Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 187 Town Policies
Fund Balance
This policy is intended to ensure that the Town has sufficient cash flow to meet current and future needs and provide transparency to its residents by establishing fund reserve targets for each of the Town’s governmental funds. Reserve funds are needed to provide funding for planned and unplanned events. Planned events include, but are not limited to, (1) accumulating balances to fund operating and capital needs; (2) debt service obligations; and (3) funding for employee-related pension and other post-employment benefits. Unplanned events include, but are not limited to, (1) accounting for revenue shortfalls; (2) unanticipated expenses; and (3) paying for unforeseen emergency events.
Adequate fund reserves are of value to: (1) provide working capital to fund operating needs; (2) provide a financial cushion for dealing with unanticipated financial needs and emergencies; and (3) are a component of achieving favorable credit ratings which can help reduce the costs of issuing debt. This policy designates specific reserve accounts. For each reserve, this policy specifies the reserve purpose, the threshold amount, allowable uses of reserves, and replenishment of the reserve. This policy establishes committed and assigned reserves. Committed or Assigned reserves may be established, changed, applied, and deleted by Council resolution. Committed reserves may be used for one or more limited activities noted in the purpose or usage of the reserve. Assigned reserves are not limited to one single activity and may be used for any Town specific activity described in the purpose or usage of the reserve.
Fund Balance Classifications
To set forth the Town’s policy for establishing and maintaining fund reserve targets for each of the Town’s governmental funds. Fiscal reserves provide working capital for operations and maintenance activities, funding for IT, vehicle, and equipment needs, fulfillment of legal, regulatory, and contractual obligations and mitigation of risk and liability exposures.
The Town is required to reclassify fund balances into the following five categories to comply with the Governmental Accounting Standards Board Statement (GASB) No. 54, Fund Balance, and Governmental Fund Types.
Non-Spendable: This is a portion of fund balance not available for appropriations by its nature or external restriction.
Examples are inventories, prepaid expenses and loans to other agencies.
Restricted: The restricted portion of the fund balance is subject to externally enforceable legal restrictions. Examples are Gas Tax revenues and grant proceeds.
Committed: The committed portion of the fund balance is constrained by the limitations imposed through formal City Council action. Only formal City Council action can remove or modify a previously committed amount.
Unassigned: The Unassigned portion of fund balance is that remaining after the non-spendable, the restricted, the committed, and the assigned fund balances are identified and recorded. The general fund is the only fund that reports a positive unassigned fund balance.
Assigned: The assigned portion of the fund balance is established for intended use by either the City Council or its designee, such as the City Manager. No formal City Council action is needed to remove the intended use. GAAP required reserves, such as the Other Post-Employment Benefits (OPEB) reserve, belong to this category.
Order of Utilization
The Town will use GASB’s definitions of fund balance for the annual financial reports (audits) and for all other financial reporting. For all financial planning purposes, the term Budgetary Fund Balance will be used and will include
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any portion of the fund balance that is available for appropriation. Portions of the fund balance not available for appropriations will be identified as follows.
The Town shall strive to use the most restricted fund balances prior to utilizing those that are less restricted. This policy establishes the order of use of unrestricted resources as follows:
> Nonspendable (if funds become spendable)
> Restricted
> Committed
> Assigned
> Unassigned
Finance Reporting
A system of effective internal controls will be maintained that ensures only properly authorized expenditures, recordings of financial transactions, and accounting entries are executed. Along with providing management information and meeting reporting requirements.
Accounting and Finance Responsibilities
Management’s discussion and analysis (MD&A). MD&A should introduce the basic financial statements and provide an analytical overview of the government’s financial activities. Each basic financial statement should include:
1. Government-wide financial statements, consisting of a statement of net assets and a statement of activities.
2. A series of statements that focus on information about the government’s major governmental and enterprise funds, including its blended component units.
Annual Audit
The Town aims to maintain its accounting records, processes, and procedures in a manner that supports the issuance of an unmodified (clean) audit opinion. Responsibility for the accuracy of financial information and the completeness and fairness of its presentation—including all required disclosures—rests with Town management.
Each year, an independent public accounting firm with expertise in municipal finance conducts the Town’s financial audit. The resulting audit opinion is included in the Town’s Annual Comprehensive Financial Report (ACFR), which is organized into three primary sections: introductory, financial, and statistical. The independent auditor’s report appears first within the financial section.
Following the auditor’s report, the Management’s Discussion and Analysis (MD&A) provides a narrative overview of the Town’s financial performance. It includes a comparative analysis of current and prior year results, highlights significant financial trends, and discloses key events or decisions affecting the Town’s fiscal position. The MD&A serves to enhance readers’ understanding of the Town’s financial statements by offering context and analysis.
Accounting During a Disaster
The Finance and Administrative Services Department is responsible for the Town’s participation in disaster assistance funding. Breaking down responsibilities into four main sections, (1) Compensation and Claims Unit, (2) Cost and Purchasing Unit, (3) Time Keeping Unit, and the (4) Recovery Unit. Ensuring that the Finance and Administrative Services Department continues to assist staff, elected officials, and the Town in saving time and energy when making financial decisions, promoting public confidence, and the development emergency management.
Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 189 Town Policies
In the case of an emergency all reimbursements that are based on disaster related expenses should be recorded by each department. Each department is responsible for keeping thorough, accurate and complete records regarding all expenses that are incurred as a latter result of a declared disaster. Without proper documentation, requests for reimbursement will be denied.
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Investment Policy
Adopted by the City Council on February 20, 2025
1.0 Philosophy
It is the policy of the Town of Los Altos Hills to invest public funds in a manner that will provide a reasonable rate of investment return while minimizing exposure to loss of capital and thereby maintaining a consistent source of revenues for the Town. This policy establishes the parameters for the Town’s investment strategies.
2.0 Delegation of Authority
Authority to manage the Town of Los Altos Hills’ investment program is derived from the California Government Code Section 53600 et seq. The City Council shall approve all modifications to the investment strategy and the selection or dismissal of an investment advisor. Administration of the Council-approved investment strategy is hereby delegated to the City Manager, who shall be responsible for supervising all treasury activities of the Town’s Finance Director and who shall establish written procedures for the operation of the investment program consistent with this investment policy. Procedures should include reference to: safekeeping, delivery vs. payment, investment accounting, wire transfer agreements, banking service contracts and collateral/ depository agreements. Such procedures shall include explicit delegations of authority to persons responsible for investment transactions. No person may engage in any investment transactions except as provided under the terms of this policy and the procedures established by the City Manager or her/his designee. The City Manager or her/his designee shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.
