Capitola City Council
January 8, 2026

REVISED 1/8/2026 4:10 PM
City of Capitola
City Council Meeting Agenda
Thursday, January 08, 2026 – 6:00 PM
City Council Chambers
420 Capitola Avenue, Capitola, CA 95010
Mayor: Margaux Morgan
Vice Mayor: Gerry Jensen
Council Members: Joe Clarke, Melinda Orbach, Susan Westman Regular Meeting of the Capitola City Council – 6 PM

1. Roll Call and Pledge of Allegiance
Council Members Joe Clarke, Melinda Orbach, Susan Westman, Vice Mayor Gerry Jensen, and Mayor Margaux Morgan

2. Additions and Deletions to the Agenda

3. Presentations
Presentations are limited to eight minutes.

A. Proclamation Recognizing Kristen Brown for Her Service Representing Capitola on the Community Action Board of Santa Cruz County
B. Presentation on the Golden Bell Award, Awarded to the City’s Equity Swim Program Partnership with Soquel Union Elementary School District.

4. Additional Materials
Additional information related to an agenda item on this agenda and submitted to the City after distribution of the agenda packet pursuant to Government Code §54957.5. 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.

A. Item 8A - Correspondence Received
B. Item 8D - Updated Attachment Provided as Additional Materials

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.
1 City Council Meeting Agenda – January 08, 2026
City of Capitola Page 2

7. Consent Items
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 11, 2025.

B. 2
nd Amendment to Agreement with Ben Noble Planning
Recommended Action: Adopt a resolution amending the FY 2025-26 Budget to allocate funding for Housing Element Implementation and authorizing the City Manager to execute Amendment 2 to the Professional Services Agreement in a form acceptable to the City Attorney’s Office with Ben Noble Planning to assist in Housing Element implementation.

C. Capitola Municipal Code Sections 2.04.140 and 2.04.210 Recommended Action: Adopt an ordinance amending Capitola Municipal Code Sections

2.04.140 and 2.04.210 to update the process by which City Council members request agenda items and their rules of debate.

D. City Investment Brokerage Services
Recommended Action: Authorize the Administrative Services Director to execute a noncorporate resolution allowing Cetera Advisor Networks, LLC to continue acting as the City’s investment broker.

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. 2025 Special Event Report
Recommended Action: Receive a report highlighting special events held in the City in 2025; provide feedback for recurring Special Event Permits; determine if any additional review should be required for any 2026 special events; and adopt a resolution to approve Coastal Development Permit #25-0607 for the 2026 Capitola Beach Festival and Junior Guards Competition.

B. Local Coastal Program Amendments for Cliff Drive Resiliency Recommended Action: 1) Introduce for first reading, by title only, waiving further reading of the text, an ordinance amending Capitola Municipal Code Title 17: Zoning, Chapter 17.32 Parks and Open Space, Chapter 17.64 ESHA, Chapter 17.76 Parking and Loading, and Chapter 17.68 Geological Hazard (collectively, the “Zoning Code Amendments”) and authorizing submittal to the California Coastal Commission for Certification; 2) Adopt a resolution amending Capitola’s Land Use Plan Chapter 2: Public Access and Chapter 7: Natural Hazards (collectively, the “Land Use Plan Amendments”) and authorizing submittal to the California Coastal Commission for certification; and 3) Find that the above actions are exempt from the California Environmental Quality Act (CEQA).

C. Annual and Five-Year Impact Fee Report
Recommended Action: Adopt a resolution adopting the Fiscal Year 2024-25 Development Impact Fee Annual Report.
2 City Council Meeting Agenda – January 08, 2026
City of Capitola Page 3
D. FY 2024-25 Audit Report
Recommended Action: Receive report.

E. City Council Representation on Regional Boards
Recommended Action: Appoint a representative to the Santa Cruz County Community Action Board.

9. Adjournment
The next regularly scheduled City Council meeting is on January 22, 2026, at 6:00 PM. _____________________________________________________
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 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 and at Capitola City Hall prior to the meeting. 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.
3 City Council Meeting Agenda – January 08, 2026
City of Capitola Page 4
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 by clicking on the Home Page link “Meeting Agendas/Videos.” Archived meetings can be viewed from the website at any time. 4 5
Item 3 B.

What is the CSBA Golden Bell Awards Program?
Recognizes excellence in educational programs
and school governance across California
Highlights innovative, effective practices that
improve student outcomes
Shares successful models and honors educators’
commitment to all students
2025 was the 46th Annual Awards Ceremony
6 Item 3 B.

Recognized Category
Expanded Learning and Engagement
Extends learning beyond the school day to meet
diverse student needs
Builds academic, social-emotional, and physical
development
Includes enrichment, recovery, and support
programs (arts, athletics, tutoring, before/after
school)
7 Item 3 B.

Equity Swim
Provides equitable access to swim lessons and
Junior Lifeguards for all students
Removes barriers such as cost, transportation, and
language
Builds water safety, confidence, and inclusion
through community partnership
8 Item 3 B.
9 Item 3 B.
10 Item 3 B.
1 Gautho, Julia
From: Teresa Green <[email protected]>
Sent: Wednesday, January 7, 2026 8:03 PM
To: City Council
Cc: Cahalen, Mary Beth
Subject: Jan 8th, 2026 Agenda Item 8A
I submit the following questions concerning the need for a Coastal Development Permit for the Capitola Beach Festival, addressed in agenda item 8A. The agenda packet materials do not address these matters clearly. As a Board Officer of the organization, the city should provide adequate details for us to fully understand the implications to our non-profit.
 I request clarification as to why the Capitola Beach Festival has been identified as requiring a Coastal Development Permit.
o Criteria 1. Should not apply. We are a two day event during that window. o Criteria 2. We DO use the beach and park areas. However, other organizations also use the beach/park areas and are not listed; example the Wharf to Wharf race uses the beach for handing out T-shirts; Plein Air uses the beach. So what differentiates the Capitola Beach Festival?
o Criteria 3. We do not charge a fee for the general public. Our only fees are entry fees for the 3 Mile Race and Paddleboard Race. That is listed as a reason other events do not require a Coastal Development Permit.
 Is there any expectation that a permit would be denied.  Does the City submit the request? Or is there something the organization need to do?  Is there a cost associated with this?
Thank you.

Teresa J. Green
Treasurer, Capitola Beach Festival
11 Item 4 A.
1 Gautho, Julia
From: Goldstein, Jamie ([email protected])
Sent: Thursday, January 8, 2026 4:35 PM
To: City Council
Cc: Herlihy, Katie ([email protected])
Subject: FW: Explanation on beach festival
Mayor and Council – please see response Katie sent to Teresa after speaking with her earlier today.

From: Herlihy, Katie ([email protected]) <[email protected]> Sent: Thursday, January 8, 2026 4:11 PM
To: Goldstein, Jamie ([email protected]) <[email protected]> Subject: FW: Explanation on beach festival
I sent this written response after talking with Teresa.

From: Herlihy, Katie ([email protected])
Sent: Thursday, January 8, 2026 3:47 PM
To: [email protected]; Cahalen, Mary Beth <[email protected]>; Ryan, Sarah ([email protected]) <[email protected]>
Subject: Explanation on beach festival
Hi Teresa,
Thank you for your questions. Below are the responses to your questions in blue.  I request clarification as to why the Capitola Beach Festival has been identified as requiring a Coastal Development Permit.
o Criteria 1. Should not apply. We are a two day event during that window. o Criteria 2. We DO use the beach and park areas. However, other organizations also use the beach/park areas and are not listed; example the Wharf to Wharf race uses the beach for handing out T-shirts; Plein Air uses the beach. So what differentiates the Capitola Beach Festival?
o Criteria 3. We do not charge a fee for the general public. Our only fees are entry fees for the 3 Mile Race and Paddleboard Race. That is listed as a reason other events do not require a Coastal Development Permit.

A temporary events in the coastal zone meeting one or more of the following criteria require a Coastal Development Permit (CDP):

1. Scheduled the Saturday of Memorial Day weekend through Labor Day for a period greater than two days in duration, including setup and takedown.

2. The event will occupy any portion of a publicly or privately owned sandy beach or park area, public pier, public beach parking area, and there is a potential for adverse effect on sensitive coastal resources.
12 Item 4 A.
2 3. A fee will be charged for general public admission and/or seating where no fee is currently charged for use of the same area (not including booth or entry fees); or if a fee is charged, it is for preferred seating only, and 75% of the provided seating capacity is available free of charge for general public use.

The Capitola Beach Festival is subject to a CDP under Criteria 2. The festival occupies portions of the beach, wharf, and lagoon and may have a potential for adverse effect. Many of the activities are normal activities (fishing, sand castle competitions, etc.) that do not have potential for adverse effect on sensitive coastal resources. The nautical parade is located in the lagoon and includes watercraft, of which there is a potential for adverse effect on the sensitive coastal resource.  Is there any expectation that a permit would be denied.

The City Council will take action on the Coastal Development Permit tonight. Staff is recommending approval.
 Does the City submit the request? Or is there something the organization need to do? The City is proactively processing the CDP as part of the annual review of Recurring Special Events. The organization does not need to do anything.
 Is there a cost associated with this?
We are processing the CDP as part of the annual update to City Council on recurring special events with no cost to the organization.

Katie Herlihy, AICP
Community & Economic Development Director
City of Capitola
420 Capitola Avenue, Capitola, CA 95010
831.475.7300 ext. 216
13 Item 4 A.

Memo
To: City Council
From: Jim Malberg, Administrative Services Director
Date: January 6, 2026
Re: Annual Comprehensive Financial Report – Additional Materials Good afternoon,
The Fiscal Year (FY) 2024-25 Annual Comprehensive Financial Report (ACFR) is included as additional materials for Item 8D on the January 8, 2026, City Council Agenda. 14 Item 4 B.

Annual Comprehensive
Financial Report
City of Capitola, California
Fiscal Year Ended June 30, 2025
15 Item 4 B.

This page is intentionally blank
16 Item 4 B.

CITY OF CAPITOLA

CALIFORNIA

ANNUAL COMPREHENSIVE

FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED
JUNE 30, 2025
17 Item 4 B.

This page is intentionally blank
18 Item 4 B.

INTRODUCTORY SECTION
19 Item 4 B.

This page is intentionally blank
20 Item 4 B.

CITY OF CAPITOLA

ANNUAL COMPREHENSIVE FINANCIAL REPORT
FOR THE YEAR ENDED JUNE 30, 2025

TABLE OF CONTENTS

INTRODUCTORY SECTION
Transmittal Letter ............................................................................................................................1 List of Principal Officials.................................................................................................................12 Organizational Chart ......................................................................................................................13 GFOA Certificate ...........................................................................................................................14

FINANCIAL SECTION
Independent Auditor’s Report.........................................................................................................17 Management’s Discussion and Analysis (Required Supplementary Information) ..............................21 Basic Financial Statements:

Government-Wide Financial Statements:

Statement of Net Position ....................................................................................................35 Statement of Activities........................................................................................................36 Fund Financial Statements
Governmental Funds:

Balance Sheet................................................................................................................39 Reconciliation of the Government Funds Balance Sheet
to the Government-Wide Financial Statement of Net Position ....................................40 Statement of Revenues, Expenditures and Changes in Fund Balances..............................41 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Government-Wide Statement of Activities .............................................................................................42 Index to the Notes to Basic Financial Statements.......................................................................45 Notes to the Basic Financial Statements ....................................................................................46

REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP Basis):

General Fund ......................................................................................................................77 Federal Home Loan Reuse Fund ..........................................................................................78 Capitola Housing Successor Fund ........................................................................................79 RTC Streets Fund................................................................................................................80 Schedule of Pension Contributions (CalPERS Miscellaneous) .........................................................81 Schedule of Pension Contributions (CalPERS Safety) .....................................................................82 Schedule of Proportionate Share of Net Pension Liability................................................................83 Schedule of OPEB Contributions....................................................................................................84 Schedule of Changes in Net OPEB Liability and Related Ratios ......................................................85

SUPPLEMENTARY INFORMATION
Budgeted Major Funds:

Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP Basis):

Capital Projects Fund....................................................................................................................................... 87 21 Item 4 B.

CITY OF CAPITOLA

ANNUAL COMPREHENSIVE FINANCIAL REPORT
FOR THE YEAR ENDED JUNE 30, 2025

TABLE OF CONTENTS
Nonmajor Governmental Funds:

Combining Balance Sheet............................................................................................................... 90 Combining Statement of Revenues, Expenditures and Changes in Fund Balances............................. 94 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP Basis):

Supplemental Law Enforcement Fund ......................................................................................................... 98 Restricted Transient Occupancy Tax Fund................................................................................................... 99 Senate Bill 1 Road Rehabilitation and Maintenance Fund ......................................................................... 100 Gas Tax Fund ............................................................................................................................................. 101 Wharf Fund................................................................................................................................................. 102 Public Art Fee Fund.................................................................................................................................... 103 Parking Reserve Fund................................................................................................................................. 104 Technology Fees Fund................................................................................................................................ 105 PEG Cable TV Access Fee Fund................................................................................................................ 106 Capitola Village and Wharf BIA Fund....................................................................................................... 107 CDBG Fund................................................................................................................................................ 108 CDBG Program Income Fund .................................................................................................................... 109 Library Fund............................................................................................................................................... 110 Affordable Housing Fund........................................................................................................................... 111 Permanent Local Housing Allocation Fund................................................................................................ 112 Pacific Cove Debt Financing Fund.............................................................................................................. 113 Beach and Village Lot II Debt Financing Fund.......................................................................................... 114

STATISTICAL SECTION
ACFR Statistical Section - Table of Contents ..................................................................................... 118 Financial Trends Information:

Net Position by Component .......................................................................................................... 120 Changes in Net Position ............................................................................................................... 121 Fund Balances of Governmental Funds ......................................................................................... 123 Changes in Fund Balances of Governmental Funds ....................................................................... 125 General Revenues by Source ........................................................................................................ 127 Revenue Capacity Information:

Net Taxable Assessed Value History..................................................................................................................... 128 Assessed Value of Taxable Property ..................................................................................................................... 129 Direct and Overlapping Property Tax Rates.......................................................................................................... 130 Top Ten Property Taxpayers ................................................................................................................................. 131 Property Tax Levies and Collections..................................................................................................................... 132 Top 25 Sales Tax Taxpayers.................................................................................................................................. 133 Debt Capacity Information:

Ratios of Outstanding Debt by Type ..................................................................................................................... 134 Ratios of General Bonded Debt Outstanding......................................................................................................... 135 Direct and Overlapping Debt................................................................................................................................. 136 Legal Debt Margin Information............................................................................................................................. 137 Demographic and Economic Information:

Demographic and Economic Statistics .................................................................................................................. 138 Principal Employers - Top Ten.............................................................................................................................. 139 Operating Information:

Full-Time and Part-Time City Employees by Function......................................................................................... 140 Operating Indicators by Function .......................................................................................................................... 141 Capital Asset Statistics by Function ...................................................................................................................... 142 22 Item 4 B.

TRANSMITTAL LETTER
23 Item 4 B.

December 31, 2025
Honorable Mayor,
Members of the City Council, and
Citizens of the City of Capitola
SUBJECT: Annual Comprehensive Financial Report - June 30, 2025 The Annual Comprehensive Financial Report (ACFR) for the City of Capitola for the fiscal year ended June 30, 2025, is hereby submitted.

REPORT PURPOSE AND ORGANIZATION
State law requires the accounts and fiscal affairs of all municipal entities to be audited annually by an independent certified public accountant. The City's independent auditor Chavan & Associates, LLP has audited the City's financial statements and issued an unmodified opinion that the financial statements for the fiscal year ended June 30, 2025, 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, 2025, 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. During fiscal year 2025 the City did not exceed $750,000 in the expenditure of federal awards and is not required to complete a Single Audit Report which is due by March 31, 2026. The City did complete and submit a Single Audit Report for the fiscal year ended June 30, 2024.

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. 24 Item 4 B.

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 10,000. 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, New Leaf Community Market 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 data, approximately 91% of Capitola residents are high school graduates and 46% 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.
25 Item 4 B.

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.

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 experienced a sluggish economy during Fiscal Year (FY) 2024-25. During FY 2025-26, the City is anticipating receipt of approximately $900,000 of FEMA and Cal OES reimbursements from impacts of storms in both January & December 2023 which caused significant damage to local businesses and local infrastructure. General fund revenues were approximately $19.2 million which was about $377,000 below the amended budget while general fund expenditures were $20.5 million which was approximately 134,000 above the amended budget. The primary causes for the revenue shortfall were that sales tax, fines & citations, and charges for services were all below budget projections while city-wide general operations were over budget projections. As a result, the fund balance of the General Fund decreased by approximately $511,000 from operations which was partially offset by a prior period adjustment.

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.
26 Item 4 B.

Sales tax is the City’s largest source of revenue, accounting for approximately 46% 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 2024-25, the combined sales tax receipts of $8.22 million were $395,710 (4.6%) lower than budgetary estimates and $320,779 (3.8%) lower than 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 decreased year over year after leveling off last year post-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 2024-25 the General Fund received $3.2 million in property tax receipts, prior to inclusion of Documentary Transfer Tax and Residual RDA distributions. This base amount was approximately $145,000 more than the prior year but $27,000 below the final budgeted amount. Over the last five fiscal years the City has averaged approximately 5% growth in annual property tax collections. Although the FY 2024-25 increase was lower compared to that of the prior year, it was on trend at 4.34%.

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 27 Item 4 B.
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 historical data, property tax revenues have remained relatively consistent due to appreciating property values. Staff anticipate this trend, while showing signs of slowing, will continue into the next fiscal year.

Transient occupancy tax (TOT) represents approximately 12% 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, however, since FY 2021-22 TOT revenues have remained relatively flat. $1.0
$1.5
$2.0
$2.5
$3.0
$3.5
Millions
Property Tax Trends
Property Taxes - Regular Residual Distribution
28 Item 4 B.

The chart below provides a 10-year history of TOT revenues.

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, a 0.25% district tax and a 0.50% district tax. 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 Y, was passed by voters in 2024 to replace and increase Measure F, a temporary quarter of one percent sales tax, for an additional ten years and increase to 0.50%. The City is committed to using this funding source to provide general governmental essential city services including public safety and emergency services; repair potholes, maintain streets, sidewalks, bike lanes, beaches, the new wharf, and recreation programs $0.0
$0.5
$1.0
$1.5
$2.0
$2.5
FY
15/16
FY
16/17
FY
17/18
FY
18/19
FY
19/20
FY
20/21
FY
21/22
FY
22/23
FY
23/24
FY
24/25
Millions
Transient Occupancy Tax Trends
TOT - Restricted TOT - General Fund
29 Item 4 B.
for youth; improve traffic safety; and support local businesses. The adopted FY 2024-25 budget began implementing these commitments as Measure Y went into effect on April 1, 2025.

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 each FY 2022-23 and FY 2023-24 $250,000 was put into the PERS trust fund bringing total contributions to $1.3 million. 30 Item 4 B.

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 2024-25 with a cash balance of $282,714. The FY 2025-26 budget does not include any funding into the Facilities Reserve Fund or expenditures in the Facilities Reserve Fund.

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 from $584,737 on June 30, 2019, to $1,572,208 on June 30, 2020. The UAL balance as of June 30, 2025, was $1,567,639 and the City’s OPEB trust fund had a balance of $947,091. The FY 2025-26 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 2024 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 agreed to new three-year contracts through June 30, 2027.

Recent changes in CalPERS’ risk pools have had a significant negative impact on the City.

Although CalPERS had investment returns of 9.3% in 2024, which is above the anticipated rate of return of 6.8%, these changes will result in an annual increase in CalPERS costs of 13.5% in FY 2025-26. CalPERS 2025 rate of return was 11.6% and will likely hopefully lead to decreased costs in FY 2026-27. 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.

The number of full-time equivalent (FTE) positions city-wide remained unchanged in FY 2024-25 with 69.5 FTE.
31 Item 4 B.

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.

Currently, the Community and Economic Development Department is working on zoning code changes that will potentially facilitate a future project.

Funding Measure Y Commitments
In November 2024 voters of Capitola approved extending an existing quarter of one percent sales tax for an additional ten years and increasing it to one-half percent. The City is committed to using this funding source to provide general governmental essential city services including public safety and emergency services; repair potholes, maintain streets, sidewalks, bike lanes, beaches, the new wharf, and recreation programs for youth; improve traffic safety; and support local businesses. The adopted FY 2024-25 budget began implementing these commitments as Measure Y went into effect on April 1, 2025.

Capitola Community Center Renovation
The Capitola Community Center is undergoing a major renovation to modernize the building, improve accessibility, and support a wider range of programming and public use. Located at Jade Street Park, the updated facility will continue to serve as a vital gathering space for classes, meetings, and community events.

Renovations include structural repairs, energy-efficient upgrades, accessibility improvements, and enhancements to outdoor areas adjacent to the building.

Construction is progressing steadily. Major structural repairs, roofing, and underground utilities are near completion. Current work includes siding installation, patio concrete, and preparation for interior upgrades. The project remains on track for completion in Spring 2026.

Treasure Cove at Jade Street Park
The City of Capitola is creating Treasure Cove, a universally accessible (UA) playground at Jade Street Park, located at 4400 Jade Street as part of the Capitola Community Center complex. The new playground will replace the existing equipment installed in 1999 and 2007, which no longer meets accessibility standards and lacks inclusive features. Treasure Cove is designed to be a welcoming, inclusive space where children of all abilities can play, imagine, and connect.

The City partnered with County Park Friends, a local nonprofit dedicated to supporting park projects throughout Santa Cruz County. Through their leadership and the generosity of community donors, over $1 million was raised for Treasure Cove. In July 2025, the City secured $3.2 million in Community Development Block Grant (CDBG) funds, fully funding construction of 32 Item 4 B.

Treasure Cove and associated park improvements. This combined public-private partnership allows the City to deliver a far more ambitious and inclusive playground than would have been possible with public funds alone.

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 aims 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.

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, 2024. 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 2025 ACFR conforms to the Certificate of Achievement program requirements and will be submitting it to GFOA for review.
33 Item 4 B.

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 from FY 1999-00.

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

ACKNOWLEDGEMENTS
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
34 Item 4 B.

CITY OF CAPITOLA

LIST OF PRINCIPAL OFFICIALS
FOR
FISCAL YEAR ENDED JUNE 30, 2025

ELECTED OFFICIALS
Mayor – Jor Clarke
Vice Mayor – Margaux Morgan
Council Member – Gerry Jensen
Council Member – Melinda Orbach
Council Member – Susan Westman

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 – Sarah Ryan
City Clerk – Julia Gautho
Community Development Director – Katie Herlihy
Community Services & Recreation Director – Nikki Bryant Finance Director – Jim Malberg
Public Works Director – Jessica Kahn
35 Item 4 B.

City Clerk
Com. Services &
Recreation Dir.

Parking
Enforcement (3)
Council
Admin. Services Director
& Treasurer
Community Development
Director Police Chief Public Works
Director
Police Officers
(15)
Community
Service Officers (2)
Sergeants (4)
Captain (2)
Records Manager
Records Technician
(2)
Senior Accountant
Accountant I (2) Account Tech
Associate Planner
Building Official
Building Inspector
Senior Planner Environmental
Projects Manager Project Manager
Operations Field
Supervisor
Mechanic
Maint. Worker 1, 2,
& 3 (13)
Senior
Mechanic
Museum Curator (.5)
Hourly Temps Event Specialist II
Customer Service/
Office Coordinator
Dept. City Clerk
Assistant to the
City Manager
Contract employee (s)
City staff
Admin. Records
Analyst
City Manager
Attorney
Vacant & or Frozen
Development Tech
Rec. Coordinator
(3)
Development Tech
Customer Service/
Office Coordinator
Assistant Planner
Temporary Employee (s)
Hourly/Temps
Voters
City of Capitola Organization Chart July 2025
Information Systems
Specialist (.5)
Human Resources
Analyst
36 Item 4 B.

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, 2024
Executive Director/CEO
37 Item 4 B.

This page is intentionally blank
38 Item 4 B.

FINANCIAL SECTION
39 Item 4 B.

16450 Monterey Road, Suite #5, Morgan Hill, CA 95037
Tel: 408-217-8749 • E-Fax: 408-872-4159
[email protected] • www.cnallp.com
INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of the City Council
of the City of Capitola
Capitola, California
Report on the Audit of the Financial Statements
Opinions
We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Capitola (the “City"), as of and for the year ended June 30, 2025, and the related notes to the financial statements, which collectively comprise City’s basic financial statements as listed in the table of contents.

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, as of June 30, 2025, 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. 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 City 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.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher 40 Item 4 B.

16450 Monterey Road, Suite #5, Morgan Hill, CA 95037
Tel: 408-217-8749 • E-Fax: 408-872-4159
[email protected] • www.cnallp.com
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 GAGAS, 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 other required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the 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.

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, schedules, and other information listed in the supplementary information section of the table of contents 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 41 Item 4 B.

16450 Monterey Road, Suite #5, Morgan Hill, CA 95037
Tel: 408-217-8749 • E-Fax: 408-872-4159
[email protected] • www.cnallp.com
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 GAAS. 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 comprehensive financial 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 31, 2025, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.

The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

Chavan & Associates, LLP
Certified Public Accountants
December 31, 2025
Morgan Hill, California
42 Item 4 B.

MANAGEMENT’S DISCUSSION

AND ANALYSIS
43 Item 4 B.

City of Capitola Management’s Discussion and Analysis

INTRODUCTION
As management of the City of Capitola (the City), we offer readers of the City’s financial statements this narrative overview and analysis of financial activities of the City for the fiscal year that ended on June 30, 2025. We encourage readers to consider the information presented here, in conjunction with additional information that we have furnished in our letter of transmittal. The required components of the report are listed below.

Required Components of the Annual Financial Report
FISCAL YEAR 2024/25 FINANCIAL HIGHLIGHTS
Government-Wide Highlights
 The assets and deferred outflows of resources for the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $43.90 million (net position). Of the net position, $52.14 million was classified as net investment in capital assets; $13.45 million recorded as restricted funds; and $21.69 million categorized as a deficit unrestricted net position (negative net position). The negative unrestricted net position is largely due to GASB 68 – Accounting and Financial Reporting for Pensions. This pronouncement requires local governments to record pension liabilities and related deferrals in the government-wide financial statements.  The City’s net position decreased by $397,848 which was all from Governmental Activities.  City revenues decreased by $4.96 million, or 4.05%, when compared to the prior year. The Fiscal Year 24/25 decrease was mostly from a decrease of $2.94 million in capital grants.  Deferred outflows of resources decreased by $3.40 million, while deferred inflows of resources decreased by $931,403. This was primarily related to pension liability adjustments identified in the City’s actuarial report, which include differences between expected and actual earnings; expected and Management’s
Discussion & Analysis
Government-Wide
Financial Statements
Fund
Financial Statements
Notes to the
Financial Statements
Basic
Financial Statements
44 Item 4 B.

City of Capitola Management’s Discussion and Analysis
actual experiences; and changes in proportional allocations. The City’s pension liability in accordance with GASB 68 as of June 30, 2025 was $31.80 million as compared to $32.16 million in the prior year.  The City’s long-term debt decreased by $68,823 as a result of debt service payments made during the year.
 The City’s net capital assets increased by $1.96 million, primarily from a $9.80 million increase to infrastructure net of a $8.43 million decrease to construction in progress.

Fund Highlights
 At the close of Fiscal Year 24/25 the City’s Governmental Funds had a combined fund balance of $18.08 million, which is a decrease of $220,927 from prior year. Approximately 2.13%, or $385,573, was classified as unassigned fund balance and was available for spending at the government’s discretion.
 At the end of the current fiscal year, the General Fund’s unrestricted fund balance (the total of the committed, assigned, and unassigned components of fund balance) was $4.27 million, or 20.87% of total general fund expenditures, prior to transfers.
 The fund balance in the General Fund decreased by $1.09 million at the close of the fiscal year. This included a deficit of operating revenues over expenditures of $1.16 million, minus $170,568 in net transfers and other financing sources and an adjustment to beginning fund balance of $246,252.

