HomeMy WebLinkAboutStaff Report 14317
City of Palo Alto (ID # 14317)
City Council Staff Report
Meeting Date: 5/2/2022 Report Type: Special Orders of the Day
City of Palo Alto Page 1
Title: Approval of Fiscal Year 2021 Palo Alto Public Improvement
Corporation's Annual Financial Statement
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Board of Directors of the Palo Alto Public Improvement Corporation
(PIC) approve the Fiscal Year (FY) 2021 Annual Financial Report for the Palo Alto Public
Improvement Corporation.
Background
The PIC is a nonprofit corporation formed by the City in 1983, allowing the City to issue
Certificates of Participation (COPs) to fund capital improvements. The PIC, through a lease
structure, finances the acquisition, improvement, and construction of City facilities. The PIC
uses the lease payments by the City’s General Fund to pay the debt service on the COPs. On July
13, 1998, Council adopted a resolution establishing itself as the Board of Directors of the PIC.
The bylaws of the PIC require the Board of Directors of the Corporation to meet at least
annually and approve the annual financial report for the Corporation. Therefore, the City
Council is required to meet annually as the Board of the PIC.
In 1983 and 1998, the City of Palo Alto issued COPs to fund improvements to the Civic Center
and the Golf Course, respectively. In 2002, the Civic Center bonds were refinanced due to a
lower interest rate environment and COPs were issued to finance the construction of
commercial space adjacent to the new parking structure on Bryant/Florence Street. These
bonds (referred to as the Downtown Parking Improvement bonds or 2002B COP) were used to
build a two story above-ground structure of approximately 7,638 square feet which was leased
to a commercial tenant (Form Fitness Gym).
In fiscal year 2018, the City issued the 2018 Capital Improvement Project and Refinancing COPs
in the amount of $9 million to refinance the 2002B COPs ($0.6 million) and to finance
renovations for the Palo Alto Municipal Golf Course ($8.4 million). Fire Station 1 was used as
the leased property and collateral for these COPs since it had a market value closer to the COPs
issuance amount. Besides the net present value savings of $0.2 million or 6.47 percent on the
2002B refunded bonds, an added benefit was to substitute the Civic Center with Fire Station 1
City of Palo Alto Page 2
as the leased property/collateral. This provides flexibility to leverage the high value of the Civic
Center to finance future infrastructure COPs bond issuance (e.g. Public Safety building COPs).
In fiscal year 2019, the City issued the California Avenue Parking Garage Tax-exempt Series A
($26.8 million plus $4.9 million premium) and Taxable Series B ($10.6 million) COPs. These
bonds were issued to fund the construction of the new California Avenue parking garage.
Rinconada Library was used as collateral during the garage construction and, upon completion
of the garage, the newly build California Avenue Parking garage became the leased
property/collateral for these COPs. Since this garage is open, the substitute in collateral to the
garage is being done. To preserve greater operational flexibility to use this garage facility over
the life of the bonds (e.g. lease portion of the garage for private parking or other commercial
use), a portion of the bonds were issued as taxable bonds.
In fiscal year 2021, the City issued the 2021 Public Safety Building tax-exempt COPs ($101.5
million plus $6.5 million premium) for the construction of the City’s new public safety building.
The debt service is payable solely from and secured by the lease payments to be made by the
City’s General Fund to the Public Improvement Corporation pursuant to the Lease Agreement.
Civic Center was used as collateral during the building construction and, upon completion of the
building, the newly build Public Safety Building will become the leased property/collateral for
these COPs.
The reserve account requirement was waived on all the outstanding COPs due to the City being
a highly rated bond issuer. This resulted in additional interest savings and cost of bond issuance
amount.
Discussion
The attached financial statement shows the financial condition of the PIC. The debt service
payments have been made on time and all financial requirements have been met. At year-end,
June 30, 2021, total outstanding debt principal on the COPs equaled $146.5 million as follows:
COPs Description
Principal
Outstanding
(millions)
Fiscal Year Debt
will be Retired
2018 Capital Improvement (2002B
Refinance and Golf Course) $ 8.6 2048
2019 California Ave. Parking Garage $ 36.4 2049
2021 Public Safety Building $101.5 2051
Total COPs $146.5
Staff recommends that the Board of Directors of the Palo Alto Public Improvement Corporation
(PIC) approve the FY 2021 financial statement for the PIC.
