Hercules City Council
February 14, 2023

2 Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whet her the financial statements as a whole are free from material misstatement, whether due to fraud or error, a nd 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 ge nerally accepted auditing standards and Government Auditing Standards will always detect a material misstatement when it exists. The ri sk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they w ould influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, we:
 Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Obtain an understanding of internal c ontrol 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 cont rol-related matters that we identified during the audit.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Schedules of Proportionate Share of the Plan’s Net Pension Liability, the Schedules of Contributions to the Pension Plan, the Schedule of Proportionate Share of the Plan’s Net Other Postemployment Benefits Liability (Asset) - PEHMCA, the Schedules of Contributions to the OPEB Plan – PEHMCA, the Schedule of Proportionate Share of the Plan’s Net OPEB Liability (Asset) – SOMAR, and the Schedule of Contributions to the OPEB Plan - SOMAR as listed in the table of contents be presented to supplement the basic financial statements. Such information is the responsib ility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial re porting for placing the basic financial statements in an appropriate operational, economic, or hi storical context. We have applied cer tain limited procedures to the required supplementary information in accordance with auditing standa rds generally accepted in the United States of America, which consisted of inquiries of management about the me thods of preparing the information and comparing the information for consistency w ith 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.
308
To the Honorable Mayor and Members of the City Council
of the City of Hercules
Hercules, California

3 Management has omitted the Management’s Discussion and Analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by th e Governmental Accounting Standards Board who considers it to be an essential part of the financial reporting for placing the basic financial statements in an appropriate operati onal, economic, or historical contex t. Our opinion on the basic financial statements is not affected by this missing information.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards , we have also issued our repor t dated January 31, 2023 on our consideration of the Fund's internal control over financia l reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreemen ts and other matters. The purpose of that report is solely to describe the scope of our testing of internal control ove r financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Fund’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Fund’s internal control over financial reporting and compliance.

Santa Ana, California
January 31, 2023

309

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310
200 E. Sandpointe Avenue, Suite 600
Santa Ana, California 92707

INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL

STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

To the Honorable Mayor and Members of the City Council
of the City of Hercules
Hercules, California

We have audited, in accordance with the auditing standa rds generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Hercules Wastewat er Fund (the “Fund”), an enterprise fund of the City of Hercules, California (the “City”), as of and for the year ended June 30, 2022, and the related notes to the basic financial statements, whic h collectively comprise the Fund’s basic fi nancial statements, and have issued our report thereon dated January 31, 2023.

Report on Internal Control Over Financial Reporting

In planning and performing our audit of the financial stat ements, we considered the City’s internal control over financial reporting (“internal control”) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statem ents, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal c ontrol. Accordingly, we do not express an opinion on the effectiveness of the Fund's internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assi gned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a ma terial misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material wea knesses or significant deficiencies may exist that have not been identified.

311
6 To the Honorable Mayor and Members of the City Council of the City of Hercules
Hercules, California

Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether th e Fund’s financial statements are free from material misstatement,
we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could
have a direct and material effect on the fina ncial statements. However, providing an
opinion on compliance with those provisions w as not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported un
der Government Auditing Standards.

Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and no
t to provide an opinion on the effectiveness of the entity' s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Sta ndards in considering the entity's
internal co ntrol and compliance. Accord ingly, this communication is not suitable for any other purpose.

Santa Ana, California
January 31,
2023
312

BASIC FINANCIAL STATEMENTS
7 313
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8 314
ASSETS
Current assets:

Cash and investments 20,192,672$
Cash and investments with fiscal agent 8,327,888
Total current assets 28,520,560
Noncurrent assets:

Net OPEB asset (PEHMCA) 763
Capital assets:

Nondepreciable 1,172,895
Depreciable, net 37,913,084
Total noncurrent assets 39,086,742
Total assets 67,607,302

DEFERRED OUTFLOWS OF RESOURCES
Pension-related deferred outflows of resources 162,085
OPEB-related deferred outflows of resources (PEHMCA) 24,543 OPEB-related deferred outflows of resources (SOMAR) 14,776 Total deferred outflows of resources 201,404

LIABILITIES
Current liabilities:

Accounts payable 345,476
Salaries and benefits payable 32,561
Accrued interest payable 363,028
Long-term debt - due within one year 1,509,236
Total current liabilities 2,250,301
Noncurrent liabilities:

Long-term debt - due in more than one year 30,252,031
Net pension liability 364,008
Net OPEB liability (SOMAR) 71,848
Total noncurrent liabilities 30,687,887
Total liabilities 32,938,188

DEFERRED INFLOWS OF RESOURCES
Pension-related deferred outflows of resources 492,568
OPEB-related deferred outflows of resources (PEHMCA) 72,243 OPEB-related deferred outflows of resources (SOMAR) 35,306 Total deferred inflows of resources 600,117

NET POSITION
Net investment in capital assets
Restricted for debt services 15,704,349
Unrestricted 18,566,052
Total net position 34,270,401$
Hercules Wastewater Fund
Statement of Net Position
June 30, 2022
See accompanying Notes to the Basic Financial Statements. 9 315
OPERATING REVENUES:

Charges for services 5,852,278$
Total operating revenues 5,852,278
OPERATING EXPENSES:

Salaries and benefits 745,027
Services and supplies 2,748,281
Depreciation 1,002,257
Total operating expenses 4,495,565
Operating income 1,356,713
NONOPERATING REVENUES (EXPENSES):

Interest income (157,318)
Interest (expense) (726,373)
Total nonoperating revenues (expenses), net (883,691)
CHANGES IN NET POSITION BEFORE SPECIAL ITEM 473,022
SPECIAL ITEM:

Loss on write off the Successor Agency advances (Note 9) (10,587,627) CHANGE IN NET POSITION (10,114,605)
NET POSITION:

Beginning of year 44,385,006
End of year 34,270,401$
Hercules Wastewater Fund
Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2022
See accompanying Notes to the Basic Financial Statements. 10 316
CASH FLOWS FROM OPERATING ACTIVITIES:

Cash receipts from customers 5,863,100$
Cash paid to suppliers for goods and services (3,077,505) Cash paid to employees for services (647,271)
Net cash provided by operating activities 2,138,324

CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES:

Proceeds from issuance of debt 8,450,000
Payments related to the acquisition of capital assets (100,444) Principal repayments related to capital purposes (10,346,780) Interest repayments related to capital purposes (754,349) Net cash (used in) capital and related
financing activities (2,751,573)
CASH FLOWS FROM INVESTING ACTIVITIES:

Interest earnings (157,318)
Net cash (used in) investing activities (157,318)
NET CHANGES IN CASH AND CASH EQUIVALENTS (770,567)
CASH AND CASH EQUIVALENTS:

Beginning of year 29,291,127
End of year 28,520,560$

RECONCILIATION OF CASH AND CASH EQUIVALENTS
TO STATEMENT OF NET POSITION:

Cash and investments 20,192,672$
Cash and investments with fiscal agent 8,327,888
Total cash and cash equivalents 28,520,560$

RECONCILIATION OF OPERATING INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:

Operating income 1,356,713$
Adjustments to reconcile operating income
to net cash provided by operating activities:

Depreciation 1,002,257
(Increase) decrease in assets and deferred outflows
Pensions-related deferred outflows 18,023
OPEB-related deferred outflows (7,124)
Increase (decrease) in liabilities and deferred inflows Accounts receivable 10,822
Accounts payable (329,224)
Salaries and benefits payable 1,681
Net pension liability (415,809)
Net OPEB liability 12,472
Pensions-related deferred inflows 486,221
OPEB-related deferred inflows (2,277)
Compensated absences 4,569
Total adjustments 781,611
Net cash provided by operating activities 2,138,324$
Hercules Wastewater Fund
Statement of Cash Flows
For the Year Ended June 30, 2022
See accompanying Notes to the Basic Financial Statements. 11 317
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12 318
Hercules Wastewater Fund
Notes to the Basic Financial Statements
For the Year Ended June 30, 2022

13 Note 1 – Summary of Significant Accounting Policies

The financial statements of the Hercules Wastewater Fund (“Fund”), an enterprise fund of the City of Hercules, California (the “City”), have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) as applied to governmental agen cies. The Governmental Accounting Standards Board (“GASB”) is the accepted standard setting body for establishing governmental accountin g and financial reporting principles. The following is a summary of the City’s significant policies relating to the Fund:

A. Reporting Entities

The Hercules Wastewater Fund is an enterprise fund of the City’s financial statements. This Fund accounts for wastewater treatment to the cities of Hercules and Pinol e and for the maintenance of the City’s sewer lines and related facilities. It is a self-supportin g activity which provides services on a u ser charge basis to residences and businesses.

These financial statements present only the Wastewater F und and do not purport to and do not present fairly the financial position of the City as of June 30, 2022, the cha nges in its financial position, or where applicable, its cash flows for the year then ended in accordance with accounting principles gene rally accepted in the United States of America.

B. Measurement Focus and Basis of Accounting

Financial Statements include a Statement of Net Position, a Statement of Revenues, Expenses and Changes in Net Position, and a Statement of Cash Flows.

The Statement of Net Position reports separate sections for Deferred Outflows of Resources, and Deferred Inflows of Resources, when applicable.

Deferred Outflows of Resources represent a consumption of net assets that applies to future periods.

Deferred Inflows of Resources represent an acquisition of net assets that applies to future periods.

Proprietary funds are accounted for using the "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all assets, deferred outflows of resources, liabilities (whether current or noncurrent), and deferred inflows of resources are included on the Statement of Net Position. The Statement of Revenues, Expenses and Changes in Fund Net Position presents increases (reve nues) and decreases (expenses) in total Net Position.

Under the accrual basis of accounting, revenues are recognized in the period in wh ich they are earned while expenses are recognized in the period in which the liab ility is incurred. In these funds, receivables have been recorded as revenue and provisions have been made for uncollectible amounts.

Operating revenues are those revenues that are generate d from the primary operations of the fund. All other revenues are reported as non-operating reve nues. Operating expenses are those expenses that are essential to the primary operations of the fund. All other expenses are reported as non-operating expenses.

C. Cash and Investments

All cash and investments of the Fund are held in the City’s investment pool. These cash pools have the general characteristics of a demand deposit account, therefore, all cash and investments in the Fund are considered cash and cash equivalents for statement of cash flows purposes.

Investments are stated at fair value (quoted market price or best available estimate thereof). 319
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

14 Note 1 – Summary of Significant Accounting Policies (Continued)

D. Cash and Investments with Fiscal Agents

Cash and investments are held by fiscal agents for th e redemption of bonded debt and maintaining required reserves.

E. Revenues

Wastewater revenues (wastewater disposal services) are recorded as billed to customers on a cyclical basis. All wastewater customers are billed annually by the Contra Costa County Treasurer-Tax Collector Office.

F. Capital Assets

Capital assets are recorded at historical cost or estimated historical if purchased or constructed. Donated capital assets are valued at their estimated acquisition value on the date donated. City policy has set the capitalization threshold for reporting capital assets with an initial, individual cost of more than $2 ,500 for general capital assets and $5,000 for infrastructure capital assets, and an estimated useful life of one year or more.

Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized
.

Capital assets used in operations are depreciated over their estimated useful lives using the straight-line method.

The estimated useful lives used for depreciation purposes are as follows:

Wastewater structure 30 Years
Machinery and equipment 5-20 Years
Infrastructure 15-50 Years

G. Accounts Payable

Accounts payable consists of genera l administration costs incurred and construction services performed during the fiscal year, but paid after the fiscal year.

H. Long-Term Debt

Long-term debt and other long-term ob ligations are reported as liabilities in the Statement of Net Position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method.

Bonds payable are reported net of the applicable bond premium or discount.

I. Compensated Absences

City employees have vested interest in varying levels of vacation, sick leave and compensatory time based on their length of employment. It is the policy of the City to pa y all accumulated vacation pay and all or a portion of sick pay when an employee retires or terminates. Compensated absences are expensed in the period they are earned, and the unpaid liability is recorded as a long-term liability. 320
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

15 Note 1 – Summary of Significant Accounting Policies (Continued)

J. Pensions

For purposes of measuring the aggregate net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, inform ation about the fiduciary ne t position of the plans and additions to/deductions from the plans’ fiduciary net position have been determined on the same basis as they are reported by the plans (Note 7). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with benefit terms. Investments are reported at fair value.

The following timeframes are used for pension reporting:

CalPERS
Valuation Date June 30, 2020
Measurement Date June 30, 2021
Measurement Period July 1, 2020 - June 30, 2021

Gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categ orized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss. The difference between projected and actual earnings is amortized straight-line over 5 years. All other amounts are amortized straight-line over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period.

Pension benefits are expensed to the various funds in the period they are earned, and the unpaid liability is recorded as a long-term liability.

K. Other Postemployment Benefits (“OPEB”)

For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the plans and additions to/deductions from OPEB Plan's fiduciary net position ha ve been determined on the same basis as they are reported by the plan (Note 8). For this purpose, the OPEB plan recognizes benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value.

The following timeframes are used for OPEB reporting for PEMHCA and SOMAR:

OPE B - PE MHCA a nd S OMAR
Valuation Date June 30, 2021
Measurement Date June 30, 2022
Measurement Period July 1, 2021 - June 30, 2022

Gains and losses related to changes in total OPEB lia bility and fiduciary net position are recognized in OPEB expense systematically over time. The first amortized am ounts are recognized in OPEB expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to OPEB and are to be recognized in future O PEB expense. The amortization period differs depending on the source of gain or loss. The difference between proj ected and actual earnings is amortized on a straight-line basis over 5 years. All other amounts are amortized on a st raight-line basis over the av erage expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) at the beginning of the measurement period.
321
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

16 Note 1 – Summary of Significant Accounting Policies (Continued)

L. Net Position

Net position is classified as follows:

Net Investment in Capital Assets – This component of net position consists of capital assets, net of accumulated depreciation and related deferred charges on refunding capital debt, reduced by the related debt that are attributable to the acquis ition, construction, or improvement of those items, net of unspent debt proceeds.

Restricted – This component of net positi on consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets.

Unrestricted – This component of net position is the amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position.

When expenses are incurred for purposes for which both restricted and unrestricted components of net position are available, the City’s policy is to apply the restricted component of net position first, then the unrestricted component of net position as needed.

M. Use of Estimates

The preparation of financial statements in accordance w ith U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and di sclosures. Accordingly, actual results could differ from those estimates.

Note 2 – Cash and Investments

Cash and investments at June 30, 2022 consisted of the following:

Cash and investments pooled with City 20,192,672$
Cash and investments with fiscal agents 8,327,888
Total 28,520,560$

A. Cash and Investments Pooled with City

The Fund pools its cash and investments w ith the City in order to achieve a higher return on investment. Certain funds which are held and invested by independent outsi de custodians through contractual agreements, are not pooled. Interest earned on investments is allocated using the LAIF factor and average quarterly balances.

Required disclosure information regarding investments and other deposit, and related risk disclosures can be found in the City’s financial statements. The City’s financia l statements may be obtained by contacting the City’s Finance Department’s office at 111 Civic Drive, Hercules, California.

At June 30, 2022, the Fund has deposited $20,192,672 in the City’s investment pool. Investments held in the City’s investment pool are available on demand and are stated at cost plus accrued interest, which approximates fair value.

322
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

17 Note 2 – Cash and Investments (Continued)

B. Investments Authorized by the California Government Code and the City's Investment Policy

The table below identifies the investme nt types that are authorized by the City's investment policy and the California Government Code. The table also identifies cer tain provisions of the California Government Code (or the City's investment policy, if more restrictive) that address interest rate risk, cred it risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City's investment policy.

Ma x i m um Ma x i m um
M aximum Percentage Investment
Authorized Investment Type Maturity of Portfolio in One Issuer Local Agency Investment Fund (State Pool) N/A $50 Million $50 Million U.S. Treasury Obligations 5 Years None None
U.S. Government Agency Issues 5 Years None None
Insured Deposits with Banks and Savings and Loans N/A None None Bankers Acceptance (Must be Dollar Denominated) 180 Days 40% 30% Commercial Paper 270 Days 15% 10%
Negotiable Time Certificates of Deposits 5 Years 30% $100,000 Nonnegotiable Time Certificates of Deposits 5 Years 30% $100,000 Federally Issued Time Deposits 5 Years None $100,000
Repurchase Agreements 30 Days None 10%
Reverse Repurchase Agreements 92 Days 20% None
Medium-Term Notes 5 Years 30% 15%
Money Market Mutual Funds N/A 20% 10%
Insured or Passbook Savings Accounts N/A None $100,000

*The table is based on state law requirements or investment policy requirements, whichever is more restrictive. 323
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

18 Note 2 – Cash and Investments (Continued)

C. Investments Authorized by Debt Agreements

Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the Californi a Government Code or the investment policy of the City. The table below identifies the investment types that ar e authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk and concentration of credit risk.

Ma x i m um Ma x i m um
M aximum Percentage Investment
Authorized Investment Type Maturity of Portfolio in One Issuer Local Agency Investment Fund (State Pool) N/A $50 Million $50 Million U.S. Treasury Obligations 30 Years 20% None
U.S. Government Agency Issues 30 Years 20% None
Insured Deposits with Banks and Savings and Loans N/A None None Bankers Acceptance (Must be Dollar Denominated) 6 Months 40% 30% Commercial Paper 6 Months 15% 10%
Negotiable Time Certificates of Deposits 5 Years 30% $100,000 Nonnegotiable Time Certificates of Deposits 5 Years 30% $100,000 Federally Issued Time Deposits 1 Years 20% None
Repurchase Agreements 30 Days None None
Reverse Repurchase Agreements 92 Days 20% None
Medium-Term Notes 5 Years 30% 15%
Mutual Funds N/A 20% None
Money Market Funds N/A None None
Insured or Passbook Savings Accounts N/A None $100,000
Guaranteed Investment Contract N/A None None

D. Fair Value Measurement

At June 30, 2022, the Fund’s investment consisted of $ 20,192,672 pooled with the City and the City invested in the State of California Local Agency Investment fund a nd $8,327,888 invested in money market mutual funds, which is valued at amortized cost and “uncategorized” under the fair value hierarchy.

E. Risk Disclosures

Disclosures Relating to Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment is, the greater the sensitivity of its fair value to changes in market interest ra tes. One of the ways that the Fund 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.

324
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

19 Note 2 – Cash and Investments (Continued)

E. Risk Disclosures (Continued)

Disclosures Relating to Interest Rate Risk (Continued)

Information about the sensitivity of the fair values of th e Fund’s investments (including investments held by bond trustees) to market interest rate fluc tuations is provided by the following table that shows the distribution of the Fund's investments by maturity:

Maturity
12 Months
Investment Type Total or Less
Cash and investments pooled with City 20,192,672$ 20,192,672$ Investments with fiscal agents:

Money Market Mutual Funds 8,327,888 8,327,888 Total 28,520,560$ 28,520,560$

Investments with Fair Values Highly Sensitive to Interest Rate Fluctuations

Interest rate risk is the market value fluctuation due to overall changes in the interest rates. It is mitigated by limiting the average maturity of the City’s portfolio, not to exceed three years.