OVERVIEW OF THE FINANCIAL STATEMENTS
The discussion and analysis are intended to serve as an introduction to the City’s financial statements. The City’s basic financial statements are comprised of (1) Government-Wide Financial Statements (2) Fund Financial Statements, and (3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

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. Government-Wide financial statements are prepared on the accrual basis, which means they measure the flow of all economic resources of the City as a whole. Government-Wide Financial Statements consist of the Statement of Net Position and the Statement of Activities.

The Statement of Net Position presents financial information on all of the City’s assets, liabilities, and deferred inflows/outflows of resources, with the difference 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 declining.

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. This is consistent with a full accrual concept, which may result in the reporting of revenues and expenses in the current fiscal year, with cash flows 45 Item 4 B.

City of Capitola Management’s Discussion and Analysis
occurring in future fiscal periods (e.g. uncollected revenues; and earned but not used vacation leave).

Both of the Government-Wide Financial Statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities). An overview of the City’s functions associated with each classification is listed below.

Governmental Activities – All of the City's basic services are considered to be governmental activities. This includes general government, public works, recreation, community development, and public safety. These services are supported by general City revenues such as taxes, and by specific program revenues such as development and recreation program fees.

The Government-Wide Financial Statements can be found in the financial section 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 or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Fund financial statements provide detailed information about each of the City's most significant funds, called major funds. Major funds are presented individually, with all non-major funds summarized and presented only in a single column. Subordinate schedules present the detail of these non-major funds. Major funds present the major activities of the City for the fiscal year and may change from year to year as a result of changes in the pattern of the City's activities.

Governmental Funds
Governmental funds are used to account for essentially the same function reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental funds 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. This represents a modified accrual basis of accounting, with capital assets, long-lived assets, and long-term liabilities excluded from the financial statements. Such information may be useful in evaluating the City's near-term financing requirements.

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 the governmental funds with similar information presented for governmental activitiesin the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate the comparison between governmental funds and governmental activities.

Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund and other major funds. Data from the other governmental funds are combined into a single aggregated presentation.

Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements in the combining and individual fund statements and schedules section of this report.

The City adopts an annual budget for its General Fund. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. The basic governmental fund financial 46 Item 4 B.

City of Capitola Management’s Discussion and Analysis
statements can be found in the financial section of this report.

NOTES TO THE FINANCIAL STATEMENTS
Notes to the 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 can be found immediately following the Fund Financial Statements.

OTHER INFORMATION
In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information concerning the City’s funding progress for its employee pension obligations.

The required supplementary information can be found after the notes to the financial statements of this report.

The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the required supplementary information.

A statistical section provides historical and current data on financial trends, revenue and debt capacity, demographic and economic information, and operating information. This information can be found on immediately after the supplementary information section.

GOVERNMENT-WIDE FINANCIAL ANALYSIS
Over time, net position may serve as an indicator of a government’sfinancial position. In the case of the City, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $43.90 million at the close of Fiscal Year 24/25. This was a decrease of $397,848 from the prior year.

The following table summarizes the City’s ending net position:
2025 2024
Assets
Current and other assets $ 19,787,380 $ 21,318,624
Capital assets 52,835,122 50,878,594
Total Assets $ 72,622,502 $ 72,197,218
Deferred Outflows of Resources $ 9,785,754 $ 13,186,912 Liabilities
Current and other liabilities $ 2,380,372 $ 3,651,511
Noncurrent liabilities 34,494,468 34,869,952
Total Liabilities $ 36,874,840 $ 38,521,463
Deferred Inflows of Resources $ 1,632,623 $ 2,564,026
Net Position
Net investment in capital assets $ 52,141,330 $ 50,115,979 Restricted 13,446,693 12,131,607
Unrestricted (21,687,230) (17,948,945)
Total Net Position $ 43,900,793 $ 44,298,641
Governmental Activities
Table 1 - Net Position
47 Item 4 B.

City of Capitola Management’s Discussion and Analysis
A significant portion, or $52.14 million, of the City's net position reflects its investment in capital assets, (e.g., land, buildings, general government infrastructure, equipment, etc.), less accumulated depreciation and any outstanding debt that was used to acquire or construct those assets. Capital assets represent infrastructure which provide services to citizens and are not available for future spending. Although the City‘s investment in capital assets is reported net of related debt, it should be noted that the resources to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate the liabilities.

The $13.45 million amount classified as Restricted Net Position represents resources that are subject to external restrictions on how they may be used. These funds are restricted for governmental activities.

The remaining deficit balance of $21.69million is classified as unrestricted. This negative unrestricted balance is largely due to GASB 68 – Accounting and Financial Reporting for Pensions. The City participates in the CalPERS Miscellaneous and Safety pension plans. This pronouncement requires that local governments report a proportional share of their pension plan’s net pension liabilities on financial statements. In Fiscal Year 24/25, the City’s proportionate share of the CalPERS pension liability was $31.80 million.

Governmental Activities
As shown in the Statement of Changes in Net Position schedule, the net position for Governmental Activities decreased by $397,848 from the prior year mostly because of decreases to capital grants and contributions of $2.94 million. During the year, the City’s expenses in the statement of activities were increased by pension adjustments of $2.03 million related to changes in assumptions and deferrals of differences between estimated and actual plan earnings. This in addition to increases in annual required contributions. An analysis of the changes in revenues and expenses by type of significant events follows:

Increase
Functions/Programs 2025 2024 (Decrease)
Program Revenues
Charges for services $ 3,471,250 $ 3,355,793 $ 115,457
Operating grants and contributions 1,286,376 858,915 427,461 Capital grants and contributions 3,015,706 5,952,237 (2,936,531) Total Program Revenues 7,773,332 10,166,945 (2,393,613) General Revenues
Property taxes 3,340,070 3,200,895 139,175
Franchise taxes 742,443 729,485 12,958
Sales and use tax 8,633,916 8,221,640 412,276
Transient Occupancy tax 2,256,352 2,219,951 36,401
Business License tax 334,274 323,755 10,519
Cannabis taxes 254,790 261,764 (6,974)
Investment earnings 633,607 770,404 (136,797)
Other revenues 1,234,425 372,942 861,483
Total General Revenues 17,429,877 16,100,836 1,329,041
Expenses
General government 6,146,543 5,580,935 565,608
Public safety 9,242,727 8,450,102 792,625
Community development 1,676,942 1,371,360 305,582
Culture and recreation 3,560,635 2,983,749 576,886
Transportation 5,178,574 4,329,241 849,333
Interest on long-term debt 18,097 13,272 4,825
Total Expenses 25,823,518 22,728,659 3,094,859
Increase / (Decrease) in Net Position (620,309) 3,539,122 (4,159,431) Prior Period Adjustments 222,461 306,658 (84,197)
Net Position, Beginning of Year 44,298,641 40,452,861 3,845,780 Net Position, End of Year $ 43,900,793 $ 44,298,641 $ (397,848) Governmental Activities
Table 2 - Statement of Changes in Net Position
48 Item 4 B.

City of Capitola Management’s Discussion and Analysis
Governmental Activities
Governmental Revenues
The following chart summarizes the changes in revenues by category during Fiscal Year 24/25:

Significant changes in governmental revenues consisted of the following:
 Taxes decreased by $593,834 with substantial net changes in the following categories:
o Sales and use taxes increased by $412,275 or 5.0%, primarily due to the passage of Measure Y the one-half percent district sales tax.
o Transient occupancy tax increased by $26,843 or 1.2%. o Property taxes increased by $144,415 or 4.7%, which reflects the continuing strength in property values.
o Franchise taxes increased by $12,957 or 1.80%, primarily due to rate increases across the industries.
 Charges for services increased by $66,414 or 2.7% primarily from increased program activities for recreation.
 Capital grants and contributions decreased by $2.4 million following completion of the Wharf Resiliency and Public Access Improvement project.
49 Item 4 B.

City of Capitola Management’s Discussion and Analysis
Governmental Expenses
The Fiscal Year 24/25 expenses for Governmental Activities increased by $3.09 million as illustrated in the chart below:

Significant changes in governmental expenses consisted of the following:
 The largest contributed factor to the increase in governmental activities expenses is an adjustment to pension expense as required by GASB 68 of $2.03 million. The prior year adjustment was also an increase of $6.3 million increase in governmental expenses.  General government expenses increased by $565,000 primarily from the above-mentioned GASB 68 pension adjustment as well as increased personnel costs.  Public safety expenses increased by $792,000 primarily from the above-mentioned GASB 68 pension adjustment as well as increased personnel costs.
 Community development expenses increased by $305,582 primarily from the above-mentioned GASB 68 pension adjustment as well as increased personnel costs.  Culture and recreation expenses increased by $576,886 primarily from the above-mentioned GASB 68 pension adjustment as well as increased personnel.
 Transportation expenses increased by $849,333 primarily from the above-mentioned GASB 68 pension adjustment as well as increased personnel.
50 Item 4 B.

City of Capitola Management’s Discussion and Analysis
FINANCIAL ANALYSIS OF THE CITY’S GOVERNMENTAL FUNDS
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements.

The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements.

In particular, the unassigned fund balance may serve as a useful measure of a government’s net resources available for discretionary use as they represent the portion of fund balance which has not yet been limited to use for a particular purpose by either an external party, the City itself, or a group or individual that has been delegated authority to assign resources for particular purposes by the City’s City Council.

A summary of the changes in fund balance of the Major Funds and Other Governmental Funds is presented below:

The fund balance in the General Fund decreased by $1.09 million. This included operating revenues short of operating expenses by $1.16 million. The operating difference was due to lower than projected sales tax revenue receipts and higher than anticipated general operating expenditures.

Fund balance in the Federal Home Loan Reuse Fund increased by $132,985 mostly due to loan payoffs received.

Fund balance in the Capitola Housing Successor Fund increased by $109,525 mostly due to loans for affordable housing projects.

Fund balance in the RTC Streets Fund increased by $446,435 mostly due to receiving grant funds for projects that were previously programmed to utilize these restricted funds.

Fund balance in the Capital Projects Fund decreased by $601,945 mostly due to the construction of the Wharf Rehabilitation and Resiliency project.

The fund balance in Nonmajor Funds increased by $778,651 mostly due to an increase in Intergovernmental revenue received.

Federal Capitola
Home Housing Capital Nonamajor
General Loan Reuse Successor RTC Streets Projects Governmental Fund Fund Fund Fund Fund Funds Total
Total Revenues $19,289,903 $ 129,804 $ 192,679 $ 464,304 $ 3,316,369 $ 1,810,150 $25,203,209 Total Expenditures (20,452,165) (4,450) (51,732) (17,869) (4,001,314) (1,119,067) (25,646,597) Revenues Over (Under) Expenditures (1,162,262) 125,354 140,947 446,435 (684,945) 691,083 (443,388) Transfers in - - - - 83,000 297,011 380,011
Transfers out (170,568) - - - - (209,443) (380,011)
Net change in fund balances (1,332,830) 125,354 140,947 446,435 (601,945) 778,651 (443,388) Beginning of year 7,017,319 5,017,650 4,178,407 532,145 (773,059) 2,328,753 18,301,215 Prior Period Adjustment 246,252 7,631 (31,422) - - - 222,461 End of year $ 5,930,741 $ 5,150,635 $ 4,287,932 $ 978,580 $ (1,375,004) $ 3,107,404 $18,080,288 Major Funds
Table 3 - Summary of Changes in Fund Balance - Governmental Funds 51 Item 4 B.

City of Capitola Management’s Discussion and Analysis
General Fund – Components of Fund Balance
In Fiscal Year 24/25, the General Fund’s total fund balance represented approximately 33% of total general fund expenditures. The following chart summarizes the ending fund balance in the General Fund over the last two fiscal years:

Other Governmental Fund - Components of Fund Balance
The following chart summarizes the ending fund balance of all other funds other than the General Fund over the last two fiscal years:
52 Item 4 B.

City of Capitola Management’s Discussion and Analysis

CAPITAL ASSETS
The City’s investment in capital assets as of June 30, 2025 was $52.84 million (net of accumulated depreciation). The total increase in the City’s capital assets, net of depreciation, was $1.96 million or

3.85%.

The following table summarizes the City’s capital assets at the end of the year:

Additional information on capital assets can be found in Note 5 in the notes to financial statements.

DEBT ADMINISTRATION
During the year, long-term debt from governmental activities decreased by $68,823 because of debt service payments.

The following table summarizes the City’s debt at the end of the year:

Additional information on debt can be found in Note 6 in the notes to financial statements. 2025 2024 % Change
Land $ 4,883,789 $ 4,883,789 0.00%
Construction in progress 6,967,309 15,393,620 -54.74%
Buildings and improvement 17,785,112 17,748,240 0.21%
Infrastructure 47,501,638 37,721,731 25.93%
Machinery and equipment 5,467,570 5,334,562 2.49%
Accumulated deprec./amort. (29,770,296) (30,203,348) -1.43% Total Capital Assets, Net $ 52,835,122 $ 50,878,594 3.85% Table 4 - Capital Assets at Year End - Net
Governmental Activities
2025 2024 % Change
Beach and Village Lot II Financing $ 693,792 $ 762,615 -9.02% Table 5 - Outstanding Long-Term Debt at Year End
Governmental Activities
53 Item 4 B.

City of Capitola Management’s Discussion and Analysis

GENERAL FUND BUDGETARY HIGHLIGHTS
Changes from the City's General Fund original budget to the final budget are detailed in the Required Supplementary Information section along with a comparison to actual activity for the year ended. Over the course of the year, the City may revise the expenditure budgets to reflect the changes in the various programs and unanticipated activities, but usually do not change budget assumptions in revenues other than for one-time events. For example, when the City is awarded a grant, it appropriates the revenues and expenditures necessary to spend those funds but does not necessarily adjust upward the property tax estimates when the amounts come in higher than expected or reduce other balances that report declines unless the changes are material. Tax estimates are based on trend information where the base amount rolls forward for cumulative increases in long term planning and the trends are reevaluated each year during the budget period.

At the time of the FY 24/25 budget adoption, City revenues were projected to be $19.36 million and expenditures were projected to be $19.47 million. The final budgeted revenues were $19.67 million and expenditures were $20.32 million. Actual revenues fell short of the final budget by $376,769 and actual expenditures exceeded the final budget by $134,373.

After transfers, the original adopted budget projected a deficit change in fund balance of $200,120 and the final budget projected a deficit of $738,688. The actual change in fund balance for the year was a deficit $1.33 million, which was $594,142 more than the final budgeted deficit and mostly attributable to higher than anticipated expenditures for City Attorney and contract services related to Public Records Act requests and the resignations or two City Council members. The following table summarizes the City’s budget vs. actual amounts for FY 24/25:

Variance with
Budgeted Amounts Final Budget
Actual Positive
Original Final Amounts (Negative)

REVENUES
Taxes $ 15,105,079 $ 15,383,272 $ 15,087,640 $ (295,632) Licenses and permits 721,750 721,750 739,717 17,967
Fines and forfeitures 599,500 599,500 503,222 (96,278)
Intergovernmental 162,173 189,404 197,854 8,450
Charges for Services 2,408,340 2,408,340 2,340,985 (67,355) Use of money and property 172,500 172,500 205,391 32,891 Other revenue 191,906 191,906 215,094 23,188
Total Revenues 19,361,248 19,666,672 19,289,903 (376,769)

EXPENDITURES
Current:

General government:

City council 136,007 136,007 96,100 39,907
City manager 1,198,703 1,264,655 1,106,958 157,697
Personnel 487,693 504,122 341,016 163,106
City attorney 270,000 270,000 325,062 (55,062)
Finance 987,445 1,005,474 827,413 178,061
Community grants 133,425 133,425 58,425 75,000
General operations 609,721 734,192 1,826,248 (1,092,056) Public safety 7,988,133 8,123,485 7,882,777 240,708
Community development 853,538 863,936 844,336 19,600
Culture and recreation 2,789,503 2,844,811 2,897,034 (52,223) Transportation 3,879,632 4,020,024 3,931,622 88,402
Capital outlay 140,000 417,661 315,174 102,487
Total Expenditures 19,473,800 20,317,792 20,452,165 (134,373) Excess (Deficiency) of Revenues over Expenditures (112,552) (651,120) (1,162,262) (511,142)

OTHER FINANCING SOURCES (USES)
Transfers in - - - -
Transfers out (87,568) (87,568) (170,568) (83,000)
Total Other Financing Sources (Uses) (87,568) (87,568) (170,568) (83,000) Net Change in Fund Balance $ (200,120) $ (738,688) $ (1,332,830) $ (594,142) 54 Item 4 B.

City of Capitola Management’s Discussion and Analysis
ECONOMIC FACTORS, NEXT YEAR’S BUDGET, AND RATES
FY 2025-26 Budget Overview
On June 26, 2025, the Council approved the FY 2025-26 Budget, with a total appropriation of $32.1 million, including $21.1 million allocated to the General Fund. The budget reflects a conservative growth approach, projecting adequate resources to cover expenditures.

Key General Fund revenue growth estimates include:
 Sales Tax: 1.0% increase.
 Transient Occupancy Tax (TOT): 0.0% increase.
 Property Tax: 5.0% increase.

General Fund revenues are expected to exceed expenditures by approximately $82,796, with a projected year-end fund balance of $503,000.

Employee Agreements and Pension Costs
The City has negotiated agreements with all bargaining units through FY 2026-27, which include fixed Cost of Living Adjustments (COLAs) and Market Study Salary Adjustments for certain classifications. Pension cost caps, initially implemented before FY 2015-16 to prevent significant pay reductions due to increased contribution rates, remain in place under these agreements.

FUTURE PROSPECTS
Measures O, F, and Y
 Measure O: Approved in 2012, this permanent quarter-percent sales tax replenished reserves, maintained police staffing, and funded major street improvements.  Measure F: Extended in 2016 for 10 years, this temporary sales tax funded projects such as protecting the wharf and beach, police services, and infrastructure improvements.  Measure Y: Passed in November 2024 to replace Measure F, it increased the sales tax to half a percent for 10 years to continue these initiatives.

Development Opportunities
The City is prioritizing several major projects:
 Jade Street Community Center Renovation:
o Estimated Cost: $6.16 million.
o Funding Sources: $1.8 million in General Funds, $4.36 million in grants. o Timeline: Construction to begin in early 2025, with completion expected in 2026.  Treasure Cove Playground, Cliff Drive Resiliency, and Stockton Bridge:
o Projects are in various stages of design and funding but remain unfunded as of June 30, 2025. Staff anticipates the Treasure Cove Playground becoming fully funded during FY 2025-26
55 Item 4 B.

City of Capitola Management’s Discussion and Analysis

ECONOMIC OUTLOOK
Local, State, and National Trends
The 2008 financial crisis significantly impacted local, state, and national economies, but by FY 2011-12, Capitola began to recover with increases in sales tax, TOT, and demand for planning services. These trends continued until FY 2017-18 when TOT and sales tax leveled off.

In 2018, voters increased the TOT rate from 10% to 12%, dedicating a portion to local businesses and Early Childhood and Youth programs. Since 2021, TOT revenues have once again leveled off.

Storm Recovery Efforts
Intense storms in January 2023 temporarily damaged the Wharf and several Capitola Village businesses.

Despite the setbacks, businesses recovered quickly. The Wharf Rehabilitation project, fully funded with an additional $1 million in insurance proceeds, began in September 2023 and was completed in August 2024. The City anticipates receiving the final estimated $900,000 of disaster recovery funds from FEMA and CalOES during FY 2025-26.

PENSION OBLIGATIONS
In FY 2022, CalPERS experienced a 6.1% investment loss, leading to increased Unfunded Actuarial Liability (UAL) contributions:
 FY 2024-25 UAL Payment: $2.6 million (19.3% increase).  Projected UAL Payments:
o FY 2025-26: $2.8 million.
o FY 2029-30: $3.5 million.

The City continues to prioritize long-term financial stability and investments in community infrastructure.

REQUEST 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. 56 Item 4 B.

BASIC FINANCIAL STATEMENTS
57 Item 4 B.

City of Capitola
Statement of Net Position
June 30, 2025
Governmental
ASSETS Activities
Current Assets:

Cash and investments $ 8,660,088
Restricted cash and investments 1,662,822
Accounts receivable 113,014
Taxes receivable 2,482,000
Interest receivable 117,699
Due from other governments 123,494
Total Current Assets 13,159,117
Noncurrent Assets:

Loans receivable 6,628,263
Capital Assets:

Nondepreciable 11,851,098
Depreciable, net of accumulated depreciation 40,984,024 Total Capital Assets, Net 52,835,122
Total Noncurrent Assets 59,463,385
Total Assets $ 72,622,502

DEFERRED OUTFLOWS OF RESOURCES
Pension Adjustments $ 8,933,622
OPEB Adjustments 852,132
Total Deferred Outflows of Resources $ 9,785,754

LIABILITIES
Current Liabilities:

Accounts payable $ 996,148
Accrued liabilities 98,391
Interest payable 6,533
Unearned revenue 241,682
Deposits payable 370,871
Compensated absences, due within one year 596,368
Long-term debt, due within one year 70,379
Total Current Liabilities 2,380,372
Noncurrent Liabilities:

Compensated absences, due in more than one year 508,017 Net pension liability 31,795,399
Net OPEB liability 1,567,639
Long-term debt - due in more than one year 623,413
Total Noncurrent Liabilities 34,494,468
Total Liabilities $ 36,874,840

DEFERRED INFLOWS OF RESOURCES
Pension Adjustments $ 1,034,468
OPEB Adjustments 598,155
Total Deferred Inflows of Resources $ 1,632,623

NET POSITION
Net investment in capital assets $ 52,141,330
Restricted for:

Public safety 201,151
Transportation 2,130,378
Community development 10,842,238
Culture and recreation 272,926
Total Restricted 13,446,693
Unrestricted (21,687,230)
Total Net Position $ 43,900,793
The accompanying notes are an integral part of these financial statements. 58 Item 4 B.

City of Capitola
Statement of Activities
For the Year Ended June 30, 2025
Operating Capital
Charges for Grants and Grants and Governmental
Functions/Programs Expenses Services Contributions Contributions Total Activities Primary Government:

Governmental Activities:

General government $ 6,146,543 $ 1,116,364 $ 418,373 $ - $ 1,534,737 $ (4,611,806) Public safety 9,242,727 595,854 201,188 - 797,042 (8,445,685) Community development 1,676,942 825,262 662,712 - 1,487,974 (188,968) Culture and recreation 3,560,635 886,146 1,000 1,487,736 2,374,882 (1,185,753) Transportation 5,178,574 47,624 3,103 1,527,970 1,578,697 (3,599,877) Interest expense 18,097 - - - - (18,097)
Total Governmental Activities $ 25,823,518 $ 3,471,250 $ 1,286,376 $ 3,015,706 $ 7,773,332 (18,050,186) General Revenues:

Taxes:

Property taxes 3,340,070
Franchise taxes 742,443
Sales and use tax 8,633,916
Transient Occupancy tax 2,256,352
Business License tax 334,274
Cannabis taxes 254,790
Total taxes 15,561,845
Motor vehicle in-lieu 15,545
Investment income 633,607
Other revenues 1,218,880
Total General Revenues 17,429,877
Change in Net Position (620,309)
Net Position - Beginning of Year 44,298,641
Prior Period Restatements 222,461
Net Position - Beginning of Year, As Adjusted 44,521,102 Net Position - End of Year $ 43,900,793
Program Revenues
59 Item 4 B.

This page is intentionally blank
60 Item 4 B.

GOVERNMENTAL FUND FINANCIAL STATEMENTS
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 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..

Capitola Housing Successor 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 will fund new housing activities.

Regional Transportation Commission (RTC) Streets Fund
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
Accounts for financial resources segregated for the acquisition of major capital facilities and equipment by the City.

Non-Major Governmental Funds
These funds constitute all other governmental funds that do not meet the major fund criteria per governmental accounting standards. These funds consist of other Special Revenue Funds and Debt Service Funds.
61 Item 4 B.

City of Capitola
Balance Sheet
Governmental Funds
June 30, 2025
Federal Capitola
Home Housing Capital Nonmajor Total
General Loan Reuse Successor RTC Streets Projects Governmental Governmental Fund Fund Fund Fund Fund Funds Funds
ASSETS
Cash and investments $ 1,890,309 $ 1,005,956 $ 2,037,244 $ 874,719 -$ 2,851,860 $ $ 8,660,088 Restricted cash and investments 1,662,822 - - - - - 1,662,822 Accounts receivable 96,826 - - - - 16,188 113,014
Taxes receivable 2,387,430 - - 94,570 - - 2,482,000
Interest receivable 46,887 11,069 10,618 9,291 - 39,834 117,699 Due from other governments 93,112 - - - - 30,382 123,494 Due from other funds 843,207 - - - - - 843,207
Loans receivable - 4,133,610 2,240,070 - - 254,583 6,628,263 Total assets $ 7,020,593 $ 5,150,635 $ 4,287,932 $ 978,580 -$ 3,192,847 $ $ 20,630,587

LIABILITIES AND FUND BALANCES
Liabilities:

Accounts payable $ 386,186 -$ -$ -$ 524,597 $ $ 85,365 $ 996,148 Accrued liabilities 98,391 - - - - - 98,391
Unearned revenue 241,682 - - - - - 241,682
Deposits payable 363,593 - - - 7,200 370,871 78
Due to other funds - - - - 843,207 - 843,207
Total liabilities 1,089,852 - - - 1,375,004 85,443 2,550,299 Fund Balances:

Restricted:

Public safety - - - - - 201,151 201,151
Transportation - - - 978,580 - 1,151,798 2,130,378
Community development - 5,150,635 4,287,932 - - 1,403,671 10,842,238 Culture and recreation - - - - - 272,926 272,926
Retiree benefits 1,662,822 - - - - - 1,662,822
Assigned:

Debt service - - - - - 77,858 77,858
Facilities 282,714 282,714
General plan 316,128 316,128
Green building education 276,994 276,994
Emergency reserve 1,631,506 - - - - - 1,631,506
Unassigned:

Contingencies 1,760,577 - - - - - 1,760,577
Remaining unassigned - - - - (1,375,004) - (1,375,004)
Total fund balances 5,930,741 5,150,635 4,287,932 978,580 (1,375,004) 3,107,404 18,080,288 Total liabilities and fund balances $ 7,020,593 $ 5,150,635 $ 4,287,932 $ 978,580 $ - $ 3,192,847 $ 20,630,587 The accompanying notes are an integral part of these financial statements.

Major Funds
62 Item 4 B.

City of Capitola
Reconciliation of the Government Funds Balance Sheet
to the Government-Wide Statement of Net Position
June 30, 2025
Total Fund Balances - Total Governmental Funds $ 18,080,288 Amounts reported for governmental activities in the statement of net position were different because:

Capital assets used in governmental activities were not current financial resources. Therefore, they were not reported in the Governmental Funds Balance Sheet. The capital assets were adjusted as follows:

Capital assets 82,605,418
Less: accumulated depreciation (29,770,296)
Total Capital Assets 52,835,122
Interest payable on long-term debt did not require current financial resources. Therefore, interest payable was not reported as a liability in Governmental Funds Balance Sheet. (6,533) The differences from benefit plan assumptions and estimates versus actuals are not included in the plan's actuarial study until the next fiscal year and are reported as deferred inflows or deferred outflows of resources in the statement of net position. 8,153,131 Long-term obligations were not due and payable in the current period. Therefore, they were not reported in the Governmental Funds Balance Sheet. The long-term liabilities were adjusted as follows:

Long-term debt (693,792)
Compensated absences (1,104,385)
Net pension liability (31,795,399)
Net OPEB liability (1,567,639)
Total Long-Term Obligations (35,161,215)
Net Position of Governmental Activities $ 43,900,793
The accompanying notes are an integral part of these financial statements. 63 Item 4 B.

