Agenda — Hillsborough City Council, December 12, 2022 (part 1 of 2)

TOWN OF HILLSBOROUGH
San Mateo County
Alvin L. Royse, Mayor 1600 Floribunda Avenue
Christine Krolik, Vice Mayor Hillsborough, CA 94010
Marie Chuang, Councilmember www.hillsborough.net
Sophie Cole, Councilmember Phone 650-375-7400
Laurence M. May, Councilmember

A G E N D A
MONDAY, DECEMBER 12, 2022
4:45 PM CLOSED SESSION
6:00 PM CITY COUNCIL MEETING
Hillsborough Town Hall and Zoom Video Conference
This City Council meeting will be conducted pursuant to the provisions of Assembly Bill 361 and Government Code Section 54953(e) (and without compliance with section 54953(b)(3)) related to conducting public meetings during the COVID-19 pandemic. The City Council, staff and members of the public may participate in the meeting virtually via Zoom Video Conference or in person at Town Hall.

Members of the public may provide public comments on a consent calendar item, any other agenda item, or on nonagenda items during the general public comment portions of the meeting. All members of the public will be limited to one comment per item or non-agenda item.

To attend the meeting in person:
1600 Floribunda Avenue, Hillsborough, CA 94010
To provide Public Comment in person:

Members of the public wishing to speak are requested to complete a yellow speaker card and submit it to the City Clerk.

To participate in the meeting via Zoom Video Conference:
• Log in to the meeting at https://us06web.zoom.us/j/86992488269?pwd=d2xmVkFjbENHRW1SRlpraERyOFZ5Zz09 • Dial-in via phone:
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To provide Public Comment via Zoom Video Conference:

Live verbal public comments may be made by requesting to speak using the “raise hand” feature in Zoom or, if calling in by phone, by pressing *9 on the telephone keypad prior to the consent calendar being heard, or prior to the close of the public comment period for agenda items or non-agenda items. In response, the Town will unmute the speaker and allow them to speak up to three minutes.

CLOSED SESSION (4:45 p.m.)

CALL TO ORDER
Agenda – Hillsborough City Council
Monday, December 12, 2022

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ROLL CALL

PUBLIC COMMENT
Members of the public may provide public comments on any item on the Closed Session agenda. Members of the public participating in person are requested to complete a yellow speaker card and submit it to the City Clerk before addressing the City Council. Members of the public participating via the Zoom platform may use the “raise hand” feature or, if calling in by phone, press *9 on the telephone keypad. Speakers are limited to one comment per Closed Session item.

ANNOUNCEMENT OF CONFLICT OF INTEREST
This portion of the agenda is for Councilmembers to disclose any conflict of interest related to any item on the Closed Session agenda.

Any Councilmember who has confirmed a conflict of interest or has reason to believe they have a conflict of interest should disclose the conflict for the record and abide by the disqualification requirements contained in FPPC regulations.

PUBLIC ANNOUNCEMENT OF CLOSED SESSION ITEMS
A. CONFERENCE WITH LABOR NEGOTIATOR
Pursuant to Government Code Section 54957.6
Agency Negotiators: Glenn Berkheimer and Kristin Armbruster Employee Organization: Hillsborough Police Officers Association B. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION Pursuant to Government Code Section 54956.9(d)(4)
Town as Plaintiff – One Potential Case
Oral Threat of Litigation Made by Mr. John Lockton at the September 26, 2022 City Council Meeting Regarding the Proposed Water Rates

ADJOURN CLOSED SESSION
REGULAR CITY COUNCIL MEETING (6:00 pm)
I. CALL TO ORDER
II. ROLL CALL
III. PLEDGE OF ALLEGIANCE
IV. REPORT FROM CLOSED SESSION
V. MINUTES: November 14, 2022
VI. MAYOR’S STATE OF THE TOWN
VII. RECOGNITION:
• Councilmember Laurence M. May
• Outgoing Mayor Alvin L. Royse
VIII. ADMINISTRATION OF OATH OF OFFICE:
• Councilmember-Elect Marie Chuang
• Councilmember-Elect Leslie Marden Ragsdale
Agenda – Hillsborough City Council
Monday, December 12, 2022

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IX. SELECTION OF MAYOR
X. ADMINISTRATION OF OATH OF OFFICE: Mayor
XI. SELECTION OF VICE MAYOR
XII. ADMINISTRATION OF OATH OF OFFICE: Vice Mayor
XIII. PRESENTATION
• PRESENTATION BY RENNE PUBLIC POLICY GROUP (RPPG)
XIV. PUBLIC COMMENT I
This portion of the meeting is reserved for persons wishing to address the City Council on any matter not on the agenda.

Members of the public may provide comments via the Zoom platform by using the “raise hand” feature or, if calling in by phone, by pressing *9 on the telephone keypad. In response, the Town will unmute the speaker and allow them to speak on any topic for up to three minutes. If there appears to be a large number of speakers, speaking time may be reduced to no less than 2 minutes, at the discretion of the Mayor. Members of the public are limited to one comment at this time. State law prohibits the Council from discussing or acting on non-agenda items, and generally limits the ability of the Council to respond to any public comments made regarding non-agenda items.

XV. ANNOUNCEMENT OF CONFLICT OF INTEREST
This portion of the agenda is for Councilmembers to disclose any conflict of interest related to any item on the agenda. Any Councilmember who has confirmed a conflict of interest or has reason to believe they have a conflict of interest should disclose the conflict for the record and abide by the disqualification requirements contained in FPPC regulations.

XVI. CONSENT CALENDAR
The Consent Calendar includes routine items, which do not require discussion. A Councilmember may remove an item for discussion, and any member of the audience may request a Councilmember to remove an item for discussion. The items are approved in one motion.

1. MONTHLY CLAIMS: NOVEMBER 1 THROUGH NOVEMBER 30, 2022 PURSUANT TO CEQA GUIDELINE 15378

2. ACCEPTANCE OF THE ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR) TOGETHER WITH THE INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING FOR THE YEAR ENDED JUNE 30, 2022 PURSUANT TO CEQA GUIDELINE 15378

3. DIRECT STAFF TO IMPLEMENT RECOMMENDATIONS ON THE 2006A SERIES SWAP AGREEMENT TIED TO LIBOR PURSUANT TO CEQA GUIDELINE 15378

4. RESOLUTION ESTABLISHING THE LOCAL APPOINTMENTS LIST FOR CALENDAR YEAR 2023 PURSUANT TO CEQA GUIDELINE 15378

5. RECONFIRM FINDINGS AND DETERMINATIONS UNDER RESOLUTION NO. 21-87 PURSUANT TO ASSEMBLY BILL 361 AND CEQA GUIDELINE 15378

6. RESOLUTION DECLARING THE TOWN’S EXEMPT AND NON-EXEMPT SURPLUS LAND, PURSUANT TO GOVERNMENT CODE § 54221(b); AND INVENTORY REPORT Agenda – Hillsborough City Council
Monday, December 12, 2022

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OF THE SAME, PURSUANT TO GOVERNMENT CODE § 54230(A)(1) AND CEQA GUIDELINES 15378 AND 15061(B)(3)

7. RESOLUTION APPROVING AND AUTHORIZING THE CITY MANAGER TO AMEND

AGREEMENTS WITH MIG, WRA AND LAMPHIER-GREGORY FOR ON-CALL

ENVIRONMENTAL CONSULTING SERVICES PURSUANT TO CEQA GUIDELINE 15378

8. RESOLUTION APPROVING AND AUTHORIZING THE CITY MANAGER TO AMEND

AN AGREEMENT WITH M-GROUP FOR PROFESSIONAL PLANNING SERVICES PURSUANT TO CEQA GUIDELINE 15378

9. INTRODUCTION OF AN ORDINANCE AMENDING CHAPTERS 15.02, 15.03, 15.04,

15.06, 15.07, 15.08, 15.10, 15.12, 15.16, 15.17, 15.19 AND 15.20 OF THE HILLSBOROUGH MUNICIPAL CODE AND ADOPTING BY REFERENCE THE 2022 CALIFORNIA BUILDING STANDARDS CODE, CONSISTING OF THE 2022 CALIFORNIA ADMINISTRATIVE CODE, THE 2022 CALIFORNIA BUILDING CODE, THE 2022 CALIFORNIA RESIDENTIAL CODE, THE 2022 CALIFORNIA ELECTRICAL CODE, THE 2022 CALIFORNIA MECHANICAL CODE, THE 2022 CALIFORNIA PLUMBING CODE, THE 2022 CALIFORNIA ENERGY CODE, THE 2022 CALIFORNIA GREEN BUILDING STANDARDS CODE, THE 2022 CALIFORNIA EXISTING BUILDING CODE, THE 2022 CALIFORNIA HISTORICAL BUILDING CODE, THE 2022 CALIFORNIA REFERENCED STANDARDS CODE, THE 2022 CALIFORNIA FIRE CODE, AND THE 2021 INTERNATIONAL FIRE CODE; AND SETTING JANUARY 9, 2023 AS THE PUBLIC HEARING DATE FOR ADOPTION OF THE ORDINANCE CONSISTENT WITH GOVERNMENT CODE SECTION 50022.3; PURSUANT TO CEQA GUIDELINES 15061(B)(3) AND 15378
XVII. PUBLIC HEARING

10. ADOPTION OF AN URGENCY ORDINANCE AMENDING CHAPTER 17.52 OF THE

HILLSBOROUGH MUNICIPAL CODE RELATING TO ACCESSORY DWELLING UNITS

AND JUNIOR ACCESSORY DWELLING UNITS PURSUANT TO CEQA GUIDELINE 15282
XVIII. INFORMATIONAL

11. CITY MANAGER'S UPDATE
XIX. PUBLIC COMMENT II
This portion of the meeting is reserved for persons wishing to address the City Council on any matter not on the agenda.

XX. CITY COUNCIL ITEMS
Agenda – Hillsborough City Council
Monday, December 12, 2022

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This section of the agenda provides the City Council an opportunity to ask questions on any project of interest. No action can be taken on any item not on the agenda.

XXI. MAYOR'S APPLAUSE
This portion of the meeting is for the Mayor to provide brief highlights of current items of interest in the Town.

XXII. ADJOURNMENT
SPECIAL ACCOMMODATIONS:

If you need a disability-related modification or accommodation, including auxiliary aids or services, to participate in the City Council meeting, or if you need an agenda in an alternate form, please contact the City Clerk’s Office at 375-7412 at least 24 hours before the scheduled City Council meeting.

ADDRESSING THE CITY COUNCIL:

Members of the public may provide written comments to the City Council regarding any item on the agenda up to two hours before the meeting to [email protected] or by mail/in person at 1600 Floribunda Avenue, Hillsborough, CA 94010. Any writings or documents provided to a majority of the City Council regarding any item on this agenda prior to the deadline, except as exempt from public disclosure under applicable law, will be available for public inspection on the Town website, and in the City Clerk’s Office at 1600 Floribunda Avenue, Hillsborough, CA 94010, during regular business hours.

AUDIO / VISUAL ADVISORY:

Those persons who wish to use PowerPoint or other mediums when presenting to the City Council will be required to submit media items to the City Clerk by 12:00 p.m. on the day of the meeting. Media items can be emailed to [email protected].

AUDIO OR VIDEO RECORDINGS:

Please be advised that under the Brown Act, any person has the right to record the City Council meeting, including the audience in attendance, using an audio or video recording device subject to certain exceptions. Please be aware that by attending a City Council meeting, you may be audio or video recorded.

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Closed Session Item B
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UNAPPROVED MINUTES
MONDAY, NOVEMBER 14, 2022
4:00 PM CLOSED SESSION
6:00 PM CITY COUNCIL MEETING
Hillsborough Town Hall and Zoom Video Conference
This City Council meeting was conducted pursuant to the provisions of Assembly Bill 361 and Government Code Section 54953(e) (and without compliance with section 54953(b)(3)) related to conducting public meetings during the COVID-19 pandemic. The City Council, staff and members of the public participated in the meeting virtually via Zoom Video Conference or in person at Town Hall.

CLOSED SESSION (4:00 pm)

CALL TO ORDER
Mayor Royse called the meeting to order at 4:01 p.m.

ROLL CALL

Present: Chuang, Cole, May, Krolik, Royse

PUBLIC COMMENT
There were no speakers.

ANNOUNCEMENT OF CONFLICT OF INTEREST
There were no announcements of conflict of interest.

PUBLIC ANNOUNCEMENT OF CLOSED SESSION ITEMS
Mayor Royse announced the items for Closed Session.

A. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION Significant exposure to litigation pursuant to Section 54956.9(d)(2) of the California Government Code: One potential case (see claim document in agenda packet) B. CONFERENCE WITH LABOR NEGOTIATOR
Pursuant to Government Code Section 54957.6
Agency Negotiators: Glenn Berkheimer and Kristin Armbruster Employee Organization: Hillsborough Police Officers Association C. CONFERENCE WITH LEGAL COUNSEL – PENDING LITIGATION
Pursuant to Government Code Section 54956.9(a)
One Case – Town of Hillsborough v. Leininger, San Mateo Superior Court Action No. 22CIV04063
D. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION Pursuant to Government Code Section 54956.9(d)(4)
Town as Plaintiff – One Potential Case
Oral Threat of Litigation Made by Mr. John Lockton at the September 26, 2022 City Council Meeting Regarding the Proposed Water Rates
E. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION Pursuant to Government Code Section 54956.9(d)(2)
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Appeal Regarding 1950 Ralston Avenue Two Story Home and Litigation Threat based on November 4, 2022 Correspondence from Legal Counsel for the Property Owner (included as an attachment to Item 5)

ADJOURN CLOSED SESSION
The Closed Session adjourned at 6:03 p.m.

REGULAR CITY COUNCIL MEETING (6:00 pm)
I. CALL TO ORDER
Mayor Royse called the meeting to order at 6:03 p.m.

II. ROLL CALL

Present: Chuang, Cole, May, Krolik, Royse (Councilmember May arrived at 6:10 p.m.) III. PLEDGE OF ALLEGIANCE
Mayor Royse led the Pledge of Allegiance.

IV. REPORT FROM CLOSED SESSION
City Attorney Christopher Diaz reported regarding Item A, the City Council voted unanimously to reject the Hyman claim.

V. MINUTES: September 26, 2022, October 10, 2022, October 27, 2022, November 2, 2022 Mayor Royse clarified regarding the last sentence of the last paragraph of Public Comment on page one of the minutes of September 26, 2022 related to the appointment of Councilmembers in lieu of election, that his vote in opposition was to the appointment process and not to the appointments.

Mayor Royse opened public comment. There were no speakers. Mayor Royse closed public comment.

On motion by Councilmember Chuang, seconded by Vice Mayor Krolik and unanimous on roll call vote with Councilmember May absent, the minutes of the September 26, 2022, October 10, 2022, October 27, 2022 and November 2, 2022 City Council meeting were approved.

VI. PROCLAMATION
• UNITED AGAINST HATE WEEK – NOVEMBER 13-19, 2022
Mayor Royse read a proclamation in recognition of United Against Hate Week.

VII. PUBLIC COMMENT I
Larry Friedberg provided comments regarding the turnout for the November midterm elections and the August 25, 2022 Special City Council meeting in which two Councilmembers were appointed to two open City Council seats. Friedberg expressed concern regarding not having an election in Hillsborough and provided comments regarding elections in other California cities that had the same number of candidates as open seats and encouraged the City Council to proceed with elections in the future.

VIII. ANNOUNCEMENT OF CONFLICT OF INTEREST
Regarding Item 5, Councilmember Cole made a statement addressing her ability to be impartial and a fair decision maker in response to a written request from the appellant.

IX. CONSENT CALENDAR
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Regarding Item 1, Mayor Royse reported a typo in the staff report regarding the October 2022 monthly claims amount and stated the total claims amount was $5,003,867.50 as noted in the Monthly Claims Listing attached to the staff report.

Mayor Royse read the titles of the Consent Calendar items.

There were no requests from the public to remove an item from the Consent Calendar.

Mayor Royse addressed a comment made at a prior meeting regarding the ability to provide comments on items on the Consent Calendar and stated that if a member of the public would like to provide comments on a Consent Calendar item, they should request to remove the item from the Consent Calendar during the meeting.

On motion by Councilmember May, seconded by Councilmember Chuang and unanimous on roll call vote, the Consent Calendar was approved.

1. MONTHLY CLAIMS: OCTOBER 1 THROUGH OCTOBER 31, 2022 PURSUANT TO CEQA GUIDELINE 15378
The monthly claims for October 1 through October 30, 2022 were approved as submitted.

2. RESOLUTION APPROVING AND AUTHORIZING THE CITY MANAGER TO EXECUTE

THE SECOND AMENDMENT TO THE STANDBY BOND PURCHASE AGREEMENT SUPPORTING THE TOWN OF HILLSBOROUGH’S SERIES 2000A, 2000B, 2003A, AND 2006A VARIABLE RATE CERTIFICATES OF PARTICIPATION, AND ANCILLARY

DOCUMENTS RELATED THERETO
This item was reconsidered following action on the item as part of the Consent Calendar and following consideration of Item 9.

At 8:46 p.m., Finance Director Jan Cooke provided the staff report. City Manager Ann Ritzma, Bond Counsel Kim Byrens and Financial Advisor Josh Cooperman provided additional information.

Mayor Royse opened public comment. There were no speakers. Mayor Royse closed public comment.

On motion by Councilmember Chuang, seconded by Councilmember Cole and unanimous on roll call vote, the resolution approving and authorizing the City Manager to execute the second amendment to the Standby Bond Purchase Agreement supporting the Town of Hillsborough’s Series 2000A, 2000B, 2003A, and 2006A variable rate certificates of participation and ancillary documents related thereto was adopted.

Following action on Item 2, the City Council considered Item 6.

3. RECONFIRM FINDINGS AND DETERMINATIONS UNDER RESOLUTION NO. 21-87 PURSUANT TO ASSEMBLY BILL 361 AND CEQA GUIDELINE 15378
A motion to reconfirm the findings and determinations made in Resolution No. 21-87 pursuant to Assembly Bill 361 and CEQA Guideline 15378, with acknowledgement that the California Department of Public Health has updated the definition of “close contact” in Regulation 3205 from being within six feet of another person to sharing the same indoor space with another person for 15 minutes or more was approved.

4. RESOLUTION APPROVING THE SUMMARY VACATION OF AN EXISTING FIVEFOOT-WIDE PUBLIC UTILITY EASEMENT AT 1260 KENILWORTH ROAD PURSUANT TO CEQA GUIDELINE 15061(B)(3)
The resolution approving the summary vacation of an existing five-foot-wide public utility easement at 1260 Kenilworth Road pursuant to CEQA Guideline 15061(B)(3) was adopted.
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X. PUBLIC HEARING

5. APPEAL OF ARCHITECTURE AND DESIGN REVIEW BOARD (ADRB) DESIGN

REVIEW APPROVAL FOR A TWO-STORY SINGLE-FAMILY HOME LOCATED AT 1950 RALSTON AVENUE AND CONSIDER: (1) ADOPTION OF A RESOLUTION

DENYING THE APPEAL AND APPROVING THE TWO STORY HOME PURSUANT TO CEQA GUIDELINE 15303; OR (2) ADOPTION OF A RESOLUTION UPHOLDING THE

APPEAL AND DENYING THE TWO STORY HOME PURSUANT TO CEQA GUIDELINE 15270 – CONTINUED FROM OCTOBER 10, 2022
Associate Planner Linda Roberson provided the staff report. City Manager Ann Ritzma and City Attorney Christopher Diaz provided additional information.

Councilmember May stated he ran into a resident of Country Club Drive at the grocery store about one week after the hearing and the resident thanked the City Council for giving them a thorough hearing.

Mayor Royse provided introductory comments and outlined the hearing process.

Mayor Royse opened the Public Hearing at 6:48 p.m.

Appellant Dana Gallante and Kathy Ceremsak, on behalf of the appellant, provided information regarding the appeals and discussions with the applicant since the October 10, 2022 City Council meeting and distributed materials to the City Council.

Arthur Coon, Attorney, Miller Starr Regalia, on behalf of the applicant, 1950 Ralston LLC, provided comments regarding the project.

Casey Courneen, 1850 Ralston, spoke in opposition to the project citing the precedent for single family homes in the neighborhood.

Tim Raduenz, designer, 1950 Ralston, provided comments regarding the design process for the project, the Town’s design guidelines, the concessions made, and stated the tree in the back of the property will be kept.

Colleen Fitgerald, 1900 Ralston, spoke in opposition to the project citing the size of the proposed home and requested the project be denied.

Norm Brod, 50 Country Club, provided comments regarding the homes currently in the neighborhood and stated approval of the project would cause additional two-story homes to be built in the neighborhood and stated the importance of leaving the neighborhood as a single-story neighborhood.

Gib Papazian, 325 Pepper, provided comments regarding his experience building a twostory home in the neighborhood and in support of the project.

Britt Miller, owner, 1950 Ralston, provided comments regarding the appeal process and comments made at the ADRB meeting with the item was heard. Miller spoke in support of the information in the staff presentation and stated that there is no single-story home deed restriction in the neighborhood.

Jeff Williams, 808 Eucalyptus, spoke in support RG Development as the builder of his home and in support of the project.

Jim Yamas, 25 Genevra, spoke regarding the importance of referencing a map of the Country Club Manor neighborhood when considering the project and in opposition to the project.

Louis Chang, 20 Country Club, stated they built their single-story home understanding the neighborhood to be single-story neighborhood. Chang stated that the project at 1950 Ralston would cause a loss of privacy for his home and that he has photos taken from inside his home when the story poles were up, and the story poles can be seen from his living quarters. Chang requested the neighborhood remain a single-story neighborhood. -12-
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Greg Gambrioli, RG Development, provided comments regarding the project and meetings with neighbors during the process, provided information about other projects built by RG Development and stated 1950 Ralston is designed as a one and a half story.

Steve Hanson, 5 Country Club, provided comments regarding photos taken of the home when the story poles were up at the site and stated the home appeared very boxy.

Katharine Moore, 35 Genevra, stated that she did an extensive remodel but maintained a single-story home in the single-story neighborhood.

Patricia Pascoe, 130 Country Club, stated the neighborhood is consistently opposed to two-story homes in favor of privacy and a love for single-story homes.

Kathy Ceremsak, 10 Country Club, provided comments regarding neighborhood outreach to 37 households by the appellant.

Mayor Royse closed the Public Hearing at 7:53 p.m.

MOTION: Councilmember May moved and Councilmember Cole seconded the motion to adopt a resolution denying the appeal and approving a new, 5,478 square foot two-story craftsman style residence located at 1950 Ralston Avenue pursuant to CEQA Guideline 15303.

SUBSTITUTE MOTION: Vice Mayor Krolik moved and Mayor Royse seconded the motion to adoption a resolution upholding the appeal and denying the two-story home pursuant to CEQA Guideline 15270.

The substitute motion failed by the following vote:

YES: 2 (Krolik, Royse)
NO: 3 (Chuang, Cole, May)
The main motion carried by the following vote:

YES: 3 (Chuang, Cole, May)
NO: 2 (Krolik, Royse)
Mayor Royse called a recess at 8:17 p.m.

Council reconvened at 8:28 p.m. with all Councilmembers present.

Mayor Royse stated there was a request to take Item 9 out of order.

City Attorney Diaz stated that Item 2 on the Consent Calendar should be reconsidered as a discussion of the item is required, and a motion could be made to reconfirm the earlier action.

Without objection, the City Council proceeded to consider Item 9.

6. PROPOSITION 218 HEARING: RESOLUTION AUTHORIZING RATES FOR SOLID WASTE CHARGES PURSUANT TO CEQA GUIDELINE 15378, 15273 AND PUBLIC RESOURCES CODE SECTION 21080(B)(8)
This item was considered following action on Item 2.

Finance Director Jan Cooke and Rick Simonsen, Senior Vice President, HF&H Consultants provided the staff report. City Manager Ann Ritzma, Attorney Lutfi Kharuf, and Joe La Mariana, Executive Director, Recology provided additional information.

Mayor Royse opened the Public Hearing at 9:14 p.m.

Mark Korody expressed concern regarding an issue Recology has in San Francisco and requested assurance that the burden of liability is not being spread to other communities served by Recology.
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Larry Friedberg spoke in opposition to the process for submitting a formal protest outlined in the Proposition 218 notice and stated that email protests should have been accepted.

Mayor Royse closed the Public Hearing at 9:26 p.m.

City Clerk Lisa Natusch reported the Town received a total of 25 written protests and that written protests against the proposed rates were not presented by a majority of the property owners or tenants of the identified parcels subject to the proposed rate increases, therefore, the City Council was authorized to adopt the rate increases. City Clerk Natusch stated that to achieve a majority, at least 1,953 protests would have needed to be received.

On motion by Councilmember Chuang, seconded by Vice Mayor Krolik and unanimous on roll call vote, the resolution authorizing rates for solid waste charges pursuant to CEQA Guideline 15378, 15273 and Public Resources Code Section 21080(B)(8) was adopted.

7. PROPOSITION 218 HEARING: RESOLUTION ADOPTING MAXIMUM RATES FOR

WATER SERVICE CHARGES AND AUTHORIZING THE IMPLEMENTATION OF

REVENUE STABILIZATION FACTORS TO THE VOLUME CHARGE RATES, AS NECESSARY PURSUANT TO CEQA GUIDELINE 15378, 15273 AND PUBLIC RESOURCES CODE SECTION 21080(B)(8)
Finance Director Jan Cooke and Rick Simonsen, Senior Vice President, HF&H Consultants provided the staff report. Attorney Lutfi Kharuf, Public Works Director Paul Willis and City Manager Ann Ritzma provided additional information.

Mayor Royse opened the Public Hearing at 10:07 p.m.

John Lockton expressed concerns regarding the cost-of-service study and stated that the basis used to determine rates is subject to lawsuit and the Town should have a flat rate.

Lockton referenced a memo he submitted to the City Council.

Steve Hassid, 1090 Parrott Drive, spoke in favor of tiered rates to incentivize water conservation and in opposition to the fixed portion of the water bill.

Josh Cooperman, speaking for himself, provided historical information on the establishment of the rates and spoke in opposition to the recent lawsuit settlement.

Richard Miller, 250 Darrell Road, recommended introducing a minimum amount of water usage so that residents who have already reduced consumption are not asked to further reduce consumption.

John Lockton responded to City Council questions.

Mayor Royse opened the Public Hearing at 10:56 p.m.

City Clerk Lisa Natusch reported the Town received a total of 30 written protests and that written protests against the proposed rates were not presented by a majority of the property owners or tenants of the identified parcels subject to the proposed rate increases, therefore, the City Council was authorized to adopt the rate increases. City Clerk Natusch stated that to achieve a majority, at least 2,007 protests would have needed to be received.

On motion by Councilmember Chuang, seconded by Councilmember Cole and unanimous on roll call vote, the resolution adopting maximum rates for water service charges and authorizing the implementation of revenue stabilization factors to the volume charge rates, as necessary pursuant to CEQA Guideline 15378, 15273 and Public Resources Code Section 21080(B)(8), with implementation of the rates deferred to June 30, 2023, and direction to staff to work with interested citizens during that time to -14-
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try to explore some of the issues raised and whether there are any other options the Town should be considering for future action, was adopted.

XI. NEW BUSINESS

8. APPROVAL TO PROCEED WITH THE CENTER FOR AGE-FRIENDLY

EXCELLENCE'S TECHNICAL ASSISTANCE TO APPLY FOR THE AGE-FRIENDLY

COMMUNITIES (AFC) CERTIFICATION UNDER THE AARP/WORLD HEALTH

ORGANIZATION (WHO) NETWORK OF AGE FRIENDLY COMMUNITIES PURSUANT TO CEQA GUIDELINE 15378
City Manager Ann Ritzma and Center for Age-Friendly Excellence’s representative Ann O’Brien Keighran provided a report.

Mayor Royse opened public comment. There were no speakers. Mayor Royse closed public comment.

On motion by Vice Mayor Krolik, seconded by Councilmember Cole and unanimous on roll call vote, the City Council directed staff to include at the City Council Goal Setting session in February 2023 consideration of proceeding with the Center for Age-Friendly Excellence's technical assistance to apply for the Age-Friendly Communities (AFC) certification under the AARP/WHO Network of Age Friendly Communities.

Following action on Item 8, the City Council considered Item 10.

9. HILLSBOROUGH CONCOURS D ‘ELEGANCE 2022 – POLICE SERVICES – PURSUANT TO CEQA GUIDELINE 15378
This item was considered following the recess.

City Manager Ann Ritzma provided the staff report.

Mayor Royse opened public comment.

Rob Fischer, former Chair, Concours d’Elegance, provided information about the history of the event and the Hillsborough Concours Foundation and in appreciation for the Town’s support.

Mayor Royse closed public comment.

On motion by Vice Mayor Krolik, seconded by Councilmember May and unanimous on roll call vote, a waiver of the costs associated with police services for the 2022 Hillsborough Concours d ‘Elegance in the amount of $16,820.50 in recognition of the philanthropic public benefit was approved.

Following action on Item 9, the City Council reconsidered Item 2.

XII. INFORMATIONAL

10. TOWN OF HILLSBOROUGH ARCHITECTURE AND DESIGN REVIEW BOARD BYLAWS PURSUANT TO CEQA GUIDELINE 15378
Liz Ruess, Long-range Planning & Special Projects, provided the staff report and noted a revision to the draft bylaws to correctly reflect the number of alternate members of the board. City Manager Ann Ritzma provided additional information.

Mayor Royse opened public comment. There were no speakers. Mayor Royse closed public comment.

11. CITY MANAGER'S UPDATE
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XIII. PUBLIC COMMENT II
There were no speakers.

XIV. CITY COUNCIL ITEMS
Councilmember Chuang reported her attendance at a meeting of the City/County Association of Governments in which the outreach phase of the northbound Highway 101 express lanes and extended rain barrel program were discussed. Councilmember Chuang reported an Urban Search and Rescue drill in which the CERT leadership team was invited to observe.

Mayor Royse reported the City Council held a Community Roundtable with organizations in the Town and expressed appreciation to the Hillsborough Beautification Foundation for the Veteran’s Day event.

XV. MAYOR'S APPLAUSE
Mayor Royse recognized the Hillsborough Neighborhood Network (HNN) leadership team:

Mike Chuang, Richard Miller, Steve Livingston, Dennis Tom and Marie Chuang, for their work in the Town to organize individuals, neighborhoods and the community for emergency preparedness and for their NeighborFest event that provides the community with emergency training, evacuation information and emergency preparedness education. Mike Chuang provided comments.

XVI. ADJOURNMENT
Mayor Royse adjourned the meeting at 11:56 p.m.
-16-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
1 CONSENT CALENDAR

CITY COUNCIL MEETING
DECEMBER 12, 2022

AGENDA STAFF REPORT
ITEM SUBJECT: MONTHLY CLAIMS: NOVEMBER 1 THROUGH NOVEMBER 30, 2022 PURSUANT TO CEQA GUIDELINE 15378
SUMMARY: The monthly claims for the month of November 2022 in the amount of $4,274,817.44 are submitted for approval.

FISCAL IMPACT: Claims have been expended pursuant to the approved budget.

ENVIRONMENTAL ISSUES: The proposed action is exempt from environmental review pursuant to the California Environmental Quality Act (CEQA) Guidelines sections 15378(b)(2) and 15378(b)(5) as ongoing administrative or organizational activities that will not result in direct or indirect physical changes in the environment.

ATTACHMENTS: Monthly Claims Listing
PREPARED BY: Richard Santiago, Assistant Finance Director RECOMMENDATION: Approve the monthly claims for November 2022 as submitted. -17-

TOWN OF HILLSBOROUGH

REPORT OF GOODS & SERVICES PURCHASED
DURING THE MONTH OF NOVEMBER 2022
PREPARED BY:

Alan Singh
DocuSign Envelope ID: CC281742-69F9-4C7C-A1B2-02E41B5A66B4 -18-

TOWN OF HILLSBOROUGH

SUMMARY OF PURCHASES
DURING THE MONTH OF NOVEMBER 2022
GOODS & SERVICES PURCHASED $1,955,886.66
NET SALARIES & TAXES PAID 903,591.49
HEALTH BENEFIT PREMIUMS 154,778.58
BOND PAYMENTS 168,784.91
CCFD FUNDING 654,879.00
SAN FRANCISCO WATER PAYMENTS 436,896.80
TOTAL COST OF GOODS & SERVICES TO BE APPROVED $4,274,817.44

FINANCE DIRECTOR DATE

CITY MANAGER DATE
DocuSign Envelope ID: CC281742-69F9-4C7C-A1B2-02E41B5A66B4 12/5/2022
12/5/2022
-19-

COMPARATIVE SUMMARY
For the Month of November 2022
Nov-22 Nov-21 Nov-20
Goods & Services Purchased:

Operations 1,292,796.70 860,814.06 1,207,404.10
Capital 663,089.96 562,068.02 284,466.10
Net Salaries & Taxes Paid 903,591.49 910,020.85 842,694.66 Health Benefit Premiums 154,778.58 153,798.33 141,790.24 Bond Payments 168,784.91 264,040.16 276,334.03
CCFD Funding 654,879.00 602,441.00 660,690.00
San Francisco Water Payments 436,896.80 283,572.81 503,755.76 Total $4,274,817.44 $3,636,755.23 $3,917,134.89
NOTES:

Operations -
Capital -
Bond -
on the Town Certificates of Participation
CCFD -
Water -
to the rate increase as well as higher water usage.

FY 22/23 contribution is based on budget/contract.

There was an SFPUC wholesale water rate increase on July 1, 2022 to $4.75 (from $4.10, a 15.9 % increase). The increase from the prior year is primarily attributable FY 22/23 spending is consistent with FY 21/22 spending except for various reoccurring Capital project spending in November 2022 is primarily for the Sandra Hayne Storm Drain project, Sewer Priority Basins I & I Rehab, and Sewer Smoke Testing.

November Bond spending is lower than prior year due to lower variable rate of interest payments due to timing of projects.

