1 City Council
Special Meeting
Monday, January 24, 2022
5:00 PM
Virtual Meeting
Additional materials added to Agenda
Pursuant to AB 361 this City of Palo Alto City Council Meeting Will Be Held by Virtual Teleconference Only
To prevent the spread of Covid-19, this meeting will be held by virtual teleconference only, with no physical location. Members of the public who wish to participate by computer or phone can find the instructions below and at the end of this agenda.
HOW TO PARTICIPATE
VIRTUAL PARTICIPATION
CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238) Meeting ID: 362 027 238 Phone:1(669)900-6833
The meeting will be broadcast on Cable TV Channel 26, live on YouTube at https://www.youtube.com/c/cityofpaloalto, and s t r e a m e d t o Midpen Media Center at https://midpenmedia.org.
TIME ESTIMATES
Time estimates are provided as part of the Council's effort to manage its time at Council meetings. Listed times are estimates only and are subject to change at any ti
me, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after th
e time estimated on the agenda. This may occur in order to best manage the time at a m
eeting or to adapt to the participation of the public.
PUBLIC COMMENTS
Public Comments will be accepted via Zoom meeting. All requests to speak will be taken until 5 minutes after the staff’s presentation. Written public comments can be submitted in advance to [email protected] and will be provided to the Council and available for inspection on the City’s website. Please clearly indicate which agenda item you are referencing in your email subject line.
HEARINGS REQUIRED BY LAW
Applicants and/or appellants may have up to ten minutes at the outset of the public discussion to make their remarks and up to three minutes for concluding remarks after other members of the public have spoken.
2 Special Meeting January 24, 2022
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org.
CALL TO ORDER
STUDY SESSION (5:00 PM - 6:00 PM)
1. Report from the Human Relations Commission regarding their project titled “100 Community Conversations on Race and the Lived Experience in Palo Alto”
AGENDA CHANGES, ADDITIONS AND DELETIONS
PUBLIC COMMENT (6:00 PM - 6:25 PM)
Members of the public may speak to any item NOT on the agenda. Council reserves the right to limit the duration of Oral Communications period to 30 minutes.
CONSENT CALENDAR (6:25 PM - 6:30 PM)
Items will be voted on in one motion unless removed from the calendar by three Council Members.
2. Approve Minutes from the January 10, 2022 City Council Meeting
3. Approval of General Services Contract with Denali Water Solutions, LLC for Sludge Hauling Services in an Amount Not to Exc eed $2,427,084 for a 3 -Year Term endin g March 30, 2025, from the Wastewater Treatment Enterprise Fund
4. Review and Acceptance of Annual Status Report on Development Impact Fees for Fiscal Year 2021
5. Acceptance of the Macias Gini & O’Connell Audit of the City of Palo Alto’s Financial Stateme nts as of June 30, 2021 and the Management Letter; Approval of the FY 2021 Annual Comprehensive Financial Report (ACFR); and Amendments to the FY 2021 Budget in Various Funds
6. Adoption of a Resolution Declaring Weeds to be a Public Nuisance and Setting J anuary 24, 2022 for a Public Hearing for Objections to the Proposed Weed Abatement
7. Adoption of a Resolution Scheduling the City Council Summer Break and Winter Closure for 2022
8. Adoption of a Resolution Authorizin g Use of Teleconferencing for Council Meetings During Covid-19 State of Emergency
9. SECOND READING: Adopt a Park Improvement Ordinance for the Replacement of the Palo Alto Flood Basin Tide Gate Structure in the City's Baylands (FIRST READING: January 10, 2022 PASSED: 7-0) Q&A
Q&A
Q&A
Q&A
Public
Comment
Presentation
3 Special Meeting January 24, 2022
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org.
10. SECOND READING: Adoption of an Interim Ordinance Amending Titles 16, 18 and 21 in Response to Senate Bills 9 and 478, Including Amendment to the City's Affordable Housing Requirements for SB 9 Projects. CEQA Status: This Action is not Considered a Project or is Exempt fro m CEQA in Accordance With Government Code Sections 66411.7(n) and 65852.21(j) or Section 15061 of the State CEQA Guidelines. (FIRST READING: January 10, 2022 PASSED: 7-0)
CITY MANAGER COMMENTS
ACTION ITEMS
Include: Reports of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Reports of Officials, Unfinished Business and Council Matters.
11. Discuss Polling Results, Analysis, and Community and Stakeholder Engagement Plan; Recommend Further Refined Parameters for a Possible Local Tax Ballot Measure for November 2022 Election (Business License Tax and Utility Tax Proposals); and Direct Staff on Related Items such as Community and Stakeholder Engagement Plan (7:00 PM - 9:30 PM)
A Revised Staff Report Has been Added to this Packet
12. Public Hearing: Adoption of Ordinance Clarifying Ambiguities in Height Transitions and Amending the Setback for the RM-40 Zone District (9:30 PM - 10:30 PM)
COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS
Members of the public may not speak to the item(s)
ADJOURNMENT
INFORMATION REPORTS
Information reports are provided for informational purposes only to the Council and the public but are not listed for action during this meeting’s agenda.
13. City of Palo Alto's Energy Risk Management Report for the Second Hal f of Fiscal Year 2021 (January 1, 2021-June 30, 2021)
14. Informational Report on the GreenWaste of Palo Alto Certificate of End Use & Traceability Report and Update on Council Direction Regarding Recyclable Materials.
15. Contracts Awarded by the City Manager and Procurement Officer
16. Update on the Implementation of the Deconstruction and Construction Materials Management Ordinance (Ordinance 5472/ Palo Alto Municipal Code Title 5, Chapter 5.24).
Q&A
Public
Comment
Presentation
Presentation
Presentation
4 Special Meeting January 24, 2022
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org.
OTHER INFORMATION
Standing Committee Meetings
None the week of January 24, 2022
Public Letters to Council
Schedule of Meetings
AMENDED AGENDA ITEMS
Items that have been added/modified from the original publication of the agenda are listed below. Any corresponding materials are appended to the end of the initial packet. If full items have been added to the Agenda, they will be denoted with a number staring with AA, meaning Amended Agenda item.
11. Discuss Polling Results, Analysis, and Community and St akeholder Engagement Plan; Recommend Further Refined Parameter s for a Possible Local Tax Ballot Measure for November 2022 Election (Business License Tax and Utility Tax Proposals); and Direct Staff on Related Items such as Community and Stakeholder Engagem ent Plan A Revised Staff Report Has been Added to this Packet – click here
5 Special Meeting January 24, 2022
Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org.
PUBLIC COMMENT INSTRUCTIONS
Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone.
1. Written public comments may be submitted by email to [email protected].
2. Spoken public comments using a computer will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom -based meeting. Please read the following instruct ions carefully.
A. You may download the Zoom client or connect to the meeting in - browser. If using your browser, make sure you are using a current, up-to-date browser: Chrome 30+, Firefox 27+, Microsoft Edge 12+, Safari 7+. Certain functionality may be disab led in older browsers including Internet Explorer.
B. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak.
C. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak.
D. When called, please limit your remarks to the time limit allotted.
E. A timer will be s hown on the computer to help keep track of your comments.
3. Spoken public comments using a smart phone will be accepted through the teleconference meeting. To address the Council, download the Zoom application onto your phone from the Apple App Store or Google Play Store and enter the Meeting ID below. Please follow the instructions B-E above.
4. Spoken public comments using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted.
CLICK HERE TO JOIN Meeting ID: 362 027 238 Phone:1(669)900-6833
City of Palo Alto (ID # 13841)
City Council Staff Report
Meeting Date: 1/24/2022
City of Palo Alto Page 1
Title: Report from the Human Relations Commission regarding their project titled “100 Community Conversations on Race and the Lived Experience in Palo Alto”
From: City Manager
Lead Department: Community Services
Representatives of the Human Relations Comm ission (HRC) will be presenting a summary of their recent project; “100 Community Conversations on Race and the Lived Experience in Palo Alto” (Attachment A) for discussion with the Council.
This is a Study Session , therefore there will be no recommended actions; however, the Commission will be requesting Council feedback on their possible next steps.
Background
The Human Relations Commission received a report on the 100 Community Conversations on Race initiative at their August 12, 2021 meeting and discussed next steps. HRC representatives at the meeting expressed their desire to present the findings of the project to the full Council.
Information on this project was first presented to the Policy and Services Committee on September 14, 2021 . The Policy and Services Committee made a recommendation to the Council that included further areas of consideration which included “ support the HRC work regardi ng the 100 Conversations.” The September report also includes an update on the City’s greater Race and Equity/Social Justice work.
Attachments:
• Attachment1.a: Attachment A - 100 Conversations Memo - 12-17-21-revised 1 Packet Pg. 6
TO: City Council
FROM: Kaloma Smith, Chair
Human Relations Commission
DATE: December 17, 2021
RE: 100 CONVERSATIONS ABOUT RACE --STATUS AND OVERVIEW
Background
In response to a June 15, 2020 staff report on an initial framework and workplan to address systemic racism, Council directed the Human Relations Commission (HRC) to produce a report on “Black and Brown Palo Alto - History and Current Experience.” HRC Chair Kaloma Smith and then Vice Chair Valerie Stinger convened to research and write the report, with much community input, and the final report was presented to the Council on January 19, 2021. From the written and spoken retelling of personal lived experiences, four themes evolved. These were:
• Persistent
o We have been doing this a long time and we still don’t get it done. • Consistent aggressions
o It’s the DAILY microaggressions that hurt.
• Positive role models absent
o Young people don’t have positive role models in their curriculum or around town.
• Housing denied
o Awareness of de jure discrimination limiting access to housing as well as evidence of de facto discrimination
As the HRC believed that the Commission could play a vital role in addressing issues related to equity and inclusion in the community, they identified an action plan that centered on partnering with 100 community leaders to lead community circle conversations that would meet to discuss race and belonging over the next 12 months.
They committed to making this moment a pivot point and commit to be a model for diversity, inclusion, equity, and belonging.
Project Planning
Buoyed by the success of Palo Alto Unified School District’s successful community-wide 21 Day Racial Equity Challenge, Chair Smith and Stinger began the work to create the framework for the 100 Conversations. With key contributions from Inclusion and Diversity leaders at Stanford University, including Mohammed Soriano-Bilal, Associate Dean and Director, Office of Inclusion, Belonging, and Intergroup Communication, Inclusion and Diversity Education and Shalia Kotadia, Director of Culture and Inclusion,
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School of Medicine and additional input and review of a Community Advisory Committee consisting of representation from the City, community, academia, the arts, and nonprofit, a detailed Toolkit was created, website launched outreach conducted to recruit conversation leaders, and training sessions held to equip each conversation leader to utilize the toolkit.
The Conversations were designed with this context:
• Vision
• Palo Alto is a model for equity and belonging, vested in diversity, inclusion, and equity, and committed to putting words into action • Goals
• Engage in brave and honest conversation
• Identify personal behaviors and make a personal commitment to change • Identify root causes and specific local initiatives/policy to reshape our community and address structural racism
• Inclusion Criteria
• Live, work, study, worship, shop in Palo Alto
• The aim was to generate many different ideas. Diversity was sought; representative sampling, which is relevant for quantification and projections, was not sought.
• Conversations were to be held between May 25 and Juneteenth. That time frame was extended to allow for graduations, summer vacations, and year end activity.
Implementation
The Conversations were structured in two parts, allowing for participants to give value to the process as well as the time answering questions.
• ‘Experience with Race’, the first part, used open-ended questions and activities.
The host could tailor the mix for the group. Situations and statements were prepared to promote deep and brave discussion. The examples were local and current.
• ‘Ideas for Building a Climate of Belonging’ were sought in the second part.
Discussion was specific to Palo Alto. Different groups were at different stages in their understanding and reaction to local racism. Some had very specific ideas; others, more general. Taken together, they give a sense of Palo Alto’s thinking.
To date, 33 conversation circles have taken place attended by over 212 individuals.
Most conversation circles had between 4-8 participants, a few were larger. 100 conversations was an aspirational goal. Sixty-four people were trained to be hosts.
Some held conversations but did not record them. Some chose to co-host with another
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or chose not to host. Their reasons were anecdotally that they thought they would have help recruiting, that their neighborhood group was more advanced in their study of race, that the focus was too narrowly focused on race excluding questions of Asian experience or anti-semitism; and some ran out of time.
It was noted that the period that the conversations took place was a busy one, competing with graduations, year-end school activities and summer vacations and while many local individuals whose efforts were pulled towards working for an extension of the Statewide eviction moratorium that was scheduled to end on June 30th. While advertised by the City, program volunteers and discussion leaders, there was not a greater push due to limited volunteer capacity and budget.
Outcomes and Key Learnings
The conversations offered an opportunity for those who participated to have a significant conversation on race. Approximately 30% of attendees had never had a conversation about race in Palo Alto before.
Outcomes of the conversations were categorized into three areas: 1) Learnings 2) Experiences and 3) Emotions. An activity called Four Corners in which one had to reflect on a situation from the perspective of the target/victim, committer, supporter (one who speak up) and bystander was found to be especially helpful in understanding the impact of racist acts.
Two outcomes are particularly important. First, many attendees expressed concern that classicism may compound the problems of racism faced by Black, Brown and Asians in Palo Alto. Racism is further compounded by increasing economic disparity and a lost sense of place. Second, white privilege, which so frames the lived experience of Black and Brown citizens, is barely understood by the dominant local population.
Some other learnings, emotions, and experiences, which were important to the discussions, were captured in the summaries. These include:
• Experiences in Palo Alto reflected a changing Palo Alto, where economic disparity compounds racial privilege and lessens a sense of place; DIE programs that were not uniformly staffed and funded; and a Police Department that was often, but not consistently sensitive to the community. • Racist incidents, for example in rental, job or automobile negotiations • Experiences with and profiling by the Police Department that have led to distrust among some people of color (POC). Racist treatment from realtors, educators and general community members who resorted to cultural stereotypes and ignorance
• Experience of neighborhood watch
• Inadequacy of under-resourced DIE programs
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• Experience of surveillance
• Strong emotions including anger and sadness, but also led to the start of understanding
• Dismay that we still face so much racism, ‘even’ in Palo Alto • Differing expectations of teachers
• Learnings centered on white privilege
While each of the conversations lasted about 90 minutes, participants left with a sense of personal commitment to continue to work on issues of equity and inclusion in Palo Alto and shared these during the survey process. Individuals expressed their personal commitment to understand more deeply the lived experience of Black and Brown Palo Alto, to advocate change and to learn helpful behaviors. More specifically, this included commitments to:
• Be in further conversation with each other on this important topic, to continue the dialogue about local, systemic racism
• Advocate for progress, improve justice in policing
• Building Community, push Council to create real community; change how one welcomes marginalized communities
• Learning and understanding, lobby our educational institutions to present an accurate picture of our history
• Being an ally, learn and read more to understand how people of different races feel; learn how to be an upstander
The way in which this program was designed, as a collaboration with a diverse group of professionals and community members, and the toolkit that was created, serves a model for continued and future action on inclusion and belonging in Palo Alto. It is not too late for conversation circles to still occur, starting the process of listening and understanding, expanding to include others in the community. The feedback of those who did participate, along with their suggestions for next steps, were brought back to the Community Advisory Committee for review and discussion, before being included in a report back to the HRC.
While the conversations were a valuable and personal complement to a year of study of literature and history, follow through is anticipated. ‘The key now is for the HRC to actually roll the output into an executive summary of findings and to use that to create and drive a ‘”change agenda”’. It’s worth noting that interest and good will of community partners exists now and can be leveraged to realize the vision crafted at the outset.
Palo Alto is a model for equity and belonging, vested in diversity, inclusion, and equity, and committed to putting words into action
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As they were designed to do, the conversations provided numerous and rich suggestions from the community for implementation. Participants were thoughtful.
They expect, in turn, to see the how the work on inclusion and belonging will continue.
Next Steps
A recap of the project and its findings was presented to the HRC at its August 12, 2021 meeting by Chair Smith and former Vice Chair Stinger, the two principal leaders of the project. After follow-up questions and a time of discussion, the HRC voted (5-0) to recommend forward a list of topic areas to the Council for initial review, comment and direction; they are listed in the next paragraph. The first step in this process was a presentation to the Policy and Services Committee on September 14, 2021 as part of a greater update from city staff on the City’s Race and Equity Work. Policy and Services passed a recommendation that included that the Council consider ways in which it can “support the HRC work regarding the 100 Conversations.”
The HRC is interested in working with the Council, staff and community in further exploring avenues to enhance Inclusion & Belonging in the areas of Policing, Education, Housing and Community Engagement. They are also proposing that Council consider including Belonging as a City Priority for 2022.
The HRC believes that its past work for Council on 8 Can’t Wait, Report on Black & Brown Lives and Current Experience in Palo Alto and the 100 Conversations project were successful as they were the result of clear direction/recommendations from Council to the Commission to address. The Commission would again appreciate receiving clear direction/specific actions to pursue on the topics listed in the previous paragraph and/or other ways in which it can work in partnership with Council and staff to make progress in this important area.
The HRC will utilize the findings from the 100 Conversations participants, along with the feedback received from the Council, to further inform its continued work on Inclusion and Belonging in the community.
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City of Palo Alto (ID # 13948)
Office of the City Clerk
City Council CAO Report
Meeting Date: 1/24/2022
Title: Approve Minutes from the January 10, 2022 City Council Meeting From: Lesley Milton, City Clerk
Staff recommends Council to review and approve the minutes as presented.
ATTACHMENTS:
• Attachment2.a: Attachment A: 20220110amCCs Draft (PDF) 2 Packet Pg. 12
CITY COUNCIL
DRAFT ACTION MINUTES
Special Meeting
January 10, 2022
The City Council of the City of Palo Alto met on this date in v irtual teleconference at 5:00 P.M.
Participating Remotely: Burt, Cormack, DuBois, Filseth, Kou, Stone, Tanaka
Absent: None
Closed Session
1. CONFERENCE WITH REAL PROPERTY NEGOTIATORS
Authority: Government Code Section 54956.8
Property: 445 Bryant Street
Assessor’s Parcel Number 120-15-107
Negotiating Party: JSRFIT LLC, a California limited liability company d.b.a. Form Fitness
City Negotiators: Ed Shikada and Kiely Nose
Subject of Negotiations: Lease Price and Terms of Payment.
MOTION: Council Member DuBois moved, seconded by Council Member Filseth to go into Closed Session.
MOTION PASSED: 7-0
Council went into Closed Session at 5:09 P.M.
Council returned from Closed Session at 6:28 P.M.
Mayor Burt announced no reportable action.
Agenda Changes, Additions and Deletions
None
Consent Calendar
MOTION: Council Member Dubois moved, seconded by Council Member Filseth to approve Items 2-9.
2. Approve Minutes from December 6th and 13th, 2021 and January 3, 2022.
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DRAFT ACTION MINUTES
Sp. City Council Meeting
Draft Action Minutes: 1/10/2022
3. Approval of Contract C22181106 with Universal Site Services Inc. for a Total Not-to-Exceed Amount of $1,214,373 Over a Five Year Term for Scheduled and On -Call Steam Cleaning Services at Various City Locations.
4. Adoption of Labor Agreements with 1) Service Employees International Union Hourly (SEIU-H) Unit , 2) Utilities Management and Professional Association of Palo Alto (UMPAPA), and 3) Service Employee International Union (Classification Revision).
5. Adopt a Park Improvement Ordinance for the Replacement of the Palo Alto Flood Basin Tide Gate Structure in the City's Baylands.
6. Adoption of Two Resolutions 10012 and 10013 Authorizing Participation in the California Arrearage Payment Program (CAPP) for Gas and Electric Utilities, and the California Water and Wastewater Arrearage Payment Program (CWWAPP), Including Acceptance of Funds and Crediting Eligible Utility Accounts; and Approval of Amendments to the Fiscal Year 2022 Budget Appropriation Ordinance for the Electric, Gas, and Water Funds to Account for CWWAPP and CAPP Funds.
7. Adoption of an Interim Ordinance Amending Titles 16, 18 and 21 in Response to Senate Bills 9 and 478, Including Amendment to the City's Affordable Housing Requirements for SB 9 Projects. CEQA Status: This Action is not Considered a Project or is Exempt from CEQA in Accordance With Government Code Sections 66411.7(n) and 65852.21(j) or Section 15061 of the State CEQA Guidelines.
8. SECOND READING: Adoption of Ordinance 5539 Restating Procedures For Expedited Permitting Processing For Electric Vehicle Charging Systems (FIRST READING: December 13, 2021 PASSED: 6 -0, K ou absent).
9. SECOND READING: Adoption of Park Improvement Ordinance 5540 for Renovations at Cameron Park (FIRST READING: February 8, 2021 PASSED: 7-0).
ITEMS 2-7, 9 OF MOTION PASSED: 7-0
ITEM 8 OF MOTION PASSED: 6-0, Kou abstain
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DRAFT ACTION MINUTES
Sp. City Council Meeting
Draft Action Minutes: 1/10/2022
Action Items
10. PUBLIC HEARING: Staff Recommend the City Council Review the North Ventura Coordinated Area Plan (NVCAP) Preferred Alternative, Take Public Comment, and Endorse the Preferred Alternative.
MOTION: Council Member DuBois moved, seconded by Mayor Burt that the Council confirm direction for preferred plan for NVCAP with additional considerations:
A. Define a low-density R&D zone limiting employment density; B. 1.0 parking spots for 1 bedroom going to 2 spots for 2 bedroom + units, in parallel, refer to the Planning and Transportation Commission to make recommendations for analysis of appropriate parking based on the Fehr & Peers study and other studies and encourage mechanisms to discourage street parking;
C. Deed restricted retail required in order to get 15’ first floor incentive; D. Eliminate workforce housing incentives or propose incentives separate from affordable housing and redefine qualifications for workforce housing;
E. Develop preferred park locations for larger park space and continue to explore naturalization of the creek consistent with option 3; and F. Include 100% affordable housing height limits based upon the minimum height necessary for a five -story, retail affordable housing project or a six-story non-retail affordable housing project.
MOTION PASSED: 5-2, Cormack, Tanaka no
11. Review and Accept the FY 2023 - FY 2032 Long Range Financial Forecast (LRFF) and FY 2023 Budget Development Guidelines.
MOTION: Council Member Cormack moved, seconded by Council Member Filseth to:
A. Accept the Fiscal Year (FY) 2023 to 2032 Long Range Financial Forecast Base Case and the FY 2023 Budget Development Guidelines including the addition addressing projects and programs not funded; and B. Direct Staff to use this forecast as the starting point for the initiation of the FY 2023 budget process.
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DRAFT ACTION MINUTES
Sp. City Council Meeting
Draft Action Minutes: 1/10/2022
MOTION PASSED: 6-1, Tanaka no
Adjournment: The meeting was adjourned at 11:09 P.M.
ATTEST: APPROVED:
____________________ ____________________
City Clerk Mayor NOTE: Action minutes are prepared in accordance with Palo Alto Municipal Code (PAMC) 2.04.160(a) and (b). Summary minutes (sense) are prepared in accordance with PAMC Section 2.04.160(c). Beginning in January 2018, in accordance with Ordinance No. 5423, the City Council found action minutes and the video/audio recordings of Council proceedings to be the official records of both Council and committee proceedings. These recordings are available on the City’s website.
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City of Palo Alto (ID # 13520)
City Council Staff Report
Meeting Date: 1/24/2022
City of Palo Alto Page 1
Title: Approval of General Services Contract with Denali Water Solutions, LLC for Sludge Hauling Services in an Amount Not to Exceed $2,427,084 for a 3 - Year Term ending March 30, 2025, from the Wastewater Treatment Enterprise Fund
From: City Manager
Lead Department: Public Works
Recommendation
Staff recommends that Council approve and authorize the City Manager or their designee to execute Contract No. C22183016 with Denali Water Solutions, LLC (Attachment A) in an amount not to exceed $2,427,084 from the Wastewater Treatment Enterprise Fund for sludge hauling services for the Regional Water Quality Control Plant (RWQCP) ending March 30, 2025.
Background
The RWQCP produces sludge requiring offsite treatment. Two onsite sewage sludge incinerators were retired in 2019 and replaced with a new sludge dewatering and truck loadout facility. A contracted hauler began daily loadouts into trucks from the new facility on March 19, 2019, and since then , sludge has been hauled to two different regional treatment facilities .
Both offsite facilities are currently under contract with the City for treatment and end use disposal.
To prepare for hauling and treatment, i n 2017 Public Works utilized a solicitation for sludge hauling and treatment services. Council approved a contract with Denali Water Solutions, LLC (Denali) on June 18, 2018 ( Staff Report ID# 8 913) in an amount not to exceed $2,181,000 for hauling services through March 3 1, 2022. A new contract is needed to begin three more years of hauling services beginning April 1, 2022. Contracts for sludge treatment services with Lystek International Limited (Lystek) and Synagro-WWT, Inc. (Synagro) were also approved on June 18, 2018, but these contracts extend until March 30, 2024 and are not before Council for renewal at this time.
Discussion
Staff recommends award of the sludge hauling contract to Denali. Denali is the City’s current hauler and is performing the services well. Denali is a large residual biosolids management company that has worked with each of the recommended treatment facilities and served many 3 Packet Pg. 17
City of Palo Alto Page 2
other similar organizations including the City of San Mateo, City of Santa Cruz, Los Angeles County Sanitation District, City of Los Angeles, and Orange County Sanitation District. Hauling unit prices relate to distance and route logistics from RWQCP to the treatment facility (e.g., bridge tolls, weigh stations, traffic, driver start/end location, drive time restrictions per driver, etc.). A breakdown of total contract cost is shown below.
Contract Cost Details
Contract Year Cost Comment
1 $792,000 Note 1
2 $805,460 Note 2
3 $829,624 Note 2
Note 1: 23,000 wet tons * $34.00 / wet ton = $782,000 + $10,000 for safety program expenses in year one only
Note 2: Annual increase assumed to be a 3% Consumer Price Index for Urban Wage Earners and Clerical Workers for the San Francisco-Oakland-San Jose Area per Contract Section 6
The requested contract not to exceed amount of $ 2,427,084 with Denali is based on all the wet tons of sludge hauled to the more distant Synagro treatment facility at $34.00 per wet ton if the Lystek treatment facility is unava ilable. The estimated total volume processed in each contract year is 23,000 wet tons. Denali’s unit prices for hauling to each treatment site are shown below.
Comparison of Unit Prices in $/Wet Ton in Current and New Contract Existing Contract New Contract
Exhibit C Rates
11/28/20-
11/27/21
CPI-U Increase
Oct 20 - Aug 21
11/28/21-
03/31/22
04/01/22-
03/31/23
To Lystek $ 25.46 3.1256% $ 26.26 $ 30.25 To Synagro $ 29.10 3.1256% $ 30.01 $ 34.00
The t erm of the contract includes the contract execution through March 3 1, 2022 for preparation of the service , administrative coordination, driver training, and development of new safety plans. Most of these preparation activities will not be applicable to Denali as they will continue an existing service, but they will use the time to develop and prepare to implement additional safety plans required by the new contract. The hauling services involve three years of daily loadouts and hauling commencing April 1, 2022, which is one day after the end of the term of the existing contract with Denali on March 31, 2022.
Staff asked Denali about the 13 -15 percent increase in unit prices in the new contract pricing proposal. Denali responded that the pricing reflects current market conditions as they relate to inflation, higher diesel prices, and higher prices for truck drivers, including rising costs for diesel fuel and drivers that commenced during the term of the last contract.
Summary of Bid Process
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City of Palo Alto Page 3
On August 18, 2021, a request for quotation (RFQ) solicitation for three years of sludge hauling services was posted on the PlanetBid s website and sent to four companies. The bidding period was 41 days. A mandatory pre-bid meeting was held September 9, 2 021. On September 28, 2021 bids were received from one hauler, which was c omplete and accepted. Bid details are listed in the bid summary (Attachment B).
Bid Process Details
Bid Name/Number Sludge Hauling Services/#RFQ183016
Proposed Length of Project 3 years
Total Days to Respond to Bid 41
Bids Due September 28, 2021
Pre-Bid Meeting Yes
Number of Company Attendees at Pre-Bid Meeting 3 (2 haulers; 1 treatment site) Number of Bids Received 1
Bid Price Range $757,500 for one year
Staff reviewed the bid submitted and recommends Denali be declared the lowest responsible bidder. Denali has performed satisfactory work for the City from 2018 to the present for sludge hauling services. Staff reached out to other haulers that did not bid . Company representatives shared t hat they were too busy on other bids at the time of this bid; had staffing shortages; were dealing with internal COVID issues at the time of the pre -bid conference; were dealing with a national shortage of truck drivers; and did not think they could servic e the contract properly at this time.
Contingency for Force Majeure Situations
A force majeure may limit sludge disposal options (e.g., damaged roadways, earthquake damage, process breakdowns, new regulatory constraints, etc.). In using multiple treatment contracts with Synagro and Lystek , Palo Alto is benefiting from diversified disposal options, as well as two landfill sites identified by Denali. In the event sludge deliveries must be suddenly increased to one of the two treatment facilities, notificatio n timelines for each agency are constrained. The RWQCP’s 24/7 production of sludge requires a disposal option be activated and available within one to two days, depending on RWQCP’s available onsite storage. The contracted hauler, Denali, can deliver sludg e to two landfills as emergency backup should the two treatment facilities be unavailable . Since the commencement of hauling services in 2019, emergency use of a landfill has not been required , with both Lystek and Synagro providing reliable daily treatment services. Synagro and Lystek’s reliability is expected to continue during the term of the hauling contract. In the event of a potential future emergency requiring a landfill, every effort will be made to limit landfill use . Use of landfills is problemati c because it works against City zero waste policies rather than beneficial reuse; landfill disposal prices are not guaranteed; there are operational and regulatory constraints using a landfill for sludge disposal; and because the landfill would only consid er sludge disposal acceptable in short -term emergency situations due to limited ongoing capacity.
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Long-Term Biosolids Handling Options
In October 2019, seven biosolids management alternatives were analyzed and evaluated by an engineering consultant and department staff. The evaluation was an update to the 2014 Biosolids Facilities Plan . The evaluation resulted in a recommendation to continue o ffsite hauling while simultaneously taking advantage of the time needed to understand and quantify changes in biosolids markets, sludge production trends, regulatory impacts, and changes in sludge production resulting from future secondary treatment system upgrades. No changes to biosolids management alternatives are anticipated during the term of this sludge hauling contract. However, the successor treatment facility contracts-, commencing in April 2024 , may include a new treatment facility in addition to the current Synagro and Lystek facilities. During the sludge hauling contract term, if a different offsite treatment site(s) is identified beyond Synagro and Lystek, staff will return to Council to authorize a contract amendment for hauling to a new site(s).
Federal Requirements for Sludge Hauling
The City is required per federal (40 CFR Part 503) and state regulations (via Regional Water Quality Control Board Order No. R2 -2019-0015, NPDES Permit CA0037834) to haul sludge to an offsite treatment site; ther efore, if this contract is not approved, staff will be unable to comply with these requirements.
Resource Impact
Funding for a portion of the first year of this contract from April 2022 to June 2022 is available in the Wastewater Treatment Enterprise Fun d FY 2022 Operating B udget. Funding for subsequent fiscal years of the contract term is subject to the annual appropriation of funds through the budget process.
Palo Alto RWQCP treats the combined wastewater from Palo Alto, Los Altos, Los Altos Hills, Mountain View, Stanford University, and the East Palo Alto Sanitary District. Palo Alto’s share of this services is approximately 35% and the other five agencies’ share is approximately 65%.
Policy Implications
This recommendation does not represent any ch ange to existing City policies and supports Comprehensive Plan Policy N.4-16.
Stakeholder Engagement
This service is part of the RWQCP’s operating budget funded by Palo Alto and the five partner agencies who use the RWQCP for wastewater treatment. The five partner agencies are regularly updated on the need for wastewater treatment services. Updates are provided each year at an annual meeting and at other periodic meeting s, as needed. With respect to Palo Alto itself, the open meetings on the budget process serve as the main vehicle for engaging the community on both projects and services such as this and associated rate impacts.
Environmental Review
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The activity that is the subject of the proposed contract was evaluated in the environmental review for the sludge dewatering and loadout facility under provisions of the California Environmental Quality Act. An Initial Study/Mitigated Negative Declaration was prepared for the project, and Council approved the environmental documentation on March 21, 2016 ( Staff Report ID #6424).
Attachments:
• Attachment3.a: Attachment A: Denali Water Solutions, LLC Contract, C22183016 • Attachment3.b: Attachment B: RFQ 183016, Bid Summary
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1 CITY OF PALO ALTO CONTRACT NO. C22183016
GENERAL SERVICES AGREEMENT
THIS AGREEMENT made and entered into on January 24, 2022, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and DENALI WATER SOLUTIONS, LLC, a Delaware Limited Liability Partnership, located at 1425 Victoria Court, Unit B2, San Bernadino, CA 92408, Telephone Number: 714-799-0801 (“CONTRACTOR”).
In consideration of their mutual covenants, the parties hereto agree as follows:
1. SERVICES. CONTRACTOR shall provide or furnish the services (the “Services”) described in the Scope of Services, attached at Exhibit A.
Optional On- Call Provision (This provision only applies if checked and only applies to on-call agreements.)
Services will be authorized by CITY, as needed, with a Task Order assigned and approved by CITY’s Project Manager. Each Task Order shall be in substantially the same form as Exhibit A-1. Each Task Order shall designate a CITY Project Manager and shall contain a specific scope of work, a specific schedule of performance and a specific compensation amount. The total price of all Task Orders issued under this Agreement shall not exceed the amount of Compensation set forth in Section 5 of this Agreement. CONTRACTOR shall only be compensated for work performed under an authorized Task Order and CITY may elect, but is not required, to authorize work up to the maximum compensation amount set forth in Section 5.
2. EXHIBITS. The following exhibits are attached to and made a part of this Agreement:
“A” - Scope of Services
“A-1” - Palo Alto Sludge Characteristics
“B” - Schedule of Performance
“C” - Schedule of Fees
“D” - Insurance Requirements
“E” – Performance Bond
CONTRACT IS NOT COMPLETE UNLESS ALL INDICATED EXHIBITS ARE ATTACHED.
3. TERM.
The term of this Agreement is from December 13, 2021 to March 31, 2025 inclusive, subject to the provisions of Sections R and W of the General Terms and Conditions.
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2 4. SCHEDULE OF PERFORMANCE. CONTRACTOR shall complete the Services within the term of this Agreement in a reasonably prompt and timely manner based upon the circumstances and direction communicated to CONTRACTOR, and if applicable, in accordance with the schedule set forth in the Schedule of Performance, attached at Exhibit B. Time is of the essence in this Agreement.
5. COMPENSATION FOR ORIGINAL TERM. CITY shall pay and CONTRACTOR agrees to accept as not-to-exceed compensation for the full performance of the Services and reimbursable expenses, if any:
The total maximum lump sum compensation of dollars ($ ); OR
The sum of dollars ($ ) per hour, not to exceed a total maximum compensation amount of dollars ($ ); OR
A sum calculated in accordance with the fee schedule set forth at Exhibit C, not to exceed a total maximum compensation amount of two million four hundred and twenty-seven thousand and eighty-four dollars ($2,427,084).
CONTRACTOR agrees that it can perform the Services for an amount not to exceed the total maximum compensation set forth above. Any hours worked or services performed by CONTRACTOR for which payment would result in a total exceeding the maximum amount of compensation set forth above for performance of the Services shall be at no cost to CITY.
CITY has set aside the sum of dollars ($ ) for Additional Services. CONTRACTOR shall provide Additional Services only by advanced, written authorization from the City Manager or designee. CONTRACTOR, at the CITY’s request, shall submit a detailed written proposal including a description of the scope of services, schedule, level of effort, and CONTRACTOR’s proposed maximum compensation, including
reimbursable expense, for such services. Compensation shall be based on the hourly rates set forth above or in Exhibit C (whichever is applicable), or if such rates are not applicable, a negotiated lump sum. CITY shall not authorize and CONTRACTOR shall not perform any Additional Services for which payment would exceed the amount set forth above for Additional Services. Payment for Additional Services is subject to all requirements and restrictions in this Agreement.
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3 6. COMPENSATION DURING ADDITIONAL TERMS.
CONTRACTOR’S compensation rates for each additional term shall be the same as the original term; OR
CONTRACTOR’s lump sum compensation amount, hourly rates, or fees, whichever is applicable as set forth in section 5 above, is inclusive of an annual Consumer Price Index adjustment effective immediately following the first year of active hauling services (April 1, 2023) adjusted by a percentage equal to the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers for the San Francisco -Oakland- San Jose area, published by the United States Department of Labor Statistics (CPI) which is published most immediately preceding the commencement of the applica ble Additional Term, which shall be compared with the CPI published most immediately preceding the commencement date of the then expiring term. Notwithstanding the foregoing, in no event shall CONTRACTOR’s compensation rates be increased by an amount exceeding five percent of the rates effective during the immediately preceding term.
Any further adjustment to CONTRACTOR’s compensation rates shall be reflected in a written amendment to this Agreement.
7. CLAIMS PROCEDURE FOR “9204 PUBLIC WORKS PROJECTS”. For purposes of this Section 7, a “9204 Public Works Project” means the erection, construction, alteration, repair, or improvement of any public structure, building, road, or other public improvement of an y kind. Public Contract Code Section 9204 mandates certain claims procedures for Public Works Projects, which are set forth in “Appendix
Projects”.
Claims for Public Contract Code Section 9204 Public Works
This project is a 9204 Public Works Project and is required to comply with the claims procedures set forth in Appendix , attached hereto and incorporated herein.
OR
This project is not a 9204 Public Works Project.
8. INVOICING. Send all invoices to CITY, Attention: Project Manager. The Project Manager is James Allen, Public Works Department, Regional Water Quality Control Plant (RWQCP) 2501 Embarcadero Way, Palo Alto, CA 94303. Telephone:
650-329-2243, Email: [email protected]. Invoices shall be submitted in arrears for Services performed. Invoices shall not be submitted more frequently than monthly. Invoices shall provide a detailed statement of Services DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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4 performed during the invoice period and are subject to verification by CITY. CITY shall pay the undisputed amount of invoices within 30 days of receipt.
Invoice shall include:
• Contract Number
• Item description
• Itemized spreadsheet, auditable at any time for individual load tickets • Certified net weight of each load times contract price per ton
Invoice shall be electronic pursuant to City administrative standards; a PDF email is acceptable.
GENERAL TERMS AND CONDITIONS
A. ACCEPTANCE. CONTRACTOR accepts and agrees to all terms and conditions of this Agreement. This Agreement includes and is limited to the terms and conditions set forth in sections 1 through 8 above, these general terms and conditions and the attached exhibits.
B. QUALIFICATIONS. CONTRACTOR represents and warrants that it has the expertise and qualifications to complete the services described in Section 1 of this Agreement, entitled “SERVICES,” and that every individual charged with the performance of the services under this Agreement has sufficient skill and experience and is duly licensed or certified, to the extent such licensing or certification is required by law, to perform the Services. CITY expressly relies on CONTRACTOR’s representations regarding its skills, knowledge, and certifications.
CONTRACTOR shall perform all work in accordance with generally accepted business practices and performance standards of the industry, including all federal, state, and local operation and safety regulations.
C. INDEPENDENT CONTRACTOR. It is understood and agreed that in the performance of this Agreement, CONTRACTOR and any person employed by CONTRACTOR shall at all times be considered an independent CONTRACTOR and not an agent or employee of CITY. CONTRACTOR shall be responsible for employing or engaging all persons necessary to complete the work required under this Agreement.
D. SUBCONTRACTORS. CONTRACTOR may not use subcontractors to perform any Services under this Agreement unless CONTRACTOR obtains prior written consent of CITY. CONTRACTOR shall be solely responsible for directing the work of approved subcontractors and for any compensation due to subcontractors.
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5 E. TAXES AND CHARGES. CONTRACTOR shall be responsible for payment of all taxes, fees, contributions or charges applicable to the conduct of CONTRACTOR’s business.
F. COMPLIANCE WITH LAWS. CONTRACTOR shall in the performance of the Services comply with all applicable federal, state and local laws, ordinances, regulations, and orders.
G. PALO ALTO MINIMUM WAGE ORDINANCE. CONTRACTOR shall comply with all requirements of the Palo Alto Municipal Code Chapter 4.62 (Citywide Minimum Wage), as it may be amended from time to time. In particular, for any employee otherwise entitled to the State minimum wage, who performs at least two (2) hours of work in a calendar week within the geographic boundaries of the City, CONTRACTOR shall pay such employees no less than the minimum wage set forth in Palo Alto Municipal Code section 4.62.030 for each hour worked within the geographic boundaries of the City of Palo Alto. In addition, CONTRACTOR shall post notices regarding the Palo Alto Minimum Wage Ordinance in accordance with Palo Alto Municipal Code section 4.62.060.
H. DAMAGE TO PUBLIC OR PRIVATE PROPERTY. CONTRACTOR shall, at its sole expense, repair in kind, or as the City Manager or designee shall direct, any damage to public or private property that occurs in connection with CONTRACTOR’s performance of the Services. CITY may decline to approve and may withhold payment in whole or in part to such extent as may be necessary to protect CITY from loss because of defective work not remedied or other damage to the CITY occurring in connection with CONTRACTOR’s performance of the Services. CITY shall submit written documentation in support of such withholding upon CONTRACTOR’s request. When the grounds described above are removed, payment shall be made for amounts withheld because of them.
I. WARRANTIES. CONTRACTOR expressly warrants that all services provided under this Agreement shall be performed in a professional and workmanlike manner in accordance with generally accepted business practices and performance standards of the industry and the requirements of this Agreement. CONTRACTOR expressly warrants that all materials, goods and equipment provided by CONTRACTOR under this Agreement shall be fit for the particular purpose intended, shall be free from defects, and shall conform to the requirements of this Agreement. CONTRACTOR agrees to promptly replace or correct any material or service not in compliance with these warranties, including incomplete, inaccurate, or defective material or service, at no further cost to CITY. The warranties set forth in this section shall be in effect for a period of one year from completion of DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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6 the Services and shall survive the completion of the Services or termination of this Agreement.
J. MONITORING OF SERVICES. CITY may monitor the Services performed under this Agreement to determine whether CONTRACTOR’s work is completed in a satisfactory manner and complies with the provisions of this Agreement.
K. CITY’S PROPERTY. Any reports, information, data or other material (including copyright interests) developed, collected, assembled, prepared, or caused to be prepared under this Agreement will become the property of CITY without restriction or limitation upon their use and will not be made available to any individual or organization by CONTRACTOR or its subcontractors, if any, without the prior written approval of the City Manager.
L. AUDITS. CONTRACTOR agrees to permit CITY and its authorized representatives to audit, at any reasonable time during the term of this Agreement and for three (3) years from the date of final payment, CONTRACTOR’s records pertaining to matters covered by this Agreement. CONTRACTOR agrees to maintain accurate books and records in accordance with generally accepted accounting principles for at least three (3) following the terms of this Agreement.
M. NO IMPLIED WAIVER. No payment, partial payment, acceptance, or partial acceptance by CITY shall operate as a waiver on the part of CITY of any of its rights under this Agreement.
N. INSURANCE. CONTRACTOR, at its sole cost, shall purchase and maintain in full force during the term of this Agreement, the insurance coverage described at Exhibit D. Insurance must be provided by companies with a Best’s Key Rating of A- :VII or higher and which are otherwise acceptable to CITY’s Risk Manager. The Risk Manager must approve deductibles and self- insured retentions. In addition, all policies, endorsements, certificates and/or binders are subject to approval by the Risk Manager as to form and content. CONTRACTOR shall obtain a policy endorsement naming the City of Palo Alto as an additional insured under any general liability or automobile policy. CONTRACTOR shall obtain an endorsement stating that the insurance is primary coverage and will not be canceled or materially reduced in coverage or limits until after providing 30 days prior written notice of the cancellation or modification to the Risk Manager. CONTRACTOR shall provide certificates of such policies or other evidence of coverage satisfactory to the Risk Manager, together with the required endorsements and evidence of payment of premiums, to CITY concurrently with the execution of this Agreement and shall throughout the term of this Agreement provide current ce rtificates evidencing the required insurance coverages and endorsements to the Risk Manager. CONTRACTOR shall include all subcontractors as insured under its policies or shall obtain and provide to CITY separate certificates and endorsements DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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7 for each subcontractor that meet all the requirements of this section. The procuring of such required policies of insurance shall not operate to limit CONTRACTOR’s liability or obligation to indemnify CITY under this Agreement.
O. HOLD HARMLESS. To the fullest extent permitted by law and without limitation by the provisions of section N relating to insurance, CONTRACTOR shall indemnify, defend and hold harmless CITY, its Council members, officers, employees and agents from and against any and all demands, claims, injuries, losses, or liabilities of any nature, including death or injury to any person, property damage or any other loss and including without limitation all damages, penalties, fines and judgments, associated investigation and administrative expenses and defense costs, including, but not limited to reasonable attorney’s fees, courts costs and costs of alternative dispute resolution), arising out of, or resulting in any way from or in connection with the performance of this Agreement. CONTRACTOR’s obligations under this Section apply regardless of whether or not a liability is caused or contributed to by any negligent (passive or active) act or omission of CITY, except that CONTRACTOR shall not be obligated to indemnify for l iability arising from the sole negligence or willful misconduct of CITY. The acceptance of the Services by CITY shall not operate as a waiver of the right of indemnification.
The provisions of this Section survive the completion of the Services or termination of this Agreement. Notwithstanding anything herein to the contrary, neither party shall be liable to the other for any indirect, special, or consequential damages in any way arising out of this Agreement, regardless of cause.
P. NON-DISCRIMINATION. As set forth in Palo Alto Municipal Code Section 2.30.510, CONTRACTOR certifies that in the performance of this Agreement, it shall not discriminate in the employment of any person because of the race, skin color, gender, age, religion, disability, national origin, ancestry, sexual orientation, housing status, mar ital status, familial status, weight or height of such person.
CONTRACTOR acknowledges that it has read and understands the provisions of Section 2.30.510 of the Palo Alto Municipal Code relating to Nondiscrimination Requirements and the penalties for violation thereof, and agrees to meet all requirements of Section 2.30.510 pertaining to nondiscrimination in employment.
Q. WORKERS' COMPENSATION. CONTRACTOR, by executing this Agreement, certifies that it is aware of the provisions of the Labor Code of the State of California which require every employer to be insured against liability for workers' compensation or to undertake self-insurance in accordance with the provisions of that Code, and certifies that it will comply with such provisions, as applicable, before commencing and during the performance of the Services.
R. TERMINATION. The City Manager may terminate this Agreement without cause by giving ten (10) days’ prior written notice thereof to CONTRACTOR. If CONTRACTOR fails to perform any of its material obligations under this DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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8 Agreement, in addition to all other remedies provided by law, the City Manager may terminate this Agreement immediately upon written notice of termination.
Upon receipt of such notice of termination, CONTRACTOR shall immediately discontinue performance. CITY shall pay CONTRACTOR for services satisfactorily performed up to the effective date of termination. If the termination is for cause, CITY may deduct from such payment the amount of actual damage, if any, sustained by CITY due to CONTRACTOR’s failure to perform its material obligations under this Agreement. Upon termination, CONTRACTOR shall immediately deliver to the City Manager any and all copies of studies, sketches, drawings, computations, and other material or products, whether or not completed, prepared by CONTRACTOR or given to CONTRACTOR, in connection with this Agreement. Such materials shall become the property of CITY.
S. ASSIGNMENTS/CHANGES. This Agreement binds the parties and their successors and assigns to all covenants of this Agreement. This Agreement shall not be assigned or transferred without the prior written consent of CITY. No amendments, changes or variations of any kind are authorized without the written consent of CITY.
T. CONFLICT OF INTEREST. In accepting this Agreement, CONTRACTOR covenants that it presently has no interest, and will not acquire any interest, direct or indirect, financial or otherwise, which would conflict in any manner or degree with the performance of this Contract. CONTRACTOR further covenants that, in the performance of this Contract, it will not employ any person having such an interest. CONTRACTOR certifies that no CITY officer, employee, or authorized representative has any financial interest in the business of CONTRACTOR and that no person associated with CONTRACTOR has any interest, direct or indirect, which could conflict with the faithful performance of this Contract. CONTRACTOR agrees to advise CITY if any conflict arises.
U. GOVERNING LAW. This Agreement shall be governed and interpreted by the laws of the State of California.
V. ENTIRE AGREEMENT. This Agreement, including all exhibits, represents the entire agreement between the parties with respect to the services that may be the subject of this Agreement. Any variance in the exhibits does not affect the validity of the Agreement and the Agreement itself controls over any conflicting provisions in the exhibits. This Agreement supersedes all prior agreements, representations, statements, negotiations and undertakings whether oral or written.
W. NON-APPROPRIATION. This Agreement is subject to the fiscal provisions of the Charter of the City of Palo Alto and the Palo Alto Municipal Code. This Agreement will terminate without any penalty (a) at the end of any fiscal year in the event that funds are not appropriated for the following fiscal year, or (b) at any time within a fiscal year in the event that funds are only appropriated for a portion o f the fiscal year and funds for this Contract are no longer available. This Section DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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9 shall take precedence in the event of a conflict with any other covenant, term, condition, or provision of this Contract.
X. ENVIRONMENTALLY PREFERRED PURCHASING AND ZERO WASTE
REQUIREMENTS. CONTRACTOR shall comply with CITY’s Environmentally Preferred Purchasing policies which are available at CITY’s Purchasing Division, which are incorporated by reference and may be amended from time to time.
CONTRACTOR shall comply with waste reduction, reuse, recycling and disposal requirements of CITY’s Zero Waste Program. Zero Waste best practices include first minimizing and reducing waste; second, reusing waste and third, recycling or composting waste. In particular, CONTRACTOR shall comply with the following zero waste requirements:
• All printed materials provided by CONTRACTOR to CITY generated from a personal computer and printer including but not limited to, proposals, quotes, invoices, reports, and public education materials, shall be double- sided and printed on a minimum of 30% or greater post-consumer content paper, unless otherwise approved by CITY’s Project Manager. Any submitted materials printed by a professional printing company shall be a minimum of 30% or greater post -consumer material and printed with vegetable based inks.
• Goods purchased by Contractor on behalf of CITY shall be purchased in accordance with CITY’s Environmental Purchasing Policy including, but not limited to, Extended Producer Responsibility requirements for products and packaging. A copy of this policy is on file at the Purchasing Division’s office.
• Reusable/returnable pallets shall be taken back by CONTRCATOR, at no additional cost to CITY, for reuse or recycling. CONTRACTOR shall provide documentation from the facility accepting the pallets to verify that pallets are not being disposed.
Y. AUTHORITY. The individual(s) executing this Agreement on behalf of the parties represent and warrant that they have the legal capacity and authority to do so on behalf of their respective legal entities.
Z. PREVAILING WAGES
This Project is not subject to prevailing wages. Contractor is not required to pay prevailing wages in the performance and implementation of the Project in accordance with SB 7, if the contract is not a public works contract, if contract does not include a public works construction project of more than $25,000, or the contract does not include a public works alteration, demolition, repair, or maintenance (collectively, ‘improvement’) project of more than $15,000.
OR
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10 Contractor is required to pay general prevailing wages as defined in Subchapter 3, Title 8 of the California Code of Regulations and Section 16000 et seq. and Section 1773.1 of the California Labor Code. Pursuant to the provisions of Section 1773 of the Labor Code of the State of California, the City Council has obtained the general prevailing rate of per diem wages and the general rate for holiday and overtime work in this locality for each craft, classification, or type of worker needed to execute the contract for this Project from the Director of the Department of Industrial Relations (“DIR”). Copies of these rates may be obtained at the Purchasing Division’s office of the City of Palo Alto. Contractor shall provide a copy of prevailing wage rates to any staff or subcontractor hired, and shall pay the adopted prevailing wage rates as a minimum. Contractor shall comply with the provisions of all sections, including, but not limited to, Sections 1775, 1776, 1777.5, 1782, 1810, and 1813, of the Labor Code pertaining to prevailing wages.
AA.DIR REGISTRATION. In regard to any public work construction, alteration, demolition, repair or maintenance work, CITY will not accept a bid proposal from or enter into this Agreement with CONTRACTOR without proof that CONTRACTOR and its listed subcontractors are registered with the California Department of Industrial Relations (“DIR”) to perform public work, subject to limited exceptions.
City requires CONTRACTOR and its listed subcontractors to comply with the requirements of SB 854.
CITY provides notice to CONTRACTOR of the requirements of California Labor Code section 1771.1(a), which reads:
“A contractor or subcontractor shall not be qualified to bid on, be listed in a bid proposal, subject to the requirements of Section 4104 of the Public Contract Code, or engage in the performance of any contract for public work, as defined in this chapter, unless currently registered and qualified to perform public work pursuant to Section 1725.5. It is not a violation of this section for an unregistered contractor to submit a bid that is authorized by Section 7029.1 of the Business and Professions Code or Section 10164 or 20103.5 of the Public Contract Code, provided the contractor is registered to perform public work pursuant to Section 1725.5 at the time the contract is awarded.”
CITY gives notice to CONTRACTOR and its listed subcontractors that CONTRCATOR is required to post all job site notices prescribed by law or regulation and CONTRACTOR is subject to SB 854 -compliance monitoring and enforcement by DIR.