3.0 Scope
This investment policy applies to all financial assets of the Town of Los Altos Hills. These funds are accounted for in the Town of Los Altos Hills’ Annual Comprehensive Financial Report (ACFR) and include:
3.1 Funds
General Fund Enterprise Funds
Special Revenue Funds Capital Projects Funds
Trust and Agency Funds
Any new fund, unless specifically exempted
3.2 The following financial assets are excluded:
Deferred Compensation Plans – Investments are directed by the individual plan participants.
Debt Service Funds Held by Trustees – Investments are placed in accordance with bond indenture provisions.
Notes and Loans – Investments are authorized by separate agreements approved by City Council.
Retiree and Retiree Medical Plans
Except as noted, the Town of Los Altos Hills will consolidate cash balances from all funds to maximize investment earnings. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles.
Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 191 Town Policies
4.0 Prudence
Investments shall be made with judgment and care – under circumstances then prevailing – which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investments, considering the probable safety of their capital as well as the probable income to be derived.
4.1 Standard of prudence:
The standard of prudence to be used by investment officials shall be the “prudent investor” standard and shall be applied in the context of managing an overall portfolio. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.
5.0 Objective
The primary objectives, in priority order, of the Town of Los Altos Hills’ investment activities shall be:
5.1 Safety:
Safety of principal is the foremost objective of the investment program. Investments of the Town of Los Altos Hills shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective is to minimize (1) credit risk, through diversifying the portfolio among the authorized investment types with pre-qualifying financial institutions and broker dealers, and (2) interest rate risk, by structuring portfolio maturities to match cash requirements and investing operating funds in shorter-term securities.
5.2 Liquidity:
The Town of Los Altos Hills’ investment portfolio will remain sufficiently liquid to enable the Town of Los Altos Hills to meet all operating requirements which might be reasonably anticipated. In addition to structuring the portfolio so that securities mature concurrent with cash needs, suitable investments (Section 6.0) consist largely of securities with active secondary or resale markets.
5.3 Return on Investments:
The Town of Los Altos Hills’ investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, commensurate with the Town of Los Altos Hills’ investment risk constraints and the cash flow characteristics of the portfolio.
6.0 Authorized and Suitable Investments
Where this section specifies a percentage limitation for a particular security type, that percentage is applicable only on the date of purchase. Credit criteria listed in this section refers to the credit rating at the time the security is purchased. Where credit requirements in this section refer to a minimum credit rating, this minimum is regardless of any category modifiers such as “+” or “-”. If an investment’s credit rating falls below the minimum rating required at the time of purchase, the City Manager will perform a timely review and decide whether to sell or hold the investment.
The Town of Los Altos Hills is empowered by Government Code Section 53601, 53601.6, 53601.8, 53635, 53635.2, 53638, and 53684 which includes a number of requirements on how and where public money may be invested. Within the context of limitations, the following investments are authorized, as further
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limited herein. A security purchased in accordance with this section shall not have a forward settlement date exceeding 45 days from the time of investment. The Town is empowered by statute to invest in the following type of securities:
1. United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest.
2. Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises.
3. Obligations of the State of California or any local agency within the state, including bonds payable solely out of revenues from a revenue-producing property owned, controlled or operated by the state or any local agency or by a department, Commission, agency or authority of the state or any local agency; provided that the obligations are rated in one of the three highest categories by a nationally recognized statistical rating organization (NRSRO). Purchases of municipal obligations in sections 3 and 4 combined may not exceed 30 percent of the Town’s investment portfolio.
4. Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state, or by a department, board, agency, or authority of any of these states; provided that the obligations are rated in one of the three highest categories by a NRSRO. Purchases of municipal obligations in sections 3 and 4 combined may not exceed 30 percent of the Town’s investment portfolio.
5. Bankers’ Acceptances with a rating of the highest ranking or highest letter and number rating as provided for by a NRSRO. Purchases of bankers’ acceptances may not exceed 180 days. No more than 40% of the Town’s investment portfolio may be invested in bankers’ acceptances and no more than 30% of the Town’s investment portfolio may be invested in the bankers’ acceptances of any one commercial bank.
6. Commercial paper of “prime” quality of the highest ranking or of the highest letter and number rating as provided for by a NRSRO. The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or (2):
(1) The entity meets the following criteria:
(A) Is organized and operating in the United States as a general corporation. (B) Has total assets in excess of five hundred million dollars ($500,000,000). (C) Has debt other than commercial paper, if any, that is rated in a rating category of “A” or its equivalent or higher by a NRSRO.
(2) The entity meets the following criteria:
(A) Is organized within the United States as a special purpose corporation, trust, or limited liability company.
(B) Has program-wide credit enhancements including, but not limited to, overcollateralization, letters of credit, or a surety bond.
(C) Has commercial paper that is rated “A-1” or higher, or the equivalent, by an NRSRO. Eligible commercial paper shall have a maximum maturity of 270 days or less. Local agencies, other than counties or a city and county, may invest no more than 25% of their moneys in eligible commercial paper.
Eligible commercial paper associated with less than $100,000,000 of investments shall have a maximum maturity of 270 days or less. Local agencies, other than counties or a city and
Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 193 Town Policies
county, may invest no more than 25% of their moneys and no more than 5% per issuer in eligible commercial paper. Eligible commercial paper associated with more than or equal to $100,000,000 of investments and Pooled Funds shall have a maximum maturity of 270 days or less. Local Agencies other than counties or a city and county, may invest no more than 40% of their moneys and no more than 5% per issuer in eligible commercial paper.
7. FDIC insured or fully collateralized time certificates of deposit in financial institutions located in California, including U.S. branches of foreign banks licensed to do business in California. All time deposits must be collateralized in accordance with California Government Code section 53651. Purchase of FDIC insured or fully collateralized time certificates of deposit may not exceed 50% of the Town’s investment portfolio.
