Memorandum — San Jose City Council, December 6, 2022 (part 1 of 2)

COUNCIL AGENDA: 1 2/6/22
FILE: 22-1795
ITEM: 3.5

TO: HONORABLE MAYOR AND

CITY COUNCIL
FROM: Julia H. Cooper
SUBJECT: SEE BELOW DATE: November 17, 2022

Approved Date
11/17/2022

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

RECOMMENDATION

Accept the Fiscal Year 2021-2022 Annual Comprehensive Financial Report for the City of San José.

OUTCOME

To provide an overview of the Fiscal Year 2021-2022 Annual Comprehensive Financial Report (ACFR) to the City of San José (City) Council. The ACFR provides relevant financial information to the City Council, residents of San José, creditors, investors, and other interested parties.

BACKGROUND

The City Charter requires the preparation of annual financial statements that are audited by an independent auditor and then submitted to the City Council. The independent auditor is retained by the City Council and works under the direction of the City Auditor. Also, annual audited financial statements are required by continuing disclosure agreements for outstanding bonds issued by the City, the City of San José Financing Authority, and the Successor Agency to the Redevelopment Agency. In some cases, the continuing disclosure agreements specify December 31 of each year as the deadline for providing audited financial statements to investors via the Electronic Municipal Market Access website of the Municipal Securities Rulemaking Board.

HONORABLE MAYOR AND CITY COUNCIL
November 17, 2022
Subject: Fiscal Year 2021-22 Annual Comprehensive Financial Report

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In February 2018, the City contracted with Macias Gini & O’Connell, LLP (Auditors), a firm of Certified Public Accountants licensed to practice in the State of California, to perform the City’s annual independent audit for the fiscal years ended June 30, 2018, June 30, 2019, and June 30, 2020, with three one-year options to extend audit services through fiscal year ending June 30, 2023.

The ACFR was prepared by the Accounting Division of the Finance Department and represents the culmination of a concerted team effort by Finance Department staff along with significant involvement of other City departments and the City Auditor. The ACFR provides the residents of San José, creditors, investors, taxpayers, and other interested parties an overview of the relevant financial information contained in the ACFR, and is submitted to the City Council for consideration and acceptance.

ANALYSIS

The Fiscal Year 2021-2022 ACFR provides a detailed description of the City of San José’s financial activities for the period of July 1, 2021 through June 30, 2022, and is organized into the following sections:
• Introductory Section which is intended to familiarize the reader with the organizational structure of the City, the scope of City services, and the specifics of the City’s legal operating environment;
• Financial Section which contains the City’s audited financial statements including the independent auditor’s report; and
• Statistical Section which contains up to 10 years of statistical data on the City’s financial trends, revenue, debt capacity, operating information, and demographic and economic information.

The Fiscal Year 2021-2022 ACFR provides a comprehensive review of the City’s financial operations and can be viewed at the following link and a copy is attached to this memorandum:

https://www.sanjoseca.gov/your-government/appointees/city-auditor/external-financial-audits

For Fiscal Year 2021- 2022, the Auditors expressed an opinion that the City’s financial statements are fairly stated in accordance with accounting principles generally accepted in the United States. This is the most favorable conclusion and is commonly known as an “unmodified” or “clean” opinion. The independent auditor's report is included in the Financial Section of the ACFR.

HONORABLE MAYOR AND CITY COUNCIL
November 17, 2022
Subject: Fiscal Year 2021-22 Annual Comprehensive Financial Report

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CONCLUSION

Acceptance of the Fiscal Year 2021-2022 ACFR provides relevant financial information to the City Council, residents of San José, creditors, investors, and other interested parties.

EVALUATION AND FOLLOW-UP

There is no evaluation or follow-up needed.

CLIMATE SMART SAN JOSE

The recommendation in this memorandum has no effect on Climate Smart San José energy, water, or mobility goals.

PUBLIC OUTREACH

This memorandum and the ACFR will be posted to the City Council Agenda website for the December 6, 2022 City Council meeting.

COORDINATION

The preparation of the ACFR is an extensive coordinated effort across every department in the City. Additionally, pursuant to the Disclosure Policies and Procedures 1 a substantially final draft
of the ACFR was distributed to the Core Disclosure Working Group;2 the group met to review the ACFR, and its comments have been incorporated into the final ACFR. The Finance Department coordinated this memorandum with the City Attorney’s Office.

COMMISSION RECOMMENDATION/INPUT

No commission recommendation or input is associated with this action.

1 Disclosure Policies and Procedures, effective June 30, 2020 - https://www.sanjoseca.gov/home/showpublisheddocument/61169/637292207533100000 2 Members of the Core Disclosure Working Group included the City Manager, City Attorney, Budget Director, Finance Director, and other members as deemed appropriate which included the Assistant City Manager, Directors of the Airport, Community Energy, Environmental Services, Human Resources/Employee Relations , and Retirement Services; along with key members of the City Attorney’s Office, Assistant Director of Finance, Deputy Directors of Finance (Accounting and Debt & Treasury Management), Deputy Director of Aviation, and the Assistant to the City Manager/Employee Relations.

HONORABLE MAYOR AND CITY COUNCIL
November 17, 2022
Subject: Fiscal Year 2021-22 Annual Comprehensive Financial Report

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CEQA

Not a Project, File No. PP17-010, City Organizational and Administrative Activities resulting in no changes to the physical environment.

/s/
JULIA H. COOPER
Director of Finance

For questions, please contact Rick Bruneau, Deputy Director of Finance, Accounting Division, at (408) 535- 8310 or by email at [email protected].

Attachment: Fiscal Year 2021-2022 Annual Comprehensive Financial Report for the City of San José

ANNUAL

COMPREHENSIVE

FINANCIAL
REPORT
FOR THE YEAR ENDED J UNE 30
2022

The featured photos throughout this year’s Annual Comprehensive Financial Report include:

Cover – The cover photo features a view of the City Hall tower through the rotunda. City Hall consists of three structures within the Civic Plaza: the Tower, the Rotunda, and the Wing. City Hall has received LEED Platinum certiﬁcation for its environmentally friendly design.

Introductory Section – The section photo features San José Public Library staff providing SJ Access device during a Maker[Space]Ship visit to the African American Community Services Agency. The Maker[Space]Ship has toured hard-to-reach neighborhoods throughout San José to bridge the digital divide by offering residents the ability to check out Wi-Fi hotspot devices and register for a library card.

Financial Section – The section photo features the Aircraft Rescue and Fire Fighting (ARFF) Station 20, located at Mineta San José International Airport. The new facility broke ground in September 2020 and covers 18,300 square feet with a modern hybrid design for ARFF capabilities.

Statistical Section – The section photo features San José Public Library staff distributing free food and snacks during the Library’s Summer Food Program. This is the eighth consecutive year the San José Public Library has offered a nine-week summer meal food program.

Back Cover – The back cover photo features the new Fire Station 37, located on Lincoln Avenue. The new building is an 8,100 square foot two-story, single-ﬁre company station that contains two apparatus bays, separate crew and captain’s oﬃces.

City of San José
California
Annual Comprehensive
Financial Report

Fiscal Year Ended June 30, 2022
Prepared by the Finance Department
Julia H. Cooper
Director of Finance
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Annual Comprehensive Financial Report
Project Team

Julia H. Cooper
Director of Finance
L
uz Cofresí-Howe
Assistant Director of Finance
Rick
Bruneau, CPA
Deputy Director of Finance

Finance De
partment Financial Statement Review and Coordination

Victor Lo, CPA
Principal Accountant
Eric Lemon, CP
A
Principal Accountant

Philana Chan
Supervising Accountant
Vicky Sz
eto
Supervising Accountant

K
ei Motonishi-Romero
Senior Accountant
Jo
vilita Oliveras
Senior Accountant
Winter
Tsang
Senior Accountant

Financial State
ment Preparation

Accountants Accountants Accountants
Kevin Cardema Jenny Kinney Katie Su
Gurinder Chhina Kim Lam Phillip Vuong
Govind Das William Phan
Weiping Ding Pedro Romero Accounting Technician
Shivani Sharma Margarita Malapitan

Component Unit Financial Statement Coordination

Laura Burke, Environmental Services
Principal Accountant
Mar
y Soo, Airport
Principal Accountant
Y
en Tiet, Housing
Senior Accountant

Justine Nguy
en, Environmental Services
Senior Accountant
Elsa Jacobo, Airpor
t
Supervising Accountant
Gina Rios, Retir
ement Services
Senior Accountant

Lillian Nguy
en, Environmental Services
Senior Accountant
Csilla
Kuehn, Airport
Senior Accountant
Debor
ah Sattler, Retirement Services
Senior Accountant

Jennif
er Stevenson, Community Energy
Senior Accountant

Special Assistance

Joseph Rois,
City Auditor Yolanda Wasniewski, Finance Jim Shannon, Budget Office Kevin Freimarck, Finance Kim Hawk, Airport Benjie Chua-Foy, Retirement Services Qianyu Sun, Finance Deepak Sharma, Finance Barbara Hayman, Retirement Services

Special Assistance - Departments and Offices

Airport Community Energy Parks, Recreation and Neighborhood Services Budget Environmental Services Planning, Building and Code Enforcement City Attorney Fire Police
City Auditor Housing Public Works
City Clerk Human Resources Retirement Services
City Manager Information Technology Transportation
Library

TABLE OF

CONTENTS
FOR THE YEAR ENDED J UNE 30, 2022
●
Introductory Section
Letter of Transmittal I
Certificate of Achievement for Excellence in Financial Reporting (GFOA) XVIII Distinguished Budget Preparation Award (GFOA) XIX
Mayor and City Council XX
City Organization by Function XXI
●
Financial Section
Independent Auditor’s Report 1
Management’s Discussion and Analysis (Unaudited) 5
Basic Financial Statements:

Government-wide Financial Statements:

Statement of Net Position 27
Statement of Activities 28
Fund Financial Statements:

Governmental Funds:

Balance Sheet 29
Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 31
Statement of Revenues, Expenditures and Changes in Fund Balances
33 Reconciliation of the Changes in Fund Balances of Governmental Funds to the Statement of Activities
35 Proprietary Funds:

Statement of Fund Net Position 37
Statement of Revenues, Expenses and Changes in Fund Net Position
39 Statement of Cash Flows 41

TABLE OF

CONTENTS
FOR THE YEAR ENDED J UNE 30, 2022
Fiduciary Funds:

Statement of Fiduciary Net Position 43
Statement of Changes in Fiduciary Net Position 45
Notes to Basic Financial Statements 45
Required Supplementary Information (Unaudited)
Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual:

General Fund 192
Housing Activities Fund 193
Low and Moderate Income Housing Asset Fund 194
Schedule of Employer Contributions – Defined Benefit Pension Plans 195 Schedule of Changes in the Employer’s Net Pension Liability and Related Ratios for the Measurement Periods Ended June 30 - Defined Benefit Pension Plans
200
Schedule of Investment Returns - Defined Benefit Pension Plans 202 Schedule of the City’s Proportionate Share of the Net Pension Liability and Related Ratios - CalPERS 203
Schedule of Employer Contributions - CalPERS 204
Schedule of Changes in the Employer’s Net OPEB Liability and Related Ratios for the Measurement Periods Ended June 30 – Postemployment Healthcare Plans
205
Changes in Assumptions 207
Schedule of Employer Contributions – Postemployment Healthcare Plans 208 Notes to Required Supplementary Information 211
Supplemental Information
Nonmajor Governmental Funds
Combining Balance Sheet 215
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
216

TABLE OF

CONTENTS
FOR THE YEAR ENDED J UNE 30, 2022
Nonmajor Special Revenue Funds
Combining Balance Sheet 221
Combining Statement of Revenues, Expenditures and Changes in Fund Balances 229
Combining Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual
237
Nonmajor Debt Service Funds
Combining Balance Sheet 254
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
255
Nonmajor Capital Project Funds
Combining Balance Sheet 259
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
261
Internal Service Funds
Combining Statement of Fund Net Position 266
Combining Statement of Revenues, Expenses and Changes in Fund Net Position
267
Combining Statement of Cash Flows 268
Pension Trust Funds
Combining Statement of Fiduciary Net Position 272
Combining Statement of Changes in Fiduciary Net Position 273 Combining Statement of Fiduciary Net Position - Federated City Employees’ Retirement System
274
Combining Statement of Changes in Fiduciary Net Position - Federated City Employees’ Retirement System
275
Combining Statement of Fiduciary Net Position - Police and Fire Plan 276 Combining Statement of Changes in Fiduciary Net Position - Police and Fire Plan
277

TABLE OF

CONTENTS
FOR THE YEAR ENDED J UNE 30, 2022
Private-Purpose Trust Funds
Combining Statement of Fiduciary Net Position 278
Combining Statement of Changes in Fiduciary Net Position 279 ●
Statistical Section (Unaudited)
I Net P osition by Component - Last Ten Fiscal Years 282 II
Change in Net P
osition - Last Ten Fiscal Years 283
III
F
und Balances, Governmental Funds - Last Ten Fiscal Years 287 IV
Changes in F
und Balances, Governmental Funds - Last Ten Fiscal
Years 289
V
Assessed V
alue and Estimated Actual Value of Taxable Property -
Last Ten Fiscal Years 292
VI
Pr
operty Tax Rates - All Overlapping Governments - Last Ten Fiscal Years 293
VII
Principal Pr
operty Taxpayers - Current Year and Nine Years Ago 294
VIII
Pr
operty Tax Levies and Collections - Last Ten Fiscal Years 295 IX
Ratios of Outstanding Debt b
y Type - Last Ten Fiscal Years 296
X
Ratio of Net Gener
al Bonded Debt Outstanding - Last Ten Fiscal Years 297
XI
Schedule of Dir
ect and Overlapping Bonded Debt 298
XII
Legal Debt Mar
gin Information - Last Ten Fiscal Years 299
XIII
Re
venue Bond Coverage - Last Ten Fiscal Years 301
XIV
Demogr
aphic and Economic Statistics - Last Ten Fiscal Years 303 XV
Principal Emplo
yers - Current Year and Nine Years Ago 304
XVI
F
ull-time and Part-time City Employees - Last Ten Fiscal Years 305 XVII
Oper
ating Indicators - Last Ten Fiscal Years 307
XVIII
Capital Asset Statistics b
y Function - Last Ten Fiscal Years 309
XIX
Conduit Issuer of Multifamily Housing Re
venue Bonds Outstanding 311
Introductory
Section

I FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
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SECTION ANNUAL COMPREHENSIVE FINANCIAL REPORT

November 17, 2022

HONORABLE MAYOR and CITY CO UNCIL and

RESIDENTS OF THE CITY OF SAN JOSE
The Annual Comprehensive Financial Report of the City of San José We are pleased to present the Annual Comprehensive Financial Report (“ACFR”) of the City of San José (“City”) for the fiscal year July 1, 2021 through June 30, 2022 as required by Sections 805(a) and 1215 of the City Charter. Although formally submitted to the Mayor and City Council (“Council”), the ACFR is also intended to provide relevant financial information to the residents of San José, taxpayers, creditors, investors, and other interested parties.

This letter of transmittal provides a non-technical summary of City finances, services, achievements, and economic prospects. We ask that readers who wish a more detailed discussion of the City’s financial results refer to the Management’s Discussion & Analysis contained in the Financial Section of the ACFR.

The City Administration is responsible for the accuracy of the information contained in this report, the adequacy of its disclosures, and the fairness of its presentation. We believe this ACFR to be complete and reliable in all material respects. To provide a reaso nable basis for making this representation, we have established a comprehensive system of internal controls designed to protect City assets from loss, to identify and record transactions accurately, and to compile the information necessary to produce finan cial statements in conformity with generally accepted accounting principles.

The City contracted with Macias Gini & O’Connell LLP, a firm of Certified Public Accountants licensed to practice in the State of California, to perform the annual independent audit. The auditors expressed an opinion that the City’s financial statements for Fiscal Year 2021 -2022 (“FY 2021 -2022”) are fairly stated in conformity with accounting principles generally accepted in the United States. This is the most favorable conclusion and is commonly known as an “unmodified” or “clean” opinion. The independent auditor’s report is included in the Financial Section of this report.

In addition, Macias Gini & O’Connell LLP performs an audit of the City’s major program e xpenditures of federal funds for compliance with the requirements described in the U.S. Office of Management and Budget’s OMB Compliance Supplement, and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. The report of the Single Audit is published separately from this ACFR and, when completed, can be obtained f rom the City of San José’s website at https://www.sanjoseca.gov/your-government/appointees/city-auditor/external- financial-audits.

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ANNUAL COMPREHENSIVE FINANCIAL REPORT

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This ACFR is organized into three sections:
● The Introductory Section is intended to familiarize the reader with the organizational structure of the City, the nature and scope of City services, and specifics of the City’s legal operating environment.
● The Financial Section includes the Management’s Discussion & Analysis, Basic Financial Statements, Notes to Basic Financial Statements, Required Supplementary Information, and other Supplemental Information. The Basic Financial Statements include the government - wide financial statements that present an overview of the City’s entire financial operations and the fund financial statements that present financial information for each of the City’s major funds, governmental funds, as well as enterprise funds, internal service funds, and fiduciary funds. This section also contains the independent auditor’s report on the Basic Financial Statements.
● The Statistical Section presents up to ten years of detailed statistical data on the City’s financial trends, revenue capacity, debt capacity, demographic and economic information, and operating information as a context to the information presented in the financial statements and note disclosures.

The ACFR includes all funds of the City, as well as all governmental organizations and activities for which the Council has financial accountability. These organizations include the San José -Santa Clara Clean Water Financing Authority, the City of San José Financing Authority, San José Diridon Development Authority, and the Successor Agency to the Redevelopment Agency of the City of San José.

Reporting Entity
San José is a charter city that has operated under a council -manager form of government since 1916. Under the City Charter, the Mayor and Council form the legislative body that represents the community and is empowered to formulate citywide policy. The Council consists of a Mayor and ten (10) Council members. The Mayor is elected at-large for a four-year term and the Council members are elected by district for staggered four-year terms. The Mayor 1 and Council members are limited to two (2) consecutive four -year terms. Under the Charter, the Mayor recommends policy, program, and budget priorities to the Council, which in turn approves policy direction for the City. The City Manager is appointed by the Council and serves as the chief administrative officer of the organization responsible for the administration of City affairs, day -to-day operations, and implementation of Council policies. In addition to the City Manager, the City Attorney, City Clerk, City Auditor, and Independent Police Auditor are appointed by and report directly to the Council.

The City Charter provides that the boards of administration for each of the City’s retirement plans, the Federated City Employees’ Retirement System and the Police and Fire Department Retirement Plan, hire and prescribe the duties of the chief executive officer (Director of Retirement Services) and chief investment officer (Assistant Director of Retirement Services) within the Office of Retirement Services who serve at the pleasure of the retirement boards. The City Charter also specifies certain duties and obligations of each retirement board and authorizes the chief executive officer to hire and oversee the Office of Retirement Services’ employees, subject to any applicable Civil Service Rules.

1 On June 7, 2022, 55.48% of San José voters approved Measure B, a ballot measure amending the San Jose City Charter to (1) move the mayoral election from the gubernatorial election cycle to the presidential election cycle beginning in 2024 and (2) to limit the person elected to the Office of Mayor in 2022 to a two- year term with the option to run for the Office of Mayor and serve as such for two additional successive four -year terms.

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INTRODUCTORY

SECTION ANNUAL COMPREHENSIVE FINANCIAL REPORT

City History
San José is the oldest city in California, developed from a Spanish pueblo established in 1777.

Situated between the Diablo and Santa Cruz mountain ranges, San José encompasses approximately 181 square miles at the south end of the San Francisco Bay, and is the county seat of Santa Clara County. San José’s central location between San Francisco to the north and Monterey/Carmel to the south makes San José the “Capital of Silicon Valley” a gateway to adventures throughout California. With a 2021 estimated population of 976,4822, San José is the third most populous city in California and the tenth most populous in the United States.

The City has transformed dramatically from the rich agricultural setting of its early years into the largest city in the Silicon Valley. Silicon Valley is a region in the Southern San Francisco Bay Area of Northern California which serves as a global center of high technology, innovation, and social media. Silicon Valley corresponds roughly to the geographical Santa Clara Valley. The San José-Sunnyvale-Santa Clara Metropolitan Statistical Area (“San José MSA”) in the Silicon Valley has a large concentration of high- tech employment with 330,500 workers out of a total civilian employment level of 1.05 million3.

Commercial, retail, professional, high-tech manufacturing, electronic assembly, and service businesses all have a presence in San José. On the international front, San José attracts significant foreign investment from throughout the globe.

Successor Agency to the Redevelopment Agency of the City of San José (SARA) Beginning July 1, 2018 , pursuant to Health and Safety Code section 34179(j), the individual successor agency oversight boards within Santa Clara County were combined into one county -wide oversight board (“Oversight Board”). The Oversight Board is comprised of seven (7) member representatives with one (1) member appointed by each of the following: County Board of Supervisors, the city selection committee established pursuant to Section 50270 of the Government Code, the independent special district selection committee established pursuant to Section 56332 of the Government Code, the County Superintendent of Education, the Chancellor of the California Community Colleges, a public appointment made by the County Board of Supervisors, and the recognized employee organization representing the largest number of successor agency employees in the County. The Oversight Board is staffed by the County of Santa Clara Auditor- Controller, and tasks have been delegated among the County Finance Agency, the Office of the County Executive, the Clerk of the Board of Supervisors, and Office of the County Counsel.

Total Redevelopment Property Tax Trust Fund (“RPTTF”) revenue distributed by the County to the SARA in FY 2021- 2022 was $141,841,586 which was used to pay debt service and debt -related expenses on the Successor Agency Senior and Subordinate Tax Allocation Bonds (“SARA TABs”) and other enforceable obligations. During the year ended June 30, 2022, the County withheld $47,944,257 in RPTTF for payments for its current year pass-through payments.

Economic Condition and Fiscal Outlook
The local, regional and state economies all have been negatively affected by the Coronavirus (“COVID-19”) Pandemic. The Silicon Valley, including the City, experienced a long period of economic expansion from

2 State of California, Department of Finance, E -1 Population Estimates for Cities, Counties, and State with Annual Percentage Change – January 1, 2021 and 2022 (Released May 2022).
3 State of California, Employment Development Department, Labor Market Information Division Press Release, August 19, 2022.

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2010 to 2019, fueled primarily by technology sectors. This period of economic growth came to a sudden end in the first quarter of 2020 as the region, like much of the United States and the world, was forced to abide by restrictive public health orders to combat the spread of the COVID-19 virus. The orders resulted in temporary business closures and significant job losses, particularly in the hospitality and service sectors. The City has steadily rebounded since the initial onset of the pandemic , with growth that accelerated with the arrival and widespread use of effective vaccines. Despite this growth, the broader economic environment is still recovering and, in some areas, has not returned to pre-pandemic levels.

The June 2022 employment level in the San José MSA of 1.16 million represented a 6.9% increase from the June 2021 level of 1.09 million. Between June 2021 and June 2022, employment expanded by approximately 75,000 jobs in the San José MSA, including 26,100 jobs in the leisure and hospitality sector, 17,600 jobs in professional and business services, 9,900 jobs in private educational and health services, 9,100 jobs in technology, and 4,400 jobs in government, and 4,100 jobs in information services.

Smaller changes in employment levels across all other sectors make up the remaining difference 4.

The unemployment rates at the local, state, and national levels have continued to decline and have improved compared to the prior year. In June 2022, the unemployment rate of 2.3 percent for the San José MSA was much lower than experienced in June 2021. The San José MSA June 2022 unemployment rate continued to be lower than the unadjusted unemployment for the State ( 3.9 percent) and the nation (3.8 percent)

5. Construction permit valuation in San José declined in FY 2021- 2022 from FY 2020 -2021 – which was a historically high year – primarily due to a drop off in industrial activity. The total valuation of projects submitted in FY 2021 -2022 was $1.5 billion, approximately 20% below the $1.9 billion valuation of projects in FY 2020- 2021. The number of new residential dwelling unit permits issued in FY 2021-2022 totaled 1,887, which was 4.5% below the prior year level of 1,975 permits issued. Valuations for all land use categories (residential, commercial, and industrial) ended the year slightly below the estimates.

The local real estate market has continued strong performance through FY 2021- 2022, recording record high median single home prices. However, sales activity has begun to slow down, which may be indicative of a cooling market due to rising interest rates . According to data from the Santa Clara County Association of Realtors, the number of property transfers (sales) experienced year- over-year decreases (from the same time period in the prior year) ranging from -10% to -54% between the beginning of the shelter -in-place in March 2020 through June 2020. However, beginning in September 2020, the local real estate market once again began to experience year -over-year gains.

As of June 2022, the median single -family home price in San José totaled $1.6 million, which is 5.6% above the June 2021 price of $1.5 million. The average days -on-market through June 2022 totaled 14 days, which is significantly below the average of 23 days experienced year -to-date through June 2021. While, i n the first half of FY 2021- 2022, property sales for single family and multi -dwelling homes grew 15% compared to the prior year , total sales for January -June 2022 dropped 12% compared to the same time period in 2021. As interest rates continue to rise, which has a direct impact on mortgage rates, the number of property sales and average sales price may be negatively affected.

The City Council approved the FY 2021- 2022 Adopted Budget with the assumption that the City’s revenue and overall budgetary position would improve as the community and region emerged from the pandemic. The City again leveraged a significant influx of external funding sources, including from the

4 State of California, Employment Development Department, Labor Market Information Division Press Release, August 19. 2022. 5 Ibid
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American Rescue Plan Act, to continue existing and initiate new community and economic recovery workstreams aligned to the City Council -approved Mayor’s March and June Budget Messages for FY 2021-2022 that focused on: Supporting an Equitable Recovery for a “Better Normal”, Back to Basics – A Cleaner and Safer San José, Accelerating Solutions to Homelessness and the Affordable Housing Crisis, and Fiscal Resilience and Our Future.

The City’s current General Obligation (“GO”) Bonds credit ratings are Aa1/AA+/AAA from Moody’s Investors Service (“Moody’s”), S&P Global Ratings (“S&P”), and Fitch Ratings (“Fitch”), respectively. The ratings continue to reflect the diversity of the local economy anchored by a strong technology presence, sound financial management, and prudent budgetary practices.

As of June 30, 2022, the outstanding series with investor ratings on the City of San José Financing Authority (“Authority”) bonds are noted in the table below.

Series Moody’s S&P Fitch
2013B, 2020A, and 2021A Aa2 AA AA
2020B Aa3 AA AA-
2022A Aa3 AA AA
Rating Outlook Stable Stable Stable
As of June 30, 2022, the underlying ratings on the City of San José Airport Revenue Bonds were rated by Moody’s, S&P, and Fitch: A2, A, and A, respectively, all with stable outlooks.

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City Organization and Services
The City provides a range of municipal services, including police and fire protection, sanitation services, environmental management, maintenance of streets and infrastructure, library services, and recreational activities. The City operates a number of enterprises including a parking program, a municipal water system, a wastewater treatment facility, the Norman Y. Mineta San José International Airport (Airport), and the San J osé Clean Energy (“SJCE”) program. In addition, the City provides oversight of the management of convention and cultural event facilities that include the San José McEnery Convention Center, Center for the Performing Arts, California Theatre, Mexican Heritage Plaza, Ice Centre, and the SAP Center at San José – home of the San José Sharks of the National Hockey League.

The City organization is structured into six (6) City Service Areas (“CSAs”) that integrate services provided by separate departments and offices into key alignments from the community’s perspective.

The CSAs are:
● Community and Economic Development: The mission of the Community and Economic Development CSA is to manage the growth and change of the City of San José in order to encourage a strong economy, create and preserve healthy neighborhoods, ensure a diverse range of housing and employment opportunities, and encourage a diverse range of arts, cultural, and entertainment offerings. The outcomes of this CSA include a strong economic base; safe, healthy, attractive, and vital community; diverse range of housing options; and a range of quality events, cultural offerings, and public artworks.
● Environmental and Utility Services : The mission of the Environmental and Utility Services CSA is to provide environmental leadership through policy development, program design, and reliable utility services. The outcomes of this CSA include reliable utility infrastructure; healthy streams, rivers, marsh, and bay; “Clean and Sustainable” air, land, and energy; and safe, reliable, and sufficient water supply.
● Neighborhood Services: The mission of the Neighborhood Services CSA is to serve, foster, and strengthen the community by providing access to lifelong learning, opportunities to enjoy life, and preserving healthy neighborhoods. The outcomes for this CSA include safe and clean parks, facilities, and attractions; vibrant cultural, learning, recreation, and leisure opportunities; and healthy neighborhoods and capable communities.
● Public Safety : The mission of the Public Safety CSA is to provide prevention and emergency response services for crime, fire, medical, hazardous, and disaster related situations. The outcomes for this CSA include having the public feel safe anywhere, anytime in San José and residents share in the responsibility for public safety. ● Transportation and Aviation Services : The mission of the Transportation and Aviation Services CSA is to provide the community with safe, secure, and efficient surface and air transportation systems that support San José’s livability and economic vitality. The outcomes for this CSA include providing safe and secure transportation systems; providing viable transportation choices that promote a strong economy; ensuring travelers have a positive, reliable, and efficient experience; preserving and improving transportation assets and facilities; and providing a transportation system that enhances community livability.

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● Strategic Support: The mission of the Strategic Support CSA is to effectively develop, manage, and safeguard the City’s fiscal, physical, technological, and human resources to enable and enhance the delivery of City services and projects. The outcomes of this CSA include ensuring a high-performing workforce that is committed to exceeding internal and external customer expectations; safe and functional public infrastructure, facilities, and equipment; effective use of technology; and sound fiscal management that facilitates meeting the needs of the community.

Enterprise Priorities, City Initiatives Roadmap , and Significant Accomplishments The City’s Enterprise Priorities6 are the City’s focus areas on challenges that affect community lives and livelihoods which are the primary focus of the organization. The Enterprise Priorities are categorized into “Core” priorities which focus on our residents and “Foundational” priorities which focus on enabling the City’s employees to better deliver all City services including the Core Enterprise Priorities. The Administration further organizes the City’s priorities though the City Initiatives Roadmap. The purpose of the City Initiatives Roadmap is to focus the City on our most vital change initiatives and service transformations. The initiatives that make up the City Initiatives Roadmap in any year are importantly distinct from City core services as they represent significant new policies, strategies, projects, or programs (series of projects that in totality deliver the expected impact) that are not traditionally or routinely delivered by the City, are complex and cross -departmental, and/or require significant strategic planning and leadership capacity to deliver successfully. Organizing around the City Initiatives Roadmap is a major change to the way the City considers, communicates, and delivers on City Council priorities, and is an opportunity for the Administration and City Council to be more measured, transparent, and accountable.

The Administration presented the 2021- 2022 City Initiative Roadmap to City Council on March 16, 2021 as the priorities that the Administration would focus on during the fiscal year . A description of each Enterprise Priority for FY 2021 -2022 and their associated significant accomplishments are described below in the City Initiatives Roadmap.

6 On May 16, 2022, the City Council adopted the FY 2022-2023 City Roadmap which merged two Core Enterprise Priorities to create “Resilient and Sustainable City Infrastructure and Emergency Preparedness” and separated the “Safe, Vibrant, and Inclusive Neighborhoods and Public Life ” into two distinct Core Enterprise Priorities: “Safer San José” and “Clean, Vibrant, and Inclusive Neighborhoods and Public Life”.

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COVID-19 Pandemic: Community and Economic Recovery (Core): No event in living memory has been more painful or traumatic for our community than the COVID -19 pandemic and economic crisis which exacerbated existing inequalities. In this moment, our biggest challenge and our biggest opportunity is to foster an equitable recovery to a “Better Normal.” The journey to healing, recovery, and resilience will require unprecedented effort, resources, and creativity. Recovery is not for us to do alone, rather it must be done w ith the community, for the benefit of those most burdened by the crisis, guided by their wisdom, tapping into their potential, and building on their deep enduring strength.

Significant accomplishments in this Enterprise Priority for FY 2021-2022 include:
● Invested over $98 million to achieve a more equitable COVID -19 community and economic recovery for housing stabilization, re -employment and workforce development, small business recovery, food and necessities distribution, digital equity, childcare, and the COVID-19 Recovery Task Force. ● Committed $83 million of emergency rental assistance funds to 6,700 extremely low- income households county-wide alongside opening and operating two Rental Relief and Eviction Prevention Help Centers.
● Launched an Eviction Diversion and Settlement Program at the Superior Court, assisting 180 households.
● Enrolled 185 Resilience Corps clients into Learning, Environmental, and Small Business pathways to increase workforce development and job training in high- growth, high -wage sectors including the grand opening of the work2future jobs center in East San José. ● Partnered with the Enterprise Foundation for small business rent/utility relief and the Silicon Valley Community Foundation for nonprofit grants, totaling $4.1 million and $5.7 million, respectively. ● Facilitated the distribution of 52 million meals to food-insecure individuals. ● Distributed over 9,100 hotspots and devices to students and families for school and education digital access in circulation at Library branches.

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● Launched 47 childcare and preschool programs for over 1,500 students grade K -8 and children ages three to five years at City youth centers, community centers, schools, and parks. ● Distributed 109 art and culture grants to support arts programming, festivals, and special events to activate vibrant spaces city-wide.
● Established a COVID -19 Recovery Task Force to engage 55 community -based organizations and a Lived Experience Group in the City’s community and economic recovery from the pandemic. ● Partnered with three non- profits to launch a Promotores program to scale community outreach and engagement in COVID-19 community and economic recovery efforts.

Emergency Management and Preparedness (Core): No issue is more important than the lives and safety of our residents. The City has more work to do to ensure San José is well-prepared for earthquakes and other disasters, particularly for those who are most vulnerable. As a City, we will do more to be prepared for emergencies and commit to this priority with relentless attention and support.

Significant accomplishments in this Enterprise Priority for FY 2021-2022 include:
● Responded to new COVID -19 variants including delta and omicron variants by increasing community and employee access to vaccinations and emergency public information and education. ● Partnered with the County to organize over 70 vaccination events in priority neighborhoods, leading San José to be the most vaccinated large city in the United States. ● Created and implemented the City’s Mandatory Vaccination Policy and the interactive process for employees who submitted exemption requests related to the initial COVID-19 vaccination requirement and the COVID-19 booster requirement and organized three onsite City employee vaccination events to increase City employee access to vaccination opportunities resulting in a 97% vaccination rate for City employees and a 94% boosted rate.
● Established a review approach with the California Governor's Office of Emergency Services (CalOES) and the Federal Emergency Management Agency (FEMA) to streamline soft story earthquake retrofits for compliance, and launched a Request for Proposal for a seismic consultant to create an inventory of structures, retrofit measures, and a soft story building retrofit program.

Ending Homelessness (Core): All people in San José need a place they can call home and feel they belong as a vital part of the City, yet the City and region are faced with an unprecedented housing crisis. While the brunt of this crisis is borne by our unhoused neighbors, its impacts are felt across our community. The City will continue to invest in permanent supportive and aff ordable housing, while addressing systemic issues to improve the condition of our City. The City will also take immediate action by increasing emergency and interim housing options and expanding services to meet the basic health and safety needs of our unhoused residents.

Significant accomplishments in this Enterprise Priority for FY 2021-2022 include:
● Invested $68 million in homelessness programs for housing -based solutions, crisis response, and emergency interim housing (“EIH”).
● Completed first generation EIH long-term financial analysis through 2029 -2030 to achieve feasibility and sustainability of emergency housing maintenance and operations, and to significantly increase funds available to expand the number of EIH sites and beds available over the next two years. ● Initiated construction with substantial progress towards completion of the Guadalupe E IH site with a late 2022 opening.
● Secured Project Home key grants totaling $91 million in project support, including the acquisition of two properties to increase interim and permanent supportive housing units through the Arena Hotel on the Alameda and at the Branham and Monterey sites.
● Approved service operation agreements at two Bridge Housing Community sites, three existing EIH X

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sites, and one new EIH sites for 2022-2023.
● Facilitated developing 448 affordable housing units via four affordable housing project loans, including a childcare center to support families.
● Implemented a Guadalupe Gardens re- housing program (under implementation) to support humane transition of the unhoused to various types of housing. ● Refined the Measure E Policy and Funding Strategy to target and reduce homelessness. ● Initiated a study to benchmark and improve EIH operations and services through partnership with the SF Foundation and received a $2 million competitive Encampment Resolution grant. ● Awarded SJ Bridge contract to engage current and previous unsheltered residents in meaningful work and self-sufficiency.
● Developed 10-year Memo of Understanding with Union Pacific Railroad and formalized joint protocol with Santa Clara County for encampment management and removal of trash from properties within the City of San José.

Safe, Vibrant, and Inclusive Neighborhoods and Public Life (Core ): The diverse mosaic of people who live, work, learn, and play in San José deserve vibrant, beautiful, accessible, safe, and inclusive public spaces that inspire friendship and connection across generations, cultures, and points of view. Our neighborhoods and public life must reflect the rich cultural history and lived experiences of our residents. Neighborhoods should serve as conduits for people to connect with one another; to build community; and provide pathways to opportunity, lifelong learning, and prosperity.

Significant accomplishments in this Enterprise Priority for FY 2021-2022 include:
● Deployed five new SJ311 services (Report Community WiFi Coverage, Report Illegal Fireworks, Access Affordable Housing Portal, Access Eviction Prevention Portal, and Pay Utility Bills), two SJ311 virtual agents to increase language access of key services, and launched a SJ311 marketing campaign communicating to low-income communities on how to better access and utilize services. ● Completed Guadalupe Gardens Phases #1 and #2 clean -ups requiring the removal of structures and vehicles, coordinated six waterway cleanups with Santa Clara Valley Water District (Valley Water), and implemented a weekly encampment trash service at 100% of sites in the City, enabling the BeautifySJ removal of over nine million pounds of trash (garbage, dumping, bio -waste household hazardous waste) from encampments, streets, sidewalks, and waterways. ● Continued implementation of the Vision Zero Action Plan to improve traffic safety and cultivate a safety culture among roadway users, including traffic safety improvements at 30 locations and deployed 46 Changeable Message Signs on major roadways to increase traffic safety awareness, reduce pedestrian traffic fatalities, and deter sideshow activities. ● Revised and restored in-person services to the public at all library locations, bringing services back to funded levels, increasing hours at 13 branches in “low -resourced” neighborhoods, and advancing capital modifications to maximize access.
● Provided 500 scholarships to eligible families to increase access to SJ Recreation Preschool and R.O.C.K. afterschool programs over the academic year, and allocated $10.5 million in State and Local Fiscal Recovery Funds from the American Rescue Plan Act to expand and enhance access to children and youth programs and services.
● Expanded Family Friend and Neighbor Early Education Training to support business development for over 100 new care providers, resulting in 350 new licensed childcare slots. ● Responded on an emergency basis to a record setting call volume to Fire Dispatch of 103,145 (+8.8%) driven primarily by a 10.5% increase in Emergency Medical Services demand. ● Developed and implemented the Re-Districting Campaign, which informed the community of new City XI FOR THE YEAR ENDED J UNE 30, 2022

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Council District boundaries , and included multilingual direct mail postcards to the 39,000 San José addresses affected by the boundary changes.

Building the San José of Tomorrow with a Downtown for Everyone (Core): San José has a bold plan that envisions a more urban, connected, and livable city by 2040. Making this a reality will require driving private development and ensuring those investments create great places. The approval processes must be clear, consistent, and easy to use for everyone, and move at the speed of business, not bureaucracy. The center piece of these efforts, our Downtown plan, is a complex mosaic of new train lines, large offices mixed with vibrant street front retail, urban housing, and creative public spaces that we must get right.

Significant accomplishments in this Enterprise Priority for FY 2021-2022 include:
● Completed the General Plan Four-Year Review Process.
● Made progress rezoning properties to comply with Senate Bill (SB) 1333 , passed in 2018, which requires all charter cities, including San José, to align zoning districts with their respective land use designation. The City has rezoned 1,000 parcels out of an impacted 13,000 parcels, and completed an appropriate noticing process and significant data analysis. ● Issued 24,508 building permits, with 18,898 of those issued online. ● Completed the launch of Development Services Transformation Rapid Online Service Intake (ROSI) to reduce building permit intake wait time for customers and allow customers to drop off applications without needing an appointment , and expanded SJePlans, the City’s electronic plan review software, to accommodate Planning Subdivision applications.
● Completed modifications to the Commercial Linkage Fee to provide more flexibility to developers, including modifying payment timing and scheduling of final building inspection, and adding credits for constructing new affordable housing units.
● Completed Zoning Ordinance amendments and developed an application process to comply with SB 9, effective January 1, 2022 , which requires cities and counties to ministerially approve certain two - unit projects and lot splits.
● Reprioritized and accelerated the Housing Element Update to ensure release of draft documents for public comment in July 2022 and ensure compliance with State requirements. ● Implemented new 90-minute free parking program to encourage Downtown San José activation and messaging, eliminating a cumbersome validation program. ● Advanced Google’s Downtown West Phase 1 development plan, currently at 65% drawings for horizontal development, and allocated Google’s $4. 5 million community benefit payment for economic opportunity, Gardner neighborhood programs, and staffing to setup the Community Stabilization and Opportunity Pathways Fund and associated advisory commission. ● Completed or advanced the City’s Real Estate Division projects, including the Sharks Ice expansion and construction of the new 4,200 -seat “Tech CU” Arena (new home of the San José Barracudas , minor league hockey team), providing a much-enhanced community amenity. ● Supported the Valley Transit Authority Bay Area Rapid Transit (BART) Phase 2 project milestone with award of the tunnel construction contract.
● Advocated for the final environmental clearance of high -speed rail segments to and through San José, with the entire first phase of high- speed rail from the Bay Area to Los Angeles now environmentally cleared.
● Released the Downtown Transportation Plan to solicit public input.

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Smart, Sustainable and Reliable City: 21st C entury Infrastructure (Core): Competing in the global economy and addressing climate imperatives requires updating our energy, water, waste, transportation, and internet connectivity infrastructure, as well as translating traditional infrastructure such as roads and streetlights into 21st century infrastructure. From the launch of a Clean Energy program, long-term investments in the Regional Wastewater Facility and San José International Airport, and new strategies for Broadband and Digital Inclusion as well as Automated/Electric Vehicles, we must focus on developing smart, sustainable, and reliable infrastructure to shape America’s next great city.

Significant accomplishments in this Enterprise Priority for FY 2021-2022 include:
● Maintained 205 miles of roadways, including 29 miles of new and enhanced bikeways and over 2,100 accessible ramps, raising pavement condition ratings from 66 to 67 on the way to the long -term goal of 70.
● Completed Fire Stations 37 and 20 construction and launched operations. ● Continued to implement the $1. 5 billion 10-year Capital Improvement Program (CIP), currently in the ninth year, at the Regional Wastewater Facility (RWF) with key milestones met, including:
commissioned the new Cogeneration Facility ($114 million) to improve reliability, increase energy efficiency, and reduce overall associated emissions; substantially completed the Digester and Thickener Facilities Upgrades ($219 million); and substantially completed the M4 Switchgear Replacement and G3 and G3A Removal ($ 9.4 million), which is the last step of the multiple CIP projects completed in the last ten years to upgrade and improve the reliability of the electrical grid at RWF.
● Completed the final three American Cities Climate Smart Challenges: Framework for Existing Building Electrification; Transportation Demand Management and Parking Policy Update; and the Climate Mobility Campaign.
● Converted 18,000 streetlights to energy and cost saving LEDs , bringing the total converted to over 64,000 of the City’s 80,000 streetlights.
● Secured advanced power contracts for San José Clean Energy (SJCE) to minimize price volati lity exposure and reduce costs by executing over 85 short -term power purchase agreements totaling $300 million, and updated SJCE business and financial plan to set future strategic objectives to mitigate risks such as the Power Charge Indifference Adjustment (PCIA) and high power supply costs.
● Increased volume of Airport passengers by over 130%, reaching over one million passengers per month, up from an average of 400,000 passengers as compared to the same month in the prior year.

Strategic Fiscal Positioning and Resource Deployment (Foundational): We will continue to be both strategic and res ponsible in how we manage and balance the City’s $ 5.5 billion budget , as well as smart and efficient in how we serve our community. We will always look for opportunities to be cost-effective in all aspects of our service delivery system while working to en sure equity and inclusion in how services are delivered. If new or expanded revenues are considered, we will minimize impacts to our tax, rate, and fee -payers to the extent possible.

Significant accomplishments in this Enterprise Priority for FY 202 1-2022 include:
● Provided ongoing review, monitoring, analyses, forecasts, and reporting on the City’s over 135 Operating and Capital funds totaling $5. 5 billion with 6,900 positions, allowing for effective oversight and controls throughout the fiscal year.
● Collaborated with the Office of Racial Equity and departmental staff to further embed the explicit consideration of equity into the budgeting process, including a new iteration of the Budgeting for Equity Worksheet.

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● Deployed a Finance/Recovery Unit in the Finance Department Accounting Division to support the citywide coordination and delivery of emergency financial and recovery activities in response to the COVID-19 pandemic.
● Filed a validation action to secure judgment confirming the City's authority to issue Pension Obligation Bonds.
● Met demand for procurement and contracting services with over 150 procurement requests , 2,000 Purchase Orders, and over 200 contracts and 620 contract adjustments. ● Recognized by the Center for Digital Government as the nation's #1 most innovative local government in the 2021 Digital Cities Survey for the second consecutive year. The Center also recognized the City with two Government Experience Awards for building and adapting constituent-centric services. ● Launched the Outcomes, Equity Indicators, and Performance Management City Initiatives Roadmap initiative to improve alignment of the City Initiatives Roadmap with the budget process, equity indicators, and performance reporting.

Powered by People (Foundational): We recognize that our 6,900 employees power the City of San José, and our success as a City is dependent on our ability to create a dynamic and engaged workforce.

Our employees’ ability to provide excellent service is strengthened when we invest in attracting talent, providing opportunities for career growth, enabling an environment focused on health, safety, and wellness, and retaining a diverse workforce in a workplace that is equitable and inclusive.

Significant accomplishments in this Enterprise Priority for FY 2021-2022 include:
● Resumed on-site work activities to successfully and safely bring back employees to City facilities, and support the City’s transition to a digital workforce by meeting the increased need for hybrid workplace tools and spaces – essential for employee retention – while continuing to support the COVID- 19 response through staffing, policy, and safety.
● Launched a series of employee -focused wellness activities and programs to nurture employee growth, safety, and wellness to attract, retain, and engage a diverse workforce. ● Provided training opportunities to more than 800 employees that include a human- centered design learning lab, innovation academy, leading remote workforce, leading hybrid workforce, coaching for supervisors, storytelling, and public presentations.
● Launched a second round of trauma- informed culture building to train 200 employees and create six departmental pilot learning communities.
● Deployed 32 business process automation workflows to increase City service efficiency and effectiveness.
● Recognized by National Equity Officers as the first city in the United States to mandate comprehensive racial equity training for 100% of its employees and conduct study sessions and trainings for City Council in 2022.

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Major City Awards, Recognitions and Distinctions
The following listing represents the major awards, recognitions and distinctions the City received in FY 2021-2022.
● American Public Works Association (APWA) Silicon Valley Chapter - Project of the Year Award for the Environment/Parks Category for the Arcadia Ballfields in 2021 ● Engineering News Record California Award of Merit - Mineta San José International Airport Aircraft Rescue and Firefighting Facility (Fire Station 20) for the 2022 Best Projects competition in the Airport / Transit Category for Northern California in 2022
● California Association of Public Information Officials (CAPIO) – San José Clean Energy Award of Distinction in the Diversity, Equity and Inclusion in Outreach/Campaign category for their Solar Access Campaign that partners with Community Based Organizations in 2021 ● Design Build - National Award of Merit (Water/Wastewater) for the new Cogeneration Facility for 2021 ● Association of Zoos and Aquariums - Happy Hollow Park & Zoo granted five -year Zoo Accreditation for meeting highest standards in animal care and welfare and providing a fun, safe, and educational family experience in 2021
● Alum Rock Park Celebrates 150 Years as a Historic and Natural Destination in 2021 ● Urban Libraries Council - 2021 Top Innovator Award for 2021 ● International Academies of Emergency Dispatch - Accredited Center of Excellence for Emergency Medical Dispatch San José Fire Department Communications Division recognition in 2021 ● S&P Global Ratings raised long -term rating to ‘A’ from ‘A-’ on San José Airport Revenue Bonds 2022 with stable outlook.
● Fitch Ratings upgrade d San José General Obligation Bonds from AA+ to AAA with Stable Outlook 2021
● Achievement of Excellence in Procurement Award from the National Procurement Institute (2022) ● Welcoming America - San José achieves “Certified Welcome Status” – Certified Welcoming is a formal designation by Welcoming America for cities and counties that have created policies and programs reflecting their values and commitment to immigrant inclusion in 2022 ● United States Treasury - San José recognized for Equity and Outcomes in San José’s COVID- 19 recovery in 2022
● Excellence in Public Information and Communications (EPIC) Awards – Award for Crisis Communications Response for the Language Access Unit’s work on COVID -19 communications for 2021
● Digital Cities Awards – Most Innovative Large City in America (Based on Operational Excellence, Customer Engagement, and Innovative Services through Technology) for 2021

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Five-Year Capital Improvement Program
The City publishes a five-year Capital Improvement Program (“CIP”) that guides the City in the planning, scheduling, and budgeting of capital improvement projects. The CIP is updated annually and approved by the City Council. The CIP maintains critical investment to sustain, enhance, and develop a wide array of public infrastructure to i mprove system reliability, enhance recreational experience, advance public safety, and ensure San José is well-positioned for further economic growth and opportunity while building on the efforts of the last several years of making targeted investments that align with the City’s economic development and community livability goals contained within the Envision San José 2040 General Plan (“General Plan”).

Though our community and organization are challenged by the impacts of the COVID-19 Pandemic, the City’s work to plan for the future and maintain public infrastructure continues. Even in this challenging environment, the General Plan guides the CIP with a focus on the renovation, renewal, and expansion of critical public assets, ranging from the infrastructure that is integrated into daily life, such as roadways and the sewer collection and treatment systems, to parks and sports fields that promote community health, fire and police facilities that help keep our community safe, and airport facilities to meet the long -term travel needs of our residents and businesses. While capital revenue allocation is often restricted to specific uses, considerations of equity within those allowable uses is an important factor in the development of the CIP. Many of the projects included in the CIP result from technical analysis necessary to identify new or deferred infrastructure rehabilitation needs, along with community and City Council conversations to help ensure resources are allocated with an understanding of how communities will benefit or be affected
by a recommended capital improvement.

Over a five -year period, the 202 3-2027 CIP totals $3.4 billion, a 10.5% decrease over the 202 2-2026 Adopted CIP of $3.8 billion. The FY 2022 -2023 Adopted Capital Budget of $1. 7 billion reflects a 6.3% increase from the FY 2021- 2022 Adopted Capital Budget of $1.6 billion. While capital -related revenues have stabilized, and some have significantly increased from pre -pandemic levels, especially Construction & Conveyance (C&C) Tax revenues or new revenues from the issuance of bonds, funding challenges remain. Two examples of these funding challenges are highlighted. First, t he resources available to the Storm Sewer Capital Program continue to decline , as the storm sewer service and use charge fee rate has remained flat over the past decade while costs have continued to increase . Second, prior to the onset of the COVID-19 Pandemic, the City lacked sufficient resources to fully maintain and fund its entire infrastructure portfolio. The Status Report on Deferred Infrastructure Maintenance Backlog, presented to the Transportation and Environment Committee on April 4, 2022, identifies an infrastructure backlog of approximately $1.7 billion, with an additional $91.5 million needed annually to maintain the City’s infrastructure in a sustained functional condition. The existing backlog of $1.7 billion is expected to decrease as Measure T projects are fully implemented – including $300 million for street pavement maintenance.

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Financial Information
The City Administration is responsible for establishing and maintaining internal controls that safeguard the City’s assets from loss, theft, or misuse, and allow the compilation of adequate accounting data for the preparation of financial statements in conformity with generally accepted accounting principles. Internal controls are designed to provide reasonable, but not absolute, assurance these objectives are met. The concept of reasonable assurance recognizes the cost of a control should not exceed its likely benefits, and that the evaluation of costs and benefits is subject to management estimates and judgments.

Single Audit
As a recipient of federal, state and county funding, the City is responsible for providing assurance that adequate internal controls are in place to ensure compliance with applicable laws and regulations relating to these award programs. Internal controls are subject to periodic evaluation by management, the Office of the City Auditor, and the City’s external independent auditors.

As part of the City’s single audit procedures, tests are performed to test the effectiveness of its internal controls over major federal award programs and the City’s compliance with applicable laws and regulations related to these award programs.

Budgetary Controls
The City maintains budgetary controls through City Council adoption of an annual appropriation ordinance and by maintaining an encumbrance accounting system. Expenditures for City operations and other purposes identified in the annual budget cannot legally exceed the budgeted amounts approved by the City Council.

The City uses encumbrance accounting as another technique for accomplishing budgetary control. An encumbrance is a commitment of a future expenditure earmarked for a purpose that reduces the amount of budgetary authority available for general spending. At the end of the fiscal year, encumbered appropriations are carried forward and become part of the following year’s budget while appropriations that have not been encumbered lapse.

The City continues to meet its responsibility for sound financial management as demonstrated by the statements and schedules included in the financial section of this report.

Debt Management Policy
The City’s Debt Management Policy was adopted by the City Council on May 21, 2002 and most recently revised on March 7, 2017 and is reviewed annually. The Debt Management Policy establishes the following equally important objectives:
● Minimize debt service and issuance costs;
● Maintain access to cost-effective borrowing;
● Achieve the highest practical credit rating;
● Full and timely repayment of debt;
● Maintain full and complete financial disclosure and reporting; ● Ensure financial controls are in place with respect to proceeds of debt issuances; and ● Ensure compliance with applicable State and Federal laws.

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Certificate of Achievement for Excellence in Financial Reporting The Government Finance Officers Association (“GFOA”) of the United States and Canada awarded its Certificate of Achievement for Excellence in Financial Reporting to the City for its ACFR for the fiscal year ended June 30, 2021. This was the thirty-fourth consecutive year the City has received this prestigious award. To qualify for the Certificate of Achievement, the governmental entity must publish an easily readable and efficiently organized ACFR, the contents of which conform to program standards. Such a report must satisfy accounting principles generally accepted in the United States of America, as well as all applicable legal requirements.

The Certificate of Achievement is valid for only one year. The City believes this ACFR continues to conform to the Certificate of Achievement Program requirements and will be submitting it to GFOA for consideration of the annual award.

For the thirty-second consecutive year, the City received the GFOA Distinguished Budget Preparation Award for its annual budget for the fiscal year beginning July 1, 2021. To qualify for this award, the government unit must publish a budget document that meets program criteria as a policy document, a financial plan, an operations guide, and a communications medium.

Acknowledgements
The preparation of this ACFR represents the culmination of a concerted team effort by the entire staff of the Finance Department. Many members of the Department demonstrated exemplary personal determination and dedicated many long days of focused attention to produce this document.

In addition, staff in all City departments should be recognized for responding so positively to the requests for detailed information that accompanies each annual audit. The City also recognizes the contributions and positive working relationship with Macias Gini & O’Connell LLP.

Finally, we wish to express our sincere appreciation to the Mayor and City Council for providing policy direction and a firm foundation of support for the pursuit of excellence in all realms of professional endeavors, especially their role in guiding the City to a secure financial condition that assures resources are available to provide core services to our community.