DocuSign Envelope ID: CC281742-69F9-4C7C-A1B2-02E41B5A66B4 -20-

TOWN OF HILLSBOROUGH
PURCHASES MADE DURING NOVEMBER 2022
CK # VENDOR DESCRIPTION AMOUNT
10737 AIXTEK EQUIP - APC BATTERY/SERVER RAIL KIT PD 1,058.75 10738 AKEL ENGINEERING GROUP, INC. 2022 WASTEWATER MASTER PLAN PW 60,575.52 10739 ALERT DOOR SERVICE, INC. REPAIR - GARAGE DOOR STATION #33 PW 1,900.00 10740 ALHAMBRA & SIERRA SPRINGS SEPT '22 WATER FN 14.34 10741 AMAZON WEB SERVICES, INC OCT '22 - BACKUP STORAGE IT 2,388.32 10742 AMERICAN PLANNING ASSOCIATION MEMBERSHIP 2023 STAFF BP 470.00 10743 ANN STAR FORMAN FEE - NOTARY SERVICES OCT '22 BP 345.00 10744 ANNA LAURA JONES HISTORICAL DESIGN REVIEW REPLACE CK BP 3,500.00 10745 ASF ELECTRIC, INC INSTALL- EV CHARGE STATION CORP YARD PW 135,426.30 10746 AT&T 09/20/22-10/19/22 MULTIPLE ACCOUNTS 1,441.33 10747 AXON ENTERPRISE, INC SOFTWARE - EVIDENCE.COM LIC & STORAGE PD 1,126.00 10748 BARKER BLUE DIGITAL IMAGING, INC IMAGING SERVICE - DRAWING UPLOAD SANDRA/HAYNE 12.40 10749 BAY AREA WATER SUPPLY/CONSERVATION AGENCY FY 22-23 Q1 ASSESSMENT & VARIOUS PRJ REPLACE CK 54,745.92 10750 BEST BEST & KRIEGER LLP FEE - SEPT '22 LEGAL SERVICE CM 36,162.48 10751 BOSCO OIL COMPANY GAS/DIESEL PW/PD 2,680.03
10752 BURLINGAME HEATING & VENTILATI FABRICATE - TH STOVE BACK SPLASH PW 274.06 10753 BURNETT LANDSCAPE DEVELOPMENT INC MAINT - OCT '22 HBF/NOV '22 TOWN LANDSCAPE SITES 8,857.00 10754 CA GOV OFFICE OF EMERGENCY SERVICESTRAIN - OFFICER SAFETY SEMINAR 10/23/22 PD 598.06 10755 CAL ENGINEERING & GEOLOGY, INC SEWER CIP PRJ GEOTECHNICAL SUPPORT PARROTT PW 30,181.90 10756 CITY OF SAN MATEO NOV '22 LIBRARY SERVICES CM 21,690.36 10757 CLARK PEST CONTROL PEST CONTROL - OCT '22 PD 91.00 10758 COAST TO COAST TRUCKING SCHOOL, LLC TRAIN - DRIVING SCHOOL STAFF PW 5,000.00 10759 COMCAST 10/20/22 - 11/19/22 PD 431.99
10760 COMCAST SEPT '22 CALNET NONCGEN LINE IT 4,255.89
10761 CORDICO PSYCHOLOGICAL CORP. PRE-EMPLOYMENT EVAL STAFF PD 800.00 10762 CORE & MAIN LP PARTS - COUPLERS/CLIPS PW 1,602.32 10763 CRATUS, INC REPAIR - SEARSVILLE STORM DRAIN PW 25,000.00 10764 CSG CONSULTANTS, INC. BUILDING INSPECT SERVICE SEPT '22 BP & VARIOUS PRJ 15,325.50 10765 DIEMER ENGINEERING, INC. OCT '22 PROF ENGINEER VARIOUS PRJ PW 1,575.00 10766 DU-ALL SAFETY, LLC SEPT '22 SAFETY CONSULT PW 1,000.00 10767 ENEL X WAY NORTH AMERICA , INC EQUIP - EV CHARGERS CORP YARD PW REPLACE CK 17,544.66 10768 EXXELL CORPORATION MAINT - FIRE EXTINGUISHERS TOWNHALL PW 125.00 10769 FASTRAK BRIDGE TOLLS PW 29.00
10770 FERGUSON US HOLDINGS, INC PARTS - VALVE ASSEMBLY/CHLORINE PW 15,003.51 10771 FLOWATER EQUIP - APR '22-AUG'22 WATER REFILL STATION PW 541.40 10772 GLENN BERKHEIMER SEPT '22/NOV '22 LABOR RELATIONS HR 3,400.00 10773 GRAINGER TOOLS - TORQUE WRENCHS/BATTERY PW 1,936.26 10774 GRANITE ROCK COMPANY MATERIALS - ASPHALT CORP YARD PW 307.05 10775 GT IMPRINTS, LLC PRINT - PARADE NO-DES SIGNS PW 262.50 10776 LANDTEK LANDSCAPE INC OCT'22 LANDSCAPE MAINT VARIOUS SITES HBF 2,516.00 10777 MASTERPIECE GARDENERS, INC MAINT - SEPT '22/OCT'22 HBF LANDSCAPE SITES 1,200.00 10778 METROPOLITAN PLANNING GROUP INC CONSULT - SEPT '22 PLANNER SERVICES BP 7,038.75 10779 ANTHONY BATSHON REFUND - PERMIT FEE OVERPAY BP 439.01 10780 MARISA TAM REFUND - BUILD DEPOSIT BP 11,550.00
10781 NATHAN K & MINA K FISCHER REFUND - EIR DEPOSIT BALANCE BP 250.00 10782 STANLEY & JANIE SZE REFUND - GRADE DEPOSIT BP 30,000.00 10783 THE CBR GROUP, INC. REFUND - EIR DEPOSIT BALANCE BP 9,600.00 10784 CHRISTINE KROLIK REIMB - LEAGUE OF CA CONFERENCE EXP 9/7-9/22 CO 782.64 10785 CHRISTOPHER REY REIMB - TRAVEL EXP CRIME PREVENT CONF PD 1,023.56 10786 MELISSA COLLA REIMB - EMPLOYEE LUNCHEON GIFT CARDS PD 100.00 10787 SARAH HOWARD REIMB - FINGERPRINTING SERVICE FEE HR 89.00 10788 VANESSA MICHEL REIMB - FINGERPRINTING SERVICE FEE HR 89.00 10789 PG & E 8/30/22-9/28/22 23.98
10790 PRESIDIO SYSTEM, INC 2022 SEWER MAIN CLEANING/VIDEO INSPECT PW 82,383.50 10791 PRIORITY 1 INSTALL - CODE3 EQUIPMENT '21 TAHOE PD 3,934.76 10792 QUENCH USA, INC WATER FILTERATION SERVICE 10/28/22-11/27/22 77.66 DocuSign Envelope ID: CC281742-69F9-4C7C-A1B2-02E41B5A66B4 -21-

TOWN OF HILLSBOROUGH
PURCHASES MADE DURING NOVEMBER 2022
10793 R & A JANITORIAL SERVICE, LLC OCT '22 JANITORIAL SERVICES PW 12,988.72 10794 RICE TRUCKING-SOIL FARM SUPPLIES - BASE ROCK PW 787.82 10795 ROBERT HALF INTERNATIONAL INC TEMP SERVICE - W/E 10/21/22 & 10/28/22 FN 5,400.00 10796 SAN MATEO COUNTY FORENSIC LAB OCT'22 CRIME LAB SERVICES PD 422.00 10797 SAN MATEO COUNTY SHERIFF'S OFFICE FEE - COYOTE POINT RANGE 9/22 PD 2,800.00 10798 SAN MATEO LOCK WORKS, INC. KEYS - SIGN BOARDS/CABINETS PW 436.71 10799 SFPUC FINANCIAL SERVICES AUG '22/SEPT '22 - WATER QUALITY ANALYSIS PW 4,490.00 10800 SIEMENS INDUSTRY, INC REPAIR - FIRE ALARM PANEL TOWN HALL PW 968.00 10801 SMCPCSA ADMIN APPRECIATION LUNCHEON FOR STAFF PD 200.00 10802 SOUTH BAY REGIONAL PUBLIC SAFETY TRAIN - DRIVING COURSE STAFF PD 940.00 10803 SPOTLIGHT IMPRESSIONS, INC PRINT - EMPLOYEE NAME BADGE CL 45.63 10804 STAPLES ADVANTAGE OFFICE SUPPLIES - ALL DEPARTMENTS 667.93 10805 TESCO CONTROLS, INC MAINT - SCADA SUPPORT SERVICE PW 470.00 10806 THE CITIES GROUP INSURANCE JUL-DEC'22 WORKERS' COMP/SAFETY ASSESSMENT 91,852.95 10807 TIMBERLINE TREE SERVICE, INC. MAINT - BRANCH REMOVAL ASTER PW 1,000.00 10808 ULINE, INC. SUPPLIES - WINDOWCLEANER/RAGS PW 1,099.39 10809 UTILITY TELECOM, INC. OCT '22 ETHERNET & 3 CIRCUITS IT 419.39 10810 WRA, INC SANDRA/HAYNE DRAIN REPLACE PRJ PW 41,447.55 10811 CITY AND COUNTY OF SAN FRANCISCO FEE - DARRELL WATER TANK ONE TIME USE LICENSE PW 5,000.00 10812 CITY AND COUNTY OF SAN FRANCISCO FEE - DARRELL WATER TANK LICENSE APPLICATION PW 2,000.00 10813 AECOM TECHNICAL SERVICES, INC. HISTORIC ASSESSMENT MULTIPLE SITES BP $25,820.56 10814 AGUILAR & SONS REPAIR - INSTALL ASPHALT PW $2,783.00 10815 AIXTEK EQUIP - SYNOLOGY RACKSTATION/HARD DRIVES PD $9,921.41 10816 AP TECHNOLOGY LLC 2023 EZ SIGNER MAINTENANCE FN $285.00 10817 ARAMARK SERVICES, INC COFFEE & SUPPLIES BP $352.86 10818 ARAMARK UNIFORM & CAREER UNIFORM CLEANING SERVICE W/E 11/10/22 PW $469.35 10819 AT&T 9/17/22-10/16/22 MULTIPLE ACCOUNTS $1,956.43 10820 AUTO PRIDE CAR WASH, INC OCT'22 CAR WASHES PD $144.89 10821 AXON ENTERPRISE, INC EQUIP - OFFICER SAFETY PLAN 7/LICENSE BUNDLE PD $64,534.29 10822 BAY AREA WATER SUPPLY/CONSERVATION AGENCY SUPPLIES - MOISTURE METERS PW $508.86 10823 BEST BEST & KRIEGER LLP FEE - AUG '22/SEPT '22 LEGAL SERVICE $68,899.02 10824 BURNETT LANDSCAPE DEVELOPMENT INC MAINT - NOV '22 HBF LANDSCAPE VARIOUS SITES $5,581.00 10825 CAL ENGINEERING & GEOLOGY, INC SEWER CIP PRJ GEOTECHNICAL SUPPORT PARROTT PW $13,876.90 10826 CENTRAL COUNTY FIRE DEPARTMENT NOV '22 FISCAL CONTRIBUTION $654,879.00 10827 CITY OF BELMONT COUNCIL OF CITIES MTNG 11/18/22 CO $120.00 10828 CITY OF BURLINGAME NOV '22 LIBRARY SERVICES FN $62,333.00 10829 CITY OF BURLINGAME COUNCIL OF CITIES MTNG 10/28/22 CO $240.00 10830 CLARK PEST CONTROL PEST CONTROL - ALL DEPARTMENTS $375.00 10831 CLEANSWEEP SERVICES, INC. STREET SWEEPING SERVICES PW $2,218.50 10832 CSG CONSULTANTS, INC. 2023 STREET RESURFACE PRJ & VARIOUS PRJ PW $162,030.52 10833 CUSTOM TOPS INC EQUIP - STEPS RAILS/BEDLINER/RACK TRUCK #10 PW $1,892.79 10834 DANIEL RICHARD CHARLES INSTALL - CONTROLLER/CIRCUITS VARIOUS SITES PW $6,459.75 10835 DU-ALL SAFETY, LLC OCT '22 SAFETY CONSULT PW $2,937.50 10836 DUDEK TREE ORDINANCE UPDATE 8/27/22-10/28/22 CM $2,387.50 10837 ELMER ROBERT EASTMAN, JR. BACKGROUND INVESTIGATION NEW HIRE PD $1,400.00 10838 ERLER & KALINOWSKI, INC SEWER CIP PHASE 1C CM SUPPORT PW $12,304.50 10839 FASTRAK BRIDGE TOLL 10/13/22 PW $7.00
10840 FRANCHISE TAX BOARD WITHHOLDING PAYMENT FN $2,153.25 10841 GRAINGER EQUIP - SHOP VAC/BOOT DRYERS PW $813.40
10842 GRATING PACIFIC, INC PARTS - STEEL GRATING PW $3,390.63 10843 HACH COMPANY WATER QUALITY SUPPLIES PW $721.99
10844 HASSETT HARDWARE-SAN MATEO SUPPLIES - VARIOUS ITEMS PW $174.97 10845 HOUSEAL LAVIGNE ASSOCIATES,LLC GENERAL PLAN/HOUSE ELEMENT FEB'22/JUN'22/SEP'22 BP $143,606.39 10846 HOWARD ROME MARTIN & RIDLEY LLP LEGAL SERVICES SEPT'22 CM $423.00 10847 INTERSTATE TRAFFIC CONTROL PRODUCTS, INC. PARTS - BARRICADE LIGHTS PW $984.38 10848 KEVIN KASHIWAHARA BACKGROUND INVESTIGATION NEW HIRE PD $818.00 10849 KRONOS SAASHR, INC. OCT'22 PAYROLL PROCESSING FN $1,955.87 10850 LINDSTROM REPAIR - WATER CLOSET PD $249.31
10851 MAGNET FORENSICS USA, INC SOFTWARE - 2023 AXIOM BUNDLE PD $4,203.13 10852 MARK D HUDAK LEGAL SERVICES - SEPT 2022 CM $2,340.00 10853 CALIFORNIA METRO MOBILE COMMUNICATEEQUIP - MOBILE RADIO PD $3,542.75 DocuSign Envelope ID: CC281742-69F9-4C7C-A1B2-02E41B5A66B4 -22-

TOWN OF HILLSBOROUGH
PURCHASES MADE DURING NOVEMBER 2022
10854 NAPA AUTO PARTS - BURLINGAME PARTS - WIPER BLADES '18 FORD F250/CLEANER PW $84.52 10855 NORCAL RENTAL GROUP LLC EQUIP - BOOM RENTAL PW CHRISTMAS LIGHTS $1,739.63 10856 OCCUPATIONAL HEALTH CENTERS OF CA EMPLOYEE PHYSICAL HR $118.00 10857 BAY AREA SOLAR YOUR ENERGY SOLUTIONSREFUND - PERMIT FEE OVERPAY BP $741.59 10858 BENJAMIN M WERTHER TR REFUND - BUILD DEPOSIT BP $3,000.00 10859 JEFFFREY SEIBERT & CHERI LI REFUND - BUILD DEPOSIT BP $43,635.00 10860 JOHN KC CHEN REFUND - BUILD DEPOSIT BP $12,988.50 10861 NYHUS DESIGN GROUP REFUND - EIR DEPOSIT BALANCE BP $1,523.75 10862 SEBIAN CONSTRUCTION INC REFUND - GRADE DEPOSIT REPLACE CK BP $7,500.00 10863 GLEN GARRY WAY, LLC REFUND - WATER OVERPAY REPLACE CK FN $594.22 10864 KEN SALE JR REFUND - WATER DEPOSIT FN $4,267.99
10865 YVETTE ZHOU REFUND - WATER DEPOSIT BAL REPLACE CK FN $415.72 10866 YVETTE ZHOU REFUND - WATER OVERPAY REPLACE CK FN $70.00 10867 PG & E 2/8/22-3/9/22 MULTIPLE ACCOUNTS $34,027.15 10868 PRIORITY 1 MAINT - MULTIPLE VEHICLES PD $4,636.93 10869 QUADIENT LEASING USA, INC SUPPLIES - POSTAGE METER INK CARTRIDGE FN $153.78 10870 RICE TRUCKING-SOIL FARM SUPPLIES - DRAIN ROCK PW $855.86 10871 ROBERT HALF INTERNATIONAL INC TEMP SERVICE - W/E 11/4/22 & 11/11/22 FN PW $8,219.97 10872 SAN MATEO COUNTY TAX COLLECTOR 22/23 SECURED PROPERTY TAX FN $256.00 10873 SAN MATEO LUMBER CO., INC SUPPLIES - WOOD/SCREWS CORP YARD GATE PW $686.61 10874 SAN MATEO RESOURCE CONSERVATION RCD COMPOST PROGRAM $58.80 10875 SHAWN KIRBY JUN-OCT '22 POOL SVC 1640 RENTAL PW $900.00 10876 STANDARD INSURANCE COMPANY OCT '22/NOV '22 GROUP LIFE/ADD/LTD ASSESSMENT $5,580.45 10877 STAPLES ADVANTAGE OFFICE SUPPLIES - ALL DEPARTMENTS $763.40 10878 THE CAPELO COMPANIES, LLC CATERING - EMPLOYEE APPRECIATION EVENT 11/9/22 CM $3,860.39 10879 THOMSON WEST OCT'22 INVESTIGATIVE WEBSITE PD $1,015.00 10880 TIMBERLINE TREE SERVICE, INC. MAINT - REMOVE BOULDERS/SITE CLEAN UP PW $3,115.00 10881 TURBO DATA SYSTEMS, INC. OCT'22 CITATION PROCESSING & SCANNER PD $1,563.27 10882 TYLER TECHNOLOGIES, INC. TRAIN - ERP FINANCIAL/UB SYSTEMS MULTIPLE INVOICES $5,360.00 10883 UNITED LABORATORIES SUPPLIES - SEWER LIFT-ZYME PW $2,983.64 10884 VIKING SHRED LLC NOV'22 DESTRUCTION SERVICES PD $82.99 10885 WESTERN TRUCK FAB INSTALL - LIGHT KIT TRUCK #302/#314 PW $19,063.58 TOTAL GOODS & SERVICES FOR THE MONTH PAID BY CHECK $2,222,170.24 CALPERS RETIREMENT CONTRIBUTIONS 282,961.24
VISA PAYMENTS 24,225.54
RETIREE HEALTH REIMBURSEMENTS 81,408.64
TOTAL GOODS & SERVICES FOR THE MONTH $ 2,610,765.66
DocuSign Envelope ID: CC281742-69F9-4C7C-A1B2-02E41B5A66B4 -23-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
2 CONSENT CALENDAR

CITY COUNCIL MEETING
DECEMBER 12, 2022

AGENDA STAFF REPORT
ITEM SUBJECT: ACCEPTANCE OF THE ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR) TOGETHER WITH THE INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING FOR THE YEAR ENDED JUNE 30, 2022 PURSUANT TO CEQA GUIDELINE 15378
SUMMARY: Local ordinances and state statues require that the Town publish a complete set of financial statements at the close of each fiscal year presented in conformity with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards (GAAS) by a firm of licensed certified public accountants. Pursuant to that requirement, the Town’s ACFR, audited by Eide Bailly is hereby submitted.

Audit and Annual Comprehensive Financial Report
The Town has received an unmodified opinion on the financial statements for the fiscal year ended June 30, 2022 from its auditors, Eide Bailly. The audit firm conducts their audit in accordance with generally accepted auditing standards applicable to financial audits contained in Government Auditing Standards issued by the comptroller general of the United States. The standards require that the auditors plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The auditors’ unmodified opinion is presented in the Annual Comprehensive Financial Report.

Each year, the Town participates in the Certificate of Achievement in Financial Reporting award program administered by the Government Finance Officers of America and has been successful in obtaining the award for the past twenty years. Staff believes that the June 30, 2022 report will qualify for the award.

Fiscal Year Financial Results
Summary
The General Fund results were better than budget, with improved revenues, primarily from onetime and timing of certain revenues. Expenditures are under budget due to timing of services and projects.

The Water Fund revenues showed a decrease from prior year due to drought conservation, which was anticipated in the budget.

The Sewer Fund Statement on Net Position now reflects the new funding agreement with the City of San Mateo for the Town’s share of capacity at the new wastewater treatment plant. This is reflected as an intangible asset (capacity rights) with a long-term liability due to San Mateo. -25-
Agenda Staff Report - Hillsborough City Council
December 12, 2022

Page 2 ends

The CalPERS investment return of 21.3% on the pension portfolio is reflected in a reduced net pension liability for the Town in FY 2021-22. It is a significant reduction, which will likely be offset in future years with the investment loss that occurred in FY 2021-22.

The Statement of Net Position reflects implementation of GASB 87- Leases in FY 2021-22. The Town has multiple lease contracts for lease of Town property for wireless communications facilities expiring between 2023 and 2026. This is reflected in the financial statements as a lease receivable and deferred inflow of resources of approximately $1 million.

Results by Fund/Area
The financial highlights are summarized in the Management’s Discussion and Analysis (MD&A) that can be found from page 5 through 19 of the financial report.

General Fund
The General Fund is the primary operating fund of the Town. The fiscal year end results showed a net excess revenue of $1.8 million in the General Fund which is added to reserves. The ending fund balance of $31.8 million is comprised of $13 million in restricted, assigned, and nonspendable reserves and $18.8 million of unassigned reserves which includes $15.7 million of reserves per General Fund policy and $3.1 million of unassigned reserves which are held for future contingencies and projects.

General Fund revenues of $33.9 million for FY 2021-22 are $3.1 million (10.2%) higher than budget and are $2.6 million (8.3%) higher when compared to the last fiscal year. The increase compared to budget is primarily due to receipt of one-time revenue from the American Rescue Plan Act in response to the COVID-19 pandemic, and an increase in Excess ERAF and MVLF that was impacted by timing, offset somewhat by investment loss (primarily unrealized fair market value adjustment). The Town typically holds investments to maturity, thereby reversing any unrealized gain or loss.

General Fund expenditures of $32.0 million for FY 2021-22 were lower than adopted budget by $0.4 million (1%) and are $1.9 million (6.2%) higher when compared to last fiscal year. The increase is attributable to timing of filling open positions, contractual labor increases, and increases in annual contributions in CalPERS annual required contribution, the Central County Fire Department JPA for fire operations and an increase in transfers for capital programs.

Proprietary Funds – Water and Sewer Enterprise
Proprietary funds are used to account for activities that are fueled by charges for the services.

Enterprise Funds account for external activities of the water and sewer utilities, while the Internal Service Fund account for internal (interdepartmental) activities for replacement of vehicles and equipment.

The Town’s water and sewer enterprise funds should be self-supporting; the sale of water and the service charges to sewer customers generate the revenue needed to support the operations, debt service and capital needs of these utilities.
-26-
Agenda Staff Report - Hillsborough City Council
December 12, 2022

Page 2 ends

Water Enterprise Fund
The Water Enterprise Fund operating revenue is generated from charges to water customers. The Water Fund operating revenues of $14.7 million in FY 2021-22 decreased $1.7 million (10.4%) as compared to the prior year primarily due to lower unit water sales from drought conservation (offset somewhat with a rate increase).

The Water Enterprise Fund total expenses of $13.1 million in FY 2021-22 are $1.5 million (10.%) lower than prior fiscal year primarily due to lower wholesale water purchased due to drought conservation, offset somewhat by an increase in personnel costs associated with labor agreements and CalPERS annual contributions. Water is purchased at a wholesale rate from the San Francisco Public Utilities Commission (SFPUC) and there was no change to the wholesale water rate in fiscal year 21/22.

The Water Enterprise net position of $34.4 million on June 30, 2022 increased $1.5 million. Net position is comprised of $21.9 million net investment in capital assets, $0.4 million restricted for debt service, and $12.0 million for unrestricted net position. Reserves are restricted for use solely in the Water Enterprise Fund.

Sewer Enterprise Fund
Sewer service charges are collected annually on the property tax bill for residential customers and monthly on the water bill for non-residential customers. A 4% increase in sewer service rates was adopted and effective on July 1, 2021. Sewer operating revenue of $14.5 million increased $0.4 million (2.8%) compared to prior fiscal year. The Sewer Fund also received a $2.8 million transfer in from the General Fund to fund storm drain capital projects.

The Sewer Fund total expenses of $10.6 million in FY 2021-22 are $0.7 million (6.1%) lower than prior fiscal year primarily due to timing of services costs, offset somewhat by labor and other contractual increases.

The Sewer Enterprise Fund net position of $40.9 million on June 30, 2022 increased $6.6 million Net position is comprised of $18.6 million net capital investment, $0.8 million restricted for debt service, and $21.5 million in unrestricted net position. Reserves are restricted for use solely in the Sewer Enterprise Fund.

Capital
The Town spent $5.9 million for capital purchases and infrastructure, with $1.1 million in governmental activities for vehicles and IT equipment and building improvements, and $4.9 million in infrastructure in the water and sewer enterprise funds. Improvements were made to water mains, tanks and pump stations, sewer priority basins, flow metering, sewer main video inspection, and storm drain improvements. In addition, the Town added an intangible capital asset of $26.6 million for sewer treatment plan capacity rights for the Town’s share of the City of San Mateo’s Clean Water treatment plant. The Town contracts for sewer treatment with the City of San Mateo for sewer flow from the southern wastewater treatment on the south half of the Town and the current construction includes wastewater treatment capacity for the southern portion of the Hillsborough sewer collection system. The asset reflects the percentage completion on the project (57.9%). See Long-Term liabilities explanation below.
-27-
Agenda Staff Report - Hillsborough City Council
December 12, 2022

Page 2 ends

Debt and Long-Term Liabilities
Entity-wide long-term liabilities total $82.2 million on June 30, 2022, and is comprised of debt, funding agreement with City of San Mateo (new), compensated absences, pension, and other post-employment benefits (OPEB) and interest rate swap liabilities. There is a net increase of $3 million over the prior year. The Long-Term Debt footnote to the financial statements outlines each source of debt and the key terms and payment schedule.
• The net pension liability reduced significantly ($12.2 million) as compared to the prior year primarily due to the significant CalPERS investment return of 21.3% for FY 2020-21. This will somewhat reverse when the negative investment return from FY 2021-22in incorporated into the CalPERS actuarial valuation.
• In FY 2021-22, there is a new long-term funding commitment of $23.6 million (long term portion; including short-term portion is $26.6 million) for the Town’s share of the City of San Mateo’s Clean Water wastewater treatment plant. The Town’s commitment is a 30-year payment schedule, with the current debt reflecting a percentage completion of 57.9%. • Other changes totaling a net reduction of $8.4 million over the prior year include reduction in OPEB liability, change in value on interest rate swap, and payments on annual debt service.

The Town maintains an AAA rating from Standard and Poor’s and an AA+ from Fitch Ratings on its certificates of participation. Total principal paid during the year was $1.9 million.

Government-Wide Net Position
The Town’s financial condition is presented in the Statement of Net Position on page 22 of the report. This statement is prepared on a full accrual basis of accounting; therefore, it reflects capital assets and liabilities in the net position.

Total entity-wide net position is $97.0 million on June 30, 2022. The Town's total net position increased by $9.6 million (11%). Net position is comprised of $20.0 million in governmental activities and $77.0 million in business-type activities. The governmental activities increase of $1.4 million (7.5%) is attributable to revenues that exceed expenses by $4.2 million, offset by transfers out for capital funding of $2.8 million. In the prior year, revenues exceeded expenses by $2.5 million and the increase to $4.2 million in the current year is attributable to receipt of one-time American Rescue Plan Act (ARPA) revenue of $2.7 million, offset somewhat by increased streetrelated expenditures for a major street repaving program. The business-type activities increase of $8.2 million (11.9%) is attributable to revenues that exceed expenses of $5.4 million along with capital transfer of $2.8 million. In the prior year, revenues exceeded expenses by $6.7 million and the decrease to $5.4 million in the current year is attributable to lower net water revenue due to drought conservation offset somewhat by improved results in sewer net revenue due to a sewer rate increase and lower expenditures in treatment costs.

Governmental Activities Net Position, which includes the General Fund and the other governmental funds, is $20.0 million on June 30, 2022 and is comprised of $9.3 million in unrestricted, $9.5 million in net investment in capital assets, and $1.2 million that is restricted for capital projects.
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Agenda Staff Report - Hillsborough City Council
December 12, 2022

Page 2 ends

Business-Type Activities Net Position is $77.0 million on June 30, 2022 and is comprised of $35.2 million in unrestricted, $40.5 million in net investment in capital assets, and $1.2 million that is restricted for debt service.

Other
The Town continues to monitor results in some key areas:

Excess ERAF and Property Taxes in Lieu of Motor Vehicle License Fees (MVLF) –These revenue sources continue to be volatile due to complicated state funding calculations and legislative limitations.

Economic and market volatility - Services are primarily provided by internal staffing which is a major portion of the Town’s cost structure, and the labor MOU and other contractual services are known contractual increases. The Town holds its investments to maturity thus reversing any unrealized gains or losses.

CalPERS’ costs continue to increase and are included in the Town’s long-range projection and budget.

Water drought conservation will be monitored to ensure adequacy of reserves.

The Financial Advisory Committee reviewed the audit results and ACFR at its regularly scheduled meeting on December 6, 2022 and recommended acceptance of the report. Based on staff’s final review, page 60 Note 11 and other minor typographical corrections were made to the report in the City Council meeting agenda packet.

FISCAL IMPACT: There is no fiscal impact with acceptance of the report.

PREPARED BY: Jan Cooke, Finance Director
ATTACHMENT: Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2022 RECOMMENDATION: Accept and file the Annual Comprehensive Financial Report for the fiscal year ended June 30, 2022.
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Phone: (650) 375-7400
Fax: (650) 375-7475
1600 Floribunda Avenue, Hillsborough, CA 94010
www.hillsborough.net
Annual Comprehensive
Financial Report
For the Fiscal Year Ended
June 30, 2022
Town of Hillsborough
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Town of Hillsborough, California
Hillsborough, California
Annual Comprehensive Financial Report
Fiscal year Ended June 30, 2022
Prepared by the Finance Department
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TOWN OF HILLSBOROUGH

ANNUAL COMPREHENSIVE FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 2022

TABLE OF CONTENTS
Page

INTRODUCTORY SECTION
Letter of Transmittal ii
GFOA Certificate of Achievement x
Organization Chart and Principal Officials xi

FINANCIAL SECTION
Independent Auditor’s Report 2
Management’s Discussion and Analysis 5
Basic Financial Statements:

Government-wide Financial Statements:

Statement of Net Position 22
Statement of Activities 24
Fund Financial Statements:

Balance Sheet - Governmental Funds 25
Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 26
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to
the Statement of Activities 27
Statement of Fund Net Position - Proprietary Funds 28
Statement of Revenues, Expenses, and Changes in Fund Net Position - Proprietary Funds 30
Statement of Cash Flows - Proprietary Funds 31
Notes to the Financial Statements 34
Required Supplementary Information:

Schedule of Revenues, Expenditures and Changes in Fund
Balances - Budget and Actual - General Fund 75
Schedule of Revenues, Expenditures and Changes in Fund
Balances - Budget and Actual - Police and Fire Special Tax Fund 76 Schedule of Proportionate Share of the Net Pension Liability 77 Schedule of Contributions 78
Schedule of Changes in the Net OPEB Liability and Related Ratios 79 Schedule of OPEB Contributions 80
Notes to the Required Supplementary Information 81
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TOWN OF HILLSBOROUGH

ANNUAL COMPREHENSIVE FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 2022

TABLE OF CONTENTS (CONTINUED)
Supplementary Information:

Combining Statements and Individual Fund Schedules:

Nonmajor Governmental Funds:

Combining Balance Sheet 84
Combining Statement of Revenues, Expenditures and Changes in Fund Balances 85
Schedule of Revenues, Expenditures and Changes in Fund
Balances - Budget and Actual
Gas Tax Fund 86
Measure "A" Fund 87
Measure "W" Fund 88
Police Grants Fund 89
Capital Assets Used in the Operation of Governmental Funds:

Comparative Schedules by Source 90
Schedule by Function and Activity 91
Schedule of Changes by Function and Activity 92

STATISTICAL SECTION
Net Position by Component 95
Changes in Net Position 96
Governmental Activities Tax Revenues by Source 98
Fund Balances of Governmental Funds 99
Changes in Fund Balances 100
Property Tax Dollar Breakdown 101
Net Taxable Assessed Value History 102
Direct and Overlapping Property Tax Rates 103
Principal Property Taxpayers 104
Property Tax Levies and Collections 105
Ratio of Outstanding Debt by Type 106
Computation of Direct and Overlapping Debt 107
Legal Debt Margin Information 108
Schedule of Enterprise Funds Bond Coverage 109
Water and Sewer Rates 110
Demographic and Economic Statistics 111
County of San Mateo and Neighboring Cities 112
Full-Time Equivalent City Government Employees by Function 113 Operating Indicators by Function 114
Capital Assets Statistics by Function 115
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i

INTRODUCTORY SECTION
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ii
December17, 2022
Honorable Mayor and Members of the City Council,
Members of the Financial Advisory Committee,
And Citizens of the Town of Hillsborough
Town of Hillsborough, California

ANNUAL COMPREHENSIVE FINANCIAL REPORT
The Annual Comprehensive Financial Report of the Town of Hillsborough for the fiscal year ended June 30, 2022 is hereby submitted. The financial report contains a complete set of audited financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) as promulgated by the Governmental Accounting Standards Board (GASB).

The report was prepared by the Finance Department, which is responsible for both the accuracy of the presented data and the completeness and fairness of the presentation of this report, including all disclosures.

Information contained in this report is based upon a comprehensive framework of internal controls that has been established for this purpose. The objective of internal controls is to provide reasonable, rather than absolute, assurance that the Annual Comprehensive Financial Report information is accurate in all material aspects. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects.

The Town prepared the Annual Comprehensive Financial Report using the financial reporting requirements as prescribed by generally accepted accounting principles. This GASB Statement requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of management’s discuss and analysis (MD&A). This letter of transmittal is designed to complete the management’s discussion and analysis and should be read in conjunction with it. The management’s discussion and analysis can be found immediately following the report of the independent auditor.

The Annual Comprehensive Financial Report is organized into three sections:
• The Introductory Section includes the transmittal letter, the Town’s organization charge and a list of principal officials. This section is intended to familiarize the reader with the organizational structure of the Town, the nature and scope of the services it provides, and the specifics of its legal operating environment.
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• The Financial Section includes the management’s discussion and analysis, the basic financial statements, notes, and other required supplementary information. The basic financial statements include the government-wide financial statements that present an overview of the Town’s entire financial operations and the fund financial statements that present the financial information for each of the Town’s major funds, as well as non-major governmental and other funds. Also included in this section is the independent auditor’s report on the financial statements and schedules. • The Statistical Section contains comprehensive statistical data on the Town’s financial, physical, economic, and demographic characteristics.