As a means of maintaining liquidity an d minimizing interest rate risk, the City’s investment policy limits are as follows:

Percentage
Maturity of Portfolio
Up to One Year 10% Minimum
One Year to Five Years 60% Maximum
More Than Five Years 30% Maximum

Disclosures Relating to Credit Risk

Generally, credit risk is the risk that an issuer of an investment will not fu lfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code or the City's investment polic y, or debt agreements, and the actua l rating as of fiscal year end for each investment type.

Mi ni m um
Legal Not
Investment Type Total Rating AAA Rated
Cash and investments pooled with City 20,192,672$ N/A - $ 20,192,672$ Investments with fiscal agents:

Money Market Mutual Funds 8,327,888 N/A 8,327,888 - Total 28,520,560$ 8,327,888 $ 20,192,672 $ S&P Rating as of Fiscal Year Ended

325
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

20 Note 2 – Cash and Investments (Continued)

E. Risk Disclosures (Continued)

Concentration 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. The Fund has 100% of its cash and investments pooled with the City.

Custodial Credit Risk

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for inv estments is the risk that in the event of the failure of the counterparty (e.g., broker dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City's investment policy do not contain legal or polic y requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the provision for deposits as disclosed in Note 2A.

Note 3 – Capital Assets

Summary of changes in capital assets for the year ended June 30, 2022, was as follows:

Balance Reclassification/ Balance
July 1, 2021 Additions Transfers June 30, 2022
Nondepreciable assets:

Land 191,700$ -$ -$ 191,700$ Constrution in progress 968,587 12,608 - 981,195 Total nondepreciable assets 1,160,287 12,608 - 1,172,895 Depreciable assets:

Structures and improvements 38,325,271 - - 38,325,271 Machinery and equipment 250,345 - - 250,345 Infrastructure 14,857,483 87,836 - 14,945,319 Subtotal 53,433,099 87,836 - 53,520,935 Less: accumulated depreciation:

Structures and improvements (10,869,547) (137,484) - (11,007,031) Machinery and equipment (210,707) (4,687) - (215,394) Infrastructure (3,525,340) (860,086) - (4,385,426) Subtotal (14,605,594) (1,002,257) - (15,607,851) Total depreciable assets, net 38,827,505 (914,421) - 37,913,084 Total capital assets, net 39,987,792$ (901,813)$ -$ 39,085,979$

Depreciation expense in the amount of $1,002,257 was charged to the Fund for the year ended June 30, 2022.

326
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

21 Note 4 – Long-Term Debt

Summary of changes in long-term debt for the year ended June 30, 2022, was as follows:

Balance Balance Due within Due in More
July 1, 2021 Additions Deletions June 30, 2022 One Year Than One Yea r Publicly Offered:
2010 PFA Wastewater Revenue Bonds 9,250,000$ - $ (9,250,000)$ - $ - $ - $ Less: Discount on issuance (138,162) - 138,162 - - - State Water Resources
Construction Loan 24,356,298 - (1,096,780) 23,259,518 1,115,425 22,144,093 Wastewater Revenue Bonds, Series 2021A - 8,450,000 - 8,450,000 355,000 8,095,000 Compensated Absences 47,180 32,324 (27,755) 51,749 38,811 12,938 Total 33,515,316 $ 8,482,324 $ (10,236,373) $ 31,761,267 $ 1,509,236 $ 30,252,031 $

A. 2010 PFA Wastewater Revenue Bonds

The Public Financing Authority issued revenue bonds, ser ies 2010, dated August 1, 2010, totaling $11,765,000.

The purpose of the bonds was to finance improvements to the City’s wastewater system, fund a reserve fund for the bonds, and pay the costs of issuances of the bonds. The interest rates on the bonds range from 2.00% to

5.130%. Principal and interest payment are due annua lly beginning August 1, 2011, in amounts ranging from $230,000 to $700,000. The bonds mature on August 1, 2040. The City issued Wastewat er Revenue Bonds, Series 2021 A to fully refund the bonds. The bonds were fully redeemed on July 14, 2021.

B. State Water Resources Construction Loan

In June 2016, the City entered into an installment sale agreement with the California State Water Resources Control Board in the amount of $26,500,000. The funds are for construction costs for the Pinole-Hercules Wastewater Pollution Control Plant Improvement Project. The interest rate on the loan is 1.7%. The first principal and interest payment are due August 31, 2019, and is contingent on the total drawdowns at project completion.

The loan matures on August 31, 2038. The City has drawn down $25,457,695 of the loan principal including construction loan interest as of June 30, 2022. The outstanding balance as of June 30, 2022 was $23,259,518.

The annual debt service requirements to maturity fo r the Sate Water Resources Construction Loan as of June 30, 2022 are as follows:

Year Ending
June 30, Principal Interest Total
2023 1,115,425$ 395,412 $ 1,510,837 $ 2024 1,134,388 376,450 1,510,838 2025 1,153,672 357,165 1,510,837 2026 1,173,285 337,553 1,510,838 2027 1,193,230 317,606 1,510,836 2028-2032 6,277,411 1,276,774 7,554,185 2033-2037 6,829,444 724,742 7,554,186 2038-2039 4,382,663 149,849 4,532,512 Total 23,259,518$ 3,935,550 $ 27,195,068 $ 327
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

22 Note 4 – Long-Term Debt (Continued)

C. Wastewater Revenue Bonds, Series 2021A

In July, 2021, the City issued the Direct Purchase Lease in the amount of $8,450,000 and the proceeds were use to early pay off the 2010 PFA Wastewater Revenue Bonds.

The bonds bear interest at 2.38%. Interest on the bonds is payable semi-annually on Fe bruary 1 and August 1 in each year, commencing February 1, 2022. Principal pa yments are due in annual installments ranging from $355,000 to $545,000, commencing August 1, 2022 through August 1, 2040.

In the event of default, the City shall declare the entire principal amount of the unpaid series 2021 installment payments and accrued inteest thereon to be due and payable immediately in wirting.

The annual debt service requirements to maturity for as of June 30, 2022 are as follows:

Year Ending
June 30, Principal Interest Total
2023 355,000 $ 196,886 $ 551,886 $ 2024 365,000 188,318 553,318 2025 375,000 179,512 554,512 2026 385,000 170,468 555,468 2027 395,000 161,186 556,186 2028-2032 2,100,000 659,855 2,759,855 2033-2037 2,365,000 394,545 2,759,545 2038-2041 2,110,000 101,864 2,211,864 Total 8,450,000$ 2,052,632 $ 10,502,632 $

D. Compensated Absences

There is no fixed payment schedule for earned but unpaid compensated absences.

Note 5 – Risk Management

The Fund is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disaster. The Fund participates in the City’s insurance programs to insure against these losses.

General Liability Insurance

Coverage is maintained with the Municipal Pooling Aut hority (MPA) with coverage limits of $1,000,000 with self- insured retention of $10,000 and $1, 000,001 to $29,000,000 cove red by California Affiliated Risk Management Authority (CARMA).

328
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

23 Note 5 – Risk Management (Continued)

Workers’ Compensation

The City has coverage limits for the following without a deductible:

MPA $0 to $500,000
PRISM $500,000 to $50,000,000
Liberty Insurance Corporation Statuatory excess of $50,000,000

Miscellaneous Coverages

The MPA provides additional coverage for the following risks incurred by the City:

Coverage
Type Deductibles Limits
Auto - Physical Damage:

Police Vehicles 3,000$ 250,000$
All Other Vehicles 2,000 250,000
All Risk Fire & Property 25,000 1,000,000,000 Cyber Liability 50,000 3,000,000
Pollution Liability 250,000 25,000,000
Crime Coverage 2,500 5,000,000
Boiler and M achinery 5,000 100% of primary $75,000,000; 100% of $25,000,000 excess of $75,000,000

The MPA is governed by a board consisting of representa tives from member municipalities. The board controls the operations of the MPA, including selection of management and approval of operating budgets, independent of any influence by member municipalities beyond their representation on the board.

The City’s deposits with the MPA are in accordance with formulas established by the MPA. Actual surpluses or losses are shared according to a formula developed from overall loss costs and spread to me mber entities on a percentage basis after a retrospective rating. Audited financial statem ents can be obtained from the Municipal Pooling Authority, 1911 San Miguel Drive, #200, Walnut Creek, California 94596.

Note 6 – Public Employee Retirement System

A. General Information About the Pension Plans

Plan Descriptions

All qualified permanent and probationary employees are e ligible to participate in the City’s Miscellaneous Employee Pension Plans, cost-sharing multiple employer defined benefit pension plans administered by the California Public Employees’ Retirement System (CalPER S). Benefit provisions under the Plans are established by state statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provi sions, assumptions and membership information that can be found on the CalPERS website.
329
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

24 Note 6 – Public Employee Retirement System (Continued)

A. General Information About the Pension Plans (Continued)

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 fi ve years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for nonduty 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 Employees’ Retirement Law.

The Plans’ provisions and benefits in effect at June 30, 2022, are summarized below:

Miscellaneous
Miscellaneous Tier 2
Benefit formula 2.0% @ 55 2.0% @ 62
Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life
Retirement age 50-63 52 - 67
Monthly benefits, as a % of
eligible compensation 1.426 - 2.148% 1.0 - 2.5%
Required employee contribution rate 7.0% 6.75%
Required employer contribution rate 10.484% 7.732%

Employees Covered

At June 30, 2021, the measurement date, the following employees were covered by the Plan’s provisions:

Miscellaneous
Miscellaneous PEPRA
Active employees 31 13
Transferred employees 48 13
S eparated employees 95 17
Retired employees and beneficiaries 88 1 Total 262 44

Contributions

Section 20814(c) of the California Public Employees’ Retirement Law (PERL) requires that the employer contribution rates for all public employers are determined on an annual basis by the actua ry and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Th e employer is required to contribute the difference between the actuarially determined rate and the contribution ra te of employees. Employer contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contribution requirements are classified as plan member contributions.

330
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

25 Note 6 – Public Employee Retirement System (Continued)

A. General Information About the Pension Plans (Continued)

Contributions (Continued)

The City contributed $88,805 towards the Fund’s share of the Miscellaneous Pension Plan during the year ended June 30, 2022.

B. Net Pension Liability

Actuarial Methods and Assumptions Used to Determine Total Pension Liability

The June 30, 2020 valuation was rolled forward to determine the June 30, 2021 total pension liability, based on the following actuarial methods and assumptions:

Actuarial Cost M ethod Entry Age Normal in accordance with the requirements of GASB 68 Actuarial Assumptions:

Discount Rate
Inflation
Salary Increases
Morta l i ty Ra te Ta bl e1
Post Retirement Benefit Increase

7.15%

2.50%
Varies by Entry Age and Service
Derived using CalPERS’ Membership Data for all Funds.

The lesser of contract COLA or 2.50% until Purchasing Power Protection Allowance floor on purchasing power applies, 2.50% thereafter.

1The mortality table used was developed based on CalPERS-specific data. The probabilities of mortality are based on the 2017 CalPERS Experience Study for the period fro m 1997 to 2015. Pre-retirement and Post-retirement mortality rates include 15 years of projected mortality improvement using 90% of Scale MP-2016 published by the Society of Actuaries. For more details on this table, please refer to the CalPERS Experience Study and Review of Actuarial Assumptions report from December 2017 that can be found on the CalPERS website.

Long-Term Expected Rate of Return

The long-term expected rate of return on pension plan investments was determined using a building -block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

In determining the long-term expected rate of return, CalPERS 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 of the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short- term and long-term, the present value of benefits was calcu lated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return th at arrived at the same present value of benefits for cash flows as the one calculated using both short-term and lo ng-term returns. The expected rate of return was then set equal to the single equivalent rate calculated a bove and adjusted to account for assumed administrative expenses. The expected real rates of return by asset class are as follows:

331
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

26 Note 6 – Public Employee Retirement System (Continued)

B. Net Pension Liability (Continued)

Long-term Expected Rate of Return (Continued)

Asset Class
1 Assumed Asset
Alloction
Real Re turn Ye ars
1 - 10
1 Re al Return Years
11 +
2 Global equity 50.00% 4.80% 5.98%
Fixed income 28.00% 1.00% 2.62%
Inflation assets 0.00% 0.77% 1.81%
Private equity 8.00% 6.30% 7.23%
Real assets 13.00% 3.75% 4.93%
Liquidity 1.00% 0.00% -0.92%
1 An expected inflation of 2.00% was used for this period. 2 An expected inflation of 2.92% was used for this period. 1In the System's ACFR, Fixed Income is included in Global Debt Securities; Liquidity is included in Short-term Investments; Inflation Assets are included in both Global Equity; Securities and Global Debt Securities.

Discount Rate

The discount rate used to measure the total pension lia bility was 7.15%. The projection of cash flows used to determine the discount rate assumed that contributions fro m plan members will be made at the current member contribution rates and that contributions from employers w ill be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was pr ojected to be available to make all projected future benefit payments of current plan memb ers. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

C. Proportionate Share of Net Pension Liability

The following table shows the plan’s proportionate share of the risk pool collective net pension liability over the measurement period:

Plan Total Pension Plan Fiduciary Net Pension
L iability Net Position L iability/(Asset)
Miscellaneous
Balance at: 6/30/20 (Valuation date) 2,956,801$ 2,176,984 $ 779,817 $ Balance at: 6/30/21 (Measurement date) 2,537,625 2,173,617 364,008 Net changes during 2019-2020 (419,176) $ (3,367) $ (415,809) $

332
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

27 Note 6 – Public Employee Retirement System (Continued)

C. Proportionate Share of Net Pension Liability (Continued)

The Fund’s proportionate share of the City’s net pensi on liability for the retirement plans is measured as the proportionate share of the net pension liability. The net pe nsion liability of the retirement plans is measured as of June 30, 2021, and the total pension liability used to cal culate the net pension liab ility was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The Fund’s proportion of the net pension liability was based on a projection of the Fund’s long-term share of contributions to the pension plans relative to the projected contributions of all partic ipating employers, actuarially determined. The Fund’s proportionate share of the net pension liability as of the June 30, 2020 measurement date (June 30, 2021 reporting date) and 2021 measurement date (June 30, 2022 reporting date) was as follows:

Fund's Proportion
to City's Share
M easurement date Pool
Proportion - June 30, 2020 0.00717%
Proportion - June 30, 2021 0.00673%
Change - Increase/(Decrease) -0.00044%

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate

The following presents the Fund’s proportionate share of the net position liability for the Plan, calculated using the discount rate, as well as what the Fund’s proportionate sh are 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:

Discount Rate - 1% Current Discount Discount Rate + 1 % (6.15%) Rate (7.15%) (8.15%)
Miscellaneous 699,053 $ 364,008 $ 87,031 $ Plan's Net Pension L iability

Pension Plan Fiduciary Net Position

Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports.

333
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

28 Note 6 – Public Employee Retirement System (Continued)

D. Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pension

For the year ended June 30, 2022, the Fund recognized pe nsion expense of $88,435. At June 30, 2022, the Fund reported deferred outflows of resources and deferred inflows of resources rela ted to pensions from the following sources:

Deferred Outflows Deferred Inflows
of Resources of Resources
Contribution made after the measurement date 88,805$ -$ Changes of assumptions - - Net difference between projected and actual
earnings on pension plan investments - (410,223) Difference between expected and actual
experience 46,766 -
Employer contributions in excess/(under)
proportionate share of contributions 3,718 (73,533) Adjustments due to difference in proportions 22,796 (8,812) Total 162,085$ (492,568)$
Miscellaneous Plan

$88,805 was reported as deferred outflows of resources rela ted to pensions resulting from Fund’s contributions subsequent to the measurement date and will be recognized as a reduction of the net pension liability in the year ended June 30, 2022. Other amounts re ported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

M easurement Period
Ended June 30 Miscellaneous Plan
2022 (83,277)$
2023 (108,272)
2024 (111,805)
2025 (115,934)
2026 -
Thereafter -
Total (419,288)$

E. Payable to the CalPERS Pension Plans

At June 30, 2022, the Fund had no outstanding amounts ow ed to the CalPERS pension plans for contributions for the year ended June 30, 2022.

334
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

29 Note 7 – Other Postemployment Benefits (“OPEB”)

A. Retiree Healthcare Plan (PEHMCA)

Plan Description and Administration

The City Retiree Healthcare Plan (Plan) is a single-employer benefit healthcare plan administered by the City. The Plan provides healthcare benefits to eligible retirees a nd their dependents. The Plan does not issue a financial report.

The City has prefunded a portion of its OPEB benefits in a Public Agency Retirement Services (PARS) trust. The PARS Trust is a tax qualified irrevocable trusts, orga nized under Internal Revenue Code (IRC) Section 115, established to pre -fund OPEB as described in GASB Statement 75. PARS issues annual audited financial statements for each participating agency of the Trust. PARS is considered an agency agent multiple -employer plan, required to provide financial st atements and required supplementary in formation (Schedule of Changes in Fiduciary Net Position by Plan) that are prepared in conformance with GASB statement 75.

These reports may be obtained by writing the plan at the following address: PARS 4350 Von Karman Ave., Suite 100, Newport Beach, CA 92660-2043.

Employees become eligible to retire and receive City-pai d healthcare benefits upon a ttainment of age 50 and 5 years of service. The City contribution towards retiree h ealth benefits is determined under the "Equal Contribution Method" under PEHMCA under which the City's nominal contribution to PEMHCA is the same for active employees and retirees ($143/month for 2021 and $149/moth for 2022).

Proportionate share of the City’s poste mployment benefits liabilities and re lated deferred outflows and inflows have been allocated to the Fund.

Contributions

The contributions are based on pay-go for premiums and contributions to the PARS OPEB trust. The pay-go amount is the actual amount of retiree premiums. Total cont ributions (pay-go and trust contributions) for the year ended June 30, 2022 were $7,721.

Actuarial Assumptions

The net OPEB liability of the Plan was determined usin g an actuarial valuation as of June 30, 2021 using the following actuarial assumptions:

Actuarial Assumptions:

Cost Method Entry ag e actuarial
cost method
Discount Rate 5.15%
Inflation 2.50%
Aggregate payroll increases 2.75%
Expected long-term investment rate of return 5.15%
Mortality, Termination, and Disability 2017 CalPERS Mortality Healthcare Trend Rate 4%
335
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

30 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued)

A. Retiree Healthcare Plan (PEHMCA) (Continued)

Actuarial Assumptions (Continued)

Mortality rates were based on the RP-2017 Employee and Healthy Annuitant Mortality Tables for Males or Females, as appropriate, projected using a generati onal projection based on 100% of scale MP-2016 for years 2014 through 2029, 50% of MP-2016 for years 2030 through 2049, and 20% of MP-2016 for 2050 and thereafter.

Discount Rate

The discount rate used to measure the total Plan’s OPEB liability was 5.15%. The projection of cash flows used to determine the discount rate assumed that City contributi ons will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the City plan's fiduciary net position was projected to be available to make all projected OP EB payments for current active and inactive employees. Therefore, the long- term expected rate of return on OPEB plan investments was applied to a ll periods of projected benefit payments to determine the total OPEB liability.

