AC 02-22-2021 Searchable PacketCITY OF CUPERTINO
AUDIT COMMITTEE
AGENDA
This will be a teleconference meeting without a physical location .
Monday, February 22, 2021
4:00 PM
Special Meeting
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 3:00 p.m. on Monday, February 22 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:
Online
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Audit Committee Agenda February 22, 2021
Register in advance for this webinar:
https://cityofcupertino.zoom.us/webinar/register/WN_xmTKPwOKQXqm3HIxW-vGRA
Phone
Dial: (669) 900 6833 and enter Webinar ID: 928 7839 8891 (Type *9 to raise hand to speak).
Unregistered participants will be called on by the last four digits of their phone number .
Or an H.323/SIP room system:
H.323:
162.255.37.11 (US West)
162.255.36.11 (US East)
213.19.144.110 (Amsterdam Netherlands)
213.244.140.110 (Germany)
103.122.166.55 (Australia)
69.174.57.160 (Canada)
Meeting ID: 928 7839 8891
SIP: 94306353463@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
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Audit Committee Agenda February 22, 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.
NOTICE AND CALL FOR A SPECIAL MEETING OF THE AUDIT COMMITTEE
NOTICE IS HEREBY GIVEN that a special meeting of the Audit Committee is hereby
called for Monday, February 22, 2021, commencing at 4:00 p.m. In accordance with
Governor Newsom’s Executive Order No-29-20, this will be a teleconference meeting
without a physical location. Said special meeting shall be for the purpose of conducting
business on the subject matters listed below under the heading, “Special Meeting."
ROLL CALL
CEREMONIAL MATTERS AND PRESENTATIONS
1.Subject: Oath of Office for newly-appointed Committee members: training on
Commissioner Handbook approved by City Council on January 19, 2021
Recommended Action: 1.) Conduct Oath of Office for newly-appointed commission
members; and 2.) conduct training on Commissioner Handbook
Commissioner Handbook
APPROVAL OF MINUTES
2.Subject: Approve Minutes of Special Meeting on January 27, 2021.
Recommended Action: Approve Minutes of Special Meeting on January 27, 2021.
Draft Minutes
NEW BUSINESS
3.Subject: Budget Format Review
4.Subject: Review of FY 2019-20 CAFR and Supplemental Reports - Lai and Geerdes
Recommended Action: Review of FY 2019-20 CAFR and Supplemental Reports
A - FY 2019-20 CAFR Draft
B - GAGAS Draft
C - SAS 114 Draft
D - Cupertino GANN AUP Draft
E - Investment AUP Draft
F - TDA Draft
5.Subject: Internal Audit Report (Enterprise Risk Assessment) - Moss Adams
Recommended Action: Review Internal Audit Report (Enterprise Risk Assessment)
and provide input.
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Audit Committee Agenda February 22, 2021
Internal Audit Report (Enterprise Risk Assessment)
6.Subject: Embezzlement Debrief
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.
OLD BUSINESS
POSTPONEMENTS
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.
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 .
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CITY OF CUPERTINO
Agenda Item
21-8779 Agenda Date: 2/22/2021
Agenda #: 1.
Subject:Oath of Office for newly-appointed Committee members:training on Commissioner
Handbook approved by City Council on January 19, 2021
1.)Conduct Oath of Office for newly-appointed commission members;and 2.)conduct training on
Commissioner Handbook
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COMMISSIONER’S
HANDBOOK
2021
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WELCOME AND ORIENTATION
Welcome and thank you for your willingness to serve as a member of a City of
Cupertino Commission. Advisory bodies play an important role in City governance by
assisting the City Council in addressing specific issues in detail and facilitating
community decision‐making.
The City of Cupertino has a number of advisory bodies, each with distinct
responsibilities. As a new advisory body member, you should familiarize yourself with
the documents governing your particular body including City ordinances, City Council
resolutions, relevant element(s) of the General Plan, and other documents, all available
from your staff liaison. Reviewing these documents will help you get a sense of your
responsibilities.
This Handbook is designed to serve as a reference for the basic protocols that apply
generally to all City advisory bodies. Orientation is necessarily an active process. As a new
member you may want to meet with the Chair of your advisory body to get a better sense
of your role and the business of the body, as well as with the staff liaison assigned to the
body. Along with familiarizing yourself with your advisory body’s foundational
documents, you may want to review agendas and minutes from recent meetings to see
what current issues have been under consideration, as well as the City Work Program to
familiarize yourself with current goals.
Learning your role and developing an effective voice takes time and familiarity.
We hope this Handbook will assist you towards a satisfying and productive experience.
Your participation is deeply appreciated by the City Council, by city staff, and by your
community. The vitality and strength of our community results from the willingness of
people like you to serve.
________
Darcy Paul, Mayor
City of Cupertino
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Table of Contents
WELCOME AND ORIENTATION ii
STRUCTURE OF GOVERNMENT 4
Form of Government 4
City Council 4
City Manager and Staff 4
Commissions 5
COMMISSION MEMBERSHIP 6
Quorum and Attendance 6
Vacancies 6
Resignations and Removals 6
MEETINGS 6
Regular Meetings 6
Adjourned Meetings 6
Special Meetings 7
Subcommittees 7
Agendas 7
Preparation for Meetings 7
Minutes 8
Procedure 8
Decorum at Meetings 8
Basis for your Decision 8
CITY WORK PROGRAM 9
COMMUNICATIONS 9
Staying Informed 9
Use of City Email 10
Resources 10
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THE STRUCTURE OF GOVERNMENT
A. FORM OF GOVERNMENT
The City of Cupertino operates as a general law city with a City Council‐City Manager
form of government where the City Council sets policy and the City Manager manages
the implementation and administration of those policies.
B. CITY COUNCIL
The City Council is the governing legislative body of the City, consisting of five members
elected in odd numbered years to staggered four‐year terms. These councilmembers then
elect the mayor and vice mayor to one‐year terms. It sets goals and priorities and
establishes policies. The Mayor is the presiding officer of the Council, and the official
spokesperson and representative of the City.
C. CITY MANAGER AND STAFF
City Manager
The City Manager has complete responsibility and authority for the administration
of the City’s government. This individual is appointed by and serves at the
pleasure of the Council and is the appointing authority for the City, selecting the
department heads and other employees. The City Manager coordinates and directs
the services of the City staff, and commissioners should not attempt to direct or
prioritize work for departments or individual staff.
City Clerk
The City Clerk plays an important role for advisory bodies. The City Clerk accepts
and maintains applications, processes appointments, updates membership rosters,
bylaws, informational booklets, and yearly attendance records. The City Clerk is
the filing officer for Statements of Economic Interests, and any other required filing
as identified by the City Council and the State.
Staff
When assigned by the City Manager, staff assist and act in a technical advisory
capacity to the commissions. It is not expected that every staff recommendation
will be followed; however, because of the staff’s technical knowledge, full
consideration should be given to their recommendation. Staff are at liberty to make
their recommendation to the City Council through the City Manager, even though
the commission may have taken a different position. However, in these cases, the
commission recommendation will be made clear to the City Council.
Staff Liaison
A staff liaison is assigned to each commission. Their main duties include
facilitating meetings, preparing agendas, advising commissioners, and writing
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meeting minutes. Commissioners should reach out to their liaison if they have any
questions regarding matters of the commission or if they would like to contact
other staff regarding official business.
D. COMMISSIONS
The primary purpose of the City’s commissions is to serve as advisory bodies to Council
by weighing public input and rendering recommendations to the City Council. There are
times when the advisory body’s recommendation will not be sustained or will be modified
by the City Council. It is important to recognize this not as a rejection of the integrity of the
recommendation, but as an inevitable part of the process of community decision‐making.
