HomeMy WebLinkAboutStaff Report 2311-2231CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, January 12, 2026
Council Chambers & Hybrid
5:30 PM
Agenda Item
14.Approval of Fiscal Year 2025 Palo Alto Public Improvement Corporation's Annual
Financial Report. CEQA Status - Not a Project Public Comment
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Palo Alto Public Improvement Corporation Board
of Directors
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Administrative Services
Meeting Date: January 12, 2026
Report #:2311-2231
TITLE
Approval of Fiscal Year 2025 Palo Alto Public Improvement Corporation's Annual Financial
Report. CEQA Status - Not a Project
RECOMMENDATION
Staff recommends that the Board of Directors of the Palo Alto Public Improvement Corporation
(PIC) approve the Fiscal Year (FY) 2025 Annual Financial Report for the Palo Alto Public
Improvement Corporation.
BACKGROUND
The City established the Palo Alto Public Improvement Corporation in 1983. The PIC is a
nonprofit corporation, legally distinct from the City, that allows the City to issue Certificates of
Participation (COPs) to fund capital improvements. The City Council serves as the PIC’s Board of
Directors. The PIC, through a lease-leaseback 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 PIC’s bylaws of require its Board to meet at least
annually and approve the annual financial report for the Corporation.
In 1983 and 1998, the City of Palo Alto issued COPs to fund improvements to the Civic Center
and the Golf Course, respectively. The Civic Center bonds were refinanced in 2002 to take
advantage of lower interest rates 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 at 445 Bryant
Street. That structure was previously leased and operated as a privately owned fitness club
until 2022 and will be re-opened as a downtown community center with classes, summer
camps, a teen center operated by the Community Services Department and a senior nutrition
program operated by La Comida.
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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. This provided a net present value savings of $0.2 million or 6.47% on the
2002B refunded bonds and substituted Fire Station 1 as the leased property/collateral. This
refinancing allowed the City to then use the Civic Center as collateral for the 2021 Public Safety
building COPs.
ANALYSIS
COPs Description
Principal
Outstanding
(millions)
Fiscal Year Debt
will be Retired
Total COPs $138.5
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Staff recommends that the Board of Directors of the Palo Alto Public Improvement Corporation
(PIC) approve the FY 2025 Annual Financial Report for the PIC.
POLICY IMPLICATIONS
Approval of the Palo Alto Public Improvement Corporation’s Annual Financial Report is consistent
with prior Council policy direction and resolutions.
FISCAL/RESOURCE IMPACT
Approval of the Palo Alto Public Improvement Corporation’s Annual Financial Report will have
no resource impact.
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.
ENVIRONMENTAL REVIEW
This activity is not a project under California Environmental Quality Act (CEQA) as defined in
CEQA Guidelines, section 15378, because it is an administrative activity that will not result in
either a direct or reasonably foreseeable indirect physical changes in the environment.
ATTACHMENTS
Attachment A: Palo Alto Public Improvement Fiscal Year 2025 Annual Financial Report
APPROVED BY:
Lauren Lai, Administrative Services Director
PALO ALTO
PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Annual Financial Report
For the Year Ended June 30, 2025
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Annual Financial Report
For the Year Ended June 30, 2025
Table of Contents
Page
Independent Auditor’s Report ................................................................................................................... 1
Management’s Discussion and Analysis (Unaudited) .............................................................................. 3
Basic Financial Statements
Government-wide Financial Statements:
Statement of Net Position ................................................................................................................... 5
Statement of Activities ....................................................................................................................... 6
Debt Service Fund Financial Statements:
Balance Sheet ..................................................................................................................................... 7
Statement of Revenues, Expenditures and Changes in Fund Balance ................................................ 8
Notes to the Basic Financial Statements .................................................................................................. 9
www.mgocpa.com Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
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Independent Auditor’s Report
Board of Director of the
Palo Alto Public Improvement Corporation
The Honorable Mayor and
Members of the City Council of the
City of Palo Alto, California
Opinions
We have audited the financial statements of the governmental activities and the major fund of the 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, 2025, and the related notes to the financial
statements, which collectively comprise the Corporation’s basic financial statements as listed in the table
of contents.
In our opinion, the accompanying 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, 2025, 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.
Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America (GAAS). Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statements section of our report. We are required to be
independent of the Corporation and to meet our other ethical responsibilities, in accordance with the
relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinions.