8. Negotiable Certificates of Deposit (CD) issued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a federally- or statelicensed branch of a foreign bank. No more than 30% of the Town’s portfolio may be invested in negotiable CDs and eligible CDs must be rated in one of the three highest categories by a NRSRO.
9. Local Agency Investment Fund (LAIF). Investments in LAIF shall not exceed $75 million.
10. Insured savings account or bank money market account. In accordance with California Government Code Section 53635.2 to be eligible to receive local agency deposits a financial institution must have received a minimum overall “satisfactory” rating for meeting the credit needs of California communities in its most recent evaluation.
11. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a1, et seq.). To be eligible for investment pursuant to this subdivision these companies shall either: (1) attain the highest ranking letter or numerical rating provided by not less than two of the three largest nationally recognized rating services or (2) have an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years’ experience managing money market mutual funds and with assets under management in excess of $500,000,000. The purchase price of shares shall not exceed 20% of the investment portfolio and 10% per money market fund.
12. California Asset Management Program. (CAMP), as long as the portfolio is rated among the top two rating categories by a NRSRO. There is no limit on the percentage of CAMP that may be held in the Town’s portfolio.
13. Medium-term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated in a rating category of “A” or its equivalent or better by a NRSRO. Purchases of medium-term notes shall not include other instruments authorized by this section and may not exceed 30% of the agency’s money and 5% per issuer that may be invested pursuant to this section.
14. United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter American Development Bank, with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Investments under this subdivision shall be rated in a rating category of “AA” or its equivalent or better by a NRSRO and shall not exceed 30% of the agency’s moneys that may be invested pursuant to this section. (Supranationals).
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15. Mortgage Pass-Through and Asset-Backed Securities including equipment lease-backed certificates, consumer receivable passthrough certificates, or consumer receivable-backed bonds of a maximum remaining maturity of five year. Securities eligible for investment under this subdivision shall be rated in a rating category of “AA,” its equivalent or better by at least one NRSRO. Purchase of securities authorized by this subdivision may not exceed 20 percent of the Town’s total portfolio.
Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 195 Town Policies
Summary Table of Permitted Investments
Investment Instruments
Calif. Code Limitation (Maturity, % of
Portfolio, Rating)
Town Policy Limitation (Maturity, % of
Portfolio, Rating)
U.S. Treasury 5 years
100% of portfolio
5 years
100% of portfolio
Federal Agency
(including mortgagebacked securities and
callable securities)
5 years
100% of portfolio
5 years
100% of portfolio
Municipal Obligations
(including notes issued by the State of
California, California local agencies, and the
other 49 states)
5 years
100% of portfolio
5 years
30% of portfolio Credit rating category of
“A” or its equivalent or higher by a NRSRO
Bankers’ Acceptances 180 days 40% of portfolio 40% per issuer 180 days 40% of portfolio 30% per issuer Commercial Paper (under $100,000,000 of
investments)
270 days
25% of portfolio
10% per issuer
Long term credit rating category of “A” and
short term rating of “A-1” or its equivalent
or higher by a NRSRO
270 days
25% of portfolio
5% per issuer
Long term credit rating category of “A” and
short term rating of “A-1” or its equivalent
or higher by a NRSRO
Commercial Paper (min. $100,000,000 of
investments) and Pooled Funds
270 days
40% of portfolio
10% per issuer
Long term credit rating category of “A” and
short term rating of “A-1” or its equivalent
or higher by a NRSRO
270 days
40% of portfolio
5% per issuer
Long term credit rating category of “A” and
short term rating of “A-1” or its equivalent
or higher by a NRSRO
Deposits
(Collateralized/FDIC) 100%1
of portfolio 5 years
50% of portfolio
Negotiable CDs 5 years
30% of portfolio
5 years
30% of portfolio
5% per issuer
Credit rating category of “A” or its
equivalent or higher by a NRSRO
LAIF $75 million $75 million
Money Market Funds 20% of portfolio
10% per fund
20% of portfolio
10% per fund
JPA
(CAMP) 100% of portfolio 100% of portfolio
Medium-Term Notes
5 years
30% of portfolio
10% per issuer
Credit rating category of “A” or its
equivalent or higher by a NRSRO
5 years
30% of portfolio
5% per issuer
Credit rating category of “A” or its
equivalent or higher by a NRSRO
Supranationals
5 years
30% of portfolio
Credit rating category of “AA” or its
equivalent or higher by a NRSRO
5 years
30% of portfolio
Credit rating category of “AA” or its
equivalent or higher by a NRSRO
Mortgage Pass-through and Asset-Backed
Securities
5 years or less
20% of portfolio
Credit rating category of “AA” or its
equivalent or higher by a NRSRO
5 years or less
20% of portfolio
Credit rating category of “AA” or its
equivalent or higher by a NRSRO
1For deposit placement services.
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7.0 Authorized Financial Dealers and Institutions
To provide for the optimum yield in the Town’s portfolio, the Town’s procedures shall be designed to encourage competitive bidding on transactions from an approved list of broker/dealers. The Town may engage the services of an external investment advisor to assist in the management of the Town’s investment portfolio in a manner consistent with this investment policy. If the Town hires an investment adviser to provide investment management services, the adviser is authorized to transact with its direct dealer relationships on behalf of the Town. Approved investment adviser firms must provide their services to the Town on a fiduciary capacity and be registered with the Securities and Exchange Commission (SEC) under the Investment Advisor’s Act of 1940. The advisor shall have more than five years’ experience in managing public funds and shall have at minimum $1 billion under management. The City Manager, or the Town’s investment advisor, shall maintain a list of authorized broker/dealers and financial institutions that are approved for investment purposes. This list will be developed after a comprehensive credit and capitalization analysis indicates the firm is adequately financed to conduct business with public entities. It shall be the policy of the Town to purchase securities only from those authorized institutions or firms.
8.0 Safekeeping and Custody
To protect against potential fraud and embezzlement, or losses caused by a collapse of an individual securities dealer all security transactions entered into by the Town of Los Altos Hills shall be conducted on a deliveryversus-payment (DVP) basis. Securities will be held by a third-party custodian, in the Town of Los Altos Hills’ name and control, designated by the City Manager or her/his designee and evidenced by safekeeping receipts.