The Council has appointed commissioners as advisors to them. This underlying
philosophy makes it improper for an individual commissioner, acting in their official
capacity, to try to persuade the Council into the acceptance of a recommendation other
than that voted by the majority of the commission. The role of a commission is to assist the
City Council in the formation of policy, having been created for the purpose of advising.
The scope of work, purpose, and other primary functions for each commission can be
found in the City Municipal Code Chapter 2.
Chair and Vice Chair
Each year, every commission will elect from its membership a Chairperson
(Chair) and a vice Chairperson (Vice Chair) who serve at the pleasure of the
commission for a one‐year term. The Vice Chair acts in this capacity when the
Chair is not available.
The Chair should:
Maintain order of the meeting, ensure respect for all opinions, protect
commissioners, staff, and the public from personal attacks.
Keep discussion focused on the issue at hand.
Solicit opinions from commissioners. Encourage evaluation of new, tentative,
or incomplete ideas. Discourage overly dominant commissioners from
having disproportionate control over the discussion.
Attempt to reach decisions expeditiously on action items. At those times
when action would be premature, guide discussion toward a timeline or
framework for responsible action.
Set meeting rules early and make sure everyone abides by them without
exception.
Set an acceptable time limit for public testimony (generally three minutes per
individual and 10 minutes per group) and stick to it. At the Chairʹs discretion,
the public can interact with the members of the commission beyond the
public‐comment time limit in order to facilitate better communication of the
agendized topic.
Provide periodic written updates, approved by the full body, to Council
regarding the status of their activities at least every six months.
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COMMISSION MEMBERSHIP
A. QUORUM AND ATTENDANCE
A quorum consists of a majority of the members of the commission. A quorum is required
to conduct business at any meeting whether it is a regular, adjourned, or special meeting.
While it is expected that members be present at all meetings, the Chair should be notified
if a member knows in advance that he/she will be absent. A member shall be considered
removed from an advisory body under the following conditions:
A member misses more than three consecutive meetings
A member misses more than 25% of the advisory body’s meetings in
a calendar year (Resolution 10‐048)
B. VACANCIES
Vacancies are filled by appointment by the Council. Appointments made in the middle of
a term are for the unexpired portion of that term. Council‐appointed Alternates will
automatically fill a vacancy.
C. RESIGNATIONS AND REMOVALS
If a member is unable to continue serving because of health, business requirements or
personal reasons, a letter of resignation should be submitted to the City Council.
The position of any member is automatically vacated when the member ceases to meet the
qualifications for office, when Council accepts the member’s resignation, or when the
Council so declares.
MEETINGS
A. REGULAR MEETINGS
Commissions are required to hold regular meetings open to the public as provided by the
enabling ordinance. The agenda for this meeting must be posted at least 72 hours prior to
the meeting.
B. ADJOURNED MEETINGS
If the business to be considered at a regular meeting cannot be completed, the commission
then may designate a time and date for an adjourned meeting.
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C. SPECIAL MEETINGS
A special meeting may be called by the Chair or a majority of the members with
coordination with the staff liaison.
D. SUBCOMMITTEES
The Chair may appoint special subcommittees of less than a quorum of the commission
who then may meet at their convenience to carry out the purpose of the subcommittee. If
the subcommittee has a continuing subject matter or a regularly scheduled meeting time,
it may qualify as a Brown Act committee and public notice provisions will apply.
E. AGENDAS
Each commission has a staff liaison responsible for preparing agendas in consultation
with the Chair. If a commissioner or staff member intends to bring up an item for
discussion or action, the item must be included on the agenda in accordance with the
Brown Act. For each meeting, a date should be scheduled for the Chair and staff liaison to
set the agenda. Commissioners can propose agenda items within the purpose of the
commission to the staff liaison prior to the agenda setting date.
Future Agenda Setting
The staff liaison will maintain a list of future agenda items that the commission
plans to discuss. The Chair, the staff liaison, or any two commissioners can add an
agenda item within their purpose to the future agenda item list and it will be
scheduled at the discretion of the Chair and staff liaison. To provide
commissioners an opportunity to discuss whether to add an item to the future
agenda item list, each regularly‐scheduled agenda will include a “Future Agenda
Setting” item. Once an item is added to the future agenda item list, it cannot be
removed until it is discussed for removal at a regularly scheduled meeting during
the item for “Future Agenda Setting.” In addition, the item will not be removed if
the Chair or at least two commissioners wish for the item to remain on the future
agenda item list.
Staff Updates and Commissioner Activity Report
Each regularly scheduled agenda will also include a “Staff Updates and
Commissioner Activity Report” item for staff to report on updates and the
members to report any activities they have taken part in related to the commission
since the prior regularly scheduled meeting.
F. PREPARATION FOR MEETINGS
Thoroughly review the agenda packet, including agenda reports, and any other
materials before the meeting. Check if you may have a conflict of interest with any
of the items due to property or monetary interests. If it is unclear, the commissioner
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can explain the situation to the staff liaison who can seek legal counsel from the
City Attorney. For more information on conflicts of interest, please review the Fair
Political Practices Commission (FPPC) Conflicts of Interest Rules.
Understand what action you are being called upon to take for each particular agenda
item.
Contact the Chair or your staff liaison before the meeting to clarify questions about
the agenda or request further information.
Understand the responsibilities of your commission. As a member of an advisory
body you will be asked to provide recommendations to the City Council about
specific issues. Keep in mind that your appointment does not empower you to
supervise or direct City staff.
G. MINUTES
The approved minutes are placed on file by the City Clerk for public access. Commissions
should strive to keep summary minutes as opposed to action minutes. If automatic
transcription is made available to supplement official minutes, action minutes may be
sufficient.
H. PROCEDURE
Commissions follow the guidelines on parliamentary procedure contained in
Rosenberg’s Rules of Order (Rules). These Rules outline how motions are made and the
basic format for an agenda item discussion.
I. DECORUM AT MEETINGS
Discourage outward signs of agreement or disagreement from the audience such
as cheering or clapping. Such demonstrations can intimidate those wishing to
express alternate views and delay the meeting. Also see Conduct of Members in
the Cupertino Ethics Policy.
Limit your own comments to the issues before the commission. Avoid the
appearance of straying from the subject or ʺgrandstandingʺ.
J. BASIS FOR YOUR DECISION
Commission decisions should be based principally on the information presented to you
in the open public meeting process. If you collect pertinent information outside of the
public process through a meeting with stake holders or site visits, you should share
that information with your fellow commissioners in the public meeting. This sharing of
information will ensure that other commissioners and members of the public have a
better understanding of the rationale for your decision.
Commissioners are free to meet or refuse to meet with residents, resident groups,
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developers or prospective contractors or any persons outside of the public meeting
process concerning issues before the commission. If you meet with any individuals
outside of the public meeting you should disclose the content of that meeting in the
public meeting to again ensure that everybody is aware of the facts and have similar
information upon which to base their decision; this disclosure is required for quasi‐
judicial matters1.
All governmental procedures and process must follow due process and allow an
affected party a right to be heard, and to present controverting fact or testimony on the
question of right in the matter involved. Unfair determinations, such as bias,
predetermination, refusal to hear, etc., may invalidate actions.
Keep an open mind. An objective, balanced, and receptive approach will help you
assess the facets of a given issue and evaluate new ideas. When receiving written and
oral public testimony it will be necessary to discern between fact and opinion, as well as
between those concerns which are relevant and those which are secondary to the issue
at hand. Keeping an open mind will make it easier for you to understand all sides of an
issue before you make a judgment or take a position.
CITY WORK PROGRAM
The City Council approves an annual City Work Program to guide the work of the City.
