net Changes To (From) Reserves TECHNOLOGY FUND Net Changes To (From) Reserves VEHICLE REPLACEMENT FUND Attachment A, Exhibit 4 1 of 3 11/5/2015 Project Funding Title Number Revenue Expense Source Comments ADDITIONAL APPROPRIATIONS Thermoplastic Lane Marking PO-11001 $ 44,349 Infrastructure Reserve Increase to project due to higher than anticipated expenditures Furniture and Technology for Library Projects LB-11000 $ 5,711 Infrastructure Reserve Increase to project due to higher than anticipated expenditures Open Space Lakes and Ponds OS-00002 $ 2,664 Infrastructure Reserve Increase to project due to higher than anticipated expenditures Total $ - $ 52,724 TOTAL GENERAL FUND CIP YEAR-END ADJUSTMENTS $ - $ 52,724 ADDITIONAL APPROPRIATIONS Substation Facility EL-89044 $ 6,844 Increase to project due to higher than anticipated expenditures West Charleston/Wilkie Way EL-09004 $ 701 Increase to project due to higher than anticipated expenditures Total $ - $ 6,844 TOTAL ELECTRIC FUND CIP MID-YEAR ADJUSTMENTS 0 $ 6,844 Attachment A, Exhibit 4 FY 2015 CIP Year-end Adjustments CAPITAL PROJECT FUND ELECTRIC FUND Attachment A, Exhibit 4 2 of 3 11/5/2015 Project Funding Title Number Revenue Expense Source Comments FY 2015 CIP Year-end Adjustments ADDITIONAL APPROPRIATIONS Gas System, Customer Connections GS-80017 $ 255,428 $ 255,428 Increase to project due to higher than anticipated expenditures. This project is offset by additional revenue from customers. Gas Station Improvements GS-11002 $ - $ 1,114 Increase to project due to higher than anticipated expenditures Total $ 255,428 $ 256,542 TOTAL GAS FUND CIP YEAR-END ADJUSTMENTS $ 255,428 $ 256,542 ADDITIONAL APPROPRIATIONS Landfill Closure RF-11001 $ 41,106 Increase to project due to higher than anticipated expenditures Total $ - $ 41,106 TOTAL FIBER OPTICS FUND CIP YEAR-END ADJUSTMENTS $ - $ 41,106 ADDITIONAL APPROPRIATIONS Municipal Services Center Fuel Station Demolition VR-14002 $ 2,903 Increase to project due to higher than anticipated expenditures Municipal Services Center Fuel Storage/Service Island Replacement VR-01001 $ 1,539 Increase to project due to higher than anticipated expenditures Total $ - $ 4,442 TOTAL GAS FUND CIP YEAR-END ADJUSTMENTS $ - $ 4,442 ADDITIONAL APPROPRIATIONS Wastewater Collection System Rehabilitation/Augmentation Project 22 WC-09001 $ 42,912 Increase to project due to higher than anticipated expenditures Total -$ 42,912$ TOTAL WASTEWATER COLLECTION FUND CIP YEAR-END ADJUSTMENTS $ - $ 42,912 GAS FUND REFUSE FUND WASTEWATER COLLECTION FUND VEHICLE FUND Attachment A, Exhibit 4 3 of 3 11/5/2015 Project Funding Title Number Revenue Expense Source Comments FY 2015 CIP Year-end Adjustments ADDITIONAL APPROPRIATIONS Plant Master Plan WQ-10001 $ 14,899 Increase to project due to higher than anticipated expenditures Total -$ 14,899$ TOTAL WATER FUND CIP YEAR-END ADJUSTMENTS -$ 14,899$ ADDITIONAL APPROPRIATIONS Water System, Customer Connections WS-80013 $ 217,319 Increase to project due to higher than anticipated expenditures. These expenditures are offset with additional revenues from customers. Total -$ 217,319$ TOTAL WATER FUND CIP YEAR-END ADJUSTMENTS -$ 217,319$ WASTEWATER TREATMENT FUND WATER FUND ATTACHMENT A, EXHIBIT 5 12/22/15 GENERAL FUND SUMMARY ($000s) FY 2015 FY 2015 FY 2015 FY 2015 FY 2015 FY 2015 FY 2015 Adopted Adjusted CAFR Basis Allocated Encum Actual Actual to Budget Budget Rev/Exp Charges Rev/Exp Adj BudgetVariance Revenues Sales Tax 25,957 29,238 29,675 29,675 437 Property Tax 31,927 32,556 34,117 34,117 1,561 Transient OccupancyTax 14,156 15,901 16,699 16,699 798 DocumentaryTransfer Tax 7,514 6,500 10,384 10,384 3,884 UtilityUsers Tax 11,285 10,895 10,861 10,861 (34) Other Taxes and Fines 2,164 2,168 1,899 1,899 (269) Charges for Services 23,013 24,863 25,409 25,409 546 Permits and Licenses 7,804 7,738 7,621 7,621 (117) Return on Investment 685 685 1,177 1,177 492 Rental Income 14,254 14,207 14,911 14,911 704 From Other Agencies 453 472 3,712 3,712 3,240 Charges to Other Funds 10,647 10,647 - 10,416 10,416 (231) Other Revenues 1,060 1,878 1,016 - 1,016 (862) Contribution from BSR 1,732 Total Revenues 152,651 157,748 157,481 10,416 167,897 10,149 Add: Operating Transfers In 18,433 18,620 17,797 17,797 (823) Prior Year Encum 5,579 4,760 4,760 (819) Total Source of Funds 171,084 181,947 175,278 10,416 4,760 190,454 8,507 Expenditures City Attorney 2,578 3,330 2,469 117 551 3,137 193 City Auditor 1,065 1,122 1,045 55 21 1,121 1 City Clerk 1,276 1,282 918 161 59 1,138 143 City Council 432 517 359 1 41 401 116 City Manager 3,000 3,544 2,742 120 209 3,071 472 Administrative Services 7,175 7,399 6,740 393 93 7,226 173 CommunityServices 22,764 24,274 18,717 4,383 801 23,901 374 Public Safety 62,054 63,456 56,550 5,381 550 62,481 975 People Strategy & Operations 3,264 3,818 3,087 176 414 3,677 141 Library 7,521 8,641 7,239 741 164 8,144 497 Planning & Community Environment 7,016 9,039 6,764 612 1,650 9,026 13 Development Services 10,535 10,895 9,043 850 117 10,010 885 Public Works 13,397 14,458 10,735 2,539 936 14,210 248 Non-Departmental 6,495 5,080 887 - 887 4,193 Cubberley Lease 6,777 6,777 6,426 - - 6,426 351 Total Expenditures 155,349 163,631 133,721 15,529 5,606 154,856 8,775 Add: Operating Trans Out 2,076 4,298 3,537 - 3,537 761 Transfer to Infrastructure 13,659 18,746 18,747 - 18,747 (1) Total Use of Funds 171,084 186,674 156,005 15,529 5,606 177,140 9,535 Net Surplus/(Deficit)- (4,727)*19,273 (5,113) (846) 13,314 18,041 CAFR Reconciliation:Current year encumbrance 5,606 Prior Year encumbrances (4,760) CAFR Net Income 14,160 * The FY 2015 Adjusted Budget does not account for expenditure savings realized and additional revenues received as shown in the FY 2015 Actual Revenue/Expenses column. 2014-2015 Comprehensive Annual Financial Report City of Palo Alto, California FISCAL YEAR ENDED: June 30, 2015 City of Palo Alto, California 2014-2015 Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2015 Prepared by: Administrative Services Department CITY OF PALO ALTO  For the Year Ended June 30, 2015  Table of Contents   Page  INTRODUCTORY SECTION:   Transmittal Letter .................................................................................................................................... i   City Officials ........................................................................................................................................... vii   Organizational Structure ...................................................................................................................... viii   Administrative Services Organization .................................................................................................... ix   GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... x    FINANCIAL SECTION:   Independent Auditor’s Report .............................................................................................................. 1   Management’s Discussion and Analysis    (Required Supplementary Information – Unaudited) ...................................................................... 5   Basic Financial Statements   Government‐wide Financial Statements:   Statement of Net Position ....................................................................................................... 29   Statement of Activities ............................................................................................................ 31   Governmental Fund Financial Statements:   Balance Sheet .......................................................................................................................... 33  Reconciliation of the Balance Sheet of Governmental Funds to         the Statement of Net Position ‐ Governmental Activities ................................................. 34   Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 35   Reconciliation of the Statement of Revenues, Expenditures and Changes   in Fund Balances of Governmental Funds to the Statement of Activities –          Governmental Activities ................................................................................................... 36   Statement of Revenues, Expenditures and Changes in Fund Balance –    Budget and Actual – General Fund ................................................................................... 37   Proprietary Fund Financial Statements:   Statement of Net Position ....................................................................................................... 38   Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 40   Statement of Cash Flows ......................................................................................................... 42   Fiduciary Fund Financial Statement:   Statement of Fiduciary Net Position ....................................................................................... 44   Index to the Notes to the Basic Financial Statements ................................................................. 45   Notes to the Basic Financial Statements ...................................................................................... 47   Required Supplementary Information:   Schedule of Changes in Net Pension Liability and related Ratios – Miscellaneous Plan ............. 103   Schedule of Contributions – Miscellaneous Plan ......................................................................... 104     CITY OF PALO ALTO  For the Year Ended June 30, 2015  Table of Contents (Continued)   Page  Required Supplementary Information:   Schedule of Changes in Net Pension Liability and related Ratios – Safety Plan .......................... 105   Schedule of Contributions – Safety Plan ...................................................................................... 106  Supplementary Information:   Non‐Major Governmental Funds:   Combining Balance Sheet ...................................................................................................... 107   Combining Statement of Revenues, Expenditures and    Changes in Fund Balances ............................................................................................... 109   Non‐Major Special Revenue Funds:   Combining Balance Sheet ...................................................................................................... 112   Combining Statement of Revenues, Expenditures and    Changes in Fund Balances ............................................................................................... 114   Combining Schedule of Revenues, Expenditures and    Changes in Fund Balances – Budget and Actual ............................................................. 116   Non‐Major Debt Service Funds:   Combining Balance Sheet ...................................................................................................... 122   Combining Statement of Revenues, Expenditures and    Changes in Fund Balances ............................................................................................... 123   Combining Schedule of Revenues, Expenditures and    Changes in Fund Balances – Budget and Actual ............................................................. 124   Non‐Major Permanent Fund:   Schedule of Revenues, Expenditures and    Changes in Fund Balances – Budget and Actual ............................................................. 126   Internal Service Funds:   Combining Statement of Fund Net Position .......................................................................... 128   Combining Statement of Revenues, Expenses and    Changes in Fund Net Position ......................................................................................... 129   Combining Statement of Cash Flows ..................................................................................... 130   Fiduciary Funds:   Statement of Changes in Assets and Liabilities – All Agency Funds ...................................... 132  STATISTICAL SECTION:   Financial Trends:   Net Position by Component ......................................................................................................... 135   Changes in Net Position ............................................................................................................... 136     CITY OF PALO ALTO  For the Year Ended June 30, 2015  Table of Contents (Continued)   Page  STATISTICAL SECTION:   Financial Trends:   Fund Balances of Governmental Funds ....................................................................................... 138   Changes in Fund Balances of Governmental Funds ..................................................................... 140  Revenue Capacity:   Electric Operating Revenue by Source ......................................................................................... 141   Supplemental Disclosure for Water Utilities ............................................................................... 142   Assessed Value of Taxable Property ............................................................................................ 143   Property Tax Rates, All Overlapping Governments ..................................................................... 144   Property Tax Levies and Collections ............................................................................................ 145   Principal Property Taxpayers ....................................................................................................... 146   Assessed Valuation and Parcels by Land Use .............................................................................. 147   Per Parcel Assessed Valuation of Single Family Residential ........................................................ 148   Debt Capacity:   Ratio of Outstanding Debt by Type .............................................................................................. 149   Computation of Direct and Overlapping Debt ............................................................................. 150   Computation of Legal Bonded Debt Margin ................................................................................ 151   Revenue Bond Coverage .............................................................................................................. 152   Demographic and Economic Information:    Taxable Transactions by Type of Business ................................................................................... 153   Demographic and Economic Statistics ......................................................................................... 154   Principal Employers...................................................................................................................... 155   Operating Information:   Operating Indicators by Function/Program ................................................................................. 156   Capital Asset Statistics by Function/Program .............................................................................. 158   Full‐Time Equivalent City Government Employees by Function .................................................. 160  SINGLE AUDIT SECTION:   Index to the Single Audit Report .................................................................................................. 161  Independent Auditor’s Report on Internal Control Over Financial Reporting and           on Compliance and Other Matters Based on an Audit of Financial Statements            Performed in Accordance With Government Auditing Standards ........................................ 163   Independent Auditor’s Report on Compliance for Each Major Program and                         Report on Internal Control Over Compliance Required by OMB Circular A‐133 .................. 165   Schedule of Expenditures of Federal Awards .............................................................................. 167   Notes to the Schedule of Expenditures of Federal Awards ......................................................... 168   Schedule of Findings and Questioned Costs ................................................................................ 169   Schedule of Prior Years Findings and Questioned Costs ............................................................. 170 Introduction   …………………………………………………………………………. City of Palo Alto   i   Transmittal Letter…………………………………………………...…  November 3, 2015  THE HONORABLE CITY COUNCIL  Palo Alto, California    Attention:  Finance Committee  COMPREHENSIVE ANNUAL FINANCIAL REPORT  YEAR ENDED JUNE 30, 2015      Members of the Council and Citizens of Palo Alto:    I am pleased to present the Comprehensive Annual Financial Report (CAFR) for the fiscal year ended  June 30, 2015 in accordance with Article III, Section 16 and Article IV, Section 13 of the City of Palo  Alto Charter.  The format and content of this CAFR complies with the principles and standards of  accounting and financial reporting adopted by the Governmental Accounting Standards Board (GASB)  and contains all information needed for readers to gain a reasonable understanding of City of Palo  Alto financial affairs.  Management takes sole responsibility for the completeness and reliability of  the information contained in this report, based upon a comprehensive framework of internal control  that it has established for this purpose.  The objective of internal controls is to provide reasonable,  rather than absolute, assurance that the financial statements are free of any material misstatements.    The City of Palo Alto’s financial statements have been audited by Macias Gini & O’Connell LLP,  Certified Public Accountants.  The goal of the audit is to obtain reasonable assurance that the  financial statements are free of material misstatements and are fairly presented in conformity with  generally accepted accounting principles (GAAP).  Macias Gini & O’Connell issued an unqualified  opinion for the fiscal year ended June 30, 2015.  Their report is presented as the first component of  the financial section of this report.    In addition, Macias Gini & O’Connell conducted the federally mandated “Single Audit” designed to  meet the special needs of federal grantor agencies.  The standards governing the Single Audit require  the independent auditor to report on the fair presentation of the financial statements, government’s  internal controls and compliance with legal requirements.  These reports are included in the Single  Audit section of the CAFR.     City of Palo Alto Office of the City Manager    Introduction  …………………………………………………………………………. ii    City of Palo Alto  An overview of the City’s financial activities for the fiscal year is discussed in detail in the  Management’s Discussion and Analysis (MD&A) section of the CAFR. MD&A complements this  transmittal letter and should be read in conjunction with it.        CITY OF PALO ALTO PROFILE  Palo Alto was incorporated in 1894 and named after a majestic coastal redwood  tree which lives along the San Francisquito Creek where early Spanish explorers  settled.  Located between the cities of San Francisco and San Jose, Palo Alto is a  largely built‐out community of approximately 66,000 residents.  Palo Alto  delivers a full range of municipal services and public utilities under the Council‐ Manager form of government, and offers an outstanding quality of life for its  residents.  It covers an area of twenty‐six square miles, and has dedicated almost  one‐half of the area to open spaces of parks and wildlife preserves.  Public  facilities include five libraries, four community centers, a cultural arts center, an  adult and children’s theater, a junior museum and zoo, and a golf course.  The  City provides a diverse array of services for seniors and youth, an extensive  continuing education program, concerts, exhibits, team sports and special  events.  The independent Palo Alto Unified School District (PAUSD) has achieved  state and national recognition for the excellence of its programs.    City Council:   Council consists of nine members elected at‐large for four year staggered terms. At the  first meeting of each calendar year, Council elects a Mayor and Vice‐Mayor from its membership,  with the Mayor having the duty of presiding over Council meetings. Council is the appointing  authority for the positions of City Manager and three other officials, the City Attorney, City Clerk, and  City Auditor, all of whom report to Council.  Effective January 1, 2019, Council will be reduced from  nine to seven members.    Finance Committee and Policy and Services Committee:  While retaining the authority to approve all  actions, Council has established two subcommittees to consider and make recommendations on  matters relating to finance, budget, audits, capital planning and debt.  Each of the subcommittees are  comprised of four Council members.   Staff provides the subcommittees and Council with reports  such as the CAFR, quarterly budget‐versus‐actual results, and investment and performance measure  reports, which are utilized in their review of the City’s financial position.    FISCAL/ECONOMIC CONDITIONS AND OUTLOOK  Employment Trends:  The City of Palo Alto is located in the heart of Silicon Valley and is adjacent to  Stanford University, one of the premier institutions of higher education in the nation which has  produced much of the talent that founded many successful high‐tech companies in Palo Alto and  Silicon Valley.  With varied and relatively stable employers such as Stanford University, Stanford  Medical Center, Palo Alto Medical Foundation, Palo Alto Unified School District, Stanford Shopping  Center and businesses such as Hewlett‐Packard, VMware, Tesla, Palantir and Space Systems Loral,  Palo Alto has enjoyed diverse employment and revenue bases. The City’s unemployment rate  continued to decline, albeit at a slower pace, and ended the year at 2.7 percent, 0.1 percent lower  than the prior year.  This compares to Santa Clara County’s unemployment rate of 3.9 percent, and  the state’s unemployment rate of 6.2 percent.  Introduction   …………………………………………………………………………. City of Palo Alto   iii     Real Estate Market:  In its most recent annual report, the Santa Clara County Assessor’s Office noted  that Santa Clara County’s 2015/2016 assessment roll increased 8.7 percent, from $357 billion to $388  billion ‐ “a new milestone…the third straight year of Silicon Valley’s incredible economic recovery.”    The assessment roll growth was balanced throughout the County, with the highest growth rate in  Santa Clara at 14.5 percent and the lowest in Gilroy at 6.1 percent.  Palo Alto’s assessment roll  growth rate was 8.1 percent, compared to 6.5 percent in the prior report.  Property sales and new  construction were the primary factors contributing to the robust growth. With its highly regarded  school district, well‐educated and high‐income population, cultural amenities, and the presence of  Stanford University, the City’s real estate activity continues to experience a pattern of high demand  and short supply.  The result of this continued pattern is reflected in the substantial increase in FY  2015 property tax revenue.    Local Trends:  National, state, regional and local economic indicators point toward continuously  improving economic growth.  Economically sensitive revenue sources such as transient occupancy tax  and documentary transfer tax continue to grow, while sales tax revenue has levelled off.  The robust  local economy and job growth are also driving increases in other revenues, such as permit and  license fees.    Overall, funding sources are sufficient to cover projected FY 2016 expenses, as forecasted in the  City’s Adopted Budget.  Council adopted a General Fund budget with expenses of $185.7 million for  FY 2016, an increase of $14.6 million, or 8.5 percent, from the prior year Adopted Budget.  The  increase is driven by increased investment in infrastructure, pension and healthcare costs, and the  addition of staff positions in response to community initiatives and Council priorities.      Pension and healthcare costs continue to dominate the conversation about future costs.    Employer  pension rates will increase substantially beginning in FY 2016 as a result of changes in the actuarial  assumptions for calculating pension rates, as adopted by the CalPERS Board of Administration.  The  most recent CalPERS valuations show unfunded liabilities for pension and healthcare in the range of  $439 million.  The City has proactively taken steps over the past several years to mitigate increased  costs by increasing employee contributions to the CalPERS retirement plan and capping the City’s  share of healthcare premiums.  Implementation of a second tier retirement plan in 2011 and  adoption of the state‐mandated third tier pension benefit plan in 2013 will also help mitigate future  pension cost increases.  Council and staff are currently studying various strategies for reducing the  long‐term unfunded pension and retiree healthcare liabilities.   Economic growth has increased the demand for housing, parking, and other City services.  These  issues were reflected in the setting of Council priorities  for 2015:     The Built Environment: multi‐modal  transportation, parking, and livability   Infrastructure Strategy and Implementation   Healthy City, Healthy Community   Completion of the Comprehensive Plan update    In keeping with these priorities, Council has approved  implementation of several strategies that will address  traffic congestion in the City:  parking management strategies (Residential Preferential Parking     Introduction  …………………………………………………………………………. iv    City of Palo Alto  program, parking technology enhancements, garage wayfinding signage), transportation demand  management strategies (Transportation Management Association, enhanced shuttle services,  CalTrain GoPass program for employees), and short and long‐term parking supply strategies (valet  parking, construction of new garages).  Major initiatives on the horizon include negotiations with  public safety unions and the Service Employees International Union (SEIU), continued planning for  reconfiguration of the Palo Alto Municipal Golf Course, and resolution of fire and rescue services to  be provided to Stanford University.    Council approved a $125.8 million Infrastructure Plan, which includes projects such as a new Public  Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and two parking  garages.  These projects will be funded partially by debt to be repaid with an increase in the transient  occupancy tax (TOT) rate which went into effect in January 2015, TOT from newly opened hotels, and  from other sources such as impact fees and Stanford University Medical Center development  agreement monies. As a result of sound fiscal management and reserve policies, General Fund  surpluses from FY 2012 through FY 2014 totaling $20.5 million were transferred to the Infrastructure  Reserve, and $5.1 million of General Fund surplus has been transferred in FY 2015.    No rate changes were implemented in FY 2015 for any of the City’s Enterprise Funds, except for  Consumer Price Index increases of 2.6 percent for the Fiber Optics and Storm Drainage Funds.  Rate  increases will take effect in FY 2016 for water, wastewater, storm drain, refuse and fiber optics  services.  Electric rates are projected to increase in FY 2017.    The City implemented Government Accounting Standards Board (GASB) Statement No. 68,  Accounting and Financial Reporting for Pensions, effective in FY 2015.  Net pension liabilities of  $289.9 million were allocated based on employer contributions for each fund, and unrestricted net  positions were reduced accordingly.     Long Range Financial Forecast:  The City produces a 10 year General Fund Long Range Financial  Forecast (LRFF) annually.  This comprehensive report analyzes local, state, and federal economic  conditions, short and long‐term revenue and expense trends, and addresses challenges such as  funding long‐term pension and healthcare liabilities and infrastructure needs.  The forecast is  designed to highlight finance issues which the City can address proactively.  Moreover, it is a tool  that allows policymakers an opportunity to prioritize funding needs over time.  Delivered to Council  in January, this forecast sets the tone and themes for the annual budget process.  The forecast is one  of the many tools and reports that Council uses for financial planning.    Council is conscientious and proactive in its financial planning.  While the LRFF projects General Fund  surplus positions over the next ten years, Council remains fiscally prudent in approving new ongoing  costs that will increase the City’s budget.  Further, the City maintains a General Fund Budget  Stabilization Reserve (BSR) level of 15 to 20 percent of the General Fund operating budget, with a  targeted goal of 18.5 percent.  Council approval is required to set this reserve balance lower than 15  percent.  For FY 2015, after transferring $5.1 million to the Infrastructure Reserve, the remaining BSR  balance is $48.2 million.  $2.1 million is set aside for carry‐forward to FY 2016 for one‐time  expenditures, and an additional $2.1 million will be used for FY 2016 Budget Amendment Ordinances  approved to date.  The remaining BSR balance of $44.0 million represents 23.7 percent of FY 2016  expenditures, which is $9.7 million more than the 18.5 percent target balance for the BSR.  Staff will  bring forward recommendations for the remaining FY 2015 surplus as part of the year‐end close  process.      Introduction   …………………………………………………………………………. City of Palo Alto   v   Both Moody’s and Standard and Poor’s (S&P) awarded their highest credit rating of Triple A to the  City’s general obligation debt.  This rating has been awarded to only a few cities in California.        SIGNIFICANT EVENTS AND ACCOMPLISHMENTS    The City of Palo Alto is a community dedicated to meeting the social, cultural, recreational,  educational, commercial and retail needs of its citizens and businesses.  As such, open space,  education, recreational facilities, cultural events and safe streets and neighborhoods are important  aspects of the community and the City has been recognized for its accomplishments with a variety of  awards and recognitions over the past year:     Launched the State’s first curbside Electric Vehicle Quick Charger, which allows vehicles to  charge more quickly than other chargers;   Named as a finalist in the Center for Digital Government’s 2014 Best of the Web and Digital  Government Achievement Awards in the City Portal category for outstanding portals and  websites based on innovation, functionality, productivity and performance, making  government more open, responsive and mobile‐friendly;   Highlighted in the California Statewide Local Streets & Roads Needs Assessment 2014 report  for proactively managing and investing in its streets maintenance program with an overall  Pavement Condition Index score of 78 (good), compared to a statewide average of 66 (at  risk);   Named by the Center for Digital Government as a leading digital city in the less than 75,000  population category for the second year in a row for its adoption of cloud‐first and mobile‐ first approaches to deploying new technology, as well as other innovative advances;   Awarded Palo Alto Art Center the 2015 Superintendent’s Award for Excellence in Museum  Education for its Cultural Kaleidoscope program which fosters connections between students  from cross‐cultural backgrounds;   Awarded Development Services Department the Insurance Services Office (ISO) Class 1 rating  which indicates the highest standards for structural safety and reduces the cost of insurance  for the community, with only 3 cities in the State awarded the rating; and   Awarded the Acterra Award for Sustainability for a large organization in recognition of the  City adopting a Climate Action Plan and implementing energy efficiency and conservation  programs that achieve significant benefits and advance the state of sustainability.    Awards:  During the past year, the City received an award for the prior fiscal year CAFR from the  Government Finance Officers Association (GFOA) for “excellence in financial reporting.”  The 2015  CAFR will be submitted to the GFOA award program to be considered for this distinguished financial  reporting award.   Acknowledgments:  This CAFR reflects the hard work, talent and commitment of the staff members  of the Administrative Services Department.  This document could not have been accomplished  without their efforts and each contributor deserves sincere appreciation.  Management wishes to  acknowledge the support of Laura Kuryk, Accounting Manager, and the accounting staff for their high  level of professionalism and dedication.  Management would also like to express its appreciation to  Macias Gini & O’Connell, the City’s independent external auditors, who assisted and contributed to  the preparation of this Comprehensive Annual Financial Report.     Introduction  …………………………………………………………………………. vi    City of Palo Alto    Special acknowledgment must be given to City Council, Finance Committee and Policy and Services  Committee for their dedication to directing the financial affairs of the City in a responsible,  professional and progressive manner.   Respectfully submitted,  LALO PEREZ, JAMES KEENE,  Chief Financial Officer                                                                                     City Manager  Introduction   …………………………………………………………………………. City of Palo Alto   vii   City of Palo Alto City Officials ………………………….…………                                                                                Finance Committee  Greg Schmid, Chair  Eric Filseth  Liz Kniss  Greg Scharff Policy and Services Committee    Pat Burt, Chair  Marc Berman  Tom DuBois  Cory Wolbach  Council‐Appointed Officers    City Manager  James Keene    City Attorney  Molly Stump    City Clerk  Beth Minor    City Auditor  Harriet Richardson  City Council    Karen Holman, Mayor  Greg Schmid, Vice‐Mayor  Marc Berman  Patrick Burt  Tom DuBois  Eric Filseth  Liz Kniss  Gregory Scharff  Cory Wolbach       Introduction  …………………………………………………………………………. viii    City of Palo Alto  Assistant City Managers   Suzanne Mason  Edward K. Shikada  City Attorney  Molly Stump  City Manager  James Keene  City Auditor Harriet Richardson  City Clerk  Beth Minor  City of Palo Alto Organization ……………………………………                                                                            Palo Alto Residents City Council Community Services  Rob DeGeus, Director  Administrative Services   Lalo Perez, Chief Financial Officer  Fire  Eric Nickel, Chief  People Strategy and Operations   Kathryn Shen, Chief People Officer  Police  Dennis Burns, Chief Planning & Community Environment   Hillary Gitelman, Director  Utilities   Valerie Fong, Director  Public Works   Mike Sartor, Director  Library  Monique le Conge‐Ziesenhenne,  Director  Development Services   Peter Pirnejad, Director  Chief Communications Officer  Claudia Keith  Office of Emergency Services  Kenneth Dueker, Director  Office of Sustainability Gil Friend, Chief Sustainability Officer  Information Technology   Jonathan Reichental,   Chief Information Officer  Introduction   …………………………………………………………………………. City of Palo Alto   ix   Administrative Services Organization ……… Administrative Division Treasury Division Accounting Division Budget Division Purchasing Division Real Estate Division Mission Statement    To provide proactive administrative and technical support to  City departments and decision makers, and to safeguard and  facilitate the optimal use of City resources.  Administrative Services Department     Introduction  …………………………………………………………………………. x    City of Palo Alto  Government Finance Officers Association of the United States and Canada – Award …… www.mgocpa.com Certified Public Accountants Sacramento Walnut Creek Oakland Los Angeles Century City Newport Beach San Diego Macias Gini & O’Connell LLP2121 N. California Blvd., Suite 750Walnut Creek, CA 94596 1 Independent Auditor’s Report Honorable Mayor and the Members of the City Council of City of Palo Alto, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2015, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Change in Accounting Principles As discussed in Note 1(n) to the basic financial statements, effective July 1, 2014, the City adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment to GASB No. 27, and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68. Our opinion is not modified with respect to these matters. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and the schedule of changes in the net pension liability and related ratios and the schedule of contributions, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the GASB who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, statistical section and the schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and 3 individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 3, 2015 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Walnut Creek, California November 3, 2015 4 This page is left intentionally blank.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 5 Management’s Discussion and Analysis  Management’s Discussion and Analysis (MD&A) provides an overview of the City of Palo Alto’s financial  performance for the fiscal year ended June 30, 2015. To obtain a complete understanding of the City’s  financial condition, this document should be read in conjunction with the accompanying Transmittal Letter  and Basic Financial Statements.    Financial Highlights     The assets and deferred outflows of resources of the City of Palo Alto (City) exceeded its liabilities  and deferred inflows of resources at the close of Fiscal Year (FY) 2015 by $1,131.7 million.  Of this  amount, $174.8 million represents unrestricted net position, which may be used to meet the  government’s ongoing obligations to citizens and creditors.    At the close of FY 2015, the City’s governmental funds reported combined fund balances of $224.6  million, an increase of $10.6 million from prior year.  Approximately 21.5 percent of this amount, or  $48.2 million, is unassigned fund balance and available for spending at the government’s discretion.   At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned  and unassigned components of fund balance) for the General Fund was $56.2 million, or 34.9  percent of total general fund expenditures, including transfers.   The City’s total outstanding long‐term debt decreased by $6.1 million during the current fiscal year  due to scheduled debt retirement.   The City implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions  effective July 1, 2014, and beginning FY 2015 balances were restated to reflect the impact.  The  City’s net pension liability of $289.9 million was allocated to Governmental Activities ($208.8 million,  or 72.0 percent) and Business‐Type Activities ($81.1 million, or 28.0 percent) and reduced their  unrestricted net positions by a like amount.    OVERVIEW OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR)  The CAFR is presented in six sections:     An introductory section that includes the Transmittal Letter and general information   Management’s Discussion and Analysis   The Basic Financial Statements that include the Government‐wide and Fund Financial  Statements, along with the Notes to these statements   Supplemental Information   Statistical Information    Single Audit  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 6 Basic Financial Statements  The Basic Financial Statements contain the Government‐wide Financial Statements, the Fund Financial  Statements and the Notes to these financial statements.  This report also includes supplementary  information intended to furnish additional detail to support the Basic Financial Statements.    For certain entities and funds, the City acts solely as a depository agent. For example, the City has several  Assessment Districts for which it produces fiduciary statements detailing the cash balances and activities of  these districts. These entities are independent, and their balances are excluded from the City’s government‐ wide financial statements.   Government‐wide Financial Statements  The Government‐wide Financial Statements provide a longer‐term view of the City’s activities as a whole.   They include the Statement of Net Position and the Statement of Activities.      The Statement of Net Position includes the City’s capital assets and long‐term liabilities on a full accrual  basis of accounting similar to that used by private sector companies. Over time, increases or decreases in  net position may serve as a useful indicator of whether the financial position of the City is improving or  deteriorating.      The Statement of Activities provides information about the City’s revenues and expenses on a full accrual  basis, with an emphasis on measuring net revenues or expenses for each of the City’s programs. The  Statement of Activities explains in detail the change in net position for the year.  All changes in net position  are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of  related cash flows.      The amounts in the Statement of Net Position and the Statement of Activities are separated into  Governmental and Business‐type Activities in order to provide a summary of each type of activity.     Governmental Activities ‐ All of the City’s basic services are considered to be governmental activities.  Included in basic services are the City Council, City Manager, City Attorney, City Clerk, City Auditor,  Administrative Services, People Strategy and Operations, Public Works, Planning and Community  Environment, Development Services, Public Safety, Community Services, and Library. These services are  supported by general City revenues such as taxes, and by specific program revenues such as fees and grants.     The City’s governmental activities also include the activities of the Palo Alto Public Improvement  Corporation, which is a separate legal entity financially accountable to the City.     Business‐type Activities ‐ All of the City’s enterprise activities are reported as business‐type activities,  including Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm  Drainage and Airport. Unlike governmental services, these services are intended to recover all or a  significant portion of their costs through user fees and charges, except for the Airport which is currently  supported by a long‐term advance from the General Fund, as discussed in Note 4.    The Government‐wide Financial Statements can be found on pages 29‐31 of this report.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 7 Fund Financial Statements  The Fund Financial Statements provide detailed information about each of the City’s most significant funds,  called major funds. The concept of major funds, and the determination of which are major funds, was  established by Governmental Accounting Standards Board (GASB) Statement No. 34 and replaced the  concept of combining like funds and presenting them in total. Therefore, each major fund is presented  individually, with all non‐major funds combined in a single column on each fund statement. Subordinate  schedules display these non‐major funds in more detail. Major funds present the major activities of the City  for the year.  The General Fund is always considered a major fund, but other funds may change from year to  year as a result of changes in the pattern of City activities.     The Fund Financial Statements display the City’s operations in more detail than the Government‐wide  Financial Statements. Their focus is primarily on the short‐term activities of the City’s General Fund and  other major funds such as Capital Projects, Water Services, Electric Services, Fiber Optics, Gas Services,  Wastewater Collection Services, Wastewater Treatment Services, Refuse Services, Storm Drainage Services  and Airport.    Budget and actual financial comparison information is presented only for the General Fund.     Fund Financial Statements include Governmental, Enterprise, Internal Service and Agency Funds.    Governmental Funds  Governmental Fund Financial Statements are prepared on the modified accrual basis of accounting, which  means they measure only current financial resources and uses. Capital assets and other long‐lived assets,  along with long‐term liabilities, are presented only in the Government‐wide Financial Statements. In FY  2015, the City had two major governmental funds, the General Fund and the Capital Projects Fund.  Data  from the other governmental funds are combined into a single aggregated presentation.  Individual fund  data for each of these non‐major governmental funds is provided in the Supplemental section of this report.     Because the focus of governmental funds is narrower than that of the Government‐wide Financial  Statements, it is useful to compare the information presented for governmental funds with similar  information presented for governmental activities in the Government‐wide Financial Statements.  By doing  so, readers may better understand the long‐term impact of the government’s near‐term financing decisions.   Both the Governmental Fund Balance Sheet and the Governmental Fund Statement of Revenues,  Expenditures and Changes in Fund Balances provide a reconciliation to facilitate this comparison between  governmental funds and governmental activities.    The Governmental Fund Financial Statements can be found on pages 33‐37 of this report.    Proprietary Funds  Enterprise and Internal Service Fund Financial Statements are prepared on the full accrual basis of  accounting, similar to that used by private sector companies. These statements include all of their assets,  deferred outflows and inflows of resources and liabilities, both current and long‐term.     Since the City’s Internal Service Funds provide goods and services exclusively to the City’s governmental and  business‐type activities, their activities are only reported in total at the fund level.  Internal Service Funds,  such as Technology and General Benefits, cannot be considered major funds because their revenues are  derived from other City funds. Revenues between funds are eliminated in the Government‐wide Financial  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 8 Statements, and any related profits or losses in Internal Service Funds are returned to the activities in which  they were created, along with any residual net assets of the Internal Service Funds.    The Proprietary Fund Financial Statements can be found on pages 38‐43 of this report.  Fiduciary Funds  The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Off‐Street  Parking Assessment District.  In this role, the City holds money collected from property owners and awaiting  transfer to the districts’ bond trustees. The City’s fiduciary activities are reported in the separate Statement  of Fiduciary Net Position and the supplemental Agency Funds Statement of Changes in Assets and Liabilities.  These activities are excluded from the City’s other financial statements because the City cannot utilize these  assets to finance its own operations.    The Fiduciary Fund Financial Statements can be found on page 44 of this report.  Notes to the Financial Statements  The Notes provide additional information that is necessary to acquire a full understanding of the data  provided in the Government‐wide and Fund Financial Statements.  The Notes to the financial statements can  be found on pages 47‐102 of this report.      Other Information  The Required Supplementary Information related to the City’s pension plans are included after the Notes to  the Financial Statements on pages 103‐106. The combining statements referred to earlier in connection with  non‐major Governmental Funds and Internal Service Funds, are presented immediately following the  Required Supplementary Information.  Combining statements and individual fund statements and schedules  can be found on pages 107‐132 of this report.     Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 9 Financial Analysis of Government‐wide Financial Statements  This section focuses on the City’s net position and changes in net position of its governmental and business‐ type activities for the fiscal year ending June 30, 2015.  As noted earlier, the City’s total assets and deferred  outflows of resources exceed total liabilities and deferred inflows of resources by $1,131.7 million at the end  of the fiscal year, an improvement in net position of $255.4 million.     STATEMENT OF NET POSITION As of June 30, 2015 (in millions)  2015 2014 2015 2014 2015 2014 Cash and investments 280.9$   271.8$    253.7$    269.5$    534.6$        541.3$        Other assets 57.2 55.8 39.2 34.3 96.4            90.1            Capital assets 485.2 452.6 558.5 545.5 1,043.7 998.1  Total Assets 823.3      780.2      851.4      849.3      1,674.7       1,629.5       Unamortized loss from refunding ‐             ‐             0.4           0.4           0.4               0.4               Deferred pension contribution 19.2        ‐             8.1           ‐             27.3            ‐                 Total Deferred Outflows of Resources 19.2         ‐             8.5           0.4           27.7            0.4               Net pension liabilities 208.8       ‐             81.1         ‐             289.9          ‐                 Long‐term debt 78.8 80.9 72.2 76.2 151.0 157.1 Other liabilities 54.3 56.9 24.7 28.8 79.0 85.7 Total Liabilities 341.9      137.8      178.0      105.0      519.9          242.8          Difference between expected and actual earnings on investments 36.7        ‐             14.1         ‐             50.8            ‐                 Total Deferred Inflows of Resources 36.7        ‐             14.1         ‐             50.8            ‐                           Net Position           Net investment in capital assets 405.9 386.7 490.9 473.8 896.8 860.5 Restricted 56.0 68.3 4.1 4.1 60.1 72.4 Unrestricted 2.0 187.4 172.8 266.8 174.8 454.2 Total Net Position 463.9$   642.4$    667.8$    744.7$    1,131.7$    1,387.1$    Governmental Activities Business‐type Activities Government‐wide Totals   The largest portion of the City’s net position (79.2 percent) is its investment in capital assets such as land,  buildings, infrastructure and vehicles, less any related outstanding debt that was used to acquire those  assets.  The City uses these capital assets to provide a variety of services to its citizens.  Accordingly, these  assets are not available for future spending.  Although the City’s investment in capital assets is reported net  of related debt, it should be noted that the resources used to repay this debt must be provided from other  sources, since the capital assets themselves cannot be used to liquidate these liabilities.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 10 The restricted portion of the City’s net position (5.3 percent) represents resources that are subject to  external restrictions on how they may be used.  The remaining balance of $174.8 million, representing 15.4  percent of the City’s net position, is unrestricted and may be used to meet the government’s ongoing  obligations to its citizens and creditors.    The City implemented GASB 68 effective July 1, 2014.  The beginning balance of the FY 2015 net position  was restated to reflect the impact of the implementation.      There are 3 major components of GASB 68 that affect the Statements of Net Position for the Government‐ wide and each of the Proprietary Funds:   Deferred pension contribution is the total amount of FY 2015 contributions.  The contributions are  deferred to FY 2016 because the net pension liability balance is one year in arrears.   Net pension liabilities represent the actuarially valued liabilities for the Safety and Miscellaneous  Pension Plans as of June 30, 2014.   Difference between expected and actual earnings on investments is the portion of investment gains  that is deferred.  The new accounting standard requires that differences between projected and  actual investment returns be amortized on a straight‐line basis over five years.    The City’s unfunded pension liability was disclosed in Note 11 in prior years, along with the actuarial  assumptions used in calculating the liability.  Compliance with GASB 68 requires that the City’s net pension  liability be recorded on the Statement of Net Position, which reduces unrestricted net position and, in some  cases, creates a negative unrestricted net position or deficit.      At the end of the current fiscal year, even after the impact of GASB 68, the City is able to report positive  unrestricted net positions both for the government as a whole and for its separate governmental and  business‐type activities, except for the following three funds:   Wastewater Treatment Fund $2.8 million deficit as a result of $17.5 million of pension related items;   Airport Fund $1.7 million deficit, $0.4 million of which is a result of pension related items; and   Printing and Mailing Services Fund $0.3 million deficit due to pension related items.     Components of the $255.4 million increase in total net position are discussed in the following sections for  governmental activities and business‐type activities.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 11 Governmental Activities – Net Position  The following analysis focuses on the net position and changes in net position of the City’s Governmental  Activities, presented in the Government‐wide Statement of Net Position and Statement of Activities.    GOVERNMENTAL ACTIVITIES Net Position at June 30 (in millions) Increase/  2015 2014 (Decrease) Cash and investments 280.9$    271.8$    9.1$          Other assets 57.2         55.8         1.4            Capital assets 485.2      452.6      32.6           Total Assets 823.3      780.2      43.1          Deferred pension contribution 19.2          ‐             19.2          Total Deferred Outflows of Resources 19.2          ‐             19.2          Net pension liabilities 208.8       ‐             208.8       Long‐term debt 78.8         80.9         (2.1)          Other liabilities 54.3         56.9         (2.6)          Total Liabilities 341.9      137.8      204.1       Difference between expected and  actual earnings on investments 36.7         ‐             36.7          Total Deferred Inflows of Resources 36.7         ‐             36.7                Net Position     Net investment in capital assets 405.9      386.7      19.2          Restricted 56.0         68.3         (12.3)        Unrestricted 2.0           187.4      (185.4)      Total Net Position 463.9$    642.4$    (178.5)$     The City’s Governmental Activities total net position decreased $178.5 million to $463.9 million as of June  30, 2015. This decrease was a result of the following:   Capital assets net of depreciation increased $32.6 million due to major capital projects such as  California Avenue‐Transit Hub Corridor ($6.6 million), City Hall renovations ($3.5 million), and the  Magical Bridge playground ($3.6 million).   Net investment in capital assets increased $19.2 million to $405.9 million.  Restricted net position  decreased $12.3 million to $56.0 million due to drawdowns of Library restricted cash for  expenditures, and the reclassification of notes and loans receivable from restricted to unrestricted.  Unrestricted net position decreased by $185.4 million to $2.0 million as a result of recording net  pension liabilities and other items related to the GASB 68 implementation.   Unrestricted net  position represents current net assets available to finance subsequent year operations and other  expenditures approved by City Council.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 12 Governmental Activities – Revenues  The table below shows that Governmental Activities revenues totaled $185.8 million in FY 2015, an increase  of $19.4 million from prior year revenues of $166.4 million.   GOVERNMENTAL ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2015 2014 (Decrease) Program Revenues: Charges for services 63.5$      54.0$      9.5$         Operating grants and contributions 5.3 5.4 (0.1) Capital grants and contributions 0.6 0.9 (0.3) Total Program Revenues 69.4        60.3        9.1           General Revenues: Property tax 38.8 35.3 3.5 Sales tax 29.7 29.4 0.3 Utility user tax 10.9 11.0 (0.1)          Transient occupancy tax 16.7 12.3 4.4 Documentary transfer tax 10.4 7.8 2.6 Other tax 1.5 1.8 (0.3) Investment earnings 5.0 5.9 (0.9) Rents and miscellaneous 3.4 2.6 0.8 Total General Revenues 116.4 106.1 10.3 Total Revenues 185.8$   166.4$   19.4$           Total Program Revenues increased $9.1 million from the prior year due to increased developer impact,  housing in‐lieu, and transportation mitigation fees, all of which vary depending on volume and magnitude of  development projects, and receipt of a $3.9 million litigation settlement.    Program Revenues such as charges for services, operating grants and contributions, and capital grants and  contributions are generated from or restricted to each activity.    General Revenues increased $10.3 million, or 9.7 percent, from the prior year due to increased General Fund  tax revenues.  Further analysis of general revenues can be found in the Financial Analysis of Governmental  Funds section of the MD&A.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 13 Governmental Activities – Revenues by Source  The chart below presents revenues by source for Governmental Activities. General Revenues are composed  of taxes and other revenues not specifically generated by, or restricted to, individual activities. All tax  revenues and investment earnings are included in General Revenues.  Program Revenues 37% Property Tax 21% Sales Tax 16% Utility User Tax 6% Transient Occupancy  Tax 9% Documentary Transfer Tax 6% Other 5% Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 14 Governmental Activities – Expenses  The table below presents a comparison of FY 2015 and FY 2014 expenses by function, and interest and other  expense.  Total Governmental Activities functional expense was $151.3 million in FY 2015, a decrease of $4.2  million.      GOVERNMENTAL ACTIVITIES Expenses and Change in Net Position for the Year Ended June 30 (in millions) Increase/ Activities 2015 2014 (Decrease) City Council 0.3$         0.4$         (0.1)$        City Manager 2.2 2.2 0.0 City Attorney 1.8 1.8 0.0 City Clerk 0.6 0.6 0.0 City Auditor 0.4 0.5 (0.1) Administrative Services 10.0 11.3 (1.3) People Strategy and Operations 1.4 1.3 0.1 Public Works 21.1 24.6 (3.5) Planning and Community Environment 8.4 14.9 (6.5) Development Services 10.4 ‐             10.4 Public Safety 58.7 62.9 (4.2) Community Services 24.7 23.8 0.9 Library 7.7 7.8 (0.1) Interest and Other Expense 3.6 3.4 0.2 Total Functional Expense 151.3 155.5 (4.2) Increase in Net Position    before Transfers 34.4 10.8 23.6 Transfers in 16.4 17.1 (0.7)     Change in Net Position 50.8 27.9 22.9 Net Position, Beginning,642.4 614.5 27.9 Restatement due to GASB 68 (229.3)      ‐             (229.3)      Net Position, Ending 463.9$    642.4$    (178.5)$     Administrative Services non‐departmental expense is less due to reduced lease payments for the Cubberley  facility.     Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 15 Development Services was separated from Planning and Community Environment at the beginning of the  fiscal year.  Salary and non‐salary expenses were identified and transferred out of the Planning, Public Safety  and Public Works departments.     Public Safety expenses at the government‐wide level have decreased $4.2 million due to a $1.9 million  reduction of expense due to GASB 68 pension expense less than actual contributions, and $1.7 million due  to allocation of the Internal Service Funds net position.  The remaining $0.6 million decrease is due to  consolidation of all related expenses into the newly created Development Services department.     Remaining variances are due to fixed asset activities such as depreciation and asset retirements.      Governmental Activities – Functional Expenses  The functional expenses chart below includes only current year expenses. It does not include capital outlays,  as those are added to the City’s capital assets.  Functions which comprise 1 percent or less of total expenses  are combined into the All Other category in the chart below.  All Other includes City Council, City Manager,  City Attorney, City Clerk, City Auditor and People Strategy and Operations.      Administrative  Services 7% Public Works 14% Interest and Other 2% Planning and  Community  Environment 6% Development Svcs 7% Public Safety 39% Community Services 16% Library 5% All Other 4% Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 16 Business‐type Activities – Net Position  The following analysis focuses on the net position and changes in net position of the City’s Business‐type  Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.  Increase/  2015 2014 (Decrease) Cash and investments 253.7$    269.5$    (15.8)$      Other assets 39.2 34.3 4.9 Capital assets 558.5 545.5 13.0  Total Assets 851.4      849.3      2.1            Unamortized loss from refunding 0.4           0.4            ‐              Deferred pension contribution 8.1            ‐             8.1            Total Deferred Outflows of Resources 8.5           0.4           8.1            Net pension liabilities 81.1 ‐             81.1 Long‐term debt 72.2 76.2 (4.0) Other liabilities 24.7 28.8 (4.1) Total Liabilities 178.0      105.0      73.0          Difference between expected and actual earnings on investments 14.1         ‐             14.1          Total Deferred Outflows of Resources 14.1         ‐             14.1          Net Position     Net investment in capital assets 490.9 473.8 17.1 Restricted 4.1 4.1 ‐              Unrestricted 172.8 266.8 (94.0) Total Net Position 667.8$    744.7$    (76.9)$      BUSINESS‐TYPE ACTIVITIES Net Position at June 30 (in millions)   The City’s Business‐type Activities total net position decreased $76.9 million to $667.8 million as of  June 30, 2015.     Cash and investments decreased $15.8 million primarily due to Electric Fund decrease in change in net  position of $11.2 million.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 17 Other assets increased $4.9 million due to higher accounts receivable balances in the Electric, Fiber Optics,  Wastewater Collection and Treatment Funds.    Capital assets increased $13.0 million to $558.5 million in FY 2015 as a result of Electric and Gas  infrastructure improvements. Additions include $7.2 million of capital improvements in Electric and $7.5  million of capital improvements in Gas. This also contributed to the increase of $17.1 million in the net  investment in capital assets to $490.9 million.     Unrestricted net position of $172.8 million, a decrease of $94.0 million from the prior year, represents liquid  assets available to finance day‐to‐day operations and other expenditures approved by Council. The amount  includes rate stabilization reserves (RSR) of $63.5 million and operations reserves of $47.3 million, along  with the Electric special projects (Calaveras) reserve of $51.8 million, and the hydro stabilization reserve of  $17.0 million.  The positive balances in these reserves are offset by the GASB 68 adjustment for pension  liabilities of $87.1 million.  Additional detail is included in Note 10.  Business‐type Activities – Revenues  The table below presents the revenues for each of the City’s Business‐type Activities or Enterprise Funds.  The City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment,  Refuse, Storm Drainage and Airport Funds, which are major funds and are presented in the Basic Financial  Statements.    BUSINESS‐TYPE ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2015 2014 (Decrease) Program Revenues: Charges for services 270.9$    273.0$    (2.1)$        Operating grants and contributions 0.5           0.5           ‐              Capital grants and contributions 2.1 2.0 0.1 Total Program Revenues 273.5      275.5      (2.0)          General Revenues: Investment earnings (loss)4.9 6.4 (1.5) Total General Revenues 4.9 6.4 (1.5) Total Revenues 278.4$    281.9$    (3.5)$          Business‐type Activities revenues totaled $278.4 million, a decrease of $3.5 million from the prior year.   Program revenues decreased $2.0 million year over year – Water and Gas revenues declined $4.3 million  and $5.0 million respectively due to drought conservation measures and continued lower gas consumption,  offset by a $5.7 million increase in Wastewater Treatment (WWT) revenue.  WWT revenue increased as a  result of increased billings for capital costs ($2.0 million) in the current year and $3.7 million due to reduced  billings for encumbrances in the prior year.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 18 Investment earnings decreased due to lower cash balances and a slightly lower rate of return on  investments    Business‐type Activities – Expenses  The table below presents a comparison of the FY 2015 and FY 2014 expenses for the City’s Business‐type  Activities. Encumbrances and reappropriations are not included.  BUSINESS‐TYPE ACTIVITIES Expenses and Change in Net Position for the Year Ended June 30 (in millions) Increase/ Business‐type Activities 2015 2014 (Decrease) Water 33.2$      31.6$      1.6$          Electric 122.4 113.0 9.4 Fiber Optics 1.9 1.7 0.2 Gas 23.5 26.9 (3.4) Wastewater Collection 14.6 13.2 1.4 Wastewater Treatment 21.6 21.0 0.6 Refuse 28.0 28.4 (0.4) Storm Drainage 3.7 3.6 0.1 Airport 1.0 0.5 0.5 Total Functional Expense 249.9 239.9 10.0 Increase in Net Position    before Transfers 28.4 42.0 (13.6) Transfers out (16.4) (17.1) 0.7     Change in Net Position 12.0 24.9 (12.9) Net Position, Beginning 744.7 719.8 24.9 Restatement due to GASB 68 (88.9)        ‐             (88.9) Net Position, Ending 667.8$    744.7$    (76.9)$      Business‐type Activities expenses increased $10.0 million for a total of $249.9 million. Year over year  expenses were significantly affected by the following events:   Electric Fund expenses increased $9.4 million primarily due to increased energy purchase costs.  The  availability of hydroelectric energy resources is lower than average due to the ongoing drought,  which necessitates higher than average electricity purchases at market rates.   Gas Fund expenses decreased $3.4 million due to lower consumption which resulted in a lower  volume of commodity purchases. Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 19 FUND FINANCIAL STATEMENTS   Financial Analysis of Governmental Funds  As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance‐related  legal requirements.    Governmental Funds  The focus of the City’s Governmental Funds is to provide information on near‐term inflows, outflows, and  balances of spendable resources.  Such information is useful in assessing the City’s financing requirements.   In particular, the unassigned fund balance may serve as a useful measure of a government’s net resources  available for discretionary use as it represents the portion of fund balance not yet limited to use for a  particular purpose by either an external party, the City itself, or an entity that has been delegated authority  by the City Council to assign resources for use.    As of June 30, 2015, the City’s Governmental Funds reported combined fund balances of $224.6 million, an  increase of $10.6 million from the prior year.  Approximately 21.5 percent, or $48.2 million, constitutes  unassigned fund balance, which is available for spending at the government’s discretion.  The remainder of  the fund balance is either non‐spendable, restricted, committed, or assigned to indicate that it is: 1) not in  spendable form ($7.8 million); 2) restricted for particular purposes ($59.6 million); 3) committed for  particular purposes ($48.4 million); or 4) assigned for particular purposes ($60.6 million).    Governmental Fund revenues increased $19.8 million, or 12.0 percent, from prior year to $184.5 million.   Revenues in the General Fund increased $15.8 million and Capital Projects Fund revenue decreased $1.4  million.  Other Governmental Funds revenue increased by $5.4 million due to increased developer impact  fees and a $3.9 million litigation settlement.    Governmental Fund expenditures were $189.1 million, an increase of $10.1 million from the prior year.  General Fund expenditures increased $4.3 million, Capital Projects Fund expenditures increased by $4.9  million, and Non‐major Fund expenditures increased by $0.9 million.  Details of significant changes are  discussed in the following sections.  General Fund   Balance Sheet  The General Fund is the primary operating fund of the City.  At the end of the current fiscal year, fund  balance of the General Fund was $62.5 million, compared to $48.3 million in the prior year.  The fund  balance has been classified as $6.3 million non‐spendable, $8.0 million assigned, and $48.2 million  unassigned.  The unassigned amount of $48.2 million is designated by the Council for budget stabilization.   $2.1 million will be used to fund one‐time expenses in the FY 2016 Operating Budget and an additional $2.1  million will be used for FY 2016 budget Amendment Ordinances approved to date.  A further $3.3 million of  transient occupancy tax (TOT) from newly opened hotels and the 2 percent TOT increase is earmarked for  transfer to the Infrastructure Reserve.  The remaining balance of $40.7 million represents 21.9 percent of FY  2016 expenditures and operating transfers, which is $6.3 million above the target reserve guideline of 18.5  percent set by Council.  Staff will bring forward further recommendations as part of the year‐end close  process.  Surplus funds of $5.1 million were transferred to the Infrastructure Reserve in the Capital Projects  Fund in FY 2015, as allowed by the General Fund Reserve Policy, for a total of $25.6 million over the last four  fiscal years.        Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 20 Statement of Revenues, Expenditures and Changes in Fund Balance  Revenues  The City’s General Fund revenues totaled $157.5 million in FY 2015. This represents an increase of $15.8  million, or 11.1 percent, compared to the prior year.  The year over year change in significant revenue  sources is noted in the following table.        GENERAL FUND Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2015 2014 (Decrease) Property tax 34.1$      30.6$      3.5$          Sales tax 29.7 29.4 0.3 Utility user tax 10.9 11.0 (0.1) Transient occupancy tax 16.7 12.2 4.5 Documentary transfer tax 10.4 7.8 2.6 Charges for services 25.9 24.0 1.9 Permits and licence 7.1 7.0 0.1 Rental income 14.9 14.2 0.7 All other 7.8 5.5 2.3 Total Revenues 157.5$    141.7$    15.8$           Property tax revenue increased by $3.5 million, or 11.4 percent, due to increased property assessment roll  growth and a $0.9 million Educational Revenue Augmentation Fund (ERAF) distribution from the County of  Santa Clara.    Sales tax revenue increased $0.3 million from prior year.  FY 2015 revenue includes a $2.6 million planned  one‐time accounting adjustment to align the sales tax accrual period with the fiscal year. Excluding this one‐ time adjustment, revenue declined $2.3 million from prior year due to a large one‐time receipt from a single  vendor in the prior year.      Transient occupancy tax (TOT) ended the year $4.5 million, or 36.9 percent, higher than prior year due to  newly opened hotels, continued strong business activity and increasing occupancy and room rates.  A  significant portion of the increase ($1.4 million) is due to a Council approved two percent increase in the  TOT rate from 12 percent to 14 percent which took effect January 1, 2015.      Documentary transfer tax increased $2.6 million to $10.4 million, primarily due to one unusually high dollar  commercial property transaction.  Revenue of $10.4 million is the highest on record for the City.      Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 21 All other revenue increased from prior year by $2.3 million primarily due to a $0.1 million receipt from the  state for reimbursement of costs incurred in complying with past state unfunded mandates.    Expenditures  General Fund expenditures totaled $138.8 million for FY 2015 compared to $134.5 in the prior year.  This  amount excludes encumbrances and reappropriations.  The year over year change for major functions is  noted in the following table:      GENERAL FUND Expenditures for the Year Ended June 30 (in millions) Increase/ Expenditures by Function 2015 2014 (Decrease) Administrative Services 3.7$         3.0$         0.7$          Public Works 11.4 11.5 (0.1)          Planning and Community Environment 7.4 13.2 (5.8) Development Services 11.1 ‐             11.1 Public Safety 61.2 61.7 (0.5) Community Services 23.0 22.5 0.5 Library 8.0 7.3 0.7 Non‐Departmental 5.6 8.0 (2.4) All other 7.4 7.3 0.1 Total Expenditures 138.8$    134.5$    4.3$              Administrative Services expenses increased due to a reduction in the amount of cost plan recoveries from  other City departments.      Effective July 2014, as approved in the FY 2015 Adopted Budget, Development Services was separated from  Planning and Community Environment.  Salary and non‐salary expenses were identified and transferred  primarily out of the Planning department. Lesser amounts were taken out of Public Safety and Public Works  departments and the Technology Fund.      Non‐Departmental expenditures decreased $2.4 million primarily due to $0.9 million less paid to Palo Alto  Unified School District (PAUSD) for lease of the Cubberley facility and $0.2 million less in election expenses.   As explained further in Note 16, under the terms of the lease with PAUSD, $1.8 million per calendar year is  being paid into a Cubberley infrastructure fund rather than to PAUSD.    Transfers out for FY 2015 increased $3.5 million due to $1.5 million more to the Infrastructure Reserve,  $0.9  million to the Cubberley infrastructure fund, and $0.9 million to the Technology Fund. Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 22 Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual    Original budget compared to final budget  Revenues were originally budgeted at $140.3 million and were revised upward by $6.8 million.  Revenue  categories that were adjusted are shown in the table below.    GENERAL FUND Budgeted Revenues for the Year Ended June 30 (in millions) Original Final Increase/ Budgeted Revenues Budget Budget (Decrease) Sales tax 25.9$         29.2$      3.3$          Property tax 31.9 32.6 0.7 Transient occupancy tax 14.2 15.9 1.7 Documentary transfer tax 7.5 6.5 (1.0) All other 60.8 62.9 2.1 140.3 147.1 6.8 Charges to other funds 10.6 10.6 ‐              Prior year encumbrances and appropriations 5.6 5.6 Total Budgeted Revenues 150.9$     163.3$   12.4$           Adjustments to the original budget were based on the following:   Sales tax was increased by $3.3 million due to higher than expected receipts.  In addition, $1.7  million was added for an accounting adjustment to align the sales tax accrual with the fiscal year.   Property tax was increased by $0.7 million due to updated estimates from the County.   Transient occupancy tax was increased by $1.7 million primarily due to the voter approved TOT rate  increase from 12 to 14 percent that took effect on January 1, 2015.   Documentary transfer tax was decreased by $1.0 million based on year‐to‐date receipts tracking  lower than the same period prior year.    Actual revenues of $157.5 million were $10.4 million higher than final budgeted revenues of $147.1 million  due primarily to one‐time items, including the following:   $0.9 million from the County of Santa Clara for excess Educational Revenue Augmentation Funds;   $1.0 million receipt for reimbursement of prior years’ state unfunded mandates;   $3.2 documentary transfer tax receipt due to an unusually large commercial real estate transaction;  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 23 Expenditures were originally budgeted at $155.3 million and were revised upward by $8.3 million for a final  budgeted amount of $163.6 million, as shown in the table below.  GENERAL FUND Budgeted Expenditures for the Year Ended June 30 (in millions) Original Final Increase/ Actuals, plus Budgeted Expenditures Budget Budget (Decrease) Encumbrances Community Services 22.8 24.3 1.5 23.9 Public Safety 62.1  63.4 1.3 62.5 Library 7.5  8.6 1.1 8.1 Planning and Community Environment 7.0 9.0 2.0 9.0 Public Works 13.4 14.4 1.0 14.2 Development Services 10.5 10.9 0.4 11.3 Non‐departmental 13.3 11.9         (1.4)6.0 All other 18.7 21.1 2.4 19.8 Total Budgeted Expenditures 155.3$      163.6$    8.3$         154.8                  Less: Charges to Other Funds (10.4)                   Less: Encumbrances (5.6) Net General Fund Expenditures 138.8$                    The final budgeted expenditure amount of $163.6 million compares to the actual expenditures plus  encumbrances of $154.8 million, a difference of $8.8 million.  The lower than budgeted expenditures were  primarily due to non‐departmental expenditures lower than expected.    Transfers out were originally budgeted at $15.7 million, with the final budget number at $23.0 million, an  increase of $7.3 million.  The increase was due primarily to an additional $5.1 million transfer of FY 2015  surplus to the Infrastructure Reserve.  Actual transfers out for the year were $22.3 million, a difference of  $0.8 million from final budget due to reclass of the Airport Fund transfer to interfund advance at year‐end.    Capital Projects Fund  Capital Projects Fund expenditures and other uses were $42.0 million in FY 2015, an increase of $4.9 million  from the prior year driven by construction and renovation of Mitchell Park Library and Community Center  and Rinconada Library. This level of expenditure is consistent with the City’s effort to rehabilitate and  maintain its existing infrastructure.     Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 24 Non‐major Funds  These funds are not presented separately in the Basic Financial Statements, but are individually presented as  Supplemental Information.  Financial Analysis of Enterprise Funds   At June 30, 2015, the City’s Enterprise Funds reported total net position of $664.8 million, a decrease of  $77.5 million or 10.4 percent from the prior year. The decrease was primarily from the Water, Electric, Gas  and Wastewater Treatment Funds for $7.0 million, $39.8 million, $11.2 million and $15.0 million,  respectively.  Further analysis is noted in the following section.  Unrestricted net position for the Enterprise  Funds totaled $169.8 million, a 35.8 percent decrease from FY 2014.  Of this $94.6 million decrease, $88.9  million is a result of the adjustment for GASB 68 pension liability.    Following is a table which compares the year over year change in net position for each of the Enterprise  Funds:    ENTERPRISE FUNDS Change in Net Position for the Year Ended June 30 (in millions) Increase/ Fund Name 2015 2014 (Decrease) Water 5.1$           11.0$      (5.9)$        Electric (11.2) 1.7 (12.9) Fiber Optics 3.1 3.1 ‐              Gas 1.7  3.3 (1.6)          Wastewater Collection 2.4 3.5 (1.1)          Wastewater Treatment 2.9 (1.9) 4.8            Refuse 4.8 2.2 2.6            Storm Drainage 2.7 2.7 ‐              Airport (0.1) (0.5) 0.4            Total Change in Net Position 11.4$         25.1$      (13.7)$        The most significant factors in the year over year change in net position for Enterprise Funds are as follows:   Water change in net position decreased $5.9 million due to reduced water consumption by  customers as a result of state mandated drought conservation measures.    Electric change in net position decreased $12.9 million from the prior year due to increased  purchase of electricity as a result of lower hydroelectric generation due to the drought.   Wastewater Treatment increased its change in net position by $4.8 million due to higher billings for  capital costs and the prior year impact of RWQCP discontinuing invoicing for encumbrances.     Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 25 CAPITAL ASSETS  GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.   Infrastructure includes roads, bridges, signals and similar assets used by the entire population.  The table  below shows capital assets and the amount of accumulated depreciation for these assets for Governmental  and Business‐type Activities.  Further detail can be found in Note 6 to the financial statements.    Increase/  2015 2014 (Decrease) Governmental Activities Capital Assets Land and improvements 79.0$      79.0$       ‐$            Street trees 15.1 15.2 (0.1) Construction in progress 39.3 89.9 (50.6) Buildings and improvements 221.7 134.6 87.1 Intangible assets 3.8 3.8           ‐ Equipment 12.3 11.9 0.4 Roadway network 299.2 291.3 7.9 Recreation and open space network 27.6 27.6 0.0 Less accumulated depreciation (228.2) (215.1) (13.1) Internal Service Fund Assets   Construction in progress 1.4 3.1 (1.7) Equipment 53.5 51.1 2.4 Less accumulated depreciation (39.5) (39.8) 0.3 Total Governmental Activities 485.2$    452.6$    32.6$       Business‐type Activities Land 5.0$         5.0$         ‐$            Construction in progress 89.9 122.2 (32.3) Buildings and improvements 53.5 34.1 19.4 Transmission, distribution and treatment systems 717.6 675.8 41.8 Less accumulated depreciation (307.5) (291.6) (15.9) Total Business‐type Activities 558.5$    545.5$    13.0$       CAPITAL ASSETS AT JUNE 30 (in millions) Governmental Activities’ capital assets net of depreciation increased by $32.6 million from the prior year.   The increase was primarily due to construction of Mitchell Park Library and Community Center,  improvements to the Rinconada Library, California Avenue – Transit Hub Corridor improvements and street  and sidewalk improvements throughout the City.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 26 In June 2014 Council approved a $125.8 million Infrastructure Plan, which includes projects such as a new  Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and two parking  garages.  Funding for these projects will come from a variety of sources, including TOT revenues, Stanford  University Medical Center development agreement, and developer impact fees.  In the past four years,  General Fund surpluses totaling $25.6 million have been transferred to the Capital Projects Infrastructure  Reserve.    Major Governmental Activities’ capital projects that are currently in progress, including the remaining  capital commitment of each, are as follows:   Golf Course reconfiguration and Baylands Athletic Center ‐ $10.4 million   El Camino Park expansion ‐ $3.6 million   Newell Road bridge/San Francisquito bridge replacement ‐ $3.5 million  Business‐type Activities’ capital assets net of depreciation increased by $13.0 million over FY 2014.  The  increase is due to Electric and Gas infrastructure improvements.    Major Business‐type Activities’ capital projects that are currently in progress, including the remaining capital  commitment of each, are as follows:   Water main replacement for Water Fund ‐ $4.7 million   Gas main replacement for Gas Fund ‐ $2.1 million   Wastewater Collection Fund rehabilitation/augmentation project ‐ $8.7 million    The City depreciates its capital assets over their estimated useful lives, as required by GASB 34.  The purpose  of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable  portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable  lives are in Note 6.    Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 27 DEBT ADMINISTRATION  Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements.  At June 30, 2015,  the City’s debt was comprised of the following:  LONG‐TERM DEBT AT JUNE 30 (in millions) Increase/  2015 2014 (Decrease) Governmental Activities General Long‐Term Obligations Certificates of Participation  2002B Downtown Parking Improvements 1.3$         1.5$         (0.2)$        General Obligation Bonds      2010 51.5 52.5 (1.0) 2013A 20.3 20.7 (0.4) 2011 Lease Purchase Agreement 1.6 2.0 (0.4)  Add: unamortized premium 4.1 4.2 (0.1) Total Governmental 78.8$      80.9$      (2.1)$        Business‐type Activities Enterprise Long‐Term Obligations Utility Revenue Bonds       1995 Series A2.9$         3.3$         (0.4)  1999 Refunding 10.3 11.0 (0.7) 2009 Series A30.7         31.6         (0.9) 2011 Refunding 13.3         14.3         (1.0) Add: unamortized premium 0.9           0.9           0.0 Energy Tax Credit Bonds 2007 Series A0.7           0.8           (0.1) Less: unamortized discount (0.1) (0.1)‐              State Water Resources Loan 2007 6.3           6.8           (0.5) 2009 7.2           7.6           (0.4) Total Business‐type 72.2$      76.2$      (4.0)$        Long‐term debt decreased $6.1 million due to debt retirements in accordance with repayment schedules.   As noted in the Statistical Section of the CAFR, the combined direct debt ratio to assessed valuation for the  General Fund is 0.27 percent compared to the allowable legal debt margin of 15 percent.  Management’s Discussion and Analysis  ……….…………………………………………………………………… City of Palo Alto 28 SPECIAL ASSESSMENT DISTRICT DEBT  Special assessment districts throughout different parts of the City have also issued debt to finance  infrastructure and facilities construction exclusively in their districts. As of June 30, 2015, the City had no  special assessment district debt with City commitment outstanding.    ECONOMIC OUTLOOK  The economy of the City is discussed in the accompanying Transmittal Letter.  CONTACTING THE CITY’S FINANCIAL MANAGEMENT  The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the  City’s finances. Questions about this report should be directed to the Administrative Services Department, at  250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by email at:  adminsvcs@cityofpaloalto.org.  This report and other financial reports can be viewed on the City of Palo Alto  website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative Services,  and select Financial Reporting. Within Financial Reporting, there are links to reports by title and reporting  date.   CITY OF PALO ALTO Statement of Net Position June 30, 2015 (Amounts in thousands) Governmental Business‐Type  Activities Activities Total ASSETS: Cash and investments available for operations (Note 3) 275,316$           248,259$           523,575$             Receivables, net: Accounts and intergovernmental 12,496              32,109              44,605                 Interest receivable 1,169                1,123                2,292                   Notes and loans receivable (Note 5) 17,852               ‐                     17,852                 Internal balances (Note 4) (1,277)               1,277                 ‐                      Net OPEB asset (Note 12) 22,871               ‐                     22,871                 Due from other government agencies ‐                    4,200                4,200                   Inventory of materials and supplies, prepaids and deposits 4,103                464                     4,567                   Restricted cash and investments with fiscal agents (Note 3) 5,587                4,142                9,729                   Restricted cash for post‐closure landfill (Note 3)‐                    1,281                1,281                   Capital assets (Note 6): Nondepreciable 138,374            94,882              233,256               Depreciable, net of accumulated depreciation 346,815            463,651            810,466               Total assets 823,306            851,388            1,674,694            DEFERRED OUTFLOWS OF RESOURCES: Unamortized loss from refunding ‐                    368                     368                      Deferred pension contribution 19,175              8,110                27,285                 Total deferred outflows of resources 19,175              8,478                27,653                 LIABILITIES: Accounts payable and accruals 13,548              15,026              28,574                 Accrued salaries and benefits 3,439                1,667                5,106                   Unearned revenue 2,517                66                       2,583                   Accrued compensated absences (Note 1): Due in one year 4,470                 ‐                     4,470                   Due in more than one year 6,286                 ‐                     6,286                   Claims payable (Note 14): Due in one year 5,317                 ‐                     5,317                   Due in more than one year 18,801               ‐                     18,801                 Accrued landfill closure liability and post‐closure care (Note 9): Due in more than one year ‐                    7,833                7,833                   Net pension liabilities (Note 11): 208,765            81,167              289,932               Long‐term debt (Note 7): Due in one year 2,153                4,049                6,202                   Due in more than one year 76,654              68,178              144,832               Total liabilities 341,950            177,986            519,936               DEFERRED INFLOWS OF RESOURCES: Differences between expected and actual earnings on investments 36,675              14,062              50,737                 NET POSITION (Note 10): Net Investment in capital assets 405,921            490,874            896,795               Restricted for: Special revenue programs 47,604               ‐                     47,604                 Debt service 6,891                4,142                11,033                 Nonexpendable ‐ Eyerly Family 1,468                 ‐                     1,468                   Total restricted net position 55,963              4,142                60,105                 Unrestricted 1,972                172,802            174,774               Total net position $           463,856 $           667,818  $        1,131,674  See accompanying notes to the basic financial statements. 29 30  This page is left intentionally blank.                           CITY OF PALO ALTO Statement of Activities For the Year Ended June 30, 2015 (Amounts in thousands) Net (Expense) Revenue and Program Revenues Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Business‐Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental Activities: City Council 271$                    ‐$                    ‐$                    ‐$                   (271)$                   ‐$                   (271)$            City Manager 2,155                   ‐                      ‐                     ‐                    (2,155)                 ‐                     (2,155)         City Attorney 1,759                   ‐                      ‐                     ‐                    (1,759)                 ‐                     (1,759)         City Clerk 680                      ‐                      ‐                     ‐                    (680)                    ‐                     (680)             City Auditor 362                      ‐                      ‐                     ‐                    (362)                    ‐                     (362)             Administrative Services 9,980                  5,460                  ‐                    619                   (3,901)                 ‐                     (3,901)         People Strategy and Operations 1,464                   ‐                      ‐                     ‐                    (1,464)                 ‐                     (1,464)         Public Works 21,075                1,209                 3,436                 ‐                    (16,430)               ‐                     (16,430)       Planning and Community Environment 8,423                  8,090                 1,190                 ‐                    857                     ‐                     857              Development Services 10,449                12,019                ‐                     ‐                    1,570                  ‐                     1,570           Public Safety 58,660                15,726               671                    ‐                    (42,263)               ‐                     (42,263)       Community Services 24,688                20,912                ‐                     ‐                    (3,776)                 ‐                     (3,776)         Library 7,721                  137                    3                         ‐                    (7,581)                 ‐                     (7,581)         Interest on long‐term debt 3,658                   ‐                      ‐                     ‐                    (3,658)                 ‐                     (3,658)         Total Governmental Activities 151,345              63,553               5,300                619                   (81,873)               ‐                     (81,873)       Business‐Type Activities: Water 33,205                35,847               534                   1,132                 ‐                     4,308                 4,308           Electric 122,499              120,842              ‐                     ‐                     ‐                     (1,657)                 (1,657)         Fiber Optics 1,891                  4,627                  ‐                     ‐                     ‐                     2,736                 2,736           Gas 23,525                30,751                ‐                     ‐                     ‐                     7,226                 7,226           Wastewater Collection 14,595                16,182                ‐                    648                    ‐                     2,235                 2,235           Wastewater Treatment 21,553                24,120                ‐                     ‐                     ‐                     2,567                 2,567           Refuse 27,974                31,576                ‐                     ‐                     ‐                     3,602                 3,602           Storm Drainage 3,721                  6,281                  ‐                     ‐                     ‐                     2,560                 2,560           Airport 1,004                  683                     ‐                    300                    ‐                     (21)                     (21)               Total Business‐Type Activities 249,967              270,909             534                   2,080                 ‐                     23,556                23,556         Total 401,312$            334,462$           5,834$               2,699$               (81,873)              23,556                (58,317)       General Revenues: Taxes: Property tax 38,750                ‐                     38,750         Sales tax 29,675                ‐                     29,675         Utility user tax 10,861                ‐                     10,861         Transient occupancy tax 16,699                ‐                     16,699         Documentary transfer tax 10,384                ‐                     10,384         Other taxes 1,483                  ‐                     1,483           Investment earnings 5,010                 4,857                 9,867           Miscellaneous 3,428                  ‐                     3,428           Transfers (Note 4)16,405               (16,405)                ‐               Total general revenues and transfers              132,695 (11,548)               121,147      Change in net position 50,822               12,008                62,830         Net position, beginning of year, as previously reported 642,413             744,755              1,387,168   Restatement for implementation of GASB Statement No. 68 (Note 1(n)) (229,379)          (88,945)               (318,324)     Net position, beginning of year, as restated 413,034             655,810              1,068,844   Net position, end of year 463,856$            667,818$            1,131,674$  See accompanying notes to the basic financial statements. 31 32  This page is left intentionally blank.    CITY OF PALO ALTO Governmental Funds Balance Sheet June 30, 2015 (Amounts in thousands) Capital Other Total General Projects Governmental Governmental Fund Fund Funds Funds ASSETS: Cash and investments available for operations (Note 3) 54,730$          56,469$          87,864$           199,063$         Receivables, net: Accounts and intergovernmental 10,197           1,456             63                   11,716             Interest receivable 525                 ‐                 327                 852                  Notes and loans receivable (Note 5) 868                 ‐                 16,984            17,852             Prepaid items 66                   ‐                  ‐                  66                    Advance to other fund (Note 4) 1,695              ‐                  ‐                  1,695               Inventory of materials and supplies 3,667              ‐                  ‐                  3,667               Restricted cash and investments with fiscal agents (Note 3)‐                 5,349             238                 5,587               Total assets 71,748$          63,274$          105,476$         240,498$         LIABILITIES AND FUND BALANCES: Liabilities: Accounts payable and accruals 3,647$            5,799$            635$                10,081$           Accrued salaries and benefits 3,114             121                16                   3,251               Unearned revenue 2,517              ‐                  ‐                  2,517               Total liabilities 9,278             5,920             651                 15,849             Fund balances (Note 10): Nonspendable: Notes and loans receivable 868                 ‐                  ‐                  868                  Prepaid items 66                   ‐                  ‐                  66                    Inventories 3,667              ‐                  ‐                  3,667               Advance to other fund 1,695              ‐                  ‐                  1,695               Eyerly family ‐                  ‐                 1,468              1,468               Restricted for:  Transportation mitigation ‐                  ‐                 11,898            11,898             Federal revenue ‐                  ‐                 4,442              4,442               Street improvement ‐                  ‐                 1,544              1,544               Local law enforcement ‐                  ‐                 140                 140                  Library bond project ‐                 5,155              ‐                  5,155               Public benefit ‐                  ‐                 29,580            29,580             Debt service ‐                  ‐                 6,891              6,891               Committed for: Developer impact fees ‐                  ‐                 12,497            12,497             Housing in‐lieu ‐                  ‐                 33,881            33,881             Special districts ‐                  ‐                 2,013              2,013               Downtown business ‐                  ‐                 43                   43                    Assigned for: Unrealized gains on investments 671                 ‐                 428                 1,099               Infrastructure ‐                 9,475              ‐                  9,475               Capital projects ‐                 42,724            ‐                  42,724             Other general government purposes 5,605              ‐                  ‐                  5,605               Reappropriations 1,700              ‐                  ‐                  1,700               Unassigned for: Budget Stabilization 48,198            ‐                  ‐                  48,198             Total fund balances 62,470           57,354           104,825          224,649           Total liabilities and fund balances 71,748$          63,274$          105,476$         240,498$         See accompanying notes to the basic financial statements. 33 CITY OF PALO ALTO Reconciliation of the Balance Sheet of Governmental Funds to  the Statement of Net Position ‐ Governmental Activities June 30, 2015 Total fund balances reported on the governmental funds balance sheet 224,649$      Amounts reported  for governmental activities in the statement of net position are different from those reported in the governmental funds balance sheet because of the following: Deferred outflows and inflows of resources in governmental activities are not  financial resources and, therefore, are not reported in the governmental funds. Deferred outflows of resources 19,175           Deferred inflows of resources (36,675)         Capital assets used in governmental activities are not current assets or financial  resources and therefore are not reported in the governmental funds (Note 6) 485,189        Internal service funds are used by management to charge the costs of activities  such as insurance, equipment acquisition and maintenance, and certain  employee benefits to individual funds.  The assets and liabilities of the  internal service funds are therefore included in governmental activities in  the statement of net position (excludes capital assets, deferred outflows   of resources, deferred inflows of resources and net pension liabilities reported above) 60,916           Some liabilities, including bonds payable, are not due and payable in the  current period and therefore are not reported in the governmental funds: Interest payable (1,826)           Net pension liabilities (Note 11) (208,765)       Long‐term debt (Note 7) (78,807)         Net position of governmental activities 463,856$      (Amounts in thousands) See accompanying notes to the basic financial statements. 34 CITY OF PALO ALTO Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2015 (Amounts in thousands) Capital Other General Projects Governmental Fund Fund Funds Total REVENUES: Property tax 34,117$           ‐$                4,633$             38,750$           Special assessments ‐                  ‐                 86                    86                    Sales tax 29,675            ‐                  ‐                   29,675            Utility user tax 10,861            ‐                  ‐                   10,861            Transient occupancy tax 16,699            ‐                  ‐                   16,699            Documentary transfer tax 10,384            ‐                  ‐                   10,384            Other taxes and fines 1,900              ‐                 1,732               3,632              Charges for services 25,973            ‐                  ‐                   25,973            From other agencies 3,712             3,527             488                   7,727              Permits and licenses 7,056              ‐                 2,123               9,179              Investment earnings 1,177             1,004             1,561               3,742              Rental income 14,911            ‐                 5                      14,916            Other revenue 1,018             209                 11,610             12,837            Total revenues 157,483         4,740             22,238             184,461          EXPENDITURES: Current: City Council 270                  ‐                  ‐                   270                  City Manager 2,112              ‐                  ‐                   2,112              City Attorney 1,830              ‐                  ‐                   1,830              City Clerk 679                  ‐                  ‐                   679                  City Auditor 409                  ‐                  ‐                   409                  Administrative Services 3,746              ‐                 190                   3,936              People Strategy and Operations 1,570              ‐                  ‐                   1,570              Public Works 11,440            ‐                 836                   12,276            Planning and Community Environment 7,369              ‐                 1,259               8,628              Development Services 11,152            ‐                  ‐                   11,152            Public Safety 61,226            ‐                 221                   61,447            Community Services 23,045            ‐                 508                   23,553            Library 7,980              ‐                  ‐                   7,980              Non‐Departmental 5,578             240                 362                   6,180              Capital outlay ‐                 41,754            ‐                   41,754            Debt service: Principal 383                  ‐                 1,565               1,948              Interest and fiscal charges 46                   3                      3,355               3,404              Total expenditures 138,835         41,997           8,296               189,128          EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 18,648           (37,257)          13,942             (4,667)             OTHER FINANCING SOURCES (USES): Transfers in (Note 4) 17,796           25,124           2,217               45,137            Transfers out (Note 4) (22,284)          (300)               (7,240)              (29,824)           Total other financing sources (uses) (4,488)            24,824           (5,023)              15,313            Change in fund balances 14,160           (12,433)          8,919               10,646            FUND BALANCES, BEGINNING OF YEAR 48,310           69,787           95,906             214,003          FUND BALANCES, END OF YEAR 62,470$          57,354$          104,825$         224,649$         See accompanying notes to the basic financial statements. 35 CITY OF PALO ALTO Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances  of Governmental Funds to the Statement of Activities ‐ Governmental Activities For the Year Ended June 30, 2015 Net change in fund balances ‐ total governmental funds 10,646$        Amounts reported for governmental activities in the statement of activities are different from those reported in the governmental funds because of the following: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of these assets are capitalized and allocated over their estimated useful lives and reported as depreciation expense.  Therefore, the activities associated with  capital assets are as follows: Capital outlay added back to fund balance for current year additions 45,420          Depreciation expense is deducted from fund balance (depreciation expense is net of  internal service fund depreciation of $2,392 (Note 6), which has already been allocated through the internal service fund activities below (13,188)        Disposal of capital assets (608)              Pension contribution made subsequent to the measurement date is an expenditure in the  governmental funds, but reported as a deferred outflows of resources in the  government‐wide financial statements 18,033          Pension expenses reported in the statement of activities do not require the use of current  financial resources and, therefore, are not reported as expenditures in governmental funds (15,172)        Principal payments on long‐term liabilities are reported as expenditures in governmental funds when paid.  The governmental activities, however, report principal payments as  a reduction of long‐term debt on the statement of net position.  Interest accrued on  long‐term debt and amortization of premiums do not require the use of current financial  resources and therefore are not reported as expenditures in governmental funds.  Therefore,  the activities associated with long‐term debt are as follows: Principal paid during the year 1,948            Change in interest payable (412)              Amortization of bond premium 158               Internal service funds are used by management to charge the costs of activities, such  as insurance, equipment acquisition and maintenance, and employees benefits to  individual funds.  The portion of the net revenue of these internal service  funds arising out of their transactions with governmental funds is reported with  governmental activities. 3,997            Change in net position of governmental activities 50,822$        (Amounts in thousands) See accompanying notes to the basic financial statements. 36 Variance with Budgeted Amounts Final Budget Actual, plus Positive Original Final Encumbrances (Negative) 25,957$      29,238$      29,675$       437$             31,927        32,556        34,117         1,561            14,156        15,901        16,699         798               Documentary transfer tax 7,514          6,500          10,384         3,884            11,285        10,895        10,861         (34)                2,164          2,168          1,900           (268)              23,080        24,863        25,973         1,110            7,738          7,738          7,056           (682)              685             685             1,177           492               14,254        14,207        14,911         704               453             472             3,712           3,240            1,060          1,878          1,018           (860)              140,273     147,101     157,483      10,382          10,647        10,647        10,416         (231)              ‐              5,579          4,760           (819)              150,920     163,327     172,659      9,332            2,578          3,330          3,137           193               1,065          1,122          1,121           1                    1,276          1,282          1,138           144               432             517             402              115               3,003          3,544          3,070           474               7,175          7,399          7,226           173               22,764        24,274        23,902         372               62,054        63,456        62,459         997               3,264          3,818          3,677           141               7,521          8,641          8,144           497               7,016          9,039          9,026           13                 Development Services 10,535        10,895        11,335         (440)              13,397        14,458        14,210         248               13,274        11,857        6,010           5,847            155,354     163,632     154,857      8,775            (4,434)         (305)            17,802         18,107          18,433        18,620        17,796         (824)              (15,735)      (23,044)      (22,284)       760               2,698          (4,424)         (4,488)          (64)                (1,736)$       (4,729)$       13,314         18,043$       Current year encumbrances/reappropriations 5,606            Prior year encumbrances/reappropriations (4,760)           14,160          48,310          62,470$        FUND BALANCE AT BEGINNING OF YEAR, GAAP BASIS FUND BALANCE AT END OF YEAR, GAAP BASIS EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES, BUDGETARY BASIS Adjustment to Budgetary Basis: CHANGE IN FUND BALANCE, GAAP BASIS Total other financing sources (uses) People Strategy and Operations Library Planning and Community Environment Public Works Non‐Departmental Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES):  Transfers in Transfers out Public Safety Prior year encumbrances and reappropriations Total revenues EXPENDITURES: Current: City Attorney City Auditor City Clerk City Council City Manager Administrative Services Community Services Charges to other funds Sales tax Property tax Transient occupancy tax Utility user tax Other taxes, fines and penalties Charges for services Permits and licenses Investment earnings Rental income From other agencies Other revenues REVENUES: CITY OF PALO ALTO General Fund Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual For the Year Ended June 30, 2015 (Amounts in thousands) See accompanying notes to the basic financial statements. 37 Fiber Water Electric Optics Gas ASSETS: Current assets: Cash and investments available for operations (Note 3) 37,505$          117,187$       22,023$           23,323$            Accounts receivable, net of allowance of $978 5,020             13,761           1,237              2,323                Interest receivable 161                547                91                   112                  Due from other government agencies ‐                      ‐                      ‐                       ‐                       Inventory of materials and supplies ‐                      ‐                      ‐                       ‐                       Restricted cash and investments with fiscal agents (Note 3) 3,316              ‐                      ‐                      826                  Restricted cash for landfill closure (Note 3)‐                      ‐                      ‐                       ‐                       Total current assets 46,002           131,495         23,351            26,584              Noncurrent assets: Due from other government agencies ‐                      ‐                      ‐                       ‐                       Deposit ‐                     114                 ‐                       ‐                       Prepaid expense 117                 ‐                      ‐                       ‐                       Capital assets (Note 6): Nondepreciable 11,344           15,196           1,118              17,804              Depreciable, net 102,615         166,012         6,490              84,447              Net OPEB asset (Note 12)‐                      ‐                      ‐                       ‐                       Total noncurrent assets 114,076         181,322         7,608              102,251            Total assets 160,078         312,817         30,959            128,835            DEFERRED OUTFLOWS OF RESOURCES: Unamortized loss from refunding 142                 ‐                      ‐                      185                  Deferred pension contribution 1,047             2,714             181                 1,151                Total deferred outflows of resources 1,189             2,714             181                 1,336                LIABILITIES: Current liabilities: Accounts payable and accruals 3,124             6,588             395                 1,382                Accrued salaries and benefits 274                594                35                   232                  Unearned revenue ‐                      ‐                      ‐                       ‐                       Accrued compensated absences (Note 1)‐                      ‐                      ‐                       ‐                       Current portion of revenue bonds (Note 7) 1,457             100                 ‐                      553                  Accrued claims payable (Note 14)‐                      ‐                      ‐                       ‐                       Total current liabilities 4,855             7,282             430                 2,167                Noncurrent liabilities: Accrued compensated absences (Note 1)‐                      ‐                      ‐                       ‐                       Accrued claims payable (Note 14)‐                      ‐                      ‐                       ‐                       Advance from other fund (Note 4)‐                      ‐                      ‐                       ‐                       Landfill closure and post‐closure care (Note 9)‐                      ‐                      ‐                       ‐                       Net pension liabilities (Note 11) 11,024           26,104           1,592              11,758              Utility revenue bonds, net of  unamortized discounts/premiums (Note 7) 36,328           562                 ‐                      7,305                Total noncurrent liabilities 47,352           26,666           1,592              19,063              Total liabilities 52,207           33,948           2,022              21,230              DEFERRED INFLOWS OF RESOURCES: Differences between expected and actual earnings on investments 1,910             4,522             276                 2,037                Total deferred inflows of resources 1,910             4,522             276                 2,037                NET POSITION (Note 10): Net Investment in capital assets 76,316           180,546         7,608              94,578              Restricted for debt service 3,316              ‐                      ‐                      826                  Unrestricted (deficit) 27,518           96,515           21,234            11,500              Total net position 107,150$       277,061$       28,842$           106,904$         Some amounts reported for Business‐type Activities in the statement of net position are different because certain Internal Service Fund net positions are included with Business‐type Activities Net position reported in Business‐type Activities Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Net Position June 30, 2015 (Amounts in thousands) See accompanying notes to the basic financial statements. 38 Governmental Activities ‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 15,720$           12,430$           11,697$          8,305$            69$                 248,259$       76,253$            2,366               2,981               3,333              662                426                32,109           780                   65                    60                    52                   35                   ‐                     1,123             317                   ‐                       300                   ‐                       ‐                      ‐                     300                 ‐                        ‐                        ‐                        ‐                       ‐                      ‐                      ‐                     370                   ‐                        ‐                        ‐                       ‐                      ‐                     4,142              ‐                        ‐                        ‐                       1,281               ‐                      ‐                     1,281              ‐                        18,151             15,771             16,363            9,002             495                287,214         77,720              ‐                       3,900                ‐                       ‐                      ‐                     3,900              ‐                        ‐                        ‐                        ‐                       ‐                      ‐                     114                 ‐                        ‐                       233                   ‐                       ‐                      ‐                     350                 ‐                        23,121             11,156             4,417              10,344           382                94,882           1,350                52,903             29,720             380                 21,084            ‐                     463,651         13,965              ‐                        ‐                        ‐                       ‐                      ‐                      ‐                     22,871              76,024             45,009             4,797              31,428           382                562,897         38,186              94,175             60,780             21,160            40,430           877                850,111         115,906            ‐                        ‐                        ‐                      41                   ‐                     368                 ‐                        650                  1,650               389                 266                62                  8,110             1,142                650                  1,650               389                 307                62                  8,478             1,142                514                  640                  2,038              251                94                  15,026           1,641                72                    313                  73                   52                  22                  1,667             188                   ‐                        ‐                        ‐                      66                   ‐                     66                   ‐                        ‐                        ‐                        ‐                       ‐                      ‐                      ‐                     4,470                82                    1,282                ‐                      575                 ‐                     4,049              ‐                        ‐                        ‐                        ‐                       ‐                      ‐                      ‐                     5,317                668                  2,235               2,111              944                116                20,808           11,616              ‐                        ‐                        ‐                       ‐                      ‐                      ‐                     6,286                ‐                        ‐                        ‐                       ‐                      ‐                      ‐                     18,801              ‐                        ‐                        ‐                       ‐                     1,695             1,695              ‐                        ‐                        ‐                       7,833               ‐                      ‐                     7,833              ‐                        6,587               16,347             4,587              2,777             391                81,167           11,501              819                  17,211              ‐                      5,953              ‐                     68,178            ‐                        7,406               33,558             12,420            8,730             2,086             158,873         36,588              8,074               35,793             14,531            9,674             2,202             179,681         48,204              1,141               2,832               795                 481                68                  14,062           1,992                1,141               2,832               795                 481                68                  14,062           1,992                75,123             26,583             4,797              24,941           382                490,874         15,315              ‐                        ‐                        ‐                       ‐                      ‐                     4,142              ‐                        10,487             (2,778)              1,426              5,641             (1,713)            169,830         51,537              85,610$           23,805$           6,223$            30,582$          (1,331)$          664,846         66,852$            2,972              667,818$        Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 39 Fiber Water Electric Optics Gas OPERATING REVENUES: Sales to:  Customers 31,323$     104,964$    3,591$       28,677$      City departments 1,759        3,234         853            924             Service connection charges and miscellaneous 1,011        1,386         162            748             Charges for services ‐                  ‐                    ‐                   ‐                  Other 1,754        11,258       21               402             Total operating revenues 35,847      120,842     4,627         30,751       OPERATING EXPENSES: Retail purchase of utilities 15,670      78,380        ‐                  10,519       Administrative and general 4,164        5,991         421            3,855         Engineering (operating) 358            1,406          ‐                  369             Resource management and energy efficiency 488            5,696          ‐                  1,187         Operations and maintenance 5,283        10,717       1,104         4,403         Rent 2,249        3,961         53               440             Depreciation and amortization 2,463        7,383         319            2,523         Claims payments and changes in estimated self‐insurance liability ‐                  ‐                    ‐                   ‐                  Refund of charges for services ‐                  ‐                    ‐                   ‐                  Compensated absences and other benefits ‐                  ‐                    ‐                   ‐                  Total operating expenses 30,675      113,534     1,897         23,296       Operating income (loss) 5,172        7,308         2,730         7,455         NONOPERATING REVENUES (EXPENSES): Investment earnings 787            2,264         417            450             Interest expense (1,872)       (8,940)         ‐                  (266)           Gain on disposal of capital assets ‐                  ‐                    ‐                   ‐                  Loss on disposal of capital assets (809)          (312)            ‐                  (81)              Other nonoperating revenues 534             ‐                    ‐                   ‐                  Total nonoperating revenues (expenses) (1,360)       (6,988)        417            103             Income (loss) before transfers and capital contributions 3,812        320             3,147         7,558         Capital contributions 1,132         ‐                    ‐                   ‐                  Transfers in (Note 4) 192            54                ‐                  8                 Transfers out (Note 4) (64)             (11,580)      (9)               (5,881)        Change in net position 5,072        (11,206)      3,138         1,685         NET POSITION (DEFICIT), BEGINNING OF YEAR, AS PREVIOUSLY REPORTED 114,158    316,873     27,448       118,104     Restatement for implementation of GASB Statement No. 68 (Note 1(n)) (12,080)     (28,606)      (1,744)        (12,885)      NET POSITION (DEFICIT), BEGINNING OF YEAR, AS RESTATED 102,078    288,267     25,704       105,219     NET POSITION (DEFICIT), END OF YEAR 107,150$   277,061$    28,842$     106,904$    Some amounts reported for Business‐type Activities in the statement of activities are different because certain  Internal Service Fund activities are included with Business‐type Activities Change in net position reported in Business‐type Activities Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2015 (Amounts in thousands) See accompanying notes to the basic financial statements. 40 Governmental Activities‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 14,579$     14,949$      26,706$     5,858$      683$         231,330$     ‐$                     80               8,836          822           355           ‐                16,863        ‐                       744             ‐                    ‐                  ‐                 ‐                4,051          ‐                       ‐                   ‐                    ‐                  ‐                 ‐                 ‐                  81,534            779            335              4,048        68              ‐                18,665       937                  16,182       24,120        31,576       6,281       683          270,909     82,471            8,777          ‐                   14,381        ‐                 ‐                127,727      ‐                       738             ‐                   1,593        609          757          18,128       11,399            319            1,699          200           365           ‐                4,716          ‐                       ‐                   ‐                    ‐                 296           ‐                7,667          ‐                       2,646         16,198        8,742        1,235       218          50,546       24,037            223             ‐                   2,539        34              ‐                9,499          ‐                       1,908         3,047          42              740           ‐                18,425       2,392              ‐                   ‐                    ‐                  ‐                 ‐                 ‐                  1,320              ‐                   ‐                    ‐                  ‐                 ‐                 ‐                  61                    ‐                   ‐                    ‐                  ‐                 ‐                 ‐                  41,120            14,611       20,944        27,497       3,279       975          236,708     80,329            1,571         3,176          4,079        3,002       (292)         34,201       2,142              315            228              237           159           ‐                4,857         1,268              (51)             (522)            (578)          (404)         (32)           (12,665)       ‐                       ‐                   ‐                    ‐                  ‐                 ‐                 ‐                  70                    ‐                   ‐                    ‐                  ‐                 ‐                (1,202)         ‐                       ‐                   ‐                    ‐                  ‐                 ‐                534             33                    264            (294)            (341)          (245)         (32)           (8,476)        1,371              1,835         2,882          3,738        2,757       (324)         25,725       3,513              648             ‐                    ‐                  ‐                300          2,080          ‐                       4                  ‐                   1,061         ‐                 ‐                1,319         2,349              (119)           (14)               (42)            (15)            ‐                (17,724)      (1,257)             2,368         2,868          4,757        2,742       (24)           11,400       4,605              90,460       38,850        6,493        30,883     (878)         74,851                                  (7,218)        (17,913)       (5,027)       (3,043)      (429)         (12,604)                                 83,242       20,937        1,466        27,840     (1,307)      62,247                                  85,610$     23,805$      6,223$      30,582$    (1,331)$    66,852$          608              12,008$       Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 41 Fiber Water Electric Optics Gas Cash flows from operating activities: Cash received from customers 32,326$     103,814$   2,959$        29,488$      Cash refunds to customers ‐              ‐              ‐                ‐               Cash payments to suppliers for goods and services (24,827)     (98,148)     (947)             (17,885)       Cash payments to employees (4,287)       (6,567)       (475)             (4,088)         Internal activity‐ receipts (payment) from (to) other funds 1,759         3,234         853              924              Other receipts 1,754         11,258      21                402              Net cash provided by (used in)  operating activities 6,725         13,591      2,411           8,841           Cash flows from noncapital financing activities: Receipt of loans from other funds ‐              ‐              ‐                ‐               Interest subsidy received from Build America Bonds 534             ‐              ‐                ‐               Transfers in 192            54               ‐               8                   Transfers out (64)             (11,580)     (9)                 (5,881)         Cash flows provided by (used in) noncapital financing activities 662            (11,526)     (9)                 (5,873)         Cash flows from capital and related financing activities: Acquisition and construction of capital assets (4,330)       (11,733)     (412)             (7,462)         Proceeds from sale of capital assets ‐              ‐              ‐                ‐               Capital grants and contributions 1,132          ‐              ‐                ‐               Principal paid on long‐term debt (1,404)       (100)            ‐               (536)             Interest paid on long‐term debt (1,871)       (8,940)        ‐               (265)             Cash flows used in capital and related financing activities (6,473)       (20,773)     (412)             (8,263)         Cash flows from investing activities: Interest received 806            2,394         417              496              Cash flows provided by investing activities 806            2,394         417              496              Net change in cash and cash equivalents 1,720         (16,314)     2,407           (4,799)         Cash and cash equivalents, beginning of year 39,101      133,501    19,616        28,948        Cash and cash equivalents, end of year $      40,821 $    117,187  $      22,023  $      24,149  Financial statement presentation: Cash and investments available for operations 37,505$     117,187$   22,023$      23,323$      Cash and investments with fiscal agent 3,316          ‐              ‐               826              Cash and cash equivalents, end of year 40,821$     117,187$   22,023$      24,149$      Reconciliation of operating income (loss) to  net cash provided by (used in) operating activities: Operating income (loss) 5,172$       7,308$       2,730$        7,455$        Adjustments to reconcile operating income (loss) to  net cash provided by (used in) operating activities: Depreciation and amortization 2,463         7,383         319              2,523           Other ‐              ‐              ‐                ‐               Change in assets and liabilities: Accounts receivable (8)               (2,536)       (794)             63                Inventory of materials and supplies ‐              ‐              ‐                ‐               Deposit 8                 (1)                ‐                ‐               Net OPEB asset ‐              ‐              ‐                ‐               Deferred outflow of resources ‐ pension plans (22)             (287)           (33)               (58)               Accounts payable and accruals (787)           2,013         210              (967)             Accrued salaries and benefits 70              118            3                   8                   Accrued compensated absences ‐              ‐              ‐                ‐               Unearned revenue ‐              ‐              ‐                ‐               Accrued claims payable ‐              ‐              ‐                ‐               Net Pension liabilitty (2,081)       (4,929)       (300)             (2,220)         Deferred inflow of resources ‐ pension plans 1,910         4,522         276              2,037           Net cash provided by (used in)  operating activities $        6,725 $      13,591  $        2,411  $        8,841  Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Cash Flows For the Year Ended June 30, 2015 (Amounts in thousands) See accompanying notes to the basic financial statements. 42 Governmental Activities‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 14,755$      14,068$      26,408$     5,551$       257$           229,626$   81,871$                ‐                ‐                ‐              ‐              ‐              ‐             (61)                         (12,056)       (18,440)       (26,154)     (2,015)       (173)           (200,645)   (23,720)                 (941)             (344)             (1,630)       (647)           (773)           (19,752)     (52,485)                 80                8,836           822            355             ‐             16,863      (3,196)                   779              335              4,049         68               ‐             18,666      33                           2,617          4,455           3,495         3,312         (689)           44,758      2,442                     ‐                ‐                ‐              ‐             760            760             ‐                         ‐                ‐                ‐              ‐              ‐             534             ‐                         4                    ‐               1,061          ‐              ‐             1,319         2,349                     (119)             (14)               (42)             (15)              ‐             (17,724)     (1,257)                   (115)             (14)               1,019         (15)             760            (15,111)     1,092                     (3,094)         (4,547)         (2,251)       (2,011)       (382)           (36,222)     (3,760)                   ‐                ‐                ‐              ‐              ‐              ‐             172                        648              300               ‐              ‐             300            2,380          ‐                         (77)               (1,252)          ‐             (540)            ‐             (3,909)        ‐                         (48)               (521)             (578)           (404)           (32)             (12,659)      ‐                         (2,571)         (6,020)         (2,829)       (2,955)       (114)           (50,410)     (3,588)                   324              249              238            161            1                 5,086         1,315                     324              249              238            161            1                 5,086         1,315                     255              (1,330)         1,923         503            (42)             (15,677)     1,261                                  15,465        13,760        11,055      7,802         111            269,359    74,992                    $      15,720  $      12,430 $      12,978 $        8,305 $              69 $    253,682  $               76,253  15,720$      12,430$      11,697$     8,305$       69$             248,259$   76,253$                ‐                ‐               1,281          ‐              ‐             5,423          ‐                         15,720$      12,430$      12,978$     8,305$       69$             253,682$   76,253$                1,571$        3,176$        4,079$       3,002$       (292)$         34,201$     2,142$                   1,908          3,047           42              740             ‐             18,425      2,392                     ‐                ‐                ‐              ‐              ‐              ‐             33                           (568)             (881)             (298)           (21)             (426)           (5,469)       159                        ‐                ‐                ‐              ‐              ‐              ‐             18                           ‐               17                 ‐              ‐              ‐             24               ‐                         ‐                ‐                ‐              ‐              ‐              ‐             (261)                       (38)               (130)             37              (8)               (26)             (565)           (72)                         (91)               (560)             (291)           (85)             45              (513)           274                        (63)               40                (3)               13              16              202            15                           ‐                ‐                ‐              ‐              ‐              ‐             558                        ‐                ‐                ‐             (286)            ‐             (286)            ‐                         ‐                ‐                ‐              ‐              ‐              ‐             (2,635)                   (1,243)         (3,086)         (866)           (524)           (74)             (15,323)     (2,173)                   1,141          2,832           795            481            68              14,062      1,992                      $        2,617  $        4,455 $        3,495 $        3,312 $          (689)$      44,758  $                 2,442  Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 43 Agency Funds ASSETS: Cash and investments available for operations (Note 3) 3,027$          Restricted cash and investments with fiscal agents (Note 3) 2,543            Account receivable 512                Interest receivable 12                  Total assets 6,094$          LIABILITIES: Due to bondholders 4,928$          Due to other governments 1,166            Total liabilities 6,094$          CITY OF PALO ALTO Statement of Fiduciary Net Position June 30, 2015 (Amounts in thousands) See accompanying notes to the basic financial statements. 44 CITY OF PALO ALTO  Index to the Notes to the Basic Financial Statements   For the Year Ended June 30, 2015    45    Page    1. Summary of Significant Accounting Policies ........................................................................... 47  2. Budgets and Budgetary Accounting ........................................................................................ 56  3. Cash and Investments ............................................................................................................. 57  4. Interfund Transactions ............................................................................................................ 61  5. Notes and Loans Receivable .................................................................................................... 63  6. Capital Assets .......................................................................................................................... 69  7. General Long‐Term Obligations .............................................................................................. 73  8. Special Assessment Debt ......................................................................................................... 80  9. Landfill Closure and Post‐Closure Care ................................................................................... 80  10. Net Position and Fund Balances .............................................................................................. 81  11. Pension Plans ........................................................................................................................... 84  12. Retiree Health Benefits ........................................................................................................... 91  13. Deferred Compensation Plan .................................................................................................. 94  14. Risk Management .................................................................................................................... 95  15. Joint Ventures .......................................................................................................................... 96  16. Commitments and Contingencies ........................................................................................... 99    Notes are essential to present fairly the information contained in the overview level of the basic financial  statements.  Narrative explanations are intended to communicate information that is not readily apparent  or cannot be included in the statements themselves, and to provide additional disclosures as required by  the Governmental Accounting Standards Board.    46   This page is left intentionally blank.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    47   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    The City of Palo Alto (the City) was incorporated in 1894 and operates as a charter city, having had its first  charter granted by the State of California in 1909.  The City operates under the Council‐Manager form of  government and provides the following services: public safety (police and fire), public works, electric, fiber  optics, water, gas, wastewater, storm drain, refuse, airport, golf course, planning and zoning, general  administration services, library, open space and science, recreational and human services.    (a) Reporting Entity    The City is governed by a nine‐member council, elected by City residents.  The City is legally  separate and fiscally independent, which means it can issue debt, set and modify budgets and  fees, and sue or be sued.  The accompanying basic financial statements present the financial  activities of the City, which is the primary government presented, along with the financial  activities of its component unit, which is an entity for which the City is financially accountable.   Although a separate legal entity, a blended component unit is, in substance, part of the City’s  operations and is reported as an integral part of the City’s financial statements.  The City’s  component unit described below is blended.    The Palo Alto Public Improvement Corporation (the Corporation) provides financing of public  capital improvements for the City through the issuance of Certificates of Participation (COPs), a  form of debt that allows investors to participate in a stream of future lease payments.  Proceeds  from the COPs are used to construct projects that are leased to the City.  The lease payments are  sufficient in timing and amount to meet the debt service requirements of the COPs.  The Board of  Directors of the Corporation is composed of the same members as the City Council. The  Corporation is controlled by the City, which performs all accounting and administrative functions  for the Corporation.  The financial activities of the Corporation are included in the Downtown  Parking Improvement Debt Service Fund.    Financial statements for the Corporation may be obtained from the City of Palo Alto,  Administrative Services Department, 4th Floor, 250 Hamilton Avenue, Palo Alto, CA  94301.    (b) Basis of Presentation     The City’s basic financial statements are prepared in conformity with accounting principles  generally accepted in the United States of America.  The Governmental Accounting Standards  Board (GASB) is the acknowledged standard setting body for establishing accounting and financial  reporting standards followed by governmental entities in the United States.          These standards require that the financial statements described below be presented:    Government‐wide Statements: The Statement of Net Position and the Statement of Activities  display information about the primary government and its component unit.  These statements  include the financial activities of the overall City government, except for fiduciary activities.   Eliminations have been made to minimize the double counting of internal activities.  However,  interfund goods and services transactions have not been eliminated in the consolidation process.   These statements distinguish between the governmental and business‐type activities of the City.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    48   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (b) Basis of Presentation (Continued)    Governmental activities generally are financed through taxes, intergovernmental revenues, and  other non‐exchange transactions.  Business‐type activities are financed in whole or in part by fees  charged to external parties.    The Statement of Activities presents a comparison between direct expenses and program  revenues for each segment of the business‐type activities of the City and for each function of the  City’s governmental activities.  Direct expenses are those that are specifically associated with a  program or function and, therefore, are clearly identifiable to a particular function.  Program  revenues include: (a) charges paid by the recipients for goods and services offered by the  programs, (b) grants and contributions that are restricted to meeting the operational needs of a  particular program, and (c) fees, grants and contributions that are restricted to financing the  acquisition or construction of capital assets.  Revenues that are not classified as program  revenues, including all taxes, are presented as general revenues.    Fund Financial Statements: The fund financial statements provide information about the City’s  funds, including fiduciary funds and its blended component unit.  Separate statements for each  fund category – governmental, proprietary and fiduciary – are presented.  The emphasis of fund  financial statements is on major individual governmental and enterprise funds, each of which is  displayed in a separate column.  All remaining governmental and internal service funds are  aggregated and reported as non‐major funds.    Proprietary fund operating revenues, such as utilities sales and charges for services, result from  exchange transactions associated with the principal activity of the fund.  Exchange transactions  are those in which each party receives and gives up essentially equal values.  Nonoperating  revenues, such as subsidies and investment earnings, result from non‐exchange transactions or  ancillary activities.    Operating expenses for enterprise funds and internal service funds include the cost of sales and  services, administrative expenses, and depreciation on capital assets.  All expenses not meeting  this definition are reported as nonoperating expenses.    (c) Major Funds and Other Funds    The City’s major governmental and enterprise funds need to be identified and presented  separately in the fund financial statements.  All other funds, called non‐major funds, are combined  and reported in a single column, regardless of their fund type.    Major funds are defined as funds that have either assets and deferred outflows of resources,  liabilities and deferred inflows of resources, revenues or expenditures/expenses equal to at least  10 percent of their fund type total and at least 5 percent of the grand total.  The General Fund is  always a major fund.  The City may also select other funds it believes should be presented as major  funds on a qualitative basis.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    49   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds and Other Funds (Continued)    The City reported the following major governmental funds in the accompanying financial  statements:    General Fund – This is the City’s primary operating fund.  It accounts for all financial resources of  the general government, except those required to be accounted for in another fund.    Capital Projects Fund – This fund accounts for resources used for the acquisition and construction  of capital facilities by the City, with the exception of those assets financed by proprietary funds.    The City reported all of its enterprise funds as major funds in the accompanying financial  statements.  These funds are:    Water Services Fund – This fund accounts for all financial transactions relating to the City’s water  service.  Services are on a user‐charge basis to residents and business owners located in the City.    Electric Services Fund – This fund accounts for all financial transactions relating to the City’s  electric service.  Services are on a user‐charge basis to residents and business owners located in  the City.    Fiber Optics Fund – This fund accounts for all financial transactions relating to the City’s fiber  optics service.  Services are on a user‐charge basis to licensees located in the City.    Gas Services Fund – This fund accounts for all financial transactions relating to the City’s gas  service.  Services are on a user‐charge basis to residents and business owners located in the City.    Wastewater Collection Services Fund – This fund accounts for all financial transactions relating  to the City’s wastewater collection service.  Services are on a user‐charge basis to residents and  business owners located in the City.    Wastewater Treatment Services Fund – This fund accounts for all financial transactions relating  to the City’s wastewater treatment.  Services are on a user‐charge basis to residents and business  owners located in the City.    Refuse Services Fund – This fund accounts for all financial transactions relating to the City’s refuse  service.  Services are on a user‐charge basis to residents and business owners located in the City.    Storm Drainage Services Fund – This fund accounts for all financial transactions relating to the  City’s storm drainage service.  Services are on a user‐charge basis to residents and business  owners located in the City.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    50   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds and Other Funds (Continued)    Airport Fund – This fund accounts for all financial transactions relating to the Palo Alto Airport  (PAO).  The City assumed control over operation of PAO from the County of Santa Clara, effective  August 11, 2014.    The City also reports the following funds:    Internal Service Funds – These funds account for fleet replacement and maintenance, technology,  central duplicating, printing and mailing services, administration of compensated absences and  health benefits, and the City’s self‐insured workers’ compensation and general liability programs,  all of which are provided to other departments on a cost‐reimbursement basis.  Also included is  the Retiree Health Benefits Internal Service Fund, which accounts for benefits to retirees.    Vehicle Replacement and Maintenance – This fund accounts for the maintenance and  replacement of vehicles and equipment used by all City departments.  The source of revenue is  from reimbursement of fleet replacement and maintenance costs allocated to each department  by usage of vehicle.    Technology – This fund accounts for replacement and upgrade of technology, and covers four  primary areas used by all City departments: desktop, infrastructure, applications, and technology  research and development.  The source of revenue is from reimbursement of costs for support  provided to other departments.    Printing and Mailing Services – This fund accounts for central duplicating, printing and mailing  services provided to all City departments.  The source of revenue for this fund is from  reimbursement of costs for services and supplies purchased by other departments.    General Benefits – This fund accounts for the administration of compensated absences and health  benefits.    Workers’ Compensation Insurance Program – This fund accounts for the administration of the  City’s self‐insured workers’ compensation program.    General Liability Insurance Program – This fund accounts for the administration of the City’s self‐ insured general liability program.    Retiree Health Benefits – This fund accounts for retiree health benefits.    Fiduciary Funds – These funds account for assets held by the City, an agent for assessment  districts, and members of the Cable Joint Powers Authority.  These funds are custodial in nature  and do not involve measurement of results of operations.  The City maintains three agency funds.   The financial activities of these funds are excluded from the government‐wide financial  statements, but are presented in separate fiduciary fund financial statements.  Agency funds  apply the accrual basis of accounting but do not have a measurement focus.      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    51   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds and Other Funds (Continued)  California Avenue Parking Assessment District – This fund accounts for the receipts and  disbursements associated with the 1993 Parking District No. 92‐13 Assessment Bonds.    Cable Joint Powers Authority – This fund accounts for the activities of the cable television system  on behalf of the members.    University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the  receipts and disbursements associated with the 2012 Limited Obligation Refunding Improvement  Bonds.     (d) Basis of Accounting    The government‐wide and proprietary fund financial statements are reported using the economic  resources measurement focus and the full accrual basis of accounting.  Revenues are recorded  when earned and expenses are recorded at the time liabilities are incurred, regardless of when  the related cash flows take place.    Governmental funds are reported using the current financial resources measurement focus and  the modified accrual basis of accounting.  Under this method, revenues are recognized when  measurable and available.  The City considers revenues susceptible to accrual reported in the  governmental funds to be available if the revenues are collected within ninety days after year‐ end, except for property taxes, which are available if collected within sixty days after year‐end.    Expenditures are recorded when the related fund liability is incurred, except for principal and  interest on general long‐term debt, claims and judgments, and compensated absences, which are  recognized as expenditures to the extent they have matured.  General capital asset acquisitions  are reported as expenditures in governmental funds.  Proceeds of general long‐term debt and  acquisitions under capital leases are reported as other financing sources.      Revenues susceptible to accrual include taxes, intergovernmental revenues, interest and charges  for services.    Grant revenues are recognized in the fiscal year in which all eligibility requirements are met.   Under the terms of grant agreements, the City may fund certain programs with a combination of  cost‐reimbursement grants, categorical block grants, and general revenues.  Thus, both restricted  and unrestricted net position may be available to finance program expenditures.  The City’s policy  is to first apply restricted grant resources to such programs, followed by general revenues if  necessary.    Certain indirect costs are included in program expenses reported for individual functions and  activities.  Transactions representing the exchange of interfund goods and services have also been  included.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    52   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (e)  Cash and Cash Equivalents    Restricted and unrestricted pooled cash and investments held in the City Treasury, and other  unrestricted investments invested by the City Treasurer, are considered cash equivalents for  purposes of the statement of cash flows because the City’s cash management pool and funds  invested by the City Treasurer possess the characteristics of demand deposit accounts. Other  restricted and unrestricted investments with maturities of less than three months at the time of  purchase are considered cash equivalents for purposes of the statement of cash flows.    (f)  Investments    The City’s investments are carried at fair value, as required by GASB Statement No. 31, Accounting  and Financial Reporting for Certain Investments and for External Investment Pools.  The City  adjusts the carrying value of its investments to reflect their fair value at each fiscal year‐end, and  reports the effects of these adjustments in investment earnings for that fiscal year.    (g)  Inventory of Materials and Supplies    Materials and supplies are held for consumption and are valued at average cost.  The consumption  method is used to account for inventories.  Under the consumption method, inventories are  recorded as expenditures at the time inventory items are used, rather than purchased.      (h) Prepaid items     Prepaid items are recorded at cost.  Using the consumption method, prepaid items are recorded  as expenditures over the period that service is provided.    (i) Compensated Absences     The liability for compensated absences includes the vested portion of vacation, sick leave, and  overtime compensation pay.  The City’s liability for accrued compensated absences is recorded in  the General Benefits Internal Service Fund.  The fund is reimbursed through payroll charges to all  other funds.  Earned but unpaid vacation and overtime compensation pay are recognized as an  expense or expenditure in the proprietary and governmental fund types when earned because  the City has provided financial resources for the full amount through its budgetary process.   Vested accumulated sick pay is paid in the event of termination due to disability and, under certain  conditions, is specified in employment agreements.    During the fiscal year ended June 30, 2015, changes to the compensated absences liabilities were  as follows (in thousands):  Beginning balance 10,198$       Additions 6,978            Payments (6,420)          Ending balance 10,756$       Current portion 4,470$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    53   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (j) Property Tax    Santa Clara County (the County) assesses properties and bills, collects, and distributes property  taxes to the City.  The County remits the entire amount levied and handles all delinquencies,  retaining interest and penalties.    The County assesses property values, levies bills and collects taxes as follows:    Secured Unsecured Lien Dates January 01 January 01 Levy Dates October 01 July 01 Due Dates 50% on November 01 Upon receipt of billing 50% on February 01 Delinquent after December 10 (for November) August 31 April 10 (for February)    The term “unsecured” refers to taxes on personal property other than real estate, land and  buildings.  These taxes are secured by liens on the property being taxed.  Property tax revenues  are recognized by the City in the fiscal year they are assessed, provided they become available as  defined previously within sixty days after year‐end.    (k) Deferred Outflows of Resources and Deferred Inflows of Resources  A deferred outflow of resources is the consumption of net position that is applicable to a future  reporting period. A deferred inflow of resources is defined as an acquisition of net position  applicable to a future reporting period.     (l) Pensions    For purposes of measuring the net pension liability and deferred outflows/inflows of resources  related to pensions and pension expense, information about the fiduciary net position of the City’s  California Public Employees’ Retirement System (CalPERS) Plans and additions to/deductions from  the Plans’ fiduciary net position have been determined on the same basis as they are reported by  CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are  recognized when due and payable in accordance with the benefit terms. Investments are reported  at fair value.   (m) Rounding    All amounts included in the basic financial statements and footnotes are presented to the nearest  thousand.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    54   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  (n) Effects of New Pronouncements     As of July 1, 2014, the City implemented the following GASB Statements:      GASB Statement No. 68 issued June 2012, Accounting and Financial Reporting for Pensions – an  amendment of GASB Statement No. 27, establishes accounting and financial reporting  requirements for pension plans that are administered through trusts. Statement No. 68 requires  governments participating in single and agent multiple employer defined benefit plans to  recognize a liability equal to net pension liability. Net pension liability is required to be measured  as of a date no later than the end of the employer’s prior fiscal year (the measurement date),  consistently applied from period to period. Pension expense and deferred outflows of resources  and deferred inflows of resources related to pensions that are required to be recognized by an  employer primarily result from changes in the components of net pension liability—that is,  changes in the total pension liability and in the pension plan’s fiduciary net position. It requires  that most changes in net pension liability be included in pension expense in the period of change.  The effects of certain other changes in the net pension liability are required to be included in  pension expense over current and future periods. It also requires that notes to financial  statements of single and agent employers include descriptive information, such as types of  benefits provided and number and classes of employees covered by the benefit terms, sources of  changes in net pension liability for the current year, significant assumptions and other inputs used  in valuations and the valuation date. The Statement also requires the government to present  required supplementary information for each of the ten most recent fiscal years.     As of July 1, 2014, the City adopted the provision of GASB Statement No.68 and 71 and restated  the beginning net position in the amount of $318.3 million to record the beginning deferred  pension contributions and net pension liability. Refer to Note 11 for the impact of implementing  this Statement.     In January 2014 GASB issued Statement No. 69, Government Combinations and Disposals of  Government Operations. It establishes accounting related to government combinations and  disposals of government operations.  Government combinations include mergers, acquisitions,  and transfers of operations. Statement No. 69 also establishes the required financial statement  disclosure for government combinations and disposals of government operations. The  implementation of this Statement did not have a significant impact on the City’s financial  statements.    In November 2013 GASB issued Statement No. 71, Pension Transition for Contributions Made  Subsequent to the Measurement Date – an amendment of GASB Statement No. 68. This Statement  improves the accounting and financial reporting by addressing an issue in Statement No. 68. The  issue relates to amounts associated with contributions, if any, made by a state or local  government employer or nonemployer contributing entity to a defined benefit pension plan after  the measurement date of the government’s beginning net pension liability. Refer to Note 11 for  the impact of implementing this Statement.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    55   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (n) Effects of New Pronouncements (Continued)    The City is currently analyzing its accounting practices to determine the potential impact on the  financial statements for the following GASB Statements:      In February 2015 GASB issued Statement No. 72, Fair Value Measurement and Application. This  Statement provides guidance for determining fair value measurement for financial reporting  purposes and for applying fair value to certain investments, and requires disclosures to be made  about fair value measurements, the level of fair value hierarchy, and valuation techniques.  Governments should organize these disclosures by type of asset or liability reported at fair value.  It also requires additional disclosures regarding investments in certain entities that calculate net  asset value per share (or its equivalent). The requirements of this Statement are effective for the  City’s fiscal year ending June 30, 2016.   In June 2015 GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and  Related Assets that are not within the Scope of GASB Statement No. 68 and amendments to certain  provisions of GASB Statements No. 67 and 68. This Statement establishes requirements for  defined benefit pensions that are not within the scope of Statement No. 68 as well as for the  assets accumulated for purposes of providing those pensions. It amends certain provisions of  Statement No. 68 for pension plans and pensions that are within its scope. The Statement also  clarifies the application of certain provisions of Statement No. 68. This Statement is effective for  the City’s fiscal year ending June 30, 2016, except for those provisions that address employers  and government nonemployer contribution entities for pensions that are not within the scope of  Statement No. 68, which are effective for the City’s fiscal year ending June 30, 2017.   In June 2015 GASB issued Statement No. 74, Financial Reporting for Postemployment Benefits  Plans other than Pension Plans, and Statement No. 75, Accounting and Financial Reporting for  Postemployment Benefits other than Pensions. Both statements replace the requirements of  GASB Statements related to postemployment benefits other than pensions (OPEB). Statement  No. 74 is intended to make the OPEB accounting and financial reporting consistent with the  pension standards outlined in Statement No. 67. It applies to OPEB plans, and parallels Statement  No. 67 and replaces Statement No. 43. This statement is effective for the City’s fiscal year ending  June 30, 2017.   Statement No. 75 is intended to make OPEB accounting and financial reporting consistent with  the pension standards outlined in Statement No. 68. This will include recognizing a net OPEB  liability in accrual basis financial statements. It applies to government employers who provide  OPEB plans to their employees. It parallels Statement No. 68 and replaces Statement No. 45. This  statement is effective for the City’s fiscal year ending June 30, 2018.  GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for  State and Local Governments, which supersedes Statement No. 55. This statement is effective for  the City’s fiscal year ending June 30, 2016.      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    56   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (n) Effects of New Pronouncements (Continued)    In August 2015 GASB issued Statement No. 77, Tax Abatement Disclosures. The Statement defines  tax abatement agreement and requires certain disclosures regarding the tax abatement in its  financial statements. This statement is effective for the City’s fiscal year ending June 30, 2017.   (o)  Use of Estimates    The accompanying basic financial statements have been prepared on the modified accrual and  accrual basis of accounting in accordance with generally accepted accounting principles.  This  requires management to make estimates and assumptions that affect the amounts reported in  the financial statements and accompanying notes. Actual results could differ from those  estimates.        NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING     1. The City Manager submits proposed operating and capital budgets to the City Council for the fiscal  year commencing the following July 1.  The operating budget includes proposed expenditures and the  means of financing them.  2. Public hearings are conducted to obtain comments on the proposed budgets.  3. The Budget is approved with the adoption of a budget ordinance for all funds except Agency Funds.  4. Per the Palo Alto Municipal Code, only the City Manager is authorized to reallocate funds from  contingency accounts maintained in the General Fund.  Additional appropriations to departments in  the General Fund, or to total appropriations for all other budgeted funds, or transfers of  appropriations between funds, require approval by the City Council.  Amendments to budgeted  revenue and expenditures are added to or subtracted from the Adopted Budget and the resulting  totals are reflected as Adjusted Budget amounts.  5. As defined in the Palo Alto Municipal Code, expenditures may not exceed budgeted appropriations at  the department level for the General Fund, and at the fund level for Enterprise, Special Revenue and  Debt Service Funds.  6. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting  principles (GAAP), except that unrealized gains or losses are not recognized as investment earnings  on a budgetary basis and encumbrances are treated as budgetary expenditures when incurred.  7. Expenditures for the Capital Projects Fund are budgeted and maintained at a project level for the life  of the project.  Budget to actual comparisons for these expenditures have been excluded from the  accompanying financial statements.         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    57   NOTE 3 – CASH AND INVESTMENTS    The City pools cash from all sources and all funds, except restricted bond proceeds with fiscal agents, and  invests its pooled idle cash according to State of California law and the City’s Investment Policy.  The basic  principles underlying the City’s investment philosophy are to ensure the safety of public funds, ensure  that sufficient funds are available to meet current expenditures, and achieve a reasonable rate of return  on investments.    Policies  The City invests in individual investments and in investment pools.  Individual investments are evidenced  by specific identifiable securities instruments, or by an electronic entry registering the owner in the  records of the institution issuing the security, called the book entry system.  In order to increase security,  the City employs the trust department of a bank as the custodian of certain City managed investments.    Classification  Cash and investments are classified in the financial statements as shown below, based on whether or not  their use is restricted under the terms of City debt instruments or agency agreements (in thousands):    Governmental Business‐Type Fiduciary Activities Activities Funds Total Cash and investments: Available for operations 275,316$         248,259$         3,027$              526,602$          Restricted for post‐closure landfill ‐                         1,281                 ‐                         1,281                 Held with fiscal agents 5,587                4,142                2,543                12,272               Total cash and investments 280,903$         253,682$         5,570$              540,155$             Investments Authorized by the City’s Investment Policy and Debt Agreements  The table below identifies the investment types that are authorized by the City’s Investment Policy.  The  table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit  risk and concentration of credit risk.  The table addresses investments of debt proceeds held by bond  trustees that are governed by the provisions of debt agreements of the City, rather than the general  provisions of the City’s Investment Policy.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    58   NOTE 3 – CASH AND INVESTMENTS (Continued)    The City must maintain required amounts of cash and investments with trustees under the terms of  certain debt issues.  These funds are unexpended bond proceeds or are pledged as reserves to be used if  the City fails to meet its obligations under these debt issues.  The California Government Code requires  these funds to be invested in accordance with City ordinance, bond indentures or state statute.  All of  these funds have been invested as permitted under the Code and the investment policy approved by the  City Council.    Maximum  Maturity  Minimum  Credit Quality  Maximum  Percentage  of Portfolio Maximum  Investment in  One Issuer U.S. Government Securities 10 years (*) N/A No Limit No Limit U.S. Federal Agency Securities (C) 10 years (*) N/A No Limit (A) No Limit Certificates of Deposit 10 years (*) N/A 20% 10% of the par  value of  portfolio Bankers Acceptances 180 days (D) N/A (D) 30% $5 million Commercial Paper 270 days A‐1 15% $3 million (B) Local Agency Investment Fund N/A N/A No Limit $50 million per  account Short‐Term Repurchase Agreements 1 year N/A No Limit No Limit City of Palo Alto Bonds N/A N/A No Limit No Limit Money Market Mutual Funds N/A N/A (E) No Limit No Limit Mutual Funds (F) N/A N/A 20% 10% Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million Medium‐Term Corporate Notes 5 years AA 10% $5 million 10 years (*) AA/AA2 10% No Limit (A) (B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution. Debt Agreements: (C)  (D) (E) (F) (*)The maximum maturity is based on the Investment Policy that is approved by the City Council and is less  restrictive than the California Government Code.  Utility Revenue Bonds 2011 Refunding, General Obligation Bonds 2010 and 2013A, and University Avenue Parking  Bond 2012 are allowed to invest in the California Asset Management Program. Authorized Investment Type Bonds of State of California  Municipal Agencies Callable and multi‐step securities are limited to no more than 25% of the par value of the portfolio, provided that:  1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step‐up" are  known at the time of purchase, 3) the entire face value of the security is redeemable at the call date. Utility Revenue Bonds 2011 Refunding and 1999 Refunding allow general obligations of states with a minimum  credit quality rating of A2/A by Moody's and Standard & Poor's. Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum credit quality rating of A‐1/P‐1 by  Moody's and Standard & Poor's and maturing after no more than 360 days.  Utility Revenue Bonds 1995 Series A  limit the maximum maturity to 365 days. Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a  minimum credit quality rating of AAAm or AAAm‐G by Standard & Poor's. CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    59   NOTE 3 – CASH AND INVESTMENTS (Continued)    Interest Rate Risk  Interest rate risk is the risk that changes in market interest rates may adversely affect the fair value of an  investment.  Normally, the longer the maturity of an investment, the greater the sensitivity its fair value  is to changes in market interest rates.    Information about the sensitivity of the fair values of the City’s investments (including investments held  by bond trustees) to market rate fluctuations is provided by the following table that shows the distribution  of the City’s investments by maturity or earliest call date (in thousands):    Type of Investment Less Than  One Year One to  Three Years  Three to  Five Years Over  Five Years Total U.S. Federal Agency Securities 44,908$        150,272$     81,996$        125,027$     402,203$      U.S. Treasury Notes ‐                     2,000            9,398             ‐                     11,398           Local Government Bonds ‐                    ‐                   5,726          7,448           13,174           Corporate Bonds ‐                    ‐                   8,397           ‐                    8,397             Money Market Mutual Funds 16,963         ‐                    ‐                    ‐                    16,963           Negotiable Certificates of Deposit ‐                   2,933          18,694        4,271           25,898           California Asset Management Program 7,866           ‐                    ‐                    ‐                    7,866             Local Agency Investment Fund 49,953         ‐                    ‐                    ‐                    49,953           Total Investments 119,690$     155,205$     124,211$     136,746$     535,852         Cash in bank and on hand 4,303            Total Cash and Investments 540,155$      Maturities     Local Agency Investment Fund  The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California  Government Code Section 16429 under the oversight of the Treasurer of the State of California.  LAIF  management calculates the fair value and cost of the entire LAIF pool.  The City adjusts its cost basis  invested in LAIF to fair value based on this ratio.  The fair value of the City’s position in the pool is the  same as the value of the pool share. The balance available for withdrawal on demand is based on  accounting records maintained by LAIF, which are recorded on an amortized cost basis.  At June 30, 2015,  LAIF had a weighted average maturity of 239 days.    California Asset Management Program  The City is a voluntary participant in the California Asset Management Program (CAMP).  CAMP is an  investment pool offered by the California Asset Management Trust (the Trust).  The Trust is a joint powers  authority and public agency created by the Declaration of Trust and established under the provisions of  the California Joint Exercise of Powers Act (California Government Code Sections 6500 et seq., or the  “Act”) for the purpose of exercising the common power of its participants to invest certain proceeds of  debt issues and surplus funds.  The City’s investments are limited to investments permitted by  subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code.  The City reports its  investments in CAMP at the fair value amounts provided by CAMP, which is the same as the value of the  pool share.  At June 30, 2015, the fair value approximated the City’s cost. CAMP had a weighted average  maturity of 32 days at June 30, 2015.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    60   NOTE 3 – CASH AND INVESTMENTS (Continued)    Money market mutual funds are available for withdrawal on demand and at June 30, 2015, had a weighted  average maturity of 35 days.    Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations  At June 30, 2015, the City’s investments (including investments held by bond trustees) include U.S. Federal  Agency Callable Securities in the amount of $108.5 million that are highly sensitive to interest rate  fluctuations (to a greater degree than already indicated in the information provided in the previous page).   These securities are subject to early redemption at par in a period of declining interest rates.      Credit Risk  Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the  investment.  This is measured by the assignment of a rating by a nationally recognized statistical rating  organization.  Presented below is the actual rating as provided by Standard & Poor’s investment rating  system as of June 30, 2015, for each investment type (in thousands):    Type of Investment Rating Total U.S. Federal Agency Securities AA+ 402,203$          Corporate Bonds AA+ 8,397                 Local Government Bonds AAA 13,174              Money Market Mutual Funds AAAm 16,963              Total Investments 440,737            Not Applicable:  U.S. Treasury Notes 11,398               Not Rated: California Asset Management Program 7,866                 Local Agency Investment Fund 49,953               Negotiable Certificates of Deposit 25,898               Cash in bank and on hand 4,303                 Total Cash and Investments 540,155$              Concentration of Credit Risk  Investments in any one issuer, other than U.S. Treasury securities, mutual funds, and external investment  pools, that represent 5 percent or more of total City portfolio investments are as follows at June 30, 2015  (in thousands):   Investments Reporting Type  Fair Value at Year‐End  Federal Home Loan Bank U.S. Federal Agency Securities 133,662$                           Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 95,573                               Federal National Mortgage Corporation U.S. Federal Agency Securities 75,379                               Federal Farm Credit Bank U.S. Federal Agency Securities 49,826                               Federal Home Loan Mortgage Corporation U.S. Federal Agency Securities 37,234                                CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    61   NOTE 3 – CASH AND INVESTMENTS (Continued)    Custodial Credit Risk  California law requires banks and savings and loan institutions to pledge government securities with a  market value of 110 percent of the City’s cash on deposit or first trust deed mortgage notes with a value  of 150 percent of the deposit as collateral for these deposits.  Under California Law, this collateral is  considered held in the City’s name and places the City ahead of general creditors of the institution.  The  City has waived collateral requirements for the portion of deposits covered by federal deposit insurance.    The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to  a transaction, the City will not be able to recover the value of its investment or collateral securities that  are in the possession of another party.  The City’s Investment Policy limits its exposure to custodial credit  risk by requiring that all security transactions entered into by the City be conducted on a delivery‐versus‐ payment basis.  Securities are to be held by a third‐party custodian.        NOTE 4 – INTERFUND TRANSACTIONS      Transfers Between Funds  With Council approval, resources may be transferred from one City fund to another.  The purpose of the  majority of transfers is to subsidize a fund.  Less often, a transfer may be made to open or close a fund.   Transfers between City funds during FY 2015 were as follows (in thousands):     Fund Making Transfer Amount  Transferred General Fund Nonmajor Governmental Funds 425$                   A Water Services Fund 12                        A Electric Services Fund 11,435               A Gas Services Fund 5,742                  A Wastewater Collection Fund 12                        A Wastewater Treatment Fund 9                          A Refuse Services Fund 9                          A Storm Drainage Services Fund 9                          A Internal Service Funds 143                     A Capital Projects Fund General Fund 19,678               B Nonmajor Governmental Funds 5,446                  B Nonmajor Governmental Funds General Fund 512                     A Capital Projects Fund 300                     B Nonmajor Governmental Funds 1,369                  A Water Services Fund 24                        A Internal Service Funds 12                        A Subtotal 45,137                Fund Receiving Transfer   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    62   NOTE 4 – INTERFUND TRANSACTIONS (Continued)      Fund Making Transfer Amount  Transferred Water Services Fund Electric Services Fund 1$                        B Gas Services Fund 92                        B Wastewater Collection Fund 91                        B Internal Service Funds 8                          C Electric Services Fund General Fund 33                        D Internal Service Funds 21                        C Gas Services Fund Internal Service Funds 8                          C Wastewater Collection Fund Internal Service Funds 4                          C Refuse Services Fund Internal Service Funds 1,061                  C Internal Service Funds General Fund 2,061                  E Water Services Fund 28                        B Electric Services Fund 144                     B Fiber Optics Fund 9                          B Gas Services Fund 47                        B Wastewater Collection Fund 16                        B Wastewater Treatment Fund 5                          B Refuse Services Fund 33                        B Storm Drainage Services Fund 6                          B Subtotal 3,668                   Total 48,805$              The reasons for these transfers are set forth below: (A) Transfer to fund governmental funds for services provided. (B) Allocation of funds to construct, purchase or maintain capital assets. (C) Transfer to refund replacement charges. (D) Transfer to fund Utility funds for services provided. (E) Transfer to fund Internal Service funds for services provided.   Fund Receiving Transfer      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    63   NOTE 4 – INTERFUND TRANSACTIONS (Continued)    Long‐Term Interfund Advance  On December 6, 2010, the City Council accepted an Airport Business Plan of the Palo Alto Airport (PAO)  and approved creation of the Airport Enterprise Fund to facilitate the transition of PAO control from  County of Santa Clara to the City. Council approved the following General Fund advances to the Airport  Fund:   $ 300,000 Due December 2016    310,000 Due July 2018    325,000 Due July 2023    200,000 Due July 2024    560,000 Due July 2024    All advances bear interest equal to the average return yield on the City’s investment portfolio.  As of June  30, 2015, the total outstanding principal amount is $1,695,000.     Internal Balances  Internal balances represent the net interfund receivables and payables remaining after the elimination of  all such balances within governmental and business‐type activities.        NOTE 5 – NOTES AND LOANS RECEIVABLE     At June 30, 2015, the City’s notes and loans receivable totaled (in thousands):    Palo Alto Housing Corporation: Oak Manor Townhouse 203$                 Tree House Apartments 5,343                Emerson Street Project 375                   Alma Single Room Occupancy Development 2,222                Barker Hotel 2,111                Sheridan Apartments 2,248                Oak Court Apartments, L.P. 7,834                Mid‐Peninsula Housing Coalition: Palo Alto Gardens Apartments 100                   Community Working Group, Inc.1,280                Opportunity Center Associates, L.P.750                   Home Rehabilitation Loans 51                     Executive Relocation Assistance Loans 868                   Below Market Rate Assessment Loans 53                     Stevenson Housing Fire Alarm 48                     Oak Manor Townhouse Water System 114                   Lytton Gardens Assisted Living 101                   Emergency Housing Consortium 75                     Alma Gardens Apartments 1,150                2811‐2825 Alma Street Acquisition 1,290                Palo Alto Family Housing, 801 Alma Street 6,320                Total Notes and Loans 32,536              Less: Valuation Allowance (14,684)            Total Notes and Loans, Net 17,852$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    64   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Housing Loans  The City engages in programs designed to encourage construction or improvement in low‐to‐moderate  income housing or other projects.  Under these programs, grants or loans are provided under favorable  terms to homeowners or developers who agree to spend these funds in accordance with the City’s terms.   These loans have been offset by restricted or committed fund balances, as they are not expected to be  repaid immediately.    Some of these loans contain forgiveness clauses that provide for the amount loaned to be forgiven if the  third party maintains compliance with the terms of the loan and associated regulatory agreements.  Since  some of these loans are secured by trust deeds that are subordinated to other debt on the associated  projects or are only repayable from residual cash receipts on the projects, collectability of some of the  outstanding balances may not be realized.  As a result of the forgiveness clauses and nature of these  housing projects and associated cash flows, a portion of the outstanding balances of the loans has been  offset by a valuation allowance.    Oak Manor Townhouse  On January 7, 1991, the City loaned $2.1 million to Palo Alto Housing Corporation Apartments, Inc.  (PAHCA, Inc.) to assist in the acquisition of an apartment complex to be used to provide rental housing for  low and very low income households.  This loan bears interest at 3 percent, is due in annual installments  until 2017 and is collateralized by a subordinated deed of trust.  Under the terms of the loan agreement,  annual loan payments are forgiven if the Corporation meets the objective of this project.  During the year  ended June 30, 2015, the objective was met.  The annual loan payment was forgiven for the calendar year  ended December 31, 2014.     Tree House Apartments  In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. for the purchase of the  real property located at 488 West Charleston Road. The loan shall accrue simple interest at the rate of  three percent per annum. The loan consists of $1.8 million funded by Community Development Block  Grant funds and $1 million funded by residential funds. An additional development loan in the amount of  $2.5 million was approved by the City on October 18, 2010.  As of June 30, 2015, the outstanding balance  for Tree House Apartments in aggregate is $5.3 million. Principal and interest payments will be deferred,  however if the borrower has earned extra income, and if it is acceptable to the other entities providing  final permanent sources of funds, payment of interest and principal based on the City’s proportionate  share of the project’s residual receipts from net operating income shall be made by the borrower.  In no  event shall full payment be made by the borrower later than concurrently with the expiration or earlier  termination of the loan agreement, which is December 31, 2067.    Emerson Street Project  On November 8, 1994, the City loaned $375,000 for expenses necessary to acquire an apartment complex  for the preservation of rental housing for low and very low income households in the City.  This loan is  collateralized by a second deed of trust.  The loan bears interest at 3 percent after 2010.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    65   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Alma Single Room Occupancy Development  On December 13, 1996, the City loaned $2.2 million to Alma Place Associates, L.P. for development of a  107‐unit single room occupancy development.  This loan bears interest at 3 percent and is collateralized  by a subordinated deed of trust.  The principal balance is due in 2041.    Barker Hotel  On April 12, 1994, the City loaned a total of $2.1 million for the preservation, rehabilitation and expansion  of a low‐income, single occupancy hotel.  This loan was funded by three sources: $400,000 from the  Housing In‐Lieu Fund, $1 million from HOME Investment Partnership Program Funds, and $670,000 from  Community Development Block Grant funds.  All three notes bear no interest and are collateralized by a  deed of trust, which is subordinated to private financing.  Loan repayments are deferred until 2035.    In July 2004, the City agreed to loan up to $41,000 to Palo Alto Housing Corporation to rehabilitate the  interior of the Barker Hotel.  The loan is funded entirely by Community Development Block Grant funds  and is collateralized by a deed of trust on the property.  Annual loan payments are deferred until certain  criteria defined in the loan agreement are reached.  The loan will be forgiven if the borrower satisfactorily  complies with all terms and conditions of the loan agreement.    Sheridan Apartments  On December 8, 1998, the City loaned $2.5 million to Palo Alto Housing Corporation for the purchase and  rehabilitation of a 57‐unit apartment complex to be used for senior and low‐income housing.  The loan is  funded by $1.6 million in Community Development Block Grant funds, and $825,000 in Housing In‐Lieu  funds.  The note bears interest at 9 percent when available surplus cash from the project equals or exceeds  25 percent of interest calculated using 9 percent.  When available surplus cash falls below this level, the  note bears interest at 3 percent.  The note is collateralized by a second deed of trust and an affordability  reserve account held by Palo Alto Housing Corporation.  Annual loan payments were deferred until Palo  Alto Housing Corporation accumulated $1 million in the affordability reserve account.  Two principal  payments totaling $202,438 have been made, and interest has also been paid.  The remaining principal  balance is due in 2033.    Oak Court Apartments, L.P.  On August 18, 2003, in connection with the loan to Oak Court Apartments, L.P. discussed in the next  section, the City loaned $5.9 million to Palo Alto Housing Corporation for the purchase of land on which  Oak Court Apartments, L.P. constructed a 53‐unit rental apartment complex for low and very low income  households with children.  The note bears interest of 5 percent and is secured by a deed of trust.  Note  payments are due annually after 55 years, or beginning in 2058, unless Palo Alto Housing Corporation  elects to extend the note until 2102, as defined in the regulatory agreement.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    66   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    On August 18, 2003, the City loaned $1.9 million to Oak Court Apartments, L.P. for the construction of a  53‐unit rental apartment complex for low and very low‐income households with children, which was  completed in April 2005.  The note bears no interest until certain criteria defined in the note are satisfied,  at which time the note will bear an interest rate not to exceed 3 percent.  The note is secured by a  subordinate deed of trust.  The principal balance is due in 2060.    Palo Alto Gardens Apartments  On April 22, 1999, the City loaned $1 million to Mid‐Peninsula Housing Coalition (the Coalition) for the  purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing.  This loan  is funded by $659,000 in Community Development Block Grant funds and $341,000 in Housing In‐Lieu  funds.  The two notes bear interest at 3 percent and are secured by second deeds of trust and a City  Affordability Reserve Account held by the Coalition. Annual loan payments are deferred until certain  criteria defined in the notes are reached.  Principal and interest payments began in FY 2008.  The principal  balance of $100,000 is due in 2039.    Community Working Group, Inc.  On May 13, 2002, the City loaned $1.3 million to Community Working Group, Inc. for predevelopment,  relocation and acquisition of land for development of an 89‐unit complex and homeless service center for  very low income households.  The loan is funded by $1.3 million of Community Development Block Grant  funds.  The note bears no interest and is secured by a first deed of trust.  No repayment of the $1.3 million  will be required, provided that compliance with the City’s agreement is maintained.  After 89 years of  compliance with the regulatory agreement, the City’s loan would convert to a grant and its deed of trust  would be re‐conveyed.    Opportunity Center Associates, L.P.  On July 19, 2004, the City loaned $750,000 for a 55‐year term to Opportunity Center Associates, L.P. for  construction of 89 units of rental housing for extremely low‐income and very low‐income households.   The loan is funded by $750,000 of residential housing funds.  The note bears 3 percent interest and is  secured by a deed of trust. The loan remains outstanding and becomes due at the end of the 55‐year  term.     Home Rehabilitation Loans  The City administers a closed housing rehabilitation loan program initially funded with Community  Development Block Grant funds.  Under this program, individuals with incomes below a certain level are  eligible to receive low interest loans for rehabilitation work on their homes.  These loans are secured by  deeds of trust, which may be subordinated to subsequent encumbrances upon said real property with the  prior written consent of the City.  The loan repayments may be amortized over the life of the loans,  deferred, or a combination of both.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    67   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Executive Relocation Assistance Loans  The City Council may authorize a mortgage loan as part of a relocation assistance package to executive  staff.  The loans are secured by first deeds of trust, and interest is adjusted annually based on the rate of  return of invested funds of the City for the year ended June 30 plus one‐quarter of 1 percent.  Principal  and interest payments are due bi‐weekly.  Employees must pay any outstanding balance on their loans  within a certain period after ending employment with the City.  As of June 30, 2015, the City had two  outstanding home loans, one from the previous City Manager and one from the current City Manager.      The original purchase cost for the previous City Manager’s home was $1.4 million and the City holds a 60  percent equity share.  The loan balance owed as of June 30, 2015 was approximately $339,000.  