Respectfully submitted,

JENNIFER A. MAGUIRE
City Manager

JULIA H. COOPER
Director of Finance

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San José Mayor & City Council
To contact members of the San José City Council by mail, send to:
200 East Santa Clara Street, Tower 18th, San José, CA 95113 Mayor Sam Liccardo
(408) 535-4800
[email protected]
Sergio Jimenez
District 2
(408) 535-4902
[email protected]
Vice Mayor Charles
"Chappie" Jones
District 1
(408) 535-4901
[email protected]
Raul Peralez
District 3
(408) 535-4903
[email protected]
David Cohen
District 4
(408) 535-4904
[email protected]
Magdalena Carrasco
District 5
(408) 535-4905
[email protected]
Devora "Dev" Davis
District 6
(408) 535-4906
[email protected]
Maya Esparza
District 7
(408) 535-4907
[email protected]
Sylvia Arenas
District 8
(408) 535-4908
[email protected]
Pam Foley
District 9
(408) 535-4909
[email protected]
Matt Mahan
District 10
(408) 535-4910
[email protected]
XXI FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City Organization by Function
Residents of San José
Mayor and City Council
Council Appointees
Office of
the City
Manager
Office of
the City
Attorney
Office of the
City Auditor
Office of the
City Clerk
Office of the
Independent
Police
Auditor

RETIREMENT
BOARDS*
Office of
Retirement
Services
Boards and
Commissions

GENERAL

GOVERNMENT

DEPARTMENTS
Finance
Human Resources
Information
Technology

PUBLIC SAFETY

DEPARTMENTS
Fire
Police

CAPITAL

MAINTENANCE

DEPARTMENTS
Public Works
Transportation

COMMUNITY

SERVICES

DEPARTMENTS
Airport
Community Energy
Environmental
Services
Housing
Library
Parks, Recreation and
Neighborhood
Services
Planning, Building and
Code Enforcement
*Federated City Employees՚ Retirement System Board of Administration and Police and Fire Department Retirement Plan Board of Administration

GENERAL

GOVERNMENT

DEPARTMENTS

PUBLIC SAFETY

DEPARTMENTS

CAPITAL

MAINTENANCE

DEPARTMENTS

COMMUNITY

SERVICES

DEPARTMENTS

RETIREMENT
BOARDS*
Introductory
Section
Financial
Section

1 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
Independent Auditor’s Report
City Council
City of San José, California
Report on the Audit of the Financial Statements
Opinions
We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of San José, California (City), as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

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

We did not audit the financial statements of the City of San José Federated City Employees’ Retirement System and the City of San José Police and Fire Department Retirement Plan (collectively, “the Pension Trust Funds”), which represent 86.0 percent, 102.0 percent, and 2.7 percent, respectively, of the assets , net position/fund balances, and revenues /additions of the aggregate remaining fund information. Those statements were audited by other auditors whose report s thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Pension Trust Funds, is based solely on the reports of the other auditors.

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

Emphasis of Matter
As discussed in Note 1.E. to the financial statements , effective as of July 1, 2021, the City adopted the provisions of Governmental Accounting Standards Board Statement No. 87, Leases. Our opinions are not modified with respect to this matter.
2 INTRODUCTORY

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

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

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

Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basi s, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expre ssing a n opinion on the effectiveness of the City ’s internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control –related matters that we identified during the audit.
3 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis ; the schedules of revenues, expenditures and changes in fu nd balance – budget and actual for the General Fund, Housing Activities Fund, and Low and Moderate Income Housing Asset Fund; the schedule of employer contributions – defined benefit pension plans; the schedule of changes in the employer’s net pension liability and related ratios for the measurement periods ended June 30 – defined benefit pension plans; the schedule of investment returns – defined benefit pension plans; the schedule of the City’s proportionate share of the net pension liability and related ratios – CalPERS; the schedule of employer contributions – CalPERS; the schedule of changes in the employer’s net OPEB liability and related ratios for the measurement periods ended June 30 – postemployment healthcare plans; and the schedule of employer co ntributions – postemployment healthcare plans, as listed in the table of contents, be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basi c financial statements in an appropriate operational, economic, or historical context.

We and other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise City’s basic financial statements. The combining and individual fund financial statements and schedules listed as supplemental information are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial st atements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, based on our audit and the reports of the other auditors, the combining and individual fund financial statements and schedules listed as supplemental information are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

Other Information
The City’s m anagement is responsible for the other information included in the annual comprehen sive financial report. The other information comprises the introductory and statistical sections but does not include the financial statements and our auditor's report thereon. Our opinion s on the financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon.

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

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Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards , we have also issued our report dated November 17, 2022 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is sole ly 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City ’s internal control over financial reporting and compliance.

Walnut Creek, California
November 17, 2022

5 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
Management’s Discussion and Analysis
Required Supplementary Information (Unaudited)
The Management’s Discussion and Analysis (“MD&A”) provides an overview of the City of San José’s (“City”) activities and financial performance for the year ended June 30, 2022. Readers are encouraged to read the MD&A in conjunction with the basic financial statements that immediately follow, along with the letter of transmittal at the beginning of the Introductory Section and other portions of this Annual Comprehensive Financial Report (“ACFR”). All amounts in the billions and millions have been rounded to the nearest million and hundred thousand, respectively. All percentages have been rounded to the nearest one hundredth of a percent.

Financial Highlights
● The government-wide statement of net position for the City’s governmental and business-type activities indicates that as of June 30, 2022, total assets and deferred outflows of resources exceed total liabilities and deferred inflows of resources by $3.980 billion. Of this amount, a deficit balance of $2.279 billion represents unrestricted net position, which consists of a deficit balance of $2.587 billion for governmental activities, and a positive balance of $307.8 million for business-type activities. In addition, the City’s restricted net position totals $1.250 billion ($1.179 billion for governmental activities and $71.2 million for business-type activities) based on the restrictions imposed by the enabling legislations or debt covenants. Lastly, net position of $5.009 billion is the City’s net investment in capital assets, which include $3.777 billion from governmental activities and $1.232 billion from business-type activities. ● The net position increased by $270.1 million or 7.28 percent during FY 2022 to $3.980 billion from $3.710 billion. Governmental activities accounted for $141.3 million of increase due to total revenue and transfers of $2.139 billion exceeding the total expense of $1.998 billion. Business-type activities accounted for $128.7 million of increase due to total revenue of $951.7 million exceeding the total expense and transfers of $823.0 million.
● Governmental funds reported a combined ending fund balance of $2.221 billion at June 30, 2022, which is $360.7 million or 19.39 percent higher than the June 30, 2021 balance. The change was attributable to an increase in the General Fund of $159.7 million, the Nonmajor Governmental Funds of $130.9 million, the San José Financing Authority Debt Service Fund of $46.0 million, the Housing Activities Fund of $38.4 million and offset by decreases in the Special Assessment Districts Fund of $11.0 million and the Low and Moderate Income Housing Asset Fund of $3.3 million. ● Unassigned fund balance of governmental funds is $225.9 million, which is 10.17 percent of the combined governmental fund balances at June 30, 2022.
● Total long-term liabilities decreased by $999.5 million to $6.200 billion at June 30, 2022, which represents a decrease by 13.88 percent compared to $7.199 billion at June 30, 2021. The primary factors leading to the decrease in long-term liabilities for governmental activities of $957.8 million was due to the decrease of net pension liability by $1.144 billion and the net Other Postemployment Benefits (“OPEB”) liability by $71.1 million, offset by the increase of long-term obligations by $257.6 million. The primary factor leading to the decrease in long-term liabilities for business-type activities of $41.7 million was the result of a decrease of net pension liability by $104.5 million and the net OPEB liability by $15.6 million, offset by an increase of long-term obligations by $78.4 million. 6 INTRODUCTORY

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ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

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Overview of the Financial Statements
This discussion and analysis introduce the City’s basic financial statements, which are comprised of four components:
● Go
vernment-wide Financial Statements
● F
und Financial Statements
● Notes
to Basic Financial Statements
● Requir
ed Supplementary Information
In addition, this report also contains other supplementary information.

Government-wide Financial Statements
Government-wide Financial Statements provide readers with a broad overview of the City’s finances in a manner like that of a private-sector business.

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

The statement of activities presents information showing how the net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods. Examples include revenues pertaining to uncollected taxes and expenses pertaining to earned but unused vacation and sick leave.

Both government-wide financial statements address functions principally supported by taxes and intergovernmental revenues (“governmental activities”) and other functions that intend to recover all or in part a portion of their costs through user fees and charges (“business-type activities”). The governmental activities of the City include general government, public safety, capital maintenance, community services, sanitation, and interest and fiscal charges. The City’s business-type activities include airport, wastewater treatment, water system, parking operations, and clean energy.

The government-wide financial statements include the primary government of the City and three separate components for which the City is financially accountable.

Fund Financial Statements
Fund Financial Statements report information about groupings of related accounts used to maintain control over resources segregated for specific activities or objectives. As do other state and local governments, the City uses fund accounting to ensure and demonstrate finance-related legal compliance. Each City fund falls into one of three categories: governmental funds, proprietary funds, or fiduciary funds.

Governmental funds account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental funds financial statements focus on near-term inflows and outflows of spendable resources, 7 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the City’s capacity to finance its programs in the near future.

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

The governmental funds balance sheet and the governmental funds statement of revenues, expenditures and changes in fund balances present information separately for the General Fund, the Housing Activities Fund, the Low and Moderate Income Housing Asset Fund, the Special Assessment Districts Fund, and the San José Financing Authority Debt Service Fund which are all classified as major funds. These statements also report several individual governmental funds classified as nonmajor funds such as special revenue, debt service, and capital project funds, which are combined into a single, aggregated presentation. Individual fund data for each of the nonmajor governmental funds is provided in the form of combining statements elsewhere in this ACFR.

Proprietary funds generally account for services charged to external or internal customers through fees.

Proprietary funds provide the same type of information as shown in the government-wide financial statements for business-type activities, only in more detail. The City accounts for its airport, wastewater treatment, water system, parking operations, and clean energy program in proprietary funds.

The City accounts for its public works program support, employee benefits, and vehicle maintenance and operations as internal service funds. These services predominantly benefit governmental functions.

Therefore, they are included as governmental activities in the government-wide financial statements.

Individual fund data for each of the nonmajor internal service funds are provided in the form of combining statements elsewhere in this ACFR.

Fiduciary funds account for resources held for the benefit of City employees and outside parties in a similar manner as that for proprietary funds. Pension plan trust funds, private-purpose trust funds, and custodial funds are reported as fiduciary funds. The government-wide financial statements do not include fiduciary funds as their resources are not available to support City programs.

Notes to Basic Financial Statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.

Required Supplementary Information includes the budgetary schedules for the General Fund, the Housing Activities Fund, and the Low and Moderate Income Housing Asset Fund. In addition, pension and other postemployment healthcare schedules present the City’s progress toward funding its obligations to provide future pension and other postemployment healthcare benefits for its active and retired employees.

Combining and individual fund statements and schedules provide information for nonmajor governmental funds, internal service funds, and fiduciary funds and are presented immediately following the required supplementary information.
8 INTRODUCTORY

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Government-Wide Financial Analysis
Analysis of net position: As noted earlier, net position may serve as a useful indicator of the City’s financial position. As of June 30, 2022, the City’s total assets and deferred outflows of resources exceed total liabilities and deferred inflows of resources by $3.980 billion. The following table is a condensed summary of the City’s net position for governmental and business-type activities:

Statement of Net Position
June 30, 2022 and 2021
(in thousands)
Governmental Activities Business-type Activities Totals FY 2022 FY 2021 FY 2022 FY 2021 FY 2022 FY 2021
Assets:

Curr
ent and other assets $ 2
,709,223 $ 2
,462,291 (a)$ 1
,030,042 $ 9
39,464 (a)$ 3
,739,265 $ 3
,401,755
Capital assets 4
,871,505 5
,041,987 (a)

2,546,995

2,463,639 (a)
7 ,418,500 7
,505,626
Total assets 7
,580,728 7
,504,278

3,577,037

3,403,103

11,157,765
10,907,381

De
ferred outflows of resources:

Loss on
refundings of debt
5,620
4,128
1 1,034 1
1,516
1 6,654 1
5,644
Pensions
564,651
697,257
6 3,385 6
7,722

628,036
764,979
Other postemployment benefits
102,929 9
8,152
1 6,039 1
2,776

118,968
110,928
Total deferred outflows of resources
673,200
799,537
9 0,458 9
2,014

763,658
891,551

L
iabilities:

Curr
ent and other liabilities
428,571
522,415

184,211
193,109 (a)

612,782
715,524
Long-term liabilities 1
,661,591 1
,403,958 (a)

1,417,102

1,338,705 (a)
3 ,078,693 2
,742,663
Net pension liability 2
,070,435 3
,214,827

272,444
376,970
2 ,342,879 3
,591,797
Net OPEB Liability
716,818
787,874
6 1,406 7
7,000

778,224
864,874
Total liabilities 4
,877,415 5
,929,074

1,935,163

1,985,784
6 ,812,578 7
,914,858

De
ferred inflows of resources:

Gain on r
efundings of debt
3,371
3,634
-
-

3,371
3,634
Pensions
852,722 3
3,835
9 0,303
7,468

943,025 4
1,303
Other postemployment benefits
137,243 9
3,560
2 0,681
7,225

157,924
100,785
Leases 1
3,855 1
5,717 (a)
1 0,177 1
2,212 (a)
2 4,032 2
7,929
Total deferred inflow of resources 1
,007,191
146,746

121,161 2
6,905
1 ,128,352
173,651

Net position:

Net inv
estment in capital assets 3
,777,037 4
,089,937

1,232,173

1,209,959 (a)
5 ,009,210 5
,299,896
Restricted 1
,178,965 1
,116,441
7 1,173 4
9,784
1 ,250,138 1
,166,225
Unrestricted (2
,586,680)
(2
,978,383)

307,825
222,685 (a)
(2
,278,855)
(2
,755,698)
Total net position $ 2
,369,322 $ 2
,227,995
$ 1
,611,171 $ 1
,482,428
$ 3
,980,493 $ 3
,710,423

(a) FY 2021 balances have been restated as a result of implementing GASB 87, Leases. 9 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
At June 30, 2022, the City reported positive balances in net position on a total basis. Net investment in capital assets (infrastructure, land, buildings, other improvements, vehicles, equipment, and lease assets less outstanding debt used to acquire assets and deferred inflows and outflows related to debt) of $5.009 billion comprises 125.84 percent of the City’s total net position. These capital assets facilitate providing services to the San José community, but they are not liquid, and therefore not available for future spending.

During FY 2022, net investment in capital assets decreased by $290.7 million primarily due to the decreases of $312.9 million from governmental activities and the increase of $22.2 million from business-type activities.

A portion of the City’s net position, $1.250 billion or 31.41 percent, are subject to legal restrictions for their use, including $1.179 billion in governmental activities and $71.2 million in business-type activities. Of the total net position at June 30, 2022, a deficit balance of $2.279 billion or 57.25 percent represents unrestricted net position, which comprises a deficit balance of $2.587 billion for governmental activities, and a positive balance of $307.8 million for business-type activities. The primary factor contributing to the deficit in unrestricted net position is the City’s net pension and OPEB liabilities.

During FY 2022, the City’s total net position increased by $270.1 million. Notable changes in the statement of net position between June 30, 2022 and June 30, 2021 include:

Assets
● Capital assets decreased by $87.1 million compared to the prior fiscal year. Governmental capital assets decreased by $170.5 million and business-type capital assets increased by $83.4 million. The decrease in governmental capital assets resulted from depreciation expense of $234.8 million for major infrastructure and other assets and $2.4 million in net deletions, partially offset by additions to capital assets of $66.7 million, which included $38.0 million of additional capital projects, $13.3 million in vehicles and equipment, $8.4 million from property acquisitions and $7.0 million of contributed capital from donated infrastructure assets. The increase in business-type capital assets was primarily due to additions to capital assets of $177.3 million primarily from the Airport and Wastewater Treatment Facility, offset by depreciation expense of $92.6 million and net of deletions of $1.4 million.
● Curr
ent and other assets increased by $337.5 million or 9.92 percent due to an increase by $246.9 million for governmental activities and an increase by $90.6 million for business-type activities. The increase in governmental activities is mainly due to the increase in property taxes collection based on a strong real estate market and real property transfer tax receipts (Measure E). The increase in current assets for business-type activities is mainly due to higher cash and investments and receivables resulting from more revenue received through charges for services and operating contributions.

Liabilities
● T
otal long-term liabilities decreased by $999.5 million to $6.200 billion at June 30, 2022, which represents a decrease by 13.88 percent compared to $7.199 billion at June 30, 2021. The primary factors leading to the decrease in long-term liabilities for governmental activities of $957.8 million was due to the decrease of net pension liability by $1.144 billion and the net OPEB liability by $71.1 million, offset by the increase of long-term obligations by $257.6 million. The primary factor leading to the decrease in long-term liabilities for business-type activities of $41.7 million was the result of a decrease of net pension liability by $104.5 million and the net OPEB liability by $15.6 million, offset by an increase of long-term obligations by $78.4 million. ● Net
pension liability decreased by $1.249 billion since the prior measurement date, primarily due to investments earning more than the assumed rate of return offset by experience losses and assumption changes that increased the net pension liability.
10 INTRODUCTORY

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SECTION
● Net OPEB liability decreased by $86.7 million since the prior measurement date, primarily due to investments earning more than the assumed rate of return and experience gains offset by assumption changes that increased the net OPEB liability.
● Current and other liabilities decreased by $102.7 million or 14.36 percent due primarily to a decrease in governmental activities. The decrease in governmental activities of $93.8 million is driven by a reduction of $63.0 million in accounts payable and $34.2 million in unearned revenue. For business-type activities, current and other liabilities decreased by $8.9 million.

Deferred Outflows/Inflows of Resources
● Def
erred outflows of resources decreased by $127.9 million to $763.7 million at June 30, 2022, which represents a decrease by 14.35 percent compared to $891.6 million at June 30, 2021. The primary factor leading to the decrease in deferred outflows of resources is the reduction in deferred outflows of resources related to pensions of $136.9 million.
● Deferred inflows of resources increased by $954.7 million to $1.128 billion at June 30, 2022, which represents an increase by 549.78 percent compared to $173.7 million at June 30, 2021. The increase of deferred inflows of resources was primarily due to the increase in deferred inflows of resources related to pensions of $901.7 million.

Net Position
● Unrestricted net position for governmental activities increased by $391.7 million or 13.15 percent with a deficit balance of $2.587 billion at June 30, 2022. The primary factors contributing to the deficit in unrestricted net position are the City’s net pension and OPEB liabilities. For business-type activities, unrestricted net position increased by $85.1 million or 38.23 percent with a positive balance of $307.8 million at June 30, 2022.

11 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
Analysis of activities: The following table indicates the changes in net position for governmental and business-type activities:

Statement of Activities
For the Years Ended June 30, 2022 and 2021
(in thousands)
Governmental Activities Business-type Activities Totals FY 2022 FY 2021 FY 2022 FY 2021 FY 2022 FY 2021
Revenues:

Program revenues:

Fees, fines, and charges for services $ 4
59,284
$ 3
66,388
$ 9
20,732
$ 7
28,229 (a)$ 1
,380,016
$ 1
,094,617
Operating grants and contributions
263,444

250,875
3 7,956
5 5,804

301,400

306,679
Capital grants and contributions 7
9,426
9 9,684

7,115
1 4,412
8 6,541

114,096
General revenues:

Pr
operty and other taxes
697,059

593,878
-
-

697,059

593,878
Utility
124,906

127,844
-
-

124,906

127,844
Franchise 4
8,378
4 5,628
-
-
4 8,378
4 5,628
Transient occupancy taxes 2
6,284
1 3,479
-
-
2 6,284
1 3,479
Business taxes 8
5,375
7 1,169
-
-
8 5,375
7 1,169
Sales taxes
323,144

284,020
-
-

323,144

284,020
State of California in-lieu
1,190

770
-
-

1,190

770
Unrestricted interest and investment income
(loss) (2
7,844)

1 4,438
(1
5,369)

1,808
(4
3,213)

1 6,246
Other revenue 5
2,649
4 9,798

1,307

1,995 (a)
5 3,956
5 1,793
Gain on sale of capital assets
1,766

6,913
-
-

1,766

6,913
Total revenues 2
,135,061
1 ,924,884

951,741

802,248
3 ,086,802
2 ,727,132

E
xpenses:

Gener
al government
230,695

351,491
-
-

230,695

351,491
Public safety
614,802

783,928
-
-

614,802

783,928
Community services
375,192

345,762
-
-

375,192

345,762
Sanitation
202,142

184,816
-
-

202,142

184,816
Capital maintenance
531,355

487,239
-
-

531,355

487,239
Interest and fiscal charges 4
3,808
3 8,021
-
-
4 3,808
3 8,021
Norman Y. Mineta San José International Airport -
-

221,613

205,375 (a)

221,613

205,375
Wastewater Treatment System -
-

197,430

211,098

197,430

211,098
Municipal Water System -
-
5 3,627
5 1,936
5 3,627
5 1,936
Parking System -
-
1 3,143
1 2,581
1 3,143
1 2,581
San José Clean Energy -
-

332,925

292,670

332,925

292,670
Total expenses 1
,997,994
2 ,191,257

818,738

773,660
2 ,816,732
2 ,964,917
Excess (deficiency) before transfers
137,067
(2
66,373) 133,003 2 8,588 270,070 (2 37,785)
Transfers
4,260

3,262
(4
,260)

(3
,262)

-
-
Change
in net position
141,327
(2
63,111)

128,743
2 5,326

270,070
(2
37,785)
Net position at beginning of year 2
,227,995
2 ,491,106
1 ,482,428
1 ,457,102 (a)
3 ,710,423
3 ,948,208
Net position at end of year $ 2
,369,322
$ 2
,227,995 $ 1
,611,171
$ 1
,482,428
$ 3
,980,493
$ 3
,710,423

(a) FY 2021 balances have been restated as a result of implementing GASB 87, Leases. 12 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
Governmental activities: The change in net position for governmental activities increased by $404.4 million during FY 2022 from a deficit of $263.1 million to a surplus of $141.3 million. Total expenses decreased by $193.3 million and total revenues including transfers increased by $211.2 million. The major factors contributing to the increase in net position in FY 2022 compared to FY 2021 are as follows:

Revenues
● F
ees, fines, and charges for services increased by $92.9 million or 25.35 percent mainly due to a $25.2 million increase in Housing Activities Fund primarily from collection of inclusionary in-lieu fee, $22.0 million increase in Integrated Waste Management Fund resulting from higher revenue collected from Recycle Plus Collection Charges, $18.1 million increased in Convention and Cultural Facilities Fund due to business recovery from pandemic, and $23.4 million increase in General Fund. The change in General Fund primarily included $13.9 million collected from Parks, Recreation, and Neighborhood Services (“PRNS”) Department’s fee revenue, and $5.1 million from citations, fines, and penalties. ● Operating grants and contributions increased by $12.6 million or 5.01 percent mainly due to an increase in General Fund, primarily attributable to higher grant revenue payments such the receipt of $2.2 million for Mobile Operation Satellite System and reimbursements of $7.5 million for Office of Emergency Services’ strike team. Furthermore, operating grants related to COVID-19 response and recovery increased by $1.6 million due to an increase of $103.0 million from the American Rescue Plan Act (“ARPA”), offset by a decrease of $101.4 million from the Coronavirus Relief Fund (“CRF”). ● Capital grants and contributions decreased by $20.3 million or 20.32 percent mainly due to the decrease in contributions received from donated assets, from $16.6 million in FY 2021 to $7.6 million in FY 2022.

Additionally, there was a decrease due to the payoff of special assessment bonds, Series 24Q, for $5.8 million in FY 2022.
● Other revenues and transfers increased by $126.0 million or 10.40 percent mainly due to a $103.2 million increase in property taxes due to higher assessed valuations based on a strong real estate market and Measure E property tax, and a $39.1 million increase in sales taxes due to favorable economy.

Furthermore, business taxes and transient occupancy taxes increased $14.2 million and $12.8 million, respectively, due to recovery from pandemic. This was offset by the decrease in unrestricted interest and investment income for $42.3 million due to the City’s pooled investments recorded unrealized losses as of June 30, 2022. The City only invests in fixed income securities which are purchased with maturities up to five years. Beginning in March 2022, interest rates increased as the Federal Reserve tightened monetary policies to curb rising U.S. inflation. Fair value of fixed income securities typically falls in a rising interest rate environment. The losses in fair value can only be realized when the security is sold. Since the City maintains a buy-and-hold investment strategy, losses on pooled investments are not expected to be realized.

Expenses
● Pension expense decreased $349.7 million during FY 2022. Federated City Employees’ Retirement System (“FCERS”)’s pension expense decreased by $142.6 million and Police and Fire Department Retirement Plan (“PFDRP”)’s pension expense decreased by $207.1 million primarily due to the reduction of net pension liability in both plans.
● O
PEB expense decreased by $38.4 million during FY 2022. FCERS’s OPEB expense decreased by $25.6 million and PFDRP’s OPEB expense decreased by $12.8 million primarily due to the reduction of net OPEB liability in both plans.
13 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
● Gener al government expenses decreased by $120.8 million or 34.37 percent during FY 2022 mainly due to pension expense decreased $99.2 million. Additionally, a $49.5 million decrease in personnel, local assistance, and other miscellaneous expenses related to COVID-19 response activities, offset by a $22.6 million increase in general liability expenses due to the City having numerous unsettled lawsuits filed or claims asserted as of June 30, 2022.
● Public
safety expenses decreased by $169.1 million or 21.57 percent primarily due to the reduction of net pension and OPEB expenses for $207.1 million and $8.6 million, respectively. These changes were offset by the increases of $48.6 million in the General Fund. The change in the General Fund included a $27.4 million increase in police personnel expenses and a $23.8 increase in fire suppression personnel expenses.
● Community
services expenses increased by $29.4 million or 8.51 percent mainly due to the increase of $21.4 million in Parks, Recreation and Neighborhood Services due to higher fee related expenses and expenses to support the Beautify San José program to provide dedicated and enhanced focus on ridding the City of blight. Additionally, an increase of $14.9 million in labor expenses in Convention and Cultural Facilities, offset by a decrease of $11.4 million spent on emergency shelter and homeless prevention, all due to the recovery from pandemic.
● Sanitation expenses increased by $17.3 million or 9.37 percent primarily due to the increase of expenses incurred in the Integrated Waste Management Fund, which included an annual adjustment of $15.8 million due to inflation built into solid waste hauler contracts. ● Capital
maintenance expenses increased by $44.1 million or 9.05 percent primarily due an increase of $42.6 million in the General Fund. The change in General Fund included a $19.2 million increase due to fire training center relocation, $6.2 million on Measure E Homelessness Prevention, $3.1 million on Police buildings and elevator improvements, and Fire apparatus replacement for $1.9 million. ● Inter
est and fiscal charges increased by $5.8 million or 15.22 percent in FY 2022 due to the addition of $4.5 million in 2021 GO Bond interest payments.
14 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
The chart below shows the primary components of governmental activities revenue sources for FY 2022.

Of the $2.139 billion in total revenues and transfers generated by governmental activities, 81.46 percent is attributable to four categories: property and other taxes (32.58 percent), fees, fines, and charges for services (21.47 percent), sales taxes (15.10 percent), operating grants and contributions (12.31 percent).

Governmental Activities
Revenues by Source
Fees, fines, and charges for
Fees, fines, and charges for
services: 21.47%
services: 21.47%
Fees, fines, and charges for
services: 21.47%
State of California in-lieu: 0.06%
State of California in-lieu: 0.06%State of California in-lieu: 0.06% Operating grants &
Operating grants &
contributions: 12.31%
contributions: 12.31%
Operating grants &
contributions: 12.31%
Capital grants & contributions: 3.71%
Capital grants & contributions: 3.71%
Capital grants & contributions: 3.71%
Property and other taxes: 32.58%
Property and other taxes: 32.58%Property and other taxes: 32.58% Sales taxes shared revenue: 15.10%
Sales taxes shared revenue: 15.10%Sales taxes shared revenue: 15.10% Utility taxes: 5.84%
Utility taxes: 5.84%Utility taxes: 5.84%
Franchise fees: 2.26%
Franchise fees: 2.26%Franchise fees: 2.26%
Transient occupancy taxes: 1.23%
Transient occupancy taxes: 1.23%Transient occupancy taxes: 1.23% Business taxes: 3.99%
Business taxes: 3.99%Business taxes: 3.99%
Other revenue: 1.17%
Other revenue: 1.17%Other revenue: 1.17%
Gain on sale of capital assets: 0.08%
Gain on sale of capital assets: 0.08%Gain on sale of capital assets: 0.08% Transfers: 0.20%
Transfers: 0.20%Transfers: 0.20%
15 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

The chart below shows the major categories of FY 2022 expenses for governmental activities. Of the $1.998 billion in total expenses incurred by governmental activities, 87.69 percent is attributable to four categories:
public safety (30.77) percent, capital maintenance (26.59) percent, community services (18.78) percent and general government (11.55) percent.

Governmental Activities
Expenses 2022
General Government: 11.55%
Public Safety: 30.77%
Community Services: 18.78%
Sanitation: 10.12%
Capital Maintenance: 26.59%
Interest and fiscal charges: 2.19%
Business-type activities: Business-type activities net position increased by $128.7 million or 8.68 percent to $1.611 billion in FY 2022.

The notable components of the changes in net position for business-type activities in FY 2022 are:

Airport change in net position from prior year activities showed an increase of $18.5 million in FY 2022 compared to an increase of $12.9 million in FY 2021. The increase in operating revenues and Passenger Facility Charges (“PFC”) and Customer Facility Charges (“CFC”) revenue resulted from the increase in passenger activity, the decrease in interest expense, and capital contributions, were partially offset by the increase in net revenue sharing with participating airlines and operating expenses, and the decrease in grant revenues.

Net nonoperating revenues decreased $27.6 million mainly due to a $26.1 million increase in the participating airline net revenue sharing due as of June 30, 2022. Capital contributions decreased by $6.1 million.

The Airport had a net operating income of $22.8 million, an increase of $39.8 million compared to prior year’s operating loss of $17.0 million. Operating revenues increased by 35.55 percent from $131.1 million in FY 2021 to $177.7 million in FY 2022 mainly due to increased passenger activity.

Operating expenses in FY 2022 increased by 4.56 percent, or $6.8 million, from $148.1 million in FY 2021 to $154.9 million in FY 2022 reflective of the increased passenger activity. 16 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
Wastewater Treatment System net position increased by $89.5 million or 8.54 percent from $1.048 billion to $1.138 billion. The increase was primarily due to revenues exceeding expenses (before capital contributions) by $90.3 million. The largest portion, $948.3 million or 83.35 percent, of the net position was its net investment in capital assets (e.g. land, buildings, and infrastructure) less outstanding debt that was used to acquire those assets. Approximately $189.4 million, or 16.65 percent of the total net position, constitutes unrestricted net position, which may be used to finance day-to-day operations without constraints established by debt covenants or other legal requirements.

Operating revenues increased $58.1 million primarily due to higher contributions from the City of Santa Clara and the Tributary Agencies toward the Water Pollution Control Plant (“the Plant”) ongoing maintenance and replacement costs by $62.1 million offset by lower sewer revenue due to decrease in sewer discharges in commercial user categories by $3.7 million.

Total operating expenses decreased by $14.0 million compared to the prior fiscal year. The decrease was mainly due to a net decrease of $16.0 million in pension expense and OPEB expense, a $4.6 million decrease in the Condition Assessment and Urgent Rehabilitation and Repair projects in the sewer collection system and a $1.1 million decrease in the Plant Master Plan Updates; offset by a $4.0 million increase in Owner-Controlled Insurance Program expenses, which provides a centralized insurance program for risks associated with onsite construction of the Plant CIP , and a $3.4 million increase in personal and non-personal service costs.

Net nonoperating revenues/expenses decreased by $9.1 million primarily due to decreases in the fair value of investments. Capital contributions decreased by $1.1 million mainly due to a $1.1 million decrease in donated assets from developers.

Municipal Water System net position increased by $0.8 million or 0.87 percent from $92.2 million to $93.0 million. The increase was due to operating revenue exceeding operating expenses. Operating revenues of $55.5 million decreased by $0.6 million or 1.05 percent due to increases in wholesale water rates and conservation of potable and recycled water usage and the decrease of $0.8 million in interest income.

Operating expenses of $53.6 million increased by $1.7 million or 3.26 percent largely due to increases in wholesale water purchases, personnel and benefit costs and increases in the costs of goods and services.

Parking System net position decreased by $2.0 million or 2.27 percent from $90.3 million to $88.3 million. Operating revenues increased by $5.9 million or 83.98 percent from $7.1 million to $13.0 million.

Nonoperating revenues and expenses decreased by $2.4 million or 2,429.59 percent. The decrease in nonoperating revenues and expenses is primarily the decrease in investment income and loss on disposal of capital assets. The decrease of investment income arises from fair value and amortized cost which is based on unrealized gain/loss from capitalized City pooled investments. The loss on disposal of capital assets was from Revenue Control Equipment that was disposed of through the annual inventory review process. Operating expenses decreased by $0.8 million or 6.5 percent.

San José Clean Energy (SJCE) is the enterprise fund established in FY 2018 to account for revenues from the sale of electricity and the costs associated with the San José Clean Energy (“SJCE”) Program. Operating revenues were $351.1 million and expenses were $331.3 million in FY 2022. In FY 2021, operating revenues were $280.4 million and expenses were $291.6 million. Operating revenues increased approximately 25.22 percent while expenses increased 13.60 percent. The year-over-year increase in operating revenues stems from increases in rates made in January 2022 and March 2022. SJCE establishes rates that mirror the structure of Pacific Gas and Electric’s (“PG&E’s”) rates, while factoring in PG&E fees that SJCE customers pay as part of SJCE’s rate setting.
17 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
In FY 2021, SJCE’s unrestricted cash reserves were depleted as a result of reduced revenues due to PG&E’s significant increase of the Power Charge Indifference Adjustment (“PCIA”) fee, and SJCE’s subsequent rate reduction to accommodate the fee. To mitigate declining revenues, SJCE increased the rates of their two established energy products and introduced a new low-cost product in addition to discounted rate programs for low income customers in May 2021. To sustain cash reserves as SJCE recovered from the loss of revenue, the City Council approved SJCE’s participation in the City of San José Financing Authority’s Commercial Paper Program for up to $95.0 million, and SJCE has borrowed $60.0 million in increments from June through December 2021. SJCE has not yet commenced re-payment of the Commercial Paper funds borrowed, however no further borrowing was needed in FY 2022.

As of June 30, 2022, SJCE serves approximately 350,000 customer accounts in San José with three electricity rate options that provide customers with the ability to select the rate plan that best serves their financial needs while also providing access to service choices with renewable energy content that is greater than that of the electricity provided by PG&E.

Financial Analysis of the City’s Funds
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

As of June 30, 2022, the City’s governmental funds reported combined fund balances of $2.221 billion compared to $1.861 billion balances in FY 2021. The governmental fund balances are categorized as nonspendable, restricted, committed, assigned, or unassigned. ● $0.1 million consists of nonspendable fund balance related to advances and deposits long-term in nature that are not intended to convert into cash and do not represent currently available resources. ● $1.452 billion is reported as restricted fund balance that includes restrictions imposed by external parties or enabling legislation. This amount includes unspent bond proceeds, unspent grant revenues, and restricted tax revenues.
● $
169.5 million is reported as committed fund balance that had been limited by formal Council action for a specific purpose.
● $373.6 million is reported as assigned fund balance that includes amounts that may be used for specific purposes, but do not meet the criteria to be classified as restricted or committed. ● $
225.9 million is reported as unassigned fund balance that represents the residual classification for the City’s General Fund and San José Financing Authority Debt Service Fund and includes all spendable amounts not contained in the other classifications.

General Fund. The General Fund is the chief operating fund of the City. At June 30, 2022, the General Fund unassigned fund balance is $226.0 million or 39.43 percent of the $573.1 million total General Fund balance.

Comparing unassigned fund balance and total fund balance to total fund expenditures may be useful as a measure of the General Fund’s capacity to liquidate future obligations. At June 30, 2022, unassigned fund balance represents 18.53 percent of total General Fund expenditures of $1.219 billion, while total fund balance represents 47.01 percent of total General Fund expenditures. At June 30, 2021, the same measures were 0.68 percent and 34.73 percent, respectively.

The General Fund ending fund balance increased by $159.7 million from $413.3 million to $573.1 million at June 30, 2022.
18 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
In FY 2022, General Fund revenues of $1.382 billion were $200.7 million or 16.99 percent higher than FY 2021 revenues of $1.181 billion. The general Secured Property Tax receipts growth of $15.2 million in FY 2022 primarily reflects an increase in assessed value due to changes in ownership or new construction. Secured Property Tax collections were positively impacted by excess Educational Revenue Augmentation Fund (ERAF) revenue. ERAF collections totaled $38.9 million in FY 2022, which is $5.7 million above the FY 2021 collection level. General Sales Tax receipts grew by $39.1 million due to an increase in merchandise that are subject to the tax. Additionally, the Real Property Transfer Tax collections totaled $110.0 million, which is $59.5 million above prior year collections due to the significant number of large commercial properties sold. Revenues in the Fees, Rates, and Charges category include various fees and charges levied to recover costs of services provided by the several City departments, the largest of which are Parks, Recreation, and Neighborhood Services (“PRNS”) Department Fees. PRNS Department Fee revenue ended the year at $16.0 million, which is significantly above the FY 2021 collection level of $2.1 million. This large year over year increase in PRNS fee revenue is due to the deep impact felt by pandemic-related health orders in FY 2021 on PRNS fee related programs.

FY 2022 General Fund expenditures of $1.219 billion were $28.8 million or 2.42 percent higher than FY 2021 expenditures of $1.190 billion. The increase was primarily due to a $51.2 million increase in personnel services for Fire and Police due to elevated sworn overtime usage to backfill vacancies and absences of line duty positions, $10.8 million increase in the fire training center location, $7.0 million increase for one- time funding from the Sworn Hire Ahead Program to pay for Police Academy Recruits as well as to backfill the patrol and investigative positions on overtime, $6.1 million increase in the Measure E – Homeless Prevention that address the lack of affordable housing and increase in the homeless population, and $6.0 million increase in general liability claims payments.

Housing Activities Fund. The City’s Housing Activities fund receives resources from the U.S. Department of Housing and Urban Development and the California Department of Housing and Community Development and, in FY 2022, COVID-19 related funding through the U. S. Treasury. At June 30, 2022, the fund’s loan receivable balance (net), which represents loans to developers of various affordable housing projects and first-time homebuyers, was $60.5 million. This balance includes loans to developers for various projects, including Ford and Monterey, Taylor Oaks Apartments, Donner Lofts, Japantown Seniors, The Metropolitan, Roundtable, Kings Crossing, Fourth Street Apartments, Peacock Commons, Archer Studios, Curtner Studios, Homesafe, Markham Plaza, Corde Terra Village Senior, Willow Glen Senior Housing, Leigh Avenue Senior Apartments, and Second Street Studios.

Restricted fund balance increased by $38.4 million to $183.1 million at June 30, 2022. The increase is primarily due to revenues from intergovernmental ($33.4 million) and investment and other revenues ($55.4 million) exceeding expenditures for community service ($50.1 million). Community services expenditures decreased by $11.4 million or 18.54 percent compared to prior year due to lower spending on emergency shelters. In addition, no expenditures were spent on capital outlay in the current year as compared to $10.9 million spent in the prior year.

Low and Moderate Income Housing Asset Fund. The Low and Moderate Income Housing Asset fund was created pursuant to the Redevelopment Dissolution Law to administer the housing assets and functions related to the Low and Moderate Income Housing Program retained by the City following the dissolution of the former Redevelopment Agency. At June 30, 2022, the fund’s loan receivable balance (net) was $220.0 million. This balance consists mainly of loans to developers for various projects including Almaden Family Apartments, Belovida Apartments, Brookwood Terrace, Cinnabar Commons, Corde Terra Village, Las Ventanas, Oak Tree Village, Pollard Plaza, Villas on the Park, Second Street Studios, and The Metropolitan 19 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
(South). Restricted fund balance decreased by $3.3 million to $434.5 million from $437.8 million. The decrease is primarily due to a land purchase of $3.1 million.

Special Assessment Districts Fund. The Special Assessment Districts fund accounts for debt issuance and capital improvements related to the specific purposes of special assessment and community facilities districts located in different parts of the City. A total of $3.5 million in special assessment and special tax bonds were outstanding at June 30, 2022. All bonds are secured by special assessments or special taxes charged to the owners’ real property in the district issuing the debt. The City is not obligated to advance available surplus funds from the City Treasury to cure any deficiency in the Redemption Fund for these bonds; provided, however, the City is not prevented, in its sole discretion, from so advancing funds.

Restricted fund balance decreased by $11.0 million from $41.2 million to $30.2 million as of June 30, 2022.

The total revenues of $10.7 million were below total expenditures of $20.5 million for FY 2022. The net transfers amount of negative $1.2 million resulted in a $11.0 million negative change in fund balance. The increase of expenditures for $7.1 million, or 52.9 percent compared to the prior fiscal year was predominantly related to current refunding escrow for Convention Center expansion and renovation project of $8.2 million in FY 2022.

City of San José Financing Authority Fund. The City’s Financing Authority Debt Service Fund accounts for debt activity related to lease revenue bonds and commercial paper notes, which serves as a mechanism for financing City public improvements and other eligible purposes. Unassigned fund balance increased by $46.0 million from a deficit of $44.3 million to $1.7 million as of June 30, 2022. The increase was primarily due to a $50.9 million increase in bond proceeds to refinance commercial paper, and a decrease of $4.0 million to refund 2003A and 2011A Lease Revenue Bonds using current resources.

Proprietary Funds. The City’s proprietary funds provide the same type of information found in the government- wide financial statements for business-type activities, but in more detail. At June 30, 2022, the unrestricted net position was $36.8 million for the Airport, $189.4 million for the Wastewater Treatment System, $18.8 million for the Municipal Water System, $34.5 million for the Parking System, and $28.3 million for the San José Clean Energy fund. Net position for proprietary funds increased from $1.482 billion at June 30, 2021 to $1.611 billion at June 30, 2022, resulting in an increase of $128.7 million or 8.68 percent.

Other aspects of proprietary fund activities are discussed in the business-type activities section above.

General Fund Budgetary Highlights
The City Charter requires the City Manager to submit balanced operating and capital budgets to the City Council prior to the beginning of a new fiscal year that begins each July 1 and ends on the following June 30.

Council approved the FY 2022 budget in June 2021.

During the year ended June 30, 2022, there was a $258.1 million increase in the budgeted revenues between the original and final amended operating budget for the General Fund. The increase in budgeted revenues was due to $86.6 million increase in the Property Tax category, $82.9 million increase in the Intergovernmental category, and $43.0 million increase in the Sales Tax category.

Actual budgetary basis expenditures of $1.289 billion were $146.1 million less than the amended budget as of June 21, 2022, and $298.9 million less than the original budget due to planned expenditures not occurring in the year ended June 30, 2022. Some of the unexpended expenditures include the Fire Apparatus Replacement, Fire Training Center Relocation, the Tech Museum Controls Module Improvements, Police Athletic League Stadium Turf Replacement, and other miscellaneous projects. 20 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
Capital Assets and Debt Administration
Capital Assets
The City’s capital assets, net of accumulated depreciation, for its governmental and business-type activities together amounted to $7.419 billion at June 30, 2022. This investment includes land, infrastructure, structures and improvements, vehicles, equipment, right-to-use assets, intangible assets, and construction in progress. The City’s decision to depreciate infrastructure capital assets results in recording a large non- cash depreciation expense each year that offsets additions to capital assets. For the year ended June 30, 2022, net capital assets decreased by $0.087 billion ($170.5 million decreased in governmental activities and $0.083 billion increased in business-type activities) compared to net capital assets at June 30, 2021.

The decrease of $170.5 million in governmental activities is primarily due to depreciation expense of $234.8 million and net deletions of $2.4 million. The decrease was offset by acquisitions of $66.7 million.

The increase of $0.083 billion in capital assets in the business-type activities resulted from depreciation expense of $92.6 million and deletions of a net value of $1.4 million, offset by additions of capital projects of $161.9 million and additions of $15.5 million in other capital improvements primarily at the Airport and the Wastewater Treatment Facility, respectively.

Total construction in progress increased by $157.4 million from $624.7 million at June 30, 2021 to $782.1 million at June 30, 2022. Construction in progress for the governmental activities increased by $3.6 million primarily due to $38.0 million additions to CIP projects and $34.4 million net of projects being transferred into service. Business-type activities contributed an increase of $153.8 million to the total CIP as additions to the Airport and the Wastewater Treatment System totaling $161.8 million was offset by $0.1 million deletions and $7.9 million projects that were completed and placed in service. The completed Airport projects include the following: Amadeus Network Upgrade and Upgrade Public Wi-Fi.

The City records infrastructure assets at historical cost in the government-wide financial statements and depreciates assets from acquisition date to the end of the current fiscal year as required by GASB Statement No. 34. For governmental fund financial statements recording purposes, capital asset purchases are recorded as expenditures, rather than capitalizing and recording related depreciation.

Capital assets, net of depreciation, for governmental and business-type activities in the government-wide financial statements are presented below to illustrate changes between June 30, 2022 and June 30, 2021 (in thousands):

Governmental activities Business-type activities Total 2022 2021 2022 2021 2022 2021

Land $ 5 49,676 $ 5 42,184 $ 1 37,938 $ 1 37,938 $ 6 87,614 $ 6 80,122 Intangible assets
-
-
12,882

12,882

12,882
1 2,882
Construction in progress 1
41,466
1 37,876
6 40,685
4 86,870
7 82,151
6 24,746
Buildings 8 71,508 9 04,399 9 74,254 1 ,019,595 1 ,845,762 1,923,994 Improvements, other than buildings 2
37,074
2 35,023
6 66,588
6 87,315
9 03,662
9 22,338
Infrastructure 3
,019,636
3 ,162,624

-
-

3 ,019,636

3,162,624
Furniture and fixtures, vehicles,
equipment
47,346

53,518
1 14,291 1
18,556
1 61,637
1 72,074
Right-to-use assets* 4
,799

6 ,363

3 57 4
83 5
,156
6 ,846
Total capital assets $ 4
,871,505
$ 5
,041,987
$ 2
,546,995
$ 2
,463,639
$ 7
,418,500
$ 7
,505,626

* FY 2021 balances have been restated due to the implementation of GASB 87, Leases Commitments outstanding as of June 30, 2022, related to governmental and business-type activities construction in progress totaled approximately $30.7 million and $362.9 million, respectively. Additional 21 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
information about the City’s capital assets can be found in the Notes to Basic Financial Statements, Note III.D.

Net General Obligation Bonded Debt Limit
The City Charter limits bonded indebtedness for General Obligation bonds (principal only) to fifteen (15) percent of the total assessed valuation of all real and personal property within the City. The total assessed value of taxable property on the City’s FY 2022 tax roll was $222.7 billion, which results in a total debt limit of approximately $33.4 billion. As of June 30, 2022, the City had $582.1 million of General Obligation bond principal applicable to the debt limit. Accordingly, the debt margin is $32.8 billion.

General Obligation Bonds and Other Bond Ratings
The City’s General Obligation credit ratings as of June 30, 2022 are Aa1/AA+/AAA from Moody’s Investors Service (“Moody’s”), S&P Global Ratings (“S&P”), and Fitch Ratings (“Fitch”), respectively. The credit ratings from Moody’s, S&P and Fitch were confirmed in June 2021, respectively, and remained unchanged from the prior year. The City continues to be one of the highest rated large cities (with population over 250,000) in California.

As of June 30, 2022, the credit ratings and the outlook of the respective credit rating agencies for the City of San José Financing Authority (“Authority”), lease revenue bonds are set forth in the table below.

Series Moody’s S&P Fitch
2013B, 2020A, and 2021A Aa2 AA AA
2020B Aa3 AA AA-
2022A Aa3 AA AA
Rating Outlook Stable Stable Stable
As of June 30, 2022, the underlying credit ratings of the City of San José Airport Revenue Bonds were rated by Moody’s, S&P and Fitch: A2, A and A, respectively, all with stable outlooks.

Outstanding Debt
The City’s debt service obligations include general obligation bonds, revenue bonds, lease revenue bonds, revenue notes, and special tax bonds. During the current fiscal year, the City’s outstanding long-term debt increased by $301.9 million to $2.763 billion, comprising $1.387 billion of governmental activities and $1.376 billion of business-type activities. The increase of $223.4 million in governmental activities is due to:
● Issuance of $200.5 million of CSJ General Obligation bonds for Series 2021A, 2021B, and 2021C (2021C was issued and retired in the same year) to finance improvement projects authorized under Measure T; ● Issuance $22.8 million (plus $4.2 million in premium) in Lease Revenue Refunding Bonds, Series 2021A to (i) refinance on a current basis the outstanding Lease Revenue Bonds, Series 2003A of the Authority for $3.2 million ($1.5 million of new money plus $1.7 million from the 2003A Reserve account)(Central Service Yard Refunding Project), (ii) refinance on a current basis the outstanding Central Service Yard Commercial Paper Notes of the Authority for $2.5 million, (iii) finance the acquisition and construction of public improvements for $22.6 million, and (iv) pay the issuance costs of $0.4 million of the CSJFA 2021A Bonds; and
● Issuance
of $165.8 million of Taxable Lease Revenue Bonds, Series 2022A to (i) refinance on a current basis the outstanding Special Hotel Tax Revenue Bonds, Series 2011 (Convention Center Expansion 22 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
and Renovation Project) for $96.2 million ($88.0 million of new money plus $8.2 million from remaining funds from 2011 CCFD Bonds) (ii) refinance on a current basis the outstanding Lease Revenue Bonds, Series 2011A (Convention Center Expansion and Renovation Project) for $28.1 million ($25.8 million of new money plus $2.3 million from remaining funds from 2011A Bonds), (iii) refinance the outstanding Exhibit Hall for $8.4 million and South Hall for $42.4 million Commercial Paper Notes of the Authority, and (iv) pay the issuance costs of $1.2 million for the CSJFA 2022A Bonds.

The increase of $78.5 million in the business-type activities is primarily due to the issuance of Regional Wastewater Facility Revenue Notes in the amount of $86.5 million to finance the expenses associated with capital improvement of the San José-Santa Clara Regional Wastewater Facility. Additional information about the City’s outstanding debt can be found in the Notes to Basic Financial Statements, Note III.F.

COVID-19 Funding Sources
As of June 30, 2022, the City was awarded and/or appropriated $810 million in federal, state and local grants and relief funding, including approximately $178.3 million of Coronavirus Relief Fund (“CRF”) money under the CARES Act and $212.3 million of American Rescue Plan funding, to address the impact of the COVID-19 pandemic.

COVID-19 Related Funding Sources (in thousands) Acronym Amount Coronavirus Relief Fund CRF $ 1
78,295
Community Development Block Grant Supplemental Funding CDBG 12,842
Emergency Solutions Grant ESG
35,520
Housing Opportunities for Person with AIDS HOPWA 2
10 Federal Emergency Management Agency-Public Assistance FEMA-PA 38,080
US Department of Justice-Bureau of Justice Assistance BJA-Byrne 8 66 Federal Emergency Management Agency-Assistance for Firefighters FEMA-AFG-S 3 01 Housing Opportunities for Person with AIDS-Competitive HOPWA-Comp 1 40 California Emergency Homeless Housing SB89 3
,920
California Homeless Housing, Assistance & Prevention Grant HHAP 28,499
HOME Investments Partnerships Program HOME
23,227
Emergency Rental Assistance Program - Phase 1 ERA1
30,380
Emergency Rental Assistance Program - Phase 2 ERA2
36,278
Resiliency Project EDA-CRRP 1
,172
Coronavirus State and Local Fiscal Recovery Fund (ARPA) CSLFRF 2 12,280
San José Airport - CARES SJC-CARES
65,633
San José Airport - CRSSAA Primary CRSSAA-Primary
13,422
San José Airport - CRSSAA Concessions CRSSAA-Concess 1 ,643
San José Airport - ARPA - Primary SJC-Primary
48,911
San José Airport - ARPA - Concessions SJC-Concess 6
,586
California Project Homekey HomeKey
12,230
California Affordable Housing SB2 8
,697
Housing Authority Litigation Funds HALA 2
,000
California Arrearage Payment Program CAPP 4
,349
California Water and Wastewater Arrearage Program CWWAP 6 63 Santa Clara County Office of Education SCCOE 4
00 Continuity of Operations Reserve General Fund
43,500
Total Funding Sources $

810,044

Note: The amounts reflect the base grant award excluding any interest earned. 23 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
Economic Factors and Next Year’s Budget
● Emerging from the pandemic, the City Council approved the FY 2022 Adopted Budget with the assumption that the City’s revenue and overall budgetary position would improve as the community and region recovered from the pandemic. The City again leveraged a significant influx of external funding sources, including from the American Rescue Plan Act, to continue existing and initiate new community and economic recovery workstreams aligned to the City Council-approved Mayor’s March and June Budget Messages for FY 2022 that focused on: Supporting an Equitable Recovery for a “Better Normal”, Back to Basics – A Cleaner and Safer San José, Accelerating Solutions to Homelessness and the Affordable Housing Crisis, and Fiscal Resilience and Our Future.

The broader economic recovery happened more quickly and robustly than many anticipated, providing a surge of revenues across several City funds, including the General Fund, that helped to significantly change the City’s budgetary position in FY 2022 and into FY 2023. In the General Fund, actions were taken over the course of the year to increase revenue estimates across nearly all major categories, including Property Tax, Sales Tax, Business Tax, Real Property Transfer Tax (Measure E), Utility Taxes, and others. As City operations continued their transition from pandemic response into pandemic recovery and more normal business operations, and due to the extremely competitive labor market that made it challenging to fill vacant positions, the City experienced elevated levels of expenditure savings across many of its funds. As a result of these adjustments, as well as careful forecasting, monitoring, and management throughout all City funds, overall FY 2022 revenues and expenditures ended the year very close to budgeted expectations
● The FY 2023 Adopted Budget includes modest increase to staffing levels to support a variety of activities and limited enhancements to other critical services. Overall, the level of staffing will increase by a net 208 positions, from 6,647 full-time equivalent positions in the FY 2022 Adopted Budget to 6,855 positions in the FY 2023 Adopted Budget. This three percent increase still leaves City staffing well below its peak of almost 7,500 positions in FY 2002 and well below the average of large U.S. cities. ● As
reported in the GASB 67/68 Report as of June 30, 2022 prepared by the actuary for PFDRP , the net position of the Defined Benefit Pension Plan was 78.31 percent of the total pension liability. The total pension liability was $5.631 billion, and the fiduciary net position was $4.410 billion, resulting in a net pension liability of $1.221 billion. This actuarial information will be used to report pension amounts in the City’s FY 2023 basic financial statements. This report is for the use of the Retirement System, the City, and the auditors in preparing financial reports in accordance with applicable law and accounting requirements. The report is not appropriate for other purposes, including the measurement of funding requirements for the Retirement System.
● As r
eported in the GASB 67/68 Report as of June 30, 2022 prepared by the actuary for FCERS, the net position of the Defined Benefit Pension Plan was 57.75 percent of the total pension liability. The total pension liability was $4.689 billion, and the fiduciary net position was $2.708 billion, resulting in a net pension liability of $1.981 billion. This actuarial information will be used to report pension amounts in the City’s FY 2023 basic financial statements. This report is for the use of the Retirement System, the City, and the auditors in preparing financial reports in accordance with applicable law and accounting requirements. The report is not appropriate for other purposes, including the measurement of funding requirements for the Retirement System.
● As of June 30, 2022, the net position of PFDRP’s OPEB Plan was 33.57 percent of the total OPEB liability.

