Capitola City Council
January 11, 2024

REVISED 1/9/2024 2:45 PM
City of Capitola
City Council Meeting Agenda
Thursday, January 11, 2024 – 6:00 PM
City Council Chambers
420 Capitola Avenue, Capitola, CA 95010
Mayor: Kristen Brown
Vice Mayor: Yvette Brooks
Council Members: Joe Clarke, Margaux Keiser, Alexander Pedersen Regular Meeting of the Capitola City Council – 6 PM
All correspondence received prior to 5:00 p.m. on the Wednesday preceding a Council Meeting will be distributed to Councilmembers to review prior to the meeting. Information submitted after 5 p.m. on that Wednesday may not have time to reach Councilmembers, nor be read by them prior to consideration of an item.

1. Roll Call and Pledge of Allegiance
Council Members Joe Clarke, Margaux Keiser, Alexander Pedersen, Yvette Brooks, and Mayor Kristen Brown.

2. Additions and Deletions to the Agenda

3. Presentations
Presentations are limited to eight minutes.

A. Proclamation Honoring Soquel High School’s Football State Championship B. Presentation on the History of Capitola's Incorporation C. Proclamation Honoring Capitola's 75th Anniversary of Incorporation

4. Additional Materials
Additional information submitted to the City after distribution of the agenda packet.

A. Correspondence Received – Item 8C

5. Oral Communications by Members of the Public
Oral Communications allows time for members of the Public to address the City Council on any “Consent Item” on tonight’s agenda, or on any topic within the jurisdiction of the City that is not on the “General Government/Public Hearings” section of the Agenda. Members of the public may speak for up to three minutes, unless otherwise specified by the Mayor. Individuals may not speak more than once during Oral Communications. All speakers must address the entire legislative body and will not be permitted to engage in dialogue. A maximum of 30 minutes is set aside for Oral Communications.

6. Staff / City Council Comments
Comments are limited to three minutes.

7. Consent Items
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City of Capitola Page 2
All items listed as “Consent Items” will be enacted by one motion in the form listed below. There will be no separate discussion on these items prior to the time the Council votes on the action unless members of the City Council request specific items to be discussed for separate review. Items pulled for separate discussion will be considered following General Government. Note that all Ordinances which appear on the public agenda shall be determined to have been read by title and further reading waived.

A. City Council Meeting Minutes
Recommended Action: Approve minutes from the regular meeting on December 14, 2023.

B. City Check Registers
Recommended Action: Approve check registers dated December 8, 2023, and December 15, 2023.

C. FY 2022-23 Audit Report
Recommended Action: Receive Fiscal Year 2022-23 Audit Report.

8. General Government / Public Hearings
All items listed in “General Government / Public Hearings” are intended to provide an opportunity for public discussion of each item listed. The following procedure pertains to each General Government item: 1) Staff explanation; 2) Council questions; 3) Public comment; 4) Council deliberation; 5) Decision.

A. December 2023 Winter Storm Event
Recommended Action: Receive an update regarding the December 2023 Winter Storm Event.

B. Unmanned Aircraft Systems (UAS) Drone Program
Recommended Action: Receive a presentation regarding the new Unmanned Aircraft System (UAS) Drone Program.

C. Remote Public Participation
Recommended Action: Provide direction to staff about remote participation options for members of the public at City Council and Planning Commission meetings.

D. City Council Appointments to Advisory Bodies
Recommended Action: Review, affirm, and appoint City Council representatives to County and Regional Boards and Capitola advisory bodies.

9. Adjournment - Adjourn to the next regularly scheduled City Council meeting on January 25, 2024, at 6:00 PM.
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How to View the Meeting
Meetings are open to the public for in-person attendance at the Capitola City Council Chambers located at 420 Capitola Avenue, Capitola, California, 95010.

Other ways to Watch:

Spectrum Cable Television channel 8
City of Capitola, California YouTube Channel
To Join Zoom Application or Call in to Zoom:

Meeting
link: https://us02web.zoom.us/j/83328173113?pwd=aVRwcWN3RU03Zzc2dkNpQzRWVXAydz09 Or dial one of these phone numbers: 1 (669) 900 6833, 1 (408) 638 0968, 1 (346) 248 7799 2 City Council Meeting Agenda – January 11, 2024
City of Capitola Page 3
Meeting ID: 833 2817 3113
Meeting Passcode: 678550
How to Provide Comments to the City Council
Members of the public may provide public comments to the City Council in-person during the meeting.

If you are unable to attend in-person, please email your comments to [email protected] and they will be included as a part of the record for the meeting. Please be aware that the City Council will not accept comments via Zoom.

Notice regarding City Council: The City Council meets on the 2nd and 4th Thursday of each month at 6:00 p.m. in the City Hall Council Chambers located at 420 Capitola Avenue, Capitola.

Agenda and Agenda Packet Materials: The City Council Agenda and the complete Agenda Packet are available for review on the City’s website: www.cityofcapitola.org and at Capitola City Hall prior to the meeting. Agendas are also available at the Capitola Post Office located at 826 Bay Avenue Capitola. Need more information? Contact the City Clerk’s office at 831-475-7300.

Agenda Materials Distributed after Distribution of the Agenda Packet: Pursuant to Government Code §54957.5, materials related to an agenda item submitted after distribution of the agenda packet are available for public inspection at the Reception Office at City Hall, 420 Capitola Avenue, Capitola, California, during normal business hours.

Americans with Disabilities Act: Disability-related aids or services are available to enable persons with a disability to participate in this meeting consistent with the Federal Americans with Disabilities Act of 1990. Assisted listening devices are available for individuals with hearing impairments at the meeting in the City Council Chambers. Should you require special accommodations to participate in the meeting due to a disability, please contact the City Clerk’s office at least 24 hours in advance of the meeting at 831-475-7300. In an effort to accommodate individuals with environmental sensitivities, attendees are requested to refrain from wearing perfumes and other scented products.

Si desea asistir a esta reunión pública y necesita ayuda - como un intérprete de lenguaje de señas americano, español u otro equipo especial - favor de llamar al Departamento de la Secretaría de la Ciudad al 831-475-7300 al menos tres días antes para que podamos coordinar dicha asistencia especial o envié un correo electrónico a [email protected].

Televised Meetings: City Council meetings are cablecast “Live” on Charter Communications Cable TV Channel 8 and are recorded to be rebroadcasted at 8:00 a.m. on the Wednesday following the meetings and at 1:00 p.m. on Saturday following the first rebroadcast on Community Television of Santa Cruz County (Charter Channel 71 and Comcast Channel 25). Meetings are streamed “Live” on the City’s website at www.cityofcapitola.org by clicking on the Home Page link “Meeting Agendas/Videos.” Archived meetings can be viewed from the website at any time. 3 How Capitola Became a City
4 Item 3 B.

Soquel Landing to Camp Capitola to the City of Capitola Soquel Landing Wharf 1857 – F.A. Hihn
Camp Capitola 1874 – Samuel A. Hall
Homeland of the Aptos & Cajastaca (Kai-ya-stah-ka) people Rancho Soquel & Soquel Augmentation – Martina Castro Lodge 1833-1860s Capitola-By-The-Sea – 1920s - Henry Allen Rispin
5 Item 3 B.

Aftermath of the 1933 Fire
As historian Carolyn Swift put it,
“… the fear of economic disaster aimed Capitola toward
a whole new blueprint for its future.”
Sneath’s Grocery Store
Dickinson’s Curios Frank’s Place
Chinese Gardens
Casey’s
The surviving building was the Canepa Capitola Fish Market 6 Item 3 B.
• Professional Fire
Department
• Reliable Water Supply
• Replace Outdated Sewer
System
Community Needs
7 Item 3 B.
1928
Capitola Police
Protection District
1967 – First Capitola Police Department
8 Item 3 B.
1 st Incorporation
Attempt in 1946
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Soquel + Capitola ?
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Highway 1 in 1949
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“Capitola could well be the ‘gem’ of the ocean cities but to beautify, we must first have local control. Then only can we control the quality of new growth. Do you like weed grown lots? Do you like the ‘Sometimes Lighted’ globes hung on telephone poles? Are you proud of the litter on the streets and beach that is such a joy to rats and consequently fleas? The Capitola Improvement Club is a group of people who really want to do something about it!”
President Jack Rosensteel
Publicity Chairman John Battistini
The Capitola Improvement Club
12 Item 3 B.

Lower taxes
Neighborhood improvements
Savings on electricity, gas and telephone rates
13 Item 3 B.

Issue Number 1 - Sewage
"At present nothing is being done to correct the sewer disposal plant which is causing the condemnation of the beach.”
John Battistini
"Those favoring incorporation had the beach closed at this time in order to scare the people and make them think we can't get a sewer system without incorporation … [it is] a foolish plan.” Firefighter Ed Huber
14 Item 3 B.

Collected signatures for an incorporation vote had to represent 25 percent of the land values between the beach and the freeway, and from 41st to Park Avenue. 15 Item 3 B.

Incorporation votes were cast at the Capitola Ballroom
on January 4, 1949
16 Item 3 B.

Victory of
only 54 votes
Capitola officially incorporated on January 11, 1949
Yea 297
Nay 243
17 Item 3 B.

First City Council Action
Brad Macdonald
27-year-old restaurant owner
Harlan P. Kessler
63-year-old real estate
and insurance agent
Yea: Harry M. Bowles,
M.E. Adamson,
Harlan Kessler
Nay: Jack Rosensteel
Brad Macdonald
18 Item 3 B.

Scrapitola
Capitola Postmaster and baseball great,
Harry Hooper (right) greets some gentlemen in
front of his real estate office on Capitola Avenue.
19 Item 3 B.

Capitola’s first city hall was a 1911 Craftsman
Cottage at 127 Monterey Avenue, along Lawn
Way. The building still stands, but is now a
private home.

In 1950 Capitola City Hall was moved to
420 Capitola Avenue in a room behind and
attached to the police department.

The present two-story city hall
was built in 1977.
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City Government
We should celebrate “… the spirit and identity that was so strong it proved Capitola able to rescue itself from just about anything …” Carolyn Swift 21 Item 3 B.

Tuesday, January 9, 2024 at 8:55:20 AM Pacific Standard Time

Subject: Remote Comment Item 8C
Date: Monday, January 8, 2024 at 10:37:26 PM Pacific Standard Time From: John
To: City Council, Gautho, Julia
Please bring zoom back for that eloquent woman in the wheelchair. Most of what that single commenter using different voices aiming to get an overreacOon from y’all said, besides the direct aQacks when you told them to be quiet, were protected speech under the 1st Amendment and if you had just let them conOnue they would have lost interest. They were going up and down CA in a fun paQern anyway they aren’t going to come back oUen if at all.

Stopping zoom comment was a further overreacOon and limiOng parOcipaOon in our city council process is not the right choice and the beQer folks amongst you know this to be true. Dumb choice too. Our civics is dying. Bleak Omes coming to our municipality if you believe data analysis is real.

John Mulry
22 Item 4 A.

Capitola City Council
Agenda Report
Meeting: January 11, 2024
From: City Manager Department
Subject: City Council Meeting Minutes
Recommended Action: Approve minutes from the regular meeting on December 14, 2023.

Background: Attached for Council review and approval are the draft minutes from the regular City Council meeting on December 14, 2023.

Attachments:

1. 12/14/2023 Minutes
Report Prepared By: Julia Gautho, City Clerk
Approved By: Jamie Goldstein, City Manager
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City of Capitola
City Council Meeting Minutes
Thursday, December 14, 2023 – 6:00 PM
City Council Chambers
420 Capitola Avenue, Capitola, CA 95010
Mayor: Margaux Keiser
Vice Mayor: Kristen Brown
Council Members: Yvette Brooks, Joe Clarke, Alexander Pedersen Closed Session – 5 PM
i. CONFERENCE WITH LABOR NEGOTIATORS (Gov. Code § 54957.6) Negotiator: Chloé Woodmansee, Assistant to the City of Manager Employee Organizations: Association of Capitola Employees, Police Officers Association, MidManagement Employees, Confidential Employees, Police Captains, and Management Regular Meeting of the Capitola City Council – 6 PM

1. Roll Call and Pledge of Allegiance – The meeting was called to order at 6:00 PM. In attendance: Council Members Brooks, Clarke, Pedersen, Brown, and Mayor Keiser.

2. Additions and Deletions to the Agenda – None

3. Report on Closed Session – The City Council met and discussed one item on the Closed Session agenda. No reportable action was taken.

4. Additional Materials
A. Two emails were received related to Item 8A.

B. Two emails and a staff memorandum were received related to Item 8B.

C. A staff memorandum was received related to Item 8C.

5. Oral Communications by Members of the Public
 Kerry, Capitola/Soquel Chamber of Commerce, reminded the City Council of the Capitola/Soquel Chamber of Commerce Annual Recognition Event on March 15th.  Gary Richard Arnold, resident, spoke about government matters.  John Mulry, resident, spoke about the Capitola Avenue and Stockton Avenue intersection.  James Whitman, resident, spoke about government matters.  Janet Edwards, resident, requested that the City Council bring back Zoom commentary for meetings.
 Adrienne West, resident, requested that the City Council drive through the intersection where Debra Towne was killed and shared concerns about the traffic conditions at Bay Avenue/Hill Street.
 Resident shared concerns about Police Department efforts to ticket traffic infractions.

6. Staff / City Council Comments – None

7. Consent Items
A. City Council Meeting Minutes
24 Item 7 A.

City Council Meeting Minutes – December 14, 2023
City of Capitola Page 2
Recommended Action: Approved minutes from the regular meeting on November 21, 2023.

B. City Check Registers
Recommended Action: Approved check registers dated November 17, 2023, November 22, 2023, and December 01, 2023.

C. Interest Rate for Tenant’s Security Deposits
Recommended Action: Adopted Resolution No. 4353 setting the interest rate for tenant’s security deposits for 2024 at zero percent (0%).

D. Annual and Five-Year Impact Fee Report
Recommended Action: Adopted Resolution No. 4354 adopting the Fiscal Year 2022-23 AB 1600 report.

Motion to approve the Consent Calendar: Vice Mayor Brown Seconded: Council Member Clarke
Voting Yea: Council Members Brooks, Clarke, Pedersen, Vice Mayor Brown, Mayor Keiser

8. General Government / Public Hearings
A. Bay Avenue and Hill Street Traffic Safety Update
Recommended Action: Received an update on the Bay Avenue and Hill Street Short-Term Traffic Safety Improvement Project and directed staff to pursue a corridor study.

Public Works Director Kahn presented the staff report.

Public Comments:
 James Whitman, resident, shared concerns about general traffic safety.  Janet Edwards, resident, requested that the City engage a visually impaired person to navigate this intersection and provide feedback.  John Mulry, resident (Strong Towns Santa Cruz), shared concerns about traffic speeds within Capitola.

City Council discussion included a request that staff immediately engage the Elderly and Disabled Transportation Advisory Committee for feedback on this project, direction to staff to purchase lighted/flashing stop signs and pole reflectors prior to implementation of the quick-build project, and re-stripe the Hill Street Corridor with reflective paint.

B. Capitola Wharf Enhancement Project
Recommended Action: Provided direction to staff regarding the redesigned wharf entry gate and additional fixtures, authorized approval of two artist contracts, and considered an allocation of additional funding for the Capitola Wharf Enhancement Project (CWEP).

Public Works Director Kahn presented the staff report. Gerry Jensen and Gayle Ortiz, CWEP, provided a brief presentation.

Public Comments:
 Laurie Hill, Art and Cultural Commissioner, requested clarification on which entrance arch will be used in the design.
 Christine McBroom, CWEP, encouraged the City Council to consider allocating additional funds to the project.
 TJ Welch, resident, thanked the CWEP fundraisers for their work and encouraged the City Council to consider allocating additional funds to the project.  John Mulry, resident, requested that the City Council fund the bike racks on the Wharf and commended the CWEP group for their fundraising efforts. 25 Item 7 A.

City Council Meeting Minutes – December 14, 2023
City of Capitola Page 3
 Janet Rowanolski, resident, encouraged the City Council to consider allocating additional funds to the project.
 Dave Peyton, resident, advised that the Historical Museum was selling 2024 Wharf Calendars.

City Council discussion included thanks to the CWEP group for their fundraising efforts and for the collaboration with City staff, a request to include as much donor space as possible in the entry way design.

Motion to allocate $250,000 for the CWEP Enhancement Items and set aside $75,000 for a Lifeguard Storage Facility: Vice Mayor Brown
Seconded: Council Member Clarke
Motion amended to include authorization for the artist contracts, allocation of $250,000 for the CWEP Enhancement Items and setting aside $75,000 for a Lifeguard Storage Facility, and authorization to execute an amendment to the Public Works Agreement with Cushman: Vice Mayor Brown
Seconded: Council Member Clarke
Voting Yea: Council Members Brooks, Clarke, Pedersen, Vice Mayor Brown, Mayor Keiser C. Strategic Planning Contract
Recommended Action: Authorized the City Manager to execute a Professional Services Agreement with Berry Dunn in an amount not to exceed $50,000 to develop a five-year City of Capitola Strategic Plan.

Chloe Woodmansee, Assistant to the City Manager, presented the staff report.

Motion to authorize the City Manager to execute an agreement with BerryDunn: Council Member Pedersen
Seconded: Council Member Clarke
Voting Yea: Council Members Brooks, Clarke, Pedersen, Vice Mayor Brown, Mayor Keiser D. City Council Reorganization for 2024
Recommended Action: Appointed a new Mayor and Vice-Mayor.

City Council commentary included thanks to Mayor Keiser for her time, commitment, and efforts as Mayor. Mayor Keiser shared her thanks to her fellow Council Members and staff.

Motion to appoint Kristen Brown as Mayor: Council Member Brooks Seconded: Mayor Keiser
Voting Yea: Council Members Brooks, Clarke, Pedersen, Vice Mayor Brown, Mayor Keiser Motion to appoint Yvette Brooks as Vice Mayor: Council Member Keiser Seconded: Mayor Brown
Voting Yea: Council Members Brooks, Clarke, Keiser, Pedersen, Mayor Brown

9. Adjournment – Adjourned at 7:40 PM to the next regularly scheduled City Council meeting on January 11, 2024, at 6:00 PM.
____________________________
ATTEST: Margaux Keiser, Mayor
26 Item 7 A.

City Council Meeting Minutes – December 14, 2023
City of Capitola Page 4
____________________________
Julia Gautho, City Clerk
27 Item 7 A.

Capitola City Council
Agenda Report
Meeting: January 11, 2024
From: Finance Department
Subject: City Check Registers
Recommended Action: Approve check registers dated December 8, 2023, and December 15, 2023.

Account: City Main
Date Starting Check # Ending Check # Payment
Count Amount
12/08/2023 104911 104975 70 $ 247,782.66
12/15/2023 104976 105010 35 $ 281,688.34
The main account check register dated December 01, 2023, ended with check #104910.

Account: Payroll
Date Starting
Check/EFT #
Ending
Check/EFT #
Payment
Count Amount
12/08/2023 5854 5854 1 $ 17.59
12/15/2023 23868 23970 103 $ 202,132.58
The payroll account check register dated December 01, 2023, ended with EFT #23867.

Following is a list of payments issued for more than $10,000 and descriptions of the expenditures:

Check/
EFT Issued to Dept Description Amount
104922 California Grey Bears Inc CDD 21-CDBG-NH-20008 Health Food Program Grant Q1 $ 20,699.46
104924 Capitola Self Storage CM Annual Museum storage rent units $ 12,072.00
104925 Capitola-Soquel Chamber
of Commerce Fin Q1 TOT $ 14,061.67
104953 Moffatt and Nichol PW Wharf project services 10/29- 11/25/2023 $ 10,674.77
104961 Phoenix Group Information
Systems PD October 2023 Citation Processing $ 14,535.10 1634 CalPERS Member
Services Division CM PERS contributions PPE 11/25/23 $ 64,673.79 1635 Employment Development
Department CM State taxes PPE 11/25/23 $ 11,616.00
1636 Internal Revenue Service CM Federal taxes & Medicare PPE 11/25/23 $ 38,073.78
104982 Betz Works Inc PW Remove and Replace Root $ 18,800.00 28 Item 7 B.

Heaved Asphalt
104983 Boone Low Ratliff
Architects Inc PW November Community Center renovation design services $ 42,519.91 104992 McKim Corporation PW
November Capitola Road
Pavement Rehabilitation
Project Services
$ 183,641.42
Attachments:

1. 12-08-23 Check Register

2. 12-15-23 Check Register
Report Prepared By: Luis Ruiz, Accountant I
Reviewed By: Julia Gautho, City Clerk and Jim Malberg, Finance Director Approved By: Jamie Goldstein, City Manager
29 Item 7 B.
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44 Item 7 B.

Capitola City Council
Agenda Report
Meeting: January 11, 2024
From: Finance Department
Subject: FY 2022-23 Audit Report
Recommended Action: Receive Fiscal Year 2022-23 Audit Report.

Background: The City of Capitola is required by state statute to publish a complete set of financial statements presented in conformity with generally accepted accounting principles and audited in accordance with generally accepted auditing standards. The audit must be conducted by a firm of licensed certified public accountants.

The City’s Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2023, has again received an “unmodified” opinion, which indicates the auditor believes the financial statements are presented fairly in all material respects. The City’s annual audit and ACFR meet all state and federal requirements and will be available to the public at City Hall as well as on the City’s website.

Discussion: The financial report presents the financial condition, results of operations, and current economic condition for the City and component units’ Fiscal Year ended June 30, 2023. Financial information for the Successor Agency is presented as a separate Private Purpose Trust Fund within the ACFR.

The independent audit firm Eide Bailly LLP issued the following opinion on the City’s financial records, found on page two of the ACFR: “In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Capitola, California, as of June 30, 2023, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.”
The Fiscal Year (FY) 2022-23 ACFR has been submitted to the Government Finance Officers’ Association for the Excellence in Financial Reporting Award. The City’s ACFR has received this prestigious award for the last nine fiscal years. Previously, the City had received the California Society of Municipal Finance Officers Award for Outstanding Financial Reporting every year since FY 2000.

In addition to the ACFR, the auditor also issues a Management Letter and the Letter of Required Disclosures to the Governing Body and Statement of Auditing Standards (SAS) 114. The Management Letter discusses the City’s internal control over financial reporting and makes recommendations, if necessary, of controls that need to be strengthened. The SAS 114 Letter is a document that discusses, among other matters, any significant audit findings. Neither document identified any areas of concern.

Fiscal Impact: The following are key financial highlights of the FY 2022-23 ACFR:
45 Item 7 C.
 Net Position
o Current and other assets $ 29,275,371
o Capital assets 36,940,232
o Total Assets $ 66,215,603
o Total Deferred Outflows of Resources $ 13,666,136
o Other Liabilities $ 1,527,266
o Long-term liabilities
 Due in one year 1,030,965
 Due in more than one year 33,247,574
o Total Liabilities $ 35,805,805
o Total Deferred Inflows of Resources $ 3,510,268
o Net Position:
o Net investment in capital assets $ 35,467,652
o Restricted 11,253,866
o Unrestricted (6,155,852)
o Total Net Position $ 40,565,666
 Revenues
o General Revenues:
o Taxes:
 Sales and use taxes $ 8,542,419
 Property taxes 3,058,146
 Transient occupancy taxes 2,131,470
 Franchise taxes 708,277
 Business license taxes 313,993
o Motor vehicle in-lieu 307,089
o Investment income 662,048
o Miscellaneous revenue 162,352
o Program Revenues:
 Charges for services 3,027,626
 Operating grants and contributions 865,684
 Capital contributions and grants 1,645,554
o Total Revenues $ 21,424,658
 Expenses
o General Government $ 3,443,270
o Public Safety 5,703,129
o Community Development 635,090
o Culture and Recreation 2,181,074
o Public Works 2,408,783
o Interest and other charges 55,843
o Total Expenses $ 14,391,607
o Change in Net Position 7,033,051
o Beginning Net Position 33,532,615
o Ending Net Position $ 40,565,666
46 Item 7 C.
 General Fund
o Fund balance:
o Non-spendable:
 Prepaid items $ 74,590
o Assigned:
 Emergency Reserve 1,314,206
 Contingency Reserve 2,192,346
 PERS Retirement Trust 1,162,375
o Unassigned 5,945,090
o Total Fund Balance $ 10,688,607
 Capital Assets:
o Land $ 4,883,789
o Building & Improvements 18,017,712
o Equipment 4,520,133
o Infrastructure 35,907,669
o Construction in Progress 3,249,718
o Total Capital Assets $ 66,879,021
o Less Depreciation 29,938,789
o Capital Assets Net of Depreciation $ 36,940,232
 Long-Term Debt / Liability
o Pacific Cove Capital Lease 642,663
o Beach & Village Parking Lease 829,917
o Compensated Absences 915,544
o Net OPEB Obligation 1,833,813
o Net Pension Liability 30,056,602
o Total Long-Term Debt $ 34,278,539
The next opportunity to review the City’s financial picture, including updated revenue and expenditure forecasts, will be at the Mid-Year Budget Review in late February.

Attachments:

1. City of Capitola FY 2022-23 ACFR

2. Governance Communication Letter
Report Prepared By: Jim Malberg, Finance Director
Reviewed By: Julia Gautho, City Clerk
Approved By: Jamie Goldstein, City Manager
47 Item 7 C.

Annual Comprehensive
Financial Report
City of Capitola, California
Fiscal Year Ended June 30, 2023
48 Item 7 C.

This page intentionally left blank
49 Item 7 C.

CITY OF CAPITOLA,

CALIFORNIA

ANNUAL COMPREHENSIVE

FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 2023
Prepared by the Capitola Finance Department
50 Item 7 C.

City of Capitola
Annual Comprehensive Financial Report
Year Ended June 30, 2023

TABLE OF CONTENTS
Page
INTRODUCTORY SECTION:

Letter of Transmittal ................................................................................................................... i List of Principal Officials ............................................................................................................ xii Organizational Chart ................................................................................................................ xiii Awards for Financial Reporting ................................................................................................ xiv FINANCIAL SECTION:

Independent Auditor's Report......................................................................................................1 Management's Discussion and Analysis .....................................................................................5 Basic Financial Statements:

Government-wide Financial Statements:

Statement of Net Position....................................................................................................19 Statement of Activities.........................................................................................................20 Fund Financial Statements:

Balance Sheet – Governmental Funds................................................................................22 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position .................................................................................................24 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds ........................................................................................................25 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities ..............................27 Statement of Fiduciary Net Position ....................................................................................28 Statement of Changes in Fiduciary Net Position..................................................................29 Index to Notes to Financial Statements...................................................................................30 Notes to Financial Statements ................................................................................................31 Required Supplementary Information:

Schedule of Changes in Net OPEB Liability and Related Ratios.............................................65 Schedule of OPEB Contributions ............................................................................................67 Schedule of City’s Proportionate Share of the Plan’s Net Pension Liability…………… ...........70 Schedule of Pension Contributions .........................................................................................72 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual:

General Fund....................................................................................................................74 Federal Home Loan Reuse Fund......................................................................................75 Capitola Housing Successor Fund ....................................................................................76 RTC Streets Fund.............................................................................................................77 Notes to Required Supplementary Information .......................................................................78 51 Item 7 C.

City of Capitola
Annual Comprehensive Financial Report
Year Ended June 30, 2023
TABLE OF CONTENTS – Continued
Page
Supplementary Information:

Budgeted Other Major Funds:

Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual:

Capital Projects Fund .................................................................................................... 79 Non-Major Governmental Funds:

Combining Balance Sheet ................................................................................................... 82 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances ....................................................................................................... 86 Budgeted Non-Major Funds:

Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual:

Senate Bill 1 Road Rehab Fund ................................................................................ 90 Supplemental Law Enforcement Fund ...................................................................... 91 Gas Tax Fund ........................................................................................................... 92 Wharf Fund .............................................................................................................. 93 Parking Reserve Fund .............................................................................................. 94 Technology Fees Fund ............................................................................................... 95 PEG Cable TV Access Fee Fund ............................................................................... 96 Capitola Village and Wharf BIA Fund ....................................................................... 97 CDBG Fund ........................................................................................................... 98 CDBG Program Income Fund ................................................................................. 99 Affordable Housing Fund .......................................................................................... 100 Restricted TOT Fund ................................................................................................ 101 Beach and Village Lot II Debt Financing Fund .............................................................. 102 Pacific Cove Debt Financing Fund ............................................................................ 103 52 Item 7 C.

TABLE OF CONTENTS – Continued
Page

STATISTICAL SECTION
ACFR Statistical Section - Table of Contents ...................................................................104 Financial Trends Information:

Net Position by Component .......................................................................................106 Changes in Net Position ............................................................................................107 Fund Balances of Government Funds ........................................................................109 Change in Fund Balances of Governmental Funds ...................................................111 General Revenues by Source ....................................................................................113 Revenue Capacity Information:

Net Taxable Assessed Value History..........................................................................114 Assessed Value of Taxable Property..........................................................................115 Direct and Overlapping Property Tax Rates ..............................................................116 Top Ten Property Taxpayers .....................................................................................117 Property Tax Levies and Collections .........................................................................118 Top 25 Sales Tax Taxpayers......................................................................................119 Debt Capacity Information:

Ratios of Outstanding Debt by Type...........................................................................120 Ratios of General Bonded Debt Outstanding .............................................................121 Direct and Overlapping Debt ......................................................................................122 Legal Debt Margin Information ...................................................................................123 Pledged - Revenue Coverage ....................................................................................124 Demographic and Economic Information:

Demographic and Economic Statistics ..................................................................... 125 Principal Employers - Top Ten ...................................................................................126 Full-Time and Part-Time City Employees by Function ...............................................127 Operating Information:

Operating Indicators by Function................................................................................128 Capital Asset Statistics by Function............................................................................129 53 Item 7 C.

INTRODUCTORY SECTION
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December 22, 2023
Honorable Mayor,
Members of the City Council, and
Citizens of the City of Capitola
SUBJECT: Annual Comprehensive Financial Report - June 30, 2023 The Annual Comprehensive Financial Report (ACFR) for the City of Capitola for the fiscal year ended June 30, 2023, is hereby submitted.

REPORT PURPOSE AND ORGANIZATION
State law requires the accounts and fiscal affairs of all municipal entities be audited annually by an independent certified public accountant. The City's independent auditor Eide Bailly LLP has audited the City's financial statements and issued an unmodified opinion that the financial statements for fiscal year ended June 30, 2023, are fairly presented in conformity with generally accepted accounting principles (GAAP). This opinion, along with the basic financial statements of the City, are hereby submitted as the Annual Comprehensive Financial Report (ACFR) for the City of Capitola for the fiscal year ended June 30, 2023, and included in the financial section of this report in fulfillment of the above requirement.

The independent audit of the financial statements is also typically conducted in conjunction with the federally mandated Single Audit. The standards governing the Single Audit require the independent auditor to report on items beyond fair presentation of the financial statements, including internal controls and compliance with legal requirements involving the administration of federal awards. A Single Audit Report on Federal Award Programs was not required or prepared in fiscal year 2023 because the City had less than $750,000 in federal grant expenditures. The City’s last required Single Audit Report is available for the year ended June 30, 2012.

This report consists of City management's representations concerning the finances of the City of Capitola. Consequently, management assumes full responsibility for completeness, accuracy of data, and fairness of presentation, including all footnotes and disclosures. Management believes the data presented are accurate in all material respects and that they are presented in a manner designed to fairly set forth the financial position and results of operations of the City. To provide a reasonable basis for making these representations, City management has established a comprehensive framework of internal controls designed both to protect the City's assets from loss, theft, or misuse and to compile sufficiently reliable information for the preparation of the City's financial statements in conformity with GAAP. Because the cost of internal controls should not exceed their benefits, the City's internal controls have been designed to provide reasonable rather than absolute assurance that the financial statements are free of material misstatements. The audit provides users with reasonable assurance that the information presented is free from material misstatements. As management, we assert that to the best of our knowledge, this financial report is complete and reliable in all material respects. 56 Item 7 C.
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GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City’s MD&A can be found in the Financial Section of this document, immediately following the report of the independent auditor.

CITY OF CAPITOLA PROFILE
The City of Capitola is a small coastal community located in Santa Cruz County that occupies approximately two square miles and serves a population of about 9,794. Located on the northern edge of Monterey Bay, approximately 35 miles north of Monterey and 75 miles south of San Francisco, Capitola enjoys a rich history and offers residents diverse recreational opportunities.

Capitola Village is located along a sandy beach with expansive views of Monterey Bay and is home to numerous craft galleries, boutiques, and restaurants. The City is host to numerous events, including the Capitola Beach Festival, Capitola Art and Wine Festival, and the annual Wharf to Wharf race.

Named the Most Walkable Beach Town in the United States by Elle Décor Magazine, voted one of the best beach locations on the California Coast by Sunset Magazine, and recently named one of the “9 Most Unspoiled Vacation Spots” by the Fishing Booker website, Capitola offers fishing and boating, along with beachfront restaurants, shops, and entertainment. Other visitor attractions include the Capitola Historical Museum, Capitola Wharf, and the Capitola Mall.