The expected long-term rate of return on OPEB plan investments of 5.15%, gross of expenses, was determined by Highmark Capital Management using a building-block method in which best-estimate ranges of expected future real rates of return, net of inflation, are developed for each major asset class. These ranges are combined to produce the term expected rate of return by weighting the expected future r eal rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Asset Class
New Strategic
Allocation
Long-Term
Expected
Real Rate of
Return
All Domestic Equities 30.00% 7.25%
All Fixed Income 65.00% 4.25%
Short-Term Gov't Fixed 5.00% 3.00%
100.00%

Proportionate Share of Net OPEB Liability and OPEB Expense

The following table shows the plan’s proportionate share of the risk pool collective net pension liability (asset) over the measurement period:

Total OPEB Plan Fiduciary Net OPEB
Liability Net Position Liability (Asset)
Balance at: 6/30/21 (Valuation date) (142,774) $ (170,826) $ (28,052) $ Balance at: 6/30/22 (Measurement date) (136,327) (137,090) (763) Net changes during 2021-2022 (6,448) $ (33,737) $ (27,289) $

The Fund’s proportionate share of the City’s net OPEB liability (asset) for the OPEB plan is measured as the proportionate share of the net OPEB liability (asset). The net OPEB liability (asset) of the OPEB plans is measured as of June 30, 2021, and the total OPEB liab ility (asset) used to calculate the net OPEB liability (asset) was determined by an actuarial valuation as of June 30, 2021 and rolled forward to June 30, 2022 using standard update procedures.
336
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

31 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued)

A. Retiree Healthcare Plan (PEHMCA) (Continued)

Proportionate Share of Net OPEB Liability and OPEB Expense (Continued)

The Fund’s proportion of the net OPEB liability (asset) was based on a projection of the Fund’s long-term share of contributions to the OPEB plans relative to the projected contributions of all particip ating employers, actuarially determined. The Fund’s proportionate share of the net OPEB liability as of the June 30, 2022 measurement date and June 30, 2021 measurement date was as follows:

Fund's Proportion
to City's Share
Pool
Proportion - June 30, 2021 5.87750%
Proportion - June 30, 2022 5.35664%
Change - Increase/(Decrease) -0.52086%

Sensitivity of the Net OPEB Liability (Asset) to Changes in the Discount Rate

The following presents the net OPEB liability (asset) of the Plan, as well as what the City’s net OPEB liability (asset) would be if it were calculated using a discount rate 1% lower or 1% higher than the current discount rate:

Discount Rate - 1% Current Discount Discount Rate + 1 % (3.15%) Rate (4.15%) (5.15%)
15,815$ (763) $ (14,744)$ Net OPEB Liability (Asset)

Sensitivity of the Net OPEB Liability (Asset) to Changes in the Healthcare Trend Rate

The following presents the net OPEB liability (asset) of the Plan, as well as what the Plan’s net OPEB liability (asset) would be if it were calculated using healthcare cost trend rates that 1% lower or 1% higher than the current healthcare cost trend rate:

Healthcare Cost Healthcare Cost Healthcare Cost
Trend Rates Trend Rates Trend Rates
3% 4% 5%
(181,916)$ (763) $ 22,458 $ Ne t O PEB Li abi l i ty (Asse t)

337
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

32 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued)

A. Retiree Healthcare Plan (PEHMCA) (Continued)

OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Relate to OPEB

For the year ended June 30, 2022, the Fund recognized OPEB expense of $209 for the Plan. OPEB expense represents the change in the net OPEB liability during th e measurement period, adjusted for actual contributions and the deferred recognition of changes in investment gain/loss, and actuarial assumptions or method. At June 30, 2022, the Fund reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

Deferred Outflows Deferred Inflows
of Resources of Resources
Difference between expected and actual experience 920$ (60,729)$ Changes of assumptions 9,532 (11,514) Net difference between projected and actual earning on
OPEB plan investments 14,091 -
Total 24,543$ (72,243)$

Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows:

Measurement
Period Deferred Outflows/
Ending June 30 (Inflows) of Resources
2023 (1,400) $
2024 (1,935)
2025 (5,308)
2026 (3,265)
2027 (8,404)
Thereafter (27,388)
Total (47,700) $

B. Retiree Cash Benefit Plan (SOMAR Plan)

Plan Description

The City provide an optional monetary a llowance with an annual three (3%) adju stment each year to Public Safety and Executive employees who retire as regulated by the Public Employee’s Retirement System. To be eligible for the optional monies, an employee must retire as follows:

1. Service Retirement: Employees who have served the City for at least ten (10) consecutive years immediately prior to retirement and are at least fifty (50) years old when they separate service from the City.

2. Disability Retirement: Employees who retire with a disability retirement are not required to be a certain age, but must have at least twenty (20) years of service with the City. 338
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

33 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued)

B. Retiree Cash Benefit Plan (SOMAR Plan) (Continued)

Plan Description (Continued)

Employees must have the minimum amount of sick leav e on the books, as outlined in the chart below. If an employee has below the amount of sick leave required for thei r years of service, then they will only be eligible for the percentage paid equivalent to the amount of sick leave they do have on the books.

Years of
Ser v ic e
Sic k L eav e
Balance
% of Optional
Money
Av ailable
10 480 50
11 528 55
12 576 60
13 624 65
14 672 70
15 720 75
16 768 80
17 846 85
18 864 90
19 912 95
20-24 960 100
25 No M inimum
amount required 100

Employees must retire within one hundred twenty (120) da ys. In addition, employees who separate service but do not retire as a PERS annuitant, shall not be eligible under for SOMAR benefits.

The City will pay a portion of the optional money to a retiree until the retiree reaches age sixty-five (65), upon which they are required to enroll in Medicare. At that time, the optional money will dr op to an amount equivalent to the Kaiser Supplemental to Medicare rate through PERS.

The SOMAR benefit is expected to last into perpetuity. Payments are made on a bi-annual basis.

Benefits Provided

The SOMAR plan’s provisions and benefits in effect at June 30, 2022, are summarized below:

E xecutiv es Police
Duration of benefits Lifetime Lifetime
Required service 50% at 10 years
grading to 100% at
20 years
50% at 10 years
grading to 100% at
20 years
M inimum age Retirement Retirement
Amount $263 per month pre-
65; based on Kaiser
premium post-65
$350 per month pre-
65; based on Kaiser
premium post-65
339
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

34 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued)

B. Retiree Cash Benefit Plan (SOMAR Plan) (Continued)

Contributions

For the year ended June 30, 2022, the Fund contributions recognized as part of OPEB expense for the SOMAR plan were $2,338.

Actuarial Assumptions

The net pension liability of the SOMAR Plan was determined using an actuarial valuation as of July 1, 2021 using the following actuarial assumptions:

Cost method Entry age normal
Discount Rate 3.54%
Inflation 2.50%
Aggregate payroll increases 2.75%
Mortality, retirement, and turnover 2017 CalPERS tables Mortality Improvement Scale RP-2014 Employee and Healthy Annuitant Mortality Tables for males
and females.

Discount Rate

The discount rate used to measure the total OPEB liab ility for the SOMAR plan was 3.54%. This discount rate estimates investment earnings for assets earmarked to cove r retiree cash benefit liabilities. Since the SOMAR plan is an unfunded plan, the discount rate is based on an index of 20-year General Obligation municipal bonds.

Proportionate Share of Net OPEB Liability and OPEB Expense

The Fund proportionate share of the net OPEB liability as of June 30, 2022, measurement date, is as follows:

Plan's Proportion
to Total Plan at
June 30, 2022
Proportionate
Share of Net
OPEB Liability

5.357% 71,848$

Sensitivity of the Net OPEB Liability to Changes in the Discount Rate

The following presents the net pension liability of the SOMAR Plan, as well as what the SOMAR Plan’s net pension liability (asset) would be if it were calculated using a discount rate 1% lo wer or 1% higher than the current discount rate:

Discount Rate - 1% Current Discount Discount Rate + 1 % (2.54%) Rate (3.54%) (4.54%)
85,469$ 71,848 $ 62,082 $
SOMAR Plan's Total OPE B L iability

340
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

35 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued)

B. Retiree Cash Benefit Plan (SOMAR Plan) (Continued)

OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Relate to Pension

For the year ended June 30, 2022, the City recognized pension expense of $2,862 for the SOMAR plan. OPEB expense represents the change in the net pension liab ility during the measurement period, adjusted for actual contributions and the deferred recogn ition of changes in investment gain /loss, and actuarial assumptions or method. At June 30, 2022, the City reported deferred outflows of resour ces and deferred inflows of resources related to pension from the following sources for the SOMAR plan:

Deferred Outflows Deferred Inflows
of Resources of Resources
Difference between expected and actual experience - $ (17,556)$ Changes of assumptions 14,776 (17,750) Total 14,776 $ (35,306) $
S OMAR Plan

Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in pension expense as follows:

Measurement SOMAR Plan
Period Deferred Outflows/
Ending June 30 (Inflows) of Resources
2023 (1,810)$
2024 (1,810)
2025 (1,810)
2026 (1,810)
2027 (1,810)
Thereafter (11,480)
Total (20,530)$

Payable to the OPEB Plan

At June 30, 2022, the Fund had no outstanding amounts owed to the SOMAR OPEB plan for contributions for the year ended June 30, 2022.

Note 8 – Contingencies

A. Lawsuits

The Fund is not involved in any matters of litigation that have arisen in the normal course of conducting business.

Additionally, management believes that the City’s insurance programs are sufficient to cover any potential losses should an unfavorable outcome materialize.

Note 9 – Special Item Advances to the Former Hercules Redevelopment Agency

After the negotiation with the Department of Finance, th e Fund recognized the loan write off in the amount of $10,587,627 during the year ended June 30, 2022 and it was reported as a special item on the financial statements. 341

36 This page intentionally left blank.
342

REQUIRED SUPPLEMENTARY INFORMATION
37 343
Measurement Date: June 30, 20211 June 30, 20201 June 30, 20191 June 30, 20181 June 30, 20171 Proportion of the Net Pension Liability 0.0067% 0.0072% 0.0068% 0.0066% 0.0067% Proportionate Share of the Net Pension Liability 364,008$ 779,817$ 694,727$ 637,000$ 659,623$ Covered Payroll 229,694$ 335,827$ 331,260$ 321,063$ 301,916$ Proportionate Share of the Net Pension Liability
as a Percentage of Covered Payroll 158.48% 232.21% 209.72% 198.40% 218.48% Fiduciary Net Position as a Percentage of the
Plan's Total Pension Liability 85.66% 73.63% 75.07% 77.69% 75.39% 1 Historical information is presented only for measurement periods for which GASB No. 68 is applicable.

Miscellaneous Plans
California Public Employees' Retirement System (CalPERS) Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of the Proportionate Share of the Plan's Net Pension Liability For the Year Ended June 30, 2022
Last Ten Fiscal Years 1
38 344
Measurement Date: June 30, 20161 June 30, 20151 June 30, 20141 Proportion of the Net Pension Liability 0.0065% 0.0070% 0.0057% Proportionate Share of the Net Pension Liability 562,902$ 481,238$ 462,583$ Covered Payroll 251,715$ 265,380$ 319,046$ Proportionate Share of the Net Pension Liability
as a Percentage of Covered Payroll 223.63% 181.34% 144.99% Fiduciary Net Position as a Percentage of the
Plan's Total Pension Liability 75.87% 78.32% 78.10%
1 Historical information is presented only for measurement periods for which GASB No. 68 is applicable.

Last Ten Fiscal Years 1
California Public Employees' Retirement System (CalPERS) Miscellaneous Plans
Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of the Proportionate Share of the Plan's Net Pension Liability (Continued) For the Year Ended June 30, 2022
39 345
Fiscal Year: 2021-221 2020-211 2019-201 2018-191 2017-181 Actuarially Determined Contribution2
88,805$ 102,423 $ 95,532 $ 91,514 $ 63,159 $ Contribution in Relation to the Actuarially
Determined Contribution2
(88,805) (102,423) (95,532) (91,514) (63,159) Contribution Deficiency (Excess) - $ - $ - $ - $ - $ Covered Payroll3
374,018$ 364,008$ 335,827$ 331,260$ 321,063 $ Contributions as a Percentage of Covered Payroll 23.74% 28.14% 28.45% 27.63% 19.67% Notes to the Schedule:

Miscellaneous Plans
Change in Benefit Terms: The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2013 as they have minimal cost impact. This applies for voluntary benefit changes as well as any offers of the Two Years Additional Service Credit (a.k.a. Golden Handshakes).

Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of Contributions to the Pension Plan
For the Year Ended June 30, 2022
California Public Employees' Retirement System (CalPERS) 1 Historical information is presented only for measurement periods for which GASB No. 68 is applicable. 2 Employers are assumed to make contributions equal to the actuarially determined contributions (which is the actuarially determined contribution). However, some employers may choose to make additional contributions towards their side-fund or their unfunded liability. Employer contributions for such plan exceed the actuarial determined contributions. CalPERS has determined that employer obligations referred to as side-funds are not considered separately financed specific liabilities. 3 Includes one year’s payroll growth using 2.75% payroll growth assumption for fiscal years ended June 30, 2018-2022; 3.00% payroll growth assumption for fiscal years ended June 30, 2014-17.

Last Ten Fiscal Years 1
40 346
Fiscal Year: 2016-171 2015-161 2014-151
Actuarially Determined Contribution2
52,105$ 52,884 $ 34,760 $ Contribution in Relation to the Actuarially
Determined Contribution2
(52,105) (52,884) (34,760) Contribution Deficiency (Excess) -$ - $ - $ Covered Payroll3
301,916$ 251,715$ 265,380$
Contributions as a Percentage of Covered Payroll 17.26% 21.01% 13.10% Miscellaneous Plans
Last Ten Fiscal Years 1
California Public Employees' Retirement System (CalPERS) Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of Contributions to the Pension Plan (Continued) For the Year Ended June 30, 2022
41 347
Measurement Date: June 30, 20211 June 30, 20201 June 30, 20191 June 30, 20181 June 30, 20171 Proportion of the Net OPEB Liability
(Asset) 5.36% 5.88% 6.80% 5.16% 5.19%
Proportionate Share of the Net OPEB
Liability (Asset) (763)$ (28,052) $ (11,718) $ 66,474 $ 75,521 $ Covered Payroll 335,827 $ 335,827 $ 331,260 $ 321,063 $ 301,916 $ Proportionate Share of the Net OPEB
Liability (Asset) as a Percentage of
Covered Payroll -0.23% -8.35% -3.54% 20.70% 25.01%
Fiduciary Net Position as a Percentage of
the Plan's Total Pension Liability 100.56% 119.65% 106.92% 65.60% 59.11% 1 Historical information is presented only for measurement periods for which GASB No. 75 is applicable.

Last Ten Fiscal Years 1
Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of the Proportionate Share of the Plan's Net OPEB Liability (Asset) - PEHMCA For the Year Ended June 30, 2022
42 348
Fiscal Year: 2021-222 2020-212 2019-202
2018-19 2017-18
Actuarially Determined Contribution 7,721$ 1,179$ 11,571$ 18,642$ 10,641$ Contribution in Relation to the
Actuarially Determined Contribution (7,721) (1,179) (11,571) (18,642) (10,641) Contribution Deficiency (Excess) -$ -$ -$ -$ -$ Covered Payroll 374,018$ 364,008$ 335,827$ 331,260$ 321,063$ Contributions as a Percentage of Covered
Payroll 2.06% 0.32% 3.45% 5.63% 3.31%
1 Historical information is presented only for measurement periods for which GASB No. 75 is applicable. 2 Effective for the year ended June 30, 2020, PEHMCA Plan is valued separately.

Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of Contributions to the OPEB Plan - PEHMCA
For the Year Ended June 30, 2022
Last Ten Fiscal Years 1
43 349
Measurement Date: June 30, 20211 2 June 30, 20211 2 June 30, 20201 2 Proportion of the Net OPEB Liability
(Asset) 5.36% 5.36% 5.36%
Proportionate Share of the Net OPEB
Liability (Asset) 71,848$ 86,665 $ 99,901 $ Covered Payroll 364,008 $ 345,902 $ 335,827 $ Proportionate Share of the Net OPEB
Liability (Asset) as a Percentage of
Covered Payroll 19.74% 25.05% 29.75%
Fiduciary Net Position as a Percentage of
the Plan's Total Pension Liability 0.00% 0.00% 0.00%
1 Historical information is presented only for periods for which GASB 73 is applicable. 2 SOMAR Plan is now valued separately from PEHMCA Plan effective June 30, 2020.

Last Ten Fiscal Years 1
Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of the Proportionate Share of the Plan's Net OPEB Liability (Asset) - SOMAR For the Year Ended June 30, 2021
44 350
Fiscal Year: 2021-222 2020-212 2019-202
Actuarially Determined Contribution 2,342$ 2,332$ 2,182$ Contribution in Relation to the Actuarially
Determined Contribution (2,342) (2,332) (2,182) Contribution Deficiency (Excess) -$ -$ -$ Covered Payroll 364,008$ 345,902$ 33,587$ Contributions as a Percentage of Covered
Payroll 0.64% 0.67% 6.50%
1 Historical information is presented only for measurement periods for which GASB No. 73 is applicable. 2 Effective for the year ended June 30, 2020, SOMAR Plan is valued separately.

Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of Contributions to the OPEB Plan - SOMAR
For the Year Ended June 30, 2022
Last Ten Fiscal Years 1
45 351
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46 352

City of Hercules

Hercules, California

Independent Accountants’ Report on
Applying Agreed-Upon Procedures
on Measure B Transactions and Use Tax Revenues

For the Year Ended June 30, 2022
353

354
200 E. Sandpointe Avenue, Suite 600
Santa Ana, California 92707

INDEPENDENT ACCOUNTANTS’ REPORT ON APPLYING AGREED-UPON PROCEDURES

To the Honorable Mayor and Members of City Council
of the City of Hercules
Hercules, California

We have performed the procedures enumerated below on the City of Hercules (t he “City”) in evaluating whether the Measure B – Transactions and Use Tax Revenues is in accordan ce with the provisions of this measure for the year ended June 30, 2022. The City is responsible for compliance with the Measure B – Transactions and Use Tax.

The City has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose of evaluating whether the Measure B – Transactions and Use Tax revenues is in accordance with the provisions of this measure. The City is responsible for receipt of Measure B - Transactions and Use Tax Revenues and deposit of such proceeds into the City's General Fund. This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the ends of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes.

The procedures and associated findings are as follows:

1. We confirmed Measure B payments with the Californi a State Board of Equalization (“BOE”) and calculated variances to the receipts summarized per the general ledger of the City for the year ended June 30, 2022.

Findings: We traced from the BOE on-line confirmation to the City’s general ledger with a variance noted and details as below:

Date Posted to G /L Receipts per G /L Payments per BOE V ariance 08/04/2021* $ 190,077 $ 190,077 $ - 09/13/2021* 53,913 53,913 - 09/29/2021 242,061 242,061 - N/A** - 189,154 (189,154.00) 12/06/21 115,929 115,929 - 1/6/2022 181,314 181,314 - 2/1/2022 131,125 131,125 - 3/4/2022 193,070 193,070 - 4/14/2022 163,519 163,519 - 4/28/2022 107,075 107,075 - 6/8/2022 152,434 152,434 - 6/30/2022*** 521,141 521,141 - 2,051,658$ 2,240,812 $ (189,154) $ * The City accrue d $243,990 for the fiscal year ended June 30, 2021. These payments apply to part of that accrual.
** The City did not receive the payment from the State and requested the State to re-issue the check.
*** California Department of Tax and Fee Administration (CDTFA) confirmed $178,272, $126,798, and $216,071 were paid towards accruals subsequent to the year end. 355
To the Honorable Mayor and Members of City Council
of the City of Hercules

2. We traced the proceeds of the tax levied and confir med at procedure 1 to the City's General Fund for use by the City, in a ccordance with Ordinance 470 Sec 8-9. 12 Use of Tax Proceeds and Ordinance 481 Sec 8-9.12 Use of Tax Proceeds (amends ordinance 470).