The home  suffered substantial fire damage on May 3, 2014.  The loss is covered by insurance and an assessment is  being made as to whether the home will be rebuilt.    The original purchase cost for the current City Manager’s home was $1.9 million and the City holds a 75  percent equity share.  The loan balance owed as of June 30, 2015 is approximately $415,000.  During FY  2011, the Council authorized a capital improvement loan of $125,000.  Loans for capital improvements  are made on a dollar for dollar matching basis, with an equal equity contribution made by the City  Manager.  The loan balance owed as of June 30, 2015 was approximately $114,000.    Below Market Rate Assessment Loans  In December 2002, the City loaned $53,000 to below market rate homeowners with low incomes and/or  very limited assets for capital repairs, special assessments and improvements of their properties.  The  loans bear interest at 3 percent and are secured by a deed of trust on each property.  Loan payments are  deferred until 2032.  In 2015, the City did not receive interest payments.    Stevenson Housing Fire Alarm  In December 2006, the City agreed to loan up to $48,000 to Palo Alto Senior Housing Project, Inc. to repair  and upgrade the existing fire alarm system at Stevenson House Senior Housing facility.  The loan is funded  entirely by Community Development Block Grant funds and bears simple interest of 6 percent.      Oak Manor Townhouse Water System  On May 12, 2003, the City Council approved an allocation of $113,672 to Palo Alto Housing Corporation  Apartments, Inc (PAHCA, Inc) to replace the water pipes. Repayment of the loan will not be required unless  the property is sold, the program is terminated or purpose of the program is changed without City’s  approval prior to July 1, 2033. The loan for this project is subordinated to the existing City loan with  PAHCA, Inc dated January 7, 1991 for the acquisition of the project site, which is discussed earlier in this  section.        CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    68   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Lytton Gardens Assisted Living  In June 2005, the City loaned $101,000 to Community Housing, Inc. to upgrade and modernize the existing  kitchens at the senior residential facility known as Lytton Gardens Assisted Living.  The loan is funded  entirely by Community Development Block Grant funds, and bears simple interest of 3 percent.  Principal  and interest payments are deferred until July 1, 2035, as long as the borrower continues to comply with  all terms and conditions of the agreement.    Emergency Housing Consortium  In November 2005, the City agreed to loan up to $75,000 to Emergency Housing Consortium to cover  architectural expenses that will be incurred in rehabilitating and expanding the property.  The loan is  funded entirely by Community Development Block Grant funds, and bears simple interest of 3 percent.   Principal and interest payments are deferred until July 1, 2035, as long as the borrower continues to  comply with all terms and conditions of the agreement.    Alma Garden Apartments  In March 2006, the City agreed to loan up to $1.2 million to Community Working Group, Inc. to acquire a  10‐unit multi‐family housing complex known as Alma Garden Apartments.  The loan is funded entirely by  Community Development Block Grant funds.  Principal and interest payments are deferred until July 1,  2061, as long as the borrower complies with all terms and conditions of the agreement.    2811‐2825 Alma Street Acquisition  On October 9, 2011, the City agreed to loan $1.3 million to PAHC Properties Corporation (PAHC) to acquire  properties on Alma Street for the purpose of developing an affordable rental housing project. The loan  bears simple interest of 3 percent, with an option to forgive the loan at maturity as long as PAHC maintains  the affordability restrictions. Provided PAHC is not in default of the agreement, no principal payments  shall be due and interest shall not begin to accrue until the closing of the project’s permanent funding.  Principal and interest payments are payable during the term of the agreement on a “residual receipt”  basis as described in the agreement.    Palo Alto Family Housing, 801 Alma Street  On February 14, 2011, the City agreed to loan Palo Alto Family, LP up to $9.3 million for the purposes of  predevelopment expenses and acquiring certain real property for the Alma Street Affordable Multi‐Family  Rental Housing Project. The loan bears simple interest of 3 percent. Principal and interest are due and  payable during the term of the agreement on a “residual receipt” basis as described in the agreement.  Except in the case of default, all remaining principal and interest shall be payable on the Restriction  Termination Date as defined in the agreement. As of June 30, 2015, the outstanding amount is $6.3  million.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    69   NOTE 6 – CAPITAL ASSETS    Valuation  Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not  available.  Contributed capital assets are valued at their estimated fair value on the date contributed.  The  City’s policy is to capitalize all assets when costs are equal to or exceed $5,000 and the useful life exceeds  one year.  Infrastructure assets are capitalized when costs are equal to or exceed $100,000.    Proprietary fund capital assets are recorded at cost including significant interest costs incurred under  restricted tax‐exempt borrowings, which finance the construction of capital assets.  These interest costs,  net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the  cost of capital assets during the construction period.  Maintenance and repairs are expensed as incurred.    The City has recorded all its public domain capital assets, consisting of roadway and recreation and open  space, in its government‐wide financial statements.  GASB Statement No. 34 requires that all capital assets  with limited useful lives be depreciated over their estimated useful lives.  Alternatively, the “modified  approach” may be used for certain capital assets.  Depreciation is not provided under this approach, but  all expenditures on these assets are expensed unless they are additions or improvements.  The City has  elected to use the depreciation method for its capital assets.  The purpose of depreciation is to spread the  cost of capital assets equitably among all users over the life of those assets.  The amount charged to  depreciation expense each year represents that year’s pro rata share of the cost of capital assets.    Depreciation of capital assets is charged as an expense against operations each year and the total amount  of depreciation taken over the years, called accumulated depreciation, is reported on the statement of  net position as a reduction in the book value of capital assets.    Depreciation is calculated using the straight line method, which means the cost of the asset is divided by  its expected useful life in years, and the result is charged to expense each year until the asset is fully  depreciated.  The City has assigned the useful lives listed below to capital assets.    Governmental Activities Years Buildings and structures 20 ‐ 30 Equipment: Computer equipment 3 ‐ 5 Office machinery and equipment 5 Machinery and equipment 5 ‐ 30 Intangible assets ‐ software 5‐20 Roadway network: 5 ‐ 40 Recreation and open space network: 25 ‐ 40 Business‐type Activities Buildings and structures 25 ‐ 60 Vehicles and heavy equipment 3 ‐ 10 Machinery and equipment 10 ‐ 50 Transmission, distribution and treatment systems 10 ‐ 100 Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots,  traffic signage, and bridges Includes major park facilities, park trails, bike paths and medians   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    70   NOTE 6 – CAPITAL ASSETS (Continued)    General Capital Assets  Changes in the City’s general capital assets during the year ended June 30, 2015 were (in thousands):     Balance Balance July 1, 2014 Additions Retirements Transfers June 30, 2015 Governmental activities Nondepreciable capital assets: Land and improvements 79,047$           ‐$                       ‐$                      ‐$                     79,047$               Street trees 15,177             103                   (203)                 ‐                       15,077                 Intangible assets ‐ Easement 3,567                ‐                         ‐                        ‐                       3,567                   Construction in progress 89,806             45,251             (405)                (95,319)           39,333                 Total nondepreciable capital assets 187,597          45,354             (608)                (95,319)           137,024               Depreciable capital assets: Buildings and structures 134,600           ‐                         ‐                       87,096            221,696               Intangible assets ‐ Software 279                   ‐                         ‐                        ‐                       279                      Equipment 11,918             66                      ‐                       281                  12,265                 Roadway network 291,300           ‐                         ‐                       7,942              299,242               Recreation and open space network 27,632              ‐                         ‐                        ‐                       27,632                 Total depreciable capital assets 465,729          66                      ‐                       95,319            561,114               Less accumulated depreciation: Buildings and structures (71,362)           (4,817)               ‐                        ‐                       (76,179)               Intangible assets ‐ Software (141)                 (65)                    ‐                        ‐                       (206)                     Equipment (7,494)              (450)                  ‐                        ‐                       (7,944)                  Roadway network (127,117)         (6,910)               ‐                        ‐                       (134,027)             Recreation and open space network (8,962)              (946)                  ‐                        ‐                       (9,908)                  Total accumulated depreciation (215,076)         (13,188)             ‐                        ‐                       (228,264)             Depreciable capital assets, net 250,653          (13,122)             ‐                       95,319            332,850               Internal service fund capital assets Construction in progress 3,094               3,225                ‐                       (4,969)             1,350                   Equipment 51,130             282                   (2,909)             4,969              53,472                 Less accumulated depreciation (39,871)           (2,392)              2,756               ‐                       (39,507)               Net internal service fund capital assets 14,353             1,115               (153)                 ‐                       15,315                 Governmental activities capital assets, net 452,603$       33,347$          (761)$              ‐$                     485,189$               CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    71   NOTE 6 – CAPITAL ASSETS (Continued)    Business‐type Capital Assets  Changes in the City’s enterprise fund capital assets during the year ended June 30, 2015 were  (in thousands):    Balance Balance July 1, 2014 Additions Retirements Transfers June 30, 2015 Business‐type activities Nondepreciable capital assets: Land and improvements 4,971$              ‐$                      ‐$                             2$                       4,973$                 Construction in progress 122,181           35,579            (3,530)                     (64,321)             89,909                 Total nondepreciable capital assets 127,152           35,579            (3,530)                     (64,319)             94,882                 Depreciable capital assets: Buildings and structures 34,111              ‐                        (505)                        19,899              53,505                 Transmission, distribution and treatment systems 675,858           640                  (3,249)                     44,420              717,669               Total depreciable capital assets 709,969           640                  (3,754)                     64,319              771,174               Less accumulated depreciation: Buildings and structures (9,848)              (854)                 96                             ‐                          (10,606)                Transmission, distribution and treatment systems (281,778)         (17,593)           2,454                       ‐                          (296,917)             Total accumulated depreciation (291,626)         (18,447)           2,550                       ‐                          (307,523)             Depreciable capital assets, net 418,343           (17,807)           (1,204)                     64,319              463,651               Business‐type activities capital assets, net 545,495$        17,772$          (4,734)$                   ‐$                       558,533$             Capital Asset Contributions  Some capital assets may be acquired using federal and state grant funds, or they may be contributed by  developers or other governments. Generally accepted accounting principles require that these  contributions be accounted for as revenues at the time the capital assets are contributed.    Depreciation Allocation  Depreciation expense was charged to functions and programs based on their usage of the related assets.   The amount allocated to each function or program is as follows (in thousands):    Governmental Activities Business‐type Activities City Manager 42$                  Water 2,488$              City Attorney 2                       Electric 7,377                Administrative Services 2                       Fiber Optics 319                   Community Services 1,521               Gas 2,555                Public Safety 342                  Wastewater Collection 1,908                Public Works 9,609             Wastewater Treatment 3,045               Planning and Community Environment 166                  Refuse 42                      Library 1,504               Storm Drainage 713                   Internal Service Funds 2,392               18,447$          15,580$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    72   NOTE 6 – CAPITAL ASSETS (Continued)    Construction In Progress  Construction in progress as of June 30, 2015 is comprised of the following (in thousands):  Governmental Activities Expended to June 30, 2015  California Avenue‐Transit Hub Corridor 6,571$                           Magical Bridge Playground 3,610                             City Hall First Floor Renovation 3,460                             El Camino Park Exp Parking Lot 2,563                             Furniture/Technology for Library Bond Prj 2,315                             Highway 101 Pedestrian/Bicycle Overpass 1,601                             Traffic Signal Upgrades 1,446                             Transportation and Parking Improvements 1,332                             Curb & Gutter Improvement 1,026                             Safe Routes to School 914                                Golf Reconfig and Baylands Athletic Center 879                                Bicycle Boulevards Implementation 759                                Eleanor Pardee Park Improvement 739                                Vehicle Replacement Fund 725                                Charleston/Arastradero Corridor 665                                Street Maintenance 664                                Library & Comm Center Temp Facilities 646                                Telephone Infrastructure and Network 625                                Other Construction In Progress 10,143                           Total Governmental Activities Construction In Progress 40,683$                       Business‐type Activities Expended to        June  30, 2015 Water system extension replacements and improvements 4,578$                           Gas system extension replacements and improvements 11,637                           Sewer system rehabilitation and extensions 6,231                             Electric distribution system improvements 4,173                             Water quality control plant equipment replacement and lab facilities 5,543                             Storm drainage structural and water quality improvements 2,262                             Other electrical improvements projects 989                                Other construction in progress 54,496                           Total Business‐type Activities Construction In Progress 89,909$                            CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    73   NOTE 6 – CAPITAL ASSETS (Continued)    Construction In Progress  Allocations of business‐type activity administration and general expenses of $12.0 million have been  capitalized and included in amounts expended to June 30, 2015.    Major governmental capital projects that are currently in progress, and the remaining capital commitment  of each, are as follows:   Golf Course reconfiguration and Baylands Athletic Center ‐ $0.4 million   El Camino Park expansion ‐ $3.5 million   Newell Road bridge/SFC bridge replacement ‐ $1.0 million     Major business‐type capital projects that are currently in progress, and the remaining capital commitment  of each, are as follows:   Water main replacement for Water Fund ‐ $4.2 million   Gas main replacement for Gas Fund ‐ $2.1 million   Wastewater Collection Fund rehabilitation/augmentation ‐ $7.4 million        NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS    Long‐Term Obligations  Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt.        The City’s long‐term debt issues and transactions, other than special assessment debt discussed in Note 8,  are as follows (in thousands):    Original Balance Balance Current Issue Amount July 1, 2014 Additions Retirements June 30, 2015 Portion Governmental Activities Debt: General Long‐Term Obligations:  2002B Downtown Parking Improvements, Certificates of Participation, 6.50%, due 03/01/2022 3,555$              1,430$              ‐$                     145$               1,285$                150$         General Obligation Bonds 2010, 2 ‐ 5%, due 08/01/2040 55,305              52,520              ‐                       1,050              51,470                1,070        2011 Lease‐Purchase Agreement 3,222                2,026                ‐                       383                  1,643                  395           General Obligation Bonds 2013A, 2 ‐ 5%, due 08/01/2043 20,695              20,695              ‐                       370                  20,325                380           Add: Unamortized Premium ‐                         4,242                ‐                       158                  4,084                  158           Total Governmental Activities Debt 82,777$          80,913$           ‐$                    2,106$            78,807$              2,153$          CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    74   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)      Original Issue  Amount Balance  July 1, 2014 Additions Retirements Balance  June 30, 2015 Current Portion Business‐type Activities Debt: Enterprise Long‐Term Obligations: Utility Revenue Bonds 1995 Series A,  5.00‐6.25%, due 06/01/2020 8,640$                3,334$                 ‐$                         475$                    2,859$                505$                  1999 Refunding,  3.25‐5.25%, due 06/01/2024 17,735                10,980                 ‐                           635                      10,345                665                    2009 Series A,  1.80‐5.95%, due 06/01/2035 35,015                31,615                 ‐                           915                      30,700                955                    2011 Refunding,  1.80‐5.95%, due 06/01/2035 17,225                14,295                 ‐                           975                      13,320                1,005                 Add: Unamortized Premium ‐                           910                       ‐                           69                        841                       ‐                          Energy Tax Credit Bonds 2007 Series A, 0%, Due 12/15/2021 1,500                   800                       ‐                           100                      700                      100                    Less: Unamortized Discount ‐                           (43)                        ‐                           (5)                         (38)                        ‐                          State Water Resources Loans 2007, 1.02%, due 06/30/2029 9,000                   6,750                    ‐                           450                      6,300                   450                    2009, 2.6%, due 11/30/2030 8,500                   7,559                    ‐                           359                      7,200                   369                    Total Business‐type Activities Debt 97,615$              76,200$              ‐$                        3,973$               72,227$              4,049$                Description of Long‐Term Debt Issues    2002B Downtown Parking Improvements Project Certificates of Participation (COPs) – On January 16,  2002, the City issued $3.6 million of COPs to finance the construction of certain improvements to the non‐ parking area contained in the City’s Bryant/Florence Garage complex.  Principal payments are due  annually on March 1 and interest payments semi‐annually at 6.5% on March 1 and September 1, and are  payable from lease revenues received by the Corporation from the City’s available funds.    2010 General Obligation Bonds (GO bonds) – On June 30, 2010, the City issued $55.3 million of GO bonds  to finance costs for constructing a new Mitchell Park Library and Community Center, as well as making  substantial improvements to the Rinconada Library and the Downtown Library. Principal payments are  due annually on August 1 and interest payments semi‐annually on February 1 and August 1 from 2 percent  to 5 percent, and are payable from property tax revenues.    2013A General Obligation Bonds – On June 30, 2013, the City issued $20.7 million of GO bonds to finance  costs for constructing a new Mitchell Park Library and Community Center, as well as making substantial  improvements to the Rinconada Library and the Downtown Library. Principal payments are due annually  on August 1 and interest payments semi‐annually on February 1 and August 1 from 2 percent to 5 percent,  and are payable from property tax revenues.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    75   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    The City’s 2010 and 2013A GO bonds are payable from pledged ad valorem property taxes until the final  maturity dates of the bonds in August 1, 2040 and August 1, 2043 respectively. For the fiscal year ended  June 30, 2015, the City received $4.6 million in ad valorem property taxes and made total debt service  payments in the amount of $1.4 million principal and $3.2 million interest for both 2010 and 2013A GO  bonds.     2011 Lease‐Purchase Agreement – On August 2, 2011, the City entered into a master lease‐purchase  agreement with JP Morgan Chase Bank, N.A. to finance redemption of the 1998 Golf Course COPs.  The  lease is secured by a first priority security interest in twenty‐one Fire Department emergency vehicles.   Lease proceeds were $3.2 million.  Principal payments are due annually on September 1 and interest  payments are due semi‐annually on September 1 and March 1 at a rate of 2.49 percent, payable from  General Fund revenues.    1995 Utility Revenue Bonds, Series A – The City issued $8.6 million of Utility Revenue Bonds on February  1, 1995 to finance certain extensions and improvements to the City’s Storm Drainage and Surface Water  System.  The Bonds are special obligations of the City payable solely from and secured by a pledge of and  lien upon the revenues derived by the City from the funds, services and facilities of all Enterprise Funds  except the Refuse Services Fund, Fiber Optics Fund and Airport Fund. Principal payments are payable  annually on June 1 and interest payments semi‐annually on June 1 and December 1. A $2.9 million 6.3  percent term bond is due June 1, 2020.    As required by the Indenture, the City established a debt service reserve fund for the Bonds (the “Reserve  Account”), with a minimum funding level requirement in the Reserve Account (the “Reserve  Requirement”).  At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit  into the Reserve Account of a surety bond (the “Surety Bond”) in the amount of $685,340 issued by Ambac  Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).    On May 1, 2013, Ambac Financial emerged from bankruptcy protection, which had been filed under  Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation  proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. No assurance can be  made regarding the claims paying ability of Ambac Assurance on the surety bonds described above.    The pledge of future Net Revenues for the above bonds ends upon repayment of the $2.9 million principal  and $0.6 million interest as the remaining debt service on the bonds, which is scheduled to occur in FY  2020. For FY 2015, Net Revenues, including operating revenues and non‐operating interest earnings,  amounted to $238.2 million; operating costs, including operating expenses but not interest, depreciation  or amortization, amounted to $188.3 million. Net Revenues available for debt service amounted to $50.0  million, which represented coverage of 73.1 times over the $0.7 million in debt service.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    76   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    1999 Utility Revenue and Refunding Bonds – The City issued $17.7 million of Utility Revenue Bonds on  June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue  Bonds, Series A, and to finance rehabilitation of the two Wastewater Treatment sludge incinerators.  The  1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue Bonds, Series A, were  subsequently retired.    The 1999 Bonds are special obligations of the City payable solely from and secured by a pledge of and lien  upon certain net revenues derived by the City’s sewer system and its storm and surface water system (the  “Storm Drain System”). As of June 30, 2001, the 1999 Bonds had been allocated to and were repayable  from net revenues of the following enterprise funds: Wastewater Collection (10.2 percent), Wastewater  Treatment (64.6 percent) and Storm Drainage (25.2 percent). Principal payments are payable annually on  June 1 and interest payments semi‐annually on June 1 and December 1. A $3.1 million 5.3 percent term  bond, and a $5.1 million 5.3 percent term bond are due June 1, 2021 and 2024, respectively.     As required by the Indenture, the City established a debt service reserve fund for the Bonds (the “Reserve  Account”), with a minimum funding level requirement in the Reserve Account (the “Reserve  Requirement”).  At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit  into the Reserve Account of a surety bond (the “Surety Bond”) in the amount of $1,647,300 issued by  Ambac Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).    On May 1, 2013, Ambac Financial emerged from bankruptcy protection, which had been filed under  Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation  proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. No assurance can be  made regarding the claims paying ability of Ambac Assurance on the surety bonds described above.     The pledge of future Net Revenues for the above bonds ends upon repayment of the $10.4 million  principal and $3.2 million interest as the remaining debt service on the bonds, which is scheduled to occur  in FY 2024. For FY 2015, Net Revenues, including operating revenues and non‐operating interest earnings,  amounted to $47.3 million; operating costs, including operating expenses but not interest, depreciation  or amortization, amounted to $33.1 million. Net Revenues available for debt service amounted to $14.1  million, which represents coverage of 11.7 times over the $1.2 million in debt service.    2007 Electric System Clean Renewable Energy Tax Credit Bonds, Series A – In October 2007, the City  issued $1.5 million of Electric Utility Clean Renewable Energy Tax Credit Bonds (CREBs), 2007 Series A, to  finance the City’s photovoltaic solar panel project. The CREBs do not bear interest. In lieu of receiving  periodic interest payments, bondholders are allowed annual federal income tax credits in an amount  equal to a credit rate for such CREBs multiplied by the outstanding principal amount of the CREBs owned  by the bondholders. The CREBs are payable solely from and secured solely by a pledge of the Net Revenues  of the Electric system and the other funds pledged under the Indenture.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    77   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    The pledge of future Electric Fund Net Revenues ends upon repayment of the $0.7 million remaining debt  service on the bonds, which is scheduled to occur in FY 2022. For FY 2015, Net Revenues, including  operating revenues and non‐operating interest earnings, amounted to $123.1 million; operating costs,  including operating expenses but not interest, depreciation or amortization, amounted to $106.2 million.  Net Revenues available for debt service amounted to $17.0 million, which represented coverage of  170 times over the $0.1 million in debt service.    2009 Water Revenue Bonds, Series A – On October 6, 2009, the City issued $35.0 million of Water  Revenue Bonds to finance certain improvements to the City’s water utility system. Principal payments are  due annually on June 1, and interest payments are due semi‐annually on June 1 and December 1 from  1.80 percent to 5.95 percent. The 2009 Revenue Bonds are secured by net revenues generated by the  Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build America  Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (“Build America  Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury equal to 35  percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues is  senior to the lien on Net Revenues securing the 2009 Bonds and the 2011 Bonds. The City received subsidy  payments amounting to $534 thousand, which represents 32.4 percent of the interest payments due on  December 1 and June 1.    The pledge of future Net Revenues for the above bonds ends upon repayment of the $30.7 million  principal and $20.6 million interest as the remaining debt service on the bonds, which is scheduled to  occur in FY 2035. For FY 2015, Net Revenues, including operating revenues and non‐operating interest  earnings, amounted to $36.6 million; operating costs, including operating expenses but not interest,  depreciation or amortization, amounted to $28.2 million. Net Revenues available for debt service  amounted to $8.4 million, which represented coverage of 3.29 times over the $2.6 million in debt service.    2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease  Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002 Bonds)  on a current basis. The 2002 Bonds were issued to finance improvement to the City’s municipal water  utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually on June  1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The 2011 Bonds  are secured by net revenues generated by the Water Services and Gas Services Funds.     The pledge of future Net Revenues of the above bonds ends upon repayment of the $13.3 million principal  and $2.7 million interest as remaining debt service on the bonds, which is scheduled to occur in FY 2035.  For FY 2015, Net Revenues, including operating revenues and non‐operating interest earnings, amounted  to $67.8 million; operating costs, including operating expenses but not interest, depreciation or  amortization, amounted to $49.0 million. Net Revenues available for debt service amounted to $18.9  million, which represented coverage of 12.9 times over the $1.5 million in debt service.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    78   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    2007 State Water Resources Loan – In October 2007, the City approved a $9 million loan agreement with  State Water Resources Control Board (SWRCB) to finance the City’s Mountain View/Moffett Area  reclaimed water pipeline project. Under the terms of the contract, the City has agreed to repay $9 million  to the State in exchange for receiving $7.5 million in proceeds to be used to fund the Project. The  difference of $1.5 million between the repayment obligation and proceeds represents in‐substance  interest on the outstanding balance. Principal payments are payable annually on June 30.     Concurrently with the loan, the City entered into various other agreements including a cost sharing  arrangement with the City of Mountain View. Pursuant to that agreement, City of Mountain View agreed  to finance a portion of the project with a $6 million loan repayable to the City. This loan has been recorded  as “Due from other government agencies” in the accompanying financial statements.    2009 State Water Resources Loan – In October 2009, the City approved an $8.5 million loan agreement  with SWRCB to finance the City’s Ultraviolet Disinfection project. Principal and interest payments are  payable annually on November 30.    Debt Service Requirements (in thousands):  Debt service requirements are shown below for all long‐term debt.    For the Year Ending  June 30 Principal Interest Total Principal Interest Total 2016 1,995$             3,338$             5,333$             4,049$             2,972$                 7,021$              2017 2,066                3,260               5,326               4,198               2,818                   7,016                2018 2,156                3,170               5,326               4,363               2,656                   7,019                2019 2,251                3,073               5,324               4,533               2,484                   7,017                2020 1,920                2,987               4,907               4,713               2,300                   7,013                2021‐2025 10,130             12,691             22,821             24,277             8,622                   32,899              2026‐2030 12,185             10,343             22,528             13,934             4,925                   18,859              2031‐2035 15,265             7,927               23,192             11,357             2,019                   13,376              2036‐2040 19,015             4,061               23,076             ‐                    ‐                       ‐                         2041‐2045 7,740                445                  8,185                ‐                    ‐                        ‐                         Total 74,723$           51,295$         126,018$       71,424$         28,796$              100,220$        Governmental Activities Business‐Type Activities           CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    79   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    Debt Call Provisions  Long‐term debt as of June 30, 2015 is callable on the following terms and conditions:    Initial Call Date Governmental Activities Long‐Term Debt 2002B Certificates of Participation 03/01/11 (2) 2010 General Obligation Bonds $6.595 million due 08/01/2032 08/01/31 (3) $4.890 million due 08/01/2034 08/01/33 (3) $17.725 million due 08/01/2040 08/01/35 (3) Business‐Type Activities Long‐Term Debt Utility Revenue Bonds 1999 Refunding 06/01/09 (1) 2011 Refunding 06/01/21 (1)     (1)  Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on the  initial call date. The call price declines subsequent to the initial date.   (2)  Callable in any order specified by the City at par plus a premium of 1 percent beginning on the initial  call date. The call price declines subsequent to the initial date.   (3)  Callable in any order specified by the City at par value plus any accrued interest beginning on the  initial call date.    Leasing Arrangements  COPs and Capital Leases are issued for the purpose of financing the construction or acquisition of projects  defined in each leasing arrangement. Projects are leased to the City for lease payments which, together  with unspent proceeds of the leasing arrangement, will be sufficient to meet the debt service obligations  of the leasing arrangement. At the termination of the leasing arrangement, title to the project will pass to  the City.    Leasing arrangements are similar to debt in that they allow investors to participate in a share of  guaranteed payments made by the City. Because they are similar to debt, the present value of the total  payments to be made by the City is recorded as long‐term debt. The City’s leasing arrangements are  included in long‐term obligations discussed above.    Conduit Financing  On December 15, 1996, the City acted as a financial intermediary in order to assist Lytton Gardens Health  Care Center in issuing Insured Revenue Refunding Bonds. The Bonds are payable solely from revenues  collected by Lytton Gardens Health Care Center. The City has not included these bonds in its basic financial  statements since it is not legally or morally obligated for the repayment of the bonds. At June 30, 2015,  the amount of bonds outstanding was $2.2 million.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    80   NOTE 8 – SPECIAL ASSESSMENT DEBT    Special Assessment Debt with no City Commitment  The California Avenue Parking Assessment District No. 92‐13 issued Assessment Bonds of 1993, but the  City has no legal or moral liability with respect to the payment of this debt, which is secured only by  assessments on the properties in this District. Therefore, this debt is not included in Governmental  Activities long‐term debt of the City. At June 30, 2015, the District’s outstanding debt amounted to  $170 thousand.    On February 29, 2012, the University Avenue Area Off‐Street Parking Assessment District issued Limited  Obligation Refunding Improvement Bonds (2012 Bonds), but the City has no legal or moral liability with  respect to the payment of this debt, which is secured only by assessments on properties in this District.  Therefore, this debt is not included in Governmental Activities long‐term debt of the City. At June 30,  2015, the District’s outstanding debt amounted to $28.1 million. The proceeds from the 2012 Bonds,  combined with available Assessment Funds, were used to redeem the outstanding University Avenue Area  Off‐Street Parking Assessment District Series 2001‐A and Series 2002‐A Bonds.       NOTE 9 – LANDFILL CLOSURE AND POST‐CLOSURE CARE    The 126 acre Palo Alto Refuse Disposal Site (Palo Alto Landfill) was filled to capacity and stopped accepting  waste in July 2011.  State and federal laws and regulations require the City to construct a final cover to  cap the waste, and to perform certain maintenance and monitoring activities at the site for a minimum of  thirty years after closure. Phase I, a 29 acre area, was closed in 1991 at a cost of $1.6 million, and  subsequently converted to a pastoral park (Byxbee Park) open to the public. Phase IIA, 22.5 acres, closed  in 1992 at a cost of $0.9 million and Phase IIB, 23.2 acres, closed in 2000 at a cost of $1.2 million. The  closure of Phase IIC, a 51.2 acre area that ceased accepting waste in July 2011, is under way and is  expected to be completed by December 2015.    An updated final closure and post‐closure maintenance plan was approved by state and local regulatory  agencies in 2014. The City’s consultant updated the forecast for remaining Phase IIC closure cap  construction costs and 30 year post‐closure maintenance and monitoring costs. These cost estimates are  adjusted annually for inflation. The 30 years of post‐closure maintenance costs will be paid on an annual  basis after the state certifies the Phase IIC closure.    Landfill closure and post‐closure liabilities for FY 2015 and FY 2014 were $7.8 and $11.4 million,  respectively. The City is required by state and federal laws and regulations to fund closure and post‐ closure care. The $1.3 million closure liability is secured by cash. The $6.5 million post‐closure liability is  secured by a pledge of revenue agreement with California Integrated Waste Management Board. The City  is in compliance with funding requirements for the year ended June 30, 2015.        CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    81   NOTE 10 – NET POSITION AND FUND BALANCES    Net Position  Net Position is the excess of the City’s assets and deferred outflows of resources over its liabilities and  deferred inflows of resources. Net position is divided into three categories that are described below:    Net Investment in Capital Assets describes the portion of net position, which is represented by current net  book value of the City’s capital assets, less the outstanding balance of any debt issued to finance these  assets.    Restricted describes the portion of net position that is reduced by liabilities related to restricted assets.  Generally a liability relates to restricted assets if the asset results from a resource flow that also results in  the recognition of a liability or if the liability will be liquidated with the restricted assets reported.    Unrestricted describes the portion of net position which is not restricted as to use.    Fund Balances  As prescribed by GASB Statement No. 54, governmental funds report fund balances in classifications based  primarily on the extent to which the City is bound to honor constraints on the specific purposes for which  amounts in the funds can be spent. Fund balances for governmental funds are made up of the following:    Nonspendable – This category is comprised of amounts that are: (a) not in spendable form, or (b) legally  or contractually required to be maintained intact. The “not in spendable form” criterion includes items  that are not expected to be converted to cash, for example: prepaid items. The corpus of the permanent  fund is contractually required to be maintained intact.    Restricted – This category is comprised of amounts that can be spent only for the specific purposes  stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions  may effectively be changed or lifted only with the consent of resource providers.    Committed – This category is comprised of amounts that can only be used for the specific purposes  determined by the action that constitutes the most binding constraint (i.e. ordinance) of the City’s highest  level of decision‐making authority, the City Council. Commitments may be changed or lifted only by the  City taking the same formal action that imposed the constraint originally.      Assigned – This category is comprised of amounts intended to be used by the City for specific purposes  that are neither restricted nor committed. Intent is expressed by the City Council or the City Manager, to  whom the City Council has delegated the authority to assign amounts to be used for specific purposes.    Unassigned –This category is the residual classification for the General Fund and includes all amounts not  contained in the other classifications. Unassigned amounts are technically available for any purpose.  Other governmental funds may report negative unassigned fund balance, which occurs when a fund has  a residual deficit after allocation of fund balance to the nonspendable, restricted or committed categories.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    82   NOTE 10 – NET POSITION AND FUND BALANCES (Continued)    The fund balances of all governmental funds are presented by the above mentioned categories on the  face of the financial statements.  In circumstances when an expenditure is made for a purpose for which  amounts are available in multiple fund balance categories, fund balance is depleted in the order of  restricted, committed, assigned, and unassigned.    The General Fund Budget Stabilization Reserve (BSR) is established by authority of the General Fund  Reserve Policy, which is approved by the City Council and included in the City’s annual adopted budget.  The BSR is maintained in the range of 15 to 20 percent of General Fund expenditures and operating  transfers, with a target of 18.5 percent.  Any reserve level below 15 percent requires City Council approval.   At the discretion of the City Manager, a reserve balance above 18.5 percent may be transferred to the  Infrastructure Reserve within the Capital Projects Fund.  The purpose of the General Fund BSR is to fund  unbudgeted, unanticipated one‐time costs.  The BSR is not meant to fund ongoing, recurring General Fund  expenditures.    The Capital Projects Fund Infrastructure Reserve (IR) is the portion of capital projects assigned fund  balance not yet adopted for a specific project. It does not include potential outside funding for adopted  projects.      As of June 30, 2015 total outstanding encumbrances related to governmental activities were $5.6 million  for the General Fund, $16.6 million for the Capital Projects Fund, and $0.6 million for the Special Revenue  Funds.  General Fund encumbrances are reserved for the following governmental activities:  Planning &  Community Environment $1.6 million, Development Services $0.1 million, Public Works $0.9 million,  Community Services $0.8 million, Public Safety $0.6 million, Library $0.2 million, and the remaining City’s  departments $1.4 million.    Enterprise Funds  At June 30, 2015, Enterprise Fund unrestricted net position (in thousands) were as follows:    Water Electric Fiber Optics Gas Wastewater  Collection Wastewater  Treatment Refuse Storm  Drainage Airport Total Unrestricted Rate stabilization Supply ‐$                      14,411$           ‐$                     (304)$           ‐$                    ‐$                   ‐$                ‐$              ‐$             14,107$           Distribution 6,579                 ‐                        21,361            7,109          4,292             5,819            4,250         1,659       (1,643)     49,426             6,579                14,411            21,361            6,805          4,292             5,819            4,250         1,659       (1,643)     63,533             Operations Supply ‐                         16,012             ‐                         ‐                    ‐                       ‐                      ‐                   ‐                 ‐                16,012             Distribution 11,537             6,486                ‐                        10,847        2,431              ‐                      ‐                   ‐                 ‐                31,301             11,537             22,498             ‐                        10,847        2,431              ‐                      ‐                   ‐                 ‐                47,313             Emergency plant replacement ‐                          ‐                        1,000                ‐                    ‐                      1,980             ‐                   ‐                 ‐                2,980                Electric special projects ‐                         51,838             ‐                         ‐                    ‐                       ‐                      ‐                   ‐                 ‐                51,838             Reappropriations 9,656                8,464               385                  1,591          2,551             1,691            61               6,075       75             30,549             Commitments 7,633                6,912               175                  4,900          8,291             4,702            1,128         899          252          34,892             Underground loan ‐                         730                   ‐                         ‐                    ‐                       ‐                      ‐                   ‐                 ‐                730                   Notes and loans ‐                          ‐                         ‐                         ‐                    ‐                      559                ‐                   ‐                 ‐                559                   Landfill corrective action ‐                          ‐                         ‐                         ‐                    ‐                       ‐                     712             ‐                 ‐                712                   Hydro stabilization reserve ‐                         17,000             ‐                         ‐                    ‐                       ‐                      ‐                   ‐                 ‐                17,000             Public benefit program ‐                         2,574                ‐                         ‐                    ‐                       ‐                      ‐                   ‐                 ‐                2,574                Central Valley Project ‐                         ‐                         ‐                    ‐                       ‐                      ‐                   ‐                 ‐                 ‐                         CIP reserve 4,000                 ‐                         ‐                         ‐                    ‐                       ‐                      ‐                   ‐                 ‐                4,000                Geng Road Reserve ‐                          ‐                         ‐                         ‐                    ‐                       ‐                     268             ‐                 ‐                268                   GASB 68 Pension reserve (11,887)            (27,912)           (1,687)             (12,643)      (7,078)           (17,529)        (4,993)       (2,992)     (397)         (87,118)            Total 27,518$           96,515$          21,234$          11,500$      10,487$        (2,778)$        1,426$      5,641$    (1,713)$   169,830$           CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    83   NOTE 10 – NET POSITION AND FUND BALANCES (Continued)    The City Council has set aside unrestricted net position for general contingencies, and future capital and  debt service expenditures including operating and capital contingencies for unusual or emergency  expenditures.    In June 2014, the City Council approved a resolution which updated the Reserves Management Practices  for the Electric, Gas, Wastewater Collection and Water Utilities.  Restructuring of the reserve balances  was designed to increase transparency, to make contingency reserves easier to manage from year to year,  and to eliminate reserves that are no longer necessary.  Guidelines for managing the reserves are  contained in the Reserves Management Practices, including actions to be taken when reserve balances  are not within the guidelines.  These changes were implemented July 1, 2014.    Internal Service Funds  At June 30, 2015, Internal Service Funds unrestricted net position (in thousands) were as follows:    Vehicle  Replacement  and  Maintenance Technology Printing and  Mailing  Services General  Benefits Workers'  Compensation  Insurance  Program General  Liabilities  Insurance  Program Retiree Health  Benefits Total Unrestricted net position: Commitments 1,639$               2,081$               47$                     215$                  43$                     33$                      ‐$                   4,058$                Future catastrophic losses ‐                      ‐                      ‐                      ‐                     1,948                 2,729                  ‐                     4,677                  Retiree health care ‐                      ‐                      ‐                      ‐                      ‐                      ‐                     26,170               26,170                Capital projects 3,641                 6,893                  ‐                      ‐                      ‐                      ‐                      ‐                     10,534                GASB68 pension reserve (2,675)               (9,378)               (298)                    ‐                      ‐                      ‐                      ‐                     (12,351)              Available 5,606                 10,551               (32)                     2,324                  ‐                      ‐                      ‐                     18,449                Total 8,211$               10,147$            (283)$                 2,539$               1,991$               2,762$               26,170$            51,537$                Commitments represent the portion of net position set aside for open purchase orders.   Future catastrophic losses represent the portion of net position to be used for unforeseen future losses.  Retiree health care represents the portion of net position set aside to defer future costs of retiree health  care coverage.   Capital projects represent the portion of net position set aside for adopted capital projects.  GASB68 pension reserve is the portion of net position required to be set aside to meet defined benefit  pension obligations.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    84    NOTE 11 – PENSION PLANS  (a)        General Information about the Pension Plans     Plan Descriptions ‐ Substantially all permanent City employees are eligible to participate in the City’s  separate Safety (police and fire) and Miscellaneous (all other) Plans, agent multiple‐employer defined  benefit pension plans  administered by California Public Employees’ Retirement System (CalPERS), which  acts as a common investment and administrative agent for its participating member employers. Benefits  provisions under the Plans are established by State statute and City resolution. CalPERS issues publicly  available reports that include a full description of the pension plans including benefits provisions,  assumptions and membership information. The reports can be found on the CalPERS website at:   <http://www.calpers.ca.gov/index.jsp?bc=/about/forms‐pubs/calpers‐reports/actuarial‐ reports/home.xml>    Benefits Provided ‐ CalPERS provides retirement and disability benefits, annual cost of living adjustments  and death benefits to Plan members, who must be public employees and beneficiaries. Benefits are based  on years of credited service equal to one year of full‐time employment, age at retirement and final  compensation. The death benefit is one of the following: the 1959 Survivor Benefit, or the pre‐retirement  option 2W Death Benefit for local fire members only.     The Plans’ provisions and benefits in effect at June 30, 2015, are summarized in the following table.   Contribution rates are based on the Actuarial Valuation Report as of June 30, 2012.    Safety Plan Fire Fighters,  Fire Chief Association,  Police Officers, Police  Management Fire Fighters,  Fire Chief Association Police Officers, Police Management Hire Date Prior to June 8, 2012 On or After June 8, 2012 On or After Dec. 8, 2012 Benefit formula1 3% at 55 3% at 55 3% at 50 Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Retirement age 50 55 1 551 Monthly benefits, as a % of eligible compensation 3% 3% 3% Actuarially determined contribution rates ‐ employee 9% 9% 9% Actuarially determined contribution rates ‐ employer 39.528% 39.528% 39.528% Miscellaneous Plan Hire Date Prior to July 17, 2010 On or After July 17, 2010 Benefit formula2 2.7% at 55 2% at 60 Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life Retirement age2 55 60 Monthly benefits, as a % of eligible compensation2 2.70% 2.0% ‐ 2.418% Actuarially determined contribution rates ‐ employee 8% 7% Actuarially determined contribution rates ‐ employer 26.122% 26.122% 1 Employees can retire at age 50 with reduced benefits of 2.40% ‐ 2.88% 2 Employees can retire at age 50 with reduced benefits of 2.00% ‐ 2.56% if hired before July 17, 2010, or 1.092% ‐ 1.874% if hired on or after July 17, 2010     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    85   NOTE 11 – PENSION PLANS (Continued)    Employees Covered – Based on the Actuarial Valuation Report as of June 30, 2013,, the following  employees were covered by the benefits terms for each Plan:   Miscellaneous  Plan Safety Plan Inactive employees or beneficiaries currently receiving benefits 989                            404                             Inactive employees entitled to but not yet receiving benefits 629                            88                               Active employees 789                            184                             Total 2,407                        676                             Contributions –Section 20814(c) of the California Public Employees’ Retirement Law requires that the  employer contribution rates for all public employers be determined on an annual basis by the actuary and  shall be effective on the July 1 following notice of a change in the rate.  Funding contributions for the Plans  are determined annually on an actuarial basis as of June 30 by CalPERS.  The actuarially determined rate  is the estimated amount necessary to finance the costs of benefits earned by employees during the year,  with an additional amount to finance any unfunded accrued liability.  The City is required to contribute  the difference between the actuarially determined rate and the contribution rate of employees.    For the Miscellaneous Plan, active plan members are required by state statute to contribute 8% of their  annual covered salary.  For FY2015, the City was required to contribute at an actuarially determined rate  of 26.122% of annual covered payroll for the City’s employees, which amounted to $18.6 million.    For the Safety Plan, active plan members are required by state statute to contribute 9% of their annual  covered salary.  For FY2015, the City was required to contribute at an actuarially determined rate of  39.528% of annual covered payroll for the City’s employees, which amounted to $8.7 million.  (b)       Net Pension Liability    The City’s net pension liability for both Plans is measured as the total pension liability, less the plan’s  fiduciary net position.  Net pension liability is measured as of June 30, 2014 (measurement date), using  the actuarial valuation report as of June 30, 2013 rolled forward to June 30, 2014 using standard update  procedures. At June 30, 2015, the City reported net pension liability of $289.9 million for both plans. A  summary of principal assumptions and methods used to determine the net pension liability is as follows:      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    86   NOTE 11 – PENSION PLANS (Continued)    Actuarial Assumptions ‐ The total pension liabilities were determined using the following actuarial  assumptions:  Miscellaneous  Plan Safety Plan Valuation Date June 30, 2013 June 30, 2013 Measurement Date June 30, 2014 June 30, 2014 Actuarial Cost Method Entry Age Normal  Cost Method Entry Age Normal  Cost Method Actuarial Assumptions: Discount Rate 7.50% 7.50% Inflation 2.75% 2.75% Payroll Growth 3.00% 3.00% Projected Salary Increase 3.30% to 14.20%  depends on age,  service, and type  of employment 3.30% to 14.20%  depends on age,  service, and type  of employment Investment Rate of Return1 7.50% 7.50% Mortality2 1 Net of pension plan investment and administrative expenses, including inflation. 2 The mortality table used was developed based on CalPERS' specific data. The table includes 20 years of mortality improvements using Society of  Actuaries Scal BB. For more details on this table, please refer to the 2014 experience study report.  Derived using CALPERS' Membership  Data for all Funds   All other actuarial assumptions used in the June 30, 2013 Actuarial Valuation Report were based on the  results of an actuarial experience study for the period from 1997 to 2011.  Further details of the  experience study can be found on the CalPERS website.    Discount Rate – The discount rate used to measure the total pension liability was 7.50 percent.  To  determine whether the municipal bond rate should be used in the calculation of a discount rate for each  plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different  from the actuarially assumed discount rate.  Based on the testing, none of the tested plans run out of  assets.  Therefore, the current 7.50 percent discount rate is adequate and the use of the municipal bond  rate calculation is not necessary.  The long‐term expected discount rate of 7.50 percent is applied to all  plans in the Public Employees Retirement Fund.  The stress test results are presented in a detailed report  named “GASB Crossover Testing Report” that can be obtained from the CalPERS website under the GASB  Statement No. 68 section.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    87   NOTE 11 – PENSION PLANS (Continued)    According to Paragraph 30 of Statement 68, the long‐term discount rate should be determined without  reduction for pension plan administrative expense.  The 7.50 percent investment return assumption used  in this accounting valuation is net of administrative expenses.  Administrative expenses are assumed to  be 15 basis points.  An investment return excluding administrative expenses would have been 7.65  percent.  Using this lower discount rate has resulted in a slightly higher total pension liability and net  pension liability.  CalPERS checked the materiality threshold for the difference in calculation and did not  find it to be a material difference to the Plans.    CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management  review cycle that is scheduled to be completed in February 2018.  Any changes to the discount rate will  require CalPERS Board action and proper stakeholder outreach.  For these reasons, CalPERS expects to  continue using a discount rate net of administrative expenses for GASB Statement Nos. 67 and 68  calculations through at least the 2017‐18 fiscal year.  CalPERS will continue to check the materiality of the  difference in calculation until such time as it changes its methodology.    The long‐term expected rate of return on pension plan investments of 7.50% was determined using a  building‐block method in which best‐estimate ranges of expected future real rates of return (expected  returns, net of pension plan investment expense and inflation) are developed for each major asset class.    In determining the long‐term expected rate of return, CalPERS took into account both short‐term and  long‐term market return expectations as well as the expected pension fund cash flows.  Such cash flows  were developed assuming that both members and employers will make their required contributions on  time and as scheduled in all future years. Using historical returns of all the funds’ asset classes, expected  compound returns were calculated over the short‐term (first 10 years) and the long‐term (11‐60 years)  using a building‐block approach.  Using the expected nominal returns for both short‐term and long‐term,  the present value of benefits was calculated for each fund.  The expected rate of return was set by  calculating the single equivalent expected return that arrived at the same present value of benefits for  cash flows as the one calculated using both short‐term and long‐term returns.  The expected rate of return  was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest  one quarter of one percent.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    88   NOTE 11 – PENSION PLANS (Continued)     The table below reflects the long‐term expected real rate of return by asset class for both Miscellaneous  and Safety Plans.  The rate of return was calculated using the capital market assumptions applied to  determine the discount rate and asset allocation.  These rates of return are net of administrative  expenses.     Asset Class New Strategic Allocation Real Return Years 1 - 101 Real Return Years 11+2 Global Equity 47.0% 5.25% 5.71% Global Fixed Income 19.0 0.99 2.43 Inflation Sensitive 6.0 0.45 3.36 Private Equity 12.0 6.83 6.95 Real Estate 11.0 4.50 5.13 Infrastructure and Forestland 3.0 4.50 5.09 Liquidity 2.0 (0.55) (1.05) 1 An expected inflation of 2.5% used for this period. 2 An expected inflation of 3.0% used for this period.   (c)       Changes in the Net Pension Liability    The following is based on the GASB 68 Accounting Valuation Report and table shows the changes in the  net pension liability for the Miscellaneous Plan (in thousands):    Total Pension  Liability Plan Net  Position Net Pension  Liability Balances calculated at July 1, 2014 $  635,847 $  413,410 $  222,437 Changes for the year: Service cost 12,442 ‐                          12,442 Interest on total pension liability 46,963 ‐                          46,963 Contributions from employer ‐                          17,400  (17,400) Contributions from employees ‐                          6,345  (6,345) Net investment income ‐                          70,989  (70,989) Benefit payments, including refunds of  employee contributions  (31,781) (31,781)‐                           Net changes 27,624 62,953  (35,328) Balances reported at June 30, 2015 $  663,471 $  476,363 $  187,108       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    89   NOTE 11 – PENSION PLANS (Continued)    The following table is based on the GASB 68 Accounting Valuation Report and shows the changes in the  net pension liability for the Safety Plan (in thousands):      Total Pension  Liability Plan Net  Position Net Pension  Liability Balances calculated at July 1, 2014 $  355,054 $  234,153 $  120,901 Changes for the year: Service cost 6,221 ‐                          6,221 Interest on total pension liability 26,113 ‐                          26,113 Contributions from employer ‐                          7,616 (7,616) Contributions from employees ‐                          2,762 (2,762) Net investment income ‐                          40,033 (40,033) Benefit payments, including refunds of  employee contributions (19,985) (19,985)‐                           Net changes 12,349 30,426 (18,078) Balances reported at June 30, 2015 $  367,403 $  264,579 $  102,824   Sensitivity of the Net Pension Liability to Changes in the Discount Rate ‐ The following table presents the  net pension liability of the Plans as of the measurement date, calculated using the discount rate of 7.50  percent, compared to a discount rate that is 1 percentage point lower (6.50 percent) or 1 percentage  point higher (8.50 percent). Amounts shown below are in thousands:     Discount Rate ‐ 1% (6.50%) Current Discount  Rate (7.50%) Discount Rate + 1% (8.50%) Miscellaneous Plan: Plan's Net Pension Liability/(Asset) 269,623$                      187,108$                      118,203$                       Safety Plan: Plan's Net Pension Liability/(Asset) 148,420$                      102,824$                      64,947$                           Plan Fiduciary Net Position – Detailed information about the Plan’s fiduciary net position is available in  the separately issued CalPERS financial report.        CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    90   NOTE 11 – PENSION PLANS (Continued)     (d)       Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions     For the year ended June 30, 2015, the City recognized a pension expense of $14.5 million and $7.9 million  for the Miscellaneous and Safety Plan respectively.  At June 30, 2015, the City reported pension related  deferred outflows of resources and deferred inflows of resources from the following sources (in  thousands):    Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to  measurement date 27,284$                              ‐$                                         Net difference between projected and  actual earnings on plan investments ‐                                          50,736                                Total 27,284$                             50,736$                              The $27.3 million reported as deferred outflows of resources relates to contributions made by the City  from July 1, 2014 through June 30, 2015 which is subsequent to the City’s measurement date of  June 30, 2014 for both the Miscellaneous and Safety Plans.  This amount will be recognized as a reduction  of the net pension liability in the year ended June 30, 2016.     The net differences between projected and actual earnings on plan investments will be recognized in  future pension expense as follows (in thousands):       Year Ended  June 30,  2016 12,684$           2017 12,684 2018 12,684 2019 12,684      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    91    NOTE 12 – RETIREE HEALTH BENEFITS    In addition to providing pension benefits, the City participates in the California Public Employees’ Medical  and Health Care Act program to provide certain health care benefits for retired employees. Employees  who retire directly from the City are eligible for retiree health benefits if they retire on or after age 50  with 5 years of service and are receiving a monthly pension from CalPERS. Details of benefits provided to  retirees are noted in the following tables:       Unit Hired  Before Retiree  Coverage1 Dependent  Coverage Retired on  or After Retiree  Contribution Management & Professional2 1/1/2004 100% 100% 5/1/2011 Flat rate4 Police Management2 1/1/2004 100% 100% 5/1/2011 10% Fire Fighters2 1/1/2004 100% 100% 12/1/2011 10% Fire Chiefs Association2 1/1/2004 100% 100% 1/1/2013 10% SEIU 1/1/2005 100% 100% 5/1/2011 Flat rate4 Police Officers3 1/1/2006 100% 100% N/A 0% Utilities Managers & Professional2 1/1/2004 100% 100% 5/1/2011 10% 2 Effective 1/1/2007 plan capped at the second highest CalPERS Bay Area Basic plan premium. 3 Effective 3/1/2009 plan capped at the second highest CalPERS Bay Area Basic plan premium. 4 Effective 4/1/2014 City pays $688 for employee, $1,375 for employee +1, $1,788 for family.  Effective 1/1/2015 City pays      $708 for employee, $1,415 for employee +1, $1,840 for family. Unit Hired on or  After Retiree  Coverage1 Dependent  Coverage2 Management & Professional 1/1/2004 50%‐100% Max. 90% Police Management 1/1/2004 50%‐100% Max. 90% Fire Fighters 1/1/2004 50%‐100% Max. 90% Fire Chiefs Association 1/1/2004 50%‐100% Max. 90% SEIU 1/1/2005 50%‐100% Max. 90% Police Officers 1/1/2006 50%‐100% Max. 90%    specified employer contribution, with the City portion increasing by 5% for each additional year of service credit.  2 Maximum of 90% once employee completes 20 years  of service. 1 100% of benefits if the employee has five years CalPERS service credit and the employee retired from the City. 1 Employees with ten years of CalPERS service, at least five of which are at the City of Palo Alto, receive 50% of the Retiree contributions for units with the following hire dates are determined by Government Code   Section 22893, 20 year graduated schedule:         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    92   NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    In FY 2008, the City elected to participate in an irrevocable trust to provide a funding mechanism for  retiree health benefits. The Trust, California Employers’ Retirees Benefit Trust (CERBT), is administrated  by CalPERS and managed by a separately appointed board, which is not under control of the City Council.  This Trust is not considered a component unit of the City.    Funding Policy and Actuarial Assumptions  The City’s policy is to prefund these benefits by accumulating assets in the Trust Fund discussed above  pursuant to City Council Resolution. The annual required contribution (ARC) was determined as part of a  June 30, 2013 actuarial valuation using the entry age normal actuarial cost method. This is a projected  benefit cost method, which takes into account those benefits that are expected to be earned in the future  as well as those already accrued. The actuarial assumptions include: (a) 7.6125 percent investment rate  of return, (b) 3.25 percent projected annual salary increase, (c) actuarial value of assets, (d) inflation rate  of 3 percent, and (e) health care cost trend data as noted in the following table:     Year Non‐Medicare Medicare 2015 8.0% 8.3% 2016 7.5% 7.8% 2017 7.0% 7.2% 2018 6.5% 6.7% 2019 6.0% 6.1% 2020 5.5% 5.6% 2021+ 5.0% 5.0%    The most current funded status of the plan was determined as part of the June 30, 2013 actuarial  valuation.     The actuarial methods and assumptions used include techniques that smooth the effects of short‐term  volatility in actuarial accrued liabilities and the actuarial value of assets. Actuarial calculations reflect a  long‐term perspective and actuarial valuations involve estimates of the value of reported amounts and  assumptions about the probability of events far into the future. The calculations are based on the types  of benefits provided under the terms of the substantive plan at the time of each valuation and on the  pattern of sharing costs between the City and Plan members to that point. Actuarially determined  amounts are subject to revision at least biannually as results are compared to past expectations and new  estimates are made about the future. The City’s unfunded actuarial accrued liability for retiree health  benefits is being amortized as a level percentage of projected payroll using a 30 year closed amortization  period.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    93   NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    Generally accepted accounting principles permit assets to be treated as other post employment benefit  (OPEB) assets and deducted from the Actuarial Accrued Liability when such assets are placed in an  irrevocable trust or equivalent arrangement. During the year ended June 30, 2015, the City made  contributions and amortized the Net OPEB asset to fund the current year annual required contribution  (ARC). As a result, the City has calculated and recorded the Net OPEB Asset, representing the difference  between the ARC, amortization and contributions, as presented below (in thousands):    Annual required contribution 14,282$           Amortization on the Net OPEB Asset 2,212                Interest on the Net OPEB Asset (1,721)               Annual OPEB Cost 14,773              Contributions made: Contributions to OPEB Trust 4,123                Contributions to Retirees 6,809                Implicit rate subsidy 1,916                City portion of current year premiums paid* 2,186                Total contributions made 15,034              Change in Net OPEB Asset 261                   Net OPEB Asset, beginning of year 22,610              Net OPEB Asset, end of year 22,871$             * FY 2015 premiums for 924 retirees.    Shortly after year‐end, the City contributed an additional $2.1 million to the Trust.    The Plan’s annual OPEB cost and actual contributions for the past three years ended June 30 are set forth  below (in thousands):  Fiscal Year Annual OPEB  Cost Actual  Contribution Percentage  of OPEB  Cost Net OPEB  Obligation  (Asset) June 30, 2013 13,194$           13,774$          104% (21,851)$         June 30, 2014 13,255             14,014            106% (22,610)           June 30, 2015 14,773             15,034            102% (22,871)              CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    94   NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    The Schedule of Funding Progress presents multi‐year trend information about whether the actuarial  value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for  benefits. Trend data from the actuarial studies is presented below (in thousands):    Valuation Date Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll January 1, 2011 165,660$        40,213$          125,447$  24.3% 98,940$      126.8% June 30, 2011 * 168,053          44,774            123,279    26.6% 80,664       152.8% June 30, 2013 203,642          60,070            143,572    29.5% 81,785       175.5% * In accordance with GASB Statement No. 57, the CERBT required all trust participants to use a common valuation date. Therefore, the City is required to conduct its biennial valuation on June 30, rather than January 1, effective for 2011.     Retiree activities in the City’s Retiree Health Benefit Internal Service Fund consist of the following for the  year ended June 30 (in thousands):    Retiree Health Benefits 2015 2014 Net Position, beginning of year 26,837$           27,233$           Interest earnings 71                     51                      Unrealized gain/(loss) on investments (3)                      12                      Interdepartmental charges 13,471             11,635             Retiree health benefits (14,206)           (12,094)            Net Position, end of year 26,170$           26,837$                   NOTE 13 – DEFERRED COMPENSATION PLAN    City employees may defer a portion of their compensation under City sponsored Deferred Compensation  Plans created in accordance with Internal Revenue Code Section 457. Under these Plans, participants are  not taxed on the deferred portion of their compensation until distributed to them. Distributions may be  made only at termination, retirement, death or in an emergency as defined by the Plans.    The laws governing deferred compensation plan assets require plan assets to be held by a Trust for the  exclusive benefit of plan participants and their beneficiaries. Since the assets held under these plans are  not the City’s property and are not subject to City control, they have been excluded from these financial  statements.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    95   NOTE 14 – RISK MANAGEMENT    Coverage  The City provides dental coverage to employees through a City plan, which is administered by a third party  service agent. The City is self‐insured for the dental claims.    The City has a workers’ compensation insurance policy with coverage up to the statutory limit set by the  State of California. The City retains the risk for the first $500,000 in losses for each accident and employee  under this policy.    The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to  $1.0 million per loss.  The Chief Financial Officer and City Manager each have coverage up to $4.0 million  per loss.     The City’s property, boiler, and machinery insurance policy has various deductibles and various coverage  based on the type of property.    The City is a member of the Authority for California Cities Excess Liability (ACCEL), which provides excess  general liability, including auto liability, insurance coverage up to $100 million per occurrence. The City  retains the risk for the first $1.0 million in losses for each occurrence under this policy.    ACCEL was established for the purpose of creating a risk management pool for central California  municipalities. ACCEL is governed by a Board of Directors consisting of representatives of its member  cities. The board controls the operations of ACCEL, including selection of claims management, general  administration and approval of the annual budget.    The City’s deposits with ACCEL equal the ratio of the City’s payroll to the total payrolls of all entities. Actual  surpluses or losses are shared according to a formula developed from overall loss costs and spread to  member entities on a percentage basis after a retrospective rating.    During the year ended June 30, 2015, the City paid $0.8 million to ACCEL for current year coverage.    Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,  California 94110.    Claims Liability  The City provides for the uninsured portion of claims and judgments in the General Benefits and Insurance  Internal Service Funds. Claims and judgments, including a provision for claims incurred but not reported,  and claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount  of the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it  has retained the risk for the deductible or uninsured portion of these claims.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    96   NOTE 14 – RISK MANAGEMENT (Continued)    The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation  claims, as discussed above. Dental liability is based on a percentage of current year actual expense.   General and workers’ compensation liabilities are based on the results of actuarial studies, and include  amounts for claims incurred but not reported as follows as of June 30 (in thousands):    2015 2014 Beginning balance 26,753$           27,745$            Liability for current and prior fiscal years claims  and claims incurred but not reported (IBNR)574                   3,232                Claims paid (3,209)              (4,224)               Ending balance 24,118$           26,753$            Current portion 5,317$             5,665$              Year Ended June 30     The City has not incurred a claim that has exceeded its insurance coverage limits in any of the last three  years, nor have there been any significant reductions in insurance coverage.         NOTE 15 – JOINT VENTURES  General  The City participates in joint ventures through Joint Powers Authorities (JPAs) established under the Joint  Exercise of Powers Act of the State of California. As separate legal entities, these JPAs exercise full powers  and authorities within the scope of the related Joint Powers Agreement, including the preparation of  annual budgets, accountability for all funds, the power to make and execute contracts and the right to  sue and be sued. Obligations and liabilities of the JPAs are, including the long‐term debt of which the City  participates in repayment, are not obligations and liabilities of the City, and accordingly, are not reported  on the City’s financial statements.     Each JPA is governed by a board consisting of representatives from each member agency. Each board  controls the operations of its respective JPA, including selection of management and approval of operating  budgets, independent of any influence by member agencies beyond their representation on the Board.    Northern California Power Agency  The City is a member of Northern California Power Agency (NCPA), a joint powers agency which operates  under a joint powers agreement among fifteen public agencies. The purpose of NCPA is to use the  combined strength of its members to purchase, generate, sell and interchange electric energy and  capacity through the acquisition and use of electrical generation and transmission facilities. Each agency  member has agreed to fund a pro rata share of certain assessments by NCPA and enter into take‐or‐pay  power supply contracts with NCPA. While NCPA is governed by its members, none of its obligations are  those of its members unless expressly assumed by them.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    97   NOTE 15 – JOINT VENTURES (Continued)    During the year ended June 30, 2015, the City incurred expenses totaling $78.3 million for purchased  power and assessments earned by NCPA.    The City’s interest in NCPA projects and reserves, as computed by NCPA, was $8.6 million at June 30, 2015.  This amount represents the City’s portion of funds, which resulted from the settlement with third parties  of issues with financial consequences and reconciliations of several prior years’ budgets for programs. It  is recognized that all the funds credited to the City are linked to the collection of revenue from the City’s  ratepayers, or to the settlement of disputes relating to electric power supply and that the money was  collected from the City’s ratepayers to pay power bills. Additionally, the NCPA Commission identified and  approved the funding of specific reserves for working capital, accumulated employees’ post‐retirement  medical benefits, and billed property taxes for the geothermal project. The Commission also identified a  number of contingent liabilities that may or may not be realized, the cost of which in most cases is difficult  to estimate at this time. One such contingent liability is the steam field depletion, which will require  funding to cover debt service and operational costs in excess of the expected value of the electric power.  The General Operating Reserve (GOR) is intended to minimize the number and amount of individual  reserves needed for each project, protect NCPA’s financial condition and maintain its credit worthiness.  The GOR funds of $1.5 million are left on deposit with NCPA as a reserve against these contingencies  identified by NCPA.    Members of NCPA may participate in an individual project of NCPA without obligation for any other  project. Member assessments collected for one project may not be used to finance other projects of NCPA  without the member’s permission.    Geothermal Projects  A purchased power agreement with NCPA obligated the City for 6.2 percent and 6.2 percent, respectively,  of the operating costs and debt service of the two NCPA 110‐megawatt geothermal steam‐powered  generating plants, Project Number 2 and Project Number 3.    The City’s participation in the Geothermal Project was sold to Turlock Irrigation District in October 1984.  Accordingly, the City is liable for payment of outstanding geothermal related debt only in the event that  Turlock fails to make specified payments. Total outstanding debt of the NCPA Geothermal Project at June  30, 2015 is $82.5 million. The City’s participation in this project was 6.2 percent, or $5.1million.    Calaveras Hydroelectric Project  In July 1981, NCPA agreed with Calaveras County Water District to purchase the output of the North Fork  Stanislaus River Hydroelectric Development Project and to finance its construction. Debt service payments  to NCPA began in February 1990 when the project was declared substantially complete and power was  delivered to the participants. Under its power purchase agreement with NCPA, the City is obligated to pay  22.9 percent of this Project’s debt service and operating costs. At June 30, 2015, the book value of this  Project’s plant, equipment and other assets was $448 million, while its long‐term debt totaled $377.6  million and other liabilities totaled $62.8 million. The City’s share of the Project’s long‐term debt  amounted to $86.5 million at that date.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    98   NOTE 15 – JOINT VENTURES (Continued)    Geothermal Public Power Line  In 1983, NCPA, the Sacramento Municipal Utility District, the City of Santa Clara and the Modesto Irrigation  District (Joint Owners) initiated studies for a Geothermal Public Power Line (GPPL), which would carry  power generated at several existing and planned geothermal plants in The Geysers area to a location  where the Joint Owners could receive it for transmission to their load centers. NCPA has an 18.5 percent  share of this Project and the City has an 11.1 percent participation in NCPA’s share. In 1989, the  development of the proposed Geothermal Public Power Line was discontinued because NCPA was able to  contract for sufficient transmission capacity to meet its needs in The Geysers.    However, because the project financing provided funding for an ownership interest in a Pacific Gas &  Electric (PG&E) transmission line, a central dispatch facility and a performance bond pursuant to the  Interconnection Agreement with PG&E, as well as an ownership interest in the proposed GPPL, NCPA  issued $16 million in long‐term, fixed‐rate revenue bonds in November 1989 to defease the remaining  variable rate refunding bonds used to refinance this project. The City is obligated to pay its 11.1 percent  share of the related debt service, but debt service costs are covered through NCPA billing mechanisms  that allocate the costs to members based on use of the facilities and services.    At June 30, 2015, the book value of this Project’s plant, equipment and other assets was zero, and its long‐ term debt totaled zero.     NCPA’s financial statements can be obtained from NCPA, 180 Cirby Way, Roseville, CA 95678.    Transmission Agency of Northern California (TANC)  The City is a member of a joint powers agreement with 14 other entities in Transmission Agency of  Northern California (TANC). TANC’s purpose is to provide electrical transmission or other facilities for the  use of its members. While governed by its members, none of TANC’s obligations are those of its members  unless expressly assumed by them. The City was obligated to pay 4 percent of TANC’s debt‐service and  operating costs. However, a Resolution was approved authorizing the execution of a Long‐Term Layoff  Agreement (LTLA) between the Cities of Palo Alto and Roseville. These two agencies desired to “layoff”  their entitlement rights to the California‐Oregon Transmission Project (COTP) (and Roseville’s South of  Tesla entitlement rights) for a period of 15 years to those acquiring Members (Sacramento Municipal  Utility District, Turlock Irrigation District, and Modesto Irrigation District). The effective date of this  Agreement was February 1, 2009. As a result, the City is not obligated to pay TANC’s debt‐service and  operating costs starting February 1, 2009, for a period of fifteen years.     TANC’s financial statements can be obtained from TANC, P.O. Box 15129, Sacramento, CA 95851.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    99   NOTE 15 – JOINT VENTURES (Continued)    Bay Area Water Supply and Conservation Agency (BAWSCA)   The City is a member of a regional water district with 26 other entities, the Bay Area Water Supply and  Conservation Agency (BAWSCA).  BAWSCA was created on May 27, 2003 to represent the interests of 24  cities and water districts and two private utilities in Alameda, Santa Clara and San Mateo counties that  purchase water on a wholesale basis from the San Francisco regional water system.  It has the power to  issue debt and plan, finance, construct, and operate water supply, transmission, reclamation, and  conservation projects on behalf of its members.      In 2013 the City participated in a debt issuance by BAWSCA.  The debt was issued to repay certain long‐ term costs associated with the San Francisco Public Utilities Commission (SFPUC) water supply contract.   During the fiscal year, the City paid its share of the annual debt service of $1.9 million, which will vary  based on annual water purchases of the City compared to other BAWSCA agencies.     BAWSCA’s financial statements can be obtained from BAWSCA, 155 Bovet Road, Suite 650, San Mateo,  California 94402.        NOTE 16 – COMMITMENTS AND CONTINGENCIES    Palo Alto Unified School District – The City leases a portion of the former Cubberley School site and twelve  extended day care sites from Palo Alto Unified School District (PAUSD). The lease is part of a larger  agreement, which includes a mechanism for a joint planning process between the City and PAUSD to  develop a long‐term master plan for the Cubberley site.  The City will pay $1.86 million annually into a  separate fund to be used for repairing, renovating and/or improving the infrastructure at the Cubberley  site. The lease term expired on December 31, 2014, and the City exercised its option to extend for 5 years,  with a new expiration date of 12/31/2019. The lease provides for one more five‐year option to extend  from 1/1/2020 to 12/31/2024. The City’s rent and infrastructure payment for the facilities is $7.3 million  per year plus insurance, repairs and maintenance. The rent may vary from year to year depending on the  actual number of days used.  Should any new law or regulation require the expenditure of work in excess  of $250,000, per the terms of the lease, the City and PAUSD may renegotiate the lease. This lease is  cancelable upon 90 days’ written notice in the event funds are not appropriated by the City. In addition,  the lease is contingent upon authorization by the Palo Alto electorate if it exceeds the City’s Proposition  4 (GANN) appropriations limitation in any fiscal year. Lease expenditures for the year ended June 30, 2015,  amounted to $7.3 million. Future minimum annual lease and infrastructure payments are as follows (in  thousands):  Year Ending June 30, Payment 2016 7,399$              2017 7,505              2018 7,736                2019 7,912                2020 4,001                34,553$                CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    100   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    GreenWaste of Palo Alto – GreenWaste of Palo Alto continues as the City’s contractor for waste  collection, transportation, and processing services. The agreement expires in June 30, 2021. The base  compensation for GreenWaste is adjusted annually based on CPI indicators stipulated in the contract. In  FY 2015 payments to GreenWaste were $10.9 million.    City of Palo Alto Regional Water Quality Control Plant – The cities of Palo Alto, Mountain View and Los  Altos (the Partners) participate jointly in the cost of maintaining and operating the City of Palo Alto  Regional Water Quality Control Plant and related system (the Plant). The City is the owner and  administrator of the Plant, which provides the transmission, treatment and disposal of sewage for the  Partners. The cities of Mountain View and Los Altos are entitled to use a portion of the capacity of the  Plant for a specified period of time. Each partner has the right to rent unused capacity from/to the other  partners. The expenses of operations and maintenance are paid quarterly by each partner based on its  pro rata share of treatment costs. Additionally, joint system revenues are shared by the partners in the  same ratio as expenses are paid. The amended agreement has a term of fifty years beginning from the  original signing in October 1968, but may be terminated by any partner upon ten years’ notice to the other  partners. All sewage treatment property, plant and equipment are included in the Wastewater Treatment  Enterprise Fund’s capital assets balance at June 30, 2015. If the City initiates the termination of the  contracts, it is required to pay the other partners their unamortized contribution towards the capital  assets.    Solid Waste Materials Recovery and Transfer Station (SMaRT Station) – On June 9, 1992, the City, along  with the City of Mountain View, signed a Memorandum of Understanding (MOU) with the City of  Sunnyvale (Sunnyvale) to participate in the construction and operation of the SMaRT station, which  recovers recyclable materials from the municipal solid waste delivered from participating cities. Per the  MOU, the City has a capacity share of 21.3 percent of this facility and reimburses its proportionate capacity  share of design, construction and operation costs to Sunnyvale.    On December 1, 1992, the Sunnyvale Financing Authority issued $24.6 million in revenue bonds to finance  the design and construction costs of the SMaRT Station. During the fiscal year ended June 30, 2003, the  1992 bonds were refunded by issuing the 2003 Solid Waste Revenue Bonds in the amount of $20.6 million.  Even though these bonds are payable from and secured by the net revenues of Sunnyvale’s Utilities  Enterprise, the City is obligated to reimburse Sunnyvale 21.27 percent of total debt service payments  related to these bonds. The City’s portion of remaining principal balance for SMaRT revenue bonds as of  June 30, 2015, is $0.7 million. During the year ended June 30, 2015, the City paid $0.4 million as its portion  of current debt service.    In FY 2008, the members agreed to finance an Equipment Replacement Project from existing reserves and  proceeds from the Solid Waste Revenue Bond, Series 2007. The City has committed to repay 27.8 percent  of the remaining debt service on the Bonds. The City’s portion of the Bonds amounts to $1.1 million as of  June 30, 2015. During the year ended June 30, 2015, the City paid $0.2 million as its portion of current  debt service.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    101   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    UTILITIES ENERGY RESOURCE MANAGEMENT    Electric Power Supply Purchase Agreements – The City has numerous power purchase agreements with  power producers to purchase capacity and energy to supply a portion of its load requirements. As of  June 30, 2015, the approximate minimum obligations for the contracts, assuming the energy or gas is  delivered over the next five years, are as follows:    Year Projected Obligation  2016 $48.2 million  2017 $61.7 million  2018 $62.6 million  2019 $63.0 million  2020 $63.5 million    Contractual Commitments beyond 2019 (Electricity) – Several of the City’s purchase power and  transmission contracts extend beyond the five‐year summary presented above. These contracts expire  between 2021 and 2046 and provide for power under various terms and conditions.  The City estimates  that its annual minimum commitments under the contracts, assuming the energy is delivered, ranges  between $63.4 million in 2021 and $8.9 million in 2046.  The City’s largest purchase power source is the  Western Base Resource contract, whereby the City receives 12.31 percent of the amount of energy made  available by Western, after meeting Central Valley Project use requirements, in any given year after 2014  at a 12.31 percent share of their revenue requirement.  The Western contract expires on  December 31, 2024.   Gas Accord V – The City is a party to the Gas Accord V, a natural gas transportation contract between  Pacific Gas and Electric Company (PG&E) and its gas transportation customers.  Gas Accord V ended as of  December 2014.  The City’s minimum commitment under this contract is $319,000/year.  New rates will  be determined through a proceeding at the California Public Utilities Commission and the revenue  requirement will be retroactive to January 1, 2015    San Francisco Public Utilities Commission – The City purchases water for delivery to its customers from  San Francisco Public Utilities Commission (SFPUC) under a contract terminating in 2034.  The City’s  wholesale water rate under this contract is determined by a ratemaking process under the authority of  SFPUC.  The City is prohibited from purchasing from other water suppliers under this contract, though it  is not prohibited from using ground water.  The City’s cost of water under this contract is projected to  increase by 74% by 2021 as SFPUC completes an upgrade to its regional water system facilities under its  Water System Improvement Program (WSIP).         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2015    102   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    Litigation   The City is subject to litigation arising in the normal course of business. In the opinion of the City Attorney,  there is no pending litigation, claims or assessments that are likely to have a materially adverse effect on  the City’s financial condition.    Grant Programs  The City participates in Federal and State grant programs. These programs have been audited by the City’s  independent auditors in accordance with the provisions of the Federal Single Audit Act amendments of  1996 and applicable State requirements. No costs were questioned as a result of these audits; however,  these programs are still subject to further examination by the grantors and the amount, if any, of  expenditures which may be disallowed by the granting agencies cannot be determined at this time. The  City expects such amounts, if any, to be immaterial.            CITY OF PALO ALTO  Required Supplemental Information (Unaudited)  For the Year Ended June 30, 2015    103   I. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN  (Calculated as of June 30, 2014 and reported as of June 30, 2015, in thousands)        2015 Total pension liability Service cost $     12,442 Interest 46,963 Benefit payments, including refunds of employee contributions (31,781) Net change in total pension liability 27,624 Total pension liability ‐ beginning 635,847 Total pension liability ‐ ending (a) $   663,471 Plan fiduciary net position Contributions ‐ employer $     17,400 Contributions ‐ employee 6,345 Net investment income 70,989 Benefit payments, including refunds of employee contributions (31,781) Net change in fiduciary net position 62,953 Plan fiduciary net position ‐ beginning 413,410 Plan fiduciary net position ‐ ending (b) $   476,363 Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) $   187,108 Plan fiduciary net position as a percentage of total pension liability 71.8% Covered employee payroll $     66,373 Plan net pension liability/(asset) as a percentage of covered employee payroll 281.9% Notes to Schedule: Benefit changes ‐ The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2013. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit.  Covered employee payroll ‐ assumed to increase by the 3.00% payroll growth assumption. Changes in assumptions ‐ There were no changes in assumptions. * Fiscal year 2015 was the first year of implementation of GASB Statement No. 68, therefore only     one year of information is shown.           CITY OF PALO ALTO  Required Supplemental Information (Unaudited)  For the Year Ended June 30, 2015    104   II. SCHEDULE OF CONTRIBUTIONS– MISCELLANEOUS PLAN (in thousands)    2014 2015 Contractually required contribution (actuarially determined) 17,400$                        18,573$                Actual contribution (17,400)                         (18,573)                Contribution deficiency/(excess)‐$                                    ‐$                           Covered‐employee payroll 66,373$                        62,911$                Contributions as percentage of covered‐employee payroll 26.22% 29.52%   Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2015 contribution rates are as follows:  Valuation date June 30, 2012 Actuarial cost method Entry age normal Amortization method/period Level percent of payroll Asset valuation method 15 year smoothed market Inflation 2.75% Salary increases 3.30% ‐ 14.20% depending on age, service and type of  employment Payroll growth 3.00% Investment rate of return 7.50% Retirement age The probabilities of retirement are based on the 2010  CalPERS experience study of the period from 1997 to  2007 Mortality The probabilities of mortality are based on the 2010  CalPERS experience study of the period from 1997 to  2007. Pre‐retirement and post‐retirement mortality  rates include 5 years of projected mortality  improvement using Scale AA published by the Society of  Actuaries.        CITY OF PALO ALTO  Required Supplemental Information (Unaudited)  For the Year Ended June 30, 2015    105   III. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – SAFETY PLAN   (Calculated as of June 30, 2014 and reported as of June 30, 2015, in thousands)    2015 Total pension liability Service cost $         6,221 Interest 26,113 Benefit payments, including refunds of employee contributions (19,985) Net change in total pension liability 12,349 Total pension liability ‐ beginning 355,054 Total pension liability ‐ ending (a) $    367,403 Plan fiduciary net position Contributions ‐ employer $        7,616 Contributions ‐ employee 2,762 Net investment income 40,033 Benefit payments, including refunds of employee contributions (19,985) Net change in fiduciary net position 30,426 Plan fiduciary net position ‐ beginning 234,153 Plan fiduciary net position ‐ ending (b) $   264,579 Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) $   102,824 Plan fiduciary net position as a percentage of total pension liability 72.0% Covered‐employee payroll $     21,896 Plan net pension liability/(asset) as a percentage of covered employee payroll 469.6% Notes to Schedule: Benefit changes ‐ The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2013. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit.  Covered employee payroll ‐ assumed to increase by the 3.00% payroll growth assumption. Changes in assumptions ‐ There were no changes in assumptions. * Fiscal year 2015 was the first year of implementation of GASB Statement No. 68, therefore only     one year of information is shown.                CITY OF PALO ALTO  Required Supplemental Information (Unaudited)  For the Year Ended June 30, 2015    106   IV. SCHEDULE OF CONTRIBUTIONS – SAFETY PLAN (in thousands)  2014 2015 Contractually required contribution (Actuarially determined) 7,616$                 8,711$                  Actual contribution (7,616)                  (8,711)                   Contribution deficiency/(excess)‐$                           ‐$                           Covered‐employee payroll 21,896$               20,920$                Contributions as percentage of covered‐employee payroll 34.78% 41.64%   Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2015 contribution rates are as follows:  Valuation Date June 30, 2012 Actuarial cost method Entry age normal Amortization method/period Level percent of payroll Asset valuation method 15 year smoothed market Inflation 2.75% Salary increases 3.30% ‐ 14.20% depending on age, service and type of  employment Payroll growth 3.00% Investment rate of return 7.50% Retirement age The probabilities of retirement are based on the 2010  CalPERS experience study of the period from 1997 to  2007 Mortality The probabilities of mortality are based on the 2010  CalPERS experience study of the period from 1997 to  2007. Pre‐retirement and post‐retirement mortality  rates include 5 years of projected mortality  improvement using Scale AA published by the Society of  Actuaries. Special Debt Revenue Service Permanent Funds Funds Fund Total ASSETS: Cash and investments: Available for operations 79,749$       6,653$         1,462$          87,864$        Cash and investments with fiscal agents ‐                   238               ‐                    238               Receivables, net: Accounts 63                 ‐                    ‐                    63                 Interest 321               ‐                   6                   327               Notes 16,984         ‐                    ‐                    16,984         Total assets 97,117        6,891          1,468           105,476       Liabilities: Accounts payable and accruals 635               ‐                    ‐                    635               Accrued salaries and benefits 16                 ‐                    ‐                    16                 Total liabilities 651               ‐                    ‐                    651               Fund balances: Nonspendable Eyerly family ‐                    ‐                   1,468           1,468           Restricted Transportation mitigation 11,898         ‐                    ‐                    11,898         Federal revenue 4,442           ‐                    ‐                    4,442           Street improvement 1,544           ‐                    ‐                    1,544           Local law enforcement 140               ‐                    ‐                    140               Debt service ‐                   6,891           ‐                    6,891           Public benefit 29,580         ‐                    ‐                    29,580         Committed Developer impact fee 12,497         ‐                    ‐                    12,497         Housing In‐Lieu 33,881         ‐                    ‐                    33,881         Special districts 2,013           ‐                    ‐                    2,013           Downtown business 43                 ‐                    ‐                    43                 Assigned Unrealized gain on investment 428               ‐                    ‐                    428               Total fund balances 96,466        6,891          1,468           104,825       Total liabilities and fund balances 97,117        6,891          1,468           105,476       LIABILITIES AND FUND BALANCES: CITY OF PALO ALTO Non‐major Governmental Funds Combining Balance Sheet June 30, 2015 (Amounts in thousands) 107   108   This page is left intentionally blank.  Special Debt Revenue Service Permanent Funds Funds Fund Total REVENUES: Property tax ‐$                  4,633$          ‐$                   4,633$          Special assessments 86                 ‐                    ‐                     86                 Other taxes and fines 1,732           ‐                    ‐                     1,732           From other agencies: Community Development Block Grants 372               ‐                    ‐                     372               State of California 116               ‐                    ‐                     116               Permits and licenses University Avenue Parking 1,856           ‐                    ‐                     1,856           California Avenue Parking 194               ‐                    ‐                     194               Other permits and licenses 73                 ‐                    ‐                     73                 Investment earnings 1,533           ‐                   28                  1,561           Rental income 5                   ‐                    ‐                     5                   Other: Housing In‐Lieu ‐ residential 6,329           ‐                    ‐                     6,329           Other fees 5,281           ‐                    ‐                     5,281           Total revenues 17,577        4,633          28                  22,238         EXPENDITURES: Current: Administrative Services 190               ‐                    ‐                     190               Public Works 836               ‐                    ‐                     836               Planning and Community Environment 1,259           ‐                    ‐                     1,259           Development Services Public safety 221               ‐                    ‐                     221               Community Services 508               ‐                    ‐                     508               Non‐Departmental 357               ‐                   5                    362               Debt service: Principal retirement ‐                   1,565           ‐                     1,565           Interest and fiscal charges ‐                   3,355           ‐                     3,355           Total expenditures 3,371          4,920          5                    8,296           EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 14,206        (287)            23                  13,942         OTHER FINANCING SOURCES (USES): Transfers in 1,979          238               ‐                     2,217           Transfers out (7,240)          ‐                    ‐                     (7,240)          Total other financing sources (uses) (5,261)         238               ‐                     (5,023)          Change in fund balances 8,945          (49)              23                  8,919           FUND BALANCES, BEGINNING OF YEAR 87,521        6,940          1,445            95,906         FUND BALANCES, END OF YEAR 96,466$       6,891$         1,468$          104,825$     CITY OF PALO ALTO Non‐major Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2015 (Amounts in thousands) 109   110   This page is left intentionally blank.   111   NON‐MAJOR GOVERNMENTAL FUNDS    SPECIAL REVENUE FUNDS     Street Improvement   This fund accounts for revenues received from state gas tax. Allocations must be spent on the construction  and maintenance of the road network system of the City.    Federal Revenue  This fund accounts for grant funds received under the Community Development Act of 1974 and HOME  Investment Grant Programs, for activities approved and subject to federal regulations.    Housing In‐Lieu  This fund accounts for revenues from commercial and residential developers to provide housing under  the City’s Below Market Rate program.    Special Districts  This fund accounts for revenues from parking permits and for maintenance of various parking lots within  the City’s parking districts.    Transportation Mitigation  This fund accounts for revenues from fees or contributions required for transportation mitigation issues  encountered as a result of City development.    Local Law Enforcement  This fund accounts for revenues received in support of City’s law enforcement program.    Asset Seizure  This fund accounts for seized property and funds associated with drug trafficking. Under California  Assembly Bill No. 4162, the monies are released to the City for specific expenditures related to law  enforcement activities.    Developer Impact Fee  This fund accounts for fees imposed on new developments to be used for parks, community centers and  libraries.    Downtown Business Development District  The Downtown Business Development District Fund was established to account for the activities of the  Palo Alto Downtown Business Development District, which was established to enhance the viability of the  downtown business district.    Public Benefit  This fund accounts for the activities of the SUMC Parties Development Agreement (DA) whereby SUMC  will enhance and expand their facilities and the City will grant SUMC the right to develop the facilities in  accordance with the DA.  Street Federal Housing Special Improvement Revenue In‐Lieu Districts ASSETS: Cash and investments: Available for operations 1,545$           304$               21,169$          2,043$            Receivables: Accounts ‐                     53                   ‐                       ‐                       Interest 5                     ‐                     78                   7                      Notes ‐                     4,181             12,803            ‐                       Total assets 1,550             4,538             34,050           2,050               Liabilities: Accounts payable and accruals ‐                     93                  63                   25                    Accrued salaries and benefits ‐                     3                     ‐                      12                    Total liabilities ‐                     96                  63                   37                    Fund balances: Restricted Transportation mitigation ‐                      ‐                      ‐                       ‐                       Federal revenue ‐                     4,442              ‐                       ‐                       Street improvement 1,544              ‐                      ‐                       ‐                       Local law enforcement ‐                      ‐                      ‐                       ‐                       Public benefit ‐                      ‐                      ‐                       ‐                       Committed Developer impact fee ‐                      ‐                      ‐                       ‐                       Housing In‐Lieu ‐                      ‐                     33,881            ‐                       Special districts ‐                      ‐                      ‐                      2,013               Downtown business ‐                      ‐                      ‐                       ‐                       Assigned Unrealized gain on investment 6                     ‐                     106                  ‐                       Total fund balances 1,550             4,442             33,987           2,013               Total liabilities and fund balances 1,550             4,538             34,050           2,050               LIABILITIES AND FUND BALANCES: CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Balance Sheet June 30, 2015 (Amounts in thousands) 112 Downtown Business Transportation Local Law Asset Developer Development Public  Mitigation Enforcement Seizure Impact Fee District Benefit Total 11,915$          140$                2$                   12,863$       102$               29,666$          79,749$       ‐                       10                     ‐                       ‐                    ‐                      ‐                      63                48                     ‐                        ‐                      52                 ‐                     131                 321              ‐                        ‐                        ‐                       ‐                    ‐                      ‐                      16,984        11,963            150                  2                     12,915        102                29,797           97,117        ‐                       11                     ‐                      346              58                  39                   635              ‐                        ‐                        ‐                      1                   ‐                      ‐                      16                ‐                       11                     ‐                      347              58                  39                   651              11,898             ‐                        ‐                       ‐                    ‐                      ‐                      11,898        ‐                        ‐                        ‐                       ‐                    ‐                      ‐                      4,442           ‐                        ‐                        ‐                       ‐                    ‐                      ‐                      1,544           ‐                       138                  2                      ‐                    ‐                      ‐                      140              ‐                        ‐                        ‐                       ‐                    ‐                     29,580           29,580        ‐                        ‐                        ‐                      12,497         ‐                      ‐                      12,497        ‐                        ‐                        ‐                       ‐                    ‐                      ‐                      33,881        ‐                        ‐                        ‐                       ‐                    ‐                      ‐                      2,013           ‐                        ‐                        ‐                       ‐                   43                   ‐                      43                65                    1                       ‐                      71                1                    178                 428              11,963            139                  2                     12,568        44                  29,758           96,466        11,963            150                  2                     12,915        102                29,797           97,117        113 Street Federal Housing Special Improvement Revenue In‐Lieu Districts REVENUES: Special assessments ‐$                      ‐$                      ‐$                      ‐$                      Other taxes and fines 1,696              ‐                       ‐                       36                    From other agencies: Community Development Block Grants ‐                      372                  ‐                        ‐                       State of California ‐                       ‐                       ‐                        ‐                       Permits and licenses University Avenue Parking ‐                       ‐                       ‐                       1,856              California Avenue Parking ‐                       ‐                       ‐                       194                  Other permits and licenses ‐                       ‐                       ‐                       73                    Investment earnings 16                    ‐                      428                   34                    Rental income ‐                       ‐                      5                       ‐                       Other: Housing In‐Lieu ‐ residential ‐                       ‐                      6,329                ‐                       Other fees ‐                      170                  ‐                        ‐                       Total revenues 1,712             542                 6,762               2,193              EXPENDITURES: Current: Administrative Services ‐                       ‐                       ‐                       190                  Public Works ‐                       ‐                       ‐                       836                  Planning and Community Environment ‐                      533                 625                   101                  Public safety ‐                       ‐                      131                    ‐                       Community Services ‐                       ‐                       ‐                        ‐                       Non‐Departmental ‐                      24                   20                     155                  Total expenditures ‐                      557                 776                   1,282              EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,712             (15)                  5,986               911                  OTHER FINANCING SOURCES (USES): Transfers in 994                  ‐                      375                   514                  Transfers out (1,917)             ‐                      (375)                 (869)                Total other financing sources (uses) (923)                ‐                       ‐                       (355)                Change in fund balances 789                 (15)                  5,986               556                  FUND BALANCES, BEGINNING OF YEAR 761                 4,457             28,001             1,457              FUND BALANCES, END OF YEAR 1,550$            4,442$            33,987$           2,013$             CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2015 (Amounts in thousands) 114 Downtown Business Transportation Local Law Asset Developer Development Public Mitigation Enforcement Seizure Impact Fee District Benefit Total ‐$                       ‐$                       ‐$                      ‐$                     86$                   ‐$                      86$                ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       1,732            ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       372                ‐                        116                    ‐                        ‐                       ‐                       ‐                       116                ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       1,856            ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       194                ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       73                  249                   1                        ‐                       235                 3                     567                  1,533            ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       5                    ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       6,329            3,913                ‐                         ‐                       1,198              ‐                       ‐                       5,281            4,162               117                    ‐                       1,433             89                   567                  17,577          ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       190                ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       836                ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       1,259            ‐                        90                      ‐                        ‐                       ‐                       ‐                       221                ‐                         ‐                         ‐                       115                  ‐                      393                  508                ‐                         ‐                         ‐                        ‐                      158                  ‐                       357                ‐                        90                      ‐                       115                 158                 393                  3,371            4,162               27                      ‐                       1,318             (69)                  174                  14,206          ‐                         ‐                         ‐                       96                    ‐                       ‐                       1,979            (2,879)               ‐                         ‐                        ‐                       ‐                      (1,200)             (7,240)           (2,879)               ‐                         ‐                       96                    ‐                      (1,200)             (5,261)           1,283               27                      ‐                       1,414             (69)                  (1,026)             8,945            10,680             112                   2                      11,154           113                 30,784            87,521          11,963$           139$                 2$                    12,568$          44$                  29,758$           96,466$        115 Street Improvement Federal Revenue Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) REVENUES: Special assessments ‐$               ‐$                   ‐$               ‐$                ‐$                   ‐$               Other taxes and fines 1,644       1,696           52             ‐                 ‐                     ‐                From other agencies: Community Development Block Grants ‐                ‐                    ‐               507           372               (135)          State of California ‐                ‐                    ‐                ‐                 ‐                     ‐                Permits and licenses University Avenue Parking ‐                ‐                    ‐                ‐                 ‐                     ‐                California Avenue Parking ‐                ‐                    ‐                ‐                 ‐                     ‐                Other permits and licenses ‐                ‐                    ‐                ‐                 ‐                     ‐                Investment earnings 8               16                8                ‐                 ‐                     ‐                Rental income ‐                ‐                    ‐                ‐                 ‐                     ‐                Other: Housing In‐Lieu ‐ residential ‐                ‐                    ‐                ‐                 ‐                     ‐                Other fees ‐                ‐                    ‐               277           170               (107)          Total revenues 1,652       1,712           60            784           542               (242)          EXPENDITURES: Current: Administrative Services ‐                ‐                    ‐                ‐                 ‐                     ‐                Public Works ‐                ‐                    ‐                ‐                 ‐                     ‐                Planning and Community Environment ‐                ‐                    ‐               763           571               192           Development Services Public safety ‐                ‐                    ‐                ‐                 ‐                     ‐                Community Services ‐                ‐                    ‐                ‐                 ‐                     ‐                Non‐Departmental ‐                ‐                    ‐                ‐                24                 (24)            Total expenditures ‐                ‐                    ‐               763           595               168           Excess (deficiency) of revenues  over (under) expenditures 1,652       1,712           60            21             (53)                (74)            OTHER FINANCING SOURCES (USES): Transfers in 994          994               ‐                ‐                 ‐                     ‐                Transfers out (1,917)     (1,917)          ‐                ‐                 ‐                     ‐                Total other financing sources (uses) (923)         (923)              ‐                ‐                 ‐                     ‐                Change in fund balances, budgetary basis 729$         789              60$           21$            (53)                (74)$           Adjustment to Budgetary Basis: Current year encumbrances/reappropriations ‐                   38                  789              (15)                 FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 761              4,457             FUND BALANCES, END OF YEAR, GAAP BASIS 1,550$         4,442$           CHANGE IN FUND BALANCE, GAAP BASIS (Amounts in thousands) CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ‐  Budget and Actual For the Year Ended June 30, 2015 116 Housing In‐Lieu Special Districts Transportation Mitigation Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) ‐$                ‐$                    ‐$                ‐$               ‐$                   ‐$               ‐$                ‐$                   ‐$               ‐                  ‐                      ‐                 15             36                21             ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                 1,712        1,856           144           ‐                 ‐                     ‐                ‐                  ‐                      ‐                 195           194              (1)              ‐                 ‐                     ‐                ‐                  ‐                      ‐                 71             73                2                ‐                 ‐                     ‐                130            428                298            20             34                14            113          249                136           9                 5                    (4)                ‐                 ‐                    ‐                ‐                 ‐                     ‐                2,530         6,329             3,799          ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐               535          3,913             3,378        2,669         6,762             4,093         2,013        2,193           180          648          4,162             3,514        ‐                  ‐                      ‐                 206           190              16             ‐                 ‐                     ‐                ‐                  ‐                      ‐                 1,154        927              227           ‐                 ‐                     ‐                3,264         789                2,475         167           146              21             ‐                 ‐                     ‐                ‐                 131                (131)            ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                 15              ‐                   15             ‐                 ‐                     ‐                179            220                (41)             344           174              170           ‐                 ‐                     ‐                3,443         1,140             2,303         1,886        1,437           449           ‐                 ‐                     ‐                (774)           5,622             6,396         127           756              629          648          4,162             3,514        375            375                 ‐                 514           514               ‐                ‐                 ‐                     ‐                (375)           (375)                ‐                 (869)          (869)              ‐               (2,879)     (2,879)            ‐                ‐                  ‐                      ‐                 (355)          (355)              ‐               (2,879)     (2,879)            ‐                (774)$         5,622             6,396$       (228)$        401              629$         (2,231)$    1,283             3,514$       364                155               ‐                     5,986             556              1,283              28,001          1,457           10,680           33,987$        2,013$         11,963$         117 Local Law Enforcement Asset Seizure Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) REVENUES: Special assessments ‐$               ‐$                   ‐$               ‐$                ‐$                   ‐$               Other taxes and fines ‐                ‐                    ‐                ‐                 ‐                     ‐                From other agencies: Community Development Block Grants ‐                ‐                    ‐                ‐                 ‐                     ‐                State of California 106          116              10             ‐                 ‐                     ‐                Permits and licenses University Avenue Parking ‐                ‐                    ‐                ‐                 ‐                     ‐                California Avenue Parking ‐                ‐                    ‐                ‐                 ‐                     ‐                Other permits and licenses ‐                ‐                    ‐                ‐                 ‐                     ‐                Investment earnings 5               1                  (4)              ‐                 ‐                     ‐                Rental income ‐                ‐                    ‐                ‐                 ‐                     ‐                Other: Housing In‐Lieu ‐ residential ‐                ‐                    ‐                ‐                 ‐                     ‐                Other fees ‐                ‐                    ‐                ‐                 ‐                     ‐                Total revenues 111          117              6                ‐                 ‐                     ‐                EXPENDITURES: Current: Administrative Services ‐                ‐                    ‐                ‐                 ‐                     ‐                Public Works ‐                ‐                    ‐                ‐                 ‐                     ‐                Planning and Community Environment ‐                ‐                    ‐                ‐                 ‐                     ‐                Development Services Public safety 142          129              13             ‐                 ‐                     ‐                Community Services ‐                ‐                    ‐                ‐                 ‐                     ‐                Non‐Departmental ‐                ‐                    ‐                ‐                 ‐                     ‐                Total expenditures 142          129              13             ‐                 ‐                     ‐                Excess (deficiency) of revenues  over (under) expenditures (31)           (12)               19             ‐                 ‐                     ‐                OTHER FINANCING SOURCES (USES): Transfers in ‐                ‐                    ‐                ‐                 ‐                     ‐                Transfers out ‐                ‐                    ‐                ‐                 ‐                     ‐                Total other financing sources (uses)‐                ‐                    ‐                ‐                 ‐                     ‐                Change in fund balances, Budgetary basis (31)$          (12)               19$            ‐$                ‐                     ‐$               Adjustment to Budgetary Basis: Current year encumbrances/reappropriations 39                 ‐                     27                 ‐                     FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 112              2                    FUND BALANCES, END OF YEAR, GAAP BASIS 139$             2$                  CHANGE IN FUND BALANCE, GAAP BASIS (Amounts in Thousands) CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ‐  Budget and Actual For the Year Ended June 30, 2015 118 Developer Impact Fee Downtown Business Improvement District Public Benefit Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) ‐$                ‐$                    ‐$               153$         86$               (67)$           ‐$                ‐$                   ‐$               ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                209            235                26              2                3                  1               646          567                (79)            ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                1,001         1,198             197             ‐                 ‐                    ‐                ‐                 ‐                     ‐                1,210         1,433             223            155           89                (66)           646          567                (79)            ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                150            115                35               ‐                 ‐                    ‐               437          424                13             ‐                  ‐                      ‐                 232           158              74             ‐                 ‐                     ‐                                 150            115                35              232           158              74            437          424                13             1,060         1,318             258            (77)            (69)               8               209          143                (66)            96              96                   ‐                  ‐                 ‐                    ‐                ‐                 ‐                     ‐                ‐                  ‐                      ‐                  ‐                 ‐                    ‐               (1,200)     (1,200)            ‐                96              96                   ‐                  ‐                 ‐                    ‐               (1,200)     (1,200)            ‐                1,156$       1,414             258$          (77)$          (69)               8$             (991)$        (1,057)           (66)$           ‐                      ‐                   31                   1,414             (69)               (1,026)            11,154          113              30,784           12,568$        44$               29,758$         119   120   This page is left intentionally blank.   121   NON‐MAJOR GOVERNMENTAL FUNDS    DEBT SERVICE FUNDS     Downtown Parking Improvement  This fund accounts for revenues received from the General Fund to provide payment of principal and  interest associated with the 2002B Downtown Parking Improvement Certificate of Participation as they  become due.    Library Projects  This fund accounts for revenues received from property taxes to provide payment of principal and interest  associated with the 2010 and 2013A General Obligation Bonds as they become due.  CITY OF PALO ALTO Non‐major Debt Service Funds Combining Balance Sheet June 30, 2015 (Amounts in thousands) Downtown Parking Library Improvement Projects Total ASSETS: Cash and investments: Available for operations 13$                  6,640$            6,653$             Cash and investments with fiscal agents 238                  ‐                       238                   Total assets 251                 6,640             6,891               FUND BALANCES: Restricted: Debt service 251$               6,640$            6,891$             122 CITY OF PALO ALTO Non‐major Debt Service Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2015 (Amounts in thousands) Downtown Parking Library Improvement Projects Total REVENUES: Property tax ‐$                     4,633$            4,633$             Total revenues ‐                      4,633             4,633               EXPENDITURES: Debt service: Principal retirement 145                 1,420             1,565               Interest and fiscal charges 93                   3,262             3,355               Total expenditures 238                 4,682             4,920               (DEFICIENCY) OF REVENUES (UNDER) EXPENDITURES (238)               (49)                  (287)                 OTHER FINANCING SOURCES (USES): Transfers in 238                  ‐                       238                   Total other financing sources (uses) 238                  ‐                       238                   Change in fund balances ‐                      (49)                  (49)                   FUND BALANCES, BEGINNING OF YEAR 251                 6,689             6,940               FUND BALANCES, END OF YEAR 251$               6,640$            6,891$             123 Downtown Parking Improvement Library Projects Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) REVENUES: Special assessments ‐$               ‐$                  ‐$              4,682$      4,633$         (49)$          Total revenues ‐                ‐                    ‐               4,682       4,633           (49)            EXPENDITURES: Debt service: Principal retirement 145          145              ‐               1,420       1,420            ‐                Interest and fiscal charges 93            93                 ‐               3,262       3,262            ‐                Total expenditures 238          238              ‐               4,682       4,682            ‐                Excess (deficiency) of revenues  over (under) expenditures (238)        (238)             ‐                ‐                (49)               (49)            OTHER FINANCING SOURCES (USES): Transfers in 238          238              ‐                ‐                 ‐                     ‐                Total other financing sources (uses) 238          238              ‐                ‐                 ‐                     ‐                Change in fund balances, Budgetary basis ‐$               ‐                    ‐$               ‐$               (49)               (49)$          Adjustment to Budgetary Basis: Unrealized gain/loss on investments Current year encumbrances/reappropriations ‐                    ‐                     Prior year encumbrances/reappropriations ‐                    ‐                     ‐                   (49)                FUND BALANCES, BEGINNING OF YEAR 251             6,689            FUND BALANCES, END OF YEAR 251$            6,640$          CHANGE IN FUND BALANCE, GAAP BASIS (Amounts in thousands) CITY OF PALO ALTO Non‐major Debt Service Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ‐  Budget and Actual For the Year Ended June 30, 2015 124 125  NON‐MAJOR GOVERNMENTAL FUNDS    PERMANENT FUND    Eyerly Family  This fund accounts for the revenues received from assets donated by Mr. and Mrs. Fred Eyerly for the City  and or its citizenry.    Eyerly Family Permanent Fund Variance Actual, plus Positive Budget Encumbrances (Negative) REVENUES: Investment earnings 29$              28$               (1)$                Total revenues 29                28                 (1)                  EXPENDITURES: Current: Non‐Departmental ‐                   5                   (5)                  Total expenditures ‐                   5                   (5)                  Excess (deficiency) of revenues  over (under) expenditures 29                23                 (6)                  Change in fund balance 29$              23                 (6)$                Adjustment to Budgetary Basis: Unrealized gain/loss on investments Current year encumbrances/reappropriations ‐                     Prior year encumbrances/reappropriations ‐                     23                  FUND BALANCE, BEGINNING OF YEAR 1,445           FUND BALANCE, END OF YEAR 1,468$          CHANGE IN FUND BALANCE, GAAP BASIS (Amounts in thousands) CITY OF PALO ALTO Non‐major Permanent Fund Schedule of Revenues, Expenditures and Changes in Fund Balance ‐  Budget and Actual For the Year Ended June 30, 2015 126 127  INTERNAL SERVICE FUNDS    INTRODUCTION  Internal Service Funds are used to finance and account for special activities and services performed by a  designated department for other departments in the City on a cost reimbursement basis.    Vehicle Replacement and Maintenance  This fund accounts for the maintenance and replacement of vehicles and equipment used by all City  departments. The source of revenue is on reimbursement of fleet replacement and maintenance costs  allocated to each department by usage of vehicle.    Technology  This fund accounts for replacement and upgrade of technology, and covers four primary areas used by all  City departments: desktop, infrastructure, applications, and technology research and development. The  source of revenue is on reimbursement of costs for support provided to other departments.    Printing and Mailing Services  This fund accounts for central duplicating, printing and mailing services provided to all City departments.  Source of revenue for this fund is on reimbursement of costs for services and supplies purchased by other  departments.    General Benefits  This fund accounts for the administration of compensated absences and health benefits.    Workers’ Compensation Insurance Program  This fund accounts for the administration of the City’s self‐insured workers’ compensation programs.    General Liabilities Insurance Program  This fund accounts for the administration of the City’s self‐insured general liability programs.    Retiree Health Benefits  This fund accounts for the retiree health benefits.      Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total ASSETS: Current Assets: Cash and investments: Available for operations 10,183$      19,785$      21$             14,690$      20,975$      7,322$         3,277$         76,253$       Accounts receivable, net 338             ‐                  ‐                 45              147            250               ‐                  780             Interest receivable 48              84               ‐                 50              84              29                22               317             Inventory of materials and supplies 370             ‐                  ‐                  ‐                  ‐                  ‐                    ‐                  370             Total current assets 10,939       19,869       21              14,785       21,206       7,601           3,299           77,720        Noncurrent Assets: Capital assets: Nondepreciable 725            625             ‐                  ‐                  ‐                  ‐                    ‐                  1,350          Depreciable, net 11,901       2,064          ‐                  ‐                  ‐                  ‐                    ‐                  13,965        Net OPEB asset ‐                  ‐                  ‐                  ‐                  ‐                  ‐                   22,871         22,871        Total noncurrent assets 12,626       2,689          ‐                  ‐                  ‐                  ‐                   22,871         38,186        Total assets 23,565       22,558       21              14,785       21,206       7,601           26,170         115,906      DEFERRED OUTFLOWS OF RESOURCES: Deferred pension contribution 280            836            26               ‐                  ‐                  ‐                    ‐                  1,142          Total deferred outflows of resources 280            836            26               ‐                  ‐                  ‐                    ‐                  1,142          LIABILITIES: Current Liabilities: Accounts payable and accruals ‐                 196             ‐                 1,363         82               ‐                    ‐                  1,641          Accrued salaries and benefits 45              127            5                11               ‐                  ‐                    ‐                  188             Accrued compensated absences 8                21              1                4,440          ‐                  ‐                    ‐                  4,470          Accrued claims payable ‐ current ‐                  ‐                  ‐                 146            3,271         1,900            ‐                  5,317          Total current liabilities 53              344            6                5,960         3,353         1,900            ‐                  11,616        Noncurrent liabilities: Accrued compensated absences ‐                  ‐                  ‐                 6,286          ‐                  ‐                    ‐                  6,286          Accrued claims payable ‐                  ‐                  ‐                  ‐                 15,862       2,939            ‐                  18,801        Net pension liabilities 2,519         8,706         276             ‐                  ‐                  ‐                    ‐                  11,501        Total noncurrent liabilities 2,519         8,706         276            6,286         15,862       2,939            ‐                  36,588        Total liabilities 2,572         9,050         282            12,246       19,215       4,839            ‐                  48,204        DEFERRED INFLOWS OF RESOURCES: Differences between expected and actual earnings on investments 436            1,508         48               ‐                  ‐                  ‐                    ‐                  1,992          Total deferred inflows of resources 436            1,508         48               ‐                  ‐                  ‐                    ‐                  1,992          NET POSITION: Net Investment in capital assets 12,626       2,689          ‐                  ‐                  ‐                  ‐                    ‐                  15,315        Unrestricted 8,211         10,147       (283)           2,539         1,991         2,762           26,170         51,537        Total net position 20,837$      12,836$      (283)$          2,539$        1,991$        2,762$         26,170$       66,852$       CITY OF PALO ALTO Internal Service Funds Combining Statement of Fund Net Position June 30, 2015 (Amounts in thousands) 128 Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total OPERATING REVENUES: Charges for services 7,277$         11,774$      1,263$         44,462$      1,994$         1,293$          13,471$      81,534$       Other 13                ‐                    ‐                    ‐                   746             178                ‐                    937              Total operating revenues 7,290          11,774        1,263          44,462        2,740          1,471            13,471         82,471         OPERATING EXPENSES: Administrative and general 1,195          6,660          822             276             787             1,096            563              11,399         Operations and maintenance 3,535          5,765          425             669              ‐                     ‐                     13,643         24,037         Depreciation and amortization 2,030          359             3                   ‐                    ‐                     ‐                      ‐                    2,392           Claim payments and change in estimated self‐insured liability ‐                    ‐                    ‐                   1,499          528             (707)               ‐                    1,320           Refund of charges for services 52               9                   ‐                    ‐                    ‐                     ‐                      ‐                    61                Compensated absences and other benefits ‐                    ‐                    ‐                   41,120         ‐                     ‐                      ‐                    41,120         Total operating expenses 6,812          12,793        1,250          43,564        1,315          389               14,206         80,329         Operating income (loss)478             (1,019)         13               898             1,425          1,082            (735)             2,142           NONOPERATING REVENUES (EXPENSES): Investment earnings 209             334              ‐                   197             365             95                 68                1,268           Gain on disposal of capital assets 70                ‐                    ‐                    ‐                    ‐                     ‐                      ‐                    70                Other nonoperating revenues 33                ‐                    ‐                    ‐                    ‐                     ‐                      ‐                    33                Total nonoperating revenues (expenses)312             334              ‐                   197             365             95                 68                1,371           Income (loss) before transfers 790             (685)            13               1,095          1,790          1,177            (667)             3,513           Transfers in ‐                   2,349           ‐                    ‐                    ‐                     ‐                      ‐                    2,349           Transfers out (1,070)         (187)             ‐                    ‐                    ‐                     ‐                      ‐                    (1,257)          Change in net position (280)            1,477          13               1,095          1,790          1,177            (667)             4,605           NET POSITION, BEGINNING OF YEAR 23,878        20,899        7                  1,444          201             1,585            26,837         74,851         Restatement for implementation of GASB Statement No. 68 (2,761)         (9,540)         (303)             ‐                    ‐                     ‐                      ‐                    (12,604)       NET POSITION (DEFICIT), BEGINNING OF YEAR, AS RESTATED 21,117        11,359        (296)            1,444          201             1,585            26,837         62,247         NET POSITION, END OF YEAR 20,837$      12,836$      (283)$           2,539$         1,991$         2,762$          26,170$      66,852$       CITY OF PALO ALTO Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2015 (Amounts in thousands) 129 Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total Cash flows from operating activities: Cash received from customers 7,274$         11,774$      1,263$        44,452$      1,847$        1,694$         13,567$       81,871$       Cash refunds to customers (52)              (9)                ‐                   ‐                   ‐                   ‐                     ‐                   (61)              Cash payments to suppliers for goods and services (3,517)          (5,832)        (433)           (295)            ‐                   ‐                    (13,643)       (23,720)      Cash payments to employees (1,275)          (6,820)        (821)           (40,837)     (773)           (1,096)          (863)            (52,485)      Cash payments for judgments and claims 13                 ‐                   ‐                  (1,499)        (1,439)        (271)              ‐                   (3,196)         Other cash receipts 33                 ‐                   ‐                   ‐                   ‐                   ‐                     ‐                   33                Cash flows provided by (used in)  operating activities 2,476           (887)           9                 1,821         (365)           327              (939)            2,442          Cash flows from noncapital financing activities: Transfers in ‐                   2,349          ‐                   ‐                   ‐                   ‐                     ‐                   2,349          Transfers out (1,070)          (187)            ‐                   ‐                   ‐                   ‐                     ‐                   (1,257)         Cash flows provided by noncapital financing activities (1,070)          2,162          ‐                   ‐                   ‐                   ‐                     ‐                   1,092          Cash flows from capital and related financing activities: Acquisition of capital assets (2,689)          (1,071)         ‐                   ‐                   ‐                   ‐                     ‐                   (3,760)         Proceeds from sale of capital assets 172              ‐                   ‐                   ‐                   ‐                   ‐                     ‐                   172             Cash flows (used in)  capital and related financing activities (2,517)          (1,071)         ‐                   ‐                   ‐                   ‐                     ‐                   (3,588)         Cash flows from investing activities: Interest received 216             352             ‐                  204            376            96                 71                1,315          Cash flows from investing activities 216             352             ‐                  204            376            96                 71                1,315          Net change in cash and cash equivalents (895)            556            9                 2,025         11               423              (868)            1,261          Cash and cash equivalents, beginning of year 11,078         19,229       12               12,665       20,964       6,899           4,145           74,992        Cash and cash equivalents, end of year  $      10,183 $      19,785 $              21 $      14,690 $      20,975  $         7,322  $         3,277 $      76,253  Reconciliation of operating income (loss) to net cash flows provided by (used in) operating activities: Operating income (loss) 478$           (1,019)$      13$             898$           1,425$        1,082$         (735)$          2,142$         Adjustments to reconcile operating income (loss)  to net cash provided by (used in) operating activities: Depreciation 2,030           359            3                  ‐                   ‐                   ‐                     ‐                   2,392          Other 33                 ‐                   ‐                   ‐                   ‐                   ‐                     ‐                   33                Change in assets and liabilities: Accounts receivable (3)                 ‐                   ‐                  (10)             (147)           223              96                159             Inventory of materials and supplies 18                 ‐                   ‐                   ‐                   ‐                   ‐                     ‐                   18                Net OPEB asset ‐                    ‐                   ‐                   ‐                   ‐                   ‐                    (261)            (261)            Deferred outflows of resources ‐ pension plans (46)              (26)              ‐                   ‐                   ‐                   ‐                     ‐                   (72)              Accounts payable and accruals ‐                   (67)             (8)               374            14                ‐                    (39)              274             Accrued salaries and benefits 6                  (6)               5                 10                ‐                   ‐                     ‐                   15                Accrued compensated absences ‐                   8                 1                 549             ‐                   ‐                     ‐                   558             Accrued claims payable ‐                    ‐                   ‐                   ‐                  (1,657)        (978)              ‐                   (2,635)         Net pension liability (476)            (1,644)        (53)              ‐                   ‐                   ‐                     ‐                   (2,173)         Deferred inflows of resources ‐ pension plans 436             1,508         48                ‐                   ‐                   ‐                     ‐                   1,992          Cash flows provided by (used in)  operating activities 2,476$         (887)$          9$                1,821$        (365)$          327$            (939)$          2,442$         CITY OF PALO ALTO Internal Service Funds Combining Statement of Cash Flows For the Year Ended June 30, 2015 (Amounts in thousands) 130 131  FIDUCIARY FUNDS    INTRODUCTION  Fiduciary Funds are used to account for assets held by the City acting in a fiduciary capacity for other  entities and individuals. The funds are operated to carry out the specific actions required by the trust  agreements, ordinances and other governing regulations.    Fiduciary Funds are presented separately from the Citywide and Fund financial statements.    Agency Funds are custodial in nature and do not involve measurement of results of operations. The City  maintains three agency funds, as follows:    California Avenue Parking Assessment District  This fund accounts for receipts and disbursements associated with the 1993 Parking District No. 92‐13  Assessment Bonds.    Cable Joint Powers Authority  The fund was established to account for the activities of the cable television system on behalf of the  members.    University Avenue Area Off‐Street Parking Assessment District  The fund accounts for the receipts and disbursements associated with the Series 2012 Limited Obligation  Refunding Improvement Bonds.      CITY OF PALO ALTO All Agency Funds Statement of Changes in Assets and Liabilities For the Year Ended June 30, 2015 Balance Balance California Avenue Parking Assessment District June 30, 2014 Additions Deletions June 30, 2015 ASSETS: Cash and investments available for operations 180                    ‐                         5                         175                     LIABILITIES: Due to bondholders 180                    ‐                         5                         175                     Cable Joint Powers Authority ASSETS: Cash and investments available for operations 755                    ‐                         95                       660                     Accounts receivable ‐                         503                    ‐                          503                     Interest receivable 4                         ‐                         1                         3                          Total assets 759                   503                   96                       1,166                  LIABILITIES: Due to other governments 759                   407                    ‐                          1,166                  ASSETS: Cash and investments available for operations 1,984                208                    ‐                          2,192                  Cash and investments with fiscal agents 2,541                2                         ‐                          2,543                  Accounts receivable 9                         ‐                          ‐                          9                          Interest receivable 10                       ‐                         1                         9                          Total assets 4,544                210                   1                         4,753                  LIABILITIES: Due to bondholders 4,544                209                    ‐                          4,753                  Total Agency Funds ASSETS: Cash and investments available for operations 2,919                208                   100                    3,027                  Cash and investments with fiscal agents 2,541                2                         ‐                          2,543                  Accounts receivable 9                        503                    ‐                          512                     Interest receivable 14                       ‐                         2                         12                        Total assets 5,483                713                   102                    6,094                  LIABILITIES: Due to bondholders 4,724                209                   5                         4,928                  Due to other governments 759                   407                    ‐                          1,166                  Total liabilities 5,483                616                   5                         6,094                  (Amounts in thousands) University Avenue Area  Off‐Street Parking Assessment District 132 133  STATISTICAL SECTION    The statistical section contains comprehensive statistical data, which relates to physical, economic, social  and political characteristics of the City. It is intended to provide users with a broader and more complete  understanding of the City and its financial affairs than is possible from the financial statements and  supporting schedules included in the financial section.    In this section, readers will find comparative information related to the City’s revenue sources,  expenditures, property tax valuations, levies and collections, general obligation bonded debt, utility  revenue debt service, and demographics. Where available, the comparative information is presented for  the last ten fiscal years.    In addition, this section presents information related to the City’s legal debt margin computation, principal  taxpayers, notary and security bond coverages, and other miscellaneous statistics pertaining to services  provided by the City.    In contrast to the financial section, the statistical section information is not usually subject to independent  audit.    Financial Trends  These schedules contain trend information to help the reader understand how the City’s financial  performance and well‐being have changed over time:   Net Position by Component   Changes in Net Position   Fund Balances of Governmental Funds   Changes in Fund Balances of Governmental Funds    Revenue Capacity  These schedules contain information to help the reader assess the City’s most significant local revenue  sources, property tax and electric charges:   Electric Operating Revenue by Source   Supplemental Disclosure for Water Utilities    Assessed Value of Taxable Property   Property Tax Rates, All Overlapping Governments   Property Tax Levies and Collections   Principal Property Taxpayers   Assessed Valuation and Parcels by Land Use   Per Parcel Assessed Valuation of Single Family Residential    Debt Capacity  These schedules present information to help the reader assess the affordability of the City’s current levels  of outstanding debt and the City’s ability to issue additional debt in the future:   Ratio of Outstanding Debt by Type   Computation of Direct and Overlapping Debt   Computation of Legal Bonded Debt Margin   Revenue Bond Coverage    134  STATISTICAL SECTION    Demographic and Economic Information  These schedules offer demographic and economic indicators to help the reader understand the  environment within which the City’s financial activities take place:   Taxable Transactions by Type of Business   Demographic and Economic Statistics   Principal Employers    Operating Information  These schedules contain service and infrastructure data to help the reader understand how the  information in the City’s financial report relates to the services the City provides and the activities it  performs:   Operating Indicators by Function/Program   Capital Asset Statistics by Function/Program   Full‐Time Equivalent City Government Employees by Function    Sources  Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual  Financial Reports for the relevant year.    2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Governmental Activities Investment in capital assets 311,335$      326,411$      343,537$      356,657$      369,499$      364,747$      370,111$      378,047$      386,696$      405,921$       Restricted 29,885          32,576          27,428          36,632          34,323          16,437          52,934          71,717          68,331          55,963           Unrestricted 123,823        127,190        130,460        118,133        102,199        134,722        142,102        165,810        187,386        1,972              Total Governmental Activities Net Position 465,043$      486,177$      501,425$      511,422$      506,021$      515,906$      565,147$      615,574$      642,413$      463,856$       Business‐type Activities Investment in capital assets 318,738$      342,922$      370,303$      384,313$      399,317$      416,418$      437,151$      446,597$      473,795$      490,874$       Restricted 1,732             1,732             1,732             1,732             4,300              ‐                      ‐                     4,060             4,166             4,142              Unrestricted 228,032        230,912        226,539        208,025        232,420        253,740        262,602        269,926        266,794        172,802         Total Business‐type Activities Net Position 548,502$      575,566$      598,574$      594,070$      636,037$      670,158$      699,753$      720,583$      744,755$      667,818$       Primary Government Investment in capital assets 630,073$      669,333$      713,840$      740,970$      768,816$      781,165$      807,262$      824,644$      860,491$      896,795$       Restricted 31,617          34,308          29,160          38,364          38,623          16,437          52,934          75,777          72,497          60,105           Unrestricted 351,855        358,102        356,999        326,158        334,619        388,462        404,704        435,736        454,180        174,774         Total Primary Government Net Position 1,013,545$  1,061,743$  1,099,999$  1,105,492$  1,142,058$  1,186,064$  1,264,900$  1,336,157$  1,387,168$  1,131,674$   Source:  Annual Financial Statements, Statement of Net Position Fiscal Year Ended June 30 CITY OF PALO ALTO Net Position by Component Last Ten Fiscal Years (Amounts in thousands) (Accrual basis of accounting) $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ Th o u s a n d s Primary Government Investment in capital assets Restricted Unrestricted 135 PROGRAM REVENUES 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Governmental Activities Charges for services City Attorney 22$                  13$               16$               12$               53$                ‐$                   ‐$                     ‐$                     ‐$                     ‐$                   City Clerk 2                       ‐                     ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                     City Auditor ‐                        ‐                     ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                     Administrative Services 627                  835               870               726               984               2,889           1,647             15,629           4,055             5,460            People Strategy and Operations ‐                       11                  ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                     Public Works 805                  968               1,310           1,169           1,258           2,419           1,008             1,314             1,093             1,209            Planning & Community Environment 5,509               6,267           5,498           4,704           4,813           7,237           31,491           28,768           12,896           8,090            Development Services3 ‐                        ‐                     ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                      12,019          Public Safety 13,256            13,789         13,692         14,670         14,337         15,274         15,658           16,139           14,902           15,726          Community Services 10,803            9,128           10,314         8,522           8,729           7,724           11,365           13,808           20,882           20,912          Library 129                  146               176               177               199               480               1,600             187                 166                 137                Operating grants and contributions 3,976               5,642           4,029           3,599           4,829           2,884           3,441             5,038             5,360             5,300            Capital grants and contributions 3,156               1,756           1,930           3,810           1,280           1,903           1,064             515                 917                 619                Total Governmental Activities Program Revenues 38,285            38,555         37,835         37,389         36,482         40,810         67,274           81,398           60,271           69,472          Business‐type Activities Charges for services Water 21,108            23,495         26,510         27,120         26,259         26,624         31,467           37,746           40,291           35,847          Electric 119,418          102,549       103,833       119,320       121,900       122,109       118,886         121,805         121,916         120,842        Fiber Optics1 ‐                        ‐                     ‐                    3,336           3,105           3,322           3,662             4,382             4,485             4,627            Gas 36,977            42,221         49,021         47,838         44,450         43,584         41,774           34,633           35,737           30,751          Wastewater Collection 13,801            14,848         15,102         14,486         15,136         15,094         14,942           16,077           15,599           16,182          Wastewater Treatment 18,778            16,957         22,889         28,425         16,915         18,830         22,200           21,528           18,460           24,120          Refuse 24,795            25,532         28,805         29,101         28,568         30,469         30,645           30,583           30,297           31,576          Storm Drainage 5,174               5,181           5,450           5,505           5,647           5,796           5,892             6,053             6,183             6,281            Airport ‐                        ‐                     ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                      683                External Services 854                  789               112                ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                     Operating grants and contributions ‐                        ‐                     ‐                     ‐                    361               610               605                 572                 549                 534                Capital grants and contributions ‐                       756               1,594           639               475               3,004           1,526             2,224             2,005             2,080            Total Business‐type Activities  Program Revenues 240,905          232,328       253,316       275,770       262,816       269,442       271,599         275,603         275,522         273,523        Total Primary Government  Program Revenues 279,190$        270,883$     291,151$     313,159$     299,298$     310,252$     338,873$       357,001$       335,793$       342,995$      EXPENSES Governmental Activities City Council 141$                180$            323$            394$            455$            15$               345$              94$                 387$              271$             City Manager 1,563               1,760           2,273           2,085           2,399           1,842           1,960             1,237             2,180             2,155            City Attorney 2,598               2,390           2,653           2,575           2,621           953               1,656             1,642             1,797             1,759            City Clerk 945                  900               1,241           1,098           1,369           803               908                 330                 641                 680                City Auditor 843                  838               1,379           2,053           2,601           138               235                 464                 489                 362                Administrative Services2 6,972               6,419           15,477         17,784         17,893         9,888           10,100           7,614             11,388           9,980            People Strategy and Operations 2,546               2,472           2,806           3,448           3,707           1,346           1,071             1,420             1,346             1,464            Public Works 17,596            16,645         18,565         21,270         18,658         19,357         14,568           20,816           24,577           21,075          Planning & Community Environment 9,931               12,929         16,388         12,940         12,114         15,031         12,074           13,549           14,926           8,423            Development Services3 ‐                        ‐                     ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                      10,449          Public Safety 42,158            43,391         50,126         52,487         55,799         58,996         62,817           59,452           62,883           58,660          Community Services 17,296            15,729         17,736         19,862         17,171         22,845         21,915           22,705           23,822           24,688          Library 5,323               5,347           6,321           6,244           6,143           6,920           7,323             7,319             7,758             7,721            Non‐departmental2 10,400            12,133          ‐                     ‐                     ‐                     ‐                     ‐                       ‐                       ‐                       ‐                     Interest on long term debt 512                  477               438               404               370               2,742           2,575             2,562             3,367             3,658            Total Governmental Activities Expenses 118,824          121,610       135,726       142,644       141,300       140,876       137,547         139,204         155,561         151,345        Business‐type Activities Water 15,881            16,794         18,842         20,271         21,037         24,268         29,093           30,707           31,593           33,205          Electric 91,570            99,294         108,032       122,268       107,910       100,130       102,030         106,438         113,004         122,499        Fiber Optics1 ‐                        ‐                     ‐                    1,284           1,407           1,561           1,489             1,437             1,661             1,891            Gas 29,107            30,690         37,211         34,603         32,498         32,051         28,878           26,749           26,869           23,525          Wastewater Collection 11,005            10,085         12,023         14,875         10,696         12,275         14,825           14,313           13,235           14,595          Wastewater Treatment 16,747            15,901         18,902         36,896         13,466         19,731         20,712           20,635           21,018           21,553          Refuse 26,989            25,372         28,827         37,217         28,119         30,684         31,900           28,542           28,413           27,974          Storm Drainage 2,673               2,517           3,202           2,943           2,491           3,229           3,103             3,703             3,644             3,721            Airport ‐                        ‐                     ‐                     ‐                     ‐                    31                 153                 246                 466                 1,004            External Services 868                  767               984               ‐                    ‐                    ‐                    ‐                      ‐                      ‐                      ‐                     Total Business‐type Activities Expenses 194,840          201,420       228,023       270,357       217,624       223,960       232,183         232,770         239,903         249,967        Total Primary Government Expenses 313,664$        323,030$     363,749$     413,001$     358,924$     364,836$     369,730$       371,974$       395,464$       401,312$      CITY OF PALO ALTO Changes in Net Position Last Ten Fiscal Years (Accrual basis of accounting) (Amounts in thousands) Fiscal Year Ended June 30 136 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 NET (EXPENSE)/REVENUE Governmental Activities (80,539)$         (83,055)$      (97,891)$      (105,255)$   (104,818)$   (100,066)$   (70,273)$        (57,806)$        (95,290)$        (81,873)$       Business‐type Activities 46,065            30,908         25,293         5,413           45,192         45,482         39,416           42,833           35,619           23,556          Total Primary Government Net (Expense)/Revenue (34,474)$         (52,147)$      (72,598)$      (99,842)$      (59,626)$      (54,584)$      (30,857)$        (14,973)$        (59,671)$        (58,317)$       GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS Governmental Activities Taxes Property tax 18,731$          21,466$       23,084$       25,432$       25,981$       29,156$       30,104$         31,929$         35,299$         38,750$        Sales tax 20,315            22,194         22,623         20,089         17,991         20,746         22,132           25,606           29,424           29,675          Utility user tax 8,759               9,356           10,285         11,030         11,295         10,851         10,834           10,861           11,008           10,861          Transient occupancy tax 6,393               6,709           7,976           7,111           6,858           8,082           9,664             10,794           12,255           16,699          Other taxes 7,033               6,293           6,261           3,364           4,055           8,156           8,173             10,504           9,660             11,867          Investment earnings 2,567               8,747           12,313         8,525           6,514           3,500           6,238             (1,228)            5,859             5,010            Rents and miscellaneous 10,440            13,670         11,896         15,682         12,729         12,377         14,943           518                 2,575             3,428            Transfers 21,545            15,754         18,701         24,020         13,994         17,083         17,426           19,249           17,103           16,405          Total Governmental Activities 95,783            104,189       113,139       115,253       99,417         109,951       119,514         108,233         123,183         132,695        Business‐type Activities Investment earnings 3,631               11,910         16,416         14,103         10,769         5,722           7,605             (2,754)            6,379             4,857            Transfers (21,545)           (15,754)        (18,701)        (24,020)        (13,994)        (17,083)        (17,426)          (19,249)          (17,103)          (16,405)         Total Business‐type Activities (17,914)           (3,844)          (2,285)          (9,917)          (3,225)          (11,361)        (9,821)            (22,003)          (10,724)          (11,548)         Total Primary Government 77,869$          100,345$     110,854$     105,336$     96,192$       98,590$       109,693$       86,230$         112,459$       121,147$      CHANGE IN NET POSITION Governmental Activities 15,244$          21,134$       15,248$       9,998$         (5,401)$        9,885$         49,241$         50,427$         27,893$         50,822$        Business‐type Activities 28,151            27,064         23,008         (4,504)          41,967         34,121         29,595           20,830           24,895           12,008          Total Primary Government Change in Net Position 43,395$          48,198$       38,256$       5,494$         36,566$       44,006$       78,836$         71,257$         52,788$         62,830$        Notes:1Prior to 2009, Fiber Optics was included in Electric. 2Beginning in 2008, includes Non‐departmental expenses. 3The Development Services Department was formed in FY15. Source: Annual Financial Statements, Statement of Activities   Fiscal Year Ended June 30 137 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 General Fund Nonspendable 4,052$      5,002$      7,286$      6,476$      6,581$      6,085$      6,007$      5,749$      6,188$      6,296$       Assigned 3,914         6,855         4,851         6,100         7,295         6,235         6,400         5,415         5,432         7,976          Unassigned 26,251      27,551      30,278      30,648      27,581      31,859      29,616      30,913      36,690      48,198       Total General Fund 34,217$    39,408$    42,415$    43,224$    41,457$    44,179$    42,023$    42,077$    48,310$    62,470$     Source: Annual Financial Statements, Balance Sheet Fiscal Year Ended June 30 CITY OF PALO ALTO Fund Balances of Governmental Funds (General Fund) Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ Th o u s a n d s Nonspendable Assigned Unassigned 138 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 All Other Governmental Funds Nonspendable ‐$                 ‐$                731$          1,308$       1,402$        1,422$        11,112$     18,189$     14,869$     1,468$         Restricted 1,822         1,540         1,406         1,412         55,400        50,646        61,324        84,688        68,468        59,650         Committed 18,430       22,883       15,207       22,043       16,962        24,775        14,284        20,400        27,145        48,434         Assigned 46,723       41,684       44,116       36,629       38,538        20,114        33,264        45,514        55,211        52,627         Total All Other Governmental Funds 66,975$    66,107$    61,460$    61,392$    112,302$   96,957$     119,984$   168,791$   165,693$   162,179$    Source: Annual Financial Statements, Balance Sheet Fiscal Year Ended June 30 CITY OF PALO ALTO Fund Balances of Governmental Funds (All Other Governmental Funds) Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ Th o u s a n d s Nonspendable Restricted Committed Assigned 139 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Revenues Property tax 18,731$             21,466$           23,084$         25,432$       25,981$       29,248$       30,216$       32,040$       35,393$            38,836$        Sales tax 20,315                22,194             22,623            20,089         17,991         20,746         22,132         25,606         29,424              29,675          Other taxes and fines 25,840                26,215             27,385            24,843         25,063         27,890         29,231         32,141         35,305              41,576          Charges for services 18,672                19,929             19,610            19,837         19,775         22,311         46,273         38,976         23,962              25,973          From other agencies 5,931                  3,448               4,300              5,984            3,035            1,614            1,116            4,109            5,700                7,727             Permits and licenses 4,305                  4,711               4,761              4,033            4,408            5,433            7,136            8,218            8,990                9,179             Interest and rentals 13,776                17,750             20,507            19,183         19,045         16,553         18,583         12,136         18,445              18,658          Other revenue 4,058                  7,503               4,713              6,223            4,724            8,624            12,739         17,570         7,471                12,837          Total Revenues 111,628             123,216           126,983         125,624       120,022       132,419       167,426       170,796       164,690            184,461        Expenditures Administration1 14,299                14,399             16,250            16,002         17,353         8,351            9,412            8,291            9,961                10,806          Public Works 9,036                  9,256               10,072            10,064         9,787            11,317         11,304         11,489         12,439              12,276          Planning and Community Environment 9,292                  11,874             9,861              10,462         9,480            10,309         11,966         13,474         14,761              8,628             Development Services3 ‐                            ‐                         ‐                        ‐                      ‐                      ‐                      ‐                      ‐                      ‐                         11,152          Public Safety 40,393                42,451             48,650            48,957         51,022         58,874         62,418         59,537         62,028              61,447          Community Services2 19,740                16,533             17,138            17,451         16,451         20,029         20,860         21,661         22,644              23,553          Library2 5,170                  5,260               6,219              5,985            5,900            6,509            7,072            6,902            7,340                7,980             Non‐departmental 10,389                12,122             14,089            10,765         10,149         7,352            6,819            4,567            8,135                6,180             Special revenue and capital projects 13,243                17,478             21,626            21,485         22,006         35,486         29,154         29,542         37,035              41,754          Debt service ‐ principal payments 810                     850                   885                 800               840               870               1,743            1,489            1,524                1,948             Debt service ‐interest and fiscal fees 523                     489                   451                 416               382               1,815            2,757            2,659            3,196                3,404             Payment to bond refunding escrow ‐                           ‐                        ‐                       ‐                     ‐                     ‐                     586               540               ‐                         ‐                      Total Expenditures 122,895             130,712           145,241         142,387       143,370       160,912       164,091       160,151       179,063            189,128        Excess (Deficiency) of Revenues Over (Under) Expenditures (11,267)              (7,496)              (18,258)          (16,763)        (23,348)        (28,493)        3,335            10,645         (14,373)             (4,667)           Other Financing Sources (Uses) Transfers in 26,640                27,701             33,437            39,903         34,835         30,323         47,200         50,343         41,683              45,137          Transfers out (12,390)              (15,882)            (16,819)          (22,399)        (21,415)        (14,352)        (29,782)        (33,833)        (24,175)             (29,824)         Other ‐                            ‐                         ‐                        ‐                      ‐                     (101)               ‐                      ‐                      ‐                          ‐                      Proceeds from long term debt ‐                            ‐                         ‐                        ‐                     59,071          ‐                     3,222            21,706          ‐                          ‐                      Payments to refund bond escrow ‐                           ‐                        ‐                       ‐                     ‐                     ‐                     (3,104)          ‐                     ‐                         ‐                      Total Other Financing Sources (Uses)14,250                11,819             16,618            17,504         72,491         15,870         17,536         38,216         17,508              15,313          Net Change in Fund Balances 2,983$                4,323$             (1,640)$          741$             49,143$       (12,623)$      20,871$       48,861$       3,135$              10,646$        Debt Service as a Percentage of Non‐Capital Expenditures 1.2% 1.2% 1.1% 1.0% 1.0% 2.2% 3.5% 3.2% 3.3% 3.7% Notes: 2Prior to 2005, Library was included in Community Services. 3The Development Services Department was formed in FY15. Source: Annual Financial Statements, Governmental Funds, Statement of Revenues, Expenditures and Changes in Fund Balances 1Comprised of the following departments: City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative Services and PS&O. CITY OF PALO ALTO Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) Fiscal Year Ended June 30 140 Commercial and Fiscal Year Residential Industrial City of Palo Alto Total 2006 14,973               67,389                     2,492                         84,854                     2007 15,150               68,214                     2,466                         85,830                     2008 16,109               72,632                     2,571                         91,312                     2009 17,939               83,710                     2,823                         104,472                   2010 19,898               89,315                     2,890                         112,103                   2011 19,848               88,076                     2,991                         110,915                   2012 20,328               85,895                     3,352                         109,575                   2013 19,951               86,998                     3,265                         110,214                   2014 18,744               88,419                     3,225                         110,388                   2015 17,404               88,257                     3,234                         108,895                   529 Bryant Street LLC Technology City of Palo Alto Municipal Communications & Power Industries (CPI) Research Hewlett‐Packard Company Computer Space Systems/Loral Satellite & Satellite Systems Stanford Hospital & Clinics Hospital Tesla Motors, Inc. Manufacturing Varian Medical Systems, Inc. Manufacturing Veterans Admin Hospital Hospital   VMware, Inc. Computer Number Kilowatt‐hour of Customers Sales (kWh)Revenue2 Residential 25,226               145,447,087           17,404$                     Commercial 3,682                 558,601,438           66,457                       Industrial 106                     202,838,666           21,800                       CPA 122                     29,935,877           3,234                        Total 29,136               936,823,068         108,895$                  City of Palo Alto Power Purchase Western Area Power Administration 22% Forward Market Purchases 41% Wind Energy 10% Landfill Gas Energy 10% Northern California Power Agency Hydroelectric 4% Short‐Term Market 13% Source: City of Palo Alto, Utilities and Accounting Departments 1The top ten customers accounted for approximately 39.4% of total kWh consumption (369,555,836 kWh) and  35.7% of revenue ($40,203,443). The largest customer accounted for 8.2% of total kWh consumption and 7.4% of  revenue. The smallest customer accounted for 1.3% of total kWh consumption and 1.2% of revenue. Revenue used to determine top ten electric customers includes metered and non‐metered charges, adjustments, surcharges, and  discounts. Revenue does not include Utility Users Tax (UUT) and deposits. 2Revenue includes metered and non‐metered charges and revenue adjustments. Revenue does not include  California Energy Commission (CEC) surcharges, Utility Users Tax (UUT), Primary Voltage and Rate Assistance (RAP)  discounts and deposits. Parts of this schedule are provided as required by the Continuing Disclosure Agreement for  the City's Utility Revenue Bond and are not required by Governmental Accounting Standards Board (GASB).  CITY OF PALO ALTO Electric Operating Revenue by Source Last Ten Fiscal Years (Amounts in thousands) Top Ten Electric Customers by Revenue1 Customer (alphabetical order)Type of Business 141 The top ten customers total consumption is 781,735 CCF with revenue of $6,840,781. This amount accounts for approximately 17.6% of total consumption and 19% of total revenue. The largest customer (other than the City of Palo Alto) accounted for 2% of  consumption and 1.5% of revenue. The smallest customer accounted for 0.8% of consumption and 0.7% of revenue. Revenue used to determine top ten water utility  customers includes metered and non‐metered charges, adjustments, surcharges  and discounts. Revenue does not include Utility Users Tax (UUT) and deposits. Note: Source: City of Palo Alto, Utilities Department CITY OF PALO ALTO Supplemental Disclosure for Water Utilities Fiscal Year 2015 Top Ten Largest Water Utility Customers (alphabetical order) City of Palo Alto Hewlett‐Packard Company VMware Inc. This schedule is provided as required by the Continuing Disclosure Agreement for  the City's Utility Revenue Bond and is not required by Governmental Accounting  Standards Board (GASB).  