The actuary reported total OPEB liability for postemployment healthcare benefits was $790.1 million and the fiduciary net position was $265.3 million, resulting in a net OPEB liability of $524.8 million. 24 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
This actuarial information will be used to report OPEB amounts in the City’s FY 2023 basic financial statements. This report is for the use of the Retirement System, the City, and the auditors in preparing financial reports in accordance with applicable law and accounting requirements. The report is not appropriate for other purposes, including the measurement of funding requirements for the Retirement System.
● As of June 3
0, 2022, the net position of the FCERS’s OPEB Plan was 51.46 percent of the total OPEB liability. The actuary reported total OPEB liability for postemployment healthcare benefits was $678.4 million and the fiduciary net position was $349.1 million, resulting in a net OPEB liability of $329.3 million. This actuarial information will be used to report OPEB amounts in the City’s FY 2023 basic financial statements. This report is for the use of the Retirement System, the City, and the auditors in preparing financial reports in accordance with applicable law and accounting requirements. The report is not appropriate for other purposes, including the measurement of funding requirements for the Retirement System.
● For FY 2023, the City’s contribution rates and amounts for pension benefits and postemployment healthcare benefits are as follows (in thousands):

PFDRP¹ FCERS¹
Contribution Rates
Police
Tier 1
P
olice
Tier 2
Fir
e
Tier 1
Fire
Tier 2 Tie r 1 Tier 2
Retirement Pension $ 9 9,360 ² 1 4.37% $ 9 0,788 ² 1 5.18% $ 1 84,423 ² 8.13%

Postemployment Healthcare
Benefits $ 1
7,503
- $ 1
0,972 - $ 1 8,318 4.95%

¹ The rates are the Retirement Board adopted rates based on the June 30, 2021, actuarial valuations. ² PFDRP and FCERS Tier 1 pension contributions are discounted because the City prefunded those amounts in FY 2023. 25 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
Forward-Looking Statements and Requests for Information Forward-Looking Statements
When used in this ACFR, the words or phrases “will likely result,” “are expected to,” “will continue,” “is “anticipated”, “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forwardlooking statements”, but are not the exclusive means of identifying forward-looking statements in the ACFR. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material.

Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this ACFR. The City undertakes no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date of the ACFR.

Requests for Information
This financial report is designed to provide our residents, taxpayers, customers, investors, and creditors with a general overview of the City’s finances. All summaries of documents contained in this ACFR are made subject to the provisions of such documents and do not purport to be complete statements of any or all such provisions.

Each reference in this ACFR to a document is qualified in its entirety by reference to such document, which is on file with the City.

Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Director of Finance, 200 East Santa Clara Street, San José, California 95113. Requests for documents may be directed to the City department designated in the ACFR as the holder of a particular document or to the Director of Finance. This report can also be found online at https://www.sanjoseca.gov/ your-government/departments/finance/reports.

Basic Financial
Statements
27 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Statement of Net Position
June 30, 2022
($000’s)

Governmental
Activities
Busine
ss-Type
Activities T otal
ASSETS
Equity in pooled cash and investments held in City Treasury $ 1 ,663,950 780,603 2 ,444,553 Other cash and investments 7 - 7
Receiv
ables (net of allowances for uncollectibles) 194,
553

126,951
321,
504
Prepaid expenses, advances and deposits
-
5,101 5,101
Inv
entories 1,682
866 2,548
Internal balances
60,000 (60,
000)
-
Leases receivable
14,499 10,
658
25,157
Loans receivable (net of allowances for uncollectibles) 284, 214 - 284,
214
Advances and deposits 308
1,180 1,488
Restricted
assets:

Equity in pooled cash and investments held in City Treasury 87,880 71,
534 159,
414
Cash and investments held with fiscal agent 331,
349 84,
344 415,
693
Other cash and investments
16,781 -
16,781
Receivables (net of allowances for uncollectibles)
-
3,843 3,843
Pr
epaid expenses, advances and deposits
-
8 8
Pr
epaid bond insurance costs
- 20
20 Prepaid bond insurance costs (net of accumulated amortization) -
309 309
O
ther assets
54,000 -
54,000
Net other postemployment benefits asset
-
1,878 1,878
Net pension asset
-
2,747 2,747
Capital assets (n
et of accumulated depreciation):

Nondepreciable 691,
142
791,505 1
,482,647
Depreciable 4
,180,363 1
,755,490 5
,935,853
Total assets 7
,580,728 3
,577,037
11,157,765

DEFERRED OUTFLOWS OF RESOURCES
Loss on refundings of debt 5,620 11, 034 16,654
Pensions 564,
651 63,
385 628,
036
Other postemployment benefits 102,
929 16,
039 118,
968
Total deferred outflows of resources 673,
200
90,
458
763,
658

LIABILITIES
Accounts payable
90,726
111,031 201,
757
Accrued salaries, wages and payroll taxes
52,909
7,207
60,116
Interest payable 9,681 15,
243
24,924
Due to outside agencies 485 - 485
Shor
t-term notes payable
66,947 34,
112 101,
059
Unearned revenue 155,
695 11,
269 166,
964
Advances, deposits, and reimbursable credits 7,919
5,349
13,268
Long-term payable to SARA 733 - 733
O
ther liabilities
43,476 -
43,476
Due within one year 144,
531
253,354 397,
885
Net pension liability 2
,070,435
272,444 2
,342,879
Net other postemployment benefits liability 716,
818 61,
406 778,
224
Other long-term obligations 1
,517,060 1
,163,748 2
,680,808
Total liabilities 4
,877,415 1
,935,163 6
,812,578

DEFERRED INFLOWS OF RESOURCES
Gain on refundings of debt 3,371 - 3,371
P
ensions 852,
722 90,
303 943,
025
Other postemployment benefits 137,
243 20,
681 157,
924
Leases
13,855 10,
177
24,032
Total deferred inflows of resources 1
,007,191
121,161 1
,128,352

NET POSITION
Net investment in capital assets 3
,777,037 1
,232,173 5
,009,210
Restricted for:

Debt service
44,770 37,
847
82,617
Capital projects 373,
004 33,
326 406,
330
Community services 759,
721 - 759,
721
Public safety 1,470 - 1,470
Unr
estricted (deficit) (2
,586,680)
307,825 (2
,278,855)
Total net position $
2 ,369,322 1
,611,171 3
,980,493

The Notes to Basic Financial Statements are an integral part of this statement. 28 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
City of San José
Statement of Activities
For the Year Ended June 30, 2022
($000’s)
Program Revenues
Net (Expense) Revenue and
Changes in Net Position
F
unctions/Programs Expenses
Fees, Fines,
and Charges
for Services
Operating
Grants and
Contributions
Capital
Grants and
Contributions
Governmental
Activities
Business
-Type
Activities Total

Governmental activities:

General government $ 2
30,695 8
,168
95,229
- (1
27,298) - (1
27,298)
Public safety 6
14,802
38,900
47,477
- (5
28,425) - (5
28,425)
Community services 3
75,192 1
66,966
76,761
- (1
31,465) - (1
31,465)
Sanitation 2
02,142 2
08,824 1
,897
-
8,579 -
8,579
Capital maintenance 5
31,355
36,426
42,080
79,426 (3
73,423) - (3
73,423)
Interest and fiscal charges
43,808
-
-
- (4
3,808) - (4
3,808)
Total governmental
activities
1,997,994
459,284
263,444
79,426 (1,195,840)
-
(1,195,840)
Business -Type activities:

Norman Y. Mineta San José
International Airport
2 21,613 2
05,381
32,821 5
,894 - 2
2,483 2
2,483
Wastewater Treatment
System
1 97,430 2
95,728
- 1
,090 - 9
9,388 9
9,388
Municipal Water System
53,627
55,531
541
131 -
2,576
2,576
Parking System
13,143
12,993
-
- - (1
50) (1
50)
San José Clean Energy 3
32,925 3
51,099 4
,594
- - 2
2,768 2
2,768
Total business-type
activities

818,738
920,732
37,956
7,115
-
147,065
147,065
Total $

2,816,732

1,380,016

301,400

86,541

(1,195,840)
147,065
(1,048,775)

General revenues:

Taxes and franchise fees:

Property and other taxes 6
97,059 - 6
97,059
Utility 1
24,906 - 1
24,906
Franchise 4
8,378 - 4
8,378
Transient occupancy 2
6,284 - 2
6,284
Business taxes 8
5,375 - 8
5,375
Sales taxes 3
23,144 - 3
23,144
State of California in-lieu
1,190 -
1,190
Unrestricted interest and investment loss (2
7,844) (1
5,369) (4
3,213)
Other revenue 5
2,649
1,307 5
3,956
Gain on sale of capital assets
1,766 - 1,766
Transfers
4,260 (4
,260) -

Total general revenues and transfers 1,337,167 (18,322) 1,318,845

Change in net position 141,327 128,743 270,070
Net position - beginning, as previously reported
2,227,995
1,482,157
3,710,152
Change in accounting principles - 2
71 2
71 Beginning, as restated
2,227,995
1,482,428
3,710,423
Net position - ending $

2,369,322

1,611,171

3,980,493

The Notes to Basic Financial Statements are an integral part of this statement. 29 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Balance Sheet
Governmental Funds
June 30, 2022
($000’s)
General Fund
Housing
Activities
L
ow and
Moderate
Income
Housing Asset

ASSETS
Equity in pooled cash and investments held in City Treasury $ 6 80,755 150,167 1 69,569 Receivables (net of allowance for uncollectibles)
111,921
9,320
451
Due from other funds
4,385 -

-
Loans receivables (net of allowance for uncollectibles) 1,241 6
0,535 2
20,012
Advances and deposits 8
8 -

-
Restricted assets:

Equity in pooled cash and investments held in City Treasury 1,399 1 2,982 - Cash and investments held with fiscal agent -
-

-
Other cash and investments
1,357 -

-
Advances to other funds
3,297 -

-
Leases receivable 1
3,767 3
5 -
Other assets -

2,300
49,776
Total assets
818,210
235,339 4
39,808

LIABILITIES
Accounts payable 3 0,487 8,150 1 ,193
Accrued salaries, wages, and payroll taxes 4
3,229
214
524
Due to other funds -
-

-
Due to outside agencies
373 -

-
Short-term notes payable -
-

-
Unearned revenue
116,100 2
5,271
-
Advances, deposits, and reimbursable credits
170 -

-
Advances from other funds -
-

-
Long-term advances from SARA -
-

733
Other liabilities 3
8,695 -

-
Total liabilities
229,054 3
3,635 2
,450

DEFERRED INFLOWS OF RESOURCES
Unavailable revenue 2,957 1 8,573 2 ,862
Leases 1
3,142 4
8 -
Total deferred inflows of resources 1
6,099 1
8,621 2
,862

FUND BALANCES
Nonspendable 8 8 - -
Restricted
303
183,083 4
34,496
Committed 6
7,343 -

-
Assigned
279,356 -

-
Unassigned
225,967 -

-
Total fund balances
573,057
183,083 4
34,496
Total liabilities, deferred inflows of resources and fund balances $ 8 18,210
235,339 4
39,808

The Notes to Basic Financial Statements are an integral part of this statement. 30 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION

Special
Assessment
Districts
San J
osé
Financing
Authority
Debt Service
Nonmajor
Governmental
Funds
T
otal
Governmental
Funds

474
6 43,263
1 ,644,228
1 ,664

145

70,642
1 94,143

60,000
7 ,791

72,176

2 ,426
2 84,214
5 -

2 15

308

28,548

44,951

87,880
1 ,958

12,365
3 17,026
3 31,349

14,909

16,266

-
3 ,297

6 97

14,499

1 ,924

54,000

32,175

72,984

1,103,844
2 ,702,360

73 164

50,250

90,317
2 -

7 ,477

51,446

799

11,377

12,176

112

485

66,947

14,324
1 55,695
1 ,578

6 ,171
7 ,919

3 ,297

-
3 ,297

733
3 17

4 ,464

43,476
1 ,970

71,319

94,063
4 32,491

10,184

34,576

6 65

13,855

10,849

48,431

-
8 8

30,205

1 ,665

8 02,571
1 ,452,323

1 02,159
1 69,502

94,222
3 73,578

(2
0)

2 25,947

30,205

1 ,665

9 98,932
2 ,221,438

32,175

72,984

1,103,844
2 ,702,360

31 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Reconciliation of the Governmental Funds Balance Sheet
to the Statement of Net Position
June 30, 2022
($000’s)
Total fund balances-governmental funds (page 30) $ 2 ,221,438

Amounts reported for governmental activities in the statement of net position are different because:

Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of:

Land $ 5 49,676
Construction in progress 1 41,466
Infrastructure assets 11,618,825
Other capital assets 2 ,168,910
Leased assets 6 ,363
Accumulated depreciation (9 ,616,626)
Total capital assets 4 ,868,614

Long-term receivables are not available to pay for current period expenditures and, therefore, are reported as deferred inflows of resources in governmental funds.

34,576

Gain/loss on refundings of debt are reported as deferred inflows/outflows of resources are not financial resources, therefore are not reported in the funds. Such costs are capitalized and amortized over the life of the corresponding bonds for purposes of the statement of net position.

2 ,249

Interest payable on long-term debt does not require the use of current financial resources and, therefore, interest payable is generally not accrued as a liability in the balance sheet of governmental funds.

(9
,681)

Internal service funds are used by management to charge the cost of public works support, employee benefits, and vehicle maintenance and operations to individual funds. The assets and liabilities are included in governmental activities in the statement of net position.

19,325

Long-term obligations are not due and payable in the current period and therefore are not reported in the funds. Those liabilities consist of:

Bonds, loan payables, and lease-purchase agreements $ (1 ,387,119) Accrued vacation, sick leave and compensatory time (8 0,824) Estimated liability for self-insurance (1 78,644)
Other (1 0,974)
Total long-term obligations (1 ,657,561)

Net pension liability and pension related deferred outflows and inflows of resources are not due in the current period and therefore are not reported in the funds. These amounts consist of:

Net pension liability $ (2 ,070,435)
Deferred outflows of resources 5 64,651
Deferred inflows of resources (8 52,722)
Total pension related balances (2 ,358,506)

Other postemployment benefits liability and related deferred outflows and inflows of resources are not due in the current period and therefore are not reported in the funds. These amounts consist of:

Net other postemployment benefits liability $ (7 16,818) Deferred outflows of resources 1 02,929
Deferred inflows of resources (1 37,243)
Total other postemployment benefits related balances
(7 51,132)

Net position of governmental activities (page 27) $ 2 ,369,322

The Notes to Basic Financial Statements are an integral part of this statement.

FOR THE YEAR ENDED J UNE 30, 2022 32

33 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds
For the Year Ended June 30, 2022
($000’s)
General Fund Housing Activities
Low and
Moderate Income
Housing Asset
RE
VENUES

Taxes and special assessments $ 791, 549 - -
Sales tax
es 323,
144 - -
Licenses,
permits, and fines 37,
206 - -
Inter
governmental 153,
495 33,
363 -
Char
ges for current services 21,
830 - -
Rent - - -
Inv
estment income (loss) (15,
333) (875) 13,
031
Other revenue 70,
093 56,
241
2,038
Total revenues
1,381,984 88,
729 15,
069

EXPENDITURES
Current:

General government 243, 052 - -
Public saf
ety 724,
909 - -
Community ser
vices 143,
127 50,
060 14,
905
Sanitation
3,290 - -
Capital maintenance 87,
968 - -
Capital outla
y 14,
304 -
3,100
Debt service:

Principal 1,470 - -
Inter
est and fiscal charges
1,018 - -
Curr
ent refunding escrow - - -
T
otal expenditures
1,219,138 50,
060 18,
005
Excess (deficiency) of revenues over (under)

expenditures 162, 846 38, 669 (2,936)

OTHER FINANCING SOURCES (USES)
Bonds issued 12, 654 - -
Bond pr
emium
2,346 - -
Refunding bonds
issued - - -
P
ayment to refunded bond escrow agent - - -
Pr
oceeds from sale of capital assets 435 - -
T
ransfers in 12,
883 - -
T
ransfers out (31,
449) (277) (369)
T
otal other financing sources (uses) (3,131) (277) (369) Net change in fund balances 159,
715 38,
392 (3,305)

FUND BALANCE
Beginning of year 413, 342 144, 691 437, 801
End of year $
573,
057 183,
083 434,
496

The Notes to Basic Financial Statements are an integral part of this statement. 34 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION

Special
Assessment
Districts
San J
osé
Financing Authority
Debt Service
Nonmajor
Governmental
Funds
T
otal
Governmental
Funds

10,
445
-

191,643

993,637
-
-
-

323,144
-
-
-
37,
206
-
-

111,520

298,378
-
-

270,856

292,686
-
-
31,
508
31,
508
(574)
49 (12,
036)
(15,
738)

788

793
50,
278

180,231
10,
659

842

643,769

2,141,052

-
-

105

243,157
-
-

2,348

727,257
-
-

147,305

355,397
-
-

204,498

207,788

437
-

285,697

374,102
-
-
41,
084
58,
488

7,990
18,
905
64,
880
93,
245

3,800
16,
829
23,
666
45,
313

8,237

3,957
-
12,
194
20,
464
39,
691

769,583

2,116,941

(9,805)
(38,
849)
(125,
814)
24,
111

-
54,
385

206,941

273,980
-

672
51,
313
54,
331
87,
966
27,
224
-

115,190
(87,
966)
(27,
272)
-
(115,
238)
-
-

3,817

4,252
-
29,
880
43,
555
86,
318
(1,195)
-
(48,
911)
(82,
201)
(1,195)
84,
889

256,715

336,632
(11,
000)
46,
040

130,901

360,743

41,
205
(44,
375)

868,031

1,860,695
30,
205

1,665

998,932

2,221,438

35 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Reconciliation of the Changes in Fund Balances of Governmental Funds to the Statement of Activities
For the Year Ended June 30, 2022
($000’s)
Net change in fund balances - total governmental funds (page 34) $ 3 60,743

Amounts reported for governmental activities in the statement of activities are different because:

Capital outlays are reported as expenditures in governmental funds. However, in the statement of activities, the cost of capital assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are:

Capital outlay $
5 8,488
Depreciation expense (2
33,422)
Excess of depreciation expense over capital outlay (1 74,934)

The net effect of various miscellaneous transactions involving capital assets (i.e. sales, retirements, trade-ins, donations)

Donated assets and other additions $
7 ,565
Proceeds from sale of capital assets (4
,252)
Gain on disposal of assets
1,766

5,079
Amortization of deferred inflows of resources and deferred outflows of resources resulting from the deferred refunding gains and losses.

1,757

Repayment of long-term obligation principal is reported as an expenditure in governmental funds and, thus, has the effect of reducing fund balance because current financial resources have been used. For the government- wide statements, however, the principal payments reduce the liabilities in the statement of net position and do not result in an expense in the statement of activities. The City’s long-term obligations were reduced because principal payments were made to bondholders.

215,695

Accrued interest payable on long-term debt is reported in the government-wide statement of activities, but does not require the use of current financial resources. Amortization of bond premiums and discounts should be expensed as a component of interest expense on the statement of activities. This amount represents the change in accrued interest payable and the amortization of bond premiums and discounts not reported in governmental funds.

Increase in accrued interest payable $ (1 ,136)
Amortization of premiums and discounts on bonds issued
4,395
Total net interest expense and amortization of discount/premium 3,259

Bond proceeds provide current financial resources to governmental funds, however, issuing debt increases long- term liabilities in the statement of net position.
(4
43,501)

Because some revenues will not be collected for several months after the City’s fiscal year end, they are not considered “available revenues” and are reported as deferred inflows of resources in the governmental funds. (1
5,319)

Internal service funds are used by management to charge the cost of public works support, employee benefits, and vehicle maintenance and operations to individual funds. The change in net position is included in governmental activities in the statement of activities. (2
,383)

Some items 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. These activities consist of:

Net increase in vacation, sick leave, and compensatory time $ 3 ,367
Net increase in estimated liability for self-insurance (3 8,127)
Net decrease in other liabilities (8
28)
Net increase in lease payable
1,470
Total expenditures (3
4,118)

Changes to net pension liability and pension related deferred outflows and inflows of resources do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds.

192,899

Changes to net other postemployment benefits liability and related deferred outflows and inflows of resources do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds.
3 2,150

Change in net position of governmental activities (page 28) $ 1 41,327

The Notes To Basic Financial Statements are an integral part of this statement.

FOR THE YEAR ENDED J UNE 30, 2022 36

37 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Statement of Fund Net Position
Proprietary Funds
June 30, 2022
($000’s)
Enterprise Funds

Norman Y.

Mineta
San José
I
nternational
Airport
W astewater
Treatment
System
Mu
nicipal
Water System
P
arking
System
San J
osé
Clean Energy T otal
Internal
Service Funds
ASSETS
Curr
ent assets:

E
quity in pooled cash and investments
held in City Treasury $
17 5,170
492,953 32
,541 42
,500 37
,439
780,603 19
,722
Other cash and investments -
-
-
-
-
-

7 Receivables (net of allowance for
uncollectibles) 2
9,389
6,194 12
,909
227 78
,232
126,951
410
Lease receivable
1,924 -
-
-
-

1,924 -
Pr
epaid expenses, advances and deposits 245 -
-
-

4,856
5,101 -
Inv
entories -

866 -
-
-

866
1,682
Total unrestricted current assets 20
6,728
500,013 45
,450 42
,727
120,527
915,445 21
,821

Restricted
assets:

E
quity in pooled cash and investments
held in City Treasury 4
5,899 -
-

2,268 23
,367 71
,534 -
Cash and
investments held with fiscal
agent 8
4,344 -
-
-
-
84 ,344 -
O
ther cash and investments -
-
-
-
-
-

515
Receivables (net of allowances for
uncollectibles)

3,843 -
-
-
-

3,843 -
Pr
epaid expenses, advances and deposits 8 -
-
-
-

8 -
Curr
ent portion of prepaid bond insurance
20 -
-
-
-
20 -

Total restricted current assets 13 4,114 - - 2,268 23 ,367 159,749 515 Total current assets 34
0,842
500,013 45
,450 44
,995
143,894
1,075,194 22
,336

Noncurr
ent assets:

Pr
epaid bond insurance (net of
accumulated amortization) 309 -
-
-
-

309 -
Adv
ances and deposits
1,180 -
-
-
-

1,180 -
Lease r
eceivable
8,734 -
-
-
-

8,734 -
Net pension asset -
- - - 2,747 2,747 -
Net other postemplo
yment benefits asset -
-
-
-

1,878
1,878 -
Capital assets (n
et of accumulated
depreciation):

Nondepr
eciable
121,986
633,126 12
,604 23
,789 -

791,505 -
Depr
eciable
1,113,777
552,002 61
,597 27
,757 -

1,755,133
2,891
Right to use asset net of amortization
92 -
-

265 -

357 -

Total noncurrent assets 1,246,078 1,185,128 74 ,201 51 ,811 4,625 2,561,843 2,891 Total assets
1,586,920
1,685,141
119,651 96
,806
148,519
3,637,037 25
,227

FERRED OUTFLOWS OF RESOURCES

Loss on
refundings of debt 1
1,034 -
-
-
-
11 ,034 -
P
ensions 1
5,768 39
,436
4,208
1,046
2,927 63
,385 -
O
ther postemployment benefits
2,595 11
,257
1,162
311
714 16
,039 -
T
otal deferred outflows of resources $
2 9,397 50
,693
5,370
1,357
3,641 90
,458 -
(Continued)
The Notes to Basic Financial Statements are an integral part of this statement. 38 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
City of San José
Statement of Fund Net Position
Proprietary Funds (Continued)
June 30, 2022
($000’s)
Enterprise Funds

Norman Y.

Mineta San
José Airport
W
astewater
Treatment
System
Mu
nicipal
Water System
P
arking
System
San J
osé
Clean Energy T
otal
Internal
Service Funds

LIABILITIES

Curr
ent liabilities:

Accounts pa
yable $
3 2,968 43
,730
3,373 99 30
,728
110,898
409
Accrued salaries, wages, and payroll taxes
1,808
4,382
510
125
382
7,207 1,463
Inter
est payable 3
236 -
-
-

239 -
Due t
o other funds -
-
-
-
60 ,000 60
,000 -
Shor
t-term notes payable 3
4,112 -
-
-
-
34 ,112 -
Accrued v
acation, sick leave and
compensatory time
1,752
3,905
596
165
410
6,828 -
Estimated liability for
self-insurance 633
361
196 -
-

1,190 -
Adv
ances and deposits payable
1,931 -
-
85 1,601
3,617 -
Leases pa
yable
94 -
-
22 -

116 -
Unearned r
evenue
5,220 -
-
-

6,025 11
,245 -
T
otal current liabilities unrestricted 7
8,521 52
,614
4,675
496 99
,146
235,452 1,872

Current liabilities payable from restricted
assets:

Accounts payable and accrued
liabilities
133 -
-
-
-

133 -
Inter
est payable 1
5,004 -
-
-
-
15 ,004 -
Unearned r
evenue
24 -
-
-
-
24 -
Curr
ent portion of bonds payable, net
8,350 -
-
-
-

8,350 -
T
otal current liabilities payable from
restricted assets 2
3,511 -
-
-
-
23 ,511 -
T
otal current liabilities 10
2,032 52
,614
4,675
496 99
,146
258,963 1,872

Noncurrent liabilities:

Accrued vacation, sick leave and
compensatory time
359
861 -
-
-

1,220 4,030
Leases pa
yable -
-
-

247 -

247 -
Estimated liability for
self-insurance
1,655
1,136
801 -
- 3,592 -
Adv
ances, deposits, and reimbursable
credits -
-

1,732 -
-

1,732 -
P
ollution remediation obligation -
28 ,180 -
-
-
28 ,180 -
Notes
payable -

236,870 -
-
-

236,870 -
Bonds pa
yable (net of premium/discount)
1,130,509 -
-
-
-

1,130,509 -
Net pension liability 8
6,042
166,476 13
,701
6,225 -

272,444 -
Net other postemplo
yment benefits
liability 1
5,082 41
,478
3,981
865 -
61 ,406 -
T
otal noncurrent liabilities
1,233,647
475,001 20
,215
7,337 -

1,736,200 4,030
T
otal liabilities
1,335,679
527,615 24
,890
7,833 99
,146
1,995,163 5,902

DEFERRED INFLOWS OF RESOURCES
Pensions 2
2,955 56
,237
5,624
1,653
3,834 90
,303 -
O
ther postemployment benefits
3,664 14
,292
1,475
402
848 20
,681 -
Leases 1
0,177 -
-
-
-
10 ,177 -
T
otal deferred inflows of resources 3
6,796 70
,529
7,099
2,055
4,682
121,161 -

NET POSITION
Net investment in capital assets 15
8,168
948,258 74
,201 51
,546 -

1,232,173 2,891
Restricted
for debt service 1
5,579 -
-

2,268 20
,000 37
,847 -
Restricted
for capital projects and other
agreements 3
3,326 -
-
-
-
33 ,326 -
Unr
estricted 3
6,769
189,432 18
,831 34
,461 28
,332
307,825 16 ,434
Total net position $
24 3,842 1,137,690 93 ,032 88 ,275 48 ,332 1,611,171 19 ,325 39 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds
For the Year Ended June 30, 2022
($000’s)
Enterprise Funds

Norman Y.

Mineta
San José
I
nternational
Airport
Wastewater
Treatment
System
Municipal
Water
System
Parking
System
San José
Clean Energy Total
Internal
Service
Funds

OPERATING REVENUES

Char
ges for services $ 5
4,535

192,127
5 5,531
1 2,993

351,099

666,285

150,657
Rentals and concessions
106,199
1 5,920
-
-
-

122,119
-
Cust
omer transportation fees 5
,689
-
-
-
-

5,689
-
Ser
vice connection, engineering and
inspection -

1,782
-
-
-

1,782
-
O
perating contributions from
participating agencies -
8 4,649
-
-
-
8 4,649
-
O
ther 1
1,317

1,250
-
-
-
1 2,567
-
T
otal operating revenues
177,740

295,728
5 5,531
1 2,993

351,099

893,091

150,657

OPERATING EXPENSES
O
perations and maintenance 7
9,523

130,560
4 7,998

3,877

321,784

583,742

151,623
General and administrative 2
0,122
3 1,557

2,684

5,694

9,504
6 9,561
-
Depr
eciation 5
5,260
3 2,392

2,945

2,012
-
9 2,609

1,354
Materials and supplies -

479
-

175
-

654
-
T
otal operating expenses
154,905

194,988
5 3,627
1 1,758

331,288

746,566

152,977
Operating income (loss) 2
2,835

100,740

1,904

1,235
1 9,811

146,525
(2
,320)

NONOPERATING REVENUES
(EXPENSES)
P
assenger facility charges 1
9,674
-
-
-
-
1 9,674
-
Cust
omer facility charges 7
,967
-
-
-
-

7,967
-
O
perating grants
718
-

541
-

4,594

5,853
-
Nonoper
ating grants 3
2,103
-
-
-
-
3 2,103
-
Inv
estment income (loss) (4
,681)

(8
,524)

(7
09)

(8
98)

(5
57)

(1
5,369)

(2
55)
Lease interest income
274
-
-
-
-

274
-
Inter
est expense (3
9,312)

(2
,442)

-
-
(1
,637)

(4
3,391)

-
P
articipating airline net revenue
sharing (2
7,396)

-
- - - (2 7,396) -
Gain (loss)
on disposal of capital
assets -
-
-
(1
,385)

-
(1
,385)

4 9
Other revenues (expenses), net
499

531

3 -
-

1,033
-
Net nonoper
ating revenues
(expenses) (1
0,154)

(1
0,435)

(1
65)

(2
,283)

2,400
(2
0,637)

(2
06)
Income (loss) before capital
contributions and transfers
1 2,681
9 0,305

1,739
(1
,048)

2 2,211

125,888
(2
,526)

Capital contributions 5 ,894 1,090 131 - - 7,115 - T
ransfers in
300
-
-
-
-

300

1,000
Transfers out (3
34)

(1
,929)

(1
,070)

(1
,007)

(2
20)

(4
,560)

(8
57)

Changes in net position 1 8,541 8 9,466 800 (2 ,055) 2 1,991 128,743 (2 ,383)

Net position - beginning, as
previously reported

225,030

1,048,224
9 2,232
9 0,330
2 6,341

1,482,157
2 1,708
Change in accounting principles
271
-
-
-
-

271
-
Beginning, as r
estated
225,301

1,048,224
9 2,232
9 0,330
2 6,341

1,482,428
2 1,708
Net position - ending $ 2
43,842

1,137,690
9 3,032
8 8,275
4 8,332

1,611,171
1 9,325

The Notes to Basic Financial Statements are an integral part of this statement.

FOR THE YEAR ENDED J UNE 30, 2022 40

41 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Statement of Cash Flows
Proprietary Funds
For the Year Ended June 30, 2022
($000’s)
Enterprise Funds

Norman
Y. Mineta
San José
International
Airport
Wastewater
Treatment
System
Municipal
Water System
Parking
System
San José
Clean Energy Total
Internal
Service
Funds
CASH

FLOWS FROM OPERATING

ACTIVITIES
Receipts from customers and users $
169,
194 248,
749
54,706
12,997 315,
890 801,
536
-
Cash received from interfund services
provided
-
-
-
-
-
- 151,
104
Payments to suppliers (43,
503) (87,
185) (41,
448) (7,278) (326,
634) (506,
048) (123,
306)
Payments for employees (36,
437) (96,
467) (12,
068) (2,715) (7,049) (154,
736) (27,
930)
Payments for City services (24,
472)
-
-
-
- (24,
472)
-
Payments to airlines (1,324)
-
-
-
- (1,324)
-
Claims paid (179)
-
-
-
- (179)
-
Other receipts 522
50,336
-
-
-
50,858
-
Net cash provided by (used in)
operating activities

63,801 115,
433 1,190 3,004 (17,
793) 165,
635 (132)

CASH FLOWS FROM

NONCAPITAL FINANCING

ACTIVITIES
Transfers from other funds 300
-
-
-
- 300 1,000
T
ransfers to other funds (334) (1,929) (1,070) (1,007) (220) (4,560) (857) O
perating grants 693
- 541
- 4,594 5,828
-
Nonoperating grants
27,149
-
-
-
-
27,149
-
Advances and deposits
-
-
38 - 6,400 6,438
-
Loans (129)
-
-
-
- (129)
-
Net cash provided by (used in)
noncapital financing activities
27,679 (1,929) (491) (1,007)
10,774
35,026 143

CASH FLOWS FROM CAPITAL

AND RELATED FINANCING

ACTIVITIES
Passenger facility charges received
19,228
-
-
-
-
19,228
-
Customer facility charges received 7,607
-
-
-
- 7,607
-
Capital grants received 6,114 280
-
-
- 6,394
-
Acquisition and construction of capital
assets (18,
090) (157,
292) (1,747) (631)
- (177, 760) (676)
Lease pa
yment (309)
-
- (22)
- (331)
-
Interest income related to lease 274
-
-
-
- 274
-
Proceeds from commercial paper
-
-
-
-
45,000
45,000
-
Proceeds from line of credit
-
86,502
-
-
-
86,502
-
Principal payment on commercial paper (17,
818)
-
-
-
- (17,
818)
-
Principal paid on debt (1,900)
-
-
-
- (1,900)
-
Interest paid on debt (43,
990) (2,506)
-
- (1,637) (48,
133)
-
Advances and deposits received 1
-
-
-
- 1
-
Net cash provided by (used in) capital
and related financing activities
(48,
883) (73,
016) (1,747) (653)
43,363 (80,
936) (676)

CASH FLOWS FROM INVESTING

ACTIVITIES
Proceeds from sales and maturities of
investments
22,755
-
-
-
-
22,755
-
Purchases of investments (17,
293)
-
-
-
- (17,
293)
-
Interest received (loss) (4,334) (8,350) (691) (898) (557) (14, 830) (255)
Land
and building rentals
- 132
-
-
- 132
-
Net cash provided by (used in)
investing activities
1,128 (8,218) (691) (898) (557) (9,236) (255)

Net change in cash and cash equivalents 43,725 32,270 (1,739) 446 35,787 110, 489 (920)

Cash and cash equivalents - beginning 251, 989 460, 683 34,280 44,322 25,019 816, 293 21,164 Cash and cash equivalents - ending $
295,
714 492,
953
32,541
44,768
60,806 926,
782
20,244

The Notes to Basic Financial Statements are an integral part of this statement. 42 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
City of San José
Statement of Cash Flows
Proprietary Funds
For the Year Ended June 30, 2022
($000’s)
Enterprise Funds

Norman
Y. Mineta
San José
International
Airport
Wastewater
Treatment
System
Municipal
Water
System
Parking
System
San José
Clean Energy Total
Internal
Service
Funds
Re
conciliation of operating income (loss) to net cash
provided by (used in) operating activities

Operating income (loss) $
22,
835 100,
740 1,904 1,235
19,811 146,
525 (2,320)
Adjustments t
o reconcile operating income (loss) to net
cash provided by (used in) operating activities:

Depreciation
55,260
32,392 2,945 2,012
-
92,609 1,354
P
articipating airline net revenue sharing (27,
396)
-
-
-
- (27,
396)
-
Other nonoperating revenues 521 284 3
-
- 808
-
Decrease (increase) in:

Accounts receivable (7,844) 3,073 (828) 4 (37,
482) (43,
077) 10
Inv
entories
- (96)
-
-
- (96) (192)
Pr
epaid expenses, advances and deposits (19)
-
-
- 4,619 4,600
438
Other assets
- 1
-
-
- 1
-
Increase (decrease) in:

Accounts payable and accrued liabilities
27,557 (2,652) (1,321) 100 (4,621)
19,063
474
Accrued salaries, wages, and payroll taxes
- 274 113
15 82 484
-
Accrued vacation, sick leave and compensatory time
- (130) 350 (27)
11 204
104
Estimated liability for self-insurance (185) (151)
10 -
- (326)
-
Unearned revenue (1,116)
-
-
-
- (1,116)
-
Net pension liability, deferred outflows and inflows of pension related resources (4,764) (12,
479) (1,512) (254) (1,090) (20,
099)
-
Net other postemployment benefits liability, deferred
outflows and inflows of postemployment benefits
related resources
(1,233) (4,078) (474) (81) (349) (6,215)
-
Advances, deposits, and reimbursable credits 185
-
-
- 1,226 1,411
-
Other liabilities
- (1,745)
-
-
- (1,745)
-
Net cash provided by (used in) operating activities $
63,
801 115,
433 1,190 3,004 (17,
793) 165,
635 (132)

Reconciliation of cash and cash equivalents to the
statement of net position:

Equity in pooled cash and investments held in City
Treasury
Unrestricted $
175,
170 492, 953 32,541 42,500 37,439 780, 603 19,722 Restricted
45,899
-
- 2,268
23,367
71,534
515
Cash and investments held with fiscal agents
74,645
-
-
-
-
74,645
-
Other cash and investments
-
-
-
-
-
-
7 Cash and cash equivalents $
295,
714 492,
953
32,541
44,768
60,806 926,
782
20,244

Noncash noncapital, capital and related financing, and
investing activities:

Capital contributions from developers
- 810 131
-
- 941
-
Amortization of bond discount/premium, and prepaid
bond insurance costs
6,094
-
-
-
- 6,094
-
Amortization of deferred outflows of resources related to bond refundings
(482)
-
-
-
- (482)
-
Change in capital related payables (1,351)
-
-
-
- (1,351)
-
Change in capital related receivables 220
-
-
-
- 220
-
Change in fair value of investments 457
-
-
-
- 457
-
Increase (decrease) in operating grants receivables (24) -
-
-
- (24)
-
Increase (decrease) in nonoperating grants receivables (4,954) -
-
-
- (4,954)
-

The Notes to Basic Financial Statements are an integral part of this statement. 43 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Statement of Fiduciary Net Position
Fiduciary Funds
June 30, 2022
($000’s)

Pension Trust
Funds
Private-
Purpose
Trust Funds
Cust
odial
Fund
ASSETS
Curr
ent assets:

Equity in pooled cash and investments held in City Treasury $ -

201 7
,069
Cash and investments
- 2
,507
-
Investments of retirement systems:

Investments:

Public equity 3
,583,134
-
-
Short-term investment grade bonds
25,420
-
-
Investment grade bonds 5
23,574
-
-
Private equity 7
62,496
-
-
Market neutral strategies 2
27,238
-
-
Immunized cash flows 2
38,225
-
-
Core real estate 4
34,905
-
-
Commodities
29,322
-
-
Private debt 2
44,089
-
-
Emerging market bonds 1
74,507
-
-
Growth real estate 2
97,828
-
-
Treasury inflation protected securities 1
47,447
-
-
Cash and cash equivalents 4
79,731
-
-
Private real assets 1
28,063
-
-
Venture/growth capital
46,460
-
-
Long-term government bonds 1
49,360
-
-
High yield bonds 1
34,482
-
-
Total investments of retirement systems 7
,626,281
-
-
Receivables:

Accrued investment income
10,015
-
19 Employee contributions 4
,204
-
-
Employer contributions
24,574
-
-
Other 1
47,718 7
4 -
Restricted cash and investments held with fiscal agent
- 1
21,843
-
Total current assets 7
,812,792 1
24,625 7
,088

Noncurrent assets:

Advances to the City of San José
-
733
-
Accrued interest, net
- 1
,285
-
Loans receivable, net
- 3
,986
-
Advances and deposits
- 5
-
Prepaid bond insurance
- 1
,407
-
Capital assets:

Nondepreciable
- 2
,078
-
Depreciable, net
-
642
-
Other assets, net 6
,724
-
-
Total noncurrent assets 6
,724
10,136
-
Total assets 7
,819,516 1
34,761 7
,088

DEFERRED OUTFLOWS OF RESOURCES
Loss on refundings of debt $ -
26,654
-
(Continued)
The Notes to Basic Financial Statements are an integral part of this statement. 44 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
City of San José
Statement of Fiduciary Net Position
Fiduciary Funds
June 30, 2022
($000’s)

Pension Trust
Funds
Private-
Purpose
Trust Funds
Cust
odial
Fund
L

IABILITIES
Curr
ent liabilities:

Accounts payable $ -
1 54 4
65 Due to brokers
67,814
-
-
Accrued interest payable
-
18,925
-
Other liabilities
19,412
-
-
Total current liabilities
87,226
19,079 4
65 Long-term liabilities:

Due within one year
- 1
03,084
-
Due in more than one year
-
1,216,752
-
Total noncurrent liabilities
-
1,319,836
-
Total liabilities
87,226
1,338,915 4
65 NET POSITION

Restricted
for:

Employees’ pension benefits 7 ,117,896 - -
Employees’ postemployment healthcare benefits 6
14,394
-
-
Redevelopment dissolution and other purposes
- (1
,177,500)
-
Arena capital reserve
-
- 6
,623
Total net position (deficit) $ 7
,732,290 (1
,177,500) 6
,623
45 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Statement of Changes in Fiduciary Net Position
Fiduciary Funds
For the Year Ended June 30, 2022
($000’s)

Pension
Trust Funds
Priv
ate-
Purpose
Trust Funds
Cust
odial
Fund
ADDI
TIONS

Redevelopment property tax revenues $ - 1 89,786 -
Inv
estment income:

Interest
52,231 1 47 3 ,583
Dividends
31,866 - -
Net depr
eciation in fair value of plan investments (5
87,854) - -
Inv
estment expenses (2
5,508) - -
T
otal investment income (5
29,265) 1 47 3 ,583
Contributions:

Employer 4
75,194 - -
Emplo
yees
81,098
-
-
Total contributions 5
56,292
-
-
Development fees and other
-
44 -
Gain on sale of revenue participation
- 1
36 -
Total additions
27,027 1 90,113 3 ,583

DEDUCTIONS

General and administrative
11,948 2
29 -
Project expenses
- 72 3 ,709
Pass through amounts to the County of Santa Clara
- 47,944 -
Depr
eciation
- 27 -
Allowance for loan
losses
- 56 -
Inter
est on debt
- 45,237 -
Health insur
ance premiums
57,546 - -
Refunds of contributions 2
,777 - -
Retir
ement and other benefits:

Death benefits
33,311 - -
Retir
ement benefits 4
61,061 - -
T
otal deductions 5
66,643 93,565 3 ,709
Change in net position (5
39,616) 96,548 (1 26)

Net position restricted for pension benefits, postemployment healthcare benefits and other purposes:

Beginning of year
8,271,906 (1
,274,048) 6
,749
End of year $ 7
,732,290 (1 ,177,500) 6 ,623

The Notes to Basic Financial Statements are an integral part of this statement.

FOR THE YEAR ENDED J UNE 30, 2022 46

FOR THE YEAR ENDED J UNE 30, 2022

INDEX TO

THE NOTES
Notes to basic financial
statements June 30, 2022
47 ●
I. Summary of Significant Accounting Policies
A. Reporting Entity 49
B. Financial Statement Presentation 51
C. Measurement Focus and Basis of Accounting 53
D. Use of Estimates 53
E. New Pronouncements 54
F. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position or Equity 58
●
II. Stewardship, Compliance, and Accountability
A. Deficit Net Position 67
B. Deficit Unrestricted Net Position - Governmental Activities 67 C. Deficit Fund Balance - Nonmajor Governmental Funds 67 ●
III. Detailed Notes on All Funds
A. Cash, Deposits and Investments 68

1. Cash and Investments Managed by the City Treasurer 69

2. Retir
ement Systems 76
B. Receivables, Net of Allowances 89
C. Loans Receivable, Net of Allowances 90
D. Capital Assets 92
E. Leases 94
F. Long-Term Debt and Other Obligations 102
G. Interfund Transactions 128
H. Deferred Inflows of Resources 131
I. Governmental Fund Balances 132
FOR THE YEAR ENDED J UNE 30, 2022

INDEX TO

THE NOTES
Notes to basic financial
statements June 30, 2022
48 ●
IV. Other Information
A. Defined Benefit Retirement Plans 134

1. City Sponsored Defined Benefit Pension Plans 134

2. California Public Emplo
yees’ Retirement System 152

3. Defined Contribution Retir
ement Plans 156

4. P
ostemployment Benefit Plans Other than Pension Plans 157 B. Commitments and Contingencies 169
C. Successor Agency to the Redevelopment Agency of the City of San José 181 D. Subsequent Events 188
E. Restatement of Net Position 191
49 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
I. Summar y of Significant Accounting Policies
A. Re porting Entity
The City of San José, California (the “City”), was chartered on March 25, 1850, and has operated under a Council–Manager form of government since 1916. The City has defined its reporting entity in accordance with generally accepted accounting principles (“GAAP”) in the United States of America, which provide guidance for determining which governmental activities, organizations, and functions should be included in the reporting entity. In evaluating how to define the City for financial reporting purposes, management has considered all potential component units. The primary criteria for including a potential component unit within the reporting entity are the governing body’s financial accountability or whether the nature and significance of the relationship with the primary government is misleading to exclude.

A primary government is considered to be financially accountable, if it appoints a voting majority of an organization’s governing body and it is able to impose its will on the organization, or if there is a potential for the organization to provide specific financial benefits to or impose specific financial burdens on the primary government. A primary government may also be financially accountable if an organization is fiscally dependent on the primary government regardless of whether the organization has a separately elected governing board, a governing board appointed by a higher level of government, or a jointly appointed board, and there is a potential for the organization to provide specific financial benefits or impose specific financial burdens on the primary government. Based upon the application of these criteria, the following is a brief description of each component unit included within the City’s reporting entity. All such component units have been “blended” (or in the case of the Successor Agency to the Redevelopment Agency of the City of San José reported as a fiduciary fund) as though they are part of the primary government because the component unit’s governing body is substantially the same as the City’s primary government and there is a financial benefit or burden relationship between the City and the component unit, management of the City has operational responsibilities for the component unit, and/or the component units provide services entirely, or almost entirely, to the City or otherwise exclusively, or almost exclusively, benefits the City, even though it does not provide services directly to it, or the City is entirely or almost entirely responsible for the repayment of the debt of the component unit.
● Succe
ssor Agency to the Redevelopment Agency of the City of San José – The Successor Agency to the Redevelopment Agency of the City of San José (the “SARA”) was created by State statute, referred to in these notes as the Redevelopment Dissolution Law, to serve as a custodian for the assets and to wind down the affairs of the former Redevelopment Agency of the City of San José (the “Agency”).

The SARA is subject to the direction and oversight of a board consisting of the Mayor and the other members of the City Council (“SARA Board”).

The SARA is also, pursuant to the Redevelopment Dissolution Law, subject to the direction and oversight of an oversight board. Beginning July 1, 2018, pursuant to Health and Safety Code Section 34179(j), the individual oversight boards within Santa Clara County no longer existed and were combined into one county-wide oversight board (the “Oversight Board”). The Oversight Board is comprised of seven member representatives with one member appointed by each of the following: County Board of Supervisors, the city selection committee established pursuant to Section 50270 of the Government Code, the independent special district selection committee established pursuant to Section 56332 of the Government Code, the County Superintendent of Education, the Chancellor of the California Community Colleges, a public appointment made the County Board of Supervisors, and the recognized employee organization representing the largest number of successor agency employees in the county.

The Oversight Board is staffed by the County of Santa Clara Auditor-Controller and tasks have been 50 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
delegated among the County Finance Agency, the Office of the County Executive, the Clerk of the Board of Supervisors, and Office of the County Counsel.

In general, the SARA’s assets can only be used to pay the enforceable obligations in existence at the date of dissolution (including the completion of any unfinished projects that were subject to legally enforceable contractual commitments). In general, the SARA is allocating revenue in the amount that is necessary to pay the estimated annual installment payments on enforceable obligations of the Agency until all enforceable obligations of the Agency have been paid in full and all assets have been liquidated.

Based upon the nature of the SARA’s custodial role, the SARA is reported in a fiduciary fund (private- purpose trust fund).
● San José
– Santa Clara Clean Water Financing Authority – The San José – Santa Clara Clean Water Financing Authority (the “Clean Water Financing Authority”) was created pursuant to a Joint Exercise of Powers Agreement between the City and the City of Santa Clara. The purpose was to finance the acquisition of, and additions and improvements to the existing San José – Santa Clara Water Pollution Control Plant (the “Plant”), currently known as the San José – Santa Clara Regional Wastewater Facility (the “RWF”). The Clean Water Financing Authority is governed by a five-member Board of Directors; three are members of the San José City Council and two are members of the City Council of the City of Santa Clara.
● City of San José Financing Authority – The City of San José Financing Authority (the “Financing Authority”) was created by a Joint Exercise of Powers Agreement between the City and the Agency.

The Financing Authority was created for the purpose of facilitating the financing of public improvements and facilities within the City and is authorized to issue bonds for this purpose. The Financing Authority is governed by an 11-member Governing Board, which consists of the members of the City Council.

The Financing Authority is blended in the San José Financing Authority Debt Service Fund for financial reporting purposes.
● San José
Diridon Development Authority – The San José Diridon Development Authority (the “Diridon Authority”) was created in March 2011 by a Joint Exercise of Powers Agreement between the City and the Agency. The Diridon Authority was created for the purposes of overseeing the development of properties within the area of the City surrounding the San José Diridon Station, and is authorized to issue bonds for this purpose. The Diridon Authority is governed by an 11-member Governing Board, which consists of the members of the City Council.

Separate financial reports for City departments and component units for the FY 2022, containing additional information and more detailed information regarding financial position, changes in financial position, and, where applicable, cash flows, are available from the City’s Director of Finance, 200 East Santa Clara Street; 13
th Floor, San José, CA 95113-1905, for the following:
○ P
olice and Fire Department Retirement Plan (the “PFDRP”) ○ F
ederated City Employees’ Retirement System (the “FCERS”) ○ Successor Agency
to the Redevelopment Agency of the City of San José
○ Norman Y
. Mineta San José International Airport (the “Airport”) ○ San
José – Santa Clara Clean Water Financing Authority
○ San
José Clean Energy
51 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
B. Financial Stateme nt Presentation
Government-wide Financial Statements. The government-wide financial statements, i.e. the statement of net position and the statement of activities, display information about the primary government and its component units. These statements include the financial activities of the overall government, except for fiduciary funds or component units that are fiduciary in nature. Eliminations have been made to prevent the double counting of internal activities. For example, the direct expense charges based on actual use are not eliminated, whereas indirect expense allocations made in the funds are eliminated. These statements distinguish between the governmental and business-type activities of the City. Governmental activities, which normally are supported by taxes, intergovernmental revenues and other non-exchange transactions, are reported separately from business-type activities, which rely to a significant extent on fees charged to external parties.

The statement of activities presents a comparison between direct expenses and program revenues for each business-type activity of the City and each function of the City’s governmental activities. Direct expenses are those that are specifically associated with a business-type activity or governmental function and, therefore, are clearly identifiable to a particular activity or function. Program revenues include 1) fees, fines and charges paid by the recipients of goods or services offered by the programs and 2) grants and contributions that are restricted to meet the operational or capital requirements of a particular program. 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 City’s funds, including its fiduciary funds. Separate statements for each fund category, such as governmental, proprietary and fiduciary, are presented. The emphasis of fund financial statements are on the major governmental and enterprise funds of the City and are reported separately in the accompanying financial statements.

All remaining governmental funds are aggregated and reported as nonmajor funds in the accompanying financial statements.

Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.

The City reports the following major governmental funds:

The General Fund is the City’s primary operating fund. It accounts for all revenues and expenditures necessary to carry out basic governmental activities of the City that are not accounted for through other funds.

The Housing Activities Fund is a special revenue fund that accounts for all of the City’s affordable housing activities funded by federal and state grants, as well as various fees.

The Low and Moderate Income Housing Asset Fund is a special revenue fund that was created to administer the housing assets and functions related to the Low and Moderate Income Housing Program retained by the City following the dissolution of the Agency on February 1, 2012. This fund is primarily funded by loan repayment program income generated from the former Agency’s housing assets.

The Special Assessment Districts Fund is a capital project fund that accounts for the capital project and debt activities related to debt issued to finance public improvements benefiting properties against which special assessments or special taxes are levied.

The San José Financing Authority Debt Service Fund is a debt service fund that accounts for the debt activities related to capital projects funded with Financing Authority debt. 52 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The City reports the following major enterprise funds:

The Norman Y. Mineta San José International Airport Fund accounts for the activities of the City owned commercial service and general aviation airport.

The Wastewater Treatment System Fund accounts for the financing, construction and operations of the Plant, including the regional water reclamation program (known as South Bay Water Recycling); the San José Sewage Collection System; and the Clean Water Financing Authority.

The Municipal Water System Fund accounts for the operations of the five water system operating districts: North San José, Evergreen, Coyote, Edenvale, and Alviso.

The Parking System Fund accounts for the operations of the City owned parking garage facilities, parking lots, and parking meters located within the City.

The San José Clean Energy Fund accounts for the procurement of electricity by San José Clean Energy, a Community Choice Energy program.

The City also reports the following types of funds:

The Internal Service Funds are used to account for the public works support services provided to City- wide capital programs; the cost of operating an automotive maintenance facility used by other City departments; and employee benefits including medical, vision, dental, and unemployment insurance costs on a cost-reimbursement basis.

The Pension Trust Funds account for the accumulated resources to be used for retirement annuity and postemployment healthcare payments to members of the FCERS and the PFDRP , collectively, the “Retirement Systems”.

The Private-Purpose Trust Funds account for the custodial responsibilities that are assigned to the SARA with the passage of the Redevelopment Dissolution Law and for the James Lick Fund, which holds resources in trust for the support of the EMQ Families First Agency (a.k.a. Eastfield Ming Quong).

The Custodial Fund accounts for assets held by the City in a custodial capacity with respect to the San José Arena.

Document Summaries. All summaries of documents contained in the notes to the financial statements are made subject to the provisions of such documents and do not purport to be complete statements of any or all such provisions. Each reference is qualified in its entirety by reference to such document, which is on file with or may be obtained from the City’s Director of Finance at the address set forth in Note I.A. 53 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
C. Me asurement Focus and Basis of Accounting
The basis of accounting determines when transactions are reported in the financial statements. The government-wide, proprietary and fiduciary funds financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Non-exchange transactions, in which the City gives (or receives) value without directly receiving (or giving) equal value in exchange, include property and sales taxes, grants, entitlements and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied.

Revenues from sales and use, transient occupancy and utility user taxes are recognized when the underlying transactions take place. Revenues from grants, entitlements and donations are recognized in the fiscal year in which all eligibility requirements have been satisfied.

Governmental funds are reported using the current financial resources measurement focus and modified accrual basis of accounting. This focus is on the determination of, and changes in financial resources, and generally only current assets and current liabilities are included in the balance sheet. Revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the fiscal period. For this purpose, the City considers revenues as available if they are collected within sixty days after the end of the current fiscal period. Expenditures are generally recorded when a liability is incurred.

However, principal and interest on long-term debt and certain estimated liabilities, such as compensated absences and self-insurance claims, are recorded when payment is due.

