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AC 07-26-2021 Searchable PacketCITY OF CUPERTINO AUDIT COMMITTEE AGENDA This will be a teleconference meeting without a physical location. Monday, July 26, 2021 4:00 PM TELECONFERENCE / PUBLIC PARTICIPATION INFORMATION TO HELP STOP THE SPREAD OF COVID-19 In accordance with Governor Newsom’s Executive Order No-29-20, 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 8:00 a.m. on Monday, July 26 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: You are invited to a Zoom webinar. When: Jul 26, 2021 04:00 PM Pacific Time (US and Canada) Topic: Cupertino Audit Committee Teleconference Meeting - July 26, 2021 (Meeting Begins Page 1 1 Audit Committee Agenda July 26, 2021 at 4:00 p.m.) Register in advance for this webinar: https://cityofcupertino.zoom.us/webinar/register/WN_G1DyaOLkSIidV1FO5-71IA Or an H.323/SIP room system: H.323: 162.255.37.11 (US West) 162.255.36.11 (US East) 213.19.144.110 (Amsterdam Netherlands) 213.244.140.110 (Germany) 103.122.166.55 (Australia Sydney) 103.122.167.55 (Australia Melbourne) 69.174.57.160 (Canada Toronto) 65.39.152.160 (Canada Vancouver) Meeting ID: 934 3281 2123 SIP: 93432812123@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 48 hours in advance of the meeting to arrange for assistance. In addition, upon request, in Page 2 2 Audit Committee Agenda July 26, 2021 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. ROLL CALL APPROVAL OF MINUTES 1.Subject: Approval of minutes from Special Meeting on May 24, 2021 Recommended Action: Approve minutes from Special Meeting on May 24, 2021 A - Draft Minutes 05.24.21 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: Receive Multi Factor Authorization Training from City's Infrastructure Division Recommended Action: Receive Multi Factor Authorization Training from City's Infrastructure Division 3.Subject: Quarterly Review of Treasurer's Report as of June 30, 2021 Recommended Action: Receive Quarterly Review of Treasurer's Report as of June 30, 2021 B1 - Treasurer's Staff Report B2 - Treasurer's Report 6.30.2021 B3 - WF Custodial Statement 6.30.2021 B4 - WF Workers' Compensation Statement 6.30.2021 B5 - WF Operating Statement 6.30.2021 B6 - LAIF Statement 6.30.2021 4.Subject: OPEB & Pension Section 115 Trust Performance Report Recommended Action: Receive OPEB & Pension Section 115 Trust Performance Report C - US Bank Performance Report 6.30.21 5.Subject: Interim Report on CAFR and AUP by Independent Auditor Recommended Action: Receive Interim Report on CAFR and AUP by Independent Auditor Page 3 3 Audit Committee Agenda July 26, 2021 6.Subject: HdL Contract and Refund Error Recommended Action: Receive HdL Contract and Refund Error E - HdL Contract and Refund Error Staff Report 7.Subject: Audit Committee Meeting Frequency Recommended Action: Consider Approving Changes to the Audit Committee Meeting Frequency. F - Audit Committee Meeting Frequency 9.Subject: Budget Format Review Recommended Action: Receive Budget Format Review G1 - Budget Format Review Update G2 - Sub-Committee Initial Comments on Budget Format Review G3 - Sub-Committee Formal Memorandum on Budget Format Review G4 - Budget Format Review Update PPT G5 - Questions Regarding the Current Budget Report 10.Subject: Follow-up on Previous FY Management Letter Items and Management Response Recommended Action: Receive Follow-up on Previous FY Management Letter Items and Management Response 11.Subject: Embezzlement Update Recommended Action: Receive Embezzlement Update OLD BUSINESS STAFF AND COMMITTEE REPORTS 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 10300 Torre Avenue during normal business hours. Page 4 4 Audit Committee Agenda July 26, 2021 IMPORTANT NOTICE: Please be advised that pursuant to Cupertino Municipal Code 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. You are hereby admonished not to include any personal or private information in written communications to the City that you do not wish to make public; doing so shall constitute a waiver of any privacy rights you may have on the information provided to the City. 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 21-9587 Agenda Date: 7/26/2021 Agenda #: 1. Subject: Approval of minutes from Special Meeting on May 24, 2021 Approve minutes from Special Meeting on May 24, 2021 CITY OF CUPERTINO Printed on 7/23/2021Page 1 of 1 powered by Legistar™6 Page 1 City of Cupertino Audit Committee Special Meeting Minutes May 24, 2021 1. CALL TO ORDER At 4:00 p.m., Chair Daisy Liang called the special meeting to order. This was a teleconference meeting with no physical location. 2. ROLL CALL Committee Members Present: Vice Mayor Chao, Councilmember Moore, Vice Chair Daisy Liang, Committee Member Angela Chen, Committee Member Song (arrived 10 minutes late) City Staff Present: Deborah Feng, Kristina Alfaro, Zach Korach Absent: None Guests: Mark Steranka, Emily Hayes, Tammy Lohr (Moss Adams), and Kathy Lai and Matt Geerdes (Crowe), 3. APPROVAL OF MINUTES Councilmember Moore did not recall being nominated for Vice Chair by Vice Mayor Chao. This was confirmed by Vice Mayor Chao. Councilmember Moore moved to approve the April 28, 2021 minutes and Vice Chair Chen seconded. The motion carried unanimously with Councilmember abstaining and Committee Member Song absent. ORAL COMMUNICATIONS Peggy Griffin noted concerns regarding adequate checks and balances and red flags as noted below: 1. “In February 2021, all City Council candidates mistakenly were sent a full refund of their $2,860 candidate statement fee! That’s a $14,300 mistake. It was the candidates that caught it, not the City! 2. The actual refund of $284 these candidates were supposed to get has yet to be paid to them! 3. The recent disclosure that a contractor was permitted to submit invoices that exceeded the contracted amount AND that the City paid it! (Reference City Council Meeting 05- 18-2021, Agenda Item #15) 4. Very old invoices yet to be paid! (Reference City Council Meeting 05-18-2021, Agenda Item #15 where Mayor Paul points this out.) 5. Accounts Payable statements not appearing on the City Council Agenda regularly to be approved. There are long dry spells followed by bursts which make it very difficult for Council and the public to review them all. 6. Allowing contractors to submit invoices quarterly rather than monthly increases the risk of overruns.” 7 Page 2 Vice Mayor Chao moved to add the items mentioned by Peggy Griffin to the next regular meeting agenda. Councilmember Moore seconded. The motion carried unanimously. 5 - NEW BUSINESS 5A – Internal Audit Report – 60 minutes Mark Steranka provided an overview of the enterprise risk assessment report. He discussed the recommended projects to be conducted in FY21 and FY22 including procurement, capital program effectiveness, policy inventory, and fraud waste and abuse program (FWA). Councilmember Moore inquired if FWA could be moved up in the schedule and expressed interest in the vendor management internal controls piece. Mark Steranka noted that the recommended projects included in the report can be selected “a la carte.” Councilmember Moore asked if City’s budgets are ever audited. Mark noted that the external auditor audits the financial statements which includes a review and comparison presentation of the budget to actuals. On the internal audit side, they do audit budgets, but it’s more common at the program/activity level. Councilmember Moore asked what the review of policies would look like. Steranka noted that a review would look for gaps in policies and ensuring they’re up to date. Vice Mayor Chao asked about the timing and schedule of the recommended projects and about the policy inventory and FWA and its ongoing costs. Steranka confirmed the schedule and the potential for ongoing supporting costs at the discretion of the Committee and Council. Vice Mayor Chao recommended these items require Council approval. Korach confirmed the internal audit plan will go to Council for approval. Vice Mayor Chao also asked about the scope of the capital project effectiveness project. Steranka explained the project. Committee Member Song asked about the embezzlement and the recent council candidate refund error and if they were related. She asked if this is a segregation of duties issue and what the process is for payments. Steranka noted that they would expect to review internal controls across the City. Korach explained that the embezzlement and the refund error were unrelated and that the refund error was not a matter of fraud, but rather human error. Korach asserted that there are controls in place and pursuant to Council approval of the internal audit plan, the City will be reviewing the procurement process and related controls in depth. Councilmember Moore inquired about the policies around procurement, budgeting, and what triggers Council approval for contracts. Furthermore, Councilmember Moore expressed interest 8 Page 3 in additional internal audit plan items (Senior Center Operational Review, vendor management and internal controls, grant management review, employee performance management review, and AR control review). Steranka noted that the recommended list of projects for FY 21-22 are priority projects and all other recommended projects in the report would be recommended subsequently. Vice Chair Chen recommended tying the recommended projects to the risk areas identified in the enterprise risk assessment report. Chen also inquired about the funding source for these projects. City Manager Feng noted that the necessary amounts of funding are included in the budget and anything above and beyond would require Council approval. Councilmember Moore noted that in FY13, the Adopted Budget added a contingency budget and expressed concern over the budget’s growth in years since. City Manager Feng noted that responses to her questions would be addressed in advance of the next budget study session. Vice Mayor Chao expressed interest in the employee performance management project and senior center operational review as well as a possible sports center operational review. Lastly, Vice Mayor Chao asked about what internal audit is going to be doing in FY 21-22. Steranka reiterated that the ten projects in the report are important projects, but the four projects currently recommended represent the first round of projects to be completed. Additional projects will be candidates for the subsequent fiscal year. Councilmember Moore asked about the recommended action and if the Committee could add projects. Korach noted that they could, but that adding projects could impact the timing of completion of the four projects currently being recommended. Vice Mayor Chao asked why vendor management was not included on the list of recommended projects. Steranka noted that it would likely be a project slated for FY 22-23. Vice Mayor Chao noted that a fraud waste and abuse program may not be necessary and that vendor management be added. Councilmember Moore recommended fraud waste and abuse program not be removed. Vice Mayor Chao expressed that the current process is working. Committee Member Song expressed concern about the cost. Steranka recommended to represent the Committee’s interest to add additional projects to Council. 5C – Interim External Audit Procedures – Crowe – 10 minutes Korach recommended this item be reordered in consideration of the City’s guests. Vice Mayor Chao motioned to reorder and Chen seconded. The motion carried unanimously. Kathy Lai and Geerdes provided a presentation on the FY 20-21 external audit plan. 5B - Budget Format Review – Vice Chair Chen moved to continue to next meeting and Committee Member Song seconded. The motion carried unanimously with Vice Mayor Chao and Councilmember Moore absent. 9 Page 4 5D - FY 2019-20 Management Letter Response – Vice Chair Chen moved to continue to next meeting and Committee Member Song seconded. The motion carried unanimously with Vice Mayor Chao and Councilmember Moore absent. 5E - Embezzlement Debrief – Vice Chair Chen moved to continue to next meeting and Committee Member Song seconded. The motion carried unanimously with Vice Mayor Chao and Councilmember Moore absent. 