2025
CITY OF SAN JOSE CALIFORNIA
ANNUAL
COMPREHENSIVE
FINANCIAL
REPORT
FOR THE YEAR ENDED
JUNE 30, 2025
Attachment
City of San José
California
Annual Comprehensive
Financial Report
Year Ended June 30, 2025
Prepared by the Finance Department
Maria Öberg
Director of Finance
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
City of San José
Annual Comprehensive Financial Report
Project Team
Maria Öberg
Director of Finance
Victor Lo, CPA
Deputy Director of Finance
Finance Department Financial Statement Review and Coordination
Philana Yang
Principal Accountant
Vicky Szeto
Principal Accountant
Kei Motonishi
Supervising Accountant
Jovilita Oliveras
Supervising Accountant
Winter Tsang
Senior Accountant
Katie Su
Senior Accountant
Kevin Cardema
Senior Accountant
Financial Statement Preparation
Accountants Accountants Accountants
Gurinder Chhina Ychi Huynh Phillip Vuong
Govind Das Jenny Kinney
Cindy Duong Kim Lam Accounting Technician
Lola Gomez, CPA Pedro Romero Weekwan Jang
Mia Huang, CPA Margarita Viray Gurprem Mahal
Component Unit Financial Statement Coordination
Laura Burke, Environmental Services
Principal Accountant
Mary Soo, Airport
Principal Accountant
Yen Tiet, Housing
Senior Accountant
Katrina Feng, Environmental Services
Senior Accountant
Elsa Jacobo, Airport
Supervising Accountant
Nam Cao, Retirement Services
Senior Accountant
Justine Nguyen, Environmental Services
Senior Accountant
Csilla Kuehn, Airport
Senior Accountant
Gina Rios, Retirement Services
Senior Accountant
Melissa Solomon, CPA, Energy
Principal Accountant
William Phan, Energy
Senior Accountant
Special Assistance
Joseph Rois, City Auditor Yolanda Wasniewski, Finance Jim Shannon, Budget Office Qianyu Sun, Finance Miguel Bernal, Finance Selena Ubando, Budget Office Tanner Warner, Finance Kevin Freimarck, Finance Benjie Chua-Foy, Retirement Services Deepak Sharma, Finance Soumya Panday, Finance Barbara Hayman, Retirement Services Brian Chi, Finance Cesar Blengino, Finance
Special Assistance - Departments and Offices
Airport 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 JUNE 30, 2025
●
Introductory Section
Letter of Transmittal I
Certificate of Achievement for Excellence in Financial Reporting (GFOA) XIV Distinguished Budget Preparation Award (GFOA) XV
Mayor and City Council XVI
City Organization by Function XVII
●
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 JUNE 30, 2025
Fiduciary Funds:
Statement of Fiduciary Net Position 44
Statement of Changes in Fiduciary Net Position 46
Notes to Basic Financial Statements 49
Required Supplementary Information (Unaudited)
Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual:
General Fund 187
Housing Activities Fund 188
Low and Moderate Income Housing Asset Fund 189
Schedule of Employer Contributions – Defined Benefit Pension Plans 190 Schedule of Changes in the Employer’s Net Pension Liability and Related Ratios for the Measurement Periods Ended June 30 - Defined Benefit Pension Plans 195
Schedule of Investment Returns - Defined Benefit Pension Plans 197 Schedule of the City’s Proportionate Share of the Net Pension Liability and Related Ratios - CalPERS 198
Schedule of Employer Contributions - CalPERS 199
Changes in Assumptions 202
Schedule of Employer Contributions – Postemployment Healthcare Plans 203 Schedule of Investment Returns - Postemployment Healthcare Plans 211 Notes to Required Supplementary Information 212
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 JUNE 30, 2025
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
Nonmajor Enterprise Funds
Combining Statement of Fund Net Position 266
Combining Statement of Revenues, Expenses and Changes in Fund Net Position 268
Combining Statement of Cash Flows 269
Internal Service Funds
Combining Statement of Fund Net Position 274
Combining Statement of Revenues, Expenses and Changes in Fund Net Position 275
Combining Statement of Cash Flows 276
TABLE OF
CONTENTS
FOR THE YEAR ENDED JUNE 30, 2025
Pension Trust Funds
Combining Statement of Fiduciary Net Position 281
Combining Statement of Changes in Fiduciary Net Position 282 Combining Statement of Fiduciary Net Position - Federated City Employees’ Retirement System 283
Combining Statement of Changes in Fiduciary Net Position - Federated City Employees’ Retirement System 284
Combining Statement of Fiduciary Net Position - Police and Fire Plan 285 Combining Statement of Changes in Fiduciary Net Position - Police and Fire Plan 286
Private-Purpose Trust Funds
Combining Statement of Fiduciary Net Position 287
Combining Statement of Changes in Fiduciary Net Position 288 ●
Statistical Section (Unaudited)
I Net Position by Component - Last Ten Fiscal Years 291 II Change in Net Position - Last Ten Fiscal Years 292
III Fund Balances, Governmental Funds - Last Ten Fiscal Years 296 IV Changes in Fund Balances, Governmental Funds - Last Ten Fiscal Years 298
V Assessed Value and Estimated Actual Value of Taxable Property - Last Ten Fiscal Years 301
VI Property Tax Rates - All Overlapping Governments - Last Ten Fiscal Years 302
VII Principal Property Taxpayers - Current Year and Nine Years Ago 303 VIII Property Tax Levies and Collections - Last Ten Fiscal Years 304 IX Ratios of Outstanding Debt by Type - Last Ten Fiscal Years 305 X Ratio of Net General Bonded Debt Outstanding - Last Ten Fiscal Years 306 XI Schedule of Direct and Overlapping Bonded Debt 307
XII Legal Debt Margin Information - Last Ten Fiscal Years 309 XIII Revenue Bond Coverage - Last Ten Fiscal Years 310
TABLE OF
CONTENTS
FOR THE YEAR ENDED JUNE 30, 2025
XIV Demographic and Economic Statistics - Last Ten Fiscal Years 313 XV Principal Employers - Current Year and Nine Years Ago 314 XVI Full-Time and Part-Time City Employees - Last Ten Fiscal Years 315 XVII Operating Indicators - Last Ten Fiscal Years 317
XVIII Capital Asset Statistics by Function - Last Ten Fiscal Years 319 XIX Conduit Issuer of Multifamily Housing Revenue Bonds Outstanding 321 Introductory
Section
I
200 East Santa Clara Street San José, CA 95113 tel (408) 535-8100 fax (408) 920-7007 www.sanjoseca.gov
Office of the City Manager
November 17, 2025
HONORABLE MAYOR and CITY COUNCIL 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, 2024 through June 30, 2025, 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 and 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 reasonable 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 financial statements in conformity with generally accepted accounting principles.
The City engaged Macias Gini & O’Connell LLP (MGO), 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 2025 (FY 2025) 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 a an “unmodified” or “clean” opinion. The independent auditor’s report is included in the Financial Section of this report.
In addition, MGO audits the City’s major program expenditures of federal funds for compliance with the requirements described in the US 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 from the City of San José’s website at https://www.sanjoseca.gov/your-government/appointees/city-auditor/external-financial- audits .
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200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov 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 and Analysis, Basic Financial Statements, Notes to Basic Financial Statements, Required Supplementary Information, and other Supplementary 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 fore each of the City’s major funds, governmental funds, 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 to provide context for the financial statements and note disclosures.
The ACFR includes all funds of the City, and all governmental organizations and activities for which the City Council has financial accountability. These include the San José-Santa Clara Clean Water Financing Authority, the City of San José Financing Authority, and the San José Diridon Development Authority.
The Successor Agency to the Redevelopment Agency of the City of San José (SARA) was created by State statute. 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).
Financial activities of the SARA are further overseen by the Redevelopment Dissolution Countywide O versight Board of Santa Clara County (Oversight Board). The SARA is reported in a fiduciary fund as a private-purpose trust fund.
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 is empowered to formulate citywide policy. The Council consists of a mayor and ten (10) councilmembers. The Mayor is elected at-large for a four- year term and the Councilmembers are elected by district for staggered four -year terms.
The Mayor and Councilmembers are limited to two (2) consecutive four -year terms 1.
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,
1 On June 7, 2022, San José voters approved Measure B, a ballot measure amending the San José City Charter to (1) move the mayoral election from the gubernatorial 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.
III
200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov City Auditor, City Clerk, and Independent Police Auditor are appointed by, and report directly to, the Council.
Under the City Charter, the City Council establishes the boards of administration and appoints the majority of board members for each of the City’s retirement plans, the Federated City Employees’ Retirement Plan and the Police and Fire Department Retirement Plan. It hires and prescribes 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 civic service rules. The retirement systems are reported as fiduciary component units.
City History
San José is the oldest city in California, developing 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 to the south makes the “Capital of Silicon Valley” a gateway to adventures throughout California.
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 that serves as a global center of 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) has a large concentration of high- tech employment, with 184,800 workers out of a total civilian employment level of 1.15 million 2. Silicon Valley is home to many of the world’s largest technology companies and is a global center of technology innovation. Commercial, retail, professional, high- tech manufacturing, electronic assembly, and service businesses all have a present in San José, which attracts significant foreign investment from throughout the globe.
Successor Agency to the Redevelopment Agency of the City of San José Beginning July 1, 2018, pursuant to Health and Safety Code section 34178(j), the individual successor agency oversight boards within Santa Clara County were combined into one countywide 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
2 State of California, Employment Development Department, Labor Market Information Division Press Release, July 18, 2025.
IV
200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov Oversight Board is staffed by the County of Santa Clara Auditor-Controller and tasks have been delegated among the County’s Finance Agency, the Office of the County Executive, the Clerk of the Board of Supervisors, and the Office of the County Counsel.
Total Redevelopment Property Tax Trust Fund (RPTTF) revenue distributed by the County to the SARA in FY 2025 was approximately $143 million, which was used to pay debt service and debt -related expenses on the SARA senior and subordinate Tax Allocation Bonds (SARA TABs) and other enforceable obligations. During FY 2025, the County withheld $58.6 million in RPTTF for payments for its current year pass -through payments. Based upon the nature of the SARA’s custodial role, the SARA is reported in a fiduciary fund as a private-purpose trust fund.
Economic Condition and Fiscal Outlook
While Silicon Valley continues to show overall positive economic performance, several potential indicators of a future economic weakening continue. These economic indicators include high inflation, elevated office vacancy rates, and a rising unemployment rate.
Although employment figures remain relatively strong, layoffs, particularly in the technology sector, are putting upward pressure on unemployment.
Population and Employment
San José is the 12 th largest city in the United States and the third largest in California behind Los Angeles and San Diego. According to the California Department of Finance, San José had an estimated population of 979,415 as of January 1, 2025, reflecting an increase of 1.0% over the prior year3.
The revised June 2025 employment level in the San José MSA of 1.15 million represented a 0.5% decrease from the June 2024 level of 1.16 million. Between June 2024 and June 2025, employment contracted by 9,600 jobs in the San José MSA, including 4,600 in the trade sector and 4,600 in the mining, logging, and construction sector. Smaller changes in employment levels across all other sectors make up the difference4.
The revised local unemployment rate for June 2025 was 4.7%, which was higher than the May 2025 rate of 3.9% and the prior year unemployment rate of 4.5%. The June 2025 San José MSA unemployment rate continued to be lower than the unadjusted unemployment rate for the state (5.7%) but was higher than the nation (4.4%)5.
Construction Activity
Overall construction valuation through June 2025 increased 9.6% from prior -year levels, driven by commercial construction activity and tempered by a decline in residential and industrial construction activity. The FY 2025 Adopted Budget was developed assuming overall development activity would decrease slightly from FY 2024 levels; however, construction activity outperformed the projections included in the FY 2025- 2029 Five - Year Forecast, which was released in February 2024.
3 State of California, Department of Finance, E-1 Population Estimates for Cities, Counties and State with Annual Percentage Change, January 1, 2024 and 2025 (released May 2025). 4 State of California, Employment Development Department, Labor Market Information Division Press Release, July 18, 2025.
5 Ibid.
V
200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov Residential construction activity during the fiscal year included 545 multi-family units and 547 single-family units for a total of 1,092 units. Commercial valuation through June 2025 was 89.1% higher than the FY 2024 level, assisted by data center development ($990.7 million in FY 2025, up from $523.9 million in FY 2024). A notable project included a permit issued for the finished interior of a 163,000 square foot medical clinic located on South Bascom Avenue between Pamlar Avenue and Southwest Expressway. Industrial construction valuation through June 2025 was 25.4% lower than prior -year levels ($383.7 million in FY 2025 and $514.5 million in FY 2024). A notable project included a permit issued to complete an 89,000 square foot mixed-use warehouse and office building located on South King Road between Aborn Road and Barberry Lane.
Real Estate Market
According to data from the Santa Clara County Association of Realtors, the local real estate market weakened at the end of FY 2025 with home prices remaining stagnant, activity levels declining, and homes staying on the market longer . In June 2025, property transfers decreased by 4.1% compared to the prior year. Further, the June 2025 median home price was $1.7 million, which is consistent with June 2024. Finally, the average days-on-market in June 2025 totaled 24 days, an increase from 16 days in June 2024.
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 several enterprises including a parking program, a municipal water system, a wastewater treatment facility, the San José Mineta International Airport, and San José Clean Energy (SJCE). 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 facilitate the equitable and focused evolution of the City to foster strong communities and a diverse economy with shared prosperity for all. The outcomes of this CSA include: thriving, inclusive, and attractive communities and vibrant public art; strong, responsive, and equitable economy; and accessible and diverse range of business opportunities.
Environmental and Utility Services : The mission of the Environmental and Utility Services CSA is to provide envi ronmental leadership through policy development, program design, and reliable utility services. The outcomes of this CSA include : reliable utility infrastructure; health 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 CSA is to serve, foster, and strengthen the community by providing access to lifelong learning, opportunities to enjoy VI
200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov life, and preserving and stewarding healthy neighborhoods with shelter and housing opportunities for all. The outcomes for this CSA include : safe and clean neighborhoods and public spaces; welcoming and vibrant neighborhoods and public life; equitable access to community opportunities to flourish; and housing security through supportive solutions.
Public Safety : The mission of the Public Safety CSA is to engage the community to partner on public safety and emergency prevention, mitigation, preparedness, response, and recovery. The outcomes for this CSA include a safer San José with effective emergency response services, and resilient communities that are prepared for emergencies.
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.
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 data tools that enable a collaborative, responsive, and productive City; and sound fiscal management that facilitates meeting the needs of the community.
The six CSAs support four City Council Focus Areas that bring greater organization emphasis, resource prioritization, and regular governance -level reporting to make notable progress on a limited number of strategic areas impacting the community. The four Focus Areas are: Increasing Community Safety; Reducing Unsheltered Homelessness; Cleaning Up Our Neighborhoods; and Attracting Investment in Jobs and Housing.
Significant Achievements
The following section summarizes major CSA accomplishments during the fiscal year.
Community and Economic Development CSA
• Attracted or retained over 7,000 jobs and continued momentum around Downtown, outpacing other Bay Area cities in post-pandemic recovery. • Executed an agreement with PG&E to add up to 2,000MW of new electrical capacity which will triple the current electrical load and make the City the preeminent destination for data centers in California.
• Enabled the formation of the first new Business Improvement Districts in over fifteen years along Monterey Road, the Tully/Eastridge Corridor, and the Alameda, generating over $700,000 in annual re-investment for these districts.
VII
200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov • Developed and received approval for a new Economic Strategy Work Plan for FY 2026 and FY 2027 to provide a focused and results -driven approach to economic development.
• Negotiated an extension to the lease agreement with the San José Sharks and the San José Giants for an additional 25 years at the SAP Center and Municipal Stadium.
• Served over 2,000 youth and adults and secured high- wage, high-growth jobs for nearly 85% of those securing employment. Provided workforce services for an additional 2,200 clients through job fairs, community workshops and free online access to occupational skills training in English and Spanish.
Environmental and Utility Services CSA
• Delivered 65% renewable energy and 84% carbon- neutral power, surpassing state targets by five years, and achieved customer savings of $24 million when compared to PG&E.
• Executed the City’s first energy prepay bond transaction, which secured $66 million in future customer savings.
• Implemented waste diversion improvements including reduction of single -family recycling contamination from 57% in 2022 to 41% in 2024 and increased utilization of grant funding to help businesses reduce costs and improve organics sorting and recovery to comply with SB 1383.
• Achieved a 98% waterway trash -load reduction compared to 90% in the previous year, bringing the City closer to the 100% requirement. • Invested over $103 million in critical Regional Wastewater Facility infrastructure upgrades with seven projects completing construction and an additional four underway.
• Completed the construction of the largest green stormwater infrastructure capture project within the Bay Area.
Neighborhood Services CSA
• Opened 461 new shelter units across four sites, achieving a 95% utilization rate, with another 703 units in the pipeline to be opened by December 2025. • Moved approximately 70% (524 individuals) of homeless individuals engaged through outreach and supportive services programs into shelter, exceeding the 45% target.
• Exceeded the response time targets for all graffiti removal within three days and gang or hate speech graffiti within 24 hours (93%), weekly encampment trash pickup (98%), and illegal dumping within five business days (82%). • Cleared 18 miles of waterway homeless encampments, exceeding the target by 50%, and substantially increased abatements to 1,016 compared to 345 in the prior year, while offering supportive services to residents.
VIII
200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov • Collected and disposed of 24.4 million pounds of trash, representing a 13% increase from the prior year.
• Beautified 11 high-visibility gateway locations throughout the City. • Opened four new parks and upgraded two parks to all-inclusive playgrounds. • Increased Library visits by 6.5%, with Library users making over 3.8 million visits to library locations, exceeding the performance target of 2.5%.
Public Safety CSA
• Achieved a 5% decline in property crimes and a 4% decline in crimes against persons, both outperforming projected targets, and achieved a 100% homicide solve rate for the third straight year, leading the City to achieve the status of “Safest Large City in America”.
• Continued the development of the Real Time Intelligence Center by adding new technological tools for responding to high- priority calls for services; created an internal dashboard of crime statistics, enabling sworn staff to discuss and identify crime patterns and trends in the four patrol divisions; and developed an interactive resource tool for residents to see crime incidents and trends in their neighborhoods. • Implemented a network of Automated License Plate Readers to help recover stolen vehicles.
• Maintained strong Fire Department recruiting efforts, conducting two Firefighter Recruit Academies in FY 2025, including an academy of 21 beginning September 2024 and an academy of 25 beginning March 2025.
• Strengthened the multi-agency coordination model and risk reduction priorities for wildfire planning and preparedness, and launched a Wildfire Risk Reduction campaign, directly outreaching to approximately 6,800 at-risk homes located in the wildland-urban interface.
• Ensured 91% of City employees completed the Disaster Service Worker training and prepared the City for high-risk scenarios through three major exercises: a flood simulation, a 7.0-magnitude earthquake functional exercise, and early planning and preparedness for the Super Bowl, FIFA World Cup, and Presidential Election events in 2026.
Transportation and Aviation Services CSA
• Completed 55 pedestrian safety and traffic -calming projects and deployed 191 changeable message signs across four traffic safety campaigns. • Completed 7.4 miles of new and 32.8 miles of upgraded on- street bikeways and grand-funded corridor safety improvement projects.
• Planted 1,692 new trees in the City’s Urban Forest.
• Unveiled new Airport partnerships to provide multiple new domestic and international air routes, including new ZIPAIR service to Tokyo; new Frontier IX
200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov service to Denver, Las Vegas, Los Angeles, Phoenix, and San Diego; and new Spirit service to Baltimore-Washington, Los Angeles and Portland. • Opened a 22,600 square foot, LEED Silver -certified new Facilities, Administrative, and Fleet Maintenance Building for the Airport. • Approval and launch of new retail concession program at the Airport that supports over 50 local retailers. The collective minimum capital investment of $16.9 million will support a high- quality buildout featuring fresh new looks and integrate new technologies that will enhance the passenger experience, increase speed of service, and drive sales.
Strategic Support CSA
• Closed a $35.6 million General Fund budget shortfall and reduced the FY 2027 projected deficit by half (from $52.9 million to $25.2 million), while avoiding employee layoffs, protecting core services, and making targeted strategic investments to address the City Council’s most urgent priorities and key areas of organizational risk.
• Further reduced the City’s vacancy rate from 10.5% to 8.6%, unmatched by surrounding cities and comparable cities statewide, with over 900 new hires. The number of voluntary resignations was 275, representing 4.2% of the workforce, and the employee turnover rate was 8.0%, both within healthy organizational levels. Returned all employees to onsite work four days/32 hours a week with flexible arrangements for employees as needed and appropriate. • Improved Racial Equity Action Plan activity rate performance with 100% of Departments and Offices having active or in -progress Racial Equity Action Plan tasks in FY 2025.
• Advanced artificial intelligence (AI) work by leading the GovAI Coalition; hosting the inaugural GovAI Coalition Summit 2024; conducting AI upskilling classes; and publishing Generative AI Guidelines to help employees use AI tools responsibly and effectively in their daily work; and conducted AI pilot programs to improve service delivery. Advanced the City’s commitment to data -driven government by launching the first Citywide Data Strategy, adopting a formal Data Governance Policy, and piloting a modern Data Lakehouse platform. • Maintained bond ratings from all three major rating agencies with the City’s general obligation bonds rated Aa1 by Moody’s, AA+ by S&P, and AAA by Fitch.
The City’s lease revenue bonds are rated Aa2 by Moody’s, AA by S &P, and AA by Fitch.
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 provides critical capital investment to sustain, enhance, and develop a wide array of public infrastructure to improve system reliability, enhance recreational experience, advance public safety, and X
200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov ensure San José is well -positioned for further economic growth and opportunity. It builds 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).
The FY 2026- 2030 CIP totals $3.7 billion, a 7.6% decrease from the FY 2025- 2029 Adopted CIP of $4.0 billion. The FY 2026 Adopted Capital Budget of $1.4 billion is in line with the FY 2025 Adopted Capital Budget of $1.4 billion. The CIP focuses on renovating, renewing, and expanding City infrastructure that serves the critical day- to-day needs of the community, such as roadways, sewer collection and treatment systems, parks and sports fields, fire and police facilities, and airport facilities. Over the next two years, most of the significant projects funded by the $650 million San José Disaster Preparedness, Public Safety, and Infrastructure Bond Measure (Measure T) will complete construction, representing the accomplishment of significant rehabilitation of the City’s critical infrastructure.
The CIP continues the work to ensure that we build equity considerations into the identification and prioritization of infrastructure rehabilitation. While the General Plan remains the core planning tool of the CIP, the technical analysis necessary to identify and prioritize infrastructure rehabilitation needs is increasingly supplemented by the explicit consideration of equity, including the incorporation of race and income data as factors.
While the Administration remains focused on leveraging state and federal resources to supplement project funding, several of the City’s key local revenues dedicated to the CIP have declined or remained stagnant in the face of increasing operational and rehabilitation needs. Construction and Conveyance Tax revenues – primarily generated by private property sales – are estimated to grow modestly from $47.0 million in FY 2026 to $60.0 million in FY 2030. These collections are significantly lower than the record -setting collections of $64.5 million experienced in FY 2022. The decline in revenue from previous years reduces available funding for capital infrastructure needs in the Parks and Community Facilities Development, Library, Service Yards, Fire, Communications, and Park Yards Capital Program.
The Status Report on Deferred Infrastructure Maintenance Backlog, presented to the Transportation and Environment Committee in April 2024 (updated on a two- year cycle), identified an infrastructure backlog of approximately $1.7 billion, with an additional $129.1 million needed annually to maintain the City’s infrastructure in a sustained, functional condition. Though the backlog is expected to decrease as Measure T projects are fully implemented, the City must continue to search for additional funding resource and leverage grant opportunities to ensure San José’s public assets are appropriately maintained.
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 statement s 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, XI
200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov and that the evaluation of costs and benefits is subject to management estimates and judgment.
The City participates in several tax abatement programs designed to support economic development, housing production, and job creation. These programs are intended to stimulate private investment, accelerate the delivery of much -needed housing, strengthen the local employment base, and enhance long- term fiscal stability by expanding the City’s economic and property- tax base. Current programs include (1) the Downtown High- Rise Residential Incentive Program, which suspends a portion of construction taxes and reduces affordable housing in-lieu fees to encourage high -density residential development in the Downtown Core; (2) a Utility Users Tax Reimbursement Agreement with Samsung Semiconductor, Inc., structured to retain and expand advanced- manufacturing operations and high-wage jobs in San José; and (3) the Multifamily Housing Incentive Program, a temporary initiative intended to expedite stalled rental housing projects, reduce development costs, and increase the production of market-rate and mixed-income units.
For the fiscal year ended June 30, 2025, the City’s tax revenues were reduced by approximately $3.4 million, consisting of $138 thousand under the Utility Users Tax Reimbursement Agreement and $3.3 million in construction tax reductions under the Multifamily Housing Incentive Program. No Downtown High- Rise projects received abatements during the year because benefits occur at the issuance of the Certificate of Occupancy. These programs are expected to provide long- term economic benefits through increased housing supply, higher levels of construction and employment activity, and expanded future tax revenues once the developments become fully operational.
In addition, the City’s share of property tax revenues was reduced by approximately $221 thousand due to tax abatement programs administered by the County of Santa Clara under the Williamson Act and Mills Act, for which the City is not a party and has no approval authority.
Additional details on each program are provided in Note on Commitments and Contingencies to the basic financial statements.
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 evaluate 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.
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200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov 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 first adopted by the City Council on May 21, 2002 and is reviewed annually. It was most recently revised on March 11, 2025. 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 debt issuance proceeds; and • Ensure compliance with applicable state and federal laws.
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, 2024. This was the thirty- seventh 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 Unite d States of America, as well as all applicable legal requirements.
The Certificate of Achievement is valid for one year. The City believes the FY 2025 ACFR conforms to the Certificate of Achievement program requirements and will submit the report to GFOA for consideration of the annual award.
For the thirty -fifth consecutive year, the City received the GFOA Distinguished Budget Preparation Award for its annual budget for the fiscal year beginning July 1, 2024. 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.
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200 East Santa Clara Street San José, CA 95113 tel (408)535-8100 fax (408) 920-7007 www.sanjoseca.gov 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 professionalism and invested substantial effort to produce this document.
In addition, fiscal staff in all City departments should be recognized for responding so positively to the requests of 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 the community.
Respectfully submitted,
JENNIFER A. MAGUIRE
City Manager
MARIA ÖBERG
Director of Finance
XIV FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
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INTRODUCTORY
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FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
XVI FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
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 Matt Mahan
(408) 535-4800
[email protected]
Pamela Campos
District 2
(408) 535-4902
[email protected]
Rosemary Kamei
District 1
(408) 535-4901
[email protected]
Anthony Tordillos
District 3
(408) 535-4903
[email protected]
David Cohen
District 4
(408) 535-4904
[email protected]
Peter Ortiz
District 5
(408) 535-4905
[email protected]
Michael Mulcahy
District 6
(408) 535-4906
[email protected]
Bien Doan
District 7
(408) 535-4907
[email protected]
Domingo Candelas
District 8
(408) 535-4908
[email protected]
Pam Foley
District 9
(408) 535-4909
[email protected]
George Casey
District 10
(408) 535-4910
[email protected]
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INTRODUCTORY
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FOR THE YEAR ENDED JUNE 30, 2025
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
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 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, 2025, 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, 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 f und information of the City, as of June 30, 202 5, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States (Government Auditing Standards). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the 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, 2024, the City adopted the provisions of Governmental Accounting Standards Board Statement No. 101, Compensated Absences. Our opinions are not modified with respect to this matter.
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. 2 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 h igh 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 m aterial misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS and Government Auditing Standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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.
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 fund 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
3 related ratios for the measurement periods ended June 30 – postemployment healthcare plans; the schedule of employer contributions – postemployment healthcare plans; and the schedule of investment returns – 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 basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with GAAS, 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 the 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 statements and certain additional procedures, including comparing and reconciling such information di rectly 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 GAAS. In our opinion, 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 management is responsible for the other information included in the annual comprehensive financial report. The other information comprises the introductory and statistical sections but does not include the basic financial statements and our auditor's report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon.
In connection with our audit of the 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 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards , we have also issued our report dated November 17, 2025 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 solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s 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, 2025
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ANNUAL COMPREHENSIVE FINANCIAL REPORT
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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, 2025. 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, 2025, total assets and deferred outflows of resources exceed total liabilities and deferred inflows of resources by $4.419 billion. Of this amount, a deficit balance of $1.664 billion represents unrestricted net position, which consists of a deficit balance of $2.400 billion for governmental activities, and a positive balance of $736.0 million for business-type activities. In addition, the City’s restricted net position totals $1.236 billion ($1.158 billion for governmental activities and $77.3 million for business-type activities) based on the restrictions imposed by the enabling legislation or debt covenants. Lastly, net position of $4.847 billion is the City’s net investment in capital assets, which includes $3.413 billion from governmental activities and $1.434 billion from business-type activities. ● The net position increased by $9.9 million or 0.22 percent during FY 2025 to $4.419 billion from $4.409 billion. Governmental activities accounted for a $146.4 million decrease due to total expense of $2.373 billion exceeding the total revenue and transfers of $2.294 billion. Business-type activities accounted for $156.3 million of the increase due to total revenue of $1.237 billion exceeding the total expense and transfers of $1.073 billion.
● Governmental funds reported a combined ending fund balance of $2.010 billion at June 30, 2025, which is $132.4 million or 6.18 percent lower than the June 30, 2024 balance. The change was attributable to an increase in the Low and Moderate Income Housing Asset Fund of $2.5 million and offset by decreases in the Nonmajor Governmental Funds of $94.8 million, the General Fund of $34.2 million and the Housing Activities Fund of $6.1 million.
● Unassigned fund balance of governmental funds is $22.9 million, which is 1.14 percent of the combined governmental fund balances at June 30, 2025.
Overview of the Financial Statements
This discussion and analysis introduce the City’s basic financial statements, which are comprised of four components:
● Government-wide Financial Statements
● Fund Financial Statements
● Notes to Basic Financial Statements
● Required Supplementary Information
In addition, this report also contains other supplementary information.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
6 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 five 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, 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, and the Low and Moderate Income Housing Asset 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
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service, and capital project funds, which are aggregated into a single 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, and clean energy program in proprietary funds. These statements also report several individual proprietary funds classified as nonmajor funds, which are aggregated into a single presentation. Individual fund data for each of the nonmajor proprietary funds is provided in the form of combining statements elsewhere in this ACFR.
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, nonmajor enterprise funds, internal service funds, and fiduciary funds and are presented immediately following the required supplementary information.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
8 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, 2025, the City’s total assets and deferred outflows of resources exceed total liabilities and deferred inflows of resources by $4.419 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, 2025 and 2024
(in thousands)
Governmental Activities Business-type Activities Totals FY 2025 FY 2024 FY 2025 FY 2024 FY 2025 FY 2024
Assets:
Current and other assets $ 2,498,631 $ 2,650,290 $ 1,523,276 $ 1,428,351 $ 4,021,907 $ 4,078,641 Capital assets 4,581,540 4,669,453 2,794,649 2,721,756 7,376,189 7,391,209 Total assets 7,080,171 7,319,743 4,317,925 4,150,107 11,398,096 11,469,850
Deferred outflows of resources:
Loss on refundings of debt 4,666 4,984 9,527 10,070 14,193 15,054 Pensions 554,235 496,056 76,449 67,910 630,684 563,966 Other postemployment benefits 159,594 112,108 15,690 15,042 175,284 127,150 Total deferred outflows of resources 718,495 613,148 101,666 93,022 820,161 706,170
Liabilities:
Current and other liabilities 349,309 333,239 176,662 178,471 (a) 525,971 511,710 Long-term liabilities 1,603,141 1,598,464 1,449,338 1,482,194 (a) 3,052,479 3,080,658 Net pension liability 2,620,643 2,748,816 341,407 345,065 2,962,050 3,093,881 Net OPEB liability 813,251 710,402 69,986 63,873 883,237 774,275 Total liabilities 5,386,344 5,390,921 2,037,393 2,069,603 7,423,737 7,460,524
Deferred inflows of resources:
Gain on refundings of debt 2,555 2,825 2,779 - 5,334 2,825 Pensions 94,822 25,842 9,800 6,362 104,622 32,204 Other postemployment benefits 37,352 85,937 2,967 9,788 40,319 95,725 Rate stabilization reserve - - 106,000 50,000 106,000 50,000 Leases 19,883 17,565 13,514 16,510 33,397 34,075 Public-private and public-public partnerships 85,893 91,620 - - 85,893 91,620 Total deferred inflows of resources 240,505 223,789 135,060 82,660 375,565 306,449
Net position:
Net investment in capital assets 3,413,015 3,517,578 1,433,873 1,315,188 4,846,888 4,832,766 Restricted 1,158,487 1,297,990 77,315 62,402 1,235,802 1,360,392 Unrestricted (2,399,685) (2,497,387) 735,950 713,276 (a) (1,663,735) (1,784,111) Total net position $ 2,171,817 $ 2,318,181 $ 2,247,138 $ 2,090,866 $ 4,418,955 $ 4,409,047
(a) FY 2024 balances have been restated as a result of implementing GASB 101, Compensated Absences.
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At June 30, 2025, the City reported positive balances in net position on a total basis. Net investment in capital assets (infrastructure, land, buildings, other improvements, vehicles, equipment, lease assets and SBITA less outstanding debt used to acquire assets and deferred inflows and outflows related to debt) of $4.847 billion comprises 109.68 percent of the City’s total net position. These capital assets facilitate providing services to the San José community, but are not liquid, and therefore not available for future spending. During FY 2025, net investment in capital assets increased by $14.1 million primarily due to the decreases of $104.6 million from governmental activities and the increase of $118.7 million from business-type activities. A portion of the City’s net position, $1.236 billion or 27.97 percent, is subject to legal restrictions for its use, including $1.158 billion in governmental activities and $77.3 million in business-type activities. Of the total net position at June 30, 2025, a deficit balance of $1.664 billion or negative 37.65 percent represents unrestricted net position, which comprises a deficit balance of $2.400 billion for governmental activities, and a positive balance of $736.0 million for business-type activities. The primary factor contributing to the deficit in unrestricted net position is the City’s net pension and Other Postemployment Benefits (“OPEB”) liabilities.
During FY 2025, the City’s total net position increased by $9.9 million. Notable changes in the statement of net position between June 30, 2025 and June 30, 2024 include:
Assets
● Current and other assets decreased by $56.7 million or 1.39 percent due to a decrease by $151.7 million for governmental activities and an increase by $95.0 million for business-type activities. The decrease in governmental activities is mainly due to the decrease in cash and investments held with fiscal agents from higher spending on public safety and sanitation projects. The increase in current assets for business- type activities is mainly due to higher cash and investments, driven by increased revenue from rentals, concessions, and investment income.
● Capital assets decreased by $15.0 million compared to the prior fiscal year. Governmental capital assets decreased by $87.9 million and business-type capital assets increased by $72.9 million. The decrease in governmental capital assets resulted from depreciation expense of $249.6 million for major infrastructure and other assets and $0.2 million in net deletions, partially offset by additions to capital assets of $161.9 million, which included $114.5 million of additional capital projects in process, $19.6 million in vehicles and equipment, $15.0 million of contributed capital from donated infrastructure assets . Other additions include $8.7 million right-to-use assets: SBITA, $2.7 million from property acquisitions, $1.0 million additions to improvements other than buildings, $0.4 million right-to-use lease assets: buildings. ● The increase in business-type capital assets was primarily driven by $181.7 million in additions, mainly from the Airport and Wastewater Treatment Facility, offset by $108.2 million in depreciation and $0.6 million in net deletions.
Liabilities
● Total long-term liabilities decreased by $51.0 million to $6.898 billion at June 30, 2025, which represents a decrease by 0.73 percent compared to $6.949 billion at June 30, 2024. The primary factors leading to the decrease in long-term liabilities for governmental activities of $20.6 million was due to the decrease of net pension liability by $128.2 million, and the long-term obligations by $4.7 million, offset by the increase of OPEB liability by $102.9 million. The primary factor leading to the decrease in long-term liabilities for business-type activities of $30.4 million was the result of an decrease of net pension liability by $3.7 million, and the long-term obligations by $38.5 million, offset by the increase of net OPEB liability by $6.1 million. ● Net pension liability decreased by $131.8 million since the prior measurement date. This reduction is due to a combination of investment gains and contributions in excess of service cost, administrative FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
10 expenses, and interest on net pension liability. These decreases were offset by actuarial losses and assumption changes.
● Net OPEB liability increased by $109.0 million since the prior measurement date, primarily due to experience loss. Additionally, assumption changes contributed to the increase in the net OPEB liability and were partially offset by investment gains.
● Current and other liabilities increased by $14.3 million or 2.79 percent. The decrease in governmental activities of $16.1 million is mainly driven by a reduction of $20.7 million in accounts payable and $16.2 million in accrued salaries, wages and payroll taxes, offset by an increase of $22.0 million in other liabilities.
For business-type activities, current and other liabilities decreased by $1.8 million, primarily due to a decrease of $7.7 million in short-term notes payable and $2.5 million in accrued salaries, wages, and payroll taxes, offset by an increase of $6.5 million in accounts payable.