Prior to the first draft of the City Work Program each year, staff will reach out to the
commissions to ask for recommendations of items to add. These recommendations will be
provided to the City Council for consideration, but ultimately the City Council will
determine the final items on the City Work Program. Commissions support City Work
Program items within their scope by reviewing the items and making recommendations to
City Council. Since the City Council sets the City Work Program to guide the priority
efforts in the City, commission agendas should be aligned accordingly. By August 15, each
commission should provide an annual report of all of the topics the commission has
addressed in the prior year.
COMMUNICATIONS
A. STAYING INFORMED
Commissioners should sign up for City email notifications to stay informed of various
community events and public meetings. Council encourages commissioners to attend at
least two community meetings or meetings of other commissions each year.
The City uses social media outlets, surveys, email notifications, the Scene, and the City
website to perform outreach for City business. For appropriate conduct on social media,
1 More information on quasi‐judicial proceedings can be found in the Imposed Restraints document
in the Commission Resources folder.
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see the City’s Social Media Policy. For questions about City outreach, speak with your
staff liaison.
B. USE OF CITY EMAIL
All newly appointed City commissioners will be assigned a mandatory City email
address after reviewing and signing the Technology Use Policy.
As noted under the Brown Act, care should be taken with regard to emails. Never select
“Reply All” to an email to all commissioners or forward an email sent to you by one
commissioner to another commissioner since that would constitute a quorum. All
questions and concerns should be directed to the Chair and staff liaison.
All City emails are subject to the Public Records Act and you should use your City email
only to conduct City business as a commissioner. Please do not forward or reply to a City
email from your personal email address. Once your term on the commission is over, your
City email will be terminated.
RESOURCES
Commissioners should familiarize themselves with the following resources:
City policies relating to ethics, social media, commissions, diversity, and technology, as
well as the City organizational chart, a Rosenberg’s Rules of Order cheat sheet, and
guidance on imposed restraints, can be found online in the Commission Resources folder.
League of California Cities
Rosenberg’s Rules of Order, Brown Act, Public Records Act, and other resources
Institute for Local Government
Parliamentary Procedure Simplified
Ethics and Transparency
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CITY OF CUPERTINO
Agenda Item
21-8777 Agenda Date: 2/22/2021
Agenda #: 2.
Subject:Approve Minutes of Special Meeting on January 27, 2021.
Approve Minutes of Special Meeting on January 27, 2021.
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City of Cupertino
Audit Committee Special Meeting
Minutes
January 27, 2021
1. CALL TO ORDER
At 4:31 p.m., Chairman Eno Schmidt called the Audit Committee meeting to order. This was a
teleconference meeting with no physical location.
2. ROLL CALL
Committee Members Present: Chair Eno Schmidt, Vice Mayor Chao,
Councilmember Moore, Vice Chair Daisy Liang, Committee Member Angela Chen
City Staff Present: Deborah Feng, Kristina Alfaro, Zach Korach, Thomas Leung, Mariela Vargas
Absent:
Guests: Chris McCarry and Carlos Oblites (Chandler), Rick Rosenthal, Carolyn Cox (US Bank),
Mitch Barker (PARS), Mark Steranka, Emily Hayes, Tammy Lohr (Moss Adams), and Kathy
Lai and Matt Geerdes (Crowe)
1. APPROVAL OF MINUTES
Chair Schmidt mentioned the minutes at the July 28, 2020 meeting were moved by
Councilmember Paul subject to changes. Vice Chair Liang moved to approve October 27, 2020,
regular meeting minutes and Committee Member Angela Chen seconded; motion passed
unanimously.
2. POSTPONEMENTS
A. Budget Format Review – 30 minutes
Zach Korach provided a summary of the budget format review and recommended the Committee
consider establishing a sub-committee to complete the budget format review for the FY 20-21
Budget. Councilmember Moore volunteered to participate on the sub-committee. The
Committee agreed to defer the further selection of the sub-committee to a Special Meeting in
February 2021 so that incoming members have an opportunity to participate.
ORAL COMMUNICATIONS
OLD BUSINESS
NEW BUSINESS
2. Audit Committee Work Plan 2021 – 20 minutes
Chair Schmidt provided a history of the Audit Committee over his nine (9) year tenure. From his
experiences, he provided recommendations for effectively managing the time, work load, and the
meetings themselves. Zach Korach provided an overview of the proposed work plan and
requested input from the Committee regarding additional projects the Committee would like to
see added and brought to City Council for consideration to include in the FY 21-22 City Work
Plan. Chair Schmidt, Vice Mayor Liang, and Councilmember Moore recommended the Audit
Committee Work Plan be reformatted and organized.
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2. Treasurer's Investment Report for period ending December 31, 2020 – 30 minutes
Carlos Oblites began reviewing the portfolio and mentioned that the report complies with code.
Carlos reviewed the portfolio statistics, sector, quality, duration distribution, and investment
performance. Zach Korach provided information regarding the City’s liquidity and cash flow
coverage. Councilmember Moore inquired about the portfolio’s duration and its changes since
the portfolio’s inception as well as the individual corporate issuances and whether the City
invests in international companies. Carlos Oblites explained the reason for the changing duration
since inception and that the portfolio currently does not hold corporate notes with international
companies. Vice Mayor Chao inquired about divestment from fossil fuels to which Zach Korach
provided a summary of the past efforts put forth to analyze a possible divestment in 2019.
3. OPEB & Pension Section 115 Trust Performance Report - US Bank - 20 minutes
Rosenthal began reviewing the OPEB portfolio and period performance. Rosenthal provided an
overview on the OPEB account balance and its growth since inception. Chair Schmidt inquired
about the benchmark asset class ranges and recommended US Bank and City staff continue to
have discussions on the matter. Zach Korach provided comparative strategy and performance
information among jurisdictions also participating in PARS’ Section 115 Trusts. Councilmember
Moore inquired about the relationship between a “balanced” strategy and the various asset
classifications in the Pension and OPEB trust investment portfolios. Zach Korach mentioned that
both investment portfolios follow a “balanced” strategy and the asset classifications in the
portfolios align with the strategy.
4. Review of FY 2019-20 CAFR and Supplemental Reports – Lai and Geerdes - 5 minutes
Kathy Lai provided an overview of the CAFR and supplemental reports stating that the audit was
conducted in accordance with Governmental Auditing Standards and that the City’s financials
were in accordance with Generally Accepted Accounting Principles (GGAP) CAFR is
anticipated to be issued with an “unmodified opinion.” The Committee recommended this item
be deferred to a Special Meeting in February 2021 to provide more opportunity for review and
input on the item.
5. Internal Audit Report - Moss Adams - 5 minutes
Mark Steranka informed the Committee that if the item was deferred to a Special Meeting in
February 2021, a draft internal audit work plan could also be presented with the final risk
assessment report. The Committee elected to defer the item.
6. Embezzlement Debrief
This item was deferred to a Special Meeting in February 2021
10. ADJOURNMENT
The meeting adjourned at 6:30 p.m.
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CITY OF CUPERTINO
Agenda Item
21-8778 Agenda Date: 2/22/2021
Agenda #: 3.
Subject: Budget Format Review
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CITY OF CUPERTINO
Agenda Item
21-8780 Agenda Date: 2/22/2021
Agenda #: 4.