City of Palo Alto Page 3
Stakeholder Engagement
Staff works internally and coordinates with the City Auditor’s Office third party external auditor
Macias Gini & O’Connell LLP (MGO) to prepare this report.
Resource Impact
Approval of the Palo Alto Public Improvement Corporation’s financial statements will have no
resource impact.
Policy Implications
Approval of the Palo Alto Public Improvement Corporation’s financial statements is consistent
with prior Council policy direction and resolutions.
Environmental Review
Approval of the annual PIC financial statement is not a project, as defined in Section 21065 of
the California Environmental Quality Act (CEQA).
Attachments:
• Attachment A: FY 2021 PIC Annual Financial Statement
PALO ALTO PUBLIC IMPROVEMENT
CORPORATION
(A Component Unit of the
City of Palo Alto, California)
Annual Financial Report
For the Year Ended June 30, 2021
Attachment A
Attachment A - 1
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Annual Financial Report
For the Year Ended June 30, 2021
Table of Contents
Page
Independent Auditor’s Report ................................................................................................................... 1
Management’s Discussion and Analysis (Unaudited) .............................................................................. 3
Basic Financial Statements
Government-wide Financial Statements:
Statement of Net Position ................................................................................................................... 5
Statement of Activities ....................................................................................................................... 6
Debt Service Fund Financial Statements:
Balance Sheet ..................................................................................................................................... 7
Statement of Revenues, Expenditures and Changes in Fund Balance ................................................ 8
Notes to the Basic Financial Statements .................................................................................................. 9
Attachment A
Attachment A - 2
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1
Independent Auditor’s Report
The Honorable Mayor and
Members of the City Council of the
City of Palo Alto, California
We have audited the accompanying financial statements of the governmental activities and the major fund
of Palo Alto Public Improvement Corporation (Corporation), a component unit of the City of Palo Alto,
California (City), as of and for the year ended June 30, 2021, and the related notes to the financial
statements, which collectively comprise the Corporation’s basic financial statements as listed in the table
of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the governmental activities and the major fund of the Corporation as of
June 30, 2021, and the respective changes in financial position thereof for the year then ended in
accordance with accounting principles generally accepted in the United States of America.
Attachment A
Attachment A - 3
2
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis on pages 3 through 4 be presented to supplement the basic financial statements.
Such information, although not a part of the basic financial statements, is required by the Governmental
Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the
basic financial statements in an appropriate operational, economic, or historical context. We have applied
certain limited procedures to the required supplementary information in accordance with auditing
standards generally accepted in the United States of America, which consisted of inquiries of
management about the methods of preparing the information and comparing the information for
consistency with management’s responses to our inquiries, the basic financial statements, and other
knowledge we obtained during our audit of the basic financial statements. We do not express an opinion
or provide any assurance on the information because the limited procedures do not provide us with
sufficient evidence to express an opinion or provide any assurance.
Walnut Creek, California
November 15, 2021
Attachment A
Attachment A - 4
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Management’s Discussion & Analysis (Unaudited)
For the Year Ended June 30, 2021
3
The Palo Alto Public Improvement Corporation (Corporation), a component unit of the City of Palo Alto
(City), follows the provisions of Governmental Accounting Standards Board (GASB) Statement No. 34,
Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local
Governments. The Corporation is controlled by the City and was organized to assist the City in financing
public improvements. The Corporation issues debt and turns the proceeds of the debt over to the City
under lease agreements that provide a revenue source for the repayment of this debt. The Corporation has
three outstanding debts and has turned over the proceeds to the City, which pledged certain lease
payments as collateral for this debt as discussed in Note 4 to the financial statements.