Palo Alto Hills Golf & Country Club Palo Alto Unified School District Oak Creek Apartments Stanford Hospital & Clinics Stanford West Management Veterans Admin Hospital Space Systems/Loral, Inc. 142 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Net Local Secured Roll Land 7,941,482$        8,725,485$        9,497,746$        10,420,139$      11,007,650$      11,011,160$      11,352,993$      12,255,515$      13,357,851$      14,409,837$           Improvements 8,364,668          8,915,623          9,453,436          10,527,617        10,752,671        10,962,928        11,703,597        12,381,306        12,984,735        13,633,986             Personal property 174,666              213,154              228,875              303,688              288,148              241,280              257,436              287,296              307,499              290,590                  16,480,816        17,854,262        19,180,057        21,251,444        22,048,469        22,215,368        23,314,026        24,924,117        26,650,085        28,334,413             Less: Exemptions net of state aid (1,595,871)         (1,639,856)         (1,797,327)         (1,871,292)         (1,809,119)         (1,757,241)         (2,346,728)         (2,589,653)         (2,610,521)         (2,761,495)              Total Net Local Secured Roll 14,884,945        16,214,406        17,382,730        19,380,152        20,239,350        20,458,127        20,967,298        22,334,464        24,039,564        25,572,918             Public utilities 4,084                  3,923                  3,174                  2,573                  2,573                  2,573                  2,573                  2,573                  2,573                  2,573                       Unsecured property 1,361,117          1,391,284          1,536,584          1,702,884          1,638,436          1,495,574          1,516,837          1,355,970          1,493,922          1,622,636               Total Assessed Value 16,250,146$      17,609,613$      18,922,488$      21,085,609$      21,880,359$      21,956,274$      22,486,708$      23,693,007$      25,536,059$      27,198,127$           Total Direct Tax Rate 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% Note: The State Constitution requires property to be assessed at 100% of the most recent purchase price, plus an increment of no more than 2% annually,  plus any local over‐rides. These values are considered to be full market values. Source:  County of Santa Clara Assessor's Office CITY OF PALO ALTO Assessed Value of Taxable Property Last Ten Fiscal Years (Amounts in thousands) Fiscal Year Ended June 30 $13,000,000 $15,000,000 $17,000,000 $19,000,000 $21,000,000 $23,000,000 $25,000,000 $27,000,000 $29,000,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ Th o u s a n d s Total Assessed Value 143 Basic County Total County County Hospital City Library Santa Clara Direct and Fiscal Wide Retirement G.O. Bond G.O. Bond Valley Water School Community Overlapping Year Levy Levy (Measure A)1 (Measure N)2 District District College Rates 2006 1.00       0.0388           ‐                    ‐                    0.0078             0.0526        0.0119             1.11               2007 1.00       0.0388           ‐                    ‐                    0.0072             0.0720        0.0346             1.15               2008 1.00       0.0388           ‐                    ‐                    0.0071             0.0702        0.0113             1.13               2009 1.00       0.0388           ‐                    ‐                    0.0061             0.0674        0.0123             1.12               2010 1.00       0.0388          0.0122              ‐                    0.0074             0.0686        0.0322             1.16               2011 1.00       0.0388          0.0095             0.0171             0.0072             0.0751        0.0326             1.18               2012 1.00       0.0388          0.0047             0.0155             0.0064             0.0742        0.0297             1.17               2013 1.00       0.0388          0.0051             0.0129             0.0069             0.0718        0.0287             1.16               2014 1.00       0.0388          0.0035             0.0177             0.0070             0.0655        0.0290             1.16               2015 1.00       0.0388          0.0091             0.0159             0.0065             0.0657        0.0276             1.16               Notes:1The County General Obligation Bond (Measure A) was passed in 2008 to fund the seismic upgrade of the Santa Clara Valley Medical Center. Rates were first levied for the 2009‐10 fiscal year. 2The City of Palo Alto General Obligation Bond (Measure N) was passed in 2008 to fund the construction and  renovation of three of the City's libraries. Rates were first levied for the 2010‐11 fiscal year. Source: County of Santa Clara, Tax Rates and Information CITY OF PALO ALTO Property Tax Rates All Overlapping Governments Last Ten Fiscal Years  $1.10  $1.12  $1.14  $1.16  $1.18  $1.20 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Rate per $100 of Assessed Value 144 Fiscal Year Total Tax Percentage Collections in Percentage of Ended June 30 Levy1 for FY Amount of Levy Subsequent Years2 Amount Levy 2006 18,731$         18,731$       100%‐$                            18,731$     100% 2007 21,466            21,466         100%‐                              21,466       100% 2008 23,084            23,084         100%‐                              23,084       100% 2009 25,432            25,432         100%‐                              25,432       100% 2010 25,981            25,981         100%‐                              25,981       100% 2011 25,688            25,688         100%‐                              25,688       100% 2012 26,494            26,494         100%‐                              26,494       100% 2013 28,742            28,742         100%‐                              28,742       100% 2014 30,587            30,587         100%‐                              30,587       100% 2015 34,117            34,117         100%‐                              34,117       100% Notes: Source: Annual Financial Statements, Government Funds, Statement of Revenues, Expenditures and Changes in Fund Balances. 1During fiscal year 1995, the County of Santa Clara began providing the City 100% of its tax levy  under an agreement which allows the county to keep all interest and delinquency charges  collected. 2Effective fiscal year 1994, the City is on the Teeter Plan, under which the County of Santa Clara  pays the full tax levy due. All prior delinquent taxes were also received in that fiscal year. CITY OF PALO ALTO Property Tax Levies and Collections Last Ten Fiscal Years (Amounts in thousands) Collected within the  Fiscal Year of the Levy Total Collections to Date 145 Taxable Assessed  Value Rank Percentage of  Total Taxable  Assessed Value Taxable  Assessed  Value Rank Percentage of  Total Taxable  Assessed Value Leland Stanford Jr. University 3,783,665$            1 13.9% 2,518,267$   1 15.5% Loral Space & Communications 214,151                  2 0.8% 179,249         2 1.1% EOSII Palo Alto Technology Center LLC 119,308                  3 0.4% Whisman Ventures, LLC 109,807                  4 0.4% Google Inc. 103,834                  5 0.4% SI 43 LLC 75,318                    6 0.3% BVK Hamilton Ave LLC 67,933                    7 0.2% Ronald & Ann Williams Charitable Foundation 61,457                    8 0.2% PPC Forest Towers LLC 55,558                    9 0.2% Blackhawk Parent, LLC 52,461                    10 0.2% Agilent Technologies 72,852           3 0.4% CEP Town & Country Investors, LLC 49,858           4 0.3% Harbor Investment Partners 47,150           5 0.3% Hamilton Associates 38,082           6 0.2% 505 Hamilton Avenue Partners 37,085           7 0.2% California Pacific Commercial Corp. 34,232           8 0.2% EOP‐Embarcadero Place, LLC 30,500           9 0.2% Thoits Bros Inc.29,168           10 0.2% Total 4,643,492$            17.0% 3,036,443$   18.6% Total City Taxable Assessed Value: FY 2015 27,198,127$           FY 2006 16,250,144$           Source: California Municipal Statistics, Inc. Fiscal Year 2015 Fiscal Year 2006 Taxpayer CITY OF PALO ALTO Principal Property Taxpayers Current Year and Nine Years Ago (Amounts in thousands) 146 2014‐15 No. of Assessed % of No. of % of Taxable % of Valuation1 Total Parcels Total Parcels Total Non‐Residential: Agricultural/forest 32,067,390$            0.13 % 49           0.24 % 31           0.15 % Commercial 1,413,002,575         5.53 456         2.21 452         2.24 Professional/office 3,200,308,520         12.51 524         2.54 507         2.51 Industrial/research & development 1,734,139,074         6.78 180         0.87 175         0.87 Recreational 42,838,953              0.17 15           0.07 13           0.06 Government/social/institutional 41,282,153              0.16 115         0.56 46           0.23 Miscellaneous 6,914,500                0.03 18         0.09 17           0.08 Subtotal Non‐Residential 6,470,553,165$      25.30 % 1,357      6.59 % 1,241      6.14 % Residential: Single family residence 15,153,425,336$    59.26 % 14,957   72.61 % 14,910   73.75 % Condominium/townhouse 2,000,938,397         7.82 3,033      14.72 3,027      14.97 Mobile Home 64,334                      0.00 7             0.03 7             0.03 2‐4 Residential units 386,303,941            1.51 509         2.47 509         2.52 5+ Residential units 1,398,921,694         5.47 336         1.63 321         1.59 Subtotal Residential 18,939,653,702$    74.06 % 18,842   91.47 % 18,774   92.87 % Vacant Parcels 162,711,081$          0.64 % 400         1.94 % 201         0.99 % Total 25,572,917,948$    100        % 20,599   100         % 20,216   100 % Notes: This schedule is provided as required by the Continuing Disclosure Agreement for the City's General Obligation 2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board (GASB). Therefore, ten years of comparison data is not presented. 1Local secured assessed valuation, excluding tax‐exempt property. Source: California Municipal Statistics, Inc. CITY OF PALO ALTO Assessed Valuation and Parcels by Land Use As of June 30, 2015 147 No. of Taxable Average Parcels1 Assessed Valuation Single Family Residential 14,910 $1,016,326 No. of % of Cumulative % of Cumulative Taxable Total % of Total Total Total % of Total Parcels1 Parcels Parcels Valuation Valuation Valuation 1,465       9.83       9.83             114,731,680$            0.76         0.76              1,858       12.46    22.29           255,942,040              1.69         2.45              888           5.96       28.24           221,391,874              1.46         3.91              757           5.08       33.32           263,766,428              1.74         5.65              700           4.69       38.01           315,421,421              2.08         7.73              791           5.31       43.32           434,646,695              2.87         10.60            670           4.49       47.81           435,176,578              2.87         13.47            576           3.86       51.68           430,228,563              2.84         16.31            658           4.41       56.09           559,887,672              3.69         20.00            654           4.39       60.48           620,644,574              4.10         24.10            617           4.14       64.61           646,624,664              4.27         28.37            493           3.31       67.92           564,912,023              3.73         32.09            503           3.37       71.29           629,028,933              4.15         36.25            467           3.13       74.43           631,020,323              4.16         40.41            432           2.90       77.32           625,636,280              4.13         44.54            426           2.86       80.18           659,486,816              4.35         48.89            340           2.28       82.46           560,438,912              3.70         52.59            316           2.12       84.58           552,894,621              3.65         56.24            254           1.70       86.28           468,837,341              3.09         59.33            233           1.56       87.85           454,063,084              3.00         62.33            1,812       12.15  100.00      5,708,644,814         37.67       100.00        14,910     100.00  15,153,425,336$       100.00      Notes: Source: California Municipal Statistics, Inc. This schedule is provided as required by the Continuing Disclosure Agreement for the City's General  Obligation 2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board  (GASB). Therefore, ten years of comparison data is not presented. 1Improved single family residential parcels. Excludes condominiums and parcels with multiple family  units. $1,900,000‐1,999,999 $2,000,000 and greater Total $1,800,000‐1,899,999 $700,000‐799,999 $800,000‐899,999 $900,000‐999,999 $1,000,000‐1,099,999 $1,100,000‐1,199,999 $1,200,000‐1,299,999 $1,300,000‐1,399,999 $1,400,000‐1,499,999 $1,500,000‐1,599,999 $1,600,000‐1,699,999 $1,700,000‐1,799,999 $600,000‐699,999 $15,153,425,336 $750,567 2014‐2015 Assessed Valuation $0‐99,999 $100,000‐199,999 $200,000‐299,999 $300,000‐399,999 $400,000‐499,999 $500,000‐599,999 Assessed Valuation Assessed Valuation CITY OF PALO ALTO Per Parcel Assessed Valuation of Single Family Residential As of June 30, 2015 2014‐2015 Median 148 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9,915$      9,175$      8,405$      7,605$      6,765$      5,895$      1,685$      1,560$      1,430$      1,285$       ‐                 ‐                 ‐                 ‐                55,305      55,305      54,540      74,235      73,215      71,795       225           115            ‐                 ‐                 ‐                 ‐                 ‐                 ‐                 ‐                 ‐                 2011 Lease‐Purchase Agreement ‐                 ‐                 ‐                 ‐                 ‐                 ‐                2,764        2,400        2,026        1,643         Add: unamortized premium ‐                 ‐                 ‐                 ‐                3,766        3,640        3,514        4,400        4,242        4,084         ‐                ‐                ‐                ‐                (571)          ‐                ‐                ‐                ‐                ‐                 10,140      9,290        8,405        7,605        65,265      64,840      62,503      82,595      80,913      78,807       43,325      41,859      40,334      38,744      72,104      69,551      65,879      63,104      60,224      57,224       Energy Tax Credits ‐                 ‐                1,400        1,300        1,200        1,100        1,000        900           800           700            State Water Resources Loan ‐                 ‐                5,629        9,000        13,080      16,696      15,900      15,109      14,309      13,500       (1,037)       (972)          (1,053)       (2,479)       (2,737)       (229)          580           543           867           803            42,288      40,887      46,310      46,565      83,647      87,118      83,359      79,656      76,200      72,227       Outstanding Debt 52,428$    50,177$    54,715$   54,170$   148,912$151,958$145,862$162,251$ 157,113$151,034$ 1.69% 1.51% 1.53% 1.50% 4.48% 4.10% 3.61% 3.80% 3.39% 3.09% Population 62,148      62,615      63,367      64,484      65,408      64,417      65,544      66,368      66,861      66,029       0.84$        0.80$        0.86$        0.84$        2.28$        2.36$        2.23$        2.44$        2.35$        2.29$         Notes: Sources: 2015 Official City Data Set (population) California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income) Annual Financial Statements, Note 7 General Long‐Term Obligations and Note 8 Special Assessment Debt Debt Per Capita 1See the schedule of Demographic and Economic Statistics for personal income data. Per capita personal income is only available for Santa Clara  County, therefore personal income is the product of the countywide per capita amount and the City's population. County of Santa Clara (assessed valuation) Percentage of Personal Income1 Certificates of Participation General Obligation Bonds Special Assessment Debt Less: unamortized discount/     issuance costs Total Governmental Activities Business‐type Activities Utility Revenue Bonds Less: unamortized discount/     issuance costs Total Business‐type Activities Total Primary Government Governmental Activities CITY OF PALO ALTO Ratio of Outstanding Debt by Type Last Ten Fiscal Years (Amounts in thousands) Fiscal Year Ended June 30 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ Th o u s a n d s Total Governmental Activities Total Business‐type Activities 149 2014‐2015 Assessed Valuation 27,198,127,032$      Percentage Amount Applicable Applicable Total Debt to City of to City of Outstanding Palo Alto1 Palo Alto Santa Clara County 799,180,000$           7.62% 60,865,549$              Foothill‐DeAnza Community College District 635,069,288             22.51% 142,928,694              Palo Alto Unified School District 293,929,249             89.62% 263,416,454              Fremont Union High School District 378,045,088             0.01% 49,145                        Los Gatos‐Saratoga Joint Union High School District 79,245,000               0.01% 11,094                        Mountain View‐Los Altos Union High School District 62,407,734               0.95% 595,370                      Cupertino Union School District 249,418,462             0.02% 52,378                        Los Altos School District 72,518,760               1.07% 773,050                      Mountain View‐Whisman School District 41,800,000               0.85% 353,628                      Saratoga Union School District 37,170,075               0.03% 11,151                        Whisman School District 21,244,500               2.18% 462,493                      City of Palo Alto 71,795,000               100% 71,795,000                 El Camino Hospital District 138,345,000           0.08% 117,593                     City of Palo Alto Special Assessment Bonds 28,280,000             100% 28,280,000                Santa Clara Valley Water District Benefit Assessment District 106,690,000           7.62% 8,125,510                  Total Direct and Overlapping Tax and Assessment Debt 577,837,109             707,613,810             7.62% 53,891,868                            371,443,651 7.62%                28,289,148                   9,030,000 7.62%                      687,725                 11,617,623 22.51%                   2,614,662                   6,995,000 0.01%                             979                   2,940,000 0.95%                        28,048                   4,925,000 0.03%                          1,478  City of Palo Alto General Fund Obligations                  2,928,242 100%                  2,928,242                   3,085,000 7.62%                      234,954  Midpeninsula Regional Open Space Park District General Fund Obligations 127,086,851           13.25%                16,835,195   $           105,512,299                  38,453,079   $             67,059,220   $           644,896,329  Ratio to  Assessed Valuation Total Direct Debt 0.27% 74,723,242$              Total Overlapping Debt 2.10% 570,173,087              Total Direct and Overlapping Debt 2.37% 644,896,329$           2 Notes: 1Percentage of overlapping agency's assessed valuation located within boundaries of the city. 2Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and  non‐bonded capital lease obligations. Source: California Municipal Statistics, Inc. Santa Clara County Pension Obligations Santa Clara County Board of Education Certificates of Participation Foothill‐DeAnza Community College District Certificates of Participation Los Gatos‐Saratoga Joint Union High School District Certificates of Participation Santa Clara County General Fund Obligations CITY OF PALO ALTO Computation of Direct and Overlapping Debt As of June 30, 2015 Direct and Overlapping Tax and Assessment Debt Direct and Overlapping General Fund Debt Mountain View‐Los Altos Union High School District Certificates of Participation Saratoga Union High School District Certificates of Participation Less: Santa Clara County supported obligations Total Net Direct and Overlapping General Fund Debt Overlapping debt is the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. The amount of debt of  each unit applicable to the reporting unit is arrived at by 1) determining what percentage of the total assessed value of the overlapping  jurisdiction lies within the limits of the reporting unit, and 2) applying this percentage to the total debt of the overlapping jurisdiction.   Santa Clara County Vector Control District Certificates of Participation Total Gross Direct and Overlapping General Fund Debt Total Combined Debt 150 Assessed  Valuation: Secured property assessed value, net of exempt real property 27,198,127$        Bonded Debt Limit (3.75% of Assessed Value) 1 1,019,930            Direct Debt: Certificates of Participation 1,285                   Lease Purchase Agreement 1,643                   General Obligation bonds 71,795                 Total Direct Debt 74,723                 Less: Amount of Debt Not Subject to Limit 2 2,928                     Total Net Debt Applicable to Limit 71,795               Legal Bonded Debt Margin 948,135$            Total Bonded Total Net Debt Legal Total Net Debt Ratio of Net General Fiscal Assessed Debt Limit Applicable to Bonded Debt Applicable to the Debt to Bonded Debt Year Value (AV)(3.75% of AV)Limit Margin Population Debt as a %Assessed Value Per Capita 2006 16,250,144          609,380                 ‐                            609,380              62,148              0.00%‐                    0.00 2007 17,609,613          660,360                 ‐                            660,360              62,615              0.00%‐                    0.00 2008 18,922,488          709,593                 ‐                            709,593              63,367              0.00%‐                    0.00 2009 21,085,609          790,710                 ‐                            790,710              64,484              0.00%‐                    0.00 2010 21,880,359          820,513                55,305                 765,208              65,408              6.74% 0.0025                  0.85 2011 21,956,274          823,360                55,305                 768,055              64,417              6.72% 0.0025                  0.86 2012 22,486,708          843,252                54,540                 788,712              65,544              6.47% 0.0024                  0.83 2013 23,693,007          888,488                74,235                 814,253              66,368              8.36% 0.0031                  1.12 2014 25,536,058          957,602                73,215                 884,387              66,861              7.65% 0.0029                  1.10 2015 27,198,127          1,019,930            71,795                 948,135              66,029              7.04% 0.0026                  1.09 Notes: Source: CITY OF PALO ALTO Computation of Legal Bonded Debt Margin As of June 30, 2015 (Amounts in thousands) 1California Government Code, Section 43605 sets the debt limit at 15% of the assessed value of all real and personal property of the City. Because  this Code section was enacted when assessed value was 25% of market value, the limit is calculated at one‐fourth, or 3.75%. This legal debt margin  applies to General Obligation debt. Prior year limits have been adjusted to conform to the current year methodology. 2In accordance with California Government Code Section 43605, only the City's General Obligation bonds are subject to the legal debt limit of 15%.  Annual Financial Statements, Assessed Value of Taxable Property and Note 7 General Long‐Term Obligations 151 Less: Net Revenue Fiscal Gross Direct Operating Available for Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio 2006 213,337       143,703                69,634                   1,410            2,203            3,613            19.27                  2007 203,146       151,196                51,950                   1,465            2,147            3,612            14.38                  2008 219,801       173,620                46,181                   1,525            2,088            3,613            12.78                  2009 242,693       180,880                61,813                   1,590            2,024            3,614            17.10                  2010 230,308       171,320                58,988                   1,755            1,954            3,709            15.90                  2011 234,278       151,641                82,637                   2,655            3,261            5,916            13.97                  2012 235,160       169,777                65,383                   2,945            2,959            5,904            11.07                  2013 237,842       173,510                64,332                   2,875            3,167            6,042            10.65                  2014 239,948       176,718                63,230                   2,980            3,073            6,053            10.45                  2015 234,025       188,276                45,749                   3,100            2,954            6,054            7.56                     Notes:1Airport, Refuse and Fiber Optics funds have no debt and are therefore excluded from this schedule. 2Excludes depreciation and amortization expense. 3Excludes federal interest subsidy. Source: City of Palo Alto, Accounting Department Debt Service CITY OF PALO ALTO Revenue Bond Coverage Business‐type Activities1 Last Ten Fiscal Years (Amounts in thousands) $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ Th o u s a n d s Net Revenue Available for Debt Service Total Debt Service 152 Fiscal Year 2006 2,664             2,306           1,168        1,346         370             595            392            4,244         7,104            20,189          2007 2,751             2,486           1,109        1,485         374             602            203            5,075         7,139            21,224          2008 2,685             2,566           1,685        1,497         349             622            405            4,682         6,797            21,288          2009 2,251             2,443           1,431        1,258         315             493            214            4,284         6,635            19,324          2010 2,215             2,418           1,402        1,254         343             549            219            4,458         5,556            18,414          2011 2,374             2,621           1,564        1,292         381             630            242            4,873         6,322            20,299          2012 2,445             2,937           1,590        1,492         387             722            257            5,049         7,034            21,913          2013 2,478             3,160           1,465        1,656         424             765            259            4,056         13,729          27,992          2014 2,097             3,541           1,555        2,041         392             772            444            4,845         9,890            25,577          2015 2,398             3,894           1,672        1,708         435             699            265            3,674         11,253          25,998          Source: California State Board of Equalization, compiled by MuniServices LLC Sales Tax Rates for the Fiscal Year ended June 30, 2015 State Rate:7.50% Special District Tax Rates: Santa Clara County Transit District (SCCT) 0.50% Santa Clara County Valley Transportation Authority (SCVT) 0.50% Santa Clara VTA BART Operating and Maintenance Transactions and Use Tax (SVTB) 0.125% Santa Clara Retail Transactions and Use Tax (SCCR) 0.125% Total Sales and Use Tax Rate: 8.750% Source: California State Board of Equalization Food  Markets Service  Stations Drug  Stores Other  Retail All Other Apparel  Stores CITY OF PALO ALTO Taxable Transactions by Type of Business Last Ten Fiscal Years (Amounts in thousands) Total ECONOMIC SEGMENT Department  Stores Restaurants Furniture/  Appliance Department Stores 9% Restaurants 15% Furniture/ Appliance 6% Apparel Stores 7% Food Markets 2% Service Stations 3%Drug Stores 1% Other Retail 14% All Other 43% Fiscal Year 2015 153 Santa Clara Santa Clara City of Palo Alto City of Palo Alto Santa Clara City Population County Total County Per Capita Fiscal City of Palo Alto Unemployment School County as a Percentage of Personal Income Personal Income Year Population Rate Enrollment Population County Population (in thousands)(in thousands) 2006 62,148                    2.5% 10,607                   1,773,258                  3.50% 88,300,000$         49,795$                    2007 62,615                    2.6% 11,056                   1,808,056                  3.46% 95,200,000           * 52,653                     * 2008 63,367                    3.5% 11,329                   1,837,075                  3.45% 102,300,000         * 55,686                     * 2009 64,484                    6.5% 11,329                   1,857,621                  3.47% 101,800,000         * 54,801                     * 2010 65,408                    6.2% 11,565                   1,880,876                  3.48% 95,000,000           * 50,508                     * 2011 64,417                    5.3% 12,024                   1,781,427                  3.62% 101,700,000         * 57,089                     * 2012 65,544                    4.7% 12,286                   1,816,486                  3.61% 112,800,000         * 62,098                     * 2013 66,368                    3.6% 12,396                   1,842,254                  3.60% 124,800,000         * 67,743                     * 2014 66,861                    2.8% 12,483                   1,868,558                  3.58% 130,600,000         * 69,893                     * 2015 66,029                    2.7% 12,532                   1,889,638                  3.49% 139,800,000         * 73,982                     * Note: Data on personal income and per capita personal income is only available for Santa Clara County. Source: Beginning in 2015 population is sourced from the US Census Bureau Community Survey (via the City of Palo Alto's Official City Data Set). State Employment Development Office (unemployment rate) Palo Alto Unified School District (school enrollment) * California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income). Forecasts from prior years are updated annually. CITY OF PALO ALTO Demographic and Economic Statistics Last Ten Fiscal Years  60,000  61,000  62,000  63,000  64,000  65,000  66,000  67,000  68,000 City Population  10,000  10,500  11,000  11,500  12,000  12,500  13,000 School Enrollment 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%City Unemployment Rate 154 Number of  Employees Rank Percentage of  Total City  Employment Number of  Employees Rank Percentage of  Total City  Employment Stanford University 11,300         1 9.2% 9,821            1 7.0% Stanford Health Care 5,900            2 4.8% 5,025            2 3.6% Lucile Packard Children's Hospital 4,200            3 3.4% 3,326            4 2.4% Veteran's Affairs Palo Alto Health Care System 3,900            4 3.2% 3,500            3 2.5% VMware Inc. 3,500            5 2.8% SAP 3,500            6 2.8% Space Systems/Loral 2,800            7 2.3% 1,700            7 1.2% Hewlett‐Packard Company 2,500            8 2.0% 2,001            5 1.4% Palo Alto Medical Foundation 2,200            9 1.8% 2,000            6 1.4% Varian Medical Systems 1,400            10 1.1% Wilson Sonsini Goodrich & Rosati 1,500            8 1.1% Palo Alto Unified School District 1,304            9 0.9% City of Palo Alto 1,074            10 0.8% Total 41,200         33.4% 31,251         22.3% Estimated Total City Day Population: FY 2015 123,403        FY 2008 140,000        Notes: Source:   1Comparable data was not available until FY 2008.  2015 Official City Data Set (total City day population); AtoZdatabases; Stanford website. CITY OF PALO ALTO Principal Employers Current Year and Seven Years Ago FY 20152 FY 20081 Employer 2Available data sources are limited and may be unreliable. 2015 numbers are rounded. 155 2005 2006 2007 2008 2009 Governmental activities Community Services Number of theater performances 172                         183                         171                         166                         159                          Total hours of athletic field usage2 65,748                 65,791                 70,769                 63,212                   45,762                  Number of rounds of golf 78,410                   76,000                   76,241                   74,630                   72,170                    Enrollment in recreation classes (includes summer camps)15,127                   14,768                   14,460                   13,851                   13,091                    Planning and Community Environment Planning applications completed 327                         390                         299                         257                         273                          Building permits issued 3,081                     3,081                     3,136                     3,046                     2,543                      Caltrain average weekday boarding3 3,264                   3,882                   4,132                   4,589                     4,407                    Police Calls for service 52,233                   57,017                   60,079                   58,742                   53,275                    Total arrests 2,134                     2,530                     3,059                     3,253                     2,612                      Parking citations issued 52,235                   56,502                   57,222                   50,706                   49,996                    Animal Services Number of service calls 4,994                     2,861                     2,990                     3,059                     2,873                      Number of animals handled 3,514                     3,839                     3,578                     3,532                     3,422                      Fire Calls for service 6,414                     6,897                     7,236                     7,723                     7,549                      Number of fire incidents 224                         211                         221                         192                         239                          Number of fire inspections 1,488                     899                         1,021                     1,277                     1,028                      Library  Total number of cardholders 52,001                   55,909                   53,099                   53,740                   54,878                    Total number of items in collection 264,511                 260,468                 270,755                 279,403                 293,735                  Total checkouts 1,282,888             1,280,547             1,414,509             1,542,116             1,633,955              Public Works Street resurfacing (lane miles) 20                           20                           32                           27                           23                            Number of potholes repaired 3,221                     2,311                     1,188                     1,977                     3,727                      Sq. ft. of sidewalk replaced or permanently repaired 132,430                 126,574                 94,620                   83,827                   56,909                    Number of trees planted 164                         263                         164                         188                         250                          Total tons of waste landfilled 60,777                   59,276                   59,938                   61,866                   68,228                    Tons of materials recycled 50,311                   56,013                   56,837                   52,196                   49,911                    Business‐type activities Electric Number of customer accounts 28,556                   28,653                   28,684                   29,024                   28,527                    Residential MWH consumed 161,440                 161,202                 162,405                 162,680                 159,899                  Gas Number of customer accounts 23,301                   23,353                   23,357                   23,502                   23,090                    Residential therms consumed 12,299,158           11,745,883           11,759,842           11,969,151           11,003,088            Water Number of customer accounts 19,605                   19,645                   19,726                   19,942                   19,442                    Residential water consumption (CCF) 2,686,507             2,647,758             2,807,477             2,746,980             2,566,962              Wastewater collection Number of customer accounts 21,763                   21,784                   21,789                   21,970                   21,210                    Millions of gallons processed 8,497                     8,972                     8,853                     8,510                     7,958                      Notes: 2According to the department, this measure was not accurately tracked during FY13 or FY14. Source: City of Palo Alto Performance Report (formerly the Service Efforts and Accomplishments Report) 3Prior‐year data has been updated based on annual counts revised by Caltrain. 1Ten most recent years available. CITY OF PALO ALTO Operating Indicators by Function/Program Last Ten Fiscal Years1 Fiscal Year Ended June 30 FUNCTIONS/PROGRAMS 156 2010 2011 2012 2013 2014 174                         175                         175                         184                         108                          41,705                   42,687                   44,226                    ‐ ‐ 69,791                   67,381                   65,653                   60,153                   46,527                    12,880                   12,310                   11,703                   11,598                   11,997                    226                         238                         204                         307                         310                          2,847                     3,559                     3,320                     3,682                     3,624                      4,359                     4,923                     5,730                     6,763                     7,564                      55,860                   52,159                   51,086                   54,628                   58,559                    2,451                     2,288                     2,212                     2,274                     2,589                      42,591                   40,426                   41,875                   43,877                   36,551                    2,692                     2,804                     3,051                     2,909                     3,093                      3,147                     3,323                     3,379                     2,675                     2,480                      7,468                     7,555                     7,796                     7,904                     7,829                      182                         165                         186                         150                         150                          1,526                     1,807                     1,654                     2,069                     1,741                      51,969                   53,246                   60,283                   51,007                   46,950                    298,667                 314,154                 306,361                 277,749                 309,150                  1,624,785             1,476,648             1,559,932             1,512,975             1,364,872              32                           29                           40                           36                           36                            3,149                     2,986                     3,047                     2,726                     3,418                      54,602                   71,174                   72,787                   82,118                   74,051                    201                         150                         143                         245                         148                          48,955                   38,524                   43,947                   45,411                   47,088                    48,811                   56,586                   51,725                   47,941                   49,594                    29,430                   29,708                   29,545                   29,299                   29,338                    163,098                 160,318                 160,604                 156,411                 153,190                  23,724                   23,816                   23,915                   23,659                   23,592                    11,394,712           11,476,609           11,522,999           10,834,793           10,253,776            20,134                   20,248                   20,317                   20,043                   20,037                    2,415,467             2,442,415             2,513,595             2,521,930             2,496,549              22,231                   22,320                   22,421                   22,152                   22,105                    8,184                     8,652                     8,130                     7,546                     7,186                      Fiscal Year Ended June 30 157 2006 2007 2008 2009 2010 FUNCTION/PROGRAM Public Safety Fire: Fire Stations 8               8               8               8                 8                Fire Apparatus 25            25            23            28              28             Police: Police Stations 1               1               1               1                 1                Police Patrol Vehicles 30            30            30            30              30             Community Services Acres ‐ Downtown/Urban Parks 170          157          157          157            157           Acres ‐ Open Space 3,731       3,744       3,744       3,744         3,744        Parks and Preserves 35            36            36            36              36             Golf Course 1               1               1               1                 1                Tennis Courts 52            51            51            51              51             Athletic Center 1               4               4               4                 4                Community Centers 4               4               4               4                 4                Theaters 3               3               3               3                 3                Cultural Center/Art Center 1               1               1               1                 1                Junior Museum and Zoo 1               1               1               1                 1                Swimming Pools 1               1               1               1                 1                Nature Center 2               3               3               3                 3                Libraries Libraries 5               5               5               5                 5                Public Works: Number of Trees Maintained 34,841     34,556     35,058     34,991       35,025      Electric Utility1 Miles of Overhead Lines 217          194          193          193            193           Miles of Underground Lines 210          252          253          253            253           Water Utility Miles of Water Mains 217          217          217          214            214           Gas Utility Miles of Gas Mains 207          207          207          207            205           Waste Water Miles of Sanitary Sewer Lines 202          202          202          207            207           Note: Source: City of Palo Alto 1The City of Palo Alto Utilities Department recently completed the conversion of its electric system maps  to a GIS mapping system database. Therefore, the distances reported for FY 11/12 and forward are more  accurate than the distances reported in previous years. CITY OF PALO ALTO Capital Asset Statistics by Function/Program Last Ten Fiscal Years  Fiscal Year Ended June 30 158 2011 2012 2013 2014 2015 8                 7                777 27              29             28 28 29 1                 1                111 30              30             30 30 30 157            157           157 157 157 3,744         3,744        3744 3744 3752 36              36             36 36 36 1                 1                111 51              51             51 51 51 4                 4                444 4                 4                444 3                 3                333 1                 1                111 1                 1                111 1                 1                111 3                 3                333 5                 5                555 34,977       34,874      34,907     34,741     34,636        193            223           222 223 223 253            245           246 249 262 214            234           233          236          236             205            210           210          214          211             207            217           217          217          217             Fiscal Year Ended June 30 159 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Governmental Funds          General Fund: Administrative 97       99       98        98       89        83        83        85        83        84         Community Services 99       97       96        97       94        74        74        74        74        76         Development Services6 ‐           ‐           ‐            ‐           ‐            ‐            ‐            ‐            ‐           38         Fire 127     127     127     127     123     121     122     119     116     107      Library 44       44       44        44       42        41        41        41        42        44         Office of Emergency Services5 ‐           ‐           ‐            ‐           ‐            ‐            ‐            ‐           3          3           Planning and Community Environment6 53       53       53        53       49        44        43        48        49        28         Police 164     163     163     164     161     157     157     154     155     155      Public Works1 68       68       68        69       64        59        56        57        56        53         Subtotal General Fund 652     651     649     652     622     579     576     578     578     588      All Other Funds: Capital Projects Fund 20       20       20        21       24        24        24        26        27        27         Special Revenue Fund 1         1         1          1         1          2          2          2          9          10         Total Governmental Funds 673     672     670     674     647     605     602     606     614     625      Enterprise Funds Public Works2 113     113     113     113     115     115     115     104     99        100      Utilities3 236     235     235     238     242     251     251     254     255     258      External Services4 6         6         6          ‐          ‐           ‐           ‐           ‐           ‐           ‐            Total Enterprise Funds 355     354     354     351     357     366     366     358     354     358      Internal Service Funds Printing and Mailing 5         4         4          4         4          2          2          2          2          2           Technology 30       30       30        31       31        30        30        31        32        32         Vehicle Replacement 16       16       16        16       16        16        16        17        17        17         Total Internal Service Funds 51       50       50       51       51       48       48       50       51       51        Total 1,079 1,076 1,074 1,076 1,055 1,019 1,016 1,014 1,019  1,034   1Fleet and Facilities Management 2Refuse, Storm Drainage, Wastewater Treatment Numbers adjusted for rounding purposes. Source: City of Palo Alto ‐ Fiscal Year 2015 Adopted Operating Budget 6ln FY15, staff was moved from Planning and Community Environment (PC&E), Public Works and Fire to create  Development Services. 5Effective in 2014, emergency services and disaster preparation activities have been removed from the Fire Department  and are now shown in newly created Office of Emergency Services. 4Effective in 2009, External Services was dissolved. 5 FTEs were eliminated and 1 FTE was transferred to the Technology  Fund. CITY OF PALO ALTO Full‐Time Equivalent City Government Employees by Function Last Ten Fiscal Years Full Time Equivalent Employees as of June 30 3Electric, Gas, Wastewater Collection, Water 0 200 400 600 800 1,000 1,200 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fu l l  Ti m e  Eq u i v a l e n t s Governmental Funds Enterprise Funds Internal Service Funds 160 CITY OF PALO ALTO  Index to the Single Audit Report  For the Year Ended June 30, 2015  161   Page  Independent Auditor’s Report on Internal Control Over Financial Reporting    and on Compliance and Other Matters Based on an Audit of Financial    Statements Performed in Accordance With Government Auditing Standards ..................................... 163    Independent Auditor’s Report on Compliance for Each Major Federal Program and   Report on Internal Control Over Compliance Required by OMB Circular A‐133 ................................... 165    Schedule of Expenditures of Federal Awards ........................................................................................... 167    Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 168    Schedule of Findings and Questioned Costs ............................................................................................. 169    Schedule of Prior Years Findings and Questioned Costs ........................................................................... 170    162  This page is intentionally left blank.    www.mgocpa.com Certified Public Accountants Sacramento Walnut Creek Oakland Los Angeles Century City Newport Beach San Diego Macias Gini & O’Connell LLP2121 N. California Blvd., Suite 750Walnut Creek, CA 94596 163  Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated November 3, 2015. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 164  Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Walnut Creek, California November 3, 2015   www.mgocpa.com Certified Public Accountants Sacramento Walnut Creek Oakland Los Angeles Century City Newport Beach San Diego Macias Gini & O’Connell LLP2121 N. California Blvd., Suite 750Walnut Creek, CA 94596 165  Independent Auditor’s Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by OMB Circular A-133 Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California Report on Compliance for Each Major Federal Program We have audited the City of Palo Alto’s, California (City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended June 30, 2015. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2015. 166  Report on Internal Control Over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that were not identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Walnut Creek, California November 3, 2015 Grantor Federal Identifying CFDA Subrecipients Grantor/Pass‐Through Grantor/Program Title Number Number  Expenditures  Expenditures  U.S. Department of Housing and Urban Development Direct CDBG ‐ Entitlement Grants Cluster Community Development Block Grants/Entitlement Grants B‐10‐MC‐06‐0020 14.218 556,227$              481,976$               U.S. Department of Justice Direct Equitable Sharing Program CA0431200 16.CA0431200 5,754                      ‐                          U.S. Department of Transportation Direct Airport Improvement Program 3‐06‐0182‐009‐2014 20.106 299,664                 ‐                          Pass‐through from State of California Department of Transportation Highway Planning and Construction BRLS‐5100(017) 20.205 20,360                    ‐                          Pass‐through from Santa Clara Valley Transportation Authority Highway Planning and Construction CML‐5100(018) 20.205 15,649                    ‐                          Total Highway Planning and Construction 36,009                    ‐                          Total U.S. Department of Transportation 335,673                 ‐                          TOTAL EXPENDITURES OF FEDERAL AWARDS 897,654$              481,976$               CITY OF PALO ALTO Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2015 See Notes to the Schedule of Expenditures of Federal Awards 167 CITY OF PALO ALTO  Notes to the Schedule of Expenditures of Federal Awards  For the Year Ended June 30, 2015 168  NOTE 1 – REPORTING ENTITY    The schedule of expenditures of federal awards (the Schedule) includes expenditures of federal awards  for the City of Palo Alto, California (City), and its component unit as disclosed in the notes to the basic  financial statements.    NOTE 2 – BASIS OF ACCOUNTING    Basis of accounting refers to when revenues and expenditures or expenses are recognized in the  accounts and reported in the financial statements, regardless of measurement focus applied. All  governmental funds are accounted for using the modified accrual basis of accounting. All proprietary  funds are accounted for using the accrual basis of accounting. Expenditures of federal awards reported  in the Schedule are recognized when incurred and all eligibility requirements have been met.     NOTE 3 – DIRECT AND INDIRECT (PASS‐THROUGH) FEDERAL AWARDS    Federal awards may be granted directly to the City by a federal granting agency or may be granted to  other government agencies which pass‐through federal awards to the City. The Schedule includes both  of these types of federal award programs when they occur.    NOTE 4 – RELATIONSHIP TO FEDERAL FINANCIAL REPORTS    Amounts reported in the Schedule agree to or can be reconciled with the amounts reported in the  related federal financial reports.    NOTE 5 – RELATIONSHIP TO BASIC FINANCIAL STATEMENTS    Federal awards and expenditures agree to or can be reconciled with the amounts reported in the City’s  basic financial statements.       CITY OF PALO ALTO  Schedule of Findings and Questioned Costs  For the Year Ended June 30, 2015  169  Section I ‐ Summary of Auditor’s Results    Financial Statements  Type of auditor’s report issued on the   basic financial statements of the City:    Unmodified  Internal control over financial reporting:    Material weakness(es) identified? No   Significant deficiency(ies) identified? None reported  Noncompliance material to the financial statements  noted?    No  Federal Awards   Internal control over major programs:    Material weakness(es) identified? No   Significant deficiency(ies) identified? None reported  Type of auditor’s report issued on compliance for  major programs:    Unmodified  Any audit findings disclosed that are required to be  reported in accordance with section 510(a) of OMB  Circular A‐133?    No  Identification of Major Programs: 20.106 Airport Improvement Program    Dollar threshold used to distinguish between type A  and type B programs:      $300,000  Auditee qualified as a low‐risk auditee? Yes    Section II – Financial Statements Findings  No findings reported.  Section III ‐ Federal Award Findings and Questioned Costs  No findings reported.  CITY OF PALO ALTO  Schedule of Prior Years Findings and Questioned Costs  For the Year Ended June 30, 2015  170  Schedule of Prior Year Findings and Questioned Costs    Finding #SA 2013‐01    Procurement, Suspension and Debarment    Federal Program Title: Highway Planning and Construction    Federal Catalog Number:  20.205    Condition: The City did not contain a certification within the contract  showing that the contractor was not suspended or debarred,  nor was there any evidence that the City verified that the  contractor was not suspended or debarred by checking the  Excluded Parties List System (EPLS) maintained by the General  Services Administration.  The amount reimbursed by the federal  grant for this contract was $144,081.       Status of Corrective Action Plan: Corrected           ……….…………………………………………………………… City of Palo Alto 171 AMERICANS WITH DISABILITIES ACT STATEMENT In compliance with Americans with Disabilities Act (ADA) of 1990, this document may be provided in other accessible formats. For information contact: ADA Coordinator 250 Hamilton Avenue (650) 329-2550 ADA@cityofpaloalto.org City of Palo Alto 250 Hamilton Avenue, Palo Alto, CA 94301 P 650.329.2100 W cityofpaloalto.org Spanish explorers named the area for the tall, twin-trunked redwood tree they camped beneath in 1769. Palo Alto incorporated in 1894 and the State of California granted its first charter in 1909. The City has long been known for its innovative people and its exploration of ideas that have changed the world. In Palo Alto, our history has always been about the future. Capital Budget Fiscal Year 2015 City of Palo Alto (ID # 6251) Finance Committee Staff Report Report Type: Action Items Meeting Date: 11/17/2015 City of Palo Alto Page 1 Summary Title: Close Fiscal Year 2015 Budget and Approve 2015 CAFR Title: Recommendation to Adopt a Budget Amendment Ordinance Closing the Fiscal Year 2015 Budget, Including Authorizing Transfers to Reserves, and Approval of the Fiscal Year 2015 Comprehensive Annual Financial Report (CAFR) From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the Finance Committee forward to the City Council for its approval: 1. The attached Budget Amendment Ordinance and associated exhibits which close the Fiscal Year (FY) 2015 Budget, including recommended appropriation adjustments due to higher than anticipated expenditures, and the transfer of General Fund surplus of $5.1 million from the General Fund to the Infrastructure Reserve in the Capital Projects Fund (Attachment A); and 2. The City’s FY 2015 Comprehensive Annual Financial Report (CAFR) (Attachment B). Financial Highlights for FY 2015  General Fund ended FY 2015 with a surplus position of $18.7 million and, after transferring $5.1 million to the Infrastructure Reserve, the remaining surplus balance of $13.6 million increases the Budget Stabilization Reserve (BSR). The surplus was largely a result of revenue increases in property, transient occupancy, and documentary transfer taxes, as well as expenditure savings. This surplus is recommended to be utilized for the following purposes: o Transfer to the Capital Improvement Fund ($5.1 million); o Pending transfer to the Roth Building Historical Rehabilitation Reserve in the Capital Improvement Fund as approved in CMR #5879 ($1.0 million); o FY 2016 one-time expenditures approved in Adopted Budget ($2.1 million); o FY 2016 Budget Amendment Ordinances approved to date or scheduled to be approved ($2.1 million); City of Palo Alto Page 2 o Highway 101 Pedestrian/Bicycle Overpass ($6.0 million); o Potential funding for a pension trust fund ($1.3 million); and o Unfunded General Fund portion of the Silicon Valley Regional Interoperability Authority’s (SVRIA) project to move towards a county-wide 700 Mhz radio communication system ($1.0 million). Funding for the Highway 101 Pedestrian/Bicycle Overpass, pension trust fund, Roth Building Historical Rehabilitation Reserve, and SVRIA is recommended to be retained in the BSR at this time. It should be noted that $3.3 million of the $6.0 million reserved for the Highway 101 Pedestrian/Bicycle Overpass project is supported by TOT receipts earmarked for the City Council approved Infrastructure Plan. Including the funds recommended to be retained in the BSR for specific purposes, and after deducting amounts already approved for expenditure in FY 2016, the FY 2015 ending BSR balance of $43.0 million is 23.1 percent of FY 2016 General Fund budgeted expenditures and operating transfers ($8.3 million over the FY 2016 Adopted Budget BSR balance of $34.6 million).  Enterprise Funds ended the year in surplus positions, however the ongoing drought is negatively impacting results, most notably affecting the Water and Electric Funds.  Government Accounting Standards Board Statement No. 68 (GASB 68) was implemented effective for FY 2015. Net pension liabilities of $208.7 million in Governmental Activities and $81.1 million in Enterprise and Internal Service Funds were recorded in the Statement of Net Position, which directly reduces the unrestricted net position of those Funds. (Staff report ID #6144 was presented to the Finance Committee on October 20 and discussed GASB 68 in detail.)  The City received a “clean” audit opinion for FY 2015 from the external audit firm, Macias Gini & O’Connell LLP. Once again, the City was awarded the prestigious GFOA award for Excellence in Financial Reporting for FY 2014 – the 21st consecutive year. Background The City’s fiscal year closes on June 30, at which time its financial records are closed for the year and financial reports are prepared. The reports, along with the City’s financial data, are audited by 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. The attachments to this Staff Report provide the necessary documents for closing the FY 2015 Budget. In addition, they provide detailed information on the City’s financial activities for FY 2015 and highlight key fiscal issues affecting the City of Palo Alto. The Management’s Discussion and Analysis (MD&A) section of the CAFR (Attachment B) also provides a discussion City of Palo Alto Page 3 and analysis of the City’s current fiscal health, and includes financial statements and analysis that is compared to the prior year, along with capital asset and debt administration data. Discussion Economic Environment: The City’s economically sensitive revenue sources have continued on a positive trend. The robust real estate market is driving higher documentary transfer taxes, while newly opened hotels and a rate increase are driving higher transient occupancy taxes. Sales tax revenue has levelled off in FY 2015, but is still expected to increase slightly in FY 2016 exclusive of the one- time adjustment included in FY 2015 revenue. The City has been proactively taking steps the past few years to align expenses with revenues through employee compensation savings, service and program cuts, and revenue enhancements. The City Council adopted a General Fund budget of $185.7 million (including operating transfers) for FY 2016, an increase of 8.5 percent from the prior year Adopted Budget. The primary drivers of increased expenditures for FY 2016 are pension and health care costs, increased investment in the City’s infrastructure, and targeted position additions in response to Community demands and Council priorities. The City is continuing to mitigate the upward trend in pension and health care costs by seeking to increase employee contributions to the PERS retirement plan and capping the City’s share of health care premiums. In spite of these measures, the City still faces a significant long-term liability for pension and retiree medical costs. The combined unfunded liability according to the most recent actuarial valuations is $439 million. Funded ratios for the Safety and Miscellaneous plans based on June 2013 actuarial valuations are 68.9 percent and 68.4 percent respectively, and 29.5 percent for the retiree medical plan. The City continues to fully fund its annual required contribution for these liabilities. An irrevocable trust fund for retiree medical benefits was authorized by the City Council in May 2007 with initial funding of $32.8 million in March 2008. Subsequent contributions and investment earnings have increased the trust balance to $78.6 million as of June 30, 2015. The irrevocable trust fund balance reduces the City’s unfunded liability for retiree medical. In June 2014 Council approved a $125.8 million Infrastructure Plan, which includes projects such as a new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and two parking garages. Funding for these projects will come from a variety of sources, including TOT revenues, Stanford University Medical Center development agreement, and developer impact fees. This plan was included in the 2016-2020 Adopted Capital Improvement Program and is fully funded, however the plan as adopted did not allow for increases attributable to scope increases, cost escalation, etc. As part of this report, an increase to the transfer from the General Fund to the Capital Improvement Fund in the amount of $5.1 million is recommended. This transfer will provide funding for the Baylands Boardwalk, Building Systems Improvements, and Embarcadero Road Corridor Improvements Projects, as well as $2.0 million for potential cost increases or unanticipated projects. Including the $5.1 million City of Palo Alto Page 4 recommended to be transferred from the General Fund to the Capital Improvement Fund as part of this report, the General Fund will have contributed $25.6 million in surplus funds over the past four years. Additionally, staff is recommending the retention of $6 million in the Budget Stabilization Reserve to potentially fund increased construction costs related to the Highway 101 Pedestrian/Bicycle Overpass project. A detailed discussion of financial results for FY 2015 is included in the CAFR MD&A. In addition, staff will present the 10 year Long Range Financial Forecast to the Finance Committee in early 2016. Results by Fund: General Fund Reserves At the end of the current fiscal year, fund balance of the General Fund was $62.5 million, an increase of $14.2 million from the prior year. The $62.5 million balance is comprised of several reserves: the Budget Stabilization Reserve (BSR), encumbrances, notes and loans, inventory, prepaid items, unrealized gain on investments, and reappropriations. As described in the BSR reserve policy approved by Council, any reserve balance in excess of 18.5 percent of expenditures and transfers may be transferred to the Infrastructure Reserve in the Capital Projects Fund at the discretion of the City Manager. At the close of FY 2015, after accounting for higher than budgeted revenue levels and expenditure savings, the preliminary BSR balance was $53.3 million. The FY 2016 Adopted Budget targeted a BSR level of $34.6 million at the end of FY 2015, leaving a surplus balance of $18.7 million. After transferring $5.1 million of surplus to the Infrastructure Reserve at the fiscal year-end, the remaining $13.6 million surplus is recommended to be used for the purposes outlined in the table below. It should be noted that $3.3 million of the $6.0 million associated with the Highway 101 Pedestrian/Bicycle Overpass project is supported by Transient Occupancy Tax (TOT) receipts generated from newly opened hotels and the January 2015 two percentage point TOT increase. Over the past four fiscal years, a total of $25.6 million in surplus funds has been transferred to the Infrastructure Reserve as follows: 2012 $ 7,600 2013 8,900 2014 4,000 2015 5,087 Total transfers 25,587 2015 proposed additional 7,000 Total actual and proposed $ 32,587 City of Palo Alto Page 5 2015 Year-End Budget Stabilization Reserve (BSR) Summary (000’s) General Fund BSR Balance $53,285 Transfer surplus to Infrastructure Reserve Unanticipated needs $2,000 Baylands Boardwalk $2,100 Embarcadero Road traffic signal design Phase II $237 approved by Council 10/5/2015 Building space improvements to City Hall $750 (5,087) BSR Balance, June 30 2015 48,198 FY 2015 BSR - Adopted Budget 34,640 Remaining FY 2015 Surplus 13,558 Recommendations for disposition of surplus funding: Pending transfer to the Capital Improvement Fund for the Roth Building Historical Rehabilitation Reserve as approved in CMR #5879 dated June, 2015* (1,000) FY 2016 one-time expenditures (2,123) FY 2016 Budget Amendment Ordinances approved and scheduled for approval (2,130) Capital: Potentially higher than estimated costs for Highway 101 Pedestrian/Bicycle Overpass Project (retained in BSR) (6,000) Capital: Radio Replacements (retained in BSR) (1,000) Establishment of a Pension Trust Fund (retained in BSR) (1,305) Balance of FY 2015 Surplus $0 * Inadvertently, staff omitted to process the transfer from the BSR to the Capital Improvement Fund for the Roth Building Historical Rehabilitation Reserve in FY 2015 as approved by the City Council. Therefore, as part of the FY 2016 Midyear Budget Review, $1 million will be recommended to be transferred from the BSR to the Capital Improvement Fund to establish the reserve. General Fund Revenues General Fund revenues for FY 2015 were $157.5 million, which is $16.1 million or 11.3 percent higher than the prior year. Year over year changes in each of the major tax revenue categories are summarized in the following table. Category FY 2015 FY 2014 % Change Property tax $ 34,117 $ 30,587 11.5% Sales tax 29,675 29,424 0.0% Utility user tax 10,861 11,008 (1.3)% Transient occupancy tax 16,699 12,255 36.3% Documentary transfer tax 10,384 7,811 32.9% Property tax revenues increased due to higher assessed values as a result of continued robust City of Palo Alto Page 6 commercial and residential real estate markets. Transient occupancy (TOT) and documentary transfer (DTT) taxes are economically sensitive revenue streams, and both those categories experienced double digit growth over the prior year. The TOT revenue increase was driven by:  2 percent rate increase from 12 percent to 14 percent effective January 1, 2015 $1.4 million;  Newly opened hotels $1.8 million, and  Increased occupancy and room rates $1.2 million. Several new hotels were opened in late FY 2015 and into FY 2016, which will result in a higher trajectory for that revenue stream into the next fiscal year. Documentary Transfer Tax (DTT) increase of $2.6 million was driven by a one-time $3.5 billion commercial transaction which generated DTT revenue of $3.2 million and resulted in a record year for DTT receipts. Without this one-time receipt, DTT would have performed below the budgeted amount. Sales tax revenue increased $0.3 million year over year in total. However, in FY 2015 there was a planned accounting adjustment to align the sales tax accrual with the fiscal year which resulted in a one-time $2.6 million revenue increase. FY 2015 sales tax revenue without this adjustment would have been $27.1 million, which is a decrease of $2.3 million from the prior year. FY 2014 revenue was abnormally high because the City had significant receipts from a single vendor. Following is a chart which depicts the relative contribution of each tax category over the past six years (2010 through 2015), as well as the current budgeted year (2016). City of Palo Alto Page 7 General Fund Tax Revenues Actual Fiscal Years 2010 – 2015 Budget Fiscal Year 2016 In percentage terms, the revenue category with the largest increase from six years ago is DTT, which has increased 171 percent. DTT comprised 5.6 percent of tax revenues in 2010, compared to 10.0 percent in 2015. Excluding the $3.2 million one-time receipt in FY 2015, DTT has increased 85 percent from six years ago and comprises 7.0 percent of 2015 tax revenue. In absolute dollars, sales tax category has increased the most, with $11.7 million dollars more in revenue than six years ago. General Fund Expenditures General Fund expenditures for FY 2015, including encumbrances, totaled $154.8 million, an increase of $3.0 million from the prior year. The Original Budget of $155.3 million was increased to the Final Adjusted Budget amount of $163.6 million, primarily due to the expenditure of prior year encumbered and reappropriated balances ($5.6 million) and mid-year increases for several departments, primarily Public Safety ($0.5 million). Following is a chart which compares actual departmental costs, including encumbrances, over the past six years and budgeted costs for FY 2016. City of Palo Alto Page 8 General Fund Departments Actual Expenditures Fiscal Years 2010 – 2015 (including encumbrances) Budgeted Expenditures Fiscal Year 2016 ($ in thousands) Capital Projects Fund The Capital Projects Fund ended the year with a fund balance of $57.3 million, which is comprised of the following: Fund Balance Component Amount ($ in millions) Restricted for Library projects $ 5,155 Assigned for all other Capital projects 42,724 Infrastructure Reserve 9,475 Total Capital Projects Fund Balance $ 57,354 Restricted for Library projects of $5.1 million is the portion of fund balance dedicated to remaining Library expenditures which, if considered bondable expenses, will be paid for with cash from bond proceeds. Non-bondable expenditures such as salaries and benefits are funded City of Palo Alto Page 9 from the Infrastructure Reserve, as established at the time of the bond issuance. Assigned for all other Capital projects of $42.7 million represents the amount of unspent funds associated with Adopted Capital projects other than Library projects. Outside funding sources such as grants, donations and future debt issues are not factored into this component of the fund balance until they are actually received. Thus, all capital projects are considered to be fully funded from existing cash resources. Infrastructure Reserve (IR) of $9.5 million is the balance remaining after all expenditures as defined up through the 2016 Capital Budget process have been satisfied, without regard to anticipated future funding sources such as grants, donations and debt issues for existing Adopted Capital projects. This presents the most conservative and fiscally prudent view of the IR balance. The IR balance will increase as a result of:  savings from completed or cancelled projects;  surplus funds transferred from the General Fund;  receipt of grants, donations or debt issues related to existing adopted projects. Enterprise Funds At June 30, 2015 the City’s Enterprise Funds reported total net position of $667.8 million, a decrease of $76.9 million from the prior year. Excluding the adjustment for items related to recording GASB 68 net pension liabilities of negative $87.1 million, total net position increased from prior year by $10.2 million, or 1.4 percent. The change in net position for each of the Enterprise Funds is detailed in the following table. City of Palo Alto Page 10 Enterprise Funds Change in Net Position for the Year Ended June 30 (in Millions) Increase/ Fund Name 2015 2014 (Decrease) Water 5.1$ 11.0$ (5.9)$ Electric (11.2)1.7 (12.9) Fiber Optics 3.1 3.1 - Gas 1.7 3.3 (1.6) Wastewater Collection 2.4 3.5 (1.1) Wastewater Treatment 2.9 (1.9)4.8 Refuse 4.8 2.2 2.6 Storm Drainage 2.7 2.7 - Airport (0.1)(0.5)0.4 Total Change in Net Assets 11.4$ 25.1$ (13.7)$ The total Change in Net Assets of $11.4 million is a decrease of $13.7 million from the prior year, primarily due to Water and Electric Funds. Water Fund revenue decreased as a result of customers using less water due to state mandated drought conservation measures. Electric Fund experienced relatively flat revenue and, combined with increased costs for electricity purchases due to lower availability of hydroelectric energy because of the ongoing drought, ended the fiscal year in a loss position of $11.2 million. Wastewater Treatment net position increased $4.8 million over prior year due to increased billings for CIP costs in FY 2015 and the FY 2014 impact of RWQCP not invoicing partners for encumbrances. Effective July 1, 2015, following a Council approved resolution, Reserves Management Practices for the Electric, Gas, Wastewater Collection and Water Utilities were updated. Restructuring of the reserve balances was designed to increase transparency, to make contingency reserves easier to manage from year to year, and to eliminate reserves that are no longer necessary. Guidelines for managing the reserves are contained in the Reserves Management Practices, including actions to be taken when reserve balances are not within the guidelines. Enterprise Fund Rate Stabilization, Operations and other reserve balances are shown in detail in Note 10 of the CAFR. The implementation of GASB 68 in FY 2015 to record net pension liabilities had a negative impact of $87.1 million on the Enterprise Funds in total. All Enterprise Funds maintained a positive unrestricted reserve balance, except for Wastewater Treatment which is in a deficit position of $2.8 million due to pension related items of $17.5 million. City of Palo Alto Page 11 Airport Fund is also in a deficit position of $1.7 million due to life to date operating losses which are currently being funded by advances from the General Fund, as well as $0.4 million in pension related items. Refuse Fund ended the year in a net positive reserve position of $1.4 million. The reserve for landfill closure costs was re-evaluated by Department of Resources Recycling and Recovery, and the requirement for funding was reduced by $4.7 million. This was offset by the negative impact of the pension liability of $5.0 million. Implementation of GASB 68 – Accounting for Pensions CalPERS Actuarial Valuation: Prior to GASB 68, the City’s unfunded pension liabilities for the Safety and Miscellaneous Plans were disclosed in Note 11 of the CAFR. The liability was based on the annual CalPERS Actuarial Valuation, which is 1 year in arrears and projects the Annual Required Contribution (ARC) for the following 2 years. The ARC was the basis both for expense in the financial statements (accounting) and for funding (budget). Post GASB 68, the City’s net pension liabilities are disclosed as a liability in the Statement of Net Position (balance sheet) for the government-wide financial statements, the Enterprise Funds, and the Internal Service Funds. The balance sheets of individual governmental funds, ie. General Fund, do not show pension liabilities because their focus is current resources, not economic resources. Going forward, the Actuarial Valuation will still be issued in October. The ARC will still be used for funding purposes (budget) and will be the basis of contributions to the Plans. CalPERS Accounting Valuation: CalPERS will issue an additional annual report in July for each of the Safety and Miscellaneous Plans called the GASB 68 Accounting Valuation Report. This report is also prepared by the actuary, however there are differences in valuation and amortization methods for some items. The actuarial assumptions are included in Note 11 of the CAFR. The new pension expense calculated in the Accounting Valuation report will be the basis for expense in the financial statements and will generally be more volatile than the ARC calculated in the Actuarial Valuation report due to shorter deferral and recognition periods. The Accounting Valuation net pension liability is the number that will be reported in the CAFR for FY15 and forward. For comparison purposes, the Accounting Valuation report shows the Safety Plan net pension liability as of June 30 2013 was $120.9 million, compared to the Actuarial Valuation report which shows an unfunded liability of $105.2 million at the same date. For the Miscellaneous Plan, the comparable amounts were $222.4 million and 190.3 million. The net pension liability for the Miscellaneous Plan of $187.1 million as of June 30 2014 has City of Palo Alto Page 12 been allocated between funds based on their pro-rata share of FY 2014 employer contributions. When added to the Safety Plan liability of $102.8 million, the total net pension liability of $289.9 is the amount reported on the Government-Wide financial statement. There are 3 major components of GASB 68 that affect the balance sheet for government-wide and for each of the Enterprise and ISF Funds. These are: 1. Deferred pension contribution – The pension liability balance for each fund is one year in arrears, so the liability on the June 30 2015 financial statements is actually the liability from June 30 2014 (this is because CalPERS is not able to provide the data in time for inclusion in the current fiscal year). As a result, pension contributions made in the current fiscal year will be applied to the following year’s liability, and therefore have to reside on the balance sheet as a “deferred outflow of resources” (the equivalent of a prepaid expense). 2. Net pension liabilities – CalPERS actuaries calculate the City’s pension liability based on census data for every City employee: active, inactive and retired. The net pension liabilities are one year in arrears. 3. Differences between expected and actual earnings on investments – GASB 68 requires that these differences be amortized on a straight-line basis over five years. Further details on the GASB 68 net pension liabilities can be found in Note 11 of the CAFR. Retiree Healthcare Implied Subsidy On June 9, 2014, City Council accepted the Retiree Healthcare Plan GASB 45 Actuarial Valuation as of June 30, 2013 and approved full funding of the Annual Required Contribution (ARC) for Retiree Healthcare for FY 2015 and FY 2016. As documented in the report (CMR #4891) which recommended approval of full payment of the ARC, the primary reason for the increased ARC for Retiree Healthcare was the inclusion of a new actuarial standard regarding the implied subsidy of healthcare premiums of active employees in relationship to healthcare premiums for retirees. CalPERS blends active employees with pre-Medicare retirees and charges them the same medical premium. However, younger employees on average consume less healthcare services and therefore are subsidizing older employees and retirees. The implied subsidy is the difference between average retiree claims and retiree premiums charged by CalPERS. Consistent with Council direction, as recommended by staff, the City budgeted for payment of the ARC for FY 2015 and FY 2016, including the implied subsidy. The implied subsidy for FY 2015 was $1.9 million for all funds. As part of preparing for the FY 2015 CAFR, staff worked closely with the City’s actuary, the managers of the City’s trust fund for Retiree Healthcare, and the City’s external auditor. After many discussions, staff realized that the implied subsidy budgeted in the Retiree Healthcare Fund should have been budgeted as a contribution from the City’s healthcare premiums for active employees. However, the FY 2015 budget had fully funded the City’s healthcare premiums of approximately $17.4 million for active employees. Therefore, the cost of healthcare premiums related to the implied subsidy in the amount of $1.9 million was budgeted twice. For FY 2015, the savings of healthcare premiums related to City of Palo Alto Page 13 the implicit subsidy will remain in the General Benefits Fund for future use. For FY 2016, staff will bring forward recommendations as part of the FY 2016 Midyear Budget Review report to correct departmental budgets regarding the implied subsidy. Starting with the FY 2017 Proposed Budget, staff will budget correctly for the implied subsidy for active employees healthcare premiums. Environmental Review This is not a project for purposes of the California Environmental Quality Act. Attachments:  Attachment A: Budget Amendment Ordinance Closing the Fiscal Year 2015 Budget (DOCX)  Attachment A: Exhibit 1-4 Proposed Fiscal Year 2015 Year End Adjustments (PDF)  Attachment A: Exhibit 5 Gen Fund Budget vs Actuals (XLSX)  Attachment B: 2014 - 2015 Comprehensive Annual Financial Report (CAFR) (PDF) FINANCE COMMITTEE TRANSCRIPT Page 1 of 14  Special Meeting Tuesday, November 17, 2015 Chairperson Schmid called the meeting to order at 6:15 P.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California. Present: Filseth, Kniss arrived at 6:18 P.M. Scharff, Schmid (Chair) Absent: Chair Schmid: I wanted to just ask a question upfront to make a clear distinction between Items 1 and Item 2. The audit starts immediately by referring to material in the CAFR. It's very easy to get started here and end there. How should we deal with the two separate reports so they are clear? Lalo Perez, Administrative Services Director and Chief Financial Officer: Good question. Lalo Perez, Chief Financial Officer, Vice Mayor. The idea for the first item is that there's the independence of the City Auditor that reports to you. She has gone out and (inaudible) the process and hired the services of a financial audit firm to do the audit. The first one is an opportunity for you to hear from the City Auditor and the financial auditor, MGO, David Bullock who's here tonight, about what they reviewed and report on their findings of the financial audit. Yes, there may be questions that you may have that kind of cross over to Item Number 2. What we would do for Item Number 2, as Staff, we would then present to you the nuts and bolts of the numbers. That's where I think it would be appropriate to get into the detail questions about some of the specifics and the trending and the numbers. I think on the technical terms or findings or review, what areas were reviewed, David Bullock can answer to that specific. There's specific audits that they perform, that they would call them single audits, that they would discuss with you, also any recommendations that were outstanding from prior years, the status of those. That's the differences of the two. I think for Item Number 2, we would say, "Let's focus on that on the revenue and expenditures big picture, what happened and trends that we see and recommendations. Because we do have excess funds, what is our thinking and our recommendations to you. We can do that under Item Number 2. Chair Schmid: We will deal with the basic accounts on the first one. Attachment D DRAFT MINUTES    Page 2 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  Mr. Perez: Yes. Chair Schmid: The second one, the host of numbers, the details, we will deal with in Item Number 2. Mr. Perez: Yes. Chair Schmid: Let's move to Item Number 1, which is the audit of the ... Assistant City Clerk: There's a speaker card for Oral Communications right there. Chair Schmid: I'm sorry. Oral Communications Chair Schmid: Ken Horowitz, Oral Communications. Ken Horowitz: Thank you for the opportunity. My name is Ken Horowitz. I live on Homer Avenue. I want to echo—last night at the City Council meeting, there was an item on the Consent Calendar regarding the Budget. Council Member Burt asked that it be removed so he could talk to particularly one item, and that's Project Safety Net. I wanted to echo that he is 100 percent correct. The City received a large grant from Stanford University to deal with mental health and youth well-being. Unfortunately, a lot of the money is being spent on Track Watch and guards and barriers and things like that, and not enough money is being spent on mental health. The City Manager said that he would make sure that it would come back to the Finance, and Council Member Scharff wanted to make sure that it also comes back to the Finance group here to make sure that the money is going for mental health. I have some information I'll give to the Clerk here. Mental health is a big problem today. It's only getting worse. Hospitalizations at Stanford and other places around here are increasing for mental health issues. We need to save that money, that Project Safety Net money, for the mental health issues and not for paying for guards any more. It should come out of the City Budget and not out of Project Safety Net Budget. I wanted to just echo Council Member Burt's comments and also echo Council Member Scharff's comments that the Finance, when the City Manager comes back with an adjustment of the Budget, that you look at that money spent. Thank you very much for your time. Chair Schmid: Great, thank you very much for coming. DRAFT MINUTES    Page 3 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  Agenda Items 1. Macias Gini & O'Connell's Audit of the City of Palo Alto's Financial Statements as of June 30, 2015 and Management Letter. Chair Schmid: That brings us then to Item Number 1, the audit of the City's financial statements. Harriet Richardson, City Auditor: Good evening, Mr. Chair, Members of the Committee. Harriet Richardson, City Auditor. As Lalo mentioned, my office coordinates the City's annual financial statement audit that's required by the City Charter and the Palo Alto Municipal Code. Tonight, the City's independent certified public accounting firm, Macias Gini and O'Connell, will present the results of their audit for the fiscal year that ended on June 30th, 2015. MGO issued an unmodified opinion for all of the City's basic financial statements which means that the financial statements are presented fairly in all material respects. The auditors didn't make any new recommendations this year; however, they reported on the status of three open recommendations from Fiscal Year 2011 which all pertain to the City's Information Technology Department. You have an at-places memo which gives a revised report. It replaces the report called "Report to the City Council." If you look at pages 6 and 7, those are the pages that were updated to show that all of the recommendations have been implemented as of June 30th, 2015. Just for clarification, I wanted to clarify the difference between the audits that MGO does for the City versus the audits my office does. Their firm focuses on financial reporting. My office focuses on audits that affect the efficiency and effectiveness of operations. They may or may not have a material impact on the City's financial statements. I'd like to thank David Bullock and Irene Chan from MGO as well as Lalo Perez, David Ramberg and Laura Kuryk and her Staff in the City's Administrative Services Department for their hard work in completing the audit as well as Yuki Matsuura from my office who oversees the contract with MGO and coordinates with MGO staff throughout the audit. Now, I'd like to introduce David Bullock, the partner from Macias Gini and O'Connell, who will present the financial audit results and the report to the City Council. David Bullock, MGO Partner: Good evening. Thank you. Chair, Members of the Committee, thank you for inviting us to present your 2015 audited financial statements. Harriet had mentioned the at-places report that we had revised. Just to let you know, we came out and we assessed some of our prior year findings, as we normally do, and apparently some of that information had not been updated since we came out here during our planning stage. What we did is we worked with Staff to identify what changes had been done since we were out here. To the good, we DRAFT MINUTES    Page 4 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  determined and agreed that the three findings that we had brought up in past years have all been implemented as of the date of the report, as of today. We went ahead and issued this revised statement, so we don't have to come back next year and bring back these same items again. I'd be more than happy to discuss specifically what changed. From our perspective, some of it was interpretation and some of it was just updated information that we didn't have at the time we came out here and assessed the status of those findings. Chair Schmid: You're comfortable with what you found? Mr. Bullock: We are, we are. On page 4 of your packet, it has a nice little summary of this first item on the agenda. I thought I would just kind of walk through those really briefly before I went through the specific reports. I'm looking at the attachment section. Attachment A is the report to City Council. That's what was revised. The only thing that had changed in that report was the status of our prior year findings. Nothing else in that report had changed. Council Member Kniss: Just locate me now. We've got two things in front of us. You're on ... Mr. Bullock: Right now, I'm going through your original agenda packet. Chair Schmid: It's this item now. Mr. Bullock: Not the at-places item. Council Member Kniss: This one here. You said a page? Mr. Bullock: Page 4 on the ... Lalo Perez, Administrative Services Director and Chief Financial Officer: Packet page 4 or page 2 of the report. Council Member Kniss: Somehow I start with packet page 3. Does the rest of yours start with 3? Am I crazy? Suzanne Mason, Assistant City Manager: No, you're right. Turn one more page over. There's the list of attachments, right there. Council Member Kniss: On page 4 of page 2, right? Mr. Bullock: Hopefully I'm going by the way you're accustomed to going through these documents. I just thought this was a snapshot of what the scope of the first item was. The report to the City Council is what we use to DRAFT MINUTES    Page 5 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  summarize the results of the audit, to let you know what the important items were during the audit, so that it's within one location. Then we include in there findings that we might have related to the audit. Some might consider it a management letter; we call it Report to City Council. The second item has to do with the Transportation Development Act. That's the monies you get from MTC to fix or improve bikeways or pedestrian ways. The Regional Water Quality Control Plant is reassuring the cost of the plant. We go through and audit the allocation of the costs of the plant. The Public Improvement Corporation was your 2002 Certificates of Participation for your Downtown parking garage. Attachment E was the General Obligation bonds; that's your Measure N, the library bonds and the spending of those funds. Attachment F is the Appropriations Limit. That's the spending limit based on the appropriations established in the base year plus the inflationary and population changes. Finally, the cable TV and the franchise audit that we do, the collection and disbursement of those franchise fees. That's the scope of the first item. I'm happy to report that we didn't have any findings in any of those specific compliance areas. All of the reports have unmodified opinions for those. On the Report to the City Council, I'd like to refer you to the at-places item, which is what was revised. Just so that we all have the final copy of what we're issuing in front of us. The first page is just a transmittal letter. The document really starts on page 1 where we talk about required communications. Any time there's changes in consistency from year to year, we want to make sure you're aware of it. We're going to get more into the pension standards that have changed, GASB 68. I'm going to discuss that when we discuss the CAFR, because that's a better place to discuss that, when we're talking about the impact to your financial statements. We're just letting you know that that was a significant change to yours, and for all governments. There were a few other standards implemented; they didn't have the level of impact. The next couple of pages really talk about estimates that are in your financial statements. It just lets you be aware of some of the softer numbers that could change over time. Any time there's an estimate, things could change. Some of them are based on actuarial studies. Some of them are based on the fair value of your investments or what the predictability is of collections on receivables. That just gives you a summary of what estimates there were on page 2. Three really discusses any issues that we had during the audit, any disagreements with management or any material audit adjustments, things of that nature. We're happy to report there were none. It's quite nice to see a November 3rd date; I just wanted to point that out, as the date of our audit. That's two weeks earlier than we've ever completed in the past. This year the audit went very well. Staff was very cooperative. I think it just was a very efficient audit this year, so we're really happy to report that in working with management. The final couple of pages. Page 5 just lets you know that there were no current year DRAFT MINUTES    Page 6 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  management letter comments. Really what we're required to report as part of our responsibility is any internal control deficiencies that meet the level of significant deficiency or material weakness or material noncompliance. That's kind of the reason you'd have management letter comments. We could also put best practices in there and things of that nature. Sometimes we might put new standards that are coming up or the new OPEB standards. Like the pension plan, OPEB standards are going to have a significant impact to your financial statements. That's a few years down the road in 2018, where that's required to be implemented. There's some time to discuss that. Kind of like the pension plan has been known now for three or four years, and this is where the rubber hits the road. This is where you actually record the pension impact. The OPEB, very similar, will have a significant impact, because you'll be recognizing that in that OPEB liability in your financial statements, much like you do with the pension plan. Finally, the last two pages are just follow-up to past recommendations. This is really where the changes were updated. The only thing I changed in here was the current year status. We had a comment on the disaster recovery plan. The City is still working on other follow-up aspects to it. Once you got the plan done, you're moving on and evolving your IT. In terms of what the recommendation was, that piece has been implemented. It was just a matter of interpretation of where you're at. We don't want these findings to continue to be in your report. We always try to give you a status of your disaster recovery plan. The piece that we've recommended has been completed, so we're going to go ahead and remove that from our report. The other two items had to do with the risk assessment which was completed; the City got a report in May of 2015, so that's done. Finally, the password strength has been updated and put into place just a couple of weeks ago in October. That's done. Chair Schmid: I can ask Lalo his password. It'll be at least seven digits. Mr. Bullock: It better be. Mr. Perez: With characters and capital letters in the mix. Council Member Scharff: But you have it written down right next to it, right? Mr. Perez: It's on my forehead, isn't it? Mr. Bullock: It's a little sticky note that's right next to the monitor. Mr. Perez: Just kidding around. Mr. Bullock: That concludes my report on these audits, unless you have a specific question you wanted to go through in any of these specific reports DRAFT MINUTES    Page 7 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  that we've issued or questions on the (inaudible). I'd be more than happy to answer. Chair Schmid: Thank you very much. I would ask Council Members if there is anything in the separate audits that we have, Attachments A through G, that you want to follow up on or any of the general statement. This would be a good time for that. Council Member Scharff: This is more of a question. On the cable TV franchise, this is a joint power agreement. Who's on the board and how come no—this is the only joint power agreement in which governance seems different. I mean, all the other joint power agreements, Council Members from the three cities would basically be on this. We never really talk about this. What does this do? What's the City's liability on this? What's really happening with the cable—this seems so 1980s. Mr. Perez: It is. That's the answer, that it was established quite some time ago. It was part of the—some of you may know the history better. I'm looking at Council Member Kniss. Council Member Kniss: First thing is before Greg was born, isn't it? Council Member Scharff: I think it was. Mr. Perez: We used to have the cable co-op that ran. That was going to go out, so there was a leadership effort by Palo Alto to ensure that the broadcasting of public meetings took place, so a joint power agreement was set up, an agency, to do that. I think the answer to your question—I don't know for a fact. My assumption over the years is that because it dealt with the nuts and bolts of the operations, that that's probably why there was not an appointment of elected officials to be part of that process. There is a reporting mechanism that we're supposed to do, and that's part of this process. The agencies have representatives from each group, so there's—let me see if I can get them right. There's the Ravenswood School District, East Palo Alto, Menlo Park and the School District was part of it at one point. Mr. Bullock: And Atherton. Mr. Perez: And Atherton. Thank you, David. Ms. Richardson: And unincorporated areas of Santa Clara and San Mateo Counties. Mr. Perez: Thank you for the reminder. And unincorporated areas of Santa Clara and San Mateo Counties. What we do is as the revenues come in, the DRAFT MINUTES    Page 8 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  groups meet to address the needs of each of the agencies in terms of systems, hardware and the operations of the issues. Over the years—now I'm going back from my memory. We tended to have the expertise, because we were bigger and we had a bigger Staff that was more technically aware of the issues. The smaller agencies don't tend to have the funding nor the staff expertise, so we kind of were appointed the leaders in that regard as well, from a technical perspective. We had at times different members of the community that were extremely skilled, that volunteered at times and helped us as well. It's kind of evolved. The question is with technology and where it's going, where are now. It's probably something that we need to review and discuss. Ultimately, from my perspective, I think the goal is for us to ensure that we have the means to broadcast public meetings. That's what the intent of this group is at this point. Council Member Scharff: Right. I mean, it's not hard with YouTube and all of that. It almost seems that anyone could put a camera on here and put it on YouTube and have it broadcast. I'm not sure the structure as—what really struck me here was the huge amount of money, if I understand that. We have 1.2 million and 791 just sitting there. It just struck me that we— this is the way I see it and tell me if I'm wrong. We have some sort of an '80s structure in which the cable co-op was really—the cable co-op has gone away. We sold out of that, and now we have a JPA in which Council's not really even aware of, frankly. I mean, I'm not sure if we polled Council Members that they would even know there was such a JPA. Maybe Council Member Kniss ... Council Member Filseth: I know now. Council Member Scharff: Right. The question is does this make sense. Ms. Richardson: Can I say something? I'd like to just make everyone on this Committee aware, because I know Policy and Services is aware of the audits we have in place. We're actually doing a performance audit right now on the cable franchise fund. Through that audit we'll be raising the question about the future of it. It will come up as something to address through that mechanism. Council Member Scharff: Basically what's left of this is the Media Center. Is that correct? Council Member Kniss: Yes. That's kind of true. Council Member Scharff: That's really what's left of this. Ms. Richardson: This fund was established to support iNet also. DRAFT MINUTES    Page 9 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  Mr. Perez: Correct. Council Member Scharff: What's iNet? Mr. Perez: It was basically a way for the agencies to have—for example, for Ravenswood, it's their communications. They turned it into telephone. Under my watch when we took over, when we had IT—IT is not part of my watch anymore—I remember getting phone calls where construction companies dug and broke the connection. Ravenswood was blank, no connection. Part of the funding is to address issues of connectivity on the other end as well with each of the agencies that belong to the group. Council Member Scharff: I thought we used our fiber ring for connectivity. Mr. Perez: Remember our fiber ring goes only to our border. Council Member Kniss: It's only Palo Alto. Mr. Perez: Right. David, since you worked on it, you can add. David Ramberg, Administrative Services Assistant Director: David Ramberg, Assistant Director of Administrative Services. A little more background. The cable franchise agreement was established when cities had more jurisdiction over franchise agreements. Jurisdiction over franchise agreements has been moved to the State level. We no longer negotiate directly with the cable providers for television services here in our jurisdiction. We used to do that. The agreement with the neighboring jurisdictions was that we would be collectively stronger as a group, and Palo Alto would serve as the lead agency of that group. The City Council is formally the Board of the JPA. You probably don't realize that, but that ... Council Member Scharff: Nope. Mr. Ramberg: Back when we had oversight of the cable franchise agreement, there were issues that came before the City Council on a semi- regular basis. We had customer service issues. We had liquidated damages that we had to assess against the provider then, which was AT&T. Other such issues would come before the City Council on a semi-regular basis. We haven't had those kind of oversight responsibilities in recent years, because that's moved up to the State level. The cable franchise does remain. The service area is still defined by the communities that were mentioned a moment ago. Comcast is still the cable service provider. We still do receive public education and government which are referred to as PEG fees. Those PEG fees support the communities' cable center which is the Media Center. Also we contract with the Media Center for the broadcast of these public DRAFT MINUTES    Page 10 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  meetings. Those types of decisions are still discussed at the cable franchise working group which is representatives of the various cities at the staff level. As matters become significant, they come before the City Council for discussion. We just haven't had any major issues in recent years. Harriet's right. There's a current review going on, and there will be more discussion coming forward, probably in 2016. Council Member Scharff: Maybe I missed it; it's possible. I remember when we actually had a redevelopment agency in Palo Alto which we never used. They used to come once a year to us. Now you're the board of directors, right? We spend a Council meeting; we'd have that meeting; we'd take no action, but we had a requirement to meet once a year, so we met for ten minutes and did that. I don't recall this. I don't recall it in five years. Is there no requirement to ever meet? Council Member Kniss: I didn't know there was an RDA. Mr. Perez: It's dormant. Council Member Scharff: We dealt with all the blighted areas in Palo Alto. Council Member Kniss: You know who else knows (crosstalk) about this is Bob Moss and Lisa van Dusen who were both involved in it at the time. It was an incredibly contentious kind of issue for anyone who was here then. They will still discuss it with a great deal of passion. They will have a long history on it. It was very complicated, because that was kind of the beginning of cable TV. Who should have it? Should it be in-house or should we have somebody outside do it? It was a very long discussion. I don't recall that it essentially was very successful in the end. Maybe I'm wrong, Lalo. Maybe it was wildly successful, and I've forgotten. Mr. Perez: I think it's accomplished its goals. Council Member Kniss: Nicely put. Chair Schmid: Question about the numbers here. You say they get franchise fees from AT&T and Comcast. Is that right? It's allocated; the City of Palo Alto gets $860,000 or pays? Mr. Perez: Receives. Chair Schmid: Where does that go? Mr. Perez: It stays within the fund, and it goes towards the cost of the operations of the cable television program. DRAFT MINUTES    Page 11 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  Chair Schmid: We receive these but immediately pay it ... Mr. Perez: It's not part of the General Fund. It's part of this fund (inaudible) to fund the operations. Chair Schmid: Their expenditures are only $50,000. At least that's what they report. Mr. Ramberg: Once we deduct the cost of operating the cable fund, the rest of the revenues on the—there's two sources of revenues. There's the public education and government, PEG, fees; that goes to support the running of the community media center. There's the franchise fee revenue which comes into the City of Palo Alto in a lump sum. The City of Palo Alto then distributes the cable franchise fees based on subscribership to the JPA agencies. Menlo Park gets a chunk of the cable franchise fee revenue, Atherton, East Palo Alto and so forth. Palo Alto deducts the administration costs because we still administer as the lead agency all of those operations. The remainder of the franchise fee revenue after that deduction goes into the City of Palo Alto General Fund. Chair Schmid: I could look in here and find $864,000 receipts somewhere? Mr. Ramberg: There might not be that exact number, but you will find a number very close to that in the CAFR. It would be a number buried in some other—probably a revenue line item. We could pull it out for you. Chair Schmid: Good deal. We get on TV, and we get paid. Any other questions about any of these other details, attachments? Council Member Kniss: Still on cable TV or do you want to go back to (crosstalk)? Chair Schmid: I'm looking at all the attachments related to ... Council Member Kniss: I just want to look at page 37, if I might, and talk a little about the Regional Water Quality Control Plant. We indicate that we're allocated about half the usage, but we don't utilize that; therefore, we go into a separate contract. I'm on page 37 of the packet. Lalo, talk a little about that. How is this parceled out and why are we not using 50 percent? Does that have to do with the current drought? Is that just a pretty standard long-term amount? Mr. Perez: I'm probably over my head, to be honest with you, on this one. I don't have any Staff from Public Works. My understanding was that we had the percentages split based on the measurement of the Plant. I'm DRAFT MINUTES    Page 12 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  trying to find where you're referencing to. I'm looking at Note 2. Is that what you're looking at? Council Member Kniss: I'm on page 37, so I don't know ..."1C," "1C" it's called. "1C" and it's ... Chair Schmid: My understanding is, if you look at the previous page, the original agreement was between three cities. Palo Alto accounted for over 50 percent of it. We then subcontracted to EPA, Stanford, Los Altos Hills to take shares, so that our total usage is the 36 percent, which is equivalent to the population usages. Council Member Kniss: It's not by amount; it's by population? Chair Schmid: It's by usage rates. There's three original contractors. We subcontracted our 50 percent share to others. Council Member Kniss: I'm not sure I totally understand the plan. Apparently it's working. Chair Schmid: Yes, we are. Council Member Kniss: Sometimes it's (crosstalk). Mr. Perez: You're probably going to get a lot more information from Jaime and Phil as they're talking about the overhaul of the Treatment Plant and how the split of the costs would be borne and spread. I think that's probably when you're going to get a better education than what I can provide you. Council Member Kniss: We're going to see them later this week. I'll ask them at that point. I think anything to do with water right now is of great interest. Mr. Bullock: This has more to do with the sewage. It's more of a Treatment Plant ... Chair Schmid: It ends up with some recycled water. Mr. Bullock: Reclamation. Chair Schmid: Yeah, which is becoming ... Mr. Perez: That has a bit of a ... Council Member Kniss: Becoming more of (crosstalk). DRAFT MINUTES    Page 13 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  Mr. Perez: ... nuance because Mountain View paid for infrastructure to set up a piping system to send water down to them. That's where I feel that I'm a little bit over my head. Council Member Kniss: That's something that's probably worth knowing more about. I don't know how long ago they actually did that. I do know that—don't they get roughly 60 percent of our recycled water? It's not germane for this, but I think it's interesting to know where the—since it ends up as recycled water from this Control Plant. It'd be interesting to know just what percentage goes elsewhere and under a contract as I understand. Mr. Perez: What we can do, if there's no items coming up in a relatively near period, when we put the cover letter to, assuming you approve it and go to Council, we'll ask the department to give us some of that data, and we'll add it. Chair Schmid: Any further questions or comments on the attachments? Council Member Kniss: I may have had—I think this one got answered, on page 15, which was the disaster recovery plan and so forth. You're saying all that's in order, risk assessment and ... Chair Schmid: Yes, that's the update we got. Council Member Kniss: The one that you just mentioned and the fascinating thing about passwords? Chair Schmid: Yes. Council Member Kniss: Does everyone remember all their passwords all the time? It drives me crazy. Chair Schmid: If I had to change them every three months, that would set me back. Council Member Scharff: I just use my birthday. Council Member Kniss: Don't we all? Chair Schmid: Thank you. Council Member Filseth: That big unprotected file on your computer. Council Member Kniss: Do you capitalize it? Council Member Scharff: No. DRAFT MINUTES    Page 14 of 14  Finance Committee Special Meeting  Transcript 11/17/2015  Chair Schmid: If there are no further questions on this, Harriet, did you have ... Ms. Richardson: No questions. I just want to remind you that we will need a Motion on this to accept (crosstalk). Council Member Kniss: I would recommend we accept it. That's a Motion. And forward to the City Council (crosstalk). Chair Schmid: I will second. MOTION: Council Member Kniss moved, seconded by Chair Schmid that to recommend the City Council approve the audited financial statements for the Fiscal Year ending June 30, 2015, and the accompanying reports provided by Macias Gini & O’Connell LLP. Chair Schmid: Any comments, questions? We have on the table a motion to accept the audit and to forward it to the Council. All in favor. That passes unanimously. MOTION PASSED: 4-0 Council Member Scharff: I did have one quick question. Chair Schmid: Yes. Council Member Scharff: We won some award, right, we win every year? Mr. Bullock: That's part of the CAFR. Council Member Scharff: That's part of the CAFR. That's what that goes for. I'll wait until the CAFR then to ask about it. Chair Schmid: Thank you very much. That closes Item 1. City of Palo Alto (ID # 6497) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Extension of Lease Agreements for the City Development Center at 285 Hamilton Avenue Title: Approval of the Fifth Amendment to Extend the Lease with Thoits Bros., Inc. at 285 Hamilton Avenue, Suite 100 for a Period of 14 Months and Approval of the Second Amendment to Extend the Sublease with Thoits Bros., Inc., 285 Hamilton Avenue, Suite 200 for a Period Of 14 Months for Use by the City Development Center From: City Manager Lead Department: Administrative Services Staff recommends that Council 1. Approve and authorize the City Manager or his designee to execute the attached fifth amendment to the lease with Thoits Bros., Inc. (TBI) for the 6,361 square foot Development Center ground floor space at 285 Hamilton Avenue, Suite 100 to extend the lease from September 30, 2016 to December 4, 2017; and 2. Approve and authorize the City Manager or his designee to execute the attached second amendment of sublease agreement to extend the term agreement with Thoits Bros., Inc. (TBI) for the 3,991 square foot Development Center second floor space at 285 Hamilton Avenue, Suite 200 from September 30, 2016 to December 4, 2017. Executive Summary The two proposed extensions of the tenancy agreements at the City Development Center at 285 Hamilton Avenue will provide the City with the continuous operation of the Development Center to provide services to the public. These amendments will align the termination dates of both agreements to December 4, 2017 to prevent service interruption due to ending of the lease and sublease agreements at different time periods. In addition, the City is granted an option to extend the term of the lease for the ground level, Suite 100, for an additional two (2) years after December 4, 2017. The landlord maintains the option of extending the lease for the second floor space, Suite 200, for an additional two (2) years after December 4, 2017. City of Palo Alto Page 2 Background The Development Center currently occupies 6,361 square feet on the ground floor (Suite 100) and, 3,991 square feet on the second floor (Suite 200) of the property, which is owned by Thoits Bros., Inc. (Landlord). Suite 200 The internet company, Survey Monkey, vacated its leased space on the second floor of 285 Hamilton Avenue because of its growth needs and offered to sublet this space to the City. In order to expand the Development Center operation and avoid over-crowding, on December 13, 2011, the City entered into a sublease agreement with Survey Monkey to occupy and use approximately 3,133 square feet of the second floor at 285 Hamilton Avenue. The Survey Monkey lease agreement with the Landlord was to expire on September 30, 2016. On May 1, 2015, Survey Monkey and Thoits Bros reached an agreement to terminate the lease earlier and as the result, the existing sublease agreement between the City and Survey Monkey was transferred to an agreement between the City and Thoits Bros. On July 2015, Thoits Bros and the City reached an agreement to relocate the Development Center suite on the second floor of the building from Suite 280 to Suite 200, consisting of approximately 3,991 rentable square feet. The proposed new amendment will extend the term for Suite 200 to December 4, 2017. Suite 100 In early 1998, after receiving Council authorization to search for additional space to relieve overcrowding in the Civic Center, staff considered many possible locations and identified the space at 285 Hamilton Avenue as ideal for the City’s Development Center. On September 22, 1998, the City Council approved an 8-year lease with Hamilton Palo Alto LLC for 6,361 square feet of space at 285 Hamilton Avenue for location of the City’s Development Center (CMR 368:98). On May 18, 1999, the City Manager approved the first amendment to the lease, which expanded the original 6,361 square foot premises by approximately 702 square feet for a limited time, from March 1, 1999 until December 31, 1999, to provide temporary office space for City staff. On June 13, 2006, the City and Thoits Bros., Inc entered into amendment No. 2 to continue the Lease directly with the Landlord and to adjust rate and to extend the Lease term to January 31, 2012. Amendment No. 3 of the Lease was executed on November 1, 2011 to extend the office lease until January 31, 2014 under the First Option to Extend clause. The City exercised its Second Option per terms and condition of the Lease to extend the Lease for twenty four (24) months to February 1, 2016. Later the Landlord and Tenant agreed to extend the lease for an additional eight (8) months to bring the total extension to thirty two (32) months to expire on September 30, 2016. The proposed new amendment will extend the term for Suite 100 to December 4, 2017. City of Palo Alto Page 3 Discussion The existing lease agreements for the different floors that are occupied by the Development Center and Palo Alto Fire Department will expire on September 30, 2016. The purpose of the amendments recommended in this report is to extend the term of both agreements for occupancy of the Development Center to ensure the continuation of operation of the Development Center without interruption and to amend the expiration date of the Lease with Thoits Brothers. In order to accomplish that goal, Real Estate Staff met with the Landlord representatives to discuss the amendment of the existing agreements. As a result, all parties came to agreement to extend the agreements to expire at the same time and to ensure extended leaseholds right for the City to remain at the Development Center until other options become available. Amendment of the agreements will add fourteen (14) months to the current term. The lease terms, rental rates, expiration dates and annual rate increases are summarized in the table below: Landlord/Suite Size Future Commencement Date Lease Expiration Date Rent Payment CPI Adjustment Options TBI/100 6,361 square feet September 30, 2016 December 4, 2017 10/1/2016 to 1/31/2017 =$47,262.00 2/1/2017 to 12/4/2017 = $48,662.00 3% annual increase City can extend for two (2) more years TBI/200 3,991 square feet September 30, 2016 December 4, 2017 10/1/2016 to 11/30/2016 =$22,588.93 12/1/2016 to 12/4/2017 = $23,266.60 3% annual increase Landlord can extend for two (2) more years *NNN refers to a triple net lease where tenants are responsible for proportional cost of property taxes, insurance, and maintenance of the building. Should the space at 285 Hamilton be needed beyond December of 2017, the City would endeavor to negotiate with Landlord, TBI, more than a year before expiration of the terms to establish acceptable rates and duration time to extend the lease. Resource Impact Suite 100 The current monthly rental cost to lease 6,361 square feet for Suite 100 is $47,262. The new agreement starting on October 1, 2016 will keep the current monthly rent charges until February 1, 2017, at which time the rent will increase by 3 percent to $48,662 through December 4, 2017. Common area maintenance (CAM) charges, (including property tax, insurance, assessments, building maintenance, gas, water, sewer and garage) to support occupancy expenses are City of Palo Alto Page 4 projected to be approximately $1.15 per square foot or at 14.3% of the total cost of tenancy at this location. Anticipated CAM costs will run approximately $7,355 per month or $88,260 annually. Suite 200 The current monthly rental cost to lease 3,991 square feet for Suite 200 is $22,589. The new agreement starting on October 1, 2016 will keep the monthly rent charge through December 1, 2016, at which time the rent will increase by 3 percent to $23,266 per month through December 4, 2017. Common area maintenance (CAM) charges, (including property tax, insurance, assessments, building maintenance, gas, water, sewer and garage) to support occupancy expenses are projected to be approximately $1.00 per square foot or at 8.73% of the total cost of tenancy at this location. Anticipated CAM costs will run approximately $4,020 per month or $48,240 annually. Rent expense for both floors is budgeted in the Development Services Department. The Long Range Financial Forecast contained $984,000 in Fiscal Year 2017 for rent expenses for the Development Services Department. The recommendations included in this report anticipate total expenses for renting the Development Center of approximately $850,000 in rent and $136,500 for CAM charges in FY 2017, a total of $986,500, or $2,500 more than the Budgeted amount. It should be noted that CAM costs can fluctuate. Accordingly, the expenses associated with these two leases will continue to be monitored and any necessary adjustments will be brought forward for consideration by City Council. Policy Implications The proposed lease extensions are consistent with the existing City policy. The continuation of the Development Center is consistent with goals of the Comprehensive Plan, which states the City’s commitment to streamline the permit process in order to improve customer service and staff efficiency. Environmental Review Leasing of existing office space involving no expansion of use is exempt from the California Environmental Quality Act review pursuant to CEQA Guideline Section 15301. Attachments:  Attachment A: Fifth Amendment to Lease_The City of Palo Alto_Suite 100_285 Hamilton Ave (DOCX)  Attachment B: Second Amendment to Sublease_The City of Palo Alto_Suite 200_285 Hamilton Ave (DOCX) ATTACHMENT A FIFTH AMENDMENT TO OFFICE LEASE This FIFTH AMENDMENT TO OFFICE LEASE (this “Fifth Amendment”) is dated as of December ___, 2016 (the “Effective Date”) by and between THOITS BROS., INC., a California corporation (“Landlord”) and THE CITY OF PALO ALTO, a California municipal corporation (“Tenant”). WHEREAS, Landlord, as successor in interest to Hamilton Palo Alto, LLC, and Tenant are parties to that certain Office Lease dated October 18, 1998, as amended by that certain Amendment No. 1 to Office Lease dated May 18, 1999, as further amended by that certain Amendment No. 2 to Office Lease dated June 13, 2006, as further amended by that certain Amendment No. 3 to Office Lease dated November 1, 2011, and as further amended by that certain Amendment No. 4 to Office Lease dated September 3, 2013 (as amended, the “Lease”), for the lease of certain premises consisting of approximately 6,361 rentable square feet located on the first floor of the building, and commonly known as Suite 100, in the building located at 285 Hamilton Avenue, Palo Alto, California as more particularly described in the Lease (the “Premises”); and WHEREAS, Landlord and Tenant wish to amend certain provisions of the Lease as further provided for herein; NOW, THEREFORE, for good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree to amend the Lease as follows. AGREEMENT 1. Definitions. Capitalized terms used in this Fifth Amendment shall have the same meaning ascribed to such capitalized terms in the Lease, unless otherwise provided for herein. 2. Extension. The Term of the Lease is hereby extended and shall expire on December 4, 2017. 3. Base Rent. Commencing on October 1, 2016, the Monthly Base Rent shall be payable according to the following schedule: Period Approximate S.F. Base Rent Monthly Base Rent October 1, 2016 – January 31, 2017 $7.43 $47,262.00 February 1, 2017 – December 4, 2017 $7.65 $48,662.00 4. Renewal. So long as (i) there then exists no event of default either at the time of exercise or on the first day of the Extension Term (as hereinafter defined), (ii) this Lease is in full force and effect, and (iii) the Tenant named herein has not assigned this Lease and is in occupancy of ATTACHMENT A the entire Premises, Tenant shall have the right and option to extend the Term hereof for one (1) additional twenty-four (24) month period (the “Extension Term”) upon written notice to Landlord given not less than six (6) months and not more than nine (9) months prior to the Lease expiration date. The parties agree that if Tenant fails to exercise its option to extend the Term strictly within the time periods set forth in this Section, then Tenant’s right to extend the Term shall automatically lapse and Tenant shall have no right to extend the Term. In the event that Tenant exercises the option granted hereunder, the applicable Extension Term shall be upon the same terms and conditions as are in effect under this Lease immediately preceding the commencement of such Extension Term except that the Base Rent due from the Tenant shall be increased at the same rate as provided herein and Tenant shall have no further rights or options whatsoever to extend the Term beyond the expiration of such Extension Term. Tenant acknowledges, confirms and agrees that it shall have no other right or option to extend or renew the Lease except as provided in this Section. 5. Real Estate Brokers. Tenant represents to Landlord that Tenant did not involve any broker in procuring this Fifth Amendment. Tenant hereby agrees to (A) forever indemnify, defend and hold Landlord harmless from and against any commissions, liability, loss, cost, damage or expense (including reasonable attorneys’ fees) that may be asserted against or incurred by Landlord as a result of any misrepresentation by Tenant hereunder and (B) discharge any lien placed against the Property by any broker as a result of the foregoing. 6. Governing Law. This Fifth Amendment shall be governed by and construed in accordance with the laws of the State of California (without regard to conflicts of law). 7. Certified Access Specialist Inspection. California Civil Code Section 1938 requires Landlord to notify Tenant whether the Premises has undergone inspection by a Certified Access Specialist (“CASp”). Landlord hereby acknowledges that the Premises has not undergone such inspection. 8. Ratification of Lease. Except as modified hereby, all other terms and conditions of the Lease remain unchanged and in full force and effect and are hereby ratified and confirmed by the parties hereto. Tenant accepts the Premises in its “as is” and “where is” condition. Tenant represents and warrants to Landlord that as of the date of Tenant’s execution of this Fifth Amendment: (a) Tenant is not in default under any of the terms and provisions of the Lease; (b) Landlord is not in default in the performance of any of its obligations under the Lease and Tenant is unaware of any condition or circumstance which, with the giving of notice or the passage of time or both, would constitute a default by Landlord; (c) Landlord has completed, to Tenant’s satisfaction, any and all improvements to the Premises and has paid any and all allowances required of it under the Lease; and (d) Tenant has no defenses, liens, claims, counterclaims or right to offset against Landlord or against the obligations of Tenant under the Lease. Tenant acknowledges, confirms, and agrees that Tenant has no right or option to expand the Premises or to extend, renew or terminate the Lease, except as provided herein. 9. Limitation of Liability. Neither Landlord nor any officer, director, member or employee of Landlord nor any owner of the Building, whether disclosed or undisclosed, shall have any personal liability with respect to any of the provisions of the Lease, as hereby amended, or the Premises, and if Landlord is in breach or default with respect to Landlord’s obligations under the Lease, as hereby amended, or otherwise, Tenant shall look solely to the interest of Landlord in the Building for the satisfaction of Tenant’s remedies or judgments. ATTACHMENT A 10. Entire Agreement. This Fifth Amendment, in conjunction with the Lease, constitutes the entire agreement of Landlord and Tenant with respect to the subject matter hereof and supersedes all oral and written agreements and understandings made and entered into by the parties prior to the date hereof. 11. Multiple Counterparts. This Fifth Amendment may be executed in multiple counterparts, all of which, when taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment as of the Effective Date stated above. TENANT: THE CITY OF PALO ALTO, a California municipal corporation By: _____________________________ Name: Title: Approved as to form: _____________________________ Office of the City Attorney LANDLORD: THOITS BROS. INC., a California corporation By: _____________________________ Name: Title: ATTACHMENT B SECOND AMENDMENT TO SUBLEASE LEASE AGREEMENT This SECOND AMENDMENT TO SUBLEASE AGREEMENT (this “Second Amendment”) is dated as of December ___, 2016 (the “Effective Date”) by and between THOITS BROS., INC., a California corporation (“Sublandlord”) and THE CITY OF PALO ALTO, a California municipal corporation (“Subtenant”). WHEREAS, Sublandlord, as successor in interest to SurveyMonkey Inc., and Subtenant are parties to that certain Sublease Agreement dated December 14, 2011, as amended by that certain First Amendment to Sublease Agreement dated September 5, 2013 (as amended, the “Sublease”), for the lease of certain premises consisting of approximately 3,133 rentable square feet located on the second floor of the building, and commonly known as Suite 280, in the building located at 285 Hamilton Avenue, Palo Alto, California (the “Building”) as more particularly described in the Sublease (the “Premises”); and WHEREAS, Subtenant and Sublandlord have relocated the Premises in the Building from Suite 280 to Suite 200, consisting of approximately 3,991 rentable square feet, making Subtenant’s share of Operating Expenses 8.73%; WHEREAS, Sublandlord and Subtenant wish to amend certain provisions of the Sublease as further provided for herein; NOW, THEREFORE, for good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Sublandlord and Subtenant hereby agree to amend the Sublease as follows. AGREEMENT 1. Definitions. Capitalized terms used in this Second Amendment shall have the same meaning ascribed to such capitalized terms in the Sublease, unless otherwise provided for herein. 2. Extension. The Term of the Sublease is hereby extended and shall expire on December 4, 2017. 3. Base Rent. Commencing on October 1, 2016, the Monthly Base Rent shall be payable according to the following schedule: Period Monthly Base Rent October 1, 2016 – November 30, 2016 $22,588.93 December 1, 2016 – December 4, 2017 $23,266.60 4. Renewal. Sublandlord shall have the right and option to extend the Term hereof for one (1) additional twenty-four (24) month period (the “Extension Term”) upon written notice to ATTACHMENT B Subtenant given not less than six (6) months and not more than nine (9) months prior to the Sublease expiration date. In the event that Sublandlord exercises the option granted hereunder, the Extension Term shall be upon the same terms and conditions as are in effect under this Sublease immediately preceding the commencement of such Extension Term except that the Base Rent due from the Subtenant shall be increased at the same rate as provided herein. 5. Real Estate Brokers. Subtenant represents to Sublandlord that Subtenant did not involve any broker in procuring this Second Amendment. Subtenant hereby agrees to (A) forever indemnify, defend and hold Sublandlord harmless from and against any commissions, liability, loss, cost, damage or expense (including reasonable attorneys’ fees) that may be asserted against or incurred by Sublandlord as a result of any misrepresentation by Subtenant hereunder and (B) discharge any lien placed against the Property by any broker as a result of the foregoing. 6. Governing Law. This Second Amendment shall be governed by and construed in accordance with the laws of the State of California (without regard to conflicts of law). 7. Certified Access Specialist Inspection. California Civil Code Section 1938 requires Sublandlord to notify Tenant whether the Premises has undergone inspection by a Certified Access Specialist (“CASp”). Sublandlord hereby acknowledges that the Premises has not undergone such inspection. 8. Ratification of Sublease. Except as modified hereby, all other terms and conditions of the Sublease remain unchanged and in full force and effect and are hereby ratified and confirmed by the parties hereto. Subtenant accepts the Premises in its “as is” and “where is” condition. Subtenant represents and warrants to Sublandlord that as of the date of Subtenant’s execution of this Second Amendment: (a) Subtenant is not in default under any of the terms and provisions of the Sublease; (b) Sublandlord is not in default in the performance of any of its obligations under the Sublease and Subtenant is unaware of any condition or circumstance which, with the giving of notice or the passage of time or both, would constitute a default by Sublandlord; (c) Sublandlord has completed, to Subtenant’s satisfaction, any and all improvements to the Premises and has paid any and all allowances required of it under the Sublease; and (d) Subtenant has no defenses, liens, claims, counterclaims or right to offset against Sublandlord or against the obligations of Subtenant under the Sublease. Subtenant acknowledges, confirms, and agrees that Subtenant has no right or option to expand the Premises or to extend, renew or terminate the Sublease. 9. Limitation of Liability. Neither Sublandlord nor any officer, director, member or employee of Sublandlord nor any owner of the Building, whether disclosed or undisclosed, shall have any personal liability with respect to any of the provisions of the Sublease, as hereby amended, or the Premises, and if Sublandlord is in breach or default with respect to Sublandlord’s obligations under the Sublease, as hereby amended, or otherwise, Subtenant shall look solely to the interest of Sublandlord in the Building for the satisfaction of Subtenant’s remedies or judgments. 10. Entire Agreement. This Second Amendment, in conjunction with the Sublease, constitutes the entire agreement of Sublandlord and Subtenant with respect to the subject matter hereof and supersedes all oral and written agreements and understandings made and entered into by the parties prior to the date hereof. 11. Multiple Counterparts. This Second Amendment may be executed in multiple counterparts, all of which, when taken together, shall constitute one and the same instrument. ATTACHMENT B IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the Effective Date stated above. SUBTENANT: THE CITY OF PALO ALTO, a California municipal corporation By: _____________________________ Name: Title: Approved as to form: _____________________________ Office of the City Attorney SUBLANDLORD: THOITS BROS. INC., a California corporation By: _____________________________ Name: Title: City of Palo Alto (ID # 6415) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: New Pension Reporting (GASB 68) Title: Finance Committee Recommendation for Council to Review and Accept Information on the New Government Accounting Standards Board Pension Reporting Standards Known as GASB 68 From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the Council review and accept the new Government Accounting Standards Board pension reporting standards known as GASB 68. Background The Finance Committee reviewed and discussed the GASB 68 staff report on October 20, 2015. Staff is forwarding the report to Council to review. In June 2012, the Government Accounting Standards Board (GASB) approved a new reporting statement, GASB Statement No. 68 (GASB 68), that improved the financial reporting of pensions by local governments. GASB 68, formally titled Accounting and Financial Reporting for Pensions, establishes new accounting and financial reporting standards for local governments that provide their employees with pensions. The new standard requires government agencies to report pension information to increase transparency about pension costs to help decision makers factor in the financial impact of total pension obligations. The City needed to implement GASB 68 by June 30, 2015 and the City of Palo Alto complied with this requirement with the FY2015 Comprehensive Annual Financial Report (CAFR). The net pension liability, when incorporated into the fund statements, does not create a negative financial position in any of the funds, except in the Airport Fund, where it contributes to an already negative position due to a long-term advance from the General Fund. The CAFR was presented to the Finance Committee on November 17, 2015. Attachments:  Attachment A: Staff Report 6144 (PDF)  Attachment B: 10-20-15 FCM Agenda Item 1 Excerpt (PDF) City of Palo Alto (ID # 6144) Finance Committee Staff Report Report Type: Action Items Meeting Date: 10/20/2015 City of Palo Alto Page 1 Council Priority: City Finances Summary Title: GASB68 Title: New Pension Reporting Standards Government Accounting Standards Board Statement Number 68 (GASB 68) From: City Manager Lead Department: Administrative Services Motion Staff recommends that the Finance Committee review and discuss the new Government Accounting Standards Board pension reporting standards known as GASB 68. Background In June 2012, the Government Accounting Standards Board (GASB) approved a new reporting statement, GASB Statement No. 68 (GASB 68), that improved the financial reporting of pensions by local governments. GASB 68, formally titled Accounting and Financial Reporting for Pensions, establishes new accounting and financial reporting standards for local governments that provide their employees with pensions. The new standard requires government agencies to report pension information to increase transparency about pension costs to help decision makers factor in the financial impact of total pension obligations. GASB 68 must be implemented by June 30, 2015 and the City of Palo Alto will comply with this requirement with the upcoming FY2015 Comprehensive Annual Financial Report (CAFR), which is scheduled to be presented to the Finance Committee in November, 2015. Discussion Local governments with pensions have a total pension liability, which is the obligation to pay deferred pension benefits in the future. When the total pension liability is greater than the pension plan’s assets there is a net pension liability, also known as unfunded pension liability. GASB 68 now requires governments to report their net pension liability on their government- wide financial statements, as well as in the proprietary fund statements, in the CAFR. Prior to GASB 68 the net pension liability was reported in the notes section of the CAFR. City of Palo Alto Page 2 Palo Alto’s pension liability is calculated as follows: FY15 CAFR Pension Liability % Funded Safety $ 102.8 M 72.01% Miscellaneous 187.1 M 71.80% Total Pension Liability $ 289.9 M The above figures are obtained from the CalPERS actuarial reports dated June 30, 2014 (Attached). As discussed above, instead of discussing the City’s pension liability in the Notes section of the CAFR, the pension liability figures will be presented for the first time in the FY2015 CAFR in the entity wide and separate proprietary fund schedules. The allocated net pension liability is presented below: General Fund Electric Fund Water Fund Gas Fund All Other Funds Total Net Pension Liability $197.2 $26.1 $11.0 $11.8 $43.8 $289.9 Percentage 68.0% 9.0% 4.0% 4.1% 14.9% 100.0% The pension liability will be allocated based on the employer contributions for FY2014 for the employees serving in each fund. The new GASB 68 reporting requirements will impact the CAFR on an annual go forward basis. As with past practice, the city will continue to pay the annual required contribution for the pension liabilities as identified in the annual CalPERS actuarial reports. The next set of reports, which inform the City of its FY 2017 pension payments and rates, are scheduled to be released late October/early November 2015. There will be a small discrepancy between the reports since the GASB 68 reports are based on actuarial analysis using employee census data that is two years in arrears while the October actuarial reports are based on current calendar year employee census data. City of Palo Alto Page 3 The City’s outside financial auditing firm, MGO, provided staff with guidance on how to conform to the GASB 68 requirements. MGO will provide a final opinion on the appropriateness of the GASB 68 allocation that will be presented in the FY2015 CAFR. Next Steps Starting with the FY2015 CAFR the GASB 68 pension liability figures will be presented in the CAFR on an annual basis. Council referred the unfunded pension liability issue to the Finance Committee to explore potential action steps to reduce it and stabilize the annual employer contribution (Report ID # 6074). Resource Impact The pension liability reported in the CAFR for GASB 68 purposes does not impact the budget. The City’s annual budget process will continue to use the pension liability figures that are provided by CalPERS in the actuarial valuation reports for the safety and miscellaneous plans in the October timeframe each year. The reports provide the employer contribution rate that is used to determine the annual pension cost for the City. Attachments:  Attachment A: GASB 68 Miscellaneous Plan Valuation Report (PDF)  Attachment B: GASB 68 Safety Plan Valuation Report (PDF) GASB 68 ACCOUNTING VALUATION REPORT (CalPERS ID: 6373437857) Rate Plan Identifier: 8 Prepared for the CITY OF PALO ALTO MISCELLANEOUS PLAN, an Agent Multiple-Employer Defined Benefit Pension Plan Measurement Date of June 30, 2014 TABLE OF CONTENTS Actuarial Certification 1 Introduction 2 Purpose of the Report 3 Summary of Significant Accounting Policies 4 General Information about the Pension Plan 4 Changes in the Net Pension Liability 7 Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions 9 Schedules of Required Supplementary Information 11 APPENDIX A – DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS Schedule of Differences between Expected and Actual Experience A-1 Deferred Outflows of Resources and Deferred Inflows of Resources for Differences between Expected and Actual Experience A-2 Schedule of Changes of Assumptions A-3 Deferred Outflows of Resources and Deferred Inflows of Resources for Changes of Assumptions A-4 Schedule of Differences between Projected and Actual Earnings on Pension Plan Investments A-5 Deferred Outflows of Resources and Deferred Inflows of Resources for Differences between Projected and Actual Earnings on Pension Plan Investments A-6 Summary of Recognized Deferred Outflows of Resources and Deferred Inflows of Resources A-7 APPENDIX B – INTEREST, TOTAL PROJECTED EARNINGS AND PENSION EXPENSE/(INCOME) Interest on Total Pension Liability and Total Projected Earnings B-1 Pension Expense/(Income) B-2 (CY) ACCTG PROC ID: 2700 (CY) REPORT PROC ID: 83743 (PY) ACCTG PROC ID: N/A (PY) REPORT PROC ID: N/A GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 1 ACTUARIAL CERTIFICATION This report provides disclosure and reporting information as required under Governmental Accounting Standards Board Statement 68 (GASB 68) for the MISCELLANEOUS PLAN of the CITY OF PALO ALTO (the “Plan”), an Agent Multiple-Employer Defined Benefit Pension Plan participating in the California Public Employees’ Retirement System (CalPERS), for the measurement period ended June 30, 2014. This information should be used for the fiscal year beginning after June 15, 2014 but ending on or before June 30, 2015. Determinations for purposes other than financial accounting requirements may be significantly different from the results in this report. Thus, the use of this report for purposes other than those expressed here may not be appropriate. This accounting valuation report relies on liabilities and related validation work performed by the CalPERS Actuarial Office as part of the June 30, 2013 annual funding valuation for the Plan. The census data and benefit provisions underlying the liabilities were prepared as of June 30, 2013 and certified as part of the annual funding valuation by the CalPERS Actuarial Office. The June 30, 2013 liabilities used for this accounting valuation are based on the actuarial assumptions recommended by the CalPERS Chief Actuary and adopted by the CalPERS Board in February 2014 as laid out in the 2014 report titled “CalPERS Experience Study and Review of Actuarial Assumptions.” These liabilities were validated as part of the June 30, 2013 funding valuation that included the estimated impact of the change in actuarial assumptions on contribution requirements. The undersigned is relying upon these prescribed assumptions and methods and is not able to render an opinion on their reasonability, as this would require a substantial amount of additional work beyond the scope of this report. This report also relies on asset information for the measurement period as supplied by the CalPERS Financial Office. The fiduciary net position as of June 30, 2014, and the changes in net position for the year then ended were audited by CalPERS’ independent auditors, Macias Gini & O’Connell LLP, as part of the audit of the Schedule of Changes in Fiduciary Net Position by Employer Rate Plan of CalPERS Agent Multiple-Employer Pension Plan. With the provided liability and asset information, the total pension liability, net pension liability and pension expense were developed for the measurement period using standard actuarial techniques. In addition, the results are based on CalPERS’ understanding of the financial accounting and reporting requirements under U.S. Generally Accepted Accounting Principles as set forth in GASB 68. The information in this report is not intended to supersede the advice and interpretations of the employer’s auditor. This report may not provide all the information necessary to complete the required disclosures under GASB 68. The employer should supplement and update the information in this report with its own financial data as necessary to complete the disclosure information required by GASB 68. The undersigned is familiar with the near-term and long-term aspects of pension valuations and meets the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinions contained herein. The information provided in this report is dependent upon various factors as documented throughout this report, which may be subject to change. Each section of this report is considered to be an integral part of the actuarial opinions. HENRY NEEB, ASA, MAAA GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 2 Introduction This is the GASB 68 Accounting Valuation Report to be used for your fiscal year beginning after June 15, 2014 and ending on or before June 30, 2015 for your MISCELLANEOUS PLAN (Plan). GASB Statement No. 68 replaced the requirements of GASB 27 effective for fiscal years beginning after June 15, 2014. Statement 68 was issued by GASB in June 2012, requiring public employers to comply with new accounting and financial reporting standards. Statement 68 outlines a different approach to the recognition and calculation of pension obligations. Under the new GASB standards, employers that participate in a defined benefit pension plan administered as a trust or equivalent arrangement are required to record the net pension liability, pension expense, and deferred outflows/deferred inflows of resources related to pensions in their financial statements as part of their financial position. Net pension liability is the plan’s total pension liability based on entry age normal actuarial cost method less the plan’s fiduciary net position. This may be a negative liability (net pension asset). Pension expense is the change in net pension liability from the previous fiscal year to the current fiscal year less adjustments. This may be a negative expense (pension income). Deferred outflows and deferred inflows of resources related to pensions are certain changes in total pension liability and fiduciary net position that are to be recognized in future pension expense. This report may not provide all the information necessary to complete the required disclosures under GASB 68. The employer should supplement and update the information in this report with its own financial data as necessary to complete the disclosure information required by GASB 68. For example, no adjustments have been made for contributions subsequent to the measurement date. Appropriate accounting treatment of any contributions made after the measurement date is the responsibility of the employer. CalPERS recommends that the employer consult with its auditor regarding any such adjustments. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 3 Purpose of the Report The Plan participates in the CalPERS agent multiple-employer defined benefit pension plan. This GASB 68 report provides accounting and financial reporting for pensions, to be used in the employer’s financial reports. The pension expense is for the measurement period of 2013-14 and the net pension liability is measured as of June 30, 2014. Liabilities are based on the results of the actuarial calculations performed as of June 30, 2013 and were rolled forward to June 30, 2014. Fiduciary net position is based on fair value of investments as of June 30, 2014. Since GASB 68 allows a measurement date of up to 12 months before the employer’s fiscal year-end, this report can be used for fiscal years beginning after June 15, 2014 and ending on or before June 30, 2015. The following pension information is disclosed in this report:  Summary of Significant Accounting Policies  General Information about the Pension Plan ○ Plan Description, Benefits Provided and Employees Covered ○ Contribution Description ○ Actuarial Methods and Assumptions ○ Discount Rate ○ Pension Plan Fiduciary Net Position  Changes in the Net Pension Liability ○ Sensitivity of the Net Pension Liability ○ Subsequent Events ○ Recognition of Gains and Losses  Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions  Schedules of Required Supplementary Information (10-Year History1): ○ Schedule of Changes in Net Pension Liability and Related Ratios ○ Schedule of Plan Contributions The use of this report for other purposes may be inappropriate. 1 Historical information is required only for measurement periods for which GASB 68 is applicable. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 4 Summary of Significant Accounting Policies For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the CalPERS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. GASB 68 requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used. Valuation Date (VD) June 30, 2013 Measurement Date (MD) June 30, 2014 Measurement Period (MP) July 1, 2013 to June 30, 2014 General Information about the Pension Plan Plan Description, Benefits Provided and Employees Covered The Plan is an agent multiple-employer defined benefit pension plan administered by the California Public Employees’ Retirement System (CalPERS). A full description of the pension plan regarding number of employees covered, benefit provisions, assumptions (for funding, but not accounting purposes), and membership information are listed in the June 30, 2013 Annual Actuarial Valuation Report. Details of the benefits provided can be obtained in Appendix B of the actuarial valuation report. This report and CalPERS’ audited financial statements are publicly available reports that can be obtained at CalPERS’ website under Forms and Publications. Contribution Description Section 20814(c) of the California Public Employees’ Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2014 (the measurement date), the average active employee contribution rate is 7.796 percent of annual pay, and the employer’s contribution rate is 25.536 percent of annual payroll. Employer contribution rates may change if plan contracts are amended. It is the responsibility of the employer to make necessary accounting adjustments to reflect the impact due to any Employer Paid Member Contributions or situations where members are paying a portion of the employer contribution. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 5 Actuarial Methods and Assumptions Used to Determine Total Pension Liability For the measurement period ended June 30, 2014 (the measurement date), the total pension liability was determined by rolling forward the June 30, 2013 total pension liability. The June 30, 2013 and the June 30, 2014 total pension liabilities were based on the following actuarial methods and assumptions: Actuarial Cost Method Entry Age Normal in accordance with the requirements of GASB Statement No. 68 Actuarial Assumptions Discount Rate 7.50% Inflation 2.75% Salary Increases Varies by Entry Age and Service Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative Expenses; includes Inflation Mortality Rate Table1 Derived using CalPERS’ Membership Data for all Funds Post Retirement Benefit Increase Contract COLA up to 2.75% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.75% thereafter 1 The mortality table used was developed based on CalPERS’ specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the 2014 experience study report. All other actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at CalPERS’ website under Forms and Publications. Discount Rate The discount rate used to measure the total pension liability was 7.50 percent. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.50 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 7.50 percent is applied to all plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained at CalPERS’ website under the GASB 68 section. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.50 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower discount rate has resulted in a slightly higher total pension liability and net pension liability. This difference was deemed immaterial to the agent multiple-employer plan. However, employers may determine the impact at the rate plan level for their own financial reporting purposes. Refer to page 8 of this report, which provides information on the sensitivity of the net pension liability to changes in the discount rate. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 6 CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the 2017-18 fiscal year. CalPERS will continue to check the materiality of the difference in calculation until such time as we have changed our methodology. The long-term expected rate of return on pension plan investments was determined using a building- block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, staff took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These geometric rates of return are net of administrative expenses. Asset Class New Strategic Allocation Real Return Years 1 - 101 Real Return Years 11+2 Global Equity 47.0% 5.25% 5.71% Global Fixed Income 19.0 0.99 2.43 Inflation Sensitive 6.0 0.45 3.36 Private Equity 12.0 6.83 6.95 Real Estate 11.0 4.50 5.13 Infrastructure and Forestland 3.0 4.50 5.09 Liquidity 2.0 (0.55) (1.05) 1An expected inflation of 2.5% used for this period 2An expected inflation of 3.0% used for this period Pension Plan Fiduciary Net Position The plan fiduciary net position disclosed in your GASB 68 accounting valuation report may differ from the plan assets reported in your funding actuarial valuation report due to several reasons. First, for the accounting valuations, CalPERS must keep items such as deficiency reserves, fiduciary self- insurance and OPEB expense included as assets. These amounts are excluded for rate setting purposes in your funding actuarial valuation. In addition, differences may result from early Comprehensive Annual Financial Report closing and final reconciled reserves. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 7 Changes in the Net Pension Liability The following table shows the changes in net pension liability recognized over the measurement period. Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) (a) (b) (c) = (a) - (b) Balance at: 6/30/2013 (VD)1 $ 635,847,037 $ 413,410,472 $ 222,436,565 Changes Recognized for the Measurement Period:  Service Cost 12,441,595 12,441,595  Interest on the Total Pension Liability 46,963,318 46,963,318  Changes of Benefit Terms 0 0  Differences between Expected and Actual Experience 0 0  Changes of Assumptions 0 0  Contributions from the Employer 17,399,732 (17,399,732)  Contributions from Employees 6,344,660 (6,344,660)  Net Investment Income2 70,988,848 (70,988,848)  Benefit Payments, including Refunds of Employee Contributions (31,780,533) (31,780,533) 0 Net Changes during 2013-14 $ 27,624,380 $ 62,952,707 $ (35,328,327) Balance at: 6/30/2014 (MD)1 $ 663,471,417 $ 476,363,179 $ 187,108,238 1 The fiduciary net position includes receivables for employee service buybacks, deficiency reserves, fiduciary self-insurance and OPEB expense. As described on Page 6, this may differ from the plan assets reported in the funding actuarial valuation report. 2 Net of administrative expenses. For details, see note in Appendix B-2. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 8 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the Plan as of the measurement date, calculated using the discount rate of 7.50 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower (6.50 percent) or 1 percentage-point higher (8.50 percent) than the current rate: Discount Rate - 1% (6.50%) Current Discount Rate (7.50%) Discount Rate + 1% (8.50%) Plan's Net Pension Liability/(Asset) $ 269,622,616 $ 187,108,238 $ 118,202,943 Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. Recognition of Gains and Losses Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss: Difference between projected and actual earnings 5 year straight-line amortization All other amounts Straight-line amortization over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period The expected average remaining service lifetime (EARSL) is calculated by dividing the total future service years by the total number of plan participants (active, inactive, and retired). The EARSL for the Plan for the 2013-14 measurement period is 3.1 years, which was obtained by dividing the total service years of 7,375 (the sum of remaining service lifetimes of the active employees) by 2,407 (the total number of participants: active, inactive, and retired). Note that inactive employees and retirees have remaining service lifetimes equal to 0. Also note that total future service is based on the members’ probability of decrementing due to an event other than receiving a cash refund. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 9 Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions Paragraph 137 of GASB 68 and Questions 267 and 268 of the GASB 68 Implementation Guide set forth guidance on implementing the standard. The employer should use this guidance for the adjusting entries concerning the net pension obligation and the initial net pension liability/(asset). As of the start of the measurement period (July 1, 2013), the net pension liability/(asset) is $222,436,565. For the measurement period ending June 30, 2014 (the measurement date), the CITY OF PALO ALTO incurred a pension expense/(income) of $14,484,819 for the Plan (see Appendix B-2 for the complete breakdown of the pension expense). Note that no adjustments have been made for contributions subsequent to the measurement date. Adequate treatment of any contributions made after the measurement date is the responsibility of the employer. As of June 30, 2014, the CITY OF PALO ALTO has deferred outflows and deferred inflows of resources related to pensions as follows: Deferred Outflows of Resources Deferred Inflows of Resources Differences between Expected and Actual Experience $ 0 $ 0 Changes of Assumptions 0 0 Net Difference between Projected and Actual Earnings on Pension Plan Investments 0 (32,413,414) Total $ 0 $ (32,413,414) The amounts above are net of outflows and inflows recognized in the 2013-14 measurement period expense. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 10 Amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as follows: Measurement Period Ended June 30: Deferred Outflows/(Inflows) of Resources 2015 $ (8,103,353) 2016 (8,103,353) 2017 (8,103,353) 2018 (8,103,355) 2019 0 Thereafter 0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 11 Schedules of Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios During the Measurement Period 1 Historical information is required only for measurement periods for which GASB 68 is applicable. 2 Net of administrative expenses. For details, see note in Appendix B-2. Notes to Schedule: Benefit Changes: The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2013. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). Changes of Assumptions: There were no changes in assumptions. Measurement Period 2013-141 TOTAL PENSION LIABILITY Service Cost $ 12,441,595 Interest 46,963,318 Changes of Benefit Terms 0 Difference Between Expected and Actual Experience 0 Changes of Assumptions 0 Benefit Payments, Including Refunds of Employee Contributions (31,780,533) Net Change in Total Pension Liability 27,624,380 Total Pension Liability – Beginning 635,847,037 Total Pension Liability – Ending (a) $ 663,471,417 PLAN FIDUCIARY NET POSITION Contributions – Employer $ 17,399,732 Contributions – Employee 6,344,660 Net Investment Income2 70,988,848 Benefit Payments, Including Refunds of Employee Contributions (31,780,533) Other Changes in Fiduciary Net Position 0 Net Change in Fiduciary Net Position 62,952,707 Plan Fiduciary Net Position – Beginning 413,410,472 Plan Fiduciary Net Position – Ending (b) $ 476,363,179 Plan Net Pension Liability/(Asset) – Ending (a) - (b) $ 187,108,238 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 71.80% Covered-Employee Payroll $ 66,372,870 Plan Net Pension Liability/(Asset) as a Percentage of Covered-Employee Payroll 281.90% GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 12 Schedule of Plan Contributions1 Fiscal Year 2013-14 Actuarially Determined Contribution2 $ 17,399,732 Contributions in Relation to the Actuarially Determined Contribution2 (17,399,732) Contribution Deficiency (Excess) $ 0 Covered-Employee Payroll3, 4 $ 66,372,870 Contributions as a Percentage of Covered-Employee Payroll3 26.22% 1 Historical information is required only for measurement periods for which GASB 68 is applicable. 2 Employers are assumed to make contributions equal to the actuarially determined contributions. However, some employers may choose to make additional contributions towards their unfunded liability. Employer contributions for such plans exceed the actuarially determined contributions. 3 Covered-Employee Payroll represented above is based on pensionable earnings provided by the employer. However, GASB 68 defines covered-employee payroll as the total payroll of employees that are provided pensions through the pension plan. Accordingly, if pensionable earnings are different than total earnings for covered-employees, the employer should display in the disclosure footnotes the payroll based on total earnings for the covered group and recalculate the required payroll-related ratios. 4 Payroll from prior year $64,439,680 was assumed to increase by the 3.00 percent payroll growth assumption. Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2013-14 were from the June 30, 2011 public agency valuations. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details, see June 30, 2011 Funding Valuation Report. Asset Valuation Method Actuarial Value of Assets. For details, see June 30, 2011 Funding Valuation Report. Inflation 2.75% Salary Increases Varies by Entry Age and Service Payroll Growth 3.00% Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative Expenses; includes Inflation. Retirement Age The probabilities of Retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007. Mortality The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007. Pre- retirement and Post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. APPENDICES  APPENDIX A – DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS  APPENDIX B – INTEREST, TOTAL PROJECTED EARNINGS AND PENSION EXPENSE/(INCOME) APPENDIX A DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS  SCHEDULE OF DIFFERENCES BETWEEN EXPECTED AND ACTUAL EXPERIENCE  DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES FOR DIFFERENCES BETWEEN EXPECTED AND ACTUAL EXPERIENCE  SCHEDULE OF CHANGES OF ASSUMPTIONS  DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES FOR CHANGES OF ASSUMPTIONS  SCHEDULE OF DIFFERENCES BETWEEN PROJECTED AND ACTUAL EARNINGS ON PENSION PLAN INVESTMENTS  DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES FOR DIFFERENCES BETWEEN PROJECTED AND ACTUAL EARNINGS ON PENSION PLAN INVESTMENTS  SUMMARY OF RECOGNIZED DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-1 Schedule of differences between expected and actual experience Increase (Decrease) in Pension Expense Arising from the Recognition of the Effects of Differences between Expected and Actual Experience (Measurement Periods) Measurement Period Differences between Expected and Actual Experience Recognition Period (Years) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Thereafter 2013-14 $0 3.1 $0 $0 $0 $0 $0 $0 $0 Net Increase (Decrease) in Pension Expense $0 $0 $0 $0 $0 $0 $0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-2 Deferred outflows of resources and deferred inflows of resources arising from differences between expected and actual experience Balances at June 30, 2014 Measurement Period Experience Losses Experience Gains Amounts Recognized in Pension Expense through June 30, 2014 Deferred Outflows of Resources Deferred Inflows of Resources (a) (b) (c) (a) - (c) (b) - (c) 2013-14 $0 $0 $0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-3 Schedule of changes of assumptions Increase (Decrease) in Pension Expense Arising from the Recognition of the Effects of Changes of Assumptions (Measurement Periods) Measurement Period Changes of Assumptions Recognition Period (Years) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Thereafter 2013-14 $0 3.1 $0 $0 $0 $0 $0 $0 $0 Net Increase (Decrease) in Pension Expense $0 $0 $0 $0 $0 $0 $0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-4 Deferred outflows of resources and deferred inflows of resources arising from changes of assumptions Balances at June 30, 2014 Measurement Period Increase in Total Pension Liability Decrease in Total Pension Liability Amounts Recognized in Pension Expense through June 30, 2014 Deferred Outflows of Resources Deferred Inflows of Resources (a) (b) (c) (a) - (c) (b) - (c) 2013-14 $0 $0 $0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-5 Schedule of differences between projected and actual earnings on pension plan investments Increase (Decrease) in Pension Expense Arising from the Recognition of Differences between Projected and Actual Earnings on Pension Plan Investments (Measurement Periods) Measurement Period Differences between Projected and Actual Earnings on Pension Plan Investments Recognition Period (Years) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Thereafter 2013-14 $(40,516,767) 5.0 $(8,103,353) $(8,103,353) $(8,103,353) $(8,103,353) $(8,103,355) $0 $0 Net Increase (Decrease) in Pension Expense $(8,103,353) $(8,103,353) $(8,103,353) $(8,103,353) $(8,103,355) $0 $0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-6 Deferred outflows of resources and deferred inflows of resources arising from differences between projected and actual earnings on pension plan investments Balances at June 30, 2014 Measurement Period Investment Earnings less than Projected Investment Earnings greater than Projected Amounts Recognized in Pension Expense through June 30, 2014 Deferred Outflows of Resources Deferred Inflows of Resources (a) (b) (c) (a) - (c) (b) - (c) 2013-14 $(40,516,767) $(8,103,353) $(32,413,414) $0 $(32,413,414) GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-7 Summary of recognized deferred outflows of resources and deferred inflows of resources Net Increase (Decrease) in Pension Expense (Measurement Periods) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Thereafter Differences between Expected and Actual Experience $0 $0 $0 $0 $0 $0 $0 Changes of Assumptions 0 0 0 0 0 0 0 Differences between Projected and Actual Earnings on Pension Plan Investments (8,103,353) (8,103,353) (8,103,353) (8,103,353) (8,103,355) 0 0 Grand Total $(8,103,353) $(8,103,353) $(8,103,353) $(8,103,353) $(8,103,355) $0 $0 APPENDIX B INTEREST, TOTAL PROJECTED EARNINGS AND PENSION EXPENSE/(INCOME)  INTEREST ON TOTAL PENSION LIABILITY AND TOTAL PROJECTED EARNINGS  PENSION EXPENSE/(INCOME) GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 B-1 Interest on Total Pension Liability and Total Projected Earnings Interest on the Total Pension Liability Amount for Period Portion of Period Interest Rate Interest on the Total Pension Liability (a) (b) (c) (a) X (b) X (c) Beginning Total Pension Liability $ 635,847,037 100% 7.5% $ 47,688,528 Service Cost 12,441,595 50% 7.5% 466,560 Benefit Payments, including Refunds of Employee Contributions (31,780,533) 50% 7.5% (1,191,770) Total Interest on the Total Pension Liability $ 46,963,318 Projected Earnings on Pension Plan Investments Amount for Period Portion of Period Projected Rate of Return Projected Earnings (a) (b) (c) (a) X (b) X (c) Beginning Plan Fiduciary Net Position excluding Receivables1 $ 410,312,475 100% 7.5% $ 30,773,436 Employer Contributions 17,399,732 50% 7.5% 652,490 Employee Contributions 6,344,660 50% 7.5% 237,925 Benefit Payments, including Refunds of Employee Contributions (31,780,533) 50% 7.5% (1,191,770) Total Projected Earnings $ 30,472,081 1 Contributions receivable for employee service buybacks, totaling $3,097,997 as of June 30, 2013, are excluded for purposes of calculating projected earnings on pension plan investments. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – MISCELLANEOUS PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 B-2 Pension Expense/(Income) for Measurement Period Ended June 30, 2014 Description Amount Service Cost $ 12,441,595 Interest on the Total Pension Liability 46,963,318 Changes of Benefit Terms 0 Recognized Differences between Expected and Actual Experience 0 Recognized Changes of Assumptions 0 Employee Contributions (6,344,660) Projected Earnings on Pension Plan Investments (30,472,081) Recognized Differences between Projected and Actual Earnings on Plan Investments (8,103,353) Other Changes in Fiduciary Net Position 0 Total Pension Expense/(Income) $ 14,484,819 Note: Plan administrative expenses are not displayed in the above pension expense table. Since the expected investment return of 7.50 percent is net of administrative expenses, administrative expenses are excluded from the above table, but implicitly included as part of investment earnings. GASB 68 ACCOUNTING VALUATION REPORT (CalPERS ID: 6373437857) Rate Plan Identifier: 5080 Prepared for the CITY OF PALO ALTO SAFETY PLAN, an Agent Multiple-Employer Defined Benefit Pension Plan Measurement Date of June 30, 2014 TABLE OF CONTENTS Actuarial Certification 1 Introduction 2 Purpose of the Report 3 Summary of Significant Accounting Policies 4 General Information about the Pension Plan 4 Changes in the Net Pension Liability 7 Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions 9 Schedules of Required Supplementary Information 11 APPENDIX A – DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS Schedule of Differences between Expected and Actual Experience A-1 Deferred Outflows of Resources and Deferred Inflows of Resources for Differences between Expected and Actual Experience A-2 Schedule of Changes of Assumptions A-3 Deferred Outflows of Resources and Deferred Inflows of Resources for Changes of Assumptions A-4 Schedule of Differences between Projected and Actual Earnings on Pension Plan Investments A-5 Deferred Outflows of Resources and Deferred Inflows of Resources for Differences between Projected and Actual Earnings on Pension Plan Investments A-6 Summary of Recognized Deferred Outflows of Resources and Deferred Inflows of Resources A-7 APPENDIX B – INTEREST, TOTAL PROJECTED EARNINGS AND PENSION EXPENSE/(INCOME) Interest on Total Pension Liability and Total Projected Earnings B-1 Pension Expense/(Income) B-2 (CY) ACCTG PROC ID: 2701 (CY) REPORT PROC ID: 83744 (PY) ACCTG PROC ID: N/A (PY) REPORT PROC ID: N/A GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 1 ACTUARIAL CERTIFICATION This report provides disclosure and reporting information as required under Governmental Accounting Standards Board Statement 68 (GASB 68) for the SAFETY PLAN of the CITY OF PALO ALTO (the “Plan”), an Agent Multiple-Employer Defined Benefit Pension Plan participating in the California Public Employees’ Retirement System (CalPERS), for the measurement period ended June 30, 2014. This information should be used for the fiscal year beginning after June 15, 2014 but ending on or before June 30, 2015. Determinations for purposes other than financial accounting requirements may be significantly different from the results in this report. Thus, the use of this report for purposes other than those expressed here may not be appropriate. This accounting valuation report relies on liabilities and related validation work performed by the CalPERS Actuarial Office as part of the June 30, 2013 annual funding valuation for the Plan. The census data and benefit provisions underlying the liabilities were prepared as of June 30, 2013 and certified as part of the annual funding valuation by the CalPERS Actuarial Office. The June 30, 2013 liabilities used for this accounting valuation are based on the actuarial assumptions recommended by the CalPERS Chief Actuary and adopted by the CalPERS Board in February 2014 as laid out in the 2014 report titled “CalPERS Experience Study and Review of Actuarial Assumptions.” These liabilities were validated as part of the June 30, 2013 funding valuation that included the estimated impact of the change in actuarial assumptions on contribution requirements. The undersigned is relying upon these prescribed assumptions and methods and is not able to render an opinion on their reasonability, as this would require a substantial amount of additional work beyond the scope of this report. This report also relies on asset information for the measurement period as supplied by the CalPERS Financial Office. The fiduciary net position as of June 30, 2014, and the changes in net position for the year then ended were audited by CalPERS’ independent auditors, Macias Gini & O’Connell LLP, as part of the audit of the Schedule of Changes in Fiduciary Net Position by Employer Rate Plan of CalPERS Agent Multiple-Employer Pension Plan. With the provided liability and asset information, the total pension liability, net pension liability and pension expense were developed for the measurement period using standard actuarial techniques. In addition, the results are based on CalPERS’ understanding of the financial accounting and reporting requirements under U.S. Generally Accepted Accounting Principles as set forth in GASB 68. The information in this report is not intended to supersede the advice and interpretations of the employer’s auditor. This report may not provide all the information necessary to complete the required disclosures under GASB 68. The employer should supplement and update the information in this report with its own financial data as necessary to complete the disclosure information required by GASB 68. The undersigned is familiar with the near-term and long-term aspects of pension valuations and meets the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinions contained herein. The information provided in this report is dependent upon various factors as documented throughout this report, which may be subject to change. Each section of this report is considered to be an integral part of the actuarial opinions. DAVID CLEMENT, ASA, MAAA, EA Senior Pension Actuary, CalPERS GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 2 Introduction This is the GASB 68 Accounting Valuation Report to be used for your fiscal year beginning after June 15, 2014 and ending on or before June 30, 2015 for your SAFETY PLAN (Plan). GASB Statement No. 68 replaced the requirements of GASB 27 effective for fiscal years beginning after June 15, 2014. Statement 68 was issued by GASB in June 2012, requiring public employers to comply with new accounting and financial reporting standards. Statement 68 outlines a different approach to the recognition and calculation of pension obligations. Under the new GASB standards, employers that participate in a defined benefit pension plan administered as a trust or equivalent arrangement are required to record the net pension liability, pension expense, and deferred outflows/deferred inflows of resources related to pensions in their financial statements as part of their financial position. Net pension liability is the plan’s total pension liability based on entry age normal actuarial cost method less the plan’s fiduciary net position. This may be a negative liability (net pension asset). Pension expense is the change in net pension liability from the previous fiscal year to the current fiscal year less adjustments. This may be a negative expense (pension income). Deferred outflows and deferred inflows of resources related to pensions are certain changes in total pension liability and fiduciary net position that are to be recognized in future pension expense. This report may not provide all the information necessary to complete the required disclosures under GASB 68. The employer should supplement and update the information in this report with its own financial data as necessary to complete the disclosure information required by GASB 68. For example, no adjustments have been made for contributions subsequent to the measurement date. Appropriate accounting treatment of any contributions made after the measurement date is the responsibility of the employer. CalPERS recommends that the employer consult with its auditor regarding any such adjustments. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 3 Purpose of the Report The Plan participates in the CalPERS agent multiple-employer defined benefit pension plan. This GASB 68 report provides accounting and financial reporting for pensions, to be used in the employer’s financial reports. The pension expense is for the measurement period of 2013-14 and the net pension liability is measured as of June 30, 2014. Liabilities are based on the results of the actuarial calculations performed as of June 30, 2013 and were rolled forward to June 30, 2014. Fiduciary net position is based on fair value of investments as of June 30, 2014. Since GASB 68 allows a measurement date of up to 12 months before the employer’s fiscal year-end, this report can be used for fiscal years beginning after June 15, 2014 and ending on or before June 30, 2015. The following pension information is disclosed in this report:  Summary of Significant Accounting Policies  General Information about the Pension Plan ○ Plan Description, Benefits Provided and Employees Covered ○ Contribution Description ○ Actuarial Methods and Assumptions ○ Discount Rate ○ Pension Plan Fiduciary Net Position  Changes in the Net Pension Liability ○ Sensitivity of the Net Pension Liability ○ Subsequent Events ○ Recognition of Gains and Losses  Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions  Schedules of Required Supplementary Information (10-Year History1): ○ Schedule of Changes in Net Pension Liability and Related Ratios ○ Schedule of Plan Contributions The use of this report for other purposes may be inappropriate. 1 Historical information is required only for measurement periods for which GASB 68 is applicable. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 4 Summary of Significant Accounting Policies For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the CalPERS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. GASB 68 requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used. Valuation Date (VD) June 30, 2013 Measurement Date (MD) June 30, 2014 Measurement Period (MP) July 1, 2013 to June 30, 2014 General Information about the Pension Plan Plan Description, Benefits Provided and Employees Covered The Plan is an agent multiple-employer defined benefit pension plan administered by the California Public Employees’ Retirement System (CalPERS). A full description of the pension plan regarding number of employees covered, benefit provisions, assumptions (for funding, but not accounting purposes), and membership information are listed in the June 30, 2013 Annual Actuarial Valuation Report. Details of the benefits provided can be obtained in Appendix B of the actuarial valuation report. This report and CalPERS’ audited financial statements are publicly available reports that can be obtained at CalPERS’ website under Forms and Publications. Contribution Description Section 20814(c) of the California Public Employees’ Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2014 (the measurement date), the average active employee contribution rate is 9.029 percent of annual pay, and the employer’s contribution rate is 34.716 percent of annual payroll. Employer contribution rates may change if plan contracts are amended. It is the responsibility of the employer to make necessary accounting adjustments to reflect the impact due to any Employer Paid Member Contributions or situations where members are paying a portion of the employer contribution. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 5 Actuarial Methods and Assumptions Used to Determine Total Pension Liability For the measurement period ended June 30, 2014 (the measurement date), the total pension liability was determined by rolling forward the June 30, 2013 total pension liability. The June 30, 2013 and the June 30, 2014 total pension liabilities were based on the following actuarial methods and assumptions: Actuarial Cost Method Entry Age Normal in accordance with the requirements of GASB Statement No. 68 Actuarial Assumptions Discount Rate 7.50% Inflation 2.75% Salary Increases Varies by Entry Age and Service Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative Expenses; includes Inflation Mortality Rate Table1 Derived using CalPERS’ Membership Data for all Funds Post Retirement Benefit Increase Contract COLA up to 2.75% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.75% thereafter 1 The mortality table used was developed based on CalPERS’ specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the 2014 experience study report. All other actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at CalPERS’ website under Forms and Publications. Discount Rate The discount rate used to measure the total pension liability was 7.50 percent. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.50 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 7.50 percent is applied to all plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained at CalPERS’ website under the GASB 68 section. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.50 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower discount rate has resulted in a slightly higher total pension liability and net pension liability. This difference was deemed immaterial to the agent multiple-employer plan. However, employers may determine the impact at the rate plan level for their own financial reporting purposes. Refer to page 8 of this report, which provides information on the sensitivity of the net pension liability to changes in the discount rate. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 6 CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the 2017-18 fiscal year. CalPERS will continue to check the materiality of the difference in calculation until such time as we have changed our methodology. The long-term expected rate of return on pension plan investments was determined using a building- block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, staff took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These geometric rates of return are net of administrative expenses. Asset Class New Strategic Allocation Real Return Years 1 - 101 Real Return Years 11+2 Global Equity 47.0% 5.25% 5.71% Global Fixed Income 19.0 0.99 2.43 Inflation Sensitive 6.0 0.45 3.36 Private Equity 12.0 6.83 6.95 Real Estate 11.0 4.50 5.13 Infrastructure and Forestland 3.0 4.50 5.09 Liquidity 2.0 (0.55) (1.05) 1An expected inflation of 2.5% used for this period 2An expected inflation of 3.0% used for this period Pension Plan Fiduciary Net Position The plan fiduciary net position disclosed in your GASB 68 accounting valuation report may differ from the plan assets reported in your funding actuarial valuation report due to several reasons. First, for the accounting valuations, CalPERS must keep items such as deficiency reserves, fiduciary self- insurance and OPEB expense included as assets. These amounts are excluded for rate setting purposes in your funding actuarial valuation. In addition, differences may result from early Comprehensive Annual Financial Report closing and final reconciled reserves. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 7 Changes in the Net Pension Liability The following table shows the changes in net pension liability recognized over the measurement period. Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) (a) (b) (c) = (a) - (b) Balance at: 6/30/2013 (VD)1 $ 355,054,289 $ 234,152,906 $ 120,901,383 Changes Recognized for the Measurement Period:  Service Cost 6,221,042 6,221,042  Interest on the Total Pension Liability 26,112,921 26,112,921  Changes of Benefit Terms 0 0  Differences between Expected and Actual Experience 0 0  Changes of Assumptions 0 0  Contributions from the Employer 7,615,779 (7,615,779)  Contributions from Employees 2,762,215 (2,762,215)  Net Investment Income2 40,033,488 (40,033,488)  Benefit Payments, including Refunds of Employee Contributions (19,985,106) (19,985,106) 0 Net Changes during 2013-14 $ 12,348,857 $ 30,426,376 $ (18,077,519) Balance at: 6/30/2014 (MD)1 $ 367,403,146 $ 264,579,282 $ 102,823,864 1 The fiduciary net position includes receivables for employee service buybacks, deficiency reserves, fiduciary self-insurance and OPEB expense. As described on Page 6, this may differ from the plan assets reported in the funding actuarial valuation report. 2 Net of administrative expenses. For details, see note in Appendix B-2. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 8 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the Plan as of the measurement date, calculated using the discount rate of 7.50 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower (6.50 percent) or 1 percentage-point higher (8.50 percent) than the current rate: Discount Rate - 1% (6.50%) Current Discount Rate (7.50%) Discount Rate + 1% (8.50%) Plan's Net Pension Liability/(Asset) $ 148,419,847 $ 102,823,864 $ 64,946,625 Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. Recognition of Gains and Losses Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss: Difference between projected and actual earnings 5 year straight-line amortization All other amounts Straight-line amortization over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period The expected average remaining service lifetime (EARSL) is calculated by dividing the total future service years by the total number of plan participants (active, inactive, and retired). The EARSL for the Plan for the 2013-14 measurement period is 3.3 years, which was obtained by dividing the total service years of 2,232 (the sum of remaining service lifetimes of the active employees) by 676 (the total number of participants: active, inactive, and retired). Note that inactive employees and retirees have remaining service lifetimes equal to 0. Also note that total future service is based on the members’ probability of decrementing due to an event other than receiving a cash refund. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 9 Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions Paragraph 137 of GASB 68 and Questions 267 and 268 of the GASB 68 Implementation Guide set forth guidance on implementing the standard. The employer should use this guidance for the adjusting entries concerning the net pension obligation and the initial net pension liability/(asset). As of the start of the measurement period (July 1, 2013), the net pension liability/(asset) is $120,901,383. For the measurement period ending June 30, 2014 (the measurement date), the CITY OF PALO ALTO incurred a pension expense/(income) of $7,861,040 for the Plan (see Appendix B-2 for the complete breakdown of the pension expense). Note that no adjustments have been made for contributions subsequent to the measurement date. Adequate treatment of any contributions made after the measurement date is the responsibility of the employer. As of June 30, 2014, the CITY OF PALO ALTO has deferred outflows and deferred inflows of resources related to pensions as follows: Deferred Outflows of Resources Deferred Inflows of Resources Differences between Expected and Actual Experience $ 0 $ 0 Changes of Assumptions 0 0 Net Difference between Projected and Actual Earnings on Pension Plan Investments 0 (18,322,780) Total $ 0 $ (18,322,780) The amounts above are net of outflows and inflows recognized in the 2013-14 measurement period expense. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 10 Amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as follows: Measurement Period Ended June 30: Deferred Outflows/(Inflows) of Resources 2015 $ (4,580,695) 2016 (4,580,695) 2017 (4,580,695) 2018 (4,580,695) 2019 0 Thereafter 0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 11 Schedules of Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios During the Measurement Period 1 Historical information is required only for measurement periods for which GASB 68 is applicable. 2 Net of administrative expenses. For details, see note in Appendix B-2. Notes to Schedule: Benefit Changes: The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2013. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). Changes of Assumptions: There were no changes in assumptions. Measurement Period 2013-141 TOTAL PENSION LIABILITY Service Cost $ 6,221,042 Interest 26,112,921 Changes of Benefit Terms 0 Difference Between Expected and Actual Experience 0 Changes of Assumptions 0 Benefit Payments, Including Refunds of Employee Contributions (19,985,106) Net Change in Total Pension Liability 12,348,857 Total Pension Liability – Beginning 355,054,289 Total Pension Liability – Ending (a) $ 367,403,146 PLAN FIDUCIARY NET POSITION Contributions – Employer $ 7,615,779 Contributions – Employee 2,762,215 Net Investment Income2 40,033,488 Benefit Payments, Including Refunds of Employee Contributions (19,985,106) Other Changes in Fiduciary Net Position 0 Net Change in Fiduciary Net Position 30,426,376 Plan Fiduciary Net Position – Beginning 234,152,906 Plan Fiduciary Net Position – Ending (b) $ 264,579,282 Plan Net Pension Liability/(Asset) – Ending (a) - (b) $ 102,823,864 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 72.01% Covered-Employee Payroll $ 21,895,824 Plan Net Pension Liability/(Asset) as a Percentage of Covered-Employee Payroll 469.60% GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 Page 12 Schedule of Plan Contributions1 Fiscal Year 2013-14 Actuarially Determined Contribution2 $ 7,615,779 Contributions in Relation to the Actuarially Determined Contribution2 (7,615,779) Contribution Deficiency (Excess) $ 0 Covered-Employee Payroll3, 4 $ 21,895,824 Contributions as a Percentage of Covered-Employee Payroll3 34.78% 1 Historical information is required only for measurement periods for which GASB 68 is applicable. 2 Employers are assumed to make contributions equal to the actuarially determined contributions. However, some employers may choose to make additional contributions towards their unfunded liability. Employer contributions for such plans exceed the actuarially determined contributions. 3 Covered-Employee Payroll represented above is based on pensionable earnings provided by the employer. However, GASB 68 defines covered-employee payroll as the total payroll of employees that are provided pensions through the pension plan. Accordingly, if pensionable earnings are different than total earnings for covered-employees, the employer should display in the disclosure footnotes the payroll based on total earnings for the covered group and recalculate the required payroll-related ratios. 4 Payroll from prior year $21,258,082 was assumed to increase by the 3.00 percent payroll growth assumption. Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2013-14 were from the June 30, 2011 public agency valuations. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details, see June 30, 2011 Funding Valuation Report. Asset Valuation Method Actuarial Value of Assets. For details, see June 30, 2011 Funding Valuation Report. Inflation 2.75% Salary Increases Varies by Entry Age and Service Payroll Growth 3.00% Investment Rate of Return 7.50% Net of Pension Plan Investment and Administrative Expenses; includes Inflation. Retirement Age The probabilities of Retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007. Mortality The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007. Pre- retirement and Post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. APPENDICES  APPENDIX A – DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS  APPENDIX B – INTEREST, TOTAL PROJECTED EARNINGS AND PENSION EXPENSE/(INCOME) APPENDIX A DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS  SCHEDULE OF DIFFERENCES BETWEEN EXPECTED AND ACTUAL EXPERIENCE  DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES FOR DIFFERENCES BETWEEN EXPECTED AND ACTUAL EXPERIENCE  SCHEDULE OF CHANGES OF ASSUMPTIONS  DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES FOR CHANGES OF ASSUMPTIONS  SCHEDULE OF DIFFERENCES BETWEEN PROJECTED AND ACTUAL EARNINGS ON PENSION PLAN INVESTMENTS  DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES FOR DIFFERENCES BETWEEN PROJECTED AND ACTUAL EARNINGS ON PENSION PLAN INVESTMENTS  SUMMARY OF RECOGNIZED DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-1 Schedule of differences between expected and actual experience Increase (Decrease) in Pension Expense Arising from the Recognition of the Effects of Differences between Expected and Actual Experience (Measurement Periods) Measurement Period Differences between Expected and Actual Experience Recognition Period (Years) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Thereafter 2013-14 $0 3.3 $0 $0 $0 $0 $0 $0 $0 Net Increase (Decrease) in Pension Expense $0 $0 $0 $0 $0 $0 $0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-2 Deferred outflows of resources and deferred inflows of resources arising from differences between expected and actual experience Balances at June 30, 2014 Measurement Period Experience Losses Experience Gains Amounts Recognized in Pension Expense through June 30, 2014 Deferred Outflows of Resources Deferred Inflows of Resources (a) (b) (c) (a) - (c) (b) - (c) 2013-14 $0 $0 $0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-3 Schedule of changes of assumptions Increase (Decrease) in Pension Expense Arising from the Recognition of the Effects of Changes of Assumptions (Measurement Periods) Measurement Period Changes of Assumptions Recognition Period (Years) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Thereafter 2013-14 $0 3.3 $0 $0 $0 $0 $0 $0 $0 Net Increase (Decrease) in Pension Expense $0 $0 $0 $0 $0 $0 $0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-4 Deferred outflows of resources and deferred inflows of resources arising from changes of assumptions Balances at June 30, 2014 Measurement Period Increase in Total Pension Liability Decrease in Total Pension Liability Amounts Recognized in Pension Expense through June 30, 2014 Deferred Outflows of Resources Deferred Inflows of Resources (a) (b) (c) (a) - (c) (b) - (c) 2013-14 $0 $0 $0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-5 Schedule of differences between projected and actual earnings on pension plan investments Increase (Decrease) in Pension Expense Arising from the Recognition of Differences between Projected and Actual Earnings on Pension Plan Investments (Measurement Periods) Measurement Period Differences between Projected and Actual Earnings on Pension Plan Investments Recognition Period (Years) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Thereafter 2013-14 $(22,903,475) 5.0 $(4,580,695) $(4,580,695) $(4,580,695) $(4,580,695) $(4,580,695) $0 $0 Net Increase (Decrease) in Pension Expense $(4,580,695) $(4,580,695) $(4,580,695) $(4,580,695) $(4,580,695) $0 $0 GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-6 Deferred outflows of resources and deferred inflows of resources arising from differences between projected and actual earnings on pension plan investments Balances at June 30, 2014 Measurement Period Investment Earnings less than Projected Investment Earnings greater than Projected Amounts Recognized in Pension Expense through June 30, 2014 Deferred Outflows of Resources Deferred Inflows of Resources (a) (b) (c) (a) - (c) (b) - (c) 2013-14 $(22,903,475) $(4,580,695) $(18,322,780) $0 $(18,322,780) GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 A-7 Summary of recognized deferred outflows of resources and deferred inflows of resources Net Increase (Decrease) in Pension Expense (Measurement Periods) 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Thereafter Differences between Expected and Actual Experience $0 $0 $0 $0 $0 $0 $0 Changes of Assumptions 0 0 0 0 0 0 0 Differences between Projected and Actual Earnings on Pension Plan Investments (4,580,695) (4,580,695) (4,580,695) (4,580,695) (4,580,695) 0 0 Grand Total $(4,580,695) $(4,580,695) $(4,580,695) $(4,580,695) $(4,580,695) $0 $0 APPENDIX B INTEREST, TOTAL PROJECTED EARNINGS AND PENSION EXPENSE/(INCOME)  INTEREST ON TOTAL PENSION LIABILITY AND TOTAL PROJECTED EARNINGS  PENSION EXPENSE/(INCOME) GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 B-1 Interest on Total Pension Liability and Total Projected Earnings Interest on the Total Pension Liability Amount for Period Portion of Period Interest Rate Interest on the Total Pension Liability (a) (b) (c) (a) X (b) X (c) Beginning Total Pension Liability $ 355,054,289 100% 7.5% $ 26,629,072 Service Cost 6,221,042 50% 7.5% 233,290 Benefit Payments, including Refunds of Employee Contributions (19,985,106) 50% 7.5% (749,441) Total Interest on the Total Pension Liability $ 26,112,921 Projected Earnings on Pension Plan Investments Amount for Period Portion of Period Projected Rate of Return Projected Earnings (a) (b) (c) (a) X (b) X (c) Beginning Plan Fiduciary Net Position excluding Receivables1 $ 233,203,719 100% 7.5% $ 17,490,279 Employer Contributions 7,615,779 50% 7.5% 285,592 Employee Contributions 2,762,215 50% 7.5% 103,583 Benefit Payments, including Refunds of Employee Contributions (19,985,106) 50% 7.5% (749,441) Total Projected Earnings $ 17,130,013 1 Contributions receivable for employee service buybacks, totaling $949,187 as of June 30, 2013, are excluded for purposes of calculating projected earnings on pension plan investments. GASB 68 ACCOUNTING VALUATION REPORT Prepared for the CITY OF PALO ALTO – SAFETY PLAN CalPERS ID: 6373437857 Prepared as of the Measurement Date of June 30, 2014 B-2 Pension Expense/(Income) for Measurement Period Ended June 30, 2014 Description Amount Service Cost $ 6,221,042 Interest on the Total Pension Liability 26,112,921 Changes of Benefit Terms 0 Recognized Differences between Expected and Actual Experience 0 Recognized Changes of Assumptions 0 Employee Contributions (2,762,215) Projected Earnings on Pension Plan Investments (17,130,013) Recognized Differences between Projected and Actual Earnings on Plan Investments (4,580,695) Other Changes in Fiduciary Net Position 0 Total Pension Expense/(Income) $ 7,861,040 Note: Plan administrative expenses are not displayed in the above pension expense table. Since the expected investment return of 7.50 percent is net of administrative expenses, administrative expenses are excluded from the above table, but implicitly included as part of investment earnings. FINANCE COMMITTEE EXCERPT Page 1 of 28  Special Meeting Tuesday, October 20, 2015 Chairperson Schmid called the meeting to order at 6:04 P.