Subject: Review of FY 2019-20 CAFR and Supplemental Reports - Lai and Geerdes
Review of FY 2019-20 CAFR and Supplemental Reports
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FISCAL YEAR 2019-2020
COMPREHENSIVE ANNUAL
FINANCIAL REPORT 21
CITY OF CUPERTINO, CALIFORNIA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED JUNE 30, 2020
Prepared by the City of Cupertino Administrative Services Department
Finance Division
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CITY OF CUPERTINO, CALIFORNIA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
For the year ended June 30, 2020
CONTENTS
INTRODUCTORY SECTION
TABLE OF CONTENTS ..................................................................................................................... i
LETTER OF TRANSMITTAL .............................................................................................................. iii
ORGANIZATION CHART ................................................................................................................... ix
CITY COUNCIL AND DIRECTORY OF CITY OFFICIALS ................................................................ x
COMMISSIONS AND COMMITTEES ................................................................................................ xi
CERTIFICATE OF AWARD FOR EXCELLENCE IN FINANCIAL REPORTING ............................... xii
FINANCIAL SECTION
INDEPENDENT AUDITOR'S REPORT .................................................................................................... 1
MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) .......................................................... 4
BASIC FINANCIAL STATEMENTS:
GOVERNMENT-WIDE FINANCIAL STATEMENTS:
STATEMENT OF NET POSITION ..................................................................................................... 23
STATEMENT OF ACTIVITIES ........................................................................................................... 24
FUND FINANCIAL STATEMENTS:
GOVERNMENTAL FUNDS:
BALANCE SHEET .............................................................................................................................. 26
RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET WITH THE
STATEMENT OF NET POSITION ................................................................................................... 27
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN
FUND BALANCES ........................................................................................................................... 28
RECONCILIATION OF THE NET CHANGE IN FUND BALANCES —
TOTAL GOVERNMENTAL FUNDS WITH THE STATEMENT OF ACTIVITIES ............................. 29
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE —
BUDGET TO ACTUAL — GENERAL FUND ..................................................................................... 30
BUDGET TO ACTUAL — TRANSPORTATION SPECIAL REVENUE FUND .................................. 31
BUDGET TO ACTUAL — HOUSING DEVELOPMENT SPECIAL REVENUE FUND ....................... 32
PROPRIETARY FUNDS:
STATEMENT OF NET POSITION ..................................................................................................... 34
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION ................ 35
STATEMENT OF CASH FLOWS ....................................................................................................... 36
FIDUCIARY FUND:
STATEMENT OF FIDUCIARY NET POSITION ................................................................................. 38
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION ......................................................... 39
NOTES TO THE BASIC FINANCIAL STATEMENTS .............................................................................. 40
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED):
SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS .............. 77
SCHEDULE OF CONTRIBUTIONS — PENSION ............................................................................. 78
SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY AND RELATED RATIOS ..................... 79
SCHEDULE OF CONTRIBUTIONS – OPEB ..................................................................................... 80
SCHEDULE OF INVESTMENT RETURNS – OPEB ........................................................................ 81
23
ii.
CITY OF CUPERTINO, CALIFORNIA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
For the year ended June 30, 2020
CONTENTS (Continued)
OTHER SUPPLEMENTARY INFORMATION:
SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE —
BUDGET AND ACTUAL - PUBLIC FACILITIES CORPORATION DEBT SERVICE FUND .............. 83
NONMAJOR GOVERNMENTAL FUNDS:
COMBINING BALANCE SHEET ........................................................................................................ 85
COMBINING STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES .................................................................................................... 86
COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES — BUDGET AND ACTUAL ....................................................... 87
NONMAJOR ENTERPRISE FUND:
COMBINING STATEMENT OF NET POSITION ............................................................................... 91
COMBINING STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN FUND NET POSITION .............................................................................................. 92
COMBINING STATEMENT OF CASH FLOWS ................................................................................. 93
INTERNAL SERVICE FUNDS:
COMBINING STATEMENT OF NET POSITION ............................................................................... 95
COMBINING STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN FUND NET POSITION .............................................................................................. 96
COMBINING STATEMENT OF CASH FLOWS ................................................................................. 97
STATISTICAL SECTION
FINANCIAL TRENDS:
NET POSITION/ASSETS BY COMPONENT — LAST TEN FISCAL YEARS ................................... 100
CHANGES IN NET POSITION/ASSETS — LAST TEN FISCAL YEARS.......................................... 101
FUND BALANCES OF GOVERNMENTAL FUNDS — LAST TEN FISCAL YEARS ......................... 103
CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS —
LAST TEN FISCAL YEARS .............................................................................................................. 104
REVENUE CAPACITY:
ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE
PROPERTY — LAST TEN FISCAL YEARS .................................................................................... 105
DIRECT AND OVERLAPPING PROPERTY TAX RATES — LAST TEN FISCAL YEARS ............... 106
PRINCIPAL PROPERTY TAXPAYERS — CURRENT YEAR AND FIVE YEARS AGO ................... 107
PROPERTY TAX LEVIES AND COLLECTIONS — LAST TEN FISCAL YEARS ............................. 108
DEBT CAPACITY:
RATIOS OF OUTSTANDING DEBT BY TYPE — LAST TEN FISCAL YEARS ................................ 109
DIRECT AND OVERLAPPING BONDED DEBT ................................................................................ 110
LEGAL DEBT MARGIN INFORMATION — LAST TEN FISCAL YEARS .......................................... 111
RATIO OF GENERAL BONDED DEBT — LAST TEN FISCAL YEARS ........................................... 112
DEMOGRAPHIC AND ECONOMIC INFORMATION:
DEMOGRAPHIC AND ECONOMIC STATISTICS — LAST TEN FISCAL YEARS ........................... 113
2020 EMPLOYER RANKING ............................................................................................................. 114
OPERATING INFORMATION:
FULL-TIME EQUIVALENT CITY EMPLOYEES BY
FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ................................................................. 115
OPERATING INDICATORS BY FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ................ 116
CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ........... 117
COMMUNITY PROFILE
24
iii.
_________, 2020
To the Citizens of Cupertino, Honorable Mayor,
Members of the City Council, and City Manager
It is our pleasure to submit the Comprehensive Annual Financial Report (CAFR) for the City of Cupertino
(the City) for the fiscal year ended June 30, 2020. The report is prepared in accordance with generally
accepted accounting principles (GAAP) set by the Governmental Accounting Standards Board (GASB).
The report presents City information on an entity-wide basis and on a more detailed fund level basis. The
fund-level reports emphasize the City’s major funds. A Management Discussion and Analysis (MD&A)
presents a comparative analysis of current and prior year results, changes in financial position, a comparison
of actual versus budget, financial highlights, trends, and disclosure of any known significant events or
decisions that affect the financial condition of the City. This transmittal letter is designed to complement
the MD&A and should therefore be read in conjunction with it. The MD&A is required supplementary
information and is found in the Financial Section of the CAFR.
The accuracy of the data presented and the completeness and fairness of the presentations, including all
disclosures, are the responsibility of the management of the City. To provide a reasonable basis for making
these representations, management has established a comprehensive internal control framework that is
designed to protect the City’s assets and provide sufficient, reliable information for the proper preparation
of these financial statements. We believe the data is accurate in all material respects and is presented in a
manner that fairly sets forth the City’s financial position. Furthermore, we believe that all disclosures
necessary to enable the reader to gain an understanding of the City’s financial activity have been included.
REPORTING ENTITY
This CAFR includes all component units and funds of the City. It reports all activities for which the City
is considered to be financially accountable. The general governmental funds support a full range of
services, including law enforcement, community development, recreation, public works, public and
environmental affairs, and general administration. Enterprise funds account for recreation and solid waste
operations supported by user fees. This financial report incorporates data for the City of Cupertino and its
component unit, the Cupertino Public Facilities Corporation.
The City operates under a Council-City Manager form of government. There are five council members,
including the Mayor, who serve staggered four-year terms. The City Council appoints the City Manager
who is responsible for the daily administration of City affairs. The City Council also appoints the City
Attorney and the City Treasurer. All other employees are appointed by the City Manager.
CITY OF CUPERTINO
CITY HALL
10300 TORRE AVENUE • CUPERTINO, CA 95014-3202
(408) 777-CITY • WWW.CUPERTINO.ORG
25
iv.