Although Capitola is considered a central coast beach destination, it is also one of two major retail centers in Santa Cruz County. The Capitola Mall, combined with Brown Ranch and 41st Avenue businesses, is the retail hub of the central county. With major retailers such as Target, Macy’s, Kohl’s, CVS, Ross, and Whole Foods Market, Capitola is a “net regional retail provider” with retails sales several times higher than the retail demand of Capitola city residents. The City also has two major car dealerships.

Capitola is also fortunate to have outstanding educational opportunities. In addition to having New Brighton Middle School within its City limits, both Cabrillo Community College and the University of California, Santa Cruz, are within eight miles of the City. According to the U.S. Census Bureau’s 2020 data, approximately 93% of Capitola residents are high school graduates and 40% possess a Bachelors’ Degree or higher-level degree.

Form of Government
Capitola is a General Law City, which was incorporated on January 11, 1949. The City is subject to the framework and procedures established by State Law and operates under the Council – City Manager form of government. The Council is comprised of four Council Members and a Mayor, all of whom are directly elected by the citizens. The Council Members serve four-year staggered terms; and the Mayor and Vice-Mayor are elected annually by the Council. The Council has the authority to establish all laws and regulations with respect to municipal affairs, subject only to the limitations of the City Municipal Code and the State legislation.

The City Council appoints a City Manager to serve as the City’s chief administrative officer. The City Manager provides direction and leadership to all City departments and ensures that all City Council policies are implemented.
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City Services
The City provides police protection, street, park and facilities maintenance, recreation, building, planning, zoning, administrative, and financial services for Capitola. Independent special districts provide fire protection, water, sewer, and limited drainage services.

The ACFR includes all financial activities of the City and the Successor Agency to the former Redevelopment Agency of the City of Capitola; two separate legal entities. Financial activities of the Successor Agency are also subject to approval by an independent Oversight Board. The Successor Agency was dissolved during fiscal year (FY) 2022-23.

Financial data for all funds through which services are provided by the City have been included in this report based on the criteria adopted by the Government Accounting Standards Board (GASB), which is the authoritative body in establishing United States GAAP for local governments.

Budgetary Policy and Control
The City’s budgetary records are maintained on a modified accrual basis. Revenues are recorded when measurable and available and expenditures are recorded when goods or services are received, and the liability incurred. The City produces a two-year annual budget, which serves as the foundation for the City of Capitola’s financial planning and control. Based on the City’s Financial Management Policies, the City is required to maintain a balanced operating budget; along with using one-time revenues to fund non-recurring expenditures. In the budget development process, the City references the following Budgeting Principles to identify key projects and goals: Fiscal Policy, Public Service, and Public Improvements.

In accordance with the City’s Municipal Code, the budget is adopted by resolution on or before June 30th for the ensuing fiscal year. Expenditures authorized in the final budget resolution are appropriated at the budget unit level. Capital projects are budgeted at the individual project level.

The City Council may appropriate, amend, or transfer funds by an affirmative vote of three or more Council members at any regular or special Council meeting.

Factors Affecting Financial Condition
The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the environment in which the City operates.

Local Economy
The City of Capitola saw its recovery from the COVID-19 pandemic slow down throughout FY 2022-23 due to the January 2023 storms damaging several Capitola Village businesses causing them to close temporarily. Despite the increased expenses due to storms, actual general fund revenues exceeded expenditures by approximately $1,272,000 which was higher than what was projected by $1,850,000. Sales tax revenue was lower than projections by approximately $166,000 but still higher than the previous fiscal year by $57,620. The net position of the General Fund decreased by approximately $1.17 million, which was lower than the projected decrease of $4.57 million. The fund balance decrease was by design of the FY 2022-23 budget and General fund transfers out to the Capital Improvement Project (CIP) fund being $1,473,000 below budget resulted in the decrease not being as significant.
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The three major sources of General Fund revenue include Sales Tax, Property Tax, and Transient Occupancy Tax (TOT). These three revenues account for approximately 90% of all General Fund Revenues.

Sales tax is the City’s largest source of revenue, accounting for approximately 56% of the General Fund Revenues. The City sales tax consists of 1% Bradley Burns, 0.25% Capitola District Tax (Measure O), and a 0.25% Capitola District Tax (Measure F) that is effective from January 1, 2018, through December 31, 2027. In FY 2022-23, the combined sales tax receipts of $8.54 million were $166,444 (1.91%) lower than budgetary estimates and $57,620 (0.68%) above the prior year.

Sales tax receipts are volatile and reflect the current local, state, and national economic condition.

Sales Tax collections for the City of Capitola increased year over year after decreasing in the prior year due to the pandemic, however sales tax revenues have been relatively flat since FY 2015-

16. The following chart shows sales tax trends over the past ten years as well as demonstrating the proportional share of District and Bradley Burns Sales taxes.

Capitola’s second major source of revenue is property tax. In FY 2022-23 the General Fund received $3.0 million in property tax receipts, prior to inclusion of Documentary Transfer Tax and Residual RDA distributions. This base amount was approximately $177,000 more than the prior year and $14,000 below the final budgeted amount. Over the last five fiscal years the City has averaged approximately 5% growth in annual property tax collections. However, in FY 2022-23 the increase was approximately 6.4% over the prior year.

Due to the dissolution of the Capitola Redevelopment Agency (RDA), the RDA’s tax increment revenues are distributed to the Successor Agency Redevelopment Property Tax Trust Fund (RPTTF) in amounts that are only sufficient to fund obligations approved by the independent Oversight Board. Before the RDA dissolution, the City and RDA received over $2 million a year. $-
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Sales Tax Trends
Bradley Burnes Measure D Measure O Measure F
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The end of the Required Obligation Payment Schedule (ROPS) was in June 2021 and the City has also dissolved the Successor Agency in FY 2022-23.

The City’s property tax revenues do not respond to economic conditions as quickly as sales tax revenues. This delayed response, along with less volatility, assists the City in adjusting to economic downturns by lessening the immediacy of revenue loss. The following chart includes Property Tax Revenue, as well as Property Tax In-Lieu of Vehicle License Fees. Based on the historical data, property tax revenues have remained relatively consistent due to appreciating property values. Staff anticipates this trend, while showing signs of slowing, will continue into the next fiscal year.

Transient occupancy tax (TOT) represents approximately 14% of General Fund revenues. While tourism and economic growth have remained stable, TOT revenue remained flat from FY 2015- 16 through FY 2017-18 due to limitations on hotel and vacation rental room inventory. In November 2018 Capitola voters approved an increase in the TOT rate from 10% to 12% with

0.40% dedicated to local business groups and 0.35% dedicated to Early Childhood and Youth programs. The new TOT rate became effective on January 1, 2019, boosting TOT revenues in FY 2018-19. TOT revenues were one of the most impacted revenues due to COVID-19 and saw a significant reduction during the fourth quarter of FY 2019-20, however they rebounded quickly and are now exceeding pre-pandemic amounts. The chart below provides a 10-year history of TOT revenues.
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Property Taxes - Regular Residual Distribu�on
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Long‐term Financial Planning
In the past, the City has made strategic decisions to help maintain resiliency in difficult economic times. As a continuation of this practice, the City is focusing on the following planning measures:

Planning for Sales Tax Revenues
The City of Capitola sales tax revenue consists of 1% Bradley Burns Sales tax and two 0.25% District taxes. The first District sales tax, Measure O, is a permanent 0.25% sales tax that was approved by voters in November 2012 and went into effect April 1, 2013. Measure O was implemented with the goal of replenishing reserves, funding CIP projects, and providing support for public safety initiatives. The City developed a five-year plan to ensure that Measure O funds were applied to their stated priorities. Each of the district taxes collect approximately $1.0 million in General Fund revenues annually.

The second District tax, Measure F, was passed by voters in 2016 to extend Measure D, a temporary quarter of one percent sales tax, for an additional ten years. The City is committed to using this funding source to protect the wharf and beach from storms and rising sea levels, maintain police services, and improve sidewalks, parks, and bike safety. The adopted FY 2022- 2023 budget continued implementing these commitments as Measure F went into effect on January 1, 2018.
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Transient Occupancy Tax Trends
TOT - Restricted TOT - General Fund
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Replenishing and Increasing Reserves
The City has been proactive in establishing a stable reserve level. A portion of Measure O revenues were set aside to replenish the Contingency and Emergency Reserve Funds. The City’s reserves were depleted in March of 2011 when an underground storm drain failed, which resulted in damage to the Pacific Cove Mobile Home Park, City Hall, and portions of Capitola Village. As a result, the City paid $1.4 million in flood related costs over a two-year period and assumed a $2.39 million debt to relocate residents of the City-owned Pacific Cove mobile home park. This incident reduced the City’s reserves from $1.87 million in FY 2009-10 to $561,000 in FY 2011-12.

This incident, along with the economic downturn, emphasized the need to review reserve policy levels to ensure the City was maintaining a sufficient balance to effectively manage unforeseen events.

In FY 2012-13 the City increased the Emergency Reserve funding level from 5% to 10% of operating expenditures and the Contingency Reserve funding level from 10% to 15% to ensure sufficient reserves are available to offset the effects of the next economic downturn and unforeseen emergencies.

In FY 2015-16 the City implemented a PERS Contingency Reserve Fund to ensure future funding availability for potential CalPERS contribution increases. The initial funding came from a $300,000 transfer from the General Fund. The City invested the funds with Public Agency Retirement Services (PARS) in a moderately conservative trust fund that allows for a higher rate of return.

During FY 2017-18, the City put an additional $500,000 in the PERS trust fund and budgeted an additional $500,000 in FY 2022-23. In FY 2022-23, $250,000 was put into the PERS trust fund and the next $250,000 will be contributed during FY 2023-24. $0.0
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Maintain the Facilities Reserve Fund
The City created a Facilities Reserve Fund in FY 2014-15. The purpose of the Facilities Reserve Fund is to create a mechanism to fund future facility maintenance projects. Examples of projects that could be financed through the fund include replacing roofs, painting exteriors, replacing mechanical/electrical equipment, and maintenance of adjoining parking spaces. The Facilities Reserve Fund ended FY 2022-23 with a cash balance of $432,714. The FY 2023-24 budget does not include any funding into the Facilities Reserve Fund or expenditures in the Facilities Reserve Fund. Staff anticipates restoring annual contributions to the Facilities Reserve in FY 2024-25.

Funding Other Post-Employment Benefits Obligation (OPEB) The City created an OPEB trust fund in FY 2013-14 in order to reduce and eventually eliminate the liability. Before prefunding the OPEB Liability, the City historically contributed the Minimum Employer Contribution required under the Public Employees’ Medical and Hospital Care Act (PEMHCA). The transition from “pay as you go” financing to full funding, reduced the City’s longterm liability from $1,011,800 to $657,500. In May 2014 the Actuarial Standards Board adopted standard number 6 (ASOP 6) requiring the calculation of the “Implicit Rate Subsidy”. The implicit rate is an inherent subsidy of retiree healthcare costs by active employee healthcare costs when healthcare premiums paid by retirees and actives are the same.

Following the advice of the City’s auditors as well as the new Actuarial Consultant, the current OPEB Actuarial Valuation now includes the Implicit Rate Subsidy calculation. This one change caused the Unfunded Actuarial Accrued Liability to increase $1,201,442 increasing the balance from $584,737 on June 30, 2019, to $1,572,208 on June 30, 2020. The balance on June 30, 2022, the latest actuarial measurement date, was $1,833,813. The FY 2023-24 Adopted Budget includes funding of $67,050 for the OPEB trust fund.

Controlling Personnel Costs
Being a service-oriented organization, personnel costs make up the largest General Fund expenditure. The personnel budget comprises approximately 69% of the General Fund.

In 2021 all bargaining units agreed to multi-year contracts continuing with the cost sharing of CalPERS contributions originally negotiated in FY 2013-14, cost of living adjustments (COLA) based on the Consumer Price Index, and Flex Health Care spending increases. All bargaining units, with the exception of the Mid-Management Employees, agreed to new three-year contracts through June 30, 2024, while the Mid-Management Employees agreed to a new one-year contract through June 30, 2024, following the expiration of their two-year contract June 30, 2023.

Recent changes in CalPERS’ risk pools have had a significant negative impact on the City. These changes will result in an annual decrease in CalPERS costs of 2.0% in FY 2023-24. Due to investment losses of 6.1% in 2022 the annual CalPERS cost is projected to increase 19.3% in FY 2024-25. Additionally, CalPERS rate 2023 rate of return was 5.8% which is below the anticipated rate of return of 6.8% and will likely lead to increased costs in FY 2025-26. Understanding that existing employees were already contributing more than the CalPERS-designated “employee share,” the City’s current labor contracts set future employee CalPERS contribution rates at a fixed percentage of compensation to reduce the impact on employees. 63 Item 7 C.
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The number of full-time equivalent (FTE) positions city-wide increased 4.0 during FY 2022-23 as the City continued to fill vacant positions that were frozen in order to mitigate the fiscal impacts from COVID-19. The total city-wide authorized FTE’s in FY 2022-23 was 70 with 68.25 positions budgeted.

Major Initiatives
Capitola Mall Redevelopment
The City has continued to seek redevelopment opportunities to update and upgrade the City’s major retail corridor and mall area. Upgrades to the Capitola Mall are now anticipated with the April 2016 purchase of the Mall by Merlone Geier Partners, a private real estate investment company focused on the acquisition, development, and redevelopment of retail and retail-driven mixed-use properties on the West Coast. The City received a development application from Merlone Geier Aug. 27, 2019, however, due to COVID-19 the project has been put on hold by the developer.

Funding Measure F Commitments
In November 2016 voters of Capitola approved extending an existing quarter of one percent sales tax for an additional ten years. The city has committed this sales tax revenue to protecting the beach and wharf from rising sea levels and storms, supporting bike and pedestrian safety projects, and maintaining police staffing levels.

In FY 2022-23 Measure F funding was programed towards the Wharf Rehabilitation Project. The FY 2023-24 adopted budget includes $1.1 million of Measure F funding towards the Wharf Rehabilitation Project. Previously the flume and jetty reconstruction projects were fully funded and completed in FY 2020-21. Work began on these projects in FY 2017-18 along with the use of Measure F funds to replace the 20-year-old front end loader for beach maintenance.

Capitola Wharf Resiliency and Public Access Improvements The Capitola Wharf, known as Soquel Landing at the time, was built more than 150 years ago for F.A. Hihn in order to ship goods produced in the region such as timber, leather, paper, and products from local farms. The Wharf has been damaged and rebuilt numerous times during its history and in 1979 the City of Capitola accepted the grant deed to the Wharf from the County.

Following a complete renovation project, the City opened the wharf to the public in 1981. Since that time, the City has used revenue generated from the lease agreements with the restaurant and boat & bait shop to maintain the wharf. A recent report commissioned by the City recommended a number of larger scale projects to better protect the wharf from the impacts of storms and rising sea levels.

The current Engineer’s Estimate for the Capitola Wharf Resiliency and Public Access Improvements project is $8.2 million which includes repairing damages from the January 2023 storms. Prior year appropriations of $9.4 million include $2.2 million of Measure F funding, State grant funds of $1.9 million, Federal grant funds of $3.5 million, State funding of $500,000 and $1.3 million of general fund while prior year expenditures and encumbrances total $1.2 million. The FY 2023-24 Adopted Budget includes additional funding of $1.1 million from Measure F to complete the funding for the project. The Capitola Wharf Resiliency and Public Access Improvements project is set to begin construction in Sept. 2023 with an anticipated completion date of late summer 2024.
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Relevant Financial Policies
Financial Management Policies
The City has developed comprehensive Financial Management Policies to assist with the management of the operating and capital budgeting process and to standardize and rationalize the issuance of debt. This document focuses on Capital Budgeting and Reserves – Issuance of Debt, Operating Budgeting and Reserves and Other Polices, which addresses conformance with Generally Accepted Accounting Principles (GAAP), and Internal Borrowings. This policy requires the City to maintain a balanced operating budget; along with the use of one-time revenues to fund non-recurring expenditures.

A key component of this policy focuses on reserve requirements. Each fiscal year, the final adopted General Fund budget is required to have a Contingency Reserve appropriation equal to 15% of the General Fund operating expenditures and an Emergency Reserve appropriation equal to 10% of the General Fund operating expenditures. The purpose of the Contingency Reserve is to provide a prudent level of financial resources to protect against temporary revenue shortfalls, unanticipated operating costs, and/or to meet short-term cash flow requirements. The purpose of the Emergency Reserve Fund is to protect against one-time significant costs that may arise from major unpredictable emergency events.

Investment Policy
The City’s Investment Policy governs the investment of temporary cash excesses. Investments are prioritized based on the following order of importance: Safety of principal, liquidity, and yield.

Various low risk investments, such as U.S. Treasury bills are permitted. During the year, all excess cash balances, which were not held by a fiscal agent, were invested in the California Local Agency Investment Fund (LAIF) and U.S. Treasury. At no time during the year was the City's cash invested in a manner that violates this policy.
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AWARD FOR EXCELLENCE IN FINANCIAL REPORTING
The Government Finance Officers Association of the United States and Canada (GFOA) also awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Capitola’s ACFR for the fiscal years ended June 30, 2012, through June 30, 2022. This Certificate of Achievement is a prominent national award recognizing conformance with the highest standards for preparation of State and local government financial reports. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized Annual Comprehensive Financial Report whose contents conform to program standards. This report must satisfy both generally accepted accounting principles and applicable legal requirements.

A GFOA Certificate of Achievement is valid for a period of only one year. The City of Capitola believes the FY 2023 ACFR conforms to the Certificate of Achievement program requirements and will be submitting it to GFOA for review.

Prior to receiving the GFOA Award, the City received the Certificate for Outstanding Financial Reporting for its Annual Comprehensive Financial Report (ACFR) from the California Society of Municipal Finance Officers (CSMFO). This award was received consistently since FY 1999-00.

Once a GFOA Award is received, CSMFO prohibits cities from applying and receiving both awards.

ACKNOWLEDGEMENTS
The preparation of this report would not have been possible without the efficient and dedicated services of the entire Finance Department staff. I would also like to express our appreciation to the partners and staff of our auditors for their assistance and support.

I wish to express my thanks and appreciation to the Mayor and members of the City Council for their unfailing leadership and support in planning and conducting the financial operations of the City in a responsible and progressive manner.

Respectfully submitted,
Jamie Goldstein
City Manager
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CITY OF CAPITOLA

LIST OF PRINCIPAL OFFICIALS
FOR
FISCAL YEAR ENDED JUNE 30, 2023

ELECTED OFFICIALS
Mayor – Margaux Keiser
Vice Mayor – Kristen Brown
Council Member – Yvette Brooks
Council Member – Joe Clarke
Council Member – Alexander Pedersen

APPOINTED OFFICIALS
City Manager – Jamie Goldstein
City Attorney – Burke, Williams & Sorensen, LLP

DEPARTMENT HEADS/ADMINISTRATORS
Assistant to the City Manager – Chloe Woodmansee
Chief of Police – Andy Dally
City Clerk – Julia Moss
Community Development Director – Katie Herlihy
Finance Director – Jim Malberg
Public Works Director – Jessica Kahn
Recreation Division Manager – Nikki LeBlond-Bryant
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CITY OF CAPITOLA

ORGANIZATIONAL CHART
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CITY OF CAPITOLA
GFOA Awards
Government Finance Officers Association
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of Capitola
California
For its Annual Comprehensive
Financial Report
For the Fiscal Year Ended
June 30, 2022
Executive Director/CEO
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FINANCIAL SECTION
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1 Independent Auditor’s Report
The Honorable City Council
City of Capitola, California
Report on the Audit of the Financial Statements
Opinions
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Capitola, California (City), as of and for the year ended June 30, 2023, and the related notes to the financial statements, which collectively comprise the City’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, each major fund, and the aggregate remaining fund information of the City of Capitola, California (City), as of June 30, 2023, and the respective changes in financial position 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) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States (Government Auditing Standards). 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 City 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 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 City’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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2 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 and Government Auditing Standards 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 and Government Auditing Standards, 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 City’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 City’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, schedule of changes in net other postemployment (OPEB) liability and related ratios, schedule of OPEB contributions, schedule of the City’s proportionate share of the plan’s net pension liability, schedule of pension contributions, and the budgetary comparison schedules for the general fund and each major special revenue fund, as listed in the table of contents, 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 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.
74 Item 7 C.
3 Supplementary 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 combining and individual fund financial statements and schedules are presented for purposes of additional analysis and are not a required part of the basic financial statements.

Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements and schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

Other Information
Management is responsible for the other information included in the annual report. The other information comprises the introductory and statistical sections but does not include the basic financial statements and our auditor's report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon.

In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 22,2023, 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 solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s 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 City’s internal control over financial reporting and compliance.

Menlo Park, California
December 22, 2023
75 Item 7 C.

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76 Item 7 C.
5 Management’s Discussion and Analysis
As management of the City of Capitola, California, we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2023. Readers are encouraged to consider the information presented here in conjunction with the accompanying letter of transmittal and the basic financial statements.

FINANCIAL HIGHLIGHTS
Government-Wide Highlights
• Assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $40.5 million (net position).
• Total net position increased by $6.9 million from the prior year. • The City’s net capital assets increased by $1.9 million from the prior year. • The City’s long-term liabilities increased by $12.4 million from the prior year. See Note 6 for long-term debt and Notes 10 & 12 for pension and other post-employment benefits (OPEB) liability details.

Fund Highlights
• The City’s governmental funds reported combined fund balances of $27.7 million, a decrease of $0.1 million from the prior year. Of the $27.7 million fund balance, $7.2 million is assigned and $8.0 million is unassigned, or available for spending at the City’s discretion. An additional $12.4 million is restricted for specific purposes by their providers through constitutional provisions or by enabling legislation in accordance with generally accepted accounting principles, which is further described in Note 1. • The $0.1 million decrease in the combined governmental fund balances was primarily attributable to the end of grant revenues relating to COVID 19. • The Unassigned fund balance for the General Fund was $8.1 million, or 43% of General Fund operating expenditures, a decrease of 18.0% compared to the prior year. 77 Item 7 C.
6 OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as the introduction to the City’s basic financial statements. The City’s basic financial statements are comprised of the following three components: (1) Government-Wide Financial Statements, (2) Fund Financial Statements, and (3) Notes to the Financial Statements. This report also contains supplementary information in addition to the basic financial statements.

Government-Wide Financial Statements
The Government-Wide Financial Statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business.

The Statement of Net Position presents information on all the City’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the difference between them reported as net position. 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 presents information showing how the City’s net position changed during the most recent fiscal 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.

Therefore, some revenues and expenses reported in this statement will result in cash flows in future fiscal periods.

The Government-Wide Financial Statements distinguish functions of the City of Capitola that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, community development, culture and recreation, and transportation. The City does not have any business-type activities.

The Government-Wide Financial Statements include the City of Capitola (known as the primary government).

The Government-Wide Financial Statements can be found on pages 18-19 of this report.

Fund Financial Statements
A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities and objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into two categories: governmental funds and fiduciary funds.

Governmental Funds are used to account for the same functions reported as governmental activities in the government-wide financial statements. However, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the City’s near-term financial requirements. 78 Item 7 C.
7 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 funds Balance Sheet and the governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The City currently has five major governmental funds: General Fund, Federal Home Loan Reuse Fund, Capitola Housing Successor Fund, RTC Streets Fund, and the Capital Projects Fund.

Information is presented separately in the governmental fund Balance Sheet and in the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances. Data from the other governmental funds are combined into a single, aggregated presentation. The City maintains six internal service funds that provide goods and services solely for governmental activities. The activities are eliminated at the end of the fiscal year and any residual fund balances are combined with the General Fund.

The City adopts an annual appropriated budget for all funds. A budgetary comparison statement is provided for each of the City’s governmental funds to demonstrate compliance with this budget.

This comparison for the General Fund and each major special revenue fund is presented in the Required Supplementary Information section of this document. The budgetary comparison statements for the Capital Projects Fund and Non-Major Governmental Funds are presented in the Supplementary Information Section of this report. All budget amendments require City Council approval for amounts over $25,000.

The basic governmental fund financial statements can be found on pages 21-28 of this report.

Fiduciary Funds are used to account for resources held for the benefit of parties outside of the government. Fiduciary funds are not reflected in the government-wide financial statements because these resources are not available to support the City’s programs. The City is responsible for ensuring that the assets reported in these funds are used for their intended purpose. The Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position are presented in the Basic Financial Statement section of this document.

Notes to the Financial Statements
The Notes to the basic financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.

The Notes to the basic financial statements can be found on pages 30-64 of this report.

Other Information
In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information including the City of Capitola’s net other postemployment benefits liability and contributions for the Healthcare Plan, the schedule of the City’s proportionate share of the plans’ net pension liability and related ratios, the schedule of plan contributions, and budget to actual comparisons, as noted in the table of contents. 79 Item 7 C.
8 GOVERNMENT-WIDE FINANCIAL ANALYSIS
As noted earlier, net position may serve as a useful indicator of the City’s financial position. For the fiscal year ended June 30, 2023, assets and deferred outflows exceeded liabilities and deferred inflows of resources by $40.5 million.
2023 2022
Current and other assets $ 29,163,340 $ 29,589,899
Capital assets 36,940,232 35,039,287
Total Assets 66,103,572 64,629,186
Total Deferred Outflows of Resources 13,666,136 6,571,485 Other liabilities 1,528,040 1,818,072
Long term liabilities
Due in one year 1,030,965 496,959
Due in more than one year 33,247,574 20,853,145
Total Liabilities 35,806,579 23,168,176
Total Deferred Inflows of Resources 3,510,268 14,499,880 Net Position:

Net investment in capital assets 35,467,652 33,335,826
Restricted 11,222,924 11,768,139
Unrestricted (6,237,715) (11,571,350)
Total Net Position $ 40,452,861 $ 33,532,615
Governmental Activities
The largest portion of the City’s net position, $35.5 million, is reflected in its investment in capital assets (e.g., land, buildings, machinery, equipment, and infrastructure), less any related outstanding debt used to acquire those assets. The City uses these capital assets to provide services to its citizens. Consequently, these assets are not available for future spending.

Although the City of Capitola’s investment in capital assets is reported net of related debt, it should be noted that resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used. An additional portion of the City’s net position, $11.2 million, represented resources that were subject to external restrictions on how they may be used. The remaining negative $6.2 million of the City’s net position were “unrestricted,” and may be used to meet the government’s ongoing obligations to citizens and creditors. The unrestricted portion of net position is negative mainly due to the City’s $31.9 million net pension and OPEB liabilities.

Further analysis is provided in the governmental activities section of this report. 80 Item 7 C.
9 Governmental Activities
Governmental activities increased the City of Capitola’s net position by $6.9 million. The increase is due primarily to the decrease in expenses. The table below shows the changes between fiscal years 2022 and 2023:
2023 2022
Revenues
Program revenues:

Charges for services $ 3,027,626 $ 3,038,933
Operating grants and contributions 865,684 2,969,861
Capital contributions and grants 1,645,554 865,027
General revenues:

Taxes:

Property taxes 3,058,146 2,883,183
Franchise taxes 708,277 634,511
Sales and use taxes 8,542,419 8,484,799
Transient occupancy taxes 2,131,470 2,170,541
Business license taxes 313,993 315,604
Motor vehicle in-lieu, unrestricted 307,089 341,183
Investment income, unrestricted 549,243 (128,502)
Miscellaneous revenue 162,352 205,129
Total revenues 21,311,853 21,780,269
Expenses
General government 3,443,270 6,117,483
Public safety 5,703,129 7,553,751
Community development 635,090 1,998,051
Culture and recreation 2,181,074 1,420,660
Transportation 2,408,783 4,222,401
Interest and other charges 20,261 55,843
Total expenses 14,391,607 21,368,189
Change in Net Position 6,920,246 412,080
Beginning Net Position 33,532,615 33,120,535
Ending Net Position $ 40,452,861 $ 33,532,615
81 Item 7 C.
10 Revenues
As shown in the Statement of Activities, revenues for FY 2023 totaled $21.3 million. The following graph includes program and general revenues and shows the percentage of governmental revenues by source:

Revenues decreased by $0.5 million, or 2.4%, from the prior year. This was primarily due to the following factors:
• Operating grants and contributions – Decreased $2.1 million from the prior year. o Primarily due to lack of Coronavirus grant revenue in 2023. Receipt of final Coronavirus fiscal recovery grant for $1.2 million was in 2022. o Lack of grant revenue for storm damage and Wharf resiliency in 2023. $0.8 million was received in 2022.

Charges for
services, 14%
Operating grants
and contributions,
4%
Capital
contributions and
grants, 8%
Property taxes,
14%
Franchise taxes,
3%
Sales and use
taxes, 40%
Transient
occupancy taxes,
10%
Business License
Taxes, 1%
Motor vehicle inlieu, unrestricted,
1%
Investment
income, 3%
Miscellaneous
revenue, 1%
Sources of Revenue
82 Item 7 C.
11 Cost of Services
Based on generally accepted accounting principles, program revenues are derived directly from programs or from parties outside the reporting government’s taxpayers or citizenry. These revenues reduce the net cost of the function to be financed from the government’s general revenues. General revenues are all other revenues not categorized as program revenues and include taxes, unrestricted grants, contributions, investment earnings, and miscellaneous revenues. Total program revenues from governmental activities were $5.5 million.

The table below shows the costs and revenues of each of the City’s programs:

Total Cost of Program Net Cost of
Services Revenues Services
General government $ 3,443,270 $ 1,294,337 $ (2,148,933) Public safety 5,703,129 866,158 (4,836,971)
Community development 635,090 1,069,895 434,805
Culture and recreation 2,181,074 773,186 (1,407,888)
Transportation 2,408,783 1,535,288 (873,495)
Interest and other charges 20,261 - (20,261)
Totals $ 14,391,607 $ 5,538,864 $ (8,852,743)
A description of each program is listed below:
• General Government expenses comprise approximately 23.9% of all government expenses. This includes City Council, City Manager, City Clerk, City Attorney, Finance, Administrative Services, and Risk Management. These programs are offset by parking meter collections, grants, and administrative support fees. • Public Safety expenses comprise 39.6% of all governmental expenses. Revenues from fines, citations, grants, and animal services partially offset the cost of this program.
• Community Development expenses comprise approximately 4.4% of all governmental expenses. Various building and planning fees, along with grant revenues, assist in funding these program costs.
• Culture and Recreation expenses comprise 15.2% of all governmental expenses.

These programs are primarily funded through recreational classes and sports fees. • Transportation/Public Works expenses comprise 16.7% of all governmental expenses. This includes street, facility, park, and fleet maintenance. Costs are partially offset by motor vehicle fuel taxes and various fees. • Interest expense and other charges comprise 0.1% of all governmental expenses.

This interest expense is used to pay long-term debt obligations. 83 Item 7 C.
12 Expenses
As shown in the Statement of Activities, expenses decreased from the prior year by 32.6%. This was primarily due to decreased expenses in general government and transportation related to one-time expenses in the prior year.

A distribution of expenses by function is provided below:

Financial Analysis of the City’s Funds
As noted earlier, the City of Capitola uses fund accounting to comply with finance-related legal requirements.

Governmental Funds
The focus of the City of Capitola’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 of Capitola’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year.

At the end of the current fiscal year, the City of Capitola’s governmental funds reported a combined ending fund balance of $27.7 million, flat compared with the prior year. Of this fund balance, $12.5 million is externally restricted for particular purposes, $7.2 million is assigned by the management to multiple priorities, and $8.0 million is available for spending at the City’s discretion.

General
government, 24%
Public safety, 40%
Community
development, 4%
Culture and
recreation, 15%
Transportation,
17%
Interest and other
charges, 0.1%
Functional Expense
84 Item 7 C.
13 General Fund - The General Fund is the chief operating fund of the City of Capitola and had a fund balance of $10.6 million at year end. This represents a decrease of $1.3 million, or 11% from the prior year. Approximately $8.1 million was unassigned fund balance, which was available for spending at the City’s discretion.

A reconciliation of the General Fund operating activities presented in the City budget documents to the Governmental General Fund Financial Statements is presented below:

City Budget
Documents
General Plan /
Open Space /
Donations
Emergency /
Contingency /
Facilities
Reserve /
PERS
Internal
Service Funds
Financial
Statements
Beginning Fund Balance $ 5,074,049 $ 247,105 $ 4,862,540 $ 1,682,219 $ 11,865,913 Revenues 18,457,600 127,063 - 1,536,859 20,121,522
Expenditures 17,113,265 125,761 - 1,692,641 18,931,667
Net Operating Difference 1,344,335 1,302 - (155,782) 1,189,855 Financing Sources/Uses (3,271,324) - 528,300 294,000 (2,449,024) Net Change (1,926,989) 1,302 528,300 138,218 (1,259,169) Ending Fund Balance $ 3,147,060 $ 248,407 $ 5,390,840 $ 1,820,437 $ 10,606,744 It should be noted that the presentation of the General Fund for the City’s budget document is different than its presentation in the Governmental Fund Financial Statements. This is primarily due to the consolidation of the following funds for financial statement reporting purposes: General Fund, Contingency Reserve, PARS Contingency, Emergency Reserve, Facilities Reserve, General Plan Update and Maintenance, Stores, Information Technology, Equipment Replacement, Self-Insurance Liability, Workers Compensation, and Compensated Absences.