In governmental funds, revenues from taxes, franchise fees, investment income, state and federal grants and charges for services associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues in the current period. All other revenue items are considered measurable and available only when cash is received by the City.

Proprietary funds distinguish between operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the City’s enterprise funds are charges to customers for sales and services. In addition, the Wastewater Treatment System Fund’s on-going contributions from other participating agencies for their allocation of the Plant’s operating and maintenance expenses, their share of debt service, and other commitments towards the Plant’s improvements are also included as operating revenues. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

Under the terms of grant agreements, the City funds certain programs by a combination of specific cost- reimbursement grants, categorical block grants and general revenues. Thus, when program expenses are incurred, there are both restricted and unrestricted net position available to finance the program. It is the City’s policy to first apply restricted cost-reimbursement grant resources to such programs, followed by restricted categorical block grants, and then by unrestricted general revenues.

D. Use of Estimates
A number of estimates and assumptions relating to the reporting of revenues, expenditures/expenses, assets, deferred outflows of resources, liabilities and deferred inflows of resources, and the disclosure of contingent liabilities were used to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates and assumptions. 54 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
E. Ne w Pronouncements
During the year ended June 30, 2022, the City implemented the following Governmental Accounting Standards Board (the “GASB”) Statements:

The City has adopted GASB Statement No. 87, Leases. This GASB statement establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. A lease is defined as a contract that conveys control of the right to use another entity’s nonfinancial asset as specified in the contract for a period of time in an exchange or exchange-like transaction. 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.

This statement was implemented for FY 2022 reporting purposes. The required changes are reflected in the City’s financial statements and notes to those statements. Adoption of the new standard resulted in restatement of net position of $271,000 in Normal Y. Mineta San José International Airport fund.

The City has adopted GASB Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period. This statement requires that interest costs incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund, and fiduciary fund. The City previously updated the Capitalized Interest policy to no longer capitalize interest for the Wastewater Treatment System Fund which had an immaterial impact to the financial statements. Application of Statement No. 89 is effective for the City’s fiscal year ended June 30, 2022 to all remaining funds. The application of Statement No. 89 did not have any effect on the City’s financial statements.

The City has adopted GASB Statement No. 92, Omnibus 2020. The statement is 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 Statements.

This statement addresses a variety of topics and includes specific provisions about the following: The effective date of Statement No. 87, Leases, and Implementation Guide No. 2019-3, Leases, for interim financial reports; Reporting of intra-entity transfers of assets between a primary government employer and a component unit defined benefit pension plan or defined benefit other postemployment benefit (OPEB) plan; The applicability of Statements No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, as amended, and No. 74, Financial Reporting for Postemployment Benefits Plans Other Than Pension Plans, as amended, to reporting assets accumulated for postemployment benefits; The applicability of certain requirements of Statement No. 84, Fiduciary Activities, to postemployment benefit arrangements; Measurement of liabilities (and assets, if any) related to asset retirement obligations (AROs) in a government acquisition; Reporting by public entity risk pools for amounts that are recoverable from reinsurers or excess insurers; Reference to nonrecurring fair value measurements of assets or liabilities in authoritative literature; and Terminology used to refer to derivative instruments. The application of Statement No. 92 did not have any effect on the City’s financial statements.

The City has adopted GASB Statement No. 93, Replacement of Interbank Offered Rates. This statement is to address those and other accounting and financial reporting implications that result from the replacement of an Interbank Offered Rate (IBOR). This statement achieves that objective by: providing exceptions for certain hedging derivative instruments to the hedge accounting termination provisions when an IBOR is replaced as the reference rate of the hedging derivative instrument’s variable payment; clarifying the hedge 55 FOR THE YEAR ENDED J UNE 30, 2022

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accounting termination provisions when a hedged item is amended to replace the reference rate; clarifying that the uncertainty related to the continued availability of IBORs does not, by itself, affect the assessment of whether the occurrence of a hedged expected transaction is probable; removing London Interbank Offered Rate (LIBOR) as an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap; identifying a Secured Overnight Financing Rate and the Effective Federal Funds Rate as appropriate benchmark interest rates for the qualitative evaluation of the effectiveness of an interest rate swap; clarifying the definition of reference rate, as it is used in Statement No. 53, as amended; and providing an exception to the lease modifications guidance in Statement No. 87, as amended, for certain lease contracts that are amended solely to replace an IBOR as the rate upon which variable payments depend. The removal of LIBOR as an appropriate benchmark interest rate is effective for reporting periods ending after December 31, 2021. All other requirements of this statement are effective for reporting periods beginning after June 15, 2021. The City did not have any direct exposure to derivative contracts tied to Libor as of June 30, 2022, so the application of Statement No. 92 did not have any effect on the City’s financial statements.

The City has adopted GASB Statement No. GASB 99, Omnibus 2022 for the items as follows, which were effective upon issuance, and they did not have any effect on the City’s financial statements: (i). Extension of the period during which the London Interbank Offered Rate (LIBOR) is considered an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap that hedges the interest rate of taxable debt, (ii). Disclosures related to nonmonetary transactions, (iii). Pledges of future revenues when resources are not received by the pledging government, (iv). Accounting for the distribution of benefits as part of the Supplemental Nutrition Assistance program (SNAP), (v). Classification of provisions in Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – For State and Local Governments, as amended, related to the focus of the government-wide financial statements, (vi).

Terminology used in Statement 53 to refer to resource flows statements, and (vii). Terminology updates related to certain provisions of Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. The City is currently evaluating the remaining items in this Statement with the detail in the section that follows.

The City is currently analyzing its accounting practices to determine the potential impact on the financial statements for the upcoming GASB Statements:

In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations. This statement provides a single method of reporting conduit debt obligations by issuers and eliminates diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This statement achieves those objectives by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures. Application of Statement No. 91 is effective for the City’s fiscal year ending June 30, 2023.

In March 2020, the GASB issued Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. This statement is to improve financial reporting by addressing issues related to public-private and public-public partnership arrangements (PPPs). As used in this statement, a PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. Some PPPs meet the definition of a service concession arrangement (SCA), which the Board defines in this statement as a PPP in which (1) the operator collects 56 INTRODUCTORY

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and is compensated by fees from third parties; (2) the transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services; and (3) the transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement.

This statement also provides guidance for accounting and financial reporting for availability payment arrangements (APAs). As defined in this statement, an APA is an arrangement in which a government compensates an operator for 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.

Application of Statement No. 94 is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter.

In May 2020, the GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements.

This statement provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended. A SBITA is defined as a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction. The subscription term includes the period during which a government has a noncancelable right to use the underlying IT assets. The subscription term also includes periods covered by an option to extend (if it is reasonably certain that the government or SBITA vendor will exercise that option) or to terminate (if it is reasonably certain that the government or SBITA vendor will not exercise that option). Under this statement, a government generally should recognize a right-to use subscription asset—an intangible asset—and a corresponding subscription liability. Application of Statement No. 96 is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter.

In April 2022, the GASB issued Statement No. GASB 99, Omnibus 2022. The objectives of this statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing: (1) Classification and reporting of derivative instruments within the scope of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, that do not meet the definition of either an investment derivative instrument or a hedging derivative instrument; (2) Clarification of provisions in Statement No. 87, Leases, as amended, related to the determination of the lease term, classification of a lease as a short-term lease, recognition and measurement of a lease liability and a lease asset, and identification of lease incentives; (3) Clarification of provisions in Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, related to (a) the determination of the public-private and public-public partnership (PPP) term and (b) recognition and measurement of installment payments and the transfer of the underlying PPP asset; (4) Clarification of provisions in Statement No. 96, Subscription-Based Information Technology Arrangements, related to the subscription-based information technology arrangement (SBITA) term, classification of a SBITA as a short- term SBITA, and recognition and measurement of a subscription liability; (5) Extension of the period during which the London Interbank Offered Rate (LIBOR) is considered an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap that hedges the interest rate risk of taxable debt; (6) Accounting for the distribution of benefits as part of the Supplemental Nutrition Assistance Program (SNAP); (7) Disclosures related to nonmonetary transactions; (8) Pledges of future revenues when resources are not received by the pledging government; (9) Clarification of provisions in Statement No. 34, 57 FOR THE YEAR ENDED J UNE 30, 2022

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Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, as amended, related to the focus of the government-wide financial statements; (10) Terminology updates related to certain provisions of Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position; and (11) Terminology used in Statement 53 to refer to resource flows statements.

The requirements of this statement that are effective as follows: Items (5), (6), (7), (8), (9), (10), and (11) were implemented starting this fiscal year and all reporting period thereafter; items (2), (3), and (4) related to leases, PPPs, and SBITAs are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. The requirements related to financial guarantees and the classification and reporting of derivative instruments within the scope of Statement 53 are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter.

In June 2022, GASB issued Statement No. 100, Accounting Changes and Error Corrections – an amendment of GASB Statement No. 62. The primary objective of this statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability.

This statement defines accounting changes as changes in accounting principles, changes in accounting estimates, and changes to or within the financial reporting entity and describes the transactions or other events that constitute those changes. As part of those descriptions, for (1) certain changes in accounting principles and (2) certain changes in accounting estimates that result from a change in measurement methodology, a new principle or methodology should be justified on the basis that it is preferable to the principle or methodology used before the change. That preferability should be based on the qualitative characteristics of financial reporting—understandability, reliability, relevance, timeliness, consistency, and comparability. This statement also addresses corrections of errors in previously issued financial statements.

The requirements of this statement are effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter.

In June 2022, GASB issued Statement No. 101, Compensated Absences. This statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered, (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means. Leave is attributable to services already rendered when an employee has performed the services required to earn the leave. Leave that accumulates is carried forward from the reporting period in which it is earned to a future reporting period during which it may be used for time off or otherwise paid or settled. In estimating the leave that is more likely than not to be used or otherwise paid or settled, a government should consider relevant factors such as employment policies related to compensated absences and historical information about the use or payment of compensated absences. However, leave that is more likely than not to be settled through conversion to defined benefit postemployment benefits should not be included in a liability for compensated absences. This statement requires that a liability for certain types of compensated absences—including parental leave, military leave, and jury duty leave—not be recognized until the leave commences. This statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used.

The requirements of this statement are effective for fiscal years beginning after December 15, 2023, and all reporting periods thereafter.
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F. Asse ts, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position or Equity

1. Cash and Cash E quivalents
Restricted and unrestricted pooled cash and investments held in the City Treasury and other unrestricted investments, invested by the City Treasurer (i.e. Director of Finance), are considered 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 demand deposit accounts. Other restricted and unrestricted investments with maturities less than three months at the time of purchase are also considered cash equivalents for purposes of the statement of cash flows.

2. E quity in Pooled Cash and Investments Held in City Treasury Most cash balances of the City’s funds and some of its component units are pooled and invested by the City Treasurer unless otherwise dictated by legal or contractual requirements. Income and losses arising from the investment activity of pooled cash are allocated to the participating funds and component units on a monthly basis, based on their proportionate shares of the average weekly cash balance.

3. Deposit s and Investments
Investments are accounted for in accordance with the provisions of GASB Statement No. 72, Fair Value Measurement and Application. The City categorizes its fair value measurements within the fair value hierarchy established by GAAP in the United States of America. The following levels indicate the hierarchy of inputs used to measure fair value and the primary valuation methodologies used for financial instruments measured at fair value on a recurring basis:
● Le
vel 1 - Investments whose values are based on quoted prices (unadjusted) for identical assets in active markets that a government can access at the measurement date. ● Le
vel 2 - Investments whose values are based on inputs – other than quoted prices included within Level 1 – that are observable for an asset, either directly or indirectly. ● Le
vel 3 - Investments whose values are based on unobservable inputs for an asset and may require a degree of professional judgment.

Pooled Cash and Investments held in City Treasury. The City reports its investments held in the City Treasury at fair value. The fair value is based primarily on quoted market information and using pricing applications and models obtained from fiscal agents or other sources. Income from some investments is assigned to the General Fund. The assignment of the income from these investments is supported by legal or contractual provisions approved by the City Council. For the year ended June 30, 2022, the total investment income from these investments assigned and transferred to the General Fund was approximately $1.1 million.

Retirement Systems. The Retirement Systems’ investment policies authorize various types of investments.

These investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price on the last business day of the fiscal year at current exchange rates, if applicable. Investments that do not have an established market, such as private equity, commingled real estate funds and certain pooled fund investments, are reported at estimated fair value based on the most recently available investor reports or audited financial statements issued by the manager of those funds. The fund manager provides an estimated unrealized gain/loss of the fund based on the most recently available audited financial statements and other fund information. Purchases and sales of securities are reflected 59 FOR THE YEAR ENDED J UNE 30, 2022

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on the date of trade. Investment income is recognized as earned. Rental income from real estate activity is recognized as earned, net of expenses.

Other Investments. Non-pooled investments are generally carried at fair value. However, investments in investment agreements are carried at cost. Income from non-pooled investments is recorded based on the specific investments held by the fund. The investment income is recorded in the fund that earned the income.

4. Inv entories
Inventories of proprietary funds are reported at cost.

5. Loans Receiv able, net
Long-term loans receivable, which consist of the principal amount of the loan plus accrued borrower’s deferred interest is reported in the governmental fund financial statements with an offset to unavailable revenue for the deferred interest accrued and to restricted fund balance for the principal amount of the loan. Long-term loans receivable reported in the governmental activities on the government-wide statement of net position is not offset by unavailable revenue as it is recorded on an accrual basis. Long-term loans receivable are recorded at their net realizable value.

6. Special Assessment Districts
Special assessments are recorded as receivables when liens are placed on properties. Special assessments not considered available are recorded as receivables and offset by deferred inflows of resources in the governmental fund financial statements. In general, special assessment and special tax bonds are fully secured by liens against the privately-owned properties benefited by the improvements for which the bonds were issued. There is no reserve for delinquent receivables since priority liens exist against the related properties and management believes full value will ultimately be received by the City. Surplus funds remaining at the completion of a special assessment district project are disposed of in accordance with the City Council’s resolutions and with the applicable laws of the State of California. A liability is recorded for the balance remaining until a final legal determination has been made.

7. Adv ances and Deposits
Amounts deposited mainly in connection with eminent domain proceedings are reported as advances and deposits. In the governmental fund statements, noncurrent portions of these are offset equally by either a credit or a classification of fund balance in the nonspendable, restricted or committed account.

8. Ot her Assets
Other Assets primarily consist of real properties acquired outright and/or through foreclosure in connection with land acquired for the purpose of future development of affordable housing. These other assets are recorded at the lower of cost or estimated net realizable value.

9. Pr epaid Bond Insurance, Original Issue Discounts and Premiums, and Refundings Prepaid bond insurance costs are amortized using the straight-line method over the life of the bonds.

Amortization of these balances is recorded as a component of interest expense.

In the government-wide, proprietary fund and fiduciary fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable financial statements. Bond premiums and discounts are deferred and amortized on a straight-line basis over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. Gains or losses from refunding of debt are reported 60 INTRODUCTORY

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as deferred outflows or inflows of resources and amortized over the shorter of the life of the refunded debt or refunding debt. Amortization of these balances is recorded as a component of interest expense.

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

10. Rest ricted Assets
Assets that are restricted for specific uses by bonded debt requirements, grant provisions or other requirements are classified as restricted because their use is limited by applicable bond covenants or agreements.

11. Capit al Assets
Capital assets include land, buildings, improvements, vehicles and equipment, infrastructure, and all other tangible assets that are used in operations and that have initial useful lives in excess of one year. Capital assets are reported in the applicable governmental or business-type activity columns in the government- wide statement of net position, the proprietary funds’ statement of net position, and the private-purpose trust fund’s statement of fiduciary net position.

Capital assets are defined as assets with an initial individual cost of more than $5,000 for general capital assets and $100,000 for major infrastructure assets, and an estimated useful life in excess of one year. Such assets are recorded at historical cost if purchased or constructed. Donated capital assets are recorded at acquisition value at the time received. Capital outlay is recorded as expenditures of the governmental funds and as assets in the government-wide financial statements to the extent the City’s capitalization threshold is met. For the Norman Y. Mineta San José International Airport Fund and the Wastewater Treatment System Fund, interest cost incurred before the end of a construction period is recognized as an expense in the period in which the cost is incurred.

Buildings, improvements, infrastructure, vehicles and equipment, and furniture and fixtures are depreciated using the straight-line method over the following estimated useful lives:

Buildings 5 – 40 years
Improvements, other than buildings 10 - 50 years
Infrastructure 25 - 50 years
Vehicles and equipment 2 - 40 years
Furniture and fixtures 10 years
Capital assets which are used for general governmental purposes and are not available for expenditure are accounted for and reported in the government-wide financial statements. Capital assets that meet the definition of the major infrastructure networks or extend the life of existing infrastructure networks are capitalized as infrastructure. Infrastructure networks include roads, bridges, drainage systems, and lighting systems.

Consistent with GASB Statement No. 87, Leases, the City recognizes an intangible right to use lease asset when the applicable accounting criteria is met. The capitalization threshold for the City as lessee is an initial cost of more than $10,000 per item at its net present value for land, buildings, office space, vehicle, or equipment. The leased asset must also have an initial useful life of more than one year. 61 FOR THE YEAR ENDED J UNE 30, 2022

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12. Leases
City as Lessee: The City is a lessee for noncancellable leases of land, building, office space and airport vehicles. The City recognizes a lease liability and an intangible right to use lease asset (lease asset) in the government-wide, proprietary fund, and fiduciary fund financial statements.

At the commencement of a lease, the City initially measures the lease liability at the present value of payments expected to be made during the lease term. Subsequently, the lease liability is reduced by the principal portion of lease payments made. The lease asset is initially measured as the initial amount of the lease liability, adjusted for lease payments made at or before the lease commencement date, plus certain initial direct costs. Subsequently, the lease asset is amortized on a shorter of lease term or useful life per policy described above.

Key estimates and judgments related to leases include how the City determines (1) the discount rate it uses to discount the expected lease payments to present value, (2) lease term, and (3) lease payments. ● The City uses the interest rate charged by the lessor as the discount rate. When the interest rate charged by the lessor is not provided, the City generally uses its estimated incremental borrowing rate as the discount rate.
● The lease term includes the noncancellable period of the lease. Lease payments included in the measurement of the lease liability are composed of fixed payments and any purchase option price that the City is reasonably certain to exercise. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

The City monitors changes in circumstances that would require a remeasurement of its lease and will re- measure the lease asset and liability if certain changes occur that are expected to significantly affect the amount of the lease liability.

Lease assets are reported with other capital assets and lease liabilities are reported with long- term debt on the statement of net position.

Payments due under the lease contracts include fixed payments plus, for many of the City’s leases, variable payments. For office space leases that include variable payments, those include payments for the City’s proportionate share of the building’s property taxes, insurance, and common area maintenance. For office equipment leases for which the City has elected not to separate lease and non-lease components, maintenance services are provided by the lessor at a fixed cost and are included in the fixed lease payments for the single, combined lease component.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
● fix
ed payments (including in-substance fixed payments), less any lease incentives receivable, ● amounts expected t
o be payable by the City under residual value guarantees, ● the ex
ercise price of a purchase option if the City is reasonably certain to exercise that option, and ● payments of penalties for terminating the lease, if the lease term reflects the City exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. Extension and termination options are included in a number of property and equipment leases held by the City. These are used to maximize operational flexibility in terms of managing the assets used 62 INTRODUCTORY

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in the City’s operations. The majority of extension and termination options held are exercisable only by the City and not by the respective lessor.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case, the lessee’s incremental borrowing rate is used. The incremental borrowing rate is the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security, and conditions.

Variable payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate), are initially measured using the index or rate as of the commencement of the lease term.

City as Lessor: The City is a lessor for several noncancellable leases including but not limited to building, office space and airport hangars. The City recognizes a lease receivable and a deferred inflow of resources in the government-wide, proprietary fund financial statements and governmental fund financial statements.

At the commencement of a lease, the City initially measures the lease receivable at the present value of payments expected to be received during the lease term. Subsequently, the lease receivable is reduced by the principal portion of lease payments received. The deferred inflow of resources is initially measured as the initial amount of the lease receivable, adjusted for lease payments received at or before the lease commencement date. Subsequently, the deferred inflow of resources is recognized as revenue over the life of the lease term.

Key estimates and judgments include how the City determines (1) the discount rate it uses to discount the expected lease receipts to present value, (2) lease term, and (3) lease receipts. ● The City
uses its estimated incremental borrowing rate as the discount rate for leases. ● The lease term
includes the noncancellable period of the lease.
● Lease
receipts included in the measurement of the lease receivable is composed of fixed payments from the lessee.

The City monitors changes in circumstances that would require a remeasurement of its lease, and will remeasure the lease receivable and deferred inflows of resources if certain changes occur that are expected to significantly affect the amount of the lease receivable.

13. Compensat ed Absences – Accrued Vacation, Sick Leave, and Compensatory Time Vacation, sick leave, compensatory time, and related benefits are accrued as determined by the agreements between the City and the respective employees’ collective bargaining group. For governmental funds, compensated absence obligations are recorded in the appropriate governmental funds when due. The portion not currently due is recorded in the government-wide financial statements. For proprietary funds, compensated absences are expensed when earned by employees. At year-end, the accrued but unpaid compensated absence obligations are recorded as current and noncurrent liabilities in the appropriate proprietary funds.

Vacation hours may be accumulated up to two times an employee’s annual accrual rate, which will vary by years of service and bargaining unit, but it generally does not exceed a maximum of 400 hours for non-sworn employees and 360 hours for employees represented by the San José Police Officer’s Association (“SJPOA”).

Employees represented by the International Association of Firefighters, Local 230 (“IAFF”), may accumulate vacation hours up to 400 hours for employees on a 40-hour workweek and 576 hours for employees on a 56-hour workweek.
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Employees in FCERS who retire with at least 15 years of service, or 20 years for police officers and firefighters in PFDRP , may be eligible to receive, upon retirement, sick leave payouts based on percentages of accumulated unused sick leave hours as determined by the respective collective bargaining agreements for represented employees. Similar terms are applicable to eligible unrepresented employees. Eligibility for sick leave payouts depends on the employee’s hire date.

Unrepresented employees and all bargaining units are eligible for sick leave payouts if they were hired before September 30, 2012 except the San José Police Officers’ Association and the San José Fire Fighters, IAFF Local 230 are eligible for sick leave payouts if they were hired before July 7, 2013 and September 14, 2014, respectively. The sick leave balances eligible for payouts were frozen on June 22, 2013 for unrepresented employees and all bargaining units except the San José Police Officers’ Association and the San José Fire Fighters, IAFF Local 230 were frozen on July 6, 2013 and June 20, 2015, respectively.

For purposes of Sick Leave Payout, employees will continue to accrue sick leave hours after the “Sick Leave Balance Frozen as of” date, but such accrued sick leave may not be used for sick leave payout purposes.

If an employee reduces their sick leave balance below what it was as of the “Sick Leave Balance Frozen as of” date, such employee will not be able to restore their sick leave balance for sick leave payout purposes.

Employees may receive pay increases subsequent to the “Rate of Pay Frozen as of” date, but the employee’s sick leave payout will be based on their rate of pay as of the “Rate of Pay Frozen as of” date.

At the time of the negotiated agreements, the Confidential Employees’ Organization (CEO) was a separate bargaining unit. As of October 7, 2018, the classifications represented by CEO were incorporated under the exclusive representation of the Municipal Employees’ Federation (MEF). All terms and conditions of the previous sick leave payout provision remain unchanged.

Compensatory time is generally provided to employees who work overtime and earn compensatory time off at the rate of one and one half the number of overtime hours worked in lieu of pay. The Fair Labor Standards Act (“FLSA”) provides that general employees may accrue up to 240 hours of compensatory time, and employees responsible for law enforcement or fire suppression such as those represented by SJPOA, IAFF, and in the Public Safety Communication Dispatcher classifications may accrue up to 480 hours of compensatory time.

14. Int erfund Transactions
Interfund transactions are reflected as loans, services provided, reimbursements and/or transfers. Loans and balances related to unsettled service transactions are reported as receivables and payables as appropriate, and are subject to elimination upon consolidation of similar fund types. The current portion of interfund loans and unsettled service transactions are reported as “due to/from other funds” and the noncurrent portion is reported as “advances to/from other funds”. Any residual balances outstanding between the governmental activities and the business-type activities are reported in the government-wide financial statements as “internal balances”.

Services provided are deemed to be at market or near market rates and are treated as revenues and expenditures/expenses in the fund receiving revenue or being charged. Reimbursements are defined as when one fund incurs a cost, charges the appropriate benefiting fund and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide presentation. 64 INTRODUCTORY

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15. Insur ance
The City is self-insured for workers’ compensation, general liability, auto liability, and certain other risks, except as otherwise described in Note III.F.12. The City’s workers’ compensation activities are funded and accounted for separately in the fund financial statements based upon the activities of each fund. The current portion of claims liability is accounted for in the General Fund and the enterprise funds on the basis of settlements reached or judgments entered within the current fiscal year. In the government-wide financial statements and the enterprise fund financial statements, the estimated liability for all self-insurance liability claims is recorded as a liability.

16. Def erred Outflows/Inflows of Resources
Deferred resources related to pension expense, OPEB expense, leases, and unamortized portions of the gain and loss on refunding debt are reported as deferred outflows and deferred inflows of resources. In addition to this, when an asset is recorded in governmental fund financial statements, but the revenue is not available, a deferred inflow of resources is reported until such time as the revenue becomes available.

17. P ensions
For purposes of measuring the net pension liability/(asset), deferred outflows/inflows of resources related to pensions and pension expense, the fiduciary net position of the City’s defined benefit retirement plans (PFDRP , FCERS, and the California Public Employees’ Retirement System (“CalPERS”)), and additions to/ deductions from the Retirement Systems’ and CalPERS’ fiduciary net positions have been determined on the same basis as they are reported by the plans. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms.

Investments are reported at fair value.

18. Ot her Postemployment Benefits (OPEB)
For purpose of measuring the net OPEB liability/(asset), deferred outflows/inflows of resources related to OPEB and OPEB expense, the fiduciary net position of the PFDRP and FCERS OPEB plans, and additions to/ deductions from the OPEB plans’ fiduciary net position have been determined on the same basis as they are reported by the plans. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

19. Net Position
The government-wide and proprietary fund financial statements utilize a net position presentation. Net position is categorized as net investment in capital assets, restricted, and unrestricted. ○ Net Investment in Capital Assets – This category groups all capital assets, including infrastructure, into one component of net position. Accumulated depreciation and the outstanding balances of debt and deferred outflows/inflows of resources associated with the debt that are attributable to the acquisition, construction, or improvement of these assets reduce the balance in this category. ○ Restricted Net Position – This category represents net position that has external restrictions imposed by creditors, grantors, contributors, or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation. At June 30, 2022, the government-wide statement of net position reported restricted net position of $1,178,965,000 in governmental activities and $71,173,000 in business-type activities. Of these amounts $393,753,000 and $23,857,000, respectively, are restricted by enabling legislation. 65 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
○ Unr estricted Net Position – This category represents net amounts that do not meet the criteria for “restricted” or “net investment in capital assets”. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, and then use unrestricted resources as needed.

20. F und Balances
Under GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, the financial statements reporting for governmental funds classify fund balances based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which those funds can be spent. Fund balance for the City’s governmental funds consists of the following categories:
○ Nonspendable Fund Balance – includes amounts that are not in a spendable form, such as inventories, prepaid items, and long-term loans and notes receivables. It also includes amounts that are legally or contractually required to be maintained intact or required to be retained in perpetuity. ○ Restricted Fund Balance – includes amounts reported as restricted when constraints placed on the use of resources are either (1) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (2) imposed by law through constitutional provisions or enabling legislation.
○ Committed Fund Balance – includes amounts that have been limited to specific purposes as defined in the City Charter or through adoption of an ordinance by the City Council, the highest level of decision-making authority of the City. These commitments may be changed or lifted, but only by the same formal action that was used to impose the constraint originally. City Council action to commit fund balance must occur within the fiscal reporting period while the amount committed may be subsequently determined.
○ Assigne
d Fund Balance – includes amounts that are intended to be used by the City for specific purposes that are neither restricted nor committed through City Council budgetary action, which include the approval of appropriations and revenue sources pertaining to the next fiscal year’s budget. On June 21, 2011, the City Council adopted a resolution establishing the City’s Governmental Fund Balance Financial Reporting Policy, which states that assigned fund balances are intended to be used for specific purposes through City Council budgetary actions. Intent is expressed by (a) the City Council or (b) the City Manager to which the City Council has delegated the authority to assign amounts to be used for specific purposes.
○ Unassigned Fund Balance – includes amounts within the General Fund, the residual resources, either positive or negative, in excess of what can be properly classified in one of the other four fund balance categories. Unassigned amounts are technically available for any purpose. Other governmental funds may only report a negative unassigned balance that was created after classification in one of the other four fund balance categories.

In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance categories, fund balance is depleted in the order of restricted, committed, assigned, and unassigned.
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21. Pr operty Taxes
Property taxes are collected on behalf of and remitted to the City by the County of Santa Clara (the “County”).

The amount of property tax levied is restricted by Article 13A of the California State Constitution (commonly referred to as Proposition 13). The County assesses property values, levies, bills, and collects the related property taxes as follows:

Secured Unsecured
Valuation/lien dates January 1 January 1
Levy dates October 1 July 1
Due dates (delinquent after) 50% on November 1 (December 10) July 1 (August 31) 50% on February 1 (April 10)
The City has elected to participate in the “Teeter Plan” offered by the County whereby cities receive 100% of secured property and supplemental property taxes levied in exchange for foregoing any interest and penalties collected on the related delinquent taxes. Accordingly, property taxes levied for the fiscal year are recorded as revenue when received from the County.

General property taxes are based either on a flat 1% rate applied to the fiscal 1976 full value of the property or on 1% of the sales price of the property on sales transactions and construction that occur after the fiscal 1976 valuation. The assessed value increases each year by an inflationary rate not to exceed the percentage change for the California Consumer Price Index (“CPI”), or 2%, whichever is less.

The City’s net assessed valuation for the year ended June 30, 2022, was approximately $216.2 billion, an increase of approximately 4.3% from the previous year. The City’s tax rate was approximately $0.177 per $100 of assessed valuation, which included the City’s share of the 1% basic levy and additional levies for general obligation bonds: Measures “O” and “P” (2000), Measure “O” (2002) and Measure “T” (2018).

22. W astewater Treatment System
The Wastewater Treatment System is an enterprise of the City and is comprised of the Plant, including South Bay Water Recycling and the San José Sewage Collection System. The Clean Water Financing Authority was established to provide financing for the capital programs of the Plant including the regional water reclamation program.

The Plant provides wastewater treatment services to the City and to six other sewage collection agencies.

The City’s sewer service rates pay for the City’s share of the Plant operations, maintenance, administration and capital costs.

In 1959, the City and the City of Santa Clara entered into an agreement to jointly own and operate the Plant.

Under the agreement, the City serves as the administering agency and is responsible for operating and maintaining the Plant. The cities share in the capital and operating costs on a pro rata basis determined by the ratio of each city’s assessed valuation to the sum of both cities’ assessed valuations. Annually, these percentages are determined and applied to the capital and operating costs on an accrual basis. For the year ended June 30, 2022, the City’s portion of the capital and operating costs was approximately 80.5% and the City’s interest in the net position of the Plant was approximately 80.59%. 67 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
II. Stewar dship, Compliance, and Accountability
A. De ficit Net Position
Prior to February 1, 2012, the California Redevelopment Law provided tax increment financing as a source of revenue to redevelopment agencies to fund redevelopment activities. Once a redevelopment area was adopted, the former Agency could only receive tax increment to the extent that it could show on an annual basis that it had incurred indebtedness that must be repaid with tax increment. Due to the nature of the redevelopment financing, the former Agency liabilities exceeded assets. Therefore, the Agency historically carried a deficit, which was expected to be reduced as future tax increment revenues were received and used to reduce its outstanding long-term debt. This deficit was transferred to the SARA on February 1, 2012. As of June 30, 2022, the SARA had a deficit of $1,178,055,000, which will be reduced when future redevelopment property tax revenues, are distributed from the Redevelopment Property Tax Trust Fund administered by the County of Santa Clara Auditor-Controller to pay SARA’s annual enforceable obligations.

B. De ficit Unrestricted Net Position – Governmental Activities As of June 30, 2022, the City reported a negative balance in unrestricted net position for its governmental activities in the amount of a deficit of $2,586,680,000 after accounting for net pension liabilities and net OPEB liabilities.

C. De ficit Fund Balance – Nonmajor Governmental Funds
As of June 30, 2022, the City reported a deficit fund balance of $20,000 for the Edward Byrne Memorial Justice special revenue fund, which was primarily due to the purchase of Motorola radio consoles in FY 2019.
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NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
III. De tailed Notes on All Funds

A. Cash, Deposits, and I nvestments

As of June 30, 2022, total City cash, deposits and investments, at fair value, are as follows (in thousands):

Fiduciary Funds

Governmental
Activities
Business-Type
Activities
Pension
Trust
Private-Purpose
Trust Cust odial
Carrying
Value
Equity in pooled cash and investments $ 1
,663,950 $ 7
80,603 $ -
$ 2
01 $ 7
,069 $ 2
,451,823
Cash and investments
7 -
- 2
,507
-
2,514
Restricted assets:

Equity in pooled cash and
investments 8
7,880
71,534
- -

-
159,414
Cash and investments with fiscal
agents

331,349
84,344
- 1
21,843
-
537,536
Other cash and investments 1
6,781
-
- -

- 1
6,781
Investments of retirement systems -

- 7
,626,281 -

-
7,626,281
Total deposits and investments $ 2
,099,967 $ 9
36,481 $ 7
,626,281 $ 1
24,551 $ 7
,069 $ 1
0,794,349
Deposits $ (3
8,525)
Investments 1
0,832,874
Total deposits and investments $ 1
0,794,349
Pooled Cash and Investments Held in City Treasury. The City maintains a cash and investment pool that is available for use by all funds and certain component units. All investment activities in the City’s investment pool are executed in compliance with the requirements set forth in the City of San José Investment Policy and California Government Code Section 53600 et seq. The City Council adopted an investment policy (Council Policy 1-12) related to the City’s cash and investment pool (the “Policy”) on April 2, 1985, which is subject to annual review and was reviewed and amended on March 15, 2022. The Policy specifically prohibits trading securities for the sole purpose of speculating or taking an un-hedged position on the future direction of interest rates. Per the Policy, the investments conform to the California Government Code and the applicable limitations contained within the Policy.

Each fund’s portion of this pool is displayed on the accompanying governmental fund balance sheets and proprietary fund and fiduciary fund statements of net position as “Equity in pooled cash and investments held in City Treasury.”
Other Cash and Investments. The City has other cash and investments outside the City Treasury that are invested pursuant to various governing bond covenants, San José Municipal Code or California Government Code provisions.

Other cash and investments consist primarily of deposits and investments with trustees related to the issuance of bonds and to certain loan programs operated by the City. These investments are made either in accordance with bond covenants, and are pledged for payment of principal, interest, and specified capital improvements or in accordance with trust and grant agreements.

Investments of Retirement Systems. The Retirement Systems’ funds are invested pursuant to policy guidelines established by the respective Boards. The objective of each investment policy is to maximize the expected return of the funds at an agreed upon level of risk. The Retirement Boards have established percentage guidelines for types of investments to ensure the portfolio is diversified. 69 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Investment Risk. The investments are subject to certain types of risk, including interest rate risk, credit risk, concentration of credit risk, custodial credit risk and foreign currency risk. These risks are addressed separately for the investments related to governmental and business-type activities and those related to the Retirement Systems, as follows:

1. Cash and Inv estments Managed by the City Treasurer Interest Rate Risk. Interest rate risk is the risk that changes in market rates will adversely affect the fair value of an investment. Generally, debt investments with fixed coupons for longer terms are subject to more variability in their value as a result of changing interest rates. The City manages its exposure to interest rate risk by capping the weighted average maturity of the investment portfolio at 2.5 years (or 913 days). Also, the City sets the maximum maturity for every investment at the time of purchase by asset class, with the longest not to exceed five years.

In practice, the City purchases a combination of short-term and long-term investments and times the cash flows to meet liquidity needs for operations. The weighted average days to maturity of the City’s pooled cash and investments at June 30, 2022, was approximately 533 days.

Credit Risk. Credit risk is the risk that an issuer of an investment will not fulfill its obligations to the holder of the investment. When investing, the City applies the Prudent Investor Standard and acts with care, prudence and diligence to safeguard the principal, maintain liquidity and seek reasonable yields. The City’s investment policy has strict rating requirements. The City manages credit risk by selecting high quality securities, diversifying the portfolio and establishing monitoring procedures.

Investment in Local Agency Investment Fund. The City is a voluntary participant in the California Local Agency Investment Fund (“LAIF”) that is governed by the California Government Code under the oversight of the Local Investment Advisory Board (“Board”). The Board consists of five members as designated by state statute. The fair value of the City’s investment in the LAIF pool is reported in the accompanying financial statements at amounts based upon the City’s pro-rata share of the fair value provided by LAIF, for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis, which is different from the fair value of the City’s position in the LAIF pool.

LAIF is part of the State’s Pooled Money Investment Account (“PMIA”) that allows cities, counties and special districts to place money into the fund. LAIF operating account allows a maximum of 15 transactions per account in a calendar month. The transaction amount shall be no less than $5,000 and in increments of a thousand dollars. LAIF allocates interest earnings once every quarter. The interest earnings can be withdrawn in exact amount at any time. LAIF bond accounts have no restrictions on the amounts allowed on deposit, but are limited to one withdrawal every 30 days.

At June 30, 2022, the City’s pooled and fiscal agent investments in LAIF were approximately $439,884,000 and the SARA’s investments in LAIF was $1,860,000. The weighted average days to maturity of LAIF was 311 days at June 30, 2022. The total amount recorded by all public agencies in LAIF at June 30, 2022 was approximately $36 billion. PMIA is not registered with the Securities and Exchange Commission (“SEC”), but is required to invest according to the California Government Code. The total amount recorded by all public agencies in PMIA at June 30, 2022 was approximately $235 billion and of that amount, 86.92% was invested in U.S. Treasuries and agencies, 7.82% in depository securities, 4.91% in commercial paper, and

0.35% in loans.
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Concentration of Credit Risk. Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. The City’s investment policy sets forth the guidelines regarding concentration of credit risk.

The following table identifies the investment types that are authorized by the Policy as of June 30, 2022:

Authorized Investment Type
Maximum
Maturity
Maximum Percentage
or Dollar of Portfolio
Maximu
m
Investment
in
One Issuer
U.S.

Treasury Obligations 5 years None None
U.S. Government Agency Issues 5 years None None
Supranationals 5 years 20% * None
Bankers’ Acceptances 180 days 20% * 5% *
Insured Time Deposits 3 years * 10% * FDIC Limit
Uninsured Time Deposits 18 months * 5% * 2.5% *
Commercial Paper 270 days 20% * 5% *
Negotiable Certificates of Deposit 1 year * 20% * 5% * Repurchase Agreements 92 days * 20% * 5% *
Reverse Repurchase Agreements 30 days *
Lesser of $25 million or
20% * None
Corpor
ate Medium Term Notes 5 years 30% 5% *
California Local Agency Investment Fund N/A State Treasurer Limit None Joint Powers Authority Pools N/A 20% 10%
Money Market Mutual Funds N/A 20% 10%
Municipal Bonds - Category 1 (City) 5 years 10% * 5% * Municipal Bonds - Category 2 (State of CA) 5 years 5% * 5% * Municipal Bonds - Category 3 (CA Issuers) 5 years 30% 5% * Municipal Bonds - Category 4 (Other 49 States) 5 years 30% 5% * Investment Agreements None None None
Mortgage Backed Securities (MBS) and 5 years 10%* NoneCollateralized Mortgage Obligations (CMO) Asset Backed Securities (ABS) 5 years 5% * None

* Represents where the Policy is more restrictive than the California Government Code.

Other restrictions on investments are summarized as follows:
● Pur
chases of United States government agency securities are limited to issues of Federal Agriculture Mortgage Corporation (“Farmer Mac”), Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association. Investment in Farmer Mac may not exceed 10% of the total portfolio.
● Purchases of supranationals are limited to International Bank for Reconstruction and Development, International Finance Corporation and Inter-American Development Bank. Securities shall be rated in a rating category of “AA” or its equivalent or better by Moody’s Investors Services (“Moody’s”), S&P Global Ratings (“S&P”), or Fitch Ratings (“Fitch”). If rated by more than one organization, no rating may be lower than the category described in the preceding sentence at the time of purchase. 71 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
● Purchases of bankers’ acceptances (“BAs”) are limited to issues by domestic U.S. or foreign bank branches that are licensed by federal or state governments. Foreign bank issued BAs must be dollar- denominated. Issuing banks must have a short-term rating of “P-1, A-1 or F-1” or better by two of the three nationally recognized statistical rating organizations, Moody’s, S&P , or Fitch, respectively. Long- term ratings of the bank or its holding company must be in a rating category of “A” or its equivalent or better by Moody’s, S&P , or Fitch. If rated by more than one organization, no rating may be lower than the category described in the preceding sentence at the time of purchase. ● Deposits up to 10% of the portfolio may be invested in banks and savings and loans and deposits shall not exceed the net worth of that depository. Depositories must have a short-term rating of “P-1, A-1, or F-1” or better by two of the three nationally recognized statistical rating organizations: Moody’s, S&P , or Fitch, respectively. Long-term ratings of the bank or its holding company must be rated in a rating category of “A” or its equivalent or better by Moody’s, S&P , or Fitch. If rated by more than one organization, no rating may be lower than the category described in the preceding sentence at the time of purchase. Deposits shall be either insured by the Federal Deposit Insurance Corporation (“FDIC”) or collateralized in the manner prescribed by State law for depositories. Rating requirements do not apply to depositories where the City’s deposits are fully insured by the FDIC. ● Commer
cial paper eligible for investment must be rated “P-1, A-1 or F-1” or better by two of the three nationally recognized statistical rating organizations; Moody’s, S&P , or Fitch, respectively. Issuing corporations must be organized and operating within the United States, have total assets in excess of $500,000,000 and shall issue debt, other than commercial paper, if any, that is rated in a rating category of “A” or its equivalent or better, by Moody’s, S&P , or Fitch. If rated by more than one organization, no rating may be lower than the category described in the preceding sentence at the time of purchase. ● Negotiable
certificates of deposit are limited to banks and savings and loans with an issuer short-term rating of “P-1, A-1, F-1” or better by two of the three nationally recognized statistical rating organizations:

Moody’s, S&P , or Fitch, respectively. No rating may be lower than any of the ratings listed above. The outstanding debt of the bank or its holding company must be in a rating category of “A” or its equivalent or better by Moody’s, S&P or Fitch. If rated by more than one organization, no rating may be lower than the category described in the preceding sentence at the time of purchase. ● Repurchase agreements are to be executed only with primary dealers of the Federal Reserve Bank of New York, which have entered into the City’s Master Repurchase Agreement and any subsequent amendments to the Master Repurchase Agreement. Securities accepted as collateral for the repurchase agreement are limited to U.S. Treasury or U.S. Federal Government Agencies permitted under the Policy. The market value of the securities that have been accepted as collateral shall, at the time of transfer, equal at least 102 percent of face value of the repurchase agreement. For other than overnight investments, the securities transferred shall be marked to market on a daily basis and maintained at a market value to at least 102 percent of the repurchase agreement’s face value. ● Re
verse repurchase agreements under the Policy are limited to the lesser of $25,000,000 or 20% of the portfolio value and to those occasions where unanticipated short-term cash requirements can be met more advantageously by initiating a reverse repurchase agreement than by selling a security into the secondary market prior to maturity.
● Corporate medium-term notes eligible for investment must be in a rating category of “A” or its equivalent or better by two of the three nationally recognized statistical rating organizations Moody’s, S&P , or Fitch.

No rating may be lower than the category described in the preceding sentence at the time of purchase. 72 INTRODUCTORY

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NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
● Funds invested in LAIF, a State of California managed investment pool, may be made up to the maximum dollar amount per separate legal entity in conformity with account balance limits authorized by the California State Treasurer. The current maximum amount authorized by the State Treasurer is $75 million. Also, the California State Treasurer authorized agencies receiving federal and/or state COVID-19 relief funds to deposit a maximum of $75 million in a special Emergency LAIF account. ● F
unds may be invested in a Joint Powers Authority Pool (“JPAP”) organized pursuant to Government Code Section 6509.7 that invests in the securities and obligations authorized in Section 53601.

Investments in JPAPs will be limited to the California Asset Management Program (“CAMP”) and the Investment Trust of California (“CalTRUST”). Ratings of a JPAP must be in a rating category of “AAA” or its equivalent by Moody’s, S&P or Fitch. If rated by more than one organization, no rating may be lower than the category described in the preceding sentence. No more than 10% of the portfolio shall be invested in any single JPAP . JPAPs may not exceed 20% of the City’s portfolio. ● Inv
estments in money market mutual funds are limited to those funds registered with the SEC and for which either one of the credit criteria are met: (1) obtained the highest ranking or highest letter and numerical rating provided by no less than two nationally recognized rating services or (2) retained an investment advisor registered with the SEC or exempt from the SEC registration requirements with no less than five years of experience investing in securities and obligations authorized by California Government Code Section 53601 and managing money market mutual funds with assets under management in excess of $500,000,000. Investments by the funds are restricted to U.S. Treasury and U.S. Government Agency backed securities permitted under the Policy and must be maintained at no less than $1.00 per share.
● Municipal bonds investments can be made in four categories: (1) bonds issued by the City or its agencies (as defined in the Policy), (2) by the State of California, (3) by other California local agencies, and (4) by any of the other 49 states. Eligible securities must be in a rating category of “A” or its equivalent or better by two of the three nationally recognized statistical rating organizations; Moody’s, S&P , or Fitch.

No rating may be lower than the category described in the preceding sentence at the time of purchase. ● Investment agreements may be used for the investment of bond proceeds in accordance with the permitted investment provisions of the specific bond indentures and in accordance with other safeguards outlined in the Policy to reduce the risk associated with a provider’s inability to meet its contractual obligations.
● Mor
tgage backed securities and collateralized mortgage obligations must be in a rating category of “AA“ or better by Moody’s, S&P , or Fitch. If rated by more than one organization, no rating may be lower than the category described in the preceding sentence at the time of purchase. ● Asset
backed securities must be in a rating category of “AA“ or better Moody’s, S&P , or Fitch. If rated by more than one organization, no rating may be lower than the category described in the preceding sentence at the time of purchase.

The Policy permits the Director of Finance to authorize investments that depart from the Policy’s numerical limits if such an action is in the best interest of the City and is otherwise consistent with the Policy and applicable City, state and federal laws. Whenever a deviation or exception to the Policy occurs, it must be reported to the City Manager within 3 business days and to the City Council within 10 days of its discovery. 73 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The following schedule indicates the interest rate risk, credit risk and concentration of credit risk of the City’s investments, as of June 30, 2022 (in thousands). The credit ratings listed are for Moody’s and S&P , respectively.

Maturity
Type of Investment Credit Rating
Under 30
Days
31 - 180
Days
181 - 365
Days
1 - 5
Years
Carr
ying
Value

P
ooled investments in the City Treasury:

T
reasury Notes AAA / N/A $ -

$ 1
9,952
$ -

$ 1
4,796
$ 3
4,748
Federal Home Loan Banks AAA / AA+
34,988

35,262

10,293

13,174
9 3,717
Federal Home Loan Banks - Callable AAA / AA+
-

17,333
4 16,645

433,978
Federal National Mortgage Association AAA / AA+
-

1 ,117

19,356
1 08,888

129,361
Federal National Mortgage Association - Callable AAA / AA+ -

62,149
6 2,149
Federal Farm Credit Bank Bonds AAA / AA+
-

19,819

26,148

50,087
9 6,054
Federal Farm Credit Bank Bonds - Callable AAA / AA+
-

20,250

27,330
1 34,310

181,890
Federal Home Loan Mortgage Corporation AAA / AA+
-

11,354

13,089

46,301
7 0,744
Federal Home Loan Mortgage Corporation - Callable AAA / AA+ -

4 ,925

1 57,242

162,167
Farmer Mac Interest Bearing N/A
-

20,583
2 0,583
Farmer Mac Interest Bearing-Callable N/A
-

19,710
1 9,710
Supranationals AAA / AAA
23,500

23,155

36,259
1 38,643

221,557
Corporate Medium Term Notes AAA / AAA
13,355

43,962
1 07,925
1 10,223

275,465
Negotiable Certificates of Deposit N/A
49,998

4 9,998
Asset Backed Securities AAA / AAA
-

11,367
1 1,367
Municipal Bonds AAA / AAA 2
,710

23,343

11,839
1 30,632

168,524
Money Market Mutual Funds N/A 2
72,565

272,565
California Local Agency Investment Fund Not Rated
-

85,000

8 5,000
Joint Powers Authority Pool N/A / AAA
-

2 69,000

269,000
Total pooled investments in the City Treasury 3
97,116
1 98,214
6 28,497

1,434,750

2,658,577

Inv
estments with fiscal agents:

T
reasury Notes N/A
15,020
3 ,779

1 8,799
Federal Farm Credit Banks N/A 5
,441

4 ,425

9,866
Federal Home Loan Banks N/A
-

5 ,274

5,274
Money Market Mutual Funds Aaa / AAA
35,490

3 5,490
California Local Agency Investment Fund Not Rated
-

3 54,884 - 354,884
Total investments with fiscal agents
55,951
3 ,779

3 54,884
9 ,699

424,313

T
otal Citywide investments (excluding Retirement
Systems and the SARA) $ 4
53,067
$ 2
01,993
$ 9
83,381
$ 1
,444,449

3,082,890
Trust Funds:

T
otal investments in Retirement Systems (See page 78)

7,626,281
Total investments in the SARA (See page 181)

123,703
Total investments

$ 1
0,832,874
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NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The City has the following recurring fair value measurements as of June 30, 2022 (in thousands):

Fair Value Measurement Using
Carrying Value
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable
Inputs
6/30/22 Level 1 Level 2 Level 3
Pooled Investments in the City Treasury:

Investments by fair value level
Treasury Notes $ 3 4,748 $ 3 4,748 $ - $ -
F
ederal Home Loan Banks 9
3,717
-

9 3,717

-
Federal Home Loan Banks - Callable
433,978
-

433,978

-
Federal National Mortgage Association
129,361
-

129,361

-
Federal National Mortgage Association - Callable 6
2,149
-

6 2,149

-
Federal Farm Credit Bank Bonds 9
6,054
-

9 6,054

-
Federal Farm Credit Bank Bonds - Callable
181,890
-

181,890

-
Federal Home Loan Mortgage Corporation 7
0,744
-

7 0,744

-
Federal Home Loan Mortgage Corporation - Callable
162,167
-

162,167

-
Farmer Mac Interest Bearing 2
0,583
-

2 0,583

-
Farmer Mac Interest Bearing-Callable 1
9,710
-

1 9,710

-
Supranationals
221,557
-

221,557

-
Corporate Medium Term Notes
275,465
-

275,465

-
Negotiable Certificates of Deposit 4
9,998
-

4 9,998

-
Asset Backed Securities 1
1,367
-

1 1,367

-
Municipal Bonds
168,524
-

168,524

-
Total Investments by fair value level 2
,032,012
3 4,748
1 ,997,264

Investments not subject to fair value hierarchy
Joint Powers Authority Pool 269,000 - - -
California Local Agency Investment Fund 8
5,000
-

-
Money Market Mutual Funds
272,565
-

-
Total Investments not subject to fair value hierarchy
626,565
-

-
Total Pooled Investments in the City Treasury 2
,658,577
3 4,748
1 ,997,264

Investments with fiscal agents:

Investments by fair value level
Treasury Notes 1 8,799 - 1 8,799 -
Federal Farm Credit Banks
9,866
-

9,866

-
Federal Home Loan Banks
5,274
-

5,274

-
Total Investments by fair value level 3
3,939
-

3 3,939

Investments not subject to fair value hierarchy
California Local Agency Investment Fund 354,884 - - - Money Market Mutual Funds 3
5,490
-

-
Total Investments not subject to fair value hierarchy
390,374
-

-
Total Investments with fiscal agents
424,313
-

3 3,939

Total Citywide investments (excluding Retirement
Systems and the SARA) 3 ,082,890 $ 3 4,748 $ 2 ,031,203 $ -

Trust Funds:

Total investments in Retirement Systems (See page 78) 7 ,626,281 Total investments in the SARA (See page 181) 123,703
Total investments $ 1 0,832,874
75 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Fair Value Measurement Categorization. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. Money Market Mutual Funds and LAIF are valued by net asset value. The inputs and techniques used for securities are not necessarily an indication of risk associated with investing in these securities. The City’s investments in Money Market Mutual Funds and LAIF are not subject to fair value hierarchy.

Securities classified in Level 1 of the fair value hierarchy include Treasury notes. Treasury notes are priced primarily by automated Interactive Data Corporation (IDC) institutional bond pricing with additional inputs from evaluators gathering information from market sources and integrating relative credit information, observed market movements, and sector news. All other securities in the City’s investment pool are classified in Level 2 of the fair value hierarchy. IDC applies various methodologies to price Level 2 securities depending on the asset class. For instance, US agency notes are valued by creating a bullet spread scale for each issuer with maturities going out to forty years. Municipal bonds are valued with multi-dimensional model or series matrices utilizing standard inputs including Municipal Securities Rulemaking Board (“MSRB”) reported trades and material event notices. Corporate bonds are valued with evaluators gathering information from market sources and integrating relative credit information, observed market movements, and sector news.

Mortgage backed securities are valued upon the given tranche, a cash flow stream model or an option adjusted spread model.

Custodial Credit Risk. Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the City will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker - dealer) to a transaction, the City will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code requires that a financial institution secure its deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by the depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged governmental securities and/or first trust deed mortgage notes held in the collateral pool must be at least 110% and 150% of the City’s deposits, respectively. The collateral is held by the pledging financial institution’s trust department and is considered held in the City’s name. As of June 30, 2022, the City’s deposits were collateralized at 110%. All investments in the City Treasury were in the City’s name. Neither deposits nor investments held by the City were subject to custodial credit risk.

Concentration of Credit Risk. Concentration of credit risk is the risk that the failure of any one issuer would place an undue financial burden on the City. The City mitigates the concentration of credit risk by diversifying the portfolio and limiting investments in any one issuer to a maximum weight in various asset classes.

No more than 10% of the portfolio shall be invested in aggregate of any single institution of the following types: Bankers’ Acceptances, Commercial Paper, Negotiable Certificates of Deposits, and Corporate Notes.

Investments issued by or explicitly guaranteed by the U.S. government are exempt from this requirement.

As of June 30, 2022, the City’s pooled investments in the City Treasury have investments that represent 5% or more of the total pooled investments in the following:

Federal Home Loan Bank 19.85%
Federal Farm Credit Bank 10.45%
Federal Home Loan Mortgage Corporation 8 .76%
Federal National Mortgage Association 7 .20%
76 INTRODUCTORY

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FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Foreign Currency Risk. The risk that changes in exchange rates will adversely affect the fair value of an investment. As of June 30, 2022, the City’s Policy does not permit investments in the pool to hold foreign currency; as such the investments in the City’s investment pool were not subject to foreign currency risk.