FINANCIAL HIGHLIGHTS
GASB Statement No. 34 requires the issuance of government-wide financial statements as well as fund
financial statements. The government-wide financial statements report the balance of the Corporation’s
long-term debt while the individual fund statements do not.
In fiscal year 2018, the City issued 2018 Capital Improvement Project and Refinancing Certificates of
Participation (2018 COPs) in the amount of $9.0 million to refinance the 2002B Downtown Parking
Improvements Certificates of Participation remaining balance of $805 thousand, and also to fund the Palo
Alto Municipal Golf Course renovations.
In fiscal year 2019, the City issued the 2019 California Avenue Parking Garage tax exempt Series A and
taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million
plus $4.9 million premium, and $10.6 million, respectively. The 2019A and 2019B COPs are issued to
fund the construction of the new California Avenue parking garage.
In fiscal year 2021, the City issued the 2021 Public Safety Building Certificates of Participation (2021
COPs) in the amount of $101.5 million plus $6.5 million premium. The 2021 COPs are issued to fund the
construction of the new public safety building.
As of June 30, 2021, the Corporation has the following outstanding debt: the 2018 COPs, 2019A and
2019B COPs, and 2021 COPs
At the government-wide level, the interest and fiscal agent charges were $4.0 million for fiscal year 2021,
an increase of $2.0 million from the prior year. The interest on leases from the City of Palo Alto was $8.6
million, an increase of $6.6 million from the prior year. The increases of interest and fiscal charges and
interest on leases are due to the issuance of the 2021 COPs during the year which lead to the increase of
outstanding bonds and incurrence of one-time costs of issuance.
The Corporation ended fiscal year 2021 with total assets of $163.1 million, an increase of $112.3 million
from the prior year. Total assets consisted of $4.7 million in cash and investments, $1.1 million of lease
interest receivable from the City of Palo Alto, and $157.4 million of investment in leases to the City of
Palo Alto. The total liabilities were $158.5 million, an increase of $107.7 million from the prior year. The
increases of assets and liabilities resulted from the issuance of the 2021 COPs during the year.
At the fund level, the Corporation’s expenditures exceeded revenues by $103.4 million due to the
payment of lease proceeds to the City of Palo Alto in relation to the issuance of 2021 COPS during the
year. As of June 30, 2021, the Corporation had one fund, the Debt Service Fund, which reported a $4.7
million restricted fund balance.
Attachment A
Attachment A - 5
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Management’s Discussion & Analysis (Unaudited) (Continued)
For the Year Ended June 30, 2021
4
OVERVIEW OF THE CORPORATION’S BASIC FINANCIAL STATEMENTS
The annual financial report is comprised of two parts:
1) Management’s discussion and analysis (this part),
2) The basic financial statements, which include the government-wide and the fund financial statements,
along with the notes to these financial statements.
The basic financial statements comprise the government-wide financial statements and the fund financial
statements. These two sets of financial statements provide two different views of the Corporation’s
financial activities and financial positions, both short-term and long-term.
The government-wide financial statements provide a long-term view of the Corporation’s activities as a
whole, and comprise the statement of net position and the statement of activities. The statement of net
position provides information about the financial position of the Corporation as a whole, including all its
long-term liabilities on the full accrual basis, similar to that used by corporations. The statement of
activities provides information about all the Corporation’s revenues and expenses on the full accrual
basis, with the emphasis on measuring net revenues or expenses of the Corporation’s program. The
statement of activities explains in detail the change in net position for the year.
The fund financial statements report the Corporation’s operations in more detail than the corporate-wide
statements and focus primarily on the short-term activities of the debt service fund. Fund financial
statements measure only current revenues and expenditures; current assets, liabilities and fund balances;
and they exclude capital assets and long-term debt.
Together, these statements along with the notes to the financial statements are called the basic financial
statements.
DEBT ADMINISTRATION
The Corporation issues debt in the form of Certificates of Participation (COPs) to be repaid from future
lease receipts from the City. Legally, these COPs issues are the Corporation’s debt only; the City is liable
only for the payment of the amounts set forth in the lease securing each debt issue.