9.0 Collateralization
Collateralization will be required on certificates of deposit as specified under Government Code Section 63630 et seq in order to anticipate market changes and provide a level of security for all funds. All time deposits must be collateralized in accordance with California Government Code section 53651.
The Town of Los Altos Hills chooses to limit collateral to the following:
Collateral will always be held by an independent third party. A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the Town of Los Altos Hills and retained.
The right of collateral substitution is granted.
10.0 Internal Control
The Town of Los Altos Hills is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the Town are protected from loss, theft or misuses. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and judgments by the City Manager and staff.
The City Manager or designee shall arrange for an annual audit by an external CPA firm in compliance with the requirements of state law and generally accepted accounting principles as pronounced by the Government Accounting Standards Board (GASB). As a part of the audit, investment transactions will be tested. The annual audit will be an integral part, but not the sole part of management’s program of monitoring internal controls.
Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 197 Town Policies
The internal controls shall address the following points:
• Control of collusion
• Separation of transaction authority from accounting and recordkeeping • Custodial safekeeping
• Avoidance of physical delivery securities
• Clear delegation of authority to subordinate staff members • Written confirmation of transactions for investments and wire transfers • Development of a wire transfer agreement with the lead bank and third-party custodian
11.0 Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. These officers and employees involved in the investment process shall disclose to the City Manager any material financial interest in financial institutions that conduct business with this jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the Town of Los Altos Hills, particularly with regard to the time of purchases and sales. Employees and investment officials shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the Town of Los Altos Hills.
12.0 Diversification
The Town of Los Altos Hills will diversify its investments by security type and institution. Limits are provided for in Section 6.0. With the exception of U.S. Treasury and Federal Agency securities, municipal bonds, supranational bonds, and authorized pools such as CAMP or LAIF, no more than 5% of the Town of Los Altos Hills’ total investment portfolio will be invested in a single issuer.
13.0 Maximum Maturities
To the extent possible, the Town of Los Altos Hills will attempt to match its investments with anticipated cash flow requirements. The Town of Los Altos Hills will not directly invest in securities maturing more than five (5) years from the settlement date unless City Council has provided approval for a specific purpose at least three (3) months before the investment is made. The calculation of an investment’s remaining maturity/term is to be measured from the settlement date to final maturity.
Debt reserve funds may be invested in securities exceeding five (5) years if the maturities of such investments are made to coincide as nearly as practicable with the expected use of the funds.
The Town of Los Altos Hills will retain operating reserves as adopted by the City Council. The amount of active deposits and inactive investments with a maturity of one year or less shall always be equal to greater than any draw on these reserves required by the annual operating budget.
Securities may be sold prior to maturity to accommodate the Town’s cash flow requirements, to reposition the portfolio to perform well in the current market, or to take advantage of market opportunities to increase the Town’s rate of return.
198 Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Town Policies
14.0 Performance Standards
The investment portfolio shall be designed with the objective of obtaining a market rate of return throughout budgetary and economic cycles, commensurate with the Town’s investment risk constraints and cash flow needs.
14.1 Market Yield (Benchmark):
Suitability should be the standard for evaluating the success of the Town’s investment portfolio. Given this strategy and the active investment management utilized by the Town, the basis used to determine whether market yields are adequate shall be the ICE BofAML 1-5 year U.S. Treasury Index. 15.0 Reporting The City Manager is charged with the responsibility of including a market report on investment activity and returns in the Town of Los Altos Hills’ Cash and Investment Report. The Report will be in compliance with California Government Code Section 53646. 16.0 Investment Policy Adoption The Town of Los Altos Hills’ investment policy shall be adopted by the City Council. The policy shall be reviewed annually by the Finance and Investment Committee and any modifications made thereto must be approved by the City Council.
15.0 Reporting
The City Manager is charged with the responsibility of including a market report on investment activity and returns in the Town of Los Altos Hills’ Cash and Investment Report. The Report will be in compliance with California Government Code Section 53607 and will include:
• The monthly report shall include an accounting of all receipts, disbursements, and fund balances. • The quarterly reports shall include the book and market value of the cash investment, the classification of the investment, the name of the institution or entity, the rate of interest, and the maturity dates for all securities.
• The quarterly report will include a statement of compliance of the portfolio with the investment policy or an explanation as to why the portfolio is not in compliance per Government Code 53646(b) (2).
• The quarterly report will include a statement on availability of funds to meet its obligations within the next six months per Government Code 53646(b)(3).
As a good reporting practice, the Report will be submitted on a quarterly basis and provided to the Council within 45 days following the end of the month.
16.0 Investment Policy Adoption
The Town of Los Altos Hill’s’ investment policy shall be adopted by the City Council. The policy shall be reviewed annually by the Finance and Investment Committee and any modifications made thereto must be approved by the City Council.
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Glossary of Terms - Financial Policy
Bankers’ Acceptances
Short-term credit arrangements that enable businesses to obtain funds to finance commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. By its acceptance, the bank becomes primarily liable for the payment of the draft at maturity. An acceptance is a highgrade negotiable instrument.
Benchmark
A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk the average duration of the portfolio’s investments.
Broker
Someone who brings buyers and sellers together and is compensated for her/his service.
California Asset Management Program (CAMP)
CAMP is a joint powers authority which provides investment services to local governments through its investment pool. The pool is AAAm-rated by Standard and Poor’s, and provides same-day availability to funds up to 11:00AM Pacific. The pool strives to maintain stable asset value.
Certificates of Deposit
1. Negotiable Certificates of Deposit are large-denomination CDs. They are issued at face value and typically pay interest at maturity, if maturing in less than 12 months. CDs that mature beyond this range pay interest semi-annually. Negotiable CDs are issued by U.S. banks (domestic CDs), U.S. branches of foreign banks (Yankee CDs), and thrifts. There is an active secondary market for negotiable domestic and Yankee CDs. However, the negotiable thrift CD secondary market is limited. Yields on CDs exceed those on U.S. treasuries and agencies of similar maturities. This higher yield compensates the investor for accepting the risk of reduced liquidity and the risk that the issuing bank might fail. State law does not require the collateralization of negotiable CDs.