6 - OLD BUSINESS 7 – STAFF AND COMMITTEE REPORTS 8 - ADJOURNMENT The meeting adjourned at 5:41 p.m. 10 CITY OF CUPERTINO Agenda Item 21-9588 Agenda Date: 7/26/2021 Agenda #: 2. Subject: Receive Multi Factor Authorization Training from City's Infrastructure Division Receive Multi Factor Authorization Training from City's Infrastructure Division CITY OF CUPERTINO Printed on 7/23/2021Page 1 of 1 powered by Legistar™11 CITY OF CUPERTINO Agenda Item 21-9597 Agenda Date: 7/26/2021 Agenda #: 3. Subject: Quarterly Review of Treasurer's Report as of June 30, 2021 Receive Quarterly Review of Treasurer's Report as of June 30, 2021 CITY OF CUPERTINO Printed on 7/23/2021Page 1 of 1 powered by Legistar™12 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: July 26, 2021 Subject Treasurer’s Investment Report for period ending June 30, 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 June 30, 2021, the City transferred $20,000,000 from its operating account and initiated $18,531,033 in corporate, and treasury purchases. The City also made treasury dispositions of $8,126,597. Ending book and market value for the portfolio was $138,285,168 and $140,772,864, 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 $ 19,412 Wells Fargo – Regular Checking $ 19,281,316 LAIF State Pool $ 21,001,116 Total Cash & Cash Equivalents $ 40,301,844 Total Investments $140,772,864 13 TOTAL $181,074,708 Below are some historical quarterly comparisons for the City’s portfolio:  Total cash and investment balance increased approximately $5.5 million over previous quarter to $181.1 million  Average maturity decreased from 2.84 years to 2.75 years  Average purchase yield decreased from 1.51% to 1.24%  Average market yield remained at 0.47%  Duration decreased from 2.55 to 2.49 Yield comparisons for the 1Y Treasury, 2Y Treasury, LAIF, and City average are presented below: 14 Historical revenues, expenditures, and liquidity ratios are presented below: Using three-year historical trend data, the City estimates revenues of $19.7 million and expenditures of $22.5 million, resulting in an ending cash and cash equivalent balance of $37.5 million for the period ending September 30, 2021. 15 As the City’s portfolio becomes less liquid over time, the ratio of cash and cash equivalents to revenues and expenditures will decrease. 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 yet to be established or desired, 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. City staff have recognized the increasing liquidity the start of FY 2020-21 and as a result, transferred $20,000,000 from its operating account to the City’s investment portfolio as of the quarter ending June 30, 2021. The COVID-19 pandemic has had a unique impact upon the City’s revenues and expenditures. Most notably, the City’s sales tax revenues have increased tremendously due to reductions in brick-and-mortar retail, causing a spike in on-line sales. This, coupled with increased demand for electronics throughout the telework environment, has also positively impacted the City’s county pool allocation share. While these increases are considered to be one- time experiences, the City’s cash flow, particularly in its operating account, is positioned to make a sizable transfer to the City’s investment portfolio. Staff are anticipating transferring $15 million to the investment portfolio during the upcoming quarter. Using three-year historical trend data for each of the City’s revenue and expenditures line -items and applied to the FY 2020-21 Adopted Budget, the City estimates the following cash flow forecast for FY 2020-21: 16 The purpose of this cash flow and liquidity forecast is to illustrate the timing of the City’s revenues and expenditures throughout a fiscal year using historical trend data. The first quarter of the fiscal year experiences expenditures exceeding revenues which is reasonable since the City begins receiving its property tax distributions in November and again in April of the respective fiscal year. The month of June tends to experience higher activities, particularly expenditures, due to the year-end close/accrual process. From one fiscal year to the next, the City typically 17 incurs one-time special project or capital expenditure costs and the timing of these costs is more difficult to pinpoint to a particular month. From a cash flow analysis perspective, the Adopted and Amended Budgets are efficient planning tools in determining cash flow needs for a single fiscal year. If a budget is adopte d at a position in which revenues and expenditures are balanced, then it’s reasonable to conclude cash flow is unlikely to be of a concern. Beyond one fiscal year, a City requires a multi-year forward-looking forecast using historical as well as prospective assumptions. This forecasting model is incorporated and presented to the City’s Fiscal Strategic Planning Committee as well as the City Council as part of the City’s Adopted Budget process. Investment Trust Portfolio A Section 115 Trust is a tax-exempt investment tool that allows local governments to pre-fund pension and retiree health costs. Once contributions are placed into the trust, assets from the trust can only be used for retirement plan purposes. Withdrawals may be made to either reimburse the City for retirement system contributions or to directly pay CalPERS. The benefits of a Section 115 Trust include the following:  Local control over assets: The City controls the contributions, withdrawals, investment strategy, and risk level of assets in the Trust.  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 $4.0 million for a total balance of $18 million as of June 30, 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. 18 SECTION 1 Economic Update SECTION 2 Account Profile SECTION 3 Portfolio Holdings SECTION 4 Transactions Table of Contents As of June 30, 2021 1 21 Economic Update ▪ ▪ ▪ The US economy continues to recover and while some pockets of the economy remain dislocated, real gross domestic product (GDP)is approaching pre-pandemiclevels. The recovery has been fueled by robust fiscal spending, accommodative monetary policy, and a swift vaccine rollout. These factors are beginning to moderate but should continue to provide tailwinds for the economy in the coming quarters. Vaccinations have slowed down, and infection rates in the US have recently ticked up but remain well below their peak. Some pandemic-related fiscal relief is starting to phase out,but President Biden and a group of bipartisan senators have agreed to an overall framework for a roughly $1 trillion infrastructure plan (including about $579 billion in new federal spending above previously approved levels). Though the details still need to be hashed out and a deal would need full congressional approval, the negotiations signal that more fiscal stimulus is likely on the horizon. Meanwhile, the Federal Reserve continues to signal that it will look past any near- term uptick in inflation to facilitate continued improvement in the labor market. Estimates for US GDP growth remain strong. The current Bloomberg consensus estimate for 2021 and 2022 US GDP growth are 6.6% and 4.1%, respectively. The Federal Open Market Committee (FOMC) kept monetary policy unchanged at its June meeting. The fed funds target rate remains in the range of 0.0%to 0.25%, and the Fed continues to purchase $80 billion of Treasuries permonth, and $40 billion of agency mortgage-backed securities per month. The Fed has started to discuss the idea of reducing its asset purchases at some point,but that decision remains uncertain. FOMC members’updated economicprojections also suggest thatthe Fed may start to raise interest rates in 2023,versus the previous estimate of 2024,as the economy may be on track to reach their employment and inflation goals at a faster than expected pace. Overall, monetary policy remains highly accommodative fornow,but the Fed seems to be inching toward apath of policy normalization.We anticipate the Fed will remain on the sidelines over the near-term,but we believe the probability that the Fed will begin tapering its asset purchases during the first half of next year has increased. The yield curve flattened in June.We believe multiple factors influenced Treasury rates in the month, including market technicals, dollar strengthening, uneven global vaccination rates, and a more modest forecast for U.S. infrastructure spending than initially expected. Nevertheless,we believe longer-term rates have room to move higher this year and we believe the Treasury yield curve is poised to steepen in the second half of the year. 3 23 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 June 30, 2021 15 35 Compliance As of June 30, 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 37 Portfolio Characteristics City of Cupertino 6/30/2021 3/31/2021 Benchmark*Portfolio Portfolio Average Maturity (yrs)2.66 2.75 2.84 Average Modified Duration 2.59 2.49 2.55 Average Purchase Yield n/a 1.24%1.51% Average Market Yield 0.41%0.47%0.47% Average Quality**NR AA+/Aa1 AA/Aa1 Total Market Value 140,772,864 120,564,038 *ICE BAML 1-5 Year 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 June 30, 2021 18 38 Issue Name Investment Type % Portfolio Government of United States US Treasury 23.59% Federal National Mortgage Association Agency 11.27% Federal Home Loan Bank Agency 10.29% Federal Home Loan Mortgage Corp Agency 8.37% Wells Fargo 100% Treasury MMKT Fund Money Market Fund 8.14% Federal Home Loan Mortgage Corp CMO 2.26% Bank of Nova Scotia Houston Negotiable CD 2.13% Inter-American Dev Bank Supranational 1.75% International Finance Corp Supranational 1.75% JP Morgan Chase & Co Corporate 1.73% Intl Bank Recon and Development Supranational 1.69% Bank of America Corp Corporate 1.65% Honda ABS ABS 1.60% Deere & Company Corporate 1.48% John Deere ABS ABS 1.38% Nissan ABS ABS 1.34% Amazon.com Inc Corporate 1.33% Air Products & Chemicals Corporate 1.30% Toyota ABS ABS 1.26% Toyota Motor Corp Corporate 1.23% HSBC Holdings PLC Corporate 1.14% Royal Bank of Canada Corporate 1.14% Toronto Dominion Holdings Corporate 1.13% Charles Schwab Corp/The Corporate 1.11% Honda Motor Corporation Corporate 1.00% US Bancorp Corporate 0.94% Verizon Owner Trust ABS 0.94% PNC Financial Services Group Corporate 0.88% Caterpillar Inc Corporate 0.82% Bank of New York Corporate 0.76% Wal-Mart Stores Corporate 0.75% Apple Inc Corporate 0.74% Paccar Financial Corporate 0.61% State of California Municipal Bonds 0.57% Hyundai Auto Lease Securitization ABS 0.56% Mercedes-Benz Auto Lease Trust ABS 0.51% Hyundai Auot Receivables ABS 0.37% Toronto Dominion Holdings Negotiable CD 0.25% Issuers City of Cupertino –Account #10659 As of June 30, 2021 22 42 Issue Name Investment Type % Portfolio United Health Group Inc Corporate 0.24% TOTAL 100.00% Issuers City of Cupertino –Account #10659 As of June 30, 2021 23 43 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 43815HAC1 Honda Auto Receivables Trust 2018-3 A3 2.950% Due 08/22/2022 265,655.39 09/16/2019 1.45% 268,457.23 266,748.34 100.52 0.30% 267,033.61 217.69 0.19% 285.27 Aaa / NR AAA 1.15 0.20 89238TAD5 Toyota Auto Receivables Trust 2018-B A3 2.960% Due 09/15/2022 234,395.79 09/10/2019 2.20% 237,133.46 235,494.35 100.40 0.26% 235,327.75 308.36 0.17% (166.60) Aaa / AAA NR 1.21 0.15 58770FAC6 Mercedes Benz Auto Lease Trust 2020-A A3 1.840% Due 12/15/2022 375,000.00 01/21/2020 1.85% 374,950.58 374,974.98 100.73 0.20% 377,746.13 306.67 0.27% 2,771.15 Aaa / AAA NR 1.46 0.45 65479GAD1 Nissan Auto Receivables Trust 2018-B A3 3.060% Due 03/15/2023 482,433.87 09/16/2019 1.65% 489,255.78 484,207.10 100.79 0.37% 486,259.42 656.11 0.35% 2,052.32 Aaa / AAA NR 1.71 0.29 47789JAD8 John Deere Owner Trust 2019-A A3 2.910% Due 07/17/2023 677,470.57 Various 1.94% 690,774.25 682,574.72 101.15 0.18% 685,289.27 876.19 0.49% 2,714.55 Aaa / NR AAA 2.05 0.42 43815NAC8 Honda Auto Receivables Trust 2019-3 A3 1.780% Due 08/15/2023 925,885.17 Various 1.93% 924,328.72 925,235.26 100.92 0.23% 934,409.80 732.48 0.66% 9,174.54 Aaa / AAA NR 2.13 0.59 58769EAC2 Mercedes-Benz Auto Lease Trust 2020-B A3 0.400% Due 11/15/2023 345,000.00 09/15/2020 0.40% 344,982.51 344,988.33 100.18 0.25% 345,611.69 61.33 0.25% 623.36 NR / AAA AAA 2.38 1.16 477870AC3 John Deere Owner Trust 2019-B A3 2.210% Due 12/15/2023 702,420.80 08/27/2019 1.79% 708,923.68 706,138.51 101.30 0.09% 711,579.66 689.93 0.51% 5,441.15 Aaa / NR AAA 2.46 0.61 92348AAA3 Verizon Owner Trust 2019-C A1A 1.940% Due 04/22/2024 515,000.00 10/01/2019 1.95% 514,960.29 514,975.43 101.41 0.22% 522,274.38 305.28 0.37% 7,298.95 NR / AAA AAA 2.81 0.82 44891VAC5 Hyundai Auto Lease Trust 2021-B A3 0.330% Due 06/17/2024 790,000.00 06/08/2021 0.34% 789,881.50 789,883.67 99.82 0.43% 788,559.83 108.63 0.56% (1,323.84) Aaa / AAA NR 2.97 1.89 65479JAD5 Nissan Auto Receivables Owner 2019-C A3 1.930% Due 07/15/2024 1,375,000.00 Various 1.70% 1,381,821.10 1,379,903.83 101.24 0.29% 1,392,100.88 1,179.44 0.99% 12,197.05 Aaa / AAA NR 3.04 0.76 43813DAC2 