Findings: Proceeds of taxes levied and confirmed under M easure B were paid/deposited into th e City’s General Fund for use by the City with no exceptions.

We were engaged by the City to perform this agreed-upon procedures engageme nt and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively, on the revenue received by the City from Measure B – Transactions and Use Tax. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.

We are required to be independent of the City and to m eet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement.

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

Santa Ana, California
January 31, 2023
356

City of Hercules

Hercules, California

Independent Accountants’ Report on
Applying Agreed-Upon Procedures
on Measure C Utility Users Tax Rate Revenues

For the Year Ended June 30, 2022
357

358
200 E. Sandpointe Avenue, Suite 600
Santa Ana, California 92707

INDEPENDENT ACCOUNTANTS’ REPORT

ON APPLYING AGREED-UPON PROCEDURES

To the Honorable Mayor and Members of City Council
of the City of Hercules
Hercules, California

We have performed the procedures enumerated below on assi sting the City of Hercules (the “City”) in evaluating whether the Measure C Utility Users Tax Rate Revenues (UUT) is in accordance w ith the provisions of this measure for the year ended June 30, 2022. The City of Hercules' management is responsible for the receipt of Measure C - Utility Users Tax Rate Revenues and deposit of such proceeds into the City's General Fund. The City is responsible for compliance with Measure C Utility Users Tax Rate Revenues.

The City has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose of evaluating whether the Measure C U tility Users Tax Rate Revenues is in acco rdance with the provisions of this measure. This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes.

The procedures and associated findings are as follows:

1. We agreed the actual UUT to the receipts recorded in the City's general ledger and recalculated the mathematical accuracy of the following schedules provided by the City:

a) FY 2021/22 - Expected UUT VS Actual UUT
b) FY 2021/22 - Increase in Revenues Generated by Measure C

Findings:

a) Actual UUT agreed to receipts recorded in the City’s general ledger with no exceptions. Schedule recalculated for mathematical accuracy with no exceptions.

Type of Utility
Estim ated Utility
Billings
(FY 20/21
Utility Billings
as a Base) Ex pected UUT¹
Actual
UUT V ariance % V ariance
Electricity 16,400,000$ 1,312,000 $ 1,481,317 $ 169,317 $ 11.43% Telephone 7,237,500 579,000 544,949 (34,051) -6.25% Gas 4,912,500 393,000 528,678 135,678 25.66% Water 8,525,000 682,000 739,777 57,777 7.81% Cable 6,787,500 543,000 533,689 (9,311) -1.74% Totals 43,862,500$ 3,509,000 $ 3,828,410 $ 319,410 $ 8.34% FY 2021/22 - Expected UUT vs Actual UUT
* Based on UUT of 8% of estimated utility billings

359
To the Honorable Mayor and Members of the City Council
of the City of Hercules

b) Schedule recalculated for mathe matical accuracy with no exceptions.

Type of Utility
Actual UUT
with Measure
A¹
Estimated UUT
without
Measure A ²
Increase in
Revenue due to
Measure A
Increase/
Decrease in Revenue
per Staff Report³ V ariance % Variance
Electricity 1,481,317 1,110,987 370,329 383,878 13,549 3.53% Telephone 544,949 408,712 136,237 105,884 (30,353) -28.67% Gas 528,678 396,509 132,170 124,098 (8,071) -6.50% Water 739,777 554,833 184,944 196,503 11,559 5.88% Cable 533,689 - 533,689 615,855 82,166 13.34% Totals 3,828,410 2,471,041 1,357,369 1,426,218 68,849 4.83% ¹ Based on the actual UUT collected for FY 2021/2022 at a rate of 8% for the entire year. ² Based on a rate of 8% UUT on electricity, telephone, gas and water, and no UUT on cable. ³ Based on the Adopted Budget for FY 20/21 & FY 21/22.

FY 2021/22 -Increase in Revenue G enerated by Measure C

2. We traced the proceeds of the Measure C tax, as liste d in procedure 1.a) schedule to the City's General Fund for use by the City, in accordance with Ordinance 475 Sec 8-8.402 Use of Tax Proceeds and Ordinance 481 Sec 8-8.402 Use of Tax Proceeds (amends ordinance 475).

Findings: Proceeds of taxes as listed in schedule presented at 1.a) were paid/deposited into the City's General Fund for use by the City, with no exceptions.

We were engaged by the City to perfor m this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively, on the Measure C Utility Users Tax Rate Revenues of the City for the year ended June 30, 2022. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.

We are required to be independent of the City and to m eet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement.

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

Santa Ana, California
January 31, 2023
360

City of Hercules

Hercules, California

Independent Accountants’ Report on
Applying Agreed-Upon Procedures to
Appropriations Limit Schedule

For the Year Ended June 30, 2022
361
200 E. Sandpointe Avenue, Suite 600
Santa Ana, California 92707

INDEPENDENT ACCOUNTANTS’ REPORT ON

APPLYING AGREED-UPON PROCEDURES

To the Honorable Mayor and Members of City Council
of the City of Hercules
Hercules, California

We have performed the procedures enumerated below on the accompanying Appropriations Limit Schedule of the City of Hercules, California (the “C ity”) for the year ended June 30, 20 22. The City is responsible for the Appropriations Limit Schedule.

The City has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose in meeting the requirements of Section 1.5 of Article XIII-B of the California Constitution, which was agreed to by the City and the League of Calif ornia Cities (as presented in the publication entitled Agreed-upon Procedures Applied to the Appropriation s Limitation Prescribed by Article XIII -B of the California Constitution ).

This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes.

The procedures performed and associated findings are as follows:

1. We obtained the completed worksheets used by the City to calculate its appropriations limit for the year ended June 30, 2022, and determined that the lim it and annual calculation factors were adopted by resolution of the City Council. We also determined that the population and infl ation options were selected by a recorded vote of the City Council.

Finding: No exceptions were noted as a result of our procedures.

2. For the accompanying Appropriations Limit Schedule, we added the prior year’s limit to the total adjustments, and agreed the resulting amount to the current year’s limit.

Finding: No exceptions were noted as a result of our procedures.

3. We agreed the current year information presented in the accompanying Appropriations Limit Schedule to corresponding information in worksheets used by the City.

Finding: No exceptions were noted as a result of our procedures.

4. We agreed the appropriations limit presented in th e accompanying Appropriations Limit Schedule to the appropriations limit adopted by the City Council.

Finding: No exceptions were noted as a result of our procedures. 362
To the Honorable Mayor and Members of City Council
of the City of Hercules
Hercules, California

2 We were engaged by the City to perform this agreed- upon procedures engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respec tive on the accompanying Appropriation Limit Schedule.

Accordingly, we do not express such an opinion or conclusion. Had we pe rformed additional procedures, other matters might have come to our attention that would have been reported to you.

We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement.

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

Santa Ana, California
January 31, 2023

363
City of Hercules
Appropriations Limit Schedule
For the Year Ended June 30, 2022

3 Amount Source
A. Appropriations Limit FY 2020-2021 443,397,340$ Prior year appropriation limit adopted by the City
B. Calculation Factors:
1) Population increase % 1.0573 California Department of Finance 2) Inflation increase % 1.0145 California Department of Finance 3) Total adjustment % 1.0726 (B1 x B2) C. Annual Adjustment Increase 32,204,325 {(B3-1) x A} D. Other Adjustments:
1) Loss responsibility (-) - N/A 2) Transfer to private (-) - N/A 3) Transfer to fees (-) - N/A
4) Assumed responsibility (+) - N/A E. Total Adjustments 32,204,325 (C+D)
F. Appropriations Limit FY 2021-2022 475,601,665$ (A+E)

See Accompanying Notes to Appropriations Limit Schedule. 364
City of Hercules
Notes to Appropriations Limit Schedule
For the Year Ended June 30, 2022

4 Note 1 – Purpose of Limited Procedures Review

Under Article XIIIB of the California Constitution (the Ga nn Spending Limitation Initiative), California governmental agencies are restricted as to the amount of annual appropria tions from proceeds of taxes. Effective for years beginning on or after July 1, 1990, under Section 1.5 of Article XIIIB, the annual calculation of the appropriations limit is subject to the agreed-upon procedures in connection with the annual audit.

Note 2 – Method of Calculation

Under Section 10.5 of Article XIIIB, for fiscal years begi nning on or after July 1, 1990, the appropriations limit is required to be calculated based on the limit for the fiscal year 1986-87, adjusted for the inflation and population factors discussed in Notes 3 and 4 below.

Note 3 – Population Factors

A California governmental agency may use as its population factor either the annual percentage change of the jurisdiction’s own population or the annual percentage change in population of the county where the jurisdiction is located. The factor adopted by the City of Hercules, Ca lifornia (the “City”) for the year ended June 30, 2022, represents the annual percentage change in population for the City.

Note 4 – Inflation factors

A California governmental agency may use as its inflation factor either the annual percentage change in the 4 th quarter
per capita personal income (which percen tage is supplied by the California Depart ment of Finance) or the percentage change in the local assessment roll from th e preceding year due to the change of local nonresidential construction. The factor adopted by the City for the year ended June 30, 2022, represents the percentage ch ange in the local assessment roll from the preceding year due to the change of local nonresidential construction.

Note 5 – Other Adjustments

A California government agency may be required to adjust its appropriations limit when cer tain events occur, such as the transfer of responsibility for municipal services to, or from, another government agency or private entity. The City had no such adjustments for the year ended June 30, 2022. 365
City of Hercules
AU-C 260 Communication With
Those Charged With Governance
For the Year Ended June 30, 2022
February 14, 2023
366
2 CONTENTS
• Scope of Work
• Required Communications (AU-C 260)
• Overview of Financial Statements
• Audit Results
• Thank You!
12/2/2020
367
3 SCOPE OF WORK
12/2/2020
368
4 SCOPE OF WORK
• Audit of the Comprehensive Annual Financial Report
• Audit of the Hercules Wastewater Fund
• Report on internal control over financial reporting and on compliance in accordance with Government Auditing Standards
•
Agreed Upon Procedures:
• GANN Limit
• Measure B – Transactions and Use Tax Revenues
• Measure C – Utility Users Tax Rate Revenues
• Communication with Those Charged with Governance
12/2/2020
369
5 OUR RESPONSIBITY IN ACCORDANCE WITH

PROFESSIONAL STANDARDS
• Form and express an opinion about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America • Our responsibility is to plan and perform the audit to obtain “reasonable” assurance (not “absolute” assurance) about whether the financial statements are free of material misstatements. • Exercise professional judgment and maintain professional skepticism throughout the audit. • We considered internal control over financial reporting. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. • 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. 2/6/202
3 370
6 Required Communications (AU-C 260)
(Report to the City Council)
12/2/2020
371
7 Required Communications (AU-C 260)
12/2/2020
• Ethics and Independence
• Complied with ALL relevant ethical requirements regarding independence • Significant Accounting Policies
• The City disclosed all significant accounting policies in Note 1 to the financial statements. • The City implemented GASB Statement No. 87, Leases
• Significant Estimates
• Fair Value on Investments
• Depreciation and Amortization on Capital and Lease Assets • Lease Receivable and related Deferred Inflows of Resources • Lease Payable
• Net Pension Liability
• Net OPEB Liability
372
8 Required Communications (AU-C 260)
12/2/2020
• Sensitive Disclosures
• Note 4 – Lease Receivable
• Note 8 – Retirement Plans
• Note 9 – Deferred Compensation Plan
• Note 10 – Other Postemployment Benefits
• Note 11 – Risk Management
• Note 12 – Commitments and Contingencies
• Note 13 – Joint Powers Agreements
• Note 17 – Special Items
• Note 18 – Restatement
373
9 Required Communications (AU-C 260)
12/2/2020
• Misstatements
• There were uncorrected misstatement reported.
• Consultation with Other Accountants
• Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and other matters. • Significant Difficulties
• We encountered no significant difficulties in dealing with management. • Disagreement with Management
• We did not have any disagreement with management in terms of accounting treatments nor audit procedures performed.
374
10 OVERVIEW OF THE FINANCIAL

STATEMENTS
12/2/2020
375
11 Net Position @ June 30, 2022
12/2/2020
Governmental Business-type
Activities Activities Total
Total Assets 132,113,254$ 67,607,302$ 199,720,556$ Total Deferred Outflows of Resources 4,431,651 201,404 4,633,055 Total Liabilities 38,550,171 32,938,188 71,488,359 Total Deferred Inflows of Resources 20,020,393 600,117 20,620,510 Net Position:

Net investment in capital assets 60,257,709 15,704,349 75,962,058 Restricted 9,237,967 - 9,237,967 Unrestricted 8,478,665 18,566,052 27,044,717 Total Net Position 77,974,341$ 34,270,401$ 112,244,742$ 376
12 Changes in Net Position
2/6/202
3 Governmental Business-type
Activities Activities Total
Expenses 24,483,746$ 5,221,938$ 29,705,684$ Program revenues:

Charges for services 2,827,552 5,852,278 8,679,830 Operating grants and contributions 16,934,012 - 16,934,012 Total program revenues 19,761,564 5,852,278 25,613,842 Net cost of services (4,722,182) 630,340 (4,091,842) General revenues 17,206,844 (157,318) 17,049,526 Special items (39,586,347) (10,587,627) (50,173,974) Net change in net position (27,101,685)$ (10,114,605)$ (37,216,290)$ 377
13 General Fund Balance @ June 30, 2022 and 2021
2/6/202
3 2022 2021 Variance
Nonspendable
Prepaid items 10,806$ 10,112$ 694$ Long-term receivable - 27,787,637 (27,787,637) Total nonspendable 10,806 27,797,749 (27,786,943) Restricted
Pension Section 115 Trust 2,054,252 2,237,248 (182,996) Total restricted 2,054,252 2,237,248 (182,996) Assigned
Earthquake insurance deductible 500,000 500,000 - Fiscal neutrality reserve 4,034,517 4,034,517 - Capital projects 450,000 450,000 - Planning and building 953,800 846,800 107,000 Reusable bags 13,930 13,930 - Public, Education, and Government (PEG) 70,000 70,000 - Total assigned 6,022,247 5,915,247 107,000 Unassigned 22,926,831 10,008,178 12,918,653 Total fund balance 31,014,136$ 45,958,422$ (14,944,286)$ 378
14 Net Pension Liability
2/6/202
3 Discount Rate -1% Current Discount Discount Rate +1%
(6.15%) Rate (7.15%) (8.15%)
Miscelleneous 8,669,259$ 4,514,222$ 1,079,312$ Safety 10,627,918 5,378,400 1,066,569 Total 19,297,177$ 9,892,622$ 2,145,881$ Plan's Net Pension Liability
379
15 Net OPEB Liability (Asset)
2/6/202
3 Current Discount
Discount Rate -1% Rate Discount Rate +1%
PEHMCA (5.15%) 295,249$ (14,244)$ (275,253)$ SOMAR (3.54%) 1,595,392$ 1,341,133$ 1,158,833$ Plan's Net OPEB Liability (Asset)
380
16 AUDIT RESULTS
12/2/2020
381
17 Audit Results
12/2/2020
• Financial Statements
• Unmodified Opinions
•
Financial Statements are fairly presented in all material respects • Significant accounting policies have been consistently applied • Estimates are reasonable
• Disclosures are properly reflected in the financial statements • Agreed Upon Procedures – GANN, Measure B, and Measure C • No exceptions were noted
• AU-C 265, Communicating Internal Control Related Matters Identified in an Audit
• None Reported
382

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383
1 STAFF REPORT TO THE CITY COUNCIL

DATE: Regular Meeting of February 14, 2023

TO: Mayor and Members of the City Council

VIA: Dante Hall, City Manager

SUBMITTED BY: Edwin Gato, Director of Finance

SUBJECT: FY 22-23 Midyear Budget Review and Recommended Midyear Budget Appropriations and Adjustments

RECOMMENDATION ACTION:

Receive a report on the FY 22-23 midyear budget review and adopt a resolution approving various midyear budget appropriations and adjustments, as summarized and detailed in attachment 2 and 3, respectively.

EXECUTIVE SUMMARY:

The Midyear Budget review allows the City to adjust the current fiscal year budget (FY 22- 23) for changes in projected revenues and expenditures levels that may have occurred since the adoption of the Annual Budget on June 28, 2022. Those changes are contained in this report along with a detailed justification for each recommended change.

BACKGROUND:

This report updates the Fiscal Year 22-23 financial projections and proposes current year budget amendments for various City funds to reflect and respond to the City’s current financial condition. Also, this report provides the City Council with updates on the financial status of the City’s General Fund by comparing budget projections for revenues and expenditures to actual receipts and expenses as of December 31, 2022.

The discussion below is presented in the following sections:

I. General Fund Revenues
II. General Fund Expenditures
III. General Fund Net Annual Results
IV. General Fund Operating Reserve
V. American Rescue Plan Act (ARPA) Fund
VI. Non-General Fund Programs

384
2 ANALYSIS:

As part of the budget process, the City staff must report to the City Council at midyear, examining revenues and expenditures and adjustments if necessary. The process provides an opportunity to review the status of the Budget at midyear to make adjustments to the City’s planned operations and Budget. This year’s report is attached and includes the following:

 A summary of recommendations.
 Assessments of both operating and capital budgets.
 A schedule showing the recommended midyear budget adjustments for each fund.

The Midyear Budget Review begins with the good news that at the six -month mark (December 31, 2022), most of the General Fund revenues are above 50%. Expenditures are slightly higher than the original budget due to the outcome of labor negotiations being

1.5% higher COLA than budgeted and upfront payments on insurance and debt service.

General Fund
In accordance with the City’s Financial Policies, the annual operating budget was conservative when adopted. This was particularly true as we faced the many uncertainties created by the COVID -19 pandemic. The Policies also call for one -time, non-operating expenditures to be funded from one -time revenues. The City’s practice of budgeting conservatively and living within our means remains effective at ensuring that we maintain good fiscal health, and the recommended changes in this Midyear Budget Review remain true to these practices.

I. General Fund Revenues

As of December 31, 2022, the General Fund operating revenues were $8.4 million or 50% of the FY 22 -23 adopted budget. Revenues from business licenses, franchise fees, and other taxes are received bi-annually and towards the end of the fiscal year. This accounts for why revenues are below 50% as of December 31, 2022. Also, the revenues received from program fees fluctuate each year. However, these revenues are offset by expenditures incurred by fees. The chart below represents revenue by source compared to the same period last year as of December 31 and how much was collected compared to the budget.

$474,000
$2,334,000
$2,511,000
$11,597,000
$171,244
$1,071,325
$1,252,963
$5,937,528
$221,184
$788,421
$1,191,833
$5,940,948
$0 $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 Miscellneous
Charges for Services
Intergovernmental
Taxes
FY 21-22 Actual FY 22-23 Actual Budget
385
3 The following are the proposed midyear budget adjustments for the General Fund revenues:

 Sales Tax: The pandemic did lead to very conservative estimates for Sales Tax revenues with the adopted Budget. Sales Tax revenues continue to rebound in major tax groups. An annual reduction in general retail (-2%) is offset by growth in all other sectors, especially in Business to Business (22.9%) and Food Products (161%) based on the first quarter review of sales tax activities.