2. Non-negotiable Certificates of Deposit are time deposits with financial institutions that earn interest at a specified rate for a specified term. Liquidation of the CD prior to maturity incurs a penalty. There is no secondary market for these instruments; therefore, they are not liquid. They are classified as public deposits, and financial institutions are required to collateralize them. Collateral may be waived for the portion of the deposits that are covered by FDIC insurance.
Collateral
Securities, evidence of deposit or other property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
Collateralization
Process by which a borrower pledges securities, property or other deposits for the purpose of securing the repayment of a loan and/or security. Also refers to securities pledged by a bank to secure deposits of public moneys.
Dealer
Someone who acts as a principal in all transactions, including buying and selling from her/his own account.
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Delivery v. payment
The preferred method of delivering securities, with an exchange of money for the securities.
Demand deposits
A deposit of monies which are payable by the bank upon demand of the depositor.
Derivative
Securities that are based on, or derived from, some underlying asset, reference date, or index.
Diversification
Dividing investment funds among a variety of securities offering independent returns.
Federal Depository Insurance Corporation (FDIC)
A federal agency that insures bank deposits, currently up to $250,000 per deposit.
Federal Home Loan Bank (FHLB)
A federal agency that provides credit and liquidity in the housing market. FHLB issues discount notes and semiannual pay coupon securities.
Federal Home Loan Mortgage Corporation (FHLMC)
A federal agency that provides credit and liquidity in the housing market. FHLMC, also called “Freddie Mac,” issues discount notes, semi-annual pay coupon securities and mortgage-backed securities.
Federal National Mortgage Association (FNMA)
A federal agency that provides credit and liquidity in the housing market. FHLMC, also called “Fannie Mae,” issues discount notes, semi-annual pay coupon securities and mortgage-backed securities Liquidity
An asset that can easily and rapidly be converted into cash without significant loss of value.
Local Agency Investment Fund (LAIF)
The LAIF was established by the State of California to enable treasurers to place funds in a pool for investments.
There is a limitation of $50 million per agency subject to a maximum of fifteen total transactions per month. The Town uses this fund when market interest rates are declining as well as for short-term investments and liquidity.
Town funds in LAIF are limited to $40 million.
Maturity
The date upon which the principal or stated value of an investment becomes due and payable.
Mortgage-Backed Security
Debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property.
Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 201 Town Policies
Portfolio
Combined holding of more than one stock, bond, commodity, cash equivalent or other asset. The purpose of a portfolio is to reduce risk through diversification.
Repurchase Agreement
A form of collateralized loan involving the sale of a security with a simultaneous agreement by the seller to buy the same security back from the purchaser at an agreed-on price and future date. The party who sells the security at the inception of the repurchase agreement and buys it back at maturity is borrowing money from the other party, and the security sold and subsequently repurchased represents the collateral.
Safekeeping
Offers storage and protection of assets provided by an institution serving as an agent.
Supranational Bonds
A bond issued by a supranational agency such as the World Bank.
U.S. Treasury Bills
Commonly referred to as T-Bills, these are short-term marketable securities sold as obligations of the U.S.
Government. They are offered in three-month, six-month and one year maturities. T-Bills do not accrue interest but are sold at a discount to pay face value at maturity.
U.S. Treasury Notes
These are marketable, medium-term interest-bearing securities sold as obligations of the U.S. Government with original maturities of one to ten years. Interest is paid semiannually.
U.S. Government Agency
Issues Issues which are unconditionally backed by the full faith and credit of the United States.
Yield
The rate of annual income return on an investment, expressed as a percentage. Income yield is obtained by dividing the current dollar income by the current market price for the security. Net yield or yield to maturity is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond.
202 Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Town Policies
Reserve Policy
Proposed for City Council Adoption on June 26, 2025
Resolution XX-XX
Purpose
This policy establishes reserve targets for the Town’s governmental funds to ensure financial stability, operational continuity, and long-term planning. Reserves provide:
> Working capital for operations and maintenance
> Funding for equipment, technology, and capital needs
> Resources to meet legal, regulatory, and contractual obligations > A buffer against revenue shortfalls and unforeseen emergencies Maintaining adequate reserves enhances transparency, supports credit ratings, and helps manage risk through economic or operational disruptions.
Policy
This policy ensures that the Town maintains sufficient cash flow to meet current and future obligations while providing transparency to the public. By establishing targeted reserve levels for each of the Town’s governmental funds, the policy supports financial stability, risk mitigation, and long-term planning.
Reserves are essential to address both planned and unplanned needs:
> Planned needs may include:
• Funding operating requirements
• Meeting debt service obligations (if any)
• Addressing pension and other post-employment benefit (OPEB) liabilities > Unplanned needs may include:
• Offsetting revenue shortfalls
• Covering unanticipated expenses
• Responding to emergencies or disasters
Establishing formal reserve targets helps the Town:
> Maintain adequate working capital
> Prepare for financial contingencies and emergencies
> Support strong credit ratings and reduce borrowing costs This policy defines specific reserve accounts by outlining their purpose, target thresholds, allowable uses, and replenishment procedures. It distinguishes between committed reserves, which are formally designated by City Council for specific purposes, and assigned reserves, which offer greater flexibility and may be used for a range of Town-identified needs. Both committed and assigned reserves may be established, modified, applied, or eliminated by City Council resolution. Committed reserves are restricted to the purposes explicitly stated at the time of designation. In contrast, assigned reserves may support multiple related activities, provided they align with the stated intent of the reserve.
Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 203 Town Policies
Policy Review and Monitoring
This policy will be reviewed annually during the budget process to ensure alignment with the Town’s financial goals and compliance with applicable regulations. As part of the annual review, the Administrative Services Director/ Finance Director will:
> Recalculate reserve thresholds based on the most recent financial data > Evaluate reserve usage and replenishment
> Recommend any policy or funding adjustments for inclusion in the budget In addition to the annual review, reserve balances will be monitored mid-year and presented to the City Council as part of the mid-year financial update to promote transparency and timely decision-making.