City of Capitola
Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds
For the Year Ended June 30, 2025
Federal Capitola
Home Housing Capital Nonmajor Total
General Loan Reuse Successor RTC Streets Projects Governmental Governmental Fund Fund Fund Fund Fund Funds Funds

REVENUES
Taxes $ 15,087,640 $ - $ - $ - $ - $ 139,931 $ 15,227,571 Licenses and permits 739,717 - - - - 9,215 748,932
Fines and forfeitures 503,222 - - - - - 503,222
Intergovernmental 197,854 - - 431,353 2,205,670 1,308,546 4,143,423 Charges for Services 2,340,985 - - - - 175,224 2,516,209 Use of money and property 205,391 129,804 192,679 32,951 - 109,940 670,765 Other revenue 215,094 - - - 1,110,699 67,294 1,393,087
Total Revenues 19,289,903 129,804 192,679 464,304 3,316,369 1,810,150 25,203,209

EXPENDITURES
Current:

General government 4,581,222 - - - - - 4,581,222
Public safety 7,882,777 - - - - 50,501 7,933,278
Community development 844,336 4,450 51,732 - - 557,117 1,457,635 Culture and recreation 2,897,034 - - - - 153,622 3,050,656 Transportation 3,931,622 - - - - 222,069 4,153,691
Capital outlay 315,174 - - 17,869 4,001,314 48,190 4,382,547 Debt service
Principal - - - - - 68,823 68,823
Interest - - - - - 18,745 18,745
Total Expenditures 20,452,165 4,450 51,732 17,869 4,001,314 1,119,067 25,646,597 Excess (Deficiency) of
Revenues over Expenditures (1,162,262) 125,354 140,947 446,435 (684,945) 691,083 (443,388)

OTHER FINANCING SOURCES (USES)
Transfers in - - - - 83,000 297,011 380,011
Transfers out (170,568) - - - - (209,443) (380,011)
Total Other Financing Sources (Uses) (170,568) - - - 83,000 87,568 - Net Change in Fund Balances (1,332,830) 125,354 140,947 446,435 (601,945) 778,651 (443,388) Fund Balances Beginning 7,017,319 5,017,650 4,178,407 532,145 (773,059) 2,328,753 18,301,215 Prior Period Restatements 246,252 7,631 (31,422) - - - 222,461 Fund Balances Beginning, as Restated 7,263,571 5,025,281 4,146,985 532,145 (773,059) 2,328,753 18,523,676 Fund Balances Ending $ 5,930,741 $ 5,150,635 $ 4,287,932 $ 978,580 $ (1,375,004) $ 3,107,404 $ 18,080,288 The accompanying notes are an integral part of these financial statements.

Major Funds
64 Item 4 B.

City of Capitola
Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Government-Wide Statement of Activities
For the Year Ended June 30, 2025
Net Change in Fund Balances - Total Governmental Funds $ (443,388) Amounts reported for governmental activities in the Statement of Activities and Changes in net position were different because:

Governmental Funds report capital outlay as expenditures. However, in the Government-Wide Statement of Activities and Changes in net position, the cost of those assets was allocated over their estimated useful lives as depreciation expense.

Capital additions 4,309,512
Depreciation expense (2,352,984)
Compensated absences not required to be paid with current financial resources are not reported in the governmental funds, but are accrued as noncurrent liabilities in the Government Wide Statement Net Position. The change from prior year accrued compensated absences is reported in the applicable program expense. (77,635)
In governmental funds, actual contributions to benefit plans are reported as expenditures in the year incurred. However, in the government-wide statement of activities, only the current year benefit expense as noted in the plans' valuation reports is reported as an expense, as adjusted for deferred inflows and outflows of resources. (2,125,285)
Repayment of long-term debt was an expenditure in governmental funds, but the repayment reduced long-term liabilities in the Government-Wide Statement of Net Position. 68,823 Interest expense on long-term debt was reported in the Government-Wide Statement of Activities and Changes in net position, but it did not require the use of current financial resources. Therefore, interest expense was not reported as expenditures in governmental funds. The following amount represented the net change in accrued interest from from prior year. 648
Change in Net Position of Governmental Activities $ (620,309) The accompanying notes are an integral part of these financial statements. 65 Item 4 B.

This page is intentionally blank
66 Item 4 B.

NOTES TO THE BASIC

FINANCIAL STATEMENTS
67 Item 4 B.

City of Capitola
Index to the Notes to Basic Financial Statements
June 30, 2025
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ......................................................... 46 NOTE 2 - CASH AND INVESTMENTS ......................................................................................................57 NOTE 3 - LOANS RECEIVABLES .............................................................................................................60 NOTE 4 - INTERFUND TRANSACTIONS .................................................................................................. 60 NOTE 5 - CAPITAL ASSETS ..................................................................................................................... 61 NOTE 6 - NONCURRENT LIABILITIES .................................................................................................... 62 NOTE 7 - DEFICIT FUND BALANCES ...................................................................................................... 62 NOTE 8 - DEFINED BENEFIT PENSION PLANS (CALPERS) ................................................................... 62 NOTE 9 - OTHER POSTEMPLOYMENT BENEFITS PLAN (OPEB) ...........................................................67 NOTE 10 - RISK MANAGEMENT…………………………… .......................................................................71 NOTE 11 - JOINT VENTURES ................................................................................................................... 72 NOTE 12 - COMMITMENTS AND CONTINGENCIES ............................................................................... 73 NOTE 13 - PRIOR PERIOD RESTATEMENTS ........................................................................................... 74 68 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Financial 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 basic financial statements of the City have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental agencies. The Governmental Accounting Standards Boards (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the City's accounting policies are described below.

The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, deferred outflows of resources, liabilities, deferred inflows of resources, fund equity, revenues, and expenditures or expenses, as appropriate. These funds are established for the purpose of carrying out specific activities or certain objectives in accordance with specific regulations, restrictions, or limitations. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled.

Government-Wide Financial Statements
The City's government-wide financial statements include a Statement of Net Position and a Statement of Activities and Changes in Net Position. These statements present summaries of governmental activities for the City. Governmental activities are generally supported by taxes and intergovernmental revenues.

These statements are presented on an "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all of the City's assets, deferred outflows of resources, liabilities, deferred inflows of resources, are included in the accompanying Statement of Net Position. The Statement of Activities presents changes in net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those clearly identifiable with a specific function or segment. Certain types of transactions are reported as program revenues for the City in three categories:
 Charges for services
 Operating grants and contributions
 Capital grants and contributions
Separate financial statements are provided for governmental funds. Major individual governmental funds 69 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
are reported as separate columns in the fund financial statements.

Certain eliminations have been made as prescribed by GASB Statement No. 34 in-regards-to interfund activities, payables, and receivables. All internal balances in the Statement of Net Position have been eliminated. In the Statement of Activities, internal fund transactions have been eliminated. The following interfund activities have been eliminated:
 Transfers in/Transfers out
 Interfund receivable and payables
 Indirect costs between funds
The City applies all applicable GASB pronouncements including all interpretations currently in effect.

Governmental Fund Financial Statements
Governmental fund financial statements include a Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balances for all major governmental funds and non-major funds aggregated. An accompanying schedule is presented to reconcile and explain the differences in net position as presented in these statements to the net position presented in the government-wide financial statements. The City has presented all major funds that met the applicable criteria.

All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the modified accrual basis of accounting. Accordingly, only current assets, deferred outflows of resources, current liabilities, and deferred inflows of resources are included on the balance sheets. The Statement of Revenues, Expenditures and Changes in Fund Balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets.

Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period.

Accordingly, revenues are recorded when received in cash, except that revenues subject to accrual (up to 60 days after year-end) are recognized when due. The City’s only exception to this timeline is Sales Tax receipts which are recorded as revenues if received within 90 days. 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 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. Expenditures are recorded in the accounting period in which the related fund liability is incurred. 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.

Unearned revenues arise when potential revenues do not meet both the "measurable" and "available" criteria for recognition in the current period. In subsequent periods when both revenue recognition criteria are met or when the government has a legal claim to the resources, the unearned revenue is removed from the combined balance sheet and revenue is recognized.
70 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
The City reports the following funds as major 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.

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 will fund new housing activities.

Regional Transportation Commission (RTC) Streets Special Revenue Fund 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
Accounts for financial resources segregated for the acquisition of major capital facilities and equipment by the City.

Additionally, the City reports the following nonmajor fund types of governmental funds:

Special Revenue Funds
Special revenue funds account for and report the proceeds of specific revenue sources that are restricted, committed or assigned to specific purposes other than debt service or capital projects.

Debt Service Funds
Debt service funds are used to accumulate resources for repayment of debt and financing arrangements.

Capital Project Funds
Capital project funds account for and report financial resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition or construction of capital facilities and other capital assets in governmental funds. There were not nonmajor capital projects funds reported for this fiscal year.

C. Cash and Investments
The City pools cash resources from all funds in order to facilitate the management of cash. The balance in the pooled cash account is available to meet current operating requirements. Cash in excess of current requirements is invested in various interest-bearing accounts and other investments for varying terms.

The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturity of three months or less from the date of acquisition. Cash and cash equivalents are combined with investments and displayed as Cash and Investments. The City also 71 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
considers all non-pooled cash and investments (consisting of cash with fiscal agent and restricted cash and investments held by fiscal agent) as cash and cash equivalents because investments meet the criteria for cash equivalents defined above.

Deposit and Investment Risk Disclosures - In accordance with GASB Statement No. 40, Deposit and Investment Disclosures (Amendment of GASB Statement No. 3), certain disclosure requirements, if applicable, for Deposits and Investment Risks in the following areas: Interest Rate Risk, Overall Credit Risk, Custodial Credit Risk, Concentrations of Credit Risk, and Foreign Currency Risk.

Other disclosures are specified including use of certain methods to present deposits and investments, highly sensitive investments, credit quality at year-end and other disclosures. The City participates in an investment pool managed by the State of California titled Local Agency Investment Fund (LAIF), which has invested a portion of the pool funds in Structured Notes and Asset Backed Securities. LAIF's investments are subject to credit risk with the full faith and credit of the State of California collateralizing these investments. In addition, these Structured Notes and Asset-Backed Securities are subject to market risk as to change in interest rates.

Investments are recorded at fair value in accordance with GASB Statement No. 72, Fair Value Measurement and Application. Accordingly, the change in fair value of investments is recognized as an increase or decrease to investment assets and investment income. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction. In determining this amount, three valuation techniques are available:
 Market approach - This approach uses prices generated for identical or similar assets or liabilities.

The most common example is an investment in a public security traded in an active exchange such as the NYSE.
 Cost approach - This technique determines the amount required to replace the current asset. This approach may be ideal for valuing donations of capital assets or historical treasures.  Income approach - This approach converts future amounts (such as cash flows) into a current discounted amount.

Each of these valuation techniques requires inputs to calculate a fair value. Observable inputs have been maximized in fair value measures, and unobservable inputs have been minimized.

D. Restricted Cash and Investments
Certain restricted cash and investments are held by PARS, a fiscal agent, for pension obligations with CalPERS.

E. Receivables
Billed, but unpaid, services provided to individuals or non-governmental entities are recorded as accounts receivable. Revenues earned but not collected by year-end are accrued. No allowance for uncollectible accounts receivable has been provided as management has determined that uncollectible accounts have been immaterial historically and the direct write-off method does not result in a material difference from the allowance method.
72 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
F. Prepaid Items
Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. In governmental funds, prepaid items are accounted for using the consumption method and a portion of fund balance equal to the prepaid items has been offset by nonspendable fund balance to indicate that is not available for appropriation.

G. Interfund 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). All other outstanding balances between funds are reported as “due to/from other funds.” Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable government funds to indicate that they are not available for appropriation and are not expendable available financial resources. There were no advances between funds reported as of June 30, 2025.

H. Loans Receivable
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. Repayments of the outstanding loans are classified as a revenue source in the applicable funds.

I. 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 subscription term or the useful life of the underlying asset. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows:

Structures and improvements 50 Years
Equipment 5-20 Years
Infrastructure 15-50 Years
73 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
J. Deferred Outflows/Deferred Inflows of Resources
In addition to assets, the statement of financial position or balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net assets that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then.

In addition to liabilities, the statement of financial position or balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net assets that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time.

K. Interest Payable
In the government-wide financial statements, interest payable of long-term debt is recognized as an incurred liability. The City has not allocated the interest on long-term debt to departments. In the fund financial statements, governmental fund types do not recognize the interest payable when the liability is incurred. Interest for long-term debt is recorded in the fund statements when the payment is made.

L. Compensated Absences
The City recognizes a liability for compensated absences for leave time that (1) has been earned for services previously rendered by employees, (2) accumulates and is allowed to be carried over to subsequent years, and (3) is more likely than not to be used as time off or settled during or upon separation from employment. Based on the criteria listed, two types of leave qualify for liability recognition for compensated absences – vacation and sick leave. The liability for compensated absences is reported as incurred in the government-wide and proprietary fund financial statements. The liability for compensated absences includes salary-related taxes and benefits, where applicable.

Vacation
The City’s policy permits employees to accumulate earned but unused vacation benefits, which are eligible for payment at the employee’s current pay rate upon separation from employment. A liability for estimated value of vacation that will be used by employees as time off is included in the liability for compensated absences.

Sick Leave
The City’s policy permits employees to accumulate earned but unused vacation benefits, which are eligible for payment at the employee’s current pay rate upon separation from employment. A liability for estimated value of sick leave that will be used by employees as time off is included in the liability for compensated absences.

M. Long-Term Liabilities
In the government-wide financial statements long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities. When applicable, bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method, bonds payable are reported net of the applicable bond premium or discount, and debt issuance costs are expensed in year incurred. In the fund financial statements, governmental fund types recognize debt issuances, premiums, discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is 74 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
reported as other financial sources. Premiums received on debt issuance are reported as other financing sources while discounts on debt issuance reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

N. Benefit Plans
Pension Expense
For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City’s California Public Employees’ Retirement System (CalPERS) plans (the Plans) and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS.

For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

Other Postemployment Benefit (OPEB) Expense
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 Retiree Benefits Plan (the OPEB Plan) and additions to/deductions from the OPEB Plan's fiduciary net position have been determined on the same basis as they are reported by the OPEB Plan. For this purpose, the OPEB Plan recognizes benefit payments when due and payable in accordance with the benefit terms.

O. Fund Balances
In accordance with Government Accounting Standards Board 54, Fund Balance Reporting and Governmental Fund Type Definitions, the City classifies governmental fund balances as follows:

Nonspendable
Nonspendable fund balance represents balances set aside to indicate items that do not represent available, spendable resources even though they are a component of assets. Fund balances required to be maintained intact, such as Permanent Funds, and assets not expected to be converted to cash, such as prepaids, notes receivable, leases receivable in excess of deferred inflows of resources and land held for redevelopment are included. However, if proceeds realized from the sale or collection of nonspendable assets are restricted, committed, or assigned, then Nonspendable amounts are required to be presented as a component of the applicable category.

Restricted
Restricted fund balances have external restrictions imposed by creditors, grantors, contributors, laws, regulations, or enabling legislation which requires the resources to be used only for specific purpose.

Encumbrances and nonspendable amounts subject to restrictions are included along with spendable resources.

Committed
The City Council, as the City’s highest level of decision-making authority, may commit fund balance for specific purposes pursuant to the constraints imposed by formal actions taken, such as an ordinance or resolution. These committed amounts cannot be used for any other purpose unless the City Council removes or changes the specified use through the same type of formal action taken to establish the commitment. City Council action to commit fund balance needs to occur within the fiscal reporting period; however the specific amounts can be determined subsequently. Encumbrances and nonspendable amounts subject to Council commitments are included along with spendable resources. 75 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
Assigned
Assigned fund balances are amounts constrained by the City’s intent to be used for a specific purpose, but are neither restricted nor committed. Intent is expressed by the City Council or its designee, the Finance Director or City Manager, and may be changed at the discretion of the City Council or its designee. This category includes encumbrances; nonspendable amounts, when it is the City’s intent to use proceeds or collections for a specific purpose, and residual fund balances, if any, of Special Revenue, Capital Projects, and Debt Service Funds, which have not been restricted or committed.

Unassigned
Unassigned fund balance represents residual amounts that have not been restricted, committed, or assigned. This includes the residual general fund balance and residual fund deficits, if any, of other governmental funds.

Flow Assumption / Spending Order Policy
When expenditures are incurred for purposes for which both restricted and unrestricted fund balance is available, the City considers restricted funds to be spent first. When expenditures are incurred for which committed, assigned, or unassigned fund balances are available, the City considers amounts to be spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the City Council has directed otherwise.

P. Net Position
In the government-wide financial statements, net position is classified in the following categories:

Net Investment in Capital Assets
This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that are attributed to the acquisition, construction, or improvement of the assets. In addition, deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt also are included in the net investment in capital assets component of net position.

Restricted Net Position
This amount is restricted by external creditors, grantors, contributors, or laws or regulations of other governments. These include developer fees received for use on capital projects, debt service requirements, and community development projects.

Unrestricted Net Position
This amount is all net position that does not meet the definition of "net investment in capital assets" or "restricted net position." The detail of amounts reported for each of the above defined net position categories is reported in the government-wide Statement of Net Position.

Use of Restricted/Unrestricted Net Position
When an expense is incurred for purposes for which both restricted and unrestricted net position are available, the City's policy is to apply restricted net position first.

Q. Interfund Transactions
Interfund services provided and used are accounted for as revenue, expenditures or expenses, as appropriate. Transactions that constitute reimbursements to a fund for expenditures/expenses initially 76 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
made from it that are properly applicable to another fund are recorded as expenditures/expenses in the reimbursed fund. All other interfund transactions, except for interfund services provided and used and reimbursements, are reported as transfers. All other interfund transfers are reported as transfers.

R. Property Taxes and Special Assessments
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.

County of Santa Cruz (the County) levies, bills and collects property taxes and special assessments for the City; under the County's "Teeter Plan" the County remits the entire amount levied and handles all delinquencies, retaining interest and penalties. Secured and unsecured property taxes are levied on January 1. Secured property tax is due in two installments, on November 1 and February 1, becomes a lien on those dates and becomes delinquent on December 10 and April 10, respectively. Unsecured property tax is due on August 1 and becomes delinquent on August 31. The term "unsecured" refers to taxes on personal property other than real estate, land and buildings. These taxes are secured by liens on the property being taxed.

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.

S. Budgetary Information
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 yearend are automatically budgeted 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.” 77 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
The following summarizes the City’s material expenditures in excess of the final budget by department during the year:

Variance with
Budgeted Amounts Final Budget
Actual Positive
EXPENDITURES Original Final Amounts (Negative)
Current:

General government:

City attorney 270,000 270,000 325,062 (55,062)
General operations 609,721 734,192 1,826,248 (1,092,056) Culture and recreation 2,789,503 2,844,811 2,897,034 (52,223) Total Expenditures $ 19,473,800 $ 20,317,792 $ 20,452,165 $ (134,373) During the year, city attorney, general operations, and cultural and recreation expenditures were over budget primarily due to the timing of projects and related encumbrances and seasonal program personnel costs which was offset by additional revenues. Overages by department were funded by beginning fund balance and revenues in excess of budget.

T. Unearned Revenue
Unearned revenue arises when assets are received before revenue recognition criteria have been satisfied.

Grants and entitlements received before eligibility requirements are met are recorded as deferred inflows of resources from unavailable revenue.

U. Use of Estimates
The preparation of basic financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

V. Implementation of New Accounting Pronouncements
GASB Statement No. 101, Compensated Absences
This Statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered, (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means. Leave is attributable to services already rendered when an employee has performed the services required to earn the leave. Leave that accumulates is carried forward from the reporting period in which it is earned to a future reporting period during which it may be used for time off or otherwise paid or settled. In estimating the leave that is more likely than not to be used or otherwise paid or settled, a government should consider relevant factors such as employment policies related to compensated absences and historical information about the use or payment of compensated absences. However, leave that is more likely than not to be settled through conversion to defined benefit postemployment benefits should not be included in a liability for compensated absences.
78 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
This Statement requires that a liability for certain types of compensated absences - including parental leave, military leave, and jury duty leave—not be recognized until the leave commences. This Statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used. A liability for leave that has been used but not yet paid or settled should be measured at the amount of the cash payment or noncash settlement to be made. Certain salary-related payments that are directly and incrementally associated with payments for leave also should be included in the measurement of the liabilities. The implementation of this statement did not have a material impact on the City’s financial statements.

GASB Statement No. 102, Certain Risk Disclosures
This Statement requires a government to assess whether a concentration or constraint makes the primary government reporting unit or other reporting units that report a liability for revenue debt vulnerable to the risk of a substantial impact. Additionally, this Statement requires a government to assess whether an event or events associated with a concentration or constraint that could cause the substantial impact have occurred, have begun to occur, or are more likely than not to begin to occur within 12 months of the date the financial statements are issued.

If a government determines that those criteria for disclosure have been met for a concentration or constraint, it should disclose information in notes to financial statements in sufficient detail to enable users of financial statements to understand the nature of the circumstances disclosed and the government’s vulnerability to the risk of a substantial impact. The disclosure should include descriptions for (1) the concentration or constraint (2) each event associated with the concentration or constraint that could cause a substantial impact if the event had occurred or had begun to occur prior to the issuance of the financial statements (3) actions taken by the government prior to the issuance of the financial statements to mitigate the risk.

The implementation of this standard did not have a material impact on the City’s financial statements and management determined there were no were concentrations or constraints that make the City vulnerable to the risk of substantial impact.

W. Upcoming New Accounting Pronouncements
The City is currently analyzing its accounting practices to identify the potential impact on the financial statements of the following GASB Statements:

GASB Statement No. 103, Financial Reporting Model Improvements This Statement is to improve key components of the financial reporting model to enhance its effectiveness in providing information that is essential for decision making and assessing a government’s accountability.

This Statement establishes new accounting and financial reporting requirements or modifies existing requirements related to (a) Management’s discussion and analysis (MD&A) (b) Unusual or infrequent items (c) Presentation of the proprietary fund statement of revenues, expenses, and changes in fund net position (d) Information about major component units in basic financial statements (5) Budgetary comparison information (6) Financial trend information in the statistical section. The requirements of this Statement are effective for fiscal years beginning after June 15, 2025, and all reporting periods thereafter. 79 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
GASB Statement No. 104, Disclosure of Certain Capital Assets This Statement requires certain types of capital assets to be disclosed separately in the capital assets note disclosures required by Statement 34. Lease assets recognized in accordance with Statement No. 87, Leases, and intangible right-to-use assets recognized in accordance with Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, should be disclosed separately by major class of underlying asset in the capital as-sets note disclosures. Subscription assets recognized in accordance with Statement No. 96, Subscription-Based Information Technology Arrangements, also should be separately disclosed. In addition, this Statement requires intangible assets other than those three types to be disclosed separately by major class.

This Statement also requires additional disclosures for capital assets held for sale. A capital asset is a capital asset held for sale if (a) the government has decided to pursue the sale of the capital asset and (b) it is probable that the sale will be finalized within one year of the financial statement date. Governments should consider relevant factors to evaluate the likelihood of the capital asset being sold within the established time frame. This Statement requires that capital assets held for sale be evaluated each reporting period. Governments should disclose (1) the ending balance of capital assets held for sale, with separate disclosure for historical cost and accumulated depreciation by major class of asset, and (2) the carrying amount of debt for which the capital assets held for sale are pledged as collateral for each major class of asset. The requirements of this Statement are effective for fiscal years beginning after June 15, 2025, and all reporting periods thereafter.

NOTE 2 - CASH AND INVESTMENTS
As of June 30, 2025, cash and investments were reported in the financial statements as follows:

Governmental
Activities
Cash and investments $ 8,660,088
Restricted cash and investments 1,662,822
Total cash and investments $ 10,322,910
Cash and investments consisted of the following as of June 30, 2025:

Deposits:

Cash on hand $ 1,400
Deposits with financial institutions 5,247,117
Total Deposits 5,248,517
Investments:

Local Agency Investment Fund 1,437,178
Certificates of deposit 1,974,393
PARS restricted cash with fiscal agent 1,662,822
Total investments 5,074,393
Total cash and investments $ 10,322,910
80 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
A. Cash Deposits
The California Government Code requires California banks and savings and loan associations to secure the City's cash deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of perfecting a security interest, and places the City ahead of general creditors of the institution. The fair value of pledged securities must equal at least 110 percent of the City's cash deposits. California law also allows institutions to secure City deposits by pledging first trust deed mortgage notes that have a value of 150 percent of the City's total cash deposits. Cash deposits insured up to $250,000 per entity, per bank by the Federal Deposit Insurance Corporation (FDIC).

The FDIC insured balances before reconciling items totaled $5,655,428 at June 30, 2025 and were different from carrying amounts due to deposits in transit and outstanding checks. The amount uninsured was $5,077,314, which was collateralized by securities held by pledging financial institutions. The City follows the practice of pooling cash and investments of all funds, except for funds required to be held by fiscal agents. Interest income earned on pooled cash and investments is allocated to the various funds based on the period-end cash and investment balances. Interest income from cash and investments with fiscal agents is credited directly to the related fund.

B. Fair Value Measurements
GASB 72 established a hierarchy of inputs to the valuation techniques with three levels:
 Level 1 inputs are quoted prices in active markets for identical assets or liabilities.  Level 2 inputs are quoted market prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other than quoted prices that are not observable
 Level 3 inputs are unobservable inputs, such as a property valuation or an appraisal.

C. 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). Under the provisions of the City's investment policy, and in accordance with California Government Code, the following investments are authorized:

Maximum
Maturity
Maximum
Percentage of
Portfolio
Maximum
Investment in
One Issuer
U.S. Treasury Bills 5 Years 60% n/a
Negotiable Certificates of Deposit 5 Years 30% n/a
Local Agency Investment Fund (LAIF) n/a n/a $75M
Authorized Investment Type
81 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
D. External Investment Pool
The City's investments with LAIF at June 30, 2025, includes a portion of the pooled funds invested in Structured Notes and Asset-Backed Securities. These investments include the following:

Structured Notes
These are debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options.

Asset-Backed Securities
The bulk of asset-backed securities are mortgage-backed securities, entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (such as CMO's) or credit card receivables.

LAIF is not registered with the Securities and Exchange Commission and is not rated. LAIF is overseen by the Local Agency Investment Advisory Board, which consists of five members, in accordance with State statute. The approved investments policy is listed on the LAIF website, located at http://www.treasurer.ca.gov/pmia-laif/.

E. Risk Disclosures
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 term of an investment’s maturity, the greater the sensitivity to changes in market 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.

Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of an investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. As of June 30, 2025, the City’s investments were in compliance with the ratings required by the City’s investment policy and Government Code.

Concentrations of Credit 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
For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside 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 investments.

With respect to investments, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to a local government's indirect investment in securities through the use of mutual funds or government investment pools (such as LAIF). 82 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
As of June 30, 2025, the City’s investments had the following maturities:
12 Months or
Less 1-5 years Fair Value
Fair Value
Input Levels
Local Agency Investment Funds $ 1,437,178 $ - $ 1,437,178 n/a Certificates of deposit - 1,974,393 1,974,393 Level 1
PARS restricted cash with fiscal agent 1,662,822 - 1,662,822 Level 2 Total Investments $ 3,100,000 $ 1,974,393 $ 5,074,393
Investment Type
NOTE 3 - LOANS RECEIVABLE
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.