Responsibilities of Management for the Financial Statements
The Corporation’s management is responsible for the preparation and fair presentation of the financial
statements in accordance with accounting principles generally accepted in the United States of America,
and for the design, implementation, and maintenance of internal control relevant to the preparation and
fair presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, management is required to evaluate whether there are conditions or
events, considered in the aggregate, that raise substantial doubt about the Corporation’s ability to continue
as a going concern for twelve months beyond the financial statement date, including any currently known
information that may raise substantial doubt shortly thereafter.
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Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and
therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a
material misstatement when it exists. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control. Misstatements are considered material
if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment
made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
• exercise professional judgment and maintain professional skepticism throughout the audit.
• identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, and design and perform audit procedures responsive to those risks. Such
procedures include examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements.
• obtain an understanding of internal control relevant to the audit 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 Corporation’s internal control. Accordingly, no such opinion
is expressed.
• evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the
financial statements.
• conclude whether, in our judgment, there are conditions or events, considered in the aggregate,
that raise substantial doubt about the Corporation’s ability to continue as a going concern for a
reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal control–related
matters that we identified during the audit.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis be presented to supplement the basic financial statements. Such information is the
responsibility of management and, 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
GAAS, which consisted of inquiries of management about the methods of preparing the information and
comparing the information for consistency with management’s responses to our inquiries, the basic
financial statements, and other knowledge we obtained during our audit of the basic financial statements.
We do not express an opinion or provide any assurance on the information because the limited procedures
do not provide us with sufficient evidence to express an opinion or provide any assurance.
Walnut Creek, California
October 31, 2025
PAL 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, 2025
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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). 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 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 $0.8 million, 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 were 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 were issued to fund
the construction of the new public safety building.
As of June 30, 2025, 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 $4.3 million for fiscal year 2025,
a decrease of $0.2 million from the prior year. The interest on leases from the City of Palo Alto was $4.3
million, a decrease of $0.2 million from the prior year. The decrease is mainly due to the decrease in
outstanding debt from the prior year.
The Corporation ended fiscal year 2025 with total assets of $148.8 million, a decrease of $3.6 million
from the prior year. Total assets consisted of $0.1 million in cash and investments, $0.8 million of lease
interest receivable from the City of Palo Alto, and $147.9 million of investment in leases to the City of
Palo Alto. The total liabilities were $148.7 million, a decrease of $3.6 million from the prior year. The
decrease of assets and liabilities resulted from scheduled principal and interest payments of the 2018
COPs, the 2019A and 2019B COPs, and the 2021 COPs. As of June 30, 2025, the Corporation reported a
$0.1 million restricted net position.
At the fund level, the Corporation’s revenues exceeded expenditures by $15.0 thousand. As of
June 30, 2025, the Corporation had one fund, the Debt Service Fund, which reported a $0.1 million
restricted fund balance.
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, 2025
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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 COP issues are the Corporation’s debt only; the City is liable
only for the payment of the amounts set forth in the lease securing each debt issue.
As of June 30, 2025, the Corporation has the following outstanding debt (excluding premium): 2018
COPs, 2019A and 2019B COPs, and 2021 COPs with outstanding principal balances of $7.8 million,
$33.6 million and $97.1 million, respectively.
ECONOMIC OUTLOOK AND MAJOR INITIATIVES
The economy of the City and its major initiatives for the coming year are discussed in detail in the City’s
Annual Comprehensive Financial Report.
CONTACTING THE CORPORATION’S FINANCIAL MANAGEMENT
These basic financial statements are intended to provide citizens, taxpayers, investors, and creditors with
a general overview of the Corporation’s finances. Questions about these financial statements should be
directed to the Finance Department of the City of Palo Alto, 250 Hamilton Avenue, Palo Alto, CA 94301.
Assets
Cash held for operations 112,885$
Cash and investments held by trustee 4,186
Lease interest receivable 775,266
Investment in leases to the City of Palo Alto 147,880,762
Total assets 148,773,099
Liabilities
Interest payable 775,266
Long-term debt:
Due in one year 3,743,253
Due in more than one year 144,137,509
Total liabilities 148,656,028
Net Position
Restricted for debt service 117,071$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Net Position
June 30, 2025
See accompanying notes to financial statements.
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Expenses
Interest and fiscal agent charges 4,295,076$
Program revenues
Interest on leases from the City of Palo Alto 4,295,673
Net program revenues 597
General revenues
Investment earnings 14,430
Change in net position 15,027
Net position, beginning of the year 102,044
Net position, end of the year 117,071$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Activities
For the Year Ended June 30, 2025
See accompanying notes to financial statements.