As of June 30, 2021, the Corporation has the following outstanding debt: 2018 COPs, 2019A and 2019B
COPs, and 2021 COPs with outstanding principal balances of $8.6 million, 36.4 million and $101.5
million, respectively.
ECONOMIC OUTLOOK AND MAJOR INITIATIVES
The economy of the City and its major initiatives for the coming year are discussed in detail in the City’s
Comprehensive Annual Financial Report.
CONTACTING THE CORPORATION’S FINANCIAL MANAGEMENT
These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with
a general overview of the Corporation’s finances. Questions about these financial statements should be
directed to the Finance Department of the City of Palo Alto, 250 Hamilton Avenue, Palo Alto, CA 94301.
Attachment A
Attachment A - 6
Assets
Cash held for operations 5,597$
Cash and investments held by trustee 4,655,285
Lease interest receivable 1,057,878
Investment in leases to the City of Palo Alto 157,403,773
Total assets 163,122,533
Liabilities
Interest payable 1,057,878
Long-term debt:
Due in one year 1,243,353
Due in more than one year 156,160,420
Total liabilities 158,461,651
Net Position
Restricted for debt service 4,660,882$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Net Position
June 30, 2021
See accompanying notes to financial statements.
5
Attachment A
Attachment A - 7
Expenses
Interest and fiscal agent charges 3,962,421$
Program revenues
Interest on leases from the City of Palo Alto 8,585,169
Net program revenues 4,622,748
General revenues
Investment earnings 56
Change in net position 4,622,804
Net position, beginning of the year 38,078
Net position, end of the year 4,660,882$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Activities
For the Year Ended June 30, 2021
See accompanying notes to financial statements.
6
Attachment A
Attachment A - 8
Assets
Cash held for operations 5,597$
Cash and investments held by trustee 4,655,285
Lease interest receivable 1,057,878
Investment in leases to City of Palo Alto 157,403,773
Total assets 163,122,533$
Deferred Inflows of Resources
Unavailable lease receipts from the City of Palo Alto 158,461,651$
Fund balance
Restricted for debt service 4,660,882
Total deferred inflows of resources and fund balance 163,122,533$
Reconciliation of fund balance to net position
Fund balance restricted for debt service 4,660,882$
Long-term receivables are not available to pay for current period expenditures
and are considered unavailable on the governmental fund balance sheet 158,461,651
Some liabilities, including bonds payable, are not due and payable in
the current period and therefore are not reported in the Fund:
Interest payable (1,057,878)
Long-term debt due within one year (1,243,353)
Long-term debt due in more than one year (156,160,420)
Net position of governmental activities 4,660,882$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Balance Sheet
June 30, 2021
Debt Service Fund
See accompanying notes to financial statements.
7
Attachment A
Attachment A - 9
Revenues:
Lease receipts from the City of Palo Alto:
Principal 815,000$
Interest 2,093,576
Others 1,588
Investments earnings 56
Total revenues 2,910,220
Expenditures:
Intergovernmental disbursement to the City of Palo Alto 102,000,000
Debt service:
Principal repayment 815,000
Interest and fiscal agent charges 2,093,576
Costs of issuance 1,408,212
Total expenditures 106,316,788
Deficiency of revenues under expenditures (103,406,568)
Other Financing Sources:
Issuance of bonds 101,505,000
Bond premium 6,524,372
Total other financing sources 108,029,372
Net change in fund balance 4,622,804
Fund balance, beginning of the year 38,078
Fund balance, end of the year 4,660,882$
Reconciliation of net change in fund balance to change in net position
Net change in fund balance - debt service fund 4,622,804$
Amounts reported for governmental activities in the statement of activities are
different because:
Repayment of bond principal is an expenditure in the governmental funds,
but in the statement of net position the repayment reduces long-term liabilities. 815,000
Interest accrued on long-term debt and amortization of bond premium do not
require the use of current financial resources and therefore are not reported
as expenditures in governmental funds.