Deferred Outflows/Inflows of Resources
● Deferred outflows of resources increased by $114.0 million to $820.2 million at June 30, 2025, which represents an increase by 16.14 percent compared to $706.2 million at June 30, 2024. The primary factor leading to the increase in deferred outflows of resources is the increase in deferred outflows of resources related to pension of $66.7 million and OPEB of $48.1 million. ● Deferred inflows of resources increased by $69.2 million to $375.6 million at June 30, 2025, which represents an increase by 22.55 percent compared to $306.4 million at June 30, 2024. The increase of deferred inflows of resources was primarily due to the increase in deferred inflows of resources related to pension of $72.4 million and a rate stabilization reserve of $56.0 million, offset by the decrease in deferred inflows of resources related to OPEB of $55.4 million.
Net Position
● Unrestricted net position for governmental activities increased by $97.7 million or 3.91 percent with a deficit balance of $2.400 billion at June 30, 2025. 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 $22.7 million or 3.18 percent with a positive balance of $736.0 million at June 30, 2025.
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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, 2025 and 2024
(in thousands)
Governmental Activities Business-type Activities Totals FY 2025 FY 2024 FY 2025 FY 2024 FY 2025 FY 2024
Revenues:
Program revenues:
Fees, fines, and charges for services $ 470,249 $ 463,541 $ 1,134,356 $ 1,118,032 $ 1,604,605 $ 1,581,573 Operating grants and contributions 143,932 158,094 12,454 12,341 156,386 170,435 Capital grants and contributions 123,551 171,249 23,471 23,688 147,022 194,937 General revenues:
Property and other taxes 648,616 619,705 - - 648,616 619,705 Real property transfer tax 47,677 56,280 - - 47,677 56,280 Utility 161,886 152,063 - - 161,886 152,063 Franchise 58,459 52,476 - - 58,459 52,476 Transient occupancy taxes 43,048 39,747 - - 43,048 39,747 Business taxes 87,693 86,072 - - 87,693 86,072 Sales taxes 331,431 333,411 - - 331,431 333,411 Unrestricted interest and investment income 102,297 108,066 65,378 51,172 167,675 159,238 Other revenue 71,041 46,499 1,743 401 72,784 46,900 Total revenues 2,289,880 2,287,203 1,237,402 1,205,634 3,527,282 3,492,837
Expenses:
General government 189,281 216,898 - - 189,281 216,898 Public safety 793,659 780,342 - - 793,659 780,342 Community services 547,438 519,728 - - 547,438 519,728 Sanitation 248,185 223,287 - - 248,185 223,287 Capital maintenance 554,141 548,919 - - 554,141 548,919 Interest and fiscal charges 40,496 41,335 - - 40,496 41,335 San José Mineta International Airport - - 249,349 225,969 (a) 249,349 225,969 Wastewater Treatment System - - 268,183 244,530 268,183 244,530 Municipal Water System - - 73,931 62,907 73,931 62,907 Parking System - - 16,901 17,352 16,901 17,352 San José Clean Energy - - 460,317 416,300 460,317 416,300 Total expenses 2,373,200 2,330,509 1,068,681 967,058 3,441,881 3,297,567 Excess (deficiency) before transfers (83,320) (43,306) 168,721 238,576 85,401 195,270 Transfers 4,036 2,221 (4,036) (2,221) - - Change in net position (79,284) (41,085) 164,685 236,355 85,401 195,270 Net position at beginning of year, as previously
reported 2,318,181 2,359,266 2,090,866 1,856,360 4,409,047 4,215,626 Adjustment due to change of accounting principles (67,080) (a) (8,413) (a) (1,849) (b) (75,493) (1,849) Net position at beginning of year, as restated 2,251,101 2,359,266 2,082,453 1,854,511 4,333,554 4,213,777 Net position at end of year $ 2,171,817 $ 2,318,181 $ 2,247,138 $ 2,090,866 $ 4,418,955 $ 4,409,047
(a) FY 2024 balances have been restated as a result of implementing GASB 101, Compensated Absences. (b) FY 2023 balance has been restated for Airport as a result of implementing GASB 101, Compensated Absences.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
12 Governmental activities: The change in net position for governmental activities decreased by $38.2 million during FY 2025 from a deficit of $41.1 million to a deficit of $79.3 million. Total expenses increased by $42.7 million and total revenues including transfers increased by $4.5 million. The major factors contributing to the decrease in net position in FY 2025 compared to FY 2024 are as follows:
Revenues
● Fees, fines, and charges for services increased by $6.7 million or 1.45 percent primarily due to a $6.7 million increase in the Integrated Waste Management Fund, driven by higher revenue from garbage service fees. Additionally, the General Fund had a $5.7 million increase, resulting from higher revenue collected from business license penalties and multi-housing occupancy permit collections. These increases were partially offset by a $10.5 million decrease in the Subdivision Park Trust Fund, resulting from a significant decline in fees collected from large developments and apartment buildings. ● Operating grants and contributions decreased by $14.2 million or 8.96 percent primarily due to a $14.7 million decrease in various Housing Funds, resulting from lower grant revenue collected from the HOME program in FY 2025.
● Capital grants and contributions decreased by $47.7 million or 27.85 percent mainly due to less contributions received from donated assets, from $39.5 million in FY 2024 to $17.8 million in FY 2025.
Additionally, projects such as AHSC Balbach and Roosevelt were closed, and the McKee Road Safety Corridor Improvement project was completed in FY 2025. Furthermore, the Building and Structure Construction Tax Fund received $10.0 million from Assembly Bill 178 – Vision Zero upfront in FY 2024, contributing to the significant year-over-year decrease in FY 2025. ● Other revenues and transfers increased by $59.6 million or 3.99 percent mainly due to a $19.6 million increase in General Secured Property Tax revenue, driven by higher property valuations resulting from ownership changes. Additionally, the City received $5.0 million from the Google Community Benefit, and reimbursements from various jurisdictions increased by $17.0 million. Furthermore, Utility Tax collections increased by $9.8 million, mainly due to higher rates and increased consumption of both electricity and gas.
Expenses
● Pension expense decreased $54.5 million during FY 2025. Federated City Employees’ Retirement System (“FCERS”)’s pension expense increased by $13.3 million and the Police and Fire Department Retirement Plan (“PFDRP”)’s pension expense decreased by $67.8 million primarily due to higher expected return on assets and increased recognition of investment gains. ● OPEB expense increased by $47.6 million during FY 2025. FCERS’s OPEB expense increased by $38.1 million and PFDRP’s OPEB expense increased by $9.5 million primarily due to investment earnings and recognition of actuarial changes being higher than the expected return on assets. ● General government expenses decreased by $27.6 million or 12.73 percent during FY 2025. This decrease was mainly driven by a reduction of open litigation claims for $18.3 million. In addition, pension expenses decreased by $8.3 million during FY 2025. ● Public safety expenses increased by $13.3 million or 1.71 percent primarily due to a $53.8 million increase in the General Fund, mainly driven by higher personnel services costs, as well as increased non-personnel expenses related to public safety. Additionally, OPEB expenses increased by $35.7 million and offset by a $78.2 million decrease in pension expenses.
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● Community services expenses increased by $27.7 million or 5.33 percent primarily due to a $12.9 million increase in expenses related to the Permanent Local Housing Allocation project, an $8.0 million increase in HomeKey grant expenses, and a $5.5 million increase in repairs and maintenance expenses from the Convention and Cultural Facilities Funds. Additionally, the General Fund incurred $9.3 million in expenses for the Cerone Interim Housing Community Project. These increases were offset by a $9.0 million decrease in loan allowance expenses from the Low and Moderate Income Housing Asset Fund. ● Sanitation expenses increased by $24.9 million or 11.15 percent primarily due to higher expenses in the Integrated Waste Management Fund. This included a $14.0 million increase in spending on the Single- Family Recycle Plus and dwelling programs, $2.4 million in expenses for the yard trimming collection process, and $1.7 million in expenses for multi-family services. ● Capital maintenance expenses increased by $5.2 million or 0.95 percent primarily due to a $4.9 million increase in expenses from the Construction and Property Conveyance Tax Fund, driven by the John Mise Park artificial turf renovation project and various other infrastructure projects. The General Fund also experienced a $3.2 million increase in expenses due to the placement of City’s first safe sleeping site, and the Building and Structure Construction Tax Fund had a $4.1 million increase related to new projects such as the TFCA Transit Signal project and the Grand Boulevard Initiative. Additionally, capital asset depreciation increased by $3.1 million due to a higher volume of new assets placed into service during the current fiscal year. These increases were offset by a $10.5 million decrease in expenses from the Measure T Public Safety and Infrastructure Fund, primarily related to pavement maintenance and bridge resurfacing.
● Interest and fiscal charges decreased by $0.8 million or 2.03 percent in FY 2025 primarily due to interest expense incurred from Leases and Subscription-Based Information Technology Arrangements (“SBITAs”).
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
14 The chart below shows the primary components of governmental activities revenue sources for FY 2025.
Of the $2.294 billion in total revenues and transfers generated by governmental activities, 70.77 percent is attributable to four categories: property and other taxes (28.28 percent), fees, fines, and charges for services (20.50 percent), sales taxes (14.45 percent), other revenue (7.54 percent).
Governmental Activities
Revenues by Source
Fees, fines, and charges for
Fees, fines, and charges for
services: 20.50%
services: 20.50%
Fees, fines, and charges for
services: 20.50%
Operating grants & contributions: 6.27%
Operating grants & contributions: 6.27%Operating grants & contributions: 6.27% Capital grants & contributions: 5.39%
Capital grants & contributions: 5.39%Capital grants & contributions: 5.39% Property and other taxes: 28.28%
Property and other taxes: 28.28%Property and other taxes: 28.28% Real property transfer tax: 2.08%
Real property transfer tax: 2.08%Real property transfer tax: 2.08% Sales taxes: 14.45%
Sales taxes: 14.45%Sales taxes: 14.45%
Utility taxes: 7.06%
Utility taxes: 7.06%Utility taxes: 7.06%
Franchise fees: 2.55%
Franchise fees: 2.55%Franchise fees: 2.55%
Transient occupancy taxes: 1.88%
Transient occupancy taxes: 1.88%Transient occupancy taxes: 1.88% Business taxes: 3.82%
Business taxes: 3.82%Business taxes: 3.82%
Other revenue: 7.54%
Other revenue: 7.54%Other revenue: 7.54%
Transfers: 0.18%
Transfers: 0.18%Transfers: 0.18%
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FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
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The chart below shows the major categories of FY 2025 expenses for governmental activities. Of the $2.373 billion in total expenses incurred by governmental activities, 90.32 percent is attributable to four categories:
public safety (33.44 percent), capital maintenance (23.35 percent), community services (23.07 percent), and sanitation (10.46 percent).
Governmental Activities
Expenses
General Government: 7.98%
Public Safety: 33.44%
Community Services: 23.07%
Sanitation: 10.46%
Capital Maintenance: 23.35%
Interest and fiscal charges: 1.70%
Business-type activities: Business-type activities net position increased by $156.3 million or 7.47 percent to $2.247 billion in FY 2025.
The notable components of the changes in net position for business-type activities in FY 2025 are:
Airport change in net position from current year activities showed an increase of $78.1 million in FY 2025 compared to an increase of $75.2 million in FY 2024. The increase in operating revenues, investment income, Customer Facility Charges (“CFC”) and capital contributions, along with a decrease in interest expense, were partially offset by the increase in operating expenses, the increase in net revenue sharing with participating airlines, and the decrease in Passenger Facility Charges (PFC) revenues.
Operating revenues increased primarily due to higher rates for landing fees, terminal rentals, and land rentals.
Investment income increased because of higher interest rates and the impact of fair value adjustments.
CFC revenues increased following an increase in the number of transactions resulting in higher rental days subject to CFC fees. Capital contributions earned during FY 2025 pertained to grant reimbursement from the Federal Aviation Administration, mainly for the New Taxiway V. Interest expense decreased year over year primarily due to bond refunding completed during FY 2025. The net revenue sharing increased resulting from higher revenues. The decrease in PFC revenues was reflective of the decrease in passenger traffic.
Net nonoperating revenues increased $0.9 million in FY 2025. The increase in investment income, CFC revenues, and decrease in interest expenses were offset by the $7.4 million increase in the net revenue sharing with participating airlines and the decrease in PFC revenues. Capital contributions increased by $3.4 million.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
16 The Airport had a net operating income of $44.0 million, a decrease of $1.1 million compared to prior year’s operating income of $45.1 million. Operating revenues increased by 7.65 percent from $222.1 million in FY 2024 to $239.1 million in FY 2025 mainly due to higher rental rates.
Operating expenses in FY 2025 increased by 10.20 percent or $18.0 million from $177.1 million in FY 2024 to $195.1 million in FY 2025 due to personnel and non-personnel costs resulting from higher contractual rates.
Wastewater Treatment System net position increased by $57.6 million or 4.64 percent from $1.242 billion to $1.300 billion. The increase was primarily due to revenues exceeding expenses (before capital contributions) by $56.4 million. The largest portion of the net position, $1.074 billion or 82.66 percent, was its net investment in capital assets (e.g. land, buildings, and infrastructure) less outstanding debt that was used to acquire those assets. Approximately $225.5 million, or 17.34 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 by $16.0 million compared to the prior fiscal year. The increase was primarily due to a $17.0 million increase in sewer revenue, driven by increase in sewer discharges with a 9.00 percent sewer rate increase effective July 1, 2024 and a $3.9 million increase in recycled-water revenue, resulting from a higher recycled-water rate. Additionally, joint participation revenue increased by $1.5 million due to the reimbursement from West Valley Sanitary District for the joint sanitary sewer line improvement project and connection fee revenues increased by $0.4 million. These increases were offset by a decrease of $6.9 million in the contributions from the City of Santa Clara and the Tributary Agencies toward the Water Pollution Control Plant (“the Plant”) ongoing maintenance and replacement costs.
Total operating expenses increased by $22.8 million compared to the prior fiscal year. The increase was mainly driven by $19.8 million increase in Facility Wide Water System Improvements project fees including contractual services and mobilization costs, $9.5 million increase in depreciation and amortization expenses due to more capitalized assets placed into service, and $7.1 million increase in personal service costs mainly due to cost of living adjustment. These increases were offset by a decrease of $13.5 million in project expenses associated with Digested Sludge Dewatering Facility and Storm Drain System Improvements due to near project completion and post-construction phase, respectively.
Net nonoperating revenues (expenses) increased by $2.6 million. The increase of nonoperating revenue was primarily due to a $3.6 million increase in investment income and revenue for design and construction services rendered during the sewer repair project. Nonoperating expenses increased by $1.0 million mainly attributed to higher outstanding principal balance related to the RWF note during the current fiscal year.
San José Clean Energy (SJCE) net position increased by $22.9 million or 8.83 percent from $259.5 million to $282.4 million. Operating revenues decreased by $24.8 million or 5.03 percent from $492.3 million to $467.5 million due to an increase in other revenues of $0.6 million offset by a decrease in power sales of $19.0 million and a year over year increase in deferred inflows set aside for the rate stabilization reserve of $6.0 million. In FY 2024, the amount was $50.0 million. In FY 2025, an additional $56.0 million was added, bringing the total to $106.0 million. The rate stabilization reserve can be drawn on in years of high operational expenses, to stabilize net revenue performance allowing SJCE to better manage its financial position and compliance reporting without relying solely on near-term customer rate adjustments. Operating expenses increased by $44.7 million or 10.81 percent from $413.6 million to $458.3 million due to higher market prices in the California energy market.
As of June 30, 2025, SJCE serves approximately 352,000 customer accounts in San José with two electricity rate plans, as well as a special discount program, SJCARES, which was originally established for households that qualify for the California Alternate Rates for Energy (“CARE”) or the Family Electric Rate Assistance
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ANNUAL COMPREHENSIVE FINANCIAL REPORT
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(“FERA”) state programs, and in fiscal year 2024 expanded to include residents living in affordable housing units and those deemed to be at significant risk of disconnection. These options 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. In addition, SJCE’s Green Transportation Program supports the electrification of transit fleets and other large- scale transportation users, providing access to renewable power solutions that help reduce emissions and advance the City’s climate goals.
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, 2025, the City’s governmental funds reported combined fund balances of $2.010 billion compared to $2.142 billion balances in FY 2024. The governmental fund balances are categorized as nonspendable, restricted, committed, assigned, or unassigned. ● $0.0 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. ● $1.149 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.
● $303.0 million is reported as committed fund balance that had been limited by formal Council action for a specific purpose.
● $534.5 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. ● $22.9 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, 2025, the General Fund unassigned fund balance is $22.9 million or 3.58 percent of the $640.9 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 meet future obligations. At June 30, 2025, unassigned fund balance represents 1.60 percent of total General Fund expenditures of $1.434 billion, while total fund balance represents 44.69 percent of total General Fund expenditures. At June 30, 2024, the same measures were
9.89 percent and 50.43 percent, respectively.
The General Fund ending fund balance decreased by $34.2 million from $675.1 million to $640.9 million at June 30, 2025.
In FY 2025, General Fund revenues of $1.414 billion were $80.3 million or 6.02 percent higher than FY 2024 revenues of $1.334 billion. The general Secured Property Tax receipts growth of $21.7 million in FY 2025 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. Utility Tax collections increased by $9.8 million mainly due to the higher rates and also increased consumption of both electricity and gas. Investment income increased by $0.4 million due to rising interest rates, increase in fair value adjustment of investments, and higher cash balances. Franchise fees increased by $5.9 million due to PG&E changing the methodology for Franchise Fees remittance. General FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
18 Sales Tax receipts decreased by $1.9 million due to an decrease in merchandise that is subject to the tax.
Business tax revenues increased by $1.6 million mainly due to an increase in General Business License collections over the past year. Operating grants and contributions increased by $9.7 million primarily due to the Cerone EIH Grant . Revenues in the Fees, Rates, and Charges category include various fees and charges levied to recover costs of services provided by several City departments, the largest of which are Parks, Recreation, and Neighborhood Services (“PRNS”) Department Fees. PRNS Department Fee revenue ended the year at $25.9 million, which is significantly above the FY 2024 collection level of $1.2 million. This large year over year increase in PRNS fee revenue is due to the continued reopening of PRNS programs.
FY 2025 General Fund expenditures of $1.434 billion were $95.6 million or 7.14 percent higher than FY 2024 expenditures of $1.339 billion. The increase was primarily due to an increase of $58.1 million in personal services expenditures, an increase of $11.6 million in general liability claims, an increase of $18.2 million in interim housing expenditures, and new expenses on Janitorial Services of $7.3 million that did not occur last year.
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 2025, COVID-19 related funding through the U. S. Treasury. At June 30, 2025, the fund’s loan receivable balance (net), which represents loans to developers of various affordable housing projects and first-time homebuyers, was $71.2 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, Second Street Studios, Kelsey Ayer Station, Alum Rock Apartments and 101 S. Jackson.
Restricted fund balance decreased by $6.1 million to $185.2 million as of June 30, 2025. The decrease is primarily due to revenues from intergovernmental services of $57.1 million and investment and other revenues of $17.9 million being lower than expenditures for community services of $83.7 million. There was a $10.7 million increase in revenue primarily from the $15.9 million increase in grant revenue and offset by $5.6 million decrease in Other Revenue due to a decrease in Commercial Linkage Fee revenue. Community services expenditures increased by $15.9 million or 23.50 percent compared to prior year due to higher spending on emergency shelters.
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, 2025, the fund’s loan receivable balance (net) was $245.5 million. This balance consists mainly of loans to developers for various projects including Belovida Apartments, Brookwood Terrace, Cinnabar Commons, Corde Terra Village, Las Ventanas, Oak Tree Village, Pollard Plaza, Villas on the Park, Second Street Studios, The Metropolitan (South), Mariposa Place, Kelsey Ayer, Quetzal Gardens and Immanuel Sobrato. Restricted fund balance increased by $2.5 million to $422.7 million from $420.2 million. The increase is primarily due to lower community services expenditures in the current year compared to FY 2024.
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. As of June 30, 2025, the unrestricted net position for major proprietary funds was $190.3 million for the Airport, $225.5 million for the Wastewater Treatment System, and $280.9 million for the San José Clean Energy fund. The unrestricted net position for nonmajor proprietary funds totaled $39.3 million, including the Municipal Water System and the Parking
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19 FINANCIAL
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System fund. Overall, the net position for proprietary funds increased from $2.082 billion at June 30, 2024 to $2.247 billion at June 30, 2025, resulting in an increase of $164.7 million or 7.91 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 2025 budget in June 2024.
During the year ended June 30, 2025, there was a $33.7 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 a $29.8 million increase in the intergovernmental category, $5.0 million increase in Utility, as well as $20.2 million increase across other various revenue categories, and an offset of $22.0 million in sales tax category.
Actual budgetary basis expenditures of $1.537 billion were $384.9 million less than the amended budget as of June 30, 2025, due to planned expenditures not occurring; however, they were $180.0 more than the original budget. Personal Services expenditures for the year were $3.1 million below budgeted levels primarily due to vacancy savings. Some of the other unexpended expenditures include the Measure E Homeless Support, Fire Apparatus Replacement, Interim Housing - cerone, the Project Homekey 2.0, and other miscellaneous projects.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
20 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 $7.376 billion at June 30, 2025. This investment includes land, infrastructure, structures and improvements, vehicles, equipment, intangible assets, and construction in progress. The City’s requirement 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, 2025, net capital assets decreased by $15.0 million ($87.9 million decrease in governmental activities and $72.9 million increase in business-type activities) compared to net capital assets at June 30, 2024. The decrease of $87.9 million in governmental activities is primarily due to depreciation expense of $249.6 million and net deletions of $0.2 million. The decrease was offset by acquisitions of $161.9 million. The increase of $72.9 million in capital assets in the business-type activities resulted from depreciation expense of $108.2 million, and net deletions of $0.6 million, offset by additions of capital projects of $136.0 million, and additions of $45.7 million in other capital improvements.
Total construction in progress decreased by $500.3 million from $1.070 billion at June 30, 2024 to $569.3 million at June 30, 2025. Construction in progress (“CIP”) for the governmental activities decreased by $39.7 million primarily due to $114.5 million additions to CIP projects and $154.2 million net of projects being transferred into service. Major projects contributing to construction in progress include the Emergency Operation Center Relocation Building, with a cost of $26.3 million, and the River Oaks Regional Stormwater Capture Project, with a cost of $16.0 million in FY 2025. Business-type activities contributed a decrease of $460.6 million to the total CIP as additions to the Airport and the Wastewater Treatment System totaling $136.0 million were offset by $596.0 million projects that were completed and placed in service and $0.6 million deletions. Completed Airport projects include the SJC New Facilities Division Building, SJC New Taxiway Victor-Phase 1, SJC TSA Magazine Relocation, Facilities Division Relocation, and Terminal Paging System.
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. 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, 2025 and June 30, 2024 (in thousands):
Governmental activities Business-type activities Total 2025 2024 2025 2024 2025 2024
Land $ 585,243 $ 582,575 $ 143,048 $ 143,048 $ 728,291 $ 725,623 Intangible assets - - 13,247 13,340 13,247 13,340 Construction in progress 141,639 181,347 427,640 888,230 569,279 1,069,577 Buildings 846,967 837,044 1,176,585 913,216 2,023,552 1,750,260 Improvements, other than buildings 266,820 248,727 691,401 640,566 958,221 889,293 Infrastructure 2,650,067 2,730,506 - - 2,650,067 2,730,506 Furniture and fixtures, vehicles,
equipment 55,207 53,475 336,056 118,962 391,263 172,437 Right-to-use lease assets 19,466 22,260 5,120 2,328 24,586 24,588 Right-to-use assets SBITA 16,131 13,519 1,552 2,066 17,683 15,585 Total capital assets $ 4,581,540 $ 4,669,453 $ 2,794,649 $ 2,721,756 $ 7,376,189 $ 7,391,209
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
21 FINANCIAL
SECTION
Commitments outstanding as of June 30, 2025, related to governmental and business-type activities construction in progress totaled approximately $25.3 million and $169.1 million, respectively. Additional 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, provided by the County, for the FY 2025 tax roll was $266.859 billion, which results in a total debt limit of approximately $40.029 billion. As of June 30, 2025, the City had $596.9 million, or 1.49 percent, of General Obligation bond principal applicable to the debt limit. Accordingly, the debt margin is $39.432 billion.
General Obligation Bonds and Other Bond Ratings
The City’s General Obligation credit ratings are “Aa1” by Moody’s Investors Services Inc. (Moody’s), “AA+” by S&P Global Ratings (S&P), and “AAA” by Fitch Ratings (Fitch), all with a “Stable” outlook as of June 30, 2025. The City continues to be one of the highest rated large cities (statistics of population over 250,000) in California.
The Financing Authority Lease Revenue Bonds, Series 2025A were rated “Aa2”, “AA”, and “AA” from Moody’s, S&P , and Fitch, respectively, and each rating agency affirmed the long term ratings of the City’s outstanding lease revenue bond debt in June 2025. The lease revenue bonds are secured by lease payments made by the City to the authority for use of the leased asset.
The Successor Agency to the Redevelopment Agency of the City of San José 2017 Tax Allocation Refunding Bonds Series B were upgraded by Fitch in October 2024 from “AA” to “AA+”, due to strong pledged revenue growth and diminished risk of leveraging the senior lien through subordinate lien refunding. The outlook remained stable.
City of San José Financing Authority (CSJFA) Wastewater Revenue Bonds, Series 2022B credit rating was reaffirmed by Fitch and Kroll Bond Rating Agency (“KBRA”) with an “AAA” rating with stable outlooks in October and November 2024, respectively. The ratings reflect the wastewater system’s strong debt coverage and cash position, and its independent legal ability to set rates.
City of San José Issuer’s Credit Rating – Moody’s, S&P and Fitch affirmed the issuer credit rating of “Aa1”, “AA+” and “AA+”, respectively, with stable outlook in June 2025, citing City’s large, diverse economy and strong financial position.
San José Airport Revenue bonds maintained a credit rating of “A2” from Moody’s with a stable outlook in August 2023 and S&P re-affirmed its long-term rating of “A” with stable outlook in May 2025. Fitch affirmed its “A” rating with stable outlook and also affirmed “A-” underlying rating on the bank note associated with the Airport’s subordinated commercial paper (CP) notes in March 2025. The ratings reflect Airport’s continued financial resilience supported by active management of expenses and a strategic bond refinancing and its sound competitive position with a relatively stable market share.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
22 As of June 30, 2025, 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
2025A Aa2 AA AA
Rating Outlook Stable Stable Stable
As of June 30, 2025, 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.
The Wastewater Revenue Bonds underlying credit ratings by S&P , Fitch, and KBRA: AAA, AAA, and AAA, respectively.
Outstanding Long-Term Debt
The City’s long-term debt service obligations include general obligation bonds, revenue bonds, lease revenue bonds and revenue notes. During the current fiscal year, the City’s outstanding long-term debt decreased by $102.5 million to $2.599 billion, comprising $1.208 billion of governmental activities and $1.391 billion of business-type activities.
The decrease of $57.7 million in governmental activities is due to $51.6 million of debt service payments, amortization of $6.1 million in premiums, and no new bond issuances.
The decrease of $44.8 million in the business-type activities is primarily due to $110.6 million of debt service payments and amortization of $10.6 million in premiums, offset by $76.4 million of new bond issuances.
Additional information about the City’s long-term outstanding debt can be found in the Notes to Basic Financial Statements, Note III.F .
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
23 FINANCIAL
SECTION
Economic Factors and Next Year’s Budget
● The FY 2026 Adopted Budget includes a modest decrease to staffing levels to eliminate one-time basis positions. Overall, the level of staffing increased by 5 positions, from 6,994 full-time equivalent positions in the FY 2025 Adopted Budget to 6,999 positions in the FY 2026 Proposed Budget. ● As reported in the GASB 67/68 Report as of June 30, 2025 prepared by the actuary for PFDRP , the net position of the Defined Benefit Pension Plan was 88.05 percent of the total pension liability. The total pension liability was $6.324 billion, and the fiduciary net position was $5.568 billion, resulting in a net pension liability of $755.5 million. This actuarial information will be used to report pension amounts in the City’s FY 2026 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.
● As reported in the GASB 67/68 Report as of June 30, 2025 prepared by the actuary for FCERS, the net position of the Defined Benefit Pension Plan was 65.84 percent of the total pension liability. The total pension liability was $5.295 billion, and the fiduciary net position was $3.486 billion, resulting in a net pension liability of $1.809 billion. This actuarial information will be used to report pension amounts in the City’s FY 2026 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.
● As of June 30, 2025, the net position of PFDRP’s OPEB Plan was 43.42 percent of the total OPEB liability.
The actuary reported total OPEB liability for postemployment healthcare benefits was $914.5 million and the fiduciary net position was $397.1 million, resulting in a net OPEB liability of $517.4 million.
This actuarial information will be used to report OPEB amounts in the City’s FY 2026 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. ● As of June 30, 2025, the net position of the FCERS’s OPEB Plan was 62.80 percent of the total OPEB liability. The actuary reported total OPEB liability for postemployment healthcare benefits was $735.0 million and the fiduciary net position was $461.6 million, resulting in a net OPEB liability of $273.4 million. This actuarial information will be used to report OPEB amounts in the City’s FY 2026 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. ● For FY 2026, 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
Police
Tier 2
Fire
Tier 1
Fire
Tier 2 Tier 1 Tier 2
Retirement Pension $ 162,545 ² 13.55% $ 33,550 ² 15.01% 164.75% 8.62%
Postemployment Healthcare
Benefits $ 18,938 - $ 12,328 - 4.38% 4.38%
¹ The rates are the Retirement Board adopted rates based on the June 30, 2024, actuarial valuations. ² PFDRP Tier 1 pension contributions are discounted because the City prefunded those amounts in FY 2026.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
24 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 “forward- looking 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.
FOR THE YEAR ENDED JUNE 30, 2025 25
Basic Financial
Statements
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
27 FINANCIAL
SECTION
City of San José
Statement of Net Position
June 30, 2025
($000’s)
Governmental
Activities
Business-Type
Activities Total
ASSETS
Equity in pooled cash and investments held in City Treasury $ 1,569,403 1,115,458 2,684,861 Receivables (net of allowances for uncollectibles) 199,534 129,296 328,830 Prepaid expenses, advances and deposits 392 9,931 10,323 Inventories 2,322 539 2,861
Internal balances 20,700 (20,700) -
Leases receivable 22,659 14,602 37,261
Public-private and public-public partnerships receivable 96,880 - 96,880 Loans receivable (net of allowances for uncollectibles) 331,861 2,817 334,678 Restricted assets:
Equity in pooled cash and investments held in City Treasury 100,794 178,521 279,315 Cash and investments held with fiscal agents 81,249 86,309 167,558 Other cash and investments 19,080 - 19,080
Receivables (net of allowances for uncollectibles) - 4,808 4,808 Other assets - 29 29
Other assets 53,757 249 54,006
Net other postemployment benefits asset - 1,417 1,417 Capital assets (net of accumulated depreciation):
Nondepreciable 726,882 583,570 1,310,452
Depreciable 3,854,658 2,211,079 6,065,737
Total assets 7,080,171 4,317,925 11,398,096
DEFERRED OUTFLOWS OF RESOURCES
Loss on refundings of debt 4,666 9,527 14,193
Pensions 554,235 76,449 630,684
Other postemployment benefits 159,594 15,690 175,284 Total deferred outflows of resources 718,495 101,666 820,161
LIABILITIES
Accounts payable 136,934 121,342 258,276
Accrued salaries, wages and payroll taxes 37,257 4,486 41,743 Interest payable 10,489 16,396 26,885
Due to outside agencies 485 - 485
Short-term notes payable 25,667 20,056 45,723
Unearned revenue 54,219 7,999 62,218
Advances, deposits, and reimbursable credits 9,168 6,383 15,551 Other liabilities 75,090 - 75,090
Long-term obligations:
Due within one year 203,181 54,305 257,486
Due in more than one year:
Net pension liability 2,620,643 341,407 2,962,050
Net other postemployment benefits liability 813,251 69,986 883,237 Other long-term obligations 1,399,960 1,395,033 2,794,993 Total liabilities 5,386,344 2,037,393 7,423,737
DEFERRED INFLOWS OF RESOURCES
Gain on refundings of debt 2,555 2,779 5,334
Pensions 94,822 9,800 104,622
Other postemployment benefits 37,352 2,967 40,319
Rate stabilization reserve - 106,000 106,000
Leases 19,883 13,514 33,397
Public-private and public-public partnerships 85,893 - 85,893 Total deferred inflows of resources 240,505 135,060 375,565
NET POSITION
Net investment in capital assets 3,413,015 1,433,873 4,846,888 Restricted for:
Debt service 44,031 26,805 70,836
Capital projects 472,074 49,093 521,167
Community services 638,841 - 638,841
Public safety 3,541 - 3,541
Net other postemployment benefits asset - 1,417 1,417 Unrestricted (deficit) (2,399,685) 735,950 (1,663,735) Total net position $ 2,171,817 2,247,138 4,418,955
The Notes to Basic Financial Statements are an integral part of this statement.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
28 City of San José
Statement of Activities
For the Year Ended June 30, 2025
($000’s)
Program Revenues
Net (Expense) Revenue and
Changes in Net Position
Functions/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 $ 189,281 10,733 6,027 - (172,521) - (172,521) Public safety 793,659 43,111 26,174 - (724,374) - (724,374) Community services 547,438 155,272 69,387 90 (322,689) - (322,689) Sanitation 248,185 235,632 203 - (12,350) - (12,350) Capital maintenance 554,141 25,501 42,141 123,461 (363,038) - (363,038) Interest and fiscal charges 40,496 - - - (40,496) - (40,496) Total governmental
activities 2,373,200 470,249 143,932 123,551 (1,635,468) - (1,635,468) Business -Type activities:
San José Mineta International
Airport 249,349 272,566 10,418 20,702 - 54,337 54,337 Wastewater Treatment
System 268,183 298,804 - 2,745 - 33,366 33,366 Municipal Water System 73,931 77,778 - 24 - 3,871 3,871 Parking System 16,901 17,702 - - - 801 801 San José Clean Energy 460,317 467,506 2,036 - - 9,225 9,225 Total business-type
activities 1,068,681 1,134,356 12,454 23,471 - 101,600 101,600 Total $ 3,441,881 1,604,605 156,386 147,022 (1,635,468) 101,600 (1,533,868)
General revenues:
Taxes and franchise fees:
Property and other taxes $ 648,616 - 648,616
Real property transfer tax 47,677 - 47,677
Utility 161,886 - 161,886
Franchise 58,459 - 58,459
Transient occupancy 43,048 - 43,048
Business taxes 87,693 - 87,693
Sales taxes 331,431 - 331,431
Unrestricted interest and investment income 102,297 65,378 167,675 Other revenue 71,041 1,743 72,784
Transfers 4,036 (4,036) -
Total general revenues and transfers 1,556,184 63,085 1,619,269
Change in net position (79,284) 164,685 85,401
Net position - beginning, as previously reported 2,318,181 2,092,845 4,411,026 Change in accounting principles (67,080) (10,392) (77,472) Beginning, as restated 2,251,101 2,082,453 4,333,554 Net position - ending $ 2,171,817 2,247,138 4,418,955 The Notes to Basic Financial Statements are an integral part of this statement.
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
29 FINANCIAL
SECTION
City of San José
Balance Sheet
Governmental Funds
June 30, 2025
($000’s)
General Fund
Housing
Activities
ASSETS
Equity in pooled cash and investments held in City Treasury $ 644,814 144,863 Receivables (net of allowance for uncollectibles) 125,188 2,684 Due from other funds 3,501 -
Loans receivables (net of allowance for uncollectibles) 13,396 71,163 Advances and deposits 39 -
Restricted assets:
Equity in pooled cash and investments held in City Treasury 1,505 15,264 Cash and investments held with fiscal agents - -
Other cash and investments - -
Leases receivable 19,401 387
Public-private and public-public partnerships receivable 5,163 - Other assets - 2,300
Total assets 813,008 236,661
LIABILITIES
Accounts payable 51,506 11,420
Accrued salaries, wages, and payroll taxes 31,668 227 Due to other funds - -
Due to outside agencies 373 -
Short-term notes payable - -
Unearned revenue 13,409 26,364
Advances, deposits, and reimbursable credits 170 -
Other liabilities 52,863 -
Total liabilities 149,989 38,011
DEFERRED INFLOWS OF RESOURCES
Unavailable revenue 848 13,067
Leases 16,644 400
Public-private and public-public partnerships 4,583 - Total deferred inflows of resources 22,075 13,467
FUND BALANCES
Nonspendable 39 -
Restricted 300 185,183
Committed 181,200 -
Assigned 436,484 -
Unassigned 22,921 -
Total fund balances 640,944 185,183
Total liabilities, deferred inflows of resources and fund balances $ 813,008 236,661 FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
30 Low and Moderate Income
Housing Asset
Nonmajor
Governmental Funds
Total
Governmental Funds
134,260 621,156 1,545,093
762 70,640 199,274
- 21,443 24,944
245,530 1,772 331,861
- 353 392
- 84,025 100,794
- 81,249 81,249
- 18,519 18,519
- 2,871 22,659
- 91,717 96,880
49,527 1,930 53,757
430,079 995,675 2,475,423
4,284 67,352 134,562
224 4,253 36,372
- 4,244 4,244
- 112 485
- 25,667 25,667
- 14,446 54,219
- 8,998 9,168
- 22,226 75,089
4,508 147,298 339,806
2,862 3,324 20,101
- 2,839 19,883
- 81,310 85,893
2,862 87,473 125,877
- - 39
422,709 541,026 1,149,218
- 121,839 303,039
- 98,059 534,543
- (20) 22,901
422,709 760,904 2,009,740
430,079 995,675 2,475,423
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
31 FINANCIAL
SECTION
City of San José
Reconciliation of the Governmental Funds Balance Sheet
to the Statement of Net Position
June 30, 2025
($000’s)
Total fund balances-governmental funds (page 30) $ 2,009,740
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 $ 585,243
Construction in progress 141,381
Infrastructure assets 11,744,098
Other capital assets 2,379,365
Lease assets 28,585
Subscription-based information technology arrangement assets 30,591 Accumulated depreciation (10,333,194)
Total capital assets 4,576,069
Long-term receivables are not available to pay for current period expenditures and, therefore, are reported as deferred inflows of resources in governmental funds. 20,101
Gain/loss on refundings of debt are reported as deferred inflows/outflows of resources and 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. 2,111
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. (10,466)
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. 22,734
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, lease and subscription-based information technology arrangement payables $ (1,242,593) Accrued vacation, sick leave and compensatory time (162,246) Estimated liability for self-insurance (185,530)
Other (5,864)
Total long-term obligations (1,596,233)
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 $ (2,620,643)
Deferred outflows of resources 554,235
Deferred inflows of resources (94,822)
Total pension related balances (2,161,230)
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 $ (813,251) Deferred outflows of resources 159,594
Deferred inflows of resources (37,352)
Total other postemployment benefits related balances (691,009)
Net position of governmental activities (page 27) $ 2,171,817
The Notes to Basic Financial Statements are an integral part of this statement.