Committed Reserves
1. Pension Contribution Reserve
Purpose of the Reserve:
The Pension Contribution Reserve is to set aside funds for the Town’s estimated unfunded liability. CalPERS prepares an annual Actuarial Report for each of the Town’s three pension plans. This reserve is for amounts not included in the Accrued Liability and represents the difference between the currently applied Discount Rate and the lowest Discount Rate measured by CalPERS in its most recent actuarial report. This difference is updated to the most recent past fiscal year end as reported in the related ACFR Pension Footnote.
Threshold of the Reserve:
The Pension Contribution Reserve shall maintain a maximum threshold based on the CalPERS annual actuarial report for each of the Town’s three pension plans. The reserve threshold amount is calculated by the following:
the difference between the accrued liability at the current discount rate and the accrued liability calculated using the discount rate that is one percentage point lower than the current rate, as shown in the most recent ACFR pension footnote.
The balance of the Town’s Section 115 Pension Trust shall be included in the calculation of the Pension Contribution Reserve. The sum of the Pension Contribution Reserve and the Pension Trust balance shall be used to evaluate compliance with the policy threshold.
Usage of the Reserve:
Adjustments to the reserve will result from the discount rate changes in succeeding years per the CalPERS annual report per the Analysis of Discount Rate Sensitivity as updated in the most recent ACFR Pension footnote.
Replenishment of the Reserve:
During the annual budget cycle, the Pension Contribution Reserve will be adjusted to reflect the new threshold amount as described in the preceding Threshold of the Reserve section. These adjustments will be approved by the City Council as part of the annual budget cycle.
2. Technology Reserve
204 Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Town Policies
Purpose of the Reserve:
The Technology Reserve is to set aside funds for the Town’s future Audio and Visual equipment and software replacement needs.
Threshold of the Reserve:
The threshold will be calculated based on $460K, the budgeted amount of the AV system, and will be $46K for the following 10 years for upgrades and replacement of the equipment.
Usage of the Reserve:
Eligible expenditures will be for AV System and software to be upgraded or replaced throughout the fiscal year. These expenditures will be determined on an annual basis.
Replenishment of the Reserve:
The Technology Reserve will be adjusted up or down, as necessary, to equal the threshold. These expenditures will be determined on an annual basis.
3. Vehicle and Equipment Replacement Reserves
Purpose of the Reserve:
The Vehicle and Equipment Replacement Reserve is to set aside funds for the Town’s current and future vehicle and equipment replacement needs. The Town maintains a vehicle and equipment replacement schedule for all Town vehicles and equipment. This schedule is updated as equipment is added or removed from service.
Threshold of the Reserve:
The threshold of the Vehicle and Equipment Replacement Reserve will be calculated each year during the annual budget cycle. This threshold will be the sum of the amount determined for each piece of equipment on the Vehicle and Equipment replacement schedule based on future replacement costs of the item divided by its useful life and multiplied by the number of years in service, but in no event greater than the future replacement cost.
Usage of the Reserve:
Eligible expenditures include vehicles and/or equipment replacements purchased throughout the fiscal year.
These expenditures will be determined on an annual basis.
Replenishment of the Reserve:
During the annual budget cycle, the Vehicle and Equipment Replacement Reserve will be adjusted up or down, as necessary, to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle.
4. Facilities Replacement Reserves
Purpose of the Reserve:
The Facilities Replacement Reserve is to set aside funds for the Town’s current and future facility improvement and replacement needs. The Town maintains a facility schedule for all Town facilities. Additions to the facilities schedule occur when Town facilities are either improved or new Town facilities are added. Deletions occur as Town facilities are demolished and removed from service.
Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 205 Town Policies
Threshold of the Reserve:
The threshold of the Facilities Replacement Reserve will be calculated each year during the annual budget cycle.
This threshold will be comprised of two parts. For existing buildings, it will be the cumulative depreciation of the buildings listed in the fixed asset schedule as reported in the most recent ACFR Capital Asset Footnote.
Added to this amount is any remaining unspent funds appropriated to construct additions or improvements to facilities.
Usage of the Reserve:
Eligible expenditures include facilities improvements, renovations, or demolitions that occur throughout the fiscal year. These expenditures will be determined on an annual basis.
Replenishment of the Reserve:
During the annual budget cycle, the Facilities Replacement Reserve will be adjusted up or down, as necessary, to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle.
5. Disaster Contingency Reserve:
The Disaster Contingency Reserve is to set aside funds for emergencies that may arise within the Town that have not been federally and or state declared disasters. To constitute a Town emergency, the disaster or emergency would be natural disasters (i.e. earthquakes, landslides, flooding) or temporary service outages of Town facilities and infrastructure (i.e. extensive debris cleanup from wind events that prohibits travel on Town roads). To be declared a Town Emergency, the Emergency Operations Center and team would be activated for any length of time. Town emergencies are smaller in nature than presidentially declared federal disasters and governor declared state disasters and are typically contained within the Town boundaries.
Threshold of the Reserve:
The Disaster Contingency Reserve shall maintain a balance not less than $1,250,000. This amount shall be adjusted up or down, as necessary, each year. Adjustments will be based on the risk assessment performed by the Town’s emergency services personnel.
Usage of the Reserve:
The City Manager is the Director of Emergency Services. In the event of a Town emergency, the City Manager would determine eligible expenditures allowable for use of the reserve on a case-by-case basis. If expenditures are incurred, use of the reserve will be considered on an annual basis.
Replenishment of the Reserve:
During the annual budget cycle, the Disaster Contingency Reserve will be adjusted as necessary to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle.
6. Capital Projects Reserve
Purpose of the Reserve:
The Capital Projects Reserve is to set aside funds to start or complete projects for which the Council has previously appropriated funds, but the projects have not been started or completed.
206 Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Town Policies
Threshold of the Reserve:
The Capital Projects Reserve shall maintain a balance equal to the unused prior appropriated funds as shown in the list of capital projects prepared as part of the annual budget process. This amount shall be adjusted up or down, as necessary, each year.
Usage of the Reserve:
The Capital Projects Reserve will be used to fund the completion of the prior appropriated projects as shown in the list of capital projects in the budget.
Replenishment of the Reserve:
During the annual budget cycle, the Capital Projects Reserve will be adjusted as necessary to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle.
Assigned Reserves
1. General Fund Stabilization Reserve
Purpose of the Reserve:
The General Fund Stabilization Reserve is to establish a minimum unassigned fund balance and to set aside funds for the Town’s current and future operational needs in the event of economic downtowns or unexpected expenditures.