The Town’s Annual Comprehensive Financial Report presents the government and its component units, entities for which the government is considered financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government’s operations. For financial reporting purposes, the Town’s basic financial statements include all funds that are controlled by or are dependent upon the Town City Council. The operations of the Hillsborough Public Improvement Corporation (HPIC) were established to assist in the financing of the acquisition of public improvements on behalf of the Town.

HPIC is combined with that of the Town’s Water and Sewer funds in these financial statements. The City Council sits as its Board of Directors and has full accountability for its operations. The HPIC does not issue a separate financial report.

INDEPENDENT AUDIT
The Town of Hillsborough’s financial statements have been audited by Eide Bailly, a firm of licensed certified public accountants. The goal of the independent audit is to provide reasonable assurance that the financial statements of the Town of Hillsborough for the fiscal year ended June 30, 2022, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the Town of Hillsborough’s financial statements for the fiscal year ended June 30, 2022 are fairly presented in conformity with GAAP.

PROFILE OF THE GOVERNMENT
The Town of Hillsborough is a residential community located in San Mateo County, California and incorporated on May 5, 1910 after a popular vote of 60-1 held on April 25, 1910. The Town initially included a series of large estates, some of which, over time, were divided into the now existing mix of large estate parcels, acreage, and minimum one-half acre lots. The Town is located west of Highway 101 and El Camino Real and east of Highway 280 within a short commute to San Francisco and minutes from San Francisco International Airport. The community location offers excellent weather and a geographic advantage to its residents. Greenbelt canyons are located throughout the community’s hilly topography.

The community is well known for its trees and rural nature.

The community’s residents provide a commendable level of support to the municipal government through advisory bodies, a community beautification foundation, neighborhood network for emergency and other purposes, and communication through a quarterly newsletter and monthly E-Announcements. The residents work diligently at maintaining the historical and strong family-based community values. The Town has excellent, award-winning schools. Public institutions include three distinguished elementary schools and a middle school. There are three private schools located in the community. -39-
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The Town has a land area of approximately 6.23 square miles and a population of approximately 11,400.

It is empowered to levy a property tax on both real and personal property located within its boundaries.

The Town residents approved a public safety special tax designated for public safety operations and capital expenditures including paramedic and fire automatic aid response programs. There is also a countywide voter-approved ½-cent sales tax designated for streets and road purposes.

The Town operates under the council-manager form of government. Policy-making and legislative authority are vested in the governing city council, which consists of a mayor, a vice-mayor and three city council members. City Council members are elected to overlapping four-year terms, in even numbered years. The City Council members select the Mayor and Vice-Mayor every year. The City Council is responsible among other things, for passing ordinances, adopting the budget, appointing commission and board members, and hiring the City Manager and the City Attorney. The City Manager is responsible for carrying out the policies and ordinances of the governing city council, overseeing the day-to-day operations of the Town, and appointing department heads.

The Town of Hillsborough provides a full range of services, including police and fire protection, building permitting and inspection, land use management, maintenance of streets, public facilities, water, sewer, and storm drain infrastructure. The Town contracts for recreation and library services. Working towards efficiency, the Town is in a fire services JPA with the City of Burlingame and the Central County Fire Department JPA also provides fire services to the City of Millbrae on a contractual basis.

ACCOUNTING AND BUDGETING SYSTEMS
The Town’s financial picture is more readily understood with the general introduction to our accounting and budgeting systems. These systems provide the means for allocating available resources and for the proper control and recording of revenues and expenditures.

Accounting System and Fund Accounting: All governmental funds use the modified accrual basis of accounting. Revenues are recorded when measurable and available, rather than when received, and expenditures are recorded when the liability is incurred, rather than when paid. Conversely, the accrual basis of accounting is used for proprietary funds. All governmental funds are accounted for on a spending (or funds flow) measurement focus.

Internal Controls: Town management is responsible for establishing and maintaining adequate internal controls to ensure that Town assets are protected from loss, theft, or misuse and to assure that adequate accounting data is compiled to allow for the preparation of financial statements that conform to generally accepted accounting principles. Internal controls are designed to provide reasonable, but not absolute assurance that these objectives are met. The concept of reasonable assurance recognizes that that the cost of a control should not exceed the benefits to be derived and that cost-benefit analysis requires prudent estimates and judgments by management.

The Finance Department establishes internal accounting controls to provide management reasonable assurance regarding the safeguarding of assets and the reliability of financial records for preparing financial statements and maintaining asset accountability. The Town’s finance staff, and the independent auditor consider the internal controls over financial reporting in planning and performing the annual audit. The independent auditors test the Town’s internal controls and make inquiries into the staff’s knowledge of fraud or the occurrence of fraud.
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Cash Management: The Town pools cash from all operating sources to manage cash flow and invest idle funds. The Finance Director serves as the Town’s Treasurer and manages the portfolio of funds in accordance with the City Council’s adopted Investment Policy and the California Government Code Sections 53601 and 56535. The Finance Director submits a quarterly investment report to the City Council.

Debt Administration: The Town has a AAA general credit rating, and the Town’s Enterprise Fund Certificates of Participation (Series 2000A, 2000B, 2003A, and 2006A) long-term bond ratings are AA+ by Fitch and AAA by S&P Global Ratings with a stable outlook. The Town also has a State Water Resources Control Board loan for its improvements to the sewer system, and a California Resources Conservation and Development Commission loan for its energy savings projects. The Town annually evaluates each outstanding debt obligation that is subject to arbitrage rebate requirements and determined that there was no arbitrage rebate liability as of June 30. 2022. Additional information pertaining to the Town’s outstanding long-term debt can be found under Long-Term Debt in the Notes to the Basic Financial Statements and in the Statistical Section under Legal Debt Margin.

Budget Process and Control: The annual budget serves as the foundation for the Town of Hillsborough’s financial planning and control. The Town’s departments are required to submit requests for appropriation to the City Manager who uses these requests as the starting point for developing a proposed budget. Prior to June 30 of each year, the City Manager submits to the City Council a proposed operating and capital budget for review. The City Council holds public hearings, and a final budget is adopted on or before June

30. The appropriated budget is prepared by fund, function, and department. The department heads may make transfers of appropriations within a department. The City Manager may transfer budgeted amounts within any fund. Any revisions that alter the total expenditures of any fund must be approved by the City Council.

The legal level of budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the fund level.

Budget-to-actual comparisons are provided in the Annual Comprehensive Financial Report for each individual governmental fund for which an appropriated annual budget has been adopted. For the general fund and other major governmental fund(s), this comparison is presented as part of the required supplementary information in this report. For governmental funds other than the major funds, with appropriated annual budgets, this comparison is presented in the governmental fund subsection of this report.

LOCAL ECONOMY
The Town is a purely residential community except for its schools and private clubs. The Town’s major revenues are from property taxes and various property value-based revenues.

Property taxes, which are based on assessed values, are one of the Town’s largest sources of revenue, accounting for approximately 71% (including Excess ERAF) of Town’s General Fund revenues. Fiscal year 2021-22 property tax (excluding Excess ERAF and MVLF) revenues were $19.3 million, up 5% from the prior year. According to data obtained from the San Mateo County Assessor, the Town had a total assessed value of $11.8 billion for the fiscal year 2021-22, an increase of $0.5 billion, or 4.3% from prior year.

The Town operates a Water Enterprise and a Sewer Enterprise for water and sewer services. The cost of operations, debt service and capital improvements are primarily funded through user charges. The Town tracks the revenue requirements to ensure that there are adequate revenues to cover expenses and to determine the need for adjustments to rates.
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The biennial street repaving program continues to improve the street quality. Streets are funded from several sources including general revenues as well as special revenues such as Gas Tax, Measure A, Measure W, Measure M and Road Maintenance Rehabilitation Act (RMRA) monies.

RELEVANT FINANCIAL POLICIES
One of the Town’s key financial policies is the General Fund Reserve Policy. The General Fund reserve policy requires a minimum of 30% of operating expenditures, with a goal of 50% of operating expenditures.

The reserve policy serves as a contingency reserve to mitigate revenue volatility, an economic downturn, a natural disaster, or other financial impact.

The Town has Policy No. 409 - Budget and Fiscal Policies to maintain sound fiscal practices. The policy outlines budget and fiscal policies that range from the financial objectives, financial reporting and budget administration, user fee cost recovery goals, Enterprise Fund fees and rates, investments, appropriations limitations, fund balance designations and reserves, capital improvement management and financing, debt management and other key areas to promote sound fiscal practices.

LONG-TERM FINANCIAL PLAN
The Town provides an extended financial projection as part of the budget process, allowing the Town to be proactive in seeking both short-term and long-term budget solutions. The projection takes into consideration various financial and economic factors received from multiple sources and includes information such as property value trends, consumer price indices, state budget and other qualitative trends.

The 2022-23 Adopted Budget projects a General Fund Reserve balance of $30.3 million with $16.1 million reserved per policy, $5.4 million restricted for Section 115 pension trust and the remainder reserved for future uses such as projects, capital or other items approved by City Council. To balance the financial picture, the Town also has $44 million in long-term pension and OPEB liabilities.

The Town’s water, sewer and storm drain infrastructure requires rehabilitation. The five-year capital improvement program is $21.5 million for water, $19.1 million for sewer, and $9.1 million for storm drains and projects are prioritized in the master plan. The Town is also paying its proportionate share of capital improvements to the San Francisco Hetch Hetchy water system, its water source.

The Town pays for treatment plant services in Burlingame and San Mateo pursuant to the disposal contracts, and the San Mateo treatment plant is undergoing major improvements with the Clean Water Program. The Town and the City of San Mateo finalized an amended agreement for the Town’s participation in the program, with a cost of $47.6 million (excluding interest) over thirty years. -42-
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CalPERS’ pension policies continue to have an impact on the Town’s long-term projections. CalPERS’ four-year Asset Liability Management review cycle occurred in 2021 and results in increased required contributions starting in FY 24/25. Contributions are currently projected to double over the next ten years and then start to taper downward. The Town has been proactive in managing its costs for many years including paying down its side fund liabilities, collaborating with employees to pay a share of the employer contribution, implementing an additional pension formula tier for miscellaneous plan employees, and funding nearly $5 million into a Section 115 pension trust that will be used to smooth the budget impact of increasing required pension contributions. The notes to the financial statements include further disclosures on the pension liability.

Educational Revenue Augmentation Fund (ERAF) revenue is difficult to anticipate due to complicated State school funding formulas, which impacts the Town’s property taxes in-lieu of motor vehicle license fees (MVLF) and Excess ERAF annual revenue. In FY 1992-93 and 1993-94, the State shifted property taxes from cities, county, and special districts to school districts to supplant funding that the State was providing to school districts. The County Controller places funds that shifted from local government agencies to the ERAF Fund. The Controller then disburses these funds to school districts based upon the formula prescribed by State law. Any funds remaining in ERAF are returned to the cities, county, and special districts in proportion to the amount they contributed. Excess ERAF revenue to the Town was $3.2 million or 9.3% of revenue in FY 2021-22. Similarly, MVLF is paid from the property tax pool and as the number of school districts shift to Basic Aid, the amount in the pool to pay MVLF is reduced.

MAJOR INITIATIVES
The major initiatives outlined in the FY 2022-23 Adopted Budget are:

Community and Customer Service
• Improve transparency by updating the Town website, implementing the Policies and Values Statement, implementing a new Agenda Management system and Records Retention system, and conducting a customer service assessment.
• Facilitate a Home for All community discussion on housing (County Program). • Develop a Continuity of Operations Plan.
• Prepare and implement endemic plan.
• Develop Town-Wide Community Outreach Policy.
• Conduct staff training, development, retention, and recruitment. • Track and implement new legislative and regulatory requirements. • Track Planning and Land Use Legislation
• Explore and implement REACH codes
• Monitor Wireless Regulations and Legislation
• Implement Senate Bill 1383 to reduce short-lived climate pollutants • Comply with Storm Water, Water Conservation and Flood Inundation Regulations • Reduce Gas powered landscape equipment and encourage quiet electric equipment • Respond to Drought through conservation education and work with the SFPUC on restrictions • Administer General Election.
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Financial Stability
• Prepare long-term financing plan for storm drain capital program and facilities. • Prepare rate updates and studies – solid waste, water, and sewer. • Implement new financial system (two-year project).
• Prepare pension pre-funding analysis.
• Track LIBOR swap implementation; conduct SBPA renewal. • Report American Rescue Plan Project spending.
• Track and apply for grant funding where available.
• Update the Public Works CMMS System (work order tracking system).

Land Use Planning
• Update the Housing Element and Safety Element of the General Plan. • Review Town-owned land for future needs -Police and civic facilities. • Develop a General Housing Policy to address State mandated requirements and explore-Accessory Dwelling Units and Workforce Housing to meet mandates.
• Implement update of permit tracking software (grant funded). • Partner with Hillsborough Beautification Committee on the Eucalyptus Pathway project and development of trails and open space.
• Work with the staff of the Baywood property in preparation of the donation. • Prepare the Town’s Urban Water Plan and Drought Resiliency Plan. • Update the Town’s SCADA system.
• Monitor and revise as necessary the Integrated Pest Management (IPM) Program. • Implement projects under the Storm Drain MRP 3.0
• Develop work plan to utilize signage and technology for bike and pedestrian safety. • Continue to look for opportunities for the development of a dog park.

Community Partnerships
• Work with the Firewise Hillsborough and Central County Fire Department to implement the Wildland Urban Interface program and provide education on wildland fire safety and options for property insurance.
• Implement Wildland Urban Interface (WUI) program.
• Conduct Hillsborough Neighborhood Network (HNN) Zonehaven training and support Neighborfest. • Implement multi-agency Hazard Mitigation Plan.
• Partner with Hillsborough Beautification Foundation to improve park facilities, landscaped islands, and roads in the Town.
• Work with Hillsborough Recreation to improve programs and explore programs that will increase participation from the older adult community.
• Develop partnerships that can deliver senior services program offerings. • Continue excellent public safety services.
• Work with PG&E and Comcast to provide public education around power outages. • Continue to collaborate with community groups including Hillsborough City School District, Hillsborough Beautification Foundation, Hillsborough Neighborhood Network, Firewise, Concours d ’Elegance, Carolands and other private groups that serve the Town.

Regional Partnerships
• Conduct studies and develop partnerships for the new High Line Water Project and explore funding opportunities.
• Continue participation/representation in Peninsula Clean Energy JPA, BAWSCA, 21 Elements, RICAPS, NPDES, Airport Community Roundtable, Council of Cities, PLAN, and SBWMA. -44-
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• Participate in Peninsula Clean Energy Solar Projects. • Develop regional partnerships for housing and other legislative issues. • Develop strategies to improve energy resiliency – Update Climate Action Plan. • Participate in Countywide SB 1383 Program for Compost/Mulch.

AWARDS AND ACKNOWLEDGEMENTS
Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Town of Hillsborough for its Annual Comprehensive Financial Report for the fiscal year ended June 30, 2021. This was the nineteenth consecutive year that the Town has achieved this prestigious award. To be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized Annual Comprehensive Financial Report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that our current Annual Comprehensive Financial Report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.

We wish to extend our appreciation to all the departments who contributed financial information to the report.

We would also like to thank the members of the City Council and the Financial Advisory Committee for their interest and support in planning and conducting the financial operations of the Town in a responsible and progressive manner.

Respectfully submitted,
Ann Ritzma Jan Cooke
City Manager Finance Director
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ORGANIZATIONAL CHART AND PRINCIPAL OFFICIALS

FIRE FINANCE CITY MANAGER
OFFICE

BUILDING AND

PLANNING

POLICE PUBLIC WORKS
FIRE OPERATIONS General Accounting Human Resources PLANNING: Patrol Streets PERFORMED BY Financial Services Records Management Design Review Investigation Storm Drainage CENTRAL COUNTY Utility Billing Elections Environmental Dispatch Water FIRE DEPARTMENT Investments/Cash Risk Management Assessment Alarm Program Wastewater THROUGH A Management Hillsborough General Plan Neighborhood Corporation Yard JOINT POWERS Payroll Neighborhood Zoning Services
AGREEMENT WITH Debt Management Network BUILDING: Traffic Safety THE CITY OF Solid Waste/Recycling City Clerk Services Permits BURLINGAME Rate Making Town wide
Communications
Inspection
Information
Technology

CITIZENS OF

HILLSBOROUGH

CITY COUNCIL
Mayor Alvin L. Royse
Vice Mayor Christine Krolick
Councilmember Marie Chuang
Councilmember Sophie Cole
Councilmember Laurence M. May

CITY MANAGER
Ann Ritzma (6)

FIRE CHIEF
Bruce Barron
(JPA)

FINANCE DIRECTOR
Jan Cooke
(6)

POLICE CHIEF
Doug Davis
(37)

DIRECTOR OF PLANNING &

BUILDING
Sarah Fleming
(9)

PUBLIC WORKS

DIRECTOR/CITY ENGINEER
Paul Willis
(33)

CITY ATTORNEY
Christopher Diaz
(Contract)

ADVISORY BODIES
Architecture & Design Review Board
Citizens Communication Advisory Committee
Financial Advisory Committee
Code Enforcement Panel

JOINT POWERS AUTHORITY BOARDS
Hillsborough Recreation JPA Board
Central County Fire Board
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1 FINANCIAL SECTION
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What inspires you, inspires us. | eidebailly.com
4040 Campbell Ave., Ste. 200 | Menlo Park, CA 94025-1053 | T 650.522.3400 | F 650.645.7393 | EOE 2 Independent Auditor’s Report
To the Honorable Mayor and
Members of the City Council
Town of Hillsborough, California
Report on the Audit of the Financial Statements
Opinions
We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Town of Hillsborough (Town) as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the Town’s basic financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Town, as of June 30, 2022, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States (Government Auditing Standards). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Town and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Adoption of New Accounting Standard
As discussed in Note 15 to the financial statements, the Town has adopted the provisions of Government Accounting Standards Board (GASB) Statement No. 87, Leases, for the year ended June 30, 2022. Accordingly, a restatement has been made to the governmental activities net position and governmental funds fund balance, as of July 1, 2021, to restate the respective beginning net position and fund balance. Our opinions are not modified with respect to this matter.

Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Town’s ability to continue as a going concern -50-
3 for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Town’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 Town’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual for the General Fund, Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual for the Police and Fire Special Tax Fund, Schedule of Proportionate Share of the Net Pension Liability, Schedule of Contributions, Schedule of Changes in the Net OPEB Liability and Related Ratios and Schedule of OPEB Contributions, be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. -51-
4 Supplementary Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town’s basic financial statements. The combining nonmajor fund information and schedules and the Capital Assets Used in the Operation of Governmental Funds are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining nonmajor fund information and schedules and the Capital Assets Used in the Operation of Governmental Funds are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

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

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

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 6, 2022, on our consideration of the Town’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Town’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 Town’s internal control over financial reporting and compliance.

Menlo Park, California
December 6, 2022
-52-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
5 As management of the Town of Hillsborough (Town), we offer readers of the Town’s financial statements this narrative overview and analysis of the financial activities of the Town for the fiscal year ended June 30, 2022. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages ii to ix of this report.

Financial Highlights
 The Town’s total net position increased $9.6 million (11.0%) in FY 2021-22. On June 30, 2022, net position totaled $97.0 million, comprised of $20.0 million for governmental activities and $77.0 million for business-type activities. Of the $97.0 million net position, $44.6 million is unrestricted and can be used to meet the Town’s ongoing obligations to citizens and creditors.  Net position in governmental activities increased $1.4 million (7.5%) and net position in business-type activities increased $8.2 million (11.9%).
o The Governmental activities increase is attributable to revenues that exceed expenses by $4.2 million offset by transfers out for capital funding of $2.8 million. In the prior year, revenues exceeded expenses by $2.5 million and the increase to $4.2 million in the current year is attributable to receipt of one-time American Rescue Plan (ARPA) revenue of $2.7 million, offset somewhat by increased street-related expenditures for a major street repaving program.
 The Business-type activities increase is attributable to revenues that exceed expenses by $5.4 million, as well as a transfer in of $2.8 million for capital improvement projects. In the prior year, revenues exceeded expenses by $6.7 million and the decrease to $5.4 million in the current year is attributable to lower net water revenue due to drought conservation offset somewhat by improved results in sewer net revenue due to a sewer rate increase and lower expenditures in treatment costs. General Fund revenues of $33.9 million showed $3.1 million (10.2%) growth compared to adopted budget and $2.6 million growth (8.3%) as compared to prior year. Property tax revenue of $19.3 million (excluding Excess ERAF), the Town’s largest General Fund revenue source, increased by $0.14 million as compared to budget and $0.9 million as compared to the prior year due to continued strong property assessed valuations in the Town and Bay Area region. Also contributing to the growth was the receipt of one-time ARPA revenue, as well as increased revenue from Excess ERAF and In Lieu Vehicle License fees (primarily a timing-related true up).

Investment income was overshadowed by the market value unrealized loss, which somewhat offsets the increase in overall General Fund revenue. The Town typically holds investments to maturity thus reversing any unrealized gains and losses.
 General Fund expenditures of $32.0 million were lower than adopted budget by $0.4 million (1%) and $1.9 million (6.2%) higher as compared to the prior year. The change from budget is attributable to timing of projects, offset somewhat by higher litigation costs. The increase from the prior year is primarily for filling of open positions, contractual labor increases, annual contribution increase to the Central County Fire Department (CCFD) JPA for fire operations and an increase in the transfers for capital programs. -53-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
6  General Fund net excess revenues (revenues greater than expenditures) totaled $1.8 million, after a net excess revenue of $1.1 million in the prior year. The increase is primarily attributable to the revenue increases described above, offset by a higher capital transfer amount for storm drain funding. The storm drain capital funding amount is established each year during the budget process and amounts fluctuate based on the program timing.
 The General Fund’s fund balance of $31.8 million on June 30, 2022 increased by $1.8 million (6.2%) over the prior fiscal year. The Town’s General Fund reserve policy is 30% to 50% of budgeted operating expenditures and is maintained for contingencies. The fund balance includes $15.7 million for this reserve requirement, along with $8.6 million assigned for capital and other projects, $4.4 million restricted in a pension trust for future pension liabilities and $3.1 million in unassigned reserves. This reserve balance needs to be weighed with the long-term debt, pension and OPEB liabilities when considering the full financial picture.
 The Town funded the annual required contribution of $1.3 million for the Other Post-Employment Benefits (OPEB) liability.
 The Sewer Fund operating revenues increased $0.4 million (2.8%) as compared to the prior year, primarily due to a rate increase of 4% effective July 1, 2021.
 The Water Fund operating revenues decreased $1.7 million (10.4%) as compared to the prior year primarily due to lower water unit sales from drought conservation (offset somewhat by a rate increase).  The Sewer and Water Enterprise Fund’s net position increased $8.0 million in FY 2021-22 after an increase of $6.7 million in the prior year. Total net position of $75.3 million on June 30, 2022 shows $33.6 million unrestricted, $40.6 million invested in net capital assets, and $1.2 million restricted for debt service.  The Town spent $5.9 million for capital purchases and infrastructure, with $1.1 million in governmental activities for vehicles and IT equipment and building improvements, and $4.9 million in infrastructure in the water and sewer enterprise funds. Improvements were made to water mains, tanks and pump stations, sewer priority basins, flow metering, sewer main video inspection, and storm drain improvements. In addition, the Town added an intangible capital asset of $26.6 million for sewer treatment plant capacity rights for the Town’s share of the San Mateo Clean Water treatment plant. The Town contracts for sewer treatment with the City of San Mateo for sewage flows from the southern half of the Town and the current construction includes wastewater treatment capacity for the southern portion of the Hillsborough sewer collection system. The asset reflects the percentage completion on the project (57.9%). See Long-term liabilities explanation below.
 Entity-wide long-term liabilities total $82.2 million on June 30, 2022, and is comprised of debt, the funding agreement with City of San Mateo (new), compensated absences, pension and other post-employment benefits (OPEB) and interest rate swap liabilities. There is a net increase of $3 million over the prior year. o The net pension liability reduced significantly ($12.2 million) as compared to the prior year primarily due to the significant CalPERS investment return of 21.3% for FY 2020-21. This will somewhat reverse when the negative investment return from FY 2021-22in incorporated into the CalPERS actuarial valuation.
o In FY 2021-22, there is a new long-term funding commitment of $23.6 million (long term portion; including short-term portion is $26.6 million) for the Town’s share of the City of San Mateo’s Clean Water wastewater treatment plant.
o Other changes totaling a net reduction of $8.4 million over the prior year include reduction in OPEB liability, change in value on interest rate swap, and payments on annual debt service. -54-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
7  The Federal Government provided aid to cities to help defray the costs and impacts associated with the COVID-19 pandemic. In FY 2021-22, the Town recorded revenue of $2.7 million for the American Rescue Plan – State and Local Funding Relief Fund distribution.  In FY 2021-22, the Town implemented Governmental Accounting Standards Board No, 87 - Leases. The lease contracts are recorded as a receivable of $1.0 million for lease payments expiring between 2023 and 2036 and a deferred inflow of $1.0 million.

Overview of the Financial Statements
This discussion and analysis are intended to serve as an introduction to the Town’s basic financial statements made up of three components: 1) government-wide financial statements, 2) fund financial statements and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements such as this management’s discussion and analysis.

Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the Town’s finances, in a manner similar to a private-sector business.

The statement of net position presents information on all the Town’s assets plus deferred outflows of resources and liabilities plus deferred inflows of resources, with the difference between the two, reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Town is improving or deteriorating.

The statement of activities presents information showing how the Town’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows.

Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., earned but unused vacation leave).

Both of these government-wide financial statements distinguish functions of the Town that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the Town include general government, public safety, community services and streets. The businesstype activities of the Town include the water and sewer operations.

The government-wide financial statements can be found on pages 22 through 24 of this report. -55-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
8 Overview of the Financial Statements (Continued)
Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Town, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All the funds of the Town can be divided into two categories: governmental funds and proprietary funds.

Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements.

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

The Town maintains six individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, the police and fire special tax fund, and the capital projects fund which are considered to be major funds. Data from the other three governmental funds are combined into a single, aggregated presentation.

Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report.

The Town adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget.

The basic financial statements can be found on pages 22 and 24 of this report. -56-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
9 Overview of the Financial Statements (Continued)
Proprietary funds. The Town maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The Town uses enterprise funds to account for the water and sewer operations. Internal service funds are an accounting device used to accumulate and allocate costs internally among the Town’s various functions. The Town uses an internal service fund to account for the replacement of the fleet and other equipment, and to accumulate funds to pay unfunded liabilities from pension and other post-employment benefit. Because this service predominantly benefits governmental rather than business-type function, it has been included within governmental activities in the government-wide financial statements.

Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the internal service fund and the water and sewer operations, with the latter being considered major funds.

The basic proprietary fund financial statements can be found on page 28 through 31 of this report.

Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on page 34 of this report.

Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the Town’s funding for OPEB, information on the pension liability and contributions, and a summary of major fund budgetary schedules. Required supplementary information can be found on page 75 of this report.

The combining statements referred to earlier in connection with non-major governmental funds are presented immediately following the required supplementary information. Combining statements and individual fund schedules can be found on page 84 of this report.
-57-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
10 Government-wide Financial Analysis
The following table provides a condensed Statement of Net Position as of June 30, 2022. 2022 2021 2022 2021 2022 2021
Assets:

Current and other assets $ 52,596,520 $ 51,831,683 $ 44,539,973 $ 39,129,034 $ 97,136,493 $ 90,960,717 Capital assets 9,506,355 9,426,844 97,913,818 71,684,413 107,420,173 81,111,257 Total assets 62,102,875 61,258,527 142,453,791 110,813,447 204,556,666 172,071,974 Deferred outflows of resources 7,672,595 7,609,102 2,715,378 5,006,518 10,387,973 12,615,620 Liabilities:

Long-term liabilities 24,836,972 39,105,082 57,354,354 40,113,209 82,191,326 79,218,291 Other liabilities 7,951,858 9,545,808 8,544,827 6,720,079 16,496,685 16,265,887 Total liabilities 32,788,830 48,650,890 65,899,181 46,833,288 98,688,011 95,484,178 Deferred inflows of resources 16,952,022 1,574,273 2,303,437 224,535 19,255,459 1,798,808 Net position
Net investment in capital assets 9,506,355 9,426,844 40,560,771 39,047,391 50,067,126 48,474,235 Restricted 1,198,231 2,020,966 1,181,801 1,181,801 2,380,032 3,202,767 Unrestricted 9,330,032 7,194,656 35,223,979 28,532,950 44,554,011 35,727,606 Total net position $ 20,034,618 $ 18,642,466 $ 76,966,551 $ 68,762,142 $ 97,001,169 $ 87,404,608 Governmental
Activities Total
Business-type
Activities
The net position over time, may serve as a useful indicator of the Town’s financial position. The Town’s assets and deferred outflows of resources for derivatives, pensions, and other post-employment benefits exceeded liabilities and deferred inflows of resources for leases, pension and other post-employment benefits by $97.0 million on June 30, 2022. The change in Government-wide net position was an increase of $9.6 million (10.9%) for the year. The increase in governmental activities net position of $1.4 million (7.5%) is due to an increase in current assets (mainly cash and investments) and at significant decrease in long-term (pension and OPEB) and other liabilities. The pension liability decrease is attributable to the 21.3% investment earnings on the FY 2020-21 CalPERS pension fund. This improvement will likely be somewhat offset in FY 2022-23 results due to the negative investment return on the CalPERS pension fund in FY 2021-22. The increase in business-type activities net position of $8.2 million (11.9%) is primarily due to an increase in current assets (mainly cash and investments), and capital assets, offset somewhat by higher long-term liabilities). The significant increase in capital assets and long-term liabilities is for the Town’s share of the City of San Mateo’s Clean Water wastewater treatment plant.

On June 30, 2022, the Town reports positive balances in all three categories of net position, both for the government as a whole, as well as for its separate governmental and business-type activities.

The Town’s net investment in capital assets (e.g., land, buildings, machinery, equipment, and infrastructure) less any related debt used to acquire those assets that are still outstanding represents 51.6% of net position. The Town uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Town’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Capital assets transactions for FY 2021-22 include capital improvements of $5.9 million, addition of capacity rights asset of $26.6 million offset by addition of long-term loan of $26.6 million, depreciation of $6.2 million and principal payment of related debt in the amount of $1.9 million. -58-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
11 Government-wide Financial Analysis (Continued)
The Town’s restricted net position of $2.4, includes $1.2 million in resources that are subject to external restrictions on how they may be used – specifically, the reserve requirement relating to the certificates of participation and the State Revolving Fund loan of the business-type activities and $1.2 million is restricted for capital projects of the governmental-type activities. In addition, the Section 115 pension trust monies of $4.4 million are included in the unrestricted Governmental Activities but are restricted in the Governmental Fund Balance Sheet for future pension obligations.

The unrestricted net position of $44.6 million may be used to meet the Town’s ongoing obligations to citizens and creditors.

The following table provides a Condensed Statement of Activities for the fiscal year ended June 30, 2022. Analysis for governmental activities and business-type activities is outlined separately below. 2022 2021 2022 2021 2022 2021
REVENUES:

Program revenues:

Charges for service $ 4,053,374 $ 4,237,635 $ 29,217,302 $ 30,496,433 $ 33,270,676 $ 34,734,068 Operating grants, transfers and functional
taxes 5,034,025 1,811,351 - 5,034,025 - 1,811,351
General revenues:

Property taxes 19,324,411 18,455,541 - 19,324,411 - 18,455,541 Other taxes 9,303,702 8,000,503 - 9,303,702 - 8,000,503 Investment earnings (1,674,854) 903,750 (98,548) 118,799 (1,773,402) 1,022,549 All others 592,396 414,574 - 592,396 - 414,574
Total revenues 36,633,054 33,823,354 29,118,754 30,615,232 65,751,808 64,438,586 EXPENSES:

General government 1,990,984 2,273,947 - 1,990,984 - 2,273,947 Public safety 20,223,279 20,058,933 - 20,223,279 - 20,058,933 Community services 3,934,667 3,863,894 - 3,934,667 - 3,863,894 Streets 6,290,672 5,065,221 - 6,290,672 - 5,065,221
Water - 13,066,074 - 14,714,173 13,066,074 14,714,173
Sewer - 10,649,566 - 11,359,129 10,649,566 11,359,129
Total expenses 32,439,602 31,261,995 23,715,640 26,073,302 56,155,242 57,335,297

EXCESS(DEFICIENCY) OF REVENUES
OVER(UNDER) EXPENSES 4,193,452 2,561,359 5,403,114 4,541,930 9,596,566 7,103,289

TRANSFERS
Transfers in - 2,801,295 - 2,200,000 2,801,295 2,200,000 Transfers out (2,801,295) (2,200,000) - (2,801,295) - (2,200,000) Total transfers (2,801,295) (2,200,000) 2,801,295 2,200,000 - - Increase in net position 1,392,157 361,359 8,204,409 6,741,930 9,596,566 7,103,289 Net position - beginning, as restated 18,642,461 18,281,107 68,762,142 62,020,212 87,404,603 80,301,319 Net position - ending $ 20,034,618 $ 18,642,466 $ 76,966,551 $ 68,762,142 $ 97,001,169 $ 87,404,608 *Beginning 2021 net position was not restated for the implementation of GASB statement no. 87, Leases because information was not available Governmental Activities* Business-type Activities Total* Governmental Activities. Governmental activities increased the Town’s net position by $1.4 million (7.5%), with a total net position of $20.0 million at the end of the fiscal year. The increase was attributable to total governmental revenues that exceeded total expenses by $4.2 million, prior to transfers out of $2.8 million. -59-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
12 Government-wide Financial Analysis (Continued)
Governmental Activities – Expenses and Program Revenues The following graph reflects functional program revenues and expenses for governmental activities. Public safety costs, comprised of police and fire services, comprise 62.3% of the expenses. Public Safety program revenues are primarily comprised of alarm permitting and public safety sales tax. The remainder of public safety costs are funded by general revenues including the Public Safety Special Tax (general revenues not included in chart below).

