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AC 02-24-2022 Searchable Packet
CITY OF CUPERTINO AUDIT COMMITTEE AGENDA This will be a teleconference meeting without a physical location. Thursday, February 24, 2022 4:00 PM Amended Amended on February 18, 2022 at 9:00a.m. to correct the meeting location to a teleconference location. TELECONFERENCE / PUBLIC PARTICIPATION INFORMATION TO HELP STOP THE SPREAD OF COVID-19 In accordance with Government Code 54953(e), this will be a teleconference meeting without a physical location to help stop the spread of COVID-19. Members of the public wishing comment on an item on the agenda may do so in the following ways: 1) E-mail comments by 4:00 p.m. on Wednesday, February 23 to the Audit Committee at AuditCommittee@cupertino.org. These e-mail comments will be received by the Audit Committee members before the meeting and posted to the City’s website after the meeting. 2) E-mail comments during the times for public comment during the meeting to the Audit Committee at AuditCommittee@cupertino.org. The staff liaison will read the emails into the record, and display any attachments on the screen, for up to 3 minutes (subject to the Chair’s discretion to shorten time for public comments). Members of the public that wish to share a document must email AuditCommittee@cupertino.org prior to speaking. 3) Teleconferencing Instructions Members of the public may observe the teleconference meeting or provide oral public comments as follows: Oral public comments will be accepted during the teleconference meeting. Comments may be made during “oral communications” for matters not on the agenda, and during the public comment period for each agenda item. To address the Audit Committee, click on the link below to register in advance and access the meeting: Page 1 1 Audit Committee Agenda February 24, 2022 Register in advance for this webinar: https://cityofcupertino.zoom.us/webinar/register/WN_dMwQY31uSp6gW15xO5XKSQ Phone Dial: 669-900-6833 and enter Webinar ID: 993 1099 7627 (Type *9 to raise hand to speak, *6 to unmute yourself). Unregistered participants will be called on by the last four digits of their phone number. Or an H.323/SIP room system: H.323: 162.255.37.11 (US West) Meeting ID: 993 1099 7627 SIP: 94164589868@zoomcrc.com After registering, you will receive a confirmation email containing information about joining the webinar. Please read the following instructions carefully: 1. You can directly download the teleconference software or connect to the meeting in your internet browser. If you are using your browser, make sure you are using a current and up-to-date browser: Chrome 30+, Firefox 27+, Microsoft Edge 12+, Safari 7+. Certain functionality may be disabled in older browsers, including Internet Explorer. 2. You will be asked to enter an email address and a name, followed by an email with instructions on how to connect to the meeting. Your email address will not be disclosed to the public. If you wish to make an oral public comment but do not wish to provide your name, you may enter “Cupertino Resident” or similar designation. 3. When the Chair calls for the item on which you wish to speak, click on “raise hand.” Speakers will be notified shortly before they are called to speak. 4. When called, please limit your remarks to the time allotted and the specific agenda topic. In compliance with the Americans with Disabilities Act (ADA), anyone who is planning to attend this teleconference meeting who is visually or hearing impaired or has any disability that needs special assistance should call the City Clerk's Office at 408-777-3223, at least 6 hours in advance of the meeting to arrange for assistance. In addition, upon request, in advance, by a person with a disability, meeting agendas and writings distributed for the meeting that are public records will be made available in the appropriate alternative format. Page 2 2 Audit Committee Agenda February 24, 2022 REGULAR MEETING ROLL CALL ORDERS OF THE DAY APPROVAL OF MINUTES 1.Subject: Approve Minutes of Regular Meeting on January 24, 2022 and January 25, 2022 Recommended Action: Approve Minutes of Regular Meeting on January 24, 2022 and January 25, 2022 Draft Minutes 1.24.22 Draft Minutes 1.25.22 ORAL COMMUNICATIONS This portion of the meeting is reserved for persons wishing to address the Committee on any matter within the jurisdiction of the Committee and not on the agenda. Speakers are limited to three (3) minutes. In most cases, State law will prohibit the Commission from making any decisions with respect to a matter not on the agenda. NEW BUSINESS 2.Subject: Appointment of Audit Committee Chair and Vice Chair Recommended Action: Appointment of Audit Committee Chair and Vice Chair 3.Subject: Audit Committee Regular Meeting Frequency Recommended Action: Audit Committee Regular Meeting Frequency Proposed Audit Committee 2022 Schedule and Work Plan 4.Subject: Treasurer’s Report for Quarter Ending December 31, 2021 Recommended Action: Treasurer’s Report for Quarter Ending December 31, 2021 Staff Report A - Treasurer's Report 12.31.2021 B - WF Custodial Statement 12.31.21 C - Workers Compensation Statement 12.31.21 D - WF Operating Statement 12.31.21 E - LAIF Statement 12.31.21 5.Subject: Review of FY 2020-21 ACFR and Supplemental Reports Recommended Action: Review of FY 2020-21 ACFR and Supplemental Reports Page 3 3 Audit Committee Agenda February 24, 2022 A - Cupertino ACFR Draft 2021 B - Cupertino GANN AUP 2021 Draft C - Cupertino Investment AUP 2021 Draft D - Cupertino SAS 114 2021 Draft E - Cupertino Storm Drain AUP 2021 Draft 6.Subject: Internal Audit - Procurement Review Recommended Action: Internal Audit - Procurement Review Internal Audit - Procurement Operational Review Report 7.Subject: Budget Format Review Recommended Action: Budget Format Review 8.Subject: Treasurer’s Report Definition and Process Recommended Action: Treasurer’s Report Definition and Process Monthly Treasurer's Report Submission Process 9.Subject: External/Internal Audit Process and Timing Recommended Action: External/Internal Audit Process and Timing External-Internal Audit Process and Timing OLD BUSINESS STAFF AND COMMITTEE REPORTS 10.Subject: Staff report out on City Council Workshop on Commissions and Committees Workshop Recommended Action: Staff report out on City Council Workshop on Commissions and Committees Workshop FUTURE AGENDA SETTING ADJOURNMENT In compliance with the Americans with Disabilities Act (ADA), anyone who is planning to attend this teleconference meeting who is visually or hearing impaired or has any disability that needs special assistance should call the City Clerk's Office at 408-777-3223, at least 48 hours in advance of the meeting to arrange for assistance. In addition, upon request, in advance, by a person with a disability, meeting agendas and writings distributed for the meeting that are public records will be made available in the appropriate alternative format. Any writings or documents provided to a majority of the members after publication of the agenda will be made available for public inspection. Please contact the City Clerk’s Office in City Hall located at Page 4 4 Audit Committee Agenda February 24, 2022 10300 Torre Avenue, Cupertino, California 95014, during normal business hours. IMPORTANT NOTICE: Please be advised that pursuant to Cupertino Municipal Code section 2.08.100 written communications sent to the Cupertino City Council, Commissioners or City staff concerning a matter on the agenda are included as supplemental material to the agendized item. These written communications are accessible to the public through the City’s website and kept in packet archives. Do not include any personal or private information in written communications to the City that you do not wish to make public, as written communications are considered public records and will be made publicly available on the City website. Members of the public are entitled to address the members concerning any item that is described in the notice or agenda for this meeting, before or during consideration of that item. If you wish to address the members on any other item not on the agenda, you may do so during the public comment. Page 5 5 CITY OF CUPERTINO Agenda Item 22-10512 Agenda Date: 2/24/2022 Agenda #: 1. Subject: Approve Minutes of Regular Meeting on January 24, 2022 and January 25, 2022 Approve Minutes of Regular Meeting on January 24, 2022 and January 25, 2022 CITY OF CUPERTINO Printed on 2/18/2022Page 1 of 1 powered by Legistar™6 Page 1 City of Cupertino Audit Committee Special Meeting Minutes January 24, 2022 CALL TO ORDER At 4:00 p.m., Chair Liang called the special meeting to order. This was a teleconference meeting with no physical location. ROLL CALL Committee Members Present: Chair Daisy Liang, Vice Chair Angela Chen, Mayor Darcy Paul, Councilmember Moore City Staff Present: Kristina Alfaro, Zach Korach Absent: Committee Member Song, Vice Mayor Chao Guests: Chris McCarry from Chandler, Rick Rosenthal from US Bank, Ryan Maxey from US Bank, Jennifer Meza - PARS 1. APPROVAL OF MINUTES Vice Chair Chen moved to approve the regular meeting minutes of December 13, 2021. Councilmember Moore seconded and the motion carried unanimously by all members present. ORAL COMMUNICATIONS None. NEW BUSINESS 2. Treasurer’s Report for Quarter Ending December 31, 2021 – 63 minutes Zach Korach updated the Committee on California Government Code Section 41004 and the establishment and submission of monthly reports of city receipts, disbursements, and fund balances; noting that it appears to have been oversight and the code was amended early 2018. Korach reached out to several jurisdictions in Santa Clara County and only one was identified as maintaining compliance, moving forward staff plan to maintain compliance on a prospective basis. Mayor Paul asked for clarification. Korach noted that this report is separate from the Treasurer’s report, the quarterly Investment reports are governed by Government Code Section 53646, and that there is no preferred practice in presenting and compiling the information for monthly basis. Mayor Paul expressed concern regarding the process of compliance and wants to figure out a workflow process for these obligations. Korach clarified that staff was unaware of this code provision and intends to maintain compliance as soon as possible. Councilmember Moore read Government Code 2.24.030 and redirected that this item is to speak on the Treasurer’s report. Chair Liang noted that at the last meeting she requested to review bank reconciliation and have it submitted to the Committee. Mayor Paul asked how staff will properly notice this issue for discussion and roll it out for the council and public. Mayor Paul and Councilmember Moore said they will save this for future agenda meeting segment. 7 Page 2 Korach turned it over to Chris McCarry from Chandler to present the City’s portfolio. Chris noted that there continues to be market volatility due to COVID, with each new wave of the virus the impact on the economy has lessen and we are returning to pre-pandemic levels. Pricing pressures have caused the Feds to adjust their policy and have increased the tapering of the ir asset purchases. Chandler and the Market anticipates three or four rate rises in 2022. McCarry noted that the portfolio is in compliance with California code as well as with the City’s investment policy. Mayor Paul inquired about the percentage decrease over 12 months. McCarry confirmed and noted that it is an unrealized gain built into the portfolio. Mayor Paul asked what is 1% of the portfolio and McCarry answered $139,000. Chair Liang asked what the return is and McCarry answered -0.97% and an unrealized gain of $163,000. Korach noted that the attachments are supporting documents pertaining to the Treasurer’s staff report. Chair Liang questioned the CD’s $15 million transfer. Korach clarified that on a quarterly basis staff provides additional investment or cash equivalent balance information outside of what our vendors provide, and this allows for oversight of the city’s cash flow. Chair Liang asked if there are any new special project or capital improvement projects proposed in 2022. Zach noted that the information is not available yet and the $10 million in park dedication in-lieu fund is restricted for parks. Mayor Paul brought up the issue of appropriating the allocation of funds for projects before Council or public input. Korach clarified fund restrictions and that because no capital projects have been proposed pertaining to the park dedication fund, no determination was made. Councilmember Moore asked if a policy could be presented regarding the geography and beneficiary of the in- lieu fees and that the paragraph located at the top of page 12 to be simplified. Councilmember Moore also asked for a policy related to the handling of money within this budget as a future agenda item. Vice Chair inquired about discussion on ending fund balances from the previous year and if the statement balance is above or beyond fund balance. Korach noted that the Annual Comprehensive Financial Report has a detailed footnote disclosure pertaining to fund balances across the city as of June 30, 2021, and fund balance analysis are also located in the city’s quarterly budget financial reports. Vice Chair Chen asked if the staff report is accepted, will they also be approving the $15 million transfer. Korach confirmed that the transaction was brought forward to the committee for approval before the transfer would be made. Councilmember Moore took issue with the staff report and that the recommendation is unclear as it doesn’t highlight the requests. Mayor Paul seconded the issue. Mayor Paul motioned for approval of the staff recommendation except for the $15 million transfer and for the Audit Committee to recommend to City Council the topic of the in-lieu fee for park dedication from the West Port Project be considered at their first available meeting. Councilmember Moore suggested that we do not accept the Treasurer’s report and for it to return with changes made. Mayor Paul amended his motion to not accept the Treasurer’s report and referred the park dedication fee for the Westport project to City Council. Councilmember Moore seconded the action. Mayor Paul inquired if there were time sensitivity related to approval of this report. Korach referenced Government Code Section 53646 Section B-1 that states that the Treasurer or Chief Fiscal Officer may render quarterly reports to the legislative body of the local agency and submitted within 30 days following the end of the quarter covered by the report. Staff has always maintained compliance and bring this item back to the February meeting. Chair Liang wanted to confirm that the report 8 Page 3 will not be accepted and brought back to the next meeting and asked for roll call. Motion was carried unanimously by all members present except for Committeemember Song. 3. US Bank Performance Report for Quarter Ending December 31, 2021 – 13 minutes Rick from US Bank presented on the year-end performance results. Items that had growth in 2020 started to become rocky in 2021. Rick and Zach analyzed what the 2021 projected return could have been based on US Banks capital market assumption which was 5.25% expected rate of return and US Bank was able to double it. Chair Liang inquired about the rate of return and if we have met our goal. Rick confirmed that the rate of return was exceeded in every period and equity has a huge impact on the portfolio and the market has shifted to a defensive posture. Mayor Paul moved to accept the report and that item 4 be continued within 24 hours and directed staff to check in with the City’s Attorney’s Office. Councilmember Moore seconded and asked that the monthly reporting to be an agenda item for the next meeting. Korach informed the Committee that item 4 has no attachments as staff wanted to bring the City’s externals auditors to the meeting today to provide an introduction and a briefing to the Committee on what to expect when the drafts become available for the Committee’s review. Motion was carried unanimously by all members present except for Committeemember Song. 4. FY 2020-21 AFCR and Supplemental Reports – Continued to 1/25/2022 Audit Committee continuation meeting OLD BUSINESS None. STAFF AND COMMITTEE REPORTS None. FUTURE AGENDA SETTING None. ADJOURNMENT The meeting adjourned at 5:30 p.m. Recording Secretary: Janet Liang, Administrative Assistant 9 Page 1 City of Cupertino Audit Committee Special Meeting Minutes January 25, 2022 CALL TO ORDER At 4:00 p.m., Vice Chair Chen called the special meeting to order. This was a teleconference meeting with no physical location. ROLL CALL Committee Members Present: Chair Liang, Vice Chair Chen, Mayor Paul, Councilmember Moore City Staff Present: Jim Throop, Kristina Alfaro, Zach Korach Absent: Vice Mayor Chao, Committee Member Song Guests: Kathy Lai and Matt Geerdes from Crowe APPROVAL OF MINUTES None. ORAL COMMUNICATIONS None. NEW BUSINESS 4. FY 2020-21 ACFR and Supplemental Reports (Continued from 1/24/2022 meeting) – 49 minutes Korach reported that there are no attachments as the draft is currently being reviewed and plan to bring it to the February Audit Committee meeting. Lai informed the Committee that Crowe is engaged to do a financial audit of the city to determine whether financial statements are in accordance with the Generally Accepted Accounting Principles (GAAP). Lai mentioned that there were over $2 million expended in federal grants for June 30, 2021 and identified the Coronavirus State and Local Fiscal Recovery Funds (CLFRF) and Highway Planning and Construction (HPC) as programs they are testing. Lai advised looking at their audit unmodified opinion and that is where it will state that the financial statements are fairly stated in accordance with generally accepted accounting principles, and this indicates good news. Lai noted that their procedures for the investment AUP and GANN AUP are complete, no findings were noted, and the reports are being reviewed. Councilmember Moore inquired as to how we would go about having an audit of the budget. Lai noted that their scope is related to their actuals and if it’s reported in accordance with the GAAP. City Manager Throop reported that the budget is built to standards of a City Council and the GFOA will review the budgets to make sure they align with accepted procedures and best practices for budgets. Korach confirmed that the city applies for both the GFOA and the CSMFO budget award for excellence and has received it every year. Korach recommended working with internal auditors on performance audits with the Audit Committee, City Council, 10 Page 2 and future inclusion in the internal audit work plan. Mayor Paul suggested that we have an internal award system to see whether the Audit Committee is satisfied with that level of compliance. Mayor Paul asked Crowe for a timeline of point items for the year to supplement the slides presented. Vice Chair Chen inquired about Intra Fund Transfers (IFTs) and if they were documented in the footnotes and if Crowe checks on IFTs on compliance. Lai noted that IFTs are reflected in the operating statement for the respective funds and more details can be found in a separate footnote which is subject to their audit. Geerdes added that there is an extensive schedule that documents specifically what fund transfers between the two as well as a description on what it was for. Lai clarified that it is footnote 4. Zach noted that every transfer that is made has to be tied to an appropriation that is authorized in the adopted budget or subsequent budget actions approved by City Council. Vice Chair Chen questioned the IFT loans and if the footnotes journal the IFT transfers that are made after the budget. Lai says they do not have that level of detail , GAAP does not require that detail, and will research the budgetary and review and approval process. Councilmember Moore questions how much transfers can happen and what the limitations are as the City’s processes are too flexible . Alfaro stated that the City of Cupertino’s policy is aligned with the majority of other cities in Santa Clara County. Chair Liang inquired as to what the current policy for Intra-Fund transfers between accounts. Alfaro stated that transfers in the same fund can be approved administratively by the City Manager this includes between departments and line items. Intra-Fund transfers and transfers that result in an increase to the budget are approved by City Council and the policy is located in the financial policies in the budget book. Mayor Paul asked what the process is to change that policy and requested for two quarters worth of information. Councilmember Moore questioned the $593,000 in the City Manager’s discretionary fund and the 2.5% that is built into the department’s budget. City Manager Throop clarified that the dollar amounts in the general fund and budget are different. Korach mentioned that the draft reports are still in draft form and will be agendized for the before the next regular February meeting. Mayor Paul moved to not accept any reports under this item. Chair Liang seconded. Motion was carried unanimously by all members present except for Committeemember Song. OLD BUSINESS None. STAFF AND COMMITTEE REPORTS Mayor Paul requested information on subcommittees for the Audit Committee and its committee members. Korach noted that there is a budget subcommittee with Councilmember Moore and Chair Liang as members. FUTURE AGENDA SETTING None. ADJOURNMENT The meeting adjourned at 5:30 p.m. 11 Page 3 Recording Secretary: Janet Liang, Administrative Assistant 12 CITY OF CUPERTINO Agenda Item 22-10513 Agenda Date: 2/24/2022 Agenda #: 2. Subject: Appointment of Audit Committee Chair and Vice Chair Appointment of Audit Committee Chair and Vice Chair CITY OF CUPERTINO Printed on 2/18/2022Page 1 of 1 powered by Legistar™13 CITY OF CUPERTINO Agenda Item 22-10514 Agenda Date: 2/24/2022 Agenda #: 3. Subject: Audit Committee Regular Meeting Frequency Audit Committee Regular Meeting Frequency CITY OF CUPERTINO Printed on 2/18/2022Page 1 of 1 powered by Legistar™14 January 24, 2022 February 24, 2022 March 21, 2022 April 25, 2022 May 23, 2022 June 27, 2022 July 25, 2022 August 22, 2022 September 26, 2022 October 24, 2022 November 28, 2022 December 12, 2022 Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Approve Prior Meeting Minutes Treasurerʹs Report for Quarter Ending December 31, 2021 Internal Audit Update Monthly Treasurerʹs Report for January and February 2022 Treasurerʹs Report for Quarter Ending March 31, 2022 Monthly Treasurerʹs Report for March 2022 Internal Audit Update Monthly Treasurerʹs Report for January and May 2022 Treasurerʹs Report for Quarter Ending June 30, 2022 Monthly Treasurerʹs Report for June 2022 Internal Audit Update Monthly Treasurerʹs Report for August 2022 Treasurerʹs Report for Quarter Ending September 30, 2022 Monthly Treasurerʹs Report for September 2022 Internal Audit Update Monthly Treasurerʹs Report for November 2022 OPEB & Pension Section 115 Trust Performance Report for Quarter Ending December 31, 2021 Budget Format Review OPEB & Pension Section 115 Trust Performance Report for Quarter Ending March 31, 2022 Budget Format Review OPEB & Pension Section 115 Trust Performance Report for Quarter Ending June 30, 2022 External Audit Subcommittee and RFP Kickoff OPEB & Pension Section 115 Trust Performance Report for Quarter Ending September 30, 2022 ACFR and AUP Draft Review/Update Review of FY 2020‐ 21 ACFR and Supplemental Reports Annual Review of City Investment Policy Monthly Treasurerʹs Report for April 2022 Monthly Treasurerʹs Report for July 2022 Annual Review of Pension and OPEB Trust Investment Policy Monthly Treasurerʹs Report for October 2022 Committee Input to Independent Auditor on Interim Audit and AUP Engagements Follow‐up on Previous Fiscal Year Management Letter Items and Management Responses Source: Cupertino, CA Municipal Code, Chapter 2.88.100: Audit Committee The powers and functions of the Audit Committee shall be as follows: A: To review the annual audit report and management letter; B: To recommend appointment of auditors; C To review the monthly Treasurer’s report; D To recommend a budget format; E To review City investment policies and internal controls of such policies F To recommend appointment of internal auditors; G To review internal audit reports (Ord 20-2208, § 1, 2020; Ord 1679, § 1 (part), 1995 CITY OF CUPERTINO ‐ AUDIT COMMITTEE 2022 SCHEDULE AND WORK PLAN Summary of Duties – Powers – Responsibilities of Cupertino Audit Committee 15 CITY OF CUPERTINO Agenda Item 22-10515 Agenda Date: 2/24/2022 Agenda #: 4. Subject: Treasurer’s Report for Quarter Ending December 31, 2021 Treasurer’s Report for Quarter Ending December 31, 2021 CITY OF CUPERTINO Printed on 2/18/2022Page 1 of 1 powered by Legistar™16 ADMINISTRATIVE SERVICES DEPARTMENT CITY HALL 1 10300 TORRE AVENUE • CUPERTINO, CA 95014-3255 TELEPHONE: (408) 777-3227 www.cupertino.org AUDIT COMMITTEE STAFF REPORT Meeting: February 24, 2022 Subject Treasurer’s Investment Report for period ending December 31, 2021 Recommended Action Accept staff report and provide recommendations. Discussion Background The City retained Chandler Asset Management (Chandler) through a formal Request for Proposal (RFP) process in 2018. Chandler began their work with the City in the winter of 2018, conducting multiple meetings with staff to determine an investment structure and strategy. Using an assumption for the compound annualized growth rate (CAGR) of 2% over the next three years and a continued 10% liquidity cushion, the initial core portfolio was estimated to total at approximately $121 million, leaving the City with liquid funds ranging between $13-$20 million. Additionally, Chandler performed a comprehensive review of the City’s investment policy. Although the policy was sufficient for operational purposes, significant recommended changes were made for completeness and clarification purposes. These changes were approved by City Council on May 21, 2019. Beginning in March 2019, Chandler began forming the City’s portfolio by purchasing agency (FHLB), corporate medium-term notes, and negotiable certificates of deposit. Portfolio Report Overview As of and for the quarter ending December 31, 2021, the City initiated $10,625,933 in corporate, and treasury purchases. The City also made treasury dispositions of 5,519,672. Ending book and market value for the portfolio was $139,190,635 and $139,354,120, respectively. In accordance with California Government Code §53646 (b)(3), the City maintains the ability to meets its expenditure requirements for the next six months. City’s holdings were as follows: Wells Fargo – Workers Comp Checking $ 24,767 Wells Fargo – Regular Checking $ 29,950,992 LAIF State Pool $ 21,031,062 Total Cash & Cash Equivalents $ 51,006,821 Total Investments $139,325,625 TOTAL $190,332,446 17 Below are some historical quarterly comparisons for the City’s portfolio: Total cash and investment balance increased approximately $10.4 million over previous quarter to $190.3 million Average maturity increased from 2.82 years to 2.83 years Average purchase yield remained at 1.21% Average market yield increased from 0.56% to at 0.96% Duration increased from 2.56 to 2.59 Yield comparisons for the 1Y Treasury, 2Y Treasury, LAIF, and City average are presented below: 18 Historical revenues, expenditures, and liquidity ratios are presented below: Using three-year historical trend data, the City estimates revenues of $31.8 million and expenditures of $25.6 million, resulting in an ending cash and cash equivalent balance of $57.2 million for the period ending March 31, 2022. 19 As the City’s portfolio becomes more or less liquid over time, the ratio of cash and cash equivalents to revenues and expenditures will increase or decrease, respectively. The portfolio’s benchmark structure is complete as we will anticipate the City’s revenues, expenditures, and cash equivalents to continue to flatten out moving forward. While a formal liquidity level has not been established, significant and consistent fluctuations in the ratio may provide indication that additional funds could be invested or conversely that investments should be liquidated. In recent years, sufficient liquidity levels in respect to operating revenues and expenditures have approximated a ratio of 1.0. The increase in cash and cash equivalents, specifically, the City’s operating account, resulted from a $9.8 million one -time park dedication in-lieu fee received for the Westport project. The City anticipates an operating statement balance of approximately $36 million as of March 31, 2022, and due to the increase, staff are recommending a transfer to the City’s investment portfolio of $15 million. This will derive a revenue and liquidity ratio of 1.3 and 1.6 for revenues and expenditures, respectively. Excluding the City’s LAIF balance of $21 million, the liquidity ratio, on an adjusted basis, is estimated at 0.7 and 0.8 for revenues and expenditures, respectively. While LAIF is considered a cash and cash equivalent, the City has historically benefited during times of fluctuating interest rates and takes this into account when considering its liquidity ratio. The City will monitor inflows and outflows during the third quarter of the fiscal year and bring recommendations for the City’s investment portfolio as necessary and applicable. Pursuant to City of Cupertino Municipal Code 2.24.050 Investment Authority, “Pursuant authority granted by state statutes, there is hereby delegated to the Treasurer the authority to invest or to reinvest funds of the City, or to sell or exchange securities so purchases, and who shall thereafter assume full responsibility for such transactions until such time as the delegation of authority is revoked.” While investment activities do not require authorization by City Council prior to their execution, the City’s Audit Committee and City Council review the City’s quarterly treasurer’s investment report which details all activities and changes within the portfolio. Furthermore, as part of the investment report, staff apprise the Audit Committee and City Council of cash flow activities that are intended to serve as the basis for making changes to the City’s investment portfolio. These investment activities, (transfers from one cash or investment account to another) do not require nor constitute an appropriation and do not grant staff with the authority to expend the funds. Using three-year historical trend data for each of the City’s revenue and expenditures line -items and applied to the FY 2021-22 Adopted Budget, the City estimates the following cash flow forecast for FY 2021-22: 20 Pension rate stabilization: Assets can be transferred to CalPERS at the City’s discretion to pay for Normal Cost or UAL contributions, and can be used to reduce or eliminate large fluctuations in the City’s pension costs. Potential for higher investment returns than General Fund: Investment requirements that apply to the City’s General Fund assets under Government Code 53601 are not applicable to Trust assets. Diversification: Trust assets will be diversified from CalPERS investments. Given that pension obligations are one of the City’s largest financial obligations, the City has taken proactive steps to reduce the impacts of pension cost volatility. In March 2018, the City provided options to Council on address rising pension costs and in April 2018, the City presented a long-term pension funding strategy to the Fiscal Strategic Plan Committee. In May 2018, the City implemented a Pension Rate Stabilization Program (PRSP), also known as a Section 115 Trust, to reduce the effect of pension rate volatility on the City’s budget. The City contributed $8.0 million in FY 2017-18, $4.0 million in FY 2019-20, and $2 million in FY 2020-21. This brings total contributions to $14.0 million and investment earnings of $4.8 million for a total balance of $18.8 million as of December 31, 2021. As a fiscal sustainability measure, the City funds the Section 115 Trust using a more conservative discount rate of 6.5%. The City plans to accumulate sufficient funds in the Section 115 Trust to fund the difference between a 6.25% and a 7% discount rate. By using a more conservative discount rate than CalPERS, the City is able to allocate more funds towards pensions each year than required by CalPERS. With the $18.8 million currently set aside for pension funding, the City is in a strong position to withstand the effects of pension cost increases. If CalPERS investment returns fall short of their assumptions and expectations, the City will be better prepared for future pension cost increases. If the discount rate is lowered in the future, which is a distinct possibility, the City will be better prepared to absorb these costs. The table below illustrates CalPERS’ historical performance with similar date ranges as presented by US Bank in their quarterly performance reports: The CalPERS Public Employees' Retirement Fund (PERF) ended the previous fiscal year with a market value of $471 billion. With 1-Year, 3-Year, 5-Year, and 10-Year returns of 21.3%, 10.7%, 10.3%, and 8.5%, respectively. While performance comparisons can be made from one financial institution to the next, it is important to understand that investment portfolios are not all designed equally. While two portfolios can have similar target rates of return, the size of the portfolio, available resources, regulation and oversight, and stakeholder interests may differ. These variations result in fluctuations in performance and return through time. While City staff monitor the performance of CalPERS and the City’s investment trusts, diversification, General Fund stabilization, and local control over assets remain key factors for continuing to fund the City’s Section 115 Pension Trust. 23 Prepared by: Zach Korach, Finance Manager Reviewed by: Kristina Alfaro, Director of Administrative Services Approved by: Jim Throop, City Manager Attachments: A – Treasurer’s Report 12.31.21 B – WF Custodial Statement 12.31.21 C – WF Workers’ Compensation Statement 12.31.21 D – WF Operating Statement 12.31.21 E – LAIF Statement 12.31.21 24 SECTION 1 Economic Update SECTION 2 Account Profile SECTION 3 Portfolio Holdings SECTION 4 Transactions Table of Contents As of December 31, 2021 1 26 Economic Update ▪ ▪ ▪ In our view, economic growth is likely to moderate but remain modestly above-trend in 2022,fueled in part by ongoing tailwinds from fiscal support, accommodative monetary policy, and continued progress on vaccinations. Our outlook assumes an improving global health backdrop, though risks to the downside remain. Covid infection rates in the US and on a global basis have recently increased, and the new omicron variant poses a significant risk to the outlook. Given the high level of uncertainty regarding omicron’s impact on the global health situation, supply chains, and the broader economy,we expect financial market volatility will be elevated over the near-term. Inflation readings continue to run hot,but market- based inflation expectations remain relatively contained and we believe inflation may be at or near a peak.We expect supply chain bottlenecks will continue to put upward pressure on prices over the near-term but should improve during 2022. The Federal Open Market Committee (FOMC) kept the fed funds target rate unchanged in December,in a range of 0.0%- 0.25%,but announced plans to accelerate the pace of their tapering process. The Fed will reduce the magnitude of their monthly asset purchases by $30 billion in January, doubling the pace of the monthly reduction in asset purchases thatbegan in November. Should the Fed continue to reduce their monthly asset purchases at the new pace, their bond-buying program would end this spring (late-March or mid-April). The FOMC’s updated Summary of Economic Projections indicates thatpolicymakers may be prepared to hike the fed funds rate three times in 2022 (based on the median estimate),up from the previous projection of just one 25 basis point hike. The Fed’s updated projections suggest that these hikes would be amid a backdrop of strong economic growth. With inflation now more elevated and prolonged than originally anticipated, we believe the Fed’s decision to accelerate the tapering process is prudent. However,we do not believe that monetary policy is on a pre-set course and expect the Fed will adjust policy if necessary, depending on developments in the economy. In December, the 2-year Treasury yield increased nearly 17 basis points to 0.73%, the 5-year Treasury yield increased ten basis points to 1.26%, and the 10-year Treasury yield increased about seven basis points to 1.51% in the month. 3 28 Objectives Chandler Asset Management Performance Objective The performance objective for the portfolio is to earn a total rate of return through a market cycle that is equal to or above the return on the benchmark index. Investment Objectives The City of Cupertino’s investment objectives,in order of priority,are to provide safety to ensure the preservation of capital in the overall portfolio,provide sufficient liquidity for cash needs and a market rate of return consistent with the investment program. Strategy In order to achieve these objectives,the portfolio invests in high quality fixed incomes securities consistent with the investment policy and California Government Code. As of December 31, 2021 15 40 Compliance As of December 31, 2021 Category Standard Comment Money Market Funds 20% maximum; Daily money market funds administered for or by trustees, paying agents and custodian banks contracted by a City of Cupertino as allowed under California Government Code; Only funds holding U.S. Treasury obligations, Government agency obligations or repurchase agreements collateralized by U.S. Treasury or Government agency obligations can be utilized. Complies Local Agency Investment Fund (LAIF)Maximum amount permitted by LAIF; Not used by investment adviser Complies Repurchase Agreements 1 year max maturity; 102% collateralized; A PSA Master Repurchase Agreement is required between City of Cupertino and the broke/dealer or financial institution for all repurchase agreements; Not used by investment adviser Complies Prohibited Securities Reverse Repurchase Agreement; Common stocks; Long-term (> 5 years maturity) notes and bonds; Special circumstances arise that necessitate purchase of securities beyond the 5-year limitation. On such occasions, request must be approved by City Council prior to purchase; Futures/Options; Inverse floaters; Ranges notes, Mortgage-derived, Interest-only strips; Zero interest accrual securities; Purchasing/selling securities on margin; Foreign currency denominated securities. Complies Minimum Budgeted Operating Expenditures in Short Term Investments Minimum 6 months of budgeted operating expenditures in short term investments to provide sufficient liquidity for expected disbursements Complies Max Per Issuer 5% per issuer, unless otherwise specified in the policy Complies Maximum maturity 5 years Complies City of Cupertino Assets managed by Chandler Asset Management are in full compliance with state law and with the City's investment policy. 17 42 Portfolio Characteristics City of Cupertino 12/31/2021 9/30/2021 Benchmark*Portfolio Portfolio Average Maturity (yrs)2.64 2.83 2.82 Average Modified Duration 2.57 2.59 2.56 Average Purchase Yield n/a 1.21%1.21% Average Market Yield 0.85%0.96%0.56% Average Quality**AAA AA/Aa1 AA/Aa1 Total Market Value 139,803,983 140,794,510 *ICE BofA 1-5 Yr US Treasury & Agency Index **Benchmark is a blended rating of S&P, Moody’s, and Fitch. Portfolio is S&P and Moody’s respectively. As of December 31, 2021 18 43 Issue Name Investment Type % Portfolio Government of United States US Treasury 23.46% Federal National Mortgage Association Agency 11.18% Federal Home Loan Mortgage Corp Agency 7.25% Federal Home Loan Bank Agency 6.85% Federal Home Loan Mortgage Corp CMO 5.18% International Finance Corp Supranational 3.76% Inter-American Dev Bank Supranational 3.72% Bank of America Corp Corporate 1.83% JP Morgan Chase & Co Corporate 1.73% Intl Bank Recon and Development Supranational 1.67% Deere & Company Corporate 1.47% Truist Financial Corporation Corporate 1.45% Honda ABS ABS 1.44% Toyota ABS ABS 1.41% Amazon.com Inc Corporate 1.33% John Deere ABS ABS 1.28% Air Products & Chemicals Corporate 1.28% Salesforce.com Inc Corporate 1.25% Toyota Motor Corp Corporate 1.23% Royal Bank of Canada Corporate 1.12% Toronto Dominion Holdings Corporate 1.11% Charles Schwab Corp/The Corporate 1.11% Paccar Financial Corporate 1.08% Wal-Mart Stores Corporate 0.99% Honda Motor Corporation Corporate 0.98% Guardian Life Global Funding Corporate 0.98% US Bancorp Corporate 0.93% Bank of Montreal Chicago Corporate 0.90% PNC Financial Services Group Corporate 0.88% Verizon Owner Trust ABS 0.86% Caterpillar Inc Corporate 0.81% Bank of New York Corporate 0.75% Apple Inc Corporate 0.74% United Health Group Inc Corporate 0.73% Nissan ABS ABS 0.73% Mass Mutual Insurance Corporate 0.71% GM Financial Automobile Leasing Trust ABS 0.68% Prudential Financial Inc Corporate 0.63% Issuers City of Cupertino –Account #10659 As of December 31, 2021 22 47 Issue Name Investment Type % Portfolio Hyundai Auot Receivables ABS 0.60% Northwestern Mutual Glbl Corporate 0.59% State of California Municipal Bonds 0.56% Hyundai Auto Lease Securitization ABS 0.56% Metlife Inc Corporate 0.54% Wells Fargo 100% Treasury MMKT Fund Money Market Fund 0.48% Mercedes-Benz Auto Lease Trust ABS 0.37% BMW Vehicle Lease Trust ABS 0.30% Toronto Dominion Holdings Negotiable CD 0.25% GM Financial Securitized Term Auto Trust ABS 0.25% TOTAL 100.00% Issuers City of Cupertino –Account #10659 As of December 31, 2021 23 48 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration ABS 58770FAC6 Mercedes Benz Auto Lease Trust 2020-A A3 1.840% Due 12/15/2022 167,273.16 01/21/2020 1.85% 167,251.12 167,265.86 100.27 0.51% 167,718.78 136.79 0.12% 452.92 Aaa / AAA NR 0.96 0.20 65479GAD1 Nissan Auto Receivables Trust 2018-B A3 3.060% Due 03/15/2023 121,201.11 09/16/2019 1.65% 122,914.97 121,288.65 100.21 0.48% 121,450.66 164.83 0.09% 162.01 Aaa / AAA NR 1.20 0.08 47789JAD8 John Deere Owner Trust 2019-A A3 2.910% Due 07/17/2023 272,754.98 Various 1.94% 278,111.16 273,887.73 100.55 0.36% 274,244.22 352.76 0.20% 356.49 Aaa / NR AAA 1.54 0.22 43815NAC8 Honda Auto Receivables Trust 2019-3 A3 1.780% Due 08/15/2023 519,037.92 Various 1.93% 518,165.40 518,825.60 100.57 0.35% 522,000.07 410.61 0.37% 3,174.47 Aaa / AAA NR 1.62 0.40 58769EAC2 Mercedes-Benz Auto Lease Trust 2020-B A3 0.400% Due 11/15/2023 345,000.00 09/15/2020 0.40% 344,982.51 344,992.15 99.88 0.54% 344,585.66 61.33 0.25% (406.49) NR / AAA AAA 1.87 0.86 477870AC3 John Deere Owner Trust 2019-B A3 2.210% Due 12/15/2023 433,689.99 08/27/2019 1.79% 437,705.01 435,514.53 100.66 0.63% 436,546.71 425.98 0.31% 1,032.18 Aaa / NR AAA 1.96 0.42 92348AAA3 Verizon Owner Trust 2019-C A1A 1.940% Due 04/22/2024 403,445.50 10/01/2019 1.95% 403,414.40 403,429.71 100.69 0.48% 406,209.91 239.15 0.29% 2,780.20 NR / AAA AAA 2.31 0.47 44891VAC5 Hyundai Auto Lease Trust 2021-B A3 0.330% Due 06/17/2024 790,000.00 06/08/2021 0.34% 789,881.50 789,910.22 99.37 0.73% 785,054.60 115.87 0.56% (4,855.62) Aaa / AAA NR 2.46 1.56 65479JAD5 Nissan Auto Receivables Owner 2019-C A3 1.930% Due 07/15/2024 895,285.06 Various 1.70% 899,726.40 897,948.75 100.81 0.38% 902,511.80 767.96 0.65% 4,563.05 Aaa / AAA NR 2.54 0.52 43813DAC2 Honda Auto Receivables 2020-2 A3 0.820% Due 07/15/2024 165,844.77 05/18/2020 0.83% 165,831.72 165,836.77 100.18 0.57% 166,141.13 60.44 0.12% 304.36 Aaa / AAA NR 2.54 0.71 47789KAC7 John Deere Owner Trust 2020-A A3 1.100% Due 08/15/2024 247,962.99 03/04/2020 1.11% 247,947.84 247,954.03 100.35 0.58% 248,835.32 121.23 0.18% 881.29 Aaa / NR AAA 2.62 0.68 43813KAC6 Honda Auto Receivables Trust 2020-3 A3 0.370% Due 10/18/2024 575,000.00 09/22/2020 0.38% 574,915.53 574,949.39 99.72 0.65% 573,392.88 76.83 0.41% (1,556.51) NR / AAA AAA 2.80 0.99 36262XAC8 GM Financial Auto Lease Trust 2021-3 A2 0.390% Due 10/21/2024 965,000.00 08/10/2021 0.39% 964,986.88 964,988.90 99.04 0.91% 955,750.48 115.00 0.68% (9,238.42) NR / AAA AAA 2.81 1.84 47787NAC3 John Deere Owner Trust 2020-B A3 0.510% Due 11/15/2024 260,000.00 07/14/2020 0.52% 259,960.38 259,976.83 99.85 0.69% 259,601.94 58.93 0.19% (374.89) Aaa / NR AAA 2.88 0.83 09690AAC7 BMW Vehicle Lease Trust 2021-2 A3 0.330% Due 12/26/2024 425,000.00 09/08/2021 0.34% 424,956.14 424,961.84 99.24 0.80% 421,755.98 23.38 0.30% (3,205.86) Aaa / NR AAA 2.99 1.64 89236XAC0 Toyota Auto Receivables 2020-D A3 0.350% Due 01/15/2025 455,000.00 10/06/2020 0.36% 454,915.23 454,939.49 99.74 0.64% 453,828.83 70.78 0.32% (1,110.66) NR / AAA AAA 3.04 0.90 92290BAA9 Verizon Owner Trust 2020-B A 0.470% Due 02/20/2025 800,000.00 08/04/2020 0.48% 799,832.00 799,883.53 99.73 0.71% 797,876.00 114.89 0.57% (2,007.53) Aaa / NR AAA 3.14 1.11 As of December 31, 2021 27 52 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 43813GAC5 Honda Auto Receivables Trust 2021-1 A3 0.270% Due 04/21/2025 295,000.00 02/17/2021 0.27% 294,994.60 294,996.10 99.47 0.71% 293,426.18 22.13 0.21% (1,569.92) Aaa / NR AAA 3.31 1.21 89240BAC2 Toyota Auto Receivables Owners 2021-A A3 0.260% Due 05/15/2025 1,090,000.00 02/02/2021 0.27% 1,089,797.70 1,089,856.19 99.50 0.67% 1,084,522.75 125.96 0.78% (5,333.44) Aaa / NR AAA 3.37 1.23 44933LAC7 Hyundai Auto Receivables Trust 2021-A A3 0.380% Due 09/15/2025 515,000.00 04/20/2021 0.38% 514,945.82 514,957.89 99.25 0.84% 511,155.53 86.98 0.37% (3,802.36) NR / AAA AAA 3.71 1.62 43815GAC3 Honda Auto Receivables Trust 2021-4 A3 0.880% Due 01/21/2026 460,000.00 11/16/2021 0.89% 459,903.03 459,906.14 99.76 0.99% 458,890.02 112.44 0.33% (1,016.12) Aaa / NR AAA 4.06 2.13 47789QAC4 John Deere Owner Trust 2021-B A3 0.520% Due 03/16/2026 580,000.00 07/13/2021 0.52% 579,948.26 579,954.63 98.86 1.02% 573,390.90 134.04 0.41% (6,563.73) Aaa / NR AAA 4.21 2.30 89238JAC9 Toyota Auto Receivables Trust 2021-D A3 0.710% Due 04/15/2026 430,000.00 11/09/2021 0.71% 429,990.84 429,991.20 99.39 1.37% 427,356.79 135.69 0.31% (2,634.41) NR / AAA AAA 4.29 0.94 44935FAD6 Hyundai Auto Receivables Trust 2021-C A3 0.740% Due 05/15/2026 330,000.00 11/09/2021 0.75% 329,926.34 329,929.21 99.31 1.05% 327,737.52 108.53 0.23% (2,191.69) NR / AAA AAA 4.37 2.19 362554AC1 GM Financial Securitized Term 2021-4 A3 0.680% Due 09/16/2026 350,000.00 10/13/2021 0.68% 349,991.08 349,991.60 99.25 1.06% 347,371.15 99.17 0.25% (2,620.45) Aaa / AAA NR 4.71 1.98 TOTAL ABS 11,891,495.48 0.79% 11,904,995.86 11,896,136.94 0.72% 11,861,355.81 4,141.70 8.49% (34,781.13) Aaa / AAA Aaa 2.97 1.19 Agency 3137EAER6 FHLMC Note 0.375% Due 05/05/2023 1,500,000.00 05/05/2020 0.39% 1,499,370.00 1,499,718.14 99.78 0.54% 1,496,757.00 875.00 1.07% (2,961.14) Aaa / AA+ AAA 1.34 1.34 3137EAEN5 FHLMC Note 2.750% Due 06/19/2023 800,000.00 06/21/2019 1.83% 828,320.00 810,386.59 103.15 0.59% 825,169.60 733.33 0.59% 14,783.01 Aaa / AA+ AAA 1.47 1.44 3130A3DL5 FHLB Note 2.375% Due 09/08/2023 2,000,000.00 09/06/2019 1.52% 2,066,320.00 2,027,936.16 102.93 0.62% 2,058,682.00 14,909.72 1.48% 30,745.84 Aaa / AA+ NR 1.69 1.65 3135G0U43 FNMA Note 2.875% Due 09/12/2023 1,500,000.00 06/21/2019 1.89% 1,559,805.00 1,524,022.90 103.70 0.68% 1,555,467.00 13,057.29 1.12% 31,444.10 Aaa / AA+ AAA 1.70 1.65 3137EAFA2 FHLMC Note 0.250% Due 12/04/2023 1,755,000.00 12/02/2020 0.28% 1,753,262.55 1,753,886.13 99.07 0.74% 1,738,599.53 329.06 1.24% (15,286.60) Aaa / AA+ AAA 1.93 1.91 3130A0F70 FHLB Note 3.375% Due 12/08/2023 2,100,000.00 Various 1.74% 2,222,418.00 2,163,647.99 105.07 0.73% 2,206,541.40 4,528.13 1.58% 42,893.41 Aaa / AA+ AAA 1.94 1.88 3130A0XE5 FHLB Note 3.250% Due 03/08/2024 1,500,000.00 03/28/2019 2.27% 1,568,115.00 1,530,059.61 105.23 0.83% 1,578,393.00 15,302.08 1.14% 48,333.39 Aaa / AA+ NR 2.19 2.10 3130A1XJ2 FHLB Note 2.875% Due 06/14/2024 1,500,000.00 06/18/2019 1.96% 1,564,890.20 1,531,875.26 104.87 0.87% 1,572,999.00 2,036.46 1.13% 41,123.74 Aaa / AA+ NR 2.45 2.37 As of December 31, 2021 28 53 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 3135G0V75 FNMA Note 1.750% Due 07/02/2024 1,500,000.00 07/16/2019 1.96% 1,484,895.00 1,492,389.15 102.21 0.86% 1,533,163.50 13,052.08 1.11% 40,774.35 Aaa / AA+ AAA 2.50 2.43 3130A2UW4 FHLB Note 2.875% Due 09/13/2024 2,000,000.00 09/13/2019 1.79% 2,103,380.00 2,055,884.14 105.11 0.95% 2,102,102.00 17,250.00 1.52% 46,217.86 Aaa / AA+ AAA 2.70 2.59 3135G0W66 FNMA Note 1.625% Due 10/15/2024 1,975,000.00 Various 1.73% 1,965,802.75 1,969,727.73 101.88 0.94% 2,012,177.40 6,775.35 1.44% 42,449.67 Aaa / AA+ AAA 2.79 2.72 3135G0X24 FNMA Note 1.625% Due 01/07/2025 1,295,000.00 Various 1.38% 1,309,953.95 1,304,369.37 101.83 1.01% 1,318,664.83 10,171.14 0.95% 14,295.46 Aaa / AA+ AAA 3.02 2.92 3137EAEP0 FHLMC Note 1.500% Due 02/12/2025 2,365,000.00 02/13/2020 1.52% 2,363,178.95 2,363,864.46 101.46 1.02% 2,399,628.33 13,697.29 1.73% 35,763.87 Aaa / AA+ AAA 3.12 3.02 3135G03U5 FNMA Note 0.625% Due 04/22/2025 1,860,000.00 04/22/2020 0.67% 1,856,168.40 1,857,464.51 98.64 1.04% 1,834,689.12 2,228.13 1.31% (22,775.39) Aaa / AA+ AAA 3.31 3.26 3135G04Z3 FNMA Note 0.500% Due 06/17/2025 2,500,000.00 Various 0.50% 2,499,227.30 2,499,611.14 98.03 1.08% 2,450,667.50 486.11 1.75% (48,943.64) Aaa / AA+ AAA 3.46 3.42 3137EAEU9 FHLMC Note 0.375% Due 07/21/2025 1,250,000.00 07/21/2020 0.48% 1,243,775.00 1,245,573.56 97.48 1.10% 1,218,493.75 2,083.33 0.87% (27,079.81) Aaa / AA+ AAA 3.56 3.51 3135G05X7 FNMA Note 0.375% Due 08/25/2025 2,500,000.00 Various 0.48% 2,487,983.75 2,490,972.07 97.29 1.14% 2,432,227.51 3,281.25 1.74% (58,744.56) Aaa / AA+ AAA 3.65 3.60 3137EAEX3 FHLMC Note 0.375% Due 09/23/2025 2,500,000.00 Various 0.46% 2,489,362.80 2,491,896.85 97.32 1.11% 2,432,875.00 2,552.08 1.74% (59,021.85) Aaa / AA+ AAA 3.73 3.68 3135G06G3 FNMA Note 0.500% Due 11/07/2025 2,500,000.00 Various 0.56% 2,492,700.00 2,494,362.02 97.59 1.14% 2,439,790.00 1,875.00 1.75% (54,572.02) Aaa / AA+ AAA 3.85 3.79 TOTAL Agency 34,900,000.00 1.17% 35,358,928.65 35,107,647.78 0.92% 35,207,087.47 125,222.83 25.27% 99,439.69 Aaa / AA+ Aaa 2.76 2.70 CMO 3137B4WB8 FHLMC K033 A2 3.060% Due 07/25/2023 1,000,000.00 08/13/2019 2.02% 1,037,656.25 1,014,915.96 102.99 0.83% 1,029,859.00 510.00 0.74% 14,943.04 Aaa / NR NR 1.56 1.41 3137B5JM6 FHLMC K034 A2 3.531% Due 07/25/2023 1,000,000.00 09/26/2019 2.00% 1,053,867.19 1,022,041.85 103.64 0.88% 1,036,356.00 2,942.50 0.74% 14,314.15 NR / NR AAA 1.56 1.43 3137B7MZ9 FHLMC K036 A2 3.527% Due 10/25/2023 1,000,000.00 08/19/2019 1.92% 1,061,914.06 1,026,876.79 104.12 0.92% 1,041,234.00 587.83 0.75% 14,357.21 Aaa / NR AAA 1.82 1.63 3137BFE98 FHLMC K041 A2 3.171% Due 10/25/2024 1,300,000.00 07/01/2021 0.72% 1,398,414.06 1,383,593.67 105.13 1.19% 1,366,653.60 3,435.25 0.98% (16,940.07) Aaa / AAA AAA 2.82 2.62 3137BLMZ8 FHLMC K049 A2 3.010% Due 07/25/2025 1,000,000.00 07/01/2021 0.87% 1,079,687.50 1,069,938.79 105.51 1.33% 1,055,054.00 2,508.33 0.76% (14,884.79) NR / NR AAA 3.57 3.28 As of December 31, 2021 29 54 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 3137BLW95 FHLMC K050 A2 3.334% Due 08/25/2025 950,000.00 11/16/2021 1.17% 1,018,132.81 1,015,964.26 106.65 1.25% 1,013,160.75 2,639.42 0.73% (2,803.51) NR / NR AAA 3.65 3.17 3137BSP72 FHLMC K058 A2 2.653% Due 08/25/2026 650,000.00 11/12/2021 1.35% 687,451.17 686,470.20 105.21 1.44% 683,848.75 1,437.04 0.49% (2,621.45) NR / NR AAA 4.65 4.28 TOTAL CMO 6,900,000.00 1.40% 7,337,123.04 