CITY requires CONTRACTOR and its listed subcontractors to comply with the requirements of Labor Code section 1776, including:
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11 Keep accurate payroll records, showing the name, address, social security number, work class ification, straight time and overtime hours worked each day and week, and the actual per diem wages paid to each journeyman, apprentice, worker, or other employee employed by, respectively, CONTRACTOR and its listed subcontractors, in connection with the Project.
The payroll records shall be verified as true and correct and shall be certified and made available for inspection at all reasonable hours at the principal office of CONTRACTOR and its listed subcontractors, respectively.
At the request of CITY, acting by its project manager, CONTRACTOR and its listed subcontractors shall make the certified payroll records available for inspection or furnished upon request to the project manager within ten (10) days of receipt of CITY’s request.
[For state- and federally-funded projects] CITY requests CONTRACTOR and its listed subcontractors to submit the certified payroll records to the project manager at the end of each week during the Project.
If the certified payroll records are not produced to the project manager within the 10-day period, then CONTRACTOR and its listed subcontractors shall be subject to a penalty of one hundred dollars ($100.00) per calendar day, or portion thereof, for each worker, and CITY shall withhold the sum to tal of penalties from the progress payment(s) then due and payable to CONTRACTOR.
Inform the project manager of the location of CONTRACTOR’s and its listed subcontractors’ payroll records (street address, city and county) at the commencement of the Project, and also provide notice to the project manager within five (5) business days of any change of location of those payroll records.
BB. CONTRACT TERMS. All unchecked boxes do not apply to this Agreement. In the case of any conflict between the terms of this Agreement and the exhibits hereto or CONTRACTOR’s proposal (if any), the Agreement shall control. In the case of any conflict between the exhibits hereto and CONTRACTOR’s proposal, the exhibits shall control.
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12 IN WITNESS WHEREOF, the parties hereto have by their duly authorized representatives executed this Agreement on the date first above written.
CITY OF PALO ALTO DENALI WATER SOLUTIONS, LLC
Officer 1
City Manager
By
Name
Title________________________________
Approved as to form:
Officer 2 (Required for Corp. or LLC)
By
City Attorney or Designee
Name
Title
DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36 President
Jeffrey LeBlanc, President
Robert G Currey
CFO
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13 EXHIBIT A
SCOPE OF SERVICES
SLUDGE HAULING SERVICES
1. BACKGROUND AND PURPOSE
a. The work is for services to daily load and haul sludge from the City of Palo Alto’s sludge dewatering facility. CONTRACTOR (referred to herein as the “Hauler”) shall transport sludge to disposal sites as listed in this scope of services.
b. Daily sludge hauling services in this contract must begin April 1, 2022 with City dispatching first load on Thursday, March 31, 2022, and will continue through the end of the term listed in Section 3 of the Agreement.
c. After City approves this Contract but prior to the start of active hauling, CONTRACTOR will provide services listed below:
Providing required bonds, contract execution, providing City spill / emergency response plan, preparing respiratory protection and exposure control plans, obtaining permits with treatment sites at Lystek and Synagro, initial driver training, setting up initial dispatching contacts, conducting required training and safety programs, and any other prerequisites described in this Scope of Work.
d. This work requires backup treatment facilities. The Hauler’s backup treatment sites are as listed in Exhibit C to this Agreement..
2. PICKUP ADDRESS
Palo Alto Regional Water Quality Control Plant (“RWQCP”) Attn: Operations Shift Supervisor or Senior Operator
2501 Embarcadero Way
Palo Alto, CA 94303
650-329-2598 - phone
3. PALO ALTO SLUDGE CHARACTERISTICS
a. The material covered under this Agreement is a mix of raw, dewatered wastewater sludge and scum (hereafter, collectively referred to as “sludge”) that has not yet been stabilized.
b. The wastewater sludge is collected as waste sludge from activated sludge tanks (about 29% of total content) and primary sludge settling tanks (about DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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14 71% of total content). This blend is then thickened in gravity thickeners to 3% to 4% solids. The sludge blend is processed through grinders before being sent to a blend tank. The sludge is kept blended with mix pumps and aerated by a blower in a 100,000 gallon mix tank, is pumped to a belt filter press, is treated for odors in-line with a sodium hypochlorite solution, and is then dewatered using a high molecular weight cationic polymer solution on a belt filter press.
Upstream preliminary treatment processes include grit removal and mechanically raked barscreens using ¾” spacing at the headworks.
c. Primary tank scum is pumped through a grinder, sent to a scum concentrator, and thickened to about 50% solids. This scum will be added to the 20% plus sludge cake screw conveyors that feed into sludge cake bins.
d. Solids content of filter press cake will have a solid content of not less than 20%.
e. Except as stated herein, the City cannot guarantee condition or quality of the material. Therefore, notice is hereby given that the content and nature of the sludge and scum may change depending on RWQCP process control changes, treatment plant changes, influent characteristics, or treatment plant effectiveness.
f. The City will certify that the wastewater sludge and scum pollutant concentrations are at or below the metal concentration limits established in 40 CFR 501.13, Table 1 and Table 3.
g. Hauler is aware that wastewater sludge contains pathogenic microorganisms and does not meet all 40 CFR 503 regulations. The City declares, and Hauler acknowledges, that:
i. The sludge does not meet the pathogen reduction requirements of 40 CFR 503.32(B)(3) [“PRSP”].
ii. The sludge does not meet the vector attraction reduction requirements of 40 CFR 503.33(b)(1).
h. Furthermore, sludge and scum quality data is included as Exhibit A -1 to this Exhibit for the Hauler’s reference. Hauler shall verify, by analyzing the data provided and making inquiries, as needed, as to the characteristics of the wastewater sludge/scum mix and their ability to haul the wastewater sludge at the treatment/disposal site(s).
i. At no time during the term of this Agreement shall the City make available to the Hauler, nor shall the Hauler be obligated to handle, any wastewater sludge which is designated a hazardous waste under applicable law, rule, or DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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15 regulation, and nothing herein shall relieve the City of liability or responsibility with respect to any sludge generated at its facilities which is a hazardous waste.
4. SLUDGE PRODUCTION ESTIMATES
a. This scope of services covers the disposal, including loading, transportation/hauling, delivery, and unloading of approximately 23,000 annual wet tons of raw wastewater sludge.
b. The City produces wastewater sludge twenty-four (24) hours per day, seven (7) days per week, resulting up to 23,000 wet tons annually by end of term. A breakdown is included in the table below for historical sludge production by the new sludge dewatering and loadout facility, which began operation March 18, 2019. The Hauler’s transport system must have the capacity to handle the maximum levels of wastewater sludge during peak production periods (esp. after large storms that bring in extra solids).
Palo Alto RWQCP Sludge Dewatering Facility Sludge Production March 18, 2019 – June 30, 2021
Synagro Values in Wet Tons, Average 30% Sludge Cake
Year Jan-Mar Apr-Jun July-Sep Oct-Dec Annual Total
2019 386.72 3263.98 2867.49 2986.98 9505.17
2020 2931.65 2443.08 2383.67 3562.52 11320.92
2021 2729.68 2020.04 n/a n/a 4749.72
Lystek Values in Wet Tons, Average 30% Sludge Cake
Year Jan-Mar Apr-Jun July-Sep Oct-Dec Annual Total
2019 453.62 2551.24 2087.93 2169.51 7,262.3
2020 2091.82 1935.82 1607.51 582.89 6218.04
2021 1432.64 2293.80 n/a n/a 3726.44
General Characteristics:
• 03/18/19 – 12/31/19 – 16,767.47 wet tons
• 01/01/20 – 12/31/20 – 17,538.96 wet tons
• 01/01/21 – 06/30/21 – 8,476.16 wet tons
• 2021 – 17,093 wet ton prediction at current pandemic suppressed rates • Average Loadout (01/01/21 – 06/30/21): 25.53 wet tons / truck • Average Loadouts per Day (01/01/21 – 06/30/21): 1.83 truck loadouts per day • Number of Typical of Loadouts per Day (Range): 1, 2, or 3 trucks per day
c. Production rates may be varied or stopped to match RWQCP operational needs. Operation may also be interrupted occasionally for maintenance or repair. Advance notice of temporary interruption will be given to the Hauler whenever possible.
DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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16 d. The wastewater sludge shall become the property of the Hauler at the time the material is deposited in the Hauler's trailer. Therefore, it is the Hauler's responsibility to make any and all arrangements for disposal at the treatment/disposal sites identified and approved by the City (referred to herein as the “treatment/disposal sites”).
e. The amount of biosolids to be hauled is an estimate only. Therefore, notice is hereby given that the quantity, content, and nature of the material may change depending on RWQCP process control changes, process upsets, plant upgrades, repairs, maintenance, operational improvements, belt press dewatering schedule, day of week, holidays, seasonal changes, storm-induced increases in produced sol ids, changes in community population, treatment plant changes, and so forth.
f. No minimum wastewater sludge generation rate is guaranteed. However, the Hauler will be required to dispose of 100% of all wastewater sludge that the City designates for disposal pursuant to this Agreement even if the total quantity exceeds the estimate.
5. GENERAL RESPONSIBILITIES
a. The Hauler shall know, follow, comply with, and stay updated on all federal, state, and local laws, regulations, statues, ordinances, orders, de crees, and permits that affect this work. This includes loading and unloading, treatment site operation and maintenance, monitoring and reporting, processing and disposal of sludge, USDOT, transportation, driver and operator certifications, environmental and pollution regulations, noise control, and inspections by authorized representatives as required by such requirements. Hauler shall provide documentation of specific permits, orders, decrees, registrations, and so forth upon request. All costs associated with obtaining such permits and licenses shall be considered as included in the unit price. Federal Regulations, including 40 CFR Parts 257, 258, 403 and 503, provide specific requirements for biosolids disposal and must be complied with by Hauler.
b. The Hauler agrees to furnish all information as required by the City in order to fulfill the responsibilities of the City for reporting on compliance with wastewater sludge rules and regulations as well as for accurate payment.
c. Transportation shall be by a USDOT licensed, registered hauler.
d. The Hauler will be required to furnish to City and update, as necessary, a list of telephone numbers and names of responsible parties to be called on a 24 - hour, 7 days per week basis in the event of an emergency or unusual operating conditions. The Hauler’s designated representative must be available to DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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17 respond to City staff within a mutually acceptable time span (within three to four hours). It will be mandatory to have dedicated business cell phones and email for supplementary communications. The Hauler shall coordinate and cooperate with staff at the RWQCP and disposal site owners/operators (in consultation with the City) to fulfill their respective requirements.
e. Prior to initiating services under the Agreement, the Hauler’s operational team will meet with RWQCP management, operations management, and accounts payable team members at the RWQCP.
f. Raw sludge contains micro-organisms from the wastewater treatment process that include pathogens. Precautions are required. The Hauler is to follow an Exposure Control Plan for Blood Borne Pathogens pursuant to CalOSHA rules and California Code of Regulations, Title 8, Section 5193. The Exposure Control Plan is to be on file for review, if requested.
i. Hauler shall provide proper training to all drivers before their first pickup and on a recurring basis, as needed.
ii. PPE shall include latex or nitrile gloves, safety shoes, eye protection, available hard hat, full length pants, and any required face coverings/respirators. This PPE shall be worn at both City site and any treatment plant site.
iii. Hauler shall have provisions for washing hands with soap, and access to potable drinking water and OSHA approved first aid kits.
g. Raw sludge releases odors during loadouts. Some loadouts produce hydrogen sulfide at levels that may require respiratory protection. Precautions are required. The Hauler is to develop and follow a written Respiratory Protection Program pursuant to CalOSHA rule s and California Code of Regulations, Title 8, Section 5144. The Respiratory Protection Program is to be on file for review, if requested.
i. An allowance of $10,000 is authorized per Exhibit C for development of a written respiratory protection program, required respiratory protection equipment, initial and recurring qualitative and/or quantitative fit testing of respirators, initial medical clearance checks for each company driver to wear a respirator, and other required components of the program.
ii. Hauler shall provide proper training to all drivers before their first pickup and on a recurring basis, as needed.
iii. Respiratory protection shall include respirators provided at no cost to drivers and fitted to each driver. Freelance drivers contrac ted by the hauler will be made fully aware of the respiratory protection program requirements in this section.
DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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18 iv. Respirators will be fitted with cartridges and rated by NIOSH as capable of treating “HS” for acid gases containing hydrogen sulfide. v. Properly fitted respirators with cartridges for hydrogen sulfide shall be worn by each driver (either company driver or contracted driver) from the time a loadout is started until the driver leaves the building, and as directed by Palo Alto.
vi. Respirators, masks, and/or face coverings shall be worn as required by governing agencies or Palo Alto, as necessary as it relates to pandemics and public health orders.
h. The Hauler shall attend periodic meetings, as needed, to discuss items such as:
operational requirements at RWQCP and treatment site(s), performance reviews, safety/spill response planning, and strategies for common benefit.
Input and constructive feedback to improve all aspects of this Agreement is expected during the Agreement term. Meetings will be one-hour annual (or as needed) meetings held at RWQCP, treatment sites, a mutually agreeable location, or by telecon/virtually.
i. The wastewater treatment plant is an essential public service. The Hauler is also providing an essential service and will coordinate on continuity of operations during declared emergencies, and will comply with all applicable governmental orders, guidance, or regulations related to public health and safety for essential services during local or global pandemics.
6. LOADING REQUIREMENTS
a. Prior to start of work, Hauler shall visually observe the truck loadout facility and verify that the Hauler’s equipment can safely operate at the RWQCP.
b. The processed wastewater sludge is conveyed to a cake storage bin for trailer loading. Vertical clearance loading access below the bypass chute’s lowest point of discharge is approximately 12’-5” above the floor, per field measurement. Hauler is to field verify vertical clearance for their own or contracted trucks prior to start of work; Hauler is not to dispatch trucks that will not fit inside the Loadout Bay.
c. The City owns and maintains the RWQCP, the sludge dewatering equipment, and the truck loadout facility. The Hauler shall only provide trucks and trailers compatible with the existing system. Trucks shall be empty upon arrival for loading at the RWQCP.
d. The Hauler will have free and easy access to the site pursuant to the security and entry protocols established by the City, as needed. Whether worki ng in auto mode or manually, the Hauler will be responsible for opening and closing DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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19 the RWQCP entrance and exit gates as well as the sludge dewatering building truck loadout bay’s roll -up doors. Any damage to City property, including landscaping, building systems, loadout chutes, entry systems, bin gates and screws, and roll-up doors caused by the Hauler shall be promptly repaired by the Hauler at no cost to the City. Hauler shall observe traffic signs and RWQCP speed limit of 5 MPH.
e. The Hauler will load all wastewater sludge into the Hauler’s trailers. The trailer will be positioned directly under the cake hoppers for loading. The cake hoppers distribute the dewatered raw sludge in the hauler’s trailer via cake loadout chutes. During the trailer loading process, a computer program is used to track the total weight of the dewatered sludge loaded into the trailer. The Hauler will be responsible for monitoring the total weight entering the trailer, load distribution in the trailer and ensuring the load does not exceed the “Full Load” established by the Hauler for each trailer. Overweight tickets are the responsibility of the Hauler.
f. Only sludge will be added into the Hauler’s trailers. Latex gloves and o ther debris is not to be added into the trailer. All drivers will be trained on this provision as it may lead to rejected loads at the treatment site.
g. The Hauler shall bring problems with the loadout system to the attention of RWQCP management, supervisory staff, and the designated-operator-in- charge immediately.
h. Once the Hauler’s trailer is full, Hauler shall cover the load with the tarp that is on each trailer to minimize release of odors and avoid spillage from the dewatered raw sludge while the trailer is in transport to the final treatment site. The tarp shall be placed over the trailer inside the loadout bay (not outside) and before roll -up doors are opened. The truck shall be promptly driven from the RWQCP site directly and out the back g ate and on to the treatment/disposal site. No unnecessary parking inside the RWQCP or on Embarcadero Road is authorized. All drivers shall be trained on entrance and exiting procedures at the facility and odor minimization rules for the truck when onsite.
i. The Hauler shall make a proper effort to take full loads of at least 21 wet tons.
Hauler’s driver should not leave the RWQCP until a full load is received. Drivers are to be trained on the proper quantity to take. City shall not be responsible for Hauler failing to take a minimum loadout if the sludge bins have adequate sludge for the minimum loadout. City will not normally dispatch for anything but full loads (e.g., an exception to empty a partially full bin for special maintenance activities, in which case the minimum load charge may apply).
DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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20 j. The Hauler’s trucks shall be cleaned and free of any foreign matter/contamination (from any pre-hauling or back-hauling operation) such that only dewatered sludge will be transported to the treatment/disposal site(s).
k. The City reserves the right to set a loading target below the CalDOT road limit (e.g., 2000 pounds less) to account for errors in weight readings and uncertainty caused by loadout bin weight calculations by the City’s PLC. It is the Hauler’s responsibility to pay overweight limit fines. There are no onsite zones or facilities at the RWQCP for unloading excess material to return a Hauler’s truck to a legal weight limit. There is no separate weigh scale onsite to aid the Hauler in how much material to remove.
l. The RWQCP is not a staging/storage site. Hauler shall not store or stage equipment at the RWQCP.
m. The Loadout Bay is not long enough for trucks with “sleeper” cabs unless the exit door is left open, which r educes the effectiveness of the odor control system of the Loadout Bay. In situations where the RWQCP Plant Manager or their designee determines that a sleeper cab is needed for urgent operational necessity, a truck may be dispatched with a sleeper cab. In all other cases, no sleeper cabs shall be dispatched in order to allow loadouts with maximum odor control.
n. Odor Control Best Practices
i. The misting system to neutralize odors shall be started before the driver enters Loadout Bay. The odor neutralizer is on a timer and is to be left running after the driver leaves for 60 minutes. ii. Entrance and exit roll-up doors are to be closed before commencing a loadout to reduce offsite odors.
iii. After loadout completion, trucks are to be tarped inside the Loadout Bay before opening the exit roll-up door.
iv. The driver is to return to the building to close the exit roll -up door before promptly leaving the site through the back gate. v. Onsite City restroom facilities should be used prior to loading a trailer so that a fully tarped trailer is not parked unnecessarily onsite. vi. All drivers are to be trained on odor minimization protocols as part of their initial training and as needed.
o. The Loadout Bay bin discharge gates and screws must be operated safely . All drivers are to follow the City’s standard unloading procedures to operate switches for gates and screws to prevent jamming, damage, motor overloads, motor drive damage, and so forth. Failure of a driver to follow procedures will be the responsibility of the Hauler. Standard procedure will be provided at DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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21 driver initial training. Hauler is to notify new drivers not to unload without proper training by a Plant operator assigned by the designated- operator-in- charge.
7. HAULING SCHEDULE
a. The Hauler shall receive and haul wastewater sludge daily and must have the capability to haul up to six trailers a day, seven days a week from the RWQCP.
The City reserves the right to make modifications in this schedule to meet the needs of the City.
b. Loading, unloading, and treatment may be required on both a daily scheduled and as-required basis, according to the requirements of the City. The Hauler shall develop, for approval, a pickup and delivery schedule with the Project Manager. The Hauler shall be required to respond to all requests for service within twenty -four (24) hours. The RWQCP operates year round, and it is mandatory that the Hauler be available to perform the work all 365 days of the year.
c. If the Hauler coordinates with the City in advance, it may be possible to store sludge onsite at the RWQCP in the sludge cake bins and upstream sludge tanks for a short period over specific and limited number of holidays (e.g., Easter, Thanksgiving, Christmas, and New Year’s). It is the Hauler’s responsibility to coordinate with treatment sites to see if they are open on specified holidays before taking a load to a specific treatment site.
d. The RWQCP designated-operator-in-charge will normally dispatch its requested number of next-morning loadouts via email between 2:00 and 3:00 p.m. This estimate would normally be based on what is on hand in the three sludge cake bins to provide for full and time-efficient loadouts of about 25 wet tons per trailer.
e. When RWQCP dispatches up to three loads a day, all loadouts shall be completed and truck offsite by 6:00 a.m. the following morning. When four or more loads a day are dispatched (uncommon), loadouts may be scheduled for after 6:00 a.m. If a Hauler wishes to use a single driver for up to two loads, it will be the Hauler’s responsibility to work with treatment sites about their receiving hours. The City makes no guarantee about operating hours for treatment sites or treatment site charges for modifying operating hours outside of what is listed in Section 10.b.
8. HAULING REQUIREMENTS
a. The sludge shall become the property of the Hauler at the time the material is DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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22 deposited in the Hauler’s trailer. Hauler shall not commingle sludge from another facility prior to delivery for final treatment and disposal.
b. The Hauler shall be responsible for all transportation, holding, and unloading.
The Hauler shall ensure that trailers are completely empty when they arrive at the RWQCP. The Hauler shall further ensure that the exterior of the truck and trailer is clean prior to leaving the RWQCP and the treatment/disposal site destination. The Hauler shall be responsible for coordination with appropriate authorities to conduct acceptable unloading operations to meet both City and the treatment/disposal site’s requirements.
c. Emergency / Spill Response Plan: The Hauler must submit to the City an Emergency / Spill Response Plan within three (3) weeks of Agreement award to the Project Manager. The Hauler will ensure that their drivers are properly trained to carry out this Plan in the event of a spill. No hauling will be permitted until the Plan is received and approved by the City. In the event of a spill, the Hauler must immediately report it to the City and clean up the material to the satisfaction of governing authorities and the RWQCP. If the Hauler does not clean the spill, the City may clean the spill and back -charge the Hauler for all costs. A “spill” as used herein includes tracking of residuals onto public roads.
d. The Hauler must have and maintain for the term of the Agreement all hauling permits needed for the work under this Agreement.
e. The Hauler must furnish only experienced and skilled operators and other personnel as required. Hauler must ensure that employed workers have proper and valid licenses and/or certifications. The Hauler shall, at the request of the City, supply proof of these licenses and/or certifications.
f. The Hauler shall be responsible for controlling and abating any odor, spillage, insect, vermin, or any other nuisance arising from the operation.
g. City shall provide plant process water (nonpotable, aka W4 at 90 psi) and a wash down area in the truck loadout bay, which is to be used by the Hauler to keep the loading site at the RWQCP and trucks clean and free of spillage before leaving the RWQCP. The City will provide two 1.5” nonpotable (W4) water stations with 1.5” hoses in the truck loadout bay. One is at the front of the loadout bay and one on the back side, both on the passenger side of the truck.
After use, the Hauler is to put hoses away on hose stations before leaving. Any spillage or discharge of material to City or public roads shall be cleaned up promptly by the Hauler. If the City is required to clean up any spillage or discharge, all costs incurred including direct and administrative costs shall be reimbursed by the Hauler or withheld from Hauler payments.
DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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23 h. The Hauler shall provide water for all vehicles used in hauling wastewater sludge to complete wash down before leaving the treatment/disposal site. The interior of trailers, as well as all exterior surfaces, including tires and mud flaps shall be completely hosed down to minimize tracking of wastewater sludge off of the treatment/disposal site.
i. The Hauler shall provide immediate cleanup of any spill during the transportation of the wastewater sludge. The Hauler shall be fully responsible for all costs associated with the cleanup or mitigation of spills during the transportation of wastewater sludge. In addition to any other required notifications, the Hauler shall immediately notify the City by telephone at (650) 329-2598 of any spillage of wastewater sludge along the haul route and the estimated time for cleanup to be completed. The Hauler shall provide a written report within five (5) days describing any spillage incident, including at a minimum, the date, time, and location of the spill, the amount of material spilled, the methods used to clean up the spill, the cause of the spill, steps taken to prevent reoccurrence of a similar spill, and certification that the spill has been cleaned up to the satisfaction of any and all agencies having jurisdiction. Hauler will train their staff and comply with Palo Alto Emergency and Spill Response Plan.
j. It is further the Hauler’s responsibility to be cognizant of all the factors involved in furnishing labor and equipment to dispose of raw sludge including transportation, hauling, delivery and unloading of wastewater sludge from the RWQCP. Such factors include, but are not limited to, complete familiarity with the layout of the City’s facilities. The Hauler shall have complete familiarity with all access roads to the RWQCP facility, including difficulties involved in maneuvering large vehicles in confined areas. Hauler shall have available an adequate number of vehicles and trained, knowledgeable drivers to haul sludge and be able to keep a close liaison with City staff concerning scheduling or any problems related to production rates.
k. Drivers must ensure that all trucks have tailgate pins, chains, and alternate/secondary locking mechanisms in place while loaded and before leaving any site. Hauler shall use public highways and designated truck routes, ensuring that laden trucks are not left parked in high-traffic areas for extended periods of time. Hauler shall understand truck routes and traffic conditions along routes. Hauler is responsible for freeing any incapacitated truck, traffic delays, weather impacts, and road conditions.
l. Hauler shall report any significant hauling incidents, including but not limited to spills, accidents and substantial delays, to the City’s project manager within three (3) hours of an occurrence. The Hauler must make all reasonable attempts to contact the City immediately following an incident. Regardless of DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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24 contact being made with the City, the Hauler is expected to use best management practices for immediate corrective action. Upon notification of the City, incidents will be investigated. If required, Hauler shall resolve the incident. City may also identify problems such as contaminated or misplaced loads. If the incident is not resolved, the Hauler may receive a formal warning.
Significant incidents include, but are not limited to, such things as:
i. Delays of loading, hauling, or dumping of 48 hours or more; ii. Spills of any size (including any tracking of sludge onto public roads); iii. Traffic accidents;
iv. Damage to equipment, persons, or property; and
v. Any other incidents outside normal operations
m. Hauler is to have in place a 24/7 on-call emergency services agreement with a large truck mechanic(s) to deal with any truck mechanical breakdowns at the RWQCP or on other roads to and from the RWQCP.
Mechanical breakdowns shall be communicated to the RWQCP.
9. HAULING EQUIPMENT
a. Hauler must operate and maintain trucks per USDOT regulations.
b. The Hauler’s truck fleet must be California Air Resources Board (CARB) compliant including a truck fleet with engines that are 2010 or newer engine model year.
c. Hauler’s trailers must hold 21 tons minimum.
d. Hauler is to provide leak-proof aluminum or stainless steel trailers with seals, tailgate seals, and wide splashguards as a requirement for hauling wastewater sludge. Each trailer shall be appropriate for wastewater sludge containment and equipped with covers (canvas or suitable alternative material) that can be securely fastened to reduce odors and contain wastewater sludge in case the trailer overturns. There shall be no gaps in the covering tarp that release odors from off-gassing, wind, and so forth. Any damages to the tarp shall be repaired immediately.
e. All hauling trucks shall be equipped with a back- up alarm consisting of a warning horn or beep that will activate any time the truck is in reverse. Each vehicle shall be equipped with scraper, shovel, broom, and other tools as necessary to allow the driver to clean vehicle and respond to drips or small spills.
f. The Hauler shall be solely responsible for the condition of its equipment. All DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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25 equipment shall be properly maintained. Only equipment in good working condition as judged by the City is acceptable. The City may reject pieces of equipment found to be in unsatisfactory condition or performing unsatisfactory work. In the event of any rejection by the City, the Hauler must remove the unsatisfactory equipment and replace it with good and acceptable equipment immediately.
g. The Hauler shall provide the City with a list of identification numbers and maximum legal load limit for all wastewater sludge hauling trailers being utilized under this Agreement. Hauler shall conspicuously mark each trailer unit with the maximum legal weight of the unit when loaded and a corresponding "full load" indicator inside the trailer to guide loading.
h. The City will not be responsible for loss or damage of any equipment or property owned or operated by the Hauler, its agents, or employees on or off City property.
i. Hauler shall ensure that gas/oil/hydrocarbon spill- containment kits are kept on each truck and/or piece of equipment in use, and drivers are trained in their use. Each truck is to have potable water and a first aid kit.
j. Except as noted in Section 6.m above, trucks with sleeper cabs are not authorized due to length requiring exit door to remain open.
10. UNLOADING REQUIREMENTS AT TREATMENT SITE
a. If the Hauler must use an emergency backup alternative because a primary treatment/disposal site (as identified in subsection (b) below) is not available, the Hauler must consult with the City prior to deposit at the backup alternative. The City reserves the right to refuse “landfill disposal” as an alternative to other emergency backup options that may cost more; the City may elect to dispose at the landfill or pay the higher hauling and disposal cost for another site, at its own discretion.
b. Sludge shall be hauled to one of the two sites below in quantities to be determined by the City (these sites are the primary treatment/disposal sites):
i. Lystek International Limited Organic Material Recovery Center on the site of Fairfield-Suisun Sewer District (FSSD) 1010 Chadbourne Rd, Fairfield, CA 94534
1. Operating Hours 0400 – 2000, 7 days per week
2. Receiving Hours 24 / 7
3. 6,500 tons per year minimum, which is the City’s
contracted minimum obligation with Lystek
DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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26 4. Annual contract year target for Lystek will be 8,400 tons per year
ii. Synagro Central Valley Compost Facility (CVC) 13757 Harmon Rd, Dos Palos, CA 93620
1. Operating Hours 0600 – 1700, 7 days per week
2. 10,000 tons per year minimum, which is the City’s
contracted minimum obligation with Synagro
3. Annual contract year target for Synagro will be all tons beyond the 8,400 tons per year to Lystek and 10,000
contracted tons with Synagro
c. Hauler shall provide (and update as required) a current list of sites where wastewater sludge is being unloaded and disposed, as needed when unloading and disposal sites change.
d. The Hauler shall make the listed site(s) available to receive the wastewater sludge at all times in accordance with provisions of the treatment/disposal site(s) permit. Provisions shall be made to accept the wastewater sludge during wet-weather periods as well as dry-weather periods.
e. The City is not responsible for any delays at the treatment/disposal site. All additional charges are the responsibility of the Hauler.
f. Hauler is to follow th e procedures, safety practices, and rules established by any treatment/disposal site used, including the treatment and backup disposal sites listed in this section and Exhibit C to this Agreement. Prior to the start of the services under this Agreement, Ha uler shall have an approved permit and/or agreement in place with the treatment/disposal sites for the term of the Agreement. Hauler shall have needed training completed prior to the start of service. The Hauler shall meet insurance requirements of the treatment/disposal facilities, including, but not limited to, additional insured requirements.
g. The split of loads between Lystek, Synagro, and any future addition or deletion of treatment site(s) during the term of the Contract shall be as established by the project manager and communicated to the Hauler. The split targets will be actively managed by the Hauler to meet the target split. Adjustments to meet annual minimums listed in Section 10.b above shall be made on a regular basis.
Initial targeted split will be as follows:
i. 60% of weekly loads to Synagro
ii. 40% of weekly loads to Lystek
DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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27 11. SAFETY REQUIREMENTS AND TRAINING Hauler shall provide initial training, in the presence of RWQCP operations staff, for all new drivers for the purpose of safe and proper operation of the loadout equipment. At a minimum, drivers shall learn proper procedures for check-in, communication, paperwork, safe loading and use of switches to control gates and screws in pr oper sequence, expectations on full loadouts and movement of truck between bins, trailer contamination prevention, safety PPE at RWQCP, odor control best practices, entry and exit door use, tarping practices, orientation to bathroom facilities, clean-up, spill response, and safe driving routes and speeds in and out of the RWQCP and on Embarcadero Road. Hauler shall provide documentation of this training to the City’s Project Manager for each driver and shall be responsible for all costs associated with this training.
12. PAYMENT AND PRICING CONDITIONS
a. See Contract, Section 8, Invoicing.
b. Payment for work is to be made on a wet tonnage basis as determined by weight tickets at the Treatment Facility. The Treatment Facility will generate a legible, licensed weighmaster's certificate showing gross weight, tare weight, and net weight of each truckload of material. Weight will be based on a certified scale owned, operated, and maintained by the Treatment Facility.
The weight tickets shall be pr ovided to the Hauler by the Treatment Facility, used by Hauler for invoicing City, and kept on file by Hauler for review by City as needed.
c. Full compensation for completing Agreement work is included in the unit prices paid for the various items of work a nd no separate payment will be made therefor.
d. If Hauler’s owned or leased sludge trailers that are damaged by the City, the Hauler may repair and invoice City at a quoted hourly rate for labor and parts invoiced at no more than cost plus 30%, provided that: (i) Hauler provides City with notice of damage immediately upon discovery, (ii) Hauler submits to City documentation of damage within two business days of discovery, (iii) Hauler provides City with an opportunity to inspect the damage prior to repair, and (iv) City approves the claim for damage including estimated repair cost.
e. If during the course of the Agreement, a new treatment site is identified, the Hauler shall be requested to provide pricing per wet ton to haul sludge to that treatment site using the same terms and conditions as in this contract. This additional pricing will be incorporated through amendment to the contract at the time the City Council approves sludge hauling services to the new treatment site (e.g., through a new RFP or other competitive process).
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28 13. DOCUMENTATION, PERMITS, AND INSURANCE
a. The Hauler shall maintain all required permits to perform the services during the term of this Agreement.
b. The Hauler shall, at all times during the transportation, storage, and disposal of sludge to be managed under this Agreement, know the location, condition and status of each item being managed.
14. GUARANTEE. The Hauler warrants and guarantees that equipment used are of the type and quality specified herein. If in the opinion of the City, the equipment is found to be imperfect or of a grade inferior to that set forth in the requirements or are found to be deficient against any other standard set forth in the Agreement, they will be rejected and must be replaced without expense to the City.
a. The Hauler understands that prompt pickup and disposal of sludge is critical to RWQCP operations. The Hauler warrants and guarantees to meet requirements set forth in this Agreement, including this scope of services.
b. In the event of failure to comply with the abovementioned conditions within a reasonable time after notice, the City will take all necessary steps to dispose of the sludge, at the expense of the Hauler, who agrees to pay the costs and charges therefore immediately upon demand.
c. The signing of the Agreement by the Contractor shall constitute execution of the above guarantees.
15. GOODS TO BE SUPPLIED AND WORK TO BE PERFORMED . The Hauler shall perform all work necessary to complete the Agreement in a satisfactory manner. Unless otherwise provided, the Hauler shall furnish and provide all materials, equipment, tools, labor and incidentals necessary to transport, haul, deliver and unload per these specifications.
16. CONTACT PERSONNEL
a. The CITY contact for this Project is James Allen. His phone number is 650-329- 2243. In the event that he is not available, CONTRACTOR shall call the main phoneline for the RWQCP, 650-329-2598.
b. The CONTRACTOR’s main contact is Chris Marks. He can be reached at 714 - 799-0801.
END OF SECTION
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29 Exhibit A-1 Palo Alto Sludge Characteristics
2016, 2017, 2020 Average Annual Wastewater Sludge Quality Data:
40CFR503 Sludge Regulation Trace Metal Analysis on Sludge
Trace Metals
Dry-Weight
Units
503.13 Ceiling
Concentration
Table 1
503.13 Pollutant
Concentration
Table 3
2020 Average
Annual Result
Single
Results
Arsenic (As) mg/kg 75 41 DNQc 1.39 --
Antimony (Sb) mg/kg -- -- -- ND<19b
Barium (Ba) mg/kg -- -- -- 50.2b
Beryllium (Be) mg/kg -- -- <0.11 NDa, b
Cadmium (Cd) mg/kg 85 39 <0.632 --
Chromium (Cr) mg/kg -- -- 11.44 --
Cobalt (Co) mg/kg -- -- -- ND<2b
Copper (Cu) mg/kg 4300 1500 253 --
Iron (Fe) mg/kg -- -- -- 2650b
Lead (Pb) mg/kg 840 300 10.06 --
Mercury (Hg) mg/kg 57 17 0.683 --
Molybdenum (Mo) mg/kg 75 n/a 8.75 4.4a ; ND<4b
Nickel (Ni) mg/kg 420 420 10.98 --
Selenium (Se) mg/kg 100 100 5.28 6.3a; ND<17b
Silver (Ag) mg/kg -- -- 0.610 ND<4b
Thallium (Tl) mg/kg -- -- -- ND<13b
Vanadium (V) mg/kg -- -- -- 5.97b
Zinc (Zn) mg/kg 7500 2800 511 520a; 166b
Total Solids % -- -- 28.8 --
a Sampled 2/7/17 on 25% sludge cake; b Sampled 2/9/17 on 27% sludge cake; c DNQ = estimated result, value detected above MDL (method detection limit) and below RL (reporting limit)
February 17, 2017 Scum Quality Data: 40CFR503 Sludge Regulation Trace Metal Analysis on Scum
Trace Metals
Dry-Weight
Units
503.13 Ceiling
Concentration
Table 1
503.13 Pollutant
Concentration
Table 3
Result
Arsenic (As) mg/kg 75 41 ND
Beryllium (Be) mg/kg -- -- ND
Cadmium (Cd) mg/kg 85 39 0.14
Chromium (Cr) mg/kg -- -- 3.1
Copper (Cu) mg/kg 4300 1500 30
Lead (Pb) mg/kg 840 300 1.28
Mercury (Hg) mg/kg 57 17 <0.0397
Molybdenum (Mo) mg/kg 75 n/a 1.7
Nickel (Ni) mg/kg 420 420 1.9
Selenium (Se) mg/kg 100 100 <0.83
Zinc (Zn) mg/kg 7500 2800 100
Total Solids % -- -- 30.0
General Raw Sludge Characterization
Trace Metals
Dry-Weight
Units
Result
Sample date, comment
Total Kjeldahl Nitrogen (TKN) mg/kg 44,000;
10,000 2/7/17 (25% cake); 2/9/17
Organic Nitrogen (25% sludge cake) mg/kg 38,000 2/7/17
Ammonia-Nitrogen (25% sludge cake) mg/kg 5,600 2/7/17
Grit Analysis: total residual solids in 30% sludge cake % 0.52% 2/9/17 (dried at 103-105C) Primary sludge volatile solids concentration % 89% 2/7/13 Waste activated sludge (WAS) volatile solids concentration % 80% Typical value Ratio Primary / Total Sludge % 71 – 78% 2013 value
Ratio WAS / Total Sludge % 22 – 29% 2013 value
Primary Sludge BTU Content – Dry BTU/lb 8000 8/21/12 ASTM D5865-07a WAS BTU Content – Dry BTU/lb 7400 8/21/12 ASTM D5865-07a DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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30 EXHIBIT B
SCHEDULE OF PERFORMANCE
CONTRACTOR shall perform the sludge treatment and disposal services in Exhibit A (Scope of Services) in accordance with Section 7 and 1 of Exhibit A.
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31 EXHIBIT C
SCHEDULE OF FEES
CITY shall pay CONTRACTOR according to the following rate schedule. The maximum amount of compensation to be paid to CONTRACTOR, including both payment for services and reimbursable expenses, shall not exceed the amounts set forth in Sections 5 and 6 of the Agreement. Any services provided or hours worked for which payment would result in a total exceeding the maximum amount of compensation set forth herein shall be at no cost to CITY.
Hauler Unit Prices US $/wet ton
To Lystek
To Synagro
Y2, Y3 Increases
on Contract Year
Anniversary
Date
Unit Price $ 30.25 $ 34.00 CPI-U
CPI-U = See Contract Section 6, Compensation During Additional Terms Hauler Backup Sites to Landfill (LF) and Unit Prices in $/wet ton Portrero
Hills LF
Haul
Portrero Hills LF
Haul & Disposal
Altamont
LF Haul
Altamont LF
Haul & Disposal
Unit Price $ 32.25 $ 107.00 $ 30.25 n/a
Pricing: Unit prices will be in US dollars and are price per wet ton for a term of contract.
The unit price per wet ton includes all fees, taxes, and surcharges.
Miscellaneous
a. Year 2 and Year 3 increases shall be on contract year anniversary date. Contract year anniversary date is defined as April 1, 2023 and April 1, 2024 for year 2 and 3, respectively. Year 2 CPI -U will be based on the index in February 2023. Year 3 CPI -U will be based on the index in February 2024.
b. Truck washout charges are to be included in the pricing.
c. In case of price increase due to new regulatory fees, Hauler must notify the City of Palo Alto in writing, and City approval of additional fees will require a Contract amendment before any additional fees will be authorized.
d. Demurrage will not be charged for pickup of sludge up to and including 60 minutes of loading time. After 60 minutes, the demurrage charge of $95/hour will apply if the City causes the delay.
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32 e. Demurrage will not be charged for delays caused by the Hauler not having proper paperwork at the time of arrival at the RWQCP site.
f. A California No. 2 diesel ultra- low sulfur fuel surcharge is to be added to Hauler or credited to Palo Alto on a monthly basis. The monthly average cost of diesel fuel will be adjusted each month as determined from the California Energy Information Administration (EIA) website ( www.eia.gov). The baseline amount of $4.205/gallon will be us ed from the weekly value of diesel fuel (effective 7/19/21). A Hauler fleet fuel efficiency of 5.5 miles per gallon and a truckload of 25 tons will be used for purposes of calculation.
i. To Lystek International: Surcharge/Credit = (EIA monthly average cost of diesel in California - $4.205) * 162 miles round trip * 1 / 5.5 miles per gallon * 1 / 25 tons
ii. Synagro Central Valley Composting: Surcharge/Credit = (EIA monthly average cost of diesel in California - $4.205) * 228 miles round trip * 1 / 5. 5 miles per gallon * 1 / 25 tons
g. If a minimum load of 21 wet tons, compliant with the terms of Exhibit A Section 6.i, is not met, then Hauler is authorized to invoice for a charge of a full load of 21 wet tons.
h. An allowance of up to $10,000 is authorized on a reimbursement basis to develop a written respiratory protection program, perform initial and recurring qualitative or quantitative respirator fit testing, and obtain initial qualified medical clearance for employees to wear a respirator. This allowance can be used for new company drivers that are added to provide loadouts at the RWQCP. Contractor is responsible for all costs of maintaining the written respiratory protection program after the $10,000 allowance is reimbursed, and any additional revisions or maintenance of policies will be provided to Palo Alto at no cost.
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33 EXHIBIT D
INSURANCE REQUIREMENTS
CONTRACTORS TO THE CITY OF PALO ALTO (CITY), AT THEIR SOLE EXPENSE, SHALL FOR THE TERM
OF THE CONTRACT OBTAIN AND MAINTAIN INSURANCE IN THE AMOUNTS FOR THE COVERAGE SPECIFIED BELOW, AFFORDED BY COMPANIES WITH AM BEST’S KEY RATING OF A-:VII, OR
HIGHER, LICENSED OR AUTHORIZED TO TRANSACT INSURANCE BUSINESS IN THE STATE OF CALIFORNIA.
AWARD IS CONTINGENT ON COMPLIANCE WITH CITY’S INSURANCE REQUIREMENTS, AS SPECIFIED, BELOW:
REQUIRED
TYPE OF COVERAGE
REQUIREMENT
MINIMUM LIMITS
EACH
OCCURRENCE AGGREGATE
YES
YES
WORKER’S COMPENSATION
EMPLOYER’S LIABILITY
STATUTORY
STATUTORY
YES
GENERAL LIABILITY, INCLUDING
PERSONAL INJURY, BROAD FORM
PROPERTY DAMAGE BLANKET
CONTRACTUAL, AND FIRE LEGAL
LIABILITY
BODILY INJURY
PROPERTY DAMAGE
BODILY INJURY & PROPERTY
DAMAGE COMBINED.
$2,000,000
$2,000,000
$2,000,000
$2,000,000
$2,000,000
$2,000,000
BODILY INJURY $2,000,000 $2,000,000
- EACH PERSON $2,000,000 $2,000,000
YES AUTOMOBILE LIABILITY, - EACH OCCURRENCE $2,000,000 $2,000,000
INCLUDING ALL OWNED, HIRED,
NON-OWNED PROPERTY DAMAGE $2,000,000 $2,000,000
BODILY INJURY AND PROPERTY $2,000,000 $2,000,000
DAMAGE, COMBINED
NO
PROFESSIONAL LIABILITY,
INCLUDING, ERRORS AND
OMISSIONS, MALPRACTICE (WHEN
APPLICABLE), AND NEGLIGENT
PERFORMANCE
ALL DAMAGES
$1,000,000
YES
POLLUTION LIABILITY
$2,000,000
YES
THE CITY OF PALO ALTO IS TO BE NAMED AS AN ADDITIONAL INSURED : CONTRACTOR, AT
ITS SOLE COST AND EXPENSE, SHALL OBTAIN AND MAINTAIN, IN FULL FORCE AND
EFFECT THROUGHOUT THE ENTIRE TERM OF ANY RESULTANT AGREEMENT, THE
INSURANCE COVERAGE HEREIN DESCRIBED, INSURING NOT ONLY CONTRACTOR AND ITS SUBCONSULTANTS, IF ANY, BUT ALSO, WITH THE EXCEPTION OF WORKERS’ COMPENSATION, EMPLOYER’S LIABILITY AND PROFESSIONAL INSURANCE, NAMING AS ADDITIONAL INSUREDS CITY, ITS COUNCIL MEMBERS, OFFICERS, AGENTS, AND EMPLOYEES.
I. INSURANCE COVERAGE MUST INCLUDE:
A. A CONTRACTUAL LIABILITY ENDORSEMENT PROVIDING INSURANCE COVERAGE FOR CONTRACTOR’S AGREEMENT TO INDEMNIFY CITY.
II. CONTACTOR MUST SUBMIT CERTIFICATES(S) OF INSURANCE EVIDENCING REQUIRED COVERAGE AT THE FOLLOWING URL:
https://www.planetbids.com/portal.cfm?CompanyID=25569
III. ENDORSEMENT PROVISIONS, WITH RESPECT TO THE INSURANCE AFFORDED TO “ADDITIONAL INSUREDS”
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34 A. PRIMARY COVERAGE
WITH RESPECT TO CLAIMS ARISING OUT OF THE OPERATIONS OF THE NAMED INSURED,
INSURANCE AS AFFORDED BY THIS POLICY IS PRIMARY AND IS NOT ADDITIONAL TO OR
CONTRIBUTING WITH ANY OTHER INSURANCE CARRIED BY OR FOR THE BENEFIT OF THE ADDITIONAL INSUREDS.
B. CROSS LIABILITY
THE NAMING OF MORE THAN ONE PERSON, FIRM, OR CORPORATION AS INSUREDS UNDER THE
POLICY SHALL NOT, FOR THAT REASON ALONE, EXTINGUISH ANY RIGHTS OF THE INSURED
AGAINST ANOTHER, BUT THIS ENDORSEMENT, AND THE NAMING OF MULTIPLE INSUREDS, SHALL NOT INCREASE THE TOTAL LIABILITY OF THE COMPANY UNDER THIS POLICY.
C. NOTICE OF CANCELLATION
1. IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR ANY
REASON OTHER THAN THE NON-PAYMENT OF PREMIUM, THE ISSUING COMPANY SHALL PROVIDE CITY AT LEAST A THIRTY (30) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION.
2. IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR THE NON-
PAYMENT OF PREMIUM, THE ISSUING COMPANY SHALL PROVIDE CI TY AT LEAST A TEN (10) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION.
Vendors area required to file their evidence of insurance and any other related notices with the City of Palo Alto at the following URL:
https://www.planaetbids.com/portal.cfm?CompanyID=25569
OR
https://www.cityofpaloalto.org/gov/depts/asd/planet_bids_how_to.asp DocuSign Envelope ID: 95FC9F8C-31F7-409A-928E-F99EA02C0B36
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Attachment B
RFQ 183016 Sludge Hauling Services
Bid Summary
Bid
Item Quantity1 Units For
Denali Water
Solutions, LLC
Unit Price2
($/WT3)
Denali Water
Solutions, LLC
Contract
Year 1
Bid Total
($)
1 13,800 WT Hauling to Synagro CVC $34.00 $469,200
2 9,200 WT
Hauling to Lystek International
Limited Organic Material Recovery
Center
$30.25 $278,300
3 1 Lump
Sum
Allowance for Respirator Protection
Program -- $10,000
Total of Bid Items 1 to 3 in $ $757,500
Bid Schedule Notes:
1 Sludge production estimate for bid purposes only (see scope of services Section 4 for more information)
2 Unit prices shall be listed for service year 1, which runs from April 1, 2022 to March 30, 2023; future contract year increases to the unit price bid herein will be based on CPI- U per Contract Section 6 “Compensation During Additional Terms” 3 WT – US wet tons
Other Denali Water Solutions, LLC bid prices:
Hauling to Portrero Hills Landfill - $32.32 / wet ton
Hauling to Portrero Hills Landfill & Disposal - $107.00 / wet ton Hauling to Altamont Landfill - $30.25 / wet ton
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City of Palo Alto (ID # 13798)
City Council Staff Report
Meeting Date: 1/24/2022
City of Palo Alto Page 1
Title: Review and Acceptance of Annual Status Report on Development Impact Fees for Fiscal Year 2021
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff recommends that the City Council review and accept the Annual Report on Development Impact Fees for the period ending June 30, 2021 (Attachment A).
BACKGROUND
State law (Government Code Section 66006) requires that each local agency that imposes development impact fees prepare an annual report providing specific information ab out those fees. This requirement is part of the law commonly referred to as AB 1600. It codifies the legal requirement that fees on new development must have the proper nexus to any project on which they are imposed. In addition, AB 1600 imposes certain accounting and reporting requirements with respect to the fees collected. The fees, for accounting purposes, must be segregated from the general funds of the City and from other funds or accounts containing fees collected for other improvements. Interes t on each development fee fund or account must be credited to that fund or account and used only for the purposes for which the fees were collected.
Government Code Section 66006 contains comprehensive annual reporting requirements for development impact fees. This statute requires that, within 180 days after the close of the fiscal year, the agency that collected the fees must make available to the public the following information regarding each fund or account:
• Brief description of the type of fee in the fund.
• Amount of the fee.
• Beginning and ending balance in the fund.
• Amount of fees collected and interest earned.
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• Identification of each public improvement on which fees were expended and the amount of the expenditure on each improvement, including the total percentage of the cost of the public improvement that was funded with fees.
• Identification of an approximate date by which the construction of a public improvement will commence, if the local agency determines that sufficient funds have been co llected to complete financing on an incomplete public improvement.
• Description of each interfund transfer or loan made from the account or fund, including the public improvement on which the loaned funds will be expended, and in the case of an interfund l oan, the date on which the loan will be repaid and the rate of interest that the account or fund will receive on the loan.
• Amount of any refunds made due to inability to expend fees within the required time frame.
This report must also be reviewed by th e City Council at a regularly scheduled public meeting not less than 15 days after the information is made available to the public. In addition, notice of the time and place of the meeting shall be mailed at least 15 days prior to the meeting to any interested party who files a written request with the local agency for such a mailed notice. An early packet consisting of Exhibit A only was made available to the public and included in the packet for the December 13, 2021 meeting of the City Council (CMR 13444).
The law also provides that, for the fifth fiscal year f ollowing the first deposit into the fund and every five years thereafter, the local agency shall make findings with respect to any portion of the fee remaining unexpended, whether committed or uncommitted. The finding must:
• identify the purpose to which the fee is to be put;
• demonstrate a nexus between the fee and the purpose for which it was originally charged; and
• identify all sources and amounts of funding anticipated to complete financing of incomplete improvements along with the approximate dates on which the anticipated funding is expected to be deposited into the fund.
If the agency no longer needs the funds for the purposes collected, or if the agency fails to make required findings, or to perform certain administrative tasks prescribed by AB 16 00, the agency may be required to refund to property owners a prorated portion of the monies collected for that project and any interest earned on those funds.
DISCUSSION
The City of Palo Alto development fees potentially covered by AB 1600, and documen ted in Attachment A, include the following:
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• Stanford Research Park/El Camino Real traffic impact fees (PAMC Ch. 16.45): Fee for new nonresidential development in the Stanford Research Park/El Camino Real Service Commercial zone, to fund capacity improvem ents at eight intersections. City ceased collecting effective fiscal year 2020.
• San Antonio/West Bayshore Area traffic impact fees (PAMC Ch. 16.46): Fee for new nonresidential development in the San Antonio/West Bayshore area to fund capacity improvements at four intersections. City ceased collecting effective fiscal year 2020.
• Housing impact fees imposed on commercial developments (PAMC Ch. 16.65): Fee on commercial and industrial development to offset the demand that new jobs create for low income and moderate-income in the City.
• Parks, Community Centers, and Libraries impact fees (PAMC Ch. 16.58): Fee on new residential and non -residential development to provide community facility funds for parks, community centers, libraries, public safety, and general government.
• Charleston-Arastradero Corridor pedestrian and bicyclist safety fees (PAMC Ch. 16.60):
Fee on new development and re -development within the Charleston -Arastradero Corridor to provide for pedestrian and bicyclist improvements.
• Citywide Transportation impact fees (PAMC Ch 16.59): Fee on development in all parts of the City to fund transportation projects and programs to reduce congestion.
• Public Safety facilities (PAMH Ch. 16.58): Fee on residential and non -residential development to fund police and fire facilities, including fire apparatus and vehicles.
• General Government facilities (PAMH Ch. 16.58): Fee on residential and non -residential development to fund facilities associated with municipal administration.
• Residential (Rental) impa ct fees (PAMC Ch. 16.65) Fee on rental residential developments (including mixed use with rental housing) to offset the demand that new market-rate rental housing creates for low and moderate-income housing in the City.
• Public Art in-lieu fees (PAMC 16.61): Fee on private developments for public art.
• Parkland dedication in-lieu fees (Quimby Act) (California Government Code Section 66477): Fee or parkland dedication imposed on new residential and non -residential development. This fee is likely not subject to the AB 1600 reporting requirement but is included in the interest of transparency.
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• Parking in-lieu fees for University Avenue Parking District (PAMC Ch. 16.57): Fee on new non-residential development in the University Avenue Parking Assessment Distric t in lieu of providing required parking spaces. This fee is likely not subject to the AB 1600 reporting requirement but is included in the interest of transparency.