Federal Home Loan Reuse - The Federal Home Loan Reuse Fund receives loan payments from recipients of HOME Program loans and uses these revenues to fund additional affordable housing activities. All housing funded activities must be within the City and be in accordance with the Federal Home Reuse Guidelines. The revenues represent the receipt of principal and interest payments from loan recipients.

Capitola Housing Successor - This fund is used to account for the assets of the former RDA Lowand Moderate-Income Fund and related housing activities. The funds are restricted in their use, reuse, and repayment pursuant to the original program requirements. As loan payments are received, the revenue generated provides a funding source for new housing assistance programs.

Additional information regarding this transition can be found in Note 14.

Capital Projects Fund – This fund is used to account for financial resources to be used for the acquisition or construction of public facilities. The total cost of a capital project is accumulated in a single expenditures account, which accumulates until the project is completed, at which time the fund ceases to exist.
85 Item 7 C.
14 GENERAL FUND BUDGETARY HIGHLIGHTS
A detailed budgetary comparison schedule for the year ended June 30, 2023, is presented as Required Supplementary Information following the notes to the financial statements. This information can be found on page 73. Key budgetary differences are provided below:

Revenues:

Actual revenues were below final budgeted amounts by $1.2 million. This was primarily due to American Rescue & Recovery Act funds that were received in the prior year rather than the current year as originally anticipated.

Expenditures:

Expenditures, prior to transfers, were $3 million below the final budget total due primarily to timing issues related to budgeted one-time expenditures that will carry forward to the next fiscal year.

Appropriations:

Variances between the Original and Final budgets are primarily due to the inclusion of continuing appropriations for special projects from the prior year, mid-year adjustments to reflect updated revenue and expenditure estimates, and new funding appropriated for additional CIP projects.

Fund Balance:

The General Fund’s ending fund balance was $10.7 million as of June 30, 2023. This amount was approximately $3.4 million more than the final budget projection based on the revenue and expenditure information noted above. A breakdown of the General Fund balance is provided below. An additional discussion of the City’s Contingency and Emergency Reserves can be found in the Financial Management Policies section of the Transmittal letter.

Restricted:

Retiree benefits 1,195,872
Assigned:

Emergency reserve 1,314,206
Unassigned:

Contingencies 3,812,832
Unassigned 4,283,834
Total fund balance $ 10,606,744
86 Item 7 C.
15 CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
The City’s value of governmental capital assets (net of accumulated depreciation) at the end of FY 2023 was $36.9 million. This investment in capital assets includes land, building, equipment, vehicles and infrastructure. The infrastructure classification typically includes roads, streets, sidewalks, medians, and bridges. The total increase in the City’s investment in capital assets for the current fiscal year was $1.9 million, or 5.4%. The increase is primarily due to an increase in completed transportation-related projects. Additional information on the City of Capitola’s capital assets can be found in Note 4 to the financial statements.

Statement of Net Position
Asset Type
Land $ 4,883,789
Buildings and improvements 18,017,712
Equipment 4,520,133
Infrastructure 35,907,669
Construction in progress 3,549,718
Total Fixed Assets 66,879,021
Less Depreciation (29,938,789)
Capital Assets Net of Depreciation $ 36,940,232
Long-Term Debt
The City’s long-term liabilities other than pension and OPEB at the end of FY 2023 was $2.4 million, a decrease of $0.2 compared to FY 2022. The change is due to the scheduled principal payments during the fiscal year. An overview of all long-term obligations is presented below while comprehensive information can be found in Note 6.

Loans payable:

Loan agreement payable - Pacific Cove financing $ 642,663 Loan agreement payable - Beach and Village 829,917
Compensated absences 915,544
Total long-term debt $ 2,388,124
87 Item 7 C.
16 ECONOMIC FACTORS, NEXT YEAR’S BUDGETS AND RATES
On June 23, 2023, the Council adopted the FY 2023-24 Budget with a total appropriation of $38.9 million and a General Fund appropriation of $19.8 million. Adequate resources were projected to be available to fund the proposed expenditures. The General Fund budget continues to return resources to City Council goals and priorities that were placed on hold in response to COVID-19.

The fiscal impacts associated with the pandemic were not as severe as originally projected, which when combined with a stronger than anticipated recovery has allowed the City to return funding to the Capital Improvement Program. General Fund expenditures are budgeted to exceed General Fund revenues by approximately $1.0 million as the City utilizes the available fund balance. However, the budget still projects to end the year with a general fund balance of approximately $1.5 million.

The City has negotiated an extension of the Mid-Management Employees contract through FY 2023-24 and all remaining bargaining units’ contracts remain in place through FY 2023-24, which include fixed cost of living adjustments (COLA’s). Additionally, all contracts included Market Study Salary Adjustments for identified classifications. The City implemented caps on pension costs prior to the FY 2015-16 budget but modified the cap to ensure employees didn’t experience large decreases in net pay due to the projected contribution rate increases. Those caps remain in place under the new contracts.

Prospects for the Future
When the voters of Capitola passed Measure O, a quarter of one percent sales tax for a period of ten years, the City committed to replenishing reserves, maintaining police staffing levels and completing major street improvements during the five-year overlap with Measure D. Measure O sales tax revenues have been utilized to fully fund reserves at the City Council adopted funding levels as well as to increase street projects and maintain police department and public works staffing levels. Measure O expired on December 31, 2017.

In 2016 voters passed Measure F to extend the temporary quarter of one percent sales tax for an additional ten years. The City is committed to using this funding source to protect the wharf and beach from storms and rising sea levels, maintain police services, and improve sidewalks, parks, and bike safety. The adopted FY 2019/20 budget continued implementing these commitments as Measure F went into effect on January 1, 2018.

Opportunities for development include the Wharf renovation project, flume repair, and jetty improvements. The wharf project was bid in Spring 2023 with an anticipated start date in Fall 2023. The wharf project is currently funded by a combination of Measure F, general fund, and grants. In addition, the approximately $1 million in damages to the wharf caused by the Jan. 5, 2023, storm will be funded with $1 million of insurance funding.

The City completed Assembly Bill 1484 (AB 1484) reporting and audit requirements and received approval for repayment of the $618,028 loan made to the former RDA. The final payment was made during FY 2018/19. The Capitola Successor Agency completed the Required Obligation Payment Schedule (ROPS) in FY 2020-21 and has successfully completed dissolution of the RDA in FY 2022/23. The City returned $165,074 in left over funds in October 2022. Additional information can be found in the transmittal letter, as well as Note 14. 88 Item 7 C.
17 Local, State, and National Economy
In 2008 events in the local, state, and national economies led to a significant downturn in financial markets. In FY 2011/12, there were beginning signs of economic recovery, with increased sales tax, TOT, and an increasing demand for building/planning services. This trend continued through FY 2016/17, however, Capitola’s annual sales tax and transient occupancy tax leveled off in FY 2017/18. In November 2018 Capitola voters approved increasing the TOT rate from 10% to 12% with three-quarters of one percent dedicated to local business groups and Early Childhood and Youth programs.

In March 2020 both Santa Cruz County and the State of California issued Shelter-in-Place orders in response to COVID-19. This had severe negative impacts to City revenues at the end of the 3rd quarter and the entire 4th quarter of FY 2019-20. The City reduced expenditures to the greatest extent possible and negotiated concessions with all labor groups. The fiscal impacts from the pandemic were not as severe as originally anticipated and the recovery was greater than expected. This has allowed the City to continue to fill vacant positions that were frozen at the onset of the pandemic and return services and programs that had been reduced.

In January 2023, intense storms damaged the Wharf as well as several Capitola Village businesses causing them to close temporarily. Although this had a temporary negative effect on revenues and caused increased expenses, the City businesses recovered quickly. The Wharf project was fully funded in December 2022 and $1 million of insurance funding for storm damages was added. The project will start in September 2023 and is projected to be completed by summer 2024.

In 2021 CalPERS achieved an investment return of 21.3% and the CalPERS Board subsequently approved a decrease in the discount rate it uses to project future funding needs. The discount rate is the expected rate of return on investments. The decreased discount rate has a major impact to the City’s yearly unfunded actuarial liability (UAL) payment.

The City’s FY 2023-24 UAL payment is approximately $2.1 million which is a 1.9% decrease over the prior year. However, current projections show the City’s UAL increasing to $2.5 million in FY 2024-25 and $3.5 million by FY 2029-30.

Requests for Information
This financial report is designed to provide a general overview of the City's finances and to demonstrate the City's accountability for its fiscal activities to citizens, taxpayers, investors, creditors, and any other interested parties. If you have questions about this report or need additional information please contact the Finance Director at 420 Capitola Avenue, Capitola, California 95010.
89 Item 7 C.

BASIC FINANCIAL STATEMENTS
90 Item 7 C.

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91 Item 7 C.

CITY OF CAPITOLA
Statement of Net Position
June 30, 2023
The accompanying notes are an integral part of these financial statements. 19 Governmental
Activities
ASSETS
Cash and investments $ 18,059,133
Restricted cash and investments 1,195,872
Accounts receivable 196,886
Taxes receivable 2,118,045
Due from other governments 944,854
Loans receivable 6,648,550
Capital assets:

Non-depreciable:

Land 4,883,789
Construction in progress 3,549,718
Depreciable:

Equipment 4,520,133
Buildings and improvements 18,017,712
Infrastructure 35,907,669
Accumulated depreciation (29,938,789)
Total Assets 66,103,572

DEFERRED OUTFLOWS OF RESOURCES
Pension related 12,650,802
OPEB related 1,015,334
Total Deferred Outflows of Resources 13,666,136

LIABILITIES
Accounts payable 640,482
Accrued liabilities 208,616
Interest payable 21,672
Unearned revenue 278,707
Deposits payable 378,563
Noncurrent liabilities:

Due within one year 1,030,965
Due in more than one year 1,357,159
Net other postemployment liability due in more than one year 1,833,813 Net pension liability due in more than one year 30,056,602 Total Liabilities 35,806,579

DEFERRED INFLOWS OF RESOURCES
Pension related 3,252,592
OPEB related 257,676
Total Deferred Inflows of Resources 3,510,268

NET POSITION
Net investment in capital assets 35,467,652
Restricted for:

Public safety 151,613
Transportation 732,245
Community development 10,127,792
Culture and recreation 211,274
Unrestricted (6,237,715)
Total Net Position $ 40,452,861
92 Item 7 C.

CITY OF CAPITOLA
Statement of Activities
Year Ended June 30, 2023
The accompanying notes are an integral part of these financial statements. 20 Net (Expense)
Revenue and
Change in
Net Position
Charges Operating Capital
for Grants and Grants and Governmental
Functions/Programs Expenses Services Contributions Contributions Activities Governmental activities:

General government $ 3,443,270 $ 744,102 $ 550,235 $ - $ (2,148,933) Public safety 5,703,129 624,216 241,942 - (4,836,971)
Community development 635,090 901,127 - 168,768 434,805 Culture and recreation 2,181,074 710,430 62,756 - (1,407,888) Transportation 2,408,783 47,751 10,751 1,476,786 (873,495) Interest and other charges 20,261 - - - (20,261)
Total Governmental Activities $ 14,391,607 $ 3,027,626 $ 865,684 $ 1,645,554 (8,852,743) General Revenues:

Taxes:

Property taxes 3,058,146
Franchise taxes 708,277
Sales and use taxes 8,542,419
Transient occupancy taxes 2,131,470
Business license taxes 313,993
Motor vehicle in-lieu, unrestricted 307,089
Investment income, unrestricted 549,243
Miscellaneous revenue 162,352
Total General Revenues 15,772,989
Change in Net Position 6,920,246
Net Position, Beginning of Year 33,532,615
Net Position, End of Year $ 40,452,861
Program Revenues
93 Item 7 C.

GOVERNMENTAL FUNDS
21 Major Governmental Funds

GENERAL FUND
General Fund - Accounts for all financial resources except those to be accounted for in another fund. It is the general operating fund for the City.

SPECIAL REVENUE FUNDS
Federal Home Loan Reuse Fund - This fund accounts for housing loan principal and interest payments that will be available for a similar future federal program.

Capitola Housing Successor Fund - This fund is used to account for the assets of the former RDA Lowand Moderate-Income Fund, and related housing activities. The funds are restricted in their use, reuse, and repayment pursuant to the original program requirements. It is anticipated that as loan payments are received, the revenue generated would fund new housing activities.

Regional Transportation Commission (RTC) Streets
Santa Cruz County voters passed a 0.5 percent user sales tax to fund local roads. The RTC Streets fund will be utilized to increase the City’s street program.

CAPITAL PROJECTS FUND
Capital Projects Fund - Accounts for financial resources segregated for the acquisition of major capital facilities and equipment by the City.

Non-Major Governmental Funds
Other Governmental Funds - These funds constitute all other governmental funds that do not meet the major fund test of assets, liabilities and deferred inflows of resources, revenues, or expenditures for the governmental funds. These funds consist of other Special Revenue Funds, and Debt Service Funds of the City for the year ended June 30, 2023.
94 Item 7 C.

CITY OF CAPITOLA
Governmental Funds
Balance Sheet
June 30, 2023
The accompanying notes are an integral part of these financial statements. 22 Federal Capitola
Home Housing
General Loan Reuse Successor RTC Streets
Assets
Cash and investments $ 8,364,972 $ 808,386 $ 2,053,066 $ 158,896 Restricted cash and investments 1,195,872 - - -
Accounts receivable 186,200 - - -
Taxes receivable 2,046,624 - - 26,996
Due from other governments 74,590 - - -
Loans receivables - 3,971,639 2,279,265 -
Total Assets $ 11,868,258 $ 4,780,025 $ 4,332,331 $ 185,892

LIABILITIES AND FUND BALANCES
Liabilities
Accounts payable $ 403,828 $ - $ 3,273 $ -
Accrued liabilities 208,616 - - -
Unearned revenue 278,707 - - -
Deposits payable 370,363 - - -
Total Liabilities 1,261,514 - 3,273 -
Fund Balances
Restricted 1,195,872 4,780,025 4,329,058 185,892
Assigned 1,314,206 - - -
Unassigned 8,096,666 - - -
Total Fund Balances 10,606,744 4,780,025 4,329,058 185,892 Total Liabilities
Total Liabilities and Fund Balances $ 11,868,258 $ 4,780,025 $ 4,332,331 $ 185,892 Funds
Special Revenue
95 Item 7 C.
23 Non-Major
Capital Governmental
Projects Funds Totals
$ 5,110,017 $ 1,563,796 $ 18,059,133
- - 1,195,872
- 10,686 196,886
- 44,425 2,118,045
870,264 - 944,854
- 397,646 6,648,550
$ 5,980,281 $ 2,016,553 $ 29,163,340
$ 130,116 $ 103,265 $ 640,482
- - 208,616
- - 278,707
7,200 1,000 378,563
137,316 104,265 1,506,368
- 1,927,949 12,418,796
5,842,965 55,229 7,212,400
- (70,890) 8,025,776
5,842,965 1,912,288 27,656,972
$ 5,980,281 $ 2,016,553 $ 29,163,340
96 Item 7 C.

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97 Item 7 C.

CITY OF CAPITOLA
Reconciliation of the Balance Sheet of
Governmental Funds to the Statement of Net Position
June 30, 2023
The accompanying notes are an integral part of these financial statements. 24 Fund Balances of Governmental Funds $ 27,656,972
Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because:

Capital assets net of depreciation have not been included in governmental fund activity:

Capital assets 66,879,021
Accumulated depreciation (29,938,789)
Pension related deferred inflows and outflows of resources are not reported in the governmental funds:

Deferred outflows 12,650,802
Deferred inflows (3,252,592)
OPEB related deferred inflows and outflows of resources are not reported in the governmental funds:

Deferred outflows 1,015,334
Deferred inflows (257,676)
Accrued interest payable for the current portion of interest due on long-term debt has not been reported in the governmental funds. (21,672) Long-term liabilities have not been included in the governmental fund activity:

Pacific Cove financing (642,663)
Beach and Villeage financing (829,917)
Net pension liability (30,056,602)
Compensated absences (915,544)
Net OPEB liability (1,833,813)
Net position of governmental activities $ 40,452,861
98 Item 7 C.

CITY OF CAPITOLA
Governmental Funds
Statement of Revenues, Expenditures, and Changes in Fund Balances Year Ended June 30, 2023
The accompanying notes are an integral part of these financial statements. 25 Federal Capitola
Home Housing
General Loan Reuse Successor RTC Streets

REVENUES
Taxes $ 14,709,174 $ - $ - $ -
Licenses and permits 649,478 - - -
Fines and forfeitures 566,907 - - -
Intergovernmental 410,037 - - 368,521
Charges for services 1,887,463 - - -
Use of money and property 272,701 109,490 41,933 13,432 Other revenue 1,625,762 - - -
Total Revenues 20,121,522 109,490 41,933 381,953

EXPENDITURES
Current:

General government 3,484,033 3,700 - -
Public safety 8,136,943 - - -
Community development 1,019,260 - 63,668 -
Culture and recreation 2,525,010 - - -
Transportation 3,469,525 - - -
Capital outlay 296,896 - - 1,129,884
Debt service:

Principal - - - -
Interest and fiscal charges - - - -
Total Expenditures 18,931,667 3,700 63,668 1,129,884
Excess (Deficiency) of Revenues
over (Under) Expenditures 1,189,855 105,790 (21,735) (747,931)

OTHER FINANCING SOURCES (USES)
Transfers in 74,000 - - -
Transfers out (2,523,024) - - -
Total Other Financing Sources (Uses) (2,449,024) - - -
Net Change in Fund Balances (1,259,169) 105,790 (21,735) (747,931) Fund Balances, Beginning of Year 11,865,913 4,674,235 4,350,793 933,823 Fund Balances, End of Year $ 10,606,744 $ 4,780,025 $ 4,329,058 $ 185,892 Funds
Special Revenue
99 Item 7 C.
26 Non-Major
Capital Governmental
Projects Funds Totals
$ - $ 143,353 $ 14,852,527
- 11,903 661,381
- - 566,907
897,880 740,688 2,417,126
13,459 109,283 2,010,205
735 110,396 548,687
20,000 53,757 1,699,519
932,074 1,169,380 22,756,352
170,285 785,662 4,443,680
- - 8,136,943
- 18,250 1,101,178
- - 2,525,010
- - 3,469,525
1,245,998 292,623 2,965,401
- 230,881 230,881
- 22,187 22,187
1,416,283 1,349,603 22,894,805
(484,209) (180,223) (138,453)
2,255,958 292,066 2,622,024
(74,000) (25,000) (2,622,024)
2,181,958 267,066 -
1,697,749 86,843 (138,453)
4,145,216 1,825,445 27,795,425
$ 5,842,965 $ 1,912,288 $ 27,656,972
100
Item 7 C.

CITY OF CAPITOLA
Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds
to the Statement of Activities
Year Ended June 30, 2023
The accompanying notes are an integral part of these financial statements. 27 Net Change in Fund Balances - Total Governmental Funds $ (138,453) Amounts Reported for Governmental Activities in the Statement of Activities are Different Because:

Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets are allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciationin the current period.

Capital outlay 2,965,401
Capital outlay not capitalized (11,455)
Depreciation (1,053,001)
Repayment of debt service principal and financing liabilities are expenditures in the governmental funds but the repayment reduces long-term liabilities in the statement of net position. 230,881 Governmental funds report all contributions as expenditures in relation to Pensions and OPEB, however, in the statement of activities, OPEB and pension expenses are based on the change in these liabilities.

Change in net pension liability and related deferrals 5,052,594 Change in net OPEB and related deferrals (108,244)
Some 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.

Change in compensated absences payable (19,403)
Change in accrued interest expense 1,926
Change in net position of governmental activities $ 6,920,246 101
Item 7 C.

CITY OF CAPITOLA
Fiduciary Funds
Statement of Fiduciary Net Position
June 30, 2023
The accompanying notes are an integral part of these financial statements. 28 Private
Purpose
Trust Fund
ASSETS
Cash and investments $ -
Total Assets -

NET POSITION
Restricted in trust for successor agency and
other purposes -
Total Net Position $ -
102
Item 7 C.

CITY OF CAPITOLA
Fiduciary Funds
Statement of Changes in Fiduciary Net Position
Year Ended June 30, 2023
The accompanying notes are an integral part of these financial statements. 29 Private
Purpose
Trust Fund

ADDITIONS
Use of money and property $ 2,086
Total Additions 2,086

DEDUCTIONS
Administrative expenses 165,074
Total Deductions 165,074
Change in Net Position (162,988)
Net Position, Beginning of Year 162,988
Net Position, End of Year $ -
103
Item 7 C.

City of Capitola
Index to Notes to Financial Statements
Year Ended June 30 2023
30 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES................................................ 31 A. Description of Reporting Entity..................................................................................... 31 B. Basis of Presentation................................................................................................... 31 C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation....... 32 D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position or Fund Balance............................................................................... 33 1) Cash and Investments .......................................................................................... 33 2) Receivables and Payables..................................................................................... 34 3) Property Taxes....................................................................................................... 34 4) Capital Assets........................................................................................................ 35 5) Prepaid Items......................................................................................................... 35 6) Deferred Outflows/Inflows of Resources................................................................ 36 7) Compensated Absences........................................................................................ 36 8) Reclassification and Eliminations........................................................................... 36 9) Use of Estimates ................................................................................................... 36 10) Fund Equity ........................................................................................................... 37 11) Pension Plans........................................................................................................ 38 12) Other post-employment benefits (OPEB) .............................................................. 38 E. New Accounting Pronouncements……………………………………………………………38 NOTE 2 – CASH AND INVESTMENTS............................................................................................. 40 NOTE 3 – INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS......................................... 43 NOTE 4 – CAPITAL ASSETS............................................................................................................ 44 NOTE 5 – OTHER LONG-TERM RECEIVABLES.............................................................................. 45 NOTE 6 – LONG-TERM LIABILITIES................................................................................................ 45 NOTE 7 – FUND BALANCES ........................................................................................................... 47 NOTE 8 – RISK MANAGEMENT……………………………................................................................ 48 NOTE 9 – JOINT VENTURES........................................................................................................... 49 NOTE 10 – DEFINED BENEFIT PENSION PLANS (CALPERS)......................................................... 50 NOTE 11 – PUBLIC AGENCY RETIREMENT PLAN........................................................................... 57 NOTE 12 – OTHER POST EMPLOYMENT BENEFITS PLAN (OPEB)............................................... 58 NOTE 13 – COMMITMENTS AND CONTINGENT LIABILITIES.......................................................... 61 NOTE 14 – SUCCESSOR AGENCY TO THE FORMER CAPITOLA REDEVELOPMENT AGENCY.. 62 NOTE 15 – RISKS AND UNCERTAINTIES......................................................................................... 64 104
Item 7 C.

CITY OF CAPITOLA
Notes to Financial Statements
Year Ended June 30, 2023
31 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Description of Reporting Entity
The City of Capitola (the City) was incorporated in 1949 under the laws of the State of California. Capitola is a General Law City and is subject to the framework and procedures established by State law. The City operates under the Council-City Manager form of government. The City provides police protection, street, park and facilities maintenance, recreation, building, planning, zoning, administrative, and financial services for Capitola.

Independent special districts provide fire protection, water, sewer, and limited drainage services.

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 is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States of America.

Government-Wide Financial Statements
The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues. All City activities are governmental; no businesstype activities are reported in the statements.

The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are expenses that are clearly identifiable with a specific program, project, function, or segment. Program revenues of the City include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items that are properly not included among program revenues are reported instead as general revenues.

Fund Financial Statements
Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements.
105
Item 7 C.

CITY OF CAPITOLA
Notes to Financial Statements
Year Ended June 30, 2023
32 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the providers have been met.

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers the majority of revenues to be available if they are collected within 60 days of the end of the current fiscal period. The City’s only exception to this timeline is Sales Tax receipts which are recorded as revenues if received within 90 days.

Expenditures generally are recorded when a liability is incurred, as under accrual accounting.

However, debt service expenditures, as well as expenditures related to compensated absences, pension and other postemployment benefits and claims and judgments, are recorded only when payment is due.

Property taxes, sales taxes, transient occupancy taxes, franchise taxes, and interest associated with the current fiscal period are all considered to be susceptible to accrual and are therefore recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City.

The City reports the following major governmental funds:

General Fund
The General Fund accounts for all financial resources except those to be accounted for in another fund. It is the general operating fund for the City.

Federal Home Loan Reuse Special Revenue Fund
The Federal Home Loan Reuse Fund accounts for housing loans due to the City from the recipients of previous HOME Program grants. Receipts in the Home Program Reuse Fund are restricted to affordable housing activities in accordance with the federal HOME program re-use guidelines.
106
Item 7 C.
33 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation, (continued)
Capitola Housing Successor Special Revenue Fund
This fund is used to account for the assets of the former RDA Low- and Moderate-Income Fund, and related housing activities. The funds are restricted in their use, reuse, and repayment pursuant to the original program requirements. It is anticipated that as loan payments are received, the revenue generated would fund new housing activities.

RTC Streets Special Revenue Fund
This fund accounts for 0.5 percent user sales tax revenues to fund local roads.

Capital Projects Fund
The Capital Projects Fund accounts for financial resources segregated for the acquisition of major capital facilities and equipment by the City.

Nonmajor Governmental Funds
All remaining governmental funds are aggregated and reported as nonmajor funds.

The City also reports the following fiduciary fund:

Private Purpose Trust Fund
The Private Purpose Trust Fund accounts for the activities of the City of Capitola as Successor Agency to the Capitola Redevelopment Agency. The Successor Agency’s primary purpose is to expedite the dissolution of the former Redevelopment Agency’s assets in accordance with AB X1 26 and AB 1484. This fund was closed during the fiscal year.

D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Fund Balance
1) Cash and Investments
Investments are reported in the accompanying balance sheet at fair value, except for nonparticipating certificates of deposit and investment contracts that would be reported at cost because they are not transferable, and they have terms that are not affected by changes in interest rates.

Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation, maturity, or sale of investments. 107
Item 7 C.
34 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Fund Balance (continued)
1) Cash and Investments (continued)
The City pools cash and investments of all funds. Each fund’s share in this pool is displayed in the accompanying financial statements as cash and investments.

The City pools idle cash from all funds in order to increase income earned through its investment program. Investment income from pooled investments is allocated to those funds that are required by law or administrative action to receive interest. Investment income is allocated on a quarterly basis based on the cash balance in each fund. 2) Receivables and Payables
Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans).

Noncurrent portions of long-term interfund loan receivables are reported as advances and such amounts are offset equally by a fund balance reserve account that indicates they do not constitute expendable available financial resources and therefore are not available for appropriation.
3) Property Taxes
California Constitution Article XIII A limits the combined property tax rate to one percent of a property’s assessed valuation. Additional taxes may be imposed with voter approval.

Assessed value is calculated at one hundred percent of a property’s fair value, as defined by Article XIII A, and may be increased no more than two percent per year unless a change in ownership occurs. The state legislature has determined the method of distributing the one percent tax levy among the various taxing jurisdictions.

Property tax revenues are recognized in the fiscal year for which taxes have been levied and collected within sixty days of fiscal year end. Property taxes are billed and collected as follows:

Secured Unsecured
Valuation/Lien Date(s) January 1 January 1
Levy Date July 1 July 1
Due Date(s) November 1 (50%) August 1
February 1 (50%)
Delinquency Date(s) December 10 - 1st Installment August 31 April 10 - 2nd Installment
108
Item 7 C.
35 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Fund Balance, (continued)
3) Property Taxes (continued)
The City adopted an alternative method of property tax distribution (the “Teeter Plan”). Under this method, the City receives 100% of its secured property tax levied in exchange for foregoing any interest and penalties collected on delinquent taxes. The City receives payments as a series of advances made by the County throughout the fiscal year. The secured property tax levy is recognized as revenue upon receipt including the final payment, which generally is received within 60 days after the fiscal year. 4) Capital Assets
All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed capital assets are valued at acquisition value as of the date received. City policy is to capitalize all tangible property with a useful life of five or more years and a cost or assigned valued exceeding $5,000, with the exception of infrastructure valued at $50,000 or more.

The City recorded all its public domain (infrastructure) capital assets placed in service after June 30, 1980, which include roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, and lighting systems, in accordance with generally accepted accounting principles.

The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of these assets. The amount charged to depreciation expense each fiscal year represents that fiscal year’s pro rata share of the cost of capital assets. Generally accepted accounting principles requires that all capital assets with limited useful lives be depreciated over the estimated useful lives. Depreciation is provided using the straight-line method which means the cost of the assets is divided by its expected useful life in years and the result is charged to expense each fiscal year until the assets are fully depreciated. The City has assigned the useful lives listed below to capital assets.

Structures and Improvements 50 years
Equipment 5 – 20 years
Infrastructure 15 – 50 years
5) Prepaid Items
Certain payments to vendors reflect costs applicable to future accounting periods and are reported as prepaid items in both government-wide and fund financial statements. The City accounts for such items using the consumption method.
109
Item 7 C.
36 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Fund Balance, (continued)
6) Deferred Outflows/Inflows of Resources
In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial element, deferred outflows of resources, represents a consumption of net assets that applies to future periods and so will not be recognized as an outflow of resources (expense) until then. In addition to liabilities, the statement of net position or balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial element, deferred inflows of resources, represents an acquisition of the net assets or fund balance that applies to future periods and so will not be recognized as an inflow of resources (revenue) until that time. 7) Compensated Absences
In compliance with generally accepted accounting principles, the City has established a liability for accrued vacation in relevant funds. Based on prior MOU language, a sick leave liability is also accrued for one remaining employee. For governmental fund types, the current liability appears in the respective funds, if due and payable, and the long-term liability appears in the government-wide financial statements. This liability is set up for the current employees at the current rates of pay. If vacation and the sick leave balances are not used by employees during the term of employment, compensation is payable to the employee at the time of retirement. Such compensation is calculated at the employee’s prevailing rate at the time of retirement or termination. Each fiscal year, an adjustment to the liability is made based on pay rate changes and adjustments for the current portion. The General Fund is primarily responsible for the repayment of the governmental portion of compensated absences. 8) Reclassifications and Eliminations
Interfund balances must generally be eliminated in the government-wide statements, except for net residual amounts due between governmental activities and business-type activities.

Amounts involving fiduciary funds should be reported as external transactions. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that the expenses are reported only once - in the function in which they are allocated.
9) Use of Estimates
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and necessarily include amounts or disclosures based on estimates and assumptions by management. Actual results could differ from those amounts.
110
Item 7 C.
37 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Fund Balance, (continued)
10) Fund Equity
The City has implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This statement provides more clearly defined fund balance categories to make the nature and extent of the constraints placed on a government’s fund balance more transparent. These classifications and constraints have been incorporated into the City’s Fund Balance Policy, Administrative Policy III-10.

The following classifications describe the relative strength of the spending constraints placed on the purposes for which resources can be used:

Nonspendable – Amounts that are not in a spendable form or are legally or contractually required to be maintained intact.

Restricted – Amounts that have constraints placed on them by third-party providers (grantors, bondholders, and higher levels of government) or by law through constitutional provisions or by enabling legislation.

Committed – Amounts constrained to specific purposes by a government itself, using the highest level of decision-making authority. This includes an action by the City Council passing a resolution. The Committed amounts cannot be used for any other purpose unless the City removes or changes the specified use by taking the same type of action it previously employed to commit those amounts. The City did not report committed fund balances this year.

Assigned – Amounts the City intends to use for a specific purpose but are neither restricted nor committed. Intended use can be established by the City Council, or by a City official designated as having that authority, such as the City Manager or Finance Director.

Unassigned – is the residual classification for the General Fund and residual fund deficits, if any, of other governmental funds. Unassigned amounts are technically available for any purpose.

When an expenditure is incurred for which both restricted and unrestricted (committed, assigned, or unassigned) are available, it is the City's policy to consider restricted amounts first, then unrestricted resources. When an expenditure is incurred for purposes for which amounts in any of the unrestricted fund balance appropriations could be used, it is the City's Policy that committed amounts would be used first, followed by assigned, and then unassigned fund balance classifications.
111
Item 7 C.
38 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Fund Balance, (continued)
11) Pension Plans
For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions, and pension expense, information about the fiduciary net position and additions to/deductions from the 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 currently due and payable in accordance with the benefit terms. Investments are reported at fair value. CalPERS audited financial statements are publicly available reports that can be obtained at CalPERS’ website under Forms and Publications.
12) Other Postemployment Benefits (OPEB)
For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the City’s plan (OPEB Plan) and additions to/deductions from the OPEB Plan’s fiduciary net position have been determined on the same basis as reported by CalPERS. For this purpose, benefit payments are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. CalPERS audited financial statements are publicly available reports that can be obtained at CalPERS’ website under Forms and Publications.