7,219,801.52 1.11% 7,226,166.10 14,060.37 5.18% 6,364.58 Aaa / AAA Aaa 2.72 2.47 Corporate 05531FBG7 Truist Financial Corporation Callable Note Cont 5/20/2022 3.050% Due 06/20/2022 2,000,000.00 07/01/2021 0.21% 2,049,420.00 2,021,601.82 100.98 0.50% 2,019,612.00 1,863.89 1.45% (1,989.82) A3 / A- A 0.47 0.39 69353RFE3 PNC Bank Callable Note Cont 6/28/2022 2.450% Due 07/28/2022 1,200,000.00 06/20/2019 2.16% 1,210,236.00 1,201,656.37 100.97 0.48% 1,211,598.00 12,495.00 0.88% 9,941.63 A2 / A A+ 0.57 0.49 808513AT2 Charles Schwab Corp Callable Note Cont 12/25/2022 2.650% Due 01/25/2023 1,500,000.00 Various 2.53% 1,504,955.00 1,501,555.19 101.85 0.75% 1,527,823.50 17,225.00 1.11% 26,268.31 A2 / A A 1.07 0.97 24422ETG4 John Deere Capital Corp Note 2.800% Due 03/06/2023 1,000,000.00 03/28/2019 2.60% 1,007,580.00 1,002,261.35 102.47 0.69% 1,024,729.00 8,944.44 0.74% 22,467.65 A2 / A A 1.18 1.16 89236TJD8 Toyota Motor Credit Corp Note 0.400% Due 04/06/2023 355,000.00 04/06/2021 0.44% 354,712.45 354,818.06 99.77 0.58% 354,195.93 335.28 0.25% (622.13) A1 / A+ A+ 1.26 1.26 06406RAG2 Bank of NY Mellon Corp Note 3.500% Due 04/28/2023 1,000,000.00 03/05/2019 3.15% 1,013,650.00 1,004,348.51 103.56 0.79% 1,035,601.00 6,125.00 0.75% 31,252.49 A1 / A AA- 1.32 1.29 037833AK6 Apple Inc Note 2.400% Due 05/03/2023 1,000,000.00 03/11/2019 2.79% 984,840.00 995,117.12 102.39 0.60% 1,023,930.00 3,866.67 0.74% 28,812.88 Aaa / AA+ NR 1.34 1.32 931142EK5 Wal-Mart Stores Callable Note Cont 5/26/2023 3.400% Due 06/26/2023 1,000,000.00 03/13/2019 2.80% 1,023,630.00 1,007,861.25 104.03 0.51% 1,040,336.00 472.22 0.74% 32,474.75 Aa2 / AA AA 1.48 1.38 69371RP59 Paccar Financial Corp Note 3.400% Due 08/09/2023 435,000.00 06/18/2019 2.56% 449,315.85 440,542.54 104.03 0.87% 452,514.41 5,833.83 0.33% 11,971.87 A1 / A+ NR 1.61 1.55 02665WCQ2 American Honda Finance Note 3.625% Due 10/10/2023 1,300,000.00 Various 2.77% 1,345,306.00 1,318,522.58 104.84 0.87% 1,362,965.50 10,603.13 0.98% 44,442.92 A3 / A- NR 1.78 1.72 24422EVN6 John Deere Capital Corp Note 0.450% Due 01/17/2024 1,030,000.00 03/01/2021 0.47% 1,029,268.70 1,029,479.93 99.05 0.92% 1,020,205.73 2,111.50 0.73% (9,274.20) A2 / A A 2.05 2.02 06051GHF9 Bank of America Corp Callable Note 1X 3/5/2023 3.550% Due 03/05/2024 1,200,000.00 Various 2.39% 1,226,303.25 1,213,069.16 102.98 1.00% 1,235,755.20 13,726.67 0.89% 22,686.04 A2 / A- AA- 2.18 1.15 89114QCA4 Toronto Dominion Bank Note 2.650% Due 06/12/2024 1,500,000.00 09/11/2019 2.24% 1,527,255.00 1,514,036.17 103.75 1.09% 1,556,193.00 2,097.92 1.11% 42,156.83 A1 / A AA- 2.45 2.37 As of December 31, 2021 30 55 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 79466LAG9 Salesforce.com Inc Callable Note Cont 7/15/2022 0.625% Due 07/15/2024 1,760,000.00 Various 0.87% 1,748,937.40 1,749,301.26 99.09 0.99% 1,743,968.16 5,163.89 1.25% (5,333.10) A2 / A+ NR 2.54 2.50 78013XZU5 Royal Bank of Canada Note 2.550% Due 07/16/2024 1,500,000.00 Various 1.98% 1,533,359.18 1,520,579.39 103.34 1.21% 1,550,032.50 17,531.26 1.12% 29,453.11 A2 / A AA- 2.54 2.44 91159HHX1 US Bancorp Callable Note Cont 6/28/2024 2.400% Due 07/30/2024 1,250,000.00 10/10/2019 2.07% 1,268,262.50 1,259,662.75 103.34 1.04% 1,291,718.75 12,583.33 0.93% 32,056.00 A2 / A+ A+ 2.58 2.40 009158AV8 Air Products & Chemicals Callable Note Cont 4/30/2024 3.350% Due 07/31/2024 1,675,000.00 08/07/2019 2.07% 1,771,212.00 1,722,381.34 105.13 1.12% 1,760,873.90 23,536.08 1.28% 38,492.56 A2 / A NR 2.58 2.22 69371RR40 Paccar Financial Corp Note 0.500% Due 08/09/2024 680,000.00 08/03/2021 0.52% 679,632.80 679,681.38 98.29 1.17% 668,349.56 1,341.11 0.48% (11,331.82) A1 / A+ NR 2.61 2.57 69371RQ25 Paccar Financial Corp Note 2.150% Due 08/15/2024 370,000.00 08/08/2019 2.20% 369,182.30 369,571.68 102.43 1.20% 379,009.13 3,005.22 0.27% 9,437.45 A1 / A+ NR 2.62 2.53 14913Q3B3 Caterpillar Finl Service Note 2.150% Due 11/08/2024 1,100,000.00 01/28/2020 1.92% 1,111,517.00 1,106,881.14 102.92 1.11% 1,132,144.20 3,481.81 0.81% 25,263.06 A2 / A A 2.86 2.76 74153WCQ0 Pricoa Global Funding Note 1.150% Due 12/06/2024 885,000.00 12/01/2021 1.19% 884,088.45 884,108.45 99.84 1.21% 883,571.61 650.23 0.63% (536.84) Aa3 / AA- AA- 2.93 2.87 06367WB85 Bank of Montreal Note 1.850% Due 05/01/2025 1,240,000.00 07/23/2021 0.85% 1,285,656.80 1,280,406.60 101.52 1.38% 1,258,843.04 3,823.33 0.90% (21,563.56) A2 / A- AA- 3.33 3.22 46647PCH7 JP Morgan Chase & Co Callable Note Cont 6/1/2024 0.824% Due 06/01/2025 1,370,000.00 05/24/2021 0.74% 1,371,773.90 1,371,514.07 98.85 1.10% 1,354,264.18 940.73 0.97% (17,249.89) A2 / A- AA- 3.42 3.36 46647PCK0 JP Morgan Chase & Co Callable Note Cont 6/23/2024 0.969% Due 06/23/2025 655,000.00 Various 0.87% 655,406.85 655,353.63 99.05 1.16% 648,751.30 141.05 0.46% (6,602.33) A2 / A- AA- 3.48 3.41 40139LBC6 Guardian Life Glob Fun Note 0.875% Due 12/10/2025 1,400,000.00 Various 1.12% 1,385,860.00 1,386,677.23 97.43 1.55% 1,364,032.60 714.58 0.98% (22,644.63) Aa2 / AA+ NR 3.95 3.85 66815L2A6 Northwestern Mutual Glbl Note 0.800% Due 01/14/2026 850,000.00 12/06/2021 1.47% 827,449.50 827,810.79 97.17 1.53% 825,911.85 3,154.44 0.59% (1,898.94) Aaa / AA+ AAA 4.04 3.93 06051GHY8 Bank of America Corp Callable Note Cont 2/13/2025 2.015% Due 02/13/2026 600,000.00 05/24/2021 1.01% 620,988.00 618,309.72 101.33 1.40% 607,963.80 4,634.50 0.44% (10,345.92) A2 / A- AA- 4.12 3.92 46647PBK1 JP Morgan Chase & Co Callable Note Cont 4/22/2025 2.083% Due 04/22/2026 401,000.00 05/20/2021 1.11% 415,969.33 413,643.79 101.54 1.60% 407,172.99 1,600.96 0.29% (6,470.80) A2 / A- AA- 4.31 3.18 As of December 31, 2021 31 56 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 023135BX3 Amazon.com Inc Callable Note Cont 4/12/2026 1.000% Due 05/12/2026 1,875,000.00 05/10/2021 1.09% 1,866,900.00 1,867,938.01 99.07 1.22% 1,857,622.50 2,552.08 1.33% (10,315.51) A1 / AA AA- 4.36 4.25 91324PEC2 United Health Group Inc Callable Note Cont 4/15/2026 1.150% Due 05/15/2026 1,035,000.00 Various 1.37% 1,025,051.35 1,025,139.64 98.97 1.39% 1,024,375.73 1,520.88 0.73% (763.91) A3 / A+ A 4.37 4.24 89236TJK2 Toyota Motor Credit Corp Note 1.125% Due 06/18/2026 1,385,000.00 06/15/2021 1.13% 1,384,390.60 1,384,456.35 98.54 1.46% 1,364,754.07 562.66 0.98% (19,702.28) A1 / A+ A+ 4.47 4.33 06051GJD2 Bank of America Corp Callable Note Cont 6/19/2025 1.319% Due 06/19/2026 700,000.00 07/16/2021 1.26% 701,274.00 701,156.89 98.98 1.53% 692,871.90 307.77 0.50% (8,284.99) A2 / A- AA- 4.47 4.32 57629WDE7 Mass Mutual Global funding Note 1.200% Due 07/16/2026 1,000,000.00 08/19/2021 1.15% 1,002,230.00 1,002,066.62 98.04 1.65% 980,360.00 5,500.00 0.71% (21,706.62) Aa3 / AA+ AA+ 4.54 4.37 58989V2D5 Met Tower Global Funding Note 1.250% Due 09/14/2026 770,000.00 09/07/2021 1.27% 769,291.60 769,333.89 97.89 1.72% 753,775.33 2,860.76 0.54% (15,558.56) Aa3 / AA- AA- 4.71 4.52 931142ER0 Wal-Mart Stores Callable Note Cont 08/17/2026 1.050% Due 09/17/2026 350,000.00 09/08/2021 1.09% 349,338.50 349,376.90 98.94 1.28% 346,276.70 1,061.67 0.25% (3,100.20) Aa2 / AA AA 4.72 4.56 TOTAL Corporate 37,371,000.00 1.59% 37,754,244.31 37,550,221.57 1.07% 37,762,103.07 182,368.89 27.14% 211,881.50 A1 / A+ AA- 2.68 2.53 Money Market Fund 94975H270 Wells Fargo 100% Treasury Money Mkt Fund 674,385.81 Various 0.01% 674,385.81 674,385.81 1.00 0.01% 674,385.81 0.00 0.48% 0.00 Aaa / AAA NR 0.00 0.00 TOTAL Money Market Fund 674,385.81 0.01% 674,385.81 674,385.81 0.01% 674,385.81 0.00 0.48% 0.00 Aaa / AAA NR 0.00 0.00 Municipal Bonds 13063DRK6 California State Taxable GO 2.400% Due 10/01/2024 755,000.00 10/16/2019 1.91% 772,342.35 764,651.73 103.86 0.97% 784,143.00 4,530.00 0.56% 19,491.27 Aa2 / AA- AA 2.75 2.65 TOTAL Municipal Bonds 755,000.00 1.91% 772,342.35 764,651.73 0.97% 784,143.00 4,530.00 0.56% 19,491.27 Aa2 / AA- AA 2.75 2.65 As of December 31, 2021 32 57 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration Negotiable CD 89114W7M1 Toronto Dominion Yankee CD 0.240% Due 04/28/2022 350,000.00 04/29/2021 0.24% 349,999.99 350,000.00 100.00 0.23% 350,013.30 578.67 0.25% 13.30 P-1 / A-1 F-1+ 0.32 0.32 TOTAL Negotiable CD 350,000.00 0.24% 349,999.99 350,000.00 0.23% 350,013.30 578.67 0.25% 13.30 Aaa / AA Aaa 0.32 0.32 Supranational 45950KCP3 International Finance Corp Note 2.875% Due 07/31/2023 2,700,000.00 07/01/2021 0.31% 2,842,425.00 2,808,658.01 103.41 0.71% 2,791,975.50 32,559.38 2.02% (16,682.51) Aaa / AAA NR 1.58 1.54 4581X0DP0 Inter-American Dev Bank Note 0.250% Due 11/15/2023 2,800,000.00 07/01/2021 0.37% 2,792,300.00 2,793,898.96 99.09 0.74% 2,774,534.00 894.44 1.99% (19,364.96) Aaa / AAA NR 1.87 1.86 45950KCT5 International Finance Corp Note 0.375% Due 07/16/2025 2,500,000.00 05/27/2021 0.66% 2,471,150.00 2,475,249.54 97.28 1.16% 2,432,042.50 4,296.88 1.74% (43,207.04) Aaa / AAA NR 3.54 3.49 459058JL8 Intl. Bank Recon & Development Note 0.500% Due 10/28/2025 2,400,000.00 Various 0.60% 2,388,859.25 2,390,941.15 97.46 1.18% 2,339,085.61 2,100.01 1.67% (51,855.54) Aaa / AAA AAA 3.83 3.77 4581X0DV7 Inter-American Dev Bank Note 0.875% Due 04/20/2026 2,460,000.00 04/13/2021 0.97% 2,448,733.20 2,450,312.77 98.44 1.25% 2,421,508.38 4,245.21 1.74% (28,804.39) Aaa / AAA AAA 4.30 4.20 TOTAL Supranational 12,860,000.00 0.57% 12,943,467.45 12,919,060.43 0.99% 12,759,145.99 44,095.92 9.16% (159,914.44) Aaa / AAA Aaa 2.94 2.89 US Treasury 912828L57 US Treasury Note 1.750% Due 09/30/2022 550,000.00 09/11/2019 1.62% 552,169.92 550,529.82 101.07 0.32% 555,865.20 2,459.13 0.40% 5,335.38 Aaa / AA+ AAA 0.75 0.74 912828N30 US Treasury Note 2.125% Due 12/31/2022 2,000,000.00 Various 1.68% 2,029,085.94 2,008,648.95 101.66 0.46% 2,033,204.00 117.41 1.45% 24,555.05 Aaa / AA+ AAA 1.00 0.99 912828T91 US Treasury Note 1.625% Due 10/31/2023 2,000,000.00 Various 1.94% 1,973,554.69 1,989,080.94 101.69 0.69% 2,033,828.00 5,566.29 1.46% 44,747.06 Aaa / AA+ AAA 1.83 1.80 912828V23 US Treasury Note 2.250% Due 12/31/2023 1,500,000.00 06/21/2019 1.80% 1,529,472.66 1,513,013.67 103.01 0.73% 1,545,175.50 93.23 1.11% 32,161.83 Aaa / AA+ AAA 2.00 1.96 912828B66 US Treasury Note 2.750% Due 02/15/2024 2,000,000.00 Various 2.14% 2,053,613.28 2,024,701.28 104.17 0.77% 2,083,360.00 20,774.45 1.51% 58,658.72 Aaa / AA+ AAA 2.13 2.05 91282CBR1 US Treasury Note 0.250% Due 03/15/2024 1,450,000.00 03/30/2021 0.33% 1,446,488.28 1,447,385.72 98.82 0.79% 1,432,894.35 1,081.49 1.03% (14,491.37) Aaa / AA+ AAA 2.21 2.19 912828X70 US Treasury Note 2.000% Due 04/30/2024 1,700,000.00 06/10/2019 1.92% 1,705,976.56 1,702,845.98 102.73 0.82% 1,746,418.50 5,823.20 1.25% 43,572.52 Aaa / AA+ AAA 2.33 2.27 As of December 31, 2021 33 58 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 912828XX3 US Treasury Note 2.000% Due 06/30/2024 2,000,000.00 Various 1.80% 2,018,574.22 2,009,584.57 102.81 0.86% 2,056,250.00 110.49 1.47% 46,665.43 Aaa / AA+ AAA 2.50 2.44 912828D56 US Treasury Note 2.375% Due 08/15/2024 1,700,000.00 09/18/2019 1.71% 1,753,191.41 1,728,406.35 103.86 0.89% 1,765,543.50 15,250.34 1.27% 37,137.15 Aaa / AA+ AAA 2.62 2.53 912828ZC7 US Treasury Note 1.125% Due 02/28/2025 1,500,000.00 03/18/2020 0.81% 1,523,144.53 1,514,780.73 100.38 1.00% 1,505,742.00 5,733.77 1.08% (9,038.73) Aaa / AA+ AAA 3.16 3.09 91282CAB7 US Treasury Note 0.250% Due 07/31/2025 1,500,000.00 03/12/2021 0.72% 1,469,765.63 1,475,286.85 97.04 1.10% 1,455,528.00 1,569.29 1.04% (19,758.85) Aaa / AA+ AAA 3.58 3.55 91282CAM3 US Treasury Note 0.250% Due 09/30/2025 2,400,000.00 Various 0.56% 2,366,140.63 2,372,278.02 96.88 1.10% 2,325,000.00 1,532.96 1.66% (47,278.02) Aaa / AA+ AAA 3.75 3.71 91282CAT8 US Treasury Note 0.250% Due 10/31/2025 2,450,000.00 Various 0.49% 2,422,492.19 2,427,941.20 96.69 1.13% 2,368,939.30 1,049.03 1.70% (59,001.90) Aaa / AA+ AAA 3.84 3.79 91282CAZ4 US Treasury Note 0.375% Due 11/30/2025 2,250,000.00 03/26/2021 0.77% 2,209,658.20 2,216,228.22 97.02 1.15% 2,183,026.50 741.76 1.56% (33,201.72) Aaa / AA+ AAA 3.92 3.87 91282CBH3 US Treasury Note 0.375% Due 01/31/2026 2,500,000.00 05/27/2021 0.75% 2,456,445.31 2,462,001.15 96.79 1.18% 2,419,727.50 3,923.23 1.73% (42,273.65) Aaa / AA+ AAA 4.09 4.03 91282CBW0 US Treasury Note 0.750% Due 04/30/2026 2,500,000.00 05/27/2021 0.80% 2,493,652.34 2,494,421.97 98.07 1.21% 2,451,757.50 3,211.33 1.76% (42,664.47) Aaa / AA+ AAA 4.33 4.24 91282CCZ2 US Treasury Note 0.875% Due 09/30/2026 1,400,000.00 10/18/2021 1.19% 1,379,054.68 1,379,912.43 98.28 1.25% 1,375,882.20 3,129.81 0.99% (4,030.23) Aaa / AA+ AAA 4.75 4.62 91282CDG3 US Treasury Note 1.125% Due 10/31/2026 1,400,000.00 11/15/2021 1.25% 1,391,468.75 1,391,680.97 99.40 1.25% 1,391,577.60 2,697.51 1.00% (103.37) Aaa / AA+ AAA 4.84 4.68 TOTAL US Treasury 32,800,000.00 1.20% 32,773,949.22 32,708,728.82 0.96% 32,729,719.65 74,864.72 23.46% 20,990.83 Aaa / AA+ Aaa 3.08 3.02 TOTAL PORTFOLIO 138,501,881.29 1.21% 139,869,436.68 139,190,634.60 0.96% 139,354,120.20 449,863.10 100.00% 163,485.60 Aa1 / AA Aaa 2.83 2.59 TOTAL MARKET VALUE PLUS ACCRUALS 139,803,983.30 As of December 31, 2021 34 59 Transaction Ledger City of Cupertino -Account #10659 Transaction Type Settlement Date CUSIP Quantity Security Description Price Acq/Disp Yield Amount Interest Pur/Sold Total Amount Gain/Loss ACQUISITIONS Purchase 10/14/2021 40139LBC6 700,000.00 Guardian Life Glob Fun Note 0.875% Due: 12/10/2025 98.634 1.21%690,438.00 2,109.72 692,547.72 0.00 Purchase 10/19/2021 91282CCZ2 1,400,000.00 US Treasury Note 0.875% Due: 09/30/2026 98.504 1.19%1,379,054.68 639.42 1,379,694.10 0.00 Purchase 10/21/2021 362554AC1 350,000.00 GM Financial Securitized Term 2021-4 A3 0.68% Due: 09/16/2026 99.997 0.68%349,991.08 0.00 349,991.08 0.00 Purchase 11/15/2021 89238JAC9 430,000.00 Toyota Auto Receivables Trust 2021-D A3 0.71% Due: 04/15/2026 99.998 0.71%429,990.84 0.00 429,990.84 0.00 Purchase 11/17/2021 3137BSP72 650,000.00 FHLMC K058 A2 2.653% Due: 08/25/2026 105.762 1.35%687,451.17 766.42 688,217.59 0.00 Purchase 11/17/2021 44935FAD6 330,000.00 Hyundai Auto Receivables Trust 2021-C A3 0.74% Due: 05/15/2026 99.978 0.75%329,926.34 0.00 329,926.34 0.00 Purchase 11/17/2021 91282CDG3 1,400,000.00 US Treasury Note 1.125% Due: 10/31/2026 99.391 1.25%1,391,468.75 739.64 1,392,208.39 0.00 Purchase 11/19/2021 3137BLW95 950,000.00 FHLMC K050 A2 3.334% Due: 08/25/2025 107.172 1.17%1,018,132.81 1,583.65 1,019,716.46 0.00 Purchase 11/24/2021 43815GAC3 460,000.00 Honda Auto Receivables Trust 2021-4 A3 0.88% Due: 01/21/2026 99.979 0.89%459,903.03 0.00 459,903.03 0.00 Purchase 12/01/2021 91324PEC2 700,000.00 United Health Group Inc Callable Note Cont 4/15/2026 1.15% Due: 05/15/2026 98.424 1.52%688,968.00 357.78 689,325.78 0.00 Purchase 12/02/2021 79466LAG9 800,000.00 Salesforce.com Inc Callable Note Cont 7/15/2022 0.625% Due: 07/15/2024 99.290 0.90%794,320.00 1,944.44 796,264.44 0.00 Purchase 12/02/2021 79466LAG9 700,000.00 Salesforce.com Inc Callable Note Cont 7/15/2022 0.625% Due: 07/15/2024 99.250 0.92%694,750.00 1,701.39 696,451.39 0.00 Purchase 12/08/2021 66815L2A6 850,000.00 Northwestern Mutual Glbl Note 0.8% Due: 01/14/2026 97.347 1.47%827,449.50 2,720.00 830,169.50 0.00 September 30, 2021 through December 31, 2021 As of December 31, 2021 36 61 Transaction Ledger City of Cupertino -Account #10659 Transaction Type Settlement Date CUSIP Quantity Security Description Price Acq/Disp Yield Amount Interest Pur/Sold Total Amount Gain/Loss Purchase 12/08/2021 74153WCQ0 885,000.00 Pricoa Global Funding Note 1.15% Due: 12/06/2024 99.897 1.19%884,088.45 0.00 884,088.45 0.00 Subtotal 10,605,000.00 10,625,932.65 12,562.46 10,638,495.11 0.00 TOTAL ACQUISITIONS 10,605,000.00 10,625,932.65 12,562.46 10,638,495.11 0.00 DISPOSITIONS Sale 10/19/2021 3137EADB2 750,000.00 FHLMC Note 2.375% Due: 01/13/2022 100.540 1.84%754,050.00 4,750.00 758,800.00 3,124.63 Sale 10/19/2021 912828XG0 700,000.00 US Treasury Note 2.125% Due: 06/30/2022 101.438 1.61%710,062.50 4,486.75 714,549.25 7,609.21 Sale 11/16/2021 313380GJ0 2,000,000.00 FHLB Note 2% Due: 09/09/2022 101.490 1.55%2,029,800.00 7,444.44 2,037,244.44 22,709.96 Sale 11/16/2021 912828XG0 550,000.00 US Treasury Note 2.125% Due: 06/30/2022 101.273 1.61%557,003.91 4,414.57 561,418.48 5,288.82 Sale 11/18/2021 912828L57 700,000.00 US Treasury Note 1.75% Due: 09/30/2022 101.395 1.62%709,761.72 1,649.04 711,410.76 8,978.32 Sale 12/08/2021 912828L57 750,000.00 US Treasury Note 1.75% Due: 09/30/2022 101.199 1.62%758,994.14 2,487.98 761,482.12 8,207.91 Subtotal 5,450,000.00 5,519,672.27 25,232.78 5,544,905.05 55,918.85 Maturity 11/24/2021 06417MMB8 3,000,000.00 Bank of Nova Scotia Houston Yankee CD 0.28% Due: 11/24/2021 100.000 3,000,000.00 8,493.32 3,008,493.32 0.00 Subtotal 3,000,000.00 3,000,000.00 8,493.32 3,008,493.32 0.00 TOTAL DISPOSITIONS 8,450,000.00 8,519,672.27 33,726.10 8,553,398.37 55,918.85 September 30, 2021 through December 31, 2021 As of December 31, 2021 37 62 Important Disclosures 2021 Chandler Asset Management,Inc,An Independent Registered Investment Adviser. Information contained herein is confidential.Prices are provided by IDC,an independent pricing source.In the event IDC does not provide a price or if the price provided is not reflective of fair market value,Chandler will obtain pricing from an alternative approved third party pricing source in accordance with our written valuation policy and procedures.Our valuation procedures are also disclosed in Item 5 of our Form ADV Part 2A. Performance results are presented gross-of-advisory fees and represent the client’s Total Return.The deduction of advisory fees lowers performance results.These results include the reinvestment of dividends and other earnings.Past performance may not be indicative of future results.Therefore,clients should not assume that future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.All investment strategies have the potential for profit or loss.Economic factors,market conditions or changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Index returns assume reinvestment of all distributions.Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee,the incurrence of which would have the effect of decreasing historical performance results.It is not possible to invest directly in an index. 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This report is provided for informational purposes only and should not be construed as a specific investment or legal advice.The information contained herein was obtained from sources believed to be reliable as of the date of publication,but may become outdated or superseded at any time without notice.Any opinions or views expressed are based on current market conditions and are subject to change.This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as indicator of future results.Past performance is not indicative of future results.This report is not intended to constitute an offer,solicitation,recommendation or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest,credit and market risk.Interest rate risk:the value of fixed income investments will decline as interest rates rise.Credit risk:the possibility that the borrower may not be able to repay interest and principal.Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk.Market risk:the bond market in general could decline due to economic conditions,especially during periods of rising interest rates. Ratings information have been provided by Moody’s,S&P and Fitch through data feeds we believe to be reliable as of the date of this statement,however we cannot guarantee its accuracy. Security level ratings for U.S.Agency issued mortgage-backed securities (“MBS”)reflect the issuer rating because the securities themselves are not rated.The issuing U.S.Agency guarantees the full and timely payment of both principal and interest and carries a AA+/Aaa/AAA by S&P,Moody’s and Fitch respectively. As of December 31, 2021 38 63 Benchmark Disclosures ICE BofA 1-5 Yr US Treasury & Agency Index The ICE BofA 1-5 Year US Treasury &Agency Index tracks the performance of US dollar denominated US Treasury and nonsubordinated US agency debt issued in the US domestic market.Qualifying securities must have an investment grade rating (based on an average of Moody’s,S&P and Fitch).Qualifying securities must have at least one year remaining term to final maturity and less than five years remaining term to final maturity,at least 18 months to maturity at time of issuance,a fixed coupon schedule,and a minimum amount outstanding of $1 billion for sovereigns and $250 million for agencies. As of December 31, 2021 39 64 66 PAGE 8 STATEMENT OF ASSETS AND LIABILITIES CITY OF CUPERTINO AS OF DECEMBER 31, 2021 ACCOUNT NUMBER 16737400_____________________________________________________________________________________________________________________________________ STATEMENT OF ASSETS AND LIABILITIES COST VALUE MARKET VALUE % TOTAL UNREALIZED PAR VALUE/SHARES DESCRIPTION / UNIT COST / UNIT PRICE MARKET GAIN/LOSS ACCRUED INCOME______________________________________________________________________________________________________________________________________ 965,000 GM FINANCIAL AUTOMOBILE LEASIN 964,986.88 955,736.00 0.69 9,250.88- 104.54 SER 2021-3 CL A3 *0 DAY DELAY*99.9987 99.0400 DTD 08/18/21 0.390 10/21/2024 CUSIP 36262XAC8 350,000 GM FINANCIAL SECURITIZED TERM 349,991.08 347,357.50 0.25 2,633.58- 99.17 SER 2021-4 CL A3 *0 DAY DELAY*99.9975 99.2450 DTD 10/21/21 0.680 09/16/2026 MOODY©S RATING AAA CUSIP 362554AC1 1,400,000 GUARDIAN LIFE GLOB FUND 1,385,860.00 1,363,348.00 0.98 22,512.00- 714.58 144A PRIV PLCMT 0.875 12/10/2025 98.9900 97.3820 MOODY©S RATING AA2 CUSIP 40139LBC6 165,844.77 HONDA AUTO RECEIVABLES OWNER T 165,831.72 166,141.63 0.12 309.91 60.44 SER 2020-2 CL A3 *0 DAY DELAY*99.9921 100.1790 DTD 05/27/20 0.820 07/15/2024 MOODY©S RATING AAA CUSIP 43813DAC2 295,000 HONDA AUTO RECEIVABLES OWNER T 294,994.60 293,418.80 0.21 1,575.80- 22.13 SER 2021-1 CL A3 *0 DAY DELAY*99.9982 99.4640 DTD 02/24/21 0.270 04/21/2025 MOODY©S RATING AAA CUSIP 43813GAC5 575,000 HONDA AUTO RECEIVABLES OWNER T 574,915.53 573,384.25 0.41 1,531.28- 76.83 SER 2020-3 CL A3 *0 DAY DELAY*99.9853 99.7190 DTD 09/29/20 0.370 10/18/2024 CUSIP 43813KAC6 460,000 HONDA AUTO RECEIVABLES OWNER T 459,903.03 458,882.20 0.33 1,020.83- 112.44 SER 2021-4 CL A3 *0 DAY DELAY*99.9789 99.7570 DTD 11/24/21 0.880 01/21/2026 MOODY©S RATING AAA CUSIP 43815GAC3 75 100 1/3/22, 4:28 PM LAIF Regular Monthly Statement https://laifms.treasurer.ca.gov/RegularStatement.aspx Local Agency Investment Fund P.O. Box 942809 Sacramento, CA 94209-0001 (916) 653-3001 January 03, 2022 LAIF Home PMIA Average Monthly Yields Account Number: December 2021 Statement Tran Type Definitions Account Summary Total Deposit 0 00 Beginning Balance 21,031,061 88 Total Withdrawal:0.00 Ending Balance:21,031,061.88 CITY OF CUPERTINO FINANCE MANAGER 10300 TORRE AVENUE CUPERTINO, CA 95014 110 CITY OF CUPERTINO Agenda Item 22-10516 Agenda Date: 2/24/2022 Agenda #: 5. Subject: Review of FY 2020-21 ACFR and Supplemental Reports Review of FY 2020-21 ACFR and Supplemental Reports CITY OF CUPERTINO Printed on 2/18/2022Page 1 of 1 powered by Legistar™111 CITY OF CUPERTINO, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2021 Prepared by the City of Cupertino Administrative Services Department Finance Division 113 i. CITY OF CUPERTINO, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT For the year ended June 30, 2021 CONTENTS INTRODUCTORY SECTION TABLE OF CONTENTS ..................................................................................................................... i LETTER OF TRANSMITTAL .............................................................................................................. iii ORGANIZATION CHART ................................................................................................................... x CITY COUNCIL AND DIRECTORY OF CITY OFFICIALS ................................................................ xi COMMISSIONS AND COMMITTEES ................................................................................................ xii CERTIFICATE OF AWARD FOR EXCELLENCE IN FINANCIAL REPORTING ............................... xiii FINANCIAL SECTION INDEPENDENT AUDITOR'S REPORT.................................................................................................... 1 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED).......................................................... 4 BASIC FINANCIAL STATEMENTS: GOVERNMENT-WIDE FINANCIAL STATEMENTS: STATEMENT OF NET POSITION ..................................................................................................... 25 STATEMENT OF ACTIVITIES ........................................................................................................... 26 FUND FINANCIAL STATEMENTS: GOVERNMENTAL FUNDS: BALANCE SHEET.............................................................................................................................. 28 RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO STATEMENT OF NET POSITION ................................................................................................... 29 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES ........................................................................................................................... 30 RECONCILIATION OF NET CHANGES IN FUND BALANCES — GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES.............................................. 31 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES — BUDGET AND ACTUAL — GENERAL FUND................................................................................... 32 BUDGET AND ACTUAL — TRANSPORTATION SPECIAL REVENUE FUND ................................ 33 BUDGET AND ACTUAL — HOUSING DEVELOPMENT SPECIAL REVENUE FUND .................... 34 PROPRIETARY FUNDS: STATEMENT OF NET POSITION ..................................................................................................... 36 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION ........................... 37 STATEMENT OF CASH FLOWS....................................................................................................... 38 NOTES TO BASIC FINANCIAL STATEMENTS....................................................................................... 39 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED): SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS .............. 74 SCHEDULE OF CONTRIBUTIONS — PENSION ............................................................................. 75 SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY AND RELATED RATIOS ..................... 76 SCHEDULE OF CONTRIBUTIONS – OPEB ..................................................................................... 77 114 Pre limina ry Draft ii. CITY OF CUPERTINO, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT For the year ended June 30, 2021 CONTENTS (Continued) OTHER SUPPLEMENTARY INFORMATION: SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE — BUDGET AND ACTUAL - PUBLIC FACILITIES CORPORATION DEBT SERVICE FUND .............. 79 NONMAJOR GOVERNMENTAL FUNDS: COMBINING BALANCE SHEET ........................................................................................................ 81 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES .................................................................................................... 82 COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES — BUDGET AND ACTUAL ....................................................... 83 NONMAJOR ENTERPRISE FUND: COMBINING STATEMENT OF NET POSITION ............................................................................... 87 COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION ......................................................................................................... 88 COMBINING STATEMENT OF CASH FLOWS................................................................................. 89 INTERNAL SERVICE FUNDS: COMBINING STATEMENT OF NET POSITION ............................................................................... 91 COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION ......................................................................................................... 92 COMBINING STATEMENT OF CASH FLOWS................................................................................. 93 STATISTICAL SECTION FINANCIAL TRENDS: NET POSITION/ASSETS BY COMPONENT — LAST TEN FISCAL YEARS................................... 96 CHANGES IN NET POSITION/ASSETS — LAST TEN FISCAL YEARS.......................................... 97 FUND BALANCES OF GOVERNMENTAL FUNDS — LAST TEN FISCAL YEARS......................... 99 CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS — LAST TEN FISCAL YEARS..............................................................................................................100 REVENUE CAPACITY: ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY — LAST TEN FISCAL YEARS....................................................................................101 DIRECT AND OVERLAPPING PROPERTY TAX RATES — LAST TEN FISCAL YEARS ............... 102 PRINCIPAL PROPERTY TAXPAYERS — CURRENT YEAR AND TEN YEARS AGO .................... 103 PROPERTY TAX LEVIES AND COLLECTIONS — LAST TEN FISCAL YEARS ............................. 104 DEBT CAPACITY: RATIOS OF OUTSTANDING DEBT BY TYPE — LAST TEN FISCAL YEARS ................................ 105 DIRECT AND OVERLAPPING BONDED DEBT................................................................................106 LEGAL DEBT MARGIN INFORMATION — LAST TEN FISCAL YEARS..........................................107 RATIO OF GENERAL BONDED DEBT — LAST TEN FISCAL YEARS ........................................... 108 DEMOGRAPHIC AND ECONOMIC INFORMATION: DEMOGRAPHIC AND ECONOMIC STATISTICS — LAST TEN FISCAL YEARS ........................... 109 2021 EMPLOYER RANKING ............................................................................................................. 110 OPERATING INFORMATION: FULL-TIME EQUIVALENT CITY EMPLOYEES BY FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ................................................................. 111 OPERATING INDICATORS BY FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ................ 112 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ........... 113 COMMUNITY PROFILE 115 iii. To the Citizens of Cupertino, Honorable Mayor, Members of the City Council, and City Manager It is our pleasure to submit the Annual Comprehensive Financial Report (ACFR) for the City of Cupertino (the City) for the fiscal year ended June 30, 2021. The report is prepared in accordance with generally accepted accounting principles (GAAP) set by the Governmental Accounting Standards Board (GASB). The report presents City information on an entity-wide basis and on a more detailed fund level basis. The fund-level reports emphasize the City’s major funds. A Management Discussion and Analysis (MD&A) presents a comparative analysis of current and prior year results, changes in financial position, a comparison of actual versus budget, financial highlights, trends, and disclosure of any known significant events or decisions that affect the financial condition of the City. This transmittal letter is designed to complement the MD&A and should therefore be read in conjunction with it. The MD&A is required supplementary information and is found in the Financial Section of the ACFR. The accuracy of the data presented and the completeness and fairness of the presentations, including all disclosures, are the responsibility of the management of the City. To provide a reasonable basis for making these representations, management has established a comprehensive internal control framework that is designed to protect the City’s assets and provide sufficient, reliable information for the proper preparation of these financial statements. We believe the data is accurate in all material respects and is presented in a manner that fairly sets forth the City’s financial position. Furthermore, we believe that all disclosures necessary to enable the reader to gain an understanding of the City’s financial activity have been included. REPORTING ENTITY This ACFR includes all component units and funds of the City. It reports all activities for which the City is considered to be financially accountable. The general governmental funds support a full range of services, including law enforcement, community development, recreation, public works, public and environmental affairs, and general administration. Enterprise funds account for recreation and solid waste operations supported by user fees. This financial report incorporates data for the City of Cupertino and its component unit, the Cupertino Public Facilities Corporation. The City operates under a Council-City Manager form of government. There are five council members, including the Mayor, who serve staggered four-year terms. The City Council appoints the City Manager who is responsible for the daily administration of City affairs. The City Council also appoints the City Attorney and the City Treasurer via resolution. All other employees are appointed by the City Manager. CITY OF CUPERTINO CITY HALL 10300 TORRE AVENUE • CUPERTINO, CA 95014-3202 (408) 777-CITY • WWW.CUPERTINO.ORG 116 ECONOMIC CONDITIONS The City of Cupertino is located in Santa Clara County at the southern end of the San Francisco Bay Peninsula. The City is comprised of 13-square miles and is bordered by the cities of San Jose, Saratoga, Sunnyvale, Santa Clara, and Los Altos. It has a residential population of 66,274. Situated at the west end of Silicon Valley, Cupertino has earned the reputation of a balanced community with a healthy climate for business and well-maintained residential neighborhoods, community parks and public facilities. The excellent reputation of Cupertino’s schools is a major attraction for families wishing to settle in close proximity to high paying jobs in Silicon Valley. The City recognizes the importance of quality school facilities and programs to all Cupertino residents, and works in partnership with the schools in many programs affecting education and youth. National surveys rank the City high in education levels, average household incomes, and registered patent numbers, as well as one of the best cities in which to live and raise a family. Because Cupertino is a mature, 93% built-out city, the City of Cupertino focuses on business retention and revitalization. Cupertino is world renowned as the home of high-tech giants, such as Apple, Inc., and as a community with stellar public schools. De Anza College, one of the largest single-campus community colleges in the country, is another major employer and a magnet for attracting local and international students. The City’s proactive economic development efforts have resulted in an innovative environment for start-ups and growing companies to thrive.The City strives toretain andattract local companies through active outreach and a responsive and customer-oriented entitlement process. Cupertino approved a new mixed-use development project, Westport Cupertino, on the site of the former Oaks Shopping Center. The new development will include 88 townhome/rowhouses, 128 senior assisted living units, as well as 48 Senior Below Market Rate apartments. Further, the development will continue to provide approximately 20,000 square feet of retail open to the public. The Main Street and Nineteen800 mixed-use developments continue to provide a vibrant downtown area for Cupertino, offering a large selection of restaurants and retailers, including Alexander’s Steakhouse, Eureka!, Oren’s Hummus, Lazy Dog, Ippudo, HaiDiLao Hot Pot Restaurant, Pressed Juicery, Orangetheory, 85 Degree Bakery, Somi Somi, Sul & Beans, Kura Sushi, La Pizzeria, Boiling Point and Jin Tea, Koja Kitchen, Bishops Cuts & Colors, Capezio, Howard’s Shoes, Tan Cha, and Meet Fresh. Housing, office, and the Residence Inn by Marriott are available to support the thriving area. Benihana, Bowlmor, and Ice Center Cupertino also serve as long-time anchors of the remaining portion of Vallco. The existing retail and commercial developments, many of which have been recently redeveloped, strengthens existing popular venues in Cupertino, including The Marketplace, Cupertino Village, Crossroads, and Homestead Square. The Marketplace has a variety of stores and restaurants popular with students, families, and working professionals. They include Galpao Gaucho, Daiso, Marukai Groceries, Harumi Sushi, La Patisserie Bakery, Beard Papa’s, Legend’s Pizza,, while Cupertino Village continues to be home to 99 Ranch Market, Duke of Edinburgh Pub & Restaurant, JSJ Street Kitchen, Kira Kira Beauty, MOD Pizza, Ten Ren Tea, Fantasia Coffee & Tea, , and many other Asian restaurants, bakeries, and shops. Homestead Square Shopping Center, located at Homestead Road and De Anza Boulevard, includes a 24- hour Safeway, Ulta Beauty, Ross Stores, Stein Mart, Pet Club, Michael’s, Rite Aid, FedEx, and numerous restaurants, such as Fish’s Wild, Pho Hoa Noodle Soup, Yayoi Teishoku Japanese Restaurant, Starbucks, and Chipotle. Cupertino features many other retail opportunities, including TJ Maxx and Home Goods, Whole Foods, Target, Party City, and over 180 restaurants to serve residents and the local workforce. There are now seven 117 from Apple. Additionally, a change in estimate in which the City adjusted its accrual practice to include the full remittance amounts from July and August 2020 contributed to approximately $9.0 million of the increase over the previous fiscal year. This change in estimate will be applied prospectively and consistently moving forward. Though much uncertainty remains during the course of the pandemic, the City has seen continued increases in FY 2020-21 due to the telework transition, the state-wide need for additional electronic equipment and infrastructure, and the Wayfair decision. With the economic recovery and easing of credit, commercial development activity picked up considerably in 2012-13 and 2013-14 led by plan reviews of the new Apple Campus 2. Plans for the redevelopment of the Marina shopping center into a mixed-use project, Marina Plaza, was approved in 2016. This project will include 23,000 SF of retail and restaurant use, a 122-room boutique hotel, and 188 residential units including 16 below market rate units. Construction of a five story, 148-room Hyatt House hotel was completed in April 2019 and includes a full-service restaurant and meeting rooms. Through the City’s new General Plan Amendment (GPA) Authorization Process applications for two development projects were authorized by City Council during FY 2019-20 with the De Anza Hotel and the Cupertino Village Hotel. The City’s pension and retiree medical (also referred to as OPEB, Other Post-Employment Benefits) unfunded actuarial accrued liabilities are discussed in the Notes to the Basic Financial Statements. The City must pay CalPERS, the state’s government pension system, annually to reduce its long-term liability for pensions. Cupertino’s CalPERS actuarial valuation report as of June 30, 2020 reported a pension unfunded accrued liability of $49.2 million with annual payments to CalPERS of 31.9% and 32.6% of projected payroll for 2022-23 and 2023-24, respectively, with ongoing increases after that because of actuarial assumption changes. CalPERS recently experienced strong performance in FY 20-21 with a return of 21.3% that ultimately triggered a reduction in the discount rate from 7% to 6.8%. To address long-term rising costs, Cupertino and state law has reduced pension benefits for new hires and increased employee contributions. As of June 30, 2021,the City has a Net OPEB Asset of $9.4 million with annual payments to a retiree health plan trust at -40.7% of payroll. The negative percentage of payroll further represents an over-funded status. In addition to the City’s Section 115 OPEB Investment Trust established in 2010, in fiscal year 2017-18, the City Council approved the establishment of a Section 115 Pension Investment Trust as part of a pension rate stabilization program. An initial investment of $8,000,000 was made in FY 2018-19 and an additional contribution of $4 million and $2 million was made in FY 2019-20 and FY 2020-21, respectively. Because the City contracts out police services to the County Sheriff and because fire protection is handled by a special district, the City avoids the high pension, capital, and operating costs of a City-operated public safety function. The City caps its contributions to employee health insurance premiums that benefit both the City and employees. A build-up of operating reserves from strong revenue years, such as 2013-14, along with a traditional under-spending of budgets, enables the City to withstand weak revenue years that occur periodically, such as in 2009-10. On March 11, 2021, the American Rescue Plan Act (ARP) of 2021 was signed into law and established the Coronavirus State Fiscal Recovery Fund and Coronavirus Local Fiscal Recovery Funds, which together make up the Coronavirus State and Local Fiscal Recovery Funds (“SLFRF”). The ARP is a $1.9 trillion economic stimulus bill. Within the ARP, the Coronavirus Local Fiscal Recovery Fund provided $350 billion for states, municipalities, counties, tribes, and territories, including $130 billion for local governments split evenly between municipalities and counties. California cities are expected to receive more than $7 billion dollars in much needed assistance to help offset the billions of dollars in revenue shortfalls due to the shutdown of local economies and the billions spent protecting public health, 119 vii. delivering essential services, protecting vulnerable populations, and helping small businesses survive during the pandemic. The City of Cupertino is expected to receive two payments totaling $9,694,773 in SLFRF funding. The first payment was received in May 2021 in the amount of $4,847,386.50 and the second payment is expected in May 2022. The City may use SLFRF funds to cover these eligible costs incurred during the period that begins on March 3, 2021 and ends on December 31, 2024, as long as the award funds for the obligations incurred by December 31, 2024 are spent by December 31, 2026. As a recipient of the SLFRF award, the City has substantial discretion to use the award funds in the ways that best suit the needs of the City’s constituents – as long as such use fits into one of the following four statutory categories determined by the U.S. Department of the Treasury: Public Health/Negative Economic Impacts: Recipients may use SLFRF award funds to provide assistance to households – such as rent, mortgage, or utility assistance – for costs incurred by the household prior to March 3, 2021, provided that the City did not incur the cost of providing such assistance prior to March 3, 2021. Premium Pay: Recipients may provide premium pay retrospectively for work performed at any time since the start of the COVID-19 public health emergency. Such premium pay must be “in addition to” wages and remuneration already received and the obligation to provide such pay must not have been incurred by the recipient prior to March 3, 2021. Revenue Loss: Treasury’s Final Rule gives recipients broad latitude to use funds for the provision of government services to the extent of reduction in revenue. While calculation of los revenue begins with the recipient’s revenue in the last full fiscal year prior to the COVID-19 public health emergency and includes the 12-month period ending December 31, 2020, use of funds for government services must be forward looking for costs incurred by the recipient after March 3, 2021. Investments in Water, Sewer, and Broadband: Recipients may use SLFRF award funds to make necessary investments in water, sewer, and broadband. Recipients may use SLFRF award funds to cover costs incurred for eligible projects planned or started prior to March 3, 2021, provided that the project costs covered by the SLFRF award funds were incurred after March 3, 2021. On September 7, 2021, the Cupertino City Council approved a plan which allocated the ARP funding towards revenue loss which was estimated at approximately $29 million. Additionally, the $9.7 million in total ARP funding was approved to be spent on general government services in the General Fund, specifically, City Work Program and special project items. Subsequently, and in accordance with the Treasury’s Final Rule, a $10 million “standard allowance” may be taken which would relieve a jurisdiction’s substantiation of revenue loss. Nevertheless, the City plans to continue using the ARP funding as originally authorized and will continue to monitor and report out on the estimated and actual revenue losses resulting from the pandemic. ECONOMIC INITIATIVES With the expanded Apple presence, and the on-going pandemic, the City’s revenue base will remain concentrated among its top companies and top economic sector, the volatile business-to-business area. Past recessions and the historic departure of major tax providers including, but not limited to, Hewlett-Packard and Seagate, demonstrates the need for diversification of the City’s revenue base and a long-term balance of revenues and expenditures. The City desires other revenues to mitigate the fluctuating nature of sales taxes, hotel taxes, user fees, and state grabs of local taxes in times of budget distress. 120 COVID-19 has had significant adverse impacts on the City’s transient occupancy taxes, charges for services, and is sure to have long-lasting impacts on its sales tax. While the City’s revenues remained strong in FY 2020-21 and are currently on pace with projections in FY 2021-22, the City’s strong, untapped reserves afford the City to continue actively mitigating the impacts of the pandemic on the community. Efforts to reduce operating costs, additional allocations for tenants at risk of eviction and homeless assistance, public facility and area sanitation enhancements, and small business grant assistance are all examples in FY 2019-20 and FY 2020-21 of the City’s on-going ability and commitment to overcome these challenges. ACCOUNTING AND BUDGETARY CONTROL In developing and evaluating the City’s accounting system, consideration is given to the adequacy of internal accounting controls. The City’s controls are designed to provide reasonable, but not absolute, assurance regarding the safeguarding of assets against losses from unauthorized use or disposition and the reliability of financial records for preparing financial statements and maintaining accountability of assets. The concept of reasonable assurance recognizes that the costs of a control should not exceed the benefits likely to be derived and that the evaluation of costs and benefits requires estimates and judgments by management. The City’s budget is a detailed operating plan that identifies estimated costs and results in relation to estimated revenues. The budget includes 1) the programs, projects, services and activities to be provided during the fiscal year; 2) estimated revenue and fund balance available to finance the operating plan; and 3) the estimated spending requirements of the operating plan. The budget represents a process through which policy decisions are made, implemented and controlled. INDEPENDENT AUDIT City ordinance requires an annual audit of the financial records by an independent certified public accounting firm selected by the City Council and its audit committee. Crowe LLP audited the City’s Basic Financial Statements, and their opinion thereon is included in the Financial Section of this report. FRAUD INVESTIGATION On September 5, 2018 the Santa Clara County Sheriff’s Office arrested former City of Cupertino employee Jennifer “Yuen-Cheng” Chang, Senior Accountant, for her role in the embezzlement of public funds. It is believed that Ms. Chang issued and cashed numerous fraudulent checks between 2000 and 2014 for a total of $791,494. The scheme ended in September 2014 right before the implementation of an upgraded financial system in December 2014 that tightened internal controls. Ms. Chang, who was hired by the City in 1997, retired in July 2015. The checks were uncovered earlier this year by staff during a multi-year, detailed review of several accounts—including payroll, bank reconciliations, and deposits—which began after the implementation of the new financial system in fiscal year 2014-2015. The checks were found debited against a liability account and deemed suspicious due to their nature, size, and lack of supporting documentation. The Santa Clara County Sheriff’s Office submitted its case to the Santa Clara County District Attorney’s Office for the issuance of a warrant for Ms. Chang. The California Attorney General has brought forward 68 criminal charges against Ms. Chang. The City of Cupertino is seeking full restitution from Ms. Chang through upcoming criminal and civil proceedings. 121 ix. At a Preliminary Hearing on December 10, 2019, Judge Pennypacker ruled that Ms. Chang will have to stand trial on 53 felony counts. The counts include Grand Theft and Computer Intrusion for the period September 28, 2000 to September 5, 2014, and Embezzlement for the period July 22, 2011 to September 5, 2014. Because Ms. Chang’s bank does not save documents from prior to 2011, the State cannot prove an element of the crime of embezzlement. Currently, the Judge set the case for an arraignment for further decision. It is the City’s position to support prosecution to the fullest extent of the law, including full restitution and jail time if criminal liability is found. Among other internal controls maintained by the City over its financial records, in addition to the upgraded financial system in December 2014 that tightened internal controls, the City also hired additional accounting staff to enhance segregation of duties and established an internal audit function that was approved for implementation in fiscal year 2019-20. Lastly, the City has engaged Moss Adams, LLP to serve as its internal auditor. CERTIFICATE OF ACHIEVEMENT The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Cupertino for its ACFR for the year ended June 30, 2020. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized ACFR. This report must satisfy both GAAP and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that the current report continues to meet the Certificate of Achievement Program’s requirements. Respectfully submitted, Zach Korach Finance Manager ACKNOWLEDGMENTS I would like to express my appreciation to City employees, department heads, the City Manager, members of the Audit Committee, and members of City Council for their interest in conducting the financial operations of the City in a responsible manner. Special thanks go to, Thomas Leung, Zeng Wang, Min Zhao, Jumaini Judoprasetijo, Vi Tran, and Amber Chang of the Finance Division for their continued support and dedication. Special recognition to Beth Viajar, Richard Wong, and Giang Dinh for their efforts in the preparation and production of this report. Reviewed by, Kristina Alfaro Director of Administrative Services 122 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Cupertino California For its Annual Comprehensive Financial Report For the Fiscal Year Ended June 30, 2020 Executive Director/CEO xiii.126 (Continued) 1. INDEPENDENT AUDITOR'S REPORT To the Honorable Mayor and City Council City of Cupertino, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Cupertino, California (City) as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 127 (Continued) 2. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2021, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund, the Transportation Special Revenue Fund, and the Housing Development Special Revenue Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1 to the financial statements, during the year ended June 30, 2021, the City implemented GASB Statement No. 84, Fiduciary Activities, effective July 1, 2020. This change resulted in the previously reported fiduciary fund to no longer be considered a component unit or a fiduciary fund of the City and as such it is no longer included in the City’s financial statements. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, and the required supplementary information section on pages 4-21 and 77-81 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by 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 auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, other supplementary information section, statistical section and community profile are presented for purposes of additional analysis and are not a required part of the basic financial statements. The other supplementary information section 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. Such 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 directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information section is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section, statistical section and community profile has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. 128 3. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated 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 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. Costa Mesa, California 129 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 4 This section describes the City of Cupertino’s financial performance for the year. Readers are encouraged to consider the following information in conjunction with the accompanying Transmittal Letter and Basic Financial Statements. 2020-21 FINANCIAL HIGHLIGHTS The COVID-19 pandemic, and the ensuing lockdowns, has negatively affected economies not only in the region, but around the world. Sales tax, transient occupancy tax, and charges for services were both positively and negatively impacted as explained further below. However, while much uncertainty remains regarding the length and magnitude of these impacts, the City stands well positioned with robust fund balance reserves that have been bolstered by strong sales tax performance, federal funding from the American Rescue Plan Act of 2021, and budget reduction strategies. The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the fiscal year 2020-21 by $335.1 million (net position). Of this amount, $92.8 million represents unrestricted net position, which may be used to meet the City’s ongoing obligations to citizens and creditors. City revenues have increased in 2020-21 with base governmental revenues showing a $3.4 million increase, or 3%, over 2019-20. The primary fluctuations include an increase in property and sales tax and program revenues that are offset by decreases in transient occupancy tax and charges for services. According to the 2020-2021 Assessor’s Annual Report for Santa Clara County, Cupertino’s net assessment roll growth increased $1.8 billion million, or 6.95%, from the prior year. Approximately $802 million was attributable to residential use values and $782 million were attributable to unsecured asset increases. The City experienced an increase of approximately $10.8 million, or 43.2%, in FY 2019-20 sales tax revenues compared to the previous year. This trend continued in FY 2020-21 with sales tax revenues increasing by $6.9 million or 19.4% over the previous fiscal year. Although the City experienced declines in many of the sectors including autos and transportation, building and construction, fuel and service stations, general consumer goods, and restaurants and hotels over the last two year, these experiences were mitigated by strong performance in the business and industry sector and the City’s county pool allocation. The COVID-19 pandemic has brought great uncertainty to the economy and although the business and industry sector has experienced significant growth due to the telework conversion and closure of brick-and-mortar retail, the City continues to monitor and forecast these sectors conservatively. COVID-19 and shelter-in-place orders brought the City’s transient occupancy taxes to a near halt beginning in March of 2020. As a result, the City’s experienced a $5.1 million, or 70.6%, decrease in transient occupancy tax over the previous fiscal year. The City continued to make substantial investment into capital projects dedicated to street and transportation improvements, storm drain improvements, and maintenance of and improvements to City facilities, resulting in an increase in net capital assets of $11.5 million, or 6%, after depreciation. The City’s change in net position was $32.0 million for governmental activities and $34.3 million in total, reflecting the continued positive experience in sales tax and modest departmental spending. The City’s Net Pension Liability for June 30, 2021, was $48.5 million, up $2.4 million from June 30, 2020, or 5.2%. The Plan Fiduciary Net Position as a Percentage of the Total Pension Liability for the City’s pension plan with CalPERS maintained at 68.2%. During fiscal year 2020-21, the City Council approved an additional $2 million contribution to the City’s recently established pension rate stabilization program (Section 115 Trust). Annual contributions to this trust will continue on an annual basis and as part of the City’s budget process. In accordance with guidance under GASB 67/68, the assets in the Section 115 Trust are reported as restricted cash and investments in the City’s General Fund. While the Section 115 Trust qualifies as a “trust,” the assets in the Section 115 Trust 130 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 5 are not used to directly pay benefits to beneficiaries; rather, they are used to pay CalPERS via the CERBT Trust and as a result, the activities are not required to be reported in a fiduciary fund. The Trust’s ending balance as of June 30, 2021 was $18.5 million. Business-type activities contributed $4.9 million to citywide revenues totaling $120.6 million, while the same activities contributed over $5.5 million to citywide expenses of $86.4 million. The City implemented the provisions of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, during fiscal year 2017-18. This statement requires governments to report a liability on the face of the financial statements for the OPEB provided by the City. During FY 2019-20, the City reduced the discount rate from 7.0% to 6.5% which consequently increased the Total OPEB Liability. As of June 30, 2020, the City reported a Net OPEB Liability of $2.0 million. With strong investment performance during FY 2020-21, the City’s actuarial valuation generated a Net OPEB Asset of $9.4 million. The City also reported deferred outflows and inflows related to OPEB of $1.6 million and $9.8 million, respectively. As of June 30, 2021, the City’s OPEB plan had a funding ratio or funded ratio or status of 132%. On September 29, 2020, the City of Cupertino’s 2020A Certificates of Participation (2020 COPs) were successfully sold in order to refund the City’s 2012 Certificates of Participation for debt service savings. The 2020 COPs were very well received by investors due in large part to the well-regarded Cupertino name, the top-notch AA+ rating, the sizable annual principal amounts and short maturity, and favorable supply and demand dynamics in the California municipal market. The refunding generated net present value savings of approximately $3.14 million, 11.61% of refunded par and a True Interest Cost of 0.72%. Savings to the City’s General Fund amounts to approximately $494,000 per year for the next 10 years, or almost $5 million in total savings. On March 11, 2021, the American Rescue Plan Act (ARP) of 2021 was signed into law and established the Coronavirus State Fiscal Recovery Fund and Coronavirus Local Fiscal Recovery Funds, which together make up the Coronavirus State and Local Fiscal Recovery Funds (“SLFRF”). The American Rescue Plan (ARP) Act of 2021 is a $1.9 trillion economic stimulus bill. Within the ARP, the Coronavirus Local Fiscal Recovery Fund provided $350 billion for states, municipalities, counties, tribes, and territories, including $130 billion for local governments split evenly between municipalities and counties. California cities are expected to receive more than $7 billion dollars in much needed assistance to help offset the billions of dollars in revenue shortfalls due to the shutdown of local economies and the billions spent protecting public health, delivering essential services, protecting vulnerable populations, and helping small businesses survive during the pandemic. The City of Cupertino is expected to receive two payments totaling $9,694,773 in SLFRF funding. The first payment was received in May 2021 in the amount of $4,847,386.50 and the second payment is expected in May 2022. The City may use SLFRF funds to cover these eligible costs incurred during the period that begins on March 3, 2021 and ends on December 31, 2024, as long as the award funds for the obligations incurred by December 31, 2024 are spent by December 31, 2026. As a recipient of the SLFRF award, the City has substantial discretion to use the award funds in the ways that best suit the needs of the City’s constituents – as long as such use fits into one of the following four statutory categories determined by the U.S. Department of the Treasury: - Public Health/Negative Economic Impacts: Recipients may use SLFRF award funds to provide assistance to households – such as rent, mortgage, or utility assistance – for costs incurred by the household prior to March 3, 2021, provided that the City did not incur the cost of providing such assistance prior to March 3, 2021. - Premium Pay: Recipients may provide premium pay retrospectively for work performed at any time since the start of the COVID-19 public health emergency. Such premium pay must be “in addition to” wages and remuneration already received and the obligation to provide such pay must not have been incurred by the recipient prior to March 3, 2021. 131 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 6 - Revenue Loss: Treasury’s Final Rule gives recipients broad latitude to use funds for the provision of government services to the extent of reduction in revenue. While calculation of los revenue begins with the recipient’s revenue in the last full fiscal year prior to the COVID-19 public health emergency and includes the 12-month period ending December 31, 2020, use of funds for government services must be forward looking for costs incurred by the recipient after March 3, 2021. - Investments in Water, Sewer, and Broadband: Recipients may use SLFRF award funds to make necessary investments in water, sewer, and broadband. Recipients may use SLFRF award funds to cover costs incurred for eligible projects planned or started prior to March 3, 2021, provided that the project costs covered by the SLFRF award funds were incurred after March 3, 2021. On September 7, 2021, the Cupertino City Council approved a plan whichallocatedtheARP funding towards revenue loss which was estimated at approximately $29 million. Additionally, the $9.7 million in totalARP funding was approved to be spent on general government services in theGeneral Fund, specifically, City Work Program and special project items. Subsequently, and in accordance with the Treasury’s Final Rule, a $10 million “standard allowance” may be taken which would relieve a jurisdiction’s substantiation of revenue loss. Nevertheless, the City plans to continue using the ARP funding asoriginally authorizedand willcontinue to monitor and report out on theestimated and actual revenue losses resulting from the pandemic. OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the City’s Basic Financial Statements. The Basic Financial Statements are comprised of the City-wide Financial Statements, the Fund Financial Statements, and the notes to the Basic Financial Statements. These two sets of financial statements provide two different views of the City’s financial activities and positions. The City-Wide Financial Statements provide a long-term view of the City’s activities as a whole, and comprise the Statement of Net Position and the Statement of Activities. These statements are prepared on the accrual basis, which means they measure the flow of all economic resources of the City as a whole. The accrual basis of accounting is similar to the accounting used by most private sector companies. The Statement of Net Position provides information about the financial position of the City as a whole, including all its capital assets and long-term liabilities. The Statement of Activities provides information about all the City’s revenues and expenses, with the emphasis on measuring net revenues and expenses for each of the City’s programs. The Statement of Activities explains in detail the change in net position for the year. Over time, increases or decreases in net positioncanbe indicators of whether the financial condition of the City is improving or deteriorating. All of the City’s activities are grouped into Governmental activities and Business-type activities, as explained below. The Statement of Net Position and the Statement of Activities provide a summary of these two types of activities for the City as a whole. Governmental activities—Most of the City’s basic services are considered to be governmental activities, including public works, law enforcement, community development, recreation, public & environmental affairs, and general administration. These services are supported by general City revenues such as property, sales and other taxes, and by specific program revenues such as developer fees and grants. The City’s governmental activities include the activities of a separate legal entity, the Cupertino Public Facilities Corporation (the “Corporation”), because the City is considered to be financially accountable for the Corporation. The City leases its major facilities from the Corporation, which then uses the lease payments to pay principal and interest on the Corporation’s long-term debt. 132 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 7 Business-type activities—All of the City’s enterprises are reported here, including solid waste management and most of the City’s recreational operations. Unlike governmental services, these services are supported by charges paid by users based on the amount of services used. The Fund Financial Statements report the City’s operations in more detail than the City-wide Financial Statements and focus primarily on the short-term activities of the City’s General Fund and other major funds. The Fund Financial Statements measure only current revenues, expenditures, assets, liabilities, and deferred inflows and outflows of resources; they exclude long-term assets and liabilities. Because these statements focus on the near-term inflows and outflows of spendable resources, such information may be useful in evaluating near-term financing requirements. The Fund Financial Statements provide detailed information about each of the City’s most significant funds, called major funds. Cupertino’s Fund Financial Statements include governmental, enterprise and internal service funds as discussed below. Each major fund is presented individually, with all non-major funds summarized and presented only in a single column. Subordinate schedules, which follow the Notes to Basic Financial Statements, present the detail of these non-major funds. Major funds present the significant activities of the City for the year, and may change from year to year as a result of changes in the pattern of City’s activities and public interest. For example, the Capital Improvement Projects Fund may or may not appear as a major fund depending on the volume of construction activity in a certain year. Governmental Fund financial statements are prepared on the modified accrual basis, which means they measure only current financial resources and uses. They present essentially the same functions reported as governmental activities in the city-wide financial statements. However, capital assets and other long- lived assets, along with long-term liabilities, are not presented in the Governmental Fund financial statements. Reconciliations are provided to facilitate a comparison between governmental funds and governmental activity statements to allow a better understanding of the long-term impact of the government’s near-term financial decisions. Comparisons of budget and actual financial information are included in the Basic Financial Statements for the General Fund and other major Special Revenue Funds. For other nonmajor funds, budgetary comparison schedules for these funds are included in this document as supplemental information only. Enterprise and Internal Service Fund financial statements are prepared on the full accrual basis and include current and long-term assets and liabilities and deferred outflows and inflows of resources. Enterprise funds are used to report the same functions presented as business-type activities in the City- wide Financial Statements, and in more detail in the Fund Financial Statements. Since the City’s Internal Service funds provide goods and services only to the City’s governmental and business-type activities, their activities are reported only in total at the fund level. Internal Service funds may not be major funds because their revenues are derived from other City funds. These revenues are eliminated in the City-wide financial statements and any related profits or losses are returned to the activities which created them, along with any residual net position of the Internal Service funds. For this City, internal service activities predominantly benefit governmental rather than business-type functions, and are therefore included within governmental activities in the City-wide Financial Statements. The Notes to Basic Financial Statements provide important additional detail that is essential to a full understanding of the data reported in the City-wide and Fund Financial Statements. CITY-WIDE FINANCIAL ACTIVITIES This analysis focuses on the net position and changes in net position of the City’s Governmental Activities (Tables 1 and 2) and Business-Type Activities (Tables 3 and 4) as presented in the City-wide Statement of Net Position and the Statement of Activities. 133 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 8 Governmental Activities Table 1 Condensed Statement of Net Position at June 30 (in thousands) Governmental Activities 2021 2020 Assets: Cash and investments $ 167,810 $ 147,608 Restricted cash and investments 18,499 17,088 Other assets 17,260 17,150 Net OPEB assets 8,958 - Capital assets 210,273 199,776 Total assets 422,800 381,622 Deferred Outflows of Resources: Loss on refunding 239 - Related to Pension (Note 10) 8,623 9,050 Related to OPEB (Note 11) 1,468 2,590 Total deferred outflows of resources 10,330 11,640 Liabilities: Long term debt 23,348 27,010 Other liabilities 77,687 72,819 Total liabilities 101,035 99,829 Deferred Inflows of Resources: Related to Pension (Note 10) 100 774 Related to OPEB (Note 11) 8,323 1,032 Total deferred inflows of resources 8,423 1,806 Net Position: Net Investment in capital assets 186,503 177,128 Restricted 53,711 48,006 Unrestricted 83,458 66,493 Total net position $ 323,672 $ 291,627 The City’s change in net position from governmental activities was $32.0 million. The following significant changes within assets, liability, and net position categories occurred: The City made an additional $2 million contribution to its Section 115 Trust as part of the City’s pension rate stabilization program. In accordance with guidance under GASB 67/68, the assets in the Section 115 Trust are reported as restricted cash and investments in the City’s General Fund. While the Section 115 Trust qualifies as a “trust,” the assets in the Section 115 Trust are not used to directly pay benefits to beneficiaries; rather, they are used to pay CalPERS via the CERBT Trust and as a result, the activities are not required to be reported in a fiduciary fund. 134 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 9 Cash and investments increased by $20.2 million, or 13.7%, over the previous fiscal year. This was due to continued positive performance of the City’s sales tax, receiving of the 1 st tranche of American Rescue Plan Act funding ($4.8 million), and reduced departmental spending in an effort to mitigate the fiscal impacts brought on by the pandemic.With strong investment performance in the City’s Section 115 OPEB Investment Trust, the City’s Net OPEB Liability was converted to a Net OPEB Asset in FY 2020-21 and was reported at $9.4 million.Capital assets increased approximately $10.5 million. This consisted of continued significant capital investment into capital projects dedicated to street and transportation improvements, storm drain improvements, and maintenance of and improvements to City facilities that were offset with current year depreciation expense.Long-term debt decreased by $3.7 million or 13.6% over the previous year and resulted from the successful refunding of the City’s 2012 Certificates of Participation in September 2020.Other liabilities increased by approximately $4.9 million, primarily due to an increase in the City’s Net Pension Liability as well as a $4.8 million unearned revenue related to the American Rescue Plan Act of 2021.Deferred Outflows Related to Pension and OPEB decreased $1.6 million primarily due to actuarial changes of assumptions. Deferred Inflows of Resources Related to Pension and OPEB increased approximately $6.6 million primarily due to actuarial changes of assumptions. Sources of Revenue, Governmental Activities 2020-21 Program revenues experienced consistent performance year-over-year as the pandemic has had significant adverse impact on charges for services, particularly in the Parks and Recreation department. With the exception of transient occupancy taxes, the City’s general tax revenues remained strong with sales tax continuing its unprecedented positive performance throughout the pandemic. Revenues increased $3.4 million from the prior year, primarily due to decreases in functional program revenues offset with increases in general revenues. 135 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 10 Functional Expenses, Governmental Activities 2020-21 The Statement of Activities presents program revenues, expenses, general revenues, and the resulting change in net position as summarized in the next table. 136 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 11 Table 2 Condensed Statement of Activities for the Year Ended June 30 (in thousands) Governmental Activities Expenses 2021 2020 Administration $3,637 $7,975 Law enforcement 15,212 14,698 Innovation & technology 1,722 3,637 Administrative services 5,358 5,176 Recreation and community services 1,183 8,763 Community development 11,496 10,286 Public works 41,870 33,339 Interest on long-term debt 398 883 80,876 84,757 Revenues Program revenues: Charges for services 18,137 19,911 Operating grants and contributions 5,998 5,794 Capital grants and contributions 1,792 1,047 Total program revenues 25,928 26,752 General revenues: Taxes: Property tax 19,198 18,117 Property tax in-lieu of motor vehicle fee 9,080 8,490 Sales tax 42,581 35,657 Transient occupancy tax 2,141 7,286 Utility user tax 3,074 3,182 Franchise tax 3,368 3,419 Other taxes 3,022 1,774 Intergovernmental, unrestricted: Motor vehicle license fee 44 47 Investment earnings 4,148 3,259 Gain on sale of capital assets - 4 Miscellaneous 3,185 1,187 Total general revenues 89,842 85,586 Total revenues 115,770 112,338 Excess of revenues over expenses, before transfers 34,894 27,581 Transfers (Note 4) (2,849) (3,523) Change in net position 32,045 24,058 Beginning net position 291,627 267,569 Ending net position $ 323,672 $ 291,627 137 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 12 City-wide Governmental Activities Revenues Table 2 shows that revenues from governmental activities increased $3.4 million or 3.1% from last year, finishing at $115.8 million. General revenues also experienced a net increase namely, property tax, sales tax, and other taxes as further discussed below. Increases in the City’s general revenues are attributable to a $1.6 million increase in property tax over the prior year. According to the 2020-2021 Assessor’s Annual Report for Santa Clara County, Cupertino’s net assessment roll growth increased $1.8 billion million, or 6.95%, from the prior year. Approximately $802 million was attributable to residential use values and $782 millionwere attributable to unsecured asset increases. The City experienced an increase of approximately $10.8 million, or 43.2%, in FY 2019-20 sales tax revenues compared to the previous year. This trend continued in FY 2020-21 with sales tax revenues increasing by $6.9 million or 19.4% over the previous fiscal year. Although the City experienced declines in many of the sectors including autos and transportation, building and construction, fuel and service stations, general consumer goods, and restaurants and hotels over the last two year, these experiences were mitigated by strong performance in the business and industry sector and the City’s county pool allocation. The COVID-19 pandemic has brought great uncertainty to the economy and although the business and industry sector has experienced significant growth due to the telework conversion and closure of brick-and-mortar retail, the City continues to monitor and forecast these sectors conservatively. In FY 2019-20, transient occupancy tax had decreased $1.6 million, or 18.1%, over the prior year due to the COVID-19 and related shelter in place orders. FY 2020-21 experienced similar trends, but were extrapolatedfor the entire year. Total transient occupancy taxes amountedto $2.1 million and weredown $5.1 million, or 70.6%. The road to recovery for this tax source is anticipated to take longer than other areas as employers’ long-term and permanent telework policies will have substantial impact on the timing and extent of recovery. Other taxes experienced a $1.2 million, or 70.3% increase which was primarily driven by $735,259 in federal funding received from the CARES Act. While the revenue was not recognized in FY 2020-21, it is important to note that $4.8 million in federal funding was received from the American Rescue Plan Act of 2021. This amount, in addition to the second payment of $4.8 million to be received in May 2022 will all be recognized in FY 2021-22. Investment earnings saw a decrease of $1.5 million, or 27.1%, over the prior year. This was due to the City’s portfolio’s total rate of return of 0.27% (net of fee) for the fiscal year (source: Chandler Asset Management). Program revenues showed a decrease of $824,000, or 3%, and is primarily attributable to a decline in charges for services within the Parks & Recreation department. 138 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 13 City-wide Governmental Activities Expenses City-wide governmental activities expenses decreased by $3.9 million, or 5%. This was primarily driven by budget reduction strategies that were incorporated as part of the FY 2020-21 Adopted Budget in response to the COVID-19 pandemic. Change in Net Position The City-wide governmental net position increase of $32 million was significantly up compared to the increase in 2019-20 and can be best explained by continued positive sales tax performance, federal funding assistance, and budget reduction strategies. Business Type Activities Business-type activities in the City-wide Financial Statements include the City’s four enterprise funds. Enterprise funds are used to account for recreational and solid waste management operations that are financed and operated in a manner similar to private business enterprises where the intent is that costs of providing services and facilities to the general public on a continuing basis be financed or recovered primarily through user fees. The major proprietary funds section of this report provides more information on business-type results. As shown in Table 3 and Table 4, the business-type net position totaled $11.5 million at June 30, 2021, an increase of $2.2 million, or 23.9%, from the prior year with unrestricted net position increasing $1.2 million and the net investment in capital assets increasing by $972,000. Business-type activities transferred in (net) $2.8 million, a decrease of $674,000 over the prior year. An increase in capital asset additions offset with $178,000 in depreciation expense resulted in a net increase of $972,000 over the prior year. Enterprise activities experienced an overall increase in assets due primarily to investment income which increased cash and cash equivalents. Liabilities for business-type activities remained consistent over the previous year, increasing by $24,000, or 0.5%. In Table 4, revenues for all business-type activities decreased $1.7 million and operating expenses decreased by $3.4 million, primarily attributable the impacts set forth by the pandemic. 139 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 14 Table 3 Condensed Statement of Net Position at June 30 (in thousands) Business Type Activities 2021 2020 Assets: Cash and investments $ 12,961 $ 11,524 Other assets 577 348 Capital assets 2,091 1,119 Total assets 15,629 12,991 Deferred Outflows of Resources: Related to pension 579 598 Related to OPEB 101 156 Total deferred outflows of resources 680 754 Other Liabilities: 4,389 4,365 Total liabilities 4,389 4,365 Deferred Inflows of Resources: Related to pension 21 51 Related to OPEB 434 75 Total deferred inflows of resources 455 126 Net Position: Net Investment in capital assets 2,091 1,119 Unrestricted 9,374 8,135 Total net position $ 11,465 $ 9,254 140 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 15 Table 4 Condensed Statement of Activities for the Year Ended June 30 (in thousands) Business Type Activities Expenses 2021 2020 Resource recovery $ 1,670 $ 2,213 Blackberry farm 535 664 Cupertino sports center 2,183 2,884 Recreation programs 1,117 3,141 Total expenses 5,505 8,902 Revenues Program revenues: Charges for services 4,831 6,114 General revenues: Investment earnings 36 462 Total revenues 4,867 6,576 Excess of revenues over expenses, before extraordinary item and transfers (638) (2,326) Transfers 2,849 3,523 Change in net position 2,211 1,197 Beginning net position 9,254 8,057 Ending net position $ 11,465 $ 9,254 MAJOR GOVERNMENTAL FUNDS General Fund General Fund Revenues General Fund actual revenues of $105.7 million ended $26.7 million, or 33.7%, above the original budget and $20.4 million, or 16.2%, below the final budget. Conservative estimates were applied to the original budget due to the pandemic. The final budget reflected a $30 million revenue estimate related to Vallco Town Center which will be carried forward and recognized over multiple years. Actual revenues were up $4.7 million or 5% when compared to 2019-20 actuals. Table 5 displays the variations in actual revenues, while Table 6 shows budgeted revenues compared to actuals. 141 CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 16 Property taxes increased $1.7 million, or 6%, over the prior year due to continued roll-growth. According to the 2020-2021 Assessor’s Annual Report for Santa Clara County, Cupertino’s net assessment roll growth increased nearly $1.8 billion, or 6.95%, from the prior year. Sales tax increased $6.9 million, or 19%, over the prior year due to strong business and industry and county pool allocation growth due primarily to the impact of the pandemic state-wide. Transient occupancy tax decreased $5.1 million, or 71%, due to the COVID-19 and the related shelter- in-place orders which brought transient occupancy tax revenues to a near halt beginning in March 2020. Charges for services remained relatively consistent in total, decreasing by $553,000 over the previous year. The decrease was primarily driven by a reduction of programming in the Parks & Recreation department. Licenses and permits decreased $625,000, or 13%, due to decreased construction plan check building permits. Table 5 Revenue Changes General Fund, Fiscal 2021 vs. 2020 (in thousands) Increase/(Decrease) Fiscal 2021 From Fiscal 2020 Revenue by Source Amount % of Total Amount Percent Taxes: Property $ 28,278 27% $ 1,671 6% Sales 42,581 40% 6,924 19% Transient occupancy 2,141 2% (5,145) -71% Utility user 3,074 3% (108) -3% Franchise 3,368 3% (51) -1% Other 2,640 2% 1,238 88% Use of money & property 4,838 5% 760 19% Intergovernmental 1,447 1% 699 93% Licenses and permits 4,068 4% (625) -13% Charges for services 11,882 11% (553) -4% Fines and forfeitures 129 0% (199) -61% Other 1,263 1% 45 4% Total revenues $ 105,710 100% $ 4,657 5% Other financing sources: Transfers in $ 508 100% $ (9,504) -95% Total other financing sources $ 508 100% $ (9,504) -95% 142 Preliminary Draft CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 17 Table 6 Revenue, Budget and Actual Comparisons General Fund 2020-21 (in thousands) Budgeted Amounts Over/(Under) Original Final Actual Final Taxes: Property $ 25,354 $ 25,354 $ 28,278 $ 2,924 Sales 20,911 33,523 42,581 9,058 Transient occupancy 7,547 2,047 2,141 94 Utility user 3,224 3,224 3,074 (150) Franchise 3,280 3,280 3,368 88 Other 1,213 1,213 2,640 1,427 Use of money & property 1,249 1,249 4,838 3,589 Intergovernmental 336 5,931 1,447 (4,484) Licenses and permits 3,139 33,123 4,068 (29,055) Charges for services 11,364 15,229 11,882 (3,347) Fines and forfeitures 425 425 129 (296) Other 1,004 1,507 1,263 (244) Total revenues $ 79,046 $ 126,105 $ 105,710 $ (20,395) Transfers in $ 15 $ 508 $ 508 $- General Fund Expenditures Fiscal 2020-21 overall expenditures, at $68.7 million, were $4.1 million, or 6%, higher than last year. This result came in $10.5 million, or 13.3%, under the final budget. Year-over-year and budget-versus- actual results for General Fund programs are described below and in Tables 7 and 8. Administration increased $599,000, or 9%, from 2019-20 and is primarily due to the Economic Development and Video functions moving from Community Development and Innovation & Technology departments, respectively. Law Enforcement was higher by approximately $625,000, or 4%, which was the automatic increase in the existing contract with the Santa Clara County Sheriff’s Office triggered by increases in the lease and CalPERS costs. Innovation & Technology decreased by $1.4 million, or 43%, over the prior year. This was driven by the Video division moving to the Administration department. Administrative Services’ expenditures increased approximately $578,000, or 13%, over the prior year due to negotiated increases in salary and benefits. This increase also reflected the establishment of the internal audit function. 143 Preliminary Draft CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 18 Parks & Recreation General Fund expenditures experienced a 38% decrease, or $2.9 million, across its programs. The majority of this decrease was due to COVID-19 and the inability to hold related program activities and events in FY 2020-21. Community Development expenditures in the General Fund increased $1.3 million, or 15%, and resulted primarily from increases in cost allocation charges. Public Works expenditures increased approximately $1.2 million or 6%. This is primarily represented by an increase in compensation and benefits. Various divisions and programs fluctuated over the prior year due to the addition and completion of one-time special projects. Transfers out of the General Fund decreased from $30.9 million in 2019-20 to $15.1 million. This was due to a reduction in one-time transfers from the General Fund to the Capital Reserve. Table 7 Expenditure Changes General Fund, Fiscal 2021 vs. 2020 (in thousands) Increase/(Decrease) Fiscal 2021 From Fiscal 2020 Function/Program Amount % of Total Amount Percent Administration $ 7,549 11% $ 599 9% Law enforcement 14,776 22% 625 4% Innovation and technology 1,837 3% (1,386) -43% Administrative services 5,196 8% 578 13% Parks and recreation 4,788 7% (2,901) -38% Community development 9,679 14% 1,256 15% Public works 20,025 29% 1,196 6% Capital outlay 4,872 7% 4,167 591% Total expenditures $ 68,722 100% $ 4,134 6% Transfers out $ 15,149 189% $ (15,743) -51% 144 Preliminary Draft CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 19 Table 8 Expenditure Changes General Fund 2020-21 (in thousands) Budgeted Amounts (Over)/Under Function/Program Original Final Actual Final Administration $ 9,183 $ 9,190 $ 7,549 $ 1,641 Law enforcement 14,792 14,792 14,776 16 Innovation and technology 1,981 1,950 1,837 113 Administrative services 4,956 5,314 5,196 118 Parks and recreation 6,805 6,725 4,788 1,937 Community development 9,801 12,158 9,679 2,479 Public works 22,559 23,627 20,025 3,602 Capital outlay 503 5,498 4,872 626 Total expenditures $ 70,580 $ 79,254 $ 68,722 $ 10,532 Transfers out $ 9,949 $ 15,149 $ 15,149 $ - General Fund - Fund Balance The General Fund carried a June 30, 2021, ending fund balance of $96.9 million, up 30% or $22.4 million from beginning of the fiscal year. Loan receivables totaled $444,346 of non-spendable fund balance. The City committed $19 million for general economic uncertainty and $127,891 for sustainability. The City assigned $4,906,139 million for encumbrances. $1,418,472 million was restricted for public access television purposes, $13,392 for CASp certification training, $217,551 for Public safety power shutoff, and $18,491,004 for the pension rate stabilization program (Section 115 Trust). $49,231,996 was classified as unassigned. Transportation The Transportation Special Revenue Fund carried a June 30, 2021, ending fund balance of $9,409,837, up 81.8%, or $4.2 million from the beginning of the fiscal year. In recent years this fund has accumulated fund balance year over year. The increase was primarily driven by a reduction of spending due to the pandemic as well as an accumulation of SB1 revenues which will be used for transportation projects in FY 2021-22. 145 Preliminary Draft CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 20 Housing Development The Housing Development Special Revenue Fund carried a June 30, 2021, ending fund balance of $7.9 million, down 6%, or $500,000, from the beginning of the fiscal year. The activities in this fund remained relatively consistent with the previous fiscal year. Public Facilities Corporation On September 29th, the City of Cupertino 2020A Certificates of Participation (2020 COPs) were successfully sold at very attractive interest rates in order to refund the City’s 2012 Certificates of Participation for debt service savings. The 2020 COPs were very well received by investors due in large part to the well-regarded Cupertino name, the top-notch AA+ rating, the sizable annual principal amounts and short maturity, and favorable supply and demand dynamics in the California municipal market. At the end of the order period, there were nearly eight times as many orders as there were bonds for sale. This strong investor demand enabled the underwriter to further lower yields. The refunding ultimately generated net present value savings of approximately $3.14 million, or 11.61% of refunded par (compared to $2.26 million, or 8.36% of refunded par, when presented to Council on September 1st) and a True Interest Cost of 0.72%. Savings to the City’s General Fund amounts to approximately $494,000 per year for the next 10 years, or almost $5 million in total savings. Fund balance as of June 30, 2021 was $63,350, substantially lower than the previous year, due to the reserve fund requirement being removed from the new issuance. Capital Improvement Projects The Capital Improvement Projects Capital Projects Fund carried a June 30, 2021, ending fund balance of $36,859,117, down 8.7%, or $3.5 million from the beginning of the fiscal year. During fiscal year 2020-21, a $5 million transfer in from the General Fund was received for purposes of fund capital-related projects. The following capital projects incurred the highest expenditures: Library Expansion and 2016 Bike Plan Implementation projects. MAJOR PROPRIETARY FUNDS Resource Recovery The City has a solid waste franchise agreement with Recology that shares collection, landfill disposal, and recycling revenues and costs. This fund receives revenues from Recology with the funds going toward landfill costs, regulatory fees, and staffing costs that the City incurs to manage its solid waste, recycling, and household hazardous waste programs. Total operating revenue and expenses remained steady at $1.82 million and $1.7 million, respectively. Net position increased by approximately $164,000. The fund ended the year with $5.5 million in net position. 146 Preliminary Draft CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 21 Recreation Programs This enterprise operates the Quinlan Community Center, Monta Vista Recreation Center, McClellan Ranch, Creekside Park building, eight school sites, and various parks. Recreation Programs experienced the severe impacts of the pandemic with revenue and expense reductions of over 60%. These programs generated approximately $591,000 in revenues and program expenses of approximately $1.1 million. This resulted in a net operating loss of $519,000. After the $1.7 million transfer from the General Fund, the fund ended up with an increase in net position of $1.1 million. The fund ended the year with a net position of $2.2 million. Cupertino Sports Center Tennis lesson, membership, fitness class and rent revenues of $1.5 million and decreased by $900,000 over last year and were also heavily impacted by COVID-19. As a result of the reduction in programming and availability, expenses decreased by $701,000 or 24%, resulting in a net operating loss of $361,000. This fund’s net position was $2.9 million as of June 30, 2021. NONMAJOR PROPRIETARY FUNDS Blackberry Farm City employees, with a teaching professional contractor, staff the City-owned Blackberry Farm golf course and pro shop. Operating revenues increased 81% in 2020-21 from $338,000 to $611,000. Operating expenses decreased by $129,000, or 19%, to $535,000 this year. The golf course’s operating loss decreased from $325,000 last year to a surplus of $77,000 this year. After a transfer in from the General Fund of $450,000 and $50,000 from the Capital Reserve, net position increased $577,000. As of June 30, 2021, this fund’s net position was $868,510. CAPITAL ASSETS At June 30, 2021, the City had $212.4 million, net of depreciation, invested in a broad range of capital assets used in governmental and business-type activities, as shown in Table 9 and in Note 5 to the Basic Financial Statements. This reflects the City’s continued investment into capital projects dedicated to street and transportation improvements, storm drain improvements, and maintenance of and improvements to City facilities, resulting in an increase in net capital assets of $11.5 million, after depreciation. 147 Preliminary Draft CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 22 Table 9 Capital Assets, Net of Depreciation, at June 30 (in thousands) 2021 2020 Governmental Activities: Land $ 64,787 $ 62,046 Easements 19,615 19,615 Construction in Progress 15,951 5,530 Buildings 14,578 16,015 Improvements other than buildings 17,753 17,483 Machinery and equipment 4,621 4,793 Roads, curbs, gutters, sidewalks, medians and bridges 66,900 67,713 Streetlights 1,620 1,589 Storm drain structures and mains 3,831 4,263 Traffic signals 617 729 Total Governmental Activities 210,273 199,776 Business-Type Activities Construction in Progress 125 - Buildings 1,546 574 Improvements other than buildings 337 437 Machinery and equipment 83 108 Total Business-Type Activities 2,091 1,119 Total City $ 212,364 $ 200,895 DEBT ADMINISTRATION On September 29, 2020, the City of Cupertino’s 2020A Certificates of Participation (2020 COPs) were successfully sold in order to refund the City’s 2012 Certificates of Participation for debt service savings. The 2020 COPs were very well received by investors due in large part to the well-regarded Cupertino name, the top-notch AA+ rating, the sizable annual principal amounts and short maturity, and favorable supply and demand dynamics in the California municipal market. The refunding generated net present value savings of approximately $3.14 million, 11.61% of refunded par and a True Interest Cost of 0.72%. Savings to the City’s General Fund amounts to approximately $494,000 per year for the next 10 years, or almost $5 million in total savings. The June 30, 2021, outstanding principal of $19,900,000 is due to be paid off by June 1, 2030. More information can be found in Note 6 to the Basic Financial Statements and in the Public Facilities Corporation discussion earlier in this analysis. 148 Preliminary Draft CITY OF CUPERTINO Management’s Discussion and Analysis (Unaudited) For the Year Ended June 30, 2021 23 CURRENTLY KNOWN FACTS AND CONDITIONS The COVID-19 pandemic has had significant impacts on the City, both financially as well as operationally. Although revenues in transient occupancy tax and charges for services have experienced declines since the start of the pandemic, the City has put forth efforts to reduce its operating costs to mitigate the future impacts. Additionally, through the assistance of the CARES Act and American Rescue Plan Act, the City anticipates these funds will mitigate much of the revenue loss and fiscal impact of the pandemic over the short- and long-term. The City’s reserves remain intact and the City does not anticipate requiring the use of these Committed and Restricted funds. Aside from the pandemic, the City is unaware of any other facts or conditions or decisions that are expected to have a significant effect on net position or results of operations. CONTACTING THE CITY’S FINANCIAL MANAGEMENT This Comprehensive Annual Financial Report is intended to provide a general overview of the City’s finances. Further information can be provided by the City of Cupertino Finance Department, 10300 Torre Avenue, Cupertino CA 95014, phone (408) 777-3280, or by the City website at www.cupertino.org. 149 Preliminary Draft This Page Left Intentionally Blank 150 Preliminary Draft STATEMENT OF NET POSITION AND STATEMENT OF ACTIVITIES 24. The Statement of Net Position and the Statement of Activities summarize the entire City's financial activities and financial position. They are prepared on the same basis as is used by most businesses, which means they include all the City's assets and all its liabilities, as well as all its revenues and expenses. This is known as the full accrual basis - the effect of all the City' s transactions is taken into account, regardless of whether or when cash changes hands, but all material internal transactions between City funds have been eliminated. The Statement of Net Position reports the difference between the City's total assets and deferred outflows and the City's total liabilities and deferred inflows, including all the City's capital assets and all its long term debt. The Statement of Net Position summarizes the financial position of all the City's Governmental Activities in a single column, and the financial position of all the City's Business-Type Activities in a single column; these columns are followed by a Total column which presents the financial position of the entire City. The City's Governmental Activities include the activities of its General Fund, along with all its Special Revenue, Capital Projects and Debt Service Funds. Since the City's Internal Service Funds service these Funds, their activities are consolidated with Governmental Activities, after eliminating inter-fund transactions and balances. The City's Business Type Activities include all of its Enterprise Fund activities. The Statement of Activities reports increases and decreases in the City's net position. It is also prepared on the full accrual basis, which means it includes all the City's revenues and all its expenses, regardless of when cash changes hands. This differs from the "modified accrual" basis used in the Fund financial statements, which reflect only current assets, current liabilities, available revenues and measurable expenditures. The format of the Statement of Activities presents the City's expenses first, listed by program, and follows these with the expenses of its business-type activities. Program revenues, that are revenues which are generated directly by these programs, are then deducted from program expenses to arrive at the net expense of each governmental and business-type program. The City's general revenues are then listed in the Governmental Activities or Business-type Activities column, as appropriate, and the Change in Net Position is computed and reconciled with the Statement of Net Position. Both these Statements include the financial activities of the City and the Cupertino Public Facilities Corporation, which is a legally separate component unit of the City because it is controlled by and financially accountable to the City. 151 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA STATEMENT OF NET POSITION June 30, 2021 See accompanying notes to financial statements. 25. Governmental Business-Type Activities Activities Total ASSETS Cash and cash investments (Note 2)167,810,281$ 12,961,371$ 180,771,652$ Restricted cash and investments (Note 2)18,499,337 - 18,499,337 Receivables Accounts 12,546,432 135,982 12,682,414 Interest 17,148 - 17,148 Loans (Note 3)4,691,177 - 4,691,177 Prepaid expenses and other assets 3,884 - 3,884 Net OPEB asset (Note 11)8,957,782 441,219 9,399,001 Capital assets (Note 5): Non-depreciable 100,352,704 125,331 100,478,035 Depreciable, net of accumulated depreciation 109,920,783 1,965,199 111,885,982 Total assets 422,799,528 15,629,102 438,428,630 DEFERRED OUTFLOWS OF RESOURCES Deferred loss on refunding 239,216 - 239,216 Related to pension (Note 10)8,623,265 578,778 9,202,043 Related to OPEB (Note 11)1,467,924 101,075 1,568,999 Total deferred outflows of resources 10,330,405 679,853 11,010,258 LIABILITIES Accounts payable and accruals 7,139,329 367,435 7,506,764 Accrued payroll and benefits 1,872,821 289 1,873,110 Deposits 11,554,041 - 11,554,041 Unearned revenue 4,892,867 833,213 5,726,080 Compensated absences (Note 1): Due in one year 652,810 17,611 670,421 Due in more than one year 4,642,386 216,127 4,858,513 Claims payable (Note 9): Due in one year 245,000 - 245,000 Due in more than one year 1,129,000 - 1,129,000 Long-term debt (Note 6): Due in one year 1,880,000 - 1,880,000 Due in more than one year 21,467,737 - 21,467,737 Net pension liability - noncurrent (Note 10)45,558,458 2,954,562 48,513,020 Total liabilities 101,034,449 4,389,237 105,423,686 DEFERRED INFLOWS OF RESOURCES Related to pension (Note 10)99,671 21,417 121,088 Related to OPEB (Note 11)8,323,358 433,642 8,757,000 Total deferred inflows of resources 8,423,029 455,059 8,878,088 NET POSITION (Note 7) Net investment in capital assets 186,503,116 2,090,530 188,593,646 Restricted for: Special revenue projects 45,699,577 - 45,699,577 Affordable housing 7,948,113 - 7,948,113 Debt service 63,350 - 63,350 Total restricted net position 53,711,040 - 53,711,040 Unrestricted 83,458,299 9,374,129 92,832,428 Total net position 323,672,455$ 11,464,659$ 335,137,114$ 152 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA STATEMENT OF ACTIVITIES For the year ended June 30, 2021 See accompanying notes to financial statements. 