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California. Present: Filseth, Kniss arrived at 6:36 P.M., Scharff, Schmid (Chair) Absent: Oral Communications Chair Schmid: First order is anyone from the public who wants to speak. I have no cards. Let's move on to the first action item. Agenda Items 1.New Pension Reporting Standards Government Accounting StandardsBoard Statement Number 68 (GASB 68). Chair Schmid: New Pension Reporting Standards. Lalo. David Ramberg, Assistant Director of Administrative Services: Good evening, Chair and Members of the Finance Committee. My name's David Ramberg, excuse me. I'm the Assistant Director of the Administrative Service Department. Tonight, I am presenting new pension reporting requirements that will impact the City's financial statements. This is a preview of the Government Accounting Standards Board's 68 information that will be included in more detail in the Comprehensive Annual Financial Report that you'll see in November. Tonight's just a preview of the figures to come. The reporting requirements are established by the Government Accounting Standards Board; that's also known as GASB. We refer to these new standards as GASB 68. I want to make very clear that it is a reporting change only, and there's no new financial impact to the City. I'll explain that. Let's see. The City's total pension liability is $289 million in Fiscal Year 2015 which will be reported in the CAFR that you'll see in November. A share of the liability is allocated to the Enterprise Funds and to all other funds based on employee pension expense. This slide shows you, Slide 4, what that allocation looks like. Of that 289 million, you can see that the General Fund's share is 197 million, and the Electric Fund is the next largest share at 26 million. The remaining funds represent about 55.6 million of the Attachment B TRANSCRIPT    Page 2 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  289 million. These amounts do not impact the ability of the funds to maintain positive cash flow, since these amounts are amortized over 30 years and the City already pays the annual required contribution. With that brief presentation, I'd like to say in conclusion the new pension reporting requirements from GASB will report the total pension liability at the entity and fund levels in the upcoming CAFR, but will have no impact on existing expenses. I want to make that very clear. These will not be new expenses in the Budget document; these will simply be in the Comprehensive Annual Financial Report which you'll see in November. I'd like to continue the presentation by turning it over to our external auditor from MGO. David Bullock is here, and they've provided the City with guidance as we've incorporated these new GASB requirements. He'll explain that. David Bullock, MGO Partner: Thank you, David. When David and Lalo asked me to come, I wasn't sure exactly what I wanted to present. I don't want to over-complicate things. I think the key to the implementation is that it's a reporting matter. It's getting the information out to the users so they understand it and its impact, your pension impact, to the organization. You've always reported the information in your CAFR; it's been there. The schedule of funding progress would kind of give you an idea of where you're at in terms of funding your pension. It was always a year or two behind schedule, because it takes a while for the actuaries to come up with the information to present. As GASB changed the requirements, trying to improve transparency, bringing that liability onto the financial statements; and also improving the disclosures and some of the trend information, requiring ten years of trend information versus just three; trying to improve the information available to users, so they understand the impacts of it. The other thing it does is it makes you much more comparable to other organizations. Under the old method, you get to choose from six different attribution methods. The actuary could use different methods to calculate the obligation. A lot of the assumptions were more policy decisions; they were decisions made that would affect the liability on how you are funding it, but not really economically how the plan was actually—where your position was. With these improvements, it's very simple. The actuary takes the liability and calculates that out with their estimates and discounts that back to the measurement date, and then they look at what you set aside in your pension trust fund and compare the two. That's your net pension liability. There isn't all of the actuarial involvement in coming up with smoothing of investments and so forth in those assets. It's a very simple calculation. The other kind of complexity, if you will, is that the measurement date is different than your reporting date. You don't often find that in financial statements. You like to either get the fair market value or some historical measurement, but we're actually using a period of time that's a year previous to the fiscal year. When you get your June 30th CAFR next month, TRANSCRIPT    Page 3 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  it's going to be reporting your pension liability as of June 30, 2014. Unfortunately, that's just the earliest that information is available to you as the employer, because CalPERS has to go through their process of giving you the information, and it just takes a lot of time. We're the auditors of CalPERS, our firm is, so I kind of have a little bit of inside information. My understanding is they're going to try and improve the timeline, because the City didn't even get this information until July, actually after year end. We worked pretty closely with the City to pull the information together timely. Next year, it's supposed to come in the spring or maybe earlier. Maybe this February or March or something, you'll have that information, and you'll have more time to absorb it and get it reported into your financial statements. This year, it all happened after year end, just because of the timing and implementation. With that, I'll turn it over to any questions you may have. Chair Schmid: Council Members, reactions, questions? Council Member Filseth: Want me to go first? Chair Schmid: Sure. Council Member Filseth: Thank you very much for doing this. If I understand what you said, this is basically a reporting change. There's not any new action that we're taking that changes the numbers. In fact, there's not any really recalculation of the numbers or anything like that as well. It's the unfunded liability discounted back to the present, but also still assuming the baseline assumptions on CalPERS investment returns and on sort of the rate at which wages increase in the City of Palo Alto. Is that right? Mr. Bullock: Yeah. They take into account those under the assumptions. I'm not an actuary, so I'm not going to be able to give you a real good description on that. Just to take one step back, CalPERS, it didn't change the way you contribute to the plan. You're going to still continue to contribute normal costs and making up for some of that unfunded liability. It did drive some policy changes at CalPERS, so there could be operational impacts down the road if investments don't perform well and they have to raise those contribution rates. They did make policy changes, because what they didn't want to have happen was crossover date; a date at which point the assets in the trust wouldn't be sufficient to pay those benefits. They made some policy changes to avoid having a crossover date. There could potentially be impacts down the road on how they develop the contributions. In terms of what really changed, the substance of how you make the contributions and how you fund the plan didn't really change. What changed is the reporting of that information in your financial statements. TRANSCRIPT    Page 4 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Council Member Filseth: Now we'll see this broken out by fund, excuse me, as opposed to in a footnote somewhere, I think is where it used to be or something like that. Mr. Bullock: Just a little bit of a clarification. It says General Fund up there. I think what you'll end up seeing—it's not going to be reported in your General Fund per se. You're still going to have fund accounting. You're still going to report your fund balance, which is going to line up with your Budget. What's going to happen is when you convert that General Fund to the government-wide financial statements, the entity-wide financial statements, under governmental activities is where you're going to see the impact to your governmental funds, the Public Safety, Public Works and all the personnel that are in those governmental activities, versus the Enterprise Funds. You will actually see them in your individual Enterprise Funds, because the liability is following payroll. Wherever you're reporting payroll, that's where that net pension liability is going to. Mr. Ramberg: It'll show up specifically in the statement of net position. We'll show that when we bring the CAFR back in November. We'll show you where these new lines line up. We've gone into quite a bit of explanation in the management discussion and analysis, which is the lead-in to the CAFR. If you read that, we'll have some new language in there that calls out the GASB 68 reporting and specifically where that's added to the Comprehensive Annual Financial Report. Chair Schmid: Could I do a follow-up? Is it going to show up in our Budget by department? Will it affect those numbers at all? Lalo Perez, Chief Financial Officer and Director of Administrative Services: No, it does not reflect that way. As David Bullock was saying, the normal annual required contribution doesn't change. That will show, but this new format does not reflect in the Budget. Chair Schmid: That is shown by department and by Enterprise Fund? Mr. Perez: Yes. The normal annual required contribution is distributed by ... Chair Schmid: It's just per employee. Mr. Perez: I'm sorry, I didn't hear the last part. Chair Schmid: That's by employee. Mr. Perez: We bill it per salary, so FTE, employee, yeah. TRANSCRIPT    Page 5 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Chair Schmid: This breakdown here will not affect the number that shows up in our Budget? Mr. Perez: Correct. Chair Schmid: Sorry. Council Member Filseth: You said something that sort of led into another question I wanted to ask. You said very briefly, you made a reference to it's good to have this kind of information at your fingertips when you're making management decisions that impact it. I think you said something like that. I think that's right. I think as we try to get a hold of this, I think that's— because we make decisions all the time that impact the size of this. This is really a question for you guys. One thing that it seems like it ought to be possible to do, but we just never have seen done, is it seems like we ought to be able to calculate this at any given point in time. I mean, we know who all the employees are, we know how long they've been with the City and sort of what their wages are, and which plan they're on and so forth. Yeah, there's 1,000 employees in the City, but we've got computers and stuff like that. It seems like it ought to be possible to sort of calculate this stuff in real time. Particularly, let's say we hire somebody. Every time we hire somebody, they're going to get a wage, and they're going to get an expected wage growth over some period of time, and they're going to work for so many years, and they're going to get a pension at some age, and then they're going to collect their pension for some number. It seems like it ought to be possible to calculate the unfunded pension liability of each individual at the time we hire them, probably also later on in their career too. At the time we hire them, it seems like it ought to be possible to do that. Do we ever do that or does any city ever do that? Mr. Perez: I'll see if David has a comment as well. I haven't heard of a city doing that from a finance perspective. I don't know from an HR perspective. Suzanne may have some experience. I guess what I can say is the assumption is that the potential unfunded liability for a third tier, that's like the last tier that was implemented, is going to be much less than the original two. Council Member Scharff: (crosstalk) follow-up to that. Council Member Filseth: Of course, but it's still not zero. Mr. Perez: There's various assumptions, so we would have to run it. It is an actuarial calculation that we would have to run. I think we would have to, one, either use the CalPERS assumptions or modify them to what we believe they may be in a scenario. We would say run it with the CalPERS TRANSCRIPT    Page 6 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  assumptions, and then let's modify them to what we believe the return should be, for example if we don't agree with the return. Then it also depends on whether that person is really going to stay with us or not, because an individual—now that we have changed the structure of the medical package for retirement, we're seeing a different type of turnover. In the days—I was telling Suzanne—before 2004 we were getting a lot of people coming in here that were very seasoned in experience, because they knew that all they had to do is if they had five years in the system, all they had to do was work one day and get fully vested benefits in Palo Alto. You saw a different type of attraction of person and a different reason that people were coming or staying. Now that there's less of that incentive, it's a different scenario. Council Member Filseth: I suppose that would sort of be sort of like your actuarial calculation is how much time an individual is likely to stay with the City. Are they going to stay 30 years or 15 or what's the average expected (inaudible)? It seems like you ought to be able to calculate all that out and make an estimate. It might not be accurate for each individual employee to some level, but over large numbers of employees it might be. Is there any precedent for people doing that? Suzanne Mason, Assistant City Manager: I think you can look at it in a number of ways. I think it's a good question. Probably not by the individual in your books, because their future is unpredictable. Most agencies have a different historical look based on their benefit packages, as Lalo said. One agency may typically have very long-term employees, and others may have a shorter-term employee. You can hire someone senior in their career, and the City's going to have a very short probably liability, a five to ten-year liability, as opposed to someone earlier in their career who may stay with you for 30 years. It's hard to predict. What you could do is model different types of employees at different salaries based on—in our actuarial report, you can see the average of our typical—in our actuarial report it shows the average number of years someone stays here, how many retirees we have, the average salary or their average retirement benefit. You can do that modeling. You can also model different types of employees coming at different stages in their career. I think the one thing that we're going to be challenged with is how the new PEPRA retirement interplays and the new millennial employee who is more apt to move more times in their career. They're not the long-term employee. When I started in 1984 ... Council Member Filseth: IBM, lives at work forever and retires at (inaudible). TRANSCRIPT    Page 7 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Ms. Mason: I think all those things are unpredictable, but we can look at our average history and look at some of the changes. We can look at the last five years and share with you what we're seeing. Council Member Filseth: I'm thinking about (inaudible). By the way, do you want to ask a question in the middle of this or come back? Council Member Scharff: I did. It was a follow-up to your ... You were talking about modeling each individual employee. I guess the question is—there's an unfunded liability that comes with each employee, the way we're currently doing it. We hire someone, and it's a different unfunded liability if they're Tier 3, Tier 2 or Tier 1. What I'm wondering a little bit about is if we start saying to ourselves every employee we hire, this is what it's really costing the City in terms of—do we then look at that and say we're going to put, I think what you talked about earlier was let's put aside some money to deal with that on an ongoing basis. We may also say to ourselves how do we compensate those employees. Do we say we compensate the Tier 3 in cash in a different way than we compensate the Tier 2 and the Tier 1? I think it's time we started thinking about how do we align our employee structure so that it works for the City. I think there's concerns about—I'm fascinated when you say the millennials will jump. They may or may not. I don't know if we have any data on this, if millennials who choose to work for government. Everything I'm reading these days actually says the millennials are no different than anyone else. It's just that they have different opportunities. They're actually starting to move to the suburbs and starting to buy houses. I mean, every generation thinks it's a unique generation and the world has changed and this time it's different. I'm not convinced. What I am convinced is right now we have very seasoned employees in Palo Alto who could all retire. Maybe not all of them, but I mean a large number could retire, take a different pension and go get another job with that. At some point, you do that financial calculus and it makes more sense for them to do that. The question is how do we start to align bringing people in and with a career path that then makes sense on an organization level. I think that's a challenge; I don't think any city's done that. I think it's an interesting question. I wanted to come back to the other stuff. Council Member Filseth: You're sort of going the same direction we're sort of going in here, which is we're used to working in—some of us are newbies to City government, working here. We're used to an environment—when you incur a liability, I mean you're supposed to recognize when (inaudible). When we hire somebody, to the extent there is a long-term liability that comes with that person, normally you recognize that somewhere. You put it in an account somewhere. Maybe you set aside money for it, maybe you don't. At least, you recognize at that point we're going to accrue this long- TRANSCRIPT    Page 8 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  term liability. At the time that we make decisions, it's—as we were going through the budgeting process back in May, we said the City's going to hire 14 people or something like that. One thing we didn't say there, we saw here's how much it's going to cost next year with these people. One thing we didn't see was here's the impact on the City's unfunded pension liability if we hire 14 people as opposed to 12 or 15. Ms. Mason: I do want to make one point. We get a blended rate from PERS. They're not breaking it out. They're looking at all the different employees we have and the different tiers and what their percent of payroll is, and they give us a blended rate. That's one thing. It is difficult to—a lot of the unfunded liability is from the past. It's not the go-forward. We do have an average ... Council Member Scharff: That's interesting. I had no idea. On a going forward basis, you're saying we hire someone, there's not an unfunded liability? Ms. Mason: There's the normal cost which is the go forward. If this person with no gains or losses in investments, if this person's going to retire in what the actuary projects—actually John Bartel is probably a better person to walk through this; he'll be here on November 3rd. That employee walks in with no prior liability, the unfunded liability that is coming from the past, investment losses and changes in formulas and things of that nature that were not funded. They were mostly investment losses. Council Member Scharff: That was really going to be one of my questions. When we look at the General Fund, why is it 68 percent when the Electric Fund is 9 percent? What's causing these disparities? Ms. Mason: I'll let Lalo talk to it. It's a percent of payroll. That's really what you're looking at. Council Member Filseth: Before we go there, I want to make sure I understand what you just said. If I understand what you just said, you said that the next person we hire, assuming they come in—Tier 3 is the current one, right? There is not an unfunded liability associated with that person? That's not actually—really? Ms. Mason: There is a projected cost, and I'll let Lalo talk to it. That's why your different tiers have a different cost. Council Member Filseth: To be obsessively, obsessively explicit here. If you sort of look at what that person's going to—we're going to give that person as their pension, sort of net present value of all that, and you take the net TRANSCRIPT    Page 9 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  present value of all their contributions to their pension up until that time, they're not going to add up to—the City's still going to have to cover some of it. That's the unfunded liability. Mr. Perez: Right. That's why I was caveating at the beginning. John Bartel will tell you that it's zero for Tier 3. That is because we would assume that we agree with the CalPERS ... Council Member Filseth: CalPERS 7 1/2 percent investment return. Mr. Perez: And all the other assumptions. That's why ... Council Member Filseth: Whatever the assumption on wage growth is, the actuary would say that actually it's covered for that person. Mr. Perez: Correct. That's why I was saying you may have a different opinion, so we would run it that way. We would run it what if there was a 6 return and whatever other variables you wanted to change. From a starting standpoint, the assumption is that the fund is going to pay 67 percent of the pension via returns on investments. The other portion—what is it? 6 1/4 is paid by the employee, and then the rest is paid by the employer. Chair Schmid: Let me ask a follow-up on that. Suppose someone comes in his 20th year of employment with CalPERS. He's somewhere else; he comes here. We assume the future. At some point in the future, the CalPERS said, "We made a mistake about longevity. People are living two years longer than we thought, which creates an unfunded liability." Who's responsible for covering that? Mr. Perez: That's spread over the period of service years. Let's say that they had 20 somewhere else, and we get five. It's proportionally split among those years. Chair Schmid: Someone can leave Palo Alto, but we might get hit with an unfunded liability 30 years later if he's somewhere else. Mr. Perez: Yes. The way it would work; let's say that—I'm making up an example—they've worked 20 years here. They left making 120,000. They went and worked five years somewhere else, and they close out either a three-year or single year highest at 200,000, then our 20 is at the 200. Not at the number that they left us. Chair Schmid: Do we pay more if people come here later in their career or if they leave here and go elsewhere late in their career? Which is the greater liability for us? TRANSCRIPT    Page 10 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Ms. Mason: You're going to have a shorter time—it's all based on the time they're with your agency. I was 25 years in Long Beach when I retired. Long Beach will pick up 25 years, and they paid in for the years I was there based on my projected retirement. Chair Schmid: The years they're here, their salaries are much higher, and their pension payments are based on their final salaries. Ms. Mason: Let's say I stay ten years here, and I'm at 2 percent at 60. You're only paying for the years I was here. Long Beach is still going to pay for the 25 years that I was there. Council Member Scharff: What were you in Long Beach? Ms. Mason: I was many things. Council Member Scharff: No, no, no. I mean what percentage. Ms. Mason: I was 2-7. Council Member Scharff: I thought you were probably 2-7. If we end up raising your salary to, say, 200,000 at some point, and you're here ten years. Long Beach then picks up 2.7 percent of 200,000. Right? Mr. Perez: Yeah, (inaudible) years. Council Member Filseth: (inaudible) Long Beach (inaudible). Mr. Perez: I'm not trying to ... Ms. Mason: I'm just saying that you're paying proportionally for the years that someone's with you. If they leave, the agency they're going to is paying proportionally for those years. Mr. Perez: I'm not trying to stop you from asking the questions, but I think these would be excellent for John Barthel. Being an expert actuary, he can give you his insights on that perspective. We're giving you our best professional (inaudible), but he's truly the expert in the field. I think those would be good questions. We can note them, and give him a heads up that they're coming. Ms. Mason: We can ask him to look at this part of that percentage. Council Member Scharff: Just tell me a little bit about the liability. I'll tell you what's not adding up. Roughly the General Fund is 200—what are we at these days? Two hundred? TRANSCRIPT    Page 11 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Council Member Filseth: One hundred eighty million. Council Member Scharff: One eighty million, 184 million. Then Utilities is what? Roughly 200 million? Council Member Filseth: More than that. Three hundred fifty or so. Council Member Scharff: Three fifty. Council Member Filseth: Why is it so much higher in the General Fund? Council Member Scharff: Why is it all in the General Fund and not all in Utilities? I thought it would be equal, frankly. I didn't focus ... Mr. Perez: That's total budget. Keep in mind that the capital and commodities make up a vast majority of the Enterprise (crosstalk). Council Member Filseth: It is a fair question, isn't it? Isn't the City headcount between the Utilities and the General Fund approximately the same? Isn't it about 500 in each? Mr. Perez: No. We're looking at salary too, not the headcount. It's based on the salary proportion. It's a debate that we had internally. When this was originally set up many, many years ago, I think we set up somewhere in the '50s if I recall correctly. I can't recall exactly. Council Member Scharff: It's Fire and Police, isn't it? That's what's driving it. Mr. Perez: We have a higher obligation there. We never really split anything when we send the records to CalPERS, so to them it doesn't matter what fund it is. That's why we have to use today's current split of payroll, because we don't have the exact allocation of people. Ms. Mason: I don't think it's 50/50. I think it's maybe 1/3-2/3 on the staffing. Chair Schmid: Eric, anything else? Council Member Filseth: No. I think I need to send an email to John Bartel. I think I'm really curious about (inaudible) obviously that's for miscellaneous (crosstalk) it wouldn't be fully funded for Public Safety. Mr. Perez: If you want, you can send it to us. We'll send it out, and then we'll reply to everybody, so everybody has the response. TRANSCRIPT    Page 12 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Council Member Scharff: I just had a few questions. Chair Schmid: Yeah, go ahead. Council Member Scharff: I guess the first one is, we're doing this so why do we care. Mr. Perez: One, it's a requirement that we adopt it. Council Member Scharff: Right. You're going to follow the law. I'm assuming you guys follow the law. As a policymaker, what are the implications that I would care about? Are we going to look better than other cities in terms of our bond rate? Are other people going to look at this and say, "Palo Alto you're doing great. Everyone is else is (inaudible)?" Why would I care? Council Member Filseth: Yeah, that's a fair question. Mr. Perez: That's a fair question, and that's something you can do. For example, David Bullock was just telling me that in comparison to Fremont, our General Fund side was about the same, and they're much bigger. That's not surprising because we're bigger than a typical city on the General Fund because of the support that we have in the other services. I think the bottom line is to make sure that in our financials that the net position is in a positive position. That's why you care. That's the bottom line. For us, it's a good news situation. There may be agencies where they're in a negative position. This is a full disclosure. Back to your point, the bond rating agencies would look at that and say, "What are you going to do?" We have a history in Palo Alto of being proactive. The Councils now and before have been proactive in addressing any deficits that we had. I think it's a good, diligent move that we show that we are transparent with you and the community where our financial position is. Council Member Scharff: That's all I had. Chair Schmid: I guess a couple of questions. To follow-up Greg's "why are we doing this," how does this help us, let me pursue it in that regard, does this help us in any way. On page 2, I have a couple of questions on the report. Page 2 of the report, packet page 13, it says the employer should supplement and update the information in this report with its own financial data as necessary. Now, what does that mean? We're the employer. Do we update this? Mr. Bullock: You don't update the calculation, the total pension liability and the plan, that position information. Where you may update are some of the TRANSCRIPT    Page 13 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  footnote disclosures. This report is, again, a valuation as of the measurement date, June 30th, 2014. You may have a later actuarial valuation that you could disclose in your footnotes. One of the things that GASB required is a comparison of the net pension liability to covered payroll for instance, but GASB changed the definition of what covered payroll is. It's no longer just the pensionable payroll, but it's all payroll. While CalPERS doesn't have the City of Palo Alto's total payroll figure ... Council Member Filseth: (crosstalk) down there. Mr. Bullock: Palo Alto doesn't have all the information that the City would have, so the City would update its disclosures to include a total payroll versus what CalPERS would have as your pensionable payroll. Things of that nature. It's just to bring that to your attention. Chair Schmid: You raised the point about measurements. You have two definitions here, one of the valuation date and another of the measurement date. What's the difference between those? Mr. Bullock: GASB, when they went through the due process of these new standards to get the feedback, a lot of the issues that came up during that process was the timing and how they're going to get this information to the employers timely. The concept came up with the measurement date that let's give these pension plans a one-year reprieve to report this information. They also gave a timeline of just the process of information. CalPERS was considering whether or not using an actuarial valuation date of June 30th, 2014 for this implementation, but they said they wouldn't have that information available until November or December of this year. It just wasn't timely enough. Chair Schmid: Does that mean that the measurement data we have here Is not final? It will be revised? Mr. Bullock: No. What it means is they use a valuation date of June 30th, 2013 (crosstalk) ... Chair Schmid: That's the real date. Mr. Bullock: .... forward to '14 using ... Chair Schmid: Assumptions. Mr. Bullock: Using assumptions, and then presented that as your measurement date. TRANSCRIPT    Page 14 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Chair Schmid: You'll come back in a year with a valuation date of 2014 but the number might be different than what we have here. Mr. Bullock: Exactly. It will be different. Those differences are going to be kind of amortized and factored into your number over time. It's just going to be a continuous, because these numbers are always moving. I think you mentioned the fact that why can't we have this information real-time. The problem is—you probably could factor the actuarial assumptions and come up with some number. What you're not going to have are the resources set aside in the trust. That information is just not going to be timely enough to get that information from CalPERS. Chair Schmid: Why is it any different than your doing the CAFR for us? Mr. Bullock: Because those investment which is a huge part, the investment performance of the actual pension liability is very complicated. They can't even get the information from their investment managers on some of these, especially commodities. Some of these are very complex investments. Chair Schmid: They're valued every day. Mr. Bullock: Three, three or four months. Chair Schmid: How can they not get the ... Mr. Bullock: They're in (crosstalk); they're in different kinds of alternative investments that are not easy to value. Chair Schmid: That's like 18 months later. June 30th, 2014 ... Mr. Bullock: No, no. Yeah, because we're using June 30th. They have it now. I'm just saying in terms of getting real-time numbers, it takes them a long time to process that information. Chair Schmid: I guess the bottom line, where I get stuck, asking how do I use this information, is you present us with an immense dilemma. We've got to look backward. I know the CAFR you look six months backward, but here we're looking 18 months backward. You happen to be looking at a year that's had fantastic returns. You look at these numbers and say, "Great, aren't we in great shape? Growing 18 percent per year. We have a surplus more than we thought." The decisions we have to make on it are the current decisions that have future implications to them. We hire new people. We set payroll. We set benefit levels. This carries out not just this year, but five years and ten years from now. We're committing ourselves to a flow of things. We're being asked to spend time looking at 2013, because TRANSCRIPT    Page 15 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  it would help us make these future decisions. I'm baffled. Why we don't look at 1999 where CalPERS had another great year and say, "Aren't they smart." I know they haven't picked this year just because it's great. Mr. Bullock: That's a problem, I think, with the CAFR in general and (inaudible) reporting, especially when we're talking about audited financial statements because there is going to be a time lag of when that information starts losing its usefulness. The measurement that we're getting from CalPERS—go ahead. Chair Schmid: You use the term "might lose its credibility." Mr. Bullock: I think you're on a good track talking about looking at projections and maybe getting an actuary to help come up with a number and using the assumptions that Lalo talked about. Chair Schmid: I guess I'm concerned that CalPERS without the actuaries and stuff is looking at the current numbers, and they're changing their mind. My understanding is they are currently saying, "We've got to change the way we set our discount rate. Put it in our favor." They might announce that to us at some point. How can CalPERS ignore this report that says, "We're doing fantastic. Plan your future on this," meanwhile saying, "We're going to change the rules of the game." What's going on and what are we supposed to do? Who do we believe? The CalPERS that has been audited two years before or what they're doing now? Mr. Perez: Those are the challenges that we have. A couple of things really quick to address some of your points that are good. We are dissatisfied with CalPERS' lag of reporting, all agencies. Every time we go to the—they have what they call an annual educational forum. It's next week, and I plan to be there and say the same thing again, "When are you going to catch up? With technology, you should be able to have more recent numbers." We're onboard with you there. I think if you look at page 19 of your packet, or page 8 of the report, I'm looking at the valuation for the Miscellaneous group. I'll give you a second to get there. Mr. Bullock: What page? Mr. Perez: Page 19 of the packet or 8 of the actuary. To answer your point or give you a potential scenario for your point. If you look at the plan's net pension liability, if you use the 7 1/2 discount, it's the 187 million. Let's say that we assume that that's too aggressive and it's going to be more in the 6 1/2, then we have our number, 269. We would have to then make decisions, which is what we're starting to do next November 3rd, to talk about how do we supplement or address our unfunded liabilities. That could TRANSCRIPT    Page 16 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  be a number that you could use from this or the actuarial number that we get next week, which is the actual required payment calculation. Then we start setting aside additional funding because you may not believe the 7 1/2 is the right number. This can help guide us towards a number. That's what the purpose of this tool is, to give us that information. What happens if it goes higher? You may not agree with that, but they also give you that. Chair Schmid: I read an article—I don't know how credible it is—in the last week that says they are thinking about setting a new rule. When they have a surplus rate of return, they will take that and drop their future rate of return by 1/4 point, by 1/10 point, by some amount. Thus, that would allow them to have a more conservative portfolio and maybe a more credible portfolio in the future. That seems to imply that they want to reduce their risk and increase our risk by raising our payment rate so they can be in a more secure position. That is deeply disturbing. Mr. Perez: I guess you could look at it two ways. The other way that you could look at it is if you believe that 7 1/2 is not realistic, then maybe they're coming closer to reality, if you're in that camp. Chair Schmid: That's different, taking that assumption and operating on what you think, from them saying, "We are going to lay off more of the risk on those who have already committed. Mr. Perez: My understanding is that what they're going to do is change their philosophy in terms of the risk that they take and take less risk; therefore, they're going to assume a lesser rate of return. In a way, it gets to the point that I was making. It does translate into a higher payment to the agencies. The dilemma that the Board has is that there are agencies in both camps. Some of us are saying, "Let's get to a more realistic risk tolerance and, therefore, a lower rate of return. We realize that it's going to increase our annual required contribution, but it's more realistic." There's other agencies that say, "We can't afford a higher increase in contributions. It will deplete our budgets and force us to start drawing on reserves to the point where we're not going to be able to make it unless we make significant cuts to services." That's where they're getting the tug and pull. They're asking for our comments as a Board, as a Council, as management, for what are our opinions as to what should they do. This is the period that I introduced the last time we were talking, that they were asking for feedback. Right now, they started with three options and now they're down to two, and it's a hybrid of those two because there's so many opinions on where should they go. TRANSCRIPT    Page 17 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Chair Schmid: When does the Council get a chance to weigh in on the options? Ms. Mason: I'm not sure they're still—are they still asking? They met yesterday actually. Council Member Filseth: I read an article like that too. I thought I read that they had made a decision. Ms. Mason: I thought they made—they met yesterday. I think they're recommending a decision. I'm not sure if they adopted it. Chair Schmid: What decision? Ms. Mason: I think what they're recommending is what Lalo just shared. As they have earnings, that ... Council Member Filseth: I think what Lalo (crosstalk). The article I read said that they considered going to 6 1/2 percent decided not to do that. Ms. Mason: They're projecting that. This is what I had read. There's an article yesterday after you and I spoke that as the earnings exceed expected, that they will start using that as the buffer to start lowering the discount rate to try and get to the 6.5 ... Chair Schmid: As they earn more, they will charge more. That doesn't make sense. Ms. Mason: I think their alternative was we just reduce now and increase rates to make up the difference. They're trying to have a more conservative smoothing approach that they'll use earnings beyond what was expected to start gradually bringing down the rate. They're projecting based on—this is what I read. It would take 30 years probably to get to the 6.5 percent rate using that methodology. That's what I read. Chair Schmid: When do we get such information? Ms. Mason: I just read it in the newspaper. Chair Schmid: Right. We pay them how much per year? Why don't they tell us what they're doing? Mr. Perez: We subscribe to their mail-outs, and it's not always consistent. Some of it—we met with them last week at the County of Santa Clara building, the County and the school, Mountain View and ourselves. We were pushing on this issue. What they are saying is "We're working with the TRANSCRIPT    Page 18 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  League." I guess we have to get word through the League in order to—I was saying, "We're not getting this timely information to make these decisions." Ms. Mason: There is a webinar online about it, I saw yesterday. There is information that they're putting out, but they're not mailing it directly to us. It's being put out more as public information. Chair Schmid: Could you send at least base information that we have? What's the connection to 68? How will 68 help us with any of these issues? Council Member Filseth: It doesn't. Mr. Perez: No. I think really what we need to look at is our regular actuarial report, the assumptions and the rate of returns and the fluctuations and having a policy discussion on how we should contribute funds to what I would consider an annual required contribution stabilization reserve. That way it can help us navigate through those difficult times when there are downturns. Chair Schmid: I guess I don't like it that all the risk is being put on the City. Council Member Filseth: Let me see if I can take a shot at this, and see if this is accurate. Whether it's $187 million or $269 million or whatever it is, really it has nothing to do with CalPERS. I mean, that's actually not true, because it's on the investment return side and what's their strategy for investment returns and so forth. That aside, it is what it is. CalPERS can say, "We're going to estimate 7 1/2 percent or 7 1/4 percent or 7 3/4 percent or 6 1/2 percent," but actually that doesn't change this. This is whatever it is. What CalPERS' investment return projection changes is how fast we have to pay it off. Sooner or later, we're going to have to pay it off. The cities that you described, the ones that are saying "No, you can't change your assumption," they're not going to get away from this either. They're still going to have pay it off, but they may end up paying it off over 40 years instead of 30 or something like that. In my mind, it is what it is, and we're going to have pay it. I think the lesson from all of this is—I think this is where you're going with your stabilization funds and so forth that makes sense—that we can't rely on CalPERS for this. What their number—their projected numbers are subject to all kinds of influences (inaudible), political. We should just take those numbers and—I don't know—wrap fish in them or something like that. I think we need to have control of this. We need to have our own numbers, and we need to understand what this is. It's sort of the kind of thinking behind what if we did it by employee or something like that. We're just trying to get our hands around this. I think the answer to that question is going to come up in the discussion in a couple of weeks here TRANSCRIPT    Page 19 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  as we really start to get—whether CalPERS changes their rate from 7 1/2 to 7 1/4 or 7 percent, it almost doesn't matter because we're going to have to pay for it, whatever it really is. Chair Schmid: I guess what the distinction between us and CalPERS is they set a rate that we have to pay. If they lower their rate of return, we'll have to pay more. Council Member Filseth: We're going to have to pay that anyway. Chair Schmid: The risk that they are taking with that money is something we don't control. Council Member Filseth: That is an issue ... Chair Schmid: We are putting our confidence in their risk assessment. Council Member Filseth: Do you mean the risk assessment or the risk that they invest their portfolio in? I mean, the risk here is they've got a huge moral hazard problem. If they invest in risky assets, we bear the losses, but they bear the gains, which is sort of how the first savings and loan crisis happened. If it's that, I agree that's an issue. How they report it, unless I'm really getting this wrong, it just seems almost immaterial to me. If they say, "The rate is lower, so you have to pay more this year," if they didn't say that, we would have had to pay more next year, because it is what it is. Council Member Scharff: That's where the big issue is. It could be we have to pay ten years from now. Council Member Filseth: Right, but we're going to have to pay eventually. Council Member Scharff: Right. It makes a big difference to ... Council Member Filseth: True. Whether we pay it this year or next year or ten years from now, yes, that makes a difference. Council Member Scharff: We could have a crisis ten years from now, and everyone else could have one too. Council Member Filseth: That's true. Council Member Kniss: If I can jump in to go back to what Suzanne said. I remember being at a CalPERS meeting a couple of years ago. Their goal is to smooth it out. There's no question that's been their long-term goal all along. You're right, Eric. One way or the other, you're going to pay it. But there's been huge concern throughout the cities about whether or not it's TRANSCRIPT    Page 20 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  going to drop from the 7.5 to 7.25 and so forth. That's been the concern I've heard this whole period of time. To come back to your point, what difference does it make; we will pay it in the end. Just to remind us, we can't get out of CalPERS unless we pay 800 million roughly? Mr. Perez: Yeah. Council Member Kniss: I'd say sort of what you see is what you get. You can't make a whole lot of change here. If you want to really be nervous, look at the CalPERS Board. Chair Schmid: I guess I'm concerned of just the history. This is from the presentation we got last time. In the '90s, returns were much higher than the liability, so there was an encouragement by every city to give pensions and the (inaudible) pensions as a benefit. They have made such egregious errors either back here in their estimates of how to pay or in their rate of return, gross errors that has led to this gigantic liability. The question is, is GASB 68 going to help us say, "Now they've got it. Now they understand." How much confidence can we have in their assessment of the demographics of the retirement, of the risk to take in the market? Obviously they made some grievous errors in their investments. Council Member Filseth: 68 GASB just takes the same data and puts it in a different chart basically. I mean that doesn't do anything. Ms. Mason: At least it's being put on the table and communicated. I think that was the significance of GASB, is don't just say your annual contribution is your cost of the pensions. That was, I think, the goal of GASB. David can comment. I do think it would be ... Council Member Filseth: That's a pretty low bar for progress. Ms. Mason: I do think that having John Bartel here will help have an informed discussion on some of this with an actuary. I think these are all good questions, and we'll make sure that we forward them to him. We will have a dialog about that and what the risk mitigation efforts that are underway could do or won't do that maybe we want to do on our own. Chair Schmid: I guess one key thing, as I'm sort of pushing here, is a flow of information from CalPERS to us. The flow of 68—let's look back at 2013. That was a good year. We've been given reports on that, instead of a flow of what are we thinking now? I mean, information from them on their risk and their looking at the long-term liabilities would certainly be a helpful step. Let me just ask another question. Is there something we could ask the City TRANSCRIPT    Page 21 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Attorney in terms of our rights and responsibilities and abilities to have an impact. Council Member Kniss: She's right here. Mr. Perez: She's right here. Council Member Scharff: Was that rhetorical? Mr. Perez: Let me ... Chair Schmid: I don't think tonight I want a response, but just ... Mr. Perez: Molly could give you her legal opinion. I can tell you that the Governor is putting extraordinary pressure on CalPERS to make changes, and he has not been successful. I think Council Member Kniss told you why. Look at the Board. Council Member Kniss: You all think I'm kidding. You haven't looked at the Board. Council Member Filseth: Can I ask a question? Are CalPERS and the FAA, are they really the same organization? Council Member Kniss: I don't know, Eric. I think we should find out though. Council Member Filseth: They go to one office on Tuesday and the other one on Wednesday. Council Member Scharff: Doesn't the Governor appoint the Board? Council Member Kniss: No, they're elected. Council Member Scharff: They're elected. Council Member Kniss: Half the Board. It's all—are we quiet tonight? Chair Schmid: I guess I did mention the City Attorney. Council Member Scharff: Is what? Chair Schmid: Maybe the City Attorney can ... Council Member Scharff: I can't run for the Board? TRANSCRIPT    Page 22 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Council Member Kniss: Try it. I kind of like, I think—sorry. The woman who's still the director, correct? Ms. Mason: Yeah, Anne Stausboll. Council Member Kniss: I rather liked her, though, and thought she was ... Ms. Mason: She's made a lot of changes. I mean, I would say that, and I've actually worked directly with her on changes that agencies were seeking. I think in the last five years there's been a lot of improvement on communication. It is challenging, because the Board is made up of a mix of individuals. There has been challenge to the smoothing approach. The Board is trying to change the discount rate or the investment return rate. They're trying to do it in a way they have a lot of different agencies and Board Members, and it's definitely a significant discussion that's going on. Chair Schmid: Let's see. I asked the question of the City Attorney. Molly Stump, City Attorney: Just two things to add to the conversation which has been interesting. You may recall that Governor Brown initially put together his multipart set of ideas for pension reform before PEPRA was passed. It eventually became PEPRA. Governance was on that list, and it dropped off. It was one of the items that did not make it into the final legislation. He was looking for governance reforms in terms of the membership and balancing out some of these issues. The other thing I would note is that CalPERS views the members of the system, the individuals, as their customers. They have a fiduciary duty to maximize benefits. They don't have the same approach we would like them to view as co-customers the cities that fund those systems. They do not. They do not feel that there is that same kind of duty to the cities. I think it's a continuing dialog but a challenging one. Council Member Scharff: Interesting. Council Member Filseth: I think again we're going back away from this. The discount rate or the investment return rate, we've got to estimate that ourselves. The CalPERS investment, CalPERS reported rate or projected rate, it times the cash flow, so it doesn't really make a difference. It affects the timing of the cash flow. We've got to plan for it ourselves. Then this poor guy that's got to listen to a meeting like this every day, that's (inaudible). Chair Schmid: We look forward to the CAFR. Mr. Bullock: I'll be prepared. TRANSCRIPT    Page 23 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Chair Schmid: I guess we do have another session on the pension coming up. Mr. Perez: November 3rd. Chair Schmid: November 3rd. Council Member Kniss: Is that when Bartel is coming? Mr. Perez: Yes. Council Member Filseth: He'll be here on November 3rd? Ms. Mason: Yeah. Mr. Perez: Yes, because you got a limited time with him because he had another commitment. We allowed for that night to be mostly him with one small general obligation library bond report that is more information. You'll have plenty of opportunities to ask questions. Council Member Kniss: What did you say the date was, November which? Mr. Perez: November 3rd. Council Member Kniss: That's what I thought you said. Chair Schmid: Are there any last comments that we want to leave? Council Member Kniss: Let me just say ... Council Member Filseth: Wait, I was ... Council Member Kniss: It's not a very kind comment. I know we're being recorded, but I was invited to go speak at one of their Board meetings. I was quite surprised by the—have to search for the right words ... Council Member Scharff: A CalPERS Board meeting, right? Council Member Kniss: Yes. What I thought was great variance in the ability of the Board Members and in their motivation and in sort of why they were there. I know none of that is a kind comment, but I think it sheds a lot of light on this system that we are so committed to that we can't even afford to buy our way out of it. We're in it, and we don't have a great deal of influence, and we don't like that. We much prefer to have influence. If you think differently either Suzanne or Lalo, say it out loud. That was my observation. TRANSCRIPT    Page 24 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Chair Schmid: I guess my biggest concern is on December 15th we have the Long Range Financial Forecast. In past years, our benefit side is growing twice as fast as our salary side. Any increases we have such as higher payments will reduce that salary piece even more. That is upsetting, and we will deal, I guess, with that in December. That's one of the consequences. Council Member Filseth: Can I ask one more question? This is another bashing CalPERS question, so it doesn't matter here. I've got sort of most of my personal investments in Vanguard index funds, because the management rate is like .4 percent or .25 percent or something like that. What's CalPERS' management rate? Mr. Perez: I should know it. I'll have it ready for the November 3rd meeting. Chair Schmid: They calculate a rate in here of .15. Council Member Kniss: I think that's it. Council Member Filseth: Point one five? Council Member Kniss: Point one five. Mr. Perez: Let's see if they ... Council Member Kniss: I know it's under 2. Mr. Perez: ... if that's the updated number, because they just did a change. They dropped off about 100 middle companies. I don't know if that includes that or not, but I'll double check. Council Member Kniss: Could I ask one random question, though? When, for example, Stockton went bankrupt, did they drop out of CalPERS? Is that what actually happened or did they have to hang in there? Ms. Mason: No, Stockton definitely is still part of CalPERS. Council Member Kniss: They had to continue. Even in bankruptcy, they had to continue to pay CalPERS. Ms. Mason: San Bernardino tried to stop during the bankruptcy period. A friend of mine is the attorney representing the city. That was definitely a challenging discussion with CalPERS. Chair Schmid: Molly, a comment? TRANSCRIPT    Page 25 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Ms. Stump: Yes. San Bernardino did actually stop making their payments for a period of time, but they subsequently reached an agreement with CalPERS to pay back that back liability and to continue in the system. No city has exited CalPERS in bankruptcy. In fact, no bankruptcy exit has involved any diminution of pension rights, pension benefits. Council Member Kniss: Molly, has any city paid their way out that you know of? Ms. Mason: I've never heard of it. Ms. Stump: I know there were some very small cities that actually went through the formal process of requesting a price tag on that, and they did not pursue it ... Mr. Perez: Seaside. Ms. Stump: ... because of the cost. Mr. Perez: It was Seaside, California. Ms. Stump: I'm not aware of any. We can confirm that. Chair Schmid: What is the referendum that San Jose is trying to get established? Ms. Stump: San Jose is not in the CalPERS system. Council Member Scharff: They're not in CalPERS. Ms. Stump: They run their own retirement system. Chair Schmid: Right. The ex-mayor is trying a referendum ... Ms. Stump: He's trying to qualify something for the statewide ballot, which he has made several runs at that. There's been different iterations of what's been proposed. Chair Schmid: Isn't that a base reform or PEPRA or something transformative? Ms. Stump: I'm not sure. He just made some recent changes. What tends to happen is he gets a ballot title and summary from the Attorney General, and then there's a concern about getting that qualified for the ballot based on ... TRANSCRIPT    Page 26 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Council Member Filseth: He gets to kill the widows and orphans in the title, and they have to go back. Council Member Scharff: That's always what happens, right? Council Member Filseth: That's what happens. Council Member Scharff: Talking about if we actually could exit CalPERS, but then I'm convinced you'd all come to us and say, "Now we're exiting CalPERS, we can't hire anyone because everyone wants to be in CalPERS." I just wonder—I mean, I know we all talk about that, but I know that would be an issue. I'd hear about it over and over again for the next ... We're uncompetitive in the market, because we're not in CalPERS. Ms. Stump: This was the key issue in the Stockton bankruptcy. They did not actually seek to reduce their retirement payments for this reason. The City Manager, Bob Deis, felt strongly that that would make Stockton uncompetitive as an employer, and they were particularly concerned about police officers. Council Member Kniss: That's right. Council Member Filseth: It's not obvious to me actually—I mean, I used to think CalPERS was just like these evil guys. It's not obvious to me—I mean, maybe I'm missing something huge. It's not obvious to me how being in CalPERS is actually that big a detriment to us. Again, with the exception of the issue of control, because they control the cash flows. As long as they invest wisely and, as for their investment returns, I don't think anybody in here believes it at all. As long as you assume that their investment returns are just completely bogus, we need to sort of watch this ourselves. That's that issue. The only other issue I can think of is the strictures they place on what kind of packages we can offer the employees, because we don't have any flexibility. We can't come and say, "You can take a smaller pension in exchange for a larger upfront payment so you can afford a house here." We don't get to do that. Other than that, it's not obvious to me how CalPERS is that pernicious to us, other than the control issue. Council Member Kniss: I think it's the control thing. It's frustrating that you—I don't know if San Jose does any better than we do. To be honest, I don't think so. Council Member Filseth: At least they have control. Council Member Kniss: They've got control. TRANSCRIPT    Page 27 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  Chair Schmid: The downside is not just control, it's cost. We are paying twice as much each year. The increase is twice as high on our benefit package as it is for our salaries. Ms. Mason: As it is for ... Chair Schmid: Salaries. Council Member Scharff: We'd probably do a radical restructuring. We'd probably pay, like, twice the salary as what any other city pays and have much less benefits. Council Member Filseth: Put it in a 401(k). Council Member Scharff: And put it in a 401(k). We'd be this completely different model, and you'd come work for us if you want a high salary and not have the guaranteed pension. Council Member Filseth: That's what we would do. Council Member Scharff: You'd get different people. I mean, that's what we'd do. Council Member Filseth: CalPERS stops us from (inaudible). The size of the unfunded pension liability, we did that; CalPERS didn't do that. I mean, we shouldn't have believed CalPERS. They gave us bogus numbers, and we believed them. Shame on us. Those contracts that we're going to have to pay off, we entered those contracts, not CalPERS. Council Member Kniss: Just for the fun of it. Don't I remember Willie Brown was on the Board for quite a while? I'm pretty sure. Ms. Mason: On the CalPERS Board? Council Member Kniss: Yeah. Ms. Mason: I'm not sure if he was on CalPERS. Council Member Scharff: Let's get him on the phone. Chair Schmid: I think we could go round and round, but we do have a date of November 3rd. There's no motion needed. Mr. Perez: No. We wanted to hear your comments, and we have. We've noted them, and we'll pass them on to Mr. Bartel. Any other questions you TRANSCRIPT    Page 28 of 28  Finance Committee Special Meeting  Transcript 10/20/2015  want to give us ahead of time, it would be appreciated so he can work on any particular responses. Council Member Kniss: You said last time he was limited to one hour. You're saying this time he's got time for us? Ms. Mason: Right. That's the only item on the agenda. Isn't it? Mr. Perez: We have one other small—the Library Oversight Committee report on the bond, but it's information mostly. Chair Schmid: Thank you very much. Look forward to the CAFR pension discussion. That completes Item Number 1. Council Member Scharff: Are you guys joining me on my Colleagues Memo to allow alcohol in City Hall? Council Member Filseth: To allow alcohol in City Hall? I don't think we need it, because most of us drink here anyway. NO ACTION TAKEN ADJOURNMENT: The meeting was adjourned at 7:47 P.M. City of Palo Alto (ID # 6306) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Purchase of Portable Radios for Police and Fire Title: Approval of Police Department Purchase of Multi-Band Portable Radios for the Police and Fire Departments in an Amount Not To Exceed $625,000 From: City Manager Lead Department: Police RECOMMENDATION Staff recommends that City Council approve and authorize the City Manager or his designee to execute the purchase of multi-band portable radios and accessories for the Police and Fire Departments in an amount not to exceed $625,000. BACKGROUND The City Council approved the City of Palo Alto’s participation in the Silicon Valley Regional Communications System (SVRCS) on June 22, 2015. This 700 MHz radio system will be utilized by all Santa Clara County Municipal and County agencies as well as the Valley Transit Authority (VTA) to provide interoperable communications for Police and Fire personnel and enhanced capabilities for Public Works, Utilities and all other City of Palo Alto radio users. The migration to the new system will occur in phases with agencies continuing to operate on different frequencies until the project is completed. Palo Alto is in the West Cell of the SVRCS (there are three cells - West, Central and South) and the infrastructure for this cell is nearly complete. The cities of Sunnyvale and Santa Clara have migrated to the new system, and Palo Alto anticipates moving to SVRCS in the first quarter of 2017. Public Safety users will need to communicate on multiple frequencies with the remaining agencies in Santa Clara County during the transition period, which is expected to be completed in 2019, and with the City’s neighbors in San Mateo County who will remain on legacy systems. Fire personnel will have a continued need to communicate on VHF frequencies for the foreseeable future when traveling outside of Santa Clara County. DISCUSSION In order to provide multi-frequency communications special radios are required. Motorola portable and mobile radios have been approved by SVRCS and are compatible with the City’s existing Police and Fire radios. The City intends to purchase 94 multiband portable (on hip) City of Palo Alto Page 2 radios for Police (54) and Fire (40) with $562,000 of the funds recommended in this memorandum. The remaining $63,000 will be used for ancillary radio equipment such as bank chargers and custom microphones for Fire. There may be a need for additional radios for Police and Fire command staff as well. Replacing portable radios for public safety is the first phase of radio replacement for the new system. The second phase will address mobile (in vehicle) radio replacement. Once a needs assessment has been completed, the departments will return to Council to request purchasing mobile radios for both Police and Fire fleets. In the final phase Utilities, Public Works and other City of Palo Alto radio users will be provided single band 700 MHz portable and mobile radios, (which cost significantly less than the multi-frequency radios purchased for public safety), prior to the completion of the transition. City of Palo Alto Page 3 RESOURCE IMPACT The Silicon Valley Regional Interoperability Authority (SVRIA) negotiated favorable pricing on these radios and the cost with accessories represents a 44 percent discount from Motorola’s retail pricing (see attachments A and B). The purchase will be funded from the Radio Infrastructure Replacement Capital Improvement Project (CIP) (TE-05000). As seen in the chart below, the City’s total cost related to the SVRCS Project is estimated to be $4.0 million. As approved in the Fiscal Year 2016 Capital Budget, $1.3 million is available in this CIP for SVRCS purchases, and the Council allocated additional funding of $1.0 million to this CIP for SVRCS participation and the necessary radios purchases on June 22, 2015. The additional $1.7 million will be funded as part of the Fiscal Year 2017 and 2018 budget processes. Investment Type General Fund Enterprise Funds Total Cost Infrastructure $1,370,000 $560,000 $1,930,000 Radios and Consoles $1,640,000 $440,000 $2,080,000 Total Anticipated Project Costs $3,010,000 $1,000,000 $4,010,000 Available Funding (TE-05000) $1,800,000 $500,000 $2,300,000 Amount to be Funded in Future Years $1,210,000 $500,000 $1,710,000 With this purchase, $1,675,000 of the appropriated funding will still be available to fund SVRCS purchases in the Radio Infrastructure Replacement CIP. POLICY IMPLICATIONS Expenditure of funds is consistent with City policy. ENVIRONMENTAL REVIEW The equipment being supplied is in conformance with all applicable emissions laws and regulations. Attachments:  Attachment A - Motorola Police Quote 121515 (PDF)  Attachment B - Motorola Fire Quote 011216 (PDF)  Attachment C - MOU SVRIA SVRCS (PDF) Date: RADIO EQUIPMENT PROPOSAL BILLTO:City of Palo Alto Police Department SHIP TO:City of Palo Alto Attn: Charles Cullen Attn: Charles Cullen 275 Forest Avenue 275 Forest Avenue Palo Alto, CA 94301 Palo Alto, CA 94301 charles.cullen@cityofpaloalto.org 650.329.2331 Item ProductNumber Description Unit Price Total List Price SVRIA Qty Discount Incentive III.C Price 1 54 54 H91TGD9PW7AN APX8000 All Band Portable Phase II 5,959.00 4,290.48 3,368.03 181,873.62 Model 3.5 1a 54 54 Q806 Astro Digital CAI, P25 515.00 370.80 291.08 15,718.32 1b 54 54 H38 Smartzone Operation 1,500.00 1,080.00 847.80 45,781.20 1c 54 54 Q361 P25 9600 Baud Trunking 300.00 216.00 169.56 9,156.24 1d 54 54 QA00580 TDMA Operation 450.00 324.00 254.34 13,734.36 1e 54 54 Q629 AES Encryption 475.00 342.00 268.47 14,497.38 1f 54 54 H869 Multikey 330.00 237.60 186.52 10,072.08 1g 54 54 G996 Programming over P25 (OTAP)100.00 72.00 56.52 3,052.08 1h 54 54 GA00232 3 Year Repair Service Advantage 150.00 150.00 150.00 8,100.00 2 54 54 NNTN7080 Charger, Single Unit Rapid, Impres 125.00 90.00 70.65 3,815.10 3 54 54 PMMN4084 SpeakerMic, Noise Canceling,3.5jack 95.00 68.40 53.69 2,899.26 4 54 54 PMLN6130A Surveillance Kit, 2-Wire, Beige, Impres 122.00 87.84 68.95 3,723.30 5 77NNTN7065 Multiunit Charger, 6-Slot, Impres 788.00 567.36 445.38 3,117.66 6 54 54 NNTN7038 Battery, 2900mAh, Lithium, Impres 142.00 102.24 80.26 4,334.04 7 54 54 RLN4941 Earpiece, Receive Only Acoustic Tube 58.00 41.76 32.78 1,770.12 0 - 0 - The following terms must be included on the purchase orders that have the SVRIA contract pricing: All Agency Migration orders must include: 0 - 0 - Terms: Net 30 Total Equipment Cost 321,644.76$ Contract: SVRIA Proposal Valid for: 12/30/15 Purchase Order Number: Estimated Tax: 8.75% 28,143.92$ Approximate Delivery Date: Ship/Handling -$ Prepared By: Ken McCarthy, Authorized Manufacturer's Representative Subtotal Taxable 349,788.68$ FTU NEW ADD UPGRADE -$ Accepted By:______________________Date:_____________ TOTAL 349,788.68$ *Please note installation may be approximate until free job walk is complete. **Frequency Coordination/License fees are paid directly to the licensing agency. Motorola is not responsible for customer licenses, frequency coordination or radios that are programmed previous to F.C.C granting of customer licenses. 1307 E. Algonquin Rd., Schaumburg, IL 60196 Phone: 866.593.3190 Fax: 214.343.5555 12/18/15 Quantity Prepared by Ken McCarthy, Motorola Manufacturer's Representative, ken.mccarthy@bearcom.com, 707.249.1565 The equipment and services listed for purchase include all current subscriber and console requirements of the agency to allow participation of City of Palo Alto on SVRCS for its operational requirements. This purchase is governed by the terms and conditions of the contract between Motorola Solutions and the County of Santa Clara, California for SVRCS. Date: RADIO EQUIPMENT PROPOSAL BILLTO:Palo Alto Fire Department SHIP TO:Palo Alto Fire Department Attn: Charles Cullen Attn: Charles Cullen 275 Forest Avenue 275 Forest Avenue Palo Alto, CA 94301 Palo Alto, CA 94301 charles.cullen@cityofpaloalto.org 650.329.2331 Item ProductNumber Description Unit Price Total List Price SVRIA Qty Discount Incentive III.C Price Extended Total 1 40 40 H49TGD9PW1 N Motorola APX7000XE Portable Radio 3,836.00 2,761.92 2,168.11 86,724.40 700/800Mhz, 3 Watt, Dual Band 1a 40 40 Q806 Software, Astro Digital CAI, P25 515.00 370.80 291.08 11,643.20 1b 40 40 H38 Smartzone System Software 1,500.00 1,080.00 847.80 33,912.00 1c 40 40 Q361 P25 9600 Baud Trunking 300.00 216.00 169.56 6,782.40 1d 40 40 QA00580 TDMA Operation 450.00 324.00 254.34 10,173.60 1e 40 40 QA00569 700/800Mhz Primary Band 0.00 0.00 0.00 0.00 1f 40 40 QA00574 VHF Secondary Band 0.00 0.00 0.00 0.00 1g 40 40 QA00577 Large Color Display, Full Keypad 500.00 360.00 282.60 11,304.00 1h 40 40 QA00579 Enable Dual Band Operation 1,000.00 720.00 565.20 22,608.00 1i 40 40 G996 Programming over P25 (OTAP)100.00 72.00 56.52 2,260.80 1j 40 40 QA05574AA Battery,2300mAh Lithium, I/S, UL 50.00 36.00 28.26 1,130.40 1k 40 40 GA00232 3 Year Repair Service Advantage 150.00 150.00 150.00 6,000.00 2 10 10 NNTN8930 Battery,2300mAh Lithium, I/S, UL 140.00 100.80 79.13 791.30 3 34 34 RLN6434A Travel Charger 101.00 72.72 57.09 1,941.06 0 0.00 0 0.00 0 The following terms must be included on the purchase orders that have the SVRIA contract pricing: 0 All Agency Migration orders must include: 0 - 0 - Terms: Net 30 Total Equipment Cost 195,271.16$ Contract: SVRIA * Installation Proposal Valid for: 3/30/16 Development and Programming Purchase Order Number: Estimated Tax: 8.75% 17,086.23$ Approximate Delivery Date: Ship/Handling -$ Prepared By: Ken McCarthy, Authorized Manufacturer's Representative Total Purchase 212,357.39$ FTU NEW ADD UPGRADE Less Down Payment Accepted By:______________________Date:_____________ TOTAL 212,357.39$ *Please note installation may be approximate until free job walk is complete. **Frequency Coordination/License fees are paid directly to the licensing agency. Motorola is not responsible for customer licenses, frequency coordination or radios that are programmed previous to F.C.C granting of customer licenses. 1307 E. Algonquin Rd., Schaumburg, IL 60196 Phone: 866.593.3190 Fax: 214.343.5555 01/12/16 Quantity Prepared by Ken McCarthy, Motorola Manufacturer's Representative, ken.mccarthy@bearcom.com, 707.249.1565 This purchase is governed by the terms and conditions of the contract between Motorola Solutions and the County of Santa Clara, California for SVRCS. The equipment and services listed for purchase include all current subscriber and console requirements of the agency to allow participation of City of Palo Alto on SVRCS for its operational requirements. Page 1 of 19 MEMORANDUM OF UNDERSTANDING SILICON VALLEY REGIONAL COMMUNICATIONS SYSTEM BETWEEN THE SILICON VALLEY REGIONAL INTEROPERABILITY AUTHORITY AND THE CITY OF PALO ALTO This Memorandum of Understanding (“MOU”) is made and entered into this ___ day of _____________ , 2015, by and between the Silicon Valley Regional Interoperability Authority, a California Joint Powers Authority ("SVRIA”), and the City of Palo Alto, a municipal corporation of the State of California (“AGENCY”) (together “Parties”). RECITALS WHEREAS, in 2001, the Cities of Campbell, Cupertino, Gilroy, Los Altos, Milpitas, Monte Sereno, Morgan Hill, Mountain View, Palo Alto, Santa Clara, San Jose, Saratoga, and Sunnyvale; the Towns of Los Gatos and Los Altos Hills; the South Santa Clara County Fire District; the County of Santa Clara; San Jose State University; and the Santa Clara Valley Water District executed a Joint Funding Agreement (“Joint Funding Agreement”) pursuant to the Joint Exercise of Powers Act, Title 1, Division 7, Chapter 5 of the California Government Code, Government Code Section 6500 et seq., to jointly hire consultants to complete the conceptual design and implementation strategy for a regional interoperable communications network, to jointly purchase a radio and data communications system, to integrate this system or network with other nearby regional public safety communications systems, to participate in regional interoperability systems, to jointly fund activities and systems related to interoperability and to jointly apply for grants and funding to facilitate accomplishing these goals; WHEREAS, in 2010, the Cities of Campbell, Cupertino, Gilroy, Los Altos, Milpitas, Monte Sereno, Morgan Hill, Mountain View, Palo Alto, Santa Clara, San Jose, Saratoga, and Sunnyvale; the Town of Los Gatos and the County of Santa Clara (collectively “MEMBERS”) entered into a joint powers agreement (“JPA Agreement”) to form the Silicon Valley Regional Interoperability Authority (“SVRIA”), with similar goals and purpose as commenced under the Joint Funding Agreement; WHEREAS, paying entities, which are not MEMBERS of SVRIA (“PARTICPANTS”) will execute this MOU; WHEREAS, SVRIA continues to plan and develop a regional communications interoperability system that will require the financial commitment of SVRIA MEMBERS and PARTICIPANTS by and through this MOU to fund the construction, operation and maintenance of such system; WHEREAS, grant and local funds have been provided to SVRIA directly or through MEMBERS to improve interoperability through the multi-stage build out of a three cell, multi-site P25 Phase 2 TDMA 700 MHz Trunked Radio Simulcast Communications System, to be known as the Silicon Valley Regional Communications System ("SVRCS"); Page 2 of 19 WHEREAS, the County of Santa Clara (“County”) is the Fiscal Agent and the Contract Manager for SVRIA and the SVRCS build-out (“System”); WHEREAS, in order to facilitate the construction of the SVRCS, the Parties wish to affirm their continued financial support for a regional interoperable communication system as agreed in this MOU; WHEREAS, AGENCY and SVRIA enter into this MOU under which the SVRIA will own and operate the System for the benefit of AGENCY and other MEMBERS and PARTICIPANTS, which other MEMBERS and PARTICIPANTS will execute Memoranda of Understanding similar to this one (collectively, the "MOU’s"). MEMBERS and PARTICIPANTS will pay, a portion of the cost of the System, consisting of a buy-in cost based on the number of radios committed for use on the System (the "Construction and Implementation Payments"), and the cost of annual operation (the "Operation and Maintenance Payments''), (all Payments are referred to herein collectively as the "AGENCY Payments''); WHEREAS, this MOU is intended to establish a means of requiring the MEMBERS’ Payments and PARTICIPANTS’ payments ensuring the sound operation and financing of the System, and is not in itself an approval of the System or the grant of any land use entitlement potentially required to develop the System; and WHEREAS, it is anticipated that users of the SVRCS will include entities that enter into a memorandum of understanding similar to this MOU, after the SVRCS is fully functional. (“FUTURE PARTICIPANTS”). NOW, THEREFORE, for good and valuable consideration, the adequacy and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows. SECTION 1. DEFINITIONS AGENCY: The AGENCY entering into this MOU. Construction: The complete planning, design, construction, acquisition, financing, improvement, repair, modification and installation of the SVRCS . Construction and Implementation Payments: Payments made under this MOU for the purpose of building the SVRCS. County: The County of Santa Clara. FUTURE PARTICIPANTS 1: Entities who enter into a MOU and make their payment after June 30, 2016, but on or before July 1, 2017. FUTURE PARTICIPANTS 2: Entities who enter into this MOU after July 1, 2017. Page 3 of 19 Joint Funding Agreement: Joint Funding Agreement is the agreement entered into by the predecessors to SVRIA in 2001 for the purposes of funding and implementing interoperability countywide. JPA Agreement: The original agreement entered into by Members of the SVRIA in order to form the JPA. Operations and Maintenance Payments: Payments made based upon this MOU for the ongoing operations and maintenance of the SVRCS. MEMBERS: The members of the SVRIA under the Joint Powers Agreement. MOU: This Memorandum of Understanding. PARTICIPANTS: Parties to a memorandum of understanding similar to this MOU that are not members of SVRIA and enter into a MOU on or before June 30, 2016. . SVRCS or System: The three cell, multi-site System P25 Phase 2 TDMA 700 MHz Trunked Radio Simulcast Communications System, to be known as the Silicon Valley Regional Communications System. This includes the entire build out interoperable communications system envisioned by SVRIA. SVRIA: The Silicon Valley Regional Interoperability Authority, formed in 2010 for the purposes of funding and implementing interoperability countywide and as a successor entity to the entity created under the Joint Funding Agreement. Termination Date: December 31, 2029, unless earlier terminated by the Parties. User Count: Radio Subscriber count as provided by the Members or Participants as of April 13, 2015 and reflected in Exhibit “A”. SECTION 2. PURPOSES OF THE MOU The purposes of this MOU are to: 2.1 Require payment by the AGENCY for its share of the regional SVRCS costs; and 2.2 Set forth the MEMBERS, PARTICIPANTS and the SVRIA's responsibilities for completion of the SVRCS build out. 2.3 Set forth SVRIA’s obligations to maintain and operate the SVRCS. SECTION 3. OPERATION OF THE SYSTEM 3.1 SVRIA has entered or will enter into purchase orders and contracts to supervise and Page 4 of 19 provide for, or cause to be supervised and provided for, the complete planning, design, construction, acquisition, financing, improvement, repair, modification and installation of the SVRCS (collectively, "Construction"). SVRIA will cause the Construction to be diligently performed in accordance with the specifications approved by the SVRIA. 3.2 SVRIA shall operate the System in conjunction with the MEMBERS for the duration of this MOU. 3.3 AGENCY shall have the right to use the System during the term of the MOU, unless AGENCY is in default on AGENCY Payments required hereunder after the applicable cure period set forth in Section 20. 3.4 The SVRCS shall only be used for public safety communications and other governmental uses for the MEMBERS’ and PARTICIPANTS’ benefit and convenience. SVRIA agrees to maintain and preserve the System in good repair and working order at all times, to operate the System in an efficient and economical manner, and to pay all the System’s maintenance and operation costs as they become due. AGENCY acknowledges that SVRIA has complete ownership and the sole discretion to operate, control and manage the System. Nothing in this MOU shall be construed to limit SVRIA's discretion in the System’s operation, control and management. 3.5 SVRIA agrees to use commercially reasonable efforts to hire the County of Santa Clara, City of San Jose and/or other contractors to operate and maintain the System. 3.6 AGENCY agrees to purchase the components it uses with the SVRCS service from or with the cooperation of SVRIA. AGENCY shall not use any components with the SVRCS service which SVRIA has not authorized for its use. AGENCY shall not use the SVRCS in any manner which may adversely affect the service provided by the System. 3.7 SVRIA shall attempt to obtain the land use permits, if any, that are required for Construction. In the event a particular permit cannot be reasonably obtained for a particular site, SVRIA will seek one or more reasonable alternate sites. SECTION 4. MODIFICATION OF SYSTEM SVRIA shall have the right to make additions, modifications and improvements to the System or any portion thereof. All additions, modifications and improvements to the System shall thereafter comprise part of the System and become subject to the MOU’s provisions. Such additions, modifications and improvements shall not in any way damage the System, or cause the System to be used for purposes other than those authorized under the MOU’s provisions, state and federal law. The System, upon completion of any additions, modifications and improvements made thereto pursuant to this Section, shall be of a value which is not substantially less than the value thereof immediately prior to the making of such additions, modifications and improvements. Page 5 of 19 SECTION 5. PAYMENT OF THE INITIAL PAYMENT AND AGENCY PAYMENTS 5.1 AGENCY shall make Construction and Implementation Payments on the dates in Section 22.1 and in the amounts shown in Exhibit “A”. AGENCY shall make annual Operations and Maintenance Payments on the dates and in the amounts as calculated by the formula listed in Exhibit “B” or the amounts listed in Exhibit “B 5.2 AGENCY provided User Counts are contained in Exhibit “A”. Agencies may increase its User Count after entering into this MOU by the payment of user charge based upon the following formula: Total User Count as shown on Exhibit “A” divided by the total Infrastructure Cost = New User Count Charge. Effective January 1, 2016 and each year thereafter the New User Count Charge shall be increased by an amount equivalent to the then-current User Count Charge multiplied by the percentage increase in the Consumer Price Index – Consolidated Metropolitan Statistical Area (CPI) covering San Francisco - Oakland - San Jose, as published by the Bureau of Labor Statistics, U.S. Department of Labor, between the most recent October and the preceding October. The increase in New User Charge shall be compounded. Agency Operations and Maintenance Costs shall be increased commensurate with the increase in User Counts. Should the Agency User Count decrease in any year Operations and Maintenance Payments will not be reduced except as described in Section 24. SECTION 6. PARTICIPANTS AND FUTURE PARTICPANTS 6.1 PARTICIPANTS as listed in Exhibit “A” shall pay their pro rata share of the System costs in a timely fashion at the same time MEMBERS make their Payments on or before September 30, 2015. PARTICIPANTS, not listed in Exhibit “A” and join on or before June 30, 2016 shall pay their pro rata share at the time of execution. 6.2 FUTURE PARTICIPANTS 1 who enter into a MOU after June 30, 2016, but on or before July 1, 2017 shall make a special Construction and Implementation Payment to cover previously expended costs by MEMBERS and PARTICIPANTS as well as periodic payments at the times required of other MEMBERS and PARTICIPANTS during the term of this MOU. These special Construction and Implementation payments shall be utilized in part to recalculate payments for Construction and Implementation payments for all MEMBERS, PARTICIPANTS and FUTURE PARTICIPANTS 1 and for additional capacity or system enhancements or held in reserve for the same purpose. 6.3 FUTURE PARTICIPANTS 2 who enter into a MOU after July 1, 2017 shall make a special Construction and Implementation Payment as well as periodic payments at the times required of other MEMBERS and PARTICIPANTS and FUTURE PARTICIPANTS 1 during the term of this MOU. These special Construction and Implementation payments shall be utilized in part to recalculate Operations and Maintenance payments for all MEMBERS, PARTICIPANTS and FUTURE PARTICPANTS 1 and FUTURE PARTICIPANTS 2 and for additional capacity or system enhancements or held in reserve for the same purpose. Page 6 of 19 SECTION 7. SOURCE OF PAYMENTS: BUDGET AND APPROPRIATION 7.1 AGENCY shall make the AGENCY Payments from any source of legally available AGENCY funds. AGENCY agrees to include all AGENCY Payments in each proposed annual AGENCY budget during the term of this MOU. AGENCY shall make the necessary annual appropriations for Construction and Implementation payments in FY 2015 – 2016, 2016 – 2017 and 2017 – 2018. AGENCY Payments may be made at any time prior to the deadline for such Payment; there are no prepayment penalties under this MOU. 7.2 Notwithstanding paragraph 7.1, in accordance with Article XVI, Section 18 of the California Constitution, if in any fiscal year subsequent to the execution of this MOU the AGENCY fails to appropriate money for the purpose of funding this MOU, this MOU shall terminate, without penalty effective upon the close of business on the last day of the fiscal year for which funding has been appropriated. SECTION 8. OPERATION AND MAINTENANCE PAYMENTS In addition the Payments required in this MOU, AGENCY shall continue to make MEMBER Assessment payments as required under the JPA Agreement through the end of fiscal year 2017 – 2018.At the start of fiscal year 2018 – 2019, AGENCY shall begin to make Operation and Maintenance Payments as listed in Exhibit “B”, in lieu of Member Assessments so long as the SVRCS is operating. SECTION 9. ROLE OF GRANT FUNDING In the event that grant funding can be utilized to reduce the overall System costs, the cost reduction will be apportioned to the SVRCS on behalf of all MEMBERS and PARTICIPANTS in a pro rata fashion for the benefit of the System. SECTION 10. CONSTRUCTION BUDGET CONTINGENCY SVRIA has established a 20% construction budget contingency within the System budget. SVRIA shall use these funds for the SVRCS, if unexpected construction costs or increased costs occur. If at the conclusion of System Construction, contingency funds remain, such funds shall be transferred to SVRIA for use as a reserve for Operations and Maintenance costs. SECTION 11. RECEIPT AND DEPOSIT OF AGENCY PAYMENTS SVRIA agrees that it will deposit the AGENCY Payments with the SVRIA’s fiscal agent, the County, for the benefit of the SVRCS. SECTION 12. COMPLIANCE WITH MOU Time is of the essence with respect to the AGENCY Payments and the performance of SVRIA under this MOU. AGENCY shall observe and perform all the agreements, Page 7 of 19 conditions, covenants and terms contained herein. SVRIA shall observe and perform all the agreements, conditions, covenants and terms contained herein. It is expressly understood and agreed by the Parties that each of the agreements, conditions, covenants and terms contained herein is an essential and material term of the MOU and the operation of the System by SVRIA. SECTION 13. ACCESS TO SYSTEM Upon reasonable notice to SVRIA, AGENCY or its authorized representative shall have the right at all reasonable times to enter, examine and inspect the System or any part thereof. AGENCY, any Authorized Representative of AGENCY and AGENCY’s successors or assigns shall further have such rights of access to the System or any component thereof as may be reasonably necessary to cause the proper maintenance of the System in the event of failure by the SVRIA to perform its obligations hereunder; provided, however, that neither AGENCY nor any of their assigns shall have any obligation to cause such proper maintenance. SECTION 14. INSURANCE 14.1 SVRIA shall procure and maintain, or cause to be procured and maintained, throughout the term of this MOU, casualty insurance against loss or damage to the System. This insurance shall, as nearly as practicable, cover loss or damage that is normally covered by such insurance with extended coverage. This insurance shall not be required to cover loss or damage caused by seismic activity. This insurance shall be subject to deductibles as are customarily maintained by public agencies with respect to works and properties of a like character. The insurance may be maintained as part of or in conjunction with any other insurance coverage carried by SVRIA, and may be maintained in whole or in part in the form of the participation by SVRIA in a joint powers authority or other program providing pooled insurance. MEMBERS, PARTICIPANTS, FUTURE PARTICIPANTS 1 and FUTURE PARTICIPANTS 2 as each approves the MOU and makes their payment shall be named as additional insured on SVRIA’s liability coverage insurance. 14.2 SVRIA shall maintain or cause to be maintained throughout the MOU’s term, a standard comprehensive general insurance policy or policies whose minimums are at least one million ($1,000,000) dollars per occurrence to protect SVRIA, AGENCY, and their respective members, officers, agents, employees, designated volunteers and assigns. The policy or policies shall provide for indemnification of said Parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of operating the System as required by the JPA Agreement. Such policy or policies shall provide coverage in such liability limits and be subject to such deductibles as SVRIA shall deem adequate and prudent. This insurance may be maintained as part of or in conjunction with any other insurance coverage carried by SVRIA. Any available insurance proceeds broader than or in excess of the specified minimum insurance coverage requirements and/or limits set forth in this Agreement shall be deemed to be the minimum amount of insurance required under this Agreement and shall be available to the Parties. Page 8 of 19 14.3 Insurance required to be maintained by subparagraphs 14.1 or 14.2 above, may be obtained under a self-insurance program. SVRIA’s coverage shall be primary insurance with respect to the Agency; and Agency’s insurance shall be excess of SVRIA's insurance and shall not contribute with it. 14.4 INSURANCE: AGENCY shall, at its own expense maintain in effect, a program of self-insurance and/or insurance of general liability coverage, including automobile liability, in the amount of at least one million ($1,000,000) dollars per occurrence and in the aggregate as well as statutory California Workers’ Compensation coverage. The coverage shall remain in effect during the entire term of this MOU. AGENCY shall provide evidence upon the request of SVRIA that the required insurance coverage is in effect. 14.5 SVRIA shall require that errors and omissions insurance in the amount of at least one million ($1,000,000) dollars per claim for any architects or engineers retained for the design and construction of the system. SECTION 15. BOOKS AND ACCOUNTS 15.1 SVRIA will keep complete and accurate financial records for the System. SVRIA shall keep such records separate from all other SVRIA financial records. Upon reasonable notice to SVRIA, AGENCY may inspect the SVRIA’s System financial records. 15.2 Not more than two hundred and ten (210) days after the close of each fiscal year, SVRIA will prepare: 15.2.1 System financial statements in accordance with Generally Accepted Accounting Principles. 15.2.2 An Accountant's Report based thereon, prepared by an Independent Certified Public Accountant who examined such financial statements. 15.2.3 A summary statement of the System’s financial condition. SVRIA shall furnish a copy of the summary statement to AGENCY. 15.3 Not more than two hundred and ten (210) days after the completion of all work associated with SVRCS Construction, the SVRIA shall prepare and submit a final report to AGENCY disclosing SVRIA’s disbursements of the funds provided by all MEMBERS, PARTICIPANTS and FUTURE PARTICIPANTS. SECTION 16. PAYMENT OF TAXES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS SVRIA will pay and discharge all taxes, assessments and other governmental charges, if any, which may hereafter be lawfully imposed upon the System when due. SVRIA will conform to the valid requirements of any governmental agency with authority relative to the Construction or the System. Without limiting the foregoing, SVRIA shall comply with Page 9 of 19 all applicable laws and written policies and regulations of the federal, state and local governments in the construction and operation of the SVRCS and the performance of SVRIA under this MOU. SECTION 17. FURTHER ASSURANCES SVRIA and AGENCY will each adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the Parties’ performance of this MOU. SECTION 18. SVRIA REPRESENTATIONS AND WARRANTIES SVRIA represents and warrants to AGENCY as follows: 18.1 Due Organization and Existence. SVRIA is a joint exercise of powers authority duly organized and validly existing under the JPA Agreement and the laws of the State of California. SVRIA has the full legal right, power and authority under the laws of the State of California to enter into this MOU and to carry out all of its obligations herein. 18.2 Due Execution. SVRIA’s representatives, who sign this MOU, are authorized to sign pursuant to a resolution adopted by the SVRIA’s Board of Directors. 18.3 Valid, Binding and Enforceable Obligations. This MOU has been authorized and executed by SVRIA and constitutes the legal, valid and binding agreement of SVRIA, enforceable against SVRIA in accordance with its terms. SECTION 19. AGENCY REPRESENTATIONS AND WARRANTIES AGENCY represents covenants and warrants to SVRIA as follows: 19.1 Due Organization and Existence. AGENCY is a public body, corporate and politic, duly organized and validly existing under the laws of the State of California. It has full legal right, power and authority to enter into this MOU and to carry out all of its obligations herein. 19.2 Due Execution. AGENCY’s representatives, who sign this MOU, are authorized to sign pursuant to an official action taken by AGENCY’s governing body. 19.3 Valid, Binding and Enforceable Obligation. This MOU has been authorized and executed by AGENCY and constitutes the legal, valid and binding agreement of AGENCY, enforceable against AGENCY in accordance with its terms. SECTION 20. EVENTS OF DEFAULT The following events are Events of Default hereunder: 20.1 Failure by AGENCY to abide by or perform any of its obligations in this MOU within the thirty (30) day period from the date of AGENCY’s receipt of SVRIA’s written notice Page 10 of 19 specifying such failure and requesting that it be remedied. Such failure shall not constitute an Event of Default if AGENCY diligently and in good faith, commences to cure the failure within such thirty (30) day period and thereafter completes the cure of such failure within a reasonable period of time. If AGENCY does not complete the cure of the Event of Default in a reasonable time or fails to diligently attempt such cure, SVRIA may terminate this MOU. 20.2 Failure by SVRIA to abide by or perform any of its obligations in this MOU within the thirty (30) day period from the date of SVRIA’s receipt of AGENCY’s written notice specifying such failure and requesting that it be remedied. Such failure shall not constitute an Event of Default if SVRIA diligently and in good faith, commences to cure the failure within such thirty (30) day period and thereafter completes the cure of such failure within a reasonable period of time. If SVRIA does not complete the cure of the Event of Default in a reasonable time or fails to diligently attempt such cure, AGENCY may terminate this MOU. 20.3 AGENCY files a petition seeking arrangement or reorganization under federal bankruptcy laws or similar state law, or if a court of competent jurisdiction shall approve a petition filed against AGENCY seeking arrangement or reorganization under the federal bankruptcy laws or similar state law, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of such AGENCY or of the whole or a substantial part of its property. Notwithstanding the foregoing, such filing shall not constitute an Event of Default if AGENCY continues to pay its AGENCY Payments on time. 20.4 SVRIA files a petition seeking arrangement or reorganization under federal bankruptcy laws or similar state law, or if a court of competent jurisdiction shall approve a petition filed against SVRIA seeking arrangement or reorganization under the federal bankruptcy laws or similar state law, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of SVRIA. SECTION 21. REMEDIES NOT EXCLUSIVE No remedy herein conferred upon or reserved in this MOU is exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise, and all such remedies may be exercised without exhausting and without regard to any other remedy. SECTION 22. AGENCY’S OBLIGATIONS 22.1 AGENCY’s Payment. AGENCY shall pay to the SVRIA money in the amount stated on the SVRIA invoice in an approximate amount as specified in Exhibit “A” to the SVRIA to fully offset the AGENCY’s portion of the regional SVRCS cost. Payments shall commence in fiscal year 2015 – 2016 unless otherwise designated in Exhibit “A”. These payments shall be made by September 30, 2015 and by each succeeding September 30 and shall Page 11 of 19 last for a minimum of three fiscal years as delineated in Exhibit A. Operation and Maintenance Payments, as shown in Exhibit “B”, shall commence on September 30, 2018 and continue throughout the term of the MOU. AGENCY shall make these payments on or before September 30 of each successive fiscal year. Operations and Maintenance costs for future years may increase, but such increase will be limited to actual costs and reserve requirements. 22.2 AGENCY’s Role in SVRCS. During the Construction and Operation of the SVRCS: 22.2.1 AGENCY shall provide technical support including testing during the System Construction and delivery. 22.2.2 AGENCY shall participate in System meetings with SVRIA and its contractor(s). 22.2.3. AGENCY shall coordinate with SVRIA for the System upgrade and maintenance work at all AGENCY facilities. 22.2.4 AGENCY shall assist SVRIA with the final acceptance of the SVRCS by testing System performance, evaluating workmanship and verifying installed equipment inventories. 22.2.5 AGENCY's costs to administer and participate in usage of the SVRCS will not be reimbursed through the SVRCS grant funds, the JPA Agreement or by SVRIA. SECTION 23. SVRIA'S OBLIGATIONS In consideration of AGENCY’s Payment, SVRIA shall fulfill the obligations listed below: 23.1 Tasks. SVRIA shall perform and be responsible for the following tasks for completing the SVRCS , including, but not limited to: 23.2.1 Serve as System Manager for the SVRCS, or retain a qualified contractor(s) to serve as System Manager for the SVRCS, 23.2.2 Fulfill CEQA requirements, if any. 23.2.3 Implement Construction in accordance with UASI and SHSGP Grant guidelines. SECTION 24. TERM OF MOU 24.1 This MOU commences upon the full execution of the MOU ("Effective Date") and shall expire on December 31, 2029. The MOU shall be automatically extended for two (2) additional three-year periods. One year prior to each expiration date, SVRIA shall inform each Member or Participant of the approaching automatic extension of the term of the MOU. Any Member or Participant may notify the SVRIA in writing within one Page 12 of 19 hundred and eighty (180) days of such notice, that it does not agree to the extension of the term of the MOU. The Operations and Maintenance payments for the remaining MEMBERS or PARTICIPANTS shall be adjusted based upon actual User Count as of June 30 of the year in which the MOU terminates starting in, 2029, and at the expiration of the first three year extension period. All financial commitments of AGENCY for Payments while AGENCY is a MEMBER and/or while this MOU applies to AGENCY shall extend past the termination date unless the commitments have been satisfied prior to that date. 24.2 This MOU shall not commence unless and until the City of San Jose and the County of Santa Clara have approved this MOU and budgeted funding for the first year of the MOU. If the any Member or Participant terminates this MOU then the SVRIA shall meet and confer in good faith concerning the continued operation of SVRCS and possible amendment to this Agreement. SECTION 25. OWNERSHIP, MAINTENANCE, INSURANCE AND MANAGEMENT County, as Fiscal Agent for the UASI and SHSGP Grants, shall own, maintain, insure, and manage all infrastructure equipment and upgrades installed as part of the SVRCS upon the System’s final acceptance by the County, until such time as SVRIA assumes ownership, maintenance, insurance, and management responsibilities. If the SVRIA purchases dispatch consoles, subscriber radios and other related equipment and/or accessories on AGENCY’s behalf, such equipment shall be transferred from the SVRIA to AGENCY following SVRIA’s receipt of AGENCY’s full reimbursement of costs. SECTION 26. RELATIONSHIP OF THE PARTIES Each Party shall perform the work and services described herein as an independent contractor and not as an officer, agent, servant or employee of the other Party. None of the MOU’s provisions are intended to create, nor shall be deemed or construed to create, any relationship between the Parties other than that of independent parties contracting with each other for purpose of effecting the MOU’s provisions. The Parties are not, and will not be construed to be in a relationship of joint venture, partnership or employer-employee. Neither Party has the authority to make any statements, representations or commitments of any kind on behalf of the other Party, or to use the name of the other Party in any publications or advertisements, except with the written consent of the other Party. SECTION 27. MODIFICATION The Parties may modify this MOU only through a written document, signed by both Parties. SECTION 28. SEVERABILITY The MOU’s provisions are severable, and if for any reason, a Court with proper jurisdiction determines a clause, sentence, or paragraph of this MOU to be invalid such invalidity shall Page 13 of 19 not affect other provisions of this MOU, which shall be given effect without the invalid provision. SECTION 29. TERMINATION 29.1 This MOU may be terminated upon six months written notice to SVRIA. Should AGENCY terminate this Agreement AGENCY shall have no interest or claim in the assets of the SVRIA absent an SVRIA approved written agreement which contains express provisions to the contrary. The terminating AGENCY shall be obligated to pay a pro rata share of its payments up to the date of termination. 29.2 If the Agreement is terminated pursuant to Section 29.1 or Section 7.2 then SVRIA may remove any SVRCS equipment and relocate the equipment to support the balance of the system. Should the equipment need to be removed or relocated after termination the costs of relocation or removal shall be borne by the terminating party. 29.3 Nothing contained in this MOU or the JPA Agreement requires that AGENCY remain as a MEMBER, however the JPA Agreement does contain terms for withdrawal from the JPA. SECTION 30. SURVIVAL 30.1 After the MOU’s termination or expiration, those provisions which by their nature or context are intended to survive beyond termination or expiration, and all provisions regarding indemnification and limitations of liability, will survive indefinitely or until the expiration of the time period specified elsewhere in this MOU with respect to the provision in question. 30.2 Upon the MOU’s termination or expiration, as between the Parties, the SVRIA retains all right, title and interest in and to the SVRCS. SECTION 31. ASSIGNMENT This MOU shall be binding upon and shall inure to the benefit of the successors of the Parties. With the exception of asset transfer to SVRIA, and if applicable, AGENCY as detailed herein, no Party may assign any rights or obligations hereunder without the written consent of the other Party, except as provided herein. SECTION 32. NO WAIVER No waiver by either Party of any breach or default of any of the covenants or agreements herein shall be deemed to be a waiver as to any subsequent and/or similar breach or default. Page 14 of 19 SECTION 33. INDEMNIFICATION 33.1 SVRIA agrees to indemnify, defend and hold harmless the AGENCY, its officers, agents and employees to the fullest extent allowed by law from any and all claims, actions, causes of action, losses, damages, liabilities and costs of every nature, including all claims, actions, causes of action, losses, damages, liabilities for property damage, bodily injury, or death, and all costs of defending any claim, action or cause of action, caused by, arising out of, or resulting from, or alleged to have been caused by, arise out of, or result from, in whole or in part, SVRIA’s performance under this Agreement, except for any claims, actions, causes of action, losses, damages, costs or liabilities proximately caused by the sole negligence or willful misconduct of AGENCY. 33.2 The foregoing indemnity provision is intended to fully allocate the parties’ risk of liability to third-parties; and there shall be no rights to indemnity or contribution, in law or equity or otherwise between the parties that are not set forth in this section. SVRIA waives all rights to subrogation for any matters covered by this provision. SVRIA's responsibility for such defense and indemnity obligations as set forth in this provision shall survive the termination or completion of this MOU for the full period of time allowed by law. SECTION 34. FORCE MAJEURE "Force Majeure Event" means any circumstances or occurrence which is beyond the reasonable control of a Party including, but not limited to, acts of God, war or national emergency, riot, civil commotion, fire, explosion, flood, epidemic, strike, lock-out or other form of industrial action (other than those relating solely to any Party’s own workforce). If a Force Majeure Event affects either Party, that Party shall promptly notify the other Party of the nature and extent of the Event. No Party shall be liable for any loss or damage suffered or incurred by the other Party arising from the first Party’s delay in performing or failure to perform its obligations under the MOU to the extent that and for so long as the delay or failure results from any Force Majeure Event, provided the same arises without the fault or negligence of the first Party. Each Party shall use its commercially reasonable efforts to minimize the effects of any Force Majeure Event on the operation of this MOU and the System. SECTION 35. SUCCESSOR IS DEEMED INCLUDED IN ALL REFERENCES TO PREDECESSOR Whenever SVRIA or AGENCY is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in SVRIA or AGENCY, and all agreements and covenants required hereby to be performed by or on behalf of SVRIA or AGENCY shall bind and inure to the benefit of the respective successors thereof whether so expressed or not; provided; however, that SVRIA shall not provide service from the System to any successor to AGENCY until such successor accepts in writing, AGENCY’s obligations. Page 15 of 19 SECTION 36. WAIVER OF PERSONAL LIABILITY No board member, officer, attorney or employee of AGENCY or SVRIA shall be individually or personally liable under the MOU. SECTION 37. NOTICES 37.1 All deliveries, notices, requests, demands, or other communications provided for or required by this MOU shall be in writing and shall be deemed to have been given when sent by registered or certified mail, return receipt requested or when sent by overnight carrier;. Notices shall be addressed to: SVRIA: Heather Tannehill-Plamondon Executive Director, SVRIA 601 El Camino Real Santa Clara, CA 95050 Telephone: 408-615-5571 Email:hplamondon@svria.org AGENCY: AGENCY of XXXXXX XXXXXXXXXXXXXX XXXXXXXXXXXXXXX Attn: XXXXXXX Telephone: Email: 37.2 A Party may change its Notice contact or Notice address by written Notice to the other Party. Such change becomes effective no sooner than ten (10) days after the date of such Notice. SECTION 38. TITLES AND HEADINGS The titles, numbers and headings of paragraphs, sections, subsections, and exhibits are for convenience only and are not intended to affect the MOU’s construction or interpretation. SECTION 39. ENTIRE AGREEMENT This MOU and attached exhibits incorporate all the agreements, covenants, and understandings between the Parties concerning the subject matter hereof, and all such Page 16 of 19 agreements, covenants, and understandings have been merged into this MOU. No prior agreement or understanding, verbal or otherwise, of the Parties or their agents shall be valid or enforceable unless embodied in this MOU. SECTION 40. COUNTERPARTS This MOU may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. SECTION 41. GOVERNING LAW California law governs the MOU’s performance and interpretation. // // // // // // // // // // // // // // // // Page 17 of 19 SECTION 42. VENUE If a Party to this MOU brings a lawsuit connected to the System, the Parties agree that venue shall be exclusively vested in the State Courts of the County of Santa Clara. IN WITNESS OF, the Parties have executed the MOU through their duly authorized representatives as of the last date set forth below. Signed: SVRIA AGENCY By: ___________________________ By: _____________________________ Chair of Board of Directors Name, or Designee Date: _________________, 2015 Date: ________________, 2015 Attest: Approved as to Form and Legality: By: ___________________________ By: _____________________________ Name, or Designee (title) _______________________ Date: _______________, 2015 Date: ________________, 2015 Approved as to Form and Legality: By: _____________________________ Gary M. Baum General Counsel, SVRIA Date: ________________, 2015 MOU SVRIA SVRCS clean version Palo Alto (26) 4-14-15 Page 18 of 19 Exhibit A Cost per agency Breakdown FY14/15 FY15/16 FY16/17 FY17/18 Infrastructure Cost San Jose 2,750 26.63% 2,562,234$ 2,562,234$ 2,562,234$ 7,686,703$ Santa Clara County 2,130 20.62% 1,984,567$ 1,984,567$ 1,984,567$ 5,953,701$ VTA 2,000 19.36% 1,863,443$ 1,863,443$ 1,863,443$ 5,590,329$ Santa Clara 791 7.66% $354,639 618,779$ 618,779$ 618,779$ 2,210,975$ Palo Alto 690 6.68% 642,888$ 642,888$ 642,888$ 1,928,664$ Sunnyvale 455 4.41% 423,933$ 423,933$ 423,933$ 1,271,800$ Mountain View 300 2.90% 279,516$ 279,516$ 279,516$ 838,549$ Gilroy 262 2.54% 244,111$ 244,111$ 244,111$ 732,333$ Milpitas 249 2.41% 231,999$ 231,999$ 231,999$ 695,996$ Campbell 189 1.83% 176,095$ 176,095$ 176,095$ 528,286$ Los Gatos 140 1.36% 130,441$ 130,441$ 130,441$ 391,323$ Morgan Hill 135 1.31% 125,782$ 125,782$ 125,782$ 377,347$ Los Altos 90 0.87% 83,855$ 83,855$ 83,855$ 251,565$ SJSU 73 0.71% 68,016$ 68,016$ 68,016$ 204,047$ Community Colleges 43 0.42% 40,064$ 40,064$ 40,064$ 120,192$ South County Fire 31 0.30% 28,883$ 28,883$ 28,883$ 86,650$ 10,328 100.00%28,868,460$ April 13,2015 10,328 354,639$ 9,504,607$ 9,504,607$ 9,504,607$ 28,868,460$ Infrastructre User Count Page 19 of 19 Operations and Maitenance (FY18/19) Operations and Maitenance (FY19/20) Operations and Maitenance (FY20/21) Operations and Maitenance (FY21/22) Operations and Maitenance (FY22/23) Operations and Maitenance (FY23/24) Operations and Maitenance (FY24/25) Operations and Maitenance (FY25/26) Operations and Maitenance (FY26/27) Operations and Maitenance (FY27/28) Operations and Maitenance (FY28/29) San Jose 2,750 26.63%$1,008,125 $1,008,125 997,406$ 1,014,899$ 1,033,175$ 1,052,376$ 1,072,464$ 1,093,484$ 1,115,525$ 1,138,589$ 1,159,952$ Santa Clara County 2,130 20.62%$780,838 $780,838 772,536$ 786,086$ 800,241$ 815,113$ 830,672$ 846,953$ 864,025$ 881,889$ 898,436$ VTA 2,000 19.36%$733,182 $733,182 725,386$ 738,109$ 751,400$ 765,365$ 779,974$ 795,261$ 811,291$ 828,064$ 843,601$ Santa Clara 791 7.66%$289,973 $289,973 286,890$ 291,922$ 297,179$ 302,702$ 308,480$ 314,526$ 320,866$ 327,500$ 333,644$ Palo Alto 690 6.68%$252,948 $252,948 250,258$ 254,647$ 259,233$ 264,051$ 269,091$ 274,365$ 279,895$ 285,682$ 291,043$ Sunnyvale 455 4.41%$166,799 $166,799 165,025$ 167,920$ 170,943$ 174,120$ 177,444$ 180,922$ 184,569$ 188,385$ 191,919$ Mountain View 300 2.90%$109,977 $109,977 108,808$ 110,716$ 112,710$ 114,805$ 116,996$ 119,289$ 121,694$ 124,210$ 126,540$ Gilroy 262 2.54%$96,047 $96,047 95,026$ 96,692$ 98,433$ 100,263$ 102,177$ 104,179$ 106,279$ 108,476$ 110,512$ Milpitas 249 2.41%$91,281 $91,281 90,311$ 91,895$ 93,549$ 95,288$ 97,107$ 99,010$ 101,006$ 103,094$ 105,028$ Campbell 189 1.83%$69,286 $69,286 68,549$ 69,751$ 71,007$ 72,327$ 73,708$ 75,152$ 76,667$ 78,252$ 79,720$ Los Gatos 140 1.36%$51,323 $51,323 50,777$ 51,668$ 52,598$ 53,576$ 54,598$ 55,668$ 56,790$ 57,965$ 59,052$ Morgan Hill 135 1.31%$49,490 $49,490 48,964$ 49,822$ 50,719$ 51,662$ 52,648$ 53,680$ 54,762$ 55,894$ 56,943$ Los Altos 90 0.87%$32,993 $32,993 32,642$ 33,215$ 33,813$ 34,441$ 35,099$ 35,787$ 36,508$ 37,263$ 37,962$ San Jose State 73 0.71%$26,761 $26,761 26,477$ 26,941$ 27,426$ 27,936$ 28,469$ 29,027$ 29,612$ 30,224$ 30,791$ Community Colleges 43 0.42%$15,763 $15,763 15,596$ 15,869$ 16,155$ 16,455$ 16,769$ 17,098$ 17,443$ 17,803$ 18,137$ South County Fire 31 0.30%$11,364 $11,364 11,243$ 11,441$ 11,647$ 11,863$ 12,090$ 12,327$ 12,575$ 12,835$ 13,076$ 10,328 100.00%$3,786,150 $3,786,150 3,745,893$ 3,811,593$ 3,880,229$ 3,952,343$ 4,027,786$ 4,106,729$ 4,189,508$ 4,276,125$ 4,356,358$ April 13, 2015 10,328 $3,786,150 $3,786,150 3,745,893$ 3,811,593$ 3,880,229$ 3,952,343$ 4,027,786$ 4,106,729$ 4,189,508$ 4,276,125$ 4,356,358$ User Count Exhibit B City of Palo Alto (ID # 6474) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Amend 2016 Adopted Municipal Fee Schedule Title: Amend the Fiscal Year 2016 Adopted Municipal Fee Schedule to Add a Secondhand Dealer Licensing Fee From: City Manager Lead Department: Police Recommendation Staff recommends that the Council: Amend the Fiscal Year 2016 Adopted Municipal Fee Schedule to add a Secondhand Dealer Licensing Fee for $300 per license. Background and Discussion In July 2015 the California Department of Justice shifted oversight and fee collection related to pawn and secondhand dealer licensing to local law enforcement agencies. Local law enforcement agencies are required to review licensure applications, perform all renewal functions, and collect and forward applicable state fees to the California Department of Justice. The $300 licensing fee was determined by the State of California. The license fee is the same for new and renewal applicants and licenses must be renewed every two years. This fee is not currently listed in the City’s Municipal Fee Schedule; therefore, staff recommends an Amendment to the Municipal Fee Schedule (Attachment A) to reflect this additional fee. Resource Impact Staff does not anticipate revenue gains from this adjustment, because any revenue collected will be sent to the California Department of Justice. The Department will absorb any workload increases that result from the adoption of this new fee. Policy Implications This action is consistent with existing City policies. Attachments:  Attachment A - Revised Muni Fee Schedule (PDF) Fee Title Adopted FY 2016 Fee Amended FY 2016 Fee Secondhand Dealer N/A 300$                                   Fee Change Justification Fee Type The California Department of Justice has discontinued accepting new Secondhand  Dealer/Pawnbroker License applications and has shifted this responsibility entirely to  local law enforcement agencies. The local agency is required to accept and remit the  license payment to the state after it has processed the application.New City of Palo Alto (ID # 6530) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Amendment to Council Appointed Officers' Employment Agreements Title: Adoption of Annual Amendments to the Employment Agreements between the City of Palo Alto and Council Appointed Officers' (City Manager, City Attorney, City Auditor and City Clerk). From: City Manager Lead Department: City Manager The City Council requested staff to forward for Council adoption amendments to employment agreements with the Council Appointed Officers (CAOs), effective July 1, 2015, as follows: increase City Manager James R. Keene, Jr.’s annual salary from $275,353 to $285,001 (3.5%) (Attachment A); increase City Attorney Molly S. Stump’s annual salary from $246,688 to $258,419 (4.75%) (Attachment B); increase City Auditor Harriet Richardson’s annual salary from $167,500 to $173,368 (3.5%) (Attachment C); and, increase City Clerk Beth Minor’s annual salary from $135,000 to $136,364 (1%) (Attachment D). The amendments implement annual merit based and cost of living salary increases, taking into account comparative market data. The Council directed that no other changes to the CAO’s contracts be made. In addition, no other salary increases will apply, as the CAO’s are not eligible to receive salary increases provided through the Management and Professional Compensation Plan. Resource Impact Funding is available for the additional cost in the FY 2016 budget. Environmental Review Approval of this amended employment agreements will not result in any environmental impacts. Attachments:  Attachment A: Amendment No. Five to Jim Keene Employment Agt (PDF)  Attachment B: Amendment No. Three to Molly Stump Employment Agt (PDF)  Attachment C: Amendment No. One to Harriet Richardson Employment Agt (PDF)  Attachment D: Amendment No. One to Beth Minor Employment Agt (PDF) 1 AMENDMENT NO. FIVE TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. This Amendment No. FIVE to EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. (“Agreement”) is entered into on ________________ by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“City”), and JAMES R. KEENE, JR. (“Manager”), an individual, located at 250 Hamilton Avenue 7th Floor, Palo Alto, CA. R E C I T A L S: WHEREAS, the original EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR., attached hereto and incorporated herein as Exhibit “A” was entered into between the parties for the services of City Manager on or about August 21, 2008; and WHEREAS, AMENDMENT NO. ONE to the Agreement, attached hereto and incorporated herein as Exhibit “B” was entered into between the parties on or about August 21, 2008; and WHEREAS, AMENDMENT NO. TWO to the Agreement, attached hereto and incorporated herein as Exhibit “C” was entered into between the parties on or about August 2, 2010; and WHEREAS, AMENDMENT NO. THREE to the Agreement, attached hereto and incorporated herein as Exhibit “D” was entered into between the parties on or about March 24, 2014; and WHEREAS, AMENDMENT NO. FOUR to the Agreement, attached hereto and incorporated herein as Exhibit “E” was entered into between the parties on or about December 8, 2014; and WHEREAS, the parties wish to amend the Agreement; NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the parties agree: SECTION 1: Section 3 of the Agreement, Compensation, is hereby amended to read as follows: 3. Compensation. Manager shall be compensated as provided in this Section 3. 3.1 Compensation. Commencing on and continuing from the pay period including July 1, 20145, Manager’s annual base salary shall be increased to Two Hundred 2 Seventy Five Eighty Five Thousand Three Hundred Fifty Three One and No/100 Dollars ($275,353.00285,001.00), prorated and paid on the City’s normal paydays. SECTION 2. Except as herein modified, all other provisions of the Contract, including any exhibits and subsequent amendments thereto, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have by their duly authorized representatives executed this Amendment on the date first above written. ATTEST: _____________________________ City Clerk APPROVED AS TO FORM: _____________________________ City Attorney CITY OF PALO ALTO ___________________________ Pat Burt Mayor Dated:______________________ MANAGER ___________________________ James R. Keene, Jr. Dated:______________________ Attachments: Exhibit A: EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. Exhibit B: AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. Exhibit C: AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. Exhibit D: AMENDMENT NO. THREE TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. Exhibit E: AMENDMENT NO. FOUR TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. EXHIBIT A EMPLOYMENTAGREEMENTBETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. -----'---~THI~,,,,,,S~A~G~RE~EMENT is betwe~I!Jh.(!.Ci!Y of Palo Alto, a California municipal corporation and chartered city ("City") al'ld James :R. Ke-ene, Jr., an individual ("Manager"). It is effective on the latest date next to the signatures on the last page. This Agreement is entered into on the basis of the following facts, among others A. City, acting by and through its duly elected City Council, desires to employ Manager as its City Manager subject to the terms and conditions set forth in this Agreement and in the provisions of the Charter of the City of Palo Alto (the "Charter"); B. The Charter provides, among other things, that the City Manager shall be appointed for an indefinite term by a majority vote of the City Council· and that he may be removed at the pleasure of the City Council by a two-thirds vote on a resolution passed for that purpose; C. Manager desires to be employed by the City of Palo Alto as its City Manager, subject to the terms and conditions set forth in this Agreement and in the Charter; D. Manager desires a predictable amount of severance notice and severance pay; E. City, mindful of the frequency, administrative disruption, and expense of employment-related litigation, desires to prevent litigation arising from any termination of the employment relationship with Manager; F. City and Manager desire to establish specific terms and conditions relating to compensation and benefits, housing assistance, performance evaluations, and related matters; BASED UPON THE FOREGOING, CITY AND MANAGER AGREE AS . . FOLLOWS: 1. Employment Start Date. City hereby appoints and employs Manager as City Manager, and Manager hereby accepts the appointment and employment, for an indefinite term that begins on September 2, 2008, provided Manager actually reports for and commences work on that date (the "Employment Start Date"). In the event Manager does not actually report for and commence work on September 2, 2008, the Employment Start Date will be the date, if any, as otherwise mutually agreed by the parties. 2. Duties of Manager. Manager shall perfonn the duties established for the City Manager by the Charter, Palo Alto Municipal Code, direction of the City -councff,-oras otlierwise provicleol>y law~-ordtnance, or regulation.- 2.1 Full Energy and Skill. Manager shall devote his full energy, skill, ability, and productive time to the perfonnance of Manager's duties. Manager understands that the Charter requires that the City Manager devote his entire work time to the discharge of the duties of the office. 2.2 No Conflict. Manager shall not engage in any activity which is actually or potentially in conflict with, inimical to, or which interferes with the perfonnance of Manager's duties. 2.3 Uncompensated Professional Activities. Manager may attend and/or participate in uncompensated professional activities, including but not limited to the activities described in subsections 8.3 and 8.4, provided that Manager's ability to perfonn the duties described in this Section 2 is not unreasonably compromised or impaired. Manager shall inform the City Council in writing in advance of absences of more than one day related to such activities. 3. Compensation. Manager shall be compensated as provided in this Section 3. 3.1 Initial Compensation. Commencing on and continuing from the Employment Start Date, Manager will receive an initial base annual salary of Two Hundred Forty Thousand and No/100 Dollars {$240,000.00), prorated and paid on City's normal paydays. 3.2 Salary Adjustments. Manager shall be entitled to the same percentage increase in his pay as any inflation or similar adjustment that the City Council approves which applies to all Management and Professional Personnel and Council Appointees. Not less than once each year, the City Council shall meet for the express purpose of evaluating the perfonnance of Manager and determining whether to grant him an individual incentive award based on performance. The City Council will act in good faith in determining whether to provide the incentive award, but the ultimate decision in this regard is within the sole discretion of the City Council. The Council may also grant special labor market and/or internal equity adjustments to the Manager. 2 4. Regular Benefits and Allowances. Manager will be eligible for, and shall receive, all regular benefits (e.g., health insurance, PERS contribution paid by City-;) and vacation, sick leave, and management leave as are generally provided to Management and Professional Personnel and Council Appointees from time to time by -~-the-eity-eouncil;----- 5. Additional Benefits and Allowances. In addition to the benefits specified in section 4, Manager will receive the following additional benefits and allowances to the extent they are not already included in the regular benefits generally provided to Management and Professional Personnel and Council Appointees. 5.1 Transportation Allowance. Manager's duties require that he have available exclusive and unrestricted use of an automobile for business purposes and Manager agrees to have a personal vehicle available for such use. In consideration of this, City agrees to pay to Manager, during the term of this Agreement and in addition to other salary and benefits, a transportation allowance of Six Hundred and No/100 Dollars ($600.00) per month. This transportation allowance will increase by the percentage amount of any increases provided for transportation allowances received by Management and Professional Personnel and Council appointees, rounded to the nearest five dollars ($ 5.00) .. The transportation allowance includes reimbursement for an appropriate allocation of vehicle insurance and all other expenses of vehicle ownership, maintenance and operation. The Manager may also use the Transportation Allowance for alternative means of transportation necessary and useful for the exercise of his duties. The time and manner of payment will be in accord with City's normal procedures. Manager shall be solely responsible for any personal federal or state tax liability arising from this transportation allowance. 5.2 Retirement Contributions. City maintains an Internal Revenue Code§ 401(a) governmental money purchase retirement plan in which Manager will be an eligible participant. City will make employer monthly contributions as a percent of the prorated maximum contribution permitted by law. Starting in the month Manager becomes eligible to participate in the 401(a) plan, City will make an employer contribution of 50% of the maximum contribution, prorated and paid monthly. Commench1g in the month in which Manager completes three (3) years of service with the City, City will make employer contributions of75% of the maximum contribution, prorated and paid monthly. Commencing in the month in which Manager completes five (5) years of service with the City, City will make employer contributions of 100% of the maximum contribution, prorated and paid monthly. An employer contribution will be paid in the final month of employment if Manager's last day of employment is the last workday of the month. Otherwise, no contribution will be made in the last month of employment. 3 5.2.1 The maximum contribution for purposes of this paragraph includes the legal maximum with cost of living adjustments provided under the Internal Revenue Code. It is not intended to and does not incorporate increases resulting from future federal legislative or regulatory action. --------------------------5:2:2-Byway of example, the-contribution limit for 2008-is $46,000.00. City will contribute $1,916.67 per month ($46,000.00/12 = $3,833.33 * 50% = $1,916.67) for those months Manager remains employed. If the Internal Revenue Service increases the contribution limit for years after 2008 based on a cost ofliving adjustment, the new contribution limit will be used as the basis for calculating contributions. After three (3) years of service the City contribution will be $2,875.00 per month plus 75% of cost of living adjustments ($46,000.00 plus·COLA/12 = $3,833.33 * 75% = $2,875.00 plus 75% of COLA). After five (5) years of service, City will pay the entire monthly amount of$3,833.33 plus COLA. 5.2.3 Manage~ will make any additional contributions required under the plan, if any, and may make additional voluntary contributions, if permitted. 5.2.4 Manager is also eligible to make contributions to the City Internal Revenue Service Code 457 plan at his discretion, to the maximum extent allowed under the plan document or by law, whichever is less. 5.3 Parking. City shall provide parking at the Civic Center at no cost to Manager. 5.4 Leave Accrual Rate. Manager's tenure and long career in public service has been considered to determine the accrual rate for annual leave, including but not limited to vacation. As a result, Manager's initial vacation accrual rate will be based on an annual accrual of two hundred (200) h<?urs. Any other accrual rates that are based on years of service will be applied at the maximum rate. Accruals will begin upon assumption of employment. 5.5 Leave Balance upon Start of Employment. Manager will be credited with one hundred twenty (120) hours of vacation leave and two hundred forty (240) hours of sick leave upon reporting for work and actually starting employment. 6. Relocation and Housing Assistance. City will assist Manager with relocation and the purchase of housing in Palo Alto as provided in this section 6. 6.1 Relocation Expenses. In accordance with City's compensation plan for Management and Professional Personnel and Council Appointees and any related policy, City shall bear the actual and reasonable expenses, not exceed Twenty Five 4 Thousand and No/IOO Dollars ($25,000), incurred within twelve (I2) months of beginning employment to move Manager and his family from his former home to Palo Alto. Manager will keep an accurate record of all such expenses and present such record with his request(s) for payment or reimbursement. 6.2 Temporary Housing. City will bear the actual and reasonable monthly rental or lease cost, not to exceed Five Thousand and No/I 00 Dollars ($5,000.00) per month, for temporary housing located within the corporate limits of the City, for a period not to exceed twelve (12) months, while Manager is seeking suitable housing that qualifies for housing assistance provided in this section 6. Manager will keep an accurate record of all such expenses and present such record( s) with his request for payment or reimbursement. City will advance any refundable deposits and will be reimbursed for such deposits by Manager (including interest, if any, paid by the deposit holder) at the time the refund is paid or if the refund is refused by holder, at the time it would otherwise be due. 6.3 Home Purchase and Method of Financing Purchase of Home. City will assist in purchasing a home for Manager and his family as provided in this subsection 6.3. 6.3.1 Time of Purchase. To be eligible for assistance under this subsection 6.3, Manager will purchase a home within the corporate limits of the City within a reasonable time after the Employment Start Date (the "Property"). The parties anticipate this will occur within one year but acknowledge that market conditions may make a longer period reasonable. 6.3.2 Manager's Contribution. Manager may contribute his personal funds toward the purchase price of the Property (the "Manager's Contribution"). 6.3.3 City Loan. Should the price of the home exceed Manager's Contribution, if such contribution is made, City will provided to Manager a loan (the "City Loan"), secured by a note and first deed of trust on Manager's tenancy in common interest, for the home purchased by Manager, in an amount as determined by Manager not to exceed Five Hundred Thousand and No/I 00 Dollars ($500,000.00). The City Loan will be fully amortized over a maximum term of30 years, but the term may be shorter at Manager's request. The loan will be immediately due on sale. The interest on the City Loan will be adjusted annually on July I as follows: From the date of execution of the note, the rate will be equal to the lower of 5.5o/o or the sum of the City's portfolio rate, which is defined as the annual rate of return on investment funds of the City of Palo Alto during the most recent 5 fiscal year, plus one quarter percent (1/4%) as calculated annually by the City's Director of Administrative Services. 6.3.4 City Contribution Toward Purchase Price. In addition to any Manager's Contribution and the City Loan provided to Manager, City will --contributed an addffional~ainouiit, riot-to exceed OrieMillioiiFive HuriaredTliousand and No/100 Dollars ($1,500,000.00) toward the purchase price of the Property. The purchase price will include any real estate broker's fee payable by buyer, but does not include closing costs, title insurance and related fees normally attributable to a buyer in Santa . Clara County, the reasonable and actual cost of which will be paid by the City. The City contribution provided in this subsection will be made in a ratio of three (3) to one ( 1 ), as compared to the total of the Manager's Contribution and the City Loan. Stated differently, the City contribution will be 75% and the combination of Manager's Contribution and the City Loan will be 25% of the purchase price, The City's combination of equity contribution and City loan will not te exceed Two Million and No/100 Dollars ($2,000,000). Once the City contribution limit of One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00) is reached, the City contribution share of75% will cease. Any further contributions will be made as Manager's Contribution or, if the City Loan limit has not been exhausted, by City Loan. 6.3.5 Equity Ownership Interests. If City participates in the purchase of the home, the proportional ownership of the home will be shown on the deed as the ratio of funds provided by Manager and City toward the purchase. By way of example: a. If the purchase price is Two Million and No/100 Dollars ($2,000,000.00), Manager may utilize the full City Loan as his 25% contribution, with the City making its 75% contribution, equal to the maximum contribution. Under this scenario, the equity ownership of Manager will be will be 25% ($500,000/$2,000,000 = 25%) and the equity ownership of City in the Property will be 75% ($1,500,000/$2,000,000 = 75%). b. Similar to the prior scenario, but with a purchase price of Two Million Five Hundred Thousand and Noll 00 Dollars ($2,500,000.00), Manager's Contribution will be $500,000, in addition to the City Loan and City contribution. Under this revised scenario, the equity ownership of Manager will be 40% ([$500,000+$500,000]/$2,500,000 = 40%) and the equity ownership of City in the Property will be 60% ($1,500,000/$2,500,000 = 60%). 6 6.3.6 Equity Ownership Interests Not A Partnership. City and Manager agreed to share the equity interest in the Property in order to consummate transactions contemplated in this Agreement related to assisting Manager with purchasing a home within Palo Alto city limits. Nothing herein shall be construed as creating a ·--partne1shtp-or·otherjointventurebetween-Manager and the City,itbeing agreed that they are not partners and did not intend by entering into this Agreement to form a partnership, or otherwise to have the relationship of partners to one another. 6.3.7 Title Held As Tenants-In-Common. The Property will be held by Manager and City as tenants-in-common, with Manager and City owning proportional undivided interests, as determined under subsection 6.3.5, above. Manager will have the exclusive right to occupy the Property and will not rent, lease or transfer any interest to a third party without the written consent of City, which may be withheld in City's sole discretion. Neither party may sell its interest in the Property separate from the other and agrees to cooperate in the sale of its interest in the Property, as provided in section 6.8, below. 6.3.8 Execution o~Documents. City and Manager will cooperate in the preparation and execution of all title documents, notes, deeds of trust, escrow instructions, agreements and other documents reasonably necessary to conform the purchase of the home to the provisions of' this subsection, in a form mutually. determined by Manager and the City Attorney. The deed will reflect the terms and conditions of this Agreement. At the option of City, the documents may also include a tenancy in common agreement supplementing the terms of this Agreement and a recorded power of attorney in favor of City to facilitate the sale of Manager's interest under the circumstances provided in section 6.8 in the event Manager is unable or unwilling to cooperate in the sale. 6.4 No additional mortgages or liens. Except liens for taxes, special assessments, and the first deed of trust referred to above, Manager shall not cause any lien or mortgage to be recorded against the home except as expressly authorized in writing by the City Council. The City Council shall not unreasonably withhold permission for refinancing or equity loans that do not impair City's interest in the home. 6.5 Property Taxes and Insurance. Manager will pay property taxes proportionate to Manager's equity ownership interest in the Property, as determined by subsection 6.3.5 above and City will be responsible for its proportionate share. The equity share of Manager may be provided through the City Loan or Manager's Contribution or both. Manager will pay for all insurance on the home without reimbursement from City, except as provided below. If City contributes to the purchase price of the Property, Manager will obtain, and agrees to continue to maintain in force, comprehensive 7 homeowner's insurance (H0-3), including earthquake and, if applicable due to location, flood coverage, for as long as City has a security interest or equity share in the home. All such insurance will state the respective interests of the parties and provide that the proceeds of any such insurance shall be paid to the parties as their respective interests _app.ear._.City shallpr.ovideandlor.p_ay the costof earthquake and_floodinsurance. _ 6.6 Occupancy and Maintenance. Manager will reside at the Property from the time of purchase and initial occupancy and will continue to occupy the Property at all times as his principal residence during the term of this Agreement. Manager will maintain the home in good condition and in compliance with all applicable codes. Manager shall be solely responsible for all maintenance and repair costs, including deductibles and repair and restoration of uninsured losses. 6.7 Capital Improvements. Manager may, at his sole expense, make such improvements to the· home as he deems beneficial, provided such improvements do not cause the value of the Property to decline. For purposes of this agreement, a capita~ improvement is the addition of a permanent structural improvement or restoration of some aspect of the Property that either increases the Property's resale value or increases its useful life. With the approval of City, the actual cost of each capital improvement with a cost in excess of Ten Thousand and No/100 Dollars ($10,000.00) will be treated as an addition to Manager's Contribution and used to reallocate equity ownership interests at the time of sale, as provided in subsections 6.8 and 6.9, below, in such amount(s) as the parties may mutually agree. City's approval, when sought for a capital improvement that will result in the reallocation of equity ownership interests, must be obtained in writing prior to the initiation of the capital improvement and may be withheld in City's sole and absolute discretion. · 6.8 Sale. The sale of the home will occur on the happening of one of the following: a. subsections 6.9 and 6.1 O; At the option of Manager, subject to the provisions of b. The passing of 18 months following the termination of the employment of Manager for any reason, whether voluntary or involuntary; c. At the option of City, upon the occurrence of any default, as defined in any agreement or document related to purchase or holding of the Property, including the purchase and financing terms of this Agreement; d. Should the Manager permanently move out of the Property or cease to use the Property as his primary residence; and 8 e. Upon mutual agreement of the parties. Notwithstanding the above, one party may purchase the home by buying the interest of the other as provided in subsection 6.10. 6.9 Proceeds On Sale. Upon sale of the home, the proceeds ()~f sale shall be divided between the parties as follows: a. The costs of sale, including, but not limited to escrow fees, real estate broker's fees, and related expenses shall first be deducted from the gross sales price to reach a net sales price ("Net Sales Price"); b. "Manager's Equity Share" will be equal to his equity ownership percentage, determined by subsection 6.3.5 and, if applicable, subsection 6.7, above, multiplied by the Net Sales Price and "City's Equity Share" will be equal to its equity ownership percentage, determined by subsection 6.3.5 and, if applicable, subsection 6. 7, above, multiplied by the Net Sales Price; c. The outstanding balance of the City Loan, together with any accrued, but unpaid, interest and all other amounts shall be deducted from Manager's Equity Share and paid to City pursuant to the terms of the City Loan, and Manager shall receive the remainder; and d. City shall be paid the City's Equity Share, calculated as set forth in clause (b) above; amounts paid in connection with the City Loan are independent of City's Equity Share and shall not be credited toward City's Equity Share and vice versa. 6.10 One Party's Right to Purchase the Interest of the Other Party. 6.10.1 City Right. If Manager determines to put the home up for sale, either while he is still employed or after his employment is terminated, City shall have the right to purchase Manager's interest rather than have the home sold and the proceeds divided as provided above. In order to value the interests of the parties in the home at that time, the home will be appraised, at City's expense, by a qualified real estate appraiser acceptable to both parties. If the parties are unable to agree on an appraiser, each party may hire and pay for its own appraiser. The value of the home will be the average of the two appraisals. After the value of the home is determined, City may purchase Manager's interest in the home, the value of which shall be calculated using the formula set forth in subsection 6.9; and 9 6.10.2 Manager's Right. At any time while still employed by the City in good standing, Manager may purchase the home by paying to City its Final Equity Share as calculated under subsection 6.9 and paying any other amounts outstanding, as provided in subsection 6.9 ( c) (including the outstanding balance on the _l9@, i!_itere§t1lll:Q_ C?!h~!ill!!_O~P:~1-ll!_~rd~r t9 __ ~ete~~ne !h~-in~!~~!~~f !!!e pa!!ie_~-~-!!_1~-­ home at the time, the home will be appraised, at City's expense, by a qualified real estate appraiser acceptable to both parties. If the parties are unable to agree on an appraiser,. each party may hire and pay for.its own appraiser. The value of the home will be.the average of the two appraisals. 7. Duration of Employment. Manager understands and agrees that he has no constitutionally protected property or other interest in his employment as City Manager. He understands and agrees that he works at the will and pleasure of the City Council and that he may be terminated, or asked to resign at any time, with or without cause, subject only to the requirements of Section 3 of Article IV of the Charter, a copy of which has been provided to Manager. It is understood that the public hearing accorded Manager upon termination as provided in the referenced section of the Charter is not a hearing in which witnesses will be called and examined nor in which Manager may formally contest the reasons for termination. The hearing is solely for the purpose of Manager being able to publicly respond to any reasons given for his termination by the City Council. 7 .1 Severance Pay. If Manager is terminated or asked to resign in lieu of termination, he shall receive a cash payment, or payments (without interest) at intervals specified by Manager, equivalent to the sum of his then-current monthly salary multiplied by twelve {12) and the cash value, as reasonably determined by City, of his monthly non-salary benefits multiplied by twelve (Ii). The monthly_non-salary benefits shall be those specified in sections 4 and 5.2. All normal withholdings as required by law shall be made with respect to any amounts paid under this section. 7.2 Non-Payment of Severance Under Certain Conditions. If the termination of Man.ager is the result of conviction of a felony, he shall not be paid any severance pay. 8. Payment of Expenses of Employment. City shall pay the following usual and customary employment expenses: 8.1 The cost of any fidelity or other bonds required by law for the City Manager. 10 y ) e s s MANAGER: James R. Keene, Jr. c/o 250 Hamilton Avenue Palo Alto, CA 94301 Phone: (650) 329-2563 ... FAX: (650) 325-5025. 9.2 Entire Agreement/Amendment. This Agreement constitutes the entire understanding and agreement between the parties as to those matters contained in it, and supersedes any and all prior or contemporaneous agreements, representations and understandings of the parties. This Agreement may be amended at any time by mutual agreement of the parties, but any such amendment must be in writing, dated, and signed by the parties and attached hereto. 9.3 Attorney's Fees. If any legal action or proceeding is brought to enforce or interpret this Agreement, the prevailing party as determined by the court shall be entitled to recover from the other party all reasonable costs and attorney's fees, including such fees and costs as may be incurred in enforcing any judgment or order entered in any such action. 9.3.l Alternate Dispute Resolution. Nothing in this subsection shall be read to prevent the parties from agreeing to some alternative method of dispute resolution. If such a method is agreed to, any final determination shall include an award of attorney's fees and costs by the presiding officer. 9.4 Severability. In the event any portion of this Agreement is declared void or unenforceable, such portion shall be severed from this Agreement and the remaining provisions shall remain in effect, unless the result of such severance would be to substantially alter this Agreement or the obligations of the parties, in which case this Agreement shall be immediately terminated. 9.5 Waiver. Any failure of a party to insist upon strict compliance with any term, undertaking, or condition of this Agreement shall not be deemed to be a waiver of such term, undertaking, or condition. To be effective, a waiver must be in writing, signed and dated by the parties. 9.6 Employee's Independent Review. Employee acknowledges that he has had the opportunity and has conducted an independent review of the financial, tax and legal effect of this Agreement. Employee acknowledges that he has made an independent judgment upon the financial, tax and legal effects of this Agreement and has ·not relied upon any representation of City, its officers, agents or employees other than those expressly set forth in this Agreement. 12 9.7 Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Manager and City agree that venue for any dispute shall be in Santa Clara County, California. 9.8 Section Headings. The headings on each of the sections and subsections of this Agreement are for the convenience of the parties only and do not limit or expand the contents of any such section or subsection. Dated: ~-U, ~y CITYOFPALOALTO Attest Au<;/ffiib City Clerk / ·· Dated: ~---<("...-cf?6 Approved as to Form: By_s=;.,...__,~---t-t-;_:;~J)e~· .. - Larry Klein Mayor MANAGER ~ ~ City Attorney /I 13 THE FOREGOING DOCUMENTISCERTIFIEDTOBE '~~tzJ~1. A CORRECT COPY OF THE ORIGINAL. ON Fll.E.1~~ ·~?.,~:~'f~:P: ... 1 ,,;4 "lcertlfy(ordeclare)un . ,;. \.,,TV CLERK, of perjury that t\le foregoin s true CITY OF PALO ALTO and correct." )\ . . . , / J YPIA '· '" -0. I 0 .,;·]'{(;'.~ ~ _i~~-LQ. _ C .H--'~ t{.,h~ or-Mid-\ lb. 0\--· ... ~ EXHIBITS ) AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. This is Amendment Number One to the Employment Agreement Between th%City of Palo Alto ("City") and James R. Keene, Jr., its City Manager ("Manager"), effective ~ -i. < 2008. RECITALS The following recitals are a substantive portion of this Agreement: 1. The original Employment Agreement ("Contract") was entered into between City and Manager for the provision of employment. 2. The parties wish to amend the Contract. NOW, THEREFORE, in consideration of the covenants, tenns, conditions, and provisions of this Amendment, the parties agree: SECTION 1. Section 3.2 of the Employment Agreement Between the City of Palo Alto and .Jam~s R. K~ene, Jr., is hereby amended to read as. follows, deleting the tenns shown in strikethrough: II II II II II II "Salary Adjustments. Manager shall be entitled to the same percentage increase in his pay as any inflation or similar adjustment that the City Council approves which applies to all Management and Professional Personnel and Council Appointees. Not less than once each year, the City Council shall meet for the express purpose of evaluating the perfonnance of Manager and determining whether to graRt him an individual ineee.tive a·.vard based OH perfonnaaoe. The City Crn:mcil will aet iH good faith iH determmiBg ·.vhether to pro-vide the iBcee.tive award, but the ultimate decisioo ia this regard is within the sole . discretioo of the City Council. The Council retains the discretion to grant special labor market and/or internal equity adjustments to the Manager." 080729 mb 8260836 - 1 - EXHIBIT C ) AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. This Amendment No. Two to EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR. ("Agreement") is entered into on August 2, 2010 by and between the CITY OF PALO ALTO, a California chartered municipal corporation ("City"), and JAMES R. KEENE, JR. ("Manager"), an individual, located at 250 Hamilton Avenue ih Floor, Pale Alto, CA. RECITALS: WHEREAS, the original EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND JAMES R. KEENE, JR., attached hereto and incorporated herein as Exhibit "A" was entered into between the parties for the services as City Manager on or about August 8, 2008;and WHEREAS, the parties wish to amend the Contract; NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the parties agree: SECTION 1: Section 6. 7 .1. Approval of Capital Improvements of $50,000 or Less is hereby added to read as follows: "6.7.1. Approval of Capital Improvements of $50,000 or Less. For capital improvements of less than $50,000 resulting in a change in equity share, "City Approval" may be granted in writing by the Mayor." SECTION 2: Section 6.7.2. Capital Improvements Loan is hereby added to read as follows: "6. 7 .2. Capital Improvements Loan. City shall loan the Manager a sum not to exceed $125,000 at the loan interest rates and term in Section 6.3.3, to be used for capital improvements to the home on a matching contribution basis ("Capital Improvements Loan"). For every dollar the City Manager contributes through a Manager's Contribution to capital improvements, the City will loan the Manager an equivalent amount in matching funds, capped at a total Capital Improvements Loan of $125,000. For example, if the City Manager makes a contribution of $50,000 (Manager's Contribution), the City will loan the Manager $50,000 for a total of $100,000 in capital improvements. If the Manager makes a contribution of $150,000 (Manager's Contribution), the City's loan match will be capped at $125,000. Such capital improvements and a City Capital Improvements Loan can be made in increments but in no case will the City loan the Manager a total of more than $125,000 for capital improvements. The loan amount will result in a reallocation of ownership interest where the City's interest will decrease and City Manager's interest will increase as described in paragraph 6. 7. 1 100727 sh 0111497 } ) ) ) SECTION 3. Except as herein modified, all other provisions of the Contract, including any exhibits and subsequent amendments thereto, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have by their duly authorized representatives executed th1s Amendment on the date first above written. APPROVED AS TO FORM: APPROVED: Mayor By:r¥M Ii./ Nam;J?A-.fc <c/~tA(f Title:· M t:&Lt & Attachments: EXHIBIT "A": EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO AL TO AND JAMES R. KEENE, JR. 2 100727 sh 0111497 EXHIBIT D EXHIBIT E 1 AMENDMENT NO. THREE TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND MOLLY S. STUMP This AMENDMENT NO. THREE to the EMPLOYMENT AGREEMENT (“Agreement”) is entered into on ___________, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“City”), and MOLLY S. STUMP (“Stump”), an individual, located at 250 Hamilton Avenue 8th Floor, Palo Alto, CA. R E C I T A L S: WHEREAS, the original EMPLOYMENT AGREEMENT between the City of Palo Alto and Molly S. Stump., attached hereto and incorporated herein as Exhibit “A” was entered into between the parties for the services of City Attorney on or about April 18, 2011; and WHEREAS, AMENDMENT NO. ONE to the Agreement, attached hereto and incorporated herein as Exhibit “B” was entered into between the parties on or about March 24, 2014; and WHEREAS, AMENDMENT NO. TWO to the Agreement, attached hereto and incorporated herein as Exhibit “C” was entered into between the parties on or about December 8, 2014. WHEREAS, the parties wish to amend the Agreement; NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the parties agree: SECTION 1: Section 3.1 of the Agreement, Compensation, is hereby amended to read as follows: Commencing on and continuing from the pay period including July 1, 20145, Stump’s annual base salary shall be increased to Two Hundred Forty Six Fifty Eight Thousand Six Four Hundred Eighty TwoNineteen and No/100 Dollars ($24668258,419.00), prorated and paid on City’s regular paydays. Stump shall be an exempt employee under applicable wage and hour law and her base salary shall be compensation for all hours worked. City agrees that the amount of Stump's base annual salary shall not decrease, except as part of a permanent decrease that is consistent with the Fair Labor Standards Act and that is applicable to either all Council Appointed Officers or all City Executive Staff (which includes all Council Appointed Officers). // // 2 SECTION 2. Except as herein modified, all other provisions of the Contract, including any exhibits and subsequent amendments thereto, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have by their duly authorized representatives executed this Amendment on the date first above written. ATTEST: _____________________________ City Clerk APPROVED AS TO FORM: _____________________________ Deputy City Attorney CITY OF PALO ALTO ___________________________ Patrick Burt Dated:_____________________ MOLLY S. STUMP __________________________ Dated:____________________ Attachments: EXHIBIT A: EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND MOLLY S. STUMP EXHIBIT B: AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND MOLLY S. STUMP EXHIBIT C: AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND MOLLY S. STUMP 3 EXHIBIT A EXHIBIT B EXHIBIT C 1 AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND HARRIET RICHARDSON This AMENDMENT NO. ONE to the EMPLOYMENT AGREEMENT (“Agreement”) is entered into on ___________, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“City”), and HARRIET RICHARDSON (“Richardson”), an individual, located at 250 Hamilton Avenue, 8th Floor, Palo Alto, CA. R E C I T A L S: WHEREAS, the original EMPLOYMENT AGREEMENT between the City of Palo Alto and Harriet Richardson, attached hereto and incorporated herein as Exhibit “A” was entered into between the parties for the services of City Auditor on or about April 4, 2014; and WHEREAS, the parties wish to amend the Agreement. NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the parties agree: SECTION 1: Section 3.1 of the Agreement, Compensation, is hereby amended to read as follows: Richardson will receive an initial gross base annual salary of One Hundred Sixty Seven Thousand Five Hundred Dollars ($167,500.00), beginning on the Employment Start Date. Commencing on and continuing from the pay period including July 1, 2015, Richardson’s annual base salary shall be increased to One Hundred Seventy Three Thousand Three Hundred Sixty Eight and No/100 Dollars ($173,368.00), prorated and paid on City’s regular paydays. This amount is subject to authorized or required deductions and withholding, prorated and paid on City’s regular paydays. Richardson is an exempt employee under applicable wage and hour law and her base salary shall be compensation for all hours worked. The City agrees that the amount of Richardson’s base annual salary will not decrease, except as part of a permanent decrease that is consistent with the Fair Labor Standards Act and that is applicable to either all Council Appointed Officers or all City Executive Staff (including Council Appointed Officers). // // // // // 2 SECTION 2. Except as herein modified, all other provisions of the Contract, including any exhibits and subsequent amendments thereto, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have by their duly authorized representatives executed this Amendment on the date first above written. ATTEST: _____________________________ City Clerk APPROVED AS TO FORM: _____________________________ City Attorney CITY OF PALO ALTO ___________________________ Patrick Burt Dated:_____________________ HARRIET RICHARDSON __________________________ Dated:____________________ Attachments: EXHIBIT A: EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND HARRIET RICHARDSON 3 EXHIBIT A 1 AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND BETH MINOR This AMENDMENT NO. ONE to the EMPLOYMENT AGREEMENT (“Agreement”) is entered into on ___________, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“City”), and BETH MINOR (“Minor”), an individual, located at 250 Hamilton Avenue 8th Floor, Palo Alto, CA. R E C I T A L S: WHEREAS, the original EMPLOYMENT AGREEMENT between the City of Palo Alto and Beth Minor, attached hereto and incorporated herein as Exhibit “A” was entered into between the parties for the services of City Clerk on or about June 9, 2015; and WHEREAS, the parties wish to amend the Agreement. NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the parties agree: SECTION 1: Section 3 of the Agreement, Salary, is hereby amended to read as follows: While performing the duties of City Clerk, Minor will receive a base salary within the range provided in the City Council-approved Compensation Plan for Management and Professional Personnel and Council Appointees, as it currently exists and may be changed from time to time. Minor will receive an initial gross base annual salary of one hundred thirty five thousand dollars and eighty cents ($135,000.00), beginning on the Employment Start Date.Commencing on and continuing from the pay period including July 1, 2015, Minor’s annual base salary shall be increased to One Hundred Thirty Six Thousand Three Hundred Sixty Four and No/100 Dollars ($136,364.00), prorated and paid on City’s regular paydays. This amount is subject to authorized or required deductions and withholding, prorated and paid on City’s regular paydays. Minor is an exempt employee under applicable wage and hour law and her base salary shall be compensation for all hours worked. The City agrees that the amount of Minor’s base annual salary will not decrease, except as part of the permanent decrease that is consistent with the Fair Labor Standards Act. // // // // 2 SECTION 2. Except as herein modified, all other provisions of the Contract, including any exhibits and subsequent amendments thereto, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have by their duly authorized representatives executed this Amendment on the date first above written. ATTEST: _____________________________ Assistant City Clerk APPROVED AS TO FORM: _____________________________ City Attorney CITY OF PALO ALTO ___________________________ Patrick Burt Dated:_____________________ BETH MINOR __________________________ Dated:____________________ Attachments: EXHIBIT A: EMPLOYMENT AGREEMENT BETWEEN THE CITY OF PALO ALTO AND BETH MINOR 3 EXHIBIT A CITY OF PALO ALTO OFFICE OF THE CITY CLERK February 1, 2016 The Honorable City Council Palo Alto, California SECOND READING: Adoption of an Ordinance Amending Palo Alto Municipal Code Chapter 4.60 (Business Registration Program) to Exempt Very Small Businesses, Very Small Non-Profits, and Religious Organizations With no Ancillary Business on Site From the Business Registration Program (FIRST READING: January 19, 2016 PASSED: 8-0 Kniss absent) Council heard this as a Consent item on January 19, 2016, and adopted the Ordinance on first reading without changes, 8-0 with Council Member Kniss absent. ATTACHMENTS:  Attachement A: Business Registry Ordinance (PDF) Department Head: Beth Minor, City Clerk Page 2 NOT YET APPROVED 151130 jb 0131496 1 Rev. January 19, 2016 Ordinance No. _____ Ordinance of the Council of the City of Palo Alto Amending Chapter 4.60 of the Palo Alto Municipal Code Regarding Business Registration Program The Council of the City of Palo Alto does ORDAIN as follows: SECTION 1. Section 4.60.040 of Chapter 4.60 (Business Registration) of Title 4 (Business Licenses and Regulations) of the Palo Alto Municipal Code is hereby amended to read as follows: 4.60.040 Exemptions from Business Registration The following types of businesses are exempt from this chapter: (a) Home based business (b) Transitory business (c) Non-profit organizations having less than one full time equivalent employee (a) Businesses having less than one full time equivalent employee (b) Religious organizations which operate a worship hall but have no other ancillary facilities or services. For purposes of this exception ancillary facilities or services include but are not limited to religious or educational classrooms, gift shops, and daycare services. SECTION 2. Any provision of the Palo Alto Municipal Code inconsistent with the provisions of this chapter, to the extent of such inconsistencies and no further, is hereby repealed or modified to that extent necessary to effect the provisions of this chapter. SECTION 3. If any section, subsection, sentence, clause, or phrase of this chapter is for any reason held to be invalid or unconstitutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this chapter. The City Council hereby declares that it would have adopted this chapter and each and every section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional without regard to whether any portion of the chapter would be subsequently declared invalid or unconstitutional. 151130 jb 0131496 2 Rev. January 19, 2016 SECTION 4. The Council finds that the adoption of this chapter is exempt from the provisions of the California Environmental Quality Act pursuant to CEQA Guideline section 15061 because it can be seen with certainty that there is no possibility that the project will have a significant effect on the environment and section 15378(b) (3) in that it involves creation of a governmental funding mechanism or other governmental fiscal activity that does not involve commitment to any specific project that may result in a potentially significant physical impact on the environment. SECTION 5. This ordinance shall be effective on the thirty-first day after the date of its adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ____________________________ ________________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ____________________________ ________________________________ Senior Assistant City Attorney City Manager City of Palo Alto (ID # 6588) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Cool Block Small Pilot Program Title: Agreement with Empowerment Institute on Cool Block Small Pilot Program (Continued From January 25, 2016) From: City Manager Lead Department: City Manager Recommendation Authorize the City Manager to sign the attached Cool Block Pilot Memorandum of Understanding between the City of Palo Alto and Empowerment Institute. Background In 2012 the Council authorized the City Manager to sign a Letter of Intent (LOI) to participate in the Cool Cities Challenge being organized in implemented by David Gershon, the Empowerment Institute, and its partner organizations (Attachment A). That “Challenge” has been modified slightly to the Cool Block Pilot Program, which is the subject of the attached MOU (Attachment B). While one interpretation would be that the City Manager could sign this new MOU on his own authority, based upon that prior direction, Council re-authorization is being sought because: The Cool Block Pilot is in a slightly different form that the earlier proposal, although the concept is similar. The Pilot involves a process of neighborhood engagement of between 10-30 city blocks and this Consent Item informs the Council and community of that intention. The earlier LOI included the following language: If the Council approves the LOI, and as staff learns of EI’s success in fundraising, staff will return to Council with a process to test community interest through targeted outreach to key stakeholders and some method of surveying household interest. The Cool Block Pilot is a program that will require relatively little staff time over the next 12-14 months but will secure enough assistance from the Empowerment Institute to test the effectiveness of this block-based engagement effort to accelerate household and neighborhood action on climate change, resiliency, social connectedness and growing the green economy. As 10 City of Palo Alto Page 2 the details below lay out, the results of the pilot will shape the formal competitive RFP to later be issued by The Empowerment Institute, which will provide significant funding and support for a broader city-wide Cool Cities Challenge (still using the block as an organizing basis). We may again decide to participate in that competition, as The Empowerment Institute has now secured funding to advance that program. Again, participation in this pilot program in no way obligates the City to further participation nor does it guarantee our automatic selection. In any case, the City may independently learn some important lessons from this pilot. The core component of our role will lie in the identification of the pilot blocks and helping to identify and recruit block leaders, in up to 30 blocks. Further Detail form the Attached MOU The Cool Block grows out of a vision to reinvent our cities from the bottom up in the age of climate change to help people adopt low carbon and environmentally sustainable lifestyles, disaster resilient and livable neighborhoods and collaborate together as neighbors and citizens. It builds upon David Gershon and his Empowerment Institute’s decades of experience furthering pro-social behavior change and community engagement throughout America and the world. It does this through a nine-meeting, 4 1/2-month program co-led by a group of neighbors living on a block or in a building. Participants in the program select from a menu of 112 action recipes. Some actions are done as individuals and others are Attachments:  Attachment A: Staff Report October 2012 (DOC)  Attachment B: TCB MOU Between CoPA and EI (DOC) City of Palo Alto (ID # 3170) City Council Staff Report Report Type: Action Items Meeting Date: 10/22/2012 City of Palo Alto Page 1 Council Priority: Environmental Sustainability Summary Title: Cool Cities Challenge Title: Approval of Letter of Intent to Participate in Cool Cities Challenge From: City Manager Lead Department: Public Works Recommendation Staff recommends that Council authorize the City Manager or his designee to sign the Letter of Intent to participate in the Cool Cities Challenge (Attachment A) being organized and implemented by David Gershon, the Empowerment Institute and its partner organizations. Background David Gershon, author of the Low Carbon Diet, co-founder of the Empowerment Institute (EI), and a leading social change practitioner, has visited Palo Alto on several occasions in preceding months to invite our participation in the ambitious Cool City Challenge (CCC) community engagement program. This has led to the current invitation to Palo Alto to formalize this potential working partnership through a Letter of Intent (LOI). The purpose of the CCC is to scale up a proven community-based social innovation to achieve dramatic greenhouse gas emission reductions in three early adopter American cities and three neighborhoods in San Paolo, Brazil of comparable size to the American cities, and then disseminate this model worldwide. The ultimate goal of the CCC is to develop a scalable social innovation capable of making a dramatic change to retard climate change. With international climate change legislation failing to get traction in adoption or City of Palo Alto Page 2 implementation, and the long timeframe required to scale up technological solutions, there is a need now for viable and scalable strategies for addressing global warming. Cities represent 70% of the planet’s CO2 emissions and in developed countries citizens’ daily lifestyle choices represent at least 50% of these emissions with huge opportunities for efficiency. This provides the potential for a high leverage opportunity to address global warming if cities can achieve substantial behavior change among its citizens by taking individual behavior change to a communitywide scale. Further, this could serve as a demand-side driver for local green economic development. The Empowerment Institute—a leader in environmental behavior change and community engagement—over the past two decades has developed a methodology to help cities empower citizens to reduce their carbon footprint by 25% through the Low Carbon Diet EcoTeam program and a strategy to achieve between 25% and 75% household participation. This methodology has been tested on a smaller scale in over 300 US cities and 6 countries including China. The CCC is designed to bring this potentially transformative social innovation to scale (community-wide) first in the three California demonstration cities and Sao Paulo and then to the wider world based on the experience and lessons learned in the demonstration cities. The Empowerment Institute (EI) will provide each of the cities deep technical assistance in its implementation. This Institute has a successful track record in designing and implementing successful behavior change programs and community engagement strategies for cities both in the United States and Europe. The content of these behavior change programs include Low Carbon Lifestyles, Green Living, Livable Neighborhoods, and Disaster-resilient Communities. In particular, their Low Carbon Diet Program has been disseminated to over 300 US cities with 46 of those cities in California. To enable this project to be most effectively disseminated after this prototype phase, EI has enlisted the commitment of major research institutions to study, evaluate, and assist in the analytics. EI reports that these partners are Lawrence Berkeley National Laboratory, UC Berkeley, UC Davis and Stanford. EI assumes that cities do not have resources to implement this type of social innovation, and has committed to raising the funds for the cities. One of the City of Palo Alto Page 3 purposes of the Letters of Intent with potential demonstration cities is to indicate potential participation by cities that will aid in the Empowerment Institute’s fund raising goals. If EI is successful in raising the funds to provide the support and staffing in the demonstration cities over the three year program period, then EI will issue Requests for Proposals from cities for evaluation and final selection of the demonstration cities to participate in the program. That proposal process is expected to occur sometime later in 2013. Discussion The Cool Cities Challenge gives Palo Alto a chance to contribute to developing a potentially game changing local solution to climate change. Palo Alto is already a leader in climate protection in many ways, so this is an opportunity to achieve the next level and advance our climate action and energy efficiency goals. CCC potentially provides the City with a platform that allows for integration of its many sustainability programs and which can be applied literally block by block across our community. Neighborhood groups would allow Palo Alto to get better take up in these programs; it also allows for efficiency in the financial investments that will create and distribute these programs. The CCC provides Palo Alto an opportunity to more tightly knit together the social fabric of the community. It also allows for the integration of sustainable community outreach efforts. Resource Impact No significant direct costs to the City are associated with the staff recommendation to sign the LOI. Staff will continue to work with EI, and other partners (Cool Davis, California Air Resources Board, Lawrence Berkeley National Labs), to advance the City’s community engagement goals and our efforts to reduce GHG emissions. As indicated in the attached LOI, fiscal impacts associated with long-term participation in this ambitious program will be offset by funding secured by EI; as mentioned earlier in this report, the Cool Cities Challenge program will only occur if EI is able to secure adequate funding. Indirect fiscal impacts associated with the implementation of a household based demand-side carbon reduction program are undetermined. While this initiative is based on EI providing new funding to City of Palo Alto Page 4 support this effort, a program as ambitious and as far reaching as this in its intent and design will certainly draw on existing city staff, Council, and community capacity. On the other hand, staff anticipates that local businesses and entrepreneurs could respond as local demand for carbon reduction products and services emerge as one outcome of this program. While submission of a LOI by the City signals our serious interest in this initiative, it commits to no binding obligation. The City will again need to carefully review the results this initiative may produce and the investment that this initiative will require, if and when EI issues the formal Request for Proposals later in 2013. By that point, the City should be able to have a clearer understanding of the costs of participation that may occur beyond the funding EI provides and a better sense of our citizens’ interest in participating. If the Council approves the LOI, and as staff learns of EI’s success in fundraising, staff will return to Council with a process to test community interest through targeted outreach to key stakeholders and some method of surveying household interest. A good understanding of the receptivity of our citizens to participating in a multi- year high touch outreach and behavior change program such as this would be important as a prelude to our submission of any formal proposal to EI when they issue their Request for Proposals in 2013. Policy Implications Participation in the Cool Cities Challenge would assist Palo Alto in implementing its Climate Protection Plan and is fully consistent with the Greenhouse Gas reduction goals of that plan. Environmental Review Submitting a LOI to participate in the Cool Cities Challenge does not constitute a project under the California Environmental Quality Act (CEQA). Attachments:  Cool City Challenge Letter of Intent (DOCX) THE COOL BLOCK PILOT MEMORANDUM OF UNDERSTANDING BETWEEN THE CITY OF PALO ALTO AND EMPOWERMENT INSTITUTE OVERVIEW The Cool Block grows out of a vision to reinvent our cities from the bottom up in the age of climate change to help people adopt low carbon and environmentally sustainable lifestyles, disaster resilient and livable neighborhoods and collaborate together as neighbors and citizens. It builds upon David Gershon and his Empowerment Institute’s decades of experience furthering pro-social behavior change and community engagement throughout America and the world. It does this through a nine-meeting, 4 1/2-month program co-led by a group of neighbors living on a block or in a building. Participants in the program select from a menu of 112 action recipes. Some actions are done as individuals and others are collective and carried out by The Cool Block team. The pilot phase of The Cool Block program will take place in three cities: Palo Alto, San Francisco and Los Angeles. The Cool Block program will then be integrated into the Cool City Challenge – a three-year campaign to achieve a minimum of 25% carbon reduction among a minimum of 25% of the households in a community along with creating disaster resilient neighborhoods and green economic development. The Cool Block pilot program provides an advantage to participating cities to being favorably considered for the statewide competitive RFP process to receive a 3-year grant of $2.5 million to participate in the Cool City Challenge. This is because of the social infrastructure, program knowledge and integration into city services that will have been created. That said, participation in Cool City Challenge is not guaranteed. This MOU below describes The Cool Block two-phase pilot in the City of Palo Alto from January 2016 to March 2017. What follows are roles, responsibilities, deliverables and a timeline for Empowerment Institute and the City of Palo Alto. EMPOWERMENT INSTITUTE DELIVERABLES 1. Recruit, train and coach 30 Cool Block leaders and deliver the program on 30 blocks in two phases.  Phase 1: Pilot The Cool Block program independently, or if ready, with the alpha tech platform on 10 blocks.  Phase 2: Pilot the beta version on The Cool Block program and tech platform on an additional 20 blocks with support of community groups. 2. Build The Cool Block technology platform, a web and smartphone platform to track results, share best practices, and integrate city agency, non-profit and local business services into the program’s actions. 2 3. Work with the City of Palo Alto to integrate city programs and services into The Cool Block tech platform around the relevant actions. 4. Research and integrate into The Cool Block tech platform local business, community organization and state services and programs around the relevant actions. 5. Produce a report on pilot outcomes that includes carbon reduction per household, household and block level actions taken, participation rate per block and feedback on various aspects of the program. CITY OF PALO ALTO DELIVERABLES 1. Participation of City Manager to frame, communicate, and execute The Cool Block program internally with city staff and externally in the community. 2. Participate with the Office of Sustainability and other city staff to integrate The Cool Block program into the S/CAP strategy and encourage the participation of the S/CAP Advisory Board. 3. Assist in creating The Cool Block strategy including identification of blocks and potential block leaders. 4. Assist in the recruitment of community organization leaders around the four core pillars of The Cool Block program and respective actions: carbon reduction, disaster resiliency, water conservation/quality and livability/social cohesion. 5. Participate on the design team of the Cool City Challenge to accelerate bold climate action toward carbon neutrality in up to 20 California cities through the use of this platform and funding. 6. Participate in communication and events at the local and state level. PILOT TIMELINE: JANUARY 2016 TO JUNE 2017  Recruit and train of Cool Block leaders: January to March 2016  The Cool Block pilot phase 1 (10 blocks): April to August 2016  The Cool Block pilot phase 2 (20 blocks): October 2016 to February 2017 COOL CITY CHALLENGE TIMELINE: MAY 2017 TO DECEMBER 2020  Cool City Challenge RFP announcement: May 2017  Cool City Challenge RFP due: July 2017 3  Cool City Challenge awards to cities: September 2017  Cool City Challenge Deployment: January 1, 2018 to December 31, 2020 ___________________________________ David Gershon, CEO, Empowerment Institute ___________________________________ Date ____________________________________ Jim Keene, City Manager, City of Palo Alto ____________________________________ Date City of Palo Alto (ID # 6478) City Council Staff Report Report Type: Action Items Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Approval of 2016 Basement Construction Dewatering Program Changes Title: Approval of 2016 Basement Construction Dewatering Program Changes and Other Related Issues From: City Manager Lead Department: Public Works Recommendation Staff recommends that City Council approve the five “Group 1” basement construction dewatering program changes for the 2016 construction season listed below and provide staff direction for returning to the Policy and Services Committee with updates and discussion of other work items related to groundwater and basement construction dewatering issues. This is based on a unanimous recommendation from the Policy and Services Committee to forward the program changes to the full Council as an action item. Executive Summary The Policy and Services Committee discussed staff recommendations on investigating program enhancements for basement construction dewatering at its December 1 and 15, 2015 meetings (Attachment A: #6268 and #6450). The discussion items were organized into three groups: Group 1, a set of potential new requirements for the 2016 construction season which are being brought to the Council for approval with a goal of swift implementation; Group 2, ongoing and potential future work for gathering information about the groundwater basin; and Group 3, a list of additional (some big) ideas generated at the December 1, 2015 Policy and Services meeting. With respect to Group 3, staff will return to the Committee in the first half of 2016 with questions that should be considered part of a further discussion with the Committee about whether to recommend Council consideration and potential direction on any of these. The potential scope of the City of Palo Alto Page 2 items could make this a major new initiative and will require careful assessment of the resources necessary to support them, in the context of other work priorities. Staff has further refined the Group 1 items for approval. Staff is keeping new applicants advised of the concepts under consideration to avoid any surprises at the end of the permitting process. The Policy and Services Committee unanimously approved the Group 1 recommendations, but asked that they be an Action item for full Council, so that they could be discussed. Background Over the years, basement construction groundwater pumping has generated public concern in Palo Alto. The ongoing drought and mandated water restrictions this past summer escalated those concerns. Public concerns relate to the apparent wasting of water by discharging to storm drains, potential impacts on groundwater elevation and flow volume, as well as potential effects on neighboring properties, such as subsidence and cracks, and effects on trees and other landscaping. Basement construction is often required for non-residential, mixed use and multifamily residential buildings, particularly if underground parking is included in the proposal. Additionally, the high value of land and housing in Palo Alto translates into residential property owners seeking to increase their single family homes by constructing basements. Basements constructed in R-1 districts do not count towards allowable square footage (regulated by floor area ratio) and can be quite large when located underneath the entire building footprint (PAMC Section 18.12.090). Basement construction groundwater pumping occurs when a basement is constructed in areas of shallow groundwater, typically in the neighborhoods closer to the bay or near former creek beds. Perimeter wells are established to draw down the groundwater allowing for construction of the basement. Dewatering continues until enough of the house has been constructed to keep the basement in place. The City of Palo Alto has long regulated several aspects of basement groundwater pumping for both residential and commercial sites (see Attachment A for a detailed discussion). Additional correspondence received is attached (Attachment C). Discussion City of Palo Alto Page 3 At the December 15, 2015 Policy and Services Committee meeting, Committee members voted unanimously to forward Group 1 items to Council for approval as soon as possible. Staff has further developed the Group 1 activities and is seeking approval of the following new requirements: Group 1: New Basement Dewatering Submittal, Fill Station and Groundwater Use Requirements 1. Encourage greater fill station use through public outreach and enhanced signage. This is a contractor requirement and City activity and includes continuing to use door hangers, Neighborhood Preparedness Coordinators and the City’s website. 2. City staff to strengthen outreach on the water cycle and value of fresh water flows to storm drains, creeks and bay. 3. Add additional requirements to Groundwater Use Plans that are already required for dewatering. These additional requirements include maximizing on-site water reuse (e.g. watering on-site and nearby vegetation), at least one day per week water truck hauling service for neighbor and City landscaping, and piping to nearby parks or major users where feasible. 4. Expand fill station specifications that must be implemented by contractors to address water pressure issues from multiple concurrent users, including separate pumps for neighbors where needed and sidewalk bridges for hoses to reduce tripping hazards. City inspectors will inspect fill stations to ensure compliance with specifications. 5. Require Grading Permit applicants anticipated to or encountering groundwater to submit a statement of the effects of the proposed groundwater pumping on nearby buildings, infrastructure, trees, or landscaping. Under Section 16.28 of the Palo Alto Municipal Code, the City Engineer is authorized to require augmentation of the Soils and Geotechnical Reports as part of the Grading Permit application. The statement of dewatering effects must be stamped by a California licensed Geotechnical Engineer and submitted to the City. This report will be made available for public review. The City of Palo Alto Page 4 Geotechnical Engineer is to be separate from and independent of the project’s design engineer(s). The detailed requirements are described in Attachment B: Draft Basement Construction Dewatering Requirements, and in anticipation of the City Council’s potential action, on January 14th development project owners/applicants were notified of these pending requirements and advised to begin assembling the required information. Staff recommends approval of these new requirements which will be incorporated into the planning and building permit process on a pilot basis for the 2016 construction season. Pending further experience with dewatering requirements and consultation with stakeholders, staff will evaluate returning to Council with a proposed ordinance codifying specific requirements and enforcement measures. Group 2: Gathering of Groundwater Information and Plans by Palo Alto and its Partner Agencies As discussed at the Policy and Services Committee, staff will continue working with the Santa Clara Valley Water District (Water District) in an already ongoing effort on developing a further understanding of the North County groundwater systems, impacts of groundwater pumping, and opportunities for enhanced groundwater recharge. A Water District key mission is to manage the County’s groundwater; therefore, staff will collaborate closely with the Water District, and the new Council-level Recycled Water Committee. This collaboration may also include working with San Mateo County and its cities to ensure coordination with their development of a groundwater strategic plan. Council may also wish to refer review of this future work to the City’s Utilities Advisory Commission. Staff will provide an update on the work plan for this effort to the Policy and Services Committee in the first quarter of 2016. Group 3: Further Ideas Brought Forward by Individual Policy & Services Committee Members Individual Policy and Services Committee members articulated additional ideas and suggestions. Some of these ideas are multifaceted and complex, and will require sustained effort from staff and assistance from consultants over multiple City of Palo Alto Page 5 years. The Committee and City Council will need to evaluate priorities and timelines, including the potential that significant new assignments may delay other projects currently underway. Staff will prepare a report for the Policy and Services Committee in the first half of 2016 to discuss these matters and the development of a potential recommendation to Council to direct additional work in one or more of these areas: 1. Charging for discharge of groundwater. The current fee for dewatering to the storm drain system is $80 per month. This effort would consider increased fees to charge for the use of the City’s storm drain system and staff time to manage the dewatering requirements. Committee members suggested exploring whether the fee that the Santa Clara Valley Water District charges for groundwater pumping would be an appropriate baseline. 2. Developing dewatering requirements tailored to drought situation. 3. Developing approaches to ensure that multiple basement pumping is not happening in close proximity (distance and time), and instead is spaced out, essentially allowing only a limited number of basement construction dewatering in one area. 4. Addressing potential damage from dewatering through bonds or insurance. 5. Further study of all pumping activities in the City, including private wells, City Hall garage, Oregon Underpass and other underpasses. 6. Review of basement building and zoning code issues, including FAR adjustments for basements and not allowing two-story basements, or any basement, in areas with shallow groundwater. (Note: Staff’s initial reaction is that utilizing zoning to implement these requirements may be quite difficult because groundwater depth can vary significantly from block to block) 7. Review of impacts of multiple basements on soil absorption and/or the creation of barriers to groundwater flow. 8. Investigation of costs of other construction methods that do not require City of Palo Alto Page 6 dewatering, or as much dewatering. 9. Investigate whether Palo Alto should assume a groundwater management leadership role for the North County area. (Including consideration of staff time and cost implications.) 10. In addition, Committee members were interested in how increased use of permeable surfaces may assist with groundwater recharge. (Note: City staff can provide an update on the new stormwater permit requirements for a Green Infrastructure Plan which will require more infiltration of stormwater into the ground rather than discharging it through storm drains via both public and private projects.) Group 2 is part of an ongoing effort and the Committee and City Council will be updated periodically. Group 3 activities will be brought to the Committee /Council for discussion and direction to study them; staff is making no estimate on when they could be implemented. Resource Impact Testing and refining the suggested measures to improve the dewatering program or any other measures suggested by the Committee will require significant staff time that is currently allocated to other projects. For the homeowner, these measures may increase basement construction project costs. As mentioned in earlier parts of this report, Group 1 recommendations have sent staff scurrying to develop final recommendations for action and are likely to require additional ordinance language to be created and brought back to the City Council for approval. Group 3 suggestions are varied and require thoughtful review and potentially large costs. In every case, consideration of our ability to fund and support or absorb the efforts will be required. Environmental Review The Group 1 suggested program enhancements are minor modifications to an existing regulatory program designed to be protective of the environment. They would be covered by the general rule that California Environmental Quality Act (CEQA) does not apply where there is no possibility an action could have a significant effect on the environment (State CEQA Guidelines Section City of Palo Alto Page 7 15601(b)(3)). Group 3 requirements will be evaluated and appropriate environmental review prepared as specific proposals are developed. Attachments:  Attachment A - Policy and Services December Staff Reports (PDF)  Attachment B - Construction Dewatering Study Requirements (DOCX)  Attachment C - Correspondence (PDF) City of Palo Alto (ID # 6268) Policy and Services Committee Staff Report Report Type: Agenda Items Meeting Date: 12/1/2015 City of Palo Alto Page 1 Summary Title: Basement Construction Dewatering Title: Consider Tentative Staff Recommendations On Further Requirements for Basement Construction Dewatering Program for 2016 From: City Manager Lead Department: Public Works Recommendation Staff recommends that the Policy & Services Committee direct staff to continue considering five program enhancements, presented in the “Discussion” section below, on basement construction dewatering; and implement those found to be feasible and practical by Spring 2016 to address public concerns raised during the summer of 2015. Executive Summary Over the years, basement construction groundwater pumping has generated public concern in Palo Alto; the ongoing drought and mandated water restrictions this past summer escalating those concerns. Public concerns relate to the apparent wasting of water by discharging to storm drains, potential impacts on groundwater elevation and flow volume, as well as potential impacts on neighboring properties, such as subsidence and cracks, and impacts on trees and other landscaping. In response to these concerns, staff has developed potential enhancements to the City’s existing regulations regarding construction dewatering for review and discussion. Background Basement construction is often required for non-residential, mixed use and multifamily residential buildings, particularly if underground parking is included in Attachment A: Policy and Services December Staff Reports City of Palo Alto Page 2 the proposal.1 Additionally, the high value of land and housing in Palo Alto translates into residential property owners seeking to increase their single family homes by constructing basements. Basements constructed in R-1 districts do not count towards allowable square footage (regulated by floor area ratio) and can be quite large when located underneath the entire building footprint (PAMC Section 18.12.090). In 2015, 13 residential sites were conducting basement construction groundwater pumping, with 12 of these sites constructing a basement as well as a second story. Basement construction groundwater pumping occurs when a basement is constructed in areas of shallow groundwater, typically in the neighborhoods closer to the bay or near former creek beds. Perimeter wells are established to draw down the groundwater allowing for construction of the basement. Dewatering continues until enough of the house has been constructed to keep the basement in place. The groundwater being pumped is not potable (i.e. drinkable). The Santa Clara Valley Water District regulates the groundwater basin in Santa Clara County, but does not regulate incidental pumping associated with basement dewatering. Summary of Current Regulations The City of Palo Alto has long regulated several aspects of basement groundwater pumping for both residential and commercial sites. Geotechnical investigations are required for basement construction and dewatering permits must be obtained when groundwater is likely to be encountered and dewatering needed. The permit is used, in part, to prevent pumping from October to April ensuring adequate storm drain system capacity during winter months. City of Palo Alto staff verifies that construction dewatering meets requirements for pH and sediment prior to allowing discharge to the storm drain system, meeting State of California stormwater regulations. Unlike most Bay Area cities, Palo Alto does not allow drains around basement foundations, collecting water and pumping to the storm drain continuously; instead basements must be constructed to be waterproof. 