Hercules's sales tax revenue is projected to increase by 38.3%. Based on the data analysis and conservatively estimated, based on the current economic climate, Sales Tax revenue is projected to exceed the original annual Budget by $400,000.

FY 22-23 FY 21-22
Budget
Actual
Receipts
12/31/2022
%
Collected
Actual
Receipts
12/31/2021
$ Change
Compared to
PY
% of
Change
Compred
to PY
Taxes
Utility User Tax $3,589,000 $1,754,196 49% $1,790,358 ($36,162) -2% Sales Tax 4,998,000 2,908,360 58% 2,910,540 (2,180) 0% Property Taxes 1,571,000 886,096 56% 822,033 64,063 8% Franchise Fees 905,000 270,863 30% 281,963 (11,100) -4% Business Licenses 274,000 56,918 21% 48,415 8,503 18% Transfer Tax 146,000 51,101 35% 80,591 (29,490) -37% Transient Occupancy Tax 114,000 9,994 9% 7,048 2,946 42% Intergovernmental 2,511,000 1,252,963 50% 1,191,833 61,130 5% Fines & Forefeitures 38,000 16,627 44% 18,325 (1,698) -9% Program Revenues
Community Development 306,000 101,169 33% 111,896 (10,727) -10% Parks and Recreation 1,156,000 547,330 47% 294,282 253,048 86% Police 139,000 50,903 37% 56,394 (5,491) -10% Public Works 38,000 25,194 66% 6,418 18,776 293% Other 11,000 4,729 43% 3,253 1,476 45% Use of Money & Property 286,000 79,617 28% 127,859 (48,242) -38% Cost allocated to other funds 684,000 342,000 50% 316,178 25,822 8% Transfers In 150,000 75,000 50% 75,000 0 0% Total, Revenues $16,916,000 $8,433,060 50% $8,142,386 $290,674 4% 386
4 II. General Fund Expenditures

A summary and year-to-date status of General Fund expenditures are presented in Attachment 3, as shown in the following graph. Payments on the insurance premium and debt service payment on equipment leases are due at the beginning of the fiscal year and due to the outcome of labor negotiation being 1.5% higher COLA than budgeted, which accounts for why expenditures are higher than 50% as of December 31, 2022.
(In Millions)

Typically, the mid-year budget review and adjustments recommended are to make corrections to the adopted budget and to address required modifications. New initiatives or programs are not often contemplated unless necessary.

General Fund revenue and expenditure budget amendments are proposed to reflect the following adjustments and summarized and detailed in attachment 2 and 3, respectively:

III. General Fund Net Annual Results

The General Fund ended last fiscal year (FY21 -22) with $3.9 million in available cash, $2.9 million better than projections. With the better-than-expected revenue at $0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
FY 19-20
Actuals
FY 20-21
Actuals
FY 21-22
Actuals
FY 22-23
Adopted
Budget
FY 22-23
Proposed
Midyear Budget
Transfers Out
Public Works
Legilative
Community Development
Non-Department
Parks and Recreation
Administration
Police
Increase in Increase in Net
Revenues Expenditures Impact
Sales Tax $400,000 $400,000
Salary and Benefits (COLA Adjustments)All Bargaining Groups 94,500 (94,500) New Senior Planner Community Development 44,000 (44,000) Implementation of Standby and Call BackPublic Works 1,000 (1,000) Pool Maintenance Contract Parks & Recreation 15,000 (15,000) $400,000 $154,500 $245,500
387
5 the end of the FY 21 -22, staff is assigning the available cash balance as follows based on the reserve policy, as amended by the City Council last fiscal year:
 $977,256 – 25% to Pension Liability
 $1,954,511 – 50% to Capital Reserve

This will reduce the beginning available cash balance to $977,255.

The General Fund, excluding ARPA funds, Midyear review is projected to end FY 22-23 with a positive ending available balance of a little over $900,000, which is $180,000 better than projected in the adopted FY 2 2-23 budget. Most of the increase was attributed to the actual financial result of the a udited FY 2 1-22 Financial Statements.

IV. General Fund Operating Reserve

Fiscal stability is an essential factor for all cities. Sound financial management includes the practice and discipline of maintaining adequate reserve funds for known and unknown contingencies. The City’s operating reserve policy equals 16.66% of total operating expenditures , or two months equivalent. The General Fund operating reserve exceeded that requirement and maintained a $4.2 million (including interest income earned) oper ating reserve equal to 2 6% of the total operating budget.

V. American Recovery Plan Act (ARPA)

To further assist government entities with the pandemic response and recovery, on March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) was signed into law, making funding available through the State and Local Fiscal Recovery Funds (SLFRF) to assist states, tribal governments, and local governments. On May 10, 2021, the United States Department of Treasury released regulations and updated the local government allocation. As part of the $1.9 trillion relief package, the City of Hercules became eligible for $6,285,778 to be paid in two installments. The City received the first payment equal to one-half of the City of Hercules' allocation for $3,142,889 was received on August 5, 2021. The second half was received on September 1, 2022. Effective April 1, 2022, the Secretary of the Treasury adopted a final interim rule. This rule implements the Coronavirus State Fiscal Recovery Fund and the Coronavirus Local Fiscal Recovery Fund established under the American Rescue Plan Act (ARPA). The following is the summary for the use of Fiscal Recovery Funds based on the final rule:
 General Fund Revenue Loss: The final rule offers a standard allowance for revenue loss of $10 million. Hercules staff selected the standard allowance as permissible under the revenue loss category and may use the total amount allocated of $6.2 million for government services.

388
6 Currently, the following summary represents the ending balance on ARPA funds:

A budget workshop is scheduled in mid-March to discuss Capital Improvement Plan and project priorities. Subsequently, staff will present a proposed ARPA spending plan to the Council for consideration during the FY 23-24 Budget.

VII. Non-General Fund Programs
These funds are driven by grants or other funding sources and are used for specific purposes, such as transportation, gas tax, Measure C “Street Fund,” etc.

Such funding sources are restricted, requiring revenues and expenditures to be tracked differently from the City’s primary operating fund, the General Fund.

There is sufficient funding to complete current projects or programs and fund the following proposed mid-year adjustments as summarized and detailed in attachment 2 and 3, respectively.

$3,142,889 $3,142,889 $6,285,778
Appropriated:

Strategic Communication Plan 50,000 50,000
Willow/Palm Sidewalk Installation (Transit Center) 250,000 250,000 Refugio Tennis Court Tree Maintenance 6,000 6,000 Sidewalk and Safe Walkways 100,000 100,000
Community Swim Center Safety Fence Replacement 100,000 100,000 Community Swim Center Gym Floor Replacement & Other
Building and Deferred Maintenance
250,000 250,000
Increase appropriation on All Abilities Swing Set 50,000 50,000 Reserve for COVID related expenses 50,000 50,000 E-Gift Card Program 65,000 65,000
HdL Contract - ARPA Administration 164,500 164,500 Building Facilities Plan 75,000 75,000
Parks Master Plan 150,000 150,000
Business Assistance Program 150,000 150,000
Business Rental Assistance Grants 150,000 150,000 -
Total, Use of Fund 1,610,500 - 1,610,500 $1,532,389 $3,142,889 $4,675,278Ending Balance
ARPA funding received
Increase in Increase in Net
Revenues Expenditures Impact
Salary and Benefits (COLA Adjustments)All Bargaining Groups 30,000 (30,000)
New Senior Planner Community Development -
Implementation of Standby and Call BackPublic Works 37,000 (37,000)
Pool Maintenance Contract Parks & Recreation -
Uniform and Equipment for Special
Response Team (SRT)
Police 30,000
(30,000)
Additional Training Police 20,000 (20,000) Pedestrian Sidewalk Improvement at
Willow and Palm
Capital Projects 1,058,000 1,058,000
-
1,058,000 1,175,000 (117,000)
389
7 Next Step
Staff is currently in the process of preparing the FY 23-24 budget which will be introduced to the City Council on May 9, 2023.

The table below outlines key Council meeting dates at which budget information will be provided.

Budget Award
The City of Hercules FY 21-22 Budget was awarded the Distinguished Budget Presentation Award from the Government Finance Officers Association (GFOA) for the third time. This award is the highest form of recognition in government budgeting. Its attainment represents a significant ach ievement by the organization. Staff submitted the FY 2 2-23 Budget documents for award consideration.

FISCAL IMPACT:

The proposed budget amendment to the FY 22-23 Budget, as summarized and detailed in Attachment 2 and 3, respectively, will increase the General Fund revenue by $400,000 on sales tax after the adoption of the FY 22 -23 Budget and will increase General Fund expenditures by $154,500. The General Fund also updated its beginning fund balance based on the year-end results to $3.9 million and implemented the reserve policy adopted by the City Council last year. Also, as summarized and detailed in Attachments 2 and 3, the net impact of the proposed amendments on all other funds is a reduction in the available fund balance of $117,000.

Date Action/Topic
February 14, 2023 FY 22-23 Midyear Review & Budget Amendments March 28, 2023 Budget Workshop to discuss the Five-Year CIP and project priorities, including recommendations for the ARPA funds spending plan April 11, 2023 Budget Workshop to discuss the Preliminary draft of the FY 23-24 Sewer Enterprise and Internal Service Funds budgets
April 15, 2023 Budget Workshop to discuss the Preliminary draft of the FY 23-24 General Fund Operating budget and other funds (Special Revenues, Debt Service, Agency and Successor Agency) budget
May 9, 2023 Introduction and First Public Hearing of the FY 23-24 Budget and Five-Year Capital Improvement Plan (CIP), including the appropriation of ARPA funds
June 6, 2023 Second Public Hearing and Adoption of the FY 23-24 Budget and Five-Year Capital Improvement Plan (CIP), including the appropriation of ARPA funds
390
8 The following summarizes the Midyear Budget Adjustments:

ATTACHMENTS:

1. Budget Resolution

2. Proposed Budget Amendment

3. Budget Request Detail

4. General Fund Summary

5. Non-General Fund Summary
Revenue Expenditures Net Impact
General Fund 400,000 169,500 230,500
Non-General Fund 1,058,000 1,175,000 (117,000)
Total 1,458,000 1,344,500 113,500
391
RESOLUTION NO. 22-

RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HERCULES APPROVING FY 22-23 MIDYEAR BUDGET APPROPRIATIONS AND ADJUSTMENTS

WHEREAS, the City Council adopted the FY 22-23 Budget on June 28, 2022, representing the financial plan for conducting the affairs of the City of Hercules; and

WHEREAS, the following recommended appropriations and adjustments have been evaluated and reviewed by the City Manager and Finance Director. The detailed budget amendment proposal is presented in Attachment 3 in the accompanying staff report; and

WHEREAS, staff is requesting approval for FY 22-23 budget appropriations and adjustments as set forth in Attachment 2; and

WHEREAS, staff is implementing the following General Fund reserves or designations:
a. 25% to fund pension liabilities.
b. 50% to capital reserve.

NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Hercules as follows:

1. The City Council hereby approves FY 22-23 Budget appropriations and adjustments as set forth in Attachment 2.

2. The City Council hereby makes or confirms the following General Fund reserves or designations:
a. 25% to fund pension liabilities.
b. 50% to capital reserve.

The foregoing Resolution was duly and regularly adopted at a regular meeting of the City Council of the City of Hercules held on the fourteenth day of February 2023, by the following vote of the Council:

AYES:

NOES:

ABSENT:

ABSTAIN:
____________________________
Alexander Walker-Griffin, Mayor
ATTEST:

Eibleis Melendez, Acting City Clerk

392
City of Hercules
FY 22-23 Mid-Year Budget Review
Proposed Budget Amendments
Revenues/ Expenditures/ Add(Draw) on
Transfers In Transfers Out Fund Balance
GENERAL FUND (Fund #100)
Department Revenues and Expenditures
Sales Tax
400,000 400,000
Salaries and Benefits
Increase COLA from 3% to 4.5% of base salary 94,500 (94,500) Public Works
Implement Standby and Call back pay 1,000 (1,000) Community Development
Senior Planner position 44,000 (44,000) Parks & Recreation
Pool maintenance 15,000 (15,000)
Total, General Fund 400,000 154,500 245,500

NON-GENERAL FUND PROGRAMS
Salaries and Benefits
Increase COLA from 3% to 4.5% of base salary 30,000 (30,000) Asset Seizure Fund
Safety Equipment (One-Time) 30,000 (30,000) Increase appropriation for Training (One-Time) 20,000 (20,000) Public Works
Implement Standby and Call back pay
Gas Tax - Fund 262 6,000 (6,000)
Measure J - Fund 263 4,000 (4,000)
Facilities Maintenance - Fund 470 11,000 (11,000) Sewer - Fund 420 16,000 (16,000)
Capital Projects
Pedestrian Sidewalk Improvement Willow & Palm (63042) - CCTA Grant
1,058,000 1,058,000 -
Total, Other Funds 1,058,000 1,175,000 (117,000) Total, All Funds 1,458,000 1,329,500 128,500 393
BUDGET REQUEST CITY OF HERCULES FY 22-23 MIDYEAR BUDGET FY 22-23 MIDYEAR BUDGET REQUESTS
Sales tax revenue – The pandemic did lead to very conservative estimates for Sales Tax revenues with the adopted Budget. Sales Tax revenues continue to rebound in major tax groups. A slight reduction in general retail (-2%) revenues is offset by growth in all other sectors, especially in Business to Business (22.9%) and Food Products (161%) based on the first quarter review of sales tax activities. Overall and conservatively estimated based on the current economic climate, Sales Tax revenue is projected to exceed the original annual Budget by $400,000.

Revenue Increase:
 General Fund - $400,000
Salaries and Benefits (All Departments) – The budget amendment request is due to the outcome of the labor negotiations for all bargaining groups. The midyear budget adjustment will increase the Cost-of- Living Adjustments (COLA) from 3% to 4.5%.

Expense Increase:
 General Fund - $94,500
 Non-General Fund - $30,000
Senior Planner (Community Development) – This request is to create a new, permanent Senior Planner position in the Community Development Department, reporting to the Community Development Director.

The Senior Planner would perform professional land use and urban planning work, including current and long range (advanced) planning, implementation of the General Plan, review of complex zoning and development applications, and coordination of special projects.

This position is requested to enable the Department to successfully manage the volume of professional work required to respond to inquiries from the public; process the City’s Planning applications; develop and update the City’s long-range plans; maintain and update the Zoning ordinance and other City regulations; staff the Planning Commission, regional advisory committees, and interdepartmental planning efforts; implement new requirements of state law, such as online permitting; and develop and implement new programs, policies, and resources to further fair housing and otherwise implement the City’s 2023-31 Housing Element, once adopted. The Senior Planner would also assist the Director in implementing Council priorities such as business recruitment, additional community engagement, and development of user-friendly handouts explaining common Planning application types and requirements.

Ongoing Expense Increase:
 General Fund - $44,000.

Implementation of Standby and Call Back (Public Works) – Implement a rotation for the 7 Public Works Maintenance Workers to join with the Maintenance Superintendent in providing emergency/urgent coverage during non-working hours. This would be in accordance with Article 8.4 “Standby” and 8.5 “Call Back Pay” of the MOU with Teamsters Local 315. Currently the Public Works Superintendent is “on-call” 24 hours a day 365 days a year. Hercules is one of the last remaining agencies in the County adhering to this practice. With the rotation, each staff person will be on standby for a 1-week rotation. Implementing a rotation will make urgent/emergency coverage during non-working hours more sustainable, provide employees a professional growth opportunity, include cross training, and based upon experience gained 394
BUDGET REQUEST CITY OF HERCULES FY 22-23 MIDYEAR BUDGET be a step forward for succession planning and raise the level of performance of the Maintenance & Operations Division overall. Additionally, it will be more effective as it will allow the Superintendent to focus on higher level duties, such as management, supervision, and operational planning.

Ongoing Expense Increase:
General Fund - $1,000
Non-General Fund $37,000
Pool Maintenance Contract – When the pool was built, Public Works and Parks and Recreation shared the responsibility to maintain the pool. Public Works would work on mechanical items, and Parks and Recreation would order and check proper chemical levels. Over the course of time, changes in personnel, changes in requirements to work on equipment, and the aging of equipment, have led to a need for more technical help. Neither department possesses this level of expertise, nor the available hours needed based on the growing needs of the community and aging equipment. Staff recommends in winter to use the 3-day, and in the spring/summer use the 5-day service. The overall cost would be approximately $15,000 for the remainder of the year.

Ongoing Expense Increase:
 General Fund - $15,000
Uniform and Equipment for Special Response Team (SRT) (Police) – The SRT was created over 30 years ago for several high-risk investigations in the City and other bay area cities. The program was suspended in 2018 due to a lack of personnel. Most of the equipment previously used, including tactical vests, helmets, gas masks have expired and must be replaced.

One-time Expense Increase:
 Asset Seizure Fund - $30,000
Additional Training (Police) – Since the pandemic started in 2020, training has been challenging to find due to cancellations leaving many agencies, including Hercules, to meet basic training requirements, which could be vulnerable to potential litigation and liability issues. The department is requesting an additional training appropriation for this fiscal year. This additional appropriation will help limit the exposure and bridge the training gap.

One-time Expense Increase:
 Asset Seizure Fund - $20,000
Pedestrian Sidewalk Improvement at Willow and Palm (Capital Projects) – Currently there is no sidewalk available for pedestrians. This project will provide connectivity to the HTC from the southeast part of town. This project will install sidewalk from the Hercules Transit Center (HTC) to Palm Avenue, and then from Palm Avenue to Sycamore Avenue. A Measure J TLC grant was originally assigned to this project but was rescinded due to a drop in revenue from the pandemic. City staff is successfully secured a grant with the Contra Costa Transportation Authority (CCTA).