• Residential housing in -lieu fees (PAMC Ch. 16.65): Fee on ownership residential developments of three or more units (including mixed use with ownership housing) in - lieu of providing required below -market rate units to low- and moderate -income households. This fee is likely not subject to the AB 1600 reporting requirement but is included in the interest of transparency.
• Water and sewer capacity fees (California Government Code Section 66000): Fee on developments adding load to water and sewer systems. This fee is not subject to the AB 1600 reporting requirement but is included in the interest of transparency.
AB 1600 requires the City to make specified findings in the event any funds are not expended within five fiscal years of collection and every five years thereafter. While there are several funds containing collected fees that have not been expended in five years, the required statutory carryover findings have already been made for those funds in recent years and no further findings are required at this time.
STAKEHOLDER ENGAGEMENT
This report has been prepared by the Accounting Division in Administrative Services and reviewed by partner departments including the City Attorney’s Office, and the Planning and Development Services Department.
RESOURCE IMPACT
These various funds are reviewed annually for any unallocated balances and the nexu s of appropriate projects as part of the development of the C ity’s five -year capital improvement plan.
There are no required findings in FY2021. The next finding date will be in fiscal year 2022 for Community Facilities (Parks, Community Centers and Libr aries) and Charleston -Arastradero Corridor funds.
ENVIRONMENTAL REVIEW
Approval of this resolution does not constitute a project under the California Environmental Quality Act (CEQA), therefore, an environmental assessment is not required.
Attachments:
• Attachment4.a: Attachment A: Annual Report on Development Impact Fees FY 2021
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Attachment A
City of Palo Alto
Annual Report on Development Impact Fees
for Period Ending June 30, 2021
Stanford Research Park/ San Antonio/West
FUND El Camino Fund Bayshore Fund
Purpose and Authority Traffic impact fees imposed on newTraffic impact fees imposed on new for Collection nonresidential development in the nonresidential development in the Stanford Research Park/El Camino San Antonio/West Bayshore Areas Real CS zone to fund improvements to fund capacity improvements at at eight identified intersections. four identified intersections.
PAMC Ch. 16.45, PAMC Ch. 16.46
Amount of the Fee City ceased collecting effective FY 2020City ceased collecting effective FY 2020 Fund Balance July 1, 2020 $3,497,771 $443,857
Activity in 2020-21
Revenues
Interest Earnings 60,066 7,579
Unrealized Gain/(Loss) Investments (38,098) (16,440)
-------------------------------------------------------- ----------------------------------------------------------- Total Revenues $21,968 ($8,861)
Expenditures - - -------------------------------------------------------- ----------------------------------------------------------- Total Expenditures - - ------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2021 $3,519,739 $434,996
Other Commitments/Appropriations
Reserve for Unrealized Gain on Investments (51,917) (6,551) Net Funds Available $3,467,822 $428,445
USE OF FEES: USE OF FEES:
No expenditures have been made for this
fund in Fiscal Year 2021. In FY 2020, City
ceased collecting the Stanford Research /
El Camino Real CS Zone fee established
in 1989.
FUTURE USE OF FEES:
$2.2M programmed in FY 2022 to fund
Sharing Agreement between the County
of Santa Clara and the City for
improvements of Mill Road intersections
at both Hanover Street and El Camino
Real (CMR 13439).
No expenditures have been made for this
fund in Fiscal Year 2021. In FY 2020, City
ceased collecting the San Antonio/West
Bayshore area fee established in 1986.
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Attachment A
City of Palo Alto
Annual Report on Development Impact Fees
for Period Ending June 30, 2021
Commercial Housing University Avenue Parking
FUND Impact Fee Fund In-Lieu Fund
Purpose and Authority
Fees imposed on commercial and
industrial Fees collected from non-residential
for Collection development to offset the demand that development within the University Ave. new jobs create for low and moderate-Parking Assessment District in lieu of income housing in the City providing the required number of parking spaces.
PAMC Ch.16.65 PAMC Ch 16.57
Amount of the Fee
Hotel / Retail / Other Non Residential:
$22.40 per sq. ft.
Office/R&D: $38.48 per sq. ft. $111,861.77 per space
Fund Balance July 1, 2020 $25,428,649 $6,384,494
Activity in 2020-21
Revenues
Fees Collected 606,996 - Interest Earnings 159,746 109,638
Unrealized Gain/(Loss) Investments (206,429) (69,521)
-------------------------------------------------------- ----------------------------------------------------------- Total Revenues 560,313 40,117
Expenditures
Salaries and Benefit (21,122)
Liability Insurance (621)
-------------------------------------------------------- ----------------------------------------------------------- Total Expenditures (21,743) - -------------------------------------------------------- ----------------------------------------------------------- Ending Balance June 30, 2021 $25,967,219 $6,424,611
Other Commitments/Appropriations
Reserve for Notes Receivable include:$1,290,000
for 2811 Alma, and $4,137,254 for 801 Alma,
$7,700,000 for Bueva Vista Mobile Home Park.
$10,502,309 Wilton Court (23,629,563)
Reserve for Reappropriations (1,167,061)
Reserve for unrealized gain on investments (108,891) (94,763) -------------------------------------------------------- -----------------------------------------------------------Net Funds Available $1,061,704 $6,329,848 USE OF FEES: USE OF FEES:
Expenditures in Fiscal Year 2021 are
$21K for salaries and benefits. Reserve
for Reappropriaton is for Affordable
Housing Loan Agreement: 3705 El
Camino Real (Wilton Court).
No expenditures have been made from this
fund in Fiscal Year 2021.
FUTURE USE OF FEES:
$5.5M programmed in FY 2023 for New
Downtown Parking Garage Project (PE-
15007) as part of the 2022-2026 Capital
Improvement Plan (CIP).
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Attachment A
City of Palo Alto
Annual Report on Development Impact Fees
for Period Ending June 30, 2021
Residential & Non-Residential Residential & Non-Residential Community Facilities Community Facilities
FUND Parks Community Centers
Purpose and Authority Fees imposed on new residential and Fees imposed on new residential and for Collection non-residential development approved non-residential development approved after Jan 28, 2002 for Parks. after Jan 28, 2002 for Community Centers.
PAMC Ch. 16.58 PAMC Ch. 16.58
Amount of the Fee Residential: Single family $13,103 per residence (or $19,565 per residence
larger than 3,000 sq ft); Multi-family
$8,577 per unit (or $4337 per unit smaller
than or equal to 900 sq ft)
Residential: Single family $3,499 per
residence (or $5,086 per residence larger
than 3,000 sq ft); Multi-family $2,235 per unit
(or $1,128 per unit smaller than or equal to
900 sq ft)
Nonresidential: Commercial/Industrial
$5,564 per 1,000 sq ft or fraction thereof;
Hotel/Motel $2,516 per 1,000 sq ft or
fraction thereof.
Nonresidential: Commercial/industrial $314
per 1,000 sq ft or fraction thereof;
Hotel/Motel $142 per 1,000 sq ft or fraction
thereof.
Fund Balance July 1, 2020 $3,552,791 $2,877,794
Activity in 2020-21
Revenues
Fees Collected 219,423 70,000
Interest Earnings 59,690 29,693
Transfer Development Rights (TDR) - 40,000 Unrealized Gain/(Loss) Investments (65,423) (67,000)
-------------------------------------------------------- ----------------------------------------------------------- Total Revenues $213,690 $72,693
Operating Transfer to Capital Projects Fund - (2,199,344) -------------------------------------------------------- ----------------------------------------------------------- Total Expenditures - (2,199,344) -------------------------------------------------------- ----------------------------------------------------------- Ending Balance June 30, 2021 $3,766,481 $751,143
Other Commitments/Appropriations
Reserve for unrealized gain on investments (54,256) (27,045)-------------------------------------------------------------------------------------------------------------------Net Funds Available $3,712,225 $724,098 USE OF FEES: USE OF FEES:
No expenditures have been made from
this fund in Fiscal Year 2021.
USE OF FEES:
$400K Programmed in FY2022 for
Boulware Park Improvements (PE-17005);
$500K programmed in FY 2022-2026 for
Dog Park Installation and Renovation (PG-
18001); and $1.1M programmed in FY
2022-2026 for Park Restroom Installation
(PG-19000) as part of the 2022-2026 CIP.
$350K has been recommended to fund a
restroom rennovation at the Roth Building
(CMR 12307).
Budget transfers of $125K made to Capital
Improvement Fund Project for JMZ
Renovation (AC-18001) and $2.1M made to
Capital Improvement Fund Project
Rinconada Park Improvements (PE-08001)
in Fiscal Year 2021.
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Attachment A
City of Palo Alto
Annual Report on Development Impact Fees
for Period Ending June 30, 2021
Residential & Non-Residential Residential Housing
Community Facilities In-Lieu Fund
FUND Libraries
Purpose and Authority
for Collection
Fees imposed on new residential and non-
residentual development approved after
January 28, 2002 for Libraries.
Fees collected from ownership residential
developments of three or more units
(including mixed used with ownership in
housing) in-lieu of providing the required
below-market rate units(s) to low and
moderate income households.
PAMC Ch. 16.58 PAMC Chapter 16.65
Amount of the Fee Residential: Single family $1,187 per residence (or $1,766 per residence larger
than 3,000 sq ft); Multi-family $710 per
unit (or $390 per unit smaller than or
equal to 900 sq ft)
Single family $82.46 per sq. ft. Single family
detached; $54.97 per sq. ft. single family
attached. Multi Family $54.97 per sq. ft.
condos.
Nonresidential: Commercial/industrial
$299 per 1,000 sq ft or fraction thereof;
Hotel/Motel $126 per 1,000 sq ft or
fraction thereof.
Fund Balance July 1, 2020 $1,248,514 $24,981,378
Activity in 2020-21
Revenues
Fees Collected 29,138 4,939,497
Interest Earnings 18,746 147,730
Unrealized Gain/(Loss) Investments (15,095) (130,549) -------------------------------------------------------- ----------------------------------------------------------- Total Revenues $32,789 $4,956,678
Expenditures
Salaries and Benefits (21,122)
Contract Services (177,888)
Liability Insurance (621)
Operating Transfer to Capital Projects Fund (310,000)
-------------------------------------------------------- ----------------------------------------------------------- Total Expenditures (310,000) (199,631)
-------------------------------------------------------- ----------------------------------------------------------- Ending Balance June 30, 2021 $971,303 $29,738,425
Other Commitments/Appropriations
Reserve for Encumbrances (21,973)
Reserve for unrealized gain on investments (16,435) (113,952) Reserve for Notes Receivable include $375,000
for 3053 Emerson, $3,504,850 for Tree House
Apts, $747,734 for Sheridan Apts., $2,285,026 for
801 Alma, $901,201 for Palo Alto Housing
Project, $600,000 for 2811-2825 Alma St.,
$203,561 for Colorado Park Housing, $149,968
for El Dorado Palace, and $6,800,000 for Buena
Vista Mobile Home Park, $8,249,601 for Wilton Ct.
(23,816,941)
-------------------------------------------------------- -----------------------------------------------------------Net Funds Available $954,868 $5,785,559
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Attachment A
City of Palo Alto
Annual Report on Development Impact Fees
for Period Ending June 30, 2021
Residential & Non-Residential Residential Housing
Community Facilities In-Lieu Fund
FUND Libraries
USE OF FEES: USE OF FEES:
Budget transfer $310K in FY 2021 was
made to Capital Improvement Fund
Project for Library Auto Material Handling
(LB-21000).
FUTURE USE OF FEES:
$540K is programmed in FY 2022-2023
for LB-21000 as part of the 2022-2026
CIP. $300K has been recommended to
fund the City archives at the Roth Building
(CMR 12307).
Expenditures in Fiscal Year 2021 were $21K
for salaries and benefit, $178K for Palo Alto
Housing Corp for BMR admin fees and for
consultancy fees.
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Attachment A
City of Palo Alto
Annual Report on Development Impact Fees
for Period Ending June 30, 2021
Charleston-Arastradero Corridor Citywide Transportation Pedestrian and Bicyclist Safety
FUND
Purpose and Authority Fees collected from new development and Transportation impact fees imposed for Collection re-development within the Charleston-on new development in all parts of the Arastradero Corridor to provide for pedest-City to fund congestion reduction rian and bicyclist safety improvements.projects.
PAMC Ch. 16.60 PAMC Ch. 16.59
Amount of the Fee Residential: $1,435 per residential unit; Commercial: $0.42 per sq ft
$8,309 per net new PM peak hour trip
Fund Balance July 1, 2020 $19,507 $2,258,385
Activity in 2020-21
Revenues
Fees Collected 17,274 412,167
Interest Earnings 427 38,432
Unrealized Gain/(Loss) Investments (84) (27,114)
-------------------------------------------------------- ----------------------------------------------------------- Total Revenues $17,617 $423,485
Expenditures
Operating Transfer to Capital Projects Fund - (400,000) -------------------------------------------------------- ----------------------------------------------------------- Total Expenditures - (400,000) -------------------------------------------------------- ----------------------------------------------------------- Ending Balance June 30, 2021 $37,124 $2,281,870
Other Commitments/Reappropriations
Reserve for unrealized gain on investments (418) (33,600) -------------------------------------------------------- -----------------------------------------------------------Net Funds Available $36,706 $2,248,270 USE OF FEES: USE OF FEES:
No expenditure of funds have been made
from this Fund in Fiscal Year 2021.
Budget transfer $400K to Capital Project
Fund in Fiscal Year 2021 was made for
Traffic Signal and Intelligent Transporation
(PL-05030).
FUTURE USE OF FEES:
$2.0M programmed for PL-05030 as part of
the 2022-2026 CIP.
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Attachment A
City of Palo Alto
Annual Report on Development Impact Fees
for Period Ending June 30, 2021
New Public Safety Facilities General Government Facilities
FUND
Purpose and Authority Fees imposed on residential and Fees imposed on residential and non- for Collection non-residential development to fundresidential development to fund facilities police and fire facilities (including fireassociated with municipal administration. apparatus and vehicles) PAMH Ch. 16.58
PAMC Ch. 16.58
Amount of the Fee Residential: Single family $1,139 per unit; Multi-family $912 per unit
Residential: Single family $1,435 per unit;
Multi-family $1,147 per unit
Nonresidential: Commercial $636 per
1,000 sq ft. or fraction thereof; Industrial
$213 per 1,000 sq. ft. or fraction thereof;
Office/Institutional $849 per 1,000 sq ft or
fraction thereof.
Nonresidential: Commercial $801 per 1,000
sq ft. or fraction thereof; Industrial $267 per
1,000 sq. ft. or fraction thereof; Hotel/Motel
$1,070 per 1,000 sq ft or fraction thereof.
Fund Balance July 1, 2020 $455,912 $574,118
Activity in 2020-21
Revenues
Fees Collected 46,199 58,210
Interest Earnings 4,769 7,452
Unrealized Gain/(Loss) Investments (6,845) (8,609)
-------------------------------------------------------- ----------------------------------------------------------- Total Revenues $44,123 $57,053
Expenditures
Operating Transfer to Capital Projects Fund (455,912) (574,118) -------------------------------------------------------- ----------------------------------------------------------- Total Expenditures (455,912) (574,118)
-------------------------------------------------------- ----------------------------------------------------------- Ending Balance June 30, 2021 $44,123 $57,053
Reserve for unrealized gain on investments (3,717) (4,691) -------------------------------------------------------- -----------------------------------------------------------Net Funds Available $40,406 $52,362 USE OF FEES: USE OF FEES:
Budget transfer $456K to Capital Project
Fund in Fiscal Year 2021 was made for
Public Safety Bldg Project (PE-15001).
Budget transfers are $217K to Capital
Project Fund for the JMZ Renovation (AC-
18001) and $357K to Capital Project Fund
for the Civic Ctr Fire Life Safety (PE-18016)
in Fiscal Year 2021.
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Attachment A
City of Palo Alto
Annual Report on Development Impact Fees
for Period Ending June 30, 2021
Residential Housing
Impact Fee Fund
FUND
Purpose and Authority
for Collection
Fees imposed on all rental residential
developments (including mixed use with
rental housing) to offset the demand that
the new market-rate rental housing
creates for low income and moderate-
income housing in the City.
PAMC Ch. 16.65
Amount of the Fee Single and Multi-Family: $21.99 per sq. ft. apartment (rentals)
Fund Balance July 1, 2020 $619,803
Activity in 2020-21Revenues
Fees Collected 257,954
Interest Earnings 14,015
Unrealized Gain/(Loss) Investments 2,984 -------------------------------------------------------- Total Revenues $274,953
Expenditures - --------------------------------------------------------Total Expenditures - -------------------------------------------------------- Ending Balance June 30, 2021 $894,756
Other Commitments/Reappropriations
Reserve for Reappropriations (600,040)
Reserve for unrealized gain on investments (11,158)
--------------------------------------------------------Net Funds Available $283,558 USE OF FEES:
No expenditure of funds have been made
from this Fund in Fiscal Year 2021.
Reseve for Reappropriations is for
Affordable Housing Loan Agreement:
3705 El Camino Real (Wilton Court)
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Attachment A
City of Palo Alto
Annual Report on Development Impact Fees
for Period Ending June 30, 2021
(INFORMATION ONLY)
Public Art Fund Parkland Dedication
FUND
Purpose and Authority for collection
Fees imposed on new commercial
develoments (including mixed use
projects), including new construction,
remodels, additions and reconstruction
that (i) have a floor area of 10,000 sq. ft.
or more, and (ii) have a construction value
of $200,000, or more, exclusive of costs
for architecture, design, engineering, and
required studies; and all new residential
projects of five or more units to fund
public art for private developments.
Fees on parkland dedication imposed on
new residential and non-residential
development.
Govt Code Sec. 66477 (Quimby Act)
PAMC Ch. 16.61
Amount of the Fee 1% of first $120.25 million construction valuation and 0.9% of construction
valuation for valuation in excess of
$120.25 million
Single Family: $66486.51 per unit; Multi-
Family: $45,819.54 per unit. This applies
only to residential projects that require a
subdivision or pacel map. Land dedication
is required for subdivisions resulting in more
than 50 parcels. Parkland Dedication Fee -
Land: Single Family: 531 sq. ft, per unit;
Multi-Family: 366 sq. ft. per unit. When
parkland dedication applies, park impact
fees do not apply.
Fund Balance July 1, 2020 $1,732,560 $5,014,090
Activity in 2020-21
Revenues
Fees Collected 291,934 862,942
Interest Earnings 30,944 76,192
Unrealized Gain/(Loss) Investments (12,572) (37,476) Operating Transfer from General Fund 170,000 -------------------------------------------------------- ----------------------------------------------------------- Total Revenues $480,306 $901,658
Expenditures
Salaries and benefits (201,529)
Liability Insurance (2,047)
-------------------------------------------------------- ----------------------------------------------------------- Total Expenditures (203,576) 0
-------------------------------------------------------- ----------------------------------------------------------- Ending Balance June 30, 2021 $2,009,290 $5,915,748
Other Commitments/Reappropriations
Reserve for unrealized gain on investments (27,702) (80,769) -------------------------------------------------------- -----------------------------------------------------------Net Funds Available $1,981,588 $5,834,979 This fund is not subject to AB1600
requirements and is listed only for
information purposes.
This fund is not subject to AB1600
requirements and is listed only for
information purposes.
FUTURE USE OF FEES:
In FY 2022, $1.1M programmed to fund
Boulware Park Improvements (PE-17005)
and $2.4M programmed to fund Byxbee
Park Completion (PE-18006). Page 9 of 10
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Attachment A
City of Palo Alto
Annual Report on Development Impact Fees
for Period Ending June 30, 2021
(INFORMATION ONLY)
FUND Water and Wastewater Collection
Purpose and Authority Capacity fees charged to developers that for Collection are adding load to the water and sewer
systems effective July 1, 2005.
California Government Code Sect 66000
Amount of the Fee Water Capacity Fees: 5/8 in., 3/4 in E- Meter. $3,750, 1 in. E-Meter $6,250, 1 1/2
in. E-Meter $18,850, 2 in. E-Meter
$31,250, 4 in. Compound Meter by est.
$125/FU (min. 5,000 FU) , 6 in.
Compound Meter by est. $125/FU (min.
7,000 FU)
Fire Service Capacity Fees: 2 in. $750, 4
in. $8,425, 6 in. $18,250, 8 in. $30,950,
10in. $48,110
Sewer Capacity Charges: 4 in. connection
with 5/8 in Water Meter (WM) $5,250, 4 in
connection. with 1-in WM $10,500, 4 or 6
in. connection with 1-1/2 in WM $31,668,
6 in. connection with 2 in. WM $52,500, 6
in. and larger connection with 4 in. or
larger WM by est. at $210/FU
Activity in 2020-21
Capacity Fees Collected
Water $532,805
Wastewater Collection 238,854
Total
USE OF FEES:
The fees are used exclusively for water
and sewer system improvements
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City of Palo Alto (ID # 13876)
City Council Staff Report
Meeting Date: 1/24/2022
City of Palo Alto Page 1
Title: Acceptance of the Macias Gini & O’Connell Audit of the City of Palo Alto’s Financial Statements as of June 30, 2021 and the Management Letter; Approval of the FY 2021 Annual Comprehensive Financial Report (ACFR); and Amendments to the FY 2021 Budget in Various Funds
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Finance Committee and Staff recommend that the City Council:
1. Accept the City of Palo Alto’s audited financial statements for the fiscal year ended June 30, 2021, and the accompanying reports provided by Macias Gini & O’Connell (“MGO”) LLP (Office of the City Auditor Report) Attachment. Reports include:
a. Report to the City Council (the “Management Letter”), b. Cable TV Franchise, Independent Auditor’s Report and Statements of Franchise Revenues and Expenses for the years ended December 31, 2020 and 2019, c. Palo Alto Public Improvement Corporation (a component unit of the City of Palo Alto) Annual Financial Report for the year ended June 30, 2021, d. Regional Water Quality Control Plant, Independent Auditor’s Report and Financial Statements for the year ended June 30, 2021,
e. Independent Accountant’s Report on Applying Agreed -Upon Procedures related to the Article XIII -B Appropriations (GANN) Limit for the year ended June 30, 2021.
2. Approve the Fiscal Year (FY) 2021 Annual Comprehensive Financial Report (ACFR), included in CMR #13501 (Attachment II) as Attachment C. An electronic copy is available at:
https://www.cityofpaloalto.org/files/assets/public/administrative-services/city- budgets/fy-2021-city-budget/city-of-palo-alto-acfr-fy2021-final.pdf
3. Amend the Fiscal Year 2021 Budget Appropriation Ordinance for various funds as identified in CMR #13501 Recommended Amendments to the City Manager’s FY 2021 Budget (Attachment II) as Attachment B – Exhibit 1 and various capital projects as identified in Attachment B – Exhibit 2. (Effective on first reading; five votes required.) 5 Packet Pg. 71
City of Palo Alto Page 2
Hard copies of linked reports within this recommendation are available upon request.
SUMMARY
At the November 30, 2021 Finance Committee meeting, the Committee reviewed two staff reports: one transmitted by the City Auditor’s Office and one by the Ci ty Manager’s Office via the Administrative Services Department, and unanimously approved both reports for City Council consideration.
• Office of the City Auditor: Discussion and Recommendation to the City Council to Accept the Macias Gini & O’Connell’s ( MGO) Audit of the City of Palo Alto’s Financial Statements as of June 30, 2021 and Management Letter. CMR 13784 packet pages 3-51. https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas- minutes/finance-committee/2021/20211130/20211130pfcs.pdf
• Administrative Services Department: Recommendation to Approve the Fiscal Year (F Y) 2021 Annual Comprehensive Financial Report (ACFR) and Approve FY 2021 Budget Amendments in Various Funds. CMR #13501 packet pages 52-266. https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas- minutes/finance-committee/2021/20211130/20211130pfcs.pdf
MGO issued a clean opinion on each audit report and reported no findings w ith the Agreed - Upon procedures report. These reports transmitted the City’s FY 2021 financials through the Annual Comprehensive Financial Report (ACFR) for the year ending June 30, 2021. As is customary, the City Council is required to close out the City’s financial results at the end of each fiscal year.
The City’s overall Net Position remains positive despite of the fiscal challenges resulting from the COVID-19 pandemic.
As outlined in the staff report to the Finance Committee, the General Fund ended with a $49.1 million Budget Stabilization Reserve (BSR), a $13.2 million, or 36.8 percent, increase when compared to FY 2020. The $13.2 million BSR increase is driven mainly by a $13.8 million surplus and changes in various General Fund Reserves (see Attac hment II , At tachment C , Change in Fund Balance GAAP Basis on p. 37 of the ACFR). The revenues such as sales tax, property tax and documentary tax were higher than expected while expense savings were realized across many of the departments (see Attachment I I, detailed in Attachment A). Although some the major taxes are higher than projected in the Adjusted Budget, the pandemic continues to impact the City’s revenue with sales tax, transient occupancy tax, utility user tax, rental income, and charges for services, remaining lower compared to pre-pandemic revenues.
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City of Palo Alto Page 3
The General Fund ended FY 2021 with a $49.1 million BSR ; however, once adjusted for Council approved uses, the City’s $43.3 million BSR reflects a surplus of $4.6 million compared to the Council recommended 18.5 percent target ($38.7 million) of the FY 2022 Adopted Budget .
Council approved use of the BSR to balance the FY 2022 Adopted Budget (CMR 12307) and to increase the Utilities Transfer Litigation Reserve (CMR 13439).
Stakeholder Engagement
This report has been prepared by the Administrative Service Department Accounting division and coordinated with the Office of the City Auditor and the Office of Management and Budget.
Resource Impact
The actions recommended in CMR 13501 (Attachment II), Attachment B, both Exhibits 1 and 2, recommend adjustments to the FY 2021 appropriated level of funds to align budgeted levels with year -end activities. Overall, these transac tions ensure all funds remain in a positive financial picture.
Environmental Review
This is not a project for purposes of the California Environmental Quality Act (CEQA).
Attachments:
• Attachment5.a: Attachment I: Office of the City Auditor Finance Committee Report, Transmittal of MGO's Audit of the City of Palo Alto’s Financial Statements • Attachment5.b: Attachment II: Staff Report #13501, Approval of FY2021 ACFR & Budget Amendments
• Attachment5.c: Attachment III: Action Minutes, Finance Committee 11/30/2021 5 Packet Pg. 73
City of Palo Alto (ID # 13784)
Finance Committee Staff Report
Meeting Date: 11/30/2021
City of Palo Alto Page 1
Title: Discussion and Recommendation to the City Council Accept the Macias Gini & O’Connell’s (MGO) Audit of the City of Palo Alto’s Financial Statements as of June 30, 2021
From: City Manager
Lead Department: City Auditor
Recommendation
The City Auditor recommends that the Finance Committee review and forward to the City Council for approval the City of Palo Alto’s audited financial statements for the fiscal year ended June 30, 2021 and the accompanying reports provided by Macias Gini & O’Connell LLP.
Discussion
The City Charter requires that the City Council, through the City Auditor, engage an independent public accounting firm to conduct the annual financial audit. The selected firm reports the results of the audit, in writing, to the City Council. Macias Gini & O’Connell LLP, a certified public accounting firm, conducted the audits of the City’s financial statements for the fiscal year ended June 30, 2021.
The City Auditor is providing copies of the following financial statements and reports as prepared by MGO:
• Auditor’s Report to the City Council (the “Management Letter”) – Attachment A • Cable TV Franchise, Independent Auditor’s Report and Statements of Franchise Revenues and Expenses for the Years Ended December 31, 2020 and 2019 – Attachment B
• Palo Alto Public Improvement Corporation Annual Financial Report for the Year Ended June 30, 2021 – Attachment C
• Regional Water Quality Control Plant Independent Auditor’s Report and Financial Statements for the Year Ended June 30, 2021 – Attachment D • Independent Accountant’s Report on Applying Agreed -Upon Procedures Related to the Article XIII -B Appropriations Limit for the Year Ended June 30, 2021 – Attachment E
Attachment I 5.a
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City of Palo Alto Page 2
Note that the final audit report, the Single Audit, will be completed and presented at a subsequent meeting.
The Annual Comprehensive Financial Report (AC FR), a separate item on this agenda, includes the following Independent Auditor’s report:
• Independent Auditor’s Reports on the Financial Statements (pgs. 1-3)
Macias Gini & O’Connell LLP i ssued a clean opinion on each audit report and reported no findings within the Agreed-Upon Procedures report.
The City Auditor would like to express appreciation to Macias Gini & O’Connell LLC, Ms.
Kiely Nose, and her staff in the Administrative Services Department for their hard work and cooperation during the audit.
Attachments:
• Attachment A: Auditor's Report to the City Council
• Attachment B: Cable TV Franchise Auditor's Report
• Attachment C: Public Improvement Corporation Annual Financial Report • Attachment D: Regional Water Quality Control Plant Auditor's Report • Attachment E: GANN Limit Agreed Upon Procedures Report
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council
For the Year Ended June 30, 2021
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council
For the Year Ended June 30, 2021
Table of Contents
Page
Transmittal Letter ........................................................................................................................................... i
Required Communications ............................................................................................................................ 1
Summary of Uncorrected Financial Statements Misstatements .................................................................... 6
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
i
Honorable Mayor and the Members of
the City Council of the City of Palo Alto
Palo Alto, California
We have audited the financial statements of the governmental ac tivities, the business-type activities, each major fund, and the aggregate remaining fund information of Cit y of Palo Alto, California (City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. Professional standards require that we communicate to you the information related to our audit discussed on pages 1 through 5.
In planning and performing our audit of the basic financial sta tements of the City as of and for the year ended June 30, 2021, in accordance with auditing standards gene rally accepted in the United States of America and the standards appli cable to financial audits conta ined in Government Auditing Standards , issued by the Comptroller General of the United States, we cons idered the City’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Ci ty’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allo w management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A reasonable possibility exists when the likelihood of an event o ccurring is either reasonably possible or probable as defined as follows:
Reasonably possible. The chance of the future event or events occurring is more than remote but less than likely.
Probable. The future event or events are likely to occur.
Our consideration of internal control was for the limited purpo se described in the second paragraph and was not designed to identify all deficiencies in internal contr ol that might be material weaknesses. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
The purpose of this communication, which is an integral part of our audit, is to describe, for management and those charged with governance, the scope of our testing of internal control and the results of that testing. Accordingly, this communication is not intended to be and should not be used for any other purpose. This report is a matter of public record and this does not limit the distribution of this report.
Walnut Creek, California
November 15, 2021
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ii
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council
For the Year Ended June 30, 2021
1 REQUIRED COMMUNICATIONS
We have audited the basic financial statements of the City as o f and for the year ended June 30, 2021, and have issued our report thereon dated November 15, 2021. Profess ional standards require that we advise you of the following matters relating to our audit.
Our Responsibility in Relation to the Financial Statement Audit
As communicated in our engagement letter dated April 26, 2021, our responsibility, as described by professional standards, is to form and express opinions about w hether the financial statements that have been prepared by management with your oversight are presented f airly, in all material respects, in accordance with accounting princi ples generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the f inancial statements are free of material misstatement. An audit of financial statements includes conside ration of internal control over financial reporting as a basis for designing audit procedures that are ap propriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of th e entity’s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.
We are also responsible for com municating significant matters r elated to the audit that are, in our professional judgment, relevant to your responsibilities in ove rseeing the financial reporting process.
However, we are not required to design procedures for the purpo se of identifying other matters to communicate to you.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and ti ming we previously communicated to you.
Compliance with All Ethics Requirements Regarding Independence
The engagement team, others in our firm, as appropriate, our fi rm, and our network firms have complied with all relevant ethical requirements regarding independence.
Qualitative Aspects of the City’s Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in Note 1 to the basic financial statements.
As described in Note 1(n) to the City’s basic financial stateme nts, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 84, Fiduciary Activities . The City evaluated all funds and activities in accordance with the statement and deter mine that the Cable Joint Powers Authority
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2021
2 and assessment district activities previously reported as agenc y funds should be reported as custodial funds. The City also implemented GASB Statement No. 90, Majority Equity Interests, an amendment of GASB Statements No. 14 and No. 61, and Statement No. 98, The Annual Comprehensive Financial Report and the implementation of these statements did not have a signi ficant impact on the City’s financial statements for the fiscal year ended June 30, 2021.
No matters have come to our attention that would require us, un der professional standards, to inform you about (1) the methods used to account for significant unusual t ransactions and (2) the effect of significant accounting policies in controversial or emerging areas for whic h there is a lack of authoritative guidance or consensus.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial stat ements prepared by management and are based on management’s current judgments. Those judgments are no rmally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ ma rkedly from management’s current judgments.
The most sensitive accounting estimates affecting the City’s basic financial statements were:
Fair value of investments . The City’s investments are generally carried at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurem ent date. The City’s investments are primarily classified as level 2 of the fair value hierarchy established by GASB Statement No. 72 and are valued using prices determined by the use of matrix pricing techniques maintained by the pricing vendors for these securities. The City’s investm ent in the money market mutual funds, California Local Agency Investment Fund and California A sset Management Program are not subject to the fair value hierarchy.
Estimated allowance for losses on notes and loans receivable . The allowance for losses on notes and loans receivable is based on the types of loans (e.g. forgivable, deferred, grant, or amortizing) and management’s estimate regard ing the likelihood of collectab ility based on loan provisions and collateral.
Depreciation estimates for capital assets, in cluding depreciation methods and useful lives assigned to depreciable assets . The estimated useful lives of capital assets were determined based on the nature of the capital assets and management’s esti mate of the economic life of the assets.
Landfill post-closure liability. The City has estimated, based on a study conducted by consulta nts, the post-closure costs of the Palo Alto landfill based on what it would cost to perform all currently mandated post-closure care. Actual post-closure care costs may be higher due to inflation variances, changes in technology, or changes in State or federal regulations. Net pension and Other Postemployment Benefits (OPEB) liabilities, contributions, expenses, and other related balances. These balances for pension and OPEB are based on actuarial val uations, which incorporate actuarial methods and assumptions adopted by the City, performed by the California Public Employees’ Retirement System’s and the City’s independent actuaries, respectively.
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2021
3 Claims loss reserve. The City is exposed to a variety of risks of loss due to gener al liability, workers’ compensation and other claims and records an estimate of these losses based on actuarial studies performed by third party actuaries. These stu dies are prepared based on the City’s prior claims history, which is used as a basis for extra polating losses for known and incurred but not reported claims. Actual loss experience may vary from these estimates.
We evaluated the key factors and assumptions used to develop th e accounting estimates described above and determined that it is reasonable in relation to the basic f inancial statements taken as a whole and in relation to the applicable opinion units.
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most se nsitive disclosures affecting the financial statements were the disclosure of Pension Plans in Note 11, Oth er Post-Employment Benefits (OPEB) in Note 12, and Commitments and Contingencies in Note 16.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with mana gement relating to the performance of the audit.
Corrected and Uncorrected Misstatements
For purposes of this communication, professional standards requ ire us to accumulate all known and likely misstatements identified during the audit, other than those tha t we believe are trivial, and communicate them to the appropriate level of management. Further, professio nal standards require us to also communicate the effect of uncorr ected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financia l statements as a whole and each applicable opinion unit. The accompanying S ummary of Uncorrected Financial Statements Misstatements summarizes uncorrected financial statement misstatements whose effects in the current and prior periods, as determined by management, ar e immaterial, both individually and in the aggregate, to the financial statements taken as a whole and each applicable opinion unit.
In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. None of the misstatements identified by us as a result of our audit procedu res and corrected by management were material, either individually or in the aggregate, to the finan cial statements taken as a whole or applicable opinion units.
Disagreements with Management
For purposes of this letter, professional standards define a di sagreement with management as a matter, whether or not resolved to our satisfaction, concerning a finan cial accounting, reporting, or auditing matter, which could be significant to the City’s financial stat ements or the auditor’s report. No such disagreements arose during the course of the audit.
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2021
4 Representations Requested from Management
We have requested certain written representations from manageme nt, which are included in the letter dated November 15, 2021.
Management’s Consultations with Other Accountants
In some cases, management may decide to consult with other acco untants about auditing and accounting matters. Management informed us that, and to our knowledge, the re were no consultations with other accountants regarding auditing and accounting matters.
Other Significant Matters, Findings, or Issues
In the normal course of our professional association with the C ity, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational pla ns and strategies that may affect the risks of material misstatement. None of the matters discussed resulted i n a condition to our retention as the City’s auditors.
Other Information in Documents Containing Audited Financial Statements
Pursuant to professional standards, our responsibility as audit ors for other information in documents containing the City’s audited fi nancial statements does not ext end beyond the financial information identified in the audit report, and we are not required to perf orm any procedures to corroborate such other information. However, in accordance with such standards:
Required Supplementary Information
We applied certain limited procedures to the management’s discu ssion and analysis, the schedules of changes in net pension liability and related ratios, the schedu les of pension contributions, the schedule of changes in net OPEB liability and related ratios, and the sched ule of employer OPEB contributions, which are required supplementary information (RSI) that supplem ents the basic financial statements. Our procedures consisted of inquiries of management regarding the m ethods of preparing the information and comparing the information for co nsistency with management’s res ponses to our inquiries, the basic financial statements, and othe r knowledge we obtained during ou r audit of the basic financial statements.
We did not audit the RSI and do not express an opinion or provide any assurance on the RSI.
Supplementary Information and Other Sections
We were engaged to report on the combining and individual nonma jor fund financial statements and schedules, which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evalua ted the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of prepari ng it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements.
We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves.
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2021
5 We were not engaged to report on the introductory and statistical sections, which accompany the financial statements but are not RSI or supplementary information. Such i nformation has not been subjected to the auditing procedures applied in t he audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.
Our responsibility also includes communicating to you any infor mation which we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materi ally inconsistent with the inf ormation, or manner of its presentation, appearing in the financial statements.
Modification of the Auditor’s Report
Our report includes an emphasis of matter paragraph to referenc e to Note 1 to the basic financial statements for the City’s implementation of GASB Statement No. 84, Fiduciary Activities. Our opinion is not modified with respect to this matter.
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2021
6 SUMMARY OF UNCORRECTED FINANCIAL STATEMENTS MISSTATEMENTS
Debit Credit
Current Year Adjustment #1
Beginning Net Position 11,933,391$
Expenses - Public Works 11,933,391$
(Government-wide Governmental Activities - To adjust expenses for capital assets improperly capitalized in prior years and written off during the year ended June 30, 2021. The net position and capital assets balances were corrected as of June 30, 2021.)
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CABLE TV FRANCHISE
Independent Auditor’s Report and
Statements of Franchise Revenues and Expenses
For the Years Ended December 31, 2020 and 2019
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CABLE TV FRANCHISE
Independent Auditor’s Report and Statements of Franchise Revenues and Expenses For the Years Ended December 31, 2020 and 2019
Table of Contents
Page
Independent Auditor’s Report ....................................................................................................................... 1
Financial Statements:
Statements of Franchise Revenues and Expenses ................ ................................................................... 3
Notes to the Financial Statements ............................ ............................................................................... 4
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1 Independent Auditor’s Report
Honorable Mayor and Members
of the City Council of the City of Palo Alto
Palo Alto, California
We have audited the accompanying Statements of Franchise Revenu es and Expenses of the Cable TV Franchise (Franchise) for the years ended December 31, 2020 and 2019, and the related notes to the financial statements, which collectively comprise the Franchise’s financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presenta tion of these financial statements in accordance with the financial reporting provisions of the Amended and Restated Joint Exercise of Powers Agreement signed on June 9, 2009, between the City of Palo Alto , the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the County of Santa Clara, and the Town of Atherton as described in Note 1 to the financial statements. Management is also resp onsible 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.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan a n d p e r f o r m t h e a u d i t t o o b t a i n reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to d esign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opi nion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An a udit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above pres ent fairly, in all material respects, the revenues and expenses of the Franchise for the years ended Dece mber 31, 2020 and 2019, in accordance with the financial reporting provisions of the Amended and Rest ated Joint Exercise of Powers Agreement signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the County of Santa Clara, and the Tow n of Atherton as described in Note 1 to the financial statements.
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2 Basis of Accounting
As discussed in Note 1 to the financial statements, the financi al statements are prepared in accordance with the financial reporting provisions of the Amended and Rest ated Joint Exercise of Powers Agreement signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the County of Santa Clara, and the Tow n of Atherton, which is a basis of accounting other than accounting principles generally accepted i n t h e U n i t e d S t a t e s o f A m e r i c a . O u r opinion is not modified with respect to this matter.
Restriction on Use
This report is intended solely for the information and use of t he governing bodies and management of the City of Palo Alto, the City of East Palo Alto, the City of Menl o Park, the County of San Mateo, the County of Santa Clara, and the Town of Atherton, and is not int ended to be and should not be used by anyone other than these specified parties.
Walnut Creek, California
November 15, 2021
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2020 2019
Revenues:
Franchise fees $ 1,614,163 $ 1,679,591
Expenses:
Franchise administration 37,480 69,790
Consulting fees 5,287 12,650
Total expenses 42,767 82,440
Net revenues $ 1,571,396 $ 1,597,151
Amount Percent Amount Percent
Allocated Net Revenues:
City of Palo Alto $ 743,953 47.3% $ 762,686 47.8% City of Menlo Park 420,485 26.7% 428,867 26.9% City of East Palo Alto 162,894 10.4% 165,082 10.3% Town of Atherton 133,139 8.5% 131,766 8.3%
County of Santa Clara 85,698 5.5% 86,425 5.4% County of San Mateo 25,227 1.6% 22,325 1.4% Total allocated net revenues $ 1,571,396 100.0% $ 1,597,151 100.0%
CABLE TV FRANCHISE
Statements of Franchise Revenues and Expenses
For the Years Ended December 31, 2020 and 2019
2020 2019
See accompanying notes to the financial statements.
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CABLE TV FRANCHISE
Notes to the Financial Statements
For the Years Ended December 31, 2020 and 2019
4 NOTE 1 – JOINT OPERATING AGREEMENT AND BASIS OF ACCOUNTING
In July 1983, a Joint Exercise of Powers Agreement was entered into by and between the Cities of Palo Alto, Menlo Park, East Palo Alto, the Counties of San Mateo and Santa Clara, and the Town of Atherton (Members) for the purpose of obtaining a state-of-the-art cable service for residents, businesses, and institutions, within each of their jurisdictions in the most efficient and economical manner possible.
In October 1988, the Members entered into a Joint Operating Agr eement in which the City was granted the power and the authority to administer and coordinate the ac tivities of the franchise and exercise the rights and responsibilities of the City pursuant to the Franchi se Agreement. The activities are administered by the City and are accounted for within the City’ s Agency Fund. The program is accounted for using the accrual basis of accounting. Under the accrual ba sis of accounting, revenues are recorded when earned and expenses are recognized when the liability is incurred.
On August 9, 2000, the City of Palo Alto (City), acting on beha lf of the Members, signed a Franchise Agreement with TCI Cablevision of California, Inc., a wholly ow ned subsidiary of AT&T Broadband (AT&T), a third-party contractor, which was granted a non-exclu sive franchise to construct, operate, maintain and repair a cable television system within the Member s jurisdictions. In 2002, the Franchise Agreement was transferred from AT&T to Comcast Corporation (Comcast).
TCI Cablevision of California, Inc. also signed an asset purcha se agreement with Cable Communications Cooperative of Palo Alto, Inc. (CCCOPA), the former cable telev ision system operator/owner, and acquired the system.
On January 1, 2007, the Digital Infrastructure and Video Compet ition Act (DIVCA) went into effect.
Under DIVCA, cable and video service franchises are now granted exclusively by the California Public Utilities Commission (Commission) rather than by local franchis ing entities. On March 30, 2007, the Commission granted AT&T a statewide franchise. Comcast was allo wed to seek a State franchise after January 1, 2008, when another State franchise holder (in this c ase AT&T) entered the local market. On January 2, 2008, the Commission granted Comcast a State franchise.
On June 9, 2009, the Members approv ed an Amended and Restated J oint Exercise of Powers Agreement, in substitution of the existing Joint Exercise of Powers Agreem ent and the Joint Operating Agreement, to reflect changes in the law due to DIVCA and to continue to allo w the City to administer the cable and video franchise enforcement and monitoring process for State franchise holders.
The accompanying financial statements are prepared in accordance with the financial reporting provisions of the Amended and Restated Joint Exercise of Powers Agreement between the Members, which is a basis of accounting other than accounting principles generally accepted in the United States of America, and are not intended to be a complete presentation of the Franc hise’s financial position or results of operations.
As compensation for services under the State franchise agreemen ts, AT&T and Comcast pay annual franchise fees in an amount equal to 5% of annual gross revenue s, considering a reasonable adjustment for bad debts. From these fees the City is first reimbursed for out-of-pocket franchise administration costs. The remaining fees are distributed to each Member accord ing to the percentage of revenues derived from the residents and businesses in each of the entities compared to revenues in total.
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CABLE TV FRANCHISE
Notes to the Financial Statements (Continued)
For the Years Ended December 31, 2020 and 2019
5 NOTE 2 – PRIOR FRANCHISE SETTLEMENTS
A prior Franchise Agreement with CCCOPA was set to expire on Ma rch 24, 2001. On June 21, 1999, the City hired a cable communications consultant and retained the s ervices of a law firm to assist in the franchise renewal process. On July 31, 2000, CCCOPA reimbursed the City $185,000 toward the actual costs incurred as part of the franchise renewal efforts.
On July 24, 2000, the City reached a settlement with CCCOPA in the amount of $220,000 to resolve outstanding claims resulting from CCCOPA’s alleged failure to f ully perform under the prior Franchise Agreement.
On November 22, 2004, the City reached a settlement agreement w ith Comcast regarding cable plant construction claims in the amount of $175,000. This money was t o be used towards the institutional network connection costs.
In 2006, the City conducted a fra nchise compliance audit perfor med by the City Auditor’s Office. A settlement was reached in the amount of $155,391. In addition, CCCOPA paid the City a $250,000 grant to acquire, install, and/or maintain equipment to be used in co nnection with an institutional network defined in the Franchise Agreement.
In 2016, the City Auditor discovered that AT&T and Comcast did not consistently calculate the fees due in accordance with DIVCA and the municipal code of each of the cable joint powers members. As a result of the audit, the City received a settlement from AT&T in the a mount of $75,647 in 2 016. Additionally, the City received a settlement from Comcast in the amount of $25,000 in 2019.
The settlements and grant have b een deposited and are being hel d by the City and earning interest. The City has since spent a part of the balance on various projects including installing and maintaining the institutional network equipment. As of December 31, 2020 and 20 19, the remaining balances on deposit with the City, including balances from other funding sources, w ere $1,067,151 and $760,344, respectively. These balances include interest receivable of $4 ,211 and $4,316 at December 31, 2020 and 2019, respectively.
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PALO ALTO PUBLIC IMPROVEMENT
CORPORATION
(A Component Unit of the
City of Palo Alto, California)
Annual Financial Report
For the Year Ended June 30, 2021
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Annual Financial Report
For the Year Ended June 30, 2021
Table of Contents
Page
Independent Auditor’s Report ................................................................................................................... 1
Management’s Discussion and Analysis (Unaudited) .............................................................................. 3
Basic Financial Statements
Government-wide Financial Statements:
Statement of Net Position ................................................................................................................... 5 Statement of Activities ....................................................................................................................... 6
Debt Service Fund Financial Statements:
Balance Sheet ..................................................................................................................................... 7 Statement of Revenues, Expenditures and Changes in Fund Balance ................................................ 8
Notes to the Basic Financial Statements .................................................................................................. 9
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1 Independent Auditor’s Report
The Honorable Mayor and
Members of the City Council of the
City of Palo Alto, California
We have audited the accompanying financial statements of the governmental activities and the major fund of Palo Alto Public Improvement Corporation (Corporation), a co mponent unit of the City of Palo Alto, California (City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively co mprise the Corporation’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements Management is responsible for t he preparation and fair presenta tion of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from materia l misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial st atements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan a nd perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to d esign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opi nion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An a udit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficie nt and appropriate to provide a basis for our audit opinions.
Opinions
In our opinion, the financial statements referred to above pres ent fairly, in all material respects, the respective financial position of the governmental activities an d the major fund of the Corporation as of June 30, 2021, and the respectiv e changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.
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2 Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States o f America require that the management’s discussion and analysis on pages 3 through 4 be presented to su pplement the basic financial statements.
Such information, although not a part of the basic financial st atements, 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, econo mic, or historical context. We have applied certain limited procedures to the required supplementary inform ation in accordance with auditing standards generally accepted in the United States of America, w hich consisted of inquiries of management about the methods of preparing the information and c omparing the information for consistency with management’s responses to our inquiries, the b asic financial statements, and other knowledge we obtained during our audit of the basic financial s tatements. 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.
Walnut Creek, California
November 15, 2021
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Management’s Discussion & Analysis (Unaudited)
For the Year Ended June 30, 2021
3 The Palo Alto Public Improvement Corporation (Corporation), a c omponent unit of the City of Palo Alto (City), follows the provisions of Governmental Accounting Stand ards Board (GASB) Statement No. 34, Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments. The Corporation is controlled by the City and was organized to assist the City in financing public improvements. The Corporation issues debt and turns the proceeds of the debt over to the City under lease agreements that provide a revenue source for the re payment of this debt. The Corporation has three outstanding debts and has turned over the proceeds to the City, which pledged certain lease payments as collateral for this debt as discussed in Note 4 to the financial statements.
FINANCIAL HIGHLIGHTS
GASB Statement No. 34 requires the issuance of government-wide financial statements as well as fund financial statements. The governme nt-wide financial statements report the balance of the Corporation’s long-term debt while the individual fund statements do not.
In fiscal year 2018, the City issued 2018 Capital Improvement P roject and Refinancing Certificates of Participation (2018 COPs) in the amount of $9.0 million to refi nance the 2002B Downtown Parking Improvements Certificates of Participation remaining balance of $805 thousand, and also to fund the Palo Alto Municipal Golf Course renovations.
In fiscal year 2019, the City issued the 2019 California Avenue Parking Garage tax exempt Series A and taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million plus $4.9 million premium, and $10.6 million, respectively. Th e 2019A and 2019B COPs are issued to fund the construction of the new California Avenue parking garage.
In fiscal year 2021, the City issued the 2021 Public Safety Bui lding Certificates of Participation (2021 COPs) in the amount of $101.5 million plus $6.5 million premium. The 2021 COPs are issued to fund the construction of the new public safety building.
As of June 30, 2021, the Corporation has the following outstand ing debt: the 2018 COPs, 2019A and 2019B COPs, and 2021 COPs
At the government-wide level, the interest and fiscal agent cha rges were $4.0 million for fiscal year 2021, an increase of $2.0 million from the prior year. The interest on leases from the City of Palo Alto was $8.6 million, an increase of $6.6 million from the prior year. The i ncreases of interest and fiscal charges and interest on leases are due to the issuance of the 2021 COPs dur ing the year which lead to the increase of outstanding bonds and incurrence of one-time costs of issuance.
The Corporation ended fiscal year 2021 with total assets of $16 3.1 million, an increase of $112.3 million from the prior year. Total assets consisted of $4.7 million in cash and investments, $1.1 million of lease interest receivable from the City of Palo Alto, and $157.4 mill ion of investment in leases to the City of Palo Alto. The total liabilities were $158.5 million, an increase of $107.7 million from the prior year. The increases of assets and liabilities resulted from the issuance of the 2021 COPs during the year.
At the fund level, the Corporation’s expenditures exceeded reve nues by $103.4 million due to the payment of lease proceeds to the City of Palo Alto in relation to the issuance of 2021 COPS during the year. As of June 30, 2021, the C orporation had one fund, the De bt Service Fund, which reported a $4.7 million restricted fund balance.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Management’s Discussion & Analysis (Unaudited) (Continued) For the Year Ended June 30, 2021
4 OVERVIEW OF THE CORPORATION’S BASIC FINANCIAL STATEMENTS
The annual financial report is comprised of two parts:
1) Management’s discussion and analysis (this part),
2) The basic financial statements, which include the government-wi de and the fund financial statements, along with the notes to these financial statements.
The basic financial statements comprise the government-wide fin ancial statements and the fund financial statements. These two sets of financial statements provide two different views of the Corporation’s financial activities and financial positions, both short-term and long-term.
The government-wide financial st atements provide a long-term vi ew of the Corporation’s activities as a whole, and comprise the statement of net position and the state ment of activities. The statement of net position provides information about the financial position of t he Corporation as a whole, including all its long-term liabilities on the full accrual basis, similar to tha t used by corporations. The statement of activities provides information about all the Corporation’s rev enues and expenses on the full accrual basis, with the emphasis on measuring net revenues or expenses of the Corporation’s program. The statement of activities explains in detail the change in net position for the year.
The fund financial statements r eport the Corporation’s operatio ns in more detail than the corporate-wide statements and focus primarily on the short-term activities of the debt service fund. Fund financial statements measure only current revenues and expenditures; curr ent assets, liabilities and fund balances; and they exclude capital assets and long-term debt.
Together, these statements along with the notes to the financia l statements are called the basic financial statements.
DEBT ADMINISTRATION
The Corporation issues debt in the form of Certificates of Part icipation (COPs) to be repaid from future lease receipts from the City. Legally, these COPs issues are th e Corporation’s debt only; the City is liable only for the payment of the amounts set forth in the lease securing each debt issue.