Honda Auto Receivables 2020-2 A3 0.820% Due 07/15/2024 175,000.00 05/18/2020 0.83% 174,986.23 174,989.88 100.64 0.27% 176,122.63 63.78 0.13% 1,132.75 Aaa / AAA NR 3.04 1.15 47789KAC7 John Deere Owner Trust 2020-A A3 1.100% Due 08/15/2024 285,000.00 03/04/2020 1.11% 284,982.59 284,987.72 100.77 0.34% 287,193.65 139.33 0.20% 2,205.93 Aaa / NR AAA 3.13 1.01 43813KAC6 Honda Auto Receivables Trust 2020-3 A3 0.370% Due 10/18/2024 575,000.00 09/22/2020 0.38% 574,915.53 574,935.82 100.13 0.28% 575,739.45 76.83 0.41% 803.63 NR / AAA AAA 3.30 1.43 47787NAC3 John Deere Owner Trust 2020-B A3 0.510% Due 11/15/2024 260,000.00 07/14/2020 0.52% 259,960.38 259,971.09 100.25 0.29% 260,645.06 58.93 0.19% 673.97 Aaa / NR AAA 3.38 1.13 89236XAC0 Toyota Auto Receivables 2020-D A3 0.350% Due 01/15/2025 455,000.00 10/06/2020 0.36% 454,915.23 454,929.46 100.09 0.28% 455,413.14 70.78 0.32% 483.68 NR / AAA AAA 3.55 1.32 92290BAA9 Verizon Owner Trust 2020-B A 0.470% Due 02/20/2025 800,000.00 08/04/2020 0.48% 799,832.00 799,864.83 100.27 0.30% 802,151.20 114.89 0.57% 2,286.37 Aaa / NR AAA 3.65 1.58 As of June 30, 2021 27 47 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% 294,994.60 294,995.21 99.93 0.32% 294,791.73 22.13 0.21% (203.48) Aaa / NR AAA 3.81 1.49 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 1,089,823.28 99.91 0.32% 1,089,058.24 125.96 0.77% (765.04) Aaa / NR AAA 3.88 1.58 44933LAC7 Hyundai Auto Receivables Trust 2021-A A3 0.380% Due 09/15/2025 515,000.00 04/20/2021 0.38% 514,945.82 514,948.94 99.97 0.40% 514,838.81 86.98 0.37% (110.13) NR / AAA AAA 4.21 2.11 TOTAL ABS 11,138,261.59 1.12% 11,174,799.18 11,154,570.75 0.28% 11,202,146.33 6,201.72 7.96% 47,575.58 Aaa / AAA Aaa 2.88 1.05 Agency 313378JP7 FHLB Note 2.375% Due 09/10/2021 1,300,000.00 09/06/2019 1.57% 1,320,501.00 1,301,988.48 100.44 0.10% 1,305,742.10 9,519.79 0.93% 3,753.62 Aaa / AA+ AAA 0.20 0.19 313376C94 FHLB Note 2.625% Due 12/10/2021 1,325,000.00 01/19/2017 1.90% 1,369,559.75 1,329,041.81 101.13 0.09% 1,339,947.33 2,028.91 0.95% 10,905.52 Aaa / AA+ AAA 0.45 0.44 3137EADB2 FHLMC Note 2.375% Due 01/13/2022 1,500,000.00 06/21/2019 1.84% 1,520,100.00 1,504,217.99 101.23 0.08% 1,518,444.00 16,625.00 1.09% 14,226.01 Aaa / AA+ AAA 0.54 0.53 313380GJ0 FHLB Note 2.000% Due 09/09/2022 2,000,000.00 10/10/2019 1.55% 2,025,400.00 2,010,384.40 102.25 0.11% 2,045,000.00 12,444.44 1.46% 34,615.60 Aaa / AA+ NR 1.19 1.18 3137EAER6 FHLMC Note 0.375% Due 05/05/2023 1,500,000.00 05/05/2020 0.39% 1,499,370.00 1,499,612.09 100.25 0.24% 1,503,793.50 875.00 1.07% 4,181.41 Aaa / AA+ AAA 1.85 1.84 3137EAEN5 FHLMC Note 2.750% Due 06/19/2023 800,000.00 06/21/2019 1.83% 828,320.00 813,965.49 104.91 0.25% 839,253.60 733.33 0.60% 25,288.11 Aaa / AA+ AAA 1.97 1.93 3130A3DL5 FHLB Note 2.375% Due 09/08/2023 2,000,000.00 09/06/2019 1.52% 2,066,320.00 2,036,294.30 104.52 0.30% 2,090,398.00 14,909.72 1.50% 54,103.70 Aaa / AA+ NR 2.19 2.13 3135G0U43 FNMA Note 2.875% Due 09/12/2023 1,500,000.00 06/21/2019 1.89% 1,559,805.00 1,531,163.80 105.69 0.28% 1,585,297.50 13,057.29 1.14% 54,133.70 Aaa / AA+ AAA 2.20 2.13 3137EAFA2 FHLMC Note 0.250% Due 12/04/2023 1,755,000.00 12/02/2020 0.28% 1,753,262.55 1,753,594.17 99.87 0.30% 1,752,706.22 329.06 1.25% (887.95) Aaa / AA+ AAA 2.43 2.42 3130A0F70 FHLB Note 3.375% Due 12/08/2023 2,100,000.00 Various 1.74% 2,222,418.00 2,180,236.13 107.34 0.35% 2,254,232.40 4,528.13 1.60% 73,996.27 Aaa / AA+ AAA 2.44 2.36 3130A0XE5 FHLB Note 3.250% Due 03/08/2024 1,500,000.00 03/28/2019 2.27% 1,568,115.00 1,536,999.34 107.56 0.42% 1,613,371.50 15,302.08 1.16% 76,372.16 Aaa / AA+ NR 2.69 2.57 3130A1XJ2 FHLB Note 2.875% Due 06/14/2024 1,500,000.00 06/18/2019 1.96% 1,564,890.20 1,538,428.39 106.99 0.49% 1,604,857.51 2,036.46 1.14% 66,429.12 Aaa / AA+ NR 2.96 2.85 3135G0V75 FNMA Note 1.750% Due 07/02/2024 1,500,000.00 07/16/2019 1.96% 1,484,895.00 1,490,855.31 103.97 0.42% 1,559,575.50 13,052.08 1.12% 68,720.19 Aaa / AA+ AAA 3.01 2.91 As of June 30, 2021 28 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 3130A2UW4 FHLB Note 2.875% Due 09/13/2024 2,000,000.00 09/13/2019 1.79% 2,103,380.00 2,066,312.83 107.44 0.53% 2,148,800.00 17,250.00 1.54% 82,487.17 Aaa / AA+ AAA 3.21 3.06 3135G0W66 FNMA Note 1.625% Due 10/15/2024 1,975,000.00 Various 1.73% 1,965,802.75 1,968,774.78 103.59 0.52% 2,045,906.45 6,775.35 1.46% 77,131.67 Aaa / AA+ AAA 3.30 3.20 3135G0X24 FNMA Note 1.625% Due 01/07/2025 1,295,000.00 Various 1.37% 1,309,953.95 1,305,933.77 103.56 0.60% 1,341,136.97 10,171.14 0.96% 35,203.20 Aaa / AA+ AAA 3.53 3.40 3137EAEP0 FHLMC Note 1.500% Due 02/12/2025 2,365,000.00 02/13/2020 1.52% 2,363,178.95 2,363,680.86 103.21 0.60% 2,440,864.47 13,697.29 1.74% 77,183.61 Aaa / AA+ AAA 3.62 3.51 3135G03U5 FNMA Note 0.625% Due 04/22/2025 1,860,000.00 04/22/2020 0.67% 1,856,168.40 1,857,077.98 99.91 0.65% 1,858,374.36 2,228.13 1.32% 1,296.38 Aaa / AA+ AAA 3.81 3.76 3135G04Z3 FNMA Note 0.500% Due 06/17/2025 2,500,000.00 Various 0.50% 2,499,227.30 2,499,554.49 99.41 0.65% 2,485,280.00 486.11 1.77% (14,274.49) Aaa / AA+ AAA 3.97 3.92 3137EAEU9 FHLMC Note 0.375% Due 07/21/2025 1,250,000.00 07/21/2020 0.48% 1,243,775.00 1,244,945.60 98.63 0.72% 1,232,876.25 2,083.33 0.88% (12,069.35) Aaa / AA+ AAA 4.06 4.01 3135G05X7 FNMA Note 0.375% Due 08/25/2025 2,500,000.00 Various 0.48% 2,487,983.75 2,489,724.98 98.56 0.73% 2,463,940.00 3,281.25 1.75% (25,784.98) Aaa / AA+ AAA 4.16 4.10 3137EAEX3 FHLMC Note 0.375% Due 09/23/2025 2,500,000.00 Various 0.46% 2,489,362.80 2,490,801.35 98.47 0.74% 2,461,860.00 2,552.08 1.75% (28,941.35) Aaa / AA+ AAA 4.24 4.18 3135G06G3 FNMA Note 0.500% Due 11/07/2025 2,500,000.00 Various 0.56% 2,492,700.00 2,493,624.18 98.91 0.75% 2,472,822.50 1,875.00 1.76% (20,801.68) Aaa / AA+ AAA 4.36 4.29 TOTAL Agency 41,025,000.00 1.25% 41,594,489.40 41,307,212.52 0.46% 41,964,480.16 165,840.97 29.93% 657,267.64 Aaa / AA+ Aaa 2.88 2.81 CMO 3137B4WB8 FHLMC K033 A2 3.060% Due 07/25/2023 1,000,000.00 08/13/2019 2.02% 1,037,656.25 1,019,730.93 104.87 0.44% 1,048,685.00 510.00 0.75% 28,954.07 Aaa / NR NR 2.07 1.88 3137B5JM6 FHLMC K034 A2 3.531% Due 07/25/2023 1,000,000.00 09/26/2019 2.00% 1,053,867.19 1,029,157.12 105.81 0.46% 1,058,070.00 2,942.50 0.75% 28,912.88 NR / NR AAA 2.07 1.91 3137B7MZ9 FHLMC K036 A2 3.527% Due 10/25/2023 1,000,000.00 08/19/2019 1.92% 1,061,914.06 1,034,347.08 106.39 0.48% 1,063,885.00 587.83 0.76% 29,537.92 Aaa / NR AAA 2.32 2.11 TOTAL CMO 3,000,000.00 1.98% 3,153,437.50 3,083,235.13 0.46% 3,170,640.00 4,040.33 2.26% 87,404.87 Aaa / NR Aaa 2.15 1.97 Corporate 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 1,203,368.57 102.16 0.28% 1,225,868.40 12,495.00 0.88% 22,499.83 A2 / A A+ 1.08 0.98 As of June 30, 2021 29 49 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 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 1,502,416.86 103.36 0.38% 1,550,452.50 17,225.00 1.11% 48,035.64 A2 / A A 1.57 1.45 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 1,003,231.25 104.19 0.30% 1,041,874.00 8,944.44 0.75% 38,642.75 A2 / A A 1.68 1.64 89236TJD8 Toyota Motor Credit Corp Note 0.400% Due 04/06/2023 355,000.00 04/06/2021 0.44% 354,712.45 354,745.28 100.03 0.39% 355,089.11 323.44 0.25% 343.83 A1 / A+ A+ 1.77 1.76 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 1,006,008.53 105.80 0.32% 1,057,974.00 6,125.00 0.76% 51,965.47 A1 / A AA- 1.83 1.78 037833AK6 Apple Inc Note 2.400% Due 05/03/2023 1,000,000.00 03/11/2019 2.79% 984,840.00 993,272.25 103.75 0.36% 1,037,483.00 3,866.67 0.74% 44,210.75 Aa1 / AA+ NR 1.84 1.80 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 1,010,697.47 105.98 0.25% 1,059,756.00 472.22 0.75% 49,058.53 Aa2 / AA AA 1.99 1.86 69371RP59 Paccar Financial Corp Note 3.400% Due 08/09/2023 435,000.00 06/18/2019 2.56% 449,315.85 442,285.83 106.18 0.45% 461,862.56 5,833.83 0.33% 19,576.73 A1 / A+ NR 2.11 2.02 02665WCQ2 American Honda Finance Note 3.625% Due 10/10/2023 1,300,000.00 Various 2.77% 1,345,306.00 1,323,790.20 107.11 0.48% 1,392,463.80 10,603.13 1.00% 68,673.60 A3 / A- NR 2.28 2.19 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 1,029,351.66 99.90 0.49% 1,028,943.22 1,506.38 0.73% (408.44) A2 / A A 2.55 2.53 06051GHF9 Bank of America Corp Callable Note 1X 3/5/2023 3.550% Due 03/05/2024 1,600,000.00 Various 2.38% 1,635,071.00 1,623,463.74 105.06 0.52% 1,680,979.20 18,302.23 1.21% 57,515.46 A2 / A- AA- 2.68 1.63 404280BS7 HSBC Holdings PLC Callable Note 1X 5/18/2023 3.950% Due 05/18/2024 1,500,000.00 Various 2.22% 1,572,790.00 1,544,886.00 106.22 0.62% 1,593,253.50 7,077.09 1.14% 48,367.50 A3 / A- A+ 2.88 1.82 89114QCA4 Toronto Dominion Bank Note 2.650% Due 06/12/2024 1,500,000.00 09/11/2019 2.24% 1,527,255.00 1,516,928.28 105.86 0.64% 1,587,831.00 2,097.92 1.13% 70,902.72 Aa3 / A AA- 2.95 2.85 78013XZU5 Royal Bank of Canada Note 2.550% Due 07/16/2024 1,500,000.00 Various 1.98% 1,533,359.18 1,524,664.21 105.46 0.73% 1,581,948.00 17,531.26 1.14% 57,283.79 A2 / A AA 3.05 2.91 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 1,261,618.69 105.20 0.64% 1,315,027.50 12,583.33 0.94% 53,408.81 A1 / A+ A+ 3.08 2.87 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 1,732,638.01 107.62 0.63% 1,802,696.98 23,536.08 1.30% 70,058.97 A2 / A NR 3.09 2.69 69371RQ25 Paccar Financial Corp Note 2.150% Due 08/15/2024 370,000.00 08/08/2019 2.20% 369,182.30 369,489.33 104.45 0.71% 386,459.82 3,005.22 0.28% 16,970.49 A1 / A+ NR 3.13 3.01 14913Q3B3 Caterpillar Finl Service Note 2.150% Due 11/08/2024 1,100,000.00 01/28/2020 1.92% 1,111,517.00 1,108,096.24 104.89 0.67% 1,153,770.20 3,481.81 0.82% 45,673.96 A2 / A A 3.36 3.24 As of June 30, 2021 30 50 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 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 1,371,737.48 99.82 0.89% 1,367,479.20 940.73 0.97% (4,258.28) A2 / A- AA- 3.92 2.88 46647PCK0 JP Morgan Chase & Co Callable Note Cont 6/23/2024 0.969% Due 06/23/2025 655,000.00 Various 0.87% 655,406.85 655,404.90 100.13 0.93% 655,825.30 141.05 0.47% 420.40 A2 / A- AA- 3.98 2.93 06051GHY8 Bank of America Corp Callable Note Cont 2/13/2025 2.015% Due 02/13/2026 600,000.00 05/24/2021 1.00% 620,988.00 620,549.74 103.14 1.13% 618,835.20 4,634.50 0.44% (1,714.54) A2 / A- AA- 4.63 3.47 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% 415,969.33 415,571.27 103.44 1.16% 414,797.61 1,600.96 0.30% (773.66) A2 / A- AA- 4.81 3.65 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 1,867,121.80 100.06 0.99% 1,876,078.13 2,552.08 1.33% 8,956.33 A1 / AA AA- 4.87 4.65 91324PEC2 United Health Group Inc Callable Note Cont 4/15/2026 1.150% Due 05/15/2026 335,000.00 Various 1.08% 336,083.35 336,074.33 100.05 1.14% 335,172.53 449.46 0.24% (901.80) A3 / A+ A 4.88 4.64 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 1,384,394.94 99.77 1.17% 1,381,880.98 562.66 0.98% (2,513.96) A1 / A+ A+ 4.97 4.81 TOTAL Corporate 26,936,000.00 1.94% 27,363,655.01 27,201,806.86 0.63% 27,963,801.74 165,891.49 19.98% 761,994.88 A1 / A A+ 2.95 2.60 Money Market Fund 94975H270 Wells Fargo 100% Treasury Money Mkt Fund 11,464,670.43 Various 0.01% 11,464,670.43 11,464,670.43 1.00 0.01% 11,464,670.43 0.00 8.14% 0.00 Aaa / AAA NR 0.00 0.00 TOTAL Money Market Fund 11,464,670.43 0.01% 11,464,670.43 11,464,670.43 0.01% 11,464,670.43 0.00 8.14% 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% 772,342.35 766,420.57 105.51 0.69% 796,570.30 4,530.00 0.57% 30,149.73 Aa2 / AA- AA 3.26 3.12 TOTAL Municipal Bonds 755,000.00 1.91% 772,342.35 766,420.57 0.69% 796,570.30 4,530.00 0.57% 30,149.73 Aa2 / AA- AA 3.26 3.12 As of June 30, 2021 31 51 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 06417MMB8 Bank of Nova Scotia Houston Yankee CD 0.280% Due 11/24/2021 3,000,000.00 11/24/2020 0.28% 3,000,000.00 3,000,000.00 100.00 0.28% 3,000,000.00 5,086.67 2.13% 0.00 P-1 / A-1 F-1+ 0.40 0.40 89114W7M1 Toronto Dominion Yankee CD 0.240% Due 04/28/2022 350,000.00 04/29/2021 0.24% 349,999.99 349,999.99 100.04 0.20% 350,128.45 149.33 0.25% 128.46 P-1 / A-1 F-1+ 0.83 0.83 TOTAL Negotiable CD 3,350,000.00 0.28% 3,349,999.99 3,349,999.99 0.27% 3,350,128.45 5,236.00 2.38% 128.46 Aaa / AA Aaa 0.45 0.45 Supranational 45950KCT5 International Finance Corp Note 0.375% Due 07/16/2025 2,500,000.00 05/27/2021 0.66% 2,471,150.00 2,471,724.70 98.16 0.84% 2,453,900.00 4,296.88 1.75% (17,824.70) Aaa / AAA NR 4.05 3.99 459058JL8 Intl. Bank Recon & Development Note 0.500% Due 10/28/2025 2,400,000.00 Various 0.60% 2,388,859.25 2,389,747.14 98.81 0.78% 2,371,428.01 2,100.01 1.69% (18,319.13) Aaa / AAA AAA 4.33 4.27 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 2,449,177.45 100.04 0.87% 2,460,888.06 4,245.21 1.75% 11,710.61 