FOR THE YEAR ENDED JUNE 30, 202532
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
33 FINANCIAL
SECTION
City of San José
Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds
For the Year Ended June 30, 2025
($000’s)
General Fund Housing Activities
Low and
Moderate Income
Housing Asset
REVENUES
Taxes and special assessments $ 871,405 - -
Sales taxes 331,431 - -
Licenses, permits, and fines 42,252 - -
Intergovernmental 38,243 57,104 10
Charges for current services 25,858 - -
Rent - - -
Investment income 31,221 9,722 14,977
Other revenue 73,509 8,220 527
Total revenues 1,413,919 75,046 15,514
EXPENDITURES
Current:
General government 210,541 - -
Public safety 839,527 - -
Community services 222,064 83,710 15,709
Sanitation 7,059 - -
Capital maintenance 93,724 - -
Capital outlay 50,676 - 29
Debt service:
Principal 9,208 - -
Interest and fiscal charges 1,548 - -
Total expenditures 1,434,347 83,710 15,738
Deficiency of revenues under
expenditures (20,428) (8,664) (224)
OTHER FINANCING SOURCES (USES)
Inception of lease 442 - -
Inception of subscription-based information technology arrangement 7,002 - - Transfers in 12,299 5,951 3,100
Transfers out (33,485) (3,357) (331)
Total other financing sources (uses) (13,742) 2,594 2,769 Net change in fund balances (34,170) (6,070) 2,545
FUND BALANCE
Beginning of year, as previously reported 675,114 191,253 420,164 Adjustment - Reclassification of Funds from Major to Nonmajor funds - - - Beginning of year, as restated 675,114 191,253 420,164 End of year $ 640,944 185,183 422,709
The Notes to Basic Financial Statements are an integral part of this statement.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
34 Special
Assessment
Districts
San José Financing
Authority Debt
Service
Nonmajor
Governmental
Funds
Total
Governmental
Funds
- - 189,847 1,061,252
- - - 331,431
- - - 42,252
- - 152,477 247,834
- - 292,773 318,631
- - 63,324 63,324
- - 45,114 101,034
- - 57,555 139,811
- - 801,090 2,305,569
- - 118 210,659
- - 2,341 841,868
- - 194,014 515,497
- - 241,632 248,691
- - 289,276 383,000
- - 91,222 141,927
- - 51,783 60,991
- - 45,010 46,558
- - 915,396 2,449,191
- - (114,306) (143,622)
- - - 442
- - 1,191 8,193
- - 90,685 112,035
- - (72,324) (109,497)
- - 19,552 11,173
(94,754) (132,449)
32,414 4,738 818,506 2,142,189
(32,414) (4,738) 37,152 -
- - 855,658 2,142,189
- - 760,904 2,009,740
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
35 FINANCIAL
SECTION
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, 2025
($000’s)
Net change in fund balances - total governmental funds (page 34) $ (132,449)
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 $ 141,927
Depreciation expense (247,948)
Excess of depreciation expense over capital outlay (106,021)
The net effect of various miscellaneous transactions involving capital assets (i.e. sales, retirements, trade-ins, donations)
Donated assets and other additions $ 17,793
Loss on disposal of assets (265)
17,528
Amortization of deferred inflows of resources and deferred outflows of resources resulting from the deferred refunding gains and losses. (48)
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. 51,555
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.
Decrease in accrued interest payable $ 15
Amortization of premiums and discounts on bonds issued 6,095 Total net interest expense and amortization of discount/premium 6,110
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. (34,746)
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. 2,494
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 $ (5,837) Net decrease in estimated liability for self-insurance 10,979 Net increase in other liabilities (272)
Net decrease in lease payable 2,196
Net increase in subscription-based information technology arrangement payable (1,367) Total expenditures 5,699
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. 117,372
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. (6,778)
Change in net position of governmental activities (page 28) $ (79,284)
The Notes To Basic Financial Statements are an integral part of this statement.
FOR THE YEAR ENDED JUNE 30, 202536
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
37 FINANCIAL
SECTION
City of San José
Statement of Fund Net Position
Proprietary Funds
June 30, 2025
($000’s)
Enterprise Funds
San José
Mineta
International
Airport
Wastewater
Treatment
System
San José
Clean Energy
Nonmajor
Enterprise
Funds Total
Internal
Service Funds
ASSETS
Current assets:
Equity in pooled cash and investments held in City Treasury$ 310,330 482,836 246,051 76,241 1,115,458 24,310 Receivables (net of allowance for uncollectibles) 27,277 11,656 71,621 18,742 129,296 260 Lease receivable 2,938 - - - 2,938 -
Concession loan receivable 161 - - - 161 -
Prepaid expenses, advances and deposits 291 - 9,574 - 9,865 - Inventories - 539 - - 539 2,322
Total unrestricted current assets 340,997 495,031 327,246 94,983 1,258,257 26,892
Restricted assets:
Equity in pooled cash and investments held in City Treasury 70,080 - 106,000 2,441 178,521 - Cash and investments held with fiscal agents 86,308 1 - - 86,309 - Other cash and investments - - - - - 561
Receivables (net of allowances for uncollectibles) 4,808 - - - 4,808 - Prepaid expenses, advances and deposits 9 - - - 9 - Current portion of prepaid bond insurance 20 - - - 20 - Total restricted current assets 161,225 1 106,000 2,441 269,667 561 Total current assets 502,222 495,032 433,246 97,424 1,527,924 27,453
Noncurrent assets:
Prepaid bond insurance (net of accumulated amortization) 249 - - - 249 - Concession loan receivable 2,656 - - - 2,656 - Advances and deposits 66 - - - 66 -
Lease receivable 5,442 - - 6,222 11,664 -
Net other postemployment benefits asset - - 1,417 - 1,417 - Capital assets (net of accumulated depreciation):
Nondepreciable 137,386 367,912 - 78,272 583,570 258 Depreciable 1,058,922 1,061,536 3,773 86,848 2,211,079 5,213 Total noncurrent assets 1,204,721 1,429,448 5,190 171,342 2,810,701 5,471 Total assets 1,706,943 1,924,480 438,436 268,766 4,338,625 32,924
DEFERRED OUTFLOWS OF RESOURCES
Loss on refundings of debt 9,527 - - - 9,527 - Pensions 19,091 45,277 5,401 6,680 76,449 -
Other postemployment benefits 3,773 9,443 1,123 1,351 15,690 - Total deferred outflows of resources 32,391 54,720 6,524 8,031 101,666 - (Continued)
The Notes to Basic Financial Statements are an integral part of this statement.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
38 City of San José
Statement of Fund Net Position (Continued)
Proprietary Funds
June 30, 2025
($000’s)
Enterprise Funds
San José
Mineta
International
Airport
Wastewater
Treatment
System
San José
Clean Energy
Nonmajor
Enterprise
Funds Total
Internal
Service Funds
LIABILITIES
Current liabilities:
Accounts payable $ 27,838 37,051 46,225 10,058 121,172 2,372 Accrued salaries, wages, and payroll taxes 1,131 2,618 351 386 4,486 885 Interest payable 33 2,376 18 5 2,432 23
Due to other funds - - - 20,700 20,700 -
Short-term notes payable 20,056 - - - 20,056 -
Accrued vacation, sick leave and compensatory time 2,506 7,607 852 1,357 12,322 286 Estimated liability for self-insurance 350 - 3 238 591 - Advances and deposits payable 3,010 - 1,317 85 4,412 - Leases payable - - 345 731 1,076 -
Subscription-based information technology arrangement
payable 201 70 202 - 473 56
Current portion of bonds payable, net - 5,457 - - 5,457 - Other liabilities - - - - - 1
Unearned revenue 5,534 - 2,465 - 7,999 -
Total current liabilities unrestricted 60,659 55,179 51,778 33,560 201,176 3,623
Current liabilities payable from restricted assets:
Accounts payable and accrued liabilities 170 - - - 170 - Interest payable 13,964 - - - 13,964 -
Current portion of bonds payable, net 34,386 - - - 34,386 - Total current liabilities payable from restricted assets 48,520 - - - 48,520 - Total current liabilities 109,179 55,179 51,778 33,560 249,696 3,623
Noncurrent liabilities:
Accrued vacation, sick leave and compensatory time 2,366 4,339 363 1,195 8,263 6,240 Leases payable - - 3,152 909 4,061 -
Subscription-based information technology arrangement
payable 546 569 - - 1,115 327
Estimated liability for self-insurance 1,224 1,416 - 736 3,376 - Advances, deposits, and reimbursable credits - - - 1,971 1,971 - Pollution remediation obligation - 27,051 - - 27,051 - Notes payable - 40,098 - - 40,098 -
Bonds payable (net of premium) 1,026,303 284,766 - - 1,311,069 - Net pension liability 104,355 210,891 439 25,722 341,407 - Net other postemployment benefits liability 17,275 47,136 - 5,575 69,986 - Total noncurrent liabilities 1,152,069 616,266 3,954 36,108 1,808,397 6,567 Total liabilities 1,261,248 671,445 55,732 69,668 2,058,093 10,190
DEFERRED INFLOWS OF RESOURCES
Gain on refundings of debt 2,779 - - - 2,779 -
Pensions 2,476 5,845 633 846 9,800 -
Other postemployment benefits 497 1,969 221 280 2,967 - Leases 7,754 - - 5,760 13,514 -
Rate stabilization reserve - - 106,000 - 106,000 - Total deferred inflows of resources 13,506 7,814 106,854 6,886 135,060 -
NET POSITION
Net investment in capital assets 200,780 1,074,478 74 158,541 1,433,873 5,088 Restricted for net other postemployment benefits asset - - 1,417 - 1,417 - Restricted for debt service 24,364 - - 2,441 26,805 - Restricted for capital projects and other agreements 49,093 - - - 49,093 - Unrestricted 190,343 225,463 280,883 39,261 735,950 17,646 Total net position $ 464,580 1,299,941 282,374 200,243 2,247,138 22,734
The Notes to Basic Financial Statements are an integral part of this statement.
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
39 FINANCIAL
SECTION
City of San José
Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds
For the Year Ended June 30, 2025
($000’s)
Enterprise Funds
San José
Mineta
International
Airport
Wastewater
Treatment
System
Municipal
Water
System
Parking
System
San José
Clean
Energy
Nonmajor
Enterprise
Funds Total
Internal
Service
Funds
OPERATING REVENUES
Charges for services $ 65,122 234,778 - - 501,949 94,098 895,947 198,010 Rate stabilization reserve - - - - (56,000) - (56,000) - Rentals and concessions 147,015 24,760 - - - - 171,775 - Customer transportation fees 5,765 - - - - - 5,765 - Service connection, engineering and inspection - 2,468 - - - - 2,468 - Contributions from participating agencies - 34,796 - - - - 34,796 - Other 21,222 1,762 - - 21,557 1,382 45,923 55 Total operating revenues 239,124 298,564 - - 467,506 95,480 1,100,674 198,065
OPERATING EXPENSES
Operations and maintenance 105,907 168,849 - - 439,076 68,021 781,853 196,696 General and administrative 30,562 41,471 - - 18,316 16,617 106,966 - Depreciation 58,654 43,170 - - 887 5,498 108,209 1,635 Materials and supplies - 763 - - - 202 965 - Total operating expenses 195,123 254,253 - - 458,279 90,338 997,993 198,331 Operating income (loss) 44,001 44,311 - - 9,227 5,142 102,681 (266)
NONOPERATING REVENUES (EXPENSES)
Passenger facility charges 21,443 - - - - - 21,443 - Customer facility charges 11,999 - - - - - 11,999 - Operating grants 418 - - - 2,036 - 2,454 - Intergovernmental revenue 10,000 - - - - - 10,000 - Investment income 22,248 25,546 - - 14,078 3,506 65,378 1,263 Lease interest income 298 - - - - 445 743 - Interest expense (37,551) (13,930) - - (2,038) (367) (53,886) - Bond issuance costs (464) - - - - - (464) - Participating airline net revenue sharing (16,211) - - - - - (16,211) - Loss on disposal of capital assets - - - - - - - (1) Other revenues (expenses), net 735 265 - - - (127) 873 - Land and building rental - 240 - - - - 240 - Net nonoperating revenues 12,915 12,121 - - 14,076 3,457 42,569 1,262 Income before capital contributions and
transfers 56,916 56,432 - - 23,303 8,599 145,250 996
Capital contributions 20,702 2,745 - - - 24 23,471 - Transfers in 500 - - - - 38 538 1,800 Transfers out - (1,534) - - (390) (2,650) (4,574) (302)
Changes in net position 78,118 57,643 - - 22,913 6,011 164,685 2,494
Net position - beginning, as previously reported 388,441 1,248,556 112,157 83,838 259,853 - 2,092,845 21,174 Adjustment - Reclassification of Funds from
Major to Nonmajor funds - - (112,157) (83,838) - 195,995 - - Change in accounting principles (1,979) (6,258) - - (392) (1,763) (10,392) (934) Beginning, as restated 386,462 1,242,298 - - 259,461 194,232 2,082,453 20,240 Net position - ending $ 464,580 1,299,941 - - 282,374 200,243 2,247,138 22,734
The Notes to Basic Financial Statements are an integral part of this statement.
FOR THE YEAR ENDED JUNE 30, 202540
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
41 FINANCIAL
SECTION
City of San José
Statement of Cash Flows
Proprietary Funds
For the Year Ended June 30, 2025
($000’s)
Enterprise Funds
San José Mineta
International
Airport
Wastewater
Treatment
System
San José Clean
Energy
Nonmajor
Enterprise Funds Total
Internal
Service
Funds
CASH FLOWS FROM OPERATING
ACTIVITIES
Receipts from customers and users $ 230,716 270,863 512,529 95,291 1,109,399 - Cash received from interfund services
provided - - - - - 198,077
Payments to suppliers (58,082) (65,583) (445,597) (59,489) (628,751) (153,856) Payments for employees (46,340) (111,877) (13,983) (17,397) (189,597) (37,466) Payments for City services (29,277) (33,584) (2,378) (6,360) (71,599) (3,520) Payments to airlines (5,466) - - - (5,466) - Other receipts 494 27,995 17,757 - 46,246 - Net cash provided by operating activities 92,045 87,814 68,328 12,045 260,232 3,235
CASH FLOWS FROM
NONCAPITAL FINANCING
ACTIVITIES
Transfers from other funds 500 216,750 - 38 217,288 1,800 Transfers to other funds - (218,284) (389) (2,650) (221,323) (302) Operating grants 10,492 - 2,036 (959) 11,569 - Advances and deposits - - 613 96 709 -
Loans 183 - - - 183 -
Net cash provided by (used in) noncapital
financing activities 11,175 (1,534) 2,260 (3,475) 8,426 1,498
CASH FLOWS FROM CAPITAL
AND RELATED FINANCING
ACTIVITIES
Passenger facility charges received 21,736 - - - 21,736 - Customer facility charges received 11,972 - - - 11,972 - Proceeds from issuance of bonds (excluding
amount placed in escrow) 500 - - - 500 - Payment for redemption of bonds (with prior
bond reserves) (2,350) - - - (2,350) -
Capital grants received 14,224 298 - - 14,522 - Acquisition and construction of capital assets (37,778) (118,703) - (27,556) (184,037) (1,928) Receipts from leases 7,196 - - 169 7,365 - Interest receipts on leases 298 - - 445 743 - Lease payment (97) - (995) (675) (1,767) -
SBITA right-to-use software asset payment (846) (42) (214) - (1,102) (286) Proceeds from commercial paper and notes
payable 1,571 - - 20,700 22,271 -
Principal payment on commercial paper (9,243) - - - (9,243) - Principal paid on debt (28,871) (4,155) - - (33,026) - Bond issuance cost paid (464) - - - (464) - Interest paid on debt (42,697) (15,141) (2,445) (370) (60,653) - Advances and deposits received 17 - - - 17 - Net cash (used in) capital and related
financing activities (64,832) (137,743) (3,654) (7,287) (213,516) (2,214) (Continued)
The Notes to Basic Financial Statements are an integral part of this statement.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
42 City of San José
Statement of Cash Flows (Continued)
Proprietary Funds
For the Year Ended June 30, 2025
($000’s)
Enterprise Funds
San José Mineta
International
Airport
Wastewater
Treatment
System
San José Clean
Energy
Nonmajor
Enterprise Funds Total
Internal
Service
Funds
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sales and maturities of
investments $ 143,852 - - - 143,852 -
Purchases of investments (143,830) - - - (143,830) - Interest received 20,675 25,315 13,767 3,264 63,021 1,263 Land and building rentals - 289 - - 289 - Net cash provided by investing activities 20,697 25,604 13,767 3,264 63,332 1,263
Net change in cash and cash equivalents 59,085 (25,859) 80,701 4,547 118,474 3,782
Cash and cash equivalents - beginning 407,633 508,696 271,350 74,135 1,261,814 21,089 Cash and cash equivalents - ending $ 466,718 482,837 352,051 78,682 1,380,288 24,871 (Continued)
The Notes to Basic Financial Statements are an integral part of this statement. 43 INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
STATISTICAL
SECTION
STATISTICAL
SECTION
City of San José
Statement of Cash Flows (Continued)
Proprietary Funds
For the Year Ended June 30, 2025
($000’s)
Enterprise Funds
San José Mineta
International
Airport
Wastewater
Treatment
System
San José Clean
Energy
Nonmajor
Enterprise Funds Total
Internal
Service
Funds
Reconciliation of operating income (loss) to net
cash provided by operating activities
Operating income (loss) $ 44,001 44,311 9,227 5,142 102,681 (266) Adjustments to reconcile operating income
(loss) to net cash provided by operating
activities:
Depreciation 58,654 43,170 887 5,498 108,209 1,635 Write off construction in progress 1,756 - - - 1,756 - Participating airline net revenue sharing (16,211) - - - (16,211) - Lease revenues/deferred inflows of
resources related to leases amortization (7,154) - - (169) (7,323) - Other nonoperating revenues 756 303 233 - 1,292 222 Other nonoperating expenses - - - (127) (127) - Decrease (Increase) in:
Accounts receivable (1,961) 27 8,388 108 6,562 11 Inventories - 168 - - 168 (696)
Prepaid expenses, advances and deposits (14) - 772 - 758 - Increase (Decrease) in:
Accounts payable and accrued liabilities 13,644 5,040 (5,054) 2,311 15,941 1,589 Accrued salaries, wages, and payroll taxes - 484 81 66 631 - Accrued vacation, sick leave and
compensatory time - 126 237 (45) 318 740
Estimated liability for self-insurance 148 (189) 3 139 101 - Unearned revenue 354 - (819) - (465) -
Net pension liability, deferred outflows and
inflows of pension related resources (1,990) (4,902) (1,031) (834) (8,757) - Net other postemployment benefits
liability, deferred outflows and inflows
of postemployment benefits related
resources (232) (724) 79 (44) (921) -
Advances, deposits, and reimbursable
credits 294 - (675) - (381) -
Rate stabilization reserve - - 56,000 - 56,000 - Net cash provided by operating activities $ 92,045 87,814 68,328 12,045 260,232 3,235
Reconciliation of cash and cash equivalents to
the statement of net position:
Equity in pooled cash and investments held in
City Treasury
Unrestricted $ 310,330 482,836 246,051 76,241 1,115,458 24,310 Restricted 70,080 - 106,000 2,441 178,521 561 Cash and investments held with fiscal agents 86,308 1 - - 86,309 - Cash and cash equivalents $ 466,718 482,837 352,051 78,682 1,380,288 24,871
Noncash noncapital, capital and related
financing, and investing activities:
Capital contributions from developers $ - 2,447 - 24 2,471 - Amortization of bond premium, and prepaid
bond insurance costs 5,256 1,092 - - 6,348 - Acquisition of right-to-use lease assets - - 4,300 - 4,300 - Acquisition of right-to-use SBITA/subscription
assets - 574 - - 574 284
Amortization of deferred outflows/inflows of
resources related to bond refundings (867) - - - (867) - Change in capital related payables (2,382) (6,140) (5,017) 1,866 (11,673) - Change in capital related receivables (6,479) - - (169) (6,648) - Change in fair value of investments (23) 7,779 4,300 61 12,117 - Change in nonoperating grants receivables 74 - - - 74 - Bond refunding proceeds placed in escrow 75,904 - - - 75,904 - Bonds defeased from the escrow account (75,904) - - - (75,904) -
The Notes to Basic Financial Statements are an integral part of this statement.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
44 City of San José
Statement of Fiduciary Net Position
Fiduciary Funds
June 30, 2025
($000’s)
Pension Trust
Funds
Private-
Purpose
Trust Funds
Custodial
Fund
ASSETS
Current assets:
Equity in pooled cash and investments held in City Treasury $ - 336 5,760 Cash and investments - 1,806 -
Investments of retirement systems:
Investments:
Public equity 4,619,553 - -
Short-term investment grade bonds 30,562 - -
Investment grade bonds 572,602 - -
Private equity 983,975 - -
Market neutral strategies 250,050 - -
Immunized cash flows 418,290 - -
Core real estate 556,905 - -
Commodities 40,831 - -
Private debt 302,412 - -
Emerging market bonds 219,531 - -
Growth real estate 393,652 - -
Treasury inflation-protected securities 172,071 - - Cash and cash equivalents 653,660 - -
Private real assets 261,036 - -
Venture/growth capital 176,103 - -
Long-term government bonds 209,160 - -
High yield bonds 181,372 - -
Total investments of retirement systems 10,041,765 - - Receivables:
Accrued investment income 13,448 - 27
Employee contributions 2,295 - -
Employer contributions 8,030 - -
Other 316,283 79 -
Restricted cash and investments held with fiscal agents - 131,040 - Total current assets 10,381,821 133,261 5,787
Noncurrent assets:
Public-private and public-public partnerships receivable - - 44,942 Accrued interest, net - 1,413 -
Loans receivable, net - 3,987 -
Advances and deposits - 5 -
Prepaid bond insurance - 1,003 -
Capital assets:
Nondepreciable - 2,078 -
Depreciable, net - 562 -
Other assets, net 5,444 - -
Total noncurrent assets 5,444 9,048 44,942
Total assets 10,387,265 142,309 50,729
DEFERRED OUTFLOWS OF RESOURCES
Loss on refundings of debt $ - 17,999 -
(Continued)
The Notes to Basic Financial Statements are an integral part of this statement.
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
45 FINANCIAL
SECTION
City of San José
Statement of Fiduciary Net Position (Continued)
Fiduciary Funds
June 30, 2025
($000’s)
Pension Trust
Funds
Private-
Purpose
Trust Funds
Custodial
Fund
LIABILITIES
Current liabilities:
Due to brokers $ 456,206 - -
Accrued interest payable - 14,667 -
Unearned revenue - 13 -
Other liabilities 17,083 - -
Total current liabilities 473,289 14,680 -
Long-term liabilities:
Due within one year - 113,305 -
Due in more than one year - 887,549 -
Total noncurrent liabilities - 1,000,854 -
Total liabilities 473,289 1,015,534 -
DEFERRED INFLOWS OF RESOURCES
Deferred inflows-Public-private and public-public partnerships - - 36,057
NET POSITION
Restricted for:
Employees’ pension benefits 9,055,292 - -
Employees’ postemployment healthcare benefits 858,684 - - Redevelopment dissolution and other purposes - (855,226) - Arena capital reserve - - 14,672
Total net position (deficit) $ 9,913,976 (855,226) 14,672 FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
46 City of San José
Statement of Changes in Fiduciary Net Position
Fiduciary Funds
For the Year Ended June 30, 2025
($000’s)
Pension
Trust Funds
Private-
Purpose
Trust Funds
Custodial
Fund
ADDITIONS
Redevelopment property tax revenues $ - 201,677 -
Income:
Interest 118,031 2,453 282
Dividends 33,923 - -
Net rental income - - 1,420
Net appreciation in fair value of plan investments 839,659 - - Investment expenses (37,607) - -
Public-private and public-public partnerships and availability payment arrangement revenues - - 2,991
Total income 954,006 2,453 4,693
Contributions:
Employer 514,540 - -
Employees 94,208 - -
Total contributions 608,748 - -
Development fees and other - 474 -
Other - - 2,300
Total additions 1,562,754 204,604 6,993
DEDUCTIONS
General and administrative 14,762 89 -
Project expenses - 72 3,920
Pass through amounts to the County of Santa Clara - 58,617 - Depreciation - 27 -
Interest on debt - 34,225 -
Health insurance premiums 69,014 - -
Refunds of contributions 3,400 - -
Retirement and other benefits:
Death benefits 39,908 - -
Retirement benefits 529,907 - -
Total deductions 656,991 93,030 3,920
Change in net position 905,763 111,574 3,073
Net position restricted for pension benefits, postemployment healthcare benefits and other purposes:
Beginning of year, as previously reported 9,008,645 (966,800) 11,599 Change in accounting principles (432) - -
Beginning of year, as restated 9,008,213 - -
End of year $ 9,913,976 (855,226) 14,672
The Notes to Basic Financial Statements are an integral part of this statement.
FOR THE YEAR ENDED JUNE 30, 2025
INDEX TO
THE NOTES
Notes to basic financial
statements June 30, 2025
47 ●
I. Summary of Significant Accounting Policies
A. Reporting Entity 49
B. Financial Statement Presentation 51
C. Measurement Focus and Basis of Accounting 54
D. Use of Estimates 54
E. New Pronouncements 55
F . Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position or Equity 56
●
II. Stewardship, Compliance, and Accountability
A. Deficit Net Position 69
B. Deficit Unrestricted Net Position - Governmental Activities 69 C. Deficit Fund Balance - Nonmajor Governmental Funds 69 ●
III. Detailed Notes on All Funds
A. Cash, Deposits and Investments 70
1. Cash and Investments Managed by the City Treasurer 71
2. Retirement Systems 78
B. Receivables, Net of Allowances 91
C. Loans Receivable, Net of Allowances 91
D. Capital Assets 93
E. Leases, Public-Private and Public-Public Partnerships, and Subscription- Based Information Technology Arrangements 94
F . Long-Term Debt and Other Obligations 105
G. Interfund Transactions 130
H. Deferred Inflows of Resources 133
I. Governmental Fund Balances 134
FOR THE YEAR ENDED JUNE 30, 2025
INDEX TO
THE NOTES
Notes to basic financial
statements June 30, 2025
48 ●
IV. Other Information
A. Defined Benefit Retirement Plans 136
1. City Sponsored Defined Benefit Pension Plans 136
2. California Public Employees’ Retirement System 148
3. Defined Contribution Retirement Plans 152
4. Postemployment Benefit Plans Other than Pension Plans 153 B. Commitments and Contingencies 165
C. Successor Agency to the Redevelopment Agency of the City of San José 178 D. Subsequent Events 185
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
49 FINANCIAL
SECTION
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
I. Summary of Significant Accounting Policies
A. Reporting 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 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” 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.
● 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 former Redevelopment Agency of the City of San José (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 FOR THE YEAR ENDED JUNE 30, 2025
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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 FY 2025, containing additional information and more detailed information regarding financial position, changes in financial position, and, where applicable, cash flows, can be obtained from the City of San José’s website at https:/ /www.sanjoseca. gov/. They are available from the City’s Director of Finance, 200 East Santa Clara Street; 13th Floor, San José, CA 95113-1905, for the following:
● Police and Fire Department Retirement Plan (the “PFDRP”) ● Federated City Employees’ Retirement System (the “FCERS”) ● San José Mineta International Airport (the “Airport”) ● San José Clean Energy
● South Bay Water Recycling Program and System* (the “SBWR”) ● Wastewater Treatment System* (the “WWTS”)
*SBWR and WWTS standalone reports, when combined, are presented as one major proprietary enterprise fund “Wastewater Treatment System” in the City’s basic financial statements.
The City has two fiduciary component units:
FCERS was established in 1941 to provide retirement benefits for certain employees of the City. The current FCERS consists of a single employer Defined Benefit Pension Plan and a Postemployment Health Plan and includes all provisions of the City of San José Municipal Code (“SJMC”) Chapters 3.28, 3.44, and 3.52.
PFDRP was established in 1961 to provide retirement benefits for certain employees of the City. The current PFDRP consists of a single employer Defined Benefit Pension Plan and three Postemployment Healthcare Plans. It includes all provisions of SJMC Chapters 3.36, 3.54, and 3.56.
Both FCERS and PFDRP are considered integral parts of the City’s financial reporting entity and are featured in the City’s basic financial statements as pension trust funds. They are overseen by the Chief Executive Officer of the Office of Retirement Services, a City employee who serves at the discretion of the FCERS and PFDRP Boards. FCERS’ Board is composed of seven members, including two City employees elected by FCERS members, a retiree representative, and three public members with significant banking or investment experience, unrelated to the City, which are approved by the City Council. Additionally, there is another public member selected by the six Board members and approved by the City Council. The PFDRP’s Board is comprised of nine members, including two City employees elected by PFDRP members, two retired Plan members elected by retiree associations, and four public members with substantial banking or investment experience, who are not affiliated with the City, which are approved by the City Council. Similarly, there is another public member chosen by the eight Board members and approved by the City Council.
Both FCERS and PFDRP are legally distinct, fiduciary component units of the City, each managed by a Pension Administrator. Both entities serve the City and are classified as pension trust funds.
Successor 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 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”).
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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 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 are 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 enforceable obligations in existence at the date of dissolution (including the completion of any unfinished projects that were subject to legally enforceable contractual commitments). 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).
Separate financial report for SARA, containing additional information and more detailed information regarding fiduciary net position and changes in fiduciary net position, is available from the City’s Director of Finance, 200 East Santa Clara Street; 13th Floor, San José, CA 95113-1905.
B. Financial Statement 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.
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All remaining governmental and enterprise 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 City reports the following major enterprise funds:
The San José Mineta 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 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.
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Beginning in FY 2025, the City reclassified the Special Assessment Districts Fund and San José Financing Authority Debt Service Fund (governmental funds), and the Municipal Water System Fund and Parking System Fund (enterprise funds), from Major Funds to Nonmajor Funds. This change reflects that the funds no longer meet the GASB Statement No. 34, Basic Financial Statements criteria for major funds and are not considered to have a significant impact on the City’s overall financial position. For additional details, please refer to the table presented under Note I.F .23.
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C. Measurement 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 generally 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 positions 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.
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E. New Pronouncements
During the year ended June 30, 2025, the City implemented the following Governmental Accounting Standards Board (the “GASB”) Statements:
The City has adopted GASB 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 implementation of GASB Statement No. 101 resulted in the recognition of compensated absences liabilities totaling $77.9 million as of June 30, 2024. Prior-year amounts have been restated to ensure comparability. Refer to Note I.F .23, Restatement of Net Position for additional information.
The City has adopted GASB issued Statement No. 102, Certain Risk Disclosures. The objective of this statement is to provide users of government financial statements with essential information about risks related to a government’s vulnerabilities due to certain concentrations or constraints. This statement defines a concentration as a lack of diversity related to an aspect of a significant inflow of resources or outflow of resources. A constraint is a limitation imposed on a government by an external party or by formal action of the government’s highest level of decision-making authority. Concentrations and constraints may limit a government’s ability to acquire resources or control spending. This statement requires a government to assess whether a concentration or constraint makes the primary government reporting unit or other reporting units that report a liability for revenue debt vulnerable to the risk of a substantial impact. Additionally, this statement requires a government to assess whether an event or events associated with a concentration or constraint that could cause the substantial impact have occurred, have begun to occur, or are more likely than not to begin to occur within 12 months of the date the financial statements are issued. The application of Statement No. 102 did not have any effect on the City’s financial statements. The City has been monitoring indications that federal funding may be impacted next year and determined that disclosure under GASB 102 is appropriate under Footnote IV.B.12 – Commitments and Contingencies.
The City is currently analyzing its accounting practices to determine the potential impact on the financial statements for the upcoming GASB Statements:
In April 2024, GASB issued Statement No. 103, Financial Reporting Model Improvements. The objective of this statement is to improve key components of the financial reporting model to enhance its effectiveness in providing information that is essential for decision making and assessing a government’s accountability.
This statement also addresses certain application issues. This statement addresses the following financial reporting topics: (1) Management’s Discussion and Analysis; (2) Unusual or Infrequent Items; (3) Presentation FOR THE YEAR ENDED JUNE 30, 2025
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of the Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position, (4) Major Component Unit Information, and (5) Budgetary Comparison Information.
The requirements of this statement will take effect for financial statements starting with the fiscal year that ends June 30, 2026.
In September 2024, the GASB issued Statement No. 104, Disclosure of Certain Capital Assets. The purpose of this statement is to provide users of governmental financial statements with essential information about certain types of capital assets. It requires certain types of capital assets to be disclosed separately within the capital assets note disclosures required by Statement 34. These include lease assets recognized under Statement No. 87 (Leases), intangible right-to-use assets recognized under Statement No. 94 (Public-Private and Public-Public Partnerships and Availability Payment Arrangements), and subscription assets recognized under Statement No. 96 (Subscription-Based Information Technology Arrangements). These assets must be disclosed separately by major class of underlying asset in the capital assets note disclosures.
In addition, intangible assets other than those three types must also be disclosed separately by major class.
The statement further requires additional disclosures for capital assets that are held for sale.
The requirements of this statement will take effect for financial statements starting with the fiscal year that ends June 30, 2026.
F. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position or Equity
1. Cash and Cash Equivalents
Restricted and unrestricted pooled cash and investments held in the City Treasury and other unrestricted investments, invested by the City Treasurer (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. Equity 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. Deposits 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:
● Level 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. ● Level 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.
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● Level 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, 2025, the total investment income from these investments assigned and transferred to the General Fund was approximately $3.3 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 on the date of trade. Investment income is recognized as earned.
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. Inventories
Inventories of governmental and business-type activities are reported at cost.
5. Loans Receivable, 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.
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7. Advances 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. Other 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. Prepaid 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 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. Restricted 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. Capital Assets
Capital assets include land, buildings, improvements, vehicles and equipment, infrastructure, and all other tangible and intangible 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 (increasing to more than $10,000 effective FY 2026) 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. Interest cost incurred before the end of a construction period is recognized as an expense in the period in which the cost is incurred.
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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 “GASB 87”), 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 $250,000 per item at its net present value for land, buildings, office space, vehicles, or equipment. The lease assets must also have an initial useful life of more than one year.
With GASB Statement No. 96, Subscription-Based Information Technology Arrangements (SBITA), (the “GASB 96”), the City recognizes an intangible right-to-use software subscription asset when the applicable accounting criteria is met. The capitalization threshold for the City as subscriber is an initial cost of more than $250,000 per item at its net present value for software subscription. The subscription asset must also have an initial useful life of more than one year. In addition, a subscription asset should be at least 75% of fair market value in order to qualify as an exchange-like transaction.
12. Leases, Public-Private and Public-Public Partnerships (PPP), and Subscription-Based Information Technology Arrangements (SBITA)
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 in the government- wide and proprietary 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 over the lease term.
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 FOR THE YEAR ENDED JUNE 30, 2025
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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:
● fixed payments (including in-substance fixed payments), less any lease incentives receivable, ● amounts expected to be payable by the City under residual value guarantees, ● the exercise 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 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 governmental fund and proprietary 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.
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ANNUAL COMPREHENSIVE FINANCIAL REPORT
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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 are composed of fixed payments from the lessee.
The City monitors changes in circumstances that would require a remeasurement of its lease, and will re- measure the lease receivable and deferred inflows of resources if certain changes occur that are expected to significantly affect the amount of the lease receivable.
Public-Private and Public-Public Partnerships (PPP)
The City has entered into public-private and public-public partnership (PPP) arrangements with various operators to manage and operate City-owned facilities. The City recognizes a PPP receivable and a deferred inflow of resources in the governmental fund and custodial fund financial statements.
At the commencement of a PPP arrangement, the City initially measures the PPP receivable at the present value of payments expected to be received during the arrangement term. Subsequently, the PPP receivable is reduced by the principal portion of payments received. The deferred inflow of resources is initially measured as the initial amount of the PPP receivable, adjusted for any payments received at or before the PPP commencement date. The deferred inflow of resources is recognized as revenue over the term of the arrangement.
Key estimates and judgments include how the City determines (1) the discount rate used to discount the expected PPP receipts to present value, (2) the arrangement term, and (3) the amount and timing of expected receipts. The City uses its estimated incremental borrowing rate as the discount rate for PPP arrangements.