Loans receivable consisted of the following as of June 30, 2025:

CDBG Federal Capitola
Program Home Loan Housing
Loans Receivable Income Reuse Successor Total
Individual Loans $ 254,583 $ 215,118 $ 354,520 $ 824,221 Bay Avenue Senior Apartments - 3,799,009 1,885,550 5,684,559 Wharf Road Manor - 119,483 - 119,483
Total Loans Receivable $ 254,583 $ 4,133,610 $ 2,240,070 $ 6,628,263 NOTE 4 - INTERFUND TRANSACTIONS
Inter-fund Receivables and Payables
Amounts due to or due from other funds reflect inter-fund balances for services rendered or short-term loans expected to be repaid in the next fiscal year. As of June 30, 2025, the City had the following interfund balances:

Due from Due to
Fund Other Funds Other Funds
General Fund $ 843,207 $ -
Capital Projects Fund - 843,207
Total Due From/To $ 843,207 $ 843,207
Transfers In/Out
Transfers from the General Fund to the debt service funds were to fund regular debt service activity of the City. Transfers from the General Fund to the Capital Projects fund were to pay for building and infrastructure improvements.
83 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
The following summarizes transfers between funds during the fiscal year ended June 30, 2025:

Fund Transfer in Transfer out
General Fund $ - $ 170,568
Capital Projects Fund 83,000 -
Nonmajor Funds 297,011 209,443
Total Transfers $ 380,011 $ 380,011
NOTE 5 - CAPITAL ASSETS
Capital assets for governmental activities consisted of the following as of June 30, 2025:

Balance Deletions/ Balance
Governmental activities: July 01, 2024 Additions Transfers June 30, 2025 Non-depreciable:

Land $ 4,883,789 $ - $ - $ 4,883,789
Construction in Progress 15,393,620 3,376,174 (11,802,485) 6,967,309 Total Non-Depreciable 20,277,409 3,376,174 (11,802,485) 11,851,098 Depreciable:

Buildings and Improvements 17,748,240 36,872 17,785,112 Infrastructure 37,721,731 12,400,492 (2,620,585) 47,501,638 Machinery and Equipment 5,334,562 298,458 (165,450) 5,467,570 Total Depreciable 60,804,533 12,735,822 (2,786,035) 70,754,320 Less Accumulated Depreciation for:

Buildings and Improvements (2,312,658) (362,294) (2,674,952) Infrastructure (24,379,195) (728,184) 1,710,449 (23,396,930) Machinery and Equipment (3,511,495) (352,369) 165,450 (3,698,414) Total Accumulated Depreciation (30,203,348) (1,442,847) 1,875,899 (29,770,296) Total Depreciable Capital Assets - Net 30,601,185 11,292,975 (910,136) 40,984,024 Total Capital Assets - Net $ 50,878,594 $ 14,669,149 $ (12,712,621) $ 52,835,122 Depreciation and amortization expense for governmental activities:

General Government $ 876,058
Public Safety 115,854
Culture and Recreation 50,995
Transportation 399,942
Total depreciation expense $ 1,442,847
84 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
NOTE 6 - NONCURRENT LIABILITIES
The City's noncurrent liabilities consisted of the following as of June 30, 2025:

Balance Balance Due Within
Governmental Activities July 01, 2024 Additions Retirements June 30, 2025 One Year Beach and Village Lot II Financing $ 762,615 $ - $ 68,823 $ 693,792 $ 70,379 Compensated Absences 1,026,750 77,635 - 1,104,385 596,368 Net OPEB liability 1,549,998 1,803,105 1,785,464 1,567,639 - Net Pension Liability 32,157,510 11,033,885 11,395,996 31,795,399 - Total Governmental Activities Debt $ 35,496,873 $ 12,914,625 $ 13,250,283 $ 35,161,215 $ 666,747 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.

The following summarizes the City’s debt service requirements under this agreement:

Fiscal Year Principal Interest Total
2026 $ 70,379 $ 14,884 $ 85,263
2027 71,969 13,276 85,245
2028 73,596 11,631 85,227
2029 75,259 9,949 85,208
2030 76,960 8,229 85,189
2031-2035 325,629 14,924 340,553
Total $ 693,792 $ 72,893 $ 766,685
NOTE 7 - DEFICIT FUND BALANCES
As of June 30, 2025, the city reported a deficit fund balance of $1,375,004 in the Capital Projects Fund.

This deficit is expected to be reduced by future revenues and transfers from other funds.

NOTE 8 - DEFINED BENEFIT PENSION PLANS
General Information about the Pension Plans
Plan Description
All qualified permanent and probationary employees are eligible to participate in the Public Agency CostSharing Multiple-Employer Defined Benefit Pension Plan (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 risk pools. Accordingly, rate plans within the safety or miscellaneous pools are not separate plans under GASB Statement No. 68.

Individual employers may sponsor more than one rate plan in the miscellaneous or safety risk pools. The City sponsors three miscellaneous rate plans. 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.
85 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
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 55 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 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 Employee’s Retirement Law the California Public Employees’ Pension Reform Act of 2013 (PEPRA), and the regulations, procedures and policies adopted by the CalPERS Board of Administration. The general fund typically is used to liquidate pension liabilities for governmental funds.

The Plans’ provisions and benefits in effect at June 30, 2025, are summarized as follows:

Classic PEPRA Classic PEPRA
Benefit formula 2.5% @ 55 2% @ 62 3.0% @ 50 2.7% @ 57
Benefit vesting schedule 5 Years 5 Years 5 Years 5 Years Benefit payments Monthly for Life Monthly for Life Monthly for Life Monthly for Life Retirement age 50 52 50 50-57
Monthly benefits as a
% of eligible compensation 2-2.5% 2% 3.00% 2.70%
Required employee contribution rates 8.00% 7.75% 9.00% 13.75% Required employer contribution rates 14.13% 7.87% 27.32% 13.76% Miscellaneous Safety
Employees Covered
At June 30, 2025, the following employees were covered by the benefit terms for the Plans:

Miscellaneous Safety
Active 52 21
Transferred 33 16
Separated 30 8
Retired 104 51
Total 219 96
Contributions
Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rates are the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. 86 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
For the year ended June 30, 2025, the City’s contributions were as follows:

Employer
Contributions
Miscellaneous $ 1,598,149
Safety 1,875,763
Total Employer Contributions $ 3,473,912
Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions
As of June 30, 2025, the City reported a net pension liability for its proportionate share of the net pension liability of the Plan as follows:

Miscellaneous
Safety
Total
Proportionate Share of
Net Pension
Liability/(Asset)
$ 15,048,952
16,746,447
$ 31,795,399
The City’s net pension liability for the Plans is measured as the proportionate share of the net pension liability. The net pension liability of the Plans are measured as of June 30, 2024, and the total pension liability for the Plans used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2023 rolled forward to June 30, 2024 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined.

The City’s proportionate share of the net pension liability for the Plans as of June 30, 2024 and 2025 was as follows:

Miscellaneous Safety Combined Plans
Proportion - June 30, 2024 0.30338% 0.22725% 0.25777%
Proportion - June 30, 2025 0.31115% 0.22969% 0.26218%
Change - Increase/(Decrease) 0.00776% 0.00244% 0.00441% For the year ended June 30, 2025, the City recognized pension expense of $5,500,018. 87 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
At June 30, 2025, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Changes of Assumptions $ 386,789 $ - $ 412,598 $ -
Differences between Expected and Actual Experience 1,301,120 50,769 1,366,659 44,436 Differences between Projected and Actual Investment Earnings 866,350 - 809,447 - Differences between Employer's Contributions and
Proportionate Share of Contributions - 178,455 196,768 155,938 Change in Employer's Proportion 1,891 450,666 118,087 154,205 Pension Contributions Made Subsequent to Measurement Date 1,598,149 - 1,875,763 - Total $ 4,154,299 $ 679,889 $ 4,779,322 $ 354,579
Miscellaneous Safety
The City reported $3,473,912 as deferred outflows of resources related to contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the year ended June 30, 2026. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Miscellaneous Safety Total
$ 399,156 $ 972,426 $ 1,371,582
1,811,819 1,878,368 3,690,188
(37,827) (24,858) (62,685)
(296,888) (276,956) (573,844)
$ 1,876,260 $ 2,548,980 $ 4,425,241
Deferred Outflows/(Inflows) of
Fiscal Year Ending Resources
June 30:

Total
2027
2028
2029
2026
Actuarial Assumptions
The total pension liabilities in the June 30, 2023 actuarial valuations were determined using the following actuarial assumptions:

Valuation Date June 30, 2023
Measurement Date June 30, 2024
Actuarial Cost Method Entry-Age Normal Cost Method
Actuarial Assumptions:

Discount Rate 6.90%
Inflation 2.30%
Payroll Growth 2.80%
Projected Salary Increase (1)
Investment Rate of Return 6.8% (2)
Mortality (3)
(1) Varies by entry age and service
(2) Net of pension plan investment expenses, including inflation (3) Derived using CalPERS' membership data for all funds 88 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
Discount Rate
The discount rate used to measure the total pension liability was 6.9 percent for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets.

Therefore, the current 6.9 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 6.9 percent will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website. The long-term expected rate of return on pension plan investments was determined using a building block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and longterm returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects the longterm expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation.

These rates of return are net of administrative expenses as follows:

Assumed Long-Term
Asset Expected Real
Asset Class (a) Allocation Return (1)(2)
Global Equity Cap Weighted 30.00% 4.54%
Global Equity NonCap Weighted 12.00% 3.84%
Private Equity 13.00% 7.28%
Treasury 5.00% 0.27%
Mortgage-backed Securities 5.00% 0.50%
Investment Grade Corporates 10.00% 1.56%
High Yield 5.00% 2.27%
Emerging Market Debt 5.00% 2.48%
Private Debt 5.00% 3.57%
Real Assets 15.00% 3.21%
Leverage -5.00% -0.59%
Total 100.00%
(1) An expected inflation of 2.3% used for this period. (2) Figures are based on the 2021-22 Asset Liability Study.

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 for the Plans, calculated 89 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
using the discount rate for the Plans, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1- percentage point higher than the current rate:

Miscellaneous Safety
1% Decrease 5.90% 5.90%
Net Pension Liability $ 22,048,444 24,483,921
Current 6.90% 6.90%
Net Pension Liability $ 15,048,952 16,746,447
1% Increase 7.90% 7.90%
Net Pension Liability $ 9,287,341 10,418,281
Pension Plan Fiduciary Net Position
Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. See https://www.calpers.ca.gov/page/investments/about-investmentoffice/investment-financial-reports?stream=top.

NOTE 9 - OTHER POSTEMPLOYMENT BENEFITS PLAN (OPEB)
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.

Benefits Provided
The City offers the same medical plans to its retirees as to its active employees, with the exception that once a retiree becomes eligible for Medicare (that is, reaches age 65), he or she must join a Medicare HMO or a Medicare Supplement plan under PEMHCA.

Employees are eligible to receive City-paid healthcare benefits upon meeting retirement eligibility requirements under applicable CalPERS provisions (Miscellaneous Classic or PEPRA and Safety Classic or PEPRA), or by qualifying disability retirement status. Benefits are paid for the lifetime of the retiree and, if applicable, the surviving spouse of the retiree.

The City has participated over twenty years in PEMHCA, therefore, the statutory contributions for retirees are equal to the active employees. The City also pays an administrative statutory percentage-ofpremium fee for all retirees. 90 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
Employees Covered by Benefit Terms
At June 30, 2023, the most recent valuation date, the benefit terms covered the following employees:

Active employees 57
Inactive employees 26
Total employees 83
Contributions
The obligation of the City to contribute to the plan is based on an actuarially determined rate. 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. Total contributions during the fiscal year ended June 30, 2025 were $168,711, which was 2% of covered payroll.

Actuarial Assumptions
The following summarized the actuarial assumptions for the OPEB plan included in this fiscal year:

Valuation Date:

Measurement Date:

Actuarial Cost Method:

Amortization Period:

Actuarial Assumptions:

Discount Rate
Inflation
Payroll Increases
Trend Rate
Mortality

6.25%

5.50%
Entry-Age, Level Percent of Pay
2000-2019 CalPERS
Experience Study
June 30, 2023
June 30, 2024
20 years

2.50%

2.75%
Discount Rate
GASB 75 requires a discount rate that reflects the following:
 The long-term expected rate of return on OPEB plan investments – to the extent that the OPEB plan’s fiduciary net position (if any) is projected to be enough to make projected benefit payments and assets are expected to be invested using a strategy to achieve that return.  A yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher – to the extent that the conditions in (a) are not met.

To determine a resulting single (blended) rate, the amount of the plan’s projected fiduciary net position (if any) and the amount of projected benefit payments is compared in each period of projected benefit payments. The discount rate used to measure the City’s Total OPEB liability is based on these requirements and long-term expected returns of plan investments of 6.25% as compared to a 20 year municipal index of 3.86%.
91 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
Rate of Return
The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of investment expense and inflation) are developed for each major asset class. The calculated investment rate of return was set equal to the expected ten-year compound (geometric) real return plus inflation (rounded to the nearest 25 basis points, where appropriate).

The following table provides the long-term expected real rates of return by asset class (based on published capital market assumptions):

Asset Class
Percentage of
Portfolio
Long-Term
Expected Rate of
Return
Global Equity 49.0% 4.8%
Domestic Fixed Income 23.0% 1.8%
Treasury Inflation-Protected Securities (TIPS) 5.0% 1.6% Real Estate Investment Trusts (REITs) 20.0% 3.7%
All Commodities 3.0% 1.9%
Total 100.0%
Changes in the Net OPEB Liability
The following summarizes the changes in the net OPEB liability during the year ended June 30, 2025:

Fiscal Year Ended June 30, 2025
Total OPEB
Liability
Plan Fiduciary
Net Position
Net OPEB
Liability
(Asset)
Balance at June 30, 2024 $ 2,195,797 $ 645,799 $ 1,549,998 Service cost 113,922 - 113,922
Interest in Total OPEB Liability 141,288 - 141,288
Employer contributions - 166,781 (166,781)
Actual investment income - 70,999 (70,999)
Administrative expenses - (211) 211
Benefit payments (99,731) (99,731) -
Net changes 155,479 137,838 17,641
Balance at June 30, 2025 $ 2,351,276 $ 783,637 $ 1,567,639 The City’s OPEB Plan is a funded plan and assets have been set aside in an irrevocable trust. 92 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
Deferred Inflows and Outflows of Resources
As of June 30, 2025, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Difference between actual and expected experience $ - $ 598,155 Difference between actual and expected earnings 4,587 - Change in assumptions 678,834 -
OPEB contribution subsequent to measurement date 168,711 - Totals $ 852,132 $ 598,155
Contributions of $168,711 were made subsequent to the measurement date and will be recognized as OPEB expense fiscal year 2025. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows:

Year Ended June 30,
2026 $ 58,448
2027 76,029
2028 53,306
2029 52,896
2030 (29,984)
Thereafter (125,429)
Total $ 85,266
OPEB Expense
The following summarizes the OPEB expense by source during the year ended June 30, 2025:

Service cost $ 113,922
Interest in TOL 141,288
Expected investment income (40,356)
Actuarial adjustments (8,208)
Difference between actual and expected experience (84,927) Difference between actual and expected earnings 2,011
Change in assumptions 143,950
Administrative expenses 211
OPEB Expense $ 267,891
93 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
The following summarizes changes in the net OPEB liability as reconciled to OPEB expense during the year ended June 30, 2025:
$ 1,567,639
(1,549,998)
17,641
Changes in deferred outflows 166,466
Changes in deferred inflows (84,927)
Employer contributions 168,711
OPEB Expense $ 267,891
Net OPEB liability ending
Net OPEB liability beginning
Change in net OPEB liability
Sensitivity to Changes in the Municipal Bond Rate
The net OPEB liability of the City, as well as what the City's net OPEB liability would be if it were calculated using a municipal bond rate (used to determine the discount rate) that is one percentage point lower or one percentage point higher, is as follows:
(1% Decrease ) 1.92% (1% Increase )
Net OPEB Liability (Asset) $ 1,855,304 $ 1,567,639 $ 1,323,795 Discount Rate
Sensitivity to Changes in the Healthcare Cost Trend Rates The net OPEB liability of the City, as well as what the City's net OPEB liability would be if it were calculated using healthcare cost trend rates that are one percentage point lower or one percentage point higher than current healthcare cost trend rates, is as follows:
(1% Decrease ) 5.00% (1% Increase )
Net OPEB Liability (Asset) $ 1,257,652 $ 1,567,639 $ 1,950,583 Trend Rate
NOTE 10 - RISK MANAGEMENT
Municipal Pooling Authority (MPA)
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.

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 94 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
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 Agency’s 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.

There were no material unpaid and uninsured claims outstanding at the beginning or end of the last two fiscal years. Settlements have not exceeded insurance in the past three fiscal years.

NOTE 11 - 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.

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 95 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
the City exposed to risk of additional costs beyond reimbursement of its share of on-going operating costs.

NOTE 12 - COMMITMENTS AND CONTINGENCIES
Litigation
The City is subject to certain matters of litigation that may arise in the normal course of conducting City business. City management believes, based upon consultation with legal counsel, that these cases, in the aggregate, are not expected to result in a material adverse financial impact on the City. Additionally, City management believes that the City's insurance programs are sufficient to cover any potential losses should an unfavorable outcome materialize.

Federal and State Grant Programs
The City participates in Federal and State grant programs. These programs are audited by the City's independent accountants if required by and in accordance with the provisions of the Uniform Guidance and applicable State requirements. Expenditures which may be disallowed, if any, by the granting agencies, cannot be determined at this time. The City 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, 2025 (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.

Encumbrances
The City uses an encumbrance system as an extension of normal budgetary accounting for governmental funds. Under this system, purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of applicable appropriations.

Encumbrances outstanding at year-end are recorded as restricted, committed or assigned fund balance, depending on the classification of the resources to be used to liquidate the encumbrance, since they do not constitute expenditures or liabilities. Outstanding encumbrances at year-end are reappropriated for the following year. Unencumbered and unexpended appropriations lapse at year end.

Encumbrances outstanding as of June 30, 2025 totaled $901,028. 96 Item 4 B.

City of Capitola
Notes to the Basic Financial Statements
June 30, 2025
NOTE 13 - PRIOR PERIOD RESTATEMENTS
The following summarizes the prior period restatements as of June 30, 2025:

Beginning
Balance Beginning
Previously Error Balance
Reported Corrections Restated Description
Fund Financial Statements
General Fund $ 7,017,319 $ 246,252 $ 7,263,571 Timing differences Federal Home Loan Reuse Fund 5,017,650 7,631 5,025,281 Timing differences Capitola Housing Successor Fund 4,178,407 (31,422) 4,146,985 Timing differences Government Wide Financial Statements
Governmental Activities 44,298,641 222,461 44,521,102 Timing differences Prior Period
Adjustments
97 Item 4 B.

This page is intentionally blank
98 Item 4 B.

REQUIRED SUPPLEMENTARY

INFORMATION
99 Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (GAAP Basis)
General Fund
For the Year Ended June 30, 2025
Variance with
Budgeted Amounts Final Budget
Actual Positive
Original Final Amounts (Negative)

REVENUES
Taxes $ 15,383,272 15,105,079 $ 15,087,640 $ (295,632) $ Licenses and permits 721,750 721,750 739,717 17,967
Fines and forfeitures 599,500 599,500 503,222 (96,278)
Intergovernmental 189,404 162,173 197,854 8,450
Charges for Services 2,408,340 2,408,340 2,340,985 (67,355) Use of money and property 172,500 172,500 205,391 32,891 Other revenue 191,906 191,906 215,094 23,188
Total Revenues 19,666,672 19,361,248 19,289,903 (376,769)

EXPENDITURES
Current:

General government:

City council 136,007 136,007 96,100 39,907
City manager 1,264,655 1,198,703 1,106,958 157,697
Personnel 504,122 487,693 341,016 163,106
City attorney 270,000 270,000 325,062 (55,062)
Finance 1,005,474 987,445 827,413 178,061
Community grants 133,425 133,425 58,425 75,000
General operations 734,192 609,721 1,826,248 (1,092,056) Public safety 8,123,485 7,988,133 7,882,777 240,708
Community development 853,538 863,936 844,336 19,600
Culture and recreation 2,789,503 2,844,811 2,897,034 (52,223) Transportation 3,879,632 4,020,024 3,931,622 88,402
Capital outlay 140,000 417,661 315,174 102,487
Total Expenditures 19,473,800 20,317,792 20,452,165 (134,373) Excess (Deficiency) of Revenues over Expenditures (112,552) (651,120) (1,162,262) (511,142)

OTHER FINANCING SOURCES (USES)
Transfers out (87,568) (87,568) (170,568) (83,000)
Net Change in Fund Balance (200,120) (738,688) (1,332,830) (594,142) Fund Balance Beginning 7,017,319 7,017,319 7,017,319 -
Prior Period Adjustments 246,252 246,252 246,252 -
Fund Balance Beginning, as Adjusted 7,263,571 7,263,571 7,263,571 - Fund Balance Ending $ 7,063,451 $ 6,524,883 $ 5,930,741 $ (594,142) 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”.

Expenditures in excess of appropriations were covered by budgets in other objects/functions or beginning fund balance. 100
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (GAAP Basis)
Federal Home Loan Reuse Fund
For the Year Ended June 30, 2025
Variance with
Budgeted Amounts Final Budget
Actual Positive
Original Final Amounts (Negative)

REVENUES
Use of money and property $ - $ - $ 129,804 $ 129,804
Total Revenues - - 129,804 129,804

EXPENDITURES
Current:

Community development 4,100 4,100 4,450 (350)
Total Expenditures 4,100 4,100 4,450 (350)
Net Change in Fund Balance (4,100) (4,100) 125,354 129,454 Fund Balance Beginning 5,017,650 5,017,650 5,017,650 -
Prior Period Adjustments 7,631 7,631 7,631 -
Fund Balance Beginning, as Adjusted 5,025,281 5,025,281 5,025,281 - Fund Balance Ending $ 5,021,181 $ 5,021,181 $ 5,150,635 $ 129,454 101
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (GAAP Basis)
Capitola Housing Successor Fund
For the Year Ended June 30, 2025
Variance with
Budgeted Amounts Final Budget
Actual Positive
Original Final Amounts (Negative)

REVENUES
Use of money and property $ 27,400 $ 27,400 $ 192,679 $ 165,279 Total Revenues 27,400 27,400 192,679 165,279

EXPENDITURES
Current:

Community development 1,324,025 2,224,649 51,732 2,172,917 Total Expenditures 1,324,025 2,224,649 51,732 2,172,917 Net Change in Fund Balance (1,296,625) (2,197,249) 140,947 2,338,196 Fund Balance Beginning 4,178,407 4,178,407 4,178,407 -
Prior Period Adjustments (31,422) (31,422) (31,422) -
Fund Balance Beginning, as Adjusted 4,146,985 4,146,985 4,146,985 - Fund Balance Ending $ 2,850,360 $ 1,949,736 $ 4,287,932 $ 2,338,196 102
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (GAAP Basis)
RTC Streets Fund
For the Year Ended June 30, 2025
Variance with
Budgeted Amounts Final Budget
Actual Positive
Original Final Amounts (Negative)

REVENUES
Intergovernmental $ 369,000 $ 369,000 $ 431,353 $ 62,353 Use of money and property 5,000 5,000 32,951 27,951
Total Revenues 374,000 374,000 464,304 90,304

EXPENDITURES
Capital outlay 369,000 369,000 17,869 351,131
Total Expenditures 369,000 369,000 17,869 351,131
Net Change in Fund Balance 5,000 5,000 446,435 441,435
Fund Balance Beginning 532,145 532,145 532,145 -
Fund Balance Ending $ 537,145 $ 537,145 $ 978,580 $ 441,435 103
Item 4 B.

City of City of Capitola
Schedule of Pension Contributions (CalPERS Miscellaneous) June 30, 2025
(Last Ten Years)
Miscellaneous Plan
Plan Measurement Date 2015 2016 2017 2018 2019
Fiscal Year Ended 2016 2017 2018 2019 2020
Contractually Required Contributions $ 448,910 $ 516,728 $ 832,631 $ 838,617 $ 913,110 Contributions in Relation to
Contractually Required Contributions 448,910 516,728 832,631 838,617 913,110 Contribution Deficiency (Excess) $ - $ - $ - $ - $ -
Covered Payroll $ 3,245,529 $ 3,370,438 $ 3,434,216 $ 3,504,309 $ 3,799,393 Contributions as a % of Covered Payroll 13.83% 15.33% 24.25% 23.93% 24.03% Miscellaneous Plan
Plan Measurement Date 2020 2021 2022 2023 2024
Fiscal Year Ended 2021 2022 2023 2024 2025
Contractually Required Contributions $ 1,024,725 $ 1,173,195 $ 1,290,739 $ 1,377,687 $ 1,598,149 Contributions in Relation to
Contractually Required Contributions 1,024,725 1,173,195 1,290,739 1,377,687 1,598,149 Contribution Deficiency (Excess) $ - $ - $ - $ - $ -
Covered Payroll $ 3,432,738 $ 3,656,822 $ 3,818,143 $ 3,908,367 $ 4,052,186 Contributions as a % of Covered Payroll 29.85% 32.08% 33.81% 35.25% 39.44% Notes to Schedule:

Valuation Date: June 30, 2023
Assumptions Used: Entry Age Method used for Actuarial Cost Method Level Percentage of Payroll and Direct Rate Smoothing
Remaining Amortization Period no more than 26 years
Inflation Assumed at 2.30%
Investment Rate of Returns set at 6.8%
The CalPERS discount rate was increased from 7.50% to 7.65% in FY2016, to 7.15% in FY2018, and then decreased to 6.90% in FY2022.

The CalPERS mortality assumptions was adjusted in fiscal year 2021.

The mortality table was developed based on CalPERS-specific data. The rates incorporate Generational Mortality to capture ongoing morality improvement using 80% of Scale MP 2020 published by the Society of Actuaries. For more details, please refer to the 2021 experience study report that can be found on the CalPERS website.
104
Item 4 B.

City of City of Capitola
Schedule of Pension Contributions (CalPERS Safety)
June 30, 2025
(Last Ten Years)
Safety Plan
Plan Measurement Date 2015 2016 2017 2018 2019
Fiscal Year Ended 2016 2017 2018 2019 2020
Contractually Required Contributions $ 741,692 $ 536,507 $ 937,396 $ 954,292 $ 1,199,415 Contributions in Relation to
Contractually Required Contributions 741,692 536,507 937,396 954,292 1,199,415 Contribution Deficiency (Excess) $ - $ - $ - $ - $ -
Covered Payroll $ 2,308,245 $ 2,402,133 $ 2,487,719 $ 2,381,492 $ 2,371,092 Contributions as a % of Covered Payroll 32.13% 22.33% 37.68% 40.07% 50.58% Safety Plan
Plan Measurement Date 2020 2021 2022 2023 2024
Fiscal Year Ended 2021 2022 2023 2024 2025
Contractually Required Contributions $ 1,307,218 $ 1,512,085 $ 1,624,178 $ 1,637,024 $ 1,875,763 Contributions in Relation to
Contractually Required Contributions 1,307,218 1,512,085 1,624,178 1,637,024 1,875,763 Contribution Deficiency (Excess) $ - $ - $ - $ - $ -
Covered Payroll $ 2,300,530 $ 2,632,190 $ 2,734,960 $ 2,716,661 $ 2,898,211 Contributions as a % of Covered Payroll 56.82% 57.45% 59.39% 60.26% 64.72% Notes to Schedule:

Valuation Date: June 30, 2023
Assumptions Used: Entry Age Method used for Actuarial Cost Method Level Percentage of Payroll and Direct Rate Smoothing
Remaining Amortization Period no more than 26 years
Inflation Assumed at 2.30%
Investment Rate of Returns set at 6.8%
The CalPERS discount rate was increased from 7.50% to 7.65% in FY2016, to 7.15% in FY2018, and then decreased to 6.90% in FY2022.

The CalPERS mortality assumptions was adjusted in fiscal year 2021.

The mortality table was developed based on CalPERS-specific data. The rates incorporate Generational Mortality to capture ongoing morality improvement using 80% of Scale MP 2020 published by the Society of Actuaries. For more details, please refer to the 2021 experience study report that can be found on the CalPERS website.
105
Item 4 B.

City of City of Capitola
Schedule of Proportionate Share of Net Pension Liability June 30, 2025
(Last Ten Years)
Miscellaneous and Safety Plan
Plan Measurement Date 2015 2016 2017 2018 2019
Fiscal Year Ended 2016 2017 2018 2019 2020
Proportion of Net Pension
Liability (Safety and Misc) 0.22276% 0.22460% 0.22542% 0.23208% 0.23566% Proportion of Net Pension
Liability (Misc Plan Only) 0.27813% 0.27444% 0.27777% 0.28641% 0.29038% Proportionate Share of
Net Pension Liability $ 15,290,341 $ 19,435,188 $ 22,355,266 $ 22,363,591 $ 24,148,410 Covered Payroll $ 5,430,835 $ 5,553,774 $ 5,772,571 $ 5,921,935 $ 5,885,801 Proportionate Share of NPL
as a % of Covered Payroll 281.55% 349.95% 387.27% 377.64% 410.28% Plan's Fiduciary Net Position
as a % of the TPL 76.36% 72.55% 71.66% 72.50% 71.85%
Miscellaneous and Safety Plan
Plan Measurement Date 2020 2021 2022 2023 2024
Fiscal Year Ended 2021 2022 2023 2024 2025
Proportion of Net Pension
Liability (Safety and Misc) 0.23999% 0.31633% 0.26021% 0.25777% 0.26218% Proportion of Net Pension
Liability (Misc Plan Only) 0.29469% 0.42981% 0.30483% 0.30338% 0.31115% Proportionate Share of
Net Pension Liability $ 26,111,558 $ 17,108,187 $ 30,056,602 $ 32,157,510 $ 31,795,399 Covered Payroll $ 6,170,485 $ 5,733,268 $ 6,289,012 $ 6,553,103 $ 6,625,028 Proportionate Share of NPL
as a % of Covered Payroll 423.17% 298.40% 477.92% 490.72% 479.93% Plan's Fiduciary Net Position
as a % of the TPL 70.61% 81.35% 69.15% 68.81% 70.70%
The CalPERS discount rate was increased from 7.50% to 7.65% in FY2016, to 7.15% in FY2018, and then decreased to 6.90% in FY2022.