E. New Accounting Pronouncements
Effective this Fiscal Year
GASB Statement No. 91 – In May 2019, GASB issued Statement No. 91, Conduit Debt Obligations. The objectives of this Statement is to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with commitments extended by issuers, arrangements associated with conduit debt obligations, and related note disclosures by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures. The requirements of this Statement are effective for reporting periods beginning after December 15, 2021, or FY 2022/2023. This Statement did not impact the City’s financial statements.

GASB Statement No. 94 – In March 2020, GASB issued Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. The objectives of this Statement improve financial reporting by addressing issues related to public-private and public-public partnership arrangements (PPPs). The requirements of this Statement are effective for reporting periods beginning after June 15, 2022, or FY 2022/2023. This Statement did not impact the City’s financial statements. 112
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39 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E. New Accounting Pronouncements (continued)
Effective this Fiscal Year (continued)
GASB Statement No. 96 – In May 2020, GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements. The objective of this Statement is to provide guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. The requirements of this Statement are effective for reporting periods beginning after June 15, 2022, or FY 2022/2023.

This Statement did not impact the City’s financial statements.

Effective in Future Fiscal Years
GASB Statement No. 93 – In May 2020, GASB issued Statement No. 93, Replacement of Interbank Offered Rates. The objectives of this Statement is to address those and other accounting and reporting implications resulting from the replacement of an IBOR by providing exceptions for certain hedging derivative instruments to the hedge accounting termination provisions when an IBOR is replaced and providing clarification to the hedge accounting termination provisions, removing LIBOR as a benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap, identifying a Secured Overnight Financing Rate and the Effective Federal Funds Rate as appropriate benchmark interest rates for the qualitative evaluation of the effectiveness of an interest rate swap.

The requirements of this Statement are effective for reporting periods beginning after June 15, 2021, or FY 2021/2022, except the removal of LIBOR as a benchmark interest rate which is effective for periods beginning after December 31, 2022, or FY 2023/2024. The City is evaluating the impact of this Statement on the financial statements.

GASB Statement No. 99 – In April 2022, GASB Issued Statement No. 99, Omnibus 2022. The objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing (1) practice issues that have been identified during implementation and application of certain GASB Statements and (2) accounting and financial reporting for financial guarantees. Certain requirements of this statement have been implemented as of June 30, 2022. The requirements related to leases, PPPs, and SBITAs are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. The requirements related to financial guarantees and the classification and reporting of derivative instruments within the scope of Statement 53 are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter.

The City is evaluating the impact of this Statement on the financial statements. 113
Item 7 C.
40 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E. New Accounting Pronouncements (continued)
Effective in Future Fiscal Years (continued)
GASB Statement No. 100 – In June 2022, GASB Issued Statement No. 100, Accounting Changes and Error Corrections – an amendment of GASB Statement No. 62. The objective of this Statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. The requirements of this Statement are effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter. The City is evaluating the impact of this Statement on the financial statements.

GASB Statement No. 101 – In June 2022, GASB Issued Statement No. 101, Compensated Absences. The objective of this Statement is to better meet the information needs of the financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures. The requirements of this Statement are effective for fiscal years beginning after December 15, 2023, and all reporting periods thereafter. The City is evaluating the impact of this Statement on the financial statements.

2. CASH AND INVESTMENTS
Cash and investments held by the City at June 30, 2023, are classified in the accompanying financial statement as follows:

Statement of Net Position:

Cash and investments $ 18,059,133
Restricted cash and investments 1,195,872
Total cash and investments $ 19,255,005
Cash and investment held by the City consisted of the following:

Petty cash $ 1,444
Demand deposits 1,771,445
Investments with LAIF 11,712,906
Certificates of Deposit 4,581,438
PARS 1,187,772
Total cash and investments $ 19,255,005
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41 2. CASH AND INVESTMENTS (continued)
Investments Authorized by the California Government Code and the City of Capitola's Investment Policy:

Allowable investment instruments are defined in the California Government Code Section 53600, et. seq., as amended. If the Code is further revised to allow additional investments or is changed regarding the limits on certain categories of investments, the City is authorized to conform to these changes, excluding those changes that may be prohibited by this policy. Where the Government Code specifies a percentage limitation for a particular category of investments, that percentage is applicable only at the date of purchase.

The table below identifies the investment types that are authorized by the City’s investment policy and the California Government Code (or the City's investment policy, if more restrictive). The table also identifies certain provisions that address interest rate risk, credit risk, and concentration of credit risk.

Maximum Maximum
Maximum Percentage Investment in
Authorized Investment Type Maturity of Portfolio One Issuer U. S. Treasury Bills 5 years 60% None
Negotiable Certificates of Deposit (CD) 5 years 20% None Local Agency Investment Fund (LAIF) N/A None $75,000,000 Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment is, the greater the sensitivity of its fair value to changes in interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer-term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. As of June 30, 2023, the City had the following investments.

Investment Type Fair Value Less than 1 year 1-5 years
Investments with LAIF $ 11,712,906 $ 11,712,906 $ -
Certificates of Deposit 4,581,438 - 4,581,438
PARS 1,187,772 1,187,772 -
Total Investments $ 17,482,116 $ 12,900,678 $ 4,581,438 Investment Maturities (in Years)
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The City’s investments in LAIF and in PARS were not rated as of June 30, 2023. Investments in the negotiable certificates of deposit were fully insured by the Federal Deposit Insurance Corporation (FDIC).
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42 2. CASH AND INVESTMENTS (continued)
Concentration of Risk
The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. There are no investments in any one issuer that represent 5% or more of total City investments required to be disclosed.

Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker/dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local government units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits.

As of June 30, 2023, the City had deposits with financial institutions in excess of federal depository insurance limits by $1,521,445 that were held in collateralized accounts.

Investment in State Investment Pool
The City is a voluntary participant in the Local Agency Investment Fund (LAIF). LAIF was established in 1977 under the California Government Code Section 16429.1 et seq. as an investment alternative for local California governments and cities. LAIF oversight is governed by a five-member board designated by law, with the State Treasurer as Board Chairman. The State Treasurer elected to invest these monies as part of the State’s Pooled Money Investment Account (PMIA) to achieve the maximum rate of return, while maintaining the goals of safety, liquidity, and yield. All LAIF funds are insulated from State borrowing including State General Fund transfers or loans and AB 55 loans. The fair value of the City’s investment in this pool is reported in the accompanying financial statements at amounts based on the City’s pro rata share of the fair value provided by LAIF (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded as an amortized cost basis. LAIF is not registered with the Securities and Exchange Commission and is not rated.
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43 2. CASH AND INVESTMENTS, (continued)
Fair Value Measurements
The City measures and records its investments using fair value measurement guidelines established by generally accepted accounting principles (GAAP). These guidelines recognize a three‐tiered fair value hierarchy as follows:
• Level 1: Quoted prices for identical investments in active markets; • Level 2: Observable inputs other than those in Level 1; and • Level 3: Unobservable inputs.

Debt and equity securities classified as Level 1 are valued using prices quoted in active markets for those securities. Debt and equity securities classified in Level 2 are valued using the following approaches: debt securities are normally valued based on price data obtained from observed transactions and market price quotations from broker dealers and/or pricing vendors; equity securities are valued using fair value per share for each fund. Certificates of deposit classified in level 2 are valued using broker quotes that utilize observable market inputs. Securities classified as Level 3 have limited trade information, these securities are priced or using the last trade price or estimated using recent trade prices.

At June 30, 2023, the City had the following recurring fair value measurements:

Investment Type June 30, 2023 Level 1 Level 2 Uncategorized Investments with LAIF $ 11,712,906 $ - $ - $ 11,712,906 Certificates of Deposit 4,581,438 4,581,438 - -
PARS 1,187,772 - 1,187,772 -
Total Investments $ 17,482,116 $ 4,581,438 $ 1,187,772 $ 11,712,906

3. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS
Interfund Transfers
Interfund transfers for the year ended June 30, 2023, are as follows:

Transfer In
Capital Non-Major
General Projects Governmental
Fund Fund Funds Total
General Fund $ - $ 2,255,958 $ 267,066 $ 2,523,024
Capital Projects Fund 74,000 - - 74,000
Non-Major Governmental Funds - - 25,000 25,000
Total $ 74,000 $ 2,255,958 $ 292,066 $ 2,622,024
Transfers Out
The General Fund transferred $127,000 to the Beach Village Lot and $140,066 to the Pacific Coast Grove Debt Financing Funds for debt service payments. The Housing Trust Fund also transferred $25,000 to the Pacific Cove Debt Financing Fund for debt service payments. The General Fund transferred $2,255,958 to the Capital Projects Funds for various capital projects.

In addition, the Capital Projects Fund transferred $74,000 to the General Fund. 117
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44 4. CAPITAL ASSETS
Capital assets activity for the year ended June 30, 2023, is as follows:

Ending Ending
Balance Balance
Governmental activities:

Capital assets, not being depreciated:

Land $ 4,883,789 $ - $ - $ 4,883,789
Construction in progress 2,715,304 1,845,872 (1,011,458) 3,549,718 Total capital assets, not being depreciated 7,599,093 1,845,872 (1,011,458) 8,433,507 Capital assets, being depreciated:

Equipment 4,395,924 214,930 (90,721) 4,520,133
Building and improvements 17,913,338 116,007 (11,633) 18,017,712 Infrastructure 34,119,074 1,788,595 - 35,907,669
Total capital assets, being depreciated 56,428,336 2,119,532 (102,354) 58,445,514 Less accumulated depreciation for:

Equipment (3,875,265) (183,429) 90,721 (3,967,973)
Building and improvements (1,808,550) (362,755) 11,633 (2,159,672) Infrastructure (23,304,327) (506,817) - (23,811,144)
(28,988,142) (1,053,001) 102,354 (29,938,789)
Total capital assets, being depreciated, net 27,440,194 1,066,531 - 28,506,725 Total governmental activities capital assets,
net of accumulated depreciation $35,039,287 $ 2,912,403 $ (1,011,458) $ 36,940,232 Additions Deletions
Depreciation Allocations
Depreciation expense was charged to functions and programs based on their usage of the related assets. The amounts allocated to each function or program were as follows:

Governmental Activities:

General government $ 639,386
Public safety 84,556
Cultural and recreation 37,219
Transportation 291,840
Total Depreciation Expense - Governmental Activities $ 1,053,001 118
Item 7 C.
45 5. OTHER LONG-TERM RECEIVABLES
Housing and Community Development Loan Program
The City uses Federal Home Loan Reuse, Affordable Housing and CDBG Program Income funds to provide housing loans to eligible applicants. Such loans are made to low and moderate-income households to improve or rehabilitate residences. These loans have been reflected in the financial statements as loans receivable. The City accounts for this program in the Special Revenue Funds.

Total detail of loans receivable of $6.7 million at June 30, 2023, is listed below:

CDBG Federal Capitola
Program Home Loan Housing
Income Reuse Successor Total
Individual Loans $ 397,646 $ 210,287 $ 426,384 $ 1,034,317 Bay Avenue Senior Apartments - 3,624,975 1,852,881 5,477,856 Wharf Road Manor - 136,377 - 136,377
Totals $ 397,646 $ 3,971,639 $ 2,279,265 $ 6,648,550

6. LONG-TERM LIABILITIES
A summary of changes in long-term debt for the fiscal year ended June 30, 2023, was as follows:

Beginning Ending Due Within
Balance Additions Reductions Balance One Year
Cove Financing $ 807,729 $ - $ (165,066) $ 642,663 $ 642,663 Beach and Village Lot II Financing 895,732 - (65,815) 829,917 67,302 Compensated Absences 896,141 444,299 (424,896) 915,544 321,000 Totals $ 2,599,602 $ 444,299 $ (655,777) $ 2,388,124 $1,030,965 Loan Agreement Payable - Pacific Cove Debt Financing
On March 23, 2012, the City executed a $2.39 million loan agreement to facilitate relocating the residents of the Pacific Cove Mobile Home Park. The City-owned mobile home park was permanently closed for safety reasons after a pipe failure flooded the park. This financing agreement used the existing City Hall site and the adjacent Upper Pacific Cove Parking lot as the subject property. The original agreement was for 20 years at 5.14% fixed interest rate for the first 10 years, with a reset to 10-year T-Bill plus 3%. The agreement was renegotiated during fiscal year 2012/13 to a tax-exempt lease with a 3.25% interest rate, with a reset in year 10 to a 10-year T-Bill plus 1.5%. As a result of the refinancing, annual loan payments were reduced by approximately $28,000. Savings on interest over the first nine years is estimated to be $350,000.

In FY 2012/13, the City made a decision to apply $500,000 from the disaster recovery insurance settlement to the Pacific Cove Lease. This resulted in a principal reduction of $476,190, with a prepayment penalty of $23,810.
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46 6. LONG-TERM LIABILITIES, (continued)
Loan Agreement Payable - Pacific Cove Debt Financing, (continued) Future payments under the agreement as of June 30, 2023, are as follows:

Fiscal Year
Ending June 30, Principal Interest Total
2024 $ 642,663 $ 7,277 $ 649,940
Total $ 642,663 $ 7,277 $ 649,940
Loan Agreement Payable - Beach and Village Lot II Financing On March 14, 2014, the City of Capitola executed a $1,372,500 low-interest loan with the California Infrastructure and Economic Development Bank (IBank). This loan is considered an obligation with the General Fund as the source of repayment; and the City Public Works Corporation Yard serving as the leased asset. The loan term is 20 years at a fixed 2.26% interest rate.

Future payments under the agreement as of June 30, 2023, are as follows:

Fiscal Year
Ending June 30, Principal Interest Total
2024 $ 67,302 $ 17,996 $ 85,298
2025 68,823 16,457 85,280
2026 70,379 14,884 85,263
2027 71,969 13,276 85,245
2028 73,596 11,631 85,227
2029-2033 393,692 32,151 425,843
2034 84,156 951 85,107
Total $ 829,917 $ 107,346 $ 937,263
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Item 7 C.
47 6. LONG TERM LIABILITIES, (continued)
Compensated Absences
Generally Accepted Accounting Principles identifies certain items that should be accrued as a liability as the benefits are earned by the employees but only to the extent it is probable that the employer will compensate the employees for the benefits through cash payments conditioned on the employee’s termination or retirement.

City employees accumulate earned but unused benefits that can be converted to cash at termination of employment. The non-current portion of these vested benefits, payable in accordance with various collective bargaining agreements, totals $594,544 as of June 30, 2023.

7. FUND BALANCES
The details of the fund balances as of June 30, 2023, are presented below:

Federal Capitola
Home Housing RTC Streets
General Fund Loan Reuse Successor Fund
Restricted for:

Public safety $ - $ - $ - $ -
Transportation - - - 185,892
Community development - 4,780,025 4,329,058 -
Culture and recreation - - - -
Retiree benefits 1,195,872 - - -
Assigned to:

Debt service - - - -
Other capital projects - - - -
Emergency reserve 1,314,206 - - -
Unassigned:

Contingencies 3,812,832 - - -
Unassigned (deficit) 4,283,834 - - -
Total $ 10,606,744 $ 4,780,025 $ 4,329,058 $ 185,892
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Item 7 C.
48 7. FUND BALANCES, (continued)
Non-Major Total
Capital Governmental Governmental
Projects Funds Funds
Restricted for:

Public safety $ - $ 151,613 $ 151,613
Transportation - 546,353 732,245
Community development - 1,018,709 10,127,792
Culture and recreation - 211,274 211,274
Retiree benefits - - 1,195,872
Assigned to:

Debt service - 55,229 55,229
Other capital projects 5,842,965 - 5,842,965
Emergency reserve - - 1,314,206
Unassigned:

Contingencies - - 3,812,832
Unassigned (deficit) - (70,890) 4,212,944
Total $ 5,842,965 $ 1,912,288 $ 27,656,972
Deficit Fund Balances
The following fund reported a deficit fund balance at June 30, 2023:

Community Development Block Grant Programs $ (70,890)
This deficit is expected to be reduced by future revenues or transfers from other funds.

8. RISK MANAGEMENT
The City participates in the Monterey Bay Area Self-Insurance Agency (the Authority), a joint powers agency comprising the City and nine other local jurisdictions, created pursuant to California law for liability and workers compensation insurance services. The Authority’s Board of Directors is elected from representatives of the member governments, and controls operations of the fund, including selection of management and approval of operating budgets. It is independent of the individual member influence, except for their representation on the board, and is therefore not a component unit of the City for reporting purposes. 122
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49 8. RISK MANAGEMENT, (continued)
The City is exposed to various risks including worker injuries, tort liability, theft, damage or destruction of assets, errors and omissions, and natural disasters. With respect to risks other than workers’ compensation, the City and other pool participants pay an annual premium estimated by the pool administrator to be sufficient to cover all liability claims for which the pool is obligated. If a covered entity’s losses exceed its premiums, there is no individual supplemental assessment, and if a covered entity’s losses are lower than its assessment, it does not receive a refund.

However, annual budget appropriations are experience-based. The pool views its activities in the aggregate and makes overall adjustments to the premiums charged and is therefore intended to be self-sustaining through member contributions (premiums). Risk of loss is retained by the City for general liability claims up to $10,000 per occurrence. The fund carries excess loss coverage for general liability claims between $990,000 and $20,000,000 per insured event and is uninsured for losses in excess of $20,000,000 per event. Unpaid claims at fiscal year-end, as reported by the fund, were not material. There was no reduction in the City’s insurance coverage as compared to the previous fiscal year, nor have there been any losses exceeding coverage during any of the five previous years.

Premium payment amounts are determined by the fund's Board and are charged to the City’s general fund as expenditures when paid.

In the proper course of operation, the Authority issued debt in the aggregate principal amount of $5,150,000 on October 1, 2004. The Authority is required to collect and disburse the loan premiums in accordance with the loan agreement, Article VI, Section 6.03. The Member agencies are required by the Amended and Restated Joint Powers Agreement Relating to the Authority, Article 20 to pay to the Authority their individual debt service amount and associated expenses, as determined by the Authority. Furthermore, the Member Agencies contribution will be payable from any source of available funds of the Member, including amounts on deposit in the general fund of the Member. Audited financial statements of the Authority can be obtained at 1 Civic Center Drive, Scotts Valley, California 90566.

9. JOINT VENTURES
Santa Cruz Consolidated Emergency Communications Center The City is a member of the Santa Cruz Consolidated Emergency Communications Center, a Joint Powers Authority created to establish and operate a consolidated communications center which provides emergency call receiving and dispatching services. Other members of the Authority include the Cities of Santa Cruz and Watsonville, and the County of Santa Cruz. The members, including the City of Capitola, are responsible for funding the operations of the Authority through annual assessments. The annual assessments are based on percentages calculated for each member. Audited financial statements of the Authority can be obtained at 495 Upper Park Road, Santa Cruz, California 95065.
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50 9. JOINT VENTURES (continued)
Santa Cruz Consolidated Emergency Communications Center (continued) In addition, the Authority and member agencies have entered into a Use Agreement relating to the issuance of the Authority’s Santa Cruz County Public Financing Authority 2002 Lease Revenue Refunding Bonds, Series A, in the aggregate principal amount of $5,760,000. These bonds were refunded in May as 2012 Lease Revenue Bonds, Series A with a principal of $3,965,000. The proceeds were used to refinance the existing debt that was used for building costs; purchase additional equipment and make a lease termination payment to the County to acquire space that is currently being used for the Emergency Operations Center (EOC). The term bonds are due on June 15, 2034.

Other Activities
The City participates in other joint activities for the provisions of law enforcement activities, including the Santa Cruz County Narcotics Enforcement Team (SCCNET) and the Criminal Justice Council. None of these activities are conducted as a separate legal entity; therefore, they are not joint ventures, but are cost-sharing arrangements only. No separate financial statements are prepared for these activities, nor is the City exposed to risk of additional costs beyond reimbursement of its share of on-going operating costs.

10. DEFINED BENEFIT PENSION PLANS
Plan Description
All qualified permanent and probationary employees are eligible to participate in the Public Agency Cost-Sharing Multiple-Employer Defined Benefit Pension Plan (the Plan) administered by the California Public Employees’ Retirement System (CalPERS). The Plan consists of individual rate plans (benefit tiers) within a safety risk pool (police and fire) and a miscellaneous risk pool (all other). Plan assets may be used to pay benefits for any employer rate plan of the safety and miscellaneous pools. The City sponsors four rate plans (two miscellaneous and two safety). Benefit provisions under the Plan are established by State statute and City resolution.

CalPERS issues publicly available reports that include a full description of the pension plan regarding benefit provisions, assumptions and membership information that can be found on the CalPERS’ website at www.calpers.ca.gov.

Benefits Provided
CalPERS provides service 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. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 5 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost-of-living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.

The Plans operate under the provisions of the California Public Employees’ Retirement Law (PERL), the California Public Employees’ Pension Reform Act of 2013 (PEPRA), and the regulations, procedures and policies adopted by the CalPERS Board of Administration. 124
Item 7 C.
51 10. DEFINED BENEFIT PENSION PLANS, (continued)
Benefits Provided (continued)
The Plan’s provisions and benefits in effect at June 30, 2023, are summarized as follows:

Classic PEPRA
Prior to On or after
Hire date January 1, 2013 January 1, 2013
Benefit formula 2.5% @ 55 2.0% @ 62
Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life
Earliest retirement age 50 52
Monthly benefits, as a % of eligible compensation 2%-2.5% 1.0%-2.5% Required employee contribution rates 7.96% 6.75%
Required employer contribution rates* 12.21% 7.47%
*Annual employer UAL payment of $966,725 is not included in the rates above Classic PEPRA
Prior to On or after
Membership date January 1, 2013 January 1, 2013
Benefit formula 3.0% @ 50 2.7% @ 57
Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life
Earliest retirement age 50 50-57
Monthly benefits, as a % of eligible compensation 3.0% 2.0%-2.7% Required employee contribution rates 8.99% 13.00%
Required employer contribution rates* 23.75% 12.78%
*Annual employer UAL payment of $1,002,849 is not included in the rates above Miscellaneous
Safety
Contributions
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. For public agency cost-sharing plans covered by either the Miscellaneous or Safety risk pools, the Plan’s actuarially determined rate is based on the estimated amount necessary to pay the Plan’s allocated share of the risk pool’s costs of benefits earned by employees during the year, and any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employer contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contribution requirements are classified as plan member contributions. Employer Contributions to the Plan for the fiscal year ended June 30, 2023 for Safety Plan and Miscellaneous Plan were $1,624,178 and $1,290,739, respectively.
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52 10. DEFINED BENEFIT PENSION PLANS, (continued)
Net Pension Liability
The City of Capitola’s net pension liability for the Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2022, using an annual actuarial valuation as of June 30, 2021 rolled forward to June 30, 2022 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is as follows.

Actuarial Methods and Assumptions Used to Determine Total Pension Liability Miscellaneous Safety
Valuation Date June 30, 2021 June 30, 2021
Measurement Date June 30, 2022 June 30, 2022
Actuarial Cost Method Entry Age Normal Entry Age Normal Actuarial Assumptions
Discount Rate 6.90% 6.90%
Inflation 2.30% 2.30%
Salary Increases (1) Varies by Entry Age and Service Varies by Entry Age and Service Investment Rate of Return (2) 6.90% 6.90%
Mortality Rate Table (3) Derived using CALPERS' Derived using CALPERS' membership data for all Funds. membership data for all Funds.

Post Retirement Benefit Increase Contract COLA up to 2.5% until Contract COLA up to 2.5% until purchasing power protection purchasing power protection allowance floor on purchasing allowance floor on purchasing power applies, 2.5% thereafter. power applies, 2.5% thereafter. (1) Annual increases vary by category, entry age, and duration of service. (2) Net pension plan investment and administrative expenses; includes inflation. (3) The mortality table used was developed based on CalPERS' 2021 Study using data from 2001 to 2019. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB.

The 2021 Experience Study report can be obtained at CalPERS’ website at:
www.calpers.ca.gov.

Changes of assumptions – In measurement period ended June 30, 2022, CalPERS changed the discount rate from 7.15 percent to 6.90 percent. Additionally, the inflation rate was adjusted from 2.50 percent to 2.30 percent.

Discount Rate
The discount rate used to measure the total pension liability was 6.90 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on the those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. 126
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53 10. DEFINED BENEFIT PENSION PLANS, (continued)
The long-term expected rate of return on pension plan investments was determined using a building-block method in which 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 considered both short-term and long-term market return expectations. Using historical returns of all the funds’ asset classes expected compound (geometric) returns were calculated over the next 20 years using a building-block approach. The expected rate of return was then adjusted to account for assumed administrative expenses of 10 basis points. The expected real rates of return by asset class are as follows:

Current Target Real Return
Asset Class(1) Allocation Years 1–10(2)
Global equity - cap-weighted 30.0% 4.54%
Global equity - non-cap-weighted 12.0% 3.84%
Private equity 13.0% 7.28%
Treasury 5.0% 0.27%
Motgage-backed securities 5.0% 0.50%
Investment grade corporates 10.0% 1.56%
High yield 5.0% 2.27%
Emerging market debt 5.0% 2.48%
Private debt 5.0% 3.57%
Real assets 15.0% 3.21%
Leverage -5.0% -0.59%
100.0%
(1) An expected inflation of 2.30% used for this period. (2) Figures are based on the 2021 Asset Liability Management study.

Pension Plan Fiduciary Net Position
Information about the pension plan’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and fiduciary net position are presented in CalPERS’ audited financial statements, which are publicly available reports that can be obtained at CalPERS’ website at www.calpers.ca.gov. The plan’s fiduciary net position and additions to/deductions from the plan’s fiduciary net position have been determined on the same basis used by the pension plan, which is the economic resources measurement focus and the accrual basis of accounting.

Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Investments are reported at fair value.
127
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54 10. DEFINED BENEFIT PENSION PLANS, (continued)
Proportionate Share of Net Pension Liability
The following table shows the Plans’ proportionate share of the net pension liability over the measurement period.

Net Pension Deferred OutflowsDeferred Inflows Pension
Liability of Resources of Resources Expense (Credit)
Miscellaneous plan $ 14,263,748 $ 5,686,007 $ (2,020,906) $ (1,999,970) Safety plan 15,792,854 6,964,795 (1,231,686) (137,708)
Total pension plans $ 30,056,602 $ 12,650,802 $ (3,252,592) $ (2,137,678) The City’s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2022, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2021 rolled forward to June 30, 2022 using standard update procedures. The City’s proportion of the net pension liability was determined by CalPERS using the output from the Actuarial Valuation System and the fiduciary net position, as provided in the CalPERS Public Agency Cost-Sharing Allocation Methodology Report, which is a publicly available report that can be obtained at CalPERS’ website at www.calpers.ca.gov. The City’s proportionate share of the net pension liability for the Plan as of the June 30, 2022 and 2023 was as follows:

Miscellaneous Safety
Proportionate Share of NPL - June 30, 2022 0.429810% 0.0254940% Proportionate Share of NPL - June 30, 2023 0.304830% 0.0229830% Change - Increase (Decrease) -0.124980% -0.0025110%
Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate
The following presents the City’s proportionate share of the net pension liability of the Plan as of the measurement date, calculated using the discount rate of 7.15 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 (6.15 percent) or 1 percentage point higher (8.15 percent) than the current rate:

Discount Rate -1% Current Discount Rate Discount Rate +1% (5.90%) (6.90%) (7.90%)
Miscellaneous plan $ 20,619,956 $ 14,263,748 $ 9,034,165 Safety plan 22,809,923 15,792,854 10,057,985
Total pension plans $ 43,429,879 $ 30,056,602 $ 19,092,150 128
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55 10. DEFINED BENEFIT PENSION PLANS, (continued)
Recognition of Gains and Losses
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) in the Public Agency Cost-Sharing Multiple-Employer Plan (PERF C). The EARSL for the Plan is 3.8 years.

Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions
For the year ended June 30, 2023, the City incurred a pension credit of $1,999,970 and $137,708 for the Miscellaneous plan and Safety plan, respectively. 129
Item 7 C.
56 10. DEFINED BENEFIT PENSION PLANS, (continued)
Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions, (continued)
As of June 30, 2023, the City has deferred outflows and deferred inflows of resources related to pensions as follows:

Deferred Deferred
Outflows Inflows
of Resources of Resources
Pension contributions subsequent to measurement date $ 1,290,739 $ - Contributions in excess of proportionate share 34,465 (1,195,892) Changes in assumptions 1,461,619 -
Difference in expected and actual experience 286,444 (191,848) Adjustment due to differences in proportions - (633,166) Net differences between projected and actual earnings
on plan investments 2,612,740 -
Total $ 5,686,007 $ (2,020,906)
Deferred Deferred
Outflows Inflows
of Resources of Resources
Pension contributions subsequent to measurement date $ 1,624,178 $ - Contributions in excess of proportionate share 600,698 - Changes in assumptions 1,592,398 -
Difference in expected and actual experience 653,609 (171,498) Adjustment due to differences in proportions - (1,060,188) Net differences between projected and actual earnings
on plan investments 2,493,912 -
Total $ 6,964,795 $ (1,231,686)
Miscellaneous Plan
Safety Plan
130
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57 10. DEFINED BENEFIT PENSION PLANS, (continued)
Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions, (continued)
The Contributions subsequent to the measurement date with deferred outflows of resources will be recognized as a reduction of the net pension liability in the upcoming fiscal year. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as follows:

Deferred
Fiscal Year Ended Outflows/(Inflows)
June 30: of Resources, Net
2024 $ 317,171
2025 294,613
2026 164,536
2027 1,598,042
$ 2,374,362
Deferred
Fiscal Year Ended Outflows/(Inflows)
June 30: of Resources, Net
2024 $ 1,133,977
2025 922,873
2026 530,762
2027 1,521,319
$ 4,108,931
Miscellaneous Plan
Safety Plan

11. PUBLIC AGENCY RETIREMENT PLAN
Overview
The Federal Omnibus Budget Reconciliation Act of 1990 (FOBRA 90), mandated that all publicsector employees not covered by their employers’ existing retirement system(s) as of January 1, 1992, be covered by Social Security or an alternate plan. The City has provided these employees with a plan called The Public Agency Retirement System, which qualifies under Internal Revenue Code Sections 401(a) and 501.

Plan Description
The Public Agency Retirement System (PARS) is a defined contribution plan covering part-time, temporary, or seasonal employees and all employees not covered by another retirement plan.

The Plan is sponsored and paid for by employees and employer contributions. Members are 100% vested. Benefits are paid to the members in lump sum payments at termination, or if payment is in excess of $3,500, the employee has the option of a lump sum payment at termination or at normal retirement age (60).
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58 11. PUBLIC AGENCY RETIREMENT PLAN (continued)
Plan Description (continued)
The City has the right to terminate or amend the Plan at any time.

Contributions
A total annual contribution of 7.5% of covered earnings is contributed to the PARS account for each eligible employee. The City contributes 1.3% and the employee contributes 6.2%. During the fiscal year ending June 30, 2023, contributions totaled $111,732. The City acts as administrator with a trustee managing the investments and accounts. Fees are charged by the trustee and are paid from member earnings. Employer liabilities under the Plan are limited to the amount of the current contributions.

12. OTHER POST EMPLOYMENT BENEFITS
Plan Description
The City’s defined benefit postemployment healthcare plan, (City of Capitola Retiree Healthcare Plan, CRHP), provides medical benefits to eligible retired City employees and spouses. CRHP is an agent multiple-employer plan administered by California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for participating public employers within the State of California. A menu of benefit provisions, as well as other requirements, is established by State statute within the Public Employees’ Retirement Law. The CRHP’s plan provisions are established and may be amended through negotiation and Memoranda of Understanding between the City Council and the various bargaining units. All contracts with CalPERS are approved through City resolution. CalPERS issues publicly available reports that can be found on the CalPERS’ website at www.calpers.ca.gov.