1 In commercial and multi-family zones, basements used for parking are generally not counted towards allowable floor area, but basement space containing usable space is. This report focuses on basements in R-1 neighborhoods which have been the subject of most of the community concern. City of Palo Alto Page 3 In 2008, the Planning and Transportation Commission held hearings on the dewatering issue and a literature review prepared by EIP Associates was presented (Attachment A). In Summer 2014, the City’s Public Works Department (PWD) piloted a truck fill station at a dewatering site to address public concern regarding the apparent wasting of pumped water to storm drains during the drought. Following the success of this first truck fill station, all basement groundwater pumping sites, except those located in known groundwater contamination areas, were required to install truck fill stations based on PWD specifications (Attachment B). The stations accommodate large diameter and garden hoses as well as bucket filling. Outreach includes dewatering sites published and mapped on the City website (http://www.cityofpaloalto.org/gov/depts/pwd/pollution/recycled_n_other_non _potable_water.asp), informational door hangers provided to contractors for distribution to neighbors of the construction dewatering site (Attachment C), and a Frequently Asked Questions document (Attachment D). Usage tracked with log sheets showed some sites used extensively by neighboring properties, while others saw little use. The City’s water truck utilized dewatering sites for tree and median irrigation. During the summer 2015 staff met with contractors to discuss additional ideas to address public concerns. Contractors advised staff of the uniqueness of Palo Alto in imposing standards on dewatering and requiring use of the pumped groundwater, believing the requirements increase pumping duration and project cost. One contractor stressed users could be injured at the fill stations, leading to potential liability. Other than increasing public outreach, no new solutions to decrease pumping or increase utilization of groundwater were identified. Discussion In Summer 2015, sites beginning the permit process were required to develop a Use Plan to maximize the use of the pumped groundwater. Additional requirements suggested by members of the public include a moratorium on basements until further study is performed, more detailed review of basement construction projects, minimizing pumping by using other methods for dewatering or increasing weight on basement slab, requiring use of all the water being pumped, payment for water pumped and directing water to the sanitary City of Palo Alto Page 4 sewer. See Attachment E for correspondence from the public and Attachment F for a petition submitted regarding the basement construction moratorium. Using adaptive management based on learnings from this past summer, staff is proposing to investigate the following program enhancements for basement dewatering in 2016: 1. Encouraging greater fill station use by distributing more door-hangers and enlisting other public outreach regarding dewatering, fill stations and trees. This will be a contractor requirement and City activity. 2. Strengthening outreach on the water cycle and value of fresh water flows to storm drains, creeks and bay. 3. Refining requirements for contractor Use Plans, including maximizing on- site water use, one day per week water truck hauling service for neighbor and City landscaping and piping to nearby parks or major users where feasible. Contractors will be responsible for implementation of Use Plans. 4. Expanding fill station specifications to address water pressure issues resulting from multiple concurrent users, including separate pumps for neighbors where needed and sidewalk bridges for hoses to reduce tripping hazards. Contractors will be responsible for implementation. 5. Broadening the City’s Basement Pumping Guidelines to specifically require a determination of impacts of groundwater pumping on adjacent buildings, infrastructure and trees or landscaping. Applicants would determine the approximate location of the temporary groundwater cone of depression caused by pumping. Avoidance measures would be required if impacts are anticipated. Urban Forestry staff may develop guidelines for avoidance measures such as soil enhancement and supplemental watering (by project applicant) of neighboring landscaping. Additional measures could include adjusting the location, depth or duration of pumping or altering construction methods. In addition, staff will request assistance from the Santa Clara Valley Water District to continue to evaluate any potential effects of basement pumping on deep City of Palo Alto Page 5 groundwater levels, particularly related to the City of Palo Alto emergency wells. This issue is partially addressed in a previously provided 2003 report to the City by Carollo Engineers (Attachment G). If additional actions by the City are needed, they will be forwarded to the Policy and Services Committee prior to the 2016 construction season, along with the finalization of the above five recommendations. Resource Impact Testing and refining the suggested measures to improve the dewatering program or any other measures suggested by the Committee will require staff time that is currently allocated elsewhere. These measures may increase basement construction project costs. Staff is seeking approval of Staff exploration of the named activities. One of the elements to be explored is the amount of staff time needed for implementation, and whether the additional time can be absorbed into existing staffing levels. While Staff time is not expected to be large, Staff will be reporting back to the Committee on this issue. Environmental Review The suggested program enhancements are minor modifications to an existing regulatory program designed to be protective of the environment. They would be covered by the general rule that California Environmental Quality Act (CEQA) does not apply where there is no possibility an action could have a significant effect on the environment (State CEQA Guidelines Section 15601(b)(3). Attachments:  Attachment A: 2008 Planning and Transportation Division Study Session Regarding Basement Construction Impacts (PDF)  Attachment B: New Aquifer Filling Station Specifications (PDF)  Attachment C: Doorhanger (PDF)  Attachment D: Groundwater Pumping from Building Sites FAQ (PDF)  Attachment E: Correspondence (PDF)  Attachment F: Basement Moratorium Petition (PDF)  Attachment G: Groundwater_Supply Report (PDF) to address zoning criteria for light wells and below grade patios, but the pertinent code section is provided and some of the issues may affect those provisions. DISCUSSION The discussion below summarizes recent basement construction statistics, the issues addressed in the Public Works memo, the existing Public Works dewatering policy, potential impacts on neighboring properties, and the use of concrete in basement construction and its implications for the City's Green Building program. A few options for addressing public concerns are provided at the end of the section. Recent Basement Construction The City's Building Division reports that there were permits for 65 new single family residential basements issued over the past 2 years (through June 30, 2008). In that timeframe, there were a total of 181 new single family home permits, excluding the detached condos for Sterling Park (96 units). Ten (10) of the basements (of the total 65) were constructed for major renovations/rebuilds. Basement construction has increased as compared to prior years, with an average of about 22 bas.ement permits issued from 2001-2004. The Public Works Department estimates that, of the total number of permits for basements in recent years, approximately 5 per year require dewatering permits. In calendar year 2008 thus far, the Department has issued 3 dewatering permits, and does not anticipate issuing any others, given the proximity to the wet weather season. Attachment G provides a map of the depth of groundwater in Palo Alto, as mapped by the Santa Clara Valley Water District. June 9 Public Works Informational Memo The June 9, 2008 Informational Memo from Public Works (Attachment A) addresses many issues raised by the Council, Commission, and the public, including discharge volume of dewatering, pump noise, water table impacts, subsidence, tree impacts, contaminated groundwater migration, discharge of groundwater after basement construction, basement excavation, and storm drain capacity. In some areas of technical impact, such as water table and subsidence impacts, the memo refers to a study prepared by EIP Associates, Inc. in 2004 (Attachment D), which staff feels adequately addresses those specific concerns. Other concerns regarding pump noise, contaminated groundwater contamination, and discharge of groundwater after basement construction, are addressed in the Council memo but not discussed further here. The discussions below focus on the key issues of discharge volumes and dewatering policy, the impacts of basement excavation on neighboring sites, and the green building implications of basement construction. Discharge Volumes The Public Works Department's "Basement Excavation Dewatering and Basement Drainage Rules" (Attachment B) require a dewatering plan and permit for each site where dewatering during basement construction is proposed. Groundwater levels must be identified in a geotechnical report prior to permit review. Drawdown wells are typically installed around the perimeter of the excavation and pump water out of the shallow aquifer to draw down the level of the groundwater so the basement can be constructed without water filling the excavation. Public Works estimates that draw down well systems for dewatering during basement construction can pump approximately 30-50 gallons per minute of water non-stop for 3-6 months or more while City of Palo Alto Page2 the basement is constructed. The rules now have been revised to limit dewatering to the months of April through October. The total volume of water pumped into the storm drain system from a dewatering operation is substantial, typically a few million gallons. However, the groundwater level is re-established rapidly after dewatering ceases and the discharged water ultimately remains within the water regime and may replenish aquifers downstream or may flow to a creek or the Bay. Nevertheless, some water is surely lost in the process and the storm drain system is burdened by the additional flow. The Public Works Department's Basement Exterior Drainage Policy (Attachment C), last revised October 1, 2006, prohibits the use of perforated pipe systems for basement drainage and requires that all new basements be designed so that ongoing discharge after construction is not required (with limited exceptions for basement-level exterior spaces). The key issue for Commission discussion is whether it is appropriate to further limit or prohibit basement construction where dewatering is required. Impacts on Neighboring Properties Another set of concerns about basement construction relates to potential impacts to neighboring properties, including subsidence, effects on trees, and site stability. • Site stability-Residents have reported concerns about the proximity ofbasement excavation to their property line, which might result in erosion or undermining of the property or nearby buildings. Various excavation shoring restrictions exist to protect neighboring sites, and shoring plans are required by the Building Division. The Zoning Code only allows basements below the main structure, so setbacks should be met, but light wells are permitted to encroach up to 3 feet from a side property line (for a distance of not more than 15 feet), and excavation for the basement wall may then extend to the property line. Attachment F outlines the zoning code provisions for basements in the R-1 zone district. • Trees -Tree impacts on the subject property or an adjacent site could occur from either excavation damage to roots or from dewatering to a point where the roots dry out. The Planning Arborist, however, reviews all projects to determine whether basements would adversely impact an adjacent tree's root system, and plans would need to be revised if impacts are identified. The Zoning Code requires that basement design would not adversely impact any mature trees. The Planning Arborist has also noted that water sources for most trees' roots are not as deep as the groundwater table. • Subsidence -Staff believes that subsidence impacts, if any, are negligible from dewatering, as the water table quickly returns to pre-dewatering levels and the duration of dewatering is not long enough for soils to compress. Staff is aware of no demonstrated subsidence impacts from basement construction dewatering, though some residents have maintained that such an impact has occurred. The EIP study and contact with USGS have also indicated negligible impact. The key issue for Commission discussion is whether some change in policy or codes, such as a minimum setback for excavation, would better protect neighboring properties without unduly infringing on the potential for property owners to construct basements. City of Palo Alto Page3 Green Building Regulations and Implications of Basement Construction Basement construction has been identified as a "green building" issue due to the extensive amount of energy required to produce the concrete used for basements. Concrete creates more than 5 percent of the world's C02 emissions, at a rate of about 400 pounds of C02 for each cubic yard of concrete (3 ,900 pounds). The cement component of concrete (7-15 % ) is the major source of greenhouse gas emissions, and about 0.9 pound of C02 is created per pound of cement produced, according to the Portland Cement Association. A second sustainability issue is the amount of water discharged during dewatering during basement construction (discussed above). The City's Green Building regulations (Attachment E) became effective on July 3, 2008. The regulations include requirements to comply with green point rating systems for both nonresidential (Table A) and residential (Table B) development. The definition of "square footage" includes basement square footage, and the green points required for residential development increase with each 70 additional square feet of house size. Thus, the ordinance does not directly limit basement construction, but does require compensation in the form of increased green point rating for a home with a basement. It should also be noted, however, that due to the insulating qualities of the surrounding earth, basements are often more energy efficient than above grade floor space. For the Commission's information, Attachment K is an article that outlines work currently underway by a Stanford professor to produce a "green" cement that would not only eliminate C02 emissions from cement production, but could also use C02 emitted from other sources, reducing those gases as well. A ways off, perhaps, but a potential solution to the adverse impacts of concrete use in basements. The key issue for the Commission is whether there is a basis for either limiting basement construction or requiring further increases in green points criteria for basement construction to minimize the carbon emissions impacts of basements. POTENTIAL OPTIONS Staff believes that the City's review policies generally protect neighboring properties from deleterious effects of basement dewatering and that dewatering does not have substantial effects on groundwater or result in the discharge of contaminated groundwater. However, water discharge from dewatering can be substantial and there may be opportunities for the City to enact policies or regulations to further minimize the loss of water from local sites as an enhanced sustainability effort. Similarly, the City's Green Building regulations already require compensation for basement construction in the form of additional green building measures to achieve the stipulated point totals, but there may be revisions that would provide further green building benefits where basements are constructed or to encourage retention of existing basements in commercial areas. Some of the options available to the City may include, but are not limited to: 1. Continuing to permit basements, with continued staff analysis of technical data and impacts. 2. Prohibiting basement excavation within 3 feet of a low density residential property line. City of Palo Alto Page4 3. Limiting basement construction based on the amount of water to be discharged or further limit the timeframe for basement dewatering. 4. Modifying green building requirements to double basement square footage to determine the number of GreenPoint Rated points required, and/ or allowing reductions for the use of basement construction materials that reduce the embedded energy of concrete. 5. Allowing existing basements for nonresidential properties to be excluded from floor area calculations if restricted to non-habitable uses, even ifthe basement meets Building Code requirements for habitable space. Subsequent to comments by the Commission, staff will return with specific recommendations for policy or code changes to address basement issues. The Commission would then forward these changes to Council for review and approval. ENVIRONMENTAL REVIEW No environmental review is required for a study session. The level of environmental review required, if any, for potential code or policy actions will be determined once those actions are identified. ATTACHMENTS A. June 9, 2008 "Basement Construction and Dewatering Impacts" Informational Memo to City Council from Public Works Department B. Public Works "Basement Excavation Dewatering and Basement Drainage Rules" C. Public Works "Basement Exterior Drainage Policy," dated October 1, 2006 D. "New Basement Construction and the Groundwater Regime in Palo Alto," Technical Memorandum prepared by EIP Associates, Inc., 2004 E. Green Building Tables for Residential and Nonresidential Development F. Section 18.12.090 of the Zoning Ordinance re: Basements in R-1 District G. Map of Depth to First Water, Santa Clara Valley Water District, October 15, 2003 H. May 8, 2008 E-mail from Steve Broadbent I. July 19, 2008 E-mail from David Stonestrom J. April 22, 2008 E-mail from Jody Davidson K. "Green Cement May Set C02 Fate in Concrete." San Francisco Chronicle. September 2, 2008. COURTESY COPIES Architectural Review Board Jody Davidson Steve Broadbent David Stonestrom John Northway Bob Morris, Public Works REVIEWED BY: Julie Caporgno, Chief Planning and Transportation Official DEPARTMENT/DIVISION HEAD APPROVAL: __ ~----·-~--~---· ___ _ City of Palo Alto Curtis Williams Interim Director Page5 To assist Council in understanding the differences between shallow and deep aquifers _(described ·more completely in EIP's·attached report), staff provides the following descriptions. Shallow aquifers are formed by rain seeping through the ground and pooling close to the ground surface. The top surface of the shallow aquifer is called the water table and is typically 10-30 feet below the ground surface in most areas of Palo Alto other than the hills. This is the aquifer that basement excavations may extend into, necessitating dewatering. Shallow aquifer water is nonpotable. as it does not meet drinking water standards. · Deep aquifers are separated from the shallow aquifers by impermeable sediment layers, like rock or clay, called aquicludes that prevent shallow aquifer water from reaching the deep aquifers. In Palo Alto, the deep aquifers are approximately 200 feet below the ground surface. Dewatering basement excavations has virtually no effect on the deep aquifers . . Certain layers of permeable sediment, like sand or gravel, may trap and hold pockets of groundwater temporarily between shallow and deep aquifers, but these are typically not affected by basement dewatering operations. . . Below is a brief summary of the above research organized by community key concerns. Discharge Volume . A soils report is required for all projects with basements or underground garages. This report determines the depth to the shallow aquifer below the ground surface. If a contractor believes the excavation will go into the groundwater, they will typically submit a drawdown well dewatering plan to Public Works. Drawdown wells are· typically installed around the perimeter of the excavation and pump water out of the shallow aquifer to draw down the level of the groundwater so the basement can be constructed without groundwater filling the excavation. These drawdown well systems pump approximately 30-50 gallons per minute into the storm drain system non~stop for 3-6 months while the contractor constructs the basement. The volume of water pumped into the storm ·drain system from a drawdown well dewatering operation is substantial, typically a few million gallons. It could be used as landscaping water, but it is too large a volume for individual use and too impractical to capture and reuse for other use. The water pumped out of the ground is discharged into the storm drains, which typically discharge into the creeks. San Francisquito Creek is a losing creek, meaning that water is lost by seeping through the creek bed and into the shallow aquifers. So, in this case, water pumped out of the shallow aquifers is added back to it. For water pumped into lined creeks, the water flows to the bay and is lost to the aquifer. The volume of groundwater pumped out of an excavation site is a small fraction of the . total volume of the aquifer and does not deplete or lower the aquifer, except, of. course, in the immediate vicinity of the excavation. The USGS reports that due to natural (rain) and manmade (irrigation, leaking sewer pipes, and the SCVWD's groundwater recharge program) methods, more water is recharged into the shallow aquifers than is pumped out of it by all pumping in the Santa Clara Valley. The EIP report also confirmed that the water table is only drawn down CMR:266:08 Page 2of5 locally (within tens of feet of the excavation) and· reestablishes itself quickly after dewatering ceases. Therefore,the cumulative effect ofdewatering on the shallow aquifers is negligible. Pump Noise Dewatering pumps can make excessive noise if installed improperly, and this is a concern for neighboring residents since the pumps run 24 hours a day. Public Works is tightening the requirements for pump operation to eliminate this problem. Water Table Impacts While the City currently prohibits basements in flood zones, there is no blanket prohibition against construction in areas with shallow aquifers. Basements are not typically constructed so deep that they actually go into the water table, but they do ·in some cases. In other cases, the water table might rise up, as at the end of a particularly wet winter, and surround a basement. However, in these cases, the water table level and the flow of the groundwater are not changed due to the presence of basements, as reported by EIP. Subsidence Land settlement, or·subsidence, caused by temporary (such as 6 months) construction dewatering is negligible, as reported by EIP and USGS. For subsidence to occur, dewatering needs to occur over a number of years. Tree Impacts Relative to Water Table Changes The Planning ·Division arborist reports that in most of the developed areas · of Palo Alto the preponderance of absorbing tree roots are not . found in lower soil horizon levels below seven feet Therefore, the majority of temporary dewatering projects are not expected to impact trees. If a tree's roots are however deep enough and have been determined, on the basis of a certified arborist report or other ·qualified assessment, to be dependent· on the water table, theri the mitigation would be for the , contractor to provide separate irrigation for the tree( s) during the dewatering period. Contaminated Groundwater Migration Citizens have expressed a concern that large volumes of groundwater being pumped out of the aquifers might cause nearby contaminated groundwater plumes to migrate towards the pumping site. When an application is submitted, staff checks dewatering sites against known contaminated groundwater plume maps. If a site is within a certain proximity to a known plume, staff requires the water to . be tested for contaminants prior to and during discharge. The contractor must retain an independent testing service, test for the contaminants Public Works specifies, and submit those results to Public Works. If the water is contaminated, as it was in one case near the Stanford Research Park superfund site, it must be treated before it can be released or discharged to the sanitary sewer under permit from Public Works. The CRWQCB is drafting requirements for contractors to test groundwater discharged to the storm drain system. Staff awaits the adopted version of these requirements, scheduled for this summer, and will implement them at that time. To date, there has been no evidence that contaminated groundwater has been discharged into the storm drain system or that contaminated groundwater plumes have migrated. CMR:266:08 Page 3of5 Discharge of Groundwater after Basement Construction A few years ago, Public Works allowed the use of perforated drain pipes to be installed behind basement walls and under basement slabs when the geotechnical engineer reported that groundwater would not ri.se to the level of. these pipes. The pipes are installed . to .capture rainwater that filters through the ground and collects behind basement walls in order to minimize the chance of the water leaking through the walls. The pipes drain, to a sump where a pump then .. pumps the water to the street gutter.· Unfortunately, after some wet. winters, groundwater did rise up to these pipes and was then pumped c~mtinuously into the street gutter for long periods of time, creating a number of public nuisance and safety concerns. Accordingly, Public Works adopted a policy two years ago that prohibits the use of perforated drain pipes· for basements in areas of the City with relatively high groundwater (east of Foothill Expressway) to eliminate •these potential nuisances. Public Works also re.commends that applicants for. new basement projects retain a waterproofing consultant to ensure tile basement does riot leak. . Older basements that were permitted with perforated drain pipes still may occasionally discharge groundwater into the street gutter. Public Works addresses these cases by working with the homeowners to eliminate the discharge, typically accomplished by having the homeowner raise the pump in the sump above the level of the groundwater. Basement Excavation Some residents have expressed a concern that the excavation pit for a basement comes too close to adjacent properties, potentially jeopardizing the stability of these properties. Although this strictly does not relate to dewatering, staff recognizes it as a legitimate concern. As previously mentioned, the Building Division requires geotechnical reports for all projects that involve basements or underground structures. · A standard feature of these ·reports is recommendations . artd requirements from the geotechnical engineer that specify measures . to stabilize ·the excavation during construction. The Building Division inspects all basement construction to ensure conformance with the geotechnical report and to .verify all recommended stabilization measures are implemented. In addition, Building Inspectors will require the contractor to install extra precautionary measures before work can continue. Storm Drain Capacity Staff is concerned that dewatering basement excavations. may take. up too much capacity in the City's storm drain pipes, minimizing the system's ability to accommodate storm water and potentially causing or exacerbating flooding. This is not a concern raised by citizens, nor has there been any incidents where dewatering has caused flooding, but staff is developing some guidelines for wintertime dewatering in an effort to avoid a problem. The draft guidelines currently disallow dewatering during the winter unless an exemption is granted by the Director of Public Works. CONCLUSION Staff has researched and analyzed each of the concerns about dewatering raised by citizens. Based on that research, staff believes that the cumulative effects of dewatering · basement excavations has minimal impacts on the City and that the practice should be allowed to continue. The attached EIP report essentially comes to the same conclusion. The number of residential basements permitted in the City has increased from approximately 20 a year at the start of the decade to approximately 30 a year currently. However, Public Works only issues about 5-10 CMR:266:08 Page 4 of 5 . E. JJl .. ~"fJ: !2~·· ••• ••. . ~ . . .· . . .· .,.....__ ATTACHMENT A A S S 0 .C l A T t:: S Draft Technical Memorandum: Correlation between New Basement Construction and the Groundwater Regime in Palo Alto, California lo ·Statement of the Plannjng and Transportation Commission's concerns.· At the 14 J anua1y 2004 Commission meeting, the planning staff presented a number of . . proposed changes to the existing regulation of basements in the R-1 zones. During the ensuing discussion, several Commission members expressed conc~rns about the impact of basement construction on groundwater levels and flow directions. Eight specific, interrelated issues were identified. II · 111 II II Is groundwater pumping causing or contributing to land subsidence? What are the effects of pumping for months to dewater a basement constmction site? Are basements bemg permitted in some inappropriate areas [where the water table is only a few feet below the ground surface], creating the need for continuous pumping? What groundwater effects occur if water is withdrawn from the water table and pumped into the sewers or creeks? · • . What groundwater diversion effects occur if basement walls are built along • • • creeks and/or perforate aquifers? · What are the effects on landowners adjacent to, and down gradient from, pumping sties? · What are the cumulative effects of basements on the groundwater regime? Can basement regulations be crafted to address the hydro-geology of specific building sites? · . The general concern underly.iiig these issues was expressed by Commissioner Annette Bailson: the Commission does not have the information needed to identify whether these are issues of concern, or to make informed decisions on the issues. The remainder of this technical memorandum seeks to respond to that underlying concern by provide some background information about the listed issues and about groundwater hydrology of the City relative to the constmction of basements. Page 1of7 I, 1.;'·,.':·, .. , '1 I I I . 'II''' ' 1' ·'· ,;>,, s· S 0 C l A T L S 2. Differences. between shallow (surface) and deep (confined) . groundwater aquifers. · Defining the Aquifers An aquiferis a body of geologic material, usually rock or some mixture of gravel, sand, silt and clay, that is sufficiently permeable to conduct groundwater. Some definitions include the stipulation that the body produce an economically significant flow of water before it may be considered an aquifer. For the purposes of this technical memorandum, the broader . . definition is applied to allow for easier discussion ofthe water-bearing formations underlying the City. Of the various types of aquifers, two are of particular interest in this discussion: the shallow or surface aquifer, and the deep or confined aquifer. The relative terms 'shallow' and 'deep' refer to the depth of the aquifer below the surface of the ground (usually expressed as 'number of feet bgs' in hydrology studies). A surface aquifer is so named because it is open to the surface of the ground. Rain falling on the ground surface seeps through the soil (infiltration) to some depth where it pools to form a more or less continuous body of water occupying the spaces between sediment particles or rock fragments (groundwater). The top of this body of groundwater is the water table. In the Santa Clara Plain, which forms the lowlands of Palo Alto, the water table occurs at depths of as little as ten feet below the ground surface. Being open to the surface of the ground, the surface aquifer is subject to the influertces of overlying land cover and land uses. Modern stream channels, such as the numerous reaches of San Francisquito Creek, intersect or overlie the surface aquifer, extracting water from it or adding water to it. Paving and construction create artificially impermeable surfaces that prevent local direct infiltration to the surface aquifer. Cherriical constituents in urban and agricultural runoff enter the surface aquifer through infiltration from channels or detention basins, lowering the quality of the groundwater. Leaking landfill cells, leaking underground stornge tanks, and liquid spills also contribute to the reduction of water quality in the surface aquifer. Although current stewardship has slowed water quality deterioration, the surface aquifer still cannot be used as a source of potable water. A confined aquifer is one tha.t is separated hydrologically from the overlying and underlying sediments and rock and from other aquifers. Usually the separating agent (called an aquiclude) is formed by a layer of impermeable sediment, such as clay, or by iffipermeable . rock, such as unfractured granite. The confined aquifer is not connected directly to the overlying ground surface and is separated from the surface aquifer by an aquiclude. It is, in effect, a separate hydrologic system, gaining water from_ some distant source (i.e., not local Page 2of7 '1.·,'···','',,., 11 1 I I I . :,j1•11 I ''· /\SSOC!AlES rainfall). and transmitting it to some other relatively distant discharge area. Bec.:ause the .. confined aquifer is below, and hydrologically separated from; the surface aquifer, it is, by definition, a deep aquifer, irrespective of the number of feet it is below the ground surface. Several aquifers tnay underlie each other. This is the case beneath the Santa Clara Plain where geologically recent stream-hid (alluvial) gravel, sand, silt, and clay form a sequence of · deposits nearly 1500 feet thick between the foothills of the Coast Ranges and San Francisco . . Bay. Channels of ancient rivers depositing this material have been cut off and filled by succeeding intersecting channels, which, in turn, have been buried by the deposits of more modern channels. In this way a complex series of sediment layers of unconsolidated (loose), partially consolidated (dense), and consolidated (very dense) material has been built up as the Santa Clara Plain~ The layers are discontinuous and of greater or lesser permeability, depending on their density and clay of silt content. A complicating factor in examining such a series of aquifers is that often they are not completely confined. The aquicludes separating the aquifers may not be totally impermeable (in which case· they are called aquitards). allowing water to seep from one aquifer to another. The aquifers may be connected within or outside the local area, arising from a common source or flowing to a common discharge area. The aquifers may be connected artificially through leaks in wells or along pilings passing through the aquifers. Beneath the portion of the Santa Clara Plain in Palo Alto, there is a confining clay layer that separates the surface aquifer from the deeper aquifers, but, on a regional level, this separation attenuates and, eventually, disappears farther south in San Jose .. Being separated from the surface aquifer in this part of the Santa Clara Plain, the confined aquifers beneath the City are not subject to the. direct influences previously described for land cover and land uses above the surface aquifer. To the extent that groundwater migrates from the southern part of the Santa Clara Plain groundwater basin to the northern part, the effects of similar land cover and land uses in areas toward San Jose may affect water quality in the deep aquifers beneath Palo Alto. Construction-period Dewatering Effects . In general, cons~ction-period dewatering effects are limited to the surface aquifer. This would not necessarily be the case for major high-rise construction where foundations and below-grade levels may extend 100 or more feet beneath the ground surface, increasing the . chances of encountering confined aquifers. It is, however, the case for the type of relatively shallow basement construction being considered in the Zoning Ordinance Update. . In the Santa Clara Plain portion of Palo Alto, the uppermost sequence of unconsolidated and partially consolidated alluvium is about 200 feet thick. This sequence contains the Page 3of7 ASSOCJJ,TES surface aquifer~ the base of which is the previously mentioned clay aquiclude identified by the Santa Clara Valley Water District (SCVWD) in its 2001 Groundwater Management Plan. The general direction of groundwater flow in this area is northeast toward the Bay, so the surface aquifer and_ the _deeper, confined aquifers tend to remain separated in Palo Alto until they reach the vicinity of the Bay margin. The removal of groundwater from an excavation during below-ground-level construction is necessary to provide safety for the construction workers, and .is a prerequisite for wate1proofing the building's foundation and subsurface floors. One method for accomplishing this is to dig a small pit below the base of the foundation excavation, slope the excavation so groundwater drains to the pit, and then pump the water out of the pit and into the storm drainage system .. Another method is to drill temporary wells around the building footprint and pump directly from the groundwater body to the storm drainage system until the local water table drops below the base of the excavation. In either case, groundwater flowing into the area of drawdowrt created by the dewatering process is deflected toward the base of the excavation, whence it is pumped to the storm drainage system. Groundwater beyond the influence of the dewatering process continues to flow normally. Dewatering pumping continues until the foundation and subsmface floors are completed and the excavation is filled. The amount of water deflected depends on the level of the water table, the permeability of the material adjacent to the excavation, and the length of time th~ excavation needs to be kept open and dry. An increase in any of these factors · increases the amount of water deflected. This amount is small when compared to the total volume of available groundwater directly beneath the Santa Clara Plain (see below). Because the deflection is temporary and very localized, and because groundwater levels at the sites recover rapidly once pumping has ceased, there appears to be no discernable long-tetm effect on the surface aquifer. In the areas adjacent to the site being dewatered, the water table would be lowered temporarily by the dewatering process. This effect could extend from several feet to several tens of feet beyond the excavation depending on ·the method used, the level of the water table at the time dewatering began, the permeability of the material adjacent to the excavation, and the length of time the excavation needed to be kept open and dry. The possibility exists that adjacent landscaping could be experience deterioration from reduced ·groundwater availability. Defleetion or Reduction of the rate of Groundwater Flow Although the amount of water pumped from an excavation may appear substantial as it Page 4of7 A ·s S () C l A l · E S. flows along a street to a storm drain inlet, it is small compared to the amount of groundwater directly beneath the Santa Clara Plain. The _SCVWD's current estimate is that there is more than 350,000 acre-feet of groundwater available in the Santa Clara Sub basin . . An excavation dewatering flow of 1 cubic foot per second would deflect 1.98 acre-feet of · water per day. Because groundwaterwoUld be pumped out of the excavation faster than · could flow in, the ~~teration in groundwater flow rate would be less than the rate of de\Vatering. Because t.he resultant groundwater flow ~eflectionis temporary; small, and very localized, there appears to be no discernable long.oterm effect on the ·surface aquifer. . . Because dewatering for basement construction occurs only in the uppermost portion of the surface aquifer, there would be no effect on the deep aquifer. . . .. In a typical 3-month excavation period tlie 1.98 acre:. . .feet per day dewatering flow would amount to 0.05% (one-twentieth of one percent) of the minimum known groundwater resource in the subbasin. No published information about the subbasin's water budget has been found; so any to attempt to predict how quickly the watet would be replaced through recharge would be speculative. It is known, however, that the importation of potable water and the SCVWD controlled recharge program have assisted groundwater levels in the sub basin to rise 200 feet during the last 40 years. Most of that rise has been in the surface aquifer. The implication is that the subbasin is being recharged at a rate substantially higher than the rate of withdrawal from all pumping, including dewatering for basement construction. Consequently,it appears that the amount of flow from one, or even several, dewatering operations would not have long-term effects on the surface aquifer. In the.areas adjacent to the site beingdewatered, the rate and flow directions of the groundwater would be altered temporarily by the dewatering process. Groundwater in the influenced area would move toward the base of the excavation at a rate lower than the rate .·of dewatering discharge. This effect could extend from several feet to several tens of feet . beyond the excavation depending on the method used, the level of the water table at the time dewatering began·,· the permeability of the material adjacent to· the excavation, and the length of time the excavation needed to be kept open and dry. Flow directions and rates would revert to near normal when dewatering ceased. There would be some displacement of groundwater flow around the newly constructed . basement, depending on the permeability of the surrounding soil materials. The volume of space displaced by the basement could be several thousand to severai tens of thousands of cubic feet, which, although small-compared to the volume of the surface ~quifer, could be significant locally, especially if there were other similarly sized basements in the immediate vicinio/. The flow of groundwater would readjust to this condition, possibly altering the level of the water table in the vicinity of the site for· several weeks or months, but is unlikely to experience any major permanent change. The groundwater level in the surface aquifer Page 5 of7 I, ~ .. 1 _I·! I I I I r .. I I:· I I I . 111111 ' 11 ' ~ ASSOCJATES undergoes more significant changes during the rainy season than would be expected from long-term flow deflection caused by basements. Saltwater Intrusion and Subsidence Saltwater intrusion and subsidence in the Santa Clara Subbasin are documented regional effects of the excessive removal of groundwater from the deep aquifer (overdrafting) o~er . many years. This practice was curtailed in the mid-1960s when the importation of potable ·water increased substantially. Smee then, the SCVWD has been recharging the subbasin thereby raising groundwater levels, impeding saltWater infiltration of the sutface aquifer, and virtually eliminating further overdraft-related subsidence (the effects of previops · subsidence cannot be reversed because portions of the deep aquifer have been compressed permartently). Such basin-wide effects could recur only if the deep aquifer became overdrafted again. Because dewatering for basement construction occurs only in the. uppermost portion of the surface aquifer and involves only a small amount of groundwater withdrawal, no effects would occur in the deep aquifer. 3. Palo Alto Public Works Department existing regulatory structure. There are a number of policies in place that provide protection for the City's groundwater resource and for property owners in the vicinity of new basement construction. • • • • • The PublicWorks Department prohibits the long-term pumping ofgroundwater after a basement has been constructed. This eliminates the possibility that the w~ter ·table in the vicinity of the project would be lowered permanently. The Public W or.ks Department requires basements to be waterproofed and strengthened structurally below the expected groundwater level. This eliminates the need for groundwater pumping. The Public Works Department requires permit applicants whose projects would have basements to prepare a geotechnical investigation and report that would determine, among other information, the expected highest groundwater level in the local shallow aquifer. This allows the department to make informed decisions about the advisability of basement construct:lon at a particular site and/ or to _set the conditions under which basement construction may proceed. If dewatering is necessary for basement construction, the Public Works Department sets the dewaterillg permit conditions based on the hydrology of the specific site under consideration. This ensures resource and property protection where it is needed. The Public Works Department allows the removal of seepage water that collects along basement walls above the water table. Normally this removal would need only a minimal amount of pumping, but may need-to be monitored. Page 6of7 A s ·s 0 c r A ·1 E s 4. Recommendation regarding the advisability of codifying groundwater effects in the Zoning O_rdinance Update · The above-listed Public Works Department policies dealing with basement construction and dewate:ring for such·constiuction are intended to prevent.substantial impacts to groundwater, either on an area-wide basis or in the vicinity of the construction site. Although the policies and their associated construction standards appear to address the . . . . issues adequately, it may be advisable for the Public Works Pepartmerit to increase the community's awareness of these issues through an out-reach program .. Because these issues are, essentially, engineering concerns that are site-specific and already covered by existing regulations, there is no need to modify the zoning ordinance with respect to them. Sincerely, George J. Burwasser, EIP Associates EIP ASSOCIATES 353 SACRAMENTO STREET SUITE 1000 SAN FRANCISCO, CALIFORNIA 94111 Telephone 415-362~ 1500 Facsimile 415-362-1954 E-mail .rf@eipas.wdaies.com JJJ/ll/V.eipassodales.com ATTACHMENT B BASEMENT EXCAVATION DEWATERING AND BASEMENT DRAINAGE RULES BASEMENT DRAINAGE: Due to high groundwater throughout much of the City and Public Works prohibiting the pumping and discharging of groundwater, perforated pipe drainage systems at the exterior of the basement walls or under the slab are not allowed for this site. A drainage system is, however, required for all exterior basement-level spaces, such as lightwells, patios or stairwells. This system consists of a sump, a sump pump, a backflow preventer, and a closed pipe from the pump to a dissipation device onsite at least 10 feet from the property line, such as a bubbler box in a landscaped area, so that water can percolate into the soil and/or sheet flow across the site. The device must not allow stagnant water that could become mosquito habitat. Additionally, the plans must show that exterior basement-level spaces are at least 7" below any adjacent windowsills or doorsills to minimize the potential for flooding the basement. Public Works recommends a waterproofing consultant be retained to design and inspect the vapor barrier and waterproofing systems for the basement. BASEMENT SHORING: Shoring for the basement excavation, including tiebacks, must not extend onto adjacent private property or into the City right-of-way without having first obtained written permission from the private property owners and/or an encroachment permit from Public Works. DEWATERING: Basement excavations may require dewatering during construction. Public Works only allows groundwater drawdown well dewatering. Open pit groundwater dewatering is disallowed. Dewatering is only allowed from April through October due to inadequate capacity in our storm drain system. The geotechnical report for this site must list the highest anticipated groundwater level. We recommend a piezometer to be installed in the soil boring. The contractor must determine the depth to groundwater immediately prior to excavation by using the piezometer or by drilling an exploratory hole if the deepest excavation Will be within 3 feet of the highest anticipated groundwater level. If groundwater is within 3 feet of the deepest excavation, a drawdown well dewatering system must be used, or alternatively, the contractor can excavate for the basement and hope not to hit groundwater, but if he does, he must immediately stop all work and install a drawdown well system before he continues to excavate. Public Works may require the water to be tested for contaminants prior to initial discharge and at intervals during dewatering. If testing is required, the contractor must retain an independent testing firm to test the discharge water for the contaminants Public Works specifies and submit the results to Public Works. Public Works reviews and approves dewatering plans as part of a Permit for Construction in the Public Street ("street work permit"). The applicant can include a dewatering plan in the building permit plan set in order to obtain approval of the plan during the building permit review, but the contractor will still be required to obtain a street work permit prior to dewatering. Public Works has a standard dewatering plan sheet that can be used for this purpose and dewatering guidelines are available on Public Works' website. Alternatively, the applicant must include the above dewatering requirements in a note on the site plan. Attachment C PUBLIC WORKS ENGINEERING BASEMENT EXTERIOR DRAINAGE POLICY EFFECTIVE OCTOBER 1, 2006 The Department of Public Works (Public Works) will not permit the use of basement exterior drainage systems consisting of perforated pipes located on the exterior of the basement walls or underneath the slab that collect water which is then pumped to the surface of the ground for discharge, either on-site or off-site, for all City of Palo Alto parcels northeast (the bay side) of Foothill Expressway. Purpose To ensure the public safety and health by preventing the discharge of groundwater into the City gutter system. The discharge of groundwater into the gutter system causes the following public safety, health and nuisance concerns: • gutters are constantly wet and may enhance the growth of algae, thereby creating a slippery condition for pedestrians, bicyclists and motorists • ponded water at the low spots of the gutter may be slippery to cross for pedestrians, bicyclists and motorists • ponded water in the gutter may become mosquito habitat • ponded water in the gutter may seep through cracks, undermining the subgrade and degrading the gutter and adjacent pavement • groundwater discharge into the City's storm drain system adversely affects others who need to discharge storm water run-off for which the system was designed Background In the past, Public Works allowed perforated pipe basement drainage systems to collect water behind basement walls and under basement slabs and discharge it at the ground. Architects proposed these systems in order to minimize the chances of water leakage through the basement walls and slabs. These systems were permitted with the intention of only collecting and discharging small amounts of rainwater that had seeped down through the soil. For proposed basement drainage systems, Public Works required geotechnical reports that estimated the highest expected groundwater level at the site and Public Works required that the perforated pipes be placed above this level. Recent experience indicates that oftentimes the groundwater level rose above the estimated level and entered the perforated pipes, resulting in the constant pumping of groundwater into the street gutter. Analysis Public Works has obtained a groundwater elevation contour map from the Santa Clara Valley Water District. These maps were established using data from numerous water monitoring wells the SCVWD maintains throughout the City. The contours are the depth below ground to the highest level the main groundwater aquifer has risen to since the monitoring wells were installed. The area of town where there is relatively high groundwater (above 20 feet below-grade) is roughly northeast of Foothill Expressway. The main aquifer depicted in the contour map is not the only source of groundwater. Due to soil properties, groundwater can get trapped between two relatively impermeable layers of soil. These lenses of perched groundwater can occur essentially anywhere and be of any size. Consequently, even though the SCVWD map may indicate a certain area of town has groundwater at 20 feet below-grade, for instance, there may currently be perched water closer to the surface or perched water may occur in the future closer to the surface. Summary Public Works feels that the public safety and health, potential nuisance, and maintenance concerns caused by the discharge of groundwater into street gutters outweigh the developers' desire for perforated pipe drainage systems. Although certain sites may seem appropriate for perforated pipe drainage systems because of current low groundwater levels, higher groundwater levels may occur in the future. Accordingly, Public Works will no longer permit perforated pipe basement drainage systems installed in order to discharge water at the ground surface northeast of Foothill Expressway. Drainage systems are required and will be permitted for basement-level exterior spaces, such as stairwells, lightwells and patios. These drainage systems consist of a sump, a sump pump, and a closed pipe from the pump to a dissipation device onsite, such as a bubbler box in a landscaped area, so that water can percolate into the soil and/or sheet flow across the site. The device must not allow stagnant water to occur that could become mosquito habitat. Additionally, the plans must show 8" of freeboard between the floor of any exterior basement-level space and any adjacent windowsills or doorsills. Glenn Roberts, Director of Public Works S:PWD/ENG/TYPING/Morris/Development/Basement Drainage/Basement Drainage Policy ASSOCIATES 2. Differences between shallow (surface) and deep (confined) groundwater aquifers. Defining the Aquifers An aquifer is a body of geologic material, usually rock or some mixture of gravel, sand, silt and clay, that is sufficiently permeable to conduct groundwater. Some definitions include the stipulation that the body produce an economically significant flow of water before it may be considered an aquifer. For the purposes of this technical memorandum, the broader definition is applied to allow for easier discussion of the water-bearing formations underlying the City. Of the various types of aquifers, two are of particular interest in this discussion: the shallow or surface aquifer, and the deep or confined aquifer. The relative terms 'shallow' and 'deep' refer to the depth of the aquifer below the surface of the ground (usually expressed as 'number of feet bgs' in hydrology studies). A surface aquifer is so named because it is open to the surface of the ground. Rain falling on the ground surface seeps through the soil (infiltration) to some depth where it pools to form a more or less continuous body of water occupying the spaces between sediment particles or rock fragments (groundwater). The top of this body of groundwater is the water table. In the Santa Clara Plain, which forms the lowlands of Palo Alto, the water table occurs at depths of as little as ten feet below the ground surface. Being open to the surface of the ground, the surface aquifer is subject to the influences of overlying land cover and land uses. Modern stream channels, such as the numerous reaches of San Francisquito Creek, intersect or overlie the surface aquifer, extracting water from it or adding water to it. Paving and construction create artificially impermeable surfaces that prevent local direct infiltration to the surface aquifer. Chemical constituents in urban and agricultural runoff enter the surface aquifer through infiltration from channels or detention basins, lowering the quality of the groundwater. Leaking landfill cells, leaking underground storage tanks, and liquid spills also contribute to the reduction of water quality in the surface aquifer. Although current stewardship has slowed water quality deterioration, the surface aquifer still cannot be used as a source of potable water. A confined aquifer is one that is separated hydrologically from the overlying and underlying sediments and rock and from other aquifers. Usually the separating agent (called an aquiclude) is formed by a layer of impermeable sediment, such as clay, or by impermeable rock, such as unfractured granite. The confined aquifer is not connected directly to the overlying ground surface and is separated from the surface aquifer by an aquiclude. It is, in effect, a separate hydrologic system, gaining water from some distant source (i.e., not local Page 2of7 ASSOCIATES rainfall) and transmitting it to some other relatively distant discharge area. Because the confined aquifer is below, and hydrologically separated from, the surface aquifer, it is, by definition, a deep aquifer, irrespective of the number of feet it is below the ground surface. Several aquifers may underlie each other. This is the case beneath the Santa Clara Plain where geologically recent stream-laid (alluvial) gravel, sand, silt, and clay form a sequence of deposits nearly 1500 feet thick between the foothills of the Coast Ranges and San Francisco Bay. Channels of ancient rivers depositing this material have been cut off and filled by succeeding intersecting channels, which, in turn, have been buried by the deposits of more modern channels. In this way a complex series of sediment layers of unconsolidated (loose), partially consolidated (dense), and consolidated (very dense) material has been built up as the Santa Clara Plain. The layers are discontinuous and of greater or lesser permeability, depending on their density and clay of silt content. A complicating factor in examining such a series of aquifers is that often they are not completely confined. The aquicludes separating the aquifers may not be totally impermeable (in which case they are called aquitards) allowing water to seep from one aquifer to another. The aquifers may be connected within or outside the local area, arising from a common source or flowing to a common discharge area. The aquifers may be connected artificially through leaks in wells or along pilings passing through the aquifers. Beneath the portion of the Santa Clara Plain in Palo Alto, there is a confining clay layer that separates the surface aquifer from the deeper aquifers, but, on a regional level, this separation attenuates and, eventually, disappears farther south in San Jose. Being separated from the surface aquifer in this part of the Santa Clara Plain, the confined aquifers beneath the City are not subject to the direct influences previously described for land cover and land uses above the surface aquifer. To the extent that groundwater migrates from the southern part of the Santa Clara Plain groundwater basin to the northern part, the effects of similar land cover and land uses in areas toward San Jose may affect water quality in the deep aquifers beneath Palo Alto. Construction-period Dewatering Effects In general, construction-period dewatering effects are limited to the surface aquifer. This would not necessarily be the case for major high-rise construction where foundations and below-grade levels may extend 100 or more feet beneath the ground surface, increasing the chances of encountering confined aquifers. It is, however, the case for the type of relatively shallow basement construction being considered in the Zoning Ordinance Update. In the Santa Clara Plain portion of Palo Alto, the uppermost sequence of unconsolidated and partially consolidated alluvium is about 200 feet thick. This sequence contains the Page 3of7 ASSOClATlr:S surface aquifer, the base of which is the previously mentioned clay aquiclude identified by the Santa Clara Valley Water District (SCVWD) in its 2001 Groundwater Management Plan. The general direction of groundwater flow in this area is northeast toward the Bay, so the surface aquifer and the deeper, confined aquifers tend to remain separated in Palo Alto until they reach the vicinity of the Bay margin. The removal of groundwater from an excavation during below-ground-level construction is necessary to provide safety for the construction workers, and is a prerequisite for waterproofing the building's foundation and subsurface floors. One method for accomplishing this is to dig a small pit below the base of the foundation excavation, slope the excavation so groundwater drains to the pit, and then pump the water out of the pit and into the storm drainage system. Another method is to drill temporary wells around the building footprint and pump directly from the groundwater body to the storm drainage system until the local water table drops below the base of the excavation. In either case, groundwater flowing into the area of drawdown created by the dewatering process is deflected toward the base of the excavation, whence it is pumped to the storm drainage system. Groundwater beyond the influence of the dewatering process continues to flow normally. Dewatering pumping continues until the foundation and subsurface floors are completed and the excavation is filled. The amount of water deflected depends on the level of the water table, the permeability of the material adjacent to the excavation, and the length of time the excavation needs to be kept open and dry. An increase in any of these factors increases the amount of water deflected. This amount is small when compared to the total volume of available groundwater directly beneath the Santa Clara Plain (see below). Because the deflection is temporary and very localized, and because groundwater levels at the sites recover rapidly once pumping has ceased, there appears to be no discernable long-term effect on the surface aquifer. In the areas adjacent to the site being dewatered, the water table would be lowered temporarily by the dewatering process. This effect could extend from several feet to several tens of feet beyond the excavation depending on the method used, the level of the water table at the time dewatering began, the permeability of the material adjacent to the excavation, and the length of time the excavation needed to be kept open and dry. The possibility exists that adjacent landscaping could be experience deterioration from reduced groundwater availability. Deflection or Reduction of the rate of Groundwater Flow Although the amount of water pumped from an excavation may appear substantial as it Page 4of7 ASSOCIATES flows along a street to a storm drain inlet, it is small compared to the amount of groundwater directly beneath the Santa Clara Plain. The SCVWD's current estimate is that there is more than 350,000 acre-feet of groundwater available in the Santa Clara Subbasin. An excavation dewatering flow of 1 cubic foot per second would deflect 1.98 acre-feet of water per day. Because groundwater would be pumped out of the excavation faster than could flow in, the alteration in groundwater flow rate would be less than the rate of dewatering. Because the resultant groundwater flow deflection is temporary, small, and very localized, there appears to be no discernable long-term effect on the surface aquifer. Because dewatering for basement construction occurs only in the uppermost portion of the surface aquifer, there would be no effect on the deep aquifer. In a typical 3-month excavation period the 1.98 acre-feet per day dewatering flow would amount to 0.05% (one-twentieth of one percent) of the minimum known groundwater resource in the subbasin. No published information about the subbasin's water budget has been found, so any to attempt to predict how quickly the water would be replaced through recharge would be speculative. It is known, however, that the importation of potable water and the SCVWD controlled recharge program have assisted groundwater levels in the subbasin to rise 200 feet during the last 40 years. Most of that rise has been in the surface aquifer. The implication is that the subbasin is being recharged at a rate substantially higher than the rate of withdrawal from all pumping, including dewatering for basement construction. Consequently, it appears that the amount of flow from one, or even several, dewatering operations would not have long-term effects on the surface aquifer. In the areas adjacent to the site being dewatered, the rate and flow directions of the groundwater would be altered temporarily by the dewatering process. Groundwater in the influenced area would move toward the base of the excavation at a rate lower than the rate of dewatering discharge. This effect could extend from several feet to several tens of feet beyond the excavation depending on the method used, the level of the water table at the time dewatering began, the permeability of the material adjacent to the excavation, and the length of time the excavation needed-to be kept open and dry. Flow directions and rates would revert to near normal when dewatering ceased. There would be some displacement of groundwater flow around the newly constructed basement, depending on the permeability of the surrounding soil materials. The volume of space displaced by the basement could be several thousand to several tens of thousands of cubic feet, which, although small compared to the volume of the surface aquifer, could be significant locally, especially if there were other similarly sized basements in the immediate vicinity. The flow of groundwater would readjust to this condition, possibly altering the level of the water table in the vicinity of the site for several weeks or months, but is unlikely to experience any major permanent change. The groundwater level in the surface aquifer Page 5of7 ASSOCIATES undergoes more significant changes during the rainy season than would be expected from long-term flow deflection caused by basements. Saltwater Intrusion and Subsidence Saltwater intrusion and subsidence in the Santa Clara Subbasin are documented regional effects of the excessive removal of groundwater from the deep aquifer ( overdrafting) over many years. This practice was curtailed in the mid-1960s when the importation of potable water increased substantially. Since then, the SCVWD has been recharging the subbasin thereby raising groundwater levels, impeding saltwater infiltration of the surface aquifer, and virtually eliminating further overdraft-related subsidence (the effects of previous subsidence cannot be reversed because portions of the deep aquifer have been compressed permanently). Such basin-wide effects could recur only if the deep aquifer became overdrafted again. Because dewatering for basement construction occurs only in the uppermost portion of the surface aquifer and involves only a small amount of groundwater withdrawal, no effects would occur in the deep aquifer. 3. Palo Alto Public Works Department existing regulatory structure. There are a number of policies in place that provide protection for the City's groundwater resource and for property owners in the vicinity of new basement construction. • • • • • The Public Works Department prohibits the long-term pumping of groundwater after a basement has been constructed. This eliminates the possibility that the water table in the vicinity of the project would be lowered permanently. The Public Works Department requires basements to be waterproofed and strengthened structurally below the expected groundwater level. This eliminates the need for groundwater pumping. The Public Works Department requires permit applicants whose projects would have basements to prepare a geotechnical investigation and report that would determine, among other information, the expected highest groundwater level in the local shallow aquifer. This allows the department to make informed decisions about the advisability of basement construction at a particular site and/ or to set the conditions under which basement construction may proceed. If dewatering is necessary for basement construction, the Public Works Department sets the dewatering permit conditions based on the hydrology of the specific site under consideration. This ensures resource and property protection where it is needed. The Public Works Department allows the removal of seepage water that collects along basement walls above the water table. Normally this removal would need only a minimal amount of pumping, but may need to be monitored. Page 6of7 attained the compliance threshold as indicated for the Covered Project type as set forth in the Standards for Compliance outlined in Section 18.44.040. (u) "Single-family or two-family residential" means a single detached dwelling unit or two units in a single building. (v) "Square footage," for the purposes of calculating commercial, multi-family residential, and single-family and two-family new construction square ·footage, means all new and replacement square footage, including basement areas (7 feet or greater in height) and garages, except that unconditioned garage space shall only count as 50% of that square footage. Areas demolished shall not be deducted from the total new construction square footage. (w) "Threshold Verification by LEED AP" means verification by a LEED accredited professional certifying that each LEED checklist point listed was verified to meet the requirements to achieve that· point. The LEED AP shall provide supporting information from qualified professionals (e.g. civil engineer, electrical eng~neer, Title 24 consultant, commissioning agent, etc.) to certify compliance with each point on the checklist. Documentation of construction consistent with building plans calculated to achieve energy compliance is sufficient verification in lieu of post- construction commissioning. 18.44.040 Standards for Compliance. The City Council shall establish by resolution, and shall periodically review and update as necessary, Green Building Standards for Compliance. The Standards for Compliance shall include, but are not limited to, the following: (a) The types of projects subject to regulation (Covered Projects); (b) The green building rating system to be applied to the various types of projects; ( c) Minimum thresholds of compliance for various types of projects; and ( d) Timing and methods of verification of compliance with these regulations. The Standards for Compliance shall be approved after recommendation from the Director of Planning and Community Environment, who shall refer the Standards for recommendation by the Architectural Review Board, prior to Council action. 18.44.050 (a) 080604 syn 6050410 Incentives for Compliance. In addition to the required standards for compliance, the City Council may, through ordinance or resolution, enact financial, permit review process, or zoning incentives and/or award or recognition programs to further encourage higher levels of green building compliance for a project. 6 ATTACHMENT F 18.12.090 Basements Basements shall be permitted in areas that are not designated as special flood hazard areas as defined in Chapter 16.52, and are subject to the following regulations: (a) Permitted Basement Area Basements may not extend beyond the building footprint and basements are not allowed below any portion of a structure that extends into required setbacks, except to the extent that the main residence is permitted to extend into the rear yard setback by other provisions of this code. (b) Inclusion as Gross Floor Area Basements shall not be included in the calculation of gross floor area, provided that: (1) basement area is not deemed to be habitable space, such as crawlspace; or Ch. 18.12-Page 15 (Supp. No 13 -10/1/2007) 18.12.100 Regulations for the Single Story Overlay (S) Combining District (D) the cumulative length ofany excavated area or portion thereof that extends into a required side or rear yard does not exceed 15 feet; (E) the owner provides satisfactory evidence to the planning director prior to issuance of a building permit that any features or portions of features that extend into a required side or rear yard will not be harmful to any mature trees on the subject property or on abutting properties; (F) such features have either a drainage system that meets the requirements of the public works department or are substantially sheltered from the rain by a roof overhang or canopy of a permanent nature; (G) any roof overhang or canopy installed pursua~t to subsection (F) is within and is counted toward the site coverage requirements established in Section 18.12.040; (H) such areas are architecturally compatible with the residence; and (I) such areas are screened to off-site views by means oflandscaping and/or fencing as determined appropriate by the planning director. (Ord. 4869 § 14 (Exh. A [part]), 2005) 18.12.090 Basements (2) basement area is deemed to be habitable space but the :finished level of the first floor is no more than three feet above the grade around the perimeter of the building foundation. Basement space used as a second dwe~g unit or portion thereof shall be counted as floor area for the purpose of calculating the maximum size of the unit (but may be excluded from calculations of floor area for the total site). This provision is intended to assure that second units are subordinate in size to the main dwelling and to preclude the development of duplex zoning on the site. ( c) Lightwells, Stairwells, Below Grade Patios and other Excavated Features (1) Lightwells, stairwells, and similar excavated features along the perimeter of the basement shall not affect the measurement of grade for the purposes of determining gross floor area, provided that the following criteria are met: (A) such features are not located in the front of the building; (B) such features shall not exceed 3 feet in width; (C) the cumulative length ofall such features does not exceed 30% of the perimeter of the basement; (D) such features do not extend more than 3 feet into a required side yard nor more than 4 feet into a required rear yard, but where a side yard is less than 6 feet in width, the features shall not encroach closer than 3 feet from the adjacent side property line; (E) the cumulative length of any features or portions of features that extend into a required side or rear yard does not exceed 15 feet in length; (F) the owner provides satisfactory evidence to the planning division prior to issuance of a building permit that any features or portions of features that extend into a required side or rear yard will not be harmful to any mature trees on the subject property or on abutting properties; and (G) such features have either a drainage system that meets the requirements of the public works department or are substantially sheltered from the rain by a roof overhang or canopy of a permanent nature. (2) Below-grade patios, sunken gardens, or similar excavated areas along the perimeter of the basement that exceed the dimensions set forth in subsection (1), are permitted and shall not affect the measurement of grade for the purposes of determining gross floor area, provided that: (A) such areas are not located in the front of the building; (B) all such areas combined do not exceed 2% of the area of the lot or 200 square feet, whichever is greater; that each such area does not exceed 200 square feet; and that each such area is separated from another by a distance of at least 10 feet. Area devoted to required stairway access shall not be included in the 200 square foot limitation. ( C) such features do not extend more than 2 feet into a required side yard nor more than 4 feet into a required rear yard; (Supp. No 13 -10/1/2007) Ch. 18.12-Page 16 ATTACHMENT H May 8, 2008 Steve Broadbent 575 Washington Ave Palo Alto, CA 94301-4046 steve.broadbent@hp.com (650) 521-3958 Honorable Mayor Larry Klein and Council Members City of Palo Alto 250 Hamilton Ave Palo Alto, CA 94301 Via email Re: Green Building Ordinance -Request to Prohibit Basement Construction Honorable Mayor Klein and Council Members: I urge City Council to strengthen City ordinances to prohibit the construction of residential basements, especially basements which require dewatering during construction. The mechanical removal of millions of gallons of groundwater from a construction site has detrimental environmental impacts, and it is disingenuous for a construction project to be considered "green" when it builds a basement in an aquifer. One so called "green" project in Old Palo Alto pulled an estimated 100,000 gallons of water per day from our underground aquifer for a period of 6 months. The Green Building Ordinance under consideration by the City Council does not adequately address this abhorrent practice, and you should amend the ordinance to prohibit basement construction. The Planning & Transportation Division Staff Report for the April 9, 2008, study session on the proposed Green Building Criteria for Private Development recognized basement construction as an issue needing further scrutiny, but staff has failed to pursue satisfactory resolution: "The Commission and the public asked several questions about basements, including a) groundwater discharged, b) the effects of dewatering on groundwater and potential toxic plumes, c) the amount of concrete used, and d) impact on trees. "The Public Works Department has, in the past few years, revised its basement policy to prohibit dewatering basements after construction. Dewatering from basements during construction is still allowed ... Green Building Ordinance -Request to Prohibit Basement Construction Page 1of5 "During the Zoning Ordinance Update, staff commissioned EIP Associates to study the impacts of extensive basement construction on groundwater ... "Staff believes that the use of basements deserves continued scrutiny ... Planning has included provision in the green building criteria that larger homes (including basement floor area) must achieve a greater number of green point credits than smaller homes to help compensate for these resource impacts. Other approaches would require extensive discussion as to when or whether to continue to allow basements ... In recent ordinance discussions, this issue was broached but not pursued." I agree with staff that the use of basements deserves continued scrutiny, but I am disappointed that staff believes green point credits can mitigate the serious impacts basement construction has on our city. Public Works has attempted to dismiss concerns raised by many residents by declaring the impacts as "negligible" or by disavowing specific knowledge. A response that "staff is not aware" should not be considered closure on the issues raised. I take exception to a number of the conclusions put forth by Public Works, and I ask that Council direct staff to reconsider their findings, including but not limited to: • • • • • Impact to neighboring properties Land subsidence Impact on trees and landscaping Waste of water Other detrimental impacts Impact to Neighboring Properties Staff asserts "the study concluded that the impacts of basement construction were negligible on the groundwater system and on the groundwater on neighboring sites." However, the EIP study clearly stated that "In the areas adjacent to the site being dewatered, the rate and flow directions of the groundwater would be altered temporarily by the dewatering process. Groundwater in the influenced area would move toward the base of the excavation ... This effect could extend from several feet to several tens of feet beyond the excavation." My concern is not with the long term impact on the broader Santa Clara Valley groundwater system. My issue is with the site-specific impacts on neighboring properties and the local community. You should not allow macro responses to obscure the micro view of real damage that residential basements cause. There may be no discernable long-term effect on the broader surface aquifer beneath the Santa Clara Plain (macro view), but the prolonged extraction of groundwater from 2164 Green Building Ordinance -Request to Prohibit Basement Construction Webster Street most certainly sucked the groundwater from underneath neighboring properties, including mine (micro view). Although small compared to the volume of the surface aquifer (macro view), the volume of space displaced by a basement could be several tens of thousands of cubic feet which would displace groundwater flow around a newly constructed basement. This could be significant locally (micro view), especially if there were other similarly sized basements in the immediate vicinity (refer to EIP study, page 5). Several residents have horror stories of how the utility basements in their established homes began flooding after the construction of neighboring basements. The Foundation Engineering Handbook, by Hsai-Yang Fang (1991), confirms that" ... the process of dewatering can have side-effects that are harmful to the project under construction, the other facilities nearby, or to the environment ... Improper dewatering ... can cause damage to the structures being built or to adjacent structures." Land Subsidence It is well established that subsidence can occur with groundwater extraction, and the effects of subsidence cannot be reversed where portions of the aquifer have been compressed. "Saltwater intrusion and subsidence in the Santa Clara Subbasin are documented regional effects of the excessive removal of groundwater from the deep aquifer over many years ... the SCVWD has been recharging the subbasin [with potable water] thereby raising groundwater level ... and virtually eliminating further overdraft-related subsidence. Such basin-wide effects could recur only if the deep aquifer became overdrafted again. Because dewatering for basement construction occurs only in the uppermost portion of the surface aquifer and involves only a small amount of groundwater withdraw! [relative to the broader Santa Clara Subbasin], no effects would occur in the deep aquifer." (macro view, refer to EIP study, page 6) Take that "macro view" and bring it up to the surface aquifer underlying my home. My "micro view" is that the drawdown of the groundwater under adjacent properties can and does cause localized subsidence depending on the soil properties in the area. After 7 5 years, my home shouldn't be "settling" any more, but cracks in the plaster and cracks in the pavement developed during the extended dewatering at 2164 Webster. Fang confirms that "ground settlement can occasionally be a problem. Lowering the water table increases the effective stress in the soil. The stress increase is usually modest, and most soils are not affected significantly. But if there are compressible soils in the vicinity ... settlement may occur. Whether the settlement causes significant damage depends on the thickness and consolidation characteristics of the compressible deposit, the depth of drawdown and the duration of pumping, the foundations of the structures within the zone affected, and the type of their construction." Green Building Ordinance -Request to Prohibit Basement Construction Page 3of5 Impact on Trees and Landscaping Not only do I disagree with the Planning Arborist's assertion that "the localized drawdown of the water table during dewatering does not impact trees as their roots do not typically extend to that depth," the EIP study contradicts that assertion: "The possibility exists th'lt adjacent landscaping could experience deterioration from reduced groundwater availability." (refer to EIP study, page 4) Fang also confirms that, "trees ·or other plantings in urban parks may be affected [by dewatering]." Regardless of ~hether tree roots extend into the aquifer or not, the strong pull of drawdown wells during a dewatering operation accelerates the percolation of surface waters and induces drought-like conditions as the soil dries out. Landscape irrigation cannot and should not be considered sufficient mitigation of the drought-like stress inflicted on trees during prolonged dewatering. Waste of Water The City has been studying the use of recycled water for landscape irrigation and other non-potable uses, and a multimillion dollar recycled water project is being considered. The City clearly recognizes the need for water conservation, yet it permits the intentional discharge of millions of gallons of water into our storm drains. That simply doesn't make sense. Public Works has stated that the water pumped from the shallow aquifers typically goes into the storm drain system and then into the creeks, some of which are "losing" creeks, meaning they lose their water back to the shallow aquifers. Public Works asserts that the water is pumped out of the aquifer and then added back to it. But Public Works fails to acknowledge that there are no "losing" creeks in my neighborhood, only engineered channels. • Adobe is all concrete bottom and sides from Hwy 101 to Alma. • Matadero is all concrete bottom and sides from Hwy 101 to Alma, except from Greerto hwy 101 • Barron is all concrete bottom and sides from Hwy 101 to Alma except for about 800 feet just upstream of hwy 101. Concrete channels are not "losing" creeks, and since the natural aquifer flow is from the foothills to the bay, any recharge in the short sections near Hwy 101 does not repleni'Sh the impacted neighborhood. Green Building Ordinance -Request to Prohibit Basement Construction Page4 of5 Other Detrimental Impacts In addition to the unnecessary waste of water, the large volume of water pumped into our storm drains could rupture our aging storm drains, damage streets and underground utilities, and cause a sinkhole to develop. Fang also notes that groundwater in the vicinity of a dewatering operation may be affected "by temporary reduction in the yield of supply wells, by salt water intrusion, or by the expansion of contaminant plumes." Call for Action Mayor Klein and Council Members, I call upon you to take action to restrict residential . basement construction and stop the destructive practice of de watering. Palo Alto wants to be a leader in the Green Building movement. Please amend the Green Building Ordinance to prohibit residential basement construction in Palo Alto. Sincerely, Steve Broadbent Green Building Ordinance -Request to Prohibit Basement Construction Page 5 of 5 Attachment I To: Palo Alto City Council & Planning & Transportation// Re: Dewatering and Basement Construction// Date: July 19, 2008 Honorable Council and Planning and Transportation Committee Members: I am writing to express my concerns about dewatering and basement construction in Palo Alto. I am a professional scientist who has specialized in groundwater hydrology since 1975. I have a BS in Geology from Dickinson College and MS and PhD degrees in Hydrology from Stanford University. I have lived in Palo Alto for 31 years. The following statements are my personal views as a resident. I recently received a call from another Palo Alto resident who purchased an older home near property that was being outfitted with a new house. Excavation for the new home's basement required pumping over 18-million gallons of groundwater 35 feet to land surface, where the water was discarded into the City's storm sewer. According to the caller, this dewatering was carried out with the approval of the City, without the need for a variance. The resident reported that dewatering volumes on the order of millions of gallons have been produced in multiple instances in Palo Alto, as mega basements have become popular. I do not advocate a complete ban on basement construction. Nevertheless, it is clear that large parts of the City are unsuitable for the sorts of basements being built. Projects that require large-scale dewatering should not be allowed. The reasons are simple: (1) Construction of finished (dry) space where any part of that space is below the water table is not advisable and should rarely if ever be allowed. This is necessary not only to protect the newly constructed space, but also to conserve energy and water resources and to prevent overloading of the storm-sewer system. Building codes prohibit basements that would be "subject to flooding." The maximum elevation of the water table during normal rainy seasons, plus a reasonable safety margin, sets the limit for allowable subsurface construction. The need for large-scale dewatering indicates that the structure being built is subject to flooding by groundwater. It is not to anyone's advantage to build basements in unsuitable locations. The City must uphold existing law. (2) Extensive low-lying areas of Palo Alto have shallow water tables, rendering them unsuitable for basements. These areas were prone to flooding prior to "reclamation" projects that "channelized" the downstream reaches of creeks and diked off the Palo Alto Baylands. Sea-level rise from global warming is underway. Sea-level rise will increase water-table elevations in low-elevation areas of the City. Empirical projections based on ICPP scenarios call for 0.5 to 1.4 meters (1.6 to 4.6 feet) of sea-level rise by 2100 ( http://www.sciencemag .orgtcgitcontent1abstract131s1ss10/368). These projections are likely low ( http://www.sciencemag.org/cgi/co~tent/abstract/317/5841/1064). (3) The cone-of-depression from construction dewatering involving extraction wells with only a few feet of horizontal setback from adjoining properties will definitely extend beneath the adjoining properties, with potentially harmful effects from desiccation and differential settling. Palo Alto's soils are heavily textured "adobes" in which the dominant minerals of the fine fraction are montmorillonitic (smectitic) clays. Smectitic clays swell with wetting and shrink with drying. Although modem foundations are designed to avoid 1 of2 To: Palo Alto City Council & Planning & Transportation// Re: Dewatering and Basement Construction// Date: July 19, 2008 failure in soils that shrink and swell, older structures are vulnerable to harm. Dewatering removes water from adjacent properties. It seems prudent to avoid situations where one person's allow.ed dewatering can harm neighboring properties. ( 4) Wasteful consumption of City water resources is a serious issue. Eighteen million gallons of water is about 24-thousand CCF (hundred cubic feet). If applied to a medium- sized City park with 200,000 square feet of irrigated turf-roughly the size of the Mitchell Park soccer fields-the depth of the applied water would be about 12 feet. This represents one hundred weeks of irrigation-five years' worth at 20 irrigation weeks per year. Virtually all water removed during construction ends up in the Bay via lined storm- runoff conveyances. Virtually none of it recharges groundwater or soil moisture. Waste on this scale is unconscionable. ( 5) The possibility of groundwater contaminants being captured by construction wells poses risks at multiple locations throughout the City. As more commercial and industrial areas are rezoned to residential uses, the number of risks increases. Many contaminant plumes are mapped, but others are poorly characterized. Such risks additionally weigh against construction dewatering. In summary, basements must be restricted to areas that have adequately thick unsaturated zones-not all areas of Palo Alto are suitable. Large-scale dewatering should not be permitted. Preservation of property and avoidance of contaminant entrainment are compelling reasons to reassess current practices. The public costs of construction dewatering are unacceptably high. Groundwater is a City resource so precious that no one should be permitted to squander it on grand scales. Prudent restriction of dewatering and basement construction will protect all parties. My only interest in this matter was a promise to a fellow Palo Altan-concerned by groundwater impacts-to assess the situation and communicate my findings to you. With best regards, David A. Stonestrom 1000 S. California Ave. Palo Alto, CA 94306 2 of2 ATTACHMENT J Davldson%20Basement%20Excavatlon%20Photos.htm 9/15/08 5:55 PM From: Williams, Curtis Sent: Monday, September 15, 2008 5:55 PM To: Williams, Curtis Subject: FW: Basement Excavation Photos from: Jodyldavidson@aol.com [mailto:Jodyldavidson@aol.com] sent: Tuesday, April 22, 2008 6: 02 AM To: Williams, Curtis Cc: French, Amy Subject: Basement Excavation Photos Hi Curtis, These are some photos to help explain what I meant when I was trying to explain that the underground footprint of basements was too large. On the smaller size lots, the builders often excavate closer to the allowed set backs. Many often excavate right up to the lot line, and then the builders start putting in the concrete and rebar. I have seen this many times. People in adjacent homes have told me that they believe that the excavation has ruined the foundation of their homes. Since the side yard is all concrete, there is no where for the water to flow, except laterally. This causes flooding to neighboring homes. Additionally, there is simply not enough side yard to allow for planting, and the rear set backs are really too small to allow for tree planting when the tree grows. Basically, the homes on these lots are all home and no yard. I hope that the city will consider reviewing their poli9ies on the allotted size of a new home on these smaller lots. Allowing this building practice has caused a lot of disharmony within our community. Many residents feared that their homes could actually fall into the adjacent excavation site, and in many cases they had to pay for fencing to protect their property. Many felt that the chain link fence was simply not enough protection when the builders excavate to the lot line. Please remember that some of the adjacent older homes on the smaller lots may not have this 6 foot side allowance. Regards, Jody Davidson file:// /S: {PLAN/ PLADIV /Cu rtis/Desktop%2 05.8.08 /Green /Basements/Davldson%20Basement%20Excavation%20Photos.htm Page 1of3 Green cement may set C02 fate in concrete SFGale.mrn Green cement may set C02 fate in concrete Carrie Sturrock, Chronicle Staff Writer Tuesday, September 2, 2008 (09-01) 19:18 PDT --Call him cement man. ~-__ -. _ r e Attachment K Back when Stanford Professor Brent Constantz was 27 he created a high-tech cement that revolutionized bone fracture repair in hospitals worldwide. People who might have died from the complications of breaking their hips lived. Fractured wrists became good as new. Now, 22 years later, he wants to repair the world. Constantz says he has invented a green cement that could eliminate the huge amounts of carbon dioxide spewed into the atmosphere by the manufacturers of the everyday cement used in concrete for buildings, roadways and bridges. His vision of eliminating a large source of the world's greenhouse C0{-2} has gained traction with both investors and environmentalists. Already, venture capitalist Vinod Khosla is backing Constantz's company, the Calera Corp., which has a pilot factory in Moss Landing (Monterey County) churning out cement in small batches. And Carl Pope, executive director of the Sierra Club, says it could be "a game changer" if Constantz can do it quickly, on a big scale and at a decent price. "It changes the nature of the fight against global warming," said Pope, who has talked with Constantz about his work. That might sound like hyperbole, but the reality is that for every ton of ordinary cement, known as Portland cement, a ton of air-polluting carbon dioxide is released during production. Worldwide, 2.5 billion tons of cement are manufactured each year, creating about 5 percent of the Earth's C0{- 2} emissions. When Constantz learned about the high C0{-2} levels, he thought he could do better. After all, the majority of his 60 patents have to do with medical cement. He claims his new approach not only generates zero C0{-2} , but has an added benefit of reducing the amount of C0{-2} power plants emit by sequestering it inside the cement. http://www.sfgate.com/cgi-bin/article.cgi ?f=/c/a/2008/09/02/MNGD 129361.DTL&type=~ri... 9/4/2008 '\ Green cement may set C02 fate in concrete Page 2 of 5 To make traditional cement, limestone is heated to more than 1,000 degrees Celsius, which turns it into lime -the principal ingredient in Portland cement -and C0{-2}, which is released into the air. Constantz uses a different approach, the details of which remains secret pending publication of his patent. At his pilot factory, a former magnesium hydroxide facility that made metal for World War II bombs, magnesium crunches underfoot as Constantz, wearing a pressed, blue button-down shirt with rumpled shorts and sandals, outlines' how the process works. He pointed to two enormous smokestacks billowing flue gases full of carbon dioxide next door at Dynegy, one of the West's biggest.and cleanest power plants. Constantz takes that exhaust gas and bubbles it through seawater pumped from across the highway. The chemical process creates the key ingredient for his green cement and allows him to sequester a half ton of carbon dioxide from the smokestacks in every ton of cement he makes. Constantz believes his cement would tackle global warming on two fronts. It would eliminate the need to heat limestone, which releases C0{-2}. And harmful emissions can be siphoned away from power plants and locked into the cement. The same process can also be used to make an alternative to aggregate -the sand and gravel -that makes up concrete and asphalt, which would sequester even more carbon dioxide from power plants. "The beauty here is we're taking this old industrial polluti~g infrastructure and turning it into something that will save the environment," Constantz said. On a per-person basis, the United States is the world's worst C0{-2} polluter from all sources. But according to the Netherlands Environmental Assessment Agency, China just surpassed the U.S. for total carbon dioxide emissions. China is expected to produce 47 percent of the world's 2.5 billion tons of cement this year, Constantz said. To power its new buildings and sustain its building boom, China constructs at least one coal-fired power plant a week. Each one belches out enough C0{-2} to cancel the benefits of every hybrid on U.S. roadways, said Constantz. A C0{-2} molecule can travel from Beijing to San Francisco in less than a day through atmospheric circulation, he said. So even with California mandating that C0{-2} emissions fall to 1990 levels by 2020, a crisis remains. http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/02/MNGD129361.DTL&type=pri... 9/4/2008 Green cement may set C02 fate in concrete Page 3 of 5 "Carbon dioxide is a global problem, not a regional problem," he said. As far as cost, Constantz estimates his cement would retail for $100 a ton versus roughly $no for Portland. The reason no one invented it before now, he said, is that pe~ple didn't truly understand the dangers of C0{-2} until less than a decade ago. Skeptics question product He has skeptics. Portland cement has a track record of more than 100 years, and any new material would have to get incorporated into building codes, noted Rick Bohan, director of construction and manufacturing technology for the Portland Cement Association in Skokie, Ill. And Tom Pyle, a Caltrans engineer who serves on the cement subgroup of Gov. Arnold Schwarzenegger's Climate Action Team, acknowledged that the technology is possible, but he still wants to examine Constantz's cement. "We hope they have a carbon-reducing viable construction material," he said. "They need to show up with a bag of this so we can test it." Constantz is confident he will prove himself. Initially, he proposes mixing his new invention with Portland cement to ease a conservative industry into a new product. Concrete bigwigs have invited him to speak about Calera cement at their annual World of Concrete in Las Vegas next February. Power plant partnerships Constantz envisions building cement factories next to power plants the world over. A team is scouting out U.S. locations. While Dynegy has supplied Constantz with some flue gas, it hasn't entered into a formal agreement. "As we're looking into the future, we're very interested in technology that would help capture C0{- 2} from the flue gase~ and turn it into a product that offers a benefit," said Dynegy spokesman David Byford. It could be good for business. California has mandated emissions reductions. And Congress is working on legislation that would allow high polluters to buy credits from those with low emissions. Power plants would have a huge incentive to sequester their C0{-2} in cement. But even if Constantz succeeds, the world would still need to do much more to fight C0{-2} emissions, said Chris Field, director of the department of global ecology at the Carnegie Institution http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/02/MNGD129361.DTL&type=pri... 9/4/2008 Green cement may set C02 fate in concrete Page 4 of 5 for Science at Stanford. "It's a big, long complicated game," he said. "As we develop each new segment of the solution we need to embrace it and deploy it and work hard to develop the next segment of the solution." Coral basis of idea Big ideas can form in haphazard ways. The one for bone cement began during a televised football game, when Constantz read an osteoporosis article in the New England Journal of Medicine. Three weeks later, as he studied a coral reef, it occurred to him he could maybe synthesize coral skeletons in human bones. His new cement mimics how coral reefs form, too. Coral uses the magnesium and calcium present in seawater to create carbonates much as he's using C0{-2} and seawater to make carbonate. This latest invention took 18 months to conceive and execute. He feels it's one of the most important things he's ever done. "Climate change is the largest challenge of our generation," he said. Who is brent constantz? Profession: An associate consulting professor in Stanford's department of geological and environmental sciences and founder of the Calera Corp. Created and sold three other companies - Norian Corp., Corazon Technologies Inc. and Skeletal Kinetics. Education: UC Santa Barbara, bachelor's of science (1981); UC Santa Cruz, doctorate (1986) Family: Married and father of four. Pastime: Surfing and rock climbing. Concrete facts about cement 2.5 billion tons of hydraulic cement is produced worldwide annually. Add sand and gravel and that makes more than 9,000 million cubic yards of concrete. That's more than enough concrete to pave an eight-lane highway from the Earth to the moon and back again -twice. If you stayed on the planet, that same eight-lane highway would circle the Earth almost 40 times. Source: Portland Cement Association E-mail Carrie Sturrock at csturrock@sfchronicle.com. http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/02/MNGD12936I.DTL http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/02/MNGD129361.DTL&type=pri... 9/4/2008 New Aquifer Filling Station Revised 5/26/2015 1 Attachment B Piping System •Arrange piping system to draw water from settling tank being careful to keep the inlet a minimum of 1-2 feet above the bottom of the tank to avoid settlement residue. 2 Locate the Filling Station •Filling station should be located at the property line outside of the construction fence. •Try to locate the station in a place where parked vehicles will not prevent equipment from using it, i.e. on a corner, near at the edge of a driveway, etc. •The filling station should be accessible 24/7. 3 Filling System •Piping runs from the settling tank to a pump capable of providing a minimum of 150-200 gpm. •Outlet of pump runs to lockable box where a standpipe is constructed. •Standpipe contains a valve and outlet fitted with a MALE 2 ½” NH threaded fitting (Fire Hydrant threads). •Inside the box is also located a switched GFI outlet to which the pump is plugged into. When the switch is thrown, the pump turns on. This switched outlet is connected to the construction site’s temporary power. The GFI power outlet may be placed somewhere outside the box, however, the switch should be inside. An “in-use” cover must cover the switch/outlet. •A hose with a male connection shall be stored in the box to allow the water to be used for dust control onsite and for filling tanks without pre-attached hoses or fittings. •A standard hose bibb shall be installed next to the box to allow for gravity-fed filling of smaller “neighbor containers”. 4 Plumbing Signage •The piping outside of the property lines needs to comply with California Plumbing Code Section 603.5.11: •Each outlet on the non-potable waterline shall have posted: “CAUTION: NONPOTABLE WATER, DO NOT DRINK.” This would apply to the hose bibb utilized by neighbors for non-potable purposes. The CPC also requires that exposed portions of the piping be properly identified to the satisfaction of the AHJ. CPC Section 601.2 provides identification for non-potable systems within a building. Although the proposed work is not within a building, the method would adequately identify the piping system. •Section 601.2 Non-Potable Water System Identification •The system shall have a yellow background and black uppercase letters, with the words “CAUTION: NONPOTABLE WATER, DO NOT DRINK.” The required piping identification shall be every 20 feet. The sizing of this lettering should be per CPC Table 601.2.2. •This ‘signage’ comes in the form of stickers and can be easily found online. 5 Fill Point and Discharge Signage •The contractor shall provide a sign according to Public Works specifications and attach it to the outside of the fill station box. •The contractor shall also provide signs to be mounted on a standard “A-frame” barricade to be placed at the dewatering discharge point (usually a catch basin). •Upon completion of dewatering activities, the signs shall be returned to the Public Works Inspector for recycling. 6 Water Station Sign Specifications •These specifications are provided as guidance to produce/order consistent signs: •This sign is aluminum, 20.5” tall by 14” wide. The margin is 0.25” and the border is also 0.25” wide. •“Water Filling Station” is 1.5” tall, Highway Series E font. •“Suitable For Irrigation Purposes” is 0.75” tall, Highway Series B font. •“Do Not Drink” is 1.2” tall, (font as it is part of the symbol). The red circle and slash has a circumference of 4.5”. •The city logo is 4.2” tall by 2.2” wide. •Mount this sign to the water station door. 7 Discharge Point Sign Specifications •These specifications are provided as guidance to produce/order consistent signs: •This sign is aluminum, 24” tall by 24” wide. The margin is 0.375” and the border is 0.625” thick. •“Non-Potable Water Discharge” is 2”tall, Highway Series C font. •“Do Not Drink” is 1.2” tall, (font as it is part of the symbol). The red circle and slash has a circumference of 4.5”. •“To Use This Water…” is 1” tall, Highway Series C font. •The city logo is 4.2” tall by 2.2” wide. •Mount this sign to each side of an A-frame barricade (2 signs total) and place it at the discharge point. 8 Log Sheets •Copies of the following log sheets with a pen shall be attached to the inside of the door of the filling station. •All users of the water filling station shall fill out the form for each use. 9 Log Sheet: Available from Public Works 10 Instructions •Attach a copy of operating instructions to the inside of the box. •Sample instructions: 11 Security •Box should be sturdy and locked with a combination lock. •Provide the lock combination to Public Works – Engineering Services. 12 Inspection •NO DISCHARGE IS ALLOWED WITHOUT A DEWATERING PERMIT. •Once there is groundwater in the settling tank, contact the Environmental Compliance division at (650) 329-2122 or (650) 329-2430 to have the water tested. •Public Works will contact you to inform you of the results. •Once the station is constructed and ready to operate, contact Public Works Inspection at (650) 496-6929 to schedule an inspection. •Once the Inspector has approved of the station installation, Public Works - Engineering Services can issue you the dewatering permit. 13 Important Notification •Contractor shall notify Public Works – Engineering Services ONE WEEK prior to ending dewatering operations. •This will allow City staff to adjust vehicle operations and routes accordingly. 14 Final Notes •The New Aquifer Filling Station is a quickly evolving program - changes, modifications, revisions, and additional conditions, policies, and equipment required may occur at any time. •This handout is a living document and will be revised as the program develops. 15 Questions? •Contact: Mike Nafziger, P.E. Senior Engineer Public Works – Engineering Services (650) 617-3103 mike.nafziger@cityofpaloalto.org Or, Public Works – Engineering Services (650) 329-2152 16 GROUNDWATER PUMPING HAPPENING IN YOUR NEIGHBORHOOD A BASEMENT CONSTRUCTION PROJECT in your neighborhood is pumping water to a stormdrain which leads to a creek. This groundwater cannot be used as drinking water, but it can be pumped to creeks or used for irrigation and dust control. Creeks would ultimately receive this same water if it was not pumped there first. This water is important to the creek and Bay ecosystems. The construction project in your neighborhood offers a residential filling station to access some of this pumped water for use on landscaping. Visit cityofpaloalto.org/recycledwater or call (650) 329-2151, Press option #8 for filling station locations and additional information. Attachment C Updated and posted 8/11/15 Groundwater Pumping From Building Sites Frequently Asked Questions During this time of severe drought, our community is working hard to conserve water. So when community members observe water pumping from construction sites, they want to know what is happening. Here are answers and information to help address the most frequently asked questions we have heard. Q. What is the water that I see running into the storm drain from construction sites? A: During the construction of a basement or underground garage there is sometimes a shallow upper groundwater aquifer that must be temporarily pumped down to allow construction to move forward. This groundwater is not the same water that would be used for drinking. Q: Does the City regulate the pumping and discharge of this water? A: The City permits the discharge of this water to either the storm drain or the sanitary sewer, depending on the water quality. The water is sampled and tested for cloudiness, salinity and acidity. Only very clear, high quality water can go to the storm drain. Temporarily pumping this water is standard practice in areas with groundwater closer to the surface to allow construction to proceed, and no practical alternative has been found. Using the water for irrigation and dust control is possible, and the owners and construction managers are strongly encouraged to find uses for the water. Q: Given the high quality of the water and the severity of the drought, why does the City allow it to be “wasted” by discharging it into the storm drain system? A: The shallow water aquifer being pumped contributes to the flow of our creeks and to the Bay. The groundwater is part of the water cycle for the Bay and enhances the habitat and improves the quality of the creeks and lower South San Attachment D Updated and posted 8/11/15 Francisco Bay. When the shallow aquifer is pumped from basement construction sites into storm drains, it travels a different path, but ends up in the same place: the lower South Bay. So, the water is not wasted, but rather is used to improve the Bay’s habitat and ecosystem, whichever pathway it takes. Q: Can’t this water be used for other purposes? A: The pumped water hasn’t been disinfected or sufficiently tested to drink or use inside the home. Palo Alto‘s emergency drinking water wells tap into a much lower and more protected aquifer. However, the pumped water could be used for irrigation, dust control or similar uses. Palo Alto now requires that contractors have the pumping system fitted with valves and connections so that City crews and others can fill water trucks, street sweepers and other containers. For truck fill stations, the water is tested for acidity and salinity. Private parties can also fill trucks and containers. Such “fill-stations” are now in place at the Palo Alto active basement construction pumping sites listed below:  1405 Harker  1820 Bret Harte  804 Fielding  713 Southampton  3832 Grove  2230 Louis View our map of FREE Water Filling Stations. The site owners and construction managers are encouraged to find more water users, but this will continue to be a small fraction of the total pumped water. Call 650-617-3103 for more information about accessing the fill stations. The volume of water being pumped is large compared to pump truck capacities, but is too small and too shallow to impact the very deep and very large Palo Alto emergency ground water aquifer. Updated and posted 8/11/15 Q. What happens after construction? A: In recent years, Palo Alto has required that structures be built as water tight so that groundwater flows around a building, rather than into it. But a number of older buildings leak, and water is pumped out of the building basement/garage into the storm drain or sanitary sewer. Palo Alto City Hall and 525 University are two of the largest “dischargers”. We have looked at utilizing the water from City Hall, but it has not proven to be cost effective. With new water restrictions in place, this issue is being reexamined once again. However, the City Hall water does go through the storm drain to San Francisquito Creek where it supports habitat, including for fish, especially in the summer when there is no rainfall. Q. What can I do if I see water being wasted? A: The City has hired a part-time Water Waste Coordinator who is specifically dedicated to drought response actions. Need to report a leak, runoff or waste? We have many communications means for you! Please let us know!  Report water use incidents through the City’s PaloAlto311 web or mobile app at cityofpaloalto.org/services/paloalto311/ or go visit to www.cityofpaloalto.org/water to access the link directly.  Contact the City’s Water Waste Coordinator at 650-496-6968 or Martin.Ricci@CityofPaloAlto.org - or -  Call Customer Service at (650) 329-2161 - or –  Email UtilitiesCommunications@CityofPaloAlto.org - or –  Call Utilities Emergency Dispatch at (650) 329-2579 1 10/5/2015 GROUNDWATER PUMPING FOR RESIDENTIAL BASEMENT CONSTRUCTION Frequently Asked Questions Save Palo Alto’s Groundwater, a Community Resource Is groundwater pumped for residential basement construction? Yes. Very large amounts of groundwater from the shallow surface aquifer are pumped to build basements when below ground soils are saturated to provide dry soils using a commercial-scale construction process termed “dewatering.” This technique is now being permitted for constructing residential basements in Palo Alto at a rapidly increasing rate, from an average of five (5) per year (2006 – 2008) to at least 14 this year. Dewatering is used only at those sites with water saturated soils; it is not used at drier sites. Why should I care about groundwater pumping for basement construction? Aquifers and groundwater are a community and public trust resource that, although unseen, play an important role literally supporting structures and infrastructure, draining storm water, and storing and providing moisture for our canopy and plants. What are the effects of removing groundwater? Removing groundwater has a variety of impacts. The forces exerted by groundwater literally support the ground, structures and infrastructure and through capillary action, provide water to our trees. The shallow surface aquifer pressure increases the recharge of the deeper aquifer which is used for irrigation and on which Palo Alto relies for emergency water. Lowering the water table locally causes ground settling. This settling may not be uniform across structures, which may then develop either tight doors or windows, or permanent cracks in foundations, walls or masonry. Settling of even less than an inch is adequate to cause permanent structural damage. Lowering the water table below the seasonal normal fluctuation can cause irreversible compression of the soil (hysteretic soil compaction). What are the effects of lowering the water table on vegetation? Water available for trees and plants is reduced. Soils wick water up, much like sponges, resulting in increased soil moisture several feet above the water table, well into the root zones of trees in much of the area in which dewatering is occurring. What are the impacts of these basements after construction? Both the City of Palo Alto and the Santa Clara Valley Water District provide incentives to install permeable pavement to reduce the amount of storm water entering storm drains and instead soak into the ground, thereby reducing flood risks and recharging aquifers. Basements displace soils that would otherwise be available to absorb rain water, increasing the probability that rain water will flow into the storm drains. Attachment E: Correspondence 2 10/5/2015 Much of Palo Alto is known to have covered gravel beds from former creekbeds. Basements are dams in the unseen rivers that flows through the soils, gravel beds and aquifer beneath Palo Alto. Water needs to flow around these basements. If water cannot flow through the soil fast enough, it will flow above the soil, into the storm drain system, and if the storm drain capacity is exceeded, will flood our streets and properties. The water table/water pressure surrounding a basement is locally higher, in the same manner as water in a flowing river is higher as it flows around an obstacle. The locally higher water table increases the risk that basements in neighboring properties will flood. What can I do if my property is damaged by ground settling caused by groundwater pumping? You’re on your own. You must resolve any damage claims directly with the party that caused the damage. The City will neither order the dewatering to stop nor help you with any damage claims. You may sue. In that case it will be necessary for you to prove that the specific dewatering operation was the cause of the damages, and most likely pay attorney’s fees, which might be reimbursed if you obtain a judgement in your favor. How much water is pumped? In total, it is estimated that 126 million gallons (16,000,000 ft3) of groundwater has or will be pumped out for the construction of 14 basements in Palo Alto in 2015 alone. This is enough to cover a football field 275 feet deep, or fill 50,400 water tank (2,500 gallon) trucks, or provide enough water for 18,000 average Palo Alto residences for the entire month of July, 2015 (equivalent to 40-50% of the state-mandated water conservation goal for all single family residences in Palo Alto for a year) or lower the aquifer by more than 1 foot over an area of 1 square mile. This estimate is based upon the midpoint of City’s estimate of 8 – 10 million gallons (1.2 million cubic feet) per basement. For some basements, more than 20 million gallons is pumped. The amount of water being pumped out is not metered. Where is groundwater pumping occurring? Most of the residential dewatering projects are concentrated in an area of approximately 1 square mile bounded by Webster Street, Louis Road, Colorado Avenue and Channing Avenue, although two are near Middlefield Road further south. From where is the water pumped? Groundwater is typically pumped from 15 to 25 feet below grade, and the groundwater table locally lowered about 2 feet below the bottom of the basement in the area to be excavated. The “bottom” of the basement is generally 10 – 20 feet below grade; some are below sea level. Groundwater is typically pumped at a rate of 50 – 100 gallons per minute continuously for 3 – 6 months. 3 10/5/2015 How much do government agencies collect in fees and permits for construction dewatering? The City of Palo charges approximately $710 for a dewatering permit for 6 months. There is no usage-based fee or assessment for discharging the groundwater pumped out for construction into the storm drain. The total cost to the developer for removing this resource from our aquifer is about $710. How much do residents pay for equivalent water disposal in the storm drain? The Storm Drain Fee for 1 equivalent residential unit (ERU) is $12.63 / month ($151.56 / year). A single dewatering site will dump as much water down the storm drains as the city estimates would go into the storm drains from 480 residences (1 ERU / residence) in a year. Developers are not currently required to pay any additional fees to compensate for the heavy use of the city’s storm drains, even though a “fair share” payment would be $72,748 for a typical basement. How much would Santa Clara Valley Water District charge for a resident to pump non-potable groundwater for irrigation? Santa Clara Valley Water District charges about $600 / acre-foot (43,560 ft3) for a permit to pump groundwater. For the amount of water pumped for a typical basement, the cost would be approximately $16,500. However, a specific exemption from fees is provided for construction dewatering in the shallow aquifer. The fee to builders is zero. Is this groundwater pumping sustainable? The amount of water removed from the aquifer in 2015 is roughly the same as would be available to recharge the aquifer from average (not drought) rainfall for one year, after allowing for runoff and evaporation over an area of 1 square mile. What happens to the pumped groundwater? Approximately 99% is dumped into the storm drains, which then flows to the Bay. Isn’t this pumped water available for irrigation for free? The City requires faucets with hose connections and fill stations for water tank trunks at each dewatering site. There are no requirements for the actual use of the water or the pressure supplied to hose connections for neighborhood use; City policy effectively condones wasting water. In practice, the water is not substantially used. Although the water is of high quality and usable, it is wasted. How and when is the shallow surface groundwater replenished? Primarily from rain and landscape irrigation. Precise recharge rates are not known, but it is believed to be in the range of months to years. Doesn’t the water flow to the Bay anyway, and therefore doesn’t pumping the groundwater improve the environment of the Bay? The aquifer and soils have an important role in transporting storm water to the Bay; more water flows in the unseen river beneath our homes to the Bay over the course of a year than 4 10/5/2015 down the creeks. However, during the summer, there is little flow in the aquifer (there almost no flow in creeks either). Dewatering locally lowers the water table below its normal historical low level, and in some cases below sea level, much as pumping water from a lake could lower the lake level below the outlet level. Hasn’t the City already carefully studied dewatering? The City commissioned a study in 2004, and City staff reviewed the study in 2008 after receiving citizen complaints. Not only are several important issues not addressed, especially related to local effects, there are important differences between the current situation and the time of the original study. Existing City dewatering policy does not anticipate the current number or water volume of dewatering activities within the City. Despite acknowledgment by the study that there will be “temporary and local effects,” the study does not meaningfully address localized impacts, including ground settling, reduced soil moisture for trees, flood risks and storm water management, public compensation for the use of the water, or public policy in an era of climate change. Furthermore, it is incorrectly assumed that short-term effects will not cause permanent damage. From where did this information come? All information in this document is either provided by or derived from the City of Palo Alto, the Santa Clara Valley Water District, USGS topographical maps, the US National Oceanographic and Atmospheric Administration, and materials provided by degreed professionals in soil sciences or hydrology, including documents in the Public Record for the City of Palo Alto. What is the objective of Save Palo Alto’s Groundwater? Palo Alto’s groundwater is a community resource too valuable to freely pump and dump down storm drains simply for the construction of residential basements. We are requesting that the City of Palo Alto enact an immediate moratorium on new permits for the pumping out of our groundwater (“dewatering”) for the construction of residential basements in Palo Alto to further study the effects of dewatering. Dewatering should only be permitted if the study shows negligible impacts, including effects on storm water management and flood risks, and policy is updated to require minimization and complete mitigation of all impacts including requiring full use of the pumped water, payment for use of infrastructure and resources, protection of infrastructures, properties, and the canopy, with all costs to be assumed by the developing party. Is a more detailed document available? Yes, a White Paper including references is available upon request. How do I obtain further information or help with this effort? Send an e-mail with your name and contact information to PAgroundwater@luxsci.net Questions related to the City of Palo Alto policies on permitting the pumping of groundwater for the construction of residential basements Keith Bennett 8/11/2015 Background: My concerns relate to the documented local and transient impacts of new basements and their construction, as well as the permanent impacts of new, large basements on the capability of local soils to handle rainwater during periods of heavy rain, such as has been experienced in 1982 and 1998. My primary concern is not the apparent “waste” of a groundwater resource during a drought (although the amount of water pumped for basement construction is about 10% of the total 24% conservation goal for the City, and report indicates that the surface aquifer being pumped has partly been replenished by imported water from the Delta). Aside from considerations of water quality, I am aware that City has far more water that could be used for irrigation (aside from delivery cost) available from the Water Treatment Plan I have read the 2004 report by EIP, as well as the Staff Report from Curtis Williams dated 9/24/2008. From my reading of these reports, they do not support the conclusions that dewatering on the current scale in Palo Alto is not without significant adverse effects. 1. My understanding is that the two documents listed above, plus soils reports generated from the construction of new buildings, especially buildings with basements are the primary bases for City Policies. The City has prepared a map showing groundwater depth based upon measurements related to construction. This map is available in electronic format. The soils reports from new construction are copyrighted, and may be viewed, but may not be copied. I assume, however, that the City could, if desired, use the information in the soils reports for analysis and modelling purposes. Is my understanding correct and substantially complete? 2. Importance of recharge rates and source on the overall impacts of dewatering on the shallow aquifer. Long term impacts are only negligible if they aren’t offset by recharge. The 2004 Report primarily focuses on the impact on the level of the entire Santa Clara Subbasin surface aquifer, and simply assumes that the water pumped in a year will recharge the next year. Shouldn't the basis for policy consider not only the fraction of the total available aquifer pumped, but also critically consider recharge? The report states the following: a. There are 5 – 10 basements / year constructed with dewatering in Palo Alto, and as the aquifer extends beyond Palo Alto, and other cities may also pump groundwater, the total impacts on the aquifer would be far more significant. It would appear that annually >1% of the aquifer / year or 10% per decade could be depleted. This is not insignificant. To avoid long-term effects, the groundwater must be recharged. b. The subsurface aquifer has been significantly recharged by IMPORTED (i.e. purchased) water (Pg 6, see above): “It is known, however, that the importation of potable water and the SCVWD controlled recharge program have assisted groundwater levels in the subbasin to rise 200 feet in the last 40 years. Most of the rise has been in the surface aquifer.” Note: it is the surface aquifer that is being depleted for dewatering. A January, 2015 document from the SCVWD “Where does our water come from?” (attached) lists three primary sources for groundwater replenishment: “3. Water importation from the Delta, which the district also releases to creeks and recharge ponds for managed groundwater recharge.” Should Palo Alto have a policy that accelerates sending of water to the Bay through groundwater pumping in a drought when replacement supplies are restricted, and furthermore, it appears from public documents that some of the water being pumped for basement construction may, in fact, may in fact be due to SCVWD groundwater recharge programs? Is it reasonable that those dewatering be permitted to use this resource without compensation based upon consumption, i.e. shouldn’t the dewatering amount be metered and charged for example to pay SCVWD for replacement water? 3. Local Effects The EIP report does not provide any basis to support the statement (Pg. 5) regarding the geographical extent of local lowering of the groundwater, and provides no information on the volume profile of the dewatering: a. Assuming a dewatering of 1,000,000 ft3, well below the 7,000,000 ft3 mentioned as typical in the report, but comparable to the lower end of the pumping rates and durations mentioned in the City Staff report corresponds to a volume of 500 x 500 x 8 feet, assuming 50% porosity of the soil. It is clear that some effects must extend well beyond “several tens of feet.” It is also clear that the extent of dewatering must depend upon local soil composition, the depth of pumping and the time (and rate) that the water is removed. b. The 2004 states “local settlement on the order of fractions of an inch could occur.” (pg 7.) Settlement (either temporary or permanent) of even fractions of an inch is adequate to break windows, cause cracks in masonry and plaster, or require doors to be reworked to open and close properly. There is no guarantee that settling will be perfectly level across a nearby property, which is likely the case if a gradient is created in the soil moisture content. Furthermore, the dewatering may extend below the depth of normal “seasonal” water table variation and therefore may affect the supporting capacity of soils between the dewatering depth and the normal “low level” of seasonal water table fluctuation. Reports by homeowners (including the letter in the 2008 Staff Report from the resident at 575 Washington), myself of home damage and a broken water main on N. California several hundred away from, but particularly correlated in time with dewatering events. Could these events provide evidence that dewatering is, in fact, causing at least temporary settlement large enough to affect infrastructure and homes, and that the extent may be further than assumed? c. There is no discussion on the impacts of dewatering on soil moisture (used by plants) above the aquifer. The Santa Clara County Water District leaflet compares soils to a sponge: The relevant question is the extent to which dewatering reduces soil moisture in the surrounding area not whether or not tree or plant roots are below the water level of the aquifer (generally, plants desire moist, but not saturated soils, as they need air, therefore the roots of land plants are generally not in saturated soils. Like sponges, soils wick water upwards from the aquifer. Is soil moisture unchanged above the aquifer when the water table is locally and temporarily lowered? It is important to consider the effects of dewatering in the spring, when soil moisture and the water table are both higher. Isn’t reducing soil moisture earlier in the year in the root zone of plants is more or less equivalent to an artificial drought? Of course, it is possible to compensate for lower soil moisture by watering plants more, however this is quite expensive during conditions such as the current drought, and furthermore the expense is borne by the affected homeowners and city plants (e.g. trees). If dewatering does increase the need for supplemental watering, then, isn’t dewatering in practice indirectly increasing demand for potable water (as it’s 1/10th the price of recycled water). 4. Long term impacts of basements on flooding risks during storms A simple analysis shows that basements extending into a zone of saturated soil (once constructed) will significantly and negatively affect the ability of local soils to hold and drain rainwater during heavy storms, with increased risks of flooding, either in neighboring homes and in wider areas. a. The construction of basement means that there is no soil in the removed volume to absorb rainwater. As basement and lightwell can cover 35% of the lot, and any basement that requires dewatering for construction by definition extends to saturated soils, the local reduction in the capacity of soils to hold rainwater is significant. The result is a locally higher water table / water pressure, at least temporarily until the water can drain. The locally higher water table increases the risk that neighboring properties, especially those with older basements will flood. The 2008 letter from the resident of 575 Washington mentioned the same concern. Complications of basement flooding can be significant. In 1998, basement flooding triggered a fire at 595 N. California (a pilot light was extinguished by the water; the escaped gas then exploded when lit by a different pilot light). Additionally many basements of older homes were flooded. Basements only rarely flood. During the 1998 storm, the saturated water line along Webster St. near N. California was about 3- 4’ below street grade, indicating that there is no significant extra capacity in the soils, at least in some parts of the city. It is likely that soils were saturated closer to the surface in lower areas. If the soils become saturated to the surface, rainwater will no longer be absorbed and instead will flow into the storm drains. If the storm drains cannot handle the additional water, localized street flooding will occur. The City provides rebates for the use of permeable paving materials to reduce the load on the storm drains. This assumes that the soils can absorb the water and release it more slowly. Is the construction of large (and deep) basements in areas that have risk of soil saturation above the basement level consistent with this policy? Is a policy that increases the risk of flooding wise? Is it appropriate for Green Building Certifications? b. Basements are like dams in the unseen river through the soils (and aquifer) beneath Palo Alto, and impede the discharge of water during periods of heavy rain, increasing the level of saturated soils, and the risks of flooding. We would not think of blocking any creek, yet basements are doing so for the channel that carries the most water to the Bay. i. The soils and aquifer under Palo Alto surely carry significantly more water to the Bay than San Francisquito Creek over the course of a year. This can be easily be shown by calculating the volume of water in even 12” of annual rainfall that falls on the area (about 3.3 x 1.8 miles) of Palo Alto between El Camino and San Francisco Bay and comparing the annual volume of water to that which flows in San Francisquito Creek. In addition, the soils and aquifer must carry water from lands west of El Camino, including Stanford and the foothills. ii. The potential of basements to block aquifer / soil water flows is very significant. Basements are now quite large (perhaps covering ½ of the property width) and a very large fraction of new construction (~70% in permitted areas) includes finished basements. Have the impacts of basements on the capacity of our soils to handle rainwater during heavy storms been properly considered? From: Leah Rogers [mailto:leah.rogers@stanfordalumni.org] Sent: Monday, October 26, 2015 6:38 PM To: Council, City; Keith Bennett Subject: re: Per request of Greg Schmid during Oral Comments at the Oct 5 2015 City Council Meeting Dear All: Below is my effort to put in writing what I said in the Oral Comments period of the October 5 2015 City Council Meeting. I have also included some references at the request of Greg Schmid. Thanks you for your time and listening to these thoughts about the dewatering issue. Sincerely, Dr. Leah Rogers (Ph.D. from Stanford in Hydrogeology) The 2004 EIP report suggests the range of influence on the water table aquifer is on the order of tens of feet from the dewatering well. The amount of water table drawdown necessary in construction of basements in Palo Alto is approximately 15 feet (i.e. drawing down the water table from 10 ft below ground surface to 25 ft below ground surface. If we consider standard calculations of radial flow applications of Darcy’s Law (Freeze and Cherry, 1979 (note Eq 8:12-8:15); Manning, 1997; Bennett et al., 1990), a lowering of the water table level approximately 15 feet an unconfined aquifer in alluvial deposits may create a cone of depression that spreads out towards a few hundred feet in any direction. This assumes some general hydraulic conductivities and other aquifer parameters that could be in alluvial deposits in this area. Note regional studies suggest hydraulic conductivity values may range between 260 and 6000 gpd/ft2 (McCloskey and Finnemore, 1996). There are many major factors that influence the drawdown of the water table: thickness of the water table aquifer, interfingering of layers that may inhibit flow (aquitards in which case coefficients would have to be assumed to account for leaky aquifers), and whether or not steady-state is reached. Precise predictive modeling would require to collection of data from time dependent well testing. However, we may say qualitatively where there were more sands and gravels the cone of depression would reach further than if there were tighter silts and clays. When several of these projects going on in the same neighborhood, which is the case in Palo Alto, cones of depression may interact cumulatively. As the dewatering effect from multiple projects are cumulative and interact with reduced irrigation, it is difficult to assign “responsibility” for damages to property or landscaping to specific dewatering projects. The drying out of soils is often not perfectly reversible. This is called hysteretic soil compaction. For example, wet clay worked into a dry piece of pottery cannot simply be put back into it’s original state by submerging it in water. Imagine over a 3-4 month dewatering project that particularly the interfingering clays in the subsurface will cause unequal rewetting. It is quite plausible that the scale of these dewatering projects are responsible for the additional cracks in walls and foundations which neighbors in the area have noted. For example, the 2008 City Manager’s Report includes a letter from Steve Broadbent raising such issues. Overall, it would seem that the City of Palo Alto would do well to require dewatering projects to provide specific characterization and predictions of groundwater impact during the course of the proposed project before approving any dewatering especially in times of drought and water- conservation. Even better would be adoption of construction practices and project designs that significantly reduce the need for dewatering, especially considering reduced irrigation in the area during droughts. References: Bennett, Gordon D., Thomas E. Reilly, and Mary C. Hill. 1990. Technical Training Notes in Ground-Water Hydrology; Radial Flow to a Well. US. Geological Survey Water Resources Investigations Report 89 4134. http://pubs.usgs.gov/wri/1989/4134/report.pdf. Freeze, R.A. and J. A Cherry. 1979. Groundwater. Prentice Hall Inc., Englewood Cliffs, NJ. 604 pp. Manning, J.C. 1997. Applied Principles of Hydrology. Prentice Hall, third edition, 276p. McCloskey, T.F. and E. J. Finnemore. 1996. Estimating Hydraulic Conductivities in an Alluvial Basin from Sediment Facies Models. Ground Water, Vol. 34, No. 6 November- December 1996. http://info.ngwa.org/gwol/pdf/962962189.PDF. On Wed, Jul 15, 2015 at 4:18 PM, Bobel, Phil <Phil.Bobel@cityofpaloalto.org> wrote: Ms. Relman: Our Assistant City Manager, Ed Shikada has asked me to respond to your 7/14 email about the pumping of groundwater to allow the construction of basements. A number of residents have raised issues very similar to yours, and we have created a website to address them: Recycled Water Web Page . Scroll down to the last line and click on “here” to see our “Frequently Asked Questions” about the pumped ground water. While I know it appears to be wasting water, the shallow ground water aquifer is flowing to our creeks and Bay. The pumping and discharge of this shallow ground water to the storm drains sends the ground water to the same place, our creeks and Bay, where it supports ecosystems and their wildlife. Nonetheless, the City is working with builders to try to get as much of water used as practical. The main limitations are the very high cost of trucking the water and the lack of a piping system from the pumping sites. Farmers are just too far away to make their using it practical at this time. A portion of the water is being used to water City trees, provide dust control at construction sites, and similar non-potable uses. With respect to the potential for drawing down the shallow groundwater and causing land subsidence, we do not have reason to believe this would occur, given the short duration pumping and the small number of wells involved here. Subsidence can occur when pumping happens over a number of years from many wells. I hope this helps address your concerns. Phil Bobel Assistant Director, Public Works From: Shikada, Ed Sent: Wednesday, July 15, 2015 8:07 AM To: Georgia Relman Cc: Council, City; Bobel, Phil Subject: Re: draining ground water Dear Ms. Relman, Thanks for contacting us with your concerns. I will ask Public Works staff to review the issue and reply directly to you. There has been quite a bit of activity on this issue recently that may interest you, specifically on the topics you raised. You may also wish to participate in future discussions. Sincerely, Ed Shikada Assistant City Manager On Jul 14, 2015, at 4:12 PM, Georgia Relman <georgiarelman@gmail.com> wrote: Hi All, I have a question. Just in our neighborhood alone (around professorville), 4 construction sites building private homes are draining ground water at full blast down storm drains; this has been going on for many MONTHS now. Why are private construction companies allowed to drain Palo Alto ground water? Wouldn't it be of benefit to use this water for Palo Alto parks etc. or sell it to farmers for Palo Alto profit (because it is needed)? When the ground water is drained under Palo Alto, will the ground sink as it has in other areas of California as they are being drained of ground water? Why is this not of concern to our city government? (I don't get it) Sincerely, Georgia On Apr 25, 2015, at 2:32 PM, Skip Shapiro <sailorskipca@yahoo.com> wrote: Dear Mayor Holman and City Council, This is a request for the Planning Department and the City Council to take immediate action to stop groundwater pumping which occurs during the construction of residential basements. As long time Palo Alto residents, we are appalled to see millions of gallons of groundwater going down storm drains in the midst of this historic California drought. At the same time, residents and businesses have been asked to curtail water use for landscape and other uses. Even worse, the pumping depletes groundwater that is essential to the health of trees, causes subsidence that can damage property, and consumes water Palo Alto relies upon for emergencies. This morning we passed a home under construction on Harker where groundwater is being pumped. We estimated the flow rate to be 75 gallons per minute (based on the fill time of a 5 gallon bucket), which equates to 108,000 gallons – or 14,400 cubic feet – per day. From past experience monitoring similar groundwater pumping for basement construction, the pumping will continue for at least 4 weeks. That amounts to more than 400,000 cubic feet of wasted water. Residential basement construction is a relatively recent phenomenon in Palo Alto, driven by people maximizing living space within lot coverage constraints. It has likely contributed to the steep increase in property values and encouraged buyers who raze existing houses to replace them with new ones that include basements…without considering the impact on neighbors, the community, and the environment. We think it’s time to halt approval of residential construction that includes basements where groundwater pumping is required. Basements should not be allowed on these sites. We request an immediate moratorium on design and construction approval for any home where groundwater pumping is required. We also ask the City Council to direct the Planning Department to review and change regulations that permit residential basement construction. Respectfully, Barbara and Skip Shapiro Mr. James Keene General Manager City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 Dear Mr. Keene, .Li-.l ___ : . ;;.,\GC:.:;' '·,,. c.c> Ph 11 Borel M·1k~ N°'tz\ger Valoran P. Hanko --r ' . c, rvvk-·on 864 Fielding Court uOJ)\ ce l)'KJ ).j.)\J 1 Palo Alto, CA 94303-3645 May 19, 2015 I recently noticed a pumping operation in my neighborhood at 804 Fielding Drive that is reminiscent of an operation that occurred next door at 858 Fielding Ct in 2001. This pumping operation takes ground water from our underground aquifer and sends this to the storm drain as undesirable waste in preparation of a new residential construction. When this operation was performed in 2001, the surrounding neighborhood sank in elevation resulting in a new designation for the neighborhood to be within the 100 year flood zone, where as prior it was not. Additionally, this resulted in cracks in the pavement of our street where the sinking of the ground is still evident. Additionally, it was observed by some neighbors that their house slab foundations (characteristic of the 1940's period-build homes) had shifted and cracked. The house behind us had their garage drop in elevation in one of their corners. I estimate that non-potable water is being pumped at a rate of about 0.5 gal/sec, which equates to 30 gallons per min, 1800 gal per hour, 43,200 gal per day, 302,400 gal per week. Since this operation went for about 6 months at the next door neighbor's site, assuming a constant rate, this amount of water would be equivalent to (at 1.2 million gallons of water per month) 7.2 million gallons of underground water. Since the volume of water occupying 1 gallon is 0.134 cubic feet per gal (7.48 gal per cubic feet), 7.2 million gallons would take 970,000 cubic feet of underground aquifer space, and it is a fact that when the ground collapses into this aquifer space, it can never be retrieved again. The loss of elevation in the neighborhood places financial burden upon innocent people, causing many with mortgage payments to be required to have FEMA Flood Insurance, and even those who own their house, puts them at new risk of flooding. I believe this pumping action, apparently approved by the City Building Department, has not been seriously evaluated for its consequences by qualified engineers without bias. Furthermore, this precious water is being wasted into the storm drain during a severe drought, another irresponsible action. I am not sure about the legal consequences of halting this operation in my neighborhood, but as General Manager you must have some power to take emergency actions when severe consequences can be seen or is discovered, and thus this letter is to inform you of this matter with the hope that you can stop this pumping process and new building permit approvals, and to suspend all current operations until appropriate state-of-the-art engineers have evaluated this type of operation. Meanwhile, I intend to contact the Santa Clara County Water Resources Board about this concern, and hope you may work together with them to seek a resolution that does not adversely impact the community, one that includes the preservation of our underground aquifer. //~.:c•r•I:? / /fj ~~/ / ~··· 1. c{c:~ l~ i Valoran P. Hanko · PUBLIC WORKS CITY OF P.O. Box 10250 PALO ALTO Palo Alto. CA 94303 · 650.329.2151 July 6, 2015 Valoran P. Hanko 864 Felding Court Palo Alto, CA 94303-3645 Dear Mr. Hanko: Thank you for your May 19 letter concerning the impacts of basement construction groundwater pumping. I've been asked to respond on behalf of Palo Alto City Manager Jim Keene. Your letter expresses concern about a current pumping site and one that took place in 2001, both in your neighborhood. With respect to the earlier pumping, you expressed the belief that the pumping caused the ground to subside. We do not have reason to think that is the case. The additions to the flood zone that were made around that time were the result of new, better data, as opposed to any anticipated change in actual elevations. The earlier flood zone map had been based on a more limited set of elevation measurements. When more elevation data was collected in the 2000 time frame, it resulted in relatively small shifts in the flood zone boundary, but ones which were very important to the individual houses affected. You calculated the rough amount of ground water pumped out and postulated that that the ground level would sink to a level associated with that loss of water. We do not believe that would be the case. Rather, the groundwater is moving and new ground water would fill behind the groundwater being pumped out. Only a large number of wells operating over a long time frame would cause a relatively permanent change in the ground water elevation and an associated ground level subsidence. As you know, subsidence has occurred in a number of areas where large numbers of wells have pumped over time. You also expressed the view that the pumped water going to the storm drain was being wasted. And yet this ground water was moving toward our creeks and Bay and ultimately would have replenished both. Pumping some of it to the storm drain results in it traveling a different path, but ultimately reaching the same locations: our creeks and Bay. Our creeks and Bay need this water to preserve ecosystems and maintain needed salinity levels. Nonetheless, because of the strong feelings of a number of our residents, we are working to have builders minimize the amount pumped and use as much of the water as practical. Builders are now required to build "Fill Stations" at their sites so that others can fill trucks and tanks and use the water. The current pumping site at 804 Fielding near you has a Fill Station. The City, other builders and residents like you can use the water. Please see our website for the other locations and contact information: www.cityofpaloalto.org/water. C ityOf Pa lo A lto.org Printed with soy-based inks on 100% recycled paper processed without chlorine. I hope this addresses your concerns. Please do not hesitate to contact Mike Nafziger (650-617- 3103) for more information about 804 Fielding, or myself (650-279-0464) for broader issues we are facing in this most difficult time of drought. Sincerely, tft:fiJ,&t Phil Bobel Assistant Director, Public Works From: "Andrei Sarna-Wojcicki" <andreisarna@gmail.com<mailto:andreisarna@gmail.com>> To: "Council, City" <city.council@cityofpaloalto.org<mailto:city.council@cityofpaloalto.org>>, "letters@dailynewsgroup.com<mailto:letters@dailynewsgroup.com>" <letters@dailynewsgroup.com<mailto:letters@dailynewsgroup.com>> Cc: "Deborah Harden" <deborahrharden@gmail.com<mailto:deborahrharden@gmail.com>> Subject: Fwd: Groundwater is wasted by pumping at construction sites and dumping into storm sewers To: Mayor of the City of Palo Alto and the City Council: I have sent this message to the Public Comment web site two of days ago, but have not received an answer, and the matter is urgent. I have also sent it previously to the Palo Alto daily news site (letters@dailynewsgroup.com<mailto:letters@dailynewsgroup.com>). So, I'm forwarding this email to you and the City Council. By now, three days have elapsed since I sent the first message, and an estimated minimum of 260,000 gallons of groundwater have been pumped from the construction site at 2133 Webster and dumped into the storm sewer at the corner of N. California and Byron Streets. The water continues to be pumped as I write this (I just went by there a few minutes ago). Putting up a sign saying that the public can help themselves to the water does not solve the problem of this wasteful practice, continued with city approval during a time of extreme drought. As I mentioned in the message, this is just one of several construction sites in the city where pumping of groundwater is going on. This is a wasteful practice during ordinary times, and more so during the current severe drought. The water needs to be used for watering the trees and green areas of the city, and to maintain the level of the groundwater to keep city and residential trees from dying. The excavation at the Webster site must be at the site of a buried old gravel channel, to account for the high discharge. The water that is being wasted by direct dumping into the storm sewers not only deprives the trees in the vicinity of the pumping and downstream in the water table, but it also depriving a whole ecosystem at lower elevations downstream in the water table to the southeast--the marshes and the city Baylands. This is a high price to pay for allowing cellars to be built in an area that is at low elevations (the Webster St. site is at ~17 feet above sea level). Another several such construction sites have been recently finished near our house on Garland Drive. These are at an even lower elevation, 10 to 15 feet. Building cellars in these areas is a mistake, and has been historically avoided in this area since early European settlement for very good reasons. The water table here is high and irregular in elevation. Some of the new cellars actually intrude below the water table, as appears to be the case at the Webster Street site. I urge you to take this matter under advisement. Additional comments and arguments are provided in the forwarded email. Sincerely, Andrei M. Sarna-Wojcici, Resident of Palo Alto (708 Garland Drive) Retired geologist, U.S. Geological Survey ---------- Forwarded message ---------- From: Andrei Sarna-Wojcicki <andreisarna@gmail.com<mailto:andreisarna@gmail.com>> Date: Thu, May 7, 2015 at 10:41 AM Subject: Groundwater is wasted by pumping at construction sites and dumping into storm sewers To: letters@dailynewsgroup.com<mailto:letters@dailynewsgroup.com> Cc: Deborah Harden <deborahrharden@gmail.com<mailto:deborahrharden@gmail.com>> Dear Sir or Madam: Groundwater is being wasted on the Peninsula by being pumped out at construction sites and dumped into city storm sewers. This practice is actively going on at at least three construction sites in Palo Alto, and probably at many more throughout the Peninsula. I passed by one such site at 2133 Webster St. in Palo Alto at ~10:45 AM yesterday, returned by there at ~12:45 noon, and passed by there again at ~5:45 PM. The water was going full blast the whole time from the construction site, around the block to N. California and Byron streets, and down into a storm sewer. I estimated that about a gallon of water was dumped every second from a six-inch diameter pipe, which would amount to about 25,200 for the 7 hours time of my observation. This is probably a minimum for this particular site for this day. At the calculated rate, this would amount to 86,400 gallons of water for a 24 hour period. My wife observed the same practice going on a few months ago from another site, for at least a week. This is a massive waste of groundwater during a period of severe drought. It depletes water from an already depleted water table, forming a cone-shaped depression around the pumping site, and decreasing the available groundwater in that area from flowing farther down in the water table toward lower elevations, thus lowering the water table and depriving trees from water. It's killing off our trees. This water needs to be used for watering the trees and other plants in the municipal parks and other public grounds, and any left over water should be made available for residential use. Reservoirs need to be constructed to store this water, and a distribution system be put into place, perhaps even by temporary above-ground plastic pipe systems during this drought, to make use of this water. At the dump site that I observed, a sign put up by the city of Palo Alto which informs the public that the water is not potable, that it is being discharged (no duh), and states that "...To use this water for irrigation pr other non-potable purposes, follow this discharge hose back to the water filling station." I presume this refers to the pumping site at 2133 Webster. And what does the Palo Alto citizen do then? Bring a Dixie Cup and help himself/herself to the water? Or back-up a tanker truck to the site and fill-up? This is obviously a large job that the Peninsula municipalities need to address. I sent a message regarding this situation to the city of Palo Alto today. I attach photos from the pumping and dump sites I observed yesterday. Sincerely, Andrei Sarna-Wojcicki, Resident of Palo Alto Comments to Council regarding Dewatering Residential Basement Construction Keith Bennett November 9, 2015 The City of Palo Alto has a history of developing policies to protect natural resources, to protect our environment and to encourage sustainability. Water is now recognized as a valuable and limited resource, and groundwater is an important component of the City of Palo Alto’s Emergency Water Supply. Climate change is predicted to increase the risks of droughts, megadroughts and floods, in addition to sea (and Bay) level rise. https://www.washingtonpost.com/national/health-science/todays-drought-in-the-west-is- nothing-compared-to-what-may-be-coming/2015/02/12/0041646a-b2d9-11e4-854b- a38d13486ba1_story.html 1) The Groundwater Supply Feasibility Study performed by Carollo Engineers for the City of Palo Alto in 2003 provides quantitative analysis and measurements of the effects of groundwater pumping in Palo Alto. Data from the pumping in 1988 of groundwater for local domestic water use was deemed to be the most reliable and is the primary basis for the conclusions of the report, which is available at: http://www.cityofpaloalto.org/cityagenda/publish/uac-meetings/1930.pdf Some main points are summarized below. In this section, quotes indicate verbatim text from the study, italics indicate my personal analysis using other information including map data. Text not in quotes are my personal summaries of information from the study. a. “Utilizing the data from the 1988 pumping, the extraction of 1,000 acre-feet from the Palo Alto area will result in basin-wide water level declines on the order of 15 feet.” --- pg. 20 The shallow surface aquifer level, typically a few feet below the ground surface, declines in response to pumping the deeper aquifer as shown by the well level graphs. --- pgs. 5 - 10 b. The water levels in the Fernando, Middlefield and Matadero wells were lowered by 18, 25 and 37 feet respectively, even though water was not pumped from any of those wells. --- Table 1, pg. 13 An interactive map showing the locations of the wells and 2015 basement dewatering sites is attached (Map A) with this document and available online at: https://www.google.com/maps/d/edit?app=mp&hl=en_US&mid=zW7thpaYaYZI.kYz YfTCRxd_Q The Middlefield well is located about 5 blocks (0.4 miles, straight line) from the Rinconada Well (from which 600 acre-feet of water was produced in 1988) and about 0.7 miles from the Hale Well (produced 400 acre-feet in 1988). Peers Park (produced 400 acre-feet) is the closest well to the Fernando and Matadero wells and is 1.0 – 1.2 miles away. c. “Depending on the method, estimates of average annual recharge to the basin are between 38 and 3,800 acre-feet. “ -- Pg. 20 d. “The year-to-year 500 AFA* extraction is intended to not lower groundwater levels substantially, which would preserve the natural groundwater flow direction and prevent saltwater intrusion. The periodic 1,500 AFA well use described above would result in transient occurrence of water levels below sea-level. While water level below sea-level will reverse the seaward gradient, the slow travel time of groundwater provides a buffer from seawater intrusion for transient use. “ – Pg. 21 * AFA = Acre-feet annually. 2) The total amount of groundwater pumped for residential basement construction in 2015 is estimated to be about 400 acre-feet, based upon an average of 1.2 million cubic feet (28 acre-feet) per basement for the 14 basements dewatered in 2015. 3) The Groundwater Supply Feasibility Study estimates that the water table is lowered approximately proportionately to the amount of water pumped. Using the value in the report of 15 feet lowering for 1,000 acre-feet pumped, the estimated lowering of the water table due to dewatering for residential basement construction in 2015 would therefore be about 6 feet, and would extend over large areas of Palo Alto. 4) An advisory Measure N, “Emergency Underground Water Storage and Equipment Replacement,” (November 2007) passed with 91.84% of the vote. The Emergency Water Supply Project (EWSP), WS-08002, was approved by Council in 2007 and bonds totaling $35,015,000 were sold on October 6, 2009. Of this amount, approximately $5.36 million was used for projects related to using groundwater: groundwater feasibility studies (CMR 124:06 and related), rehabilitation of existing wells (CMR 232:10) and construction of new wells (CMR 371:09). The bonds are being repaid over 25 years through water usage fees. 5) As part of the EWSP, five existing wells have been rehabilitated for use as emergency domestic water supplies. These wells are the Hale Well (999 Palo Alto Avenue), Rinconada Well (1440 Hopkins Avenue), Peer’s Park Well (1899 Park Boulevard), Matadero Well (635 Matadero Avenue) and Fernando Well (410 Fernando Avenue). http://www.cityofpaloalto.org/gov/depts/utl/eng/water/wells/faq/rehabilitation.asp Additionally, two new wells have been constructed, one at Eleanor Pardee Park and another at (Rinconada) Library / Community Gardens. http://www.cityofpaloalto.org/gov/depts/utl/eng/water/wells/eleanor.asp Two 2015 dewatering sites are within the triangle formed by the two new wells (Eleanor Pardee Park and Library / Community Gardens) and the Rinconada well. See attached Maps B and C or online map. https://www.google.com/maps/d/edit?app=mp&hl=en_US&mid=zW7thpaYaYZI.kXmqQlQL K9iM 6) Methods exist for residential basement construction that do not require dewatering. Residential basements are built in areas of high groundwater in The Netherlands without dewatering, per personal verbal communication with the mayor of Palo Alto’s sister city, Enschede at the Council Meeting on November 2. Map A: Palo Alto Emergency Water Supply Well Map Locations of Palo Alto's Emergency Water Supply Wells, including the Middlefield Well. Basement dewatering sites Emergency Water Supply Wells Rinconada Well Hale Creek Well Peers Park Well Matadero Well Fernando Well Eleanor Pardee Park Well Library Community Gardens Well Historical Wells Middlefield Well Map B: Dewatering_Map 2015 Residential basement construction dewatering sites and emergency water supply well locations 2015 Basement dewatering sites 2133 Webster St 2130 Byron St 713 Southampton Dr 897 Southampton Dr 736 Garland Dr 684 Wellsbury Way 804 Moreno Ave 1812 Bret Harte St 1210 Newell Rd 51 Jordan Pl 2230 Louis Rd 1405 Harker Ave 3832 Grove Ave 1950 Newell Rd Emergency Water Supply Wells Rinconada Well Hale Creek Well Peers Park Well Matadero Well Fernando Well Eleanor Pardee Park Well Library Community Gardens Well Map C: Dewatering_Map 2015 (Community center zoom) Residential basement construction dewatering sites and emergency water supply well locations 2015 Basement dewatering sites 2133 Webster St 2130 Byron St 713 Southampton Dr 897 Southampton Dr 736 Garland Dr 684 Wellsbury Way 804 Moreno Ave 1812 Bret Harte St 1210 Newell Rd 51 Jordan Pl 2230 Louis Rd 1405 Harker Ave 3832 Grove Ave 1950 Newell Rd Emergency Water Supply Wells Rinconada Well Hale Creek Well Peers Park Well Matadero Well Fernando Well Eleanor Pardee Park Well Library Community Gardens Well Attachment F November 2, 2015 [ ] Place Before Meeting [ "eceived at Meeting To: Palo Alto City Council From : Keith Bennett Save Palo Alto's Groundwater Re: Petitions Attached are petitions signed by 190 individuals specifically requesting a moratorium on new dewatering permits for residential basement construction. The signatures were mostly collected during a short 2 - 3 period in late summer by a handful of volunteers. Cf+llt0 c;. ~, oR C::r ~/bjl)§~' Name City Postal Code Signed On Deborah Baldwin Menlo Park 94025 8/6/2015 Henry Heller Palo Alto 94303 8/7/2015 M Smith Palo Alto 94301 8/7/2015 City of Palo Alto GROUNDWATER SUPPLY FEASIBILITY STUDY FINAL April 2003 2700 YGNACIO VALLEY ROAD, SUITE 300 • WALNUT CREEK, CALIFORNIA 94598 • (925) 932-1710 • FAX (925) 930-0208 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY TABLE OF CONTENTS Page 1.0 INTRODUCTION .......................................................................................................1 1.1 Background .....................................................................................................1 1.2 Well System Rehabilitation and Construction Plans........................................2 2.0 POTENTIAL GROUNDWATER USE IN PALO ALTO...............................................2 3.0 HISTORICAL GROUNDWATER LEVELS AND USE................................................4 4.0 ESTIMATION OF BASIN CAPACITY......................................................................11 4.1 1988 Drought Pumping Analysis ...................................................................12 4.2 Summary of Basin Capacity Estimation ........................................................13 5.0 POSSIBLE PALO ALTO GROUNDWATER SUPPLY SYSTEM.............................14 6.0 POTENTIAL IMPACTS OF GROUNDWATER EXTRACTIONS .............................15 6.1 Subsidence....................................................................................................16 6.2 Saltwater Intrusion.........................................................................................18 6.3 Contaminant Plume Migration .......................................................................19 7.0 SUMMARY...............................................................................................................20 LIST OF TABLES Table 1 Water Level Response ..................................................................................13 LIST OF FIGURES Figure 1 Existing and Proposed City Wells...................................................................3 Figure 2 Hale Well.........................................................................................................5 Figure 3 Matadero Well.................................................................................................6 Figure 4 Fernando Well.................................................................................................7 Figure 5 Peers Park Well ..............................................................................................8 Figure 6 Rinconada Well...............................................................................................9 Figure 7 Meadows Well...............................................................................................10 Figure 8 Historical Data on Water Use, Supply, and Subsidence in San Jose, CA....17 FINAL - April 28, 2003 i H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc City of Palo Alto GROUNDWATER SUPPLY FEASIBILITY STUDY 1.0 INTRODUCTION The Palo Alto Utilities Department (Utilities) is presently examining the issues relating to the use of groundwater. Examining all water supply options, including local sources such as groundwater supply, is a part of good planning practices for the water utility. Utilities has engaged Carollo Engineers, P.C. (Carollo) to prepare a “Groundwater Supply Feasibility Study” (Study) to: “Evaluate whether operating one or two of the City’s water wells as active supplies would cause a significant decrease in groundwater levels or deterioration in groundwater quality.” This Study estimates the groundwater basin capacity in Palo Alto vicinity, identifies a possible well supply system given the basin capacity constraints, and examines whether there is a safe way to use groundwater as a supply source either in drought periods or on an ongoing basis. We have examined the capability of Palo Alto’s groundwater supply and some of the more significant potential impacts of pumping. The three potential impacts that this Study specifically addresses are: • The risk of land surface subsidence; • The risk of groundwater contamination through saltwater intrusion; and • The risk of groundwater contamination through the travel of pollution plumes to the drinking water aquifer. Palo Alto Utilities staff and Carollo have worked closely with staff of the Santa Clara Valley Water District (SCVWD) to ensure that SCVWD staff are fully informed of the analysis methods and findings. At the present time, the City of Palo Alto is NOT planning to use any of the wells for long-term supply. Any change from the planned emergency-only use of the wells would happen only after further detailed analysis, environmental review, extensive discussion with the public, and approvals by both the Utilities Advisory Commission and the City Council. Staff is merely examining the issues related to the groundwater basin and the possible use of the wells in severe droughts or as a supplemental supply in the future. 1.1 Background The City of Palo Alto obtained its well system in 1896. The entire water supply for the City was derived from groundwater until 1938 when it began receiving supplemental supplies from the City and County of San Francisco. In 1962, the wells ceased operating on a FINAL - April 28, 2003 1 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc continuous basis and San Francisco water became the City’s primary source of supply with the wells maintained as an emergency water supply. The wells were last used in 1988 and 1991 to provide supplemental supplies during a serious drought. At this time, the City maintains five wells as emergency (standby) water sources, but they are in need of rehabilitation. 1.2 Well System Rehabilitation and Construction Plans The City is presently implementing plans to rehabilitate the five existing wells and build three new wells. These improvements are part of a larger Water System Capital Improvement Plan, which was developed as a result of extensive study completed in 1999 (1999 Study). The primary purpose of the well rehabilitation and construction plans is to provide necessary emergency water supplies in the event of a complete cutoff from the SFPUC water supplies. The overall water CIP has been reviewed and approved by both the Utilities Advisory Commission and the Palo Alto City Council. Funds for the improvements are included in the five-year Water Capital Improvement Program Budget. 2.0 POTENTIAL GROUNDWATER USE IN PALO ALTO The imported water purchased from the SFPUC has been a reliable supply for 40 years. There is growing concern, however, that this supply may be jeopardized either partially or completely by a number of factors. For example, the SFPUC supply was rendered unavailable once in 1995 and again in 1998 due to water quality concerns.1 In addition, recent studies conducted by the SFPUC have identified a number of system vulnerabilities that could cut off the water supply for up to 60 days in the event of a serious emergency.2 In regards to long-term reliability, the SFPUC supply is insufficient to meet the current and forecasted needs of the users of the regional system it operates. Droughts in 1976-77 and 1987-1992 that resulted in the rationing of supplies clearly illustrates this fact. The SFPUC’s Water Supply Master Plan (WSMP) recognized that on a long-term basis, its supplies are inadequate. The WSMP identified the system’s yield as 239 mgd while current demand is greater than 260 mgd and the demand estimate for 2030 is 303 mgd, or a shortfall in supplies of 64 mgd. Thus, it is prudent for the City to evaluate its options for improving the reliability of its water supply. The location of the City’s wells is shown in Figure 1. These wells may have potential uses beyond supplying water during SFPUC outages. If the City Council decided, the wells could also help supplement water supplies during drought periods and perhaps even as active 1 “Water Wells, Regional Storage, and Distribution System Study,” page 4-1, prepared for the City of Palo Alto by Carollo Engineers, P.C. dated December 1999. 2 SFPUC fact sheet dated August 5, 2002. FINAL - April 28, 2003 2 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc LEGEND Pa303f1-6589.cdr Figure 1 EXISTING AND PROPOSED CITY WELLS GROUNDWATER SUPPLY FEASIBILITY STUDY CITY OF PALO ALTO SFPUC Turnout Existing Well Sites Proposed Well Sites No Scale Matadero Well P ers Pa k e r Wlel Rinconada Well Library/ Community Gardens Well El Camino Park Well Palo Alto Medical Facility Well (Roth Site) Middlefield Well Eleanor Park Well Ha e l Well Fernando Well tt tt tt California Turnout Lytton Turnout sources to be regularly used in conjunction with the SFPUC supply. These uses, however, raise significant concerns related to lowering of the groundwater levels. Significantly, depressed groundwater levels can potentially lead to environmental consequences such as subsidence, saltwater intrusion, and contaminant migration. Though there may be other as yet unidentified impacts, these impacts are discussed in this Study as they are considered to be the most significant potential impacts. Currently, the wells are designated standby sources meaning that they can only be used 15 days a year and no more than 5 days consecutively.3 The “standby” designation is made with the California Department of Health Services (DHS) in part because the well water quality exceeds some secondary (aesthetic) drinking water standards. According to the 1999 study, the well water quality exceeds secondary standards for TDS, iron, and manganese. For the purposes of this Study, it is assumed that the water would be used for potable uses. As such, changing the well status with the DHS from “standby” to “active” would require the well water to be treated such that it met all drinking water regulations. Alternatively, the regulations allow the City to distribute water that meets primary drinking water quality standards but exceeds some secondary drinking water quality standards. Proceeding in this manner would require the City to first complete a study acceptable to the California Department of Health Services (DHS) showing consumer acceptance of water not meeting secondary drinking water standards (see California Code of Regulations Title 22, Division 4, Chapter 15, Article 16, Section 64449 for specific details). Customer acceptability, however, may require the City to install sufficient treatment at the wells to be used for drought or active supply such that the water quality is increased significantly or made comparable to the SFPUC water. This issue was covered in the City’s “Long-Term Water Supply Study” dated May 2000 (May 2000 Study). 3.0 HISTORICAL GROUNDWATER LEVELS AND USE The best way to evaluate the effect that pumping has on groundwater levels is to review historical data that show the basin’s response to pumping. Groundwater pumping and water level data from 1950 through 2000 are presented in Figures 2 through 7. All of the water level graphs show a characteristic rise following the switch to SFPUC water in the early 1960s. In general, the graphs show smooth trends in response to recharge, pumping, and drought conditions. There are occasional spikes in the graphs that appear to be outlying, erroneous 3 According to the California Code of Regulations, Title 22, Section 64449, (e) (I), standby wells may be used as active sources without additional water treatment if the City were to conduct a study establishing the customers’ willingness to accept water that doesn’t meet secondary water quality standards. FINAL - April 28, 2003 4 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc Pa303f2-6589.cdr Figure 2 HALE WELL GROUNDWATER SUPPLY FEASIBILITY STUDY CITY OF PALO ALTO 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Jan -48 Jan -52 Jan -56 Jan -60 Jan -64 Jan -68 Jan -72 Jan -76 Jan -80 Jan -84 Jan -88 Jan -92 Jan -96 Jan -00 Drought Period Ground Elevation 19 7 2 Pa303f3-6589.cdr 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Figure 3 MATADERO WELL CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Ja n - 4 8 Ja n - 5 2 Ja n - 5 6 Ja n - 6 0 Ja n - 6 4 Ja n - 6 8 Ja n - 7 2 Ja n - 7 6 Ja n - 8 0 Ja n - 8 4 Ja n - 8 8 Ja n - 9 2 Ja n - 9 6 Ja n - 0 0 Ground Elevation Drought Period Pa303f4-6589.cdr Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Figure 4 FERNANDO WELL CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Ja n - 4 8 Ja n - 5 2 Ja n - 5 6 Ja n - 6 0 Ja n - 6 4 Ja n - 6 8 Ja n - 7 2 Ja n - 7 6 Ja n - 8 0 Ja n - 8 4 Ja n - 8 8 Ja n - 9 2 Ja n - 9 6 Ja n - 0 0 Ground Elevation Drought Period Pa303f5-6589.cdr Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Figure 5 PEERS PARK WELL CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Ja n - 4 8 Ja n - 5 2 Ja n - 5 6 Ja n - 6 0 Ja n - 6 4 Ja n - 6 8 Ja n - 7 2 Ja n - 7 6 Ja n - 8 0 Ja n - 8 4 Ja n - 8 8 Ja n - 9 2 Ja n - 9 6 Ja n - 0 0 Drought Period Ground Elevation Pa303f6-6589.cdr Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Figure 6 RINCONADA WELL CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Ja n - 4 8 Ja n - 5 2 Ja n - 5 6 Ja n - 6 0 Ja n - 6 4 Ja n - 6 8 Ja n - 7 2 Ja n - 7 6 Ja n - 8 0 Ja n - 8 4 Ja n - 8 8 Ja n - 9 2 Ja n - 9 6 Ja n - 0 0 Drought Period Ground Elevation Pa303f7-6589.cdr 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Figure 7 MEADOW WELL CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Ja n - 4 8 Ja n - 5 2 Ja n - 5 6 Ja n - 6 0 Ja n - 6 4 Ja n - 6 8 Ja n - 7 2 Ja n - 7 6 Ja n - 8 0 Ja n - 8 4 Ja n - 8 8 Ja n - 9 2 Ja n - 9 6 Ja n - 0 0 Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) Drought Period Ground Elevation data. We believe that the occasional spikes in the data are more likely due to equipment error than due to the actual water level. The information presented in the graphs is used in the following section to estimate the groundwater basin capacity in the Palo Alto area. 4.0 ESTIMATION OF BASIN CAPACITY Groundwater resources of the Palo Alto area occur within a much larger aquifer system - the Santa Clara Valley Groundwater Basin. This basin extends as far south as Coyote Narrows and extends north of Palo Alto far into San Mateo County. The system is bounded by uplifted bedrock to the west. To the east, the shallow portion of the aquifer system is bounded by San Francisco Bay. At depth, the aquifer systems of the west side of the valley interfinger under the bay with those of the east. In a large groundwater basin, estimation of the capacity of a smaller area within a basin is difficult because the smaller area is, by definition, unbounded. Groundwater moves freely between basin areas in response to hydraulic head. Therefore, pumping or recharge in one area of the basin has effects on the basin as a whole. Indeed, the impacts of seasonal variations in recharge and in extractions by one or more of Palo Alto’s neighbors are evident in the seasonal rise and fall of the water levels at the Hale Well. Estimating the capacity of the Santa Clara Valley Groundwater Basin in the Palo Alto area requires the definition of an arbitrary area for purposes of evaluating changes in groundwater storage that have occurred. For the purpose of estimating the storage capacity of the groundwater basin in the Palo Alto area, an arbitrary area was defined. This area is bounded on the west by the Hanover Fault zone that is approximately 2,000 feet west of El Camino Real with a similar trend. The Bay was adopted as the eastern boundary. The Hanover Fault zone separates the alluvium of the basin from the bedrock to the west and is a hydrogeologic boundary. For the upper portion of the aquifer system that is in hydraulic communication with the Bay, the Bay is a hydrogeologic boundary. For the deeper portions of the aquifer system, the Bay is not a hydrogeologic boundary but for purposes of definition in this Study, it was adopted as a boundary. The adopted north and south bounds are San Francisquito Creek and San Antonio Road, respectively. The area described by these boundaries is approximately 9,500 acres. Given this defined area, there are several approaches to understanding the capacity or yield. Three methods were evaluated in a previous report to the City entitled “Estimation of Groundwater Basin Capacity” dated December 2002 (December 2002 Report). Those three methods are: 1) Use of the SCVWD calibrated groundwater model; 2) Analysis of basin recovery to cessation of pumpage; and 3) Analysis of basin response to 1988 drought pumping. Once the December 2002 report was completed, the City and Carollo met with representatives of the SCVWD to discuss their questions and concerns regarding the FINAL - April 28, 2003 11 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc report. One of the outcomes of that meeting was that the first two methods of calculating the groundwater basin capacity were controversial for the following reasons: • The SCVWD groundwater model does not accurately reflect the hydrogeologic conditions at Palo Alto. One of the most important deviations is that the model does not account for any recharge from San Francisquito Creek. In fact, the model has a boundary condition that sets the contribution at zero. As such, using the model to calculate the Palo Alto groundwater basin capacity would likely result in a volume that is erroneously low unless the contribution from San Francisquito Creek is accounted for. Since this data is not available and obtaining it would not only require an extensive hydrogeologic study but would also raise concerns regarding the amount of water that must be left in the creek versus that which can be considered useful for groundwater recharge and later extraction, this method will not be further developed. • Using the groundwater level recovery history to calculate the basin storage capacity yielded values that ranged over two orders of magnitude. SCVWD representatives recommended that the City should perform multiple aquifer tests to improve the accuracy of this data. However, the existing condition of the City’s wells is not readily conducive to performing this type of test. In addition, an aquifer test could readily be performed once the City has completed upgrading its wells. For the present time, this method of estimating the basin capacity will not be pursued. The third method presented in the December 2002 Report for estimating the groundwater basin capacity (i.e. analyzing the water level data gathered during and after pumping in 1988) will be used for the remainder of this Study. 4.1 1988 Drought Pumping Analysis The pumping performed by the City of Palo Alto during the drought provides data to directly estimate the response of the basin to extractions. When the 1987-1992 drought occurred, the City’s wells had been essentially idle since 1962. During this period, water levels in the basin had risen, on average, more than 150 feet. Approximately 90 percent of that recovery took place in the first 10 years following cessation of pumping. The City operated the wells for an approximately 5-month period in 1988 and extracted approximately 1,505 acre-feet. The water level response is shown on Figures 1 through 6. The extraction volume and the observed water level response are summarized in Table 1. Averaging the observed water level declines results in an average decline of approximately 24 feet. This water level decline reflects Palo Alto’s pumpage while also reflecting the simultaneous pumpage from neighboring utilities. Utilizing the observed 24 feet of decline across the assumed 9,500-acre area results in an observed coefficient of storage of approximately 0.007 (dimensionless). This value is quite appropriate for a semi-confined aquifer system, such as the Palo Alto area. FINAL - April 28, 2003 12 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc Table 1 Water Level Response Groundwater Supply Feasibility Study City of Palo Alto Well 1988 Extractions (acre-feet) Observed Water Level Decline During the 1988 Pumping Period (feet) Matadero 0 18 Hale 398 15 Fernando 0 25 Rinconda 627 25 Middlefield(1) 0 37 Meadows(2) 123 Data Not Available Peers Park(3) 357 Data Not Available Total 1,505 Average = 24 Notes: (1) Middlefield well water level decline likely reflects proximity (about 0.5 mile) to the operating Rinconda well. Similar effects are revealed for the Matadero and Fernando wells indicating that they are in the same basin as the operating wells. (2) The Meadows well was not highly productive and was destroyed following its use in 1988. No water level data was collected after 1988. (3) Water level data for the Peers Park well were not collected between the years 1988 and 1994. Subsequent data shows water level variation similar to the Hale well. Though some groundwater was pumped in 1991, the City ceased significant extractions in December 1988. Of interest is the rapid recovery of the basin after drought conditions, with water levels recovering to pre-pumping levels within 18 months of the extraction period. This also is reflective of the semi-confined nature of the basin and the active recharge efforts of SCVWD. 4.2 Summary of Basin Capacity Estimation From the drought pumping analysis presented above, the following conclusions are drawn regarding the groundwater basin capacity: • Water levels in the Palo Alto area have returned to almost predevelopment levels. Essentially, the groundwater basin in the Palo Alto area is full. • Data from 1988 pumping provides a good example from which to appraise groundwater extraction concepts. 1,500 acre-feet were extracted with limited impact. Water level impacts were short-lived and water levels returned to pre-pumping levels within 18 months. If pumping were performed during a non-drought period, the drawdown would likely be less. Initial drawdown may also be affected by the condition of the existing casings that may cause otherwise productive portions of the aquifer to FINAL - April 28, 2003 13 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc contribute to the supply. An aquifer test should be conducted following the City’s well construction and rehabilitation efforts to verify the basin’s response to pumping. • Utilizing the data from the 1988 pumping, the extraction of 1,000 acre-feet from the Palo Alto area will result in basin-wide water level declines on the order of 15 feet. Historical experience suggests that the basin will recover to pre-pumping levels within a couple years. It is expected that the water level would decline approximately 25 feet if the City were to extract 1,500 acre-feet in one year. • Occasional depletion of storage resulting from extractions in excess of annual average recharge appears to have minimal adverse impacts. • Seasonal fluctuations in water level record from Hale and Rinconada wells shows that Palo Alto’s pumpage does not occur autonomously. Palo Alto’s water level appears to be impacted by pumpers outside of SCVWD jurisdiction. From the above analysis, it appears that the following groundwater pumping scenario may be safely supported by the groundwater basin: • During drought conditions, 1,500 acre-feet may be withdrawn in one year as long as the aquifer is allowed to recover to pre-pumping levels before pumping is reinitiated. • 500 acre-feet per year may be withdrawn on a year-to-year basis. This practice, however, should be discontinued if the groundwater levels continued to drop to levels that may induce negative environmental impacts (see discussion below on subsidence, saltwater intrusion, and contaminant plume migration). The balance of this study is presented assuming the wells are used to supply 1,500 acre- feet per year (AFA) during droughts, or 500 AFA on a year-to-year or active basis. 5.0 POSSIBLE PALO ALTO GROUNDWATER SUPPLY SYSTEM A well system that could provide this level of service would need a capacity of about 1,000 gallons per minute (gpm) assuming the well is operated continuously for the year during the drought operation (1,500 AFA) or 2,000 gpm if the well is operated for only half the year. In addition, the well site must be able to accommodate the treatment equipment that may be required for this operation (as discussed above), and the environmental and public involvement efforts must conclude that installing treatment is feasible at the site. The May 2000 Study evaluated the existing and proposed well sites in terms of their relative ability to be used as drought or active supplies. That study provided the following ranking of the existing wells: • Hale and Peers Park are the best sites since they are existing wells that are high-capacity and have adequate adjacent space for treatment equipment. FINAL - April 28, 2003 14 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc • Rinconada is another existing high-capacity well but it lacks the space needed for treatment equipment (unless the equipment is constructed at the location of the existing tennis courts). • Fernando and Matadero do not have adequate capacity or space to be considered feasible active or drought supply sources. At the time the May 2000 Study was written, the City had not yet begun to implement the proposed new well projects. As such, these wells were generally ranked lower than the existing wells. The proposed well sites were ranked as follows: • The El Camino Park site was ranked among the highest because of the size of the site and its proximity to the SFPUC turnouts and the proposed reservoir, which would facilitate blending the well water with SFPUC water before it is delivered to the distribution system. • The Eleanor Pardee Park, the Library/Community Gardens, and the Roth sites (Old Palo Alto Medical Facility) were ranked high because of the size of each of these sites. • The Middlefield Road well site was ranked lowest because it is the most constrained site. It should be emphasized that none of the previous studies included performing either the environmental, public involvement, or other studies that are needed before any of the above sites can be considered truly feasible for well or water treatment facility construction. The City’s current on-going efforts (the Phase I and Phase II Water Supply Capital Improvement Projects) include performing these needed studies. If treatment or blending are not required, any of the City’s wells could be used for drought or active use assuming the required approvals (discussed above) are obtained. If, however, water treatment facilities must be constructed, it would be best to focus on a single site since only one well is needed to be within the identified capacity limits. In addition, focusing the permitting and engineering requirements on a single site is the most cost-effective approach for the City. For a drought supply with treatment, the best existing well sites are Hale and Peers Park. The best proposed well site for a drought supply source with treatment is El Camino, though the Roth site, the Library/Community Gardens, and Eleanor Pardee Park all appear to be feasible sites at this time. 6.0 POTENTIAL IMPACTS OF GROUNDWATER EXTRACTIONS The potential impacts from groundwater extractions derive from changes in groundwater flow directions that result from changes in water levels caused by extractions (pumping). As a preface to the following sections, a brief summary of the history of groundwater levels in the Palo Alto area and the Santa Clara Valley is presented. FINAL - April 28, 2003 15 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc Groundwater development in the Santa Clara Valley began around 1900. At that time most groundwater wells in the lower elevations of the Santa Clara Valley were artesian – that is, flowing at ground surface. As aggregate extractions increased, water levels fell progressively, subject to climatic variations, reaching depths of as much as 200 feet below ground surface by the early 1960s. With the importation of water to the Santa Clara Valley water levels began to recover. In Palo Alto, water levels are currently at elevations comparable to the 1910s. In wet winters, wells in the Palo Alto area now, if not controlled, flow at ground surface. 6.1 Subsidence One of the potential impacts of groundwater extractions is a decrease in the elevation of the ground surface known as land subsidence. Some of the negative effects of the subsidence are an increased risk of flooding, and damage to infrastructure. Subsidence has been associated to areas with significant groundwater pumping, natural gas production, or oil production. Groundwater is pumped from porous layers with higher hydraulic capacities, i.e., sand and gravel aquifers. As the pumping occurs, water from the confining layers of the aquifers is drawn into the porous aquifer. The aquifers consisting of sand and gravel tend to be incompressible, however, the confining layers may be compressible materials, such as clay. When the groundwater is pumped from these compressible layers the soils compress and the surface elevation starts to drop. This decline in elevation is the result of the physical properties of clay. Clay is comprised of platy minerals that are commonly oriented randomly within the clay deposit. With the removal of fluid and overburden pressure, the clay particles rotate such that they orient parallel with the ground surface. This rotation results in a decrease in vertical thickness of the deposit. The thickness loss is irreversible and the resulting elevation loss is permanent. However, land subsidence can be arrested with increased groundwater levels. In Santa Clara Valley, extractions since the turn of the century resulted in lowering of groundwater levels as much as 200 feet (-160 below sea-level). This lowering of water level resulted in as much as up to 12 feet of subsidence in some locations of the Santa Clara Valley. Subsidence in the Palo Alto area was between 2 and 4 feet. The amount of subsidence in a given area was a function of the amount of water level decline and the local geologic conditions. Areas with shallow bedrock experienced less subsidence than those areas underlain by sediments of substantial thickness. The relationship between water levels, pumpage, imported water supply, and subsidence (as measured in San Jose, CA) is shown on Figure 8. As can be seen in this figure, subsidence generally correlates with periods of falling water levels. Currently, land subsidence has essentially stopped in the Santa Clara Valley as a result of the increased groundwater levels resulting from the use of alternative water supplies and basin management. FINAL - April 28, 2003 16 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc Pa303f8-6589.cdr Figure 8 HISTORICAL DATA ON WATER USE, SUPPLY, AND SUBSIDENCE IN SAN JOSE, CA GROUNDWATER SUPPLY FEASIBILITY STUDY CITY OF PALO ALTO As discussed above, the loss of elevation associated with subsidence is the result of the reorientation of clay minerals within clay deposits. The compaction of these deposits is essentially irreversible in that when water levels subsequently rise, the clay minerals do not return to their original orientation. However, since these materials are now compacted, the lowering of water levels does not result in significant further compaction. If the City’s wells were used at the capacity limits considered herein, the result would be a transient lowering of water levels to levels less than 25 percent of the historical lows. As such, use of the wells should not result in renewed subsidence. There was no data collection focused on subsidence in the Palo Alto area during the last use of the wells (in 1988 and in 1991). The closest subsidence measurement station maintained by the SCVWD is approximately 10 miles to the south of Palo Alto. However, there are no known anecdotal reports of property damage from renewed subsidence in the Palo Alto area during this period of well use. 6.2 Saltwater Intrusion The movement of saltwater into freshwater aquifers is called saltwater intrusion. Under natural conditions, groundwater flows from areas of recharge on the land to areas of discharge; in coastal areas these are commonly the ocean or the bay. If groundwater extractions result in on-land water level elevations below sea-level, groundwater flow directions reverse and seawater moves from the ocean into coastal aquifers. Although the most common mechanism of seawater intrusion is the lateral movement of seawater through the offshore exposure of the aquifer, seawater intrusion can also occur vertically where depressed water levels in underlying aquifers induce flow from overlying water bodies into the aquifer. If the overlying water body is saline this also results in a type of seawater intrusion. This vertical movement of seawater is often distinguished from lateral movement of seawater by the designation of seawater infiltration. The coastal portion of the Santa Clara Valley aquifer system has historically been impacted by both seawater intrusion and seawater infiltration. Groundwater extractions in the Santa Clara Valley from the turn of the last century until the 1970s resulted in the maintenance of groundwater elevations that were chronically and increasingly below sea-level. As previously mentioned water surface elevations in the Palo Alto dropped at as much as 140 feet below sea-level. This resulted in the on-land movement of seawater from the Bay and in many areas the vertical movement of seawater from Bayland ponds used for salt harvesting and aquaculture. The rate of intrusion/infiltration is governed by the magnitude of the gradient: the steeper the gradient, the more rapid the movement of water through the aquifer. Seawater intrusion and infiltration has been arrested as the result of reduced groundwater extractions, water importation and basin management efforts. While currently arrested, seawater intrusion could be reactivated if water levels were again chronically below sea-level. However, because groundwater moves very slowly, the short- FINAL - April 28, 2003 18 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc term occurrence of below sea-level water levels, while briefly reversing the flow direction, results in little actual transport of saline groundwater. What transfer does occur, is reversed when flow directions return to normal. This would be the case for either the emergency supply operation for which the wells are currently permitted, or the possible drought supply that is discussed herein. 