The CalPERS mortality assumptions was adjusted in fiscal year 2021. 106
Item 4 B.

City of City of Capitola
Schedule of OPEB Contributions
June 30, 2025
(Last Ten Years)
Fiscal Year Ended 2018 2019 2020 2021
Actuarially determined contribution (ADC) $ 87,697 $ 88,801 $ 82,353 $ 155,509 Less: actual contribution in relation to ADC (86,090) (88,801) (82,353) (155,509) Contribution deficiency (excess) $ 1,607 $ - $ - $ -
Covered employee payroll $ 5,361,855 $ 5,567,350 $ 5,757,120 $ 6,145,766 Contrib. as a % of covered employee payroll 1.61% 1.60% 1.43% 2.53% Fiscal Year Ended 2022 2023 2024 2025
Actuarially determined contribution (ADC) $ 99,732 $ 169,270 $ 158,573 $ 168,711 Less: actual contribution in relation to ADC (99,732) (169,270) (158,573) (168,711) Contribution deficiency (excess) $ - $ - $ - $ -
Covered employee payroll $ 6,286,092 $ 7,344,221 $ 7,943,922 $ 8,426,663 Contrib. as a % of covered employee payroll 1.59% 2.30% 2.00% 2.00% Notes to Schedule:

Assumptions and Methods
Valuation Date:

Measurement Date:

Actuarial Cost Method: Entry-Age, Level Percent of Pay
Amortization Period:

Actuarial Assumptions:

Discount Rate
Inflation
Salary Increases
Healthcare Trend Rate
Investment Rate of Return
Mortality
Other Notes
Discount rates decreased from 7% to 6.25% in FY24.
2000-2019 CalPERS Experience Study

5.50%

6.25%

2.50%

2.75%
June 30, 2023
June 30, 2024
20 years

6.25%
GASB 75 requires a schedule of contributions for the last ten fiscal years, or for as many years as are available if less than ten years are available. GASB 75 was adopted as of June 30, 2018.
107
Item 4 B.

City of City of Capitola
Schedule of Changes in Net OPEB Liability and Related Ratios June 30, 2025
(Last Ten Years)
Measurement Date 2017 2018 2019 2020 2021 2022 2023 2024 Fiscal Year Ended 2018 2019 2020 2021 2022 2023 2024 2025 Total OPEB liability
Service cost $ 26,537 $ 27,267 $ 32,631 $ 113,292 $ 104,614 $ 109,131 $ 97,501 $ 113,922 Interest 51,739 57,232 62,516 140,891 151,868 158,499 169,676 141,288 Diff. expected/actual experience - - (203,258) - (168,232) - (510,333) - Changes of assumptions - - 1,202,217 - 94,950 - 164,493 - Benefit payments (26,632) (27,697) (28,801) (82,353) (95,259) (90,636) (102,222) (99,731) Net change in Total OPEB Liability 51,644 56,802 1,065,305 171,830 87,941 176,994 (180,885) 155,479 Total OPEB Liability - beginning 766,166 817,810 874,612 1,939,917 2,111,747 2,199,688 2,376,682 2,195,797 Total OPEB Liability - ending 817,810 874,612 1,939,917 2,111,747 2,199,688 2,376,682 2,195,797 2,351,276 Plan fiduciary net position
Net investment income 15,205 16,868 17,834 12,995 116,763 (74,613) 36,040 70,999 Employer contributions 81,540 87,697 88,801 82,353 155,509 150,886 169,270 166,781 Benefit payments (26,632) (27,697) (28,801) (82,353) (95,259) (90,636) (102,222) (99,731) Administrative expense (127) (397) - (180) (164) (141) (158) (211) Other - 31 - - - - - -
Net change in fid. net position 69,986 76,502 77,834 12,815 176,849 (14,504) 102,930 137,838 Plan fid. net position - beginning 143,387 213,373 289,875 367,709 380,524 557,373 542,869 645,799 Plan fid. net position - ending 213,373 289,875 367,709 380,524 557,373 542,869 645,799 783,637 Net OPEB liability (asset) $ 604,437 $ 584,737 $ 1,572,208 $ 1,731,223 $ 1,642,315 $ 1,833,813 $ 1,549,998 $ 1,567,639 Plan fiduciary net position as a %
of the total OPEB liability 26.09% 33.14% 18.95% 18.02% 25.34% 22.84% 29.41% 33.33% Covered Employee Payroll $ 5,787,564 $ 5,361,855 $ 5,567,350 $ 5,757,120 $ 6,145,766 $ 6,286,092 $ 7,344,221 $ 7,943,922 NOL as a % of covered emp. payroll 10.44% 10.91% 28.24% 30.07% 26.72% 29.17% 21.11% 19.73% Other Notes
GASB 75 requires a schedule of contributions for the last ten fiscal years, or for as many years as are available if less than ten years are available.

GASB 75 was adopted as of June 30, 2018.
108
Item 4 B.

SUPPLEMENTARY INFORMATION
109
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (GAAP Basis)
Capital Projects Fund
For the Year Ended June 30, 2025
Variance with
Budgeted Amounts Final Budget
Actual Positive
Original Final Amounts (Negative)

REVENUES
Intergovernmental $ - $ 1,300,000 $ 2,205,670 $ 905,670 Other revenue - 90,000 1,110,699 1,020,699
Total Revenues - 1,390,000 3,316,369 1,926,369

EXPENDITURES
Capital outlay - 7,261,338 4,001,314 3,260,024
Total Expenditures - 7,261,338 4,001,314 3,260,024
Excess (Deficiency) of Revenues over Expenditures - (5,871,338) (684,945) 5,186,393

OTHER FINANCING SOURCES (USES)
Transfers in - 3,360,240 83,000 (3,277,240)
Transfers out - - - -
Total Other Financing Sources (Uses) - 3,360,240 83,000 (3,277,240) Net Change in Fund Balance - (2,511,098) (601,945) 1,909,153 Fund Balance Beginning (773,059) (773,059) (773,059) -
Prior Period Adjustments - - - -
Fund Balance Beginning, as Adjusted (773,059) (773,059) (773,059) - Fund Balance Ending $ (773,059) $ (3,284,157) $ (1,375,004) $ 1,909,153 110
Item 4 B.

NONMAJOR GOVERNMENTAL 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.

Supplemental Law Enforcement Fund
This fund accounts for the receipt and expenditure of Supplemental Law Enforcement revenues provided by the State of California, including the COPS grant to provide funding for Community Oriented Policing & Problem Solving (COPPS) programs.

Restricted Transient Occupancy Tax (TOT) Fund
This fund accounts for the Measure J 12% transient occupancy tax which is restricted to 0.4% for local business groups and 0.35% for early childhood and youth programming.

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

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.

Public Art Fee Fund
This fund accumulates money received as public art fees to acquire works of art to be displayed in or about public places within the city.

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 Fund
This fund accounts for housing loan principal and interest repayments for the Community Development Block Grant (CDBG) Program.
111
Item 4 B.

NONMAJOR GOVERNMENTAL FUNDS
Library Fund
This fund accounts for revenues received for project enhancements related to the new Capitola Branch Library opened in June 2021.

Affordable Housing Fund
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.

Permanent Local Housing Allocation Fund
This fund accounts for Senate Bill 2 (SB 2) recording fees on real estate documents that are allocated to local governments for eligible housing and homelessness activities and provide a permanent, on-going source of funding for housing-related projects and programs that address the unmet housing needs of the community.

Debt Service Fund
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. 112
Item 4 B.

City of Capitola
Combining Balance Sheet
Nonmajor Governmental Funds
June 30, 2025
Restricted SB1
Supplemental Transient Road
Law Occupancy Rehabilitation Gas
Enforcement Tax and Maintenance Tax Wharf
Fund Fund Fund Fund Fund
ASSETS
Cash and investments $ 199,546 $ 80,695 $ 783,269 $ 340,780 $ 85,782 Accounts receivable - - - - 361
Interest receivable 2,423 690 8,259 23,586 -
Due from other governments - - 22,549 3,711 1,061
Loans receivable - - - - -
Total assets $ 201,969 $ 81,385 $ 814,077 $ 368,077 $ 87,204

LIABILITIES AND FUND BALANCES
Liabilities:

Accounts payable $ 818 $ 10,302 $ - $ 31,093 $ 2,494
Deposits payable - - - - 78
Total liabilities 818 10,302 - 31,093 2,572
Fund Balances:

Restricted:

Public safety 201,151 - - - -
Transportation - - 814,077 336,984 -
Community development - 71,083 - - -
Culture and recreation - - - - 84,632
Assigned:

Debt service - - - - -
Total fund balances 201,151 71,083 814,077 336,984 84,632 Total liabilities and fund balances $ 201,969 $ 81,385 $ 814,077 $ 368,077 $ 87,204 Cont'd
Special Revenue Funds
113
Item 4 B.

City of Capitola
Combining Balance Sheet
Nonmajor Governmental Funds
June 30, 2025
ASSETS
Cash and investments
Accounts receivable
Interest receivable
Due from other governments
Loans receivable
Total assets

LIABILITIES AND FUND BALANCES
Liabilities:

Accounts payable
Deposits payable
Total liabilities
Fund Balances:

Restricted:

Public safety
Transportation
Community development
Culture and recreation
Assigned:

Debt service
Total fund balances
Total liabilities and fund balances
Public PEG
Art Parking Technology Cable TV
Fee Reserve Fees Access Fee
Fund Fund Fund Fund
$ 120,200 $ 737 $ 106,677 $ 65,168
- - 10,382 -
- - - 712
- - - 2,214
- - - -
$ 120,200 $ 737 $ 117,059 $ 68,094
$ - $ - $ - $ -
- - - -
- - - -
- - - -
- 737 - -
- - 117,059 -
120,200 - - 68,094
- - - -
120,200 737 117,059 68,094
$ 120,200 $ 737 $ 117,059 $ 68,094
Cont'd
Special Revenue Funds
114
Item 4 B.

City of Capitola
Combining Balance Sheet
Nonmajor Governmental Funds
June 30, 2025
ASSETS
Cash and investments
Accounts receivable
Interest receivable
Due from other governments
Loans receivable
Total assets

LIABILITIES AND FUND BALANCES
Liabilities:

Accounts payable
Deposits payable
Total liabilities
Fund Balances:

Restricted:

Public safety
Transportation
Community development
Culture and recreation
Assigned:

Debt service
Total fund balances
Total liabilities and fund balances
Capitola CDBG
Village and Program Affordable
Wharf BIA CDBG Income Library Housing
Fund Fund Fund Fund Fund
$ 16,561 $ 144,481 $ 949 $ 16,916 $ 345,655
5,445 - - - -
140 - 10 189 3,825
- - - - -
- - 254,583 - -
$ 22,146 $ 144,481 $ 255,542 $ 17,105 $ 349,480
$ 2,915 $ 37,743 $ - $ - $ -
- - - - -
2,915 37,743 - - -
- - - - -
- - - - -
19,231 106,738 255,542 17,105 349,480
- - - - -
- - - - -
19,231 106,738 255,542 17,105 349,480
$ 22,146 $ 144,481 $ 255,542 $ 17,105 $ 349,480
Cont'd
Special Revenue Funds
115
Item 4 B.

City of Capitola
Combining Balance Sheet
Nonmajor Governmental Funds
June 30, 2025
ASSETS
Cash and investments
Accounts receivable
Interest receivable
Due from other governments
Loans receivable
Total assets

LIABILITIES AND FUND BALANCES
Liabilities:

Accounts payable
Deposits payable
Total liabilities
Fund Balances:

Restricted:

Public safety
Transportation
Community development
Culture and recreation
Assigned:

Debt service
Total fund balances
Total liabilities and fund balances
Special Revenue
Funds
Permanent Pacific Beach &
Local Cove Village Lot II Total
Housing Debt Debt Nonmajor
Allocation Financing Financing Governmental
Fund Fund Fund Funds
$ 467,433 $ 76,999 $ 12 $ 2,851,860
- - - 16,188
- - - 39,834
- 847 - 30,382
- - - 254,583
$ 467,433 $ 77,846 $ 12 $ 3,192,847
$ - $ - $ - $ 85,365
- - - 78
- - - 85,443
- - - 201,151
- - - 1,151,798
467,433 - - 1,403,671
- - - 272,926
- 77,846 12 77,858
467,433 77,846 12 3,107,404
$ 467,433 $ 77,846 $ 12 $ 3,192,847
Concluded
Debt Service Funds
116
Item 4 B.

City of Capitola
Combining Statement of Revenues, Expenditures
and Changes in Fund Balances
Nonmajor Governmental Funds
For the Year Ended June 30, 2025
Restricted SB1
Supplemental Transient Road
Law Occupancy Rehabilitation Gas
Enforcement Tax and Maintenance Tax Wharf
Fund Fund Fund Fund Fund

REVENUES
Taxes $ - $ 102,616 $ - $ - $ -
Licenses and permits - - - - -
Intergovernmental 100,000 - 267,984 277,850 -
Charges for services - - - - -
Use of money and property 8,874 3,281 29,156 13,630 19,292 Other revenue - - - - -
Total Revenues 108,874 105,897 297,140 291,480 19,292

EXPENDITURES
Current:

Public safety 50,501 - - - -
Community development - 98,030 - - -
Culture and recreation - - - - 59,449
Transportation - - - 216,069 -
Capital outlay 32,000 - 16,190 - -
Debt service:

Principal - - - - -
Interest - - - - -
Total Expenditures 82,501 98,030 16,190 216,069 59,449
Excess (Deficiency) of Revenues over Expenditures 26,373 7,867 280,950 75,411 (40,157)

OTHER FINANCING SOURCES (USES)
Transfers in - - - - -
Transfers out - - - - -
Total Other Financing Sources (Uses) - - - - -
Net Change in Fund Balances 26,373 7,867 280,950 75,411 (40,157) Fund Balances Beginning 174,778 63,216 533,127 261,573 124,789 Fund Balances Ending $ 201,151 $ 71,083 $ 814,077 $ 336,984 $ 84,632 Cont'd
Special Revenue Funds
117
Item 4 B.

City of Capitola
Combining Statement of Revenues, Expenditures
and Changes in Fund Balances
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for services
Use of money and property
Other revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Public PEG
Art Parking Technology Cable TV
Fee Reserve Fees Access Fee
Fund Fund Fund Fund
$ - $ - $ - $ -
- - - 9,215
- - - -
34,460 - 15,396 -
- - - 2,756
20,000 - - -
54,460 - 15,396 11,971
- - - -
- - 4,375 -
92,765 - - 1,408
- - 6,000 -
- - - -
- - - -
- - - -
92,765 - 10,375 1,408
(38,305) - 5,021 10,563
- - - -
- - - -
- - - -
(38,305) - 5,021 10,563
158,505 737 112,038 57,531
$ 120,200 $ 737 $ 117,059 $ 68,094
Cont'd
Special Revenue Funds
118
Item 4 B.

City of Capitola
Combining Statement of Revenues, Expenditures
and Changes in Fund Balances
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for services
Use of money and property
Other revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Capitola CDBG
Village and Program Affordable
Wharf BIA CDBG Income Library Housing
Fund Fund Fund Fund Fund
$ 37,315 $ - $ - $ - $ -
- - - - -
- 286,072 - - -
54,945 - - - 70,423
1,535 - 10,029 1,820 16,998
46,665 - - - 629
140,460 286,072 10,029 1,820 88,050
- - - - -
153,714 238,836 - 37,426 15,693
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
153,714 238,836 - 37,426 15,693
(13,254) 47,236 10,029 (35,606) 72,357
- 209,443 - - -
- - (209,443) - -
- 209,443 (209,443) - -
(13,254) 256,679 (199,414) (35,606) 72,357
32,485 (149,941) 454,956 52,711 277,123
$ 19,231 $ 106,738 $ 255,542 $ 17,105 $ 349,480
Cont'd
Special Revenue Funds
119
Item 4 B.

City of Capitola
Combining Statement of Revenues, Expenditures
and Changes in Fund Balances
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for services
Use of money and property
Other revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Special Revenue
Funds
Permanent Pacific Beach &
Local Cove Village Lot II Total
Housing Debt Debt Nonmajor
Allocation Financing Financing Governmental
Fund Fund Fund Funds
$ - $ - $ - $ 139,931
- - - 9,215
376,640 - - 1,308,546
- - - 175,224
- 2,569 - 109,940
- - - 67,294
376,640 2,569 - 1,810,150
- - - 50,501
9,043 - - 557,117
- - - 153,622
- - - 222,069
- - - 48,190
- - 68,823 68,823
- - 18,745 18,745
9,043 - 87,568 1,119,067
367,597 2,569 (87,568) 691,083
- - 87,568 297,011
- - - (209,443)
- - 87,568 87,568
367,597 2,569 - 778,651
99,836 75,277 12 2,328,753
$ 467,433 $ 77,846 $ 12 $ 3,107,404
Concluded
Debt Service Funds
120
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)

REVENUES
Taxes $ - $ - $ - $ -
Licenses and permits - - - -
Intergovernmental 100,000 100,000 100,000 -
Charges for Services - - - -
Use of money and property 4,000 4,000 8,874 4,874
Other Revenue - - - -
Total Revenues 104,000 104,000 108,874 4,874

EXPENDITURES
Current:

Public safety 34,500 34,500 50,501 (16,001)
Community development - - - -
Culture and recreation - - - -
Transportation - - - -
Capital outlay 67,000 99,000 32,000 67,000
Debt service:

Principal - - - -
Interest - - - -
Total Expenditures 101,500 133,500 82,501 50,999
Excess (Deficiency) of Revenues over Expenditures 2,500 (29,500) 26,373 55,873

OTHER FINANCING SOURCES (USES)
Transfers in - - - -
Transfers out - - - -
Total Other Financing Sources (Uses) - - - -
Net Change in Fund Balances 2,500 (29,500) 26,373 55,873 Fund Balances Beginning 174,778 174,778 174,778 -
Fund Balances Ending $ 177,278 $ 145,278 $ 201,151 $ 55,873 Cont'd
Supplemental Law Enforcement Fund
Budgeted Amounts
121
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ 101,841 101,841 102,616 $ $ 775
- - - -
- - - -
- - - -
- - 3,281 3,281
- - - -
101,841 101,841 105,897 4,056
- - - -
115,533 115,533 98,030 17,503
- - - -
- - - -
- - - -
- - - -
- - - -
115,533 115,533 98,030 17,503
(13,692) (13,692) 7,867 21,559
- - - -
- - - -
- - - -
(13,692) (13,692) 7,867 21,559
63,216 63,216 63,216 -
$ 49,524 $ 49,524 $ 71,083 $ 21,559
Cont'd
Budgeted Amounts
Restricted Transient Occupancy Tax Fund
122
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
252,161 252,161 267,984 15,823
- - - -
- - 29,156 29,156
- - - -
252,161 252,161 297,140 44,979
- - - -
- - - -
- - - -
- - - -
252,161 252,161 16,190 235,971
- - - -
- - - -
252,161 252,161 16,190 235,971
- - 280,950 280,950
- - - -
- - - -
- - - -
- - 280,950 280,950
533,127 533,127 533,127 -
$ 533,127 $ 533,127 $ 814,077 $ 280,950
Cont'd
Budgeted Amounts
Road Rehabilitation and Maintenance Fund
123
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
272,660 272,660 277,850 5,190
- - - -
1,500 1,500 13,630 12,130
- - - -
274,160 274,160 291,480 17,320
- - - -
- - - -
- - - -
272,000 296,741 216,069 80,672
- - - -
- - - -
- - - -
272,000 296,741 216,069 80,672
2,160 (22,581) 75,411 97,992
- - - -
- - - -
- - - -
2,160 (22,581) 75,411 97,992
261,573 261,573 261,573 -
$ 263,733 $ 238,992 $ 336,984 $ 97,992
Cont'd
Budgeted Amounts
Gas Tax Fund
124
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
- - - -
- - - -
20,500 20,500 19,292 (1,208)
- - - -
20,500 20,500 19,292 (1,208)
- - - -
- - - -
101,250 101,250 59,449 41,801
- - - -
40,000 40,000 - 40,000
- - - -
- - - -
141,250 141,250 59,449 81,801
(120,750) (120,750) (40,157) 80,593
- - - -
- - - -
- - - -
(120,750) (120,750) (40,157) 80,593
124,789 124,789 124,789 -
$ 4,039 $ 4,039 $ 84,632 $ 80,593
Cont'd
Budgeted Amounts
Wharf Fund
125
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
- - - -
- - 34,460 34,460
- - - -
- - 20,000 20,000
- - 54,460 54,460
- - - -
- - - -
- - 92,765 (92,765)
- - - -
- - - -
- - - -
- - - -
- - 92,765 (92,765)
- - (38,305) (38,305)
- - - -
- - - -
- - - -
- - (38,305) (38,305)
158,505 158,505 158,505 -
$ 158,505 $ 158,505 $ 120,200 $ (38,305)
Cont'd
Budgeted Amounts
Public Art Fee Fund
126
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
737 737 737 -
$ 737 $ 737 $ 737 $ -
Cont'd
Budgeted Amounts
Parking Reserve Fund
127
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
- - - -
14,500 14,500 15,396 896
- - - -
- - - -
14,500 14,500 15,396 896
- - - -
9,750 9,750 4,375 5,375
- - - -
3,500 3,500 6,000 (2,500)
- - - -
- - - -
- - - -
13,250 13,250 10,375 2,875
1,250 1,250 5,021 3,771
- - - -
- - - -
- - - -
1,250 1,250 5,021 3,771
112,038 112,038 112,038 -
$ 113,288 $ 113,288 $ 117,059 $ 3,771
Cont'd
Budgeted Amounts
Technology Fees Fund
128
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
15,000 15,000 9,215 (5,785)
- - - -
- - - -
1,000 1,000 2,756 1,756
- - - -
16,000 16,000 11,971 (4,029)
- - - -
- - - -
12,000 12,000 1,408 10,592
- - - -
- - - -
- - - -
- - - -
12,000 12,000 1,408 10,592
4,000 4,000 10,563 6,563
- - - -
- - - -
- - - -
4,000 4,000 10,563 6,563
57,531 57,531 57,531 -
$ 61,531 $ 61,531 $ 68,094 $ 6,563
Cont'd
Budgeted Amounts
PEG Cable TV Access Fee Fund
129
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ 37,000 $ 37,000 $ 37,315 $ 315
- - - -
- - - -
53,370 53,370 54,945 1,575
100 100 1,535 1,435
56,500 56,500 46,665 (9,835)
146,970 146,970 140,460 (6,510)
- - - -
155,900 155,900 153,714 2,186
- - - -
- - - -
- - - -
- - - -
- - - -
155,900 155,900 153,714 2,186
(8,930) (8,930) (13,254) (4,324)
- - - -
- - - -
- - - -
(8,930) (8,930) (13,254) (4,324)
32,485 32,485 32,485 -
$ 23,555 $ 23,555 $ 19,231 $ (4,324)
Cont'd
Budgeted Amounts
Capitola Village and Wharf BIA Fund
130
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
232,335 3,432,335 286,072 (3,146,263)
- - - -
- - - -
- - - -
232,335 3,432,335 286,072 (3,146,263)
- - - -
235,530 235,530 238,836 (3,306)
- - - -
- - - -
- - - -
- - - -
- - - -
235,530 235,530 238,836 (3,306)
(3,195) 3,196,805 47,236 (3,149,569)
- 160,241 209,443 49,202
- (3,360,240) - 3,360,240
- (3,199,999) 209,443 3,409,442
(3,195) (3,194) 256,679 259,873
(149,941) (149,941) (149,941) -
$ (153,136) $ (153,135) $ 106,738 $ 259,873
Cont'd
Budgeted Amounts
CDBG Fund
131
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
- - - -
- - - -
- - 10,029 10,029
- - - -
- - 10,029 10,029
- - - -
10,000 10,000 - 10,000
- - - -
- - - -
- - - -
- - - -
- - - -
10,000 10,000 - 10,000
(10,000) (10,000) 10,029 20,029
- - - -
- (160,241) (209,443) (49,202)
- (160,241) (209,443) (49,202)
(10,000) (170,241) (199,414) (29,173)
454,956 454,956 454,956 -
$ 444,956 $ 284,715 $ 255,542 $ (29,173)
Cont'd
Budgeted Amounts
CDBG Program Income Fund
132
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
- - - -
- - - -
- - 1,820 1,820
- - - -
- - 1,820 1,820
- - - -
- - 37,426 (37,426)
- - - -
- - - -
- - - -
- - - -
- - - -
- - 37,426 (37,426)
- - (35,606) (35,606)
- - - -
- - - -
- - - -
- - (35,606) (35,606)
52,711 52,711 52,711 -
$ 52,711 $ 52,711 $ 17,105 $ (35,606)
Cont'd
Library Fund
Budgeted Amounts
133
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
- - - -
10,000 10,000 70,423 60,423
4,000 4,000 16,998 12,998
- - 629 629
14,000 14,000 88,050 74,050
- - - -
- - 15,693 (15,693)
- - - -
- - - -
- - - -
- - - -
- - - -
- - 15,693 (15,693)
14,000 14,000 72,357 58,357
- - - -
(150,000) (150,000) - 150,000
(150,000) (150,000) - 150,000
(136,000) (136,000) 72,357 208,357
277,123 277,123 277,123 -
$ 141,123 $ 141,123 $ 349,480 $ 208,357
Cont'd
Affordable Housing Fund
Budgeted Amounts
134
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Amounts Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
171,825 171,825 376,640 204,815
- - - -
- - - -
- - - -
171,825 171,825 376,640 204,815
- - - -
171,825 621,201 9,043 612,158
- - - -
- - - -
- - - -
- - - -
- - - -
171,825 621,201 9,043 612,158
- (449,376) 367,597 816,973
- - - -
- - - -
- - - -
- (449,376) 367,597 816,973
99,836 99,836 99,836 -
$ 99,836 $ (349,540) $ 467,433 $ 816,973
Cont'd
Permanent Local Housing Allocation Fund
135
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Amounts Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
- - - -
- - - -
- - 2,569 2,569
- - - -
- - 2,569 2,569
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - 2,569 2,569
- - - -
- - - -
- - - -
- - 2,569 2,569
75,277 75,277 75,277 -
$ 75,277 $ 75,277 $ 77,846 $ 2,569
Cont'd
Pacific Cove Debt Financing Fund
136
Item 4 B.

City of Capitola
Schedule of Revenues, Expenditures, and
Changes in Fund Balances
Budget and Actual (GAAP Basis)
Nonmajor Governmental Funds
For the Year Ended June 30, 2025

REVENUES
Taxes
Licenses and permits
Intergovernmental
Charges for Services
Use of money and property
Other Revenue
Total Revenues

EXPENDITURES
Current:

Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Debt service:

Principal
Interest
Total Expenditures
Excess (Deficiency) of Revenues over Expenditures

OTHER FINANCING SOURCES (USES)
Transfers in
Transfers out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances Beginning
Fund Balances Ending
Variance with
Amounts Final Budget
Actual Positive
Original Final Amounts (Negative)
$ - $ - $ - $ -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
- - - -
68,823 68,823 68,823 -
18,745 18,745 18,745 -
87,568 87,568 87,568 -
(87,568) (87,568) (87,568) -
87,568 87,568 87,568 -
- - - -
87,568 87,568 87,568 -
- - - -
12 12 12 -
$ 12 $ 12 $ 12 $ -
Concluded
Beach & Village Lot II Debt Financing Fund
137
Item 4 B.