One-time Revenue Increase:
 Capital Projects Fund (CCTA Grant) - $1,058,000
One-time Expenditure Increase:
 Capital Projects Fund Project #63042 - $1,058,000
395
FY 22-23 Mid-Year Budget Update
General Fund - Budget Summary
FY 19-20 FY 20-21 FY 21-22 FY 22-23 FY 22-23
Audited
Actuals
Audited
Actuals
Audited
Actuals
Adopted
Budget
6-Months
Actuals % Used
Mid-Year
Update
Proposed
Mid-Year
Adjustments
General Fund
Beginning Available Balance $2,412,068 $1,847,113 $2,138,828 $953,025 $3,909,022 Reserve per Council policy:
25% to Pension (977,256)
25% to Operating Reserve (Not applied) -
50% to Capital Reserve (1,954,511)
Beginning Available Balance, as adjusted 2,412,068 1,847,113 2,138,828 953,025 977,255$ Revenues
Taxes
Utility User Tax 3,483,843 3,590,649 3,828,410 3,589,000 1,754,196 49% 3,589,000 - Sales Tax 4,212,285 4,775,496 6,263,066 4,998,000 2,908,360 58% 5,398,000 400,000 Property Taxes 1,415,995 1,451,716 1,524,791 1,571,000 886,096 56% 1,571,000 - Franchise Fees 948,503 862,104 970,054 905,000 270,863 30% 905,000 - Business Licenses 251,418 268,697 257,289 274,000 56,918 21% 274,000 - Transfer Tax 142,850 126,488 199,673 146,000 51,101 35% 146,000 - Transient Occupancy Tax 6,179 7,635 25,778 114,000 9,994 9% 114,000 - Intergovernmental 2,151,433 2,285,392 2,391,327 2,511,000 1,252,963 50% 2,511,000 - Fines & Forefeitures 62,582 36,586 48,663 38,000 16,627 44% 38,000 - Program Revenues
Community Development 675,556 824,891 644,862 306,000 101,169 33% 306,000 - Parks and Recreation 1,020,758 396,290 1,034,173 1,156,000 547,330 47% 1,156,000 - Police 483,367 65,915 136,878 139,000 50,903 37% 139,000 - Public Works 28,978 46,908 10,464 38,000 25,194 66% 38,000 - Other 6,770 10,571 6,723 11,000 4,729 43% 11,000 - Use of Money & Property 600,707 511,188 347,905 286,000 79,617 28% 286,000 - Cost allocated to other funds 534,346 602,677 624,568 684,000 342,000 50% 684,000 - Transfers In 227,335 150,000 396,816 150,000 75,000 50% 150,000 - 16,252,905 16,013,203 18,711,440 16,916,000 8,433,060 50% 17,316,000 400,000 Expenditures
Police 7,564,927 7,549,028 7,759,504 7,821,727 4,255,489 54% 7,881,727 60,000 Public Works 305,464 292,525 313,571 382,857 199,527 52% 383,857 1,000 Community Development 611,297 792,456 1,039,919 810,561 238,243 29% 858,561 48,000 Parks and Recreation 2,165,547 1,434,988 1,952,419 2,077,537 1,191,985 57% 2,108,537 31,000 City Council 376,082 407,588 330,296 358,645 163,152 45% 358,645 - City Manager 385,675 360,115 496,216 490,186 251,509 51% 493,186 3,000 Legal 284,709 154,562 209,134 273,000 94,218 35% 273,000 - Administrative Services 700,608 682,878 685,122 766,299 349,620 46% 772,299 6,000 Finance 1,054,307 1,119,462 1,114,284 1,191,122 620,795 52% 1,196,622 5,500 Workers Comp/General Liability 1,084,650 1,077,619 1,135,659 1,265,554 1,047,167 83% 1,265,554 - Non-Department 756,736 362,474 260,000 615,934 399,983 65% 615,934 - Transfers Out 205,099 214,976 423,542 330,000 328,981 100% 330,000 - 15,495,101 14,448,671 15,719,666 16,383,422 9,140,669 56% 16,537,922 154,500 FY 22-23 Activities
thru 12/31/2022
1 396
FY 22-23 Mid-Year Budget Update
General Fund - Budget Summary
FY 19-20 FY 20-21 FY 21-22 FY 22-23 FY 22-23
Audited
Actuals
Audited
Actuals
Audited
Actuals
Adopted
Budget
6-Months
Actuals % Used
Mid-Year
Update
Proposed
Mid-Year
Adjustments
FY 22-23 Activities
thru 12/31/2022
Net Annual Activity
Baseline Operations 757,804 1,564,532$ 2,991,774$ 532,578$ (707,609)$ 778,078$ 245,500 One-Time Revenues 1,723,486 600,750 1,431,000 - - - - One-Time Expenditures (3,046,245) (1,873,567) (2,652,580) (786,025) (125,000) 16% (786,025) - Net of One-Time Activities (1,322,759) (1,272,817) (1,221,580) (786,025) (125,000) 16% (786,025) - Ending Available Balance (Before ARPA) 1,847,113 2,138,828 3,909,022 699,578 969,308 245,500 American Rescue Plan Act (ARPA)
Beginning Available Balance $0 $0 $0 $1,897,838 2,057,389 One-Time ARPA (Loss of Revenue) 3,142,889 - - 3,142,889 One-Time ARPA Expenditures (1,085,500) (225,000) - 0% (525,000) Net of ARPA - - 2,057,389 (225,000) - 2,617,889 Ending Available Balance - - 2,057,389 1,672,838 4,675,278 Operating Reserve:

Beginning Balance 3,797,650 2,764,975$ 4,209,129$ 4,209,129$ 4,222,158$ Interest Earned 174,612 13,029
Ending Balance 2,764,975 4,209,129$ 4,222,158$ 4,209,129$ 4,222,158$ % of Projected Operating Expenditures 18% 29% 27% 26% 26% 2 397
FY 22-23 MIDYEAR BUDGET REVIEW

NON-GENERAL FUND SUMMARY
Special Revenue Funds
FY 21-22 FY 22-23 FY 22-23 FY 22-23 FY 22-23 FY 22-23
Beginning
Available Balance
Revenue
Estimate Appropriations Midyear Request Net Activities Ending Available
Balance
Fund No. Fund Name Audited Results As Adopted As Adopted As adjusted As adjusted 101 ASSET FORFEITURE 69,395 33,000 45,000 50,000 (62,000) 7,395 201 AB 3229 COPS Program 18,011 150,000 150,000 - 18,011 220 CITYWIDE L&L DIST 83-2 (282,558) 2,107,899 2,079,326 7,000 21,573 (260,985) 221 VICTORIA BY THE BAY L&L DIST 2002-1 (319,153) 482,897 584,542 1,000 (102,645) (421,798) 222 HERCULES VILLAGE L&L DIST 2002-2 178,036 166,305 206,619 (40,314) 137,722 223 BAYWOOD ASSESS 04-1 L&L DIST 2004-1 53,278 157,261 148,033 9,228 62,506 224 BAYSIDE ASSESS DIST L&L DIST 2005-1 140,352 149,231 132,686 16,545 156,897 225 ARTERIAL ROADWAYS 574,312 314,000 333,123 (19,123) 555,189 231 STORMWATER ASSESSMENT (212,953) 376,000 374,577 2,000 (577) (213,530) VARIOUS DEVELOPMENT IMPACT FEES 1,696,035 60,000 (60,000) 1,636,035 VARIOUS DEVELOPMENT SERVICES 237,830 - 237,830 VARIOUS CAPITAL PROJECTS 1,998,781 - 1,998,781 262 STATE GAS TAX FUND 476,487 1,434,597 1,760,817 9,000 (335,220) 141,267 263 MEASURE "C" STREET FUND 42,356 450,000 593,805 7,000 (150,805) (108,449) 291 SOLID WASTE AND RECYCLING 821,785 178,000 236,881 (58,881) 762,904 521 REGIONAL WATER QUALITY 51,144 - 51,144 266 BART (PARK & RIDE) 275,689 45,000 17,000 28,000 303,689 5,818,827 6,044,190 6,722,409 76,000 (754,219) 5,064,608 Enterprise Funds
FY 21-22 FY 22-23 FY 22-23 FY 22-23
Beginning
Available Balance
Revenue
Estimate Appropriations Midyear Request Net Activities Ending Available
Balance
Fund NumberFund Name Audited Results As Adopted As Adopted As adjusted As adjusted 420 WASTEWATER 7,647,028 6,053,000 7,417,750 24,000 (1,388,750) 6,258,278 Special Revenue Funds account for the proceeds of specific revenue sources (other than trusts for individuals, private organizations, or other governments, or for major capital projects) that are restricted or committed to expenditures for specified purposes.

This fund accounts for wastewater treatment to the cities of Hercules and Pinole and for the maintenance of the City's sewer lines and related facilities. It is a self-supporting activity which provides services on a user charge basis to residences and businesses. 398
FY 22-23 MIDYEAR BUDGET REVIEW

NON-GENERAL FUND SUMMARY
Internal Service Funds
FY 21-22 FY 22-23 FY 22-23 FY 22-23
Beginning
Available Balance
Revenue
Estimate Appropriations Midyear Request Net Activities Ending Available
Balance
Fund NumberFund Name Audited Results As Adopted As Adopted As adjusted As adjusted 450 VEHICLE REPLACEMENT FUND 645,987 148,300 276,000 (127,700) 518,287 460 IT OPERATING FUND 381,649 1,271,986 1,271,686 4,000 (3,700) 377,949 470 FACILITY MAINTENANCE FUND 344,730 787,000 787,192 13,000 (13,192) 331,538 480 IT EQUIPMENT REPLACEMENT FUND 416,031 - 416,031 490 FACILITY REPLACEMENT FUND 368,298 25,000 (25,000) 343,298 2,156,694 2,207,286 2,359,878 17,000 (169,592) 1,987,102 Debt Service Funds
FY 21-22 FY 22-23 FY 22-23 FY 22-23
Beginning
Available Balance
Revenue
Estimate Appropriations Midyear Request Net Activities Ending Available
Balance
Fund NumberFund Name Audited Results As Adopted As Adopted As adjusted As adjusted 672 2003B DEBT SERVICE PFA 157,066 355,934 513,000 (157,066) - 673 2009 DEBT SERVICE PFA - 908,000 908,000 - - 383 SUNTRUST LEASE - 103,000 103,000 - - 388 EQUIPMENT LEASE - 227,000 227,000 - - 157,066 1,593,934 1,751,000 - (157,066) - Capital Projects Funds
FY 21-22 FY 22-23 FY 22-23 FY 22-23
Beginning
Available Balance
Revenue
Estimate Appropriations Midyear Request Net Activities Ending Available
Balance
Fund NumberFund Name Audited Results As Adopted As Adopted As adjusted As adjusted 295 STREET CIP GRANTS - 492,000 492,000 - - 300 CITY CAPITAL PROJ-SINGLE 804,329 247,000 247,000 - 804,329 301 ENERGY CONSERVATION PROJECT - - - 340 GRANT FUND / STIP / RIP - 360,000 360,000 - - 387 WATER QUALITY RET BASIN 179,222 - 179,222 983,551 1,099,000 1,099,000 - - 983,551 These funds account for activities related to vehicle replacement, IT equipment replacement, and facilities maintenance.

These funds are used to account for money that will be used to pay the interest and principal of long-term debts. Bonds used by a government to finance major construction projects, to be paid by tax levies over a period of years, require a deby service fund to account for their repayment. The debts of special assessment and proprietary funds are serviced within those funds, rather than by a separate debt service fund.

These funds are used to account for the construction or acquisition of fixed assets, such as buildings, equipment and roads. Depending on its use, a fixed asset may instead be financed by a special revenue fund or a proprietary fund. A capital project fund exists only until completion of the project. 399
FY 22-23 MIDYEAR BUDGET REVIEW

NON-GENERAL FUND SUMMARY
Agency Funds
FY 21-22 FY 22-23 FY 22-23 FY 22-23
Beginning
Available Balance
Revenue
Estimate Appropriations Midyear Request Net Activities Ending Available
Balance
Fund NumberFund Name Audited Results As Adopted As Adopted As adjusted As adjusted 382 ASSMT DIST 05-01 DEBT SVC 415,829 232,910 232,910 - 415,829 501 TAYLOR WOODROW MAINT LMOD 70,251 - 70,251 511 GASB 45 OPEB LIABILITY 2,629,051 118,000 102,000 16,000 2,645,051 3,115,131 350,910 334,910 - 16,000 3,131,131 Private Purpose Trust Funds
FY 21-22 FY 22-23 FY 22-23 FY 22-23
Beginning
Available Balance
Revenue
Estimate Appropriations Midyear Request Net Activities Ending Available
Balance
Fund NumberFund Name Audited Results As Adopted As Adopted As adjusted As adjusted 620 SUCCESSOR AGENCY - 16,935,736 16,935,736 - - Total 19,878,297 34,284,056 36,620,683 117,000 (2,453,627) 17,424,670 These funds are used to account for assets held in trust by the City for the benefit of individuals or other entities. Financial Statements may further distinguish fiduciary funds as either trust or agency funds; a trust fund generally exists for a longer period of time than an agency fund.

A Fiduciary fund type used by the City to report trust arrangement under which principal and income benefit other governments. This fund report the activities of the Hercules Redevelopment Successor Agency. The sole purpose of this fund is to retire debt of the former redevelopment agency. 400

MIDYEAR BUDGET
UPDATE FY 22-23

CITY COUNCIL MEETING
FEBRUARY 14, 2023
401

PURPOSE OF

MIDYEAR

REVIEW/UPDATE
The Midyear Budget Review is an
essential element in maintaining financial
stability.

It provides the City Council an
opportunity to:
• Review the General Fund operating results for the
first half of the year.
• Make adjustments to achieve a more accurate
budget for the current fiscal year (resulting in a
greater budget transparency); and
• Help shape the development of next year’s budget
402
TONIGHT’S

OBJECTIVES
Presentation
• Receive update on General Fund
financial projections
• Proposed Midyear budget amendment
request
• American Rescue Plan Act (ARPA) fund
status
Action
• Consider resolution to amend the FY
22-23 budget
403
FY 22-23

MIDYEAR

BUDGET REVIEW
• General Fund Highlights
 Sales Tax revenues continue to grow in major tax
gr
oups
 Minimal midyear operating expenditure requests
 The General Fund ended last fiscal year with $3.9
million of available cash balance,
$2.9 million better
than projected
404
PROPOSED FY 22-23 MIDYEAR BUDGET ADJUSTMENTS

GENERAL FUND
Increase in Increase in Net
Revenues Expenditures Impact
Sales Tax $400,000 $400,000
Salary and Benefits (COLA All Bargaining Groups 94,500 (94,500) New Senior Planner Community Development 44,000 (44,000) Implementation of Standby and Call Public Works 1,000 (1,000) Pool Maintenance Contract Parks & Recreation 15,000 (15,000) $400,000 $154,500 $245,500
405

ANNUALIZED

PERCENT

CHANGE IN SALES

TAX CASH

RECEIPTS
406

HERCULES

ANNUAL PER

CAPITAL

SALES TAX
407
FY 22-23 MIDYEAR
BUDGET

PROJECTIONS

GENERAL FUND
Adopted Midyear Midyear
Budget Adjustments Projections
Revenues
Taxes 11,597,000 400,000 11,997,000
Intergovernmental 2,511,000 2,511,000
Program Revenues 1,650,000 1,650,000
Miscellaneous 1,158,000 1,158,000
16,916,000 400,000 17,316,000
Expenditures
Police 7,821,727 60,000 7,881,727
Public Works 382,857 1,000 383,857
Community Development 810,561 48,000 858,561 Parks and Recreation 2,077,537 31,000 2,108,537 City Council 358,645 14,500 373,145
Administration 2,720,607 2,720,607
Workers Comp/General Liability 1,265,554 1,265,554
Miscellaneous 945,934 945,934
16,383,422 154,500 16,537,922
Net Annual Activity 532,578 245,500 778,078
408
PROPOSED FY 22-23 MIDYEAR BUDGET ADJUSTMENTS

NON-GENERAL FUND
Increase in Increase in Net
Revenues Expenditures Impact
Salary and Benefits (COLA All Bargaining Groups 30,000 (30,000) Implementation of Standby and Call Public Works 37,000 (37,000) Uniform and Equipment for Special
Response Team (SRT)
Police 30,000 (30,000)
Additional Training Police 20,000 (20,000)
Pedestrian Sidewalk Improvement at
Willow and Palm
Capital Projects 1,058,000 1,058,000 -
1,058,000 1,175,000 (117,000)
409

AMERICAN

RECOVERY PLAN

ACT (ARPA)

REMAINING

BALANCE
First Second
Installment Installment Total
$3,142,889 $3,142,889 $6,285,778
Appropriated:

Communication Services 50,000 50,000
Willow/Palm Sidewalk Installation (Transit
Center)
250,000 250,000
Refugio Tennis Court Tree Maintenance 6,000 6,000 Sidewalk and Safe Walkways 100,000 100,000
Community Swim Center Safety Fence
Replacement
100,000 100,000
Community Swim Center Gym Floor
Replacement & Other Building and Deferred
Maintenance
250,000 250,000
Increase appropriation on All Abilities Swing
Set
50,000 50,000
Reserve for COVID related expenses 50,000 50,000 E-Gift Card Program 65,000 65,000
HdL Contract - ARPA Administration 164,500 164,500 Building Facilities Plan 75,000 75,000
Parks Master Plan 150,000 150,000
Business Assistance Program 150,000 150,000
Business Rental Assistance Grants 150,000 150,000 Total, Use of Fund 1,610,500 - 1,610,500 $1,532,389 $3,142,889 $4,675,278Ending Balance
ARPA funding received
410

NEXT STEP
• Staff is currently in the process of
pr
eparing the FY 23-24 budget
which will be introduced to the City
Council on May 9, 2023. The table
below outlines key Council meeting
dates at which budget information
will be provided.
411
QUESTIONS?
412

STAFF REPORT TO THE CITY COUNCIL

DATE: Regular Meeting of February 14, 2023
TO: Mayor and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Michael Roberts, Public Works Director/City Engineer SUBJECT: Initiation of FY 2023/24 Landscape and Lighting Assessment District Proceedings, Completion of Capital Replacement Analysis, Preparation of 5 -Year Financial Projection s, and A uthorization to Execute Agreement in the amount of $ 34,380 with Francisco and Associates including an Appropriation of $9,930 to complete said Analysis and Projection
RECOMMENDATION ACTION:

It is recommended by City staff that City Council: 1) Adopt a Resolution initiating the Fiscal Year (FY) 2023/24 Landscaping and Lighting Assessment District proce edings and directing the filing of the Engineer’s Reports for Landscaping and Lighting Assessment District No. 83-2, Victoria by the Bay Landscaping and Lighting Assessment District No. 2002-1, Hercules Village Landscaping and Lighting Assessment District No. 2002 -2, Baywood Landscaping and Lighting Assessment District No. 2004 -1, and Bayside Landscaping and Lighting Assessment District No. 2005 -1 ( “LLAD” or collectively “LLADs”) pursuant to the Landscaping and Lighting Act of 1972 , and 2 ) Adopt a Resolution authorizing the City Manager to execute an agreement with Francisco & Associates for FY 2023 /24 LLAD Administration, completion of Capital Replacement Analysis, and preparation of a 5-Year Financial Projection in the amount of $ 34,380 including an appropriation of $9,930 for the completion of said Analysis and Projection.

BACKGROUND:

The City of Hercules annually levies and collects special assessments to maintain certain improvements within the City’s five established Landscaping and Lighting Assessment Districts (LLADs). Each LLAD provides and ensures continued maintenance, servicin g, 413
administration and operations of various landscape and lighting improvements and other facilities benefitting parcels within each LLAD. Each property is assessed only for the cost of the improvements from which benefit is received.

The five established Landscaping and Lighting Assessment Districts in Hercules provide for well -maintained, attractive landscaping and serviceable streetlighting along public streets as well as fire breaks adjacent to open space. They also provide for the upkeep of playgro unds, fields, park furniture, tennis courts, graffiti abatement, lighting, landscaping, water features, and trails in City parks. The expenses associated with the maintenance of these LLADs includes labor, material, equipment, utilities, repairs and administration.

Pursuant to the California Streets and Highways Code, commencing with Section 22500, (also known as the Lighting and Landscape Act of 1972) (“Act”), the City Council must annually approve Engineer’s Reports for the LLADs in order to continue to levy assessments that fund this maintenance work. This process involves the development of the ensuing fiscal year’s LLADs budgets, a review of all parcel changes from the previous fiscal year, preparation of the Engineer’s Reports, and submittal of the assessments to the County Auditor in their required electronic format. City staff is recommending utilizing the services of Francisco and Associates ( F&A) to administer the City’s LLADs for FY 2023/24 as they have successfully served as the City’s LLAD District Engineer for over a decade and the LLAD Districts are very complex .