26. Operating Capital Business- Charges for Grants and Grants and Governmental Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental activities: Administration 3,637,467$ 2,387,412$ -$ -$ (1,250,055)$ -$ (1,250,055)$ Law enforcement 15,211,646 550,051 156,727 - (14,504,868) - (14,504,868) Public and environmental affairs 1,721,729 - - - (1,721,729) - (1,721,729) Administrative services 5,358,183 5,232,679 - - (125,504) - (125,504) Recreation services 1,182,662 264,426 - - (918,236) - (918,236) Community development 11,495,788 5,736,587 618,292 - (5,140,909) - (5,140,909) Public works 41,870,240 3,966,206 5,223,190 1,792,376 (30,888,468) - (30,888,468) Interest on long - term debt 397,682 - - - (397,682) - (397,682) Total governmental activities 80,875,397 18,137,361 5,998,209 1,792,376 (54,947,451) - (54,947,451) Business-type activities: Resource recovery 1,670,261 1,819,861 - - - 149,600 149,600 Blackberry farm 535,274 610,603 - - - 75,329 75,329 Cupertino sports center 2,182,900 1,810,194 - - - (372,706) (372,706) Recreation programs 1,117,244 590,871 - - - (526,373) (526,373) Total business-type activities 5,505,679 4,831,529 - - - (674,150) (674,150) Total 86,381,076$ 22,968,890$ 5,998,209$ 1,792,376$ (54,947,451) (674,150) (55,621,601) General revenues: Taxes: Property taxes 19,197,994 - 19,197,994 Property tax in lieu of motor vehicle fee 9,079,845 - 9,079,845 Sales taxes 42,581,070 - 42,581,070 Transient occupancy tax 2,141,058 - 2,141,058 Utility user tax 3,074,358 - 3,074,358 Franchise tax 3,368,286 - 3,368,286 Other taxes 3,022,333 - 3,022,333 Intergovernmental, unrestricted: Motor vehicle license fee 43,675 - 43,675 Investment earnings 4,147,907 35,983 4,183,890 Miscellaneous 3,185,110 - 3,185,110 Transfers (Note 4)(2,849,000) 2,849,000 - Total general revenues and transfers 86,992,636 2,884,983 89,877,619 Change in Net Position 32,045,185 2,210,833 34,256,018 Net Position, beginning of year 291,627,270 9,253,826 300,881,096 Net Position, end of year 323,672,455$ 11,464,659$ 335,137,114$ Program Revenues Changes in Net Position Net (Expense) Revenue and 153 Preliminary Draft FUND FINANCIAL STATEMENTS 27. In the Fund Financial Statements only individual major funds are presented, while non-major funds are combined in a single column. Major funds are defined generally as having significant activities or balances in the current year. The funds described below were determined to be Major Funds by the City for fiscal 2020-20. Individual non-major funds may be found in the Supplementary section. General Fund: The general fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund. Transportation Special Revenue Fund: Accounts for the City's gas tax, vehicle registration fees and grant revenues and expenditures related to the maintenance and construction of City streets. All revenue in this fund is restricted exclusively for street and road purposes including related engineering and administrative expenditures. Housing Development Special Revenue Fund: Accounts for the Federal Housing and Community Development Grant Program activities administered through the County. Monies collected from developers that mitigate the impact of housing needs are also included. Monies in this fund are governed by the program's rules. Public Facilities Corporation Debt Service Fund: This fund accounts for the payments of principal and interest on certificates of participation issued to provide for the financing of the Civic Center, Library, Wilson Park, Memorial Park, and other City facilities. Capital Improvement Projects Capital Projects Fund: This fund accounts for activities related to the acquisition or construction of major capital facilities. 154 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA GOVERNMENTAL FUNDS BALANCE SHEET June 30, 2021 See accompanying notes to financial statements. 28. Public Capital Facilities Improvement Corporation Projects Nonmajor Total Housing Debt Capital Governmental Governmental General Transportation Development Service Fund Projects Fund Funds Funds ASSETS Cash and investments (Note 2)87,894,638$ 8,816,300$ 7,345,602$ 55,017$ 39,673,656$ 16,315,922$ 160,101,135$ Restricted cash and investments (Note 2)18,491,004 - - 8,333 - - 18,499,337 Receivables: Accounts 9,919,781 683,815 259,168 - 1,661,507 22,161 12,546,432 Interest 17,148 - - - - - 17,148 Loans (Note 3)444,346 - 4,246,831 - - - 4,691,177 Due from other funds (Note 4)539,204 - - - - - 539,204 Advances to other funds (Note 4)3,000,000 - - - - - 3,000,000 Other assets 3,884 - - - - - 3,884 Total assets 120,310,005$ 9,500,115$ 11,851,601$ 63,350$ 41,335,163$ 16,338,083$ 199,398,317$ LIABILITIES Accounts payable and accruals 5,139,557$ 90,278$ 191,368$ -$ 1,476,046$ 9,705$ 6,906,954$ Accrued payroll and benefits 1,872,749 - - - - - 1,872,749 Advances from other funds (Note 4)- - - - 3,000,000 - 3,000,000 Deposits 11,554,041 - - - - - 11,554,041 Unearned revenue 4,892,867 - - - - - 4,892,867 Total liabilities 23,459,214 90,278 191,368 - 4,476,046 9,705 28,226,611 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - loans - - 3,712,120 - - - 3,712,120 Total deferred inflows of resources - - 3,712,120 - - - 3,712,120 FUND BALANCES (Note 7) Nonspendable 3,444,346 - - - - - 3,444,346 Restricted 20,140,419 9,409,837 7,948,113 63,350 - 16,149,321 53,711,040 Committed 19,127,891 - - - - - 19,127,891 Assigned 4,906,139 - - - 36,859,117 179,057 41,944,313 Unassigned 49,231,996 - - - - - 49,231,996 Total fund balances 96,850,791 9,409,837 7,948,113 63,350 36,859,117 16,328,378 167,459,586 Total liabilities, deferred inflows of resources and fund balances 120,310,005$ 9,500,115$ 11,851,601$ 63,350$ 41,335,163$ 16,338,083$ 199,398,317$ Special Revenue Funds 155 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO STATEMENT OF NET POSITION June 30, 2021 See accompanying notes to financial statements. 29. Total fund balances reported on the governmental funds balance sheet 167,459,586$ 206,927,675 6,313,071 3,712,120 Long-term debt (23,347,737) Net pension liability (42,634,977) Net OPEB asset 8,331,162 Deferred loss on refunding 239,216 Pension-related deferred outflows of resources 8,082,073 Pension-related deferred inflows of resources (96,065) OPEB-related deferred outflows of resources 1,360,524 OPEB-related deferred inflows of resources (7,753,657) Compensated absences (4,920,536) Net position for governmental activities 323,672,455$ The liabilities, deferred inflows of resources and deferred outflows of resources are not related to the current period and therefore are not reported in the governmental funds: Capital assets used in governmental activities are not current assets or financial resources and therefore are not reported in the governmental funds. Internal service funds are used by management to charge the costs of activities such as information technology, insurance, equipment acquisition and maintenance, and certain employee benefits to governmental funds. The assets and liabilities of the internal service funds are therefore included in the governmental activities of the statement of net position. Certain receivables are not available to pay for current period expenditures and therefore are deferred in the governmental funds. Amounts reported for governmental activities in the statement of net position are different from those reported in the governmental funds because of the following: 156 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES For the year ended June 30, 2021 See accompanying notes to financial statements. 30. Public Capital Facilities Improvement Corporation Projects Nonmajor Total Housing Debt Capital Governmental Governmental General Transportation Development Service Fund Projects Fund Funds Funds Revenues Taxes 82,081,611$ -$ 197,661$ -$ -$ 185,672$ 82,464,944$ Use of money and property 4,838,319 24,106 23,553 332 (470,353) 32,013 4,447,970 Intergovernmental 1,446,593 3,481,620 559,010 - 2,347,037 - 7,834,260 Licenses and permits 4,068,238 - - - - - 4,068,238 Charges for services 11,882,349 8,970 7,269 - - 1,702,714 13,601,302 Fines and forfeitures 129,394 - - - - 5,065 134,459 Other revenue 1,263,174 1,921,336 - - - 600 3,185,110 Total revenues 105,709,678 5,436,032 787,493 332 1,876,684 1,926,064 115,736,283 Expenditures Current: Administration 7,549,386 - - - - - 7,549,386 Law enforcement 14,776,409 - - - - - 14,776,409 Public and environmental affairs 1,836,725 - - - - - 1,836,725 Administrative services 5,196,299 - - - - - 5,196,299 Recreation services 4,787,914 - - - - - 4,787,914 Community development 9,679,182 - 1,498,508 - - - 11,177,690 Public works 20,025,442 3,164,395 - - - 1,378,318 24,568,155 Capital outlay 4,872,485 2,036,314 - - 9,812,205 2,762,941 19,483,945 Debt service: Principal - - - 2,140,000 - - 2,140,000 Interest and fiscal charges - - - 798,747 - - 798,747 Total expenditures 68,723,842 5,200,709 1,498,508 2,938,747 9,812,205 4,141,259 92,315,270 Excess (deficiency) of revenues over expenditures 36,985,836 235,323 (711,015) (2,938,415) (7,935,521) (2,215,195) 23,421,013 Other financing sources (uses) Proceeds from debt issuance - - - 22,040,000 - - 22,040,000 Proceeds from debt issuance premium - - - 3,878,704 - - 3,878,704 Payments to refunding agent - - - (27,279,118) - - (27,279,118) Transfers in (Note 4)507,831 4,000,000 200,000 3,169,138 5,000,000 - 12,876,969 Transfers (out) (Note 4)(15,148,689) - - (492,831) (559,449) (15,000) (16,215,969) Total other financing sources (uses)(14,640,858) 4,000,000 200,000 1,315,893 4,440,551 (15,000) (4,699,414) Net change in fund balances 22,344,978 4,235,323 (511,015) (1,622,522) (3,494,970) (2,230,195) 18,721,599 Beginning fund balances 74,505,813 5,174,514 8,459,128 1,685,872 40,354,087 18,558,573 148,737,987 Ending fund balances 96,850,791$ 9,409,837$ 7,948,113$ 63,350$ 36,859,117$ 16,328,378$ 167,459,586$ Special Revenue Funds 157 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA GOVERNMENTAL FUNDS RECONCILIATION OF NET CHANGES IN FUND BALANCES – GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the year ended June 30, 2021 See accompanying notes to financial statements. 31. Total net changes in fund balances reported on the governmental funds balance sheet 18,721,599$ Amounts reported for governmental activities in the statement of activities are different from those reported in the governmental funds because of the following: Capital outlay 18,448,448 Depreciation expense (7,641,656) Net retirements 1 2,140,000 Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net position. Bonds issued (22,040,000) Premium on bonds issued (3,878,704) Payment to escrow agent 27,279,118 Amortization of premium 430,967 Amortization of deferred loss on refunding (29,902) Compensated absences (58,919) Net pension liability (2,146,205) Net OPEB liability (asset)10,061,292 Pension-related deferred outflows of resources (396,067) Pension-related deferred inflows of resources 625,738 OPEB-related deferred outflows of resources (1,043,279) OPEB-related deferred inflows of resources (6,780,870) (1,646,376) Change in net position of governmental activities 32,045,185$ Internal service funds are used by management to charge the costs of activities such as information technology, insurance, equipment acquisition and maintenance, and certain employee benefits to governmental funds. The portion of the net expense of these internal service funds arising out of their transactions with governmental funds is reported with governmental activities because they service those activities. Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets are capitalized and depreciated over their estimated useful lives, which is reported as depreciation expense. Expenditures for capital assets reported as: Long term debt principal payments are reported as expenditures in the governmental funds but are not reported as expenses in the statement of activities. The changes in the amounts below do not provide or require the use of current financial resources and therefore are not reported as revenues or expenditures in the governmental funds: The schedule below reconciles the net changes in fund balances reported on the governmental funds statement of revenues, expenditures and changes in fund balances, which measures only changes in current assets and current liabilities on the modified accrual basis, with the change in net position of governmental activities reported in the statement of activities, which is prepared on the full accrual basis. 158 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL For the year ended June 30, 2021 See accompanying notes to financial statements. 32. Variance with Final Budget Actual Positive Original Final Amounts (Negative) Revenues Taxes 61,528,654$ 68,640,655$ 82,081,611$ 13,440,956$ Use of money and property 1,249,010 1,249,010 4,838,319 3,589,309 Intergovernmental 335,567 5,931,334 1,446,593 (4,484,741) Licenses and permits 3,139,473 33,123,003 4,068,238 (29,054,765) Charges for services 11,363,564 15,229,233 11,882,349 (3,346,884) Fines and forfeitures 425,000 425,000 129,394 (295,606) Other revenue 1,003,857 1,507,457 1,263,174 (244,283) Total revenues 79,045,125 126,105,692 105,709,678 (20,396,014) Expenditures Current Administration 9,183,155 9,190,291 7,549,386 1,640,905 Law enforcement 14,792,448 14,792,448 14,776,409 16,039 Public and environmental affairs 1,981,299 1,949,807 1,836,725 113,082 Administrative services 4,955,568 5,314,437 5,196,299 118,138 Recreation services 6,804,768 6,725,248 4,787,914 1,937,334 Community development 9,801,449 12,157,549 9,679,182 2,478,367 Public works 22,558,616 23,627,089 20,025,442 3,601,647 Capital outlay 502,500 5,497,792 4,872,485 625,307 Total expenditures 70,579,803 79,254,661 68,723,842 10,530,819 Excess of revenues over expenditures 8,465,322 46,851,031 36,985,836 (9,865,195) Other financing sources (uses) Transfers in 15,000 507,832 507,831 (1) Transfers (out)(9,948,689) (15,148,689) (15,148,689) - Total other financing sources (uses)(9,933,689) (14,640,857) (14,640,858) (1) Net change in fund balance (1,468,367)$ 32,210,174$ 22,344,978 (9,865,196)$ Beginning fund balance 74,505,813 Ending fund balance 96,850,791$ Budgeted Amounts 159 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA TRANSPORTATION SPECIAL REVENUE FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL For the year ended June 30, 2021 See accompanying notes to financial statements. 33. Variance with Final Budget Actual Positive Original Final Amounts (Negative) Revenues Use of money and property -$ -$ 24,106$ 24,106$ Intergovernmental 2,898,325 3,880,625 3,481,620 (399,005) Charges for services 3,978 3,978 8,970 4,992 Other revenue 87,057 1,443,723 1,921,336 477,613 Total revenues 2,989,360 5,328,326 5,436,032 107,706 Expenditures Current Public works 3,875,600 3,700,019 3,164,395 535,624 Capital outlay 1,000,000 4,565,929 2,036,314 2,529,615 Total expenditures 4,875,600 8,265,948 5,200,709 3,065,239 Deficiency of revenues under expenditures (1,886,240) (2,937,622) 235,323 3,172,945 Other financing sources (uses) Transfers in 4,000,000 4,000,000 4,000,000 - Total other financing sources (uses)4,000,000 4,000,000 4,000,000 - Net change in fund balance 2,113,760$ 1,062,378$ 4,235,323 3,172,945$ Beginning fund balance 5,174,514 Ending fund balance 9,409,837$ Budgeted Amounts 160 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA HOUSING DEVELOPMENT SPECIAL REVENUE FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL For the year ended June 30, 2021 See accompanying notes to financial statements. 34. Variance with Final Budget Actual Positive Original Final Amounts (Negative) Revenues Taxes 3,025,898$ 3,025,898$ 197,661$ (2,828,237)$ Use of money and property 3,300 3,300 23,553 20,253 Intergovernmental 397,270 951,209 559,010 (392,199) Charges for services - -7,269 7,269 Total revenues 3,426,468 3,980,407 787,493 (3,192,914) Expenditures Current Community development 1,083,266 1,951,844 1,498,508 453,336 Total expenditures 1,083,266 1,951,844 1,498,508 453,336 Net change in fund balance 2,343,202$2,228,563$ (511,015) (2,739,578)$ Beginning fund balance 8,459,128 Ending fund balance 7,948,113$ Budgeted Amounts 161 Preliminary Draft MAJOR PROPRIETARY FUNDS 35. Proprietary funds account for City operations financed and operated in a manner similar to a private business enterprise. The intent of the City is that the cost of providing goods and services be financed primarily through user charges. The City has identified the funds below as major proprietary funds for fiscal 2020 - 21. Resources Recovery Fund: This fund accounts for activity related to the collection, disposal, and recycling of solid waste. A private company has been issued an exclusive franchise to perform these services. Recreation Programs Fund: This fund accounts for activities of the City's community centers and park facilities. Cupertino Sports Center Fund: This fund accounts for the operation and maintenance of the Cupertino Sports Center. 162 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA PROPRIETARY FUNDS STATEMENT OF NET POSITION June 30, 2021 See accompanying notes to financial statements. 36. Governmental Cupertino Nonmajor Activities - Resources Recreation Sports Enterprise Internal Service Recovery Programs Center Fund Totals Funds ASSETS Current assets Cash and cash investments (Note 2)6,369,452$ 2,818,076$ 2,636,289$ 1,137,554$ 12,961,371$ 7,709,146$ Accounts receivable 132,839 1,863 1,280 - 135,982 - Total current assets 6,502,291 2,819,939 2,637,569 1,137,554 13,097,353 7,709,146 Noncurrent assets Net OPEB asset (Note 11)127,693 134,939 178,587 - 441,219 626,620 Capital assets (Note 5): Nondepreciable - 88,031 37,300 - 125,331 - Depreciable, net of - accumulated depreciation 3,827 560,087 1,377,579 23,706 1,965,199 3,345,812 Total noncurrent assets 131,520 783,057 1,593,466 23,706 2,531,749 3,972,432 Total assets 6,633,811 3,602,996 4,231,035 1,161,260 15,629,102 11,681,578 DEFERRED OUTFLOWS OF RESOURCES Related to pension (Note 10)217,859 179,490 122,119 59,310 578,778 541,192 Related to OPEB (Note 11)42,749 24,385 25,820 8,121 101,075 107,400 Total deferred outflows of resources 260,608 203,875 147,939 67,431 679,853 648,592 LIABILITIES Current liabilities Accounts payable and accruals 73,514 162,336 120,003 11,582 367,435 232,375 Accrued payroll and benefits 289 - - - 289 72 Due to other funds (Note 4)- - - - - 539,204 Compensated absences (Note 1):5,219 7,907 4,274 211 17,611 46,188 Claims payable (Note 9)- - - - - 245,000 Unearned revenue - 278,161 496,440 58,612 833,213 - Total current liabilities 79,022 448,404 620,717 70,405 1,218,548 1,062,839 Noncurrent liabilities Compensated absences (Note 1)64,045 97,037 52,451 2,594 216,127 328,472 Claims payable (Note 9)- - - - - 1,129,000 Net pension liability (Note 10)1,107,110 925,796 643,636 278,020 2,954,562 2,923,481 Total noncurrent liabilities 1,171,155 1,022,833 696,087 280,614 3,170,689 4,380,953 Total liabilities 1,250,177 1,471,237 1,316,804 351,019 4,389,237 5,443,792 DEFERRED INFLOWS OF RESOURCES Related to pension (Note 10)9,651 4,448 2,852 4,466 21,417 3,606 Related to OPEB (Note 11)136,528 130,506 161,912 4,696 433,642 569,701 Total deferred inflows of resources 146,179 134,954 164,764 9,162 455,059 573,307 NET POSITION (Note 7) Net investment in capital assets 3,827 648,118 1,414,879 23,706 2,090,530 3,345,812 Unrestricted 5,494,236 1,552,562 1,482,527 844,804 9,374,129 2,967,259 Total Net Position 5,498,063$ 2,200,680$ 2,897,406$ 868,510$ 11,464,659$ 6,313,071$ Business-type Activities - Enterprise Funds 163 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the year ended June 30, 2021 See accompanying notes to financial statements. 37. Governmental Cupertino Nonmajor Activities - Resources Recreation Sports Enterprise Internal Service Recovery Programs Center Fund Totals Funds Operating revenues Charges for services 1,804,945$ 508,838$ 1,537,387$ 564,126$ 4,415,296$ 4,689,465$ Other 14,916 82,033 272,807 46,477 416,233 9,799 Total operating revenue 1,819,861 590,871 1,810,194 610,603 4,831,529 4,699,264 Operating expenses Salaries and benefits 344,248 462,437 491,686 107,567 1,405,938 3,604,711 Materials and supplies 301,234 320,895 241,872 174,183 1,038,184 1,321,229 Contractual services 1,021,465 229,254 1,382,540 250,692 2,883,951 201,964 Insurance and claims and premium - - - - - 862,225 Depreciation (Note 5)3,314 104,658 66,802 2,832 177,606 968,791 Total operating expenses 1,670,261 1,117,244 2,182,900 535,274 5,505,679 6,958,920 Operating income (loss)149,600 (526,373) (372,706) 75,329 (674,150) (2,259,656) Nonoperating revenues Investment Income 14,795 7,190 11,915 2,083 35,983 33,299 Gain on sale of capital assets - - - - - 89,981 Total nonoperating revenues 14,795 7,190 11,915 2,083 35,983 123,280 Income (loss) before transfers 164,395 (519,183) (360,791) 77,412 (638,167) (2,136,376) Transfers in (Note 4)- 1,664,000 685,000 500,000 2,849,000 490,000 Changes in net position 164,395 1,144,817 324,209 577,412 2,210,833 (1,646,376) Net position - beginning of year 5,333,668 1,055,863 2,573,197 291,098 9,253,826 7,959,447 Net position - end of year 5,498,063$ 2,200,680$ 2,897,406$ 868,510$ 11,464,659$ 6,313,071$ Business-type Activities - Enterprise Funds 164 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA PROPRIETARY FUNDS STATEMENT OF CASH FLOWS For the year ended June 30, 2021 See accompanying notes to financial statements. 38. Governmental Cupertino Nonmajor Activities - Resources Recreation Sports Enterprise Internal Service Recovery Programs Center Fund Totals Funds Cash flows from operating activities Cash received from customers 2,035,309$ 632,323$ 2,026,745$ 646,130$ 5,340,507$ 4,706,264$ Cash payments to suppliers for goods and services (1,417,480) (687,146) (1,513,828) (442,996) (4,061,450) (1,634,879) Cash payments to employees for salaries and benefits (447,491) (506,804) (512,572) (110,164) (1,577,031) (3,538,193) Cash payments for judgment and claims - -- -- (1,015,225) Net cash provided (used) by operating activities 170,338 (561,627) 345 92,970 (297,974) (1,482,033) Cash flows from noncapital financing activities Transfers in - 1,664,000 685,000 500,000 2,849,000 490,000 Cash flows from noncapital financing activities - 1,664,000 685,000 500,000 2,849,000 490,000 Cash flows from capital and related financing activities Acquisition of capital assets - (88,031) (1,061,223) - (1,149,254) (661,449) Sale of capital assets - -- -- 91,758 Cash flows from capital and related - (88,031) (1,061,223) - (1,149,254) (569,691) financing activities Cash Flows from investing activities Interest received 14,795 7,190 11,915 2,083 35,983 33,299 Cash flows from investing activities 14,795 7,190 11,915 2,083 35,983 33,299 Net cash flows 185,133 1,021,532 (363,963) 595,053 1,437,755 (1,528,425) Cash and investments at beginning of year 6,184,319 1,796,544 3,000,252 542,501 11,523,616 9,237,571 Cash and investments at end of year 6,369,452$ 2,818,076$ 2,636,289$ 1,137,554$ 12,961,371$ 7,709,146$ Reconciliation of operating income (loss) to to net cash provided by operating activities: Operating income (loss)149,600$ (526,373)$ (372,706)$ 75,329$ (674,150)$ (2,259,656)$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 3,314 104,658 66,802 2,832 177,606 968,791$ Change in assets, deferred outflows of resources, liabilities and deferred inflows of resources Accounts receivable 215,448 (1,864) (1,220) - 212,364 7,000 Due to retirement system 29,108 32,804 27,598 2,157 91,667 147,907 Due to OPEB system (43,549) (37,798) (46,898) (4,735) (132,980) (169,875) Accounts payable and accruals (94,781) (136,997) 110,584 (18,121) (139,315) (111,686) Unearned revenue - 43,316 217,771 35,527 296,614 - Compensated absences (88,802) (39,373) (1,586) (19) (129,780) 88,486 Claims payable - -- -- (153,000) Net cash provided (used) by operating activities 170,338$ (561,627)$ 345$ 92,970$ (297,974)$ (1,482,033)$ Business-type Activities - Enterprise Funds 165 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 39. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity: The City of Cupertino, California (the City) was incorporated on October 3, 1955, under the laws of the State of California. The City operates under a Council - City Manager form of government and provides services through the following departments: Administrative Services, Community Development, City Manager, Parks and Recreation, Public and Environmental Affairs, and Public Works. Fire services are provided by the Santa Clara County Fire District, and the City contracts with the Santa Clara County Sheriff’s Department for police services, and with Recology for garbage and recycling services. The accompanying basic financial statements include all funds and boards and commissions that are controlled by the City Council. The basic financial statements include the City's blended component unit entity for which the City is considered to be financially accountable. A blended component unit, although a legally separate entity, is in substance, part of the City's operations and so data from this unit is combined with the City. Blended Component Unit: The Cupertino Public Facilities Corporation (the Corporation) was incorporated in May 1986, under the Nonprofit Public Benefit Corporation Law of the State of California. The Corporation was organized as a nonprofit corporation solely for the purpose of assisting the City in the acquisition, construction, and financing of public improvements which are of public benefit to the City. The Corporation, after acquiring certain properties from the City, leases these back to the City. The lease money provides the funds for the debt service for the Certificates of Participation issued by the Corporation to acquire the properties. The Corporation does not issue separate financial statements, since it is reported separately in the City's basic financial statements. Measurement Focus, Basis of Accounting and Basis of Presentation: The City's basic financial statements are prepared in conformity with accounting principles generally accepted in the United States. The Government Accounting Standards Board (GASB) is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States. Government-wide Statements: The Statement of Net Position and the Statement of Activities display information about the primary government (the City) and its component units. These statements include the financial activities of the overall City government and distinguish between the governmental and business- type activities of the City. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. Business-type activities are financed in whole or in part by fees charged to external parties. The Statement of Activities presents a comparison between expenses and program revenues for each segment of the business-type activities of the City and for each function of the City's governmental activities. Expenses include direct and indirect types. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses such as depreciation, information technology, insurance and equipment replacement are included in expenses for individual activities and functions. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital needs of a particular program. Revenues that are not classified as program revenues, including taxes, are presented as general revenues. Program revenues and direct expenses related to interfund services are included and indirect expenses funded by interfund transfers are excluded from the Statement of Activities. The Statement of Net Position eliminates interfund balances between governmental funds and interfund balances between proprietary funds. 166 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 40. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Financial Statements: The fund financial statements provide information about the City's funds, including fiduciary funds and blended component units. Separate statements for each fund category — governmental, proprietary, and fiduciary — are presented. The emphasis of fund financial statements is on major individual governmental and enterprise funds, each of which is displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities. Major Funds: The City's major governmental and enterprise funds are identified and presented separately in the fund financial statements. All other funds, called nonmajor funds, are combined and reported in a single column, regardless of their fund type. Major funds are defined as funds, which have either assets (plus deferred outflows), liabilities (plus deferred inflows), revenues or expenditures in excess of 10 percent of their fund-type total and five percent of the aggregate total for both governmental funds and enterprise funds. The General Fund is always a major fund. The City may select other funds it believes should be presented as major funds. The City reported the following major governmental funds in the accompanying financial statements: The General Fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund. The Transportation Special Revenue Fund accounts for the City's gas tax, vehicle registration fees and grant revenues and expenditures related to the maintenance and construction of City streets. All revenue in this fund is restricted exclusively for street and road purposes including related engineering and administrative expenses. Management considers this fund qualitatively major and has elected to present this fund as such, even if mathematically it does not qualify per applicable GASB requirements. The Housing Development Special Revenue Fund accounts for the Federal Housing and Community Development Grant Program activities administered through the County. Monies collected from developers that mitigate the impact of housing needs are also included. Monies in this fund are governed by the program's rules. The Public Facilities Corporation Debt Service Fund accounts for the payments of principal and interest on certificates of participation issued to provide for the financing of City Hall, Library, Wilson Park, Memorial Park, and other City facilities. Capital Improvement Projects Capital Projects Fund Accounts for activities related to the acquisition or construction of major capital facilities. The City reports the following enterprise funds as major funds in the accompanying financial statements: The Resources Recovery Fund accounts for activity related to the collection, disposal, and recycling of solid waste. A private company has been issued an exclusive franchise to perform these services. The Recreation Programs Fund accounts for activities of the City's community centers and park facilities. The Cupertino Sports Center Fund accounts for activities of the City’s sports center facility. 167 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 41. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The City also reports the following fund types: Internal Service Funds. These funds account for workers' compensation, management information systems maintenance and replacement, equipment maintenance and replacement, retiree health costs, accrued leave payouts, and long-term disability coverage which are provided to other departments on a cost-reimbursement basis. Basis of Accounting: The government-wide and proprietary financial statements are reported using the economic resources measurement focus and the full 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. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The City considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt which are recognized as expenditures to the extent the City has provided financial resources to a debt service fund for payment of these liabilities that mature early in the following year. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds from long-term debt and acquisitions under capital leases are reported as other financing sources. Unearned revenues are considered on a full accrual basis, while unavailable revenues are based on the modified accrual measure. Property taxes, transient occupancy taxes, utility taxes, franchise taxes, interest and special assessments are susceptible to accrual. Other receipts and taxes are recognized as revenue when the cash is received. Sales taxes collected and held by the state at year end on behalf of the City are also recognized as revenue. Sales tax consultant payments which are contingent on revenues collected are netted against the related revenues. Under the terms of grant agreements, the City may fund certain programs with a combination of cost reimbursement grants, categorical block grants, and general revenue. The City's policy is to first apply restricted grant resources to such programs, followed by general revenues if necessary. Grant revenues are recognized after eligibility and billing occurs, but may be a deferred inflow if not received within sixty days of year-end. Because of the cost-reimbursement and recognition nature of some grants, certain capital project funds may carry deficit fund balances until billing and receipt of grants. The City may also front the capital outlays with cash advances from other funds. Non-exchange transactions, in which the City gives or receives value without directly receiving or giving equal value in exchange, include property taxes, grants, entitlements, and donations. On the accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied or assessed. Revenue from grants is recognized as described above. Entitlement and donation revenues are recognized when cash is received. 168 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 42. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Budgetary Practices: The budget of the City is a detailed operating plan which identifies estimated costs and results in relation to estimated revenues. The budget includes (1) the programs, projects, services and activities to be provided during the fiscal year; (2) estimated revenue available to finance the operating plan; and (3) the estimated spending requirements of the operating plan. The budget represents a process through which policy decisions are made, implemented and controlled. The City prohibits expending funds for which there is no legal appropriation. Operating appropriations lapse at fiscal year end. In May of each year, the City Manager submits to the City Council a proposed budget for the fiscal year beginning July 1. Public hearings on the proposed budget are held during the month of June and the budgets for all fund types are legally adopted by Resolution prior to June 30. Original budget amounts are presented on the accompanying budgetary statements include these legally adopted amounts. The City's legal level of budgetary control is at the functional level for the general fund and at the fund level for other funds. The City Manager is responsible for controlling the City's expenditures in accordance with the adopted budget. The City Manager is authorized to administer and transfer appropriations between budget accounts within the operating budget when in his opinion such transfers become necessary for administrative purposes. Any revision which increases total appropriations must be approved by the City Council. Requests for additional personnel or capital outlay also require the approval of the City Council. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting principles. Budget information is presented for the general, special revenue and debt service funds only. Capital projects funds are budgeted on a long-term project-by-project basis and, hence, budgets for these funds are not presented in the basic financial statements. The Traffic Impact Fund does not have a legally adopted budget. During the fiscal year, no funds had expenditures which exceeded appropriations. Cash and Investments: The City pools its cash resources, consisting of cash and investments, of all funds for investment except for restricted funds generally held by an outside fiscal agent. Cash amounts are reported net of outstanding warrants. Investments are stated at fair value, except for money market mutual funds which are reported at amortized cost. Capital Assets: Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at their estimated acquisition value on the date donated. Public domain (infrastructure) capital assets consisting of roads, bridges, curbs, gutters, medians, sidewalks, drainage and lighting systems have been capitalized and depreciated. Capital assets are defined as assets with an initial individual cost of more than $5,000 for general capital assets and $100,000 for intangible assets. Depreciation is recorded using the straight-line method over the following useful lives: Buildings 15 – 25 years Improvements 10 – 15 years Vehicles 4 – 10 years Street equipment 3 – 20 years Water equipment 3 – 50 years Office equipment 3 – 5 years Road, curbs, gutters, sidewalks, medians and bridges 30 – 40 years Streetlights 20 years Storm drain structure and mains 40 years Traffic signals 20 years 169 Preliminary Draft CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 43. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Major outlays for capital assets and improvements are capitalized as projects are constructed. For enterprise funds, interest incurred during the construction phase is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Some capital assets may be acquired using federal and state grant funds, or they may be contributed by developers or other governments. These contributions are accounted for as revenues at the time the capital assets are contributed. Claims and Judgment Payable: Claims and judgments payable are accrued when the liability is incurred and the amount can be reasonably estimated. Claims and judgments payable are recorded in an internal service fund for workers' compensation and long-term disability, and other claims and judgments are recorded in the General Fund or enterprise funds, as appropriate. Compensated Absences: Compensated absences comprise vested accumulated vacation and sick leave. The City's liability for compensated absences is recorded in governmental or business-type activities as appropriate. The liability for compensated absences is determined annually. For all governmental funds, amounts expected to be "permanently liquidated," such as what is due to be paid because of a realized employment action, are recorded as fund liabilities; the long-term portion is recorded in the Statement of Net Position. Compensated absences are liquidated by the fund that has recorded the liability. The long-term portion of governmental activities compensated absences are liquidated primarily by the General Fund, using the Compensated Absences and Long-Term Disability internal service fund to account for termination payouts. The changes in compensated absences for the year ended June 30, 2021 were as follows: Governmental Business-Type Activities Activities Total Beginning balance $ 5,147,792 $ 363,518 $ 5,511,311 Additions 824,175 (102,841) 721,334 Reductions (676,771) (26,940) (703,711) Ending balance $ 5,295,199 $ 233,737 $ 5,528,934 Current portion $ 652,810 $ 17,611 $ 670,421 Non-current portion $ 4,642,386 $ 216,127 $ 4,858,513 Deferred Outflows/Inflows of Resources: In addition to assets, the statement of financial position or balance sheet reports a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position or fund balance that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City reports differences between expected and actual experience, changes in pension and OPEB assumptions, loss on pension and OPEB investments, and contributions made subsequent to the measurement date as well. Differences between expected and actual experience and changes in pension and OPEB plan assumptions are deferred and amortized over the average of the expected remaining service lives of employees who are provided with benefits through the pension and OPEB plans. Loss on pension and OPEB investments are deferred and amortized over five years. Employer contributions made subsequent to the measurement date and change in proportionate share are deferred and recognized as a reduction of the net pension and net OPEB liability in the subsequent reporting year. 170 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 44. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In addition to liabilities, the statement of financial position or balance sheet reports a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position or fund balance that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. Under the accrual basis of accounting differences between expected and actual experience are deferred and amortized over the average of the expected remaining service lives of all employees who are provided with benefits through the pension and OPEB plans. Property Tax Calendar: All property taxes are levied and collected by the County of Santa Clara. Secured taxes are levied on July 1, are due in two installments on November 1 and February 1 and become delinquent after December 10 and April 10. Unsecured taxes are levied on July 1 and become delinquent on August 31. The lien date for secured and unsecured property taxes is January 1. The City, in fiscal year 1993-94, adopted an alternative method of property tax distribution (the "Teeter Plan"). Under this method, the City receives 100 percent of its secured property tax levied in exchange for foregoing any interest and penalties collected on delinquent taxes. The City receives remittances as a series of advances made by the County during the year. Interfund Transactions: Transactions constituting reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. Statement of Cash Flows: For purposes of reporting cash flows for the City's proprietary funds, pooled cash and investments are considered cash equivalents as the proprietary funds can access pooled cash and investments in a manner similar to a demand deposit account. Prepaid Items: Prepaid items are reported under the consumption method, which recognizes the expenditures/expense in the period associated with the service rendered or goods consumed. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from those estimates. Implementation of Governmental Accounting Standards Board (GASB) Pronouncements: Management adopted the provisions of the following Governmental Accounting Standards Board (GASB) Statements, which became effective during the year ended June 30, 2021. In January 2017, the GASB issued Statement 84, Fiduciary Activities. The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. This Statement is now effective for the City’s fiscal year ended June 30, 2021. The implementation of this standard specifically impacted the financial statement presentation of the fiduciary fund financial statements. The City participates in the Public Agency Retirement System (PARS) Public Agencies Post Retirement Health Care Plan Trust Program (PARS Trust), an agent-multiple employer irrevocable trust established to fund other postemployment benefits. 171 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 45. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The PARS Trust functions for the benefit of the employees. The City funds all PARS Trust costs based on actuarial valuations for its specific portion of the PARS Trust as opposed to the PARS Trust as a whole. Previously, the City reported in its fiduciary fund financial statements the PARS Trust that pertains to the City as well as OPEB benefit payments of the Plan initiated by the City but reimbursed to the PARS Trust in accordance with GASB Statement 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as the City reviewed the PARS Trust separately issued financial statements and determined that inclusion of the City OPEB Plan component unit financial statements and related disclosures as a City trust fund were necessary as omission would have been misleading. However, with the implementation of GASB Statement 84, this is no longer considered applicable. As such, the fiduciary fund financial statements are no longer included in the financial statements of the City. Fair Value Measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair value into three levels based on the extent to which inputs used in measuring fair value are observable in the market: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs — other than quoted prices included within level 1 — that are observable for an asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for an asset or liability. If the fair value of an asset or liability is measured using inputs from more than one level of the fair value hierarchy, the measurement is considered to be based on the lowest priority level input that is significant to the entire measurement. 172 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 46. NOTE 2 – CASH AND INVESTMENTS Primary Government: The City's pooled idle funds are invested pursuant to investment policy guidelines adopted by the City Council. The objectives of the policy are to invest funds to the fullest extent possible and to invest in accordance with the provisions of the California Government Code with the priority of safety, liquidity and yield. The policy addresses the safekeeping of securities, types of investment instruments, diversification, maturities, reporting requirements, and internal control. The City maintains a cash and investment pool that is available for use by all funds. Each fund type's portion of this pool is displayed on the Statement of Net Position and the balance sheet as "cash and investments." Policies: California Law requires banks and savings and loan institutions to pledge government securities with a market value of 110 percent of the City's cash on deposit, or first trust deed mortgage notes with a market value of 150 percent of the deposit, as collateral for these deposits. Under California Law, this collateral is held in a separate investment pool by another institution in the City's name and places the City ahead of general creditors of the institution. The City and its fiscal agents invest in individual investments and in investment pools. Individual investments are evidenced by specific identifiable securities instruments, or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system. Security instruments owned by the City are held in safekeeping by a third party custodian acting as agent for the City under the terms of a custody agreement. The City's investments are carried at fair value with the exception of money market mutual funds, which are carried at amortized cost. The City adjusts the carrying value of its investments to reflect their fair value at each fiscal year end, and it includes the effects of these adjustments in investment income for that fiscal year. Classification: The City's total cash and investments, at fair value, are presented on the financial statements in the following allocation: Primary Government Cash and investments $ 180,771,652 Restricted cash and investments: Held by fiscal agent for pension 18,491,004 Held by fiscal agent for bond repayments 8,333 Total cash and investments $ 199,270,989 173 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 47. NOTE 2 – CASH AND INVESTMENTS (Continued) Authorized Investments by the City: The City's Investment Policy and the California Government Code allow the City to invest its pooled idle funds in the following, under limits and provisions that address interest rate risk, credit risk, and concentration of credit risk. This does not include the City's investments of debt proceeds held by fiscal agents that are governed by the provisions of debt agreements of the City. Minimum Maximum Maximum Maximum Credit Percentage of Investment in Authorized Investment Type Maturity Quality Portfolio One Issuer U.S. Treasury Obligations 5 years N/A None None U.S. Agency Securities * 5 years N/A None None California Local Agency Investment Fund (LAIF) N/A N/A Up to $65 million None Non-negotiable Certificates of Deposits (time deposits) 5 years N/A 30%*** 10% of portfolio; 5% of issuer’s net worth ** State of California registered state warrants, treasury notes, or bonds 5 years N/A None None California local agency bonds, notes, warrants, or other obligations 5 years N/A None None Bond issued by the local agency 5 years N/A None None Bankers' Acceptances 180 days N/A 40% None Commercial Paper 270 days A-1+P-1 25% 10% of portfolio; 5% of issuer’s net worth; 10% of outstanding paper of Issuer. ** Negotiable Certificates of Deposit 5 years N/A 30% 10% of portfolio; 5% of issuer’s net worth. ** Repurchase Agreements 1 year N/A None 10% of portfolio; 5% of issuer’s net worth. ** Medium Term Corporate Notes 5 years A or better 30% 10% of portfolio; 5% of issuer’s net worth. ** Money market mutual funds investing in U.S. Treasury, Government Agency securities or repurchase agreements collateralized by U.S. Treasury or Government Agency securities 5 years Aaa/AAA 20% None Supranationals 5 years AA or better 30% 10% of portfolio * Securities issued by agencies of the federal government such as the Government National Mortgage Association (GNMA), the Federal Farm Credit System (FFCB), the Federal Home Loan Bank (FHLB), the Federal National Mortgage Association (FNMA), the Student Loan Marketing Association (SLMA), and the Federal Home Loan Mortgage Association (FHLMC). ** Represents restriction in which the City's investment policy is more restrictive than the California Government Code. *** 30% maximum percent of portfolio if using a private sector entity to assist in the placement of the time deposits. No maximum for others. Authorized Investments by Debt Agreements: The City must maintain required amounts of cash and investments with trustees or fiscal agents under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged reserves to be used if the City fails to meet its obligations under these debt issues. The California Government Code requires these funds to be invested in accordance with City ordinances, bond indentures or State statutes. The City's Investment Policy allows investments of bond proceeds to be governed by provisions of the related bond indentures. The following identifies the investment types that are authorized for investments held by fiscal agents under the terms of the bond indentures of the related debt issue: 174 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 48. NOTE 2 – CASH AND INVESTMENTS (Continued) Minimum Maximum Maximum Credit Percentage of Authorized Investment Type Maturity Quality Portfolio Cash or obligations of the U.S. including U.S. Treasury obligations N/A N/A None Federal agencies obligations which represent full faith and credit of the U.S. N/A N/A None Direct federal agencies obligations which are not fully guaranteed by the full faith and credit of the U.S. N/A N/A None U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks 360 days P-1, A-1+, A-1 None Commercial Paper 270 days P-1, A-1 None Money market funds N/A Aaam or AAAm-G None Pre-refunded municipal obligations that are not callable prior to maturity or as to which irrevocable instructions have been Highest given to call on the date specified in the notice N/A rating category None Municipal obligations or General obligations of states N/A Aaa, AAA, A2, A None California Local Agency Investment Fund (LAIF) N/A N/A Up to $65 million Shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the California Government Code which invests exclusively in investments permitted by Section 53635 of Title 5, Division 2, Chapter of the California Government Code, as it may be amended. N/A N/A None Interest Rate Risk: Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. Information about the sensitivity of the fair values of the City's investments (including investments held by bond trustees) to market interest rate fluctuations is provided by the following table that shows the distribution of the City's investments by maturity or earliest call date: 12 Months 13 to More than Investment Type or less 24 Months 24 Months Total U.S. Treasury Securities 1,275,250$ 4,098,360$ 27,757,105$ 33,130,715$ Corporate Notes - 7,328,970 20,629,828 27,958,798 U.S. Agency Notes Federal Home Loan Mortgage Corporation 1,518,360 2,343,312 7,886,280 11,747,952 Federal National Mortgage Association - - 15,806,748 15,806,748 Federal Home Loan Banks 1,305,733 2,045,180 5,472,576 8,823,489 Federal Farm Credit Banks 1,339,986 - 4,239,160 5,579,146 Local Agency Investment Fund 21,001,116 - - 21,001,116 Municipal Bonds 796,570 796,570 Asset-Backed Securities - 1,367,843 9,836,186 11,204,029 Negotiable Certificates of Deposit 3,352,320 - - 3,352,320 Supranationals 7,283,885 - - 7,283,885 Collateralized Mortgage Obligations - - 3,170,720 3,170,720 Money Market Mutual Funds 11,464,670 - - 11,464,670 Total Investments 48,541,320$ 17,183,665$ 95,595,173$ 161,320,158 Cash in banks and on hand 19,459,827 Restricted for Pension (PARS)18,491,004 Total Cash and Investments 199,270,989$ 175 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 49. NOTE 2 – CASH AND INVESTMENTS (Continued) The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The Local Investment Advisory Board (Board) has oversight responsibility for LAIF. The Board consists of five members as designated by State Statute. The City reports its investment in LAIF at the fair value amount provided by LAIF, which is the same as the value of the pool share. The balance is available for withdrawal on demand, and is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. Included in LAIF's investment portfolio are U.S. Treasuries, Federal Agency obligations, time deposits, negotiable certificates of deposits, commercial paper, corporate bonds, and security loans. These investments had weighted average maturity of 191 days. Money market mutual funds are available for withdrawal on demand. At June 30, 2021, money market mutual funds, used for pooled investment and held by fiscal agent purposes, had a weighted average maturity of 46 days or less. Fair Value Hierarchy: The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The following is a summary of the fair value hierarchy of the fair value of investments of the City as of June 30, 2021: Investments by Fair Value Level Level 1 Level 2 Total U.S. Treasury Securities -$ 33,130,715$ 33,130,715$ Corporate Notes - 27,958,798 27,958,798 U.S. Agency Notes - Federal Home Loan Mortgage Corporation - 11,747,952 11,747,952 Federal National Mortgage Association - 15,806,748 15,806,748 Federal Home Loan Banks - 8,823,489 8,823,489 Federal Farm Credit Banks - 5,579,146 5,579,146 Asset-Backed Securities - 11,204,029 11,204,029 Collateralized Mortgage Obligations - 3,170,720 3,170,720 Supranationals - 7,283,885 7,283,885 Negotiable Certificates of Deposit - 3,352,320 3,352,320 Municipal Bonds - 796,570 796,570 Total Investments -$ 128,854,372$ 128,854,372 Investments Measured at Amortized Cost: Money Market Mutual Funds 11,464,670 Investments Exempt from Fair Value Hierarchy: Local Agency Investment Fund 21,001,116 Cash in banks and on hand 19,459,827 Investments Held in Trust Restricted for Pension (PARS)18,491,004 Total Cash and Investments 199,270,989$ 176 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 50. NOTE 2 – CASH AND INVESTMENTS (Continued) Investments classified in Level 1 of the fair value hierarchy include securities valued using quoted prices in active markets. Federal Agency Securities and other U.S. Treasury Securities, classified in Level 2 of the fair value hierarchy are valued using matrix pricing techniques maintained by various pricing vendors. Matrix pricing is used to value securities based on the securities' relationship to benchmark quoted prices. 