This page is intentionally blank
138
Item 4 B.

STATISTICAL SECTION
139
Item 4 B.

This page is intentionally blank
140
Item 4 B.

STATISTICAL SECTION
This part of the City’s Annual Comprehensive Financial Report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. In contrast to the financial section, the statistical section information is not subject to independent audit.

Financial Trends
These schedules contain trend information to help the reader understand how the City’s financial performance and well being have changed over time:

1. Net Position by Component

2. Changes in Net Position

3. Fund Balances of Governmental Funds

4. Changes in Fund Balance of Governmental Funds

5. General Revenues by Source
Revenue Capacity
These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax:

5. Net Taxable Assessed Value History

6. Assessed Value of Taxable Property

7. Direct and Overlapping Property Tax Rates

8. Top Ten Property Taxpayers

9. Property Tax Levies and Collections

10. Top 25 Sales Tax Taxpayers
Debt Capacity
These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future:

11. Ratios of Outstanding Debt by Type

12. Ratios of General Bonded Debt Outstanding

13. Direct and Overlapping Debt

14. Legal Debt Margin Information
Demographic and Economic Information
These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place:

15. Demographic and Economic Statistics

16. Principal Employers
Operating Information
These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs:

17. Full-Time Equivalent Employees by Function

18. Operating Indicators by Function

19. Capital Asset Statistics by Function
Sources
Unless otherwise noted, the information in these schedules is derived from the Annual Comprehensive Financial Reports for the relevant year.
141
Item 4 B.

This page is intentionally blank
142
Item 4 B.

City of Capitola Table 1
Net Position by Component
Last Ten Fiscal Years
(amounts expressed in thousands)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Primary Government Activities:

Net Investment in
Capital Assets $ 13,154 $ 14,457 $ 15,773 $ 18,563 $ 27,367 $ 32,053 $ 33,336 $ 35,468 $ 50,116 $ 52,141 Restricted for
Public Safety 98 8 10 17 72 99 154 152 175 201
Transportation 113 119 420 630 26 917 1,400 732 1,328 2,130 Community Development 6,599 8,811 11,191 14,105 14,221 10,821 9,995 10,159 10,288 10,842 Culture and Recreation 143 159 121 146 175 218 219 211 341 273 Total Restricted 6,953 9,097 11,742 14,898 14,494 12,055 11,768 11,254 12,132 13,447 Unrestricted (8,884) (9,883) (11,536) (10,563) (12,887) (10,987) (11,571) (6,156) (17,949) (21,687) Total Primary Government
Net Position $ 11,223 $ 13,671 $ 15,979 $ 22,898 $ 28,974 $ 33,121 $ 33,533 $ 40,566 $ 44,299 $ 43,901 NOTES: The City of Capitola has no business-type activities; governmental and primary government figures are the same.

Source: City of Capitola Finance Department.
143
Item 4 B.

City of Capitola Table 2
Change in Net Position
Last Ten Fiscal Years
(amounts expressed in thousands)
2016 2017 2018 2019 2020
EXPENSES:

Primary government activities
General government $ 3,557 $ 3,975 $ 3,594 $ 3,595 $ 3,876 Public safety 6,211 7,462 6,822 7,037 7,810
Community development 1,076 1,090 1,057 956 1,097
Culture and recreation 1,150 1,302 1,228 1,192 1,793
Transportation 3,218 3,212 3,382 3,384 3,263
Interest and other charges 158 119 77 76 68
Total primary government expenses 15,370 17,160 16,160 16,240 17,907 PROGRAM REVENUES:

Primary government activities
Charges for services:

General government 970 911 1,057 1,132 1,022
Public safety 701 597 601 579 554
Community development 727 637 695 528 619
Culture and recreation 751 640 636 614 633
Transportation 112 116 34 44 47
Operating grants and contributions 400 3,329 1,832 650 501 Capital grants and contributions 511 146 413 5,678 7,357 Total primary govt program revenues 4,172 6,376 5,268 9,225 10,733 NET PRIMARY GOVT REV/(EXP) (11,198) (10,784) (10,892) (7,015) (7,174)

GENERAL REVENUES AND OTHER
CHANGES IN NET POSITION:

Primary government activities
Taxes:

Property taxes 2,194 2,288 2,498 2,630 2,712
Franchise taxes 524 535 555 545 557
Sales and use tax 7,860 7,959 7,688 8,077 7,441
Transient occupancy taxes 1,452 1,458 1,457 1,582 1,263 Business license tax 298 302 308 308 330
Cannabis taxes - - - - -
Intergovernmental, unrestricted 226 201 223 224 233
Investment income, unrestricted 227 264 237 450 699
Other general revenues 424 225 406 119 16
Total primary government activities 13,205 13,232 13,372 13,935 13,251 CHANGES IN NET POSITION:

Total primary government activities $ 2,007 $ 2,448 $ 2,480 $ 6,920 $ 6,077 Continued
Source: City of Capitola Finance Department
Fiscal Year
144
Item 4 B.

City of Capitola
Change in Net Position
Last Ten Fiscal Years
(amounts expressed in thousands)
EXPENSES:

Primary government activities
General government
Public safety
Community development
Culture and recreation
Transportation
Interest and other charges
Total primary government expenses
PROGRAM REVENUES:

Primary government activities
Charges for services:

General government
Public safety
Community development
Culture and recreation
Transportation
Operating grants and contributions
Capital grants and contributions
Total primary govt program revenues

NET PRIMARY GOVT REV/(EXP)

GENERAL REVENUES AND OTHER
CHANGES IN NET POSITION:

Primary government activities
Taxes:

Property taxes
Franchise taxes
Sales and use tax
Transient occupancy taxes
Business license tax
Cannabis taxes
Intergovernmental, unrestricted
Investment income, unrestricted
Other general revenues
Total primary government activities
CHANGES IN NET POSITION:

Total primary government activities
Source: City of Capitola Finance Department
Table 2
2021 2022 2023 2024 2025
$ 3,736 $ 6,117 $ 3,443 $ 5,581 $ 6,147
7,237 7,554 5,703 8,450 9,243
979 1,998 635 1,371 1,677
1,107 1,421 2,181 2,984 3,561
3,092 4,222 2,409 4,329 5,179
67 56 20 13 18
16,218 21,368 14,391 22,729 25,824
1,057 1,678 744 983 1,116
509 509 624 497 596
539 539 901 972 825
274 274 710 862 886
39 39 48 41 48
3,125 2,970 866 859 1,286
1,167 865 1,646 5,952 3,016
6,710 6,874 5,539 10,167 7,773
(9,508) (14,494) (8,852) (12,562) (18,050)
2,794 2,883 3,058 3,201 3,340
562 635 708 729 742
7,705 8,485 8,542 8,222 8,634
1,529 2,171 2,131 2,220 2,256
292 316 314 324 334
- - - 262 255
232 341 307 12 16
335 (129) 549 770 634
204 204 162 361 1,219
13,653 14,906 15,773 16,101 17,430
$ 4,145 $ 412 $ 6,921 $ 3,539 $ (620)
Concluded
Fiscal Year
145
Item 4 B.

City of Capitola Table 3
Fund Balances of Governmental Funds
Last ten years
(amounts expressed in thousands)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

GENERAL FUND
Fund Balance:

Nonspendable $ 524 $ 426 $ 58 $ 21 $ - $ - $ - $ - $ - $ - Restricted 300 300 816 867 917 1,016 904 1,196 1,531 1,663 Assigned 1,262 1,277 1,277 1,344 1,344 1,374 1,374 1,314 2,444 2,507 Unassigned 4,599 5,345 4,603 5,627 5,044 8,923 9,588 8,097 3,042 1,761 Total General Fund 6,685 7,348 6,754 7,859 7,305 11,313 11,866 10,607 7,017 5,931

ALL OTHER GOVERNMENT FUNDS
Fund Balance:

Restricted 736 834 11,742 14,896 14,493 12,110 11,768 11,223 12,132 13,447 Assigned 2,745 1,927 1,633 2,110 2,603 1,842 4,200 5,898 75 78 Unassigned (215) (39) (39) (39) (365) (39) (39) (71) (923) (1,375) Total All Other Govt Funds 3,266 2,722 13,336 16,967 16,731 13,913 15,929 17,050 11,284 12,150 TOTAL $ 9,951 $ 10,070 $ 20,090 $ 24,826 $ 24,036 $ 25,226 $ 27,795 $ 27,657 $ 18,301 $ 18,080 Source: City of Capitola Finance Department.
146
Item 4 B.

This page is intentionally blank
147
Item 4 B.

City of Capitola Table 4
Changes in Fund Balances of Governemtal Funds
Last ten years
(amounts expressed in thousands)
2016 2017 2018 2019 2020
REVENUES:

Taxes $ 12,250 $ 12,436 $ 12,416 $ 13,097 $ 12,307
Licenses & permits 671 626 766 663 726
Fines and forfeitures 787 1,475 2,250 6,030 7,521
Intergovernmental 656 560 558 522 520
Charges for services 2,165 1,970 2,007 2,020 1,959
Use of money and property 324 376 237 450 699
Other 328 114 406 378 252
Total revenues 17,181 17,557 18,640 23,160 23,984
EXPENSES:

Current:

General government 2,712 3,153 2,824 2,819 2,965
Public safety 6,134 6,495 6,333 6,552 6,467
Community development 1,005 976 967 913 963
Culture and recreation 1,039 1,137 1,154 1,130 1,710
Transportation 2,744 2,637 2,852 2,981 2,714
Capital outlay 2,074 2,113 1,924 3,770 9,698
Subtotal 15,708 16,511 16,054 18,165 24,517
Debt service:

Principal retirement 764 788 829 182 186
Interest and agent fees 163 139 95 78 71
Subtotal 927 927 924 260 257
Total expenditures 16,635 17,438 16,978 18,425 24,774
Excess/(deficiency) of revenues over/(under) expenditures 546 119 1,662 4,735 (790) OTHER FINANCING SOURCES/(USES):

Transfers in 2,784 1,815 2,865 1,676 1,734
Transfers out (2,784) (1,815) (2,865) (1,676) (1,734)
Total other financing sources/(uses) - - - - -
Net change in fund balances 546 119 1,662 4,735 (790)
Prior Period Adjustments - - - - -
Beginning fund balance Ending 546 665 20,091 24,826
Ending fund balance $ 546 $ 665 $ 2,327 $ 24,826 $ 24,036 Debt Service as a percentage of non-capital expenditures Total Expenditures $ 16,635 $ 17,438 $ 16,978 $ 18,425 $ 24,774 Capitalized Portion of Capital Outlay 2,079 2,231 2,063 3,681 9,535 Total Non-Capitalized Expenditures 14,556 15,207 14,915 14,744 15,239 Debt service: Principal and Interest 927 927 924 260 257 Debt service as a percentage of noncapital expenditures 6.37% 6.10% 6.20% 1.76% 1.69% Continued
NOTES:

Source: City of Capitola Finance Department
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.
148
Item 4 B.

City of Capitola
Changes in Fund Balances of Governemtal Funds
Last ten years
(amounts expressed in thousands)
REVENUES:

Taxes
Licenses & permits
Fines and forfeitures
Intergovernmental
Charges for services
Use of money and property
Other
Total revenues
EXPENSES:

Current:

General government
Public safety
Community development
Culture and recreation
Transportation
Capital outlay
Subtotal
Debt service:

Principal retirement
Interest and agent fees
Subtotal
Total expenditures
Excess/(deficiency) of revenues over/(under) expenditures OTHER FINANCING SOURCES/(USES):

Transfers in
Transfers out
Total other financing sources/(uses)
Net change in fund balances
Prior Period Adjustments
Beginning fund balance
Ending fund balance
Debt Service as a percentage of non-capital expenditures Total Expenditures
Capitalized Portion of Capital Outlay
Total Non-Capitalized Expenditures
Debt service: Principal and Interest
Debt service as a percentage of noncapital expenditures Source: City of Capitola Finance Department
Table 4
2021 2022 2023 2024 2025
$ 13,064 $ 14,757 $ 14,853 $ 14,634 $ 15,228
679 746 662 768 749
3,832 3,093 2,417 425 503
496 589 567 6,581 4,143
1,536 2,020 2,010 2,450 2,516
335 (129) 548 807 671
422 704 1,700 603 1,393
20,364 21,780 22,757 26,268 25,203
3,021 4,198 4,444 4,447 4,581
6,075 6,995 8,137 7,740 7,933
859 1,464 1,101 1,272 1,458
1,026 1,202 2,525 2,725 3,051
2,529 2,921 3,470 3,682 4,154
5,410 2,178 2,965 15,327 4,383
18,920 18,958 22,642 35,192 25,559
187 191 231 710 69
67 62 22 28 19
254 253 253 738 88
19,174 19,211 22,895 35,930 25,647
1,190 2,569 (138) (9,662) (443)
324 4,023 2,622 3,558 380
(324) (4,023) (2,622) (3,558) (380)
- - - - -
1,190 2,569 (138) (9,662) (443)
- - - 307 222
24,036 25,226 27,795 27,657 18,301
$ 25,226 $ 27,795 $ 27,657 $ 18,301 $ 18,080
$ 19,174 $ 19,211 $ 22,895 $ 35,930 $ 25,647
5,410 2,178 2,965 15,314 4,310
13,764 17,033 19,930 20,616 21,337
254 253 253 738 88

1.85% 1.49% 1.27% 3.58% 0.41%
Concluded
NOTES:

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.
149
Item 4 B.

City of Capitola Table 5
General Revenues By Source
Last Ten Fiscal Years
Fiscal Year
Sales Tax
Revenue (1)
Property
Taxes (2)
Transient
Occupancy
Tax
Franchise
Taxes
Business
Licenses
Investment
Income
Other
Revenue
Total General
Revenues
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 2,131,470 708,277 313,993 662,048 162,352 15,885,794 2024 8,221,640 3,200,895 2,219,951 729,485 323,755 770,404 634,706 16,100,836 2025 8,633,916 3,340,070 2,256,352 742,443 334,274 633,607 1,218,880 17,159,542 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
150
Item 4 B.

City of Capitola Table 6
Net Taxable Assessed Value History
Last Ten Fiscal Years
(amounts expressed in thousands)
Fiscal
Year Secured Unsecured
SBE
Nonunitary
Total
Assessed
Value % Change
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%
2024 3,078,003 79,583 157 3,157,743 5.37%
2025 3,215,809 79,727 157 3,295,693 4.37%
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: County Assessor data, Neumo / MuniServices, LLC 151
Item 4 B.

City of Capitola Table 7
Assessed Value of Taxable Property
Last Ten Fiscal Years
(amounts expressed in thousands)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Residential $ 1,555,335 $ 1,632,996 $ 1,722,244 $ 1,824,839 $ 1,920,483 $ 2,020,785 $ 2,143,810 $ 2,265,545 $ 2,393,238 $ 2,612,760 Commercial 392,427 439,224 476,377 487,098 501,612 523,379 524,820 535,445 555,355 485,537 Industrial 14,437 14,612 19,124 19,557 21,914 22,319 22,545 23,320 22,345 10,408 SBE Nonunitary 83 84 84 110 110 111 111 157 157 157
Other properties 63,836 69,632 76,429 81,138 86,943 91,174 94,726 99,581 107,065 107,104 Unsecured 76,862 77,622 84,389 87,922 81,815 77,632 79,332 72,799 79,583 79,727 TOTALS $ 2,102,980 $ 2,234,170 $ 2,378,648 $ 2,500,664 $ 2,612,877 $ 2,735,400 $ 2,865,344 $ 2,996,847 $ 3,157,743 $ 3,295,693 Total Direct
Property Tax Rate 0.0551 0.0546 0.0546 0.0545 0.0545 0.0544 0.0544 0.0537 0.0537 0.0537 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: County Assessor data, Neumo / MuniServices, LLC Category
152
Item 4 B.

City of Capitola Table 8
Direct and Overlapping Property Tax Rates
Last Ten Fiscal Years
(Rate per $100 of taxable value)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
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) 0.05456 0.05452 0.05452 0.05438 0.05441 0.05372 0.05372 0.05372 0.05372 0.05372 Overlapping Property Tax Rates (3)
Santa Cruz High School 0.01961 0.01848 0.04461 0.04272 0.03889 0.03800 0.03706 0.03767 0.03155 0.03534 Soquel Elementary School 0.01846 0.01811 0.04539 0.04251 0.03948 0.04140 0.04123 0.04113 0.03307 0.03570 Live Oak Sd 2022 Ref 0.04600 0.03574 0.01988 0.02117 0.02072 0.02106 0.02116 0.02003 0.02610 0.05886 Cabrillo College 0.03669 0.03260 0.02425 0.02102 0.02117 0.02475 0.02370 0.02405 0.02434 0.01533 Total Overlapping Property Tax Rate (2) 0.12076 0.10493 0.13413 0.12742 0.12026 0.12521 0.12315 0.12288 0.11506 0.14523 (4) 0.05372 0.05372 0.05372 0.05372 0.05372 0.05372 0.05372 0.05372 0.05372 0.05372 Total Direct & Overlapping Rate 1.12076 1.10493 1.13413 1.12742 1.12026 1.12521 1.12315 1.12288 1.11506 1.14523 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: County Auditor/Controller, Neumo / MuniServices, LLC City Direct Property Tax Rates
153
Item 4 B.

City of Capitola Table 9
Top Ten Property Taxpayers
Current Year and Nine Years Ago
(amounts expressed in dollars unless otherwise noted)
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 122,310,468 $ 1 3.71% - 0.00%
Drew Auto Property LLC 35,400,190 2 1.07% - 0.00%
Aspromonte Hotels LLC 22,821,789 3 0.69% 16,316,000 3 0.78% Target Corporation 19,972,849 4 0.61% 18,192,569 2 0.87% Loma Vista Estates Owners Association Inc. 18,536,227 5 0.56% - 0.00% George Ow Jr. Trustees 14,765,271 6 0.45% 12,531,156 4 0.60% Brown Ranch Properties 13,408,577 7 0.41% 11,379,740 5 0.54% Blai LP 12,632,748 8 0.38% 10,655,951 6 0.51%
Grandview Capitola LLC 11,444,400 9 0.35% - 0.00%
Melanie Kett Trust 9,992,158 10 0.30% 8,474,738 8 0.40% Macerich Partnership LP - 67,738,106 1 3.22%
Santa Cruz Seaside Company - 9,385,205 7 0.45%
850 Rosedale LLC - 8,261,539 9 0.39%
Crossroads Associates - 7,116,696 10 0.34%
$ 8.53% 170,051,700 281,284,677 $ 8.09%
Memo: Gross Assessed Value $ 3,295,693,197 100.00% $ 2,102,980,000 100.00% 2024-25 2015-16
Source: County Assessor data, Neumo / MuniServices, LLC 154
Item 4 B.

City of Capitola Table 10
Property Tax Levies and Collections
Last Ten Fiscal Years
(amounts expressed in dollars unless otherwise noted)
Amount
Percent of
Levy
Collections in
Subsequent
Years Amount
Percent of
Levy
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%
2024 1,674,964 1,674,964 100% - 1,674,964 100%
2025 1,782,634 1,782,634 100% - 1,782,634 100%
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. 155
Item 4 B.

City of Capitola Table 11
Top 25 Sales Tax Taxpayers
Listed alphabetically
Business Name Business Category
Beverages & More Liquor Stores
Chevron Service Stations Service Stations
Coast Service Stations Service Stations
Consolidated Electrical Distributors Bldg.Matls-Whsle
CVS/Pharmacy Drug Stores
Gayles Bakery & Rosticceria Restaurants
Hasco Stations LLC Business Services
Kohl's Department Stores Department Stores
Macy's Department Store Department Stores
Margaritaville Restaurants
Nob Hill General Stores Food Markets
Outdoor Supply Hardware Bldg.Matls-Retail
Pizza My Heart Restaurants
Ross Stores Apparel Stores
Santa Cruz Subaru Auto Sales - New
Santa Cruz Toyota Auto Sales - New
Shadowbrook Restaurants
Sierra Utility Sales Electronic Equipment
Target Stores Department Stores
Toyota Lease Trust Leasing
Trader Joe's Food Markets
Ulta Miscellaneous Retail
Verizon Wireless Miscellaneous Retail
Whole Foods Market Food Markets
Zelda's Restaurants
NOTES:

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

Source: Neumo / MuniServices, LLC
June 30, 2025
156
Item 4 B.

City of Capitola Table 11
Ratios of Outstanding Debt by Type
Last Ten Fiscal Years
(amounts expressed in dollars unless otherwise noted)
Fiscal Year
Ended June 30
General
Obligation
Bonds
Lease
Revenue
Bonds Other debt
Tot. Gov't./
Primary Gov't.

Activities
2016 $ 1,255,000 $ - $ 2,811,059 $ 4,066,059 0.19% 1.04% 400 2017 645,000 - 2,632,952 3,277,952 0.15% 0.78% 310
2018 - - 2,449,251 2,449,251 0.10% 0.63% 239
2019 - - 2,267,652 2,267,652 0.09% 0.51% 224
2020 - - 2,081,485 2,081,485 0.08% 0.50% 206
2021 - - 1,894,649 1,894,649 0.07% 0.39% 193
2022 - - 1,703,461 1,703,461 0.06% 0.31% 177
2023 - - 1,472,580 1,472,580 0.05% 0.24% 155
2024 - - 762,615 762,615 0.02% 0.13% 81
2025 - - 68,823 68,823 0.00% 0.01% 7
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.

Debt as a %
of Total
Personal
Income
Debt per
Capita
Debt as a %
of Taxable
Assessed
Property
Value
157
Item 4 B.

City of Capitola Table 12
Ratios of General Bonded Debt Outstanding
Last Ten Fiscal Years
(amounts expressed in dollars unless otherwise noted)
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
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% -
2023 - 0.00% 0.00% -
2024 - 0.00% 0.00% -
2025 - 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
158
Item 4 B.

City of Capitola Table 13
Direct & Overlapping Debt
Fiscal Year ended June 30, 2024
2024-25 Assessed Valuation $ 3,305,186,041
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable (1) Total Debt Cabrillo Joint Community College District 5.364% $ 84,706,903 $ 4,543,678 Santa Cruz City High School District 11.490% 224,105,769 25,749,753 Live Oak School District 5.363% 21,401,000 1,147,736
Soquel Union School District 39.247% 61,629,000 24,187,534 Santa Cruz Libraries Facilities Community Facilities District 5.975% 53,425,000 3,192,144 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $ 445,267,672 $ 58,820,844 DIRECT AND OVERLAPPING GENERAL FUND DEBT:

Overlapping General Fund Debt:

Santa Cruz County General Fund Obligations 5.409% $ 161,987,069 $ 8,761,881 Santa Cruz County Pension Obligation Bonds 5.409% 103,085,000 5,575,868 Santa Cruz County Office of Education Certificates of Participation 5.409% 6,193,926 335,029 Santa Cruz City High School District Certificates of Participation 11.490% 283,914 32,622 Live Oak School District Certificates of Participation 5.363% 10,863,973 582,635 Soquel Union School District Certificates of Participation 39.247% 4,015,237 1,575,860 Santa Cruz City Schools Certificates of Participation 11.490% 295,000 33,896 City of Capitola Lease Financing 100.000% 693,791 693,791 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $ 287,417,910 $ 17,591,581 TOTAL CITY'S DIRECT DEBT $ 693,791
TOTAL OVERLAPPING DEBT $ 75,718,634
COMBINED TOTAL DEBT $ 76,412,425 (2)
RATIOS TO 2021-22 ASSESSED VALUATION:

Total Direct and Overlapping Tax and Assessment Debt 1.78% Total Direct Debt 0.02%
Combined Total Debt 2.31%
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.

City's Share of
Debt
159
Item 4 B.

City of Capitola Table 14
Legal Debt Margin
Last Ten Fiscal Years
(amounts expressed in thousands)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Assessed Valuation $ 2,102,980 $ 2,234,170 $ 2,378,648 $ 2,500,669 $ 2,612,882 $ 2,735,400 $ 2,821,643 $ 2,996,846 $ 3,157,743 $ 3,295,693 RDA Base Valuation 264,195 272,121 280,284 288,693 297,354 306,274 315,462 324,926 334,674 344,714 Adj. assessed valuation 1,838,785 1,962,049 2,098,364 2,211,976 2,315,528 2,429,126 2,506,181 2,671,920 2,823,069 2,950,979 Debt limit percentage 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% Debt limit 275,818 294,307 314,755 331,796 347,329 364,369 375,927 400,788 423,460 442,647 Total net applicable debt
Gen. obligation bonds 1,255 645 - - - - - - - -
Legal debt margin $ 274,563 $ 293,662 $ 314,755 $ 331,796 $ 347,329 $ 364,369 $ 375,927 $ 400,788 $ 423,460 $ 442,647 Ratio of Total Net Applicable
Debt to Debt Limit 0.46% 0.22% 0.00% 0.00% 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. 160
Item 4 B.

City of Capitola Table 15
Demographic and Economic Statistics
Last Ten Fiscal Years
Calendar Year Population
Total Personal
Income (In
Thousands)
Per Capita
Personal
Income Median Age
Unemployment
Rate
2016 10,162 $ 390,369 $ 38,415 42.8 5.5%
2017 10,563 421,494 39,903 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 41,562 42.2 2.1%
2021 9,794 484,927 49,513 45.3 1.8%
2022 9,625 548,976 57,036 47.3 2.3%
2023 9,497 622,725 65,571 48.9 2.8%
2024 9,456 593,534 62,768 46.3 2.5%
2025 9,670 634,806 65,647 46.3 2.5%
Sources: HdL Companies, California State Department of Finance, California Employment Development Department, ESRI, U. S. Census Bureau, American Community Survey.
161
Item 4 B.

City of Capitola Table 16
Principal Employers - Top Ten
Current year and nine years ago
Employer Ranking
Number of
Employees
% of Total
Employment Ranking
Number of
Employees
% of Total
Employment
Santa Cruz Subaru - Toyota 1 200 3.85% 2 190 3.33%
Pacific Coast Manor* 2 176 3.38% 1 130 2.28%
Culinary Enterprises Inc DBA Shadowbrook Restaurant 3 175 3.37% 7 130 2.28% Target Store* 4 171 3.29% 5 149 2.61%
Gayle's Bakery & Rosticceria 5 171 3.29% 4 172 3.02%
Soquel Union Elementary School District 6 168 3.23% 10 94 1.65% Trader Joe's* 7 162 3.12% 104 1.82%
Whole Foods Market 8 140 2.69% 140 2.46%
New Leaf Community Markets* 9 140 2.69% 8
City of Capitola* 10 136 2.62%
Macy's 3 200 3.51%
Kohl's 9 90 1.58%
Total Top Ten Employers 1,639 31.52% 1,399 24.54%
Total Labor Force 5,200 100.00% 5,700 100.00%
*Includes full-time and part-time employees.

Source: Neumo / MuniServices, LLC
Source: City of Capitola Publication, FY2016 Annual Comprehensive Financial Statement Report 2025 2016
162
Item 4 B.

City of Capitola Table 17
Full-time and Part-time City Employees by Function
Last Ten Fiscal Years
Function 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 General government
City Manager 7.65 6.50 6.50 6.00 7.50 5.50 5.50 7.00 7.00 7.00 Finance 4.50 4.50 3.75 3.75 3.75 2.75 3.00 3.00 4.00 4.00 City Attorney 1.00 1.00 1.00 1.00 - - - - - -

13.15 12.00 11.25 10.75 11.25 8.25 8.50 10.00 11.00 11.00 Police
Chief, Captain, Sgts. 6.00 6.00 6.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 Officers 16.00 16.00 16.00 15.00 15.00 14.00 15.00 15.00 15.00 15.00 CSOs 2.00 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 2.00 2.00 2.00 2.00 3.00 3.00 3.00 Administrative 4.65 4.50 4.50 4.50 4.50 4.50 4.00 4.00 4.00 4.00

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

14.25 16.00 16.00 16.00 15.00 14.00 14.00 15.00 16.00 16.00 Recreation
Supervisor 2.00 2.50 2.50 2.50 1.00 1.00 1.00 1.00 1.00 1.00 Other - full year 2.75 1.25 1.25 1.25 4.00 4.00 3.50 3.50 4.50 4.50

4.75 3.75 3.75 3.75 5.00 5.00 4.50 4.50 5.50 5.50
Community Development 3.50 3.50 3.50 3.00 3.00 3.00 3.00 3.00 3.00 3.00 Building 2.00 2.00 2.00 3.00 3.00 3.00 2.75 3.00 2.00 2.00 Total City Employees 69.30 68.75 68.00 67.00 67.75 62.75 62.75 66.50 68.50 68.50 NOTES: Full time equivalents (FTE); does not include temporary or seasonal employees.