ECONOMIC CONDITIONS
The City of Cupertino is located in Santa Clara County at the southern end of the San Francisco Bay
Peninsula. The City is comprised of 13-square miles and is bordered by the cities of San Jose, Saratoga,
Sunnyvale, Santa Clara, and Los Altos. It has a residential population of 66,762 (based on 2020 Claritas
estimated data).
Situated at the west end of Silicon Valley, Cupertino has earned the reputation of a balanced community
with a healthy climate for business and well-maintained residential neighborhoods, community parks and
public facilities. The excellent reputation of Cupertino’s schools is a major attraction for families wishing
to settle in close proximity to high paying jobs in Silicon Valley. The City recognizes the importance of
quality school facilities and programs to all Cupertino residents, and works in partnership with the schools
in many programs affecting education and youth. National surveys rank the City high in education levels,
average household incomes, and registered patent numbers, as well as one of the best cities in which to live
and raise a family.
Because Cupertino is a mature, 93% built-out city, the City of Cupertino focuses on business retention and
revitalization. Cupertino is world renowned as the home of high-tech giants, such as Apple, Inc., and as a
community with stellar public schools. De Anza College, one of the largest single-campus community
colleges in the country, is another major employer and a magnet for attracting local and international
students. The City’s proactive economic development efforts have resulted in an innovative environment
for start-ups and growing companies to thrive. The City strives to retain and attract local companies through
active outreach and a responsive and customer-oriented entitlement process.
Cupertino is excited to have a number of new mixed-use development projects offering more retail and
dining options, as well as provide additional housing opportunities to meet the needs of the growing
community.
The Main Street and Nineteen800 mixed-use developments have created a vibrant downtown area for
Cupertino, offering a large selection of restaurants and retailers, including Alexander’s Steakhouse,
Eureka!, Rootstock Wine Bar, Oren’s Hummus, Lazy Dog, Ippudo, HaiDiLao Hot Pot Restaurant, Pressed
Juicery, Orangetheory, 85 Degree Bakery, Somi Somi, Sul & Beans, Target Express, Kura Sushi, Vitality
Bowls, Doppio Zero, Boiling Point and Jin Tea, Koja Kitchen, Bishops Cuts & Colors, Capezio, Howard’s
Shoes, Tan Cha, and Meet Fresh. Housing, office, and a new Residence Inn by Marriott are available to
support the thriving area. Benihana, Bowlmor, and Ice Center Cupertino also serve as long-time anchors.
The construction of new retail and commercial development strengthens existing popular venues in
Cupertino, including The Marketplace. The Marketplace has a variety of stores and restaurants popular with
students, families, and working professionals. They include Galpao Gaucho, Daiso, Marukai Groceries,
Harumi Sushi, La Patisserie Bakery, Beard Papa’s, Legend’s Pizza, Merlion Restaurant, Icicles, Kong’s
Tofu & BBQ, Rori Rice, One Pot Shabu Shabu, Olarn Thai, and Erik’s DeliCafé to name a few.
Cupertino Village is undergoing renovations to upgrade existing buildings, construct new buildings,
parking, and open-courtyard space. The shopping center is home to 99 Ranch Market, Duke of Edinburgh
Pub & Restaurant, JSJ Street Kitchen, Kira Kira Beauty, MOD Pizza, Ten Ren Tea, Fantasia Coffee & Tea,
Yoga Wave, Happy Lemon, Joy Luck Palace, Kee Wah Bakery, and many other Asian restaurants, bakeries,
and shops.
Cupertino features many other retail opportunities, including TJ Maxx and Home Goods, Whole Foods,
Target, Party City, and over 180 restaurants to serve residents and the local workforce. There are now seven
hotels providing over 1,000 rooms, to serve the area: The Aloft Cupertino, Cupertino Hotel, Hilton Garden
26
v.
Inn, Juniper Hotel operated by Curio, Marriott Courtyard, the Residence Inn by Marriott, and the newest
addition is the Hyatt House.
The redevelopment of the Homestead Square Shopping Center, located at Homestead Road and De Anza
Boulevard, includes a 24-hour Safeway, Ulta Beauty, Ross Stores, Stein Mart, Pet Club, Michael’s, Rite
Aid, FedEx, and numerous restaurants, such as Fish’s Wild, Pho Hoa Noodle Soup, Yayoi Teishoku
Japanese Restaurant, Starbucks, and Chipotle.
Apple completed construction of its new corporate campus, Apple Park, which includes approximately 2.8
million square feet of office and R&D space north of Highway 280 between Wolfe Road and Tantau
Avenue. A state-of-the-art Visitors Center, Observation Deck, flagship retail store and café are open to the
public seven days a week.
According to the 2019-2020 Assessor’s Annual Report for Santa Clara County, Cupertino’s net assessment
roll growth increased nearly $831 million, or 3.3%, from the prior year. Approximately $470 million and
$46 million of the increase was attributable to changes in ownership for single family housing and
multifamily housing, respectively. Approximately $58 million and $19 million of the increase was
attributable to changes in new construction for single family housing and multifamily housing, respectively.
Additionally, commercial and industrial increased by $20.9 million, or 0.3%, and $56.9 million, or 7.6%,
respectively.
The City’s sales tax revenues are generated from five principal economic categories: business-to-business
73.0% (includes electronic equipment and software manufacturers and distributors), state and county pools
21%, restaurants and hotels 2%, general retail 2%, and fuel and service stations 2%.
Our two largest sales taxpayers in the business-to-business category represent a large part of that sector and
therefore can significantly affect sales tax trends. The top taxpayers’ corporate and business technology
spending has driven growth in this sector. Sales tax activity has increased across most sectors with a
decrease primarily in construction. This decrease is attributed to the winding down of construction projects
in the City, particularly, the Apple Park campus development. Given these trends, the City’s FY 2019-20
sales tax revenue is projected to show a more modest increase going forward.
Sales Tax Trend
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
27
vi.
Continued economic growth driven primarily by the business to business sector continued through FY
2014-15 until a slight $400,000 decline in FY 2015-16 due to a one-time clean up payment from the
previous year received in FY 2016-17. FY 2016-17 increased significantly with a $3.5 million “triple-flip”
close-out payment. There was a modest decrease in FY 2017-18 which was again attributable to the one-
time “triple-flip” close-out payment from FY 2016-17 that was not received in FY 2017-18. Despite the
fluctuation, the sales tax base experienced strong growth. FY 2018-19 experienced a slight decrease due to
the tapering of localized sales tax dollars from construction and completion of Apple Campus 2 which
further indicates a return to normalcy in respect to previous years. Additionally, the City received a one-
time quarterly clean-up payment in FY 2017-18 of $1.6 million that contributed to the comparative decrease
in FY 2018-19. In FY 2019-20, the City’s sales taxes experienced growth due to a one-time double payment
from Apple. Additionally, a change in estimate in which the City adjusted its accrual practice to include
the full remittance amounts from July and August 2020 contributed to approximately $9.0 million of the
increase over the previous fiscal year. This change in estimate will be applied prospectively and
consistently moving forward. Though much uncertainty remains during the course of the pandemic, the
City has seen positive sales tax trends into FY 2020-21 due to the telework transition and the state-wide
need for additional electronic equipment and infrastructure.
With the economic recovery and easing of credit, commercial development activity picked up considerably
in 2012-13 and 2013-14 led by plan reviews of the new Apple Campus 2. Plans for the redevelopment of
the Marina shopping center into a mixed-use project, Marina Plaza, was approved in 2016. This project
will include 23,000 SF of retail and restaurant use, a 122-room boutique hotel, and 188 residential units
including 16 below market rate units. Construction of a five story, 148-room Hyatt House hotel was
completed in April 2019 and includes a full-service restaurant and meeting rooms. Through the City’s new
General Plan Amendment (GPA) Authorization Process applications for two development projects were
authorized by City Council during FY 2019-20 with the De Anza Hotel and the Cupertino Village Hotel.