Extreme drought conditions over the last several years have required a significant increase in irrigation watering to keep landscaping maintained by the LLADs alive and healthy. Additionally, there have been large increases in East Bay Municipal Utility District (“EBMUD”) water rates. From FY 2017/18 to date, EBMUD’s water rates have increased 46% as compared to an allowable assessment rate increase of 22% for the LLADs. As a result, water costs have increased dramatically for LLAD maintained areas, especially areas with large amounts of turf, which has a very high water demand.

Additionally, trees in the new urbanist developments north of I-80 have matured, both in height and width, such that they now need to be pruned regularly by a contract tree trimming company. This is new, additional work beyond the scope of the current landscaping contract and is an additional cost to the LLA Ds. Victoria by the Bay LLAD No. 2002-1 has been most impacted by these increases in cost and is now in a deficit.

At the May 10, 2022 City Council meeting, City Council directed City staff to further evaluate how these emerging costs are impacting the LLADs and to bring this item back to City Council for an in -depth discussion, including recommendation s that may be implemented during the FY 2023 -24 LLAD approval process . To assist with this evaluation, City staff is also recommending F&A perform a Capital Replacement Analysis and prepare a 5-Year Financial Projection through FY 2027-28 for the LLADs. The Capital Replacement Analysis will be performed using best available data , including elements 414
from the City’s proposed Parks Master Plan, to establish the appropriate reserve levels for each LLAD. The 5-Year Financial Projection will be used to evaluate the long-term financial health of the LLADs by forecasting revenues and expenditures including information gained from the Capital Replacement Analysis . The findings of the Capital Replacement Analysis and the 5 -Year Financial Projection will be presented to City Council at a subsequent City Council meeting in April 2023. At this Council meeting, City staff may also provide recommendations to conduct Proposition 218 proceedings to increase LLAD assessments commencing with FY 2023-24.

ANALYSIS:

Due to significant cost increases and the need for additional maintenance, certain LLADs are not generating sufficient assessment revenues and are experiencing or are expected to experience funding shortfalls in the short -term. City staff is evaluat ing all options to alleviate these funding shortfalls, including but not limited to, conducting Proposition 218 proceedings to increase LLAD assessments, and reducing levels of service if necessary.

Performing a Capital Replacement Analysis and preparing a 5-Year Financial Projection for the City’s LLADs will provide a comprehensive picture that will assist City staff in its decision-making process going forward. If adjustments are not made, some LLADs are expected to go further into deficit and will require additional City funding from other sources to continue the same service levels.

Adoption of the resolutions attached to this agenda item will initiate the process to approve FY 2023-24 assessments for the LLADs and authorize the City manager to execute an agreement with F&A to assist the City with the FY 2023-24 LLAD administration, including performing a Capital Replacement Analysis and preparing a 5-Year Financial Projection.

The next step in th is year’s process will be to present the f indings from the Capital Replacement Analysis and 5-Year Financial Projection to City Council in April 2023.

FISCAL IMPACT:

If assessments for the LLADs are not levied, there would be a n estimated revenue loss of $3.2 million for FY 2023 -24 to fund the maintenance and operations associated with the City’s public parks, landscaping, streetlighting, and open space areas. Adoption of the first attached resolution (Attachment 1) is the first required Council action to proceed with approval of FY 2023-24 LLAD assessments.

Adoption of the second attached resolution (Attachment 2) will authorize the City manager to execute an agreement with F&A and appropriate additional funding in the current fiscal year’s budget to complete this project as follows:
415

*Includes reimbursable expenses not-to-exceed $500.

ATTACHMENTS:

Attachment 1 Resolution initiating FY 2023/24 LLAD proceedings and directing the filing of the Engineer’s Reports
Attachment 2 Resolution authorizing City Manager to execute agreement with F&A Attachment 3 F&A Agreement including Proposal
Funding Source
Description
City
Account
February 7, 2023*
F&A Proposal
Appropriation from
Current Budget
LLAD No. 83-2 (Benefit Zone 1) 232-5411-611.40-00 $1,146 $331 LLAD No. 83-2 (Benefit Zone 2) 233-5412-611.40-00 $1,146 $331 LLAD No. 83-2 (Benefit Zone 3 & 4) 234-5413-611.40-00 $1,146 $331 LLAD No. 83-2 (Benefit Zone 5A) 235-5414-611.40-00 $1,146 $331 LLAD No. 83-2 (Benefit Zone 5B) 236-5415-611.40-00 $1,146 $331 LLAD No. 83-2 (Benefit Zone 5C) 237-5416-611.40-00 $1,146 $331 LLAD No. 83-2 (Benefit Zone 6) 238-5417-611.40-00 $1,146 $331 LLAD No. 83-2 (Benefit Zone 7) 239-5418-611.40-00 $1,146 $331 LLAD No. 83-2 (Benefit Zone 8) 251-5419-611.40-00 $1,146 $331 LLAD No. 83-2 (Benefit Zone 9) 253-5420-611.40-00 $1,146 $331 LLAD No. 83-2 (Benefit Zone 10) 220-5410-611.40-00 $3,438 $993 LLAD No. 2002-1 (Victoria by the Bay) 221-5421-611.40-00 $5,730 $1,655 LLAD No. 2002-2 (Promenade) 222-5422-611.40-00 $3,438 $993 LLAD No. 2004-1 (Baywood) 223-5423-611.40-00 $3,438 $993 LLAD No. 2005-1 (Bayside) 224-5424-611.40-00 $3,438 $993 LLADs (Arterial/Major Roadways) 225-5425-611.40-00 $3,438 $993 Totals: $34,380 $9,930
416
Attachment 1

RESOLUTION 23-

RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HERCULES DIRECTING THE FILING OF THE ANNUAL ENGINEER’S REPORT FOR CITY OF HERCULES LANDSCAPING AND LIGHTING ASSESSMENT DISTRICT NO. 83 -2, VICTORIA BY THE BAY LANDSCAPING AND LIGHTING ASSESSMENT DISTRICT NO. 2002 -1,

HERCULES VILLAGE LANDSCAPING AND LIGHTING ASSESSMENT DISTRICT NO. 2002-2, BAYWOOD LANDSCAPING AND LIGHTING ASSESSMENT DISTRICT NO. 2004-1, AND BAYSIDE LANDSCAPING AND LIGHTING ASSESSMENT DISTRICT NO. 2005-1 PURSUANT TO THE LANDSCAPING AND LIGHTING ACT OF 1972

WHEREAS, the City Council through previous resolutions has established and levied annual assessments for the City of Hercules Landscaping and Lighting Assessment District No. 83-2, Victoria by the Bay Landscaping and Lighting Assessment District No. 2002-1, Hercules Village Landscaping and Lighting Assessment District No. 2002 -2, Baywood Landscaping and Lighting Assessment District No. 2004 -1, and Baysid e Landscaping and Lighting Assessment District No. 2005-1 (hereinafter referred to as the “Districts”), pursuant to the provisions of the Landscaping and Lighting Act of 1972, Part 2, Division 15 of the California Streets and Highways Code (commencing with Section 22500) (hereinafter referred to as the “Act”) that provides for the collection of assessments by the County of Contra Costa on behalf of the City of Hercules to pay the maintenance and services of improvements and facilities related thereto; and

WHEREAS, the City Council desires to initiate proceedings for the levy of annual assessments against certain lots and parcels of land within the Districts for fiscal year 2023/24 for the landscape and lighting improvements and services that will provide benefit to the properties within the Districts pursuant to the provisions of the Act; and

WHEREAS, the City has retained Francisco & Associates (hereinafter referred to as the “Engineer of Work ”), for the purpose of assisting with the levy of such assessments, including the preparation, and filing of the required Engineer’s Reports with the City Clerk in accordance with the Act.

NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Hercules as follows:

1. The above recitals are true and correct.

2. Engineer’s Report: The City Council hereby orders the Engineer to prepare and file with the City Clerk Engineer's Reports concerning the improvements and services within the Districts and the levy of assessments within the Districts for the fiscal year commencing July 1, 2023 and ending June 30, 2024, in accordance with Chapter 3 Section 22623 of the Act. Said Engineer’s Reports shall contain a description of the improvements and services, an estimate of the costs financed by the levy of the assessments, the properties benefiting from the improvements, the method of apportioning the assessments, and any substantial changes to the existing improvements and assessments.
417
Attachment 1

3. Proposed Improvements: The improvements and services include but are not lim ited to the maintenance, operation and incidental expenses related to: streetlighting, street trees; turf; ground cover and shrubs; irrigation and electrical systems; monuments; fountains; hardscape improvements; masonry walls and other fencing, and all necessary appurtenances and services connected with the landscaped channel ways, medians, parkways, entryways, parks and public easements and facilities designated and maintained as part of District improvements. The Engineer’s Reports prepared in connection with these proceedings shall provide a more detailed description of the improvements and services to be provided by the Districts and which properties are proposed to be assessed.

The foregoing Resolution was duly and regularly adopted at a regular meeting of the City Council of the City of Hercules held on the fourteenth day of February 2023, by the following vote of the Council:

AYES:

NOES:

ABSENT:

ABSTAIN:

Alexander Walker-Griffin, Mayor

ATTEST:

Eibleis Melendez, City Clerk
418
Attachment 2
RESOLUTION 23-___

RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HERCULES AUTHORIZING

THE CITY MANAGER TO EXECUTE AN AGREEMENT WITH FRANCISCO &

ASSOCIATES TO PROVIDE LANDSCAPING AND LIGHTING ASSESSMENT DISTRICT ADMINISTRATION FOR FY 2023/2024 , COMPLETE A CAPITAL REPLACEMENT ANALYSIS, AND PREPARE A 5-YEAR FINANCIAL PROJECTION IN AN AMOUNT NOT TO EXCEED $ 34,380 AND APPROPRIATING $9,930 FROM THE

CURRENT LANDSCAPING AND LIGHTING ASSESSMENT DISTRICT BUDGETS TO

COMPLETE SAID ANALYSIS AND PROJECTION

WHEREAS, the City Council adopted a resolution on February 14, 2023 initiating proceedings for the levy of annual assessments against certain lots and parcels of land within the the City’s five (5) Landscaping and Lighting Assessment Districts (“Districts”) for fiscal year 2023/24 pursuant to the provisions of the Landscaping and Lighting Act of 1972 (“Act”); and

WHEREAS, the City desires to retain Francisco & Associates (hereinafter referred to as the “Engineer of Work”), for the purpose of assisting with the levy of such assessments, including the preparation, and filing of the required Engineer’s Reports with the City Clerk in accordance with the Act; and

WHEREAS, the Engineer of Work will also perform a Capital Replacement Analysis and prepare a 5-year Financial Projection for each Landscaping & Lighting Assessment District and Zone that will assist the City in evaluating the financial health of the City’s Districts; and

WHEREAS, findings and recommendations from the Capital Replacement Analysis and 5 -year Financial Projection will be presented to Council at a future City Council meeting.

NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Hercules as follows:

1. The City Council hereby authorizes the City Manager to execute an agreement with Francisco and Associates for an amount not to exceed $ 34,380 for the fiscal year 2023/24 administration of the City’s Districts, completion of a Capital Replacement Analysis, and preparation of 5 -year Financial Projection related to the City’s Districts; and

2. The City Council hereby authorizes an appropriation from the current fiscal year 2022/23 District budgets in an amount of $9,930 for the following City Account Numbers: 232-5411-611.40-00, 233 -5412-611.40-00, 234 -5413-611.40-00, 235-5414-611.40-00, 236 -5415-611.40-00, 237 -5416-611.40-00, 238 -5417- 611.40-00, 239 -5418-611.40-00, 251 -5419-611.40-00, 253 -5420-611.40-00, 220-5410-611.40-00, 221 -5421-611.40-00, 222 -5422-611.40-00, 223 -5423- 611.40-00, 224-5424-611.40-00, and 225-5425-611.40-00.

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Attachment 2
The foregoing Resolution was duly and regularly adopted at a regular meeting of the City Council of the City of Hercules held on the fourteenth day of February 2023, by the following vote of the Council:

AYES:

NOES:

ABSENT:

ABSTAIN:

____________________________
Alexander Walker-Griffin, Mayor

ATTEST:

Eibleis Melendez, City Clerk
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CITY OF HERCULES

PROFESSIONAL SERVICES AGREEMENT

This Agreement (“Agreement”) for professional services is made on February 14, 2023, between the City of Hercules, a California municipality (“City”), and Francisco and Associates, a corporation (“Consultant”) (individually, a “Party,” and collectively, the “Parties”).

1. Scope of Services. Consultant will provide to City the professional services described in the Scope of Services, attached as Attachment A and incorporated in this Agreement (the “Services”). Only the City Council or the City Manager may authorize any change or addition to the Scope of Services specified in Attachment A.

2. Term. This Agreement will become effective on February 14, 2023 (“ Effective Date”), and will terminate upon the full and satisfactory completion of the Services or as otherwise specified in Attachment A, unless terminated sooner in accordance with Section 10 of this Agreement. Time is of the essence with respect to all provisions of this Agreement that specify a time for performance.

3. Compensation. For the full and satisfactory completion of the Services, City will pay Consultant in an amount not to exceed $34,3 80, without prior written authorization by City , pursuant to the terms set forth in Attachment B on Payment, which is attached to and incorporated in this Agreement. Consultant’s compensation is intended to encompass all costs required for performing the Services, including overhead and indirect costs. Except as expressly provided in Attachment B, Consultant will not be entitled to reimbursement for expenses it incurs to provide the Services.

3.1 Payment. City will pay Consultant for Services satisfactorily provided during each calendar month within 30 days following City receipt and approval of a detailed invoice. The invoice must include, at a minimum: a description of the specific Services provided; the name of the individual providing the Services; the date(s) upon which the Services were provided; the time spent providing the Services; the amount due for the Services ; and the basis for calculating the amount due.

3.2 Additional Services. If the City requests related services beyond the Scope of Services described in Attachment A, the Consultant will provide City a written estimate for the additional services (“Additional Services”). Consultant will not provide Additional Services until Consultant has received written authorization from the City to perform the Additional Services .

Consultant will not be entitled to payment for Additional Services performed without City’s prior written authorization or for costs to correct Consultant’s errors or omissions.

4. Independent Contractor. The Parties agree that Consultant will act as an independent contractor under this Agreement and will have control of its work and the manner in which the Services are performed. Consultant is not an employee of City and is not entitled to participate in any health, retirement, or similar employee benefits from the City.

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5. Consultant’s Warranties.

5.1 Consultant warrants that all Services provided under this Agreement will be performed in accordance with generally accepted professional practices and standards for Consultant’s profession in the Bay Area.

5.2 Consultant warrants that all Services provided under this Agreement will be performed in accordance with applicable federal, state, and local laws and regulations, including, but not limited to, conflict of interest laws and City ordinances and policies.

5.3 Consultant warrants that Consultant has no present interest which would conflict in any manner with the performance of Services on the City’s behalf.

5.4 Consultant warrants that it will comply with the City’s Nepotism and Cronyism Policy.

6. Notice. Any notice, billing, or payment required by this Agreement must be made in writing, and sent to the other P arty by personal delivery, U.S. Mail, a reliable overnight deliv ery service, or by e mail as a PDF (or comparable) file. Notice is effective upon delivery unless otherwise specified. Notice for each Party will be given as follows:

City: Consultant:

City of Hercules Name: Francisco and Associates
111 Civic Drive Address: 5927 Balfour Court,
Suite 109
Hercules, CA 94547 Carlsbad, CA 92008
(510) 799-8200 Phone: (925) 867-3400
Attn: City Clerk Attn: Ed Espinoza, P.E.
[email protected]

Copy to: _____________________ Copy to: _____________________ Email: _______________________ Email: _______________________

7. Indemnity. Subsection 7.1 is not applicable to this Agreement if Consultant’s Services are “design professional” services as that term is used and defined in Civil Code section 2782.8.

Subsection 7.2 is applicable to this Agreement if Consultant’s Services are “design professional” services as used and defined in Civil Code section 2782.8.

7.1 T o the full extent permitted by law, Consultant will indemnify, defend with counsel acceptable to City, and hold harmless City, its governing body, officers, agents, employees, and volunteers (collectively, “City Indemnitees”) from and against any and all liability, demands, loss, damage, claims, settlements, expenses, and costs (including, without limitation, attorney fees, expert witness fees, and costs and fees of litigation) (collectively, “ Liability”) of every nature arising out of or in connection with Consultant’s acts or omissions with respect to this Agreement, except such Liability caused by the active negligence, sole negligence, or willful misconduct of any of the City Indemnitees. This indemnification obligation is not limited by any limitation on the amount or type of damages or compensation payable under Workers’ Compensation or other employee benefit acts, or by insurance coverage limits, and will survive the expiration or early termination of this Agreement. This Subsection 7.1 does not apply if the Services to be provided 422
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under this Agreement are design professional services provided by a licensed architect, landscape architect, professional engineer, or professional land surveyor.

7.2 To the full extent permitted by law, Consultant will indemnify, defend, and hold harmless City, its City Council, officials, officers, agents, employees, and volunteers from and against any and all liability, loss, damage, claims, expenses and costs (including, without limitation, attorney fees and costs and fees of litigation) (collectively, “ Liability”) of every nature which arises out of, pertains to, or relates to the negligence, recklessness, or willful misconduct of Consultant in the performance of this Agreement, except such Liability caused by the active negligence, sole negligence or willful misconduct of City. This indemnification obligation is not limited by any limitation on the amount or type of damages or compensation payable under Workers’ Compensation or other employee benefit acts, or by insurance coverage limits, and will survive the expiration or early termination of this Agreement. This Subsection 7.2 is applicable if the Services to be provided under this Agreement are design professional services provided by a licensed architect, landscape architect, professional engineer, or professional land surveyor.

8. Insurance. Before providing any Services under this Agreement, Consultant is required to procure and provide proof of the insurance coverage required by this Section in the form of certificates and endorsements. Each certificate of insurance must state that the coverage afforded by the policy or policies will not be reduced, cancelled or allowed to expire without at least 30 days written notice to City, unless due to nonpayment of premiums, in which case at least 10 days written notice will be made to City. The required insurance must cover the activities of Consultant and its employees or subcontractors relating to or arising from the performance of the Services, and must remain in full force and effect at all times during the term of the Agreement. All required insurance must be issued by an insurer licensed to do business in the State of California, and each such insurer must have an A.M. Best financial strength rating of “A” or better and a financial size rating of “VIII” or better. If Consultant fails to provide any of the required coverage, City may, at its sole discretion, purchase such coverage at Consultant’s expense and deduct the cost from payments due to Consultant.

8.1 The following insurance policies and limits are required for this Agreement:

8.1.1 Commercial General Liability Insurance (“CGL”). CGL insurance issued on an occurrence basis, including coverage of liability arising from Consultant’s acts or omissions in the performance of Services under this Agreement, with limits of at least $1,000,000.00 per occurrence.

8.1.2 Automotive. Commercial automotive liability coverage for owned, non- owned and hired vehicles must provide coverage of at least $1,000,000.00 combined single limit per accident for bodily injury, death, or property damage.

