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Palo Alto Public Improvement Corporation Board
of Directors
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Administrative Services
Meeting Date: January 12, 2026
Report #:2311-2231
TITLE
Approval of Fiscal Year 2025 Palo Alto Public Improvement Corporation's Annual Financial Report. CEQA Status - Not a Project
RECOMMENDATION
Staff recommends that the Board of Directors of the Palo Alto Public Improvement Corporation (PIC) approve the Fiscal Year (FY) 2025 Annual Financial Report for the Palo Alto Public Improvement Corporation.
BACKGROUND
The City established the Palo Alto Public Improvement Corporation in 1983. The PIC is a nonprofit corporation, legally distinct from the City, that allows the City to issue Certificates of Participation (COPs) to fund capital improvements. The City Council serves as the PIC’s Board of Directors. The PIC, through a lease-leaseback structure, finances the acquisition, improvement, and construction of City facilities. The PIC uses the lease payments by the City’s General Fund to pay the debt service on the COPs. On July 13, 1998, Council adopted a resolution establishing itself as the Board of Directors of the PIC. The PIC’s bylaws of require its Board to meet at least annually and approve the annual financial report for the Corporation.
In 1983 and 1998, the City of Palo Alto issued COPs to fund improvements to the Civic Center and the Golf Course, respectively. The Civic Center bonds were refinanced in 2002 to take advantage of lower interest rates and COPs were issued to finance the construction of commercial space adjacent to the new parking structure on Bryant/Florence Street. These bonds (referred to as the Downtown Parking Improvement bonds or 2002B COP) were used to build a two story above-ground structure of approximately 7,638 square feet at 445 Bryant Street. That structure was previously leased and operated as a privately owned fitness club until 2022 and will be re-opened as a downtown community center with classes, summer camps, a teen center operated by the Community Services Department and a senior nutrition program operated by La Comida.
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In fiscal year 2018, the City issued the 2018 Capital Improvement Project and Refinancing COPs in the amount of $9 million to refinance the 2002B COPs ($0.6 million) and to finance renovations for the Palo Alto Municipal Golf Course ($8.4 million). Fire Station 1 was used as the leased property and collateral for these COPs since it had a market value closer to the COPs issuance amount. This provided a net present value savings of $0.2 million or 6.47% on the 2002B refunded bonds and substituted Fire Station 1 as the leased property/collateral. This refinancing allowed the City to then use the Civic Center as collateral for the 2021 Public Safety building COPs.
In fiscal year 2019, the City issued the California Avenue Parking Garage Tax-exempt Series A ($26.8 million plus $4.9 million premium) and Taxable Series B ($10.6 million) COPs. These bonds were issued to fund the construction of the new California Avenue parking garage.
Rinconada Library was used as collateral during the garage construction. The garage was completed in December 2020; staff will convert the leased property/collateral for these COPs to the garage to preserve greater operational flexibility to use this garage facility over the life of the bonds (e.g., lease portion of the garage for private parking or other commercial use), a portion of the bonds were issued as taxable bonds.
In fiscal year 2021, the City issued the 2021 Public Safety Building tax-exempt COPs ($101.5 million plus $6.5 million premium) for the construction of the City’s new public safety building.
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.
Civic Center was used as collateral during the building construction and the newly built Public Safety Building will become the leased property/collateral for these COPs. Staff will switch the leased property/collateral before Spring 2026.
The reserve account requirement was waived on all the outstanding COPs due to the City being a highly rated bond issuer. This resulted in additional bonds issuance amount and the related interest savings.
ANALYSIS
The attached financial statement shows the financial condition of the PIC. The debt service payments have been made on time and all financial requirements have been met. At year-end, June 30, 2025, total outstanding debt principal on the COPs equaled $138.5 million as follows:
COPs Description
Principal
Outstanding
(millions)
Fiscal Year Debt
will be Retired
2018 Capital Improvement (2002B
Refinance and Golf Course) $7.8 2048
2019 California Ave. Parking Garage $33.6 2049
2021 Public Safety Building $97.1 2051
Total COPs $138.5
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Staff recommends that the Board of Directors of the Palo Alto Public Improvement Corporation (PIC) approve the FY 2025 Annual Financial Report for the PIC.
POLICY IMPLICATIONS
Approval of the Palo Alto Public Improvement Corporation’s Annual Financial Report is consistent with prior Council policy direction and resolutions.
FISCAL/RESOURCE IMPACT
Approval of the Palo Alto Public Improvement Corporation’s Annual Financial Report will have no resource impact.
STAKEHOLDER ENGAGEMENT
Staff works internally and coordinates with the City Auditor’s Office third party external auditor Macias Gini & O’Connell LLP (MGO) to prepare this report.
ENVIRONMENTAL REVIEW
This activity is not a project under California Environmental Quality Act (CEQA) as defined in CEQA Guidelines, section 15378, because it is an administrative activity that will not result in either a direct or reasonably foreseeable indirect physical changes in the environment.
ATTACHMENTS
Attachment A: Palo Alto Public Improvement Fiscal Year 2025 Annual Financial Report APPROVED BY:
Lauren Lai, Administrative Services Director