Governmental Activities – Revenues by Source
The following chart breaks down governmental activities general revenues by source. Major general revenue sources are property taxes (62.0%) including Excess ERAF (9.0%), user charges (11.1%) and public safety special tax (6%).
-60-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
13 Business-type Activities. The net position for business-type activities increased by $8.2 million (11.9%) for a total net position of $77.0 million on June 30, 2022. The increase is the result of excess revenues over expenses of $5.4 million and transfers in of $2.8 million from the General Fund for storm drain capital projects.

Business-type Activities revenue decreased $1.5 million (4.9%) over the prior year primarily due to a rate increase in sewer charges effective July 1, 2021, offset by lower water revenue from fewer units sold caused by drought conservation (offset somewhat by increase in water rates).

Business-type Activities expenses decreased $2.4 million (9.0%) over the prior year due the prior year including the estimated cost for settlement of a water rate claim, as week as a decrease in wholesale water purchases due to drought conservation. This somewhat offset an increase in personnel costs associated with labor agreements and contractual costs.

Financial Analysis of the Governmental Funds
The Town uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Below is an outline of the governmental funds’ results.

Governmental Funds. The focus of the Town’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Town’s financing requirements. Unassigned fund balance may serve as a useful measure of the Town’s net resources available for spending at the end of a fiscal year.

As of June 30, 2022, the Town’s governmental funds reported combined ending fund balances of $36.9 million – up $1.8 million (5.0%) from the prior year, primarily from excess revenues over expenditures in the General Fund of $1.8 million. Capital Projects Fund and other non-major funds revenues are accumulated to support the timing of capital projects. Of the $36.9 million fund balance on June 30, 2022, $18.9 million is classified as unassigned and the remainder is classified as restricted, committed, and non-spendable for a variety of purposes. Of the $18.9 million unassigned, $15.7 million is held for contingencies per policy. -61-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
14 Financial Analysis of the Governmental Funds (Continued) General Fund
General Fund Revenues
General Fund revenues grew $2.6 million (8%) as compared to the prior year. The table below outlines the detail of the revenue sources. The property tax increase of $0.9 million (5%) is attributable to increased assessed real estate values in the region. Excess ERAF and In-Lieu Motor Vehicle License Fees increased in total $1.3 million, primarily due to timing. Service charges increased $0.5 million primarily due to a one-time adjustment to a deposit account in the prior year. Investment earnings (loss) is due to unrealized losses greater than investment earnings.

As the Town typically holds investments to maturity, thus reversing unrealized gain or loss. The All-Others category includes the $2.7 million American Rescue Plan revenue (one-time).

Increase Percent
REVENUES 2022 2021 (Decrease) Change
Property taxes $ 19,324,411 $ 18,455,541 $ 868,870 5%
Public safety special tax transfer 2,238,231 2,237,548 683 0% Excess ERAF 3,153,308 2,381,601 771,707 32%
Permits 1,683,174 1,798,365 (115,191) -6%
Service charges 1,454,288 961,695 492,593 51%
In lieu of MVLF 1,396,460 839,339 557,121 66%
Franchise taxes 800,915 771,157 29,758 4%
Business license tax 854,351 936,058 (81,707) -9%
Property transfer tax 621,578 623,797 (2,219) 0%
Rental income 203,444 403,139 (199,695) -50%
Sales and use tax 171,454 143,535 27,919 19%
Public safety sales tax 165,212 149,558 15,654 10%
Federal, State and local grants 112,409 109,121 3,288 3% Transfer from Measure A 250,000 250,000 0% -
Investment earnings (loss) (1,684,182) 903,750 (2,587,932) -286% All others 3,128,344 323,622 2,804,722 867%
Total $ 33,873,397 $ 31,287,826 $ 2,585,571 8%
-62-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
15 Financial Analysis of the Governmental Funds (Continued) General Fund Expenditures
General Fund expenditures increased by $1.9 million (6%) as compared to the prior year. Total personnel costs increased $1.1 million (7%) due to filling of open positions, overtime for police training, cost of living and contractual CalPERS pension contribution increases. The contractual contribution to fire operations increased $0.4 million (5%) for the annual contribution paid to Central County Fire Department JPA for fire services. Materials and services increased $0.1 million (1%) for services and legal costs. Transfers increased primarily for capital improvement funding for storm drain program.

Increase Percent
EXPENDITURES 2022 2021 (Decrease) Change
Salaries $ 9,889,934 $ 9,357,993 $ 531,941 6%
Overtime 902,496 814,067 88,429 11%
Temporary 48,502 46,107 2,395 5%
Medicare/FICA 503,439 457,304 46,135 10%
Retirement 3,492,954 3,156,744 336,210 11%
Insurances 1,486,605 1,431,483 55,122 4%
Retirees' health insurance 1,208,991 1,201,199 7,792 1% Workers' compensation 121,732 91,400 30,332 33%
All others 130,179 103,025 27,154 26%
Total personnel costs 17,784,832 16,659,322 1,125,510 7% Contribution for fire operations 8,334,250 7,928,280 405,970 5% Materials and services 6,414,694 6,369,154 45,540 1%
Reimbursement for other programs (4,649,368) (4,422,006) (227,362) 5% Transfers (including internal service) 4,145,295 3,610,900 534,395 15% Total $ 32,029,703 $ 30,145,650 $ 1,884,053 6%
-63-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
16 Financial Analysis of the Governmental Funds (Continued) General Fund Budgetary Highlights
The table below summarizes FY 2021-22 budget variances:

Original Revised
Budget Budget Actual Variance %

REVENUES
Service charges $ 1,163,524 $ 1,163,524 $ 1,454,288 $ 290,764 25% Franchise taxes 790,723 790,723 800,915 10,192 1%
Business license 600,000 600,000 854,351 254,351 42%
Property taxes 19,186,686 19,186,686 19,324,411 137,725 1% Permits 1,572,900 1,572,900 1,683,174 110,274 7%
Intergovernmental 906,830 906,830 4,291,407 3,384,577 373% Investment earnings (loss) 750,000 750,000 (1,684,182) (2,434,182) -325% Excess ERAF 2,200,000 2,200,000 3,153,308 953,308 43%
All others 3,571,193 3,571,193 3,995,725 424,532 12%
Total 30,741,856 30,741,856 33,873,397 3,131,541 10%

EXPENDITURES
Police 11,384,158 11,384,158 11,340,749 43,409 0%
Fire 8,569,245 8,569,245 8,569,250 0% (5)
Community services 4,279,224 4,279,224 3,902,093 377,131 9% Streets 2,731,117 2,731,117 2,569,618 161,499 6%
All others 4,498,691 5,499,986 5,647,993 (148,007) -3%
Total 31,462,435 32,463,730 32,029,703 434,027 1%
NET CHANGE $ (720,579) $ (1,721,874) $ 1,843,694 $ 3,565,568 207% Revenues exceeded budget by $3.1 million (10%), primarily due to receipt of the one-time American Rescue Plan revenue of $2.7 million and Excess ERAF and In-Lieu Motor Vehicle License Fees due to timing. Investment earnings (loss) shows unrealized losses greater than investment earnings. The Town typically holds investments to maturity, thereby reversing unrealized gains and losses. Expenditures were lower than budget by $0.4 million (1%) primarily due timing of projects, offset somewhat by litigation and legal costs.

Financial Analysis of Proprietary Funds
Proprietary Funds. The Town’s proprietary funds provide the same type of information found in the governmentwide financial statements for business-type activities, but with more details.

The Water Fund net position increased $1.5 million (4.5%) in FY 2021-22. On June 30, 2022, the net position was $34.4 million, with $22.0 million invested in net capital assets, $0.4 million restricted for debt service, and $12.0 million unrestricted. Net investment in capital assets increased $2.6 million and unrestricted net position decreased $1.0 million, resulting from lower revenue due to less water use during drought conditions and the timing of capital improvements.
-64-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
17 Financial Analysis of the Proprietary Funds (Continued) The Sewer Fund net position increased $6.6 million (19.1%) in FY 2021-22. On June 30, 2022, the net position was $41.0 million, with $18.6 million invested in net capital assets, $0.8 million restricted for debt service, and $21.5 million unrestricted. Net investment in capital assets increased $1.4 million and unrestricted net position increased $3.7 million resulting from increased revenue from rate increase and a higher General Fund transfer to fund storm drain capital, as well as timing of capital improvement spending.

Water and sewer operating revenues decreased $1.7 million (10.4%) primarily due to a sewer rate increase effective July 1, 2021, offset by a decrease in water revenue from decreased water units sold from drought conditions. The sewer and water enterprise debt service coverage ratio were 3.9:1 and complies with the required ratio of 1.2:1.

Capital Asset and Debt Administration
Capital Assets. The Town’s investment in capital assets for its governmental and business-type activities as of June 30, 2022, amounted to $107.4 million (net of accumulated depreciation). This investment in capital assets includes land, buildings and system, improvements, machinery and equipment, and streets. The intangible asset under construction added in FY 2021-22 totaling $26.6 million is the Town’s capacity rights to the City of San Mateo’s Clean Water wastewater treatment plant. The City of San Mateo provides sewer treatment to the Town, and the asset reflects the Town’s share on a percentage completion basis on the project.

Additional information on the Town’s capital assets can be found in Note 4 to the financial statements. -65-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
18 Capital Asset and Debt Administration (Continued)
2022 2021 2022 2021 2022 2021
Intangible Asset Under Construction $ - $ - 26,588,799$ $ - 26,588,799 $ $ - Land 1,456,560 1,456,560 - 1,456,560 - 1,456,560
Land improvements 759,725 899,326 - - 759,725 899,326
Buildings 2,229,435 2,124,004 - - 2,229,435 2,124,004
Machinery and equipment 1,578,592 1,129,876 5,726 41,573 1,584,318 1,171,449 Infrastructure 3,482,043 3,817,078 - - 3,482,043 3,817,078 Water and sewer lines - - 71,319,293 71,642,840 71,319,293 71,642,840 Total 9,506,355$ 9,426,844$ 97,913,818$ 71,684,413$ $ 107,420,173 81,111,257$

CAPITAL ASSETS
(Net of depreciation)
Governmental Activities Business-type Activities Total
Long-term Debt. On June 30, 2022, the Town had total long-term debt outstanding of $52.4 million, excluding compensated absences pension and OPEB liabilities. The increase over the prior year is for the Town’s obligation for funding its share of City of San Mateo’s new Clean Water wastewater treatment plant. 2022 2021
Certificates of participation $ 21,605,000 $ 23,130,000 Loan Payable - California Energy Program 319,350 381,333 Loan Payable - State Revolving Fund Loan 8,839,898 9,125,689 Funding Agreement with City of San Mateo 21,605,000 -
Total $ 52,369,248 $ 32,637,022

LONG TERM DEBT
Business-type Activities
Total principal paid during the year was $1.9 million. The Town maintains ratings of AAA from Standard and Poor’s and AA+ from Fitch on its certificates of participation.

Additional information on the Town’s long-term debt can be found in Notes 7 and 8 on page 51 to 56 of this report. -66-

TOWN OF HILLSBOROUGH
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
19 Current Factors and Conditions Affecting Future Financial Position The Town’s General Fund financial condition was better than budget for FY 2021-22. This is attributable to the continued strength of the Hillsborough and Bay Area real estate market, as well as receipt of the one-time American Rescue Plan revenue. The Town will continue to monitor and respond to any changing economic conditions.

The Town’s annual required pension contributions are estimated to nearly double over the next ten to fifteen years due to changes in actuarial assumptions and policies implemented by the California Public Employees Retirement System (CalPERS). To address the increasing costs, the City Council funded a Section 115 pension trust to mitigate the future budget impact of rising pension contributions to CalPERS. For many years the Town has taken steps to mitigate pension costs such as adding a new tier pension formula for miscellaneous plan employees, paying off the pension side fund ($10 million), and partnering with employees to pay a portion of the employer costs. Detailed information on the pension liability can be found in the Notes to the Basic Financial Statements under Note 14 on page 67 to 73.

Storm drain capital improvements are currently being funded from the General fund for $1.2 to $2.2 million per year. The only current dedicated source of funding is the annual storm drain assessment of $7.34 per parcel (annual revenues of approximately $30,000). The Storm Drain master plan outlines $55 million in capital improvements over the next 30 years. Should the General Fund resources diminish with excess revenues no longer be available, a dedicated source of funding may be required to ensure continuity of the storm drain program.

City Council continues to monitor conditions to ensure that water and sewer rates are sufficient to cover the cost of the water and sewer enterprise.

The Town entered into the agreement with the City of San Mateo to pay the Town’s share of capacity costs for the San Mateo Clean Water wastewater treatment plant. The agreement is a 30-year commitment totaling $47.6 million (excluding interest).

Requests for Information
This financial report is designed to provide a general overview of the Town’s finances for all those with an interest in the Town’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Director, Town of Hillsborough, 1600 Floribunda Avenue, Hillsborough, CA 94010.
-67-
20 BASIC FINANCIAL STATEMENTS
-68-
21 GOVERNMENT-WIDE FINANCIAL STATEMENTS
-69-

TOWN OF HILLSBOROUGH

STATEMENT OF NET POSITION
JUNE 30, 2022
The notes to the financial statements are an integral part of this statement. 22 Governmental Business-Type
Activities Activities Total
ASSETS:

Cash and investments $ 46,561,698 $ 39,344,264 $ 85,905,962 Restricted cash and investments 4,384,217 599,942 4,984,159 Receivables, net of an estimated allowance 1,713,010 2,805,370 4,518,380 Interest receivable 132,146 132,146 -
Taxes receivable 416,631 416,631 -
Internal balances (1,651,381) 1,651,381 -
Due from outside agencies - 124 124
Prepaid items 8,914 - 8,914
Supplies - 138,892 138,892
Leases receivable 1,031,285 1,031,285 -
Capital assets, net of accumulated depreciation
Land 1,456,560 1,456,560 -
Intangible asset under construction - 26,588,799 26,588,799 Land improvements 759,725 759,725 -
Buildings 2,229,435 2,229,435 -
Machinery and equipment 1,578,592 5,726 1,584,318
Infrastructure 3,482,043 3,482,043 -
Water and sewer lines - 71,319,293 71,319,293
Total assets 62,102,875 142,453,791 204,556,666
DEFERRED OUTFLOWS OF RESOURCES:

Hedging derivatives instruments - 1,601,680 1,601,680
Deferred outflows related to other postemployment benefits 1,272,965 157,432 1,430,397 Deferred outflows related to pensions 6,399,630 956,266 7,355,896 Total deferred outflows of resources 7,672,595 2,715,378 10,387,973 LIABILITIES:

Accounts payable and other current liabilities 982,622 2,314,854 3,297,476 Accrued payroll liabilities 419,465 419,465 -
Unearned revenues 205,481 205,481 -
Deposits 6,008,540 979,647 6,988,187
Uninsured claims - 27,150 27,150
Accrued interest payable - 145,509 145,509
Noncurrent liabilities:

Due within one year:

Compensated absences - due next year 335,750 66,666 402,416 Funding Agreement - wastewataer treatment - 3,371,001 3,371,001 Certificates of participation - due next year - 1,640,000 1,640,000 Due in more than one year:

Compensated absences 1,233,832 75,953 1,309,785
Derivative instrument - interest swap liability - 1,601,680 1,601,680 Funding Agreement - wastewataer treatment - 32,377,046 32,377,046 Certificates of participation - 19,965,000 19,965,000
Net OPEB liability 7,481,126 925,638 8,406,764
Net pension liability 16,122,014 2,409,037 18,531,051
Total liabilities $ 32,788,830 $ 65,899,181 $ 98,688,011 -70-

TOWN OF HILLSBOROUGH
STATEMENT OF NET POSITION (Continued)
JUNE 30, 2022
The notes to the financial statements are an integral part of this statement. 23 Governmental Business-Type
Activities Activities Total
DEFERRED INFLOWS OF RESOURCES:

Deferred inflows related to leases 1,014,104 1, - 014,104 Deferred inflows related to other postemployment benefits 3,023,759 373,735 3,397,494 Deferred inflows related to pensions 12,914,159 1,929,702 14,843,861 Total deferred inflows of resources 16,952,022 2,303,437 19,255,459 NET POSITION:

Net investment in capital assets 9,506,355 40,560,771 50,067,126 Restricted for:

Street projects 147,008 147, - 008
Police projects 1,051,223 1, - 051,223
Debt service - 1,181,801 1,181,801
Unrestricted 9,330,032 35,223,979 44,554,011
Total net position $ 20,034,618 $ 76,966,551 $ 97,001,169 -71-

TOWN OF HILLSBOROUGH

STATEMENT OF ACTIVITIES
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
The notes to the financial statements are an integral part of this statement. 24 Operating Business
Charges for Grants and Governmental -Type
Functions/Programs Expenses Services Contributions Activities Activities Total Governmental activities:

General government 1,990,984$ $ 550,957 $ (1,440,027) - $ $ (1,440,027) - $ Public safety 20,223,279 374,505 2,885,297 (16,963,477) (16,963,477) - Community services 3,934,667 2,183,888 (1,750,779) - (1,750,779) - Streets 6,290,672 944,024 2,148,728 (3,197,920) (3,197,920) - Total governmental
activities 32,439,602 4,053,374 5,034,025 (23,352,203) (23,352,203) - Business-type activities:

Water 13,066,074 14,693,899 - 1,627,825 - 1,627,825
Sewer 10,649,566 14,523,403 - 3,873,837 - 3,873,837
Total business-type
activities 23,715,640 29,217,302 - 5,501,662 - 5,501,662 Total 56,155,242$ $ 33,270,676 $ 5,034,025 (23,352,203) 5,501,662 (17,850,541) General Revenues:

Property tax 19,324,411 19,324,411 -
Public safety tax 2,247,128 2,247,128 -
Property transfer tax 621,578 621,578 -
Franchise tax 800,915 800,915 -
Sales tax 171,454 171,454 -
Motor vehicle license tax 1,396,460 1,396,460 -
Business license tax 854,351 854,351 -
ERAF refund 3,153,308 3,153,308 -
HOPTR 58,508 58,508 -
All others 592,396 592,396 -
Investment earnings (loss) (1,674,854) (98,548) (1,773,402) Transfers (2,801,295) 2,801,295 -
Total general revenues and transfers 24,744,360 2,702,747 27,447,107 Change in net position 1,392,157 8,204,409 9,596,566
Net position - beginning, as restated 18,642,461 68,762,142 87,404,603 Net position - ending $ 20,034,618 $ 76,966,551 $ 97,001,169 Net (Expense) Revenues and
Program Revenues Changes in Net Position
-72-

TOWN OF HILLSBOROUGH

BALANCE SHEET

GOVERNMENTAL FUNDS
JUNE 30, 2022
The notes to the financial statements are an integral part of this statement. 25 Police and Fire Capital Total Total
General Special Tax Projects Nonmajor Governmental
Fund Fund Fund Funds Funds
ASSETS:

Cash and investments $ 32,460,458 $ 3,872,307$ - 1,081,425$ $ 37,414,190 Restricted cash and investments 4,384,217 - - 4,384,217 - Receivables 1,519,416 46,587 - 147,007 1,713,010
Interest receivable 132,146 - - 132,146 -
Taxes receivable 416,631 - - 416,631 -
Prepaid items 8,914 - - - 8,914
Leases Receivable 1,031,285 - - 1,031,285 -
Total assets $ 39,953,067 $ 3,918,894$ - 1,228,432$ $ 45,100,393 LIABILITIES:

Accounts payable and other current liabilities $ 484,065 $ 79,392 - $ $ 30,201 $ 593,658 Accrued payroll 419,465 - - 419,465 -
Unearned revenues 205,481 - - 205,481 -
Deposits payable 6,008,540 - - 6,008,540 -
Total liabilities 7,117,551 79,392 - 30,201 7,227,144
DEFERRED INFLOWS OF RESOURCES:

Lease related 1,014,104 - - 1,014,104 -
FUND BALANCES:

Nonspendable 26,095 - - 26,095 -
Restricted:

Streets projects - - - 147,008 147,008
Police projects - - - 1,051,223 1,051,223
Retiree benefits 4,384,217 - - 4,384,217 -
Assigned 8,587,000 3,839,502 - 12,426,502 -
Unassigned 18,824,100 - - 18,824,100 -
Total fund balances 31,821,412 3,839,502 - 1,198,231 36,859,145 Total liabilities, deferred inflows of resources,
and fund balances $ 39,953,067 $ - $ 3,918,894 $ 1,228,432 $ 44,086,289 Reconciliation of the balance sheet of governmental funds to the statement of net position:

Amounts reported for governmental activities in the statement of net position are different because:
$ 8,008,800
8,604,718
(22,636,543)
(9,231,920)
(1,569,582)
Net position of governmental activities $ 20,034,618
The internal service fund is used by the Town to charge the costs of fleet and other equipment management and the management information systems to individual funds. The assets and liabilities of the internal service fund are included in the governmental activities in the statement of net position.

Pension liabilities and related deferrals are not due and payable in the current period and therefore are not reported on the governmental funds.

Other postemployment liabilities and related deferrals are not due and payable in the current period and therefore are not reported on the governmental funds.

Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds.

Compensated absences are not due and payable in the current period and therefore are not reported in the governmental funds.
-73-

TOWN OF HILLSBOROUGH

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
The notes to the financial statements are an integral part of this statement. 26 Police and Fire Capital Total Total
General Special Tax Projects Nonmajor Governmental
Fund Fund Fund Funds Funds
REVENUES:

Property taxes $ 19,324,411 $ - $ - $ 19,324,411 - $
Public safety special taxes 2,247,128 - - 2,247,128 -
Franchise taxes 800,915 - - 800,915 -
Business license taxes 854,351 - - 854,351 -
All others taxes 4,111,552 - - 4,111,552 -
Permits 1,683,174 77,267 - 1,760,441 -
Intergovernmental 4,291,407 388,051 1,732,286 - 6,411,744 Service charges 1,454,288 - - 1,454,288 -
Other fees and charges - 666,826 - 666,826 -
Fines and forfeitures 21,534 - - 21,534 -
Investment earnings (loss) (1,684,182) - 758 (1,683,070) 354 Miscellaneous 527,716 91,128 - 618,844 -
Total revenues 31,385,166 2,247,128 1,224,030 1,732,640 36,588,964 EXPENDITURES:

Current:

General government 1,825,699 - - 1,825,699 -
Public safety 19,909,998 8,897 - 19,918,895 -
Community services 3,902,093 - - 3,902,093 -
Streets 2,569,618 3,436,221 - 59,938 6,065,777
Capital outlay - 308,489 - 2,540 311,029
Total expenditures 28,207,408 8, 3,744,710 897 62,478 32,023,493 Excess (deficiency) of
revenues over expenditures 3,177,758 2,238,231 (2,520,680) 1,670,162 4,565,471

OTHER FINANCING
SOURCES (USES):

Transfers in 2,488,231 3, - 263,893 5,752,124 -
Transfers out (3,822,295) (2,238,231) (2,492,893) - (8,553,419) Total Other Financing
Sources (Uses) (1,334,064) (2,238,231) 3,263,893 (2,492,893) (2,801,295) Net change in fund balances 1,843,694 743,213 - (822,731) 1,764,176 Fund balances - beginning, as restated 29,977,718 3,096,289 2,020,962 - 35,094,969 Fund balances - ending $ 31,821,412 $ 3,839,502 - $ 1,198,231$ $ 36,859,145 -74-

TOWN OF HILLSBOROUGH

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO

THE STATEMENT OF ACTIVITIES
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
The notes to the financial statements are an integral part of this statement. 27 Amounts reported for governmental activities in the statement of activities are different because:

Net change in fund balances - total governmental funds $ 1,764,176 Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over the estimated useful lives and reported as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. (406,000)
Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds.

Compensated absences (92,672)
Pension expense (1,011,249)
Other postemployment benefits 1,071,880
The internal service fund is used by the Town to charge the costs of fleet and other equipment management and management information systems to individual funds and to accumulate funds to service the Town's unfunded liabilities. 66,022 Change in net position of governmental activities $ 1,392,157 -75-

TOWN OF HILLSBOROUGH

STATEMENT OF FUND NET POSITION

PROPRIETARY FUNDS
JUNE 30, 2022
The notes to the financial statements are an integral part of this statement. 28 Governmental
Activities
Water Sewer Total Internal Service
Fund Fund Enterprise Funds Fund
ASSETS:

Current assets:

Cash and investments $ 14,123,604 $ 25,220,660 $ 39,344,264 $ 9,147,508 Restricted cash and investments 311,547 288,395 599,942 - Receivables, net 2,805,370 2,805,370 - -
Due from other governments 124 - 124 -
Supplies and other current assets 120,928 17,964 138,892 - Total current assets 17,361,573 25,527,019 42,888,592 9,147,508 Noncurrent assets:

Capital assets:

Intangible asset under construction 26, - 588,799 26,588,799 - Buildings and improvements 292,176 49,161 341,337 -
Machinery and equipment 937,782 148,627 1,086,409 5,868,344 Water and sewer lines 83,257,228 86,884,476 170,141,704 - Less accumulated depreciation (51,435,021) (48,809,410) (100,244,431) (4,370,789) Total noncurrent assets 33,052,165 64,861,653 97,913,818 1,497,555 Total assets 50,413,738 90,388,672 140,802,410 10,645,063 DEFERRED OUTFLOWS OF RESOURCES:

Hedging derivatives instruments 799,355 802,325 1,601,680 - Deferred outflows related to pension 514,912 441,354 956,266 - Deferred outflows related to other
postemployment benefits 84,024 73,408 157,432 -
Total deferred outflows of resources 1,398,291 1,317,087 2,715,378 - LIABILITIES:

Current liabilities:

Accounts payable 1,444,095 870,759 2,314,854 388,964
Deposits 979,647 - 979,647 -
Uninsured claims 12,450 14,700 27,150 -
Accrued interest payable 15,106 130,403 145,509 -
Funding Agreement - wastewataer treatment 62,604 3,308,397 3,371,001 - Certificates of Participation - due next year 746,397 893,603 1,640,000 - Compensated absences - due next year 31,358 35,308 66,666 - Total current liabilities 3,291,657 5,253,170 8,544,827 388,964 Noncurrent liabilities:

Derivative instrument - interest swap liability 799,355 802,325 1,601,680 - Compensated absences 47,020 28,933 75,953 -
Funding Agreement - wastewataer treatment 256,747 32,120,299 32,377,046 - Certificates of participation 10,036,076 9,928,924 19,965,000 - Net other postemployment liability 486,194 439,444 925,638 - Net pension liability 1,297,174 1,111,863 2,409,037 -
Total noncurrent liabilities 12,922,566 44,431,788 57,354,354 - Total liabilities 16,214,223 49,684,958 65,899,181 388,964 Business-Type Activities
-76-

TOWN OF HILLSBOROUGH

STATEMENT OF FUND NET POSITION
PROPRIETARY FUNDS (Continued)
JUNE 30, 2022
The notes to the financial statements are an integral part of this statement. 29 Governmental
Activities
Water Sewer Total Internal Service
Fund Fund Enterprise Funds Fund
DEFERRED INFLOWS OF RESOURCES:

Deferred inflows related to other
postemployment benefits 203,641 170,094 373,735 -
Deferred inflows related to pensions 1,039,070 890,632 1,929,702 - Total deferred outflows of resources 1,242,711 1,060,726 2,303,437 - NET POSITION:

Net investment in capital assets 21,950,341 18,610,430 40,560,771 1,497,555 Restricted for debt service 375,000 806,801 1,181,801 - Unrestricted 12,029,754 21,542,844 33,572,598 8,758,544 Total net position $ 34,355,095 $ 40,960,075 $ 75,315,170 $ 10,256,099 1,651,381
Net position of business-type activities $ 76,966,551
Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds
Business-Type Activities
-77-

TOWN OF HILLSBOROUGH

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION

PROPRIETARY FUNDS
FPR THE FISCAL YEAR ENDED JUNE 30, 2022
The notes to the financial statements are an integral part of this statement. 30 Governmental
Activities
Water Sewer Total Internal Service
Fund Fund Enterprise Funds Fund
OPERATING REVENUES:

Sale of water $ 9,837,928 $ 9,837,928 - $ $ -
Water meter charges 4,799,855 4,799,855 - -
Sewer service charges 14,549,841 - 14,549,841 -
Other services - - - 593,874
Miscellaneous revenue 56,116 (26,438) 29,678 -
Total operating revenues 14,693,899 14,523,403 29,217,302 593,874 OPERATING EXPENSES:

Water purchases, utilities and pumping 6,024,808 6,024,808 - - Sewage treatment services and utilities 2,130,761 - 2,130,761 - Personnel, overhead and facilities 3,705,052 3,363,007 7,068,059 - Materials, supplies and other 1,592,047 750,001 2,342,048 96,774 Depreciation and amortization 1,406,814 3,848,492 5,255,306 274,812 Total operating expenses 12,728,721 10,092,261 22,820,982 371,586 Operating income 1,965,178 4,431,142 6,396,320 222,288

NONOPERATING
REVENUES (EXPENSES):

Investment earnings (loss) (54,577) (43,971) (98,548) 8,216 Interest expense (446,408) (612,732) (1,059,140) -
Total nonoperating revenue (expenses) (500,985) (656,703) (1,157,688) 8,216 Income before contributions
and transfers 1,464,193 3,774,439 5,238,632 230,504
Transfers in 2,801,295 - 2,801,295 -
Change in net position 1,464,193 6,575,734 8,039,927 230,504 Net position - beginning 32,890,902 34,384,341 67,275,243 10,025,595 Net position - ending $ 34,355,095 $ 40,960,075 $ 75,315,170 $ 10,256,099 164,482
Change in net position of business-type activities $ 8,204,409 Business-Type Activities
Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds
-78-

TOWN OF HILLSBOROUGH

STATEMENT OF CASH FLOWS

PROPRIETARY FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
The notes to the financial statements are an integral part of this statement. 31 Governmental
Activities
Water Sewer Total Internal Service
Fund Fund Enterprise Funds Fund

CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users $ 15,159,101 $ 14,523,403 $ 29,682,504 $ - Receipts from interfund services provided - - 758,882 - Payment to suppliers (7,742,892) (4,093,776) (11,836,668) - Payment to employees (3,685,508) (3,342,990) (7,028,498) - Net cash provided by operating activities 3,730,701 7,086,637 10,817,338 758,882

CASH FLOWS FROM NONCAPITAL

FINANCING ACTIVITIES
Operating grants received 2,403 - 2,403 -
Transfers from other funds 2,801,295 - 2,801,295 -
Net cash provided (used) by
noncapital financing activities 2,801,295 2,403 2,803,698 -

FINANCING ACTIVITIES
Acquisition and construction of capital assets (1,023,758) (3,872,154) (4,895,912) (760,323) Loan principal paid (61,982) (285,792) (347,774) -
Principal paid on debt (689,405) (835,595) (1,525,000) - Interest paid on debt (448,542) (619,152) (1,067,694) - Net cash used in capital and related
financing activities (2,223,687) (5,612,693) (7,836,380) (760,323)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment loss (54,577) (43,971) (98,548) 8,216
Net increase in cash and cash equivalents 1,454,840 4,231,268 5,686,108 6,775 Cash and cash equivalents - beginning 12,980,311 21,277,787 34,258,098 9,140,733 Cash and cash equivalents - ending $ 14,435,151 $ 25,509,055 $ 39,944,206 $ 9,147,508 Reconciliation of operating income to net cash
provided by operating activities:

Operating income $ 1,965,178 $ 4,431,142 $ 6,396,320 $ 222,288 Adjustments to reconcile operating income to net
cash provided (used) by operating activities:

Depreciation and amortization expense 1,406,814 3,848,492 5,255,306 274,812 Increase (decrease) in pension
and OPEB related amounts 9,103 9,525 18,628 -
Effect of Changes in:
(Increase) decrease in accounts receivable 426,202 426,202 - - (Increase) decrease in inventories and prepaids 10,662 384 11,046 - Increase (decrease) in deposits 39,000 - 39,000 -
Increase (decrease) in accounts payable (136,699) (1,213,398) (1,350,097) 261,782 Increase (decrease) in compensated absences 10,441 10,492 20,933 - Total adjustments 1,765,523 2,655,495 4,421,018 536,594 Net cash provided (used) by operating activities $ 3,730,701 $ 7,086,637 $ 10,817,338 $ 758,882 Business-Type Activities
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32 NOTES TO THE FINANCIAL STATEMENTS
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33 The page is intentionally left blank.
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TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
34 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Town’s accounting policies:

A. Reporting Entity
The Town of Hillsborough (the Town) is a municipal corporation governed by a five-member council. The accompanying financial statements present the Town and its component units, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government’s operations.

Blended Component Unit - The operations of the Hillsborough Public Improvement Corporation (HPIC) was established to assist in the financing of the acquisition of public improvements on behalf of the Town. HPIC is combined with that of the Town’s Water and Sewer funds in these financial statements. The City Council sits as its Board of Directors and has full accountability for its operations. The Corporation does not issue a separate financial report.

B. Government-wide and Fund Financial Statements
The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the activities of the Town and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support.

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

Separate financial statements are provided for the governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

The Town does not have any fiduciary funds or fiduciary-type component units.

C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. -82-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
35 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Town considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the Town.

The Town reports the following major governmental funds:

The General Fund is the Town’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.

The Police and Fire Special Tax Fund is used to account for revenues apportioned under a Town voter-approved special tax which proceeds are restricted for public safety operations and capital expenditures.

The Capital Projects Fund is used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds.

The Town reports the following major proprietary funds:

The Water Fund accounts for the activities associated with the distribution and transmission of potable water to the Town’s residents.

The Sewer Fund accounts for activities associated with the treatment and transmission of sewage.

Additionally, the Town reports an Internal Service Fund that accounts for fleet management and the replacement of other equipment provided to other departments on a cost reimbursement basis.

The Town does not have any fiduciary fund and fiduciary-type component unit; hence, no such statements are included in this financial report.

Generally, the effect of interfund activity has been eliminated from the government-wide financial statements.