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. The California Local Agency Investment Fund (LAIF) is valued using factors provided in the Pooled Money Investment Account (PMIA) Performance Report by the State Treasurer’s Office. Money market funds and negotiable certificates of deposit are exempt from fair value measurement and are reported at amortized cost. Credit Risk: Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the actual rating as of June 30, 2021 for each investment type, including those with fiscal agents, as provided by Moody's ratings: Investment Type Ratings Total Money Market Mutual Funds Aaa 11,464,670$ Corporate Notes A1,A2,A3 27,958,798 U.S. Agency Notes Federal Home Loan Mortgage Corporation Aaa 11,747,952 Federal National Mortgage Association Aaa 15,806,748 Federal Home Loan Banks Aaa 8,823,489 Federal Farm Credit Banks Aaa 5,579,146 Asset-Backed Securities Aaa 11,204,029 Collateralized Mortgage Obligations Aaa 3,170,720 Negotiable Certificates of Deposit Aaa 3,352,320 Supranationals Aaa 7,283,885 Municipal Bonds Aa2 796,570 U.S. Treasury Securities Aaa 33,130,715 Not Rated: Local Agency Investment Fund Not Rated 21,001,116 Total Investments 161,320,158$ Concentration of Credit Risk: The City's investment policy contains certain limitations on the amount that can be invested in any one issuer. In certain categories, these limitations are more restrictive than those required by California Government Code Sections 53600 et seq. Excluding those issued or explicitly guaranteed by the U.S. government and investments in the local agency investment fund and mutual funds, the City had the following investments that represent five percent or more of total City-wide investments: Issuer Investment Type Amount Federal Home Loan Mortgage Corporation (FHLMC) U.S. Agency Notes $11,747,952 Federal Home Loan Banks (FHLB) U.S. Agency Notes 8,823,489 Federal National Mortgage Association (FNMA) U.S. Agency Notes 15,806,748 177 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 51. NOTE 3 – LOANS RECEIVABLE Housing Program Loans: On June 30, 1995, the City loaned $821,000 to Community Housing Developers, a California nonprofit public benefit corporation. The note bears interest at three percent per annum, compounded annually, payable to the extent of surplus cash, and all unpaid principal and interest due June 30, 2035. As of June 30, 2021, the balance remaining on the loan was $821,000. The loan was issued using resources in the Housing Development Fund and is considered governmental activities. On June 6, 1996, the City loaned $320,000 to Cupertino Community Services, a California nonprofit public benefit corporation. The note bears interest at three percent per annum and due on July 14, 2026. As of June 30, 2021, the balance on the loan was $158,057. The loan was issued using resources in the Housing Development Fund and is considered governmental activities. On September 11, 2017 the City loaned $3,672,000 to Stevens Creek, L.P., a California limited partnership. The note bears interest at three percent per annum for 55 years. After the completion of construction of the development, no later than April 30th of each calendar year, the Developer shall make repayments of the loan in an amount equal to the City loan percentage of the lenders’ share of residual receipts. The payments shall be credited first against accrued interest and then against outstanding principal of the loan, and shall be accompanied by the developer’s report of residual receipts. As of June 30, 2021, the balance remaining on the loan was $3,672,000. The loan was issued using resources in the Housing Development Fund and is considered governmental activities. In addition to these loans, the City has $40,120 in housing and other loans receivable as of June 30, 2021. These loans bear interest at three to six percent and are due by June 30, 2025. The loan was issued using resources in the Housing Development Fund and is considered governmental activities. 178 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 52. NOTE 4 – INTERFUND TRANSACTIONS Transfers between funds during the fiscal year ended June 30, 2021 were as follows: Fund Making Transfers Fund Receiving Transfers Amount Transferred General Fund Transportation Special Revenue Fund $3,800,000 (D) ` Housing Special Revenue Fund 200,000 (G) Public Financing Corporation Debt Service Fund 3,169,138 (B,D) Capital Improvement Projects Capital Projects Fund 5,000,000 (A) Non-major Enterprise Funds 450,000 (D) Cupertino Sports Center Fund 660,000 (D) Recreation Programs Fund 1,379,551 (D) Internal Service Funds 490,000 (E) Public Facilities Corporation Debt Service Fund General Fund 492,831 Capital Improvements Projects Capital Projects Fund Transportation Special Revenue Fund 200,000 (A) Cupertino Sports Center Fund 25,000 (A) Recreation Programs Fund 284,449 (C) Non-Major Enterprise Funds 50,000 (A) Non-major Governmental Funds General Fund 15,000 (F) Total Interfund Transfers $16,215,969 The reasons for these transfers are set forth below: (A) To fund capital projects. (B) For annual lease payment for 2012 Certificates of Participation debt service. (C) To support state-mandated activities including complaint response and enforcement programs. (D) Operating subsidy from General Fund. (E) To fund IT operations, personnel costs associated with staffing special project, and compensated absences and retiree health. (F) To fund purchase of trees (G) To fund Homelessness Encampment Services. Current Interfund Balances: Current interfund balances arise in the normal course of business and are expected to be repaid shortly after the end of the fiscal year. As of June 30, 2021, the Equipment Revolving Internal Service Fund owed the General Fund $539,204. Interfund Advances: Interfund advances are balances between funds that are not expected to be repaid within the current fiscal year. As of June 30, 2021, the General Fund advanced $3,000,000 to the Capital Improvement Projects Capital Projects Fund for advance funding of planned projects that will be repaid in subsequent years. 179 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 53. NOTE 5 – CAPITAL ASSETS A summary of changes in governmental activities capital assets is as follows: Balance at Balance at July 1, 2020 Additions Deletions Transfers June 30, 2021 Governmental activities: Capital assets not being depreciated: Land 62,045,969$ 2,740,700$ -$ -$ 64,786,669$ Easements 19,615,039 - - - 19,615,039 Construction in progress 5,315,170 15,707,748 - (5,071,922) 15,950,996 Total general government capital assets not being depreciated 86,976,178 18,448,448 - (5,071,922) 100,352,704 Capital assets being depreciated: Buildings 46,207,927 - - 332,630 46,540,557 Improvements other than buildings 58,557,845 - - 2,571,857 61,129,702 Machinery and equipment 4,149,407 - (12,773) 203,807 4,340,441 Roads, curbs, gutters, sidewalks, medians and bridges 177,971,273 - - 1,802,320 179,773,593 Streetlights 9,058,330 - - 161,308 9,219,638 Storm drain structure and mains 37,373,158 - - - 37,373,158 Traffic signals 6,418,246 - - - 6,418,246 Total capital assets being depreciated 339,736,186 - (12,773) 5,071,922 344,795,335 Less accumulated depreciation for: Buildings (30,193,858) (1,768,781) - - (31,962,639) Improvements other than buildings (41,075,643) (2,301,680) - - (43,377,323) Machinery and equipment (2,795,651) (282,140) 12,772 - (3,065,019) Roads, curbs, gutters, sidewalks, medians and bridges (110,258,263) (2,613,878) - - (112,872,141) Streetlights (7,469,142) (130,676) - - (7,599,818) Storm drain structure and mains (33,110,382) (431,927) - - (33,542,309) Traffic signals (5,688,539) (112,576) - - (5,801,115) Total accumulated depreciation (230,591,478) (7,641,658) 12,772 - (238,220,364) Total general government capital assets being depreciated, net 109,144,708 (7,641,658) (1) 5,071,922 106,574,971 Internal service fund capital assets: Capital assets not being depreciated: Construction in progress 214,666 661,449 - (876,115) - Total internal fund capital assets not being depreciated 214,666 661,449 - (876,115) - Capital assets being depreciated: Machinery and equipment 11,422,217 - (80,081) 876,115 12,218,251 Less accumulated depreciation (7,981,952) (968,791) 78,304 - (8,872,439) Total internal fund capital assets being depreciated, net 3,440,265 (968,791) (1,777) 876,115 3,345,812 Governmental activities capital assets, net 199,775,817$ 10,499,448$ (1,778)$ -$ 210,273,487$ 180 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 54. NOTE 5 – CAPITAL ASSETS (Continued) Balance at Balance at July 1, 2020 Additions Deletions Transfers June 30, 2021 Business-type activities: Capital assets not being depreciated: Construction in progress -$ 1,149,254$ -$ (1,023,923)$ 125,331$ Total capital assets not being depreciate - 1,149,254 - (1,023,923) 125,331 Capital assets being depreciated: Buildings 1,006,002 - - 1,023,923 2,029,925 Improvements other than buildings 2,089,743 - - - 2,089,743 Machinery and equipment 711,119 - - - 711,119 Total capital assets being depreciated 3,806,864 - - 1,023,923 4,830,787 Less accumulated depreciation for: Buildings (432,036) (52,398) - - (484,434) Improvements other than buildings (1,653,421) (99,788) - - (1,753,209) Machinery and equipment (602,525) (25,420) - - (627,945) Total accumulated depreciation (2,687,982) (177,606) - - (2,865,588) Total capital assets being depreciated 1,118,882 (177,606) - 1,023,923 1,965,199 Business-type activity capital assets, net 1,118,882$ 971,648$ -$ -$ 2,090,530$ Depreciation expense was charged to functions and programs based on their usage of the related assets. Depreciation expense was charged to governmental activities as follows: Governmental Activities Administration $ 187,220 Public and Environment Affairs 16,047 Administrative Services 29,038 Parks and Recreation 166,588 Public Works 7,242,765 Total $ 7,641,658 Depreciation expense was charged to the business-type activities as follows: Business-Type Activities Resources Recovery $ 3,314 Blackberry Farm 2,832 Cupertino Sports Center 66,802 Recreation Program 104,658 Total $ 177,606 181 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 55. NOTE 6 – LONG-TERM DEBT Cupertino Public Facilities Corporation Certificates of Participation: Original Balance Balance Issue June 30,June 30, Current Amount 2020 Additions Retirements 2021 Portion 2012 Refinancing Certificates of Participation 0.350-3.125%, due 07/01/2030 $43,940,000 27,010,000$ -$ 27,010,000$ -$ -$ 2020A Certificates of Participation 4%, due 06/01/2030 $22,040,000 - 22,040,000 2,140,000 19,900,000 1,880,000 Issuance Premium - 3,878,704 430,967 3,447,737 - Total long-term debt 27,010,000$ 25,918,704$ 29,580,967$ 23,347,737$ 1,880,000$ The Cupertino Public Facilities Corporation issued Certificates of Participation to provide financing for the construction of the Community Center, improvements of the City Hall and the Library in July 1986; purchase of Wilson Park in 1989; finance the Memorial Park Expansion in 1990; and purchase the Blackberry Farm and Fremont Older site in 1991. The Cupertino Public Facilities Corporation, as lessor, leased real property to the City (under the Lease Agreement with the lessee) and assigned the base rental payments to the trustee for the benefit of the owners of the certificates of participation. The rental payments which represent the pledged revenues are scheduled to be sufficient in both time and amount, when the principal and interest of the certificates are due, which was the case for the year ended June 30, 2021. On May 9, 2012, $43,940,000 principal amount of 2012 Refinancing Certificates of Participation (2012 COPs) were issued to refund the 2002 COPs, to fund a reserve fund for the 2012 COPs, and pay costs incurred in connection with issuance. On September 29, 2020, $22,040,000 principal amount of 2020A Certificates of Participation (2020 COPs) were issued to refund the 2012 COPs and pay costs incurred in connection with issuance. The proceeds were placed into an escrow account, along with funds from the City’s 2012 COPs Reserve and on October 30, 2020, the 2012 COPS were prepaid, resulting no amounts outstanding as of June 30, 2021 for the 2012 COPs. The result of the transaction was an economic gain of $3,133,819. The 2020A COPs are payable by a pledge of revenues from the lease payments payable by the City pursuant to the Lease Agreement between the Cupertino Public Facilities Corporation and the City for the use and possession of the Site and Facility as described in the Lease Agreement. The City also covenanted in the Lease Agreement to include all lease payments in its annual budget. Total debt service payments remaining on the 2020 COPs is $24,088,000 payable through June 1, 2030. For the year ended June 30, 2021, the bonds had $1,880,000 of principal and $796,000 interest due. 182 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 56. NOTE 6 – LONG-TERM DEBT (Continued) Annual debt service requirements for the 2020A COPS are shown below: NOTE 7 – NET POSITION AND FUND BALANCES Net Position is measured on the full accrual basis while Fund Balance is measured on the modified accrual basis. Net Position: The government-wide and proprietary fund financial statements utilize a net position presentation. Net position is categorized as follows: Net investment in capital assets - This category groups all capital assets including, infrastructure, into one component of net position. Accumulated depreciation and outstanding balances of debt that are attributable to the acquisition, construction or improvement of these assets reduce the balance in this category. Restricted - 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. Unrestricted - This category represents net position of the City that do not meet the definition of "net investment in capital assets" or "restricted." Fund Balances: As prescribed by GASB Statement No. 54, governmental funds report fund balance in classifications based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the funds can be spent. Fund balances for governmental funds are made up of the followings: Nonspendable Fund Balance - includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The "not in spendable form" criterion includes items that are not expected to be converted to cash, for example: prepaid items, property held for resale and long term notes receivable. Restricted Fund Balance - includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. For the Year Ending June 30 Principal Interest 2022 1,880,000 796,000 2023 1,955,000 720,800 2024 2,035,000 642,600 2025 2,115,000 561,200 2026 2,200,000 476,600 2027-2030 9,715,000 990,800 Total 19,900,000$ 4,188,000$ Governmental Activities 183 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 57. NOTE 7 – NET POSITION AND FUND BALANCES (Continued) Committed Fund Balance - includes amounts that can only be used for the specific purposes determined by a formal action of the City's highest level of decision-making authority, the City Council. Commitments may be changed or lifted only by the City taking the same formal action (resolution) that imposed the constraint originally. Assigned Fund Balance - comprises amounts intended to be used by the City for specific purposes that are neither restricted nor committed. Intent is expressed by the City Council or official to which the City Council has delegated the authority to assign amounts to be used for specific purposes. Through the adopted budget, the City Council establishes assigned fund balance policy levels and also sets the means and priority for the City Manager to fund these levels. Unassigned Fund Balance - is the residual classification for the General Fund and includes all amounts not contained in the other classifications. Unassigned amounts are technically available for any purpose. Only the General Fund reports unassigned positive fund balance. A governmental fund other than the General Fund may report a negative unassigned fund balance if expenditures incurred for a specific purpose exceed the amounts that are restricted, committed or assigned to those purposes. In circumstances when an expenditure may be made for which amounts are available in multiple fund balance classifications, the fund balance in General Fund will generally be used in the order of restricted, unassigned, and then assigned reserves. In other governmental funds, the order will generally be restricted and then assigned. 184 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 58. NOTE 7 – NET POSITION AND FUND BALANCES (Continued) Fund balances for all major and nonmajor governmental funds as of June 30, 2021, were distributed as follows: Public Capital O her Housing Facilities Improvements Governmental General Transporta ion Development Corporation Projects Funds Total Nonspendable: Loans receivable 444,346$ -$ -$ -$ -$ -$ 444,346$ Advances to other funds 3,000,000 - - - - - 3,000,000 Subtotal 3,444,346 - - - - - 3,444,346 Restricted for: Public access television 1,418,472 - - - - - 1,418,472 Debt service 13,392 - - - - - 13,392 PRSP Section 115 Trust 18,491,004 - - - - - 18,491,004 Public safety power shutoff 217,551 - - - - - 217,551 Debt service - - - 63,350 - - 63,350 Storm drain system - - - - - 4,084,025 4,084,025 Parks and open space - - - - - 9,708,675 9,708,675 Environmental management - - - - - 1,887,623 1,887,623 Streets and road projects - 9,409,837 - - - 468,998 9,878,835 Housing programs - - 7,948,113 - - - 7,948,113 Subtotal 20,140,419 9,409,837 7,948,113 63,350 - 16,149,321 53,711,040 Committed for: Economic uncertainty I 19,000,000 - - - - - 19,000,000 Sustainability Reserve 127,891 - - - - - 127,891 Subtotal 19,127,891 - - - - - 19,127,891 Assigned to: Encumbrances 4,906,139 - - - - - 4,906,139 Capital projects - - - - 36,859,117 179,057 37,038,174 Subtotal 4,906,139 - - - 36,859,117 179,057 41,944,313 Unassigned 49,231,996 - - - - - 49,231,996 Total 96,850,791$ 9,409,837$ 7,948,113$ 63,350$ 36,859,117$ 16,328,378$ 167,459,586$ NOTE 8 – COMMITMENTS AND CONTINGENCIES Federal and State Grant: The City participates in a number of federal and state grant programs subject to financial and compliance audits by the grantors or their representatives. Audits of certain grant programs, including those for the year ended June 30, 2021, have yet to be conducted. The amount, if any, of expenditures that may be disallowed by the granting agencies cannot be determined at this time. Management believes that such disallowances, if any, would not have a material effect on the financial statements. Encumbrances: The City uses encumbrances to control expenditure commitments for the year. Encumbrances represent commitments related to executor contracts not yet performed and purchase orders not yet filled. 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 as restricted, or assigned fund balance. 185 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 59. NOTE 8 – COMMITMENTS AND CONTINGENCIES (Continued) As of June 30, 2021, the City had the following encumbrances outstanding: Governmental Funds: General Fund $ 4,906,139 Transportation Special Revenue Fund 2,313,039 Housing Development Special Revenue Fund 13,933 Capital Improvements Projects Capital Projects Fund 9,149,569 Other Governmental Funds 87,145 Total Encumbrances $ 16,469,824 Lease Agreement with County of Santa Clara: The City has an agreement (commitment), expired in 2020 but still being honored, to lease a building to the County of Santa Clara for the purpose of providing library service to the City's residents. The lease requires a minimum annual payment of $120,000 adjusted for Cupertino's portion of book circulation and increase of assessed valuation. This is an operating lease with a renewable option. The City is currently negotiating the terms with the Santa Clara County Library District JPA to renew the operating lease. At June 30, 2021, the cost and carrying value of the building which opened in October 2004, is $21,952,133 and $7,182,100 respectively, with $14,770,033 in accumulated depreciation. Consulting Agreement for Sales Taxes: The City entered into agreements (commitments) with two companies to provide services consisting of the assessment and creation of new sales and use tax revenue sources for the City. The City agreed to pay the companies based on a sliding scale payment schedule dependent on the level of new sales tax revenue realized by the City as defined in the consulting agreements. These agreements qualify as tax abatements under the provisions of GASB Statement 77. However, due to legal restrictions per the California Revenue and Taxation Code, Section 7056, additional disclosures cannot be provided. Santa Clara County Vehicle Registration Fee (VRF): The City is required to report VRF revenues, expenditures and fund balances as of the year ended June 30, 2021: VRF Balance as of July 1, 2020 $ - VRF Revenue 382,102 VRF Interest - VRF Expended (382,102) VRF Balance as of June 30, 2021 $ - NOTE 9 – LIABILITIES UNDER SELF-INSURANCE AND RISK MANAGEMENT General and Property Liability: The City is self-insured for the first $250,000 of general and property liability for each occurrence, and the excess (up to $10,000,000 for each occurrence and annual aggregate) is covered through the City's participation in the Pooled Liability Assurance Network Joint Powers Authority (PLAN JPA – formerly the Association of Bay Area Governments Pooled Liability Assurance Network or ABAG PLAN). The risk pool consists of 28 agencies within the San Francisco Bay Area. The stated purpose of the PLAN JPA is to provide certain levels of liability insurance coverage, claims management, risk management services, and legal defense to its participating members. PLAN JPA is governed by a Board of Directors, which comprises officials appointed by each participating member. Premiums paid to PLAN JPA are subject to possible refund based on the results of actuarial studies and approval by the Board of Directors. Complete financial statements for PLAN JPA may be obtained from their offices at the following address: PLAN JPA, c/o Sedgwick, 1750 Creekside Oaks Drive Suite 200, Sacramento, CA, 95833. Premiums are revised each year based on the City's claims experience and risk exposure. For the year ended June 30, 2021, the City paid ABAG PLAN premiums of $639,636. 186 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 60. NOTE 9 – LIABILITIES UNDER SELF-INSURANCE AND RISK MANAGEMENT (Continued) Workers' Compensation Liability: The City belongs to the CSAC Excess Insurance Authority (EIA), a joint power authority which provides excess workers' compensation liability claims coverage above the City's self-insured retention of $500,000 per occurrence. Losses above the self-insured retention are pooled with excess reinsurance purchased to a $50,000,000 statutory limit. EIA was established in 1979 for the purpose of creating a risk management pool for all California public entities. EIA is governed by a Board of Directors consisting of representatives of its member public entities. Complete financial statements for ETA may be obtained from their offices at the following address: CSAC Excess Insurance Authority, Finance Department, EIA 75 Iron Point Circle, Suite 200, Folsom, CA 95630. For the year ended June 30, 2021, the City paid premiums of $100,967. It is the City's practice to obtain biennial actuarial studies for the self-insured workers' compensation liability. The claims liabilities included in the workers' compensation internal service fund is based on the results of actuarial studies and include amounts for claims incurred but not reported and loss adjustment expenses. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends, including frequency and amount of payouts, and other economic and social factors. Inflation of 2.5 percent, annual rate of return of two percent, claim severity increase at 2.5 percent were assumed. In the current year, management used actuarial estimates based on a 90 percent confidence level. Settlements have not exceeded insurance coverage in the past three years. Changes in the balances of workers' compensation and general claims liabilities during the years ended June 30 are as follows: 2021 2020 Claims liability, beginning of year $ 1,527,000 $ 1,553,277 Incurred claims and changes in estimate (117,896) 127,471 Claim payments and credits (35,104) (153,478) Total claims liability, end of year 1,374,000 1,527,000 Less current portion (245,000) (274,000) Non-current portion $ 1,129,000 $ 1,253,000 NOTE 10 – DEFINED BENEFIT PENSION PLAN Plan Descriptions and Summary of Balances by Plan: The City has one defined benefit pension plan. The Miscellaneous Plan (Plan) is an Agent-Multiple Employer Plan. Benefit provisions under the Plan is established by State statute and City Ordinance. All qualified permanent and probationary employees are eligible to participate in the Plan for which they are an eligible member based on their employment position with the City. The Plan is administered by the California Public Employees' Retirement System (CalPERS) which acts as a common investment and administrative agent for its participating member employers. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website at www.calpers.ca.gov. 187 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 61. NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued) For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Miscellaneous Plan and additions to/deductions from the Plan's fiduciary net position have been determined on the same basis as they are reported by the CalPERS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. Below is a summary of the deferred outflows of resources, net pension liabilities and deferred inflows of resources by Plan: Deferred Outflows Net Pension Deferred Inflows of Resources Liability of Resources Miscellaneous $ 9,202,043 $ 48,513,020 $ 121,088 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 years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law. The Pension Reform Act of 2013 (PEPRA), Assembly Bill 340, is applicable to employees new to CalPERS and hired after December 31, 2012. The Plans' provisions and benefits in effect at June 30, 2021, are summarized as follows: Hire date Prior to On or after January 1, 2013 January 1, 2013 Benefit formula 2.7% @ 55 2.0% @ 62 Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life Minimum retirement age 50 52 Monthly benefits, as a % of eligible compensation 2% to 2.7% 1% to 2% Required employee contribution rates 8.00% 6.25% Required employer contribution rates 23.54% 25.653% Employees Covered: As of the June 30, 2020 actuarial valuation date (most current), the following employees were covered by the benefit terms of the Plan: Inactive employees or beneficiaries currently receiving benefits 239 Inactive employees entitled to but not yet receiving benefits 150 Active employees 197 Total 586 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 for both Plans 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 employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. 188 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 62. NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued) Net Pension Liability: The City's net pension liability for the Plan is measured as the total pension liability, less the pension plan's fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2020 using an annual actuarial valuation as of June 30, 2019 rolled forward to June 30, 2020 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below. Actuarial Assumptions: The total pension liabilities in the June 30, 2020 actuarial valuations were determined using the following actuarial assumptions: Valuation Date June 30, 2019 Measurement Date June 30, 2020 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.15% Inflation 2.63% Payroll Growth 2.88% Projected Salary Increase Varies by Entry Age and Service (1) Investment Rate of Return 7.25% (2) Derived using CaIPERS' Membership Mortality Data for all Funds (3) (1) Depending on age, service and type of employment (2) Net of pension plan investment expenses and administrative expenses, including inflation (3) The mortality table used was developed based on CaIPERS' specific data. The table includes 15 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the CaIPERS 2017 experience study report available on CaIPERS website. All other actuarial assumptions used in the June 30, 2019 valuation were based on the results of a December 2017 actuarial experience study for the period 1997 to 2015, including updates to salary increase, mortality and retirement rates. Further details of the Experience Study can be found on the CaIPERS website under Forms and Publications. Change of Assumptions: None in 2021. Discount Rate: The discount rate used to measure the total pension liability was 7.15 percent for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CaIPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.15 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.15 percent will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. 189 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 63. NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued) In determining the long-term expected rate of return, CaIPERS took into account both short-term and long- term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds' asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. Asset Class New Strategic Allocation Real Return Years 1 - 10(a) Real Return Years 11+(b) Global Equity 50.00%4.80%5.98% Fixed Income 28.00%1.00%2.62% Inflation Assets 0.00%0.77%1.81% Private Equity 8.00%6.30%7.23% Real Estate 13.00%3.75%4.93% Liquidity 1.00%0.00%-0.92% Total 100.00% (a) An expected inflation of 2.00% used for this period. (b) An expected inflation of 2.92% used for this period. The table above reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return (presented as geometric means) are net of administrative expenses. Changes in Net Pension Liability: The changes in the Net Pension Liability for the City's Miscellaneous Plan are as follows: 190 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 64. NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability Balance at June 30, 2019 145,432,153$ 99,333,623$ 46,098,530$ Changes in the year: Service cost 3,241,719 - 3,241,719 Interest on the total pension liability 10,302,395 - 10,302,395 Change of Assumptions - - - Differences between actual and expected experience 444,188 - 444,188 Contribution - employer - 5,308,580 (5,308,580) Contribution - employee - 1,429,446 (1,429,446) Net investment income - 4,975,822 (4,975,822) Administrative expenses - (140,036) 140,036 Other miscellaneous income/(expenses)- - - Benefit payments, including refunds of employee contributions (6,815,494) (6,815,494) - Net changes 7,172,808 4,758,318 2,414,490 Balance at June 30, 2020 152,604,961$ 104,091,941$ 48,513,020$ Increase (Decrease) Sensitivity of the Net Pension Liability to Changes in the Discount Rate: The following presents the net pension liability of the City, calculated using the discount rate for the Plan, as well as what the City's net pension liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate: Miscellaneous 1% Decrease 6.15% Net Pension Liability $ 68,586,079 Current Discount Rate 7.15% Net Pension Liability $ 48,513,020 1% Increase 8.15% Net Pension Liability $ 31,903,241 Pension Plan Fiduciary Net Position: Detailed information about the Plan's fiduciary net position is available in the separately issued CalPERS financial reports. 191 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 65. NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions: For the year ended June 30, 2021, the City recognized pension expense of $8,113,684. As of June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $ 5,957,573 $ - Differences between actual and expected experience 2,331,941 - Changes in assumptions - 121,088 Net differences between projected and actual earnings on plan investments 912,519 - Total $ 9,202,043 $ 121,088 The $5,957,573 of contributions for the fiscal year ended June 30, 2021 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 ended June 30, 2021. Other amounts reported as deferred inflows of resources related to pensions will be recognized as pension expense as follows: Year Ended Annual June 30 Amortization 2021 $ 983,031 2022 1,111,471 2023 607,690 2024 421,191 $ 3,123,382 NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) Plan Description: Permanent employees who retire under the City's CaIPERS retirement plan are, pursuant to their respective collective bargaining agreements, eligible to have their medical insurance premiums paid by the City. Retirees receive the amount necessary to pay the cost of his/her enrollment, including the enrollment of his/her family members, in a health benefit plan provided by CalPERS up to the maximum received by active employees in their respective bargaining unit. The City contracts with CaIPERS for this insured-benefit plan established under the state Public Employees' Medical and Hospital Care Act (PEMHCA). The plan offers employees and retirees three CalPERS' self- funded options, setup as insurance risk pools, or offers various third-party insured health plans. The plan's medical benefits and premium rates are established by CalPERS and the insurance providers. The City contribution is established by City resolution. Retirees and active employees pay the difference between the premium rate and the City's contribution. Premiums and City contributions are based on the plan and coverage selected by actives and retirees, with the City's potential contribution ranging from zero to $1,605 per month per employee or retiree. The responsibility for benefit payments has transferred to the insurers and the City does not guarantee the benefits in the event of default by the insurers. A comprehensive annual financial report of CalPERS, inclusive of their benefit plans, is available at www.calpers.ca.gov. 192 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 66. NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued) The City participates in the Public Agency Retirement System (PARS) Public Agencies Post Retirement Health Care Plan Trust Program (PARS Trust), an agent-multiple employer irrevocable trust established to fund other postemployment benefits. The City Council adopted the PARS Public Agencies Post-Retirement Health Care Plan Trust, including the PARS Public Agencies Post-Retirement Health Care Plan, to fund medical insurance costs for its retired employees, effective February 17, 2010. The City Council appointed the City Treasurer, or his/her successor or his/her designee as the City’s plan administrator. The plan administrator is authorized to execute the PARS legal documents on behalf of the City and to take whatever additional actions necessary to maintain the City’s participation in the Program and to maintain compliance of any relevant regulation issued or as may be issued; therefore, authorizing him/her to take whatever additional actions are required to administer the City’s PARS Plan. The PARS Trust is approved by the Internal Revenue Code Section 115 and invests funds in equity, bond, and money market mutual funds. Copies of PARS Trust annual financial report is available at the City's Finance Department. An employee is eligible for lifetime medical benefits under the OPEB Plan, along with his/her spouse or declared domestic partner at the time of retirement, if all criteria listed below are met: The employee was hired or the City Council member was elected prior to August 1, 2004, and the employee has five or more full-time years of service and the City Council member has five or more years of elected service with the City of Cupertino; or The employee was hired or the City Council member was elected on or after August 1, 2004, and the employee has ten or more full-time and/or elected years of CalPERS service, five years of which must be from the City of Cupertino; and The employee is eligible for retirement as defined under the CaIPERS retirement system; and the employee retires from the City of Cupertino. In addition, the eligible employee's dependent children at the time of retirement who are under 23 years old are eligible for medical benefits. In addition to extending the eligibility of dependents from age 23 to age 26 in accordance with the recent healthcare reform act, effective July 1, 2010, employees that retire or resign from service with the City of Cupertino and who are not eligible for retiree medical benefits can continue on the City's medical and dental plans provided that they pay the premiums in full. Plan membership: At January 1, 2021 (the latest information available), Plan membership consisted of the following: Inactive plan members or beneficiaries currently receiving benefit payments 148 Inactive plan members entitled to but not yet receiving benefit payments 0 Active plan members 173 321 Contributions: OPEB Plan contributions are set by the adopted budget. The cost of the benefits provided by the OPEB Plan is currently being paid by the City on a fully pre-funded basis. Based on the actuarial valuation date of January 1, 2021, the annual required contribution rate is 0.54 percent of annual covered payroll. For the year ended June 30, 2021, the City paid $1,220,074 in healthcare premium payments. Plan members are not required to contribute to the plan. 193 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 67. NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued) Net OPEB Liability of the City: The components of the net OPEB liability of the City as of June 30, 2021 (expressed in thousands) were as follows: Total OPEB liability $ 28,626 Plan fiduciary net position 38,025 City's net OPEB liability (asset) $ (9,399) Plan fiduciary net position as a percentage of the total OPEB liability 133% Investment rate of return: The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of geometric real rates of return for each major asset class included in the target asset allocation as of June 30, 2021 (see the discussion of the Plan’s investment policy) are summarized in the following table: Long-Term Expected Asset Class Real Rate of Return Fixed income – core 0.69% Fixed income – high yield 3.06% Equities – domestic 6.88% Equities – developed foreign 6.73% Equities – emerging foreign 8.60% Real estate 4.89% Commodities 3.37% Cash 0.44% Investment policy: The Plan’s policy in regard to the allocation of invested assets is established and may be amended by the Plan’s Board by a majority vote of its members. It is the policy of the Plan Board to pursue an investment strategy that reduces risk through the prudent diversification of the portfolio across a broad selection of distinct asset classes. The Plan’s investment policy discourages the use of cash equivalents, except for liquidity purposes, and aims to refrain from dramatically shifting asset class allocations over short time spans. The following was the Board’s adopted asset allocation policy as of June 30, 2021: Asset Class Target Allocation Fixed income 29% Equities 62% Real estate 6% Commodities 2% Cash 1% Total 100% 194 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 68. NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued) Concentrations: The Plan did not have investments outside of mutual funds that comprise five percent or more of the Plan’s total fiduciary net position. Rate of return: For the year ended June 30, 2021, the annual money-weighted rate of return on investments, net of investment expense, was 5.28 percent. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Actuarial assumptions: The total OPEB liability was determined by an actuarial valuation as of January 1, 2021, using the previously listed actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified. Mortality rates were based on the CalPERS mortality assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with long-term perspective of the calculations. The other significant actuarial assumptions used to prepare the City's January 1, 2021 actuarial valuation include the following: Valuation date: January 1, 2021 Measurement date: June 30, 2021 Actuarial Cost Method: Entry Age Normal Amortization Method: Level percent of pay closed Amortization Period: 10 year Asset Valuation Method: Market value Actuarial Assumptions: Discount Rate 6.50% Payroll Growth 3.00% Ultimate Rate of Medical Inflation 4.50% Mortality (1) CalPERS mortality assumptions Health Care Trend The annual cost of healthcare is expected to decrease from 6.5% in 2020 to 4.5% from 2076 and later. (1) 2017 CalPERS Experience Study, Recipients with attained age of 50 Discount rate: The discount rate used to measure the total OPEB liability was 6.5 percent. The projection of cash flows used to determine the discount rate assumed that City contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB 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 OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability. 195 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 69. NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued) Changes in the Net OPEB Liability: The changes in the City’s net OPEB liability (asset) are (in thousands): Net Increase (Decrease) Total OPEB Plan Fiduciary Net OPEB Liability Net Position Liability (Asset) Balance at July 1, 2020 $ 31,338 $ 29,370 $ 1,968 Changes in the year Service cost 844 - 844 Interest on the total OPEB liability 2,042 - 2,042 Change of assumptions 640 - 640 Differences between actual and expected experience (4,688) - (4,688) Contribution – employer - 1,550 (1,550) Contribution – employee - - - Net investment income - 8,776 (8,776) Administrative expenses - (121) 121 Benefit payments, including refunds of Employee contributions (1,550) (1,550) - Net changes (2,712) 8,655 (11,367) Balance at June 30, 2021 $ 28,626 $ 38,025 $ (9,399) Sensitivity of the net OPEB liability (asset) to changes in the discount rate: The following presents the net OPEB asset of the City, as well as what the City’s net OPEB liability would be if it were calculated using a discount rate that is one-percentage-point lower (5.5 percent) or one-percentage-point higher (7.5 percent) than the current discount rate (expressed in thousands): 1% Current 1% Decrease Discount Rate Increase 5.50% 6.50% 7.50% City of Cupertino’s net OPEB liability (asset) for the plan $ (5,806) $ (9,399) $ (12,383) Sensitivity of the net OPEB liability (asset) to changes in the healthcare cost trend rates: The following presents the net OPEB asset of the City, as well as what the City’s net OPEB liability would be if it were calculated using healthcare cost trend rates that are one-percentage-point lower (decreasing to 3.5 percent) or one-percentage-point higher (increasing to 5.5 percent) than the current healthcare cost trend rates (expressed in thousands): Current 1% Healthcare Cost 1% Decrease Trend Rate Increase City of Cupertino’s net OPEB liability (asset) for the plan $ (12,598) $ (9,399) $ (5,469) 196 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 70. NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued) OPEB Expense and Deferred Inflows of Resources Related to OPEB: For the year ended June 30, 2021, the City recognized OPEB expense of $(990,000). As of June 30, 2021, the City reported deferred inflows of resources related to OPEB from the following sources (in thousands): Deferred Outflows Deferred Inflows of Resources of Resources Net difference between projected and actual earnings on investments $ - $ 4,269 Differences between expected and actual experience - 4,473 Changes in assumption 1,569 15 $ 1,569 $ 8,757 Amounts reported as deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows (in thousands): Year Ended Deferred Inflows June 30 of Resources 2022 $ (1,820) 2023 (1,706) 2024 (1,479) 2025 (2,183) Total $ (7,188) NOTE 12 – CONCENTRATION RISK The City has an economic dependency on revenues generated directly or indirectly from one company. For the year ended June 30, 2021, more than 10 percent of the City General Fund's total revenues are derived from the company. The City's operations would be adversely impacted if there are any significant declines in taxes received from the company. NOTE 13 – UPCOMING GASB PRONOUCEMENTS In June 2017, the GASB issued Statement 87, Leases. The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. This Statement is now effective for the City’s fiscal year ended June 30, 2022 due to the postponement impacts of GASB Statement 95. Management has not determined what impact, if any, this statement will have on its financial statements. 197 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 71. NOTE 13 – UPCOMING GASB PRONOUCEMENTS (Continued) In June 2018, the GASB issued Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period. The objectives of this Statement are (1) to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and (2) to simplify accounting for interest cost incurred before the end of a construction period. This Statement establishes accounting requirements for interest cost incurred before the end of a construction period. This Statement is now effective for the City’s fiscal year ended June 30, 2022 due to the postponement impacts of GASB Statement 95. Management has not determined what impact, if any, this statement will have on its financial statements.” In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations. The primary objectives of this Statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This Statement achieves those objectives by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures. This Statement is effective for the City’s fiscal year ended June 30, 2022. Management has not determined what impact, if any, this statement will have on its financial statements. In January 2020, GASB issued Statement No. 92, Omnibus 2021. The primary objectives of this Statement are to enhance comparability in accounting and financial reporting and improve the consistency of authoritative literature by addressing practice issues that have been identified during implementation and application of certain GASB statements. Upon the City’s adoption of GASB Statement No 95, effective date for the Statement was delayed for the City until their fiscal year ended June 30, 2022, with the exception of paragraphs 11 and 13 which are now effective and the City has implemented with no material impact to the City’s financial statements. Management has not yet determined the impact of the remainder of this statement on the City’s financial statements. In March 2021, GASB issued Statement No. 93, Replacement of Interbank Offered Rates. The primary objectives of this Statement is to address those and other accounting and financial reporting implications that result from the replacement of an IBOR. Upon the City’s adoption of GASB Statement No 95, effective date for the Statement was delayed for the City until their fiscal year ended June 30, 2022. Management has not yet determined the impact of this statement on the City’s financial statements. In March 2021, GASB issued Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. The primary objectives of this Statement is improve financial reporting by addressing issues related to public-private and public-public partnership arrangements. This Statement also provides guidance for accounting and financial reporting for availability payments arrangements. The requirements of this Statement are effective for the City’s fiscal year ended June 30, 2023. Management has not yet determined the impact of this statement on the City’s financial statements. In May 2021, GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements. This Statement provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. The requirements of this Statement are effective for the City’s fiscal year ended June 30, 2023. Management has not yet determined the impact of this statement on the City’s financial statements. 