The arrangement term includes the noncancellable period during which the operator has the right to manage and operate the facility, and the City retains control of the underlying asset.
The City monitors changes in circumstances that would require a remeasurement of its PPP receivable or deferred inflows of resources and will remeasure those balances if significant changes occur that are expected to materially affect the amount or timing of the PPP receivable.
Subscription-Based Information Technology Arrangements (SBITA) The City is a subscriber of certain subscription-based information technology arrangements. The City recognizes a SBITA liability and an intangible right-to-use information technology asset (SBITA asset) in the government-wide, proprietary fund, and internal service fund financial statements.
At the commencement of a SBITA contract, the City initially measures the SBITA liability at the present value of payments expected to be made during the subscription term. Subsequently, the SBITA liability is reduced by the principal portion of subscription payments made. The SBITA asset is initially measured as the initial amount of the SBITA liability, adjusted for subscription payments made at or before the subscription commencement date, plus certain initial direct costs. Subsequently, the SBITA asset is amortized on a straight-line basis over the shorter of its subscription term or useful life.
Key estimates and judgments related to SBITA arrangements include how the City determines (1) the discount rate it uses to discount the expected subscription payments to present value, (2) subscription term and (3) subscription payments.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
62 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
The City uses the interest rate charged by the provider as the discount rate. When the interest rate charged by the provider is not provided, the City generally uses its estimated incremental borrowing rate as the discount rate for SBITA arrangements.
The subscription term includes the noncancellable period of the SBITA arrangement. Subscription payments included in the measurement of the SBITA liability are composed of fixed payments and the purchase option price if the City is reasonably certain to exercise. In determining the subscription 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 subscription term if the SBITA arrangement is reasonably certain to be extended (or not terminated).
The City monitors changes in circumstances that would require a remeasurement of its SBITA arrangement and will re-measure the SBITA asset and liability if certain changes occur that are expected to significantly affect the amount of the SBITA liability.
SBITA assets are reported with other capital assets and SBITA liabilities are reported with long-term debt on the statement of net position.
Payments due under the SBITA contracts include fixed payments and variable payments in FY 2025.
Assets and liabilities arising from a SBITA arrangement are initially measured on a present value basis.
SBITA liabilities include the net present value of the following contract payments:
● Fixed payments (including in-substance fixed payments), less any contract incentives receivable. ● Amounts expected to be payable by the City under residual value guarantees. ● The exercise price of a purchase option if the City is reasonably certain to exercise that option, and ● Payments of penalties for terminating the subscription arrangement, if the subscription term reflects the City exercising that option.
Subscription 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 some of the subscription arrangements across the City.
The subscription payments are discounted using the interest rate implicit in the subscription contract. If that rate cannot be readily determined, which is generally the case for subscription arrangements in the City, the subscriber’s incremental borrowing rate is used, being the rate that the individual subscriber would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-to-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 subscription term.
13. Compensated 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.
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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 480 hours for employees on a 40-hour workweek and 672 hours for employees on a 56-hour workweek.
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 SJPOA and IAFF 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 SJPOA and IAFF 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.
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 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 Police Radio Dispatcher and Public Safety Communication Dispatcher classification series may accrue up to 480 hours of compensatory time.
14. Interfund 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.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
64 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
15. Insurance
The City is self-insured for workers’ compensation, general liability, auto liability, and certain other risks, except as otherwise described in Note III.F .11. 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. Deferred Outflows/Inflows of Resources
Deferred resources related to pension expense, OPEB expense, leases, public-private and public-public partnerships and availability payment arrangements (PPPs), rate stabilization reserve, 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.
In 2024, the City Council approved the establishment of a Rate Stabilization Reserve (the Reserve) to allow San José Clean Energy (SJCE), beginning in fiscal year 2024, to defer revenues from the current year to a future year. The Reserve provides protection against market volatility and serves as a tool to maintain compliance with financial covenants. Establishing the Reserve aligns with utility industry best practices by mitigating unplanned rate increases when faced with fluctuations in power costs or regulatory changes.
Contributions are permitted only in years when SJCE achieves a minimum net revenue threshold, defined as a change in net position (total revenues less total expenses) exceeding 5% of total year-end revenues. This ensures the Reserve preserves the integrity of the annual net position and remains aligned with financial reporting requirements. Withdrawals may be made when net revenues are projected to be negative or as necessary to satisfy legal covenants, contractual obligations, or to maintain investment-grade credit ratings.
In accordance with GASB Statement No. 62, deferred revenue associated with the Reserve is presented as a reduction of operating revenues and a deferred inflow of resources related to rate stabilization. The Reserve is funded, and an equivalent amount of cash is restricted. The initial deferral in fiscal year 2024 was $50.0 million.
In 2025, the City Council approved an amendment to the SJCE Financial Reserves Policy to increase the maximum contribution amount to the Reserve to up to 25% of total operating and nonoperating revenues for the fiscal year. In fiscal year 2025, the Reserve balance increased from $50.0 million to $106.0 million, enhancing SJCE’s capacity to manage potential financial impacts from regulatory changes or unforeseen events in future years.
17. Pensions
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.
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18. Other 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 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.
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.
Capital assets include any tangible and any intangible assets used in the operations of the governments, such as leases, SBITAs, and PPPs, along with their related depreciation or amortization.
Capital-related debt/borrowings include only debt and other borrowings of the reporting unit from which the proceeds are to be used for capital purposes resulting in capital assets of the same reporting unit, including debt related to leases, SBITAs, and PPPs. All successor borrowings of the reporting unit that refinance earlier borrowings from which the proceeds were used for capital purposes assume the capital nature of their predecessors. ○ 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, 2025, the government-wide statement of net position reported restricted net position of $1,158,487,000 in governmental activities and $77,315,000 in business-type activities. Of these amounts $366,489,000 and $44,881,000, respectively, are restricted by enabling legislation. ○ Unrestricted 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. Fund 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), FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
66 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
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.
○ Assigned 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.
21. Property 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.
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The City’s net assessed valuation for the year ended June 30, 2025, was approximately $258.8 billion, an increase of approximately 5.0% from the previous year. The City’s tax rate was approximately $0.172 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. Wastewater 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, 2025 , the City’s portion of the capital and operating costs was approximately 80.0% and the City’s interest in the net position of the Plant was approximately 80.0%.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
68 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
23. Adjustments to Fund Presentation and Restatement of Beginning Balances
During fiscal year 2025, changes in fund presentation within the financial reporting entity, along with a change in accounting principle resulting from the implementation of GASB Statement No. 101, Compensated Absences, led to adjustments and restatements of beginning net position and fund net position, as shown below (in thousands):
Change in
6/30/2024 Change in Accounting Principle 6/30/2024
As Previously Fund GASB 101 Beginning Balance,
Reported Presentation Compensated Absences As Adjusted/Restated Government-Wide
Governmental Activities $ 2,318,181 $ - $ (67,080) $ 2,251,101 Business-Type Activities 2,092,845 - (10,392) 2,082,453 Total Primary Government $ 4,411,026 $ - $ (77,472) $ 4,333,554
Governmental Funds
Major Funds:
General Fund $ 675,114 $ - $ - $ 675,114
Housing Activities 191,253 - - 191,253
Low and Moderate Income Housing Asset 420,164 - - 420,164 Special Assessment Districts 32,414 (32,414) - -
San José Financing Authority Debt Service 4,738 (4,738) - - Nonmajor Funds 818,506 37,152 - 855,658
Total Governmental Funds $ 2,142,189 $ - $ - $ 2,142,189
Enterprise Funds
Major Funds:
San José Mineta International Airport $ 388,441 $ - $ (1,979) $ 386,462 Wastewater Treatment System 1,248,556 - (6,258) 1,242,298 Municipal Water System 112,157 $ (112,157) - -
Parking System 83,838 (83,838) - -
San José Clean Energy 259,853 - (392) 259,461
Nonmajor Funds - 195,995 (1,763) 194,232
Total Enterprise Funds $ 2,092,845 $ - $ (10,392) $ 2,082,453
Internal Service Funds $ 21,174 $ - $ (934) $ 20,240
Fiduciary Funds
Pension and Other Employee Benefit Trust Funds $ 9,008,645 $ - $ (432) $ 9,008,213
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II. Stewardship, Compliance, and Accountability
A. Deficit 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, 2025, the SARA had a deficit of $856,017,000, 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. Deficit Unrestricted Net Position – Governmental Activities As of June 30, 2025, the City reported a negative balance in unrestricted net position for its governmental activities in the amount of a deficit of $2,399,685,000 after accounting for net pension liabilities and net OPEB liabilities.
C. Deficit Fund Balance – Nonmajor Governmental Funds
As of June 30, 2025, 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.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
70 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
III. Detailed Notes on All Funds
A. Cash, Deposits, and Investments
As of June 30, 2025, 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 Custodial
Carrying
Value
Equity in pooled cash and investments $ 1,569,403 $ 1,115,458 $ - $ 336 $ 5,760 $ 2,690,957 Cash and investments - - - 1,806 - 1,806
Restricted assets:
Equity in pooled cash and
investments 100,794 178,521 - - - 279,315
Cash and investments with fiscal
agents 81,249 86,309 - 131,040 - 298,598
Other cash and investments 19,080 - - - - 19,080 Investments of retirement systems - - 10,041,765 - - 10,041,765 Total deposits and investments $ 1,770,526 $ 1,380,288 $ 10,041,765 $ 133,182 $ 5,760 $ 13,331,521 Deposits $ (20,434)
Investments 13,351,955
Total deposits and investments $ 13,331,521
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 11, 2025. 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.
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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 Investments 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, 2025, was approximately 560 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, 2025, the City’s pooled and fiscal agent investments in LAIF were approximately $160,264,000 and the SARA’s investments in LAIF was $950,000. The weighted average days to maturity of LAIF was 248 days at June 30, 2025. The total amount recorded by all public agencies in LAIF at June 30, 2025 was approximately $24.5 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, 2025 was approximately $178 billion and of that amount, 80.57% was invested in U.S. Treasuries and agencies, 12.61% in depository securities, 6.67% in commercial paper, and
0.15% in loans.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
72 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
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, 2025:
Authorized Investment Type Maximum Maturity
Maximum Percentage
or Dollar of Portfolio
Maximum
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
Corporate 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
Collateralized Securities - (Issued by Governmental Entities) 5 years 15%* None Collateralized Securities - (Issued by Private Entities) 5 years 5% * None
* Represents where the Policy is more restrictive than the California Government Code.
Other restrictions on investments are summarized as follows:
● Purchases 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. ● 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
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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. ● Commercial 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. ● Reverse 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 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. ● 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.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
74 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
● Funds 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. ● Investments 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.
● Collateralized securities can be made in two categories: (1) Mortgage backed securities and collateralized mortgage obligations issued by governmental agencies and (2) Asset backed securities issued by private entities. Eligible securities 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.
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.
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The following schedule indicates the interest rate risk, credit risk and concentration of credit risk of the City’s investments, as of June 30, 2025 (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
Carrying
Value
Pooled investments in the City Treasury:
Treasury Notes Aa1 / N/A $ - $ 140,043 $ 19,585 $ 160,908 $ 320,536 Treasury Discounts N/A - 29,484 - - 29,484 Federal Home Loan Bank N/A 139,983 39,622 - - 179,605 Federal Home Loan Bank - Callable Aa1 / AA+ - 41,289 53,821 230,027 325,137 Federal National Mortgage Association Aa1 / AA+ - 104,207 8,326 45,865 158,398 Federal National Mortgage Association - Callable Aa1 / AA+ - 4,046 14,691 - 18,737 Federal Farm Credit Bank Aa1 / AA+ - 39,379 - 20,591 59,970 Federal Farm Credit Bank - Callable Aa1 / AA+ - 29,737 19,971 44,472 94,180 Federal Home Loan Mortgage Corporation Aa1 / AA+ 39,884 86,623 - 181,152 307,659 Federal Home Loan Mortgage Corporation - Callable Aa1 / AA+ - 39,035 - 106,526 145,561 Farmer Mac Interest Bearing N/A 2,497 - 19,595 14,938 37,030 Farmer Mac Interest Bearing-Callable N/A - - 9,752 - 9,752 Supranationals Aaa / AAA 9,970 19,748 29,310 68,622 127,650 Corporate Medium Term Notes Aaa / AAA 9,988 28,986 32,910 485,694 557,578 Commercial Paper N/A 30,000 - - - 30,000 Asset Backed Securities Aaa / AAA - - 1,677 17,315 18,992 Municipal Bonds Aaa / AAA 57,065 63,905 50,852 154,842 326,664 Joint Powers Authority Pool Not Rated 222,177 - - - 222,177 California Local Agency Investment Fund Not Rated 41,129 - - - 41,129 Total pooled investments in the City Treasury 552,693 666,104 260,490 1,530,952 3,010,239
Investments with fiscal agents:
Treasury Notes Aa1 / N/A - 32,098 - - 32,098 Money Market Mutual Funds Aaa / AAA 16,325 - - - 16,325 California Local Agency Investment Fund Not Rated - - 119,135 - 119,135 Total investments with fiscal agents 16,325 32,098 119,135 - 167,558
Total Citywide investments (excluding Retirement
Systems and the SARA) $ 569,018 $ 698,202 $ 379,625 $ 1,530,952 3,177,797 Trust Funds:
Total investments in Retirement Systems (See page 80) 10,041,765 Total investments in the SARA (See page 177) 132,393 Total investments $ 13,351,955
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
76 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
The City has the following recurring fair value measurements as of June 30, 2025 (in thousands):
Fair Value Measurement Using
Carrying Value
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable
Inputs
6/30/25 Level 1 Level 2 Level 3
Pooled Investments in the City Treasury:
Investments by fair value level
Treasury Notes $ 320,536 $ 320,536 $ - $ -
Treasury Discounts 29,484 29,484 - -
Federal Home Loan Bank 179,605 179,605 - -
Federal Home Loan Bank - Callable 325,137 - 325,137 - Federal National Mortgage Association 158,398 84,400 73,998 - Federal National Mortgage Association - Callable 18,737 - 18,737 - Federal Farm Credit Bank 59,970 39,379 20,591 - Federal Farm Credit Bank - Callable 94,180 - 94,180 - Federal Home Loan Mortgage Corporation 307,659 118,950 188,709 - Federal Home Loan Mortgage Corporation - Callable 145,561 - 145,561 - Farmer Mac Interest Bearing 37,030 - 37,030 -
Farmer Mac Interest Bearing-Callable 9,752 - 9,752 - Supranationals 127,650 - 127,650 -
Corporate Medium Term Notes 557,578 - 557,578 - Commercial Paper 30,000 - 30,000 -
Asset Backed Securities 18,992 - 18,992 -
Municipal Bonds 326,664 - 326,664 -
Total Investments by fair value level 2,746,933 772,354 1,974,579 -
Investments not subject to fair value hierarchy
Joint Powers Authority Pool 222,177 - - -
California Local Agency Investment Fund 41,129 - - - Total Investments not subject to fair value hierarchy 263,306 - - - Total Pooled Investments in the City Treasury 3,010,239 772,354 1,974,579 -
Investments with fiscal agents:
Investments by fair value level
Treasury Notes 32,098 32,098 - -
Total Investments by fair value level 32,098 32,098 - -
Investments not subject to fair value hierarchy
California Local Agency Investment Fund 119,135 - - - Money Market Mutual Funds 16,325 - - -
Total Investments not subject to fair value hierarchy 135,460 - - - Total Investments with fiscal agents 167,558 32,098 - -
Total Citywide investments (excluding Retirement
Systems and the SARA) 3,177,797 $ 804,452 $ 1,974,579 $ -
Trust Funds:
Total investments in Retirement Systems (See page 80) 10,041,765 Total investments in the SARA (See page 177) 132,393
Total investments $ 13,351,955
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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 the fair value hierarchy.
Securities classified in Level 1 of the fair value hierarchy include Treasury notes and certain US Agency securities. Treasury notes and US Agency securities purchased with less than 90 days to maturity are priced primarily by automated Intercontinental Exchange (ICE) 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. ICE applies various methodologies to price Level 2 securities depending on the asset class. For instance, most 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 Notes and Supranationals are valued with evaluators gathering information from market sources and integrating relative credit information, observed market movements, and sector news. Mortgage backed and Asset 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, 2025, 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 5% of the portfolio shall be invested in aggregate of any single institution of the following types:
Bankers’ Acceptances, Commercial Paper, Negotiable Certificates of Deposits, Repurchase Agreements, and Corporate Notes. Investments issued by or explicitly guaranteed by the U.S. government are exempt from this requirement.
As of June 30, 2025, 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 16.77%
Federal Home Loan Mortgage Corporation 15.06%
Federal National Mortgage Association 5.88%
Federal Farm Credit Bank 5.12%
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
78 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
Foreign Currency Risk. The risk that changes in exchange rates will adversely affect the fair value of an investment. As of June 30, 2025, 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. Retirement 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 approved the investment policy on October 5, 2023, with the asset allocation being updated and approved on May 2, 2024. There were no changes to the investment policy for fiscal year ended June 30, 2025. 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, 2024 actuarial valuation.
The PFDRP’s investment allocation for the Defined Benefit Pension Plan is as follows:
PFDRP - Pension
Asset Class
Target
Asset Allocation Asset Class
Target
Asset Allocation
Public equity 42% Private real assets 4%
Private equity 10% Venture / growth capital 5%
Cash and cash equivalents 6% Market neutral strategies 3% Core real estate 5% Emerging market bonds 2%
Immunized cash flows 5% High yield bonds 2%
Investment grade bonds 5% Treasury inflation-protected securities 2% Growth real estate 4% Long-term government bonds 2%
Private debt 5%
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%
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The FCERS Defined Benefit Pension Plan investment policy was updated and approved by the FCERS’ Board of Administration on September 21, 2023, with the asset allocation being updated and approved on April 18, 2024. 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, 2024 actuarial valuation.
The FCERS’ Defined Benefit Pension Plan investment asset allocation is as follows:
FCERS - Pension
Asset Class
Target
Asset Allocation Asset Class
Target
Asset Allocation
Public equity 49% Emerging market bonds 3%
Private equity 8% Private debt 3%
Investment grade bonds 6% Market neutral strategies 3% Core real estate 5% Private real assets 3%
Immunized cash flows 5% Long-term government bonds 4% 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, 2024 actuarial valuation.
FCERS - 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%
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
80 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
At June 30, 2025, the Retirement Systems held the following investments (in thousands):
PFDRP FCERS Total
Securities and other:
Fixed income:
Investment grade bonds $ 291,921 $ 280,681 $ 572,602 Immunized cash flows 330,562 87,728 418,290
Emerging market bonds 115,241 104,290 219,531
Long-term government bonds 88,534 120,626 209,160 Private debt 210,684 91,728 302,412
Treasury inflation-protected securities 108,220 63,851 172,071 High yield bonds 111,855 69,517 181,372
Cash and cash equivalents 536,826 116,834 653,660 Short-term investment grade bonds 16,023 14,539 30,562 Total fixed income 1,809,866 949,794 2,759,660
Commodities 18,925 21,906 40,831
Core real estate 329,604 227,301 556,905
Growth real estate 257,038 136,614 393,652
Venture / growth capital 125,782 50,321 176,103 Market neutral strategies 155,798 94,252 250,050 Private equity 567,019 416,956 983,975
Private real assets 170,910 90,126 261,036
Public equity 2,649,744 1,969,809 4,619,553
Total investments $ 6,084,686 $ 3,957,079 $ 10,041,765 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. Additionally, most other types of investments are also sensitive to changes in the interest rates, generally to a lesser extent. The Retirement Systems’ asset allocation details how much of the Systems’ investments are fixed income, as well as other types of investments. The Retirement Systems’ do not have a policy regarding interest rate risk.
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The following tables provide the segmented time distribution for fixed income investments based on expected maturity (in months and years) as of June 30, 2025 (in thousands).
PFDRP
0 - 3
months
3 - 6
months
6 months -
1 year 1 - 5 years 5 - 10 years
More than
10 years
Total Fair
Value Cost
Investment grade bonds (1) $ - $ 663 $ 1,387 $ 57,231 $ 90,317 $ 140,988 $ 290,586 $ 294,572 Immunized cash flows 14,135 14,411 42,745 259,271 - - 330,562 318,915 Treasury inflation-protected
securities 5,381 4,761 10,260 87,818 - - 108,220 109,991 High yield bonds 25 74 1,282 69,431 39,794 1,249 111,855 108,957 Long-term government bonds - - - - - 88,534 88,534 118,642 Short-term investment grade bonds 16,023 - - - - - 16,023 16,027 Emerging market bonds (2) - - - - 64,516 - 64,516 55,929 Total fixed income $ 35,564 $ 19,909 $ 55,674 $ 473,751 $ 194,627 $ 230,771 $ 1,010,296 $ 1,023,033
FCERS
0 - 3
months
3 - 6
months
6 months -
1 year 1 - 5 years 5 - 10 years
More than
10 years
Total Fair
Value Cost
Investment grade bonds (1) $ - $ 313 $ 2,751 $ 91,259 $ 86,672 $ 97,695 $ 278,690 $ 279,120 Immunized cash flows 5,853 5,973 17,528 58,374 - - 87,728 83,277 Treasury inflation-protected
securities 3,170 2,807 6,057 51,817 - - 63,851 65,087 High yield bonds 16 45 806 42,929 25,060 661 69,517 67,726 Long-term government bonds - - - - - 120,626 120,626 152,297 Short-term investment grade bonds 14,539 - - - - - 14,539 14,543 Emerging market bonds (2) - - - - 62,612 - 62,612 54,816 Total fixed income $ 23,578 $ 9,138 $ 27,142 $ 244,379 $ 174,344 $ 218,982 $ 697,563 $ 716,866
(1) Investment grade bonds accounts consist of fixed income securities and futures. Futures are not included in this table. (2) Emerging market bonds allocated accounts consist of fixed income securities and a limited partnership. The limited partnership is excluded from this table.
Note: Private debt is excluded from the tables above as their risk is credit quality risk, not interest rate risk.
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, 2025, all of the Retirement Systems’ investments are held in the Retirement Systems’ name and/or 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 FOR THE YEAR ENDED JUNE 30, 2025
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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.
The table provides information for the portfolios as of June 30, 2025 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 Fair Value
Fair Value as a % of
Total Fixed Income
AAA $ 21,938 2.16% $ 12,975 1.85%
AA+ 148,503 14.64% 158,618 22.62%
AA 55,412 5.46% 113,673 16.21%
AA- 6,462 0.64% 1,737 0.25%
A+ 7,834 0.77% 1,989 0.28%
A 11,887 1.17% 8,899 1.27%
A- 11,975 1.18% 11,070 1.58%
BBB+ 8,917 0.88% 8,913 1.27%
BBB 18,786 1.85% 10,911 1.56%
BBB- 74,272 7.32% 70,794 10.10%
BB+ 8,887 0.88% 8,986 1.28%
BB 14,441 1.42% 11,021 1.57%
BB- 20,030 1.97% 13,471 1.92%
B+ 29,714 2.93% 13,476 1.92%
B 14,542 1.43% 9,133 1.30%
B- 7,152 0.71% 6,449 0.92%
CCC+ - 0.00% 4,300 0.61%
CCC 17,605 1.74% 2,034 0.29%
CCC- - 0.00% 229 0.03%
D 76 0.01% 388 0.06%
Not Rated 34,328 3.38% 31,474 4.49%
Exempt - US Treasuries 501,465 49.44% 200,697 28.62% Total $ 1,014,226 100.00% $ 701,237 100.00%
Note: The total includes $3,930 for PFDRP and $3,674 for FCERS in private debt. These distressed debts are excluded from the investment maturities tables as their risk is credit quality risk, not interest rate risk.
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, 2025, 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.
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The following tables provide information as of June 30, 2025, 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 $ - $ 4,629 $ - $ 4,629
Canadian dollar - 12,389 - 12,389
Danish krone - 7,436 - 7,436
Euro currency 398 91,600 41,075 133,073
Hong Kong dollar - 2,599 - 2,599
Japanese yen 10 19,881 - 19,891
Norwegian krone - 5,298 - 5,298
Swedish krona 1 5,492 - 5,493
Swiss franc 102 26,417 - 26,519
United Kingdom pound 148 44,608 - 44,756
Total $ 659 $ 220,349 $ 41,075 $ 262,083
FCERS
Currency Name Cash Public Equity Private Equity
Growth Real
Estate Total Exposure
Australian dollar $ - $ 3,197 $ - $ - $ 3,197
Canadian dollar 1 7,892 - - 7,893
Danish krone - 3,498 - - 3,498
Euro currency 224 52,614 25 21,483 74,346
Hong Kong dollar - 1,221 - - 1,221
Japanese yen 7 12,774 - - 12,781
Norwegian krone - 3,663 - - 3,663
Swedish krona - 3,792 - - 3,792
Swiss franc 47 15,125 - - 15,172
Taiwanese new dollar 27 - - - 27
United Kingdom pound 89 27,330 - - 27,419
Total $ 395 $ 131,106 $ 25 $ 21,483 $ 153,009
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. As of June 30, 2025, the Retirement Systems did not hold investments in any one issuer, excluding U.S. government guaranteed investments, that represented 5% or more of the total plan net position or total investments.
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 FOR THE YEAR ENDED JUNE 30, 2025
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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, futures have no fair value as of June 30, 2025. 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.
The fair values and notional amounts for derivative instruments outstanding as of June 30, 2025, 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, 2025 Fair Value at June 30, 2025 Investment Derivative Instruments Classification Amount Classification Amount Notional
Amount/Shares
Fixed income futures long Investment income $ 766 Futures $ - 49,284 Fixed income futures short Investment income (5) Futures - (357) FX forwards Investment income (21) FX forwards - $ 9,181 Index futures long Investment income 966 Futures - 56,373 Index futures short Investment income (640) Futures - (69,188) Total derivative instruments $ 1,066 $ -
FCERS
Net Appreciation/(Depreciation) in Fair Value
of Investments through June 30, 2025 Fair Value at June 30, 2025 Investment Derivative Instruments Classification Amount Classification Amount Notional
Amount/Shares
Fixed income futures long Investment income $ 1,077 Futures $ - 93,717 Fixed income futures short Investment income - Futures - (872) FX forwards Investment income (13) FX forwards - $ 5,537 Index futures long Investment income 10 Futures - 3,888 Index futures short Investment income (73) Futures - (9,657) Total derivative instruments $ 1,001 $ -
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, 2025.
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, 2025, PFDRP’s total commitments in forward currency contracts to purchase and sell international currencies were $(9,181,000), and $9,181,000 with fair values of $(9,255,000) and $9,235,000, respectively, held by counterparties with S&P rating of at least A.
As of June 30, 2025, FCERS’ total commitments in forward currency contracts to purchase and sell international currencies were $(5,537,000), and $5,537,000 with fair values of $(5,582,000) and $5,569,000, respectively, held by counterparties with S&P rating of at least A.
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)
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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.
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The Retirement Systems have the following recurring fair value measurements as of June 30, 2025:
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 $ 2,649,744 $ 413,064 $ - $ - $ 2,236,680 Cash and cash equivalents 536,826 536,826 - - - Private equity 567,019 - - 23,760 543,259 Core real estate 329,604 - - - 329,604
Investment grade bonds 291,921 56,214 183,369 - 52,338 Growth real estate 257,038 - - - 257,038
Immunized cash flows 330,562 302,508 28,054 - - Private debt 210,684 - - 3,930 206,754
Market neutral strategies 155,798 - - - 155,798 Emerging market bonds 115,241 - - - 115,241 Treasury inflation-protected securities 108,220 108,220 - - - High yield bonds 111,855 189 100,355 - 11,311 Long-term government bonds 88,534 - - - 88,534 Private real assets 170,910 - - - 170,910 Venture / growth capital 125,782 - - - 125,782 Short-term investment grade bonds 16,023 16,023 - - - Commodities 18,925 - - - 18,925
Total investments measured at fair value level $ 6,084,686 $ 1,433,044 $ 311,778 $ 27,690 $ 4,312,174
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 $ 1,969,809 $ 291,105 $ - $ - $ 1,678,704 Private equity 416,956 - - 24,028 392,928
Investment grade bonds 280,681 39,568 130,045 - 111,068 Core real estate 227,301 - - - 227,301
Growth real estate 136,614 - - - 136,614
Private debt 91,728 - - 3,673 88,055
Market neutral strategies 94,252 - - - 94,252 Emerging market bonds 104,290 - - - 104,290 Immunized cash flows 87,728 81,177 6,551 - - Long-term government bonds 120,626 - - - 120,626 Cash and cash equivalents 116,834 116,834 - - - Treasury inflation-protected securities 63,851 63,851 - - - High yield bonds 69,517 - 63,004 - 6,513 Private real assets 90,126 - - - 90,126
Commodities 21,906 - - - 21,906
Venture / growth capital 50,321 - - - 50,321 Short-term investment grade bonds 14,539 14,539 - - - Total investments measured at fair value $ 3,957,079 $ 607,074 $ 199,600 $ 27,701 $ 3,122,704 Equity and Fixed Income Securities
Debt and 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
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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.
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/growth 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.
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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, 2025:
PFDRP
Investments Measured at the NAV
as of June 30, 2025 (In Thousands) Fair Value
Unfunded
Commitments
Redemption Frequency
(if Currently Eligible)
Redemption Notice
Period
Public equity $ 2,236,680 $ - Daily, Weekly, Monthly 1 - 30 Days Private equity 543,259 241,074 Daily, N/A 1 Day, N/A Core real estate 329,604 - Quarterly 45 - 90 Days Investment grade bonds 52,338 - Daily 1- 3 Days
Growth real estate 257,038 125,941 N/A N/A
Private debt 206,754 203,174 N/A N/A
Market neutral strategies 155,798 - Monthly, Quarterly 7 - 75 Days Emerging market bonds 115,241 - Daily, Quarterly 1 - 45 Days High yield bonds 11,311 - Daily 2 - 3 Days
Long-term government bonds 88,534 - Daily 2 Days
Private real assets 170,910 138,547 N/A N/A
Venture / growth capital 125,782 91,201 N/A N/A
Commodities 18,925 - Daily 3 Days
Total investments measured at the NAV $ 4,312,174 $ 799,937
FCERS
Investments Measured at the NAV
as of June 30, 2025 (In Thousands) Fair Value
Unfunded
Commitments
Redemption Frequency
(if Currently Eligible)
Redemption Notice
Period
Public equity $ 1,678,693 $ - Daily, Weekly, Monthly 1 - 30 Days Private equity 392,922 96,151 Daily, N/A 1 Day, N/A Core real estate 227,301 - Quarterly 45 - 90 Days Investment grade bonds 111,068 - Daily 1 - 3 Days Growth real estate 136,614 63,649 N/A N/A
Market neutral strategies 94,252 - Monthly, Quarterly 7 - 75 Days Emerging market bonds 104,290 - Daily, Quarterly 1 - 45 Days Private debt 88,055 70,026 N/A N/A
Long-term government bonds 120,626 - Daily 2 Days Private real assets 90,126 66,018 N/A N/A
Commodities 21,906 - Daily 3 Days
Venture / growth capital 50,321 57,873 N/A N/A
High yield bonds 6,513 - Daily 2 - 3 Days
Total investments measured at the NAV $ 3,122,687 $ 353,717 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.
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.
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 maintaining a low correlation to stocks and bonds held by the Retirement Systems.
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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.
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.
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-.
High yield bonds
The primary purpose of high yield bonds is to provide the Retirement Systems exposure to high yielding corporate debt.
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.
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.
Venture/growth 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.
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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.
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B. Receivables, Net of Allowances
At June 30, 2025, 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
Nonmajor
Governmental
Funds
Internal
Service Funds
Total
Governmental
Activities
Taxes $ 81,662 $ - $ - $ 10,664 $ - $ 92,326
Accrued interest 4,037 1,035 751 5,336 121 11,280 Grants 17,577 1,194 10 14,224 - 33,005
Special assessments - - - 289 - 289
Other 56,193 468 1 41,842 319 98,823
Less: allowance for uncollectibles (34,281) (13) - (1,715) (180) (36,189) Total receivables, net $ 125,188 $ 2,684 $ 762 $ 70,640 $ 260 $ 199,534
Receivables - Business-Type
Activities:
San José
Mineta
International
Airport
Wastewater
Treatment
System
San José
Clean Energy
Nonmajor
Enterprise
Funds
Total Business-
Type Activities
Accounts $ 17,427 $ 9,821 $ 92,332 $ 17,921 $ 137,501 Accrued interest 3,346 2,523 1,771 427 8,067 Grants 11,378 - - 959 12,337
Less: allowance for uncollectibles (66) (688) (22,482) (565) (23,801) Total receivables, net $ 32,085 $ 11,656 $ 71,621 $ 18,742 $ 134,104 C. Loans 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, 2025 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 $ 20,120 $ 50,954 $ 518,971 $ - $ 590,045 Loans funded by federal grants - 90,876 - 3,228 94,104 Economic development, real estate
developer and other loans 1,241 - - - 1,241 Less: allowance for uncollectibles (7,965) (70,667) (273,441) (1,456) (353,529) Total loans, net $ 13,396 $ 71,163 $ 245,530 $ 1,772 $ 331,861
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.
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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.
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, 2025.
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, 2025. These commitments involve elements of credit and interest rate risk similar to those described above for outstanding loans receivable. As of June 30, 2025, amounts committed to extend credit under normal lending agreements totaled approximately $40,586,000.
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D. Capital Assets
1. Summary Schedule
The following is a summary of capital assets activity for the year ended June 30, 2025 (in thousands):
Balance
July 1, 2024 Additions Deletions Transfers
Balance
June 30, 2025
Governmental activities:
Capital assets, not being depreciated:
Land $ 582,575 $ 2,668 $ - $ - $ 585,243
Construction in progress 181,347 114,486 - (154,194) 141,639 Total capital assets, not being depreciated 763,922 117,154 - (154,194) 726,882 Capital assets, being depreciated:
Buildings 1,719,132 111 - 50,553 1,769,796 Improvements, other than buildings 361,834 932 - 29,065 391,831 Infrastructure 11,658,032 14,993 - 71,073 11,744,098 Vehicles and equipment 225,539 19,564 6,501 3,073 241,675 Furniture and fixtures 1,265 - - 430 1,695 Right-to-use assets: Buildings 15,731 442 341 - 15,832 Right-to-use assets: Equipment 1,219 - - - 1,219 Right-to-use assets: Land 11,534 - - 11,534 Right-to-use assets: SBITA 22,386 8,740 - - 31,126 Total capital assets, being depreciated 14,016,672 44,782 6,842 154,194 14,208,806 Less accumulated depreciation for:
Buildings (882,088) (40,741) - - (922,829)
Improvements, other than buildings (113,107) (11,904) - - (125,011) Infrastructure (8,927,526) (166,505) - - (9,094,031) Vehicles and equipment (172,273) (21,008) 6,235 - (187,046) Furniture and fixtures (1,056) (61) - - (1,117) Right-to-use assets: Buildings (4,844) (1,923) 341 - (6,426) Right-to-use assets: Equipment (244) (180) - - (424) Right-to-use assets: Land (1,136) (1,133) - - (2,269) Right-to-use assets: SBITA (8,867) (6,128) - - (14,995) Total accumulated depreciation (10,111,141) (249,583) 6,576 - (10,354,148) Total capital assets, being depreciated, net 3,905,531 (204,801) 266 154,194 3,854,658 Governmental activities capital assets, net $ 4,669,453 $ (87,647) $ 266 $ - $ 4,581,540 Business-type Activities:
Capital assets, not being depreciated:
Land $ 143,048 $ - $ - $ - $ 143,048
Intangible assets 12,882 - - - 12,882
Construction in progress 888,230 135,982 610 (595,962) 427,640 Total capital assets, not being depreciated 1,044,160 135,982 610 (595,962) 583,570 Capital assets, being depreciated:
Buildings 1,804,559 180 1,630 315,585 2,118,694 Improvements, other than buildings 1,484,696 32,774 - 54,599 1,572,069 Intangible assets 466 - - - 466
Vehicles and equipment 363,241 7,902 1,022 225,778 595,899 Right-to-use assets: Buildings 2,250 4,300 - - 6,550 Right-to-use assets: Vehicle 508 - 508 - - Right-to-use assets: Land 848 - - - 848
Right-to-use assets: SBITA 4,819 574 - - 5,393 Total capital assets, being depreciated 3,661,387 45,730 3,160 595,962 4,299,919 Less accumulated depreciation for:
Buildings (891,343) (52,396) 1,630 - (942,109) Improvements, other than buildings (844,130) (36,538) - - (880,668) Intangible assets (8) (93) - (101)
Vehicles and equipment (244,279) (16,586) 1,022 - (259,843) Right-to-use assets: Buildings (570) (1,275) - - (1,845) Right-to-use assets: Vehicle (411) (97) 508 - - Right-to-use assets: Land (297) (136) - - (433) Right-to-use assets: SBITA (2,753) (1,088) - - (3,841) Total accumulated depreciation (1,983,791) (108,209) 3,160 - (2,088,840) Total capital assets, being depreciated, net 1,677,596 (62,479) - 595,962 2,211,079 Business-type activities capital assets, net $ 2,721,756 $ 73,503 $ 610 $ - $ 2,794,649
FOR THE YEAR ENDED JUNE 30, 2025
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2. Depreciation
Depreciation expense charged to various governmental and business-type activities of the City for the year ended June 30, 2025 is as follows (in thousands):
Governmental activities:
General government $ 19,939
Public safety 15,481
Capital maintenance 176,366
Community services 36,162
Capital assets held by City’s internal service funds 1,635 Total depreciation expense - governmental activities $ 249,583
Business-type activities:
San José Mineta International Airport $ 58,654
Wastewater Treatment System 43,170
Municipal Water System 3,592
Parking System 1,906
San José Clean Energy 887
Total depreciation expense - business-type activities $ 108,209
3. Construction Commitments
Commitments outstanding as of June 30, 2025, related to governmental and business-type activities construction in progress totaled approximately $25,265,000 and $169,122,000, respectively.