Threshold of the Reserve:
The General Fund Stabilization Reserve shall maintain a maximum threshold that is equivalent to three months of average operating expenditures in the general fund. Operating expenditures are defined as those expenditures before transfers to other funds and exclude capital expenditures (less that portion of Community Development costs that are recovered through charges for services). The figures from the most recent ACFR shall be used for calculating the threshold amount.
Usage of the Reserve:
Allowable expenditures for use in this reserve shall be determined on a case-by-case basis. Examples of allowable expenditures include, but are not limited to, significant economic downturn that result in diminished property taxes revenues, thus resulting in a need for use of the reserve to balance the annual general fund budget. These expenditures will be recommended by the City Manager and approved by the City Council.
If expenditures are recommended and approved, use of this reserve will be considered on an annual basis.
Replenishment of the Reserve:
During the annual budget cycle, the General Fund Stabilization Reserve will be reviewed and updated based on the most recent audited and issued Annual Comprehensive Financial Report. Any adjustments will be approved by the City Council as part of the annual budget cycle.
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Appendix
Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 209 Appendix
Glossary of Terms in Budget
Accounting System: The methods and records
established to identify, assemble, analyze, classify,
record and report a government’s transactions and
to maintain accountability for the related assets and
liabilities.
ACFR: abbreviation. Annual Comprehensive Financial
Report. This is the Town’s financial statement,
which includes auditor’s opinion and other financial
information pertinent in evaluating the Town’s financial health.
Adopted Budget: The official budget as approved by
the City Council at the start of each fiscal year.
Agency Fund: A fund normally used to account for
assets held by a government as an agent for individuals, private organizations or other governments and/or
other funds.
Amended Budget: The official budget as adopted and
as amended by the City Council through the course of
a fiscal year.
Annual Budget: A budget applicable to a single fiscal
year.
Annual Financial Report: A financial report applicable
to a single fiscal year.
Appropriated Budget: The expenditure authority
created by the appropriation bills or ordinances, which are signed into law, and the related estimated revenues.
The appropriated budget would include all reserves,
transfers, allocations, supplemental appropriations
and other legally authorized legislative and executive
changes.
Appropriation: A legal authorization granted by a
legislative body for a given period to make expenditures and to incur obligations for specific purposes. An
appropriation usually is limited in amount and time it
may be expended.
ASD: abbreviation. Administrative Services Department
Assessed Valuation: The estimated value placed upon
real and personal property by the County Assessor as
the basis for levying property taxes.
Audit: Prepared by an independent Certified Public
Accountant , the primary objective of an audit is to
determine if the City’s financial statements present
fairly the City’s financial position and results of
operations in conformity with generally accepted
accounting principles.
Authority: A government or public agency created to
perform a single function or restricted group of related activities.
Balanced Budget: A balanced budget exists when total
revenues are equal to, or greater than, total expenses.
Bond Covenant: A legally enforceable promise made
by an issuer of bonds to the bondholders, normally
contained in the bond resolution or indenture.
Budget: A plan of financial operation embodying an
estimate of the proposed expenditures for a given
period and the proposed means of financing them.
Capital Budget: A plan or proposed capital outlays and
the means of financing them.
Capital Improvement Program: A plan for capital
improvements to be implemented each year over a
fixed period of years to meet capital needs arising from the assessment of long‐term needs. It sets forth each
project in which the government is to have a part and
specifies the full resources estimated to be available
to finance the projected expenditures.
Capitalized Expenditures: Expenditures resulting in the acquisition and/or construction of fixed assets.
Contracted Services: Services rendered in support of
City operations and activities by external parties. These may be based upon either formal contracts or ad hoc
charges.
Contingency: A budgetary reserve set‐aside for
emergencies or unforeseen expenditures not otherwise
budgeted.
Cost Accounting: The method of accounting that
provides for assembling and recording of all the
elements of cost incurred to accomplish a purpose, to
210 Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Appendix
carry on an activity or operation, or to complete a unit of work or a specific job.
Cost Allocation Plan: A comprehensive analysis of
the appropriate distribution of overhead costs from
the Town’s General Government Departments to
the various service departments – Public Works,
Community Development and Parks & Recreation.
Cost of Services: Payments made by customers
for publicly provided services that benefit specific
individuals and exhibit “public good” characteristics.
They include such fees as recreational fees, building
permit fees, etc.
Debt Service Fund: A fund established for the payment
of interest and principal on all debt other than payable exclusively from special assessments.
Department: A major organizational group of the City
with overall management responsibility for an operation or a group of related operations within a functional area.
Depreciation: (1) Expiration in the service life of capital assets attributable to wear and tear, deterioration,
action of the physical elements, inadequacy or
obsolescence. (2) That portion of the cost of a capital asset which is charged as an expense during a particular period.
Division: An organizational subgroup of a department.
Employee Services: Salaries plus fringe benefits earned by employees of the organization for work performed.
Encumbrance: The commitment of appropriated funds
to purchase goods that have not yet been received, or
services that have yet to be rendered.
Enterprise Fund: A fund established to account for
operations financed and operated in a manner similar to private business enterprises. In this case, the governing body intends that costs of providing goods or services
to the general public on a continuing basis be financed or recovered primarily through user charges.
Entitlement: The amount of payment to which a state
or local government is entitled pursuant to an allocation formula contained in applicable statutes.
EOC: abbreviation. Emergency Operation Center. This
is only activated during an emergency situation by
authorized Town personnel.
ERAF: abbreviation. Educational Revenue
Augmentation Fund. A shift of property tax revenues
from cities, counties and other local agencies to the
State in support of schools.
Expenditure: Decreases in net financial resources.
Expenditures include current operating expenses, which
require the current or future use of net current assets, debt service, and capital outlays.
FIC: abbreviation. Finance and Investment Committee.
Fiscal Year: A 12‐month period (usually July 1st through June 30th) to which the annual operating budget applies and at the end of which a government determines its
financial position and the results of its operations.
Fixed Assets: Equipment costing $5,000 or more,
including tax, and not qualifying as a capital
improvement project.