198 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 (Continued) 72. NOTE 13 – UPCOMING GASB PRONOUCEMENTS (Continued) In June 2021, GASB issued Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans. The primary objectives of this Statement are to (1) increase consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans. The requirements of this Statement are effective for the City’s fiscal year ended June 30, 2022, with the exception of paragraphs 4 and 5 which are now effective and the City has implemented with no material impact to the City’s financial statements. Management has not yet determined the impact of the remainder of this statement on the City’s financial statements. NOTE 14 – COVID-19 IMPACT In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak and any related adverse public health developments have adversely affected workforces, customers, economies, and financial markets globally. It has also disrupted the normal operations of many governments, including the City of Cupertino. The City expects this outbreak to impact the City’s operations for future reporting periods; however, it is not possible for the City to predict the duration or magnitude of the adverse results of the outbreak and its effects on the City’s operations. In response to the global pandemic, the Federal government initiated two federal relief programs designed to provide direct funding to states and cities. The first program, the Coronavirus Aid, Relief, and Economic Security (CARES) Act established a $150 billion Coronavirus Relief Fund. Federal law specifies that these funds may only be used for unbudgeted costs incurred between March 1, 2020 and December 31, 2020. Control Section 11.90 of the 2021 Budget Act extended the expenditures deadline for cities, counties and community colleges to September 1, 2021. The Budget Act authorized the California Department of Finance to allocate $1,289,065,000 to address the public health and public safety impacts of COVID19, including homelessness. Pursuant to the provisions of Control Section 11.90, cities with populations between 300,000 and 500,000 were allocated $225 million and cities with populations less than 300,000 were allocated $275 million. Allocations generally for cities were derived using the proportional share of the State population. The City of Cupertino’s nonrecurring allocation of $735,259 was received in July 2020. The CARES Act established six eligible expense categories, as follows: (A) Medical Expenses; (B) Public Health Expenses; (C) Substantially Dedicated Payroll Expenses; (D) Comply with Public Health Measures and Mitigate the Effects of COVID19; (E) Economic Support; or (F) Other. 199 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2021 73. NOTE 14 – COVID-19 IMPACT (Continued) The entire CARES Act amount of the $759,259 was recognized as revenue in FY 2020/21 and categorized as Operating Grants and Contributions in the Statement of Activities Schedule, and Intergovernmental Revenues in the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balance Schedule. On March 11, 2021, the second program, the American Rescue Plan Act (ARPA) was signed into law by President Biden. The $1.9 trillion package (the Act) provides financial aid to families, governments, businesses, schools, nonprofits and others impacted by the COVID-19 public health crisis. Of the $1.9 trillion, $350 billion is being directed toward state and local governments. All 19,000 municipal governments are entitled to a direct, noncompetitive federal formula grant from the U.S. Treasury Department. The portion allocated to cities, towns, and villages totals $65.1 billion. The Act will allocate $9,694,773 to the City over a two year period. The first tranche payment of $4,847,387 was received on May 19, 2021, and the second payment no earlier than 12 months after the first payment. Section 603. CORONAVIRUS LOCAL FISCAL RECOCERY FUND of the Act identified four eligible uses for funding, as follows: (A) to respond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID-19) or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality; (B) to respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers of the metropolitan city, non-entitlement unit of local government, or county that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work; (C) for the provision of government services to the extent of the reduction in revenue of such metropolitan city, non-entitlement unit of local government, or county due to the COVID-19 public health emergency relative to revenues collected in the most recent full fiscal year of the metropolitan city, non-entitlement unit of local government, or county prior to the emergency; or (D) to make necessary investments in water, sewer, or broadband infrastructure. Initial revenue loss estimates amounted to $29 million through December 31, 2023 and as a result, the Cupertino City Council approved the use of ARP funds for revenue loss. As of and for the fiscal year ending June 30, 2021, the $4.8 million received in May 2021 was recorded as unearned revenue. The City plans to recognize revenues for both tranches of payment in FY 21/22. In accordance with the Treasury’s Final Rule, a standard allowance for revenue loss of up to $10 million may be elected. Recipients that select the standard allowance may use that amount for government services. The City anticipates recognizing these revenues in the General Fund and using them to support continued government services. 200 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 201 CITY OF CUPERTINO, CALIFORNIA SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS For the year ended June 30, 2021 74. Measurement Date 6/30/2014 6/30/2015 6/30/2016 6/30/2017 6/30/2018 6/30/2019 6/30/2020 Total Pension Liability Service Cost 2,504,228$ 2,444,939$ 2,525,314$ 2,895,549$ 3,058,629$ 3,324,361$ 3,241,719$ Interest 7,349,943 7,789,134 8,253,983 8,619,588 9,065,322 9,800,245 10,302,395 Changes of benefit terms - - - - - - - Differences between expected and actual experience - 372,917 696,347 (182,397) 1,184,340 4,144,384 444,188 Changes in assumptions - (1,883,633) - 7,125,558 (847,606) - - Benefit payments, including refunds of employee contributions (4,351,614) (4,637,005) (5,151,298) (5,346,890) (6,051,845) (6,193,271) (6,815,494) Net change in total pension liability 5,502,557 4,086,352 6,324,346 13,111,408 6,408,840 11,075,719 7,172,808 Total pension liability - beginning 98,922,931 104,425,488 108,511,840 114,836,186 127,947,594 134,356,434 145,432,153 Total pension liability - ending (a)104,425,488$ 108,511,840$ 114,836,186$ 127,947,594$ 134,356,434$ 145,432,153$ 152,604,961$ Plan fiduciary net position Contributions - employer 2,891,986$ 3,301,642$ 3,659,170$ 4,183,822$ 4,263,020$ 4,654,841$ 5,308,580$ Contributions - employee 1,061,884 1,149,894 1,169,921 1,236,052 1,506,888 1,364,731 1,429,446 Net investment income 11,379,985 1,724,204 466,704 8,749,288 7,347,936 6,096,968 4,975,822 Benefit payments, including refunds of employee contributions (4,351,614) (4,637,005) (5,151,298) (5,346,890) (6,051,845) (6,193,271) (6,815,494) Administrative expense - (87,780) (47,536) (115,304) (392,346) (66,707) (140,036) Other miscellaneous Income/(Expense)- - - - - 216 - Net change in plan fiduciary net position 10,982,241 1,450,955 96,961 8,706,968 6,673,653 5,856,778 4,758,318 Plan fiduciary net position - beginning 65,566,067 76,548,308 77,999,263 78,096,224 86,803,192 93,476,845 99,333,623 Plan fiduciary net position - ending (b)76,548,308$ 77,999,263$ 78,096,224$ 86,803,192$ 93,476,845$ 99,333,623$ 104,091,941$ Net pension liability - ending (a)-(b)27,877,180$ 30,512,577$ 36,739,962$ 41,144,402$ 40,879,589$ 46,098,530$ 48,513,020$ Plan fiduciary net position as a percentage of the total pension liability 73.30% 71 88% 68.01% 67 84% 69.57% 68.30% 68.21% Covered payroll 13,080,327$ 13,504,966$ 14,336,969$ 15,595,136$ 16,809,349$ 18,461,490$ 18,662,748$ Net pension liability as percentage of covered payroll 213.12% 225.94% 256.26% 263 83% 243.20% 249.70% 259.95% Notes to Schedule * - Fiscal year 2015 was the 1st year of implementation, therefore only six years are shown. Source CalPERS Accounting Valuation Benefit changes. The figures above do not include any liability impact that may have resulted from plan changes which occurred after the actuarial valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). Changes in assumptions. None in 2019. In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions from December 2017. In 2017, the accounting discount rate reduced from 7 65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense.) In 2014, amounts reported were based on the 7.5 percent discount rate. Agent Multiple Employer Defined Benefit Retirement Plan - Miscellaneous Plan Last 10 years* 202 CITY OF CUPERTINO, CALIFORNIA SCHEDULE OF CONTRIBUTIONS - PENSION For the year ended June 30, 2021 75. 2015 2016 2017 2018 2019 2020 2021 Actuarially determined contribution 3,608,853$ 3,659,170$ 4,183,821$ 4,263,020$ 4,654,841$ 5,308,577$ 5,957,573$ Contributions in relation to the actuarially determined contributions (3 608 853) (3 659 170) (4 183 821) (4 263 020) (4 654 841) (5 308 577) (5 957 573) Contribution deficiency (excess)-$ -$ -$ -$ -$ -$ -$ Covered payroll 13,504,966$ 14,336,969$ 15,595,136$ 16,809,349$ 19,664,057$ 19,871,414$ 20,103,210$ Contributions as a percentage of covered payroll 26.72% 25 52% 26.83% 25 36% 23.67% 26.71% 29 63% Notes to Schedule Valuation date:6/30/2013 6/30/2014 6/30/2015 6/30/2016 6/30/2017 6/30/2018 6/30/2019 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age Amortization method Level percentage of payroll, closed Remaining amortization period 19 Years as of the Valuation Date Asset valuation method 15 Year Smoothed Market Inflation 2.65% Salary increases Varies by Entry age and Service Investment rate of return Retirement age Mortality * - Fiscal year 2015 was the 1st year of implementation, therefore only six years are shown. Source: City of Cupertino's general ledger and CalPERS Actuarial Valuation Notes to Schedule * - Fiscal year 2015 was the 1st year of implementation, therefore only three years are shown. Agent Multiple Employer Defined Benefit Retirement Plan - Miscellaneous Plan Last 10 years* Source CalPERS Accounting Valuation 7.25% Net of Pension Plan The probabilities of Retirement are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. The probabilities of mortality are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Pre-retirement and Post-retirement mortality rates include 20 years of projected mortality improvement using Scale BB published by the Society of Actuaries. Benefit changes. The figures above do not include any liability impact that may have resulted from plan changes which occurred after the actuarial valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a k.a. Golden Handshakes). Changes in assumptions. None in 2019 or 2020. In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions from December 2017. In 2017, the accounting discount rate reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense.) In 2014, amounts reported were based on the 7.5 percent discount rate. 203 ary Draft CITY OF CUPERTINO, CALIFORNIA SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY AND RELATED RATIOS For the year ended June 30, 2021 76. 6/30/2017 6/30/2018 6/30/2019 6/30/2020 6/30/2021 Total OPEB liability Service cost 908$ 1,008$ 865$ 1,009$ 844$ Interest 1,781 1,876 2,005 1,985 2,042 Changes of benefit terms - - - - - Differences between expected and actual experience - - (1,808) - (4,688) Changes of assumptions - - (37) 1,412 640 Benefit payments (1,333) (1,419) (1,423) (1,141) (1,550) Net change in total OPEB liability 1,356 1,465 (398) 3,265 (2,712) Total OPEB liability - beginning 25,650 27,006 28,471 28,073 31,338 Total OPEB liability - ending (a)27,006$ 28,471$ 28,073$ 31,338$ 28,626$ Plan fiduciary net position Contributions - employer 1,333 1,419 1,423 1,141 1,550 Net investment income 2,960 2,365 1,259 219 8,776 Benefit payments (1,333) (1,419) (1,423) (1,141) (1,550) Administrative expense (49) (54) (97) (67) (121) Net change in fiduciary net position 2,911 2,311 1,162 152 8,655 Plan fiduciary net position - beginning 22,834 25,745 28,056 29,218 29,370 Plan fiduciary net position - ending (b)25,745$ 28,056$ 29,218$ 29,370$ 38,025$ 2.65% Net OPEB liability (asset) - ending (a-b)1,261$ 415$ (1,145)$ 1,968$ (9,399)$ Plan fiduciary net position as a percentage of the total OPEB liability 95.33% 98.54% 104.08% 93.72% 132.83% Covered payroll 17,255$ 19,153$ 20,086$ 21,643$ 23,082$ Net OPEB liability (asset) as a percentage of covered payroll 7.31% 2.17% -5.70% 9.09% -40.72% Notes to schedule: * - Fiscal year 2017 was the 1st year of implementation, therefore only five years are shown. Expressed in thousands Single Employer Defined Benefit OPEB Plan Last 10 years* 204 ary Draft CITY OF CUPERTINO, CALIFORNIA SCHEDULE OF CONTRIBUTIONS - OPEB For the year ended June 30, 2021 77. 6/30/2017 6/30/2018 6/30/2019 6/30/2020 6/30/2021 Actuarially determined contribution 1,117$ 1,362$ 1,300$ 1,401$ 124$ Contributions in relation to the actuarially determined contributions 1,333 1,419 1,423 1,141 1,550 Contribution deficiency (excess)(216)$ (57)$ (123)$ 260$ (1,426)$ Covered payroll 17,255$ 19,153$ 20,086$ 21,643$ 23,082$ Contributions as a percentage of covered payroll 7.73% 7.41% 7.08% 5.27% 6.72% Notes to schedule: * - Fiscal year 2017 was the 1st year of implementation, therefore only five years are shown. Valuation Date 1/1/2021 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age Amortization method 2.65% Remaining amortization period Varies by Entry age and Service Asset valuation method Market Value of Assets Discount rate 6.50% Amortization growth rate 2.75% Ultimate rate of medical inflation 4.30% Salary increases 2.75% plus merit component based on years of service Mortality CalPERS mortality assumptions Expressed in thousands Single Employer Defined Benefit OPEB Plan Last 10 years* 205 ary Draft MAJOR GOVERNMENTAL FUNDS OTHER THAN THE GENERAL FUND AND SPECIAL REVENUE FUNDS 78. This section is provided for the presentation of budget-to-actual statements for the Public Facilities Corporation Debt Service Fund. Although the fund is considered to be a major government fund, budget- to-actual information in the basic financial statements is limited to the General Fund and major Special Revenue Funds. All other major governmental fund schedules with such information are therefore included as Supplemental Information. The Capital Projects Funds are budgeted on a major project length basis and therefore not comparable on an annual basis. Public Facilities Corporation Debt Service Fund: This fund accounts for the payments of principal and interest on certificates of participation issued to provide for the financing of the Civic Center, Library, Wilson Park, Memorial Park, and other City facilities. 206 ary Draft CITY OF CUPERTINO, CALIFORNIA PUBLIC FACILITIES CORPORATION DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL For the year ended June 30, 2021 79. Variance Positive Original Final Actual (Negative) Revenues Use of money and property -$ -$ 332$ 332$ Total revenues - - 332 332 Expenditures Debt service: Principal 2,355,000 2,140,000 2,140,000 - Interest and fiscal charges 814,138 807,080 798,747 8,333 Total expenditures 3,169,138 2,947,080 2,938,747 8,333 Excess (deficiency) of revenues over expenditures (3,169,138) (2,947,080) (2,938,415) 8,665 Other financing sources (uses) Proceeds from debt issuance - 22,040,000 22,040,000 - Proceeds from debt issuance premium - 3,878,704 3,878,704 - Payment to refunding agent - (27,279,118) (27,279,118) - Transfers in 3,169,138 3,169,138 3,169,138 - Transfers out - (492,832) (492,831) 1 Total other financing sources (uses) 3,169,138 1,315,892 1,315,893 1 Net change in fund balance -$ (1,631,188)$ (1,622,522) 8,666$ Beginning fund balance 1,685,872 Ending fund balance 63,350$ Budgeted Amounts 207 ary Draft NON-MAJOR GOVERNMENTAL FUNDS 80. All funds not considered as major funds on the Fund Financial Statements are consolidated in one column entitled "Other Governmental Funds." These non-major funds are identified and included in this supplementary section and includes the City's Special Revenue Funds and Capital Project Funds. The Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. Storm Drain Improvement — Accounts for the construction and maintenance of storm drain facilities including drainage and sanitary sewer facilities. Revenues were collected from developers as a result of connections to the storm drainage sewer system. Park Dedication — Accounts for the activity granted by the business and professions code of the State of California in accordance with the open space and conservation element of the City's General Plan. Revenues of this fund are restricted for the acquisition, improvement, expansion and implementation of the City's parks and recreation facilities. Environmental Management / Clean Creeks — Accounts for all activities related to operating the non-point source pollution program. A parcel tax provides revenues. Traffic Impact – Accounts for development impact fees and related that ensure that new development and redevelopment projects pay their “fair share” to mitigate traffic impacts. Capital Projects Funds account for the financial resources committed to the construction or improvement of major facilities. Stevens Creek Corridor Park Capital Projects Fund — Accounts for the design and construction of the Stevens Creek Corridor Park projects. 208 ary Draft CITY OF CUPERTINO, CALIFORNIA NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET June 30, 2021 81. Total Storm Environmental Nonmajor Drain Park Management/ Traffic Stevens Creek Governmental Improvement Dedication Clean Creeks Impact Corridor Park Funds Assets Cash and investments 4,084,025$ 9,708,075$ 1,874,887$ 468,998$ 179,937$ 16,315,922$ Accounts receivable - 600 21,561 - - 22,161 Total assets 4,084,025$ 9,708,675$ 1,896,448$ 468,998$ 179,937$ 16,338,083$ Liabilities Accounts payable and accruals -$ -$ 8,825$ -$ 880$ 9,705$ Total liabilities - - 8,825 - 880 9,705 Fund balances Restricted 4,084,025 9,708,675 1,887,623 468,998 - 16,149,321 Assigned - - - - 179,057 179,057 Total fund balances 4,084,025 9,708,675 1,887,623 468,998 179,057 16,328,378 Total liabilities and fund balances 4,084,025$ 9,708,675$ 1,896,448$ 468,998$ 179,937$ 16,338,083$ Fund Capital Projects Special Revenue Funds 209 ary Draft CITY OF CUPERTINO, CALIFORNIA NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES For the year ended June 30, 2021 82. Fund Total Storm Environmental Nonmajor Drain Park Management/ Traffic Stevens Creek Governmental Improvement Dedication Clean Creeks Impact Corridor Park Funds Revenues Taxes 81,471$ 104,201$ -$ -$ -$ 185,672$ Use of money and property 9,547 23,188 263 1,151 (2,136) 32,013 Charges for services - 4 1,475,982 226,728 - 1,702,714 Fines and forfeitures - - 5,065 - - 5,065 Total revenues 91,018 127,993 1,481,310 227,879 (2,136) 1,926,064 Expenditures Current: Public works 1,000 - 1,374,667 - 2,651 1,378,318 Capital outlay - 2,749,741 - - 13,200 2,762,941 Total expenditures 1,000 2,749,741 1,374,667 - 15,851 4,141,259 Excess of revenues over (under) expenditures 90,018 (2,621,748) 106,643 227,879 (17,987) (2,215,195) Other finances sources (uses) Transfers in - - - - - - Transfers out - (15,000) - - - (15,000) Total other financing sources (uses)- (15,000) - - - (15,000) Net change in fund balances 90,018 (2,636,748) 106,643 227,879 (17,987) (2,230,195) Beginning fund balances 3,994,007 12,345,423 1,780,980 241,119 197,044 18,558,573 Ending fund balances 4,084,025$ 9,708,675$ 1,887,623$ 468,998$ 179,057$ 16,328,378$ Special Revenue Funds Capital Projects 210 ary Draft CITY OF CUPERTINO, CALIFORNIA NON-MAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL For the year ended June 30, 2021 (Continued) 83. Variance Original Final Positive Budget Budget Actual (Negative) Revenues Taxes 76,984$ 76,984$ 81,471$ 4,487$ Use of money and property - - 9,547 9,547 Charges for services - - - - Fines for forfeitures - - - - Other revenue - - - - Total revenues 76,984 76,984 91,018 14,034 Expenditures Current: Public works 1,000 1,000 1,000 - Capital outlay - - - - Total expenditures 1,000 1,000 1,000 - Excess (deficiency) of revenues over expenditures 75,984 75,984 90,018 14,034 Other financing sources (uses) Transfers (out)- - - - Total other financing sources (uses)- - - - Net change in fund balance 75,984$ 75,984$ 90,018 14,034$ Beginning fund balance 3,994,007 Ending fund balance 4,084,025$ Storm Drain Improvement Special Revenue Funds 211 ary Draft CITY OF CUPERTINO, CALIFORNIA NON-MAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL For the year ended June 30, 2021 (Continued) 84. Variance Original Final Positive Budget Budget Actual (Negative) Revenues Taxes -$ -$ 104,201$ 104,201$ Use of money and property - - 23,188 23,188 Charges for services - - 4 4 Fines for forfeitures - - - - Other revenue - - 600 600 Total revenues - - 127,993 127,993 Expenditures Current: Public works - - - - Capital outlay 9,541 2,749,741 2,749,741 - Total expenditures 9,541 2,749,741 2,749,741 - Excess (deficiency) of revenues over expenditures (9,541) (2,749,741) (2,621,748) 127,993 Other financing sources (uses) Transfers (out)(15,000) (15,000) (15,000) - Total other financing sources (uses) (15,000) (15,000) (15,000) - Net change in fund balance (24,541)$ (2,764,741)$ (2,636,748) 127,993$ Beginning fund balance 12,345,423 Ending fund balance 9,708,675$ Park Dedication Special Revenue Funds 212 ary Draft CITY OF CUPERTINO, CALIFORNIA NON-MAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL For the year ended June 30, 2021 85. Variance Original Final Positive Budget Budget Actual (Negative) Revenues Taxes -$ -$ -$ -$ Use of money and property 905 905 263 (642) Charges for services 1,522,493 1,553,406 1,475,982 (77,424) Fines for forfeitures 10,000 10,000 5,065 (4,935) Other revenue - - - - Total revenues 1,533,398 1,564,311 1,481,310 (83,001) Expenditures Current: Public works 1,794,154 1,693,783 1,374,667 319,116 Capital outlay - - - - Total expenditures 1,794,154 1,693,783 1,374,667 319,116 Excess (deficiency) of revenues over expenditures (260,756) (129,472) 106,643 236,115 Other financing sources (uses) Transfers (out)- - - - Total other financing sources (uses)- - - - Net change in fund balance (260,756)$ (129,472)$ 106,643 236,115$ Beginning fund balance 1,780,980 Ending fund balance 1,887,623$ Environmental Management/Clean Creeks Special Revenue Funds 213 ary Draft NON-MAJOR ENTERPRISE FUND 86. Proprietary funds account for City operations financed and operated in a manner similar to a private business enterprise. The intent of the City is that the cost of providing goods and services be financed primarily through user charges. The City has identified the fund below as a nonmajor proprietary fund for fiscal 2020-21. Blackberry Farm Fund: This fund accounts for activities related to operating the City-owned golf course. 214 ary Draft CITY OF CUPERTINO, CALIFORNIA NON-MAJOR ENTERPRISE FUND COMBINING STATEMENT OF NET POSITION For the year ended June 30, 2021 87. Blackberry Farm ASSETS Current assets Cash and cash investments (Note 2)1,137,554$ Total current assets 1,137,554 Noncurrent assets Capital assets (Note 5): Depreciable, net of accumulated depreciation 23,706 Total non current assets 23,706 Total assets 1,161,260 DEFERRED OUTFLOWS OF RESOURCES Related to pension (Note 10)59,310 Related to OPEB (Note 11)8,121 Total deferred outflows of resources 67,431 LIABILITIES Current liabilities Accounts payable and accruals 11,582 Compensated absences (Note 1)211 Unearned revenue 58,612 Total current liabilities 70,405 Noncurrent liabilities Compensated absences (Note 1)2,594 Net pension liability (Note 10)278,020 Total noncurrent liabilities 280,614 Total liabilities 351,019 DEFERRED INFLOWS OF RESOURCES Related to pension (Note 10)4,466 Related to OPEB (Note 11)4,696 Total deferred inflows of resources 9,162 NET POSITION (Note 7) Net investment in capital assets 23,706 Unrestricted 844,804 Total Net Position 868,510$ 215 ary Draft CITY OF CUPERTINO, CALIFORNIA NON-MAJOR ENTERPRISE FUND COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the year ended June 30, 2021 88. Blackberry Farm Operating revenues Charges for services 564,126$ Other 46,477 Total operating revenue 610,603 Operating expenses Salaries and benefits 107,567 Materials and supplies 174,183 Contractual services 250,692 Depreciation (Note 5)2,832 Total operating expenses 535,274 Operating income (loss)75,329 Nonoperating revenues Investment income 2,083 Total nonoperating revenues 2,083 Income (loss) before transfers 77,412 Transfers in (Note 4)500,000 Changes in net position 577,412 Net position - beginning of year 291,098 Net position - end of year 868,510$ 216 ary Draft CITY OF CUPERTINO, CALIFORNIA NON-MAJOR ENTERPRISE FUND COMBINING STATEMENT OF CASH FLOWS For the year ended June 30, 2021 89. Blackberry Farm Cash flows from operating activities Cash received from customers 646,130$ Cash payments to suppliers for goods and services (442,996) Cash payments to employees for salaries and benefits (110,164) Net cash provided (used) by operating activities 92,970 Cash flows from noncapital financing activities Transfers in 500,000 Cash flows from noncapital financing activities 500,000 Cash Flows from Investing Activities Interest received 2,083 Cash flows from investing activities 2,083 Net cash flows 595,053 Cash and investments at beginning of year 542,501 Cash and investments at end of year 1,137,554$ Reconciliation of operating income (loss) to to net cash provided by operating activities: Operating income (loss)75,329$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 2,832 Change in assets, deferred outflows of resources, liabilities, and deferred inflows of resources Due to retirement system 2,157 Due to OPEB system (4,735) Accounts payable and accruals (18,121) Unearned revenue 35,527 Compensated absences (19) Net cash provided (used) by operating activities 92,970$ 217 ary Draft INTERNAL SERVICE FUNDS 90. Internal Service Funds are used to finance and account for special activities and services provided by one department or program to other departments of the City on a cost reimbursement basis. The concept of major funds does not extend to internal service funds because they do not do business with outside parties. For the Statement of Activities, the net revenues or expenses of each internal service fund are eliminated by netting them against the operations of the City departments that generated them. The remaining balance sheet items are consolidated with these same funds in the Statement of Net Position. However, internal service funds are still presented separately in the Fund financial statements. Information Technology - Accounts for the activities related to the maintenance and replacement of the City's technology infrastructure. Workers' Compensation - Accounts for the activities in support of the self-insured workers' compensation program. Equipment Revolving - Accounts for the activities related to the maintenance and replacement of the City's vehicle fleet and other equipment. Compensated Absences and Long-Term Disability - Accounts for accrued leave payouts and the City's long term disability insurance program. Retiree Medical - Accounts for funds set-aside for other post-employment retirement benefits. 218 ary Draft CITY OF CUPERTINO, CALIFORNIA INTERNAL SERVICE FUNDS COMBINING STATEMENT OF NET POSITION For the year ended June 30, 2021 91. Compensated Absences and Informa ion Workers'Equipment Long-Term Re iree Technology Compensation Revolving Disability Medical Total ASSETS Current assets: Cash and investments 2,497,050$ 3,976,757$ 408,079$ 669,671$ 157,589$ 7,709,146$ Total current assets 2,497,050 3,976,757 408,079 669,671 157,589 7,709,146 Noncurrent assets: Net OPEB asset (Note 11)474,902 5,001 146,717 - - 626,620 Capital assets (Note 5): Capital assets, depreciable net of accumulated depreciation 868,003 - 2,477,809 - - 3,345,812 Total noncurrent assets 1,342,905 5,001 2,624,526 - - 3,972,432 Total assets 3,839,955 3,981,758 3,032,605 669,671 157,589 11,681,578 DEFERRED OUTFLOWS OF RESOURCES Related to pension (Note 10)401,132 13,826 126,234 - - 541,192 Related to OPEB (Note 11)79,652 2,079 25,669 - - 107,400 Total deferred outflows of resources 480,784 15,905 151,903 - - 648,592 LIABILITIES Current liabilities Accounts payable and accruals 206,651 - 25,724 - - 232,375 Accrued payroll and benefits - - 72 - - 72 Due to other funds - - 539,204 - - 539,204 Compensated absences 39,873 1,311 5,004 - - 46,188 Claims payable - 245,000 - - - 245,000 Total current liabilities 246,524 246,311 570,004 - - 1,062,839 Noncurrent liabilities Compensated absences 283,554 9,336 35,582 - - 328,472 Claims payable - 1,129,000 - - - 1,129,000 Net pension liability (Note 10)2,216,081 67,621 639,779 - - 2,923,481 Total noncurrent liabili ies 2,499,635 1,205,957 675,361 - - 4,380,953 Total liabili ies 2,746,159 1,452,268 1,245,365 - - 5,443,792 DEFERRED INFLOWS OF RESOURCES Related to pension (Note 10)2,878 189 539 - - 3,606 Related to OPEB (Note 11)428,063 4,860 136,778 - - 569,701 Total deferred inflows of resources 430,941 5,049 137,317 - - 573,307 NET POSITION Net investment in capital assets 868,003 - 2,477,809 - - 3,345,812 Unrestricted 275,636 2,540,346 (675,983) 669,671 157,589 2,967,259 Total net position 1,143,639$ 2,540,346$ 1,801,826$ 669,671$ 157,589$ 6,313,071$ 219 ary Draft CITY OF CUPERTINO, CALIFORNIA INTERNAL SERVICE FUNDS COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the year ended June 30, 2021 92. Compensated Absences and Information Workers' Equipment Long-Term Retiree Technology Compensation Revolving Disability Medical Total Operating revenues Charges for services 2,681,434$ 246,379$ 1,633,518$ 128,134$ -$ 4,689,465$ Other - - 9,799 - - 9,799 Total operating revenues 2,681,434 246,379 1,643,317 128,134 - 4,699,264 Operating expenses Salaries and related expenses 1,915,383 38,415 430,839 - 1,220,074 3,604,711 Materials and supplies 980,049 24,572 297,859 7,767 10,982 1,321,229 Contractual services 126,221 - 75,743 - - 201,964 Insurance claims and premiums - 35,104 - 827,121 - 862,225 Depreciation 299,745 - 669,046 - - 968,791 Total operating expenses 3,321,398 98,091 1,473,487 834,888 1,231,056 6,958,920 Operating income (loss)(639,964) 148,288 169,830 (706,754) (1,231,056) (2,259,656) Nonoperating revenue (expenses) Interest income 9,344 9,914 2,033 4,157 7,851 33,299 Gain on sale of capital assets - - 89,981 - - 89,981 Total nonoperating revenue (expenses)9,344 9,914 92,014 4,157 7,851 123,280 Income (loss) before transfers (630,620) 158,202 261,844 (702,597) (1,223,205) (2,136,376) Transfers in 245,000 - 6,000 193,000 46,000 490,000 Change in net position (385,620) 158,202 267,844 (509,597) (1,177,205) (1,646,376) Beginning net position 1,529,259 2,382,144 1,533,982 1,179,268 1,334,794 7,959,447 Ending net position 1,143,639$ 2,540,346$ 1,801,826$ 669,671$ 157,589$ 6,313,071$ 220 ary Draft CITY OF CUPERTINO, CALIFORNIA INTERNAL SERVICE FUNDS COMBINING STATEMENT OF CASH FLOWS For the year ended June 30, 2021 (Con inued) 93. Compensated Absences and Information Workers'Equipment Long-Term Retiree Technology Compensation Revolving Disability Medical Total Cash flows from operating activities Cash received from customers 2,681,434$ 253,379$ 1,643,317$ 128,134$ -$ 4,706,264$ Cash payments to suppliers for goods and services (1,131,712) (24,572) (445,563) (22,050) (10,982) (1,634,879) Cash payments to employees (1,840,491) (37,099) (440,529) - (1,220,074) (3,538,193) Cash payment for judgment and claims - (188,104) - (827,121) - (1,015,225) Net cash from operating activities (290,769) 3,604 757,225 (721,037) (1,231,056) (1,482,033) Cash flows from noncapital financing activities Transfers in 245,000 - 6,000 193,000 46,000 490,000 Net cash from noncapital financing activities 245,000 - 6,000 193,000 46,000 490,000 Cash flows from capital and related financing activities Acquisition of capital assets (212,512) - (448,937) - - (661,449) Sale of capital assets - - 91,758 - - 91,758 Net cash from capital and related financing activities (212,512) - (357,179) - - (569,691) Cash flows from investing activities Interest received 9,344 9,914 2,033 4,157 7,851 33,299 Net cash flows from investing activities 9,344 9,914 2,033 4,157 7,851 33,299 Net cash flows (248,937) 13,518 408,079 (523,880) (1,177,205) (1,528,425) Cash and investments beginning of year 2,745,987 3,963,239 - 1,193,551 1,334,794 9,237,571 Cash and investments end of year 2,497,050$ 3,976,757$ 408,079$ 669,671$ 157,589$ 7,709,146$ 221 ary Draft CITY OF CUPERTINO, CALIFORNIA INTERNAL SERVICE FUNDS COMBINING STATEMENT OF CASH FLOWS For the year ended June 30, 2021 94. Compensated Absences and Information Workers'Equipment Long-Term Retiree Technology Compensation Revolving Disability Medical Total Reconciliation of operating income (loss) to net cash flows from operating activities Operating income (loss)(639,964)$ 148,288$ 169,830$ (706,754)$ (1,231,056)$ (2,259,656)$ Adjustments to reconcile operating income (loss) to net cash flows from operating activities Depreciation 299,745 - 669,046 - - 968,791 Change in assets, deferred outflows of resources, liabilities and deferred inflows of resources Accounts receivable - 7,000 - - - 7,000 Due to retirement system 116,645 2,587 28,675 - - 147,907 Due to OPEB system (124,054) (2,851) (42,970) - - (169,875) Accounts payable and accruals (25,442) - (71,961) (14,283) - (111,686) Compensated absences 82,301 1,580 4,605 - - 88,486 Claims payable - (153,000) - - - (153,000) Cash flows from operating activities (290,769)$ 3,604$ 757,225$ (721,037)$ (1,231,056)$ (1,482,033)$ 222 ary Draft 95. STATISTICAL SECTION This part of the City’s Annual Comprehensive Financial Report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. In contrast to the financial section, the statistical section information is not subject to independent audit. Financial Trends These schedules contain trend information to help the reader understand how the City’s financial performance and wellbeing have changed over time: 1. Net Position/Assets by Component 2. Changes in Net Position/Assets 3. Fund Balances of Governmental Funds 4. Changes in Fund Balance of Governmental Funds Revenue Capacity These schedules contain information to help the reader assess the City’s most significant own-source revenue, property tax. 1. Assessed and Estimated Actual Value of Taxable Property 2. Direct and Overlapping Property Tax Rates 3. Principal Property Taxpayers 4. Property Tax Levies and Collections Debt Capacity These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future: 1. Ratios of Outstanding Debt by Type 2. Direct and Overlapping Bonded Debt 3. Legal Debt Margin Information 4. Ratio of General Bonded Debt Outstanding Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place: 1. Demographic and Economic Statistics 2. 2021 Employer Ranking Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs: 1. Full-Time Equivalent Employees by Function/Program 2. Operating Indicators by Function/Program 3. Capital Assets Statistics by Function/Program Sources Unless otherwise noted, the information in these schedules is derived from the Annual Comprehensive Financial Reports for the relevant year. 223 ary Draft 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Governmental Activities Net investment in capital assets 117,440,257$ 116,343,918$ 122,081,223$ 131,425,677$ 148,168,074$ 153,239,534$ 167,606,366$ 170,973,897$ 177,128,134$ 186,503,116$ Restricted 7,572,865 8,351,118 24,232,367 38,327,705 34,861,807 34,991,692 32,073,195 45,405,508 48,005,800 53,711,040 Unrestricted 38,117,361 47,558,701 63,150,548 51,003,950 51,164,063 59,385,309 50,457,871 51,190,017 66,493,336 83,458,299 Total governmental activities net position/assets 163,130,483 172,253,737 209,464,138 220,757,332 234,193,944 247,616,535 250,137,432 267,569,422 291,627,270 323,672,455 Business-Type Activities Net investment in capital assets 824,687 762,013 1,110,414 2,079,561 1,708,183 1,972,169 1,597,700 1,318,744 1,118,882 2,090,530 Unrestricted 10,057,331 10,865,479 10,292,210 6,604,578 7,375,444 9,092,584 8,051,015 6,737,758 8,134,944 9,374,129 Total business-type activities net position/assets 10,882,018 11,627,492 11,402,624 8,684,139 9,083,627 11,064,753 9,648,715 8,056,502 9,253,826 11,464,659 Primary Government Net investment in capital assets 118,264,944 117,105,931 123,191,637 133,505,238 149,876,257 155,211,703 169,204,066 172,292,641 178,247,016 188,593,646 Restricted 7,572,865 8,351,118 24,232,367 38,327,705 34,861,807 34,991,692 32,073,195 45,405,508 48,005,800 53,711,040 Unrestricted 48,174,692 58,424,180 73,442,758 57,608,528 58,539,507 68,477,893 58,508,886 57,927,775 74,628,280 92,832,428 (1), (2)174,012,501$ 183,881,229$ 220,866,762$ 229,441,471$ 243,277,571$ 258,681,288$ 259,786,147$ 275,625,924$ 300,881,096$ 335,137,114$ (1) Represents net assets thru June 30, 2012 and net position after that. (2) Noted that restatements due to prior period adjustments and changes in accounting principles are not reflected in the prior year balances. Fiscal Year Ended June 30 CITY OF CUPERTINO Net Positions/Assets by Component Last Ten Fiscal Years (Accrual basis of accounting) (Unaudited) 96.224 ary Draft 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Expenses Governmental Activities: Administration 1,837,072$ 2,367,255$ 4,529,539$ 3,286,919$ 3,710,388$ 2,873,744$ 5,612,733$ 6,849,046$ 7,974,520$ 3,637,467$ Law enforcement 8,776,633 9,274,536 10,062,192 10,705,328 11,316,271 12,528,328 12,674,042 13,381,113 14,698,130 15,211,646 Public and environmental affairs 1,743,151 1,595,982 512,895 649,442 575,260 1,884,165 3,244,846 3,210,343 3,637,354 1,721,729 Administrative services 4,309,503 4,171,440 2,662,008 4,300,336 2,994,611 5,898,479 4,415,647 4,290,818 5,175,596 5,358,183 Recreation services 4,577,243 4,473,861 4,866,974 5,365,282 5,758,194 10,651,557 9,352,551 7,389,915 8,763,194 1,182,662 Community development 4,922,237 4,676,273 9,108,949 5,976,797 6,259,734 13,775,591 16,789,351 10,470,973 10,286,317 11,495,788 Public works 20,387,508 22,149,063 21,143,331 27,893,361 31,313,396 32,491,244 28,995,382 31,870,165 33,339,191 41,870,240 Interest on long-term debt 1,837,655 1,256,922 1,130,428 1,120,138 1,077,538 1,035,738 993,038 949,438 882,837 397,682 Total governmental activities expense 48,391,002 49,965,332 54,016,316 59,297,603 63,005,392 81,138,846 82,077,590 78,411,811 84,757,139 80,875,397 Business-Type Activities: Resources recovery 1,566,229 1,764,993 2,159,047 2,548,461 2,997,200 2,991,177 2,594,511 1,735,885 2,213,404 1,670,261 Blackberry farm 460,698 463,336 571,000 547,185 576,177 597,406 656,112 645,469 663,663 535,274 Cupertino sports center 1,897,611 2,011,483 2,221,703 2,269,420 2,299,210 2,159,243 2,633,748 3,036,037 2,883,903 2,182,900 Recreation programs 1,985,618 2,025,416 2,730,765 2,342,457 3,136,011 2,351,501 3,232,593 2,923,336 3,141,225 1,117,244 Total business-type activities expense 5,910,156 6,265,228 7,682,515 7,707,523 9,008,598 8,099,327 9,116,964 8,340,727 8,902,195 5,505,679 Total primary government expense 54,301,158 56,230,560 61,698,831 67,005,126 72,013,990 89,238,173 91,194,554 86,752,538 93,659,334 86,381,076 Program Revenues Governmental Activities: Charges for services: Administration 6,454 5,676 1,087,393 322,534 369,069 3,992,716 5,062,988 1,319,395 2,091,811 2,387,412 Law enforcement 696,498 637,595 725,631 590,378 664,483 603,194 732,544 889,923 1,102,888 550,051 Public and environmental affairs - - - 41,352 41,352 - - - - - Administrative services - - - 481,616 359,148 3,565,627 2,635,885 3,113,731 3,889,180 5,232,679 Recrea ion services 1,166,323 970,292 955,081 1,798,134 1,421,185 2,016,159 1,589,134 1,563,262 1,309,906 264,426 Community development 4,919,216 6,765,564 6,649,292 8,511,745 10,534,457 10,902,822 8,598,935 7,470,690 5,859,847 5,736,587 Public works 503,225 593,501 7,916,897 2,869,357 6,358,870 6,873,487 4,720,646 4,504,104 5,657,315 3,966,206 Operating grants and contributions 2,508,917 2,752,493 10,000,131 6,002,617 1,851,282 2,313,632 4,819,696 2,557,470 5,794,443 5,998,209 Capital grants and contributions 780,761 719,880 569,159 4,022,190 362,491 245,288 271,587 1,082,243 1,046,756 1,792,376 Total governmental ac ivities program revenue 10,581,394 12,445,001 27,903,584 24,639,923 21,962,337 30,512,925 28,431,415 22,500,818 26,752,146 25,927,946 Business-Type Activities: Charges for services: Resources recovery 1,727,783 1,882,517 2,074,251 2,591,276 2,664,888 2,792,190 2,559,862 1,750,279 1,821,677 1,819,861 Blackberry farm 411,056 386,753 302,472 388,091 334,529 325,224 345,667 316,615 338,212 610,603 Cupertino sports center 1,965,684 2,150,139 2,188,127 2,152,498 2,224,146 2,238,023 2,403,665 2,349,468 2,365,667 1,810,194 Recrea ion programs 2,325,705 2,409,720 2,480,209 2,532,800 2,466,336 2,778,588 2,516,678 1,986,781 1,588,576 590,871 Operating grants and contributions - - - - - - - - - - Total business-type activities program revenue 6,430,228 6,829,129 7,045,059 7,664,665 7,689,899 8,134,025 7,825,872 6,403,143 6,114,132 4,831,529 Total primary government program revenue 17,011,622 19,274,130 34,948,643 32,304,588 29,652,236 38,646,950 36,257,287 28,903,961 32,866,278 30,759,475 (continued) Fiscal Year Ended June 30 CITY OF CUPERTINO Change in Net Positions/Assets Last Ten Fiscal Years (Accrual basis of accounting) (Unaudited) 97.225 ary Draft 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Net (Expense) Revenue: Governmental activities (37,809,608)$ (37,520,331)$ (26,112,732)$ (34,657,680)$ (41,043,055)$ (50,625,921)$ (53,646,175)$ (55,910,993)$ (58,004,993)$ (54,947,451)$ Business-Type activities 520,072 563,901 (637,456) (42,858) (1,318,699) 34,698 (1,291,092) (1,937,584) (2,788,063) (674,150) Total primary government net expense (37,289,536) (36,956,430) (26,750,188) (34,700,538) (42,361,754) (50,591,223) (54,937,267) (57,848,577) (60,793,056) (55,621,601) General Revenues and Transfers Governmental Activities: Taxes: Property taxes 7,479,132 8,793,110 9,169,183 - 11,864,027 13,251,840 14,881,533 17,082,005 18,117,304 19,197,994 Property taxes in lieu of motor vehicle fee 4,487,412 4,772,355 5,289,476 - 6,330,436 6,967,237 7,552,272 8,219,090 8,489,541 9,079,845 Incremental property tax 202,793 - - - - - - - - - Sales tax 17,326 18,721,193 19,794,036 - 21,350,056 26,932,012 26,164,531 24,901,779 35,657,214 42,581,070 Transient occupancy tax 3,112,934 3,768,504 4,590,156 - 5,852,244 6,023,681 6,810,718 8,901,337 7,286,083 2,141,058 Utility user tax 3,264,896 2,994,526 3,098,639 - 3,370,830 3,082,407 3,146,398 3,089,922 3,182,086 3,074,358 Franchise tax 2,808,136 2,848,950 2,775,892 - 3,478,024 3,409,572 3,563,820 3,445,253 3,418,908 3,368,286 Other taxes 1,377,211 4,561,219 18,791,559 - 2,818,019 3,258,118 1,943,652 3,299,587 1,774,235 3,022,333 Intergovernmental (1)29,064 30,256 25,294 - 24,111 26,118 31,013 28,844 47,391 43,675 Investment earnings 61,096 176,782 133,243 40,751 807,287 694,730 916,638 3,258,550 5,690,723 4,147,907 Miscellaneous 82,684 126,690 57,005 (2) 219,053 2,004,906 1,834,492 1,187,741 1,922,356 3,185,110 Gain on sale of capital assets - - - 23,715,897 580 - 740,570 3,875 - - Extraordinary items (2)(1,130,797) - - - - - - - - - Transfers - fund closings (3)- - - - - 272,011 - - - - Transfers 207,000 (150,000) (401,350) 872,340 (1,635,000) (1,874,120) 107,030 (75,000) (3,523,000) (2,849,000) Total governmental activities 21,998,887 46,643,585 63,323,133 24,628,986 54,479,667 64,048,512 67,692,667 73,342,983 82,062,841 86,992,636 Business-Type Activities: Investment earnings 12,338 31,573 11,238 42,531 82,187 59,012 75,663 270,371 462,387 35,983 Transfers (207,000) 150,000 401,350 (872,340) 1,635,000 1,874,120 (107,030) 75,000 3,523,000 2,849,000 Total business-type activities (194,662) 181,573 412,588 (829,809) 1,717,187 1,933,132 (31,367) 345,371 3,985,387 2,884,983 Total primary government 21,804,225 46,825,158 63,735,721 23,799,177 56,196,854 65,981,644 67,661,300 73,688,354 86,048,228 89,877,619 Change in Net Position/Assets (4) Governmental activities (15,810,721) 9,123,254 37,210,401 (10,028,694) 13,436,612 13,422,591 14,046,492 17,431,990 24,057,848 32,045,185 Business-Type activities 325,410 745,474 (224,868) (872,667) 398,488 1,967,830 (1,322,459) (1,592,213) 1,197,324 2,210,833 Total primary government (15,485,311)$ 9,868,728$ 36,985,533$ (10,901,361)$ 13,835,100$ 15,390,421$ 12,724,033$ 15,839,777$ 25,255,172$ 34,256,018$ (1) The 2006 state take-away of sales taxes, property taxes and vehicle license fees is reported in this category. (2) Asset transfer to Successor to Redevelopment Agency fiduciary trust in 2012. (3) Asset and liability transfer from the closed City Channel/Web Internal Service Fund in 2017. (4) Representes changes in net assets thru fiscal year ended June 30, 2012 and changes in net position after hat. Fiscal Year Ended June 30 CITY OF CUPERTINO Change in Net Positions/Assets Last Ten Fiscal Years (Accrual basis of accounting) (Unaudited) 98.226 ary Draft 2012 2013 2014 2015 2016 2017 2018 2019 (2)2020 2021 General Fund Nonspendable 1,003,438$ 956,827$ 3,363,065$ 938,245$ 937,381$ 876,939$ 464,893$ 454,188$ 3,449,341$ 3,444,346$ Restricted 695,564 725,903 - 761,653 888,374 1,016,771 1,254,578 9,469,670 14,324,757 20,140,419 Committed - - - - - 19,000,000 19,122,754 19,123,397 19,127,891 19,127,891 Assigned 17,729,297 16,400,000 16,400,000 28,849,679 20,500,000 4,638,181 9,963,310 1,979,202 3,176,882 4,906,139 Unassigned 6,669,379 17,961,579 23,197,378 8,774,966 29,869,085 28,057,799 21,704,922 27,896,128 34,426,942 49,231,996 Total General Fund 26,097,678 36,044,309 42,960,443 39,324,543 52,194,840 53,589,690 52,510,457 58,922,585 74,505,813 96,850,791 All Other Governmental Funds Nonspendable - - - - - - - - - - Restricted 6,877,301 7,625,215 24,232,367 37,566,052 33,973,433 33,974,921 30,818,617 35,935,838 33,681,043 33,570,621 Committed - - - 1,398,665 1,398,665 1,398,665 - - - - Assigned 3,646,073 5,299,904 7,619,534 20,671,116 15,344,191 25,305,974 29,129,616 33,211,946 40,551,131 37,038,174 Unassigned - - (2,280,961) - - - - - - - Total All Other Governmental Funds 10,523,374 12,925,119 29,570,940 59,635,833 50,716,289 60,679,560 59,948,233 69,147,784 74,232,174 70,608,795 Total Governmental Funds 36,621,052$ 48,969,428$ 72,531,383$ 98,960,376$ 102,911,129$ 114,269,250$ 112,458,690$ 128,070,369$ 148,737,987$ 167,459,586$ (1) The City implemented GASB Statement No. 54 under which governmental fund balances are reported as nonspendable, restricted, committed, assigned and unassigned compared to reserved and unreserved (2) The City established a trust to fund Other Post-Employment Benefit contribu ions, which is classified as a restriction in fund balance. Fiscal Year Ended June 30 CITY OF CUPERTINO Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting (Unaudited) 99.227 ary Draft 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Revenues Taxes 40,265,944$ 48,382,570$ 72,211,724$ 55,134,238$ 55,462,956$ 62,924,867$ 64,062,924$ 68,938,973$ 77,925,371$ 82,464,944$ Use of money and property 661,602 744,196 764,299 915,933 1,654,702 1,425,629 1,543,818 3,896,813 6,259,342 4,447,970 Intergovernmental 2,678,888 2,841,407 3,069,400 7,210,562 2,532,025 2,585,038 5,122,296 3,668,557 6,888,590 7,834,260 Licenses and permits 2,900,936 3,502,617 3,679,943 3,170,445 3,073,110 2,536,925 2,757,928 4,102,665 4,692,847 4,068,238 Charges for services 3,273,946 4,515,066 10,744,113 5,203,371 17,249,123 24,103,167 15,638,247 13,385,698 13,937,950 13,601,302 Fines and forfeitures 661,899 560,417 616,889 554,002 564,903 603,194 602,934 534,012 344,008 134,459 Other 264,302 57,828 545,052 542,429 1,289,013 2,004,904 1,834,492 1,187,741 1,922,356 3,185,110 Total revenues 50,707,517 60,604,101 91,631,420 72,730,980 81,825,832 96,183,724 91,562,639 95,714,459 111,970,464 115,736,283 Expenditures: Current: Administration 1,533,070 2,005,176 3,957,739 3,897,701 4,053,741 5,942,633 4,943,052 6,294,111 6,951,541 7,549,386 Law enforcement 8,445,917 8,783,885 9,626,121 10,283,772 10,988,735 11,939,095 12,362,621 13,108,732 14,151,413 14,776,409 Public and environmental affairs 1,659,856 1,486,910 477,852 624,295 544,718 1,864,746 2,835,768 2,843,540 3,223,185 1,836,725 Administrative services 4,103,982 3,772,714 2,444,670 3,226,164 2,811,117 5,054,539 4,430,300 4,197,582 4,617,787 5,196,299 Recreation services 4,319,983 4,083,822 4,536,519 5,047,548 5,441,200 9,361,934 8,686,076 8,996,118 7,688,935 4,787,914 Community development 4,762,229 4,395,601 8,424,254 5,180,659 6,102,820 7,431,292 12,907,086 9,359,835 9,310,827 11,177,690 Public works 12,528,194 13,996,516 17,469,627 14,625,038 15,078,174 18,623,585 18,191,714 19,955,579 22,445,948 24,568,155 Capital Outlay 3,523,047 4,684,676 7,110,974 21,760,899 26,171,127 18,731,165 23,395,112 10,528,246 12,644,373 19,483,945 Debt service: Principal repayment - 1,920,000 2,040,000 2,055,000 2,090,000 2,135,000 2,180,000 2,220,000 2,290,000 2,140,000 Interest and fiscal charges 1,837,665 1,256,922 1,130,428 1,120,138 1,077,538 1,035,738 993,038 949,438 882,837 798,747 Payment to refunded debt escrow agent 44,897,800 - - - - - - - - - Total expenditures 87,611,743 46,386,222 57,218,184 67,821,214 74,359,170 82,119,727 90,924,767 78,453,181 84,206,846 92,315,270 Excess (deficiency) of revenues over (under) expenditures (36,904,226) 14,217,879 34,413,236 4,909,766 7,466,662 14,063,997 637,872 17,261,278 27,763,618 23,421,013 Other Financing Sources (Uses) Proceeds from debt issuance 44,823,839 - - - - - - - - 22,040,000 Proceeds from debt issuance premium - - - - - - - - - 3,878,704 Payments to refunding agent - - - - - - - - - (27,279,118) Proceeds from sale of capital assets 421 - 37,569 23,814,257 580 - 872,250 3,875 - - Transfers in 6,484,426 8,438,707 13,610,304 39,408,990 11,905,724 26,446,090 31,028,218 19,407,613 35,208,276 12,876,969 Transfers in - fund closing - - - - - 260,374 - - - - Transfers out (7,692,426) (10,308,210) (24,499,154) (39,177,284) (15,422,213) (29,412,340) (34,348,900) (21,061,087) (42,304,276) (16,215,969) Total other financing sources (uses)43,616,260 (1,869,503) (10,851,281) 24,045,963 (3,515,909) (2,705,876) (2,448,432) (1,649,599) (7,096,000) (4,699,414) Extraordinary Item Asset transferred to Successor Agencies - (1,130,797) - - - - - - - - Change in fund balances 6,712,034$ 11,217,579$ 23,561,955$ 28,955,729$ 3,950,753$ 11,358,121$ (1,810,560)$ 15,611,679$ 20,667,618$ 18,721,599$ Debt service as a percentage of noncapital expenditures (1)55.6%7.6%6.3%6.9%6.6%5.0%4.7%4.7%4.4%4.0% (1) Noncapital expenditures is total expenditures less capital assets added each year to the statement of net position/assets. Fiscal Year Ended June 30 CITY OF CUPERTINO Change in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) (Unaudited) 