E. Leases, Public-Private and Public-Public Partnerships (“PPP”), and Subscription- Based Information Technology Arrangements (“SBITA”)
Lease Payable
This note provides information for leases where the City is a lessee.
The City has entered into various lease agreements as lessee primarily for land, building, office space and airport buses. Most leases have initial terms of up to five years, and contain one or more renewals 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.
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The statement of net position includes the following amounts relating to leases (in thousands):
Governmental
Activities:
Business-type
Activities: Total
Right-to-use Assets (net of amortization):
Buildings $ 9,406 $ 4,705 $ 14,111
Land 9,265 415 9,680
Equipment 795 - 795
$ 19,466 $ 5,120 $ 24,586
Lease Payable:
Current $ 2,812 $ 1,076 $ 3,888
Noncurrent 18,269 4,061 22,330
$ 21,081 $ 5,137 $ 26,218
The future principal and interest lease payments as of June 30, 2025 were as follows (in thousands):
Governmental
Activities:
Governmental
Activities:
Business-type
Activities:
Business-type
Activities:
Fiscal Year Ending June 30: Principal Interest Principal Interest 2026 $ 2,812 $ 900 $ 1,076 $ 271
2027 2,839 778 1,361 199
2028 2,741 658 902 133
2029 2,578 532 880 82
2030 2,607 420 841 27
2031-2035 6,939 640 77 3
2036-2040 310 55 - -
2041-2045 214 23 - -
2046-2050 41 1 - -
$ 21,081 $ 4,007 $ 5,137 $ 715
Lease Receivable
The City leases out its buildings, office space and airport hangars. These leases may include one or more renewal options, exercisable at the discretion of both the City and the lessee, generally for periods of three or five years. The City includes the renewal periods in the lease term when it is reasonably certain that both the City and the lessee will mutually agree to exercise the renewal options. 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.
Although the City is exposed to changes in the residual value at the end of the current leases, the City typically enters into new leases and therefore will not immediately realize any reduction in residual value at the end of these leases.
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Minimum lease payments receivable on leases of investment properties are as follows (in thousands):
Governmental
Activities:
Governmental
Activities:
Business-type
Activities:
Business-type
Activities:
Fiscal Year Ending June 30: Principal Interest Principal Interest 2026 $ 1,351 $ 1,088 2,938 $ 553
2027 1,585 1,028 3,077 484
2028 1,681 964 758 380
2029 1,720 891 788 264
2030 1,813 816 819 338
2031-2035 9,161 2,857 - 1,756
2036-2040 3,233 1,337 - 2,036
2041-2045 2,115 350 - 2,362
2046-2050 - - - 2,736
2051-2055 - - - 3,172
2056-2060 - - - 3,678
2061-2065 - - - 4,263
2066-2070 - - - 4,942
2071-2075 - - - 5,730
2076-2080 - - - 6,643
2081-2085 - - - 7,700
2086-2090 - - - 8,926
2091-2095 - - 6,222 4,126
$ 22,659 $ 9,331 $ 14,602 $ 60,089
The total amount of inflows of resources relating to leases recognized in the current fiscal year are as follows (in thousands):
2025 2025
Governmental Business-type
Activities: Activities: Total
Lease revenue $ 1,920 $ 3,002 $ 4,922
Interest revenue $ 1,052 $ 743 $ 1,795
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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 a 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 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 (“SASOs”), 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.
On August 2, 2023, the Airport amended the Airline-Airport Lease and Operating Agreements to modify the Airfield and Terminal Rates and Charges calculations. The Airfield Revenue Requirement and the Airline Terminal Revenue Requirement were modified to include recovery of approved capital expenditures not financed with bonds or subordinated indebtedness.
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 feet 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 FOR THE YEAR ENDED JUNE 30, 2025
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become a Signatory Airline within three years of the expiration of the Airline Lease Agreement, except for 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 year ended June 30, 2025, two of twelve passenger airlines were 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 then current Airline Lease Agreement.
For the year ended June 30, 2025, the Airport’s net remaining revenues as defined in its lease agreements was $32.6 million. For the year ended June 30, 2025, the Airport’s revenue as defined in its lease agreements exceeded its expenditures and reserve requirements by $31.2 million. The net remaining revenues for the year ended June 30, 2025 were 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 are addressed in the Airline Lease Agreement.
Effective February 1, 2024, the number of preferential gates decreased to 25, increasing the per-use basis gates to 11. Effective June 18, 2025, the number of preferential gates decreased to 24, increasing the per- use basis gates to 12. As of July 1, 2023, 29 of the Airport’s 53 ticket counters were leased under exclusive agreements to seven airlines. The remaining 24 ticket counters were available to other airlines for rent on
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a per-use basis. Effective June 18, 2025, the number of preferential ticket counters decreased to 27 under exclusive use agreements with six airlines, increasing the per-use basis ticket counters to 26.
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 year ended June 30, 2025, the Airport recognized terminal lease revenue of $82,708,000. Due to the variable nature of the above revenues from year to year, expected future minimum payments are indeterminable.
FBO Leases
The Airport currently has two FBOs that provide essential support services for business and private aviation, including refueling, hangar space, maintenance, repair and overhaul, and other services. The Airport has two active ground leases with these FBOs for the year ended June 30, 2025, with expiration dates ranging from 2038 to 2063. Rental revenues from these ground lease contracts were $7,641,000 for the year ended June 30, 2025.
SASO
The City currently has two SASOs with active ground leases for the year ended June 30, 2025, with expiration dates ranging from 2031 to 2044. Rental revenues from these ground lease contracts were $3,583,000 for the year ended June 30, 2025.
Jet Fuel Farm
In 2006, the City entered into a ground lease contract for storage and fuel dispensing area. The contract expires in 2038, the 30th anniversary of the commencement date. Net rental revenues, inclusive of a $31,000 annual construction credit, from the ground lease were $1,083,000 for the year ended June 30, 2025.
The future expected minimum rentals to be received from the existing FBO, SASO, and jet fuel farm leases as of June 30, 2025, are as follows (in thousands):
Fiscal Year Ending June 30:
2026 $ 12,570
2027 12,877
2028 13,192
2029 13,514
2030 13,845
2031-2035 72,901
2036-2040 65,230
2041-2045 48,930
2046-2050 36,423
2051-2055 41,087
2056-2060 46,347
2061-2064 35,684
Total minimum lease rentals $ 412,600
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Leases with Variable Payments
The table below shows the amount of inflow of resources recognized for variable payments per various concession categories for the year ended June 30, 2025 (in thousands):
Inflow of Resources
Concession Categories year ended June 30, 2025
Inflight Kitchen $ 1,342
Retail 4,095
Food & Beverage 7,333
Rental Car 16,454
$ 29,224
The leases with major concessionaires are generally based on the greater of percentage of their sales or a minimum annual guarantee (MAG). 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 City entered into an On-Airport Rental Car Operations Agreement and Lease with multiple rental car companies in 2008, which have the largest inflow of variable payments, as shown in the table above. These contracts expire on June 30, 2030. Similar to the inflight kitchen, retail, and food and beverage concessionaires, the rental car companies also pay the greater of MAG or a percentage fee of their sales and have a MAG abatement clause if passenger levels fall below a certain amount. Due to the variability of the payments a lease receivable value cannot be calculated. Part of the agreement is for the ground rent of the rental car facility and is discussed under Other Leases below.
Other Airport Leases
In accordance with GASB 87, the Airport recognizes a lease receivable and a deferred inflow of resources for leases the Airport categorizes as in-scope of GASB 87. The Airport is reporting lessor lease receivables related to an in-scope advertising agreement that was entered into in 2007 of $4,583,000 as of June 30, 2025.
For the year ended June 30, 2025, the Airport reported lease revenue of $2,035,000 and interest revenue of $135,000. The amounts of inflows of resources recognized for variable payments were $4,240,000 for the year ended June 30, 2025.
The future expected lease receivable and revenue balances for this in-scope GASB 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
2026 $ 4,583 $ 135 $ 2,236 $ 2,035 $ 2,347
2027 2,347 84 2,347 2,035 -
On June 30, 2025, the ending lease receivable was $2,236,000 and $2,347,000 for current and noncurrent assets, respectively.
The ground rent of the rental car facility under the On-Airport Rental Car Operations Agreement and Lease is subject to a valuation under the guidelines outlined in GASB 87. Each company’s share of the ground rent is based on its proportionate share of square feet of the ConRAC facility and is adjusted annually by an amount equivalent to the percentage change in the consumer price index. The latest amendment extended the term through June 30, 2030. For the year ended June 30, 2025, the Airport reported lease revenue of
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$726,000 and interest revenue of $159,000. The amount of inflows of resources recognized for the year ended June 30, 2025 was $887,000.
The future expected lease receivable and revenue balances for this in-scope GASB 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
2026 $ 3,797 $ 133 $ 702 $ 726 $ 3,094
2027 3,094 106 730 726 2,364
2028 2,364 77 758 726 1,606
2029 1,606 48 788 726 818
2030 818 17 818 726 -
On June 30, 2025, the ending lease receivable was $702,000 and $3,094,000 for current and noncurrent assets.
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. The Airport does not have any in-scope leases as a lessee as of June 30, 2025 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, that 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 letter of credit, 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 the 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 letter of credit or surety bonds, which are not recorded in the financial statements. The amount on file as of June 30, 2025 was $42,659,000.
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Parking System Leases
Leases as a Lessor
In accordance with GASB 87, the Parking System recognizes a lease receivable and a deferred inflow of resources for leases the Parking System categorizes as in-scope of GASB 87. Effective June 6, 2020, the Parking System entered into a parking premises agreement with Walton San Jose Investors III with a fifty- five (55) agreement term through June 30, 2055. The agreement has been amended and restated various times since its inception and the latest amendment was entered on May 24, 2022. The Parking System is reporting lessor lease receivable of $6,222,000 as of June 30, 2025. The amount of inflows of resources recognized for variable payment was $5,760,000 for the year ended June 30, 2025.
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Public-Private and Public-Public Partnerships
According to GASB Statement No. 94 Public-Private Partnerships or Public-Public Partnerships (collectively referred to as PPP) comprise arrangements between a government and another party engaging in providing services to a government’s constituents. PPPs involve a government (as transferor) which 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. The City’s PPP arrangements do not contain any variable payments. As the interest rate implicit in the City’s PPP arrangements are not readily determinable, the City utilizes its incremental borrowing rate to discount the installment payments.
The City (as transferor) has Public-Private Partnership (PPP) arrangements with the San Jose Arena Authority and Sharks Ice LLC (as operators) for management and operation of City-owned facilities including the SAP Center, the San Jose Municipal Stadium and the Sharks Ice Center. Both agreements have been amended and restated various times since its inception in 1990, and in 2018 the City entered into amendment and restatement to extend the contracts to 2025 with option to extend the term to 2040. As of June 30, 2025, the PPP has a receivable of $96,880,000 and a deferred inflows of resouces of $85,894,000.
Future minimum principal and interest payments receivable are as follows (in thousands):
Governmental Activities:
Fiscal Year Ending June 30: Principal Interest
2026 $4,152 $4,890
2027 4,605 4,664
2028 4,823 4,424
2029 5,090 4,171
2030 5,371 3,905
2031-2035 31,610 14,989
2036-2040 41,229 5,768
$96,880 $42,811
The total amount of inflows of resources relating to PPP recognized in the current fiscal year are as follows (in thousands):
Governmental
Activities:
PPP revenue $5,726
Interest revenue $5,067
The City’s Custodial Capital Reserve Fund for the SAP Center has a receivable of $44,942,000 and a deferred inflows of resources of $36,057,000 as of June 30, 2025.
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Subscription-Based Information Technology Arrangements
The City recognizes a subscription liability and a subscription asset at the commencement of a SBITA term unless the subscription is a short-term SBITA. The subscription liability is measured at the present value of payments expected to be made during the subscription term, less any vendor incentives. The subscription asset is measured at the amount of the initial measurement of the subscription liability, plus any payments made to the SBITA vendor at the commencement of the subscription term, and certain initial implementation costs.
SBITA Payable
The City is obligated under contracts covering certain subscription-based information technology arrangements (SBITA) that expire at various dates during the next fourteen years. The City has entered into various SBITA contracts as lessee for information technology (IT) softwares. Most SBITA contracts have initial terms of up to five years, and contain one or more renewals at the City’s option. The City generally included these renewal periods in the subscription term when it is reasonably certain that the City will exercise the renewal option and the contract is not deemed cancellable. The City’s SBITA contracts do not contain any material residual value guarantees. As the interest rate implicit in the City’s agreements are not readily determinable, the City utilizes its incremental borrowing rate to discount the SBITA payments.
The statement of net position shows the following amounts relating to SBITA:
Governmental
Activities
Business-type
Activities Total
Right-to-use Assets (net of
amortization):
SBITA $ 16,131 $ 1,552 $ 17,683
$ 16,131 $ 1,552 $ 17,683
SBITA Payable:
Current $ 3,635 $ 473 $ 4,108
Noncurrent 10,642 1,115 11,757
$ 14,277 $ 1,588 $ 15,865
The future principal and interest subscription payments as of June 30, 2025, were as follows:
Governmental Activities Business-type Activities
Fiscal Year Ending June 30: Principal Interest Principal Interest 2026 $ 3,635 $ 640 $ 473 $ 54
2027 1,207 527 282 42
2028 1,209 472 294 33
2029 1,218 418 219 23
2030 1,298 363 98 16
2031-2035 4,721 1,003 214 19
2036-2040 989 80 8 1
Total $ 14,277 $ 3,503 $ 1,588 $ 188
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F. Long-Term Debt and Other Obligations
1. Summary Schedule of Long-Term Debt
The following is a summary of long-term debt of the City governmental activities as of June 30, 2025 (in thousands, unless otherwise noted):
Purpose
Issue
Amount Issue Date
Final
Maturity
Range of
Interest
Rates
Range of
Principal
Payments
($ millions)
Balance
June 30,
2025
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 2.45-2.60% 17.76-22.83 63,030 Series 2019C (Libraries, Parks, Public Safety)
Community
Facilities/
Refunding 158,185 07/25/2019 09/01/2035 5.00% 4.27-22.12 148,955 Series 2021A (Disaster, Preparedness, Public
Safety, and Infrastructure)
Community
Facilities 151,210 07/29/2021 09/01/2051 5.00% 2.65-9.43 144,920 497,265
City of San José Financing Authority
Lease Revenue Bonds:
Series 2013B (Civic Center Garage Project) Refunding 30,445 06/19/2013 06/01/2039 3.50-5.00% 1.13-1.91 20,740 Series 2020A (Civic Center Refunding) Refunding 355,620 09/24/2020 06/01/2039 1.31-2.88 17.00-22.55 270,500 Series 2020B (Ice Center Expansion)
Expansion/
Refunding 146,535 10/15/2020 06/01/2051 1.57-3.52 3.65-7.78 137,465 Series 2021A (Fire Training Center and
Central Service Yard Project)
Community
Facilities 22,825 11/02/2021 10/01/2034 4.00% 1.49-2.20 18,410 Series 2022A (Convention Center Refunding) Refunding 165,815 4/21/2022 05/01/2052 3.44-4.86 3.42-9.76 159,895 607,010
$ 1,104,275
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NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
The following is a summary of long-term debt of the City for business-type activities as of June 30, 2025 (in thousands, unless otherwise noted):
Purpose
Issue
Amount Issue Date
Final
Maturity
Range of
Interest
Rates
Range of
Principal
Payments
($ millions)
Balance
June 30,
2025
Business-Type Activities
San José Mineta International Airport Revenue Bonds
Series 2017A (AMT) Refunding $ 473,595 04/11/2017 03/01/2047 4.00-5.00% 4.01-35.15 $ 394,655 Series 2017B (Non-AMT) Refunding 150,675 04/11/2017 03/01/2047 4.00-5.00% 1.28-11.18 125,565 Series 2021A (AMT) Refunding 85,860 04/07/2021 03/01/2034 4.00-5.00% 1.28-15.01 77,355 Series 2021B (Non-AMT) Refunding 48,200 04/07/2021 03/01/2034 4.00-5.00% 0.27-10.23 46,000 Series 2021C (Taxable) Refunding 294,020 04/07/2021 03/01/2041 1.36-3.29 5.26-28.99 281,410 Series 2024A (AMT) Refunding 76,404 07/30/2024 03/01/2031 3.74% 7.56-17.78 65,583 990,568
City of San José Financing Authority
Wastewater Revenue Bonds,
Series 2022B Refunding 268,355 12/15/2022 11/01/2052 5.00% 4.37-16.85 260,250 Subordinate Wastewater Revenue
Notes Public Infrastructure 200,000 10/01/2017 Anytime Variable Variable 40,098 Total Business-Type Activities - Bonds Payable $ 1,290,916
2. Summary of Default Provisions for Long-Term Debt
Governmental Activities – General Obligation Bonds
The City has four series of general obligation bonds outstanding as of June 30, 2025: Series 2019A-1 Bonds, Series 2019B Bonds, Series 2019C Bonds, and Series 2021A 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 respective Fiscal Agent Agreements are as follows: (i) failure to pay principal of, or redemption premiums on the General Obligation Bonds when due; and (ii) failure to pay interest on the applicable General Obligation Bonds when due.
Under each of the Fiscal Agent Agreements, bondholders may exercise the following remedies upon the occurrence of an event of default thereunder: (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, 2025: 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 (each a “Trust Agreement”) with a trustee bank (“Trustee”).
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
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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 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, at the direction of the owners of the bonds 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 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-lease 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 (iii) enter the facility and re-lease the facility to another lessee. If an event of default occurs and continues, the Financing Authority has the right to take legal or equitable action to protect itself.
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 “Convention Center Facilities District”), pursuant to a Pledge Agreement has pledged and agreed to, among other things, levy and collect special taxes within the Convention Center Facilities District 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.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
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NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
Business Activities – City of San José Airport Revenue Bonds The City of San José has six series of Airport Revenue Bonds outstanding as of June 30, 2025: Series 2017A (AMT), Series 2017B (Non-AMT), Series 2021A (AMT), Series 2021B (Non-AMT), 2021C (Taxable) and Series 2024A (AMT) (collectively, “Airport Revenue Bonds”). The City issued each series of Airport Revenue Bonds pursuant to a Master Trust Agreement (“MTA”) with The Bank of New York Mellon Trust Company, N.A. (“Trustee”). The events of default under the MTA for the City’s Revenue Bonds include: a) non-payment of the principal of or interest on the bonds; (b) a breach of a covenant under the MTA 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 Trustee or a Municipal Bond Insurer (as defined in the MTA), or to the City and the Trustee 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 with respect to the senior bond obligations in the event of default for any current Airport Revenue Bonds and Airport Revenue Refunding Bonds that are outstanding. See discussion of events of default under the Commercial Paper Reimbursement Agreement in Business Activities for Airport Commercial Paper Notes (Short-Term Direct Borrowings).
Business Activities - City of San José Financing Authority Wastewater Revenue Bonds The Financing Authority issued Wastewater Revenue Bonds, Series 2022B (Green Bonds – Climate Bond Certified) (“2022B Bonds”) pursuant to a master indenture (“Master Indenture”) with a trustee bank (“Trustee”).
The Financing Authority’s source of repayment of the 2022B Bonds is installment payments made to the Financing Authority by the City from pledged Net System Revenues received by the City related to the Wastewater Treatment System, pursuant to a Master Installment Purchase Contract (“Master Installment Purchase Contract”) between the City and the Financing Authority, and City Resolution No. 80770, which amended and restated City Resolution No. 78382 (the “Master Resolution”), and which provides for the allocation and pledge of Net System Revenues to secure the payment of obligations payable from Wastewater Net System Revenues. Payments on the 2022B Bonds are senior to payments on the Financing Authority’s outstanding Subordinate Wastewater Revenue Notes, Series A and will be senior to payments on other Subordinate Obligations (as defined in the Master Resolution) issued in the future.
The City has covenanted in the Master Resolution that it will fix and prescribe, or cause to be fixed and prescribed, rates and charges for the use of the Wastewater System (as defined in the Master Resolution) in each fiscal year that are reasonably estimated to yield during each fiscal year Adjusted Net System Revenues (as defined in the Master Resolution) for such Fiscal Year equal to at least (1) 110% of the Debt Service on all Outstanding Parity Obligations (as defined in the Master Resolution) for the fiscal year, (2) 100% of the Debt Service on all Outstanding Parity Obligations and Outstanding Subordinate Obligations (as defined in the Master Resolution) for the fiscal year, and (3) 100% of all obligations of the City payable from Net System Revenues (as defined in the Master Resolution) in the fiscal year.
Events of Default under the Master Indenture and the Master Installment Purchase Contract include: (i) failure to pay Debt Service, or redemption premium on the 2022B Bonds when due; (ii) failure to comply with covenants and conditions of the Master Indenture or the Master Installment Purchase Contract, including failure to comply with the Master Resolution, and such default shall have continued for a specified period of days following the Financing Authority’s or the City’s receipt of notice from the Trustee, provided that such period may be extended as provided in the Master Indenture or the Master Installment Purchase Contract, as applicable; (iii) bankruptcy or similar debtor relief proceedings; and (iv) failure to pay any installment payment under the Master Installment Purchase Contract when due.
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Upon an event of default under the Master Indenture or the Master Installment Purchase Contract, the Trustee may, and upon the written request of the holders of a majority in principal amount of the 2022B Bonds then outstanding, and in each case so long as the Trustee is indemnified to its satisfaction therefore, shall proceed to protect or enforce its rights or the rights of the holders of 2022B Bonds under the Master Indenture by a suit in equity or action at law that the Trustee shall deem appropriate in support of any of its rights and duties.
Business Activities - City of San José Financing Authority Subordinate Wastewater Revenue Notes The City, the Financing Authority, and Wells Fargo Bank, National Association (“Wells Fargo”) are parties to a Credit Agreement dated as of October 1, 2017 as amended by subsequent amendments, including a Fourth Amendment to Credit Agreement dated June 29, 2023 (“Credit Agreement”) pursuant to which the Financing Authority has issued to Wells Fargo (i) a subordinate tax-exempt wastewater revenue note and (ii) a subordinate taxable wastewater revenue note. The Credit Agreement is 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 $200 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 . The Credit Agreement is currently scheduled to terminate on October 16, 2026.
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 unpaid notes 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, is installment payments made to the Financing Authority by the City 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. 80770, which amended and restated City Resolution No. 78382 (the “Master Resolution”), and which provides for the allocation and pledge of Net System Revenues to secure the payment obligations payable from the Wastewater Net System Revenue. Payments on the notes are subordinate to payments on the 2022B Bonds and will be subordinate to payments on long-term bonds issued in the future.
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 Credit Agreement); (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 FOR THE YEAR ENDED JUNE 30, 2025
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NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
Moody’s, S&P , Fitch, or Kroll of its long term ratings on long-term debt that constitutes Parity Obligations under the Master Resolution below “A3, ” “A-, ” “A-” or “A-, ” respectively.
Wells Fargo 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 Wells Fargo’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 Wells Fargo’s rights.
In addition to these rights and remedies, Wells Fargo 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 the event that: (i) City fails to comply with laws and contracts, which in the reasonable opinion of Wells Fargo, would materially adversely affect the rights of Wells Fargo 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 Wells Fargo 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 Wells Fargo’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) Wells Fargo’s rights and remedies.
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.
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, provided by the County, for FY 2025 tax roll was $266.859 billion, which results in a total debt limit of approximately $40.029 billion. As of June 30, 2025, the City had $596.9 million, or approximately 1.5%, of General Obligation bond principal applicable to the debt limit. Accordingly, the debt margin is $39.432 billion.
5. Arbitrage
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. 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, 2025.
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6. 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 loan payments made on the related loans. These tax-exempt housing bonds have maturity dates that are due at various dates through May 1, 2066. As of June 30, 2025, the total principal amount outstanding of conduit multi-family housing revenue bonds is $834,008,000.
In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations, which provides that a conduit debt obligation is a debt instrument that (1) involves an issuer, a third-party obligor, and a debt holder or debt trustee; (2) the issuer and the third-party obligor are not within the same financial reporting entity; (3) the debt obligation is not a parity bond of the issuer nor is it cross-collateralized with other debt of the issuer; (4) the third-party obligor or its agent, not the issuer, ultimately receives the proceeds from the debt issuance; and (5) the third-party obligor, not the issuer, is primarily obligated for the payment of all amounts associated with the debt obligation. The multi-family housing revenue bonds meet the criteria for a conduit debt obligation and are therefore not reported as a liability in the financial statements.
7. Summary of Changes in Long-term Obligations
Governmental Activities - The changes in long-term obligations for the year ended June 30, 2025 are as follows (in thousands):
July 1, 2024
Additional
Obligations,
Interest
Accretion and
Net Increases
Current
Maturities,
Retirements,
and Net
Decreases June 30, 2025
Amounts Due
Within One
Year
Governmental Activities:
Long-term debt payable:
General Obligation bonds $ 522,815 $ - $ (25,550) $ 497,265 $ 25,480 Issuance premiums:
For issuance premiums 105,375 - (5,721) 99,654 5,702 San José Financing Authority
Lease revenue bonds 633,015 - (26,005) 607,010 26,945 Issuance premiums:
For issuance premiums 4,063 - (374) 3,689 374 Total long-term debt payable 1,265,268 - (57,650) 1,207,618 58,501 Other Long-term obligations:
Accrued vacation, sick leave and compensatory time* 162,196 6,576 - 168,772 98,908 Accrued landfill postclosure costs 2,250 472 - 2,722 455 Estimated liability for self-insurance 196,509 47,312 (58,291) 185,530 38,870 Pollution remediation obligation 3,341 - (200) 3,141 - Lease payable 23,277 442 (2,638) 21,081 2,812 SBITA payable 12,704 8,464 (6,891) 14,277 3,635 Total other long-term obligations 400,277 63,266 (68,020) 395,523 144,680 Governmental activities long-term obligations $ 1,665,545 $ 63,266 $ (125,670) $ 1,603,141 $ 203,181
* Balance on 7/1/2024 was previously reported as $95,116 and was restated to $162,196 due to the implementation of GASB No. 101, Compensated Absences. The change in accrued vacation, sick leave and compensatory time is presented as a net change.
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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 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; $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 GO 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 GO Bonds, Series 2021, the second round of issuances under the Measure T authorization for the Disaster Preparedness, Public Safety, and Infrastructure project.
As of June 30, 2025, the City had remaining authorization under Measure T in the amount of $209,570,000.
Total aggregate principal and interest outstanding as of June 30, 2025 is $791.7 million with final maturity of September 1, 2051.
City of San José
General Obligation Bonds
Issuance Amounts and Outstanding Balances
Issuance Amount Principal Outstanding
Issuance Final Maturity 2019 Refunding Measure T As of June 30, 2025 Series 2019A-1 9/1/2049 $ 140,360,000 $ 140,360,000 Series 2019A-2 (2) 9/1/2019 33,040,000 -
Series 2019B 9/1/2027 66,500,000 63,030,000
Series 2019C (1) 9/1/2035 $ 158,185,000 148,955,000 Series 2019D (2) 9/1/2024 103,935,000 -
Series 2021A 9/1/2051 151,210,000 144,920,000 Series 2021B (2) 9/1/2022 8,450,000 -
Series 2021C (2) 9/1/2021 40,870,000 -
Total $ 262,120,000 $ 440,430,000 $ 497,265,000
Measure T Voter Authorization $ 650,000,000
Remaining Measure T Authorization $ 209,570,000
(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 Bond Series 2019A-2, Series 2019D, Series 2021B and Series 2021C matured and are fully redeemed.
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Lease Revenue Bonds are issued by the City of San José Financing Authority (the “Financing Authority”) primarily to finance various capital improvements, which are leased to the City and are secured by lease payments received by the Financing Authority from 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.
Total principal and interest remaining on lease revenue bonds as of June 30, 2025 is approximately $846.5 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. There are no special tax bonds currently outstanding.
Other Long-Term Obligation payments are primarily made from general revenues recorded in the General Fund.
Business-Type Activities - The changes in long-term obligations for the year ended June 30, 2025 are as follows (in thousands):
July 1, 2024
Additional
Obligations,
Interest Accretion
and Net Increases
Current
Maturities,
Retirements, and
Net Decreases
June 30,
2025
Amounts
Due Within
One Year
Business-Type Activities:
San José Mineta International Airport:
Revenue bonds $ 1,020,645 $ 76,404 $ (106,481) $ 990,568 $ 29,516 Issuance premiums:
For issuance premiums 79,584 - (9,463) 70,121 4,870 City of San Jose Financing Authority Wastewater:
Revenue bonds 264,405 - (4,155) 260,250 4,365 Issuance premiums:
For issuance premiums 31,065 - (1,092) 29,973 1,092 City of San José Financing Authority Subordinate Wastewater Revenue Notes:
Direct Borrowings
Notes payable 40,098 - - 40,098 -
Total long-term debt payable 1,435,797 76,404 (121,191) 1,391,010 39,843 Other Long-term obligations:
Accrued vacation, sick leave and compensatory time* 19,944 641 - 20,585 12,322 Estimated liability for self-insurance 3,866 1,150 (1,049) 3,967 591 Pollution remediation obligation 27,051 - - 27,051 - Lease payable 2,412 3,703 (978) 5,137 1,076 SBITA payable 2,120 574 (1,106) 1,588 473
Total other long-term obligations 55,393 6,068 (3,133) 58,328 14,462 Business-type activities long-term obligations $ 1,491,190 $ 82,472 $ (124,324) $ 1,449,338 $ 54,305
* Balance on 7/1/2024, was previously reported as $9,552 and was restated to $19,944 due to implementation of GASB No. 101, Compensated Absences. The change in accrued vacation, sick leave and compensatory time is presented as a net change.
Airport Revenue Bonds are issued primarily to finance the construction of capital improvements at the San José Mineta International Airport (the “Airport”). Pursuant to the Airport’s master trust agreement (the “Master Trust Agreement”), the City has irrevocably pledged the General Airport Revenues and certain other funds held or made available under the Master Trust Agreement, first to the payment of Maintenance and FOR THE YEAR ENDED JUNE 30, 2025
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Operation costs of the Airport, and second, to the payment of principal of and premium, if any, and interest on the bonds. Under the Master Trust Agreement, 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. Capitalized terms are defined in the Master Trust Agreement.
The net revenues available to pay Debt Service for the year ended June 30, 2025 totaled $178,970,000 comprised of $143,526,000 of Net General Airport Revenues (as defined in the Master Trust Agreement) and $35,444,000 of Other Available Funds (as defined in the Master Trust Agreement). Other Available Funds include surplus carryover of $11,503,000, rolling debt service coverage of $11,942,000, and gross Customer Facility Charges (“CFC”) Revenues of $11,999,000. The bond Debt Service paid from the General Airport Revenues and Other Available Funds amounted to $49,872,000, which is net of $23,788,000 of bond Debt Service paid from the accumulated Passenger Facility Charges (“PFC”) funds.
The City has covenanted in the Master Trust Agreement that Net General Airport 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 equal to 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, and (b) the principal installments payable on any then outstanding bonds, less Available PFC revenues (as defined in the Master Trust Agreement). Total principal and interest remaining as of June 30, 2025 on the bonds is approximately $1.5 billion, with the final payment due on March 1, 2047.
On July 30, 2024, the City issued $76.4 million of Airport Revenue Refunding Bonds Series 2024A (AMT) (2024A Bonds) to refund a portion of its Airport Revenue Refunding Bonds, Series 2014A (AMT), Series 2014B (Non-AMT), and Series 2014C (Non-AMT) (collectively, 2014 Bonds). The 2024A Bonds were issued through direct placement with TD Public Finance LLC (Purchaser) and bear a fixed interest rate of 3.7%, with a final maturity of March 1, 2031. Proceeds from the issuance were used to refinance a portion of the costs of certain improvements to the Airport, including the refunding of the outstanding Airport Revenue Refunding Bonds, Series 2014A (AMT), Series 2014B (Non-AMT), and Series 2014C (Non-AMT) (collectively, the Series 2014 Bonds, (or 2014 Refunded Bonds), in the amount of $76,770,000. The refunding resulted in total debt service savings of $5,547,000, with a net present value (NPV) or economic gain of $2,531,000 (3.3% of the 2014 Refunded Bonds) and an accounting gain of $3,540,000. Three maturities of the Series 2014 Bonds, with a total principal amount of $840,000, were excluded from the refunding due to negative savings and were called and redeemed on September 1, 2024, using available cash.
City of San José Financing Authority Wastewater Revenue Bonds, Series 2022B (Green Bonds – Climate Bond Certified)
On December 15, 2022, the City of San José Financing Authority issued $268.4 million of the Wastewater Revenue Bonds, Series 2022B (Green Bonds - Climate Bond Certified) to refinance the Financing Authority’s then-outstanding Subordinate Wastewater Revenue Notes, Series A. The 2022B Bonds were issued as long- term fixed-rate debt with level debt service. Total aggregate principal and interest outstanding as of June 30, 2025 is $483.6 million with final maturity of November 1, 2052.
City of San José Financing Authority Subordinate Wastewater Revenue Notes The City, the Financing Authority, and Wells Fargo Bank, National Association (“Wells Fargo”) are parties to a Credit Agreement dated as of October 1, 2017 as amended by subsequent amendments, including a
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Fourth Amendment to Credit Agreement dated June 29, 2023 (“Credit Agreement”) pursuant to which the Financing Authority has issued to Wells Fargo (i) a subordinate tax-exempt wastewater revenue note and (ii) a subordinate taxable wastewater revenue note (collectively, the “Wastewater Revenue Notes”). The Credit Agreement is an interim financing program that enables the issuance of subordinate Wastewater Revenue Notes that can be outstanding at any one time in an amount not-to-exceed $200 million to finance capital improvements at the Regional Wastewater Facility (“RWF”). Advances on the Wastewater Revenue Notes will be made on a regular basis to reimburse the City for capital costs incurred at the RWF .
On June 20, 2023, the City Council and Financing Authority Board approved the Fourth Amendment to the Credit Agreement and a related fourth amended and restated fee letter agreement with Wells Fargo, which extended the termination date of the Credit Agreement through October 16, 2026, and reduced the aggregate principal amount of the Wastewater Revenue Notes that can be outstanding at any one time from $300 million to $200 million.
As of June 30, 2025, the Financing Authority has drawn $40.1 million of the aggregate principal amount of $200 million available under the Credit Agreement as follows (in thousands).
July 1, 2024 Issuances Redemptions June 30, 2025 Interest Rate $40,098 $ - $ - $40,098 3.85%
8. Annual Requirements to Maturity
The annual requirements to amortize all bonds outstanding as of June 30, 2025 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)
Airport Revenue
Bonds (1)
City of San José Financing
Authority Wastewater
Revenue Bonds (2)
Fiscal Year
Ending June 30, Principal Interest Principal Interest Principal Interest Principal Interest 2026 $ 25,480 $ 22,948 $ 26,945 $ 19,461 $ 29,516 $ 42,101 $ 4,365 $ 12,903 2027 25,225 22,252 28,865 18,936 32,316 40,984 4,590 12,680 2028 24,955 21,491 29,480 18,329 33,430 39,852 4,825 12,444 2029 24,820 20,460 30,170 17,638 34,897 38,658 5,075 12,197 2030 25,090 19,212 30,910 16,900 36,307 37,248 5,335 11,936 2031-2035 115,205 77,750 167,290 71,029 229,863 161,161 31,060 55,288 2036-2040 69,975 54,785 159,180 43,286 283,165 109,761 39,890 46,463 2041-2045 73,865 37,756 59,340 21,971 220,630 52,533 51,220 35,131 2046-2050 94,250 16,841 56,810 10,914 90,445 6,839 65,770 20,580 2051-2055 18,400 931 18,020 1,027 - - 48,120 3,689 Total $ 497,265 $ 294,426 $ 607,010 $ 239,492 $ 990,568 $ 529,138 $ 260,250 $ 223,311
(1) Does not include commercial paper notes.
(2) Does not include subordinate wastewater revenue notes.
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9. 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 Board 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 Board 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. The CP Program consists of the Financing Authority’s Series 1 Notes (tax-exempt), Series 1-T Notes, Series 2 Notes (tax-exempt) and Series 2-T Notes. Since February 2013, Series 2 Notes and Series 2-T Notes were supported by a direct payment letter of credit (“LOC”) provided by the U.S. Bank National Association (“US Bank”).
The City Council adopted Resolution No. RES2025-119 on May 6, 2025, approving and authorizing the execution and delivery of a Letter of Credit and Reimbursement Agreement with TD Bank, N.A.(“TD Bank Agreement”). The TD Bank Agreement was executed on May 20, 2025. The TD Bank Agreement provides for the issuance of an irrevocable letter of credit (“LOC”) to support the Financing Authority’s Series 1 Notes and Series 1-T Notes in an aggregated principal amount not to exceed $175.0 million. The LOC had a stated amount of $187,945,000 representing the maximum principal amount of CP Notes to be issued, plus interest calculated at 10% for 270 days. The TD Agreement expires on May 17, 2030. With the execution of the TD Bank Agreement, the City terminated the agreement with US Bank . As of June 30, 2025, neither the Series 2 Notes nor Series 2-T Notes were supported by LOC and were not authorized to be issued under the terms of the hereinafter defined Trust Agreement.