8.1.3 Workers’ Compensation Insurance and Employer’s Liability. The policy must comply with the requirements of the California Workers’ Compensation Insurance and Safety Act, with limits of at least $1,000,000.00. If Consultant is self- insured, Consultant must provide its duly authorized Certificate of Permission to Self-Insure.
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8.1.4 Professional Liability. This insurance must insure against Consultant’s errors and omissions in the provision of Services under this Agreement, in an amount no less than $1,000,000.00 combined single limit.

8.2 Subrogation Waiver. Each required policy must include an endorsement that the insurer agrees to waive any right of subrogation it may have against City or the City’s insurers.

8.3 The CGL policy and the automotive liability policy must include the following endorsements:
(1) The City, including its Council, officials, officers, employees, agents, volunteers and consultants (collectively, “ Additional Insured”) must be named as an additional insured for all liability arising out of the operations by or on behalf of the named insured, and the policy must protect the Additional Insured against any and all liability for personal injury, death or property damage or destruction arising directly or indirectly in the performance of the Agreement. (2) The inclusion of more than one insured will not operate to impair the rights of one insured against another, and the coverages afforded will apply as though separate policies have been issued to each insured.
(3) The insurance provided is primary and no insurance held or owned by City will be called upon to contribute to a loss.
(4) Any umbrella or excess insurance must contain or be endorsed to contain a provision that such coverage will also apply on a primary or non-contributory basis for the benefit of City before the City’s own insurance or self-insurance will be called upon to protect it as a named insured.

9. Dispute Resolution. In the event that any dispute arises between the Parties in relation to this Agreement, the Parties agree to meet face to face as soon as possible to engage in a good faith effort to resolve the matter informally. In the event that any dispute arises between the Parties in relation to this Agreement, and the dispute is not resolved by informal discussions, the Parties agree to submit the dispute to mediation.

9.1 Either Party may give written notice to the other Party of a request to submit a dispute to mediation, and a mediation session must take place within 60 days after the date that such notice is given, or sooner if reasonably practicable. The Parties will jointly appoint a mutually acceptable mediator. The Parties further agree to share equally the costs of the mediation, except costs incurred by each Party for representation by legal counsel.

9.2 Good faith participation in mediation pursuant to this Section is a condition precedent to either Party commencing litigation in relation to the dispute. 424
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10. Early Termination.

10.1 Termination for Convenience. City may terminate this Agreement for convenience by giving 10 calendar days written notice to Consultant. In the event City elects to terminate the Agreement without cause, it will pay Consultant for Services satisfactorily provided up to that date.

10.2 Termination for Cause. If either Party breaches this Agreement by failing to timely or satisfactorily perform any of its obligations or otherwise violates the terms of this Agreement, the other Party may terminate this Agreement by giving written notice five calendar days prior to the effective date of termination, specifying the reason and the effective date of the termination.

Consultant will be entitled to payment for all Services satisfactorily provided up to the effective date of termination, except that the City may deduct from that payment the amount of costs the City incurred, if any, because of Consultant’s breach of the Agreement.

11. Work Product. City will be the sole owner of all rights to any work product in any form which has been prepared by Consultant on City’s behalf pursuant to this Agreement, unless otherwise specified in writing by the Parties.

12. Records. Unless otherwise specified in Attachment A, Consultant will maintain records related to this Agreement for a period of four years from expiration or termination of this Agreement, including records of the Services performed, on a daily basis if necessary.

Consultant’s accounting systems will conform to generally accepted accounting principles, and all records will provide a breakdown of total costs charged under this Agreement, including properly executed payrolls, time records, invoices, and vouchers. Consultant will permit City to inspect and examine Consultant’s books, records, accounts, and any and all data relevant to this Agreement at any reasonable time.

13. General Provisions.

13.1 Assignment and Successors. Consultant may not assign its rights or obligations under this Agreement, in part or in whole, without City’s written consent. This Agreement is binding on Consultant’s and City’s lawful heirs, successors, and permitted assigns.

13.2 Third Party Beneficiaries. There are no intended third-party beneficiaries to this Agreement.

13.3 Nondiscrimination. Consultant will not discriminate in the employment of persons under this Agreement because of race, color, ancestry, national origin, religion, sex, marital status, age, medical condition, disability, or other prohibited basis. All nondiscrimination rules or regulations required by law to be included in this Agreement are incorporated by this reference.

13.3.1 Avoidance of Cronyism and Nepotism. Consultant shall comply with regulations adopted by the City of Hercules to avoid favoritism in the award of contracts. Consultant shall submit a fully executed copy of the “Contractor Acknowledgment of City of Hercules Nepotism and Cronyism Policy” as Attachment C to this Agreement.

13.3.2 Compliance with the California Equal Pay Act . Consultant shall comply with regulations adopted by the City of Hercules to allow for verification of Consultant compliance with 425
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the requirements of the California Equal Pay Act. Consultant shall submit a fully executed copy of the “Contractor Acknowledgment of Compliance with the California Equal Pay Act” as Attachment D to this Agreement.

13.4 Choice of Law and Venue. This Agreement will be governed by California law, and venue will be in the Superior Court of Contra Costa County, and no other place.

13.5 Integration. This Agreement and the documents incorporated in this Agreement constitute the final, complete, and exclusive terms of the agreement between the City and the Consultant.

13.6 Severability. If any provision of this Agreement is determined to be illegal, invalid, or unenforceable, in part or in whole, the remaining provisions of the Agreement will remain in full force and effect.

13.7 Amendment. No amendment or modification of this Agreement will be binding unless it is in a writing duly authorized and signed by the Parties to this Agreement.

13.8 Provisions Deemed Inserted. Every provision of law required to be inserted in this Agreement will be deemed to be inserted, and this Agreement will be construed and enforced as though included. If it is discovered that through mistake or otherwise that any required provision is not inserted, or not correctly inserted, this Agreement will be amended to make the insertion or correction.

13.9 Precedence. If any provision in any document attached to or incorporated in this Agreement conflicts with or is inconsistent with the provisions set forth in the body of this Agreement, the provisions set forth in the body of this Agreement will control over any such conflicting or inconsistent provisions.

13.10 Waiver. No waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of this Agreement will be effective unless it is in writing and signed by the Party waiving the breach, failure, right, or remedy. No waiver of any breach, failure, right, or remedy will be deemed a waiver of any other breach, failure, right, or remedy, whether or not similar, nor will any waiver constitute a continuing waiver unless the writing so specifies.

13.11 Force Majeure. If either Party is delayed or hindered in or prevented from the performance of any act required under this Agreement because of strikes, lockouts, inability to procure labor or materials, failure of power, riots, insurrection, war, fire or other casualty, or other reason beyond the reasonable control of the Party delayed, excluding financial inability (“ Force Majeure Event”), performance of that act will be excused for the period during which the Force Majeure Event prevents such performance, and the period for that performance will be extended for an equivalent period. Delays or failures to perform resulting from lack of funds will not be Force Majeure Events.

13.12 Headings. The headings in this Agreement are included for convenience only and will not affect the construction or interpretation of any provision in this Agreement or any of the rights or obligations of the Parties to this Agreement. 426
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13.13 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which will be an original, but all of which together will constitute one instrument.

13.14 Authorization. Each individual signing below warrants that he or she is authorized to do so by the Party that he or she represents, and that this Agreement is legally binding on that Party. If Consultant is a corporation, signatures from two officers of the corporation are required pursuant to California Corporation Code section 313.
[Signature page follows.]
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The Parties agree to this Agreement as witnessed by the signatures below:

CITY: Approved as to form:
s/_______________________________ s/__________________________________ ________________________________ ___________________________________ Dante Hall, City Manager Patrick Tang, City Attorney
Date: ___________________________ Date: ______________________________ Attest:
s/_______________________________
_________________________________
Eibleis Melendez, Acting City Clerk
Date: ___________________________
CONSULTANT: ___________________________________________________ Business Name
s/_______________________________
_________________________________
Name/Title
Date: ____________________________
s/_______________________________
_________________________________
Name/Title
Date: ____________________________
Attachments:

Attachment A: Scope of Services and Payment
February 8, 2023
February 8, 2023
Brian Brown/Secretary
Ed Espinoza/Vice President
Francisco and Associates
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Northern California
925-867-3400
Southern California
760-438-5330
franciscoandassociates.com
February 7, 2023
Mike Roberts, P.E.

Director of Public Works/City Engineer
City of Hercules
111 Civic Drive
Hercules, CA 94547
Subject: City of Hercules LLADs FY 2023-24 Administration, Capital Replacement Analysis, and Preparation of 5-Year Projections Dear Mike:

Francisco & Associates appreciates the opportunity to submit this proposal to the City of Hercules to administer LLAD Nos. 83-2, 2002-1, 2002-2, 2004-1, and 2005- 1 for FY 2023-24, including performing a Capital Replacement Analysis and preparing 5-year financial projections. The proposed scope of services is attached.

If you have any questions or comments regarding our proposal, please call me at 925-867-3400.

Sincerely,

FRANCISCO & ASSOCIATES
Ed Espinoza, P.E.

Principal
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SCOPE OF SERVICES
FY 2023-24 ADMINISTRATION OF THE LLADs
Francisco & Associates will prepare the FY 2023-24 Engineer’s Reports for the City’s Landscaping & Lighting Assessment District Nos. 83-2, 2002-1, 2002-2, 2004-1 and 2005-1 (“LLAD” or collectively “LLADs”). The reports will include: a description of improvements, the annual budget for each LLAD and Benefit Zone, the benefit spread methodology, assessment district diagrams detailing each LLAD and Benefit Zone and a listing of each parcel’s assessment within each LLAD. Following the required public hearings, Francisco & Associates will complete the tasks needed to place the FY 2023-24 assessments on the County’s secured property tax roll, perform all work associated with the preparation of the County Auditor’s Reports, and field property owner phone calls throughout the fiscal year. The specific tasks are as follows:

Task 1 – Project Meetings

Meet with City staff to review scope of work, project schedule, discuss increases in the assessment rates from the previous fiscal year, identify if there were any annexations or de-annexations to the LLADs, identify if there have been any changes in the number and types of improvements the City will be maintaining for the ensuing year.

Task 2 – Initiation of the FY 2023-24 Assessment Levies

Prepare the draft staff report and resolutions for the City Council meeting regarding the initiation of the FY 2023-24 assessment approval process for each of the City’s five (5) LLADs.

Task 3 – Collect Available Data

Collect available data from the County Assessor and County Auditor office that is pertinent to the annual administration of the LLADs, including land use information, building permit information, and assessor parcel maps. This required data includes the secured closed property tax roll from the County, the proposed budgets by LLAD/Benefit Zone and annexation/de-annexation information for each LLAD/Benefit Zone from City staff.

Task 4 – Update Parcel Databases

Update the parcel databases to include the most current parcel information such as property owner name, mailing address, situs address, use code, Benefit Zone, acreage, units, and any other pertinent parcel attributes that are needed to calculate assessments.
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Task 5 – Update Assessment Diagrams

Update Assessment Diagrams identifying each LLAD/Benefit Zone as needed.

This includes updating the assessment diagrams to include all new parcels that have been created from the prior fiscal year and identifying any new Benefit Zones that have been created.

Task 6 – Update Maintenance Improvement Maps
Update Maintenance Improvement Maps as needed to identify each improvement being maintained within each LLAD/Benefit Zone. This includes updating the Maintenance Improvement Maps to include all new parcels that have been created from the prior fiscal year, identifying any new Benefit Zones that have been created and adding any new improvements to be maintained.

Task 7 – Prior Year’s LLAD Budgets

Coordinate with the City’s Finance Department to help them determine if the prior year’s revenues and expenditures were allocated to each LLAD/Benefit Zone correctly. This will entail a review of invoices, contractor invoices, water charges, administration charges, etc.

Task 8 – Ensuing Year’s LLAD Budgets

Assist City staff with the development of the LLAD budgets utilizing the previous fiscal year’s estimated expenditures and the ensuing year’s estimated expenditures. The budgets will include maintenance contract costs, utility costs, capital improvement costs, incidental costs (engineering, legal, administration, etc.). If requested, assist with reviewing projected fiscal year ending fund balance calculations. Obtain budget approval from City staff prior to the preparation of the Preliminary Engineer’s Reports.

Task 9 – Draft Preliminary Engineer's Reports

Based upon the information received at the project kick-off meeting and other team meetings, prepare the Draft Preliminary Engineer’s Reports. The Draft Preliminary Engineer’s Reports will include a description of improvements, the ensuing year’s maintenance budget for each LLAD/Benefit Zone, the benefit spread methodology, Assessment Diagram identifying each LLAD/Benefit Zone and a listing of individual assessments for the ensuing year.

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Task 10 – Preliminary Engineer's Reports

Based upon the comments received from City staff on the Draft Preliminary Engineer’s Reports, prepare the Final Preliminary Engineer’s Reports and submit to City staff for City Council approval.

Task 11 – Resolution of Intention and Approval of the Preliminary Engineer’s Reports

Prepare the draft staff report and resolutions for the City Council meeting regarding acceptance of the Preliminary Engineer’s Reports and adoption of the Resolution of Intention for each of the five (5) LLADs.

Task 12 – Resolution of Intention City Council meeting

If requested, attend City Council meeting regarding adoption of the Resolution of Intention. Be available to assist City staff with questions from City Council or the public.

Task 13 – Final Engineer's Reports

Based upon the comments received from City staff and City Council at the City Council meeting referenced in Task 12 above, prepare the Final Engineer’s Reports and Assessment Diagrams and submit to the City for City Council approval.

Task 14 – Public Hearing

Prepare the draft staff report and resolutions for the City Council meeting regarding approval of the Final Engineer’s Reports and adoption of the Resolution authorizing the levy of assessments for each of the five (5) LLADs.

Be available to assist City staff with questions from City Council or the public.

Task 15 – Public Hearing City Council Meeting

If requested, attend the City Council meeting regarding adoption of the Resolution confirming the levy of assessments to assist City staff with questions from City Council or the public.

Task 16 – Filing of Engineer’s Reports, Assessment Diagram, and Resolution Authorizing the Levy of Assessments

In accordance with the County’s annual submittal requirements, file the Engineer’s Reports, Assessment Diagram, and Resolution authorizing the levy of assessments with the County Auditor’s office.
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Task 17 – Auditor’s Reports
Prepare the annual Auditor's Reports in County approved hard and electronic formats. If there are any rejected parcels resulting from the first submittal, we will research them and resubmit to the County to ensure the City receives all the assessment revenue they are entitled to.

Task 18 – Final Assessment Roll

Provide the City with Final Assessment Rolls in electronic format for City records.

Task 19 – Field Property Owner Inquiries

Provide a phone number to be placed on property tax bills and field property owner inquiries throughout the year.

CAPITAL REPLACEMENT ANALYSIS
Francisco & Associates will perform a Capital Replacement Analysis for each Benefit Zone within LLAD No. 83-2 and LLAD Nos. 2002-1, 2002-2, 2004-1 and 2005. The Capital Replacement Analysis will assist the City to determine the appropriate capital reserve amounts for each LLAD/Benefit Zone. The specific tasks to complete the Capital Replacement Analysis are as follows:

Task 1 – Project Meetings

Meet with City staff to review scope of work and collect project information to conduct the capital replacement analysis. This information will include, but not be limited to, City parks master plan, PG&E data, asset inventory, and available improvement plans/cost estimates.

Task 2 – Capital Replacement Inventory

For each LLAD/Benefit Zone, compile an inventory of improvements with a useful life of five or more years. These improvements will include, but are not limited to, fencing, medians, streetlights, irrigation systems, etc. Park improvements included in the Capital Replacement Analysis will be based on the City’s parks master plan.

Task 3 – Capital Replacement Analysis Report

Prepare a Capital Replacement Analysis Report which will include a listing of improvements by LLAD/Benefit Zone, useful and remaining life, estimated replacement cost at the end of its useful life, and the recommended capital reserve amount for each LLAD/Benefit Zone.
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Task 4 – Findings of Capital Replacement Analysis

Present findings of Capital Replacement Analysis to City staff and address comments and questions as needed. Assist City staff in preparing recommendations to City Council based on findings of Capital Replacement Analysis.

Task 5 – City Council meeting regarding Capital Replacement Analysis

Attend City Council meeting to present the findings and recommendations related to the Capital Replacement Analysis and assist City staff as needed to address questions from City Council and the public.

5-YEAR FINANCIAL PROJECTIONS
Francisco & Associates will perform a 5-year financial projection for each Benefit Zone within LLAD No. 83-2 and LLAD Nos. 2002-1, 2002-2, 2004-1 and 2005. The 5-year financial projections will be used by City staff to evaluate the financial health of the LLADs by providing a comprehensive picture that will assist the City in its decision-making process going forward, including the need and timing for conducting Proposition 218 proceedings to increase LLAD assessments. The specific tasks to complete the 5-year financial projections are as follows:

Task 1 – Project Meetings

Meet with City staff to review scope of work and collect project information to conduct the 5-year projections. This information will include, but not be limited to, maintenance contracts, listing of CIP projects, and cost increase data.

Task 2 – Prepare 5-Year Financial Projections

For each LLAD/Benefit Zone, prepare 5-year financial projections based on latest cost allocation methodologies, desired reserve levels per the Capital Replacement Analysis, schedule of new capital improvement projects, assessment revenue and cost increase assumptions, etc.

Task 3 – Findings of 5-Year Financial Projections

Present findings of 5-year financial projections to City staff and address comments and questions as needed. Assist City staff in preparing recommendations to City Council that may include conducting Proposition 218 proceedings, implementing alternative cost allocation methodologies, or reducing service levels if needed.

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Task 4 – City Council meeting regarding 5-year Financial Projections

Attend City Council meeting to present the findings and recommendations related to the 5-year financial projections and assist City staff as needed to address questions from City Council and the public.

RESPONSIBILITIES OF THE CITY
1) Provide best available data per the task descriptions above; 2) Provide qualified legal counsel to review and approve all LLAD documents; 3) Prepare and publish all notices;
4) Review and approve all staff reports and resolutions; and 5) Schedule and agendize the required City Council meetings.

FEE SCHEDULE

Francisco & Associates proposes a time and materials fee not to exceed $33,880 at the hourly rates shown below to perform the scope of services described in this proposal.

F&A Hourly Labor Rates
Principal/Project Manager $200/hour
Quality Control/Senior Engineer $195/hour
Associate Engineer $175/hour
Senior Project Analyst $150/hour
Project Analyst $130/hour
Clerical $65/hour
The estimates of staff time and corresponding estimated fee are summarized in the table below.

Reimbursable expenses such as mileage pursuant to current IRS rates, overnight mail, production of report hardcopies, and County Assessor data will be billed at cost plus 15% with a not-to-exceed fee of $500.00.

Scope of Services
Description
Principal/
Project Manager
(Hours)
Quality Control/
Senior Engineer
(Hours)
Senior Project
Analyst
(Hours)
Clerical
(Hours)
Total
Hours
Total Estimated
Fee
FY 2023-24 Administration 54 4 80 8 146 $24,100.00
Capital Replacement Analysis 16 2 16 0 34 $5,990.00
5-year Financial Projections 8 2 12 0 22 $3,790.00
Totals: 78 8 108 8 202 $33,880.00
435