As of June 30, 2021, the Corporation has the following outstand ing debt: 2018 COPs, 2019A and 2019B COPs, and 2021 COPs with outstandi ng principal balances of $8.6 million, 36.4 million and $101.5 million, respectively.
ECONOMIC OUTLOOK AND MAJOR INITIATIVES
The economy of the City and its major initiatives for the comin g year are discussed in detail in the City’s Comprehensive Annual Financial Report.
CONTACTING THE CORPORATION’S FINANCIAL MANAGEMENT
These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with a general overview of the Corporation’s finances. Questions abo ut these financial statements should be directed to the Finance Department of the City of Palo Alto, 250 Hamilton Avenue, Palo Alto, CA 94301.
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Assets
Cash held for operations 5,597 $
Cash and investments held by trustee 4,655,285
Lease interest receivable 1,057,878
Investment in leases to the City of Palo Alto 157,403,773 Total assets 163,122,533
Liabilities
Interest payable 1,057,878
Long-term debt:
Due in one year 1,243,353
Due in more than one year 156,160,420
Total liabilities 158,461,651
Net Position
Restricted for debt service 4,660,882 $
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Net Position
June 30, 2021
See accompanying notes to financial statements.
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Expenses
Interest and fiscal agent charges 3,962,421 $
Program revenues
Interest on leases from the City of Palo Alto 8,585,169 Net program revenues 4,622,748
General revenues
Investment earnings 56
Change in net position 4,622,804
Net position, beginning of the year 38,078
Net position, end of the year 4,660,882 $
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Activities
For the Year Ended June 30, 2021
See accompanying notes to financial statements.
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Assets
Cash held for operations 5,597 $
Cash and investments held by trustee 4,655,285
Lease interest receivable 1,057,878
Investment in leases to City of Palo Alto 157,403,773
Total assets 163,122,533 $
Deferred Inflows of Resources
Unavailable lease receipts from the City of Palo Alto 158,461,65 1$ Fund balance
Restricted for debt service 4,660,882
Total deferred inflows of resources and fund balance 163,122,533 $ Reconciliation of fund balance to net position
Fund balance restricted for debt service 4,660,882 $
Long-term receivables are not available to pay for current period expenditures and are considered unavailable on the governmental fund balance sheet 158,461,651 Some liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the Fund:
Interest payable (1,057,878)
Long-term debt due within one year (1,243,353)
Long-term debt due in more than one year (156,160,420)
Net position of governmental activities 4,660,882 $
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Balance Sheet
June 30, 2021
Debt Service Fund
See accompanying notes to financial statements.
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Revenues:
Lease receipts from the City of Palo Alto:
Principal 815,000$
Interest 2,093,576
Others 1,588
Investments earnings 56
Total revenues 2,910,220
Expenditures:
Intergovernmental disbursement to the City of Palo Alto 102,000, 000 Debt service:
Principal repayment 815,000
Interest and fiscal agent charges 2,093,576
Costs of issuance 1,408,212
Total expenditures 106,316,788
Deficiency of revenues under expenditures (103,406,568) Other Financing Sources:
Issuance of bonds 101,505,000
Bond premium 6,524,372
Total other financing sources 108,029,372
Net change in fund balance 4,622,804
Fund balance, beginning of the year 38,078
Fund balance, end of the year 4,660,882 $
Reconciliation of net change in fund balance to change in net position Net change in fund balance - debt service fund 4,622,804 $ Amounts reported for governmental activities in the statement of activities are different because:
Repayment of bond principal is an expenditure in the governmental funds, but in the statement of net position the repayment reduces long-term liabilities. 815,000 Interest accrued on long-term debt and amortization of bond premium do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds.
Change in interest payable (707,124)
Amortization of bond premium 246,491
The issuance of bonds are reported as other financing sources in governmental funds and thus contribute to the change in fund balances. However, bonds issuance change long-term liabilities in the statement of net position and do not affect the statement of activities.
Issuance of bonds (101,505,000)
Bonds premium (6,524,372)
Some amounts reported in the statement of revenues, expenditures and changes in fund balances reflect the timing of collection of assets which are not includable as revenues on the statement of activities.
Lease receipt for bond principal repayment (815,000)
Lease receipt for interest payment 707,124
Intergovernmental disbursement to the City of Palo Alto 102,000, 000 Lease proceeds from new bond issuance 6,029,372
Impact of bond premium amortization on lease receipt (246,491) Change in net position of governmental activities 4,622,804 $
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Revenues, Expenditures and Changes in Fund Balance For the Year Ended June 30, 2021
Debt Service Fund
See accompanying notes to financial statements.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
9 NOTE 1 – DESCRIPTION OF REPORTING ENTITY
The Palo Alto Public Improvement Corporation (the Corporation) was incorporated in September 1983 under the General Nonprofit Corpor ation Law of the State of Cal ifornia to acquire, construct and lease capital improvement projects. The Corporation is exempt from fe deral income taxes under Section 501(c)(4) of the Internal Revenue Code. The Corporation provides financing of public capital improvements for the City through the issuance of Certificates of Participation (COPs), a form of debt which allows investors to participate in a stream of future lea se payments. Proceeds from the COPs are used to construct projects which are leased to the City for lea se payments which are sufficient in timing and amount to meet the debt service requirements of the COPs.
The Corporation is an integral part of the City of Palo Alto, C alifornia (City). It primarily services the City and its governing body is composed of the City Council. Th erefore, the financial data of the Corporation has also been included as a blended component unit within the City’s comprehensive annual financial report for the year ended June 30, 2021.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
Government-wide Statements: The statement of net position and the statement of activities include the financial activities of the Corporation. Eliminations have been made to minimize the double counting of internal activities.
The statement of activities presents a comparison between direc t expenses and program revenues for each function of the Corporation’s activities. Direct expenses are t hose that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs, and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program.
Revenues that are not classifie d as program revenues, including investment earnings, are presented as general revenues.
Fund Financial Statements: The fund financial statements p rovide information about the Co rporation’s funds. The emphasis of fund financial statements is on major in dividual funds, of which the Corporation only reports one debt service fund.
(b) Major Fund
Major funds are defined as funds that have either assets, liabi lities, revenues or expenditures equal to ten percent of their fund-type total and five percent of the grand total. The Corporation has one fund which is reported as a major governmental fund in the accompanying financial statements as follows:
Debt Service Fund – This fund accounts for debt service payments on the Corporation’s long-term debt.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
10 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Basis of Accounting
The government-wide financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned ad expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place.
Governmental funds are reported using the current financial res ources measurement focus and the modified accrual basis of accounting. Under this method, reven ues are recognized when measurable and available. The City considers revenues susceptible to accrual to be available if the revenues are collected within ninety days after year-e nd. Expenditures are recorded w hen the related fund liability is incurred, except for principal and interest on long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured.
(d) Investment in Leases
Improvements financed by the Corporation are leased to the City for their entire estimated useful life and will become the City property at the conclusion of the lease on November 1, 2050. The Corporation therefore records the present value of the lease and considers the leased improvement to have been sold for this amount when leased.
(e) Net Position
The government-wide financial statements utilize a net position presentation. Net position is further categorized as net investment in capital assets, restricted and /or unrestricted. As of June 30, 2021, the entire net position was considered restricted.
Restricted Net Position – This category presents external restrictions imposed by credi tors, grantors, contributors or laws or regulations of other governments and re strictions imposed by law through constitutional provisions or enabling legislation.
(f) Deferred Inflows of Resources
A deferred inflow of resources is defined as an acquisition of net position or fund balances applicable to a future reporting period and will not be recognized as an inflow of resources (revenue) until that time. On the governmental fund balance sheet, the lease receipts from th e City corresponding to the debt are recorded as deferred inflows of resources since the balances are not current financial resources.
(g) Fund Balances
At June 30, 2021, the Corporatio n’s governmental fund’s fund ba lances include the following classification:
Restricted Fund Balance – includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabli ng legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
11 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Effects of New Pronouncements
The Corporation is currently analyzing its accounting practices to determine the potential impact on the financial statements for the following Governmental Accounting Standards Board (GASB) Statement:
In June 2017, the GASB issued Statement No. 87, Leases. The objective of this statement is to better meet the information needs of financial statement users by impr oving 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 liabilitie s for leases that previously were classified as operating leases and recognized as inflows of resources or outf lows of resources based on the payment provisions of the contract. It establishes a single model for l ease 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 activitie s. The requirements of this statement are effective for the Corporation’s fiscal year ending June 30, 2022.
(i) Estimates
The preparation of basic financial statements in conformity wit h accounting principles generally accepted in the United States of America requires management to make est imates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE
(a) Interest Rate Risk
Interest rate risk is the risk that a change in market interest rates will adversely affect the fair value of an investment. Normally, the longe r it takes an investment to reac h maturity, the greater will be that investment’s sensitivity to changes in market rates. Informatio n about the sensitivity of the fair values of the Corporation’s investments to market interest rate fluctuati ons is provided by the following table that shows the distribution of the Corporation’s investments by maturity:
Investment Type Amount Maturity Date
Money Market Mutual Fund 4,655,285$ 19 days
Credit Risk
Generally, credit risk is the risk that an issuer of an investm ent will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rati ng by a nationally recognized statistical rating organization. As of June 30, 2021, the Corporation’s in vestments in money market mutual funds are rated AAAm by Standard & Poor’s.
(b) Fair Value Hierarchy
The City categorizes its fair value measurements within the fai r value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active m arket for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are sig nificant unobservable inputs. The Corporation’s investments in money market mutual funds are not subject to the fair value hierarchy.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
12 NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE (Continued)
(c) Investment Policy
The Corporation must maintain required amounts of cash and inve stments by trustee under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the Corporation fails to meet its obligation under these debt issue s. The California Government Code (Code) requires these funds to be invested in accordance with bond ind entures or State statutes. All these funds have been invested as permitted under the Code. The Investment Policy is described in detail in the City’s Annual Comprehensive Financial Report.
The table below identifies the investment types that are author ized by the City’s Investment Policy. The table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit risk and concentration of credit risk.
Maximum
Maturity
Minimum Credit
Quality
Maximum
Percentage of
Portfolio
Maximum
Investment in
One Issuer
U.S. Government Securities 10 years (*) N/A No Limit No Limit U.S. Government Agency Securities 10 years (*) N/A No Limit (A) No Limit Certificates of Deposit 10 ye ars (*) N/A 20% 10% of the par value of
portfolio
Bankers Acceptances 180 days N/A 30% $5 million
Commercial Paper 270 days A-1 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit $75 million per account
Short-Term Repurchase Agreements 1 year N/A No Limit No Limit City of Palo Alto Bonds N/A N/A No Limit No Limit
Money Market Deposit Accounts N/A N/A No Limit No Limit Mutual Funds N/A N/A 20% 10%
Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million Medium-Term Corporate Notes 5 years AA 10% $5 million
10 years (*) AA/AA2 30% No Limit
Supranational 5 years AA/AA2 20% 10% of the par
value of
portfolio
(A)
(B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution. (*) The maximum maturity is based on the Investment Policy that is approved by the City Council and is less restrictive than the California Governmental Code.
Authorized Investment Type
Bonds of State of California Municipal
Agencies & Other U.S. States
Callable and multi-step securities are limited to no more than 25% of the par value of the portfolio, provided that:
1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step-up" are known at the time of purchase, and 3) the entire face value of the security is redeemed at the call date.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
13 NOTE 4 – CERTIFICATES OF PARTICIPATION
The Corporation’s long-term debt activities are presented below:
Balance Balance Amount due
July 1, 2020 Additions Retirements June 30, 2021 in one year Certificates of Participation
2018 Capital Improvement Project
2.20-4.22%, due 11/1/2047 8,755,000 $ - $ 185,000$ 8,570,000 $ 190,000 $ 2019 California Ave. Parking Garage
Series A & B
2.5%-5%, due 11/1/2048 36,995,000 - 630,000 36,365,000 645,000 2021 Public Safety Building
2%-5%, due 11/1/2050 - 101,505,000 - 101,505,000 - Add: Unamortized Premium 4,685,892 6,524,372 246,491 10,963,773 408,253 Total 50,435,892 $ 108,029,372 $ 1,061,491 $ 157,403,773 $ 1,243,253 $
On June 1, 2018, the City issued the 2018 Capital Improvement P roject and Refinancing Certificates of Participation (2018 COPs) in the amount of $9.0 million to full y refinance the 2002B COPs and to fund the renovation of the Palo Alto Municipal Golf Course. Princip al payments are due annually on November 1 and interest payments semi-annually at various rates on May 1 and November 1. The 2018 COPs are secured by lease revenues received by the Corporation from any City’s General Fund revenue source.
On March 21, 2019, the City issued the 2019 California Avenue P arking Garage tax exempt Series A and taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million plus $4.9 million premium, and $10.6 million, respectively, for the construction of the new California Avenue Parking Garage. Principa l payments are due annually on N ovember 1 and interest payments semi-annually at various rates on May 1 and November 1. The 201 9A and 2019B COPs are secured by lease revenues received by the Corporation from any City’s General Fund revenue source.
On March 24, 2021, the City issued the 2021 Public Safety Build ing Certificates of Participation (2021 COPs) in the amount of $101.5 million plus $6.5 million premium for the construction of the new public safety building. Principal payments are due annually on Novembe r 1 and interest payments semi-annually at various rates on May 1 and November 1. The 2021 COPs are sec ured by lease revenues received by the Corporation from any City’s General Fund revenue source.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
14 NOTE 4 – CERTIFICATES OF PARTICIPATION (Continued)
Future annual debt service on the outstanding debt is shown below:
For the Year Interest Total
Ending June 30, Principal Payment Payment
2022 835,000 $ 3,534,317 $ 4,369,317 $ 2023 860,000 4,970,244 5,830,244 2024 3,025,000 4,880,640 7,905,640 2025 3,170,000 4,729,195 7,899,195 2026 3,335,000 4,569,844 7,904,844 2027-2031 19,340,000 20,154,727 39,494,727 2032-2036 23,975,000 15,481,970 39,456,970 2037-2041 28,105,000 11,306,264 39,411,264 2042-2046 32,530,000 6,831,131 39,361,131 2047-2051 31,265,000 1,836,486 33,101,486 146,440,000$ 78,294,818 $ 224,734,818 $
Events of Default and Acceleration Clauses
Generally, the Corporation is considered to be in default if th e Corporation fails to pay the principal of and interest on the outstanding long-term debt when become due and payable. If an event of default has occurred and is continuing, the principal of the long-term debt , together with the accrued interest, may be declared due and payable immediately.
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CITY OF PALO ALTO
REGIONAL WATER QUALITY
CONTROL PLANT
Independent Auditor’s Report
and Financial Statements
For the Year Ended June 30, 2021
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Independent Auditor’s Report and Financial Statements
For the Year Ended June 30, 2021
Table of Contents
Page
Independent Auditor’s Report ................................................................................................................... 1
Financial Statements:
Statement of Net Expenditures ............................................................................................................... 3
Statement of Quarterly Billings .............................................................................................................. 4
Notes to the Financial Statements ........................................................................................................... 5
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1 Independent Auditor’s Report
The Honorable Mayor and Members
of the City Council of the City of Palo Alto
Palo Alto, California
We have audited the accompanying financial statements of the Ci ty of Palo Alto Regional Water Quality Control Plant (Plant), an enterprise operation of the City of P alo Alto, California, for the year ended June 30, 2021, and the related notes to the financial statement s, which collectively comprise the Plant’s financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presenta tion of these financial statements in accordance with the financial reporting provisions of the Basic Agreement between the City of Palo Alto, the City of Mountain View and the City of Los Altos for the Acquisition, Construction and Maintenance of a Joint Sewer System, dated October 10, 1968, as amended by addenda dated December 5, 1977, January 14, 1980, April 9, 1985, May 30, 1991, July 31, 1992, March 16, 1998, April 15, 2009, October 17, 2016, March 4, 2019, and May 17, 2021 (collectively , the “Basic Agreement”), as described in Note 2 to the financial statements. Management is also resp onsible 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.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan a n d p e r f o r m t h e a u d i t t o o b t a i n reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to d esign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opi nion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An a udit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above pres ent fairly, in all material respects, the revenues, expenditures and quarterly billings of the Plant for the year ended June 30, 2021, in accordance with the financial reporting provisions of the Basic Agreement as described in Note 2 to the financial statements.
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2 Basis of Accounting
As discussed in Note 2 to the financial statements, the financi al statements are prepared in accordance with the financial reporting provisions of the Basic Agreement, which is a basis of accounting other than accounting principles generally accepted in the United States o f America. Our opinion is not modified with respect to this matter.
Restriction on Use
This report is intended solely f or the information and use of t he City Council and management of the Cities of Palo Alto, Mountain View and Los Altos, and is not in tended to be and should not be used by anyone other than these specified parties.
Walnut Creek, California
November 15, 2021
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Statement of Net Expenditures
City of City of City of
Total Mountain View Los Altos Palo Alto
Direct Expenditures:
Source control program 1,517,602 $ 638,607$ 164,508$ 714,487$ Public outreach 105,761 44,504 11,465 49,792 Permitting and enforcement 1,051,805 292,068 17,255 742,482 Operations and maintenance 15,087,850 6, 348,967 1, 635,523 7, 103,360 System improvement CIP (Note 3) 4,787,692 2, 014,661 518,986 2, 254,045 Total Direct Expenditures 22,550,710 9, 338,807 2, 347,737 10, 864,166 Indirect Administrative Expenditures (Note 4):
Source control program 841,017 353,900 91,166 395,951 Public outreach 1,235 520 134 581 Permitting and enforcement 358,148 269,602 15,928 72,618 Operations and maintenance 3,877,572 1, 631,682 420,329 1, 825,561 Others (121,851) ( 61,546) ( 17,041) ( 43,264) Total Indirect Administrative Expenditures 4,956,121 2, 194,158 510,516 2, 251,447 Debt Service Expenditures (Note 5):
Refunding 1990 Series A Bonds 281,008 143,314 21,919 115,775 1999 Wastewater Treatment New Project 543,416 205,900 51,462 286,054 2009 State Water Resource Loan 555,726 210,565 52,627 292,534 2017 State Water Resource Loan 1,091,863 413,708 103,399 574,756 Total Debt Service Expenditures 2,472,013 973,487 229,407 1, 269,119 Total Expenditures 29,978,844 12, 506,452 3, 087,660 14, 384,732 Deduct Joint Systems Revenues (Note 6) (543,965) ( 194,160) ( 138,617) ( 211,188) Net Expenditures 29,434,879 $ 12, 312,292$ 2, 949,043$ 14, 173,544$ For the Year Ended June 30, 2021
See accompanying notes to the financial statements.
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Statement of Quarterly Billings
City of City of
Mountain View Los Altos
Billings by Quarter, Beginning:
July 1, 2020 2,764,163$ 661,058$
October 1, 2020 3,006,584 720,366
January 1, 2021 2,764,163 661,058
April 1, 2021 3,495,244 831,113
Total billings 12,030,154 2, 873,595
Net expenditures 12,312,292 2, 949,043
Deficit of total billings under net expenditures (282,138) $ ( 75,448)$ For the Year Ended June 30, 2021
See accompanying notes to the financial statements.
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements
For the Year Ended June 30, 2021
5 NOTE 1 – THE REPORTING ENTITY
The Cities of Palo Alto, Mountain View and Los Altos (the Membe rs) participate jointly in the cost of maintaining and operating the Re gional Water Quality Control Pl ant and related system (the Plant). The Members share the original costs of acquisition and constructio n of the Plant in the same proportions as the allocation of capacity rights to them. The City of Palo Alt o (the City) is the owner and administrator of the Plant. The Cities of Mountain View and Los Altos are ent itled to use a portion of the capacity of the Plant, as set forth in the Basic Agreement between the City of Palo Alto, the City of Mountain View and the City of Los Altos for the Acquisition, Construction and Maintenance of a Joint Sewer System dated October 10, 1968, as amende d by addenda dated December 5, 1977, January 14, 1980, April 9, 1985, May 30, 1991, July 31, 1992, March 16, 1998, Apr il 15, 2009, October 17, 2016, March 4, 2019, and May 17, 2021 (collectively, the “Basic Agree ment”). The Basic Agreement will terminate on December 31, 2060, unless a written notice of withdrawal is tendered ten years preceding the date of withdrawal.
On May 17, 2021, the Members approved the construction of a new outfall and related improvements to existing discharge infrastructure and the rehabilitation of the primary sedimentation tanks including electrical upgrades. Each Member agreed to pay its share of th e project costs, in proportion to the capacity it owns in the Joint Sewer System. The Members also a uthorized the City to receive State Revolving Fund Loan from the State Water Resources Control Boar d (SWRCB) or pursue other project financing to fund the costs of the projects.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Plant is an enterprise that is operated by the City and its operations are accounted for as an enterprise fund in the City’s basic financial statements. The financial st atements are prepared in accordance with the financial reporting provisions of the Basic Agreement, which is a basis of accounting other than accounting principles generally accepted in the United States o f America. The accompanying financial statements are intended to present the Plant’s net expenditures and quarterly billings by the Plant to the Cities of Mountain View and Los Altos pursuant to the agreement of the Members as described above and are not intended to be a complete presentation of the Plant’s f inancial position or results of operations.
Additionally, the capital cost and the outstanding debt of the Plant are not presented in these statements but are presented in the basic financial statements of the City.
Plant expenditures, joint system revenues, debt service and ind ustrial waste compliance expenditures are shared by the Members based on agreed upon allocation percentages. The expenditures, including indirect administrative expenditures (see Note 4), are allocated to each of the Members based primarily on their respective percentages of the a nnual sewage flow and treatment needed for suspended solids, chemical oxygen demand and ammonia. Revenues from services, fines and pe nalties are allocated to each of the Members in the same proportions as those of expenditures. Debt service payments are allocated based on percentages established at the time of bond issuance. Industria l waste compliance (public outreach and permitting and enforcement) charges are allocated to Members pr imarily based on upon the number of industries and efforts required to maintain compliance with sew age use ordinances and other regulations from Environmental Protection Agency.
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements
For the Year Ended June 30, 2021
6 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The percentages used for the year ended June 30, 2021, to alloc ate expenditures and revenues were as follows:
City of City of City of
Mountain View Los Altos Palo Alto
Public outreach, source control program,
operations and maintenance, system improvement 42.08% 10.84% 47.08 % CIP, and joint system revenues
Permitting and enforcement 39.84% 2.35% 57.81%
Debt services expenditures:
1999 Utility Refunding Bonds
1999 Wastewater Treatment New Project 37.89% 9.47% 52.64% Refunding 1990 Series A Bonds 51.00% 7.80% 41.20%
2009 State Water Resources Loan 37.89% 9.47% 52.64%
2017 State Water Resources Loan 37.89% 9.47% 52.64%
The City is allocated 47.08% of total usage of the treatment pl ant. The City does not fully utilize its percentage allocation. Therefore , the City has entered into sep arate contracts to allocate portions of its excess to other entities. Fiscal year 2021 allocations are as follows:
East Palo Alto Sanitary District 6.15%
Stanford University 3.77%
Town of Los Altos Hills 2.31%
Remaining City percentages 34.85%
Total 47.08%
The agreement the City has with the above entities has no effec t on the partnership agreement between the Members.
Billings are made in advance and are based on the adopted budge t for the plant and estimated sewage flow. Excess (deficit) billings over (under) net expenditures a re offset against the payments during the second quarter of the subsequent fiscal year.
NOTE 3 – SYSTEM IMPROVEMENT CAPITAL IMPROVEMENTS PROGRAM (CIP)
The basic agreement between the Members, dated October 10, 1968, provides that the administrator of the Plant is responsible for capital additions. These capital additions should be for the replacement of obsolete or worn-out units, or minor capital additions to improve the ef ficiency of the Plant’s operations. Per the addendum to the agreement dated March 16, 1998, the Members agr eed that capital additions should not exceed $1.9 million in 1998-99 (base year). For future years, t he base year amount will be adjusted annually based on increases to the Consumer Price Index-Urban W age Earners and Clerical Workers for the San Francisco-Oakland-San Jose area. For fiscal year 2021, the adjusted capital additions limit is $3,442,929. Actual System Improvement CIP expenditures amounted to $2,383,745 for fiscal year 2021.
As of June 30, 2021, the commitments for minor capital addition s, including unspent capital additions, is $8,114,803 which have been carried forward to fiscal year 2022.
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements
For the Year Ended June 30, 2021
7 NOTE 4 – INDIRECT ADMINISTRATIVE EXPENDITURES
Indirect expenditures include t hose costs allocated from the Ci ty’s General Fund administrative services, which supports all operating depart ments of the City. Other ind irect expenses are administrative charges from the City’s Internal Services Funds. These allocations are applied on a uniform basis throughout the City. The allocations are applied in accordance with the subseq uent letter of agreement dated April 9, 1985.
NOTE 5 – DEBT SERVICE EXPENDITURES
Debt service expenditures include principal repayments, interes t expense and amortization of bond discount reduced by any interest income earned from investments with the fiscal agent, related to the 1999 Series A Bonds (split for the portions used for the “New P roject” and refunding of the 1990 Series A Bonds) and the 2009 and 2017 State Water Resources loans.
In June 1999, the City, City of Mountain View, City of Los Alto s, Town of Los Altos Hills, East Palo Alto Sanitary District, and Stanford University agreed to issue bonds (1999 Series A Bonds) to finance the rehabilitation of the Wastewater Treatment System’s two slu dge incinerators and to refund the 1990 Series A Bonds.
In October 2009, the City and the SWRCB executed an agreement f or the 2009 State Water Resources Loan to finance the Ultraviolet Disinfection Project.
In June 2017, the City and the SWRCB executed an agreement for State Water Resources Loan for an award up to $30 million, 30 years at 1.8% to finance the projec t replacing the sewage sludge “bio-solids” incinerators at the Plant. On September 13, 2017, the City and the SWRCB amended the original agreement of the 2017 SRF loan to lower the total amount to $29 .7 million and the due date of the last debt service payment be May 31, 2049. Under the terms of the a mended agreement, a portion of the loan amount, $4.0 million, is federally funded and the obligation balance was adjusted.
The new facility will dewater the bio-solids and allow it to be loaded onto trucks and taken offsite for further treatment until further treatment units can be built on site. The Plant provides treatment and disposal for wastewater for the City, City of Mountain View, Ci ty of Los Altos, Town of Los Altos Hills, East Palo Alto Sanitary District, and Stanford University. Thou gh the City is the recipient of the loan, the City’s agreement with the partner agencies oblige them to pay t heir proportionate share of the principal and interest of this loan. The City’s share of the loan payment is 38.2% with the partner agencies paying
61.8%.
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements
For the Year Ended June 30, 2021
8 NOTE 5 – DEBT SERVICE EXPENDITURES (Continued)
The principal amount of the debt outstanding as of June 30, 2021 are allocated as follows:
1999 Wastewater Refunding of 2009 2017
Treatment 1990 Series A State Water State Water
New Project Bonds Resources Loan Resources Loan Total
City of Palo Alto 549,504 $ 190,115 $ 1,846,454 $ 9,101,046 $ 11,687,119 $ City of Mountain View 545,616 387,835 1,833,389 9,036,652 11,803,492 City of Los Altos 136,368 59,316 458,226 2,258,567 2,912,477 East Palo Alto Sanitary District 110,016 90,495 369,678 1,822,117 2,392,306 Stanford University 75,744 31,179 254,516 1,254,494 1,615,933 Town of Los Altos Hills 22,752 1,521 76,452 376,825 477,550 Total 1,440,000 $ 760,461 $ 4,838,715 $ 23,849,702 $ 30,888,878 $ 1999 Utility Revenue Refunding Bonds
NOTE 6 – JOINT SYSTEM REVENUES
The Plant’s joint system revenues for the year ended June 30, 2 021 total $543,965 which consisted of the following:
Septic hauling services 293,871 $
Receipt from Santa Clara Valley Water District 203,400
Other miscellaneous revenues 3,563
Salt water marsh services 7,500
Interdepartment services 8,661
Utility service to other utility funds 37,397
Bad debt expense (10,427)
543,965$
NOTE 7 – RELATED PARTY TRANSACTIONS
During fiscal year 2021, the Plant paid the City $1,936,103 for utility costs. Such costs are included in the Statement of Net Expenditures as source control program, permit ting and enforcement, and operations and maintenance expenditures. Vehicle replacement charges of $2 2,293 were paid to the City’s Vehicle Replacement and Maintenance Internal Services Fund, which is in cluded in the Statement of Net Expenditures as operations and maintenance expenditures.
NOTE 8 – SUBSEQUENT EVENT
On July 12, 2021, the SWRCB and the City executed a direct loan agreement for an award up to $17.5 million to finance the rehabilitate and upgrade the Plant’s pri mary sedimentation tanks and ancillary systems. The loan interest rate is 0.9% and has a final maturity on February 15, 2053.
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CITY OF PALO ALTO, CALIFORNIA
Independent Accountant’s Report on
Applying Agreed–Upon Procedures Related to
the Article XIII-B Appropriations Limit
For the Year Ended June 30, 2021
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1 Independent Accountant’s Report on
Applying Agreed-Upon Procedures Related to
the Article XIII-B Appropriations Limit
Honorable Mayor and the Members
of the City Council, of
City of Palo Alto, California
We have performed the procedures enumerated below to the accompanying Appropriations Limit Worksheet of the City of Palo Alto, California (City) for the y ear ended June 30, 2021. The City’s management is responsible for the appropriations limit calculation for the year ended June 30, 2021.
The City has agreed to and acknowledged that the procedures per formed are appropriate to meet the intended purpose of assisting the City in evaluating the appropriations limit calculation in accordance with the requirements of Section 1.5 of Article XIIB of the Californ ia Constitution. The procedures are recommended by the California Committee on Municipal Accounting (as presented in the CCMA White Paper titled Agreed-upon Procedures Applied to the Appropriati ons Limit Prescribed by Article XIII-B of the California Constitution ). This report may not be suitable for any other purpose. The p rocedures performed may not address all the items of interest to a user o f this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes.
The procedures and associated findings are as follows:
1. We obtained the completed worksheets setting forth the calculations necessary to establish the City’s appropriations limit and compared the limit and annual adjustment factors included in those worksheets to the limit and annual adjustment factors that were adopted by resolution of the City Council. We also compared the population and inflation options included in the aforementioned worksheets to those that were selected by a recorded vote of the City Council.
Finding: No exceptions were noted as a result of our procedures.
2. For the accompanying Appropriations Limit Worksheet, we added t he prior year appropriations limit to the total adjustments and compared the resulting amount to the current year appropriations limit.
Finding: No exceptions were noted as a result of our procedures.
3. We agreed the current year information presented in the accompa nying Appropriations Limit Worksheet to the appropriate supporting worksheets described in No. 1 above.
Finding: No exceptions were noted as a result of our procedures.
4. We agreed the prior year appropriations limit presented in the accompanying Appropriations Limit Worksheet to the prior year appropriations limit adopted by the City Council.
Finding: No exceptions were noted as a result of our procedures.
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2 We were engaged by the City to perform this agreed-upon procedu res engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, r espectively, on the appropriations limit calculation for the year ended June 30, 2021. Accordingly, we do not express such an opinion or conclusion.
Had we performed additional procedures, other matters might hav e come to our attention that would have been reported to you. No procedures have been performed with re spect to the determination of the appropriations limit for the base year, as defined by Article XIII-B of the California Constitution.
We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement.
This report is intended solely for the information and use of City Council and the City’s management, and is not intended to be and should not be used by anyone other than these specified parties.
Walnut Creek, California
November 15, 2021
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CITY OF PALO ALTO, CALIFORNIA
Appropriations Limit Worksheet
For the Year Ended June 30, 2021
3 2019-2020 appropriation limit, as adopted 172,760,000$ Adjustment factors:
Population
(1)
1.0037
Inflation
(2)
1.0373
Total adjustment factors (rounded)
(3)
1.0411
Total adjustments (rounded) 7,100,000
2020-2021 appropriation limit, as adopted 179,860,000$
(1) The population factor may be based on the change in population of 1) the City or 2) the County of Santa Clara, as provided by the State of California’s Department of F inance. The population factor adopted by the City for the current y ear appropriation limit represents the change in population of the County of Santa Clara.
(2) The inflation factor may be b ased on 1) the change in per cap ita personal income for the State of California, as provided by the S tate of California’s Department of Finance; or 2) the change in the assessed valuation due to new non-residential construction within the City. The inflation factor adopted by the City for the current year appropriation limit represents the change in per capita personal income.
(3) The total adjustment factor i s calculated by multiplying the population factor by the inflation factor.
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City of Palo Alto (ID # 13501)
Finance Committee Staff Report
Meeting Date: 11/30/2021
City of Palo Alto Page 1
Title: Recommendation to the City Council to Approve the Fiscal Year (FY) 2021 Annual Comprehensive Financial Report (ACFR) and FY 2021 Budget Amendments in Various Funds
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee forward to the City Council for its approval:
1. The City’s FY 2021 Annual Comprehensive Financial Report (ACFR) (Attachment C); and
2. Amend the Fiscal Year (FY) 2021 Budget Appropriation Ordinance for various funds as identified in the attached Recommended Amendments to the City Manager’s FY 2021 Budget (Operating Budget: Attachment B – Exhibit 1; Capital Budget: Attachment B – Exhibit 2).
Financial Highlights for FY 2021
Government-wide
At the close of FY 2021, the City’s overall Net Position remains positive despite of the fiscal challenges due to the COVID-19 pandemic. The Statement of Net Position (p. 31 of the attached ACFR) reports Governmental Activities (the City’s basic services which are generally funded by taxes, and by specific program revenues such as fees and grants) Net Position at $423.1 million, a $17.4 million decrease from the prior year, and Business -Type Activities (the City’s enterprise activities which are funded in whole or in part by fees charg ed to external parties) Net Position at $807.2 million, a $22.2 million increase. Various factors contributed to these changes, including accounting adjustments required by the Governmental Accounting Standards Board (GASB).
General Fund
The General Fund ended with a $49.1 million Budget Stabilization Reserve (BSR), a $13.2 million, or 36.8 percent, increase when compared to FY 2020. The $13.2 million BSR increase is driven mainly by a $13.8 million surplus and changes in various General Fund Reserves (see Attachment A, Change in Fund Balance GAAP Basis on p. 37 of the ACFR). The revenues such as sales tax, property tax and documentary tax were higher than expected while expense savings were realized across many of the departments (detailed in Attachment A). Although some of Attachment II5.b
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the major taxes are higher than projected in the Adjusted Budget , the pandemic continues to impact the City’s revenue with sales tax, transient occupancy tax, utility user tax, rental income, and charges for services, remaining lower compared to pre-pandemic revenues.
The General Fund ended FY 2021 ended with a $49.1 million BSR, however once adjusted for Council approved uses, the City’s $43.3 million BSR reflects a surplus of $4.6 million compared to the Council 18.5 percent targe t ($38.7 million). Council approved use of the BSR for the balancing of the FY 2022 Adopted Budget and for the Utilities Transfer Litigation Reserve ( CMR 13439).
Capital Project Funds
Capital Project Fund ended with a $165.7 million, which is higher compared to $83.6 million in prior year. The fund balance is restri cted for the Public Safety Building ($90.9 million) and library project ($0.6 million), committed for Roth building rehabilitation ($5.2 million) and Cubberley improvements ($4.7 million) and the remaining balance of $64.3 million is available for all other capital projects.
Enterprise Funds
The City’s Enterprise Funds, except for the Electric fund, resulted to a positive change in net positions. The Electric Fund ended with a net loss due to the lower demand in commercial and industrial sector as a result of a continued limited operations and shelter -in-place restrictions, due to higher energy purchase cost as a result of low hydroelectric supply, and an increase in operations and maintenance expenses.
Internal Service Funds
Internal Service Funds end ed the fiscal year with $87.6 million fund balance. All funds showed positive balances except the Printing and Mailing which reported a $0.3 million negative balance due to the pension liability per GASB 68 and Other Post-Employment Benefits ( OPEB) liability per GASB 75. Once adjusted for these noncash transactions, the Printing and Mailing fund remains with a positive fund balance.
Background
The City’s fiscal year ends on June 30, at which time its financial records are closed for the year and financial reports are prepared. The reports, along with the City’s financial data, are audited by Macias Gini & O’Connell LLP (MGO), Certified Public Accountants, a firm hired by the City Auditor. MGO issues an audit opinion on the financial position of the City ’s activities and, together with the City’s financial statements and other information; this comprises the City’s Annual Comprehensive Financial Report (ACFR) that can be found in Attachment C.
Attachment B outlines recommended amendments to the FY 2021 Budget. These recommended actions close the fiscal year by reallocating and realigning budget to
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reappropriate funds or adjust transfers between operating and capital funds. The General Fund Summary found in Attachment A, provides detailed information of the fund’s activity this year.
The ACFR includes government -wide statements and fund level financial statements that provide a snapshot of fund balances and activity for the year. An overview of financial results, information on how to navigate the ACFR d ocument, and highlights of key fiscal issues affecting the City can be found in the Management’s Discussion and Analysis (MD&A) section (ACFR p. 5).
The MD&A also provides a discussion and analysis of the City’s current fiscal health and includes financial statements and analysis that is compared to the prior year, along with capital asset and debt administration data.
In addition, staff has prepared and attached a budgetary basis summary of General Fund Revenues and Expenditures to provide a snapshot of the fund’s revenue and expenditures by department (Attachment A). The Discussion section of this staff report includes Results by Fund which discusses position of fund balances, major revenue sources, and expense highlights.
Throughout this report, pronouncements released by GASB are referred to by issuance number.
For example, GASB Pronouncement No. 68 is referenced in this report as GASB 68. A full list of pronouncements can be found on GASB’s website.
Financial Results
Government-wide Statements
Statement of Net Position
The Statement of Net Position presents information on all of the City’s assets plus deferred outflows of resources, and liabilities plus deferred i nflows of resources, with the reported net position.
The City’s net position was $1 .230 billion on June 30, 2021 compared to the balance of $1 .226 billion on June 30, 2020. Of the total increase of $4.8 million, or 0.4 percent, $22.2 million is from business-type activities partially offset by a decrease of $17.4 million from governmental activities.
The largest portion of the City’s net position ($1 .123 billion or 91.2 percent) is its net investment in capital assets such as land, buildings, infrastructure, and vehicles, less any related outstanding debt that was used to acquire these assets. The restricted portion of the City’s net position ($83. 7 million or 6.8 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of $24.1 million, across all funds, representing 2.0 percent of the City’s net position, is unrestricted and may be used to meet the City’s ongoing obligations to its citizens and creditors.
The unrestricted net position for t he governmental activities portion is negative due to the recognition of the net pension liabilities as required by GASB Statement No. 68 and net OPEB
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liabilities a required by GASB Statement No. 75. The $137.7 million deficit for governmental activities includes the $303.8 million impact of net pension liabilities and its related deferred outflows of resources (GASB 68) and $89.9 million impact of net OPEB liabilities and its related deferred outflows of resources and deferred inflows of resources (GASB 75 ).
Governmental activities’ unrestricted net position, excluding these impacts, is $256.0 million.
STATEMENT OF NET POSITION
As of June 30, 2021
(in millions)
2021 2020 2021 2020 2021 2020
Cash and investments 443.4$ 342.8$ 285.6$ 277.4$ 729.0$ 620.2$ Other assets 76.6 60.5 47.7 52.8 124.3 113.3
Capital assets 602.0 596.3 693.2 693.2 1,295.2 1,289.5
Deferred outflows 60.8 55.8 21.1 21.1 81.9 76.9
Total assets and deferred outflows 1,182.8 1,055.4 1,047.6 1,044.5 2,230.4 2,099.9 Net pension and OPEB liabilities 438.2 416.3 159.7 153.7 597.9 570.0 Long-term debt 217.5 112.5 68.9 74.5 286.4 187.0
Other liabilities 87.6 61.5 23.8 21.7 111.4 83.2
Deferred inflows 16.3 24.5 6.4 9.6 22.7 34.1
Total Liabilities 759.6 614.8 258.8 259.5 1,018.4 874.3 Net Position
Net investment in capital assets 480.6 497.4 642.0 621.3 1,122.6 1,118.7 Restricted 80.3 44.6 3.4 4.1 83.7 48.7
Unrestricted (137.7) (101.4) 161.8 159.6 24.1 58.2
Total Net Position 423.2$ 440.6$ 807.2$ 785.0$ 1,230.4$ 1,225.6$
Governmental Business-type Government-wide
Activities Activities Totals
Statement of Activities
The major sources of the City’s revenues are Program Revenues and General Revenues.
Program Revenues consist of charges for services (both governmental and business type activities) as well as operating and capital grants and contributions. General Revenues include property tax, sales tax, utility user tax, transient occupancy tax, documentary transfer tax, other taxes and miscellaneous revenue.
Revenues for the City in FY 2021 were $553.7 million, a decrease of $31.0 million or 5.3 percent compared to FY 2020, due to a $15.2 million decrease in Governmental Activities and $15.8 million de crease from Business Activities. Governmental Activities decreased $15.2 million mainly due to decreases in sales tax, utility user tax, and transient occupancy tax. Business Activities revenue decreased $15.4 million mainly due to decreases in Electric and Refuse Funds revenue as a result of continued limited businesses operations and closures. Another factor
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driving the decrease of the revenue is due to the decrease of investment earnings which resulted from negative fair market value adjustments.
Expenses for the City in FY 2021 were $548.9 million, a decrease of $1.6 million or 0.3 percent compared to FY 2020, due to a $8.3 million decrease from Governmental Activities that is partially offset by a $6.7 increase from Business-type expenses.
The decrease in Governmental Activities expenses is mainly due to the decrease in salaries and benefits and contract services. All department expenses decreased except for Administrative Services and Public Works.
Administrative Services expenses increased $7.1 million, primarily due to $12.6 million in expenses incurred in a class action lawsuit ( Green v. City of Palo Alto). In the Green case, which was filed against the City in October 2016, Plaintiffs allege that the City’s gas and electric rates include charges that are unlawful under Proposition 26. On June 24, 2021, a trial court entered judgment upholding the City’s electric rates but finding that gas rates include an unlawful component and ordering the City to pay $12.6 million to a common fund to refund gas rate payers and for payment of incurred litigation costs. The City and the plaintiffs have appealed the trial court’s judgment. Payment of refunds due to gas rate payers under the trial court judgment are stayed pending a decision by the Court of Ap peal (expected in late 2022/early 2023) on the parties’ respective appeals. While the outcome of the claim is uncertain, the City has recorded a non -current claims liability equal to the trial court judgement on the governmental activities financial state ment, since this liability is not due and payable on June 30, 2021.
The Public Works which increased $7.1 million was due to various repairs and maintenance of capital assets such as streets, sidewalks, facilities, and parks all of which are non -capitalizable This fiscal year staff reviewed construction in progress balances on a timely manner and determined that certain expenses, specifically repair and maintenance costs, should not have been capitalized per Generally Accepted Accounting Principles ( GAAP). The expense to correct these balances was recorded as part of Public Works functional expenses. This process was put in place in FY 2021.
The increase of Business Type Activities is driven by several cost categories and resulted in higher costs compared to prior year, including energy purchase cost , operations and maintenance in Electric Fund , and commodity purchases in Gas Fund. These increases were partially offset by the lower payment to GreenWaste of Palo Alto for reimbursement of new waste collection vehicles, decrease in facility rent and adjustment as a result of a five -year post closure maintenance plan update and cost estimate that was approved in the current fiscal year in Refuse Fund.
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2021 2020
Increase /
(Decrease)
Revenues
Program Revenues 423.2$ 428.6$ (5.4)$
General Revenues 130.5 156.1 (25.6)
Total Revenues 553.7$ 584.7$ (31.0)$
Expenses
Governmental Activities
City Council 0.2$ 0.2$ -
City Manager 2.5 3.6 (1.1)
City Attorney 2.3 2.8 (0.5)
City Clerk 0.7 0.8 (0.1)
City Auditor 0.6 0.6 -
Administrative Services 23.0 15.9 7.1
Human Resources 2.5 3.0 (0.5)
Public Works 52.7 45.6 7.1
Planning and Development Services 18.1 21.7 (3.6)
Office Of Transportation 3.6 4.7 (1.1)
Police 43.6 50.9 (7.3)
Fire 37.1 41.3 (4.2)
Community Services 30.3 34.1 (3.8)
Library 11.1 13.0 (1.9)
Interest and Other Expense 6.3 4.7 1.6
Business Type Activities
Water 43.6 43.0 0.6
Electric 156.1 142.4 13.7
Fiber Optics 2.5 2.8 (0.3)
Gas 28.6 27.2 1.4
Wastewater Collection 19.6 18.9 0.7
Wastewater Treatment 28.4 28.8 (0.4)
Refuse 29.1 36.9 (7.8)
Storm Drainage 4.9 5.5 (0.6)
Airport 1.5 2.1 (0.6)
Total Expenses 548.9$ 550.5$ (1.6)$
Change in Net Position 4.8$ 34.2$ (29.4)$ Statement of Activities for the Year Ended June 30
(in millions)
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Capital Assets
The City’s ca pital assets for its governmental and business -type activities as of June 30, 2021, amounts to $1 .311 billion (net of accumulated depreciation), which is a $21.0 million or 1.6 percent increase, compared to FY 2020. The increase was primarily due to variou s projects such as the Highway 101 Pedestrian / Bicycle overpass, Public Safety Building and California Avenue Parking Garage, and Transmission, Distribution and Treatment systems for the various utility services.
Increase/
2021 2020 (Decrease)
Governmental activites
Land and improvements 82.1$ 82.2$ (0.1) Street trees 14.8 14.8 -
Construction in progress 143.4 142.1 1.3 Building and improvements 272.1 251.1 21.0 Intangible assets 3.8 3.8 -
Equipment 80.3 79.2 1.1
Roadway network 335.3 335.2 0.1
Recreation and open space network 35.2 35.2 - Less accumulated depreciation (365.0) (347.3) 17.7 Business-Type Activities
Land 5.0 5.0 -
Construction in progress 129.0 121.1 7.9 Buildings and improvements 74.0 74.0 - Capital Leases 0.5 0.5 -
Infrastructure 0.6 0.6 -
Transmission, distribution and treatment systems 914.8 884.8 30.0 Less accumulated depreciation (415.4) (392.8) 22.6 Total Capital Assets 1,310.5$ 1,289.5$ 21.0$
CAPITAL ASSETS AT JUNE 30
(in millions)
Liabilities
As of June 30, 2021, the City’s liabilities totaled $995.9 million, which is $155.6 million, or 18.5 percent increase, compared to FY 2020. The increase was due to a total of $108.0 million ($101.5 million and $6.5 million ) for the issuance of Certificates of Participation ( COPs) to finance the construction of the public safety building, a $6.9 million receipt of City’s first two distributions of American Rescue Plan Act of 2021 (ARPA) allocation s, and the $12.6 million potential liability for the Green v. City of Palo Alto class action lawsuit. The ARPA allocation was which was recorded as unearned revenue as of June 30, 2021, as the funds are not earned nor spent this fiscal year per GAAP. Higher net pension liability contributed also to the increase of City’s total liabilities.
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Fund Financial Statements
General Fund
General Fund Reserves
At the end of the current fiscal year, fund balance of the General Fund was $75.6 million. This fund balance is comprised of several reserves: the BSR (City’s general re serve), reappropriations, notes and loans, inventory, prepaid items, and other general government special purpose reserves (this includes reserves for encumbrances and donations). The $1.6 million reserve for excess Educational Revenue Augmentation Fund (E RAF) in FY 2020 was returned to the City’s BSR in FY2021 due to the favorable resolution of the calculation for excess ERAF1. As described in the BSR reserve policy approved by the Council, the reserve is to remain between 15 and 20 percent of the General Fund operating budget, with a target goal of
18.5 percent. Any reserve balance in excess of the 18.5 percent target may be transferred to the Infrastructure Reserve (IR) in the Capital Projects Fund at the discretion of the City Manager.
The FY 2022 Ado pted Operating Budget projected a $35.8 million BSR balance as of June 30, 2021, compared to the actual balance of $49.1 million (this is a component of the General Fund, fund balance noted above). This is $13.3 million above estimates mainly due to higher sales tax, property tax and documentary transfer tax receipts. The $49.1 million is $10.4 million above the Council’s 18.5 percent target of the FY 2022 Adopted expenses of $38.7 million.
The chart below outlines the approved uses of the BSR in FY 2022. These adjustments, totalling $5.8 million, results in a BSR balance of $43.3 million; approximately 20.7 percent of the FY 2022 Adopted expenses of $209.2 million. This level is approximately $4.6 million above the target level of 18.5 percent. Staff recommends leaving the BSR above the targeted level in order to anticipate potential service level augmentation recommendations in FY 2022.
1 ERAF is the fund used to collect and disburse property taxes that are shifted to/from cities, the County, and special districts prior to their reallocation to K-14 school agencies. When the state shifts more local property tax than required to support schools these funds are returned and known as excess ERAF. In a claim by the State, calculations for excess ERAF incorrectly shifted too much property tax from schools to local agencies. This has since been resolved in the favor of the local agencies
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Year-End Budget Stabilization Reserve (BSR) Summary
(in millions)
General Fund BSR Balance, June 30, 2021 $ 49,089
Uses of the FY 2021 Surplus
FY 2022 Approved Adjustments to the BSR Balance
FY 2022 Adopted Budget ($ 1,808)
Utilities Transfer Litigation (Equity Transfer) (CMR 13439) ($ 4,000) Subtotal: Approved Adjustments to the BSR Balance ($ 5,808)
Current Projected FY 2021 BSR Level, (June 30, 2022) $ 43,281
General Fund Revenues
General Fund revenues for FY 2021 were $166.8 million, which is $13.6 million or 7.5 percent lower than the prior year. Year over year changes in each of the major tax revenue categories are summarized in the following table.
Category FY 2021 FY 2020
% Change
Increase (Decrease)
Property tax $ 56,572 $ 51,089 10.8%
Sales tax 29,127 30,563 (4.9%)
Utility user tax 14,642 16,140 (9.3%)
Transient occupancy tax 5,179 18,553 (72.0%)
Documentary transfer tax 10,627 6,903 53.6%
Property tax revenue increased $5.5 million, or 10.8 percent due to pre -pandemic assessed value growth and an increase of $1.7 million in the Excess ERAF distribution. The FY 2021 secured and unsecured property tax assessed values growth rates are 7.6 per cent and 12.7 percent, respectively, an average of 7.8 percent. These higher assessed values reflect continued strength in commercial and residential real estate markets. Historically, during economic downturn such as recession and/or a pandemic, impacts to property tax are delayed a year and then the growth rate typically plateaus.
Over a seven -year period, ERAF has grown from $0.4 million in FY 2014 to $5.6 million in FY 2021. Increased in FY2021 was due to the favorable settlement between State of Cali fornia and County of the calculation for excess ERAF 1. Due to the uncertainty of whether local agencies will continue to receive excess ERAF funds, it is not considered a permanent local revenue source.
Sales tax receipts were $1.5 million or 4.9 percen t, lower than the prior year. The decrease is lower than expected even though there is a significant decline of high -end goods and dining options at regional destinations, such as the Stanford Shopping Center, which was offset by the strong performance in the business -to-business segment and on -line sales. As the nation
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transitions from a shopping center country to online sales, a surge in online retail sales will partially displace tax revenue from traditional industry segments to state and county pools. The sales tax growth in the second half of FY 2021 is due to high vaccination rates in the Bay Area resulting in increased employment and economic activity.
Utility user tax revenues are $1.5 million, or 9.3 percent, which is lower compared to prior year due to lower business consumption of electric and telephone services. The telephone UUT receipts declined by $1.2 million or 19.3 percent due to business closures and shelter -in-place restrictions which reduced the workforce present in the City.
Transient occupancy tax (TOT) continues to be the most significantly impacted by the pandemic and reached $5.2 million, a $13.4 million, or 72.0 percent decrease than the prior year. Six hotels, representing 16.3 percent of available rooms remained closed while two other smaller hotels reopened during the fiscal year. In addition, two Marriott hotels (approximately 293 total rooms) opened hotels in the middle and end of the fiscal year. The opened hotels average daily room and occupancy rates significantly decli ned in the first three quarters and partially recovered in the fourth quarter. In FY 2021, the average occupancy rate was 40.6 percent, a 33.4 percent decrease and the average room rate was $116.90, a 55.9 percent decrease over the prior year. The entire 1 5.5 percent TOT rate from new hotels, plus 3.5 percent from all other hotels, has been allocated to the Infrastructure Plan pursuant to City Council direction. The following is a comparative breakdown of the allocation of transient occupancy tax receipts:
FY 2021 FY 2020
% Change
Increase (Decrease)
General Fund $ 2,796 $ 11,567 (75.8%)
Infrastructure Plan
New hotels – 12% 1,214 2,793 (56.5%)
All hotels – 3.5% 1,169 4,193 (72.1%)
Subtotal Infrastructure 2,383 6,986 (65.9%)
Total TOT Receipts $ 5,179 $ 18,553 (72.0%)
Documentary transfer tax increased $3.7 million, or 53.6 percent when compared to prior year due to six large commercial property transactions that occurred in FY2021. This revenue source is volatile since it is hi ghly dependent on sales volume and the mix of commercial and residential sales.
Charges for services increased $1.0 million, or 4.1 percent, when compared to prior year due to an increase of golf course revenues by $2.3 million which due to higher demand to play golf after re -opening during the COVID -19 pandemic. This increase is offset by reduced programs
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and classes and fewer reviews and inspections due to limited operations caused by COVID -19 restrictions.