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Assets
Cash held for operations 112,885$
Cash and investments held by trustee 4,186
Lease interest receivable 775,266
Investment in leases to City of Palo Alto 147,880,762
Total assets 148,773,099$
Deferred Inflows of Resources
Unavailable lease receipts from the City of Palo Alto 148,656,028$
Fund balance
Restricted for debt service 117,071
Total deferred inflows of resources and fund balance 148,773,099$
Reconciliation of fund balance to net position
Fund balance restricted for debt service 117,071$
Long-term receivables are not available to pay for current period expenditures
and are considered unavailable on the governmental fund balance sheet. 148,656,028
Some liabilities, including bonds payable, are not due and payable in
the current period and therefore are not reported in governmental funds.
Interest payable (775,266)
Long-term debt due within one year (3,743,253)
Long-term debt due in more than one year (144,137,509)
Net position of governmental activities 117,071$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Balance Sheet
June 30, 2025
Debt Service Fund
See accompanying notes to financial statements.
7
Revenues:
Lease receipts from the City of Palo Alto:
Principal 3,170,000$
Interest 4,729,196
Othe 597
Investments earnings 14,430
Total revenues 7,914,223
Expenditures:
Debt service:
Principal repayment 3,170,000
Interest and fiscal agent charges 4,729,196
Total expenditures 7,899,196
Net change in fund balance 15,027
Fund balance, beginning of the year 102,044
Fund balance, end of the year 117,071$
Reconciliation of net change in fund balance to change in net position
Net change in fund balance - debt service fund 15,027$
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. 3,170,000
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 25,867
Amortization of bond premium 408,253
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 (3,170,000)
Lease receipt for interest payment (25,867)
Impact of bond premium amortization on lease receipt (408,253)
Change in net position of governmental activities 15,027$
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, 2025
Debt Service Fund
See accompanying notes to financial statements.
8
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, 2025
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 annual comprehensive
financial report for the year ended June 30, 2025.
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.
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, 2025
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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, 2025, 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 asset 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, 2025, 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.
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, 2025
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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Estimates
The preparation of basic financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
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 4,186$ 42 days
(b) Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder
of the investment. This is measured by the assignment of a rating by a nationally recognized statistical
rating organization. As of June 30, 2025, the Corporation’s investments in money market mutual funds
are rated AAAm by Standard & Poor’s.
(c) 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.
(d) 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 and bond indentures, including the cash held for
operations invested in the City’s investment pool. The City’s investment policy is described in detail in
the City’s Annual Comprehensive Financial Report.
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, 2025
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NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE (Continued)
The table below identifies the investment types that are authorized by the City’s investment policy. The
table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit
risk and concentration of credit risk.
Maximum
Maturity
Minimum
Credit Quality
Maximum
Percentage
of Portfolio
Maximum
Investment in
One Issuer
U.S. Government Securities 10 years (*) N/A No Limit No Limit
U.S. Government Agency Securities 10 years (*) N/A No Limit (A) No Limit
Certificates of Deposit 10 years (*) N/A 20% 10% of the par
value of
portfolio
Bankers Acceptances 180 days N/A 30% $5 million
Commercial Paper 270 days A-1 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit $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 40% No Limit
Supranational 5 years AA/AA2 20% 10% of the par
value of
ortfolio
(A)
(B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution.
(*) The maximum maturity is based on the Investment Policy that is approved by the City Council
and is less restrictive than the California Governmental Code.
Authorized Investment Type
California State and Municipal and other
49 State Issued Bonds
Callable and multi-step securities are limited to no more than 25% of the par value of the portfolio, provided
that: 1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step-
up" are known at the time of purchase, and 3) the entire face value of the security is redeemed at the call
date.
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025
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NOTE 4 – LONG-TERM DEBT
The Corporation’s long-term debt activities are presented below:
Balance Balance Amount due
July 1, 2024 Retirements June 30, 2025 in one year
Certificates of Participation
2018 Capital Improvement Project
2.20-4.22%, due 11/1/2047 7,985,000$ 205,000$ 7,780,000$ 215,000$
2019 California Ave. Parking Garage
Series A & B
2.5%-5%, due 11/1/2048 34,365,000 720,000 33,645,000 760,000
2021 Public Safety Building
2%-5%, due 11/1/2050 99,370,000 2,245,000 97,125,000 2,360,000
Add: Unamortized Premium 9,739,015 408,253 9,330,762 408,253
Total 151,459,015$ 3,578,253$ 147,880,762$ 3,743,253$
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 Downtown Parking
Improvement Project Certificates of Participation 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 $6.5 million premium for the construction of the new public
safety building. Principal payments are due annually on November 1 and interest payments semi-annually
at various rates on May 1 and November 1. The 2021 COPs are secured by lease revenues received by the
Corporation from any City’s General Fund revenue source.