6.3 Contaminant Plume Migration Groundwater extraction modifies its natural flow direction. In the vicinity of an extraction well, groundwater flow directions are altered both vertically and horizontally resulting in the production of water from the well. Water produced from the well derives from a recharge area surrounding the well, the size and shape of this recharge area being a function of the hydrogeology and well design. This recharge area is commonly referred to as a capture zone of the well. If there are sources of contamination within the capture zone of a well, the well can become contaminated. Within an urbanized setting, the potential sources of groundwater contamination are limited to contamination associated with industrial and commercial land uses. Predominantly this is in the form of leaky underground storage tanks. This would include gas stations, industrial solvents from manufacturing or research, and dry cleaners. As part of the 1999 Study, all sources of contamination known by regulatory agencies were reviewed to determine the risk to City’s existing wells and proposed new well sites. This review revealed very few contamination sites in the areas surrounding the existing and proposed well sites. Most of the existing contamination is in the more industrial portions of the City – those portions west and south of the downtown area. Fortuitously, these areas are not the areas of the City with the most favorable hydrogeologic characteristics for water supply wells. The only identified contaminated sources in the area near the existing or proposed wells were the Shell gas station on Alma Street and the City of Palo Alto Fire Station. These locations are proximate to the proposed El Camino Well, and they both had leaky underground gasoline storage tanks. Both sites have been cleaned up and closed by the Regional Water Quality Control Board. The use of the wells at the capacity limits considered herein will temporarily modify groundwater flow patterns in the vicinity of the wells creating the potential for capture of contaminate plumes. However, based on available records there are no known contaminate plumes within the capture zones of the City’s existing or proposed wells. FINAL - April 28, 2003 19 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc 7.0 SUMMARY Once refurbished, the City’s five existing wells and the three proposed new wells will provide an excellent standby water source to be used during water supply emergencies such as a shutdown of the SFPUC system. If the Palo Alto City Council decided to use the wells during droughts or as supplemental sources to be used in conjunction with the SFPUC supply, the wells could also provide added benefits in terms of enhancing the reliability and redundancy of the City’s water supply. Any regular use considered in the future, however, should not exceed the reliable capacity of the groundwater basin to avoid such negative environmental consequences such as subsidence, saltwater intrusion, and contaminant migration. Groundwater pumping and water level data for the last 50 years were analyzed to help evaluate the basin’s response to pumping. It should be noted that the data collection and analysis is too limited to draw firm conclusions regarding the reliable basin capacity or sustainable yield that the City may be able to pump on an active basis. In addition, these values could only be derived after analyzing and accounting for natural recharge patterns and the pumping plans of the City’s neighboring utilities. To provide an initial analysis on issues related to other-than-emergency use of the wells, however, the following may be inferred from the data analysis presented herein: • Water levels in the Palo Alto area have returned to almost predevelopment levels. Essentially, the groundwater basin in the Palo Alto area is full. • Depending on the method, estimates of average annual recharge to the basin are between 38 and 3,800 acre-feet. A conservative year-to-year value is likely on the order of 500 AFA. • Data from 1988 pumping provides an example from which to appraise groundwater extraction concepts. 1,500 acre-feet were extracted with limited impact. Water level impacts were short-lived and water levels returned to pre-pumping levels within 18 months. If pumping were performed during a non-drought period, the drawdown would likely be less. These values should be revisited through an aquifer test performed following the City’s well construction and rehabilitation efforts. • Utilizing the data from the 1988 pumping, the extraction of 1,000 acre-feet from the Palo Alto area will result in basin-wide water level declines on the order of 15 feet. Historical experience suggests that depending on climatic conditions, the basin will recover to pre-pumping levels within a year or so. It is expected that the water level would decline approximately 25 feet if the City were to extract 1,500 acre-feet in one year. This decline, however, is not likely to induce significant detrimental environmental impacts since it is much less than the historical drawdown levels and is transient in duration. FINAL - April 28, 2003 20 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc FINAL - April 28, 2003 21 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc • Occasional depletion of storage resulting from extractions in excess of annual average recharge appears to have minimal adverse impacts. • Seasonal fluctuations in water level record from Hale and Rinconada wells show that Palo Alto’s pumpage does not occur autonomously. Palo Alto’s water level appears to be impacted by pumpers outside of SCVWD jurisdiction, possibly Menlo Park and East Palo Alto. Under drought conditions, impacts of all local pumpers will be superimposed on water level conditions. The limited analysis suggests that sustained year-to-year extractions of approximately 500 AFA may be possible with negligible water level decline. The actual extraction value would be dependent on the location and depth of the well, how many wells were being operated, and the extent at which neighboring utilities were operating their wells and climatic conditions. If extractions were periodic, as in response to drought or delivery reductions, extractions of 1,500 AFA are possible provided this use is short-lived (one year every three or so years) and the basin is allowed to recover after this use. These estimates were based on the best available data and on general knowledge of groundwater basin behavior. However, the data was limited, as the basin has not been actively pumped since 1963. When more information becomes available both from developing the City’s wells for emergency use and from data collected from the SCVWD’s monitoring well, these estimates will be re-examined. The level of well use described above is not expected to result in reinitiation of subsidence or seawater intrusion or the movement of contaminate plumes for the following reasons: • Reinitiation of significant subsidence would require the dewatering of sediments not dewatered as part of the water level declines of the last century. This would require water level declines of more than 140 feet. As proposed the operation of the wells would result in short term water level declines of between 20 and 30 feet, and dewatering of previously dewatered and compacted sediments. • The year-to-year 500 AFA extraction is intended to not lower groundwater levels substantially, which would preserve the natural groundwater flow direction and prevent saltwater intrusion. The periodic 1,500 AFA well use described above would result in transient occurrence of water levels below sea-level. While water level below sea-level will reverse the seaward gradient, the slow travel time of groundwater provides a buffer from seawater intrusion for transient use. • Operation of the wells would result in temporary disruption of natural flow directions and could effect movement of contaminate plumes. However, no known contaminate plumes exist proximate to the existing or proposed wells sites. City of Palo Alto (ID # 6450) Policy and Services Committee Staff Report Report Type: Agenda Items Meeting Date: 12/15/2015 City of Palo Alto Page 1 Summary Title: Basement Construction Dewatering Update Title: Update on 2016 Next Steps on Basement Construction Dewatering Program and Discussion and Potential Recommendation to Council Regarding Ideas From Committee Members for Additional Project Work From: City Manager Lead Department: Public Works Recommendation Staff recommends that the Policy and Services Committee review and discuss this Staff Report and provide direction. Staff recommends that Group 1 (most time-sensitive) items not return to Policy & Services but that staff develop those recommendations into actionable items for City Council approval, as needed. Our goal would be to return to Council as soon as possible in 2016. Group 2 and 3 items will be brought back to Policy and Services as indicated below. Executive Summary The Policy and Services Committee discussed staff recommendations on investigating program enhancements for basement construction dewatering at its December 1, 2015 meeting (Attachment A: #6268) and heard public testimony (Attachment B: correspondence). The Chair requested that staff summarize the wide range ideas suggested by individual Committee members for follow-up to ensure that all were captured to facilitate potential further discussion by the Committee. (see ID# 6438). The ideas are organized into three groups. Group 1 is a set of potential new requirements for the 2016 construction season that staff recommended on December 1 and would continue to investigate with a goal of swift implementation; Group 2 is for ongoing and potential future work for gathering information about the groundwater basin; and Group 3 is a list of additional (some big) ideas generated at the meeting. With respect to Group 3, staff will return to the Committee in the first half of 2016 with questions that should be considered as part of a further discussion with the Committee about whether to recommend Council consideration and potential direction on any of these. The potential scope of the items could make this a major new initiative and will require careful assessment of the resources necessary to support them, in the context of other work priorities. Assuming the committee accepts the staff recommendations, we will continue to share our City of Palo Alto Page 2 thinking with various stakeholders, as part of our deeper dive into implementation details of Group 1. This is important as new house construction applications are being submitted and it is important that we advise people of our potential planned changes, even before they could go into effect. We expect that some aspects of the recommendations in Group 1 could require specific Council action, so staff attention needs to be directed to work through the details of new requirements so that we can get to Council in early 2016. Discussion Below is a summary of the potential program changes identified by Staff and Committee members at the December 1, 2015 Policy and Services Committee meeting: Group 1: New Basement Dewatering Submittal, Fill Station and Groundwater Use Requirements Staff will continue to work (investigate feasibility and practicality) on the five program enhancements brought forward for consideration at the December 1, 2015 Committee meeting. Staff has added a bit more information to some of the Group 1 recommendations below. 1. Encourage greater fill station use through public outreach and enhanced signage. 2. Strengthen outreach on the water cycle and value of fresh water flows to storm drains, creeks and bay. 3. Refine requirements for Groundwater Use Plans; including maximizing on-site water reuse, at least one day per week water truck hauling service for neighbor and City landscaping, and piping to nearby parks or major users where feasible. 4. Expand fill station specifications to address water pressure issues from multiple concurrent users, including separate pumps for neighbors where needed and sidewalk bridges for hoses. 5. *Broaden the City’s Basement Pumping Guidelines to specifically require a determination of effects on adjacent buildings, infrastructure, trees, or landscaping. Applicants would determine the location of the temporary groundwater cone of depression caused by pumping. Avoidance measures would be required to be included in the determination if offsite effects are anticipated. City Urban Forestry staff may develop guidelines for avoidance measures such as soil enhancements and supplemental watering of neighboring landscaping by project applicants. Additional measures to avoid effects could include adjusting the location, depth or duration of pumping or altering construction methods to minimize or eliminate pumping. Additional considerations raised at the Committee meeting include: Ensuring that fill stations are compliant to specifications Two committee members did not find outreach on the water cycle (2) to be a priority City of Palo Alto Page 3 Staff recommends continuing to investigate these Group 1 program enhancements and then finalize new requirements on basement dewatering for approval, as needed, by the full Council in early 2016. Group 2: Gathering of Groundwater Information and Plans by Palo Alto and its Partner Agencies Continue working with the Santa Clara Valley Water District (Water District) in an already ongoing effort on developing a further understanding of the North County groundwater systems, impacts of groundwater pumping, and opportunities for enhanced groundwater recharge. A Water District key mission is to manage the County’s groundwater; therefore, staff will collaborate closely with the Water District, and the new Council-level Recycled Water Committee. This collaboration may also include working with San Mateo County and its cities to ensure coordination with their development of a groundwater strategic plan. Staff will provide an update on the work plan for this effort to the Policy and Services Committee/(City Council?) in the first quarter of 2016. Group 3: Further Ideas Brought Forward by Individual Policy & Services Committee Members Individual Committee members articulated additional ideas and suggestions. Some of these ideas are multifaceted and complex, and will require sustained effort from staff and assistance from consultants over multiple years. The Committee and Council will need to evaluate priorities and timelines, including the potential that significant new assignments may delay other projects currently underway. Staff will prepare a report for the Policy and Services Committee in the first half of 2016 to discuss these matters and the development of a potential recommendation to Council to direct additional work in one or more of these areas: 1. Charging for discharge of groundwater. The current fee for dewatering to the storm drain system is $80 per month. This effort would consider increased fees to charge for the use of the City’s storm drain system and staff time to manage the dewatering requirements. Committee members suggested exploring whether the fee that the Santa Clara Valley Water District charges for groundwater pumping would be an appropriate baseline. 2. Developing dewatering requirements tailored to drought situation. 3. Developing approaches to ensure that multiple basement pumping is not happening in close proximity (distance and time), and instead is spaced out, essentially allowing only a limited number of basement construction dewatering in one area. 4. Addressing potential damage from dewatering through bonds or insurance. City of Palo Alto Page 4 5. Further study of all pumping activities in the City, including private wells, City Hall garage, Oregon Underpass and other underpasses. 6. Review of basement building and zoning code issues, including FAR adjustments for basements and not allowing two-story basements, or any basement, in areas with shallow groundwater. (Note: Staff’s initial reaction is that utilizing zoning to implement these requirements may be quite difficult because groundwater depth can vary significantly from block to block) 7. Review of impacts of multiple basements on soil absorption and/or the creation of barriers to groundwater flow. 8. Investigation of costs of other construction methods that do not require dewatering, or as much dewatering. 9. Investigate whether Palo Alto should assume a groundwater management leadership role for the North County area. (Including consideration of staff time and cost implications.) 10. In addition, Committee members were interested in how increased use of permeable surfaces may assist with groundwater recharge. (Note: City staff can provide an update on the new stormwater permit requirements for a Green Infrastructure Plan which will require more infiltration of stormwater into the ground rather than discharging it through storm drains via both public and private projects.) In summary, staff will finalize its investigation of Group 1 activities for implementation of potential new requirements starting in 2016. Group 2 is part of an ongoing effort and the Committee and Council will be updated periodically. The Group 3 activities will be brought to the Committee /Council for discussion and direction to study them; Staff is making no estimate on when they could be implemented. Resource Impact Testing and refining the suggested measures to improve the dewatering program or any other measures suggested by the Committee will require significant staff time that is currently allocated to other projects. For the homeowner, these measures may increase basement construction project costs. As mentioned in earlier parts to this report, the Group 1 recommendations have sent staff scurrying to develop final recommendations for action. The Group 3 suggestions are varied and require thoughtful review and potentially large costs. In every case, consideration of our ability to fund and support or absorb the efforts will be required. City of Palo Alto Page 5 Environmental Review The suggested program enhancements are minor modifications to an existing regulatory program designed to be protective of the environment. They would be covered by the general rule that California Environmental Quality Act (CEQA) does not apply where there is no possibility an action could have a significant effect on the environment (State CEQA Guidelines Section 15601(b)(3)). Attachments:  -: Attachment A: 120115 6268 Basement Construction Dewatering (PDF)  -: Attachment B: Correspondence (PDF) City of Palo Alto (ID # 6268) Policy and Services Committee Staff Report Report Type: Agenda Items Meeting Date: 12/1/2015 City of Palo Alto Page 1 Summary Title: Basement Construction Dewatering Title: Consider Tentative Staff Recommendations On Further Requirements for Basement Construction Dewatering Program for 2016 From: City Manager Lead Department: Public Works Recommendation Staff recommends that the Policy & Services Committee direct staff to continue considering five program enhancements, presented in the “Discussion” section below, on basement construction dewatering; and implement those found to be feasible and practical by Spring 2016 to address public concerns raised during the summer of 2015. Executive Summary Over the years, basement construction groundwater pumping has generated public concern in Palo Alto; the ongoing drought and mandated water restrictions this past summer escalating those concerns. Public concerns relate to the apparent wasting of water by discharging to storm drains, potential impacts on groundwater elevation and flow volume, as well as potential impacts on neighboring properties, such as subsidence and cracks, and impacts on trees and other landscaping. In response to these concerns, staff has developed potential enhancements to the City’s existing regulations regarding construction dewatering for review and discussion. Background Basement construction is often required for non-residential, mixed use and multifamily residential buildings, particularly if underground parking is included in City of Palo Alto Page 2 the proposal.1 Additionally, the high value of land and housing in Palo Alto translates into residential property owners seeking to increase their single family homes by constructing basements. Basements constructed in R-1 districts do not count towards allowable square footage (regulated by floor area ratio) and can be quite large when located underneath the entire building footprint (PAMC Section 18.12.090). In 2015, 13 residential sites were conducting basement construction groundwater pumping, with 12 of these sites constructing a basement as well as a second story. Basement construction groundwater pumping occurs when a basement is constructed in areas of shallow groundwater, typically in the neighborhoods closer to the bay or near former creek beds. Perimeter wells are established to draw down the groundwater allowing for construction of the basement. Dewatering continues until enough of the house has been constructed to keep the basement in place. The groundwater being pumped is not potable (i.e. drinkable). The Santa Clara Valley Water District regulates the groundwater basin in Santa Clara County, but does not regulate incidental pumping associated with basement dewatering. Summary of Current Regulations The City of Palo Alto has long regulated several aspects of basement groundwater pumping for both residential and commercial sites. Geotechnical investigations are required for basement construction and dewatering permits must be obtained when groundwater is likely to be encountered and dewatering needed. The permit is used, in part, to prevent pumping from October to April ensuring adequate storm drain system capacity during winter months. City of Palo Alto staff verifies that construction dewatering meets requirements for pH and sediment prior to allowing discharge to the storm drain system, meeting State of California stormwater regulations. Unlike most Bay Area cities, Palo Alto does not allow drains around basement foundations, collecting water and pumping to the storm drain continuously; instead basements must be constructed to be waterproof. 1 In commercial and multi-family zones, basements used for parking are generally not counted towards allowable floor area, but basement space containing usable space is. This report focuses on basements in R-1 neighborhoods which have been the subject of most of the community concern. City of Palo Alto Page 3 In 2008, the Planning and Transportation Commission held hearings on the dewatering issue and a literature review prepared by EIP Associates was presented (Attachment A). In Summer 2014, the City’s Public Works Department (PWD) piloted a truck fill station at a dewatering site to address public concern regarding the apparent wasting of pumped water to storm drains during the drought. Following the success of this first truck fill station, all basement groundwater pumping sites, except those located in known groundwater contamination areas, were required to install truck fill stations based on PWD specifications (Attachment B). The stations accommodate large diameter and garden hoses as well as bucket filling. Outreach includes dewatering sites published and mapped on the City website (http://www.cityofpaloalto.org/gov/depts/pwd/pollution/recycled_n_other_non _potable_water.asp), informational door hangers provided to contractors for distribution to neighbors of the construction dewatering site (Attachment C), and a Frequently Asked Questions document (Attachment D). Usage tracked with log sheets showed some sites used extensively by neighboring properties, while others saw little use. The City’s water truck utilized dewatering sites for tree and median irrigation. During the summer 2015 staff met with contractors to discuss additional ideas to address public concerns. Contractors advised staff of the uniqueness of Palo Alto in imposing standards on dewatering and requiring use of the pumped groundwater, believing the requirements increase pumping duration and project cost. One contractor stressed users could be injured at the fill stations, leading to potential liability. Other than increasing public outreach, no new solutions to decrease pumping or increase utilization of groundwater were identified. Discussion In Summer 2015, sites beginning the permit process were required to develop a Use Plan to maximize the use of the pumped groundwater. Additional requirements suggested by members of the public include a moratorium on basements until further study is performed, more detailed review of basement construction projects, minimizing pumping by using other methods for dewatering or increasing weight on basement slab, requiring use of all the water being pumped, payment for water pumped and directing water to the sanitary City of Palo Alto Page 4 sewer. See Attachment E for correspondence from the public and Attachment F for a petition submitted regarding the basement construction moratorium. Using adaptive management based on learnings from this past summer, staff is proposing to investigate the following program enhancements for basement dewatering in 2016: 1. Encouraging greater fill station use by distributing more door-hangers and enlisting other public outreach regarding dewatering, fill stations and trees. This will be a contractor requirement and City activity. 2. Strengthening outreach on the water cycle and value of fresh water flows to storm drains, creeks and bay. 3. Refining requirements for contractor Use Plans, including maximizing on- site water use, one day per week water truck hauling service for neighbor and City landscaping and piping to nearby parks or major users where feasible. Contractors will be responsible for implementation of Use Plans. 4. Expanding fill station specifications to address water pressure issues resulting from multiple concurrent users, including separate pumps for neighbors where needed and sidewalk bridges for hoses to reduce tripping hazards. Contractors will be responsible for implementation. 5. Broadening the City’s Basement Pumping Guidelines to specifically require a determination of impacts of groundwater pumping on adjacent buildings, infrastructure and trees or landscaping. Applicants would determine the approximate location of the temporary groundwater cone of depression caused by pumping. Avoidance measures would be required if impacts are anticipated. Urban Forestry staff may develop guidelines for avoidance measures such as soil enhancement and supplemental watering (by project applicant) of neighboring landscaping. Additional measures could include adjusting the location, depth or duration of pumping or altering construction methods. In addition, staff will request assistance from the Santa Clara Valley Water District to continue to evaluate any potential effects of basement pumping on deep City of Palo Alto Page 5 groundwater levels, particularly related to the City of Palo Alto emergency wells. This issue is partially addressed in a previously provided 2003 report to the City by Carollo Engineers (Attachment G). If additional actions by the City are needed, they will be forwarded to the Policy and Services Committee prior to the 2016 construction season, along with the finalization of the above five recommendations. Resource Impact Testing and refining the suggested measures to improve the dewatering program or any other measures suggested by the Committee will require staff time that is currently allocated elsewhere. These measures may increase basement construction project costs. Staff is seeking approval of Staff exploration of the named activities. One of the elements to be explored is the amount of staff time needed for implementation, and whether the additional time can be absorbed into existing staffing levels. While Staff time is not expected to be large, Staff will be reporting back to the Committee on this issue. Environmental Review The suggested program enhancements are minor modifications to an existing regulatory program designed to be protective of the environment. They would be covered by the general rule that California Environmental Quality Act (CEQA) does not apply where there is no possibility an action could have a significant effect on the environment (State CEQA Guidelines Section 15601(b)(3). Attachments:  Attachment A: 2008 Planning and Transportation Division Study Session Regarding Basement Construction Impacts (PDF)  Attachment B: New Aquifer Filling Station Specifications (PDF)  Attachment C: Doorhanger (PDF)  Attachment D: Groundwater Pumping from Building Sites FAQ (PDF)  Attachment E: Correspondence (PDF)  Attachment F: Basement Moratorium Petition (PDF)  Attachment G: Groundwater_Supply Report (PDF) to address zoning criteria for light wells and below grade patios, but the pertinent code section is provided and some of the issues may affect those provisions. DISCUSSION The discussion below summarizes recent basement construction statistics, the issues addressed in the Public Works memo, the existing Public Works dewatering policy, potential impacts on neighboring properties, and the use of concrete in basement construction and its implications for the City's Green Building program. A few options for addressing public concerns are provided at the end of the section. Recent Basement Construction The City's Building Division reports that there were permits for 65 new single family residential basements issued over the past 2 years (through June 30, 2008). In that timeframe, there were a total of 181 new single family home permits, excluding the detached condos for Sterling Park (96 units). Ten (10) of the basements (of the total 65) were constructed for major renovations/rebuilds. Basement construction has increased as compared to prior years, with an average of about 22 bas.ement permits issued from 2001-2004. The Public Works Department estimates that, of the total number of permits for basements in recent years, approximately 5 per year require dewatering permits. In calendar year 2008 thus far, the Department has issued 3 dewatering permits, and does not anticipate issuing any others, given the proximity to the wet weather season. Attachment G provides a map of the depth of groundwater in Palo Alto, as mapped by the Santa Clara Valley Water District. June 9 Public Works Informational Memo The June 9, 2008 Informational Memo from Public Works (Attachment A) addresses many issues raised by the Council, Commission, and the public, including discharge volume of dewatering, pump noise, water table impacts, subsidence, tree impacts, contaminated groundwater migration, discharge of groundwater after basement construction, basement excavation, and storm drain capacity. In some areas of technical impact, such as water table and subsidence impacts, the memo refers to a study prepared by EIP Associates, Inc. in 2004 (Attachment D), which staff feels adequately addresses those specific concerns. Other concerns regarding pump noise, contaminated groundwater contamination, and discharge of groundwater after basement construction, are addressed in the Council memo but not discussed further here. The discussions below focus on the key issues of discharge volumes and dewatering policy, the impacts of basement excavation on neighboring sites, and the green building implications of basement construction. Discharge Volumes The Public Works Department's "Basement Excavation Dewatering and Basement Drainage Rules" (Attachment B) require a dewatering plan and permit for each site where dewatering during basement construction is proposed. Groundwater levels must be identified in a geotechnical report prior to permit review. Drawdown wells are typically installed around the perimeter of the excavation and pump water out of the shallow aquifer to draw down the level of the groundwater so the basement can be constructed without water filling the excavation. Public Works estimates that draw down well systems for dewatering during basement construction can pump approximately 30-50 gallons per minute of water non-stop for 3-6 months or more while City of Palo Alto Page2 the basement is constructed. The rules now have been revised to limit dewatering to the months of April through October. The total volume of water pumped into the storm drain system from a dewatering operation is substantial, typically a few million gallons. However, the groundwater level is re-established rapidly after dewatering ceases and the discharged water ultimately remains within the water regime and may replenish aquifers downstream or may flow to a creek or the Bay. Nevertheless, some water is surely lost in the process and the storm drain system is burdened by the additional flow. The Public Works Department's Basement Exterior Drainage Policy (Attachment C), last revised October 1, 2006, prohibits the use of perforated pipe systems for basement drainage and requires that all new basements be designed so that ongoing discharge after construction is not required (with limited exceptions for basement-level exterior spaces). The key issue for Commission discussion is whether it is appropriate to further limit or prohibit basement construction where dewatering is required. Impacts on Neighboring Properties Another set of concerns about basement construction relates to potential impacts to neighboring properties, including subsidence, effects on trees, and site stability. • Site stability-Residents have reported concerns about the proximity ofbasement excavation to their property line, which might result in erosion or undermining of the property or nearby buildings. Various excavation shoring restrictions exist to protect neighboring sites, and shoring plans are required by the Building Division. The Zoning Code only allows basements below the main structure, so setbacks should be met, but light wells are permitted to encroach up to 3 feet from a side property line (for a distance of not more than 15 feet), and excavation for the basement wall may then extend to the property line. Attachment F outlines the zoning code provisions for basements in the R-1 zone district. • Trees -Tree impacts on the subject property or an adjacent site could occur from either excavation damage to roots or from dewatering to a point where the roots dry out. The Planning Arborist, however, reviews all projects to determine whether basements would adversely impact an adjacent tree's root system, and plans would need to be revised if impacts are identified. The Zoning Code requires that basement design would not adversely impact any mature trees. The Planning Arborist has also noted that water sources for most trees' roots are not as deep as the groundwater table. • Subsidence -Staff believes that subsidence impacts, if any, are negligible from dewatering, as the water table quickly returns to pre-dewatering levels and the duration of dewatering is not long enough for soils to compress. Staff is aware of no demonstrated subsidence impacts from basement construction dewatering, though some residents have maintained that such an impact has occurred. The EIP study and contact with USGS have also indicated negligible impact. The key issue for Commission discussion is whether some change in policy or codes, such as a minimum setback for excavation, would better protect neighboring properties without unduly infringing on the potential for property owners to construct basements. City of Palo Alto Page3 Green Building Regulations and Implications of Basement Construction Basement construction has been identified as a "green building" issue due to the extensive amount of energy required to produce the concrete used for basements. Concrete creates more than 5 percent of the world's C02 emissions, at a rate of about 400 pounds of C02 for each cubic yard of concrete (3 ,900 pounds). The cement component of concrete (7-15 % ) is the major source of greenhouse gas emissions, and about 0.9 pound of C02 is created per pound of cement produced, according to the Portland Cement Association. A second sustainability issue is the amount of water discharged during dewatering during basement construction (discussed above). The City's Green Building regulations (Attachment E) became effective on July 3, 2008. The regulations include requirements to comply with green point rating systems for both nonresidential (Table A) and residential (Table B) development. The definition of "square footage" includes basement square footage, and the green points required for residential development increase with each 70 additional square feet of house size. Thus, the ordinance does not directly limit basement construction, but does require compensation in the form of increased green point rating for a home with a basement. It should also be noted, however, that due to the insulating qualities of the surrounding earth, basements are often more energy efficient than above grade floor space. For the Commission's information, Attachment K is an article that outlines work currently underway by a Stanford professor to produce a "green" cement that would not only eliminate C02 emissions from cement production, but could also use C02 emitted from other sources, reducing those gases as well. A ways off, perhaps, but a potential solution to the adverse impacts of concrete use in basements. The key issue for the Commission is whether there is a basis for either limiting basement construction or requiring further increases in green points criteria for basement construction to minimize the carbon emissions impacts of basements. POTENTIAL OPTIONS Staff believes that the City's review policies generally protect neighboring properties from deleterious effects of basement dewatering and that dewatering does not have substantial effects on groundwater or result in the discharge of contaminated groundwater. However, water discharge from dewatering can be substantial and there may be opportunities for the City to enact policies or regulations to further minimize the loss of water from local sites as an enhanced sustainability effort. Similarly, the City's Green Building regulations already require compensation for basement construction in the form of additional green building measures to achieve the stipulated point totals, but there may be revisions that would provide further green building benefits where basements are constructed or to encourage retention of existing basements in commercial areas. Some of the options available to the City may include, but are not limited to: 1. Continuing to permit basements, with continued staff analysis of technical data and impacts. 2. Prohibiting basement excavation within 3 feet of a low density residential property line. City of Palo Alto Page4 3. Limiting basement construction based on the amount of water to be discharged or further limit the timeframe for basement dewatering. 4. Modifying green building requirements to double basement square footage to determine the number of GreenPoint Rated points required, and/ or allowing reductions for the use of basement construction materials that reduce the embedded energy of concrete. 5. Allowing existing basements for nonresidential properties to be excluded from floor area calculations if restricted to non-habitable uses, even ifthe basement meets Building Code requirements for habitable space. Subsequent to comments by the Commission, staff will return with specific recommendations for policy or code changes to address basement issues. The Commission would then forward these changes to Council for review and approval. ENVIRONMENTAL REVIEW No environmental review is required for a study session. The level of environmental review required, if any, for potential code or policy actions will be determined once those actions are identified. ATTACHMENTS A. June 9, 2008 "Basement Construction and Dewatering Impacts" Informational Memo to City Council from Public Works Department B. Public Works "Basement Excavation Dewatering and Basement Drainage Rules" C. Public Works "Basement Exterior Drainage Policy," dated October 1, 2006 D. "New Basement Construction and the Groundwater Regime in Palo Alto," Technical Memorandum prepared by EIP Associates, Inc., 2004 E. Green Building Tables for Residential and Nonresidential Development F. Section 18.12.090 of the Zoning Ordinance re: Basements in R-1 District G. Map of Depth to First Water, Santa Clara Valley Water District, October 15, 2003 H. May 8, 2008 E-mail from Steve Broadbent I. July 19, 2008 E-mail from David Stonestrom J. April 22, 2008 E-mail from Jody Davidson K. "Green Cement May Set C02 Fate in Concrete." San Francisco Chronicle. September 2, 2008. COURTESY COPIES Architectural Review Board Jody Davidson Steve Broadbent David Stonestrom John Northway Bob Morris, Public Works REVIEWED BY: Julie Caporgno, Chief Planning and Transportation Official DEPARTMENT/DIVISION HEAD APPROVAL: __ ~----·-~--~---· ___ _ City of Palo Alto Curtis Williams Interim Director Page5 To assist Council in understanding the differences between shallow and deep aquifers _(described ·more completely in EIP's·attached report), staff provides the following descriptions. Shallow aquifers are formed by rain seeping through the ground and pooling close to the ground surface. The top surface of the shallow aquifer is called the water table and is typically 10-30 feet below the ground surface in most areas of Palo Alto other than the hills. This is the aquifer that basement excavations may extend into, necessitating dewatering. Shallow aquifer water is nonpotable. as it does not meet drinking water standards. · Deep aquifers are separated from the shallow aquifers by impermeable sediment layers, like rock or clay, called aquicludes that prevent shallow aquifer water from reaching the deep aquifers. In Palo Alto, the deep aquifers are approximately 200 feet below the ground surface. Dewatering basement excavations has virtually no effect on the deep aquifers . . Certain layers of permeable sediment, like sand or gravel, may trap and hold pockets of groundwater temporarily between shallow and deep aquifers, but these are typically not affected by basement dewatering operations. . . Below is a brief summary of the above research organized by community key concerns. Discharge Volume . A soils report is required for all projects with basements or underground garages. This report determines the depth to the shallow aquifer below the ground surface. If a contractor believes the excavation will go into the groundwater, they will typically submit a drawdown well dewatering plan to Public Works. Drawdown wells are· typically installed around the perimeter of the excavation and pump water out of the shallow aquifer to draw down the level of the groundwater so the basement can be constructed without groundwater filling the excavation. These drawdown well systems pump approximately 30-50 gallons per minute into the storm drain system non~stop for 3-6 months while the contractor constructs the basement. The volume of water pumped into the storm ·drain system from a drawdown well dewatering operation is substantial, typically a few million gallons. It could be used as landscaping water, but it is too large a volume for individual use and too impractical to capture and reuse for other use. The water pumped out of the ground is discharged into the storm drains, which typically discharge into the creeks. San Francisquito Creek is a losing creek, meaning that water is lost by seeping through the creek bed and into the shallow aquifers. So, in this case, water pumped out of the shallow aquifers is added back to it. For water pumped into lined creeks, the water flows to the bay and is lost to the aquifer. The volume of groundwater pumped out of an excavation site is a small fraction of the . total volume of the aquifer and does not deplete or lower the aquifer, except, of. course, in the immediate vicinity of the excavation. The USGS reports that due to natural (rain) and manmade (irrigation, leaking sewer pipes, and the SCVWD's groundwater recharge program) methods, more water is recharged into the shallow aquifers than is pumped out of it by all pumping in the Santa Clara Valley. The EIP report also confirmed that the water table is only drawn down CMR:266:08 Page 2of5 locally (within tens of feet of the excavation) and· reestablishes itself quickly after dewatering ceases. Therefore,the cumulative effect ofdewatering on the shallow aquifers is negligible. Pump Noise Dewatering pumps can make excessive noise if installed improperly, and this is a concern for neighboring residents since the pumps run 24 hours a day. Public Works is tightening the requirements for pump operation to eliminate this problem. Water Table Impacts While the City currently prohibits basements in flood zones, there is no blanket prohibition against construction in areas with shallow aquifers. Basements are not typically constructed so deep that they actually go into the water table, but they do ·in some cases. In other cases, the water table might rise up, as at the end of a particularly wet winter, and surround a basement. However, in these cases, the water table level and the flow of the groundwater are not changed due to the presence of basements, as reported by EIP. Subsidence Land settlement, or·subsidence, caused by temporary (such as 6 months) construction dewatering is negligible, as reported by EIP and USGS. For subsidence to occur, dewatering needs to occur over a number of years. Tree Impacts Relative to Water Table Changes The Planning ·Division arborist reports that in most of the developed areas · of Palo Alto the preponderance of absorbing tree roots are not . found in lower soil horizon levels below seven feet Therefore, the majority of temporary dewatering projects are not expected to impact trees. If a tree's roots are however deep enough and have been determined, on the basis of a certified arborist report or other ·qualified assessment, to be dependent· on the water table, theri the mitigation would be for the , contractor to provide separate irrigation for the tree( s) during the dewatering period. Contaminated Groundwater Migration Citizens have expressed a concern that large volumes of groundwater being pumped out of the aquifers might cause nearby contaminated groundwater plumes to migrate towards the pumping site. When an application is submitted, staff checks dewatering sites against known contaminated groundwater plume maps. If a site is within a certain proximity to a known plume, staff requires the water to . be tested for contaminants prior to and during discharge. The contractor must retain an independent testing service, test for the contaminants Public Works specifies, and submit those results to Public Works. If the water is contaminated, as it was in one case near the Stanford Research Park superfund site, it must be treated before it can be released or discharged to the sanitary sewer under permit from Public Works. The CRWQCB is drafting requirements for contractors to test groundwater discharged to the storm drain system. Staff awaits the adopted version of these requirements, scheduled for this summer, and will implement them at that time. To date, there has been no evidence that contaminated groundwater has been discharged into the storm drain system or that contaminated groundwater plumes have migrated. CMR:266:08 Page 3of5 Discharge of Groundwater after Basement Construction A few years ago, Public Works allowed the use of perforated drain pipes to be installed behind basement walls and under basement slabs when the geotechnical engineer reported that groundwater would not ri.se to the level of. these pipes. The pipes are installed . to .capture rainwater that filters through the ground and collects behind basement walls in order to minimize the chance of the water leaking through the walls. The pipes drain, to a sump where a pump then .. pumps the water to the street gutter.· Unfortunately, after some wet. winters, groundwater did rise up to these pipes and was then pumped c~mtinuously into the street gutter for long periods of time, creating a number of public nuisance and safety concerns. Accordingly, Public Works adopted a policy two years ago that prohibits the use of perforated drain pipes· for basements in areas of the City with relatively high groundwater (east of Foothill Expressway) to eliminate •these potential nuisances. Public Works also re.commends that applicants for. new basement projects retain a waterproofing consultant to ensure tile basement does riot leak. . Older basements that were permitted with perforated drain pipes still may occasionally discharge groundwater into the street gutter. Public Works addresses these cases by working with the homeowners to eliminate the discharge, typically accomplished by having the homeowner raise the pump in the sump above the level of the groundwater. Basement Excavation Some residents have expressed a concern that the excavation pit for a basement comes too close to adjacent properties, potentially jeopardizing the stability of these properties. Although this strictly does not relate to dewatering, staff recognizes it as a legitimate concern. As previously mentioned, the Building Division requires geotechnical reports for all projects that involve basements or underground structures. · A standard feature of these ·reports is recommendations . artd requirements from the geotechnical engineer that specify measures . to stabilize ·the excavation during construction. The Building Division inspects all basement construction to ensure conformance with the geotechnical report and to .verify all recommended stabilization measures are implemented. In addition, Building Inspectors will require the contractor to install extra precautionary measures before work can continue. Storm Drain Capacity Staff is concerned that dewatering basement excavations. may take. up too much capacity in the City's storm drain pipes, minimizing the system's ability to accommodate storm water and potentially causing or exacerbating flooding. This is not a concern raised by citizens, nor has there been any incidents where dewatering has caused flooding, but staff is developing some guidelines for wintertime dewatering in an effort to avoid a problem. The draft guidelines currently disallow dewatering during the winter unless an exemption is granted by the Director of Public Works. CONCLUSION Staff has researched and analyzed each of the concerns about dewatering raised by citizens. Based on that research, staff believes that the cumulative effects of dewatering · basement excavations has minimal impacts on the City and that the practice should be allowed to continue. The attached EIP report essentially comes to the same conclusion. The number of residential basements permitted in the City has increased from approximately 20 a year at the start of the decade to approximately 30 a year currently. However, Public Works only issues about 5-10 CMR:266:08 Page 4 of 5 . E. JJl .. ~"fJ: !2~·· ••• ••. . ~ . . .· . . .· .,.....__ ATTACHMENT A A S S 0 .C l A T t:: S Draft Technical Memorandum: Correlation between New Basement Construction and the Groundwater Regime in Palo Alto, California lo ·Statement of the Plannjng and Transportation Commission's concerns.· At the 14 J anua1y 2004 Commission meeting, the planning staff presented a number of . . proposed changes to the existing regulation of basements in the R-1 zones. During the ensuing discussion, several Commission members expressed conc~rns about the impact of basement construction on groundwater levels and flow directions. Eight specific, interrelated issues were identified. II · 111 II II Is groundwater pumping causing or contributing to land subsidence? What are the effects of pumping for months to dewater a basement constmction site? Are basements bemg permitted in some inappropriate areas [where the water table is only a few feet below the ground surface], creating the need for continuous pumping? What groundwater effects occur if water is withdrawn from the water table and pumped into the sewers or creeks? · • . What groundwater diversion effects occur if basement walls are built along • • • creeks and/or perforate aquifers? · What are the effects on landowners adjacent to, and down gradient from, pumping sties? · What are the cumulative effects of basements on the groundwater regime? Can basement regulations be crafted to address the hydro-geology of specific building sites? · . The general concern underly.iiig these issues was expressed by Commissioner Annette Bailson: the Commission does not have the information needed to identify whether these are issues of concern, or to make informed decisions on the issues. The remainder of this technical memorandum seeks to respond to that underlying concern by provide some background information about the listed issues and about groundwater hydrology of the City relative to the constmction of basements. Page 1of7 I, 1.;'·,.':·, .. , '1 I I I . 'II''' ' 1' ·'· ,;>,, s· S 0 C l A T L S 2. Differences. between shallow (surface) and deep (confined) . groundwater aquifers. · Defining the Aquifers An aquiferis a body of geologic material, usually rock or some mixture of gravel, sand, silt and clay, that is sufficiently permeable to conduct groundwater. Some definitions include the stipulation that the body produce an economically significant flow of water before it may be considered an aquifer. For the purposes of this technical memorandum, the broader . . definition is applied to allow for easier discussion ofthe water-bearing formations underlying the City. Of the various types of aquifers, two are of particular interest in this discussion: the shallow or surface aquifer, and the deep or confined aquifer. The relative terms 'shallow' and 'deep' refer to the depth of the aquifer below the surface of the ground (usually expressed as 'number of feet bgs' in hydrology studies). A surface aquifer is so named because it is open to the surface of the ground. Rain falling on the ground surface seeps through the soil (infiltration) to some depth where it pools to form a more or less continuous body of water occupying the spaces between sediment particles or rock fragments (groundwater). The top of this body of groundwater is the water table. In the Santa Clara Plain, which forms the lowlands of Palo Alto, the water table occurs at depths of as little as ten feet below the ground surface. Being open to the surface of the ground, the surface aquifer is subject to the influertces of overlying land cover and land uses. Modern stream channels, such as the numerous reaches of San Francisquito Creek, intersect or overlie the surface aquifer, extracting water from it or adding water to it. Paving and construction create artificially impermeable surfaces that prevent local direct infiltration to the surface aquifer. Cherriical constituents in urban and agricultural runoff enter the surface aquifer through infiltration from channels or detention basins, lowering the quality of the groundwater. Leaking landfill cells, leaking underground stornge tanks, and liquid spills also contribute to the reduction of water quality in the surface aquifer. Although current stewardship has slowed water quality deterioration, the surface aquifer still cannot be used as a source of potable water. A confined aquifer is one tha.t is separated hydrologically from the overlying and underlying sediments and rock and from other aquifers. Usually the separating agent (called an aquiclude) is formed by a layer of impermeable sediment, such as clay, or by iffipermeable . rock, such as unfractured granite. The confined aquifer is not connected directly to the overlying ground surface and is separated from the surface aquifer by an aquiclude. It is, in effect, a separate hydrologic system, gaining water from_ some distant source (i.e., not local Page 2of7 '1.·,'···','',,., 11 1 I I I . :,j1•11 I ''· /\SSOC!AlES rainfall). and transmitting it to some other relatively distant discharge area. Bec.:ause the .. confined aquifer is below, and hydrologically separated from; the surface aquifer, it is, by definition, a deep aquifer, irrespective of the number of feet it is below the ground surface. Several aquifers tnay underlie each other. This is the case beneath the Santa Clara Plain where geologically recent stream-hid (alluvial) gravel, sand, silt, and clay form a sequence of · deposits nearly 1500 feet thick between the foothills of the Coast Ranges and San Francisco . . Bay. Channels of ancient rivers depositing this material have been cut off and filled by succeeding intersecting channels, which, in turn, have been buried by the deposits of more modern channels. In this way a complex series of sediment layers of unconsolidated (loose), partially consolidated (dense), and consolidated (very dense) material has been built up as the Santa Clara Plain~ The layers are discontinuous and of greater or lesser permeability, depending on their density and clay of silt content. A complicating factor in examining such a series of aquifers is that often they are not completely confined. The aquicludes separating the aquifers may not be totally impermeable (in which case· they are called aquitards). allowing water to seep from one aquifer to another. The aquifers may be connected within or outside the local area, arising from a common source or flowing to a common discharge area. The aquifers may be connected artificially through leaks in wells or along pilings passing through the aquifers. Beneath the portion of the Santa Clara Plain in Palo Alto, there is a confining clay layer that separates the surface aquifer from the deeper aquifers, but, on a regional level, this separation attenuates and, eventually, disappears farther south in San Jose .. Being separated from the surface aquifer in this part of the Santa Clara Plain, the confined aquifers beneath the City are not subject to the. direct influences previously described for land cover and land uses above the surface aquifer. To the extent that groundwater migrates from the southern part of the Santa Clara Plain groundwater basin to the northern part, the effects of similar land cover and land uses in areas toward San Jose may affect water quality in the deep aquifers beneath Palo Alto. Construction-period Dewatering Effects . In general, cons~ction-period dewatering effects are limited to the surface aquifer. This would not necessarily be the case for major high-rise construction where foundations and below-grade levels may extend 100 or more feet beneath the ground surface, increasing the . chances of encountering confined aquifers. It is, however, the case for the type of relatively shallow basement construction being considered in the Zoning Ordinance Update. . In the Santa Clara Plain portion of Palo Alto, the uppermost sequence of unconsolidated and partially consolidated alluvium is about 200 feet thick. This sequence contains the Page 3of7 ASSOCJJ,TES surface aquifer~ the base of which is the previously mentioned clay aquiclude identified by the Santa Clara Valley Water District (SCVWD) in its 2001 Groundwater Management Plan. The general direction of groundwater flow in this area is northeast toward the Bay, so the surface aquifer and_ the _deeper, confined aquifers tend to remain separated in Palo Alto until they reach the vicinity of the Bay margin. The removal of groundwater from an excavation during below-ground-level construction is necessary to provide safety for the construction workers, and .is a prerequisite for wate1proofing the building's foundation and subsurface floors. One method for accomplishing this is to dig a small pit below the base of the foundation excavation, slope the excavation so groundwater drains to the pit, and then pump the water out of the pit and into the storm drainage system .. Another method is to drill temporary wells around the building footprint and pump directly from the groundwater body to the storm drainage system until the local water table drops below the base of the excavation. In either case, groundwater flowing into the area of drawdowrt created by the dewatering process is deflected toward the base of the excavation, whence it is pumped to the storm drainage system. Groundwater beyond the influence of the dewatering process continues to flow normally. Dewatering pumping continues until the foundation and subsmface floors are completed and the excavation is filled. The amount of water deflected depends on the level of the water table, the permeability of the material adjacent to the excavation, and the length of time th~ excavation needs to be kept open and dry. An increase in any of these factors · increases the amount of water deflected. This amount is small when compared to the total volume of available groundwater directly beneath the Santa Clara Plain (see below). Because the deflection is temporary and very localized, and because groundwater levels at the sites recover rapidly once pumping has ceased, there appears to be no discernable long-tetm effect on the surface aquifer. In the areas adjacent to the site being dewatered, the water table would be lowered temporarily by the dewatering process. This effect could extend from several feet to several tens of feet beyond the excavation depending on ·the method used, the level of the water table at the time dewatering began, the permeability of the material adjacent to the excavation, and the length of time the excavation needed to be kept open and dry. The possibility exists that adjacent landscaping could be experience deterioration from reduced ·groundwater availability. Defleetion or Reduction of the rate of Groundwater Flow Although the amount of water pumped from an excavation may appear substantial as it Page 4of7 A ·s S () C l A l · E S. flows along a street to a storm drain inlet, it is small compared to the amount of groundwater directly beneath the Santa Clara Plain. The _SCVWD's current estimate is that there is more than 350,000 acre-feet of groundwater available in the Santa Clara Sub basin . . An excavation dewatering flow of 1 cubic foot per second would deflect 1.98 acre-feet of · water per day. Because groundwaterwoUld be pumped out of the excavation faster than · could flow in, the ~~teration in groundwater flow rate would be less than the rate of de\Vatering. Because t.he resultant groundwater flow ~eflectionis temporary; small, and very localized, there appears to be no discernable long.oterm effect on the ·surface aquifer. . . Because dewatering for basement construction occurs only in the uppermost portion of the surface aquifer, there would be no effect on the deep aquifer. . . .. In a typical 3-month excavation period tlie 1.98 acre:. . .feet per day dewatering flow would amount to 0.05% (one-twentieth of one percent) of the minimum known groundwater resource in the subbasin. No published information about the subbasin's water budget has been found; so any to attempt to predict how quickly the watet would be replaced through recharge would be speculative. It is known, however, that the importation of potable water and the SCVWD controlled recharge program have assisted groundwater levels in the sub basin to rise 200 feet during the last 40 years. Most of that rise has been in the surface aquifer. The implication is that the subbasin is being recharged at a rate substantially higher than the rate of withdrawal from all pumping, including dewatering for basement construction. Consequently,it appears that the amount of flow from one, or even several, dewatering operations would not have long-term effects on the surface aquifer. In the.areas adjacent to the site beingdewatered, the rate and flow directions of the groundwater would be altered temporarily by the dewatering process. Groundwater in the influenced area would move toward the base of the excavation at a rate lower than the rate .·of dewatering discharge. This effect could extend from several feet to several tens of feet . beyond the excavation depending on the method used, the level of the water table at the time dewatering began·,· the permeability of the material adjacent to· the excavation, and the length of time the excavation needed to be kept open and dry. Flow directions and rates would revert to near normal when dewatering ceased. There would be some displacement of groundwater flow around the newly constructed . basement, depending on the permeability of the surrounding soil materials. The volume of space displaced by the basement could be several thousand to severai tens of thousands of cubic feet, which, although small-compared to the volume of the surface ~quifer, could be significant locally, especially if there were other similarly sized basements in the immediate vicinio/. The flow of groundwater would readjust to this condition, possibly altering the level of the water table in the vicinity of the site for· several weeks or months, but is unlikely to experience any major permanent change. The groundwater level in the surface aquifer Page 5 of7 I, ~ .. 1 _I·! I I I I r .. I I:· I I I . 111111 ' 11 ' ~ ASSOCJATES undergoes more significant changes during the rainy season than would be expected from long-term flow deflection caused by basements. Saltwater Intrusion and Subsidence Saltwater intrusion and subsidence in the Santa Clara Subbasin are documented regional effects of the excessive removal of groundwater from the deep aquifer (overdrafting) o~er . many years. This practice was curtailed in the mid-1960s when the importation of potable ·water increased substantially. Smee then, the SCVWD has been recharging the subbasin thereby raising groundwater levels, impeding saltWater infiltration of the sutface aquifer, and virtually eliminating further overdraft-related subsidence (the effects of previops · subsidence cannot be reversed because portions of the deep aquifer have been compressed permartently). Such basin-wide effects could recur only if the deep aquifer became overdrafted again. Because dewatering for basement construction occurs only in the. uppermost portion of the surface aquifer and involves only a small amount of groundwater withdrawal, no effects would occur in the deep aquifer. 3. Palo Alto Public Works Department existing regulatory structure. There are a number of policies in place that provide protection for the City's groundwater resource and for property owners in the vicinity of new basement construction. • • • • • The PublicWorks Department prohibits the long-term pumping ofgroundwater after a basement has been constructed. This eliminates the possibility that the w~ter ·table in the vicinity of the project would be lowered permanently. The Public W or.ks Department requires basements to be waterproofed and strengthened structurally below the expected groundwater level. This eliminates the need for groundwater pumping. The Public Works Department requires permit applicants whose projects would have basements to prepare a geotechnical investigation and report that would determine, among other information, the expected highest groundwater level in the local shallow aquifer. This allows the department to make informed decisions about the advisability of basement construct:lon at a particular site and/ or to _set the conditions under which basement construction may proceed. If dewatering is necessary for basement construction, the Public Works Department sets the dewaterillg permit conditions based on the hydrology of the specific site under consideration. This ensures resource and property protection where it is needed. The Public Works Department allows the removal of seepage water that collects along basement walls above the water table. Normally this removal would need only a minimal amount of pumping, but may need-to be monitored. Page 6of7 A s ·s 0 c r A ·1 E s 4. Recommendation regarding the advisability of codifying groundwater effects in the Zoning O_rdinance Update · The above-listed Public Works Department policies dealing with basement construction and dewate:ring for such·constiuction are intended to prevent.substantial impacts to groundwater, either on an area-wide basis or in the vicinity of the construction site. Although the policies and their associated construction standards appear to address the . . . . issues adequately, it may be advisable for the Public Works Pepartmerit to increase the community's awareness of these issues through an out-reach program .. Because these issues are, essentially, engineering concerns that are site-specific and already covered by existing regulations, there is no need to modify the zoning ordinance with respect to them. Sincerely, George J. Burwasser, EIP Associates EIP ASSOCIATES 353 SACRAMENTO STREET SUITE 1000 SAN FRANCISCO, CALIFORNIA 94111 Telephone 415-362~ 1500 Facsimile 415-362-1954 E-mail .rf@eipas.wdaies.com JJJ/ll/V.eipassodales.com ATTACHMENT B BASEMENT EXCAVATION DEWATERING AND BASEMENT DRAINAGE RULES BASEMENT DRAINAGE: Due to high groundwater throughout much of the City and Public Works prohibiting the pumping and discharging of groundwater, perforated pipe drainage systems at the exterior of the basement walls or under the slab are not allowed for this site. A drainage system is, however, required for all exterior basement-level spaces, such as lightwells, patios or stairwells. This system consists of a sump, a sump pump, a backflow preventer, and a closed pipe from the pump to a dissipation device onsite at least 10 feet from the property line, such as a bubbler box in a landscaped area, so that water can percolate into the soil and/or sheet flow across the site. The device must not allow stagnant water that could become mosquito habitat. Additionally, the plans must show that exterior basement-level spaces are at least 7" below any adjacent windowsills or doorsills to minimize the potential for flooding the basement. Public Works recommends a waterproofing consultant be retained to design and inspect the vapor barrier and waterproofing systems for the basement. BASEMENT SHORING: Shoring for the basement excavation, including tiebacks, must not extend onto adjacent private property or into the City right-of-way without having first obtained written permission from the private property owners and/or an encroachment permit from Public Works. DEWATERING: Basement excavations may require dewatering during construction. Public Works only allows groundwater drawdown well dewatering. Open pit groundwater dewatering is disallowed. Dewatering is only allowed from April through October due to inadequate capacity in our storm drain system. The geotechnical report for this site must list the highest anticipated groundwater level. We recommend a piezometer to be installed in the soil boring. The contractor must determine the depth to groundwater immediately prior to excavation by using the piezometer or by drilling an exploratory hole if the deepest excavation Will be within 3 feet of the highest anticipated groundwater level. If groundwater is within 3 feet of the deepest excavation, a drawdown well dewatering system must be used, or alternatively, the contractor can excavate for the basement and hope not to hit groundwater, but if he does, he must immediately stop all work and install a drawdown well system before he continues to excavate. Public Works may require the water to be tested for contaminants prior to initial discharge and at intervals during dewatering. If testing is required, the contractor must retain an independent testing firm to test the discharge water for the contaminants Public Works specifies and submit the results to Public Works. Public Works reviews and approves dewatering plans as part of a Permit for Construction in the Public Street ("street work permit"). The applicant can include a dewatering plan in the building permit plan set in order to obtain approval of the plan during the building permit review, but the contractor will still be required to obtain a street work permit prior to dewatering. Public Works has a standard dewatering plan sheet that can be used for this purpose and dewatering guidelines are available on Public Works' website. Alternatively, the applicant must include the above dewatering requirements in a note on the site plan. Attachment C PUBLIC WORKS ENGINEERING BASEMENT EXTERIOR DRAINAGE POLICY EFFECTIVE OCTOBER 1, 2006 The Department of Public Works (Public Works) will not permit the use of basement exterior drainage systems consisting of perforated pipes located on the exterior of the basement walls or underneath the slab that collect water which is then pumped to the surface of the ground for discharge, either on-site or off-site, for all City of Palo Alto parcels northeast (the bay side) of Foothill Expressway. Purpose To ensure the public safety and health by preventing the discharge of groundwater into the City gutter system. The discharge of groundwater into the gutter system causes the following public safety, health and nuisance concerns: • gutters are constantly wet and may enhance the growth of algae, thereby creating a slippery condition for pedestrians, bicyclists and motorists • ponded water at the low spots of the gutter may be slippery to cross for pedestrians, bicyclists and motorists • ponded water in the gutter may become mosquito habitat • ponded water in the gutter may seep through cracks, undermining the subgrade and degrading the gutter and adjacent pavement • groundwater discharge into the City's storm drain system adversely affects others who need to discharge storm water run-off for which the system was designed Background In the past, Public Works allowed perforated pipe basement drainage systems to collect water behind basement walls and under basement slabs and discharge it at the ground. Architects proposed these systems in order to minimize the chances of water leakage through the basement walls and slabs. These systems were permitted with the intention of only collecting and discharging small amounts of rainwater that had seeped down through the soil. For proposed basement drainage systems, Public Works required geotechnical reports that estimated the highest expected groundwater level at the site and Public Works required that the perforated pipes be placed above this level. Recent experience indicates that oftentimes the groundwater level rose above the estimated level and entered the perforated pipes, resulting in the constant pumping of groundwater into the street gutter. Analysis Public Works has obtained a groundwater elevation contour map from the Santa Clara Valley Water District. These maps were established using data from numerous water monitoring wells the SCVWD maintains throughout the City. The contours are the depth below ground to the highest level the main groundwater aquifer has risen to since the monitoring wells were installed. The area of town where there is relatively high groundwater (above 20 feet below-grade) is roughly northeast of Foothill Expressway. The main aquifer depicted in the contour map is not the only source of groundwater. Due to soil properties, groundwater can get trapped between two relatively impermeable layers of soil. These lenses of perched groundwater can occur essentially anywhere and be of any size. Consequently, even though the SCVWD map may indicate a certain area of town has groundwater at 20 feet below-grade, for instance, there may currently be perched water closer to the surface or perched water may occur in the future closer to the surface. Summary Public Works feels that the public safety and health, potential nuisance, and maintenance concerns caused by the discharge of groundwater into street gutters outweigh the developers' desire for perforated pipe drainage systems. Although certain sites may seem appropriate for perforated pipe drainage systems because of current low groundwater levels, higher groundwater levels may occur in the future. Accordingly, Public Works will no longer permit perforated pipe basement drainage systems installed in order to discharge water at the ground surface northeast of Foothill Expressway. Drainage systems are required and will be permitted for basement-level exterior spaces, such as stairwells, lightwells and patios. These drainage systems consist of a sump, a sump pump, and a closed pipe from the pump to a dissipation device onsite, such as a bubbler box in a landscaped area, so that water can percolate into the soil and/or sheet flow across the site. The device must not allow stagnant water to occur that could become mosquito habitat. Additionally, the plans must show 8" of freeboard between the floor of any exterior basement-level space and any adjacent windowsills or doorsills. Glenn Roberts, Director of Public Works S:PWD/ENG/TYPING/Morris/Development/Basement Drainage/Basement Drainage Policy ASSOCIATES 2. Differences between shallow (surface) and deep (confined) groundwater aquifers. Defining the Aquifers An aquifer is a body of geologic material, usually rock or some mixture of gravel, sand, silt and clay, that is sufficiently permeable to conduct groundwater. Some definitions include the stipulation that the body produce an economically significant flow of water before it may be considered an aquifer. For the purposes of this technical memorandum, the broader definition is applied to allow for easier discussion of the water-bearing formations underlying the City. Of the various types of aquifers, two are of particular interest in this discussion: the shallow or surface aquifer, and the deep or confined aquifer. The relative terms 'shallow' and 'deep' refer to the depth of the aquifer below the surface of the ground (usually expressed as 'number of feet bgs' in hydrology studies). A surface aquifer is so named because it is open to the surface of the ground. Rain falling on the ground surface seeps through the soil (infiltration) to some depth where it pools to form a more or less continuous body of water occupying the spaces between sediment particles or rock fragments (groundwater). The top of this body of groundwater is the water table. In the Santa Clara Plain, which forms the lowlands of Palo Alto, the water table occurs at depths of as little as ten feet below the ground surface. Being open to the surface of the ground, the surface aquifer is subject to the influences of overlying land cover and land uses. Modern stream channels, such as the numerous reaches of San Francisquito Creek, intersect or overlie the surface aquifer, extracting water from it or adding water to it. Paving and construction create artificially impermeable surfaces that prevent local direct infiltration to the surface aquifer. Chemical constituents in urban and agricultural runoff enter the surface aquifer through infiltration from channels or detention basins, lowering the quality of the groundwater. Leaking landfill cells, leaking underground storage tanks, and liquid spills also contribute to the reduction of water quality in the surface aquifer. Although current stewardship has slowed water quality deterioration, the surface aquifer still cannot be used as a source of potable water. A confined aquifer is one that is separated hydrologically from the overlying and underlying sediments and rock and from other aquifers. Usually the separating agent (called an aquiclude) is formed by a layer of impermeable sediment, such as clay, or by impermeable rock, such as unfractured granite. The confined aquifer is not connected directly to the overlying ground surface and is separated from the surface aquifer by an aquiclude. It is, in effect, a separate hydrologic system, gaining water from some distant source (i.e., not local Page 2of7 ASSOCIATES rainfall) and transmitting it to some other relatively distant discharge area. Because the confined aquifer is below, and hydrologically separated from, the surface aquifer, it is, by definition, a deep aquifer, irrespective of the number of feet it is below the ground surface. Several aquifers may underlie each other. This is the case beneath the Santa Clara Plain where geologically recent stream-laid (alluvial) gravel, sand, silt, and clay form a sequence of deposits nearly 1500 feet thick between the foothills of the Coast Ranges and San Francisco Bay. Channels of ancient rivers depositing this material have been cut off and filled by succeeding intersecting channels, which, in turn, have been buried by the deposits of more modern channels. In this way a complex series of sediment layers of unconsolidated (loose), partially consolidated (dense), and consolidated (very dense) material has been built up as the Santa Clara Plain. The layers are discontinuous and of greater or lesser permeability, depending on their density and clay of silt content. A complicating factor in examining such a series of aquifers is that often they are not completely confined. The aquicludes separating the aquifers may not be totally impermeable (in which case they are called aquitards) allowing water to seep from one aquifer to another. The aquifers may be connected within or outside the local area, arising from a common source or flowing to a common discharge area. The aquifers may be connected artificially through leaks in wells or along pilings passing through the aquifers. Beneath the portion of the Santa Clara Plain in Palo Alto, there is a confining clay layer that separates the surface aquifer from the deeper aquifers, but, on a regional level, this separation attenuates and, eventually, disappears farther south in San Jose. Being separated from the surface aquifer in this part of the Santa Clara Plain, the confined aquifers beneath the City are not subject to the direct influences previously described for land cover and land uses above the surface aquifer. To the extent that groundwater migrates from the southern part of the Santa Clara Plain groundwater basin to the northern part, the effects of similar land cover and land uses in areas toward San Jose may affect water quality in the deep aquifers beneath Palo Alto. Construction-period Dewatering Effects In general, construction-period dewatering effects are limited to the surface aquifer. This would not necessarily be the case for major high-rise construction where foundations and below-grade levels may extend 100 or more feet beneath the ground surface, increasing the chances of encountering confined aquifers. It is, however, the case for the type of relatively shallow basement construction being considered in the Zoning Ordinance Update. In the Santa Clara Plain portion of Palo Alto, the uppermost sequence of unconsolidated and partially consolidated alluvium is about 200 feet thick. This sequence contains the Page 3of7 ASSOClATlr:S surface aquifer, the base of which is the previously mentioned clay aquiclude identified by the Santa Clara Valley Water District (SCVWD) in its 2001 Groundwater Management Plan. The general direction of groundwater flow in this area is northeast toward the Bay, so the surface aquifer and the deeper, confined aquifers tend to remain separated in Palo Alto until they reach the vicinity of the Bay margin. The removal of groundwater from an excavation during below-ground-level construction is necessary to provide safety for the construction workers, and is a prerequisite for waterproofing the building's foundation and subsurface floors. One method for accomplishing this is to dig a small pit below the base of the foundation excavation, slope the excavation so groundwater drains to the pit, and then pump the water out of the pit and into the storm drainage system. Another method is to drill temporary wells around the building footprint and pump directly from the groundwater body to the storm drainage system until the local water table drops below the base of the excavation. In either case, groundwater flowing into the area of drawdown created by the dewatering process is deflected toward the base of the excavation, whence it is pumped to the storm drainage system. Groundwater beyond the influence of the dewatering process continues to flow normally. Dewatering pumping continues until the foundation and subsurface floors are completed and the excavation is filled. The amount of water deflected depends on the level of the water table, the permeability of the material adjacent to the excavation, and the length of time the excavation needs to be kept open and dry. An increase in any of these factors increases the amount of water deflected. This amount is small when compared to the total volume of available groundwater directly beneath the Santa Clara Plain (see below). Because the deflection is temporary and very localized, and because groundwater levels at the sites recover rapidly once pumping has ceased, there appears to be no discernable long-term effect on the surface aquifer. In the areas adjacent to the site being dewatered, the water table would be lowered temporarily by the dewatering process. This effect could extend from several feet to several tens of feet beyond the excavation depending on the method used, the level of the water table at the time dewatering began, the permeability of the material adjacent to the excavation, and the length of time the excavation needed to be kept open and dry. The possibility exists that adjacent landscaping could be experience deterioration from reduced groundwater availability. Deflection or Reduction of the rate of Groundwater Flow Although the amount of water pumped from an excavation may appear substantial as it Page 4of7 ASSOCIATES flows along a street to a storm drain inlet, it is small compared to the amount of groundwater directly beneath the Santa Clara Plain. The SCVWD's current estimate is that there is more than 350,000 acre-feet of groundwater available in the Santa Clara Subbasin. An excavation dewatering flow of 1 cubic foot per second would deflect 1.98 acre-feet of water per day. Because groundwater would be pumped out of the excavation faster than could flow in, the alteration in groundwater flow rate would be less than the rate of dewatering. Because the resultant groundwater flow deflection is temporary, small, and very localized, there appears to be no discernable long-term effect on the surface aquifer. Because dewatering for basement construction occurs only in the uppermost portion of the surface aquifer, there would be no effect on the deep aquifer. In a typical 3-month excavation period the 1.98 acre-feet per day dewatering flow would amount to 0.05% (one-twentieth of one percent) of the minimum known groundwater resource in the subbasin. No published information about the subbasin's water budget has been found, so any to attempt to predict how quickly the water would be replaced through recharge would be speculative. It is known, however, that the importation of potable water and the SCVWD controlled recharge program have assisted groundwater levels in the subbasin to rise 200 feet during the last 40 years. Most of that rise has been in the surface aquifer. The implication is that the subbasin is being recharged at a rate substantially higher than the rate of withdrawal from all pumping, including dewatering for basement construction. Consequently, it appears that the amount of flow from one, or even several, dewatering operations would not have long-term effects on the surface aquifer. In the areas adjacent to the site being dewatered, the rate and flow directions of the groundwater would be altered temporarily by the dewatering process. Groundwater in the influenced area would move toward the base of the excavation at a rate lower than the rate of dewatering discharge. This effect could extend from several feet to several tens of feet beyond the excavation depending on the method used, the level of the water table at the time dewatering began, the permeability of the material adjacent to the excavation, and the length of time the excavation needed-to be kept open and dry. Flow directions and rates would revert to near normal when dewatering ceased. There would be some displacement of groundwater flow around the newly constructed basement, depending on the permeability of the surrounding soil materials. The volume of space displaced by the basement could be several thousand to several tens of thousands of cubic feet, which, although small compared to the volume of the surface aquifer, could be significant locally, especially if there were other similarly sized basements in the immediate vicinity. The flow of groundwater would readjust to this condition, possibly altering the level of the water table in the vicinity of the site for several weeks or months, but is unlikely to experience any major permanent change. The groundwater level in the surface aquifer Page 5of7 ASSOCIATES undergoes more significant changes during the rainy season than would be expected from long-term flow deflection caused by basements. Saltwater Intrusion and Subsidence Saltwater intrusion and subsidence in the Santa Clara Subbasin are documented regional effects of the excessive removal of groundwater from the deep aquifer ( overdrafting) over many years. This practice was curtailed in the mid-1960s when the importation of potable water increased substantially. Since then, the SCVWD has been recharging the subbasin thereby raising groundwater levels, impeding saltwater infiltration of the surface aquifer, and virtually eliminating further overdraft-related subsidence (the effects of previous subsidence cannot be reversed because portions of the deep aquifer have been compressed permanently). Such basin-wide effects could recur only if the deep aquifer became overdrafted again. Because dewatering for basement construction occurs only in the uppermost portion of the surface aquifer and involves only a small amount of groundwater withdrawal, no effects would occur in the deep aquifer. 3. Palo Alto Public Works Department existing regulatory structure. There are a number of policies in place that provide protection for the City's groundwater resource and for property owners in the vicinity of new basement construction. • • • • • The Public Works Department prohibits the long-term pumping of groundwater after a basement has been constructed. This eliminates the possibility that the water table in the vicinity of the project would be lowered permanently. The Public Works Department requires basements to be waterproofed and strengthened structurally below the expected groundwater level. This eliminates the need for groundwater pumping. The Public Works Department requires permit applicants whose projects would have basements to prepare a geotechnical investigation and report that would determine, among other information, the expected highest groundwater level in the local shallow aquifer. This allows the department to make informed decisions about the advisability of basement construction at a particular site and/ or to set the conditions under which basement construction may proceed. If dewatering is necessary for basement construction, the Public Works Department sets the dewatering permit conditions based on the hydrology of the specific site under consideration. This ensures resource and property protection where it is needed. The Public Works Department allows the removal of seepage water that collects along basement walls above the water table. Normally this removal would need only a minimal amount of pumping, but may need to be monitored. Page 6of7 attained the compliance threshold as indicated for the Covered Project type as set forth in the Standards for Compliance outlined in Section 18.44.040. (u) "Single-family or two-family residential" means a single detached dwelling unit or two units in a single building. (v) "Square footage," for the purposes of calculating commercial, multi-family residential, and single-family and two-family new construction square ·footage, means all new and replacement square footage, including basement areas (7 feet or greater in height) and garages, except that unconditioned garage space shall only count as 50% of that square footage. Areas demolished shall not be deducted from the total new construction square footage. (w) "Threshold Verification by LEED AP" means verification by a LEED accredited professional certifying that each LEED checklist point listed was verified to meet the requirements to achieve that· point. The LEED AP shall provide supporting information from qualified professionals (e.g. civil engineer, electrical eng~neer, Title 24 consultant, commissioning agent, etc.) to certify compliance with each point on the checklist. Documentation of construction consistent with building plans calculated to achieve energy compliance is sufficient verification in lieu of post- construction commissioning. 18.44.040 Standards for Compliance. The City Council shall establish by resolution, and shall periodically review and update as necessary, Green Building Standards for Compliance. The Standards for Compliance shall include, but are not limited to, the following: (a) The types of projects subject to regulation (Covered Projects); (b) The green building rating system to be applied to the various types of projects; ( c) Minimum thresholds of compliance for various types of projects; and ( d) Timing and methods of verification of compliance with these regulations. The Standards for Compliance shall be approved after recommendation from the Director of Planning and Community Environment, who shall refer the Standards for recommendation by the Architectural Review Board, prior to Council action. 18.44.050 (a) 080604 syn 6050410 Incentives for Compliance. In addition to the required standards for compliance, the City Council may, through ordinance or resolution, enact financial, permit review process, or zoning incentives and/or award or recognition programs to further encourage higher levels of green building compliance for a project. 6 ATTACHMENT F 18.12.090 Basements Basements shall be permitted in areas that are not designated as special flood hazard areas as defined in Chapter 16.52, and are subject to the following regulations: (a) Permitted Basement Area Basements may not extend beyond the building footprint and basements are not allowed below any portion of a structure that extends into required setbacks, except to the extent that the main residence is permitted to extend into the rear yard setback by other provisions of this code. (b) Inclusion as Gross Floor Area Basements shall not be included in the calculation of gross floor area, provided that: (1) basement area is not deemed to be habitable space, such as crawlspace; or Ch. 18.12-Page 15 (Supp. No 13 -10/1/2007) 18.12.100 Regulations for the Single Story Overlay (S) Combining District (D) the cumulative length ofany excavated area or portion thereof that extends into a required side or rear yard does not exceed 15 feet; (E) the owner provides satisfactory evidence to the planning director prior to issuance of a building permit that any features or portions of features that extend into a required side or rear yard will not be harmful to any mature trees on the subject property or on abutting properties; (F) such features have either a drainage system that meets the requirements of the public works department or are substantially sheltered from the rain by a roof overhang or canopy of a permanent nature; (G) any roof overhang or canopy installed pursua~t to subsection (F) is within and is counted toward the site coverage requirements established in Section 18.12.040; (H) such areas are architecturally compatible with the residence; and (I) such areas are screened to off-site views by means oflandscaping and/or fencing as determined appropriate by the planning director. (Ord. 4869 § 14 (Exh. A [part]), 2005) 18.12.090 Basements (2) basement area is deemed to be habitable space but the :finished level of the first floor is no more than three feet above the grade around the perimeter of the building foundation. Basement space used as a second dwe~g unit or portion thereof shall be counted as floor area for the purpose of calculating the maximum size of the unit (but may be excluded from calculations of floor area for the total site). This provision is intended to assure that second units are subordinate in size to the main dwelling and to preclude the development of duplex zoning on the site. ( c) Lightwells, Stairwells, Below Grade Patios and other Excavated Features (1) Lightwells, stairwells, and similar excavated features along the perimeter of the basement shall not affect the measurement of grade for the purposes of determining gross floor area, provided that the following criteria are met: (A) such features are not located in the front of the building; (B) such features shall not exceed 3 feet in width; (C) the cumulative length ofall such features does not exceed 30% of the perimeter of the basement; (D) such features do not extend more than 3 feet into a required side yard nor more than 4 feet into a required rear yard, but where a side yard is less than 6 feet in width, the features shall not encroach closer than 3 feet from the adjacent side property line; (E) the cumulative length of any features or portions of features that extend into a required side or rear yard does not exceed 15 feet in length; (F) the owner provides satisfactory evidence to the planning division prior to issuance of a building permit that any features or portions of features that extend into a required side or rear yard will not be harmful to any mature trees on the subject property or on abutting properties; and (G) such features have either a drainage system that meets the requirements of the public works department or are substantially sheltered from the rain by a roof overhang or canopy of a permanent nature. (2) Below-grade patios, sunken gardens, or similar excavated areas along the perimeter of the basement that exceed the dimensions set forth in subsection (1), are permitted and shall not affect the measurement of grade for the purposes of determining gross floor area, provided that: (A) such areas are not located in the front of the building; (B) all such areas combined do not exceed 2% of the area of the lot or 200 square feet, whichever is greater; that each such area does not exceed 200 square feet; and that each such area is separated from another by a distance of at least 10 feet. Area devoted to required stairway access shall not be included in the 200 square foot limitation. ( C) such features do not extend more than 2 feet into a required side yard nor more than 4 feet into a required rear yard; (Supp. No 13 -10/1/2007) Ch. 18.12-Page 16 ATTACHMENT H May 8, 2008 Steve Broadbent 575 Washington Ave Palo Alto, CA 94301-4046 steve.broadbent@hp.com (650) 521-3958 Honorable Mayor Larry Klein and Council Members City of Palo Alto 250 Hamilton Ave Palo Alto, CA 94301 Via email Re: Green Building Ordinance -Request to Prohibit Basement Construction Honorable Mayor Klein and Council Members: I urge City Council to strengthen City ordinances to prohibit the construction of residential basements, especially basements which require dewatering during construction. The mechanical removal of millions of gallons of groundwater from a construction site has detrimental environmental impacts, and it is disingenuous for a construction project to be considered "green" when it builds a basement in an aquifer. One so called "green" project in Old Palo Alto pulled an estimated 100,000 gallons of water per day from our underground aquifer for a period of 6 months. The Green Building Ordinance under consideration by the City Council does not adequately address this abhorrent practice, and you should amend the ordinance to prohibit basement construction. The Planning & Transportation Division Staff Report for the April 9, 2008, study session on the proposed Green Building Criteria for Private Development recognized basement construction as an issue needing further scrutiny, but staff has failed to pursue satisfactory resolution: "The Commission and the public asked several questions about basements, including a) groundwater discharged, b) the effects of dewatering on groundwater and potential toxic plumes, c) the amount of concrete used, and d) impact on trees. "The Public Works Department has, in the past few years, revised its basement policy to prohibit dewatering basements after construction. Dewatering from basements during construction is still allowed ... Green Building Ordinance -Request to Prohibit Basement Construction Page 1of5 "During the Zoning Ordinance Update, staff commissioned EIP Associates to study the impacts of extensive basement construction on groundwater ... "Staff believes that the use of basements deserves continued scrutiny ... Planning has included provision in the green building criteria that larger homes (including basement floor area) must achieve a greater number of green point credits than smaller homes to help compensate for these resource impacts. Other approaches would require extensive discussion as to when or whether to continue to allow basements ... In recent ordinance discussions, this issue was broached but not pursued." I agree with staff that the use of basements deserves continued scrutiny, but I am disappointed that staff believes green point credits can mitigate the serious impacts basement construction has on our city. Public Works has attempted to dismiss concerns raised by many residents by declaring the impacts as "negligible" or by disavowing specific knowledge. A response that "staff is not aware" should not be considered closure on the issues raised. I take exception to a number of the conclusions put forth by Public Works, and I ask that Council direct staff to reconsider their findings, including but not limited to: • • • • • Impact to neighboring properties Land subsidence Impact on trees and landscaping Waste of water Other detrimental impacts Impact to Neighboring Properties Staff asserts "the study concluded that the impacts of basement construction were negligible on the groundwater system and on the groundwater on neighboring sites." However, the EIP study clearly stated that "In the areas adjacent to the site being dewatered, the rate and flow directions of the groundwater would be altered temporarily by the dewatering process. Groundwater in the influenced area would move toward the base of the excavation ... This effect could extend from several feet to several tens of feet beyond the excavation." My concern is not with the long term impact on the broader Santa Clara Valley groundwater system. My issue is with the site-specific impacts on neighboring properties and the local community. You should not allow macro responses to obscure the micro view of real damage that residential basements cause. There may be no discernable long-term effect on the broader surface aquifer beneath the Santa Clara Plain (macro view), but the prolonged extraction of groundwater from 2164 Green Building Ordinance -Request to Prohibit Basement Construction Webster Street most certainly sucked the groundwater from underneath neighboring properties, including mine (micro view). Although small compared to the volume of the surface aquifer (macro view), the volume of space displaced by a basement could be several tens of thousands of cubic feet which would displace groundwater flow around a newly constructed basement. This could be significant locally (micro view), especially if there were other similarly sized basements in the immediate vicinity (refer to EIP study, page 5). Several residents have horror stories of how the utility basements in their established homes began flooding after the construction of neighboring basements. The Foundation Engineering Handbook, by Hsai-Yang Fang (1991), confirms that" ... the process of dewatering can have side-effects that are harmful to the project under construction, the other facilities nearby, or to the environment ... Improper dewatering ... can cause damage to the structures being built or to adjacent structures." Land Subsidence It is well established that subsidence can occur with groundwater extraction, and the effects of subsidence cannot be reversed where portions of the aquifer have been compressed. "Saltwater intrusion and subsidence in the Santa Clara Subbasin are documented regional effects of the excessive removal of groundwater from the deep aquifer over many years ... the SCVWD has been recharging the subbasin [with potable water] thereby raising groundwater level ... and virtually eliminating further overdraft-related subsidence. Such basin-wide effects could recur only if the deep aquifer became overdrafted again. Because dewatering for basement construction occurs only in the uppermost portion of the surface aquifer and involves only a small amount of groundwater withdraw! [relative to the broader Santa Clara Subbasin], no effects would occur in the deep aquifer." (macro view, refer to EIP study, page 6) Take that "macro view" and bring it up to the surface aquifer underlying my home. My "micro view" is that the drawdown of the groundwater under adjacent properties can and does cause localized subsidence depending on the soil properties in the area. After 7 5 years, my home shouldn't be "settling" any more, but cracks in the plaster and cracks in the pavement developed during the extended dewatering at 2164 Webster. Fang confirms that "ground settlement can occasionally be a problem. Lowering the water table increases the effective stress in the soil. The stress increase is usually modest, and most soils are not affected significantly. But if there are compressible soils in the vicinity ... settlement may occur. Whether the settlement causes significant damage depends on the thickness and consolidation characteristics of the compressible deposit, the depth of drawdown and the duration of pumping, the foundations of the structures within the zone affected, and the type of their construction." Green Building Ordinance -Request to Prohibit Basement Construction Page 3of5 Impact on Trees and Landscaping Not only do I disagree with the Planning Arborist's assertion that "the localized drawdown of the water table during dewatering does not impact trees as their roots do not typically extend to that depth," the EIP study contradicts that assertion: "The possibility exists th'lt adjacent landscaping could experience deterioration from reduced groundwater availability." (refer to EIP study, page 4) Fang also confirms that, "trees ·or other plantings in urban parks may be affected [by dewatering]." Regardless of ~hether tree roots extend into the aquifer or not, the strong pull of drawdown wells during a dewatering operation accelerates the percolation of surface waters and induces drought-like conditions as the soil dries out. Landscape irrigation cannot and should not be considered sufficient mitigation of the drought-like stress inflicted on trees during prolonged dewatering. Waste of Water The City has been studying the use of recycled water for landscape irrigation and other non-potable uses, and a multimillion dollar recycled water project is being considered. The City clearly recognizes the need for water conservation, yet it permits the intentional discharge of millions of gallons of water into our storm drains. That simply doesn't make sense. Public Works has stated that the water pumped from the shallow aquifers typically goes into the storm drain system and then into the creeks, some of which are "losing" creeks, meaning they lose their water back to the shallow aquifers. Public Works asserts that the water is pumped out of the aquifer and then added back to it. But Public Works fails to acknowledge that there are no "losing" creeks in my neighborhood, only engineered channels. • Adobe is all concrete bottom and sides from Hwy 101 to Alma. • Matadero is all concrete bottom and sides from Hwy 101 to Alma, except from Greerto hwy 101 • Barron is all concrete bottom and sides from Hwy 101 to Alma except for about 800 feet just upstream of hwy 101. Concrete channels are not "losing" creeks, and since the natural aquifer flow is from the foothills to the bay, any recharge in the short sections near Hwy 101 does not repleni'Sh the impacted neighborhood. Green Building Ordinance -Request to Prohibit Basement Construction Page4 of5 Other Detrimental Impacts In addition to the unnecessary waste of water, the large volume of water pumped into our storm drains could rupture our aging storm drains, damage streets and underground utilities, and cause a sinkhole to develop. Fang also notes that groundwater in the vicinity of a dewatering operation may be affected "by temporary reduction in the yield of supply wells, by salt water intrusion, or by the expansion of contaminant plumes." Call for Action Mayor Klein and Council Members, I call upon you to take action to restrict residential . basement construction and stop the destructive practice of de watering. Palo Alto wants to be a leader in the Green Building movement. Please amend the Green Building Ordinance to prohibit residential basement construction in Palo Alto. Sincerely, Steve Broadbent Green Building Ordinance -Request to Prohibit Basement Construction Page 5 of 5 Attachment I To: Palo Alto City Council & Planning & Transportation// Re: Dewatering and Basement Construction// Date: July 19, 2008 Honorable Council and Planning and Transportation Committee Members: I am writing to express my concerns about dewatering and basement construction in Palo Alto. I am a professional scientist who has specialized in groundwater hydrology since 1975. I have a BS in Geology from Dickinson College and MS and PhD degrees in Hydrology from Stanford University. I have lived in Palo Alto for 31 years. The following statements are my personal views as a resident. I recently received a call from another Palo Alto resident who purchased an older home near property that was being outfitted with a new house. Excavation for the new home's basement required pumping over 18-million gallons of groundwater 35 feet to land surface, where the water was discarded into the City's storm sewer. According to the caller, this dewatering was carried out with the approval of the City, without the need for a variance. The resident reported that dewatering volumes on the order of millions of gallons have been produced in multiple instances in Palo Alto, as mega basements have become popular. I do not advocate a complete ban on basement construction. Nevertheless, it is clear that large parts of the City are unsuitable for the sorts of basements being built. Projects that require large-scale dewatering should not be allowed. The reasons are simple: (1) Construction of finished (dry) space where any part of that space is below the water table is not advisable and should rarely if ever be allowed. This is necessary not only to protect the newly constructed space, but also to conserve energy and water resources and to prevent overloading of the storm-sewer system. Building codes prohibit basements that would be "subject to flooding." The maximum elevation of the water table during normal rainy seasons, plus a reasonable safety margin, sets the limit for allowable subsurface construction. The need for large-scale dewatering indicates that the structure being built is subject to flooding by groundwater. It is not to anyone's advantage to build basements in unsuitable locations. The City must uphold existing law. (2) Extensive low-lying areas of Palo Alto have shallow water tables, rendering them unsuitable for basements. These areas were prone to flooding prior to "reclamation" projects that "channelized" the downstream reaches of creeks and diked off the Palo Alto Baylands. Sea-level rise from global warming is underway. Sea-level rise will increase water-table elevations in low-elevation areas of the City. Empirical projections based on ICPP scenarios call for 0.5 to 1.4 meters (1.6 to 4.6 feet) of sea-level rise by 2100 ( http://www.sciencemag .orgtcgitcontent1abstract131s1ss10/368). These projections are likely low ( http://www.sciencemag.org/cgi/co~tent/abstract/317/5841/1064). (3) The cone-of-depression from construction dewatering involving extraction wells with only a few feet of horizontal setback from adjoining properties will definitely extend beneath the adjoining properties, with potentially harmful effects from desiccation and differential settling. Palo Alto's soils are heavily textured "adobes" in which the dominant minerals of the fine fraction are montmorillonitic (smectitic) clays. Smectitic clays swell with wetting and shrink with drying. Although modem foundations are designed to avoid 1 of2 To: Palo Alto City Council & Planning & Transportation// Re: Dewatering and Basement Construction// Date: July 19, 2008 failure in soils that shrink and swell, older structures are vulnerable to harm. Dewatering removes water from adjacent properties. It seems prudent to avoid situations where one person's allow.ed dewatering can harm neighboring properties. ( 4) Wasteful consumption of City water resources is a serious issue. Eighteen million gallons of water is about 24-thousand CCF (hundred cubic feet). If applied to a medium- sized City park with 200,000 square feet of irrigated turf-roughly the size of the Mitchell Park soccer fields-the depth of the applied water would be about 12 feet. This represents one hundred weeks of irrigation-five years' worth at 20 irrigation weeks per year. Virtually all water removed during construction ends up in the Bay via lined storm- runoff conveyances. Virtually none of it recharges groundwater or soil moisture. Waste on this scale is unconscionable. ( 5) The possibility of groundwater contaminants being captured by construction wells poses risks at multiple locations throughout the City. As more commercial and industrial areas are rezoned to residential uses, the number of risks increases. Many contaminant plumes are mapped, but others are poorly characterized. Such risks additionally weigh against construction dewatering. In summary, basements must be restricted to areas that have adequately thick unsaturated zones-not all areas of Palo Alto are suitable. Large-scale dewatering should not be permitted. Preservation of property and avoidance of contaminant entrainment are compelling reasons to reassess current practices. The public costs of construction dewatering are unacceptably high. Groundwater is a City resource so precious that no one should be permitted to squander it on grand scales. Prudent restriction of dewatering and basement construction will protect all parties. My only interest in this matter was a promise to a fellow Palo Altan-concerned by groundwater impacts-to assess the situation and communicate my findings to you. With best regards, David A. Stonestrom 1000 S. California Ave. Palo Alto, CA 94306 2 of2 ATTACHMENT J Davldson%20Basement%20Excavatlon%20Photos.htm 9/15/08 5:55 PM From: Williams, Curtis Sent: Monday, September 15, 2008 5:55 PM To: Williams, Curtis Subject: FW: Basement Excavation Photos from: Jodyldavidson@aol.com [mailto:Jodyldavidson@aol.com] sent: Tuesday, April 22, 2008 6: 02 AM To: Williams, Curtis Cc: French, Amy Subject: Basement Excavation Photos Hi Curtis, These are some photos to help explain what I meant when I was trying to explain that the underground footprint of basements was too large. On the smaller size lots, the builders often excavate closer to the allowed set backs. Many often excavate right up to the lot line, and then the builders start putting in the concrete and rebar. I have seen this many times. People in adjacent homes have told me that they believe that the excavation has ruined the foundation of their homes. Since the side yard is all concrete, there is no where for the water to flow, except laterally. This causes flooding to neighboring homes. Additionally, there is simply not enough side yard to allow for planting, and the rear set backs are really too small to allow for tree planting when the tree grows. Basically, the homes on these lots are all home and no yard. I hope that the city will consider reviewing their poli9ies on the allotted size of a new home on these smaller lots. Allowing this building practice has caused a lot of disharmony within our community. Many residents feared that their homes could actually fall into the adjacent excavation site, and in many cases they had to pay for fencing to protect their property. Many felt that the chain link fence was simply not enough protection when the builders excavate to the lot line. Please remember that some of the adjacent older homes on the smaller lots may not have this 6 foot side allowance. Regards, Jody Davidson file:// /S: {PLAN/ PLADIV /Cu rtis/Desktop%2 05.8.08 /Green /Basements/Davldson%20Basement%20Excavation%20Photos.htm Page 1of3 Green cement may set C02 fate in concrete SFGale.mrn Green cement may set C02 fate in concrete Carrie Sturrock, Chronicle Staff Writer Tuesday, September 2, 2008 (09-01) 19:18 PDT --Call him cement man. ~-__ -. _ r e Attachment K Back when Stanford Professor Brent Constantz was 27 he created a high-tech cement that revolutionized bone fracture repair in hospitals worldwide. People who might have died from the complications of breaking their hips lived. Fractured wrists became good as new. Now, 22 years later, he wants to repair the world. Constantz says he has invented a green cement that could eliminate the huge amounts of carbon dioxide spewed into the atmosphere by the manufacturers of the everyday cement used in concrete for buildings, roadways and bridges. His vision of eliminating a large source of the world's greenhouse C0{-2} has gained traction with both investors and environmentalists. Already, venture capitalist Vinod Khosla is backing Constantz's company, the Calera Corp., which has a pilot factory in Moss Landing (Monterey County) churning out cement in small batches. And Carl Pope, executive director of the Sierra Club, says it could be "a game changer" if Constantz can do it quickly, on a big scale and at a decent price. "It changes the nature of the fight against global warming," said Pope, who has talked with Constantz about his work. That might sound like hyperbole, but the reality is that for every ton of ordinary cement, known as Portland cement, a ton of air-polluting carbon dioxide is released during production. Worldwide, 2.5 billion tons of cement are manufactured each year, creating about 5 percent of the Earth's C0{- 2} emissions. When Constantz learned about the high C0{-2} levels, he thought he could do better. After all, the majority of his 60 patents have to do with medical cement. He claims his new approach not only generates zero C0{-2} , but has an added benefit of reducing the amount of C0{-2} power plants emit by sequestering it inside the cement. http://www.sfgate.com/cgi-bin/article.cgi ?f=/c/a/2008/09/02/MNGD 129361.DTL&type=~ri... 9/4/2008 '\ Green cement may set C02 fate in concrete Page 2 of 5 To make traditional cement, limestone is heated to more than 1,000 degrees Celsius, which turns it into lime -the principal ingredient in Portland cement -and C0{-2}, which is released into the air. Constantz uses a different approach, the details of which remains secret pending publication of his patent. At his pilot factory, a former magnesium hydroxide facility that made metal for World War II bombs, magnesium crunches underfoot as Constantz, wearing a pressed, blue button-down shirt with rumpled shorts and sandals, outlines' how the process works. He pointed to two enormous smokestacks billowing flue gases full of carbon dioxide next door at Dynegy, one of the West's biggest.and cleanest power plants. Constantz takes that exhaust gas and bubbles it through seawater pumped from across the highway. The chemical process creates the key ingredient for his green cement and allows him to sequester a half ton of carbon dioxide from the smokestacks in every ton of cement he makes. Constantz believes his cement would tackle global warming on two fronts. It would eliminate the need to heat limestone, which releases C0{-2}. And harmful emissions can be siphoned away from power plants and locked into the cement. The same process can also be used to make an alternative to aggregate -the sand and gravel -that makes up concrete and asphalt, which would sequester even more carbon dioxide from power plants. "The beauty here is we're taking this old industrial polluti~g infrastructure and turning it into something that will save the environment," Constantz said. On a per-person basis, the United States is the world's worst C0{-2} polluter from all sources. But according to the Netherlands Environmental Assessment Agency, China just surpassed the U.S. for total carbon dioxide emissions. China is expected to produce 47 percent of the world's 2.5 billion tons of cement this year, Constantz said. To power its new buildings and sustain its building boom, China constructs at least one coal-fired power plant a week. Each one belches out enough C0{-2} to cancel the benefits of every hybrid on U.S. roadways, said Constantz. A C0{-2} molecule can travel from Beijing to San Francisco in less than a day through atmospheric circulation, he said. So even with California mandating that C0{-2} emissions fall to 1990 levels by 2020, a crisis remains. http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/02/MNGD129361.DTL&type=pri... 9/4/2008 Green cement may set C02 fate in concrete Page 3 of 5 "Carbon dioxide is a global problem, not a regional problem," he said. As far as cost, Constantz estimates his cement would retail for $100 a ton versus roughly $no for Portland. The reason no one invented it before now, he said, is that pe~ple didn't truly understand the dangers of C0{-2} until less than a decade ago. Skeptics question product He has skeptics. Portland cement has a track record of more than 100 years, and any new material would have to get incorporated into building codes, noted Rick Bohan, director of construction and manufacturing technology for the Portland Cement Association in Skokie, Ill. And Tom Pyle, a Caltrans engineer who serves on the cement subgroup of Gov. Arnold Schwarzenegger's Climate Action Team, acknowledged that the technology is possible, but he still wants to examine Constantz's cement. "We hope they have a carbon-reducing viable construction material," he said. "They need to show up with a bag of this so we can test it." Constantz is confident he will prove himself. Initially, he proposes mixing his new invention with Portland cement to ease a conservative industry into a new product. Concrete bigwigs have invited him to speak about Calera cement at their annual World of Concrete in Las Vegas next February. Power plant partnerships Constantz envisions building cement factories next to power plants the world over. A team is scouting out U.S. locations. While Dynegy has supplied Constantz with some flue gas, it hasn't entered into a formal agreement. "As we're looking into the future, we're very interested in technology that would help capture C0{- 2} from the flue gase~ and turn it into a product that offers a benefit," said Dynegy spokesman David Byford. It could be good for business. California has mandated emissions reductions. And Congress is working on legislation that would allow high polluters to buy credits from those with low emissions. Power plants would have a huge incentive to sequester their C0{-2} in cement. But even if Constantz succeeds, the world would still need to do much more to fight C0{-2} emissions, said Chris Field, director of the department of global ecology at the Carnegie Institution http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/02/MNGD129361.DTL&type=pri... 9/4/2008 Green cement may set C02 fate in concrete Page 4 of 5 for Science at Stanford. "It's a big, long complicated game," he said. "As we develop each new segment of the solution we need to embrace it and deploy it and work hard to develop the next segment of the solution." Coral basis of idea Big ideas can form in haphazard ways. The one for bone cement began during a televised football game, when Constantz read an osteoporosis article in the New England Journal of Medicine. Three weeks later, as he studied a coral reef, it occurred to him he could maybe synthesize coral skeletons in human bones. His new cement mimics how coral reefs form, too. Coral uses the magnesium and calcium present in seawater to create carbonates much as he's using C0{-2} and seawater to make carbonate. This latest invention took 18 months to conceive and execute. He feels it's one of the most important things he's ever done. "Climate change is the largest challenge of our generation," he said. Who is brent constantz? Profession: An associate consulting professor in Stanford's department of geological and environmental sciences and founder of the Calera Corp. Created and sold three other companies - Norian Corp., Corazon Technologies Inc. and Skeletal Kinetics. Education: UC Santa Barbara, bachelor's of science (1981); UC Santa Cruz, doctorate (1986) Family: Married and father of four. Pastime: Surfing and rock climbing. Concrete facts about cement 2.5 billion tons of hydraulic cement is produced worldwide annually. Add sand and gravel and that makes more than 9,000 million cubic yards of concrete. That's more than enough concrete to pave an eight-lane highway from the Earth to the moon and back again -twice. If you stayed on the planet, that same eight-lane highway would circle the Earth almost 40 times. Source: Portland Cement Association E-mail Carrie Sturrock at csturrock@sfchronicle.com. http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/02/MNGD12936I.DTL http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/02/MNGD129361.DTL&type=pri... 9/4/2008 New Aquifer Filling Station Revised 5/26/2015 1 Attachment B Piping System •Arrange piping system to draw water from settling tank being careful to keep the inlet a minimum of 1-2 feet above the bottom of the tank to avoid settlement residue. 2 Locate the Filling Station •Filling station should be located at the property line outside of the construction fence. •Try to locate the station in a place where parked vehicles will not prevent equipment from using it, i.e. on a corner, near at the edge of a driveway, etc. •The filling station should be accessible 24/7. 3 Filling System •Piping runs from the settling tank to a pump capable of providing a minimum of 150-200 gpm. •Outlet of pump runs to lockable box where a standpipe is constructed. •Standpipe contains a valve and outlet fitted with a MALE 2 ½” NH threaded fitting (Fire Hydrant threads). •Inside the box is also located a switched GFI outlet to which the pump is plugged into. When the switch is thrown, the pump turns on. This switched outlet is connected to the construction site’s temporary power. The GFI power outlet may be placed somewhere outside the box, however, the switch should be inside. An “in-use” cover must cover the switch/outlet. •A hose with a male connection shall be stored in the box to allow the water to be used for dust control onsite and for filling tanks without pre-attached hoses or fittings. •A standard hose bibb shall be installed next to the box to allow for gravity-fed filling of smaller “neighbor containers”. 4 Plumbing Signage •The piping outside of the property lines needs to comply with California Plumbing Code Section 603.5.11: •Each outlet on the non-potable waterline shall have posted: “CAUTION: NONPOTABLE WATER, DO NOT DRINK.” This would apply to the hose bibb utilized by neighbors for non-potable purposes. The CPC also requires that exposed portions of the piping be properly identified to the satisfaction of the AHJ. CPC Section 601.2 provides identification for non-potable systems within a building. Although the proposed work is not within a building, the method would adequately identify the piping system. •Section 601.2 Non-Potable Water System Identification •The system shall have a yellow background and black uppercase letters, with the words “CAUTION: NONPOTABLE WATER, DO NOT DRINK.” The required piping identification shall be every 20 feet. The sizing of this lettering should be per CPC Table 601.2.2. •This ‘signage’ comes in the form of stickers and can be easily found online. 5 Fill Point and Discharge Signage •The contractor shall provide a sign according to Public Works specifications and attach it to the outside of the fill station box. •The contractor shall also provide signs to be mounted on a standard “A-frame” barricade to be placed at the dewatering discharge point (usually a catch basin). •Upon completion of dewatering activities, the signs shall be returned to the Public Works Inspector for recycling. 6 Water Station Sign Specifications •These specifications are provided as guidance to produce/order consistent signs: •This sign is aluminum, 20.5” tall by 14” wide. The margin is 0.25” and the border is also 0.25” wide. •“Water Filling Station” is 1.5” tall, Highway Series E font. •“Suitable For Irrigation Purposes” is 0.75” tall, Highway Series B font. •“Do Not Drink” is 1.2” tall, (font as it is part of the symbol). The red circle and slash has a circumference of 4.5”. •The city logo is 4.2” tall by 2.2” wide. •Mount this sign to the water station door. 7 Discharge Point Sign Specifications •These specifications are provided as guidance to produce/order consistent signs: •This sign is aluminum, 24” tall by 24” wide. The margin is 0.375” and the border is 0.625” thick. •“Non-Potable Water Discharge” is 2”tall, Highway Series C font. •“Do Not Drink” is 1.2” tall, (font as it is part of the symbol). The red circle and slash has a circumference of 4.5”. •“To Use This Water…” is 1” tall, Highway Series C font. •The city logo is 4.2” tall by 2.2” wide. •Mount this sign to each side of an A-frame barricade (2 signs total) and place it at the discharge point. 8 Log Sheets •Copies of the following log sheets with a pen shall be attached to the inside of the door of the filling station. •All users of the water filling station shall fill out the form for each use. 9 Log Sheet: Available from Public Works 10 Instructions •Attach a copy of operating instructions to the inside of the box. •Sample instructions: 11 Security •Box should be sturdy and locked with a combination lock. •Provide the lock combination to Public Works – Engineering Services. 12 Inspection •NO DISCHARGE IS ALLOWED WITHOUT A DEWATERING PERMIT. •Once there is groundwater in the settling tank, contact the Environmental Compliance division at (650) 329-2122 or (650) 329-2430 to have the water tested. •Public Works will contact you to inform you of the results. •Once the station is constructed and ready to operate, contact Public Works Inspection at (650) 496-6929 to schedule an inspection. •Once the Inspector has approved of the station installation, Public Works - Engineering Services can issue you the dewatering permit. 13 Important Notification •Contractor shall notify Public Works – Engineering Services ONE WEEK prior to ending dewatering operations. •This will allow City staff to adjust vehicle operations and routes accordingly. 14 Final Notes •The New Aquifer Filling Station is a quickly evolving program - changes, modifications, revisions, and additional conditions, policies, and equipment required may occur at any time. •This handout is a living document and will be revised as the program develops. 15 Questions? •Contact: Mike Nafziger, P.E. Senior Engineer Public Works – Engineering Services (650) 617-3103 mike.nafziger@cityofpaloalto.org Or, Public Works – Engineering Services (650) 329-2152 16 GROUNDWATER PUMPING HAPPENING IN YOUR NEIGHBORHOOD A BASEMENT CONSTRUCTION PROJECT in your neighborhood is pumping water to a stormdrain which leads to a creek. This groundwater cannot be used as drinking water, but it can be pumped to creeks or used for irrigation and dust control. Creeks would ultimately receive this same water if it was not pumped there first. This water is important to the creek and Bay ecosystems. The construction project in your neighborhood offers a residential filling station to access some of this pumped water for use on landscaping. Visit cityofpaloalto.org/recycledwater or call (650) 329-2151, Press option #8 for filling station locations and additional information. Attachment C Updated and posted 8/11/15 Groundwater Pumping From Building Sites Frequently Asked Questions During this time of severe drought, our community is working hard to conserve water. So when community members observe water pumping from construction sites, they want to know what is happening. Here are answers and information to help address the most frequently asked questions we have heard. Q. What is the water that I see running into the storm drain from construction sites? A: During the construction of a basement or underground garage there is sometimes a shallow upper groundwater aquifer that must be temporarily pumped down to allow construction to move forward. This groundwater is not the same water that would be used for drinking. Q: Does the City regulate the pumping and discharge of this water? A: The City permits the discharge of this water to either the storm drain or the sanitary sewer, depending on the water quality. The water is sampled and tested for cloudiness, salinity and acidity. Only very clear, high quality water can go to the storm drain. Temporarily pumping this water is standard practice in areas with groundwater closer to the surface to allow construction to proceed, and no practical alternative has been found. Using the water for irrigation and dust control is possible, and the owners and construction managers are strongly encouraged to find uses for the water. Q: Given the high quality of the water and the severity of the drought, why does the City allow it to be “wasted” by discharging it into the storm drain system? A: The shallow water aquifer being pumped contributes to the flow of our creeks and to the Bay. The groundwater is part of the water cycle for the Bay and enhances the habitat and improves the quality of the creeks and lower South San Attachment D Updated and posted 8/11/15 Francisco Bay. When the shallow aquifer is pumped from basement construction sites into storm drains, it travels a different path, but ends up in the same place: the lower South Bay. So, the water is not wasted, but rather is used to improve the Bay’s habitat and ecosystem, whichever pathway it takes. Q: Can’t this water be used for other purposes? A: The pumped water hasn’t been disinfected or sufficiently tested to drink or use inside the home. Palo Alto‘s emergency drinking water wells tap into a much lower and more protected aquifer. However, the pumped water could be used for irrigation, dust control or similar uses. Palo Alto now requires that contractors have the pumping system fitted with valves and connections so that City crews and others can fill water trucks, street sweepers and other containers. For truck fill stations, the water is tested for acidity and salinity. Private parties can also fill trucks and containers. Such “fill-stations” are now in place at the Palo Alto active basement construction pumping sites listed below:  1405 Harker  1820 Bret Harte  804 Fielding  713 Southampton  3832 Grove  2230 Louis View our map of FREE Water Filling Stations. The site owners and construction managers are encouraged to find more water users, but this will continue to be a small fraction of the total pumped water. Call 650-617-3103 for more information about accessing the fill stations. The volume of water being pumped is large compared to pump truck capacities, but is too small and too shallow to impact the very deep and very large Palo Alto emergency ground water aquifer. Updated and posted 8/11/15 Q. What happens after construction? A: In recent years, Palo Alto has required that structures be built as water tight so that groundwater flows around a building, rather than into it. But a number of older buildings leak, and water is pumped out of the building basement/garage into the storm drain or sanitary sewer. Palo Alto City Hall and 525 University are two of the largest “dischargers”. We have looked at utilizing the water from City Hall, but it has not proven to be cost effective. With new water restrictions in place, this issue is being reexamined once again. However, the City Hall water does go through the storm drain to San Francisquito Creek where it supports habitat, including for fish, especially in the summer when there is no rainfall. Q. What can I do if I see water being wasted? A: The City has hired a part-time Water Waste Coordinator who is specifically dedicated to drought response actions. Need to report a leak, runoff or waste? We have many communications means for you! Please let us know!  Report water use incidents through the City’s PaloAlto311 web or mobile app at cityofpaloalto.org/services/paloalto311/ or go visit to www.cityofpaloalto.org/water to access the link directly.  Contact the City’s Water Waste Coordinator at 650-496-6968 or Martin.Ricci@CityofPaloAlto.org - or -  Call Customer Service at (650) 329-2161 - or –  Email UtilitiesCommunications@CityofPaloAlto.org - or –  Call Utilities Emergency Dispatch at (650) 329-2579 1 10/5/2015 GROUNDWATER PUMPING FOR RESIDENTIAL BASEMENT CONSTRUCTION Frequently Asked Questions Save Palo Alto’s Groundwater, a Community Resource Is groundwater pumped for residential basement construction? Yes. Very large amounts of groundwater from the shallow surface aquifer are pumped to build basements when below ground soils are saturated to provide dry soils using a commercial-scale construction process termed “dewatering.” This technique is now being permitted for constructing residential basements in Palo Alto at a rapidly increasing rate, from an average of five (5) per year (2006 – 2008) to at least 14 this year. Dewatering is used only at those sites with water saturated soils; it is not used at drier sites. Why should I care about groundwater pumping for basement construction? Aquifers and groundwater are a community and public trust resource that, although unseen, play an important role literally supporting structures and infrastructure, draining storm water, and storing and providing moisture for our canopy and plants. What are the effects of removing groundwater? Removing groundwater has a variety of impacts. The forces exerted by groundwater literally support the ground, structures and infrastructure and through capillary action, provide water to our trees. The shallow surface aquifer pressure increases the recharge of the deeper aquifer which is used for irrigation and on which Palo Alto relies for emergency water. Lowering the water table locally causes ground settling. This settling may not be uniform across structures, which may then develop either tight doors or windows, or permanent cracks in foundations, walls or masonry. Settling of even less than an inch is adequate to cause permanent structural damage. Lowering the water table below the seasonal normal fluctuation can cause irreversible compression of the soil (hysteretic soil compaction). What are the effects of lowering the water table on vegetation? Water available for trees and plants is reduced. Soils wick water up, much like sponges, resulting in increased soil moisture several feet above the water table, well into the root zones of trees in much of the area in which dewatering is occurring. What are the impacts of these basements after construction? Both the City of Palo Alto and the Santa Clara Valley Water District provide incentives to install permeable pavement to reduce the amount of storm water entering storm drains and instead soak into the ground, thereby reducing flood risks and recharging aquifers. Basements displace soils that would otherwise be available to absorb rain water, increasing the probability that rain water will flow into the storm drains. Attachment E: Correspondence 2 10/5/2015 Much of Palo Alto is known to have covered gravel beds from former creekbeds. Basements are dams in the unseen rivers that flows through the soils, gravel beds and aquifer beneath Palo Alto. Water needs to flow around these basements. If water cannot flow through the soil fast enough, it will flow above the soil, into the storm drain system, and if the storm drain capacity is exceeded, will flood our streets and properties. The water table/water pressure surrounding a basement is locally higher, in the same manner as water in a flowing river is higher as it flows around an obstacle. The locally higher water table increases the risk that basements in neighboring properties will flood. What can I do if my property is damaged by ground settling caused by groundwater pumping? You’re on your own. You must resolve any damage claims directly with the party that caused the damage. The City will neither order the dewatering to stop nor help you with any damage claims. You may sue. In that case it will be necessary for you to prove that the specific dewatering operation was the cause of the damages, and most likely pay attorney’s fees, which might be reimbursed if you obtain a judgement in your favor. How much water is pumped? In total, it is estimated that 126 million gallons (16,000,000 ft3) of groundwater has or will be pumped out for the construction of 14 basements in Palo Alto in 2015 alone. This is enough to cover a football field 275 feet deep, or fill 50,400 water tank (2,500 gallon) trucks, or provide enough water for 18,000 average Palo Alto residences for the entire month of July, 2015 (equivalent to 40-50% of the state-mandated water conservation goal for all single family residences in Palo Alto for a year) or lower the aquifer by more than 1 foot over an area of 1 square mile. This estimate is based upon the midpoint of City’s estimate of 8 – 10 million gallons (1.2 million cubic feet) per basement. For some basements, more than 20 million gallons is pumped. The amount of water being pumped out is not metered. Where is groundwater pumping occurring? Most of the residential dewatering projects are concentrated in an area of approximately 1 square mile bounded by Webster Street, Louis Road, Colorado Avenue and Channing Avenue, although two are near Middlefield Road further south. From where is the water pumped? Groundwater is typically pumped from 15 to 25 feet below grade, and the groundwater table locally lowered about 2 feet below the bottom of the basement in the area to be excavated. The “bottom” of the basement is generally 10 – 20 feet below grade; some are below sea level. Groundwater is typically pumped at a rate of 50 – 100 gallons per minute continuously for 3 – 6 months. 3 10/5/2015 How much do government agencies collect in fees and permits for construction dewatering? The City of Palo charges approximately $710 for a dewatering permit for 6 months. There is no usage-based fee or assessment for discharging the groundwater pumped out for construction into the storm drain. The total cost to the developer for removing this resource from our aquifer is about $710. How much do residents pay for equivalent water disposal in the storm drain? The Storm Drain Fee for 1 equivalent residential unit (ERU) is $12.63 / month ($151.56 / year). A single dewatering site will dump as much water down the storm drains as the city estimates would go into the storm drains from 480 residences (1 ERU / residence) in a year. Developers are not currently required to pay any additional fees to compensate for the heavy use of the city’s storm drains, even though a “fair share” payment would be $72,748 for a typical basement. How much would Santa Clara Valley Water District charge for a resident to pump non-potable groundwater for irrigation? Santa Clara Valley Water District charges about $600 / acre-foot (43,560 ft3) for a permit to pump groundwater. For the amount of water pumped for a typical basement, the cost would be approximately $16,500. However, a specific exemption from fees is provided for construction dewatering in the shallow aquifer. The fee to builders is zero. Is this groundwater pumping sustainable? The amount of water removed from the aquifer in 2015 is roughly the same as would be available to recharge the aquifer from average (not drought) rainfall for one year, after allowing for runoff and evaporation over an area of 1 square mile. What happens to the pumped groundwater? Approximately 99% is dumped into the storm drains, which then flows to the Bay. Isn’t this pumped water available for irrigation for free? The City requires faucets with hose connections and fill stations for water tank trunks at each dewatering site. There are no requirements for the actual use of the water or the pressure supplied to hose connections for neighborhood use; City policy effectively condones wasting water. In practice, the water is not substantially used. Although the water is of high quality and usable, it is wasted. How and when is the shallow surface groundwater replenished? Primarily from rain and landscape irrigation. Precise recharge rates are not known, but it is believed to be in the range of months to years. Doesn’t the water flow to the Bay anyway, and therefore doesn’t pumping the groundwater improve the environment of the Bay? The aquifer and soils have an important role in transporting storm water to the Bay; more water flows in the unseen river beneath our homes to the Bay over the course of a year than 4 10/5/2015 down the creeks. However, during the summer, there is little flow in the aquifer (there almost no flow in creeks either). Dewatering locally lowers the water table below its normal historical low level, and in some cases below sea level, much as pumping water from a lake could lower the lake level below the outlet level. Hasn’t the City already carefully studied dewatering? The City commissioned a study in 2004, and City staff reviewed the study in 2008 after receiving citizen complaints. Not only are several important issues not addressed, especially related to local effects, there are important differences between the current situation and the time of the original study. Existing City dewatering policy does not anticipate the current number or water volume of dewatering activities within the City. Despite acknowledgment by the study that there will be “temporary and local effects,” the study does not meaningfully address localized impacts, including ground settling, reduced soil moisture for trees, flood risks and storm water management, public compensation for the use of the water, or public policy in an era of climate change. Furthermore, it is incorrectly assumed that short-term effects will not cause permanent damage. From where did this information come? All information in this document is either provided by or derived from the City of Palo Alto, the Santa Clara Valley Water District, USGS topographical maps, the US National Oceanographic and Atmospheric Administration, and materials provided by degreed professionals in soil sciences or hydrology, including documents in the Public Record for the City of Palo Alto. What is the objective of Save Palo Alto’s Groundwater? Palo Alto’s groundwater is a community resource too valuable to freely pump and dump down storm drains simply for the construction of residential basements. We are requesting that the City of Palo Alto enact an immediate moratorium on new permits for the pumping out of our groundwater (“dewatering”) for the construction of residential basements in Palo Alto to further study the effects of dewatering. Dewatering should only be permitted if the study shows negligible impacts, including effects on storm water management and flood risks, and policy is updated to require minimization and complete mitigation of all impacts including requiring full use of the pumped water, payment for use of infrastructure and resources, protection of infrastructures, properties, and the canopy, with all costs to be assumed by the developing party. Is a more detailed document available? Yes, a White Paper including references is available upon request. How do I obtain further information or help with this effort? Send an e-mail with your name and contact information to PAgroundwater@luxsci.net Questions related to the City of Palo Alto policies on permitting the pumping of groundwater for the construction of residential basements Keith Bennett 8/11/2015 Background: My concerns relate to the documented local and transient impacts of new basements and their construction, as well as the permanent impacts of new, large basements on the capability of local soils to handle rainwater during periods of heavy rain, such as has been experienced in 1982 and 1998. My primary concern is not the apparent “waste” of a groundwater resource during a drought (although the amount of water pumped for basement construction is about 10% of the total 24% conservation goal for the City, and report indicates that the surface aquifer being pumped has partly been replenished by imported water from the Delta). Aside from considerations of water quality, I am aware that City has far more water that could be used for irrigation (aside from delivery cost) available from the Water Treatment Plan I have read the 2004 report by EIP, as well as the Staff Report from Curtis Williams dated 9/24/2008. From my reading of these reports, they do not support the conclusions that dewatering on the current scale in Palo Alto is not without significant adverse effects. 1. My understanding is that the two documents listed above, plus soils reports generated from the construction of new buildings, especially buildings with basements are the primary bases for City Policies. The City has prepared a map showing groundwater depth based upon measurements related to construction. This map is available in electronic format. The soils reports from new construction are copyrighted, and may be viewed, but may not be copied. I assume, however, that the City could, if desired, use the information in the soils reports for analysis and modelling purposes. Is my understanding correct and substantially complete? 2. Importance of recharge rates and source on the overall impacts of dewatering on the shallow aquifer. Long term impacts are only negligible if they aren’t offset by recharge. The 2004 Report primarily focuses on the impact on the level of the entire Santa Clara Subbasin surface aquifer, and simply assumes that the water pumped in a year will recharge the next year. Shouldn't the basis for policy consider not only the fraction of the total available aquifer pumped, but also critically consider recharge? The report states the following: a. There are 5 – 10 basements / year constructed with dewatering in Palo Alto, and as the aquifer extends beyond Palo Alto, and other cities may also pump groundwater, the total impacts on the aquifer would be far more significant. It would appear that annually >1% of the aquifer / year or 10% per decade could be depleted. This is not insignificant. To avoid long-term effects, the groundwater must be recharged. b. The subsurface aquifer has been significantly recharged by IMPORTED (i.e. purchased) water (Pg 6, see above): “It is known, however, that the importation of potable water and the SCVWD controlled recharge program have assisted groundwater levels in the subbasin to rise 200 feet in the last 40 years. Most of the rise has been in the surface aquifer.” Note: it is the surface aquifer that is being depleted for dewatering. A January, 2015 document from the SCVWD “Where does our water come from?” (attached) lists three primary sources for groundwater replenishment: “3. Water importation from the Delta, which the district also releases to creeks and recharge ponds for managed groundwater recharge.” Should Palo Alto have a policy that accelerates sending of water to the Bay through groundwater pumping in a drought when replacement supplies are restricted, and furthermore, it appears from public documents that some of the water being pumped for basement construction may, in fact, may in fact be due to SCVWD groundwater recharge programs? Is it reasonable that those dewatering be permitted to use this resource without compensation based upon consumption, i.e. shouldn’t the dewatering amount be metered and charged for example to pay SCVWD for replacement water? 3. Local Effects The EIP report does not provide any basis to support the statement (Pg. 5) regarding the geographical extent of local lowering of the groundwater, and provides no information on the volume profile of the dewatering: a. Assuming a dewatering of 1,000,000 ft3, well below the 7,000,000 ft3 mentioned as typical in the report, but comparable to the lower end of the pumping rates and durations mentioned in the City Staff report corresponds to a volume of 500 x 500 x 8 feet, assuming 50% porosity of the soil. It is clear that some effects must extend well beyond “several tens of feet.” It is also clear that the extent of dewatering must depend upon local soil composition, the depth of pumping and the time (and rate) that the water is removed. b. The 2004 states “local settlement on the order of fractions of an inch could occur.” (pg 7.) Settlement (either temporary or permanent) of even fractions of an inch is adequate to break windows, cause cracks in masonry and plaster, or require doors to be reworked to open and close properly. There is no guarantee that settling will be perfectly level across a nearby property, which is likely the case if a gradient is created in the soil moisture content. Furthermore, the dewatering may extend below the depth of normal “seasonal” water table variation and therefore may affect the supporting capacity of soils between the dewatering depth and the normal “low level” of seasonal water table fluctuation. Reports by homeowners (including the letter in the 2008 Staff Report from the resident at 575 Washington), myself of home damage and a broken water main on N. California several hundred away from, but particularly correlated in time with dewatering events. Could these events provide evidence that dewatering is, in fact, causing at least temporary settlement large enough to affect infrastructure and homes, and that the extent may be further than assumed? c. There is no discussion on the impacts of dewatering on soil moisture (used by plants) above the aquifer. The Santa Clara County Water District leaflet compares soils to a sponge: The relevant question is the extent to which dewatering reduces soil moisture in the surrounding area not whether or not tree or plant roots are below the water level of the aquifer (generally, plants desire moist, but not saturated soils, as they need air, therefore the roots of land plants are generally not in saturated soils. Like sponges, soils wick water upwards from the aquifer. Is soil moisture unchanged above the aquifer when the water table is locally and temporarily lowered? It is important to consider the effects of dewatering in the spring, when soil moisture and the water table are both higher. Isn’t reducing soil moisture earlier in the year in the root zone of plants is more or less equivalent to an artificial drought? Of course, it is possible to compensate for lower soil moisture by watering plants more, however this is quite expensive during conditions such as the current drought, and furthermore the expense is borne by the affected homeowners and city plants (e.g. trees). If dewatering does increase the need for supplemental watering, then, isn’t dewatering in practice indirectly increasing demand for potable water (as it’s 1/10th the price of recycled water). 4. Long term impacts of basements on flooding risks during storms A simple analysis shows that basements extending into a zone of saturated soil (once constructed) will significantly and negatively affect the ability of local soils to hold and drain rainwater during heavy storms, with increased risks of flooding, either in neighboring homes and in wider areas. a. The construction of basement means that there is no soil in the removed volume to absorb rainwater. As basement and lightwell can cover 35% of the lot, and any basement that requires dewatering for construction by definition extends to saturated soils, the local reduction in the capacity of soils to hold rainwater is significant. The result is a locally higher water table / water pressure, at least temporarily until the water can drain. The locally higher water table increases the risk that neighboring properties, especially those with older basements will flood. The 2008 letter from the resident of 575 Washington mentioned the same concern. Complications of basement flooding can be significant. In 1998, basement flooding triggered a fire at 595 N. California (a pilot light was extinguished by the water; the escaped gas then exploded when lit by a different pilot light). Additionally many basements of older homes were flooded. Basements only rarely flood. During the 1998 storm, the saturated water line along Webster St. near N. California was about 3- 4’ below street grade, indicating that there is no significant extra capacity in the soils, at least in some parts of the city. It is likely that soils were saturated closer to the surface in lower areas. If the soils become saturated to the surface, rainwater will no longer be absorbed and instead will flow into the storm drains. If the storm drains cannot handle the additional water, localized street flooding will occur. The City provides rebates for the use of permeable paving materials to reduce the load on the storm drains. This assumes that the soils can absorb the water and release it more slowly. Is the construction of large (and deep) basements in areas that have risk of soil saturation above the basement level consistent with this policy? Is a policy that increases the risk of flooding wise? Is it appropriate for Green Building Certifications? b. Basements are like dams in the unseen river through the soils (and aquifer) beneath Palo Alto, and impede the discharge of water during periods of heavy rain, increasing the level of saturated soils, and the risks of flooding. We would not think of blocking any creek, yet basements are doing so for the channel that carries the most water to the Bay. i. The soils and aquifer under Palo Alto surely carry significantly more water to the Bay than San Francisquito Creek over the course of a year. This can be easily be shown by calculating the volume of water in even 12” of annual rainfall that falls on the area (about 3.3 x 1.8 miles) of Palo Alto between El Camino and San Francisco Bay and comparing the annual volume of water to that which flows in San Francisquito Creek. In addition, the soils and aquifer must carry water from lands west of El Camino, including Stanford and the foothills. ii. The potential of basements to block aquifer / soil water flows is very significant. Basements are now quite large (perhaps covering ½ of the property width) and a very large fraction of new construction (~70% in permitted areas) includes finished basements. Have the impacts of basements on the capacity of our soils to handle rainwater during heavy storms been properly considered? From: Leah Rogers [mailto:leah.rogers@stanfordalumni.org] Sent: Monday, October 26, 2015 6:38 PM To: Council, City; Keith Bennett Subject: re: Per request of Greg Schmid during Oral Comments at the Oct 5 2015 City Council Meeting Dear All: Below is my effort to put in writing what I said in the Oral Comments period of the October 5 2015 City Council Meeting. I have also included some references at the request of Greg Schmid. Thanks you for your time and listening to these thoughts about the dewatering issue. Sincerely, Dr. Leah Rogers (Ph.D. from Stanford in Hydrogeology) The 2004 EIP report suggests the range of influence on the water table aquifer is on the order of tens of feet from the dewatering well. The amount of water table drawdown necessary in construction of basements in Palo Alto is approximately 15 feet (i.e. drawing down the water table from 10 ft below ground surface to 25 ft below ground surface. If we consider standard calculations of radial flow applications of Darcy’s Law (Freeze and Cherry, 1979 (note Eq 8:12-8:15); Manning, 1997; Bennett et al., 1990), a lowering of the water table level approximately 15 feet an unconfined aquifer in alluvial deposits may create a cone of depression that spreads out towards a few hundred feet in any direction. This assumes some general hydraulic conductivities and other aquifer parameters that could be in alluvial deposits in this area. Note regional studies suggest hydraulic conductivity values may range between 260 and 6000 gpd/ft2 (McCloskey and Finnemore, 1996). There are many major factors that influence the drawdown of the water table: thickness of the water table aquifer, interfingering of layers that may inhibit flow (aquitards in which case coefficients would have to be assumed to account for leaky aquifers), and whether or not steady-state is reached. Precise predictive modeling would require to collection of data from time dependent well testing. However, we may say qualitatively where there were more sands and gravels the cone of depression would reach further than if there were tighter silts and clays. When several of these projects going on in the same neighborhood, which is the case in Palo Alto, cones of depression may interact cumulatively. As the dewatering effect from multiple projects are cumulative and interact with reduced irrigation, it is difficult to assign “responsibility” for damages to property or landscaping to specific dewatering projects. The drying out of soils is often not perfectly reversible. This is called hysteretic soil compaction. For example, wet clay worked into a dry piece of pottery cannot simply be put back into it’s original state by submerging it in water. Imagine over a 3-4 month dewatering project that particularly the interfingering clays in the subsurface will cause unequal rewetting. It is quite plausible that the scale of these dewatering projects are responsible for the additional cracks in walls and foundations which neighbors in the area have noted. For example, the 2008 City Manager’s Report includes a letter from Steve Broadbent raising such issues. Overall, it would seem that the City of Palo Alto would do well to require dewatering projects to provide specific characterization and predictions of groundwater impact during the course of the proposed project before approving any dewatering especially in times of drought and water- conservation. Even better would be adoption of construction practices and project designs that significantly reduce the need for dewatering, especially considering reduced irrigation in the area during droughts. References: Bennett, Gordon D., Thomas E. Reilly, and Mary C. Hill. 1990. Technical Training Notes in Ground-Water Hydrology; Radial Flow to a Well. US. Geological Survey Water Resources Investigations Report 89 4134. http://pubs.usgs.gov/wri/1989/4134/report.pdf. Freeze, R.A. and J. A Cherry. 1979. Groundwater. Prentice Hall Inc., Englewood Cliffs, NJ. 604 pp. Manning, J.C. 1997. Applied Principles of Hydrology. Prentice Hall, third edition, 276p. McCloskey, T.F. and E. J. Finnemore. 1996. Estimating Hydraulic Conductivities in an Alluvial Basin from Sediment Facies Models. Ground Water, Vol. 34, No. 6 November- December 1996. http://info.ngwa.org/gwol/pdf/962962189.PDF. On Wed, Jul 15, 2015 at 4:18 PM, Bobel, Phil <Phil.Bobel@cityofpaloalto.org> wrote: Ms. Relman: Our Assistant City Manager, Ed Shikada has asked me to respond to your 7/14 email about the pumping of groundwater to allow the construction of basements. A number of residents have raised issues very similar to yours, and we have created a website to address them: Recycled Water Web Page . Scroll down to the last line and click on “here” to see our “Frequently Asked Questions” about the pumped ground water. While I know it appears to be wasting water, the shallow ground water aquifer is flowing to our creeks and Bay. The pumping and discharge of this shallow ground water to the storm drains sends the ground water to the same place, our creeks and Bay, where it supports ecosystems and their wildlife. Nonetheless, the City is working with builders to try to get as much of water used as practical. The main limitations are the very high cost of trucking the water and the lack of a piping system from the pumping sites. Farmers are just too far away to make their using it practical at this time. A portion of the water is being used to water City trees, provide dust control at construction sites, and similar non-potable uses. With respect to the potential for drawing down the shallow groundwater and causing land subsidence, we do not have reason to believe this would occur, given the short duration pumping and the small number of wells involved here. Subsidence can occur when pumping happens over a number of years from many wells. I hope this helps address your concerns. Phil Bobel Assistant Director, Public Works From: Shikada, Ed Sent: Wednesday, July 15, 2015 8:07 AM To: Georgia Relman Cc: Council, City; Bobel, Phil Subject: Re: draining ground water Dear Ms. Relman, Thanks for contacting us with your concerns. I will ask Public Works staff to review the issue and reply directly to you. There has been quite a bit of activity on this issue recently that may interest you, specifically on the topics you raised. You may also wish to participate in future discussions. Sincerely, Ed Shikada Assistant City Manager On Jul 14, 2015, at 4:12 PM, Georgia Relman <georgiarelman@gmail.com> wrote: Hi All, I have a question. Just in our neighborhood alone (around professorville), 4 construction sites building private homes are draining ground water at full blast down storm drains; this has been going on for many MONTHS now. Why are private construction companies allowed to drain Palo Alto ground water? Wouldn't it be of benefit to use this water for Palo Alto parks etc. or sell it to farmers for Palo Alto profit (because it is needed)? When the ground water is drained under Palo Alto, will the ground sink as it has in other areas of California as they are being drained of ground water? Why is this not of concern to our city government? (I don't get it) Sincerely, Georgia On Apr 25, 2015, at 2:32 PM, Skip Shapiro <sailorskipca@yahoo.com> wrote: Dear Mayor Holman and City Council, This is a request for the Planning Department and the City Council to take immediate action to stop groundwater pumping which occurs during the construction of residential basements. As long time Palo Alto residents, we are appalled to see millions of gallons of groundwater going down storm drains in the midst of this historic California drought. At the same time, residents and businesses have been asked to curtail water use for landscape and other uses. Even worse, the pumping depletes groundwater that is essential to the health of trees, causes subsidence that can damage property, and consumes water Palo Alto relies upon for emergencies. This morning we passed a home under construction on Harker where groundwater is being pumped. We estimated the flow rate to be 75 gallons per minute (based on the fill time of a 5 gallon bucket), which equates to 108,000 gallons – or 14,400 cubic feet – per day. From past experience monitoring similar groundwater pumping for basement construction, the pumping will continue for at least 4 weeks. That amounts to more than 400,000 cubic feet of wasted water. Residential basement construction is a relatively recent phenomenon in Palo Alto, driven by people maximizing living space within lot coverage constraints. It has likely contributed to the steep increase in property values and encouraged buyers who raze existing houses to replace them with new ones that include basements…without considering the impact on neighbors, the community, and the environment. We think it’s time to halt approval of residential construction that includes basements where groundwater pumping is required. Basements should not be allowed on these sites. We request an immediate moratorium on design and construction approval for any home where groundwater pumping is required. We also ask the City Council to direct the Planning Department to review and change regulations that permit residential basement construction. Respectfully, Barbara and Skip Shapiro Mr. James Keene General Manager City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 Dear Mr. Keene, .Li-.l ___ : . ;;.,\GC:.:;' '·,,. c.c> Ph 11 Borel M·1k~ N°'tz\ger Valoran P. Hanko --r ' . c, rvvk-·on 864 Fielding Court uOJ)\ ce l)'KJ ).j.)\J 1 Palo Alto, CA 94303-3645 May 19, 2015 I recently noticed a pumping operation in my neighborhood at 804 Fielding Drive that is reminiscent of an operation that occurred next door at 858 Fielding Ct in 2001. This pumping operation takes ground water from our underground aquifer and sends this to the storm drain as undesirable waste in preparation of a new residential construction. When this operation was performed in 2001, the surrounding neighborhood sank in elevation resulting in a new designation for the neighborhood to be within the 100 year flood zone, where as prior it was not. Additionally, this resulted in cracks in the pavement of our street where the sinking of the ground is still evident. Additionally, it was observed by some neighbors that their house slab foundations (characteristic of the 1940's period-build homes) had shifted and cracked. The house behind us had their garage drop in elevation in one of their corners. I estimate that non-potable water is being pumped at a rate of about 0.5 gal/sec, which equates to 30 gallons per min, 1800 gal per hour, 43,200 gal per day, 302,400 gal per week. Since this operation went for about 6 months at the next door neighbor's site, assuming a constant rate, this amount of water would be equivalent to (at 1.2 million gallons of water per month) 7.2 million gallons of underground water. Since the volume of water occupying 1 gallon is 0.134 cubic feet per gal (7.48 gal per cubic feet), 7.2 million gallons would take 970,000 cubic feet of underground aquifer space, and it is a fact that when the ground collapses into this aquifer space, it can never be retrieved again. The loss of elevation in the neighborhood places financial burden upon innocent people, causing many with mortgage payments to be required to have FEMA Flood Insurance, and even those who own their house, puts them at new risk of flooding. I believe this pumping action, apparently approved by the City Building Department, has not been seriously evaluated for its consequences by qualified engineers without bias. Furthermore, this precious water is being wasted into the storm drain during a severe drought, another irresponsible action. I am not sure about the legal consequences of halting this operation in my neighborhood, but as General Manager you must have some power to take emergency actions when severe consequences can be seen or is discovered, and thus this letter is to inform you of this matter with the hope that you can stop this pumping process and new building permit approvals, and to suspend all current operations until appropriate state-of-the-art engineers have evaluated this type of operation. Meanwhile, I intend to contact the Santa Clara County Water Resources Board about this concern, and hope you may work together with them to seek a resolution that does not adversely impact the community, one that includes the preservation of our underground aquifer. //~.:c•r•I:? / /fj ~~/ / ~··· 1. c{c:~ l~ i Valoran P. Hanko · PUBLIC WORKS CITY OF P.O. Box 10250 PALO ALTO Palo Alto. CA 94303 · 650.329.2151 July 6, 2015 Valoran P. Hanko 864 Felding Court Palo Alto, CA 94303-3645 Dear Mr. Hanko: Thank you for your May 19 letter concerning the impacts of basement construction groundwater pumping. I've been asked to respond on behalf of Palo Alto City Manager Jim Keene. Your letter expresses concern about a current pumping site and one that took place in 2001, both in your neighborhood. With respect to the earlier pumping, you expressed the belief that the pumping caused the ground to subside. We do not have reason to think that is the case. The additions to the flood zone that were made around that time were the result of new, better data, as opposed to any anticipated change in actual elevations. The earlier flood zone map had been based on a more limited set of elevation measurements. When more elevation data was collected in the 2000 time frame, it resulted in relatively small shifts in the flood zone boundary, but ones which were very important to the individual houses affected. You calculated the rough amount of ground water pumped out and postulated that that the ground level would sink to a level associated with that loss of water. We do not believe that would be the case. Rather, the groundwater is moving and new ground water would fill behind the groundwater being pumped out. Only a large number of wells operating over a long time frame would cause a relatively permanent change in the ground water elevation and an associated ground level subsidence. As you know, subsidence has occurred in a number of areas where large numbers of wells have pumped over time. You also expressed the view that the pumped water going to the storm drain was being wasted. And yet this ground water was moving toward our creeks and Bay and ultimately would have replenished both. Pumping some of it to the storm drain results in it traveling a different path, but ultimately reaching the same locations: our creeks and Bay. Our creeks and Bay need this water to preserve ecosystems and maintain needed salinity levels. Nonetheless, because of the strong feelings of a number of our residents, we are working to have builders minimize the amount pumped and use as much of the water as practical. Builders are now required to build "Fill Stations" at their sites so that others can fill trucks and tanks and use the water. The current pumping site at 804 Fielding near you has a Fill Station. The City, other builders and residents like you can use the water. Please see our website for the other locations and contact information: www.cityofpaloalto.org/water. C ityOf Pa lo A lto.org Printed with soy-based inks on 100% recycled paper processed without chlorine. I hope this addresses your concerns. Please do not hesitate to contact Mike Nafziger (650-617- 3103) for more information about 804 Fielding, or myself (650-279-0464) for broader issues we are facing in this most difficult time of drought. Sincerely, tft:fiJ,&t Phil Bobel Assistant Director, Public Works From: "Andrei Sarna-Wojcicki" <andreisarna@gmail.com<mailto:andreisarna@gmail.com>> To: "Council, City" <city.council@cityofpaloalto.org<mailto:city.council@cityofpaloalto.org>>, "letters@dailynewsgroup.com<mailto:letters@dailynewsgroup.com>" <letters@dailynewsgroup.com<mailto:letters@dailynewsgroup.com>> Cc: "Deborah Harden" <deborahrharden@gmail.com<mailto:deborahrharden@gmail.com>> Subject: Fwd: Groundwater is wasted by pumping at construction sites and dumping into storm sewers To: Mayor of the City of Palo Alto and the City Council: I have sent this message to the Public Comment web site two of days ago, but have not received an answer, and the matter is urgent. I have also sent it previously to the Palo Alto daily news site (letters@dailynewsgroup.com<mailto:letters@dailynewsgroup.com>). So, I'm forwarding this email to you and the City Council. By now, three days have elapsed since I sent the first message, and an estimated minimum of 260,000 gallons of groundwater have been pumped from the construction site at 2133 Webster and dumped into the storm sewer at the corner of N. California and Byron Streets. The water continues to be pumped as I write this (I just went by there a few minutes ago). Putting up a sign saying that the public can help themselves to the water does not solve the problem of this wasteful practice, continued with city approval during a time of extreme drought. As I mentioned in the message, this is just one of several construction sites in the city where pumping of groundwater is going on. This is a wasteful practice during ordinary times, and more so during the current severe drought. The water needs to be used for watering the trees and green areas of the city, and to maintain the level of the groundwater to keep city and residential trees from dying. The excavation at the Webster site must be at the site of a buried old gravel channel, to account for the high discharge. The water that is being wasted by direct dumping into the storm sewers not only deprives the trees in the vicinity of the pumping and downstream in the water table, but it also depriving a whole ecosystem at lower elevations downstream in the water table to the southeast--the marshes and the city Baylands. This is a high price to pay for allowing cellars to be built in an area that is at low elevations (the Webster St. site is at ~17 feet above sea level). Another several such construction sites have been recently finished near our house on Garland Drive. These are at an even lower elevation, 10 to 15 feet. Building cellars in these areas is a mistake, and has been historically avoided in this area since early European settlement for very good reasons. The water table here is high and irregular in elevation. Some of the new cellars actually intrude below the water table, as appears to be the case at the Webster Street site. I urge you to take this matter under advisement. Additional comments and arguments are provided in the forwarded email. Sincerely, Andrei M. Sarna-Wojcici, Resident of Palo Alto (708 Garland Drive) Retired geologist, U.S. Geological Survey ---------- Forwarded message ---------- From: Andrei Sarna-Wojcicki <andreisarna@gmail.com<mailto:andreisarna@gmail.com>> Date: Thu, May 7, 2015 at 10:41 AM Subject: Groundwater is wasted by pumping at construction sites and dumping into storm sewers To: letters@dailynewsgroup.com<mailto:letters@dailynewsgroup.com> Cc: Deborah Harden <deborahrharden@gmail.com<mailto:deborahrharden@gmail.com>> Dear Sir or Madam: Groundwater is being wasted on the Peninsula by being pumped out at construction sites and dumped into city storm sewers. This practice is actively going on at at least three construction sites in Palo Alto, and probably at many more throughout the Peninsula. I passed by one such site at 2133 Webster St. in Palo Alto at ~10:45 AM yesterday, returned by there at ~12:45 noon, and passed by there again at ~5:45 PM. The water was going full blast the whole time from the construction site, around the block to N. California and Byron streets, and down into a storm sewer. I estimated that about a gallon of water was dumped every second from a six-inch diameter pipe, which would amount to about 25,200 for the 7 hours time of my observation. This is probably a minimum for this particular site for this day. At the calculated rate, this would amount to 86,400 gallons of water for a 24 hour period. My wife observed the same practice going on a few months ago from another site, for at least a week. This is a massive waste of groundwater during a period of severe drought. It depletes water from an already depleted water table, forming a cone-shaped depression around the pumping site, and decreasing the available groundwater in that area from flowing farther down in the water table toward lower elevations, thus lowering the water table and depriving trees from water. It's killing off our trees. This water needs to be used for watering the trees and other plants in the municipal parks and other public grounds, and any left over water should be made available for residential use. Reservoirs need to be constructed to store this water, and a distribution system be put into place, perhaps even by temporary above-ground plastic pipe systems during this drought, to make use of this water. At the dump site that I observed, a sign put up by the city of Palo Alto which informs the public that the water is not potable, that it is being discharged (no duh), and states that "...To use this water for irrigation pr other non-potable purposes, follow this discharge hose back to the water filling station." I presume this refers to the pumping site at 2133 Webster. And what does the Palo Alto citizen do then? Bring a Dixie Cup and help himself/herself to the water? Or back-up a tanker truck to the site and fill-up? This is obviously a large job that the Peninsula municipalities need to address. I sent a message regarding this situation to the city of Palo Alto today. I attach photos from the pumping and dump sites I observed yesterday. Sincerely, Andrei Sarna-Wojcicki, Resident of Palo Alto Comments to Council regarding Dewatering Residential Basement Construction Keith Bennett November 9, 2015 The City of Palo Alto has a history of developing policies to protect natural resources, to protect our environment and to encourage sustainability. Water is now recognized as a valuable and limited resource, and groundwater is an important component of the City of Palo Alto’s Emergency Water Supply. Climate change is predicted to increase the risks of droughts, megadroughts and floods, in addition to sea (and Bay) level rise. https://www.washingtonpost.com/national/health-science/todays-drought-in-the-west-is- nothing-compared-to-what-may-be-coming/2015/02/12/0041646a-b2d9-11e4-854b- a38d13486ba1_story.html 1) The Groundwater Supply Feasibility Study performed by Carollo Engineers for the City of Palo Alto in 2003 provides quantitative analysis and measurements of the effects of groundwater pumping in Palo Alto. Data from the pumping in 1988 of groundwater for local domestic water use was deemed to be the most reliable and is the primary basis for the conclusions of the report, which is available at: http://www.cityofpaloalto.org/cityagenda/publish/uac-meetings/1930.pdf Some main points are summarized below. In this section, quotes indicate verbatim text from the study, italics indicate my personal analysis using other information including map data. Text not in quotes are my personal summaries of information from the study. a. “Utilizing the data from the 1988 pumping, the extraction of 1,000 acre-feet from the Palo Alto area will result in basin-wide water level declines on the order of 15 feet.” --- pg. 20 The shallow surface aquifer level, typically a few feet below the ground surface, declines in response to pumping the deeper aquifer as shown by the well level graphs. --- pgs. 5 - 10 b. The water levels in the Fernando, Middlefield and Matadero wells were lowered by 18, 25 and 37 feet respectively, even though water was not pumped from any of those wells. --- Table 1, pg. 13 An interactive map showing the locations of the wells and 2015 basement dewatering sites is attached (Map A) with this document and available online at: https://www.google.com/maps/d/edit?app=mp&hl=en_US&mid=zW7thpaYaYZI.kYz YfTCRxd_Q The Middlefield well is located about 5 blocks (0.4 miles, straight line) from the Rinconada Well (from which 600 acre-feet of water was produced in 1988) and about 0.7 miles from the Hale Well (produced 400 acre-feet in 1988). Peers Park (produced 400 acre-feet) is the closest well to the Fernando and Matadero wells and is 1.0 – 1.2 miles away. c. “Depending on the method, estimates of average annual recharge to the basin are between 38 and 3,800 acre-feet. “ -- Pg. 20 d. “The year-to-year 500 AFA* extraction is intended to not lower groundwater levels substantially, which would preserve the natural groundwater flow direction and prevent saltwater intrusion. The periodic 1,500 AFA well use described above would result in transient occurrence of water levels below sea-level. While water level below sea-level will reverse the seaward gradient, the slow travel time of groundwater provides a buffer from seawater intrusion for transient use. “ – Pg. 21 * AFA = Acre-feet annually. 2) The total amount of groundwater pumped for residential basement construction in 2015 is estimated to be about 400 acre-feet, based upon an average of 1.2 million cubic feet (28 acre-feet) per basement for the 14 basements dewatered in 2015. 3) The Groundwater Supply Feasibility Study estimates that the water table is lowered approximately proportionately to the amount of water pumped. Using the value in the report of 15 feet lowering for 1,000 acre-feet pumped, the estimated lowering of the water table due to dewatering for residential basement construction in 2015 would therefore be about 6 feet, and would extend over large areas of Palo Alto. 4) An advisory Measure N, “Emergency Underground Water Storage and Equipment Replacement,” (November 2007) passed with 91.84% of the vote. The Emergency Water Supply Project (EWSP), WS-08002, was approved by Council in 2007 and bonds totaling $35,015,000 were sold on October 6, 2009. Of this amount, approximately $5.36 million was used for projects related to using groundwater: groundwater feasibility studies (CMR 124:06 and related), rehabilitation of existing wells (CMR 232:10) and construction of new wells (CMR 371:09). The bonds are being repaid over 25 years through water usage fees. 5) As part of the EWSP, five existing wells have been rehabilitated for use as emergency domestic water supplies. These wells are the Hale Well (999 Palo Alto Avenue), Rinconada Well (1440 Hopkins Avenue), Peer’s Park Well (1899 Park Boulevard), Matadero Well (635 Matadero Avenue) and Fernando Well (410 Fernando Avenue). http://www.cityofpaloalto.org/gov/depts/utl/eng/water/wells/faq/rehabilitation.asp Additionally, two new wells have been constructed, one at Eleanor Pardee Park and another at (Rinconada) Library / Community Gardens. http://www.cityofpaloalto.org/gov/depts/utl/eng/water/wells/eleanor.asp Two 2015 dewatering sites are within the triangle formed by the two new wells (Eleanor Pardee Park and Library / Community Gardens) and the Rinconada well. See attached Maps B and C or online map. https://www.google.com/maps/d/edit?app=mp&hl=en_US&mid=zW7thpaYaYZI.kXmqQlQL K9iM 6) Methods exist for residential basement construction that do not require dewatering. Residential basements are built in areas of high groundwater in The Netherlands without dewatering, per personal verbal communication with the mayor of Palo Alto’s sister city, Enschede at the Council Meeting on November 2. Map A: Palo Alto Emergency Water Supply Well Map Locations of Palo Alto's Emergency Water Supply Wells, including the Middlefield Well. Basement dewatering sites Emergency Water Supply Wells Rinconada Well Hale Creek Well Peers Park Well Matadero Well Fernando Well Eleanor Pardee Park Well Library Community Gardens Well Historical Wells Middlefield Well Map B: Dewatering_Map 2015 Residential basement construction dewatering sites and emergency water supply well locations 2015 Basement dewatering sites 2133 Webster St 2130 Byron St 713 Southampton Dr 897 Southampton Dr 736 Garland Dr 684 Wellsbury Way 804 Moreno Ave 1812 Bret Harte St 1210 Newell Rd 51 Jordan Pl 2230 Louis Rd 1405 Harker Ave 3832 Grove Ave 1950 Newell Rd Emergency Water Supply Wells Rinconada Well Hale Creek Well Peers Park Well Matadero Well Fernando Well Eleanor Pardee Park Well Library Community Gardens Well Map C: Dewatering_Map 2015 (Community center zoom) Residential basement construction dewatering sites and emergency water supply well locations 2015 Basement dewatering sites 2133 Webster St 2130 Byron St 713 Southampton Dr 897 Southampton Dr 736 Garland Dr 684 Wellsbury Way 804 Moreno Ave 1812 Bret Harte St 1210 Newell Rd 51 Jordan Pl 2230 Louis Rd 1405 Harker Ave 3832 Grove Ave 1950 Newell Rd Emergency Water Supply Wells Rinconada Well Hale Creek Well Peers Park Well Matadero Well Fernando Well Eleanor Pardee Park Well Library Community Gardens Well Attachment F November 2, 2015 [ ] Place Before Meeting [ "eceived at Meeting To: Palo Alto City Council From : Keith Bennett Save Palo Alto's Groundwater Re: Petitions Attached are petitions signed by 190 individuals specifically requesting a moratorium on new dewatering permits for residential basement construction. The signatures were mostly collected during a short 2 - 3 period in late summer by a handful of volunteers. Cf+llt0 c;. ~, oR C::r ~/bjl)§~' Name City Postal Code Signed On Deborah Baldwin Menlo Park 94025 8/6/2015 Henry Heller Palo Alto 94303 8/7/2015 M Smith Palo Alto 94301 8/7/2015 City of Palo Alto GROUNDWATER SUPPLY FEASIBILITY STUDY FINAL April 2003 2700 YGNACIO VALLEY ROAD, SUITE 300 • WALNUT CREEK, CALIFORNIA 94598 • (925) 932-1710 • FAX (925) 930-0208 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY TABLE OF CONTENTS Page 1.0 INTRODUCTION .......................................................................................................1 1.1 Background .....................................................................................................1 1.2 Well System Rehabilitation and Construction Plans........................................2 2.0 POTENTIAL GROUNDWATER USE IN PALO ALTO...............................................2 3.0 HISTORICAL GROUNDWATER LEVELS AND USE................................................4 4.0 ESTIMATION OF BASIN CAPACITY......................................................................11 4.1 1988 Drought Pumping Analysis ...................................................................12 4.2 Summary of Basin Capacity Estimation ........................................................13 5.0 POSSIBLE PALO ALTO GROUNDWATER SUPPLY SYSTEM.............................14 6.0 POTENTIAL IMPACTS OF GROUNDWATER EXTRACTIONS .............................15 6.1 Subsidence....................................................................................................16 6.2 Saltwater Intrusion.........................................................................................18 6.3 Contaminant Plume Migration .......................................................................19 7.0 SUMMARY...............................................................................................................20 LIST OF TABLES Table 1 Water Level Response ..................................................................................13 LIST OF FIGURES Figure 1 Existing and Proposed City Wells...................................................................3 Figure 2 Hale Well.........................................................................................................5 Figure 3 Matadero Well.................................................................................................6 Figure 4 Fernando Well.................................................................................................7 Figure 5 Peers Park Well ..............................................................................................8 Figure 6 Rinconada Well...............................................................................................9 Figure 7 Meadows Well...............................................................................................10 Figure 8 Historical Data on Water Use, Supply, and Subsidence in San Jose, CA....17 FINAL - April 28, 2003 i H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc City of Palo Alto GROUNDWATER SUPPLY FEASIBILITY STUDY 1.0 INTRODUCTION The Palo Alto Utilities Department (Utilities) is presently examining the issues relating to the use of groundwater. Examining all water supply options, including local sources such as groundwater supply, is a part of good planning practices for the water utility. Utilities has engaged Carollo Engineers, P.C. (Carollo) to prepare a “Groundwater Supply Feasibility Study” (Study) to: “Evaluate whether operating one or two of the City’s water wells as active supplies would cause a significant decrease in groundwater levels or deterioration in groundwater quality.” This Study estimates the groundwater basin capacity in Palo Alto vicinity, identifies a possible well supply system given the basin capacity constraints, and examines whether there is a safe way to use groundwater as a supply source either in drought periods or on an ongoing basis. We have examined the capability of Palo Alto’s groundwater supply and some of the more significant potential impacts of pumping. The three potential impacts that this Study specifically addresses are: • The risk of land surface subsidence; • The risk of groundwater contamination through saltwater intrusion; and • The risk of groundwater contamination through the travel of pollution plumes to the drinking water aquifer. Palo Alto Utilities staff and Carollo have worked closely with staff of the Santa Clara Valley Water District (SCVWD) to ensure that SCVWD staff are fully informed of the analysis methods and findings. At the present time, the City of Palo Alto is NOT planning to use any of the wells for long-term supply. Any change from the planned emergency-only use of the wells would happen only after further detailed analysis, environmental review, extensive discussion with the public, and approvals by both the Utilities Advisory Commission and the City Council. Staff is merely examining the issues related to the groundwater basin and the possible use of the wells in severe droughts or as a supplemental supply in the future. 1.1 Background The City of Palo Alto obtained its well system in 1896. The entire water supply for the City was derived from groundwater until 1938 when it began receiving supplemental supplies from the City and County of San Francisco. In 1962, the wells ceased operating on a FINAL - April 28, 2003 1 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc continuous basis and San Francisco water became the City’s primary source of supply with the wells maintained as an emergency water supply. The wells were last used in 1988 and 1991 to provide supplemental supplies during a serious drought. At this time, the City maintains five wells as emergency (standby) water sources, but they are in need of rehabilitation. 1.2 Well System Rehabilitation and Construction Plans The City is presently implementing plans to rehabilitate the five existing wells and build three new wells. These improvements are part of a larger Water System Capital Improvement Plan, which was developed as a result of extensive study completed in 1999 (1999 Study). The primary purpose of the well rehabilitation and construction plans is to provide necessary emergency water supplies in the event of a complete cutoff from the SFPUC water supplies. The overall water CIP has been reviewed and approved by both the Utilities Advisory Commission and the Palo Alto City Council. Funds for the improvements are included in the five-year Water Capital Improvement Program Budget. 2.0 POTENTIAL GROUNDWATER USE IN PALO ALTO The imported water purchased from the SFPUC has been a reliable supply for 40 years. There is growing concern, however, that this supply may be jeopardized either partially or completely by a number of factors. For example, the SFPUC supply was rendered unavailable once in 1995 and again in 1998 due to water quality concerns.1 In addition, recent studies conducted by the SFPUC have identified a number of system vulnerabilities that could cut off the water supply for up to 60 days in the event of a serious emergency.2 In regards to long-term reliability, the SFPUC supply is insufficient to meet the current and forecasted needs of the users of the regional system it operates. Droughts in 1976-77 and 1987-1992 that resulted in the rationing of supplies clearly illustrates this fact. The SFPUC’s Water Supply Master Plan (WSMP) recognized that on a long-term basis, its supplies are inadequate. The WSMP identified the system’s yield as 239 mgd while current demand is greater than 260 mgd and the demand estimate for 2030 is 303 mgd, or a shortfall in supplies of 64 mgd. Thus, it is prudent for the City to evaluate its options for improving the reliability of its water supply. The location of the City’s wells is shown in Figure 1. These wells may have potential uses beyond supplying water during SFPUC outages. If the City Council decided, the wells could also help supplement water supplies during drought periods and perhaps even as active 1 “Water Wells, Regional Storage, and Distribution System Study,” page 4-1, prepared for the City of Palo Alto by Carollo Engineers, P.C. dated December 1999. 2 SFPUC fact sheet dated August 5, 2002. FINAL - April 28, 2003 2 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc LEGEND Pa303f1-6589.cdr Figure 1 EXISTING AND PROPOSED CITY WELLS GROUNDWATER SUPPLY FEASIBILITY STUDY CITY OF PALO ALTO SFPUC Turnout Existing Well Sites Proposed Well Sites No Scale Matadero Well P ers Pa k e r Wlel Rinconada Well Library/ Community Gardens Well El Camino Park Well Palo Alto Medical Facility Well (Roth Site) Middlefield Well Eleanor Park Well Ha e l Well Fernando Well tt tt tt California Turnout Lytton Turnout sources to be regularly used in conjunction with the SFPUC supply. These uses, however, raise significant concerns related to lowering of the groundwater levels. Significantly, depressed groundwater levels can potentially lead to environmental consequences such as subsidence, saltwater intrusion, and contaminant migration. Though there may be other as yet unidentified impacts, these impacts are discussed in this Study as they are considered to be the most significant potential impacts. Currently, the wells are designated standby sources meaning that they can only be used 15 days a year and no more than 5 days consecutively.3 The “standby” designation is made with the California Department of Health Services (DHS) in part because the well water quality exceeds some secondary (aesthetic) drinking water standards. According to the 1999 study, the well water quality exceeds secondary standards for TDS, iron, and manganese. For the purposes of this Study, it is assumed that the water would be used for potable uses. As such, changing the well status with the DHS from “standby” to “active” would require the well water to be treated such that it met all drinking water regulations. Alternatively, the regulations allow the City to distribute water that meets primary drinking water quality standards but exceeds some secondary drinking water quality standards. Proceeding in this manner would require the City to first complete a study acceptable to the California Department of Health Services (DHS) showing consumer acceptance of water not meeting secondary drinking water standards (see California Code of Regulations Title 22, Division 4, Chapter 15, Article 16, Section 64449 for specific details). Customer acceptability, however, may require the City to install sufficient treatment at the wells to be used for drought or active supply such that the water quality is increased significantly or made comparable to the SFPUC water. This issue was covered in the City’s “Long-Term Water Supply Study” dated May 2000 (May 2000 Study). 