Change in interest payable (707,124)
Amortization of bond premium 246,491
The issuance of bonds are reported as other financing sources in governmental
funds and thus contribute to the change in fund balances. However,
bonds issuance change long-term liabilities in the statement of net position
and do not affect the statement of activities.
Issuance of bonds (101,505,000)
Bonds premium (6,524,372)
Some amounts reported in the statement of revenues, expenditures and changes
in fund balances reflect the timing of collection of assets which are
not includable as revenues on the statement of activities.
Lease receipt for bond principal repayment (815,000)
Lease receipt for interest payment 707,124
Intergovernmental disbursement to the City of Palo Alto 102,000,000
Lease proceeds from new bond issuance 6,029,372
Impact of bond premium amortization on lease receipt (246,491)
Change in net position of governmental activities 4,622,804$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Revenues, Expenditures and Changes in Fund Balance
For the Year Ended June 30, 2021
Debt Service Fund
See accompanying notes to financial statements.
8
Attachment A
Attachment A - 10
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
9
NOTE 1 – DESCRIPTION OF REPORTING ENTITY
The Palo Alto Public Improvement Corporation (the Corporation) was incorporated in September 1983
under the General Nonprofit Corporation Law of the State of California to acquire, construct and lease
capital improvement projects. The Corporation is exempt from federal income taxes under
Section 501(c)(4) of the Internal Revenue Code. The Corporation provides financing of public capital
improvements for the City through the issuance of Certificates of Participation (COPs), a form of debt
which allows investors to participate in a stream of future lease payments. Proceeds from the COPs are
used to construct projects which are leased to the City for lease payments which are sufficient in timing
and amount to meet the debt service requirements of the COPs.
The Corporation is an integral part of the City of Palo Alto, California (City). It primarily services the
City and its governing body is composed of the City Council. Therefore, the financial data of the
Corporation has also been included as a blended component unit within the City’s comprehensive annual
financial report for the year ended June 30, 2021.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
Government-wide Statements: The statement of net position and the statement of activities include the
financial activities of the Corporation. Eliminations have been made to minimize the double counting of
internal activities.
The statement of activities presents a comparison between direct expenses and program revenues for each
function of the Corporation’s activities. Direct expenses are those that are specifically associated with a
program or function and, therefore, are clearly identifiable to a particular function. Program revenues
include (a) charges paid by the recipients of goods or services offered by the programs, and (b) grants and
contributions that are restricted to meeting the operational or capital requirements of a particular program.
Revenues that are not classified as program revenues, including investment earnings, are presented as
general revenues.
Fund Financial Statements: The fund financial statements provide information about the Corporation’s
funds. The emphasis of fund financial statements is on major individual funds, of which the Corporation
only reports one debt service fund.
(b) Major Fund
Major funds are defined as funds that have either assets, liabilities, revenues or expenditures equal to ten
percent of their fund-type total and five percent of the grand total. The Corporation has one fund which is
reported as a major governmental fund in the accompanying financial statements as follows:
Debt Service Fund – This fund accounts for debt service payments on the Corporation’s long-term debt.
Attachment A
Attachment A - 11
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
10
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Basis of Accounting
The government-wide financial statements are reported using the economic resources measurement focus
and the full accrual basis of accounting. Revenues are recorded when earned ad expenses are recorded at
the time liabilities are incurred, regardless of when the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and the
modified accrual basis of accounting. Under this method, revenues are recognized when measurable and
available. The City considers revenues susceptible to accrual to be available if the revenues are collected
within ninety days after year-end. Expenditures are recorded when the related fund liability is incurred,
except for principal and interest on long-term debt, claims and judgments, and compensated absences,
which are recognized as expenditures to the extent they have matured.
(d) Investment in Leases
Improvements financed by the Corporation are leased to the City for their entire estimated useful life and
will become the City property at the conclusion of the lease on November 1, 2050. The Corporation
therefore records the present value of the lease and considers the leased improvement to have been sold
for this amount when leased.
(e) Net Position
The government-wide financial statements utilize a net position presentation. Net position is further
categorized as net investment in capital assets, restricted and/or unrestricted. As of June 30, 2021, the
entire net position was considered restricted.