The City’s pension and retiree medical unfunded actuarial accrued liabilities are discussed in the Notes to
the Basic Financial Statements. The City must pay CalPERS, the state’s government pension system,
annually to reduce its long-term liability for pensions. Cupertino’s CalPERS actuarial valuation report as
of June 30, 2019 reported a pension unfunded accrued liability of $49.2 million with annual payments to
CalPERS of 31.3% and 29.8% of projected payroll for 2021-22 and 2020-19, respectively, with ongoing
increases after that because of actuarial assumption changes. To address long-term rising costs, Cupertino
and state law has reduced pension benefits for new hires and increased employee contributions. As of the
June 30, 2020 GASB 74/75 report, the City has a retiree medical unfunded liability of $2 million with
annual payments to a retiree health plan trust at 9.1% of payroll.
In fiscal year 2017-18, the City Council approved the establishment of a Section 115 trust as part of a
pension rate stabilization program. An initial investment of $8,000,000 was made in FY 2018-19 and an
additional contribution of $4 million was made in FY 2019-20.
Because the City contracts out police services to the County Sheriff and because fire protection is handled
by a special district, the City avoids the high pension, capital, and operating costs of a City-operated public
safety function. The City caps its contributions to employee health insurance premiums that benefit both
the City and employees. A build-up of operating reserves from strong revenue years, such as 2013-14,
along with a traditional under-spending of budgets, enables the City to withstand weak revenue years that
occur periodically, such as in 2009-10.
28
vii.
ECONOMIC INITIATIVES
With the expanded Apple presence, the City’s revenue base will remain concentrated among its top
companies and top economic sector, the volatile business-to-business area. Past recessions and the historic
departure of a major tax provider, Hewlett-Packard, demonstrates the need for diversification of the City’s
revenue base and a long-term balance of revenues and expenditures. The City desires other revenues to
mitigate the fluctuating nature of sales taxes, hotel taxes, user fees, and state grabs of local taxes in times
of budget distress.
COVID-19 has had significant adverse impacts on the City’s transient occupancy taxes, charges for
services, and is sure to have long-lasting impacts on its sales tax. While the City’s revenues remained
strong in FY 2019-20 and are currently on pace with projections in FY 2020-21, the City’s strong, untapped
reserves afford the City to continue actively mitigating the impacts of the pandemic on the community.
Efforts to reduce operating costs, additional allocations for tenants at risk of eviction and homeless
assistance, public facility and area sanitation enhancements, and small business grant assistance are all
examples in FY 2019-20 and FY 2020-21 of the City’s on-going ability and commitment to overcome these
challenges.
ACCOUNTING AND BUDGETARY CONTROL
In developing and evaluating the City’s accounting system, consideration is given to the adequacy of
internal accounting controls. The City’s controls are designed to provide reasonable, but not absolute,
assurance regarding the safeguarding of assets against losses from unauthorized use or disposition and the
reliability of financial records for preparing financial statements and maintaining accountability of assets.
The concept of reasonable assurance recognizes that the costs of a control should not exceed the benefits
likely to be derived and that the evaluation of costs and benefits requires estimates and judgments by
management.
The City’s budget is a detailed operating plan that identifies estimated costs and results in relation to
estimated revenues. The budget includes 1) the programs, projects, services and activities to be provided
during the fiscal year; 2) estimated revenue and fund balance available to finance the operating plan; and
3) the estimated spending requirements of the operating plan. The budget represents a process through
which policy decisions are made, implemented and controlled.
INDEPENDENT AUDIT
City ordinance requires an annual audit of the financial records by an independent certified public
accounting firm selected by the City Council and its audit committee. Crowe LLP audited the City’s Basic
Financial Statements, and their opinion thereon is included in the Financial Section of this report.
FRAUD INVESTIGATION
On September 5, 2018 the Santa Clara County Sheriff’s Office arrested former City of Cupertino employee
Jennifer “Yuen-Cheng” Chang, Senior Accountant, for her role in the embezzlement of public funds. It is
believed that Ms. Chang issued and cashed numerous fraudulent checks between 2000 and 2014 for a total
of $791,494.
The scheme ended in September 2014 right before the implementation of an upgraded financial system in
December 2014 that tightened internal controls. Ms. Chang, who was hired by the City in 1997, retired in
July 2015.
The checks were uncovered earlier by staff during a multi-year, detailed review of several accounts—
including payroll, bank reconciliations, and deposits—which began after the implementation of the new
financial system in fiscal year 2014-2015. The checks were found debited against a liability account and
deemed suspicious due to their nature, size, and lack of supporting documentation.
29
viii.
The Santa Clara County Sheriff’s Office submitted its case to the Santa Clara County District Attorney’s
Office for the issuance of a warrant for Ms. Chang. The California Attorney General has brought forward
68 criminal charges against Ms. Chang. The City of Cupertino is seeking full restitution from Ms. Chang
through upcoming criminal and civil proceedings.
At the Preliminary Hearing on December 10, 2019, Judge Pennypacker ruled that Ms. Chang will have to
stand trial on 53 felony counts. The counts include Grand Theft and Computer Intrusion for the period
September 28, 2000 to September 5, 2014, and Embezzlement for the period July 22, 2011 to September 5,
2014. Because Ms. Chang’s bank does not save documents from prior to 2011, the State cannot prove an
element of the crime of embezzlement. Currently, the Judge set the case for an arraignment for further
decision. It is the City’s position to support prosecution to the fullest extent of the law, including full
restitution and jail time if criminal liability is found.
Among other internal controls maintained by the City over its financial records, in addition to the upgraded
financial system in December 2014 that tightened internal controls, the City also hired additional accounting
staff to enhance segregation of duties as well as internal audit function that has been approved for
implementation in fiscal year 2019-20. Lastly, the City has engaged Moss Adams, LLP to serve as its
internal auditor.
CERTIFICATE OF ACHIEVEMENT
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a
Certificate of Achievement for Excellence in Financial Reporting to the City of Cupertino for its CAFR for
the year ended June 30, 2018. In order to be awarded a Certificate of Achievement, a government unit must
publish an easily readable and efficiently organized CAFR. This report must satisfy both GAAP and
applicable legal requirements.
A Certificate of Achievement is valid for a period of one year only. We believe that the current report
continues to meet the Certificate of Achievement Program’s requirements.
Respectfully submitted,
Zach Korach
Finance Manager
ACKNOWLEDGMENTS
I would like to express my appreciation to City employees, department heads, the City Manager, members
of the Audit Committee, and members of City Council for their interest in conducting the financial
operations of the City in a responsible manner. Special thanks go to, Thomas Leung, Zeng Wang, Min
Zhao, Jumaini Judoprasetijo, Vi Tran, and Amber Chang of the Finance staff for their continued support
and dedication. Special recognition to Beth Viajar, Richard Wong, Giang Dinh, and Mariela Vargas for
their efforts in the preparation and production of this report.
Reviewed by,
Kristina Alfaro
Director of Administrative Services
30
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32
CITY OF CUPERTINO, CALIFORNIA
Fiscal Year 2019-20
COMMISSIONS AND COMMITTEES
xi.