2. Ret irement Systems
Investment Policies – The City’s Municipal Code delegates authority to the Boards of Administration of PFDRP and FCERS (collectively the “Retirement Boards”) to invest monies of the respective plans as provided in the Municipal Code. Each Retirement Board has adopted detailed investment guidelines consistent with the conditions and limitations set forth in the Municipal Code.

The Board of Administration of PFDRP adopted an updated asset allocation on April 1, 2021, and the asset allocation transitioned over the next several months until a new investment policy was approved on May 5, 2022. The asset allocation was prepared to align with the long-term expected returns of the underlying asset classes and PFDRP’s adopted actuarial assumed rate of return as utilized in the June 30, 2021 actuarial valuation.

The PFDRP’s investment allocation for the Defined Benefit Pension Plan is as follows:

PFDRP - Pension
Asset Class
Target
Asset Allocation Asse t Class
Target
Asset Allocation
Public equity 4

2.0% Private real assets 4.0%
Private equity 9.0% Venture / growth capital 4.0%
Cash and cash equivalents 8.0% Market neutral strategies 3.0% Core real estate 5.0% Emerging market bonds 2.0%
Immunized cash flows 5.0% High yield bonds 2.0%
Investment grade bonds 4.5% Treasury inflation-protected securities 2.0% Growth real estate 4.0% Long-term government bonds 1.5% Private debt 4.0%

The PFDRP’s investment allocation for the Postemployment Healthcare Plan is as follows:

PFDRP - Postemployment Healthcare
Asset Class
Target
Asset Allocation
Public equity 58%
Investment grade bonds 14%
Core real estate 12%
Short-term investment grade bonds 6 %
Commodities 5 %
Long-term government bonds 5 %
77 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The FCERS Defined Benefit Pension Plan investment policy was updated and approved by the FCERS’ Board of Administration on May 19, 2022, with the asset allocation being updated and approved on March 18, 2021. The asset allocation was prepared to align with the long-term expected returns of the underlying asset classes and the FCERS’ adopted actuarial assumed rate of return as utilized in the June 30, 2021 actuarial valuation.

The FCERS’ Defined Benefit Pension Plan investment asset allocation is as follows:

FCERS - Pension
Asset Class
Target
Asset Allocation Asse t Class
Target
Asset Allocation
Public equity 4
9% Emerging market bonds 3%
Private equity 8% Private debt 3%
Investment grade bonds 8% Market neutral strategies 3% Core real estate 5% Private real assets 3%
Immunized cash flows 5% Long
-
term government bonds 2%
Venture / growth capital 4% Treasury inflation-protected securities 2% Growth real estate 3% High yield bonds 2%

The FCERS Postemployment Healthcare Plan investment policy and asset allocation were updated and approved by the FCERS’ Board of Administration on January 20, 2022 and April 21, 2022, respectively. The asset allocation was prepared to align with the long-term expected returns of the underlying asset classes and the FCERS’ adopted actuarial assumed rate of return as utilized in the June 30, 2021 actuarial valuation.

FCERS - Postemployment Healthcare
Asset Class
Target
Asset Allocation
Public equity 5
8%
Investment grade bonds 14%
Core real estate 12%
Short-term investment grade bonds 6%
Commodities 5%
Long-term investment grade bonds 5%
78 INTRODUCTORY

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FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
At June 30, 2022, the Retirement Systems held the following investments (in thousands):

PFDRP FCERS Total
Securities and other:

Fixed income:

Investment grade bonds $ 2 37,409 $ 2 86,165 $ 5 23,574 Immunized cash flows

169,477
6 8,748

238,225
Emerging market bonds
9 0,800
8 3,707

174,507
Long
-
term government bonds
8 1,661
6 7,699

149,360
Private debt

157,688
8 6,401

244,089
Treasury inflation
-
protected securities
9 0,484
5 6,963

147,447
High yield bonds
8 3,029
5 1,453

134,482
Cash and cash equivalents

419,417
6 0,314

479,731
Short
-
term investment grade bonds
1 2,648
1 2,772
2 5,420
Total fixed income

1,342,613

774,222
2 ,116,835
Commodities
1 2,509
1 6,813
2 9,322
Core real estate

258,353

176,552

434,905
Growth real estate

195,890

101,938

297,828
Venture / growth capital
3 2,512
1 3,948
4 6,460
Market neutral strategies

141,458
8 5,780

227,238
Private equity

397,297

365,199

762,496
Private real assets
7 8,529
4 9,534

128,063
Public equity

2,157,941

1,425,193
3 ,583,134
Total investments

$ 4
,617,102
$ 3
,009,179
$ 7
,626,281
Investments are subject to certain types of risks, including interest rate risk, custodial credit risk, credit quality risk, foreign currency risk, and concentration of credit risk. The following describes those risks:

Market Risk - General market risk factors exist that could cause depreciation or appreciation of the Retirement Systems’ investment portfolio. These risks include general, economic, political and regulatory risks. The Retirement Systems’ investments may be impacted by changes caused by global and domestic market conditions and industry-specific economic and regulatory conditions.

Interest Rate Risk – The fair value of fixed income investments fluctuates in response to changes in market interest rates. Increases in prevailing interest rates generally translate into decreases in fair value of those instruments. The fair value of interest-sensitive instruments may also be affected by the creditworthiness of the issuer, prepayment options, and other general interest rate conditions. Certain fixed income investments have call provisions that could result in shorter maturity periods. The Retirement Systems’ do not have a policy regarding interest rate risk.
79 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The following tables provide the segmented time distribution for fixed income investments based on expected maturity (in months and years) as of June 30, 2022 (in thousands):

PFDRP

0 - 3
months
3 - 6
months
6 months -
1 year 1 - 5 y ears 5 - 10 years
More than
10 years
Total Fair
Value Cost
Investment grade bonds $ -

$ -

$ 2
,499

$ 6
0,088
$ 3
1,232
$ 1
43,590
$ 2
37,409
$ 2
57,221
Immunized cash flows 8
,283

9 ,061

2 1,815
1 30,318

1 69,477
1 78,788
Treasury inflation-protected
securities 4
,912

1 1,228

74,344

90,484

93,513
High yield bonds
-

3 5

579

25,887

4 6,338
1 0,190

83,029

96,574
Long-term government bonds
-

8 1,661

81,661

1 02,651
Private debt* 6
,231

6 ,231

8 ,331
Total fixed income $ 1
9,426
$ 9
,096

$ 3
6,121
$ 2
90,637
$ 7
7,570
$ 2
35,441
$ 6
68,291
$ 7
37,078

FCERS

0 - 3
months
3 - 6
months
6 months -
1 year 1 - 5 y ears 5 - 10 years
More than
10 years
Total Fair
Value Cost
Investment grade bonds $ -

$ -

$ 1
,176

$ 1
04,141
$ 1
8,757
$ 1
62,091
$ 2
86,165
$ 3
08,149
Immunized cash flows 6
,501

6 ,689

1 6,479

39,079

68,748

71,581
Treasury inflation-protected
securities
3 ,090

7 ,100

46,773

56,963

59,275
High yield bonds
-

2 2

357

16,035

2 9,221
5 ,818

51,453

59,971
Long-term government bonds
-

6 7,699

67,699

87,981
Private debt* 6
,231

6 ,231

8 ,701
Total fixed income $ 1
5,822
$ 6
,711

$ 2
5,112
$ 2
06,028
$ 4
7,978
$ 2
35,608
$ 5
37,259
$ 5
95,658

* Total fair value for this security is a combination of fixed income and separately managed accounts. The separately managed accounts are not included in this table.

Custodial Credit Risk – Custodial credit risk is the risk that the Retirement Systems will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party, if that outside party fails. The Retirement Systems do not have a policy regarding custodial credit risk. As of June 30, 2022, all of the Retirement Systems’ investments are held in the Retirement Systems’ name and are not exposed to custodial credit risk.

Credit Quality Risk – The Retirement Systems’ investment policy allows for investments in a wide variety of domestic and international debt securities that may carry a high rating, low rating, or be unrated. Generally credit risk is managed through establishing investment guidelines for every investment manager. Investment managers may, as part of their investment strategy, invest in securities where the issuer’s ability or willingness to pay is limited. At times, these debt securities may be converted into other debt, equity, or hybrid securities that have different risk and return characteristics than the securities initially purchased. The Retirement Systems may hedge against the possible adverse effects of currency fluctuations on the Retirement Systems’ portfolio of international fixed income obligations when it is considered appropriate. This is typically achieved using forward currency contracts. Short-term investments may consist of commercial paper rated at least A-1 or P-1, repurchase agreements, short-term U.S. securities, and other money market investments. Nationally recognized statistical rating organizations provide ratings of debt securities’ quality based on a variety of factors, such as the financial condition of the issuers, which provide investors with some idea of the issuer’s ability to meet its obligations. 80 INTRODUCTORY

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FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The table provides information for the portfolios as of June 30, 2022 concerning credit risk (in thousands) and reflect only securities held in the Retirement Systems’ names.

PFDRP FCERS
S&P Quality Rating Fair Value
Fair Value as a % of
Total Fixed Income F air Value
Fair Value as a % of
Total Fixed Income
AAA $ 3
64,887

54.60% $ 1
39,111

25.89%
AA+ 3
7,548 5
.62%
682 0
.13%
AA
614 0
.09% -
0 .00%
AA- 2
,413 0
.36% 1
,028 0
.19%
A+ 2
,647 0
.40% 1
,246 0
.23%
A 3
,884 0
.58% -
0 .00%
A- 8
,878 1
.33% -
0 .00%
BBB+ 1
3,455 2
.01%
586 0
.11%
BBB 1
7,777 2
.66% -
0 .00%
BBB- 2
1,350 3
.19% 2
,041 0
.38%
BB+ 1
1,088 1
.66%
100 0
.02%
BB 1
0,823 1
.62% -
0 .00%
BB- 1
8,567 2
.78%
474 0
.09%
B+ 1
0,782 1
.61%
409 0
.08%
B 1
2,295 1
.84%
274 0
.05%
B- 5
,951 0
.89% 5
3 0
.01%
CCC+ 6
,038 0
.90% -
0 .00%
CCC 2
,696 0
.40% -
0 .00%

CCC- -
0 .00% -
0 .00%
CC -
0 .00% -
0 .00%
D 6
8 0
.01% -
0 .00%
Not Rated
116,530

17.45%
391,255

72.82%
Total $ 6
68,291 1

00.00% $ 5
37,259 1

00.00%
Foreign Currency Risk – This is the risk that changes in the exchange rates will adversely affect the fair value of underlying investments. To mitigate this risk, the Retirement Systems’ investment policies permit individual investment managers to mitigate the impact of currency fluctuation on the underlying asset value.

The Retirement Systems’ investment managers enter into international forward currency contracts, which are commitments to purchase or sell stated amounts of international currency. The Retirement Systems utilize these contracts to control exposure and facilitate the settlement of international security purchase and sale transactions. At June 30, 2022, the Retirement Systems’ net positions in these contracts are recorded at fair value as international currency contract investments. The fair values of international currency contracts are determined by quoted currency prices from national exchanges. The Retirement Systems’ commitments relating to international currency contracts are settled on a net basis. 81 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The following tables provide information as of June 30, 2022, concerning the fair value of investments that are subject to foreign currency risk (in thousands):

PFDRP
Currency Name Cash Public Equity Growth Real Estate Total Exposure Australian dollar $ -
$ 5
,736
$ -
$ 5
,736
Canadian dollar -
1 1,500 -

11,500
Danish krone -

6,769 -
6 ,769
Euro currency -
7 1,013 4
1,196 1
12,209
Hong Kong dollar -

7,802 -
7 ,802
Japanese yen
147 1
6,717 -

16,864
Norwegian krone -

2,491 -
2 ,491
Swedish krona -

3,659 -
3 ,659
Swiss franc
208 3
5,062 -

35,270
United Kingdom pound 4
6 3
7,834 -

37,880
Total $ 4
01 $ 1
98,583 $ 4
1,196 $ 2
40,180

FCERS
Currency Name Cash Public Equity Private Equity
Growth Real
Estate Total Exposure
Australian dollar $ -
$ 3
,962
$ -
$ -
$ 3
,962
Canadian dollar -

7,330 -
-
7 ,330
Danish krone -

3,359 -
-
3 ,359
Euro currency -
3 8,330
689 2
2,774
61,793
Hong Kong dollar -

3,733 -
-
3 ,733
Japanese yen 7
6 9,746 -
-
9 ,822
Norwegian krone -

1,655 -
-
1 ,655
Swedish krona -

2,190 -
-
2 ,190
Swiss franc -
1 8,031 -
-

18,031
Taiwanese new dollar 2
6 -
-
-
2 6
United Kingdom pound 2
5 2
0,862 -
-

20,887
Total $ 1
27 $ 1
09,198 $ 6
89 $ 2
2,774 $ 1
32,788
Investment Concentration Risk – The Retirement Systems’ investment policies specify that investments shall be diversified with the intent to minimize the risk of large investment losses. The total portfolio shall be constructed in a way to provide prudent diversification with regard to the concentration of holdings in individual asset classes, issues, issuers, geographies or industries. In addition, assets will be assigned to a variety of investment managers that employ a range of investment management strategies. No single investment management firm shall be authorized to manage more than 15% of the applicable plan’s assets without approval by the applicable Retirement Board, with the exception of passive management, where the applicable plan’s assets are not held in the applicable plan’s name at the applicable plan’s custodial bank.

In such cases, there is no concentration limit.

Derivative Instruments – The Retirement Systems’ investment policies allow for investments in derivative instruments that comply with the Retirement Systems’ objectives of providing a cost-effective means of managing portions of a portfolio and to manage risk through hedging activities. The Retirement Systems are currently authorized to use derivative instrument strategies to equitize cash during portfolio transitions until physical securities are in place and to reproduce or replicate a physical holding that corresponds to the applicable Retirement Board’s approved policy benchmark. In addition to the Retirement Systems’ internal derivative instrument policies, it is understood that the mandates of certain investment managers retained by the Retirement Systems may use derivative instruments.

Derivative instruments are reported at fair value. Derivative instruments traded on a national or international exchange are valued at the last reported sales price on the last business day of the fiscal year at current exchange rates, if applicable. Futures contracts are marked-to-market at the end of each trading day, and the settlement of gains or losses occur on the following business day through variation margins. As a result, 82 INTRODUCTORY

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FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
futures have no fair value as of June 30, 2022. The fair value of international currency forwards represents the unrealized gain or loss on the related contracts, which is calculated based on the difference between the specified contract exchange rate and the exchange rate at the end of the reporting period.

In March 2020, GASB issued Statement No. 93, Replacement of Interbank Offer Rates. GASB 93 addresses upcoming changes and the eventual removal of a global reference rate called LIBOR (London Interbank Offered Rate) which is often used as a reference rate for variable and derivative instruments. GASB 93 addresses allowable exceptions to existing contracts and agreements where LIBOR can be replaced with another IBOR without needing a new contract. GASB 93 also identifies the SOFR (Secured Overnight Financing Rate) and the FFR (Federal Funds Rate) as benchmarks for evaluating interest rate swaps. Finally, GASB 93 modifies lease agreements to allow for a change in the IBOR without being considered a modification to a lease. The Retirement Systems do not expect GASB 93 to significantly impact the financial statements as the Retirement Systems do not have any direct exposure to derivative instruments tied to LIBOR as of June 30, 2022.

The fair values and notional amounts for derivative instruments outstanding as of June 30, 2022, classified by type, and the changes in fair value of such derivative instruments for the year then ended as reported in the financial statements are as follows (in thousands):

PFDRP

Net Appreciation/(Depreciation) in Fair Value
of Investments through June 30, 2022 Fair Value at June 30, 2022 Investment Derivative Instruments Classification Amount Classification Amount Notional
Amount/Shares
Fixed income futures long Investment income $ (6
,240)

Futures $ -

1 5,215
Fixed income futures short Investment income
183
Futures -

(1
7,102)
FX forwards Investment income (4
19)

Long-term instruments -

$ 3
72 Index futures long Investment income
1,102
Futures -

9,561
Index futures short Investment income
724
Futures -

(7
,314)
Total derivative instruments $ (4
,650)

$ -

FCERS

Futures $ -

4 9,331
Fixed income futures short Investment income
218
Futures -

(9
,752)
FX forward Investment income (2
70)

Long-term instruments -

$ 2
61 Index futures long Investment income (4
,528)

Futures -

5,198
Index futures short Investment income (3
69)

Futures -

(8
,818)
Total derivative instruments $ (7
,342)

$ -

Investment derivative instruments are also subject to counterparty credit risk (non-exchange traded). The following describes the risks applicable to the investment derivative instruments that are reported as of June 30, 2022.

Counterparty Credit Risk – The Retirement Systems are exposed to credit risk on derivative instruments that are in asset positions and non-exchange traded. The Retirement Systems’ investments in forward currency contracts bear counterparty credit risk in that parties to the contracts may fail to perform according to the terms of the contract.

As of June 30, 2022, PFDRP’s total commitments in forward currency contracts to purchase and sell international currencies were $372,000, with fair values of $372,000 and $372,000, respectively, held by counterparties with an S&P rating of at least AA-.
83 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
As of June 30, 2022, FCERS’ total commitments in forward currency contracts to purchase and sell international currencies were $261,000, with fair values of $261,000 and $261,000, respectively, held by counterparties with an S&P rating of AA and above.

Fair Value Measurements – The Retirement Systems categorize their fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure an asset’s fair value and gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for an asset or liability, either directly or indirectly. Inputs to the valuation include: 1) quoted prices for similar assets or liabilities in active markets; 2) quoted prices for identical or similar assets or liabilities in markets that are not active; 3) inputs other than quoted prices that are observable for the asset or liability; and 4) market- corroborated inputs.

Level 3 inputs are unobservable inputs for an asset or liability where there are little market activities. The inputs into the determination of fair value are based upon the best information in the circumstances and may require management judgment or estimation.
84 INTRODUCTORY

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FOR THE YEAR ENDED J UNE 30, 2022

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FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The Retirement Systems have the following recurring fair value measurements as of June 30, 2022:

PFDRP Fair Value Measurement Using
(In Thousands) Total Level 1 Level 2 Level 3
Net Asset
Value (NAV)
Investments by fair value level
Public equity $ 2
,157,941 $ 4
28,788 $ -
$ -
$ 1
,729,153
Cash and cash equivalents 4
19,417 4
19,417
-

-
Private equity 3
97,297
-

30,339 3
66,958
Core real estate 2
58,353
-

-
2 58,353
Investment grade bonds 2
37,409 1
63,511
38,294
-

35,604
Growth real estate 1
95,890
-

-
1 95,890
Immunized cash flows 1
69,477
92,882
76,595
-

-
Private debt 1
57,688
-

-
5 ,721 1
51,967
Market neutral strategies 1
41,458
-

-
1 41,458
Emerging market bonds
90,800
-

90,800
Treasury inflation-protected securities
90,484
90,484
-

-
High yield bonds
83,029
74,566
-

-
8 ,463
Long-term government bonds
81,661
-

81,661
Private real assets
78,529
-

78,529
Venture / growth
32,512
-

32,512
Short-term investment grade bonds
12,648
12,648
-

-
Commodities
12,509
-

12,509
Total investments measured at fair value level
$
4,617,102

$
1,282,296

114,889

36,060

3,183,857

FCERS Fair Value Measurement Using
(In Thousands) Total Level 1 Level 2 Level 3
Net Asset
Value (NAV)
Investments by fair value level
Public equity $ 1
,425,193 $ 2
68,402 $ -
$ -
$ 1
,156,791
Private equity 3
65,199
-

30,339 3
34,860
Investment grade bonds 2
86,165
87,988
38,575
-
1 59,602
Core real estate 1
76,552
-

-
1 76,552
Growth real estate 1
01,938
-

-
1 01,938
Private debt
86,401
-

-
6 ,250

80,151
Market neutral strategies
85,780
-

85,780
Emerging market bonds
83,707
-

83,707
Immunized cash flows
68,748
35,335
33,413
-

-
Long-term government bonds
67,699
-

67,699
Cash and cash equivalents
60,314
60,314
-

-
Treasury inflation-protected securities
56,963
56,963
-

-
High yield bonds
51,453
46,580
-

-
4 ,873
Private real assets
49,534
-

49,534
Commodities
16,813
-

16,813
Venture / growth
13,948
-

13,948
Short-term investment grade bonds
12,772
12,772
-

-
Total investments measured at fair value $
3,009,179

568,354

71,988

36,589

2,332,248
Equity and Fixed Income Securities
Equity securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets issued by pricing vendors for these securities. Debt and equity securities classified in Level 2 of the fair value hierarchy are valued using prices determined by matrix pricing techniques maintained by the various pricing vendors for these securities. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices for similar securities that are observable in the marketplace.

Debt and equity securities classified in Level 3 are securities whose inputs to valuation techniques are unobservable by the marketplace. Many of these securities are priced by the issuers or industry groups for these securities. Fair value is defined as the quoted market value on the last trading day of the period. These prices are obtained from various pricing sources by the custodian bank for PFDRP or FCERS as applicable. 85 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Alternative Investments
For both Retirement Systems, alternative investments include public equity, private equity, core real estate, investment grade bonds, growth real estate, high yield bonds, market neutral strategies, emerging market bonds, commodities, private debt, venture capital, long-term government bonds and private real assets.

These are investments for which exchange quotations are not readily available and are valued at estimated fair value, as determined in good faith by the General Partner (“GP”) of each investment firm retained by the Retirement Systems. These investments are initially valued at cost with subsequent adjustments that reflect third party transactions, financial operating results and other factors deemed relevant by the GP . The assets in the Retirement Systems’ alternative investment programs are classified as Level 3 assets or at the NAV Level. A more detailed explanation of the Level 3 and NAV valuation methodologies follows.

Investments in non-public equity securities are valued by the GP using one or more valuation methodologies outlined in GASB Statement No.72, Fair Value Measurement and Application, depending upon the availability of data required by each methodology. In some cases, the GP may use multiple approaches to estimate a valuation range. For the immediate time period following a transaction, the determination of the fair value for equity securities, in which no liquid trading market exists, can generally be approximated based on the transaction price (absent any significant developments). Thereafter, or in the interim, if significant developments relating to such portfolio company or industry occur which may suggest a material change in value, the GP should value each investment by applying generally accepted valuation methods including:
(1) the market approach (such as market transaction and comparable public company multiples, which are based on a measurement of the company’s historical and projected financial performance with typical metrics including enterprise value / latest 12 months earnings before interest, taxes, depreciation and amortization (“EBITDA”) or projected fiscal year EBITDA) or (2) the income or discounted cash flow approach.

The determination of fair value using these methodologies should take into consideration a range of factors, including but not limited to, the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. Because of the subjective nature of estimated fair value of the private investments, such value may differ significantly from the values that would have been used had a ready market existed for these investments. These financial instruments have been classified as Level 3 or NAV in the fair value hierarchy, provided that the NAV is calculated and used as a practical expedient method to estimate fair value in accordance with GAAP requirements. These investments are not categorized within the fair value hierarchy. 86 INTRODUCTORY

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FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The following tables present the category, fair value, unfunded commitments, redemption frequency and redemption notice period for investments for which fair value is presented using the NAV as of June 30, 2022:

PFDRP
Investments Measured at the NAV
as of June 30, 2022 (In Thousands) F air Value
Unfunded
Commitments
Redemption Frequency
(if Currently Eligible)
Re
demption Notice
Period
Public equity $ 1
,729,153
$ -

Daily, Weekly, Monthly 1 - 30 Days
Private equity
366,958
1 23,069
Daily, N/A 1 Day, N/A
Core real estate
258,353

65,500
Q
uarterly 90 Days
Investment grade bonds 3
5,604

-
Daily 1
- 3 Days
Growth real estate
195,890

99,400

N/A N/A
Priv
ate debt
151,967
1 64,000

N/A N/A
Market neutral strategies
141,458

-
Monthly
, Bi-Annual 45 - 60 Days
Emerging market bonds 9
0,800

-
Daily
, Quarterly 1 - 45 days
High yield bonds
8,463

-
Daily 3
Days
Long-term government bonds 8
1,661

-
Daily 3
Days
Private real assets 7
8,529

52,200

N/A N/A
V
enture / growth 3
2,512

52,200

N/A N/A
Commodities 1
2,509

-
Daily 3
Days
Total investments measured at the NAV $

3,183,857
$

556,369

FCERS
Investments Measured at the NAV
as of June 30, 2022 (In Thousands) F air Value
Unfunded
Commitments
Redemption Frequency
(if Currently Eligible)
Re
demption Notice
Period
Public equity $ 1
,156,791
$ -

Daily, Weekly, Monthly 1 - 30 Days
Private equity
334,860

99,559
Daily
, N/A 1 Day, N/A
Core real estate
176,552

44,700
Q
uarterly 90 Days
Investment grade bonds
159,602

-
Daily 1
- 3 Days
Growth real estate
101,938

54,000

N/A N/A
Mark
et neutral strategies 8
5,780

-
Monthly
, Bi-Annual 45 - 60 Days
Emerging market bonds 8
3,707

-
Daily
, Quarterly 1 - 45 Days
Private debt 8
0,151

53,000

N/A N/A
Long-term go
vernment bonds 6
7,699

-
Daily 3
Days
Private real assets 4
9,534

32,900

N/A N/A
Commodities 1
6,813

Daily 3 Days
Venture / growth 1
3,948

49,100

N/A N/A
High
yield bonds
4,873

-
Daily 3
Days
Total investments measured at the NAV $

2,332,248
$

333,259

Public equity
Public equities are shares of ownership of a firm listed on an exchange; the Retirement Systems hold global public equities in order to benefit from their total return (capital appreciation plus current yield) over a long-term horizon. The commingled funds liquidity ranges from daily to monthly and the notice periods are between one day and thirty days.

Private equity
This type generally invests in privately held companies. These investments cannot be redeemed early from the funds. Instead, the nature of the investments in this type is that distributions are received through the liquidation of the underlying assets of the fund. The only way to exit these funds is through a sale in a secondary market. The commingled investment offers daily liquidity with a one-day notice.

Core real estate
This type includes investments in open-ended real estate commingled funds. Core real estate funds typically invest in physical properties. The goal of core real estate is to produce price appreciation and income while 87 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
maintaining a low correlation to stocks and bonds held by the Retirement Systems. The open-ended real estate funds offer quarterly redemptions with notice periods of three months.

Investment grade bonds
The purpose of investment grade bonds is to produce returns and income for the Retirement Systems by providing exposure to rates and credit risk. The commingled funds offer daily liquidity with a notice period of one to three days.

Growth real estate
The goal of growth real estate is to produce price appreciation and income for the Retirement Systems while maintaining a low correlation to stocks and bonds. The only way to exit these funds is through a sale in a secondary market.

Private debt
This type includes investments in private debt limited partnership funds. These investments cannot be redeemed early from the funds. Instead, the nature of the investments in this type is that distributions are received through the liquidation of the underlying assets of the fund. The only way to exit these funds is through a sale in a secondary market.

Market neutral strategies
This type includes investments in limited partnership hedge funds that invest both long and short in a wide array of securities, including listed and OTC derivative instruments, and typically use leverage and hedging to capture directional market movements or relative market mispricing. The redemption frequencies range from monthly to bi-annual with notice periods of forty-five days to sixty days.

Emerging market bonds
Emerging market bonds funds typically invest in contractual cash flows of governments and other sovereign entities, corporations, securitizations, and derivative instruments thereof in emerging market countries with a sovereign rating less than BBB-. One partnership has a quarterly redemption period with a notice period of 45 days; the other has a daily redemption period with one-day notice period.

High yield bonds
The primary purpose of high yield bonds is to provide the Retirement Systems exposure to high yielding corporate debt. The commingled fund offers daily liquidity with a notice period of three days.

Long-term government bonds
The purpose of long-term government bonds is to provide a positive return in highly stressed market environments, with a low correlation to equity risk. The commingled fund offers daily liquidity with a notice period of three days.

Private real assets
Private real assets are physical or tangible assets that have value due to their substance and properties.

The goal of real assets is to help the portfolio maintain purchasing power through periods of inflation. The only way to exit these funds is through a sale in a secondary market. 88 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Venture capital
This type includes investments in venture capital limited partnership funds, which generally invest in early stage privately held companies. These investments cannot be redeemed early from the funds. Instead, the nature of the investments in this type is that distributions are received through the liquidation of the underlying assets of the fund. The only way to exit these funds is through a sale in a secondary market.

Commodities
Commodities are physical or tangible assets that have value due to their substance and properties. The goal of commodities is to help the portfolio maintain purchasing power through periods of inflation. The commodities funds offer daily liquidity with three business days’ notice. 89 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
B. Re ceivables, Net of Allowances

At June 30, 2022, receivables of the City’s major individual funds and nonmajor funds taken in aggregate, including the applicable allowance for uncollectible accounts, are as follows (in thousands):

Receivables - Governmental
Activities:

General
Fund
Housing
Activities
Low and
Moderate
Income
Housing
Asset
Special
Assessment
Districts
San José
Financing
Authority
Debt Service
Nonmajor
Funds
Internal
Service
Funds
Total
Governmental
Activities
Taxes $ 7
1,140
$ -
$ -

$ 8
60 $ - $ 9 ,914 $ - $ 8 1,914
Accrued interest 2
,105

402

450
8 1
- 3 ,085 46 6 ,169
Grants 3
,724
8 ,501
-

-
- 32,797 - 45,022
Other
69,291

419

1 727

145 27,893 3 73 98,849
Less: allowance for
uncollectibles (3
4,339)

(2
)

(4
)

- (3 ,047) (9 ) (3 7,401)
Total receivables, net $ 1
11,921
$ 9
,320
$ 4
51 $ 1
,664
$ 1
45 $ 7 0,642 $ 4 10 $ 1 94,553

Receivables - Business-Type
Activities:

Norman
Y. Mineta
San José
International
Airport
Wastewater
Treatment
System
Municipal
Water
System
Parking
System
San José
Clean
Energy
Total
Business-
Type
Activities
Accounts $ 2
3,646
$ 5
,420
$ 1
3,974
$ 1
22 $ 9
2,777
$ 1
35,939

Accrued interest
732
1 ,162
9 5

119
7 4
2 ,182

Grants 9
,378

-
9 ,378

Other
129

129

Less: allowance for
uncollectibles (6
53)

(3
88)

(1
,160)

(1
4)

(1
4,619)

(1
6,834)

Total receivables, net $ 3
3,232
$ 6
,194
$ 1
2,909
$ 2
27 $ 7
8,232
$ 1
30,794

90 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
C. L oans Receivable, Net of Allowances

The composition of the City’s loans receivable balance for governmental funds, net of the allowance for uncollectible accounts, as of June 30, 2022 is as follows (in thousands):

Type of Loan General Fund
Housing
Activities
Low and
Moderate Income
Housing Asset
Nonmajor
Governmental
Funds
Total
Governmental
Activities

Housing Program Developer, rehabilitation,
second mortgage and relocation loans $ -
$ 4
1,225
$ 4
68,118
$ -
$ 5
09,343
Loans funded by federal grants
-

8 1,851
-

4,214
8 6,065
Economic development, real estate
developer and other loans 1
,241

-
-
-

1,241
Less: allowance for uncollectibles
-

(6
2,541)

(2
48,106)
(1
,788)

(3
12,435)
Total loans, net $ 1
,241

$ 6
0,535
$ 2
20,012
$ 2
,426
$ 2
84,214

The City uses funds generated from the loan repayment program income as well as other state and federal funding sources to offer financial assistance to qualified developers, individuals, and families by providing loans at “below market” interest rates.

Typical loans and related terms are summarized as follows:

Loan Type Interest Rates Due
New construction and permanent 0 - 4% up to 55 years
Multi-unit rental rehabilitation 3% 5 or more years
First time home buyer 4% 7 to 40 years
Home improvement 3 - 6% 1 to 30 years
Loans are secured by first, second, third or lower in lien-property deeds of trust except for first time homebuyer loans, which are all secured by second deeds of trust. Interest and principal are typically due in installments, except for first time homebuyer loans, which do not require payments until their maturity dates.

The City has also invested in multi-family rental housing projects serving very low to moderate income individuals through subordinate loans with terms of up to 55 years. Generally, these loans are to be repaid through fixed payments or net cash flow payments from project operations and the term and potential risk of each loan varies. Because of the net cash flow feature of these subordinate loans, there is greater risk of variability in the timing of payments and, potentially, a lower probability of eventual repayment on these subordinate loans than on other loan types.

The City maintains a valuation allowance against loans receivable comprised of an allowance for risk and an allowance for present value discount. The allowance for risk is maintained to provide for losses that can be reasonably anticipated. The allowance is based upon continuing consideration of changes in the character of the portfolio, evaluation of current economic conditions, and such other factors that, in the City’s judgment, deserve recognition in estimating potential loan losses. The allowance for risk takes into consideration maturity dates, interest rates, and other relevant factors.

In accordance with City policy, loans are funded at below market rates of interest and include amortized net cash flow deferred repayment terms. This policy exists to enhance the well-being of the recipients or beneficiaries of the financial assistance, who, as described above, are very low, low, or moderate-income individuals or families, or developers of housing for such individuals or families. 91 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Accordingly, for financial statement purposes, the City has established an allowance account against the loans receivable balance containing a present value discount. The present value discount gives recognition to the economic cost of providing loans at interest rates below market, and represents an estimate of the present value of projected net cash flows to the City from the loan portfolio. The present value discount attributable to the loans will be recognized as interest income only as such loans are repaid in full because of the deferred nature of the loan portfolio and the high level of uncertainty relating to the likelihood that cash flows will occur as projected. The difference between the individual outstanding loan balances and the calculated net present value of the loans results in the allowance for present value discount. Losses are recognized as an addition to the allowance and any subsequent recoveries are deducted from the allowance.

The City’s management believes the combined amount of the aforementioned risk and present value discount allowances is adequate to reflect the net realizable value of the Community Development Block Grant (“CDBG”) loans, Home Investment Partnership Program (“HOME”) loans, and Low and Moderate Income Housing Asset Fund loans receivable as of June 30, 2022.

In the normal course of operations for housing programs, the City has outstanding commitments to extend credit, which have been encumbered as of June 30, 2022. These commitments involve elements of credit and interest rate risk similar to those described above for outstanding loans receivable. As of June 30, 2022, amounts committed to extend credit under normal lending agreements totaled approximately $50,793,000. 92 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
D. Capital Asse ts

1. Summar y Schedule

The following is a summary of capital assets activity for the year ended June 30, 2022 (in thousands):

Balance
July 1, 2021 Additions De letions Transfers
Balance
June 30, 2022
Go
vernmental activities:

Capital assets, not being depreciated:

Land $ 5
42,184
$ 8
,435
$ 9
43 $ -
$ 5
49,676
Construction in progress 1
37,876

37,994
-
(3
4,404)

1 41,466
Total capital assets, not being depreciated 6
80,060

46,429

943
(3
4,404)

6 91,142
Capital assets, being depreciated:

Buildings 1
,668,576

1,538
8 ,311
1 ,675,349
Improvements, other than buildings 3
15,949

5 -

12,444
3 28,398
Infrastructure
11,598,177
6 ,999
-

13,649

11,618,825
Vehicles and equipment 1
79,822

13,348

6,136

-
1 87,034
Furniture and fixtures 1
,302

-
3 7

-
1 ,265
Right to use assets: Buildings* 6
,363

-
-

-
6 ,363
Total capital assets, being depreciated
13,770,189

20,352

7,711

34,404

13,817,234
Less accumulated depreciation for:

Buildings (7
64,177)
(4
0,109)

445

-
(8
03,841)
Improvements, other than buildings (8
0,926)

(1
0,398)

-
(9
1,324)
Infrastructure (8
,435,553)

(1
63,636)
-

-
(8
,599,189)
Vehicles and equipment (1
26,704)
(1
9,008)

5,699

-
(1
40,013)
Furniture and fixtures (9
02)

(6
1)

2 3

-
(9
40)
Right to use assets: Buildings
-
(1
,564)

-
(1
,564)
Total accumulated depreciation (9
,408,262)

(2
34,776)

6,167

-
(9
,636,871)
Total capital assets, being depreciated, net 4
,361,927
(2
14,424)

1,544

34,404
4 ,180,363
Governmental activities capital assets, net $ 5
,041,987
$ (1
67,995)
$ 2
,487
$ -
$ 4
,871,505
Business-type Activities:

Capital assets, not being depr
eciated:

Land $ 1
37,938
$ -
$ -
$ -
$ 1
37,938
Intangible assets
12,882

-
-

12,882
Construction in progress 4
86,870
1 61,847

172
(7
,860)

6 40,685
Total capital assets, not being depreciated 6
37,690
1 61,847

172
(7
,860)

7 91,505
Capital assets, being depreciated:

Buildings 1
,774,123

-
-

-
1 ,774,123
Improvements, other than buildings 1
,427,672

13,212
- 475 1 ,441,359
Vehicles and equipment 3
35,959
2 ,290
1 0,100
7 ,385
3 35,534
Right to use assets: Equipment*
293

-
-

293
Right to use assets: Land*
290

-
-

290
Total capital assets, being depreciated 3
,538,337

15,502
1 0,100
7 ,860
3 ,551,599
Less accumulated depreciation for:

Buildings (7
54,528)
(4
5,338)

-
(7
99,866)
Improvements, other than buildings (7
40,357)
(3
4,417)

-
(7
74,774)
Vehicles and equipment (2
17,403)
(1
2,727)

8,887

-
(2
21,243)
Right-to-use assets: Equipment (1
00)

(1
01)

-
(2
01)
Right-to-use assets: Land
-
(2
5)

-
(2
5)
Total accumulated depreciation (1
,712,388)

(9
2,609)

8,887

-
(1
,796,110)
Total capital assets, being depreciated, net 1
,825,949
(7
7,106)

1,213
7 ,860
1 ,755,490
Business-type activities capital assets, net $ 2
,463,639
$ 8
4,741
$ 1
,385
$ -
$ 2
,546,995

*Balance on 7/1/2021, as restated due to implementation of GASB 87 Leases 93 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022

2. Depr eciation

Depreciation expense charged to various governmental and business-type activities of the City for the year ended June 30, 2022 is as follows (in thousands):

Governmental activities:

General government $ 1
2,119
Public safety
14,434
Capital maintenance 1
73,165
Community services
33,704
Capital assets held by City’s internal service funds 1 ,354
Total depreciation expense - governmental activities $ 2 34,776

Business-type activities:

Norman Y. Mineta San José International Airport $ 5
5,260
Wastewater Treatment System
32,392
Municipal Water System 2
,945
Parking System 2
,012
Total depreciation expense - business-type activities $ 9 2,609

3. Const ruction Commitments
Commitments outstanding as of June 30, 2022, related to governmental and business-type activities construction in progress totaled approximately $19,391,000 and $271,888,000, respectively. 94 INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
E. L eases

Lease payable

This note provides information for leases where the City is a lessee.

The City is obligated under leases covering certain airport buses that expire in May 2023 (disclosed separately under section “Business-type Activities - Airport”. The City has entered into various lease agreements as lessee primarily for land, building and office space. Most leases have initial terms of up to five years, and contain one or more renewal at the City’s option, generally for three or five year periods. We have generally included these renewal periods in the lease term when it is reasonably certain that we will exercise the renewal option. The City’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. Certain real estate leases require additional payments for common area maintenance, real estate taxes and insurance, which are expensed as incurred as variable lease payments. Additionally, office space leases that include variable payments, include the City’s proportionate share of the building’s property taxes, insurance, and common area maintenance in the payment. The City’s lease arrangements do not contain any material residual value guarantees. As the interest rate implicit in the City’s leases is not readily determinable, the City utilizes its incremental borrowing rate to discount the lease payments.

The statement of net position includes the following amounts relating to leases excluding Airport, which discloses separately (in thousands):

Governmental
Activities:

Busine
ss-type
Activities: T otal
Right to use assets:

Buildings $ 4
,799 $ -
$ 4
,799
Land
- 2
65 2
65 $ 4
,799 $ 2
65 $ 5
,064
Lease payable:

Current $ 1
,504 $ 2
2 $ 1
,526
Noncurrent 3
,389 2
47 3
,636
$ 4
,893 $ 2
69 $ 5
,162

The future principal and interest lease payments as of June 30, 2022 excluding Airport, which discloses separately, were as follows (in thousands):

Governmental
Activities:

Business-type
Activities:

Busine
ss-type
Activities:

Fiscal y
ear Principal Interest Principal Interest
2023 $ 1
,504 $ 1
22 $ 2
2 $ 8
2 024 9
52 82
22 7
2 025 4
45 64
23 6
2 026 4
16 52
23 6
2 027
86 44
24 5
2 028-2032 5
23 1
79 1
33 13
2033-2037 6
07 96
22 -
2038-2042 1
83 41
-
2043-2047 1
77 11
-
$

4,893 $

691 $

269 $

45 95 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Lease receivable

The City leases out its buildings, office space and airport hangars (disclosed separately under section “Business-Type Activities - Airport”. Most leases have initial terms of up to 10 years, and contain one or more renewals at the City’s and lessor’s option, generally for three or five year periods. The City has generally included these renewal periods in the lease term when it is reasonably certain that the City will exercise the renewal option. The City’s lease arrangements do not contain any material residual value guarantees. The City utilizes its incremental borrowing rate to discount the lease payments.

The City has several leases with variable payments. For fiscal year 2022, the total of the variable payments was immaterial.

Although the City is exposed to changes in the residual value at the end of the current leases, the City typically enters into new operating leases and therefore will not immediately realize any reduction in residual value at the end of these leases.

Minimum lease payments receivable on leases of investment properties are as follows (in thousands):

Governmental
Activities:

Principal Interest
2023 $ 1
,205
$ 4
14 2024 1 ,036 3 81
2025 6 99 3 53
2026 1 ,078 3 29
2027 1 ,172 2 94
2028-2032 5 ,415 9 88
2033-2037 3 ,894 2 00
$ 14,499 $ 2,959

The total amount of inflows of resources relating to leases recognized in the current fiscal year are as follows (in thousands):

2022
Governmental
Activities:

Lease revenue $ 1 ,862
Interest revenue $ 4 04
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Business-Type Activities – Airport
Airport Leases
Leases as a Lessor
As a lessor, the Airport recognizes a lease receivable and a deferred inflow of resources at the commencement of the lease term, with certain exceptions for leases of assets held as investments, certain regulated leases, short-term leases, and leases that transfer ownership of the underlying asset to the lessee. The Airport does not have any leases of assets held as investment or leases that transfer ownership of the underlying asset to lessee. As a lessor, the asset underlying the lease is not derecognized. The lease receivable is measured at the present value of the lease payments expected to be received during the lease term. The deferred inflow of resources is measured at the value of the lease receivable in addition to any payments received at or before the commencement of the lease term that relate to future periods.

Regulated Leases
In accordance with GASB Statement No. 87, the Airport does not recognize a lease receivable and a deferred inflow of resources for regulated leases. Regulated leases are certain leases that are subject to external laws, regulations, or legal rulings, e.g., the U.S. Department of Transportation and the Federal Aviation Administration regulated aviation leases between airports, air carriers and other aeronautical users.

Regulated leases include the Airline Lease Agreement and related airline leases, as well as contracts with Fixed Based Operators (“FBOs”), Specialized Aviation Service Operators (“SASO”), and a jet fuel farm.

Airline Leases
The City entered into an Airline Lease Agreement with various passenger and cargo airlines serving the Airport, effective July 1, 2019. The Airline Lease Agreement has an initial term of ten years and is set to expire on June 30, 2029. The term of this Airline Lease Agreement may be extended for two consecutive five-year renewal periods by the mutual written agreement of the Signatory Passenger Carriers and the City.

The key provisions in the Airline Lease Agreement include compensatory rate making for the terminal cost center and residual rate making for the airfield cost center. The terminal rate per square foot is calculated based on expenses allocable to the terminal for each fiscal year divided by the total amount of rentable terminal space. Should there be any remaining net revenues generated at the Airport and all requirements of the Master Trust Agreement and any Subordinated Financing Agreements have been satisfied, including the minimum rate covenant requirement, the Passenger Carriers’ share of the remaining net terminal revenues shall be distributed as a refund once a final accounting of the Airport’s operations for the last fiscal year has been completed. After the final accounting is completed, an invoice will be sent to the Passenger Carriers if the actual expenses in the terminal were higher than the revenues. The landing fee rate is calculated by dividing the expenses allocable to the airfield, offset by airfield revenues, other than landing fees, by the projected aggregated maximum gross landed weight for all aircraft at the Airport during the fiscal year. The aggregate credit or debit, if any, resulting from the final accounting after each fiscal year shall be applied to the airfield revenue requirement for the following fiscal year.

The Airline Lease Agreement defines a Signatory Airline as either a 1) Passenger Carrier that executes the Airline Lease Agreement, or an agreement with substantially similar terms, and pays at least $500,000 per year in Terminal Rents and other charges due for its use of the Terminal, excluding PFC payments, or 2) a Cargo Carrier that has executed an Airline-Airport Cargo Operating Agreement. A Passenger Carrier cannot become a Signatory Airline within three years of the expiration of the Airline Lease Agreement, except for 97 FOR THE YEAR ENDED J UNE 30, 2022

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new entrants to the Airport that have not operated at the Airport at any other time during the term of the Airline Lease Agreement.

The Airline Lease Agreement includes other provisions to: 1) allocate the cost of the office and administrative space used by the City and the City’s contractors at the Airport to all terminal tenants; 2) pre-approves the Terminal Area Improvement Program (“TAIP”) for the Phase II of Terminal B, which can include New Federal Inspection Station (“FIS”) Facilities when the Airport reaches an annual rate of 550,000 international deplaning passengers for 18 consecutive months; 3) increases current spending limits for terminal and airfield projects from $5.0 million to $10.0 million without consultation or approval from the Signatory Airlines to fund a capital project; 4) requires Non-Signatory Airlines to provide a security deposit in addition to payment of a 25% premium over the rates and charges applicable to Signatory Airlines; 5) establishes revenue sharing in any year when there is remaining revenue generated at the Airport for Signatory Airlines as follows: a) the Airport will receive the first $4.0 million until the Phase II of Terminal B terminal project is completed and occupied and $2.0 million thereafter, and b) the rest of the net remaining revenue will be split 40%/60% (Airport/Signatory Airlines) throughout the term; 6) Airlines continue to make extraordinary coverage protection for covering annual debt service and coverage requirements should revenues less operating expenses be insufficient to meet the Airport’s debt service obligations; and 7) provides continuation of the City’s indirect overhead brackets to no less than 15% and not more than 25% of the Airport’s operating budget.

Any passenger or air cargo carrier that does not meet the minimum requirements to be a Signatory Airline is given the opportunity to become a “Non-Signatory Airline” by executing a non-signatory agreement in a form similar to that of the Airline Lease Agreement. Non-Signatory Airlines are charged a premium of 25% over the rates and charges applicable to Signatory Airlines, do not participate in revenue sharing and do not participate in the review by a “Majority of Interest” of capital projects proposed for the Airport. Non-signatory agreements may be terminated by either party on a 30-day notice. For the fiscal year ended June 30, 2022, no airlines were under the Non-Signatory Airline agreement. For the fiscal year ended June 30, 2021, one of thirteen airlines was under the Non-Signatory Airline agreement.

Any passenger or air cargo carrier operating at the Airport that is neither a Signatory Airline nor a Non- Signatory Airline will be subject to the Airline Rates and Charges Ordinance, which requires such air carriers to comply with all applicable rules and regulations as established by the Director of Aviation regarding the proper use and occupancy of the Airport or any portion thereof. In addition, the Airline Rates and Charges Ordinance establishes all rates and charges applicable to such airline’s operations at and use of the Airport or any portion thereof, including airfield and terminal rates and charges, at a 30% premium over the rates and charges as determined pursuant to the terms of the City’s then current Airline Lease Agreement.

For the fiscal year ended June 30, 2022, the Airport’s net remaining revenues as defined in its lease agreements was $50.5 million. For the fiscal year ended June 30, 2022, the Airport’s revenue as defined in its lease agreements exceeded its expenditures and reserve requirements by $36.2 million. The net remaining revenues for the fiscal years ended June 30, 2022 was divided by allocating the first $4.0 million to the Airport and then splitting the balance 40%/60% between the Airport and the Signatory Passenger Carriers, respectively, in accordance with the revenue sharing provisions of the Airline Lease Agreement.

The rights, services and privileges, including the lease of preferentially-assigned gates, an airline has in connection with the use of the airport and its facilities is addressed in the Airline Lease Agreement. As of July 1, 2020, 29 of the Airport’s 36 gates were leased under exclusive use agreements to 5 airlines. The remaining 7 gates were available to other airlines for rent on a per use basis. Effective February 1, 2021, the number of preferential gates decreased to 21, increasing the per-use basis gates to 15. Effective February 98 INTRODUCTORY

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1, 2022, the number of preferential gates increased to 25, decreasing the per-use basis gates to 11. As of July 1, 2020, 26 of the Airport’s 53 ticket counters were leased under exclusive use agreements to 6 airlines.

The remaining 27 ticket counters were available to other airlines for rent on a per-use basis. The number of preferential counters remained at 26 through June 30, 2022.

By definition, the Airline Lease Agreement is considered a regulated lease and does not recognize a receivable and corresponding deferred inflow of resources. The Airport has entered into a Signatory Airline Lease Agreement with 10 passenger airlines. For the fiscal year ended June 30, 2022, the Airport recognized terminal lease revenue of $68,489,000. Due to the variable nature of the above revenues from year-to-year, expected future minimum payments are indeterminable.

FBO Leases
The City currently has two FBOs, Atlantic Aviation and Signature Flight Support, that provide essential support services for business and private aviation, including refueling, hangar space, maintenance, repair and overhaul, and other services.

Atlantic Aviation, the operating business entity for San Jose Jet Center and ACM Property Services, LLC, has multiple agreements with the City. On June 25, 1985, the City entered into a ground lease of 653,400 square feet for 42 years and six month-term, which was extended to June 30, 2035, with the fifth amendment on June 17, 1994. With the sixth amendment, the City entered into an additional ground lease of 313,095 square feet on April 29, 2003, which resulted in a total of 966,495 square feet ground lease. On November 26, 2012, the City entered into another ground lease of 45,238 square feet and subsequently added an additional 12,482 square feet. Through various amendments, the lease term has been extended and is set to expire on June 30, 2025. Rental revenues from the ground lease with Atlantic was $3,255,000 for the fiscal year ended June 30, 2022.

On December 12, 2013, the City entered into a ground lease and operating agreement with Signature, which constructed a full-service, fixed-based facility on approximately 29 acres of the Airport’s west side (Original Master Leasehold Parcel). The term of the agreement is for 50 years from December 12, 2013 to December 11, 2063. On July 2, 2018, the City entered into the first amendment to the ground lease and operating agreement by adding a new parcel of land containing approximately 4 acres (Additional Premises), bringing the total lease to approximately 33 acres. The base ground rental is subject to a consumer price index adjustment annually and by appraisal every five years. Rental revenues from the ground lease with Signature were $3,746,000 for the fiscal year ended June 30, 2022.

SASO
The City entered into a thirty-year ground lease contract with Avbase on March 20, 2001 for 213,537 square feet. Rental revenues from the ground lease with Avbase were $539,000 for the fiscal year ended June 30, 2022.

Hangars
On May 29, 1986, the City entered into a forty-two year and six-month ground lease contract with Hewlett Packard Enterprise Company for 308,775.6 square feet for corporate aviation operations, including servicing and monitoring aircraft owned, leased, operated, and controlled by the tenant. Rental revenues from the ground lease with Hewlett Packard Enterprise Company were $895,000 for the fiscal year ended June 30, 2022.
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Jet Fuel Farm
On May 2, 2006, City entered into a ground lease contract with SJC Fuel Company LLC for 242,194 square feet space for storage and fuel dispensing area. The contract expires on July 20, 2038, the thirtieth anniversary of the commencement date. On June 30, 2008, the first amendment to the ground lease agreement was executed under which the lessee agreed to expand the fuel storage area and relocate the fuel dispensing area resulting in the lease of an additional 34,316 square feet. As a result of the fuel dispensing area relocation, the City has provided monthly rental credits for actual additional construction cost incurred by the lessee.

The monthly credit of $2,609 was issued in FY 2022. This credit is expected to end on July 1, 2038. Net rental revenues from the ground lease with SJC Fuel was $549,000 for the fiscal year ended June 30, 2022.

The future expected minimum rentals to be received from the existing FBO, SASO, hangars, and jet fuel farm leases as of June 30, 2022, are as follows (in thousands):

Fiscal Year Ending June 30, 2022
2023 $ 9
,104
2024 9
,550
2025
10,017
2026
10,256
2027
10,758
2028-2032
57,421
2033-2037
58,031
2038-2042
44,066
2043-2047
54,333
2048-2052
68,946
2053-2057
87,489
2058-2062 1
11,019
2063-2067
38,335
Total minimum lease rentals $ 5
69,325
Leases with Variable Payments
The table below shows the amount of inflow of resources recognized in this reporting period for variable payments per various concession categories for the year ended June 30, 2022 (in thousands):

Inflow of Resources
Concession Categories year ended June 30, 2022
Misc. Concessions $ 9
2 Inflight Kitchen
865
Retail 3
,212

F
ood & Beverage 4
,536

Rental Car
14,627
$ 2
3,332
The City entered into an On-Airport Rental Car Operation Agreement and Lease with multiple rental car companies on February 19, 2008, which have the largest inflow of variable payments, as shown in the table above. Part of the agreement is for the ground rent of the rental car facility. Each company’s share of the ground rent is based on its proportionate share of square feet of the consolidated rental car facility. The agreement expired on June 30, 2020 and the rental car companies are operating in hold-over as negotiations to extend the agreement continue.
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The leases with major concessionaires are generally based on the greater of percentage of their sales or a minimum annual guarantee (MAG). The City provided temporary financial relief to some concessionaires in FY 2021 by suspending the MAG and charging only the applicable percentage fee of gross sales. Miscellaneous concessionaires do not have a MAG, and concession fees are based on their sales; therefore, the inflow of resources is variable. Additionally, the major concessionaire contracts include a MAG abatement clause in which, if passenger counts fall below a certain level, then their MAG is reduced by the same percentage, therefore, making the inflow of resources variable.

The Airport distributed $6.6 million of American Rescue Plan Act (“ARPA”) grant funds to be eligible for in- terminal concessions in FY 2022.

Other Lease
In accordance with GASB No. 87, the Airport recognizes a lease receivable and a deferred inflow of resources for leases the Airport categorizes as in-scope of GASB No. 87. Effective July 31, 2007, the Airport entered into an advertising concession agreement with Clear Channel Outdoor. The agreement has been amended and restated various times since its inception. The latest amendment on April 3, 2019, extended the term through June 30, 2027, and the MAG was revised to $2.0 million effective July 1, 2019 with an annual increase of 2.5% at each July 1 thereafter. The Airport is reporting lessor lease receivable of $14,247,000 for the beginning of the fiscal year ended June 30, 2021. For the fiscal year ended June 30, 2022, the Airport reported lease revenue of $2,035,000 and interest revenue of $274,000 and $288,000. The amount of inflows of resources recognized in this reporting period for variable payments was $2,103,000 for the fiscal year ended June 30, 2022. The future expected lease receivable and revenue balances for this in-scope GASB No. 87 lease are summarized as follows (in thousands):

Fiscal Year Ending June 30:

Beginning Lease
Receivable Interest Revenue
Receivable
Reduction
Annual Lease
Revenue
Ending Lease
Receivable
2023 $ 1
0,658 $ 2
30 $ 1
,924 $ 2
,035 $ 8
,735
2024
8,735
184
2,024
2,035 6
,711
2025
6,711
135
2,128
2,035 4
,583
2026
4,583 8
4 2,236
2,035 2
,347
On June 30, 2022, ending lease receivable is $1,924,000 and $8,735,000 for current and noncurrent assets, respectively.