Rental income decreased $2.7 million, or 16. 9 percent, when compared to prior year due to lower facility rentals and number of tenants due to limited and some businesses closures. The City has continued to follow the Santa Clara County Moratorium Order to give protection for small businesses and approved a rent forgiveness program.
All other revenues decreased $4.5 million, or 47.4 percent, when compared to prior year due to decrease of investment earnings which resulted from adjusting the investments to market value at year-end, as required by GASB 31.
The following is a chart which depicts the relative contribution of each tax category over the past seven years (2015 through 2021), as well as the current budgeted year (2022).
General Fund Tax Revenues
Actual Fiscal Years 2015 – 2021
Budget Fiscal Year 2022
($ in thousands)
0 25,000 50,000 75,000 100,000 125,000 150,000
FY 2022 Budget
FY 2021 Actual
FY 2020 Actual
FY 2019 Actual
FY 2018 Actual
FY 2017 Actual
FY 2016 Actual
FY 2015 Actual
FY 2022
Budget
FY 2021
Actual
FY 2020
Actual
FY 2019
Actual
FY 2018
Actual
FY 2017
Actual
FY 2016
Actual
FY 2015
Actual
Property Tax 51,228 56,572 51,089 47,327 42,839 39,381 36,607 34,117 Sales Tax 28,184 29,127 30,563 36,508 31,091 29,923 30,018 29,675 Utility User Tax 14,370 14,642 16,140 16,402 15,414 14,240 12,469 10,861 Trans Occ Tax 8,428 5,179 18,553 25,649 24,937 23,477 22,366 16,699 Doc Transfer Tax 7,137 10,627 6,903 6,923 9,229 7,491 6,266 10,384
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General Fund Expenditures
General Fund expenditures for FY 2021, including encumbrances and reappropriations, totaled $183.8 million; a decrease of 10.0 percent from the prior year, mainly du e to cost savings implemented by the City including reductions in staff and services. In response to financial uncertainties caused by the COVID -19 pandemic, the City adopted various strategies to lower expenses such as implementing furlough to Management and Professional Group, leaving some vacant positions unfilled, eliminating few positions, and deferring wage increases to most of the labor unions. The City also reduced service hours and various operating expenditures such as travel and training, program and project consultants, and other contractual services.
The Adopted Budget of $179.1 million was increased to the Final Adjusted Budget amount of $187.5 million, primarily due to the expenditure of prior year encumbered and reappropriated balances; in creases for several departments throughout the year also occurred based on City Council direction per recommendations contained in City Manager Reports.
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The following is a chart which compares actual departmental costs, including encumbrances and reappropriations, excluding Cubberley lease over the past seven years and budgeted costs for FY 2022.
General Fund Departments
Actual Expenditures Fiscal Years 2015– 2021 (including reappropriations and encumbrances) Budgeted Expenditures Fiscal Year 2022
($ in thousands)
0 20 40 60 80 100 120 140 160 180 200
FY 2022 Budget
FY 2021 Actuals
FY 2020 Actual
FY 2019 Actual
FY 2018 Actual
FY 2017 Actual
FY 2016 Actual
FY 2015 Actual
FY 2014 Actual
FY 2022
Budget
FY 2021
Actuals
FY 2020
Actual
FY 2019
Actual
FY 2018
Actual
FY 2017
Actual
FY 2016
Actual
FY 2015
Actual
FY 2014
Actual
Public Safety 80,029 77,795 83,616 77,592 75,975 72,815 65,005 62,459 63,403 Community Services 31,052 27,769 31,489 30,201 28,395 26,573 25,262 23,902 23,402 Admin Depts 32,829 26,165 28,169 29,304 23,538 22,157 22,059 19,771 19,784 Public Works 18,785 18,553 18,932 17,928 18,908 17,475 15,084 14,210 14,138 Planning and Development Services 17,673 18,782 21,098 22,606 23,006 22,400 21,784 20,361 14,637 Office Of Transportation 1,747 2,010 2,360 -
Library 8,903 8,636 10,092 9,491 9,357 9,266 8,217 8,144 8,072
The Development Services Department was combined with the Planning and Community Environment in FY 2020 and renamed to the Planning and Development Services Department.
The Office of Transportation Department, which p reviously was a division of the Planning and Community Environment Department was established in FY 2020.
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Capital Projects Fund
The Capital Projects Fund ended the year with a fund balance of $165.7 million, which are comprised of the following:
Fund Balance Component
Amount
($ in millions)
Restricted for Library projects $ 598
Reserved for Roth Building rehabilitation 5,179
Reserved for Cubberley expenditures 4,726
Restricted for Public Safety Building 90,922
Assigned for all other Capital projects 64,279
Total Capital Projects Fund Balance $ 165,704
Restricted for Library projects $0.6 million is the portion of fund balance dedicated to the remaining Library expenditures which, if considered bond expenses will be paid for with cash from bond proceeds. Non-bondable expenditures such as salaries and benefits are funded from the Infrastructure Reserve, as established at the time of the bond issuance. The library project is already completed but the roof defects need to be fixed using this reserve.
Restricted for Public Safety Building $90.9 million represents the remaining bond funding dedicated to the construction of the public safety building.
Assigned for all other Capital projects $64.3 million represents the amount of unsp ent funds associated with Adopted Capital projects and other noted items. Outside funding sources such as grants, donations and future debt issues are not factored into this component of the fund balance until they are received.
Enterprise Funds
The City’ s Enterprise Funds reported a total Net Position of $807.2 million, a $22.2 million increase from the prior year. All Enterprise funds contributed to this increase except Electric Fund.
The table below summarizes the overall change in Net Position for eac h Enterprise Fund.
Compared to FY 2020, the Change in Net Position for Enterprise funds decreased $17.4 million driven primarily by the Electric Fund – details of these funds are summarized following this table.
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ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2021 2020 (Decrease)
Water 6.6$ 8.0$ (1.4)$
Electric (4.8) 18.6 (23.4)
Fiber Optics 1.5 2.9 (1.4)
Gas 3.5 3.0 0.5
Wastewater Collection 0.7 2.1 (1.4)
Wastewater Treatment 3.1 0.3 2.8
Refuse 1.9 (3.1) 5.0
Storm Drainage 3.0 2.2 0.8
Airport 6.7 5.6 1.1
Total Change in Net Position 22.2$ 39.6$ (17.4)$
The Water and F iber Optic Funds operating income has no significant change, however, the change in net position for both funds decreased $1.4 million from prior year due to the decline in other revenues specifically interest earnings due to lower market value at year-end.
The change in net position for Electric Fund decreased $23.4 million from prior year due to decrease in commercial retail revenues as a result of lower consumption, a decrease in investment earnings due to lower market value at year -end, an increase in purchase cost of electricity due to low hydroelectric supply, and an increase in operations and maintenance.
The change in net position for Wastewater Collection Fund decreased $1.4 million due to lower non-residential sewer charge, lower non -operating revenue including interest earnings and an increase in operating expenses.
The change in net position for Wastewater Treatment Fund increased $2.8 million due to higher billing to partners for capital costs and decrease in operations and maintenance.
The change in net position of Refuse Fund increased $5.0 million due to decrease in operating expenses as a result of lower payment to GreenWaste of Palo Alto for reimbursements of new waste collections and vehicles, a decrease in facility rent and adjustment t o landfill post closure maintenance. The decrease of operating expenses was partially offset by lower revenues including investment earnings.
The table below details the Change in Unrestricted Net Position in the Enterprise Funds.
Enterprise Fund Rate Stabilization, Operations and other reserve balances are shown in detail in the ACFR ( ACFR p. 88 Note 10). Overall, except for the Wastewater Treatment Fund and the Airport Fund, each Enterprise Funds maintained a positive unrestricted net position balance as
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of June 30, 2021. Adjustments for the Pension Reserve (as required by GASB 68) and OPEB Reserve (as required by GASB 75) total $142.0 million for all Enterprise Funds and reduce each fund’s unrestricted net position.
The Wastewater Treatment Fund reflec ts a $10.8 million Unrestricted Reserve deficit and is driven by $28.2 million in Pension Reserves and OPEB Reserves adjustments.
The Airport Fund reports a $3.7 million deficit net position which is attributed to the $1.2 million Pension Reserve and OPE B Reserve adjustments. Second, the fund deficit in the Airport Fund is also a result of cumulative fund deficits over the life of the fund as fiscal operations at the airport stabilize and capital projects near completion. The $6.7 million change in net position of Airport Fund in current year is $1.1 million from operations and $5.6 million grants received in current year.
Increase/
Fund Name 2021 2020 (Decrease)
Water 33.0$ 28.2$ 4.8$
Electric 74.5 83.6 (9.1)
Fiber Optics 34.5 33.0 1.5
Gas 11.6 8.5 3.1
Wastewater Collection 0.8 1.2 (0.4)
Wastewater Treatment (10.8) (10.5) (0.3)
Refuse 14.3 12.1 2.2
Storm Drainage 4.0 4.0 -
Airport (3.7) (4.4) 0.7
Total Change in Reserves (Unrestricted) 158.2$ 155.7$ 2.5$ Enterprise Funds
Change in Unrestricted (Deficit) Net Position
(In Millions)
Resource Impact
Recommended actions in the report will align the FY 2021 appropriations with final financi al activities as outlined in Attachment B . Overall, the City ended the FY 2021 in a positive net position and in certain areas where net reserves were higher than estimated in the development of the FY 2022 Adopted Budget, those additional funds will be in cluded as part of the FY 2022 budget balancing and rate setting activities.
Stakeholder Engagement
The review and writing of this report was coordinated among various divisions within the Administrative Services Department , along with Departments who assi sted in staff’s analysis.
The actions recommended in this report were discussed and communicated to the impacted
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departments.
Environmental Review
This is not a project for purposes of the California Environmental Quality Act. .
Attachments:
• Attachment A Budget and Actuals
• Attachment B: Recommended FY 2021 Year-End Budget Actions • Attachment C: FY 2021 Annual Comprehensive Financial Report (ACFR)
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GENERAL FUND SUMMARY ($000s)
FY 2021 FY 2021 FY 2021 FY 2021 FY 2021 FY 2021 FY 2021 Adopted Adjusted Rev/Exp Allocated Encum / Actual Actual to Budget Budget Actuals Charges Reappropriation Rev/Exp Adj Budget Variance
Revenues
Sales Tax 20,500 25,030 29,127 29,127 4,097 Property Tax 52,000 53,173 56,572 56,572 3,399 Transient Occupancy Tax 14,900 5,123 5,179 5,179 56 Documentary Transfer Tax 4,700 6,875 10,627 10,627 3,752 Utility User Tax 15,100 14,080 14,642 14,642 562 Other Taxes, Fines and penalties 1,925 392 683 683 290 Charges for Services 25,984 24,414 25,105 25,105 692 Permits and Licenses 7,770 8,366 7,261 447 7,708 (658) Investment Earnings 1,145 1,145 1,063 1,063 (83) Rental Income 15,949 15,331 13,293 13,293 (2,038) From Other Agencies 2,448 4,580 3,828 394 4,222 (358) Charges to Other Funds 11,992 11,992 11,661 11,661 (331) Other Revenues 674 666 732 - 732 66
Total Revenues 175,088 171,168 168,112 11,661 841 180,615 9,447
Add: Operating Transfers In 21,359 21,151 21,151 21,151 - Prior Year Encum / Reappropriation 7,570 7,570 7,570 - Total Source of Funds 196,447 199,889 196,833 11,661 841 209,336 9,447 Expenditures
3,485 3,744 2,149 1,074 366 3,589 154 City Auditor 828 981 645 288 29 962 19 City Clerk 1,245 1,293 748 344 54 1,147 147 City Council 419 509 224 110 32 366 143 City Manager 3,161 3,562 2,304 1,070 117 3,492 71 Administrative Services 8,362 8,338 5,202 2,416 278 7,897 442 Community Services 28,379 28,839 26,254 203 1,312 27,769 1,069 Fire 33,607 35,355 34,918 163 274 35,354 0 Human Resources 3,554 3,622 2,421 1,088 36 3,545 77 Library 8,421 8,655 8,528 - 108 8,636 19 Office of Transportation 1,904 2,139 1,936 - 74 2,010 129 Planning and Development Services 17,386 19,611 15,830 247 2,705 18,782 830 Police 41,733 42,440 41,328 737 375 42,441 (0) Public Works 18,397 19,089 13,265 3,920 1,368 18,553 536 Non-Departmental 8,237 9,332 4,599 - 4,659 9,260 71 Total Expenditures 179,118 187,509 160,352 11,661 11,787 183,803 3,707 Add: Operating Trans Out 4,334 4,326 4,326 - 4,326 - Transfer to Infrastructure 13,467 9,294 9,294 - 9,294 - Total Use of Funds 196,919 201,129 173,972 11,661 11,787 197,423 3,707 Net Surplus/(Deficit) (472) (1,240) 22,861 - (10,946) 11,913 13,153 (1,297)
(197)
10,946
(7,570)
Change in Fund Balance, GAAP Basis 13,795
0 Attachment A
Statement of Revenues, Expenditures and Change in Fund Balance - Budget and Actual City Attorney
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments
Chnages in interfund balances
Current year encumbrances / reappropriations
Prior year encumbrances / reappropriations
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Department Adjustment Adjustment
GENERAL FUND (102)
Fire Salaries & Benefits
This action reallocates funding as a result of higher than anticipated salary and benefit expenses in FY 2021.
These higher anticipated expenditures are due to several variables, including City Council approval at the October 19, 2020 meeting to extend the attrition period for Firefighter positions that were frozen and defunded in FY 2021 (CMR 11376) from December 2020 to March 2021. Additionally, the department experienced higher than anticipated payments for disability/workers' compensation. These overages were partially offset by overtime savings.
-$ 620,000$
Non-
Departmental
Transient Occupancy Tax/Transfer to Capital Improvement Fund This action decreases the transfer to the Capital Improvement Fund as it relates to Transient Occupancy Tax (TOT) revenues earmarked for city-wide infrastructure improvements due to lower than anticipated TOT collections.
293,000$ 293,000$
Non-
Departmental
American Rescue Plan Act (ARPA) Funding/ARPA Reserve
This action decreases the estimates for ARPA in FY 2021. The City received one of two distributions in FY 2021 ($6.85 million of the $13.7 million total), however, no expenditures occurred prior to year end. With this action, staff will defer this funding to FY 2022 in accordance with Government Accounting Standards Board (GASB) pronouncements that require agencies to recognize these distributions in the same period that the related expenditures occur.
(6,850,000)$ (6,850,000)$
Non-
Departmental
Cubberley Community Center Lease with Palo Alto Unified School District (PAUSD) Reconciliation This action appropriates $604,000 to true up lease payments to PAUSD for the Cubberley Community Center that were underpaid in calendar year 2018 through the end of FY 2020. Funding was previously appropriated in the FY 2020 Mid-Year Review (CMR 10959) to correct for this; however, the actual payments to PAUSD were not updated to align with the increased budget in FY 2020. This will allow the City to pay past due rent to PAUSD for the Cubberley Community Center and move forward in good standing with the current lease agreement.
-$ 604,000$
Police Salaries & Benefits
This action reallocates funding as a result of higher than anticipated salary and benefit expenses in FY 2021.
These higher anticipated expenditures are due to several variables, including overtime to backfill vacancies and critical public safety roles that were frozen and defunded in FY 2021 (CMR 11376). Additionally, the department experienced higher than anticipated payments for disability/workers' compensation. These overages were partially offset by salary savings.
-$ 175,000$
Public Works Departmental Expense Savings
This action reallocates departmental cost savings within the General Fund in order to offset departments with higher than anticipated expenses in FY 2021. The Public Works Department realized a net General Fund cost savings, primarily due to: salaries and benefits, resulting from hiring freezes and other citywide cost reduction strategies; contract services, resulting from timing delays in procurement processes related to planned maintenance projects; and supplies and materials, mostly due to delayed and postponed maintenance work and repairs related to streets and sidewalks.
-$ (795,000)$
Public Works Transfer from Gas Tax Fund/Streets Maintenance This action decreases the transfer from the Gas Tax Fund/Streets Maintenance Fund from $196,000 to $96,000 due to lower than anticipated Gas Tax revenues. This reduction resulted in minimal impacts to streets maintenance work, due to reduced capacity as a result of vacancies in the department. (100,000)$ (100,000)$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report. -$ (604,000)$
GENERAL FUND (102) SUBTOTAL (6,657,000)$ (6,657,000)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET Revenues Expenses
ATTACHMENT B, EXHIBIT 1
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Department Adjustment Adjustment
CAPITAL IMPROVEMENT FUNDS
GENERAL FUND CAPITAL IMPROVEMENT FUND (471)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 2.
-$ 4,500,044$
Capital Transfer from General Fund
This action increases the transfer from the General Fund related to TOT revenue Council earmarked to use for city-wide infrastructure improvements due to actual revenue collected being higher than budgeted in FY 2021.
293,000$ -$
Capital Transfer from Gas Tax Fund/Street Maintenance (PE-86070) This action decreases the transfer from the Gas Tax Fund due to actual revenue collected being lower than budgeted in FY 2021. A corresponding transfer is recommended from the Gas Tax Fund to the Capital Improvement Fund. The $18,000 commensurate reduction in expenses are reflected in the Street Maintenance capital project (PE-86070) as outlined in Attachment B, Exhibit 2.
(18,000)$ -$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report. -$ (4,225,044)$
GENERAL FUND CAPITAL IMPROVEMENT FUND (471) SUBTOTAL 275,000$ 275,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET Revenues Expenses
ATTACHMENT B, EXHIBIT 1
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Department Adjustment Adjustment
INTERNAL SERVICE FUNDS
WORKERS' COMPENSATION FUND (688)
Human
Resources
1,500,000$ -$
Human
Resources
Charges to Other Funds
This action increases the estimate for charges to other funds by $1.5 million ($1.0 million in the General Fund) in alignment with actuarial analysis in August 2021 for workers' compensation claims Incurred But Not Reported (IBNR) in FY 2021 at $2.1 million. Of this amount, $1.5 million was charged to departments to offset this expense and maintain a positive fund balance. Departments had sufficient savings at the end of FY 2021 to support the additional costs and did not require budgetary adjustments.
Insurance Claims Paid
This action increases the appropriation for insurance claims expense by $1.5 million in alignment with updated actuarial analysis in August 2021 for workers' compensation claims Incurred But Not Reported (IBNR) in FY 2021 at $2.1 million. The IBNR claims expense has been fully recognized in FY 2021 and recovered through additional allocations to departments.
1,500,000$
WORKERS' COMPENSATION FUND (688) SUBTOTAL 1,500,000$ 1,500,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET Revenues Expenses
ATTACHMENT B, EXHIBIT 1
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Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
PUBLIC ART FUND (207)
Non-
Departmental
Salaries and Benefits
This action increases the salaries and benefits appropriation in the Public Art Fund to align with slightly higher than anticipated expenses in FY 2021.
-$ 3,000$
Non-
Departmental
Art Fee Revenues
This action increases the estimate for Art Fee revenue as a result of higher than anticipated revenues collected in FY 2021.
91,930$ -$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report. -$ 88,930$
PUBLIC ART FUND (207) SUBTOTAL 91,930$ 91,930$
GAS TAX FUND (231)
Non-
Departmental
State of California Revenue: Gas Tax/Transfer to Capital Improvement Fund and General Fund This action decreases the revenue estimate for State of California Gas Tax allocations to align with lower than anticipated actuals during the period. In FY 2021, the total allocation to the City was $2.79 million, which was $41,500 lower than the preliminary estimate of $2.83 million from the State Department of Finance. Additionally, in order to restore a positive fund balance in the Gas Tax Fund, transfers to the General Fund and Capital Improvement Fund are reduced by $118,000. This funding is used for transportation and traffic-related capital projects such as the Street Maintenance Capital Improvement Project (PE-86070) and streets maintenance work in the Public Works Department. (41,500)$ (118,000)$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report. -$ 76,500$
GAS TAX FUND (231) SUBTOTAL (41,500)$ (41,500)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET Revenues Expenses
ATTACHMENT B, EXHIBIT 1
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Department Adjustment Adjustment
DEBT SERVICE & AGENCY TRUST FUNDS
2021 PUBLIC SAFETY BUILDING COP FUND (363)
Administrative
Services
Bond Proceeds/Debt Service Payment
This action recognizes bond proceeds from the sale of certificates of participation to fund construction of the Public Safety Building capital project. This action also appropriates funding for the first interest only debt service payment.
6,029,400$ 1,408,300$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report. -$ 4,621,100$
2021 PUBLIC SAFETY BUILDING COP FUND (363) SUBTOTAL 6,029,400$ 6,029,400$ UNIVERSITY AVENUE PARKING ASSESSMENT AGENCY FUND (775)
Administrative
Services
Contract Services
This action increases the appropriation for Contract Services within the fund to align budget levels with actual expenditures in FY 2021.
-$ 13,000$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report. -$ (13,000)$
UNIVERSITY AVENUE PARKING ASSESSMENT AGENCY FUND (775) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET Revenues Expenses
ATTACHMENT B, EXHIBIT 1
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Project
Number Title Revenue Expense Comments
AS-10000 Capital Improvement Fund Administration $ (562,800) Adjustment to allocate Salaries and Benefits across capital projects based on actual
expenditures
PG-06003 Benches, Signage, Walkways, Perimeter
Landscaping, and Site Amenities
$ 1,071 Adjustment to allocate Salaries and Benefits across capital projects based on actual
expenditures
PE-13011 Charleston/Arastradero Corridor Project $ 3,171,040 Adjustment to increase project in FY 2021 with a commensurate reduction in FY 2022 (CMR 12397
technical clean-up action) due to project
expenses anticipated in FY 2022 being
completed sooner in FY 2021.
PE-17009 City Hall Floor 5 Remodel $ 1,021 Adjustment to allocate Salaries and Benefits across capital projects based on actual
expenditures
PF-14002 Fire Station 1 Improvements $ 3,623 Adjustment to allocate Salaries and Benefits across capital projects based on actual
expenditures
PE-11011 Highway 101 Pedestrian/Bicycle Overpass
Project
$ 334,031 Adjustment to allocate Salaries and Benefits across capital projects based on actual
expenditures
OS-00001 Open Space Trails and Amenities $ 105,086 Adjustment to allocate Salaries and Benefits across capital projects based on actual
expenditures
PO-89003 Sidewalk Repairs $ 91,068 Adjustment to allocate Salaries and Benefits across capital projects based on actual
expenditures
PO-05054 Street Lights Improvements $ 26,900 Adjustment to allocate Salaries and Benefits across capital projects based on actual
expenditures
PE-86070 Street Maintenance $ 1,329,004 Adjustment to align project expenses with actual revenue received from Gas Tax fund transfers ($-
18,000); actual salaries and benefits
($+117,230); and a commensurate reduction in
FY 2022 (CMR 12397 technical clean-up action)
due to project expenses anticipated in FY 2022
being completed sooner in FY 2021
($+1,229,774).
Total $ - $ 4,500,044
ELECTRIC FUND
EL-14000 Coleridge/Cowper/Tennyson 4/12kV
Conversion
$ 18,934 Increase to project due to higher than anticipated expenditures with a commensurate
expense reduction in EL-11010, which had some
project savings.
EL-02010 SCADA System Upgrades $ 9,969 Increase to project due to higher than anticipated expenditures with a commensurate
expense reduction in EL-11010, which had some
project savings.
EL-11010 Underground District 47-Middlefield,
Homer, Webster, Addison
$ (28,903) Decrease to project due to lower than anticipated expenditures to offset overspent
projects.
Total $ - $ -
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 CAPITAL IMPROVEMENT PROGRAM ATTACHMENT B, EXHIBIT 2
CAPITAL IMPROVEMENT FUND
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Project
Number Title Revenue Expense Comments
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 CAPITAL IMPROVEMENT PROGRAM ATTACHMENT B, EXHIBIT 2
FO-10001 Fiber Optics Network - System
Improvements
$ (4,690) Decrease to project due to lower than anticipated expenditures to offset overspent
projects.
FO-16000 Fiber Optics Network - System Rebuild $ 4,690 Increase to project due to higher than anticipated expenditures with a commensurate
expense reduction in FO-16000, which had some
project savings.
Total $ - $ -
GS-18000 Gas ABS/Tenite Replacement Project $ (126,806) Decrease to project due to lower than anticipated expenditures to offset overspent
projects.
GS-80017 Gas System, Customer Connections $ 126,806 Increase to project due to higher than anticipated expenditures with a commensurate
expense reduction in GS-18000, which had some
project savings.
Total $ - $ -
SD-19000 Loma Verde Avenue Trunk Line
Improvements
$ (20,016) Decrease to project due to lower than anticipated expenditures to offset overspent
projects.
SD-20000 West Bayshore Road Pump Station $ 20,016 Increase to project due to higher than anticipated expenditures with a commensurate
expense reduction in SD-19000, which had some
project savings.
Total $ - $ -
WC-80020 Sewer System, Customer Connections $ 25,888 Increase to project due to higher than anticipated expenditures with a commensurate
expense reduction in WC-16001, which had
some project savings.
WC-16001 Wastewater Collection System
Rehabilitation/Augmentation Project 29
$ (25,888) Decrease to project due to lower than anticipated expenditures to offset overspent
projects.
Total $ - $ -
WS-80014 Water Service and Hydrant Replacement $ (152,523) Decrease to project due to lower than anticipated expenditures to offset overspent
projects.
WS-80013 Water System Customer Connections $ 152,523 Increase to project due to higher than anticipated expenditures with a commensurate
expense reduction in WS-80014, which had
some project savings.
Total $ - $ -
TOTAL CIP ADJUSTMENTS $ - $ 4,500,044
WATER FUND
WASTEWATER COLLECTION FUND
FIBER FUND
GAS FUND
STORMWATER MANAGEMENT FUND
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ANNUAL COMPREHENSIVE
FINANCIAL REPORT
CITY OF PALO ALTO
CALIFORNIA
FISCAL YEAR ENDED
JUNE 30, 2021
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CITY OF
PALO
ALTO
Fiscal Year 2021
Annual Comprehensive
Financial Report
City of Palo Alto, CA
Fiscal Year Ended June 30, 2021
City Council
Tom DuBois, Mayor
Patrick Burt, Vice Mayor
Alison Cormack
Eric Filseth
Lydia Kou
Greer Stone
Greg Tanaka
Ed Shikada, City Manager
Kiely Nose, Director of Administrative Services/Chief Financial Officer Prepared by: Administrative Services Department
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CITY OF PALO ALTO
For the Year Ended June 30, 2021
Table of Contents
Page
INTRODUCTORY SECTION:
Transmittal Letter .................................................................................................................................... i City Officials ........................................................................................................................................... vii Organizational Structure ...................................................................................................................... viii Administrative Services Organization ......................... ...........................................................................ix GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... x
FINANCIAL SECTION:
Independent Auditor’s Report .............................................................................................................. 1 Management’s Discussion and Analysis
(Required Supplementary Information – Unaudited) ............. ......................................................... 5 Basic Financial Statements
Government‐wide Financial Statements:
Statement of Ne t Position ....................................................................................................... 31 Statement of Activities ............................................................................................................ 33 Governmental Fund Financial Statements:
Balance Sheet ................................................ .......................................................................... 35 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position ‐ Governmental Activities ................................................. 36 Statement of Revenues, Expenditures and Changes in Fund Balanc es .................................. 37 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Act ivities – Governmental Activities ...................................... ............................................................. 38 Statement of Revenues, Expenditures and Changes in Fund Balanc e – Budget and Actual – General Fund ................................................................................... 39 Proprietary Fund Financial Statements:
Statement of Ne t Position ....................................................................................................... 40 Statement of Revenues, Expenses and Changes in Fund Net Positi on ................................... 42 Statement of Cash Flows ......................................................................................................... 44 Fiduciary Fund Financial Statement:
Statement of Fiducia ry Net Position ....................................................................................... 46 Statement of Changes in Fiduciary Net Position ............... ...................................................... 47 Index to the Notes to the Basic Financial Statements ................................................................. 49 Notes to the Basic Financial Statements ...................................................................................... 51 Required Supplementary Information:
Schedule of Changes in Net Pension Liability and related Ratios – Miscellaneous Plan ............. 109 Schedule of Pension Contributions – Miscellaneous Plan ....... .................................................... 110
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CITY OF PALO ALTO
For the Year Ended June 30, 2021
Table of Contents (Continued)
Page
Required Supplementary Information:
Schedule of Changes in Net Pens ion Liability and Related Ratios – Safety Plan ......................... 111 Schedule of Pension Contributions – Safety Plan .............. .......................................................... 112 Schedule of Changes in Net OPEB Liability and Related Ratios . .................................................. 113 Schedule of Employer OPEB Contributions ...................... ........................................................... 114
Supplementary Information:
Non‐Major Governmental Funds:
Combining Balance Sheet ...................................... ................................................................ 115 Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ..................................... .......................................................... 116 Non‐Major Special Revenue Funds:
Combining Balance Sheet ...................................... ................................................................ 118 Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ..................................... .......................................................... 120 Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ................. ............................................ 122 Non‐Major Debt Service Funds:
Combining Balance Sheet ...................................... ................................................................ 128 Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ..................................... .......................................................... 129 Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ................. ............................................ 130 Non‐Major Permanent Fund:
Schedule of Revenues, Expenditures and
Changes in Fund Balance – Budget and Actual ............................................................... 132 Internal Service Funds:
Combining Statement of Fund Net Position ..................... ..................................................... 134 Combining Statement of Revenues, Expenses and
Changes in Fund Net Position ................................. ........................................................ 135 Combining Statement of Cash Flows ............................ ......................................................... 136 Fiduciary Funds:
Combining Statement of Fiduciar y Net Position – Custodial Funds ...................................... 138 Combining Statement of Changes in Fiduciary Net Position – Cus todial Funds ................... 139
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CITY OF PALO ALTO
For the Year Ended June 30, 2021
Table of Contents (Continued)
Page
STATISTICAL SECTION:
Financial Trends:
Net Position by Component .................................... ..................................................................... 143 Changes in Net Position ...................................... ......................................................................... 144 Fund Balances of Governmental Funds .......................... ............................................................. 146 Changes in Fund Balances of Governmental Funds ..................................................................... 148 Revenue Capacity:
Electric Operating Revenue by Source ......................... ................................................................ 149 Power Supply Resources ....................................... ....................................................................... 150 Supplemental Disclosure for Water Utilities ............................................................................... 151 Supplemental Disclosure for Gas Utilities .................................................................................... 152 Assessed Value of T axable Property ............................................................................................ 153 Property Tax Rates, All Overlapping Governments .............. ....................................................... 154 Property Tax Levies and Collections .......................... .................................................................. 155 Principal Property Taxpayers ................................. ...................................................................... 156 Assessed Valuation and Parcels by Land Use .............................................................................. 157 Per Parcel Assessed Valuation of Single Family Residential ... ..................................................... 158 D e b t C a p a c i t y :
Ratio of Outstandin g Debt by Type .............................................................................................. 159 Computation of Direct and Overlapping Debt ................... .......................................................... 160 Computation of Legal Bonded Debt Margin ...................... .......................................................... 161 Revenue Bond Coverage ........................................ ...................................................................... 162 Demographic and Economic Information:
Taxable Transactions b y Type of Business ................................................................................... 163 Demographic and Econ omic Statistics ......................................................................................... 164 Principal Employers........................................... ........................................................................... 165 Operating Information:
Operating Indicators by Function/Program ..................... ............................................................ 166 Capital Asset Statistics by Function/Program .............................................................................. 168 Full‐Time Equivalent City Government Employees by Function ... ............................................... 170
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Transmittal Letter…………………………………………………...…
O F F I C E O F T H E C I T Y M A N A G E R
2 5 0 H a m i l t o n A v e , 7 t h F l o o r
P a l o A l t o , C A 9 4 3 0 1
6 5 0 . 3 2 9 . 2 6 9 2
November 15, 2021
THE HONORABLE CITY COUNCIL
Palo Alto, California
ANNUAL COMPREHENSIVE FINANCIAL REPORT
YEAR ENDED JUNE 30, 2021
Members of the Council and Citizens of Palo Alto:
I am pleased to present t he Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2021 in accordance with Article III, Section 16 and Article IV, Section 13 of the City of Palo Alto Charter. The format and content of this ACFR complies with the principles and standards of accounting and financial reporting adopted by the Governmental Accou nting Sta ndards Board (GASB) , and contains all information needed for readers to gain a reasonable understanding of City of Palo Alto (City) financial affairs. Management takes sole responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. The objective of internal controls is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements.
The City’s financial statements have been audited by Macias Gini & O’Connell LLP, Certified Public Accountants (MGO). The goal of the audit is to obtain reasonable assurance that the financial statements are free of material misstatement s and are fairly presented in conformity with generally accepted accounting principles (GAAP). MGO issued an unmodified opinion for the fiscal year ended June 30, 2021. Their report is presented as the first component of the financial section of this report.
While MGO has issued an unmodified opinion for this report, information and the contents of this report is the responsibility of the City.
An overview of the City’s financial activities for the fiscal year is discussed in detail in the Management’s Discussion and Analys is (MD&A) section of the ACFR. MD&A complements this transmittal letter and should be read in conjunction with it.
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CITY OF PALO ALTO PROFILE
The City was incorporated in 1894 and named after a majestic coastal redwood tree which lives along the San Francisquito Creek where early Spanish explorers settled. Located between the cities of San Francisco and San Jose, the City is a largely built -out community of approximately 66,573 residents.
The City delivers a full range of municipal services and public utilities under the Council-Manager form of government and offers an outstanding quality of life for its residents. It covers an area of twenty- six square miles and has dedicated almost one -half of the area to open spaces of parks and wildlife preserves. Public facilities include five libraries, four community centers, a cultural arts center, an adult and children’s theater, a junior museum and zoo, an airport, and a golf course. The City provides a diverse array of services for seniors and youth, an extensive continuing education program, concerts, exhibits, team sports and special events. The independent Palo Alto Unified School District (PAUSD) has achieved State and national recognition for the excellence of its programs.
City Council: The seven members are elected at -large for four-year staggered terms. At the first meeting of each calendar year, Council elects a Mayor and Vice-Mayor from its membership, with the Mayor having the duty of presiding over Council meetings. Council is the appointing authority for the positions of City Manager and three other officials, the City Attorney, City Clerk, a nd City Auditor, all of whom report to Council.
Finance Committee and Policy and Services Committee: While retaining the authority to approve all actions, Council has established two subcommittees, the Finance Committee and the Policy and Services Committee. The Finance Committee considers and make s recommendations on matters relating to finance, budget, financial audits, capital planning and debt . Each subcommittee is comprised of three Council members. Staff provides the subcommittees and Council with reports such as the ACFR, quarterly budget -versus-actual results, and various planning reports , all of which are utilized in their review of the City’s financial position.
FISCAL/ECONOMIC CONDITIONS AND OUTLOOK
The City declared a state of emergency in March 2020 and the world began to grapple with the impacts of the novel coronavirus (COVID-19), a global pandemic, and the ensuing public health emergency.
While the Fiscal Year 2020 Adopted Budget saw the most significant immediate impacts as shelter in place orders were instituted in the County of Santa Clara and State of California , work on Economic Recovery began in Fall 2020, prior to the City Council setting this priority in January 2021 . These financials reflect the one full year of the economic impacts of the pandemic – the stark, immediate results stemming from shelter in place orders through promising third calendar quarter results and widespread distribution of the COVID-19 vaccine. Throughout these times, several conversations with the City Council occurred in 2020 and 2021 that resulted in the Community and Economic Recovery workplan. This workplan includes several priority projects that connect the City Council’s Priorities and ensure organization support and capacity to further recovery efforts.
Employment Trends: The City is located in the heart of Silicon Valley and is adjacent to Stanford University, one of the premier institutions of higher education in the nation which has produced much of the talent that founded many successful high-tech companies in Palo Alto and Silicon Valley. With varied historically and relatively stable employers such as Lucille Packard Children’s Hospital, Stanford Health Care , Stanford University, Veteran’s Affairs Palo Alto Healthcare System , Palo Alto Medical Foundation, Palo Alto Unified School District, Stanford Shopping Center and businesses such as Hewlett-Packard, VMware, Tesla, SAP labs Inc. and Space Systems Loral, Palo Alto has enjoyed diverse employment and revenue bases. As of June 2021, the City’s unemployment rate was 3.2 percent
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City of Palo Alto iii
compared to the prior year level of 5.7 percent. The County of Santa Clara’s unemployment rate was
5.2 percent compared to the prior year level of 10.7 percent. The State of California’s unemployment rate was 8.0 percent, compared to the prior year level of 14.9 percent. These levels are lower than FY 2020 but are still significantly higher than recent years as many businesses were forced to adjust their workforce and operations were severely restricted by the COVID-19 shelter in place orders.
Real Estate Market : The 2020-2021 County of Santa Clara Assessor’s Annual Report noted that the County of Santa Clara ’s annual assessment roll increased by $ 35.5 billion to $ 551.5 billion, a 6.87 percent increase over the prior year. Palo Alto’s assessment roll represents 7.69 percent of the County of Santa Clara’s assessment roll and grew 7.77 percent over the prior year to $42.4 billion. Per the Santa Clara County Association of Realtors, home prices in Palo Alto remain well above the County of Santa Clara’s average at $4.0 million as of second quarter 2021. According to Newmark, a company that tracks real estate trends throughout the county, the average asking rent in Palo Alto for commercial space during the second quarter of 2021 was $6.88 per square foot. Based on this report, leasing activities are rebounding, after a sluggi sh start in calendar year 2021. Despite continuing struggles between executives and employees as it relates to the push to return to offices, the continued focus on distribution of the vaccine, and increase confidence in the second half of calendar year 2021 will influence how quickly leasing activities will recover.
Local Trends: Mixed economic opinions and indicators existed at the time the FY 2021 budget was developed. It is important to recall t hat the actions and leadership of the City Council quickly recognized and worked to address these impacts. On March 16, 2020, the State of California and the County of Santa Clara ordered Shelter in Place directives to slow the spread of COVID -19, which continued into FY 2021 . Prior to COVID -19 and after, the Bay Area economy had sustained better performance than the state and the nation. Disruptions caused by COVID-19 are both widespread and significant to Palo Alto , the state and nation’s economic environment and community. The City’s unemployment has been elevated since the pandemic hit the region, however, the rate is significantly lower than national, State of California, and County of Santa Clara’s unemployment rates. Job growth is tep id. Economically sensitive revenue sources in FY 2020 and/or FY 2021, such as transient occupancy tax, sales and utility user’s taxes have significantly declined while documentary transfer and property taxes have been resilient with a healthy growth , however, future years will be monitored closely.
General Fund Balancing and Results: The FY 2021 budget was developed as the world grappled with COVID-19, a global pandemic with unknown financial implications impacting regional, national and global economies in response to shelter in place orders and related social distancing restrictions. The City Council provided direction to build the FY 2021 budget assuming a loss of $39.0 million in General Fund tax revenues in FY 2021. Overall, the City’s General Fund was adopted to collect $196.4 million in revenues and $196.9 million in ex penditure, a 15 percent reduction compared to the FY 2020 Adopted Operating Budget. In the General Fund, full -time staffing was reduced from 57 4.43 FTE to 509.91 FTE (a reduction of 64.52 FTE) and part-time staffing was reduced from 81.31 FTE to 55.61 FTE (a reduction of 25.70 FTE). Prioritizing essential services and reducing or eliminating discretionary services was reflected in this budget and achieved through compiling feedback throughout the May and June budget sessions with the City Council. Notwithstanding the service delivery reductions reflected in this budget, the budget balancing strategy ensured that the City continued to proactively pay for long term liabilities, maintained capital investments in its most critical infrastructure, provided resources for the City to successfully adapt from shelter in place to future service delivery models, and established funding to ensure those service delivery transitions.
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Despite the financial constraints , the City maintained its commitment to addressing its long -term liabilities. Contributions towards the City’s long-term pension obligations and other post- employment obligations were maintained this fiscal year including payment to trust funds . These were made possible by cost containment strategies utilized across the organization over the past several years. In addition to the City’s past practice of planning for staffing costs contained in the agreed upon labor terms outlined in memorandums of agreement, CalPERS -determined retirement contribution levels, and a vacancy factor in the General Fund , proactive pension funding contribution s to the City’s irrevocable Section 115 Pension Trust Fund were achieved in FY 202 1. In the General Fund, this resulted in $3. 0 million in additional contributions from various departments and reflects what retirement costs would be if the “normal cost” of contributions was budgeted at a 6.2 percent discount rate (CalPERS is currently at a 7. 0 percent discount rate). As of June 30, 2021, the City’s irrevocable pension trust fund has a total of $ 32.3 million in Citywide contributions (excluding earnings from investments), of which $21.0 million is from the General Fund.
As the community grappled with the various impacts of COVID -19, the City took a hard look at both the operating and capital budgets and prioritized essential services, pared back discretionary items, and continued to monitor impacts the global pandemic had on the City’s major revenue sources and economic sectors . In addition to these challenges , the City remain ed focused on maintaining high quality services with the resources available, while addressing issues facing the City as well as the state, and nation. These issues were reflected in the setting of Council priorities for 2021:
• Economic Recovery
• Housing for Social and Economic Balance
• Social Justice
• Climate Change - Protection and Adaptation
Progress continues to be made on these priorities, which require long-term strategies. The FY 202 1 budget established a number of COVID-19 related reserves to address needs of the City organization and the community during shelter in place, as well as planning for transition to the “new normal” after restrictions were lessened.
In FY 2014, the City Council approved a $125.8 million Infrastructure Plan (IP), which included projects such as a new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and two parking garages. As part of the development of the 202 1-2025 Capital Improvement Plan (CIP), the IP projects were updated for scope increases and cost escalations, resulting in a revised Infrastructure Plan of $260.5 million. These projects will be funded partially by debt to be repaid with voter-approved increases of 3.5 percent in the transient occupancy tax (TOT) rate and from other sources such as impact fees and Stanford University Medical Center development agreement monies.
The 2021-2025 CIP assumed the opening of new Marriott hotels in FY 2021; however, as a result of the public health emergency and its impact on revenues, the annual TOT funding is not estimated to cover the cost of the debt service related to the IP projects for several years. Staff is continually revising these figures and adjusting and planning for the se impacts in order to maintain funding for the City’s most critical infrastructure improvements.
Due to the COVID-19 pandemic, the City Council aimed to provide economic relief for residential and commercial customers by directing staff to maintain flat rates without compromising the safety and integrity of the utility systems. Rates increased in 202 1 for gas, storm water, and fiber services. In general, the size and timing of rate adjustments take into account current and future revenue requirements and reserve levels for needs such as increasing costs of commodity purchases, capital
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City of Palo Alto v
construction costs, and contractually obligated increases to compensate for inflation, usually based on the annual change to the Bay Area consumer price index (CPI).
Long Range Financial Forecast: The City produces a 10-year General Fund Long Range Financial Forecast (LRFF) annually. This comprehensive report analyzes local, state, and federal economic conditions, short and long-term revenue and expense trends, and addresses challenges such as funding long-term pension and healthcare liabilities and infrastructure nee ds. The forecast is designed to highlight finance issues which the City can address proactively. Moreover, it is a tool that allows policymakers an opportunity to prioritize funding needs over time. It sets the tone for the annual budget process and is one of the many tools and reports that Council uses for financial planning. The LRFF was developed prior to the COVID -19 pandemic, at a time when national, state, and local economic indicators were mixed. Unemployment remained low, job growth slowed, and international trade had negative impacts on economic data.
The FY 2021-2030 LRFF was presented to the Finance Committee in December 2019 and approved by the City Council in February 2020. The forecast anticipated a small surplus in FY 2021 followed by annual gaps in FY 2022 through 2025, before the revenues outpaced the expenses in FY 2026 and beyond. Staff identified and recommended a course of action that would structurally balance the General Fund in FY 2021 and largely balance the General Fund on an ongoing basis. The FY 2021 budget included a proactive pension funding contribution to the City’s irrevocable Section 115 Pension Trust Fund and reflected what retirement costs would be if the “normal cost” of contributions was budgeted at a 6.2 percent discount rate compared to the CalPERS estimated 7.0 percent discount rate.
Subsequent to the development of the LRFF, revenue and expense numbers were revised based on estimated impacts from the pandemic to recalculate the budget and reflect changes in revenues and expenses to incorporate policy direction from City Council issued after the LRFF to prioritize essential services and pare back discretionary services as discussed in the General Fund Balancing and R esults section above.
Both Moody’s and Standard and Poor’s (S&P) awarded their highest credit rating of Triple A to th e City’s general obligation bonds . This rating has been awarded to only a few cities in the State of California.
SIGNIFICANT EVENTS AND ACCOMPLISHMENTS
The City is a community dedicated to meeting the social, cultural, recreational, educational, commercial, and retail needs of its citizens and businesses. As such, open space, education, recreational facilities, cultural events and safe streets and neighborhoods are important aspects of the community and the City has been recognized for its accomplishments wi th a wide variety of awards and recognitions over the past year. Following is a sampling of those awards and accomplishments:
• Applied for and awarded the Bike Friendly Communities Gold-level Status. • Received Santa Clara County Supervisor’s Medal for Outstanding Service for staff contributions and efforts in areas of auto theft and community service. • Received the Reliable Public Power Provider (RP3) award from American Public Power Association (APPA) for industry-recognized leading practices in reliability & safety.
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• Received the Smart Energy Provider Award from American Public Power Association (APPA), which recognizes utilities for demonstrating commitment and accomplishment in smart energy program planning; energy efficiency and distributed energy resources; environmental and sustainability programs; and communication and customer experience. • Launched a robust Race & Equity framework and initiative and partnered with local community organizations and stakeholders.
• Established the Uplift Local program to expand outdoor dining, retail, and more, generally supporting the business community and connecting the broader Palo Alto community together during challenging economic and public health emergencies. Continued to support key business districts such as Downtown Palo Alto, California Avenue, and the Stanford Shopping Center.
• Responded to the COVID -19 pandemic by participating in the City's Emergency Operations Center and quickly developing policies and protocols to protect firefighters and patients by minimizing exposure.
• Opened Foothills Nature Preserve to all visitors and partnered with the Environmental Volunteers and other volunteers to create a welcome video for the Preserve. • Awarded the construction contract for the Public Safety Building, a 2014 Infrastructure Plan Project, and associated debt financing.
• Substantially completed the Junior Museum and Zoo rebuilding project after 10 years in the making, with all new exhibits designed by JMZ staff, a re-imagined zoo with new animals, and a focus on inclusion, accessibility, and the highest standards in animal care. It is expected to open in Fall 2021.
• Completed construction of the new California Avenue Area Parking Garage project.
Awards: During the past year, the City received an award for the prior fiscal year (2020) ACFR from the Government Finance Officers Association (GFOA) for “excellence in financial reporting.” The 2021 ACFR will be submitted to the GFOA award program to be considered for this distinguished financial reporting award.
Acknowledgments: This ACFR reflects the hard work, talent and commitment of the staff members of the Administrative Services Department. This document could not have been accomplished without their efforts and each contributor deserves sincere appreciation. Management wishes to acknowledge the support of the entire accounting staff for the ir high level of pr ofessionalism and dedication .
Management would also like to express its appreciation to MGO, the City’s independent external auditors, who assisted and contributed to the preparation of this Annual Comprehensive Financial Report.
Special ack nowledgment must be given to City Council and th e Finance and Policy and Services Committees for their dedication to directing the financial affairs of the City in a responsible, professional and progressive manner.
Respectfully submitted,
KIELY NOSE ED SHIKADA
Chief Financial Officer City Manager
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City of Palo Alto City Officials ………………………….…………
Council-Appointed Officers
City Manager
Ed Shikada
City Attorney
Molly Stump
City Clerk
Lesley Milton
City Auditor
Kyle O'Rourke
City Council
Tom DuBois, Mayor
Patrick Burt, Vice-Mayor
Alison Cormack
Eric Filseth
Lydia Kou
Greer Stone
Greg Tanaka
Finance Committee
Alison Cormack, Chair
Patrick Burt
Eric Filseth
Policy and Services Committee
Lydia Kou, Chair
Greer Stone
Greg Tanaka
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viii City of Palo Alto
City Attorney
Molly Stump
City Manager*
Ed Shikada
City Auditor
Kyle O'Rourke
City Clerk
Lesley Milton
City of Palo Alto Organization ……………………………………
1 * The Office of Transportation is situated in the City Manager’s Office.
Community Services
Kristen O’Kane, Director
Administrative Services
Kiely Nose, Director/Chief Financial Officer
Fire Department
Geoffrey Blackshire, Chief
Human Resources
Rumi Portillo, Director/Chief People Officer
Police Department
Robert Jonsen, Chief
Planning & Development Services
Jonathan Lait, Director
Utilities
Dean Batchelor, Director
Public Works
Brad Eggleston, Director
Library
Gayathri Kanth, Director
Office of Emergency Services
Kenneth Dueker, Director
Information Technology
Darren Numoto,
Chief Information Officer
Palo Alto Residents
City Council
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Administrative Services Organization ………
Administrative Services Department
Administrative Division
Treasury Division
Accounting Division
Office of Management & Budget
Purchasing Division
Real Estate Division
Mission Statement
To provide proactive administrative and technical support to City departments and decision makers, and to safeguard and facilitate the optimal use of City resources.
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Government Finance Officers Association of
the United States and Canada – Award ……
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1 Independent Auditor’s Report
Honorable Mayor and the Members
of the City Council of
City of Palo Alto, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund i nformation of the City of Palo Alto, California (City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financ ial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements Management is responsible for t he preparation and fair presenta tion of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes 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.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial st atements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards , issued by the Comptroller General of the United States. Those standards requi re that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the aud itor’s judgment, including the assessment of the risks of material misstatement of the financial statemen ts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design aud it procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
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2 Opinions
In our opinion, the financial statements referred to above pres ent fairly, in all material respects, the respective financial position of the governmental activities, t he business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2021, and the respective changes in financial position, and, wher e applicable, cash flows thereo f and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1(n) to the financial statements, as of Ju ly 1, 2020, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 84, Fiduciary Activities. Our opinions are not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States o f America require that the management’s discussion and analysis, the schedules of changes in net pensio n liability and related ratios, the schedules of pension contributions, the schedule of changes in net OPEB liability and related ratios, and the schedule of employer OPEB contributions , as listed in the table of conten ts, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the GASB who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historic al context. We have applied certain limited procedures to the required supplementary information in accorda nce with auditing standards generally accepted in the United States of America, which consisted of in quiries 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 kno wledge we obtained during our audit of the basic financial statements. We do not express an opinion or pro vide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductor y section, combining and individual nonmajor fund financial statements and schedules, and statistic al section, are presented for purposes of additional analysis and are not a required part of the basic financial statements.
The combining and individual nonmajor fund financial statements are the responsibility of management and were derived from and rela te directly to the underlying acc ounting and other records used to prepare the basic financial statements. Such information has been subje cted to the auditing procedures applied in the audit of the basic financial statements and certain additio nal procedures, including comparing and reconciling such information directly to the underlying account ing and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole.
The introductory and statistical sections have not been subject ed to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them.
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3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 15, 2021 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regula tions, contracts, and grant agreements and other matters. The purpose of t hat report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s inte rnal control over financial rep orting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.
Walnut Creek, California
November 15, 2021
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Management’s Discussion and Analysis (Unaudited)
Management’s Discussion and Analysis (MD&A) provides an overvie w of the City of Palo Alto’s financial performance for the fiscal year ended June 30, 2021. To obtain a complete understanding of the City’s financial condition, this document should be read in conjunction with the accompanying Transmittal Letter and Basic Financial Statements. Certain balances for prior year are reclas s i f i e d t o c o n f o r m w i t h c u r r e n t y e a r presentation.
FINANCIAL HIGHLIGHTS
The assets and deferred outflows of resources of the City of Palo Alto (City) exceeded its liabilities and deferred inflows of resources at the close of Fiscal Year (FY) 2021 by $1.2 billion. Of this amount, $24.1 million represents unrestricted net position, which may be used to meet the government’s ongoing obligations to citizens and creditors.
The City’s total net position is $1.2 billion, an increase of $ 4.8 million, or 0.4 percent over the prior fiscal year. Of this amount, $22.2 million was generated by bu siness‐type activities and offset by a decrease of $17.4 million by governmental activities.
The City’s total outstanding long‐term debt increased by $99.4 million during the current fiscal year due to the issuance of Certificat es of Participation (COPs) amo unting to $101.5 million plus a $6.5 million premium to finance the construction of a public safety building, offset by the scheduled debt retirements.
At the close of FY 2021, the City’s governmental funds reported total fund balances of $365.6 million, an increase of $98.9 million from the prior year. Approximately 13.4 percent of this amount, or $49.1 million, is unassigned fund balance and available for spending at the City’s discretion. At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned and unassigned components of fund balance) for the General Fund was $66.3 million, or 38.1 percent of total General Fund expenditures, including transfers. In May 2021, the City received the first half of its total $13.7 million American Rescue Plan Act of 2021 (ARPA) allocation. The first distribution of $6.9 million was recorded as unearned revenue at June 30, 2021 as the funds are not earned nor spent. The second distribution is expected in May 2022. The City implemented the Governmental Accounting Standards Boar d (GASB) Statement No. 84, Fiduciary Activities, effective fiscal year ended June 30, 2021. The statement est ablishes criteria for identifying fiduciary activities of all state and local governm ents. The City evaluated all funds and activities in accordance with the statement and determined that the Cable Joint Powers Authority and the assessment district activities previously reported as agency funds should be reported as custodial funds.