Full‐Time Equivalent (FTE): The conversion of full‐time and part‐time employee hours to an equivalent of a
full-time position. For example: one person working
half‐time would count as 0.5 FTE.
Fund: A fiscal and accounting entity with a self‐
balancing set of accounts in which cash and other
financial resources, all related liabilities and residual equities, or balances, and changes therein, are
recorded and segregated to carry on specific activities or attain certain objectives in accordance with special regulations, restrictions, or limitations.
Fund Balance: The difference between fund assets and
fund liabilities of governmental and similar trust funds.
General Fund: The fund used to account for all financial resources, except those required to be accounted for
in another fund.
Generally Accepted Accounting Principles (GAAP):
Uniform minimum standards of/ and guidelines for
financial accounting and reporting. They govern the
form and content of the basic financial statements of
an entity. GAAP encompasses the conventions, rules
and procedures necessary to define accepted
Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan 211 Appendix
accounting practices at a particular time. They include not only broad guidelines of general application, but
also detailed practices and procedures. GAAP provides a standard by which to measure financial presentations.
Governmental Funds: Funds general used to account
for tax‐supported activities. There are five different
types of governmental funds: the general fund, special
revenue funds, debt service funds, capital projects
funds, and permanent funds.
Grants: Contributions of cash or other assets from
another governmental agency (usually) to be expended
or used for a specified purpose, activity or facility.
Infrastructure: All City owned facilities supporting
the operation of the governmental unit. It includes:
streets, roads, bridges, curbs and gutters, parks, water and sewer lines, storm drains, water pump stations
and reservoirs, water wells, sewer lift stations, all
government buildings and related facilities.
Internal Service Fund: A fund used to account
for the financing of goods or services provided by
one department to other departments on a costreimbursement basis.
Investment: Securities and real estate purchased and
held for the production of income in the form of interest, dividends, rentals or base payments.
Long Term Debt: Debt with a maturity of more than
one year after the date of the issues.
Materials & Services: Expenses which are charged
directly as a part of the cost of a service.
Modified Accrual Basis: The accrual basis of accounting where revenues are recognized when they become both
“measurable” and “available” to finance expenditures of the current period. All governmental funds and agency
funds are accounted for using the modified accrual basis of accounting.
Net Income (Loss): Proprietary fund excess (deficit) of operating revenues and operating transfers-in over
operating expenses, non-operating expenses and
operating transfers-out.
Non‐Operating Expenses: Proprietary fund expenses
not directly related to the fund’s primary activities (e.g. interest).
Non‐Operating Revenues: Proprietary fund revenues
incidental to, or by‐products of, the fund’s primary
activities.
Operating Expenses: Proprietary fund expenses related
directly to the fund’s primary activities.
Operating Income: The excess of proprietary fund
operating revenues over operating expenses.
Operating Revenues: Proprietary funds revenues
directly related to the fund’s primary activities. They consist primarily of user charges for goods and services.
Operating Transfers: Legally authorized transfers from
a fund receiving revenue to the fund through which
the resources are to be expended, such as transfers
from the General Fund to a Special Revenue or Capital
Projects Fund.
Ordinance: A formal legislative enactment by the City
Council. If it is not in conflict with any higher form of law, it has the full force and effect of law within the boundaries of the City.
PCI: abbreviation. Pavement Condition Index.
Preliminary Budget: A budget in its preliminary
preparation stage prior to review and formulation by
the City Council. In the preliminary stage, a budget
forecasts current costs into the future and new or
modified spending proposals for the future.
Program: Group activities, operations, or organization
units directed to attaining specific purposes or
objectives.
Program Purpose: A general statement explaining the
reason a particular program or division exists.
Proprietary Fund: The classification used to account
for a government’s ongoing organizations and activities that are similar to those often found in the private
sector (i.e., enterprise and internal service funds). All assets, liabilities, equities, revenues, expenses and
transfers relating to the government’s business and
212 Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Appendix
quasi-business activities are accounted for through
proprietary funds.
Reserved Fund Balance: Those portions of fund balance
that have not been appropriated for expenditure or that are legally segregated for a specific future use.
Resolution: A special or temporary order of the City
Council requiring less formality than an ordinance.
Retained Earnings: An equity account reflecting the
accumulated earning of an enterprise or internal service fund.
Revenues: (1) Increases in net current assets of a
governmental fund type from other than expenditure
refunds and residual equity transfer. (2) Increases in
the net total assets of a proprietary fund type from
other than expense refunds, capital contributions and
residual equity transfers.
Risk Management: All the ways and means used to
avoid accidental loss or to reduce its consequences if
it does occur.
Self‐Insurance: A term often used to describe the
retention by an entity of a risk of loss arising out of the ownership of property or from some other cause,
instead of transferring that risk to an independent third party through the purchase of an insurance policy. It is sometimes accompanied by the setting aside of assets
to fund any related losses. Because no insurance is
involved, the term self‐insurance is a misnomer.
Service Reimbursements: Transactions that constitute
reimbursements to a department/division for
expenditures or expenses initially made from it but
that properly apply to another department/division.
Service Level Measure: A statement describing an
activity conducted or performed by the program/
division. A program will usually have many Service Level Measures. Service Level Measures provide quantifiable
and qualifiable information as to the level of service to be provided in relation to the level of fund indicated in the budget.
Special Revenue Fund: A fund used to account for the
proceeds of specific revenue sources that are legally
restricted to expenditures for specified purposes.
Specific Program Objectives: An “action” statement
indicating the new or special activities proposed for a program.
Taxes: Compulsory charges levied by a government for
the purpose of financing services performed for the
common benefit. This term does not include specific
charges made against particular persons or property
for current or permanent benefits such as special
assessments. Neither does the term include charges
for services rendered only to those paying such charges as, for example, user charges.
Transfers: Payments from one fund to another ideally
for work or services provided, or to cover operating
expense shortfalls.
Triple Flip: Backfill of the confiscated local sales tax reimbursed through a series of revenue swapping
procedures to guarantee repayment for the California
Economic Recovery Bond.
Trust Fund: Funds used to account for assets held by a
government in a trustee capacity for individuals, private organizations, other governments and/or funds.
The Town of Los Altos Hills
26379 Fremont Road
Los Altos Hills, CA 94022
214 Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Appendix