3.0 HISTORICAL GROUNDWATER LEVELS AND USE The best way to evaluate the effect that pumping has on groundwater levels is to review historical data that show the basin’s response to pumping. Groundwater pumping and water level data from 1950 through 2000 are presented in Figures 2 through 7. All of the water level graphs show a characteristic rise following the switch to SFPUC water in the early 1960s. In general, the graphs show smooth trends in response to recharge, pumping, and drought conditions. There are occasional spikes in the graphs that appear to be outlying, erroneous 3 According to the California Code of Regulations, Title 22, Section 64449, (e) (I), standby wells may be used as active sources without additional water treatment if the City were to conduct a study establishing the customers’ willingness to accept water that doesn’t meet secondary water quality standards. FINAL - April 28, 2003 4 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc Pa303f2-6589.cdr Figure 2 HALE WELL GROUNDWATER SUPPLY FEASIBILITY STUDY CITY OF PALO ALTO 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Jan -48 Jan -52 Jan -56 Jan -60 Jan -64 Jan -68 Jan -72 Jan -76 Jan -80 Jan -84 Jan -88 Jan -92 Jan -96 Jan -00 Drought Period Ground Elevation 19 7 2 Pa303f3-6589.cdr 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Figure 3 MATADERO WELL CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Ja n - 4 8 Ja n - 5 2 Ja n - 5 6 Ja n - 6 0 Ja n - 6 4 Ja n - 6 8 Ja n - 7 2 Ja n - 7 6 Ja n - 8 0 Ja n - 8 4 Ja n - 8 8 Ja n - 9 2 Ja n - 9 6 Ja n - 0 0 Ground Elevation Drought Period Pa303f4-6589.cdr Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Figure 4 FERNANDO WELL CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Ja n - 4 8 Ja n - 5 2 Ja n - 5 6 Ja n - 6 0 Ja n - 6 4 Ja n - 6 8 Ja n - 7 2 Ja n - 7 6 Ja n - 8 0 Ja n - 8 4 Ja n - 8 8 Ja n - 9 2 Ja n - 9 6 Ja n - 0 0 Ground Elevation Drought Period Pa303f5-6589.cdr Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Figure 5 PEERS PARK WELL CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Ja n - 4 8 Ja n - 5 2 Ja n - 5 6 Ja n - 6 0 Ja n - 6 4 Ja n - 6 8 Ja n - 7 2 Ja n - 7 6 Ja n - 8 0 Ja n - 8 4 Ja n - 8 8 Ja n - 9 2 Ja n - 9 6 Ja n - 0 0 Drought Period Ground Elevation Pa303f6-6589.cdr Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Figure 6 RINCONADA WELL CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Ja n - 4 8 Ja n - 5 2 Ja n - 5 6 Ja n - 6 0 Ja n - 6 4 Ja n - 6 8 Ja n - 7 2 Ja n - 7 6 Ja n - 8 0 Ja n - 8 4 Ja n - 8 8 Ja n - 9 2 Ja n - 9 6 Ja n - 0 0 Drought Period Ground Elevation Pa303f7-6589.cdr 0 200 400 600 800 1000 1200 1400 1600 1800 19 4 8 19 5 2 19 5 6 19 6 0 19 6 4 19 6 8 19 7 2 19 7 6 19 8 0 19 8 4 19 8 8 19 9 2 19 9 6 20 0 0 An n u a l P r o d u c t i o n ( a c r e - f t / y r ) Figure 7 MEADOW WELL CITY OF PALO ALTO GROUNDWATER SUPPLY FEASIBILITY STUDY -240 -220 -200 -180 -160 -140 -120 -100 -80 -60 -40 -20 0 20 40 60 Ja n - 4 8 Ja n - 5 2 Ja n - 5 6 Ja n - 6 0 Ja n - 6 4 Ja n - 6 8 Ja n - 7 2 Ja n - 7 6 Ja n - 8 0 Ja n - 8 4 Ja n - 8 8 Ja n - 9 2 Ja n - 9 6 Ja n - 0 0 Wa t e r S u r f a c e E l e v a t i o n ( f e e t ) Drought Period Ground Elevation data. We believe that the occasional spikes in the data are more likely due to equipment error than due to the actual water level. The information presented in the graphs is used in the following section to estimate the groundwater basin capacity in the Palo Alto area. 4.0 ESTIMATION OF BASIN CAPACITY Groundwater resources of the Palo Alto area occur within a much larger aquifer system - the Santa Clara Valley Groundwater Basin. This basin extends as far south as Coyote Narrows and extends north of Palo Alto far into San Mateo County. The system is bounded by uplifted bedrock to the west. To the east, the shallow portion of the aquifer system is bounded by San Francisco Bay. At depth, the aquifer systems of the west side of the valley interfinger under the bay with those of the east. In a large groundwater basin, estimation of the capacity of a smaller area within a basin is difficult because the smaller area is, by definition, unbounded. Groundwater moves freely between basin areas in response to hydraulic head. Therefore, pumping or recharge in one area of the basin has effects on the basin as a whole. Indeed, the impacts of seasonal variations in recharge and in extractions by one or more of Palo Alto’s neighbors are evident in the seasonal rise and fall of the water levels at the Hale Well. Estimating the capacity of the Santa Clara Valley Groundwater Basin in the Palo Alto area requires the definition of an arbitrary area for purposes of evaluating changes in groundwater storage that have occurred. For the purpose of estimating the storage capacity of the groundwater basin in the Palo Alto area, an arbitrary area was defined. This area is bounded on the west by the Hanover Fault zone that is approximately 2,000 feet west of El Camino Real with a similar trend. The Bay was adopted as the eastern boundary. The Hanover Fault zone separates the alluvium of the basin from the bedrock to the west and is a hydrogeologic boundary. For the upper portion of the aquifer system that is in hydraulic communication with the Bay, the Bay is a hydrogeologic boundary. For the deeper portions of the aquifer system, the Bay is not a hydrogeologic boundary but for purposes of definition in this Study, it was adopted as a boundary. The adopted north and south bounds are San Francisquito Creek and San Antonio Road, respectively. The area described by these boundaries is approximately 9,500 acres. Given this defined area, there are several approaches to understanding the capacity or yield. Three methods were evaluated in a previous report to the City entitled “Estimation of Groundwater Basin Capacity” dated December 2002 (December 2002 Report). Those three methods are: 1) Use of the SCVWD calibrated groundwater model; 2) Analysis of basin recovery to cessation of pumpage; and 3) Analysis of basin response to 1988 drought pumping. Once the December 2002 report was completed, the City and Carollo met with representatives of the SCVWD to discuss their questions and concerns regarding the FINAL - April 28, 2003 11 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc report. One of the outcomes of that meeting was that the first two methods of calculating the groundwater basin capacity were controversial for the following reasons: • The SCVWD groundwater model does not accurately reflect the hydrogeologic conditions at Palo Alto. One of the most important deviations is that the model does not account for any recharge from San Francisquito Creek. In fact, the model has a boundary condition that sets the contribution at zero. As such, using the model to calculate the Palo Alto groundwater basin capacity would likely result in a volume that is erroneously low unless the contribution from San Francisquito Creek is accounted for. Since this data is not available and obtaining it would not only require an extensive hydrogeologic study but would also raise concerns regarding the amount of water that must be left in the creek versus that which can be considered useful for groundwater recharge and later extraction, this method will not be further developed. • Using the groundwater level recovery history to calculate the basin storage capacity yielded values that ranged over two orders of magnitude. SCVWD representatives recommended that the City should perform multiple aquifer tests to improve the accuracy of this data. However, the existing condition of the City’s wells is not readily conducive to performing this type of test. In addition, an aquifer test could readily be performed once the City has completed upgrading its wells. For the present time, this method of estimating the basin capacity will not be pursued. The third method presented in the December 2002 Report for estimating the groundwater basin capacity (i.e. analyzing the water level data gathered during and after pumping in 1988) will be used for the remainder of this Study. 4.1 1988 Drought Pumping Analysis The pumping performed by the City of Palo Alto during the drought provides data to directly estimate the response of the basin to extractions. When the 1987-1992 drought occurred, the City’s wells had been essentially idle since 1962. During this period, water levels in the basin had risen, on average, more than 150 feet. Approximately 90 percent of that recovery took place in the first 10 years following cessation of pumping. The City operated the wells for an approximately 5-month period in 1988 and extracted approximately 1,505 acre-feet. The water level response is shown on Figures 1 through 6. The extraction volume and the observed water level response are summarized in Table 1. Averaging the observed water level declines results in an average decline of approximately 24 feet. This water level decline reflects Palo Alto’s pumpage while also reflecting the simultaneous pumpage from neighboring utilities. Utilizing the observed 24 feet of decline across the assumed 9,500-acre area results in an observed coefficient of storage of approximately 0.007 (dimensionless). This value is quite appropriate for a semi-confined aquifer system, such as the Palo Alto area. FINAL - April 28, 2003 12 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc Table 1 Water Level Response Groundwater Supply Feasibility Study City of Palo Alto Well 1988 Extractions (acre-feet) Observed Water Level Decline During the 1988 Pumping Period (feet) Matadero 0 18 Hale 398 15 Fernando 0 25 Rinconda 627 25 Middlefield(1) 0 37 Meadows(2) 123 Data Not Available Peers Park(3) 357 Data Not Available Total 1,505 Average = 24 Notes: (1) Middlefield well water level decline likely reflects proximity (about 0.5 mile) to the operating Rinconda well. Similar effects are revealed for the Matadero and Fernando wells indicating that they are in the same basin as the operating wells. (2) The Meadows well was not highly productive and was destroyed following its use in 1988. No water level data was collected after 1988. (3) Water level data for the Peers Park well were not collected between the years 1988 and 1994. Subsequent data shows water level variation similar to the Hale well. Though some groundwater was pumped in 1991, the City ceased significant extractions in December 1988. Of interest is the rapid recovery of the basin after drought conditions, with water levels recovering to pre-pumping levels within 18 months of the extraction period. This also is reflective of the semi-confined nature of the basin and the active recharge efforts of SCVWD. 4.2 Summary of Basin Capacity Estimation From the drought pumping analysis presented above, the following conclusions are drawn regarding the groundwater basin capacity: • Water levels in the Palo Alto area have returned to almost predevelopment levels. Essentially, the groundwater basin in the Palo Alto area is full. • Data from 1988 pumping provides a good example from which to appraise groundwater extraction concepts. 1,500 acre-feet were extracted with limited impact. Water level impacts were short-lived and water levels returned to pre-pumping levels within 18 months. If pumping were performed during a non-drought period, the drawdown would likely be less. Initial drawdown may also be affected by the condition of the existing casings that may cause otherwise productive portions of the aquifer to FINAL - April 28, 2003 13 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc contribute to the supply. An aquifer test should be conducted following the City’s well construction and rehabilitation efforts to verify the basin’s response to pumping. • Utilizing the data from the 1988 pumping, the extraction of 1,000 acre-feet from the Palo Alto area will result in basin-wide water level declines on the order of 15 feet. Historical experience suggests that the basin will recover to pre-pumping levels within a couple years. It is expected that the water level would decline approximately 25 feet if the City were to extract 1,500 acre-feet in one year. • Occasional depletion of storage resulting from extractions in excess of annual average recharge appears to have minimal adverse impacts. • Seasonal fluctuations in water level record from Hale and Rinconada wells shows that Palo Alto’s pumpage does not occur autonomously. Palo Alto’s water level appears to be impacted by pumpers outside of SCVWD jurisdiction. From the above analysis, it appears that the following groundwater pumping scenario may be safely supported by the groundwater basin: • During drought conditions, 1,500 acre-feet may be withdrawn in one year as long as the aquifer is allowed to recover to pre-pumping levels before pumping is reinitiated. • 500 acre-feet per year may be withdrawn on a year-to-year basis. This practice, however, should be discontinued if the groundwater levels continued to drop to levels that may induce negative environmental impacts (see discussion below on subsidence, saltwater intrusion, and contaminant plume migration). The balance of this study is presented assuming the wells are used to supply 1,500 acre- feet per year (AFA) during droughts, or 500 AFA on a year-to-year or active basis. 5.0 POSSIBLE PALO ALTO GROUNDWATER SUPPLY SYSTEM A well system that could provide this level of service would need a capacity of about 1,000 gallons per minute (gpm) assuming the well is operated continuously for the year during the drought operation (1,500 AFA) or 2,000 gpm if the well is operated for only half the year. In addition, the well site must be able to accommodate the treatment equipment that may be required for this operation (as discussed above), and the environmental and public involvement efforts must conclude that installing treatment is feasible at the site. The May 2000 Study evaluated the existing and proposed well sites in terms of their relative ability to be used as drought or active supplies. That study provided the following ranking of the existing wells: • Hale and Peers Park are the best sites since they are existing wells that are high-capacity and have adequate adjacent space for treatment equipment. FINAL - April 28, 2003 14 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc • Rinconada is another existing high-capacity well but it lacks the space needed for treatment equipment (unless the equipment is constructed at the location of the existing tennis courts). • Fernando and Matadero do not have adequate capacity or space to be considered feasible active or drought supply sources. At the time the May 2000 Study was written, the City had not yet begun to implement the proposed new well projects. As such, these wells were generally ranked lower than the existing wells. The proposed well sites were ranked as follows: • The El Camino Park site was ranked among the highest because of the size of the site and its proximity to the SFPUC turnouts and the proposed reservoir, which would facilitate blending the well water with SFPUC water before it is delivered to the distribution system. • The Eleanor Pardee Park, the Library/Community Gardens, and the Roth sites (Old Palo Alto Medical Facility) were ranked high because of the size of each of these sites. • The Middlefield Road well site was ranked lowest because it is the most constrained site. It should be emphasized that none of the previous studies included performing either the environmental, public involvement, or other studies that are needed before any of the above sites can be considered truly feasible for well or water treatment facility construction. The City’s current on-going efforts (the Phase I and Phase II Water Supply Capital Improvement Projects) include performing these needed studies. If treatment or blending are not required, any of the City’s wells could be used for drought or active use assuming the required approvals (discussed above) are obtained. If, however, water treatment facilities must be constructed, it would be best to focus on a single site since only one well is needed to be within the identified capacity limits. In addition, focusing the permitting and engineering requirements on a single site is the most cost-effective approach for the City. For a drought supply with treatment, the best existing well sites are Hale and Peers Park. The best proposed well site for a drought supply source with treatment is El Camino, though the Roth site, the Library/Community Gardens, and Eleanor Pardee Park all appear to be feasible sites at this time. 6.0 POTENTIAL IMPACTS OF GROUNDWATER EXTRACTIONS The potential impacts from groundwater extractions derive from changes in groundwater flow directions that result from changes in water levels caused by extractions (pumping). As a preface to the following sections, a brief summary of the history of groundwater levels in the Palo Alto area and the Santa Clara Valley is presented. FINAL - April 28, 2003 15 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc Groundwater development in the Santa Clara Valley began around 1900. At that time most groundwater wells in the lower elevations of the Santa Clara Valley were artesian – that is, flowing at ground surface. As aggregate extractions increased, water levels fell progressively, subject to climatic variations, reaching depths of as much as 200 feet below ground surface by the early 1960s. With the importation of water to the Santa Clara Valley water levels began to recover. In Palo Alto, water levels are currently at elevations comparable to the 1910s. In wet winters, wells in the Palo Alto area now, if not controlled, flow at ground surface. 6.1 Subsidence One of the potential impacts of groundwater extractions is a decrease in the elevation of the ground surface known as land subsidence. Some of the negative effects of the subsidence are an increased risk of flooding, and damage to infrastructure. Subsidence has been associated to areas with significant groundwater pumping, natural gas production, or oil production. Groundwater is pumped from porous layers with higher hydraulic capacities, i.e., sand and gravel aquifers. As the pumping occurs, water from the confining layers of the aquifers is drawn into the porous aquifer. The aquifers consisting of sand and gravel tend to be incompressible, however, the confining layers may be compressible materials, such as clay. When the groundwater is pumped from these compressible layers the soils compress and the surface elevation starts to drop. This decline in elevation is the result of the physical properties of clay. Clay is comprised of platy minerals that are commonly oriented randomly within the clay deposit. With the removal of fluid and overburden pressure, the clay particles rotate such that they orient parallel with the ground surface. This rotation results in a decrease in vertical thickness of the deposit. The thickness loss is irreversible and the resulting elevation loss is permanent. However, land subsidence can be arrested with increased groundwater levels. In Santa Clara Valley, extractions since the turn of the century resulted in lowering of groundwater levels as much as 200 feet (-160 below sea-level). This lowering of water level resulted in as much as up to 12 feet of subsidence in some locations of the Santa Clara Valley. Subsidence in the Palo Alto area was between 2 and 4 feet. The amount of subsidence in a given area was a function of the amount of water level decline and the local geologic conditions. Areas with shallow bedrock experienced less subsidence than those areas underlain by sediments of substantial thickness. The relationship between water levels, pumpage, imported water supply, and subsidence (as measured in San Jose, CA) is shown on Figure 8. As can be seen in this figure, subsidence generally correlates with periods of falling water levels. Currently, land subsidence has essentially stopped in the Santa Clara Valley as a result of the increased groundwater levels resulting from the use of alternative water supplies and basin management. FINAL - April 28, 2003 16 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc Pa303f8-6589.cdr Figure 8 HISTORICAL DATA ON WATER USE, SUPPLY, AND SUBSIDENCE IN SAN JOSE, CA GROUNDWATER SUPPLY FEASIBILITY STUDY CITY OF PALO ALTO As discussed above, the loss of elevation associated with subsidence is the result of the reorientation of clay minerals within clay deposits. The compaction of these deposits is essentially irreversible in that when water levels subsequently rise, the clay minerals do not return to their original orientation. However, since these materials are now compacted, the lowering of water levels does not result in significant further compaction. If the City’s wells were used at the capacity limits considered herein, the result would be a transient lowering of water levels to levels less than 25 percent of the historical lows. As such, use of the wells should not result in renewed subsidence. There was no data collection focused on subsidence in the Palo Alto area during the last use of the wells (in 1988 and in 1991). The closest subsidence measurement station maintained by the SCVWD is approximately 10 miles to the south of Palo Alto. However, there are no known anecdotal reports of property damage from renewed subsidence in the Palo Alto area during this period of well use. 6.2 Saltwater Intrusion The movement of saltwater into freshwater aquifers is called saltwater intrusion. Under natural conditions, groundwater flows from areas of recharge on the land to areas of discharge; in coastal areas these are commonly the ocean or the bay. If groundwater extractions result in on-land water level elevations below sea-level, groundwater flow directions reverse and seawater moves from the ocean into coastal aquifers. Although the most common mechanism of seawater intrusion is the lateral movement of seawater through the offshore exposure of the aquifer, seawater intrusion can also occur vertically where depressed water levels in underlying aquifers induce flow from overlying water bodies into the aquifer. If the overlying water body is saline this also results in a type of seawater intrusion. This vertical movement of seawater is often distinguished from lateral movement of seawater by the designation of seawater infiltration. The coastal portion of the Santa Clara Valley aquifer system has historically been impacted by both seawater intrusion and seawater infiltration. Groundwater extractions in the Santa Clara Valley from the turn of the last century until the 1970s resulted in the maintenance of groundwater elevations that were chronically and increasingly below sea-level. As previously mentioned water surface elevations in the Palo Alto dropped at as much as 140 feet below sea-level. This resulted in the on-land movement of seawater from the Bay and in many areas the vertical movement of seawater from Bayland ponds used for salt harvesting and aquaculture. The rate of intrusion/infiltration is governed by the magnitude of the gradient: the steeper the gradient, the more rapid the movement of water through the aquifer. Seawater intrusion and infiltration has been arrested as the result of reduced groundwater extractions, water importation and basin management efforts. While currently arrested, seawater intrusion could be reactivated if water levels were again chronically below sea-level. However, because groundwater moves very slowly, the short- FINAL - April 28, 2003 18 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc term occurrence of below sea-level water levels, while briefly reversing the flow direction, results in little actual transport of saline groundwater. What transfer does occur, is reversed when flow directions return to normal. This would be the case for either the emergency supply operation for which the wells are currently permitted, or the possible drought supply that is discussed herein. 6.3 Contaminant Plume Migration Groundwater extraction modifies its natural flow direction. In the vicinity of an extraction well, groundwater flow directions are altered both vertically and horizontally resulting in the production of water from the well. Water produced from the well derives from a recharge area surrounding the well, the size and shape of this recharge area being a function of the hydrogeology and well design. This recharge area is commonly referred to as a capture zone of the well. If there are sources of contamination within the capture zone of a well, the well can become contaminated. Within an urbanized setting, the potential sources of groundwater contamination are limited to contamination associated with industrial and commercial land uses. Predominantly this is in the form of leaky underground storage tanks. This would include gas stations, industrial solvents from manufacturing or research, and dry cleaners. As part of the 1999 Study, all sources of contamination known by regulatory agencies were reviewed to determine the risk to City’s existing wells and proposed new well sites. This review revealed very few contamination sites in the areas surrounding the existing and proposed well sites. Most of the existing contamination is in the more industrial portions of the City – those portions west and south of the downtown area. Fortuitously, these areas are not the areas of the City with the most favorable hydrogeologic characteristics for water supply wells. The only identified contaminated sources in the area near the existing or proposed wells were the Shell gas station on Alma Street and the City of Palo Alto Fire Station. These locations are proximate to the proposed El Camino Well, and they both had leaky underground gasoline storage tanks. Both sites have been cleaned up and closed by the Regional Water Quality Control Board. The use of the wells at the capacity limits considered herein will temporarily modify groundwater flow patterns in the vicinity of the wells creating the potential for capture of contaminate plumes. However, based on available records there are no known contaminate plumes within the capture zones of the City’s existing or proposed wells. FINAL - April 28, 2003 19 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc 7.0 SUMMARY Once refurbished, the City’s five existing wells and the three proposed new wells will provide an excellent standby water source to be used during water supply emergencies such as a shutdown of the SFPUC system. If the Palo Alto City Council decided to use the wells during droughts or as supplemental sources to be used in conjunction with the SFPUC supply, the wells could also provide added benefits in terms of enhancing the reliability and redundancy of the City’s water supply. Any regular use considered in the future, however, should not exceed the reliable capacity of the groundwater basin to avoid such negative environmental consequences such as subsidence, saltwater intrusion, and contaminant migration. Groundwater pumping and water level data for the last 50 years were analyzed to help evaluate the basin’s response to pumping. It should be noted that the data collection and analysis is too limited to draw firm conclusions regarding the reliable basin capacity or sustainable yield that the City may be able to pump on an active basis. In addition, these values could only be derived after analyzing and accounting for natural recharge patterns and the pumping plans of the City’s neighboring utilities. To provide an initial analysis on issues related to other-than-emergency use of the wells, however, the following may be inferred from the data analysis presented herein: • Water levels in the Palo Alto area have returned to almost predevelopment levels. Essentially, the groundwater basin in the Palo Alto area is full. • Depending on the method, estimates of average annual recharge to the basin are between 38 and 3,800 acre-feet. A conservative year-to-year value is likely on the order of 500 AFA. • Data from 1988 pumping provides an example from which to appraise groundwater extraction concepts. 1,500 acre-feet were extracted with limited impact. Water level impacts were short-lived and water levels returned to pre-pumping levels within 18 months. If pumping were performed during a non-drought period, the drawdown would likely be less. These values should be revisited through an aquifer test performed following the City’s well construction and rehabilitation efforts. • Utilizing the data from the 1988 pumping, the extraction of 1,000 acre-feet from the Palo Alto area will result in basin-wide water level declines on the order of 15 feet. Historical experience suggests that depending on climatic conditions, the basin will recover to pre-pumping levels within a year or so. It is expected that the water level would decline approximately 25 feet if the City were to extract 1,500 acre-feet in one year. This decline, however, is not likely to induce significant detrimental environmental impacts since it is much less than the historical drawdown levels and is transient in duration. FINAL - April 28, 2003 20 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc FINAL - April 28, 2003 21 H:\Final\PaloAlto_WCO\6589A00\Rpt\GWSupplyFeasibilityStdy-Final.doc • Occasional depletion of storage resulting from extractions in excess of annual average recharge appears to have minimal adverse impacts. • Seasonal fluctuations in water level record from Hale and Rinconada wells show that Palo Alto’s pumpage does not occur autonomously. Palo Alto’s water level appears to be impacted by pumpers outside of SCVWD jurisdiction, possibly Menlo Park and East Palo Alto. Under drought conditions, impacts of all local pumpers will be superimposed on water level conditions. The limited analysis suggests that sustained year-to-year extractions of approximately 500 AFA may be possible with negligible water level decline. The actual extraction value would be dependent on the location and depth of the well, how many wells were being operated, and the extent at which neighboring utilities were operating their wells and climatic conditions. If extractions were periodic, as in response to drought or delivery reductions, extractions of 1,500 AFA are possible provided this use is short-lived (one year every three or so years) and the basin is allowed to recover after this use. These estimates were based on the best available data and on general knowledge of groundwater basin behavior. However, the data was limited, as the basin has not been actively pumped since 1963. When more information becomes available both from developing the City’s wells for emergency use and from data collected from the SCVWD’s monitoring well, these estimates will be re-examined. The level of well use described above is not expected to result in reinitiation of subsidence or seawater intrusion or the movement of contaminate plumes for the following reasons: • Reinitiation of significant subsidence would require the dewatering of sediments not dewatered as part of the water level declines of the last century. This would require water level declines of more than 140 feet. As proposed the operation of the wells would result in short term water level declines of between 20 and 30 feet, and dewatering of previously dewatered and compacted sediments. • The year-to-year 500 AFA extraction is intended to not lower groundwater levels substantially, which would preserve the natural groundwater flow direction and prevent saltwater intrusion. The periodic 1,500 AFA well use described above would result in transient occurrence of water levels below sea-level. While water level below sea-level will reverse the seaward gradient, the slow travel time of groundwater provides a buffer from seawater intrusion for transient use. • Operation of the wells would result in temporary disruption of natural flow directions and could effect movement of contaminate plumes. However, no known contaminate plumes exist proximate to the existing or proposed wells sites. December 1, 2015 Save Palo Alto’s Groundwater requests the Policy and Services Committee to recommend the following for Council approval: Institute an immediate moratorium on the issuing of dewatering permits for residential basements until: 1.State mandated drought restrictions are lifted and 2. The City prioritizes engaging a consultant, preferably with knowledge of the local aquifers to create a Groundwater Management Plan for Palo Alto 3.This Groundwater Management Plan should be incorporated Palo Alto’s Urban Water Management Plan, the next update which is due in July, 2016, and if practical, coordinated with efforts in San Mateo County as the San Francisquito Creek Sub-basin is shared between counties. Specific concerns to be addressed in the Groundwater Plan: a. Create and implement a sustainable groundwater budget for Palo Alto taking into account that this is a shared resource with neighboring cities and other entities. b. Consider the prospect of climate change including possible periods of extended drought and exceptional rains and that rising sea levels might led to greater possibility of saltwater intrusion. c.Integrate groundwater management policies to Palo Alto's Sustainability goals. d.Protection of water levels in both the deep and surface components of the aquifer e.Integrate groundwater management policies to Palo Alto's Sustainability goals. Additionally, the Groundwater Management Plan needs to be considered in the update to Palo Alto’s Comprehensive Plan, specifically N-18 and other applicable policies. If under Palo Alto's Groundwater Management Plan the water budget allows for dewatering, then: 1. Groundwater Pumping Allocations and Pricing a.Priority for dewatering should be given to public projects, e.g. the Public Safety Buildings b. Normal water rates should be charged for this water, and the water should be priced at or above replacement costs to the City c. Meter water to ensure accurate charges and to provide reliable data for the water budget d. Limit the issuance of dewatering permits to ensure that cumulative dewatering is within the groundwater budget 2.Best practices and zero-waste policies Adopt best practices and zero-waste policies for groundwater Attachment B: Correspondence a.The City will institute appropriate actions and policies to preserve a healthy groundwater level and flows with costs paid by the developing party, including i. requiring building practices and techniques that minimize dewatering, such as shallower pumping depths, shorter pumping periods, or methods that do not require dewatering ii.re-use of pumped water for (neighborhood) irrigation replacing use of potable water for irrigation iii.re-injection of the groundwater to the aquifer, preferably nearby iv.Explicit consideration should be given to the cumulative effects of dewatering at multiple sites in the same geographical area and require site- specific dewatering plans that minimizes the cumulative impacts on the nearby properties, including requiring coordinated dewatering of such sites when appropriate. b.The City will create enforceable City policies and collect meaningful penalties when policies are violated c. Establish a roadmap to achieve “Zero Dewatering” waste within 5 years. 3. Zoning Update zoning for basement construction by applying existing policy concepts to all underground construction: a.individual review, b.revised underground set back restrictions, including excavation, c.depth and volume restrictions, d. approved drainage requirements, specifically enhanced storm water collection and mitigation of the local impacts of a basement on groundwater flows, e.include basements, lightwells and below-grade construction and walls in FAR and SAR regulations. 4.Local Impacts of Dewatering The City will require a determination of impacts of groundwater pumping on nearby buildings, infrastructure and trees or landscaping a.Applicants would determine and monitor the approximate extent of the temporary groundwater zone of depression caused by pumping b.Data will be readily available to the public online and of suitable quality to provide a basis for both understanding the aquifer and soils and to provide documentation in the event of property damages 5. Storm Water Handling and Aquifer Recharge Applicants will minimize and mitigate the impacts and costs of basements on the City’s storm water handling and maximize local aquifer recharge capabilities. 6. Avoidance of multi-year adverse impacts An qualified consulting firm will review Palo Alto's Water Budget every 2 years. Other than for emergency purposes, whenever water outflows exceed inflows an immediate moratorium on issuing dewatering permits will occur. 1 MEMORANDUM TO: UTILITIES ADVISORY COMMISSION FROM: UTILITIES DEPARTMENT DATE: FEBRUARY 13, 2013 SUBJECT: Utilities Advisory Commission Review and Discussion of the 2013 Preliminary Assessment of Water Resource Alternatives RECOMMENDATION Staff requests that the Utilities Advisory Commission discuss the Preliminary Assessment of Water Resources Alternatives and the proposed next steps in the update of the Water Integrated Resource Plan (WIRP). No action is required. EXECUTIVE SUMMARY An Integrated Resource Plan provides a detailed evaluation of current and potential resources and policies and provides a blueprint to guide resource procurement and optimization for the future. The City completed its first Water Integrated Resource Plan (WIRP) in 1993, and updated the WIRP in 2003. Almost ten years have passed since the last WIRP, and it is time for an update to ensure policies and guidelines are consistent with community preferences and the changes that have occurred to the City of Palo Alto Water Utility. The WIRP update will include several phases, starting with the attached Preliminary Assessment of Water Resource Alternatives. The Preliminary Assessment describes each potential water resource alternative available to the City using information currently available. The next phase will be a more detailed analysis of various supply portfolio alternatives. Staff is seeking feedback from the UAC on the proposed alternatives identified for further review in the next phase. BACKGROUND The City prepared its first Water Integrated Resource Plan (WIRP) in 1993 when the City was faced with a decision to participate in a regional recycled water expansion program. The 1993 WIRP assessed the costs and benefits of the recycled water project compared to other supply alternatives, and ultimately concluded that recycled water was not cost effective relative to existing supply. In 2003, the City updated the WIRP. The 2003 WIRP indicated that supplies from the San Francisco Public Utilities Commission (SFPUC) were adequate during normal years, but Submitted at Committee meeting by Peter Drekmeier additional supplies were needed in dry years to avoid shortages. The key conclusions from the 2003 WIRP analysis were:  The City’s existing contractual entitlement with the SFPUC provides adequate supplies;  The cost to connect to the Santa Clara Valley Water District (SCVWD) treated water pipeline was prohibitive;  Continuous use of groundwater is not recommended;  The City should continue to evaluate recycled water; and  Continue the current Demand Side Measure programs and explore additional measures. In December 2003, Council adopted WIRP Guidelines (Attachment A) for the development of new water resources and the preservation of existing supplies, which are summarized below: 1. Preserve and enhance SFPUC supplies 2. Continue to advocate for an interconnection between SFPUC and SCVWD 3. Participate on the development of cost effective regional recycled water programs 4. Scope water conservation programs to comply with Best Management Practices (BMPs) 5. Maintain emergency water conservation measures to be activated in case of droughts 6. Retain groundwater supply options in case of changed future conditions 7. Survey community to determine its preferences regarding the best water resource portfolio 2003 WIRP Guideline Summary Review A summary of the current situation with respect to each of the 2003 WIRP Guidelines is provided below. Guideline #1 - Preserve and enhance SFPUC Supplies. This guideline had objectives including that: a) the SFPUC regional water system be rebuilt; b) the cost of improvements is fairly allocated; c) future water needs can be met; d) there are adequate supplies during drought; e) the community prepare for potential water outages; f) the City implement cost effective water conservation activities; g) water received must meet drinking water standards; h) the Master Contract is properly implemented and a new contract is in place prior to 2009; and i) there is ongoing support of efforts to protect health, safety and economic well-being of the water customers and community. The guideline was critical when the 2003 WIRP was completed since the SFPUC had not yet adopted its Water System Improvement Program (WSIP) and the City’s contract with SFPUC would expire in June 2009. In May 2008, the SFPUC adopted the WSIP and since then has been earnestly implementing the rebuild of the regional system. In June 2009, a new Water Supply Agreement was executed with San Francisco that resolved such issues as fair cost allocation, drought supply allocation, and water quality assurances. In addition, the City Council adopted the 2010 Urban Water Management Plan (UWMP) that establishes goals for water efficiency resources (Staff Report #1688). Guideline #2 - Advocate for an interconnection between the SFPUC and the SCVWD. In 2003 the SCVWD evaluated extending its treated water pipeline to serve Palo Alto and other north county water retailers. During SCVWD’s preparation of the Water Supply and Infrastructure Master Plan in 2012, staff again requested the SCVWD analyze a pipeline extension and reliability interconnection with the SFPUC system. The SCVWD declined to evaluate an extension in the plan, but indicated it may be considered in a future infrastructure reliability master plan. Guideline #3 – Actively participate in development of cost effective regional recycled water plans: In 2006, the City completed a Recycled Water market Survey Report to determine potential customers within the City, evaluate potential pipeline alignments, and provide preliminary cost estimates. In 2008, the City completed a Recycled Water Facility Plan, which identified a preferred pipeline alignment and prepared costs estimates for the preferred project. In 2010, the City of Mountain View and the Regional Water Quality Control Plant (RWQCP) completed a new recycled water pipeline to serve customers in the Mountain View area. Since 2010, the City has developed a Mandatory Use Ordinance, a Salinity Reduction Policy (CMR 121:10), is preparing environmental documents for the Palo Alto project, and has been actively pursuing grant and low interest loan opportunities. Most recently, the RWQCP completed a Long Range Facilities Plan (Staff Report #2914), which includes an assessment of the current and future recycled water program and identifies program needs. Guideline #4 – Focus Water DSM Programs to comply with BMPs: The City is a signatory to the California Urban Water Conservation Council’s Memorandum of Understanding (MOU) regarding urban water conservation. The City strives to implement programs that meet or exceed the current BMPs as directed in the MOU and the City’s 2010 UWMP contains aggressive water efficiency goals. Guideline #5 - Maintain Emergency Conservation Measures to be activated in case of droughts: The 2010 UWMP contains the actions and measures that will be implemented in response to a drought. Guideline #6 – Retain Groundwater Supply options in case of changed future conditions: The City is currently developing the Emergency Water Supply and Storage Project. Although the primary purpose of the project is to provide emergency water supplies during a catastrophic interruption of SFPUC service, it includes the capability for further retrofits to some or all of the new and refurbished wells for normal year use. However, the project’s Environmental Impact Report (EIR) includes a mitigation measure limiting groundwater pumping to a maximum of 1500 AFY during a drought. The SCVWD, in its role as the groundwater steward for Santa Clara County, recently completed an update to its Groundwater Management Plan. As part of the process, staff requested additional analysis on the groundwater basin in the Palo Alto area. This additional information may assist the City’s effort to modify the 1500 AFY limitation, if there is an interest in doing so. Guideline 7 – Survey Community to determine its preference regarding the best water resource portfolio. In June 2004, staff presented the results of the community survey to the UAC. The survey polled the community on the use of groundwater during a drought, and the results indicated water quality issues were a primary concern. The report recommended the City await the completion of the Emergency Water Supply and Storage project, and then proceed with an evaluation of using groundwater as a supplemental source during a drought. DISCUSSION It has been almost a decade since completion of the last WIRP. Several key milestones have occurred since then, and the water utility landscape continues to evolve in response to legislation, the regulatory environment, and community preferences. The changes since the 2003 WIRP are driving the need to re-evaluate existing conditions to determine if adjustments are needed. 2013 WIRP Update The 2013 WIRP update will review and make necessary adjustments to the existing WIRP guidelines so they are consistent with existing policies and reflect community preferences. The completion of the Preliminary Assessment (Attachment B) is the first step in the development of the 2013 WIRP. The Preliminary Assessment provides a general evaluation of current resources and potential future water resource alternatives based on the best available information. In some cases, the evaluation of the resource option is based on consultant reports and analysis that was performed over 10 years ago. Staff has refreshed the analysis to provide a current representation as best as possible. The potential water resources described in the Preliminary Assessment include: 1. Water from the SFPUC 2. Groundwater 3. Treated Water from the SCVWD 4. Recycled Water 5. Demand-Side Management 6. Sale of the City’s Individual Supply Guarantee Water resources that were evaluated in the 2003 WIRP process, but are not included in this Preliminary Assessment, include desalination, small scale groundwater wells for irrigation, and treated contaminated groundwater. One of the major changes since the 2003 WIRP is that the cost of SFPUC water has increased significantly and has become much more expensive than water from the SCVWD as shown in Figure 1 below. Figure 1: Actual and Forecast Cost* of SFPUC and SCVWD Water Supplies 0 200 400 600 800 1000 1200 1400 1600 1800 2000 2200 2400 $/ A c r e -Fo o t Fiscal Year SFPUC vs. SCVWD SCVWD - Groundwater Rate SCVWD Treated Water rate SFPUC Treated Water Rate ForecastActual * The bars for the SCVWD costs show a higher cost scenario that includes higher CIP spending. Given the current and projected costs of water from the SFPUC and SCVWD, a rough estimate of the total annual costs can be calculated if all of the City’s potable water supplies came from either the SFPUC, SCVWD treated water, or groundwater. Table 1 below shows the estimated annual cost in 2013, 2015, and 2020 for those three sources. Table 1: Estimated Cost of Water Supply Alternatives FY 2013 FY 2015 FY 2020 Water needs (AF/year) 13,500 14,243 14,971 Unit Cost ($/AF) SFPUC supplies $1,259 $1,594 $2,134 SCVWD treated water $725-905 $850-1180 $1185-1695 Groundwater $625-805 $750-1080 $1085-1595 Annual Cost ($million) with: 100% SFPUC supplies $17.00 $22.70 $31.95 100% SCVWD treated water $9.7-12.21 $12.1-16.8 $17.74-25.3 100% Groundwater (1) $9.7-12.21 $12.1-16.8 $17.74-25.3 (1) Cost includes O&M cost of $100/AF for operating the City’s wells As shown in Table 1, there are potentially significant cost savings if the City discontinued using water from the SFPUC and replaced it with groundwater or SCVWD treated water. However, there are also water quality impacts that the community will need to determine are acceptable. In addition, since the groundwater may not meet secondary drinking water quality standards, there may be additional costs for treatment that are not included in these cost estimates. Issues with Current Water Supplies Besides the increasing cost of supplies from the SFPUC, the City’s current water supply is vulnerable to water supply shortages in dry years. The current plans for dealing with these shortages are to request, and provide incentives for, customers to reduce water usage. In addition, groundwater is available as a supplemental supply in droughts. The new well planned at El Camino Park can be blended with SFPUC supplies in the new reservoir prior to introduction to the City’s distribution system to ensure that the water meets all water quality standards. Presently, the City can use 1,500 acre-feet/year (AFY), or about 12% of the City’s current annual usage, of groundwater. Water Supply Options to Further Evaluate Based on the Preliminary Assessment, staff has identified several water supply portfolio options that merit further evaluation. This evaluation may involve additional analysis and/or consultant assistance to provide more meaningful data for the various supply options to be properly characterized and evaluated. Before a recommendation can be developed, several issues require additional study and evaluation. These relate to the use of groundwater, SCVWD treated water, recycled water, and the sale of the City’s unused ISG to SFPUC supplies. The issues for each of these resource options that need more in-depth evaluation are described below. 1. Groundwater – The 1,500 AFY mitigation measure limitation on the use of groundwater reduces the City’s flexibility for using groundwater in droughts and in normal years. Staff plans to pursue modification of that restriction. This may require additional groundwater modeling and possibly an updated environmental review process. Depending on the amount of groundwater the City would seek to use, the supporting analysis could require intensive groundwater modeling and coordination with SCVWD, neighboring agencies and other stakeholders. 2. SCVWD treated water – Since the City has no current connection to SCVWD’s treated water system, using treated water would require an extension of the SCVWD’s West Pipeline to an interconnection point at Page Mill Road. An evaluation of this option may require an updated West Pipeline extension study similar to the one done in 2003. The study would evaluate the costs and cost allocation scenarios for the interconnection. Implementation of this alternative would require the City to execute several new contracts and revise the existing contract with the SFPUC. Staff anticipates the SCVWD will perform the necessary environmental reviews for a West Pipeline extension. 3. Recycled water – Recycled water is a unique, non-potable supply source that would augment the portfolio with a locally controlled, diverse supply capable of providing dual benefits from a water and wastewater perspective. As discussed in the Preliminary Assessment, the evaluation of a recycled water extension to serve the Stanford Research Park is underway and a recommendation on a future recycled water project depends on securing an outside funding source. Following completion of the environmental document, staff will prepare a financial feasibility report and make recommendations on an expansion of the recycled water distribution system. 4. Sale of the City’s unused Individual Supply Guarantee (ISG) to SFPUC supplies – Water transfers can be complicated and require time to structure. Considering recent events that have provided indicative pricing for a potential transaction, staff recommends the City begin the evaluation of a transfer of the City’s ISG. While potential revenues are a major factor in the recommendation to move forward, staff has been monitoring the differential between water consumption and the City’s ISG for some time. In light of the historical and projected ISG surplus, a sale of a small portion of the City’s ISG may be in the best interest of the community. Proceeds from a sale could reduce water rates or provide funds for increased conservation programs or the recycled water project. The evaluation of recycled water and a sale of some of the City’s ISG are proceeding independently. Examples of water supply portfolios that staff proposes to evaluate in more detail are shown in Table 2. Table 2: Water Supply Portfolios to Evaluate Portfolio SFPUC supplies SCVWD Treated Water Supplies Groundwater Status Quo 100% of normal year needs None Up to 1,500 AFY for supplemental supply in droughts Increased Groundwater 50% of normal year needs None 50% of normal year needs Treated Water Usage 50% of normal year needs 50% of normal year needs Up to 1,500 AFY for supplemental supply in droughts Only Treated Water and Groundwater None 50% of normal year needs 50% of normal year needs NEXT STEPS Preparation of the 2013 WIRP will proceed through FY 2013, and will likely extend into FY 2014 depending on the level of additional studies and outside consultant assistance that is appropriate. Staff will return to the UAC with more detailed information and supporting analysis for the different water supply portfolio options. Staff will also evaluate a potential ISG sale and return to the UAC with a recommendation on moving forward with a transaction. Finally, staff will continue ongoing efforts to complete an extension of the recycled water system to serve customers in the Stanford Research Park and return to the UAC with a financing plan once there is a reasonable expectation that supplemental outside funding can be secured. Following selection of preferred options based on the additional evaluations in the next phase, staff will prepare a Draft Water Integrated Resource Plan and propose modifications to the WIRP Guidelines. ENVIRONMENTAL REVIEW The UAC's review and discussion of the Preliminary Assessment of Water Resource Alternatives does not meet the California Environmental Quality Act's definition of a "project" under Public Resources Code Section 21065, thus no environmental review is required. ATTACHMENTS A. 2003 Water Integrated Resource Plan Guidelines B. 2013 Preliminary Assessment of Water Resource Alternatives PREPARED BY: REVIEWED BY: DEPARTMENT HEAD: NICOLAS PROCOS, Senior Resource Planner ~ lr' RATOiYE, ,",;~", D;"cto<, Ro,,",~ M""omo"' VALERI~ WIRP Guidelines Adopted by Resolution by the City Council on December 8, 2003 [CMR:547:03] Guideline 1 – Preserve and enhance SFPUC supplies: With respect to the City of Palo Alto Utilities’ (CPAU’s) primary water supply source, the San Francisco Public Utilities Commission (SFPUC), continue to actively participate in the Bay Area Water Supply and Conservation Agency (BAWSCA) to assist in achieving BAWSCA’s stated goal: “A reliable supply of water, with high quality, and at a fair price.” Objectives in support of that overall goal include: A. That the regional water system gets rebuilt cost-effectively and that BAWSCA monitor implementation of AB 1823 – San Francisco should safeguard the water system against damage from earthquakes and other foreseeable hazards. BAWSCA will monitor progress on the system repairs and on completing the requirements of the legislation that the BAWSCA agencies supported to oblige San Francisco to repair and rebuild the regional system. B. That the cost of improvements is fairly allocated – San Francisco should commit to maintaining cost-based pricing, with the costs of the wholesale water system shared between the City and its wholesale customers based on their proportionate share. C. That future water needs can be met – San Francisco must evaluate the ability of the regional system to meet future supply and capacity requirements and must use the BAWSCA agencies’ long-term water demand forecasts as the basis for regional water demand projections. D. That there are adequate supplies during droughts – San Francisco should arrange back-up supplies for dry years and should “drought proof” the entire service area, not just San Francisco itself. If rationing becomes necessary, San Francisco should use a system that allocates available water between San Francisco and wholesale customers in a way that (1) is fair and (2) avoids penalizing long-term conservation efforts and/or development of alternative supplies, such as recycled water. E. That communities prepare for potential water outages – San Francisco should coordinate with the BAWSCA agencies to develop a crisis management plan. F. That agencies implement cost-effective water conservation activities – San Francisco should provide agencies enough information so that they can prepare for possible outages, including the provision of conservation programs for their communities. BAWSCA can act as coordinator for these programs to improve the cost- effectiveness of agencies offering such programs. G. That water received must meet drinking water standards – San Francisco should continue to protect the purity of Hetch Hetchy water and commit to provide its wholesale customers with water that meets EPA and California drinking water standards. H. That the Master Contract is properly implemented and a new Master Contract is in place prior to 2009 – San Francisco should commit to maintaining cost-based pricing, with the costs of the wholesale water system shared between the City and its wholesale customers based on their proportionate share. I. That there is ongoing support of efforts to protect health, safety and economic well being of the water customers and communities – BAWSCA should maintain the support of the many allies who supported the legislative effort to ensure San Francisco repairs, rebuilds, and maintains the regional system. Guideline 2 – Advocate for an interconnection between SFPUC and the District: Work with the Santa Clara Valley Water District (District) and the SFPUC to pursue the extension of the District’s West Pipeline to an interconnection with the SFPUC Bay Division Pipelines 3&4. Continue to re-evaluate the attractiveness of a connection to an extension of the District’s West Pipeline. Guideline 3 – Actively participate in development of cost-effective regional recycled water plans: Re-initiate discussions with the owners of the Palo Alto Regional Water Quality Control Plant (PARWQCP) on recycled water development. In concert with the PARWQCP owners, conduct a new feasibility study for recycled water development. Since the feasibility of a recycled water system depends upon sufficient end-user interest, determine how much water Stanford and the Stanford Research Park would take. Guideline 4 – Focus water DSM programs to comply with BMPs: Continue implementation of water efficiency programs with the primary focus to achieve compliance with the Best Management Practices (BMPs) promoted by the California Urban Water Conservation Coalition. Guideline 5 – Maintain emergency water conservation measures to be activated in case of droughts: Review, retain, and prioritize CPAU’s emergency water conservation measures that would be put into place in a drought time emergency. Guideline 6 – Retain groundwater supply options in case of changed future conditions: Using groundwater on a continuous basis does not appear to be attractive at this time due to the availability of adequate, high quality supplies from the SFPUC in normal years. However, SFPUC supplies are not adequate in drought years and circumstances could change in the future such that groundwater supplies could become an attractive, cost-effective option. Examples of changing circumstances could be that the amount of water available to CPAU from the SFPUC for the long-term is reduced. This could occur if regulations or legislation require additional water to be made available to the Tuolumne River fisheries. In addition, in the future allocations or entitlements to SFPUC water may be developed. If those allocations are based on the dry- year yield of the system, allocations to all the users of the system, including CPAU, could be well below their current and projected future needs. CPAU should retain the option of using groundwater in amounts that would not result in land surface subsidence, saltwater intrusion, or migration of contaminated plumes. Guideline 7 – Survey community to determine its preferences regarding the best water resource portfolio: Seek feedback from all classes of water customers on the question of whether to use groundwater during drought to improve drought year supply reliability. At the same time, seek feedback on the appropriate level of water treatment for groundwater if it were to be used in droughts. Survey all classes of water customers to determine their preferences as to the appropriate balance between cost, quality, reliability, and environmental impact.             PRELIMINARY ASSESSMENT  OF WATER  RESOURCE  ALTERNATIVES      February 2013 i    2013 Preliminary Assessment  Table of Contents  List of Figures ___________________________________________________________ iii  List of Tables ___________________________________________________________ iii  List of Acronyms _________________________________________________________ iii  I. Introduction __________________________________________________________ 1  II. Background __________________________________________________________ 2  III. Water Supply History __________________________________________________ 3  IV. Water Use Projections _______________________________________________ 6  Urban Water Management Plan (UWMP) _________________________________________ 6  Water Conservation Bill of 2009 _________________________________________________ 7  Summary Water Resource Mix __________________________________________________ 7  V. Attributes Evaluated and Water Resource Alternatives Examined ______________ 8  Attributes Evaluated for each Water Resource Alternative ___________________________ 8  Water Resource Alternatives Examined __________________________________________ 9  VI. Water from the SFPUC ______________________________________________ 10  Availability _________________________________________________________________ 10  Cost ______________________________________________________________________ 12  Water Quality ______________________________________________________________ 13  Long Term Reliability ________________________________________________________ 13  Emergency Robustness _______________________________________________________ 15  Environmental impacts _______________________________________________________ 16  Sensitivity to Regulations _____________________________________________________ 16  VII. Groundwater _____________________________________________________ 17  Availability _________________________________________________________________ 18  Cost ______________________________________________________________________ 20  Water Quality ______________________________________________________________ 21  Long Term Reliability ________________________________________________________ 24  Emergency Robustness _______________________________________________________ 24  Environmental impacts _______________________________________________________ 24  Sensitivity to Regulations _____________________________________________________ 24  VIII. SCVWD Treated Water ______________________________________________ 25  Availability _________________________________________________________________ 26  Cost ______________________________________________________________________ 26  Water Quality ______________________________________________________________ 28  Long Term Reliability ________________________________________________________ 28  Emergency Robustness _______________________________________________________ 28  Environmental Impacts _______________________________________________________ 30  ii    Sensitivity to Regulations _____________________________________________________ 30  IX. Recycled Water ______________________________________________________ 31  Availability _________________________________________________________________ 32  Cost ______________________________________________________________________ 35  Water Quality ______________________________________________________________ 36  Long Term Reliability ________________________________________________________ 37  Emergency Robustness _______________________________________________________ 37  Environmental Impacts _______________________________________________________ 37  Sensitivity to Regulations _____________________________________________________ 37  X. Demand‐Side Management ____________________________________________ 38  Availability _________________________________________________________________ 38  Cost ______________________________________________________________________ 40  Water Quality ______________________________________________________________ 40  Long Term Reliability ________________________________________________________ 41  Emergency Robustness _______________________________________________________ 41  Environmental Impacts _______________________________________________________ 41  Sensitivity to Regulations _____________________________________________________ 42  XI. Individual Supply Guarantee Sale ________________________________________ 42  Availability _________________________________________________________________ 42  Cost ______________________________________________________________________ 42  Water Quality ______________________________________________________________ 43  Long Term Reliability ________________________________________________________ 43  Emergency Robustness _______________________________________________________ 43  Environmental Impacts _______________________________________________________ 43  Sensitivity to Regulations _____________________________________________________ 44       iii    List of Figures  Figure 1: Historic Water Use ........................................................................................................... 5  Figure 2: 2005 and 2010 UWMP Demand Forecast Projection Comparison ................................. 6  Figure 3: 20% by 2020 Compliance Forecast .................................................................................. 7  Figure 4: Summary Water Resource Composition .......................................................................... 8  Figure 5: SFPUC Actual and Projected Cost of Water ................................................................... 12  Figure 6: Historic Water Shortages at Maximum Demand Level (265 MGD) ............................... 15  Figure 7: Map of SFPUC Regional Water System .......................................................................... 16  Figure 8: Projected SFPUC and SCVWD Water Rates ................................................................... 21  Figure 9: West Pipeline Extension Map ........................................................................................ 26  Figure 10: Proposed Recycled Water Project ............................................................................... 32  Figure 11:  Palo Alto Existing Recycled Water Uses for FY 2004‐FY 2012 .................................... 34  Figure 12: Water Conservation Savings Goals .............................................................................. 39    List of Tables  Table 1: City Of Palo Alto Water Shortage Allocation .................................................................. 11  Table 2: Dry Year Shortfall under different demand scenarios .................................................... 14  Table 3: Projected Well Capacities ............................................................................................... 20  Table 4: Water Quality Parameters for Various Water Sources ................................................... 22  Table 5: Well Treatment Alternative Preliminary Cost Analysis ................................................... 23  Table 6: SCVWD Treated Water Connection Summary Costs ...................................................... 27  Table 7: Recycled Water Gross Cost Estimate .............................................................................. 35  Table 8: Water Savings vs. Goals .................................................................................................. 39  Table 9: Conservation Program Costs ........................................................................................... 40    List of Acronyms  AFY  Acre Feet per Year  BAWSCA Bay Area Water Supply and Conservation Agency  BMP Best Management Practice  CDPH California Department of Public Health  CEQA California Environmental Quality Act  CUWCC California Urban Water Conservation Council  CVP Central Valley Project  DSM Demand Side Management  EIR Environmental Impact Report  ESA Endangered Species Act  FERC Federal Energy Regulatory Commission  iv    GWMP Groundwater Management Plan  ISA Interim Supply Allocation  ISG Individual Supply Guarantee  ISL Interim Supply Limitation  MGD Million gallons per day  MOU Memorandum of Understanding  NEPA National Environmental Policy Act  PEIR Program Environmental Impact Report  PPM Parts per Million  RWQCP Regional Water Quality Control Plant  SCVWD Santa Clara Valley Water District  SFPUC San Francisco Public Utilities Commission  SRF State Water Resources Control Board State Revolving Fund  SWP State Water Project  SWRCB State Water Resources Control Board  TDS Total Dissolved Solids  TRC Total Resource Cost  UAC Utilities Advisory Commission  UWMP Urban Water Management Plan  WIRP Water Integrated Resource Plan  WSA Water Supply Agreement  WSIP Water System Improvement Program    Page 1    I. Introduction  Preparation of a Preliminary Assessment of Water Resource Alternatives is the first step  towards development of a Water Integrated Resource Plan (WIRP).  The Preliminary  Assessment collects the available information and data about all water resource alternatives  available to the City of Palo Alto.  The following are a summary of the main drivers for updating  the WIRP at this time.    a) Cost Increases – The San Francisco Public Utilities Commission (SFPUC) is midway through  the $4.6 billion Water System Improvement Program (WISP), which includes an upgrade of  the regional water system.  As a result of the WSIP, the cost of SFPUC water has risen  dramatically and will continue to do so.  With the increase in costs, other alternatives are  increasingly competitive with SFPUC supplies.      b) SFPUC Wholesale Water Charge – The SFPUC currently collects the wholesale revenue  requirement primarily through a volumetric water rate.  The SFPUC may propose changes  to the current wholesale rate structure that include a fixed charge based on the Individual  Supply Guarantee. Since the City has a relatively high Individual Supply Guarantee, this  could change the City’s cost dramatically and make other alternatives more cost‐effective.    c) Dry year need – The City has an Individual Supply Guarantee of 17.07 million gallons per  day (MGD) from the SFPUC system.  The City has no foreseeable supply deficiency in  normal years, but SFPUC supplies are inadequate during dry years.  A critical question to  address is the level of reliability the City will provide to residents and businesses and at  what cost.    d) Disposition of “Surplus” SFPUC Individual Supply Guarantee– The City currently uses  substantially less than its Individual Supply Guarantee.  Considering long lead times to  execute water transfers, it may be the time for the City to proceed towards a sale of a  portion of the Individual Supply Guarantee.   The sale could generate revenue for a variety  of options, including increased dry year reliability, conservation programs, a recycled water  project, or to reduce rates.    e) Alternative Supplies – The Santa Clara Valley Water District’s (SCVWD’s) groundwater and  treated water charges have historically been similar to the cost of SFPUC supplies.  Over  the last few years, and for the foreseeable future, SCVWD water charges will be lower than  SFPUC charges, making groundwater or a connection to the SCVWD’s treated water system  potentially cost‐effective alternatives to SFPUC water.    f) Use of Palo Alto Groundwater System – The City has recently refurbished the five older  wells, developed two new wells and is completing another new well.  One or more of the  Page 2    wells could be used to provide supplemental dry year supplies or as an alternative to  SFPUC supplies during normal years.    g) Legislative & Regulatory Risks – The City’s 2010 Urban Water Management Plan (UWMP)  incorporates recent and future legislative and regulatory requirements to provide a  comprehensive forward looking review of the water utility.  A major new development is  Senate Bill 7x‐7 (2009), which requires a 20% reduction in per capita water use by 2020.  II. Background  The first WIRP was prepared largely because the City was faced with a decision to participate in  a regional recycled water program.  This 1993 WIRP assessed the costs and benefits of a  recycled water project compared to other supply alternatives, and ultimately determined that  recycled water was not cost effective relative to existing supplies.  In 1999, the City began  working on a new WIRP, and completed the effort with approval by the City Council of the  WIRP Guidelines in December 2003 (CMR 547:03).  During the process to prepare the 2003  WIRP, several studies were conducted to inform the effort:    1. Water, Wells, Regional Storage, and Distribution System Study, 1999, Carollo Engineers –  This study identified system improvements to the distribution system to meet water  demands and fire flows following a catastrophic interruption of service on the SFPUC  system.  Among the recommendations was to refurbish the 5 existing wells and construct  three new wells and a new water storage tank.      2. Long Term Water Supply Study, 2000, Carollo Engineers – The report examined the issues  and costs of using new or rehabilitated wells as active sources of supply.  The alternatives  examined in the report included: (1) Using the wells for active supply either on a long term  basis or during droughts; (2) using groundwater for irrigation; and (3) connecting to the  SCVWD treated water pipeline.    3. Groundwater Supply Feasibility Study, 2002, Carollo Engineers – The report evaluated  whether operating one or two of the City’s water wells as active supplies would cause  significant decrease in groundwater levels or deterioration in groundwater quality”.    4. Santa Clara Valley Water District’s West Pipeline Extension Conceptual Evaluation Final  Report, 2003, SCVWD. – The report evaluated an extension of the existing SCVWD West  Pipeline to enable an interconnection of the Palo Alto and SCVWD systems at Page Mill  turnout.    The 2003 WIRP indicated that SFPUC supplies were adequate during normal years, but  additional supplies were needed in dry years to avoid shortages.  Since SFPUC supplies were  adequate in normal years, the following conclusions were drawn:    Page 3    1. The City’s existing Individual Supply Guarantee provides adequate supplies;  2. The cost to connect to the SCVWD treated water pipeline was prohibitive;  3. Continuous use of groundwater is not recommended;  4. The City should continue to evaluate recycled water;  5. Continue the current Demand Side Management programs and explore additional  measures; and  6. Additional supplies are needed in a drought.    Following approval of the 2003 WIRP, staff surveyed residential customers to gain a sense of  community preferences on the use of groundwater during a drought.  The survey asked  respondents to rank several options for water supply during a drought: (A) blend groundwater  with existing SFPUC supplies; (B) use no groundwater; and (C) treat groundwater at the well  location prior to introduction to the distribution system.     Survey respondents generally preferred Options B (no groundwater) and C (treat groundwater),  but Option A (blend groundwater) was not soundly rejected.  The results of the survey were  presented to the UAC in June 2004.  Based on the results staff made the following  recommendations:    1. Do not install advanced treatment systems for the groundwater at this time.  This option  is expensive, both in terms of capital and operating costs.  2. Blending at an SFPUC turnout is the best way to use ground water as a supplemental  drought time supply while maintaining good water quality.  3. Staff should await the conclusion of the environmental review process before  proceeding with any site selections for wells to be used in dry years.  4. Actively participate in the development of long term supply plans with the Bay Area  Water Supply and Conservation Agency (BAWSCA) and/or SCVWD.  5. Continue efforts identified in the Council approved WIRP  guidelines:  a. Evaluate a range of demand side management options to reduce long term  water demands.  b. Evaluate feasibility of expanding recycled water.  c. Maintain emergency water conservation measures to be activities in case of  droughts.  III. Water Supply History  The water utility was established on May 9, 1896, two years after the City was incorporated.   Local water companies were purchased at that time with a $40,000 bond approved by the  voters of the 750‐person community.  These private water companies operated one or more  shallow wells to serve the nearby residents.  The city grew and the well system expanded until  nine (9) wells were in operation by 1932.    Page 4    In December 1937, the City signed a 20‐year contract with the City and County of San Francisco  for water deliveries from the newly constructed pipeline bringing Hetch Hetchy water from  Yosemite to the Bay Area.  Water deliveries from San Francisco commenced in 1938 and well  production declined to less than half of the total citywide water demand.    A 1950 engineering report noted, "The capricious alternation of well waters and the [San  Francisco] water...has made satisfactory service to the average consumer practically  impossible."  Groundwater production increased in the 1950s leading to lower groundwater  tables and increasing water quality concerns.      In 1962, a survey of water softening costs to City customers determined that the City should  purchase 100% of its water supply needs from the San Francisco.  A 20‐year contract was signed  with San Francisco and the City’s wells were placed in a standby condition.  Since 1962 (except  for some very short periods) the City’s entire potable water has come from San Francisco’s  Hetch Hetchy regional water system administered by the SFPUC.     In 1974, several wholesale customers joined Palo Alto and filed a lawsuit against the San  Francisco in protest of an increase in water rates that was higher for wholesale customers than  it was for direct retail customers.  In 1984, settlement negotiations resulted in the “Settlement  Agreement and Master Water Sales Contract between the City and County of San Francisco and  Certain Suburban Purchasers in San Mateo, Santa Clara and Alameda Counties”.  The 25‐year  agreement was approved in 1984.  The 1984 agreement included the creation of a “Supply  Assurance” equal to 184 million gallons of water per day (MGD) for the benefit of the wholesale  customers.1  The agreement included a mechanism to allocate the 184 Supply Assurance  between the wholesale agencies.  The City’s allocation, or Individual Supply Guarantee (ISG), is  17.07 MGD.  Each agency’s ISG is perpetual in nature and survives termination or expiration of  the water supply contract with San Francisco.                                                               1 The Supply Assurance is expressed as an annual average and does not constitute an obligation on the part of the  SFPUC to meet daily or hourly peak demands.  Page 5    In 2009, a new 25‐year Water Supply Agreement (WSA) was executed between San Francisco  and the City.  The City’s historical water use and supply sources are illustrated in Figure 1.    Figure 1: Historic Water Use       Page 6    IV. Water Use Projections  The City of Palo Alto Utilities (CPAU) regularly prepares water supply and demand forecasts to  prepare financial forecasts, to meet regulatory requirements, or as part of ongoing regional  planning efforts.  Like many water agencies in California, the City has experienced a significant  drop in water use since 2006, which is largely attributable to weather, water conservation, and  the recent economic recession.    Urban Water Management Plan (UWMP)  The UWMP is submitted to the Department of Water Resources every five years, and City  Council approved the most recent 2010 UWMP in June 2011 (Staff Report 1688)2.   Water  demands forecast for the 2010 UWMP are shown in Figure 2 below.  For comparison purposes,  the forecast from the 2005 UWMP is also included in Figure 2.   The water use projection results  are revealing in that the City, along with most water agencies in California, did not anticipate  the dramatic drop in water demand from 2007 to 2009.  Potable water demands from 2009 to  the present appear to have leveled off and have begun to trend upwards again, albeit slowly,  and it remains to be seen if water demands will follow the increase forecasted in the 2010  UWMP.    Figure 2: 2005 and 2010 UWMP Demand Forecast Projection Comparison  0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 An n u a l W a t e r U s e ( C C F / Y e a r ) Year Water from San Francisco 2010 UWMP Forecast 2005 UWMP Forecast Individual Supply Guarantee Actual Forecast                                                           2 Typically, UWMPs are due December 31 of years ending in 0 and 5. However, a six‐month extension  was granted  to allow suppliers to comply with new legislation (Senate Bill X7‐7).  Page 7      Water Conservation Bill of 2009  The City is subject to ongoing changes in the regulatory and legislative environment, though  few are as explicit as SB X7‐7, the Water Conservation Bill of 2009.  SB X7‐7 was enacted in  November 2009 and requires water suppliers to reduce the average per capita daily water  consumption in their service territories 20% by 2020.  To monitor the progress towards  achieving the 20% by 2020 target, the bill also requires urban water retail providers to reduce  per capita water consumption 10% by 2015.  Figure 3 illustrates the projected 2015 and 2020  state‐mandated compliance targets and provides preliminary information on the City’s need for  future action to meet SB7x‐7 requirements.      Figure 3: 20% by 2020 Compliance Forecast  100 125 150 175 200 225 250 Ga l l o n s P e r C a p i t a P e r D a y Year Actual Forecast 2015 Target = 200.6 SB7 Baseline 2020 Target = 178.6   Figure 3 indicates that the City is on track to meet both the 2015 and 2020 state‐mandated  compliance targets.    Summary Water Resource Mix  The 2010 UWMP provided detailed information on baseline water resources through 2030.    SFPUC supplies were assumed to remain the primary potable supply for the foreseeable future,  Page 8    but were not forecasted to increase dramatically over the 20‐year planning horizon.  Recycled  water consumption was projected to continue at current levels and no expansion was assumed  in the 2010 UWMP.  Finally, demand side management and conservation program penetration  and savings were projected to increase dramatically from the 2005 UWMP.   A representation  of the future water resource mix is provided in Figure 4.    Figure 4: Summary Water Resource Composition    V. Attributes Evaluated and Water Resource Alternatives Examined   Attributes Evaluated for each Water Resource Alternative  In this section, each potential water resource option is evaluated to allow each alternative to be  compared to each other.  The purpose of this evaluation is to provide the best available  information on each water resource alternative and to identify data deficiencies that need to  be addressed.  The attributes evaluated for each alternative are listed below:    1. Availability – The quantity, timing, peak flow or capacity, and any expected changes  over time.  2. Cost – The capital and O&M costs of the proposed action (including system upgrades,  project lifetime, energy costs, chemicals, technical innovation, customer costs, etc.), the  manner which the cost is incurred (pay‐as‐you‐go, debt finance, etc.).  Page 9    3. Water Quality – All options must meet water quality regulations, but options may differ  in their relative water qualities (i.e. taste, odor, color, hardness, mineral content, trace  levels of contaminants, etc.).  4. Long Term Reliability – What is the reliability of the source under different conditions?  What future conditions could affect water deliveries?  5. Emergency Robustness – Will the resource perform under various scenarios, including  an interruption of SFPUC supplies?  6. Environmental impacts – Are there anticipated environmental impacts and what level  of environmental review is required?  7. Sensitivity to Regulations – Is the resource vulnerable or does it have strength in view  of existing or impending federal, state, or local regulations?    Water Resource Alternatives Examined   The water resource alternatives evaluated in this report include:  1. Water from the SFPUC  2. Groundwater  3. Treated Water from the SCVWD  4. Recycled Water  5. Demand‐Side Management  6. Sale of the City’s Individual Supply Guarantee    Water resources that were evaluated in the 2003 WIRP process, but are not included in this  Preliminary Assessment, include:    1. Desalination – BAWSCA is evaluating several desalination alternatives as part of recent  long range supply studies.  When this effort is complete, this alternative can be  evaluated.    2. Small scale irrigation wells  – The City is focusing its efforts on the capital program to  improve the municipal well system to meet the dual purpose of providing emergency  and supplemental potable supplies.  Currently, individuals may drill their own wells  without City review or permits, but are subject to rules and restrictions of the Santa  Clara Valley Water District (SCVWD) and must obtain a permit from the SCVWD. The City  does have the option of using small wells for irrigation of large landscapes, such as for  City parks.  However, the cost to maintain and operate small wells and locate a site for  such facilities is problematic.    3. Treated Contaminated Groundwater – There are several entities in the City that treat  contaminated groundwater and discharge the groundwater to the storm drain system  and, to a lesser extent, the sanitary sewer system.  The primary purpose of these  facilities is to remediate contaminated groundwater with finite operations.  The Santa  Clara County Oregon Expressway dewatering pumps are the exception, and they  discharge significant amounts of nuisance groundwater to the storm drain system to  Page 10    keep the underpass dry.  The City evaluated the capture and conveyance of the Oregon  Expressway groundwater for irrigation purposes and determined the effort would  require significant conveyance and storage infrastructure investments that are not cost  effective.  VI. Water from the SFPUC   The City currently purchases 100% of its potable supplies from the SFPUC under the 2009  Water Supply Agreement (WSA).  The WSA is administered for the City by the Bay Area Water  Supply and Conservation Agency (BAWSCA).  BAWSCA represents the interests of 24 cities and  water districts and two private utilities that purchase wholesale water from the San Francisco  regional water system.  These entities provide water to 1.7 million people, businesses and  community organizations in Alameda, Santa Clara and San Mateo counties.   The City of Palo  Alto is a member of BAWSCA and has a City Council appointed representative on the BAWSCA  Board of Directors.    Availability  The City’s right to water from the SFPUC system is embodied in the 2009 WSA.  The City’s  Individual Supply Guarantee (ISG) of 17.07 MGD is a perpetual right, but the delivery of water is  subject to interruption for reason of water shortage, drought, or emergency.      Normal Year SFPUC Supplies  While the City’s ISG is 17.07 MGD, the City’s water needs are currently only about 11.5 MGD.   The WSA includes an interim water delivery limitation3 from the SFPUC system of 265 MGD  until its expiration in 2018.   The City’s share of the interim limitation, or its Interim Supply  Allocation (ISA), is 14.70 MGD.   Based on the water demand forecast from the 2010 UWMP,  there is no foreseeable need for additional supply beyond the City’s Individual Supply  Guarantee, or the ISA.    Dry Year SFPUC Supplies  SFPUC’s WSIP includes a goal of no greater than a 20% system‐wide supply reduction on the  SFPUC system during a drought.  The 2009 WSA includes a water shortage allocation plan to  share water from the regional system between the SFPUC retail and wholesale customers  during a shortage of up to 20% (Tier I plan).  The wholesale customers further divided the  wholesale allocation based on a formula adopted by all the wholesale customers (Tier II plan).   The detail of the allocation methodology is included in the City’s 2010 UWMP (Section 7 –  Water Shortage Contingency Plan) and was approved by City Council in February 2011 (Staff  Report 1308).  The Tier II formula expires in 2018, unless extended by mutual agreement of the  BAWSCA members.  Table 1 summarizes the effect of the water shortage allocation formula on                                                          3 This limitation applies to all users of the San Francisco regional water supply system, the City of San Francisco and  all the BAWSCA member agencies.  Page 11    Palo Alto during a 20% SFPUC system‐wide reduction under low demand and high demand  scenarios.4    Table 1: City Of Palo Alto Water Shortage Allocation     Palo Alto Allocation (low demand)   Palo Alto Allocation (High demand)  (a) Baseline Demand (MGD) 11.63 13.33  (b) Drought Allocation (MGD) 8.94 10.011  (c) Reduction from Baseline Demand (b‐a)  (MGD) ‐2.69 ‐3.32  (d) Percentage reduction from Baseline  Demand (c/a) ‐23.12% ‐24.90%    The results in Table 1 indicate that the City will experience a water supply deficit of 23‐25% in  the event of a 20% system‐wide water shortage on the SFPUC system.                                                                 4 In general, changes in Palo Alto demand patterns track many of the other BAWSCA members.  However, the  ultimate allocation to each BAWSCA agency depends on many factors, including the water use of each agency  relative to each other.  For these reasons, staff can only provide an approximation of the potential cutback.  Page 12    Cost  The City purchases 100% of its potable water supply from the SFPUC, with the current cost  structure composed of a volumetric charge and a small fixed monthly meter charge.  With the  $4.6 billion WSIP well underway, the cost of SFPUC water has increased sharply.  Recent region‐ wide water consumption declines have intensified the problem since the cost is spread over  fewer sales units.  The historic and projected cost of SFPUC water is illustrated in Figure 5.    Figure 5: SFPUC Actual and Projected Cost of Water  0 200 400 600 800 1000 1200 1400 1600 1800 2000 2200 2400 $/ A c r e ‐Fo o t Fiscal Year SFPUC Cost Projection SFPUC Projected Rate SFPUC Actual Rate     While the SFPUC charges wholesale customers based on how much water is used, the costs of  the SFPUC system are almost entirely fixed costs – in other words, even if usage drops the cost  to operate the system (O&M, debt service, etc.) remains essentially the same5.        The SFPUC water cost projections in Figure 5 assume that the current rate structure remains in  place.  However, the WSA provides some flexibility for the SFPUC to adjust rate structures and  the SFPUC recently signaled an interest in exploring alternative rate structures6  including  increasing the fixed charge component and allocating charges based on the ISG, rather than  actual water usage.  The City’s share of the costs paid by the BAWSCA agencies (the “Wholesale  Revenue Requirement”), steadily decreased from 8% in 1998 to 7.2% in 2010 as the City’s  proportional share of water purchases dropped relative to the other BAWSCA agencies.  In                                                          5 The SFPUC system is largely gravity fed, so little variable O&M is required for water deliveries.  6 SFPUC Comments, July 2012 BAWSCA Board of Director’s meeting  Page 13    recent years the City’s share of the Wholesale Revenue Requirement has increased slightly,  probably as a result of several SFPUC customers making economic decisions to reduce SFPUC  purchases to minimum amounts in favor of other, less costly supplies.  The City’s ISG of 17.07  MGD is approximately 9.23% of the total BAWSCA agencies’ Supply Assurance of 184 MGD.  If  collection of the Wholesale Revenue Requirement were to be based on each agency’s ISG, the  City could pay 20‐30% more for water annually, with little apparent increase in benefit.    Water Quality  SFPUC supplies are extremely high quality.  See Table 4 which lists key water quality parameters  for SFPUC water, SCVWD treated water and groundwater.   Water provided by the SFPUC is a  mix of Hetch Hetchy water and water from the East Bay and Peninsula reservoirs.  In an average  year, Hetch Hetchy water makes up 85% of the mix.  Due to maintenance requirements, the  SFPUC typically will shut down the Hetch Hetchy supply for a period during the low demand  winter months and draw from the local reservoirs.  It is not unusual to experience temporary  water quality changes due to these events, though the water still meets all drinking water  quality standards.    Since completion of the 2003 WIRP, there were two noteworthy operational changes on the  SFPUC system that related to water quality:  In 2004, the SFPUC starting using chloramine  instead of chlorine as the primary drinking water disinfectant.  In 2005, San Francisco began  adding fluoride to the water supply.  Up until then, the City introduced fluoride at the SFPUC  turnouts, but ceased to do so once the SFPUC began providing fluoridation from a centralized  facility7.    Long Term Reliability  Recent demand projections do not forecast a normal year supply deficiency, given the  perpetual nature of the City’s Individual Supply Guarantee.  However there is one situation  where the City’s Individual Supply Guarantee could be reduced.  Under the terms of the 1962  contract between it and San Francisco, the City of Hayward’s contractual entitlement from the  SFPUC system essentially equals its water demand.  In theory, since the collective Supply  Assurance of the wholesale customers cannot exceed 184 MGD, if Hayward’s water usage  increases substantially, the other wholesale agencies could experience a proportional ISG  reduction to ensure the 184 MGD limit is not exceeded.  The most recent water use projection  shows this will not be an issue until at least 2030, and it will proceed gradually in any event.    SFPUC’s level of service goal is to meet dry year delivery needs while limiting rationing to a  maximum 20% system wide reduction in water service during extended droughts.  However,                                                          7 In 1957 the voters in Palo Alto adopted a measure that requires fluoride be added to the City’s water supply (Palo  Alto Municipal Code Section 12.24.010).    Page 14    recent events have called into question the SFPUC’s ability to maintain a level of service of no  greater than 20% reduction8.    BAWSCA and its member agencies are developing the Long Term Reliable Water Supply  Strategy to quantify when, where, and how much additional supply reliability and new water  supplies are needed throughout the BAWSCA agencies’ service area through 2035.  The report  revealed that several agencies have normal year needs in excess of their ISG and all agencies  have varying dry year deficiencies.  The report also identified several potential resource  alternatives to address these shortfalls, including desalinization, recycled water, and water  transfers.    The BAWSCA report (Section 3.2 of the Phase IIA report) includes a representation of potential  dry year cutbacks based on historic hydrologic conditions for the period from 1920 through  2002.  The analysis used the SFPUC hydrologic system’s operational model to evaluate the  frequency and magnitude of droughts on the system over the 83 years with all WSIP related  projects complete.   The results, as shown in Table 2, indicate there is little supply cutback risk  under low demand scenarios, but the risk rises as demands increase.    Table 2: Dry Year Shortfall under different demand scenarios  Demand Scenario  Number of Years of Projected Supply Cutbacks to the Wholesale  Customers Over 83‐year history  18% Average Wholesale  Customer Supply Cutback  (10% System‐wide shortfall)  29% Wholesale Customer  Supply Cutback  (20% System‐wide Shortfall)  Minimum Demand  Scenario (224 MGD) 0 0  Intermediate Demand  Scenario (252 MGD) 7 1  Maximum Demand  Scenario (265 MGD) 6 2                                                               8 Environmental flow requirements at Crystal Springs and Calaveras Dam were greater than anticipated.  A 2 MGD  water transfer between the Modesto Irrigation District and SFPUC was also rejected recently by the MID Board.  Page 15    Figure 6 provides a representation of the supply cutbacks that would have been experienced  under the maximum demand scenario using historic hydrologic data with all WSIP projects  complete.  The results provide an illustration of the frequency and magnitude of droughts in  the past under the high demand scenario, and are helpful in framing future dry year risks.  As  shown, over the 83 year hydrologic period, there would have been 8 years with water  shortages – 6 years with a 10% system‐wide reduction and 2 years with a 20% system‐wide  reduction.    Figure 6: Historic Water Shortages at Maximum Demand Level (265 MGD)      Clearly there is a potential deficiency in SFPUC supplies during dry years, though the overall  impact and frequency will depend on decisions related to dry year contingency plans and future  portfolio adjustments that could be made to remedy the supply deficiency.  As identified in the  2010 UWMP, the City has developed a Water Shortage Contingency Plan for implementation  during a drought.  The Water Shortage Contingency Plan identifies several stages of drought  response, depending on the degree of supply reduction required.  Responses range from  informational outreach to severe water use restrictions and modified rate structures.  The City  also has the option of pumping groundwater as supplemental supply in water shortage  situations.  This option is discussed in more detail in the section on groundwater.    Emergency Robustness  Since the SFPUC is the City’s only potable supply source, the City is vulnerable to service  interruptions on the SFPUC system.  One of the major drivers behind the WSIP was to address  reliability deficiencies, which under some circumstances could have resulted in an interruption  of SFPUC service for up to 60 days following a catastrophic event such as an earthquake.  The  Page 16    WSIP level of service objective for seismic reliability is to deliver basic service9 within 24 hours  after a major earthquake.  The performance objective is to provide delivery to at least 70 per  cent of the turnouts in each region, and full restoration to meet average day demand within 30  days after a major earthquake.  Palo Alto may be better situated than other agencies in having  two distinct connection points to the SFPUC system: three SFPUC connections are served by the  Palo Alto Pipeline connection to Bay Division Pipelines 1 and 2, and two SFPUC connections are  served by Bay Division Pipelines 3 and 4.  Figure 7 below is a map of the SFPUC regional water  system.    Figure 7: Map of SFPUC Regional Water System      The City is currently completing the Emergency Water Supply and Storage project.  The primary  goal of the project is to maintain basic water service and fire‐flows in all pressure zones in the  City following a catastrophic interruption of SFPUC service.  The project allows the City to  maintain water supply in the event that the SFPUC supplies are disrupted.    Environmental impacts  The SFPUC supply is the current baseline supply source for the City of Palo Alto.  Subsequent  sections analyze several alternatives to the current and projected supply mix, and the resulting  potential environmental impacts.  Increased water use within an agency’s ISG does not require  any action by an agency’s governing body, and therefore does not trigger any California  Environmental Quality Act (CEQA) review obligation.     Sensitivity to Regulations  For many water systems in California, the availability of water supplies depends on many  factors, including legislative and regulatory changes that may impact future supply conditions.                                                           9 Basic service is defined as average winter month usage.    Page 17    The SFPUC system is no different, and has several future regulatory risks that could impact  water supply reliability and/or cost10:    1. Federal Energy Regulatory Commission (FERC) relicensing of the Don Pedro Project  a. State Water Resources Control Board (SWRCB) 401 Certification of FERC  relicense  b. Endangered Species Act (ESA) Section 7 consultation for FERC relicense  2. Central Valley Total Maximum Daily Load regulations  3. Bay‐ Delta proceedings (SWRCB, Legislative actions)  4. ESA Habitat Conservation Plans for SFPUC local watersheds    The SFPUC manages these risks, with support from BAWSCA and the wholesale customers.  VII. Groundwater  The Santa Clara Valley Water District (SCVWD) manages an integrated water resources system  that includes the management of groundwater, supply of potable water, flood protection and  stewardship of streams on behalf of Santa Clara County's 1.8 million residents.  The SCVWD  manages ten (10) dams and surface water reservoirs, three (3) water treatment plants, nearly  400 acres of groundwater recharge ponds and more than 275 miles of streams.  The SCVWD  provides wholesale water and groundwater management services to municipalities, private  water retailers, and individual property owners operating groundwater wells in Santa Clara  County.    Although the City currently purchases all of its potable water from the SFPUC system, the City  maintains close involvement with the SCVWD as it is an important water wholesaler and the  steward of groundwater resources in Santa Clara County.  The city also partners with the  SCVWD on conservation activities.  The community is represented on the SCVWD Board of  Directors by the District 7 Director.  The City’s mayor also appoints a representative to  represent the City on the SCVWD Commission, an advisory body to the SCVWD Board of  Directors.    The SCVWD’s 2012 Water Supply and Infrastructure Master Plan describes how the SCVWD will  support future water supply needs and reliability.  The adopted strategy identifies conservation,  increased recycled water use, indirect potable reuse, additional groundwater recharge ponds,  grey water, imported water reoperations, and dry year options as important components of the  plan.    The City of Palo Alto has several policies embodied in the Comprehensive Plan that relate to  groundwater and water supplies.  The policies don’t provide a preference for the use of                                                          10 Source: SFPUC’s 2010 UWMP  Page 18    groundwater, but indicate preservation of groundwater conditions is of critical importance to  the City.  The relevant policies are listed below, with program elements, if applicable:    1. POLICY N‐51: Minimize exposure to geologic hazards, including slope stability,  subsidence, and expansive soils, and to seismic hazards including ground shaking, fault  rupture, liquefaction, and land sliding.    2. POLICY N‐18: Protect Palo Alto’s groundwater from the adverse impacts of urban uses.  a. PROGRAM N‐22: Work with the SCVWD to identify and map key Groundwater  recharge areas for use in land use planning and permitting and the protection of  groundwater resources.  3. POLICY N‐19: Secure a reliable, long‐term supply of water for Palo Alto.     Availability  As a city in Santa Clara County, Palo Alto has the ability to pump groundwater with the  understanding that SCVWD will appropriately manage the groundwater resources in the  county.   Groundwater conditions throughout the county are generally very good11.   Groundwater elevations have generally recovered from overdraft conditions throughout the  basin since the 1987‐1992 drought, inelastic land subsidence has been curtailed, and  groundwater quality supports beneficial uses.    Background  The SCVWD last published a Groundwater Management Plan (GWMP) in 2001.  Since that time,  SB 1938 and other legislation have amended the requirements for groundwater management  plans.  The 2012 GWMP was prepared under existing groundwater management authority  granted by the District Act.  The purpose of the 2012 GWMP is to characterize the SCVWD  groundwater activities in terms of basin management objectives, strategies, and outcome  measures.    General groundwater conditions in the area are detailed in the SCVWD 2012 GWMP.  The City  of Palo Alto overlies the Santa Clara sub basin.  The Santa Clara sub basin is divided into upper  and lower aquifers, which are separated by low permeability clays and silts.  The SCVWD refers  to these as the shallow and principal aquifer, with the latter generally defined as 150 feet below  ground surface.  The principal aquifer is the primary drinking water aquifer, and is the source  for the any increased reliance on groundwater to meet current or future demands.  The upper,  or shallow, aquifer is of poorer quality and has limited uses beyond small to medium size  distributed irrigation systems. The SCVWD is responsible for managing the groundwater basin  to ensure there is adequate supply and overdraft conditions are minimized.       The SCVWD accomplishes this goal by maximizing conjunctive use, the coordinated  management of surface and groundwater supplies, to enhance supply reliability.  Programs to  accomplish this goal include the managed recharge of imported and local supplies, in‐lieu                                                          11 SCVWD 2012 Groundwater Management Plan  Page 19    groundwater recharge through the delivery of treated surface water12 and acquisition of  supplemental water supplies, and programs to protect, manage and sustain water resources.       Managed and in lieu recharge programs are in balance with withdrawals and the basin is not  currently in overdraft conditions.  The groundwater conditions in the Santa Clara sub‐basin  vary, and groundwater pumping from different locations will have different effects depending  on location, elevation, recharge conditions, and pumping activity.    Emergency Water Supply and Storage Project  As part of the Emergency Water Supply and Storage project, the City has refurbished five older  wells, constructed two new wells, and is constructing another new well and a new 2.5 million  gallon storage reservoir and pump station.  The primary goal of the project is to improve the  City’s emergency water supply capability.  Together with the City’s existing water storage  system, the project will support a minimum of eight hours of normal water use at the maximum  day demand level and four hours of fire suppression at the design fire duration level and will be  capable of providing normal wintertime supply needs during extended shutdowns of the SFPUC  system.  The proposed project would provide up to 11,000 gallons per minute (gpm) of reliable  well capacity and an additional 2.5 million gallons of water storage for emergency use.  The  groundwater system may also be used to a limited extent during drought emergencies, but is  subject to the following mitigation measures, as stated in the Environmental Impact report (EIR)  completed for the project13:    1. An aquifer test shall be conducted following the City’s well construction and  rehabilitation efforts to verify the basin’s response to pumping; and    2. Emergency demand pumpage shall be limited to 1,500 acre‐feet (AF)14 in one year.  Following this level of pumpage, groundwater production shall be restricted until  groundwater levels recover to pre‐pumping levels.    All wells are currently permitted and designated by the California Department of Public Health  as “Standby” and, as such, can only be used for 5 consecutive days up to 15 days in a year15.    Once the project is complete, the wells may collectively supply up to 1,500 AF per year during a  drought, with restrictions on when the wells can resume pumping following that level of  groundwater extraction.  It is important to note that the pumping restriction only applies to the  project as defined in the CEQA documents.  This includes the 5 existing wells and 3 new wells.   Individual property owners can install their own wells and pump groundwater.                                                              12 The SCVWD and the Santa Clara County SFPUC customers are partners in conjunctively managing the water  resources in the county.  The SFPUC customers in the county have contracts with the SFPUC.  The SCVWD has no  contractual relationship with the SFPUC.  13 Environmental Impact Report, Emergency Water Supply and Storage project, Mitigation Measure 3.5‐4(a) & 4(b)  14 1500 AF/Year is equal to 1.34 MGD, or approximately  12% of FY 2012 water consumption  15 California Code of Regulations, Title 22, Section 64414(c).  Page 20    The pumping restrictions for the well system are mitigation measures in the EIR prepared for  the Emergency Water Supply and Storage project.  Any increase in the current restriction could  require new or supplemental environmental review.  The SCVWD has indicated that the process  to increase the current limitation will require supporting information on the sustainable yield of  the groundwater basin in order to demonstrate increased pumping by the City will not have  significant impacts16.     The capacities of the City’s wells are listed in Table 3.  As shown in the table, if all 8 wells were  used full time, they could produce 13.3 MGD, which is equivalent to almost 15,000 AF per year.      Table 3: Projected Well Capacities  Name Capacity (MGD)Status Fernando 0.5544 Refurbished Well/Fully Operational Hale 1.8432 Refurbished Well/Fully Operational Matadero 0.864 Refurbished Well/Fully Operational Peers 1.872 Refurbished Well/Fully Operational Rinconada 4.464 Refurbished Well/Fully Operational Eleanor Pardee 1.296 New Well/Fully Operational Library 1.008 New Well/Fully Operational El Camino Park 1.44 New Well/Under Construction Total 13.3     During the drought in the late 1980’s, substantial pumping by pumpers in the county and  neighboring jurisdictions resulted in a dramatic drop in the groundwater levels in the area.  It is  possible that this scenario could happen again during a drought of similar magnitude if  imported water supplies were reduced.  The SCVWD adopted level of service goals as part of its  2012 Water Supply and Infrastructure Master Plan effort, including the development of water  supplies designed to meet at least 100% of average annual water demand identified in the  SCVWD 2010 UWMP during non‐drought years and at least 90 percent of average annual water  demand in drought years17.   This goal is a countywide goal and includes Palo Alto demands.     Cost  The SCVWD levies a groundwater extraction fee, or “pump tax”, on each acre‐foot of water that  is pumped from the groundwater basin.  The charge varies depending on a variety of factors,  including pumpage type (agriculture vs. municipal) and geographic location in the County.    Historically, the cost of groundwater (including the pump tax and the O&M cost of operating a  well) has been comparable to the cost of SFPUC supplies.  However, due to the increasing cost  of SFPUC water due to the WSIP, the cost to pump groundwater is projected to be less than the  cost of SFPUC supplies (Figure 8).   While the costs of SCVWD groundwater and treated water                                                          16 In summer 2012, staff met with SCVWD representatives to discuss the current limitation and the process to  increase/remove the limitation.  17 SCVWD Board Agenda Item 4.2, June 12, 2012  Page 21    are also projected to rise over the next decade due to capital investment requirements, the  cost of SCVWD water is likely to be less than SFPUC supplies.  The vertical lines above the  groundwater and treated water bars in Figure 8 represent the SCVWD high cost scenario, and  reveal that the cost differential between SFFPUC and SCVWD water remains significant even  under a SCVWD high cost scenario.     Figure 8: Projected SFPUC and SCVWD18 Water Rates  0 200 400 600 800 1000 1200 1400 1600 1800 2000 2200 2400 $/ A c r e ‐Fo o t Fiscal Year SFPUC vs. SCVWD SCVWD ‐ Groundwater Rate SCVWD Treated Water rate SFPUC Treated Water Rate ForecastActual     Water Quality  The water quality of the groundwater is considered good, though historically the groundwater  in the area has had iron (Fe), manganese (Mn) and Total Dissolved Solids (TDS) levels that  exceed secondary19 drinking water quality standards.      All potable water scenarios must comply with water quality requirements.  Staff currently  samples the wells based on the conditions outlined in the California Department of Public  Health (CDPH) permit(s).   The City may be out of compliance with secondary standards on a                                                          18 The SCVWD sets groundwater and treated water rates according to water pricing policies and SCVWD Board  direction.  In general, treated water charges are slightly higher than groundwater charges to account for O&M  costs to pump groundwater.  However, at times, the SCVWD may adjust rates to encourage use of groundwater  instead of treated water, or vice versa depending on the health of the underground water supplies.   19 Primary drinking water quality standards apply to contaminants that affect health while secondary standards  apply to those constituents that affect aesthetics, taste and odor.  Page 22    short term basis during emergencies, but for full‐time operation the City must be in compliance  with secondary standards or apply for a waiver20.  The waiver requires justification and includes  a community survey to establish support for the provision of water that exceeds secondary  standards.  The community survey must demonstrate a high degree of acceptance to justify the  waiver.      Key water quality parameters for groundwater, water from the SFPUC and treated water from  the SCVWD are compared in Table 4.  All of these sources meet primary drinking water  standards.  The table lists several secondary standards and a sampling of other parameters.    Table 4: Water Quality Parameters for Various Water Sources  Water Source Fe  (ppm)  Mn  (ppm)  TDS  (ppm)  Sodium  (ppm)  Hardness  (as CaCo3)  (ppm)  Turbidity  (NTU)  Drinking Water Quality Standard .300 .050 500 N/A N/A 5  SFPUC Water (1) ND ND 132 13.5 57 0.16  SCVWD Treated Water (2) ND ND 209 37 90 0.07  Groundwater (3) 0.25‐1.3 0.13‐0.31 440‐710 75‐170 ‐ 0.33‐7.7 (1) SFPUC values are average water quality values reported by the SFPUC in its 2011 Water Quality Report (2) Average values from 2011 SCVWD Rinconada Water Treatment Plant Water Quality Data Summary  (3) Based on the City’s well water testing records  ND = non detect    Normal Year Groundwater Supplies  Several treatment and blending options for the wells were evaluated in 2000 in the “Long Term  Water Supply Study”:      1. Blend water with SFPUC water to meet water quality limits for manganese and iron. The  blended water will meet regulatory limits, but will have TDS levels 2‐3 times the current  level in the distribution system21.   2. Provide iron and manganese treatment at each well site.   The water will likely not  exceed TDS limits, but it will be 5‐7 times the current levels in the distribution system.  3. Provide iron and manganese treatment at each well site and blend with SFPUC supplies  to reduce the well water TDS levels.  4. Provide iron, manganese and TDS treatment at each well site.  The treated water at the  injection point will be comparable to SFPUC supplies.    The estimated present dollar cost of each option is provided in Table 5 for information  purposes.  The treatment options focus on the costs to address the elevated iron, manganese  and TDS levels under several water quality scenarios.                                                             20 Title 17 Code of Regulations, Chapter 64449.2  21 Upon completion of the Emergency Water Supply and Storage project, the El Camino Well water can be blended  with SFPUC water in the new 2.5 million gallon storage tank in El Camino Park in a similar manner to Option 1.  Page 23      Table 5: Well Treatment Alternative Preliminary Cost Analysis   Treatment Options22   1 (blend) 2 (treat for  Fe, Mn)  3 (treat for Fe,  Mn and blend)  4 (treat for Fe,  Mn and TDS)  Capital Cost23 (Total for 5 wells) $8.5‐10.8 M $8.5‐10.8 M $9.4 ‐ 11.8 M $37.4 ‐ 46.7 M  Well production  Acre feet per year 6300 12800 2500 12800  % of total Potable Demands 50% 100% 25% 100%   Water Quality24  TDS (500 ppm) 130‐300 440‐700 120 120  Manganese (<0.05 ppm) 0.04‐0.05 <0.05 <0.01 <0.05  Iron (<0.3 ppm) 0.08‐0.3 <0.3 0.05‐0.06 <0.3    The new and refurbished wells are being constructed with chlorine disinfection injection points  and the capability to accommodate fluoride and other needed chemical injection points.  The  use of the wells on a regular basis will require a detailed operational plan and some or all of the  sites will need modifications to accommodate backup power, chemical storage, and any  equipment associated with the selected treatment option.  Not all sites will have the space to  accommodate these additional requirements.  These and other additional operating and capital  costs will need to be incorporated as part of a future detailed cost‐benefit analysis.    The various treatment options will generate waste streams with elevated levels of iron,  manganese, TDS, and chemical residuals used in the treatment process.  It is unknown if this  can be discharged to the storm drain system.  Options to address this issue include onsite  treatment facilities at each site or discharging the raw waste stream to the wastewater  collection system for delivery to the Palo Alto RWQCP25.  In addition to these unknown costs,  there may be several challenges that may need to be addressed related to wastewater  constituent changes from the RWQCP.      Dry Year Groundwater Supplies  The City’s new well and reservoir at El Camino Park is currently being configured to blend with  SFPUC supplies so the El Camino Well can be relied upon to provide groundwater during a  drought up to the 1500 AFY limitation.   As a result of blending, the water will meet all  secondary water quality standards, but will be of lesser quality when compared to SFPUC  supplies.   To bring the water quality to a level comparable to SFPUC supplies, the City will need  to install Iron, Manganese and TDS filtration at the new El Camino well site.                                                          22 Costs are only those costs incurred by Water Utility.  Customer costs, including water softening or filtration  devices will be additional costs borne by individual customers  23 All costs were adjusted from the estimates in the 2000 study to provide a likely cost range in 2012 dollars.  24 Manganese and Iron have single consumer acceptance contaminant levels, while TDS is a consumer acceptance  contaminant level range (recommended = 500; short term= 1000 and upper limit = 1500)  25 Discharges to the wastewater collection system for treatment at the RWQCP have associated costs that are not  included in the preliminary cost estimates.  Page 24      Long Term Reliability  The wells are an important resource during a drought and could be an important resource to  serve a portion of the normal year potable needs in the City.  With the current 1500 AFY dry  year groundwater extraction limitation, there is little risk any dry year pumping program could  result in significant impacts to the groundwater basin26.     Since SCVWD manages the groundwater in Santa Clara County, any plans to increase Palo Alto’s  groundwater pumping would need to be discussed with the SCVWD.    Emergency Robustness  The City’s wells are being maintained to provide emergency service during a catastrophic  interruption of SFPUC supplies.  If the portfolio changes in the future such that groundwater  becomes part of the normal year supply, emergency preparedness will need to be evaluated  further to ensure the resource can perform under various scenarios.  Such an increase could  result in the need for the SCVWD to construct recharge facilities to ensure that the county’s  groundwater supplies are properly maintained.  If imported water supplies are required to be  delivered to the recharge facilities, those supplies need to be identified.    Environmental impacts  The use of the wells to meet dry year needs is currently permitted subject to a pumping  limitation of 1500 AF per year.  A significant increase to this limitation could require  supplemental environmental review.   Staff anticipates issues such as sustainable yield, dry year  availability, subsidence risk, saltwater intrusion, dewatering of local creeks and contaminated  plume migration, would be considered in such an environmental analysis.    Sensitivity to Regulations  An area of concern is future State and Federal water quality regulations for potable water.   Changes in regulations could make the groundwater supply less attractive and more expensive  due to additional treatment.  This becomes less of an issue depending on the level of treatment  that is chosen.                                                             26 The 1500 AFY limitation is a CEQA derived mitigation measure that has undergone the public review process.  Page 25    VIII. SCVWD Treated Water  Besides being the manager of groundwater in Santa Clara County, the SCVWD also produces  and delivers treated drinking water to water retail agencies in the county.  Long‐term plans of  the SCVWD include extending the treated water pipeline from its current terminus at Foothill  Expressway and Miramonte Road to a Palo Alto connection point at Foothills Expressway and  Arastradero Road (a distance of about 4.5 miles).  The SCVWD calls this extension the “West  Pipeline Extension”.  However, the project would only be constructed if the City requested  water supply from the SCVWD and signed a treated water contract.    Background  In 1999, the City sent a letter to the SCVWD advising it that information was needed to analyze  the City’s option to connect to the SCVWD treated water West Pipeline.  The SCVWD responded  with an estimated cost for the extension of the West Pipeline that would have to be fully borne  by Palo Alto.  In February 2002, Palo Alto and four other county retailers requested that the  SCVWD conduct a feasibility study of a West Pipeline extension from both a supply perspective  and the additional reliability of having an additional interconnection with the SFPUC system.   The SCVWD prepared a report on extending the West Pipeline, entitled: “Santa Clara Valley  Water District’s West Pipeline Extension Conceptual Evaluation Final Report”27.  The report  evaluated an extension of the existing SCVWD West Pipeline to enable an interconnection of  the Palo Alto and SCVWD systems at Page Mill turnout28.  A map of the potential project is  provided in Figure 9.                                                              27 The City of Palo Alto participated in the preparation of the 2012 Water Supply and Infrastructure Master Plan  (WSIMP).  As part of that process, staff requested the SCVWD include the West Pipeline extension for project  consideration.  The SCVWD noted in the Final 2012 WSIMP that the project is not recommended in the WSIMP  because it does not contribute to long‐term supply reliability.  However, the SCVWD stated that it would be  considered during a planned Infrastructure Reliability Master Plan.  28 The SFPUC and the SCVWD have an emergency interconnection near Milpitas that could theoretically be used to  wheel water to Palo Alto.  Staff does not anticipate it will be feasible to wheel normal year supplies via the intertie,  but the use of the intertie during dry years may be possible.  However, in general the SCVWD system is more dry  year sensitive than the SFPUC system, so it is unclear whether supplies would be available to be wheeled to Palo  Alto via this mechanism.  Page 26    Figure 9: West Pipeline Extension Map      Availability  If the City requested that the SCVWD extend the West Pipeline to serve the City, the terms of  the treated water contract would determine the availability and amount of water that would be  delivered during normal years.  The SCVWD has a diverse water supply portfolio, including State  Water Project, Central Valley Project, and local reservoirs.  SCVWD’s 2010 UWMP and its 2012  WSIMP indicated the SCVWD anticipates having adequate supplies to meet future needs until  2030 when minor deficits begin to materialize.  However, those projections do not assume any  treated water deliveries to Palo Alto.  In addition, there is no guarantee that the water will be  available during dry years.      Cost  SCVWD’s West Pipeline Extension Report provided detailed cost estimates for several pipeline  configurations, which are summarized in Table 6.  Both scenarios require a new parallel pipeline  from Rinconada Water Treatment plant to the current terminus of the West Pipeline at  Miramonte Road.  From there, a new pipeline would be constructed to Page Mill Road.  The  cost differential between the two scenarios is largely attributed to different pipe sizing  requirements and an intertie pump station.    Page 27    Table 6: SCVWD Treated Water Connection Summary Costs29  Alternative Assumptions Total Cost  of  Alternative  ($million)  Cost to  SFPUC  ($million) Cost to  New  Retailers  ($million)  Rate  Increase  to SCVWD  Retailers  ($/AF)  Parallel  and  Extension   Existing treated water  contractors and new retailers  share cost of parallel pipe   New retailers pay for extension  94‐114 N/A Palo Alto:  44‐67  Purissima  Hills: 5‐9  $5‐8  Parallel,  Extension  and  Intertie   Existing treated water  contractors and new retailers  share cost of parallel pipe   SFPUC pays for half of  incremental cost of intertie   Existing and new retailers share  cost of extension and half of  incremental cost of intertie  127‐154 18‐22 Palo Alto:  23‐41  Purissima  Hills: 4‐10  Stanford  University:  4‐8  Pump Tax:  11‐14  Treated  Water: 15‐ 22    The report concluded that the City and neighboring jurisdictions must pay for the costs of  constructing the extension via a “take or pay” contract, which is a common payment  mechanism for all agencies in the county that purchase SCVWD treated water.  The amount of  the take or pay contract is determined by the amortized construction costs divided by the  annual treated water rate.  For example, if Palo Alto’s obligation for a West Pipeline extension  was $30 million with an annual cost of $2 million (using an interest rate of 3%/year for a 20‐ year financing period), and the treated water rate was $634.60 per AF30, then Palo Alto would  be required to purchase about 3,150 AF/year, or about 25% of the City’s water usage in FY  2012.    During the term of the contract, the City would have limited ability to adjust its annual water  purchase from the SCVWD.  There are several agencies in Santa Clara County that purchase  both SCVWD and SFPUC treated water, and they are subject to minimum “take or pay” contract  provisions by both providers.  The City would receive similar treatment.  The cost estimates in  Table 6 do not account for any distribution system improvements that may be required to  configure Palo Alto’s distribution system to receive SCVWD treated water.    Recently, the City conducted an evaluation of property tax collected by SCVWD from Palo Alto  property owners.  It is not uncommon for water districts to rely wholly, or in part, on property  related taxes to build water systems or for surplus capacity for future users.  The SCVWD has  historically relied on taxes to some degree to purchase imported water and fund local                                                          29 Cost of additional supply is not included in project cost.  Costs have been escalated 3‐5% from 2003 dollars to  provide a representation of potential costs ranges.  30 This is SCVWD’s treated water rate for FY 2013  Page 28    groundwater and treated water programs, and continues to do so.  The results of the property  tax evaluation revealed Palo Alto taxpayers have contributed to the development of the SCVWD  water supply, distribution and treatment system, and will likely continue to do so in the future.   This information could be helpful in determining an equitable sharing of the capital costs of an  extension to serve areas of the county that have historically supported the SCVWD system.    Water Quality  See Table 4 in the groundwater section for a comparison of certain water quality parameters of  SCVWD’s treated water, SFPUC water, and groundwater.    Carollo Engineers evaluated the SCVWD treated water line in the Long Term Supply Study and  provided information on the issues of blending SCVWD supplies with SFPUC supplies.  In  general, SFPUC supplies are of superior quality to SCVWD supplies, but there were several  specific issues that were identified in the previous study.  If there is interest in moving forward  with an interconnection with the SCVWD system, additional analysis will need to be performed  to determine if the previous issues still remain, and what additional issues have arisen.  On the  positive side, the SCVWD’s recent decision to include fluoridation at their treatment plants  removes the need to provide fluoridation at the interconnection points to ensure the water  supply complies with the municipal code.  In a similar manner, the SFPUC has completed the  transition to chloramine from chlorine for residual disinfection.  This removes some water  quality related issues associated with blending treated water from different sources that use  different disinfectants.  However, there may be other issues related to water quality that could  require the two water supplies to be isolated in the distribution system.  This would result in  water from difference sources being provided to customers depending on their location in the  distribution system.    Long Term Reliability  It is likely the SCVWD has little surplus imported water to allocate to Palo Alto, so the details of  a potential supply arrangement will need to be evaluated further.  During the drought in the  late 1980’s, SCVWD supplies from both the state and federal sources were significantly  reduced.  It is not clear what level of drought protection would be provided, though the recent  level of service commitment by the SCVWD indicates that there would be no greater than 10%  reduction in supplies during dry years.    Emergency Robustness   In 2003, the SCVWD initiated the Water Utility Infrastructure Reliability Project to determine  the current reliability of its water supply infrastructure (pipes, pump stations, treatment plants)  and to appropriately balance level of service with cost. The project measured the baseline  performance of critical SCVWD facilities in emergency events and identified system  vulnerabilities.  The study concluded that the SCVWD water supply system could suffer up to a  60‐day outage if a major event, such as a 7.9 magnitude earthquake on the San Andreas Fault,  Page 29    were to occur.  Less severe hazards, such as other earthquakes, flooding and regional power  outages had less of an impact on the SCVWD, with outage times ranging from one to 45 days.     The level of service goal identified for the Infrastructure Reliability Project was “Potable water  service at average winter flow rates available to a minimum of one turnout per retailer within  seven days, with periodic one day interruptions for repairs.”  In order to meet this level of  service goal, the project identified a recommended portfolio to mitigate the risks.  The SCVWD  has been implementing the recommended portfolio.  The project is expected to reduce the  post‐earthquake outage period from 45‐60 days to 7‐14 days.     In 2007, the SCVWD created a stockpile of emergency pipeline repair materials including large  diameter spare pipe, internal pipeline joint seals, valves, and appurtenances.  The stockpile  marks a significant increase in reliability of the SCVWD water supply system, as it helps to  reduce outage time following a large earthquake from approximately 60 to 30 days.  The  SCVWD still needs to complete several other emergency planning projects to meet the goal of  reducing outage time to 30 days.  These include developing a post‐disaster recovery plan,  developing mutual aid agreements or expanding participation in the California Water/  Wastewater Agency Response Network , setting up contractor, welder, and equipment rental  company retainer agreements, and setting up post‐earthquake pipeline inspection teams.  The  addition of groundwater wells and line valves to the SCVWD system will further reduce outage  time following a large earthquake from 30 days to 14 days.  The wells will allow the SCVWD to  convey supplies from the groundwater basin to the treated water pipelines following a hazard  event to meet the project’s level of service goal.  The line valves will allow the SCVWD to isolate  damaged portions of pipelines.      If the West Pipeline was extended to provide potable water service to Palo Alto, the City would  have one connection to the SCVWD system31, compared to 5 connections to the SFPUC system.   It is unclear what level of reliability would be provided in the event of catastrophic event.  The  SFPUC level of service goal following an earthquake is to provide for average wintertime  demands with delivery to 70% of the turnouts within 24 hours following a major earthquake.   The SCVWD level of service goal provides for service resumption to one turnout within 7 days of  a similar event, though the location of a Palo Alto interconnection at the end of the treated  water line may be a weak point, so it is unclear if there will be adequate supplies or system  pressures to provide meaningful service.  In addition, the SCVWD plans on extracting  groundwater for raw water delivery to the treatment plants and on to the retailers during an  emergency.  The Emergency Water Supply and Storage project will serve this purpose for Palo  Alto.                                                            31 There may be additional connection options to a new SCVWD treated water pipeline, such as a new extension to  the existing Arastradero SFPUC turnout.  However, the cost of additional connections was not included in the initial  cost estimate and would likely be borne by the City.  Additional connections may allow increased use of and more  efficient distribution of SCVWD treated water, though they may not provide any additional reliability assurances.  Page 30    Environmental Impacts  A West Pipeline extension will require CEQA review.  The SCVWD would be the lead agency for  the CEQA process.    Sensitivity to Regulations  The SCVWD imports water from both the State and Federal water projects, and is vulnerable to  actions that impact those sources.  Since publication of the 2003 WIRP, federal and state water  deliveries have been reduced on several occasions due to Delta related issues.   The Bay Delta  Conservation Plan is currently underway to address the co‐equal goals of water supply  reliability and environmental sustainability.  The most likely water conveyance solution will be a  tunnel underneath the Delta from an intake on the Sacramento River to the South Delta  Diversion/Pumping facilities.  Such a facility will take decades to build and the costs will likely be  borne by State and Federal water contractors, including the SCVWD.     Page 31    IX. Recycled Water  The City of Palo Alto operates the Regional Water Quality Control Plant (RWQCP), a wastewater  treatment plant, for the East Palo Alto Sanitary District, Los Altos, Los Altos Hills, Mountain  View, Palo Alto, and Stanford University.  Approximately 220,000 people live in the RWQCP  service area.  Of the total plant flow, about 60 per cent is estimated to come from residences,  10 per cent from industries, and 30 per cent from commercial businesses and institutions.    In 1992, the City and the other RWQCP partners completed a Water Reclamation Master Plan  (Master Plan).  The Master Plan identified a three stage implementation for recycled water in in  the RWQCP service area.    In 1995, City Council certified the Final Program Environmental Impact Report (PEIR) for the  Master Plan projects.  At the same time, Council decided not to pursue any of the  recommended expansion stages of a water recycling system as the cost could not be justified.   Council adopted a water recycling policy, which included continuation of the existing programs  and monitoring of conditions that would trigger an evaluation of the Master Plan.  The Water  Recycling Policy described five conditions that would trigger evaluation of the Master Plan  projects:    1) Changes in the RWQCP discharge requirements  2) Increased mass loading to the RWQCP  3) Requests from partner agencies or other local agencies  4) Availability of federal or other funds  5) Water supply issues:  a. Water shortages  b. Legislative or Regulatory Initiatives  c. Advanced treatment for potable reuse.    Since the Master Plan, the City prepared a recycled water survey in 2006 and a Facility Plan in  2009 for a project to deliver recycled water to the Stanford Research Park.  The Facility Plan had  four goals:    1) Define recycled water alternatives and identify a recommended project;  2) Develop a realistic funding strategy  3) Develop an implementation strategy ; and  4) Provide a basis for any future state and federal grant requests for the Project.    Since completion of the Facility Plan, the City initiated the environmental review process for the  project and is currently working on an Environmental Impact Report (EIR) for the project.  The  City is also focusing on outside funding sources to improve the project economics.    The Facility Plan provided a comprehensive overview of the proposed recycled water project to  serve the Stanford Research Park.  The project would connect to the recently completed  Page 32    recycled water transmission line serving the Mountain View area and extend through the City  to serve the target area.  A schematic of the proposed project including water demands and  pipe sizes is provided in Figure 10.    Figure 10: Proposed Recycled Water Project        Availability  The average dry weather flow capacity of the RWQCP is 38 MGD.  The average treated  wastewater discharge to the San Francisco Bay is approximately 22 MGD.  In theory, all of this  could be captured for reuse.  Several RWQCP partners, including Palo Alto, have a contractual  entitlement to the treated wastewater in proportion to the amount of wastewater that is sent  to the RWQCP32.  Palo Alto’s FY 2011 flow share to the plant was approximately 39.2%, or 8.624                                                          32 Personal communication with James Allen, RWQCP Plant Manager, November 2012  Page 33    MGD.  However, operational constraints and plant configuration limit the recycled water  production capability from the RWQCP.    The RWQCP collaborates with the partners to ensure needed capital improvements for future  recycled water expansion goals are incorporated into long range plans.  Considering the  RWQCP’s primary role to provide wastewater treatment services for the partners and to ensure  the RWQCP meets all associated regulatory and permit limitations, the necessary  improvements to accommodate a substantial increase in recycled water deliveries are not a  priority for the foreseeable future.  In the meantime, the RWQCP can deliver up to 4.5 MGD of  recycled water via coagulation and filtration through a multi‐layered filter and disinfection  process.  This additionally treated effluent meets California Department of Health Services Title  22 requirements for “unrestricted reuse”.  The new ultraviolet (UV) disinfection banks can add  6 MGD of recycled water production (8 MGD with an extra bank).  The RWQCP plans to use UV  as backup to the filtration/chlorination recycled water treatment train.   Future plans include  consolidating the systems into a 10.5 MGD recycled water facility, but this would require some  modifications in plant piping and storage tanks to get bottlenecks out of the system.      In constructing the project to extend the recycled water distribution system to serve the City of  Mountain View, the CPAU Water Fund paid $1 million and committed to pay an additional $1  million connection fee in the event the project to serve the Stanford Research Park was built.   By virtue of this arrangement, the CPAU Water Fund has secured capacity on the pipeline for  future use.   The RWQCP cannot currently meet projected recycled water demands under peak  conditions, and additional pumping capacity and possibly storage is needed to accommodate all  project users.  Palo Alto’s recycled water project capital costs include the cost of retrofitting the  RWQCP pump station to accommodate incremental recycled water deliveries to serve the  Stanford Research Park.       Page 34    The RWQCP has had a robust recycled water program for many years, including a substantial  amount for RWQCP onsite needs and irrigation at Greer Park, the Duck Pond and the Palo Alto  Municipal Golf Course.   As shown in Figure 11, the RWWCP uses about 0.5 MGD annually  (about 560 AFY) for irrigation around the plant as well as some cleaning and treatment  processes.   Greer Park and the Duck Pond have each used about 0.04 MGD (45 AFY) on average  over the past five years while the Palo Alto Municipal Golf Course has used about 0.2 MGD (230  AFY) on average over the past five years.    The 2009 Facility Plan identified about 0.8 MGD of new recycled water usage for the project to  expand the recycled water distribution system.  The project would primarily serve the Stanford  Research Park area and the bulk (90%) of the recycled water would be used for irrigation  purposes.    Figure 11:  Palo Alto Existing Recycled Water Uses for FY 2004‐FY 2012         Page 35    Cost  The Facility Plan included a detailed cost plan to build the project (Table 7).  The gross project  cost is approximately $33 million, though this does not include potential outside funding  sources that could lower the project cost.    Table 7: Recycled Water Gross Cost Estimate 1,2      The cost estimates in Table 7 were developed for 2009 Facility Plan using March 2008 dollars  and will need to be updated to reflect current capital and O&M costs.  Based on the 2008 data,  the recycled water cost is approximately $2,700/AF, compared to an SFPUC cost of $1260/AF  (2013) to $2240/AF (2020).  However, these cost estimates do not reflect several grant and low  interest funding programs that the City has been pursuing that will help lower the unit cost of  the recycled water to a more competitive level with SFPUC costs.  These funding options are  listed below:    1. Title 16 ‐ The Bureau of Reclamation's water reclamation and reuse program is  authorized by the Reclamation Wastewater and Groundwater Study and Facilities Act of  1992 (Title XVI of Public Law 102‐575).  The City of Palo Alto is a member of the Bay Area  Recycled Water Coalition, a group of regional recycled water projects that collaborate to  pursue federal funding for recycled water projects.  In order to receive federal funding,  all projects must receive federal authorization.  The City is currently seeking  authorization in the House of Representatives for a federal award of $8.25 million (H.R.  3910).  Obtaining authorization is a first step and subsequent steps include submittal of  Page 36    appropriation requests until the full authorized amount is received.  While authorization  provides a degree of certainty on a grant award, receipt of the full grant amount will  depend on annual appropriations and the federal political process.    2. Proposition 84 through IRWMP – The City is pursuing Proposition 84 grant funds  through the Bay Area Integrated Regional Water Management Plan.  The BAIRWMP  project list was recently updated and the City will have the option to submit funding  requests during future funding rounds.    3. State Revolving Fund Low Interest Loan – The City can apply for low interest  construction loans through the State Water Resources Control Board State Revolving  Fund (SRF) program.  The program provides 20 year loans with an interest rate equal to  half of the most recent General Obligation bond interest rate.  The most recent SRF  interest rate is 1.7%, though the historical rate is typically in the 2‐2.5% range.  SRF  loans have several attractive features, including a payment plan that commences 1 year  after construction and the avoidance of bond issuance costs.    The Title 16 and SRF loan programs represent the best State and Federal funding opportunities  for the project at this time.  The City’s recycled water project is on the SRF project list, and staff  does not anticipate that obtaining an SRF loan will be problematic.  However, obtaining Title 16  authorization for the project will be critical to making the project economically viable.  An SRF  loan and an $8.25 million federal grant would improve project economics such that recycled  water would become competitive with SFPUC potable water within 4‐6 years.    The City’s recycled water project was identified in BAWSCA’s Long‐term Regional Water Supply  Strategy as a project with near term development potential to meet future water supply needs.   Inclusion in the BAWSCA report does not change the project, but it does position the project for  innovative funding opportunities with another BAWSCA agency in exchange for some  equivalent benefit.  Such a partnership could be combined with State and Federal funding  sources to further improve project economics.    Water Quality  The recycled water from the RWQCP meets Title 22 requirements for unrestricted reuse.  The  main purpose of the Palo Alto recycled water project is to offset the use of high quality  imported SFPUC water for irrigation and cooling purposes.  A major challenge for the project is  acceptance by the landscape community of using recycled water for irrigation purposes.   Certain landscapes are particularly vulnerable to the higher salinity that is present in recycled  water, especially those areas with poor drainage and clay soils.    The RWQCP and the plant partners are undertaking efforts to address the elevated salinity  levels in the recycled water by establishing the Salinity Reduction Policy and evaluating the  wastewater collection system for areas where elevated salinity levels indicate Inflow and  Infiltration may be an issue.  For example, the City of Mountain View is currently spending $3‐4  Page 37    million to line a sewer trunk line that has indications of saline water intrusion.  This large  project may yield a significant salinity reduction when complete in February 2013.    Long Term Reliability  Recycled water is one of the most reliable new water supply sources.  As previously mentioned,  CPAU has paid for a future connection to the pipeline that extends from the RWQCP to serve  Mountain View, which has a maximum capacity of 21 MGD.  With the addition of the UV banks,  the recycled water production train could provide up to 10.5 MGD of recycled water.  As it is  local, it is more reliable than imported supplies, which rely on lengthy networks of pipes, pumps  and storage facilities.  In droughts or other water shortage situations, landscape water use is  normally targeted for the largest reductions, but recycled water use would not be subject to  such reductions.      Additional recycled water use will increase the City’s allocations of SFPUC water in drought  times.  Since the drought allocation formula is based on both a seasonal component and overall  water use, increased use of recycled water would provide a double benefit since it lowers  potable water use and also reduces the City’s potable usage during the peak irrigation season.   While it is difficult to assess future drought allocations since much depends on the actions of  other agencies, staff estimates the Stanford Research Park recycled water project could reduce  the dry year cutback by 10‐20%.    Emergency Robustness   Recycled water will be used for irrigation purposes and, to a lesser extent, cooling.  During a  catastrophic emergency, CPAU will focus on operation of the emergency wells and the potable  distribution system to ensure potable requirements and fire flows are maintained.  The RWQCP  will also focus its efforts on returning the RWQCP to normal operations.  Recycled water does  not provide additional emergency preparedness improvements over the current situation.    Environmental Impacts  The City has been preparing the requisite National Environmental Policy Act (NEPA) and CEQA  documents for the project.  The environmental review process has taken longer than  anticipated, largely due to additional study of the use of recycled water on plants in areas of  poor drainage and clay soils.      Sensitivity to Regulations  The recycled water supply is sensitive to regulations, but these can have both positive and  negative impacts due to the unique nature of the recycled water supply.  The RWQCP is subject  to numerous regulatory requirements related to treated wastewater discharges to San  Francisco Bay.  The use of recycled water is recognized as one method to reduce discharges to  the Bay and assists the RWQCP in complying with these requirements.  For example, in March  2012, the Regional Water Board issued a Water Code Section 13267 Technical Report Order to  Page 38    Bay Area wastewater dischargers, including the RWQCP, requiring submittal of information on  nutrients in wastewater discharges (nitrogen and phosphorus).  This information will be  compiled over the next few years and will likely result in the development of future water  quality objectives for the San Francisco Bay estuary.  An increase in recycled water use would  decrease the total nitrogen and phosphorus discharge to the Bay.   As the regulatory  environment for wastewater treatment plants becomes stricter, recycled water will become an  increasingly useful tool to assist wastewater treatment plants in complying with these new  regulations.    In February 2009, the State Water Resources Control Board adopted Resolution No. 2009‐0011,  which established a statewide Recycled Water Policy.  This policy encourages increased use of  recycled water and local storm water.  It also requires local water and wastewater entities,  together with local salt/nutrient contributing stakeholders to develop a Salt and Nutrient  Management Plan  for each groundwater basin in California.  The SCVWD is the lead agency for  this effort in Santa Clara County.  Together with the benchmarks in the SCVWD 2012 GWMP,  recycled water impacts on the groundwater basin will likely be monitored and subject to  regulation in the event there are observed changes.  X. Demand‐Side Management  Demand‐side management measures and Best Management Practices (BMPs) are measures  that can be implemented to conserve water.  The BMPs are included in the California Urban  Water Conservation Council (CUWCC) Memorandum of Understanding (MOU).  Water agencies  that became signatories to the MOU pledged to implement the BMPs and to report progress  biannually to CUWCC.       Since becoming a signatory to the MOU in 1991, the City has saved an estimated 4,135 AF of  water through conservation program implementation.  The 2010 UWMP contains the City’s  reports to the CUWCC, including compliance reports on the BMPs.  The 2010 UWMP included  an increased conservation program commitment, in large part driven by the requirements of SB  X7‐7.      Availability  BAWSCA has assisted its members in assessing the potential for water efficiency measures.  In  October 2008, as part of the adoption of the Water System Improvement Program (WSIP)  Program Environmental Impact Report, BAWSCA coordinated the completion of the Water  Conservation Implementation Plan, which provided a comprehensive analysis of cost effective  conservation measures to identify additional programs that could assist the BAWSCA agencies  in meeting future purchase limitations.  Results from the Water Conservation Implementation  Plan were also used to prepare the City’s 2010 UWMP.  Figure 12 shows the water conservation  goals Council adopted when it approved the 2010 UWMP.  Figure 12 also compares the  Page 39    conservation program commitment in the 2005 UWMP to the new commitments in the 2010  UWMP.    Figure 12: Water Conservation Savings Goals  0 500 1000 1500 2000 2500 2005 2010 2015 2020 2025 2030 Cu m u l a t i v e W a t e r S a v i n g s ( A c r e - F e e t ) Fiscal Year Actual Savings 2005-2010 Projected Savings from 2005 UWMP Projected Savings from 2010 UWMP 13% of Water  Demand 4% of Water  Demand     The annual report to City Council on efficiency goals and achievements includes a summary for  water demand side management goals and achievements as illustrated in Table 8.      Table 8: Water Savings vs. Goals      Note that the savings goal increased threefold starting in FY 2011.  The increase is primarily a  result of legislative requirements (SB 7x‐7) that were captured in the 2010 UWMP.  This  aggressive goal is consistent with the City’s longstanding policy of providing cost effective  conservation programs to the community.  Staff will monitor conservation program  effectiveness and make necessary adjustments if it appears the current program is not meeting  established targets.  Page 40      Cost  It is the goal of the City to look for opportunities, innovative technologies, and cost effective  programs that best utilize the water conservation budget.  In FY 2011, the City dramatically  increased conservation program savings goals to meet the requirements of SB7x‐7.  The 2010  UWMP contains a detailed analysis of the current suite of conservation measures that are  offered by the City.  For each program, the benefit/cost ratio from the Total Resource Cost  (TRC) perspective is shown.    The TRC cost‐effectiveness test compares the total cost of  implementing a measure, regardless of who pays.  The costs include the cost of the device, any  installation costs, and the implementation costs of the program (advertising, tracking,  performance monitoring, rebate processing, etc.).  The benefits include the avoided costs of  water purchases.  The Water Utility assesses each measure in terms of financial impact to the  utility, which includes rebate costs as well as any other administrative costs borne by the Water  Utility.  The water savings summary through 2030 is provided in Table 9, including cost to the  utility.    Table 9: Conservation Program Costs33  2015 2020 2025 2030 Total Savings (Acre‐feet) 672 560 168 448 Total Wastewater Savings (Acre‐feet) 403 314 67 157 Total Outdoor Savings (Acre‐feet) 269 246 101 291 Utility Implementation Cost ($2010) $754,058 $370,843 $364,762 $387,604 Cost/Acre‐feet $1,122 $662 $2,171 $865     Table 9 illustrates that the aggregate conservation program is cost effective when compared to  SFPUC supply alternatives.       As the cost of SFPUC water increases, many conservation programs become more cost  effective, though the Water Utility adjusts conservation programs depending on several factors,  including program penetration, community preferences and the TRC.  Despite the very  aggressive targets in the 2010 UWMP, it may be possible to further increase conservation  program utilization to achieve additional savings.     Water Quality  Demand side measures do not present any water quality issues.                                                            33 The large increase in cost per acre foot in 2025 reflects regular captured savings less a drop off of savings from  those measures initiated in the 2012‐2020 time frame that begin to reach maturity.  Water agencies offer rebates  to make it more attractive for customers to install more efficient, and potentially costlier, measures.  At some  point in the future the measure reaches the end of its useful life and must be replaced.  For some measures, the  models assume the consumer will only have the choice of the more efficient model in the future and therefore no  rebate is needed anymore.  Absent a rebate, the Water Utility does not account for the savings anymore.  Page 41    Long Term Reliability  Staff forecasts and tracks DSM program effectiveness, but the ultimate effectiveness for  different programs varies substantially depending on many factors, including individual  behavioral patterns.  Much research has gone into evaluating the reliability of DSM, and some  of that research could be useful to the City in future efforts to plan and evaluate program  effectiveness.  Due to the large differential between water demand and the City’s Individual  Supply Guarantee, there is no pressing need to strictly monitor DSM program effectiveness like  there may be for an agency that is at risk of exceeding its Individual Supply Guarantee    Water efficiency during a drought is a more complicated issue.  One issue is the concept of  “demand hardening”, which is the assumed loss of demand elasticity during a drought that  results from water conservation programs implemented before the drought.  In other words,  the community may have little flexibility to reduce demand further if conservation programs  have been truly effective.  At the same time, there are certain DSM measures that are not  suitable during normal years that can be implemented during dry years and achieve desired  savings (i.e ‐ steep rate increases, irrigation restrictions).    Emergency Robustness   The 2010 UWMP contains a summary of demand side options that can be implemented under  various scenarios (Section 7 – Water Shortage Contingency Plan).  During a catastrophic  interruption of SFPUC supplies, the City will immediately initiate emergency supply options to  meet potable demands and fireflow requirements.  At the same time, the City will begin  informational outreach programs to inform the community that emergency conditions are in  effect and water consumption behavioral changes are required (i.e no irrigation).       For dry year scenarios, the City will implement informational outreach programs, incentive  based demand‐side management programs, and water audits.  In addition, rate schedules may  be modified, as appropriate, to reflect the water shortage conditions.   Due to the  SFPUC/BAWSCA drought allocation formula, conservation programs provide a benefit in  reducing dry year cutback requirements.  Conservation programs that specifically target  irrigation demands will provide an additional benefit because of the seasonal component of the  drought allocation formula.    Environmental Impacts  For the most part, demand side measures do not present any environmental issues.  Measures  that specifically target landscape conversions or efficiency changes have occasionally been the  subject of concern by tree advocacy groups who are concerned about impacts on trees due to  decreased landscape watering.  The City includes information on proper tree maintenance for  those customers converting to drought resistant landscapes.     Page 42    Sensitivity to Regulations  Demand side measures are not limited by any regulations.  However, additional requirements  to implement measures may be proposed, or compliance with certain efficiency standards (e.g.  per capita water use) may be required, especially if seeking State or Federal grant or loan  assistance for a project such as the recycled water project.  XI. Individual Supply Guarantee Sale  Availability  The City currently purchases approximately 12 MGD of potable water from the SFPUC and has  an Individual Supply Guarantee (ISG), of 17.07 MGD.  A sale of surplus ISG could generate  income for a variety of potential purposes.   Over the past several years there has been  increased interest in an ISG transaction, but the mechanism and value of the ISG has been  difficult to establish, and this has hindered movement on this issue.      The City’s current water use is approximately 12 MGD, and the recent 2010 UWMP forecasted  the City’s water use would increase slightly in the next few years, and then remain flat around  13.6 MGD through 2030.  In the event the City transferred 1‐2 MGD of its ISG to another party,  recent forecasts do not anticipate this will impact the City’s ability to meet normal year potable  demands.      The SFPUC/BAWSCA (Tier II) drought formula is based on the weighted average of two  components, the smaller of which is the ISG34.  This is beneficial to the City since current  consumption is well below the City’s ISG.  An ISG transfer would reduce that benefit and result  in an increased dry year reduction requirement by the City.  At the same time, this aspect of the  role of the ISG in the drought formula would be viewed favorably by a purchasing entity as it  would be acquiring normal year supply and improving its dry year allocation.    There are several possible uses for the funds from an ISG transaction, including increasing dry  year supply reliability.  Examples of potential projects that could reduce the dry year supply  deficiency include retrofitting the City’s wells to provide high quality groundwater, arranging a  dry year water transfer arrangement that could be wheeled via the SFPUC system, or providing  the funds necessary to complete the recycled water project, which is a “drought‐proof” water  supply resource.      Cost  In May 2010, the Purissima Hills Water District indicated an interest in purchasing 0.5 MGD of  the City’s ISG for a one‐time payment of $1 million.  The City declined the offer, citing several                                                          34 It is important to emphasize the Tier II formula expires in 2018, unless extended by mutual agreement of the  Wholesale customers.   It is possible the successor agreement to the current Tier II formula could be quite  different, including a larger or smaller role for the ISG.  Page 43    policy issues that needed resolution prior to any action to initiate an ISG transaction.  With  completion of the Tier II drought allocation process and the Interim Supply Limitation allocation  process, the major policy obstacles have been addressed.     In September 2012, the City of Brisbane executed a term sheet with the Oakdale Irrigation  District to transfer water to Brisbane.  The transaction will require additional agreements with  the Modesto Irrigation District and the SFPUC as intermediate parties.  As is the case with  PHWD, Brisbane’s water use is close to its ISG and it needs additional supplies to meet  anticipated needs.  The term sheet is a preliminary step, but it provides a starting point to  establish a proxy value for an ISG transaction.  The term sheet contemplates a sale of up to  2,400 AFY, with a price of $500/AF for any delivered water and a price of $100 for any water  not delivered (i.e, the difference between 2,400 AF and the delivered quantity).  After five  years, Brisbane must notify Oakdale Irrigation District how much water will be taken during the  remainder of the agreement.  All of that water is paid for at $500/AF, regardless of whether or  not it is actually taken.   If the City were to execute an agreement similar to the  Brisbane/Oakdale transaction, a 2 MGD transfer might generate revenues of $224,000 to $1.1  million per year for the first five years, followed by up to $1.1 million per year for the duration  of the transaction.  Of course, such a transfer would also reduce the City’s ISG from 17.07 MGD  to 15.07 MGD.    Water Quality  A water transfer does not present any water quality issues.    Long Term Reliability  A 2 MGD water transfer would reduce the City’s ISG from 17.07 MGD to 15.07 MGD.  The City’s  current normal year water use is well below 15.07 MGD, and recent forecasts indicate that the  City’s usage will exceed 15.07 MGD for the foreseeable future.  For dry years, a reduction in the  City’s ISG will result in an increased water reduction requirement.  For dry years, the Tier II  drought allocation formula has an ISG component so a reduction in ISG will negatively impact  the City’s allocation during a drought.  Staff estimates a 2 MGD sale would require an additional  5‐7% dry year cutback from the City or could increase reliance on groundwater.  A thorough  evaluation of such a sale is necessary to provide a more detailed assessment.    Emergency Robustness   A nominal ISG transfer would not impact the City’s access to SFPUC supplies following a  catastrophic interruption of SFPUC supplies.    Environmental Impacts  Staff anticipates that the receiving party will initiate any required environmental review under  CEQA.    Page 44    Sensitivity to Regulations  An ISG transaction is subject to Section 3.04 of the WSA.  The SFPUC review is limited to  determining if the proposed transfer complies with the Raker Act and whether the affected  facilities in the Regional Water System have sufficient capacity to accommodate delivery of the  increased amount of water to the proposed transferee.  Section 3.04(a) of the WSA also  specifies the City may “transfer a portion….to one or more other Wholesale Customers...”, thus  indicating an ISG transaction will likely be limited to another Wholesale Customer, or a third  party that plans on receiving the water within the service territory of another Wholesale  Customer.  Attachment B Draft Requirements for Submittal of a Determination of the effects of groundwater pumping on nearby buildings, infrastructure, trees, or landscaping. Required information to be submitted in a report prepared by a qualified professional, to include following:  Describe alternative construction methods considered by the owner/applicant and explain why dewatering is proposed for the project.  Submit the following information: o Depth to groundwater, maximum depth of excavation (including utilities, pits, shafts, etc.) and proposed maximum depth of dewatering wells/pumping. o Description of dewatering technique, including: location of dewatering wells, size and anticipated flow from each pump. Include a schematic diagram showing pipe and pump sizes and locations and sizes of all tanks, fill station, pipe route to nearest storm drain inlet (including flexible and rigid pipe locations), and all street and sidewalk impacts including trenching, sawcuts, and asphalt patching between project site and storm drain inlet. o Anticipated dewatering flow rate and total dewatering duration. o Controls to be utilized (e.g., settling tank, turbidity curtain, etc.) o Location of anticipated discharge including final receiving water (Creek name or Bay) o All wells and other dewatering sites within a 400 foot radius (roughly one City block) of the property that may interact with dewatering activity, using information available from the City. State or show the exact location of these dewatering sites. o Determine the radius of influence (i.e. extent of cone of depression) from each dewatering well as a function of time, based on local soil and groundwater conditions. Prepare a map and cross sections of the cone(s) of depression. State whether it is reasonably likely that the proposed dewatering will cause effects (including settlement or movement) on off-site structures or infrastructure, including the right or way, easements, and utilities within public utility easements. State whether it is reasonably likely that the proposed dewatering will reduce the amount of water taken up by any vegetation or trees to a level that will affect the health or viability of the vegetation or trees. Utilize an Urban Forestry Sub Consultant (certified arborist) to verify any such effects on trees.  To the extent that the qualified professional states that off-site effects are reasonably likely to occur, identify and implement avoidance measures to minimize the type and severity of those effects. Avoidance measures are also to be employed to the extent practical to minimize the PUBLIC WORKS P.O. Box 10250 Palo Alto, CA 94303 650.329.6951 January 2016 Attachment B flow rate and duration of the pumping, even when off-site effects are not specifically identified. Avoidance measures may include, for example: reducing well count, well depth, well location, pumping rate, and/or duration of pumping; supplemental irrigation of trees or vegetation, soil amendment, or other plant protection methods recommended by a certified arborist; alternative dewatering or construction methods.  Develop a monitoring plan to assess any actual effects on vegetation, trees, structures and infrastructure.  The geotechnical study and description and extent of the cone of depression must be stamped by a California licensed Geotechnical Engineer and submitted to the City. This report will be made available for public review. Attachment C: Correspondence Draft guideline for the maximum permissible quantity of water to be removed by dewatering (for residential basements) Save Palo Alto’s Groundwater Current Practice For a typical 15 foot deep dewatering for a 2500 square ft. basement on an 8,000 square foot lot, and assuming that 80% is dirt and the other 20% (0.2) extractable groundwater, the maximum amount of water attributable to the lot to be pumped would be 8,000 ft2 x 15 ft x 0.2 = 24,000 ft3. The City estimates the typical amount of water pumped per basement to be 1.2 million ft3. Therefore, at most, 24,000 / 1,200,000 x 100% = 2% of the water is from the property being dewatered. This corresponds to water 150 feet deep over the entire property! Obviously, the remaining 98% is from surrounding properties. How is this fair to surrounding homeowners and to the greater community at any time, and especially in a time of drought and water restrictions? Proposed Requirement The guideline for limiting the amount of water removed during dewatering to five (5) feet per square foot of lot, i.e. a maximum of 40,000 cubic feet (300,000 gallons) from a 8,000 square foot lot was developed from two considerations: 1) Sustainability. The amount of rainfall on a lot is about 1.25 feet per year times the area of the lot. Of this, Todd Engineers estimated that 5 – 10% (0.0625 – 0.125 feet times the area) enters the shallow aquifer, and then potentially the deeper aquifer levels. The remainder either runs off, evaporates or is taken up by plants. Therefore, 5 feet of water depth corresponds to 4 years of (normal) rainfall or 40 to 80 years of absorption by the aquifer of rainfall from the specific property. For 15 dewatering projects, the amount of water pumped would correspond to groundwater accumulation from 600 – 1200 residences for an entire normal year. 2) Reducing groundwater withdrawn from surrounding properties. As noted above, the amount of water under a property can be estimated by the product of the area of the property, the distance that the water table is lowered and the effective porosity of the soils. The effective soils provide an estimate of the amount of water that will flow out of soils under gravity. The values range widely but for clays, the effective porosity of clay ranges from 0.01 – 0.18, (http://web.ead.anl.gov/resrad/datacoll/porosity.htm). For a basement that lowers the water table from 7 feet to 15 feet under the property, and 0.18 porosity (the high estimate), the amount of water from the property would be (15 – 7) x 0.18 ft = 1.44 feet of water covering the entire property. Permitting withdrawl of 5 feet of water per square foot means that at least (5-1.44)/5 = 71% of the water would come from surrounding properties. . In cases where the water table is lowered less, or the soils are less porous, a larger fraction of the water would come from surrounding properties. For example, if the water table was lowered 2 feet, and the same amount of water was pumped, then >90% of the water could come from surrounding properties. City of Palo Alto (ID # 6412) City Council Staff Report Report Type: Action Items Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Ordinance and Resolution for Citywide and Downtown RPP Title: Adoption of an Ordinance to add Section 10.50.085 (Eligibility Areas) and to Amend Section 10.50.090 (Modification or Termination of Districts) of the Palo Alto Municipal Code Relating to Residential Parking Programs; Adoption of a Resolution Amending Resolution 9473 to Implement Phase 2 of the Downtown Residential Preferential Parking District Pilot Program; Approval of Contract Amendment to SP Plus for $94,000 for Additional Services for Parking Permits and On-Site Customer Service, Approval of Contract Amendment to SERCO for $60,000 for Enforcement of Expanded Area of Downtown RPP District, Approval of Contract Amendment to McGuire Pacific Constructors for $154,500 for Construction Services for Expanded Area of Downtown RPP District, Approval of Budget Amendments in the General Fund, Residential Parking Permit Fund, and Capital Improvement Fund, Approval of the RPP Administrative Guidelines. These actions are exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15061(b)(3) and 15301 of the CEQA Guidelines From: City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that Council: (1) Adopt an Ordinance to add Section 10.50.085 (Eligibility Areas) and amend Section 10.50.090 (Modification or Termination of Districts) of Title 10 of the Palo Alto Municipal Code relating to Residential Parking Programs (Attachment A) (2) Adopt a Resolution amending Resolution 9473 to implement Phase 2 of the Downtown Residential Preferential Parking District Pilot Program (Attachment B) (3) Adopt the RPP Administrative Guidelines (Attachment C) (4) Approve and authorize City Manager or designee to execute Contract Amendment to SP Plus for $94,000 for Additional Services for Parking Permits and On-Site Customer Service (Attachment D) (5) Approve and authorize City Manager or designee to execute Contract Amendment City of Palo Alto Page 2 to SERCO for $60,000 for Enforcement of Expanded Area of Downtown RPP District (Attachment E) (6) Approve and authorize City Manager or designee to execute Contract Amendment to McGuire Pacific Constructors for $154,500 for Construction Services for Expanded Area of Downtown RPP District (Attachment F) (7) Amend the Fiscal Year 2016 Budget Appropriation Ordinance for: a. the Capital Fund by: i. Increasing the transfer from the General Fund by $64,329; and ii. Increasing the Residential Preferential Parking Project (PL-15003) in the amount of $64,329; b. the Residential Parking Permit Programs Fund by: i. Increasing the transfer from the General Fund by $94,000; and ii. Increasing the Downtown Residential Preferential Parking Contractual Services budget by $94,000; c. the General Fund by: i. Increasing the transfer to the Capital Fund by $64,329; and ii. Increasing the transfer to the Residential Parking Permit Programs Fund by $94,000; and iii. Decreasing the Transportation Contingency fund by $158,329. Executive Summary In early 2014, the City began significant efforts to address the parking and traffic challenges, particularly in the Downtown core, through a strategic multi-pronged approach of parking management, parking supply and transportation demand management programs. The strategy includes implementation of the Downtown Residential Preferential Parking (RPP) district, which went into effect in September of 2015. Phase 1 of the program regulates non-resident parking around the Downtown commercial core by restricting non-permit holders to two hour parking between the hours of 8am and 5pm, Monday through Friday. Phase 2 of the program will additionally restrict non-resident parking into zones within the main RPP District boundary so that non-resident parkers are not concentrated in any one area, and will add additional areas to the District. This staff report discusses the proposal for zones within the District, the regulation and distribution of employee permits, the expanded district boundaries, and the way the “eligibility areas” within the boundaries can be added to the program. Additionally, in spring of 2015, City Council approved contracts with SP Plus, Serco Inc., and McGuire Pacific Constructors to implement portions of Phase 1 of the Downtown RPP program; this report details the additional budget needs for Phase 2 of the program and is requesting approval of required contract amendments. Background and Discussion As directed by Council, the City-wide ordinance originally adopted in December of 2014 includes parameters for all RPP districts city-wide, and the accompanying Resolution provides City of Palo Alto Page 3 specific direction on the details of the Downtown program. In the December 14 City Council meeting, based on the performance of the Phase 1 program, staff was directed to bring forward a revised Resolution and Ordinance implementing the proposed boundary changes and parameters for Phase 2 of the Downtown RPP program, scheduled to begin in April 2016. This section describes the proposed updates. City-wide RPP Ordinance The attached City-wide RPP Ordinance includes the following proposed modifications to Section 10.50 of the Palo Alto Municipal Code:  Inclusion of a process for streets/neighborhoods to opt out of the RPP District. Entities may opt out with a petition and survey process, similar to the opt-in procedure. The original ordinance did not have an opt-out procedure.  “Eligibility Areas” may be established adjacent to an RPP District. These areas may be annexed into the District via an administrative action and be approved for inclusion with approval from the Planning and Community Environment Director. They would not require approval on a street-by-street basis from the City Council. This modification is similar to how to the current Crescent Park No Overnight Parking program functions. Eligibility Areas are proposed as a way to simplify and streamline the annexation process for streets that may become impacted by a nearby RPP District as other areas are annexed in. Downtown RPP Resolution The attached Downtown RPP Resolution amends Resolution 9473 to provide for implementation of Phase 2 of the Downtown RPP program by the following measures:  Updated Downtown RPP District boundary to include newly annexed streets and approved Eligibility Areas (Attachment G). At the December 14 City Council meeting, staff recommended annexing streets that submitted a petition for inclusion in the Downtown RPP District. At the same time, Staff recommended that additional adjacent areas be approved for future inclusion in the Downtown RPP District. The areas eligible for inclusion may submit a petition in the future to be annexed into the Downtown RPP District with approval from the Planning and Community Environment Director, by use of the Eligibility Areas discussed as part of the ordinance. Council conceptually approved both recommendations.  Establish a cap of 2,000 annual employee permits for the 2016 calendar year. Permits will be allocated by zone as described below.  A zone structure to delineate where employees are eligible to park in the Phase 2 Downtown RPP District. (Attachment H) RPP Administrative Guidelines The attached RPP Administrative Guidelines (Attachment C) are written to provide further clarification of the Citywide RPP Ordinance and to support administration of individual RPP City of Palo Alto Page 4 Districts. Following Council approval of the Administrative Guidelines (and as indicated in the adopted ordinance), further edits to the document may be approved through administrative action by the Planning and Community Environment Director. Phase 2 Structure Based on the input from the stakeholder committee and public feedback, Staff prepared three options for employee permit distribution in Phase 2: 1) Concentric Zones, 2) Large Neighborhood Zones, and 3) Micro Zones. Council directed staff to move forward with the Micro Zones option as defined by Staff based on employee parking demand around the Downtown core and SOFA district. The employee parking zones (Attachment H) were designed to address the distribution of employee parking throughout the Downtown RPP District. The available employee permits (capped at 2,000, per Council direction) are allocated by zone to attain roughly equal employee parking distribution (by percentage) in each zone while accommodating for some expected two-hour visitor parking in the zones nearest to the Downtown core. The permits available in each zone represent approximately 30% to 40% of available on-street spaces. Based on data collection during Phase 1, it was determined that on any given day, the number of employees parking within the District was only 50% to 60% of the total number of permits sold; therefore, the theoretical impact of these employees parking in any particular zone would be around 15% to 24% of the total number of spots available on the street. In addition, the 2,000 total employee permit number is larger than the total number of RPP permits sold to employees during Phase 1, exclusive of daily permits (the 2,000 cap does not include daily permits, which effectively encourage employees to use transit to get to work and drive only occasionally when necessary). As proposed, the permit allocation totals 2,000 for the full Downtown RPP District, inclusive of the existing Phase 1 boundary, newly annexed streets, and streets within the Eligibility Areas. A portion of permits within zones 9 and 10 will be held in reserve and released as new streets opt into the Downtown RPP District. Permits will be valid only in those zones for which they are purchased; permits for zones that include streets that are not presently part of the Downtown RPP program will be valid only on streets that are participating. The zone boundaries and permits allocated per zone are delineated in Figure 1 and Table 1 below. Staff will continue to conduct occupancy counts and monitor permit sales by zone. The permit allocation per zone is subject to change annually with approval from the Planning and Community Environment Director. City of Palo Alto Page 5 Figure 1. Proposed Boundaries, Annexations, Eligibility Areas & Zones Source: Department of Planning & Community Environment, January 2016 City of Palo Alto Page 6 Table 1. Downtown RPP Employee Permit Zones and Allocations Zone Boundaries Permit Allocation 1 Alma Street, Everett Avenue (not inclusive), Webster Street (not inclusive), Lytton Avenue 75 2 Alma Street, Hawthorne Avenue (not inclusive), Webster Street (not inclusive), Everett Avenue 120 3 Alma Street, Palo Alto Avenue, Webster Street (not inclusive), Hawthorne Avenue 225 4 Webster Street, Palo Alto Avenue, Guinda Street (not inclusive), Hamilton Avenue (not inclusive) 190 5 Ramona Street, Forest Avenue and Hamilton Avenue, Guinda Street (not inclusive), Homer Avenue 175 6 Ramona Street, Homer Avenue (not inclusive), Guinda Street (not inclusive), Channing Avenue 100 7 Ramona Street, Channing Avenue (not inclusive), Guinda Street (not inclusive), Addison Avenue 135 8 Alma Street, Addison Avenue (not inclusive), Guinda Street (not inclusive), Kingsley Avenue 365 9 Embarcadero Road, Kingsley Avenue (not inclusive), Guinda Street (not inclusive), Melville Avenue, Middlefield Road 245* 10 Guinda Street, Palo Alto Avenue, Hale Street, Forest Avenue, Lincoln Avenue, Melville Avenue 370* Total Permits 2000 *A portion of permits in this zone will be held in reserve and released as additional streets opt into the Downtown RPP district. Source: Department of Planning & Community Environment, January 2016 Stakeholder and Resident Input Per City Council direction, Staff sought feedback from stakeholders and residents in the annexed areas of the Downtown RPP District on the following topics. Notes in greater detail are City of Palo Alto Page 7 contained in Attachment I.  Employee Parking in Annexed Areas. Stakeholders unanimously agreed that streets/areas annexed into the Downtown RPP District would be part of the existing district and thus offer permits to both residents and employees. Stakeholders present at the meeting did not indicate interest in pursuing further discussion regarding the limitation of employee parking to one side of each street.  Variable Pricing. Stakeholders favored the zone design noted in the above section, and expressed interest in evaluating variable pricing by zone in the future. Residents in the outer bounds of the Downtown RPP District noted that lower cost permits in the outer zones may encourage additional employee parking in those areas.  Allocation of Employee Parking in Zones. Stakeholders agreed that allocating employee parking permits throughout the Downtown RPP District to maintain a roughly equal employee parking rate was the most equitable approach. Contract Amendments To support the implementation of Phase 2, staff also requests that Council approve the following attached amendments to existing consultant contracts. Amendment One to Contract No. C15156501: SP Plus (Attachment D) The introduction of the online-only permit sales system for Phase 1 illuminated the need for on- site customer support for the customers who didn’t have email addresses and weren’t comfortable with computers. This amendment extends the existing contract with SP Plus to provide on-site customer service support at the City of Palo Alto City Hall on an as-needed basis in support of Phase 2 permit sales process. The amendment additionally provides for physical permits to be furnished for Phase 2, including stickers and hangtags, in lieu of the temporary permits which were issued for Phase 1 of the program. This contract is budgeted to the RPP Operating Budget. Amendment One to Contract No. C15156763: Serco Inc. (Attachment E) The expansion of the Downtown RPP District as conceptually approved by City Council on December 14, 2015, will require one additional Parking Enforcement Officer for the newly annexed streets and approved neighborhoods. The contract amendment will enable Serco to hire and train one new officer in support of Phase 2 of the RPP program. The City is not requesting additional funds at this time for Serco as the additional services can be absorbed into the existing budget. This contract is budgeted to the RPP Operating Budget. Amendment One to Contract No. C15157271: McGuire Pacific Constructors (Attachment F) This amendment will extend the existing contract with the Consultant to provide and install new RPP signs on newly annexed streets in the extended Downtown RPP district boundary. The amendment also provides for the fabrication and installation of stickers to delineate the newly City of Palo Alto Page 8 created zones for the Downtown RPP district. This contract is budgeted to CIP PL-15003. Timeline Phase 2 of the Downtown RPP program is anticipated to begin at the end of March 2016. Staff expects to begin work with the associated vendors immediately upon award of their respective contracts. Resource Impact Total project costs of $308,500 are necessary to complete the actions recommended in this report. Existing funding of $150,171 is available to partially fund these actions, including sufficient funding to pay Serco for enforcement of the expanded boundary of the Downtown RPP district. Therefore, a $158,329 reduction to the Transportation Contingency Fund in the General Fund, offset by a $94,000 transfer to the Residential Parking Permit Program Fund and a $64,329 transfer to the Capital Improvement Fund, is recommended to provide the additional funding needed for these actions. These transfers will ensure sufficient funding is budgeted in both the Residential Parking Permit Fund Operating Budget to cover the cost of the SP Plus amendment and in the Capital Improvement Fund for the Residential Parking Permit Project (PL-15003) to pay for the marginal cost of furnishing and installing additional signage. The additional costs are detailed below: Table 2. Requested Budget Adjustments Contract Service Cost SP Plus In-Person Support, Phase 1 $25,000 In-Person Support, Phase 2 $15,000 Phase 2 Permits $54,000 Sub-Total $94,000 McGuire Pacific Furnish and Install Zone Stickers $22,000.00 Furnish and install new signs $132,500.00 Less Existing Available Funds (90,171) Sub-Total $64,329 Total Budget Amendments $158,329 Source: Department of Planning & Community Environment, January 2016 Policy Implications The implementation of Phase 2 of the Downtown RPP program is consistent with the three- pronged approach Staff has presented to optimize parking within the Downtown core. It is also consistent with the following Comprehensive Plan goals: 1. Goal T-8, Program T-49: Implement a comprehensive program of parking supply and demand management strategies for Downtown Palo Alto 2. Policy T-47: Protect residential areas from the parking impacts of nearby business City of Palo Alto Page 9 districts. Environmental Review Adoption of a citywide ordinance and resolution regarding an RPP District in downtown Palo Alto are both exempt from review under the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) of Title 14 of the California Code of Regulations since it can be seen with certainty that there is no possibility the adoption and implementation of these documents may have a significant effect on the environment and Section 15301 in that these proposed documents will have a minor impact on existing facilities. Attachments:  Attachment A: Ordinance (PDF)  Attachment B: Resolution (PDF)  Attachment C: Administrative Guidelines (PDF)  Attachment D: SP Plus Contract Amendment (PDF)  Attachment E: SERCO Contract Amendment (PDF)  Attachment F: McGuire Contract Amendment (PDF)  Attachment G: District Map (PDF)  Attachment H: Phase 2 Zones Final (PDF)  Attachment I: Stakeholder Feedback (PDF)  Attachment J: Conflict of Interest Map (PDF) NOT YET APPROVED 019 Planning 1 Ordinance No. ____ Ordinance of the Council of the City of Palo Alto to Add Section 10.50.085 (Eligibility Areas) and to Amend Section 10.50.090 (Modification or Termination of Districts) of the Palo Alto Municipal Code Relating to Residential Parking Programs The Council of the City of Palo Alto does ORDAIN as follows: SECTION 1. Findings and Recitals. The Council of the City of Palo Alto finds and declares as follows: A. In response to resident concerns about their ability to opt-out of their neighborhood’s Residential Preferential Parking district, the City re-evaluated the existing procedures. B. To provide greater opportunity and a fairer process for residents, the opt-out procedures related to the Residential Preferential Parking program should be revised. SECTION 2. Title 10, Section 10.50.085 of the Palo Alto Municipal Code is added to read as follows: 10.50.085 Eligibility Areas When it is determined that particular areas may experience spill-over from previously designated RPP Districts, the Council may designate by resolution those areas as an Eligibility Area. Designated Eligibility Areas may petition the director for annexation into an existing RPP District. The petition shall be on forms provided by the department. If the petition meets the criteria established in the administrative guidelines adopted by the director, the director shall approve the Eligibility Area for annexation. SECTION 3. Title 10, Section 10.50.090 of the Palo Alto Municipal Code is amended to read as follows: 10.50.090 Modification or termination of districts. (a) Opting out. After final adoption of an RPP District, Residents may file an application with the director to opt out of the RPP District. The minimum number of blocks and percentage of units supporting the opt-out shall be specified by the director in the administrative guidelines. Applications for opting out shall be made in the form and manner prescribed by the director and shall be acted up on by the director. Any opt out application shall be filed within ninety days after council adoption of the resolution establishing the RPP District. (b) Timing and Review of Opt Out Applications. Each calendar year, the director of planning and community environment shall review all opt out applications received prior to March 31st NOT YET APPROVED 019 Planning 2 of the year to determine whether the opt out criteria established in the administrative guidelines are met. (b) (c) Dissolution. The city council following a noticed public hearing may adopt a resolution dissolving the RPP District: (1) Upon receipt and verification of a petition signed by 50% or more of all the households within an approved RPP District boundary; or (2) Upon findings by the city council that the criteria for designating the RPP District are no longer satisfied. SECTION 4. Severability. If any provision, clause, sentence or paragraph of this ordinance, or the application to any person or circumstances, shall be held invalid, such invalidity shall not affect the other provisions of this ordinance which can be given effect without the invalid provision or application and, to this end, the provisions of this ordinance are hereby declared to be severable. SECTION 5. CEQA. This ordinance is exempt from the requirements of the California Environmental Protection Act (CEQA) pursuant to Section 15061(b)(3) of Title 14 of the California Code of Regulations since it can be seen with certainty that there is no possibility the adoption and implementation of this ordinance may have significant effect on the environment and Section 15301 in that this proposed ordinance will have a minor impact on existing facilities. SECTION 6. Effective Date. This ordinance shall be effective on the thirty-first date after the date of its adoption. INTRODUCED: PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: APPROVED: ______________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: ____________________________ City Manager ______________________________ Senior Assistant City Attorney ____________________________ Director of Planning and Community Environment NOT YET APPROVED 1 141016 jb 0131499 Rev. January 5, 2016 Resolution No. ___ Resolution of the Council of the City of Palo Alto Amending Resolution 9473 to Implement Phase 2 of the Downtown Residential Preferential Parking District Pilot Program R E C I T A L S A. California Vehicle Code Section 22507 authorizes the establishment, by city council action, of permit parking programs in residential neighborhoods for residents and other categories of parkers. B. A stakeholders’ group comprised of Downtown residents and business interests has been meeting to discuss the implementation of Residential Preferential Parking Districts (RPP Districts). C. On December 15, 2015 the Council adopted Ordinance No. 5294, adding Chapter 10.50 to Title 10 (Vehicles and Traffic) of the Palo Municipal Code. This Chapter establishes the city-wide procedures for RPP Districts in the city. D. On December 1, 2014, the Council adopted Resolution No. 9473 implementing a Downtown Neighborhood preferential parking pilot program. The implementation anticipated a two phased pilot program. Permits issued for Phase 1 of this pilot program will expire on March 31, 2016. E. The Council desires to amend Resolution 9473 to update the process for implementing Phase 2 of the Downtown Neighborhood preferential parking program pilot. These modifications shall only apply to Phase 2 of the pilot. NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES, as follows: SECTION 1. Findings. The criteria set forth in Section 10.50.030 for annexing the additional areas described in 3(A) of this Resolution as part of the Downtown Residential Preferential Permit Zone have been met as follows: (1) That non-resident vehicles do, or may, substantially interfere with the use of on-street or alley parking spaces by neighborhood residents, in that based on observation there are few available parking spaces available midday, while the streets are relatively unoccupied at midnight thus demonstrating the parking intrusion is largely by non-residents. (2) That the interference by the non-resident vehicles occurs at regular and frequent intervals, either daily or weekly, in that the parking intrusion is contained to the daytime hours during the regular workweek. NOT YET APPROVED 2 141016 jb 0131499 Rev. January 5, 2016 (3) That the non-resident vehicles parked in the area of the proposed district create traffic congestion, noise, or other disruption (including shortage of parking spaces for residents and their visitors) that disrupts neighborhood life, in that based on information from residents and other city departments the vehicle congestion is interfering with regular activities. (4) Other alternative parking strategies are not feasible or practical in that the City has implemented a series of alternative parking strategies in the past and concurrently and there is still a shortage of parking available SECTION 2. Duration and Trial Period. The following provisions shall apply to Phase 2 of the Trial Period for the Downtown RPP District: A. Resident Permits: Resident permits will be distributed pursuant to the criteria listed under Section 5.C of this Resolution. Phase 2 permits shall be in effect for one year commencing on April 1, 2016. Resident permits will be valid anywhere within the boundaries of the Downtown RPP District. B. Employee Permits: The City shall also issue permits to Employees pursuant to the criteria listed under Section 5.C of this Resolution. Phase 2 permits shall be in effect for one year commencing on April 1, 2016. C. Duration: The second phase shall commence on April 1, 2016 and last for at least 12 months. The City will make permits for Phase 2 available prior to the initiation of Phase 2. D. Permanent Regulations: The RPP District shall remain in force until the City Council takes action to extend, modify, or rescind. The City Council shall consider whether to make the RPP District and its parking program permanent, modify the District and/or their parking regulations, or terminate them no later than December 31, 2016. SECTION 3. Phase 2 Downtown RPP Boundaries. A. Annexed Zones. The areas shown on Exhibit A are hereby annexed into the Downtown Residential Parking Zone. B. Eligibility Areas. The areas shown on Exhibit A are eligible for administrative annexation as provided in Palo Alto Municipal Code Section 10.50.085. C. Employee Parking Zones. No person shall park in the same employee parking zone within the Downtown RPP for more than two continuous hours without a valid permit. Re-parking on the same day in the same zone by any person without a valid permit or otherwise exempt from Chapter 10.50 shall be prohibited. NOT YET APPROVED 3 141016 jb 0131499 Rev. January 5, 2016 SECTION 4. Hours and Days of Enforcement. In Phase 2, the parking regulations shall be in effect Monday through Friday from 8:00 AM to 5:00 PM, except holidays as defined in Palo Alto Municipal Code Section 2.08.100. During the regulated days and hours of enforcement, no person shall park in the same on-street parking space within the Downtown RPP for more than two continuous hours without a valid permit. In addition, no person shall park in the same employee parking zone within the Downtown RPP for more than two continuous hours without a valid permit. A vehicle lawfully displaying an Employee Parking Permit or a Resident Parking Permit shall be exempt from the two-hour limit. Other vehicles exempt from the parking regulations are contained in Chapter 10.50. Outside of these enforcement hours, any motor vehicle may park in the Downtown RPP, subject to other applicable parking regulations. SECTION 5. Residential and Employee Parking Permits. A. Duration. Phase 2 Residential Permits shall be available on an annual basis only. One-day visitor permits for residents will also be available during Phase 2. B. Purchase of Permits. Requirements and eligibility for purchase of permits for both residents and Employees shall be listed in the Administrative Regulations. C. Permit Sales – Phase 2. 