Employees Covered
At the June 30, 2022 measurement date, the following current and former employees were covered by the benefit terms under the OPEB Plan:

Active employees 67
Inactive employees or beneficiaries currently receiving benefits payments 23 90 Contributions
The obligation of the City to contribute to the plan is based on an actuarial determined rate. For the fiscal year ended June 30, 2023, the City’s total contributions were $169,270. The City makes contributions and participates in the California Employers’ Retiree Benefit Trust (CERBT) Fund for the purpose of prefunding obligations for past services. Through this plan, the California Public Employees’ Retirement System (CalPERS) Board of Administration has the sole and exclusive control and power over the administration and investment of the prefunding plan. 132
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59 12. OTHER POST EMPLOYMENT BENEFITS, (continued)
Net OPEB Liability
The City’s net OPEB liability was measured as of June 30, 2022 and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation dated June 30, 2021, that was based on the following actuarial methods and assumptions:

Discount Rate 7.00%
Inflation 2.75%
Salary Increases 2.75% per annum, in aggregate
Investment Rate of Return 7.00%
Mortality Rate Mortality Rates from 2021
CalPERS Experience Study
Healthcare Trend Rate 5.25% in 2023 dropping to 5.20%
for 2024-2069, and 4.00% for
2070 and later years
The long-term expected rate of return on OPEB 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 OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Target Allocation 5-Year Return
Asset Class (Strategy 2) (Strategy 2)
Global Equity 59% 4.8%
Fixed Income 25% 1.8%
TIPS 5% 1.6%
Real Estate 8% 3.7%
Commodities 3% 1.9%
100%
Discount Rate
The discount rate used to measure the total OPEB Liability was 7.00%. The projection of cash flows used to determine the discount rate assumed that the City contribution will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan's fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees and beneficiaries. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.
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60 12. OTHER POST EMPLOYMENT BENEFITS, (continued)
Changes in Net OPEB Liability
The changes in the net OPEB liability for the City’s Plan are as follows:

Total OPEB
Liability
Plan
Fiduciary Net
Position
Net OPEB
Liability
Balance at July 1 $ 2,199,688 $ 557,373 $ 1,642,315
Changes recognized for year:

Service Cost 109,131 - 109,131
Interest 158,499 - 158,499
Contributions - 150,886 (150,886)
Net investment income - (74,613) 74,613
Administrative expenses - (141) 141
Benefit payments, including refunds of
employee contributions (90,636) (90,636) -
Net changes 176,994 (14,504) 191,498
Balance at June 30 $ 2,376,682 $ 542,869 $ 1,833,813
Increase/(Decrease)
Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the net OPEB liability of the City if it were calculated using a discount rate that is one percentage point lower (6 percent) or one percentage point higher (8 percent) than the current rate, for measurement period ended June 30, 2022:

Discount Rate
-1% (6.0%)
Current Discount
Rate (7.0%)
Discount Rate
+1% (8.0%)
$ 2,095,216 $ 1,833,813 $ 1,610,342
Net OPEB Liability
Sensitivity of the Net OPEB Liability to Changes in the Health Care Cost Trend Rates The following presents the net OPEB liability of the City if it were calculated using health care cost trend rates that are one percentage point lower or one percentage higher than the current rate, for measurement period ended June 30, 2022:

Trend Rate - 1%
(4.25%-3.0%)
Healthcare Cost
Trend Rates
(5.25%-4.0%)
Trend Rate + 1%
(6.25%-5.0%)
$ 1,547,166 $ 1,833,813 $ 2,183,193
Net OPEB Liability
134
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61 12. OTHER POST EMPLOYMENT BENEFITS, (continued)
OPEB expense and Deferred Items Summary
For the year ended June 30, 2023, the City recognized OPEB expenses of $301,946. At June 30, 2023, the City reported deferred outflows of resources and deferred inflows of resources related to the OPEB from the following sources:

Deferred Outflows
of Resources
Deferred Inflows
of Resources
OPEB contributions subsequent to measurement date $ 169,270 $ - Changes of Assumptions 802,241 -
Differences between Expected and Actual Experiences - (257,676) Net differences between projected and actual earnings
on plan investments 43,823 -
Total $ 1,015,334 $ (257,676)
For the year ended June 30, 2023, the City reported deferred outflows of resources related to OPEB in the amount of $169,270 for its contributions subsequent to the measurement date. This amount will be recognized as an OPEB expense in fiscal year 2024. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to the OPEB will be recognized as OPEB expense as follows:

Year Ended
June 30
2024 $ 99,877
2025 99,379
2026 96,793
2027 114,374
2028 91,650
Thereafter 86,315
Total $ 588,388

13. COMMITMENTS AND CONTINGENT LIABILITIES
Claims and lawsuits have been filed against the City in the normal course of business. The outcome of these matters is not presently determinable. However, in the opinion of management, the resolution of these matters is not expected to have a significant impact on the financial condition of the City.
135
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62 14. SUCCESSOR AGENCY TO THE FORMER CAPITOLA REDEVELOPMENT AGENCY On December 29, 2011, the California Supreme Court upheld Assembly Bill X1 26 that provided for the dissolution of all redevelopment agencies in the State of California. Most cities in California established a redevelopment agency that was included in the reporting entity of the city as a blended component unit (since the governing board of the city or county in many cases, also served as the governing board for those agencies). The Bill provided that upon dissolution of a redevelopment agency, either the city or another unit of local government could agree to serve as the “successor agency” to hold the assets until they are distributed to other units of state and local government. On January 12, 2012, the City Council met and created a Successor Agency in accordance with the Bill as part of City resolution number 3906.

After the law was enacted on June 28, 2011, redevelopment agencies in the State of California could not enter into new projects, obligations, or commitments. Upon the date of dissolution, February 1, 2012, significant matters previously controlled by the City Councils of the cities that created each redevelopment agency were now subject to the approval of the seven-member Oversight Board, and typically the California Department of Finance (DOF):
• Sale and distribution of assets
• Any change in obligation of terms
• Prepayment or defeasance of debt
• Acceptance of grants
• Funding of debt service reserves
• Budget for any remaining activities
In the current and future years, successor agencies are only allocated tax revenue in the amount that is necessary to pay the estimated annual payments on approved Recognized Obligation Payment Schedules (ROPS) until all enforceable obligations are paid in full. All obligations listed on the Capitola ROPS were approved by the Successor Agency and the Oversight Board, however the Department of Finance disallowed payment requests on two City/RDA loans. These loans included a $618,028 Loan and Repayment Agreement and a $1.35 million loan to purchase the City-owned Rispin Mansion property.

In June 2012, the California legislature passed AB 1484. This legislation provided clarification regarding the dissolution process and imposed new requirements. AB 1484 declared Successor Agencies are separate legal entities distinct from the sponsoring government, clarified matters pertaining to the affordable housing programs previously performed by the former RDA; and clarified matters pertaining to Enforceable Obligation and Recognized Obligation Payment Schedules (EOPS/ROPS). The legislation also established a requirement for all Successor Agencies to complete a due diligence review, established a process to receive a Finding of Completion that will provide significant benefits to local agencies (allowing them to begin spending debt proceeds and providing a formula for the repayment of money previously borrowed from the sponsoring government); and made a number of other significant changes in the dissolution process and the post-dissolution activities of Successor Agencies. 136
Item 7 C.
63 14. SUCCESSOR AGENCY TO THE FORMER CAPITOLA REDEVELOPMENT AGENCY, (continued)
In FY 2012/13, the Successor Agency completed two Due Diligence Reviews as required by the legislation. The Due Diligence review resulted in a recapture of the residual fund balance in the Successor Agency’s primary operating account of $89,536 and a disallowed payment to the City in the amount of $47,895 for a City/RDA loan. While the Successor Agency and the City disagreed with this determination, the combined amount of $137,431 was remitted to the County AuditorController to maintain compliance. The completion of these two reviews resulted in the Successor Agency receiving a finding of Completion on May 24, 2013.

The Bill also directed the California State Controller to review the propriety of any transfers of assets between redevelopment agencies and other public bodies that occurred after January 1, 2011. If the public body that received such transfers was not contractually committed to a third party for the expenditure or encumbrance of those assets, the State Controller was required to order the available assets to be transferred to the public body designated as the Successor Agency. The Capitola Successor Agency completed the Asset Transfer Review on October 7, 2013. The report findings required the City to return $52,313 to the Successor Agency for an interest payment on a City/RDA loan. The Successor Agency and the City also disagreed with this determination.

The Successor Agency and Oversight Board have approved reinstatement of the $618,028 Loan and Repayment Agreement at a reduced interest rate; however, this reinstatement was initially denied by the Department of Finance. The Department of Finance has indicated that application for this reinstatement should be subject to the timelines established in AB 1484.

The Successor Agency, City, and the Oversight Board approved a resolution to terminate the Rispin Property Purchase Loan in exchange for the return of the property. This would result in the reduction of $1.35 million dollars in Successor Agency debt. The Department of Finance requested the Oversight Board reconsider this decision; and the Oversight Board unanimously reaffirmed their property transfer decision in August. The City did not receive a response from the Department of Finance in relation to this action, and the statutory time to deny the action has elapsed. The City’s RDA attorney believed the action was effective due timing; however, the official property transfer was delayed until after the Successor Agency successfully completed a Long-Range Property Management Plan. This plan was completed on March 21, 2014; followed by the termination of the Rispin Purchase Loan and the City’s acceptance of the property by Resolution on October 10, 2013. This transaction relieved the Successor Agency of all capital assets.

After the date of dissolution, activities of the dissolved redevelopment agency are reported in a fiduciary trust fund (private purpose trust fund) in the financial statements of the City. The Successor Agency was dissolved during the fiscal year.
137
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64 15. RISKS AND UNCERTAINTIES
Grants
Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the government expects such amounts, if any, to be immaterial.

City/Successor Agency Obligations
Deductions (expenses) incurred by the Successor Agency for the year ended June 30, 2023 (and subsequent years in which the Successor Agency is in operation) are subject to review by various State agencies and the County in which the Successor Agency resides. If any expenses incurred by the Successor Agency are disallowed by the State agencies or County, the City, acting as the Successor Agency could be liable for the repayment of the disallowed costs from either its own funds or by the State withholding remittances normally paid to the City. Over the last fiscal year, the Successor Agency has been successful in receiving funding for all approved obligations, with the exception of City/RDA loans. The amount, if any, of expenses that may be disallowed by the State agencies or County cannot be determined at this time as to be immaterial or not. 138
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139
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REQUIRED SUPPLEMENTARY INFORMATION
140
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CITY OF CAPITOLA
Required Supplementary Information
Year Ended June 30, 2023
65 2023 2022
Total OPEB Liability
Service cost $ 109,131 $ 104,614
Interest 158,499 151,868
Differences between expected and actual experience - (168,232) Change of assumptions - 94,950
Benefit payments, included refunds of employee contributions (90,636) (95,259) Net change in total OPEB liability 176,994 87,941
Total OPEB liability - beginning of year 2,199,688 2,111,747 Total OPEB liability - end of year (a) $ 2,376,682 $ 2,199,688 Plan Fiduciary Net Position
Net investment income $ (74,613) $ 116,763
Contributions
Employer 150,886 155,509
Benefit payments, including refunds of employee contributions (90,636) (95,259) Administrative expense (141) (164)
Other - -
Net change in plan fiduciary net position (14,504) 176,849 Fiduciary net position - beginning of year 557,373 380,524 Fiduciary net position - end of year (b) 542,869 557,373 Net OPEB liability - end of year = (a) - (b) $ 1,833,813 $ 1,642,315 Fiduciary net position as a percentage of the total OPEB liability 22.84% 25.34% Covered employee payroll $ 6,286,092 $ 6,145,766
Discount rate 7.00% 7.00%
Measurement date 6/30/2022 6/30/2021
* Fiscal year 2018 was the first year of implementation of the OPEB standards. 141
Item 7 C.
66 2021 2020 2019 2018
$ 113,292 $ 32,631 $ 27,267 $ 26,537
140,891 62,516 57,232 51,739
- (203,258) - -
- 1,202,217 - -
(82,353) (28,801) (27,697) (26,632)
171,830 1,065,305 56,802 51,644
1,939,917 874,612 817,810 766,166
$ 2,111,747 $ 1,939,917 $ 874,612 $ 817,810
$ 12,995 $ 17,834 $ 16,868 $ 15,205
82,353 88,801 87,697 81,540
(82,353) (28,801) (27,697) (26,632)
(180) - (397) (127)
- - 31 -
12,815 77,834 76,502 69,986
367,709 289,875 213,373 143,387
380,524 367,709 289,875 213,373
$ 1,731,223 $ 1,572,208 $ 584,737 $ 604,437

18.02% 18.95% 33.14% 26.09%
$ 5,757,120 $ 5,567,350 $ 5,361,855 $ 5,787,564

7.00% 7.00% 7.00% 7.00%
6/30/2020 6/30/2019 6/30/2018 6/30/2017
142
Item 7 C.

CITY OF CAPITOLA
Required Supplementary Information
Year Ended June 30, 2023
67 2023 2022 2021
Actuarially determined contribution $ 169,270 $ 99,732 $ 155,509 Contributions in relation to
the actuarially determined contribution (169,270) (99,732) (155,509) Contribution deficiency (excess) $ - $ - $ -
Covered employee payroll $ 7,344,221 $ 6,286,092 $ 6,145,766 Contributions as a percentage of
covered employee payroll 2.30% 1.59% 2.53%
* Fiscal year 2018 was the first year of implementation of the OPEB standards. 143
Item 7 C.
68 2020 2019 2018
$ 82,353 $ 88,801 $ 87,697
(82,353) (88,801) (86,090)
$ - $ - $ -
$ 5,757,120 $ 5,567,350 $ 5,361,855

1.43% 1.60% 1.61%
144
Item 7 C.

CITY OF CAPITOLA
Required Supplementary Information
Year Ended June 30, 2023
70 Schedule of City’s Proportionate Share of the Plan’s Net Pension Liability and Related Ratios Last 10 Years*
Miscellenaous Plan 2023 2022 2021
Proportion of the Collective Net Pension Liability 0.30483% 0.42981% 0.29469% Proportionate Share of the Collective Net Pension Liability $ 14,263,748 $ 8,161,252 $ 12,430,057 Covered Payroll $ 2,337,504 $ 2,040,667 $ 3,799,393
Proportionate Share of the Collective Net Pension Liability as a Percentage of the Employer's Covered Payroll
610.2% 399.9% 327.2%
Plan's Fiduciary Net Position as a Percentage of the Total Pension Liability 78.2% 90.5% 77.7%
Measurement Date 6/30/2022 6/30/2021 6/30/2020
Discount Rate 6.90% 7.15% 7.15%
Safety Plan 2023 2022 2021
Proportion of the Collective Net Pension Liability 0.02298% 0.25494% 0.20536% Proportionate Share of the Collective Net Pension Liability $ 15,792,854 $ 8,946,935 $ 13,681,501 Covered Payroll $ 2,632,190 $ 2,300,530 $ 2,371,092
Proportionate Share of the Collective Net Pension Liability as a Percentage of the Employer's Covered Payroll
600.0% 388.9% 577.0%
Plan's Fiduciary Net Position as a Percentage of the Total Pension Liability 75.5% 86.6% 73.1%
Measurement Date 6/30/2022 6/30/2021 6/30/2020
Discount Rate 6.90% 7.15% 7.15%
* Fiscal year 2015 was the first year of implementation of the pension standards. 145
Item 7 C.
71 2020 2019 2018 2017 2016

0.29039% 0.28641% 0.27777% 0.27444% 0.27813%
$ 11,628,468 $ 10,793,804 $ 10,949,665 $ 9,533,602 $ 7,630,270 $ 3,504,309 $ 3,434,216 $ 3,370,438 $ 3,245,529 $ 3,147,103 331.8% 314.3% 324.9% 293.7% 242.5%

77.7% 77.7% 75.4% 75.9% 79.9%
6/30/2019 6/30/2018 6/30/2017 6/30/2016 6/30/2015

7.15% 7.15% 7.15% 7.65% 7.65%
2020 2019 2018 2017 2016

0.20056% 0.19718% 0.19088% 0.19118% 0.18590%
$ 12,519,942 $ 11,569,787 $ 11,405,601 $ 9,901,586 $ 7,660,071 $ 2,381,492 $ 2,487,719 $ 2,402,133 $ 2,308,245 $ 2,283,732 525.7% 465.1% 474.8% 429.0% 335.4%

73.4% 73.4% 71.7% 72.7% 77.3%
6/30/2019 6/30/2018 6/30/2017 6/30/2016 6/30/2015

7.15% 7.15% 7.15% 7.65% 7.65%
146
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CITY OF CAPITOLA
Required Supplementary Information
Year Ended June 30, 2023
72 Schedule of Pension Contributions
Last 10 Years*
Miscellenaous Plan 2023 2022 2021
Contractually Determined Contribution $ 1,290,739 $ 1,173,195 $ 1,024,725 Contributions in Relation to the Contractually
Determined Contribution (1,290,739) (1,173,195) (1,024,725) Contribution Deficiency (Excess) $ - $ - $ -
Covered Payroll $ 2,769,175 $ 2,337,504 $ 2,040,667
Contributions as a Percentage of Covered Payroll 46.61% 50.19% 50.22% Safety Plan 2023 2022 2021
Contractually Determined Contribution $ 1,624,178 $ 1,512,085 $ 1,307,218 Contributions in Relation to the Contractually
Determined Contribution (1,624,178) (1,512,085) (1,307,218) Contribution Deficiency (Excess) $ - $ - $ -
Covered Payroll $ 2,734,960 $ 2,632,190 $ 2,300,530
Contributions as a Percentage of Covered Payroll 59.39% 57.45% 56.82% * Fiscal year 2015 was the first year of implementation of the pension standards. 147
Item 7 C.
73 2020 2019 2018 2017 2016 2015
$ 913,110 $ 838,617 $ 832,631 $ 516,728 $ 448,910 $ 261,550 (913,110) (838,617) (832,631) (516,728) (448,910) (261,550) $ - $ - $ - $ - $ - $ -
$ 3,799,393 $ 3,504,309 $ 3,434,216 $ 3,370,438 $ 3,245,529 $ 3,147,103

24.03% 23.93% 24.25% 33% 14% 8%
2020 2019 2018 2017 2016 2015
$ 1,199,415 $ 954,292 $ 937,396 $ 536,507 $ 741,692 $ 640,785 (1,199,415) (954,292) (937,396) (536,507) (741,692) (640,785) $ - $ - $ - $ - $ - $ -
$ 2,371,092 $ 2,381,492 $ 2,487,719 $ 2,402,133 $ 2,308,245 $ 2,283,732

50.58% 40.07% 37.68% 33% 32% 28%
148
Item 7 C.

CITY OF CAPITOLA
Required Supplementary Information
General Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
74 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Taxes $ 14,811,770 $ 14,811,770 $ 14,709,174 $ (102,596) Licenses and permits 637,100 637,100 649,478 12,378
Fines and forfeitures 592,000 592,000 566,907 (25,093)
Intergovernmental 1,482,303 1,521,608 410,037 (1,111,571) Charges for services 2,149,031 2,149,031 1,887,463 (261,568) Use of money and property 99,800 99,800 272,701 172,901 Other revenue 1,547,842 1,547,842 1,625,762 77,920
Total revenues 21,319,846 21,359,151 20,121,522 (1,237,629) Expenditures:

Current:

General government:

City council 114,019 114,019 107,274 6,745
City manager 960,704 989,883 1,089,679 (99,796)
Personnel 448,585 463,585 362,138 101,447
City attorney 280,000 280,000 371,305 (91,305)
Finance 858,798 858,798 824,575 34,223
Community grants 133,425 133,425 125,000 8,425
General operations 2,344,500 3,158,279 604,062 2,554,217 Public safety 8,064,965 8,104,270 8,136,943 (32,673)
Community development 1,025,395 1,045,395 1,019,260 26,135 Culture and recreation 1,519,138 1,629,258 2,525,010 (895,752) Transportation 3,853,503 3,769,146 3,469,525 299,621
Capital Outlay 560,000 1,390,911 296,896 1,094,015
Total expenditures 20,163,032 21,936,969 18,931,667 3,005,302 Excess (deficiency) of revenues
over (under) expenditures 1,156,814 (577,818) 1,189,855 1,767,673 Other financing sources (uses):

Transfers In - - 74,000 74,000
Transfers out (3,886,203) (3,996,203) (2,523,024) 1,473,179 Total Other Financing
Sources (Uses) (3,886,203) (3,996,203) (2,449,024) 1,547,179 Net change in fund balance (2,729,389) (4,574,021) (1,259,169) 3,314,852 Fund balance, beginning of year 11,865,913 11,865,913 11,865,913 - Fund balance, end of year $ 9,136,524 $ 7,291,892 $ 10,606,744 $ 3,314,852 Budgeted Amounts
149
Item 7 C.

CITY OF CAPITOLA
Required Supplementary Information
Federal Home Loan Reuse Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
75 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Use of money and property $ 1,000 $ 1,000 $ 109,490 $ 108,490 Total revenues 1,000 1,000 109,490 108,490
Expenditures:

Current:

General government: 3,700 3,700 3,700 -
Total expenditures 3,700 3,700 3,700 -
Net change in fund balance (2,700) (2,700) 105,790 108,490 Fund balance, beginning of year 4,674,235 4,674,235 4,674,235 - Fund balance, end of year $ 4,671,535 $ 4,671,535 $ 4,780,025 $ 108,490 Budgeted Amounts
150
Item 7 C.

CITY OF CAPITOLA
Required Supplementary Information
Capitola Housing Successor Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
76 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Use of money and property $ 2,000 $ 2,000 $ 41,933 $ 39,933 Total revenues 2,000 2,000 41,933 39,933
Expenditures:

Current:

Community development 82,525 102,525 63,668 38,857
Total expenditures 82,525 102,525 63,668 38,857
Net change in fund balance (80,525) (100,525) (21,735) 78,790 Fund balance, beginning of year 4,350,793 4,350,793 4,350,793 - Fund balance, end of year $ 4,270,268 $ 4,250,268 $ 4,329,058 $ 78,790 Budgeted Amounts
151
Item 7 C.

CITY OF CAPITOLA
Required Supplementary Information
RTC Streets Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
77 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Intergovernmental $ 358,000 $ 358,000 $ 368,521 $ 10,521 Use of money and property - - 13,432 13,432
Total revenues 358,000 358,000 381,953 23,953
Expenditures:

Capital outlay 358,000 337,655 1,129,884 (792,229)
Total expenditures 358,000 337,655 1,129,884 (792,229)
Net change in fund balance - 20,345 (747,931) (768,276) Fund balance, beginning of year 933,823 933,823 933,823 - Fund balance, end of year $ 933,823 $ 954,168 $ 185,892 $ (768,276) Budgeted Amounts
152
Item 7 C.

CITY OF CAPITOLA
Notes to Required Supplementary Information
Year Ended June 30, 2023
78 BUDGETS AND BUDGETARY ACCOUNTING
The City adheres to the following procedures in establishing the budgetary data reflected in the financial statements:

Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for governmental funds. The City’s budget ordinance requires that in April of each fiscal year, the City Manager must submit a preliminary budget that includes projected expenditures and the means of financing them, to the City Council for the fiscal year commencing the following July 1.

As modified during public study sessions, the preliminary budget becomes the proposed budget.

Following public hearings on the proposed budget, the final annual budget is adopted by the City Council in June of the following fiscal year. After adoption of the final budget, transfers of appropriations within a general fund department, or within each fund can be made by the City Manager. Budget modifications between funds, increases, or decreases to a fund’s overall budget, transfers between general fund departments or transfers that affect capital projects must be approved by the City Council or Agency Board. Numerous properly authorized amendments are made during the fiscal year. Appropriations lapse at fiscal year-end.

Budgetary control is enhanced by integrating the budget into the general ledger. Encumbrance accounting is employed (e.g., purchase orders) to avoid over-expenditure. Encumbrances outstanding at fiscal year-end are automatically rebudgeted in the following fiscal year, unless specifically cancelled by Council action. Per Capitola Municipal Code 3.20.060.C: “The appropriation for the uncompleted balance of executory contracts should not lapse at year-end but is automatically appropriated for the succeeding fiscal year unless specifically cancelled by council action”.

There were no excess expenditures over appropriations in the General Fund departments. 153
Item 7 C.

SUPPLEMENTARY INFORMATION
154
Item 7 C.

CITY OF CAPITOLA
Capital Projects Fund
Major Capital Projects Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
79 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Licenses and permits $ 5,000 $ 5,000 $ - $ (5,000)
Intergovernmental 1,900,000 2,097,000 897,880 (1,199,120) Charges for services 15,000 15,000 13,459 (1,541)
Use of money and property 735 735
Other revenue 587,000 587,000 20,000 (567,000)
Total revenues 2,507,000 2,704,000 932,074 (1,771,926)
Expenditures:

General government 43,500 11,500 170,285 (158,785)
Capital outlay 6,857,140 6,852,993 1,245,998 5,606,995
Total expenditures 6,900,640 6,864,493 1,416,283 5,448,210 Excess (deficiency) of revenues
over (under) expenditures (4,393,640) (4,160,493) (484,209) 3,676,284 Other financing sources (uses):

Transfers in 3,886,203 3,966,203 2,255,958 (1,710,245)
Transfers out - - (74,000) (74,000)
Total other financing
sources (uses) 3,886,203 3,966,203 2,181,958 (1,784,245) Net change in fund balance (507,437) (194,290) 1,697,749 1,892,039 Fund balance, beginning 4,145,216 4,145,216 4,145,216 - Fund balance, ending $ 3,637,779 $ 3,950,926 $ 5,842,965 $ 1,892,039 Budgeted Amounts
155
Item 7 C.

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156
Item 7 C.

CITY OF CAPITOLA
Non-Major Governmental Funds
Combining Statements
June 30, 2023
80 NON-MAJOR FUNDS

SPECIAL REVENUE FUNDS
Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects.

SB1 Road Rehab Fund - This fund accounts for receipts and expenditures received from the passage of Senate Bill 1 – Road Repair and Accountability Act of 2017.

Supplemental Law Enforcement Fund - This fund accounts for the receipt and expenditure of Supplemental Law Enforcement revenues provided by the State of California.

Gas Tax Fund - This fund accounts for receipts and expenditures of gasoline tax revenues as provided by State law.

Wharf Fund - In accordance with the State law and contractual commitments, this fund accounts for wharf operating revenues and expenditures.

Parking Reserve Fund - This fund accounts for 16% of parking meter revenue from the village area (Parking Meter Zone A1). The fund was established to fund parking improvement projects throughout the village.

Technology Fees Fund - This fund accounts for revenues received from technology fees to be used for new permit processing program.

PEG Cable TV Access Fee Fund - This fund accounts for Public Education and Government (PEG) Cable TV access fees.

Capitola Village and Wharf BIA Fund - This fund accounts for the receipt and expenditure of assessments for the Business Improvement Area (BIA).

Community Development Block Grants (CDBG) Fund - This fund accounts for grant revenue applied for and received from the Federal Department of Housing and Urban Development (HUD) through the California Small Cities Grant Program administered by California Department of Housing and Community Development (HCD) to address local community development needs.

CDBG Program Income - This fund accounts for housing loan principal and interest repayments for the Community Development Block Grant (CDBG) Program.

Affordable Housing - This fund accounts for a flexible local source of funding for the creation of new affordable housing, rehabilitation of existing affording housing, funding of local programs to assist lower and moderate-income buyers purchase affordable housing, or as leverage of local funds for larger State and Federal grants.
157
Item 7 C.

CITY OF CAPITOLA
Non-Major Governmental Funds
Combining Statements
June 30, 2023
81 Restricted Transient Occupancy Tax (TOT) Fund - This fund accounts for the 0.75% of restricted Transient Occupancy Tax (TOT) as approved by Capitola voters in 2018. The Restricted TOT Fund is used receive and distribute the 0.40% of restricted TOT revenues for local business groups and the

0.35% of restricted TOT revenue dedicated to early childhood and youth programming.

DEBT SERVICE FUNDS
Beach and Village Lot II Debt Financing Fund - This fund accounts for the debt proceeds and the corresponding expenditures for the Beach and Village Lot II project. This fund is also used for the accumulation of resources for, and the payment of, long-term debt principal, interest, and related costs of the long-term debt issued by the City.

Pacific Cove Debt Financing Fund - This fund accounts for the debt proceeds and the corresponding expenditures for the Pacific Cove Mobile Home Park Relocation Plan. This fund is also used for the accumulation of resources for, and the payment of, long-term debt principal, interest, and related costs of the long-term debt issued by the City.
158
Item 7 C.

CITY OF CAPITOLA
Non-Major Governmental Funds
Combining Balance Sheet
June 30, 2023
82 SB1 Road Supplemental
Rehab and Law Gas
Maintenance Enforcement Tax
ASSETS
Cash and investments $ 289,701 $ 153,612 $ 249,401
Accounts receivable - - -
Due from other governments 19,735 - 21,864
Loans receivables, net - - -
Total Assets $ 309,436 $ 153,612 $ 271,265

LIABILITIES
Accounts payable $ 20,286 $ 1,999 $ 14,799
Deposits payable - - -
Total Liabilities 20,286 1,999 14,799

FUND BALANCES
Restricted 289,150 151,613 256,466
Assigned - - -
Unassigned - - -
Total Fund Balances 289,150 151,613 256,466
Total Liabilities and Fund Balances $ 309,436 $ 153,612 $ 271,265

SPECIAL REVENUE FUNDS
159
Item 7 C.
83 PEG Capitola
Parking Technology Cable TV Village and
Wharf Reserve Fees Access Fee Wharf BIA CDBG
$ 169,874 $ 737 $ 93,312 $ 42,254 $ 39,227 $ (41,176)
- - - - 10,686 -
- - - 2,826 - -
- - - - - -
$ 169,874 $ 737 $ 93,312 $ 45,080 $ 49,913 $ (41,176)
$ 2,680 $ - $ - $ - $ 5,670 $ 29,714
1,000 - - - - -
3,680 - - - 5,670 29,714
166,194 737 93,312 45,080 44,243 -
- - - - - -
- - - - - (70,890)
166,194 737 93,312 45,080 44,243 (70,890)
$ 169,874 $ 737 $ 93,312 $ 45,080 $ 49,913 $ (41,176)

SPECIAL REVENUE FUNDS
160
Item 7 C.

CITY OF CAPITOLA
Non-Major Governmental Funds
Combining Balance Sheet (continued)
June 30, 2023
84 CDBG Ristricted
Program Affordable Transient
Income Housing Occupancy Tax
ASSETS
Cash and investments $ 45,793 $ 379,242 $ 86,590
Accounts receivable - - -
Due from other governments - - -
Loans receivables, net 397,646 - -
Total Assets $ 443,439 $ 379,242 $ 86,590

LIABILITIES
Accounts payable $ - $ - $ 28,117
Deposits payable - - -
Total Liabilities - - 28,117

FUND BALANCES
Restricted 443,439 379,242 58,473
Assigned - - -
Unassigned - - -
Total Fund Balances 443,439 379,242 58,473
Total Liabilities and Fund Balances $ 443,439 $ 379,242 $ 86,590

SPECIAL REVENUE FUNDS
161
Item 7 C.
85 Beach & Pacific Non-Major
Village Lot II Cove Governmental
Debt Financing Debt Financing Funds
$ 12 $ 55,217 $ 1,563,796
- - 10,686
- - 44,425
- - 397,646
$ 12 $ 55,217 $ 2,016,553
$ - $ - $ 103,265
- - 1,000
- - 104,265
- - 1,927,949
12 55,217 55,229
- - (70,890)
12 55,217 1,912,288
$ 12 $ 55,217 $ 2,016,553

DEBT SERVICE FUNDS
162
Item 7 C.

CITY OF CAPITOLA
Non-Major Governmental Funds
Combining Statement of Revenues, Expenditures
and Changes in Fund Balances
Year Ended June 30, 2023
86 SB1 Supplemental
Road Rehab and Law Gas
Maintenance Enforcement Tax

REVENUES
Taxes $ - $ - $ -
Licenses and permits - - -
Intergovernmental 218,001 103,114 250,805
Charges for services - - -
Use of money and property 9,378 3,968 5,019
Other revenue - - -
Total Revenues 227,379 107,082 255,824

EXPENDITURES
Current:

General government - 88,140 149,949
Community development - - -
Capital outlay 253,428 21,813 -
Debt service:

Principal - - -
Interest - - -
Total Expenditures 253,428 109,953 149,949
Excess (Deficiency) of Revenues
over (Under) Expenditures (26,049) (2,871) 105,875

OTHER FINANCING SOURCES (USES)
Transfers in - - -
Transfers out - - -
Total Other Financing Sources (Uses) - - -
Net change in fund balances (26,049) (2,871) 105,875
Fund Balances, beginning of year 315,199 154,484 150,591 Fund Balances, end of year $ 289,150 $ 151,613 $ 256,466

SPECIAL REVENUE FUNDS
163
Item 7 C.
87 PEG Capitola
Parking Technology Cable Village and
Wharf Reserve Fees TV Access Fee Wharf BIA CDBG
$ - $ - $ - $ - $ 38,227 $ -
- - - 11,903 - -
- - - - - 168,768
- - 14,659 - 53,384 -
72,309 - - 1,535 977 -
- - - - 53,201 -
72,309 - 14,659 13,438 145,789 168,768
61,002 - - 14,777 140,941 220,885
- - 18,250 - - -
- - - 17,382 - -
- - - - - -
- - - - - -
61,002 - 18,250 32,159 140,941 220,885
11,307 - (3,591) (18,721) 4,848 (52,117)
- - - - - -
- - - - - -
- - - - - -
11,307 - (3,591) (18,721) 4,848 (52,117)
154,887 737 96,903 63,801 39,395 (18,773)
$ 166,194 $ 737 $ 93,312 $ 45,080 $ 44,243 $ (70,890)

SPECIAL REVENUE FUNDS
164
Item 7 C.