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025
14
NOTE 4 – LONG-TERM DEBT (Continued)
Future annual debt service on the outstanding debt is shown below:
For the Year
Ending June 30, Principal Interest Total
2026 3,335,000$ 4,569,844$ 7,904,844$
2027 3,495,000 4,402,268 7,897,268
2028 3,675,000 4,226,076 7,901,076
2029 3,865,000 4,040,594 7,905,594
2030 4,050,000 3,845,456 7,895,456
2031-2035 23,090,000 16,373,857 39,463,857
2036-2040 27,300,000 12,124,665 39,424,665
2041-2045 31,570,000 7,796,552 39,366,552
2046-2050 33,215,000 2,745,366 35,960,366
2051 4,955,000 55,744 5,010,744
138,550,000$ 60,180,422$ 198,730,422$
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.
From:Phyllis Brown
To:Council, City
Subject:January 12 meeting, item 14
Date:Monday, January 12, 2026 8:52:26 AM
CAUTION: This email originated from outside of the organization. Be cautiousof opening attachments and clicking on links.
Mayor Veenker and City Council Members,
I read with interest the Staff Report re: the 2025 annual report of the nonprofit Palo Alto
Public Improvement Corporation use of COPs (Item 14, Council agenda for January 12,
2026), noting that projects funded with COPs dating back to 2018 were located north of
Oregon Expressway/Page Mill Road. These include:
Improvements to Civic Center and the Municipal Golf Course
Commercial space adjacent to the new parking structure at Bryant/Florence
(referred to as the “Downtown Parking Improvement bonds or 2002B COP,”
now the new Bryant Street Community Center)
Public Safety Building (250 Sherman Avenue)
California Avenue Parking Garage
Question: Have COPs been considered at any point as a funding source for some
portion of the Cubberley purchase and renovation in south Palo Alto or for any other
city project south of Oregon Expwy/Page Mill?
I have only heard of a bond measure discussed as well as vague references to other
private funding sources for Cubberley. Discussion at a December Council meeting
let me know that the Council expects to scale back expectations of what can be
accomplished even in the first phase of Cubberley renovation. I hope Council will
consider allocating more resources to Palo Alto's southern neighborhoods,
especially Cubberley, given the upzoning for expansive, high-density housing
growth in this area.
City bond measures I recall in that same timeframe as these COPs were Measures D and
N—meant to fund Mitchell Park Library. Each of these measures had north Palo Alto
projects attached to them to entice north PA votes. Improvements to the Children’s Library
were attached to Measure D which primarily was for replacement of south Palo Alto’s only
library (Mitchell Park Library) which had reached the end of its useful life. Measure D failed
in 2002. A second attempt in 2008 (Measure N), which provided funds for south Palo Alto’s
one library and the four libraries north of Oregon Expressway/Page Mill, passed. This tells
me reliance on a bond measure for Cubberley may be doomed.
Now, after years of private- and city-funded improvements to the Art Center, Lucie
Stern, Junior Museum & Zoo, and a new Palo Alto History Museum, south Palo Alto is
asked to drive another bond measure for Cubberley. Cubberley is an important community
hub, but it currently is only partially city-owned, so investment in basic maintenance has
been limited. It is woefully neglected and dilapidated. A functional Cubberley is needed
now, but it will be needed more soon--to serve thousands of new Palo Alto residents. If the
city is committed to this project, it might consider using COPs and/or millions earmarked for
Fiber (which also will be implemented in north Palo Alto first, then midtown, with south Palo
Alto last). Note this is the same order that was promised for undergrounding of electric
utilities which never reached south Palo Alto.
As south Palo Alto is asked, again, to drive another bond measure, I wonder when north
Palo Alto will be asked to do the same. What’s left that we can add to this measure to
sweeten the pot to entice them to vote for funding Cubberley? When will COPs be used for
something in south Palo Alto? When will it be south Palo Alto’s time to come first?
Phyllis Brown