Aaa / AAA AAA 4.81 4.69 TOTAL Supranational 7,360,000.00 0.74% 7,308,742.45 7,310,649.29 0.83% 7,286,216.07 10,642.10 5.18% (24,433.22) Aaa / AAA Aaa 4.40 4.32 US Treasury 912828XG0 US Treasury Note 2.125% Due 06/30/2022 1,250,000.00 09/11/2019 1.61% 1,267,626.96 1,256,278.10 102.02 0.11% 1,275,195.00 72.18 0.91% 18,916.90 Aaa / AA+ AAA 1.00 0.99 912828L57 US Treasury Note 1.750% Due 09/30/2022 2,000,000.00 09/11/2019 1.62% 2,007,890.63 2,003,229.92 102.01 0.14% 2,040,234.00 8,797.81 1.46% 37,004.08 Aaa / AA+ AAA 1.25 1.24 912828N30 US Treasury Note 2.125% Due 12/31/2022 2,000,000.00 Various 1.68% 2,029,085.94 2,013,020.94 102.91 0.18% 2,058,282.00 115.49 1.46% 45,261.06 Aaa / AA+ AAA 1.50 1.48 912828T91 US Treasury Note 1.625% Due 10/31/2023 2,000,000.00 Various 1.94% 1,973,554.69 1,986,073.30 103.04 0.32% 2,060,704.00 5,475.55 1.47% 74,630.70 Aaa / AA+ AAA 2.34 2.29 912828V23 US Treasury Note 2.250% Due 12/31/2023 1,500,000.00 06/21/2019 1.80% 1,529,472.66 1,516,298.33 104.71 0.35% 1,570,722.00 91.71 1.12% 54,423.67 Aaa / AA+ AAA 2.50 2.44 912828B66 US Treasury Note 2.750% Due 02/15/2024 2,000,000.00 Various 2.13% 2,053,613.28 2,030,565.84 106.20 0.38% 2,123,906.00 20,662.99 1.52% 93,340.16 Aaa / AA+ AAA 2.63 2.53 91282CBR1 US Treasury Note 0.250% Due 03/15/2024 1,450,000.00 03/30/2021 0.33% 1,446,488.28 1,446,787.43 99.60 0.40% 1,444,223.20 1,063.86 1.03% (2,564.23) Aaa / AA+ AAA 2.71 2.69 912828X70 US Treasury Note 2.000% Due 04/30/2024 1,700,000.00 06/10/2019 1.92% 1,705,976.56 1,703,462.05 104.45 0.42% 1,775,636.40 5,728.26 1.27% 72,174.35 Aaa / AA+ AAA 2.84 2.76 As of June 30, 2021 32 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 912828XX3 US Treasury Note 2.000% Due 06/30/2024 2,000,000.00 Various 1.80% 2,018,574.22 2,011,520.42 104.59 0.46% 2,091,718.00 108.69 1.49% 80,197.58 Aaa / AA+ AAA 3.00 2.92 912828D56 US Treasury Note 2.375% Due 08/15/2024 1,700,000.00 09/18/2019 1.71% 1,753,191.41 1,733,867.97 105.88 0.48% 1,800,007.60 15,168.51 1.29% 66,139.63 Aaa / AA+ AAA 3.13 3.00 912828ZC7 US Treasury Note 1.125% Due 02/28/2025 1,500,000.00 03/18/2020 0.81% 1,523,144.53 1,517,137.45 101.85 0.61% 1,527,774.00 5,640.29 1.09% 10,636.55 Aaa / AA+ AAA 3.67 3.58 91282CAB7 US Treasury Note 0.250% Due 07/31/2025 1,500,000.00 03/12/2021 0.72% 1,469,765.63 1,471,807.73 98.14 0.71% 1,472,167.50 1,564.23 1.05% 359.77 Aaa / AA+ AAA 4.09 4.05 91282CAM3 US Treasury Note 0.250% Due 09/30/2025 2,400,000.00 Various 0.56% 2,366,140.63 2,368,549.33 97.93 0.75% 2,350,219.20 1,508.20 1.67% (18,330.13) Aaa / AA+ AAA 4.25 4.21 91282CAT8 US Treasury Note 0.250% Due 10/31/2025 2,450,000.00 Various 0.49% 2,422,492.19 2,425,039.96 97.81 0.76% 2,396,310.70 1,031.93 1.70% (28,729.26) Aaa / AA+ AAA 4.34 4.29 91282CAZ4 US Treasury Note 0.375% Due 11/30/2025 2,250,000.00 03/26/2021 0.77% 2,209,658.20 2,211,879.72 98.24 0.78% 2,210,361.75 714.65 1.57% (1,517.97) Aaa / AA+ AAA 4.42 4.37 91282CBH3 US Treasury Note 0.375% Due 01/31/2026 2,500,000.00 05/27/2021 0.75% 2,456,445.31 2,457,311.82 98.04 0.81% 2,450,880.00 3,910.57 1.74% (6,431.82) Aaa / AA+ AAA 4.59 4.52 91282CBW0 US Treasury Note 0.750% Due 04/30/2026 2,500,000.00 05/27/2021 0.80% 2,493,652.34 2,493,772.37 99.55 0.85% 2,488,672.50 3,158.97 1.77% (5,099.87) Aaa / AA+ AAA 4.84 4.73 TOTAL US Treasury 32,700,000.00 1.23% 32,726,773.46 32,646,602.68 0.52% 33,137,013.85 74,813.89 23.59% 490,411.17 Aaa / AA+ Aaa 3.23 3.17 TOTAL PORTFOLIO 137,728,932.02 1.24% 138,908,909.77 138,285,168.22 0.47% 140,335,667.33 437,196.50 100.00% 2,050,499.11 Aa1 / AA+ Aaa 2.75 2.49 TOTAL MARKET VALUE PLUS ACCRUALS 140,772,863.83 As of June 30, 2021 33 53 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 04/09/2021 89236TJD8 355,000.00 Toyota Motor Credit Corp Note 0.4% Due: 04/06/2023 99.919 0.44%354,712.45 0.00 354,712.45 0.00 Purchase 04/20/2021 4581X0DV7 2,460,000.00 Inter-American Dev Bank Note 0.875% Due: 04/20/2026 99.542 0.97%2,448,733.20 0.00 2,448,733.20 0.00 Purchase 04/28/2021 44933LAC7 515,000.00 Hyundai Auto Receivables Trust 2021-A A3 0.38% Due: 09/15/2025 99.989 0.38%514,945.82 0.00 514,945.82 0.00 Purchase 04/30/2021 89114W7M1 350,000.00 Toronto Dominion Yankee CD 0.24% Due: 04/28/2022 100.000 0.24%349,999.99 4.67 350,004.66 0.00 Purchase 05/12/2021 023135BX3 1,875,000.00 Amazon.com Inc Callable Note Cont 4/12/2026 1% Due: 05/12/2026 99.568 1.09%1,866,900.00 0.00 1,866,900.00 0.00 Purchase 05/24/2021 46647PBK1 401,000.00 JP Morgan Chase & Co Callable Note Cont 4/22/2025 2.083% Due: 04/22/2026 103.733 1.11%415,969.33 742.47 416,711.80 0.00 Purchase 05/26/2021 06051GHY8 600,000.00 Bank of America Corp Callable Note Cont 2/13/2025 2.015% Due: 02/13/2026 103.498 1.00%620,988.00 3,459.08 624,447.08 0.00 Purchase 05/28/2021 91282CBH3 2,500,000.00 US Treasury Note 0.375% Due: 01/31/2026 98.258 0.75%2,456,445.31 3,030.04 2,459,475.35 0.00 Purchase 05/28/2021 91282CBW0 2,500,000.00 US Treasury Note 0.75% Due: 04/30/2026 99.746 0.80%2,493,652.34 1,426.63 2,495,078.97 0.00 Purchase 06/01/2021 45950KCT5 2,500,000.00 International Finance Corp Note 0.375% Due: 07/16/2025 98.846 0.66%2,471,150.00 3,515.63 2,474,665.63 0.00 Purchase 06/01/2021 46647PCH7 275,000.00 JP Morgan Chase & Co Callable Note Cont 6/1/2024 0.824% Due: 06/01/2025 100.000 0.77%275,000.00 0.00 275,000.00 0.00 Purchase 06/01/2021 46647PCH7 730,000.00 JP Morgan Chase & Co Callable Note Cont 6/1/2024 0.824% Due: 06/01/2025 100.163 0.73%731,189.90 0.00 731,189.90 0.00 Purchase 06/01/2021 46647PCH7 365,000.00 JP Morgan Chase & Co Callable Note Cont 6/1/2024 0.824% Due: 06/01/2025 100.160 0.73%365,584.00 0.00 365,584.00 0.00 March 31, 2021 through June 30, 2021 As of June 30, 2021 35 55 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 06/16/2021 44891VAC5 790,000.00 Hyundai Auto Lease Trust 2021-B A3 0.33% Due: 06/17/2024 99.985 0.34%789,881.50 0.00 789,881.50 0.00 Purchase 06/16/2021 91324PEC2 220,000.00 United Health Group Inc Callable Note Cont 4/15/2026 1.15% Due: 05/15/2026 100.333 1.08%220,732.60 189.75 220,922.35 0.00 Purchase 06/17/2021 91324PEC2 115,000.00 United Health Group Inc Callable Note Cont 4/15/2026 1.15% Due: 05/15/2026 100.305 1.08%115,350.75 102.86 115,453.61 0.00 Purchase 06/18/2021 89236TJK2 1,385,000.00 Toyota Motor Credit Corp Note 1.125% Due: 06/18/2026 99.956 1.13%1,384,390.60 0.00 1,384,390.60 0.00 Purchase 06/23/2021 46647PCK0 260,000.00 JP Morgan Chase & Co Callable Note Cont 6/23/2024 0.969% Due: 06/23/2025 100.000 0.89%260,000.00 0.00 260,000.00 0.00 Purchase 06/24/2021 46647PCK0 395,000.00 JP Morgan Chase & Co Callable Note Cont 6/23/2024 0.969% Due: 06/23/2025 100.103 0.86%395,406.85 10.63 395,417.48 0.00 Subtotal 18,591,000.00 18,531,032.64 12,481.76 18,543,514.40 0.00 TOTAL ACQUISITIONS 18,591,000.00 18,531,032.64 12,481.76 18,543,514.40 0.00 DISPOSITIONS Sale 04/08/2021 912828F96 250,000.00 US Treasury Note 2% Due: 10/31/2021 101.109 1.71%252,773.44 2,196.13 254,969.57 2,368.99 Sale 04/15/2021 68389XBK0 730,000.00 Oracle Corp Callable Note Cont 8/15/2021 1.9% Due: 09/15/2021 100.544 2.66%733,971.20 1,155.83 735,127.03 6,205.00 Sale 04/15/2021 68389XBK0 270,000.00 Oracle Corp Callable Note Cont 8/15/2021 1.9% Due: 09/15/2021 100.542 2.66%271,463.40 427.50 271,890.90 2,289.60 Sale 04/16/2021 912828F96 1,750,000.00 US Treasury Note 2% Due: 10/31/2021 101.063 1.71%1,768,593.75 16,146.41 1,784,740.16 15,872.58 Sale 05/12/2021 912828XG0 750,000.00 US Treasury Note 2.125% Due: 06/30/2022 102.316 1.61%767,373.05 5,811.46 773,184.51 13,088.77 March 31, 2021 through June 30, 2021 As of June 30, 2021 36 56 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 Sale 06/18/2021 89236TDP7 1,000,000.00 Toyota Motor Credit Corp Note 2.6% Due: 01/11/2022 101.352 2.89%1,013,520.00 11,338.89 1,024,858.89 15,071.01 Sale 06/23/2021 48128BAB7 1,300,000.00 JP Morgan Chase & Co Callable Note 1X 1/15/2022 2.972% Due: 01/15/2023 101.454 2.69%1,318,902.00 16,956.91 1,335,858.91 20,022.19 Subtotal 6,050,000.00 6,126,596.84 54,033.13 6,180,629.97 74,918.14 Maturity 05/11/2021 369550BE7 1,000,000.00 General Dynamics Corp Note 3% Due: 05/11/2021 100.000 1,000,000.00 0.00 1,000,000.00 0.00 Maturity 05/19/2021 857477AV5 1,000,000.00 State Street Bank Note 1.95% Due: 05/19/2021 100.000 1,000,000.00 0.00 1,000,000.00 0.00 Subtotal 2,000,000.00 2,000,000.00 0.00 2,000,000.00 0.00 TOTAL DISPOSITIONS 8,050,000.00 8,126,596.84 54,033.13 8,180,629.97 74,918.14 March 31, 2021 through June 30, 2021 As of June 30, 2021 37 57 Important Disclosures 2021 Chandler Asset Management,Inc,An Independent Registered Investment Adviser. 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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 June 30, 2021 38 58 Benchmark Disclosures ICE BAML 1-5 Year US Treasury/Agency Index The ICE BAML 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.(Index:GVA0.Please visit www.mlindex.ml.com for more information) As of June 30, 2021 39 59 _ _ _ _ _ __ _ __ _ _ _ ==== ____ __ _ _ _ __ __ _ _ ___ __ __ 7/8/2021 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 July 08, 2021 LAIF Home PMIA Average Monthly Yields Account Number: June 2021 Statement Tran Type Definitions Account Summary Total Deposit 0 00 Beginning Balance 21,001,116 49 Total Withdrawal:0.00 Ending Balance:21,001,116.49 CITY OF CUPERTINO FINANCE MANAGER 10300 TORRE AVENUE CUPERTINO, CA 95014 104 CITY OF CUPERTINO Agenda Item 21-9598 Agenda Date: 7/26/2021 Agenda #: 4. Subject: OPEB & Pension Section 115 Trust Performance Report Receive OPEB & Pension Section 115 Trust Performance Report CITY OF CUPERTINO Printed on 7/23/2021Page 1 of 1 powered by Legistar™105 2U.S. BANK | Your U.S. Bank Team Rick Rosenthal Vice President & Senior Portfolio Manager Institutional Asset Management 213.359.7954 richard.rosenthal@usbank.com Carolyn Cox Senior Vice President & Relationship Manager Institutional Trust & Custody 415.677.3603 carolyn.cox@usbank.com Mitch Barker Executive Vice President PARS (Public Agency Retirement Systems) 800.540.6369 Ext. 116 (office) 949.310.4876 (cell) www.pars.org Jennifer Meza, CEBS Manager, Consulting PARS (Public Agency Retirement Systems) 800.540.6369 Ext. 141 (office) 949.375.8239 (cell) www.pars.org 10 7 3U.S. BANK | Table of Contents Section 1 – PORTFOLIO REVIEW PARS/CITY OF CUPERTINO 115P - OPEB (6746059600) • History of Asset Growth • Account Performance • Asset Allocation • Holdings PARS/CITY OF CUPERTINO 115P – PENSION (6746059601) • History of Asset Growth • Account Performance • Asset Allocation • Holdings Section 2 – ECONOMIC OUTLOOK Section 3 – DISCLOSURES, DEFINITIONS, DESCRIPTIONS 10 8 U.S. BANK | 6 Custom Benchmark Asset Class Benchmark Range Target Equities MSCI AC World Free Index 50%-70% 63% Fixed Income BBARC Global Aggregate Index 20%-40% 29% Real Estate S&P Global REIT TR USD 0%-15%5% Commodities S&P GSCI Commodity Index 0%-10%2% Cash FTSE 3-Mo US T-Bill Index 0%-10%1% CITY OF CUPERTINO 11 1 U.S. BANK | 12 Custom Benchmark Asset Class Benchmark Range Target Equities MSCI AC World Free Index 50%-70% 63% Fixed Income BBARC Global Aggregate Index 20%-40% 29% Real Estate S&P Global REIT TR USD 0%-15%5% Commodities S&P GSCI Commodity Index 0%-10%2% Cash FTSE 3-Mo US T-Bill Index 0%-10%1% CITY OF CUPERTINO 11 7 [ 2 ] Important disclosures provided on page 4. Global economy Quick take: U.S. job growth is strong, though there is significant room for improvement when compared to pre-pandemic employment. Meanwhile, surveys of U.S. businesses point to a moderation in activity from a very high level. In China, surveys of businesses point to slowing growth. Our view: Economic growth is positive, helped by reopening, stimulus and vaccine progress. Coronavirus case growth is falling globally. Overall, the global economy is in expansion. The U.S. added 850,000 jobs in June, beating estimates and exhibiting the highest growth since August 2020. The substantial gain indicates impediments to job gains are decreasing. However, future improvement is essential: The economy is still 6.8 million jobs short of pre-pandemic levels, and more than 14 million Americans are still receiving unemployment assistance. Another concern is supply constraints — also evident in business surveys noted below — which are potentially impacting hours worked and dampening growth in manufacturing. Back-to-school season will be a key indicator of the type of labor market we face. Surveys of U.S. businesses point to decelerating activity from high levels. Part of this is the inevitable normalization after the economy bounced back during reopening. Another factor is supply chain constraints that continue to push prices higher