Exceptions to this general rule are charges between the government’s water and sewer and various other functions of the Town. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.
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TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
36 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the water and sewer funds’ principal ongoing operations. The principal operating revenues of the water and sewer funds, and of the Town’s internal service fund, are charges to customers for sales and services. The Town also recognizes as operating revenues the portion of connection fees intended to recover the cost of connecting new customers to the system. Operating expenses for the enterprise and the internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

When both restricted and unrestricted resources are available for use, it is the Town’s policy to use restricted resources first, then unrestricted resources as they are needed.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

D. Assets, Deferred Outflows, Liabilities, Deferred Inflows, and Net Position

1. Deposits and Investments
The Town’s cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition.

The Town’s investment policy and the California Government Code allow the Town to invest in the US Government, time certificates of deposits placed with commercial banks, negotiable certificates of deposit, banker’s acceptances, commercial paper, money market funds, repurchase agreements, the County of San Mateo Pooled Fund, and the California Local Agency Investment Fund (LAIF) pool. The California Government Code Section 16429 under the oversight of the State Treasurer regulates LAIF. The Town reports its investment in LAIF at the fair value amount LAIF provided. The Town’s position in the pool is approximately the same as the value of the pool shares. LAIF is not registered with the SEC and is unrated. Cash and investments with the Trustee, if any, are invested pursuant to governing bond covenants or trust endowments.

2. Receivables and Payables
Activity between funds that are representative of lending/borrowing arrangements, outstanding at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances”.

Receivables are shown net of an allowance for uncollectible where applicable. Unbilled services revenues in the Enterprise Funds are accrued at year-end.
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TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
37 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3. Leases Receivable
The Town is a lessor for noncancellable leases of Town property for wireless communications facilities. The Town recognizes a lease receivable and a deferred inflow of resources in the government‐wide and governmental fund financial statements. At the commencement of a lease, the Town initially measures the lease receivable at the present value of payments expected to be received during the lease term. Subsequently, the lease receivable is reduced by the principal portion of lease payments received. The deferred inflow of resources is initially measured as the initial amount of the lease receivable, adjusted for lease payments received at or before the lease commencement date.

Subsequently, the deferred inflow of resources is recognized as revenue over the life of the lease term. Key estimates and judgments include how the Town determines (1) the discount rate it uses to discount the expected lease receipts to present value, (2) lease term, and (3) lease receipts. Lease receipts included in the measurement of the lease receivable is composed of fixed payments from the lessee. The Town monitors changes in circumstances that would require a remeasurement of its lease and will remeasure the lease receivable and deferred inflows of resources if certain changes occur that are expected to significantly affect the amount of the lease receivable.

4. Property Taxes
Property taxes become an enforceable lien on property as of January 1, levied on July 1; secured taxes are payable in two installments on November 1 and February 1 and delinquent on December 10 and April 10. Unsecured taxes are due on July 1 and delinquent on August 31. The County bills and collects the property taxes and remits them to the City.
“Unsecured” refers to taxes on personal property other than land and buildings.

The County is permitted by State Law (Proposition 13) to levy taxes at 1% of the full market value of the property (at time of purchase) and can increase the assessed property valuation by no more than 2% per year. This tax levy is distributed to the different governmental agencies under the State-mandated alternate method of apportioning taxes (commonly referred to as the “Teeter Plan”). All local agencies with historical tax delinquency rates less than 3%, receive from the County 100% of their respective shares of the amount of ad valorem taxes levied, without regard to the actual collection of taxes levied. The County handles all delinquencies, retaining interest and penalties.

5. Inventories and Prepaid Items
All inventories are valued at cost using the first-in/first-out (FIFO) method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased.

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. Prepaid items in governmental funds are recorded as expenditures when consumed. -85-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
38 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

6. Restricted Assets
Certain bond and loan proceeds of the Town’s Enterprise Fund are classified as restricted assets on the statement of net position because their use is limited by the applicable bond covenant. In addition, the Section 115 pension trust assets are classified as restricted assets on the statement of net position because their use is limited by the pension trust.

7. Capital Assets
Capital assets, which include property, plant, equipment, infrastructure (e.g., roads, sidewalks, and similar items), and water and sewer systems, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. The government defines capital assets as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years.

Major outlays for capital assets and improvements are capitalized as projects are constructed. Initial capitalization of general infrastructure assets (i.e., those reported by governmental activities) is included regardless of their acquisition date or amount. The Town estimated the historical cost for the initial reporting of these assets through back trending (i.e., estimating the current replacement cost of the infrastructure to be capitalized and using a pricelevel index to deflate the cost to the acquisition or estimated acquisition year). As the Town constructs or acquires additional capital assets each period, including infrastructure assets, they are capitalized and reported at historical cost. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. The Town values donations of capital assets at the acquisition value of the item at the date of its donation.

Property, plant, and equipment are depreciated using the straight-line method over the following estimated useful lives:

Assets Years
Buildings 40 years
Land improvements 30 years
Machinery and equipment 3 - 15 years
Infrastructure 30 - 50 years
Water and Sewer Lines (Transmission and distribution systems) 40 years Sewer Treatment Plant Capacity Rights 30 years
Intangible Assets – Sewer Capacity Right
The Town entered into the Interim Agreement for Payment of Capital Costs of Clean Water Program Projects with the City of San Mateo. Costs are capitalized in the Sewer Fund and once placed in service, these costs are amortized using the straight-line method of amortization.
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TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
39 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

8. Compensated Absences
It is the Town’s policy to permit employees to accumulate earned but unused vacation up to a certain amount. Sick leave credit vests in varying amounts depending on bargaining units and groups. Both are accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, because of employee resignations and retirements.

Compensated absences due within one year represent an estimate of the compensated absences that will be utilized within the next year. All compensated absences for governmental activities are paid out of the General Fund.

9. Long-Term Obligations
In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, businesstype activities, or proprietary fund type statement of net position.

10. Deferred Outflows/Inflows of Resources
In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net assets that applies to a future period and will not be recognized as an outflow of resources (expense) until then.

The Town reports deferred outflows related to leases, pensions, other postemployment benefits and for its hedging derivative instruments.

In addition to liabilities, the statement of net position and the governmental funds will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net assets that applies to a future period and will not be recognized as an inflow of resource (revenue) until that time. The Town reports deferred inflows related to pensions and other postemployment benefits.

11. Pensions
For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Town’s Public Employees Retirement System (CalPERS) plans and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.
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TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
40 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

12. Other Postemployment Benefits (OPEB)
For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the Town’s plan (OPEB Plan) and additions to/deductions from the OPEB Plan’s fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

13. New Accounting Pronouncements
The Town has/will be adopting new accounting and reporting standards in order to conform to the following Governmental Accounting Standards Board (GASB) Statements:

Effect of New Governmental Accounting Standards Board (GASB) Pronouncements GASB Statement No. 87 – As of July 1, 2021, the Town adopted GASB Statement No. 87, Leases. The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. The Town implemented the requirements of this statement as described in note 15.

GASB Statement No. 89 – In June 2018, GASB issued Statement No. 89, Accounting for Interest Cost Incurred Before the End of a Construction Period. The objective of this Statement is to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and (b) to simplify accounting for certain interest costs. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in the financial statements.

The requirements of this Statement are effective for reporting periods beginning after December 15, 2020 or FY 2021/2022. This Statement did not impact the Town’s the financial statements. -88-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
41 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) GASB Statement No. 92 – In January 2020, GASB issued Statement No. 92, Omnibus 2020. The objective of this Statement is to establish accounting and financial reporting requirements for specific issues related to leases, intraentity transfers of assets, postemployment benefits, government acquisitions, risk financing and insurance-related activities of public entity risk pools, fair value measurements, and derivative instruments. The requirements of this Statement are effective for reporting periods beginning after June 15, 2021 or FY 2021/2022, except for Statement 87 and Implementation Guide 2019-3, reinsurance recoveries, and terminology used to refer to derivative instruments are effective upon issuance. This Statement did not impact the District’s financial statements.

GASB Statement No. 97 – In June 2020, GASB issued Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans—an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32. The objective of this Statement is to (1) increase consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans. The requirements of this Statement are effective for reporting periods beginning after June 15, 2021 or FY 2021/2022. This Statement did not impact the District’s financial statements.

New and Upcoming GASB Accounting Pronouncements
GASB Statement No. 91 – In May 2019, GASB issued Statement No. 91, Conduit Debt Obligations. The objectives of this Statement is to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with commitments extended by issuers, arrangements associated with conduit debt obligations, and related note disclosures by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures. The requirements of this Statement are effective for reporting periods beginning after December 15, 2021 or FY 2022/2023. The Town is evaluating the impact of this Statement on the financial statement -89-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
42 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) GASB Statement No. 93 – In May 2020, GASB issued Statement No. 93, Replacement of Interbank Offered Rates.

The objectives of this Statement is to address those and other accounting and reporting implications resulting from the replacement of an IBOR by providing exceptions for certain hedging derivative instruments to the hedge accounting termination provisions when an IBOR is replaced and providing clarification to the hedge accounting termination provisions, removing LIBOR as a benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap, identifying a Secured Overnight Financing Rate and the Effective Federal Funds Rate as appropriate benchmark interest rates for the qualitative evaluation of the effectiveness of an interest rate swap and providing an exception to the lease modifications guidance in Statement 87, as amended, for certain lease contracts that are amended solely to replace an IBOR as the rate upon which variable payments depend. The requirements of this Statement are effective for reporting periods beginning after June 15, 2021 or FY 2021/2022, except the removal of LIBOR as a benchmark interest rate which is effective for periods beginning after December 31, 2022 or FY 2022/2023. The Town is evaluating the impact of this Statement on the financial statements.

GASB Statement No. 94 – In March 2020, GASB issued Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. The objectives of this Statement improve financial reporting by addressing issues related to public-private and public-public partnership arrangements (PPPs). The requirements of this Statement are effective for reporting periods beginning after June 15, 2022 or FY 2022/2023. The Town is evaluating the impact of this Statement on the financial statements.

GASB Statement No. 96 – In May 2020, GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements. The objective of this Statement is to provide guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. The requirements of this Statement are effective for reporting periods beginning after June 15, 2022 or FY 2022/2023. The Town is evaluating the impact of this Statement on the financial statements.

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

The requirements related to financial guarantees and the classification and reporting of derivative instruments within the scope of Statement 53 are effective for fiscal years beginning after June 15, 2023 or FY 2023/2024, and all reporting periods thereafter. The Town is evaluating the impact of this Statement on the financial statements. -90-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
43 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) GASB Statement No. 100 – In June 2022, GASB Issued Statement No. 100, Accounting Changes and Error Corrections – an amendment of GASB Statement No. 62. The objective of this Statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. The requirements of this Statement are effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023 or FY 2023/2024 and all reporting periods thereafter. The Town is evaluating the impact of this Statement on the financial statements.

GASB Statement No. 101 – In June 2022, GASB Issued Statement No. 101, Compensated Absences. The objective of this Statement is to better meet the information needs of the financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures. The requirements of this Statement are effective for fiscal years beginning after December 15, 2023, or FY 2024/2025 and all reporting periods thereafter. The Town is evaluating the impact of this Statement on the financial statements. -91-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
44 NOTE 2 – RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (Continued) A. Explanation of certain differences between the governmental fund balance sheet and the government-wide statement of net position.

The governmental fund balance sheet includes reconciliation between fund balance – total governmental funds and net position – governmental activities as reported in the government-wide statement of net position. Long-term liabilities are not due and payable in the current period and are therefore not reported in the governmental funds. In addition, capital assets are not financial resources and are therefore not reported in the governmental funds. This year’s difference in the amount of $8,008,800 relates to capital asset, ($1,569,582) relates to compensated absences, ($22,636,543) relates to pension liabilities and related deferrals, ($9,231,920) relates to OPEB liabilities and related deferrals and $8,604,718 relates to the incorporation of the internal service fund into the governmental activities.

B. Explanation of certain differences between the governmental fund statement of revenues, expenditures and changes in fund balances and the government-wide statement of activities.

The governmental fund statement of revenues, expenditures and changes in fund balances includes reconciliation between net changes in fund balances – total governmental funds and changes in net position of governmental activities as reported in the government-wide statement of activities. One significant element of that reconciliation explains “governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over the estimated useful lives and reported as depreciation expense.” The details of this ($406,000) difference are as follows:

Capital Outlay $ 311,029
Depreciation (717,029)
Net adjustment to decrease net changes in fund balances - total governmental funds to arrive at changes in net position of governmental activities $ (406,000) Another element of that reconciliation states, “some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds.” ($92,672) relates to increases in compensated absences from sick leave vesting on certain employees and ($1,011,249) relates to pension and $1,071,880 relates to an OPEB credit. Another element of the reconciliation includes the incorporation of the net revenue of the internal service fund for $66,022.

NOTE 3 – CASH AND INVESTMENTS
The Town’s deposits and investments are invested pursuant to its investment policy guidelines. The objectives of the policy are, in order of priority, preservation of capital, liquidity and yield. The policy addresses the soundness of financial institutions in which the Town will deposit funds, types of investment instruments as permitted by the California Government Code, and the percentage of the portfolio that may be invested in certain instruments with longer terms to maturity. Total Town cash and investments at fair value on June 30, 2022, are as follows:
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TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
45 NOTE 3 – CASH AND INVESTMENTS (Continued)
Cash and investments, including restricted cash, as of June 30, 2022, consist of the following. Restricted cash of $4,384,217 is included in the investment balance and is a restricted Internal Revenue Service (IRS) Section 115 pension trust. The trust is funded to mitigate rising cost of pensions. The trust was adopted in fiscal year 2018-19.

Cash on hand $ 8,300
Deposits with financial institutions 13,434,465
Total cash and bank deposits 13,442,765
Investments 7,658,125
Participation in LAIF pool 69,789,231
Total investments 77,447,356
Total cash and investments $ 90,890,121
Investments Authorized by the California Government Code and the Town’s Investment Policy The table below identifies the investment types that are allowed by the California Government Code and are authorized by the Town’s more restrictive investment policy. The second part of the table relates to investments of debt proceeds held by bond trustees and governed by the provisions of the Town’s debt agreements. The table addresses interest rate risk, credit risk, and concentration of credit risk. Investments held in trust accounts, such as a Section 115 pension trust, are governed by the trust documents. In fiscal year 2021-22, the mutual fund investment type is held in the Section 115 pension trust.

Maximum Maximum
Maximum Percentage Investment in
Authorized Investment Type Maturity of Portfolio One Issuer Authorized for the Town:

U.S. Treasury Obligations 2 years
2 - 5 years
50%
50% None
Banker's Acceptances 180 days 20% Lower of $1M or 10%
Time Certificate of Deposit 2 years None $500,000
Commercial Paper 180 days 10% $1M up to 3 months
$500,000 up to 6 months
Local Agency Investment Fund (LAIF) N/A None N/A
Repurchase Agreements 30 days 20% 20%
Negotiable Certificates of Deposit 5 years 30% None
County Pooled Investment Funds N/A 10% N/A
Money Market Mutual Funds (Custodial Accounts Only) N/A None None Authorized By Debt Agreements:

U.S. Treasury Obligations None None None
U.S. Agency Securities None None None
Certificates of Deposits/Bankers Acceptances 360 days None None Commercial Paper 270 days None None
Money Market Funds N/A None None
Local Agency Bonds None None None
Investment Contracts None None None
Repurchase Agreements N/A None None
Local Agency Investment Funds (LAIF) N/A None $65M
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TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
46 NOTE 3 – CASH AND INVESTMENTS (Continued)
Interest Rate Risk
Changes in market interest rates will affect the fair value of an investment. Generally, investments with longer maturities are more sensitive to changes in market interest rates. The Town manages its exposure to interest rate risk by purchasing a combination of shorter and longer-term investments and by timing cash flows from maturities, so that investments mature evenly over time as necessary to provide the cash flow and liquidity needed for operations. The Town also manages its interest rate risk by holding most investments to maturity, thus reversing unrealized gains and losses. The mutual funds are investments held in the Section 115 pension trust and are restricted in their use. The following table shows the distribution of the Town’s investments by maturity:
12 Months 13-24 25-60
Investment Type Amount or Less Months Months Total
LAIF $ 69,789,231 $ 69,789,231 $ - $ - 69,789,231 $
Mutual Funds 4,984,157 4,984,157 - - 4,984,157
Negotiable Certificates of Deposit 737,370 501,533 235,838 - 737,370 U.S. Treasury Notes 1,936,598 609,324 383,774 943,500 1,936,598 Totals $ 77,447,356 $ 75,884,245 $ 619,612 $ 943,500 $ 77,447,356 Credit Risk
Credit risk, when an issuer of an investment does not fulfill its obligation to the holder of an investment, is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the actual rating as of year-end for each investment type:

Exempt
From Not
Investment Type Amount Disclosure Rated
LAIF $ 69,789,231 $ - 69,789,231 $
Mutual Funds 4,984,157 - 4,984,157
Negotiable Certificates of Deposit 737,370 - 737,370
U.S. Treasury Notes 1,936,598 1,936,598 -
Totals $ 77,447,356 $ 1,936,598 $ 75,510,758
-94-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
47 NOTE 3 – CASH AND INVESTMENTS (Continued)
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. Custodial credit risk for investments is the risk, that, in the event of the failure of the counterparty (e.g., broker-dealer used by the Town to buy the securities), the 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 Town’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments with the exception of the following provision. A financial institution is required to secure deposits in excess of $250,000 made by state and local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law secured by US government securities at a constant margin ratio of 110% for government securities.

Investment in the State Investment Pool
As of year-end, the Town has $69,789,231 participation in the Local Agency Investment Fund (LAIF) regulated by the California Government Code under the oversight of the Treasurer of the State of California.

Interest and Investment Income
Interest and investment income consists of the following on June 30, 2022:

Interest Earned $ 651,095
Increase (Decrease) in Fair Value (2,424,497)
Total $ (1,773,402)
Fair Value Measurements
The Town categorizes the fair value measurements of its investments based on the hierarchy established by generally accepted accounting principles. The fair value hierarchy has three levels used to measure an asset's fair value. The following provides a summary of the hierarchy used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets that the Town has the ability to access at the measurement date. Level One assets may include debt and equity securities that are traded in an active exchange market and that are highly liquid and are actively traded in over-the-counter markets.

Level 2 - Observable inputs other than Level One prices such as quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, or other inputs that are observable, such as interest rates and curves observable at commonly quoted intervals, implied volatilities, and credit spreads. For financial reporting purposes, if an asset has a specified term, a Level two input is required to be observable for substantially the full term of the asset. The Town uses matrix pricing to value its level II investments. -95-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
48 NOTE 3 – CASH AND INVESTMENTS (Continued)
Level 3 - Unobservable inputs should be developed using the best information available under the circumstances, which might include the Town’s own data. The Town should adjust that data if reasonable available information indicates that other market participants would use different data or certain circumstances specific to the city are not available to other market participants.

Uncategorized - Investments in the Local Agency Investment Funds/State Investment Pool and mutual funds are not measured using the input levels above because the Town’s transactions are based on a stable net asset value per share.

All contributions and redemptions are transacted at $1.00 net asset value per share.

The LAIF and Mutual Funds investment types are classified as Uncategorized for the Fair Value Measurement based on generally accepted accounting principles. LAIF investments on June 30, 2022 were generally comprised of U.S. Treasury bills and notes, Federal agencies, supranational debentures, certificates of deposits, bank notes, commercial paper, time deposits, and AB 55 and GF Loans. Details are posted on the State Treasurer website at https://www.treasurer.ca.gov/pmia-laif/mktvalue/2022/202206.pdf. As stated in Note 3 (page 44), LAIF is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The Mutual Funds are investments in the Section 115 pension trust and are comprised of various mutual funds in the categories of domestic equities, fixed income, international equities, and real estate. As stated in Note 3 (page 44) the Section 115 pension trust is governed by the trust documents.

The Town valued its investment in LAIF as of June 30, 2022 by multiplying its account balance with LAIF of $70,583,040 times a fair value factor of .988753538 computed by LAIF. This fair value factor was determined by dividing all LAIF participants aggregated amortized costs by a total aggregate fair value. Accordingly, as of June 30, 2022, the Town’s investment in LAIF stated at fair value equaled $69,789,231.

Level 1 Level 2
Investment Type Inputs Inputs Uncategorized
LAIF $ - $ - $ 69,789,231
Mutual Funds - - 4,984,157
Negotiable Certificates of Deposit - 737,370 -
U.S. Treasury Notes 1,936,598 - -
Total Investment Portfolio $ 1,936,598 $ 737,370 $ 74,773,388 Fair Value Measurement Using
-96-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
49 NOTE 4 – CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2022 was as follows. The increase in FY 2021-22 of $26.6 million for Treatment Plant Capacity Rights is the Town’s share of cost for the City of San Mateo’s Clean Water wastewater treatment plant. The Town contracts for sewer treatment with the City of San Mateo for sewage from the southern half of the Town.

Beginning Ending
Balance Increases Decreases Balance
Governmental Activities:

Land - not being depreciated $ 1,456,560 $ - $ 1,456,560 - $ Capital assets, being depreciated
Land improvements 3,690,406 - - 3,690,406
Buildings 5,081,343 311,029 - 5,392,372
Machinery and equipment 5,763,626 760,323 (208,008) 6,315,941 Infrastructure 15,256,987 - - 15,256,987
Total capital assets being depreciated 29,792,362 1,071,352 (208,008) 30,655,706 Less accumulated depreciation for:

Land improvements (2,791,080) (139,601) - (2,930,681)
Buildings (2,957,339) (205,598) - (3,162,937)
Machinery and equipment (4,633,750) (311,607) 208,008 (4,737,349) Infrastructure (11,439,909) (335,035) - (11,774,944)
Total accumulated depreciation (21,822,078) (991,841) 208,008 (22,605,911) Total capital assets, being depreciated, net 7,970,284 79,511 - 8,049,795 Governmental activities capital assets, net $ 9,426,844 $ 79,511 $ 9,506,355 - $ Beginning Ending
Balance Increases Decreases Balance
Business-type Activities:

Capital assets, not being depreciated
Treatment plant capacity rights $ 26,588,799 - $ $ 26,588,799 - $ Capital assets, being depreciated
Buildings 341,337 - - 341,337
Machinery and equipment 1,086,409 - - 1,086,409
Systems and transmissions 166,223,123 4,895,911 (977,330) 170,141,704 Total capital assets being depreciated 167,650,869 4,895,911 (977,330) 171,569,450 Less accumulated depreciation for:

Buildings (341,337) - - (341,337)
Machinery and equipment (1,044,836) (35,847) - (1,080,683) Systems and transmissions (94,580,283) (5,219,458) 977,330 (98,822,411) Total accumulated depreciation (95,966,456) (5,255,305) 977,330 (100,244,431) Total capital assets, being depreciated, net 71,684,413 (359,394) - 71,325,019 Business-type activities capital assets, net 71,684,413 26,229,405 - 97,913,818 -97-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
50 NOTE 4 – CAPITAL ASSETS (Continued)
Depreciation expense by functions/program is as follows:

Governmental Activities:

General government $ 178,943
Public safety 121,970
Public works 416,116
Subtotal 717,029
Capital assets held by the Town's internal service funds are charged to the various functions based on their usage of the assets. 274,812 Total depreciation expense - governmental activities $ 991,841 Business-type Activities:

Water $ 1,406,814
Sewer 3,848,492
Total depreciation expense - business-type activities $ 5,255,306 NOTE 5 – LEASES
Leases receivable – The Town has multiple lease contracts for lease of Town property for wireless communications facilities. The leases expire between fiscal years 2023 through 2036. The discount rates range from 0.15% to 0.27%.

As of June 30, 2022 Town’s receivable for lease payments was $1,031,285. Also, the Town has a deferred inflow of resources associated with these leases that will be recognized as revenue over the lease term. As of June 30, 2022 the balance of the deferred inflow of resources was $1,014,104.

NOTE 6 – INTERFUND TRANSACTIONS
The following is a summary of the interfund transactions for the year ended June 30, 2022:

General Capital Projects Sewer
Transfer Out Fund Fund Fund Total
General Fund $ 1,021,000 - $ $ 2,801,295 $ 3,822,295
Police and Fire Special Tax Fund 2,238,231 - 2,238,231 - Nonmajor Governmental Funds 250,000 2,242,893 2,492,893 - Total $ 2,488,231 $ 3,263,893 $ 2,801,295 $ 8,553,419
Transfer In
The transfers into the General Fund included $2,238,231 transfer from the Police and Fire Special Tax Fund to help cover costs of police and fire services and $250,000 from the Measure “A” Fund to cover street related costs incurred in the General Fund. The transfers into the Sewer Fund are to cover storm drain/sewer capital improvements. The transfers into the Capital Projects Fund were primarily for street repaving projects. -98-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
51 NOTE 7 – DERIVATIVE INSTRUMENTS - INTEREST RATE SWAPS On June 30, 2022, the Town had the following cash flow hedging derivative instruments outstanding within business-type activities:

Description
Current
Notional
Amount
Effective
Date
Maturity
Date Terms Options

9.7MM 2000B $4.200 million 8/21/2003 6/1/2030
Pay fixed at 3.75% Receive
100% of 1W SIFMA - semiannual payments
Counterparty right to cancel
if 180 rolling average of
SIFMA exceeds 7.00%
15MM 2003A $7.800 million 8/21/2003 6/1/2033
Pay fixed at 3.77% Receive
100% of 1W SIFMA - semiannual payments
Counterparty right to cancel
if 180 rolling average of
SIFMA exceeds 7.00%
12MM 2006A $7.305 million 4/5/2006 6/1/2035
Pay fixed at 3.507% Receive
68% of 1M LIBOR - monthly
payments
N/A
Objective of Interest Rate Swap. All three swaps were entered into as a means to manage variable interest rate exposure and potentially lower long-term borrowing costs. The notional amounts of the swaps match the principal amounts of the associated debts. There was no cash paid or received when the swaps were initiated. The associated bond issues are discussed further in Note 8.

Fair Value. The following fair values of the swaps as of June 30, 2022 were derived from widely accepted industry standard valuation models. Expected future cash flows are valued using the discounted cash flow methodology, which considers the net present value of the future payments from payments to be made or received under the swap.

The present value of a “fixed leg” is calculated as the sum of the present values, as of the computation date, of the payment amounts (computed at the fixed swap rate) expected to be paid over the scheduled term of the swap. The value of a “floating leg” is calculated as the sum of the present values, as of the valuation date, of the floating leg payment amounts expected to be paid over the scheduled term of the swap. The floating leg coupon rates are based on the forward rates derived from the relevant interest rate swap yield curve data as of the valuation date. The present value discount factors for each future payment date are determined by the LIBOR swap curve data using the zero-coupon method. Option values are determined using quote volatilities and standard pricing models and therefore the swaps are categorized as level 2 for fair value measurement reporting. The table also shows related information evaluating effectiveness of the hedges using the quantitative synthetic instrument method. All three swaps were determined effective hedges. The derivative instruments and changes thereto, are reported on the statement of net position and are reported as deferred outflows and liability. -99-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
52 NOTE 7 – DERIVATIVE INSTRUMENTS (Continued)
Actual Swap Current Change in
Synthetic Fixed Percentage Notional Fair Value
Description Rate Rate Ratio Amount Amount Classification Amount

9.7MM 2000B 3.73374% 3.75% 99.57% $4.200 million $ (261,941) Debt/Deferred outflows $ 456,590 15MM 2003A 3.75319% 3.77% 99.55% $7.800 million (609,942) Debt/Deferred outflows 991,292 12MM 2006A 3.52887% 3.507% 100.62% $7.305 million (729,797) Debt/Deferred outflows 854,287 Total $ (1,601,680) 2,302,169$
Fair Values at 6/30/2022
Valuations are numerically expressed in accordance with the following convention: a positive value indicates that counterparty is out-of-the-money, which means that if the relevant transactions were terminated at the valuations set forth herein, there would be a payment from counterparty to Town. Likewise, a negative value indicates that Town is out-of-the-money, which means if the relevant transactions terminated, there would be a payment from Town to counterparty. All of the interest rate swaps are valued based on level 2 inputs. Level 2 inputs denote indirect observable pricing calculated using observable rates or indices.

Credit Risk. The swap counterparty is rated Aa3 by Moody’s Investors Services, A+ by Standard and Poor’s and AA by Fitch. The Town is rated AAA/A-2 by Standard and Poor’s and AA+/F-1 by Fitch. The Town is not expecting any change from the ratings of the counterparties.

Termination Risk. The Town or the counterparty may terminate the swap if the other party fails to perform under the terms of the contract. The swaps may be terminated by the counterparty if the Town’s credit quality rating falls below Baa2 by Moody’s Investors Service and BBB by Fitch Ratings and by Standard and Poor’s. If a swap were terminated, the variable-rate bond would no longer carry a synthetic fixed interest rate. In addition, if at the time of termination, a swap has a negative fair value, the Town would be liable to the counterparty for a payment equal to the swap’s fair value.

As noted above, counterparty will also have the right to, but not the obligation, to terminate the 2000B and 2003A swaps in whole, but not in part, if 180 rolling average of SIFMA exceeds 7 percent). Under such early termination event, the counterparties shall be liable to pay only the accrued interest for the period from the last payment date to the termination date.

No termination event has occurred.

Rollover Risk. The Town is exposed to rollover risk on swaps that mature or may be terminated prior to the maturity of the associated debt. As of June 30, 2022 the Town did not have any exposure to rollover risk.

Refer to Note 8 for swap payments and associated debt service requirements. -100-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
53 NOTE 8 – LONG-TERM DEBT
Long-term liability activity for the year ended June 30, 2022, was as follows:

Beginning Ending Due within
Balance Additions Reductions Balance One Year
Governmental activities:

Compensated absences $ 1,476,911 $ 952,595 $ 859,924 $ 1,569,582 $ 335,750 Total governmental activity longterm liabilities $ 1,476,911 $ 952,595 $ 859,924 $ 1,569,582 $ 335,750 Business-type activities:

Compensated absences $ 121,686 $ 146,186 $ 125,253 $ 142,619 $ 66,666 Funding Agreement - wastewater treatment 26,588,799 - - 26,588,799 3,018,034 State Clean Water loan - Direct Borrowing 9,125,689 285,791 - 8,839,898 290,363 ECE-ARRA loan - Direct Borrowing 381,333 61,983 - 319,350 62,604 Certificates of participation 23,130,000 1,525,000 - 21,605,000 1,640,000 Total business-type activity longterm liabilities $ 32,758,708 $ 26,734,985 1,998,027$ 57,495,666$ 5,077,667$ California Energy Resources Conservation and Development Commission Loan – Original Principal $908,700.

In 2010, the Town entered into an agreement with the California Energy Resources Conservation and Development Commission (the “Commission”) to receive financial assistance for energy savings projects consisting of premium efficiency pumps and the Supervisory Control and Data Acquisition (SCADA) system software with control sensors for its water system. The loan is due in semi-annual installment payments at an interest of 1 percent starting December 2012 and will be fully amortized on June 2027. The annual payments are to come from annual energy savings. The Town is required to maintain compliance with all provisions of the loan. The remaining debt service requirements for the loan at June 30, 2022 are summarized in the following table:

Year Ending
June 30 Principal Interest Total
2023 $ 62,604 $ 3,038 $ 65,642
2024 63,225 2,416 65,641
2025 63,865 1,776 65,641
2026 64,505 1,136 65,641
2027 65,151 489 65,640
Total $ 319,350 $ 8,855 $ 328,205
Business-Type Activities
-101-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
54 NOTE 8 – LONG-TERM DEBT (Continued)
Certificates of participation (COPs) – The certificates of participation are recorded in the Enterprise Fund and were issued by the Public Improvement Corporation. Two issues on June 1, 2000, comprised of $4,900,000 Series A, proceeds of which were used to advance refund the 1997 COPs that were called on June 1, 2007 and $9,700,000 Series B that were used to refund and retire the 1995 COPs and to finance the acquisition, construction, and installation of certain improvements to the Town’s water and sewer systems. The debt bears variable rates with principal payments payable annually at June 1 from 2001 through 2030. The 2003 Series A $15,000,000 of variable rate certificates of participation (water and sewer system projects) issued in August 2003 financed various water and wastewater projects, consistent with the enterprise’s ten-year capital improvement plan. The debt bears variable rates with principal payments payable annually at June 1 from 2004 through 2033.

On April 2006, the Town issued $12,000,000 of variable rate certificates of participation (water and sewer system projects) 2006 Series A to finance various water and wastewater projects consistent with the enterprise’s ten-year capital improvement plan. The debt bears variable rates with principal payments payable annually at June 1 of each year starting in 2009 through 2035.

The Town’s current ratings for above debt issues are AAA-A2 from Standard and Poor’s and AA+/F-1 from Fitch Ratings. A standby purchase agreement (SPA) provides for the payment of the purchase price of the tendered variable-rate COPs during the daily, weekly, and extended-rate modes in the event remarketing proceeds following such a tender are insufficient. The current term of the SPA expires on December 31, 2022 and the approved sixyear extension expires on December 31, 2028.

Interest accruing on the COPs is determined at the weekly rate and is payable on the first business day of each calendar month. The debt is secured by a pledge of the net revenues of the enterprise funds. There are limitations and covenants contained in the various debt agreements. The Town complies with all restrictive limitations and covenants at June 30, 2022.

As of June 30, 2022, the debt service requirements of the variable-rate debt and net swap payments assuming current interest rates remain the same for their term, are summarized in the following table. As rates vary, variable-rate bond interest payments and net swap payments will vary.

Year Ending Interest Rate Total
June 30 Principal Interest Swaps, Net Interest
2023 $ 1,640,000 $ 155,369 $ 576,966 $ 732,335
2024 1,860,000 142,929 534,122 677,051
2025 1,875,000 128,600 487,747 616,347
2026 1,895,000 114,218 440,908 555,126
2027 2,015,000 99,768 393,450 493,218
2028-2032 9,395,000 262,326 1,168,858 1,431,184
2033-2035 2,925,000 22,357 153,331 175,688
Total $ 21,605,000 $ 925,568 $ 3,755,382 $ 4,680,950
Variable-Rate Bonds
-102-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
55 NOTE 8 – LONG-TERM DEBT (Continued)
State Clean Water Loan
On March 23, 2015, the Town entered into an Installment Sale Agreement with the Clean Water State Revolving Fund for construction financing on its sewer system, referred to as the State Revolving Fund loan (SRF loan). The loan provides for up to $12 million and debt service commenced in September 2017 and is a 30-year loan. The debt bears interest at 1.6% per annum. The debt is secured by a pledge of net revenues of the Sewer Fund. There are limitations and covenants contained in the agreement. The Town complies with all restrictive limitations and covenants at June 30, 2022. The debt service requirements for the loan at June 30, 2022 are summarized in the following table:

Year Ending
June 30 Principal Interest Total
2023 $ 290,363 $ 141,438 $ 431,801
2024 295,009 136,793 431,802
2025 299,729 132,072 431,801
2026 304,525 127,277 431,802
2027 309,397 122,404 431,801
2028-2032 1,622,844 536,163 2,159,007
2033-2037 1,756,893 402,114 2,159,007
2038-2042 1,902,015 256,993 2,159,008
2043-2046 2,059,123 99,884 2,159,007
Total $ 8,839,898 $ 1,955,138 $ 10,795,036
Business-type Activities
The Town’s COP debt and State loan outstanding are secured by the pledging of the certain revenues. The amount and term of the remainder of these commitments are indicated in the summary of bonds outstanding tables above.