1. Resident Permits. a. Residential Permits. Each residential address may obtain up to four Resident permits at the costs listed in Section 6A. b. Daily Visitor Permits. Each residential address may purchase up to 50 Daily Visitor Parking Permits annually. These permits may be in the form of “scratcher” hang tags, an on-line issuance system, or such other form as the city may decide. The permit shall clearly indicate the date through which it is valid. c. Annual Guest Permits: Each residential address may purchase up to two (2) annual guest permits, which are transferable within a household. The permit shall clearly indicate the date for which it is valid. 2. Employee Permits. The City may issue Employee Parking Permits for use by employees working in the area as specified in Exhibit B. Employee Permits shall be subject to the following regulations: a. Commuting Only. Employee Parking Permits are for the exclusive use by employees working for businesses within NOT YET APPROVED 4 141016 jb 0131499 Rev. January 5, 2016 the proposed District boundaries while commuting to work. b. Employee Permit Cost. Employees may purchase permits at the costs listed in Section 6D. c. Permit Cap. The City shall issue Employee permits on an iterative basis to ensure that the issuance of Employee Permits does not adversely affect parking conditions for residents and merchants in the District in accordance with Section 22507 (b) of the Vehicle Code. Notwithstanding the above, the City shall issue no more than 2,000 Employee Permits during the first year of Phase 2, which are to be allocated among the existing, annexed, and eligible Employee Parking Zones according to Council adopted administrative guidelines. Only streets participating in the RPP program may be allocated permits. d. Permit Priority. The Director shall give permit priority to lower wage earners. D. Employee Parking Zones. Employees may only park in the zone where they have purchased a permit. The zones are shown in Exhibit B. SECTION 6. Cost of Parking Permits. During Phase 2 the cost of Parking Permits shall be: A. Resident Permit: First permit $0/year; second permit $50/year; third permit $50/year; fourth permit $50/year. No more than four parking permits will be sold per residential address. B. Annual Guest Permit – A residential address may purchase up to two Annual Guest Permits at $50/year. Additional permits may be approved by the Director upon a showing of good cause. C. Visitor Daily Permit -- $5/each D. Employee Permits 1. Standard Permit --$466/year 2. Reduced Rate for income qualifying employees -- $100/year SECTION 7. CEQA. This resolution is exempt from the requirements of the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) of Title 14 NOT YET APPROVED 5 141016 jb 0131499 Rev. January 5, 2016 of the California Code of Regulations since it can be seen with certainty that there is no possibility the adoption and implementation of this resolution may have a significant effect on the environment and Section 15301 in that this proposed ordinance will have a minor impact on existing facilities. SECTION 8. Supersede. To the extent any of the provisions of this resolution are inconsistent with the Phase 2 regulations set forth in Resolution 9473, this resolution shall control. SECTION 9. Effective Date. This resolution shall take effect immediately, except that Section 3(B) shall not go into effect until the corresponding implementing ordinance becomes effective. Enforcement shall commence, pursuant to Chapter 10.50 and the California Vehicle Code, when signage is posted. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: __________________________ __________________________ Interim City Clerk Mayor APPROVED AS TO FORM: APPROVED: _______________________ ____________________ Senior Assistant City Attorney City Manager _____________________ Director of Planning and Community Environment University Ave Lytton Ave Everett Ave Fu l t o n S t Gu i n d a S t Gu i n d a S t Se n e c a S t Ha l e S t Mi d d l e f i e l d R d By r o n S t By r o n S t Wa v e r l e y S t Wa v e r l y S t Ta s s o S t Ta s s o S t Fl o r e n c e By r o n S t We b s t e r S t Co w p e r S t Co w p e r S t Br y a n t S t Ra m o n a S t Em e r s o n S t Hi g h S t Fu l t o n S t Mi d d l e f i e l d R d We b s t e r S t Br y a n t S t Br y a n t S t Ra m o n a S t Em e r s o n S t Hi g h S t Ki p l i n g Ki p l i n g Hawthorne Ave Ruthven Ave Poe St Hamilton Ave Forest Ave Forest Ave Homer Ave Channing Ave Addison Ave Lincoln Ave Kingsley Ave Melville AveMelville Ave Kellogg AveKellogg Ave Churchill Ave Coleridge Ave B oyc e Ave A ddiso n Ave Lin c oln A v e Fife A v e F o re st A v e C h a n n in g A v e P ark i n s o n A v e H o p ki n s A v e M elville A ve H arriet St P a l o A l t o A v e Al ma S t Al ma S t Embarca d e r o Rd El Camino Real Downtown RPP District N SOFA DOWNTOWN COMMERCIAL DISTRICT Downtown RPP District Proposed Eligibility Areas Proposed Annexed Streets EXHIBIT A Downtown RPP Parking Zones 1 2 5 6 7 8 9 10 3 4 Version 1.0 City of Palo Alto Residential Preferential Parking (RPP) Administrative Guidelines Updated January 5, 2016 I. PURPOSE The City of Palo Alto is committed to preserving the quality of life of its residential neighborhoods. On December 2, 2014, City Council adopted a City-wide RPP Ordinance which allows any neighborhood within the City to petition to become a Residential Preferential Parking (RPP) District, where neighborhood parking is regulated for non-permit holders. Three documents govern the creation of an RPP District in Palo Alto: 1. Chapter 10.50 of the Palo Alto Municipal Code, which outlines the criteria which must be met and the process which must be taken for a residential neighborhood to become an RPP District; 2. A neighborhood-specific resolution, which must be adopted by the City Council and outlines the specific characteristics of the RPP program; 3. The document within, “RPP Administrative Guidelines”, which provides additional detail on RPP program implementation. The Guidelines may be modified at a City staff level, and provide detail on policies and procedures related to RPP Districts. All three documents work in concert to govern the development and operation of Palo Alto’s RPP Districts, and all should be reviewed prior to a District’s initiation. II. PARKING PERMIT POLICIES A. Resident Permit Eligibility 1. The requirements to obtain a parking permit as a resident are: a. A completed application form (online) in the residents’ name and address. b. A current DMV vehicle registration for each vehicle the applicant is requesting a parking permit. c. Proof of residency/ownership in the resident’s/owner’s name reflecting the permit address in the permit area. Acceptable proof of residency shall be a driver’s license, the vehicle registration, a utility bill, car insurance policy, lease agreement or a preprinted personal check with the resident’s name and address. 2. The residential permit can be purchased on an annual duration online at www.cityofpaloalto.org/parking. Parking permits are issued for uses within the RPP District area. Standard long-term residential parking permits are not transferable between vehicles. Annual permit cost may be pro-rated for purchase midway through the annual timeframe. a. Guests of Residents: A resident is also eligible to purchase up to two (2) transferable (hang-tag) guest permits, which are annual permits that may be used for a nanny, baby- sitter, caregiver, household employee, or other regular visitor to the household. Guest permits must be purchased by the resident of the household and may be transferred between vehicles. Only two (2) guest permits are allowed per household. b. Visitors of Residents: Any resident within the RPP District area is eligible to purchase up to 50 daily permits annually for events which may take place at a household. Visitor Version 1.0 permits must be purchased by a resident of the household and are only valid for a single day use. Each household can receive a maximum of 50 visitor permits each calendar year. B. Employee Permit Eligibility (applicable to downtown RPP and others as designated by resolution): Employee permits are available in five day “Scratcher” – type, one quarter or one year durations. 1. The requirements to obtain a parking permit as an employee are: a. A completed application form (online) in the employees’ name and address. b. A current DMV vehicle registration for each vehicle the applicant is requesting a parking permit. c. Proof of employment in the employee’s name reflecting the permit address in the permit area. Acceptable proof of employment shall be a W-2 wage statement or letter from employer. 2. All employees who work at a registered business address within an RPP District area are eligible to purchase permits, unless otherwise restricted by the Parking department for parking capacity reasons. Parking permit stickers or hangtags are issued to employees within the RPP District area. 3. Where applicable, the City may decide to issue permits which are transferrable between employees of the same business. These permits will be in the form of a hangtag which must be placed on the rearview mirror of the employee vehicle. Possession of an employee permit which is assigned to a specific block or zone does not entitle the employer to renew a permit in the same block or zone. 4. Annual permit cost may be pro-rated for purchase midway through the annual timeframe. 5. If an employee with an annual permit leaves the company, the employer may transfer the remaining balance of the unused permit to another employee by returning the original permit and transferring the balance of time to a new one. The new permit will expire at the same date of the original permit expiration. The City may, at its discretion, issue “Employee Guest” permits to eligible employers within an RPP district, for use by their guests or visitors. C. Annual Permit Allocation Analysis: Each identified Zone will be allocated a portion, to be determined by the City on an annual basis, of the available permits for the same year. 1. The City’s analysis will be conducted between January 1st and March 31st of each year. 2. Following its analysis, the City will make available online the following information: a. The total number of parking permits allocated for that year. b. The number of parking permits allocated to each Zone for that year. C.D. Reduced Price Permits: Certain employees may be eligible for a reduced-price permit if they meet either of the income requirements listed below. Proof of income must be provided at the time of purchase, and information may be audited at any time by the City. Version 1.0 1. Income Verification Options a. Option A: Employees who earn an annual income which is exactly or less than $50,000. The City will evaluate this limit annually and adjust for inflation. b. Option B: Employees who make a pre-tax hourly wage which is exactly or less than 2x the governing city or state minimum wage (whichever is greater) are eligible for a reduced price permit. 2. Submittal requirements provided for proof of income include: tax return and two consecutive wage statements. D.E. Other Policies 1. Any attempt to alter the permit shall immediately render the permit invalid. 2. Permit holder assumes full responsibility of any loaning of their vehicle. 3. Possession of an RPP permit does not guarantee a parking spot. It is understood that a greater amount of parking permits may be issued than there are available on-street parking spaces. This may create an environment of natural competition for on-street parking between neighborhood residents and other permit holders. 4. Permit validity: RPP Permits are not valid in any City parking garage or lot, and City-issued garage or lot permits are not valid in RPP Districts. RPP permits are only valid for the RPP District for which they are issued. 5. The City of Palo Alto is not responsible for the loss of or damage to any vehicle or its contents. 6. Abandoned Vehicles: Parking a vehicle unmoved longer than 72 consecutive hours on a City street is in violation of PAMC 10.60.07(d). Parking permits shall not exempt vehicles from this requirement. 7. For new vehicles or license plates, the permit holder must surrender the “current” valid permit to the Revenue Collections office. If the permit does not come off intact, pieces will be accepted. 8. Temporary Permits: Temporary permits can be printed online once a valid permit holder has submitted payment for a permit. The temporary permit must be displayed on the front dashboard. 9. Replacement Fees: There is a permit replacement fee of $1000 for regular permits reissued for any reason, prior to the normal renewal period. 10. Refunds: Refunds are issued on annual permits only, and a refund will only be given through the third quarter and prorated at the quarterly rate. The permit holder must remove the current permit and return it to the Revenue Collections office. 11. Permit Placement: The permit must be affixed on the outside of the rear windshield driver’s side lower left corner, or left side of the bumper. Do not place your permit in any other location. Placing your permit in another location or behind tinted windows may invalidate your parking Version 1.0 exemption. 12. Vehicle Eligibility: Parking permits may be issued only for passenger non-commercial and passenger commercial (i.e., SUV’s, small pick-up trucks, etc.) vehicles registered to residents residing within the residential parking permit area. Vehicles defined as oversized by the City’s Oversized Vehicle Parking ordinance, such as commercial trucks, boat trailers, RV’s (camping trailers, motor homes, etc.), trailers and work-type commercial vehicles, including taxis and limousines, are not eligible for residential parking permit program permits. E.F. Eligible Exceptions for a Parking Permit Sticker 1. Company Cars – A residential parking permit sticker may be issued for residents who have company cars as their primary transportation vehicle. To obtain a permit, the person must be a legal resident within the residential permit parking area who has a motor vehicle for his/her exclusive use and under his/her control where said motor vehicle is registered to his/her employer and he/she presents a valid employee identification card or other proof of employment that is acceptable to the City. 2. Leased Cars – A residential parking permit sticker may be issued for a resident who has a leased car. To obtain a permit, the person must be a legal resident within the residential permit parking area who has a motor vehicle registered to a vehicle-leasing company and/or leased to the resident’s employer, providing said vehicle is for the resident’s exclusive use and provides proof or the lease agreement which is acceptable to the City. 3. The requirements to obtain a parking permit sticker for a company or leased car are: a. A completed application form in the residents’ name and address. b. A current DMV vehicle registration for each vehicle the applicant is requesting a parking permit. c. Proof of residency/ownership in the resident’s/owner’s name reflecting the permit address in the permit area. Acceptable proof of residency shall be a driver’s license, the vehicle registration, a utility bill, car insurance policy, lease agreement or a preprinted personal check with the resident’s name and address. 4. Caregivers – Caregivers may be issued a parking permit sticker for a permit parking area provided the address of the resident receiving the care is within said parking area. The requirements to obtain a parking permit sticker for a caregiver are: a. A completed application form in both the residents’ and caregivers name and address. b. A current DMV vehicle registration for each vehicle for which the applicant is requesting a parking permit. c. Proof of residency/ownership in the resident’s/owner’s name reflecting the permit address in the permit area. Acceptable proof of residency shall be a utility bill, car insurance policy, lease agreement or a preprinted personal check with the resident’s name and address. d. A letter from the resident identifying the permit applicant as the caregiver. F.G. Fine Amount. The fine for violation of the Residential Parking Permit Program regulations is set within the City’s Comprehensive Fee Schedule. Version 1.0 G.H. Misuse of Parking Permits. Any person selling, fraudulently using, reproducing or mutilating a parking permit issued in conjunction with the residential parking permit program shall be guilty of an infraction and shall be subject to a citation for each offense and the forfeiture of all permits in conflict, or such other fine or penalty as the City Council may set by ordinance. H.I. Neighborhood Support for RPP District Implementation. As outlined in the ordinance, the City may choose to conduct a survey, attached hereto as Exhibit A, of a proposed neighborhood to determine whether support exists for RPP District implementation. The survey may be conducted either prior to the recommendation of District implementation to Council, or during a trial period of the program but before final implementation. The survey shall be conducted electronically or via mailed document. Each household using a separate USPS address will be allowed one (1) vote either in favor or against the implementation of an RPP program. The current threshold for District implementation is a simple majority, or 50% (+1) of the returned votes in favor of RPP implementation. I.J. Eligibility Areas. As outlined in the ordinance, the City Council may adopt a resolution identifying particular areas as Eligibility Areas. 1. Following the adoption of their Eligibility Areas, residents of any segment within the designated Eligibility Area may petition the director to be annexed into an existing RPP District. The petition must include the following: a. A completed application form (online) including the residents’ names and addresses. b. A current DMV vehicle registration of each vehicle for which a parking permit or guest permit had previously been approved in the applicants’ names. 2. Upon the receipt of a petition that includes the above information for a simple majority, or 50%(+1) of the identified segment’s neighbors, the City may choose to conduct a survey of the proposed neighborhood to determine whether additional support exists for annexation into the existing RPP District. The survey shall be conducted electronically or via mailed document. Each household using a separate USPS address will be allowed one (1) vote either in favor or against annexation into the existing RPP District. Identified segments that demonstrate 70% of the returned votes in favor of annexation shall be approved by the director. 3. Approval of annexation for Eligibility Areas will take effect without Council adoption. J.K. Opt Out Procedures. Current residents of an existing RPP District that no longer wish to participate in the RPP program may petition to opt out of their District between January 1st and March 31st of the year. 1. The petition must be submitted to and will be approved at the discretion of the director of planning and community environment. 2. Residents of the same existing RPP District shall initiate a request to opt out of their District by neighborhood petition. The petition will be available as a standard form online, and must include the following: a. A completed application form (online) including the residents’ names and addresses. Version 1.0 b. A current DMV vehicle registration of each vehicle for which a parking permit or guest permit had previously been approved in the applicants’ names. 3. Upon the receipt of a petition that includes the above information for a simple majority, or 50%(+1) of the identified segment’s neighbors, the City may choose to conduct a survey of the proposed neighborhood to determine whether additional support exists for opting out of the RPP District at issue. The survey shall be conducted electronically or via mailed document. Each household using a separate USPS address will be allowed one (1) vote either in favor or against opting out of the existing RPP District. Identified segments that demonstrate 70% of the returned votes in favor of opting out shall be approved. 4. Petitions that do not include a simple majority of the identified segment’s neighbors will not be considered for opt out. 5. Effective upon approval of their opt out petition, residents will no longer be entitled to residential parking permits or guest permits, or daily visitor permits. 6. Approval of an opt out application may not be construed to waive compliance of the RPP District parking restrictions that remain in place. 7. Upon the approval of an application, the City shall provide written notice electronically or via mail to all residents impacted by the opt out, including the effective date of the opt out, the expiration date of any remaining valid parking permits, and contact information for further inquiries or concerns. K.L. Occupancy Study Requirements. During the course of District initiation, the City will conduct parking occupancy studies for the neighborhood in question. Studies will be conducted at various hours and be compared to an “inventory” calculation to show percentages of occupancy by block face. Weekday studies will not be conducted on Mondays, Fridays or holidays. EXHIBIT A Version 1.0 Neighborhood Petition Form City of Palo Alto Residential Parking Permit Program Request Form The purpose of this form is to enable neighborhoods to request to be annexed to an existing Residential Preferential Parking area or the initiation of a Residential Preferential Parking Program in accordance with the City of Palo Alto’s adopted Residential Parking Permit Program Policy and Procedures. This form must be filled out in its entirety and submitted with any request to: The City of Palo Alto Transportation Department 250 Hamilton Avenue Palo Alto CA 94301 Feel free to attach additional sheets containing pictures, occupancy maps, additional testimony or additional text if the space provided is insufficient. 1. Requesting Individual’s Contact Information Name: ____________________________________________ Address: ____________________________________________ Phone Number: _______________________________________ Email: _______________________________________ 2. Please describe the nature of the overflow parking problem in your neighborhood. 1. What streets in your neighborhood do you feel are affected by overflow parking? 2. How often does the overflow occur? 3. Does the impact vary from month to month, or season to season? 3. Can you identify a parking impact generator that is the cause of overflow parking in the neighborhood? Are there any facilities (churches, schools, shopping centers, etc.) near this location that generate a high concentration of vehicle and pedestrian traffic? Please list your understanding of the causes: EXHIBIT A Version 1.0 4. Please describe how a Residential Parking Permit Program will be able to eliminate or reduce overflow parking impacting the neighborhood. Please include your suggestion for the boundary of the program: 5. Is there neighborhood support for submittal of this Residential Parking Permit Program application? Have you contacted your HOA/Neighborhood Association? EXHIBIT A Version 1.0 Neighborhood Petition Form (Street by Street Basis) THE UNDERSIGNED BELOW AGREE TO THE FOLLOWING: 1. All persons signing this petition do hereby certify that they reside on the following street, which is being considered for residential preferential parking: ______________________________________ 2. All persons signing this petition do hereby agree that the following contact person(s) represent the neighborhood as facilitator(s) between the neighborhood residents and City of Palo Alto staff in matters pertaining to this request: Name: _________________________ Address: ___________________ Phone #: __________________ Name: _________________________ Address: ___________________ Phone #: __________________ Name: _________________________ Address: ___________________ Phone #: __________________ ONLY ONE SIGNATURE PER HOUSEHOLD Name (Please Print) Address Phone Number Signature 1.________________ _________________________ __________________ ___________________ 2.________________ _________________________ __________________ ___________________ 3.________________ _________________________ __________________ ___________________ 4.________________ _________________________ __________________ ___________________ 5.________________ _________________________ __________________ ___________________ 6.________________ _________________________ __________________ ___________________ 7.________________ _________________________ __________________ ___________________ 8.________________ _________________________ __________________ ___________________ 9.________________ _________________________ __________________ ___________________ 10._______________ _________________________ __________________ ___________________ 11._______________ _________________________ __________________ ___________________ 12._______________ _________________________ __________________ ___________________ 13._______________ _________________________ __________________ ___________________ 14._______________ _________________________ __________________ ___________________ 15._______________ _________________________ __________________ ___________________ 16._______________ _________________________ __________________ ___________________ 17._______________ _________________________ __________________ ___________________ 18._______________ _________________________ __________________ ___________________ 19._______________ _________________________ __________________ ___________________ 20._______________ _________________________ __________________ ___________________ 21._______________ _________________________ __________________ ___________________ 22._______________ _________________________ __________________ ___________________ 23._______________ _________________________ __________________ ___________________ 24._______________ _________________________ __________________ ___________________ 25._______________ _________________________ __________________ ___________________ 26._______________ _________________________ __________________ ___________________ 27._______________ _________________________ __________________ ___________________ 28._______________ _________________________ __________________ ___________________ 29._______________ _________________________ __________________ ___________________ 30._______________ _________________________ __________________ ___________________ EXHIBIT A Version 1.0 31._______________ _________________________ __________________ ___________________ 32._______________ _________________________ __________________ ___________________ 33._______________ _________________________ __________________ ___________________ 34._______________ _________________________ __________________ ___________________ 35._______________ _________________________ __________________ ___________________ 36._______________ _________________________ __________________ ___________________ 37._______________ _________________________ __________________ ___________________ 38._______________ _________________________ __________________ ___________________ 39._______________ _________________________ __________________ ___________________ 40._______________ _________________________ __________________ ___________________ ATTACHMENT D Professional Services Rev. Feb. 2014 2 of 11 SECTION 2. The following exhibit(s) to the Contract is/are hereby amended to read as set forth in the attachment(s) to this Amendment, which are incorporated in full by this reference: a. Exhibit “A” entitled “SCOPE OF SERVICES”. b. Exhibit “C” entitled “COMPENSATION”. c. Exhibit “C1” entitled “RATE SCHEDULE”. SECTION 3. Except as herein modified, all other provisions of the Contract, including any exhibits and subsequent amendments thereto, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have by their duly authorized representatives executed this Amendment on the date first above written. CITY OF PALO ALTO APPROVED AS TO FORM: SP PLUS CORPORATION Attachments: EXHIBIT "A": SCOPE OF SERVICES EXHIBIT "C": COMPENSATION EXHIBIT "C1": RATE SCHEDULE DocuSign Envelope ID: FF416599-4D53-49EF-BEEC-9BFF276B5212 Senior Vice President Professional Services Rev. Feb. 2014 3 of 11 EXHIBIT “A” SCOPE OF SERVICES CONSULTANT shall provide the following scope of work for delivery in 2015: 1. A new CITY parking website, hosted by CONSULTANT. The website will include all information on permits, garages and more as additional parking services are provided by the Parking program. 2. Provision of an online permit sales and renewals website for the new Downtown Residential Preferential Parking (RPP) District, including distribution of permits and collection of payments, hosted by CONSULTANT. A description of the new RPP program is provided in Appendix A. Parking Website 1. CONSULTANT will synthesize all data from CITY’s existing parking websites so visitors can easily access parking information. The website will be built in a manner which is consistent with CITY’s existing website design. 2. CONSULTANT will meet and interview key CITY staff members to help in the development of brand new website content, including but not limited to Parking Manager and Chief Communications Officer. CONSULTANT will develop all content for the website including, but not limited to, text, graphics, images, and maps. CITY staff will review all proposed data content prior to release to the public. 3. CONSULTANT will host the parking website. CITY will forward website traffic to the CONSULTANT-hosted site using forward URL links on CITY website, and vendor website shall include links to send users back to CITY of Palo Alto website. The website will have a link to the RPP online permit sales management system. 4. CONSULTANT will ensure that the website is compatible on all commonly used browser platforms, including MS Explorer, Google Chrome, Apple Safari, and Firefox. The website experience for the user shall be seamless, and shall include automatic algorithms to detect the platform in which the user is viewing so content can be adjusted accordingly. Required platforms include desktop computers, laptops, mobile devices, tablets, and mobile wear devices. 5. The website shall be ready for go live in 6-8 weeks from notice to proceed. Online Parking Permit System Hosting CONSULTANT, using its subcontractor, T2 Systems, Inc., will develop and host a new online parking permit management system, capable of providing and tracking online permit sales for the proposed Downtown RPP District, with the following characteristics: DocuSign Envelope ID: FF416599-4D53-49EF-BEEC-9BFF276B5212 Professional Services Rev. Feb. 2014 4 of 11 1. The system must include functionality for residents and commuter employees to register and validate their residence or employment, pay for permits, and establish automatic renewal processes. 2. Permit holders shall be able to establish User IDs and Passwords to manage their parking permits; corporate accounts shall be included that allow a business to pay directly for the parking permits of their employees. 3. Individual parking permits must remain within the ownership of the employee while the permit is valid. 4. Permit sales shall be possible for annual, quarterly, monthly, weekly, and daily permit sale options. 5. Include a CITY-User Management Interface that allows CITY to establish parking permit sale caps on the number of permits that are released. 6. Commuter employee users registering into the system for the first time for parking permit procurement shall be able to easily see parking permit availability for desired RPP Districts/areas. 7. The system must provide for issuance and distribution of permits to purchasers (e.g. residents and commuter employees). It shall also accommodate requests for different types of permits (e.g. resident guest, resident, low-wage commuter). Permits will be mailed by T2 Systems, Inc. within 24-48 hours of complete online permit purchases. Temporary permits will be available for purchasers to print themselves immediately. 8. The online permits sales proposer will be expected to coordinate with the enforcement team regarding sharing of eligible permit parking permit use. 9. The system shall have the ability to process online sales, wait-lists, and account information updates by permit holders. 10. The system shall have the ability to link accounts for multiple vehicles and addresses. 11. The system must maintain complete audit trail of changes, transactions, payments, and refunds for each customer, and be able to process payments via multiple payment options. 12. Permit purchasers must immediately be provided a receipt for their purchase, and be issued a temporary permit. 13. The system must have the ability to provide for proof of residency or income level i.e., via uploaded files that will be verified by the vendor for consistency with designated resident addresses. 14. The system shall provide reporting on permit sales and other queries to CITY. 15. The system must be robust enough to accommodate expansion if ultimately CITY decides to make all permits for all programs available online. 16. The online permit sales website shall be ready for go live in 8 weeks from notice to proceed. 17. Forms to apply or renew parking permits require the following information: o Name o Address o Payment information DocuSign Envelope ID: FF416599-4D53-49EF-BEEC-9BFF276B5212 Professional Services Rev. Feb. 2014 5 of 11 o Vehicle data, to include but not limited to:  Make, model, year  License plate  Vehicle color  Vehicle registration o Verification of local residency/Verification of local employment o Verification of permit eligibility (document uploads) o For commuter employee permits, include the information regarding employer (name, address, local company contact, phone number, etc.) o Other options that can be accommodated by the system User Account Requirements and Data Security  Account management must have standards to protect users’ personal information. Users must be able to create and manage accounts through the website.  New accounts shall be created with the following parameters: o Username (email) o Password o Name o Address o Ability to store payment information and automated email notices to renew payment information  Users must have access to view history of all transactions made on the account. Customer Service Requirements and Training CONSULTANT will operate and maintain the online parking permit management system for a three- year term. CONSULTANT and CONSULTANT’s subcontractor, T2 Systems, Inc., shall provide telephone customer service for potential parking permit users, as more specifically described herein:  Technical Support for City Administrators: T2 Systems, Inc. will provide technical support to CITY during the hours of 5:00 a.m. - 5:00 p.m. (PST) Mondays through Fridays. T2 Systems, Inc. will provide after hour and weekend support for emergencies. After hour and weekend support for emergencies will be responded to within 20 minutes.  Customer Support: All of the online pages that users will access to process their permits will have a customer service number that will direct them to one of CONSULTANT’s team members. CONSULTANT’s team will be trained on how to assist customers with the permit process. This assistance can be available up to a 24/7 basis, but the parties shall reasonably agree to limit the hours based on CITY’s needs. DocuSign Envelope ID: FF416599-4D53-49EF-BEEC-9BFF276B5212 Professional Services Rev. Feb. 2014 6 of 11 CONSULTANT should provide one point of contact with CITY to support ease of communication with CITY shall any issues arise. CONSULTANT must demonstrate a strategy for handling disputes from residents, i.e., permit was never received, incorrect credit card charge, etc. CONSULTANT will train Revenue Collections staff so that Revenue Collections staff can answer basic questions about the permit purchase process. Appendix A: Description of the Downtown RPP District The anticipated Downtown RPP program encompasses an area about 0.86 square miles around Palo Alto’s Downtown commercial core. CITY estimates that there are approximately 4500 residential addresses within these boundaries. Phase of RPP Program Description Phase 1 Permit Demand Polling Period CITY anticipates immediate release of parking permits to all residents within the Downtown RPP District and eligible Commuter Employees from the adjacent Downtown University Avenue and South of Forest Avenue (SOFA) business districts. CITY will provide each residential address up to two residential permits at no cost. Additional resident parking permits for resident visitors can be purchased through the system for a total of up to 4 permits per residence. CITY will also sell Commuter Employee (non-resident) parking permits during this phase for $466 per permit (standard wage) and $100 per permit (reduced wage). In this first phase, all resident and commuter employee permits will be valid for use within the larger RPP District boundary area. All permits provided during this phase will expire after 6 months. Phase 2 RPP District Refinement Period Phase 2 will last 12 months at a minimum, and continue if Council does not repeal the RPP program. Resident permits will continue to be eligible for use anywhere within the District. The first residential permit will be sold at no cost, and additional permits will cost $50 each. Commuter employee permits will be sold during this phase but will be limited to specific blocks or block faces, with permit sale “caps” to help evenly distribute parking demand within the larger DocuSign Envelope ID: FF416599-4D53-49EF-BEEC-9BFF276B5212 Professional Services Rev. Feb. 2014 7 of 11 Downtown RPP District. The system must be flexible enough to be easily modified during Phase 2. The types of permits which will be sold for the RPP District during Phases 1 and 2 include the following: 1. Resident permits (for residents who live anywhere within the program boundaries) 2. Resident “Annual Guest” permits (for residents who live anywhere within the program boundaries) 3. Resident “Daily Visitor” permits (for residents who live anywhere within the program boundaries) 4. Commuter “Standard” permits (for employees who work anywhere within the program boundaries) 5. Commuter “Low-Income” permits; these permits will look identical to the standard commuter permit, but can only be sold to individuals who have demonstrated that their yearly income is below a certain threshold. The applicant may be required to provide an affidavit stating their yearly income, which would be subject to audit, or their employer will be required to contact the vendor and supply a list of employees who meet the low-wage income requirements. The anticipated Downtown RPP program would be expected to require the sale of anywhere from 5000 to over 15,000 permits annually. It has not yet been determined whether permits for the RPP program will be scratcher or hang-tag permits, but CONSULTANT shall be expected to provide options for both. Additional System Functionality The new online parking permit management system may be selected to replace the existing parking permit management system for the management of garage parking permits for the University Avenue Downtown and California Avenue business districts, and must be able to accommodate the following characteristics: 1. In the University Avenue Downtown District, permits are sold for specific parking facilities and wait lists for each site must be managed separately. 2. In the California Avenue business district, permits can be used for parking in any parking facility within the district. Employees are required to validate their employment location as a business within the Downtown Business District prior to release of a parking permit and continue to show eligibility during renewal. 3. For garage permit sales, CITY anticipates continued use of traditional affixed sticker permits but may in the future require the use of digital parking permit sales that can communicate remotely to Revenue & Access Control parking equipment. In order to assure the privacy and security of the personal information of the City’s customers and DocuSign Envelope ID: FF416599-4D53-49EF-BEEC-9BFF276B5212 Professional Services Rev. Feb. 2014 8 of 11 people who do business with the City, including, without limitation, vendors, utility customers, library patrons and other individuals and businesses, who are required to share such information with the City, as a condition of receiving services from the City or selling goods and services to the City, including, without limitation, the Software as a Service services provider (the “Consultant”) and its subcontractors, if any, including, without limitation, any Information Technology (“IT”) infrastructure services provider, shall design, install, provide, and maintain a secure IT environment, described in EXHIBIT “E”, while it renders and performs the Services and furnishes goods, if any, described in the Statement of Work, Exhibit A, to the extent any scope of work implicates the confidentiality and privacy of the personal information of the City’s customers. The Consultant shall fulfill the data and information security requirements as specified in EXHIBIT “E” SOFTWARE AS A SERVICE SECURITY AND PRIVACY TERMS AND CONDITIONS. AMENDMENT NO. 1 ADDITIONAL SCOPE OF SERVICE CONSULTANT will provide on-site customer service support at City of Palo Alto City Hall on an as- needed basis. Customer service support will be provided Monday through Thursday, 8:30 am to 5:30 pm, and Friday 8:30 am to 4:30 pm. CONSULTANT will provide additional physical permits per the original Scope of Services. DocuSign Envelope ID: FF416599-4D53-49EF-BEEC-9BFF276B5212 Professional Services Rev. Feb. 2014 9 of 11 EXHIBIT “C” COMPENSATION The CITY agrees to compensate the CONSULTANT for professional services performed in accordance with the terms and conditions of this Agreement, and as set forth in the budget schedule below. Compensation shall be calculated based on the rate schedule attached as exhibit C-1 up to the not to exceed budget amount for each task set forth below. The compensation to be paid to CONSULTANT under this Agreement for all services described in Exhibit “A” (“Basic Services”) and reimbursable expenses shall not exceed $378,068.00. CONSULTANT agrees to complete all Basic Services, including reimbursable expenses, within this amount. Any work performed or expenses incurred for which payment would result in a total exceeding the maximum amount of compensation set forth herein shall be at no cost to the CITY. CONSULTANT shall perform the tasks and categories of work as outlined and budgeted below. The CITY’s Project Manager may approve in writing the transfer of budget amounts between any of the tasks or categories listed below provided the total compensation for Basic Services, including reimbursable expenses, does not exceed $378,068.00. BUDGET SCHEDULE NOT TO EXCEED AMOUNT Task 1 $43,804.00 (T2 Flex, T2 eBusiness, and T2 Travel) Task 2 $6,150.00 (Website Design) Task 3 $12,080.00 (Website Development) Task 4 $24,665.00 (Website Hosting & Maintenance) Task 5 $55,636.00 (Project Management) Task 6 $45,253.00 (T2 Flex & eBusiness Annual Subscription Fees) Task 7 $95,130.00 (T2 Flex & eBusiness Permit Fulfillment/ Customer support) Task 8 $1,350.00 DocuSign Envelope ID: FF416599-4D53-49EF-BEEC-9BFF276B5212 Professional Services Rev. Feb. 2014 10 of 11 (Permit Configuration Fee) AMENDMENT NO. 1 Task 9 $25,000.00 (In-Person Support for Phase 1) Task 10 $15,000.00 (In-Person Support for Phase 2) Task 11 $54,000.00 (Permit costs for Phase 2, based on an estimate of 11,900 permits at a cost of $4.53 per permit) Sub-total Basic Services $378,068.00 Maximum Total Compensation $378,068.00 REIMBURSABLE EXPENSES The administrative, overhead, secretarial time or secretarial overtime, word processing, photocopying, in-house printing, insurance and other ordinary business expenses are included within the scope of payment for services and are not reimbursable expenses. CITY shall reimburse CONSULTANT for the following reimbursable expenses at cost. Expenses for which CONSULTANT shall be reimbursed are: NONE All requests for payment of expenses shall be accompanied by appropriate backup information. Any expense shall be approved in advance by the CITY’s project manager. ADDITIONAL SERVICES The CONSULTANT shall provide additional services only by advanced, written authorization from the CITY. The CONSULTANT, at the CITY’s project manager’s request, shall submit a detailed written proposal including a description of the scope of services, schedule, level of effort, and CONSULTANT’s proposed maximum compensation, including reimbursable expense, for such services based on the rates set forth in Exhibit C-1. The additional services scope, schedule and maximum compensation shall be negotiated and agreed to in writing by the CITY’s Project Manager and CONSULTANT prior to commencement of the services. Payment for additional services is subject to all requirements and restrictions in this Agreement DocuSign Envelope ID: FF416599-4D53-49EF-BEEC-9BFF276B5212 11 of 11 Revision April 28, 2014 EXHIBIT “C-1” RATE SCHEDULE Fixed Start Up Costs (based on specified scope/development hours): Task 1 T2 Flex, T2 eBusiness, and T2 Travel $43,804 Task 2 SP+ Website Design $6,150 Task 3 SP+ Website Development $12,080 Total Fixed Start Up Costs $62,034 Recurring Annual Costs: Year 1 Year 2 Year 3 Task 4 SP+ Website Hosting and Maintenance $7,980 $8,219 $8,466 Task 5 SP+ Project Management $18,000 $18,540 $19,096 T2 Recurring T2 Flex & eBusiness Annual Subscription Fees $14,355 $15,072 $15,826 Total Recurring Annual Costs $40,335 $41,831 $43,388 Optional Costs: T2 Recurring T2 Flex & eBusiness Permit Fulfillment/Customer Support Fees $31,710 $31,710 $31,710 Estimated cost to provide permits and permit support based on and estimate of 7,000 permits at a cost of $4.53 per permit ($0.99 WW&L Permits, and, $3.54 Permits Direct Fulfillment)*. T2 Fixed Permit Configuration (one time only fee) $1,350 Year 1 Year 2 Year 3 TOTAL PER YEAR $135,429 $73,541 $75,098 TOTAL NOT TO EXCEED: $284,068.00 * If more than 7,000 permits are sold, the City agrees to pay an additional $4.53 per permit over and above the not to exceed compensation amounts reflected in the agreement by issuance of an amendment to the agreement. AMENDMENT NO. 1 CITY will pay CONTRACTOR an hourly rate of $41.16 per person per hour for on-site customer service support. $25,000 (In-Person Support for Phase 1) $15,000 (In-Person Support for Phase 2) $54,000 (Permit costs for Phase 2, based on an estimate of 11,900 permits at a cost of $4.53 per permit) AMENDMENT NO. 1 TOTAL $94,000.00 Year 1 Year 2 Year 3 TOTAL PER YEAR $160,429 $142,541 $75,098 TOTAL NOT TO EXCEED: $378,068.00 DocuSign Envelope ID: FF416599-4D53-49EF-BEEC-9BFF276B5212 Certificate Of Completion Envelope Id: FF4165994D5349EFBEEC9BFF276B5212 Status: Completed Subject: Please DocuSign this document: C15156501 SP Plus Contract Amendment No 1 rev1ca.pdf Source Envelope: Document Pages: 11 Signatures: 1 Envelope Originator: Certificate Pages: 5 Initials: 0 Christopher Anastole AutoNav: Enabled EnvelopeId Stamping: Enabled Time Zone: (UTC-08:00) Pacific Time (US & Canada) 250 Hamilton Ave Palo Alto , CA 94301 chris.anastole@cityofpaloalto.org IP Address: 199.33.32.254 Record Tracking Status: Original 1/7/2016 11:15:48 AM Holder: Christopher Anastole chris.anastole@cityofpaloalto.org Location: DocuSign Signer Events Signature Timestamp Steve Aiello saiello@spplus.com Senior Vice President Security Level: Email, Account Authentication (None)Using IP Address: 216.36.65.106 Sent: 1/7/2016 11:53:22 AM Viewed: 1/8/2016 8:27:18 AM Signed: 1/8/2016 8:28:30 AM Electronic Record and Signature Disclosure: Not Offered ID: In Person Signer Events Signature Timestamp Editor Delivery Events Status Timestamp Agent Delivery Events Status Timestamp Intermediary Delivery Events Status Timestamp Certified Delivery Events Status Timestamp Carbon Copy Events Status Timestamp Robin Ellner robin.ellner@cityofpaloalto.org Admin Associate III City of Palo Alto Security Level: Email, Account Authentication (None) Sent: 1/8/2016 8:28:31 AM Electronic Record and Signature Disclosure: Accepted: 2/11/2015 9:51:24 AM ID: efb775a7-f39e-4c9f-817a-5ec939666ecf Bill Kepp bkepp@spplus.com Security Level: Email, Account Authentication (None) Sent: 1/8/2016 8:28:32 AM Electronic Record and Signature Disclosure: Not Offered ID: Notary Events Timestamp Envelope Summary Events Status Timestamps Envelope Sent Hashed/Encrypted 1/8/2016 8:28:32 AM Certified Delivered Security Checked 1/8/2016 8:28:32 AM Signing Complete Security Checked 1/8/2016 8:28:32 AM Completed Security Checked 1/8/2016 8:28:32 AM Electronic Record and Signature Disclosure CONSUMER DISCLOSURE From time to time, City of Palo Alto (we, us or Company) may be required by law to provide to you certain written notices or disclosures. 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By checking the 'I Agree' box, I confirm that: • I can access and read this Electronic CONSENT TO ELECTRONIC RECEIPT OF ELECTRONIC CONSUMER DISCLOSURES document; and • I can print on paper the disclosure or save or send the disclosure to a place where I can print it, for future reference and access; and • Until or unless I notify City of Palo Alto as described above, I consent to receive from exclusively through electronic means all notices, disclosures, authorizations, acknowledgements, and other documents that are required to be provided or made available to me by City of Palo Alto during the course of my relationship with you. ATTACHMENT E 2 Revision April 28, 2014 SECTION 2. The following exhibit(s) to the Contract is/are hereby amended to read as set forth in the attachment(s) to this Amendment, which are incorporated in full by this reference: a. Exhibit “A” entitled “SCOPE OF SERVICES”. b. Exhibit “C” entitled “COMPENSATION”. c. Exhibit “C1” entitled “HOURLY RATE SCHEDULE”. SECTION 3. Except as herein modified, all other provisions of the Contract, including any exhibits and subsequent amendments thereto, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have by their duly authorized representatives executed this Amendment on the date first above written. CITY OF PALO ALTO APPROVED AS TO FORM: SERCO INC. Attachments: EXHIBIT "A": SCOPE OF SERVICES EXHIBIT "C": COMPENSATION EXHIBIT "C1": HOURLY RATE SCHEDULE DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 Contracts Representative 3 Revision April 28, 2014 EXHIBIT “A” SCOPE OF SERVICES CONSULTANT will provide enforcement services for the Downtown Residential Preferential Parking (RPP) district, issuing parking citations to violators for a period of up to 3 years. Information on the design of the Downtown RPP district is found in Attachment A. TASK 1: ONBOARDING AND STARTUP – 60 DAYS CONSULTANT will provide the appropriate and necessary training to employees who work for the CITY, relevant to their respective job duties. CONSULTANT shall maintain complete training records for each employee, as well as any other records prescribed by law or CITY policy as appropriate. The CITY’s Police Department will provide all materials related to enforcement rules and regulations currently in place; all other training materials are to be provided by CONSULTANT. Training topics include, but are not limited to, to the following topics: a. Design of the Downtown RPP District, including information on employee and resident permits and history of the program development b. Enforcing parking permit violations and other parking regulations c. Marking and tagging of vehicles using Consultant-provided handheld devices d. Palo Alto Municipal Codes, California Vehicle Code, state statutes, and ordinances related to parking enforcement e. Chain of command and authority levels f. Marking, tagging, towing, and impoundment of vehicles g. Job procedures and emergency protocol h. Responding to calls for service i. Customer service delivery and expectations j. Courtroom procedures and testimony k. Workplace safety l. Civil rights law and procedures m. Information on history of Palo Alto, City Downtown, and City Attractions The training program should provide the CONSULTANT’s personnel with sufficient understanding of the RPP District as well as operation of required equipment and enforcement protocol. All personnel are to complete and pass the training course prior to starting service, and the training procedures must be approved by the CITY. The time period from CITY’s notice to proceed to start of enforcement shall not be less than sixty (60) days. CONSULTANT will also train staff to appear in court in a professional manner with related documentation and evidence to support the case. CONSULTANT’s Project Manager will represent the company on most court appearances unless an enforcement officer is specifically required to be DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 4 Revision April 28, 2014 present, in which case the Project Manager will accompany the enforcement officer or Supervisor to the hearing. Deliverable: CONSULTANT will provide a training plan upon receiving notice to proceed from the CITY. The training plan will include all training activities planned for enforcement officers and include information from the CITY required to complete the training, as well as a detailed schedule. PERSONNEL CONSULTANT will ensure that all new employees meet all CITY of Palo Alto and CONSULTANT employment requirements as listed below. CONSULTANT will comply with all existing Government code and CITY non-discrimination policies. All candidates must complete a job application and provide a DMV printout. To be offered a position, candidates must pass a pre-screening at CONSULTANT’s expense. The pre-screening includes the following: a. Pre-employment drug and alcohol testing b. Criminal history background check c. DMV record check d. Social Security Number verification e. Eligibility to work in the United States f. Ability to speak and write in English g. LiveScan/Fingerprinting h. California Department of Justice background check Drivers will undergo further screening: a. Comply with USDOT/Federal Motor Carrier Safety Administration and California DMV regulations b. DMV nationwide records check c. Pass the Smith Systems Defensive Driver Safety Training d. 40 hours on-the-job training CONSULTANT shall select and hire only persons who are well-qualified to perform the duties for their respective job positions, and should provide classifications of all employee positions within their proposal, including a job description. Classifications might include, but are not limited to:  Parking Enforcement Supervisor/Manager: Assist the parking enforcement staff with day-to- day operations and staffing issues. Supervisor shall be responsible to report with the on a bi- monthly basis and provide updates on the enforcement process, any feedback from the public, incidents and number of citations issued. A supervisor should possess sufficient IT knowledge to be able to handle employee equipment issues in the field, and the capability of working with the citation processing agency for any citation issues. DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 5 Revision April 28, 2014  Parking Enforcement Staff: Responsible for the day-to-day management, supervision, and operation of parking enforcement services. These individuals must have the capacity to act as “Ambassadors” for the CITY, providing information about parking enforcement practices and other information on Palo Alto’s Downtown.  CONSULTANT should provide performance metrics for each position so that performance evaluations may take place. CONSULTANT will provide eleven (11) shirts and eleven (11) pants to full-time employees. CONSULTANT will issue staff jackets, hats, and rain attire for inclement weather, all bearing the company logo. CONSULTANT and uniform company will be responsible for cleaning of uniforms. Cleaning of uniforms is not the responsibility of the CITY. CONSULTANT will provide sample uniforms for CITY review prior to any issuance of uniforms. Employees will wear CONSULTANT-issued photo ID at all times while on duty. CONSULTANT will be expected to purchase parking permits for any employees driving to Palo Alto. CONSULTANT will be responsible for all personnel supervision, discipline, and termination actions. However, the CITY may require the removal of any CONSULTANT’s personnel, when it is determined to be in the best interest of the CITY, at any time. CONSULTANT will address temporary vacancies due to vacations, illness, leaves of absence, or termination and provide continuous staffing. Deliverables: a. CONSULTANT will supply an updated organization chart and complete list of employees and roles at the CITY’s request and annually on contract anniversary date. b. CONSULTANT will provide draft design of enforcement uniforms for approval during transition phase. c. At the request of the CITY, Consultant will allow CITY to participate in employee interviews. TASK 2: Enforcement of Phase 1 and Phase 2 of RPP Program (18 Months) CONSULTANT will be responsible for issuing citations for parking permit violations within the Downtown RPP District, in accordance with the rules specified in Attachment A. Citations must include the make, model, color, and style of vehicle, license tag number or Vehicle Identification DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 6 Revision April 28, 2014 Number (VIN), violation code number and description, base fine amount and additional fine amount in the event there is a failure to respond timely, badge number, the location of the parking offense, type of offense (e.g. permit incorrectly displayed, no valid permit, not parked in the right location) and the time and date of the offense. CONSULTANT staff will be fully trained on Consultant-furbished handheld devices. Staff will also be trained on how to capture digital images of vehicle license plates, and how to issue manual paper citations. Consultant will work with CITY’s existing citation processing vendor to ensure that citations associated with the RPP district may be recorded and tracked separately from existing parking enforcement. CONSULTANT will be trained on proper placement of citations on the windshield, how to complete and issue citations for drive offs and covered VIN numbers, missing license plates, and other unusual occurrences. In the event the driver drives away, the citation will be mailed as required by the California Vehicle Code. CONSULTANT will furnish two (2) hybrid vehicles for parking enforcement services and will be responsible for all on-going operating expenses including insurance, fuel, maintenance, and repairs. The vehicles will be equipped with GPS tracking units and LPR technology as necessary. CONSULTANT’s vehicles shall be clearly identifiable as performing parking enforcement and parking meter maintenance and collection operations for the CITY. CONSULTANT’s staff shall operate all vehicles at all times in compliance with all state and local motor vehicle and emissions laws. Vehicles shall not have missing parts or dents, and the rear of all patrol vehicles shall have a sign warning of frequent vehicle stops. All vehicles used by CONSULTANT shall have blinking flasher lights installed on each vehicle's roof. CONSULTANT will obtain approval by the CITY Manager and the Chief Communications Officers or his/her designee prior to ordering decals for the marking of vehicles. CONSULTANT will also provide officers with four (4) Trek Marlin 6 bicycles, anticipating that some enforcement officers may be able to use this method of enforcement for either Phase 1 or Phase 2. Deliverable: CONSULTANT will provide draft design for vehicle marking. Consultant will provide a an enforcement strategy document for Phase 1 and Phase 2 of the program, including anticipating beats, schedule, and personnel assigned to each phase of the project. Consultant will work with CITY to identify opportunities for improving and modifying enforcement strategy at periodic intervals during Phase 2 of the program, especially opportunities which could be afforded by the introduction of technology (e.g. LPR). The Consultant will use mark-moding and chalking as the main forms of DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 7 Revision April 28, 2014 enforcement during Phase 1, but will work with the CITY to identify other modes of enforcement as the program moves forward. CONSULTANT will provide a schedule of estimated patrol routes and frequency recommendations. The CITY seeks to ensure that coverage is adequate, fair, regular, and consistent, although it is also expected that CONSULTANT will alternate the patrol routes on a regular basis to eliminate predictability. CONSULTANT can propose changes to routes and schedules to the CITY as part of their performance reporting meetings and documentation. CONSULTANT will be responsible for maintaining records of employment and, upon request, provide the CITY with personnel and training information for each employee. CONSULTANT will require Parking Enforcement Officers to submit daily reports regarding issues such as: a. Missing or damaged or conflicting parking signs, or traffic control signs, or curb markings b. Obstructed parking signs, stop signs, yield signs or any safety hazard c. Parking abnormalities or abnormal parking patterns d. Beat analysis and beat enforcement e. Incidents/accidents CONSULTANT will update and meet with CITY staff regularly, including the following: a. Weekly status reports with Parking Operations Lead and other staff as necessary b. Monthly progress meetings c. Quarterly evaluation and status report d. Annual performance review CONSULTANT will seek CITY approval on operational changes including but not limited to: a. Schedules b. Routes c. Operations ATTACHMENT A The proposed Downtown Residential Preferential Parking (RPP) Program is being introduced as part of a suite of parking management strategies aimed at improving parking and traffic conditions in Downtown Palo Alto. The program will restrict commuter parking during hours of operation, although limited numbers of commuter-employee permits will also be sold. Over time, the number of employee permits will be reduced as additional parking supply is provided within the Downtown area. DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 8 Revision April 28, 2014 The proposed RPP District includes a geographic area surrounding Palo Alto’s Downtown commercial zone and bounded by the City of Menlo Park to the Northwest. Currently, the only existing parking restrictions within this boundary include the Downtown Business District color zone and the SOFA business District:  The SOFA business district has 2-hour parking along streets which house mainly local businesses. Customers may re-park after two hours in any of the spaces.  The Downtown color zone has 2-hour parking which is limited to a specific color zone – Blue, Coral, Lime or Purple. Parking twice within the same color zone during the time period 8:00 to 5:00 is not permitted. The physical boundaries of the new Downtown RPP District will not include the existing SOFA and Downtown areas, which are currently enforced by the Palo Alto Police Department using mark- moding and chalking. The area within the dotted blue line will be included in the new parking District (see below). DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 9 Revision April 28, 2014 The program as currently proposed has two distinct phases, where parking restrictions will differ: Phase 1: 6 Months For the first phase of the program, the CITY will sell RPP permits to residents and to employees who live or work within the boundaries of the District. Permits will be sold online using an online issuance system by T2 Systems. It is expected that guest permits will be hangtags and that individual permits will be stickers on vehicles. There will be several types of valid permits:  Resident Permit (sold to individuals living at residential addresses within the blue line area).  Standard Commuter Employee Permit: This is a permit that will be sold to employee commuters who work within the RPP District Boundary.  Residential Annual Guest Permits / Visitor Permits DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 10 Revision April 28, 2014 All permits shall be valid anywhere within the District during this phase. Although the CITY recognizes that license plate recognition (LPR) equipment could be used for enforcement and physical permits may not be necessary for Phase 1 enforcement, the CITY wishes to use Phase 1 of the program to collect needed parking occupancy data, and therefore will require physical permits during Phase 1. This phase of the program will be used to determine the appropriate “permit cap” for employee permit sales in future phases of the program. The CITY is proposing that Phase 1 of the program last for 6 months only. All permits sold within Phase 1 will expire at the end of 6 month period, which will be identified on the permit. Phase 2: 12+ Months After Phase 1, the CITY will begin to limit the number of employee permits which will be sold for the program. Rather than allowing employees with permits to park anywhere within the District, employee permits will be allocated in one of the following ways: 1. Employee permits may be sold specific to a block face or faces, e.g. the “900-1000 Block of Ramona”, which would be visible on the permit, or; 2. Employees with permits can only park during enforcement hours at specific “employee” spots within the District, which would be allocated along block faces within the residential area. Residential permits, Annual Guest Permits and Visitor permits will be valid anywhere within the District. Anyone without a valid permit will be allowed to park for two (2) hours, at which point they would need to move their car to a different parking space. The hours of enforcement of the program are expected to be Monday through Friday, 8:00am – 5:00pm. AMENDMENT NO. 1 ADDITIONAL SERVICES CONSULTANT will provide one additional Parking Enforcement Officer to support enforcement of newly annexed streets and approved neighborhoods in the Downtown Residential Preferential Parking (RPP) program in accordance with this Contract and as shown in Appendix B. CONSULTANT will begin enforcing street faces in yellow once signage is installed on those streets. CONSULTANT will not begin enforcing areas shown in blue until receiving further direction from the City. Once the City provides direction, CONSULTANT shall enforce newly annexed streets in accordance with the terms of this Contract. CONSULTANT will follow and be subject to all other protocols as listed previously in this exhibit. DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 11 Revision April 28, 2014 Appendix B: Annexation of Downtown RPP District DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 12 Revision April 28, 2014 EXHIBIT “C” COMPENSATION The CITY agrees to compensate the CONSULTANT for professional services performed in accordance with the terms and conditions of this Agreement, and as set forth in the budget schedule below. Compensation shall be calculated based on the hourly rate schedule attached as exhibit C-1 up to the not to exceed budget amount for each task set forth below. The compensation to be paid to CONSULTANT under this Agreement for all services described in Exhibit “A” (“Basic Services”) and reimbursable expenses shall not exceed: Year One $503,210.00 Year Two $563,210.00 Year Three $503,210.00 Total contract compensation shall not exceed $1,569,630.00. CONSULTANT agrees to complete all Basic Services, including reimbursable expenses, within this amount. Any work performed or expenses incurred for which payment would result in a total exceeding the maximum amount of compensation set forth herein shall be at no cost to the CITY. CONSULTANT shall perform the tasks and categories of work as outlined and budgeted below. The CITY’s Project Manager may approve in writing the transfer of budget amounts between any of the tasks or categories listed below provided the total compensation for Basic Services, including reimbursable expenses, does not exceed $1,569,630.00. BUDGET SCHEDULE NOT TO EXCEED AMOUNT Task 1 $141,446.00 (Project Manager per year) Task 2 $242,304.00 (Parking Enforcement Officer per year) Task 3 $119,460.00 (ODC’s & Materials per year) Sub-total Basic Services per Year $503,210.00 Sub-total Basic Services for Three Year Term $1,509,630.00 AMENDMENT NO. 1 ADDITIONAL SERVICES DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 13 Revision April 28, 2014 Additional Enforcement Officer. Year 2 $52,500.00 One-time start-up and equipment costs (Year 2) $7,500.00 Subtotal for AMENDMENT No. 1 $60,000.00 Reimbursable Expenses None Total Basic Services and Reimbursable expenses $1,569,630.00 Maximum Total Compensation $1,569,630.00 REIMBURSABLE EXPENSES The administrative, overhead, secretarial time or secretarial overtime, word processing, photocopying, in-house printing, insurance and other ordinary business expenses are included within the scope of payment for services and are not reimbursable expenses. CITY shall reimburse CONSULTANT for the following reimbursable expenses at cost. Expenses for which CONSULTANT shall be reimbursed are: None All requests for payment of expenses shall be accompanied by appropriate backup information. Any expense shall be approved in advance by the CITY’s project manager. ADDITIONAL SERVICES The CONSULTANT shall provide additional services only by advanced, written authorization from the CITY. The CONSULTANT, at the CITY’s project manager’s request, shall submit a detailed written proposal including a description of the scope of services, schedule, level of effort, and CONSULTANT’s proposed maximum compensation, including reimbursable expense, for such services based on the rates set forth in Exhibit C-1. The additional services scope, schedule and maximum compensation shall be negotiated and agreed to in writing by the CITY’s Project Manager and CONSULTANT prior to commencement of the services. Payment for additional services is subject to all requirements and restrictions in this Agreement DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 14 Revision April 28, 2014 EXHIBIT “C-1” HOURLY RATE SCHEDULE TOTAL NOT TO EXCEED AMOUNT FOR TERM 3 YEARS @ $503,210.00 PER YEAR = $1,509,630.00 AMENDMENT NO. 1 City will pay CONSULTANT an hourly rate of $25.24 for the additional enforcement officer, for a total not to exceed amount of $52,499.20 annually. City will pay CONSULTANT $7,500 for one-time start-up and equipment costs for the additional enforcement officer. Year One $503,210.00 Year Two $563,210.00 Year Three $503,210.00 TOTAL NOT TO EXCEED AMOUNT FOR THE TERM: $1,569,630.00 Scope Labor Categories (e.g., Consultant, Sr. Consultant, etc.) Est Hours Hourly Rate Extended Rate Task 1 Project Manager – Direct Labor Rate 1,920 $ 40.87 $ 78,470 Overhead Rate (including Fringe, G&A and Fee) 1,920 $ 32.80 $ 62,976 Total not to exceed, Task 1 Project Manager (fully burdened) 1,920 $ 73.67 $ 141,446 Task 2 Parking Enforcement Officer (5 FT PEO) – Direct Labor Rate 9,600 $ 14.00 $ 134,400 Overhead Rate (including Fringe, G&A and Fee) 9,600 $ 11.24 $ 107,904 Total not to exceed, Task 2 Parking Enforcement Officer (fully burdened) 9,600 $ 25.24 $ 242,304 Task 3 ODCs / Materials to include: bicycles / vehicles, uniforms, ticket writers, cell phones, and other misc. supplies N/A $ 97,033 Burdens and Fee G& N/A N/A $ 22,427 Total not to exceed, Task 3 ODCs and Materials (fully burdened) N/A $ 119,460 Total not to exceed (Tasks 1 – 3) Project Manager (1), Parking Enforcement Officers (5) and ODCs / Materials (all fully burdened) N/A Annual NTE $ 503,210 DocuSign Envelope ID: CFC20953-31E2-4839-AD94-08AE85AF6965 ATTACHMENT F 2 of 7 Revision April 28, 2014 a. Exhibit “A” entitled “SCOPE OF SERVICES”. b. Exhibit “C” entitled “SCHEDULE OF FEES”. SECTION 4. Except as herein modified, all other provisions of the Contract, including any exhibits and subsequent amendments thereto, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have by their duly authorized representatives executed this Amendment on the date first above written. CITY OF PALO ALTO APPROVED AS TO FORM: MC GUIRE PACIFIC CONSTRUCTORS Attachments: EXHIBIT "A": SCOPE OF SERVICES EXHIBIT "B": SCHEDULE OF FEES DocuSign Envelope ID: BC7F4D0A-E696-44BF-81EB-AF0CA66AB343 owner 3 of 7 Revision April 28, 2014 EXHIBIT “A” SCOPE OF SERVICES CONTRACTOR to perform standard highway sign installations in support of a new Residential Preferential Parking (RPP) district in Downtown Palo Alto. The scope of work includes fabrication of the RPP signage and the installation of the signage based on City-generated work-orders. The City shall provide Contractor with a work order-type improvement plan for RPP sign installation; Contractor should provide cost estimates for completion of the work and complete the work after written authorization to proceed. The first phase of the work is anticipated to be completed between March and May of 2015, which a potential second phase of installation during December of 2015. TECHNICAL SPECIFICATIONS The following types of signage will be required to be manufactured and installed for the project. A) Standard Regulatory Parking Signs – Sign Installation onto Existing Sign Post The Contractor shall install parking regulatory sign(s) onto existing sign posts that require the addition of a riser to accommodate new sign(s). Addition of a riser shall include the threading of the existing sign post, installation of a coupling bracket, and pole extension to support the new sign. The Contractor shall be responsible for providing all material. B) Standard Regulatory Parking Signs – Sign & Sign Post Installation The Contractor shall install parking regulatory sign(s) onto contractor-furnished and installed sign post. Installation of a new sign post shall include coordination with U.S.A. Underground, the use of a core drill with a 6-inch bit to cut through existing concrete, installation of a new 2-inch sign post, and the use of a Portland cement to secure post and finishing to grade. Signs shall be installed a minimum of 7-ft from bottom of sidewalk or existing grade. New sign post installations shall not use any pole risers to accommodate the new sign installation(s). The contractor shall be responsible for providing all material. C) Standard Regulatory Signs – Sign Installation onto Existing Streetlight The Contractor shall install city-furnished parking regulatory sign(s) onto existing street lights, including all required brackets and hardware. The contractor shall be responsible for providing all material. ADDITIONAL SERVICES DocuSign Envelope ID: BC7F4D0A-E696-44BF-81EB-AF0CA66AB343 4 of 7 Revision April 28, 2014 The need for additional types of General Street services may be required during the term of this contract. The City shall work with the Contractor to identify a fee schedule for any additional services prior to the start of work. Provided in Attachment A is Sample Sign Bracketing Hardware used by the City of Palo Alto. The Contractor is required to use the same sign bracketing material to ensure compatibility with existing field hardware. AMENDMENT NO. 1: ADDITIONAL SERVICES CONTRACTOR to perform sign installations on newly annexed streets into the Downtown Residential Preferential Parking (RPP) district in Downtown Palo Alto shown in Appendix B. The scope of work includes fabrication of the RPP signage and the installation of the signage based on City-generated work-orders. CONTRACTOR shall also fabricate and perform installation of stickers on all existing and future signs in the Downtown RPP district per the specification chart shown below. The City shall provide CONTRACTOR with a work order-type improvement plan for RPP sign installation; CONTRACTOR should provide cost estimates for completion of the work and complete the work after written authorization to proceed. Quantity Furnish and install 3M Engineer grade sheeting 3" x 4" screen print zone stickers 2000 Furnish and install, per the current Caltrans sign specifications, 12"x18" regulatory parking sign onto a new 2" galvanized sign post, 6 inch core drill into the existing hardscape area 300 Furnish and install, per the current Caltrans sign specifications, 12"x18" regulatory parking sign onto a new 2" galvanized sign post, 6 inch core drill into the existing concrete area 50 DocuSign Envelope ID: BC7F4D0A-E696-44BF-81EB-AF0CA66AB343 5 of 7 Revision April 28, 2014 Appendix B: Annexation of Downtown RPP District DocuSign Envelope ID: BC7F4D0A-E696-44BF-81EB-AF0CA66AB343 6 of 7 Revision April 28, 2014 EXHIBIT C SCHEDULE OF FEES CITY shall pay CONTRACTOR according to the following rate schedule. The maximum amount of compensation to be paid to Contractor, including both payment for services and reimbursable expenses, shall not exceed Three Hundred Sixty Eight Thousand Five Hundred Dollars ($368,500.00). Any services provided or hours worked for which payment would result in a total exceeding the maximum amount of compensation set forth herein shall be at no cost to City. Furnish and install, per the current Q U A N T I T Y U N I T U N I T C O S T T O T A L Caltrans sign specifications, 12"x18" regulatory parking sign onto an existing standard 2" galvanized sign post with required galvanized riser. 100 EACH $210.00 $21,000.00 EACH $410.00 $328,000.00 Furnish and install, per the current Caltrans sign specifications, 12"x18" regulatory parking sign, new 2" Galvanized sign post, 6 inch core drill into the existing sidewalk 800 EACH $410.00 $328,000.00 Furnish and install, per the current Caltrans sign specifications, 12"x18" regulatory parking sign, installed onto the existing Streetlight pole with 3/4", type 201 stainless steel banding and heavy duty buckle with straight leg stainless steel brackets. 100 EACH $195.00 $19,500.00 TOTAL $368,500.00 AMENDMENT NO. 1 DocuSign Envelope ID: BC7F4D0A-E696-44BF-81EB-AF0CA66AB343 7 of 7 Revision April 28, 2014 Quantity Unit Cost Total Furnish and install 3M Engineer grade sheeting 3" x 4" screen print zone stickers 2000 $11.00 $22,000.00 Furnish and install, per the current Caltrans sign specifications, 12"x18" regulatory parking sign onto a new 2" galvanized sign post, 6 inch core drill into the existing hardscape area 300 $365.00 $109,500.00 Furnish and install, per the current Caltrans sign specifications, 12"x18" regulatory parking sign onto a new 2" galvanized sign post, 6 inch core drill into the existing concrete area 50 $460.00 $23,000.00 AMENDMENT TOTAL $154,500 Total Contract Not To Exceed: $523,000.00 DocuSign Envelope ID: BC7F4D0A-E696-44BF-81EB-AF0CA66AB343 University Ave Lytton Ave Everett Ave Fu l t o n S t Gu i n d a S t Gu i n d a S t Se n e c a S t Ha l e S t Mi d d l e f i e l d R d By r o n S t By r o n S t Wa v e r l e y S t Wa v e r l y S t Ta s s o S t Ta s s o S t Fl o r e n c e By r o n S t We b s t e r S t Co w p e r S t Co w p e r S t Br y a n t S t Ra m o n a S t Em e r s o n S t Hi g h S t Fu l t o n S t Mi d d l e f i e l d R d We b s t e r S t Br y a n t S t Br y a n t S t Ra m o n a S t Em e r s o n S t Hi g h S t Ki p l i n g Ki p l i n g Hawthorne Ave Ruthven Ave Poe St Hamilton Ave Forest Ave Forest Ave Homer Ave Channing Ave Addison Ave Lincoln Ave Kingsley Ave Melville AveMelville Ave Kellogg AveKellogg Ave Churchill Ave Coleridge Ave B oyc e Ave A ddiso n Ave Lin c oln A v e Fife A v e F o re st A v e C h a n n in g A v e P ark i n s o n A v e H o p ki n s A v e M elville A ve H arriet St P a l o A l t o A v e Al ma S t Al ma S t Embarca d e r o Rd El Camino Real Downtown RPP District N SOFA DOWNTOWN COMMERCIAL DISTRICT Downtown RPP District Proposed Eligibility Areas Proposed Annexed Streets Attachment G Downtown RPP Parking Zones 1 2 5 6 7 8 9 10 3 4 Attachment H Palo Alto Residential Preferential Parking (RPP) Program Meeting Notes Date: January 6, 2016, 3:00 – 4:30 pm Location: City Hall, Community Meeting Room, 250 Hamilton Avenue, Palo Alto Attendees: Name Representation RPP Stakeholder Group Rob George District manager, Philz Coffee Ben Cintz Cintz Commercial Properties Sue Nightingale Business owner, Watercourse Way Richard Brand Resident, 281 Addison (Professorville) City Staff and Members of the Public Joshuah Mello Chief Transportation Official, City of Palo Alto Jessica Sullivan Transportation Planning Manager, City of Palo Alto Sue-Ellen Atkinson Parking Operations Lead, City of Palo Alto Larry Wertman Resident Eric Hassett Hassett Hardware Meeting Goals: 1.Review December 14 City Council meeting and direction 2.Phase 2 Discussion Public Comment Larry Wertman shared his feedback on Phase 1 of the Downtown RPP program. He noted that $25 for a guest permit was a lot for low-income people on a fixed budget. He shared his observation that the Bryant Street garage is becoming very full and parking is difficult for seniors visiting the Avenidas Senior Center. Phase 1 Update Staff presented updated analysis of permit sales for Phase 1. Roughly 4,000 resident permits and 1,500 employee permits have been distributed. Stakeholder inquired if staff could determine the total number of employees in the RPP district with the Business Registry data. Stakeholder noted that Business Registry contact information may be helpful for sharing information about Phase 2 of the RPP program. Phase 2 Parameters Attachment I  Staff shared direction from City Council regarding annexation of streets that submitted petitions and approval of Eligibility Areas for future inclusion.  Staff detailed the process of approval for the updated City-wide Ordinance and Downtown RPP Resolution.  Stakeholder asked business stakeholders if the 2,000 employee permit limit is reasonable.  Stakeholder noted that the number of 2 hour parkers with no permit is unknown.  Staff noted that the RPP program is not the only program addressing employee parking and transportation.  Stakeholder commented Palantir is buying a lot of daily permits for employees and visitors.  Stakeholders are frustrated that their employees are not interested in buying low-income permits; they’d prefer to still move their cars.  Stakeholder was confused about the 2000 employee limit number; staff clarified that it didn’t include daily permits  Generally all Stakeholders agreed that parking was “easier” since RPP kicked off  Enforcement discussed as an issue that would need further scrutiny moving forward; attendee mentioned that people think there’s no enforcement so they game the system when they only have to come to PA once a week  Staff presented two options for employee parking “microzones” for Stakeholder input per Council direction (attached) o One stakeholder liked Option 2 but wanted smaller zones o One stakeholder likes Option 1 because is distributes people more evenly o One stakeholder preferred Option 1 because it gives choice between zones in proximity to downtown locations o Majority of stakeholders present agreed to Option 2 with smaller zones.  Per Council direction, Staff sought feedback from Stakeholders regarding employee permit distribution by zone. o For limiting numbers of permits in every zone, group wants to divide number of total spots into zone proportionally, with a bias towards fewer closer to Downtown.  Per Council direction, Staff sought feedback from Stakeholders regarding variable pricing in the employee parking zones. o All like the variable pricing option but want to explore later. o One resident in the annexed area shared feedback via email that she does not support variable pricing by zone.  Option 1 11 9 8 7 6 5 4 3 2 1 10 Option 2 8 7 6 5 4 2 1 3 9 Alma Street University Avenue University Ave Middlefield Road Embarcadero Road Sand Hill Road University A v en u e a y s h o r Embarcadero Road Churchill Avenue Escobita Avenue Churchill Avenue Sequoia Avenue Mariposa Av e Castilleja Av en Miramonte Avenue Madrono Av enue Portola Avenue Manzanita Avenue Coleridge Avenue Lowell Avenue Alannah Ed Rhodes Drive Q u arr y Ro a d W elc h R o a d Arb oretum Road Quarry Road Homer AvenueLane 8 West Medical Found ation Way Lane 7 West Lane 7 East Embarcadero Road Encina Avenue El Camino Real Urban Lane Wells Avenue Forest Avenue High Street Emerson StreetChanning Avenue Alma Street Alma Street Palo AltoA El Camino Real venue Mitche ll La n e Hawthorne Avenue Everett Avenue Lytton Avenue Lane 15 E High Street Alma Street Bryant Street Lane 6 E Lane 11 W Lane 21 High Street Gilman Street Hamilton Avenue University Avenue Bryant Court Lane 30 Florence Street Kip lin g Street Tas so Street Cowper Street Ruthven Avenue Hawthorne Avenue Lane 33 Palo Alto Ave nu e Everett Avenue Poe Street Waverley Street Tasso Street Cowper Street Pa l o A l t o A v e n u e Webster Street Everett Court Lytton Avenue Byron Street Fulton Street Middlefield Road Churchill Avenue Lowell Avenue Melville Avenue Coleridge Avenue Wa verley Street Bryant Street Emerson Street Kellogg Avenue Kingsley Avenue Lane A We st Lane B We st Lane B East Lane D West Lane 59 East Whitman Court Kellogg Avenue Embarcadero Road Kingsley Avenue Lincoln Avenue Addison Avenue Lincoln Avenue Forest AvenueDownin g Lane Homer Avenue Lane D East Lane 39 Lane 56 Hamilton Avenue Webster Street Waverley Street Kip lin g Street Bryant Street Ramona Street Addison Avenue Scott Street Byron Street Palo Hale Street Seneca Street Lytton Avenue Guinda Street Pa loAltoAvenue Fult on Street Middle fie ld Road Forest Avenue Webster Street Kellogg Avenue Middle fie ld Road Byron Street Webster Street Cowper Street Tasso Street Cowper Street Addison Avenue Lincoln Avenue B oyce Aven ue Forest Avenue Hamilton Avenue Homer Avenue Guin da Street Middle fie ld RoadChanning Avenue AltoAvenue Chaucer Street Chaucer Street University Avenue C ha nning Av e nue A ddison Avenue Lincoln Avenue R egent Pl Guinda Street Lincoln Avenue Fulton Street Melville Avenue Byron StreetKingsley Avenue Melville Avenue H a m ilto n Avenue H a milto n Court F orest Avenue Forest Ct M a rlo w e Stre et M a ple S tre et P alm Stre et So m erset Pl Pitm an Ave nue Fife Av e nue F orest A ve nu e D an a A venu e Lincoln Ave nue U niv ersity A v e n u e Coleridge Avenue Lowell Avenue Fu l t o n S t r e e t Cowper Street Middlefield Road N We bster Street Kirby Pl K ent Pla ce T evi s Pl M artin A venu e Center Drive H arriet Street Wilson Street Cedar Street H arker Ave nue G ree nw ood Ave nue H utchinson Avenue C hanning A venu e H o pki ns A ve nu e Embarcadero Road A sh b y D ri ve D a na A ven u e H a milt on A ve n u e Pit m an A v e n ue Southwood Drive WestCrescentDrive CrescentDrive University Avenue Center Drive EastCrescen A r c a dia Pla c e Lou is a Court N e w ell Pl Sharon Ct Erstwild Court W alter H ays Drive W alnut Drive New ell R oadParkinso n Avenu ePine Street Lois Lane J ord a n Pl L ois L ane Stanley Way D e S oto Drive De Soto Drive Alester Avenue W alter H a ys Drive tDrive Da na Aven ue Hamilton Avenue Ne well Road Kin g s Lan e Edgewood Dr i v e Island Drive Jefferson Drive Jackson Dr iv e Pa trici a L ane Madison Way Edgewood D riv e Ramona Street Addison Avenue Channing Avenue Waverley Street Paulsen Ln C o m m u nity La ne Lane 15 E Emerson Street Lane 20 WLane 20 E University Avenue CalTrain ROW Emerson Street Waverley Street Kipling Street Cla rk Way Orchard Lane Vin e y a r d L a n e Sand Hill Road S a n d Hill R o a d Sand Hill Road Brya nt Street Ramona Street Palo R oad Shopping Center Way Shopping Center Way Shopping Center Way London Pla ne Way Plu m La n e Sweet Olive Way Pear Lane Lane 12 W Lane 5 E L a sue n Stre et Phillips Road Pistache Place Everett Avenue Homer Avenue PaloAlt oAvenue C o m m unity Lan e G reen w ood Ave nue H arker Avenue P arkinson Ave nue Byron Street Emerso n Street g u ello W a y Avery Mall Bonair Siding Campus Drive Campus D r i v e Campus Driv e Campus Drive Campus Drive us Drive Churchill Mall A b oretum Road Aboretum Road Galvez Street G a l v e z Str e et Hoskins Cour t Hul m e Cou Jenk o urt K n ig ht W a y L a s u e n Str e et L o mita Driv e Masters Mall McFarland Court M u s e u m W a y Nelson Mall N el s o n R oa d e d R oad Olms t ed Road P alm Driv e Palm Driv e Pampas Lane QuarryR Q uille n C t Serra Street Serra StreetThoburn Court Alm a Street Alma Street Alma Street Hawthorne Avenue Lytton Avenue Sam McDonald Road Sam McDonald Mall Ar bo re tum R oa d San Francisquito Creek San Francisquito Creek San Francisquito Creek K aren H olm an Ci ty C o u n cil P atric k B u rt Ci ty C o u ncil G re g ory S ch arff Ci ty C o u n cil Mich ael Al c hec k Plan nin g a nd Tra nsp ortation C o m mis sio n M arc B er m an Ci ty C o u ncil Eric R o s en blu m Plan nin g a n d Tran sportatio n C o m m issio n Ji m K e e ne Ci ty M an a ger Prze m e k G ardias Pla n nin g an d Tra ns p ortation C o m mission M eg M o nroe C P A P C E Staff Brya n R e ynold s C P A P C E Staff Eric Filseth Ci ty C o u ncil W yn n e F urth Ar c hitectural R e vie w B o ard Peter B a ltay Ar chitectural R e vie w B o ard This map is a product of the City of Palo Alto GIS This document is a graphic representation only of best available sources. Legend abc Existing Downtown RPP Expansion Potential Downtown RPP Boundary Expansion City Jurisdictional Limits Conflict-Of-Interest, Architectural Review Board Conflict-Of-Interest, City Council Main Residence Conflict-Of-Interest, City Council Other Property Interest Conflict-Of-Interest, City Manager Conflict-Of-Interest, PCE Staff Conflict-Of-Interest, Planning and Transportation Commission 0'892' Co n f l i c t o f I n t e r e s t M a p 50 0 f t r a d i u s f r o m P r o p e r t y I n t e r e s t an d RP P E x i s t i n g an d Po s s i b l e E x p a n s i o n B o u n d a r y CITY O F PALO A L TO IN C O R P O RATE D C ALIFOR N IA P a l o A l t oT h e C i t y o f A P RIL 16 1894 The City of Palo Alto assumes no responsibility for any errors. ©1989 to 2016 City of Palo AltoRRivera, 2016-01-20 16:57:51COI map All Bodies 2015 RPPExpansion 0116 (\\cc-maps\gis$\gis\admin\Personal\RRivera.mdb) City of Palo Alto (ID # 6501) City Council Staff Report Report Type: Action Items Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: New Lease for Museum of American Heritage Title: Approval of a Twenty Five (25) Year Lease Agreement between the City of Palo Alto and Museum of American Heritage (MOAH) for the City Owned Property at 351 Homer Avenue, Palo Alto From: City Manager Lead Department: Administrative Services RECOMMENDATION Staff recommends that the City Council authorize the City Manager to negotiate and enter into a new twenty five (25) year lease agreement between the City of Palo Alto and Museum of American Heritage (MOAH) for the City owned property at 351 Homer Avenue, Palo Alto upon expiration of the current lease agreement in 2017. EXECUTIVE SUMMARY MOAH has been a part of Palo Alto for the past 25 years. As a significant destination for both residents and visitors, MOAH contributes to the community by enhancing Palo Alto’s reputation as a rich cultural destination, implementing a successful volunteer program, and providing both education and entertainment through a wide range of presentations, events and exhibits. Furthermore, MOHA has partnered with the City by providing the Learning Center space to local community groups and the City. MOAH has consistently been self-sufficient raising its funding needs through donations, membership fees, events, programming revenue, and endowment income. MOAH has never received any federal, state or municipal funding. The current locale of the museum is ideal in terms of the downtown location, accessibility to parking, and proximity to public transit. The existing lease between the City and MOAH will end on May 1, 2017. MOAH has requested a new twenty five (25) year lease. Staff has undertaken and completed the process required by the City’s Policy and Procedure (1-11/ASD), for leased use of City land and facilities. The approval of the new twenty five (25) year lease will allow MOAH to continue fund raising efforts for continuation of maintenance, modernization and planned improvements of the building in order to operate the museum and to continue its cultural and civic contributions for many years into the future. City of Palo Alto Page 2 BACKGROUND The Williams House was designed by noted architect Ernest Coxhead in 1906 and was completed in 1907. Dr. Williams, his wife Dora and daughters, Betty and Rhona, were the only family to ever live in the house and inhabit the property. Dr. Williams became known in the community by making his house calls via bicycle. In August of 1989, the City was notified that Rhona Williams had bequeathed her property and improvements, located at 351 Homer Avenue, to the City of Palo Alto. Under Ms. Williams’ last will and testament, dated July 27, 1987 and probated under case no. P-53194 in the Superior Court of Santa Clara County, California, the bequest of the Premises was subject to the condition that they it be used for park or cultural purposes, or a combination thereof and the Premises be named in memoriam to Ms. Williams’ parents, Dr. Thomas Williams and Dora Moody Williams. On January 13, 1992, the City accepted Ms. Williams’ bequest of the real property and improvements and directed the staff to prepare a Request for Proposal (RFP) to lease the site. In March 1992, the City commissioned a historic evaluation of the property and preparation of a Historic Resource Board report to guide future use of the property. Proposals were received from Peninsula Conservation Center and the Lace Museum. The negations were not successful and a second RFP was initiated in May of 1994 in which seven proposals and two letters of interest were submitted. In November of 1994, the selection committee recommended that the Council award an option to lease to the Museum of American Heritage. On November 14, 1994, Council approved awarding an option to lease to the Museum of American Heritage, with the award subject to the condition that the Museum selects the overall design team for the project. On December 4, 1995, Council approved the Museum of American Heritage’s revised proposal concept plan, including the retention and rehabilitation of the existing garage and the construction of a new education building and accessible restrooms of approximately 1,565 square feet. The Council directed staff to work with the applicant on a variance application for on-site parking requirements and to assist the applicant in exploring long term off-site parking arrangements; and also directed staff to complete negotiations for an option to lease with the Museum of American Heritage, based on the revised proposal dated October 4, 1995. On June 10, 1996, Council awarded MOAH an option to lease the Williams Property at 351 Homer Avenue for the purpose of developing and operating a park and museum open to public. Over the next year, the museum fulfilled the required conditions of the Lease Option including raising funds and obtaining the necessary City approvals for the rehabilitation of the garden and the building. On May 7, 1997, a twenty (20) year lease between the City and MOAH was executed and the rehabilitation project by MOAH was implemented. MOAH proceeded to undertake extensive repairs and restoration of the property. The main house and the original garage was repaired and rehabilitated. The Museum added a new educational building and accessible restroom of approximately 1,565 square feet. MOAH restored the property garden in City of Palo Alto Page 3 a manner consistent with the guidelines given by the Department of Interior regarding historical landscapes. In the past nineteen years, MOAH has provided the stewardship of this important City owned property. MOAH has been dedicated to preserve, restore and maintain the Williams House and to provide to programs, events, exhibits and lectures for residents and visitors. It is the place to go to see and experience the technological and social innovators of the past and to learn from their achievements. For additional historical information please refer to the list of previous CMRs on page three of this report. DISCUSSION On July 15, 2015, and later on October 5, 2015, MOAH requested (Attachment A) a new 25 year lease to extend the term of its existing lease with the City which is set to expire in May 1, 2017. The purpose of the extension is twofold: 1) It allows MOAH the foundation to continue its fund raising efforts to undertake current maintenance and planned capital improvement projects; 2) the new lease will serve to assure that MOAH will continue its operation at the present location for years to come. According to the City’s Policy and Procedures 1-11/ASD (Attachment B) regarding leased use of City land, there are two ways to award long term leases. The first method is through a formal Request for Proposal and the second is by providing a public notice that the City intends to award a lease to a particular tenant and conducting a public hearing to elicit public comment. Traditionally staff has used this second process for awarding leases to non-profit agencies that provide local community services. The City Charter limits the City to a fifty (50) year lease term. Consistent with P&P 1-11/ASD, the City issued such public notices in the local newspaper (Palo Alto Weekly) on December 18 and 25 of 2015 and a copy of the public notices were sent to property owners and tenants within 300 feet of the subject property. There were no inquires or requests for the 351 Homer Street location other than MOAH. Consistent with the terms and conditions of the proposed new Lease (Attachment C), MOAH will assume all responsibility for the maintenance, repair, upkeep and the cost of capital improvement for the premises at 351 Homer Street during the term of the new lease. Please refer to Appendix A of Attachment A for a copy of MOAH’s 2014 balance sheet. TIMELINE The new lease will go into effect following the expiration of the existing lease between the City and MOAH. City of Palo Alto Page 4 RESOURCE IMPACT At this time there is no budget impact from this report. The City will continue to lease the Property to MOAH at the annual rate of one ($1.00) a year. MOAH is responsible for maintenance and capital projects of the property, garden and the improvements. POLICY IMPLICATIONS Entering into a new Lease Agreement is consistent with policies and programs in the Comprehensive Plan promoting City and non-profit collaboration and the effective provision of community services. ENVIRONMENTAL REVIEW Extension or re-negotiation of an existing lease and agreement is exempt from the California Environmental Quality Act (CEQA) under 15061 of the CEQA Guidelines. Related Staff reports: CMR: 326:91 CMR: 608:93 CMR: 103:92 CMR: 113:94 CMR: 188:92 CMR: 139:94 CMR: 208:92 CMR: 206:94 CMR: 435:92 CMR: 286:94 CMR: 286:94 CMR: 508:95 CMR: 493:92 CMR: 292:96 CMR: 305:93 CMR: 442:97 CMR: 332:93 CMR: 557:03 CMR: 446:93 CMR: 560:93 Attachments:  Attachment A: Letter PAHM to City 2015 Lease Extension (PDF)  Attachment B: City Land and Building Leasing Policy (PDF)  Attachment C: General Terms of the Lease 2016 (DOCX) ATTACHMENT A ATTACHMENT A ATTACHMENT A ATTACHMENT A ATTACHMENT A ATTACHMENT B ATTACHMENT B ATTACHMENT B ATTACHMENT C 1 Terms of the Lease LESSOR: City of Palo Alto TENANT: The Museum of American Heritage, a non-profit benefit corporation. PREMISES: 351 Homer Avenue, Palo Alto, commonly known as the Williams property PURPOSE: The purpose of the lease is to allow the Museum of America Heritage to continue operating a park and museum, open to the public, according to the terms and conditions of the lease. TERM: The term of the lease is 25 years. USES: A. REQUIRED: Throughout the term of the lease, the tenant shall provide the following services and activities: 1. Attention, supervision, maintenance and care of the house, doctor’s office and preservation of the garden, with the house, doctor’s office and garden to be open to the public; 2. Displays and exhibits of mechanical and electrical artifacts and local history; 3. Decent-led and self-guided tours of the displays and exhibits and of the restored house, garden, kitchen and doctor’s office; 4. Workshops, classes and lectures associated with Museum purposes; and 5. All required activities shall be open to the public. B. PERMITTED: In addition to the required uses, the following uses shall also be permitted, but only as incidental to the required uses: 1. Administrative offices and storage space to support the required services, activities and uses above; 2. Fund raising activities only to support the required services, activities and uses, including but not limited to sales of goods and gifts related to the museum use and the hosting of benefits and social activities; and ATTACHMENT C 2 3. Periodic rental of rooms and other portions of the premises by community groups and individuals, but in no event shall such rental be for commercial purposes and in no event shall such rental interfere with or limit the required services, activities and uses as set forth above. C. OPTIONAL: Subject to the prior written approval of the City Manager, the tenant may provide additional service and uses which are ancillary to and compatible with the required uses above. D. PROHIBITED: Any use not authorized herein or in Rhona Williams’ will. CONSIDERATION/RENT: A. MONETARY: One Dollar ($1.00) per year, payable upon execution of the lease and thereafter on each anniversary date of the lease. B. NON-MONETARY: Development and operation of a park and museum consistent with the purpose and causes of the lease, at no cost to the City. SECURITY DEPOSIT: A $10,000 security deposit is required which can be cash, assignment of savings account, certificate of deposit or letter of credit. REQUIRED IMPROVEMENTS TO BE MADE BY TENANT: Driveway repair (Either gravel removal, grading, and asphalt application, or, application of additional crushed rock, leveling, and sealing) Interior hardwood floor restoration  Dry rot repair to both exterior decks and to multiple windows  Exterior painting  Skylight maintenance  Flat roof repair CONSTRUCTION OR ALTERATION BY TENANT: Tenant may not make any changes to the property without prior City review and approval. MAINTENANCE AND REPAIRS: ATTACHMENT C 3 Tenant shall be responsible of all maintenance and repairs in accordance with the City- approved maintenance program to preserve historic features of the house and garden. ASSIGNMENT/SUBLETTING: Any assignment or encumbrance of the lease (with the exception of subletting in accordance with the proposal) must receive prior City approval. TAXES, ASSESSMENTS AND UTILITIES: Tenant shall be responsible for all costs for utilities and taxes and assessments for the property. INSURANCE: The tenant shall maintain insurance meeting the City’s standard requirements for insurance protection. LEGAL BOILERPLATE: The lease terms shall be consistent with the City’s updated lease template. CITY OF PALO ALTO OFFICE OF THE CITY ATTORNEY February 1, 2016 The Honorable City Council Palo Alto, California PUBLIC HEARING: Adoption of an Emergency Ordinance of the Council of the City of Palo Alto Adding Chapter 9.16 (Medical Marijuana Cultivation and Delivery) to Title 9 (Public Peace, Morals and Safety) of the Palo Alto Municipal Code to Prohibit Medical Marijuana Cultivation and Delivery in Palo Alto Pursuant to California Assembly Bills 243 and 266 and Senate Bill 643. This Action is Exempt Under Section 15061(b)(3) of the California Environmental Quality Act Recommendation Staff recommends that Council adopt the attached emergency ordinance (Attachment A) adding Chapter 9.16 (Medical Marijuana Cultivation and Delivery) to Title 9 (Public Peace, Morals and Safety) of the Palo Alto Municipal Code to prohibit medical marijuana cultivation and delivery in Palo Alto, effective immediately. This action implements state law and is consistent with prior Council policy. Executive Summary The proposed emergency ordinance is consistent with the City’s existing land use policy adopted on June 9, 1997, as an uncodified urgency Ordinance No. 4422, prohibiting the establishment and operation of medical marijuana dispensaries under the City’s zoning ordinance (Attachment B). The proposed ordinance expressly prohibits medical marijuana cultivation and delivery within the City of Palo Alto, effective immediately. Under new provisions of State law, cities that do not have a land use regulation or ordinance regulating or prohibiting medical marijuana cultivation in effect by March 1, 2016, will lose local authority to regulate or ban cultivation, and the State of California would become the sole licensing authority for medical marijuana cultivation in the jurisdiction. Also, under new provisions of State law, cities that do not have an ordinance regulating or prohibiting medical marijuana delivery in effect by January 1, 2018 (the date the State anticipates issuing licenses), will lose the local authority to regulate or ban delivery, and the State of California would become the sole licensing authority for medical marijuana delivery in the jurisdiction. Staff recommends that the proposed emergency ordinance expressly prohibiting medical marijuana cultivation and delivery within the City be adopted by Council in February to ensure 14 Page 2 an effective date prior to the State-imposed deadline of March 1, 2016 relating to local medical marijuana cultivation. Background On October 9 2015, Governor Brown signed three new laws relating to medical marijuana, Assembly Bills 243 and 266 and Senate Bill 643. These bills create a broad state regulatory and dual licensing system governing the cultivation, testing and distribution of medical marijuana, the manufacturing of marijuana products, and physician recommendations for medical marijuana. Under the new legislation titled collectively as the Medical Marijuana Safety and Regulation Act (MMSRA), state licenses and local permits will be required for all facets of the medical marijuana industry. AB 243 establishes the Department of Food and Agriculture (DFA) as the licensing and regulatory authority for medical marijuana cultivation. Any person who wishes to engage in commercial cultivation of medical marijuana must obtain a state license from the DFA. AB 243 also requires (1) the DFA to work with other state agencies to develop environmental protection standards, (2) the Department of Pesticide Regulation to establish medical marijuana pesticide standards, and (3) the Department of Public Health to create standards for labeling of marijuana edibles. AB 266 creates the Bureau of Medical Marijuana Regulation within the Department of Consumer Affairs (DCA) to develop regulations and issue state licenses for medical marijuana dispensaries, distributors and transporters. AB 266 designates the Department of Public Health as the licensing and regulatory authority for manufacturers of marijuana products and medical marijuana testing laboratories. Like AB 243, AB 266 requires all state marijuana license applicants to comply with local permitting requirements. SB 643 establishes standards for physicians that recommend medical marijuana, including discipline for physicians who recommend excessive amounts. SB 643 also creates standards for state license applications and enforcement. Discussion On June 9, 1997, the Council adopted uncodified urgency Ordinance No. 4422, prohibiting the establishment and operation of medical marijuana dispensaries under the City’s zoning ordinance (Attachment B). This urgency ordinance is not comprehensive and does not include an express prohibition against medical marijuana cultivation or medical marijuana delivery in the City. However, under principles of permissive zoning, neither medical marijuana cultivation nor medical marijuana delivery are listed as permitted activities in the City’s zoning code and are presumptively prohibited. To avoid confusion and preserve local control, staff recommends including an express prohibition. Page 3 The proposed ordinance would expressly prohibit medical marijuana cultivation and medical marijuana delivery within the City. The proposed ordinance satisfies two MMRSA deadlines, as follows, allowing the City to maintain local authority over medical marijuana cultivation and delivery: 1. Under the MMRSA, cities that do not have a land use ordinance or regulation prohibiting medical marijuana cultivation and choose not to implement a regulatory scheme, commencing March 1, 2016, will lose local authority to regulate or ban cultivation; and the DFA will become the sole licensing authority. 2. Under the MMRSA, medical marijuana deliveries can only be made by a state-licensed dispensary in a city, county, or city and county that does not explicitly prohibit it by local ordinance (Business and Professions Code section 19340(a), part of AB 266). The State plans to begin issuing medical marijuana delivery licenses on January 1, 2018. With regard to delivery, the proposed Ordinance incorporates a definition of “delivery” under state law that would prohibit the operation of medical marijuana delivery business in the City and the delivery of medical marijuana within the City from a business located elsewhere. The proposed Ordinance does not prevent, however, the City from regulating medical marijuana cultivation or delivery within the City of Palo Alto in the future, subject to the applicable state licensing requirements in the MMRSA. Timeline Under the MMRSA, as discussed above, cities that do not have a land use ordinance or regulation prohibiting medical marijuana cultivation and choose not to implement a regulatory scheme, commencing March 1, 2016, will lose local authority to regulate or ban cultivation; and the DFA will become the sole licensing authority. Further, under the MMRSA, medical marijuana deliveries can only be made by a state-licensed dispensary in a city, county, or city and county that does not explicitly prohibit it by local ordinance (Business and Professions Code section 19340(a), part of AB 266). The State plans to begin issuing medical marijuana delivery licenses on January 1, 2018. Accordingly, staff recommends that the proposed emergency ordinance expressly prohibiting medical marijuana cultivation and delivery within the City be adopted by Council in February to ensure an effective date prior to the State-imposed deadline of March 1, 2016 relating to local medical marijuana cultivation.1 The attached ordinance is an emergency ordinance that takes effect immediately upon adoption. It requires 8 votes for adoption. 1 Given the short deadlines imposed by the State, some cities are adopting ordinances through their emergency authority. Palo Alto’s emergency authority is codified in PAMC Section 2.04.270(d) and the attached ordinance contains the necessary health and safety findings. Page 4 Resource Impact The staff does not anticipate a resource impact associated with this Ordinance. Environmental Review This proposed ordinance is not a project within the meaning of section 15378 of the California Environmental Quality Act (“CEQA”) Guidelines because it has no potential for resulting in physical change in the environment, either directly or ultimately. In the event that this proposed ordinance is found to be a project under CEQA, it is subject to the CEQA exemption contained in CEQA Guidelines section 15061(b)(3) because it can be seen with certainty to have no possibility of a significant effect on the environment in that this proposed ordinance simply codifies an existing prohibition. ATTACHMENTS:  Attachment A: Emergency Ordinance adding Chapter 9.16 to Title 9 of the Palo Alto Municipal Code to Prohibit Cultivation and Delivery of Medical Marijuana (PDF)  Attachment B: Uncodified Urgency Ordinance No. 4422 Prohibiting the Establishment and Operation of Medical Marijuana Delivery in the City dated June 9, 1997 (PDF) Department Head: Molly Stump, City Attorney Page 5 NOT YET APPROVED 160119 sh 0200001 1 ORDINANCE NO. ________ Emergency Ordinance of the Council of the City of Palo Alto Adding Chapter 9.16 (Medical Marijuana Cultivation and Delivery) to Title 9 (Public Peace, Morals and Safety) of the Palo Alto Municipal Code to Prohibit Medical Marijuana Cultivation and Delivery in Palo Alto Pursuant to California Assembly Bills 243 and 266 and Senate Bill 643 The Council of the City of Palo Alto does ORDAIN as follows: SECTION 1. Findings and Declarations. The City Council finds and declares as follows: A. In 1970, Congress enacted the Controlled Substances Act (CSA) which, among other things, makes it illegal to import, manufacture, distribute, possess or use marijuana in the United States. B. In 1972, California added Chapter 6 to the state Uniform Controlled Substances Act, commencing at Health and Safety Code section 11350, which established the state’s prohibition, penalties and punishments for the possession, cultivation, transportation and distribution of marijuana. C. In 1996, the voters of the State of California approved Proposition 215 (entitled the “Compassionate Use Act of 1996” (CUA) and codified as California Health and Safety Code Section 11362.5 et seq.). D. California courts have held that the CUA created a limited exception from criminal liability for seriously ill persons who are in need of medical marijuana for specified medical purposes and who obtain and use medical marijuana under limited, specified circumstances. E. On June 9, 1997, the Palo Alto City Council adopted uncodified urgency Ordinance No. 4422 declaring the establishment and operation of medical marijuana dispensaries to be a prohibited use under the City’s zoning ordinance. F. On January 1, 2004, the state Legislature enacted the "Medical Marijuana Program" (MMP), codified as California Health and Safety Code sections 11362.7 to 11362.83, to clarify the scope of the CUA, establish a voluntary program for identification cards issued by counties for qualified patients and primary caregivers, and provide criminal immunity to qualified patients and primary caregivers for certain activities involving medical marijuana, including the collective or cooperative cultivation of medical marijuana. G. The California Supreme Court ruled unanimously in City of Riverside v. Inland Empire Patients Health and Wellness Center, Inc. (2013) 56 Cal.4th 729, that the CUA and the ATTACHMENT A NOT YET APPROVED 160119 sh 0200001 2 MMP do not preempt local ordinances that completely and permanently ban medical marijuana dispensaries, collectives and cooperatives. H. In Maral v. City of Live Oak (2013) 221 Cal.App.4th 975, the Third District Court of Appeal of California held, based on Inland Empire, that there was no right to cultivate medical marijuana and that cities could implement and enforce a complete ban, including a ban on personal cultivation. I. On October 9, 2015, Governor Brown signed Assembly Bills 243 and 266 and Senate Bill 643 (collectively known as the Medical Marijuana Regulation and Safety Act (MMRSA)), which taken together create a broad state regulatory and licensing system governing the cultivation, testing and distribution of medical marijuana, the manufacturing of marijuana products, and physician recommendations for medical marijuana, and provide immunity to marijuana businesses operating with both a state license and a local permit. J. While the MMRSA expressly preserves local control over medical marijuana facilities and land uses, including the authority to prohibit all medical marijuana businesses and cultivation completely, newly-added Health & Safety Code section 11362.777(c)(4) provides that where a local jurisdiction does not have a land use regulation or ordinance regulating or prohibiting marijuana cultivation, either expressly or otherwise under principles of permissive zoning, or chooses not to administer a conditional permit program under that section, then commencing March 1, 2016, the state Department of Food and Agriculture (DFA) will become the sole licensing authority for marijuana cultivation in that jurisdiction. K. Newly-added Health & Safety Code section 11362.777(b)(3) provides that the DFA may not issue a State license to cultivate medical marijuana within a city that prohibits cultivation under principles of permissive zoning. L. The MMRSA requires a city that wishes to prohibit medical marijuana delivery activity, as defined in Business and Professions Code section 19000.5(m), from operating within the city to enact an ordinance expressly prohibiting such delivery activity. M. Medical marijuana cultivation and medical marijuana delivery are not listed in the City’s zoning code as either permitted or conditionally-permitted land uses and are, therefore, prohibited under the principles of permissive zoning provisions. (City of Corona v. Naulls (2008) 166 Cal.App.4th 418, 431-433). Accordingly, under the MMRSA, the DFA may not issue a State license to cultivate medical marijuana or for medical marijuana delivery within the City of Palo Alto because medical marijuana cultivation and medical marijuana delivery are prohibited in the City under principles of permissive zoning. N. The City Council has determined that express Municipal Code provisions prohibiting medical marijuana cultivation and medical marijuana delivery will benefit the public by providing clear guidelines regarding the scope of prohibited conduct and minimize the potential for confusion regarding the City’s policies. NOT YET APPROVED 160119 sh 0200001 3 O. Many California communities have experienced adverse impacts and negative secondary effects from medical marijuana establishments and cultivation sites, including hazardous construction, unsafe electrical wiring, noxious odors and fumes affecting neighboring properties and businesses, increased crime in and around such land uses, and the diversion of medical marijuana to minors. P. There is significant evidence that medical marijuana delivery services are also targets of violent crime and pose a danger to the public. Q. In order to protect the public health, safety, and welfare, the City Council desires to add Palo Alto Municipal Code Chapter 9.16 to prohibit, in express terms, medical marijuana cultivation and delivery within the City. R. The State regulation and licensing as contemplated in Assembly Bills 243 and 266 and Senate Bill 643 have not yet taken effect nor been implemented, and the Council desires to preserve local control over medical marijuana cultivation and delivery within the City. S. This Ordinance is not a project within the meaning of section 15378 of the California Environmental Quality Act (CEQA) Guidelines because it has no potential for resulting in physical change in the environment, either directly or ultimately. In the event that this Ordinance is found to be a project under CEQA, it is subject to the CEQA exemption contained in CEQA Guidelines section 15061(b)(3) because it can be seen with certainty to have no possibility of a significant effect on the environment in that this Ordinance simply clarifies existing local regulations. SECTION 2. Chapter 9.16 (Medical Marijuana Cultivation and Delivery) is hereby added to Title 9 (Public Peace, Morals and Safety) of the Palo Alto Municipal Code to read as follows: Chapter 9.16 MEDICAL MARIJUANA CULTIVATION AND DELIVERY 9.16.010 Definitions. 9.16.020 Prohibitions. 9.16.030 Enforcement. 9.16.010 Definitions. (a) “Marijuana” means all parts of the plant Cannabis, whether growing or not; the seeds thereof; the resin extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin. It includes marijuana infused in foodstuff, and concentrated cannabis and the separated resin, whether crude or petrified, obtained from marijuana. It does not include the mature stalks of the plant, fiber produced from the stalks, oil or cake made from the seeds of the plant, any other NOT YET APPROVED 160119 sh 0200001 4 compound, manufacture, salt, derivative, mixture, or preparation of the mature stalks (except resin extracted therefrom), fiber, oil, or cake, or the sterilized seeds of the plant that are incapable of germinations. (b) “Medical marijuana cultivation” shall have the same meaning as “cultivation” set forth in California Business and Professions Code Section 19300.5(l) as that section may be amended from time to time. (c) “Medical marijuana delivery” shall have the same meaning as “delivery” set forth in California Business and Professions Code Section 19300.5(m) as that section may be amended from time to time. 9.16.020 Prohibitions. (a) The following are prohibited: (1) Medical marijuana cultivation in all zones in the City of Palo Alto. (2) Medical marijuana delivery in all zones in the City of Palo Alto. 9.16.030 Enforcement. The City may enforce this section in any manner permitted by law. The violation of this Chapter shall be and is hereby declared to be a public nuisance and shall, at the discretion of the City, create a cause of action for injunctive relief. SECTION 3. If any section, subsection, clause or phrase of this Ordinance is for any reason held to be invalid, such decision shall not affect the validity of the remaining portion or sections of the Ordinance. The City Council hereby declares that it should have adopted the Ordinance and each section, subsection, sentence, clause or phrase thereof irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be held invalid. SECTION 4. The City Council finds and determines that this Ordinance is not a project within the meaning of section 15378 of the California Environmental Quality Act (“CEQA”) because it has no potential for resulting in physical change in the environment, either directly or ultimately. In the event that this Ordinance is found to be a project under CEQA, it is subject to the CEQA exemption contained in CEQA Guidelines section 15061(b)(3) because it can be seen with certainty to have no possibility of a significant effect on the environment in that this Ordinance simply clarifies existing local regulations. // // // // NOT YET APPROVED 160119 sh 0200001 5 SECTION 5. The City Council finds and declares that, for the reasons provided in Section 1, this Ordinance is necessary as an emergency measure for preserving the public peace, health, or safety. Pursuant to Palo Alto Municipal Code section 2.04.270(d), this Ordinance shall take full force and effect immediately upon adoption by a vote of four-fifths of the council members present. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ____________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ____________________________ ____________________________ Principal Attorney City Manager »jj..uj»i.-mim«»J'-'r",T-'1'u-l"l*'Jllt""*°,"**f" rf PaloAlto Office ofthe City Clerk ORDINANCE NO. 4422 ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO DECLARING THE ESTABLISHMENT AND OPERATION OF MEDICAL MARIJUANA DISPENSARIES TO BE A PROHIBITED USE UNDER THE ZONING ORDINANCE,AND DECLARING THE URGENCY THERBOF,TO TAKE EFFECT IMMEDIATELY The City Council of the City of Palo Alto does ordain as follows: SfiC/TION 1.Findings. The Council finds and declares: A.In November 1996 the voters of the'State of California approved an initiative measure known as Proposition 215,which added Code Section 11362.5 to the California Health and Safety Code.Proposition 215 created a defense to the criminal laws •forbidding possession and cultivation of marijuana, for persons possessing or cultivating the drug for personal medical purposes upon the written or oral recommendation or approval of a physician. The defense also extends to -the individual's primary caregiver as defined by law. B.Since enactment of Proposition 215,persons throughout the State have expressed a desire to establish locations where marijuana can be dispensed to those persons who qualify for its use under state law.Because possession and cultivation of marijuana was illegal until enactment of Proposition 215,cities and counties had not addressed in their zoning and other regulations the requirements for establishment and operation of facilities at which medical marijuana would be dispensed.Some cities and counties have responded to Proposition 215 by enacting ordinances which establish new zoning and police regulations governing medical marijuana dispensaries,or impose a limited-term moratorium on the opening of such facilities,to allow time for study and development of appropriate regulations. C.The District Attorney's Office of Santa Clara County has announced its intent to interpret Propertion 215 in a manner which takes into account the humanitarian purposes of the Proposition,allowing for some reasonable production and distribution for medicinal purposes only.The nature and extent of cultivation and distribution which may lawfully be undertaken by private parties other than the medical marijuana users themselves is thus an open question.Special zoning "and perhaps other regulations would therefore be necessary in order to adequatelycontrolsuchusesinPaloAlto.*uaws.Ly w,.D-The State Legislature is currently considering billswhichwouldregulatethedistributionofmedicalmarijuana.Any city regulations of such activities may.be required to beconsistentwithsuchstatelaws,once enacted re«uirea co &e 910600*00*0520 P.O.Box 10250 Palo Alto,CA 94303 650.328.3631 fax ATTACHMENT B Citfbf Palo Alto Office ofthe City Clerk B..it is necessary for the preservation of the public peace,health and safety to enact as an urgency measure an ordinance,declaratory of existing law,prohibiting the establishment and operation of medical marijuana dispensaries.The reasons for the urgency are as follows: 1. The City has in recent weeks received inquiries about establishment of a medical marijuana dispensary in the City. 2.Such inquiries should be taken seriously, inasmuch as nearby communities have also received such requests and experienced high interest by persons wishing to establish such facilities.The City of San Jose, for example, has recently obtained a court order requiring closure of an illegal medical marijuana dispensary, and is processing permit requests for two other facilities for which applications were filed under a recently-enacted ordinance regulating medical marijuana dispensaries. 3.While the City's zoning ordinance (Title 18,Palo Alto Municipal Code!allows various kinds of medical and related uses as permitted or conditional uses in specified zoning districts,it does not provide for the medicinal distribution of marijuana.Because cultivation and possession of marijuana in California was illegal until passage of Proposition 215,facilities dispensing medical marijuana are not an enumerated use under the zoning ordinance. 4.Experience in other communities suggests that a number of regulatory issues should be carefully considered prior to allowing establishment of medical marijuana dispensaries in order to prevent crime and ensure compatibility with other uses, including residential uses and schools.These issues include security requirements,appropriate zoning designations and development standards,and monitoring and reporting requirements. Study of these issues and development of recommendations will require prioritization with other projects currently being undertaken by the Police Department and the Department of Planninq and Community Environment. 5.Because dispensation of medical marijuana is notanactivitycurrentlyaddressedintheMunicipalCode,the City can expect to experience enforcement problems if persons attempt to dispense medical marijuana in Palo Alto,in the absence of regulations specifically governing such uses.-In light of the expressed interest in establishing a medical marijuana dispensary in Palo Alto,and the time required to study and develop appropriate regulations,an urgency ordinance is necessary to provide a clear statement of existing law and to protect the publicpeace,health and safety.^ SECTION 2.Definitions Ordinance,the following definition shall applyFor the purposes of this 970603bde0080*20 P.O.Box 10250 650.329.2571 650.328.3631 fax •?£*: Office ofthe City Clerk "Medical Marijuana Dispensary"is a facjU&fcy .wmh»mM*$uau»-. is made available for medical purposes in accordance vtth-HfeAtiiandSafetyCodeSection11362.5 (Proposition ju9)r.'TMtf'Sao^*4#fv include the cultivation or possession of atarijuafia;"^y"K"wt?*yX:e. patient or caregiver,for medical use in accordance with Health and Safety Code Section 11362.5.»*•*~,*-w-'."V.'"' section 3.BffmfrUflhmgni;a.n,d.opexauon Protupi,Eeri-'^^ (a)No person shall operate 'or1 allow or "suffer •'tMe' operation of a Medical Marijuana Dispensary within the City of Palo Alto. (b)No permit or certificate of use and occupancy shall be issued for a Medical Marijuana Dispensary. (c)This section is declaratory of existing law. SECTION 4.Effective Date effective immediately upon adoption. This ordinance shall be SECTION S. The Council finds that this project is exempt from the provisions of the Environmental Quality Act i"CEQA*> because it can be seen with certainty that there is no possibility that'this project,which consists of a declaration of existing law, will have a significant effect on the environment. This ordinance was passed at a regular meeting of the Council of the City of Palo Alto on Monday,June 9,1997,and was passed by a four-fifths vote of all Council members present at the meeting as follows: INTRODUCED AND PASSED:June 9, 1997 AYES:EAKINS,FAZZINO,HUBER,MCCOWN,ROSENBAUW,SCHNEIDER, WHEELER NOES: ABSTENTIONS: ABSENT:ANDERSEN,KNISS ATTEST /Pat.City Clerk r Assistant City Attorney 9704»Mc0080520 Director of Planning and Community Environment P.O.Box 10250 Palo Alto,CA94303 ifrtimnnrm ,••. 650.328.3631 fax ;t ft.J • mmmmntrnm pet ^Mf^^^LSi Office ofthe City Clerk P.O.Box 10250 PaloAlto, CA 94303 650.329.2571 650.328.3631 fax ""-TWy-r1,t'-'in-fl •"••'i•'•rI-1iT City of Palo Alto (ID # 6543) City Council Staff Report Report Type: Informational Report Meeting Date: 2/1/2016 City of Palo Alto Page 1 Summary Title: Investment Activity Report Title: City of Palo Alto Investment Activity Report for the Second Quarter, Fiscal Year 2016 From: City Manager Lead Department: Administrative Services Background The purpose of this report is to inform Council of the City’s investment portfolio status as of the end of the second quarter. The City’s investment policy requires that staff report quarterly to Council on the City’s portfolio composition compared to Council-adopted policy, portfolio performance, and other key investment and cash flow information. Discussion The City’s investment portfolio is detailed in Attachment B. It is grouped by investment type and includes the investment issuer, date of maturity, current market value, the book and face (par) value, and the weighted average maturity of each type of investment and of the entire portfolio. The par value of the City’s portfolio is $478.3 million; in comparison, last quarter it was $485.8 million. The decline in the portfolio of $7.5 million since the last quarter primarily results from the timing of cash flows. Such factors as the timing and seasonality of payroll periods; property tax and special assessments receipts (e.g. general obligation and parking bonds); and delayed sales tax (“triple flip”) and in-lieu vehicle license fee tax payments (received in January and May 2015) affect cash receipts and flow. The portfolio consists of $33.5 million in liquid accounts and $444.8 million in U. S. government treasury investments, agency securities, bonds of State of California local government agencies, bonds of some of the fifty United States, medium-term corporate notes, and certificates of deposit. The $444.8 million includes $109.9 million in investments maturing in less than two years, comprising 24.7 percent of the City’s investment in notes and securities. The investment policy requires that at least $50 million be maintained in securities maturing in less than two years. City of Palo Alto Page 2 The current market value of the portfolio is 99.5 percent of the book value. The market value of securities fluctuates, depending on how interest rates perform. When interest rates decrease, the market value of the securities in the City’s portfolio will likely increase; likewise, when interest rates increase, the market value of the securities will likely decrease. Understanding and showing market values is not only a reporting requirement, but essential to knowing the principal risks in actively buying and selling securities. It is important to note, however, that the City’s practice is to buy and hold investments until they mature so changes in market price do not affect the City’s investment principal. The market valuation is provided by Union Bank of California, which is the City’s safekeeping agent. The average life to maturity of the investment portfolio is 3.66 years compared to 3.53 years last quarter. Investments Made During the Second Quarter During the second quarter, $45.0 million of government agency securities with an average yield of 2.6% percent matured. During the same period, government securities totaling $37.2 million with an average yield of 2.7% percent were purchased. Despite the slight increase in interest rates, the expectation is they will remain low with the portfolio yield hovering around the current levels. The City’s short-term money market and pool account increased by $0.4 million compared to the first quarter. Investment staff continually monitors the City’s short-term cash flow needs and adjusts liquid funds to meet them. Availability of Funds for the Next Six Months Normally, the flow of revenues from the City’s utility billings and General Fund sources is sufficient to provide funds for ongoing expenditures in those respective funds. Projections indicate receipts will be $220.3 million and expenditures will be $203.8 million over the next six months, indicating an overall growth in the portfolio of $16.5 million. As of December 31, 2015, the City had $33.5 million deposited in the Local Agency Investment Fund (LAIF) and a money market account that could be withdrawn on a daily basis. In addition, investments totaling $17.0 million will mature between January 1, 2016 and June 30, 2016. On the basis of the above projections, staff is confident that the City will have more than sufficient funds or liquidity to meet expenditure requirements for the next six months. Compliance with City Investment Policy During the second quarter, staff complied with all aspects of the investment policy. Attachment C lists the major restrictions in the City’s investment policy compared with the portfolio’s actual performance. Investment Yields Interest income on an accrual basis for the second quarter was $2.4 million. As of December 31, 2015, the yield to maturity of the City’s portfolio was 1.92 percent. This compares to a yield of 1.92 percent in the first quarter. Yields have risen slightly in the last quarter and are expected to move gradually. The recent FOMC rate hike has had a small impact and higher yields are dependent on the timing of future FOMC actions. The City’s portfolio yield of 1.92 City of Palo Alto Page 3 percent compares to LAIF’s average yield for the quarter of 0.38 percent and an average yield on the two-year and five-year Treasury bonds during the second quarter of approximately 0.82 percent and 1.57 percent, respectively. Yield Trends After seven years, the Federal Open Market Committee (FOMC) has raised the federal funds and discount rates by a quarter percent to 0.50 and 1.0 percent, respectively. The FOMC cited considerable improvement in the labor market with the expectation that inflation will move upward. The FOMC expects future rate increase to be gradual and dependent on the economic outlook. Factors that could keep a lid on rate increases include: continued low crude oil prices, dampened consumer spending, weak wage growth, and global economic weakness. Funds Held by the City or Managed Under Contract Attachment A is a consolidated report of all City investment funds, including those not held directly in the investment portfolio. These include cash in the City’s regular bank account with US Bank and Wells Fargo. The bond proceeds, reserves, and debt service payments being held by the City’s fiscal agents are subject to the requirements of the underlying debt indenture. The trustees for the bond funds are U.S. Bank and California Asset Management Program (CAMP). Bond funds with U.S. Bank are invested in federal agency and money market mutual funds that consist exclusively of U.S. Treasury securities. Bond funds in CAMP are invested in banker’s acceptance notes, certificates of deposit, commercial paper, federal agency securities, and repurchase agreements. The most recent data on funds held by the fiscal agent is as of December 31, 2015. Fiscal Impact This is an information report. Environmental Review This information report is not a project under the California Environmental Quality Act; therefore, an environmental review is not required. Attachments:  Attachment A: Consolidated Report of Cash Management (PDF)  Attachment B: Investment Portfolio (PDF)  Attachment C: Investment Policy Compliance (PDF) Book Value Market Value City Investment Portfolio (see Attachment B)480,978,602$ 482,572,258$ Other Funds Held by the City Cash with Wells Fargo Bank 2,584,757 2,584,757 (includes general and imprest accounts) Cash with US Bank 11,392,030 11,392,030 (includes general and imprest accounts) Petty/Working Cash 9,328 9,328 Total - Other Funds Held By City 13,986,115 13,986,115 Funds Under Management of Third Party Trustees * US Bank Trust Services ** 1995 Utility Revenue Bonds Debt Service Fund 3 3 2002 Downtown Parking Impvt. (Taxable) Certificates of Participation Reserve Fund 237,330 237,330 2009 Water Revenue Bonds (Build America Bonds) Project, Debt Service, Reserve, Cost of Issuance Funds 2,638,651 2,638,651 2010 General Obligation Bonds Debt Service 3 3 2011 Utility Revenue Refunding Bonds Debt Service, Reserve, and Cost of Issuance Funds 1,500,277 1,500,277 2012 University Ave. Parking Refunding Bonds Cost of Issuance Fund 13,960 13,960 2013 General Obligation Bonds Debt Service 10,785 10,785 California Asset Management Program (CAMP) *** 2012 University Ave. Parking Refunding Bonds Reserve Fund 2,530,468 2,530,468 2013 General Obligation (Library) Bond Project Fund 5,282,369 5,282,369 Total Under Trustee Management 12,213,844 12,213,844 GRAND TOTAL 507,178,561$ 508,772,217$ * These funds are subject to the requirements of the underlying debt indenture. ** U.S. Bank investments are in money market mutual funds that exclusively invest in U.S. Treasury securities. *** CAMP investments are in money market mutual fund which invest in bankers acceptance, certificate of deposit, commercial paper, federal agency securities, and repurchase agreements. Second Quarter, Fiscal Year 2015-16 (Unaudited) (Debt Service Proceeds) Attachment A Consolidated Report of Cash Management City of Palo Alto Cash and Investments City of Palo Alto City of Palo AltoAdministration Svcs. Dept. 250 Hamilton Ave., 4th Floor Palo Alto, CA 94301 (650)329-2362 December 31, 2015 Fund ALL - Portfolio Listings Investments by Fund Par Value Days To Maturity Maturity Date Current RateMarket ValueCUSIPInvestment #Issuer Purchase Date Book Value YTM 360 YTM 365 Managed Pool Accounts Fidelity Investments158 3,808,474.33SYS158 10.01007/01/2011 3,808,474.33 0.009 0.0103,808,474.33 Local Agency Investment Fund159 29,711,359.75SYS159 10.42007/01/2011 29,729,027.49 0.414 0.42029,711,359.75 Subtotal and Average 33,519,834.08 33,519,834.08 33,537,501.82 0.368 0.373 1 Negotiable CD's Comenity Capital Bank1183 NCD 245,000.0020033ABE5 05/03/2018 8531.00005/03/2013 243,679.45 0.986 1.000245,000.00 American Federal Bank1476 NCD 245,000.0002600ADE4 09/30/2022 2,4642.45009/30/2015 244,747.65 2.418 2.451245,000.00 American Eagle Bank1371 NCD 245,000.0002554BCE9 05/28/2019 1,2431.85008/26/2014 243,863.20 1.825 1.850245,000.00 American National Bank1443 NCD 245,000.0002771PMG9 10/27/2021 2,1262.05002/27/2015 238,713.30 2.022 2.050245,000.00 American Express Centurion Bk1178 NCD 245,000.0002587DMV7 05/02/2018 8521.10005/02/2013 243,694.15 1.084 1.100245,000.00 American Express Centurion Bk1333 NCD 245,000.0002587CAC4 07/10/2019 1,2861.95007/10/2014 244,446.30 1.923 1.950245,000.00 Barclays Bank / Delaware1187 NCD 245,000.0006740AZB8 04/30/2018 8500.70005/07/2013 245,903.32 0.690 0.699245,000.00 Bankers Bank of the West1421 NCD 245,000.0006610TDB8 12/30/2019 1,4591.85012/29/2014 243,975.90 1.824 1.850245,000.00 Compass Bank1231 NCD 245,000.0020451PAW6 07/10/2018 9211.65007/10/2013 243,326.65 1.627 1.650245,000.00 Belmont Savings Bank1280 NCD 245,000.00080515AT6 11/13/2018 1,0471.55005/13/2014 244,539.40 1.528 1.550245,000.00 Bar Harbor Bank & Trust1377 NCD 245,000.00066851SG2 08/27/2019 1,3341.75008/27/2014 244,083.70 1.726 1.750245,000.00 Bank Champaign1477 NCD 245,000.0006607ABD2 09/30/2022 2,4642.50009/30/2015 242,285.40 2.467 2.501245,000.00 Bank of Deerfield1396 NCD 245,000.00061785CM1 09/30/2020 1,7342.20009/30/2014 243,902.40 2.171 2.201245,000.00 Bank of Holland Michigan1302 NCD 245,000.00062649ZV3 05/21/2019 1,2361.70005/21/2014 244,791.75 1.677 1.701245,000.00 Frontier Bank Madison NE1498 NCD 245,000.00QJ6048350 11/22/2021 2,1522.00011/20/2015 243,221.30 1.974 2.001245,000.00 Bank West1472 NCD 245,000.00063615AX6 09/16/2022 2,4502.25009/16/2015 244,899.55 2.220 2.251245,000.00 BankNewport Bank1416 NCD 245,000.0006647JAB0 11/27/2019 1,4261.85012/04/2014 242,042.85 1.825 1.851245,000.00 BMW Bank of North America1202 NCD 245,000.0005568P3E5 05/24/2017 5090.90005/24/2013 245,242.55 0.887 0.900245,000.00 BankWest, Inc.1376 NCD 100,000.0006652CDG3 05/18/2022 2,3292.25008/19/2014 97,876.00 2.465 2.49998,559.30 BankWest, Inc.1380 NCD 150,000.0006652CEY3 09/16/2019 1,3541.90009/15/2014 149,398.50 1.873 1.900150,000.00 Bofi Federal Bank1381 NCD 50,000.0009710LAF2 08/30/2022 2,4332.25008/25/2014 48,767.00 2.493 2.52749,168.77 Bofi Federal Bank1382 NCD 100,000.0009710LAE5 08/08/2022 2,4112.35008/25/2014 98,184.00 2.592 2.62898,340.10 Bofi Federal Bank1402 NCD 100,000.0009710LAF2 08/30/2022 2,4332.25010/21/2014 97,534.00 2.462 2.49698,516.46 Banco Poplar North America1478 NCD 245,000.0005965GVP8 10/07/2020 1,7412.25010/07/2015 243,858.30 2.219 2.250245,000.00 Bridgewater Bank Bloom MN1393 NCD 245,000.00108622EA5 09/24/2019 1,3621.85009/24/2014 243,951.40 1.825 1.850245,000.00 American State Bank1354 NCD 245,000.00029733BD3 08/08/2019 1,3151.85008/08/2014 243,017.95 1.825 1.851245,000.00 Worlds Foremost Bank1387 NCD 200,000.00981571AT9 09/04/2019 1,3422.10009/04/2014 199,276.00 2.072 2.101200,000.00 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 2 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Negotiable CD's Campbell County Bank1307 NCD 245,000.00134204BZ8 05/30/2019 1,2451.65005/30/2014 244,811.35 1.628 1.650245,000.00 Cathay Bank1194 NCD 245,000.00149159HS7 04/30/2018 8501.00005/14/2013 243,760.30 0.987 1.000244,998.85 Celtic Bank1362 NCD 245,000.0015118RJW8 08/20/2019 1,3271.90008/20/2014 244,140.05 1.875 1.901245,000.00 Centrix Bank & Trust1220 NCD 245,000.0015640ABQ3 06/27/2018 9081.30006/27/2013 242,951.80 1.282 1.300245,000.00 CIT Bank1175 NCD 245,000.0017284CCN2 04/24/2018 8441.20004/24/2013 242,660.25 1.183 1.200245,000.00 Clinton Bank1341 NCD 245,000.00187337AA8 07/18/2019 1,2941.80007/18/2014 242,782.75 1.776 1.801245,000.00 Enerbank USA1246 NCD 245,000.0029266NYZ4 01/30/2020 1,4902.05001/30/2014 245,127.40 2.021 2.050245,000.00 Capital One Bank USA NA1384 NCD 250,000.00140420NR7 09/04/2019 1,3421.80009/04/2014 249,005.00 1.775 1.800250,000.00 Capital One Bank USA NA1457 NCD 245,000.0014042E5M8 08/12/2020 1,6852.30008/12/2015 244,750.10 2.268 2.300245,000.00 Commercial Bank1369 NCD 245,000.0020143PDB3 05/20/2019 1,2351.85008/19/2014 243,922.00 1.824 1.850245,000.00 Community State Bank, IA1471 NCD 245,000.0020404MAN1 09/12/2022 2,4462.25009/11/2015 244,924.05 2.224 2.255245,000.00 Discover Bank / Delaware1176 NCD 245,000.00254671NJ5 05/01/2018 8511.15005/01/2013 243,701.50 1.134 1.150245,000.00 East Boston Savings Bank1463 NCD 245,000.0027113PAL5 08/24/2020 1,6971.90008/24/2015 245,002.45 1.876 1.902245,000.00 Ever Bank1454 NCD 245,000.0029976DZK9 07/30/2020 1,6722.00007/30/2015 243,767.65 1.972 2.000245,000.00 Farmers & Merchants Bank1439 NCD 245,000.00308862DH1 08/19/2021 2,0572.15002/19/2015 240,509.15 2.120 2.150245,000.00 Farmer's and Merchants Bank1360 NCD 250,000.00308702BQ1 02/16/2021 1,8732.20008/15/2014 250,610.00 2.169 2.200250,000.00 First Bank of Highland1330 NCD 245,000.00319141BV8 07/03/2019 1,2791.85007/03/2014 242,601.45 1.824 1.850245,000.00 First Business Bank1250 NCD 245,000.0031938QF25 02/19/2020 1,5102.00002/19/2014 245,215.60 1.972 2.000245,000.00 First Choice Bank / NJ1297 NCD 245,000.00319464AR4 05/28/2019 1,2431.70005/28/2014 244,823.60 1.677 1.701245,000.00 Citizens Banking Company1385 NCD 245,000.00174414AR3 06/10/2019 1,2562.00009/10/2014 244,664.35 1.972 2.000245,000.00 State Bank of Fenton (MI)1283 NCD 245,000.00856188AU1 02/15/2019 1,1411.65005/15/2014 242,875.85 1.630 1.653245,000.00 1st Financial Bank1485 NCD 245,000.0032022RFD4 03/16/2022 2,2662.10010/19/2015 238,225.75 2.121 2.151244,288.24 Flushing Bank1413 NCD 245,000.0034387ABA6 12/10/2018 1,0741.80012/10/2014 243,559.40 1.776 1.801245,000.00 First General Bank1222 NCD 245,000.00320337AR9 07/03/2018 9141.30007/03/2013 242,897.90 1.282 1.300245,000.00 First American Bank1458 NCD 245,000.0031849SJP4 08/22/2022 2,4252.45008/21/2015 241,856.65 2.416 2.450245,000.00 First Eagle National Bank1400 NCD 245,000.0032008JAG8 10/15/2021 2,1142.45010/17/2014 247,254.00 2.416 2.449245,000.00 First National Bank of America1391 NCD 240,000.0032110YEF8 08/03/2022 2,4062.35009/09/2014 235,737.60 2.665 2.703234,996.19 The FNB of Mcgregor1480 NCD 245,000.0032112UBW0 09/30/2021 2,0992.00010/01/2015 244,174.35 1.972 1.999245,000.00 First Nat. Bank of Park Falls1473 NCD 245,000.0032114RAQ9 09/17/2021 2,0862.20009/17/2015 244,223.35 2.171 2.201245,000.00 First Premier Bank1255 NCD 245,000.0033610RNX7 03/08/2021 1,8932.50003/07/2014 247,636.20 2.465 2.500245,000.00 First Merchants Bank1351 NCD 245,000.0032082BDH9 08/06/2019 1,3131.90008/06/2014 244,331.15 1.873 1.900245,000.00 First Neighbor Bank, NA1469 NCD 245,000.0033581VAF6 09/03/2021 2,0722.40009/03/2015 244,980.40 2.367 2.400245,000.00 First Savings Bank Northwest1335 NCD 245,000.0033621JAB4 07/18/2019 1,2941.80007/18/2014 242,787.65 1.776 1.801245,000.00 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 3 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Negotiable CD's First State Bank1366 NCD 245,000.0033648RAT6 08/20/2019 1,3271.85008/20/2014 244,223.35 1.825 1.851245,000.00 First State Bank of Purdy1475 NCD 248,000.0033646TAE7 04/13/2022 2,2942.35009/25/2015 244,386.64 2.321 2.353247,976.22 First National Bank & Trust1468 NCD 245,000.0031904JAA8 08/19/2020 1,6921.90008/25/2015 240,411.15 1.873 1.899245,000.00 Fox Chase Bank1305 NCD 245,000.0035137QAV6 06/06/2019 1,2521.70006/06/2014 244,762.35 1.677 1.700245,000.00 Gulf Coast Bank & Trust1462 NCD 200,000.00402194ES9 05/20/2021 1,9662.00008/13/2015 196,942.00 1.972 1.999200,000.00 Gold Coast Bank1375 NCD 245,000.0038058KDA1 08/05/2019 1,3121.80009/04/2014 243,997.95 1.775 1.800245,000.00 GE Capital Bank1184 NCD 245,000.0036161TJR7 05/03/2018 8531.00005/03/2013 241,469.55 0.986 1.000245,000.00 GE Capital Bank1262 NCD 245,000.0036157PXV6 03/22/2021 1,9072.65003/21/2014 247,572.50 2.613 2.650245,000.00 Goldman Sachs Bank USA1177 NCD 245,000.0038147JEC2 05/01/2018 8511.15005/01/2013 242,319.70 1.134 1.150245,000.00 Grant County Bank1397 NCD 250,000.0038762PBA9 10/16/2020 1,7502.30010/17/2014 249,172.50 2.270 2.302250,000.00 Dubuque Bank & Trust1372 NCD 245,000.00263849BD2 08/21/2019 1,3281.90008/21/2014 244,132.70 1.873 1.900245,000.00 Investors Bank1460 NCD 245,000.0046176PEJ0 08/25/2020 1,6982.00008/25/2015 244,671.70 1.972 2.000245,000.00 Inst. for Sav in Newburyport1455 NCD 245,000.0045780PAN5 07/30/2021 2,0372.30007/31/2015 244,527.15 2.269 2.301245,000.00 Iowa State Bank1343 NCD 250,000.0046256YAB5 07/23/2019 1,2991.80007/23/2014 249,335.00 1.775 1.800250,000.00 JP Morgan Chase BAnk NA1200 NCD 245,000.0048124JD39 12/05/2018 1,0691.25006/05/2013 240,702.70 1.232 1.250245,000.00 Kansas State Bank Manhattan1327 NCD 245,000.00485382DX0 07/18/2019 1,2941.85007/18/2014 243,189.45 1.825 1.851245,000.00 Lakeside Bank1374 NCD 245,000.0051210SKC0 08/20/2019 1,3272.00008/20/2014 244,171.90 1.973 2.001245,000.00 LCA Bank Corporation1306 NCD 245,000.00501798FJ6 05/30/2019 1,2451.65005/30/2014 244,811.35 1.627 1.650245,000.00 Leader Bank1364 NCD 245,000.0052168UCN0 08/22/2019 1,3292.00008/22/2014 244,164.55 1.973 2.001245,000.00 Luana Savings Bank1367 NCD 245,000.00549103QA0 09/07/2021 2,0762.25009/05/2014 246,781.15 2.219 2.250245,000.00 Machias Savings Bank1358 NCD 245,000.00554479DN2 08/28/2019 1,3351.80008/28/2014 244,247.85 1.776 1.801245,000.00 Mascoma Savings Bank1319 NCD 248,000.0057461PAG1 01/15/2019 1,1101.80006/20/2014 248,347.20 1.627 1.650249,087.93 Medallion Bank - Salt Lake1238 NCD 245,000.0058403BJ31 01/10/2019 1,1051.85001/10/2014 245,298.90 1.825 1.850245,000.00 Merrick Bank1464 NCD 245,000.0059013JHE2 08/20/2020 1,6931.90008/20/2015 240,416.05 1.876 1.902245,000.00 Mifflinburg Bank & Trust Co.1321 NCD 132,000.00598580AB4 04/30/2019 1,2151.65006/20/2014 131,963.04 1.627 1.649132,000.00 Marlin Business Bank1483 NCD 245,000.0057116AKU1 10/21/2020 1,7551.75010/21/2015 243,748.05 1.727 1.751245,000.00 MutualOne Bank1407 NCD 250,000.0062847HAA7 11/21/2019 1,4201.85011/21/2014 249,280.00 1.825 1.850250,000.00 MY Safra Bank FSB1467 NCD 245,000.0055406JAL6 09/03/2020 1,7071.90009/03/2015 244,723.15 1.873 1.900245,000.00 NBT Bank1322 NCD 156,000.00628779FJ4 06/06/2019 1,2521.80006/20/2014 155,797.20 1.775 1.799156,000.00 NBT Bank1373 NCD 94,000.00628779FN5 08/20/2019 1,3272.10008/20/2014 93,671.00 2.071 2.10094,000.00 Customers Bank1388 NCD 250,000.0023204HCA4 09/10/2019 1,3482.10009/10/2014 248,962.50 2.071 2.100250,000.00 NCB Savings Bank1344 NCD 245,000.00628825JL6 07/25/2019 1,3011.80007/25/2014 244,835.85 1.775 1.800245,000.00 Nebraska State Bank & Trust1466 NCD 245,000.0063969ABL7 08/26/2022 2,4292.25008/26/2015 245,786.45 2.220 2.251245,000.00 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 4 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Negotiable CD's Lake Sunapee Bank FSB1309 NCD 245,000.00510868AG7 06/05/2019 1,2511.75006/05/2014 244,769.70 1.727 1.750245,000.00 Connectone Bank1355 NCD 245,000.0020786AAT2 08/13/2019 1,3201.85008/13/2014 244,108.20 1.824 1.850245,000.00 Bank of Northern Michigan1298 NCD 245,000.0006414TNW9 05/21/2020 1,6022.00005/21/2014 244,816.25 1.972 2.000245,000.00 Northfield Bank1365 NCD 245,000.0066612AAA6 08/12/2019 1,3191.85008/13/2014 244,277.25 1.824 1.850245,000.00 Northstar Bank1326 NCD 245,000.0066704MEG2 07/18/2019 1,2941.75007/18/2014 244,468.35 1.727 1.751245,000.00 Naqtional Bank of NY City1312 NCD 245,000.00634116CB1 06/18/2019 1,2641.65006/18/2014 244,598.20 1.627 1.650245,000.00 Orrstown Bank1465 NCD 245,000.00687377DR9 08/20/2020 1,6932.00008/20/2015 244,654.55 1.974 2.002245,000.00 Peoples United Bank1378 NCD 245,000.0071270QGB6 08/27/2019 1,3341.95008/27/2014 244,086.15 1.923 1.950245,000.00 People's Bank1415 NCD 250,000.00710665CE8 12/12/2019 1,4411.85012/12/2014 246,837.50 1.825 1.851250,000.00 Peapack-Gladstone Bank1275 NCD 245,000.00704692AK8 04/17/2019 1,2021.80004/17/2014 245,014.70 1.776 1.801245,000.00 Planters Bank1363 NCD 245,000.0072741PCU9 08/20/2021 2,0582.50008/20/2014 244,757.45 2.467 2.501245,000.00 Prime Alliance Bank1331 NCD 245,000.0074160NED8 07/11/2019 1,2871.70007/11/2014 244,434.05 1.677 1.701245,000.00 Park National Bank1395 NCD 250,000.00700654AV8 03/26/2019 1,1802.10009/26/2014 248,450.00 2.070 2.099250,000.00 Providence Bank1445 NCD 245,000.00743738BQ8 02/25/2022 2,2472.10002/26/2015 246,225.00 2.072 2.101245,000.00 Peoples State Bank, WI1304 NCD 245,000.00712515GY5 05/23/2019 1,2381.70005/23/2014 244,777.05 1.676 1.700245,000.00 Private Bank & Trust Co.1293 NCD 245,000.0074267GUN5 11/21/2018 1,0551.65005/21/2014 244,544.30 1.627 1.650245,000.00 Ohio Valley Bank1338 NCD 250,000.00677721CE0 07/23/2019 1,2991.80007/23/2014 249,420.00 1.776 1.801250,000.00 Safra National Bank1310 NCD 245,000.0078658QDG5 05/30/2019 1,2451.75005/30/2014 242,795.00 1.727 1.751245,000.00 Sallie Mae Bank1350 NCD 245,000.00795450SC0 07/30/2019 1,3062.05007/30/2014 244,382.60 2.021 2.050245,000.00 Sawyer Savings Bank1389 NCD 250,000.00805508AW8 03/18/2020 1,5382.00009/18/2014 247,525.00 1.973 2.000250,000.00 State Bank Definace1233 NCD 245,000.00855736CX0 07/19/2018 9301.65007/19/2013 245,428.75 1.628 1.650245,000.00 State Bank of India1390 NCD 245,000.00856284Z98 09/11/2019 1,3492.15009/11/2014 244,061.65 2.120 2.150245,000.00 State Bank of Texas1230 NCD 245,000.00856528CG7 07/17/2018 9281.60007/17/2013 244,269.90 1.578 1.600245,000.00 Security National Bank1499 NCD 245,000.008144114AC2 11/19/2021 2,1492.00011/19/2015 243,164.95 1.974 2.001245,000.00 First Source Bank1311 NCD 123,000.0033646CDU5 06/11/2019 1,2571.75006/11/2014 121,842.57 1.726 1.750123,000.00 First Source Bank1313 NCD 122,000.0033646CDU5 06/11/2019 1,2571.75006/11/2014 120,851.98 1.726 1.750122,000.00 Bell State Bank & Trust1223 NCD 245,000.0007815AAG2 06/28/2018 9091.30006/28/2013 242,890.55 1.282 1.300245,000.00 Sterns Bank NA1221 NCD 245,000.00857894NG0 06/28/2018 9091.30006/28/2013 242,942.00 1.282 1.300245,000.00 Sutton State Bank Ohio1484 NCD 245,000.00869478EU7 02/28/2022 2,2502.25010/19/2015 240,396.45 2.196 2.226245,000.00 Third Federal Savings and Loan1242 NCD 245,000.0088413QAF5 10/22/2018 1,0251.75001/22/2014 245,509.60 1.726 1.750245,000.00 Tioga State Bank1386 NCD 245,000.00887768BL2 09/12/2019 1,3501.85009/12/2014 242,723.95 1.825 1.850245,000.00 Thomasville Natl Bank1266 NCD 245,000.00884693BJ0 04/12/2021 1,9282.40004/11/2014 247,528.40 2.367 2.400245,000.00 Toyota Financial Savings Bank1320 NCD 100,000.0089235MFH9 03/21/2019 1,1751.85006/20/2014 99,627.00 1.816 1.841100,000.00 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 5 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Negotiable CD's Toyota Financial Savings Bank1370 NCD 150,000.0089235MGW5 04/17/2019 1,2021.90008/11/2014 149,556.00 1.874 1.900149,996.84 United Bankers' Bank1379 NCD 245,000.00909557EA4 04/29/2019 1,2141.80008/29/2014 243,681.90 1.776 1.800245,000.00 Valley Central Savings Bank1422 NCD 245,000.0091944RAF5 12/30/2019 1,4591.85012/29/2014 243,975.90 1.824 1.850245,000.00 Washington Trst Westerly1345 NCD 245,000.00940637GJ4 07/31/2019 1,3071.90007/31/2014 244,375.25 1.873 1.900245,000.00 Webster Bank NA1252 NCD 245,000.0094768NJM7 02/12/2019 1,1381.90002/12/2014 244,737.85 1.873 1.900245,000.00 Webster Five Cents Savings1412 NCD 250,000.0094789PBH6 12/17/2019 1,4462.00012/17/2014 248,170.00 1.973 2.001250,000.00 Northwest Bank1308 NCD 245,000.0066736AAK5 05/29/2019 1,2441.65005/29/2014 244,818.70 1.628 1.650245,000.00 Western State Bank1392 NCD 245,000.0095960NJA6 03/26/2020 1,5462.10009/26/2014 243,554.50 2.071 2.100245,000.00 Woodford State Bank1459 NCD 245,000.00979424AA6 07/29/2022 2,4012.35008/12/2015 245,200.90 2.317 2.349245,000.00 Zions First National Bank1417 NCD 250,000.0098970TU79 12/10/2019 1,4391.90012/08/2014 247,352.50 1.873 1.899250,000.00 Subtotal and Average 31,717,928.90 31,728,000.00 31,579,918.15 1.857 1.883 1,482 Medium Term Notes Apple, Inc.1342 MTN 2,000,000.00037833AQ3 05/06/2019 1,2212.10007/15/2014 2,023,380.00 1.982 2.0102,005,694.34 Apple, Inc.1461 MTN 750,000.00037833AX8 02/07/2020 1,4981.55008/13/2015 737,475.00 1.980 2.008736,584.31 Apple, Inc.1497 MTN 1,500,000.00037833BD1 05/06/2020 1,5872.00011/05/2015 1,498,440.00 1.854 1.8791,507,472.61 Johnson & Johnson1411 MTN 2,000,000.00478160BM5 12/05/2019 1,4341.87511/24/2014 2,006,680.00 1.874 1.9001,998,126.12 Johnson & Johnson1418 MTN 1,500,000.00478160BM5 12/05/2019 1,4341.87512/08/2014 1,505,010.00 1.824 1.8501,501,391.57 Microsoft Corporation1448 MTN 2,000,000.00594918AV0 02/12/2020 1,5031.85002/12/2015 2,003,860.00 1.785 1.8102,003,091.84 Microsoft Corporation1496 MTN 2,000,000.00594918BG8 11/03/2020 1,7682.00011/05/2015 2,000,560.00 1.914 1.9402,005,425.58 Stanford University1336 MTN 300,000.00854403AC6 05/01/2019 1,2164.75007/10/2014 326,169.00 1.966 1.993326,156.05 Stanford University1347 MTN 150,000.00854403AC6 05/01/2019 1,2164.75007/24/2014 163,084.50 1.896 1.922163,441.82 Stanford University1349 MTN 225,000.00854403AC6 05/01/2019 1,2164.75007/25/2014 244,626.75 1.895 1.921245,174.48 Stanford University1419 MTN 105,000.00854403AC6 05/01/2019 1,2164.75012/11/2014 114,159.15 1.893 1.920114,453.99 Subtotal and Average 12,607,012.71 12,530,000.00 12,623,444.40 1.885 1.911 1,471 Federal Agency Issues - Coupon Federal Agricultural Mortgage1028 3,000,000.0031315PPC7 02/21/2019 1,1471.79002/21/2012 3,006,030.00 1.765 1.7903,000,000.00 Federal Agricultural Mortgage1031 2,000,000.0031315PQC6 09/06/2018 9791.55003/06/2012 2,009,360.00 1.528 1.5502,000,000.00 Federal Agricultural Mortgage1052 1,500,000.0031315PTW9 04/10/2019 1,1951.87004/10/2012 1,505,895.00 1.844 1.8701,500,000.00 Federal Agricultural Mortgage1055 1,500,000.0031315PTQ2 04/10/2017 4651.26004/10/2012 1,503,525.00 1.242 1.2601,500,000.00 Federal Agricultural Mortgage1090 2,000,000.0031315PZQ5 06/05/2017 5211.11006/05/2012 1,996,900.00 1.094 1.1102,000,000.00 Federal Agricultural Mortgage1096 2,000,000.0031315PZQ5 06/05/2017 5211.11006/20/2012 1,996,900.00 0.998 1.0122,002,718.30 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 6 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Federal Agency Issues - Coupon Federal Agricultural Mortgage1098 2,000,000.0031315PPK9 07/03/2017 5491.02007/03/2012 2,000,620.00 1.006 1.0202,000,000.00 Federal Agricultural Mortgage1109 2,000,000.0031315PSX8 08/23/2017 6001.03008/23/2012 1,998,480.00 1.015 1.0302,000,000.00 Federal Agricultural Mortgage1122 Call 1,000,000.0031315PNY1 11/21/2022 2,5162.19011/21/2012 1,003,650.00 2.163 2.193999,827.78 Federal Agricultural Mortgage1123 Call 1,500,000.0031315PQL6 11/29/2021 2,1592.00011/29/2012 1,507,950.00 1.972 2.0001,500,000.00 Federal Agricultural Mortgage1124 Call 1,750,000.0031315PNY1 11/21/2022 2,5162.19011/21/2012 1,756,387.50 2.166 2.1961,749,397.22 Federal Agricultural Mortgage1130 1,500,000.0031315PPX1 07/05/2022 2,3772.20012/13/2012 1,479,120.00 1.930 1.9571,521,542.40 Federal Agricultural Mortgage1134 750,000.0031315PB32 11/21/2022 2,5162.00012/19/2012 731,340.00 2.081 2.110744,891.77 Federal Agricultural Mortgage1136 1,500,000.0031315PTY5 12/27/2019 1,4561.48012/27/2012 1,492,920.00 1.395 1.4151,503,684.02 Federal Agricultural Mortgage1137 1,500,000.0031315PUE7 12/27/2022 2,5522.18001/04/2013 1,483,410.00 2.165 2.1961,498,496.91 Federal Agricultural Mortgage1138 740,000.0031315PEY1 12/30/2019 1,4594.50001/04/2013 808,679.40 1.514 1.535822,844.08 Federal Agricultural Mortgage1139 500,000.0031315PWN5 06/01/2021 1,9783.84001/04/2013 532,280.00 1.946 1.973546,372.89 Federal Agricultural Mortgage1141 1,500,000.0031315PUE7 12/27/2022 2,5522.18001/08/2013 1,483,410.00 2.195 2.2251,495,730.72 Federal Agricultural Mortgage1142 1,200,000.0031315PTW9 04/10/2019 1,1951.87001/09/2013 1,204,716.00 1.400 1.4201,216,860.07 Federal Agricultural Mortgage1143 451,000.0031315PPC7 02/21/2019 1,1471.79001/09/2013 451,906.51 1.372 1.392456,381.66 Federal Agricultural Mortgage1144 1,500,000.0031315PUE7 12/27/2022 2,5522.18001/23/2013 1,483,410.00 2.111 2.1411,503,653.62 Federal Agricultural Mortgage1147 2,595,000.0031315PUE7 12/27/2022 2,5522.18001/28/2013 2,566,299.30 2.199 2.2292,586,895.89 Federal Agricultural Mortgage1152 2,000,000.0031315PPF0 01/30/2019 1,1251.32002/11/2013 1,981,480.00 1.220 1.2372,004,912.83 Federal Agricultural Mortgage1155 1,500,000.0031315PPF0 01/30/2019 1,1251.32002/21/2013 1,486,110.00 1.262 1.2801,501,766.93 Federal Agricultural Mortgage1160 1,500,000.0031315PQM4 03/06/2018 7950.94003/07/2013 1,492,740.00 0.925 0.9371,500,063.75 Federal Agricultural Mortgage1163 1,500,000.0031315PQM4 03/06/2018 7950.94003/08/2013 1,492,740.00 0.987 1.0011,498,048.41 Federal Agricultural Mortgage1179 1,500,000.0031315PXM6 05/02/2018 8520.85005/02/2013 1,487,535.00 0.864 0.8771,499,076.30 Federal Agricultural Mortgage1186 1,450,000.0031315PXH7 01/09/2019 1,1042.10005/01/2013 1,476,390.00 1.055 1.0701,493,669.02 Federal Agricultural Mortgage1199 1,500,000.0031315PZZ5 03/09/2018 7980.77005/15/2013 1,481,085.00 0.961 0.9751,493,435.61 Federal Agricultural Mortgage1209 1,500,000.0031315PZZ5 03/09/2018 7980.77005/30/2013 1,481,085.00 1.151 1.1671,487,358.31 Federal Agricultural Mortgage1224 1,500,000.0031315PC98 06/12/2018 8931.18006/21/2013 1,494,870.00 1.549 1.5701,486,244.89 Federal Agricultural Mortgage1225 1,500,000.0031315PC98 06/12/2018 8931.18006/21/2013 1,494,870.00 1.575 1.5971,485,316.67 Federal Agricultural Mortgage1226 1,500,000.0031315PC98 06/12/2018 8931.18006/25/2013 1,494,870.00 1.783 1.8081,478,044.76 Federal Agricultural Mortgage1243 1,500,000.0031315PQT9 03/06/2020 1,5261.41001/15/2014 1,471,410.00 2.462 2.4961,437,175.95 Federal Agricultural Mortgage1244 1,500,000.0031315P3G2 09/09/2020 1,7132.80001/15/2014 1,556,490.00 2.635 2.6721,508,175.59 Federal Agricultural Mortgage1256 1,500,000.0031315PXH7 01/09/2019 1,1042.10003/05/2014 1,527,300.00 1.702 1.7261,516,179.63 Federal Agricultural Mortgage1257 300,000.0031315PTU3 03/09/2021 1,8944.16003/06/2014 321,447.00 2.574 2.609321,921.79 Federal Agricultural Mortgage1258 1,500,000.0031315P6P9 03/05/2024 2,9863.40003/07/2014 1,560,285.00 3.325 3.3721,502,884.27 Federal Agricultural Mortgage1259 1,500,000.0031315P6P9 03/05/2024 2,9863.40003/10/2014 1,560,285.00 3.424 3.4711,492,629.76 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 7 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Federal Agency Issues - Coupon Federal Agricultural Mortgage1264 1,500,000.0031315PK40 03/26/2021 1,9112.50003/26/2014 1,529,055.00 2.495 2.5301,497,812.05 Federal Agricultural Mortgage1265 1,800,000.0031315PJ67 02/28/2019 1,1541.70003/28/2014 1,802,502.00 1.784 1.8091,794,085.67 Federal Agricultural Mortgage1271 1,000,000.0031315P4B2 01/30/2024 2,9513.46004/09/2014 1,054,920.00 3.297 3.3431,007,933.64 Federal Agricultural Mortgage1279 1,250,000.0031315PPX1 07/05/2022 2,3772.20004/23/2014 1,232,600.00 2.889 2.9301,197,504.82 Federal Agricultural Mortgage1399 500,000.0031315PVF3 04/03/2020 1,5541.47510/15/2014 490,195.00 1.857 1.882491,787.30 Federal Agricultural Mortgage1406 Call 1,500,000.0031315PA58 11/20/2019 1,4191.31011/07/2014 1,483,200.00 1.854 1.8801,468,435.69 Federal Agricultural Mortgage1408 2,000,000.0031315PM22 11/20/2019 1,4191.84011/20/2014 2,020,860.00 1.814 1.8402,000,000.00 Federal Agricultural Mortgage1410 1,500,000.0031315PM22 11/20/2019 1,4191.84011/20/2014 1,515,645.00 1.848 1.8731,498,134.67 Federal Agricultural Mortgage1423 1,500,000.0031315PZ85 12/23/2019 1,4521.85012/23/2014 1,513,245.00 1.851 1.8761,498,484.47 Federal Agricultural Mortgage1427 675,000.0031315P2C2 05/05/2021 1,9512.51001/09/2015 686,002.50 2.110 2.140687,410.69 Federal Agricultural Mortgage1428 404,000.0031315PL23 03/27/2024 3,0083.33001/09/2015 431,718.44 2.540 2.575426,210.14 Federal Agricultural Mortgage1430 Call 500,000.0031315PC23 01/24/2023 2,5802.30001/21/2015 490,020.00 2.605 2.641489,194.68 Federal Agricultural Mortgage1433 1,604,000.0031315PD89 06/12/2023 2,7192.61001/22/2015 1,600,808.04 2.269 2.3011,637,374.50 Federal Agricultural Mortgage1447 1,450,000.0031315PD89 06/12/2023 2,7192.61002/09/2015 1,447,114.50 2.377 2.4101,469,430.78 Federal Agricultural Mortgage1452 1,000,000.003130H0AJ2 03/01/2022 2,2512.15003/05/2015 986,140.00 2.120 2.1501,000,000.00 Federal Agricultural Mortgage1470 Call 2,000,000.003132X0BX8 09/08/2025 3,5383.23009/08/2015 2,005,360.00 3.185 3.2302,000,000.00 Federal Agricultural Mortgage1488 Call 2,000,000.0031315PC23 01/24/2023 2,5802.30010/23/2015 1,960,080.00 2.398 2.4321,982,955.76 Federal Agricultural Mortgage1493 Call 1,000,000.003132X0CV1 10/28/2025 3,5882.98010/28/2015 984,490.00 2.956 2.997998,526.25 Federal Agricultural Mortgage1495 Call 1,500,000.003132X0CV1 10/28/2025 3,5882.98010/30/2015 1,476,735.00 2.985 3.0261,494,101.72 Federal Agricultural Mortgage1504 Call 1,500,000.003132X0BN0 07/15/2025 3,4833.20011/16/2015 1,508,400.00 3.047 3.0901,513,473.44 Federal Agricultural Mortgage839 1,500,000.0031315PEY1 12/30/2019 1,4594.50012/30/2009 1,639,215.00 4.438 4.5001,500,000.00 Federal Agricultural Mortgage840 2,000,000.0031315PGE3 01/19/2017 3844.12501/19/2010 2,057,460.00 4.068 4.1252,000,000.00 Federal Agricultural Mortgage866 1,000,000.0031315PAT6 05/17/2017 5023.75005/17/2010 1,034,050.00 3.698 3.7501,000,000.00 Federal Agricultural Mortgage923 1,500,000.0031315PNM7 12/28/2017 7273.15012/28/2010 1,555,665.00 3.106 3.1501,500,000.00 Federal Agricultural Mortgage936 1,500,000.0031315PRG6 01/31/2016 302.44002/03/2011 1,502,580.00 2.406 2.4401,500,000.00 Federal Agricultural Mortgage942 1,500,000.0031315PTU3 03/09/2021 1,8944.16003/09/2011 1,607,235.00 4.103 4.1601,500,000.00 Federal Agricultural Mortgage951 1,500,000.0031315PUN7 04/29/2016 1192.41004/29/2011 1,510,710.00 2.376 2.4101,500,000.00 Federal Agricultural Mortgage975 1,000,000.0031315PA25 07/27/2016 2082.00007/27/2011 1,006,930.00 2.063 2.092999,502.17 Federal Farm Credit Bank1006 2,000,000.0031331KK90 10/26/2016 2991.35010/26/2011 2,012,400.00 1.331 1.3502,000,000.00 Federal Farm Credit Bank1032 950,000.003133EAGE2 03/07/2016 660.75003/07/2012 951,054.50 0.739 0.750950,000.00 Federal Farm Credit Bank1046 1,000,000.003133EAJU3 03/28/2016 871.05003/28/2012 1,001,530.00 1.035 1.0501,000,000.00 Federal Farm Credit Bank1092 1,500,000.003133EAUF3 06/14/2019 1,2601.50006/14/2012 1,495,020.00 1.479 1.5001,500,000.00 Federal Farm Credit Bank1205 575,000.0031331JQM8 06/04/2018 8853.40005/23/2013 600,219.50 1.045 1.060606,691.29 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 8 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Federal Agency Issues - Coupon Federal Farm Credit Bank1206 950,000.0031331YW63 06/12/2018 8934.90005/23/2013 1,032,004.00 1.045 1.0601,036,699.75 Federal Farm Credit Bank722 2,000,000.0031331YCJ7 10/30/2017 6684.90010/30/2007 2,141,720.00 4.832 4.9002,000,000.00 Federal Farm Credit Bank725 2,000,000.0031331YHQ6 12/15/2017 7144.62512/12/2007 2,133,280.00 4.561 4.6242,000,000.00 Federal Farm Credit Bank788 1,000,000.0031331GLT4 01/29/2016 283.75003/04/2009 1,002,310.00 3.698 3.7491,000,000.00 Federal Farm Credit Bank850 2,000,000.0031331JFZ1 03/08/2017 4323.37503/08/2010 2,058,240.00 3.328 3.3752,000,000.00 Federal Farm Credit Bank870 1,000,000.0031331JQB2 06/02/2017 5183.00006/02/2010 1,026,440.00 2.958 3.0001,000,000.00 Federal Farm Credit Bank872 2,000,000.0031331YEL0 11/15/2016 3195.00006/04/2010 2,070,700.00 3.027 3.0702,030,330.35 Federal Farm Credit Bank903 1,000,000.0031331JN90 09/29/2020 1,7332.87509/29/2010 1,040,300.00 2.835 2.8751,000,000.00 Federal Farm Credit Bank910 2,000,000.0031331JX32 10/28/2016 3011.70010/28/2010 2,015,140.00 1.676 1.7002,000,000.00 Federal Farm Credit Bank918 2,000,000.0031331J5F6 12/16/2020 1,8113.62512/16/2010 2,148,020.00 3.575 3.6252,000,000.00 Federal Farm Credit Bank925 1,500,000.0031331JX32 10/28/2016 3011.70001/04/2011 1,511,355.00 2.576 2.6111,489,590.40 Federal Farm Credit Bank932 3,000,000.0031331J2M4 11/22/2016 3261.87501/14/2011 3,028,110.00 2.483 2.5182,984,093.14 Federal Farm Credit Bank937 2,000,000.0031331KBX7 02/10/2017 4062.87502/10/2011 2,043,020.00 2.835 2.8752,000,000.00 Federal Farm Credit Bank959 1,500,000.0031331KQD5 06/27/2017 5432.30006/27/2011 1,525,485.00 2.268 2.3001,500,000.00 Federal Farm Credit Bank .1100 Call 1,500,000.003133EAZN1 07/24/2020 1,6661.84007/24/2012 1,481,610.00 1.814 1.8401,500,000.00 Federal Farm Credit Bank .1117 Call 1,500,000.003133EA3N6 07/09/2020 1,6511.72010/09/2012 1,500,060.00 1.696 1.7201,500,000.00 Federal Farm Credit Bank .1181 Call 1,500,000.003133EA4J4 10/11/2018 1,0141.15004/30/2013 1,481,895.00 1.137 1.1531,499,847.02 Federal Farm Credit Bank .1189 Call 1,500,000.003133ECMF8 04/24/2018 8440.98005/06/2013 1,484,025.00 0.986 1.0001,499,301.17 Federal Farm Credit Bank .1227 1,500,000.003133ECTM6 07/02/2018 9131.90007/02/2013 1,521,555.00 1.873 1.9001,500,000.00 Federal Farm Credit Bank .1241 500,000.003133ECRH9 06/06/2023 2,7132.45001/09/2014 498,945.00 3.383 3.430469,095.73 Federal Farm Credit Bank .1444 Call 1,000,000.003133EAVV7 06/27/2024 3,1002.70002/06/2015 981,800.00 2.713 2.750996,203.73 Federal Farm Credit Bank .1449 Call 1,500,000.003133EEQP8 11/19/2024 3,2452.93002/19/2015 1,493,115.00 2.890 2.9301,500,000.00 Federal Farm Credit Bank .1486 Call 650,000.003133ECHZ0 03/14/2022 2,2642.35010/19/2015 643,396.00 2.317 2.349650,000.00 Federal Farm Credit Bank .1491 Call 1,500,000.003133EFMS3 01/29/2024 2,9502.68010/29/2015 1,491,510.00 2.643 2.6801,500,000.00 Federal Farm Credit Bank .1492 Call 1,000,000.003133EFMS3 01/29/2024 2,9502.68010/29/2015 994,340.00 2.643 2.6801,000,000.00 Federal Farm Credit Bank .1500 Call 1,500,000.003133EEVP2 12/26/2024 3,2822.90011/09/2015 1,480,245.00 2.884 2.9241,497,047.46 Federal Farm Credit Bank .1503 Call 1,500,000.003133EEVP2 12/26/2024 3,2822.90011/16/2015 1,480,245.00 2.884 2.9241,497,041.16 Federal Farm Credit Bank .1505 Call 1,500,000.003133EFAV9 02/27/2024 2,9792.94011/17/2015 1,484,865.00 2.880 2.9201,500,000.00 Federal Farm Credit Bank .1506 Call 1,500,000.003133EE4B3 07/21/2025 3,4893.17011/18/2015 1,500,075.00 3.067 3.1101,507,333.33 Federal Farm Credit Bank .1511 Call 1,500,000.003133EFBU0 09/02/2025 3,5323.10012/16/2015 1,494,870.00 3.057 3.0991,500,000.00 Federal Farm Credit Bank .1512 Call 1,100,000.003133EFBU0 09/02/2025 3,5323.10012/24/2015 1,096,238.00 3.060 3.1021,099,725.55 Federal Home Loan Bank1012 2,000,000.00313376BR5 12/14/2018 1,0781.75012/16/2011 2,019,000.00 1.725 1.7492,000,000.00 Federal Home Loan Bank1017 2,000,000.00313376V36 01/25/2017 3901.00001/25/2012 2,001,020.00 0.986 1.0002,000,000.00 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 9 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Federal Agency Issues - Coupon Federal Home Loan Bank1021 2,000,000.00313376VN2 12/22/2016 3561.10001/30/2012 2,006,040.00 1.084 1.1002,000,000.00 Federal Home Loan Bank1027 2,000,000.003133787M7 02/27/2017 4231.05002/21/2012 2,004,120.00 1.035 1.0492,000,000.00 Federal Home Loan Bank1038 1,500,000.003133782N0 03/10/2017 4340.87503/08/2012 1,498,935.00 0.999 1.0131,497,596.70 Federal Home Loan Bank1039 1,500,000.003133782M2 03/08/2019 1,1621.50003/08/2012 1,499,025.00 1.574 1.5961,495,664.61 Federal Home Loan Bank1041 1,500,000.00313378LA7 02/25/2022 2,2472.33003/20/2012 1,505,685.00 2.298 2.3301,500,000.00 Federal Home Loan Bank1045 2,000,000.00313378QP9 03/28/2017 4521.26003/28/2012 2,008,780.00 1.242 1.2602,000,000.00 Federal Home Loan Bank1049 1,500,000.00313378VG3 05/22/2019 1,2371.85004/09/2012 1,513,875.00 1.824 1.8501,500,000.00 Federal Home Loan Bank1057 1,500,000.00313378ZW4 04/17/2017 4721.05004/17/2012 1,503,735.00 1.035 1.0501,500,000.00 Federal Home Loan Bank1058 1,500,000.003133792L2 10/20/2017 6581.23004/20/2012 1,503,405.00 1.213 1.2301,500,000.00 Federal Home Loan Bank1068 1,500,000.00313379BL2 12/29/2017 7281.25004/30/2012 1,500,000.00 1.232 1.2501,500,000.00 Federal Home Loan Bank1070 1,500,000.00313379BG3 04/27/2017 4821.07004/27/2012 1,501,950.00 1.055 1.0701,500,000.00 Federal Home Loan Bank1073 2,000,000.00313379EC9 11/18/2020 1,7832.00005/18/2012 1,985,860.00 1.972 2.0002,000,000.00 Federal Home Loan Bank1089 2,000,000.00313379PD5 09/20/2017 6281.09006/07/2012 2,000,040.00 1.075 1.0902,000,000.00 Federal Home Loan Bank1101 Call 1,500,000.003133805L7 08/08/2022 2,4112.25008/08/2012 1,484,850.00 2.219 2.2501,500,000.00 Federal Home Loan Bank1104 Call 1,500,000.003133807E1 08/15/2022 2,4182.29008/15/2012 1,456,845.00 2.258 2.2901,500,000.00 Federal Home Loan Bank1105 Call 1,500,000.00313380E86 11/30/2018 1,0641.33008/30/2012 1,488,135.00 1.311 1.3301,500,000.00 Federal Home Loan Bank1116 Call 1,500,000.00313380WT0 10/11/2022 2,4752.25010/11/2012 1,473,750.00 2.227 2.2581,499,237.50 Federal Home Loan Bank1121 Call 2,000,000.00313381AY1 11/21/2022 2,5162.25011/21/2012 1,955,800.00 2.224 2.2551,999,311.11 Federal Home Loan Bank1125 1,500,000.00313381C94 12/13/2019 1,4421.25011/30/2012 1,473,600.00 1.196 1.2121,502,107.99 Federal Home Loan Bank1126 Call 1,500,000.00313381DA0 12/05/2022 2,5302.19012/05/2012 1,466,790.00 2.165 2.1951,499,480.42 Federal Home Loan Bank1127 1,500,000.00313381GB5 11/30/2018 1,0641.00011/30/2012 1,480,695.00 0.986 1.0001,500,000.00 Federal Home Loan Bank1128 Call 2,000,000.00313381HW8 12/19/2022 2,5442.19012/19/2012 1,964,400.00 2.168 2.1981,998,955.00 Federal Home Loan Bank1129 Call 1,500,000.00313381HW8 12/19/2022 2,5442.19012/19/2012 1,473,300.00 2.176 2.2061,498,432.50 Federal Home Loan Bank1131 1,500,000.00313381C94 12/13/2019 1,4421.25012/13/2012 1,473,600.00 1.232 1.2491,500,000.00 Federal Home Loan Bank1135 1,500,000.00313376BR5 12/14/2018 1,0781.75012/19/2012 1,514,250.00 1.075 1.0901,528,223.76 Federal Home Loan Bank1140 1,500,000.00313376BR5 12/14/2018 1,0781.75001/08/2013 1,514,250.00 1.117 1.1321,526,365.98 Federal Home Loan Bank1146 Call 425,000.00313381DA0 12/05/2022 2,5302.19001/25/2013 415,590.50 2.201 2.232423,880.33 Federal Home Loan Bank1154 1,500,000.003133XRFZ8 06/08/2018 8894.75002/21/2013 1,623,135.00 1.020 1.0351,631,751.43 Federal Home Loan Bank1156 1,315,000.003133XHRJ3 12/10/2021 2,1705.00002/25/2013 1,525,268.50 1.825 1.8501,541,115.92 Federal Home Loan Bank1157 2,000,000.003133XSR59 12/14/2018 1,0783.75002/25/2013 2,133,340.00 1.128 1.1442,148,440.39 Federal Home Loan Bank1168 530,000.003133XSR59 12/14/2018 1,0783.75003/11/2013 565,335.10 1.165 1.182568,736.12 Federal Home Loan Bank1182 Call 1,500,000.00313381C29 06/04/2018 8851.05004/30/2013 1,488,360.00 1.039 1.0541,499,857.20 Federal Home Loan Bank1185 Call 2,445,000.00313382LB7 03/28/2023 2,6432.45004/30/2013 2,445,122.25 2.415 2.4482,445,178.65 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 10 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Federal Agency Issues - Coupon Federal Home Loan Bank1204 Call 557,958.01313383EP2 06/20/2018 9011.25006/20/2013 555,296.55 1.232 1.250557,958.01 Federal Home Loan Bank1212 1,500,000.00313379DT3 06/08/2018 8891.25006/05/2013 1,498,815.00 1.222 1.2391,500,386.70 Federal Home Loan Bank1213 2,000,000.00313379DT3 06/08/2018 8891.25006/06/2013 1,998,420.00 1.191 1.2082,001,977.44 Federal Home Loan Bank1216 Call 1,500,000.00313382Y98 05/16/2018 8661.00006/12/2013 1,482,675.00 1.412 1.4321,485,179.68 Federal Home Loan Bank1217 Call 1,000,000.00313382FP3 03/20/2018 8091.00006/12/2013 992,670.00 1.372 1.391991,628.64 Federal Home Loan Bank1228 1,500,000.00313373UU4 06/08/2018 8892.75007/01/2013 1,550,775.00 1.605 1.6271,539,260.68 Federal Home Loan Bank1240 1,500,000.00313371U79 12/11/2020 1,8063.12501/09/2014 1,587,210.00 2.615 2.6511,531,842.86 Federal Home Loan Bank1248 1,500,000.003130A0J27 01/07/2020 1,4672.22001/23/2014 1,536,375.00 2.194 2.2251,499,706.62 Federal Home Loan Bank1253 1,500,000.003130A12B3 03/13/2020 1,5332.12502/24/2014 1,520,670.00 2.095 2.1241,500,000.00 Federal Home Loan Bank1261 1,500,000.00313382K69 03/12/2021 1,8971.75003/13/2014 1,480,350.00 2.418 2.4511,450,008.87 Federal Home Loan Bank1267 1,500,000.00313370US5 09/11/2020 1,7152.87504/02/2014 1,567,500.00 2.271 2.3031,537,221.54 Federal Home Loan Bank1270 200,000.00313379EC9 11/18/2020 1,7832.00004/08/2014 198,586.00 2.263 2.295197,340.88 Federal Home Loan Bank1272 550,000.00313379EC9 11/18/2020 1,7832.00004/09/2014 546,111.50 2.263 2.295542,684.34 Federal Home Loan Bank1278 325,000.003133XTYY6 06/14/2019 1,2604.37504/22/2014 355,342.00 1.889 1.916351,153.25 Federal Home Loan Bank1314 1,500,000.00313379EE5 06/14/2019 1,2601.62506/04/2014 1,504,800.00 1.700 1.7241,495,086.37 Federal Home Loan Bank1318 1,500,000.00313379EE5 06/14/2019 1,2601.62506/16/2014 1,504,800.00 1.774 1.7991,491,417.67 Federal Home Loan Bank1324 Call 1,250,000.003133836A4 05/22/2019 1,2370.80006/24/2014 1,221,775.00 1.766 1.7911,209,858.24 Federal Home Loan Bank1332 1,500,000.003130A2FH4 06/14/2019 1,2601.75007/02/2014 1,509,660.00 1.686 1.7101,501,967.04 Federal Home Loan Bank1353 Call 335,000.00313380WT0 10/11/2022 2,4752.25007/25/2014 329,137.50 2.801 2.840323,109.54 Federal Home Loan Bank1451 Call 1,500,000.003130A4F49 03/11/2025 3,3573.00003/11/2015 1,500,090.00 2.958 3.0001,500,000.00 Federal Home Loan Bank1453 Call 600,000.00313381HW8 12/19/2022 2,5442.19007/22/2015 589,320.00 2.505 2.540586,729.32 Federal Home Loan Bank1474 Call 700,000.003133824Y6 02/28/2025 3,3462.00009/04/2015 677,971.00 3.471 3.520689,488.04 Federal Home Loan Bank1490 Call 1,500,000.003130A6KZ9 10/08/2024 3,2032.80010/22/2015 1,494,615.00 2.792 2.8311,496,330.21 Federal Home Loan Bank1501 Call 1,500,000.003130A3VN1 01/21/2025 3,3083.00011/10/2015 1,498,365.00 2.992 3.0341,495,938.54 Federal Home Loan Bank1507 Call 2,000,000.003130A6SB4 11/26/2025 3,6172.25011/30/2015 1,989,280.00 3.101 3.1451,999,008.62 Federal Home Loan Bank1510 Call 1,500,000.003130A3DT8 10/29/2024 3,2243.08012/16/2015 1,494,465.00 3.040 3.0821,499,626.76 Federal Home Loan Bank822 3,000,000.003133XUMS9 09/13/2019 1,3514.50008/12/2009 3,301,260.00 4.437 4.4993,000,000.00 Federal Home Loan Bank832 3,000,000.003133XVRJ2 12/09/2016 3433.50011/19/2009 3,073,560.00 3.325 3.3723,003,173.43 Federal Home Loan Bank833 1,200,000.003133MJQF0 08/15/2016 2275.50011/19/2009 1,235,328.00 3.304 3.3501,214,257.70 Federal Home Loan Bank859 1,500,000.003133XEUG2 03/11/2016 704.87504/26/2010 1,512,675.00 3.227 3.2721,504,220.35 Federal Home Loan Bank860 1,500,000.003133XHVS8 12/09/2016 3435.00004/26/2010 1,558,635.00 3.430 3.4781,518,990.69 Federal Home Loan Bank911 1,500,000.00313371PV2 12/09/2016 3431.62511/09/2010 1,511,100.00 1.602 1.6241,500,000.00 Federal Home Loan Bank920 1,500,000.00313371PV2 12/09/2016 3431.62512/15/2010 1,511,100.00 2.550 2.5851,487,532.13 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 11 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Federal Agency Issues - Coupon Federal Home Loan Bank924 1,500,000.003133MJQF0 08/15/2016 2275.50001/04/2011 1,544,160.00 2.516 2.5501,525,488.45 Federal Home Loan Bank926 1,500,000.00313371PV2 12/09/2016 3431.62501/04/2011 1,511,100.00 2.592 2.6291,486,981.19 Federal Home Loan Bank931 3,000,000.003133XFPR1 06/10/2016 1615.37501/14/2011 3,065,160.00 2.363 2.3963,036,809.40 Federal Home Loan Bank938 1,500,000.00313372Q56 02/26/2016 562.65002/18/2011 1,505,160.00 2.613 2.6491,500,000.00 Federal Home Loan Bank940 2,000,000.003133X0PF0 08/15/2018 9575.37502/17/2011 2,204,960.00 3.423 3.4702,087,262.27 Federal Home Loan Bank982 2,000,000.00313375KP1 03/15/2017 4391.50009/15/2011 2,017,860.00 1.479 1.5002,000,000.00 Federal Home Loan Bank985 2,000,000.00313375M87 10/14/2016 2871.27009/14/2011 2,003,200.00 1.252 1.2702,000,000.00 Federal Home Loan Bank990 2,000,000.00313370TW8 09/09/2016 2522.00009/13/2011 2,016,800.00 1.163 1.1802,010,939.06 Federal Home Loan Bank992 2,000,000.00313371ZX7 12/08/2017 7072.62509/13/2011 2,053,840.00 1.526 1.5472,039,603.26 Fed. Home Loan Mortgage Corp.1036 1,500,000.003137EABA6 11/17/2017 6865.12503/01/2012 1,610,790.00 1.227 1.2441,605,167.98 Fed. Home Loan Mortgage Corp.1106 1,500,000.003134G3A91 08/22/2019 1,3291.40008/22/2012 1,481,040.00 1.380 1.4001,500,000.00 Fed. Home Loan Mortgage Corp.1113 1,500,000.003134G3L73 12/26/2019 1,4551.50009/26/2012 1,485,450.00 1.479 1.5001,500,000.00 Fed. Home Loan Mortgage Corp.1153 1,500,000.003137EADP1 03/07/2018 7960.87502/11/2013 1,489,470.00 0.960 0.9731,496,864.61 Fed. Home Loan Mortgage Corp.1162 Call 1,500,000.003134G36X3 03/28/2018 8171.12503/28/2013 1,494,090.00 1.109 1.1251,500,000.00 Fed. Home Loan Mortgage Corp.1166 1,500,000.003137EADN6 01/12/2018 7420.75003/15/2013 1,487,925.00 0.948 0.9621,493,703.80 Fed. Home Loan Mortgage Corp.1180 Call 2,000,000.003134G44L9 05/22/2023 2,6982.40005/22/2013 1,957,980.00 2.367 2.4002,000,000.00 Fed. Home Loan Mortgage Corp.1203 Call 1,500,000.003134G46D5 06/12/2018 8931.20006/12/2013 1,492,875.00 1.183 1.2001,500,000.00 Fed. Home Loan Mortgage Corp.1273 2,000,000.003134G45T1 12/10/2021 2,1702.00004/10/2014 1,989,960.00 2.564 2.6001,935,706.00 Fed. Home Loan Mortgage Corp.1277 1,000,000.003134G45T1 12/10/2021 2,1702.00004/22/2014 994,980.00 2.643 2.680963,665.02 Fed. Home Loan Mortgage Corp.1282 300,000.003134G3A91 08/22/2019 1,3291.40005/01/2014 296,208.00 1.914 1.941294,402.01 Fed. Home Loan Mortgage Corp.1286 300,000.003134G35V8 03/13/2020 1,5331.65005/02/2014 298,875.00 2.053 2.082294,894.58 Fed. Home Loan Mortgage Corp.1287 300,000.003134G3U40 11/21/2019 1,4201.45005/02/2014 296,622.00 1.938 1.965294,327.16 Fed. Home Loan Mortgage Corp.1291 1,000,000.003134G3K58 03/19/2020 1,5391.50005/06/2014 990,670.00 2.041 2.070977,470.67 Fed. Home Loan Mortgage Corp.1292 Call 1,000,000.003134G44G0 05/22/2020 1,6031.50005/06/2014 985,140.00 2.091 2.120974,563.05 Fed. Home Loan Mortgage Corp.1301 1,000,000.003134G3L73 12/26/2019 1,4551.50005/13/2014 990,300.00 1.945 1.972982,266.44 Fed. Home Loan Mortgage Corp.1352 Call 1,000,000.003134G43G1 05/07/2019 1,2221.20007/25/2014 980,680.00 1.765 1.790981,133.64 Fed. Home Loan Mortgage Corp.927 1,500,000.003134A4ZT4 01/19/2016 184.75001/04/2011 1,502,805.00 2.215 2.2451,501,766.08 Fed. Home Loan Mortgage Corp.993 2,000,000.003137EAAY5 08/23/2017 6005.50009/13/2011 2,140,680.00 1.415 1.4352,127,706.02 Federal National Mortgage Asso1022 2,000,000.0031398ADM1 06/12/2017 5285.37501/25/2012 2,124,160.00 1.317 1.3362,112,430.56 Federal National Mortgage Asso1023 2,590,000.003136FPXN2 11/24/2017 6932.30001/25/2012 2,646,513.80 1.406 1.4262,631,059.66 Federal National Mortgage Asso1033 3,000,000.003135G0JA2 04/27/2017 4821.12503/01/2012 3,004,950.00 1.134 1.1502,999,038.25 Federal National Mortgage Asso1034 1,500,000.003135G0AL7 03/15/2016 742.25003/01/2012 1,505,355.00 0.856 0.8681,504,178.15 Federal National Mortgage Asso1035 2,000,000.0031398ALG5 01/23/2018 7534.37703/01/2012 2,125,760.00 1.388 1.4082,117,034.59 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 12 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Federal Agency Issues - Coupon Federal National Mortgage Asso1048 2,000,000.003136G0AW1 10/16/2020 1,7502.35004/16/2012 2,033,860.00 2.317 2.3502,000,000.00 Federal National Mortgage Asso1059 2,000,000.003136G0DU2 04/30/2020 1,5812.00004/30/2012 2,020,420.00 1.972 2.0002,000,000.00 Federal National Mortgage Asso1061 1,500,000.003136G0EC1 04/30/2020 1,5812.05004/30/2012 1,509,390.00 2.021 2.0501,500,000.00 Federal National Mortgage Asso1066 2,000,000.003136G0FJ5 10/30/2020 1,7642.00004/30/2012 2,007,620.00 1.972 2.0002,000,000.00 Federal National Mortgage Asso1082 450,000.003136FPYB7 05/23/2017 5082.05005/11/2012 456,484.50 1.070 1.085455,876.89 Federal National Mortgage Asso1099 Call 1,500,000.003136G0UB5 02/15/2018 7761.15008/15/2012 1,496,760.00 1.134 1.1501,500,000.00 Federal National Mortgage Asso1110 Call 475,000.003136G0YX3 09/13/2022 2,4472.50009/13/2012 477,052.00 2.465 2.500475,000.00 Federal National Mortgage Asso1111 Call 2,000,000.003136G0YT2 09/06/2022 2,4402.35009/06/2012 1,952,100.00 2.317 2.3502,000,000.00 Federal National Mortgage Asso1118 500,000.003136FPXN2 11/24/2017 6932.30010/18/2012 510,910.00 0.927 0.940512,567.14 Federal National Mortgage Asso1119 Call 1,500,000.003136G02Z3 11/15/2022 2,5102.25011/15/2012 1,461,660.00 2.235 2.2661,498,453.75 Federal National Mortgage Asso1120 Call 1,000,000.003135G0RC9 10/25/2022 2,4892.20010/25/2012 989,660.00 2.196 2.226998,364.00 Federal National Mortgage Asso1148 Call 2,000,000.003135G0UJ0 02/22/2023 2,6092.50002/22/2013 1,984,400.00 2.465 2.5002,000,000.00 Federal National Mortgage Asso1149 1,500,000.003135G0TG8 02/08/2018 7690.87501/31/2013 1,490,160.00 1.019 1.0341,495,123.70 Federal National Mortgage Asso1151 Call 1,500,000.003136G1DT3 03/06/2023 2,6212.55003/06/2013 1,499,970.00 2.515 2.5501,500,000.00 Federal National Mortgage Asso1159 Call 1,500,000.003135G0VL4 03/20/2018 8091.12503/20/2013 1,490,070.00 1.109 1.1251,500,000.00 Federal National Mortgage Asso1161 Call 2,000,000.003136G1FS3 03/20/2023 2,6352.50003/20/2013 1,965,100.00 2.465 2.5002,000,000.00 Federal National Mortgage Asso1164 Call 2,000,000.003135G0UK7 02/28/2018 7891.20003/15/2013 1,996,160.00 1.183 1.1992,000,000.00 Federal National Mortgage Asso1169 Call 1,500,000.003136G1JG5 04/17/2023 2,6632.50004/17/2013 1,489,770.00 2.471 2.5051,499,452.92 Federal National Mortgage Asso1173 Call 2,000,000.003135G0TN3 01/23/2023 2,5792.33004/11/2013 1,990,620.00 2.326 2.3581,996,391.25 Federal National Mortgage Asso1174 1,500,000.003135G0WJ8 05/21/2018 8710.87504/15/2013 1,485,945.00 0.905 0.9171,498,496.41 Federal National Mortgage Asso1188 Call 1,500,000.003135G0TN3 01/23/2023 2,5792.33005/06/2013 1,492,965.00 2.312 2.3441,498,637.05 Federal National Mortgage Asso1190 Call 1,000,000.003135G0XD0 05/21/2018 8711.00005/21/2013 990,940.00 0.996 1.010999,761.11 Federal National Mortgage Asso1191 Call 2,000,000.003135G0XA6 05/21/2018 8711.03005/21/2013 1,987,340.00 1.015 1.0302,000,000.00 Federal National Mortgage Asso1197 1,500,000.003135G0WJ8 05/21/2018 8710.87505/21/2013 1,485,945.00 0.986 1.0001,495,641.23 Federal National Mortgage Asso1210 Call 1,500,000.003135G0XK4 05/25/2018 8751.05005/30/2013 1,487,685.00 1.035 1.0501,500,000.00 Federal National Mortgage Asso1214 Call 1,500,000.003135G0XD0 05/21/2018 8711.00006/07/2013 1,486,410.00 1.262 1.2791,490,310.54 Federal National Mortgage Asso1268 1,500,000.003136FTR43 08/28/2020 1,7012.00004/08/2014 1,498,380.00 2.172 2.2021,486,864.72 Federal National Mortgage Asso1276 1,000,000.003136G0U58 04/30/2021 1,9461.75004/16/2014 982,570.00 2.364 2.397968,420.56 Federal National Mortgage Asso1288 Call 250,000.003136G0M57 04/09/2021 1,9251.75005/02/2014 246,090.00 2.452 2.486241,129.49 Federal National Mortgage Asso1290 1,000,000.003136G0Y70 01/30/2019 1,1251.08005/05/2014 989,280.00 1.633 1.656982,997.50 Federal National Mortgage Asso1315 1,200,000.003136G0YK1 08/28/2019 1,3351.50006/05/2014 1,192,224.00 1.815 1.8401,185,815.85 Federal National Mortgage Asso1317 Call 1,000,000.003136G02P5 04/29/2019 1,2141.20006/12/2014 987,830.00 1.765 1.790981,276.04 Federal National Mortgage Asso1429 Call 2,000,000.003136G0S93 04/30/2021 1,9461.80001/15/2015 2,001,920.00 2.081 2.1101,969,160.44 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 13 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Federal Agency Issues - Coupon Federal National Mortgage Asso1446 Call 1,000,000.003133EAXY9 07/16/2024 3,1192.62502/09/2015 979,900.00 2.761 2.800986,928.76 Federal National Mortgage Asso1487 Call 1,000,000.003135G0SG9 12/14/2022 2,5392.36010/20/2015 992,530.00 2.327 2.3591,000,000.00 Federal National Mortgage Asso1502 Call 1,000,000.003136G13X5 12/27/2023 2,9172.25011/10/2015 972,740.00 2.569 2.605974,462.85 Federal National Mortgage Asso928 1,500,000.0031359MS61 07/15/2016 1965.37501/04/2011 1,537,845.00 2.422 2.4551,521,936.81 Federal National Mortgage Asso988 2,000,000.003135G0AL7 03/15/2016 742.25009/13/2011 2,007,140.00 1.029 1.0442,004,830.53 Federal National Mortgage Asso991 2,000,000.0031359M4D2 02/13/2017 4095.00009/13/2011 2,090,420.00 1.272 1.2902,079,773.29 Tennessee Valley Authority1132 500,000.00880591EL2 02/15/2021 1,8723.87512/14/2012 545,770.00 1.596 1.618553,928.07 Tennessee Valley Authority1133 1,010,000.00880591EN8 08/15/2022 2,4181.87512/14/2012 984,790.40 1.893 1.9201,007,257.36 Tennessee Valley Authority1145 1,500,000.00880591EL2 02/15/2021 1,8723.87501/23/2013 1,637,310.00 1.647 1.6691,657,886.94 Tennessee Valley Authority1170 1,500,000.00880591EC2 04/01/2018 8214.50003/25/2013 1,606,935.00 0.913 0.9261,617,596.66 Tennessee Valley Authority1260 1,160,000.00880591EL2 02/15/2021 1,8723.87503/12/2014 1,266,186.40 2.427 2.4611,236,792.65 Tennessee Valley Authority1508 Call 1,000,000.00880591CJ9 11/01/2025 3,5926.75011/20/2015 1,318,180.00 2.807 2.8461,332,222.23 Tennessee Valley Authority861 2,000,000.00880591EA6 07/18/2017 5645.50004/26/2010 2,133,000.00 3.602 3.6522,049,808.90 Tennessee Valley Authority954 2,000,000.00880591CU4 12/15/2017 7146.25005/23/2011 2,192,840.00 2.624 2.6612,128,007.59 Subtotal and Average 371,184,615.22 369,111,958.01 372,997,668.19 2.028 2.056 1,403 Treasury Securities - Coupon U.S. Treasury1201 TB 2,000,000.00912828UJ7 01/31/2018 7610.87505/16/2013 1,990,000.00 0.779 0.7902,003,454.57 U.S. Treasury1237 TB 2,000,000.00912828SD3 01/31/2019 1,1261.25001/07/2014 1,993,280.00 1.682 1.7051,973,181.42 U.S. Treasury1284 TB 1,500,000.00912828TH3 07/31/2019 1,3070.87505/02/2014 1,466,130.00 1.726 1.7501,455,283.12 U.S. Treasury1285 TB 1,500,000.00912828TN0 08/31/2019 1,3381.00005/02/2014 1,470,405.00 1.755 1.7801,459,290.98 U.S. Treasury1289 TB 1,500,000.00912828SX9 05/31/2019 1,2461.12505/05/2014 1,483,245.00 1.692 1.7161,471,143.78 U.S. Treasury1299 TB 1,500,000.00912828SX9 05/31/2019 1,2461.12505/13/2014 1,483,245.00 1.654 1.6771,472,998.19 U.S. Treasury1316 TB 1,500,000.00912828TC4 06/30/2019 1,2761.00006/10/2014 1,475,220.00 1.687 1.7111,464,439.75 Subtotal and Average 11,299,791.81 11,500,000.00 11,361,525.00 1.536 1.557 1,162 Municipal Bonds Acalanes Union High School Dis1494 MUN 1,000,000.00004284B38 08/01/2021 2,0392.38110/30/2015 995,940.00 2.120 2.1501,012,054.18 Mtn. View-Whisman School Dist.1348 MUN 500,000.0062451FFK1 08/01/2021 2,0392.97307/24/2014 508,745.00 2.893 2.933505,623.55 Mt. San Antonio Community Coll1489 MUN 1,335,000.00623040GX4 08/01/2023 2,7694.10310/26/2015 1,445,871.75 2.490 2.5251,479,204.22 Palo Alto Unified School Dist.1192 MUN 2,000,000.00697379UE3 08/01/2021 2,0392.44105/10/2013 2,004,440.00 2.031 2.0602,038,923.81 Palo Alto Unified School Dist.1193 MUN 1,800,000.00697379UE3 08/01/2021 2,0392.44105/13/2013 1,803,996.00 2.031 2.0601,835,030.26 Palo Alto Unified School Dist.1195 MUN 1,990,000.00697379UE3 08/01/2021 2,0392.44105/15/2013 1,994,417.80 2.051 2.0802,026,670.26 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a December 31, 2015 Par Value Days To Maturity Maturity Date Current RateMarket Value Fund ALL - Portfolio Listings Investments by Fund Page 14 CUSIP Investment #Issuer PurchaseDate Book Value YTM 360 YTM 365 Municipal Bonds Palo Alto Unified School Dist.1437 MUN 200,000.00697379UE3 08/01/2021 2,0392.44101/27/2015 200,444.00 2.041 2.070203,855.36 City & County of San Francisco1441 MUN 360,000.00797646NL6 06/15/2022 2,3574.95002/09/2015 404,964.00 2.416 2.450412,863.89 City & County of San Francisco1509 MUN 1,000,000.00797646NC6 06/15/2025 3,4535.45011/27/2015 1,193,590.00 3.067 3.1101,190,140.83 San Jose Unified School Dist.1435 MUN 580,000.00798186C83 08/01/2023 2,7692.50001/29/2015 567,037.00 2.663 2.700572,186.42 State of Texas1482 MUN 920,000.00882723PP8 10/01/2021 2,1002.58910/14/2015 940,497.60 1.864 1.890954,806.08 University of California1340 MUN 1,875,000.0091412GSB2 07/01/2019 1,2771.79607/14/2014 1,876,256.25 2.007 2.0351,860,140.18 University of California1356 MUN 425,000.0091412GGU3 05/15/2020 1,5963.34807/31/2014 444,261.00 2.281 2.313442,895.38 University of California1368 MUN 250,000.0091412GGT6 05/15/2019 1,2303.04808/08/2014 258,960.00 1.982 2.010258,300.73 University of California1383 MUN 955,000.0091412GSB2 07/01/2019 1,2771.79608/27/2014 955,639.85 1.972 2.000948,514.32 University of California1414 MUN 750,000.0091412GSB2 07/01/2019 1,2771.79611/28/2014 750,502.50 1.923 1.950746,146.82 University of California1420 MUN 1,500,000.0091412GSB2 07/01/2019 1,2771.79612/12/2014 1,501,005.00 1.943 1.9701,491,293.78 University of California1481 MUN 260,000.0091412GQB4 05/15/2020 1,5961.99510/08/2015 259,682.80 1.824 1.850261,570.77 State of Vermont1456 MUN 2,000,000.00924258TT3 08/15/2023 2,7834.25008/06/2015 2,084,460.00 3.275 3.3202,123,437.26 West Valley-Mission Community1479 MUN 250,000.0095640HBT4 08/01/2024 3,1356.09010/01/2015 281,490.00 4.030 4.086285,760.92 Subtotal and Average 20,649,419.02 19,950,000.00 20,472,200.55 2.312 2.344 2,082 Total Investments and Average 480,978,601.74 478,339,792.09 482,572,258.11 1.898 1.924 1,335 Portfolio CPA AP Run Date: 01/18/2016 - 03:35 FI (PRF_FI) 7.1.1 Report Ver. 7.3.3a 1 General Investment Guidelines: a) The max. stated final maturity of individual securities in the portfolio should be 10 years.Full Compliance b) A max. of 30 percent of the par value of the portfolio shall be invested in securities with maturities beyond 5 years.28.6% c) The City shall maintain a minimum of one month's cash needs in short term investments.Full Compliance d) At least $50 million shall be maintained in securities maturing in less than 2 years. Plus two managed pool accounts which provide instant liquidity: - Local Agency Investment Fund (LAIF) - maximum investment limit is$50 million $29.7 million - Fidelity Investments e) Should market value of the portfolio fall below 95 percent of the book value, report this fact within a reasonable time to the City Council and evaluate if there are risk of holding securities to maturity.99.5% d) Commitments to purchase securities newly introduced on the market shall be made no more than three (3) working days before pricing.Full Compliance f) Whenever possible, the City will obtain three or more quotations on the purchase or sale of comparable securities (excludes new issues, LAIF, City of Palo Alto bonds, money market accounts, and mutual funds).Full Compliance 2 U.S. Government Securities:Full Compliance a) There is no limit on purchase of these securities. b) Securities will not exceed 10 years maturity. 3 U.S. Government Agency Securities:Full Compliance a) There is no limit on purchase of these securities except for: Callable and Multi-step-up securities provided that: - The potential call dates are known at the time of purchase;Full Compliance - the interest rates at which they "step-up" are known at the time of purchase; and Full Compliance - the entire face value of the security is redeemed at the call date.Full Compliance - No more than 25 percent of the par value of portfolio.22.3% b) Securities will not exceed 10 years maturity. 4 Bonds of the State of California Local Government Agencies Full Compliance a)Having at time of investment a minimum Double A (AA/AA2) rating as provided by a nationally 4.2% recognized rating service (e.g., Moody’s and/or Standard and Poor’s). b)May not exceed 10 percent of the par value of the portfolio. 5 Certificates of Deposit:Full Compliance a) May not exceed 20 percent of the par value of the portfolio; b) No more than 10 percent of the par value of the portfolio in collateralized CDs in any institution. c) Purchase collateralized deposits only from federally insured large banks that are rated by a nationally recognized rating agency (e.g. Moody's, Standard & Poor's, etc.). d) For non-rated banks, deposit should be limited to amounts federally insured (FDIC) e) Rollovers are not permitted without specific instruction from authorized City staff. 6 Banker's Acceptance Notes:None Held a) No more than 30 percent of the par value of the portfolio. b) Not to exceed 180 days maturity. c) No more than $5 million with any one institution. Attachment C Investment Policy Compliance As of December 31, 2015 Investment Policy Requirements Compliance Check $109.9 million $3.8 million 2.4% Attachment C Investment Policy Compliance As of December 31, 2015 Investment Policy Requirements Compliance Check 7 Commercial Paper:None Held a) No more than 15 percent of the par value of the portfolio. b) Having highest letter or numerical rating from a nationally recognized rating service. c) Not to exceed 270 days maturity. d) No more than $3 million or 10 percent of the outstanding commercial paper of any one institution, whichever is lesser. 8 Short-Term Repurchase Agreement (REPO):None Held a) Not to exceed 1 year. b) Market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities. 9 Money Market Deposit Accounts Full Compliance a) Liquid bank accounts which seek to maintain a net asset value of $1.00. 10 Mutual Funds:None Held a) No more than 20 percent of the par value of the portfolio. b) No more than 10 percent of the par value with any one institution. 11 Negotiable Certificates of Deposit (NCD):Full Compliance a) No more than 10 percent of the par value of the portfolio.6.6% b) No more than $5 million in any one institution.FDIC Insured 12 Medium-Term Corporate Notes:Full Compliance a) No more than 10 percent of the par value of the portfolio.2.6% b) Not to exceed 5 years maturity. c) Securities eligible for investment shall have a minimum rating of AA from a nationally recognized rating service. d) No more than $5 million of the par value may be invested in securities of any single issuer, other than the U.S. Government, its agencies and instrumentality. e) If securities owned by the City are downgraded by either rating agencies to a level below AA it shall be the City's policy to review the credit situation and make a determination as to whether to sell or retain such securities. 13 Prohibited Investments: a) Reverse Repurchase Agreements b) Derivatives as defined in Appendix B of the Investment Policy 14 All securities shall be delivered to the City's safekeeping custodian, and held in the name of the City, with the exception of : - Certificates of Deposit, Mutual Funds, and LAIF Full Compliance None Held Full Compliance