Ground rent revenues from rental car companies for the fiscal year ended June 30, 2022 is $782,000.

Leases as a Lessee
A lessee should recognize a lease liability and a lease asset at the commencement of the lease term unless the lease is a short-term lease or it transfers ownership of the underlying asset. The lease liability should be measured at the present value of payments expected to be made during the lease term (less any lease incentives). The lease asset should be measured at the amount of the initial measurement of the lease liability, plus any payments made to the lessor at or before the commencement of the lease term and certain direct costs.

On September 16, 2009, the Airport entered into a restated operating lease and maintenance agreement for a total of 24 compressed natural gas (CNG) powered buses. On May 23, 2012, a first amendment was entered into to terminate the lease on 14 of the 24 buses. On May 19, 2017, the restated agreement was amended a second time to extend the term through May 31, 2019, with a one-year option to extend. On May 15, 2020, the third amendment to the restated agreement was executed, extending the term for up to three additional 101 FOR THE YEAR ENDED J UNE 30, 2022

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NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
one-year option terms. As amended and restated, the second option reduced the number of CNG buses from ten to six as of August 1, 2020 and four as of November 1, 2020. The third option was exercised on April 29, 2021, extending the term through May 31, 2022. The fourth option was exercised on March 30, 2022, extending the term through May 31, 2023. Rental expense was $104,000 for the fiscal year ended June 30, 2022. In accordance with GASB No. 87, the Airport recognizes a lease liability and a lease asset for leases the Airport categorizes as in-scope of GASB No. 87. For this lease, the Airport reported a lease liability and lease asset of $293,000 at the beginning of the fiscal year ended June 30, 2021. Accumulated amortization for the year ended June 30, 2022 is $201,000. The lease liability as of June 30, 2022 is $94,000. The lease asset value, net of accumulated amortization, as of June 30, 2022 is $92,200.

Security Deposit
Pursuant to the terms of individual agreements entered into with the City, every Non-Signatory Airline, operator, tenant or any other entity or person, which is party to an agreement with the City authorizing them to conduct business at the Airport, is required to maintain a security deposit on file with the City. The deposit shall be in a form and amount acceptable to the Director of Aviation, often in the form of irrevocable LOC, surety bond, cashier’s check or other forms acceptable to the Director of Aviation. The Director of Aviation has the authority to revise the amount of security deposit at any time to protect the interests of the City. Each deposit must be maintained in full force and effect during the entire term of the agreement to ensure faithful performance by the other party of all the covenants, terms, and conditions of the agreement.

Security deposits in the form of cashier’s checks are recorded as advances and deposits payable on the accompanying statement of net position. The Airport maintains on file copies of all security deposits, in the form of LOC or surety bond, which are not recorded in the financial statements. The amount on file as of June 30, 2022 is $20,026,000.
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F. L ong-Term Debt and Other Obligations

1. Summar y Schedule of Long-Term Debt

The following is a summary of long-term debt of the City governmental activities as of June 30, 2022 (in thousands, unless otherwise noted):

Purpose
Issue
Amount Issue Date
Final
Maturity
Range of
Interest
Rates
Range of
Principal
Payments
($ millions)
Balance

June 30,
2022
Governmental Activities
City of San José
General Obligation Bonds:

Series 2019A-1 (Disaster Preparedness,
Public Safety, and Infrastructure) Community Facilities $ 140,
360 07/25/2019 09/01/2049 5.00% 7.13-12.19 $
140,
360
Series 2019B (Disaster Preparedness,
Public Safety, and Infrastructure) Community Facilities 66,
500 07/25/2019 09/01/2027 2.35-2.60% 3.47-22.83 66, 500
Series 2019C (Libraries, Parks, Public
Safety)
Community Facilities/
Refunding

158,185 07/25/2019 09/01/2035 5.00% 2.14-22.12
156,045
Series 2019D (Libraries, Parks, Public
Safety) Refunding

103,935 07/25/2019 09/01/2024 2.30-2.35% 17.08-21.87 59, 545
Series 2021A (Disaster, Preparedness,
Public Safety, and Infrastructure) Community Facilities

151,210 07/29/2021 09/01/2051 5.00% 1.36-9.43
151,210
Series 2021B (Disaster Preparedness,
Public Safety, and Infrastructure) Community Facilities

8,450 07/29/2021 09/01/2022 1.00% 8.45
8,450

582,110
City of San José Financing Authority
Lease Revenue Bonds:

Series 2013B (Civic Center Garage Project) Refunding 30, 445 06/19/2013 06/01/2039 3.00-5.00% 0.94-1.91 23, 835
Series 2020A (Civic Center Refunding) Refunding
355,620 09/24/2020 06/01/2039 0.54-2.88% 16.49-22.55 320,590
Series 2020B (Ice Center Expansion) Expansion/Refunding 146,535 10/15/2020 06/01/2051 0.76-3.52% 2.82-7.76
146,535
Series 2021A (Fire Training Center and
Central Service Yard Project) Community Facilities
22,
825 11/02/2021 10/01/2034 4.00% 1.42-2.20 22,
825
Series 2022A (Convention Center
Refunding) Refunding

165,815 4/21/2022 05/01/2052 2.92-4.36% 2.7-9.76
165,815

679,600
Special Tax Bonds
CFD No. 6 (Great Oaks-Route 85) Public Infrastructure 12, 200 12/18/2001 09/01/2023 6.00% 0.83-0.87
1,695
CFD No. 10 (Hassler-Silver Creek) Public Infrastructure 12, 500 07/23/2003 09/01/2023 5.25% 0.89-0.94
1,830
3,525
Total Government Activities - Bonds Payable $

1,265,235
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NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The following is a summary of long-term debt of the City for business-type activities as of June 30, 2022 (in thousands, unless otherwise noted):

Purpose
Issue
Amount Issue Date
Final
Maturity
Range of
Interest
Rates
Range of
Principal
Payments
($ millions)
Balance

June 30,
2022
Business-Type Activities
Norman Y. Mineta San Jose International Airport
Revenue Bonds:

Series 2014A (AMT) Refunding $ 5
7,350 10/07/2014 03/01/2026 3.38-5.00% 0.14-9.18 $ 1
8,240
Series 2014B (Non-AMT) Refunding
28,010 10/07/2014 03/01/2028 3.10-5.00% 8.0-10.37
28,010
Series 2014C (Non-AMT) Refunding
40,285 10/07/2014 03/01/2031 5.00% 7.30-8.90
40,285
Series 2017A (AMT) Refunding 4
73,595 04/11/2017 03/01/2047 4.00-5.00% 4.0-35.14 4
05,350
Series 2017B (Non-AMT) Refunding 1
50,675 04/11/2017 03/01/2047 4.00-5.00% 1.40-11.18 1 28,960
Series 2021A (AMT) Refunding
85,860 04/07/2021 03/01/2034 4.00-5.00% 1.30-15.04
85,860
Series 2021B (Non-AMT) Refunding
48,200 04/07/2021 03/01/2034 4.00-5.00% 0.27-10.22
48,200
Series 2021C (Taxable) Refunding 2
94,020 04/07/2021 03/01/2041 0.24-3.29% 1.90-29.0 2
92,120
1 ,047,025

City of San José Financing Authority - SJFA
(Direct Borrowings)
Regional Wastewater Facility Notes Payable
Public
Infrastructure $ 3
00,000 10/01/2017 Anytime Variable Variable 2
36,870
Total Business-Type Activities - Bonds and Notes Payable $

1,283,895

2. Summar y of Default Provisions for Long-Term Debt
Governmental Activities – General Obligation Bonds
The City has six series of general obligation bonds outstanding as of June 30, 2022: Series 2019A-1 Bonds, Series 2019B Bonds, Series 2019C Bonds, Series 2019D Bonds, Series 2021A Bonds, and Series 2021B Bonds (collectively, “General Obligation Bonds”). The City issued each series of General Obligation Bonds pursuant to a fiscal agent agreement with Wilmington Trust, National Association (“Fiscal Agent Agreement”). The events of default under the Fiscal Agent Agreement for the General Obligation Bonds are as follows: (i) failure to pay principal of, or redemption premiums on, any General Obligation Bond when due; and (ii) failure to pay interest on any General Obligation Bond when due.

Under the Fiscal Agent Agreements bondholders may exercise the following remedies upon the occurrence of an event of default: (a) the right, by mandamus, suit, action or proceeding, to compel the City and its members, officers, agents, or employees to perform each and every term, provision and covenant contained in the applicable Fiscal Agent Agreement, and to require the carrying out of any or all such covenants and agreements of the City and the fulfillment of all duties imposed upon it; (b) the right, by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the bond owners’ rights.

Governmental Activities – City of San José Financing Authority Lease Revenue Bonds The Financing Authority has five series of lease revenue bonds outstanding as of June 30, 2022: Series 2013B Bonds, Series 2020A Bonds, Series 2020B Bonds, Series 2021A Bonds, and Series 2022A Bonds (collectively, “Lease Revenue Bonds”). The Financing Authority issued each series of Lease Revenue Bonds pursuant to a trust agreement or an indenture of trust (“Trust Agreement”) with a trustee bank (“Trustee”). 104

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Each series of Lease Revenue Bonds is structured with the City leasing a City facility to the Financing Authority and the Financing Authority leasing it back to the City pursuant to a lease (“City Lease”). The City’s lease payments under each City Lease are the Financing Authority’s source of payment of debt service on the applicable series of Lease Revenue Bonds. The facilities subject to the City Leases are: (i) the City employees’ parking garage (Series 2013B Bonds); (ii) City Hall (Series 2020A Bonds); (iii) the Ice Center (Series 2020B Bonds); (iv) Fire Stations 29 and 34 and the site of the Fire Department Training Center (Series 2021A Bonds); and (v) City Convention Center excluding the property commonly known as the South Hall (Series 2022A Bonds).

The Trust Agreements and the City Leases under each transaction specify the events of default for each transaction. Generally, the events of default under each Trust Agreement are: (i) failure to pay debt service when due; (ii) failure to comply with covenants and conditions of the Trust Agreement and such default shall have continued for a specified period of days following the Financing Authority’s receipt from the Trustee, or the owners of at least 25% of the aggregate principal amount of the applicable series of Lease Revenue Bonds outstanding, of written notice of the occurrence of such default, provided that such period may be extended as specified in the Trust Agreement; (iii) bankruptcy or similar debtor relief proceedings; or (iv) City’s failure to pay a lease payment under the applicable City Lease.

During the continuance of an event of default under the Trust Agreement, the Trustee may declare payment of the outstanding principal of the applicable series of Lease Revenue Bonds and accrued interest to be immediately due and payable. Each Trust Agreement provides for the application of funds upon an event of default or acceleration in the order of priority set forth in the respective Trust Agreement.

Generally, the events of default under the City Leases are: (i) failure to pay a lease payment under the City Lease when due; (ii) failure to comply with covenants and conditions of the City Lease and such default shall have continued for a specified period of days following the City’s receipt of written notice of the occurrence of such default from the Financing Authority, provided that such period may be extended as specified in the City Lease; (iii) assignment or transfer of the City Lease without the satisfaction of the condition(s) precedent specified in the City Lease; or (iv) bankruptcy or similar debtor relief proceedings under the City Lease relating to the Series 2013A Bonds, vacation or abandonment by the City of the facility subject to the City Lease also constitutes an event of default under the Trust Agreement.

Upon an event of default under the City Lease, the Financing Authority or the Trustee as the Financing Authority’s assignee may (i) terminate the City Lease and re-enter the facility subject to the City Lease, remove the persons and personal property occupying the facility and re-let the facility to another lessee; or (ii) without terminating the City Lease, keep the City Lease in effect and continue to collect lease payments from the City or re-enter the facility and re-let the facility to another lessee.

To further secure the Series 2022A Bonds, City, for and on behalf of the Convention Center Facilities District No. 2008-1, City of San José, County of Santa Clara, State of California (the “CCFD”), pursuant to a Pledge Agreement has pledged and agreed to, among other things, levy and collect special taxes within the CCFD to make lease payments required to be paid by the City to the Authority under the City Lease relating to the Series 2022A Bonds. Under the Pledge Agreement, the City has covenanted to monitor the collection of the special taxes and to engage in certain collection actions, including instituting foreclosure proceedings against hotel property with delinquent special taxes in accordance with foreclosure procedures under State law. The principal of the Series 2022A Bonds is not subject to acceleration under the applicable Trust Agreement as a result of delinquent or unpaid special taxes. 105 FOR THE YEAR ENDED J UNE 30, 2022

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During FY 2022, the outstanding Series 2003A Bonds were refunded in full with proceeds of the Series 2021A Bonds and the outstanding Series 2011A Bonds were refunded in full with proceeds of the Series 2022A Bonds.

Governmental Activities – Special Tax Bonds, CFD 6 Great Oaks-Route 85 The City issued its special tax bonds, CFD 6 (Great Oaks-Route 85) (“CFD 6 Bonds”) to finance certain public improvements pursuant to provisions of State law, the San José Municipal Code and a fiscal agent agreement (“Fiscal Agent Agreement”) with a banking institution as fiscal agent. The CFD 6 Bonds were limited obligations of the City of San José. The only financial obligation of the City was to transfer amounts available in the reserve fund to make debt service payments on the bonds. 1 Governmental Activities – Special Tax Bonds, CFD 10 Hassler-Silver Creek The City issued its special tax bonds, CFD 10 (Hassler-Silver Creek) (“CFD 10 Bonds”) to finance certain public improvements pursuant to provisions of State law, the San José Municipal Code and a fiscal agent agreement (“Fiscal Agent Agreement”) with a banking institution as fiscal agent. The CFD 10 Bonds were limited obligations of the City of San José. The only financial obligation of the City was to transfer amounts available in the reserve fund to make debt service payments on the bonds. 2 Governmental Activities – Special Hotel Tax Revenue Bonds, Convention Center The City issued its Special Hotel Tax Revenue Bonds, Series 2011 Convention Center (“Hotel Tax Bonds”) to finance expansion to its convention center pursuant to provisions of State law, the San José Municipal Code and a trust agreement (“2011 Trust Agreement”) with a banking institution as trustee (“2011 Trustee”). The Hotel Tax Bonds were issued as limited obligations of the City. Under the 2011 Trust Agreement, the City had the obligation to collect and remit the Special Tax revenues levied within the CCFD to the 2011 Trustee for the 2011 Trustee to deposit in various funds held by the 2011 Trustee in the order of priority specified in the 2011 Trust Agreement, including a Revenue Fund for the payment of debt service. Under certain circumstances as specified in the 2011 Trust Agreement, the City Manager had the obligation to request the City Council to appropriate certain transient occupancy tax revenues in the City’s annual budget for the following fiscal year for deposit in the Revenue Fund. The City Council was not obligated to appropriate such funds and failure to do so was not a default under the 2011 Trust Agreement.

The City covenants in the 2011 Trust Agreement include the City’s responsibilities to monitor the collection of the Special Taxes and to engage in certain collection actions, including instituting foreclosure proceedings of a hotel property that is delinquent in the payment of the Special Hotel Tax in accordance with foreclosure procedures under State law. The remaining balance of the Hotel Tax Bonds were optionally redeemed on April 22, 2022 with proceeds of the Financing Authority’s Lease Revenue Bonds, Series 2022A, and are no longer outstanding.

3. Debt Compliance
There are a number of limitations and restrictions contained in the various bond indentures. The City believes it is in compliance with all significant limitations and restrictions including various reporting requirements for which non-compliance could adversely affect the cost of debt service on future financings. 1 The CFD 6 Bonds were redeemed in full on September 1, 2022 and are no longer outstanding. Please refer to the Subsequent Events - Bond Redemption for details.
2 The
CFD 10 Bonds were redeemed in full on September 1, 2022 and are no longer outstanding. Please refer to the Subsequent Events - Bond Redemption for details.
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4. Legal Debt Limit and Margin
The City Charter limits bonded indebtedness for General Obligation bonds (principal only) to fifteen (15) percent of the total assessed valuation of all real and personal property within the City. The total assessed value of taxable property on the City’s FY 2022 tax roll was $222.7 billion, which results in a total debt limit of approximately $33.4 billion. As of June 30, 2022, the City had $582.1 million of General Obligation bond principal applicable to the debt limit. Accordingly, the debt margin is $32.8 billion.

5. Arbit rage
The Tax Reform Act of 1986 instituted certain arbitrage restrictions with respect to the issuance of tax- exempt bonds after August 31, 1986. Arbitrage regulations deal with the investment of all tax-exempt bond proceeds at an interest yield greater than the interest yield paid to bondholders. Generally, all interest paid to bondholders can be retroactively rendered taxable if applicable rebate liabilities are not reported and paid to the Internal Revenue Service (“IRS”) at least every five years. During the current year, the City performed calculations to determine the rebate liabilities for the City’s tax-exempt bond issues listed above. However, as no bond issue with a positive rebate liability was due for a fifth-year payment, there was no rebate liability outstanding as of June 30, 2022.

6. Special Tax Bonds with Limited City Commitment
All obligations of the City under the Special Tax Bonds are not considered general obligations of the City, but are considered limited obligations, payable solely from the special taxes and from the certain funds pledged under the Fiscal Agent Agreement. Neither the faith and credit nor the taxing power of the City, or any political subdivision thereof, is pledged to the payment of the bonds. The City is not obligated to advance available surplus funds from the City Treasury to cure any deficiency in the respective Redemption Funds for these bonds; provided, however, the City is not prevented, in its sole discretion, from advancing funds.

7. Conduit Debt
The City has issued multi-family housing revenue bonds to provide funds for secured loans to builders of multi-family housing projects. The purpose of the program is to provide needed rental housing for low to moderate-income households. To comply with IRS requirements in order to meet the tax-exempt status, the owner is required to set aside a certain percentage of all units built for very low to moderate-income households. The bonds are payable solely from payments made on the related secured loans. These tax- exempt housing bonds have maturity dates that are due at various dates through August 1, 2059. As of June 30, 2022, the total principal amount outstanding of conduit multi-family housing revenue bonds is $790,813,000.

In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations, which provides that the debt obligation is not a parity bond of the issuer, nor is it cross-collateralized with other debt of the issuer. So the third-party obligor, not the issuer, is primarily obligated for the payment of all amounts associated with the debt obligation.

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8. Summar y of Changes in Long-term Obligations

Governmental Activities - The changes in long-term obligations for the year ended June 30, 2022 are as follows (in thousands):

July 1, 2021
Additional
Obligations,
Interest
Accretion and
Net Increases
Current
Maturities,
Retirements,
and Net
Decreases June 30, 2022
Amounts Due
Within One
Year
Governmental Activities:

Long-term debt payable:

General Obligation bonds $ 4
46,460 $ 2
00,530 $ (6
4,880)
$ 5
82,110 $ 3
3,515
Issuance premiums:

For issuance premiums 7
2,844
50,124 (5
,894)

117,074 -
San
José Financing Authority

Lease revenue bonds
540,365 1
88,640 (4
9,405)

679,600 2
1,795
Issuance premiums/discounts:

For issuance premiums 8
79 4
,207
(2
75)

4,811 -
F
or issuance discounts (4
71)

-
4 71 - -
Special assessment
and special tax bonds with

limited governmental commitment
104,935
-
(1
01,410)

3,525 3
,525
Issuance discounts:

For issuance discounts (1
,304)

1,303 (1
)
-
T
otal long-term debt payable
1,163,708 4
43,501 (2
20,090)

1,387,119 5
8,835
Other Long-term obligations:

Accrued vacation, sick leave and compensatory time 8
8,117
64,687 (6
7,950)
8 4,854 6
1,063
Accrued landfill postclosure costs
3,255
-
(4
65)

2,790 4
65 Estimated liability for self-insurance
140,517
67,593 (2
9,466)

178,644 2
2,664
Pollution remediation obligation
1,998 1
,293
-
3,291 -
Lease pa
yable*
6,363
-
(1
,470)

4,893 1
,504
Total other long-term obligations
240,250 1
33,573 (9
9,351)

274,472 8
5,696
Governmental activities long-term obligations $ 1
,403,958 $ 5
77,074 $ (3
19,441)
$ 1
,661,591 $ 1
44,531

*Balance on 7/1/2021, as restated due to implementation of GASB 87 Leases General Obligation Bonds are issued pursuant to a two-thirds majority voter authorization. In 2000 and 2002, San José voters approved three ballot measures (Measures O and P in 2000 and Measure O in 2002) that authorized the total issuance of $598,820,000 of general obligation (“prior GO”) bonds for library, parks and public safety projects. On November 6, 2018, voters approved the Measure T ballot measure that authorized total issuance of $650,000,000 of general obligation (“GO”) bonds for the purpose of acquiring property for and constructing improvements in order to improve emergency and disaster response, repair deteriorating bridges vulnerable to earthquakes, repave streets and potholes in the worst condition, prevent flooding and water contamination including the acquisition of land in the Coyote Valley for these purposes, and repair critical infrastructure. The ad valorem property tax levy is calculated for each fiscal year to generate sufficient revenue to pay 100% of annual debt service net of other available funding sources.

On July 25, 2019, the City issued $502,020,000 of General Obligation Bonds (“2019 GO Bonds”) that included new money bonds under three separate authorizations: (1) Measure T, approved by the voters on November 6, 2018 in the not-to-exceed amount of $650,000,000 (2) Measure O (approved by the voters on November 108

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7, 2000 in the not-to-exceed amount of $211,790,000 for library projects); and (3) Measure O (approved by the voters on March 5, 2002 in the not-to-exceed amount of $159,000,000 for public safety projects). Of the 2019 GO Bonds issued, $239.9 million was issued under the Measure T authorization for acquisition of real property and infrastructure projects as provided under Measure T; $9.2 million issued under prior and remaining Measure O authorizations (2000 and 2002) for library and public safety projects; and $252.9 million in GO refunding bonds that refunded all of the prior general obligation bonds issued under Measure O (2000), Measure P (approved by the voters on November 7, 2000 in the not-to-exceed amount of $228,030,000) and Measure O (2002).

On July 29, 2021, the City issued $200,530,000 of General Obligation Bonds, Series 2021, the second round of issuances under Measure T authorization for Disaster Preparedness, Public Safety, and Infrastructure project. .

As of June 30, 2022, the City had remaining authorization under Measure T in the amount of $209,570,000.

City of San José
General Obligation Bonds
Issuance Amounts and Outstanding Balances as of June 30, 2022 Measure T Issuance
Issuance Final Maturity
Series 2019
(Refunding)
Se
ries 2019
(New Money)
Series 2021
(New Money)
Measure T
Total Issued
Principal
Outstanding
Series 2
019A-1 9/1/2049 $ 1
73,400,000 $ 1
73,400,000 $ 1
40,360,000
Series 2019B 9/1/2027
66,500,000 6
6,500,000

66,500,000
Series 2019C (1) 9/1/2035 $ 1 58,185,000 1 56,045,000 Series 2019D 9/1/2024 1
03,935,000
59,545,000
Series 2021A 9/1/2051 $ 1
51,210,000
1 51,210,000 1
51,210,000
Series 2021B (2) 9/1/2022 8 ,450,000 8,450,000 8 ,450,000 Series 2021C (3) 9/1/2021 40,870,000 4 0,870,000 - Total $ 2
62,120,000 $ 2
39,900,000 $ 2
00,530,000
$ 4
40,430,000
$ 5
82,110,000

Measur
e T Voter Authorization
$ 6
50,000,000

Remaining Measure T Authorization

$ 2
09,570,000

(1) A portion of the 2019C Bonds funded remaining projects under Measure O (2000) in the amount of $5,905,000 and under Measure O (2002) in the amount of $3,325,000.
(2) The Series 2021B Bonds matured on September 1, 2022 and are fully redeemed. (3) The Series 2021C Bonds matured on September 1, 2021 and are fully redeemed.

Lease Revenue Bonds are issued by the City of San José Financing Authority (“CSJFA”) primarily to finance various capital improvements, which are leased to the City and are secured by lease payments received by the Financing Authority from by the City. Such lease payments are payable by the City from all legally available funds of the City. The City allocates such lease payments to departments in the General Fund and Nonmajor Governmental Funds. The lease revenue for each fiscal year is generally equal to 100% of annual debt service net of other available funding sources. Described below are the two lease revenue bonds issued during FY 2022.

On November 2, 2021, the Authority issued $22.8 million (plus $4.2 million in premium) in Lease Revenue Refunding Bonds, Series 2021A to (i) refinance on a current basis the outstanding Lease Revenue Bonds, Series 2003A of the Authority for $3.2 million ($1.5 million of new money plus $1.7 million from the 2003A Reserve account)(Central Service Yard Refunding Project), (ii) refinance on a current basis the outstanding Central Service Yard Commercial Paper Notes of the Authority for $2.5 million, (iii) finance the acquisition 109 FOR THE YEAR ENDED J UNE 30, 2022

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and construction of public improvements for $22.6 million, and (iv) pay the issuance costs of $0.4 million of the CSJFA 2021A Bonds. The Series CSJFA 2021A Bonds are rated by Moody’s, S&P and Fitch: Aa2, AA and AA, respectively. The CSJFA 2021A Bonds generated total debt service savings of over $182,000 and net present value (“NPV”) savings of approximately $178,000, or approximately 5.6% as a percent of the refunded obligations. The refunding resulted in a difference between the reacquisition price (the amount required to repay previously issued debt in the refunding transaction) and the net carrying amount of the outstanding lease revenue bonds of $9,000. The difference is reported as deferred inflow of resources in the statement of net position.

On April 21, 2022, the Authority issued $165.8 million in Taxable Lease Revenue Bonds, Series 2022A to (i) refinance on a current basis the outstanding Special Hotel Tax Revenue Bonds, Series 2011 (Convention Center Expansion and Renovation Project) for $96.2 million ($88.0 million of new money plus $8.2 million from remaining funds from 2011 CCFD Bonds) (ii) refinance on a current basis the outstanding Lease Revenue Bonds, Series 2011A (Convention Center Expansion and Renovation Project) for $28.1 million ($25.8 million of new money plus $2.3 million from remaining funds from 2011A Bonds), (iii) refinance the outstanding Exhibit Hall for $8.4 million and South Hall for $42.4 million Commercial Paper Notes of the Authority, and (iv) pay the issuance costs of $1.2 million for the CSJFA 2022A Bonds. The Series CSJFA 2022A Bonds are rated by Moody’s, S&P , and Fitch: Aa3, AA and AA, respectively. The CSJFA 2022A Bonds generated total debt service savings of over $20,967,000 and NPV savings of approximately $18.3 million or 15.2% as a percentage of the refunded obligations, excluding the commercial paper notes.

Total principal and interest remaining on lease revenue bonds as of June 30, 2022 is approximately $979.9 million, with the final payment due on May 1, 2052.

Special Tax Bonds are issued by the City to finance public improvements in special tax districts established by the City and are secured by special taxes levied on properties located within the special districts. The special taxes, as applicable, are calculated for each fiscal year to generate sufficient revenue to pay 100% of annual debt service net of other available funding sources. Total principal and interest remaining on the bonds as of June 30, 2022 is approximately $3,725,000, with the final payment due on September 1, 2023.

Please refer to Subsequent Events, Bond Redemption section for more information.

Other Long-Term Obligation payments are primarily made from general revenues recorded in the General Fund.
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Business-Type Activities - The changes in long-term obligations for the year ended June 30, 2022 are as follows (in thousands):

July 1, 2021
Additional
Obligations,
Interest
Accretion and
Net Increases
Current
Maturities,
Retirements,
and Net
Decreases
June 30,
2022
Amounts Due
Within One
Year
Business-Type Activities:

Norman Y. Mineta San José International Airport:

Revenue bonds $ 1
,048,925 $ -
$ (1
,900)
$ 1
,047,025 $ 2
,225
Issuance premiums/discounts:

For issuance premiums
97,947
-
(6
,113)

91,834
6,125
City of San José Financing Authority Subordinate Wastewater

Revenue Notes:

Direct Borrowings

Notes payable 1
50,368
86,502 - 2
36,870
236,870
Total long-term debt payable 1
,297,240
86,502 (8
,013)
1 ,375,729
245,220

Other Long-term obligations:

Accrued vacation, sick leave and compensatory time 8
,169
6 ,403
(6
,524)
8 ,048
6,828
Estimated liability for self-insurance 5
,109
4 82
(8
09)
4 ,782
1,190
Pollution remediation obligation
28,187
-
(7
)

28,180 -
Lease pa
yable* 4
85 -
(1
22)
3 63 1
16 Total other long-term obligations
41,950 6
,885
(7
,462)

41,373
8,134
Business-type activities long-term obligations $ 1
,339,190 $ 9
3,387 $ (1
5,475)
$ 1
,417,102 $ 2
53,354

*Balance on 7/1/2021, as restated due to implementation of GASB 87, Leases

Airport Revenue Bonds are issued primarily to finance the construction of capital improvements at the Norman Y. Mineta San José International Airport. Pursuant to the Airport’s Master Trust Agreement, the City has irrevocably pledged the general airport revenues and certain other funds held or made available under the Airport’s Master Trust Agreement, first to the payment of maintenance and operation costs of the Airport, and second to the payment of principal and interest on the bonds. General airport revenues generally include all revenues, income, receipts, and monies derived by the City from the operation of the Airport with the exception of certain expressly excluded revenues and other moneys.

The net revenues available to pay Debt Service, as defined in the Master Trust Agreement for the year ended June 30, 2022 totaled $148,620,000, which is composed of $116,394,000 of Net General Airport Revenues (as defined in the Master Trust Agreement) and $32,226,000 of Other Available Funds (as defined in the Master Trust Agreement). Other Available Funds include surplus carryover of $7,250,000, rolling debt service coverage of $16,977,000, and Customer Facility Charges (“CFC”) Revenues of $7,999,000. The bond Debt Service paid from the General Airport Revenues and Other Available Funds amounted to $33,285,000, which is net of $12,420,000 of bond debt service paid from the accumulated Passenger Facility Charges (“PFC”) funds.

The City has covenanted in the Master Trust Agreement that net revenues available to pay Debt Service for each fiscal year plus certain other available funds held or made available under the Master Trust Agreement will be at least 125% of annual Debt Service for such fiscal year. Under the Master Trust Agreement, annual “debt service” means for any specified period, the sum of (a) the interest falling due on any then outstanding current interest bonds, assuming that all principal installments are paid when due, but excluding any interest funded from the proceeds of any series of bonds and applied toward payment of interest on such bonds, 111 FOR THE YEAR ENDED J UNE 30, 2022

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and (b) the principal installments payable on any then outstanding bonds, less Available PFC Revenues (as defined in the Master Trust Agreement). Under the Master Trust Agreement, annual Debt Service excludes Available PFC Revenues for such fiscal year. Total principal and interest remaining on the bonds is $1,713,985,000, with the final payment due on March 1, 2047.

Events of default under the Master Trust Agreement include: (a) non-payment of the principal of or interest on the bonds; (b) a breach of a covenant if the default shall have continued for a period of sixty days after written notice specifying such default and requiring the same to be remedied shall have been given to the City by the Fiscal Agent or a Municipal Bond Insurer (as defined in the Master Trust Agreement), or to the City and the Fiscal Agent by the owners of not less than 25% in aggregate principal amount of the bonds at the time outstanding; and (c) filing a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws. There is no acceleration remedy in the event of default for any current Airport Revenue Bonds and Airport Revenue Refunding Bonds that are outstanding.

City of San José Financing Authority Subordinate Wastewater Revenue Notes (Long-Term Direct Borrowings)
On October 19, 2017, pursuant to a Credit Agreement dated as of October 1, 2017 (“Credit Agreement”) and recently amended in March 2022 by and among the City, the Financing Authority, and Wells Fargo Bank, National Association (the “Bank”), the Financing Authority issued to the Bank (i) a subordinate tax-exempt wastewater revenue note in an amount not to exceed $300 million and (ii) a subordinate taxable wastewater revenue note in an amount not to exceed $300 million outstanding at any one time. The Credit Agreement effectively established an interim financing program under a three-year contract that enables the issuance of subordinate wastewater revenue notes that can be outstanding at any one time in an amount not to exceed $300 million to finance capital improvements at the Regional Wastewater Facility (“RWF”). Advances on the notes will be made on a regular basis to reimburse the City for capital costs incurred at the RWF. Upon issuance of the notes, $174,500 was advanced under the tax-exempt note to pay for transactional closing costs. Total advances through FY 2022 were $236,870,000.

In the event that the Notes are not refinanced as anticipated, the Credit Agreement provides for repayment of the Notes following the termination of the Credit Agreement. Assuming no events of default under the Credit Agreement have occurred and subject to the City and the Financing Authority making certain representations and warranties, if the Financing Authority fails to repay the loans on the Termination Date (as defined in the Credit Agreement), the unpaid notes will bear interest at the Bank Rate (as defined in the Credit Agreement) and will be amortized in equal quarterly installments over a period ending three years following the Termination Date of the Credit Agreement.

The source of repayment of the Notes, including associated fee and interest costs, are installment payments made to the Financing Authority from pledged net system revenues received by the City related to the wastewater treatment system, pursuant to a Subordinate Installment Purchase Contract, dated as of October 1, 2017, by and between the City and the Financing Authority, and City Resolution No. 78382 (the “Master Resolution”), which provides for the allocation and pledge of net system revenues to secure the payment of wastewater revenue obligations. Payments on the notes will be subordinate to payments on long-term bonds issued in the future.

In June 2018, the City Council and the Financing Authority Board authorized amendments to the Credit Agreement, specifically the margin rate factor, as a result of the reduction in the federal corporate tax rate from 35% to 21% enacted by The Tax Cuts and Jobs Act in December 2017. The Financing Authority Board also authorized the amendment and restatement of the fee letter agreement between the Financing Authority and the Bank.
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In September 2020, City staff negotiated a Second Amendment to the Credit Agreement with the Bank that extended the Credit Agreement to October 18, 2023 (which was set to expire on October 18, 2020) to continue to provide for the borrowing of up to $300 million outstanding at any one time, as needed, to finance RWF CIP improvements; revise the drawn rate; and other conforming changes.

In March 2022, City staff negotiated a Third Amendment to the Credit Agreement with the Bank to revise various definitions, and replace the benchmark index from LIBOR to the U.S. Secured Overnight Financing Rate. The U.S. Secured Overnight Financing Rate is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The amendment to the Fee Letter Agreement reduced the fee on the undrawn portion of the $300 million credit facility (Commitment Fee) from 35 basis points (bps) (or 0.35%) per year to 21 bps (or 0.21%). The total interest rate based on the City’s credit above the benchmark index (“Applicable Spread”) on the tax-exempt draws was reduced from 95 bps (0.95%) to 37 bps (0.37%). On any taxable draws, the Applicable Spread was reduced from 110 bps (1.10%) to 45 bps (0.45%). All other key terms remain unchanged.

The Commitment Fee and Applicable Spread were based on the credit ratings associated with the San José- Santa Clara Clean Water Financing Authority 2009A Bonds; however, these bonds matured on November 15, 2020 and those ratings have since been withdrawn. In the absence of public ratings from the rating agencies, the documents provide that an alternate pricing methodology based on the Debt Service Coverage Ratio (“DSCR”) would apply. The DSCR is calculated as the ratio of (a) the amount of Adjusted Net System Revenues in a consecutive 12-month period (selected by the City, occurring during the 18 months prior to the date of calculation to (b) Maximum Debt Service, making the current fees the lowest fee rate category based on the City’s DSCR. The Commitment Fee and Applicable Spread would increase in the event the DSCR falls below two times (2.0x) the coverage ratio.

Events of default under the Credit Agreement by the City or the Financing Authority include: (i) non-payment; (ii) default under any the Related Documents (as defined in the Credit Agreement); (iii) bankruptcy; (iv) a breach of various covenants, including financial covenants to maintain 115% of Debt Service on Parity Obligations (as defined in the Master Resolution) and 110% of Debt Service on Parity Obligations and Subordinate Obligations (as defined in the Master Resolution); (v) breach of representations and warranties; (vi) default with respect to a Material Debt (as defined in the Master Resolution); (vii) final judgment of $10 million or more against the City or the Financing Authority payable from System Revenues; (viii) City or Financing Authority contesting validity of obligations related to payment of the notes or a determination by a court of competent jurisdiction that the obligations of the City or the Financing Authority related to payment of the notes are not valid or binding; (ix) invalidity of a Lien (as defined in the Credit Agreement) created by the Credit Agreement or the Related Documents; and (x) ratings events including downgrades by any of Moody’s, S&P , or Fitch of its long term ratings or long-term debt issued in the future that constitutes Parity Obligations under the Master Resolution below “Aa3,” “A-” and “A-,” respectively.

The Bank has certain rights and remedies upon the occurrence and continuance of specified events of default in the Credit Agreement including (i) by notice to the Financing Authority and the City to terminate the Bank’s commitment to make advances under the notes; (ii) exercise rights and remedies under the Related Documents (as defined in the Credit Agreement); (iii) exercise rights and remedies at law or in equity; (iv) bring action in mandamus or other action or proceeding to compel performance by the Financing Authority and/or the City under the Master Resolution or Installment Purchase Agreement; and (v) appointment of a trustee to protect and enforce Bank’s rights.

In addition to these rights and remedies, the Bank has the right to accelerate repayment of the notes, which is automatic in the case of bankruptcy. The Credit Agreement includes subjective acceleration provisions in 113 FOR THE YEAR ENDED J UNE 30, 2022

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the event that: (i) City fails to comply with laws and contracts, which in the reasonable opinion of the Bank, would materially adversely affect the rights of the Bank or the City’s ability to perform its obligations under the Credit Agreement; (ii) either the City or the Financing Authority fails to promptly pay taxes, assessments or government charges which if not paid would likely result in a Material Adverse Effect (defined below); and (iii) either the City or the Financing Authority breaches its covenant to promptly inform the Bank of an event that could reasonably be expected to result in a Material Adverse Change (defined below) or which could be expected to result in a Material Adverse Effect. Under the Credit Agreement, Material Adverse Change and Material Adverse Effect are defined as any event or change, in the Bank’s sole discretion, which materially and adversely affects (i) the enforceability of the Credit Agreement or any Related Document; (ii) the ability of the City or the Financing Authority to perform their respective obligations under the Credit Agreement or any Related Document; or (iii) the Bank’s rights and remedies.

July 1, 2021 Additions Deletions June 30, 2022 Interest Rate $150,368 $86,502 $- $236,870 1.53%
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9. A nnual Requirements to Maturity

The annual requirements to amortize all bonds and leases outstanding as of June 30, 2022 are as follows (in thousands):

Governmental Activities Business-Type Activities

City of San José
General Obligation Bonds
City of San José
Financing
Authority Bonds (1)
Special Assessment & Tax
Bonds with
Limited Governmental
Commitme
nt (2)
Airport Revenue
Bonds (1)
Fiscal Year
Ending June 30, Principal Interest Principal Interest Principal Interest Principal Interest 2023 $ 3
3,515 $ 2
5,119 $ 2
1,795 $ 2
0,681 $ 1
,715 $ 1
50 $ 2
,225 $ 4
5,258
2024 2
5,780 2
4,379 2
4,790 2
0,238
1,810
50 2
4,155 4
5,250
2025 2
5,550 2
3,656 2
6,005 1
9,889 - - 2
7,225 4
4,184
2026 2
5,480 2
2,948 2
6,945 1
9,461 - - 2
9,965 4
3,022
2027 2
5,225 2
2,252 2
8,865 1
8,936 - - 3
2,355 4
1,799
2028-2032
125,920 9
5,787
154,845 8
4,214 - -
184,625
187,141
2033-2037 9
6,695 6
7,118
173,075 6
0,673 - -
258,740
141,838
2038-2042 6
4,835 4
8,090
119,375 3
2,715 - -
277,140 8
5,852
2043-2047 8
1,425 2
9,996 5
0,465 1
7,253 - -
210,595 3
2,616
2048-2052 7
7,685
8,234 5
3,440
6,239 -
-
-
-
T
otal $ 5
82,110 $ 3
67,579 $ 6
79,600 $ 3
00,299 $ 3
,525
$ 2
00 $ 1
,047,025 $ 6
66,959

(1) Does not include commercial paper notes.
(2) Total principal outstanding $3,525 was paid in September 2022.

10. New Debt Issuances for Short-Term Debt Activities
Governmental Activities

City of San José Financing Authority Lease Revenue Commercial Paper Notes Payable (Short-Term Direct Borrowings)
The City’s Commercial Paper (“CP”) Program utilizes a lease revenue financing structure. Under this program, the Financing Authority is able to issue commercial paper notes (“CP Notes”) on a tax-exempt and federally taxable basis at prevailing interest rates for a term not to exceed 270 days. The CP Program was initially established on January 13, 2004, pursuant to resolutions of the City Council and the Financing Authority authorizing the issuance of the Financing Authority tax-exempt lease revenue CP Notes in an amount not to exceed $98,000,000. Since 2004, the City Council and the Financing Authority have taken actions to modify the CP Program, including increasing and decreasing the program’s capacity and authorizing the issuance of taxable lease revenue CP Notes.

On August 31, 2021, the City adopted Resolution No. 80208 authorizing the execution and delivery of amendments to certain financing documents, including an amendment to a Letter of Credit and Reimbursement Agreement, and authorizing other related actions in connection with the CP Notes in order to increase the not-to-exceed aggregate principal amount thereof to $175 million and to extend the expiration date and commitment available under such Letter of Credit and Reimbursement Agreement to March 2025; and the negotiation, execution and delivery of one or more additional extensions to the Letter of Credit issued under the Letter of Credit and Reimbursement Agreement or the commitment available under such Letter of 115 FOR THE YEAR ENDED J UNE 30, 2022

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Credit and Reimbursement Agreement based on substantially the same terms and conditions for a duration of time that the City Designated Officers deem necessary, advisable or prudent.

As of June 30, 2022, the maximum principal amount of CP Notes authorized to be issued is $175 million, consisting solely of CP Notes designated Series 2 Notes and Series 2-T Notes; CP Notes designed Series 1 Notes and Series 1-T Notes are not authorized to be issued. As of June 30, 2022, the Series 2 Notes and Series 2-T Notes were supported by a direct-pay letter of credit (“LOC”) provided by U.S. Bank National Association (“U.S. Bank”) pursuant to a Letter of Credit and Reimbursement Agreement by and among the Financing Authority, the City, and U.S. Bank, as amended (the “Reimbursement Agreement”). At June 30, 2022, the LOC had a stated amount of $187,945,206 representing the maximum principal amount plus interest calculated at 10% for 270 days with a stated expiration date of March 24, 2025.

The LOC of U.S. Bank supports only the payment of principal and interest on the Series 2 Notes and Series 2-T Notes. The annual commitment fee payable to U.S. Bank is 0.38%, paid quarterly in arrears during FY 2022.

The Financing Authority issues the CP Notes under State law pursuant to an Amended and Restated Trust Agreement, between the Financing Authority and Wells Fargo Bank, National Association, as trustee, as amended and supplemented from time to time (as so amended and supplemented, the “Trust Agreement”) and a Second Amended and Restated Issuing and Paying Agent Agreement between the Financing Authority and Wells Fargo Bank, National Association, as paying agent (“Issuing and Paying Agent Agreement”).

Barclays Capital Inc. currently serves as the dealer for the CP Notes pursuant to an Amended and Restated Commercial Paper Dealer Agreement.

The City has leased to the Financing Authority various City-owned facilities pursuant to a Site Lease, as amended (the “Site Lease”). The Financing Authority subleased these same facilities back to the City pursuant to a Sublease, as amended (the “Sublease”) in exchange for the rental payments, subject to abatement in the event the City does not have use and occupancy of the property and not in excess of the fair rental value of the facilities. The facilities subject to the Site Lease and Sublease are: the Animal Care Center, Fire Station No. 1, Fire Station No. 3, the Police Communications Center, the South San José Police Substation, and the Tech Museum (the “Pledged Properties”). The rental payments received by the Financing Authority from the City under the Sublease are used to repay CP Notes.

Interest on any Principal Advances (draws under the LOC that U.S. Bank is not reimbursed by the City on the same day) are calculated at various increasing interest rates depending on the number of days the Principal Advance remains outstanding.

Interest on any Term Loan draws that are not reimbursed by the City one hundred eighty-one days after a Principal Advance or the Letter of Credit Expiration Date, whichever comes first (such date the “Term Loan Conversion Date”) are payable at the Term Loan Rate from the date of such Term Loan Conversion Date, payable monthly in arrears on the first day of each calendar month and on the date on which the final installment of the principal of the Term Loan is payable. The principal amount of each Term Loan is amortized over such a three-year period; provided, however, that the unpaid amount of each Term Loan shall be paid by the City in each year only to the extent of the then fair rental value with respect to the Pledged Property subject to the Sublease for such Base Rental Period, and to the extent not so repaid, such Term Loan shall be paid by the City during each subsequent Base Rental Period, to the extent owed, to the extent of the then fair rental value with respect to the Pledged Property subject to the Sublease for each such Base Rental Period, and such Term Loan shall continue to be an obligation of the City pursuant to the Sublease to be paid on or before the expiration of the three-year amortization period. Per the terms of the Reimbursement Agreement, U.S. Bank has the right to require that the rent payable for any of the Pledged Properties be re- determined in order to increase the amount of the rent payable. 116

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Events of default under the Reimbursement Agreement include: (i) default under the Trust Agreement, Sublease, Issuing and Paying Agent Agreement and certain other agreements relating to the CP Notes; (ii) non-payment; (iii) breach of certain covenants set forth in the Reimbursement Agreement; (iv) bankruptcy; (v) the occurrence of certain ratings events including downgrades by any of Moody’s, S&P , or Fitch of its long- term ratings on the Financing Authority’s lease revenue debt below “Baa1,” “BBB+” and “BBB+,” respectively; or (vi) suspension or withdrawal of the long-term ratings on the Financing Authority’s lease revenue debt for any credit related reason.

U.S. Bank has certain rights and remedies upon the occurrence and continuance of specified events of default in the Reimbursement Agreement, including the ability, by notice to the Financing Authority and the Issuing and Paying Agent (i) to deliver a notice to the Issuing and Paying Agent (a “No-Issuance Notice”) requiring the Issuing and Paying Agent to cease authenticating CP Notes of the applicable series unless and until such No-Issuance Notice is rescinded, (ii) to reduce the unutilized portion of the applicable commitment to zero dollars ($0), (iii) to declare the Revolving Note, in whole or in part, all or some advances, as well as any other reimbursement obligations under the Reimbursement Agreement and all interest thereon to be a default advance under the Reimbursement Agreement due and payable at the Default Rate (as defined in the Reimbursement Agreement) and payable as set forth therein, or (iv) to take any other action permitted by law. The amount of the Default Advance required to be paid by the Financing Authority upon acceleration as described in clause (iii) above cannot exceed the then fair rental value with respect to the Pledged Properties subject to the Sublease.

Upon any action by U.S. Bank, as contemplated in the foregoing clauses (i) and (ii), the Stated Amount of the LOC will be permanently reduced upon, and by the amount of, each drawing under the LOC following the occurrence of an event of default. The occurrence of an event of default will not affect U.S. Bank’s obligations under the LOC with respect to Series 2 Notes and Series 2-T Notes that are outstanding at the time of the occurrence of such event of default, and the Issuing and Paying Agent will continue to have the right to draw under the LOC to pay the principal of and accrued interest on maturing Series 2 Notes and Series 2-T Notes that are outstanding at the time of the occurrence of such event of default.

As of June 30, 2022, $37,947,000 of taxable CP Notes was outstanding at an interest rate of 1.25% and $29,000,000 at an interest rate of 1.45%.

The remaining capacity under the U.S. Bank LOC as of June 30, 2022 is $108,053,000. The activity in commercial paper notes during the year ended June 30, 2022 are as follows (in thousands):

July 1, 2021 Additions Deletions June 30, 2022
$76,359 $45,000 $54,412 $66,947

2021 Tax and Revenue Anticipation Notes
The City issued a short-term note for cash flow borrowing purposes to facilitate the prefunding of employer retirement contributions. A $285 million Tax and Revenue Anticipation Note (“the 2021 Note”) was purchased by Bank of America, N.A., on July 1, 2021. Security for the repayment of the 2021 Note is a pledge of the City’s FY 2022 secured property tax and other available General Fund revenues of the City including sales tax revenues, if required. The 2021 Note was fully repaid on June 30, 2022. 117 FOR THE YEAR ENDED J UNE 30, 2022

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Business-Type Activities

Airport Commercial Paper Notes Payable (Short-Term Direct Borrowings) In November 1999, the City authorized the issuance from time to time of the Airport’s Subordinated Commercial Paper Notes, Series A-1, Series A-2, Series B, and Series C (“Subordinated CP Notes”) that are secured by a lien on Surplus Revenues held in the Subordinated Debt Account of the Surplus Revenue Fund, including the earnings on such Surplus Revenues. Surplus Revenues are General Airport Revenues remaining after the payment of maintenance and operation costs of the Airport and the payment of debt service on the Airport Revenue Bonds and the funding of any reserve funds established for the Airport Revenue Bonds.

The Subordinated CP Notes may be issued for periods of maturity not to exceed 270 days. The Series A-1, Series A-2, Series B and Series C Notes may be sold at an interest rate not to exceed 12% per annum. The Series C Notes may be issued and sold either as interest bearing notes or at a discount.

The Subordinated CP Notes are issued pursuant to a Third Amended and Restated Issuing and Paying Agent Agreement, dated as of February 1, 2014, as subsequently amended, by and between the City and U.S. Bank National Association (“US Bank”). Credit support for the timely payment of the principal and interest on the Subordinated CP Notes at maturity is provided through a letter of credit as described below. The City Council has authorized the Subordinated CP Notes to be issued in an aggregate principal amount of up to $600 million outstanding at any one time. However, the City has determined to limit its issuance of Subordinated CP Notes to the total credit support provided by the applicable letter of credit, as described below.

On September 12, 2018, the City substituted for the prior letter of credit supporting the Subordinated CP Notes with a letter of credit issued by Bank of America, N.A (“BANA”). Pursuant to a Letter of Credit and Reimbursement Agreement, dated as of September 1, 2018, between the City and BANA (“BANA Reimbursement Agreement”), BANA issued its irrevocable transferable letter of credit (“BANA LOC”) in the initial stated amount of approximately $81.7 million (to cover principal of $75.0 million and interest on the Subordinated CP Notes accruing calculated at a rate of 12% for 270 days based on a 365-day year) that as of June 30, 2021, was scheduled to expire on September 10, 2021 unless sooner terminated or extended pursuant to its terms. The $75.0 million principal amount of the LOC was secured to provide additional capacity for the issuance of the Subordinated CP Notes to finance proposed terminal area projects. On August 19, 2021, BANA extended the expiration date of the BANA LOC to September 10, 2024.

In connection with BANA’s issuance of its LOC in 2018, other agreements governing the Subordinated CP Notes were executed, including the First Amendment to the Third Amended and Restated Issuing and Paying Agent Agreement between the City and US Bank and the Fourth Amended and Restated Dealer Agreement between the City and each of the dealers of the Subordinated CP Notes, a fee letter between the City and BANA and a bank note payable to BANA in the amount of approximately $81.7 million under which the City promises to pay principal of and interest on the unpaid principal amount of all Unreimbursed Drawings (as defined in the BANA Reimbursement Agreement) and Term Loans (as defined in the BANA Reimbursement Agreement) evidenced by the note on the dates and at the rates provided for in the BANA Reimbursement Agreement (“Bank Note”).

The ratings of the outstanding Airport Subordinated CP Notes, are “A-1”, “P-1”, and “F1+” by S&P , Moody’s, and Fitch, respectively, based on the credit support provided by BANA pursuant to its LOC, as of June 30, 2022.

The terms of the BANA LOC are specified in the BANA Reimbursement Agreement. In general, BANA agrees to advance funds to the issuing and paying agent for the Subordinated CP Notes to pay the principal of and interest on maturing Subordinated CP Notes in an amount not to exceed the stated amount of the LOC. In the event that the CP dealer is unable to find investors to purchase Subordinated CP Notes to repay 118

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the advance from BANA, the City is obligated to pay interest to BANA based on a formula specified in the BANA Reimbursement Agreement and repay principal in accordance with the schedule and the terms also specified in the BANA Reimbursement Agreement. All amounts payable by the City to BANA under the BANA Reimbursement Agreement are secured by a lien on the Surplus Revenues held in the Subordinated Debt Account of the Surplus Revenue Fund, including the earnings on such Surplus Revenues, which lien is subordinate to the lien securing the Airport Revenue Bonds.

Events of default under the BANA Reimbursement Agreement generally include, among others: (i) an event of default under the Master Trust Agreement or the issuing and paying agent agreement for the Subordinated CP Notes; (ii) non-payment of any debt secured by General Airport Revenues (as defined in the Reimbursement Agreement) on a parity with, or senior to, the Subordinated CP Notes; (iii) a breach of a various covenants; (iv) bankruptcy; (v) breach of representations and warranties; (vi) default on a Secured Debt (as defined in the BANA Reimbursement Agreement); (vii) a final judgment of $10 million or more against the City payable from General Airport Revenues; (viii) the City contesting validity of obligations related to payment of the Subordinated CP Notes or a determination by a court of competent jurisdiction that certain obligations of the City related to payment of the Subordinated CP Notes are not valid or binding; (ix) Surplus Revenues are not subject to a security interest in favor of the Bank, the Bank Note or certain other payment obligations under the BANA Reimbursement Agreement; (x) ratings events including a suspension or withdrawal of the long-term, unenhanced debt rating assigned to the Airport Revenue Bonds (other than where the City requested such withdrawal and the Airport Revenue Bonds shall continue to be rated by any two of Moody’s, Fitch, or S&P), or downgrades by any of Moody’s, Fitch, or S&P of its ratings on the Airport Revenue Bonds below “Baa2”, “BBB”, and “BBB”, respectively, for a period of 120 calendar days; and (xi) any legislation is enacted, repealed, reenacted, amended or otherwise modified which has, in the sole judgment of the BANA, a material adverse effect on the obligation of the City to make payments under the BANA Reimbursement Agreement or the security granted to secure such payments.

An event of default under the BANA Reimbursement Agreement would entitle BANA to demand that no additional Subordinated CP Notes be issued, that the City reimburse BANA immediately for draws under the LOC and that all other amounts owed by the City to BANA be accelerated and become due immediately.

The BANA Reimbursement Agreement includes a subjective acceleration provision in the event that any legislation is enacted, repealed, reenacted, amended or otherwise modified which has, in the sole judgment of the BANA, a material adverse effect on the obligation of the City to make payments under the BANA Reimbursement Agreement or the security granted to secure such payments.

In connection with the BANA LOC, the City entered into a fee letter with BANA to specify the facility fee rate and other charges payable by the Airport with respect to the BANA LOC. The facility fee rate under such fee letter was established based on the underlying credit rating of the Airport Revenue Bonds and is applied to the stated amount of the BANA LOC. The facility fee rate is subject to increase in the event that the underlying credit rating of the Airport Revenue Bonds is withdrawn, suspended, or downgraded or upon an event of default under the BANA Reimbursement Agreement. The facility fee rate in effect under the LOC issued by BANA was 0.40% as of June 30, 2022.