Debt service payments as a ratio of the pledged gross revenue, less certain expenses as required by the debt agreement, for the year ended June 30, 2022, are indicated in the following table:

Description of
Pledged Revenue
Annual
Amount of
Net Pledged
Revenue
Annual
Debt
Service
Payments
Pledged
Revenue
Coverage
Water revenue $ 2,871,007 $ 1,197,627 240%
Sewer revenue 7,622,931 1,734,121 440%
Funding Agreement with City of San Mateo
In June 2022, the Town entered into an agreement with the City of San Mateo for the Town’s share of cost of City of San Mateo’s new Clean Water wastewater treatment plant. The Clean Water Program capital improvement projects are necessary for capacity assurance and reliability, and to meet regulatory compliance requirements contained in the Cease-and- Desist Order and NPDES permits. The Town contracts for sewer treatment with the City of San Mateo for sewage flows from the southern half of the Town and the current construction includes wastewater treatment capacity for the southern portion of the Hillsborough sewer collection system. -103-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
56 NOTE 8 – LONG-TERM DEBT (Continued)
In the interim agreement, the City of San Mateo recognizes the work that the Town of Hillsborough is doing to reduce inflow and infiltration and the need for additional capacity at the San Mateo facility. For the first five years of the cost share agreement, the Town will make payments based on the Town’s share of flow data and projections from the initial study. At five years, there will be a “true up” or “look back” based on the actual flow. The true up criteria are outlined in the agreement. The agreement provides an incentive for Hillsborough to reduce infiltration and inflow and thereby reduce capacity requirements and pay a lower share of the capital costs.

The new wastewater treatment plant will significantly increase treatment capacity. The effective treatment capacity of the current plan is 40 million gallons per day (MGD). The new plant is designed to treat wet weather flows up to 78 MGD. Also, a new upstream retention system will create additional effective capacity, along for a total of 86.2 MGD of sewer to be treated daily, more than double the current capacity, which reduces accidental discharges and overflows. For purposes of calculating the Town’s share of payments under the agreement for the first five years, the Town’s the percentage share will be 7.6% of wastewater treatment plant project costs, 8.2% of Dale Avenue Pump Station projects, 8.2% of Underground Flow Equalization System projects and 5.7% of Program Management Office cost. If during the first five years Town’s meter flows for any two-hour period never exceed 4.5 MGD, the Town’s share of project costs is reduced to the true-up amounts.

The agreement requires an initial payment of $2,415,000 by the Town, and $2.4 million annually for the first five years. If the actual flow results in a true-up, a lower payment of $1.3 million will be paid annually for the remaining 25 years.

As of June 30, 2022, the City of San Mateo completed 57.9% of the construction and therefore, the Town’s share of the liability was $26,588,799. The future payments on this obligation to date are as follows:

Year Ending
June 30 Principal Interest Total
2023 $ 3,018,034 $ 457,417 $ 3,475,451
2024 614,634 445,817 1,060,451
2025 626,458 433,993 1,060,451
2026 638,510 421,942 1,060,452
2027 650,793 409,658 1,060,451
2028-2032 3,446,642 1,855,613 5,302,255
2033-2037 3,791,165 1,511,091 5,302,256
2038-2042 4,170,125 1,132,131 5,302,256
2043-2047 4,586,965 715,290 5,302,255
2148-2052 5,045,473 255,523 5,300,996
Total $ 26,588,799 $ 7,638,475 $ 34,227,274
Business-type Activities
-104-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
57 NOTE 9 – RISK MANAGEMENT
The Town is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters for which the Town carries commercial insurance. The Town has established a limited risk management program of these types of risks.

The Town participates in a public-entity risk pool (The Cities Group – a Joint Power Authority) that operates a Workers’ Compensation self-insured program. The pool indemnifies the membership for their Workers’ Compensation losses and recovers those costs from the members through a retrospective, loss experience-based contribution-rating plan. The pool’s self-insured retention is $1 million per occurrence for miscellaneous employees and $1.5 million for safety employees. Claims in excess of these amounts are insured up to $12.2 million. The Town has no deductible for these claims. Financial statements for the pool may be obtained from The Cities Group, P O Box 111, Burlingame, CA 94011.

The Town participates in the Pooled Liability Assurance Network (PLAN) Joint Powers Authority. The PLAN provides $30,000,000 coverage for general and automobile liability in excess of the Town’s $50,000 deductible.

The Town also participates in PLAN pool for the commercial property including boiler and machinery coverage, with $5,000 per incident deductible and certain specified limits. The Town also participates in PLAN Cyber Liability Insurance ($1 million with excess at $2 million).

Liabilities are reported when it is probable that a loss has occurred, and the amount of the loss can be reasonably estimated. The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines, and damage awards. Accordingly, claims are reevaluated periodically to consider these factors, estimated recoveries from salvage or subrogation, and other economic and social factors. The estimate of the claims liability also includes amounts for incremental claim adjustment expenses related to specific claims and other claim adjustment expenses regardless of whether allocated to specific claims. The amount recorded as liability for known claims is based on the recommendation of the thirdparty administrator. No accrued liability for incurred but not reported claims (IBNRs) has been recorded, as amounts for such claims cannot be reasonably estimated. The Town’s remaining exposure for claims filed under this program is minimal.

The Town is self-insured for all other insurable risk, except for excess insurance coverage provided by commercial insurance companies that are limited to the following: Employment Practices Liability in excess of $100,000 each claim but limited to a maximum of $2,000,000.

There is no significant change in insurance coverage from that of the prior year and there were no settlements that exceeded coverage for each of the past three years. Below is a reconciliation of changes in the claims liability for fiscal years ending June 30, 2022 and 2021.
2022 2021
Beginning balance $ 27,150 $ 27,150
Claims incurred and changes in estimates for prior year claims 9,645 24,698 Claims paid (9,645) (24,698)
Ending balance $ 27,150 $ 27,150
-105-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
58 NOTE 10 – JOINT POWERS AGREEMENT
The Town participates in the City/County Association of Governments of San Mateo County (C/CAG), which is governed by a board consisting of a representative from each member. The board controls the operations of C/CAG, including selection of management and approval of operating budget. The association was established under a 1990 Joint Exercise of Powers Agreement between the Town, San Mateo County, and a majority of cities within the County to develop State-mandated plans such as an integrated waste management plan. The Town makes annual nonrefundable contributions to C/CAG used along with other member contributions, to finance C/CAG operations.

The Town’s contribution during the year totaled $33,807. Financial information related to the association may be obtained from the City of San Carlos, 600 Elm Street, San Carlos, CA 94070. The Town’s share of year-end assets, liabilities or fund equity has not been calculated by C/CAG.

The Town is one of eleven members of the South Bayside Waste Management Authority (SBWMA), a joint powers authority formed for the purpose of joint ownership, financial and administration of waste management. The JPA also includes a transfer station and a recycling center as well as the planning, administration management, review, monitoring, enforcement and reporting of solid waste and recyclable material collection within Authority’s service area. The Authority’s financial statements are available from the SBWMA, c/of City of San Carlos, 600 Elm Street, San Carlos, CA 94070.

Effective July 1, 2010, the Town is a member of the Central County Fire Department (CCFD) a Joint Powers Authority (JPA) that provides fire, emergency medical, and disaster preparedness services to the Town and the City of Burlingame, and by contract to the City of Millbrae. CCFD’s audited financial statements are available on the CCFD website. CCFD is a stand-alone employer recognized by the California Public Employees’ Retirement System (CalPERS). The Town paid $7.9 million for fire services for the year ended June 30, 2022 some of which represents pension contributions made by CCFD to CalPERS. AB 1912, which became effective on January 1, 2019, requires participating members of a joint powers authority (“JPA”) that contracts with CalPERS for pension benefits to allocate the pension liabilities of the JPA only in the event that the JPA decides to terminate its pension contract with CalPERS. There is no indication that CCFD will terminate its CalPERS contract. As such, under current generally accounting standards, the pension liability is not reported on the member agency financial statements and instead only the contributions are reported when they are made.

NOTE 11 – FUND BALANCES
Governmental funds report fund balance in classifications based primarily on the extent to which the Town is bound to honor constraints on the specific purposes for which amounts in the funds can be spent. As of June 30, 2022, fund balances for governmental funds are comprised of the following:
• Nonspendable Fund Balance – includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The “not in spendable form” criterion includes items that are not expected to be converted to cash, for example: inventories, prepaid amounts, and long-term notes receivable. -106-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
59 NOTE 11 – FUND BALANCES (Continued)
• Restricted Fund Balance – includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. • Committed Fund Balance – includes amounts that can only be used for the specific purposes determined by a council resolution of the City Council. Commitments may be changed or lifted only by the Council taking the same formal action that imposed the constraint originally. • Assigned Fund Balance – represents amounts that are intended to be used by the Town of Hillsborough for specific purposes but do not meet the criteria to be classified as committed. The Council has by resolution assigned fund balance. The Council may also assign fund balance, as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year’s appropriated budget.

Unlike commitments, assignments generally only exit temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. • Unassigned Fund Balance – is the residual classification for the General Fund and includes all amounts not contained in the other classifications. Unassigned amounts are technically available for any purpose. The general fund is the only fund that reports a positive unassigned fund balance. Additionally, any deficit fund balance within the other governmental fund types is reported as unassigned.

In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is depleted in the order of restricted, committed, assigned, and unassigned. -107-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
60 NOTE 11 – FUND BALANCES (Continued)
Fund balances for all the major and nonmajor governmental funds as of June 30, 2022, are as follows:

Police and Fire
General Special Tax Capital Projects Nonmajor
Fund Fund Fund Funds Total
Nonspendable:

Prepaid items $ 26,095 $ - $ - $ 26,095 - $
Restricted:

Retiree benefits 4,384,217 - - 4,384,217 -
Streets - - 147,008 - 147,008
Public Safety - Police - - 1,051,223 - 1,051,223
Sub-total: 4,384,217 - 1,198,231 - 5,582,448
Assigned
Capital projects - 3,839,502 - 3,839,502 -
Tree replacement 263,000 - - 263,000 -
Sewer capital 2,000,000 - - 2,000,000 -
Storm drain capital 3,600,000 - - 3,600,000 -
Other projects 2,724,000 2,724,000
Sub-total: 8,587,000 3,839,502 - 12,426,502 -
Unassigned 18,824,100 - - 18,824,100 -
Total $ 31,821,412 $ 3,839,502 - $ $ 1,198,231 $ 36,859,145 The Town’s Policy No. 409 – Budget and Fiscal Policies – includes guidelines for fund balance reporting and minimum amounts to maintain in each category. The Town will strive to maintain unassigned funds of at least 30% of operating expenditures in the General Fund – the minimum level necessary to maintain the City’s creditworthiness and to adequately provide for 1) economic uncertainties, local disasters, and other financial hardships or downturns in the local or national economy; 2) contingencies for unseen operating or capital needs and 3) cash flow requirements.

NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES
The Town is obligated through cost sharing agreements with other municipalities to pay its pro-rata share of operating expenses, capital expenses and debt service for the operation of wastewater treatment plants. The Town is billed its portion of expenses pursuant to agreements it entered into with the municipalities. The costs incurred by the Town under these agreements amounted to $1,720,052 and $1,244,284 as of June 30, 2022 and 2021 respectively. In June 2022, the Town entered into a funding agreement with the City of San Mateo for the Town’s share of the San Mateo’s Clean Water wastewater treatment plant. See Note 8- Long-Term Debt. -108-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
61 NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES (Continued) The Town is also obligated to pay a portion of the cost of operations of the local libraries, which are operated, by the Cities of Burlingame and San Mateo. The portion of these costs paid by the Town amounted $952,876 and $954,658 for years ended June 30, 2022 and 2021 respectively.

At June 30, 2022, the Town has outstanding construction contracts and commitments for capital projects of $3,496,060.

The Town is obligated to pay annual required contributions to CalPERS for pension obligations. In order to maintain the sustainability of the plan, the CalPERS Board periodically adjusts actuarial assumptions, amortization and funding policies and discount rates based on actual experience. Adjustments typically result in the member agencies paying an increased annual required contribution. The CalPERS Board conducted their Asset Liability Management Review cycle in 2021. Details of the pension liability are included in Notes to the Financial Statements – Note 14 on pages 67 to 73. On page 73, a Sensitivity of the Net Pension Liability to Changes in Discount Rate is outlined for a 1% increase or 1% decrease as compared to the current rate.

The Town is subject to litigation arising in the normal course of business. In the opinion of the Town’s management, there is no pending litigation, which is likely to have a material adverse effect on the financial position of the Town.

Baruh et al. v. Town of Hillsborough, San Mateo County Superior Court Case No. 16CIV02284 The lawsuit was filed in 2016 against the Town of Hillsborough and is currently in the process of settling.

In the lawsuit, Plaintiffs contended that the Drought Penalties adopted by Hillsborough in Ordinance No. 725 violated the procedural and substantive requirements of Proposition 218 and that the Water Rates during the period June 28, 2015 through April 30, 2017, including those adopted by Hillsborough in Ordinance No. 731, did not comply with Proposition 218 (collectively the “Claims”).

The parties are in the process of settling the class action lawsuit for a total of $1,229,329, of which the Town will pay $450,000 in attorney’s fees to the plaintiff’s along with refunds to domestic water customers who paid Tier 3, 4, or 5 rates for water between June 28, 2015 through April 30, 2017 (the “Refund Period”), based upon the difference between the rate paid for Tiers 3, 4, & 5 water and $11.09/hcf during Rate Stabilization Period [February 10, 2016 - November 16, 2016] and $9.06/hcf during the rest of the Refund Period. The claims related to the Drought Penalties will be dismissed with prejudice.

The $1.2 million was accrued in the financial statements as of June 30, 2021. -109-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
62 NOTE 13 – POSTEMPLOYMENT HEALTHCARE PLAN
Plan Description – The Town’s retiree healthcare plan (Plan) is provided through California Employers’ Retirement Benefit Trust (CERBT), an agent multiple-employer defined benefit healthcare program administered by CalPERS. The Town provides postretirement health benefits to certain eligible retirees pursuant to various Town Employee Associations’ Memoranda of Understanding. CalPERS issues a publicly available entity-wide financial report that includes financial statements and required supplementary information pertaining to CERBT. This report is on the CalPERS website at: http://www.calpers.ca.gov. The Town offers medical benefits to retired employees and employee and spouses/domestic partners for life and dependent children until age 26 unless otherwise meeting the requirements of the Social Security Administration as a continued dependent. The Plan does not offer dental, vision or life benefits to the Town’s retirees. Benefits provided are dependent on the hire date. All retired employees of the Town receive a contribution amount equal to the CalPERS Public Employee Medical and Hospital Care Act (PEMHCA) at a minimum and depending on the hire date and retirement date, retired employees may receive an additional reimbursement from the Town for their medical plan election. Employees hired prior to March 1, 2002 in the Police Unit, or January 1, 2002 for all other employees will receive reimbursement equal to the maximum health contribution given to active employees, as of the date of their retirement.

As of the June 30, 2021 measurement date, the following current and former employees were covered by the benefit terms under the healthcare plan:

Active plan members 88
Inactive employees or beneficiaries currently receiving benefit payments 111 Inactive employees entitled to but not yet receiving benefit payments 4 Total 203
Contributions – The contribution requirement of plan members and the Town are established under a funding policy approved by the City Council and may be amended by the Town from time to time. The Plan is currently fully funded by employer contributions with no requirement for matching or employee contributions for eligible employees. Concurrently with the implementation of GASB 75, the Town also adopted to prefund the actuarial liability. The funding policy is to contribute contributions sufficient to pay the current year’s retiree premium and plan expenses, with an additional amount to pre-fund benefits as determined by the Town’s actuary on a biennial basis.
-110-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
63 NOTE 13 – POSTEMPLOYMENT HEALTHCARE PLAN (Continued) Significant Assumptions – The Town’s net OPEB liability was measured as of June 30, 2021 and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation dated June 30, 2021, based on the following actuarial methods and assumptions:

Actuarial Assumption June 30, 2021 Measurement Date
Actuarial Valuation Date June 30, 2021
Contribution Policy Pre-funded full ADC through CERBT asset allocation Strategy 1.

Discount Rate 6.25%
Expected Long-Term Rate of Return on
Investments
Same as discount rate. Plan assets projected to be sufficient to pay all benefits from trust.

General Inflation 2.50% per annum
Mortality, Retirement, Disability,
Termination CalPERS 1997-2015 experience study.

Mortality Improvement Mortality projected fully generational with Scale MP-2021.

Medical Trend Non-Medicare - 6.50% for 2023, decreasing to an ultimate rate of

3.75% in 2076 and later years.

Medicare (Non-Kaiser) - 5.65% for 2023, decreasing to an ultimate rate of 3.75% in 2076 and later years.

Medicare (Kaiser) - 4.60% for 2023, decreasing to an ultimate rate of

3.75% in 2076
The long-term expected rate of return on OPEB plan investments was determined using a building block method in which expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Asset Class 1
Target
Allocation
Long-Term
Expected Real
Rate of Return 2
Global Equity 59.00% 4.56%
Fixed Income 25.00% 0.78%
Treasury Inflation Protection Securities 5.00% -0.08%
Real Estate Investment Trusts 8.00% 4.06%
Commodities 3.00% 1.22%
Total 100.00%
1 An expected net rate of return of 6.25%
2 An expected inflation of 2.50%
-111-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
64 NOTE 13 – POSTEMPLOYMENT HEALTHCARE PLAN (Continued) Discount Rate – The discount rate used to measure the total OPEB liability was 6.25 percent. The projection of cash flows used to determine the discount rate assumed that Town contributions would be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees and beneficiaries. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.

Changes in the OPEB Liability – The changes in the net OPEB liability for the Health Care Plan are as follows:

Total OPEB
Liability
Plan
Fiduciary Net
Position
Net OPEB
Liability
Balance at June 30, 2021 $ 20,976,436 $ 8,366,746 $ 12,609,690 Changes recognized for year:

Service cost 308,513 - 308,513
Interest 1,391,869 - 1,391,869
Changes of benefit terms - - -
Difference between expected and actual experience (2,384,685) - (2,384,685) Changes of assumptions 107,550 - 107,550
Contributions:

Employer 1 1,332,255 - (1,332,255)
Net investment income 2,299,995 - (2,299,995)
Benefit payments, including refunds of employee
contributions (1,329,344) (1,329,344) -
Administrative expenses ( - 6,077) 6,077
Net changes (1,906,097) 2,296,829 (4,202,926)
Balance at June 30, 2022 $ 19,070,339 $ 10,663,575 $ 8,406,764 1 Includes $2,911 of administrative expenses paid outside of trust.

Increase (Decrease)
-112-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
65 NOTE 13 – POSTEMPLOYMENT HEALTHCARE PLAN (Continued) Sensitivity of the Net OPEB Liability to Changes in the Discount Rate and to Changes in the Health Care Cost Trend Rates – The following presents the net OPEB liability of the Town if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate, for year ended June 30, 2022:

Discount Rate - 1%
(5.25%)
Current Discount
Rate (6.25%)
Discount Rate + 1%
(7.25%)
$ 10,507,635 $ 8,406,764 $ 6,647,334
Plan's Net OPEB Liability
The following presents the net OPEB liability of the Town if it were calculated using health care cost trend rates that are one percentage point lower or one percentage point higher than the current rate, for the year ended June 30, 2022:

Trend Rate - 1%
Healthcare Cost
Trend Rates Trend Rate + 1%
$ 6,578,800 $ 8,406,764 $ 10,582,714
Plan's Net OPEB Liability
-113-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
66 NOTE 13 – POSTEMPLOYMENT HEALTHCARE PLAN (Continued) Gains and losses related to changes in total OPEB liability and fiduciary net position are recognized in OPEB expense systematically over time.

Amounts are first 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 OPEB expense.

The recognition period differs depending on the source of the gain or loss:

Net difference between projected and actual earnings
on OPEB plan investments
All other amounts Expected average remaining service lifetime (EARSL) (5 Years at June 30, 2021)
5 years
OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB – For the fiscal year ended June 30, 2022, the Town recognized OPEB expense of $140,893. As of fiscal year ended June 30, 2022, the Town reported deferred outflows of resources related to OPEB from the following sources:

Deferred Outflows of
Resources
Deferred Inflows of
Resources
OPEB contributions subsequent to measurement date $ 1,345,253 $ - Changes in assumptions 85,144 (163,000)
Net difference between projected and actual earnings on OPEB plan investments - (1,230,617)
Difference between expected and actual experience - (2,003,876) $ 1,430,397 $ (3,397,493)
The amount of $1,345,253 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2023. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows:

Fiscal Year Ended
June 30:

Deferred
Outflows/(Inflows)
of Resources
2023 $ (962,918)
2024 (851,918)
2025 (770,919)
2026 (726,594)
$ (3,312,349)
-114-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
67 NOTE 14 – EMPLOYEE RETIREMENT SYSTEMS
The CalPERS Plan (Plan) consists of a miscellaneous pool and a safety pool (referred to as "risk pools"), which are comprised of individual employer miscellaneous and safety rate plans, respectively. The risk pools are included within the Public Employees’ Retirement Fund C (PERF C).

Plan Descriptions – All qualified permanent and probationary employees are eligible to participate in the Town's separate Safety (police) and Miscellaneous (all other) Employee Pension Plan, cost sharing multiple employer defined benefit pension plan administered by the California Public Employees’ Retirement System (CalPERS).

Benefit provisions under the Plan are established by State statute and Town resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information can be found on the CalPERS website at: http://www.calpers.ca.gov.

Benefits Provided – CalPERS provides retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 50 with full benefits for plans prior to January 1, 2013 and age 52 for Miscellaneous Plan and age 55 for Safety Plan on or after January 1, 2013. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Special Death Benefit, the 1959 Survivor Benefit (Level 4), 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.

On January 1, 2013, the Public Employees’ Pension Reform Act of 2013 (PEPRA) took effect. In additional to creating new retirement formulas for newly hired members, PEPRA also effectively closed all existing active risk pools to new employees.
-115-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
68 NOTE 14 – EMPLOYEE RETIREMENT SYSTEMS (Continued)
The Plans’ provisions and benefits in effect on June 30, 2022, are as follows:

Prior to
January 1, 2013
On or after
January 1, 2013
Tier 1 / Tier 2 Plan
Formula 3% at 60 / 2% at 60 2% at 62
Benefit vesting schedule 5 years of service 5 years of service Benefit payments monthly for life monthly for life
Earliest retirement age 50 52
Required employee contribution rates 7.8% / 9.3% 7.25%
Required employer contribution rates 16.15% / 9.3% 7.730% Required employer dollar UAL payment (annual) $1,049,481 / $12,464 $16,135 Prior to
January 1, 2013
On or after
January 1, 2013
Formula 3% at 50 2.7% at 57
Benefit vesting schedule 5 years of service 5 years of service Benefit payments monthly for life monthly for life
Earliest retirement age 50 50
Required employee contribution rates 9.0% 13.750%
Required employer contribution rates 25.590% 13.980%
Required employer dollar UAL payment (annual) $1,185,123 $3,142 Miscellaneous
Safety - Police
Contributions – Section 20814(c) of the California Public Employees’ Retirement law requires that the employer contribution rates for all public employers are determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. 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. The Town is required to contribute the difference between the actuarially determined rate and the contribution rates of employees.
-116-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
69 NOTE 14 – EMPLOYEE RETIREMENT SYSTEMS (Continued)
For the year ended June 30, 2022, the contributions to the Plan were as follows:

Miscellaneous Safety Total
Contributions - employer $ 1,817,419 $ 2,031,035 $ 3,848,454 Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, 2022, the Town’s reported net pension liabilities for its proportionate share of the pension liability of each Plan as follows:

Miscellaneous Safety Total
Net pension liability $ 8,348,406 $ 10,182,645 $ 18,531,051 The Town adopted and funded a Section 115 pension trust in fiscal year 2018-19 to help mitigate against the rising cost of pension contributions. On June 30, 2022 the Town’s Section 115 trust is reflected in the restricted cash balance of $4,384,217. See note 3 for further discussion.

The Town’s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of each Plan is measured as of June 30, 2021 and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020 with a roll forward to calculate the beginning net pension liability. The Town’s proportion of the net pension liability was based on a projection of the Town’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The Town’s proportionate share of the net pension liability for each Plan as of June 30, 2022 is as follows:

Miscellaneous Safety
Proportion - June 30, 2021 0.33844% 0.24710%
Proportion - June 30, 2022 0.43967% 0.29015%
Change - Increase (decrease) 0.10123% 0.04305%
-117-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
70 NOTE 14 – EMPLOYEE RETIREMENT SYSTEMS (Continued)
At the year ended June 30, 2022, the Town recognized pension expense of $5,010,811. On June 30, 2022, the Town reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred
Outflows of
Resources
Deferred Inflows of
Resources
Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Pension contributions subsequent to measurement date $ 1,817,419 $ 2,031,035 1 $ $ - - (7,287,718) - (6,060,631)
Change in proportion 252,011 - 579,551 -
Difference between expected and actual experiences 936,184 1,739,696 - - Difference between actual and projected contribution - (513,792) - (981,721) $ 3,005,614 $ (7,801,509) $ 4,350,282 $ (7,042,352)
Safety - Police
Net difference between projected and actual earnings on pension plan investments
Miscellaneous
The amount of $3,848,454 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2023.

Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Year Ended June 30, Year Ended June 30,
2022 $ (1,420,517) 2022 $ (788,705)
2023 (1,506,467) 2023 (975,171)
2024 (1,672,380) 2024 (1,291,427)
2025 (2,013,949) 2025 (1,667,801)
$ (6,613,314) $ (4,723,104)
Miscellaneous Safety - Police
-118-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
71 NOTE 14 – EMPLOYEE RETIREMENT SYSTEMS (Continued)
Actuarial Assumptions – The total pension liabilities in the June 30, 2020 actuarial valuations were determined using the following actuarial assumptions.

Valuation Date June 30, 2020
Measurement Date June 30, 2021
Actuarial Cost Method Entry Age Normal
Actuarial Assumptions:

Discount Rate 7.15%
Inflation 2.50%
Payroll Growth 2.75%
Projected Salary Increase Varies by Entry Age and Service Investment Rate of Return 7.15% Net of Pension Plan Investment Expenses, includes Inflation Mortality Rate Table1 Derived using CalPERS membership data for all funds Post Retirement Benefit Increase Contract COLA up to 2.5% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.5% thereafter
1 The mortality table used was developed based on CalPERS’ specific data. The table includes 15 years of mortality improvements using Society of Actuaries 90 percent of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website.

The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2020 valuation was based on the results of a December 2017 actuarial experience study for the period of 1997 to 2015. Further details of the Experience Study are on the CalPERS website at: http://www.calpers.ca.gov.

Discount Rate – To determine whether the municipal bond rate should be used in the calculation of a discount rate for the plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing of the plans, the tests revealed the assets would not run out. Therefore, the current 7.15 percent discount rate is appropriate, and the use of the municipal bond rate calculation is not deemed necessary. The long-term expected discount rate of 7.15 percent is applied to all plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained at CalPERS’ website under the GASB 68 section.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimated ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. -119-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
72 NOTE 14 – EMPLOYEE RETIREMENT SYSTEMS (Continued)
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. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the shortterm (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 calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent.

The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates are net of administrative expenses:

Asset Class
Current Target
Allocation
Real Return
Years 1 - 10 1
Real Return
Years 11+ 2
Global Equity 50.0% 4.80% 5.98%
Global Fixed Income 28.0% 1.00% 2.62%
Inflation Sensitive 0.0% 0.77% 1.81%
Private Equity 8.0% 6.30% 7.23%
Real Assets 13.0% 3.75% 4.93%
Liquidity 1.0% 0.00% -0.92%
100.0%
1 An expected inflation of 2.00% used for this period
2 An expected inflation of 2.92% used for this period
-120-

TOWN OF HILLSBOROUGH

NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2022
73 NOTE 14 – EMPLOYEE RETIREMENT SYSTEMS (Continued)
Sensitivity of the Net Pension Liability to Changes in the Discount Rate – The following presents the net pension liability of the Town for the Plan, calculated using the discount rate for the Plan, as well as what the Town’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate:

Miscellaneous Safety
1% Decrease 6.15% 6.15%
Net Pension Liability $ 16,047,997 $ 18,477,299
Current Discount Rate 7.15% 7.15%
Net Pension Liability $ 8,348,406 $ 10,182,645
1% Increase 8.15% 8.15%
Net Pension Liability $ 1,983,265 $ 3,369,610
Pension Plan Fiduciary Net Position – Detailed information about the pension plans’ fiduciary net position is available in the separately issued CalPERS financial reports.

NOTE 15 – RESTATEMENT OF PRIOR YEAR NET POSITION
As of July 1, 2021, the Town adopted GASB Statement No. 87, Leases (GASB 87). As a result of the implementation of GASB 87, the Town changed its accounting for leases by recognizing a leases receivable and the related deferred inflows of resources from leases. The following table describes the effect of the implementation on beginning net position and fund balance:

General Fund Governmental Activities
Net Position/Fund Balance, previously reported as of July 1, 2021 $ 29,977,718 $ 18,642,461 Recognition of leases receivable 1,218,433 1,218,433
Recognition of deferred inflows from leases (1,218,433) (1,218,433) Net Position/Fund Balance, restated as of July 1, 2021 $ 29,977,718 $ 18,642,461 -121-
74 REQUIRED SUPPLEMENTARY INFORMATION
-122-

TOWN OF HILLSBOROUGH

GENERAL FUND

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN

FUND BALANCES - BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
75 Variance with
Final Budget -
Original Final Positive
Budget Budget Actual (Negative)
REVENUES:

Property taxes $ 19,186,686 $ 19,186,686 $ 19,324,411 $ 137,725 Franchise taxes 790,723 790,723 800,915 10,192
Business license taxes 600,000 600,000 854,351 254,351
All others taxes 676,664 676,664 958,244 281,580
Permits 1,572,900 1,572,900 1,683,174 110,274
Intergovernmental 906,830 906,830 4,291,407 3,384,577
Service charges 1,163,524 1,163,524 1,454,288 290,764
Investment earnings (loss) 750,000 750,000 (1,684,182) (2,434,182) Excess ERAF 2,200,000 2,200,000 3,153,308 953,308
Miscellaneous 409,918 409,918 549,250 139,332
Total Revenues 28,257,245 28,257,245 31,385,166 3,127,921 EXPENDITURES:

Current:

General government 1,677,691 1,677,691 1,825,699 (148,008) Public safety 19,953,403 19,953,403 19,909,998 43,405
Community services 4,279,224 4,279,224 3,902,093 377,131 Streets 2,731,117 2,731,117 2,569,618 161,499
Total Expenditures 28,641,435 28,641,435 28,207,408 434,027 Excess (deficiency of revenues
over (under) expenditures) (384,190) (384,190) 3,177,758 3,561,948 OTHER FINANCING SOURCES (USES):

Transfers in 2,484,611 2,484,611 2,488,231 3,620
Transfers out (2,821,000) (3,822,295) (3,822,295) -
Total Other Financing Sources (Uses) (336,389) (1,337,684) (1,334,064) 3,620 Net change in fund balances (720,579) (1,721,874) 1,843,694 3,565,568 Fund balances - beginning, as restated 29,977,718 29,977,718 29,977,718 - Fund balances - ending $ 29,257,139 $ 28,255,844 $ 31,821,412 3,565,568$ -123-

TOWN OF HILLSBOROUGH

POLICE AND FIRE SPECIAL TAX FUND

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN

FUND BALANCES - BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
76 Variance with
Final Budget -
Original Final Positive
Budget Budget Actual (Negative)
REVENUES:

Police and Fire Special Tax $ 2,242,686 $ 2,242,686 $ 2,247,128 $ 4,442 Total Revenues 2,242,686 2,242,686 2,247,128 4,442
EXPENDITURES:

Current:

Public Safety 8,075 8,075 8,897 (822)
Excess of Revenues Over Expenditures 2,234,611 2,234,611 2,238,231 3,620 OTHER FINANCING USES:

Transfers Out (2,234,611) (2,234,611) (2,238,231) (3,620) Net change in fund balances - - - -
Fund balances - beginning - - - -
Fund balances - ending $ - $ - $ - $ -
-124-

TOWN OF HILLSBOROUGH

SCHEDULE OF PROPORTIONATE SHARE OF THE NET

PENSION LIABILITY
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
77 2022 2021 2020 2019 2018 2017 2016 2015*
Plan's proportion of the net pension liability 0.43967% 0.33844% 0.32820% 0.31889% 0.31113% 0.30336% 0.29385% 0.28185% $ 8,348,406 $ 14,275,476 $ 13,142,862 $ 12,017,999 $ 12,264,964 $ 10,538,348 8,061,622$ 6,965,900$ Plan's covered payroll $ 6,308,969 $ 5,976,685 $ 5,827,215 $ 5,757,169 $ 5,276,692 $ 4,997,179 4,883,273$ 5,328,728$ 132.33% 226.27% 219.90% 206.24% 213.04% 199.72% 161.32% 130.72% Plan's proportionate share of the fiduciary
as a percentage of the plan's
total pension liability 90.49% 77.71% 77.73% 77.69% 75.39% 75.87% 79.89% 81.15% 2022 2021 2020 2019 2018 2017 2016 2015*
Plan's proportion of the net pension liability 0.29015% 0.24710% 0.24027% 0.23573% 0.22838% 0.22878% 0.22146% 0.20805% $ 10,182,645 $ 16,462,675 $ 14,999,065 $ 13,831,502 $ 13,646,123 $ 1,848,792 9,125,242$ 7,803,992$ Plan's covered payroll $ 3,946,245 $ 3,617,868 $ 3,613,676 $ 3,375,853 $ 2,985,147 $ 2,893,042 3,036,912$ 5,328,728$ 258.03% 417.17% 414.58% 382.75% 404.23% 61.93% 315.42% 146.45% Plan's proportionate share of the fiduciary
as a percentage of the plan's
total pension liability 86.61% 73.12% 73.37% 73.39% 71.74% 72.69% 77.27% 78.83% Notes to Schedule:

Significant changes in assumptions: The discount rate was changed from 7.65% to 7.15% in fiscal year 2017. * Fiscal year 2015 was the first year of implementation of the pension standards.