CITY OF CAPITOLA
Non-Major Governmental Funds
Combining Statement of Revenues, Expenditures
and Changes in Fund Balances
Year Ended June 30, 2023
88 CDBG Restricted
Program Affordable Transient
Income Housing Occupancy Tax

REVENUES
Taxes $ - $ - $ 105,126
Licenses and permits - - -
Intergovernmental - - -
Charges for services - 41,240 -
Use of money and property 8,512 8,624 -
Other revenue - - 556
Total Revenues 8,512 49,864 105,682

EXPENDITURES
Current:

General Government - - 109,968
Community development - - -
Capital outlay - - -
Debt service:

Principal - - -
Interest - - -
Total Expenditures - - 109,968
Excess (Deficiency) of Revenues
over (Under) Expenditures 8,512 49,864 (4,286)

OTHER FINANCING SOURCES (USES)
Transfers in - - -
Transfers out - (25,000) -
Total Other Financing Sources (Uses) - (25,000) -
Net change in fund balances 8,512 24,864 (4,286)
Fund Balances, beginning of year 434,927 354,378 62,759 Fund Balances, end of year $ 443,439 $ 379,242 $ 58,473

SPECIAL REVENUE FUNDS
165
Item 7 C.
89 Beach and Pacific Non-Major
Village Lot II Cove Governmental
Debt Financing Debt Financing Funds
$ - $ - $ 143,353
- - 11,903
- - 740,688
- - 109,283
- 74 110,396
- - 53,757
- 74 1,169,380
- - 785,662
- - 18,250
- - 292,623
65,815 165,066 230,881
22,187 - 22,187
88,002 165,066 1,349,603
(88,002) (164,992) (180,223)
127,000 165,066 292,066
- - (25,000)
127,000 165,066 267,066
38,998 74 86,843
(38,986) 55,143 1,825,445
$ 12 $ 55,217 $ 1,912,288

DEBT SERVICE FUNDS
166
Item 7 C.

CITY OF CAPITOLA
Senate Bill 1 – Road Rehab Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
90 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Intergovernmental $ 230,000 $ 230,000 $ 218,001 $ (11,999) Use of money and property - - 9,378 9,378
Total revenues 230,000 230,000 227,379 (2,621)
Expenditures:

Capital Outlay 230,000 230,000 253,428 (23,428)
Total expenditures 230,000 230,000 253,428 (23,428)
Net change in fund balance - - (26,049) (26,049)
Fund balance, beginning of year 315,199 315,199 315,199 - Fund balance, end of year $ 315,199 $ 315,199 $ 289,150 $ (26,049) Budgeted Amounts
167
Item 7 C.

CITY OF CAPITOLA
Supplemental Law Enforcement Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
91 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Intergovernmental $ 100,000 $ 100,000 $ 103,114 $ 3,114 Use of money and property 400 400 3,968 3,568
Total revenues 100,400 100,400 107,082 6,682
Expenditures:

Current:

General government: 57,500 57,500 88,140 (30,640)
Capital outlay 40,000 65,000 21,813 43,187
Total expenditures 97,500 122,500 109,953 12,547
Net change in fund balance 2,900 (22,100) (2,871) 19,229 Fund balance, beginning of year 154,484 154,484 154,484 - Fund balance, end of year $ 157,384 $ 132,384 $ 151,613 $ 19,229 Budgeted Amounts
168
Item 7 C.

CITY OF CAPITOLA
Gas Tax Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
92 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Intergovernmental $ 247,505 $ 247,505 $ 250,805 $ 3,300 Use of money and property - - 5,019 5,019
Total revenues 247,505 247,505 255,824 8,319
Expenditures:

Current:

General government: 247,000 249,852 149,949 99,903
Total expenditures 247,000 249,852 149,949 99,903
Net change in fund balance 505 (2,347) 105,875 108,222
Fund balance, beginning of year 150,591 150,591 150,591 - Fund balance, end of year $ 151,096 $ 148,244 $ 256,466 $ 108,222 Budgeted Amounts
169
Item 7 C.

CITY OF CAPITOLA
Wharf Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
93 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Use of money and property $ 27,625 $ 27,625 $ 72,309 $ 44,684 Total revenues 27,625 27,625 72,309 44,684
Expenditures:

Current:

General government: 20,431 20,431 61,002 (40,571)
Total expenditures 20,431 20,431 61,002 (40,571)
Net change in fund balance 7,194 7,194 11,307 44,684
Fund balance, beginning of year 154,887 154,887 154,887 - Fund balance, end of year $ 162,081 $ 162,081 $ 166,194 $ 44,684 Budgeted Amounts
170
Item 7 C.

CITY OF CAPITOLA
Parking Reserve Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
94 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Other financing sources (uses):

Transfers in $ 100,000 $ 100,000 $ - $ (100,000)
Transfers out (100,000) (100,000) - 100,000
Total Other Financing
Sources (Uses) - - - -
Net change in fund balance - - - -
Fund balance, beginning of year 737 737 737 -
Fund balance, end of year $ 737 $ 737 $ 737 $ -
Budgeted Amounts
171
Item 7 C.

CITY OF CAPITOLA
Technology Fees Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
95 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Charges for services $ 12,000 $ 12,000 $ 14,659 $ 2,659 Total revenues 12,000 12,000 14,659 2,659
Expenditures:

Current:

Community development 8,000 8,000 18,250 (10,250)
Total expenditures 8,000 8,000 18,250 (10,250)
Net change in fund balance 4,000 4,000 (3,591) (7,591)
Fund balance, beginning of year 96,903 96,903 96,903 -
Fund balance, end of year $ 100,903 $ 100,903 $ 93,312 $ (7,591) Budgeted Amounts

172
Item 7 C.

CITY OF CAPITOLA
PEG Cable TV Access Fee Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
96 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Licenses and permits $ 15,000 $ 15,000 $ 11,903 $ (3,097) Use of money and property - - 1,535 1,535
Total revenues 15,000 15,000 13,438 (1,562)
Expenditures:

Current:

General government 10,000 10,000 14,777 (4,777)
Capital outlay 15,000 15,000 17,382 (2,382)
Total expenditures 25,000 25,000 32,159 (7,159)
Net change in fund balance (10,000) (10,000) (18,721) (8,721) Fund balance, beginning of year 63,801 63,801 63,801 -
Fund balance, end of year $ 53,801 $ 53,801 $ 45,080 $ (8,721) Budgeted Amounts
173
Item 7 C.

CITY OF CAPITOLA
Capitola Village and Wharf BIA Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
97 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Taxes $ 35,000 $ 35,000 $ 38,227 $ 3,227
Charges for services 51,775 51,775 53,384 1,609
Use of money and property 100 100 977 877
Other revenue 56,500 56,500 53,201 (3,299)
Total revenues 143,375 143,375 145,789 2,414
Expenditures:

Current:

General government: 159,700 159,700 140,941 18,759
Total expenditures 159,700 159,700 140,941 18,759
Net change in fund balance (16,325) (16,325) 4,848 21,173 Fund balance, beginning of year 39,395 39,395 39,395 -
Fund balance, end of year $ 23,070 $ 23,070 $ 44,243 $ 21,173 Budgeted Amounts
174
Item 7 C.

CITY OF CAPITOLA
CDBG Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
98 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Intergovernmental $ 497,196 $ 497,196 $ 168,768 $ (328,428) Total revenues 497,196 497,196 168,768 (328,428)
Expenditures:

General government: 497,196 497,196 220,885 276,311
Total expenditures 497,196 497,196 220,885 276,311
Net change in fund balance - - (52,117) (52,117)
Fund balance, beginning of year (18,773) (18,773) (18,773) - Fund balance, end of year $ (18,773) $ (18,773) $ (70,890) $ (52,117) Budgeted Amounts
175
Item 7 C.

CITY OF CAPITOLA
CDBG Program Income Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
99 Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Use of money and property $ - $ - $ 8,512 $ 8,512
Net change in fund balance - - 8,512 8,512
Fund balance, beginning of year 434,927 434,927 434,927 - Fund balance, end of year $ 434,927 $ 434,927 $ 443,439 $ 8,512 Budgeted Amounts
176
Item 7 C.

CITY OF CAPITOLA
Affordable Housing Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
100
Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Charges for services $ 15,000 $ 15,000 $ 41,240 $ 26,240 Use of money and property 500 500 8,624 8,124
Total revenues 15,500 15,500 49,864 34,364
Other financing sources (uses):

Transfers out (25,000) (25,000) (25,000) -
Net change in fund balance (9,500) (9,500) 24,864 34,364 Fund balance, beginning of year 354,378 354,378 354,378 - Fund balance, end of year $ 344,878 $ 344,878 $ 379,242 $ 34,364 Budgeted Amounts
177
Item 7 C.

CITY OF CAPITOLA
Restricted TOT Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
101
Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Taxes $ 131,250 $ 131,250 $ 105,126 $ (26,124)
Other revenue - - 556 556
Total revenues 131,250 131,250 105,682 (25,568)
Expenditures:

Current:

General government: 96,250 96,250 109,968 (13,718)
Total expenditures 96,250 96,250 109,968 (13,718)
Excess (deficiency) of revenues
over (under) expenditures 35,000 35,000 (4,286) (39,842) Other financing sources (uses):

Transfers out (35,000) (35,000) - 35,000
Total Other Financing
Sources (Uses) (35,000) (35,000) - 35,000
Net change in fund balance - - (4,286) (4,842)
Fund balance, beginning of year 62,759 62,759 62,759 -
Fund balance, end of year $ 62,759 $ 62,759 $ 58,473 $ (4,842) Budgeted Amounts
178
Item 7 C.

CITY OF CAPITOLA
Beach and Village Lot II Debt Financing Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
102
Variance with
Final Budget
Positive
Original Final Actual (Negative)
Expenditures:

Debt service expenditures:

Principal $ 65,815 $ 65,815 $ 65,815 $ -
Interest 22,187 22,187 22,187 -
Total expenditures 88,002 88,002 88,002 -
Other financing sources (uses):

Transfers in 127,000 127,000 127,000 -
Net change in fund balance 38,998 38,998 38,998 -
Fund balance, beginning of year (38,986) (38,986) (38,986) - Fund balance, end of year $ 12 $ 12 $ 12 $ -
Budgeted Amounts
179
Item 7 C.

CITY OF CAPITOLA
Pacific Cove Debt Financing Fund
Non-Major Governmental Fund
Budgetary Comparison Schedule
Year Ended June 30, 2023
103
Variance with
Final Budget
Positive
Original Final Actual (Negative)
Revenues:

Use of money and property $ - $ - $ 74 $ 74
Total revenues - - 74 74
Expenditures:

Debt service expenditures:

Principal 126,828 126,828 165,066 (38,238)
Interest 38,238 38,238 - 38,238
Total expenditures 165,066 165,066 165,066 -
Excess (deficiency) of revenues
over (under) expenditures (165,066) (165,066) (164,992) 74 Other financing sources (uses):

Transfers in 165,066 165,066 165,066 -
Net change in fund balance - - 74 74
Fund balance, beginning of year 55,143 55,143 55,143 -
Fund balance, end of year $ 55,143 $ 55,143 $ 55,217 $ 74 Budgeted Amounts
180
Item 7 C.

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181
Item 7 C.

CITY OF CAPITOLA
Annual Comprehensive Financial Report
Statistical Section (Unaudited)
Table of Contents
Fiscal Year Ended June 30, 2023
104
This part of The City of Capitola's Annual Comprehensive Financial Report presents detailed information as context for understanding the information in the financial statements, note disclosures, and required supplementary information and provides additional information useful in assessing the City's economic condition.

Financial Trends
The financial trends shown on the following charts are designed to help the reader understand the City's performance trends and relative well-being over time.

Net Position by Component 106
Changes in Net Position 107
Fund Balances of Government Funds 109
Change in Fund Balances of Governmental Funds 112
General Revenues by Source 113
Revenue Capacity
The sources and relative value of revenues shown on the following charts are designed to assist the reader in assessing the City's most significant sources of revenue and the performance of these sources over time.

Net Taxable Assessed Value History 114
Assessed Value of Taxable Property 115
Direct and Overlapping Property Tax Rates 116
Top Ten Property Taxpayers 117
Property Tax Levies and Collections 118
Top 25 Sales Tax Taxpayers 119
182
Item 7 C.

CITY OF CAPITOLA
Annual Comprehensive Financial Report
Statistical Section (Unaudited)
Table of Contents, Continued
Fiscal Year Ended June 30, 2023
105
Debt Capacity
Debt is a useful tool for financing capital acquisition, construction, and meeting long term financing needs. The following charts present information to help the reader assess the City's current debt levels and capacity for future debt.

Ratios of Outstanding Debt by Type 120
Ratios of General Bonded Debt Outstanding 121
Direct and Overlapping Debt 122
Legal Debt Margin Information 123
Pledged-Revenue Coverage 124
Demographic and Economic Information
The demographic and economic information provided in the charts below is designed to help the reader understand the general socioeconomic environment in which the City's financial activities take place.

Demographic and Economic Statistics 125
Principal Employers - Top Ten 126
Full-time and Part-time City Employees by Function 127
Operating Information
The following charts provide information to show the size and nature of the City's operations in order to assist the reader in understanding the services the City is able to provide and activities it is able to undertake within its available financial framework.

Operating Indicators by Function 128
Capital Asset Statistics by Function 129
Unless otherwise noted, the source of the information noted in the tables below were from the prior year’s City’s Annual Comprehensive Financial Reports.
183
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Net Position by Component
Last Ten Fiscal Years
(accrual basis of accounting)
(amounts expressed in thousands)
106
2014 2015* 2016 2017 2018 2019 2020 2021 2022 2023
Primary Government activities
Net Investment in Capital
Assets $12,751 $11,604 $13,154 $14,457 $15,773 $18,563 $27,367 $32,053 $33,336 $ 35,468 Restricted for
Public Safety 119 101 98 8 10 17 72 99 154 152
Transportation 416 393 113 119 420 630 26 917 1,400 732 Community Development 3,852 6,357 6,599 8,811 11,191 14,105 14,221 10,821 9,995 10,128 Culture and Recreation 116 141 143 159 121 146 175 218 219 211 Total Restricted 4,503 6,992 6,953 9,097 11,742 14,898 14,494 12,055 11,768 11,223 Unrestricted 5,957 (9,381) (8,884) (9,883) (11,536) (10,563) (12,887) (10,987) (11,571) (6,238) Total Primary Government net
position $ 23,211 $ 9,215 $ 11,223 $ 13,671 $ 15,979 $ 22,898 $ 28,974 $ 33,121 $ 33,533 $ 40,453 NOTES: The City of Capitola has no business-type activities; governmental and primary government figures are the same. *FY 2014/15 reflects the first year of the implementation of GASB Statement Nos. 68 and 71, which resulted in a prior period restatement of ($15,436,035) to the Governmental Activities.

Source: City of Capitola Finance Department.
184
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Changes in Net Position
Last Ten Fiscal Years
(accrual basis of accounting)
(amounts expressed in thousands)
107
2014 2015* 2016 2017
General government $ 3,403 $ 3,582 $ 3,557 $ 3,975
Public safety 5,412 6,181 6,211 7,462
Community development 741 809 1,076 1,090
Culture and recreation 970 974 1,150 1,302
Transportation 3,070 2,866 3,218 3,212
Interest and other charges 211 217 158 119
Total primary government expenses 13,807 14,629 15,370 17,160 PROGRAM REVENUES:

Primary government activities
Charges for services:

General government 1,109 1,012 970 911
Public safety 782 806 701 597
Community development 683 633 727 637
Culture and recreation 749 765 751 640
Transportation 131 120 112 116
Operating grants and contributions 313 657 400 3,329
Capital grants and contributions 15 12 511 146
Total primary govt program revenues 3,782 4,005 4,172 6,376 NET PRIMARY GOVT REV/(EXP) (10,025) (10,624) (11,198) (10,784)

GENERAL REVENUES AND OTHER
CHANGES IN NET POSITION:

Primary government activities
Taxes:

Property Taxes 1,849 2,041 2,194 2,288
Sales and Use tax 2,036 7,330 7,860 7,959
Transient occupancy taxes 1,263 1,276 1,452 1,458
Franchise taxes 497 508 524 535
Business license tax 287 284 298 302
Intergovernmental, unrestricted 327 265 226 201
Investment income, unrestricted 107 119 227 264
Other general revenues 238 242 424 225
Total primary government activities 6,604 12,065 13,205 13,232 CHANGES IN NET POSITION:

Total primary government activities $ (3,421) $ 1,441 $ 2,007 $ 2,448 Source: City of Capitola Finance Department
* Fiscal year 2014-15 reflects the first year of the implementation of GASB Statement Nos. 68 and 71, which resulted in a prior restatment of ($15,436,035) to the Governmental Activities. GASB 75 restatement was refelcted in 2018 for $172,688.

EXPENSES:

Primary government activities
Fiscal Year
185
Item 7 C.
108
2018 2019 2020 2021 2022 2023
$ 3,594 $ 3,595 $ 3,876 $ 3,736 $ 6,117 $ 3,443
6,822 7,037 7,810 7,237 7,554 5,703
1,057 956 1,097 979 1,998 635
1,228 1,192 1,793 1,107 1,421 2,181
3,382 3,384 3,263 3,092 4,222 2,409
77 76 68 67 56 20
16,160 16,240 17,907 16,218 21,368 14,391
1,057 1,132 1,022 1,057 1,678 744
601 579 554 509 509 624
695 528 619 539 539 901
636 614 633 274 274 710
34 44 47 39 39 48
1,832 650 501 3,125 2,970 866
413 5,678 7,357 1,167 865 1,646
5,268 9,225 10,733 6,710 6,874 5,539
(10,892) (7,015) (7,174) (9,508) (14,494) (8,852)
2,498 2,630 2,712 2,794 2,883 3,058
7,688 8,077 7,441 7,705 8,485 708
1,457 1,582 1,263 1,529 2,171 8,542
555 545 557 562 635 2,131
308 308 330 292 316 314
223 224 233 232 341 307
237 450 699 335 (129) 549
406 119 16 204 204 163
13,372 13,935 13,251 13,653 14,906 15,772
$ 2,480 $ 6,920 $ 6,077 $ 4,145 $ 412 $ 6,920
Fiscal Year
186
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Fund Balances of Government Funds
Last Ten Fiscal Years
(modified accrual basis of accounting)
(amounts expressed in thousands)
109
2014 2015 2016 2017 2018

GENERAL FUND
Fund Balance GASB 54
Nonspendable $ 620 $ 618 $ 524 $ 426 $ 58
Restricted - - 300 300 816
Assigned 584 1,049 1,262 1,277 1,277
Unassigned 3,686 4,338 4,599 5,345 4,603
Total General Fund 4,890 6,005 6,685 7,348 6,754

ALL OTHER GOVERNMENT FUNDS
Fund Balance GASB 54
Restricted 1,043 985 736 834 11,742
Assigned 1,764 2,457 2,745 1,927 1,633
Unassigned (2) (41) (215) (39) (39)
Total All Other Govt Funds 2,805 3,401 3,266 2,722 13,336 TOTAL $ 7,695 $ 9,406 $ 9,951 $ 10,070 $ 20,090
Source: City of Capitola Finance Department.
187
Item 7 C.
110
2019 2020 2021 2022 2023
$ 21 $ - $ - $ - $ -
867 917 1,016 904 1,196
1,344 1,344 1,374 1,374 1,314
5,627 5,044 8,923 9,588 8,097
7,859 7,305 11,313 11,866 10,607
14,896 14,493 12,110 11,768 11,223
2,110 2,603 1,842 4,200 5,898
(39) (365) (39) (39) (71)
16,967 16,731 13,913 15,929 17,050
$ 24,826 $ 24,036 $ 25,226 $ 27,795 $ 27,657
188
Item 7 C.

CITY OF CAPITOLA
Change in Fund Balances of Governmental Funds
Last Ten Fiscal Years
(modified accrual basis of accounting)
(amounts expressed in thousands)
111
2014 2015 2016 2017
REVENUES:

Taxes $11,112 $11,416 $12,250 $12,436
Licenses & permits 703 629 671 626
Intergovernmental 637 757 656 560
Fines and forfeitures 731 671 787 1,475
Charges for services 2,053 2,078 2,165 1,970
Use of money and property 219 228 324 376
Other 128 132 328 114
Total revenues 15,583 15,911 17,181 17,557
EXPENDITURES:

Current:

General government 2,749 2,443 2,712 3,153
Public safety 5,838 5,917 6,134 6,495
Community development 722 823 1,005 976
Culture and recreation 966 978 1,039 1,137
Transportation 2,782 2,577 2,744 2,637
Capital outlay 3,328 535 2,074 2,113
Subtotal 16,385 13,273 15,708 16,511
Debt service:

Debt issuance costs 12 - - -
Principal retirement 616 699 764 788
Interest and agent fees 210 229 163 139
Subtotal 838 928 927 927
Total expenditures 17,223 14,201 16,635 17,438
Excess/(deficiency) of revenues over/(under) expenditures (1,640) 1,710 546 119 OTHER FINANCING SOURCES/(USES):

Transfers in 1,861 2,091 2,784 1,815
Transfers out (1,861) (2,091) (2,784) (1,815)
Issuance of bonds 1,372 - - -
Total other financing sources/(uses) 1,372 - - -
Net change in fund balances (268) 1,710 546 119
Beginning fund balance, as restated 7,963 7,695 9,405 9,951 Changes in fund balance (268) 1,710 546 119
Ending fund balance $ 7,695 $ 9,405 $ 9,951 $10,070
Debt Service as a percentage of non-capital expenditures Total Expenditures $17,223 $14,201 $16,635 $17,438
Capitalized Portion of Capital Outlay 3,809 (153) 2,079 2,231 Total Non-Capitalized Expenditures 13,414 14,354 14,556 15,207 Debt service: Principal and Interest 838 928 927 927
Debt service as a percentage of noncapital expenditures 6.25% 6.47% 6.37% 6.10% Note: Debt service as a percentage of noncapital expenditures reflects total governmental fund expenditures less the capital outlay shown separately in the Changes in Fund Balances schedule and any expenditures for capitalized assets contained within the functional expenditure categories. The sum of these items is reported in this calculation, as well as appearing as a reconciling item in the reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of the Governmental Funds to the Statement of Activities.

Source: City of Capitola Finance Department
189
Item 7 C.
112
2018 2019 2020 2021 2022 2023
$12,416 $13,097 $12,307 $13,064 $14,757 $14,853
766 663 726 679 746 662
558 522 520 496 589 567
2,250 6,030 7,521 3,832 3,093 2,417
2,007 2,020 1,959 1,536 2,020 2,009
237 450 699 335 (129) 548
406 378 252 422 704 1,700
18,640 23,160 23,984 20,364 21,780 22,756
2,824 2,819 2,965 3,021 4,198 4,444
6,333 6,552 6,467 6,075 6,995 8,137
967 913 963 859 1,464 1,101
1,154 1,130 1,710 1,026 1,202 2,525
2,852 2,981 2,714 2,529 2,921 3,470
1,924 3,770 9,698 5,410 2,178 2,965
16,054 18,165 24,517 18,920 18,958 22,642
- - - - - -
829 182 186 187 191 231
95 78 71 67 62 22
924 260 257 254 253 253
16,978 18,425 24,774 19,174 19,211 22,895
1,662 4,735 (790) 1,190 2,569 (139)
2,865 1,676 1,734 324 4,023 2,622
(2,865) (1,676) (1,734) (324) (4,023) (2,622)
- - - - - -
- - - - - -
1,662 4,735 (790) 1,190 2,569 (139)
10,070 20,091 24,826 24,036 25,226 27,795
1,662 4,735 (790) 1,190 2,569 (139)
$11,732 $24,826 $24,036 $25,226 $27,795 $27,656
$16,978 $18,425 $24,774 $19,174 $19,211 $22,895
2,063 3,681 9,535 5,410 2,178 2,965
14,915 14,744 15,239 13,764 17,033 19,930
924 260 257 254 253 253

6.20% 1.76% 1.69% 1.85% 1.49% 1.27%
Source: City of Capitola Finance Department.
190
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
General Revenues by Source
Last Ten Fiscal Years
(amounts expressed in thousands)
General Revenue By Source
113
Fiscal
Year
Sales Tax
Revenue (1)
Property
Taxes (2)
Transient
Occupancy
Tax
Franchise
Taxes
Business
Licenses
Investment
Income
Miscellaneous,
Intergovernmental
and Other Revenues
Total General
Revenues
2014 $ 7,179,727 $ 1,849,375 $ 1,263,175 $ 496,759 $ 286,638 $ 107,218 $ 564,801 $ 11,747,693 2015 7,330,443 2,041,248 1,275,716 507,517 284,474 118,770 506,803 12,064,971 2016 7,859,511 2,193,588 1,451,512 524,214 298,020 227,142 650,656 13,204,643 2017 7,959,086 2,288,341 1,457,704 534,513 301,545 264,040 426,525 13,231,754 2018 7,687,959 2,721,299 1,456,899 555,475 308,236 237,383 406,456 13,373,707 2019 8,076,583 2,854,103 1,581,864 545,424 307,930 450,099 119,011 13,935,014 2020 7,440,745 2,945,342 1,262,816 556,708 329,711 699,199 16,383 13,250,904 2021 7,705,348 3,026,024 1,529,015 561,969 291,590 335,472 203,806 13,653,224 2022 8,484,799 3,224,366 2,170,541 634,511 315,604 (128,502) 205,129 14,906,448 2023 8,542,419 3,365,235 2,131,470 708,277 313,993 549,243 162,352 15,772,989 NOTES:
(1) A 0.25% District Transactions and Use Tax took effect April 1, 2005 and in 2008 was extended through December 2017. An additional 0.25% Permanent Retail Transactions and Use Tax took effect April 1, 2013, bringing the local tax rate to 0.50%. (2) As of 2006, Property Taxes In Lieu of Vehicle License Fees were included as part of Property Tax distributions by the State of California. Dissolution of California Redevelopment Agencies in February 2012 lowered agency property tax receipts by the size of the previous redevelopment tax increment.

Source: City of Capitola Finance Department.

General Revenue By Source
191
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Net Taxable Assessed Value History
Last Ten Fiscal Years
(amounts expressed in thousands)
114
Fiscal
Year Secured Unsecured
SBE
Nonunitary
Total
Assessed
Value % Change
2014 $ 1,784,629 $ 75,387 $ 84 $ 1,860,100 3.50%
2015 1,906,637 81,887 84 1,988,608 6.91%
2016 2,026,035 76,862 83 2,102,980 5.75%
2017 2,156,464 77,622 84 2,234,170 6.24%
2018 2,294,174 84,389 84 2,378,647 6.47%
2019 2,412,636 87,922 111 2,500,669 5.13%
2020 2,530,955 81,815 111 2,612,881 4.49%
2021 2,657,657 77,632 111 2,735,400 4.69%
2022 2,785,901 79,332 111 2,865,344 4.75%
2023 2,923,890 72,799 157 2,996,846 4.59%
NOTES: California Constitution Article 13A establishes a county assessor "full cash value" property valuation formulated on varying base years and not at current fair market value. As a result, there is not a reasonable basis available for estimating actual value of taxable property for the City of Capitola for comparative purposes.

Source: HdL Companies, Santa Cruz County Assessor 2021-22 Combined Tax Rolls.

City of Capitola
192
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Assessed Value of Taxable Property
Last Ten Fiscal Years
(amounts expressed in thousands)
115
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Residential $ 1,289,844 $ 1,413,964 $ 1,515,227 $ 1,590,959 $ 1,681,534 $ 1,782,996 $ 1,878,890 $ 1,981,312 $2,093,954 $2,225,831 Commercial 384,916 379,721 392,427 439,224 476,377 487,098 501,612 523,379 524,820 535,445 Industrial 14,079 14,130 14,437 14,612 19,124 19,557 21,914 22,319 22,545 23,320 Institutional 14,662 14,716 15,134 15,966 15,054 9,927 10,943 9,290 19,436 7,407 Miscellaneous 6 6 6 6 267 272 277 283 293 292
Recreational 10,609 8,844 9,705 9,791 9,996 10,311 10,525 10,592 8,849 9,878 Vacant 13,823 14,934 15,263 16,274 15,393 21,333 19,848 19,308 21,278 22,137 SBE Nonunitary 84 84 83 84 84 110 110 111 111 157
Cross Reference 56,690 60,322 63,836 69,632 76,429 81,138 86,943 91,174 94,726 99,581 Unsecured 75,387 81,887 76,862 77,622 84,389 87,922 81,815 77,632 79,332 72,799 TOTALS $ 1,860,100 $ 1,988,608 $ 2,102,980 $ 2,234,170 $ 2,378,648 $ 2,500,664 $ 2,612,877 $ 2,735,400 $ 2,865,344 $ 2,996,847 Total Direct
Property Tax Rate 0.05510 0.05461 0.05456 0.05452 0.05452 0.05438 0.05441 0.05372 0.05372 0.05372 NOTES: Exempt values are not included in Total.

In 1978, the voters of the State of California passed Proposition 13, which limited taxes to a total maximum rate of 1%, based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum of 2%). With few exceptions, property is only reassessed as a result of new construction activity or at the time it is sold to a new owner. At that point, the property is reassessed based upon the added value of the construction or at the purchase price (market value) or economic value of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above.

Source: HdL Companies, Santa Cruz County Assessor 2013-14 and 2022-23 Combined Tax Rolls.

Category
193
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Direct and Overlapping Property Tax Rates
Last Ten Fiscal Years
(Rate per $100 of taxable value)
116
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Basic Levy (1) 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 Total Direct Property Tax Rate (2) 0.05510 0.05461 0.05456 0.05452 0.05452 0.05438 0.05441 0.05372 0.05372 0.05372 Overlapping Property Tax Rates (3)
Santa Cruz High School 0.02333 0.02087 0.01961 0.01848 0.04461 0.04272 0.03889 0.03800 0.03706 0.03767 Soquel Elementary School 0.02238 0.02045 0.01846 0.01811 0.04539 0.04251 0.03948 0.04140 0.04123 0.04113 Live Oak Elementary School 0.05383 0.05279 0.04600 0.03574 0.01988 0.02117 0.02072 0.02106 0.02116 0.02003 Cabrillo College 0.04047 0.03694 0.03669 0.03260 0.02425 0.02102 0.02117 0.02475 0.02370 0.02405 Total Overlapping Property Tax Rate (2) 0.14001 0.13105 0.12076 0.10493 0.13413 0.12742 0.12026 0.12521 0.12315 0.12288 City Share of 1% levy per Proposition 13
(4) 0.07471 0.07471 0.07471 0.07471 0.07471 0.07471 0.07471 0.07471 0.07471 0.07471 Total Direct Rate (3) 0.0551 0.05461 0.05456 0.05452 0.05452 0.05438 0.05441 0.05438 0.05434 0.05434 Total Direct & Overlapping Rate 1.14001 1.13105 1.12076 1.10493 1.13413 1.12742 1.12026 1.12521 1.12315 1.12288 NOTES:
(1) In 1978, California voters passed Proposition 13 which set the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of any voter approved bonds. (2) Because basic and debt rates vary by tax rate area individual rates cannot be summed. The Total Direct Rate is the weighted average of all individual direct rates applied by the government preparing the statistical section information. (3) Overlapping rates are those of local and county governments that apply to property owners within the City. Not all overlapping rates apply to all city property owners.
(4) City's Share of 1% Levy is based on the City's share of the general fund tax rate area with the largest net taxable value within the city. ERAF general fund tax shifts may not be included in tax ration figures.

SOURCE: HdL Companies, Santa Cruz County Assessors Office.

City Direct Property Tax Rates
194
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Top Ten Property Taxpayers
Last Ten Fiscal Years
117
Taxpayer
Net Assessed
Valuation Rank
Percent of Total
City Net
Assessed
Valuation
Net Assessed
Valuation Rank
Percent of
Total City Net
Assessed
Valuation
MGP XI Capitola LLC $ 117,711,928 1 3.93%
Santa Cruz Seaside Company 34,025,558 2 1.14%
Aspromonte Hotels LLC 22,011,302 3 0.73% $ 17,472,100 3 0.94% Target Corporation 19,281,742 4 0.64% 12,034,680 5 0.65% George Ow Jr. Trustees 16,275,777 5 0.54%
Loma Vista Estates Owners Assoc. Inc. 16,228,814 6 0.54% 13,896,163 4 0.75% Brown Ranch Properties 12,887,904 7 0.43% 111,236,403 6 0.60% Blai LP 12,145,193 8 0.41% 10,477,000 7 0.56%
Melanie Kett Wirtanen Trustee 11,025,000 9 0.37%
850 Rosedale LLC 9,604,402 10 0.32% 8,277,680 8 0.45%
Macerich Partnership LP - 8,069,600 9 0.43%
Macerich Capitola Adjacent LP - 62,889,921 1 3.38%
Macquire Capitola Villas INC - 22,368,000 2 1.20%
Macy's -
1100 41st Avenue LLC - 7,578,743 10 0.41%
$ 271,197,620 9.05% $ 274,300,290 9.37%
Memo: Gross Assessed Value $ 2,996,846,336 100.00% $ 1,860,100,004 100.00% Source: HdL Companies, Santa Cruz County Assessor 2013-14 and 2022-23 Combined Tax Rolls and the SBE Non Unitary Tax Roll. 2022-23 2013-14
195
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Property Tax Levies and Collections
Last Ten Fiscal Years
118
Amount
Percent of
Levy
Collections in
Subsequent
Years Amount
Percent of
Levy
2014 $ 927,676 $ 927,676 100% $ - $ 927,676 100%
2015 1,060,919 1,060,919 100% - 1,060,919 100%
2016 1,104,034 1,104,034 100% - 1,104,034 100%
2017 1,203,689 1,203,689 100% - 1,203,689 100%
2018 1,331,609 1,331,609 100% - 1,331,609 100%
2019 1,406,900 1,406,900 100% - 1,406,900 100%
2020 1,452,553 1,452,553 100% - 1,452,553 100%
2021 1,420,380 1,420,380 100% - 1,420,380 100%
2022 1,503,589 1,503,589 100% - 1,503,589 100%
2023 1,601,360 1,601,360 100% - 1,601,360 100%
NOTES: Figures presented include City property taxes and Redevelopment Agency tax increment, as well as amounts collected by the City and Redevelopment Agency that are pass throughs for other agencies, and real and personal property. The figures do not include Property Taxes In Lieu of Vehicle License Fees. In FY 1993-94, Santa Cruz County adopted the Teeter Plan under which the City of Capitola receives its entire tax levy, regardless of delinquencies as long as it qualifies for the Teeter Plan.