OVERVIEW OF THE ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR) The ACFR is presented in five sections:
An introductory section that includes the Transmittal Letter and general information Management’s Discussion and Analysis
The Basic Financial Statements that include the Government‐wide and Fund Financial Statements, along with the Notes to the Basic Financial Statements
Required and Other Supplemental Information
Statistical Information
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City of Palo Alto 6
Government‐wide Financial Statements
The Government‐wide Financial St atements provide a longer‐term view of the City’s activities as a whole.
They include the Statement of Net Position and the Statement of Activities.
The Statement of Net Position includes the City’s capital assets and long‐term liabilities on a full accrual basis of accounting similar to that used by private sector companies. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating.
The Statement of Activities provides information about the City ’s revenues and expenses on a full accrual basis, with an emphasis on measuring net revenues or expenses f or each of th e City’s programs. The Statement of Activities explains in detail the change in net po sition for the 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.
The amounts in the Statement of Net Position and the Statement of Activities are separated into Governmental and Business‐type Activities in order to provide a summary of each type of activity.
Governmental Activities
All of the City’s basic services are considered to be governmental activities. Included in basic services are the City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative Services, Human Resources, Public Works, Planning and Development Services, Office of Transportation, Police, Fire, Community Services, and Library. These services are supported by City’s general rev enues such as taxes, and by specific program revenues such as fees and grants.
The City’s governmental activities also include the activities of the Palo Alto Public Improvement Corporation, which is a separate legal entity financially accountable to the City.
Business‐type Activities
All of the City’s enterprise activities are reported as busines s‐type activities, including Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refus e, Storm Drainage, and Airport. Unlike governmental services, these services are intended to recover all or a significant portion of their costs through user fees and charges.
The Government‐wide Financial Statements can be found on pages 31‐33 of this report.
Fund Financial Statements
The Fund Financial Statements provide detailed information abou t each of the City’s most significant funds, called major funds. The concept of major funds, and the determination of which funds are major funds, was established by GASB Statement No. 34. Each major fund is presented individually and all non‐major funds are combined in a single column on each fund statement. Supplemental schedules display these non‐major funds in more detail. The General Fund is always considered a major fund, but other funds may change from year to year as a result of changes in the pattern of City activities.
The Fund Financial Statements display the City’s operations in more detail than the Government‐wide Financial Statements. Fund Financial Statements include Governmental, Proprietary, and Fiduciary Funds.
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Governmental Funds
Governmental Fund Financial Statements are prepared on the modi fied accrual basis of accounting, which means they measure only current financial resources and uses. C apital assets and other long‐term assets, along with long‐term liabilities, are presented only in the Government‐wide Financial Statements. In FY 2021, the City had two major governmental funds ‐ the General Fund and the Capital Projects Fund. Data from the other governmental funds are combined into a single column for presentation. Individual fund data for each of these non‐major governmental funds is provided in the Supplemental Information section of this report.
Since 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 St atements. 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 Governmental Fund Financial Statements can be found on pages 35‐39 of this report.
Proprietary Funds
Enterprise and Internal Service Fund Financial Statements are prepared on the full accrual basis of accounting, similar to the basis of accounting that is used by private sector companies. These statements include all of the current and long‐term assets, deferred outflows of resources, current and long‐term liabilities, and deferred inflows of resources.
The City’s Internal Service Funds provide goods and services ex clusively to the City’s governmental and business‐type activities. Internal Service Funds cannot be considered major funds because their revenues are derived from other City funds. Revenues between funds are elimi nated in the Government‐wide Financial Statements, and any related profits or losses in Internal Service Funds are returned to the activities in which they were created, along with any residual net position of the Internal Service Funds.
The Proprietary Fund Financial Statements can be found on pages 40‐45 of this report.
Fiduciary Funds
Fiduciary funds are used to account for assets held by the City acting in a fiduciary capacity for other entities and individuals. Custodial Funds are fiduciary funds used to report fiduciary activities that are not required to be reported in pension (and other employee benefit) trust funds, investment trust funds, or private purpose trust funds. These include balances and activities of the Cabl e Joint Powers Authority and the assessment district. The financial activities of these funds are excluded from the government‐wide financial statements, but are presented in separate fiduciary fund financial statements.
The Fiduciary Fund Financial Statement can be found on pages 46 and 47 of this report.
Notes to the Basic Financial Statements
The Notes to the Basic Financial Statements provide additional information that is necessary to acquire a full understanding of the data provided in the Government‐wide and F und Financial Statements. The Notes to the financial statements can be found on pages 51‐108 of this report.
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Required and Other Supplemental Information
The Required Supplementary Information related to the City’s pension and Other Post‐Employment Benefits (OPEB) plans is included after the Notes to the Basic Financial Statements on pages 109‐114. The combining statements and individual fund statements and schedules referre d to earlier in connection with non‐major Governmental Funds and Internal Service Funds are presented immediately following the Required Supplementary Information and can be found on pages 115‐139 of this report.
FINANCIAL ANALYSIS OF GOVERNMENT‐WIDE FINANCIAL STATEMENTS This section focuses on the City’s net position and changes in net position of its governmental and business‐ type activities for the fiscal year ended June 30, 2021. As no ted earlier, the City’s total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources by $1.2 billion at the end of the fiscal year, an increase in net position of $4.8 million.
CONDENSED STATEMENT OF NET POSITION
As of June 30
(in millions)
2021 2020 2021 2020 2021 2020
Cash and investments 443.4 $ 342.8 $ 285.6 $ 277.4 $ 729.0 $ 620.2 $ Other assets 76.6 60.5 47.7 52.8 124.3 113.3 Capital assets 602.0 596.3 708.5 693.2 1,310.5 1,289.5
T o t a l A s s e t s 1 , 1 2 2 . 0 999.6 1,041.8 1,023.4 2,163.8 2,023.0 Unamortized loss from refunding ‐ 0.1 0.2 0.1 0.2 Pension and OPEB related 60.8 55.8 24.1 20.9 84.9 76.7 Total Deferred Outflows of Resources 60.8 55.8 24.2 21.1 85.0 76.9 Net pension and OPEB liabilities 438.2 416.3 159.7 153.7 597.9 570.0 Long‐term debt 217.5 112.5 68.9 74.5 286.4 187.0 Other liabilities 87.6 61.5 23.8 21.7 111.4 83.2 Total Liabilities 743.3 590.3 252.4 249.9 995.7 840.2 Pension and OPEB related 16.3 24.5 6.4 9.6 22.7 34.1 Total Deferred Inflows of Resources 16.3 24.5 6.4 9.6 22.7 34.1
Net Position
Net investment in capital assets 480.6 497.4 642.0 621.3 1,122.6 1,118.7 Restricted 80.3 73.3 3.4 4.1 83.7 77.4
Unrestricted (137.7) (130.1) 161.8 159.6 24.1 29.5 Total Net Position 423.2 $ 440.6 $ 807.2 $ 785.0 $ 1,230.4 $ 1,225.6 $ Governmental
Activities
Business‐type
Activities
Government‐wide
Totals
The largest portion of the City’s net position (91.2 percent) is its net investment in capital assets such as land, buildings, infrastructure and vehicles, less any related outstanding debt that was used to acquire those assets.
The City uses these capital assets to provide a variety of services to its citizens. Accordingly, these assets are not available for future spending. Although the City’s investm ent in capital assets is reported net of related debt, it should be noted that the resources used to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.
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The restricted portion of the City’s net position (6.8 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of $24.1 million, representing 2.0 percent of the City’s net position, is unrestricted and may be used to mee t the City’s ongoing obligations to its citizens and creditors.
Overall, the City has positive unrestricted net positions for the government on a combined basis, considering both governmental activities and business‐type activities. The unrestricted net position for governmental activities is negative due to recognition of the net pension liabilities, as required by GASB Statement No. 68, and net OPEB liabilities, as required by GASB Statement No. 75. The $137.7 million net deficit for governmental activities includes the $303.8 million net impact of net pension liabilities and its related deferred outflows of resources and $89.9 million net impact of net OPEB liabilities and its related deferred outflows of resources and deferred inflows of resources. Govern mental activities’ unrestricted net position, excluding these impacts, is $256.0 million.
Components of the $4.8 million increase in total net position a re discussed in the following sections for governmental activities and business‐type activities.
Governmental Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Governmental Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.
Increase/
2021 2020 (Decrease)
Cash and investments 443.4 $ 342.8 $ 100.6 $ Other assets 76.6 60.5 16.1 Capital assets 602.0 596.3 5.7 Total Assets 1,122.0 999.6 122.4 Pension and OPEB related 60.8 55.8 5.0 Total Deferred Outflows of Resources 60.8 55.8 5.0 Net pension and OPEB liabilities 438.2 416.3 21.9 Long‐term debt 217.5 112.5 105.0 Other liabilities 87.6 61.5 26.1 Total Liabilities 743.3 590.3 153.0 Pension and OPEB related 16.3 24.5 (8.2) Total Deferred Inflows of Resources 16.3 24.5 (8.2)
Net investment in capital assets 480.6 497.4 (16.8)
Restricted 80.3 73.3 7.0
Unrestricted (137.7) (130.1) (7.6)
Total Net Position 423.2 $ 440.6 $ (17.4) $ CONDENSED STATEMENT OF NET POSITION
As of June 30
(in millions)
GOVERNMENTAL ACTIVITIES
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The City’s Governmental Activities total net position decreased $17.4 million to $423.2 million as of June 30, 2021 due to the following:
Assets and Deferred Outflows of Resources
Cash and investments increased $100.6 million mainly due to the issuance of COPs amounting to $101.5 million plus $6.5 million premium to finance the cons truction of a public safety building and an increase in restricted cash and investments held in the Public Agency Retirement Services Section 115 irrevocable trust (Section 115 Pension Trust). Other assets increased $16.1 million mainly due to an increase in notes receivable for the predevelopment and construction of multifamily rental housing r eserved for occupancy by extremely low, very low and low‐income households.
Capital assets increased $5.7 million due to continued construc tion of the Highway 101 Pedestrian / Bicycle overpass, Public Safety Building, and Cali fornia Avenue Parking Garage and offset by the retirements and depreciation.
Pension and OPEB related deferred outflows of resources increas ed $5.0 million due to increase of pension related deferred outflows of resources of $5.7 million offset by a decrease of OPEB related deferred outflows of resources of $0.7 million.
Liabilities and Deferred Inflows of Resources
Net pension and OPEB liabilitie s increased $21.9 million due to increase in net pension liabilities of $23.5 million offset by the decrease of net OPEB liabilities of $1.6 million. Long‐term debt increased $105.0 million due to issuance of COPs amounting to $101.5 million plus $6.5 premium to finance the construction of a public safet y building, offset by the scheduled debt retirements.
Other liabilities increased $26.1 million primarily due to $6.9 million receipt of City’s first of two distributions of the ARPA funding that was recorded as unea rned revenue as the funds are not earned nor spent. Another factor driving the increase w as the recording of a claim liability of $12.6 million for a class action lawsuit.
Pension and OPEB related deferred inflows of resources decrease d $8.2 million due to decrease of $5.8 million pension related inflows of resources a nd decrease of OPEB related deferred inflows of resources of $2.4 million.
Net position
Net investment in capital assets decreased $16.8 million to $48 0.6 million mainly due to current year depreciation for capital assets. Restricted net position increased $7.0 million to $80.3 million primarily due to increases of restricted cash and investments held in the Section 115 Pension Trust and debt service. Unrestricted net position is negative primarily due to the recognition of the net pension and OPEB liabilities as required by GASB Statements Nos. 68 and 75.
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Governmental Activities – Revenues
The table below shows that Governmental Activities revenues tot aled $198.1 million in FY 2021, a decrease of $15.2 million from prior year revenues of $213.3 million.
Increase/
Revenues by Source 2021 2020 (Decrease)
Program Revenues:
Charges for services 55.5 $ 57.1 $ (1.6) $ Operating grants and contributions 3.0 2.6 0.4
Capital grants and contributions 11.3 9.0 2.3
Total Program Revenues 69.8 68.7 1.1 General Revenues:
Property tax 60.9 55.6 5.3
Sales tax 29.1 30.6 (1.5)
Utility user tax 14.6 16.1 (1.5)
Transient occupancy tax 5.2 18.6 (13.4)
Documentary transfer tax 10.6 6.9 3.7
Other tax 2.8 2.9 (0.1)
Investment earnings 4.9 13.8 (8.9)
Miscellaneous 0.2 0.1 0.1
Total General Revenues 128.3 144.6 (16.3)
Total Revenues 198.1 $ 213.3 $ (15.2) $ GOVERNMENTAL ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Program Revenues such as charges for services, operating grants and contributions, and capital grants and contributions are generated from or restricted to ea ch activity. Total Program Revenues increased $1.1 million, or 1.6 percent, from the prior year.
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General Revenues decreased $16.3 million, or 11.3 percent, from the prior year mainly due to decreases in sales tax, utility user tax, transient occupancy tax revenues as a result of the economic impact of the COVID‐ 19 pandemic, and investment earnings due to impact of negative fair market value adjustments.
Further analysis of program revenues and general revenues can be found in the Financial Analysis of Governmental Funds section of the MD&A.
Governmental Activities – Revenues by Source
The chart below presents revenues by source for Governmental Ac tivities. General Revenues are composed of taxes and other revenues not specifically generated by, or restricted to, individual activities. All tax revenues and investment earnings are included in General Revenues.
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Governmental Activities – Expenses
The table below presents a comparison of FY 2021 and FY 2020 expenses by function, along with interest and other expenses and transfers. Total Governmental Activities functional expense was $234.6 million in FY 2021, a decrease of $8.3 million.
Increase/
Activities 2021 2020 (Decrease)
City Council 0.2 $ 0.2 $ ‐ $ City Manager 2.5 3.6 (1.1)
City Attorney 2.3 2.8 (0.5)
City Clerk 0.7 0.8 (0.1)
City Auditor 0.6 0.6 0.0
Administrative Services 23.0 15.9 7.1
Human Resources 2.5 3.0 (0.5)
Public Works 52.7 45.6 7.1
Planning and Development Services 18.1 21.7 (3.6)
Office of Transportation 3.6 4.7 (1.1)
Police 43.6 50.9 (7.3)
Fire 37.1 41.3 (4.2)
Community Services 30.3 34.2 (3.9)
Library 11.1 13.0 (1.9)
Interest and Other Expense 6.3 4.6 1.7
Total Functional Expense 234.6 242.9 (8.3)
Change in Net Position before Transfers (36.5) (29.6) (6.9) Transfers 19.1 20.2 (1.1)
Change in Net Position (17.4) (9.4) (8.0)
Net Position, Beginning 440.6 450.0 (9.4) Net Position, Ending 423.2 $ 440.6$ (17.4)$ GOVERNMENTAL ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 3 0 (in millions)
Functional expenses consisted of depreciation, uncapitalized operating expenses from capital project funds, internal service funds allocation, changes in pension and OPEB liabilities due to deferred contributions, and the amortization of pension and OPEB‐related outflows and inflows of resources.
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Total functional expenses were $234.6 million in the current fi scal year, a decrease of $8.3 million from the prior year mainly due to decreases in salaries and benefits and contract services. All department functional expenses decreased except for a) Public Works which increased $ 7.1 million due to various repairs and maintenance of capital assets such as streets, sidewalks, facilities, and parks all of which are non‐capitalizable; and b) Administrative Services which increased $7.1 million mai nly due to the expenses incurred for claims related to a class action lawsuit of $12.6 million.
Further variance analysis of functional expenses can be found in the Financial Analysis of Governmental Funds section of the MD&A.
Governmental Activities – Functional Expenses
The functional expenses chart below includes only current year expenses. It does not include capital outlays, as those are added to the City’s capital assets. Functions which comprise less than 2 percent of total expenses are combined into the “All Other” category in the chart below. All Other includes City Council, City Manager, City Attorney, City Clerk, City Auditor, and Human Resources.
Community Services
13%
Library
5%
All Other
4%
Administrative
Services
10%
Public Works
22%
Interest and Other
Expense
3%
Planning &
Development Services
8%
Office Of
Transportation
1%
Fire
16%
Police
18%
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Business‐Type Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Business‐type Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.
Increase/
2021 2020 (Decrease)
Cash and investments 285.6 $ 277.4 $ 8.2 $ Other assets 47.7 52.8 (5.1)
Capital assets 708.5 693.2 15.3
Total Assets 1,041.8 1,023.4 18.4 Unamortized loss from refunding 0.1 0.2 (0.1) Pension and OPEB related 24.1 20.9 3.2 Total Deferred Outflows of Resources 24.2 21.1 3.1 Net pension and OPEB liabilities 159.7 153.7 6.0
Long‐term debt 68.9 74.5 (5.6)
Other liabilities 23.8 21.7 2.1
Total Liabilities 252.4 249.9 2.5 Pension and OPEB related 6.4 9.6 (3.2) Total Deferred Inflows of Resources 6.4 9.6 (3.2) Net Position
Net investment in capital assets 642.0 621.3 20.7
Restricted 3.4 4.1 (0.7)
Unrestricted 161.8 159.6 2.2
Total Net Position 807.2 $ 785.0 $ 22.2 $ BUSINESS‐TYPE ACTIVITIES
As of June 30
(in millions)
CONDENSED STATEMENT OF NET POSITION
The City’s Business‐type Activities total net position increased $22.2 million to $807.2 million as of June 30, 2021 due to the following:
Assets and Deferred Outflows of Resources
Cash and investments increased $8.2 million mainly due to incre ases in net position for all enterprise funds except for the Electric Fund.
Other assets decreased $5.1 million mainly due to lower account s receivable balance in the Electric Fund.
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Capital assets increased $15.3 million to $708.5 million primarily due to capital assets addition in the Electric, Wastewater Collection, Wastewater Treatment, S torm Drainage and Airport Funds. These capital assets additions and reduction in related long term debt also contributed to the $20.7 million increase in net investment in capital assets to $642.0 million in FY 2021.
Liabilities and Deferred Inflows of Resources
Pension and OPEB related deferred outflows of resources increas ed $3.2 million due to increases of pension related def erred outflows of resources of $3.5 million offset by the decrease of OPEB related deferred outflows of resources of $0.3 million. Net pension and OPEB liabilities increased $6.0 million due to a $6.6 million increase in net pension liabilities offset by a $0.6 million decrease in net OPEB liabilities. Long term debt decreased $5.6 million due to scheduled debt retirements. Other liabilities increased $2.1 million primarily due to higher year‐end accruals in the Electric and Airport Funds.
Pension and OPEB related deferred inflows of resources decrease d $3.2 million due to a decrease of $2.3 million related pension inflows of resources a nd decrease of OPEB related deferred inflows of resources of $0.9 million.
Net Position
Unrestricted net position of $161.8 million, an increase of $2. 2 million from the prior year, represents assets available to finance day‐to‐day operations and other expenses approved by the City Council. This amount includes rate stabilization reser ves (RSR) of $51.3 million and operations reserves of $69.2 million, along with the electric s pecial projects (Calaveras) reserve of $46.7 million, the hydro stabilization reserve of $1 5.4 million and the CIP reserve of $18.6 million. The positive balances in these reserves are offset by $105.7 million net impact of net pension liabilitie s and its related deferred outf lows of resources and $36.3 million net impact of net OPEB liabilities and its related defe rred outflows of resources and deferred inflows of resources.
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Business‐Type Activities – Revenues
The table below presents the revenues by source of the City’s Business‐type Activities. The City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wast ewater Treatment, Refuse, Storm Drainage, and Airport funds.
BUSINESS‐TYPE ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2021 2020 (Decrease)
Program Revenues:
Charges for services 346.5 $ 353.0 $ (6.5) $ Operating grants and contributions 0.5 0.5 ‐ Capital grants and contributions 6.4 6.4 ‐
Total Program Revenues 353.4 359.9 (6.5) General Revenues:
Investment earnings 2.2 11.5 (9.3)
Total General Revenues 2.2 11.5 (9.3)
Total Revenues 355.6 $ 371.4 $ (15.8) $
Business‐type Activities revenues totaled $355.6 million, a dec rease of $15.8 million from the prior year.
Program revenues decreased $6.5 million year over year. Charges for services decreased $6.5 million from the prior year due to the following:
Electric fund revenue decreased due to lower demand in the comm ercial and industrial sectors as a result of continued limited businesses operations and closures. Refuse fund revenue decreased due to a reduction of commercial and industrial services due to limited business operations and shelter in place restrictions. The decreases mentioned above were partially offset by the increases in Gas Fund revenues due to a 2 percent rate increase and higher residential consumption and in Wastewater Treatment fund as a result of higher billing for capital costs. Storm Drainage and Fiber Optic rates also increased in FY 2021.
Investment earnings decreased $9.3 million from the prior year mainly due to the impact of negative fair market value adjustments.
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Business‐Type Activities – Expenses
The table below presents a comparison of the FY 2021 and FY 202 0 expenses for the City’s Business‐type Activities.
BUSINESS‐TYPE ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30 (in millions)
Increase/
Business‐type Activities 2021 2020 (Decrease)
Water 43.6 $ 43.0 $ 0.6 $
Electric 156.1 142.4 13.7
Fiber Optics 2.5 2.8 (0.3)
Gas 28.6 27.2 1.4
Wastewater Collection 19.6 18.9 0.7
Wastewater Treatment 28.4 28.8 (0.4)
Refuse 29.1 36.9 (7.8)
Storm Drainage 4.9 5.5 (0.6)
Airport 1.5 2.1 (0.6)
Total Functional Expense 314.3 307.6 6.7
Increase in Net Position before Transfers 41.3 63.7 (22.4) Transfers (19.1) (20.2) 1.1
Change in Net Position 22.2 43.5 (21.3)
Net Position, Beginning 785.0 741.5 43.5
Net Position, Ending 807.2 $ 785.0 $ 22.2 $
Business‐type Activities expenses increased $6.7 million for a total of $314.3 million mainly due to the following:
Electric Fund expenses increased $13.7 million due to higher energy purchase costs and increases in operations and maintenance. The availability of hydroelectric energy resources is lower than average and requires electricity purchases at market rates which were significantly higher during the spring of 2021.
Gas Fund expenses increased $1.4 million due to higher commodit y purchases as a result of higher natural gas prices.
Refuse Fund expenses decreased $7.8 million due to lower payments to GreenWaste of Palo Alto for reimbursement of new waste collection vehicles, decreases in facility rent and a downward adjustment to landfill post closure maintenance as a result of a maintenance cost update that was approved in FY 2021.
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FINANCIAL ANALYSIS OF GOVERNMENTAL FUNDS
As noted earlier, the City uses fund accounting to ensure and d emonstrate compliance with finance‐related legal requirements.
The focus of the City’s Governmental Funds is to provide inform ation on near‐term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, the unassigned fund balance may serve as a useful m easure of a government’s net resources available for discretionary use as it represents the portion of fund balance not yet limited to use for a particular purpose by either an external party, the City itself, or an entity that has been delegated authority by the City Council to assign resources for use.
As of June 30, 2021, the City’s Governmental Funds reported com bined fund balances of $365.6 million, an increase of $98.9 million from the prior year mainly due to iss uance of COPs for the construction of a public safety building. Approximately 13.4 percent, or $49.1 million, constitutes unassigned fund balance, which is available for spending at the City’s discretion and other purposes. The remainder of the fund balance is either non‐spendable, restricted, committed, or assigned to indicate t hat it is: 1) not in spendable form ($11.9 million); 2) restricted for particular purposes ($136.8 million ); 3) committed for particular purposes ($90.0 million); or 4) assigned for particular purposes ($77.9 million).
Governmental Fund revenues decreased $13.8 million, or 6.6 percent, from the prior year to $194.9 million.
General Fund revenues decreased $13.6 million and Capital Proje cts Fund revenue increased $1.8 million.
Non‐major Governmental Funds revenue decreased $2.0 million primarily due to suspension of most parking enforcement which decreased the demand for parking permits. The violations were partially offset by an increase in housing in‐lieu fees and federal revenue.
Governmental Fund expenditures were $222.1 million, a decrease of $38.7 million from the prior year.
General Fund expenditures decreased $21.8 million, Capital Proj ects Fund expenditures decreased by $18.2 million, and Non‐major Governmental Funds expenditures increase d by $1.3 million. Details of significant changes are discussed in the following sections.
Governmental Fund other financing resources increased $112.3 million, from the prior year to $126.1 million mainly due to the issuance of COPs for the construction of a public safety building.
General Fund
Balance Sheet
The General Fund is the primary operating fund of the City. At the end of the current fiscal year, the fund balance of the General Fund was $75.6 million, compared to $61.8 million in the prior year. The fund balance is classified as follows: $9.4 million non‐spendable, $4.6 million committed, $12.5 million assigned, and $49.1 million unassigned. The unassigned amount is designated by the City Council for Budget Stabilization Reserve.
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Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Revenues
The City’s General Fund revenues totaled $166.8 million in FY 2 021. This represents a decrease of $13.6 million, or 7.5 percent, compared to the prior year. The year over year change in significant revenue sources is noted in the following table.
Increase/
Revenues by Source 2021 2020 (Decrease)
Property tax 56.6 $ 51.1 $ 5.5 $
Sales tax 29.1 30.6 (1.5)
Utility user tax 14.6 16.1 (1.5)
Transient occupancy tax 5.2 18.6 (13.4)
Documentary transfer tax 10.6 6.9 3.7
Charges for services 25.1 24.1 1.0
Permits and license 7.3 7.5 (0.2)
Rental income 13.3 16.0 (2.7)
Other 5.0 9.5 (4.5)
Total Revenues 166.8 $ 180.4 $ (13.6) $ GENERAL FUND
Revenues for the Year Ended June 30
(in millions)
Property tax revenue increased $5.5 million, or 10.8 percent due to pre‐pandemic assessed value growth and an increase of $1.7 million in the Excess Educational Revenue Augmentation Fund (ERAF) distribution. The FY 2021 secured and unsecured property tax assessed values growth rates are 7.6 percent and 12.7 percent, respectively, a weighted average of 7.8 percent. These higher a ssessed values reflect continued strength in commercial and residential real estate markets. Historically, during economic downturns such as a recession and/or a pandemic, impacts to property tax are delayed a year and then the growth rate typically plateaus.
Over a seven‐year period, ERAF distribution has grown from $0.4 million in FY 2014 to $5.6 million in FY 2021.
Excess ERAF is the fund used to collect and disburse property taxes that are shifted to/from cities, the County, and special districts prior to their reallocation to K‐14 schoo l agencies. When the state shifts more local property tax than required to support schools these funds are returned and known as excess ERAF. Due to the uncertainty of whether local ag encies will continue to receive excess ERAF funds, it is not considered a permanent local revenue source.
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Sales tax receipts were $1.5 million or 4.9 percent, lower than the prior year. The decrease is lower than expected even though there is a significant decline of high‐end g o o d s a n d d i n i n g o p t i o n s a t r e g i o n a l destinations, such as the Stanford Shopping Center, which was o ffset by the strong performance in the business to business segment and online sales. As the nation t ransitions from a shopping center country to online sales, a surge in online retail sales will partially displace tax revenue from traditional industry segments to state and county pools. Online sales data that cannot be tra cked to a specific county jurisdiction are allocated to the Santa Clara County sales tax pool and then distributed to local jurisdictions based on local tax percentages. City’s average proportion of the county pool sales tax allocation is approximately 5.6 percent, a
1.5 percent decrease compared to the fourth calendar quarter of 2019 (pre‐pandemic). The sales tax growth in the second half of FY 2021 is due to high vaccination rates in the Bay Area resulting in increased employment and economic activity.
Utility user tax (UUT) revenues are $1.5 million, or 9.3 percen t, lower compared to prior year due to lower business consumption of electric and telephone services. The telephone UUT receipts declined by $1.2 million or 19.3 percent due to business closures and shelter in place restrictions which reduced the workforce present in the City.
Transient occupancy tax (TOT) continues to be the revenue sourc e most significantly impacted by the pandemic and fell to $5.2 million, a $13.4 million, or 72.0 percent decrease when compared to the prior year.
Six hotels, representing 16.3 percent of available rooms remain ed closed while two other smaller hotels reopened during the fiscal year. However, two Marriott hotels (with around 293 rooms) are newly opened in the middle and end of the fiscal year. The opened hotels average daily room and occupancy rates significantly declined in the first three quarters and partially recovered in the fourth quarter. In FY 2021, the average occupancy rate was 40.6 percent, a 33.4 percent decrease and th e average room rate was $116.90, a 55.9 percent decrease over the prior year.
Documentary transfer tax increased $3.7 million, or 53.6 percent when compared to prior year due to six large commercial property transactions that occurred in FY2021. This revenue source is volatile since it is highly dependent on sales volume and the mix of commercial and residential sales.
Charges for services increased $1.0 million, or 4.1 percent, wh en compared to prior year due to an increase of golf course revenues by $2.3 million which due to higher dem and to play golf after re‐opening during the COVID‐19 pandemic. This increase is offset by reduced programs and classes and fewer reviews and inspections due to limited operations caused by COVID‐19 restrictions.
Rental income decreased $2.7 million, or 16.9 percent, when com pared to prior year due to lower facility rentals and number of tenants due to limited economic activities and some businesses closures. The City has continued to follow the Santa Clara County Moratorium Order to give protection for small businesses and approved a rent forgiveness program.
Other revenues decreased $4.5 million, or 47.4 percent, when co mpared to prior year due to a decrease of investment earnings which resulted from negative fair market value adjustments
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Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Expenditures
General Fund expenditures totaled $160.3 million for FY 2021 co mpared to $182.1 in the prior year. This amount excludes encumbrances and reappropriations. The year over year change for major functions is noted in the following table.
Increase/
Expenditures by Function 2021 2020 (Decrease)
Administrative Services 5.2 $ 6.0 $ (0.8) $ Public Works 13.3 13.6 (0.3)
Planning and Development Services 15.8 19.3 (3.5)
Police 41.3 45.7 (4.4)
Fire 34.9 36.4 (1.5)
Community Services 26.3 29.6 (3.3)
Library 8.5 10.0 (1.5)
Non‐Departmental 4.6 9.2 (4.6)
All other 10.4 12.3 (1.9)
Total Expenditures 160.3 $ 182.1 $ (21.8) $ GENERAL FUND
Expenditures for the Year Ended June 30
(in millions)
General Fund expenditures decreased by $21.8 million, or 12.0 percent compared to prior year primarily due to the decrease in salaries and benefits and reduced contract services. In response to financial uncertainties caused by the COVID‐19 pandemic, the City adopted various strategies to lower expenses such as implementing furloughs to the Management and Professional Group, leaving some vacant positions unfilled, eliminating a few positions, and deferring wage increases to most of the labor unions. The City also reduced service hours and various operating expenditures such as travel and training, program and project consultants, and other contractual services.
Planning and Development expenses decreased $3.5 million primar ily due to reduced contract services due to reorganized building inspection and plan review.
Police expenses decreased $4.4 million mainly due to decreases in salaries and benefits, including overtime, as a result of eliminated positions including specialized polic e teams, detectives, dispatchers, records staff, animal control officers, parking enforcement officers and administration.
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Fire expenses decreased $1.5 million mainly due to decreases in indirect charges such as vehicle replacement allocation and IT support.
Community Services expenses decreased $3.3 million primarily due to decreases in salaries and benefits and contract services. In response to continued governmental restrictions, Community Services Facilities reduced operating hours in community centers, museums, theater and open space preserves. Special events, art exhibits and teen programs were also reduced or eliminated.
Library expenses decreased $1.5 million which was attributed to a decrease in salaries and benefits and reduced contract services as a result of reduced library hours at all branches.
Non‐Departmental expenditures decreased $4.6 million due to red uced lease payments for the Cubberley facility and a one‐time purchase of the current City Manager’s house in FY 2020.
Statement of Revenues, Expenditures and Changes in Fund Balance‐Budget and Actual
Revenues, excluding Charges to Other Funds, were originally bud geted at $163.1 million. Budget estimates were revised downward by $3.9 million. The revenue categories t hat were adjusted are shown in the table below.
Adopted Final Increase/
Budgeted Revenues Budget Budget (Decrease)
Property tax 52.0 $ 53.2 $ 1.2 $
Sales tax 20.5 25.0 4.5
Utility user tax 15.1 14.1 (1.0)
Transient occupany tax 14.9 5.1 (9.8)
Documentary transfer tax 4.7 6.9 2.2
All other 55.9 54.9 (1.0)
163.1 159.2 (3.9)
Charges to other funds 12.0 12.0 ‐
Prior year encumbrances and appropriations ‐ 7.6 7.6 Total Budgeted Revenues 175.1 $ 178.8 $ 3.7 $ GENERAL FUND
Budgeted Revenues for the Year Ended June 30
(in millions)
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Adjustments to the original budget were based on the following:
Property tax was increased by $1.2 million due to property asse ssed value growth and change in ownership.
Sales tax was increased by $4.5 million due to the higher than expected receipts. Utility user tax decreased by $1.0 million due to the lower consumption of both utility commodity and telephone.
Transient occupancy tax decreased by $9.8 million due to contin ued declines in hotel activities and rates.
Documentary transfer tax increased by $2.2 million based on yea r‐to‐date receipts tracking higher than anticipated.
Expenditures, excluding Operating Transfers, were originally bu dgeted at $179.1 million and were revised upward by $8.4 million, for a final budgeted amount of $187.5 million.
Adopted Final Increase/ Actuals, plus
Budgeted Expenditures Budget Budget (Decrease) Encumbrances Community Services 28.4 $ 28.8 $ 0.4 $ 27.8$ Fire 33.6 35.4 1.8 35.4 Police 41.7 42.4 0.7 42.4 Library 8.4 8.7 0.3 8.6 Planning and Development Services 17.4 19.6 2.2 18.8 Public Works 18.4 19.1 0.7 18.6 Non‐Departmental 8.2 9.3 1.1 9.3 All Other 23.0 24.2 1.2 22.9 Total Budgeted Expenditures 179.1 $ 187.5 $ 8.4 $ 183.8 Less: Charges to Other Funds and Departments (11.7)
Less: Encumbrances and Reappropriations (11.8)
Net General Fund Expenditures 160.3$
GENERAL FUND
Budgeted Expenditures for the Year Ended June 30
(in millions)
Adjustments of $8.4 million to the original budget were primari ly due to the $7.6 million carry‐forward of encumbrances from prior year and reappropriations.
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Final actual expenditures totaled $183.8 million, $3.7 million lower than the final budget totaling $187.5 million. As mentioned previously, the Final budget includes enc umbrances and reappropriations carried forward from prior year, totaling $7.6 million. In closing FY 2021, $11.8 million was encumbered and reappropriated in FY 2022. The actual expenditures were lower a s compared with the budget primarily due to reduced contract services.
Transfers out were originally budgeted at $17.8 million, with t he final budget number at $13.6 million, a decrease of $4.2 million. The decrease was due to a reduction of the transfers to Capital Project Fund because of decreases in TOT revenues.
Capital Projects Fund
At the end of the current fiscal year, the fund balance of the Capital Project Fund was $165.7 million, compared to $83.6 million in the prior year. The fund balance is restricted for the Public Safety Building ($90.9 million) and library project ($0.6 million), committed for Roth building rehabilitation ($5.2 million) and Cubberley improvements ($4.7 million) and the remaining balance of $64.3 million is available for all other capital projects.
Capital Projects Fund revenues were $11.4 million in FY 2021, an increase of $1.8 million from the prior year due to federal grant reimbursements while other financing sources were $118.8 million, an increase of $87.9 million mainly due to issuance of COPs amounting to $101.5 mill ion plus $6.5 premium to finance the construction of a public safety building partially offset by the decrease of operating transfers in from General Fund due to significant decreases in revenues, including TOT.
Capital Project Fund expenditures were $48.1 million in FY 2021 , a decrease of $18.2 million. To manage resources with funding needs and balance for the City’s severe decrease in TOT revenues resulting from the pandemic, the most critical capital investments were prioritize d and project budget for other projects were deferred into later years or beyond the five‐year capital plan.
Non‐Major Governmental Funds
These funds are not presented separately in the Basic Financial Statements but are individually presented in the Other Supplemental Information.
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FINANCIAL ANALYSIS OF ENTERPRISE FUNDS
At June 30, 2021, the City’s Enterprise Funds reported total net position of $807.2 million, an increase of $22.2 million or 2.8 percent from the prior year. All Enterprise fund s contributed to this increase except Electric Fund.
The changes in net position in the Enterprise Funds are summarized in the following table.
ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2021 2020 (Decrease)
Water 6.6 $ 8.0 $ (1.4)$
Electric (4.8) 18.6 (23.4)
Fiber Optics 1.5 2.9 (1.4)
Gas 3.5 3.0 0.5
Wastewater Collection 0.7 2.1 (1.4)
Wastewater Treatment 3.1 0.3 2.8
Refuse 1.9 (3.1) 5.0
Storm Drainage 3.0 2.2 0.8
Airport 6.7 5.6 1.1
Total Change in Net Position 22.2 $ 39.6 $ (17.4) $
The most significant factors in the change in net position between years for Enterprise Funds are as follows:
The Water and Fiber Optic Funds operating income has no significant change, however, the change in net position for both funds decreased $1.4 million from prior y ear due to decline in other revenues specifically interest earnings due to the impact of negative fair market value adjustments. The change in net position for Electric Fund decreased $23.4 million from prior year due to decrease in commercial retail revenues as a result of lower consumption, a decrease in investment earnings due to the impact of negative fair market value adjustments, an increase in purchases of electricity due to low hydroelectric supply, and an increase in operations and maintenance expenses. The change in net position for Wastewater Collection Fund decreased $1.4 million due to lower non‐ residential sewer charges, lower non‐operating revenue includin g interest earnings and an increase in operating expenses
The change in net position for Wastewater Treatment Fund increased $2.8 million due to higher billing to partners for capital costs and decreases in operations and maintenance expenses. The change in net position of Refuse Fund increased $5.0 millio n due to a decrease in operating expenses as a result of lower payment to GreenWaste of Palo Alto for reimbursements of new waste collections and vehicles, a decrease in facility rent and downward adjustment to landfill post closure maintenance. The decrease of operating expenses was partially o ffset by lower revenues including investment earnings.
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CAPITAL ASSETS
GASB Statement No. 34 requires that the City record all its cap ital assets, including infrastructure and intangible assets. Infrastructure includes roads, bridges, signals and similar assets used by the entire population. The table below shows capital assets and the amoun t of accumulated depreciation for these assets for Governmental and Business‐type Activities. Further detail can be found in Note 6 to the financial statements.
Increase/
2021 2020 (Decrease)
Governmental activites
Capital Assets
Land and improvements 82.1 $ 82.2 $ (0.1) Street trees 14.8 14.8 ‐
Construction in progress 137.8 139.4 (1.6) Building and improvements 272.1 251.1 21.0 Intangible assets 3.8 3.8 ‐ Equipment 17.2 15.7 1.5
Roadway network 335.3 335.2 0.1 Recreation and open space network 35.2 35.2 ‐ Less accumulated depreciation (319.3) (302.5) (16.8) Internal Service funds
Construction in progress 5.6 2.7 2.9 Equipment 63.1 63.5 (0.4) Less accumulated depreciation (45.7) (44.8) (0.9) Total Governmental Activities 602.0 $ 596.3 $ 5.7 $ Business‐Type Activities
Land 5.0 $ 5.0 $ ‐ $
Construction in progress 129.0 121.1 7.9 Buildings and improvements 74.5 74.5 ‐ Infrastructure 0.6 0.6 ‐ Transmission, distribution and treatment systems 914.8 884.8 30.0 Less accumulated depreciation (415.4) (392.8) (22.6) Total Business‐type Activities 708.5 $ 693.2 $ 15.3 $ CAPITAL ASSETS AT JUNE 30
(in millions)
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Governmental Activities’ capital assets net of depreciation increased by $5.7 million from the prior year. The increase was primarily due to activity in various projects such as the Highway 101 Pedestrian / Bicycle overpass, the Public Safety Building and California Avenue Parking Garage offset with retirements.
The City Council approved a $125.8 million Infrastructure Plan (IP) in June 2014, which includes projects such as a new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan and two parking garages. Through the development of the 2021‐2025 Capital Impro vement Plan (CIP), the IP projects were updated resulting in a revised Infrastructure Plan of $260.5 million. These projects will be funded partially by debt to be repaid with voter‐approved increases of 3.5 percent in the TOT rate and from other sources such as impact fees and Stanford University Medical Center developme nt agreement monies. Staff is continually assessing the COVID‐19 impact to maintain funding for these projects.
Major Governmental Activities’ capital projects that are currently in progress, including the remaining capital commitment of each, are as follows:
Public Safety Building ‐ $97.1 million
Charleston Arastradero Corridor – $7.4 million
Municipal Service Center Improvements – $6.0 million
Churchill Ave/Alma – $4.2 million
Railroad Grade Separation – $4.0 million
Highway 101 Pedestrian/Bicycle Overpass – $3.7 million Vehicle Replacements – $3.3 million
Business‐type Activities’ capital assets net of depreciation increased by $15.3 million from the prior year. The increase is primarily due to, Electric, Wastewater Collection, Wastewater Treatment, Storm Drain and Airport Funds.
Major Business‐type Activities’ capital projects that are currently in progress, including the remaining capital commitment of each, are as follows:
Seismic Water System Upgrade – $5.3 million
Gas Main Replacement Project 23 – $6.9 million
Primary Sedimentation Tank Rehabilitation – $11.8 million Airport Apron Reconstruction Phase 1 – $23.3 million
The City depreciates its capital assets over their estimated useful lives, as required by GASB Statement No. 34.
The purpose of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable portion of the cost of the asset is borne by all user s. Additional information on capital assets and depreciable lives are in Note 6.
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DEBT ADMINISTRATION
Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements. The City’s debt as of June 30, 2021 is shown in the following table.
Increase/
2021 2020 (Decrease)
Governmental Activities
General Long‐Term Obligations
General Obligation Bonds
2010 42.0 $ 43.3 $ (1.3) $
Add: unamortized premium 2.3 2.5 (0.2)
2013A 15.0 15.5 (0.5)
Add: unamortized premium 0.7 0.8 (0.1)
Certificates of Participation
2018 Capital Improvement Projects 8.6 8.7 (0.1)
2019 California Ave Parking Garage
Series A & B 36.4 37.0 (0.6)
Add: unamortized premium 4.5 4.7 (0.2)
2021 Public Safety Building 101.5 ‐ 101.5 Add: unamortized premium 6.5 ‐ 6.5
Total Governmental Activities 217.5 $ 112.5 $ 105.0 $ Business‐type Activities
Enterprise Long‐Term Obligations
Utility Revenue Bonds
1999 Refunding 5.1 $ 6.7 $ (1.6)$
2009 Series A 24.3 25.5 (1.2)
2011 Refunding 6.7 7.9 (1.2)
Add: unamortized premium 0.4 0.5 (0.1) Energy Tax Credit Bonds
2007 Series A 0.1 0.2 (0.1)
Less: unamortized discount ‐ (0.1) 0.1 State Water Resources Loan
2007 3.6 4.0 (0.4)
2009 4.8 5.3 (0.5)
2017 23.9 24.5 (0.6)
Total Business‐type Activities 68.9 $ 74.5 $ (5.6) $ LONG‐TERM DEBT AT JUNE 30
(in millions)
City‐wide long‐term debt increased by a total of $99.4 million mainly due the issuance of COPs for the construction of the public safety building in the amount of $10 1.5 million plus $6.5 million premium which was offset by the scheduled debt retirement.
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ECONOMIC OUTLOOK
The COVID‐19 pandemic came with the strict orders for the safet y of the public which resulted in a drastic drop in revenues. In FY2021, the City took swift, decisive, an d difficult action to balance the budget by prioritizing essential services and reducing or eliminating discretionary services, while continue to address its long‐term liabilities such as pension and OPEB obligations. Th e fiscal challenges remain constant as the COVID‐19 pandemic continues. The City will maintain services at the same levels in previous year for the upcoming fiscal year, but these service levels are not sustaina ble for the fiscal health of the City in the long term. The FY 2022 adopted Operating and Capital reflects current fiscal reality, however, as hopeful signs for recovery continue, the City will respond quickly and adapt shoul d m o r e m o d e r a t e g r o w t h o c c u r t h a n forecasted.
More information about the economy of the City is discussed in the accompanying Transmittal Letter.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
The ACFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the City’s finances. Questions about this report should be directed to the Administrative Services Department, located at 250 Hamilton Avenue, 4 th Floor, Palo Alto, California. The Department can also be conta cted by email at: [email protected]. This report and other financial reports can be viewed on the City of Palo Alto website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative Services, and select Financial Reporting https://www.cityofpaloalto.org/Departments/Administrative‐ Services/Financial‐Reporting. Within Financial Reporting, there are links to reports by title and reporting date.
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CITY OF PALO ALTO
Statement of Net Position
June 30, 2021
(Amounts in thousands)
Governmental Business‐Type
Activities Activities Total
ASSETS:
Cash and investments available for operations (Note 3) 310,091 $ 282,271 $ 592,362 $ Receivables, net:
Accounts and intergovernmental 16,099 43,321 59,420 Interest receivable 1,544 1,405 2,949 Notes and loans receivable (Note 5) 53,677 ‐ 53,677 Internal balances (Note 4) (298) 298 ‐ Deposits 15 ‐ 15
Due from other government agencies ‐ 2,400 2,400 Inventory of materials and supplies, prepaids and deposits 5,615 244 5,859 Restricted cash and investments with fiscal agents and trustees (Note 3) 133,264 3,340 136,604 Capital assets (Note 6):
Nondepreciable 243,923 133,909 377,832 Depreciable, net of accumulated depreciation 358,056 574,600 932,656 Total assets 1,121,986 1,041,788 2,163,774 DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding ‐ 149 149 Pension related (Note 11) 45,531 18,119 63,650 OPEB related (Note 12) 15,271 6,012 21,283 Total deferred outflows of resources 60,802 24,280 85,082 LIABILITIES:
Accounts payable and accruals 14,812 16,432 31,244 Accrued salaries and benefits 2,679 1,224 3,903 Unearned revenue 9,400 ‐ 9,400 Accrued compensated absences (Note 1):
Due in one year 6,327 ‐ 6,327 Due in more than one year 9,320 ‐ 9,320 Claims payable (Notes 14 and 16):
Due in one year 6,811 ‐ 6,811 Due in more than one year 38,339 ‐ 38,339 Landfill post‐closure liability (Note 9):
Due in more than one year ‐ 6,179 6,179 Net pension liabilities (Note 11):
Due in more than one year 349,296 123,787 473,083 Net OPEB liabilities (Note 12):
Due in more than one year 88,883 35,915 124,798 Long‐term debt (Note 7):
Due in one year 3,264 5,757 9,021 Due in more than one year 214,270 63,153 277,423 Total liabilities 743,401 252,447 995,848 DEFERRED INFLOWS OF RESOURCES:
OPEB related (Note 12) 16,250 6,402 22,652 NET POSITION (Note 10):
Net Investment in capital assets 480,620 642,018 1,122,638 Restricted for:
Transportation mitigation 12,512 ‐ 12,512 Public benefit 18,282 ‐ 18,282 Supplemental pension 37,089 ‐ 37,089 Others 6,077 ‐ 6,077
Debt service 3,749 3,340 7,089 Nonexpendable ‐ Eyerly Family 2,556 ‐ 2,556 Total restricted net position 80,265 3,340 83,605 Unrestricted (137,748) 161,861 24,113 Total net position $ 423,137 $ 807,219 $ 1,230,356 See accompanying notes to the basic financial statements. 31 5.b
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CITY OF PALO ALTO
Statement of Activities
For the Year Ended June 30, 2021
(Amounts in thousands)
Net (Expense) Revenue and
Program Revenues Changes in Net Position
Operating Capital
Charges for Grants and Grants and Governmental Business‐Type Functions/Programs Expenses Services Contributions Contributions Act ivities Activities Total Governmental Activities:
City Council 178 $ ‐ $ ‐ $ ‐ $ (178)$ ‐ $ (178)$ City Manager 2,466 ‐ ‐ ‐ (2,466) ‐ (2,466) City Attorney 2,292 ‐ ‐ ‐ (2,292) ‐ (2,292) City Clerk 702 ‐ ‐ ‐ (702) ‐ (702) City Auditor 641 ‐ ‐ ‐ (641) ‐ (641) Administrative Services 22,985 1,150 457 ‐ (21,378) ‐ (21,378) Human Resources 2,518 ‐ ‐ ‐ (2,518) ‐ (2,518) Public Works 52,727 937 ‐ 9,748 (42,042) ‐ (42,042) Planning and Development Services 18,141 21,228 1,191 ‐ 4,278 ‐ 4,278 Office of Transportation 3,636 80 ‐ 118 (3,438) ‐ (3,438) Police 43,627 2,008 414 ‐ (41,205) ‐ (41,205) Fire 37,131 9,127 888 51 (27,065) ‐ (27,065) Community Services 30,289 20,893 49 1,409 (7,938) ‐ (7,938) Library 11,145 47 34 ‐ (11,064) ‐ (11,064) Interest on long‐term debt 6,317 ‐ ‐ ‐ (6,317) ‐ (6,317) Total Governmental Activities 234,795 55,470 3,033 11,326 (164,966) ‐ (164,966) Business‐Type Activities:
Water 43,556 48,812 462 533 ‐ 6,251 6,251 Electric 156,105 162,240 ‐ ‐ ‐ 6,135 6,135 Fiber Optics 2,529 3,936 ‐ ‐ ‐ 1,407 1,407 Gas 28,556 39,520 ‐ ‐ ‐ 10,964 10,964 Wastewater Collection 19,577 20,484 ‐ 239 ‐ 1,146 1,146 Wastewater Treatment 28,403 30,522 ‐ ‐ ‐ 2,119 2,119 Refuse 29,138 30,636 ‐ ‐ ‐ 1,498 1,498 Storm Drainage 4,897 7,785 ‐ ‐ ‐ 2,888 2,888 Airport 1,499 2,585 ‐ 5,619 ‐ 6,705 6,705 Total Business‐Type Activities 314,260 346,520 462 6,391 ‐ 39,113 39,113 Total 549,055 $ 401,990 $ 3,495 $ 17,717$ (164,966) 39,113 (125,853) General Revenues:
Taxes:
Property tax 60,901 ‐ 60,901 Sales tax 29,127 ‐ 29,127
Utility user tax 14,642 ‐ 14,642 Transient occupancy tax 5,179 ‐ 5,179 Documentary transfer tax 10,627 ‐ 10,627 Other taxes 2,844 ‐ 2,844 Investment earnings 4,939 2,187 7,126 Miscellaneous 183 ‐ 183 Transfers (Note 4) 19,087 (19,087) ‐ Total general revenues and transfers 147,529 (16,900) 130,629 Change in net position (17,437) 22,213 4,776 Net position, beginning of year 440,574 785,006 1,225,580 Net position, end of year 423,137$ 807,219 $ 1,230,356$ See accompanying notes to the basic financial statements. 33 5.b
Packet Pg. 198
34 This page is left intentionally blank.
5.b
Packet Pg. 199
CITY OF PALO ALTO
Governmental Funds
Balance Sheet
June 30, 2021
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
ASSETS:
Cash and investments available for operations (Note 3) 67,397 $ 79,13 0$ 66,758 $ 213,285$ Receivables, net:
Accounts and intergovernmental 14,053 1,429 519 16,001 Interest receivable 645 26 389 1,060 Notes and loans receivable (Note 5) 826 ‐ 52,851 53,677 Deposits 15 ‐ ‐ 15 Prepaid items 291 ‐ ‐ 291 Due from other fund (Note 4) 943 ‐ ‐ 943 Advances to other funds (Note 4) 3,036 ‐ ‐ 3,036 Inventory of materials and supplies 5,208 ‐ ‐ 5,208 Restricted cash and investments with fiscal agents (Note 3) ‐ 91,52 0 4,655 96,175 Total assets 92,41 4$ 172,105$ 125,172 $ 389,691 $ LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES:
Liabilities:
Accounts payable and accruals 5,115 $ 5,350 $ 495 $ 10,96 0$ Accrued salaries and benefits 2,25 4 141 34 2,429 Unearned revenue 9,400 ‐ ‐ 9,400 Due to other funds (Note 4) ‐ ‐ 341 341 Total liabilities 16,769 5,491 870 23,13 0 Deferred inflows of resources
Deferred inflows of resources ‐ Unavailable revenue 9 910 ‐ 919 16,778 6,401 870 24,049 Fund balances (Note 10):
Nonspendable:
Deposits 15 ‐ ‐ 15 Prepaid items 291 ‐ ‐ 291 Inventories 5,208 ‐ ‐ 5,208 Advances to other funds 3,036 ‐ ‐ 3,036 Notes and loans receivable 826 ‐ ‐ 826 Eyerly family ‐ ‐ 2,556 2,556 Restricted for:
Transportation mitigation ‐ ‐ 12,512 12,512 Federal revenue ‐ ‐ 5,293 5,293 Street improvement ‐ ‐ 28 28 Local law enforcement ‐ ‐ 756 756 Public safety building ‐ 90,922 ‐ 90,922 Library bond project ‐ 598 ‐ 598 Public benefit ‐ ‐ 18,282 18,282 Debt service ‐ ‐ 8,40 4 8,40 4 Committed for:
Development services 3,950 ‐ ‐ 3,950 Roth building rehabilitation ‐ 5,179 ‐ 5,179 Cubberley improvements ‐ 4,726 ‐ 4,726 Developer impact fees ‐ ‐ 13,30 0 13,30 0 Housing in‐lieu ‐ ‐ 58,883 58,883 Special districts ‐ ‐ 3,186 3,186 Edgewood Plaza 701 ‐ ‐ 701 Downtown business ‐ ‐ 50 50 Assigned for:
Unrealized gains on investments 1,891 ‐ 1,052 2,943 Capital projects ‐ 64,279 ‐ 64,279 Other general government purposes 5,912 ‐ ‐ 5,912 Electric charger 30 ‐ ‐ 30 Reappropriations 4,687 ‐ ‐ 4,687 Unassigned for:
Budget Stabilization 49,089 ‐ ‐ 49,089 Total fund balances 75,636 165,70 4 124,302 365,642 Total liabilities, deferred inflows of resources, and fund balances 92,414$ 172,105$ 125,172 $ 389,691 $ Total liabilities and deferred inflows of resources
See accompanying notes to the basic financial statements. 35 5.b
Packet Pg. 200
CITY OF PALO ALTO
Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position ‐ Governmental Activities June 30, 2021
Total fund balances reported on the governmental funds balance sheet 365,642 $ Amounts reported for governmental activities in the statement of net position are different from those reported in the governmental funds balance sheet because of the following:
Deferred outflows and inflows of resources in governmental activities are not financial resources and, therefore, are not reported in the governmental funds.