for U.S. manufacturers. These constraints are likely temporary but may take time to smooth over. China’s firms are experiencing decelerating activity, according to surveys of both state-owned and private sector Chinese companies. China’s regulatory push and efforts to control credit growth may cause further deceleration, as China resumes its gradual pre-pandemic path of normalization toward a lower growth rate compared to the previous decade. Equity markets Quick take: Policy, pandemic and economic reopening progress bode well for domestic equities in the second half of 2021. Our view: We maintain our “glass half-full” orientation for U.S. equities. Rising revenue and earnings, generally restrained inflation, relatively low interest rates, ongoing monetary and fiscal stimulus policies and COVID-19 medical progress support our outlook. First-half performance was superb and broad-based. The S&P 500 ended June 30 up 14.4 percent for the year, above the long- term annual average of roughly 10.5 percent. All 11 S&P 500 sectors have delivered year-to-date gains, with eight returning 10 percent or more. Both secular-growing and cyclical-oriented sectors are favorably positioned. Cyclically-oriented sectors (those that tend to move with the overall economy) outperformed in the first six months of 2021, led by Energy, Financials, Real Estate, Industrials, Materials and Communication Services. Ongoing monetary and fiscal stimulus in concert with vaccination progress continues to support reopening, with cyclical sectors well- positioned to benefit in this investment environment. Meanwhile, the positive trends in digitization, artificial intelligence, machine learning and e-commerce bode well for Information Technology, the best-performing sector in June, up 6.8 percent. Broad-market valuations remain elevated, yet short of dot- com era extremes. The global economy continues to recover from the COVID-19 pandemic. However, comparable year-over- year sales and earnings become more challenging in the second half, implying a slower earnings growth rate and, presumably, more subdued equity returns. The S&P 500 currently trades at roughly 23 times consensus earnings for 2021 of approximately $190, according to Bloomberg, FactSet and S&P Global. Inflation and tax changes are among potential disrupters to our second half outlook. During early-2021 earnings reports, an increasing number of companies signaled higher labor, freight and commodity prices spurred by pent-up demand due to COVID-19, along with port congestion and a shortage of semiconductor chips, ships, cargo containers and workers. While not yet at alarming levels, inflationary pressures are potentially problematic for equity prices. When inflation proves to be persistent, we have historically seen investors demand higher interest rates to compensate for higher costs. Additionally, potential corporate tax policy changes may have disparate impacts on companies and industries.U.S. BANK | 1912 4 [ 3 ] Important disclosures provided on page 4. Bond markets Quick take: High- and low-quality bonds alike delivered favorable returns last week, benefitting from lower Treasury yields and investor enthusiasm about corporate and municipal credit health. Higher growth and inflation expectations reflected in rising oil prices and other risk assets make the recent weakness in Treasury yields unusual. Our view: A variety of lower-quality bonds offer the opportunity to increase current income, while the recovering economy and strong credit fundamentals should support bond prices. High yield corporate and municipal bonds, bank loans and mortgage loans not backed by the government offer meaningful yields, even though they are low by historical standards. Owning some high- quality bonds remains necessary to diversify portfolios, although we expect low yields to limit forward return potential. Despite strong employment data released Friday, lower long-term growth expectations contributed to a fall in Treasury yields. Inflation-adjusted yields fell last week in tandem with the market pricing in a slower expected pace of Federal Reserve (Fed) rate hikes. Although the payroll gains were stronger than expected, it will take many months of significant gains before the economy has substantially improved and the Fed can justify tighter policy. Recent Treasury yield weakness is unusual, because long-term yields tend to rise with higher oil prices and dollar strength. The recent fall in Treasury yields may have been caused in part by demand from investors looking to hedge equity risk and foreign buyers who can increase yield versus their local government bonds. We expect strong growth, inflation and Treasury issuance to support higher yields. We see value in increasing current income through lower- quality bonds. Low yields relative to Treasuries across the quality spectrum in corporate and municipal bonds limits the potential for price gains, but investors allocating to riskier high yield credits can still benefit from increasing current income. High yield corporate and municipal bonds, bank loans and mortgage loans not backed by the government pay attractive yields and present favorable credit quality. Real assets Quick take: Commodities outperformed the broader market last week, but commodity producers, like energy and mining companies, lagged. Defensive sectors remain funding sources for better growth opportunities. Our view: We believe our positive view on economic growth and inflation should reward tangible goods producers. That view was challenged last week, however. Real estate is likely a tale of two segments ― cyclical properties recovering as we reopen at the expense of secular growth properties, such as cell towers and data centers. We continue to remain neutral on real estate. Real Estate underperformed by 1 percent last week, even as interest rates declined. Losses were broad-based across sectors, with hotels and office properties the largest losers and retail as the top performer. Forward prospects for real estate remain mixed; as reopening should benefit prior laggards, such as hotels and retail properties, but future demand appears unclear for many sectors. Domestic crude oil prices rose 1.5 percent last week to new cycle highs, with domestic inventories again declining more than expected. Additionally, the Organization of Petroleum Exporting Countries (OPEC) and its oil-producing allies failed to reach a production agreement at its latest meeting, meaning current quotas likely remain in place, supporting prices in the short term. Gold and silver rose marginally last week as interest rates net of inflation (real interest rates) continued to trade lower. We believe the most likely move in gold is lower as nominal, and real interest rates should move higher, reducing speculative demand for precious metals. U.S. BANK | 2012 5 [ 4 ] ©2021 U.S. Bank. This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned. Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses. Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The NASDAQ Composite Index is a market-capitalization weighted average of roughly 5,000 stocks that are electronically traded in the NASDAQ market. Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults). U.S. BANK | 2112 6 CITY OF CUPERTINO Agenda Item 21-9591 Agenda Date: 7/26/2021 Agenda #: 5. Subject: Interim Report on CAFR and AUP by Independent Auditor Receive Interim Report on CAFR and AUP by Independent Auditor CITY OF CUPERTINO Printed on 7/23/2021Page 1 of 1 powered by Legistar™142 CITY OF CUPERTINO Agenda Item 21-9590 Agenda Date: 7/26/2021 Agenda #: 6. Subject: HdL Contract and Refund Error Receive HdL Contract and Refund Error CITY OF CUPERTINO Printed on 7/23/2021Page 1 of 1 powered by Legistar™143 additional information was requested. To date, the City has not remitted payments in excess of the contract amount. The functional transfer, both from an operational as well as a budgetary standpoint, is an irregular occurrence and resulted from management turnover in recent years. Contract management remains an essential responsibility for departments. As the City moves forward with the proposed internal audit work program, procurement, including contract management, will be reviewed and the findings and observations for improvement will be communicated to the Audit Committee upon completion. Refund Error In FY 2020-21, candidates running for City Council were required to pay $2,860 in estimated candidate costs. Actual costs amounted to $2,576, resulting in a candidate refund amount of $284 subsequent to the 2020 election. Responsible Administration Department staff entered the invoice entry amounts in error. Rather than entering $284, the actual cost of $2,576 was mistakenly entered. This was then routed to the Department staff responsible for invoice approval and finally to Finance for review, processing, and payment. The essential internal controls and checks and balances were in place and operating effectively; however, this appeared to be an issue of human error, an inherent limitation to internal controls. A candidate received the incorrect refund and promptly notified the City. City staff took the matter seriously and corrected the error timely. Sustainability Impact No sustainability impact. Fiscal Impact No fiscal impact. Prepared by: Zach Korach, Finance Manager Reviewed by: Kristina Alfaro, Director of Administrative Services Approved for Submission by: Greg Larson, Interim City Manager Attachments: None. 145 CITY OF CUPERTINO Agenda Item 21-9643 Agenda Date: 7/26/2021 Agenda #: 7. Subject: Audit Committee Meeting Frequency Consider Approving Changes to the Audit Committee Meeting Frequency. CITY OF CUPERTINO Printed on 7/23/2021Page 1 of 1 powered by Legistar™146 No sustainability impact. Fiscal Impact No fiscal impact. Prepared by: Zach Korach, Finance Manager Reviewed by: Kristina Alfaro, Director of Administrative Services Approved for Submission by: Greg Larson, Interim City Manager 148 CITY OF CUPERTINO Agenda Item 21-9593 Agenda Date: 7/26/2021 Agenda #: 9. Subject: Budget Format Review Receive Budget Format Review CITY OF CUPERTINO Printed on 7/23/2021Page 1 of 1 powered by Legistar™149 o Discussion of the City’s strategies to reduce pension cost volatility, including the Section 115 Trust Budget at a Glance The City received feedback from the sub-committee to reference the Transparency Portal in the Budget at a Glance. The City is working on its first interactive Budget at a Glance, which will bridge the gap between the traditional Budget at a Glance and the Transparency Portal. OpenGov Transparency Portal The sub-committee recommended that the City enhance the Transparency Portal by:  Providing more context to major amount and changes and  Interconnecting key communication elements on the budget to the Transparency Portal. Based on the sub-committee’s feedback, the City is currently working to provide more context to financial data in the Transparency Portal through the following initiatives:  Interactive Budget at a Glance o Present the budget in a simple, visual, and interactive format o Provide more context to financial reports in the Transparency Portal  Interactive Capital Improvement Program Budget o Illustrate progress of capital projects from a financial standpoint o Connect project narratives to interactive maps and financial reports  Stories for important initiatives (e.g. CARES Act) o Provide updates on important initiatives o Connect initiatives to financial reports in the Transparency Portal o Gather feedback from the community  Budget Story o Explain important financial concepts including revenues, expenses, departments, and funds o Provide answers to frequently asked questions about the budget o Serve as a starting point to users unfamiliar with government finance or the Transparency Portal These initiatives will help the City improve its financial transparency and community engagement. In addition, the City will continue working to incorporate feedback from the sub-committee, City Council, and residents, into the format of its budget documents and reports. Sustainability Impact No sustainability impact. 