BICYCLE PEDESTRIAN
COMMISSION
Erik Lindskog
Gerhard Eschelbeck
Ilango Ganga
Jennifer Shearin
Muni Madhdhipatla
FINE ARTS COMMISSION
Diana Matley
Janki Chokshi
Rajeswari Mahalingam
Sonia Dhami
Sudha Kasamsetty
HOUSING COMMISSION
Connie Cunningham
Sanjiv Kapil
Siva Gandikota
Sue Bose
Tessa Parish
LIBRARY COMMISSION
Amando Wo
Christie Wang
Liana Crabtree
Qin Pan
Rahul Vasanth
PARKS AND RECREATION
COMMISSION
Carol Stanek
Gopal Kumarappan
Neesha Tambe
Sashikala Begur
Xiangchen Xu
PLANNING COMMISSION
Alan Takahashi
David Fung
Kitty Moore
R “Ray” Wang
Vikram Saxena
PUBLIC SAFETY COMMISSION
Eric Shan
Hymanand Nellore
Lakshminarasimha Ankireddipally
Tiffany Wang
Yvonne Chao
SUSTAINABILITY
COMMISSION
Anna Weber
Gary Latshaw
Meera Ramanathan
Ram Mohan
Vignesh Swaminathan
TEEN COMMISSION
Alden Gu
Anagaa Nathan
Jay Yeung
Kelly Tung
Krithika Venkatasubramanian
Nitya Devisetti
Rushil Jayant
Samikshaa Natarajan
Tanvi Khot
TECHNOLOGY, INFORMATION
& COMMUNICATIONS
COMMISSION
Eliza Du
Mukesh Garg
Naidu Bollineni
Prabir Mohanty
Rajaram Soundararajam
AUDIT COMMITTEE
Angela Chen
Darcy Paul
Eno Schmidt
Mingming (Daisy) Liang
Rod Sinks
DESIGN REVIEW COMMITTEE
David Fung
R “Ray” Wang
ENVIRONMENTAL REVIEW
COMMITTEE
Liang Chao
Kitty Moore
Dianne Thompson
Ben Fu
Chad Mosley
LEGISLATIVE REVIEW
COMMITTEE
Liang Chao
Steven Scharf
33
Government Finance Officers Association
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of Cupertino
California
For its Comprehensive Annual
Financial Report
For the Fiscal Year Ended
June 30, 2019
Executive Director/CEO
xii.34
(Continued)
1.
INDEPENDENT AUDITOR'S REPORT
To the Honorable Mayor and City Council
City of Cupertino, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type
activities, each major fund, and the aggregate remaining fund information of the City of Cupertino, California
(City) as of and for the year ended June 30, 2020, and the related notes to the financial statements, which
collectively comprise the City’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and the
standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinions.
35
(Continued)
2.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the governmental activities, the business-type activities, each major fund,
and the aggregate remaining fund information of the City, as of June 30, 2020, and the respective changes
in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for
the General Fund, the Transportation Special Revenue Fund, and the Housing Development Special
Revenue Fund for the year then ended in accordance with accounting principles generally accepted in the
United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis, and the required supplementary information section on pages <> and <> be
presented to supplement the basic financial statements. Such information, although not a part of the basic
financial statements, is required by Governmental Accounting Standards Board who considers it to be an
essential part of financial reporting for placing the basic financial statements in an appropriate operational,
economic, or historical context. We have applied certain limited procedures to the required supplementary
information in accordance with auditing standards generally accepted in the United States of America,
which consisted of inquiries of management about the methods of preparing the information and comparing
the information for consistency with management’s responses to our inquiries, the basic financial
statements, and other knowledge we obtained during our audit of the basic financial statements. We do not
express an opinion or provide any assurance on the information because the limited procedures do not
provide us with sufficient evidence to express an opinion or provide any assurance.
Supplementary Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the City’s basic financial statements. The introductory section, other supplementary information
section, statistical section and community profile are presented for purposes of additional analysis and are
not a required part of the basic financial statements.
The other supplementary information section is the responsibility of management and was derived from
and relates directly to the underlying accounting and other records used to prepare the basic financial
statements. Such information has been subjected to the auditing procedures applied in the audit of the
basic financial statements and certain additional procedures, including comparing and reconciling such
information directly to the underlying accounting and other records used to prepare the basic financial
statements or to the basic financial statements themselves, and other additional procedures in accordance
with auditing standards generally accepted in the United States of America. In our opinion, the other
supplementary section is fairly stated, in all material respects, in relation to the basic financial statements
as a whole.
The introductory section, statistical section and community profile has not been subjected to the auditing
procedures applied in the audit of the basic financial statements, and accordingly, we do not express an
opinion or provide any assurance on them.
36
3.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated <>, 2020 on our
consideration of the City’s internal control over financial reporting and on our tests of its compliance with
certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose
of that report is to describe the scope of our testing of internal control over financial reporting and
compliance and the results of that testing, and not to provide an opinion on internal control over financial
reporting or on compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the City’s internal control over financial reporting and
compliance.
Crowe LLP
Costa Mesa, California
<>, 2020
37
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
4
This section describes the City of Cupertino’s financial performance for the year. Readers are
encouraged to consider the following information in conjunction with the accompanying Transmittal
Letter and Basic Financial Statements.
2019-20 FINANCIAL HIGHLIGHTS
The COVID-19 pandemic, and the ensuing lockdowns, has negatively affected economies not only
in the region, but around the world. Sales tax, transient occupancy tax, and charges for services were
both positively and negatively impacted as explained further below. However, while much
uncertainty remains regarding the length and magnitude of these impacts, the City stands well
positioned with robust fund balance reserves and has implemented budget reduction strategies for
the upcoming fiscal year.
The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows
of resources at the close of the fiscal year 2020 by $300.9 million (net position). Of this amount,
$74.6 million represents unrestricted net position, which may be used to meet the City’s ongoing
obligations to citizens and creditors.
City revenues have increased in 2019-20 with base governmental revenues showing a $16.4 million
increase, or 17.1%, over 2018-19. The primary fluctuations include an increase in property and sales
tax and program revenues that are offset by decreases in transient occupancy tax and other taxes.
According to the 2019-2020 Assessor’s Annual Report for Santa Clara County, Cupertino’s net
assessment roll growth increased nearly $831 million, or 3.3%, from the prior year. Approximately
$470 million and $46 million of the increase was attributable to changes in ownership for single
family housing and multifamily housing, respectively. Approximately $58 million and $19 million
of the increase was attributable to changes in new construction for single family housing and
multifamily housing, respectively. Although sales tax declined slightly year over year in FY 2018-
19, the City experienced an increase of approximately $10.8 million, or 43.2% over the previous
year. This is primarily due to a change in estimate in which the City adjusted its accrual practice to
include the full remittance amounts from July and August 2020. This change in estimate will be
applied prospectively and consistently moving forward. This increase is also due to a one-time
double payment received by Apple. Additionally, the City experienced declines in many of the
sectors including autos and transportation, building and construction, fuel and service stations,
general consumer goods, and restaurants and hotels; however, these experiences were mitigated by
a strong performance in the business and industry and county pool allocation. The COVID-19
pandemic has brought great uncertainty to the economy and although the business and industry sector
experiences significant increases due to the telework conversion, the City continues to monitor and
forecast these sectors conservatively. COVID-19 and shelter-in-place orders brought the City’s
transient occupancy taxes to a near halt beginning in March of 2020. As a result, the City’s
experienced a $1.6 million, or 18.1%, decrease over the previous fiscal year.
The City continued to make substantial investment into capital projects dedicated to street and
transportation improvements, storm drain improvements, and maintenance of and improvements to
City facilities, resulting in an increase in net capital assets of $3.6 million, after depreciation. The City’s change in net position was $15.1 million for governmental activities and $16.3 million in
total, reflecting the continued growth of revenues and modest departmental spending.