Reduction in property taxes levied from 2011 through 2020 reflects the 2/1/2012 State of California dissolution of Redevelopment Agencies and the associated elimination of tax increment received by the City of Capitola.

Fiscal Year Ended
June 30,
Property Taxes
Levied for the
Fiscal Year
Collected within the Fiscal
Year of Levy Total Collections to Date
Source: Santa Cruz County Auditor-Controller, City of Capitola Finance Department. 196
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Top 25 Sales Tax Taxpayers
Listed Alphabetically
119
TOP 25 SALES TAX TAXPAYERS
As of June 30, 2023
Ajs Fuel Market Of Capitola Service Stations
BevMo Convenience Stores/Liquor
Capitola Coast Service Stations
Capitola Shell Service Stations
Chevron Service Stations
CVS Pharmacy Drug Stores
Greentech Renewables
Kohls Department Stores
Macys Department Stores
Margaritaville
Nob Hill General Store Grocery Stores
O Neill Surf Shop Sporting Goods/Bike Stores
Outdoor Supply Hardware Building Materials
Pizza My Heart
Ross Family Apparel
Santa Cruz Subaru New Motor Vehicle Dealers
Santa Cruz Toyota
Shadowbrook Fine Dining
Sierra Utility Sales
Target Discount Dept Stores
Toyota Lease Trust Auto Lease
Trader Joes Grocery Stores
Ulta Beauty
Whole Foods Market Grocery Stores
Zelda's on the Beach
NOTES:

The list is in alphabetical order and is not indicative of relative nor total sales volume.

Source: HdL
197
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Ratios of Outstanding Debt by Type
Last Ten Fiscal Years
(amounts expressed in dollars unless otherwise noted)
120
Fiscal Year
Ended June 30
General
Obligation
Bonds
Lease
Revenue
Bonds Other debt
Tot. Gov't./
Primary Gov't.

Activities
Debt as a %
of Taxable
Assessed
Property
Value
Debt as a %
of Total
Personal
Income
Debt per
Capita
2014 $ 2,375,000 $ - $ 3,153,788 $ 5,528,788 0.30% 1.55% 545 2015 1,830,000 - 3,000,243 4,830,243 0.24% 1.32% 483
2016 1,255,000 - 2,811,059 4,066,059 0.19% 1.07% 401
2017 645,000 - 2,632,952 3,277,952 0.15% 0.84% 323
2018 - - 2,449,251 2,449,251 0.10% 0.58% 232
2019 - - 2,267,652 2,267,652 0.09% 0.58% 221
2020 - - 2,081,485 2,081,485 0.08% 0.47% 206
2021 - - 1,894,649 1,894,649 0.07% 0.45% 188
2022 - - 1,703,461 1,703,461 0.06% 0.41% 174
2023 - - 1,472,580 1,472,580 0.05% 0.35% 150
Source: City of Capitola Financial Statements.

Government/Total Primary Government Activities
NOTES: The City of Capitola has no business-type activities; governmental and total primary government figures are the same. Details regarding the City's outstanding debt can be found in the notes to the financial statements.

In July 2007, the City of Capitola issued a $5,040,000 Pension Obligation Bond (POB), which was used to pay off the City's CalPERS unfunded pension liability as of that point in time.

Other debt includes tax anticipation notes, county library long term debt, financed purchase, notes payable, and RDA deferred pass throughs. Compensated absences, OPEB liability and net pension liability amounts are no longer included per GASB implementation guidelines.
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Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Ratios of General Bonded Debt Outstanding
Last Ten Fiscal Years
(amounts expressed in dollars unless otherwise noted)
121
Debt as a %
of Taxable Debt as a %
General Assessed of Total
Fiscal Year Obligation Property Personal Debt per
Ended June 30, Bonds Value Income Capita
2013 $ 2,375,000 0.13% 0.67% $ 234
2014 1,830,000 0.10% 0.50% 183
2015 1,255,000 0.06% 0.33% 124
2016 645,000 0.03% 0.17% 63
2017 - 0.00% 0.00% -
2018 - 0.00% 0.00% -
2019 - 0.00% 0.00% -
2020 - 0.00% 0.00% -
2021 - 0.00% 0.00% -
2022 - 0.00% 0.00% -
NOTES: The City of Capitola has no business-type activities; governmental and total primary government figures are the same. Details regarding the City's outstanding debt can be found in the notes to the financial statements.

In July 2007, the City of Capitola issued a $5,040,000 Pension Obligation Bond (POB), which was used to pay off the City's CaIPERS unfunded pension liability as of that point in time.

Government/Total Primary Government Activities
199
Item 7 C.

CITY OF CAPITOLA, CALIFORNIA
Direct and Overlapping Debt
Fiscal Year ended June 30, 2023
122
2022-23 Assessed Valuation $ 2,996,846,336
Total Debt City's Share of Debt
OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable (1) 6/30/2023 6/30/2023 Cabrillo Joint Community College District 5.360% $ 104,214,571 $ 5,585,901 Santa Cruz City High School District 11.559% 145,243,365 16,788,681 Live Oak School District 5.836% 9,151,000 534,052
Soquel Union School District 39.161% 44,045,000 17,248,462 Santa Cruz Libraries Facilities Community Facilities District 5.979% 37,725,000 2,255,578 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $ 340,378,936 $ 42,412,674 Santa Cruz County Certificates of Participation 5.405% $ 87,894,145 $ 4,750,679 Santa Cruz County Office of Education Certificates of Participation 5.405% 7,409,779 400,499 Santa Cruz City High School District Certificates of Participation 11.559% 1,401,383 161,986 Live Oak School District Certificates of Participation 5.836% 11,783,973 687,713 Soquel Union School District Certificates of Participation 39.161% 5,617,205 2,199,754 Santa Cruz City Schools Certificates of Participation 11.559% 720,000 83,225 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $ 114,826,485 $ 8,283,854 TOTAL CITY'S DIRECT DEBT $ 1,472,580
COMBINED TOTAL DEBT $ 50,696,528 (2)
RATIOS TO 2021-22 ASSESSED VALUATION:

Total Overlapping Tax and Assessment Debt 1.42%
Total Direct Debt 0.05%
Combined Total Debt 1.69%
Source: MuniServices, LLC, City of Capitola Finance Department (1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the city divided by the district's total taxable assessed value. (2) Excludes tax and revenue anticipation notes, revenue, mortgage revenue and non-bonded financing obligations. Qualified Zone Academy Bonds are included based on principal due at maturity.
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Item 7 C.

CITY OF CAPITOLA
Legal Debt Margin Information
Last Ten Fiscal Years
(amounts expressed in thousands)
123
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Assessed Valuation $ 1,860,100 $ 1,988,608 $ 2,102,980 $ 2,234,170 $ 2,378,648 $ 2,500,669 $ 2,612,882 $ 2,735,400 $ 2,821,643 $ 2,996,846 RDA Base Valuation 246,771 256,500 264,195 272,121 280,284 288,693 297,354 306,274 315,462 324,926 Adj. assessed valuation 1,613,329 1,732,108 1,838,785 1,962,049 2,098,364 2,211,976 2,315,528 2,429,126 2,506,181 2,671,920 Debt limit percentage 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% Debt limit 241,999 259,816 275,818 294,307 314,755 331,796 347,329 364,369 375,927 400,788 Total net applicable debt
Gen. obligation bonds 2,375 1,830 1,255 645 - - - - - - Legal debt margin $ 239,624 $ 257,986 $ 274,563 $ 293,662 $ 314,755 $ 331,796 $ 347,329 $ 364,369 $ 375,927 $ 400,788 Ratio of Total Net Applicable
Debt to Debt Limit 0.99% 0.71% 0.46% 0.22% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Source: Santa Cruz County Auditor-Controller, Santa Cruz County Assessor, City of Capitola Finance Department.

NOTES: The bonded indebtedness of the City may not in the aggregate exceed the sum of fifteen (15%) of the total assessed valuation of property within the City, exclusive of any indebtedness that has been or may hereafter be incurred for the purposes of acquiring, constructing, extending, or maintaining municipally owned assets for which purposes a further indebtedness may be incurred by the issuance of bonds, subject only to the provisions of the City of Capitola bylaws and the State Constitution.
201
Item 7 C.

CITY OF CAPITOLA
Pledged-Revenue Coverage
Last Ten Fiscal Years
(amounts expressed in thousands)
124
Fiscal
Year
Ended Available Tax
June 30, Revenue Principal Interest Coverage Increment Principal Interest Coverage 2014 $ - $ - $ - n/a $ - $ - $ - n/a
2015 - - - n/a - - - n/a
2016 - - - n/a - - - n/a
2017 - - - n/a - - - n/a
2018 - - - n/a - - - n/a
2019 - - - n/a - - - n/a
2020 - - - n/a - - - n/a
2021 - - - n/a - - - n/a
2022 - - - n/a - - - n/a
2023 - - - n/a - - - n/a
Debt Service Debt Service
Other Revenue Bonds
NOTES: The City of Capitola has no tax allocation bonds or other revenue bonds.

SOURCE: City of Capitola Finance Department.

Tax Allocation Bonds
202
Item 7 C.

CITY OF CAPITOLA
Demographic and Economic Statistics
Last Ten Fiscal Years
125
Calendar Year Population
Total Personal
Income (In
Thousands)
Per Capita
Personal
Income Median Age
Unemployment
Rate
2014 10,004 $ 364,656 $ 36,451 41.5 7.0%
2015 10,150 381,027 37,540 43.3 6.0%
2016 10,162 390,369 38,414 42.8 5.5%
2017 10,563 421,494 39,902 42.6 3.3%
2018 10,240 388,326 37,922 42.0 2.2%
2019 10,108 440,760 43,605 42.7 1.4%
2020 10,091 419,398 41,561 42.2 2.1%
2021 9,794 484,927 49,512 45.3 2.1%
2022 9,794 484,927 49,512 45.3 2.1%
2023 9,794 484,927 49,512 45.3 2.1%
Sources: HdL Companies, California State Department of Finance, California Employment Development Department, ESRI, U. S. Census Bureau, American Community Survey.
203
Item 7 C.

CITY OF CAPITOLA
Principal Employers - Top Ten
Current year and nine years ago
126
Employer Ranking
Number of
Employees
% of Total
Employment Ranking
Number of
Employees
% of Total
Employment
Subaru, Toyota, Kia of Santa Cruz 1 224 4.31% 3 175 2.61% Soquel Union Elementary School District 2 172 3.31%
Target* 3 166 3.19% 1 175 2.61%
Culinary Enterprises Inc DBA
Shadowbrook Restaurant 4 158 3.04% 6 135 2.01%
Pacific Coast Manor* 5 150 2.88% 4 99 1.48%
Gayle's Bakery & Rosticceria 6 141 2.71% 5 170 2.54%
Trader Joe's* 7 139 2.67% 8 103 1.54%
City of Capitola* 8 127 2.44%
Whole Foods Market 9 120 2.31% 7 134 2.00%
Oceanside Supported Living 10 120 2.31%
Macy's 2 160 2.39%
Zelda's On the Beach 9 96 1.43%
New Leaf Community Markets 10 95 1.42%
1,517 29.17% 1,342 20.03%
Total Labor Force 5,200 100.00% 6,700 100.00%
*Includes full-time and part-time employees.
**Includes full-time and seasonal employees.

SOURCE: MuniServices, LLC
2023 2014
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Item 7 C.

CITY OF CAPITOLA
Full-time and Part-time City Employees by Function
Last Ten Fiscal Years
127
Function 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 General government
City Manager 7.65 7.65 7.65 6.50 6.50 6.00 7.50 5.50 5.50 7.00 Finance 4.50 4.50 4.50 4.50 3.75 3.75 3.75 2.75 3.00 3.00 City Attorney 1.00 1.00 1.00 1.00 1.00 1.00 0.00 0.00 0.00 0.00

13.15 13.15 13.15 12.00 11.25 10.75 11.25 8.25 8.50 10.00 Police
Chief, Captain, Sgts. 6.00 6.00 6.00 6.00 6.00 7.00 7.00 7.00 7.00 7.00 Officers 15.00 15.00 16.00 16.00 16.00 15.00 15.00 14.00 15.00 15.00 CSOs 3.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00
Parking Enforcement 3.00 3.00 3.00 3.00 3.00 2.00 2.00 2.00 2.00 3.00 Administrative 4.65 4.65 4.65 4.50 4.50 4.50 4.50 4.50 4.00 4.00

31.65 30.65 31.65 31.50 31.50 30.50 30.50 29.50 30.00 31.00 Public Works
Streets 8.00 9.00 9.00 11.00 12.00 11.50 10.00 10.00 10.00 11.00 Parks 4.00 4.00 4.00 4.00 3.00 3.00 3.00 3.00 3.00 3.00 Fleet Maintenance 1.00 1.50 1.25 1.00 1.00 1.50 2.00 1.00 1.00 1.00

13.00 14.50 14.25 16.00 16.00 16.00 15.00 14.00 14.00 15.00 Recreation
Supervisor 1.00 2.00 2.00 2.50 2.50 2.50 1.00 1.00 1.00 1.00 Other - full year 2.00 2.25 2.75 1.25 1.25 1.25 4.00 4.00 3.50 3.50

3.00 4.25 4.75 3.75 3.75 3.75 5.00 5.00 4.50 4.50
Community Development 2.50 3.00 3.50 3.50 3.50 3.00 3.00 3.00 3.00 3.00 Building 2.00 2.00 2.00 2.00 2.00 3.00 3.00 3.00 2.75 3.00 Total City Employees 65.30 67.55 69.30 68.75 68.00 67.00 67.75 62.75 62.75 66.50 NOTES: Full time equivalents (FTE); does not include temporary or seasonal employees.

SOURCE: City of Capitola Finance Department.
205
Item 7 C.

CITY OF CAPITOLA
Operating Indicators by Function
Last Ten Fiscal Years (except as noted)
128
INDICATOR 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Police department
Adult arrests 856 956 904 939 692 587 503 317 345 424
Calls for service (thousands) 20 18 17 20 19 15 19 15 14 6 Public works
Miles paved 26 26 26 26 26 26 26 26 26 26
New construction
Commercial units - - 1 2 1 1 - - - -
Valuation (millions) $ - $ - $ 4 $ 5 $ 2 $ 2 $ - $ - $ - $ - Residential units (1) 9 3 3 9 6 8 9 9 9 8
Valuation (millions) $ 3 $ 1 $ 1 $ 3 $ 4 $ 3 $ 4 $ 4 $ 4 $ 3 Recreation Revenue (thousands)
Classes $ 338 $ 282 $ 275 $ 260 $ 240 $ 231 $ 214 $ 79 $ 199 $ 225 Sports fees 41 32 19 21 24 23 19 8 26 22
Junior Guard 268 312 328 258 238 244 160 85 268 264
Camp Capitola 103 139 129 100 96 111 100 105 175 150
Aquatics - - - - - - 24 48 52 68
Events - - - - - - - - 1 3
Net Class Revenue $ 750 $ 765 $ 751 $ 639 $ 598 $ 609 $ 517 $ 325 $ 721 $ 732 Jade St. Rental 5 7 7 6 8 5 5 - 7 7
Net Recreation Rev $ 755 $ 772 $ 758 $ 645 $ 606 $ 614 $ 522 $ 325 $ 728 $ 739 (1) Residential units and associated valuations are total additional, new or substantially new (by code definition) units.
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Item 7 C.

CITY OF CAPITOLA
Capital Asset Statistics by Function
Last Ten Fiscal Years
129
Indicator 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Police
Stations 1 1 1 1 1 1 1 1 1 1
Public works
Streets (miles) 26 26 26 26 26 26 26 26 26 26
Streetlights 71 71 71 71 71 71 71 71 71 71
Traffic signals 8 8 8 8 8 8 8 8 8 8
Parks and recreation
Parks 8 8 8 8 8 8 8 8 8 8
Community centers 1 1 1 1 1 1 1 1 1 1
General
Commercial buildings 2 2 2 2 2 2 2 2 2 2
Source: City of Capitola Public Works Department.
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Item 7 C.
1 December 22, 2023
To the Honorable Members of the City Council of
City of Capitola
Capitola, California
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information for City of Capitola (City), California, as of and for the year ended June 30, 2023, and have issued our report thereon dated December 22, 2023. Professional standards require that we advise you of the following matters relating to our audit.

Our Responsibility in Relation to the Financial Statement Audit under Generally Accepted Auditing Standards and Government Auditing Standards
As communicated in our letter dated June 1, 2023, our responsibility, as described by professional standards, is to form and express opinions about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities.

Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.

We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process.

However, we are not required to design procedures for the purpose of identifying other matters to communicate to you.

We have provided our comments regarding internal controls during our audit in our 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 dated the December 22, 2023.

Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously communicated to you.

What inspires you, inspires us. | eidebailly.com
4040 Campbell Ave., Ste. 200 | Menlo Park, CA 94025-1053 | T 650.522.3400 | F 650.645.7393 | EOE 208
Item 7 C.
2 Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, our firm, and other firms utilized in the engagement, if applicable, have complied with all relevant ethical requirements regarding independence.

Significant Risks Identified
As stated in our auditor’s report, professional standards require us to design our audit to provide reasonable assurance that the financial statements are free of material misstatement whether caused by fraud or error. In designing our audit procedures, professional standards require us to evaluate the financial statements and assess the risk that a material misstatement could occur. Areas that are potentially more susceptible to misstatements, and thereby require special audit considerations, are designated as “significant risks”. We have identified the following as significant risks. • Management override of internal controls – Professional standards require auditors to address the possibility of management overriding controls. Accordingly, we identified as a significant risk that management of the City may have the ability to override controls that the organization has implemented. Management may override the organization’s controls in order to modify the financial records with the intent of manipulating the financial statements to overstate the City’s financial performance or with the intent of concealing fraudulent transactions. • Revenue recognition - Professional standards require auditors to assess the possibility of revenue recognition as a significant risk. Accordingly, we identified revenue recognition as a significant risk that revenues may be misstated based on the volume of transactions and the significance of revenues to the City.

Qualitative Aspects of the Entity’s Significant Accounting Practices Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in Note 1 to the financial statements.

There have been no initial selection of accounting policies and no changes in significant accounting policies or their application during 2023. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.

Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments.

The most sensitive accounting estimates affecting the financial statements are related to the City’s net pension liability and net other postemployment benefits (OPEB) liabilities. 209
Item 7 C.
3 Management’s estimates are based on actuarial valuations. We evaluated the key factors and assumptions used to develop these estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole.

Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the City’s financial statements are:
• Note 10 to the financial statements discloses key elements of the City’s pension plans, administered by the California Public Employees’ Retirement System (CalPERS). As disclosed in the footnote, a 1% increase or decrease in the discount rate can have a material effect on the City’s net pension liability.
• Note 12 to the financial statements discloses key elements to the City’s OPEB plan. As disclosed in the footnote, a 1% increase or decrease in either the discount rate or the healthcare cost trend rate can have a material effect on the City’s net OPEB liability.

Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of the audit.

Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole.

Uncorrected misstatements or matters underlying those uncorrected misstatements could potentially cause future-period financial statements to be materially misstated, even though the uncorrected misstatements are immaterial to the financial statements currently under audit.

The following misstatements that we identified as a result of our audit procedures were brought to the attention of, and corrected by, management:

Interest receivable $ 93,393
Interest income 112,805
Cash & Investments ($206,198)
There were no uncorrected misstatements.

Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the City’s financial statements or the auditor’s report. No such disagreements arose during the course of the audit.
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Item 7 C.
4 Circumstances that Affect the Form and Content of the Auditor’s Report For purposes of this letter, professional standards require that we communicate any circumstances that affect the form and content of our auditor’s report. We did not identify any circumstances that affect the form and content of the auditor’s report.

Representations Requested from Management
We have requested certain written representations from management, which are included in the attached letter dated December 22, 2023.

Management’s Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters.

Other Significant Matters, Findings, or Issues
In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operating plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the City’s auditors.

Other Information Included in Annual Reports
Pursuant to professional standards, our responsibility as auditors for other information, whether financial or nonfinancial, included in the City’s annual reports does not extend beyond the financial information identified in the audit report, and we are not required to perform any procedures to corroborate such other information.

Additionally, in accordance with such stanards, we read the other information and considered whether such information, or the manner of its presentation, was materially inconsistent with its presentation in the financial statements.

Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or manner of its presentation, appearing in the financial statements.

This report is intended solely for the information and use of the governing board and management of the City and is not intended to be and should not be used by anyone other than these specified parties.

Menlo Park, California
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Item 7 C.

Capitola City Council
Agenda Report
Meeting: January 11, 2024
From: Public Works Department
Subject: December 2023 Winter Storm Event
Recommended Action: Receive an update regarding the December 2023 Winter Storm Event.

Background: On December 28, 2023, the City experienced an impactful high wave event, resulting in storm surges that over-topped the seawall, affecting the village and low-lying areas along Soquel Creek.

In response to the anticipated weather conditions, the Police Department issued an evacuation warning for low-lying areas the night before the event. Public Works crews, along with the Building Official, were actively involved in monitoring, response, and assessment during and after the event.

Public Works crews worked diligently to manage water levels in the Village, clear debris from the Esplanade, and construct a sand berm at the seawall. Simultaneously, the Building Official conducted inspections of affected buildings to assess damage.

Following the initial wave event, the Village remained closed to vehicular traffic for approximately 48 hours to allow for clean up, and as another wave event was forecasted for December 30. Fortunately, the subsequent waves were less severe, and the Village was spared from further significant impacts.

Discussion: The damages from the high wave event include four yellow tags (indicating minimal damage with no occupancy restrictions) issued for three commercial units and one residential unit. Additionally, two red tags (indicating more substantial damage with occupancy restrictions) were issued for residential units at the Venetian. Presently, two yellow tags have been resolved, leaving two outstanding yellow tags and two red tags.

City property damages include broken pilings, damaged structural elements, and the loss of decking on the Wharf, along with the complete loss of the lower Hoopers stairs. Preliminary assessments from engineers estimate a repair timeframe of six to eight weeks for the Wharf. Repairs to the Wharf can be integrated into the existing contract with the Wharf contractor.

To address the damage to the lower Hoopers stairs, staff is considering proposing a "betterment" project, suggesting the reconstruction of the lower section using more resilient materials, specifically concrete.

This potential enhancement aims to increase the stairs' durability, given their history of recurrent damage.

This potential project can be considered later this winter during the annual goal-setting process.

Fiscal Impact: The fiscal impact of the high wave event primarily revolves around the estimated costs of repairing City property damages. Preliminary assessments suggest a ballpark figure of less than $250,000 for the Wharf repairs, which can be covered within the existing budget by integrating the repairs into the current contract with the Wharf contractor.

The potential "betterment" project for the lower Hoopers stairs would involve additional costs, though the project may be eligible for grant funding. Staff will provide further details on options to improve Hoopers stairs during the goal-setting meeting.

Report Prepared By: Jessica Kahn, Public Works Director Reviewed By: Julia Gautho, City Clerk
Approved By: Jamie Goldstein, City Manager
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December 2023
Winter Storm Event
City Council
January 11, 2023
213
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December 28, 2023
Impactful high wave event leading to storm
surges
Village and low-lying regions along Soquel Creek
Issuance of evacuation warning by the Police
Department the night before
Background
December 2023 Winter Storm Event
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Timely Evacuation Warning: Police Department's
issuance to residents in low-lying areas
Coordination: Collaborative efforts of Public Works and Police
Pre-event Preparations: Active monitoring and
assessments undertaken to mitigate potential damages
Public Awareness: Emphasis on community response
and cooperation
Proactive Measures
December 2023 Winter Storm Event
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• Regular Public Announcements
• Social Media and Local Media
Community Updates
• Incident Command for Incident
• Attended OR3 Briefings and Weather Updates
• Closed Village to Vehicle and Pedestrian Traffic – Maintained Closures for PW • Issued “Shelter In Place” during the event
• Provided SM Updates, communicated directly with BIA and Venetians HOA Police
• Water Level Management
• Esplanade Cleanup
• Seawall Protection
Public Works
• Building Inspections
• Damage Assessment
• Yellow and Red Tags
Building
Response
December 2023 Winter Storm Event
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Village Closure and
Cleanup
• Closure for Vehicular
Traffic approximately 48
hours after the initial
event
• Ensuring public safety
during cleanup and
potential subsequent
wave events
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• Initially 3 commercial and 1 residential units
• Current: 1 commercial (Bay Bar) and 1 residential in Venetian Yellow Tags: Minimal Damage (4 Issued)
• Current: 2 Residential in Venetian
Red Tags: Substantial Damage (2 Issued at Venetian)
Damages Assessment
December 2023 Winter Storm Event
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City Property
Damages • Wharf Damages • Structural Elements • Decking Loss • Preliminary Estimate 6-8 weeks • Hoopers Stairs • Complete Loss of the
lower Hoopers stairs • Considering
"betterment" project
for reconstruction using
resilient materials 219
Item 8 A.
• Damage assessment and reporting
• Seeking State disaster declarations and financial
assistance from the State and federal government
County Office of Response, Recovery &
Resilience
• Preparation and Response
• Wharf repairs
• Hoopers stairs repair and/or betterment project
Costs
Fiscal Impact
December 2023 Winter Storm Event
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Future Events
• Mobile Sign
Placement
• Proactively
ahead of high
surf advisories
• Esplanade at
Stockton Avenue
• Bollard Signage
• During storm
events
• Detour people
from Esplanade
at entrances
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Questions and
Discussion
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Capitola City Council
Agenda Report
Meeting: January 11, 2024
From: Police Department
Subject: Unmanned Aircraft Systems (UAS) Drone Program
Recommended Action: Receive a presentation regarding the new Unmanned Aircraft System (UAS) Drone Program.

Background: On May 11, 2023, the City Council adopted a resolution approving the Police Department’s Annual Military Equipment Report, which included the use of drones for public safety activities. The Police Department also included the use of drones in their adopted FY 2023-24 Budget goals.

The rapid advancement of technology has ushered in a new era of innovation in law enforcement, one of which is the implementation of Unmanned Aircraft Systems (UAS), commonly known as drones. The introduction of drones has presented both opportunities and challenges for law enforcement agencies.

UAS devices offer invaluable benefits, such as enhanced public safety and efficient surveying and mapping capabilities. Conversely, their increased prevalence has raised concerns related to privacy and the potential for disturbances.

The Federal Aviation Authority (FAA) regulates and sets guidelines for the safe operation of drones in the United States. Any use of a UAS by the City will be in strict accordance with constitutional privacy acts and FAA regulations. The FAA requires recreational operators to register and mark their drones and to operate them under best practice guidelines. As commercial UAS operators, pilots are required to abide by specific drone regulations outlined in Title 14 Code of Federal Regulations Part 107, obtain a Remote Pilot License Certificate and get an FAA tracking number. All of the Police Department’s operators/pilots are considered commercial UAS pilots and will have their Part 107 licenses.

Discussion: The Police Department is committed to evaluating and embracing new technologies to better engage in public safety activities. Utilizing funding from the Supplement Law Enforcement Services Fund (SLESF), two Police Department staff members completed the Regional Training Center (RTC) Drone Operators Course and obtained their Pilot Part 107 licenses. The Police Department plans to send an additional four operators through the RTC Basic Course, which includes preparation for taking the pilot license test. All pilots will be cross-trained as observers and will be required to obtain a license before any solo operation.

The Police Department adopted CPD Policy 613 and CPD Directive 2023-2 (Attachments 1 and 2) outlining the program coordinator's responsibilities, privacy concerns, authorized uses, documentation requirements, reporting requirements, and transparency reporting. DroneSense software has been procured as the City’s UAS software platform for all public safety applications. DroneSense allows for a variety of UAS models, a consistent flight control interface that automatically logs all flight activity and allows for remote flight streaming. The Police Department has purchased two DJI Mini 2 Drones and one DJI Avata Drone to complement our program. Staff’s goal is to add one DJI Mavic 3T (Thermal) Drone to the City’s fleet by the end of the fiscal year.

Several agencies in Santa Cruz County have successful UAS programs. The Santa Cruz County Sheriff’s Office has been operating a UAS program since 2019 and has had successful missions with search and rescue operations, suspect searches, crime scene documentation, and high-risk incidents. As part of the Sheriff’s transparency policy, the Sheriff’s Office issues an annual report on the use of this technology.

The Watsonville Police Department just introduced their new UAS program and Santa Cruz Police will be presenting a UAS program in the coming months.
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Fiscal Impact: Staff has allocated $18,000 from FY 2023-24 Supplemental Law Enforcement Services Fund (SLESF) to fund the initial training and to purchase four drones. We are seeking additional funding from the Capitola Public Safety Foundation to complete the required training for FY 2023-24.

Attachments:

1. Policy 613

2. CPD Directive 2023-2
Report Prepared By: Andrew J. Dally, Police Chief
Reviewed By: Julia Gautho, City Clerk
Approved By: Jamie Goldstein, City Manager
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Policy
613
Capitola Police Department
Capitola PD CA Policy Manual
Unmanned Aerial System (UAS) Operations
613.1 PURPOSE AND SCOPE
The purpose of this policy is to establish guidelines for the use of an unmanned aerial system (UAS) and for the storage, retrieval and dissemination of images and data captured by the UAS. 613.1.1 DEFINITIONS
Definitions related to this policy include:

Unmanned aerial system (UAS) - An unmanned aircraft of any type that is capable of sustaining directed flight, whether preprogrammed or remotely controlled (commonly referred to as an unmanned aerial vehicle (UAV)), and all of the supporting or attached systems designed for gathering information through imaging, recording or any other means. 613.2 POLICY
Unmanned aerial systems may be utilized to provide an aerial observation platform to enhance the Department's mission of protecting lives and property and enhance the efficiency and safety of police operations. UAS operations will be conducted in accordance with this policy and Federal Aviation Administration (FAA) regulations. UAS operations will only be used for legitimate law enforcement purposes in strict accordance with constitutional protections and privacy rights. 613.3 PRIVACY
Capitola Police Department UAS operations will be conducted with the privacy rights of citizens in mind. Absent a warrant or exigent circumstances, operators and observers shall not intentionally record or transmit images of any location where a person would have a reasonable expectation of privacy. UAS operations will only record incidents that are related to an official law enforcement function.
613.4 PROGRAM COORDINATOR
The Chief of Police will appoint a Program Coordinator who will be responsible for the management of the UAS program. The program coordinator will ensure that policies and procedures conform to current laws, regulations, and best practices and will have the following additional responsibilities:
• Ensure that all Federal Aviation Regulations are adhered to particularly Part 107 as it pertains to UAS operations.
• Ensure that all authorized operators and required observers have completed all required FAA and department-approved training in the operation, applicable laws, policies, and procedures regarding use of the UAS.
• Monitor and approve all requests for the deployment of a UAS in accordance with this policy.
• Develop protocol for conducting criminal investigations involving a UAS, including documentation of time spent monitoring a subject.

Copyright Lexipol, LLC 2023/12/13, All Rights Reserved.

Published with permission by Capitola Police Department Unmanned Aerial System (UAS) Operations -
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Capitola Police Department
Capitola PD CA Policy Manual
Capitola PD CA Policy Manual
Unmanned Aerial System (UAS) Operations
• Develop an operational protocol governing the deployment and operation of a UAS including, but not limited to, safety oversight, use of visual observers, establishment of lost link procedures and secure communication with air traffic control facilities. • Develop a protocol for fully documenting all missions. • Develop a UAS inspection, maintenance, and record-keeping protocol to ensure continuing airworthiness of a UAS, up to and including its overhaul or life limits. • Develop protocols to ensure that all data intended to be used as evidence are accessed, maintained, stored, and retrieved in a manner that ensures its integrity as evidence, including strict adherence to chain-of-custody requirements. Electronic trails, including encryption, authenticity certificates and date and time stamping, shall be used as appropriate to preserve individual rights and to ensure the authenticity and maintenance of a secure evidentiary chain of custody.
• Facilitate law enforcement access to images and data captured by the UAS. • Recommend program enhancements, particularly regarding safety and information security.
• Ensure that established protocols are followed by monitoring and providing periodic reports on the program to the Chief of Police.
613.5 USE OF UAS
Only authorized operators who have completed the required training shall be permitted to operate the UAS.