The Financing Authority issues the Series 1 Notes and Series 1 T -Notes pursuant to an Amended and Restated Trust Agreement, between the Financing Authority and Computershare Trust Company, National Association, as trustee, as amended and supplemented from time to time (as so amended and supplemented, the “Trust Agreement”) and a Third Amended and Restated Issuing and Paying Agent Agreement between the Financing Authority and Computershare Trust Company, National Association, as paying agent (“Issuing and Paying Agent Agreement”). The Financing Authority may issue Series 1 Notes and Series 1-T Notes with a pool of CP dealers, including Barclays Capital Inc., Morgan Stanley & Co. LLC and TD Securities (USA) LLC.
The City has leased to the Financing Authority various City-owned facilities pursuant to a Site Lease, as amended. 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 during any period in which, by reason of material damage to, or destruction or condemnation of, the leased facilities, or any defects in title to the leased facilities, there is substantial interference with the City’s right to use and occupy any portion of the facilities. The facilities subject to the Site Lease and Sublease as of June 30, 2025 consists of the following: 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 reimburse TD Bank for draws under the LOC and, to the extent necessary, repay CP Notes.
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If TD Bank makes a payment under the LOC for the principal of maturing Series 1 Notes or Series 1-T Notes, and the Financing Authority doesn’t repay on the same business day, that payment will be treated as a Principal Advance from TD Bank to the Financing Authority. Interest on any Principal Advances are calculated at various increasing interest rates depending on the number of days the Principal Advance remains outstanding.
Any amount of a Principal Advance (not including a “Default Advance”) owed by the Financing Authority or the City on behalf of the Financing Authority remains unpaid by the earlier of (i) the 181 st day after the Principal Advance was made, or (ii) the Stated Expiration Date (the “Term Loan Conversion Date”), will automatically be converted into a term loan (“Term Loan”). Interest on Term Loans is payable at the Alternative Base Rate plus 3% (the “Term Loan Rate”) from the date the Principal Advance is converted to a Term Loan. The principal amount of each Term Loan shall be amortized over a three-year period in equal quarterly installments of principal. The amount of the LOC and the amounts available to be drawn thereunder by the Issuing and Paying Agent shall not be increased with respect to the conversion of a Principal Advance to a Term Loan.
Under the TD Bank Agreement, the City and Financing Authority covenanted, at TD Bank’s request, to redetermine or cause to be redetermined the fair rental value for the Pledged Properties as of the date of any such acceleration.
Events of default under the TD Bank Agreement, include: (a) failure of paying obligations due continuously for a period of 5 days; (b) default by the Financing Authority or City in the performance of certain covenants; (c) any representation, warranty, certification or material statement made by the Authority or the City pursuant to the TD Bank Agreement or any other related document is incorrect in any material respect when made; (d) default on other material City debt other than Series 1 Notes and Series 1-T Notes; (e) bankruptcy (f) rating 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 suspension or withdrawal of the long-term ratings on the Financing Authority’s lease revenue debt for any credit related reason; (g) any final judgment against the leased property in excess of $20 million, which is not covered in full by insurance and remains unpaid for 60 days.
If an Event of Default occurs,TD Bank may, by notice to the Issuing and Paying Agent, (i) issue a No-Issuance Notice (directing the Issuing and Paying Agent to cease authenticating Series 1 Notes and Series 1-T Notes, unless and until such notice is rescinded), (ii) issue a Final Drawing Notice (the effect of which will be to cause the LOC to terminate as provided in the TD Bank Agreement); (iii) declare default advance; or (iv) take any other action permitted by law. The occurrence of an event of default will not affect TD Bank’s obligations under the LOC with respect to Series 1 Notes and Series 1-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 1 Notes and Series 1-T Notes that are outstanding at the time of the occurrence of such event of default.
As of June 30, 2025, $4,967,000 of taxable CP Notes and $20,700,000 of tax-exempt CP Notes were outstanding at an interest rate of 4.42% and 2.90%, respectively.
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The remaining capacity under the TD Bank LOC as of June 30, 2025 is approximately $149.3 million. The total capacity is $175.0 million. The activity in Financing Authority commercial paper notes during the year ended June 30, 2025 is as follows (in thousands):
July 1, 2024 Additions Deletions June 30, 2025
$5,967 $20,700 $1,000 $25,667
City of San José Financing Authority Commercial Paper Program as of June 30, 2025 ($175 million capacity) (in thousands):
Project CP Authorization CP Outstanding
Remaining
Authorization
Flood Improvement Recovery - PRNS $ 5,683 $ 652 $ 5,031 Energy Purchases - SJCE 75,000 - 75,000
ESCO Conservation Project - Public Works 4,315 4,315 - Muni Water - Building Infrastructure - ESD 40,000 20,700 19,300 Muni Water - Advanced Metering Infrastruture - ESD 23,000 - 23,000 Authorized, uncommitted 27,002 - 27,002
Totals $ 175,000 $ 25,667 $ 149,333
Business-Type Activities
Airport Commercial Paper Notes (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. (Capitalized terms are defined in the Master Trust Agreement.) 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 (“Issuing and Paying Agent Agreement”), 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 $600.0 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 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
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accruing calculated at a rate of 12% for 270 days based on a 365-day year). The $75.0 million principal amount of the BANA LOC was secured to provide additional capacity for the issuance of the Subordinated CP Notes to finance proposed terminal area projects. On July 15, 2024, BANA extended the expiration date of the BANA LOC from September 10, 2024, to September 10, 2026.
In connection with the issuance of the BANA 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.
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 the BANA LOC, as of June 30, 2025.
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 BANA LOC. In the event that the CP dealer is unable to find investors to purchase Subordinated CP Notes to repay 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 BANA 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 BANA, 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.
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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 BANA 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 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, 2025.
As of June 30, 2025, the City had $20.1 million Subordinated CP Notes, Series A-1 (Non-AMT) outstanding.
Such notes were issued to build new facilities and maintenance buildings. The new facilities and maintenance buildings will be designed to be expandable and adaptable to meet the current and the anticipated future demand for facilities and maintenance services at the Airport. Additional Subordinated CP Notes, Series A-1 may be issued in Fiscal Year 2026 to fund the project.
The remaining capacity under the LOC issued by BANA as of June 30, 2025 is $54.9 million. The total LOC capacity is $75.0 million. The activity in Airport commercial paper notes during the year ended June 30, 2025 is as follows (in thousands):
July 1, 2024 Additions Deletions June 30, 2025 Interest Rate $27,728 $1,571 $9,243 $20,056 2.75%
Clean Energy Revolving Credit Agreement
In November 2018, the City entered into a Revolving Credit Agreement with Barclays Bank PLC (“Barclays”) to finance start-up costs of the City of San José Clean Energy program, 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. In connection with the execution and delivery of the Credit Agreement described below, the City elected to terminate the credit facilities under the Credit Agreement with Barclays effective on February 17, 2023.
On December 13, 2022, the City Council adopted Resolution No. 80833 authorizing the City Manager, Director of Finance, Assistant Director of Finance, and their authorized designees to negotiate, execute, and deliver a Revolving Credit Agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”) including loans and letters of credit for up to $250 million outstanding at one time. Effective Feb 17, 2023, JPMorgan and the City entered into a Revolving Credit Agreement (the “Credit Agreement”) under which JPMorgan has committed to provide the City with a credit facility consisting of: (i) a $50 million Line of Credit under which JPMorgan has committed to make loans to the City for working capital and other general operational purposes of SJCE, including without limitation, the purchase of power products, and to secure the City’s payment obligations under one or more power purchase agreements; (ii) a $100 million standby Letter of Credit facility providing for the issuance of standby Letter of Credit each with a term of two years or less to secure the City’s payment obligations under one or more power purchase agreements; and (iii) a $100 million standby Letter of Credit
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facility providing for the issuance of standby Letter of Credit each with a term of more than two years to secure the City’s payment obligations under one or more power purchase agreements.
On April 21, 2025, pursuant to the Revolving Credit Agreement by and between the City and JPMorgan Chase Bank, N.A. dated February 17, 2023, Section 2.05(a), the City requested a permanent reduction of the LC Expiration Date Sublimit (Two-Years) from $100 million to $25 million, effective April 30, 2025.
This request resulted in a permanent reduction to the total commitment amount of the Revolving Credit Agreement from $250 million to $175 million.
The City’s obligations under the Credit Agreement are secured by SJCE’s net revenues. JPMorgan’s commitment under the Credit Agreement is currently scheduled to expire on February 17, 2028.
As of June 30, 2025, the balance for the JPMorgan Revolving Credit Agreement was as follows (in thousands):
Credit Facility
Available Credit
Sublimit
Less: Working Capital
Loan (1) and Letters of
Credit Commitments (2)
Remaining Available
Credit as of 6/30/2025
Working Capital Loans (1) $ 50,000 $ - $ 50,000
Standby Letter of Credit Facility (2) (3) (4) 125,000 (7,243) 117,757 Remaining Aggregate Credit as of 6/30/25 $ 167,757
(1)Working Capital Loans are cash draws that SJCE can use to cover operating expenses and make cash collateral payments. (2)Letters of Credits are issued by JPMorgan Chase 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 JPMorgan Chase on behalf of SJCE, which has not yet occurred. (3)The City can request the letter of credit limit to be increased incrementally up to $175 million if needed. The $50 million dedicated to the working capital loan will be incrementally reduced if this request happens to maintain a total Aggregate Credit maximum of $175 million. (4)On April 21, 2025, the City requested permanent reduction of the LC Expiration Date Sublimit (Two-Years) from $100 million to $25 million, effective April 30, 2025, thereby reducing the Standby LOC Facility from $200 million to $125 million.
The table below shows the fees and interest rates charged for the Revolving Credit facility.
Commitment Utilization Undrawn Fee
Applicable Rate
Term Benchmark Borrowing ABR Borrowing
≥ 25% 0.57% Adjusted Term SOFR + 1.425% Alternate Base Rate + 0.425% <25% 0.60% Adjusted Term SOFR + 1.500% Alternate Base Rate + 0.500% Clean Energy Revolving Credit Agreement Loans made by JPMorgan to the City under the Credit Agreement will bear interest at the Alternate Base Rate plus the Applicable Rate, the Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus the Applicable Rate or Adjusted Daily Simple SOFR plus the Applicable Rate (as such terms are defined in the Credit Agreement). Interest computed by reference to the Term SOFR Rate or Daily Simple SOFR will be computed on the basis of a year of 360 days, and actual days elapsed.
Interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate will be computed on the basis of a year of 365 days (or 366 days in a leap year), and actual days elapsed. In each case interest will be payable for the actual number of days elapsed (including the first day but excluding the last day). Accrued interest on each Loan will be payable in arrears on each interest payment date for such Loan set forth in the Credit Agreement and upon termination of JPMorgan’s commitment thereunder.
The City agrees to pay JPMorgan the fees (computed on the basis of 360 days and actual days elapsed) and other amounts set forth in the fee agreement at the time and in the manner set forth in the fee agreement, including, but not limited to, the undrawn fee, the Letter of Credit facility fee, the termination fee and the FOR THE YEAR ENDED JUNE 30, 2025
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reduction fee. All fees and other amounts payable under the fee agreement shall be paid in immediately available funds. Fees paid shall not be refundable under any circumstances.
Under the Credit Agreement, the City agrees that, so long as JPMorgan has any commitment thereunder or any amount payable thereunder remains unpaid, among other things, the debt service coverage ratio shall be not less than 1.10 to 1.00 as of the last day of the fiscal quarter most recently ended, commencing with the last fiscal quarter ended March 31, 2023; provided, however, in the event the debt service coverage ratio for any fiscal quarter is less than 1.10 to 1.00 but the days liquidity on hand for such fiscal quarter equals or exceeds 90 days (or, 75 days, so long as the long-term unenhanced rating by at least one rating agency on debt secured by net revenues shall be at or above “Baa3” (or its equivalent) with respect to Moody’s, “BBB-” (or its equivalent) with respect to S&P or “BBB-” (or its equivalent) with respect to Fitch, respectively) then the City will be deemed to be in compliance for such period (the liquidity cure right); provided, further, that in no event will the City be permitted to exercise liquidity cure rights under the Credit Agreement more than three times during any four consecutive fiscal quarter periods.
In addition, the Credit Agreement 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, to finance the purchase of power and/or pay other operating costs of SJCE in an amount not to exceed $95.0 million. Such loans are subordinate to the City’s obligations to JPMorgan under the Credit Agreement. The City may incur additional debt with respect to SJCE that is payable on a basis subordinate to the City’s obligations to JPMorgan under the Credit Agreement upon the satisfaction of certain conditions specified in the Credit Agreement.
The Credit Agreement 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 aggregate amount of Cash and Cash Equivalents (as defined in the Credit Agreement) available in the Clean Energy Fund at the end of the fiscal quarter prior to repayment, and projected per pro forma effect to the fiscal quarter following projected repayment are equal to or in excess of $50 million, and (ii) no Event of Default (as defined in the Credit Agreement) has occurred and is continuing.
Events of default under the Credit Agreement include, among others: (i) any representation or warranty shall have been incorrect or untrue in any materially adverse respect when made or deemed to have been made, (ii) non-payment, (iii) breach of covenants, including failure to maintain the required debt service coverage ratio or days liquidity on hand, as applicable, not cured within applicable cure periods, if any (iv) any material provision of the Credit Agreement or any other Basic Document (as defined in the Credit Agreement) at any time for any reason ceases to be valid and binding on the City as a result of any legislative or administrative action, or judgment, (v) bankruptcy, (vi) the default in the due performance or observance of any material term, covenant or agreement contained in the Credit Agreement and not cured within the applicable cure period, (vii) defaults on the payment of the principal of or interest on any Parity Debt or Subordinate Debt (as defined in the Credit Agreement) beyond the period of grace, if any, provided in the instrument or agreement under which such Parity Debt or Subordinate Debt was created or incurred, (viii) one or more final, unappealable judgments or orders for the payment of money in excess of $10.0 million where such judgment or order remains unsatisfied and unstayed for a period of 60 days and which is payable from revenues or net revenues of SJCE, (ix) the long-term, unenhanced ratings by any Rating Agency (as defined in the Credit Agreement) on any general-obligation bonded indebtedness of the City is withdrawn or suspended (but excluding withdrawals or suspensions if the applicable 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, (x) any “event of default” under any Other Credit Agreement (as defined in the Credit Agreement) occurs, (xi) a debt moratorium, debt
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restructuring, debt adjustment, or comparable restriction is imposed on the repayment of any Parity Debt of the City, or (xii) the dissolution or termination of the existence of the City or SJCE.
Upon the occurrence and during the continuance of an event of default under the Credit Agreement, JPMorgan may exercise all of its rights and remedies available to it under the Credit Agreement and as otherwise permitted by law. JPMorgan’s rights and remedies include, among others, taking one or more of the following actions: (i) declare the commitment and the obligation of JPMorgan to make Credit Extensions (as defined in the Credit Agreement) 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 Letter of Credit Exposure (as defined in the Credit Agreement) (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, plus accrued and unpaid interest thereon, (iv) and at the expense of the City, cure any event of default; provided, however that JPMorgan shall have no obligation to effect such a cure, and (v) by written notice to the City, impose the Default Rate (as defined in the Credit Agreement) with respect to the City’s obligations under the Credit Agreement (which imposition may be retroactive to the date on which the event of default first occurred).
10. Landfill Postclosure Costs
The City has five closed landfills for which postclosure and monitoring services are required. An estimated liability of $2,722,000 related to the closed landfills is recorded in the government-wide statement of net position as of June 30, 2025. 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.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
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11. Insurance
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 2025, 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, 2024 to October 1, 2025 is provided below:
City of San José
Summary of Citywide Property Insurance Coverage
(For Policy Period October 1, 2024 - October 1, 2025)
Limits Deductible
Per Occurrence (1) Per Occurrence (2)
Property(3) $1,000,000,000 $500,000
Business Interruption 300,000,000 $500,000
Flood (4)(5) $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) The Airport and McEnery Convention Center are subject to a $10,000,000 per Location deductible for flood. (5) 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 June 30, 2024 to June 30, 2025, 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 $25,000,000 each occurrence and in the annual aggregate for personal injury, and a limit of $50,000,000 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 of $50,000,000 that provides coverage excess of the underlying auto liability limit of $1,000,000, which is provided by a separate automobile policy issued to 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
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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, 2024, to October 1, 2025, 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 July 1, 2024, to July 1, 2025, the City maintained a physical damage coverage for scheduled Police Department grant funded vehicles. For vehicles with insurable value under $300,000, the policy is subject to a $2,000 deductible. Vehicles with insurable values of $300,000 or greater are subject to a $10,000 deductible.
For the policy period of June 30, 2024 to June 30, 2025, 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 30, 2024, to June 30, 2025, 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 $5,000,000 in aggregate liability coverage for bodily injury, personal injury, or property damage.
For the policy period of October 1, 2024 to October 1, 2025, 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, 2024, to June 30, 2025, the City purchased a fiduciary liability policy covering the Deferred Compensation Plans that provided $10,000,000 in aggregate limits subject to a $25,000 per claim retention except for a $250,000 per claim retention for Class Action Claims as defined in the policy and a $500,000 per claim retention for Excessive Fee Claims as defined in the policy. For the policy period from June 30, 2024, to June 30, 2025, 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, 2024, to June 20, 2025, 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. The City maintained fiduciary dishonesty coverage on all three fiduciary liability policies for the policy period June 30, 2024, to June 30, 2025. The fiduciary dishonesty coverage provides $500,000 in aggregate limits for claims arising out of employee dishonesty.
For the policy period of October 22, 2024 to October 22, 2025, the City purchased liability insurance covering cyber risks to complement the City’s cybersecurity efforts. For the policy period of October 1, 2024 to October 1, 2025, 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 FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
126
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
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 $250,000 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 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 2.0% 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, 2025. 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, 2023 $191,776
Claims and changes in estimates during 2024 51,511
Claims payments (42,912)
Liability as of June 30, 2024 200,375
Claims and changes in estimates during 2025 48,462
Claims payments and other adjustments (59,340)
Liability as of June 30, 2025 $189,497
The coverage for this program is as follows:
Terminal Area Improvement Program
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
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
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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. 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. As of June 30, 2025, the balance on the cash collateral fund was $1,726,000.
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. To accommodate five existing capital projects whose construction timelines extended beyond March 30, 2023, the City extended the expiration date of RWF OCIP I to May 31, 2024. The City has subsequently extended RWF OCIP 1 to May 31, 2025, to accommodate one existing capital project whose construction timeline has been delayed.
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, 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, 2024, to April 1, 2026. 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.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
128
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
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, 2025, the City has provided Chubb with the full $1,496,471 and the balance on the cash collateral fund was $1,431,000.
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.
12. Pollution 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, 2025, the government-wide statement of net position reported a net pollution remediation obligation in the amount of $3.1 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”) 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.
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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 $27.1 million.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
130
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
G. Interfund Transactions
The composition of interfund balances as of June 30, 2025, with explanations of transactions, is as follows (in thousands):
1. Due from/Due to other funds
Receivable Fund Payable Fund Amount
General Fund Nonmajor Governmental Funds $ 3,501 (1)
Nonmajor Governmental Funds Nonmajor Governmental Funds 743 (2)
Nonmajor Governmental Funds Nonmajor Enterprise Funds 20,700 (3) $ 24,944
(1) Represents accrual of construction and conveyance tax transfer. (2) Represents short-term borrowing for working capital. (3) Represents loan for commercial paper issuance.
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2. Transfers 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, 2025, with explanations of transactions (in thousands):
Between governmental and business-type activities:
Transfer from Transfer to Amount
Wastewater Treatment System Nonmajor Governmental Funds $ 1,534 (1)
Nonmajor Enterprise Funds General Fund 2,319 (2)
Nonmajor Governmental Funds 331 (3)
San José Clean Energy Nonmajor Governmental Funds 390 (4)
General Fund Nonmajor Enterprise Funds 38 (5)
San José Mineta International Airport 500 (6)
$ 5,112
(1) Transfer for City Hall debt service payments
(2) Transfer of $1,500 for late fee revenues, $454 to the SJ Downtown Association, and $365 for Citywide strategic support and capital improvement
(3) Transfer of $253 for City Hall debt service payments, and $78 to the Downtown Property and Business Improvement District (4) Transfer for City Hall debt service payments
(5) Transfer of revenues received by the General Fund for the Municipal Water Arrearages Program (6) Transfer for jet fuel sales tax to Airport Revenue Fund
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
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NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
Between governmental activities:
Transfer from Transfer to Amount
General Fund Nonmajor Governmental Funds $ 25,196 (1) Housing Activities 5,951 (2)
Internal Service Funds 1,800 (3)
Housing Activities Low and Moderate Income Housing Asset 3,100 (4) Nonmajor Governmental Funds 257 (5)
Low and Moderate Income Housing Asset Nonmajor Governmental Funds 331 (6)
Nonmajor Governmental Funds General Fund 9,817 (7)
Nonmajor Governmental Funds 62,507 (8)
Internal Service Funds General Fund 163 (9)
Nonmajor Governmental Funds 139 (10)
$ 109,261
(1) Transfer of $18,966 for City Hall debt service payments, and $6,230 for operations and subsidies (2) Transfer of Real Property Transfer Tax funds in support of Project Homekey 2.0 (3) Transfer to Vehicle Maintenance and Operations Fund (4) Transfer for property acquisition in support of building affordable housing (5) Transfer for City Hall debt service payments
(6) Transfer for City Hall debt service payments
(7) Transfer for interest allocation and capital project operations (8) Transfer of $4,242 for City Hall debt service payments, $45,738 for other debt services payments (CP interest and fees, Series 2013B, 2020A, 2020B, and 2021A bonds), and $12,527 from various City operations
(9) Interest allocation transfers
(10) Transfer for City Hall debt service payments
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H. Deferred Inflows of Resources
As of June 30, 2025, total deferred inflows of resources in the governmental funds related to the following unavailable resources (in thousands):
Description
General Fund receivables $ 22,075
Housing Activities receivables 13,467
Low and Moderate Income Housing Asset loans receivable 2,862 Integrated Waste Management receivables 3,411
Community Facility Revenues receivables 81,310
Community Development Block Grant (CDBG) receivables 2,752 Total deferred inflows of resources $ 125,877
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
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NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
I. Governmental Fund Balances
As of June 30, 2025, total fund balances for the City’s major and nonmajor governmental funds are as follows (in thousands):
General
Fund
Housing
Activities
Low &
Moderate
Income
Housing Asset
Nonmajor
Governmental
Funds
Total
Governmental
Funds
Nonspendable:
Advances & Deposits $ 39 $ - $ - $ - $ 39
Subtotal 39 - - - 39
Restricted for:
Affordable Housing - 185,183 422,709 - 607,892 Capital Projects & Improvements - - - 306,235 306,235 Employment/Training Services - - - 1,639 1,639 Drug Abuse Prevention & Control 300 - - 2,896 3,196 Community Development Services - - - 4,740 4,740 Library Services & Facilities - - - 5,308 5,308 Small Business Loans - - - 8 8
Parks, Recreation, & Neighborhood
Development - - - 103,261 103,261
Underground Utility Projects - - - 14,577 14,577 Storm Drainage Projects - - - 47,694 47,694
Supplemental Law Enforcement Services - - - 345 345 Convention Center, Auditorium & Theaters - - - 307 307 Debt Service - - - 54,016 54,016
Subtotal 300 185,183 422,709 541,026 1,149,218
Committed to:
Capital Projects & Improvements 21,665 - - 857 22,522 Parks, Recreation, & Neighborhood
Development - - - 3,711 3,711
Development Enhancement - - - 783 783
Convention Center, Auditorium & Theaters - - - 6,936 6,936 Development Fee Program Technology 570 - - - 570 Residential Program Administration - - - 3,453 3,453 Government Functions/Services 21,412 - - - 21,412 Public Safety 6,129 - - - 6,129
Community Development Services 28,922 - - 54,163 83,085 Salaries & Benefits 6,239 - - - 6,239
Sanitation Projects 257 - - 51,936 52,193
Contingency Reserve 53,000 - - - 53,000
Budget Stabilization 28,000 - - - 28,000
Workers Compensation/General Liability
Catastrophic and Reserve 15,000 - - - 15,000 Cash Reserve 6 - - - 6
Subtotal 181,200 - - 121,839 303,039
Assigned to:
Financing Authority Debt Service 13,395 - - - 13,395 Development Enhancement - - - 20 20
Community & Culture Projects - - - 4,250 4,250 Hayes Mansion & Ice Center Operations - - - 15,244 15,244 Capital Projects & Improvements - - - 78,545 78,545 Government Functions/Services 423,089 - - - 423,089 Subtotal 436,484 - - 98,059 534,543
Unassigned 22,921 - - (20) 22,901
Total Fund Balances $ 640,944 $ 185,183 $ 422,709 $ 760,904 $ 2,009,740
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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, 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 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, 2025, the contingency amount accounts for $53,000,000 of the committed 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, 2025, the budget stabilization reserve accounts for $28,000,000 of the committed 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, 2025, the workers’ compensation and general liability catastrophic reserve accounts for $15,000,000 of the committed 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 expenditures 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, 2025, the cash reserve amount accounts for $6,000 of the committed 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, 2025, the emergency reserve amount accounts for $1,802,000 and is reported as part of the unassigned fund balance.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
136
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
IV. Other Information
A. Defined Benefit Retirement Plans
A. 1. City Sponsored Defined Benefit Pension Plans
1. General 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. Please refer to the high- level summary under Notes IV.AAA.4, Actuarial Methods and Assumptions. Detailed benefit tier information previously presented in the City’s basic financial statements has been removed beginning in fiscal year 2025; comprehensive details, including disability and death benefits, are available in the Retirement Plans’ annual reports and on the Office of Retirement Services website at https:/ /www.sjretirement.com.
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SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
137
FINANCIAL
SECTION
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
Employees Covered - The current membership in the Defined Benefit Pension Plans as of June 30, 2025, is as follows:
FCERS
Tier 1
Pension Only (3)
Tier 1
Pension &
Medical (4)
Tier 2
Pension Only (3)
Tier 2
Pension &
Medical (4) Totals
Defined Benefit Pension Plan:
Retirees and beneficiaries
currently receiving benefits (1) 880 3,769 85 1 4,735 Terminated vested members
entitled to future benefits (2) 679 141 1,453 - 2,273 Active members 111 906 3,222 65 4,304
Total 1,670 4,816 4,760 66 11,312
(1) Retiree counts do not include combined domestic relations orders. (2) Includes terminated non-vested members that are due a refund of their contributions. (3) Includes members that are eligible for the catastrophic disability medical benefits only (VEBA) from the Postemployment Healthcare Plan. (4) Eligible for full retiree 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) 1,539 - 3 - 325 - 1,867 Pension only (3) 161 6 145 214 30 629 1,185 Police Total 1,700 6 148 214 355 629 3,052 Fire
Pension & Medical (2) 911 - 3 - 343 - 1,257 Pension only (3) 58 1 33 17 32 269 410
Fire Total 969 1 36 17 375 269 1,667
Total 2,669 7 184 231 730 898 4,719
(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. Contributions
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.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
138
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
The contribution rates for the Defined Benefit Pension Plans for the City and the participating employees for the year ended June 30, 2025 were based on the actuarial valuations performed as of June 30, 2023.
The contribution rates in effect and the amounts contributed to the pension plans for the year ended June 30, 2025 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:
06/22/25-06/30/25 35.19% 13.55% 37.81% 15.01% 10.39% 13.55% 12.00% 15.01% 07/01/24-06/21/25 (1) 34.46% $ 79,423 13.65% 36.57% $ 68,686 14.90% 10.59% 13.65% 11.81% 14.90%
(1) The actual contribution rates paid by the City for year ended June 30, 2025 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 0.13% in contributions for the year ended June 30, 2025. (3) Contributions are structured as a normal cost, plus a payment on the unfunded actuarial liability (UAL). Tier 1 City contributions are administered as a normal cost contribution rate based on payroll plus a dollar amount payment on the UAL.
FCERS
City Participants
Defined Benefit Pension Plan Tier 1
Minimum Dollar
Amount (1) Tier 2 Tier 1 (2) Tier 2
Actuarial Rate:
06/22/25-06/30/25 23.18% 8.62% 6.55% 8.62%
07/01/24-06/21/25 22.81% $ 176,757 8.73% 6.61% 8.49%
(1) Contributions are structured as a normal cost, plus a payment on the unfunded actuarial liability (UAL). Tier 1 City contributions are administered as a normal cost contribution rate based on payroll plus a dollar amount payment on the UAL. (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. Reclassified Tier 1 members paid an additional
3.00% in contributions for year ended June 30, 2025. Classic Tier 1 members paid an additional 1.03% in contributions for year ended June 30, 2025.
Annual Pension Contribution for the Year Ended 06/30/25 Defined Benefit Pension Plan City Participants Total PFDRP $ 213,138 $ 35,806 $ 248,944
FCERS $ 238,195 $ 37,968 $ 276,163
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
139
FINANCIAL
SECTION
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
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, 2024. The City’s net pension liability as of June 30, 2025 of each of the Defined Pension Plan is measured as of June 30, 2024, using an annual actuarial valuation as of June 30, 2023 and rolled forward to June 30, 2024 using standard update procedures by the actuary for the respective plans. In summary, the City’s net pension liability at June 30, 2025 is as follows (in thousands):
PFDRP FCERS CalPERS Total
Net Pension Liability $ 1,000,946 $ 1,959,518 $ 1,586 $ 2,962,050
The General Fund and Enterprise Funds have historically been used to liquidate the pension liabilities.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
140
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
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, 2024, were as follows (in thousands):
Increase (Decrease)
PFDRP
Total
Pension
Liability
(a)
Plan
Fiduciary Net
Position
(b)
Net Pension
Liability
(a-b)
Balance at June 30, 2024
(Measurement Date June 30, 2023) $ 5,838,544 $ 4,721,488 $ 1,117,056
Changes for the Year:
Service costs 95,759 - 95,759
Interest 380,456 - 380,456
Contributions-employer - 202,700 (202,700)
Contributions-employees - 34,439 (34,439)
Net investment income - 437,637 (437,637)
Difference between expected and actual experience 73,890 - 73,890 Changes of assumptions 712 - 712
Benefit payments, including refunds of member contributions (291,955) (291,955) - Administrative expenses - (7,849) 7,849
Net changes 258,862 374,972 (116,110)
Balance at June 30, 2025
(Measurement Date June 30, 2024) $ 6,097,406 $ 5,096,460 $ 1,000,946
Increase (Decrease)
FCERS
Total
Pension
Liability
(a)
Plan
Fiduciary Net
Position
(b)
Net Pension
Liability
(a-b)
Balance at June 30 2024
(Measurement Date June 30, 2023) $ 4,882,495 $ 2,907,314 $ 1,975,181
Changes for the Year:
Service costs 81,585 - 81,585
Interest 319,257 - 319,257
Contributions-employer - 218,313 (218,313)
Contributions-employees - 33,933 (33,933)
Net investment income - 257,583 (257,583)
Difference between expected and actual experience 64,615 - 64,615 Changes of assumptions 22,572 - 22,572
Benefit payments, including refunds of member contributions (256,565) (256,565) - Administrative expenses - (6,137) 6,137
Net changes 231,464 247,127 (15,663)
Balance at June 30, 2025
(Measurement Date June 30, 2024) $ 5,113,959 $ 3,154,441 $ 1,959,518
Note: The schedules of changes in the net pension liability for the year ended June 30, 2024 are presented in the Required Supplementary Information.
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
141
FINANCIAL
SECTION
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
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, 2023 and rolled forward to June 30, 2024 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%)
Measurement
Date Rate
(6.625%)
1%
Increase
(7.625%)
Total pension liability $ 6,970,574 $ 6,097,406 $ 5,389,843 PFDRP fiduciary net position 5,096,460 5,096,460 5,096,460 Net pension liability $ 1,874,114 $ 1,000,946 $ 293,383
PFDRP fiduciary net position as a
percentage of the total pension liability 73.1% 83.6% 94.6%
FCERS - Sensitivity Analysis
1%
Decrease
(5.625%)
Measurement
Date Rate
(6.625%)
1%
Increase
(7.625%)
Total pension liability $ 5,804,479 $ 5,113,959 $ 4,549,547 FCERS fiduciary net position 3,154,441 3,154,441 3,154,441 Net pension liability $ 2,650,038 $ 1,959,518 $ 1,395,106
FCERS fiduciary net position as a
percentage of the total pension liability 54.3% 61.7% 69.3%
Pension Expense and Deferrals – For the year ended June 30, 2025, 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 $ 125,950 $ 199,230 $ 325,180
For the fiscal year ended June 30, 2025, the City recognized total pension expnse of $325,180,000 across all Defined Benefit Pension Plans.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
142
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
Schedule of Deferred Outflows and Inflows of Resources - PFDRP
Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Contributions subsequent to measurement date $ 213,138 $ - Differences between expected and actual experience 67,548 - Changes in assumptions 3,657 -
Net difference between projected and actual earnings
on pension plan investments - 60,223
Total $ 284,343 $ 60,223
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
143
FINANCIAL
SECTION
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
As of June 30, 2025, $213,138,000 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, 2026.
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:
Deferred
Outflows / (Inflows)
of Resources
2026 $ (49,015)
2027 105,960
2028 (20,586)
2029 (25,377)
$ 10,982
Schedule of Deferred Outflows and Inflows of Resources - FCERS
Deferred
Outflows of
Resources
Deferred
Inflows of
Resources
Contributions subsequent to measurement date $ 238,195 $ - Differences between expected and actual experience 87,715 - Changes in assumptions 19,607 -
Net difference between projected and actual earnings on pension plan investments - 44,381
Total $ 345,517 $ 44,381
As of June 30, 2025, $238,195,000 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, 2026.
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:
Deferred
Outflows / (Inflows) of
Resources
2026 $ (12,394)
2027 88,350
2028 47
2029 (13,062)
$ 62,941
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
144
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
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, 2024 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, 2024 was selected by estimating the median real rates of return based on long-term capital market assumptions adopted by the respective Boards, including real 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.
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
145
FINANCIAL
SECTION
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
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, 2024, are summarized in the following tables:
PFDRP
Target Asset
Allocation
Long-Term Expected
Real Rate of Return
Public equity 42.0% 5.7%
Cash and cash equivalents 5.5% -0.3%
Investment grade bonds 4.5% 2.0%
Private equity 10.0% 8.0%
Core real estate 5.0% 4.1%
Immunized cash flows 5.0% -0.3%
Venture / growth capital 4.5% 9.2%
Emerging market bonds 2.0% 4.0%
Growth real estate 4.0% 6.2%
Long-term government bonds 1.5% 2.2%
Market neutral strategies 3.0% 3.0%
Private debt 5.0% 6.4%
Private real assets 4.0% 6.5%
High yield bonds 2.0% 4.0%
Treasury inflation - protected securities 2.0% 1.9%
FCERS
Target Asset
Allocation
Long-Term Expected
Real Rate of Return
Public equity 49.0% 5.7%
Private equity 8.0% 8.0%
Investment grade bonds 6.0% 2.0%
Core real estate 5.0% 4.1%
Immunized cash flows 5.0% -0.3%
Venture / growth capital 4.0% 9.2%
Growth real estate 3.0% 6.2%
Emerging market bonds 3.0% 4.0%
Private debt 3.0% 6.4%
Market neutral strategies 3.0% 3.0%
Private real assets 3.0% 6.5%
Long-term government bonds 4.0% 2.2%
Treasury inflation-protected securities 2.0% 1.9%
High yield bonds 2.0% 4.0%
Cash and Cash Equivalents N/A -0.3%
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.
4. Actuarial Methods and Assumptions
The significant actuarial methods and assumptions used to compute the total pension liability measured as of June 30, 2024 are from the actuarial valuation report with a valuation date of June 30, 2023 and rolled forward to June 30, 2024 using standard update procedures by the actuary for the respective plans.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
146
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
PFDRP FCERS
Description Method/Assumption Method/Assumption
Measurement date June 30, 2024 June 30, 2024
Valuation date June 30, 2023 June 30, 2023
Inflation rate 2.50% 2.50%
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 and 20-year time horizons is 7.9% and
8.5%, respectively. The Board applied a margin
for adverse deviation to maintain assumption
of 6.625%
The Board expects a long-term rate of return of
8.8% based on Meketa’s 2023 20-year capital
market assumptions and the 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: 0.972 times the 2010 Public Safety Above Median Income Mortality Table (Pub(s)-
2010(A)) for healthy male and female retirees
0.995 for males and 1.020 for females, times
the 2010 Public General Mortality Table (PubG-
2010) for healthy retirees
(b) Healthy non-annuitant:
0.979 times the 2010 Public Safety Above
Median Income Mortality Table (Pub(s)-
2010(A)) for healthy males and females
employees
0.992 for males, and 1.084 for females, times
the 2010 Public General Mortality Table (PubG-
2010) for healthy employees
(c) Disabled retirees: 0.915 times the Public Safety Mortality Table (PubS-2010) for disabled male and female
retirees
0.990 for males and 0.920 for females, times
the CalPERS 2009 Ordinary Disability Mortality
Table
Rates of service retirement,
withdrawal, death, disability
retirements
Based upon current experience Based upon current experience
Salary increases
Wage Inflation Reflect currently bargained across-the-board increases and 3.00% per annum (0.50% real
wage growth) thereafter. For this valuation,
Police and Fire members have bargained
increases of 4.00% for FYE 2024. Police
members have an ongoing non-pensionable
4.00% retention pay that becomes pensionable
as well as a bargained increase of 3.00% for
FYE 2025.