Plan's proportionate share of
the net pension liability
Net pension liability as a percentage
of covered payroll
Plan's proportionate share of
the net pension liability
Net pension liability as a percentage
of covered payroll
Miscellaneous
Safety
-125-

TOWN OF HILLSBOROUGH

SCHEDULE OF CONTRIBUTIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
78 2022 2021 2020 2019 2018 2017 2016 2015*
Actuarially determined contributions 1,817,419$ 1,621,338$ 1,450,935$ 1,299,618$ 1,149,750$ 1,043,360$ $ 928,895 $ 779,265 Contributions in relation to the
actuarially determined contribution (1,817,419) (1,621,338) (1,450,935) (1,299,618) (1,149,750) (1,043,360) (928,895) (779,265) Contribution deficiency (excess) $ - $ - $ - $ - $ - $ - $ - $ - Covered payroll 6,943,540$ 6,308,969$ 5,976,685$ 5,827,215$ 5,757,169$ 5,276,692$ 4,997,179$ 4,883,273$ Contributions as a percentage
of covered payroll 26.17% 25.70% 24.28% 22.30% 19.97% 19.77% 18.59% 15.96% 2022 2021 2020 2019 2018 2017 2016 2015*
Actuarially determined contributions 2,031,035$ 1,861,252$ 1,635,957$ 1,429,239$ 1,262,347$ 1,114,629$ $ 964,025 $ 825,461 Contributions in relation to the
actuarially determined contribution (2,031,035) (1,861,252) (1,635,957) (1,429,239) (1,262,347) (1,114,629) (964,025) (825,461) Contribution deficiency (excess) $ - $ - $ - $ - $ - $ - $ - $ - Covered payroll 4,067,727$ 3,946,245$ 3,617,868$ 3,613,676$ 3,375,853$ 2,985,147$ 2,893,042$ 3,036,912$ Contributions as a percentage
of covered payroll 49.93% 47.17% 45.22% 39.55% 37.39% 37.34% 33.32% 27.18% * Fiscal year 2015 was the first year of implementation of the pension standards.

Miscellaneous
Safety
-126-

TOWN OF HILLSBOROUGH

SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY AND RELATED RATIOS FOR THE FISCAL YEAR ENDED JUNE 30, 2022
79 2022 2021 2020 2019 2018*
Changes in Total OPEB Liability
Service cost $ 308,513 $ 313,340 $ 325,000 $ 331,000 $ 321,000 Interest 1,391,869 1,364,096 1,382,000 1,339,000 1,298,000 Changes of benefit terms - - - - -
Difference between expected and actual experience (2,384,685) ( - 350,000) - - Changes of assumptions 107,550 ( - 490,000) - -
Benefit payments, including refunds of employee contributions (1,329,344) (1,193,000) (1,043,000) (1,030,000) (982,000) Changes of benefit terms - - - - -
Net changes (1,906,097) 484,436 (176,000) 640,000 637,000 Total OPEB Liability (beginning) at June 30 20,976,436 20,492,000 20,668,000 20,028,000 19,391,000 Total OPEB Liability (ending) at June 30 $ 19,070,339 $ 20,976,436 $ 20,492,000 $ 20,668,000 $ 20,028,000 Changes in Plan Fiduciary Net Position
Contributions - employer $ 1,332,255 $ 1,368,000 $ 1,346,000 $ 1,351,000 $ 1,321,000 Contributions - employee - - - - -
Net investment income 2,299,995 281,614 445,000 506,000 576,000 Benefit payments, including refunds of employee contributions (1,329,344) (1,193,000) (1,043,000) (1,030,000) (982,000) Administrative expenses (6,077) (6,868) (4,000) (12,000) (5,000) Changes of assumptions - - - - -
Net changes 2,296,829 449,746 744,000 815,000 910,000
Total OPEB Fiduciary Net Position (beginning) at June 30 8,366,746 7,917,000 7,173,000 6,358,000 5,448,000 Total OPEB Fiduciary Net Position (ending) at June 30 $ 10,663,575 $ 8,366,746 $ 7,917,000 $ 7,173,000 $ 6,358,000 Net OPEB liability $ 8,406,764 $ 12,609,690 $ 12,575,000 $ 13,495,000 $ 13,670,000 Plan fiduciary net position as a percentage of the total OPEB liability 55.9% 39.9% 38.6% 34.7% 31.7% Covered employee payroll $ 12,319,766 $ 11,709,815 $ 11,127,000 $ 11,065,894 $ 10,232,831 Net OPEB Liability as a percentage of covered employee payroll 68.2% 107.7% 113.0% 122.0% 133.6% * Fiscal year 2018 was the first year of implementation of the OPEB standards. -127-

TOWN OF HILLSBOROUGH

SCHEDULE OF OPEB CONTRIBUTIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
80 2022 2021 2020 2019 2018*
Actuarially Determined Contribution (ADC) $ 1,319,000 $ 1,292,000 $ 1,366,000 $ 1,344,000 $ 1,351,000 Contributions in relation to the actuarially determined contribution (1,345,253) (1,332,255) (1,368,000) (1,346,000) (1,351,000) Contribution deficiency/(excess) $ (26,253) $ (40,255) $ (2,000) $ (2,000) $ - Covered employee payroll for the period ended June 30 $ 12,319,766 $ 11,709,815 $ 11,127,000 $ 11,065,894 $ 10,578,649 Contributions as a percentage of covered employee payroll 10.9% 11.4% 12.3% 12.2% 12.8% * Fiscal year 2018 was the first year of implementation of the OPEB standards. -128-

TOWN OF HILLSBOROUGH

NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
JUNE 30, 2022
81 Budgetary Information
The Town adopts annual budgets on a basis consistent with generally accepted accounting principles for all governmental funds except the capital projects funds, which adopt project-length budgets. All appropriations lapse at fiscal year-end. Encumbrances, which are commitments related to unperformed contracts for goods or services at year-end lapse and are automatically re-appropriated and re-encumbered in the subsequent fiscal year. There are no outstanding encumbrances in the governmental funds on June 30, 2022. Budgets are also adopted and controlled for the proprietary funds. Budget comparisons for these funds are not legally mandated and thus are not presented.

General Fund actual expenditures in Fiscal Year 2021-22 were below budget. The Police and Fire Special Tax Fund actual expenditures in Fiscal Year 2021-22 were in excess of the budget by $822. It is unusual for the town to have expenditures exceeding budgeted amounts. These excess amounts were the result of the budget being an estimate for expenditures.

Prior to June 30, the City Manager submits to the City Council a proposed operating budget for review. The City Council holds public hearings, and a final budget is adopted on or before June 30.

The appropriated budget is prepared by fund, function, and department. The Town’s department heads may make transfers of appropriations within a department. The City Manager may transfer budgeted amounts within any fund.

Any revisions that alter the total expenditures of any fund must be approved by the City Council. The legal level of budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the fund level.

Budget amounts shown in these financial statements include all supplemental appropriations made during the year for the General and the Special Revenue funds.

Net Pension, Net OPEB Liability and Contributions to Pension and OPEB Plans The Town’s pension liabilities are administered by CalPERS cost sharing plans. The Town’s pension liabilities are calculated based on the Town’s proportionate share of the overall pension liabilities and related deferrals. The schedule pension liability and the schedule of contributions show a ten-year trend information, where available, about these amounts and they are changing from year to another.

The Town’s OPEB liability is administered as an agent multiple employer plan, which is also administered by CalPERS. The schedule of changes in Net OPEB liability and the schedule of contributions show a ten-year trend information, where available, about these amounts and they are changing from year to another. -129-
82 COMBINING STATEMENTS AND INDIVIDUAL FUND

SCHEDULES
-130-

TOWN OF HILLSBOROUGH

COMBINING STATEMENTS AND INDIVIDUAL

FUND SCHEDULES
JUNE 30, 2022
83 NONMAJOR GOVERNMENTAL FUNDS
Special Revenue Funds
The special revenue funds are used to account for specific revenues that are legally restricted or committed to expenditure for particular purposes.

Gas Tax Fund - This fund is used to account for receipts and disbursements of funds apportioned under Streets and Highway Code Sections 2103, 2105, 2106, 2107, 2107.5 and 2031 of the State of California and the Road Repair and Accountability Act of 2017 (RMRA) for the purpose of financing major street construction projects.

Measure "A" Fund - This fund is used to account for receipts and disbursements of a San Mateo County half-cent sales tax approved by the voters in June 1988 (Measure A) and again in November 2004 extending it for an additional 25 years, beginning January 2009, for the purpose of improving local transportation including streets and roads.

Measure "W" Fund - This fund is used to account for receipts and disbursements of a San Mateo County half-cent sales tax approved by the voters in November 2018 (Measure W) beginning July 2019 and goes for 30 years, for the purpose of improving local transportation including bicycle and pedestrian facilities, streets, and roads.

Police Grants Fund - This fund is used to account for activities funded by proceeds from various police grants and programs.
-131-

TOWN OF HILLSBOROUGH

NONMAJOR GOVERNMENTAL FUNDS

COMBINING BALANCE SHEET
JUNE 30, 2022
84 Total
Nonmajor
Gas Police Governmental
Tax Measure A Measure W Grants Funds
ASSETS
Cash and investments $ 30,202 $ - $ 1,051,223$ - $ 1,081,425 Accounts receivable 21,669 57,944 67,394 147,007 -
Total assets $ 51,871 $ 57,944 $ 1,051,223$ 67,394 $ 1,228,432

LIABILITIES
Accounts payable $ 30,201 $ - $ - $ 30,201 - $
Total liabilities 30,201 - - 30,201 -

FUND BALANCES
Restricted for streets projects 21,670 57,944 67,394 147,008 - Restricted for police projects - - 1,051,223 - 1,051,223 Total fund balances 21,670 57,944 1,051,223 67,394 1,198,231 Total liabilities and
fund balances $ 51,871 $ 57,944 $ 1,051,223$ 67,394 $ 1,228,432 Special Revenue Funds
-132-

TOWN OF HILLSBOROUGH

NONMAJOR GOVERNMENTAL FUNDS

COMBINING STATEMENT OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCES
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
85 Total
Nonmajor
Gas Police Governmental
Tax Measure A Measure W Grants Funds
REVENUES:

Intergovernmental $ 504,110 $ 730,547 $ 336,344 $ 161,285 $ 1,732,286 Investment earnings (loss) (221) (216) (143) 934 354
Total revenues 503,889 730,331 336,201 162,219 1,732,640 EXPENDITURES:

Current:

Streets 59,938 - - 59,938 -
Capital outlay - - 2,540 - 2,540
Total expenditures 59,938 - 2,540 - 62,478
Excess of revenues
over expenditures 443,951 730,331 336,201 159,679 1,670,162

OTHER FINANCING
SOURCES (USES):

Transfers Out (856,544) (1,041,319) (595,030) (2,492,893) - Total Other Financing Sources (Uses) (856,544) (1,041,319) (595,030) (2,492,893) - Net change in fund balances (412,593) (310,988) (258,829) 159,679 (822,731) Fund balances - beginning 434,263 368,932 326,223 891,544 2,020,962 Fund balances - ending $ 21,670 $ 57,944 $ 1,051,223$ 67,394 $ 1,198,231 Special Revenue Funds
-133-

TOWN OF HILLSBOROUGH

GAS TAX FUND

SCHEDULE OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
86 Variance with
Final Budget -
Original Final Positive
Budget Budget Actual (Negative)
REVENUES:

Intergovernmental $ 538,255 $ 538,255 $ 504,110 $ (34,145) Investment earnings (loss) 2,200 2,200 (221) (2,421)
Total revenues 540,455 540,455 503,889 (36,566)
EXPENDITURES:

Current:

Streets 6,079 6,079 59,938 (53,859)
Excess of revenues over expenditures 534,376 534,376 443,951 (90,425) OTHER FINANCING USES:

Transfers Out - (856,544) - (856,544)
Net change in fund balances 534,376 534,376 (412,593) (946,969) Fund balances - beginning 434,263 434,263 434,263 -
Fund balances - ending $ 968,639 $ 968,639 $ 21,670 $ (946,969) -134-

TOWN OF HILLSBOROUGH
MEASURE "A" FUND

SCHEDULE OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
87 Variance with
Final Budget -
Original Final Positive
Budget Budget Actual (Negative)
REVENUES:

Intergovernmental $ 629,936 $ 629,936 $ 730,547 $ 100,611 Investment earnings 3,670 3,670 (216) (3,886)
Total revenues 633,606 633,606 730,331 96,725
EXPENDITURES:

Current:

Streets 23,676 23,676 23,676 -
Total Expenditures 23,676 23,676 23,676 -
Excess of revenues over expenditures 609,930 609,930 730,331 120,401 OTHER FINANCING USES:

Transfers Out (650,000) (650,000) (1,041,319) 391,319
Net change in fund balances (40,070) (40,070) (310,988) 511,720 Fund balances - beginning 368,932 368,932 368,932 -
Fund balances - ending $ 328,862 $ 328,862 $ 57,944 $ 511,720 -135-

TOWN OF HILLSBOROUGH
MEASURE "W" FUND

SCHEDULE OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
88 Final Budget -
Original Final Positive
Budget Budget Actual (Negative)
REVENUES:

Intergovernmental $ 279,972 $ 279,972 $ 336,344 $ 56,372 Investment earnings - - (143) (143)
Total revenues 279,972 279,972 336,201 56,229
EXPENDITURES:

Current:

Streets - - - -
Total Expenditures - - - -
Excess of revenues over expenditures 279,972 279,972 336,201 56,229 OTHER FINANCING USES:

Transfers Out - (595,030) - 595,030
Net change in fund balances 279,972 279,972 (258,829) 651,259 Fund balances - beginning 326,223 326,223 326,223 -
Fund balances - ending $ 606,195 $ 606,195 $ 67,394 $ 651,259 -136-

TOWN OF HILLSBOROUGH

POLICE GRANTS FUND

SCHEDULE OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
89 Variance with
Final Budget -
Original Final Positive
Budget Budget Actual (Negative)
REVENUES:

Intergovernmental $ 100,000 $ 100,000 $ 161,285 $ 61,285 Investment earnings 100 100 934 834
Total revenues 100,100 100,100 162,219 62,119
EXPENDITURES:

Current:

Public safety 100,000 100,000 100,000 -
Capital Outlay - 2,540 - (2,540)
Total Expenditures 100,000 100,000 2,540 100,000
Excess of revenues over expenditures 100 159,679 100 162,119 Net change in fund balances 100 159,679 100 162,119
Fund balances - beginning 891,544 891,544 891,544 -
Fund balances - ending $ 891,644 $ 891,644 $ 1,051,223 $ 162,119 -137-

TOWN OF HILLSBOROUGH

CAPITAL ASSETS USED IN THE OPERATION OF

GOVERNMENTAL FUNDS
COMPARATIVE SCHEDULES BY SOURCE (1)
JUNE 30, 2022
90 2022 2021
Governmental funds capital assets:

Land $ 1,456,560 $ 1,456,560
Land improvements 3,690,406 3,690,406
Building and improvements 5,392,372 5,081,343
Machinery and equipment 447,597 650,411
Infrastructure 15,256,987 15,256,987
Total governmental funds capital assets $ 26,243,922 $ 26,135,707 Investments in governmental funds capital assets by source:

General fund $ 889,059 $ 1,127,587
Special revenue fund 114,888 129,584
Capital projects funds 19,293,826 18,932,387
Other - unclassified 5,946,149 5,946,149
Total governmental funds capital assets $ 26,243,922 $ 26,135,707 assets reported in the internal service fund are excluded from the above amounts. Generally, the capital assets of internal service funds are included as governmental activities in the statement of net position. (1) This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital -138-

TOWN OF HILLSBOROUGH

CAPITAL ASSETS USED IN THE OPERATION OF

GOVERNMENTAL FUNDS
SCHEDULE BY FUNCTION AND ACTIVITY (1)
JUNE 30, 2022
91 Governmental Governmental
Funds Capital Funds Capital
Assets Assets
July 1, 2021 Additions Retirements June 30, 2022
General Government:

Council $ 13,046 $ - $ 13,046 - $
Finance 94,401 - 94,401 -
General Services 5,802,760 191,222 143,992 5,849,990
Total General Government 5,910,207 191,222 143,992 5,957,437 Public Safety:

Police 849,053 12,649 58,822 802,880
Fire 1,491,605 50,770 1,542,375 -
Total Public Safety 2,340,658 63,419 58,822 2,345,255
Community Services:

Building 113,144 56,388 169,532 -
Total Community Services 113,144 56,388 169,532 -
Public Work:

Streets and Improvements 17,771,698 - 17,771,698 -
Total Public Work 17,771,698 - 17,771,698 -
Total Governmental Funds
Capital Assets $ 26,135,707 $ 311,029 $ 202,814 $ 26,243,922 (1) This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital assets reported in the internal service fund are excluded from the above amounts. Generally, the capital assets of the internal service fund are included as governmental activities in the statement of net position. -139-

TOWN OF HILLSBOROUGH

CAPITAL ASSETS USED IN THE OPERATION OF

GOVERNMENTAL FUNDS
SCHEDULE OF CHANGES BY FUNCTION AND ACTIVITY (1)
JUNE 30, 2022
92 Machinery
Land Buildings and and
Function and Activity Land Improvements Improvements Equipment Infrastructure Total General Government:

Council $ - $ - $ 6,155 $ 6,891 $ - 13,046 $
Finance - - 94,401 - 94,401 -
General Services 1,456,560 3,076,620 1,030,896 226,033 59,881 5,849,990 Total General Government 1,456,560 3,076,620 1,037,051 327,325 59,881 5,957,437 Public Safety:

Police - 49,751 802,823 (49,693) 802,881 -
Fire - 46,735 1,362,958 132,681 1,542,374 -
Total Public Safety - 96,486 2,165,781 82,988 2,345,255 - Community Services:

Building (43,333) - 110,868 101,997 169,532 -
Total Community Services (43,333) - 110,868 101,997 169,532 - Public Work:

Streets and Improvements 560,633 - 2,078,671 (64,712) 15,197,106 17,771,698 Total Public Work 560,633 - 2,078,671 (64,712) 15,197,106 17,771,698 Total Governmental Funds
Capital Assets $ 1,456,560 $ 3,690,406 $ 5,392,371 $ 447,598 $ 15,256,987 $ 26,243,922 (1) This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital assets reported in the internal service fund are excluded from the above amounts. Generally, the capital assets of the internal service fund are included as governmental activities in the statement of net position. -140-
93 The page is intentionally left blank.
-141-
94 STATISTICAL SECTION
This part of the Town’s Annual Comprehensive Financial Report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the Town’s overall financial health.

Contents Page
Financial Trends 95
These schedules contain trend information to help the reader understand how the Town’s financial performance and well-being have changed over time.

Revenue Capacity 98
These schedules contain information to help the reader assess the Town’s most significant local revenue source, the property tax.

Debt Capacity 106
These schedules present information to help the reader assess the affordability the Town’s current levels of outstanding debt and the Town’s ability to issue additional debt in the future.

Demographic and Economic Information 110
This schedule offers demographic and economic indicators to help the reader understand the environment within which the Town’s financial activities taken place.

Operating Information 113
These schedules contain service and infrastructure data to help the reader understand how the information in the Town’s financial report relates to the services the Town provides and activities it performs.

Source: Unless otherwise noted, the information in these schedules is derived from the Annual Comprehensive Financial Reports for the relevant year.
-142-

TOWN OF HILLSBOROUGH
NET POSITION BY COMPONENT (accrual basis of accounting)

LAST TEN FISCAL YEARS
95 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Governmental activities:

Net investments in
capital assets $ 12,019,998 $ 11,723,890 $ 11,122,842 $ 11,452,814 $ 10,792,547 $ 10,665,462 $ 10,403,101 $ 10,005,668 $ 9,426,844 $ 9,506,355 Restricted 482,370 328,497 483,242 280,529 281,094 545,609 647,100 837,627 2,020,966 1,198,231 Unrestricted 22,903,516 25,116,929 7,688,366 10,699,690 12,377,163 1,585,599 5,967,436 7,437,812 7,194,656 9,330,032 Total governmental activities
net position 35,405,884 37,169,316 19,294,450 22,433,033 23,450,804 12,796,670 17,017,637 18,281,107 18,642,466 20,034,618 Business-type activities:

Net investment in capital assets 10,350,088 11,592,114 14,228,241 16,043,824 25,925,584 27,303,121 29,365,910 34,969,122 39,047,391 40,560,771 Restricted 750,000 750,000 750,000 1,265,000 1,131,835 1,131,835 1,181,801 1,181,801 1,181,801 1,181,801 Unrestricted 20,935,882 23,728,010 21,534,214 20,082,986 17,950,317 19,749,223 24,431,777 25,869,289 28,532,950 35,223,979 Total business-type activities
net position 32,035,970 36,070,124 36,512,455 37,391,810 45,007,736 48,184,179 54,979,488 62,020,212 68,762,142 76,966,551 Primary government:

Net investments in
capital assets 22,370,086 23,316,004 25,351,083 27,496,638 36,718,131 37,968,583 39,769,011 44,974,790 48,474,235 50,067,126 Restricted 1,232,370 1,078,497 1,233,242 1,545,529 1,412,929 1,677,444 3,898,199 2,019,428 3,202,767 2,380,032 Unrestricted 43,839,398 48,844,939 29,222,580 30,782,676 30,327,480 21,334,822 28,329,915 33,307,101 35,727,606 44,554,011 Total primary government
net position $ 67,441,854 $ 73,239,440 $ 55,806,905 $ 59,824,843 $ 68,458,540 $ 60,980,849 $ 71,997,125 $ 80,301,319 $ 87,404,608 $ 97,001,169 Governmental Activities Net Position: The increase in FY 21/22 is primarily due to revenue growth in the General Fund from property taxes. The restricted net position change is due to the timing of street and other capital improvement projects. With the biennial cycle, monies accumulate in one year and are drawn down in the next year when the improvements are spent. The decrease in FY 14/15 is primarily due to the implementation of GASB 68 - Pension and in FY 17/18 for GASB 75 – Other Post-Employment Benefits (OPEB), which decreases net position due to the net pension and OPEB liabilities being added into the Statement of Net Position.

Business-Type Activities Net Position: The increase in FY 21/22 is primarily due to a sewer and water rate increase and a transfer from the General Fund for storm drain capital funding, as well as timing of capital spending in the water and sewer enterprises. The increase in FY 16/17 is primarily due to receipt of one-time contributions in connection with capital improvement projects and the FY 16/17 Net Investment in Capital Assets increased for the completion of major water tank, water main, water meter, sewer hydraulic, sewer basin and storm drain capital projects. The increase in FY 15/16 restricted net position is attributable to the reserve requirement addition for the new State Revolving Fund Loan used to fund the El Cerrito sewer basin project. -143-

TOWN OF HILLSBOROUGH
CHANGES IN NET POSITION (accrual basis of accounting)

LAST TEN FISCAL YEARS
96 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Expenses:

Governmental activities:

General government $ 1,970,813 $ 2,331,055 $ 1,440,949 $ 1,237,668 $ 1,101,642 $ 1,651,645 $ 1,772,674 $ 2,343,943 2,273,947$ 1,990,984$ Public safety 12,511,099 13,013,443 13,415,141 13,934,621 16,183,032 16,711,271 17,525,119 19,341,808 20,058,933 20,223,279 Community services 2,421,753 2,540,073 2,583,821 2,668,325 2,740,114 2,447,628 2,753,950 3,126,283 3,863,894 3,934,667 Streets 1,895,336 4,158,492 2,390,733 4,253,687 2,609,530 5,086,027 4,081,758 4,341,759 5,065,221 6,290,672 Total governmental activities expenses 18,799,001 22,043,063 19,830,644 22,094,301 22,634,318 25,896,571 26,133,501 29,153,793 31,261,995 32,439,602 Business-type activities:

Water 10,791,889 10,569,641 10,173,406 10,845,215 12,302,076 13,083,410 12,272,300 13,194,795 14,714,173 13,066,074 Sewer 7,032,593 6,925,551 8,535,762 10,122,581 8,932,190 10,704,394 9,611,847 10,523,977 11,359,129 10,649,566 Total business-type activities 17,824,482 17,495,192 18,709,168 20,967,796 21,234,266 23,787,804 21,884,147 23,718,772 26,073,302 23,715,640 Program Revenues:

Governmental activities:

Charges of services:

General government 592,904 691,624 716,896 705,961 741,268 772,233 818,055 805,114 831,057 550,957 Public safety 406,742 444,598 440,242 468,667 435,396 407,497 462,095 442,062 352,437 374,505 Community services 1,568,077 1,613,213 1,830,985 1,617,138 1,810,631 1,792,327 2,073,463 1,499,212 1,843,575 2,183,888 Streets 743,363 749,237 818,772 719,496 804,199 826,645 926,610 580,944 1,210,566 944,024 Operating grants and functional taxes 1,353,167 1,475,280 1,292,466 1,241,798 1,204,673 1,399,235 1,311,308 1,710,116 1,811,351 5,034,025 Total governmental activities
program revenues 4,664,253 4,973,952 5,099,361 4,753,060 4,996,167 5,197,937 5,591,531 5,037,448 6,048,986 9,087,399 Business-type activities:

Charges for services:

Water 11,618,904 13,349,064 11,650,371 12,290,648 13,692,123 14,702,348 14,468,790 15,792,826 16,405,140 14,693,899 Sewer 7,592,954 8,174,809 8,847,036 9,357,385 10,278,455 11,187,404 12,332,212 13,078,529 14,091,293 14,523,403 Capital grants, contributions and other
non-operating revenues 927,137 1,117,463 99,572 1,409,826 - - - - - - Total business-type program revenues 20,138,995 21,623,445 21,614,870 21,648,033 25,380,404 25,889,752 26,801,002 28,871,355 30,496,433 29,217,302 24,803,248 26,597,397 26,714,231 26,401,093 30,376,571 31,087,689 32,392,533 33,908,803 36,545,419 38,304,701 Net (Expense)/Revenue:

Governmental activities (14,134,748) (17,069,111) (14,731,283) (17,341,241) (17,638,151) (20,698,634) (20,541,970) (24,116,345) (25,213,009) (23,352,203) Business-type activities 2,314,513 4,128,253 2,905,702 680,237 4,146,138 2,101,948 4,916,855 5,152,583 4,423,131 5,501,662 Total primary government net revenues (11,820,235) (12,940,858) (11,825,581) (16,661,004) (13,492,013) (18,596,686) (15,625,115) (18,963,762) (20,789,878) (17,850,541) -144-

TOWN OF HILLSBOROUGH
CHANGES IN NET POSITION (accrual basis of accounting), Continued

LAST TEN FISCAL YEARS
97 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
General Revenues and Other
Changes in Net Position
Governmental activities:

Taxes:

Property tax $ 10,943,691 $ 11,780,737 $ 12,629,286 $ 13,783,039 $ 14,872,305 $ 15,785,068 $ 16,680,762 $ 17,413,680 18,455,541$ 19,324,411$ Public safety taxes 2,234,932 2,451,066 2,240,792 2,242,334 2,242,686 2,243,038 2,243,876 2,244,228 2,246,340 2,247,128 Property transfer tax 320,472 423,638 371,174 345,986 380,016 380,986 380,950 316,893 623,797 621,578 Franchise tax 707,497 734,990 715,352 723,843 739,249 741,207 714,541 768,487 771,157 800,915 Sales tax 168,838 14,175 65,277 73,853 98,856 100,563 128,297 207,880 143,535 171,454 Motor vehicle license tax 859,232 962,067 1,016,527 1,108,302 1,188,946 1,261,095 1,330,092 1,343,173 839,339 1,396,460 Business license tax 618,316 685,902 658,006 633,949 664,654 683,726 675,464 519,581 935,893 854,351 ERAF Refund 1,209,500 1,368,369 2,144,753 1,432,614 1,470,846 1,693,630 2,209,536 2,300,581 2,381,601 3,153,308 Triple flip 41,146 106,834 - - - - - - - -
HOPTR 67,427 66,878 66,635 66,261 65,236 63,293 61,428 59,611 58,841 58,508 All others 32,344 12,649 76,314 54,655 212,368 190,715 492,275 226,314 414,574 592,396 Unrestricted investment earnings 106,457 65,238 72,299 109,988 196,501 363,702 1,045,716 1,179,383 903,750 (1,674,854) Miscellaneous 160,000 - 160,000 (95,000) (3,346,214) (2,229,769) (1,200,000) (1,200,000) (2,200,000) (2,801,295) Total governmental activities 17,309,852 18,832,543 20,216,415 20,479,824 18,785,449 21,277,254 24,762,937 25,379,811 25,574,368 24,744,360 Business-type activities:

Investment earnings 55,839 65,901 76,710 104,118 123,575 233,973 678,454 688,141 118,799 (98,548) Miscellaneous (160,000) - (160,000) 3,346,214 95,000 2,229,769 1,200,000 1,200,000 2,200,000 2,801,295 Total business-type activities 55,839 (94,099) (83,290) 199,118 3,469,789 2,463,742 1,878,454 1,888,141 2,318,799 2,702,747 Total primary government 17,365,691 18,738,444 20,133,125 20,678,942 22,255,238 23,740,996 26,641,391 27,267,952 27,893,167 27,447,107 Change in Net Position
Governmental activities 3,175,104 1,763,432 5,485,132 3,138,583 1,147,298 578,620 4,220,967 1,263,466 361,359 1,392,157 Business-type activities 2,370,352 4,034,154 2,822,412 879,355 7,615,927 4,565,690 6,795,309 7,040,724 6,741,930 8,204,409 Total primary government $ 5,545,456 $ 5,797,586 $ 8,307,544 $ 4,017,938 $ 8,763,225 $ 5,144,310 $ 11,016,276 $ 8,304,190 7,103,289$ 9,596,566$ Business-Type Activities: The Change in Net Position of Business-Type Activities in FY 21/22 improves over the prior year. The change in net position is primarily attributable to timing of capital spending as well as an increase in the transfer from General Fund for storm drain capital. Program revenues increased primarily for sewer rate and water rate increase, however, water revenue is lower than prior year due to drought conservation. General revenues increased for the transfers, offset somewhat by linvestment unrealized loss. Expenses are lower than the prior year for timing of capital improvements as well as the prior year includes an estimate of costs for the water rate claim settlement.

Governmental Activities: The Change in Net Position of Governmental Activities in FY 21/22 improves over the prior year. General revenues increased over the prior year primarily for receipt of one-time American Rescue Plan (ARPA) revenue, and increase in property taxes, Excess ERAF and motor vehicle license fees. Property tax increases are attributable to strong real estate activity in the city and region; the motor vehicle in-lieu and Excess ERAF are primarily increasing due to timing of allocations. Investment loss reflects the unrealized loss. The Town typically holds investments to maturity thus reversing unrealized gains and losses. Expenses increased primarily for contractual salary and pension contribution expenses, contractual increases for services and street repaving program. -145-

TOWN OF HILLSBOROUGH
GOVERNMENTAL ACTIVITIES TAX REVENUES BY SOURCE (accrual basis of accounting)

LAST TEN FISCAL YEARS
98 (1) (2) (3)
Fiscal
Year
Property
Tax
Police and Fire
Special Tax
Excess
ERAF
Vehicle
License Tax
Property
Transfer Tax
Franchise
Tax
Sales
Tax/In-Lieu
Business
License Tax
12/13 10,943,691 $ $ 2,234,932 1,209,500$ $ 859,232 $ 320,472 $ 707,497 $ 209,984 $ 618,316 13/14 11,780,737 2,451,066 1,368,369 962,067 423,638 734,990 14,175 685,902 14/15 12,629,286 2,240,792 2,144,753 1,016,527 371,174 715,352 65,277 658,006 15/16 13,783,039 2,242,334 1,432,614 1,108,302 345,986 723,843 73,853 633,949 16/17 14,872,305 2,242,686 1,470,846 1,188,946 380,016 739,249 98,856 664,654 17/18 15,785,068 2,243,038 1,693,630 1,261,095 380,986 741,207 100,563 683,726 18/19 16,680,762 2,243,876 2,209,536 1,330,092 380,950 714,541 128,297 675,464 19/20 17,413,680 2,244,228 2,300,581 1,343,173 316,893 768,487 207,880 519,581 20/21 18,455,541 2,246,340 2,381,601 839,339 623,797 771,157 143,535 935,893 21/22 19,324,411 2,247,128 3,153,308 1,396,460 621,578 800,915 171,454 854,351 (1) The Police and Fire Special Tax was approved by the voters on June 1998 to replace the existing General Fund Tax and used solely to help maintain and enhance police protection, fire protection and prevention services. (2) Starting FY 03/04, property tax contributions to the Education Revenue Augmentation Fund (ERAF) in San Mateo County reached a level where such contributions were in excess of State mandated school funding. The excess contributions are returned to the County agencies and other taxing districts. (3) Vehicle license fee is backfilled by the State of California starting in 1998 when the State reduced the rate from 2% to .65%. -146-

TOWN OF HILLSBOROUGH
FUND BALANCES OF GOVERNMENTAL FUNDS (modified accrual basis of accounting)

LAST TEN FISCAL YEARS
99 Special Capital
Fiscal Non- Revenue Funds Projects Fund (2)
Year Spendable Restricted(3) Assigned(4) Unassigned Total Restricted Assigned Total 12/13 $ 5,108 $ - $ 8,841,773 - $ $ 6,350,792 $ 482,370 $ 3,878,126 $ 3,677,407 13/14 16,678 - 12,059,156 - 8,846,881 328,497 3,276,077 4,360,496 14/15 5,864 - 16,246,015 - 12,075,834 ( 483,242 4,029,620 3,604,574 15/16 5,479 - 19,880,416 - 16,251,879 280,529 3,213,579 4,512,862 16/17 8,065 - 20,085,943 - 19,885,895 281,094 4,237,398 3,494,108 17/18 8,571 - 22,495,369 - 20,094,008 545,609 2,439,001 4,518,492 18/19 2,069,298 8,570 5,863,000 18,357,790 26,298,658 647,100 2,990,041 3,637,141 19/20 5,041,521 5,930 5,863,000 17,925,091 28,835,542 837,627 3,377,044 4,214,671 20/21 5,348,587 11,817 5,863,000 18,754,314 29,977,718 2,020,966 3,096,289 5,117,255 21/22 4,384,217 26,095 8,587,000 18,824,100 31,821,412 1,198,231 3,839,502 5,037,733 (1) Increase in General Fund fund balance in FY 14/15 is primarily attributable to increase in property tax revenues and strong expenditure containment. (2) Fluctuations in the Capital Projects Fund fund balance is timing of capital spending, primarily in street repaving program, which is on a biennial cycle. (3) The Restricted balance is held in a Section 115 pension trust for future pension obligations. The Assigned balance is held for capital projects including storm drain, sewer and tree replacement.
(4) FY 18/19 Restricted balance is held in a Section 115 pension trust for future pension obligations. FY 18/19 Assigned balance is held for capital projects including storm drain, sewer and tree replacement.