SOURCE: City of Capitola Finance Department.
163
Item 4 B.

City of Capitola Table 18
Operating Indicators by Function
Last Ten Fiscal Years (except as noted)
INDICATOR 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Police department
Adult arrests 904 939 692 587 503 317 345 424 560 635
Calls for service (thousands) 17 20 19 15 19 15 14 6 13 13 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)
3 9 6 8 9 9 9 8 8 10
Valuation (millions) $ 1 $ 3 $ 4 $ 3 $ 4 $ 4 $ 4 $ 3 $ 3 $ 2 Recreation Revenue (thousands)
Classes $ 275 $ 260 $ 240 $ 231 $ 214 $ 79 $ 199 $ 225 $ 265 $ 216 Sports fees 19 21 24 23 19 8 26 22 16 18
Junior Guard 328 258 238 244 160 85 268 264 295 337
Camp Capitola 129 100 96 111 100 105 175 150 193 199
Afterschool - - - - 24 48 52 68 105 78
Events - - - - - - 1 3 1 9
Net Class Revenue $ 751 $ 639 $ 598 $ 609 $ 517 $ 325 $ 721 $ 732 $ 875 $ 857 Jade St. Rental 7 6 8 5 5 - 7 7 11 14
Net Recreation Rev $ 758 $ 645 $ 606 $ 614 $ 522 $ 325 $ 728 $ 739 $ 886 $ 871 (1) Residential units and associated valuations are total additional, new or substantially new (by code definition) units.

Source: City of Capitola Building, Finance, Police, and Public Works Departments. 164
Item 4 B.

City of Capitola Table 19
Capital Asset Statistics by Function
Last Ten Fiscal Years
Indicator 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 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 75
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 10
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.
165
Item 4 B.

Capitola City Council
Agenda Report
Meeting: January 8, 2026
From: City Manager Department
Subject: City Council Meeting Minutes
Recommended Action: Approve minutes from the regular meeting on December 11, 2025.

Background: Attached for City Council review and approval are the draft minutes from the regular meeting on December 11, 2025.

Attachments:

1. Regular Meeting 12/11/25
Report Prepared By: Julia Gautho, City Clerk
Approved By: Jamie Goldstein, City Manager
166
Item 7 A.

City of Capitola
City Council Meeting Minutes
Thursday, December 11, 2025 – 6:00 PM
City Council Chambers
420 Capitola Avenue, Capitola, CA 95010
Mayor: Joe Clarke
Vice Mayor: Margaux Morgan
Council Members: Gerry Jensen, Melinda Orbach, Susan Westman Closed Session – 4:45 PM
i. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION Significant exposure to litigation pursuant to Gov’t. Code §54956.9(d)(2), (e)(1).

One Case
ii. PUBLIC EMPLOYEE PERFORMANCE EVALUATION (Govt. Code § 54957(b)) City Council's Performance Evaluation of the City Manager 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 Jensen, Orbach, Westman, Vice Mayor Morgan, and Mayor Clarke.

2. Additions and Deletions to the Agenda – None

3. Presentations – The Mayor presented a proclamation honoring Rose Filicetti.

4. Report on Closed Session – The City Council met and discussed two items on the Closed Session agenda. No reportable action was taken.

5. Additional Materials
A. Item 9B – One letter and one email received after publication of the agenda packet.

B. Item 9D – Two emails received after publication of the agenda packet.

6. Oral Communications by Members of the Public
 James Ewing Whitman
 Linda Smith
 Molly Turner

7. Staff / City Council Comments
 Police Chief Ryan provided an update on the maintenance of the City’s parking pay stations.  Assistant to the City Manager, Chloe Woodmansee, announced that the City will be accepting applications for “Discover Capitola: a Civic Engagement Academy” beginning on January 5th.  Council Member Jensen commended the Capitola Village and Wharf Business Improvement Area on their recent community events; provided comments about his walk through of the Park at Rispin Mansion; provided comments on his attendance at a recent RTC meeting; and requested an agenda item in January to show support for the RTC’s interim trail and the use of the Capitola trestle.
 Council Member Orbach provided comments on her attendance at a recent METRO meeting. 167
Item 7 A.

City Council Meeting Minutes – December 11, 2025
City of Capitola Page 2
 Council Member Jensen requested that METRO provide a presentation at a City Council meeting on services offered.
 Council Member Westman thanked Council Member Jensen for his performance as Santa at recent community events; provided comments on her experience walking through the Park at the Rispin Mansion; and requested an agenda item in February on the City’s Administrative Policies.
 Vice Mayor Morgan provided an update on changes to the City’s website; thanked staff for their work to maintain the City’s parking pay stations; commended the CVWBIA on their recent community events; and requested that staff coordinate with Molly Turner on her request during public comment.
 Mayor Clarke wished City Manager Goldstein a happy birthday; and thanked the Council and community for his time serving as Mayor.

8. Consent Items
A. City Council Meeting Minutes
Recommended Action: Approve minutes from the regular meeting on November 13, 2025, and the special meeting on November 20, 2025.

B. City Check Registers
Recommended Action: Approve check registers dated September 26, 2025, October 10, 2025, October 24, 2025, and November 14, 2025.

C. Mandatory Organic Waste Disposal Reduction Ordinance Recommended Action: Adopt an ordinance amending Chapter 8.04 “Solid Waste Management” of the Capitola Municipal Code, establishing a Mandatory Organic Waste Disposal Reduction Ordinance consistent with Senate Bill 1383 regulations. (Ordinance No. 1072) D. Acceptance of Carbon Reduction Program Grant Funding Recommended Action: Adopt a resolution amending the FY 2025-26 Budget to accept $160,452 in Carbon Reduction Program (CRP) grant funding and appropriate the funds to the Capitola Community Center Renovation Project for the purchase of electric vehicle charging equipment. (Resolution No. 4464)
E. Interest Rate for Tenant’s Security Deposits
Recommended Action: Adopt a resolution setting the interest rate for tenants’ security deposits for 2026 at zero percent (0%). (Resolution No. 4465)
F. 2025 Pavement Maintenance Project Completion
Recommended Action: 1) Accept as complete the 2025 Pavement Maintenance Project constructed by Graham Contractors at a final cost of $684,921; 2) authorize the City Clerk to file and record a Notice of Completion; and 3) authorize the release of the contract retention of $34,246 as prescribed in the construction agreement.

G. Planner Consulting Services Contract Amendment
Recommended Action: Adopt a resolution authorizing the City Manager to execute Amendment 1 to the Professional Services Agreement with CSG Consultants in an amount not to exceed $60,000 for Planning contract services. (Resolution No. 4466) H. Jade Street Site Improvements – Quarterly Progress Update Recommended Action: Receive a quarterly progress report on the full set of Jade Street projects, including the Community Center renovation, patio improvements, Treasure Cove Playground, and the Jade Street Park restroom renovation.

I. 41st Avenue Corridor Plan – Consultant Contract Amendment 168
Item 7 A.

City Council Meeting Minutes – December 11, 2025
City of Capitola Page 3
Recommended Action: Adopt a resolution amending the FY 2025-26 Budget to allocate $58,000 from the General Plan Update and Maintenance Special Revenue Fund; and authorize the City Manager to execute Amendment 1 to the Professional Services Agreement with SWA Group to expand the 41st Avenue Corridor Plan to include portions of Clares Street and Capitola Road in an amount not to exceed $58,000, subject to City Attorney review and approval. (Resolution No. 4467)
J. Police Multi-Service Officer Job Description
Recommended Action: Approve changing the Community Service Officer job title to MultiService Officer and approve the updated job description.

K. Tobacco Grant FY 2025-26
Recommended Action: Adopt a resolution amending the FY 2025-26 General Fund operating budget to accept a Department of Justice Tobacco Grant in the amount of $55,378. (Resolution No. 4468)
L. Temporary/Hourly Employee Pay Schedule
Recommended Action: Adopt a resolution amending the temporary/hourly employee pay schedule. (Pulled for discussion by Council Member Jensen) M. Watsonville Community Hospital Grant Funding Support Recommended Action: Authorize the Mayor to send a letter to the state legislature supporting Watsonville Community Hospital’s prioritization for Rural Health Transformation Program funding and designation as a regional hub hospital.

N. First Amendment to Municipal Wharf Lease Agreement
Recommended Action: Authorize the City Manager to execute the First Amendment to the Municipal Wharf Lease Agreement with TTD, LLC. in substantially similar form, as approved by the City Attorney, as the attached agreement.

Council Member Jensen requested that quarterly project progress report (Item 8H) be placed on the General Government agenda in the future; thanked the Police Chief for obtaining the grant funding presented in Item 8K; and requested that Item 8L be pulled for discussion.

Motion to approve Items 8A – 8K and 8M-N: Council Member Orbach Second: Council Member Morgan
Voting Yea: Council Members Jensen, Orbach, Westman, Vice Mayor Morgan, Mayor Clarke

9. General Government / Public Hearings
A. Regional Interoperable Next Generation Radio System
Recommended Action: Approve the City of Capitola’s participation in the Regional Interoperable Next Generation (RING) Radio System by (1) authorizing the City Manager to execute the Master Service and Governance Agreement with the County of Santa Cruz and partner agencies and (2) designating the City Manager to serve as the City’s voting member on the RING Executive Committee.

Police Chief Ryan and County RING consultant, Jim Frawley, presented the staff report.

Public Comment:
 James Ewing Whitman
 Keith Cahalen
169
Item 7 A.

City Council Meeting Minutes – December 11, 2025
City of Capitola Page 4
Motion to authorize the City Manager to execute the Master Service and Governance Agreement and designate the City Manager to serve on the RING Executive Committee:

Council Member Orbach
Second: Council Member Jensen
Voting Yea: Council Members Jensen, Orbach, Westman, Vice Mayor Morgan, Mayor Clarke
B. Phase 1 Conceptual Design – Grand Avenue Pathway
Recommended Action: Authorize the City Manager to execute a professional services agreement with SSA Landscape Architects, Inc. for Phase 1 Conceptual Design of the Grand Avenue Pathway in an amount not to exceed $13,000, with funding from the Capital Improvement Program (CIP) Fund. (Continued from November 13, 2025, City Council meeting) Public Works Director Kahn presented the staff report.

Public Comment:
 Tom Mater
Motion to execute an agreement with SSA Landscape Architects, Inc. with funding from the Employee Down Payment Assistance Fund: Council Member Westman Second: Vice Mayor Morgan
Voting Yea: Council Members Jensen, Westman, Vice Mayor Morgan, Mayor Clarke Voting Nay: Council Member Orbach
C. Capitola Municipal Code Sections 2.04.140 and 2.04.210 Recommended Action: Introduce for first reading, by title only, waiving further reading, an ordinance amending Capitola Municipal Code Sections 2.04.140 and 2.04.210 to update the process by which City Council Members request agenda items and their rules of debate.

City Clerk Gautho presented the staff report.

Public Comment: None
Motion to introduce Ordinance No. 1073: Vice Mayor Morgan Second: Council Member Orbach
Voting Yea: Council Members Jensen, Orbach, Westman, Vice Mayor Morgan, Mayor Clarke
Mayor Clarke requested the discussion of Item 8L before Item 9D, to allow the Council Reorganization to occur last on the agenda.

8. Consent Items Pulled for Discussion
L. Temporary/Hourly Employee Pay Schedule
Recommended Action: Adopt a resolution amending the temporary/hourly employee pay schedule. (Pulled for discussion by Council Member Jensen) Administrative Services Director Malberg presented an oral report.

Public Comment: None
 Name
The City Council discussed concerns about the City’s financial position and the juxtaposition of offering hourly pay increases.

Motion to continue the item to January 22, 2026: Council Member Westman 170
Item 7 A.

City Council Meeting Minutes – December 11, 2025
City of Capitola Page 5
Second: Council Member Westman
Voting Yea: Council Members Jensen, Orbach, Westman, Vice Mayor Morgan, Mayor Clarke

9. General Government / Public Hearings
D. City Council Reorganization for 2026
Recommended Action: Nominate and appoint a new Mayor and Vice-Mayor.

City Clerk Gautho presented the staff report.

Public Comment:
 Speaker
Motion to appoint Margaux Morgan as Mayor and Gerry Jensen as Vice Mayor for 2026:

Council Member Westman
Second: Council Member Orbach
Voting Yea: Council Members Jensen, Orbach, Westman, Vice Mayor Morgan, Mayor Clarke

10. Adjournment
The meeting adjourned at 7:41 PM. The next regularly scheduled City Council meeting is on January 8, 2026, at 6:00 PM.
________________________
Margaux Morgan, Mayor
ATTEST:
______________________
Julia Gautho, City Clerk
171
Item 7 A.

Capitola City Council
Agenda Report
Meeting: January 8, 2026
From: Community and Economic Development Department
Subject: 2
nd Amendment to Agreement with Ben Noble Planning
Recommended Action: Adopt a resolution amending the FY 2025-26 Budget to allocate funding for Housing Element Implementation and authorizing the City Manager to execute Amendment 2 to the Professional Services Agreement in a form acceptable to the City Attorney’s Office with Ben Noble Planning to assist in Housing Element implementation.

Background: As part of the City’s adopted 6th Cycle Housing Element, Program 1.6 (Development Regulations) and Program 1.7 (Shopping/Commercial Center Redevelopment) identify the Capitola Mall site as a key opportunity for redevelopment to help meet regional housing needs while supporting economic development and community character.

Housing Element Program 1.6 directs the City to review and revise Chapter 17.88 of the Zoning Code, Incentives for Community Benefits, to modify the required findings for future redevelopment of the Capitola Mall Site to require compliance with objective standards, expand the Community Benefits zoning boundary; and increase the incentives for redevelopment on the Capitola Mall Site to allow a maximum Floor Area Ratio (FAR) of 2.0 (excluding parking garages), and a maximum building height of 75 feet.

Housing Element Program 1.7 addresses the changing retail environment and directs the City to study and facilitate mixed-use redevelopment of the Capitola Mall site. Specifically, the program requires the City to amend Chapter 17.88 of the Zoning Code to:

1. Develop land use policies to facilitate shopping center redevelopment with a strong sense of urban design cohesion.

2. Define “Capitola Mall” as all properties between Clares Street, 41st Avenue, and Capitola Road.

3. Allow for building height up to 75 feet for Mall Redevelopment.

4. Define “Mall Redevelopment” to mean a mix of uses that includes residential and retail/commercial components.

5. Exclude parking garages from the project FAR calculations.

6. Adopt objective development standards to facilitate mall redevelopment.

On May 23, 2024, the City Council authorized a contract with Ben Noble Planning in the amount of $124,375 to implement Housing Element programs. The funding for this agreement was a mix of REAP

2.0 grant funds ($64,375) and General Plan Funds ($60,000). The REAP 2.0 funding is specifically for Housing Element implementation, and the General Plan Funds are for 3 years of annual Zoning Code amendments. The REAP funds have been depleted, and the annual zoning code fund has $42,427 remaining.

On September 11, 2025, the City Council approved the first amendment to the Ben Noble contract to implement Housing Element Programs 1.6 and 1.7. The additional $67,936 included two Planning Commission work sessions, stakeholder meetings, one community workshop, one Planning Commission public hearing (recommendation), one City Council public hearing (1st reading of ordinance), subconsultant services, and travel expenses.

On October 8, 2025, a Community Meeting was held at New Brighton Middle School.

On October 11, October 30, and November 19, the Planning Commission held work sessions on the Capitola Mall zoning code updates. On December 4, 2025, the updates were noticed for a public hearing and possible recommendation to the City Council. Due to extensive public input and Planning Commission direction provided, the item was continued to a special meeting on January 29, 2026. 172
Item 7 B.

Discussion: To date, there have been two extra Planning Commission meetings and one extra round of revisions than originally budgeted. Staff anticipates one or two additional Planning Commission meetings based on the complexity of the updates. The original contract anticipated one City Council meeting for a first reading of the ordinance. Based on the timing at the Planning Commission meetings and the depth of the information, an additional public hearing before the City Council may be needed.

The proposed additions to the scope of work includes:

1. Additional Planning Commission hearing on December 4, 2025

2. Revised zoning code based on December 4 Planning Commission direction

3. Additional graphics for objective standards

4. Planning Commission hearing on February 5, 2026

5. Additional Planning Commission meeting and updates (if necessary)

6. Additional City Council hearing and updates (if necessary) Fiscal Impact: The proposed contract amendment is for $41,829. The contract cost will be funded by the General Plan Update and Maintenance Special Revenue Fund, which will have an approximate available fund balance of $258,000 with this additional expenditure.

Attachments:

1. Proposed Resolution Amending Budget, Exhibit A (Budget Amendment)

2. Proposed Resolution Authorizing the City Manager to Execute Amendment No. 2 to Agreement a. Agreement
b. Amendment No. 1 to Agreement
c. Proposed Amendment No. 2 to Agreement, Exhibit A (Additional Scope) Report Prepared By: Katie Herlihy, Community and Economic Development Director Reviewed By: Julia Gautho, City Clerk; Marc Tran, City Attorney Approved By: Jamie Goldstein, City Manager
173
Item 7 B.

RESOLUTION NO. _____

RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CAPITOLA
AMENDING THE 2025-26 FISCAL YEAR CITY BUDGET AND CAPITAL IMPROVEMENT

PROGRAM BUDGET TO ALLOCATE FUNDING FOR HOUSING ELEMENT
IMPLEMENTATION AND AUTHORIZING THE CITY MANAGER TO EXECUTE AMENDMENT 2

TO THE PROFESSIONAL SERVICES AGREEMENT WITH BEN NOBLE PLANNING WHEREAS, it is necessary to adopted the FY 2025-26 Budget for all City funds and Capital Improvement Program on June 26, 2025; and
WHEREAS, since the adoption of the FY 2025-26 Budget, the City continued implementation of the 6th Cycle Housing Element Program; and WHEREAS, on May 23, 2024, the City Council authorized a contract with Ben Noble Planning in the amount of $124,375 for Housing Element implementation (“Agreement”); and WHEREAS, on September 11, 2025, the City Council authorized Amendment 1 to the Agreement to expand the scope of services and increase compensation in the amount of $67,936; and
WHEREAS, to date, there have been two extra Planning Commission meetings and one extra round of revisions than originally budgeted. Staff anticipate up to two additional public meetings based on the complexity of the updates; and
WHEREAS, it is necessary to further expand the scope of services and increase compensation by up to $41,829; and
WHEREAS, it is necessary to amend the FY 2025-26 Budget to receive and appropriate the $41,829 from the General Plan Update and Maintenance Fund balance.

NOW, THEREFORE, BE IT HEREBY RESOLVED by the City Council of the City of Capitola that the 2025-26 Fiscal Year Budget is hereby amended, including Exhibit A (Budget Amendment) to this Resolution; and
BE IT FURTHER RESOLVED that the City Manager is authorized to execute the second amendment to the Professional Services Agreement with Ben Noble Planning to expand the scope of services and provide additional compensation for the expanded scope in an amount of $41,829 in a form subject to review and approval by the City Attorney.

I HEREBY CERTIFY that the foregoing Resolution was passed and adopted by the City Council of the City of Capitola on the 8
th day of January 2026, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:
_____________________
Margaux Morgan, Mayor
ATTEST:
174
Item 7 B.
____________________ ___
Julia Gautho, City Clerk
175
Item 7 B.

Budget Adjustment Request
Date
12/12/2025
Requesting Department *
Community Development
Type of Adjustment
Administrative
Council
Item #
Council Date
Council Approval
Revenues
Account Number Account Description Increase/Decrease
Total Revenues
$0.00
Expenditures
Account Number Account Description Increase/Decrease
1313-00-00-000-4305.900 $41,829.00
Total Expenditures
$41,829.00
Net Impact
-$41,829.00
Purpose
Increase contract with Ben Noble for Housing Element Implementation.

Department Head Approval
Finance Director Approval
176
Item 7 B.

City Manager Approval
177
Item 7 B.

Action History (all history times shown in Pacific Standard Time) Submit by Jim Malberg 12/12/2025 11:56:45 am (Budget Amendment Request Submitted) Approve by [email protected] 12/30/2025 3:34:29 pm (Routed to CDD) The task was assigned to [email protected]
12/12/2025 11:56:45 am
Approve (send to CM
for approval)
by Jim Malberg 12/31/2025 8:33:13 am (Routed to Finance Director) The task was assigned to Jim Malberg
12/30/2025 3:34:29 pm
Approve (return to
Finance for
processing)
by Jamie Goldstein 12/31/2025 11:06:20 am (Routed to CM for final approval) The task was assigned to Jamie Goldstein
12/31/2025 8:33:13 am
178
Item 7 B.

Capitola City Council
Agenda Report
Meeting: January 8, 2026
From: City Manager Department
Subject: Capitola Municipal Code Sections 2.04.140 and 2.04.210 Recommended Action: Adopt an ordinance amending Capitola Municipal Code Sections 2.04.140 and

2.04.210 to update the process by which City Council members request agenda items and their rules of debate.

Background: Capitola’s process for Council Members to request agenda items is outlined in the City’s Municipal Code (CMC) Section 2.04.140, which states any Council Member may request an agenda item during an open City Council meeting. The current practice is that Council Members generally make such requests during the Council Member Comments portion of the agenda, and pursuant to the Municipal code, such a request does not require a second or consensus.

On July 24, 2025, Council Member Orbach requested staff conduct research on how other cities proceed with placing City Council requests on agendas. Staff sent a survey request through the California League of Cities and received responses from twenty-four cities regarding their processes. Staff produced a memo for the City Council on August 28th. On September 11th, Council Member Orbach requested an agenda item to discuss the process by which Council Members can request agenda items.

On October 9, 2025, the City Council directed staff to return with an ordinance amending CMC Section

2.04.140 to require a request and a second by Council Members to place an item on the agenda.

During review of CMC Chapter 2.04, the City Attorney’s office identified an additional section which may benefit from an amendment: CMC Section 2.04.210 regarding Rules of Debate.

On December 11, 2025, the City Council unanimously approved the introduction of the ordinance.

Discussion: The proposed ordinance includes the requested change, and an additional modification to CMC Section 2.04.210 to align the rules of debate with the City’s adopted Code of Conduct. The proposed ordinance also includes a change to clarify CMC Section 2.04.210 to clarify and streamline the rules of debate.

Fiscal Impact: There is no fiscal impact associated with the recommended action.

Attachments:

1. Ordinance
Report Prepared By: Julia Gautho, City Clerk
Reviewed By: Marc Tran, City Attorney
Approved By: Jamie Goldstein, City Manager
179
Item 7 C.
4899-7278-8598 v2

CITY OF CAPITOLA
ORDINANCE NO. ______
AN ORDINANCE OF THE CITY OF CAPITOLA AMENDING SECTIONS 2.04.140 AND 2.04.210 OF CHAPTER 2.04 OF THE CITY OF CAPITOLA MUNICIPAL CODE

REGARDING ADMINISTRATION AND PERSONNEL
WHEREAS, regular review of municipal codes is recommended as a best practice and can identify outdated or ineffective provisions; and
WHEREAS, on July 24, 2025, the City Council of the City of Capitola (“City”) requested staff research the process by which Council Members can request agenda items for discussion during a City Council meeting; and
WHEREAS, on October 9, 2025, the City Council received a report comparing Capitola’s process outlined in Capitola Municipal Code (“CMC”) section 2.04.140 to those in other agencies; and
WHEREAS, also on October 9, 2025, the City Council directed staff to amend CMC section

2.04.140 to require that Council Member requests for a new discussion item be supported by a second; and
WHEREAS, CMC section 2.04.210 could be clarified to streamline the City’s rules of debate; and
WHEREAS, the City of Capitola has an interest in ensuring that the municipal code remains upto-date and understandable for members of the public, staff, and the City Council; and WHEREAS, the City Council desires to implement changes to the language in Chapter 2.04.

NOW THEREFORE, THE CITY COUNCIL OF THE CITY OF CAPITOLA DOES ORDAIN AS FOLLOWS:

Section 1. Incorporation of Recitals. The above-listed recitals are true and correct and incorporated herein by this reference.

Section 2. Amendment. CMC sections 2.04.140 and 2.04.210 of Chapter 2.04 are hereby amended as shown in Exhibit A (additions in underline, deletions in strikethrough).

Section 3. Effective Date. This Ordinance shall be in full force and effect thirty (30) days from its passage and adoption.

Section 4. Severability. The City Council hereby declares every section, paragraph, sentence, cause, and phrase of this ordinance is severable. If any section, paragraph, sentence, clause, or phrase of this ordinance is for any reason found to be invalid or unconstitutional, such invalidity 180
Item 7 C.
4899-7278-8598 v2
or unconstitutionality shall not affect the validity or constitutionality of the remaining sections, paragraphs, sentences, clauses, or phrases.

Section 5. Certification. The City Clerk shall cause this ordinance to be posted and/or published in the manner required by law.

This Ordinance was introduced at the meeting of the City Council on the 11th day of December, 2025, and was adopted at a regular meeting of the City Council on the 8th day of January, 2026, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

Margaux Morgan, Mayor
Attest: ___________________________
Julia Gautho, City Clerk

Approved as to form:
___________________________________
Marc Tran, City Attorney
181
Item 7 C.
4899-7278-8598 v2
Exhibit A
Title 2
“ADMINISTRATION AND PERSONNEL”

2.04.140 Agenda.

The following have authority to place a matter on the council agenda:

A. The mayor or any member of the city council with the condition that the proposed agenda item be requested and seconded at an open city council meeting; B. The city manager;
C. The city council may, after the seventy-two-hour agenda-posting deadline has expired, add items to the agenda in the manner provided in Government Code Section 54954.2(b); D. The city treasurer, city clerk, or city attorney, provided the subject is reasonably related to their powers and duties and concerns a subject upon which the council has authority to act. Other persons must direct their agenda requests to the city council (at council meetings), the mayor, or the city manager. Agendas shall otherwise be prepared under the direction of the city manager and shall be posted, noticed and distributed in accordance with the Brown Act. For purposes of Government Code Section 54954.2(a), agendas shall be posted in the entrance area to the city council chambers.

2.04.210 Rules of debate.

A. Presiding Officer May Debate. The mayor or vice mayor may debate from the chair, subject only to such limitations of debate as are imposed upon all members by the rules set forth in this section.

B. Getting the Floor. Every member desiring to speak shall address the chair, and upon recognition by the presiding officer, shall confine himself or herself to the question under debate, avoiding all personalities and indecorous language.

C. Interruptions. A member, once recognized, shall not be interrupted when speaking unless it is to call him or her to order. If a member, while speaking, is called to order, he or she shall cease speaking until the question of order is determined and, if in order, he or she shall be permitted to proceed.

D. Privilege of Closing Debate. The councilmember moving the adoption of an ordinance or resolution shall have the privilege of closing the debate.

E. Remarks of Councilmember. A councilmember may request, through the presiding officer, the privilege of having an abstract of his or her statement on any subject under consideration by the council entered in the minutes. If the council consents thereto, such statement shall be entered; provided, however, any council member without council consent shall have the right to have the 182
Item 7 C.
4899-7278-8598 v2
reasons for his or her dissent from, or protest against, any action of the council entering in the minutes.

F. Synopsis of Debate. The city clerk may be directed by the presiding officer, with consent of the council, to enter in the minutes a synopsis of the discussion on any question coming regularly before the council.

C. Rules of Order. Except as otherwise provided in this chapter, the rules of order that govern the conduct of the meetings of the city council and other city advisory bodies shall be those rules of order designated by city council resolution.
183
Item 7 C.

Capitola City Council
Agenda Report
Meeting: January 8, 2026
From: Administrative Services Department
Subject: City Investment Brokerage Services
Recommended Action: Authorize the Administrative Services Director to execute a non-corporate resolution allowing Cetera Advisor Networks, LLC to continue acting as the City’s investment broker.