Restricted Net Position – This category presents external restrictions imposed by creditors, grantors,
contributors or laws or regulations of other governments and restrictions imposed by law through
constitutional provisions or enabling legislation.
(f) Deferred Inflows of Resources
A deferred inflow of resources is defined as an acquisition of net position or fund balances applicable to a
future reporting period and will not be recognized as an inflow of resources (revenue) until that time. On
the governmental fund balance sheet, the lease receipts from the City corresponding to the debt are
recorded as deferred inflows of resources since the balances are not current financial resources.
(g) Fund Balances
At June 30, 2021, the Corporation’s governmental fund’s fund balances include the following
classification:
Restricted Fund Balance – includes amounts that can be spent only for the specific purposes stipulated by
external resource providers, constitutionally or through enabling legislation. Restrictions may effectively
be changed or lifted only with the consent of resource providers.
Attachment A
Attachment A - 12
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
11
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Effects of New Pronouncements
The Corporation is currently analyzing its accounting practices to determine the potential impact on the
financial statements for the following Governmental Accounting Standards Board (GASB) Statement:
In June 2017, the GASB issued Statement No. 87, Leases. The objective of this statement is to better
meet the information needs of financial statement users by improving accounting and financial reporting
for leases by governments. This Statement increases the usefulness of governments’ financial statements
by requiring recognition of certain lease assets and liabilities for leases that previously were classified as
operating leases and recognized as inflows of resources or outflows of resources based on the payment
provisions of the contract. It establishes a single model for lease accounting based on the foundational
principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is
required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to
recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and
consistency of information about governments’ leasing activities. The requirements of this statement are
effective for the Corporation’s fiscal year ending June 30, 2022.
(i) Estimates
The preparation of basic financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE
(a) Interest Rate Risk
Interest rate risk is the risk that a change in market interest rates will adversely affect the fair value of an
investment. Normally, the longer it takes an investment to reach maturity, the greater will be that
investment’s sensitivity to changes in market rates. Information about the sensitivity of the fair values of
the Corporation’s investments to market interest rate fluctuations is provided by the following table that
shows the distribution of the Corporation’s investments by maturity:
Investment Type Amount Maturity Date
Money Market Mutual Fund 4,655,285$ 19 days
Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder
of the investment. This is measured by the assignment of a rating by a nationally recognized statistical
rating organization. As of June 30, 2021, the Corporation’s investments in money market mutual funds
are rated AAAm by Standard & Poor’s.
(b) Fair Value Hierarchy
The City categorizes its fair value measurements within the fair value hierarchy established by generally
accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value
of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are
significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The
Corporation’s investments in money market mutual funds are not subject to the fair value hierarchy.
Attachment A
Attachment A - 13
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
12
NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE (Continued)
(c) Investment Policy
The Corporation must maintain required amounts of cash and investments by trustee under the terms of
certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the
Corporation fails to meet its obligation under these debt issues. The California Government Code (Code)
requires these funds to be invested in accordance with bond indentures or State statutes. All these funds
have been invested as permitted under the Code. The Investment Policy is described in detail in the City’s
Annual Comprehensive Financial Report.
The table below identifies the investment types that are authorized by the City’s Investment Policy. The
table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit
risk and concentration of credit risk.
Maximum
Maturity
Minimum Credit
Quality
Maximum
Percentage of
Portfolio
Maximum
Investment in
One Issuer
U.S. Government Securities 10 years (*) N/A No Limit No Limit
U.S. Government Agency Securities 10 years (*) N/A No Limit (A) No Limit
Certificates of Deposit 10 years (*) N/A 20% 10% of the par
value of
portfolio
Bankers Acceptances 180 days N/A 30% $5 million
Commercial Paper 270 days A-1 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit $75 million per
account
Short-Term Repurchase Agreements 1 year N/A No Limit No Limit
City of Palo Alto Bonds N/A N/A No Limit No Limit
Money Market Deposit Accounts N/A N/A No Limit No Limit
Mutual Funds N/A N/A 20% 10%
Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million
Medium-Term Corporate Notes 5 years AA 10% $5 million
10 years (*) AA/AA2 30% No Limit
Supranational 5 years AA/AA2 20% 10% of the par
value of
portfolio
(A)
(B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution.