100.228 P lim 2021 Percentage of 2012 Percentage of Assessed Total Assessed Assessed Total Assessed Valuation Valuation Valuation Valuation Apple Inc.7,092,034,206$ 25.49%916,229,008$ 9.36% Main Street Cupertino 368,688,300 1.33%- 0.75% Vallco Property Owner LLC 311,083,000 1.12%92,759,700 1.63% Cupertino City Center 276,811,408 0.99%136,245,008 0.73% Cupertino Property Development 208,775,727 0.75%- 0.58% Swift Results Way LLC 184,947,832 0.66%- 0.00% Mission West Properties LP II ETAL 143,225,274 0.51%- 0.67% PR Cupertino Gateway LLC 133,326,728 0.48%- - Markham Apartments LP 106,337,637 0.38%- - Cupertino Hotel Owner LLC 99,134,506 0.36%- - Total 8,924,364,618$ 32.07%1,145,233,716$ 13.72% Source: HdL, Coren & Cone CITY OF CUPERTINO Principal Property Taxpayers Current Year and Ten Years Ago (Unaudited) Taxpayer 103.231 P lim Percent of Percent Delinquent Total Total Tax Fiscal Total Current Tax of Levy Tax Tax Collections Year Tax Levy Collections Collected (1)Collections (1)Collections to Tax Levy7717 6 7 7 0 0 % 6 17 00 0% 2012 7,681,925$ 7,681,925$ 100.00%-$ 7,681,925$ 100.00% 2013 8,199,752 8,199,752 100.00%- 8,199,752 100.00% 2014 9,169,183 9,169,183 100.00%- 9,169,183 100.00% 2015 10,178,734 10,178,734 100.00%- 10,178,734 100.00% 2016 11,864,026 11,864,026 100.00%- 11,864,026 100.00% 2017 13,308,884 13,308,884 100.00%- 13,308,884 100.00% 2018 13,172,425 13,172,425 100.00%- 13,172,425 100.00% 2019 16,049,112 16,049,112 100.00%- 16,049,112 100.00% 2020 18,117,304 18,117,304 100.00%- 18,117,304 100.00% 2021 19,197,994 19,197,994 100.00%- 19,197,994 100.00% (1) Per the Teeter Plan, the City receives 100% of the tax levy, while the County receives delinquencies and penalties. Source: City of Cupertino CITY OF CUPERTINO Property Tax Levies and Collections Last Ten Fiscal Years (Unaudited) 104.232 P lim Percentage of Estimated % of Fiscal Certificates Actual Market Value Personal Year of Participation of Taxable Property Per Capita Income 7 9 7 0 0 % 0% 2012 43,940,000$ 0.27%744$ 1.56% 2013 42,020,000 0.26%705 1.41% 2014 39,980,000 0.23%671 1.38% 2015 37,925,000 0.20%633 1.28% 2016 35,835,000 0.18%598 1.21% 2017 33,700,000 0.15%579 1.02% 2018 31,520,000 0.12%525 0.87% 2019 29,300,000 0.11%488 0.81% 2020 27,010,000 0.10%451 0.71% 2021 22,040,000 0.08%370 0.54% Source: City of Cupertino CITY OF CUPERTINO Ratios of Outstanding Debt by Type Last Ten Fiscal Years (Unaudited) 105.233 P lim 27,821,316,543$ Total Debt %City’s Share of 6/30/2021 Applicable (1)Debt 6/30/21 Santa Clara County 991,587,000$ 5.096%50,531,274$ Santa Clara County General Fund Obligations 812,685,000 5.096%41,414,428 Santa Clara County Pension Obligations 341,399,000 5.096%17,397,693 Santa Clara County Board of Education Certificates of Participation 2,670,000 5.096%136,063 Foothill-DeAnza Community College District 1,251,133,487 13.454%168,327,499 West Valley Community College District 635,310,000 1.634%10,380,965 West Valley-Mission Community College District General Fund Obligations 62,200,000 1.634%1,016,348 Santa Clara Unified School District 1,081,495,000 3.813%41,237,404 Santa Clara County Vector Control District Certificates of Participation 1,756,000 5.096%89,486 Fremont Union High School District 617,160,088 29.883%184,425,949 Cupertino Union School District 274,238,303 50.963%139,760,066 El Camino Hospital District 116,290,000 1.056%1,228,022 Midpeninsula Regional Open Space District and General Fund Obligations 192,400,600 8.134%15,649,865 Santa Clara Valley Water District Benefit Assessment 65,000,000 5.096%3,312,400 Total Overlapping Tax and Assessment Debt 6,445,324,478 674,907,463 Direct Debt: City of Cupertino Certificates of Participation 22,040,000 100.000%22,040,000 Total Direct and Overlapping General Fund Debt 22,040,000 22,040,000 Totals by Category:(3) Total Direct Debt 22,040,000 22,040,000 Total Overlapping Debt 6,445,324,478 674,907,463 Combined Total Debt 6,467,364,478$ 696,947,463$ Ratios to 2020-21 Assessed Valuation: Total Overlapping Tax and Assessment Debt 2.43% 0.08% Combined Total Debt 2.51% (1) (2)Principal amount as of 6/30/21. (3)Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Direct and Overlapping Bonded Debt CITY OF CUPERTINO Sources: HdL, Coren & Cone Overlapping Tax and Assessment Debt: (Unaudited) 2020-21 Assessed Valuation June 30, 2021 The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable 106.234 P lim Total net debt Total Net Legal applicable to the Fiscal Debt Debt Applicable Debt limit as a % of Year Limit to Limit Margin debt limit 2012 495,734,039$ -$ 495,734,039$ -$ 2013 520,580,523 - 520,580,523 - 2014 577,187,126 - 577,187,126 - 2015 605,011,397 - 605,011,397 - 2016 686,577,008 - 686,577,008 - 2017 757,359,691 - 757,359,691 - 2018 825,933,991 - 825,933,991 - 2019 877,579,621 - 877,579,621 - 2020 913,901,945 - 913,901,945 - 2021 952,399,945 - 952,399,945 - Debt Limit: Secured property assessed value, net of exempt real property 25,397,331,860$ Adjusted valuation - 25% of assessed valuation 6,349,332,965 Debt limit - 15% of adjusted valuation 952,399,945 Amount of Debt Subject to Limit: Total Bonded Debt 22,040,000 Less: Certificates of Participation not subject to debt limit (22,040,000) Amount of debt subject to limit - Legal Debt Margin 952,399,945$ Source: City of Cupertino Last Ten Fiscal Years Note: The Government Code of the State of California provides for a legal debt limit of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981-82 fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computations shown above reflect a conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the time that the legal debt margin was enacted by the State of California for local governments located within the state. CITY OF CUPERTINO Legal Debt Margin Information (Unaudited) 107.235 P lim Ratio of General Fiscal Assessed General Bonded Debt Bonded Debt to Year Population Value Bonded Debt Per Capita Assessed Value20053 76 2012 59,022 13,748,274,686$ -$ -$ -$ 2013 59,620 14,621,780,341 - - - 2014 59,946 17,098,778,392 - - - 2015 59,777 19,395,507,127 - - - 2016 58,185 19,395,507,127 - - - 2017 58,917 21,346,570,360 - - - 2018 60,091 23,139,029,846 - - - 2019 59,879 25,182,059,606 - - - 2020 59,549 27,821,316,543 - - - 2021 60,656 27,821,316,543 - - - Sources: HdL, Coren & Cone CITY OF CUPERTINO Ratio of General Bonded Debt Last Ten Fiscal Years (Unaudited) 108.236 P lim CITY OF CUPERTINO 2021 Employer Ranking (Unaudited) Employer Ranking Employer Ranking Apple 1 Panasonic Corporation 11 Cupertino Union School District 2 Pleasant View Convalescent Hospital 12 Corinthian International Parking Services 3 Sunny Retirement Home 13 Synophic Systems Inc.4 City of Cupertino 14 De Anza Community College District 5 Ch Cupertino Owner LLC 15 Target Stores, Inc.6 Zend Technologies Usa, Inc.16 Fremont Union High School District 7 Mist Systems, Inc.17 Forum Healthcare Center 8 County of Santa Clara 18 Whole Foods Market 9 Cupertino Lessee LLC 19 Mobileum, Inc.10 Posh Bakery Inc.20 Source: InfoUSA 110.238 P lim 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Law Enforcement Sheriff Response Priority One-Respond within 5 minutes 4.84 Min.3.76 Min.4.30 Min.4.90 Min.4.90 Min.5.07 Min 4.23 Min.4.39 Min.3.51 Min.3.10 Min. Priority Two-Respond within 9 minutes 6.44 Min.5.98 Min.6.39 Min.6.56 Min.6.56 Min.8.00 Min.7.49 Min.6.23 Min.6.37 Min.5.96 Min. Priority Three-Respond within 20 minutes 10.62 Min.10.29 Min.10.76 Min.10.52 Min.10.52 Min.15.79 Min 14.79 Min.12.11 Min.11.96 Min.12.05 Min. Public Works Street Sweeping 575 Curb Miles 575 Curb Miles 575 Curb Miles 575 Curb Miles 575 Curb Miles 534 Curb Miles 534 Curb Miles 534 Curb Miles 534 Curb Miles 534 Curb Miles Street Maintenance 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call Number of development permit applications received 428 434 428 230 Number of encroachment permits received 121 136 134 548 Storm Drain Inlets Inspected/Cleaned 815 1063 1638 1802 Roadway Signs Repaired/Replaced 404 721 346 1151 Number of trees planted vs. removed 53/67 155/192 164/190 197/187 Parks & Recreation Number of reservations at Quinlan Center 560 402 526 0 Number of rounds of golf at BBF Golf Course 28,193 27,205 28,952 43,650 Sports Center Memberships 1,776 1,852 1,950 2,000 1,989 2,015 1,850 1,952 1,802 1,792 Number of Senior Center classes offered 246 320 258 76 Senior Center Memberships 2,470 2,456 2,623 2,549 2,493 2,094 2,260 2,171 2,171 1,528 Quinlan Community Center Rental Revenue $133,000 $120,000 $109,342 $110,033 $104,150 $128,778 $72,948 $139,590 $139,590 $0 Community Development Approved Building Plan Sets 93% Within 5 Days 92% Within 5 Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days Discretionary Land Use Applications 99% Within 21 Days 99% Within 21 Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days Public Notice of Upcoming Projects 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days Number of preliminary reviews 82 90 110 163 Number of planning applications received 169 138 194 237 Number of permits received 2322 2,321 2,534 2,497 Number of inspections requested 16026 13,625 14,596 13,787 Administrative Services Accounts Payable Processing 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days Business License Renewal Certificates 3 Days 3 Days 3 Days 3 Days 3 Days 3 Days 3 Days 3 Days 3 Days 3 Days Number of regular recruitments 21 21 28 24 Number of new hires 26 16 14 21 Number of temporary new hires 101 105 38 17 Number of vendor checks processes 6793 6,536 5,906 4,457 Number of payroll checks process 10387 10,301 10,802 7,816 Number of business license applications 1294 1,154 1,032 1,061 Number of journal entries posted 2830 4,521 4,558 3,915 Number of receipts processed 9766 13,913 18,992 10,367 Library Volumes in Collection - - - 361817 364,557 369,924 367,979 367,101 368,461 350,088 Annual Gate Count - - - 869762 880,894 835,073 873,862 904,349 620,007 128,912 Annual Circulation Children's Items - - - 1474996 1,544,095 1,448,265 1,453,173 1,535,842 1,192,880 1,207,878 Annual Circulation Adult and Teen Items - - - 999766 1,032,326 950,453 980,609 1,049,166 831,114 750,602 Adult Classes and Events - - - 209 215 242 206 207 396 459 Adult Classes and Events Attendence - - - 11860 8,855 9,242 7,622 8,304 9,986 19,223 Teen Classes and Events - - - 52 78 66 79 52 57 31 Teen Classes and Events Attendence - - - 3393 3,135 2,571 2,495 1,283 8,495 7,151 Children's Classes and Events - - - 458 493 440 426 424 477 464 Children's Classes and Events Attendence - - - 25529 28,532 25,857 24,675 22,851 26,032 52,634 Volunteer Hours - - - 11786 10,000 9,645 10,302 10,191 6,592 465 Sources City of Cupertino and Santa Clara County Library District Function/Program CITY OF CUPERTINO Operating Indicators by Function/Program Last Ten Fiscal Years (Unaudited) 112.240 P lim 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Public Works Centerlane Miles of Streets 142 142 142 142 142 142 142 142 142 142 Streetlights 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 Traffic Signals 39 48 48 48 48 48 52 52 52 52 Culture & Recreation Parks and Open Spaces 19 19 21 21 21 21 21 21 21 21 Park and Landscape Acreage 169 169 169 169 169 169 169 169 169 169 City Trails 1 1 3 3 3 3 3 3 3 3 Golf Courses 1 1 1 1 1 1 1 1 1 1 Community Center 1 1 1 1 1 1 1 1 1 1 Community Hall 1 1 1 1 1 1 1 1 1 1 Senior Center 1 1 1 1 1 1 1 1 1 1 Sports Center 1 1 1 1 1 1 1 1 1 1 Swimming Pools 1 1 1 1 1 1 1 1 1 1 Tennis Courts 17 17 17 28 28 28 28 28 28 28 Sports Fields 41 41 41 41 41 41 41 41 41 41 City Library 1 1 1 1 1 1 1 1 1 1 Source: City of Cupertino Function/Program CITY OF CUPERTINO Capital Assets Statistics by Function/Program Last Ten Fiscal Years (Unaudited) 113.241 P lim History “This place of San Joseph Cupertino has good water and much firewood, but nothing suitable for a settlement because it is among the hills very near to the range of cedars which I mentioned yesterday, and lacks level lands.” When Spanish explorer San Juan Bautista De Anza traveled through California in 1776, he and his party documented these words about the land surrounding Stevens Creek, named back then as Arroyo San Joseph Cupertino. However, first impressions can often be misleading. Underneath the spiny, overgrown bush was a completely different land waiting to be uncovered. During this time, the area was populated by Native Americans who hunted and gathered, prospering from the abundant resources the land had to offer. It wasn’t until 1848 when the first American settler, Elijah Stephens, a blacksmith from South Carolina, moved to the area—at this time, named simply ‘West Side’ and primarily owned by the government. After crossing over the Sierra Nevada in wagons, he discovered the true value of the land underneath the bush, and proceeded to purchase over 300 acres of farmland to grow grapes and blackberries. Stephens pioneered the way for farmers, which established West Side as an agricultural hot spot. The land Stephens owned eventually became Blackberry Farm, and the road, creek, and reservoir were all named after him, although misspelled. In early West Side, many of the newest advances in agriculture were being developed. Settlers were drawn to the land because of its rich earth, where they were able to grow products that competed on the world market. Once the bush had been cleared, they grew grapes, which covered the West Valley area with vineyards by the late 1800s. By the 1900s, a plant louse called Phylloxera spread throughout the vineyards, attacking the roots of the grape vines, killing the grapes and putting a halt to wine production. As a solution, nearly everything was replanted with fruit orchards. When the fruit trees blossomed, visitors would come to the orchards for “The Valley of Heart’s Delight” festivals, which celebrated the prosperous agriculture of the West Valley area. Apart from the farmland, West Side was primarily known as a crossroads, an intersection between Saratoga-Sunnyvale Road and Stevens Creek. This served as a way station for travelers to pass through while going from town to town. As more people came to West Side to take advantage of the rich farm land, more family holdings gathered around the cross-roads. Starting off as just a post office and home union store, West Side’s humble cross-roads brought many diverse communities, all attracted by the preferable climate and profitable market for crops. As more people were drawn to the area around the cross-roads, the orchards were gradually replaced with modern houses for workers. The population steadily grew, and the face of West Side changed, progressing to a more modern town. The community wanted to rename the city, as to not confuse it with other cities, as well as establish a unique identity. John T. Doyle, a 242 P lim lawyer from San Francisco, and writer of historical anthologies on the area, chose the name “Cupertino” after the original name of the creek. After the post-World War II population boom, the growing community petitioned for Cupertino to become an incorporated town. Members of the community were worried that the alternative to incorporation was to have parts of Cupertino annexed by surrounding cities, splitting up the community and erasing the local culture. To preserve the rural atmosphere, lower taxes for farmers, start a local government, and prepare for growth, Cupertino voted for incorporation. In 1955, Cupertino officially became the 13th city in Santa Clara County. By the 1970s, Cupertino once again began to undergo dramatic changes. The growing community attracted several large technology corporations. Lockheed Martin, HP, Intel, and many other big names established themselves in the Silicon Valley. Apple Inc. was founded in Cupertino in 1976 and quickly grew into the tech giant it’s known for today. In the late 20th century, Cupertino and the surrounding areas experienced another surge in population growth, this time due to the immigration of people from Asian countries. Immigration laws at the time were in the favor of families looking to move to the Silicon Valley. People immigrated here for a variety of reasons—whether they were aspiring for career prospects with major tech companies, or striving for a quality education for their children, everyone who immigrated here had a common goal: to find opportunities to work hard for a better life for themselves and their families. 2020 Community Economic Profile Cupertino, with a population of 66,762 and City limits stretching across 13 square miles, is considered one of the most prestigious cities to live and work in the Bay Area. Economic health is an essential component to maintaining a balanced city, which provides high- level opportunities and services that create and help sustain a sense of community and quality of life. Public and private interests must be mutual so that success as a partnership is a direct reflection of success as a community. The cornerstone of this partnership is a cooperative and responsive government that fosters residential and business prosperity and strengthens working relationships among all sectors of the community. Because Cupertino is a mature, 93% built-out city, the City of Cupertino focuses on business retention and revitalization. Cupertino is world renowned as the home of high-tech giants, such as Apple, Inc. and Seagate Technologies, and as a community with stellar public schools. De Anza College, one of the largest single-campus community colleges in the country, is another major employer and a magnet for attracting local and international students. The City’s proactive economic development efforts have resulted in an innovative environment for start- ups and growing companies to thrive. The City strives to retain and attract local companies through active outreach and a responsive and customer-oriented entitlement process. 243 P lim Cupertino is excited to have a number of new mixed-use development projects offering more retail and dining options, as well as provide additional housing opportunities to meet the needs of the growing community. The Main Street and Nineteen800 mixed-use developments have created a vibrant downtown area for Cupertino, offering a large selection of restaurants and retailers, including Alexander’s Steakhouse, Eureka!, Rootstock Wine Bar, Oren’s Hummus, Lazy Dog, Ippudo, HaiDiLao Hot Pot Restaurant, Pressed Juicery, Orangetheory, 85 Degree Bakery, Somi Somi, Sul & Beans, Target Express, Kura Sushi, Vitality Bowls, Doppio Zero, Boiling Point and Jin Tea, Koja Kitchen, Bishops Cuts & Colors, Capezio, Howard’s Shoes, Tan Cha, and Meet Fresh. Housing, office, and a new Residence Inn by Marriott are available to support the thriving area. Benihana, Bowlmor, and Ice Center Cupertino also serve as long-time anchors. The construction of new retail and commercial development strengthens existing popular venues in Cupertino, including The Marketplace. The Marketplace has a variety of stores and restaurants popular with students, families, and working professionals. They include Galpao Gaucho, Daiso, Marukai Groceries, Harumi Sushi, La Patisserie Bakery, Beard Papa’s, Legend’s Pizza, Merlion Restaurant, Icicles, Kong’s Tofu & BBQ, Rori Rice, One Pot Shabu Shabu, Olarn Thai, and Erik’s DeliCafé to name a few. Cupertino Village is undergoing renovations to upgrade existing buildings, construct new buildings, parking, and open-courtyard space. The shopping center is home to 99 Ranch Market, Duke of Edinburgh Pub & Restaurant, JSJ Street Kitchen, Kira Kira Beauty, MOD Pizza, Ten Ren Tea, Fantasia Coffee & Tea, Yoga Wave, Happy Lemon, Joy Luck Palace, Kee Wah Bakery, and many other Asian restaurants, bakeries, and shops. Cupertino features many other retail opportunities, including TJ Maxx and Home Goods, Whole Foods, Target, Party City, and over 180 restaurants to serve residents and the local workforce. There are now seven hotels providing over 1,000 rooms, to serve the area: The Aloft Cupertino, Cupertino Hotel, Hilton Garden Inn, Juniper Hotel operated by Curio, Marriott Courtyard, the Residence Inn by Marriott, and the newest addition is the Hyatt House. The redevelopment of the Homestead Square Shopping Center, located at Homestead Road and De Anza Boulevard, includes a 24-hour Safeway, Ulta Beauty, Ross Stores, Stein Mart, Pet Club, Michael’s, Rite Aid, FedEx, and numerous restaurants, such as Fish’s Wild, Pho Hoa Noodle Soup, Yayoi Teishoku Japanese Restaurant, Starbucks, and Chipotle. Apple completed construction of its new corporate campus, Apple Park, which includes approximately 2.8 million square feet of office and R&D space north of Highway 280 between Wolfe Road and Tantau Avenue. A state-of-the-art Visitors Center, Observation 244 P lim Deck, flagship retail store and café are open to the public seven days a week. 2020 City Profile The City of Cupertino operates as a general law city with a City Council-City Manager form of government. Five council members serve four year, overlapping terms, with elections held every two years. The Council meets twice a month on the first and third Tuesday at 6:45 p.m. in Cupertino Community Hall. The meetings can be viewed on the City website. The City has 197.75 authorized full-time benefited employee positions. Departments include: • City Council & Commissions • Administration (City Manager, City Clerk, City Attorney) • Innovation Technology (GIS, Infrastructure, Applications) • Administrative Services (Finance, Human Resources) • Parks and Recreation (Business and Community Services, Recreation and Education, Sports, Safety, and Outdoor Recreation) • Community Development (Planning, Building, Housing Services, Code Enforcement) • Public Works (Environmental Programs, Developmental Services, Service Center, Grounds, Streets, Trees and Right of Way, Facilities and Fleet, Transportation, Storm Drain Management) • Public Safety services are provided by the Santa Clara County Sheriff’s Department and the Santa Clara County Fire District. Assisting the City Council are several citizen advisory commissions and one committee including: • Audit Committee • Fine Arts Commission • Housing Commission • Library Commission • Parks and Recreation Commission • Planning Commission • Public Safety Commission • Sustainability Commission • Teen Commission • Technology, Information and Communication Commission The Commissioners are appointed by Council and vacancies are announced so that interested residents can apply for the positions. For more information, visit cupertino.org/commissions. Housing Based on data from Corelogic the median sales price for an existing single-family home was $2,080,000 in February 2020. For housing programs in Cupertino, please see “Programs & Applications.” Community Health Care Facilities Cupertino is served by the Cupertino Medical Clinic, NovaCare Occupational Health Services. Nearby hospitals include Kaiser Permanente Medical Center in Santa Clara, El Camino Hospital in Mountain View, O’Connor Hospital in San Jose, Community Hospital of Los Gatos, Stanford Hospital in Palo Alto, and the Saratoga Walk-in Clinic in Saratoga. 245 P lim Utilities Gas & Electric Pacific Gas and Electric, 800-743-5000 Phone AT&T residential service, 800-894-2355 AT&T business service, 800-750-2355 Cable Comcast, 800- 945-2288 Solid Waste & Recycling Recology, 408-588-7200 Water San Jose Water Company, 408-279-7900 California Water Service, 650-917-0152 Sewer Service Cupertino Sanitary District, 408-253-7071 Tax Rates and Government Services Residential, commercial, and industrial property is appraised at full market value as it existed on March 1, 1975, with increases limited to a maximum of 2% annually. Property created or sold since March 1, 1975 bears full cash value as of the time created or sold, plus the 2% annual increase. The basic tax rate is $1.00 per $100 (full cash value) plus any tax levied to cover bonded indebtedness for county, city, school, and other taxing agencies. Assessed valuations and tax rates are published annually after July 1. Assessed Valuation (Secured and Unsecured) Cupertino: $26,013,180,424 (7/19) County: $516,068,803,614 (7/19) Retail Sales Tax Distribution Agency Sales Tax Distribution • State 6.000% • VTA 1.125% • City of Cupertino 1.000% • County General Purpose 0.625% • County Transportation 0.250% Total: 9.000% Transportation Rail: The CalTrain station is four miles north of Cupertino. The Amtrak station is 10 miles south. Air: The San Francisco International Airport is located roughly 30 miles north, and the Mineta San Jose International Airport is located approximately 11 miles south. Bus: Cupertino is served by the Santa Clara Valley Transportation Authority. The routes listed below pass through the City. For Cupertino-specific schedules and maps visit their online website: Route 23 San Jose – Mountain View/Palo Alto Route 25 San Jose – De Anza College Route 26 Eastridge – Lockheed 246 P lim Route 36 East San Jose – Vallco Route 51 Vallco – Moffett/Ames Route 53 Westgate – Sunnyvale Route 55 De Anza – Great America Route 81 East San Jose – Vallco Express 101 Camden/Branham – Palo Alto Express 501 Palo Alto – I.B.M Bailey Car: The City of Cupertino is in the heart of the world-renowned Silicon Valley. The major highway transportation facilities are Interstate Route 280 and State Route 85 freeways. The City is linked internally by several principal arterials and Santa Clara County expressways. Principal arterials are De Anza Boulevard, Stevens Creek Boulevard, and Wolfe Road. Nearby expressways are Lawrence Expressway and Foothill Expressway. Sister Cities City of Cupertino recognizes the value of developing people-to-people contacts by strengthening the partnerships between the city and its four sister cities of Copertino, Italy; Hsinchu, Taiwan; Toyokawa, Japan, and Bhubaneswar, India. Cupertino’s Sister City partnerships have proven successful in fostering educational, technical, economic, and cultural exchanges. Over the years, there have been many delegations visiting both the cities as well as many local students participating in annual student exchange programs. Education ________________________________________________________________________________________________________________ Winners of numerous state and national awards for excellence, Cupertino’s schools are widely acknowledged as models of quality instruction. Cupertino Union School District serves over 18,000 students in a 26 square mile area that includes Cupertino and portions of five other cities. The district has 20 elementary schools and five middle schools, including several choice programs. Eighteen schools have received state and/or national awards for educational excellence. Student achievement is exceptionally high. Historically, district test scores place Cupertino among the premier public school districts in California. The district is a leader in the development of standards-based system of education and is nationally recognized for leadership in the use of technology as an effective tool for learning. Quality teaching and parent involvement are the keys to the district’s success. The Fremont Union High School District serves 10,000 students in a 42 square mile area covering all of Cupertino, most of Sunnyvale, and portions of San Jose, Los Altos, Saratoga, and Santa Clara. The five high schools of the district have garnered many awards and recognition based on both the achievement of students and the programs designed to support student 247 P lim achievements. Many high schools in the district exceed their established achievement targets for the State Academic Performance Index. District students are encouraged to volunteer and provide service to organizations within the community. During their senior year, if students complete 80 hours of service to a non-profit community organization, they are recognized with a “Community Service Award” medal that may be worn at their graduation ceremonies. Building on its tradition of excellence and innovation, De Anza College challenges students of every background to develop their intellect, character, and abilities; to achieve their educational goals; and to serve their community in a diverse and changing world. De Anza College offers a wide range of quality programs and services to meet the work force development needs of our region. The college prepares current and future employees of Silicon Valley in traditional classroom settings and customized training arranged by employers. Several De Anza programs encourage economic development through college credit courses, short-term programs, services for manufacturers, technical assistance, and/or recruitment and retention services. Programs & Applications Community Outreach Programs Leadership 95014 Leadership 95014 is a program designed by the City of Cupertino, Wilfred Jarvis Institute, and other local sponsors to offer an exciting adult program that is guaranteed to enhance the participants’ leadership skills. The ten full-day sessions feature inside looks at local governments, the social sector, local non-profit organizations, and educational institutions. This 9-month program is offered annually, September to May, and applications can be found online. Neighborhood Block Leader Program Good neighborhoods are those where neighbors work together on common issues and look out for each other. Block leaders take extra steps to connect neighbors and build community, making our neighborhoods safer and more harmonious. The Block Leader Program teaches residents how to get to know their neighbors and how to organize activities so neighbors can more easily communicate with each other. Block leaders are vital links between City Hall and the neighborhoods, and leaders gain the inside track on neighborhood development activities. Neighborhood Watch Neighborhood Watch is a crime prevention program that enlists the active participation of citizens in cooperation with law enforcement to reduce crime in our communities. The program involves: neighbors getting to know each other and working together in a program of mutual assistance; citizens being trained to recognize and report suspicious activities in their 248 P lim neighborhoods; and implementation of crime prevention techniques such as home security and operation identification. To organize a Neighborhood Watch program in your neighborhood, please contact the Neighborhood Watch Coordinator at 408-777-3177. eCAP Email Community Alert Program (eCAP) was created by the Santa Clara County Sheriff’s Office to prevent and reduce crime by raising community awareness, minimizing opportunities for crime, and increasing the possibility of solving crimes with the public’s help. Cupertino residents may voluntarily register their email addresses with the Sheriff’s Office for community alert messages. Citizens can sign-up at a Neighborhood Watch meeting or log-on to the City of Cupertino’s eCAP online registration. Affordable Housing: BMR (Below Market Rate) Program The City of Cupertino requires 15% of all new construction be affordable to households below 120% of the County median income. Rental units are affordable to very low and low-income households while ownership units are affordable to median and moderate-income households. The City of Cupertino contracts with West Valley Community Services (WVCS) to screen and place qualified households in most of the city’s BMR units. WVCS maintains a waiting list of interested persons for these BMR units. If interested, please call 408-255-8033. More information can be found online. Smart Phone Applications Mobile 95014 City of Cupertino’s Mobile 95014 app offers latest listing of Cupertino news and events as well as local parks, schools, and recreation offerings in the city. This app showcases environmental services and community services such as Block Leaders and Neighborhood Watch programs. Users can learn about public safety and contact City Council members and City officials. The app also offers links to Cupertino’s social media sites. Trees 95014 Trees 95014 is an iPhone/iPad and Android app which provides details about the city-planted trees in Cupertino. Users can search for trees by street name or by current location. The search results show the picture of the tree and details such as location, height, diameter, and species. Cupertino residents can also sign up their tree, name their tree, and request tree service through this app. Eats 95014 Eats 95014 is the local restaurant app that showcases Cupertino’s dining options such as restaurants, grocery stores, farmers’ markets, and vineyards. The app provides information on the services offered at such eating places including store hours, parking information, noise level, directions, and website link. 249 P lim Ready 95014 Ready 95014 is an app that puts safety information into the hands of Cupertino residents. Steps to prepare and respond to emergencies including earthquakes, floods, fires, and pandemics are outlined in an easy-to-understand format. The app also streams Cupertino’s own AM radio station (1670 AM) and has a map of the City’s Area Resource Centers, satellite locations opened after disasters to provide public assistance. Website Applications Cupertino.org/ShopAndDine This interactive website app offers users mapping features of current Cupertino businesses and restaurants. Community Statistics Facts and Figures 1 1 Claritas 2020 Estimates and California Statewide Direct Primary Election June 5, 2018 Population in City Limits 66,762 Average Household Income $242,777 Average Age 40.4 Registered Voters 28,539 Democrats 11,113 Republicans 4,648 American Independent 402 Other 218 No Political Party Designated 12,158 250 P lim Community and Recreation Services Blackberry Farm Blackberry Farm has been upgraded and restored to improve the natural habitat for native trees, animals, and fish. Improvements to the park include construction of a new ticket kiosk, re- plastered pools, a new water slide, bocce ball, horseshoe courts, and numerous upgrades to the west bank picnic area. The park is located at 21979 San Fernando Avenue. Telephone: 408-777- 3140. The Blackberry Farm Golf Course is located at 22100 Stevens Creek Boulevard. Telephone: 408- 253-9200. The Quinlan Community Center The City of Cupertino’s Quinlan Community Center is a 27,000 square foot facility that provides a variety of recreational opportunities. Most prominent is the Cupertino Room - a multi-purpose room that can accommodate 300 people in a banquet format. Telephone: 408-777-3120. Cupertino Sports Center The Sports Center is a great place to meet friends. The facility features 17 tennis courts, complete locker room facilities, and a fully-equipped fitness center featuring free weights, Cybex, and cardio equipment. A teen center and a child-watch center are also included. The center is located at the corner of Stevens Creek Boulevard and Stelling Road. Telephone: 408- 777-3160. Cupertino Senior Center The Senior Center provides a welcome and friendly environment for adults over age 50. There is a full calendar of opportunities for learning, volunteering, and enjoying life. There are exercise classes, computer lab classes, and English as a second language classes, and cultural and special interest classes. The center also coordinates trips and socials. The Senior Center is located at 21251 Stevens Creek Boulevard and is open Monday through Friday, 8 a.m. to 5 p.m. Telephone: 408-777-3150. Civic Center and Library The complex has a 6,000 square foot Community Hall, plaza with fountain, trees, and seating areas. City Council meetings, Planning Commission sessions, and Parks and Recreation Commission sessions are held in the Community Hall. The 54,000 square foot library continues to be one of the busiest libraries in the Santa Clara County Library system. For more information, call 408-446-1677. 252 P lim McClellan Ranch Park A horse ranch during the 1930’s and 40’s, this 18-acre park has the appearance of a working ranch. Preserved on the property are the original ranch house, milk barn, livestock barn, and two historic buildings: Baer’s Blacksmith Shop, originally located at DeAnza and Stevens Creek, and the old water tower from the Parish Ranch, now the site of Memorial Park. Rolling Hills 4- H Club members raise rabbits, chickens, sheep, swine, and cattle. The Junior Nature Museum, which features small live animal exhibits and dispenses information about bird, animal, and plant species of the area, is also located at the ranch. The newly opened Environmental Education Center has Open House hours on Friday, Saturday, and Sunday. McClellan Ranch is located at 22221 McClellan Road. Telephone: 408-777-3120. Things to Do and See Euphrat Museum of Art The highly regarded Euphrat Museum of Art, at its new location next to the new Visual Arts and Performance Center at De Anza College, presents one-of-a-kind exhibitions, publications, and events reflecting the rich diverse heritage of our area. The Museum prides itself on its changing exhibitions of national and international stature emphasizing Bay Area artists. Museum hours are 10 a.m. – 3 p.m. Monday through Thursday. Telephone: 408-864-5464 Apple Park Visitor Center, Store & Café A state-of-the-art Visitors Center, Observation Deck, flagship retail store and café are open to the public seven days a week. The Visitor Center is located at 10600 N Tantau Avenue. Free parking is available. For more information, visit the website at www.apple.com/retail/appleparkvisitorcenter or call 408-961-1560. Fujitsu Planetarium The Fujitsu Planetarium on the De Anza College campus is a must-visit Cupertino facility for stargazers. It hosts a variety of planetarium shows and events, including educational programs for school groups and family astronomy evenings. For more information, visit the website at http://planetarium.deanza.edu or call 408-864-8814. Cupertino Historical Society The Cupertino Historical Society was founded in 1966 by a group of 177 longtime residents and is dedicated to the preservation and exhibition of the city’s history. Their museum, located at the Quinlan Community Center, develops and expands the learning opportunities that it offers to the ethnically diverse community of the City of Cupertino. Telephone: 408-973-1495. Farmers’ Markets There are two farmers’ markets located in the City of Cupertino. One is held on Fridays from 8:30 a.m. to 1:00 p.m. at Creekside Park located at 10455 Miller Avenue, and the other is held 253 P lim every Sunday from 9:00 a.m. to 1:00 p.m. at The Oaks Shopping Center, 21275 Stevens Creek Blvd. California History Center The California History Center and Foundation is located on the De Anza College campus. The center has published 37 volumes on California history and has a changing exhibit program. The center’s Stocklmeir Library Archives boast a large collection of books, pamphlet files, oral history tapes, videotapes, and a couple thousand student research papers. The library’s collection is for reference only. Heritage events focusing on California’s cultural and/or natural history are offered by the center each quarter. For more information, call 408-864-8987. The center is open September through June, Tuesday through Thursday, from 9:30 a.m. to noon and 1:00 p.m. to 4:00 p.m. Local Wineries The Santa Cruz Mountains has played a pivotal role in the history of winemaking in California, with roots going back over 100 years, and including legendary winemakers such as Paul Masson, Martin Ray, David Bennion (Ridge), and David Bruce. The Santa Clara Valley Wine Trail features wineries in the southern portion of Santa Clara County, including Cupertino. Take some time to enjoy Cupertino-based wineries: Fellom Ranch Vineyards, Naumann Vineyards, Picchetti Winery, R&W Vineyards, Ridge Vineyards, and Vidovich Vineyards, as well as the breathtaking scenery of the surrounding foothills. Photo courtesy of Ridge Vineyards 254 Preliminary Draft REPORT OF INDEPENDENT ACCOUNTANTS ON APPLYING AGREED-UPON PROCEDURES To the Honorable Mayor and City Council City of Cupertino, California 10300 Torre Avenue Cupertino, California 95014-3202 Ladies and Gentlemen: We have performed the procedures enumerated below, which were agreed to by the Honorable Mayor and City Council of the City of Cupertino, California (the “City”) on the Appropriations Limit Worksheet (Worksheet), related to the City’s compliance with Section 1.5 of Article XIIIB of the California Constitution during the period ending June 30, 2021. Management is responsible for compliance with Section 1.5 of Article XIIIB of the California Constitution. The sufficiency of these procedures is solely the responsibility of the City. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. Refer to Appendix A. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, respectively, on compliance with Section 1.5 of Article XIIIB of the California Constitution. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the Honorable Mayor and the City Council and is not intended to be and should not be used by anyone other than these specified parties. Costa Mesa, California 255 Preliminary Draft APPENDIX A – SCHEDULE OF PROCEDURES AND FINDINGS The procedures to be performed were as follows: 1. Procedure: We obtained the Worksheet provided by the City and determined that the 2020-2021 Limit amounting to $109,062,934 and annual adjustment factors were adopted by Resolution 20-086 of the Honorable Mayor and City Council. We also determined that the population and inflation factors were selected by a recorded vote of the Honorable Mayor and City Council. Result: The procedures were performed without exception. 2. Procedure: We recomputed the 2020-2021 Appropriations Limit by multiplying the 2019-2020 Appropriations Limit by the adjustment factors. Result: The procedures were performed without exception. 3. Procedure: For the Worksheet, we agreed the Per Capita Income, County and City Population Factors to California State Department of Finance Worksheets. Result: The procedures were performed without exception. 256 Preliminary Draft REPORT OF INDEPENDENT ACCOUNTANTS ON APPLYING AGREED-UPON PROCEDURES To the Honorable Mayor and City Council City of Cupertino, California 10300 Torre Avenue Cupertino, California 95014-3202 Ladies and Gentlemen: We have performed the procedures enumerated below, which were agreed to by the Honorable Mayor and the City Council of the City of Cupertino, California (the “City”), on the Investment Policy of the City. The City’s management is responsible for the Investment Policy. The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures enumerated below either for the purpose for which this report has been requested or for any other purpose. Refer to Appendix A. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, respectively, on the Investment Policy. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the Honorable Mayor and City Council and is not intended to be and should not be used by anyone other than these specified parties. Costa Mesa, California 257 Preliminary Draft APPENDIX A – SCHEDULE OF PROCEDURES AND FINDINGS The procedures to be performed were as follows: 1. Procedure: We obtained the Investment Policies (policies), dated May 2020, approved by the Honorable Mayor and the City Council. We compared the investments authorized by the policy with the investments listed in the March 2021 Treasurer’s Investment Report to determine if all investment types are allowed by the investment policy. Result: The procedure was performed with no exceptions noted. 2. Procedure: We compared the City’s Investment Policy with California Government Code Section 53601 to determine whether the City’s Investment Policy complied with California Government Code Section 53601. Result: The procedure was performed with no exceptions noted. 3. Procedure: We compared the March 2021 Treasurer’s Investment Report with California Government Code Section 53646 to ensure that the March 2021 Treasurer’s Investment Report complied with California Government Code Section 53646. Result: The procedure was performed with no exceptions noted. 4. Procedure: We inquired of the Finance Manager whether investment performance statistics and activity reports were generated on a quarterly basis for presentation to the Oversight (Audit) Committee, City Manager and the Honorable Mayor and the City Council, as required by the Investment Policy. Result: The procedure was performed with no exceptions noted. 5. Procedure: We inquired of the Finance Manager and documented our understanding of the wire transfer procedures. Result: The procedure was performed with no exceptions noted. We noted that the City’s wire transfer procedures indicate that if a wire is initiated by one of the City’s accountants, then the Finance Manager has the authority to approve the transfer, pending that the applicable expenses and reasoning/need for the wire are appropriate relating to the request. If the Finance Manager initiates the wire, then the Director of Administration can approve the wire transfer pending the requirements noted above. 6. Procedure: We randomly selected three investment sales/maturities from various quarters of Treasurer’s Reports and performed the following: • Traced investment type to the supporting broker’s confirmation and the Chandler Report. • Traced the maturity date to the supporting broker’s confirmation and the Chandler Report. • Traced the amount of the investment sold to the supporting broker’s confirmation and the Chandler Report. Result: The procedure was performed with no exceptions noted. 7. Procedure: We randomly selected two investments purchased (one as of October 2020 and one as of March 2021) for fiscal year 2021 from the City’s investments files and performed the following: • Trace the purchased investments to the corresponding Treasurer’s Investment Report for the month in which the investments were acquired. • Agree the amount, terms and interest rate to the Treasurer’s Investment Report. 258 Preliminary Draft • Verify that the investment type is authorized by the Investment Policy by comparing the type of investment to the allowable types per the Investment Policy. Result: The procedure was performed with no exceptions noted. 8. Procedure: We obtained the Wells Fargo Bank Market/Cost Value Comparison Report, the City’s third party investment safekeeping custodian, for March 2021 and traced the following from each investment listed in the Wells Fargo statement to the City’s March 2021 Treasurer’s Investment Report: • Investment description • Market value • Purchase date • Maturity date • Coupon rate Result: Per observation of the Wells Fargo Bank Market/Cost Value Comparison report, purchase dates are not presented and could not be agreed to the City’s Treasury Investment Report. This section of the procedure could not be performed. The remainder of the procedure was performed with no exception. 9. Procedure: We traced three randomly selected Federal Agency investments that were purchased in fiscal 2021 and traced the reported ratings to Moody’s rating online. Result: The procedure was performed with no exception noted. 10. Procedure: For the March 2021 Treasurer’s Investment Report, we re-computed or obtained third-party corroborating evidence of the correct listing of: • Average Yield • Market value • Purchase date • Duration Result: We obtained the March 2021 Treasurer’s Investment Report prepared by Chandler Asset Management, Inc. and the Wells Fargo Market/Cost Value Comparison. The procedure was performed with no exceptions noted. 259 Preliminary Draft 1. To the Honorable Mayor and City Council City of Cupertino, California Professional standards require that we communicate certain matters to keep you adequately informed about matters related to the financial statement audit that are, in our professional judgment, significant and relevant to your responsibilities in overseeing the financial reporting process. We communicate such matters in this report. AUDITOR’S RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA Our responsibility is to form and express an opinion about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America. The audit of the financial statements does not relieve you of your responsibilities and does not relieve management of their responsibilities. Refer to our engagement letter with the City of Cupertino, California (City) for further information on the responsibilities of management and of Crowe LLP. AUDITOR’S RESPONSIBILITY UNDER GOVERNMENT AUDITING STANDARDS As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of the City’s compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts or disclosures. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. COMMUNICATIONS REGARDING OUR INDEPENDENCE FROM THE CITY Auditing standards generally accepted in the United States of America require independence for all audits, and we confirm that we are independent auditors with respect to the City under the independence requirements established by the American Institute of Certified Public Accountants. Additionally, we wish to communicate that we have the following relationships with the Company that do not impair our independence but which, in our professional judgment, may reasonably be thought to bear on our independence and that we gave significant consideration to in reaching the conclusion that our independence has not been impaired. 260 Preliminary Draft 7. Costa Mesa, California 266 Preliminary Draft REPORT OF INDEPENDENT ACCOUNTANTS ON APPLYING AGREED-UPON PROCEDURES To the Honorable Mayor and City Council City of Cupertino, California 10300 Torre Avenue Cupertino, California 95014-3202 Ladies and Gentlemen: We have performed the procedures enumerated below, which were agreed to by the Honorable Mayor and the City Council of the City of Cupertino, California (the “City”), on the 2019 Clean Water and Storm Protection Fee of the City. The City’s management is responsible for compliance with the provisions of the 2019 Clean Water and Storm Protection Fee as outlined by the City’s municipal code. The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures enumerated below either for the purpose for which this report has been requested or for any other purpose. Refer to Appendix A. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, respectively, on compliance with the City’s municipal code in connection with the 2019 Clean Water and Storm Protection Fee. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the Honorable Mayor and City Council and is not intended to be and should not be used by anyone other than these specified parties. Costa Mesa, California 267 Preliminary Draft APPENDIX A – SCHEDULE OF PROCEDURES AND FINDINGS The procedures to be performed were as follows: 1. Procedure: We selected 100% of the revenue transactions recorded in the Environmental Management/Clean Creeks Special Revenue Fund (Fund 230) for the period January 1, 2020 thru December 31, 2020 and performed the following procedures: a. Observed the Clean Water and Storm Protection fees have been deposited and recorded in Fund 230 per Section 3.38.160A of the Cupertino Municipal Code. b. Obtained the County tax remittance statement for each specific receipt (as provided by the County) and observed the cash collected in total on the statement agrees to the amount deposited in Fund 230 in accordance with Section 3.38.070 of the Cupertino Municipal Code, which specifies that the City elects to have fees collection on the tax roll in the same manner as property taxes. c. Obtained the City support <e.g., schedule of fees billed to property owners in situation where the fee was not included in the annual tax assessment or Schedule> and observed the cash collected in total per the City’s Schedule agrees to the amount deposited in Fund 230 in accordance with Section 3.38.090 of the Cupertino Municipal Code, which specifies that the City Finance Department bills out fees to property owners in situations where the fee was not included in the annual tax assessment. Result: The procedure was performed with no exceptions noted. 