Background: The City’s investment policy authorizes the use of certificates of deposit as an approved investment vehicle. ProEquities, Inc. has historically served as the City’s brokerage firm, executing investments in certificates of deposit at the City’s direction. In February 2025, ProEquities, Inc. was acquired by Cetera Financial Group, which now requires the City Council to adopt a resolution to allow the brokerage firm to continue providing brokerage services.

Discussion: With the acquisition of ProEquities, Inc. by Cetera Financial Group, brokerage services previously provided to the City are now administered through Cetera Advisor Networks, LLC. In order to maintain continuity of investment operations, formal authorization is required by Cetera Advisor Networks, LLC to act on the City’s behalf.

Capitola currently has six Certificates of Deposit (CD) with Cetera Financial Group totaling approximately $1.5 million, with an average interest rate of approximately 4% and maturity dates extending until September 2027. The City’s Investment Policy prioritizes the following (in order):
1) safety, 2) liquidity, and 3) earnings. Based on these priorities, staff is allowing each CD to reach maturity and then reinvesting in idle cash with the City’s new local banking partner, West Coast Community Bank.

Adoption of the proposed resolution will allow the City to continue hold and invest in certificates of deposit without interruption.

Fiscal Impact: None.

Attachments:

1. Cetera Advisor Networks, LLC Non-Corporate Resolution Report Prepared By: Luis Ruiz, Accountant II
Reviewed By: Julia Gautho, City Clerk and Jim Malberg, Administrative Services Director Approved By: Jamie Goldstein, City Manager
184
Item 7 D.
185
Item 7 D.
186
Item 7 D.
187
Item 7 D.

Capitola City Council
Agenda Report
Meeting: January 8, 2026
From: Police Department
Subject: 2025 Special Event Report
Recommended Action: Receive a report highlighting special events held in the City in 2025; provide feedback for recurring Special Event Permits; determine if any additional review should be required for any 2026 special events; and adopt a resolution to approve Coastal Development Permit #25-0607 for the 2026 Capitola Beach Festival and Junior Guards Competition.

Background: In March 2024, the City Council adopted Ordinance No. 1065, updating the City’s special event ordinance. That update established clear criteria for types of special event permits and the process for issuance.

Special events are divided into two categories: major special events and minor special events. Major special events are those with more than 200 attendees, involve the closure of a Major Street (as defined by Ordinance No. 1065), or have notable impacts on City services or a neighborhood. Minor special events are activities with between 75 to 200 people, not requiring closure of a major street, and can be approved by the City Manager or his/her designee. All applications for new major special events must be presented to the City Council for review and consideration.

If there are no significant modifications and there are no major problems with the event, recurring special events may be approved by the City Manager for the upcoming calendar year. The City Council has the discretion to request a review of a recurring special event if there is an identifiable concern related to past events.

The purpose of this report is to review the 2025 special events, identify any issues, and determine if any additional review should be required for recurring events in 2026. If no issues are identified for an event, and the event organizer proposes no significant changes, City Council may approve a Coastal Development Permit for two of the events, and staff will issue permits for the recurring special events in 2026.

Discussion: In 2025, staff issued 11 major special event permits, 16 minor special event permits, and held 10 City-organized events. The following recurring Major and Minor Special Events are planned for 2026.

Recurring 2026 Major Special Events
Surfer’s Path 5K/10K Capitola Art & Wine Festival
Surfer’s Path Half Marathon Capitola Beach Festival
Capitola Custom Classic Car Show Mermaid Triathlon & Duathlon Wharf to Wharf Race Monte Fireworks Extravaganza
Capitola 5K/10K Women on Waves Surf Contest
VW Car Show
188
Item 8 A.

Recurring 2026 Minor Special Events
Operation Surf Strawberry Fields Forever Ride
Good Friday Paddle Out Veteran Surf Alliance Paddle Out Veteran Surf Alliance Learn to Surf (5) AIDS/Lifecyle Bicycle Ride Village Sip & Stroll (3) California Coast Classic
5K Walk for Angelman’s Syndrome Halloween Parade
Fill the Boot for MDA Surfing Santa
Open Water Swim Festival
City-Organized Special Events
Twilight Concerts (12) Movies at the Beach (2)
Food Truck Fridays (4) Boogie on the Wharf (3)
Makers Market (4) New Music Sunday (2)
Plein Air Dueling Pianos (2)
First Responder’s Surf Contest National Night Out
Junior Guards Competition
Coastal Development Permits: Pursuant to the CMC Section 17.44.080.F, temporary events in the coastal zone meeting one or more of the following criteria require a Coastal Development Permit (CDP):

1. Scheduled the Saturday of Memorial Day weekend through Labor Day for a period greater than two days in duration, including setup and takedown.

2. The event will occupy any portion of a publicly or privately owned sandy beach or park area, public pier, public beach parking area, and there is a potential for adverse effect on sensitive coastal resources.

3. A fee will be charged for general public admission and/or seating where no fee is currently charged for use of the same area (not including booth or entry fees); or if a fee is charged, it is for preferred seating only, and 75% of the provided seating capacity is available free of charge for general public use.

Based on these criteria the following recurring events require CDPs.  Junior Guards Competition
 Capitola Beach Festival
Many other events occupy a portion of the beach, but there is no potential adverse impacts on sensitive coastal resources, do not last longer than two days during the summer months, and the only fees charged are entry fees.

The Monte Foundation Fireworks Extravaganza, a major special event held in October, currently holds a CDP issued through the California Coastal Commission. The CDP will expire in 2027.

The events are located within the Mixed-Use Village (MU-V) Zoning District and Parks and Open Space (POS). The Coastal Development Permit is appealable to the California Coastal Commission. In order to issue a CDP for a special event, the City Council must determine that the event complies with the following criteria:

1. The event will result in no adverse impact on opportunities for public use of or access to the area due to the proposed location and/or timing of the event, either individually or cumulatively 189
Item 8 A.
considered together with other development or temporary events scheduled before or after the particular event;

2. There will be no direct or indirect impacts from the event and its associated activities or access requirements on environmentally sensitive habitat areas, rare or endangered species, significant scenic resources, or other coastal resources; and

3. The event has not previously required a CDP to address and monitor associated impacts to coastal resources.

Both events are managed to comply with the required CDP criteria through the application process and specific event site and management plans. Public use and access are maintained to the coast and there are no direct or indirect negative impacts on environmentally sensitive habitat areas, rare or endangered species, significant scenic resources, or other coastal resources. Also, none of the events previously required a CDP with requirements for monitoring associated impacts to coastal resources.

CEQA: The permit is categorically exempt from CEQA exemption 15323 Normal Operation of Facilities for Public Gathering. The special events consist of normal operation of existing facilities for public gatherings in which the facilities in which there is a past history of the facility being used for the same or similar kind of purpose.

Fiscal Impact: The 2025 Special Events resulted in 876 hours of City staff time. The City incurred a total of $111,807 in costs associated with events, 100% of which were reimbursed by special-event organizers.

Attachments:

1. Resolution
Report Prepared By: Sarah Ryan, Chief of Police
Reviewed By: Julia Gautho, City Clerk; Marc Tran, City Attorney Approved By: Jamie Goldstein, City Manager
190
Item 8 A.

RESOLUTION NO. ______

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CAPITOLA APPROVING COASTAL DEVELOPMENT PERMIT NO. 25-0607 FOR 2026 SPECIAL EVENTS AND

DIRECTING THE COMMUNITY DEVELOPMENT DIRECTOR TO SUBMIT A NOTICE OF

FINAL LOCAL ACTION TO THE CALIFORNIA COASTAL COMMISSION WHEREAS, the City (Applicant), submitted an application for a Coastal Development Permit (CDP) to authorize the 2026 Capitola Beach Festival and 2026 Junior Guards Competition (Project) located within the Mixed Use Village Zoning District and the Parks and Open Space Zoning District, and more specifically within the Capitola Village and the Capitola Beach, within the City of Capitola; and
WHEREAS, the subject property is located within the City’s Coastal Zone and requires approval of a Coastal Development Permit pursuant to Capitola Municipal Code (CMC) Chapter 17.44 and the Local Coastal Program (LCP); and
WHEREAS, the City of Capitola Community and Economic Development Department reviewed the application for consistency with the General Plan, Local Coastal Program, Zoning Ordinance, and applicable provisions of state law, including the California Coastal Act; and WHEREAS, the City Council held a duly noticed public hearing on January 8, 2026, at which time all interested persons were given an opportunity to be heard; and WHEREAS, the City Council considered the staff report, public testimony, project plans, environmental review, and all other information contained in the administrative record; and WHEREAS, the Project is exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15323, as documented in the administrative record; and WHEREAS, based on its review, the City Council makes the following findings as required by the Capitola Municipal Code and the City of Capitola Local Coastal Program:

SECTION 1. COASTAL DEVELOPMENT PERMIT FINDINGS

1. The event will result in no adverse impact on opportunities for public use of or access to the area due to the proposed location and/or timing of the event either individually or cumulatively considered together with other development or temporary events scheduled before or after the particular event; and

2. There will be no direct or indirect impacts from the event and its associated activities or access requirements on environmentally sensitive habitat areas, rare or endangered species, significant scenic resources, or other coastal resources; and

3. The event has not previously required a CDP to address and monitor associated impacts to coastal resources; and

4. The Capitola Beach Festival is authorized to hold the lighted boat parade in Soquel Creek using electric propeller-operated watercraft, consistent with Capitola Municipal Code Section 8.20.010.
191
Item 8 A.

SECTION 2. APPROVAL
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Capitola hereby approves Coastal Development Permit No. 25-0607 for the 2026 Capitola Beach Festival, and 2026 Junior Guards Competition.

SECTION 3. NOTICE OF FINAL LOCAL ACTION
BE IT FURTHER RESOLVED that the City Council directs the Community Development Director to submit a Notice of Final Local Action and all required materials to the California Coastal Commission within the statutory deadline.

PASSED AND ADOPTED by the City Council of the City of Capitola on this 8th day of January 2026, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:
__________________
Margaux Morgan, Mayor
ATTEST:
_______________________
Julia Gautho, City Clerk
192
Item 8 A.
2025 SPECIAL
EVENT

PERMITS
Sarah Ryan, Chief of
First Responder’s Surf Contest Police
193
Item 8 A.

Purpose • Receive Report on 2025 Special Events
• Provide direction regarding changes to
specific recurring special events, permits
• Determine if any additional review
should be required for any planned
recurring 2026 special events
194
Item 8 A.

Special Event Background
Police Department issues SE permits
• Major SE Permits
• Over 200 attendees
• Closure of a major street (as defined by Ordinance
1065) • Notable impacts on City services or a neighborhood • Minor SE Permits
• Between 75 to 200 attendees
• Not requiring closure of a major street
• Minimal impacts on city services • Can be approved by the City Manager 2025 - Staff Issued 11 Major SE Permits, 20 Minor SE
Permits, and 30 City Organized Events
195
Item 8 A.
11 Public Major Special Events
• February Surfer’s Path 10k/5k
• Capitola Art & Wine Festival • April Surfer’s Path Half Marathon • Capitola Beach Festival • Capitola Custom Classic Car Show • Women on Waves
• Wharf to Wharf • August Surfer’s Path Capitola 10k/5k • Mermaid Triathlon & Duathlon
• Monte Foundation Fireworks
• VW Car Show
196
Item 8 A.
20 Public Minor Special Events
• Village Sip and Stroll (3 total) • California Coast Classic Ride • Operation Surf • Veteran Surf Alliance Paddle Out • Veteran Surf Alliance Learn to Surf (4 total) • Fill the Boot for Muscular Dystrophy
• Halloween Parade
• Surfing Santa
• Walk for Angelman’s Syndrome
• AIDS/Lifecycle Bicycle Ride
• Waves of Impact
• Good Friday Paddle Out • 3 Baptize America
• Open Water Swim Festival • National Night Out
• Outstanding In the Field
197
Item 8 A.
30 City Organized Events
• Junior Guards Competition – July • 4 Food Truck Fridays at Monterey Park – Minor Event May, June, July, August • 4 Makers Market – June, July, August • 3 Boogie On the Wharf – August & September
• Dueling Pianos – July & August • 2 New Music Sunday – July & August • 12 Wednesday Night Twilight Concerts – Major Event
June – August • 2 Friday Night Movies at the Beach – Major Event August & September
• Plein Air – Minor Event (occurs over several days)
198
Item 8 A.
2025 Recap
• Joint debriefs were conducted with event
organizers and overall, the events were
successful. • Continuous request to encourage any new
events to occur on “shoulder season”
• Staff billed for 876 hours of City staff time.

City incurred a total of $111,807 in costs
associated with events, 100% reimbursed by
organizers. • Staff is prepared to support 2026 Major and Minor Events listed in staff agenda report.
199
Item 8 A.
2025 Event Overview
Major:

January – 0
February – 1
March – 0
April – 1
May – 1
June – 4
July – 5
August – 5
September – 2
October – 3
November – 0
December – 0
Minor:

January – 0
February – 2
March – 2
April – 2
May – 6
June – 6
July – 8
August – 11
September – 7
October – 1
November – 3
December – 0
200
Item 8 A.

Coastal Development Permit
CDP required by City’s approved LCP if one or more criteria:

1. Scheduled Memorial Day through Labor Day for more than 2 days, including setup and takedown

2. Event occupies a portion of a publicly or private beach, park, wharf, or beach parking AND potential for adverse effect on sensitive coastal resources

3. Fee charged for admission and/or seating where no fee is currently charged OR, if fee is charged for preferred seating and less than 75% of seating is free 201
Item 8 A.

Coastal Development Permit
Recurring Events requiring CDP

1. Junior Guards Competition – takes place during summer and involves more than 2 days including setup and takedown.

2. Capitola Beach Festival – occupies portions of beach and wharf and potential for adverse effect on sensitive coastal resources
202
Item 8 A.

Recommended Action
• Provide feedback, specific changes, or direction for recurring Special Events Permits; and approve recurring minor and major special events for 2026.
• Adopt a resolution to approve Coastal Development Permit #25-0607 for the 2026 Capitola Beach Festival and Junior Guards Competition. 203
Item 8 A.

Capitola City Council
Agenda Report
Meeting: January 8, 2026
From: Community and Economic Development Department
Subject: Local Coastal Program Amendments for Cliff Drive Resiliency Recommended Action: 1) Introduce for first reading, by title only, waiving further reading of the text, an ordinance amending Capitola Municipal Code Title 17: Zoning, Chapter 17.32 Parks and Open Space, Chapter 17.64 ESHA, Chapter 17.76 Parking and Loading, and Chapter 17.68 Geological Hazard (collectively, the “Zoning Code Amendments”) and authorizing submittal to the California Coastal Commission for Certification; 2) Adopt a resolution amending Capitola’s Land Use Plan Chapter 2:

Public Access and Chapter 7: Natural Hazards (collectively, the “Land Use Plan Amendments”) and authorizing submittal to the California Coastal Commission for certification; and 3) Find that the above actions are exempt from the California Environmental Quality Act (CEQA).

Background: The Public Works Department initiated the Cliff Drive Resiliency Project (project information can be found at the link listed as Attachment 10) as a comprehensive effort to address bluff erosion, sealevel rise, and stormwater drainage impacts along the Cliff Drive corridor while also enhancing pedestrian, bicycle, and coastal access. The project extends from the western City limit to Capitola Village and includes connections to Hooper Beach and the Capitola Wharf overlook. Following an August 2024 presentation regarding alternatives for the project, the City Council reviewed the feasibility study and directed staff to move forward with Alternative 3 for full bluff protection, which includes continuous bluff stabilization along the project length, a Class I facility, cantilevered sections where needed, overlooks, and reconfigured parking.

The City hosted a community meeting on August 12, 2025, and presented an overview of the project.

The City Council received an update on the Cliff Drive Resiliency Project on August 28, 2025. At that meeting, staff discussed utilizing a phased approach due to overall cost and the current $10.5 million committed funding through the Federal Highway Administration (FHWA) Emergency Relief Program.

Before moving forward with the Cliff Drive Resiliency Project, the City must amend two planning documents that guide future development along the corridor. The City received a $500,000 Coastal Commission LCP grant for the Cliff Drive Resiliency Project. As part of the grant contract, the City is required to update Capitola’s Local Coastal Program relative to the Cliff Drive improvements.

Capitola’s Local Coastal Program (LCP) is the guiding policy and regulatory framework for development and resources within the City's Coastal Zone. There are two key components to a Local Coastal Program.

The LCP Land Use Plan (Attachment 11) is a long-range planning document that establishes broad policies for land use, coastal access, habitat protection, and hazard management. The LCP Implementation Plan (sections of CMC Title 17 Zoning Code, linked as Attachment 12) contains specific zoning standards, ordinances, and procedures to carry out the Land Use Plan policies. The City must amend the two documents to update outdated references and policies related to Cliff Drive resilience planning. These updates address increased coastal erosion, sea-level rise, and public access needs.

On September 4, 2025, the Planning Commission held a public hearing to consider the Local Coastal Program Amendments, received public comment, voted to recommend the City Council adopt the proposed LCP Implementation Plan amendments, and voted to continue the LCP Land Use Plan amendments due to additional edits requested during the meeting.

On October 2, 2025, the Planning Commission reviewed the additional LCP Land Use Plan amendments, received public comment, and forwarded a positive recommendation to the City Council to adopt.

Discussion: The following list contains the sections of the LCP proposed for amendments:
204
Item 8 B.
4923-5230-1442 v1

1. CMC Chapter 17.32 Parks and Open Space

2. CMC Chapter 17.64 ESHA

3. CMC Chapter 17.76 Parking and Loading

4. CMC Chapter 17.68 Geological Hazards

5. Capitola Local Coastal Land Use Plan Chapter 2: Public Access

6. Capitola Local Coastal Land Use Plan Chapter 7: Natural Hazards The update to Chapter 17.32: Parks and Open Space includes a new allowance for improvements along Cliff Drive related to the Cliff Drive Resiliency Project, as well as new limitations for development to ensure it is subordinate to recreational, scenic, or natural resources and prohibited on beaches except for public facilities (such as flumes, jetties, beach erosion control structures, lifeguard stands, etc.).

Amendments to Chapter 17.68: Geological Hazards create consistency in the definition of bluff/seacliff, introduce a definition for coastal hazards, expand the purpose statement of the geological hazards overlay, remove references to outdated documents for geological reports, and remove the reference to the economic life of the project while maintaining a minimum fifty-year standard.

Amendments to Chapter 17.64: Ecologically Sensitive Habitat Areas clarify that resource-dependent uses (low-intensity public access and recreation, nature study, restoration) are included as an exception for development within environmentally sensitive habitat areas (ESHA).

The amendment to Chapter 17.76: Parking and Loading corrects the reference to the Southern Pacific railroad right-of-way by replacing it with the Regional Transportation Commission.

The proposed Land Use Plan amendments would update descriptions of existing conditions, replace references to Southern Pacific Railroad with the Regional Transportation Commission, amend policies to include support for multi-modal enhancements, public access, coastal planning for sea-level rise, shoreline structures, and drainage, and introduce new policies for future climate adaptation planning.

During the Planning Commission’s review, additional edits were recommended to incorporate up-to-date information on Hooper’s Beach and replace references to bicycles with the term "multimodal." Coastal Commission Input: Since the Planning Commission’s recommendation on October 2, 2025, staff received comments from Coastal Commission staff related to additional edits to the CMC Chapter 17.68 Geological Hazards, Capitola Land Use Plan Chapter 2: Public Access, and Capitola Local Coastal Land Use Plan Chapter 7: Natural Hazards. The requested edits are clarifying in nature and do not alter processes or policies; therefore, these edits do not require additional review by the Planning Commission.

1. Section 17.68.160: Text in red is in the existing adopted version and is requested to be kept in updates.

Bluff and hillside stability evaluations shall consider a range of coastal hazards—including erosion rates, wave climate, storm surge, and sea-level rise—over a 50-year planning horizon. Proposed development shall incorporate mitigation measures designed to perform for a minimum of 50 years post-occupancy. Slope stability shall meet minimum factors of safety of 1.5 (static) and 1.1 (seismic, pseudo static) unless otherwise justified by a site-specific analysis prepared and sealed by a Californialicensed Geotechnical Engineer (GE) or Certified Engineering Geologist (CEG) and accepted by the City of Capitola. Because the city staff may not contain the expertise necessary to evaluate the adequacy of a report, the city may employ, at the applicant's expense, an appropriate expert to evaluate the adequacy of the report.
205
Item 8 B.
4923-5230-1442 v1

2. Land Use Plan Chapter 7: Natural Hazards. Text in red added to clarify.

Policy VII-11: The City shall construct future drainage projects and improve existing drainage facilities where feasible so that runoff is filtered and treated, and directed away from the coastal bluffs, or (except that where such measures are infeasible it shall be if it cannot be discharged in a place and manner so as not to contribute to erosion of a bluff or beach.) Environmental Review: Adoption of the LUP and IP Amendments is exempt from the California Environmental Quality Act (“CEQA”) pursuant to Public Resources Code section 21080.9, which exempts activities and approvals by any local government for the preparation and adoption of a local coastal program or long-range land use development plan under the Coastal Act. Further, the Project is categorically exempt from CEQA because it can be seen with certainty that there is no possibility that the Project will have a significant effect on the environment (CEQA Guidelines, 14 Cal. Code of Regs. Section 15061(b)(3)).

Fiscal Impact: No fiscal impacts.

Attachments:

1. Proposed Ordinance

2. CMC Chapter 17.32 Parks and Open Space

3. CMC Chapter 17.64 ESHA

4. CMC Chapter 17.76 Parking and Loading

5. CMC Chapter 17.68 Geological Hazards

6. Resolution to Adopt Land Use Plan Amendments

7. Capitola’s Land Use Plan Chapter 2: Public Access

8. Capitola’s Local Coastal Land Use Plan Chapter 7: Natural Hazards

9. https://www.cityofcapitola.org/publicworks/page/cliff-drive-resiliency-project

10. https://www.cityofcapitola.org/sites/default/files/fileattachments/community_development/page/1 457/lcp_land_use_plan_with_exhibit_b.pdf

11. https://www.codepublishing.com/CA/Capitola/#!/Capitola17/Capitola17.html Report Prepared By: Katie Herlihy, Community and Economic Development Director Reviewed By: Julia Gautho, City Clerk and Marc Tran, City Attorney Approved By: Jamie Goldstein, City Manager
206
Item 8 B.
4899-8173-3250 v1
ORDINANCE NO. 24-___

AN ORDINANCE OF THE CITY OF CAPITOLA ADOPTING AMENDMENTS TO THE

LOCAL COASTAL PROGRAM IMPLEMENTATION PLAN (CAPITOLA MUNICIPAL CODE TITLE 17: ZONING ORDINANCE, CHAPTERS 17.32, 17.64, 17.68, AND 17.76)

AND DIRECTING THE CITY MANAGER TO SUBMIT THE AMENDMENTS TO THE CALIFORNIA COASTAL COMMISSION FOR CERTIFICATION (CEQA EXEMPT).

WHEREAS, the City of Capitola’s Local Coastal Program (LCP) was certified by the California Coastal Commission in December of 1981 and has since been amended from time to time; and
WHEREAS, the City of Capitola’s LCP includes the LCP Implementation Plan; and WHEREAS, certain chapters of the City of Capitola Municipal Code Title 17 (Zoning Ordinance) are a component of the City’s certified LCP Implementation Plan; and WHEREAS, the Public Works Department initiated the Cliff Drive Resiliency Project as a comprehensive effort to address bluff erosion, sea-level rise, and stormwater drainage impacts along the Cliff Drive corridor while also enhancing pedestrian, bicycle, and coastal access; and
WHEREAS, the City of Capitola received a $500,000 Coastal Commission LCP grant for the Cliff Drive Resiliency Project, requiring updates to Capitola’s Municipal Code Title 17: Zoning Ordinance, Chapters 17.32, 17.64, 17.68, and 17.76 relative to the Cliff Drive improvements; and
WHEREAS, City staff prepared draft amendments to the Capitola Municipal Code Title 17 (Zoning Ordinance), specifically:
 Chapter 17.32 Parks and Open Space – to allow for Cliff Drive improvements and clarify limitations on development in parks and beaches;  Chapter 17.64 Ecologically Sensitive Habitat Areas (ESHA) – to clarify that resource-dependent uses are permitted within ESHA;
 Chapter 17.76 Parking and Loading – to update references from Southern Pacific Railroad to the Regional Transportation Commission;
 Chapter 17.68 Geological Hazards – to update definitions, technical standards, and hazard analysis requirements;
 All together, the amendments are known as the “IP Amendments” attached hereto as Exhibit A, B C and D and incorporated herein by this reference; and 207
Item 8 B.
4899-8173-3250 v1
WHEREAS, the IP Amendments were made available for public review at City Hall, the Community Center, the Capitola Library, and online, in compliance with Coastal Act Section 30514; and
WHEREAS, the Planning Commission held a duly noticed public hearing on September 4, 2025, and October 2, 2025, reviewed the proposed IP Amendments, considered all public comments, and recommended the City Council approve the IP Amendments; and WHEREAS, Coastal Commission staff have requested additional clarifying changes to the IP Amendments as detailed in the staff report associated with this Resolution, which are not substantial and do not require reconsideration by the Planning Commission pursuant to Capitola Municipal Code section 17.144.060(D); and WHEREAS, the City Council conducted a duly noticed public hearing on January 8, 2026 considered all testimony, and determined that the proposed IP Amendments are consistent with the General Plan, the Land Use Plan, and intended to be implemented in a manner fully conforming with the State of California and the California Coastal Act NOW, THEREFORE, the City Council of the City of Capitola ordains as follows:

Section 1: The above findings are adopted and incorporated herein.

Section 2: Pursuant to Capitola Municipal Code Section 17.144.050 and 17.144.060 and based on substantial evidence in the record:
a) The proposed IP Amendments are consistent with the General Plan and any applicable specific plan as provided by Government Code Section 65860, as well as the Local Coastal Program Land Use Plan and the Coastal Act; b) The proposed IP Amendments will not be detrimental to the public interest, health, safety, convenience, or welfare of the City.
c) The proposed IP Amendments are internally consistent with other applicable provisions of the Zoning Code.

Section 3: Title 17 (Zoning) of the Capitola Municipal Code is amended as set forth in Exhibit A, B, C, and D.

Section 4: Environmental Review. Adoption of the IP Amendments is exempt from the California Environmental Quality Act (“CEQA”) pursuant to Public Resources Code section 21080.9, which exempts activities and approvals by any local government for the preparation and adoption of a local coastal program or long-range land use development plan under the Coastal Act. Further, adoption of the IP Amendments is categorically exempt from CEQA because it can be seen with certainty that there is no possibility that the Project will have a significant effect on the environment. (CEQA Guidelines, 14 Cal. Code of Regs. Section 15061(b)(3)). 208
Item 8 B.
4899-8173-3250 v1
Section 5: Transmittal to Coastal Commission. The City Manager or their designee is directed to submit the IP Amendments to the California Coastal Commission for its review and certification.

Section 6. Effective Date.

This Ordinance shall be in full force and effect thirty (30) days from its passage and adoption except that it will not take effect within the coastal zone until certified by the California Coastal Commission. This Ordinance shall be transmitted to the California Coastal Commission and shall take effect in the coastal zone immediately upon certification by the California Coastal Commission or upon the concurrence of the Commission with a determination by the Executive Director that the Ordinance adopted by the City is legally adequate.

Section 7: Severability. The City Council hereby declares every section, paragraph, sentence, cause, and phrase of this ordinance is severable. If any section, paragraph, sentence, clause, or phrase of this ordinance is for any reason found to be invalid or unconstitutional, such invalidity or unconstitutionality shall not affect the validity or constitutionality of the remaining sections, paragraphs, sentences, clauses, or phrases.

Section 8: Certification. The City Clerk shall cause this ordinance to be posted and/or published in the manner required by law. This Ordinance was introduced at the meeting of the City Council on the 8th day of January, 2026, and was adopted at a regular meeting of the City Council on the 22nd day of January, 2025, by the following vote:

NOES:

ABSENT:

ABSTAIN:

Mayor
Julia Gautho, City Clerk
209
Item 8 B.

Capitola Municipal Code
Chapter 17.32 SPECIAL PURPOSE ZONING

DISTRICTS