151 Fiscal Impact No fiscal impact. Prepared by: Thomas Leung, Senior Management Analyst Reviewed by: Kristina Alfaro, Director of Administrative Services Approved for Submission by: Deborah Feng, City Manager Attachments: F2 – Sub-Committee’s Initial Comments on Budget Format Review F3 – Sub-Committee’s Formal Memorandum on Budget Format Review F4 – City staff’s responses to the November 12, 2019 Memo 152 CITY OF CUPERTINO AUDIT COMMITTEE SUBCOMMITTEE ON THE ANNUAL BUDGET REPORT Questions Regarding the Current Budget Report (Please provide written responses within two weeks): 1. Three Budget Reviewers for the GFOA Award evaluation had suggestions for improvement. Please describe how, if at all, each of the suggestions for improvement were addressed in the budget for the fiscal year beginning July 2019. Please provide evaluation at least on the below-listed two items. Responses with respect to all of the suggestions by the GFOA Budget Reviewers would be appreciated. a. Reviewer ID S411 suggests under “Document -Wide Criteria” that the City “Try to reduce the document size to around 400 pages.” RESPONSE: The Budget Team continues to take this comment into consideration each year; however, it is a challenge to identify which specific sections can afford to be reduced by 100+ pages. This comment is not marked with an asterisk (*) and as a result, does not require implementation to ensure the budget award is received in subsequent years. If the Sub-Committee has specific recommendations as to which sections they would like to see reduced, and so long as all of the GFOA and CSMFO award criteria are not compromised, the Budget Team will be glad to accommodate. 153 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 2 b. All three reviewers rated the presentation for category F9 “Impact of capital investments on operating budget” as being “Information Not Present” or “Does Not Satisfy”. RESPONSE: Typically, operating, or General Fund, impacts are quantified via operating transfers; however, there were no budgeted operating transfers in FY 18 -19 or FY 19-20 for Capital Improvement Program projects. The City’s General Fund will transfer excess fund balance at fiscal year-end (FYE) to the Capital Reserve (Fund 429) in accordance with its Use of One Time Funds Policy (page 85). FY 2019-20 was the first year the City’s budget document included a Capital Improvement Program (CIP) project summary (page 493). The Fund Balance Report (page 96) discusses the impact of revenues and expenditures/expenses on each particular fund’s fund balance, including the capital projects from the CIP budget. The Budget Team agrees that a more expansive narrative/discussion may be beneficial; perhaps in the forecast section near the end of the Financial Policies and Schedules section. c. How were the other suggestions for improvement by GFOA Budget Reviewers were addressed. RESPONSE: 154 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 3 - Financial Structure, Policy and Process: Department org charts have experienced changes in recent years. Enhancing the aesthetics and understandability will be an area to address in FY 2020-21. - Financial Summaries: Categorized and forecasted summaries for all of the City’s funds were included beginning on page 146. Additional information and charts can be included (similar to the General Fund); however, and as mentioned above, the Budget Team does keep the document’s length in mind when determining what and what not to include. - Capital and Debt: See response to 1.b. above - Departmental Information: Total FTEs are included in each of the Department Budgets. This is also reiterated/duplicated/summarized on page 491 and presented historically as well. Performance measures are included as well as workload indicators (FY 2019-20 was the first year for presenting workload indicators) - Document-Wide Criteria: The Budget Team will add the state to the cover so long as it complies with branding requirements as established by the Communications Office. - Other Comments/Suggestions: No specific comments or suggestions noted for implementation. 2. With respect to the Transparency Portal and the use by Cupertino of OpenGov: 155 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 4 a. What are the goals of having the Transparency Portal? RESPONSE: - The Transparency Portal provides an accessible platform so that members of the public have access to the City’s financial data in real time. - This tool fosters communication and trust not only with the public, but amongst City staff. - OpenGov’s Budget Builder provides an effective tool for departments to compile, submit, review, and approve budget requests. It also serves as an important archive for the thousands of communications that occur during the budget process from one year to the next. b. What key performance indicators (KPIs) for the Transparency Portal have been established by the City? RESPONSE: The City does not have KPIs for the Transparency Portal. The Budget Team is open to establishing KPIs; however, success is measured by volume of external use c. How has the City been doing relative to these KPIs? RESPONSE: See response 2.b. above. 156 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 5 3. With regard to the City’s link provided to OpenGov as to the Transparency Portal, in examining on non-departmental expenditures for the budget in 2019- 2020, why is the actual for 2019-2020 equal to the budget for 2019-2020 (as of Sep 28, 2019)? See screenshot taken from this link: https://cupertino.opengov.com/transparency#/28185/accountType=expenses&em bed=n&breakdown=28459e6a-563e-4695-97d4- 8a0d97d881e1&currentYearAmount=cumulative&currentYearPeriod=years&gra ph=bar&legendSort=desc&proration=true&saved view=83847&selection=081626 7C08601EE8C423B11CADCC4989&projections=null&projectionType=null&highli ghting=null&highlightingVariance=null&year=NaN&selectedDataSetIndex=null &fiscal start=earliest&fiscal end=latest RESPONSE: The City implemented a change in methodology for recording its operating transfers (non-departmental expenditures). Rather than recording/recognizing them on a quarterly/monthly basis, the City records/recognizes them all at once as soon as the budget is adopted by Council. Purpose: increased efficiency determining the amount and reason for each interfund transfer when preparing the Interfund Transfers footnote in the Comprehensive Annual Financial Report (CAFR) at year-end. In other words, rather than having hundreds of transactions/line items to tie to and from each of the funds, the gross transfer amounts can more easily be tied to the adopted budget, Council resolutions, etc. 157 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 6 a. This raises the question, separate from the format of the data presented, how, if at all, is the data presented to the public on OpenGov reviewed for accuracy and completeness? RESPONSE: The information presented in OpenGov is imported straight from the City’s enterprise resource planning (ERP) system, New World System (NWS). All of the financial data is reviewed and reconciled on a weekly and monthly basis to ensure accuracy, completeness, cutoff, and existence. b. What process is followed? If there is a process, is the process memorialized in a written medium? RESPONSE: Other than what has been discussed in the previous response, there is no formal process memorialized in a written medium. The Budget Team is open to recommendations and suggestions. c. What documentation is reviewed in the process of evaluating OpenGov information, and what management approvals are required prior to publication of the information? RESPONSE: The information that is imported into OpenGov from NWS is subject to numerous controls and reviews, namely within the payroll, accounts payable, and 158 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 7 revenue collection process. These are processed and reviewed by multiple employees, signed off and authorized by management, on a weekly, bi-weekly, and monthly basis. 4. For Budget versus Actual in the OpenGov transparency portal (see above link in question 2), Non-departmental drops from 2018-19 Actual of $19,376,088 to 2019- 20 (Amended Budget) and Actual of $10,539,557? RESPONSE: Non-departmental revenues and expenditures/expenses include the City’s operating transfers from one fund to the other. Prior year actuals are typically higher than subsequent year budget amounts for the following reason; the Adopted Budget does not include excess General Fund fund balance that is transferred to the Capital Reserve in accordance with the City’s Use of One Time Funds Policy (page 85) a. Can we link to the “Department Operating Budgets” then to the Non- departmental section to help explain? RESPONSE: That is certainly an option. We can also have a more expansive explanation in the non-department section to explain the purpose of each of the transfers. 159 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 8 b. An explanation in the Budget message document for this particular question does not seem to be present. If it is, please indicate the location. If such an explanation is not present, please suggest a location for it. RESPONSE: Correct, other than including the non-departmental amounts within the fund’s total budgeted amounts (page 31 for example), there is no expanded discussion on the transfers in the Budget Message section. 5. Can the subcommittee see the questions submitted by the public to the City related to the Transparency Portal/budget for the past year? RESPONSE: The City has been frequently asked how much has been spent on the Regnart Creek Trail project. To the Budget Team’s knowledge, no addit ional questions have been raised. 6. Since Opengov is being used as Cupertino’s Transparency Portal, see these selected comments at the Opengov link: a. “Build Trust Through Effective Communication – Engaging with constituents and stakeholders is critical to every public agency’s success. With OpenGov, leaders can analyze and communicate complex topics and decisions in a simple manner anyone can understand. Agencies are able to build trust with colleagues and residents by gathering input on key 160 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 9 initiatives and aligning budget and the strategic plan to both performance objectives and public expectations.” i. Question: What are the key complex topics and decisions made in Cupertino that (the City’s leaders) through OpenGov are communicating? RESPONSE: The Budget Team has primarily utilized OpenGov’s Transparency Portal and Budget Builder software. We’ve also used this platform to present budget and prior year actual data at City Council Meetings. Additionally, we’ve used this tool to provide information to City Council on various subject like Capital Projects, salary and benefit costs. Moving forward, the Budget Team is excited to further complement the budget tools with the use of stories, an interactive platform to present and inform audiences on specific projects and initiatives. ii. How is the City using OpenGov (the transparency portal) by “aligning budget and the strategic plan to both performance objectives and public expectations”? RESPONSE: The budget process establishes a public expectation and the Transparency Portal allows the public to view, in real-time, the City’s financial data. 161 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 10 b. One possible idea is to (cross)link the “context” in the Budget message (for example the June 2019 Budget message) and other “context” in the Department Operating Budgets to some of the OpenGov Transparency portal modules, for major line items or major changes from previous years. The OpenGov transparency portal currently is filled with data and ability to compare but could benefit from adding convenient context. Is this something that Staff could do? RESPONSE: Adding “notes” is definitely one way to increase context. The use of “stories” is also another tool available to the City that can obviously tell a story about a project, initiative, etc. Based on requests from Council, Commissions, Committees, the public, management, etc., staff can create and publish stories as necessary. i. Could Staff then introduce some of the OpenGov communication elements (see above questions and Opengov website for more)? RESPONSE: Open Town Hall is a survey tool the City is looking into utilizing more consistently and frequently. ii. Palo Alto is using the “note” function (although only one posted) of the OpenGov. What does Staff think about using this functionality as a starting point for communications? See link here to Palo Alto: 162 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 11 https://paloalto.opengov.com/transparency#/18215/accountType=re venues&embed=n&breakdown=types&currentYearAmount=cumul ative&currentYearPeriod=years&graph=bar&legendSort=coa&pror ation=true&saved view=51273&selection=E7F4AA9C788A9B9A3D 41A6865E3D305B&projections=null&projectionType=null&highligh ting=null&highlightingVariance=null&year=NaN&selectedDataSetI ndex=null&fiscal start=2013&fiscal end=latest RESPONSE: Yes, we can add these notes to various saved “views” to provide context to the reader/audience. 