The remaining capacity under the LOC issued by BANA as of June 30, 2022 is $40.9 million. The total LOC capacity is $75 million. The activity in Airport commercial paper notes during the year ended June 30, 2022 are as follows (in thousands):

July 1, 2021 Additions Deletions June 30, 2022 Interest Rate $51,930 $0 $17,818 $34,112 1.60%
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Clean Energy Revolving Credit Agreement (Long-Term Direct Borrowings) On September 25, 2018, the City Council authorized the City Manager, the Director of Finance, the Assistant Director of Finance or their authorized designees to negotiate, execute, and deliver a Revolving Credit Agreement (“Credit Agreement”) by and between the City and Barclays Bank PLC (the “Bank”), and a promissory note (the “Note”), evidencing the City’s obligations thereunder in the aggregate principal amount not to exceed $50,000,000 for the purpose of financing start-up costs of the City of San José Clean Energy program (“SJCE”), purchase power, and in the case of standby letters of credit, secure payments under power purchase agreements and other costs associated with the Community Energy Implementation Plan.

The Note qualifies as a “Direct Borrowing” under GASB Statement No. 88.

Effective on November 27, 2018, the Bank and the City entered into the Credit Agreement providing a credit facility in the form of a commitment by the Bank to: (i) issue revolving loans to the City under the Revolving Line of Credit Facility in an aggregate principal amount not to exceed $20,000,000 (the “Revolving Line of Credit Facility Sublimit”) for the period commencing November 27, 2018 and ending no later than November 26, 2021, with all outstanding revolving loans thereunder due and payable to the Bank on November 27, 2021; and (ii) issue standby letters of credit for the account of the City under the Standby Letter of Credit Facility in an aggregate principal amount not to exceed $35,000,000 (the “Standby Letter of Credit Facility Sublimit”) for the period commencing November 27, 2018 and ending no later than October 28, 2023, with all unrepaid draws under such letters of credit due and payable to the Bank on November 27, 2023; provided, however, that the aggregate principal amount outstanding under the Revolving Line of Credit Facility and the Standby Letter of Credit Facility shall not exceed $50,000,000 at any one time (the “Aggregate Commitment”).

The City’s obligations under the Credit Agreement are secured solely by a pledge and lien on revenues of SJCE, including revenues deposited in an operating reserve account held by the City pursuant to the Credit Agreement (the “Operating Reserve Account”).

On April 30, 2019, the City Council authorized the City Manager, the Director of Finance, the Assistant Director of Finance or their authorized designees to negotiate, execute and deliver the First Amendment to the Revolving Credit Agreement with the Bank to increase the sublimit for the Revolving Line of Credit Facility from an aggregate principal amount not to exceed $20,000,000 to $30,000,000, increase the sublimit for the Standby Letter of Credit Facility from an aggregate principal amount not to exceed $35,000,000 to $65,000,000, increase the Aggregate Commitment to issue revolving loans and standby letters of credit from an aggregate principal amount not to exceed $50,000,000 to $80,000,000 outstanding at any one time, and increase certain fees payable by the City to the Bank in connection with the credit facilities under the Credit Agreement and to clarify that the City is allowed to draw on the revolving line of credit to fund the operating reserve account as discussed herein. Effective May 10, 2019, the Bank and the City entered into the First Amendment to the Revolving Credit Agreement to issue revolving loans and standby letters of credit for the purposes and within the limits mentioned above.

As of June 30, 2022, the remaining balance for the Standby Letter of Credit Facility was as follows (in thousands):

Credit Facility
Available Credit
Sublimit
Less: Letters of Credit
Commitments(1)
Remaining Available
Credit as of 6/30/2022

Standby Letter of Credit
Facility $ 6 5,000 $ (2 7,644) $ 3 7,356
(1) Letters of Credit are issued by Barclays as a commitment to pay collateral calls in the event of an SJCE default. The commitment does not become a liability of SJCE unless and until a collateral call is paid by Barclays on behalf of SJCE, which has not yet occurred. 120

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On June 22, 2021, the City Council authorized the City Manager and the Director of Finance, or their authorized designees, to negotiate, execute and deliver a Second Amendment to the Revolving Credit Agreement with the Bank amending certain terms and provisions of the Revolving Credit Agreement in connection with the issuance of CP Notes secured by General Fund lease payments to finance the purchase of power and other operating costs of SJCE. The Second Amendment to the Revolving Credit Agreement was entered into on June 24, 2021. The Revolving Line of Credit Facility matured on November 26, 2021 and was not renewed.

Under the Credit Agreement, as amended by the First Amendment to the Revolving Credit Agreement and the Second Amendment to the Revolving Credit Agreement, the City agreed, among other things, that, so long as the Bank has any commitment thereunder or any amount payable thereunder remains unpaid from and including: (a) August 31, 2019, to but excluding November 15, 2019, to maintain not less than $10,000,000 in the Operating Reserve Account at all times during such period; (b) November 15, 2019, to but excluding June 24, 2021, to maintain not less than $15,000,000 in the Operating Reserve Account at all times during such period; and (c) from and after June 24, 2021, to maintain at all times $20,000,000 in the Operating Reserve Account (collectively, the “Operating Reserve Requirement”). The City has complied with the Operating Reserve Requirement.

In addition, the Credit Agreement, as amended, permits the City to make loans from any fund, including the General Fund, to SJCE, including from proceeds of CP issued by the Financing Authority in an amount not to exceed $100 million (previously limited to $10 million solely for the payment of start-up costs of SJCE).

Such loans are subordinate to the City’s obligations to the Bank under the Credit Agreement, as amended.

Loans from the Financing Authority to SJCE are not permitted unless the City first delivers to the Bank evidence that the Financing Authority has agreed that such loans are subordinate to the City’s obligations to the Bank under the Credit Agreement.

The Credit Agreement, as amended, prohibits repayment of loans and other debt payable from Revenues or Net Revenues of SJCE to the City or the Financing Authority, if any, unless, among other things,: (i) the amount held in the Operating Reserve Account, together with the unrestricted cash of SJCE, as of the last day for the month immediately preceding the date of such payment and as of the last day of the month for at least three of the four months immediately preceding such month, has been, and after such payment will remain, equal to or in excess of $50 million (inclusive of the $20 million required to be on deposit in the Operating Reserve Account); and (ii) the Debt Service Coverage Ratio is not less than 1.25 to 1.00 as of the last day of the fiscal quarter most recently ended.

Under the Credit Agreement, as amended, the City is required to maintain a Debt Service Coverage Ratio of not less than 1.25 to 1 as follows: (i) commencing on September 30, 2021, for the period of one fiscal quarter ending September 30, 2021; (ii) as of December 31, 2021, for the period of two consecutive fiscal quarters ending December 31, 2021; (iii) as of March 31, 2022, for the period of three consecutive fiscal quarters ending March 31, 2022; and (iv) as of the last day of each fiscal quarter thereafter for the period of four consecutive fiscal quarters ended on such day.

Events of default under the Credit Agreement include, among others: (i) default under any of the underlying Financing Documents (as defined in the Credit Agreement); (ii) non-payment; (iii) breach of certain covenants, including failure to maintain the required debt service coverage ratio or to maintain the required amounts in the Operating Reserve Account; (iv) bankruptcy; (v) breach of representations and warranties; (vi) the long- term, unenhanced ratings by any of Moody’s, S&P , or Fitch on any general obligation bonded indebtedness of the City is withdrawn or suspended (but excluding withdrawals or suspensions if the rating agency stipulates in writing that the rating action is being taken for non-credit related reasons) or reduced below “A1” (or its equivalent) by Moody’s, “A+” (or its equivalent) by S&P , or “A+” (or its equivalent) by Fitch; (vii) the dissolution 121 FOR THE YEAR ENDED J UNE 30, 2022

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or termination of SJCE; (viii) one or more final, unappealable judgments or orders for the payment of money in excess of $5 million where such judgment or order remains unsatisfied and unstayed for a period of 60 days and which is payable from revenues of SJCE; (ix) PG&E defaults in the performance of its agreement with the City for billing services related to charges for the cost of energy provided by SJCE; (x) any event of default under any Other Credit Agreement (as defined in the Credit Agreement) secured by revenues of SJCE; (xi) a Material Adverse Effect (as defined in the Credit Agreement) occurs with respect to SJCE or the City’s ability to repay its obligations under the Credit Agreement; (xii) failure to pay when due any principal of or interest on any Debt (as defined in the Credit Agreement) secured by revenues of SJCE; (xiii) failure to pay when due any amount owing under any power purchase agreement, unless the City disputes payment in good faith; or (xiv) the acceleration of the maturity of Debt secured by revenues of SJCE.

When an event of default occurs, the Bank may exercise all of its rights and remedies available to it under the Credit Agreement and as otherwise permitted by law. The Bank’s rights and remedies include, among others, taking one or more of the following actions: (i) declare the commitment and the obligation of the Bank to make Credit Extensions to be terminated; (ii) by written notice to City, declare the outstanding amount of the obligations of the City under the Credit Agreement to be immediately due and payable; (iii) require the City to cash collateralize 105% of the LOC Obligations (which generally include the amounts available to be drawn under any letters of credit plus any amounts drawn by beneficiaries under such letters of credit but which are not reimbursed by the City as required under the Credit Agreement) (“Unreimbursed Amounts”) as applicable; (iv) and at the expense of the City, cure any event of default; provided, however that the Bank shall have no obligation to effect such a cure. Upon the occurrence and during the continuance of an event of default under the Credit Agreement, any outstanding loan amounts or Unreimbursed Amounts will accrue interest at the Default Rate as defined in the Credit Agreement. Certain other per annum rates payable by the City under the Credit Agreement also increase upon the occurrence and during the continuance of an event of default.

In the case of bankruptcy where the City obtains an entry of order for relief under the Bankruptcy Code, the obligation of the Bank to make Credit Extensions shall automatically terminate and all unpaid principal amounts of all outstanding loans and Unreimbursed Amounts and all interest and other amounts payable to the Bank by the City shall automatically become due and payable, and City shall be required to cash collateralize 105% of the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, without further action by the Bank.

11. Landfill P ostclosure Costs
The City has five closed landfills for which postclosure and monitoring services are required. An estimated liability of $2,790,000 related to the closed landfills is recorded in the government-wide statement of net position as of June 30, 2022. The City’s Environmental Compliance group within the Environmental Services Department performs an annual evaluation of the liability. Actual costs may be higher due to inflation, changes in technology, or changes in regulations. The City does not own or operate any open landfills at this time.
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12. Insur ance
The City is exposed to various risks of losses related to torts, errors and omissions, general liability, injuries to employees, unemployment claims, and employee health and dental insurance.

During FY 2022, the City maintained an all-risk property policy including boiler and machinery exposures, coverage for loss due to business interruption and flood.

The City did not carry earthquake insurance as it was not available at reasonable rates. A summary of insurable coverage for the policy period October 1, 2021 to October 1, 2022 is provided below:

City of San José
Summary of Citywide Property Insurance Coverage
(For Policy period October 1, 2021 - October 1, 2022)

Limits Deductible
Per Occurrence (1) Per Occurrence (2)

Property(3) $1,000,000,000 $100,000

Business Interruption 300,000,000 $100,000

Flood Locations - Low Hazard(4) $100,000,000 Annual $100,000 per Location Aggregate

Flood Zones (Other)(5)(6) $10,000,000 Annual $500,000 per Location Aggregate

(1) Other sub-limits apply.
(2) Other deductibles apply.
(3) Covers “Certified Act of Terrorism” under the Terrorism Risk Insurance Act of 2002, as amended. (4) Refers to Flood Locations - Low Hazard as defined in the City’s insurance policy. (5) The Airport and McEnery Convention Center are subject to a $10,000,000 per Location deductible for flood. (6) The San José - Santa Clara Regional Wastewater Facility is subject to a $5,000,000 per Location deductible for flood.

Source: City of San José, Finance Department - Risk Management Unit.

To mitigate the impact of reduction to the base flood coverage from $25,000,000 to $10,000,000 as of October 1, 2019, the City has obtained an excess policy for locations not in low hazard flood zones. The excess policy provides $15,000,000 in flood limits excess of the primary property policy on a 50/50 quota share basis, where the City and excess insurers share the financing of losses on a 50/50 basis.

For the policy period of October 1, 2021 to October 1, 2022, the City maintained an Airport General Liability policy covering the Airport including Control Tower Operators, which provides a $200,000,000 combined single limit for bodily injury and property damage subject to a deductible of $0 each occurrence and annual aggregate, with a sublimit of $50,000,000 each occurrence and in the annual aggregate for personal injury, and a limit of $200,000,000 each occurrence and in the annual aggregate with respect to war liability. During the past five fiscal years, there have not been any instances that the amount of claim settlements exceeded the insurance coverage.

In addition, the Airport Liability policy also provides excess auto liability coverage with a limit that was increased from $5,000,000 to $25,000,000 effective October 1, 2021, and provides coverage excess of the underlying auto liability limit of $1,000,000, which is provided by a separate automobile policy issued to 123 FOR THE YEAR ENDED J UNE 30, 2022

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provide coverage for the off-premise operations of scheduled Airport vehicles including shuttle bus fleets with a limit of $1,000,000 per occurrence, combined single limit for bodily injury and property damage and subject to a $250,000 per accident retention. Physical damage coverage is obtained for the Airport Shuttle Bus Fleet and is subject to a $10,000 comprehensive and $10,000 collision deductible. Settled claims have not exceeded the City’s commercial insurance coverage in any of the past five fiscal years.

For the policy period of October 1, 2021, to October 1, 2022, the City maintained an automobile liability policy covering scheduled vehicles at the San José - Santa Clara Regional Wastewater Facility with a limit of $1,000,000 per occurrence, combined single limit for bodily injury and property damage and subject to a $250,000 per accident retention.

For the policy period of October 1, 2021 to October 1, 2022, the City maintained an aircraft policy covering physical damage to City aircraft used by the San José Police Department’s Air Support Unit as well as liability coverage for bodily injury and property damage arising from the use of covered aircraft. The aircraft policy provides up to $50,000,000 in aggregate liability coverage for bodily injury, personal injury, or property damage caused by war and other perils and is subject to a deductible of $0 per occurrence. For the policy period of June 17, 2021, to June 17, 2022, the City maintained a separate aircraft policy to include liability and physical damage coverage for the unmanned aerial systems (UAS) programs in place at the San José Police Department and San José Fire Department (“Drone Coverage”). The Drone Coverage provides up to $2,000,000 in aggregate liability coverage for bodily injury, personal injury, or property damage.

For the policy period of October 1, 2021 to October 1, 2022, the City maintained a law enforcement liability policy that provides coverage for third party bodily injury, property damage, or personal injury arising from the law enforcement activities conducted on behalf of approved third party employers by City police officers who have been approved to participate in the Secondary Employment program. The law enforcement liability policy provides $2,000,000 in aggregate limits and is subject to a $100,000 per occurrence deductible.

The City also maintained fiduciary liability insurance policies covering the City’s defined contribution employee benefit plans: the Deferred Compensation Plans, the Voluntary Employees’ Beneficiary Association (“VEBA”) Plans; and the Defined Contribution 401(a) Plan. The policies protect the City and the members of the applicable governing board from legal liability arising from fiduciary obligations to plan beneficiaries.

For the policy period from June 30, 2021, to June 30, 2022, the City purchased a fiduciary liability policy covering the Deferred Compensation Plans that provided $5,000,000 in aggregate limits subject to a $25,000 per claim retention except for a $100,000 per claim retention for Class Action Claims as defined in the policy. For the policy period from June 30, 2021, to June 30, 2022, the City purchased a fiduciary liability policy covering the VEBA Plans that provided $5,000,000 in aggregate limits subject to a $25,000 per claim retention. For the policy period from June 30, 2021, to June 20, 2022, the City purchased a fiduciary liability policy covering the Defined Contribution 401(a) Plan that provided $1,000,000 in aggregate limits subject to a $25,000 per claim retention.

For the policy period of October 22, 2021 to October 22, 2022, the City purchased liability insurance covering cyber risks to complement the City’s cybersecurity efforts. For the policy period of October 1, 2021 to October 1, 2022, the City purchased government fidelity/crime coverage for City losses arising from employee dishonesty. Coverage is for financial or property losses and provides a $5,000,000 per occurrence limit for losses resulting from employee theft, forgery or alteration, and inside the premises – theft of money and securities, and provides for a $1,000,000 per occurrence limit for computer fraud, funds transfer fraud, money orders, and counterfeit money. All claims are subject to a $100,000 per occurrence deductible.

Claims liabilities are reported when it is probable that a loss has occurred, and the amount of the loss can be reasonably estimated. The result of the process to estimate the claims liability is not an exact amount 124

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as it depends on many complex factors, such as inflation, changes in legal doctrines, newly discovered information and damage awards. Accordingly, claims are reevaluated periodically to consider the effects of inflation, recent claims settlement trends (including frequency and amount of pay-outs), economic and social factors, newly discovered information and changes in the law. The estimate of the claims liability also includes increases or decreases to previously reported unsettled claims. The workers’ compensation estimate includes allocated loss adjustment expenses, which represent the direct cost associated with the defense of individual claims, which may be years into the future and have been discounted to their present value using a rate of approximately 1.5% for the amounts recorded.

With respect to the general liability accrual, the City has numerous unsettled lawsuits filed or claims asserted against it as of June 30, 2022. The City Attorney and, with respect to workers’ compensation claims, the City’s Department of Human Resources have reviewed these claims and lawsuits in order to evaluate the likelihood of an unfavorable outcome to the City and to arrive at an estimate of the amount or range of potential loss to the City. The City is self-insured and has included a provision for losses in its claims liability for loss contingencies that are both probable and can be reasonably estimated.

Changes in the reported liability during the past two years are as follows (in thousands):

Liability as of June 30, 2020 $139,182
Claims and changes in estimates during 2021 34,274
Claims payments (27,830)
Liability as of June 30, 2021 145,626
Claims and changes in estimates during 2022 68,075
Claims payments and other adjustments (30,275)
Liability as of June 30, 2022 $183,426
Owner Controlled Insurance Programs - On March 15, 2007, the City bound certain liability insurance coverage for the major components of the Airport’s Terminal Airport Improvement Project through an owner- controlled insurance program (“TAIP OCIP”) with National Union Fire Insurance Company of Pittsburgh, PA (“AIG”), formerly known as Chartis Insurance. The OCIP is a single insurance program that provides commercial general liability, excess liability and worker’s compensation insurance coverage for construction job site risks of the project owner, general contractors and all subcontractors associated with construction at the designated project site.

The coverage for this program is as follows:

Terminal Area Improvement Projects
Coverages Limits Deductible Per Occurrence

General Liability

$2 million per occurrence/ $4
million aggregate
$250,000

Workers’ Compensation Statutory $250,000
Employers’ Liability $1 million per accident $250,000 Excess Liability $200 million None
The liability under the TAIP OCIP is based upon an estimated payroll of $92,500,000 for the covered projects and a construction period of 45 months, commencing on March 15, 2007 through December 31, 2010.

The terms of the TAIP OCIP required the City to fund a claims loss reserve fund with AIG in the amount of $8,900,000. The claims loss reserve fund is available to AIG to pay claims within the City’s deductible subject 125 FOR THE YEAR ENDED J UNE 30, 2022

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to an aggregate maximum loss exposure within coverage limits to the City of $8,900,000. The City was able to negotiate to fund 74% of the claims loss reserve and interest generated remains in the fund. The full amount of $6,500,000 was deposited with AIG in FY 2009 and was recorded as advances and deposits in the accompanying Airport enterprise fund statement of net position. The balance of the TAIP reserve fund as of June 30, 2022 was approximately $1,179,000.

The City was obligated to maintain the TAIP OCIP through final acceptance of the TAIP , pursuant to the terms of its design-build contract with Hensel Phelps. The TAIP Project has been completed and the policies expired on June 30, 2011. AIG will continue to hold the remaining funds in the claims loss reserve until such time as the exposure to risk of claims ceases or the City opts to cash out the remaining funds in exchange for accepting responsibility for potential future claims.

On June 30, 2017, the City bound certain liability insurance coverage for the major components of the San José-Santa Clara Regional Wastewater Facility Capital Improvement Program through an owner-controlled insurance program (“RWF OCIP I”) with the primary carrier Old Republic General Insurance Corporation (“Old Republic”). The RWF OCIP I is a single insurance program that the City sponsors and provides commercial general liability, excess liability and worker’s compensation insurance coverage for construction job site risks of the project owner, general contractors and all subcontractors associated with construction at the designated project site. In addition, the City procured Builder’s Risk and Contractor’s Pollution Liability insurance to cover liabilities associated with the work. The Contractor’s Pollution Liability insurance for RWF OCIP II provides project-specific coverage to the City arising from pollution conditions arising from contractor operations on the specific projects. The $10 million in Contractor’s Pollution Liability coverage is subject to a $100,000 per occurrence deductible.

The City was also required to establish and post a cash collateral fund of $2,657,395, to be paid in five annual installments and subject to the Old Republic’s quarterly requests to adjust based on expenditure of funds up to the maximum aggregate loss of $4,385,000. Due to positive claims experience since the inception of the program, the City negotiated a $100,000 reduction in the overall cash collateral requirement. As of July 31, 2021, the City has provided Old Republic with $2,557,395 for the cash collateral fund. The cash collateral fund is available to Old Republic to pay claims within the City’s deductible of up to $250,000 per occurrence to an aggregate maximum loss exposure within coverage limits to the City of $4,385,000.

RWF Capital Improvement Projects (OCIP I)
Coverages Limits
Deductible Per
Occurrence

General Liability

$2 million per occurrence/ $4
million aggregate
$250,000

Workers’ Compensation Statutory $250,000
Employers’ Liability $1 million per accident $250,000 Excess Liability $100 million None
The premiums of the RWF OCIP I are calculated based on the estimated hard cost of construction valued at $535,000,000 for the covered capital improvement projects to be enrolled and for work to be performed up to March 30, 2023.

On January 25, 2022, the City bound certain liability insurance coverage for the major components of the capital improvement program of the Treatment Plant through a second Owner-Controlled Insurance Program (“RWF OCIP II”) with the primary carrier Ace American Insurance Company (“Chubb”). The RWF OCIP II is a single insurance program that the City sponsors and provides commercial general liability, excess liability, 126

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and worker’s compensation insurance coverage for construction jobsite risks of the project owner, general contractors and all subcontractors associated with construction at the designated project site.

The City secured Builder’s Risk insurance to provide replacement cost property coverage for scheduled RWF OCIP II capital projects with construction start dates from April 1, 2022, to April 1, 2024. The City purchased Contractor’s Pollution Liability insurance for RWF OCIP II, which provides project-specific coverage to the City arising from pollution conditions arising from contractor operations on the specific projects. The $10 million in Contractor’s Pollution Liability coverage is subject to a $100,000 per occurrence deductible.

The City also elected to purchase Excess Professional Liability insurance for RWF OCIP II. Excess Professional Liability coverage provides claims-made, project-specific coverage to the City for liabilities and exposures resulting from breach of the performance of professional services providers, including design, architecture and engineering work. The $10 million in Excess Professional Liability coverage is in excess of the individual policies of these professionals, which must provide a minimum of $2 million in professional liability coverage and applies only after exhaustion of proceeds on those policies.

The City was also required to establish and post a cash collateral fund of $1,496,471, to be paid in four annual installments and subject to Chubb’s quarterly requests to adjust based on expenditure of funds up to the maximum aggregate loss of $2,559,441. The cash collateral fund is available to Chubb to pay claims within the City’s deductible of up to $250,000 per occurrence to an aggregate maximum loss exposure within coverage limits to the City of $2,559,441. As of June 30, 2022, the City has provided Chubb with $374,118 for the cash collateral fund.

The coverage for the RWF OCIP II is as follows:

RWF Capital Improvement Projects (OCIP II)
Coverages Limits
Deductible Per
Occurrence

General Liability

$2 million per occurrence/ $4
million aggregate
$250,000

Workers’ Compensation Statutory $250,000
Employers’ Liability $1 million per accident $250,000 Excess Liability $100 million None
The premiums of the RWF OCIP II are calculated based on the estimated hard cost of construction valued at $310,600,000 for the covered capital improvement projects to be enrolled and for work to be performed during the policy period February 1, 2022 through February 1, 2028.

13. P ollution Remediation Obligations
The City is currently responsible for the management and cleanup of pollution remediation activities at several City sites including Las Plumas Warehouse and the former San José Fire Training Facility. Although the City has significant experience in estimating these types of cleanups, the calculation of the expected outlays related to this pollution remediation is based on estimates provided by both City engineers and consultants hired by the City. The amount of the estimated pollution remediation liability assumes that there will be no major increases in the cost of providing these cleanup services. As of June 30, 2022, the government-wide statement of net position reported a net pollution remediation obligation in the amount of $3.3 million in governmental activities.

Convention Center South Hall Site – On October 10, 2018, the City purchased the Convention Center South Hall Site (“South Hall Site”) from the SARA in “as-is” condition. The South Hall Site is contaminated with gasoline, diesel products, and lead. The San Francisco Regional Water Quality Control Board (“Water Board”) 127 FOR THE YEAR ENDED J UNE 30, 2022

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has listed the South Hall Site as an open-inactive case. The Water Board is not requiring further investigation or possible remediation at this time based upon the current use of the property as a Convention Center that is completely paved. There are no immediate plans to redevelop the South Hall Site which would likely require environmental mitigation, the cost of which is unknown and would depend on the specific redevelopment plans for the South Hall Site.

San José Santa Clara Wastewater Treatment Facility - San José Santa Clara Wastewater Treatment Facility is co-owned by the City of San José and City of Santa Clara and treats wastewater for over 1.7 million residents and thousands of businesses in the cities of San José, Santa Clara, Milpitas, Campbell, Los Gatos, Monte Sereno, Cupertino, and unincorporated areas of the County. As part of the wastewater treatment process, the water is filtered, treated, and the solids removed. The solid material byproduct is called biosolids and placed in lagoons in the RWF buffer lands where the biosolids are dredged and then dried to reduce the water content for eventual off-site disposal.

In the 1960s and 1970s, biosolids from the wastewater were kept on the RWF buffer lands and stored in lagoons over about 200-acres. These biosolids, estimated to be approximately 750,000 cubic yards, were tested for disposal purposes and found to contain several metals that characterize the biosolids as hazardous waste. The San Francisco Bay Regional Water Quality Control Board (“Water Board”) issued an order in August 2019 to require the City to remediate the biosolids. The City received approval from the Water Board to consolidate the biosolids into a smaller footprint (about 25-acres) and cap with clean soil. The City has decided to do the work in two phases. Phase 1 was completed in late 2020 at cost of about $6.2 million. The remaining biosolids will be placed in the consolidated area in a second phase implemented over several years. The project is expected to be completed in 2026 or 2027. The estimated cost for the Phase 2 removal is currently $28.2 million.
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G. I nterfund Transactions

The composition of interfund balances as of June 30, 2022, with explanations of transactions, is as follows (in thousands):

1. Due f rom/Due to other funds

Receivable Fund Payable Fund Amount
General Fund Nonmajor Governmental Funds $3,586 (1)
General Fund San José Financing Authority Debt Service 799 (2) Nonmajor Governmental Funds Nonmajor Governmental Funds 7,791 (3) San José Financing Authority Debt Service San José Clean Energy 60,000 (4) $72,176

(1) $2,814 represents accrual of gas tax transfers, $566 represents accrual of construction and conveyance tax transfer, and $206 represents short- term borrowing for working capital.
(2) Represents loan interest for the Rancho Del Pueblo golf course. (3) Represents short-term borrowing for working capital. (4) Represents loan for commercial paper issuance.

2. Adv ances to/Advances from other funds

Receivable Fund Payable Fund Amount
General Fund San José Financing Authority Debt Service $3,297 (1) $3,297

(1) Represents a $3,297 loan to support the Rancho Del Pueblo golf course.

3. Long-t erm Advances from SARA
The City has a payable and SARA has a receivable related to an Agency advance of a portion of a loan made by the City’s Housing Department to a third party for a transitional housing project. The SARA is entitled to

24.5% of the total loan repayment and therefore has a long-term receivable in the amount of $733,000 due from the City as of June 30, 2022.
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4. T ransfers in/Transfers out

Transfers are indicative of funding for capital projects, lease payments or debt service and subsidies of various City operations. The following schedules summarize the City’s transfer activity for the year ended June 30, 2022, with explanations of transactions (in thousands):

Between governmental and business-type activities:

Transfer from Transfer to Amount

Norman Y. Mineta San José International Airport General Fund $ 3 34 (1)

Wastewater Treatment System Nonmajor Governmental Funds 1 ,929 (2)

Municipal Water System General Fund
800 (3)
Nonmajor Governmental Funds 270 (4)

Parking System General Fund
820 (5)
Nonmajor Governmental Funds 187 (6)

San José Clean Energy Nonmajor Governmental Funds
220 (7)

General Fund Norman Y. Mineta San José International Airport 300 (8)

(1) Transfer for partial repayment of local sales tax for jet fuel. (2) Transfer for City Hall debt service payments.
(3) Transfer for late fee collections from water utility customers. (4) Transfer for City Hall debt service payments.
(5) Transfer of $323 to San Jose Downtown Association, and $497 for strategic support. (6) Transfer of $110 for City Hall debt service payments and $77 to Downtown Property and Business Improvement District Fund. (7) Transfer for City Hall debt service payments.
(8) Transfer of local sales tax for jet fuel.

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Between governmental activities:

Transfer from Transfer to Amount

General Fund Nonmajor Governmental Funds $ 2
9,296 (1)
Internal Service Funds 1,000 (2)
San José Financing Authority Debt Service 8 53 (3)

Housing Activities Nonmajor Governmental Funds 2
77 (4)

Low and Moderate Income Housing Asset Nonmajor Governmental Funds 3 69 (5)

Special Assessment Districts General Fund 1
20 (6)
San José Financing Authority Debt Service 1,075 (7)

Nonmajor Governmental Funds General Fund 1
0,338 (8)
Nonmajor Governmental Funds 1 0,621 (9)
San José Financing Authority Debt Service 2 7,952 (10)

Internal Service Funds General Fund 4
71 (11)
Nonmajor Governmental Funds 3 86 (12)

$ 8
2,758

(1) Transfer of $17,283 for debt service payments, and $12,013 for operations and subsidies. (2) Transfer to vehicle maintenance and operations fund. (3) Transfer for City Hall debt service payments.
(4) Transfer for City Hall debt service payments.
(5) Transfer for City Hall debt service payments.
(6) Transfer for administrative expenses.
(7) Transfer of interest and debt service payments.
(8) Various transfers for operations, interest earnings, and capital projects. (9) Transfer of $4,113 for City Hall debt service payments and $6,508 for operations, interesting earnings, and capital projects. (10) Transfer for reimbursements for debt service payments. (11) Transfer of $24 for interest and discount allocation and $447 transfer for vehicle maintenance and operations. (12) Transfer for City Hall debt service payments.
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H. De ferred Inflows of Resources

As of June 30, 2022, total deferred inflows of resources in the governmental funds related to the following unavailable resources (in thousands):

Description
General Fund receivables $ 1
6,099
Housing Activities loans receivable 1
8,621
Low and Moderate Income Housing Asset loans receivable
2,862
Community Development Block Grant (CDBG) loans receivable 1 0,849
Total deferred inflows of resources $ 4
8,431
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I. Go vernmental Fund Balances

As of June 30, 2022, total fund balances for the City’s major and nonmajor governmental funds are as follows (in thousands):

General
Fund
H
ousing
Activities
Low &
Moderate
Income
Housing
Asset
Special
Assessment
Districts
San José
Financing
Authority
Debt Service
Nonmajor
Governmental
Funds
Total
Governmental
Funds
Nonspendable:

Advances & Deposits $ 8
8 $ -
$ -
$ -
$ -
$ - $ 8
8 Subtotal
88 -

-
-
-

- 8
8 Restricted for:

Affor
dable Housing
-
1 83,083 4
34,496 -
-
-
617,579
Capital Projects & Improvements
-

-
3 0,205 - 5
82,770
612,975
Employment/ Training Services
-

-
-
- 1
,310
1,310
Drug Abuse Prevention & Control 3
00 -

-
-
- 1
,057
1,357
Community Development Services
-

-
-
- 1
,687
1,687
Library Services & Facilities
-

-
-
- 5
,339
5,339
Small Business Loans
-

-
-
-
7 7
Parks, Recreation, & Neighborhood
Development 3
-

-
-
- 1
02,180
102,183
Underground Utility Projects
-

-
-
- 1
0,462 1
0,462
Storm Drainage Projects
-

-
-
- 4
4,690 4
4,690
Supplemental Law Enforcement Services
-

-
-
-
110
110
Convention Center, Auditorium, Theaters
-

-
-
-
173
173
Debt Service
-

-
-

1,665 5
2,786 5
4,451
Subtotal 3
03 1
83,083 4
34,496 3
0,205
1,665
8 02,571 1
,452,323

Committed to:

Capital Pr
ojects and Improvements
24,288

-
-
-
1 ,428 2
5,716
Parks, Recreation, & Neighborhood
Development

-
-
-
4 ,184
4,184
Development Enhancement
-

-
-
-

507
507
Convention Center, Auditorium, Theaters
-

- - - 2 ,999 2,999
Employee Compensation Planning 9
,230

-
-
-

-
9,230
Development Fee Program Technology 2
35 -

-
-
-

-
235
Residential Program Administration
-

-
-
-
2 ,823
2,823
Government Functions/Services
14,558

-
-
-

- 1
4,558
Police Department Staffing 5
50 -

-
-
-

-
550
Public Safety 6
,073

-
-
-

-
6,073
Community Development Services 8
,070

-
-
-
5 8,873 6
6,943
Salaries & Benefits 4
,000

-
-
-

-
4,000
Sanitation Projects 3
39 -

-
-
-
3 1,341 3
1,680
Debt Service
-

-
-
-

4 4
Subtotal
67,343

-
-
-
1 02,159
169,502

Assigned to:

Financing
Authority Debt Service 3
,297
-

-
-
-

-
3,297
Development Enhancement
-

-
-
-
2 0 2
0 Community & Culture Projects
-

-
-
-
4 ,724
4,724
Hayes Mansion and Ice Center Operations
-

-
-
-
1 ,870
1,870
Capital Projects & Improvements
-

-
-
-
8 7,608 8
7,608
Government Functions/Services 2
76,059
-

-
-
-

-
276,059
Subtotal 2
79,356
-

-
-
-
9 4,222
373,578

Unassigned 2 25,967 - - - - (2 0) 225,947

Total Fund Balance $ 5 73,057 $ 1 83,083 $ 4 34,496 $ 3 0,205 $ 1 ,665 $ 9 98,932 $ 2 ,221,438 133 FOR THE YEAR ENDED J UNE 30, 2022

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City Reserves Policy. The City Council-approved Operating Budget and Capital Improvement Program Policy (Policy Number 1-18) incorporates direction on contingency funding, including general purpose reserves, the Cash Reserve Fund and the Emergency Reserve Fund. Within the General Fund, general purpose reserves are to be set aside as a safety net for general city operations. Currently, the General Fund Contingency Reserve, the General Fund Budget Stabilization Reserve, and the General Fund Workers’ Compensation/General Liability Catastrophic Reserve are available for general purposes. Each of these reserves is described below.

With the exception of the General Fund Contingency Reserve Fund, use of these reserves requires a majority vote of the City Council.

Within capital project and special revenue funds, general purpose reserves may be set aside as a safety net for City operations pertaining to the respective fund or to provide stability for customer rates when there are fluctuations to revenues and expenditures.

The Policy also identifies the Cash Reserve Fund and the Emergency Reserve Fund, which are mandated by the City Charter described below.

The General Fund Contingency Reserve Fund was created to meet unexpected circumstances arising from financial and/or public emergencies that require immediate funding that cannot be met by any other means.

The policy established a minimum of three percent of the General Fund operating budget as the reserve balance. Any use of the General Fund Contingency Reserve shall require a two-thirds vote of approval by the City Council. As of June 30, 2022, the contingency amount accounts for $40,500,000 of the unassigned fund balance.

The General Fund Budget Stabilization Reserve may be maintained at a level as determined by the City Council to be adequate. The purpose of this reserve is to provide budget stability when there are fluctuations that result in lower than projected revenues and/or higher than projected expenditures that cannot be re- balanced within existing budget resources in any given year. This reserve is intended to provide a buffer, or bridge funding, to protect against reducing service levels when these fluctuations occur. As of June 30, 2022, the budget stabilization reserve accounts for $46,500,000 of the unassigned fund balance.

The General Fund Workers’ Compensation/General Liability Catastrophic Reserve may be maintained at a level as determined by the City Council to be adequate. The purpose of this reserve is to provide funding for potential workers’ compensation or general liability claims that exceed the budgeted amounts as the City, for the most part, is self-insured. As of June 30, 2022, the workers’ compensation and general liability catastrophic reserve accounts for $15,000,000 of the unassigned fund balance.

The Cash Reserve Fund was created for the payment of any authorized expenditures of the City for any fiscal year in anticipation of and before the collection of taxes and other revenues of the City for such fiscal year, and for the payment of authorized expenses of the City for any fiscal year, which became due and payable and must be paid prior to the receipt of tax payments and other revenues for such fiscal year. A reserve shall be built up in said fund from any available sources other than restricted sources in an amount which the Council deems sufficient for said purposes. As of June 30, 2022, the cash reserve amount accounts for $6,000 of the unassigned fund balance.

The Emergency Reserve Fund was created for the purpose of meeting any public emergency involving or threatening the lives, property or welfare of the people of the City or property of the City. A reserve shall be built up in said fund from any available sources, other than restricted sources, in an amount which the Council deems desirable. As of June 30, 2022, the emergency reserve amount accounts for $3,179,000 of the unassigned fund balance.
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IV. Othe r Information
A. De fined Benefit Retirement Plans
A. 1. City Sponsor
ed Defined Benefit Pension Plans

1. G eneral Information about the Pension Plans
The City sponsors and administers two single employer defined benefit retirement systems, the Police and Fire Department Retirement Plan (the “PFDRP”) and the Federated City Employees’ Retirement System (the “FCERS”), and collectively, “the Retirement Systems”, which with the exception of certain unrepresented employees together cover all full-time and certain part-time employees of the City. The Retirement Systems provide general retirement benefits under single employer Defined Benefit Pension Plans, as well as the Postemployment Healthcare Plans. The Retirement Systems are accounted for in the Pension Trust Funds.

The Retirement Systems are administered by the Chief Executive Officer of the Office of Retirement Services, an employee of the City, who serves at the pleasure of the Boards of Administration for the Retirement Systems. The compensation paid to the Chief Executive Officer and the investment professional staff within the Office of Retirement Services is set by the City Council. The Boards of Administration in recommending to the City Council the compensation amounts for these positions are required under the City Charter to consider compensation of equivalent positions in comparable United States public pension plans.

The separately issued annual reports of PFDRP and FCERS, together with various chapters in Title 3 of the City’s Municipal Code, provide more detailed information about the Retirement Systems. Those reports may be obtained from the City of San José Office of Retirement Services at http://www.sjretirement.com.

Benefits
The Defined Benefit Pension Plans provide general retirement benefits including pension, death, and disability benefits to members. The contribution and benefit provisions and all other requirements are established by the City Charter and the City’s Municipal Code. Benefits are based on average Final Compensation, years of service, and cost-of-living increases as specified by the City’s Municipal Code. Information regarding disability and death benefits can be found in the annual reports of the Retirement Plans and on the Office of Retirement Services website.
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Effective June 18, 2017, the PFDRP has several Tiers as follows:

PFDRP Membership Tiers
Tier Hire Date Pension
Defined Benefit
Retiree Healthcare
(Medical/Dental)
P
olice Tier 1 • Before August 4, 2013

• Former Tier 1 rehired on or after
June 18, 2017 who did not take a
return of contributions
Tier 1 Medical/Dental (2) (4)

Police Tier 1
Rehire
• Tier 1 employee rehired between
August 4, 2013 through June 17,
2017
Tier 1
(1) Medical/Dental (2) (4)

Fire Tier 1 • Before January 2, 2015 Tier 1 Medical/Dental (2) (4)

• Former Tier 1 rehired on or after
June 18, 2017 who did not take a
return of contributions

Fir
e Tier 1 Rehire • Tier 1 employee rehired between
January 2, 2015 through June 17,
2017
Tier 1
(1) Medical/Dental (2) (4)

Tier 1 Classic • “Classic” membership with
CalPERS/reciprocal agency hired
on or after August 4, 2013 for
Police and January 2, 2015 for Fire
Tier 1
(5) Not Eligible

Police Tier 2 • On or after August 4, 2013 Tier 2 Not Eligible (3) (4)

Fire Tier 2 • On or after January 2, 2015 Tier 2 Not Eligible (3) (4)

(1) Employees in these tiers are responsible for 50% of the amortization costs for having any prior years of service in Tier 2 changed to Tier 1. (2) Employees in these Tiers were provided a one-time irrevocable election to remain in the Police and Fire Healthcare Plan or opt into the Police and Fire VEBA.

Employees that opted into the Police and Fire VEBA are not eligible for the Police and Fire Healthcare Plan. The Police and Fire VEBA was implemented on March 25, 2018.
(3) Employees in these tiers were mandatorily placed into the Police and Fire VEBA. (4) Unrepresented employees were eligible to opt into a Police and Fire VEBA but are not eligible to make ongoing contributions to the Police and Fire VEBA. (5) Employees in these tiers are responsible for 50% of the amortization costs for any prior years of service in Tier 2 changed to Tier 1 for all employees in the “Classic” tier regardless of start date.
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The following tables summarize the pension benefits for the members:

PFDRP
Police Tier 1 (1) Police Tier 1 Classic (2) Police Tier 2 (3)

Pension
Service required
to leave
contributions in
retirement plan
1 0 years of service
(20 years must have elapsed from date
of entry into Retirement System to
collect pension)
1 0 years of service 5 years service with the City in the Police and Fire Department Plan (Years
of Service = 2080 hours worked within
applicable 12-month period)

50 with 5 years of service with the City in
the Plan

Mandat
ory retirement at 70 years of age Mandatory retirement at 70 years of age A reduction factor of 7.0% per year for each year between age 57 and Tier 2
member’s age at retirement, prorated to
the closest month

Early
Retir
ement
50-54 with 20 years of service
(discounted pension)
Allowance reduced pursuant to
Municipal
Code Section 3.36.810
5 0-54 with 20 years of service
(discounted pension)
Allowance reduced pursuant to Municipal
Code Section 3.36.810
N/A

Def
erred Vested
Retirement
5 5 with 10 years of service only if 20
years have elapsed from date of
membership.
(Qualifying members can begin
receiving benefits at age 50 with least 25
years of service.)
5 5 with 10 years of service only if 20
years have elapsed from date of
membership.
(Qualifying members can begin
receiving benefits at age 50 with at least
25 years of service.)
A
t least 5 years of service with the City
in the Plan (This applies to members
who separate from City service before
retirement and leave their contributions
in the retirement system.)

Can
begin at age 50 with reduction
factor of 7.0% per year for each year
between age 57 and the Tier 2
member’s age at retirement, prorated to
the closest month.
(1) Police Tier 1 employees are those hired before August 4, 2013. (2) Employees with “Classic” membership from a CalPERS or reciprocal agency. A CalPERS “Classic” member is a member who previously worked for a CalPERS or other reciprocal agency and meets the following criteria: 1. First established CalPERS membership or membership in a CalPERS reciprocal agency prior to January 1, 2013. 2. AND is hired by the City of San José after a break in service of less than six months. 3.AND did not have concurrent (overlapping) service with the other agency. City of San José Reciprocity election form must be submitted within thirty days of the first day of employment with the City.

Employees in Tier 1 Classic are not eligible for the defined benefit retiree healthcare plan. (3) Police Tier 2 employees are those hired on or after August 4, 2013.

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PFDRP (Continued)
Police Tier 1 (1) Police Tier 1 Classic (2) Police Tier 2 (3)

Allowance First 20 years of City service: 50% of
Final Compensation (2.5% per year)
First
20 years of City service: 50% of
Final Compensation (2.5% per year)
First
20 years of service: 2.4% per year of
service x Final Compensation

Next 21-30 years City service: 4% per
year of service x Final Compensation
(90% max)
Next 2
1-30 years City service: 4% per
year of service x Final Compensation
(90% max)
Beginning of
21st year of service: 3.0%
per year of service x Final
Compensation

Beginning of
26th year of service: 3.4%
per year of service x Final
Compensation

Final
Compensation is the average
annual base pay plus any premium pays
authorized by ordinance for the highest 3
consecutive years of service (SJMC

3.36.020.05)

Maximum
benefit is 80% of Final
Compensation

As
of September 30, 1994, the City of
San José adopted a reciprocal
agreement with CalPERS. This may
result in improved benefits for members
who transfer between CalPERS and this
retirement plan. Final eligibility for
reciprocity is determined at the time of
retirement.

Cost
-of-Living Adjustments
Cost-of-Living
Adjustments
Retir
ees are eligible for a 3% annual
cost-of-living adjustment (COLA).

Regular COLAs are compounded and
paid each February. There is no
proration of COLA.

Retir
ees are eligible for a 3% annual
cost-of-living adjustment (COLA).

Regular COLAs are compounded and
paid each February. There is no
proration of COLA.

Retir
ees are eligible for annual cost-of-
living adjustment (COLA) limited to the
increase in the Consumer Price Index
(San José-San Francisco-Oakland, U.S.

Bureau of Labor Statistics index, CPI-U,
December to December), capped at

2.0% per year. The first COLA will
be prorated based on the number of
months retired.

(1) Police Tier 1 employees are those hired before August 4, 2013. (2) Employees with “Classic” membership from a CalPERS or reciprocal agency. A CalPERS “Classic” member is a member who previously worked for a CalPERS or other reciprocal agency and meets the following criteria: 1. First established CalPERS membership or membership in a CalPERS reciprocal agency prior to January 1, 2013. 2. AND is hired by the City of San José after a break in service of less than six months. 3.AND did not have concurrent (overlapping) service with the other agency. City of San José Reciprocity election form must be submitted within thirty days of the first day of employment with the City.

Employees in Tier 1 Classic are not eligible for the defined benefit retiree healthcare plan. (3) Police Tier 2 employees are those hired on or after August 4, 2013. 138

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PFDRP
Fire Tier 1 (1) Fire Tier 1 Classic (2) Fire Tier 2 (3)

Pension
Service required
to
leave
contributions
in retirement
system
1 0 years of service
(20 years must have elapsed from date
of entry into Retirement System to
collect pension)
1 0 years of service 5 years of service with the City in the Retirement System (Year of Service =
2080 hours worked in the applicable 12-
month period)

Ser
vice Retirement
Age/Years of
Service
5 0 with 25 years of service
55 with 20 years of service
30 years of service at any age (with
reciprocity, must be 50 years of age)
5 0 with 25 years of service
55 with 20 years of service
30 years of service at any age (with
reciprocity, must be 50 years of age)
5 7 with 5 years of service with the City in
the Retirement System
50 with 5 years of service with the City in
the Retirement System
A reduction factor of 7% per year for
Mandat
ory retirement at 70 years of age Mandatory retirement at 70 years of age each year between age 57 and the Tier 2 member’s age at retirement, prorated to
the closest month

Early Retir
ement 50-54 with 20 years of service
(discounted pension)
5 0-54 with 20 years of service
(discounted pension)
N/A

Allowance r
educed pursuant to
Municipal
Code Section 3.36.810
Allowance
reduced pursuant to
Municipal
Code Section 3.36.810

Def
erred Vested
Retirement
5 5 with 10 years of service only if 20
years have elapsed from date of
membership.
(Qualifying member can begin receiving
benefits at age 50 with at least 25 years
of
service.)
5 5 with 10 years of service only if 20
years have elapsed from date of
membership.
(Qualifying member can begin receiving
benefits at age 50 with at least 25 years
of
service.)
A
t least 5 years of service with the City
in the Retirement System. (This applies
to members who separate from City
service before retirement and leave their
contributions in the r
etirement system.)
Can begin at age 50 with reduction
factor of 7% per year for each year
between age 57 and the Tier 2
member’s age at retirement, prorated to
the closest month

(1) Fire Tier 1 members are those hired before January 2, 2015. (2) Employees with “Classic” membership from a CalPERS or reciprocal agency. A CalPERS “Classic” member is a member who previously worked for a CalPERS or other reciprocal agency and meets the following criteria: 1. First established CalPERS membership or membership in a CalPERS reciprocal agency prior to January 1, 2013. 2. AND is hired by the City of San José after a break in service of less than six months. 3. AND did not have concurrent (overlapping) service with the other agency. City of San José Reciprocity election form must be submitted within thirty days of the first day of employment with the City. Employees in Tier 1 Classic are not eligible for the defined benefit retiree healthcare plan. (3) Fire Tier 2 employees are those hired on or after January 2, 2015.

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PFDRP (Continued)
Fire Tier 1 (1) Fire Tier 1 Classic (2) Fire Tier 2 (3)

Allowance First 20 years of service: 50% of Final
Compensation (2.5% per year)
First
20 years of service: 50% of Final
Compensation (2.5% per year)
First
20 years of service: 2.4% per year
of service x Final Compensation

>2
0 years of service - all years convert
to 3% for each full year x Final
Compensation (90% max)
Beginning of
21st year of service: 3%
per year of service x Final
Compensation (90% max) - All years
convert to 3% after 20 years of service
Beginning of
21st year of service: 3.0%
per year of service x Final
Compensation

Beginning of
26th year of service: 3.4%
per year of service x Final
Compensation

Final
Compensation is the average
annual base pay plus any premium pays
authorized by ordinance for the highest 3
consecutiv
e years of service (SJMC

3.36.020.05)

Maximum
benefit is 80% of Final
Compensation

Recipr
ocity
Reciprocity As of September 30, 1994, the City of
San José adopted a reciprocal
agreement with CalPERS. This may
result in improved benefits for members
who transfer between CalPERS and this
retirement plan. Final eligibility for
reciprocity is determined at the time of
retirement
As
of September 30, 1994, the City of
San José adopted a reciprocal
agreement with CalPERS. This may
result in improved benefits for members
who transfer between CalPERS and this
retirement plan. Final eligibility for
reciprocity is determined at the time of
retirement
As
of September 30, 1994, the City of
San José adopted a reciprocal
agreement with CalPERS. This may
result in improved benefits for members
who transfer between CalPERS and this
retirement plan. Final eligibility for
reciprocity is determined at the time of
retirement

Cost
-of-Living Adjustments
Cost-of-Living
Adjustments
Retir
ees are eligible for a 3% annual
cost-of-living adjustment (COLA).

Regular COLAs are compounded and
paid each February. There is no
proration of COLA.

Retir
ees are eligible for a 3% annual
cost-of-living adjustment (COLA).

Regular COLAs are compounded and
paid each February. There is no
proration of COLA.

Retir
ees are eligible for annual cost-of-
living adjustment (COLA) limited to the
increase in the Consumer Price Index
(San José-San Francisco-Oakland, U.S.

Bureau of Labor Statistics index, CPI-U,
December to December), capped at

2.0% per year. The first COLA will be
prorated based on the number of
months retired.

(1) Fire Tier 1 employees are those hired before January 2, 2015. (2) Employees with “Classic” membership from a CalPERS or reciprocal agency. A CalPERS “Classic” member is a member who previously worked for a CalPERS or other reciprocal agency and meets the following criteria: 1. First established CalPERS membership or membership in a CalPERS reciprocal agency prior to January 1, 2013. 2. AND is hired by the City of San José after a break in service of less than six months. 3. AND did not have concurrent (overlapping) service with the other agency. City of San José Reciprocity election form must be submitted within thirty days of the first day of employment with the City. Employees in Tier 1 Classic are not eligible for the defined benefit retiree healthcare plan. (3) Fire Tier 2 employees are those hired on or after January 2, 2015. 140

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Effective June 18, 2017, the FCERS has several Tiers as follows:

FCERS Membership Tiers
Tier Hire Date Pension
Defined Benefit Retiree
Healthcare
(Medical/Dental)

Tie
r 1 • On or before September 29, 2012

• Former Tier 1 rehired on or after June 18, 2017 who did not take a return of contributions
Tier 1 Medical/Dental (2) (4)

Tier 1 Rehire • Former Tier 1 rehired on or after September 30, 2012 through June 17, 2017
Tier 1 (1) Medical/Dental (2) (4) (5)

Tier 1 Classic • “Classic” membership with CalPERS/reciprocal agency hired by the City of San Jose on or after June 18, 2017.

Tier 1 (6) Medical/Dental

• “Classic” membership with California Public
Employees’ Retirement System (“CalPERS”)/reciprocal
agency hired on or after September 30, 2012, but
before September 27, 2013
Tier 1
(6)

Not Eligible (3) (4)

• “Classic” membership with CalPERS/reciprocal agency
hired on or after September 27, 2013
Tier 1
(6)

Tier 2
(or Tier 2A)
• Hir
ed/rehired/reinstated on or after September 30,
2012, but before September 27, 2013
Tier 2 Medical/Dental (2) (4)

Tier 2B • Hired/rehired/reinstated after September 27, 2013 and have not met City’s eligibility for retiree healthcare
Tier 2 Not Eligible (3) (4)

(1) Employees in these tiers are responsible for 50% of the amortization costs for having any prior years of service in Tier 2 changed to Tier 1. (2) Employees in these tiers were provided a one-time irrevocable election to remain in the Federated Healthcare Plan or opt into the Federated VEBA.

Employees that opted into the Federated VEBA are not eligible for Federated Healthcare Plan. The Federated VEBA was implemented on March 25, 2018. (3) Employees in these tiers were mandatorily placed into the Federated VEBA. (4) Unrepresented employees were eligible to opt into the Federated VEBA but are not eligible to make ongoing contributions to the Federated VEBA. (5) All Tier 1 rehires formerly in Tier 2B and Tier 2C who opted to remain in the Federated Healthcare Plan began contributing to the Federated Healthcare Plan on March 25, 2018.
(6) Employees in these tiers are responsible for 50% of the amortization costs for any prior years of service in Tier 2 changed to Tier 1 for all employees in the “Classic” tier regardless of start date.
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FCERS
Tier 1 (1) Tier 1 Classic (2) Tier 2A (3) Tier 2B (4)

Pension
Service required to
leave
contributions in
r
etirement
system
5 years 5 years Federated City Service (Year of Service = 2080 hours worked in the applicable 12-month period)

Service Retirement
Age/Years of Service 55 with 5 years service
30 years service at any age
6 2 years with 5 years Federated City Service May retire on or after 55 years with 5 years Federated City Service. A reduction factor of 5% per year for each year between age fifty-five (55) and the Tier 2 member’s age at retirement before age 62, prorated to the closest month

Deferred Vested
retirement
5 5 with 5 years service
(This applies to members who separate from City service befor
e retirement and leave their contributions in the
retirement system.)
May commence on or after 55 years with 5 years Federated City Service with actuarial equivalent reduction (This
applies to members who separate from City service before retirement and leave their contributions in the retirement system.) Can begin at age 55 with reduction factor of 5% per year for each year between age fifty-five and the Tier 2 member’s age at retirement before age 62, prorated to the closest month

Allowance 2.5% x Years of Service x Final Compensation (75.0% max)
Tier 1: Final Compensation is the highest average monthly earnable pensionable salar
y during 12 consecutive months,
capped at 108% of the second highest 12 consecutive
months. If separation takes place prior to July 1, 2001, Final Compensation is highest average monthly salary during 36 consecutive months.