Use of vision enhancement technology (e.g., thermal and other imaging equipment not generally available to the public) is permissible in viewing areas only where there is: 1. no protectable privacy interest; 2. exigent circumstances; or 3. when in compliance with a search warrant or court order.

In all other instances, legal counsel should be consulted.

UAS may be used to provide aerial imaging to police personnel to further a legitimate law enforcement operation. All operations must be in compliance with this policy and FAA regulations. 613.6 PROHIBITED USE
The UAS video surveillance equipment shall not be used:
• To conduct random surveillance activities.
• To target a person based solely on actual or perceived characteristics, such as race, ethnicity, national origin, religion, sex, sexual orientation, gender identity or expression, economic status, age, cultural group, or disability. • To harass, intimidate, or discriminate against any individual or group. • To conduct personal business of any type.

The UAS shall not be weaponized.

Copyright Lexipol, LLC 2023/12/13, All Rights Reserved.

Published with permission by Capitola Police Department Unmanned Aerial System (UAS) Operations -
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Capitola Police Department
Capitola PD CA Policy Manual
Capitola PD CA Policy Manual
Unmanned Aerial System (UAS) Operations
613.7 RETENTION OF UAS DATA
Data collected by the UAS shall be retained as provided in the established records retention schedule.

Copyright Lexipol, LLC 2023/12/13, All Rights Reserved.

Published with permission by Capitola Police Department Unmanned Aerial System (UAS) Operations -
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Capitola Police Department, 422 Capitola Avenue, Capitola, CA 95010

INTEROFFICE MEMORANDUM
TO: ALL PERSONNEL
FROM: ANDREW DALLY, CHIEF OF POLICE
SUBJECT: DEPARTMENTAL DIRECTIVE 2 – UAS OPERATING PROCEDURES DATE: SEPTEMBER 29, 2023
PURPOSE:

The following procedures are intended to promote the safe, efficient, and lawful operation of the Capitola Police Department (CPD) Unmanned Aircraft System (UAS). Safety, above all else, is the primary concern in every operation, regardless of the nature of the mission.

GENERAL INFORMATION:

It shall be the mission of those personnel of the CPD who are trained in the use of the UAS to use this resource to protect the lives and property of community members of Capitola and first responders in full compliance with applicable laws and regulations, including but not limited to applicable State and Federal Constitution and Federal Aviation Administration (FAA) regulations.

The use of a UAS can support first responders in situations which would benefit from an aerial perspective and enable responders to detect dangers that could otherwise not be seen. The UAS can also be utilized for approved training missions and demonstrations.

The FAA Modernization and Reform Act of 2012 provides for the integration of civil unmanned aircraft systems into national airspace. Federal law requires the Administrator of the FAA to develop and implement operational and certification requirements for the operation of public unmanned aircraft systems in the national airspace system.

Unless otherwise noted, the Chief’s Designee for UAS operations shall be the Field Operations Commander.

DEFINITIONS:

Unmanned Aircraft System (UAS): Consists of the small unmanned aircraft, the command system, a secure control link, and other related safety support equipment.

Unmanned Aircraft Vehicle (UAV): An aircraft that is intended to navigate in the air without an on-board pilot.

UAS Flight Crewmember: A remote pilot, visual observer, or other persons assigned duties for a UAS for the purpose of flight.

Unmanned Aircraft Remote Pilot: A person exercising control over unmanned aircraft during flight. The remote pilot will be ultimately responsible for the operation and solely responsible for the input of commands/piloting during flight. The remote pilot will be certified in the operation of the UAS by successful completion of an approved training course. The remote pilot must pass the required 228
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Capitola Police Department, 422 Capitola Avenue, Capitola, CA 95010 knowledge tests and must keep his/her aeronautical knowledge up to date. Remote pilots are authorized to evaluate and accept or decline any mission or portion thereof due to safety concerns.

Certificate of Authorization (COA): Given by the FAA which grants permission to fly within specific boundaries, perimeters, and specified circumstances.

Visual Observer: A visual observer is responsible for the visual observation of the UAS while in-flight. A visual observer aids in maintaining visual observation of the UAS while in flight and alerts the remote pilot of any conditions (obstructions, terrain, structures, air traffic, weather, etc.) which affects the safety of flight. A visual observer will have communication capabilities complaint with FAA regulations to be able to communicate with the remote pilot. A visual observer will be another certified unmanned aircraft pilot, individual previously trained in the responsibilities of a visual observer, or individual provided a briefing of their responsibilities by the remote pilot in command prior to the flight.

PROCEDURE:

Training and Demonstrations

1. The UAS Program Coordinator, or their designee, will be responsible for scheduling regular team training days throughout the year. The training dates will be provided in advance to the UAS commander for approval. Flight during these training days is considered authorized.

2. Demonstrations of the operation of the drones may be authorized by the UAS Program Coordinator, or other supervisor at the rank of Sergeant or higher.

Pre-Planned Mission Request

1. Requests for a pre-planned UAS unit utilization should be made to the UAS Program Coordinator.

When the UAS Program Coordinator is not on-duty, requests should be made to the on-call Captain.

2. Missions which are planned to be executed based upon information learned and acted on within the same day, shift, contiguous shift, or ongoing fresh investigation are considered on-duty active missions regardless of the extent to which the mission was planned prior to execution.

On-Duty Active Mission Authorization

1. A UAS may be deployed during on-duty active incidents and during emergency incidents when a certified remote pilot is available, and the utilization would be beneficial in advancing a law enforcement objective. The deploying remote pilot is responsible for ensuring the deployment is in compliance with this directive, department policy and FAA regulations.

Except during emergency circumstances, the remote pilot must verbally notify the Watch Commander or shift supervisor prior to the deployment of the UAS. During emergency circumstances, notification of the deployment of the UAS should be made as soon as practicable. Emergency deployments may include, but are not limited to, activities such as flying into a location which is believed to be guarded by an armed suspect 229
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Capitola Police Department, 422 Capitola Avenue, Capitola, CA 95010 to delivering medical or other supplies to an injured or secluded person, gaining intel on the location of a suspected armed suspect, and/or gaining visual of an unresponsive person.

Indoor Operations

1. Missions which are completely conducted indoors or are primarily intended to be conducted indoors with an original deployment location outside of the intended structure to be flown in are considered indoor operations.

2. Other than approved training or demonstrations, flight of a drone indoors shall only be conducted under emergency circumstances for life preservation purposes, or with the prior verbal approval of a supervisor.

3. Once inside a structure, the operation of an UAS is not governed by FAA regulations. However, all indoor operations must still be conducted in compliance with applicable sections of this directive and department policy, including being conducted by trained remote pilots.

Mission Operations

1. When the UAS is being flown, operators will take steps to ensure the camera is focused on the areas necessary to the mission and to minimize the inadvertent collection of data about uninvolved persons or places.

2. The use of the UAS will be limited to the authorized missions described herein.

3. The UAS will not be equipped with any weapons.

4. The authorized missions for the CPD UAS include but are not limited to:

4.1. Post-incident crime scene preservation and documentation

4.2. Response to hazardous materials spills

4.3. Public safety and life preservation missions to include barricaded suspects, hostage situations, active shooters, apprehension of armed and dangerous suspects, fleeing suspects, and search/arrest warrants

4.4. Disaster response and recovery to include natural or human caused disasters including a full overview of a disaster area for post incident analysis and documentation

4.5. Training missions.

4.6. In response to specific requests from local, state or federal fire authorities for fire response and prevention
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Capitola Police Department, 422 Capitola Avenue, Capitola, CA 95010

4.7. When there is probable cause to believe that (1) the UAS will record images of a place, thing, condition, or event; and (2) that those images would be relevant in proving that a certain felony had occurred or is occurring, or that a particular person committed or is committing a certain felony and use of the UAS does not infringe upon the reasonable expectation of privacy.

4.8. To assist allied agencies at their request and with the approval of the Watch Commander

4.9. Other operations as authorized by the Watch Commander

5. A UAS operation requires a Certificate of Authorization (COA) from the FAA when not operated under 14 CFR Part 107.

6. A UAS will only be operated by certified remote pilots, and crew members, who have been trained in the operation of the system. All agency personnel with UAS responsibilities, including command officers, will be provided training in the policies and procedures governing UAS use.

7. Except when training or conducting a demonstration, all flights will be documented on the mission deployment form and all flight time shall be accounted for on the form. The reason for the flight, type of mission, and name of the supervisor approving the operation will also be documented. It will be maintained with the original report whenever a report is generated. When not attached to a report, the form will be maintained by the UAS team leader for the time frame in accordance with the records retention schedule.

Visual Observers

1. One or more visual observers may be used to enhance situational awareness but are not required. The use of at least one visual observer is encouraged when available. Considerations of the utilization of a visual observer should take into consideration the knowledge of the terrain and proximity of the UAS to the operator. Responsibility for determination of the need of a visual observer will rest with the remote pilot in command but may also be required by a commanding officer. When a visual observer is utilized, they must comply with requirements outlined in this directive, department policy, and FAA regulations.

Data Retention and Processing

1. Upon completion of each UAS mission, the recorded data shall be reviewed and evaluated for evidentiary value.

2. Refer to data retention section in UAS policy.

3. Video and pictures shall be retained and booked into the property room, or uploaded to Evidence.com, for any retainable data.

Protection of Rights and Privacy Concerns

1. UAS Commanders and operators will consider the protection of individual civil rights and the reasonable expectation of privacy as a key component of any decision made to deploy the UAS.

2. Each UAS operator will ensure that operations of the UAS are consistent with local, state, and federal law.

Personnel Responsibilities for Deployments
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Capitola Police Department, 422 Capitola Avenue, Capitola, CA 95010

1. Remote Pilot

1.1. The remote pilot is directly responsible for, and is the final authority over the actual operation of the UAS.

1.2. Remote pilots have absolute authority to reject a flight based on personnel safety or violation of FAA regulations. No member of the Department, regardless of rank, shall order a remote pilot to make a flight when, in the opinion of the remote pilot, it poses a risk to personnel or is in violation of FAA regulations.

1.3. Remote pilots are responsible for compliance with this procedure, department policy, and FAA regulations.

1.4. The remote pilot’s main duty during the deployment of the UAS is to operate the UAS safely while accomplishing the goals of the deployment.

1.5. Remote pilots shall avoid any obstacle that will lessen safety during the mission.

1.6. Remote pilots shall be responsive to the requests of the visual observer in order to accomplish the deployment.

1.7. When documentation is required, remote pilots shall be responsible for the completion and submission of the deployment form.

1.8. Remote pilots shall document all flight time on the operated UAS Log and in the individual Pilot Log Book. At the discretion of the team leader, digital logging of the flight may be utilized in lieu of the Pilot Log Book and UAS log.

1.9. Remote pilots shall be responsible for inspection of the UAS, documentation of any needed repairs, and notification to the team leader for needed repairs.

1. Visual Observer

1.1. Visual observers shall advise of any obstacle that will lessen safety during the mission.

1.2. Visual observers, or other assigned personnel, are responsible for the law enforcement aspect of the deployment (radio communications, scene security, etc.).

1.3. Under the remote pilot’s direction, visual observers may assist with the operation of any attachments to the UAS, allowing the remote pilot to maintain complete focus on the operation of the UAS.

1.4. Visual observers shall remain alert for suspicious persons or activities on the ground and coordinate response by ground units.

1.5. Visual observers shall monitor the radio updates.

1.6. Visual observers shall assist the operator in the main objective of safe operations of the UAS.

Inspections

1. Remote pilots are responsible for a thorough pre-flight inspection of the UAS.

2. Before and after each deployment, the remote pilot shall conduct a thorough inspection of the UAS. 232
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Capitola Police Department, 422 Capitola Avenue, Capitola, CA 95010

3. Any issues found that will put in jeopardy the safe operation of the UAS shall be resolved prior to flight.

4. A pre-flight checklist will be utilized prior to each flight.

5. Any issue that cannot be resolved on-site, and which may have an impact on mission safety, will abort the deployment. Issues MUST be resolved before flight.

6. If a post-flight inspection reveals any damage or hazardous conditions of the UAS, they must be resolved or the UAS must be removed from in-service status, and notification will be made to the team leader.

7. Propellers should be replaced every six months, or sooner if chips or other damage is apparent.

Weather

1. Before each deployment, the remote pilot and/or visual observer will ensure they gather enough information to make themselves familiar with the weather situation existing throughout the area of deployment. The operator shall utilize FAA approved weather resources to obtain the latest and most current weather conditions when inclement weather is apparent.

2. An anemometer should be utilized in order to better estimate the wind speed and determine if it is within the capabilities of the airframe being flown when noticeably high wind is present.

3. Any weather conditions obtained for the operation shall be recorded on the deployment form when one is completed.

Flight Time Limitations

1. During any 24 consecutive hours, the total flight time of any remote pilot may not exceed ten (10) hours, which shall include any other unmanned flying by that remote pilot.

2. When a remote pilot has reached the flight time limit, they must have ten (10) hours of rest before any other flight mission.

3. The combination of visual observer time and remote pilot time may not exceed twelve (12) hours in a 24- hour period.
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Capitola Police Department
UAS (Drone) Program
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Purpose
Enhance Officer and Public Safety with Industry
Standard Aerial Support (Drone Deployment)
Assist allied agencies when appropriate
Collaborate with other City departments to
enhance employee safety and efficiency
Aerial footage to enhance social media reach
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UAS Program
Community Concerns
• Safety
• Privacy
• Lack of Transparency
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Safety Concerns
• Drones can pose safety risks, including crashing or malfunctioning, potentially causing personal harm or property damage
• Very few documented instances of injuries from drone use not related to operator error.
• Our operators are trained FAA Part 107 Remote Pilots. • Monthly training in accordance with CPD training plan (in development). • Drones could be weaponized against the public
• FAA regulations prohibit attachment of weapons to drones for civilian or law enforcement use.
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Privacy Concerns
• Capturing images and video footage of people in private places • Absent exigent circumstances or a warrant, our policy prohibits the intentional recording of images at any location where a person would have a reasonable expectation of privacy.
• Routine patrols of high-crime areas or even entire city/county • Routine patrols are prohibited by policy.
• Drones could be used to conduct warrantless surveillance • Policy prohibits random surveillance.
• Camera is only in use during authorized operations.
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Transparency Concerns
• Capitola PD will not be fully transparent about our drone program, including policies, procedures, extent of drone usage, performance and results.
• UAS Program policy, directive, and usage reports will be posted to the Police Transparency webpage.
• Transparency may lack key details such as drone capabilities (thermal imaging, etc).
• Drone usage will be included in annual AB 481 reporting, which will include all key details such as drone capabilities (camera, thermal imaging, etc). 239
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Addressing Community Concerns
• There are more than 1,400 police departments in the United States using drones with great success.
• The key to success is a balance between the potential benefits and the protection of individual rights and privacy through clear regulations and oversight.
• Capitola PD will only operate drones within policy and directives. • New technology will inevitably arise that can increase public safety but will also come with additional privacy concerns. We are committed to partnership with the community to ensure new tech does not violate reasonable privacy concerns.
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UAS Program Policy
and Procedure
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Policy and Procedure
Unmanned Aerial System (UAS) Program
Purpose
• Promote safe, efficient, and lawful use of any UAS
• Ensure safety in all operations
• Public
• Property
• First Responders
• Equipment
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Definitions
Program Coordinator
• Appointed by the Chief of Police
• Responsible for:
• Managing the UAS program
• Ensuring compliance with regulations, training, safety, and data management
Remote Pilot
• Person exercising control over UAS during flight
Visual Observer
• Person responsible for the visual observation of UAS in flight FAA 14 CFR Part 107 (Part 107)
• Required for individuals to operate UAS commercially (being paid) • Ensures knowledge and skills meet FAA regulations
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Prohibited Use
• Random surveillance
• Profiling
• Harassment
• Personal use
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Authorized Use
Authorized missions include, but are not limited to:
• Crime and collision scene documentation
• Response to hazardous material incidents
• Public safety and life preservation
• Disaster response and recovery efforts
• Missing person investigations
• Allied agency requests, including Fire
• Missions related to in-progress crimes
• Training
• Creating recruitment or social media related content
• Collaboration with other city departments
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Mission Operations
General
• Camera(s) to be focused on mission-relevant areas
• UAS will only be operated by certified remote pilots
• Successfully passed required training
• Holds FAA Part 107 certification or supervised by Part 107 remote pilot • All PD mission flight telemetry recorded to DroneSense software • Except training or demo flights
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Pre-Planned Mission Request
• Request made to Program Coordinator or on-duty Captain • An ongoing “fresh” investigation is not considered pre-planned On-Duty Active Mission Authorization
• UAS can be deployed during active and emergency incidents • Remote pilot will notify Watch Commander or supervisor Mission Operations
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Mission Operations
Indoor Operations
• Limited to emergencies or supervisor approval
• Performed under same standard as On-Duty Active Mission • When flown indoors, UAS is not governed by FAA regulations Training
• Scheduled by Program Coordinator or appointee
• Monthly hours requirement, may be self-directed within training plan • Training flights considered pre-authorized
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Data, Civil Rights, and Privacy
Data Retention and Processing
• Recorded mission data will be evaluated for evidentiary value • Evidence will follow departmental data retention requirements • Evidence transferred to physical storage media and/or Evidence.com Protection of Rights and Privacy Concerns
• Civil rights and privacy will be always be protected
• All operations will be consistent with local, state, and federal law 249
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Proposed Policy Edit
• Under section 613.4 PROGRAM COORDINATOR
• Change from "The program coordinator will ensure that policies and procedures conform to current laws, regulations, and best practices and will have the following additional responsibilities:"
• To "The program coordinator will ensure that policies and procedures conform to current laws, regulations, and best practices as outlined in the UAS Operating Procedures Directive. The program coordinator will have the following additional responsibilities:"
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Reminder: Purpose of Policy and Procedure
• Ensure the safe, efficient, and lawful operation of UAS • Prioritize safety in all missions
• Allow only trained personnel to utilize UAS
• Allow support of first responders in various scenarios • Focus on mission-specific tasks while adhering to FAA regulations • Define roles and responsibilities of UAS flight crew members • Emphasize the importance of safety checks
• Address data retention, privacy, and weather considerations • Establish flight time limitations to ensure well-being of flight crew 251
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Equipment
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UAS Equipment
DJI Drones
Best reputation of quality while remaining within budget.

Exterior
• DJI Mavic 3T – thermal imaging
Interior
• DJI Avata
Training / Interior / Backup
• DJI Mini 2
253
Item 8 B.

DJI Mavic 3T
Primary Use: Exterior
Flight Time: 45 minutes
Capabilities: 56x Hybrid zoom / Thermal Camera
254
Item 8 B.

DJI Avata
Primary Use: Interior support
Flight Time: 18 minutes
Capabilities: 150-deg field-of-view / First Person View (FPV) Goggles 255
Item 8 B.

DJI Mini 2
Primary Use: Training and Interior Backup
Flight Time: 31 minutes
Capabilities: 4x zoom / Interior flight
256
Item 8 B.

Equipment and Training Funding
• PD Supplemental Law Enforcement Services Fund (SLESF) • Initial Budget: $ 15,000
• Initial equipment purchase
• Training for 4 remote pilots
• Training for 2 Program Coordinators
• Training for 2 Program Trainers
• Periodic funding requests through the Public Safety Foundation • With approval from Chief of Police
• Supplement training and equipment expenses
257
Item 8 B.

Video - Celebrate 75 Years
258
Item 8 B.

Capitola City Council
Agenda Report
Meeting: January 11, 2024
From: City Manager Department
Subject: Remote Public Participation
Recommended Action: Provide direction to staff about remote participation options for members of the public at City Council and Planning Commission meetings.

Background: The Brown Act (CA Government Code Sections 54950 et seq.) requires that the City Council conduct business in open, public, and noticed meetings. Before the COVID-19 Pandemic, all City Council meetings were held in person and there were no options for remote participation. During COVID-19, the City implemented technology upgrades to accommodate remote participation of members of the public.

During the October 26, 2023, City Council meeting, remote participants provided racist, homophobic, and antisemitic commentary via Zoom (“Zoom Bombing”). Following that meeting, the City suspended the ability for the public to provide public comment remotely and the Planning Commission followed suit.

Discussion: Currently the public can provide feedback to the City Council and Planning Commission in the following ways:
 Emailing the City Council comments prior to the meeting. These comments are included in the official record of the meeting.
 Attend meetings in person and provide verbal comments.

City Council and Planning Commission meetings are broadcast live on Zoom, YouTube, and local access television (Community Television). Members of the public can access video (live and archived) through the City’s website, the City’s YouTube channel, and Community Television’s website.

The City Clerk’s office collected survey data in November 2023, and approximately 65 California government agencies experienced Zoom Bombing incidents in 2023 (Attachment 1). Of those agencies, 38 of them have temporarily or permanently suspended the use of Zoom for public comment during meetings.

The ”Zoom Bombers” plaguing California cities appear to be coordinating their behavior to disrupt meetings, disguising themselves as concerned citizens, only to provide often discriminatory commentary that is not relevant to the subject matter jurisdiction of the legislative body. Such behavior may discourage public participation at meetings, and potentially make it less likely that community members would attend in-person meetings.

The use of Zoom for public comment creates challenges in controlling disruptive behavior during public meetings since participants on Zoom can be anonymous. Zoom participation can be from anywhere in the world. The City is not obligated to provide Zoom participation options in meetings. If the City Council directs staff to bring back the use of Zoom for remote public comments, applicable law would not allow the City to impose restrictions upon remote participants (such as residency restrictions).

The City Council may direct staff to bring back Zoom use for public participation, continue holding public meetings without Zoom use, or provide alternative direction.

Fiscal Impact: None.
259
Item 8 C.

Attachments:

1. Survey of CA Agencies
Report Prepared By: Julia Gautho, City Clerk
Reviewed By: Samantha Zutler, City Attorney
Approved By: Jamie Goldstein, City Manager
260
Item 8 C.

Agency/Body Targeted Date of Incident Current Zoom Status Notes Antioch City Council N/A Discontinued Zoom comments over this issue Link Only in person meetings Arcadia City Council
N/A
Continuing to use Zoom for public comments No longer publishing Zoom meeting ID - participants must email for the code to have
a heads up of anyone who is not a regular.

Atherton City Council 9/20/2023 Continuing to use Zoom for public comments Link Bay Area Air Quality District N/A Temporarily suspended Zoom comments over this issue Link Berkeley City Council 9/26/23 & 10/10/23 Continuing to use Zoom for public comments Link Brentwood City Council 9/26/2023 Discontinued Zoom comments on non-agendized items. Continuing to allow Zoom comments on agenda items as long as they are on-topic. Link Link 2 Calabasas City Council 10/25/2023 Temporarily suspended Zoom comments over this issue Link Capitola City Council 10/26/2023 Link
Carmel-by-the-Sea City Council N/A Continuing to use Zoom for public comments Ceres City Council 9/25/2023 Discontinued Zoom comments over this issue Link Link 2 Claremont City Council 10/10/2023 Discontinued Zoom comments over this issue Link 1 Link 2 Concord City Council N/A Discontinued Zoom comments over this issue Link Contra Costa County N/A Temporarily suspended Zoom comments over this issue Link El Cerrito City Council 9/19/2023 Temporarily suspended Zoom comments over this issue Link 1 Link 2 El Dorado County Board of Supervisors 9/26/2023 Continuing to use Zoom for public comments Link Fremont City Council N/A Discontinued Zoom comments over this issue Link link 2 Galt City Council 10/17/2023 Discontinued Zoom comments over this issue Healdsburg City Council N/A Temporarily suspended Zoom comments over this issue Link Hermosa Beach City Council 9/26/2023 Continuing to use Zoom for public comments Link Irwindale City Council 10/25/2023 Temporarily suspended Zoom comments over this issue Isleton Discontinued Zoom comments over this issue
Larkspur City Council 9/20/2023 Discontinued Zoom comments over this issue Link Livermore City Council 9/25/2023 Discontinued Zoom comments over this issue Link Link 2 Malibu City Council 10/9/2023 Temporarily suspended Zoom comments over this issue Milpitas City Council N/A Temporarily suspended Zoom comments over this issue Link Modesto City Council 9/26/2023 Discontinued Zoom comments over this issue Link Monterey City Council 9/19/2023 Continuing to use Zoom for public comments Link 1 Moorpark City Council N/A Discontinued Zoom comments over this issue Morgan Hill City Council 10/4/2023 Link
Novato City Council 9/26/2023 Discontinued Zoom comments over this issue Pacific Grove City Council 10/18/2023 Discontinued Zoom comments over this issue Link Pacifica City Council 9/25/2023 Considering discontinuing Zoom comments. Link Palm Springs Administrative Appeals Board N/A Temporarily suspended Zoom comments over this issue Palo Alto City Council 10/16/2023 Discontinued Zoom comments over this issue Link Link 2 Palo Alto Unified School District Board N/A Discontinued Zoom comments over this issue Link Pleasanton City Council 10/17/2023 Discontinued Zoom comments over this issue Link Links
261
Item 8 C.

Plymouth City Council 10/26/2023
Redwood City Council N/A Temporarily suspended Zoom comments over this issue Link 1 Link 2 Richmond City Council 10/2/2023 Continuing to use Zoom for public comments Link Sacramento City Council 9/5/2023 Discontinued Zoom comments over this issue Link 1 Link 2 San Bernardino City Council 10/18/2023 Link Link 2
San Carlos City Council 9/25/2023 Continuing to use Zoom for public comments. Link Adopted rules of decorum for meetings.

San Diego City Council 9/18/2023 Continuing to use Zoom for public comments Link San Francisco Board of Supervisors 9/26/2023 Discontinued Zoom comments over this issue Link Link 2 San Jose City Council 10/3/2023 Continuing to use Zoom for public comments Link San Mateo City Council N/A Continuing to use Zoom for public comments San Ramon City Council N/A Discontinued Zoom comments over this issue Link 1 Link 2 Santa Rosa City Council 9/26/2023 Discontinued Zoom comments over this issue Link Santa Rosa City Schools Board 9/13/2023 Discontinued Zoom comments over this issue Link Link 2 Saratoga City Council 9/20/2023 Continuing to use Zoom for public comments. Link Reorganized agenda so public comment is at end of meeting.

Seaside City Council 10/19/2023 Continuing to use Zoom for public comments Link Sebastopol City Council 9/19/2023 Considering discontinuing Zoom comments.

Solvang City Council 10/9/2023 Considering discontinuing Zoom comments. Link Sonoma City Council 11/1/2023 Continuing to use Zoom for public comments Link Removed video Sonoma County BOS 9/12/2023 Discontinued Zoom comments over this issue Link 1 Link 2 South San Francisco City Council 9/13/2023 Discontinued Zoom comments over this issue Link Sunnyvale City Council 10/10/2023 Continuing to use Zoom for public comments. Link Tiburon City Council 9/20/2023 Link
Union City Council N/A Discontinued Zoom comments over this issue Link Vallejo City Council 10/10/2023 Continuing to use Zoom for public comments Link Ventura City Council 9/25/2023 Continuing to use Zoom for public comments Link 1 Link 2 Walnut Creek City Council multiple in June Discontinued Zoom comments over this issue Link 1 Link 2 Watsonville City Council 10/24/2023 Temporarily suspended Zoom comments over this issue Link Windsor N/A Discontinued Zoom comments over this issue
262
Item 8 C.

Capitola City Council
Agenda Report
Meeting: January 11, 2024
From: City Manager Department
Subject: City Council Appointments to Advisory Bodies
Recommended Action: Review, affirm, and appoint City Council representatives to County and Regional Boards and Capitola advisory bodies.

Background: City Council Members are appointed to represent Capitola on several County, MultiJurisdiction, and City boards. Table 1 lists the current County and Regional Board appointments and term expirations. The City Council appoints representatives to most of these groups, with the exception of those where the City Selection Committee makes appointments (Table 2).

Discussion: Several of the appointments to the Regional Boards and the City advisory bodies require review and updated appointments. These are highlighted in the tables below. The City Council will need to 1) take action on the highlighted appointments, 2) may consider changes to other appointments, and 3) may identify nominations for the City Selection Committee.

Table 1: Regional Board Representatives
Group Name Appointee Alternate Expires
Assoc. of Monterey
Bay Area Govts.

Kristen Brown Margaux Keiser December 2024
Area Agency on
Aging Advisory
Council
Jacques Bertrand* December 2023
Arts Council Roy Johnson**
Children’s Network
Cabinet
Yvette Brooks No term expiration
Criminal Justice
Council
Joe Clarke Kristen Brown*** No expiration
Flood Control &
Water Conservation
District (Zone 5)
Kristen Brown Joe Clarke December 2023
Integrated Waste
Management Local
Task Force
Jessica Kahn Alexander Pedersen March 2025
Library Advisory
Commission
Michael Termini April 2027
Library Financing
Authority
Kristen Brown Joe Clarke January 2024
METRO Kristen Brown Alexander Pedersen December 2024
RTC Alexander Pedersen Joe Clarke No term expiration
Sanitation District
Board
Kristen Brown Margaux Keiser December 2024
Youth Action Network
Jurisdictional Team
Yvette Brooks Joe Clarke No term expiration
263
Item 8 D.
* Area Agency on Aging Advisory Council has requested an elected official be appointed to represent Capitola.
** City Council must affirm Art and Cultural recommendation for appointed representative to the Arts Council.
*** City has three seats on CJC. One must be Councilmember, second may be Councilmember or staff, third is the Police Chief.

The groups identified in Table 2 include Capitola City Council representatives, but the representatives are appointed by the Santa Cruz County City Selection Committee. The City Council may provide recommendations for these appointments so that the selection process is straightforward when appointments are made.

Table 2: City Selection Committee Groups
Group Name Appointee Alternate Expires Notes
3CE Policy Board Yvette
Brooks
Margaux Keiser December 2024 Shared seat
with SV
Monterey Bay Air
Resources
District
Sandy
Brown, Santa
Cruz City
Council
December 2023 Seat rotates
between cities
Remote Access
Network
Committee
Margaux
Keiser
Kristen Brown November 2025 No formal
rotation
schedule. Must
be a sitting
Mayor
LAFCO Yvette
Brooks
December 2027 –
however City
Selection is
expected to begin
new LAFCO rotation
schedule in 2024,
and then Cap would
step off this year
and SV would hold
the seat till 2025
Shared seat
with SV.

LAFCO may
establish an exofficio position
for city not
currently on
LAFCO
The City advisory bodies listed in Table 3 have City Council representation. The Finance Advisory Committee bylaws stipulate the Mayor and Vice Mayor serve as Council representatives, though when either or both the Mayor and Vice Mayor do not want to serve on this committee, other member(s) of the City Council shall be appointed by the Mayor, with the concurrence of the City Council.

Table 3: City Advisory Bodies with City Council Representatives Group Name Appointee Expires
Finance Advisory
Committee
Alexander Pedersen, Kristen Brown December 2023
Commission on the
Environment
Margaux Keiser December 2023
Art and Cultural
Commission
Joe Clarke December 2023
264
Item 8 D.

Fiscal Impact: None.

Report Prepared By: Julia Gautho, City Clerk
Reviewed By: Samantha Zutler, City Attorney
Approved By: Jamie Goldstein, City Manager
265
Item 8 D.

CITY COUNCIL APPOINTMENTS

TO ADVISORY BODIES
January 11, 2024 266
Item 8 D.

Background
 Capitola is represented on various Multi-Jurisdictional advisory bodies by members of City Council. These
boards/committees are established by other codes or
bylaws.
 City Council holds seats on 3 City advisory bodies
 City of Capitola is represented on 4 groups which
the City Selection Committee appoints to
267
Item 8 D.

Tonight’s Action
 Staff recommends the City Council review,
affirm, and appoint City Council
representatives:
To City Advisory Groups
To Multi-Jurisdictional Advisory Groups
Make recommendations for future SCC City
Selection Committee appointments
268
Item 8 D.

City Advisory Bodies
Group 2023 Appointee 2024 Appointee
Alexander
Pedersen
Kristen Brown
Finance Advisory
Committee*
Commission on the Margaux Keiser
Environment
Art and Cultural Joe Clarke
Commission
* Mayor and Vice Mayor, other members may be appointed with CC vote 269
Item 8 D.

Multi Jurisdictional
Group 2023 Appointee 2024 Appointee
Area Agency on Aging Jacques Bertrand
Advisory Council
Arts Council Roy Johnson**
Flood Control & Water Kristen Brown (alt Joe Clarke)
Conservation District (Zone
5)
Library Financing Authority Kristen Brown (alt Joe Clarke) These are the groups requiring immediate action. The Arts Council appointment was made by the Art & Cultural Commission, the City Council must ratify their appointment. 270
Item 8 D.

SCC Selection Committee
Group Appointee Alternate
3CE Policy Board Yvette Brooks Margaux Keiser
Sandy Brown,
Santa Cruz City
Council
Monterey Bay Air
Resources District
Remote Access Kristen Brown
Network
Committee
LAFCO Yvette Brooks
271
Item 8 D.

Recommended Action
 Staff recommends the City Council review,
affirm, and appoint City Council
representatives:
To City Advisory Groups
To Multi-Jurisdictional Advisory Groups
Make recommendations for future SCC City
Selection Committee appointments
272
Item 8 D.