Reflect currently bargained increases for
FYE 2024, 4.5% effective July 1, 2024, 3.5%
effective July 1, 2025 and 3.00% thereafter.
These increases approximate the bargained
increases for the largest bargaining groups.
Merit Increase Merit component added based on an
individual’s years of service ranging from
6.50% to at hire to 0.60% for members with 10
or more years of service.
Merit/longevity increase based on years of
service ranging from 3.25% at hire to 0.25% for
members with 18 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
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
147
FINANCIAL
SECTION
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
Changes in Assumptions
FCERS
For the measurement period ended June 30, 2024, the wage inflation assumption was updated to reflect currently bargained agreements for FY 2024 through FY 2026 — 4.5% effective July 1, 2024, 3.5% effective July 1, 2025, and 3.0% thereafter, respectively. Demographic assumptions were updated based on the most recent experience study covering the period through June 30, 2023. Tier 1 member contributions were updated to exclude any share in the cost of administrative expenses. The pre-retirement death benefit, if eligible for retirement, was updated from 2.5% to 2.0% of final compensation for each year of service, before minimum and maximum restrictions.
PFDRP
For the measurement period ended June 30, 2024, the wage inflation assumption was updated to reflect currently bargained across-the-board increases and 3.0% per annum (0.5% real wage growth) thereafter.
For this valuation, Police and Fire members have bargained increases of 4.0% for FY 2024. Police members also have an ongoing non-pensionable 4.0% retention pay that becomes pensionable, as well as a bargained increase of 3.0% for FY 2025. Retirement, termination, mortality, and disability rates, as well as administrative expense assumptions, were also updated for this valuation.
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
148
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
A. 2. California Public Employees’ 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, 2025, 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% 7.75%
11.880% + $181,320 for 7.870% + $573 for
Required employer contribution rates unfunded liability unfunded liability
As of June 30, 2025, there was one current San José City Council members enrolled in the Classic rate plan and eleven current members, consisting of four City Council members and six 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.
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For the year ended June 30, 2025, the amount contributed to the CalPERS plan was as follows (in thousands):
Classic Rate Plan PEPRA Rate Plan Total
Contributions - employer $ 212 $ 147 $ 359
Contributions - employee 18 145 163
Total $ 230 $ 292 $ 522
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, 2024 prepared by CalPERS. As of June 30, 2025, the City reported a net pension liability of $1,586,000 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, 2023.
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, 2024, 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, 2023 rolled forward to June 30, 2024 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 $ 1,644 0.03288%
Proportion of the net pension liability
current measurement date 1,586 0.03280%
Change - Increase (Decrease) $ (58) -0.00008%
Pension Expense $ 381
The City reported deferred outflows of resources and deferred inflows of resources related to pensions as of June 30, 2025 from the following sources (in thousands):
Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contributions subsequent to measurement date $ 359 $ - Differences between actual and expected experience 123 5 Changes in assumptions 37 -
Change in employer’s proportion and differences
between the employer’s contributions and the
employer’s proportionate share of contributions 200 13
Net differences between projected and actual
earnings on plan investments 105 -
Total $ 824 $ 18
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As of June 30, 2025, $359,000 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, 2026.
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:
Deferred
Outflows / (Inflows) of
Resources
2026 $ 176
2027 262
2028 37
2029 (28)
$ 447
Actuarial Assumptions – The collective total pension liability for the June 30, 2024 measurement period was determined by an actuarial valuation as of June 30, 2023, with update procedures used to roll forward the total pension liability to June 30, 2024. 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, 2024 prepared by CalPERS.
Plan
Valuation Date June 30, 2023
Measurement Date June 30, 2024
Actuarial Cost Method Entry Age Actuarial Cost Method
Actuarial Assumptions
Discount Rate 6.90%
Inflation 2.30%
Salary Increases Varies by entry Age and service
Mortality Rate Table (1) Derived using CalPERS’ membership data for all funds Post Retirement Benefit
The lesser of contract COLA up to 2.30% until Purchasing Power Protection
Increase Allowance floor on purchasing power Applies, 2.30% thereafter
(1) The mortality table used was developed based on CalPERS-specific data. The probabilites of mortality are based on the 2021 CalPERS Experience Study and Review of Actuarial Assumptions. Mortality rates incorporate full generational mortality improvement using 80% of Scale MP-2020 published by the Society of Actuaries. For more details on this table, please refer to 2021 experience study report from November 2021 that can be found in 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. Using historical returns of all of the funds’ asset classes, expected compound (geometric) returns were calculated over the next 20 years using a building-block approach. The expected rate of return was then adjusted to account for assumed administrative expenses of 10 Basis points.
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The expected real rates of return by asset class are as followed:
Asset Class
Assumed
Asset
Allocation
Real Return
Years 1 - 10 (1) (2)
Global Equity - Cap-Weighted 30% 4.54%
Global Equity - Non-Cap-Weighted 12% 3.84%
Private Equity 13% 7.28%
Treasury 5% 0.27%
Mortgage-backed Securities 5% 0.50%
Investment Grade Corporates 10% 1.56%
High Yield 5% 2.27%
Emerging Market Debt 5% 2.48%
Private Debt 5% 3.57%
Real Assets 15% 3.21%
Leverage -5% -0.59%
100%
(1) An expected inflation of 2.30% used for this period. (2) Figures are based on the 2021 Asset Liability Management study.
Discount Rate - The discount rate used to measure the total pension liability was 6.90%. 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
6.90%, 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 (5.90%) or one percentage point higher (7.90%) than the current rate (in thousands):
Sensitivity Analysis
1%
Decrease
(5.90%)
Measurement
Date Discount Rate
(6.90%)
1%
Increase
(7.90%)
Net pension liability $ 2,652 $ 1,586 $ 709
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. Defined Contribution Retirement Plans
1. 401(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. Effective October 3, 2021, elected officials who are not members of CalPERS shall become members of the 401(a) plan. The defined contribution for elected officials is
6.55% of salary into a 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 172 participants in the 401(a) plan as of June 30, 2025. In FY 2025, the City and the participating employees contributed $718,000 to the 401(a) plan. As of June 30, 2025, the balance of the 401(a) plan was $5,389,000.
2. PTC 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. As of June 30, 2025, there were 305 part-time employees participating in the 457 Plan, representing 14.73% of all part-time employees.
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. As of June 30, 2025, there were 6,624 accounts consisting of 4,202 active and 2,422 separated employee accounts participating in the Stable Value Plan.
These participating employees contributed $2,051,000 to the plan. As of June 30, 2025, the balance of the plan was $35,040,000.
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A. 4. Postemployment Benefit Plans Other than Pension Plans
1. General 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), the Fire Department Postemployment Healthcare Plan (Section 115 Trust), and the 401(h) Plan, and the FCERS Healthcare Plan, 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 for 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, 2025, is as follows:
Police Fire
PFDRP Tier 1 Tier 1 Totals
Postemployment Healthcare Plan:
Retirees and beneficiaries currently receiving benefits* 1,539 911 2,450 Terminated vested members not yet receiving benefits 3 3 6 Active members 325 343 668
Total 1,867 1,257 3,124
* Payees that have health and/or dental coverage
FCERS Tier 1* Tier 2A* Totals
Postemployment Healthcare Plan:
Retirees and beneficiaries currently receiving benefits** 3,769 1 3,770 Terminated vested members not yet receiving benefits 141 - 141 Active members 906 65 971
Total 4,816 66 4,882
* 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 FOR THE YEAR ENDED JUNE 30, 2025
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note, those reports may be obtained from the City of San José Office of Retirement Services or at http:/ / www.sjretirement.com.
2. Contributions
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 PFDRP for the year ended June 30, 2025, 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
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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 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 2025 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*:
07/01/2024 - 06/30/2025 $18,015 $11,933 8.00% N/A 8.00% N/A
*Explicit subsidy amounts as shown excludes accruals, adjustments and implicit subsidy.
FCERS City - Board Adopted Member with Healthcare
Tier 1 Tier 2 Tier 1 and Tier 2
Actuarial Rate:
Postemployment Healthcare Plan*:
07/01/2024 - 06/30/2025 $20,352 7.50%
*Explicit subsidy amounts as shown excludes accruals, adjustments and implicit subsidy.
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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, 2024 measurement date. The City’s net OPEB liability as of June 30, 2025 for each of the Postemployment Healthcare Plans is measured as of June 30, 2024, using an annual actuarial valuation as of June 30, 2023 and rolled forward to June 30, 2024 using standard update procedures by the actuary for the respective plans. In summary, the City’s net OPEB asset and liability at June 30, 2025 is as follows (in thousands):
Summary of OPEB liability and expense
PFDRP FCERS Total
Net OPEB Liability $ 565,654 $ 317,583 $ 883,237
Net OPEB Asset - (1,417) (1,417)
$ 565,654 $ 316,166 $ 881,820
OPEB Expense $ 48,962 $ 20,083 $ 69,045
For the fiscal year ended June 30, 2025, the City recognized total OPEB expense of $69,045,000 across all Postemployment Healthcare Plans.
The General Fund and Enterprise Funds have historically been used to liquidate the OPEB liabilities.
Actuarial Methods and Assumptions
PFDRP
Measurement Date June 30, 2024
Valuation Date June 30, 2023
Actuarial Cost Method: Entry Age Normal, level of percentage of pay Actuarial Assumptions:
Discount Rate 6.00%
Inflation Rate 2.50%
Merit Increase Merit component added based on an individual’s years of service ranging from 6.50% at hire to
0.60% for members with 10 or more years of service.
Wage Inflation Rate Reflect currently bargained across-the-board increases and 3.00% per annum (0.50% real wage growth) thereafter. For this valuation, Police and Fire members have bargained increases of
4.00% for FYE 2024. Police members have an ongoing non-pensionable 4.00% retention pay that becomes pensionable as well as a bargained increase of 3.00% for FYE 2025.
Rate of Mortality* Mortality is projected from 2010 on a generational basis using the SOA MP-2021 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 8.60% to 3.94% per annum graded down over a 51 year period for medical pre-age 65 and 5.72% to 3.94% per annum for medical post-age 65. For fiscal year beginning 2024, actual calendar year 2024 premiums are combined with a trend assumption for calendar year 2025.
Healthcare Trend Rate - Dental Dental inflation is assumed to be 3.5%
*Actuarial Methods and Assumptions - PDFRP Mortality Rates
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Category Male Female
Healthy Annuitant 0.972 times the 2010 Public Safety Above Median Income Mortality Table [Pub(S) - 2010(A)] for Healthy
Retirees
0.972 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 1.032 times the 2010 Public General Above Median Income Mortality Table [Pub(G)-2010(A)] for Healthy
Retirees
1.032 times the 2010 Public General Above Median
Income Mortality Table [Pub(G)-2010(A)] for Healthy
Retirees
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
** Rates of Pre-Retirement Turnover. Sample rates of termination are shown in the following table.
Rate of Termination
Service Police Fire
0 11.00% 8.50%
1 8.00 4.00
2 6.25 2.75
3 5.00 1.75
4 4.25 1.25
5 3.75 1.00
6 3.55 0.90
7 3.40 0.80
8 3.30 0.70
9 3.25 0.60
10 3.25 0.50
11 3.25 0.50
12 3.15 0.50
13 2.95 0.50
14 2.75 0.50
15 2.25 0.50
16 1.75 0.50
17 1.50 0.50
18 1.25 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 6.00% for the valuation year ended June 30, 2023 and rolled forward to June 30, 2024 was selected by estimating the median real rate of return based on long-term capital market assumptions adopted by the PFDRP Board, including real 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.
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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, 2024 measurement date are summarized in the following table:
Asset Class
Target Asset
Allocation
Long-Term
Expected Real
Rate of Return
Public equity 58.00% 5.70%
Investment grade bonds 14.00% 2.00%
Core real estate 12.00% 4.10%
Short-term investment grade bonds 6.00% 0.90%
Commodities 5.00% 2.50%
Long-term government bonds 5.00% 2.20%
Changes in Assumptions for PFDRP
For the measurement period ended June 30, 2024, plan election assumptions and the administrative expense assumption were updated. The wage inflation assumption was revised to reflect currently bargained agreements for FY 2024 and FY 2025, which include across-the-board increases and 3.0% per annum (0.5% real wage growth) thereafter. For this valuation, Fire members have bargained increases of 4.0% for FY 2024.
Police members have an ongoing non-pensionable 4.0% retention pay that becomes pensionable, as well as a bargained increase of 3.0% for FY 2025. Demographic assumptions were updated based on the most recent experience study covering the period through June 30, 2023.
Discount Rate for PFDRP
The discount rate used to measure the total OPEB liability was 6.00% for the measurement year ended June 30, 2024 and is based on the long-term expected rate of return on investments. It is assumed that PFDRP member contributions are 8.0% 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 11.0% 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 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.
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FCERS
Measurement Date June 30, 2024
Valuation Date June 30, 2023
Actuarial Cost Method: Entry Age Normal, level of percentage of pay Actuarial Assumptions:
Discount Rate 6.00% per year. The Board expects a long-term rate of return of 8.0% based on Meketa’s 20-year capital market assumptions and the System’s current investment policy. A Margin for adverse ideviation was used to improve the probability of achieving the discount rate.
Inflation Rate 2.50%
Merit Increase Merit component added based on an individual’s years of service ranging from 3.25% at hire to
0.25% for members with 18 or more years of service
Wage Inflation Rate Reflect currently bargained increases for FYE 2024, 4.5% effective July 1, 2024, and 3.00% thereafter. These increases approximate the bargained increases for the largest bargaining groups.
Rate of Mortality* Mortality is projected on a generational basis using the MP-2021 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 8.60% to 3.94% per annum graded down over a 51 year period for medical pre-age 65 and 5.72% to 3.94% per annum for medical post-age 65. For fiscal year beginning 2024, actual calendar year 2024 premiums are combined with a trend assumption for calendar year 2025.
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
1.020 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 0.990 times the 2010 Public General Mortality Table (PubG-2010) for disabled retirees
0.920 times the 2010 Public General Mortality Table
(PubG-2010) for disabled retirees
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.
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The assumption for the long-term expected rate of return on OPEB plan investments of 6.00% for the valuation year ended June 30, 2023 and rolled foward to June 30, 2024, was selected by estimating the median real rate of return based on long-term capital market assumptions adopted by the FCERS Board, including real 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 FCERS’s target asset allocation as of June 30, 2024 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 58.00% 5.70%
Investment grade bonds 14.00% 2.00%
Core real estate 12.00% 4.10%
Short-term investment grade bonds 6.00% 0.90%
Commodities 5.00% 2.50%
Long-term government bonds 5.00% 2.20%
Changes in Assumptions for FCERS
For the measurement period ended June 30, 2024, the per-person cost trends were updated. All claims costs were updated to reflect the changes in plan premiums and the populations. Plan election assumptions and the administrative expense assumption were updated. The wage inflation assumption was revised to reflect currently bargained agreements for FY 2024 through FY 2026 — 4.5% effective July 1, 2024, 3.5% effective July 1, 2025, and 3.0% thereafter, respectively. Demographic assumptions were updated based on the most recent experience study covering the period through June 30, 2023.
Discount Rate for FCERS
The discount rate used to measure the total OPEB liability was 6.00% for the measurement year ended June 30, 2024 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.
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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 Increase (Decrease)
Total OPEB
Liability (a)
Plan Fiduciary
Net Position (b)
Net OPEB
Liability (a) - (b)
Balance at June 30, 2024
(Measurement Date June 30, 2023) $ 781,307 $ 299,364 $ 481,943
Changes recognized for the measurement period:
Service cost 12,292 - 12,292
Interest 52,030 - 52,030
Differences between expected and actual experience 68,743 - 68,743 Changes of assumptions 26,186 - 26,186
Contributions - employer - 33,166 (33,166)
Contributions - employee - 10,820 (10,820)
Net investment income - 31,685 (31,685)
Benefit payments including refunds (30,699) (30,699) - Administrative expense - (131) 131
Net changes 128,552 44,841 83,711
Balance at June 30, 2025
(Measurement Date June 30, 2024) $ 909,859 $ 344,205 $ 565,654
FCERS Increase (Decrease)
Total OPEB
Liability (a)
Plan Fiduciary
Net Position (b)
Net OPEB
Liability (a) - (b)
Balance at June 30, 2024
(Measurement Date June 30, 2023) $ 665,105 $ 374,608 $ 290,497
Changes recognized for the measurement period:
Service cost 7,322 - 7,322
Interest 42,031 - 42,031
Differences between expected and actual experience 44,484 - 44,484 Changes of assumptions 3,397 - 3,397
Contributions - employer - 25,357 (25,357)
Contributions - employee - 9,891 (9,891)
Net investment income - 37,149 (37,149)
Benefit payments including refunds (32,635) (32,635) - Administrative expense - (832) 832
Net changes 64,599 38,930 25,669
Balance at June 30, 2025
(Measurement Date June 30, 2024) $ 729,704 $ 413,538 $ 316,166 FOR THE YEAR ENDED JUNE 30, 2025
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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, 2024:
PFDRP
1% Decrease
(5.00%)
Current
Discount Rate
(6.00%)
1% Increase
(7.00%)
Total OPEB Liability $ 1,149,821 $ 909,859 $ 800,114 Plan Fiduciary Net Position 344,205 344,205 344,205 Net OPEB Liability $ 805,616 $ 565,654 $ 455,909
PFDRP plan fiduciary net position as a percentage of the total OPEB liability 29.9% 37.8% 43.0%
FCERS
1% Decrease
(5.0%)
Current
Discount Rate
(6.0%)
1% Increase
(7.0%)
Total OPEB Liability $ 826,703 $ 729,704 $ 650,188
Plan Fiduciary Net Position 413,538 413,538 413,538 Net OPEB Liability $ 413,165 $ 316,166 $ 236,650
FCERS plan fiduciary net position as a percentage of the total OPEB liability 50.0% 56.7% 63.6% 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, 2024:
PFDRP
1% Decrease
Health Care
Cost Trend
Rates 1% Increase
Total OPEB Liability $789,815 $909,859 $1,059,199 Plan Fiduciary Net Position 344,205 344,205 344,205 Net OPEB Liability $445,610 $565,654 $714,994
PFDRP plan fiduciary net position as a percentage of the total OPEB liability 43.6% 37.8% 32.5%
FCERS
1% Decrease
Health Care
Cost Trend
Rates 1% Increase
Total OPEB Liability $641,895 $729,704 $836,867
Plan Fiduciary Net Position 413,538 413,538 413,538 Net OPEB Liability $228,357 $316,166 $423,329
FCERS plan fiduciary net position as a percentage of the total OPEB liability 64.4% 56.7% 49.4%
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OPEB Fiduciary Net Position
The City issues the publicly available financial reports that may be obtained from the Office of Retirement Services, https:/ /www.sjretirement.com.
Recognition of Deferred Outflows and Deferred Inflows of Resources for PFDRP and FCERS Gains and losses related to changes in total OPEB liability and fiduciary net position are recognized in OPEB 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 OPEB 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 OPEB and are to be recognized in future OPEB expense.
The recognition period differs depending on the source of the gain or loss:
Net difference between projected and actual earnings on OPEB plan investments
5 Years
All other amounts Expected average remaining service lifetime (EARSL) (5.0 Years at June 30, 2024 measurement date)
PFDRP
For the year ended June 30, 2025, the City recognized an OPEB expense of $48,962,000. As of June 30, 2025, the City reported deferred outflows and inflows of resources related to OPEB from the following sources (dollar amounts in thousands):
PFDRP
Deferred Outflows
of Resources
Deferred Inflows
of Resources
OPEB contributions subsequent to measurement date $ 35,562 $ - Difference between expected and actual experience 45,832 24,431 Changes in assumptions 27,247 -
Net difference between projected and actual earnings on OPEB plan investments - 2,814
Total $ 108,641 $ 27,245
The $35,562,000 reported as deferred outflows of resources related to contributions subsequent to the June 30, 2024 measurement date will be recognized as a reduction of the net OPEB liability during the year ending June 30, 2026.
The City’s contribution for the Postemployment Healthcare Plan during the year ended June 30, 2025, was $35,562,000. This consisted of City contributions in the amount of $29,948,000, and $5,614,000 in adjustments, accruals, and implicit subsidy.
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Other amounts reported as deferred outflows/(inflows) of resources related to OPEB will be recognized as expense as follows (dollar amounts in thousands):
Fiscal Year Ending June 30:
Deferred Outflows /
(Inflows) of Resources
2026 $ 14,645
2027 37,183
2028 (3,328)
2029 (2,666)
$ 45,834
FCERS
For the year ended June 30, 2025, the City recognized an OPEB expense of $20,083,000. As of June 30, 2025, the City reported deferred outflows and inflows of resources related to OPEB from the following sources (dollar amounts in thousands):
FCERS
Deferred Outflows
of Resources
Deferred Inflows
of Resources
OPEB contributions subsequent to measurement date $ 27,645 $ - Difference between expected and actual experience 33,363 12,329 Changes in assumptions 5,635 -
Net difference between projected and actual earnings on OPEB plan investments - 745 Total $ 66,643 $ 13,074
The $27,645,000 reported as deferred outflows of resources related to contributions subsequent to the June 30, 2024 measurement date will be recognized as a reduction of the net OPEB liability during the year ending June 30, 2026.
The City’s contributions for the Postemployment Healthcare Plan during the year ended June 30, 2025, was $27,645,000. This consisted of City contributions in the amount of $20,352,000, and $7,285,000 in adjustments, accruals, and implicit subsidy.
Other amounts reported as deferred outflows/(inflows) of resources related to OPEB will be recognized as expense as follows (dollar amounts in thousands):
Fiscal Year Ending June 30:
Deferred Outflows /
(Inflows) of Resources
2026 $ (215)
2027 20,677
2028 8,388
2029 (2,926)
$ 25,924
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B. Commitments and Contingencies
1. San José Mineta International Airport
Purchase Commitments and Capital Outlay Projections. As of June 30, 2025, the Airport was obligated for purchase commitments of $29,087,000 primarily for the Airfield Configuration Updates, Zero Emissions Buses, Aircraft Rescue and Fire Fighting vehicle replacement, and various operating and maintenance agreements. The Airport has projected that it will expend or encumber $318,091,000 on construction related capital projects during the next five fiscal years. It is anticipated that funding for such capital projects will be provided primarily by proceeds from federal grants, CP proceeds, and other Airport revenues.
Master Plan. In 1997, after extensive planning and environmental studies, the San José City Council approved a comprehensive update to the previous 1980 Master Plan. In turn, the FAA in 1999 conditionally approved a new Airport Layout Plan (ALP) displaying the proposed Master Plan projects and unconditionally approved all the near-term projects. Both the Master Plan and the ALP , which identify facility improvements needed to accommodate forecast demand for commercial passenger service, air cargo, and general aviation, have been kept up to date through periodic amendments. Implementation of the Master Plan has been ongoing, and since 1997 has included major runway extensions, new taxiways, new terminal buildings, parking garages, roadways, and environmental mitigation programs.
The most recent amendment to the Master Plan was approved by the City Council in April 2020. This amendment extended the planning horizon year out to 2037, incorporated the airfield reconfiguration improvements recommended in an FAA-funded Runway Incursion Mitigation/Design Standards Analysis Study, modified the passenger, cargo, and general aviation facility improvement program to serve projected 2037 demand, and added a proposed business hotel to the passenger terminal complex. The Master Plan is currently intended to serve a projected 2037 demand of 22.5 million annual passengers and 183,900 annual passenger airline aircraft operations with a total of 237,700 aircraft operations. The amendment to the Airport Master Plan also includes up to 42 airline terminal gates in 1,800,000 square feet of passenger terminal facilities. The FAA conditionally approved a new ALP in June 2020 displaying the amended Master Plan development program.
The Master Plan’s Terminal Area Improvement Program (TAIP) Phase II projects (also referred to as the “New Terminal Project”) will consist primarily of the design and construction of a Terminal C extending from the south end of existing Terminal B, including a total of 16 additional airline gates plus a new parking garage. Eight of those 16 future gates will replace existing interim gates bolted on to the south end of Terminal B in 2018 and 2019 to accommodate increases in airline flights and passenger volume. Two of the 16 gates will be relocated from Terminals A and B for operational efficiency. Pursuant to the terms of the current Signatory Airline-Airport Lease and Operating Agreement and subject only to prior consultation with the Signatory Airlines, the City retains sole discretion to proceed to construct the New Terminal Project upon its determination that an increase in terminal capacity to be achieved by the New Terminal Project is needed. After completing its consultation with the Signatory Airlines and having given due consideration to the information provided by the Signatory Airlines, the City may proceed with the New Terminal Project if the City determines, in its sole discretion, that the New Terminal Project continues to be needed and can be financed on reasonable terms.
At the time of this report, there are two Master Plan projects under construction. The first is the full-length New Taxiway V on the west side of the Airport, which will replace the former general aviation Runway 11/29, officially closed in 2022. The second Master Plan project under construction is the San Josè Police Department Airwing Hangar, relocating from the east side of the Airport to the southwest quadrant of the Airport.
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FAA Audit of Use of Revenue. Federal law requires all airport owners that receive federal assistance, such as the City, to use airport revenues for the capital or operating costs of the Airport. Generally, any use of airport revenues by an airport owner for costs that cannot properly be considered airport capital or operating costs is deemed to be improper revenue diversion. On June 2, 2010, auditors from the FAA provided the City with a draft of its audit findings alleging improper use of Airport revenues by the City in three areas of expenditure.
On August 14, 2015, as the result of discussions and correspondence with City staff, the FAA notified the City that it has closed two of the three audit issues. The remaining audit issue is described below.
Cost Allocations - The City uses both direct and indirect methodologies to allocate costs to the Airport.
The FAA auditors found the direct cost allocations to be acceptable. The FAA contends that the City’s indirect methodology does not correlate to the cost of services actually provided by the City to the Airport.
Consequently, the auditors have recommended that the City re-allocate its costs charged to the Airport for FY 2005-2010 using an allocation methodology that reflects services actually provided to the Airport and repay any overcharges to the Airport, with interest. The City believes the allocation methodology used to allocate costs to the Airport is in compliance with federal cost allocation guidance. In an effort to resolve the issue, the City proposed and implemented a cap on the indirect cost allocations for certain City departments at 10%, which was the approximate rate charged to the Airport in pre-capital intensive years. This resulted in a total credit of $5.6 million that would be applied equally to the Airport cost allocation plan (CAP) over a seven-year period beginning in FY 2013 and ending in FY 2019. The City has adjusted its indirect cost allocation methodology in an effort to address FAA concerns, including removal of debt expenditures from the relative expenditures base started in FY 2016, continuing with the 10% cap, and monitoring a rolling five- year average of the relative expenditure base to smooth out expenditure fluctuations.
On August 14, 2015, the FAA accepted the corrective actions that the City has already taken, however, the FAA disagrees with the City’s inclusion of capital expenditures in the allocation of indirect costs.
On May 3, 2018, the City received a letter from the FAA in which the FAA requested a copy of the City’s FY 2017 indirect cost allocation plan to substantiate indirect charges to the Airport in order to finalize the FAA’s financial compliance review. The City responded to the FAA on July 20, 2018 with copies of the requested information and clarified actions taken by the City to date to implement the FAA’s recommendations.
On May 19, 2022, the City received a letter from the FAA in which the FAA continues to believe that inclusion of capital costs in the indirect cost allocation methodology results in a disproportionate share of indirect costs being charged to the Airport. The FAA notes that the Modified Total Direct Cost (MTDC) is recognized as an equitable allocation base for the distribution of indirect costs and the MTDC allocation method excludes equipment and capital expenditures. The FAA asks the City to take this final finding under advisement.
On July 15, 2022, the City responded to the FAA’s letter of May 19, 2022 regarding inclusion of capital costs in the indirect cost allocation methodology, explaining that the City is in the process of evaluating the methodology used for the City’s overall CAP . On June 23, 2022, the City posted a request for proposal (RFP) to hire an independent consultant to support this evaluation, with the RFP scope of work including an in-depth analysis of the City’s current CAP , as well as scope to develop recommendations for potential changes in the CAP methodology as it relates to all City departments.
On June 4, 2024, the City engaged Maximus US Services, Inc. to evaluate its cost allocation practices, including the Airport Cost Allocation Plan (Airport CAP). On March 14, 2025, the consultant delivered its current state assessment report, identifying findings that may align with prior FAA concerns.
Notably, the FAA has questioned the inclusion of capital expenditures in the allocation base for indirect costs. The consultant noted that this approach may be acceptable if expenses are justified by their relation to the allocation base, avoiding inequitable cost allocations.
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The City is evaluating these issues before proposing changes to the FAA. The City cannot predict the final outcome of the audit.
2. San José – Santa Clara Wastewater Treatment Facility Plant Master Plan. In November 2013, the City Council approved the Plant Master Plan (“PMP”), a 30-year planning-level document focused on long-term rehabilitation and modernization of the Plant. The PMP recommends more than 114 capital improvement projects to be implemented over a 30-year planning period at an estimated investment level of approximately $2 billion. On September 24, 2013, the City Council approved a consultant agreement with MWH Americas, Inc. to assist and support the City in developing and implementing this Capital Improvement Program (“CIP”). On June 2, 2015, a funding strategy was recommended to and approved by the City Council. An update to the strategy was approved by the City Council on January 12, 2016. For the next five years, the City’s portion of the funding for the San José-Santa Clara Regional Wastewater Facility (“Plant”) Adopted CIP is programmed into the City’s 2026-2030 CIP budget. The City’s FY 2026 approved operating budget required an average rate increase for customers for the Sewer Service and Use Charge rate of 1.67% for FY 2026.
Revenues for the 2026-2030 Adopted CIP are derived from several sources: utilization of available resources from the City’s Sewer Service and Use Charge and Sewage Treatment Plant Connection Fee; contributions from the City of Santa Clara and other tributary agencies for the treatment of sewage from their respective jurisdictions by the Plant; interest earnings; Calpine Metcalf Energy Center Facilities repayments; and other debt financing proceeds.
Pursuant to an agreement executed between the cities of San José and Santa Clara in 1959 (the “1959 Agreement”), the City of San José is co-owner and administering agency of the Plant. The Plant also provides wastewater treatment services to other neighboring agencies through five outside user agreements (“Master Agreements”) with City of Milpitas, West Valley Sanitation District, Cupertino Sanitary District, Burbank Sanitary District, and CSD 2-3 (the “Tributary Agencies”). Contributions from the City of Santa Clara and the Tributary Agencies are made pursuant to agreements with each agency based on the anticipated operation and maintenance, and capital budget. The Tributary Agencies’ proportional contribution for the operation and maintenance cost is based on the amount and characteristics of the sewage discharged into the Plant.
Each Tributary Agency’s capital contribution is based on each agency’s contractual capacity in the Plant.
The balance of the Plant budget is shared between the cities of San José and Santa Clara based on the respective city’s assessed property value relative to the total assessed property value in both jurisdictions. In the 2026-2030 Adopted CIP , contributions from the City of Santa Clara and other agencies are approximately $181,260,000.
Currently, a short-term financing has been put into place in the 2026-2030 Adopted CIP of approximately $200,000,000, which will be refunded with long-term bonds during FY 2028.
Tributary Agency Claims. On January 22, 2016 and September 7, 2016, the City, as the administering agency, received claims from the Tributary Agencies alleging a breach of contract and inequity under the Master Agreements. The Treatment Plant Advisory Committee (“TPAC”) conducted two administrative hearings, on March 24, 2016 and September 7, 2016, regarding such claims and issued reports as required by the Master Agreements. The Tributary Agencies disagreed with the reports and the parties attempted to mediate such claims, but were unable to reach resolution. All parties agreed to waive the hearings before their respective joint legislative bodies.
The Tributary Agencies filed a complaint in Santa Clara County Superior Court against the City and the City of Santa Clara on March 23, 2018, resulting in a trial in April, May, and June of 2023. The allegations in the case FOR THE YEAR ENDED JUNE 30, 2025
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were substantially similar to the claims raised by the Tributary Agencies and heard through the administrative hearing process in 2016. The Tributary Agencies allege the City breached their respective Master Agreements by, among other allegations, the City charging them for capital and operating expenditures that the Tributary Agencies allege are not authorized under the Master Agreements and, the Tributary Agencies assert, are beyond the requirements to operate the Treatment Plant. The Tributary Agencies also allege that the City has improperly concealed how the funds paid by the Tributary Agencies for Treatment Plant capacity are used.
They also allege the City breached the implied covenant of good faith and fair dealing and violated certain California Constitutional provisions limiting local agencies’ imposition of property related fees, charges, and taxes. The Tributary Agencies further allege their payments resulted in unjust enrichment to the City and Santa Clara, and that the court should provide declaratory relief in accordance with their allegations.
The City and Santa Clara brought pre-trial motions that resolved in defendants’ favor the Tributary Agencies’ claims based on California Constitutional provisions. The Tributary Agencies’ remaining claims for breach of contract and breach of the implied covenant of good faith and fair dealing were tried to a jury. The Tributary Agencies sought approximately $100 million in damages. The jury rejected almost all the Tributary Agencies’ claims, finding only that the City violated the Master Agreements in the way it allocated certain capital costs, but awarding zero damages.
The court then decided in favor of the City and Santa Clara on the Tributary Agencies’ claims for unjust enrichment and declaratory relief. The court entered judgment in the cities’ favor and awarded their costs.
West Valley Sanitation District and Burbank Sanitary District, but not the other Tributary Agencies, have appealed the judgment. The Tributary Agencies appealing will identify the specific grounds for their appeal once briefing commences.
The Tributary Agencies have fully paid their portion of the capital cost for the projects to rehabilitate the Treatment Plant to date. The City cannot predict the outcome or the timeline for resolution of this litigation.
South Bay Water Recycling Program. The South Bay Water Recycling (“SBWR”) project is a regional water reclamation program to recycle highly treated wastewater for irrigation and industrial uses in the cities of San José, Santa Clara, and Milpitas, California. This program is part of an action plan, developed by the City and other agencies tributary to the Plant and adopted by the Regional Water Quality Control Board (“RWQCB”), to control the amount of effluent discharged by the Plant into San Francisco Bay.
In FY 2016, the City and the Santa Clara Valley Water District (“SCVWD”) accepted a report that had been commissioned by both the City and the SCVWD related to SBWR, entitled: “South Bay Water Recycling Strategic and Master Planning (‘’Strategic Report”). The Strategic Report contemplates near term projects (fiscal years 2017 to 2021) at an estimated cost of $49 million and long-term improvements and expansion of the existing system (fiscal years 2020 to 2035) at an estimated cost of $243.2 million for long-term non-potable reuse projects and an additional $522 million for long-term potable use projects. No specific plan for the development or source of financing of the other near-term improvements, nor the long-term improvements identified in the Strategic Report has been developed to date. Further, the responsibility for the development of the long-term improvements has not been established and may involve the formation of a separate entity responsible for the oversight and funding of these improvements.
Recycled Water Facilities and Programs Integration Agreement between the City of San José and the Santa Clara Valley Water District (“SCVWD”). The City and the SCVWD entered into an agreement on March 2, 2010 (“Integration Agreement”) to collaborate on design, construction and operation of an advanced treated recycled water facility and related facilities now called the Silicon Valley Water Treatment Facility (“SVWTF”). In 2003, the City and SCVWD began collaborating on design, construction and operation of an advanced treated recycled water facility and related facilities, to be located on lands owned by the Plant, in
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order to demonstrate the treatment capability of a local facility to produce highly purified water that could be blended with existing recycled water to expand irrigation and industrial uses. The City, as the administering agency for the Plant, and the SCVWD desired to financially support the production and use of recycled water in Santa Clara County consistent with each party’s separate and distinct interests: for wastewater treatment and disposal for the City, and water quality and supply for the SCVWD, as well as to coordinate and cooperate to achieve the most cost effective, environmentally beneficial utilization of recycled water to meet both agencies’ needs. The term of the Integration Agreement is from July 1, 2010 through June 30, 2050, and co-terminus with the Ground Lease and Property Use Agreement between the City and SCVWD for construction and operation of the SVWTF on Plant lands.
The Integration Agreement between the SCVWD and the City provides various formulas based on annual operating results. SCVWD determines the operational and maintenance budget for the SVWTF and operates the facility. Separate formulas were established to determine each party’s respective share of the annual operation and maintenance cost for the SVWTF following the first full fiscal year the SVWTF became operational, which was FY 2015. The formula provides that for each fiscal year when the SBWR is operating at a net loss, the City would pay to the SCVWD an amount to support SCVWD’s operational cost up to $2,000,000. In the event that the SBWR operates at net revenue, the City would share its revenue with the SCVWD with the first 50% towards the SCVWD’s costs and the second 50% divided between the two agencies based on their respective capital investment in the recycled water infrastructure. As of June 30, 2025, the City’s investment in capitalized expenditures for the SBWR system is $248,676,000 with another $11,000,000 in contributions toward the SVWTF for a total investment of $259,676,000; and the SCVWD’s estimated investment in SVWTF as of June 30, 2025 is $65,578,000. During the most recent SBWR operating year ended June 30, 2024, an operating profit of $7,082,008 was realized. This amount was shared with the SCVWD, City of San Jose, City of Santa Clara, and the Tributary Agencies per the terms of the Integration Agreement.