(*) The maximum maturity is based on the Investment Policy that is approved by the City Council
and is less restrictive than the California Governmental Code.
Authorized Investment Type
Bonds of State of California Municipal
Agencies & Other U.S. States
Callable and multi-step securities are limited to no more than 25% of the par value of the portfolio, provided that:
1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step-up" are
known at the time of purchase, and 3) the entire face value of the security is redeemed at the call date.
Attachment A
Attachment A - 14
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
13
NOTE 4 – CERTIFICATES OF PARTICIPATION
The Corporation’s long-term debt activities are presented below:
Balance Balance Amount due
July 1, 2020 Additions Retirements June 30, 2021 in one year
Certificates of Participation
2018 Capital Improvement Project
2.20-4.22%, due 11/1/2047 8,755,000$ -$ 185,000$ 8,570,000$ 190,000$
2019 California Ave. Parking Garage
Series A & B
2.5%-5%, due 11/1/2048 36,995,000 - 630,000 36,365,000 645,000
2021 Public Safety Building
2%-5%, due 11/1/2050 - 101,505,000 - 101,505,000 -
Add: Unamortized Premium 4,685,892 6,524,372 246,491 10,963,773 408,253
Total 50,435,892$ 108,029,372$ 1,061,491$ 157,403,773$ 1,243,253$
On June 1, 2018, the City issued the 2018 Capital Improvement Project and Refinancing Certificates of
Participation (2018 COPs) in the amount of $9.0 million to fully refinance the 2002B COPs and to fund
the renovation of the Palo Alto Municipal Golf Course. Principal payments are due annually on
November 1 and interest payments semi-annually at various rates on May 1 and November 1. The 2018
COPs are secured by lease revenues received by the Corporation from any City’s General Fund revenue
source.
On March 21, 2019, the City issued the 2019 California Avenue Parking Garage tax exempt Series A and
taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million
plus $4.9 million premium, and $10.6 million, respectively, for the construction of the new California
Avenue Parking Garage. Principal payments are due annually on November 1 and interest payments
semi-annually at various rates on May 1 and November 1. The 2019A and 2019B COPs are secured by
lease revenues received by the Corporation from any City’s General Fund revenue source.
On March 24, 2021, the City issued the 2021 Public Safety Building Certificates of Participation (2021
COPs) in the amount of $101.5 million plus $6.5 million premium for the construction of the new public
safety building. Principal payments are due annually on November 1 and interest payments semi-annually
at various rates on May 1 and November 1. The 2021 COPs are secured by lease revenues received by the
Corporation from any City’s General Fund revenue source.
Attachment A
Attachment A - 15
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
14
NOTE 4 – CERTIFICATES OF PARTICIPATION (Continued)
Future annual debt service on the outstanding debt is shown below:
For the Year Interest Total
Ending June 30, Principal Payment Payment
2022 835,000$ 3,534,317$ 4,369,317$
2023 860,000 4,970,244 5,830,244
2024 3,025,000 4,880,640 7,905,640
2025 3,170,000 4,729,195 7,899,195
2026 3,335,000 4,569,844 7,904,844
2027-2031 19,340,000 20,154,727 39,494,727
2032-2036 23,975,000 15,481,970 39,456,970
2037-2041 28,105,000 11,306,264 39,411,264
2042-2046 32,530,000 6,831,131 39,361,131
2047-2051 31,265,000 1,836,486 33,101,486
146,440,000$ 78,294,818$ 224,734,818$
Events of Default and Acceleration Clauses
Generally, the Corporation is considered to be in default if the Corporation fails to pay the principal of
and interest on the outstanding long-term debt when become due and payable. If an event of default has
occurred and is continuing, the principal of the long-term debt, together with the accrued interest, may be
declared due and payable immediately.
Attachment A
Attachment A - 16