7. The order in which one accesses the below Budget documents a. – e., can result in an entirely different set of questions. What is the intended order that key Budget documents should be examined by the public?: a. Budget (500+ pages) b. OpenGov (transparency portal) c. Budget at a Glance d. Budget message e. Department Operating Budgets RESPONSE: While the Budget Team’s preference would be the Adopted Budget (which contains the Budget Message and Department Operating Budgets), followed by the 163 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 12 Budget at a Glance, and then finally OpenGov, one of the advantages to having these multiple tools is that the order of preference can be determined by any reader/audience depending on their needs, interests, and desires. For example, a reader that isn’t interested in getting lost in 500+ pages of details might prefer to a high level glad at the Budget at a Glance – and vice a versa. The moment a budget becomes adopted and printed, it’s already outdated. That is what is great about OpenGov; it is a living constantly updating platform that addresses the common question, “I know how much was budgeted…how much have we spent?” 8. Following-up on Question 7., above, there are also Financial Policies and Schedules. Assuming that the above-listed Budget documents of 7.a. – 7.e. are not envisioned as being examined in any particular order (and if they are, we should make that clear to the public), please consider using items 7.d. and 7.e. as a contextual “bridge” between the Budget at a Glance and the Budget? Or perhaps there should be another intermediate step to the Transparency Portal which provides both context/bridge and the data? Should all of the above- mentioned budget items (7.a. – 7.e. and the Financial Policies and Schedules) be linked together in some way in the Transparency Portal? RESPONSE: Agreed. Each of the tools discussed have pros and cons and readers/audiences may not be aware of them (e.g., one is detailed, one is high-level, one 164 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 13 is current, etc.). One of the ways we’ve tried to tackle this challenge is through events such as Budget & Bites and through social media engagement. The Budget Team is open to recommendations and idea to building this contextual “bridge.” 9. In Financial Policies and Schedules: a. On p75 (p9 of 94 PDF) of the Fiscal Policies – Revenue Policies, the final policy listed states “Ensure that Enterprise activities remain self- supporting in the long-term.” How does the City analyze compliance with this policy? Please provide examples? RESPONSE: Governmental Accounting Standards Board and various interpretations of the standards do not appear to have a specific threshold for how “self-supporting” is defined. For example, there is not an exact threshold of 50% which would qualify a fund or activity to be reported as an enterprise fund. Compliance is continually monitored based on historical and/or current subsidized (General Fund assistance) activities. b. On p92 (p26 of 94 PDF), the Audit Committee is neither listed nor has a budgeted expenditure allocated. Can this be corrected? If so, please describe the process for including the Audit Committee here. 165 CITY OF CUPERTINO AUDIT COMMITTEE – SUBCOMMITTEE QUESTIONS 15 The second (2nd) page of each of the Department budget sections shows a total FTE allocation. Shortly thereafter and near the front of each of the Department budgets, a total revenues and expenditures by account classification is reported. For example, Council and Commissions’ Department budget on page 165 reports the total employee compensation and employee benefits totals for the year. Lastly, there is a saved view in the transparency portal titled “Employee Compensation and Benefits” that breaks out by department salary and benefits costs by department. 167 1 AUDIT COMMITTEE SUBCOMMITTEE ON THE ANNUAL BUDGET REPORT November 12, 2019 CONCLUSIONS AND RECOMMENDATIONS 1. Awards from respected Associations for Budget Presentation highlight and support the outstanding work being accomplished by the City Staff of Cupertino in the budget process: a. Distinguished Budget Presentation Award by Government Finance Officers Association; and b. Excellence Award for Fiscal Year Operating Budget by California Society of Municipal Finance Officers. 2. Comparison of budget documents from other cities as presented in September 25, 2019 Staff Report to the Budget Book Subcommittee of the Audit Committee, shows the City of Cupertino meeting or exceeding its peers in a variety of budget presentation categories. Use of the Transparency Portal and communication of Budget At a Glance are clearly within the peer leadership. 3. In the spirit of continuous improvement and building on the strong budget formats already in-place in Cupertino, here are some areas the Subcommittee recommends further investigation and possible adjustment be considered by focus on possible enhancements to the a. Budget At a Glance i. Adding modules such as the Ten-Year Staffing and Population Growth chart to highlight and explain significant changes or elements of the current budget; and ii. Reference Transparency portal of OpenGov for supplemental key elements. b. Transparency portal of OpenGov i. Provide more context to major amounts and changes from year to year or budget to actual by 1. Linking to the context already available in other budget documents or 2. Creating new content if needed and posting. ii. Interconnect or make more obvious some of the key communication elements on the budget already underway in Cupertino and as listed by OpenGov as one of the transparency portal’s strengths. For example, OpenGov on its website states “Build Trust Through Effective Communication. Engaging with constituents and stakeholders is critical to every public agency’s success. With OpenGov, leaders can analyze and communicate complex topics and decisions in a simple manner anyone can understand. Agencies are able to build trust with colleagues and residents by gathering input on key initiatives and aligning budget and the strategic plan to both performance objectives and public expectations.” 1. Link into OpenGov those initiatives already underway; and 2. Explore other ways to implement and demonstrate through the portal. PLEASE SEE SEPARATE SUBCOMMITTEE QUESTIONS SUBMITTED TO CITY STAFF WITH RESPONSES FROM STAFF In particular the following City Staff responses warrant additional consideration and action based on responses provided: Questions 1b, 1c, 2b, 4a, 6ai, 6b, 6bii, 8, 9b and 10. 168 2 Additionally, the response by City staff to Question 9a which asked about the current stated policy of “Ensure that Enterprise activities remain self supporting in the long term” seems to us to indicate as a minimum the word “Ensure” might be replaced with “Monitor” or even better a policy defining “self supporting in the long term” be adopted so that the City indeed could ensure that said policy is being implemented. Respectively submitted Budget Subcommittee of Cupertino Audit Committee Councilman Darcy Paul Cupertino Audit Committee Chair Eno Schmidt 169 Questions Regarding the Current Budget Report Audit Committee Chair Daisy Liang 1. Page 35 and 55 of the FY 21-22 Proposed Budget: Please add the Adopted Budget amounts for anywhere the FY18 and FY19 actuals are presented. This will allow a reader to understand where the actuals ended in respect to the amounts budgeted. RESPONSE: The format of showing two years of actuals, prior year adopted, and current year adopted follows the criteria set forth by the Government Finance Officers Association (GFOA). Additionally, changing the size of the charts would result in the charts being significantly reduced in size and could make is less legible. As an alternative, staff could issue a separate appendix showing the prior year budget and actuals at the detailed account line item level and post on the City’s website. 2. Page 42: The Non-Personnel Assumptions section discussed one-time special projects. Can we add links throughout the document for repeated information? Can we add onetime special projects as a saved “view” in OpenGov to allow the public to easily access the information? RESPONSE: We can add a reference on page 42 to note that special projects are further detailed in the respective department narrative sections. Each page of the budget document has a link back to the Table of Contents. From there, a user can easily move to any section of the document they desire. 3. Page 81: The Basis of Budgeting section discusses the budget being split into nine departments. Can the document include a pie chart to show the departments percentages? RESPONSE: General Fund expenditures by department is presented on page 36 of the Proposed Budget. 4. Page 93: What is the formula to calculate the $19,000,000 for Economic Uncertainty reserve? RESPONSE: The formula is noted on page 93 of the Proposed Budget document: “represents two months of General Fund (GF) expenditures excluding transfers out plus a two year drop in total general fund revenue of 13% or approximately 1.5 months, excluding the use of reserves.” This can be estimated by using the “Financial Overview by Fund” chart on page 103. 184 In recent years, unassigned fund balance in General Fund has maintained high levels. That, coupled with the establishment of the Section 115 Trust (pension), City staff have not recommended increases to the Economic Uncertainty Reserve. In the event of economic uncertainty, further recommendations would be brought before City Council (e.g., increasing the Economic Uncertainty Reserve, utilizing the Pension Section 115 Trust, budget reductions, etc.). 5. Page 138: Can General Fund fund balance be added to the 20-Year General Fund Financial Forecast chart? RESPONSE: Page 138 shows the revenues and expenditures and difference between the bars and the line represent changes in fund balance; these are emphasized on page 139. We could add a sentence nothing the beginning unassigned and total fund balance to provide additional context. That said, the General Fund fund balance forecast is discussed in detail beginning on page 155. Although having all of this information on one page would be ideal, it simply is not feasible. The forecast section is presented in a format consistent with the rest of the document and follows the flow/format of an income statement (revenue  expenditures  fund balance). 6. Page 148: What is “salary savings” as presented in the Five-year General Fund Expenditures Forecast chart? RESPONSE: Salary savings is a common line item in budgets, particularly in forecast models. The City budgets for 100% of the authorized employee head count; however, throughout the year, savings is realized through turnover and attrition. This amount represents the anticipated savings from vacant positions and attrition throughout the fiscal year (cost of approximately 5 full-time employees). 7. Page 541: Where are the capital projects for FY 21-22 as well as any previously funded projects that have yet to be completed? RESONSE: The Capital Improvement Program (CIP) was not included in the Proposed Budget. It was first introduced to City Council at a study session on May 4, 2021, subsequent to the publishing of the Proposed Budget on May 1, 2021. The Final Adopted Budget will incorporate all financial information pertaining to CIP. Additionally, Public Works and the CIP team will be issuing a separate CIP Budget document as well. Total GF Expenditures 88,138,778$ (less transfers out)(11,251,984)$ Subtotal 76,886,794$ Expenditures (2 months)12,814,466$ Revenues (1.5 months)9,372,611$ Hypothetical Reserve Amount in FY 21-22 22,187,077$ Actual Reserve Amount in FY 21-22 19,000,000$ Difference (3,187,077)$ 185 Councilmember Moore May 18, 2021 Format: 1. While Contingencies may not be an appropriate format issue to discuss, I think it should be removed and the reserve in the General Fund be appropriated as needed. The item has not been transparent from its inception in 2013 and looks like a slush fund with the largest share in the City Manager’s budget. The Staff Report to City Council in June of 2013 neglected to mention that a new contingency amount of $427k was even being appropriated and now the current format for the Budget shows $3,773 for contingencies for the City Manager on p. 221, yet on p. 245 of the current Proposed Budget, there is $593,250 appropriated in contingencies. Additionally, the City Manager is given authority to approve their spending on p. 244. This practice, and the whole contingency category, in my opinion, needs to end. RESPONSE: City Council directed staff to reduce the City Manager Discretionary Fund to $75,000 (a reduction of $518,250) at the June 4, 2021 study session. City Council ultimately adopted the FY 21-22 Budget with a City Manager Discretionary Fund budget amount of $75,000. 