Under the Integration Agreement, commencing in January 2016, the City and SCVWD are to provide the other agency with audited financial statements for the prior fiscal years for the operation of the SBWR and the SVWTF . Since the definition of net operating cost and revenue under the Integration Agreement excludes certain costs and revenues that might otherwise be considered in either party’s overall budget, each party must prepare a separate statement following the publication of each party’s annual audited financial statements, to establish each party’s respective cost share for the operation of the SVWTF . The City and SCVWD have each provided the other with its audited financial statements for the operations of the SBWR and the SVWTF , for each fiscal year from FY 2016 through FY 2024 with no adjustment to share cost. In January 2026, the audit report for the eighth year of full operations for the year ended June 30, 2025, will be completed and issued as per the terms of the Integration Agreement.
3. Bay Area Water Supply and Conservation Agency
The City belongs to the Bay Area Water Supply and Conservation Agency (“BAWSCA”), which represents the interests of 24 cities and water districts, and two private utilities that purchase water wholesale from the San Francisco regional water system. On January 31, 2013, BAWSCA issued bonds in the amount of $335,800,000 to raise the funds necessary to prepay capital commitments owed to the City and County of San Francisco by BAWSCA member agencies thereby realizing a present value savings of approximately $62,300,000 over all member agencies. For the City, this translates into an annual net savings of purchased water cost of approximately $107,000.
The BAWSCA issued revenue bonds are secured by a surcharge on BAWSCA member agencies for the term of the bonds through 2034. BAWSCA’s annual debt service amount for FY 2024 is $21,931,000. San Francisco will collect the surcharge and send the amount to BAWSCA for payment to bondholders. The FOR THE YEAR ENDED JUNE 30, 2025
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annual surcharge for each agency is based upon the actual wholesale water purchase percentage from the last full year for which date is available with an annual reconciliation based upon the actual water purchased.
A true-up adjustment based on the actual year ended June 30, 2024 water use is included in the FY 2025 bond surcharge. The surcharge is on the San Francisco wholesale water bill and is accounted for by the City as operational costs.
The City’s annual bond surcharge for FY 2025 is estimated to be $721,000 based on the City’s actual wholesale water use in the year ended June 30, 2024.
4. Clean Water Act- Stormwater Permit Compliance
The federal Clean Water Act (the “CWA”) establishes the structure for federal regulation of the discharge of pollutants into the waters of the United States. Under the CWA, it is unlawful to discharge any pollutant into these waters unless the discharger has a permit under the National Pollutant Discharge Elimination System (the “NPDES”) and the permittee abides by its terms. The Regional Water Board and private parties can enforce the CWA and the terms of the Stormwater Permit. Violations can result in significant civil penalties per pollutant per day, plus criminal fines, and attorney’s fees.
The City is a permittee under an NPDES permit (the “Stormwater Permit”) issued by the Regional Water Quality Control Board – San Francisco Bay Region (the “Regional Water Board”). This Regional Stormwater Permit governs 79 entities, including the City. On May 11, 2022, the Regional Water Board adopted a new permit that was effective as of July 1, 2022. The Storm Sewer Service and Use Charge rate has not increased since FY 2012. There are specific provisions in the Stormwater Permit that will increase the cost for the City and private property owners to comply. These permit requirements include green stormwater infrastructure for new development and redevelopment, roadway, trail and utility projects; regional level water quality monitoring for green infrastructure, trash outfall and in-stream monitoring; regulating polychlorinated biphenyls during demolition and certain industrial properties; water quality impacts due to firefighting emergency response operations; mapping and regulation of the impact from unhoused populations near stormwater systems and waterways near receiving waters; an annual report analyzing the ongoing programmatic, capital, operation and maintenance cost to comply with the Stormwater Permit; and development of an asset management plan that includes operations and maintenance with life cycle costs to comply with the Stormwater Permit.
5. Retirement Systems – Unfunded Commitments
As of June 30, 2025, PFDRP had unfunded commitments to contribute capital for investments in the amount of $800,711,000. FCERS had unfunded commitments to contribute capital for investments in the amount of $355,785,000.
6. Federal Financial Assistance Programs
The City participates in a number of federally assisted grant programs, primarily with the U.S. Department of Housing and Urban Development, the Federal Aviation Administration, the U.S. Department of Transportation, U.S. Department of Justice, U.S. Department of the Treasury, U.S. Department of Homeland Security, and the U.S. Department of Labor. These programs are subject to program compliance audits by the grantors or their representatives.
Although the City’s grant programs are audited in accordance with the provisions of the Single Audit Act of 1996, and the related U.S. Office of Management and Budget 2 CFR 200 Uniform Guidance, for the year ended June 30, 2025, these programs are still subject to financial and compliance audits by federal auditors, and to resolution of identified findings and questioned costs. At this time, the amount of expenditures, if any, which may be disallowed by the granting agencies cannot be determined.
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7. State Tax Revenue
The City was informed by the State of California in October 2021 that a portion of the City’s previous and current tax revenues could be significantly lower. While the City disputes and appealed the State’s initial determination, this action could negatively impact the City’s General Fund outlook in the short and long- term. Although the appeal process is likely to extend into next fiscal year, the City budgeted for the potential loss in the ongoing revenue for FY 2026 and put resources in place to be in a better position to absorb any loss over the next year. If the resolution of the dispute results in one-time funds becoming available for expenditure, the City Council will consider the use of these funds during a future budget adjustment or as part of the annual budget development process.
8. Encumbrances
The City uses encumbrances to control expenditure commitments for the year and to enhance cash management. Encumbrances represent commitments related to contracts not yet performed and purchase orders not yet filled (executory contracts; and open purchase orders). Commitments for such expenditure of monies are encumbered to reserve a portion of applicable appropriations. Encumbrances still open at year-end are not accounted for as expenditures and liabilities but, rather, as restricted or committed governmental fund balance. As of June 30, 2025, total governmental fund encumbrance balances for the City are as follows (in thousands):
General Fund $ 102,309
Housing Activities 23,431
Low and Moderate Income Housing Asset 32,401
Nonmajor Governmental Funds 85,216
Total governmental funds $ 243,357
9. Curb Ramp Consent Decree
Plaintiffs filed a class action lawsuit in the case of Lashbrook v. City of San José in the United States District Court for the Northern District of California. This lawsuit alleged that the City violated federal and state disability access laws by failing to ensure that its pedestrian right of way contains curb ramps that are necessary to ensure that the pedestrian right of way is accessible to individuals with mobility disabilities.
On April 14, 2020, the City Council approved a proposed settlement of this case in the form of a consent decree whereby Mr. Lashbrook will recover a total of $55,000. The City will pay attorney’s fees and costs in the amount of $725,000. The City will be required to expend $13 million each year until 2030 to remediate curb ramps, and after 2030 will expend 10% of its pavement maintenance budget to remediate curb ramps, which is accounted for within the City’s pavement maintenance budget. The Court preliminarily approved the consent decree on May 27, 2020. At a Fairness Hearing on September 2, 2020, the Court granted final approval of the consent decree. The City is in compliance with the terms of this consent decree.
10. Consent Decree with San Francisco Baykeeper
San Francisco Baykeeper (“Baykeeper”) filed a lawsuit in federal district court against the City in February 2015. Baykeeper’s complaint alleged violations of the Clean Water Act (“CWA”) and the Stormwater Permit.
Specifically, the complaint alleged that the City was not in compliance with trash reduction requirements, and that there were CWA violations resulting from the discharge of sewage from the City’s Sanitary Sewer System that infiltrated into the City’s municipal separate storm sewer systems (“MS4”).
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To settle the lawsuit, the City and Baykeeper agreed to a consent decree that was approved by the U.S.
District Court in August 2016 (the “Consent Decree”). The Consent Decree has a 10-year term expiring in August 2026 and will require the City to:
● Comply with trash provisions of the current Stormwater Permit including installing full trash capture devices, supporting additional creek cleanup efforts, and monitoring of trash in receiving waters; ● Rehabilitate, replace, or repair 65 miles of high-risk sanitary sewer system pipes at an average of 6.5 miles per year, based on the City’s existing program with some changes in the priority of segments of this work;
● Monitor and report fecal indicator bacteria (“FIB”) in receiving waters for a five-year period; ● Comply with green infrastructure planning as required in the Stormwater Permit, adding FIB as a pollutant for planning purposes;
● Bring forward new revenue measure options for Council consideration by December 31, 2017; ● Appropriate, contingent upon the receipt of sufficient new revenues, $100,000,000 over a ten-year period for acquisition of land, review, design, construction, maintenance, and operation of various green infrastructure projects with the goal of reducing pollutants and/or flows from the City’s urban areas into receiving waters, with expenditures anticipated to occur as follows:
○ Identify and design $25,000,000 in total projects by September 2024; ○ Award $25,000,000 in total projects by September 2025; ○ Identify and design an additional $10,000,000 ($35,000,000 in the aggregate) in total projects by September 2025;
○ Award an additional $10,000,000 ($35,000,000 in the aggregate) in total projects by the termination date of the consent decree; and
○ Identify and design an additional $15,000,000 ($50,000,000 aggregate) in total projects by the termination date of the consent decree.
In addition to the expenditures outlined above, the City has incurred or will incur the following expenditures during the Consent Decree’s term: (1) lump sum payment of attorney’s fees and costs to Baykeeper in the amount of $425,000, which payment has been made; (2) ongoing oversight costs payable to Baykeeper in the amount of $10,000 per year for a total of $100,000; and (3) $200,000 per year for five years (a total of $1,000,000) for supplemental environmental mitigation for trash clean up grants, habitat restoration, or projects that generally improve the water quality in the Guadalupe and Coyote creeks and associated watershed areas. The City is in compliance with these payments under the Consent Decree.
The City and Baykeeper entered into a First Amendment and Second Amendment to the Consent Decree in 2017 and 2019, respectively. Both Amendments were approved by the Court and made technical changes to the terms of the Consent Decree but did not modify the substantive requirements itemized above.
Identification of Funds. The Consent Decree requires that by December 31, 2020, the City identify funding sufficient to implement the green infrastructure projects and meet the FIB load reduction standard. If it did not meet this deadline, the parties were required to meet and confer to discuss what measures the City will take to insure funding. In addition, by December 31, 2020, the City was required to obtain funding to implement the green infrastructure projects. The City believes it has identified funds to implement the Consent Decree, and fulfilled its meet and confer obligations, but is unable to make any representations regarding Baykeeper’s interpretation of the Consent Decree. In the event of a dispute between Baykeeper
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and the City, the Consent Decree provides for a resolution process that includes ongoing judicial oversight.
The Consent Decree also specifies limits on the ability to pursue additional litigation against the City during its 10-year term and caps litigation fees for dispute resolution at $200,000.
On December 19, 2017, the City Council considered a report from City staff concerning potential new revenue sources to fund the green infrastructure requirements specified in the Baykeeper Consent Decree described above. The City identified potential revenues of general obligation bonds and a parcel tax, both of which would require voter approval by a two-thirds margin. In November 2018, voters approved Measure T by the appropriate margin, and the City Council subsequently approved $25 million of these funds to be allocated for clean water projects, including green infrastructure improvements. There are Consent Decree obligations that would be ineligible for funding from general obligation bond proceeds and staff continues to assess additional funding mechanisms.
Potential projects identified in the Green Infrastructure Plan (the “GIP”) require further review and approval.
The total construction and maintenance costs will be dependent on several factors including, among others, future costs of construction, whether the project will be on City-owned property or required as part of a future private development.
Green Stormwater Infrastructure Projects. The City’s GIP forecasts green stormwater projects and goals through 2050. The City further estimates that complete implementation and maintenance of the potential projects over the course of the thirty-year plan may be on the magnitude of $6.85 billion. The new Stormwater Permit (effective July 1, 2022) includes requirements for green infrastructure sufficient to treat 5 acres, which the City will be able to meet based on the existing projects and the schedule in the Consent Decree. The City will continue to explore funding opportunities and strategies for the implementation of the GIP .
The City is not able to predict the projects that will ultimately be approved or whether they will be funded for the GIP . In addition, the City is unable to predict whether Baykeeper’s interpretation of the Consent Decree will align with the City’s interpretations or the Regional Water Board’s NPDES Permit.
11. San José Clean Energy
Purchase Commitments. In the ordinary course of business, SJCE enters into various power purchase agreements and energy storage services agreements of different duration (i.e., short-, medium-, and long- term) to acquire renewable and other power supply products, and resource adequacy. The price and volume of purchased resources may be fixed or variable. Variable pricing is generally based on the market price of either natural gas or electricity on the date of delivery. Variable volume is generally associated with contracts to purchase energy from as-available resources such as solar, wind, and hydro-electric facilities.
The following table represents the expected, undiscounted, contractual commitments for energy storage, power, and electric capacity outstanding as of June 30, 2025 (in thousands):
Year ending June 30,
2026 $ 337,741
2027 286,790
2028 247,951
2029 230,763
2030 229,847
2031-2048 1,949,856
Total $ 3,282,948
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12. Federal Funding Risks
The City receives federal funding to support programs and capital projects, including disaster recovery, affordable housing, workforce development, transportation, public safety, and neighborhood services.
Federal policies on the federal debt ceiling, taxes, foreign trade and tariffs, immigration, climate change, clean energy, and other topics can shift dramatically from one administration to another. From time to time, such changes can result in shifts in the level of federal funding for various policy priorities, leading to unpredictability in near-term and future federal funding.
The City’s federal funding consists of both executed grant awards, for which agreements are already in place, and awarded funds that require additional steps such as execution of agreements or approval of annual plans by the administering agencies. While executed awards may proceed under existing terms, funds not yet under executed agreement remain at risk of delay, modification, or non-issuance if federal requirements change.
The City cannot predict if grant funding or other direct payments to the City in support of governmental services, whether directly or bypass-through to the State and Santa Clara County will continue. Recent executive orders, agency directives, notice of funding opportunities and grant agreements are conditioning funding to requirements such as cooperation with federal immigration enforcement, and prohibition of diversity, equity, and inclusion (DEI) programs. The City joined as plaintiff in two cases from which the courts have granted preliminary injunctions prohibiting the use of these conditions as a basis to deny or delay federal grants.
Pending resolution of litigation on appeal, routine solicitations may be delayed or cancelled, and previously awarded funds may discontinue if the new conditions can be imposed. The City is mitigating timing and cash flow risks by prioritizing reimbursement requests, pausing non-critical work until agreements are executed, and preparing contingency funding strategies where feasible.
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13. Tax Abatement
As of June 30, 2025, the City provides three tax abatement programs - the Downtown High-rise Residential Incentive Program, the Utility Users Tax Reimbursement Agreement and the Multifamily Housing Incentive Program:
Downtown High-Rise Residential Incentive Program
The City has had several iterations of a program designed to spur high-rise development in downtown. As of September 30, 2021, the Downtown High-Rise Residential Incentive Program suspends 50% of construction taxes on high-rise developments in the Downtown Area and allows for payment of the taxes to be delayed until the issuance of the Certificate of Occupancy. It also provides a reduction or exemption of affordable housing in-lieu fees. The tax reduction is available for new construction of residential buildings of at least twelve (12) stories in height in the Downtown Planned Growth Area. The affordable housing in-lieu fee reduction or exemption is available for new construction in the Downtown Core to residential buildings at least 150 feet above street-level with ten (10) or more floors or stories in height not including any non- residential uses.
Utility Users Tax Reimbursement Agreement
The City has a Utility Users Tax Reimbursement Agreement with Samsung Semiconductor, Inc., that will provide funding in an amount equal to 50% of the City’s 5% of net new utility user taxes received from Samsung Semiconductor for 10 consecutive years in an amount not to exceed $500,000. The agreement commenced on July 1, 2021 and expires on June 30, 2031.
Multifamily Housing Incentive Program
The City of San José introduced the Multifamily Housing Incentive Program in December 2024, it is a temporary initiative designed to accelerate stalled rental housing projects by reducing development costs.
It waives Inclusionary Housing in-lieu fees if at least 5% of units are set aside for households earning up to 100% of Area Median Income, suspends 50% of residential building construction taxes for the first 1,800 units and 25% for any additional units permitted by the end of 2025, and allows for payment of the taxes to be delayed until the issuance of the Certificate of Occupancy. The program identified 35 high-density, non- high-rise projects located within or near growth areas.
Tax Abatement Program
Amount of
Taxes Abated
(in thousands)
Downtown High-Rise Residential Incentive Program $ -
Utility Users Tax Reimbursement Agreement 138
Multifamily Housing Incentive Program 3,281
During FY 2025, no Downtown High Rise covered projects received the benefit. (Projects receive the benefit of the tax abatement at certificate of occupancy.)
In FY 2025, the City made reimbursement payments to Samsung Semiconductor that totaled $137,550 for the utility users tax reimbursement agreement.
During FY 2025, the City waived 50% of certain constructions taxes for four multifamily residential developments, 905 North Capitol, 498 West San Carlos, 0 Seely, and 358 Hatton Street that total $3,281,398.
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As of June 30, 2025, the City receives tax revenue reduction from County of Santa Clara’s tax abatement programs:
County of Santa Clara
The City’s property tax revenues are reduced by County of Santa Clara tax abatement programs authorized under State law, including the Williamson Act (land conservation) and the Mills Act (historic property preservation). For the year ended June 30, 2025, these programs decreased the City’s share of property tax revenues by approximately $221,000. The City is not a party to these agreements and has no ability to modify or approve them.
14. Labor Agreements
In 2023, collective bargaining agreements between the City and seven of the City’s bargaining units were approved by the City Council with a term of July 1, 2023, through June 30, 2026. These agreements included a 6.0% general wage increase in FY 2024, a 4.0% increase at the beginning of FY 2025 and a 1.0% increase at the beginning of calendar year 2025, and a 3.5% general wage increase in FY 2026, which could have been increased to 4.0% if certain conditions were met; however, those conditions were not met. Additionally, compensation and benefit changes consistent with those described above were approved for executive management and professional employees in Unit 99 and other unrepresented employees in Units 81/82 by the City Council.
Additionally, the City Council approved a collective bargaining agreement between the City and one of the City’s bargaining units with a term of July 1, 2023, through June 30, 2027. This agreement included a 6.0% general wage increase in FY 2024, a 4.0% increase at the beginning of FY 2025 and a 1.0% increase at the beginning of calendar year 2025, 3.5% general wage increase in FY 2026 which can be increased to 4.0% if certain conditions are met, and a 3.0% general wage increase in FY 2027.
In 2024, the City Council approved a collective bargaining agreement between the City and three of the City’s bargaining units with a term of July 1, 2024, through June 30, 2027. This agreement included a 6.0% general wage increase in FY 2025, a 4.0% increase at the beginning of FY 2026 and a 1.0% increase at the beginning of calendar year 2026, and a 3.5% general wage increase in FY 2027 which can be increased to
4.0% if certain conditions are met.
15. Pension Obligation Bonds
On October 5, 2021, the City Council adopted a resolution authorizing the issuance of bonds to refund and repay certain pension obligations, approving the form and authorizing the execution of a Trust Agreement and Bond Purchase Agreement; authorizing judicial validation proceedings relating to the issuance of such bonds and approving additional actions related thereto. The pension obligations include the unfunded liability for both the Police and Fire Department Retirement Plan and the Federated City Employees’ Retirement System Plan (“Unfunded Liability”), and the annually required retirement contributions that are due and payable within 12 months of the issuance of the bonds (“Current Obligation”). The proposed final aggregate principal amount of the bonds may not be greater than $3.5 billion or the sum of the City’s unfunded liability and current obligation as calculated by the actuary for both Retirement Plans, together with the costs of issuing the Bonds. The Trust Agreement will not constitute an obligation for which the City is obligated or permitted to levy or pledge any form of taxation or for which the City has levied or pledged or will levy or pledge any form of taxation. The validation complaint was filed on November 18, 2021. Howard Jarvis Taxpayers Association and Citizens for Fiscal Responsibility filed an answer challenging the City’s authority to issue bonds without voter approval. The trial court held a bench trial on August 22, 2022, and issued a decision on December 9, 2022 validating the City’s authority to issue pension obligation bonds. The validation
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judgment was entered on February 6, 2023 and Howard Jarvis Taxpayers Association and Citizens for Fiscal Responsibility appealed the decision. On May 9, 2024, the Court of Appeal of the Sixth Appellate District Court published an opinion that unanimously affirmed the City’s authority to issue bonds without voter approval. Howard Jarvis Taxpayers Association et al. petitioned for review, and the California Supreme Court granted review on August 14, 2024. If the City obtains a favorable judgment, the size and timing of the actual bond issuance would require the City Council’s approval of offering documents including disclosures and would be contingent on favorable market conditions. Prior to actual issuance of the pension obligation bonds, the City Council will consider adoption of a pension funding policy.
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C. Successor Agency to the Redevelopment Agency of the City of San José
1. Cash and Investments Held by SARA
The SARA’s cash and investments consist of the following at June 30, 2025 (in thousands):
Cash & Investments Amount
Cash and Investments $ 1,353
Restricted Cash and Investments 131,040
Total Cash and Investments $ 132,393
A summary of SARA’s cash and investments at June 30, 2025 is as follows (in thousands):
Maturity (in Days)
S&P’s
Credit Rating Under 30 31-180 181-365
Balance
at June 30
Investments:
LAIF Not rated $ - $ - $ 950 $ 950
Money Market Mutual Funds AAA 131,040 - - 131,040 Subtotal Investments 131,990
Bank Deposits 403
Total Cash and Investments $ 132,393
The LAIF is part of the State’s Pooled Money Investment Account that allows cities, counties and special districts to place money into the fund. LAIF operating accounts allow 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. 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.
The SARA categorizes its fair value measurements within the fair value hierarchy established by GAAP . The 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 SARA’s investments in Money Market Mutual Funds and LAIF are not subject to the fair value hierarchy.
2. Loans Receivable Held by SARA
As of June 30, 2025 the SARA has $14,945,000 of outstanding loans receivable, and an allowance for doubtful accounts of $10,958,000. $1,654,000 of the allowance for doubtful accounts is recorded in the anticipation that certain loans will be forgiven, as is allowable under the terms and conditions of said loans, if the borrower maintains compliance to the terms and conditions. On September 17, 2025, SARA received approval from the California Department of Finance (DOF) to write off the uncollectible loan balance of $4,915,000 in FY 2026. The remainder of the allowance was recorded for loans where the likelihood of payment criteria being met is questionable.
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3. Capital Assets Held by SARA
The following is a summary of capital assets activity for the year ended June 30, 2025 (in thousands):
July 1, 2024 Addition Disposal Transfer June 30, 2025 Capital Assets, Not Being Depreciated:
Land $ 2,078 $ - $ - $ - $ 2,078
Total Capital Assets, Not Being Depreciated 2,078 - - - 2,078
Capital Assets, Being Depreciated:
Buildings 1,071 - - - 1,071
Less Accumulated Depreciation:
Buildings (482) (27) - - (509)
Total Capital Assets, Being Depreciated, net 589 (27) - - 562 Total Capital Assets, net $ 2,667 $ (27) $ - $ - $ 2,640
On August 27, 2015, the Oversight Board approved a revised Asset Disposition Schedule for the non- governmental purpose properties listed on the Long-Range Property Management Plan (“LRPMP”), and approved the Disposition Process For Sale of Properties, which requires the sale of assets either through an open and competitive solicitation process or through a direct sale to the affected taxing entities or a non-profit organization. Additional amendments to the Asset Disposition Schedule were approved by the Oversight Board on January 14, 2016, April 28, 2016, October 27, 2016, and April 13, 2017.
4. Summary of SARA’s Long-Term Debt
The following is a summary of long-term debt of the SARA as of June 30, 2025 (in thousands):
Type of Indebtedness Purpose
Original
Issue
Amount Issue Date
Maturity
Date
Interest
Rate
Range
Annual Principal
Installments
June 30,
2025
Balance
Senior Tax Allocation Bonds:
2017 Refunding Bonds Series A
Refunding - merged
area projects $ 79,825 12/21/2017 8/1/2035 5.00% $0 - 53,810 $ 79,825 2017 Refunding Bonds Series A-T
Refunding - merged
area projects 1,333,325 12/21/2017 8/1/2034 3.08-3.38% $32,910 - 93,735 798,630 Total Senior Tax Allocation Bonds 878,455
Subordinate Tax Allocation Bonds:
2017 Refunding Bonds Series B
Refunding - merged
area projects 264,390 12/21/2017 8/1/2029 5.00% $7,820 - 29,835 102,805 Total Subordinate Tax Allocation Bonds 102,805 Total Long-Term Debt $ 981,260
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A summary of the changes in long-term debt for the year ended June 30, 2025 follows (in thousands):
June 30, 2024 Additions Reductions June 30, 2025
Amount Due
Within One Year
Senior Tax Allocation Bonds:
2017 Refunding Bonds Series A $ 79,825 $ - $ - $ 79,825 $ - 2017 Refunding Bonds Series A-T 878,310 - (79,680) 798,630 82,035 Subtotal Senior Tax Allocation Bonds 958,135 - (79,680) 878,455 82,035
Subordinate Tax Allocation Bonds:
2017 Refunding Bonds Series B 128,580 - (25,775) 102,805 27,065 Subtotal Subordinate Tax Allocation Bonds 128,580 - (25,775) 102,805 27,065
Subtotal Long-Term Debt, Unamortized 1,086,715 - (105,455) 981,260 109,100 Issuance Premium (Discount), Net 23,798 - (4,204) 19,594 4,204 Total Long-Term Obligations $ 1,110,513 $ - $ (109,659) $ 1,000,854 $ 113,304 RPTTF revenue distributed by the County to the SARA in FY 2025 was $143,060,000 which was assigned to pay recognized payment obligations, including debt service and debt related expenses on the Successor Agency Senior and Subordinate Tax Allocation Refunding Bonds, SARA administrative costs, and other enforceable obligations. During FY 2025, total RPTTF revenue collected by the County was $448,078,000.
After payment of County Administrative fees totaling $3,758,000, the balance is distributed based on the Health and Safety Code unless such payments have been subordinated to the payment of debt service on the 2017 Senior Tax Allocation Refunding Bonds described in the following section, as is the case with all agencies except for the senior pass-through payments due to San José Unified School District ($14,086,000).
After meeting obligations to make debt service payments on the 2017 Bonds, subordinated pass-through payments are made to the County ($58,617,000), Basic Aid ($489,000) and other taxing entities ($49,455,000).
With the residual balance ($178,614,000) distributed to taxing entities.
All summaries of documents related to debt contained in this Note 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 Note is qualified in its entirety by reference to such document, which is on file with the SARA’s Chief Financial Officer.
2017 Tax Allocation Refunding Bonds
On December 21, 2017, the SARA issued refunding bonds (“2017 Refunding Bonds”) pursuant to an Indenture of Trust dated as of December 1, 2017 (“2017 Indenture”), by and between the SARA and Wilmington Trust, National Association, as trustee (“Trustee”). The 2017 Refunding Bonds were issued in the aggregate original principal amount of $1,677,540,000, in two senior series and one subordinate series. The senior series bonds, collectively referenced herein as 2017 Senior Tax Allocation Refunding Bonds, consist of $79,825,000 original principal amount of the tax-exempt senior lien 2017 Series A Bonds Senior Tax Allocation Refunding Bonds (“2017A Bonds”) and $1,333,325,000 original principal amount of taxable senior lien 2017 Series A-T Bonds Senior Taxable Tax Allocation Refunding Bonds (“2017A-T Bonds”). The subordinate series bonds, referred to herein as 2017 Subordinate Tax Allocation Refunding Bonds, consist of $264,390,000 original principal amount of tax-exempt subordinate lien 2017 Series B Bonds Tax Allocation Refunding Bonds.
Proceeds of the 2017 Refunding Bonds were used to (i) redeem, defease, or prepay all of the former Agency’s then outstanding tax allocation bonds and reimbursement obligations under an agreement entered into in connection with the Financing Authority’s Revenue Bonds, Series 2001A (4 th and San Fernando Parking Facility Project) and Lease Revenue Bonds, Series 2001F (Convention Center Refunding Project)(Refunded Obligations), and (ii) pay the costs of issuing the 2017 Refunding Bonds, including the cost of debt service
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reserve insurance policies. The refunding resulted in a difference between the reacquisition price (the amount required to repay previously issued debt in a refunding transaction) and the net carrying amount of the Refunded Obligations. This difference was reported as deferred outflows of resources in the statement of fiduciary net position and is being amortized over the next 11 years.
The 2017 Refunding Bonds are secured and payable from Tax Revenues and certain funds and accounts held by the Trustee. Tax Revenues are generally defined in the 2017 Indenture as the portion of property tax revenues collected in the Merged Project Area derived from incremental growth in assessed property values over the initial base year values in each of 17 component areas of the Merged Project Area, less certain County administrative fees, the AB1290 statutory pass-through payment to the San José Unified School District and amounts collected pursuant to the pension override or State Water Project override provisions of the Redevelopment Dissolution Law, if any. All other AB1290 statutory pass-through payments and the negotiated pass-through payments to Santa Clara County are subordinate to the payment of debt service on the 2017 Refunding Bonds and other debt service related obligations under the 2017 Indenture. Under the distribution provisions of the Redevelopment Dissolution Law, AB1290 statutory pass-through payments and negotiated pass-through payments are made from funds on deposit in the RPTTF before funds are transferred to the SARA for the payment of enforceable obligations (including payment of debt service on the 2017 Refunding Bonds) unless there are insufficient funds to pay such debt service and other payment obligations under the 2017 Indenture and certain other conditions are satisfied. Such conditions include the timely filing of a Notice of Insufficiency by the SARA in accordance with the Redevelopment Dissolution Law and the concurrence by the State Controller that there are insufficient funds for such purpose. The SARA has covenanted in the 2017 Indenture to comply with the provisions of the Redevelopment Dissolution Law related to placing its obligations under the 2017 Indenture on the recognized obligations under the 2017 Indenture throughout the term of the 2017 Refunding Bonds and, if applicable, file a Notice of Insufficiency in the event that there are insufficient Tax Revenue to make payment of debt service or other payment obligations under the 2017 Indenture.
The SARA has covenanted in the 2017 Indenture to take such actions as required under the Redevelopment Dissolution Law to include in each annual Recognized Obligation Payment Schedule the amount of debt service on the 2017 Refunding Bonds so as to enable the County Auditor-Controller to distribute from the RPTTF to SARA on each January 2 and June 1 the amounts required for the SARA to pay principal of, and interest on, the 2017 Refunding Bonds coming due in the respective six-month period following such distribution dates. These actions will include, without limitation, placing on the periodic Recognized Obligation Payment Schedule for approval by the Oversight Board and State Department of Finance the amounts to be held by the SARA as a reserve until the next six-month period, as contemplated by the Redevelopment Dissolution Law, that are necessary to comply with the 2017 Indenture.
Separate municipal bond debt service reserve policies issued by Build America Mutual Assurance Company (“BAM”) were deposited in the Senior Bonds Reserve Account of the Bond Reserve Fund for the 2017 Senior Tax Allocation Refunding Bonds (“2017 Senior Bonds Reserve Policy”) and in the Subordinate Bonds Reserve account of the Bond Reserve Fund for the 2017 Subordinate Tax Allocation Bonds (“2017 Subordinate Bonds Reserve Policy”). The 2017 Senior Bonds Reserve Policy was issued in the original stated amount of $112,102,000, to satisfy the Senior Bonds Reserve Requirement under the 2017 Indenture on the date the 2017 Senior Tax Allocation Refunding Bonds were issued. The 2017 Subordinate Bonds Reserve Policy was issued in the original stated amount of $30,978,000, to satisfy the Subordinate Bonds Reserve Requirement under the 2017 Indenture on the date the 2017 Subordinate Tax Allocation Refunding Bonds were issued.
The 2017 Senior Bonds Reserve Policy will terminate the earlier to occur of (i) the date on which the 2017 Senior Tax Allocation Refunding Bonds are no longer outstanding under the 2017 Indenture; or (ii) August 1, 2035. The FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
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NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
2017 Subordinate Bonds Reserve Policy will terminate the earlier to occur of (i) the date on which the 2017 Subordinate Tax Allocation Refunding Bonds are no longer outstanding under the Indenture; or (ii) August 1, 2029. Per the terms of the 2017 Indenture, the SARA is not obligated to replace either reserve policy or to fund either reserve account with cash if, at any time that the 2017 Senior Tax Allocation Refunding Bonds or 2017 Subordinate Tax Allocation Refunding Bonds are outstanding, amounts are not available under such policy or if the rating of the claims-paying ability of BAM is downgraded, suspended or withdrawn.
The 2017 Senior Tax Allocation Refunding Bonds are rated “AA” by S&P Global Ratings and “AA+” by Fitch Ratings and the 2017 Subordinate Tax Allocation Refunding Bonds are rated “AA-” by S&P Global Ratings and “AA+” by Fitch Ratings.
2017 Senior Tax Allocation Refunding Bonds - The 2017 Senior Tax Allocation Refunding Bonds were issued in two series – the tax-exempt 2017A Bonds and the taxable 2017A-T Bonds, with a parity senior lien on Tax Revenues. The 2017A Bonds are structured as two serial maturities in 2034 and 2035; both maturities bear interest at 5% per annum. The 2017A-T Bonds are structured as serial maturities in 2018 through and including 2029 and a term bond of $361,845,000 maturing in 2034 (which term bond is subject to mandatory payment of principal beginning on August 1, 2030 through final maturity on August 1, 2034). The 2017A-T Bonds bear interest at rates ranging from 1.898% to 3.375% per annum. The 2017A and the 2017A-T Bonds maturing on and after August 1, 2028 are subject to redemption at the option of the SARA on or after August 1, 2027 at par. The 2017A Bonds have $79,825,000 in principal subject to call and the 2017A-T Bonds have approximately $544,790,000 in principal subject to redemption at the option of the SARA. The total debt service payments on the 2017 Senior Tax Allocation Refunding Bonds was $110,919,000 for the year ended June 30, 2025.The principal and interest remaining on the 2017 Senior Tax Allocation Refunding Bonds as of June 30, 2025 is $1,041,583,000. 2017 Subordinate Tax Allocation Refunding Bonds - The 2017 Subordinate Tax Allocation Refunding Bonds are structured as serial tax-exempt bonds with maturities in 2018 through 2029; and bear interest at rates ranging from 2% to 5% per annum. The 2017 Subordinate Tax Allocation Refunding Bonds are subject to redemption at the option of the SARA on or after August 1, 2027 at par. In total, nearly $17,490,000 in principal is subject to this ten-year par call. The 2017 Subordinate Tax Allocation Refunding Bonds are payable from Tax Revenues on a subordinate basis to the 2017 Senior Tax Allocation Refunding Bonds. The debt service payment on the 2017 Subordinate Tax Allocation Refunding Bonds was $31,560,000 for the year ended June 30, 2025. The principal and interest remaining on the 2017 Subordinate Tax Allocation Refunding Bonds as of June 30, 2025 is $112,886,000. 2017 Refunding Bonds - Events of Default - The events of default under the 2017 Indenture for the 2017 Refunding Bonds are: (i) failure to pay debt service when due; (ii) failure to comply with covenants and conditions of the 2017 Indenture or the 2017 Refunding Bonds or any Senior Parity Debt Instrument or Subordinate Parity Debt Instrument (as those terms are defined in the 2017 Indenture) and such default shall have continued for a period of 30 days following SARA’s receipt from the Trustee or any bond owner of written notice of the occurrence of such default, provided that if in SARA’s reasonable opinion the failure stated in the notice can be corrected, but not within such 30 day period, such failure will not constitute an event of default if corrective action is instituted by the SARA within such 30 day period and SARA thereafter diligently and in good faith cures such failure in a reasonable period of time; and (iii) bankruptcy or similar debtor relief proceedings. Upon the occurrence and during the continuance of an event of default under the 2017 Indenture, the Trustee may, or, if requested by the owners of a majority of the principal amount of the outstanding 2017 Senior Tax Allocation Refunding Bonds (for events of default with respect to the 2017 Senior Tax Allocation Refunding Bonds) or the 2017 Subordinate Tax Allocation Refunding Bonds (for events of default with respect to the 2017 Subordinate Tax Allocation Refunding Bonds), as applicable, shall, subject to the provisions of the 2017 Indenture, exercise any remedies available to the Trustee in law or at equity. The 2017 Indenture does not provide for acceleration of payment of the 2017
INTRODUCTORY
SECTION
FOR THE YEAR ENDED JUNE 30, 2025
ANNUAL COMPREHENSIVE FINANCIAL REPORT
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FINANCIAL
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NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2025
Refunding Bonds. The 2017 Indenture, however, provides for application of Tax Revenues upon an event of default in the order of priority set forth in the 2017 Indenture.
Debt Service Requirements - The debt service requirements for all debt are based upon a fixed rate of interest.
The annual requirements to amortize outstanding tax allocation bonds outstanding at June 30, 2025, including mandatory sinking fund payments, are as follows (in thousands):
Year Ending
June 30 Principal Interest
2026 $ 109,100 $ 33,262
2027 112,975 29,271
2028 117,080 25,064
2029 97,885 21,308
2030 102,550 17,955
2031-2035 387,860 45,004
2036 53,810 1,345
Total $ 981,260 $ 173,209
Tax Sharing Agreement with the County of Santa Clara - Prior to 1994, the Redevelopment Law authorized redevelopment agencies to enter into tax sharing agreements with school districts and other taxing agencies to alleviate any financial burden or detriments to such taxing agencies caused by a redevelopment project. In 1983, the Agency and County entered into a tax sharing agreement (“Original Agreement”) under which the Agency would pay a portion of tax increment revenue generated in the Merged Area (“County Pass-Through Payment”). On December 16, 1993, the Agency, the County, and the City entered into a settlement agreement, which continued the County Pass-Through Payment.