Deferred outflows of resources 60,802
Deferred inflows of resources (16,250)
Certain receivables are not available to pay for current period expenditures and therefore are deferred in the governmental funds. 919 Capital assets used in governmental activities are not current assets or financial resources and therefore are not reported in the governmental funds. 601,979 Internal service funds are used by management to charge the costs of activities such as insurance, equipment acquisition and maintenance, and certain employee benefits to individual funds. The assets and liabilities of the internal service funds are therefore included in governmental activities in the statement of net position (excludes capital assets, deferred outflows of resources, deferred inflows of resources, net pension liabilities and net OPEB liabilities reported herein) 80,520
Some liabilities, including bonds payable and claims payable, are not due and payable in the current period and therefore are not reported in the governmental funds:
Interest payable (2,143)
Net pension liabilities (Note 11) (349,296)
Net OPEB liabilities (Note 12) (88,883)
Claims payable (Note 14 and 16) (12,619)
Long‐term debt (Note 7) (217,534)
Net position of governmental activities 423,137 $
(Amounts in thousands)
See accompanying notes to the basic financial statements. 36 5.b
Packet Pg. 201
CITY OF PALO ALTO
Governmental Funds
Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2021
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
REVENUES:
Property tax 56,572 $ ‐ $ 4,329$ 60,901 $ Special assessments ‐ ‐ 5 5 Sales tax 29,127 ‐ ‐ 29,127 Utility user tax 14,642 ‐ ‐ 14,642 Transient occupancy tax 5,179 ‐ ‐ 5,179 Documentary transfer tax 10,627 ‐ ‐ 10,627 Other taxes and fines 683 ‐ 2,816 3,499 Charges for services 25,105 1 ‐ 25,106 Intergovernmental 3,828 10,087 1,337 15,252 Licenses, permits and fees 7,261 ‐ 2,161 9,422 Investment earnings (161) 1,03 4 175 1,048 Rental income 13,293 ‐ ‐ 13,293 Housing In‐Lieu ‐ residential ‐ ‐ 5,80 4 5,80 4 Other revenue 632 247 154 1,033 Total revenues 166,78 8 11,369 16,781 194,93 8 EXPENDITURES:
Current:
City Council 224 ‐ ‐ 224 City Manager 2,30 4 ‐ ‐ 2,30 4 City Attorney 2,149 ‐ ‐ 2,149 City Clerk 748 ‐ ‐ 748 City Auditor 645 ‐ ‐ 645 Administrative Services 5,202 ‐ 261 5,463 Human Resources 2,421 ‐ ‐ 2,421 Public Works 13,265 ‐ 1,427 14,692 Planning and Development Services 15,83 0 ‐ 1,285 17,115 Office of Transportation 1,936 ‐ 1,437 3,373 Police 41,328 ‐ 36 41,36 4 Fire 34,918 ‐ ‐ 34,918 Community Services 26,25 4 ‐ 236 26,49 0 Library 8,528 ‐ ‐ 8,528 Non‐Departmental 4,599 ‐ 255 4,85 4 Capital outlay ‐ 48,11 4 ‐ 48,11 4 Debt service:
Principal ‐ ‐ 2,595 2,595 Interest and fiscal charges ‐ ‐ 6,147 6,147 Total expenditures 160,351 48,11 4 13,679 222,14 4 EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 6,437 (36,745) 3,102 (27,206) OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ 95,476 6,029 101,505 Original debt premium ‐ 6,52 4 ‐ 6,52 4 Proceeds from sale of capital assets 100 ‐ ‐ 100 Transfers in (Note 4) 20,88 0 19,198 3,480 43,558 Transfers out (Note 4) (13,620) (2,380) (9,564) (25,564) Total other financing sources (uses) 7,360 118,81 8 (55) 126,123 Change in fund balances 13,797 82,073 3,047 98,917 FUND BALANCES, BEGINNING OF YEAR 61,839 83,631 121,255 266,725 FUND BALANCES, END OF YEAR 75,636 $ 165,70 4$ 124,302 $ 365,642 $ See accompanying notes to the basic financial statements. 37 5.b
Packet Pg. 202
CITY OF PALO ALTO
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ‐ Governmental Activities For the Year Ended June 30, 2021
Net change in fund balances ‐ total governmental funds 98,917 $ Amounts reported for governmental activities in the statement of activities are different from those reported in the governmental funds because of the following:
Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of these assets are capitalized and allocated over their estimated useful lives and reported as depreciation expense. Therefore, the activities associated with capital assets are as follows:
Capital outlay added back to fund balance for current year additions 33,525 Depreciation expense is deducted from fund balance (depreciation expense is net of internal service fund depreciation of $3,153) (Note 6), which has already been allocated through the internal service fund activities below (17,136) Disposal of capital assets (12,291)
Pension and OPEB contribution made subsequent to the measurement date is an expenditure in the governmental funds, but reported as a deferred outflows of resources in the government‐wide financial statements 41,324 Pension and OPEB expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds (50,170)
Principal payments on long‐term liabilities are reported as expenditures in governmental funds when paid. The governmental activities, however, report principal payments as a reduction of long‐term debt on the statement of net position. Interest accrued on long‐term debt, amortization of premium, and changes in claims payable do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Therefore, the activities associated with these balances are as follows:
Principal paid during the year 2,595
Proceeds from debt issuance (101,505)
Original debt premium (6,524)
Change in interest payable (575)
Amortization of bond premium 405
Change in claims payable (12,619)
Revenues earned but not available are deferred in the governmental funds but are recognized in the government‐wide financial statements. Also, revenues recognized in the governmental funds during the current year that were earned and recognized in previous years in the government‐wide financial statements are reported as beginning net position in the statement of activities (563)
Internal service funds are used by management to charge the costs of activities, such as insurance, equipment acquisition and maintenance, and employees benefits to individual funds. The portion of the net expense of these internal service funds arising out of their transactions with governmental funds is reported with governmental activities. 7,180
Change in net position of governmental activities (17,437)$ (Amounts in thousands)
See accompanying notes to the basic financial statements. 38 5.b
Packet Pg. 203
Budgeted Amounts
Actual, Budgetary Variance with
Adopted Final Basis Final Budget
52,000$ 53,173 $ 56,572 $ 3,399 $ 20,500 25,030 29,127 4,097 15,100 14,080 14,642 562 14,900 5,123 5,179 56 Documentary transfer tax 4,700 6,875 10,627 3,752 1,925 392 683 291 25,984 24,41 4 25,105 691 2,448 4,580 4,222 (358) 7,770 8,366 7,708 (658) 1,145 1,145 1,062 (83) 15,949 15,331 13,293 (2,038) 674 666 732 66 163,095 159,175 168,952 9,777 11,992 11,992 11,661 (331) ‐ 7,570 7,570 ‐ 175,087 178,737 188,183 9,446 419 509 366 143 3,161 3,562 3,492 70 3,485 3,744 3,589 155 1,245 1,293 1,147 146 828 981 962 19 8,362 8,338 7,897 441 3,554 3,622 3,545 77 18,397 19,089 18,553 536 17,386 19,611 18,782 829 Office of Transportation 1,904 2,139 2,010 129 Police 41,733 42,441 42,441 ‐ 33,607 35,35 4 35,35 4 ‐ 28,379 28,839 27,769 1,070 8,421 8,655 8,636 19 8,237 9,332 9,259 73 179,118 187,509 183,802 3,707 (4,031) (8,772) 4,381 13,153 21,359 21,15 4 21,15 4 ‐ (17,801) (13,620) (13,620) ‐ 3,558 7,534 7,534 ‐ (473)$ (1,238)$ 11,915 13,153 $ Unrealized gain/loss on investments (1,297)
Changes in interfund balances (197)
Current year encumbrances and reappropriations 10,946
Prior year encumbrances and reappropriations (7,570)
13,797
61,839
75,636$
REVENUES:
CITY OF PALO ALTO
General Fund
Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual For the Year Ended June 30, 2021
(Amounts in thousands)
Charges to other funds and departments
Sales tax
Property tax
Transient occupancy tax
Utility user tax
Other taxes and fines
Charges for services
Licenses, permits and fees
Investment earnings
Rental income
Intergovernmental
Other revenues
City Auditor
City Clerk
City Council
City Manager
Administrative Services
Prior year encumbrances
Total revenues
EXPENDITURES:
Current:
City Attorney
Community Services
Total other financing sources (uses)
Human Resources
Library
Planning and Development Services
Total expenditures
EXCESS OF REVENUES OVER EXPENDITURE
S
OTHER FINANCING SOURCES (USES):
Transfers in
Transfers out
Public Works
Non‐Departmental
Fire
FUND BALANCE AT BEGINNING OF YEAR, GAAP BASI
S
FUND BALANCE AT END OF YEAR, GAAP BASIS
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER)
EXPENDITURES, BUDGETARY BASIS
Adjustment to Budgetary Basis:
CHANGE IN FUND BALANCE, GAAP BASIS
See accompanying notes to the basic financial statements. 39 5.b
Packet Pg. 204
Fiber
Water Electric Optics Gas
ASSETS:
Current assets:
Cash and investments available for operations (Note 3) 46,602 $ 107,044 $ 35,983 $ 30,484 $ Accounts receivable, net of allowance of $1,551 6,636 19,244 864 2,996 Interest receivable 228 540 178 149 Due from other government agencies ‐ ‐ ‐ ‐ Inventory of materials and supplies ‐ ‐ ‐ ‐ Restricted cash and investments with fiscal agents and trustees (Note 3) 2,906 ‐ ‐ 434 Total current assets 56,372 126,828 37,025 34,063 Noncurrent assets:
Due from other government agencies ‐ ‐ ‐ ‐ Deposits ‐ 44 ‐ ‐ Prepaid expense 67 ‐ ‐ ‐ Capital assets (Note 6):
Nondepreciable 17,926 35,248 2,236 17,925 Depreciable, net 115,588 174,828 7,075 93,347 Total noncurrent assets 133,581 210,120 9,311 111,272 Total assets 189,953 336,948 46,336 145,335 DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding 65 ‐ ‐ 84 Pension related (Note 11) 2,660 6,164 349 2,740 OPEB related (Note 12) 757 2,284 83 961 Total deferred outflows of resources 3,482 8,448 432 3,785 LIABILITIES:
Current liabilities:
Accounts payable and accruals 2,175 4,663 275 1,185 Accrued salaries and benefits 176 413 19 182 Due to other funds ‐ ‐ ‐ ‐ Accrued compensated absences (Note 1) ‐ ‐ ‐ ‐ Current portion of long term debt (Note 7) 1,852 100 ‐ 693 Accrued claims payable (Note 14) ‐ ‐ ‐ ‐ Total current liabilities 4,203 5,176 294 2,060 Noncurrent liabilities:
Accrued compensated absences (Note 1) ‐ ‐ ‐ ‐ Accrued claims payable (Note 14) ‐ ‐ ‐ ‐ Advance from other fund (Note 4) ‐ ‐ ‐ ‐ Landfill post‐closure liability (Note 9) ‐ ‐ ‐ ‐ Net pension liabilities (Note 11) 16,803 40,376 2,587 17,532 Net OPEB liabilities (Note 12) 4,009 13,022 67 5,786 Long term debt, net of
unamortized discounts/premiums (Note 7) 26,051 (5) ‐ 3,223 Total noncurrent liabilities 46,863 53,393 2,654 26,541 Total liabilities 51,066 58,569 2,948 28,601 DEFERRED INFLOWS OF RESOURCES:
OPEB related (Note 12) 802 2,495 17 1,024 NET POSITION (Note 10):
Net Investment in capital assets 105,676 209,851 9,311 107,440 Restricted for:
Debt service 2,906 ‐ ‐ 434 Supplemental pension ‐ ‐ ‐ ‐ Unrestricted (deficit) 32,985 74,481 34,492 11,621 Total net position 141,567 $ 284,332 $ 43,803 $ 119,495 $ Some amounts reported for Business‐type Activities in the statement of net position are different because certain Internal Service Fund net positions are included with Business‐type Activities Net position reported in Business‐type Activities
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Net Position
June 30, 2021
(Amounts in thousands)
See accompanying notes to the basic financial statements. 40 5.b
Packet Pg. 205
Governmental
Non‐Major Activities ‐
Wastewater Wastewater Storm Internal Servic e
Collection Treatment Refuse Drainage Airport Totals Funds 9,358$ 16,076 $ 28,363 $ 8,361 $ ‐ $ 282,271$ 96,806 $ 2,709 2,601 3,297 890 4,084 43,321 98 46 83 139 42 ‐ 1,405 484 ‐ 300 ‐ ‐ ‐ 300 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 116 ‐ ‐ ‐ ‐ ‐ 3,340 37,089 12,113 19,060 31,799 9,293 4,084 330,637 134,593 ‐ 2,100 ‐ ‐ ‐ 2,100 ‐ ‐ ‐ ‐ ‐ ‐ 44 ‐ ‐ 133 ‐ ‐ ‐ 200 ‐ 4,784 11,152 1,952 12,121 30,565 133,909 5,587 88,204 58,783 3,076 30,801 2,898 574,600 17,354 92,988 72,168 5,028 42,922 33,463 710,853 22,941 105,101 91,228 36,827 52,215 37,547 1,041,490 157,534 ‐ ‐ ‐ ‐ ‐ 149 ‐ 1,256 3,355 765 695 135 18,119 2,578 368 930 422 152 55 6,012 844 1,624 4,285 1,187 847 190 24,280 3,422 667 1,248 3,127 127 2,965 16,432 1,709 91 242 46 37 18 1,224 250 ‐ ‐ ‐ ‐ 602 602 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6,327 110 2,187 ‐ 815 ‐ 5,757 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6,811 868 3,677 3,173 979 3,585 24,015 15,097 ‐ ‐ ‐ ‐ ‐ ‐ 9,320 ‐ ‐ ‐ ‐ ‐ ‐ 25,720 ‐ ‐ ‐ ‐ 3,036 3,036 ‐ ‐ ‐ 6,179 ‐ ‐ 6,179 ‐ 9,624 24,633 6,661 4,682 889 123,787 17,548 2,212 6,874 2,458 1,083 404 35,915 4,800 238 31,896 ‐ 1,750 ‐ 63,153 ‐ 12,074 63,403 15,298 7,515 4,329 232,070 57,388 12,942 67,080 18,471 8,494 7,914 256,085 72,485 392 1,001 449 163 59 6,402 897 92,640 38,252 5,028 40,357 33,463 642,018 22,941 ‐ ‐ ‐ ‐ ‐ 3,340 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 37,089 751 (10,820) 14,066 4,048 (3,699) 157,925 27,544 93,391$ 27,432 $ 19,094 $ 44,405 $ 29,764 $ 803,283 87,574 $ 3,936
807,219$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements. 41 5.b
Packet Pg. 206
Fiber
Water Electric Optics Gas
OPERATING REVENUES:
Sales to:
Customers 44,154 $ 124,153$ 2,878 $ 36,583$ City departments 2,532 4,167 1,045 542 Surplus energy ‐ 9,286 ‐ ‐ Service connection charges and miscellaneous 1,239 942 12 845 Charges for services ‐ ‐ ‐ ‐ Other 887 23,692 1 1,550 Total operating revenues 48,812 162,240 3,936 39,520 OPERATING EXPENSES:
Purchase of utilities:
Retail purchase of utilities 21,935 92,088 ‐ 12,750 Surplus energy ‐ 6,373 ‐ ‐ Administrative and general 5,771 9,605 873 4,285 Engineering (operating) 663 2,409 ‐ 571 Resource management and energy efficiency 1,216 6,597 ‐ 968 Operations and maintenance 7,401 17,191 1,249 6,225 Rent 2,225 5,950 52 471 Depreciation 3,127 8,637 420 3,409 Claims payments and changes in
estimated self‐insurance liability ‐ ‐ ‐ ‐ Refund of charges for services ‐ ‐ ‐ ‐ Employment benefits ‐ ‐ ‐ ‐ Total operating expenses 42,338 148,850 2,594 28,679 Operating income 6,474 13,390 1,342 10,841 NONOPERATING REVENUES (EXPENSES):
Investment earnings 366 941 268 205 Interest expense (1,476) (7,760) ‐ (104) Gain on disposal of capital assets ‐ ‐ ‐ ‐ Loss on disposal of capital assets (8) (70) ‐ (49) Other nonoperating revenues 462 ‐ ‐ ‐ Total nonoperating revenues (expenses) (656) (6,889) 268 52 Income before transfers and capital contributions 5,818 6,501 1,610 10,893 Capital contributions 533 ‐ ‐ ‐ Transfers in (Note 4) 557 2,582 ‐ ‐ Transfers out (Note 4) (268) (13,945) (118) (7,369) Change in net position 6,640 (4,862) 1,492 3,524 NET POSITION, BEGINNING OF YEAR 134,927 289,194 42,311 115,971 NET POSITION, END OF YEAR 141,567 $ 284,332 $ 43,803 $ 119,495$ Some amounts reported for Business‐type Activities in the statement of activities are different because certain Internal Service Fund activities are included with Business‐type Activities Change in net position reported in Business‐type Activities Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2021
(Amounts in thousands)
See accompanying notes to the basic financial statements. 42 5.b
Packet Pg. 207
Governmental
Non‐Major Activities‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds 19,654$ 18,883 $ 27,374 $ 7,275 $ 1,815 $ 282,769$ ‐ $ 162 10,587 860 434 ‐ 20,329 ‐ ‐ ‐ ‐ ‐ ‐ 9,286 ‐ 263 ‐ ‐ ‐ ‐ 3,301 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 115,429 405 1,052 2,402 76 770 30,835 200 20,484 30,522 30,636 7,785 2,585 346,520 115,629 10,542 ‐ 17,474 ‐ ‐ 154,789 ‐ ‐ ‐ ‐ ‐ ‐ 6,373 ‐ 2,264 ‐ 1,342 1,135 698 25,973 13,212 351 2,359 260 253 ‐ 6,866 ‐ ‐ ‐ ‐ 1,127 ‐ 9,908 ‐ 3,413 20,387 8,529 1,168 632 66,195 12,765 252 ‐ 981 19 ‐ 9,950 ‐ 2,849 4,143 81 871 69 23,606 3,153 ‐ ‐ ‐ ‐ ‐ ‐ 8,745 ‐ ‐ ‐ ‐ ‐ ‐ 115 ‐ ‐ ‐ ‐ ‐ ‐ 75,775 19,671 26,889 28,667 4,573 1,399 303,660 113,765 813 3,633 1,969 3,212 1,186 42,860 1,864 42 159 148 77 (19) 2,187 3,891 (24) (721) (197) (174) (74) (10,530) ‐ ‐ ‐ ‐ ‐ ‐ ‐ 385 (1) ‐ ‐ ‐ ‐ (128) ‐ ‐ ‐ ‐ ‐ ‐ 462 5 17 (562) (49) (97) (93) (8,009) 4,281 830 3,071 1,920 3,115 1,093 34,851 6,145 239 ‐ ‐ ‐ 5,619 6,391 ‐ ‐ ‐ ‐ ‐ ‐ 3,139 3,797 (342) ‐ (30) (154) ‐ (22,226) (2,704) 727 3,071 1,890 2,961 6,712 22,155 7,238 92,664 24,361 17,204 41,444 23,052 80,336 93,391$ 27,432 $ 19,094 $ 44,405 $ 29,764 $ 87,574 $ 58 22,213$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements. 43 5.b
Packet Pg. 208
Fiber
Water Electric Optics Gas
Cash flows from operating activities:
Cash received from customers 45,811 $ 141,628$ 3,130 $ 36,977$ Cash payments to suppliers for goods and services (30,814) (115,045) (992) (16,679) Cash payments to employees (10,576) (23,010) (1,246) (9,123) Internal activity‐ receipts (payments) from (to) other funds 2,5 32 4,167 1,045 542 Other receipts 887 23,692 1 1,550 Net cash provided by operating activities 7,840 31,432 1,938 13,267 Cash flows from noncapital financing activities:
Repayment of loans from other funds ‐ ‐ ‐ ‐ Interest subsidy received from Build America Bonds 462 ‐ ‐ ‐ Transfers in 557 2,582 ‐ ‐ Transfers out (268) (13,945) (118) (7,369) Net cash provided by (used in)
noncapital financing activities 751 (11,363) (118) (7,369) Cash flows from capital and related financing activities:
Acquisition and construction of capital assets (3,549) (12,741) (398) (3,543) Proceeds from sale of capital assets ‐ ‐ ‐ ‐ Capital grants and contributions 533 ‐ ‐ ‐ Principal paid on long‐term debt (1,774) (99) ‐ (667) Interest paid on long‐term debt (1,501) (7,755) ‐ (134) Net cash used in capital and related
financing activities (6,291) (20,595) (398) (4,344) Cash flows from investing activities:
Investment interest received (expenses paid) 379 975 278 211 Net cash provided by investing activities 379 975 278 211 Net change in cash and cash equivalents 2,679 449 1,700 1,765 Cash and cash equivalents, beginning of year 46,829 106,595 34,283 29,153 Cash and cash equivalents, end of year $ 49,508 $ 107,044 $ 35,983 $ 30,918 Financial statement presentation:
Cash and investments available for operations 46,602 $ 107,044$ 35,983 $ 30,484 $ Restricted cash and investments with fiscal agents and trustees 2,906 ‐ ‐ 434 Cash and cash equivalents, end of year 49,508 $ 107,044$ 35,983 $ 30,918 $ Reconciliation of operating income to
net cash provided by (used in) operating activities:
Operating income 6,474 $ 13,390$ 1,342 $ 10,841$ Adjustments to reconcile operating income (loss) to
net cash provided by (used in) operating activities:
Depreciation 3,127 8,637 420 3,409 Other ‐ ‐ ‐ ‐ Change in assets and liabilities:
Accounts receivable 418 7,247 240 (451) Inventory of materials and supplies ‐ ‐ ‐ ‐ Deposit 8 ‐ ‐ ‐ Deferred outflow of resources ‐ pension plans (686) (1,389) 17 (679) Deferred outflow of resources ‐ OPEB 31 183 (83) 45 Accounts payable and accruals (2,070) 2,172 (144) (287) Accrued salaries and benefits 15 29 (5) 23 Accrued compensated absences ‐ ‐ ‐ ‐ Landfill closure and post‐closure care ‐ ‐ ‐ ‐ Accrued claims payable ‐ ‐ ‐ ‐
Net pension liability 980 2,579 129 894 Net OPEB liability (79) (314) 67 (101) Deferred inflow of resources ‐ pension plans (266) (725) (62) (274) Deferred inflow of resources ‐ OPEB (112) (377) 17 (153) Net cash provided by operating activities $ 7,840 $ 31,432 $ 1,938 $ 13,267 Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Cash Flows
For the Year Ended June 30, 2021
(Amounts in thousands)
See accompanying notes to the basic financial statements. 44 5.b
Packet Pg. 209
Governmental
Non‐Major Activities‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds 20,091$ 19,259 $ 27,385 $ 7,231 $ (40) $ 301,472$ 115,400 $ (11,507) (9,786) (24,905) (1,153) 2,120 (208,761) (14,110) (5,103) (13,195) (2,963) (2,422) (972) (68,610) (86,418) 162 10,587 860 434 ‐ 20,329 (5,765) 405 1,052 1,480 76 770 29,913 5 4,048 7,917 1,857 4,166 1,878 74,343 9,112 ‐ ‐ ‐ ‐ (1,354) (1,354) ‐ ‐ ‐ ‐ ‐ ‐ 462 ‐ ‐ ‐ ‐ ‐ ‐ 3,139 3,797 (342) ‐ (30) (154) ‐ (22,226) (2,704) (342) ‐ (30) (154) (1,354) (19,979) 1,093 (3,976) (5,682) ‐ (3,053) (6,050) (38,992) (4,828) ‐ ‐ ‐ ‐ ‐ ‐ 484 239 300 ‐ ‐ 5,619 6,691 ‐ (104) (2,131) ‐ (775) ‐ (5,550) ‐ (24) (719) (197) (172) (74) (10,576) ‐ (3,865) (8,232) (197) (4,000) (505) (48,427) (4,344) 49 158 168 77 (19) 2,276 3,914 49 158 168 77 (19) 2,276 3,914 (110) (157) 1,798 89 ‐ 8,213 9,775 9,468 16,233 26,565 8,272 ‐ 277,398 124,120 $ 9,358 $ 16,076 $ 28,363 $ 8,361 $ ‐ $ 285,611 $ 133,895 9,358$ 16,076$ 28,363 $ 8,361 $ ‐ $ 282,271$ 96,806 $ ‐ ‐ ‐ ‐ ‐ 3,340 37,089$ 9,358$ 16,076$ 28,363 $ 8,361 $ ‐ $ 285,611$ 133,895 $ 813$ 3,633$ 1,969 $ 3,212 $ 1,186 $ 42,860$ 1,864 $ 2,849 4,143 81 871 69 23,606 3,153 ‐ ‐ ‐ ‐ ‐ ‐ 5 174 376 11 (44) (1,855) 6,116 (67) ‐ ‐ ‐ ‐ ‐ ‐ (14) ‐ 17 ‐ ‐ ‐ 25 ‐ (145) (494) (150) (75) 77 (3,524) (275) 17 53 19 8 3 276 37 236 (226) 686 11 2,632 3,010 141 6 34 1 (7) (1) 95 47 ‐ ‐ ‐ ‐ ‐ ‐ 1,403 ‐ ‐ (922) ‐ ‐ (922) ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,818 373 1,098 375 370 (158) 6,640 681 (38) (99) (44) (16) (5) (629) (89) (179) (451) (104) (137) (60) (2,258) (462) (58) (167) (65) (27) (10) (952) (130) $ 4,048 $ 7,917 $ 1,857 $ 4,166 $ 1,878 $ 74,343 $ 9,112 Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements. 45 5.b
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Custodial
Funds
ASSETS:
Cash and investments available for operations (Note 3) 3,276 $ Accounts receivable 491
Interest receivable 16
Restricted cash and investments with fiscal agents (Note 3) 2,70 5 Total assets 6,488
LIABILITIES:
Accounts payable and accruals 411
NET POSITION:
Restricted for:
Governmental entities 1,260
Bondholders of special assessment bonds 4,817
Total net position 6,077 $
CITY OF PALO ALTO
Statement of Fiduciary Net Position
June 30, 2021
(Amounts in thousands)
See accompanying notes to the basic financial statements. 46 5.b
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Custodial
Funds
ADDITIONS:
Franchise and other fees collected 1,821 $
Special assessments collected 2,407
Investment earnings 9
Other 5
Total additions 4,242
DEDUCTIONS:
Administrative and general 39
Distribution to governmental entities 1,538
Debt services payments 2,409
Total deductions 3,986
Changes in net position 256
NET POSITION, BEGINNING OF YEAR 5,821
NET POSITION, END OF YEAR 6,077 $
CITY OF PALO ALTO
Statement of Changes in Fiduciary Net Position
For the Year Ended June 30, 2021
(Amounts in thousands)
See accompanying notes to the basic financial statements. 47 5.b
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CITY OF PALO ALTO
Index to the Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
49 Page
1. Summary of Significant Accounting Policies ........................................................................... 51
2. Budgets and Budgetary Accounting ........................................................................................ 60
3. Cash and Investments ............................................................................................................. 61
4. Interfund Transactions ............................................................................................................ 67
5. Notes and Loans Receivable .................................................................................................... 69
6. Capital Assets .......................................................................................................................... 74
7. Long‐Term Debt ....................................................................................................................... 80
8. Special Assessment Debt ......................................................................................................... 86
9. Landfill Post‐Closure Maintenance ......................................................................................... 86
10. Net Position and Fund Balances .............................................................................................. 87
11. Pension Plans ........................................................................................................................... 90
12. Other Post‐Employment Benefits (OPEB) ............................................................................... 97
13. Deferred Compensation Plan ................................................................................................ 101
14. Risk Management .................................................................................................................. 101
15. Joint Ventures ........................................................................................................................ 103
16. Commitments and Contingencies ......................................................................................... 105
17. Subsequent Event .................................................................................................................. 108
Notes are essential to present fairly the information contained in the overview level of the basic financial statements. Narrative explanations are intended to communicate information that is not readily apparent or cannot be included in the statements themselves, and to provide additional disclosures as required by the Governmental Accounting Standards Board.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
51 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City of Palo Alto (the City) was incorporated in 1894 and operates as a charter city, having had its first charter granted by the State of California in 1909. The City operates under the Council‐Manager form of government and provides the following services: public safety (police and fire), public works, electric, fiber optics, water, gas, wastewater, storm drain, refuse, airport, g olf course, planning and zoning, general administration services, library, open space and science, recreational and human services.
(a) Reporting Entity
The City is governed by a seven‐member council, elected by City residents. The City is legally separate and fiscally independent, which means it can issue deb t, set and modify budgets and fees, and sue or be sued. The accompanying basic financial sta tements present the financial activities of the City, which is the primary government present ed, along with the financial activities of its component unit, which is an entity for which the City is financially accountable.
Although a separate legal entity, a blended component unit is, in substance, part of the City’s operations and is reported as an integral part of the City’s fi nancial statements. The City’s component unit are described below.
Th e P a l o A l t o P u b l i c Im p r o ve m e n t C o r p o r a t i o n (the Corporation) provides financing of public capital improvements for the City through the issuance of Certi ficates of Participation (COPs), a form of debt that allows investors to participate in a stream of future lease payments. Proceeds from the COPs are used to construct projects that are leased to the City. The lease payments are sufficient in timing and amount to meet the debt service requirements of the COPs. The Board of Directors of the Corporation is composed of the same members as the City Council. The Corporation is controlled by the City, which performs all accounting and administrative functions for the Corporation. The Corporation is a blended component un it of the City. The financial activities of the Corporation are included in the non‐major Debt Service Funds.
The University Avenue Area Off‐Street Parking Assessment District (the District) provides financing for the construction of public vehicle off‐street par king improvements. The City is responsible for the governance of the District. The City can impose its will on the District but does not have a financial benefit or burden from the District. The assets associated with the District are for the benefit of the District and are not derived from the City’s provision of goods or services to the District. The District is a fiduciary component unit of the City. The financial activities of the District are included in the University Avenue Area Off‐Street Parking Assessment District Custodial Fund.
F i n a n c i a l s t a t e m e n t s f o r t h e C o r p o r a t i o n m a y b e o b t a i n e d f r o m th e C i t y o f P a l o A l t o , Administrative Services Department, 4
th Floor, 250 Hamilton Avenue, Palo Alto, CA 94301.
(b) Basis of Presentation
The City’s basic financial statements are prepared in conformit y with accounting principles generally accepted in the United States of America. The Govern mental Accounting Standards Board (GASB) is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
52 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
These standards require that the financial statements described below be presented:
Government‐wide Statements: The Statement of Net Position and the Statement of Activities display information about the primary government and its compon ent unit. These statements include the financial activities of the overall City government , except for fiduciary activities.
Eliminations have been made to minimize the double counting of internal activities. However, interfund goods and services transactions have not been eliminated in the consolidation process.
These statements distinguish between the governmental and business‐type activities of the City.
(b) Basis of Presentation (Continued)
Governmental activities generally are financed through taxes, i ntergovernmental revenues, and other non‐exchange transactions. Business‐type activities are financed in whole or in part by fees charged to external parties.
The Statement of Activities presents a comparison between direct expenses and program revenues for each segment of the business‐type activities of the City and for each function of the City’s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include: (a) charges paid by the recipients for goods and services offered by the programs, (b) grants and contributions that are restricted to meeting the operational needs of a particular program, and (c) fees, grants and contributions that are restricted to financing the acquisition or construction of capital assets. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the Ci ty’s funds, including fiduciary funds and its blended component unit . Separate statements for each fund category – governmental, proprietary and fiduciary – are presented. The emphasis of fund financial statements is on major individual governmental and en terprise funds, each of which is displayed in a separate column. All remaining governmental and internal service funds are aggregated and reported as non‐major funds.
Proprietary fund operating revenues, such as utilities sales an d charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result fro m non‐exchange transactions or ancillary activities.
Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All expenses not meeting this definition are reported as nonoperating expenses.
(c) Major Funds and Other Funds
The City’s major governmental and enterprise funds need to be identified and presented separately in the fund financial statements. All other funds, called non‐major funds, are combined and reported in a single column, regardless of their fund type.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
53 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Major funds are defined as funds that have assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues or expenditures/exp enses equal to at least 10 percent of their fund type total and at least 5 percent of the grand total. The General Fund is always a major fund. The City may also select other funds it believes should be presented as major funds on a qualitative basis.
(c) Major Funds and Other Funds (Continued)
The City reported the following major governmental funds in the accompanying financial statements:
General Fund – This is the City’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.
Capital Projects Fund – This fund accounts for resources used for the acquisition and construction of capital facilities by the City, with the exception of those assets financed by proprietary funds.
The City reported the following enterprise funds as major funds in the accompanying financial statements:
Water Services Fund – This fund accounts for all financial transactions relating to the City’s water service. Services are on a user‐charge basis to residents and business owners located in the City.
Electric Services Fund – This fund accounts for all financial transactions relating t o the City’s electric service. Services are on a user‐charge basis to resid ents and business owners located in the City.
Fiber Optics Fund – This fund accounts for all financial transactions relating t o the City’s fiber optics service. Services are on a user‐charge basis to licensees located in the City.
Gas Services Fund – This fund accounts for all financial transactions relating t o the City’s gas service. Services are on a user‐charge basis to residents and business owners located in the City.
Wastewater Collection Services Fund – This fund accounts for all financial transactions relating to the City’s wastewater collection service. Services are on a user‐charge basis to residents and business owners located in the City.
Wastewater Treatment Services Fund – This fund accounts for all financial transactions relating to the City’s wastewater treatment. Services are on a user‐charge basis to residents and business owners located in the City.
Refuse Services Fund – This fund accounts for all financial transactions relating to the City’s refuse service. Services are on a user‐charge basis to residents and business owners located in the City.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
54 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
Storm Drainage Services Fund – This fund accounts for all finan cial transactions relating to the City’s storm drainage service. Services are on a user‐charge b asis to residents and business owners located in the City.
The City also reports the following funds:
Airport Fund – This non‐major enterprise fund accounts for all financial tr ansactions relating to the Palo Alto Airport (PAO). The City assumed control over operation of PAO from the County of Santa Clara, effective August 11, 2014.
Internal Service Funds – These funds account for fleet replacement and maintenance, technology, central duplicating, printing and mailing services, administration of compensated absences and health benefits, and the City’s self‐insured workers’ compensation and general liability programs, all of which are provided to other departments on a cost‐reimbu rsement basis. Also included is the Retiree Health Benefits Internal Service Fund, which accounts for benefits to retirees.
Vehicle Replacement and Maintenance – This fund accounts for the maintenance and replacement of vehicles and equipment used by all City departme nts. The source of revenue is from reimbursement of fleet replacement and maintenance costs allocated to each department by usage of vehicle.
Technology – This fund accounts for replacement and upgrade of technology , and covers four primary areas used by all City departments: desktop, infrastructure, applications, and technology research and development. The source of revenue is from reimbu rsement of costs for support provided to other departments.
Printing and Mailing Services – This fund accounts for central duplicating, printing and mai ling s e r v i c e s p r o v i d e d t o a l l C i t y d e p a r t m e n t s . T h e s o u r c e o f r e v e nue for this fund is from reimbursement of costs for services and supplies purchased by other departments.
General Benefits – This fund accounts for the administration of compensated absences and health benefits.
Workers’ Compensation Insurance Program – This fund accounts for the administration of the City’s self‐insured workers’ compensation program.
General Liability Insurance Program – This fund accounts for the administration of the City’s self‐ insured general liability program.
Retiree Health Benefits – This fund accounts for retiree health benefits.
Custodial Funds – These funds are fiduciary funds used to report fiduciary activities that are not required to be reported in pension (and other employee benefit) trust funds, investment trust funds, or private purpose trust funds. These include balances and activities of the Cable Joint
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
55 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
Powers Authority and the assessment district. The financial activities of these funds are excluded from the government‐wide financial statements, but are presente d in separate fiduciary fund financial statements.
Cable Joint Powers Authority – This fund accounts for the activities of the cable television system on behalf of the members.
University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the receipts and disbursements associated with the 2012 Limited Obligation Refunding Improvement Bonds.
(d) Basis of Accounting
The government‐wide, proprietary fund, and fiduciary fund finan cial statements are reported using the economic resources measurement focus and the full accrual b asi s of acc ou n ti n g .
Revenues are recorded when earned and expenses are recorded a t the time liabilities are incurred, regardless of when the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recogniz ed when measurable and available. The City considers revenues susceptible to accrual reported in the governmental funds to be available if the revenues are collecte d within ninety days after year‐ end, except for property taxes, which are available if collected within sixty days after year‐end.
Expenditures are recorded when the related fund liability is in curred, except for principal and interest on general long‐term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. Ge neral capital asset acquisitions are reported as expenditures in governmental funds. Proceeds from long‐term debt and acquisitions under capital leases are reported as other financing sources.
Revenues susceptible to accrual include taxes, intergovernmental revenues, interest and charges for services.
Grant revenues are recognized in the fiscal year in which all e ligibility requirements are met.
Under the terms of grant agreements, the City may fund certain programs with a combination of cost‐reimbursement grants, categorical block grants, and general revenues. Thus, both restricted and unrestricted net position may be available to finance program expenditures. The City’s policy is to first apply restricted grant resources to such programs, followed by general revenues if necessary.
Certain indirect costs are included in program expenses reporte d for individual functions and activities. Transactions representing the exchange of interfund goods and services have also been included.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
56 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Cash and Cash Equivalents
Restricted and unrestricted pooled cash and investments held in the City Treasury, and other unrestricted investments invested by the City Treasurer, are co nsidered cash equivalents for purposes of the statement of cash flows because the City’s cash management pool and funds invested by the City Treasurer possess the characteristics of d emand deposit accounts. Other restricted and unrestricted investments with maturities of less than three months at the time of purchase are considered cash equivalents for purposes of the statement of cash flows.
(f) Investments
The City’s investments are carried at fair value, and its fair value measurements are categorized within the fair value hierarchy established by generally accepted accounting principles. Fair value is defined as the price that wou ld be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
(g) Inventory of Materials and Supplies
Materials and supplies are held for consumption and are valued at average cost. The consumption method is used to account for inventories. Under the consumpti on method, inventories are recorded as expenditures at the time inventory items are used, rather than purchased.
(h) Prepaid items
Prepaid items are recorded at cost. Using the consumption method, prepaid items are recorded as expenditures over the period that service is provided.
(i) Compensated Absences
The liability for compensated absences includes the vested port ion of vacation, sick leave, and overtime compensation pay. The City’s liability for accrued compensated absences is recorded in the General Benefits Internal Service Fund. The fund is reimbursed through payroll charges to all other funds. Earned but unpaid vacation and overtime compensat ion pay are recognized as an expense or expenditure in the proprietary and governmental fund types when earned because the City has provided financial resources for the full amount t hrough its budgetary process.
Vested accumulated sick pay is paid in the event of termination due to disability and, under certain conditions, is specified in employment agreements.
During the fiscal year ended June 30, 2021, changes to the compensated absences liabilities were as follows (in thousands):
Beginning balance 14,244 $
Additions 8,751
Payments (7,348)
Ending balance 15,647 $
Current portion 6,327 $
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
57 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) Property Tax
Santa Clara County (the County) assesses properties and bills, collects, and distributes property taxes to the City. The County remits the entire amount levied and handles all delinquencies, retaining interest and penalties.
The County assesses property values, levies bills and collects taxes as follows:
Secured Unsecured
Lien Dates January 1 January 1
Levy Dates October 1 July 1
Due Dates 50% on November 1 Upon receipt of billing
50% on February 1
Delinquent after December 10 (for November) August 31
April 10 (for February)
The term “unsecured” refers to taxes on personal property other than real estate, land and buildings. These taxes are secured by liens on the property be ing taxed. Property tax revenues are recognized by the City in the fiscal year they are assessed, provided they become available as defined previously within sixty days after year‐end.
(k) Deferred Outflows of Resources and Deferred Inflows of Reso urces
A deferred outflow of resources is the consumption of net posit ion that is applicable to a future reporting period. A deferred inflow of resources is defined as an acquisition of net position applicable to a future reporting period.
(l) Pensions and OPEB
For purposes of measuring the net pension liability and net OPEB liability, deferred outflows/inflows of resources related to pensions and OPEB, and pension and OPEB expense, information about the fiduciary net position of the City’s pens ion and OPEB plans and additions to/deductions from the plans’ fiduciary net positions have been determined on the same basis as they are reported by the California Public Employees’ Retiremen t System (CalPERS) and the California Employer’s Retiree Benefit Trust Fund Program (CERBT), respectively. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are r eported at fair value. The governmental activities’ share of net pension liability and net OPEB liability are typically liquidated by the General Fund.
(m) Rounding
All amounts included in the basic financial statements and footnotes are presented to the nearest thousand.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
58 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements
As of July 1, 2020, the City implemented the following GASB Statement:
In January 2017, the GASB issued Statement No. 84, Fiduciary Activities. The statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. The statement provides recognition and measurement guidance for situations in which a government is a beneficiary of these agreements. Th e City evaluated all funds and activities in accordance with the statement and determine that the Cable Joint Powers Authority and the District’s activities previously reported as agency fun ds should be reported as custodial funds.
In August 2018, the GASB issued Statement No. 90, Majority Equity Interests, an amendment of GASB Statements No. 14 and No. 61. The objectives of this statement are to improve the consistency and comparability of reporting a government’s major ity equity interest in a legally separate organization and to improve the relevance of financial statement information for certain component units. Implementation of this statement did not have a significant impact on the City’s financial statements for the fiscal year ended June 30, 2021.
In October 2021, the GASB issued Statement No. 98, The Annual Comprehensive Financial Report.
This statement establishes the term annual comprehensive financial report and its acronym ACFR and eliminates the prior name and acronym in generally accepted accounting principles for state and local governments. No changes were made to the report’s structure or content.
I m p l e m e n t a t i o n o f t h i s s t a t e m e n t d i d n o t h a v e a s i g n i f i c a n t i m pact on the City’s financial statements for the fiscal year ended June 30, 2021.
The City is currently analyzing its accounting practices to determine the potential impact on the financial statements for the following GASB Statements:
In June 2017, the GASB issued 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 c ertain 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 l e a s e r e c e i v a b l e a n d a d e f e r r e d inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activitie s. Th e requirements of thi s statement are effective for the City’s fiscal year ending June 30, 2022.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
59 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements (Continued)
In June 2018, the GASB issued Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period. The objectives of this statement are 1) to enhance the relev ance and comparability of information about capital assets and the c ost of borrowing for a reporting period, and 2) to simplify accounting for interest cost incurre d before the end of a construction period. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2022.
In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations. The objectives of this statement are to provide a single method of reporting conduit d ebt obligations by issuers and eliminate diversity in practice associated with 1) commitments extended by issuers, 2) arrangements associated with conduit debt obligations, and 3) r elated note disclosure. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2023.
In January 2020, the GASB issued Statement No. 92, Omnibus 2020. The objectives of this statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing practice issues that have been identified during implementation and application of certain GASB statement s. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2022.
In March 2020, the GASB issued Statement No. 93, Replacement of Interbank Offered Rates. The objective of this statement is to address those and other accou nting and financial reporting implications that result from the replacement of an interbank offered rate. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2022.
In March 2020, the GASB issued Statement No. 94, Public‐Private and Public‐Public Partnerships and Availability Payment Arrangements. The objective of this Statement is to improve financial r e p o r t i n g b y a d d r e s s i n g i s s u e s r e l a t e d t o p u b l i c ‐ p r i v a t e a n d p ublic‐public partnership arrangements (PPPs). This statement also provides guidance for accounting and financial reporting for availability payment arrangements (APAs). As defi ned in this statement, an APA is an arrangement in which a government compensates an operator fo r services that may include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange‐like transaction. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2023.
In May 2020, the GASB issued Statement No. 96, Subscription‐Based Information Technology Arrangements. This statement provides guidance on the accounting and finan cial 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 correspondi ng subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosu res regarding a SBITA. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2023.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
60 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements (Continued)
In June 2020, the 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 primary objectives of this statement are 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 ass ociated 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 benef its provided through those plans.
The requirements of this statement are effective for the City’s fiscal year ending June 30, 2022.
(o) Use of Estimates
The accompanying basic financial statements have been prepared on the modified accrual and accrual basis of accounting in accordance with generally accept ed accounting principles. This requires management to make estimates and assumptions that affe ct the amounts reported in the financial statements and accompanying notes. Actual results c o u l d d i f f e r f r o m t h o s e estimates.
NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING
1. The City Manager submits proposed operating and capital budgets to the City Council for the fiscal year commencing the following July 1. The budget includes planned expenditures and the means of financing them.
2. Public hearings are conducted to obtain comments on the proposed budgets.
3. The budget is approved with the adoption of a budget ordinance for all funds except Custodial Funds.
4. Per the Palo Alto Municipal Code, only the City Manager is auth orized to reallocate funds from contingency accounts maintained in the General Fund. Amendments to appropriations to departments in the General Fund, to total appropriations for all other budgeted funds, or to transfer of appropriations between funds, require approval by the City C ouncil. Amendments to budgeted revenue and expenditures are added to or subtracted from the Ad opted Budget and the resulting totals are reflected as Final Budget amounts.
5. As defined in the Palo Alto Municipal Code, expenditures may not exceed budgeted appropriations at the department level for the General Fund, and at the fund leve l for Enterprise, Internal Service, Special Revenue and Debt Service Funds.
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Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
61 NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING (Continued)
6. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting principles (GAAP), except that unrealized gains or losses on investments, changes in advances to other funds and notes receivable are not recognized on a budgetary basis and encumbrances are treated as budgetary expenditures when incurred.
7. Expenditures for the Capital Projects Fund are budgeted and maintained at a project level for the life of the project. Budget to actual comparisons for these expendi tures have been excluded from the accompanying financial statements.
NOTE 3 – CASH AND INVESTMENTS
The City pools cash from all sources and all funds, except restricted bond proceeds with fiscal agents and Public Agency Retirement Services, and invests its pooled idle cash according to State of California law and the City’s Investment Policy. The basic principles underlying the City’s investment philosophy are to ensure the safety of public funds, ensure that sufficient funds are available to meet current expenditures, and achieve a reasonable rate of return on investments.
Policies
The City invests in individual investments and in investment pools. Individual investments are evidenced by specific identifiable securities instruments, or by an elect ronic entry registering the owner in the records of the institution issuing the security, called the book entry system. In order to increase security, the City employs the trust department of a bank as the custodian of certain City managed investments.
Classification
Cash and investments are classified in the financial statements as shown below, based on whether or not their use is restricted under the terms of City debt instruments or agreements (in thousands):
Governmental Business‐Type Fiduciary
Activities Activities Funds Total
Cash and investments:
Available for operations 310,091 $ 282,271 $ 3,276 $ 595,638$ With fiscal agents and trustees 133,264 3,340 2,705 139,309 Total cash and investments 443,355$ 285,611 $ 5,981 $ 734,947$
Investments Authorized by the City’s Investment Policy, Debt Agreements and Trust Agreements The table below summarizes the investment types that are authorized by the California Government Code (Code) and the City’s Investment Policy, and includes the interest rate risk, credit risk and concentration of credit risk as outlined in the Investment Policy. In additi on, the table discloses investment of debt proceeds held by bond trustees. These investments are governed by the provisions of each debt agreement of the City, rather than the general provisions of the City’s Investment Policy.
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Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
62 NOTE 3 – CASH AND INVESTMENTS (Continued)
Maximum
Maturity
Minimum Credit
Quality
Maximum
Percentage of
Portfolio
Maximum
Investment in
One Issuer
U.S. Government Securities 10 years (*) N/A No Limit No Limit U.S. Federal Agency Securities (C) 10 years (*) N/A No Limit (A) N o Limit Certificates of Deposit 10 years (*) N/A 20% 10% of the par value of
portfolio
Bankers Acceptances 180 days (D) N/A (D) 30% $5 million Commercial Paper 270 days A‐1 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit $75 million per account
Short‐Term Repurchase Agreements 1 year N/A No Limit No Limit City of Palo Alto Bonds N/A N/A No Limit No Limit
Money Market Mutual Funds N/A N/A (E) No Limit No Limit Mutual Funds (F) N/A N/A 20% 10%
Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million Medium‐Term Corporate Notes 5 years AA 10% $5 million
10 years (*) AA/AA2 30% No Limit
5 years AA/AA2 20% 10% of the par
value of
portfolio
(A)
(B) The lesser of $3 million or 10% of outstanding commercial pa per of any one institution.
Debt Agreements:
(C)
(D)
(E)
(F)
(*) The maximum maturity is based on the Investment Policy that is approved by the City Council and is less restrictive than the California Government Code.
Utility Revenue Bonds 2011 Refunding, General Obligation Bonds 2010 and 2013A, and University Avenue Parking Bond 2012 are allowed to invest in the California Asset Management Program.
Authorized Investment Type
Bonds of State of California Municipal
Agencies & Other U.S. States
Callable and multi‐step securities are limited to no more than 25% of the par value of the portfolio, provided that: 1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step‐up" are known at the time of purchase, and 3) the entire face value of the security is redeemable at the call date.
Utility Revenue Bonds 2011 Refunding and 1999 Refunding allow general obligations of states with a minimum credit quality rating of A2/A by Moody's and Standard & Poor's.
Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum credit quality rating of A‐1/P‐1 by Moody's and Standard & Poor's and maturing after no more than 360 days.
Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum credit quality rating of AAAm or AAAm‐G by Standard & Poor's.
Supranational
The City must maintain required amounts of cash and investments with trustees under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the City fails to meet its obligations under these debt issues. The Code requires these funds to be invested in accordance with City ordinance, bond indentures or state statute. All of these funds have been invested as permitted under the Code and the investment policy approved by the City Council.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
63 NOTE 3 – CASH AND INVESTMENTS (Continued)
The City has implemented investment guidelines for its Public Agencies Retirement Services (PARS) Trust which authoriz es th e in vestments in U.S. Treasury securities, federal agencies and U.S. guaranteed obligations, corporate notes, certificates of deposit, bankers’ acceptances, equities investments, and mutual funds.
Fair Value Measurements
The City categorizes its fair value measurements within the fai r value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are sig nificant unobservable inputs. All of the investments are measured using level 2 inputs, except for inves tments in money market mutual funds, California Asset Management Program and Local Agency Investment Fund, which are not subject to the fair value hierarchy.
Investment securities classified in Level 2 of the fair value h ierarchy are valued using prices determined by the use of matrix pricing techniques maintained by the prici ng vendors for these securities. Matrix pricing is used to value securities based on the securities relationship to benchmark quoted prices.
The following is a summary of the fair value measurements of the City as of June 30, 2021 (in thousands):
Type of Investment June 30, 2021 Level 2
Investments by fair value hierarchy
U.S. Federal Agency Securities 243,526$ 243,526 $
U.S. Treasury Notes 13,680 13,680
Local Government Bonds 172,085 172,085
Negotiable Certificates of Deposit 36,271 36,271 Corporate Bonds 24,491 24,491
Supranational Bonds 31,792 31,792
Total investments by fair value hierarchy 521,845 521,845 $ Investment not subject to fair value hierarchy
Money Market Mutual Funds 103,428
Equity Mutual Funds (Irrevocable for Pension) 37,089
California Asset Management Program 3,304
Local Agency Investment Fund 67,394
Total investments not subject to fair value hierarchy 211,215 Total investments measured at fair value 733,060$
Local Agency Investment Fund
The City participates in the Local Agency Investment Fund (LAIF ) which, under the oversight of the Treasury of the State of California, is regulated by California Government Code Section 16429. LAIF management calculates the fair value and cost of the entire LAI F pool. The City adjusts its cost basis invested in LAIF to fair value based on this ratio. The fair v alue of the City’s position in the pool is the same as the value of the pool share. The balance available for withdrawal on demand is based on
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Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
64 NOTE 3 – CASH AND INVESTMENTS (Continued)
accounting records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is part of the State’s Pooled Money Investment Account (PMIA). The total balance of the PMIA is approximately $193.3 billion as of June 30, 2021. Of that amount, 97.7 percent was invested in nonderivative financial products and 2.3 percent in structured notes and asset backed securities . At June 30, 2021, LAIF had a weighted average maturity of 291 days.