2.0% x Years of Federated City Service x Final
Compensation (70.0% max)

Final Compensation is the average monthly (or biweekly) base
pay for the highest 3 consecutive years of Federated
City Service

Tier 1 Classic: If separation takes place on or after July 1, 2001, Final Compensation is highest average monthly
salary during 12 consecutive months. If separation takes place prior to July 1, 2001, Final Compensation is highest average monthly salary during 36 consecutive months.

Excludes premium pay or any other forms of additional
compensation

Disability Retirement (Service Connected)

Minimum Service None None

Allowance 40% of Final Compensation plus 2.5% x Years of Service in excess of 16 years x Final Compensation (Maximum 75%
of Final Compensation)
2% x Years of Federated City Service x Final Compensation (Minimum of 40% and maximum of 70% of Final
Compensation)

(1) Federated Tier 1 applies to employees hired on or before September 29, 2012. (2) Employees with “Classic” membership from a CalPERS or reciprocal agency hired by the City of San José, on or after June 18, 2017. A CalPERS “Classic” member is a member who previously worked for a CalPERS or other reciprocal agency and meets the following criteria: 1. First established CalPERS membership or membership in a CalPERS reciprocal agency prior to January 1, 2013, 2. AND is hired by the City of San José after a break in service of less than six months 3. AND did not have concurrent (overlapping) service with the other agency. City of San José Reciprocity Election Form must be submitted within thirty (30) days of the first day of employment with the City. Employees in Tier 1 Classic are not eligible for the defined benefit retiree healthcare plan/ employees.
(3) Tier 2A applies to employees hired between September 30, 2012 and September 27, 2013. (4) Tier 2B are employees who were newly hired on or after September 27, 2013.

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FCERS (Continued)
Tier 1 (1) Tier 1 Classic (2) Tier 2A (3) Tier 2B (4)

Disability Retirement (Non-Service Connected)
Minimum Service 5 years 5 years

Allowance Tier 1: 20% of Final Compensation for up to 6 years of service.

Add 2% for each year of service in excess of 6 years but less than 1
6 years.

Add 2.5% for each year of service in excess of 16 years of ser
vices. (Maximum 75% of Final Compensation).

For those who entered the Retirement System on 8/31/98
or
before, the calculation is as follows:
40% of Final Compensation plus 2.5% x Years of Service in ex
cess of 16 years x Final Compensation (Maximum 75%
of Final Compensation) If under 55 years old, subtract 0.5% for every year under age 55
2% x Years of Federated City Service x Final Compensation. (Minimum of 20% and maximum of 70.0% of Final
Compensation)

Tier 1 Classic: 40% of Final Compensation plus 2.5% years of service in excess of 16 years x Final Compensation
(Maximum 75% of Final Compensation) If under 55 years
old, subtract 0.5% for every year under age 55. For those who entered the System on 9/01/98 or later, the calculation is as follows: 20% of Final Compensation for up to 6 year of service. Add 2% for each year of service in excess of 6 years but less than 16 years. Add 2.5% for each year of service in excess of 16 years of service(Maximum 75% of Final Compensation)

Reciprocity
Reciprocity As of December 9, 1994, the City of San José Federated City Employees’ Retirement System adopted a reciprocal agreement with CalPERS. This may result in improved benefits for members who transfer between this retirement system and CalPERS or certain other public agency retirement systems that also have reciprocal agreements with CalPERS. Final eligibility for reciprocity is determined at the time of retirement.

Cost-of-Living Adjustments (COLA)
Cost-of-Living
adjustments
Retirees are eligible for a 3% annual cost-of-living
adjustment (COLA). Regular COLAs are compounded and
paid each April. There is no prorating of COLA.

Retirees are eligible for annual cost-of-living adjustment (COLA) limited to the lesser of the increase in the Consumer Price Index (San José-San Francisco-Oakland, U.S. Bureau of Labor Statistics index, CPI-U, December to December), or a back loaded 2.0% COLA per fiscal year. The back loaded COLA shall be calculated as follows:

i. Service at retirement of 1-10 years: 1.25% per year

ii. Service at retirement of 1-10 years and hired before June 16, 2017: 1.5%
iii. Service at retirement of 11-20 years: 1.5% per year iv. Service at retirement of 21-25 years: 1.75% per year v. Service at retirement of 26 years and above: 2.0% per year

The first COLA will be prorated based on the number of
months retired.

AND did not have concurrent (overlapping) service with the other agency. City of San José Reciprocity Election Form must be submitted within thirty (30) days of the first day of employment with the City. Employees in Tier 1 Classic are not eligible for the defined benefit retiree healthcare plan/employees. (3) Tier 2A applies to employees hired between September 30, 2012 and September 27, 2013. (4) Tier 2B are employees who were newly hired on or after September 27, 2013. 143 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Employees Covered - The current membership in the Defined Benefit Pension Plans as of June 30, 2022, is as follows:

FCERS
Tier 1
Pension Only (2)
Tier 1
Pension &
Me
dical (3)
Tier 2
Pension Only (2)
Tier 2
Pension &
Me
dical (3) Totals
Defined Benefit Pension Plan:

Retirees and beneficiaries
currently receiving benefits (1) 752 3,778 2 7 - 4,557 Terminated vested members
entitled to future benefits 774 154 962 - 1,890 Active members
135

1,157

2,427
7 3

3,792
Total
1,661

5,089

3,416
7 3
1 0,239

(1) The combined domestic relations orders are not included in the count above as their benefit payment is included in the retiree member count. (2) Includes members that are eligible for the catastrophic disability medical benefits only (VEBA) from the Postemployment Healthcare Plan. (3) Eligible for full retiree medical benefits.

Retirees and Beneficiaries (1)
Terminated Vested Members
Entitled to Future Benefits Active Members
PFDRP Tier 1 Tier 2 Tier 1 Tier 2 Tier 1 Tier 2 Totals Police

Pension & Medical (2) 1 ,465 - 6 - 4 69 - 1 ,940 Pension only (3) 1 30 - 1 59 1 24 3 9 5 85 1 ,037 Police Total 1
,595
-
1 65
1 24
5 08 5
85 2
,977
Fire

Pension & Medical (2) 8 72 - 3 - 4 27 - 1 ,302 Pension only (3) 5 1 - 3 6 8 3 1 1 95 3 21 Fire Total 9
23 -
3 9 8 4
58 1
95 1
,623
Total 2
,518
-
2 04
1 32
9 66 7
80 4
,600

(1) Retiree counts do not include combined domestic relations orders. (2) Members are eligible for full retiree medical benefits. (3) Includes members that are eligible for the catastrophic disability medical benefits only (VEBA) from the Postemployment Healthcare Plan.

The Retirement Systems are not subject to the provisions of the Employee Retirement Income Security Act of 1974, a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

2. Cont ributions
Under GASB Statement No. 68, the City’s and the participating employees’ contributions to the Defined Benefit Pension Plans are based upon an actuarially determined percentage of each employee’s pensionable and earnable salary to arrive at an actuarially determined contribution (“ADC”) sufficient to provide adequate assets to pay benefits when due. The contribution requirements are established by City Charter Articles XV and XV-A, and Title 3 of the San José Municipal Code.
144

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FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
The contribution rates for the Defined Benefit Pension Plans for the City and the participating employees for the year ended June 30, 2022 were based on the actuarial valuations performed as of June 30, 2020.

The contribution rates in effect and the amounts contributed to the pension plans for the year ended June 30, 2022 are as follows (in thousands):

PFDRP
City Participants (2)
Defined Benefit Pension
Plan
Police
Tier 1
Minimum
Dollar
Amount (3)
Police
Tier 2
Fire
Tier 1
Minimum
Dollar
Amount (3)
Fire
Tier 2
Police
Tier 1
Police
Tier 2
Fire
Tier 1
Fire
Tier 2
Actuarial Rate:
06/26/22-06/30/22 33.24% 14.37% 34.34% 15.18% 10.99% 14.37% 12.11% 1 5.18% 07/01/21-06/26/22 (1) 32.47% $ 8 0,921 14.37% 33.70% $ 7 0,887 15.28% 10.85% 14.43% 11.91% 1 5.28%

(1) The actual contribution rates paid by the City for year ended June 30, 2022 differed from what is above for Tier 1 due to the City funding the actuarially determined contribution amount based on the greater of the dollar amount reported in the actuarial valuation or the dollar amount determined by applying the percentage of payroll reported in the valuation to the actual payroll, if actual payroll exceeds the actuarial payroll, for the fiscal year. (2) Under Measure F, certain Tier 2 members who had previous Tier 1 service or prior service with a reciprocal employer were reclassified to Tier 1. Ordinance No. 30145, which became effective October 12, 2018, amended the Municipal Code to reflect these changes. Effective March 24, 2019, reclassified Tier 1 members paid an additional 1.96% in contributions, members with prior Federated Service, reclassified Tier 1 paid an additional 0.87% in contributions, and Classic Tier 1 members paid an additional 0.47% in contributions for the year ended June 30, 2022. (3) Contributions are structured as a normal cost, plus a payment on the unfunded actuarial liability (UAL). City contributions are administered as a contribution rate plus a minimum dollar amount based on actuarial payroll.

FCERS
City Participants (2)
Defined Benefit Pension Plan Tier 1
Minimum Dollar
Amount (3) Tier 2 Tier 1 Tier 2
Actuarial Rate:
06/26/22-06/30/22 2

0.32%

8.13%

7.41%

8.13%
07/01/21-06/26/22 (1) 2 0.25% $ 1 60,694 8.17% 7.39% 8.17%

(1) The actual contribution rates paid by the City for year ended June 30, 2022 differed for Tier 1 due to the City funding the actuarially determined contribution amount based on the greater of the dollar amount reported in the actuarial valuation or the dollar amount determined by applying the percentage of payroll reported in the valuation to the actual payroll, if actual payroll exceeds the actuarial payroll, for the fiscal year. (2) Under Measure F, certain Tier 2 members who had previous Tier 1 service or prior service with a reciprocal employer were reclassified to Tier 1. Ordinance No. 30183, which became effective January 4, 2019, amended the Municipal Code to reflect these changes. Effective March 24, 2019, reclassified Tier 1 members paid an additional 3.00% in contributions. Classic Tier 1 members paid an additional 1.46% effective August 12, 2018. (3) Contributions are structured as a normal cost, plus a payment on the UAL. City contributions are administered as a contribution rate plus a minimum dollar amount based on actuarial payroll.

Annual Pension Contribution for the Year Ended 06/30/22 Defined Benefit Pension Plan City Participants Total PFDRP $ 2
12,046 $ 3
1,660 $ 2
43,706
FCERS $ 2
07,598 $ 2
7,464 $ 2
35,062
145 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022

3. Net Pension Liability

The City’s net pension liability for each Defined Pension Plan is measured as the total pension liability, less the pension plans’ fiduciary net position as of the measurement date of June 30, 2021. The City’s net pension liability as of June 30, 2022 of each of the Defined Pension Plan is measured as of June 30, 2021, using an annual actuarial valuation as of June 30, 2020 and rolled forward to June 30, 2021 using standard update procedures by the actuary for the respective plans. In summary, the City’s net pension liability at June 30, 2022 is as follows (in thousands):

PFDRP FCERS CalPERS Total
Net Pension Liability $ 6
96,730 $ 1
,645,252 $ 8
97 $ 2
,342,879
Net Pension Asset -
(2
,747) -
(2
,747)

$ 6
96,730 $ 1
,642,505 $ 8
97 $ 2
,340,132

The General Fund and Enterprise Funds have historically been used to liquidate the pension liabilities.

GASB Statement No. 68, Accounting and Financial Reporting for Pensions states that when a significant change in the net pension liability has occurred between the measurement date (i.e. June 30, 2021) and the City’s reporting date (i.e. June 30, 2022), a disclosure of that significant change should be made. Accordingly, the following significant changes to the net pension liability have occurred after the City’s measurement date of June 30, 2021:

PFDRP
As of the measurement date June 30, 2022, the Plan’s fiduciary net position decreased approximately $317 million from approximately $4.73 billion to $4.41 billion due to significant decreases in fair value of the Plan’s investments. Overall, the decrease in the fiduciary net position and increase in total pension liability of $208 million from interest and service costs, resulted in an increase in net pension liability from approximately $697 million to $1.22 billion, a change of approximately $525 million.

FCERS
As of the measurement date June 30, 2022, the Plan’s fiduciary net position decreased approximately $176 million from approximately $2.88 billion to $2.71 billion due to significant decreases in fair value of the Plan’s investments. Overall, the decrease in the fiduciary net position and the increase in total pension liability of $163 million from interest and service costs, resulted in an increase in net pension liability from $1.64 billion to $1.98 billion, a change of approximately $339 million. 146

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ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Changes in Net Pension Liabilities - The components of the net pension liabilities of the PFDRP and FCERS plans as of the measurement date, June 30, 2021, were as follows (in thousands):

Increase (Decrease)
PFDRP
Total
Pension
Liability
(a)
Plan
Fiduciary Net
Position
(b)
Net P
ension
Liability
(a-b)
Balance at
6/30/2020 $ 5
,177,016
$ 3
,702,020
$ 1
,474,996
Changes for the Year:

Ser
vice costs
89,470

89,470
Interest 3
42,802

-
3 42,802
Changes of benefit terms
-

-
Contributions-employer
-
2 01,370
(2
01,370)
Contributions-employees
-

29,033
(2
9,033)
Net investment income
-
1 ,044,290
(1
,044,290)

Difference between expected
and actual experience (1 5,131) - (1 5,131)
Changes of assumptions
73,525

73,525

Benefit payments, including refunds
of member contributions (2 44,310) (2 44,310) - Administrative expenses
-
(5
,761)

5 ,761
Net changes 2
46,356
1 ,024,622
(7
78,266)
Balance at 6/30/2021 $ 5
,423,372
$ 4
,726,642
$ 6
96,730

Increase (Decrease)
FCERS
Total
Pension
Liability
(a)
Plan
Fiduciary Net
Position
(b)
Net P
ension
Liability
(a-b)
Balance at
6/30/2020 $ 4
,323,370
$ 2
,208,017
$ 2
,115,353
Changes for the Year:

Ser
vice costs
65,712

65,712
Interest 2
83,610

-
2 83,610
Changes of benefit terms
-

-
Contributions-employer
-
1 83,964
(1
83,964)
Contributions-employees
-

25,725
(2
5,725)
Net investment income
-
6 98,606
(6
98,606)

Difference between expected
and actual experience 44,381 - 44,381
Changes of assumptions
36,981

36,981

Benefit payments, including refunds
of member contributions (2 27,205) (2 27,205) - Administrative expenses
-
(4
,763)

4 ,763
Net changes 2
03,479
6 76,327
(4
72,848)
Balance at 6/30/2021 $ 4
,526,849
$ 2
,884,344
$ 1
,642,505

Note: The schedules of changes in the net pension liability as of June 30, 2022 are presented in the Required Supplementary Information. 147 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Sensitivity of the Net Pension Liabilities to Changes in Discount Rates - The discount rates used to measure the total pension liabilities were 6.625%, for both the PFDRP and FCERS plans for the valuations dated June 30, 2020 and rolled forward to June 30, 2021 using standard update procedures by the actuary for the respective plans. It is assumed that PFDRP and FCERS members’ contributions and City’s contributions will be made based on the actuarially determined rates based on the funding policy of each board. Based on those assumptions, the PFDRP’s and FCERS’s fiduciary net positions are expected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liabilities.

The following presents the net pension liabilities, calculated using the discount rates of 6.625% in effect as of the measurement date, as well as what the net pension liabilities would be if they were calculated using discount rates that are one percentage point lower (5.625%) or one percentage point higher (7.625%) than the rates used, for the PFDRP and FCERS plans, respectively (in thousands):

PFDRP - Sensitivity Analysis
1%
Decrease
(5.625%)
Me
asurement
Date Rate
(6.625%)
1%
Increase
(7.625%)
T
otal pension liability $ 6
,214,603 $ 5
,423,372 $ 4
,784,152
PFDRP fiduciary net position
4,726,642 4
,726,642
4,726,642
Net pension liability $ 1
,487,961 $ 6
96,730 $ 5
7,510

PFDRP fiduciary net position as a
percentage of the total pension liability 7 6.1% 87.2% 9 8.8%

FCERS - Sensitivity Analysis
1%
Decrease
(5.625%)
Me
asurement
Date Rate
(6.625%)
1%
Increase
(7.625%)
T
otal pension liability $ 5
,145,457 $ 4
,526,849 $ 4
,021,456
FCERS fiduciary net position
2,884,344 2
,884,344
2,884,344
Net pension liability $ 2
,261,113 $ 1
,642,505 $ 1
,137,112

FCERS fiduciary net position as a
percentage of the total pension liability 5 6.1% 63.7% 7 1.7%

Pension Expense and Deferrals – For the year ended June 30, 2022, the City recognized pension expense and reported deferred outflows and inflows of resources related to pensions as follows (in thousands):

PFDRP FCERS Total
Pension Expense $ 9
0,494 $ 1
16,426 $ 2
06,920
Schedule of Deferred Outflows and Inflows of Resources - PFDRP

Deferred
Outflows of
Resources
De
ferred
Inflows of
Re
sources
Contributions subsequent to measurement date $ 2
12,046
$ -

Differences between expected and actual experience
18,563

15,601
Changes in assumptions 1
14,676

Net difference between projected and actual earnings
on pension plan investments - 5 28,451
Total $ 3
45,285
$ 5
44,052
148

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SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
As of June 30, 2022, $212,046,000 reported as deferred outflows of resources related to contributions subsequent to the measurement date for the PFDRP will be recognized as a reduction of the net pension liability in the year ending June 30, 2023.

Other amounts reported as deferred outflows of resources and deferred inflows of resources related to the pension will be recognized as pension expense as follows (in thousands):

Fiscal Year Ending
June 30:

De
ferred
Outflows / (Inflows)
of Resources
2 023 $ (5
6,900)
2024 (7
0,135)
2025 (1
23,842)
2026 (1
59,936)
$

(410,813)
Schedule of Deferred Outflows and Inflows of Resources - FCERS

Deferred
Outflows of
Resources
De
ferred
Inflows of
Resources
Contributions subsequent t
o measurement date $ 2
07,598 $ -

Differences between expected and actual experience
33,286
16,777
Changes in assumptions
41,336 1
,469

Net difference between projected and actual earnings
on pension plan investments
-
3 80,306
Total $

282,220
$

398,552

As of June 30, 2022, $207,598,000 reported as deferred outflows of resources related to contributions subsequent to the measurement date for the FCERS will be recognized as a reduction of the net pension liability in the year ending June 30, 2023.

Other amounts reported as deferred outflows of resources and deferred inflows of resources related to the pension will be recognized as pension expense as follows (in thousands):

Fiscal Year
Ending June 30:

De
ferred
Outflows / (Inflows) of
Resources
2 023 $ (6
0,242)
2024 (7
4,412)
2025 (7
9,215)
2026 (1
10,061)
$

(323,930)
149 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Recognition of Deferred Outflows and Deferred Inflows of Resources for PFDRP and FCERS Gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time.

One fifth of the net earnings is recognized in the first year when the gain or loss occurred for the difference between projected and actual earnings on pension plan investments. The other deferred amounts are amortized over the expected average remaining service lifetime. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pension and are to be recognized in future pension expense.

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

Net difference between projected and actual
earnings on pension plan investments
5 Years

All other amounts Expected average remaining service lifetime (EARSL) (5.0 Years at June 30, 2021 measurement date)
Long-term Expected Rate of Return on Plan Investments - The assumption for the long-term expected rates of return on PFDRP and FCERS investments of 6.625% for the valuations dated June 30, 2020 was selected by estimating the median nominal rates of return based on long-term capital market assumptions adopted by the respective Boards, including nominal expected rates of return for each of the asset classes, and reducing the estimated median by a margin so that there is estimated to be a greater than 50 percent probability of achieving the returns.
150

INTRODUCTORY

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ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Best estimates of geometric real rates of return for each major asset class included in the target asset allocation for each plan as of the measurement date of June 30, 2021, are summarized in the following tables:

PFDRP

Target Asset
Allocation
L
ong-Term Expected
Real Rate of Return
Public equity 4
6% 4.9%
Investment grade bonds 12% -0.3%
Private equity 6% 6.8%
Core real estate 5% 3.3%
Immunized cash flows 5% -0.8%
Venture / growth capital 4% 7.4%
Emerging market bonds 3% 1.7%
Growth real estate 3% 6.0%
Long-term government bonds 3% 0.4%
Market neutral strategies 3% 2.2%
Private debt 3% 4.6%
Private real assets 3% 5.7%
High yield bonds 2% 2.1%
Treasury inflation - protected securities 2% -0.3%

FCERS

Target Asset
Allocation
L
ong-Term Expected
Real Rate of Return
Public equity 4
9% 5.0%
Private equity 8% 6.8%
Investment grade bonds 8% -0.3%
Core real estate 5% 3.3%
Immunized cash flows 5% -0.8%
Venture / growth capital 4% 7.4%
Growth real estate 3% 6.0%
Emerging market bonds 3% 1.7%
Private debt 3% 4.6%
Market neutral strategies 3% 2.2%
Private real assets 3% 5.7%
Long-term government bonds 2% 0.4%
Treasury inflation-protected securities 2% -0.3%
High yield bonds 2% 2.1%

The separately issued annual reports of PFDRP and FCERS provide more information about the most recent long-term expected rates of return on plan investments. 151 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022

4. Actuarial Met hods and Assumptions

The significant actuarial methods and assumptions used to compute the total pension liability measured as of June 30, 2021 are from the actuarial valuation report with a valuation date of June 30, 2020 and rolled forward to June 30, 2021 using standard update procedures by the actuary for the respective plans.

PFDRP FCERS
Description Method/Assumption Method/Assumption
Measurement date June 30, 2021 June 30, 2021
Valuation date June 30, 2020 June 30, 2020
Inflation rate 2.25% 2.25%
Discount rate 6.625% per annum (net of investment
expenses)

6.625% per annum (net of investment
expenses)
The long-term expected return on assets
based on Meketa’s capital market assumptions
for a 10-year time horizon is 6.11%. The
Board applied a margin for adverse deviation
to improve the probability of achieving the
discount rate
The Board expects a long-term rate of return of

7.1% based on Meketa’s 2019 20-year capital
market assumptions and the Retirement
System’s current investment policy. A margin
for adverse deviation was used to improve the
probability of achieving the discount rate

Post-retirement mortality
(a) Healthy retirees: 1.002 times the 2010 Public Safety Above Median Income Mortality Table (Pub(s)- for
2010(A)) for healthy male and female on a
retirees projected using SOA MP-2019 on a
generational basis from the base year of 2010

0.995 for males and 0.960 for females, times
the 2010 Public General Mortality Table (PubG-
2010)

(b) Disabled retirees: 0.915 times the Public Safety Mortality Table (PubS-2010) for disabled males and female
retirees projected using SOA MP-2019 on a
generational basis from the base year of 2010

1.051 for males and 0.991 for females, times
the CalPERS 2009 Ordinary Disability Mortality
Table

Rates of service retirement,
withdrawal, death, disability
retirements
Based
upon the June 30, 2019 actuarial
experience analysis
Mortality is projected on a generational basis
using the MP-2020 scale

Salary increases
Wage Inflation Bargained increases and 3.00% per annum (0.75% real wage growth).

The base wage inflation assumption of 3.00%

Merit Increase Merit component added based on an individual years of service ranging from 6.50% to 0.50%.

Merit/longevity increase based on years of
service ranging from 3.75% at hire to 0.10% for
members with 15 or more years of service

Cost-of-Living Adjustment Tier 1 - 3% per year Tier 1 - 3% per year Tier 2 - 2% per year Tier 2 - 1.25% to 2.0% depending on years of service
152

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SECTION
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ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
A. 2. California Public E mployees’ Retirement System (CalPERS) Plan Description. The Mayor and members of the City Council are eligible to participate in the State of California’s Public Employees’ Retirement System (“CalPERS”) Public Agency Cost-Sharing Multiple-Employer Defined Benefit Pension Plan (the “Plan”). Effective July 26, 2020, any officer or employee, who is first hired on or after November 4, 2014 in the Unit 99 positions of Chief Executive Officer, Chief Investment Officer and certain Investment Professional staff in the Office of Retirement Services is eligible to participate in CalPERS. CalPERS acts as a common investment and administrative agent for various local and state governmental agencies within the State of California. The Plan provides retirement, disability and death benefits based on the employee’s years of service, age and Final Compensation. Benefit provisions and other requirements are established by the California Public Employees’ Retirement Law, employer contract with CalPERS and by City resolution. Retiree health benefits are not provided to Mayor/Councilmembers. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information. Reports can be found on CalPERS’ website at http://www.calpers.ca.gov/page/home.

Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members, who must be public employees, and beneficiaries. Benefits are based on a final average compensation period of 36 months. Members with five years of total service are eligible to retire at age 50 for Classic members and at age 52 for the Public Employees’ Pension Reform Act of 2013 plan (“PEPRA”) members with statutorily reduced benefits. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit.

The cost-of-living adjustments for the plan are applied as specified by the Public Employees’ Retirement Law, California Government Code Sections 20000-21703.

The CalPERS Plan’s provisions and benefits in effect at June 30, 2022, are summarized as follows:

Classic Rate Plan PEPRA Rate Plan
Prior to On or after
Hire date January 1, 2013 January 1,2013
Benefit formula 2% @ 55 2% @ 62
Benefit vesting schedule 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life
Retirement age 50-63 52-67
Monthly benefits, as a % of eligible compensation 1.426% to 2.418% 1.0% to 2.5% Required employee contribution rates 7.00% 6.75%

10.340% + $160,634 for 7.590% + $15,590 for
Required employer contribution rates unfunded liability unfunded liability

As of June 30, 2022, there were two current San José City Council members enrolled in the Classic rate plan and twelve current members, consisting of five City Council members and seven Office of Retirement Services investment staff, in the PEPRA rate plan.

Contributions. Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by public employees during the year, with an additional amount to finance any unfunded accrued liability. 153 FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
For the year ended June 30, 2022, the amount contributed to the CalPERS plan was as follows (in thousands):

Classic Rate Plan PEPRA Rate Plan Total
Contributions - employer $ 1
88 $ 1
14 $ 3
02 Contributions - employee 2
3 105
128
Total $ 2
11 $ 2
19 $ 4
30 Pension Liabilities, Pension Expense and Deferred Outflows/Inflows of Resources Related to Pensions Information in this section is derived from the GASB Statement No. 68 Accounting Valuation Report for the miscellaneous risk pool at the measurement date of June 30, 2021 prepared by CalPERS. As of June 30, 2022, the City reported a net pension liability of $1,645,252,000 for its proportionate share of the net pension liability of the Plan. The proportion was determined based on the City’s shares of actuarial accrued liability and market value of assets as of June 30, 2020.

The City’s net pension liability for the Plan is measured as the proportionate share of the net pension liability.

The net pension liability of the Plan is measured as of June 30, 2021, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures by CalPERS’ actuary. The City’s proportion of the net pension liability was actuarially determined at the valuation date.

The following information is related to the City’s proportionate share of the net pension liability and pension expense (in thousands):

Plan

Proportion of the net pension liability
prior measurement date $ 1 ,448 0 .03434%

Proportion of the net pension liability
current measurement date 897 0 .04726%
Change - Increase (Decrease) $ (5
51) 0
.01292%

Pension Expense $ 2
8 The City reported deferred outflows of resources and deferred inflows of resources related to pensions as of June 30, 2022 from the following sources (in thousands):

Deferred Outflows
of Resources
De
ferred Inflows
of Resources
P
ension contributions subsequent to measurement date
$ 3
02 $ -

Differences between actual and expected experience

60 -
Changes in assumptions

Change in employer’s proportion and differences
between the employer’s contributions and the
employer’s proportionate share of contributions 1 69 4

Net diff
erences between projected and actual
earnings on plan investments - 4 17
Total
$ 5
31 $ 4
21 154

INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
As of June 30, 2022, $302,000 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2023.

Other amounts reported as deferred outflows of resources and deferred inflows of resources related to the pension will be recognized as pension expense as follows (in thousands):

Fiscal Year Ending
June 30:

De
ferred
Outflows / (Inflows) of
Resources
2 023 $ (1
1)
2024 (1
5)
2025 (4
9)
2026 (1
17)
$ (1
92)
Actuarial Assumptions – The collective total pension liability for the June 30, 2021 measurement period was determined by an actuarial valuation as of June 30, 2020, with update procedures used to roll forward the total pension liability to June 30, 2021. The collective total pension liability was based on the following assumptions:

Information in this section is derived from the GASB 68 Accounting Valuation Report for miscellaneous risk pool at the measurement date of June 30, 2021 prepared by CalPERS.

Plan
Valuation Date June 30, 2020
Measurement Date June 30, 2021
Actuarial Cost Method Entry-Age Normal Method
Actuarial Assumptions
Discount Rate 7.15%
Inflation 2.50%

Salary Increases Varies by Entry Age and Service
Mortality Rate Table (1) Derived using CalPERS’ Membership Data for all Funds Post Retirement Benefit Contract COLA up to 2.50% until Purchasing Power Protection Increase Allowance Floor on Purchasing Power Applies , 2.5% thereafter

(1) The mortality table used was developed based on CalPERS specific data. The table includes 15 years of mortality improvements using Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website.

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

In determining the long-term expected rate of return, CalPERS took into account both short-term and long- term market return expectations as well as the expected pension fund cash flows. Using historical returns of all of the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term 155 FOR THE YEAR ENDED J UNE 30, 2022

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returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses.

The expected real rates of return by asset class are as followed:

Asset Class
Assumed
Asset
Allocation
Re
al Return
Years 1 - 10 (1)
Real Return
Years 11 + (2)
Global Equity
50% 4
.80% 5
.98%
Fixed Income
28% 1
.00% 2
.62%
Inflation Assets 0
% 0
.77% 1
.81%
Private Equity 8
% 6
.30% 7
.23%
Real Assets
13% 3
.75% 4
.93%
Liquidity 1
% 0
.00% -0
.92%
1 00%

(1) An expected inflation of 2.00% used for this period. (2) An expected inflation of 2.92% used for this period.

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

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate - The following presents the proportionate share of the net pension liability calculated using a discount rate of

7.15%, as well as what the proportionate share of the net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.15%) or one percentage point higher (8.15%) than the current rate (in thousands):

Sensitivity Analysis
1%
Decrease
(6.15%)
Me
asurement
Date Discount Rate
(7.15%)
1%
Increase
(8.15%)

Net pension liability $ 2 ,143 $ 8 97 $ (1 32)
Pension Plan Fiduciary Net Position – Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. Reports can be found on CalPERS’ website at www.calpers.ca.gov.
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A. 3. De fined Contribution Retirement Plans

1. 4 01(a) Plan
In December 2012, the City adopted Ordinance No. 29184 amending Title 3 of the San José Municipal Code to amend various Sections of Chapter 3.28 and to add a new Chapter 3.49 for the purpose of establishing an option between the Tier 2 defined benefit plan and a defined contribution 401(a) plan that excludes participation in retiree healthcare, for Unclassified Executive Management and Professional Employees (Unit 99) who are hired on or after January 20, 2013. An employee is eligible to participate in the 401(a) plan if the employee is hired directly into Unit 99 on or after January 20, 2013 and must not have previously been a member of either of the City’s defined benefit plans. An eligible employee must sign an irrevocable election form on his or her first day of employment with the City electing to participate in the 401(a) plan.

If no irrevocable election form is signed, the employee will be automatically placed into the Tier 2 defined benefit plan.

Both eligible employees and the City are required to contribute 3.75% of participants’ annual compensation.

The City’s contributions for each employee (and interest allocated to the employee’s account) are fully vested upon the employee entering the 401(a) plan. The City contracts with an advisor to manage the 401(a) plan with all assets being held in trust by a third-party custodian in the name of each of the plan’s participants.

Each of the 401(a) plan’s participants directs the investments of their separate account. The City must authorize changes to the 401(a) plan.

There were 152 participants in the 401(a) plan as of June 30, 2022. In FY 2022, the City and the participating employees contributed $536,000 to the 401(a) plan. As of June 30, 2022, the balance of the 401(a) plan was $2,865,000.

2. PT C Deferred Compensation Plan
The City’s PTC Deferred Compensation Plan (“PTC Plan”) is described in Chapter 3.5 of the City’s Municipal Code. The PTC Plan is a mandatory in lieu of Social Security for those employees who are not eligible for membership in either the FCERS or PFDRP . The participants defer 3.75% of salary and the City makes a matching contribution (with the total capped by the maximum allowed under IRC 457). The PTC Plan currently utilizes VRIAC as its investment administrator. PTC Plan participants can only make contributions on a pre-tax basis.

Benefited part-time employees who were hired before October 1, 2006 were given the option to invest PTC contributions in the same investment options as the 457 Plan participants based on their Participation Agreements. After October 1, 2006 when the City transitioned the investment administrator services to VRIAC, those part-time employees’ PTC accounts were transferred to the 457 Plan in order for them to continue having the ability to invest in various investment options, instead of only the Stable Value Fund offered in the PTC Plan.

For new part-time employees hired on or after October 1, 2006, their PTC contributions are deposited and invested in the Stable Value Fund in the PTC Plan. There are 154 PTC participants as of June 30, 2022 which is 7.95% of all part-time employees. The participating part-time employees contributed $1,426,000 to their plan. As of June 30, 2022, the balance of the plan was $28,962,000. 157 FOR THE YEAR ENDED J UNE 30, 2022

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A. 4. P ostemployment Benefit Plans Other than Pension Plans

1. G eneral Information about the Postemployment Healthcare Plans In addition to the Defined Benefit Pension Plans, the City also sponsors and administers two single employer defined benefit postemployment healthcare plans, the PFDRP Healthcare Plans, which includes the Police Department Postemployment Healthcare Plan (Section 115 Trust) and the Fire Department Postemployment Healthcare Plan (Section 115 Trust) and the FCERS Healthcare Plans, which includes a Section 115 Trust, together the Postemployment Healthcare Plans. These Postemployment Healthcare Plans cover eligible full-time and certain part-time employees of the City and are accounted in the Pension Trust Funds.

Generally, the defined benefit Postemployment Healthcare Plans provide medical and dental benefits to eligible retirees and their beneficiaries. Benefits are 100% of the premium cost for the lowest priced medical insurance plan available to an active City employee, and 100% of the premium cost for a dental insurance plan available to an active City employee.

Per the terms of the Frameworks discussed in Note IV A.1, the City established two separate Voluntary Employee Beneficiary Associations (“VEBA”) for retiree healthcare for the members of the PFDRP and FCERS in FY 2018. The City does not make contributions into the VEBAs and the VEBAs are not subject to the jurisdiction of the Retirement Boards.

The Internal Revenue Service approved allowing eligible employees who are rehired by the City during calendars years 2018 through 2022 to opt into the applicable VEBA and transfer the retiree healthcare contributions from the applicable Postemployment Healthcare Plan to their individual VEBA accounts.

The current membership in the Postemployment Healthcare Plans as of June 30, 2022, is as follows:

Police Fire
PFDRP Tier 1 Tier 1 Totals
Postemployment Healthcare Plan:

Retir
ees and beneficiaries currently receiving benefits*
1,465
872
2,337
Terminated vested members not yet receiving benefits
6 3
9 Active members
469
427 8
96 Total
1,940
1,302
3,242

* Retiree counts do not include combined domestic relations orders

FCERS Tier 1* Tier 2A* Totals
Postemployment Healthcare Plan:

Retir
ees and beneficiaries currently receiving benefits**
3,778
0 3,778
Terminated vested members not yet receiving benefits
154
0 1
54 Active members
1,157 7
3 1,230
Total
5,089 7
3 5,162

* Eligible for full retiree medical benefits
** Payees that have health and/or dental coverage
The separately issued annual reports of PFDRP and FCERS, together with the City’s Municipal Code, provide more detailed information about the Postemployment Healthcare Plans. As stated in Section IV.A.1 of this note, those reports may be obtained from the City of San José Office of Retirement Services. 158

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2. Cont ributions
Contribution amounts to the Postemployment Healthcare Plans for both the City and the participating members are based upon agreements between the City and the bargaining units. With the implementation of Measure F, Actuarially Determined Contributions (“ADC”) were calculated beginning with the year ended June 30, 2019.

On June 24, 2008, the City Council adopted Ordinance No. 28332 amending Title 3 of the San José Municipal Code to provide the City with the option to make lump sum prepayments of City required contributions for postemployment healthcare benefits to PFDRP and FCERS.

Subsequently, in October 2014, the Boards of Administration for PFDRP and FCERS approved implementing an incremental reduction approach to determining the “actuarial equivalence” for the City’s prefunding of its contribution when the economic expansion has exceeded 58 months in duration and/or the S&P 500 has returns in excess of 130%. This approach was undertaken to ensure that as business expansions and/or market valuations mature and exceed historic norms, the Retirement Systems reduce the City’s incentive to prefund its contributions when market valuations and/or economic expansions are beyond historic norms.

The incremental reduction to be applied to the discount rate to the City’s prefunding of its contribution is 15% per year, up to a maximum of 45%. In March 2022, the Boards of Administration for PFDRP and FCERS approved a modification to the incremental reduction approach that added market valuations as an additional criterion for triggering a reduction in the prefunding discount rate.

The City elected to prefund its actuarially determined OPEB contributions for the fiscal year ended June 30, 2022, using the reductions in the discount rate mentioned above.

The FCERS Board on February 15, 2018 and the PFDRP Board on March 1, 2018 approved a contribution policy for the respective Postemployment Healthcare Plans that sets the City’s contribution as a flat dollar amount.

Funding Policy
Historically, member and City contributions to the Postemployment Healthcare Plans were negotiated through collective bargaining and were not actuarially determined. Until the City entered into agreements with various bargaining groups in 2009 and prior to implementation of Measure F, contributions for the health and dental benefits for both the City and the participating employees of both Postemployment Healthcare Plans were based upon an actuarially determined percentage of employees’ base salary sufficient to provide adequate assets to pay benefits when due over the next 10 years for the PFDRP and the next 15 years for the FCERS.

From 2009 until the implementation of Measure F, the City had been in the process of phasing in payment of the Actuarially Required Contribution (“ARC”) for the retiree health and dental benefits provided by both Postemployment Healthcare Plans as calculated pursuant to GASB Statement No. 43 and GASB Statement No. 45 then in effect. However, the contribution rates for the City and members of the Postemployment Healthcare Plans were capped before the full ARC was reached.

The annual contribution costs for the Postemployment Healthcare Plans’ benefits are allocated to both the City and the active employee members. Contributions to the Postemployment Healthcare Plans for both the City and the participating members are based upon agreements between the City and the bargaining units. With the implementation of Measure F, member contributions are fixed as a percentage of pay and the City’s contribution toward the explicit subsidy (premium subsidy) is an ADC determined by the Postemployment Healthcare Plans. The ADC for the Postemployment Healthcare Plans is the normal cost plus the amortization payment on the unfunded actuarial liability, less expected member contributions. The City has an option to limit its ADC for each Postemployment Healthcare Plan to a fixed percentage of the 159 FOR THE YEAR ENDED J UNE 30, 2022

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payroll of all active members of the respective pension plan. The ADC for each Postemployment Healthcare Plan is calculated beginning with FY 2019.

The City will pay the implicit subsidy on a pay-as-you go basis as part of active health premiums. An implicit subsidy for retiree health benefits exists because the medical experience for retirees under age 65 are pooled with the experience for active employees thereby resulting in a lowering of the premium paid for retirees under age 65. The implicit subsidy is included in the actuarial valuations of each Postemployment Healthcare Plan. The implicit subsidy is shown as both a contribution and payment from the Postemployment Healthcare Plans. However, the implicit subsidy is not actually contributed to or paid from the Postemployment Healthcare Plan. Rather, it is paid directly by the City on a pay-as-you-go basis as a part of active member health plan premiums. The actuary for each Postemployment Healthcare Plan separately calculates the total unfunded actuarial liability being the aggregate unfunded actuarial liability for both implicit and explicit subsidies, and the unfunded actuarial liability for only the explicit subsidy. The unfunded actuarial liability for the explicit subsidy is used to calculate the City’s ADC to each Postemployment Healthcare Plan.

Effective March 25, 2018, members remaining in the PFDRP Postemployment Healthcare Plan make contributions fixed at 8.0% of pay.

Also, as of March 25, 2018, members remaining in the FCERS Postemployment Healthcare Plan contribute

7.5% of pay.

The contribution rates/amount in effect in FY 2022 are shown below (in thousands):

PFDRP City - Board Adopted Member
Police Tier 1 Fire Tier 1 Police Tier 1 Police Tier 2 Fire Tier 1 Fire Tier 2 Actuarial Rate:

Postemployment Healthcare Plan*:
07/01/2021 - 06/30/2022 $
16,730 $
10,697

8.00%
N/A

*Throughout the year, explicit subsidy amount

FCERS City - Board Adopted Member with Healthcare
Tier 1 Tier 2 Tier 1 and Tier 2
Actuarial Rate:

Postemployment Healthcare Plan:
07/01/2021 - 06/30/2022 $24,787 7.50%

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3. Net OPEB Liability

The City’s net OPEB liability for each Postemployment Healthcare Plan is measured as the total OPEB liability, less the plans’ fiduciary net position as of the June 30, 2021 measurement date. The City’s net OPEB liability as of June 30, 2022 for each of the Postemployment Healthcare Plans is measured as of June 30, 2021, using an annual actuarial valuation as of June 30, 2020 and rolled forward to June 30, 2021 using standard update procedures by the actuary for the respective plans. In summary, the City’s net OPEB asset and liability at June 30, 2022 is as follows (in thousands):

Summary of OPEB liability and expense
PFDRP FCERS Total
Net OPEB Liability $ 4
95,506 $ 2
82,718 $ 7
78,224
Net OPEB Asset -
(1
,878) (1
,878)
$ 4
95,506 $ 2
80,840 $ 7
76,346

OPEB Expense $ 1
7,985 $ (8
13) $ 1
7,172

The General Fund and Enterprise Funds have historically been used to liquidate the OPEB liabilities.

GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions states that when a significant change in the net OPEB liability has occurred between the measurement date (i.e., June 30, 2021) and the City’s reporting date (i.e., June 30, 2022), a disclosure of that significant change should be made. Accordingly, the following significant changes to the net OPEB liability have occurred after the City’s measurement date of June 30, 2021:

PFDRP
As of the measurement date June 30, 2022, the plan’s fiduciary net position decreased approximately $11.0 million from $276.3 million to $265.3 million due to decreases in fair value of the Plan’s investments. Overall, the decrease in the fiduciary net position and increase in the total OPEB liability resulted in an increase in net OPEB liability from approximately $495.5 million to $524.8 million, a change of approximately $29.3 million.

Additionally, the discount rate was changed from 6.25% to 6.00% for the measurement period ended June 30, 2022.

FCERS
As of the measurement date June 30, 2022, the plan’s fiduciary net position decreased approximately $35.5 million from $384.6 million to $349.1 million due to decreases in fair value of the Plan’s investments. Overall, the decrease in the fiduciary net position resulted in an increase in net OPEB liability from approximately $280.8 million to $329.3 million, a change of approximately $48.5 million.

Additionally, the discount rate was changed from 6.25% to 6.00% for the measurement period ended June 30, 2022.
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Actuarial Methods and Assumptions
PFDRP
Measurement Date June 30, 2021
Valuation Date June 30, 2020
Actuarial Cost Method: Entry Age Normal, level of percentage of pay Actuarial Assumptions:

Discount Rate 6.25%
Inflation Rate 2.25%
Merit Increase Merit component added based on an individual’s years of service ranging from 6.50% to 0.50%.

Wage Inflation Rate 3.00% for all years for Police department members and 4.25% through FY 2022 and 3.00% for all other years for the Fire department members
Rate of Mortality* Mortality is projected from 2010 (2009 for beneficiary tables) on a generational basis using the SOA MP-2019 projection scale
Pre-Retirement Turnover** Please see below table
Healthcare Trend Rate - Medical The valuation assumes that future medical inflation will be at a rate of 7.66% to 3.78% per annum graded down over a 55 year period for medical pre-age 65 and 4.10% to 3.78% per annum for medical post-age 65.

Healthcare Trend Rate - Dental Dental inflation is assumed to be 3.5%

*Actuarial Methods and Assumptions - PDFRP Mortality Rates

Category Male Female
Healthy Annuitant 1.002 times the 2010 Public Safety Above Median Income Mortality Table [Pub(s) - 2010 (A)] for Healthy
Retirees

1.002 times the 2010 Public Safety Above Median
Income Mortality Table [(Pub(s) - 2010 (A)] for Healthy Retirees
Healthy Non-Annuitant 0.979 times the 2010 Public Safety Above Median Income Mortality Table [(Pub(s) - 2010(A)] for Healthy
Employees

0.979 times the 2010 Public Safety Above Median
Income Mortality Table [(Pub(s) - 2010(A)] for Healthy
Employees
Beneficiaries 0.948 times the CalPERS 2009 Healthy Annuitant Mortality Table

1.048 times the CalPERS 2009 Healthy Annuitant
Mortality Table
Disabled Annuitant 0.915 times the Public Safety Mortality Table (PubS- 2010) for Disabled Retirees

0.915 times the Public Safety Mortality Table (PubS-
2010) for Disabled Retirees
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** Rates of Pre-Retirement Turnover. Sample rates of termination are shown in the following table.

Rate of Termination
Service Police Fire
0 13.75% 8.50%
1 11.75 4.00
2 10.00 2.75
3 8.50 1.75
4 7.50 1.25
5 6.75 1.00
6 6.00 0.90
7 5.50 0.80
8 5.00 0.70
9 4.75 0.60
10 4.50 0.50
11 4.25 0.50
12 3.75 0.50
13 3.25 0.50
14 2.75 0.50
15 2.25 0.50
16 1.75 0.50
17 1.50 0.50
18 1.20 0.50
19+ 1.00 0.50
Termination rates do not apply once a member is eligible for unreduced retirement.

The assumption for the long-term expected rate of return on Postemployment Healthcare Plan investments of 6.25% for the valuation year ended June 30, 2020 was selected by estimating the median nominal rate of return based on long-term capital market assumptions adopted by the PFDRP Board, including nominal expected rates of return for each asset class, and reducing the estimated median by a margin so that there is estimated to be a greater than 50 percent probability of achieving the return.

Best estimates of geometric real rates of return for each major asset class included in the PFDRP’s target asset allocation as of June 30, 2021 measurement date are summarized in the following table:

Asset Class
Target Asset
Allocation
Long-Term
Expected Real
Rate of Return
Public equity

59.00% 5
.00%
Investment grade bonds

14.00% -0
.30%
Core real estate

12.00% 3
.30%
Short-term investment grade bonds 5
.00% -0
.80%
Commodities 5
.00% 1
.60%
Long-term government bonds 5
.00% 0
.40%
Discount Rate for PFDRP
The discount rate used to measure the total OPEB liability was 6.25% for the measurement year ended June 30, 2021 and is based on the long-term expected rate of return on investments. It is assumed that PFDRP member contributions are 8% of pay for employees eligible to participate in the Postemployment Healthcare Plan and the City contributes the actuarially determined contribution toward the explicit subsidy up to a maximum of 11% of the total payroll of the employees in PFDRP and that the City also contributes the implicit subsidy on a pay-as-you-go basis. Based on those assumptions, the PFDRP’s fiduciary net position is 163 FOR THE YEAR ENDED J UNE 30, 2022

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expected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on OPEB plan investments for PFDRP was applied to all periods of projected benefit payments to determine the total OPEB liability.

FCERS
Measurement Date June 30, 2021
Valuation Date June 30, 2020
Actuarial Cost Method: Entry Age Normal, level of percentage of pay Actuarial Assumptions:

Discount Rate 6.25% per year. The Board expects a long-term rate of return of 6.2% based on Meketa’s 20-year capital market assumptions and the System’s current investment policy.

Inflation Rate 2.25%
Merit Increase Merit component added based on an individual’s years of service ranging from 3.75% at hire to

0.10%
Wage Inflation Rate 3.00%
Rate of Mortality* Mortality is projected on a generational basis using the MP-2020 scale Pre-Retirement Turnover** Please see below table
Healthcare Trend Rate - Medical The valuation assumes that future medical inflation will be at a rate of 7.66% to 3.78% per annum graded down over a 55 year period for medical pre-age 65 and 4.10% to 3.78% per annum for medical post-age 65.

Healthcare Trend Rate - Dental Dental inflation is assumed to be 3.5%

* Actuarial Methods and Assumptions - FCERS Mortality Rates

Category Male Female
Healthy Annuitant 0.995 times the 2010 Public General Mortality Table (PubG-2010) for Healthy Retirees

0.960 times the 2010 Public General Mortality Table
(PubG-2010) for Healthy Retirees
Healthy Non-Annuitant 0.992 times the 2010 Public General Mortality Table (PubG-2010) for Healthy Retirees

1.084 times the 2010 Public General Mortality Table
(PubG-2010) for Healthy Retirees
Disabled Annuitant 1.051 times the CalPERS 2009 Ordinary Disability Mortality Table

0.991 times the CalPERS 2009 Ordinary Disability
Mortality Table
Sample rates of termination are shown in the following table.

Rate of Termination
0 15.00%
1 12.75%
2 11.75%
3 10.75%
4 9.75%
5 8.75%
6 7.75%
7 6.50%
8 5.50%
9 4.75%
10 4.25%
11 4.00%
12 3.75%
13 3.50%
14 3.25%
15+ 3.25%
Terminations do not apply once a member is eligible for retirement.

The assumption for the long-term expected rate of return on OPEB plan investments of 6.25% for the valuation year ended June 30, 2020, was selected by estimating the median nominal rate of return based on long-term capital market assumptions adopted by the FCERS Board, including nominal expected rates of return for each asset class, and reducing the estimated median by a margin so that there is estimated to be a greater than 50 percent probability of achieving the return. 164

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Best estimates of geometric real rates of return for each major asset class included in FCERS’s target asset allocation as of June 30, 2021 measurement date are summarized in the following table. The assets were invested in a 115 trust account as follows:

Asset Class
Target Asset
Allocation
Long-Term
Expected Real
Rate of Return
Public equity 56.00% 5.00%
Short-term investment grade bonds 29.00% -0.80%
Core real estate 10.00% 3.30%
Commodities 5.00% 1.60%
Cash 0.00% -1.00%
Discount Rate for FCERS
The discount rate used to measure the total OPEB liability was 6.25% for the measurement year ended June 30, 2021 and is based on the long-term expected rate of return on investments. It is assumed that FCERS member contributions remain fixed at 7.5% of pay for employees eligible to participate in the Postemployment Healthcare Plan and the City contributes the actuarially determined contribution toward the explicit subsidy up to a maximum of 14% of the total payroll. In addition, the City pays the implicit subsidy on a pay-as-you-go basis. Based on those assumptions, the FCERS’s fiduciary net position is expected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on OPEB plan investments for FCERS was applied to all periods of projected benefit payments to determine the total OPEB liability.

Change in the Net OPEB Liability

The changes in the net OPEB liability for the Postemployment Healthcare Plans are as follows (dollar amounts in thousands):

PFDRP (Consolidated with Police and Fire) Increase (Decrease)

Total OPEB
Liability (a)
Plan Fiduciary
Net Position (b)
Net OPEB
Liability (a) - (b)
Balance at June 30, 2021
(Measurement Date June 30, 2020) $ 7
25,788
$ 2
08,532
$ 5
17,256

Change
s recognized for the measurement period:

Ser
vice cost
12,991

12,991
Interest
45,789

45,789
Changes of benefits
-

-
Differences between expected and actual experience (3 5,106)

-
(3
5,106)
Changes of assumptions
48,332

48,332
Contributions - employer
-

28,397
(2
8,397)
Contributions - employee
-

12,475
(1
2,475)
Net investment income
-

52,994
(5
2,994)
Benefit payments including refunds (2
5,975)

(2
5,975)

-
Administrative expense
-
(1
10)

110
Net changes

46,031

67,781
(2
1,750)
Balance at June 30, 2022

(Measur
ement Date June 30, 2021) $ 7
71,819
$ 2
76,313
$ 4
95,506

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FCERS Increase (Decrease)

Total OPEB
Liability (a)
Plan Fiduciary
Net Position (b)
Net OPEB
Liability (a) - (b)
Balance at June 30, 2021
(Measurement Date June 30, 2020) $ 6
49,868
$ 3
03,312
$ 3
46,556

Change
s recognized for the measurement period:

Ser
vice cost 7
,018

-
7 ,018
Interest
39,886

39,886
Change of benefits
-
(5
)

5 Differences between expected and actual experience (3 3,945)

-
(3
3,945)
Changes of assumptions
34,496

34,496
Contributions - employer
-

26,236
(2
6,236)
Contributions - employee
-

10,275
(1
0,275)
Net investment income
-

77,362
(7
7,362)
Benefit payments including refunds (3
1,871)

(3
1,871)

-
Administrative expense
-
(6
97)

697
Net changes

15,584

81,300
(6
5,716)
Balance at June 30, 2022

(Measur
ement Date June 30, 2021) $ 6
65,452
$ 3
84,612
$ 2
80,840
Sensitivity of the Net OPEB Liability to Changes in Discount Rates

The following presents the net OPEB liability of the City would be if it were calculated using discount rates that were one percentage point lower or one percentage point higher than the current rate, for the measurement period ended June 30, 2021:

PFDRP (consolidated with Police and Fire)

1% Decrease
(5.25%)
Current
Discount Rate
(6.25%)
1% Increase
(7.25%)
Total OPEB Liability $ 8
90,400 $ 7
71,819 $ 6
76,724
Plan Fiduciary Net Position 2
76,313 2
76,313 2
76,313
Net OPEB Liability $ 6
14,087 $ 4
95,506 $ 4
00,411

PFDRP plan fiduciary net position as a percentage of the total OPEB liability

31.0%

35.8% 4

0.8%

FCERS

1% Decrease
(5.25%)
Current
Discount Rate
(6.25%)
1% Increase
(7.25%)
Total OPEB Liability $ 7
56,796 $ 6
65,452 $ 5
90,886
Plan Fiduciary Net Position 3
84,612 3
84,612 3
84,612
Net OPEB Liability $ 3
72,184 $ 2
80,840 $ 2
06,274

FCERS plan fiduciary net position as a percentage of the total OPEB liability

50.8%

57.8% 6

5.1%
166

INTRODUCTORY

SECTION
FOR THE YEAR ENDED J UNE 30, 2022

ANNUAL COMPREHENSIVE FINANCIAL REPORT

FINANCIAL

SECTION
NOTES TO BASIC FINANCIAL STATEMENTS J UNE 30 , 2022
Sensitivity of the Net OPEB Liability to Changes in the Health Care Cost Trend Rates

The following presents the net OPEB liability of the City would be if it were calculated using health care cost trend rates that were one percentage point lower or one percentage point higher than the current rate, for the measurement period ended June 30, 2021:

PFDRP (consolidated with Police and Fire)
1% Decrease
Health Care
Cost Trend
Rates 1% Increase
Total OPEB Liability $
666,495 $
771,819 $
903,404
Plan Fiduciary Net Position 2
76,313 2
76,313 2
76,313
Net OPEB Liability $
390,182 $
495,506 $
627,091

PFDRP plan fiduciary net position as a percentage of the total OPEB liability

San Jose City CouncilDecember 6, 2022

San Jose City Council
December 6, 2022