2. I do prefer the staffing tables used by Campbell and Sunnyvale for clarity. RESPONSE: Noted. It will be challenging to incorporate similar staffing tables throughout each of the respective Program narratives. However, staff can create an appendix report for all positions and present by Department and Program. 3. I prefer the more detailed accounting which the City did in 2013 and other cities continue to do, referred to as the Account Level Summary. RESPONSE: Noted. It will significantly increase the length of the document to show the account level detail throughout the document, but as an alternative, staff can create an appendix report for all budget and actuals at the account level detail. 4. I would like the previous comments from the last Budget Format Review Subcommittee (attached) added along with my comments and Daisy’s for next week’s City Council Budget Agenda item. RESPONSE: Noted. 186 Content: Proposed Budget is pretty easy to read and follow. Movement of money between funds along with department divisions and tasks moving between departments makes following the changes to department costs difficult to capture. Because some funding increased a great deal in 2020, it would help to have a comparison back to 2019 in some instances (City Manager Contingency, for example, Proposed Budget p. 245) 1. Community outreach improvements to get input regarding the Proposed Budget goals and process. a. Proposed Budget mentions input from the Audit and Fiscal Strategic Plan Committees, however neither has reviewed the Proposed Budget for input. Should these committees receive the Proposed Budget prior to coming to City Council in the future or is this process order better? The Fiscal Strategic Plan Committee is not codified and has no codified duty to review the Proposed Budget. RESPONSE: The Audit Committee is tasked with reviewing the Budget Format and the Fiscal Strategic Plan has historically reviewed the City’s financial forecast, which is an important component to the City’s budget document. While input on the actual budget document is only received from the Community via public meetings, the City’s budget team holds annual community engagement budget workshops and includes interactive budget reports throughout the year via OpenGov. 2. The organizational charts need to reflect the Cupertino Municipal Code (CMC) a. Add date of organizational chart b. Update the online chart c. Update CMC to reflect current organizational structure (e.g. add I.T. Department) d. This should probably not be a work plan item, but an ongoing process of CMC cleanup RESPONSE: The organizational charts in the budget document are correct. They will need to be updated online and in the CMC. The date of the organization chart in the budget corresponds to the budget document itself; thus the organization chart corresponds to FY 21-22. 3. CMC mentions a potential Public Safety Department should Police and Fire be administered by the City. The City contracts out both. How is the Fire Department paid for? RESPONSE: Santa Clara County Fire is funded via property taxes. Property tax revenues are generated from the 1% tax on property values. Of that 1%, the City receives 7% and Santa Clara County Fire receives 15%, with the majority of the 1% going to school districts. 187 4. City Manager discretionary spending was $743 for 2020 yet the 2022 Proposed Budget is $593,250. Additionally, the Program Overview states that the contingency budget for the City Manager requires the City Manager approval (Proposed Budget p. 244). I would recommend this amount be removed and a policy for oversight be put in place. The City Manager’s overall budget has increased from $786,535 in 2019 (expenditures plus contingencies) to $2,115,071 proposed for 2022. How is this increase accounted for? Review the City of Cupertino Purchasing Policy (2013) Code Sec. 3.22 and 3.23. RESPONSE: The City Manager Contingency program was established to meet citywide unexpected expenses that may occur during the year. In FY 2013-14, a Contingencies expenditures category was added to each General Fund program to serve as a contingency for any unexpected expenditures that might occur during the year. Prior to FY 2020-21, the contingency amount was derived by taking 5% of the General Fund’s base materials and contract services to account for unforeseen events and/or activities that were not included in the respective fiscal year’s budget. In FY 2020-21, and in response to COVID-19, the contingency amount was cut in half to 2.5% of the General Fund’s base materials and contract services. Additionally, in FY 2020-21 The City Manager’s contingency established an appropriation specifically for Public Works’ unforeseen maintenance and repairs in an amount of $280,000. The current 2.5% calculation is below GFOA’s best practice recommended range of 5-15%; however, once the Public Works unforeseen maintenance and repair contingency is factored, the contingency amount ends within the recommended range at 5%. In total, the City Manager’s contingency budget has remained relatively consistent year-over-year (YOY) as noted below: Fiscal Year FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 Budget $505,000 $593,661 $486,353 $551,827 $593,250 Actual $240,365 $127,480 $279,337 $283,384 $ - The City Manager budget unit within the Department of Administration (100-12-120) has increased from $993,118 (adopted) in FY 2018-19 to $1,521,821 (proposed) in FY 2021-22. This increase is due to 2.3 additional full-time employees being accounted for in this budget unit. City Council recommended and adopted a FY 21-22 budget with a City Manager Discretionary Fund of $75,000. 5. Economic Development has switched to a contract service and has more than doubled in cost. RESPONSE: The Economic Development budget is proposed to decrease from $430,494 in FY 2020-21 to $337,074. As the function becomes further defined, staff will bring forward budget recommendations to City Council for consideration. 188 6. Some committees use staff time (which seems to imply they have a budget amount) and are not codified: Economic Development Committee, Disaster Council, Fiscal Strategic Plan Committee. Needs clarification. RESPONSE: Staff time allocations less than 5% are generally not charged to specific budget units. In other words, the City would not create a budget unit for Fiscal Strategic Plan Committee because less than 5% of a respective employee’s annual time is required. 7. Multiple projects which are not approved in the City Council Work Plan show up in the Proposed Budget: New Logo, online store. Please remove these items from other headings such as “Contract Services” to a new heading which indicates they are Proposed Work Plan Items and not approved. RESPONSE: All City Work Program items will be budgeted and shown as “special projects” in the final adopted budget. Recording activities in a unique account requires the creation of a new general ledger account. This is completed once the City Work Program is adopted and the projects are finalized. 8. Communications costs seems to be a separate area, could this be shown as a group? RESPONSE: Combining these groups would decrease transparency and also sacrifice historical data comparisons. OpenGov’s Transparency Portal now has a saved “view” so that the Office of Communications and the Multimedia budget units can be seen in a combined fashion. OpenGov Saved View 9. It is unclear how much of the Cultural Events ($402,137) items will occur, such as the 4th of July celebration. (PB p. 335-336), a similar item, Neighborhood Events ($163,119) raises the same question (PB p. 350). Total events: $565,256. RESPONSE: Most of the 4th of July funds are spent the FY before the event, so the money in the FY 2021-2022 budget will go toward the July 4, 2022. The other events within this account are Memorial Park Summer Events and Shakespeare in the Park which we are planning for late summer/early Fall 2021, Tree Lighting which is in December 2021, Big Bunny 5K in March/April 2022, and other small events. The Festivals start in the Fall and continue to Spring. At this time, we are assuming those will happen. 10. Economic Development was $89,910 for the 2019 actual expenditure and is now proposed at FY 2022 $337,074 with a new contingency and materials amount of over $60K with no staffing. Additionally, there is no codified Economic Development Committee which uses staff time. This area needs attention. 189 RESPONSE: The Economic Development budget is proposed to decrease from $430,494 in FY 2020-21 to $337,074. With the function likely moving “in-house,” staff are recommending a reduction in this budget unit of $38,694. As the function becomes further defined, staff will bring forward budget recommendations to City Council for consideration. 11. Please explain the large increase in the BMR affordable housing fund PB p. 393 which shows an increase of revenue from 2019 actual of $159,179 in taxes to 2022 Proposed Budget taxes of $3,611,855. There is an allocation of $600,000 shown for Homelessness and other Special Projects which has not been approved and the City Resolution to support the county Task Force on Homelessness indicated that the City would participate in a county-wide program which the City would likely be asked to contribute financially to. RESPONSE: Estimated revenues increased due to one-time anticipated Housing Mitigation In- Lieu Fees for Cupertino Village and De Anza Hotel. The majority of this program’s budget increase is due to two (2) tentative City Work Program items: $300,000 for Affordable Housing Strategies and $300,000 for Homeless Services and Facilities. Although the Affordable Housing Strategies is slated for removal, a $200,000 item for Homeless Jobs Program is slated to be added. 12. Code Enforcement has increased from $508,167 in 2019 to $1,202,392 proposed 2022. PB p. 406. RESPONSE: Full-time employee (FTE) allocations have increased since FY 2018-19 which is contributing to the increase. Additionally, and because of these relatively large proportional staffing increases and changes in methodology, the amount of cost allocation charges increased from $22,478 in FY 2018-19 to $277,786 in the proposed budget year. 13. Facilities would be easier to track if grouped together, Facilities and Fleet next to Grounds, for example. Where are Stocklmeir, Byrne, Blech? RESPONSE: The Department’s budget units/programs are organized in order of Division (xxx- XX-xxx). Because the Fleet or “Fixed Assets Acquisition” program is numbered 630-90-985, it naturally comes at the end. Changing the accounting structure would be an administrative challenge and make it more difficult to identity fluctuations year over year. A saved “view” on OpenGov has been created to see Grounds and Facilities budget units together. OpenGov Saved View 190 Stocklmeir, Byrne and Blesch are not occupied buildings that are in use. The Facilities budgets are for maintenance of city buildings that are in use. Any budget allocations for these three properties would be considered a special project with a specific scope. Additionally, The City’s budget does not include a comprehensive list of the City’s capital assets for two primary reasons: 1) it is not a requirement or recommendation by the Government Finance Officer’s Association (GFOA) and 2) the City strives to keep the budget document as concise as possible. It is regularly recommended by GFOA to shorten the document as necessary and appropriate. 191 CITY OF CUPERTINO Agenda Item 21-9594 Agenda Date: 7/26/2021 Agenda #: 10. Subject: Follow-up on Previous FY Management Letter Items and Management Response Receive Follow-up on Previous FY Management Letter Items and Management Response CITY OF CUPERTINO Printed on 7/23/2021Page 1 of 1 powered by Legistar™192 CITY OF CUPERTINO Agenda Item 21-9595 Agenda Date: 7/26/2021 Agenda #: 11. Subject: Embezzlement Update Receive Embezzlement Update CITY OF CUPERTINO Printed on 7/23/2021Page 1 of 1 powered by Legistar™193