General Fund
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22

GENERAL FUND FUND BALANCE
-147-

TOWN OF HILLSBOROUGH
CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS (modified accrual basis of accounting)

LAST TEN FISCAL YEARS
100
12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 Revenues:

Taxes (3) 16,921,691$ 18,022,939$ 19,544,649$ 19,381,521$ 20,625,423$ 21,761,555$ 23,174,591$ 23,912,273$ 25,707,422$ 27,338,357$ Permits 1,257,636 1,263,697 1,293,814 1,296,528 1,382,578 1,433,876 1,626,587 1,154,983 1,890,169 1,760,441 Intergovernmental 1,918,372 2,598,876 2,307,932 2,308,153 2,331,557 2,730,058 2,707,593 3,126,785 2,709,566 6,411,744 Service charges 989,513 1,089,867 1,179,642 1,150,751 1,119,679 1,090,405 1,218,912 1,176,300 961,695 1,454,288 Fines and forfeitures 50,879 96,766 194,506 49,718 148,187 159,528 197,322 23,777 38,850 21,534 Other fees and charges (1) - - - 510,121 641,144 630,260 642,978 395,277 854,306 666,826 Investment earnings 101,741 58,428 63,256 95,590 140,791 303,068 869,798 1,001,271 903,750 (1,683,070) Miscellaneous 471,909 506,369 561,125 517,858 550,205 528,962 882,935 590,881 712,886 618,844 Total revenues 21,711,741 23,636,942 25,144,924 25,310,240 26,939,564 28,637,712 31,320,716 31,381,527 33,778,644 36,588,964 Expenditures:

General government 793,779 1,070,319 1,032,408 1,083,386 1,193,117 1,319,841 1,598,755 1,756,749 1,928,027 1,825,699 Public safety 12,464,023 12,855,768 13,682,047 14,684,875 15,689,634 16,195,735 16,990,728 17,808,901 18,795,622 19,918,895 Community services 2,406,904 2,536,784 2,561,612 2,672,549 2,719,138 2,729,304 3,086,589 3,425,185 3,836,232 3,902,093 Streets 1,482,528 1,975,604 2,292,809 3,896,794 2,392,966 5,255,841 3,435,091 3,876,263 4,485,333 6,065,777 Capital outlay 892,930 2,233,720 - - - 522,941 637,304 200,015 488,670 311,029 Total expenditures 18,040,164 20,672,195 19,568,876 22,337,604 21,994,855 26,023,662 25,748,467 27,067,113 29,533,884 32,023,493 Excess of revenues over (under)
expenditures 3,671,577 2,964,747 5,576,048 2,972,636 4,944,709 2,614,050 5,572,249 4,314,414 4,244,760 4,565,471 Other Financing Sources (Uses):

Transfers in 3,610,479 3,679,700 3,253,766 3,435,093 3,279,368 3,363,402 4,270,579 4,342,785 3,515,248 5,752,124 Transfers out (2) (4,102,878) (4,171,416) (3,745,482) (3,792,469) (6,991,582) (5,101,402) (5,395,579) (5,542,785) (5,715,248) (8,553,419) Total Other Financing Sources (Uses) (492,399) (491,716) (491,716) (357,376) (3,712,214) (1,738,000) (1,125,000) (1,200,000) (2,200,000) (2,801,295) NET CHANGE IN FUND BALANCES 3,179,178$ 2,473,031$ 5,084,332$ 2,615,260$ 1,232,495$ $ 876,050 4,447,249$ 3,114,414$ 2,044,760$ 1,764,176$

NET CHANGE IN FUND BALANCES -
GENERAL FUND (3) 2,496,089$ 3,228,953$ 4,176,045$ 3,634,015$ $ 208,112 2,409,932$ 3,794,718$ 2,536,884$ 1,142,176$ 1,843,694$ DEBT SERVICE EXPENDITURES $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

RATIO OF DEBT SERVICE TO
NONCAPITAL EXPENDITURES 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% (1) Starting in FY 15/16, the fees and charges for the Capital Fund street related fees are broken out separately as Other Fees and Charges. In prior years, these amounts are included in Taxes. (2) FY 16/17 transfers out include one-time capital improvement contributions for automated meter readers and storm drains. The contributions were from the General Fund, thereby also reducing the change in fund balance of the General Fund as compared to the prior year.
(3) The net change in fund balance in FY 18/19 is higher than FY 17/18 due to improved revenue as well as timing of the street repaving program, which is biennial.

The net change in fund balance in FY 21/22 is primarily attributable to timing of street-related revenues and capital projects, in addition to the increase in the General Fund's fund balance. (4) The net change in General Fund fund balance is attributable to an increase in property taxes, Excess ERAF, vehicle license fees, and one-time American Rescue Plan (ARPA) revenue. These revenues cover the growth in expenditures that are increasing due to CPI and contractual labor increases, as well as street resurfacing projects. -148-

TOWN OF HILLSBOROUGH

PROPERTY TAX DOLLAR BREAKDOWN
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
101
ATI (Annual Tax Increment) Ratios for Tax Rate Area 006-001, Excluding Redevelopment Factors & Additional Debt Service Data Source: San Mateo County Assessor 2020/21 Annual Tax Increment Tables This report is not to be used in support of debt issuance or continuing disclosure statements without the written consent of HdL, Coren and Cone.
$ 0.01066 Peninsula Hospital District
$ 0.00409 County Harbor District
$ 0.00242 Bay Area, Air Pollution
$ 0.00223 Mosquito Abatement
$ 1.0000
$ 0.12105 ERAF Share of San Mateo County
$ 0.1539 San Mateo County
$ 0.2005 San Mateo Union High School District
$ 0.1985 Hillsborough Elementary General Purpose
$ 0.02718 ERAF Share of Hillsborough General Fund
$ 0.1599 Hillsborough General Fund
$ 0.0787 San Mateo Junior College General Purpose
$ 0.0409 County Education Tax
-149-

TOWN OF HILLSBOROUGH

NET TAXABLE ASSESSED VALUE HISTORY

LAST TEN FISCAL YEARS
102
Total Direct
Lien Year Secured Unsecured SBE Nonunitary Net Total AV % Change Tax Rate 2012/13 $ 6,920,302,922 $ 5,149,053 $ - $ 6,925,451,975 0.04% 0.15739 2013/14 7,377,527,987 4,556,205 - 7,382,084,192 6.59% 0.15736 2014/15 7,833,939,940 5,908,200 - 7,839,848,140 6.20% 0.15767 2015/16 8,460,687,856 8,612,367 - 8,469,300,223 8.03% 0.15782 2016/17 9,121,371,245 6,096,108 - 9,127,467,353 7.77% 0.15781 2017/18 9,673,123,078 5,220,467 - 9,678,343,545 6.04% 0.15779 2018/19 10,210,348,568 5,112,653 - 10,215,461,221 5.55% 0.15778 2019/20 10,757,039,454 5,454,728 - 10,762,494,182 5.35% 0.15777 2020/21 11,331,663,036 7,428,937 - 11,339,091,973 5.36% 0.15775 2021/22 11,821,444,062 8,820,787 - 11,830,264,849 4.33% 0.15774 -150-

TOWN OF HILLSBOROUGH

DIRECT AND OVERLAPPING PROPERTY TAX RATES
(RATE PER $100 OF TAXABLE VALUE)
103
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 Agency
Basic Levy¹ 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 Burlingame Elementary 0.0479 0.0649 0.0744 0.0636 0.0568 0.0762 0.0706 0.0633 0.0658 0.0728 Hillsborough Elementary 0.0276 0.0274 0.0271 0.0264 0.0256 0.0276 0.0271 0.0292 0.0289 0.0297 San Mateo Community College 2005 Series B - - - - - - - 0.00 0.0037 - San Mateo Junior College 0.0194 0.0194 0.0190 0.0250 0.0247 0.0235 0.0175 0.0231 0.0176 - San Mateo Junior Comm College 0.0227
San Mateo Union High 0.0381 0.0355 0.0475 0.0466 0.0415 0.0433 0.0407 0.0385 0.0449 0.0488 Total Direct & Overlapping² Tax Rates 1.1330 1.1472 1.1680 1.1616 1.1486 1.1706 1.1559 1.1576 1.1609 1.1740 City's Share of 1% Levy Per Prop 13³ 0.1871 0.1871 0.1871 0.1871 0. 0.1871 1871 0.1599 0.1599 0.1599 0.1599 Voter Approved City Debt Rate
Redevelopment Rate⁴
Total Direct Rate5 0.16008 0.15739 0.15736 0.15767 0.15782 0.15779 0.15778 0.15777 0.15775 0.15774 This report is not to be used in support of debt issuance or continuing disclosure statements without the written consent of HdL, Coren & Cone.

Last Ten Fiscal Years
Notes:
¹In 1978, California voters passed Proposition 13 which set the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of any voter approved bonds. ²Overlapping rates are those of local and county governments that apply to property owners within the City. Not all overlapping rates apply to all city property owners. ³City's Share of 1% Levy is based on the City's share of the general fund tax rate area with the largest net taxable value within the City. ERAF general fund tax shifts may not be included in tax ratio figures.
⁴Redevelopment Rate is based on the largest RDA tax rate area and only includes rate(s) from indebtedness adopted prior to 1989 per California State statute. RDA direct and overlapping rates are applied only to the incremental property values. The approval of ABX1 26 eliminated Redevelopment from the State of California for the fiscal year 2012/13 and years thereafter. ⁵Total Direct Rate is the weighted average of all individual direct rates applied by the City/Agency preparing the statistical section information and excludes revenues derived from aircraft.

Beginning in 2013/14 the Total Direct Rate no longer includes revenue generated from the former redevelopment tax rate areas. Challenges to recognized enforceable obligations are assumed to have been resolved during 2012/13. For the purposes of this report, residual revenue is assumed to be distributed to the City/Agency in the same proportions as general fund revenue.

Data Source: San Mateo County Assessor 2012/13 - 2021/22 Tax Rate -151-

TOWN OF HILLSBOROUGH

PRINCIPAL PROPERTY TAXPAYERS
FISCAL YEAR 2021-22 COMPARED TO NINE YEARS PRIOR
104
Percentage of Percentage of
Taxable Total Taxable Taxable Total Taxable
Assessed Assessed Assessed Assessed
Taxpayer (Number of Parcels) Value Rank Value Value Rank Value CAROLANDS FOUNDATION $ 147,917,402 1 1.25%
ALPHA YIELD HOLDINGS LIMITED 34,185,761 2 0.29%
2120 RAHLLC 27,982,530 3 0.24%
THEODORE H KRUTTSCHNITT 26,003,715 4 0.22% $ 16,746,556 4 0.24% DEIGHT WISE INVESTMENTS LIMITED 25,315,390 5 0.21%
GATSBY 2 0 LLC 25,050,926 6 0.21%
PETER SPIRO STAMOS TRUST 21,109,877 7 0.18%
899 SHARON AVENUE LLC 18,848,550 8 0.16%
123 NEW PLACE LLC 18,563,570 9 0.16%
AUGUST MOON 1971 LLC 18,346,631 10 0.16%
JAMES G B III DE MARTINI TRUST 22,650,000 1 0.33%
VAL E VADEN TRUST 18,546,862 2 0.27%
CHRISTOPHER R REDLICH JR TRUST 16,996,701 3 0.25%
HSU FAMILY TRUST 13,979,316 5 0.20%
PETER SPIRO STAMOS TRUST 13,500,000 6 0.20%
PATRICK C TAI TRUST 11,963,537 7 0.17%
DEB DIPANJAN TRUST 11,510,022 8 0.17%
OTTO J MILLER 11,081,196 9 0.16%
FRANK NONG WANG-LU TRUST 10,994,637 10 0.16%
$ 363,324,352 3.08% $ 147,968,827 2.15%
Source: San Mateo Tax Assessor's Office
2021-22 2012-13
-152-

TOWN OF HILLSBOROUGH
PROPERTY TAX LEVIES AND COLLECTIONS (1)

LAST TEN FISCAL YEARS
105
% of
Tax Levy (2) ERAF Shift Net Levy Chg Amount % of Levy Amount % of Levy 12/13 $ 12,813,500 $ 1,846,649 $ 10,966,851 0% $ 10,943,552 100% $ 10,943,552 100% 13/14 13,666,852 1,970,189 11,696,663 4% 11,511,840 98% 11,511,840 98% 14/15 14,530,754 2,094,115 12,436,639 7% 12,332,000 99% 12,332,000 99% 15/16 15,630,336 2,264,366 13,365,970 6% 13,385,540 100% 13,385,540 100% 16/17 16,956,939 2,442,572 14,514,368 7% 14,445,762 100% 14,445,762 100% 17/18 17,993,645 2,591,569 15,402,076 9% 15,378,546 100% 15,378,546 100% 18/19 18,893,426 2,736,956 16,156,470 5% 16,197,533 100% 16,197,533 100% 19/20 20,025,328 2,885,025 17,140,303 6% 17,121,136 100% 17,121,136 100% 20/21 21,106,412 3,041,105 18,065,307 5% 17,966,305 99% 17,966,305 99% 21/22 21,909,150 3,174,001 18,735,149 4% 18,810,659 100% 18,810,659 100% (1) Secured taxes are paid under the TEETER PLAN which requires full payment of the tax levy with no deductions for delinquencie However, collections may include adjustments and refunds processed throughout the year. (2) Includes Secured, Unsecured, HOPTR and Unitary
(3) Information regarding collections in subsequent years is not available.

Source: San Mateo County Assessor's Office and Town of Hillsborough Finance Department Collected within FY Total Collections to Date
$-
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 $ Millions

PROPERTY TAX COLLECTIONS
-153-

TOWN OF HILLSBOROUGH

RATIO OF OUTSTANDING DEBT BY TYPE

LAST TEN FISCAL YEARS
106
Fiscal Business-Type
Total
Primary
Percentage of
Estimated Net
Taxable Values Per
Year Activities (1) Government of Property (2) Capita (3) 12/13 $ 34,855,516 $ 34,855,516 0.50% 3,136
13/14 33,588,407 33,588,407 0.45% 2,982
14/15 32,305,334 32,305,334 0.41% 2,868
15/16 37,994,330 37,994,330 0.45% 3,251
16/17 38,754,389 38,754,389 0.42% 3,297
17/18 36,982,848 36,982,848 0.38% 3,147
18/19 36,322,283 36,322,283 0.36% 3,086
19/20 34,489,678 34,489,678 0.34% 3,021
20/21 32,637,021 32,637,021 0.29% 2,988
21/22 57,353,049 57,353,049 0.48% 5,205
Source: Town of Hillsborough Finance Department.
(2) Net Taxable Assessed Values can be found in the Net Taxable Assessed Values history page. (3) Population data can be found in the Demographic and Economic Statistic page. (1) Business Type Activities debt includes Certificates of Participation, State Revolving Fund Loan, ECE Loan, and Wastewater Treatment Funding Agreement.
-154-

TOWN OF HILLSBOROUGH

COMPUTATION OF DIRECT AND OVERLAPPING DEBT
107
2021-22 Assessed Valuation $11,830,246,849
Total Debt Applicable Town's Share of
6/30/2022 Percentage (1) Debt 6/30/2022
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT:

San Mateo Community College District $ 733,897,184 4.441% $ 32,592,374 San Mateo Union High School District 665,230,852 13.074% 86,972,282 Hillsborough School District 70,535,378 99.862% 70,438,039 Burlingame School District 163,365,917 0.013% 21,238
Town of Hillsborough 100.000% - -
Total Direct and Overlapping Tax and Assessment Debt $ 190,023,933 OVERLAPPING GENERAL FUND DEBT:

San Mateo County General Fund Obligations $ 612,605,687 4.441% $ 27,205,819 San Mateo County Board of Education Certificates of Participation 6,490,000 4.441% 288,221 San Mateo Mosquito and Vector Contril District General Fund Obligations 3,825,000 169,868 Total Gross Overlapping General Fund Obligation Debt $ 27,663,908 TOTAL DIRECT DEBT $ -
TOTAL OVERLAPPING DEBT $ 217,687,841
COMBINED TOTAL DEBT (2) $ 217,687,841
(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.

RATIOS TO ASSESSED VALUATION:

Direct Debt 0.00%
Total Direct and Overlapping Tax and Assessment Debt 1.61% Combined Total Debt 1.84%
Jurisdiction
(1) The percentage of overlapping debt applicable to the town is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the town divided by the district's total taxable assessed value.
-155-

TOWN OF HILLSBOROUGH

LEGAL DEBT MARGIN INFORMATION

LAST TEN FISCAL YEARS
108
Total
Net Debt Legal
Fiscal Assessed Debt Limit Applicable Debt
Year Value (2) 3.75% (1) to Limit Margin
12/13 $ 6,925,451,975 $ 259,704,449 $ - 249,649,635 $
13/14 7,382,084,192 276,828,157 - 259,704,449
14/15 7,839,848,140 293,994,305 - 276,828,157
15/16 8,469,300,223 317,598,758 - 293,994,305
16/17 9,127,467,353 342,280,026 - 317,598,758
17/18 9,678,343,545 362,937,883 - 342,280,026
18/19 10,215,461,221 383,079,796 - 383,079,796
19/20 10,762,494,182 403,593,532 - 403,593,532
20/21 11,339,091,973 425,215,949 - 425,215,949
21/22 11,830,246,849 443,634,257 - 443,634,257
(1) Pursuant to California Government Code Section 43605 (15% of 25% of full cash value). (2) Net Taxable Assessed Values can be found in the Net Taxable Assessed Values history page.

Source: Town of Hillsborough Finance Department.
-156-

TOWN OF HILLSBOROUGH

SCHEDULE OF ENTERPRISE FUNDS DEBT COVERAGE

LAST TEN FISCAL YEARS
109
Net Revenues Interest and Total
Fiscal Available for Fiscal Debt
Year Revenues Expenses (1) Debt Service Principal Charges Service Coverage 12/13 19,267,696$ $ 14,207,600 $ 5,060,096 1,200,000$ $ 1,287,198 2,487,198$ 2.03 13/14 21,689,347 16,495,819 5,193,528 1,267,228 1,383,641 2,650,869 1.96 14/15 20,574,117 (2) 13,530,875 7,043,242 1,282,802 1,330,150 2,612,952 2.70 15/16 21,853,129 (2) 14,294,305 7,558,824 1,293,362 1,399,018 2,692,380 2.81 16/17 24,094,147 (2) 15,854,082 8,240,065 1,308,966 1,297,414 2,606,380 3.16 17/18 26,123,725 18,257,869 7,865,856 1,771,543 1,288,616 3,060,159 2.57 18/19 27,479,456 16,673,966 10,805,490 1,830,308 1,210,879 3,041,187 3.55 19/20 29,559,496 17,881,478 11,678,018 1,832,606 1,131,802 2,964,408 3.94 20/21 30,615,232 19,852,024 10,763,208 1,852,656 1,152,449 3,005,105 3.58 21/22 29,118,754 17,565,676 11,553,078 1,872,608 1,059,140 2,931,748 3.94 (1) Total expenses excludes depreciation and interest.
(2) Expenses exclusive of capital contributions for a water treatment plant and other contracts. In Fiscal Years 14/15, 15/16, and 16/17 , it is exclusive of El Cerrito sewer project contributions.

Source: Town of Hillsborough's Finance Department.
-157-

TOWN OF HILLSBOROUGH

WATER AND SEWER RATES

LAST TEN FISCAL YEARS
110
Fiscal
Year (1) 1st Tier % of Change Residential % of Change
12/13 5.59 13% 1,898 7%
13/14 6.32 13% 2,031 7%
14/15 7.14 13% 2,173 7%
15/16 (2) 8.74 22% 2,325 7%
16/17 (3) 5.54 n/a 2,558 10%
17/18 5.98 8% 2,814 10%
18/19 5.98 0% 3,095 10%
19/20 5.98 0% 3,312 7%
20/21 5.98 0% 3,543 7%
21/22 6.16 3% 3,685 4%
Source: Town's Finance Department
(1) Rates shown are for bimonthly billing.
(2) Water rate change effective 2/11/16; thereafter every January 1; sewer rate change effective each July 1.

See the Town's budget document for the Master Fee Schedule that outlines all fees and charges Water Sewer
(3) Sewer rate increase was effective July 1, 2016. A comprehensive water enterprise cost of service study was conducted and rates were implemented May 2017. The study adjusted the volumetrics tiers and charges and the service charges. -158-

TOWN OF HILLSBOROUGH

DEMOGRAPHIC AND ECONOMIC STATISTICS

LAST TEN FISCAL YEARS
111
Calendar
Year Population
Personal
Income
(Thousands)
Per Capita
Personal Income
Unemployment
Rate
Median
Age
% of Pop 25+
with High
School Degree
% of Pop 25+
with Bachelor's
Degree
Note 1
2012 11,115 1,304,112 117,329 2.2% 46.7 95.8% 72.0%
2013 11,260 1,331,518 118,252 1.8% 46.4 95.1% 73.5%
2014 11,266 1,309,199 116,208 3.6% 46.6 96.1% 76.0%
2015 11,687 1,425,471 121,970 2.9% 46.3 96.8% 75.7%
2016 11,753 1,367,991 116,395 2.6% 47.8 97.6% 78.6%
2,017 11,543 1,314,050 113,839 2.6% 47.2 97.5% 77.1%
2018 11,769 1,390,438 118,144 2.3% 47.6 97.1% 75.7%
2019 11,418 1,593,255 139,538 2.1% 47.8 96.6% 77.2%
2020 11,391 1,612,232 141,535 5.6% 47.9 96.5% 78.9%
2021 11,018 1,798,989 163,277 4.0% 46.6 97.5% 81.1%
-159-

TOWN OF HILLSBOROUGH

COUNTY OF SAN MATEO AND NEIGHBORING CITIES

LARGEST EMPLOYERS ON THE PENINSULA
112
Percentage of
Total Labor Workforce
Peninsula San Mateo
Name Description Employees County (1)
Facebook Inc. Social networking website 15,407 3.46%
Tesla Inc. Electric vehicle manufacturing 13,000 2.92%
Genentech Biotechnology Company 12,000 2.69%
Oracle Computer Hardware 9,149 2.05%
Gilead Scieces Inc. Biopharmaceutical Company 4,190 0.94% Youtube Online Video Streaming Platform 2,384 0.54%
Sony Interactive Entertainment Consumer entertainment and gaming compan 1,855 0.42% Alaska Airlines Airline 1,591 0.36%
Electronic Arts Inc. Video game developer and publisher 1,478 0.33% Robert Half International Inc. Staffing Firm 1,474 0.33% Source: San Francisco Business Times, Book of Lists, 2022. (1) The table above reflects the statistical data for San Mateo County as provided by the Employment Development Department of the State of California as of December 2021. -160-

TOWN OF HILLSBOROUGH

FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION

LAST TEN FISCAL YEARS
113
12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 Function
General Government:

City Manager 4 4 4 4 4 5 5 5 6 6
Finance 5 5 5 5 5 6 6 6 6 6
Community Services 8 8 8 8 8 8 8 8 9 9
Public Safety:

Police 30 31 32 34 35 36 36 37 37 37
Fire (1)
Public Works:

Administration 8 7 9 10 11 11 11 11 11 11
Maintenance:

Streets 7 7 6 5 5 5 5 6 6 6
Water 11 10 8 9 9 9 9 8 8 8
Sewer 8 8 8 8 8 8 8 8 8 8
Total 80 81 80 83 85 88 88 89 91 91
(1) In FY 04/05, Town of Hillsborough and the City of Burlingame approved a Joint Powers Agreement (JPA) for combined fire services. In FY 10/11, fire operations fully merged as Central County Fire Department. In FY 14/15, CCFD started providing fire services to the City of Millbrae.

Source: Town of Hillsborough's Finance Department.
-161-

TOWN OF HILLSBOROUGH

OPERATING INDICATORS BY FUNCTION

LAST TEN YEARS (WHEN AVAILABLE)
114
12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 Function:

Police
Total Incidents N/A N/A N/A N/A 26,888 35,145 34,477 29,772 31,530 29,339 Officer Initiated Incidents N/A N/A N/A N/A 18,048 25,871 22,752 18,835 21,101 20,532 Calls for Service N/A N/A N/A N/A 8,840 9,274 11,725 10,937 10,429 8,807 Average Response time (all calls) 0 5:50 6:09 5:35 5:15 6:10 5:32 6:23 6:09 5:54 Average Response time
(emergency calls) 0 3:42 3:40 3:26 2:31 3:01 2:49 3:11 2:45 2:12 Burglar Alarm Activations 2,607 2,580 2,586 2,500 2,608 2,253 2,281 2,118 1,648 1,608 Arrests:

Adult 36 23 36 45 62 93 146 69 61 59
Juvenile 4 9 11 3 4 7 1 2 - -
Traffic Activity:

Fatal Injury Accidents - - - -
Traffic Stops N/A N/A N/A N/A 875 1,826 2,291 1,630 898 1,284 Injury Accidents 6 12 8 14 7 8 7 11 7 10
Non-injury Accidents 41 57 50 36 43 52 56 27 27 40
Moving Citations 158 150 171 127 225 425 464 385 387 514 Courtesy Warning Citations 597 588 162 355 435 721 404 322 135 34 Criminal Activity:

Residential Burglary N/A N/A N/A N/A 34 20 35 24 33 39
Auto Theft N/A N/A N/A N/A 3 5 - 2 6 4
Attempted Murder N/A N/A N/A N/A - 2 - - - 1
Murder N/A N/A N/A N/A - - - - - -
Assault with Deadly Weapon N/A N/A N/A N/A 4 2 - 2 4 2
Sexual Assault N/A N/A N/A N/A 2 3 4 1 3 3
Robbery N/A N/A N/A N/A 1 - 1 - 1 1
Domestic Violence N/A N/A N/A N/A 5 9 9 5 7 6
CPS Investigations N/A N/A N/A N/A 23 30 31 22 26 20
Fire
Number of calls answered 4,232 4,338 4,715 4,263 7,668 6,584 7,493 6,574 7,004 8,350 Inspections 814 2,017 2,201 1,179 1,454 1,528 1,366 1,152 1,036 1,472 Planning - Design Review
New Houses Approved 16 16 23 25 20 13 27 6 15 12
Other Applications Approved 268 293 254 307 273 249 271 175 266 191 Building
# of Permits Issued 1,421 1,513 1,410 1,493 1,402 1,452 1,417 1,228 1,822 1,586 # of Projects 367 386.00 509 526 501 511 504 231 307 312 Valuation of Permits Issued (in 000's) $63,853 $73,441 $77,430 $72,217 $84,430 $78,012 $79,695 $54,639 $105,977 $94,101 Total New Dwellings 17 19 13 13 20 11 11 6 3 2
Streets
Street resurfacing (miles) 10.2 1.00 - - 16 22 1 15 27 16 Potholes repaired 45 65 55 51 60 47 50 20 18 14
Guardrail replacement (LF) 125 60 50 45 100 40 50 - 75 150 Storm drains cleaned 750 1,050 1,150 1,250 1,350 1,425 1,400 164 88 278 After hour callbacks 22 16 21 47 46 31 50 13 4 13
Water
New connections 5 2 8 2 3 5 3 3 0 1
Water mains breaks 6 22 28 24 18 10 28 19 44 19
Water purchased (in thousand units) 1,609 1,600 1,226 1,050 1,139 1,214 1,125 1,281 1315 1,141 Retail water sales (in thousand units) 1,453 1,505 1,177 981 1,027 1,149 1,094 1,188 1268 1,109 Meter replacements2 18 11 39 10 4,277 29 54 23 22 31
No of meter reads (calendar year)3 26,210 26,238 28,424 40,277 51,208 n/a n/a n/a n/a n/a After hour callbacks 33 37 67 69 120 115 95 49 135 58
Wastewater
Average daily flow (sewer-MGD)
San Mateo 0.596 0.53 0.53 0.46 0.82 0.47 0.75 0.42 0.68 0.77 Burlingame 0.82 0.37 0.41 0.35 0.48 0.23 0.48 0.41 0.37 0.41 Total 1.41 0.90 0.94 0.81 1.30 0.70 1.23 0.83 1.05 1.18 After hour callbacks 44 37 37 29 27 22 54 30 16 31
Source: Various Departments - Town of Hillsborough
1 Arrests are up due to reaching maximum staffing levels, proactive burglary suppression and an increase in number of drunk drivers. 2 The total number of calls answered for CCFD include Burlingame, Hillsborough and Millbrae starting in FY 16/17. FY 16/17 reflects the first full year that Millbrae was contracting for fire services from CCFD.
3 In FY 16/17, the Town replaced all of the existing water meters and installed Automated Meter Readers. Meter reading is now automated an no longer reported on this statistical chart. 6 The number of meter reads increased in FY 15/16 and 16/17 due to a shift from bi-monthly to monthly billing in order to monitor water conservation. Bi-monthly billing was reinstated in October 2017.
-162-

TOWN OF HILLSBOROUGH

CAPITAL ASSETS STATISTICS BY FUNCTION

LAST TEN FISCAL YEARS (WHEN AVAILABLE)
115
12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 Function:

Public Safety
Police:

Stations 2 2 2 2 2 2 2 2 2 2
Patrol units 17 17 17 17 17 17 17 17 21 21
Patrol motorcycles 4 4 4 4 4 4 4 4 3 3
Fire:

Fire Stations 4 4 6 6 6 6 6 6 6 6
Administrative Office 1 1 1 1 1 1 1 1 1 1
Fire Engines 4 4 7 7 7 7 7 7 7 7
Reserve Engines 2 2 3 3 3 3 3 3 3 3
Streets and Storm Drains
Streets (miles) 81 81 81 81 81 81 81 81 81 81
Storm drains (miles) 34 34 34 34 34 34 34 34 34 34
Water
Water mains (miles) 108 108 108 108 108 108 108 108 108 108 Fire Hydrants 1,010 1,010 1,010 1,010 1,020 1,020 1,020 1,020 1,020 1,020 Maximum daily capacity
(Million Gallons) 8,325 8,325 8,325 8,325 8,325 8,325 8,325 8,325 8,325 8,325 Sewer
Sanitary sewers (miles) 96 98 98 98 96 96 96 96 98 94
Source: Various Departments - Town of Hillsborough
Note: No capital asset indicators are available for the general government function. (1) In FY 03/04, the Town of Hillsborough and the City of Burlingame approved a Joint Power Agreement for fire combined services in which, except for certain items, operation costs are shared 40%/60% respectively. In FY 14/15, CCFD started providing fire services to the City of MIllbrae on a contractual basis, and Millbrae shares in 30% of the costs of Central County Fire Department operations. The above statistics reflect the addition of Millbrae fire stations and equipment starting in FY 14/15. -163-
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-164-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
3 OLD BUSINESS

CITY COUNCIL MEETING
DECEMBER 12, 2022

AGENDA STAFF REPORT
ITEM SUBJECT: DIRECT STAFF TO IMPLEMENT RECOMMENDATIONS ON THE 2006A SERIES SWAP AGREEMENT TIED TO LIBOR PURSUANT TO CEQA GUIDELINE 15378 SUMMARY: The Town of Hillsborough’s 2006A variable rate of interest certificate of participation (2006 COPs) has an interest rate swap that converts to fixed rate of interest. The swap is tied to one-month LIBOR, which is scheduled to be considered “non-representative” (i.e., sunsetting) on June 30, 2023. The Financial Advisory Committee (FAC) and City Council have previously studied the strategic options for mitigating any impact from the LIBOR transition on the 2006A swap. At the time of the review, it was determined that the LIBOR risk to the Town was not immediate (based on a sunset date of June 30, 2023) and that a follow up review should occur in 2022. In addition, it was also determined that the market conditions were not financially viable for the Town to exit/modify the swap(s) and that the conditions should be monitored and reported on a periodic basis, which has occurred.

The purpose of this agenda item is for the City Council to review the information and direct staff on next steps. The Financial Advisory Committee (FAC) reviewed the information at its regularly scheduled meeting on December 6, 2022. The FAC recommends a “Do Nothing” strategy to the City Council. Do Nothing means 1) no financial transaction to modify the swap per strategy A through D outlined in the Acacia Financial Group (Acacia) report and 2) the Town should not initiate an amendment (or “protocol”) to the swap agreement to include fallback language for the sunsetting of LIBOR, unless compelled to do so by an action or inaction on the part of the swap provider and calculation agent, J.P. Morgan (JPM), as discussed below. The direction to staff is to implement the recommendation provided by the FAC to “Do Nothing”.

Financial Analysis
Acacia Financial Group, Inc., the Town’s municipal advisor, provides the periodic reporting of the market expense for several swap modification alternatives. The memorandum (Attachment 1) outlines the values associated with each of the strategies. The first three columns on the report (A, B and C) represent the estimated cost to convert the existing synthetic fixed rate structure (i.e., cash settle and terminate the swap and refinance the variable rate debt) to a traditional fixed rate structure. The fourth column (D) represents the cost to convert the LIBOR swap related to the 2006 COPs to a U.S. – based non-LIBOR SIFMA based swap (no refunding of the underlying variable rate COPs). As previously discussed, any of these structural modifications (e.g., converting LIBOR ? SIFMA or full cash settlement) will reduce risks associated with synthetic fixed rate borrowing (risks the Town has borne since the adoption of these structures in 2003-2006), but the Town has been comfortable with these risks since then, and risk mitigation has direct costs. The valuations reported as of October 31, 2022 illustrate that under current market conditions each of these -165-
Agenda Staff Report - Hillsborough City Council
December 12, 2022

Page 2 ends

Hillsborough City CouncilDecember 12, 2022

Hillsborough City Council
December 12, 2022