2. Procedure: We selected 60% of the non-payroll expenditure transactions recorded in Fund 230 for the period January 1, 2020 thru December 31, 2020 and performed the following procedures: a. Obtained the City invoices and purchase orders for the expenditures selected, and observed the description of expenditures on the invoice and purchase order, as well as the assigned object code on the purchase order from the City were for allowed purposes per Section 3.38.010B of the Cupertino Municipal Code, which specifies allowable activities are defined as acquisition, construction, reconstruction, maintenance, and operation of the storm drainage system of the City or related green infrastructure or other activities required by the City’s NPDES permits, to repay principal and interest on any bonds which may hereafter be issued for said purposes, to repay loans or advances which may hereafter be made for said purposes. b. Obtained the City invoices and purchase orders for the nonpayroll expenditures selected and observe the description of expenditures on the invoice and purchase order were for allowed purposes per Section 3.38.0160A and 3.38.0160B of the Cupertino Municipal Code. Section 3.38.160A of the Cupertino Municipal Code specifies allowable from the overall perspective as direct costs and administrative costs, while 3.38.160B of the Cupertino Municipal Code specifically defines direct costs as wages and salaries and costs of employee fringe benefits and mileage reimbursement attributable to said collection activities, with administrative costs as all costs for computer service, materials, postage supplies and equipment. c. Obtained the City documentation for all refunds issued and observe the Finance Director authorized the refund through written approval in accordance with Section 3.38.170 of the Cupertino Municipal Code. Result: The procedure was performed with no exceptions noted. 3. Procedure: We sampled one pay period (selected on a haphazard basis) between January 1, 2020 and December 31, 2020 to recompute employee allocation in the general ledger for activity recorded in Fund 230 and compared to the City’s calculations as follows: a. Sampled at least 10% of the time cards of applicable employees charged in Fund 230 to the selected payroll period (selected on a haphazard basis) and observe written approval by supervisors. b. Obtained documentation of the general ledger distribution for the payroll period selected and recalculate the distribution and agree the results to the budgeted allocation and the functional allocation matrix established by management. The budgeted allocation shall be specified by City-established allocation worksheets used to estimate the amount of actual time spent on the acquisition, construction, reconstruction, maintenance, and operation of the storm drainage 268 Preliminary Draft system of the City or related green infrastructure or other activities required by the City’s NPDES permits. Result: The procedure was performed with no exceptions noted. 269 CITY OF CUPERTINO Agenda Item 22-10517 Agenda Date: 2/24/2022 Agenda #: 6. Subject: Internal Audit - Procurement Review Internal Audit - Procurement Review CITY OF CUPERTINO Printed on 2/18/2022Page 1 of 1 powered by Legistar™270 This report is intended for the internal use of the City of Cupertino, and may not be provided to, used, or relied upon by any third parties. Proprietary & Confidential FINAL REPORT City of Cupertino PROCUREMENT OPERATIONAL REVIEW February 16, 2022 Moss Adams LLP 999 Third Avenue, Suite 2800 Seattle, WA 98104 (206) 302-6500 271 Table of Contents – Continued Procurement Operational Review FOR INTERNAL USE OF THE CITY OF CUPERTINO ONLY Procurement Roles 36 Appendix B: Staff Survey Results 37 Employee Tenure, Department, and Roles 37 Systems 39 Structure 41 Processes 43 Training 44 Appendix C: Vendor Survey Results 46 Vendor History, Roles, and Relationships 46 Description of Procurement Activities 47 Stages of Procurement 48 Appendix D: Peer Benchmarking 50 City Statistics and Procurement Type 50 Purchasing Thresholds and Authority 51 Legend 51 Sunnyvale 51 City of Milpitas 52 City of Los Altos 54 City of Gilroy 55 273 Procurement Operational Review | 1 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY EXECUTIVE SUMMARY This procurement operational review provides the City of Cupertino (the City) with an assessment of its procurement operations and their alignment with City goals, policies, business plans, industry best practices, and applicable laws and regulations. For this engagement, Moss Adams focused on the structure, function, and role of procurement people, processes, and systems. As part of the assessment, we conducted planning, data collection, and analysis to gain an understanding of the existing environment, identify opportunities for improvement, and provide practical recommendations in this report. Based on insights gathered through interviews and document review, it is evident that City staff and leadership have many commendable organizational attributes. These include: • Employee engagement • Collaboration and innovation • Committed work ethic Commendations are discussed in detail in Section II.B of this report. We would like to commend the City and leadership for their willingness to assist us in this assessment process. The City’s strengths provide a strong foundation that may improve the outcomes of implemented recommendations. The City’s procurement model is currently highly decentralized, with department heads and their staff primarily responsible for conducting and managing purchasing and contracting activity with support from the Finance Division and the City Attorney’s Office (CAO). This decentralized procurement structure is the primary driver behind many of our observations and recommendations. While we did not identify individual points of failure or deficiency within the City’s procurement processes and systems, we noted several opportunities to improve the efficiency and coordination of procurement activities. Therefore, our primary recommendation, as highlighted on the next page, is to consider a centralized procurement model. 274 Procurement Operational Review | 4 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY INTRODUCTION Moss Adams serves as the outsourced internal auditor for the City of Cupertino (the City), and reports to the City Council’s Audit Committee who oversees our work and approves the annual internal audit plan. In 2020, Moss Adams conducted an Enterprise Risk Assessment (ERA) and identified procurement (purchasing and contracting) as an area of overall high risk due to the inherent vulnerability of the function, high level of decentralization, and the potential consequences of risk occurrences. Public procurement involves significant financial interests, numerous transactions, and close interaction with third parties. These characteristics make the function inherently vulnerable to inefficiency (waste), bias, abuse, corruption, and fraud. Negative impacts of these risks often also include public backlash, reputational harm, and damage to public trust. The Audit Committee approved the 2021–2022 internal audit work plan, beginning with a consultative procurement operational review to identify opportunities for improvement in service delivery, internal controls, organization, operations, and process efficiency. In our role as internal auditors, we are tasked with assessing the quality of the City’s procurement framework and its procurement processes for adequacy in design and operations. The Institute of Internal Auditors (IIA)1 articulates that the mission of internal auditor is “to enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight.” The definition from the IIA is that “internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.” Internal auditors must consider several factors that can impact the balance of serving the public and addressing the interests if other stakeholders within a political context. These include: • Accountability in Public Funding • Nature of Politics • Public Sector Governance • Public Good and Public Interest • Transparency, Ethics, and Integrity • Legal, Regulatory, and Fiscal Compliance • Efficiency, Effectiveness, and Equity in Public Service Delivery 1 The international professional association that serves as the internal audit profession's recognized authority. 277 Procurement Operational Review | 8 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY The purpose of this section is the highlight the hard work and continued efforts of City staff to act on opportunities to optimize procurement activities across functions and levels within the City. Despite working in a resource-constrained environment with fewer employees compared to benchmarked Cities, staff remained responsive, collaborative, and committed. This assessment took place during a particularly busy time for the City, yet employees made time to participate in interviews and surveys and responded to questions and requests for information in a timely and thorough manner. In our experience, staff engagement can vary widely. The experience with Cupertino staff remained positive for the duration of the engagement and across functions and levels within the City. Not only were staff responsive to Moss Adams, interviewed staff also remarked on the high degree of availability to one another. There were several instances where staff noted that they rely on emails and phone calls to accomplish tasks, and these staff consistently praised the reachability and responsiveness of their peers. The current success of the decentralized procurement program is due to the careful, collaborative efforts of City staff across functions and throughout the organization. In particular, Finance Division staff have worked to ensure that current procurement processes are designed with strong internal controls to mitigate risk. Across departments, interviewed staff were quick to acknowledge a collaborative foundation built on trust, communication, and continuous improvement. New, recently promoted, or recently transferred employees positively reflected on their ability to ask questions of their peers, who readily provide feedback and guidance. Peers were observed collaborating on improvement opportunities and sharing best practices and resources. Throughout this engagement, Moss Adams was frequently updated on continuous improvement projects throughout the City. As noted in Observation 10, the CAO has launched an effort to update all contract documents and guidance on developing contracts, and is hosting this information in a shared, self-serve location. Additionally, Finance Division staff have implemented several process improvement initiatives including budget training and resources to help staff better develop and access financial information. It is evident, based on interviews, document review, and the staff survey that City employees are committed to doing their best. We would like to commend City staff and leadership for their willingness to assist us in this assessment process. The City’s strengths provide a strong foundation that may improve the outcomes of implemented recommendations. 281 Procurement Operational Review | 10 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY A strategy to achieve efficiency must include consideration of how procurement is structured on an organizational level. As the City continues to grow, these challenges related to the decentralized procurement model are likely to continue unless the City evolves its procurement practices to maintain balance between operational flexibility and standardization. When interviewed, several staff noted their desire to remain agile in their purchasing ability and were concerned about the possibility of delays in approvals if the City moved towards centralized purchasing activities. However, nearly all staff reported a desire for help with contracting and purchasing activities when interviewed, and several noted the desire for centralized services in the employee survey. Recommendation Procurement may be centralized or decentralized, or a hybrid approach can be used. Centralization typically reduces risks related to purchasing processes and contract administration and can empower a City to leverage its purchasing power to maximize value. However, centralization may hinder efficiency through increased bureaucracy, cause employees to feel unempowered, or hinder the City’s ability to adapt to changing circumstances. Another factor that must be considered is whether the administrative costs of implementing different strategies are beneficial. Taking steps toward or implementing elements of a centralized model does not necessarily require complete centralization. Purchasing is on a spectrum, with complete centralization on one end and complete decentralization on the other. Organizations can be anywhere along that spectrum based on their needs, desired outcomes, and available resources. The City should establish a procurement framework that includes a strategic function led by a Procurement Officer with adequate authority to institute and enforce adherence to procurement policies and procedures across the City. According to the Institute for Public Procurement, regardless of entity type or size: “Public procurement systems are the means through which critical and strategic services, supplies, and construction are purchased to support essential public functions. To operate effectively, it is imperative in those systems that there be central leadership to provide direction and cohesion.” The authority for procurement decisions in the City should be developed to balance approval responsibilities between the Procurement Officer, City Attorney, City Manager, and the Council and should be informed by the needs of operational departments. When determining the level of authority for the Procurement Officer, the City can consider one that is commensurate with other executive positions, including placement on the City’s leadership team. This can ensure procurement strategies are aligned with organizational goals and capitalize on opportunities to improve financial outcomes. This placement, and authority, provides several strategic benefits to the City, including: • Increased cost effectiveness and efficiency by leveraging spending, competition, negotiations, and increasing contract success • Cross-agency collaboration and planning • Maximized competition, resulting in reduced costs and improved quality • Increased transparency and accountability to key stakeholders, including management, elected officials, existing and potential vendors, and the community 283 Procurement Operational Review | 11 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY • Decreased risks associated with failed contracts, protests, and possible legal actions • Streamlined operations, supporting efficient and effective operations Additionally, by elevating this position, the Procurement Officer will be able to maximize working relationships with other departments across the City, which can assist with interdepartmental planning and support greater user satisfaction. According to the National Association of State Procurement Officials (NASPO), lack of visibility and authority is considered the greatest impediment to optimizing the procurement function. The Procurement Officer may delegate procurement authority to departments that employ skilled procurement professionals and are frequent users. Appendix A presents the five most common positions found in public procurement and outlines the potential framework for implementing dedicated purchasing roles. Delegated tasks should continue to be overseen by department directors while allowing departments to make moderate sized purchases that are integral and common to their specific services and activities. The decision to delegate authority should be contingent upon the availability of skilled, experienced procurement professionals in user departments and should only be considered for departments that procure a significant amount of goods and services in the course of their operations. Appendix D provides peer city data to consider when evaluating procurement models and structure of procurement staff. Of note, many peer cities identified use a centralized purchasing model. In the City of Gilroy, where purchasing is decentralized, the finance department still maintains responsibility for: • Purchasing materials, supplies, and equipment (goods) and services for use by all departments when appropriate • Preparing standard specifications for goods and services wherever possible • Maintaining a purchase order system and issuing purchase orders as required • Verifying that all bids and proposals are in accordance with policy requirements • Establishing and operating a system of stores for the bulk purchase of commonly used items • Selling surplus personal property of the City, subject to the determinations and approval of department heads, the City Administrator, and the City Council 284 Procurement Operational Review | 15 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY • Socialization: This should include an explanation of procurement expectations, training or shadowing, evaluation criteria, and a discussion of policies, procedures, and key partners, including CAO and Finance. • Support programs: A buddy program pairs new hires with veteran employees for a specified period ranging between a few weeks to the first year of employment. Buddies can answer questions and help build camaraderie. • Checklist: Information that is specific to anticipated procurement activities should be guided by supervisors who may benefit from sharing a comprehensive checklist. • Review of policies, procedures, and technology: Any checklists should include a review and discussion of relevant policies, procedures, and guidelines. • Communication processes: This may include what information is expected to be communicated including contract or purchase order (PO) initiation notices, approvals, and requests for items, as well as how information should be communicated both informally (email or chat) and formally (Cobblestone, New World, DocuSign). • Significant program length: Training is a comprehensive process that is expected to last between one month to the entire first year. It is not uncommon to host semi-annual or annual trainings to refresh skills and present new topics. • Unique activities identified by individual departments: Each position is unique and may require additional focused training activities. Additionally, when City employees are promoted into a new role, especially if that role includes additional or different procurement responsibilities, the City should provide relevant training opportunities to support their success. Ongoing Training Training in purchasing and contract administration establishes a baseline of knowledge and increases the likelihood that staff will administer and monitor contracts consistently and reliably. Training should be mandatory for employees responsible for procurement activities, and regular refreshers should be offered, especially as processes and policies change. A baseline level of training and understanding of the purchasing and contract administration process, roles and responsibilities, and City policies should be required for project managers and department directors. The City should consider requiring procuring employees to attend a quarterly training to stay up to date with procurement policy and law. Likewise, all contract administrators should be trained to an adequate level of expertise on the use of reports to support day-to-day operations. Short, accessible online training videos and quick reference guides could be developed at a low cost to help employees comply with policies and procedures. Currently, the City’s HR department publishes a catalog of ongoing training opportunities that does not include a procurement category. The City should consider developing a section of the catalog that includes continuing education opportunities. Departments across the City including Public Works, Community Development, and others should inform the training activities included in the catalog to increase the knowledge within their unique procurement environment. 288 Procurement Operational Review | 17 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY work. Without cross-training or backup staffing, it can be a challenge to deliver a consistent level of service throughout the year. Cross-training for key functions offer the following benefits: • Durability: When only one person knows how to handle a key area, the City isn’t positioned for sustainability. Cross-training helps ensure that if an essential team member quits or takes a vacation, procurement operations won’t suffer or need to be re-created. • Agility: Cross-training creates a more agile workforce by providing on-the-job professional development. It can result in several benefits to employees by providing them with additional skillsets, a chance to learn different things, uncover hidden talents, and prepare for advancement. • Flexibility: Functions that cross-train are better equipped to recover quickly from disruptions and handle transitions gracefully. This means they can deliver seamless service to key stakeholders, even in times of disruption. • Efficiency: Cross-training often inspires teams to refine processes. Teaching current processes to others provides an opportunity for employees to answer questions, explain desired outcomes, and see the tasks they perform daily through a fresh set of eyes. This critical reevaluation of process effectiveness and design can lead to increased efficiencies. • Teamwork: Cross-training gives employees a chance to build new relationships with people they might otherwise not have regular contact with. These relationships will help the Department work more effectively and increase employees’ understanding of the big picture. When implementing a cross-training program, considering the following factors can help to build a durable, agile, and efficient plan: • Create a culture of collective success: For some employees, being indispensable is a point of pride. Department leadership should make it clear that the department values people’s ability to support each other and that single points of failure are a department-wide weakness. Employees should be assured that their capacity to help their co-workers in times of need will benefit them when they need additional support. • Set formal expectations: Departments should require employees to have at least one person who can step into their role at a moment’s notice. Make it mandatory, give clear instructions, and provide time for people to cross-train effectively. • Test success: To support long-term success, employees should run simulations to ensure cross- training meets expectations. See whether a key employee can go away on vacation with absolutely no team contact or commit that employee to another project and make sure they aren’t pulled in to help the person performing their role. If someone is able to step in in this person’s absence, it’s covered. • Develop a feedback mechanism: Employees should be provided an opportunity to provide feedback on the impact of cross-training activities, and this information should be leveraged to continuously improve efforts. Although cross-training may result in some short-term loss in productivity, it will ultimately benefit long- term risk mitigation and increased efficiency. 290 Procurement Operational Review | 19 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY the policy due the lack of accountability for subsequent adoption. As a result, it’s possible that the targeted outcomes of the policy may not be met. A key step in change management is the reinforcement of implemented changes. When this does not occur, it places the City at risk of backsliding, where employees revert to old ways of doing things, or of changes that do not achieve their intended outcomes. Recommendation To improve the overall adoption of procurement changes, the City should establish a standardized change management process focusing on awareness, training, and accountability. Wherever possible, employees should be notified of upcoming changes to generate awareness. This will also create an opportunity for staff to provide input on potential concerns and suggestions to improve implementation. Training or additional resources specifically highlighting what is changing and the impact to procurement activities should be developed to accompany upcoming changes. This will help employees adopt new processes and reduce the likelihood of rework and delayed timelines due to error. The following are elements can help the City increase its awareness, training, and accountability practices when implementing changes to procurement: • Align key stakeholders: Although a change may not result in significant improvements for every department, this presents an opportunity to exercise enterprise-wide thinking and consider the impact of the change on other facets of the organization. • Communicate the change: Excellent communication is critical to change management. The leaders initiating the change should ensure clear and open lines of communication throughout the change management process and advocate for two-way dialogue to provide answers and inform stakeholders. • Plan for and understand the ramifications of the change: Clearly identify what is changing, how it is changing, who will be affected, how users will be affected, and when the change will occur. Change should occur in a multi-step, well-communicated process that includes ample training and no surprises to staff. • Reinforce change: Once updates or changes to procurement have been made and training provided, it will be important for department leaders to hold their staff accountable for incorporating changes into their workflows. Accountability As change takes place within the organization, the City can experience improved outcomes by holding employees accountable to newly established processes. Accountability measures will help make sure that changes meet the targeted outcomes. Creating an organizational culture of accountability leads to high performing teams through increased engagement and ownership, reduced confusion, and increased growth at the individual and organizational level. Successful accountability requires clear expectations and trust. 292 Procurement Operational Review | 21 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY Sustainability On the City’s website, “Green in the City,” there are several references to policies in place to support green practices, and a statement that the City leads by example, enacting these policies in municipal operations. When interviewed, staff agreed that there were robust policies in place; however, due to a lack of accountability, there was inconsistent adherence to those policies in practice. The City’s green policies related to procurement include: • Zero waste policy • Utility Conservation Policy and Procedure • State Law 1383 regulations, which require the City to procure recycled content paper products and keep organics out of waste streams Recommendation The largest hurdle when contracting with small businesses or MWDBEs appears to be the City’s current insurance requirements and indemnification terms in standard contract templates. There are workarounds in place where the City purchases gap insurance to help small businesses meet the insurance requirements of the City; however, this is not widely known among staff or contractors. Generating awareness will be an important first step in generating accessibility of contracts to smaller businesses. The City should also evaluate the volume of instances where this workaround takes place and consider opportunities to consult the City’s risk management team and revise insurance requirements for certain types of professional services contracts. The City could also make changes to its definition of a “small contractor” for purposes of a supplier diversity program to create a more rational, data-driven process to simplify and expedite the process. The City has sustainability policies in place that have been thoughtfully developed by the City’s sustainability team. According to interviewed employees, the rollout of new sustainability policies suffered from a lack of circulation and accountability. In both situations, information regarding processes for working with small businesses to help bridge insurance and indemnity requirements, and sustainability initiatives and their impact to procurement practices, would benefit from a structured rollout (see Recommendation 5). 294 Procurement Operational Review | 31 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY Management analysts noted that they often export report information into spreadsheets to share among the project team; this is an inefficient process that can result in outdated data, an increased risk of data inconsistencies, and an inability to efficiently make data-driven decisions. From a departmental perspective, critical data about procurement activities, such as contract invoices, transactions, spending amounts, and negotiated amounts must be gathered from multiple sources, including the City’s core financial systems, non-integrated systems, and manual sources such as spreadsheets. Manual processes, legacy software, disconnected systems and other technology constraints limit real-time decision support and diminish the support required for a shift to modern procurement processes. Additionally, the City does not have a defined data management strategy for its procurement data. This can lead to gaps in staff understanding and adherence to practices such as following standardized naming convention guidelines to support data integrity for consistent reporting. For example, the naming conventions for City vendors are inconsistent, with some individuals listed “Last name, First name” in the system, and others are listed “First name Last name.” This leads to poor data integrity and places reports and information at an increased risk of being outdated or incorrect. Recommendation Efficient and effective operations rely on efficient and effective procurement data, which can also increase accuracy in planning, forecasting costs, responding to market volatility, and decision-making. Accurate and timely data on available funds, existing contracts in place, and other procurement-related information is required in order to make both financial and operational decisions, especially in the circumstances where speedy action is needed (such as HVAC system failures, extreme weather events, etc.). Project reports are an important source of information for managers and stakeholders to monitor project progress. Detailed budget level information allows the City to monitor budgetary performance against committed contract values and can serve as an early warning indicator for potential problems. This information provides decision makers time to consider actions that may be needed if major deviations in budget-to-actual results become evident. The City currently hosts training for budgeting and reporting; there is also an effort underway to requisition software to create budget dashboards. In order to address the disconnect between the availability of budget data and user ease in accessing this data, the City should consider whether the budget training information is readily available in a self-serve capacity to those who may have missed initial trainings or who may need additional assistance (see Recommendation 3) and should reinforce training using the established change management methods and accountability measures (see Recommendation 5). The goal is to help make budgeting data more accessible and easily understood while limiting the amount of manual intervention required by business analysts to report on budget data to project managers. This is a positive step towards facilitating access to key information given differing levels technical ability and interest. Effectively collecting, analyzing, and reporting regularly on procurement data allows an organization to evolve from a tactical function to a strategic role. Standard elements exist in public procurement in order to analyze procurement data. The City should implement a data management strategy and supporting processes to guide adoption of these practices to capture all City data related to the creation, storing, processing, and sharing of procurement actions. These practices, shown in the following table, will allow the City to increase its data reliability and completeness related to purchasing activity analysis, performance measurement, and regular reporting. 304 Procurement Operational Review | 33 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY training, and accountability mechanisms. In addition, only 33% of staff rated the sustainability of their workload as good or excellent. As is common in organizations with high workloads, staff report that they have limited capacity to develop policy and procedure documentation and undertake training efforts. A lack of clear, accessible, and up-to-date policy and procedure documents has multiple impacts, including: • Lack of process consistency, so processes may be more cumbersome or time-consuming than necessary and employees may perceive issues of fairness • Risk of losing institutional knowledge when employees exit the organization • Cross-departmental communication challenges when roles and responsibilities are unclear • Lack of accountability among departments to abide by established procedures Recommendation Well-developed and properly applied policies and procedures can help increase employee accountability, reduce miscommunication and confusion, smooth employee transitions, and ultimately improve ability of departments to serve the City. For critical policies, the City should also develop a step-by-step guide to ensure processes are performed appropriately, consistently, and in a timely manner. In conjunction with this engagement, the City is currently undergoing a Policy Gap Analysis, the results of which can be used set the foundation of policy and procedure development moving forward. In addition to the recommendations referenced above, City staff involved in procurement processes would benefit from the development of self-service resources and checklists. The Finance Division and CAO or centralized procurement leadership, in collaboration with experienced procurement staff, should develop the content of self-service resources and checklists to address common issues and provide clear guidance for those who may be new to key procurement processes. This will allow the City to capitalize on any preexisting documents that have been independently developed by department staff. Checklist items should work together to reduce the likelihood of rework due to error or delays due to insufficient approvals or backup documentation. At the time of this report, the City had already taken steps to provide easily accessible standardized resources for contracting. For example, the CAO has developed a Contracting FAQ and Contract Instructions, which have been uploaded to the City’s intranet, the HUB. This is an important step that achieves the dual purpose of providing readily accessible resources that are also up to date. Procurement and Contracting Manual A comprehensive, clear, and concise Procurement and Contracting Policy Manual (PCPM) should explain the applicable laws and policies enables procurement staff, staff, vendors, and other stakeholders to understand the proper procedures and rules to follow throughout the process. The absence of comprehensive guidance presents opportunities for inconsistency, complexity, and confusion, resulting in likely frustration, delays, and overall suboptimal utilization of scarce sources. The PCPM should include clearly defined authority, responsibility, and guidelines to follow. As such, the manual should, at a minimum, incorporate the following elements: • Purchasing authority, including dollar threshold limits and delegation • Roles and responsibilities 306 Procurement Operational Review | 34 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY • Conflict of interest and ethics • Competitive solicitation and waivers • Supplier evaluation and selection • Emergency purchases • Special considerations, including use of bonds, prevailing wages, warranties, insurance, and preferences for certain vendor types • Purchasing classifications, such as IT, goods, and services • Use of contracts and contractor performance • Protests and post-award dispute • How employees will be held accountable for adhering to standards. Key components of procurement process that should be delineated in the PCPM include: • Procurement oversight: A high-level summary of planned and completed activities that can be used throughout procurement process for oversight and reporting. It should detail the methods and performance measures that departments and project manager will use to monitor procurement activity, including purchasing activity, vendor performance, and compliance with procedures. • Change management procedures: It is important to note that while policies and procedures are critical to consistency and effectiveness, they must be formalized, training must be provided, and personnel must be held accountable to adhering to them. As procurement processes evolve over time, training should be revised and redelivered to ensure consistency (see Recommendation 5). Once policies and procedures are updated, they should be available in a centralized location, such as the HUB, for employees to easily reference. City leadership should ensure all staff are sufficiently trained on any major changes and are held accountable for implementing them (see Recommendation 3). 307 Procurement Operational Review | 37 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY APPENDIX B: STAFF SURVEY RESULTS A survey was sent to City employees who were involved in procurement practices. Employees who met one of the following criteria were surveyed: have a CAL-card, have access to Cobblestone or New World, or were otherwise identified by management as being involved in City procurement activities. Submissions were open between November 3, 2021 and November 15, 2021. Out of 106 employees who were invited to take the survey, 75 individuals submitted either full or partial responses (a strong participation rate of 70%). 0 5 10 15 20 25 30 Less than 1 year 1 to 3 years 4 to 6 years 7 to 9 years More than 10 years Tenure of Respondents Count of respondents 0 5 10 15 20 25 30 Administrative Services City Attorney's Office City Manager's Office Community Development and Planning Innovation and Technology Parks and Recreation Public Works Department of Respondents Count of respondents 310 Procurement Operational Review | 40 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY Do you have any comments or suggestions for ways the City could improve its use of systems and/or technology related to procurement? • Hire someone dedicated to developing and managing contracts for Public Works. • New World ERP has limited functionality in tracking CAL-card purchases. • The Business Analyst Excel reports don't match what is in New World sometimes, even though they are supposed to. • Cobblestone and NWS do not interface. I do double entry in these systems. • Have some connection between Cobblestone and New World, i.e., to generate a Purchase Order once a contract is fully executed. • More character space for item descriptions. We are told specific details help Finance and the department in the long run when reviewing past purchases. • I hope to see a good tracking system that will allow us to track payments from applicants, invoices billed to that deposit amount collected and all changes to that applicant account, so we know how much balance is left from the original deposit. • I think we need more licenses for the Cobblestone software so staff have more access and can better monitor contracts/insurance. • Using Cobblestone to produce a draft of a contract for review. • It would be great if we could improve the way we process invoices. • Clarify purchasing processes and policies. Provide ongoing training on the New World platform. Define the baseline "view" into the system to base budgeting and planning processes. • A centralized procurement section to consistently apply policies and procedures city-wide. • Expand the use of CAL-cards to those responsible for ordering office supplies. • The City's I&T Department elected not to move forward with the contract management module within New World and went with Cobblestone. While Cobblestone provides value, an apparent disconnect with the City's financial system remained. With the City's ERP exploration project, I would recommend a more integrated solution/process. • Connect the two systems to communicate with each other and share information. Also, utilize Cobblestone to its fullest capabilities, to help in streamlining the entire procurement process. 313 Procurement Operational Review | 46 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY APPENDIX C: VENDOR SURVEY RESULTS A survey was sent to select City vendors. Vendors who had submitted a bid to the City in the last three years were included in the distribution list. Submissions were open between November 3, 2021 and November 15, 2021. Out of 63 vendors who were invited to take the survey, 12 individuals submitted either full or partial responses (a suboptimal participation rate of 19%). 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 Less than 1 year 1 to 3 years 4 to 6 years 7 to 9 years More than 10 years Vendor History Count of respondents 012345678 Sole Proprieter Project Manager Administrative Support Vendor Role Count of respondents 319 Procurement Operational Review | 55 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY 1. General Categories of Purchases City purchase categories generally consist of the following categories, for which different procurement methods may apply (see Section 4, Procurement Methods, page 11): a. Goods. The purchase of goods consists of materials, equipment and supplies needed by any department. b. Services. City staff may require contracts for services, which fall into two categories: i. General Services. Services rendered such as custodial services, building/ equipment maintenance, and machinery/equipment rental, excluding contracts for public works projects or professional services. ii. Professional Services. Services provided by a person or firm engaged in a profession based on highly specialized and/or technical knowledge or skill, such as the professions of accountant, attorney, artist, architect, landscape architect, construction manager, engineer, environmental consultant, dentist, physician, training or educational consultant, or land surveyor, and whose services are considered distinct and unique to such a degree that bidding of such services may not be feasible, if appropriately justified and documented (see Subsection 4.9, Exemptions from Competitive Bidding, page 20). c. Public Works Projects. Public works pertain to the construction, alteration, repair, or improvement of any public structure, building, road, or other public improvement of any kind, including demolitions, and the construction and installation of drainage systems, lighting and signaling systems, sewer and water systems, and park and recreational facilities. Maintenance required to preserve a public improvement is not considered a public work. 2. Authority to Award Contracts The following section outlines the various contract award authorities established under the decentralized Purchasing System. a. Award Authority. Contract award authority is established by dollar threshold for each of the following entities: i. City Council. Purchases or contracts for goods and services of $100,000 or more, and public works contracts exceeding $35,000, must be awarded by the City Council. ii. City Administrator. Purchases or contracts up to $99,999 may be awarded by the City Administrator, with the exception of public works contracts exceeding $35,000. iii. Department Heads. As authorized by the City Administrator, department heads may make purchases and enter into contracts for goods and services up to $49,999, and for public works construction contracts up to $34,999. iv. Staff. Purchases up to $2,999 may be made at the staff level as designated by department directors. b. Authority to Legally Bind City. Unless specifically authorized as established in this section or elsewhere in City policy, staff other than the City Administrator and department heads cannot enter into contractual arrangements to purchase goods or services or otherwise legally bind the City for such purchases. 4 City of Gilroy. 2020. “Purchasing System Authorities and Responsibilities.” https://www.cityofgilroy.org/DocumentCenter/View/10774/Gilroy-Purchasing-Policy-. 328 Procurement Operational Review | 56 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY c. Award Authority Determined by One Transaction. For the purpose of determining the appropriate award authority, contract amounts are defined by what constitutes a single or one transaction. This rule also applies to competitive bidding (the estimate of dollar value of the transaction dictates the level of bidding required). i. One-Time Purchases. Each discrete, one-time purchase is a single transaction. ii. Blanket Purchase Orders. The contract term of a blanket purchase order is generally considered a single transaction, subject to total contract length requirements established in a competitive bidding process. See also Subsection 3.7.6.b on page 9. Examples: A blanket order in the amount of $10,000 that is issued for vehicle parts for a one-year period is a single transaction. Subsequent annual renewals of the blanket order are considered separate, single transactions. A five-year blanket order for on-call maintenance work in the amount of $25,000 each year (for a total of $125,000) requires Council approval. iii. Contract Amendments. Dollar increases to existing contracts require the sum of the original contract to be added to the amount of the amendment to determine the single transaction value. iv. Example: The City Administrator awards a contract for $75,000 and a $30,000 amendment is required. The resulting transaction is $105,000, now requiring Council approval. 3. Responsibilities of Purchasing Division a. Purchasing Function. As established in Section 2.43(c) of the City Code, the Purchasing Division is responsible for: i. Purchasing materials, supplies, and equipment (goods) and services for use by all departments when appropriate. ii. Preparing standard specifications for goods and services wherever possible. iii. Maintaining a purchase order system and issuing purchase orders as required. iv. Verifying that all bids and proposals are in accordance with policy requirements. v. Establishing and operating a system of stores for the bulk purchase of commonly used items. vi. Selling surplus personal property of the City, subject to the determinations and approval of department heads, the City Administrator and the City Council. 4. Responsibilities of City Staff a. Responsibilities of All Employees. As keepers of the public trust, all City employees are required to discharge their duties fairly, impartially and with the highest degree of integrity. In support of these concepts as they apply to the purchase of goods and services, City staff shall: i. Clearly identify procurement needs and the availability of funding. ii. Work with the purchasing coordinator to develop suitable competitive specifications. iii. Participate in the evaluation of bids and proposals as required. iv. Inspect goods delivered and services performed to determine conformity with established requirements and contractual obligations. v. Authorize payment for conforming goods and services. vi. Notify the purchasing coordinator of non-conforming goods or services. 329 Procurement Operational Review | 57 FOR THE INTERNAL USE OF THE CITY OF CUPERTINO ONLY vii. Document tangible or intangible value to the city when requisitioning goods or services without competition. viii. Recognize that fair and open competition results in better value to the city. ix. Understand and be accountable for the policies and procedures established for purchasing goods and services. b. Purchasing Requisition Required. Goods and services purchases that will require a contract, purchase order, or blanket purchase order, including public works construction, must be initiated with a properly documented and approved purchase requisition which includes: i. Concise description of the purchase which adequately communicates need. ii. Actual or estimated dollar amount. iii. Valid charge/project and object number. iv. Verification of available funding or identification that funding is needed. v. Price quotes with recommended vendor selection and appropriate award justification. vi. Bid exemption documentation as required. 330 CITY OF CUPERTINO Agenda Item 22-10518 Agenda Date: 2/24/2022 Agenda #: 7. Subject: Budget Format Review Budget Format Review CITY OF CUPERTINO Printed on 2/18/2022Page 1 of 1 powered by Legistar™332 CITY OF CUPERTINO Agenda Item 22-10519 Agenda Date: 2/24/2022 Agenda #: 8. Subject: Treasurer’s Report Definition and Process Treasurer’s Report Definition and Process CITY OF CUPERTINO Printed on 2/18/2022Page 1 of 1 powered by Legistar™333 result in the monthly treasurer’s report (report and accounting of all receipts, disbursements, and fund balances) to be submitted to the Audit Committee and City Council on a monthly basis. These monthly reports would be submitted to the Audit Committee in the month following the reporting period and, if accepted, be submitted to City Council on the 2nd regular meeting following. For example, the March 2022 monthly report would go to Audit Committee on April 25, 2022, and City Council on May 17, 2022. As such, and further in accordance with Section 2.88.100 of the Cupertino Municipal Code, the City’s quarterly treasurer’s investment report would no longer be submitted to the Audit Committee, but rather, would be submitted directly to City Council and in accordance with California Government Code Section 53646(b)(1). Sustainability Impact There is no sustainability impact. Fiscal Impact There is no fiscal impact. Prepared by: Zach Korach, Finance Manager Reviewed by: Kristina Alfaro, Director of Administrative Services Approved for Submission by: Jim Throop, City Manager Attachments: None. 335 CITY OF CUPERTINO Agenda Item 22-10520 Agenda Date: 2/24/2022 Agenda #: 9. Subject: External/Internal Audit Process and Timing External/Internal Audit Process and Timing CITY OF CUPERTINO Printed on 2/18/2022Page 1 of 1 powered by Legistar™336 CITY OF CUPERTINO Agenda Item 22-10521 Agenda Date: 2/24/2022 Agenda #: 10. Subject: Staff report out on City Council Workshop on Commissions and Committees Workshop Staff report out on City Council Workshop on Commissions and Committees Workshop CITY OF CUPERTINO Printed on 2/18/2022Page 1 of 1 powered by Legistar™345