Money Market Mutual Funds
Money market mutual funds are available for withdrawal on demand and at June 30, 2021, had a weighted average maturity of approximately 1 month.
California Asset Management Program
The City is a voluntary participant in the California Asset Man agement Program (CAMP). CAMP is an investment pool offered by the California Asset Management Trust (the Trust). The Trust is a joint powers authority and public agency created by the Declaration of Trust and established under the provisions of the California Joint Exercise of Powers Act (California Governm ent Code Sections 6500 et seq., or the “Act”) for the purpose of exercising the common power of its pa rticipants to invest certain proceeds of debt issues and surplus funds. The City’s investments are limited to investments permitted by subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code. The City reports its investments in CAMP at the fair value amounts provided by CAMP, which is the same as the value of the pool share. At June 30, 2021, the fair value approximated the City’s cost. CAMP had a weighted average maturity of 52 days at June 30, 2021.
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates may adversely affect the fair value of an investment. Normally, the longer the maturity of an investment, the greater the sensitivity its fair value is to changes in market interest rates. As of June 30, 2021, th e City’s investments consisted of the following (in thousands):
Type of Investment
Less Than
One Year
One to
Three Years
Three to
Five Years
Over
Five Years Total
U.S. Federal Agency Securities 23,669$ 50,617 $ 75,136 $ 94,104 $ 243,526 $ U.S. Treasury Notes 1,517 9,215 2,948 ‐ 13,680 Local Government Bonds 24,545 27,492 47,841 72,207 172,085 Corporate Bonds 860 7,547 16,084 ‐ 24,491 Money Market Mutual Funds 103,428 ‐ ‐ ‐ 103,428 Equity Mutual Funds
(Irrevocable for Pension) 37,089 ‐ ‐ ‐ 37,089 Negotiable Certificates of Deposit 10,287 12,527 9,801 3,656 36,271 California Asset Management Program 3,304 ‐ ‐ ‐ 3,304 Supranational Bonds ‐ 4,257 27,535 ‐ 31,792 Local Agency Investment Fund 67,394 ‐ ‐ ‐ 67,394 Total Investments 272,093 $ 111,655 $ 179,345 $ 169,967 $ 733,060 Cash in bank and on hand 1,887
Total Cash and Investments 734,947$
Maturities
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
65 NOTE 3 – CASH AND INVESTMENTS (Continued)
Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations At June 30, 2021, the City’s investments (including investments held by bond trustees) include U.S. Federal Agency Callable Securities totaling $137.0 million. These investments are highly sensitive to interest rate fluctuations (to a greater degree than already indicated in the information provided above) and are subject to early redemption.
Credit Risk
Credit risk is the risk that an issuer of an investment will no t fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization.
Presented below is the actual rating as provided by Standard & Poor’s, Moody’s and/or Fitch’s investment rating system as of June 30, 2021, for each investment type (in thousands):
Type of Investment Rating Total
U.S. Federal Agency Securities AA+ 243,526$
Corporate Bonds AAA 19,076
AA+ 5,415
Total Corporate Bonds 24,491
Local Government Bonds AAA 52,338
AA+ 50,433
AA 41,241
N/A 28,073
Total Government Bonds 172,085
Supranational Bonds AAA 31,792
Money Market Mutual Funds AAA 103,428
Subtotal rated investments 575,322
Not Applicable:
U.S. Treasury Notes 13,680
Not Rated:
California Asset Management Program 3,304
Local Agency Investment Fund 67,394
Negotiable Certificates of Deposit 36,271
Equity Mutual Funds (Irrevocable for Pension) 37,089
Cash in bank and on hand 1,887
Total Cash and Investments 734,947 $
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Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
66 NOTE 3 – CASH AND INVESTMENTS (Continued)
Concentration of Credit Risk
Investments in any one issuer, other than U.S. Treasury securities, mutual funds, and external investment pools, that represent 5 percent or more of total City portfolio investments are as follows at June 30, 2021 (in thousands):
Investments Reporting Type Fair Value at Year‐End
Federal Agricultural Mortgage Corporation U.S. Federal Agency Se curities 88,423$ Federal Home Loan Mortgage Corporation U.S. Federal Agency Secur ities 45,987 Federal Home Loan Bank U.S. Federal Agency Securities 43,991 Federal Farm Credit Bank U.S. Federal Agency Securities 39,439
Custodial Credit Risk
California law requires banks and savings and loan institutions to pledge government securities with a market value of 110 percent of the City’s cash on deposit or first trust deed mortgage notes with a value of 150 percent of the deposit as collateral for these deposits. Under California Law, this collateral is considered held in the City’s name and places the City ahead of general creditors of the institution. The City has waived collateral requirements for the portion of deposits covered by federal deposit insurance.
The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the City will not be able to recover the value o f its investment or collateral securities that are in the possession of another party. The City’s Investment Policy limits its exposure to custodial credit risk by requiring that all security transactions entered into by the City be conducted on a delivery‐versus‐ payment basis. Securities are to be held by a third‐party custodian.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
67 NOTE 4 – INTERFUND TRANSACTIONS
Transfers Between Funds
With Council approval, resources may be transferred from one City fund to another. The purpose of the majority of transfers is to subsidize a fund. Less often, a tr ansfer may be made to open or close a fund.
Transfers between City funds during fiscal year 2021 were as follows on the following page (in thousands):
Fund Making Transfer
Amount
Transferred
General Fund Nonmajor Governmental Funds 394 $ A Electric Services Fund 13 ,639 B
Gas Services Fund 6,847 B
20,880
Capital Projects Fund General Fund 9,294 C Nonmajor Governmental Funds 9,170 C
Water Services Fund 84 C
Electric Services Fund 165 C
Fiber Optics Fund 10 C
Gas Services Fund 69 C
Wastewater Collection Fund 41 C Refuse Fund 10 C
Storm Drainage Fund 150 C
Internal Service Funds 205 C
19,198
Nonmajor Governmental Funds General Fund 1,019 A Capital Projects Fund 2,380 A
Water Services Fund 13 A
Electric Services Fund 24 A
Fiber Optics Fund 1 A
Gas Services Fund 10 A
Wastewater Collection Fund 6 A Internal Service Funds 27 A
3,480
Water Services Fund Gas Services Fund 279 C Wastewater Collection Fund 278 C
557
Electric Services Fund General Fund 2,082 D Water Services Fund 137 C
Gas Services Fund 136 C
Fiber Optics Fund 102 C
Internal Service Funds 125 C
2,582
Internal Service Funds General Fund 1,225 E Water Services Fund 34 E
Electric Services Fund 117 E
Fiber Optics Fund 5 E
Gas Services Fund 28 E
Wastewater Collection Fund 17 E Refuse Fund 20 E
Storm Drainage Services Fund 4 E Internal Service Funds 2,347 F
3,797
Total 50,494 $
Fund Receiving Transfer
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Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
68 NOTE 4 – INTERFUND TRANSACTIONS (Continued)
The reasons for these transfers are set forth below:
(A) Transfer to fund street maintenance activities, to pay debt ser vice, fund City employee parking, and to return unspent project funds.
(B) Transfer to fund the return of initial investment made by gener al fund when utility department was created.
(C) Transfers of funds to construct, purchase or maintain capital assets. (D) Transfer to fund electricity costs associated with City streetlight and traffic signal costs. (E) Transfer to fund replacement and maintenance of critical desktop , s o f t w a r e , i n f r a s t r u c t u r e , vehicles and equipment.
(F) Transfer to fund for retiree healthcare.
Current Interfund Balances
Current interfund balances arise in the normal course of busine ss and are expected to be repaid shortly after the end of the fiscal year. At June 30, 2021, the non‐ma jor Street Improvement Special Revenue Fund, the non‐major Federal Revenue Special Revenue Fund, and the non‐major Airport Enterprise Fund owed the General Fund $206,000, $135,000, and $602,000, respectively.
Long‐Term Interfund Advance
On December 6, 2010, the City Council accepted an Airport Busin ess Plan of the Palo Alto Airport (PAO) and approved creation of the Airport Enterprise Fund to facilitate the transition of PAO control from the County of Santa Clara to the City. The City Council approved s ix separate general fund advances to the non‐major Airport Enterprise Fund. All advances bear interest equal to the average return yield on the City’s investment portfolio. The six separate advances and interest incurred have been consolidated and are scheduled to be repaid by June 2034. At June 30, 2021, the outstanding advances was $3.0 million.
Internal Balances
Internal balances represent the net interfund receivables and payables remaining after the elimination of all such balances within governmental and business‐type activities.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
69 NOTE 5 – NOTES AND LOANS RECEIVABLE
At June 30, 2021, the City’s notes and loans receivable totaled (in thousands):
Palo Alto Housing Corporation:
Tree House Apartments 5,344 $
Emerson Street Project 375
Alma Single Room Occupancy Development 2,222
Barker Hotel 2,111
Sheridan Apartments 2,222
Oak Court Apartments, L.P. 7,834
El Dorado Palace, LLC 150
Mid‐Peninsula Housing Coalition:
Palo Alto Gardens Apartments 100
Community Working Group, Inc. 1,280
Opportunity Center Associates, L.P. 945
Home Rehabilitation Loans 46
Executive Relocation Assistance Loans 826
Below Market Rate Assessment Loans 53
Oak Manor Townhouse Water System 114
Lytton Gardens Assisted Living 101
Emergency Housing Consortium 75
Alma Gardens Apartments 1,150
2811‐2825 Alma Street Acquisition 1,890
Palo Alto Family Housing, 801 Alma Street 6,422
Palo Alto Senior Housing Project ‐ Stevenson House, LP 901 MP Palo Alto Garden, LLC 672
Colorado Park Housing Corporation 204
Buena Vista Mobile Home Park – Santa Clara County 14,500 Wilton Court Apartments 18,752
Total Notes and Loans Receivable 49,537
Less: Valuation Allowance (14,612)
Total Notes and Loans Receivable, Net 53,677$
Housing Loans
The City engages in programs designed to encourage construction or improvement in low‐to‐moderate income housing or other projects. Under these programs, grants or loans are provided under favorable terms to homeowners or developers who agree to spend these funds in accordance with the City’s terms.
These loans have been offset by restricted or committed fund ba lances, as they are not expected to be repaid immediately.
Some of these loans contain forgiveness clauses that provide for the amount loaned to be forgiven if the third party maintains compliance with the terms of the loan and associated regulatory agreements. Since some of these loans are secured by trust deeds that are subordi nated to other debt on the associated projects or are only repayable from residual cash receipts on t he projects, collectability of some of the outstanding balances may not be realized. As a result of the f orgiveness clauses and nature of these housing projects and associated cash flows, a portion of the ou tstanding balances of the loans has been offset by a valuation allowance.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
70 NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Tree House Apartments
In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. (THA) for the purchase of the real property located at 488 West Charleston Road. The loan accrues simple interest at the rate of 3 percent per annum. The loan was funded with $1.8 million of C ommunity Development Block Grant (CDBG) funds and $1.0 million of residential housing funds. An additional development loan in the amount of $2.5 million was approved by the City on October 18, 2010. Principal and interest payments will be deferred, however if the borrower has earned extra income, and if it is acceptable to the other entities providing final permanent sources of funds, payment of interest and principal based on the City’s proportionate share of the project’s residual receipts from net operating income shall be made by the borrower. In no event shall full payment be made by the borrow er later than concurrently with the expiration or earlier termination of the loan agreement, which is December 31, 2067.
Emerson Street Project
On November 8, 1994, the City loaned $375,000 to Palo Alto Hous ing Corporation (PAHC) for expenses necessary to acquire an apartment complex for the preservation of rental housing for low and very low‐ income households in the City. This loan is collateralized by a second deed of trust. The loan bears interest at 3 percent.
Alma Single Room Occupancy Development
On December 13, 1996, the City loaned $2.2 million to Alma Plac e Associates, L.P. for development of a 107‐unit single room occupancy development. This loan bears interest at 3 percent and is collateralized by a subordinated deed of trust. The principal balance is due in 2041.
Barker Hotel
On April 12, 1994, the City loaned a total of $2.1 million for the preservation, rehabilitation and expansion of a low‐income, single occupancy hotel. This loan was funded by three sources: $400,000 from the Housing In‐Lieu Fund, $1.0 million from HOME Investment Partnership Program Funds, and $670,000 from CDBG funds. All three notes bear no interest and are collateral i z ed b y a d eed of tru st , wh i ch i s subordinated to private financing. Loan repayments are deferred until 2035.
In July 2004, the City agreed to loan up to $41,000 to PAHC to rehabilitate the interior of the Barker Hotel.
The loan was funded with CDBG funds and is collateralized by a deed of trust on the property. Annual loan payments are deferred until certain criteria defined in the loan agreement are reached. The loan will be forgiven if the borrower satisfactorily complies with all terms and conditions of the loan agreement.
Sheridan Apartments
On December 8, 1998, the City loaned $2.2 million to PAHC for t he purchase and rehabilitation of a 57‐ unit apartment complex to be used for senior and low‐income housing (Sheridan Apartments). The loan was funded with $1.6 million in CDBG funds, and $825,000 of Hou sing In‐Lieu funds. The note is collateralized by a second deed of trust and an affordability reserve account held by PAHC. The loan was amended in June 2017. It will not accrue interest between May 1, 2017 and March 1, 2030. The loan will be forgiven on June 30, 2030 if PAHC uses the funds that would otherwise have been due to the City for another affordable housing project.
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Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
71 NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Oak Court Apartments, L.P.
On August 18, 2003, the City loaned $5.9 million to PAHC for the purchase of land. The note bears interest of 5 percent and is secured by a deed of trust. Note payments are due annually after 55 years, or beginning in 2058, unless PAHC elects to extend the note until 2102, as d efined in the regulatory agreement. The City also loaned $1.9 million to Oak Court Apartments, L.P. for the construction of a 53‐unit rental apartment complex for low and very low‐income households with children, which was completed in April 2005. The note bears no interest until certain criteria defined in the note are satisfied, at which time the note will bear an interest rate not to exceed 3 percent. The n ote is secured by a subordinate deed of trust. The principal balance is due in 2060.
El Dorado Palace, LLC
On June 22, 2015, the City approved a loan to PAHC in the amount of $375,000 to increase the supply of affordable low income housing in the City. The City loaned $52,000 and $13,000 in June 2017 and March 2018, respectively. In February 2019, the City loaned an additional $85,000. The loan bears three percent (3%) interest, however in the event of default will accrue at the lesser of 8% or the highest rate permitted by law. The term of the loan shall expire 55 years unless the City agree to extend an additional 44 years.
As of June 30, 2021, the outstanding balance was $150,000.
Palo Alto Gardens Apartments
On April 22, 1999, the City loaned $1.0 million to Mid‐Peninsula Housing Coalition (the Coalition) for the purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing. The loan was funded with $659,000 of CDBG funds and $341,000 of Housing In‐Lieu funds. The two notes bear interest at 3 percent and are secured by second deeds of trust and a City Affordability Reserve Account held by the Coalition. The remaining principal balance is due in 2039. As of June 30, 2021, the outstanding balance was $100,000.
Community Working Group, Inc.
On May 13, 2002, the City loaned $1.3 million to Community Work ing Group, Inc. for predevelopment, relocation and acquisition of land for development of an 89‐unit complex and homeless service center for very low income households. The loan was funded with $1.3 mill ion of CDBG funds. The note bears no interest and is secured by a first deed of trust. No repayment is required as long as the borrower complies with all terms and conditions of the agreement. After 89 years of compliance with the regulatory agreement, the City’s loan would convert to a grant and its deed of trust would be re‐conveyed.
Opportunity Center Associates, L.P.
On July 19, 2004, the City loaned $750,000 for a 55‐year term t o Opportunity Center Associates, L.P. for construction of 89 units of rental housing for extremely low‐in come and very low‐income households.
The loan was funded with $750,000 of residential housing funds. The note bears 3 percent interest and is secured by a deed of trust. The loan remains outstanding and becomes due at the end of the 55‐year term. During fiscal year 2019, the City received $25,000 in principal payments. On April 17, 2019, the City approved up to an additional $220,000 loan drawn from CDBG for the improvement of rental housing. In February 2019 and April 2019, the City loaned $191,000 and $29, 000, respectively. The note bears 3 percent interest, and all payments of interest and principal shall be deferred until July 19, 2103. The loan balance owed as of June 30, 2021 was $945,000.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
72 NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Home Rehabilitation Loans
The City administers a closed housing rehabilitation loan program initially funded with CDBG funds. Under this program, individuals with incomes below a certain level are eligible to receive low interest loans for rehabilitation work on their homes. These loans are secured by deeds of trust, which may be subordinated to subsequent encumbrances upon said real property with the prior written consent of the City. The loan repayments may be amortized over the life of the loans, deferred, or a combination of both.
Executive Relocation Assistance Loans
The City Council may authorize a mortgage loan as part of a rel ocation assistance package to executive staff. The loans are secured by first deeds of trust, and interest is adjusted annually based on the rate of return of invested funds of the City for the year ended June 30 plus one‐quarter of a percent. Principal and interest payments are due monthly. Employees must pay any outstanding balance on their loans within a certain period after ending employment with the City. During the year ended June 30, 2020, the City entered into a 30‐year loan with the City Manager for $845 ,000. The purchase cost for the City Manager’s home was $3.4 million and the City holds 75 percent equity share. During the year ended June 30, 2021, the City Manager paid $21,000 for capital improvements and $100,000 to the City to exercise a one‐time option to purchase a portion of the City’s equity share which decreased to 71.43 percent. As of June 30, 2021, the outstanding balance was $826,000.
Below Market Rate Assessment Loans
In December 2002, the City loaned $53,000 to below market rate homeowners with low incomes and/or very limited assets for capital repairs, special assessments an d improvements of their properties. The loans bear interest at 3 percent and are secured by a deed of trust on each property. Loan payments are deferred until 2032.
Oak Manor Townhouse Water System
On May 12, 2003, the City Council approved an allocation of $11 4,000 to Palo Alto Housing Corporation Apartments, Inc. (PAHCA) to replace the water pipes. Repayment of the loan will not be required unless the property is sold, the program is terminated or purpose of t he program is changed without City’s approval prior to July 1, 2033. The loan for this project is subordinated to the existing City loan with PAHCA dated January 7, 1991 for the acquisition of the project site, which is discussed earlier in this section.
Lytton Gardens Assisted Living
In June 2005, the City loaned $101,000 to Community Housing, Inc. to upgrade and modernize the existing kitchens at the senior residential facility known as Lytton Gar dens Assisted Living. The loan was funded with CDBG funds, and bears simple interest of 3 percent. Princ ipal and interest payments are deferred until July 1, 2035, as long as the borrower continues to comply with all terms and conditions of the agreement.
Emergency Housing Consortium
In November 2005, the City agreed to loan up to $75,000 to Emer gency Housing Consortium to cover architectural expenses that will be incurred in rehabilitating and expanding the property. The loan was funded with CDBG funds, and bears simple interest of 3 percent. Principal and interest payments are deferred until July 1, 2035, as long as the borrower continues to comply with all terms and conditions of the agreement.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
73 NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Alma Garden Apartments
In March 2006, the City agreed to loan up to $1.2 million to Community Working Group, Inc. to acquire a 10‐unit multi‐family housing complex known as Alma Garden Apart ments. The loan was funded with CDBG funds. Principal and interest payments are deferred until July 1, 2061 as long as the borrower complies with all terms and conditions of the agreement.
2811‐2825 Alma Street Acquisition
On October 9, 2011, the City agreed to loan $1.3 million to PAHC to acquire properties on Alma Street for the purpose of developing an affordable rental housing project. On June 29, 2015, the City loaned PAHC an additional $0.6 million, and entered into an Amended and Res tated Acquisition and Development Agreement which combined the two loans for a total loan of $1.9 million. The loan term expires on December 8, 2066 with an option to extend the term for an addit ional 44 years. The loan bears simple interest of 3 percent, however in the event of default interest will accrue at the lesser of 8 percent or the highest rate permitted by law. Principal and interest payments are payable during the term of the agreement on a “residual receipt” basis as described in the agreement. All principal and interest is due in the event of an unauthorized transfer, a default or the expiration of the term.
Palo Alto Family Housing, 801 Alma Street
On February 14, 2011, the City agreed to loan Palo Alto Family, LP up to $9.3 million for the purposes of predevelopment expenses and acquiring certain real property for the Alma Street Affordable Multi‐Family Rental Housing Project. The loan bears simple interest of 3 per cent. Principal and interest are due and payable during the term of the agreement on a “residual receipt ” basis as described in the agreement.
Except in the case of default, all remaining principal and inte rest shall be payable on the Restriction Termination Date as defined in the agreement. As of June 30, 20 21, the outstanding amount is $6.4 million.
Palo Alto Senior Housing Project – Stevenson House, LP
On October 1, 2015, the City entered into an affordable housing fund loan agreement with PASHPI Stevenson House LP, a California limited partnership, in the principal amount of $1 million to assist in the rehabilitation of the Stevenson House. The loan bears simple in terest of 3 percent. As of June 30, 2021, the loan outstanding balance is $901,000 and is due at the end of the 55‐year term.
MP Palo Alto Garden, LLC
The City loaned $619,000 and $53,000 in March 2017 and October 2017, respectively, in CDBG funds for the rehabilitation of the property. The note bears 3% simple interest and shall be deferred until April 24, 2054. If there are no Events of Default prior to the end of the terms, the unpaid principal and interest will be treated as a grant and no repayment will be due to the City.
Colorado Park Housing Corporation
On September 8, 2014, the City entered into an affordable housi ng fund loan agreement with Colorado Park Housing Corporation (CPHC), a California nonprofit public benefit corporation, in the principal amount of $204,000. The loan bears no interest except in the ev ent of default. The principal and any accrued interest is due and payable on the earlier of (a) expir ation of the term, or (b) a default by CPHC which has not been cured as provided for in the agreement.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
74 NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Buena Vista Mobile Home Park – Santa Clara County
In September 2017, the City entered into an agreement with the Santa Clara County Housing Authority (SCCHA) for the acquisition of Buena Vista Mobile Home Park. T he City loaned SCCHA $14.5 million for the acquisition. The City is entitled to twenty six percent of all residual receipts. Interest for the p r o m i s s o r y n o t e i s 3 % s i m p l e i n t e r e s t . P r i n c i p a l a n d i n t e r e s t payments commenced on September 30, 2019 and the note and all interest is payable in full on September 29, 2092.
Wilton Court Apartments
In October 2020, the City entered into a predevelopment and con struction loan agreement with Wilton ECR L.P. to construct approximately fifty‐nine (59) residential rental units on property located at 3703‐ 3709 El Camino Real with the City. Fifty‐eight (58) would be a ffordable to low, very low, and extremely low‐income households earning be tween thirty percent to sixty p ercent of area median income as determined by the United States Department of Housing and Urban Development, of which twenty‐one (21) of the units will be designated for persons with developme ntal disabilities. The City entered into a loan agreement with Wilton ECR L.P. in the amount of $18.8 mill ion. The loan bear interest rate of 0% until the date of the permanent closing and 3% commencing the date of the permanent closing. The loan matures on December 31, 2077. During the year, $18.8 million w as drawn. As of June 30, 2021, the outstanding balance was $18.8 million.
NOTE 6 – CAPITAL ASSETS
Valuation
Capital assets are valued at historical cost if purchased or co nstructed. Donated capital assets, donated works of art and similar items, and capital assets received in a service concession arrangement are recorded at acquisition value at the time received. The City’s policy is to capitalize all assets when costs are equal to or exceed $5,000 and the useful life exceeds one y ear. Infrastructure assets are capitalized when costs are equal to or exceed $100,000.
Proprietary fund capital assets are recorded at cost including significant interest costs incurred under restricted tax‐exempt borrowings, which finance the construction of capital assets. These interest costs, net of interest earned on investment of proceeds of such borrow ings, are capitalized and added to the cost of capital assets during the construction period. Maintenance and repairs are expensed as incurred.
The City has recorded all its public domain capital assets, consisting of roadway and recreation and open space, in its government‐wide financial statements. All capita l assets with limited useful lives are depreciated over their estimated useful lives. The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of those assets. The amount charged to depreciation expense each year represents that year’s pro rata share of the cost of capital assets.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
75 NOTE 6 – CAPITAL ASSETS (Continued)
Depreciation of capital assets is charged as an expense against operations each year and the total amount of depreciation taken over the years, called accumulated deprec iation, is reported on the statement of net position as a reduction in the book value of capital assets.
Depreciation is calculated using the straight‐line method, which means the cost of the asset is divided by its expected useful life in years, and the result is charged to expense each year until the asset is fully depreciated. The City has assigned the useful lives listed below to capital assets.
Governmental Activities Years
Buildings and structures 20 ‐ 30
Equipment:
Computer equipment 3 ‐ 5
Office machinery and equipment 5
Machinery and equipment 5 ‐ 30
Intangible assets ‐ software 5‐20
Roadway network:
5 ‐ 40
Recreation and open space network:
25 ‐ 40
Business‐type Activities
Buildings and structures 25 ‐ 60
Vehicles and heavy equipment 3 ‐ 10
Machinery and equipment 10 ‐ 50
Transmission, distribution and treatment systems 10 ‐ 100 Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots, traffic signage, and bridges
Includes major park facilities, park trails, bike paths and medians
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
76 NOTE 6 – CAPITAL ASSETS (Continued)
Governmental Activities
Changes in the capital assets fo r governmental activities during the year ended June 30, 2021 were (in thousands):
Balance Balance
July 1, 2020 Additions Retirements Transfers June 30, 2021 Governmental activities
Nondepreciable capital assets:
Land and improvements 82,206 $ ‐ $ (75)$ ‐ $ 82,131$ Street trees 14,787 165 (127) ‐ 14,825 Intangible assets ‐ Easement 3,567 ‐ ‐ ‐ 3,567 Construction in progress 139,365 33,143 (11,934) (22,761) 137,813 Total nondepreciable capital assets 239,925 33,308 (12,136) (22,761) 238,336 Depreciable capital assets:
Buildings and structures 251,119 ‐ (25) 21,003 272,097 Intangible assets ‐ Software 279 ‐ ‐ ‐ 279 Equipment 15,737 217 (520) 1,758 17,192 Roadway network 335,202 ‐ ‐ ‐ 335,202 Recreation and open space network 35,186 ‐ ‐ ‐ 35,186 Total depreciable capital assets 637,523 217 (545) 22,761 659,956 Less accumulated depreciation:
Buildings and structures (105,984) (7,728) 1 ‐ (113,711) Intangible assets ‐ Software (279) ‐ ‐ ‐ (279) Equipment (8,856) (460) 389 ‐ (8,927) Roadway network (171,522) (7,694) ‐ ‐ (179,216) Recreation and open space network (15,867)
(1,254) ‐ ‐ (17,121) Total accumulated depreciation (302,508) (17,136) 390 ‐ (319,254) Depreciable capital assets, net 335,015 (16,919) (155) 22,761 340,702 Internal service fund capital assets
Construction in progress 2,723 2,864 ‐ ‐ 5,587 Equipment 63,476 1,964 (2,415) ‐ 63,025 Less accumulated depreciation (44,834) (3,153) 2,316 ‐ (45,671) Net internal service fund capital assets 21,365 1,675 (99) ‐ 22,941 Governmental activities capital assets, net 596,305 $ 18,064 $ (12,390) $ ‐ $ 601,979$
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
77 NOTE 6 – CAPITAL ASSETS (Continued)
Business‐Type Activities Capital Assets
Changes in the capital assets fo r the business‐type activities during the year ended June 30, 2021 were (in thousands):
Balance Balance
July 1, 2020 Additions Retirements Transfers June 30, 2021 Business‐type activities
Nondepreciable capital assets:
Land and improvements 4,973$ ‐ $ ‐ $ ‐ $ 4,973$ Construction in progress 121,096 38,420 ‐ (30,580) 128,936 Total nondepreciable capital assets 126,069 38,420 ‐ (30,580) 133,909 Depreciable capital assets:
Buildings and structures 74,568 ‐ ‐ ‐ 74,568 Infrastructure 633 ‐ ‐ ‐ 633 Transmission, distribution and treatment systems 884,791 572 (1,154) 30,580 914,789 Total depreciable capital assets 959,992 572 (1,154) 30,580 989,990 Less accumulated depreciation:
Buildings and structures (16,141) (1,393) ‐ ‐ (17,534) Infrastructure (65) (21) ‐ ‐ (86) Transmission, distribution and treatment systems (376,604) (22,192) 1,026 ‐ (397,770) Total accumulated depreciation (392,810) (23,606) 1,026 ‐ (415,390) Depreciable capital assets, net 567,182 (23,034) (128) 30,580 574,600 Business‐type activities capital assets, net 693,251 $ 15,386 $ (128) $ ‐ $ 708,509$
Capital Asset Contributions
Some capital assets may be acquired using federal and state grant funds, or they may be contributed by developers or other governments. Generally accepted accounting principles require that these contributions be accounted for as revenues at the time the capital assets are contributed.
Depreciation Allocation
Depreciation expense was charged to functions and programs based on their usage of the related assets.
The amount allocated to each function or program is as follows (in thousands):
Governmental Activities Business‐type Activities
City Manager 22$ Water 3,127$
City Attorney 1 Electric 8,637
City Clerk 4 Fiber Optics 420
City Auditor 1 Gas 3,409
Administrative Services 4 Wastewater Collection 2,849 Public Works 10,530 Wastewater Treatment 4,143 Planning and Development Services 419 Refuse 81 Office of Transportation 9 Storm Drainage 871 Police 89 Airport 69
Fire 392 23,606$
Community Services 3,297
Library 2,368
Internal Service Funds 3,153
20,289$
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
78 NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Construction in progress as of June 30, 2021 is comprised of the following (in thousands):
Governmental Activities
Expended to
June 30, 2021
California Avenue Parking Garage 48,522 $
Highway 101 Pedestrian/Bicycle Overpass 19,617
New Public Safety Building 17,163
Charleston/Arastradero Corridor 13,136
Bicycle Boulevards Implementation Project 9,163
Traffic Signal Upgrades 4,875
Railroad Grade Separation 3,772
Technology Fund 3,748
JMZ Renovation 2,928
Animal Shelter Renovation 2,739
Rincondada Park Improvements 2,508
Vehicle Fund 1,839
Newell Road Bridge/SFC Bridge Replacement 1,829
Cubberley Track and Field Replacement 1,808
New Downtown Parking Garage 1,440
Quarry Road 1,282
Art in Public Places 1,027
Tennis & Basketball Court Resurfacing 908
Municipal Service Center Improvements 571
Emerg Vehicle Traffic Signal Preempt Sys 486
Park Wayfinding Design 475
Civic Center Electrical Upgrade 416
Other construction in progress 3,148
Total Governmental Activities 143,400 $
Business‐type Activities
Expended to
June 30, 2021
Airport's Apron Reconstruction 30,464 $
Electric distribution system improvements 22,752
Gas system extension replacements and improvements 17,800 Storm drainage structural and water quality improvements 11,779 Water quality control plant equipment replacement and lab facil ities 7,528 Sewer system rehabilitation and extensions 4,241
Water system extension replacements and improvements 2,958 Other electrical improvements projects 2,148
Other construction in progress 29,266
Total Business‐type Activities 128,936 $
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
79 NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress Commitments
Major governmental capital projects that are currently in progress, and the remaining capital commitment of each, are as follows:
New Public Safety Building ‐ $97.1 million
Charleston Arastradero Corridor – $7.4 million
Municipal Service Center Improvements ‐ $6.0 million
Churchill Ave/Alma ‐ $4.2 million
Railroad Grade Separation ‐ $4.0 million
Highway 101 Pedestrian/Bicycle Overpass ‐ $3.7 million Vehicle Replacements ‐ $3.3 million
Major business‐type capital projects that are currently in progress, and the remaining capital commitment of each, are as follows:
Seismic Water Systems Upgrades ‐ $5.3 million
Gas Main Replacement Project 23 ‐ $6.9 million
Primary Sedimentation Tank Rehabilitation ‐ $11.8 million Airport Apron Reconstruction Phase 1 ‐ $23.3 million
Vehicle Registration Fees (VRF)
In fiscal year 2021, the City received VRF funds from the Santa Clara Valley Transportation Authority and expended the full amount on capital expenditures for the Overla y Resurfacing Project (PE‐86070) (in thousands):
Starting VRF balance July 1, 2020 ‐ $
VRF revenue 444
VRF interest earned 2
VRF expense (446)
Ending VRF balance June 30, 2021 ‐ $
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
80 NOTE 7 – LONG‐TERM DEBT
The City’s long‐term debt balances and activities, other than special assessment debt discussed in Note 8, are as follows (in thousands):
Original Balance Balance Current
Issue Amount July 1, 2020 Additions Retirements June 30, 2021 Portio n Governmental Activities Debt:
2010 General Obligation Bonds,
3.25% ‐ 5%, due 08/01/2040 55,305$ 43,295 $ ‐ $ 1,330$ 41,965 $ 1,395 $ 2013A General Obligation Bonds,
2 ‐ 5%, due 08/01/2041 20,695 15,480 ‐ 450 15,030 465 2018 Captial Improvement Project
and Refinancing Certficates of Participation,
2.2%‐ 4.22%, due 11/1/2047 8,970 8,755 ‐ 185 8,570 190 2019 California Ave Parking Garage
Certficates of Participation, Series A & B
2.5%‐5%, due 11/1/2048 37,370 36,995 ‐ 630 36,365 645 2021 Public Safety Building
Certficates of Participation,
2%‐5%, due 11/1/2050 101,505 ‐ 101,505 ‐ 101,505 ‐ Add: Unamortized Premium ‐ 7,980 6,524 405 14,099 569 Total Governmental Activities Debt 223,845 $ 112,505 $ 108,029 $ 3,000 $ 217,534$ 3,264 $
Original Issue
Amount
Balance
July 1, 2020 Additions Retirements
Balance
June 30, 2021
Current
Portion
Business‐type Activities Debt:
Utility Revenue Bonds
1999 Refunding,
5.125‐5.25%, due 06/01/2024
17,735$ 6,660 $ ‐ $ 1,540 $ 5,120 $ 1,620 $ 2009 Series A,
1.80‐5.95%, due 06/01/2035
35,015 25,510 ‐ 1,180 24,330 1,235 2011 Refunding,
3‐4%, due 06/01/2035
17,225 7,890 ‐ 1,210 6,680 1,260 Add: Unamortized Premium ‐ 479 ‐ 81 398 ‐ Energy Tax Credit Bonds
2007 Series A, 0%, Due 12/15/2021 1,500 200 ‐ 100 100 100 Less: Unamortized Discount ‐ (11) ‐ (5) (6) ‐ Total Bonds 71,475 40,728 ‐ 4,106 36,622 4,215 State Water Resources Loans
Direct Borrowings:
2007, 1.02%, due 06/30/2029 9,000 4,050 ‐ 450 3,600 450 2009, 2.6%, due 11/30/2030 8,500 5,258 ‐ 419 4,839 430 2017, 1.8%, due 5/31/2049 29,684 24,500 ‐ 651 23,849 662 Total Direct Borrowings 47,184 33,808 ‐ 1,520 32,288 1,542 Total Business‐type Activities Debt 118,659 $ 74,536 $ ‐ $ 5,626$ 68,910 $ 5,757 $
Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
81 NOTE 7 – LONG‐TERM DEBT (Continued)
Description of Long‐Term Debt Issues
2010 General Obligation Bonds (2010 GO Bonds) – On June 30, 2010, the City issued $55.3 million of 2010 GO Bonds to finance costs for constructing a new Mitchell Park Library and Community Center, and to fund substantial improvements to the Rinconada Library and the Downtown Library. Principal payments are due annually on August 1 and interest payments semi‐annuall y on February 1 and August 1 and are payable from property tax revenues.
On June 28, 2016, the City defeased $2.3 million of 2010 GO Bon ds using funds from bond premiums received at time of issue by depositing the amount in an irrevo cable trust account. The trust account assets and the liability for the defeased bonds are not included in the City’s financial statements. The City defeased amount was paid off on August 1, 2020.
2013A General Obligation Bonds (2013A GO Bonds) – On June 30, 2013, the City issued $20.7 million of 2013A GO Bonds to finance costs for constructing a new Mitchell Park Library and Community Center, as well as making substantial improvements to the Rinconada Librar y and the Downtown Library. Principal payments are due annually on August 1 and interest payments semi‐annually on February 1 and August 1 from 2 percent to 5 percent, and are payable from property tax revenues.
On June 28, 2016, the City defeased $2.8 million of 2013A GO Bonds using funds remaining at completion of the project by depositing the amount in an irrevocable trust account. The trust account assets and the liability for the defeased bonds are not included in the City’s financial statements. The City legally remains the primary obligor on the $2.8 million of defeased bonds until they are paid on August 1, 2023.
The City’s 2010 and 2013A GO Bonds are general obligations of the City, secured and payable solely from ad valorem property taxes levied by the City and collected by t he County of Santa Clara. The City is empowered and obligated to annually levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all property within the City subject to taxation b y the City, without limitation of rate or amount (except certain personal property which is taxable at limited rates) until the final maturity dates of the bonds on August 1, 2040 and August 1, 2041 respectively. For the fiscal year ended June 30, 2021, the City received $4.3 million in ad valorem property taxes for principal of $1.8 million and interest of $2.6 million for the 2010 and 2013A GO Bonds.
2018 Capital Improvement (“Golf Course”) Project and Refinancin g Certificates of Participation (2018 COPs) – On June 1, 2018, the City issued taxable COPs of $9.0 million for the renovation of the Palo Alto Municipal Golf Course ($8.4 million) and to fully refinance the 2002B COPs ($0.6 million). There are two semi‐annual debt service payments, consisting of principal paym ents due annually on November 1 and interest payments due on May 1 and November 1, which are payable solely from and secured by the lease payments to be made by the City’s General Fund to the Public Improvement Corporation pursuant to the Lease Agreement. The leased property is the Palo Alto University Fire Station 1. The 2018 COPs has a final maturity date of November 1, 2047.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
82 NOTE 7 – LONG‐TERM DEBT (Continued)
2019 California Avenue Parking Garage Series A and B Certificat es of Participation (2019A and 2009B COPs) – On March 21, 2019, the City issued tax exempt 2019A COPs of $ 26.8 million and taxable 2019B COPs of $10.6 million for the construction of the California Avenue Parking Garage. There are two semi‐ annual debt service payments, consisting of principal payments due annually on November 1 and interest payments due on May 1 and November 1. The debt service is payable solely from and secured by the lease payments to be made by the City’s General Fund to the Public Improvement Corporation pursuant to the Lease Agreement. The leased property is the Rinconada Library and after construction and the substantial readiness of the California Avenue Parking Garage project, the garage will become the leased property.
The maturity dates for the 2019A COPs and 2019B COPs are Novemb er 1, 2044 and November 1, 2048, respectively. The reserve account requirement was waived due t o the City being a highly rated bond issuer.
2021 Public Safety Building Certificates of Participation (2021 COPs) – On March 24, 2021, the City issued taxable COPs of $101.5 million for the construction of the City’s new public safety building. There are two semi‐annual debt service payments, consisting of principal paym ents due annually on November 1 and interest payments due on May 1 and November 1. The debt service is payable solely from and secured by the lease payments to be made by the City’s General Fund to the Public Improvement Corporation pursuant to the Lease Agreement. The leased property is the Cit y’s Civic Center and after construction and the substantial readiness of the Public Safety Building pro ject, the new public safety building will become the leased property. The maturity date for the 2021 COPs is November 1, 2050. The reserve account requirement was waived due to the City being a highly rated bond issuer.
1999 Utility Revenue and Refunding Bonds – The City issued $17.7 million of Utility Revenue Bonds on June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue Bonds, Series A, and to finance rehabilitation of two Wastewater Treatment sludge incinerators. The 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue Bonds, Series A, were subsequently retired.
The 1999 Bonds are special obligations of the City payable solely from and secured by a pledge of and lien upon certain net revenues derived by the City’s sewer system and its storm and surface water system (the “Storm Drain System”). As of June 30, 2001, the 1999 Bonds had been allocated to and were repayable from net revenues of the following enterprise funds: Wastewater Collection (10.2 percent), Wastewater Treatment (64.6 percent) and Storm Drainage (25.2 percent). Principal payments are payable annually on June 1 and interest payments semi‐annually on June 1 and December 1. The bonds have a final maturity date of the June 1, 2024.
As required by the Indenture, the City established a Reserve Account with a Reserve Requirement. At the time it issued the Bonds, the City satisfied the Reserve Requir ement with a deposit into the Reserve Account of a surety bond issued by Ambac Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
83 NOTE 7 – LONG‐TERM DEBT (Continued)
The pledge of future Net Revenues for the above bonds ends upon repayment of the $5.1 million principal and $0.5 million interest as the remaining debt service on the bonds, which is scheduled to occur in fiscal year 2024. For fiscal year 2021, Net Revenues, including operat ing revenues and non‐operating interest earnings, amounted to $59.1 million; operating costs, including operating expenses but not interest, depreciation or amortization, amounted to $43.3 million. Net Revenues available for debt service amounted to $15.8 million, which represents coverage of 8.4 times over the $1.9 million in debt service.
2009 Water Revenue Bonds, Series A – On October 6, 2009, the City issued $35.0 million of Water Revenue Bonds to finance certain improvements to the City’s water utility system. Principal payments are due annually on June 1, and interest payments are due semi‐annu ally on June 1 and December 1 from
1.80 percent to 5.95 percent. The 2009 Revenue Bonds are secure d by net revenues generated by the Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build America Bonds” under the provisions of the American Recovery and Reinve stment Act of 2009 (“Build America Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury equal to 35 percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues is senior to the lien on Net Revenues securing the 2009 Bonds and the 2011 Bonds. The City received subsidy payments amounting to $462,000, which represents 30.8 percent o f the interest payments due on December 1 and June 1.
The pledge of future Net Revenues for the above bonds ends upon repayment of the $24.3 million principal and $11.6 million intere st as the remaining debt serv ice on the bonds, which is scheduled to occur in fiscal year 2035. For fiscal year 2021, Net Revenues, including operating revenues and non‐ operating interest earnings, amounted to $49.2 million; operating costs, including operating expenses but not interest, depreciation or amortization, amounted to $39.2 m illion. Net Revenues available for debt service amounted to $10.0 million, which represented coverage of 3.9 times over the $2.6 million in debt service.
2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002 Bonds) on a current basis. The 2002 Bonds were issued to finance impro vement to the City’s municipal water utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually on June 1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The 2011 Bonds are secured by net revenues generated by the Water Services and Gas Services Funds.
The pledge of future Net Revenues of the above bonds ends upon repayment of the $6.7 million principal and $0.6 million interest as remaining debt service on the bonds, which is scheduled to occur in fiscal year 2026. For fiscal year 2021, Net Revenues, including operating r evenues and non‐operating interest earnings, amounted to $88.9 million; operating costs, including operating expenses but not interest, depreciation or amortization, amounted to $64.5 million. Net Revenues available for debt service amounted to $24.4 million, which represented coverage of 16.7 times over the $1.5 million in debt service.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
84 NOTE 7 –LONG‐TERM DEBT (Continued)
2007 Electric System Clean Renewable Energy Tax Credit Bonds, S eries A – In October 2007, the City issued $1.5 million of Electric Utility Clean Renewable Energy Tax Credit Bonds (CREBs), 2007 Series A, to finance the City’s photovoltaic solar panel project. The CREBs do not bear interest. In lieu of receiving periodic interest payments, bondholders are allowed annual fede ral income tax credits in an amount equal to a credit rate for such CREBs multiplied by the outstanding principal amount of the CREBs owned by the bondholders. The CREBs are payable solely from and secured solely by a pledge of the Net Revenues of the Electric system and the other funds pledged under the Indenture.
The pledge of future Electric Fund Net Revenues ends upon repayment of the $0.1 million remaining debt service on the bonds, which is scheduled to occur in fiscal year 2022. For fiscal year 2021, Net Revenues, including operating revenues and non‐operating interest earnings, amounted to $163.2 million; operating costs, including operating expenses but not interest, depreciat ion or amortization, amounted to $140.2 million. Net Revenues available for debt service amounted to $23.0 million, which represented coverage of 229.7 times over the $0.1 million in debt service.
Direct Borrowing ‐ 2007 State Water Resources Loan – In October 2007, the City approved a $9 million direct loan agreement with State Water Resources Control Board (SWRCB) to finance the City’s Mountain View/Moffett Area reclaimed water pipeline project. Under the terms of the contract, the City has agreed to repay $9 million to the State in exchange for receiving $7.5 million in proceeds to be used to fund the Project. The difference of $1.5 million between the repayment o bligation and proceeds represents in‐ substance interest on the outstanding balance. Principal payments are payable annually on June 30.
Concurrently with the loan, the City entered into various other agreements including a cost sharing arrangement with the City of Mountain View. Pursuant to that agreement, City of Mountain View agreed to finance a portion of the project with a $6.0 million loan re payable to the City. This loan has been recorded as “Due from other government agencies” in the accompa nying financial statements. The balance due to the City at June 30, 2021 was $2.4 million.
Direct Borrowing ‐ 2009 State Water Resources Loan – In October 2009, the City approved an $8.5 million direct loan agreement with SWRCB to finance the City’s Ultravio let Disinfection project. Principal and interest payments are payable annually on November 30. The loa n interest rate is 2.60 percent which represents a combination of loan service charge and interest.
Direct Borrowing ‐ 2017 State Water Resources Loan ‐ In June 2017, the SWRCB and the City executed a direct loan agreement for an award up to $30 million, payable over 30 years to finance the replacement of sewage sludge “bio‐solids” incinerators at the City’s Regional Water Quality Control Plant (RWQCP). In September 2017, due to the projected lower project costs, the agreement was amended to a lower loan amount of $29.7 million. Under the terms of the agreement, a portion of the loan amount, $4.0 million, is federally funded and has been adjusted to reflect the correc t long term obligation balance. The loan interest rate is 1.80 percent.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
85 NOTE 7 – LONG‐TERM DEBT (Continued)
The new facility will dewater the bio‐solids and allow the material to be loaded onto trucks and taken to a separate facility for further treatment. The RWQCP provides treatment and disposal for wastewater for P a l o A l t o , M o u n t a i n V i e w , L o s A l t o s , L o s A l t o s H i l l s , E a s t P a l o Alto Sanitary District, and Stanford University. Though Palo Alto is the recipient of the loan, the City’s agreement with the partner agencies oblige them to pay their proportionate share of the principal and interest of this loan. Palo Alto’s share of the loan payment is 38.2 percent with the partner agencies paying 61.8 percent.
Debt Service Requirements (in thousands):
Debt service requirements are shown below for all long‐term debt.
For the Year Ending
June 30 Principal Interest Total Principal Interest Total Principal Interest To tal 2022 2,695$ 7,762 $ 10,457$ 4,215$ 1,797 $ 6,012$ 1,542$ 317 $ 1,859$ 2023 2,795 7,462 10,257 4,300 1,616 5,916 1,566 300 1,866 2024 5,045 7,286 12,331 4,485 1,427 5,912 1,589 283 1,872 2025 5,280 7,062 12,342 2,790 1,229 4,019 1,613 266 1,879 2026 5,545 6,802 12,347 2,900 1,121 4,021 1,638 248 1,886 2027‐2031 32,115 29,450 61,565 8,645 4,178 12,823 7,679 962 8,641 2032‐2036 39,895 21,590 61,485 8,895 1,361 10,256 4,105 602 4,707 2037‐2041 45,720 13,356 59,076 ‐ ‐ ‐ 4,488 432 4,920 2042‐2046 33,080 6,842 39,922 ‐ ‐ ‐ 4,907 246 5,153 2047‐2051 31,265 1,836 33,101 ‐ ‐ ‐ 3,161 51 3,212 Total 203,435 $ 109,448 $ 312,883 $ 36,230 $ 12,729 $ 48,959 $ 32,288 $ 3,707 $ 35,995 $ Governmental Activities
Bonds Direct Borrowings
Business‐Type Activities
Debt Call Provisions
Long‐term debt as of June 30, 2021 is callable on the following terms and conditions:
Initial Call Date
Governmental Activities Long‐Term Debt
2010 General Obligation Bonds
$6.595 million due 08/01/2032 08/01/31 (2)
$4.890 million due 08/01/2034 08/01/33 (2)
$17.725 million due 08/01/2040 08/01/35 (2)
Business‐Type Activities Long‐Term Debt
Utility Revenue Bonds
1999 Refunding 06/01/09 (1)
2011 Refunding 06/01/21 (1)
(1) Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on the initial call date. The call price declines subsequent to the initial date. (2) Callable in any order specified by the City at par value p lus any accrued interest beginning on the initial call date.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
86 NOTE 7 – LONG‐TERM DEBT (Continued)
Leasing Arrangements
COPs and Capital Leases are issued for the purpose of financing the construction or acquisition of projects defined in each leasing arrangement. Projects are leased to the City for lease payments which, together with unspent proceeds of the leasing arrangement, will be sufficient to meet the debt service obligations of the leasing arrangement. At the termination of the leasing arrangement, title to the project will pass to the City.
Leasing arrangements are similar to debt in that they allow inv es tor s to p a rti ci p ate i n a sh are of guaranteed payments made by the City. Because they are similar to debt, the present value of the total payments to be made by the City is recorded as long‐term debt. The City’s leasing arrangements are included in long‐term obligations discussed above.
Events of Default and Acceleration Clauses
Generally, the City is considered to be in default if the City fails to pay the principal of and interest on the outstanding long‐term debt when become due and payable. If an event of default has occurred and is continuing, the principal of the long‐term debt, together with the accrued interest, may be declared due and payable immediately.
NOTE 8 – SPECIAL ASSESSMENT DEBT
Special Assessment Debt with no City Commitment
On February 29, 2012, the District issued Limited Obligation Refunding Improvement Bonds (2012 Bonds), but the City has no legal or moral liability with respect to the payment of this debt, which is secured only by assessments on properties in this District. The City is in no way for the repayment of the Bonds, but is only acting as an agent for the property owners in collecting the assessments, forwarding the collections to bondholders, and initiating foreclosure proceedings, when ap propriate. Therefore, this debt is not included in Governmental Activities long‐term debt of the City. At June 30, 2021, the District’s outstanding debt amounted to $17.9 million. The proceeds from the 2012 Bonds, combined with available Assessment Funds, were used to redeem the outstanding University Avenue Ar ea Off‐Street Parking Assessment District Series 2001‐A and Series 2002‐A Bonds. On June 28, 2016, the District defeased $1.6 million of the 2012 Bonds using funds remaining from completion of the project . The defeased debt will be paid on September 2, 2022. Reserve and redemption funds held by the District are reported within the University Avenue Area Off‐Street Parking Assessment District Custodial Fund.
NOTE 9 – LANDFILL POST‐CLOSURE MAINTENANCE
The 126‐acre Palo Alto Refuse Disposal Site (Palo Alto Landfill) was filled to capacity and stopped accepting waste in July 2011. State and federal laws and regulations req uire the City to construct a final cover to cap the waste, and to perform certain post‐closure maintenance and monitoring activities at the site for a minimum of thirty years after closure. As of November 2015, the Palo Alto Landfill has been fully capped and subsequently converted to a pastoral park (Byxbee Park) tha t is open to the public. A final post‐ closure maintenance plan and cost estimate for the thirty‐year post‐closure maintenance related activities
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
87 NOTE 9 – LANDFILL POST‐CLOSURE MAINTENANCE (Continued)
and corrective action costs was approved by State and local reg ulatory agencies in 2014. As required by the State, an updated five‐year post‐closure maintenance plan a nd cost estimate was submitted and approved in FY 2021. This cost estimate is adjusted annually for inflation at a percentage provided by the State. Landfill post‐closure liabilities as of June 30, 2021 are $6.2 million, a decrease of $0.9 million from the previous year. The City is required by State and federal la ws and regulations to fund post‐closure maintenance activities by pledging future revenue received from Refuse customers through rate fees.
NOTE 10 – NET POSITION AND FUND BALANCES
Net Position
Net Position is the excess of the City’s assets and deferred ou tflows of resources over its liabilities and deferred inflows of resources. Net position is divided into three categories that are described below:
Net Investment in Capital Assets describes the portion of net position, which is represented by current net book value of the City’s capital assets, less the outstanding b alance of any debt issued to finance these assets.
Restricted describes the portion of net position that is reduced by liabil ities related to restricted assets.
Generally, a liability relates to restricted assets if the asse t results from a resource flow that also results in the recognition of a liability or if the liability will be liquidated with the restricted assets reported.
Unrestricted describes the portion of net position which is not restricted as to use.
Fund Balances
Governmental funds report fund balances in classifications based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the funds can be spent. Fund balances for governmental funds are made up of the following:
Nonspendable – This category is comprised of amounts that are: (a) not in s pendable 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: prepaid items. The corpus of the permanent fund is contractually required to be maintained intact.
Restricted – This category is comprised of 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 – This category is comprised of amounts that can only be used for the specific purposes determined by the action that constitutes the most binding constraint (i.e. ordinance) of the City’s highest level of decision‐making authority, the City Council. Commitmen ts may be changed or lifted only by the City taking the same formal action that imposed the constraint originally.