The City’s Net Pension Liability for June 30, 2020, was $46.1 million, up $5.2 million from June 30,
2019, or 12.7%. The Plan Fiduciary Net Position as a Percentage of the Total Pension Liability for
the City’s pension plan with CalPERS decreased from 69.6% to 68.3%. During fiscal year 2019-20,
the City Council approved an additional $4 million contribution to the City’s recently established
pension rate stabilization program (Section 115 Trust). Annual contributions to this trust will
38
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
5
continue on an annual basis and as part of the City’s budget process. In accordance with guidance
under GASB 67/68, the assets in the Section 115 Trust are reported as restricted cash and investments
in the City’s General Fund. While the Section 115 Trust qualifies as a “trust,” the assets in the
Section 115 Trust are not used to directly pay benefits to beneficiaries; rather, they are used to pay
CalPERS via the CERBT Trust and as a result, the activities are not required to be reported in a
fiduciary fund. The Trust’s ending balance as of June 30, 2020 was $12.7 million.
Business-type activities contributed $6.6 million to citywide revenues totaling $109.9 million, while
the same activities contributed over $8.9 million to citywide expenses of $93.7 million.
The City implemented the provisions of GASB Statement No. 75, Accounting and Financial
Reporting for Postemployment Benefits Other Than Pensions, during the fiscal year 2017-18. This
statement requires governments to report a liability on the face of the financial statements for the
OPEB provided by the City. During FY 2019-20, the City’s reduced the discount rate from 7.0% to
6.5% which consequently increased the Total OPEB Liability. As of June 30, 2020, the City reported
a Net OPEB Liability of $2.0 million, Deferred Outflows of Resources of $2.7 million, and Deferred
Inflows of Resources of $1.1 million. As of June 30, 2020, the City’s OPEB plan had a funding ratio
or funded ratio or status of 93.7%.
On September 29, 2020, the City of Cupertino’s 2020A Certificates of Participation (2020 COPs)
were successfully sold in order to refund the City’s 2012 Certificates of Participation for debt service
savings. The 2020 COPs were very well received by investors due in large part to the well-regarded
Cupertino name, the top-notch AA+ rating, the sizable annual principal amounts and short maturity,
and favorable supply and demand dynamics in the California municipal market. The refunding
generated net present value savings of approximately $3.14 million, 11.61% of refunded par and a
True Interest Cost of 0.72%. Savings to the City’s General Fund amounts to approximately $494,000
per year for the next 10 years, or almost $5 million in total savings.
OVERVIEW OF THE FINANCIAL STATEMENTS
The discussion and analysis is intended to serve as an introduction to the City’s Basic Financial
Statements. The Basic Financial Statements are comprised of the City-wide Financial Statements, the
Fund Financial Statements, and the notes to the Basic Financial Statements. These two sets of financial
statements provide two different views of the City’s financial activities and positions.
The City-Wide Financial Statements provide a long-term view of the City’s activities as a whole, and
comprise the Statement of Net Position and the Statement of Activities. These statements are prepared
on the accrual basis, which means they measure the flow of all economic resources of the City as a
whole. The accrual basis of accounting is similar to the accounting used by most private sector
companies. The Statement of Net Position provides information about the financial position of the City
as a whole, including all its capital assets and long-term liabilities. The Statement of Activities provides
information about all the City’s revenues and expenses, with the emphasis on measuring net revenues
and expenses for each of the City’s programs. The Statement of Activities explains in detail the change
in net position for the year. Over time, increases or decreases in net position can be indicators of whether
the financial condition of the City is improving or deteriorating.
All of the City’s activities are grouped into Governmental activities and Business-type activities, as
explained below. The Statement of Net Position and the Statement of Activities provide a summary of
these two types of activities for the City as a whole.
Governmental activities—Most of the City’s basic services are considered to be governmental
activities, including public works, law enforcement, community development, recreation, public &
environmental affairs, and general administration. These services are supported by general City
revenues such as property, sales and other taxes, and by specific program revenues such as developer
fees and grants.
39
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
6
The City’s governmental activities include the activities of a separate legal entity, the Cupertino
Public Facilities Corporation (the “Corporation”), because the City is considered to be financially
accountable for the Corporation. The City leases its major facilities from the Corporation, which
then uses the lease payments to pay principal and interest on the Corporation’s long-term debt.
Business-type activities—All of the City’s enterprises are reported here, including solid waste
management and most of the City’s recreational operations. Unlike governmental services, these
services are supported by charges paid by users based on the amount of services used.
The Fund Financial Statements report the City’s operations in more detail than the City-wide Financial
Statements and focus primarily on the short-term activities of the City’s General Fund and other major
funds. The Fund Financial Statements measure only current revenues, expenditures, assets, liabilities,
and deferred inflows and outflows of resources; they exclude long-term assets and liabilities. Because
these statements focus on the near-term inflows and outflows of spendable resources, such information
may be useful in evaluating near-term financing requirements.
The Fund Financial Statements provide detailed information about each of the City’s most significant
funds, called major funds. Cupertino’s Fund Financial Statements include governmental, enterprise and
internal service funds as discussed below. Each major fund is presented individually, with all non-major
funds summarized and presented only in a single column. Subordinate schedules, which follow the
Notes to Basic Financial Statements, present the detail of these non-major funds. Major funds present
the significant activities of the City for the year, and may change from year to year as a result of changes
in the pattern of City’s activities and public interest. For example, the Capital Improvement Projects
Fund may or may not appear as a major fund depending on the volume of construction activity in a
certain year.
Governmental Fund financial statements are prepared on the modified accrual basis, which means they
measure only current financial resources and uses. They present essentially the same functions reported
as governmental activities in the city-wide financial statements. However, capital assets and other long-
lived assets, along with long-term liabilities, are not presented in the Governmental Fund financial
statements. Reconciliations are provided to facilitate a comparison between governmental funds and
governmental activity statements to allow a better understanding of the long-term impact of the
government’s near-term financial decisions.
Comparisons of budget and actual financial information are included in the Basic Financial Statements
for the General Fund and other major Special Revenue Funds. For other nonmajor funds, budgetary
comparison schedules for these funds are included in this document as supplemental information only.
Enterprise and Internal Service Fund financial statements are prepared on the full accrual basis and
include current and long-term assets and liabilities and deferred outflows and inflows of resources.
Enterprise funds are used to report the same functions presented as business-type activities in the City-
wide Financial Statements, and in more detail in the Fund Financial Statements.
Since the City’s Internal Service funds provide goods and services only to the City’s governmental and
business-type activities, their activities are reported only in total at the fund level. Internal Service funds
may not be major funds because their revenues are derived from other City funds. These revenues are
eliminated in the City-wide financial statements and any related profits or losses are returned to the
activities which created them, along with any residual net position of the Internal Service funds. For this
City, internal service activities predominantly benefit governmental rather than business-type functions,
and are therefore included within governmental activities in the City-wide Financial Statements.
Fiduciary Fund financial statements are prepared on the full accrual basis and include current and long-
term assets and liabilities and deferred outflows and inflows of resources. Fiduciary funds are used to
account for resources held for the benefit of parties outside the government. Fiduciary funds activities
40
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
7
are excluded from the City’s government-wide financial statements because the City cannot use these
assets to finance its own operations.
The City maintains an OPEB Pension Trust Fund that is used to account for the assets and liabilities held
in trust for the retirees’ post-employment health benefits.
The Notes to Basic Financial Statements provide important additional detail that is essential to a full
understanding of the data reported in the City-wide and Fund Financial Statements.
CITY-WIDE FINANCIAL ACTIVITIES
This analysis focuses on the net position and changes in net position of the City’s Governmental
Activities (Tables 1 and 2) and Business-Type Activities (Tables 3 and 4) as presented in the City-wide
Statement of Net Position and the Statement of Activities.
Governmental Activities
Table 1
Condensed Statement of Net Position at June 30
(in thousands)
Governmental Activities
2020 2019
Assets:
Cash and investments $ 147,608 $ 132,532
Restricted cash and
investments 17,088 12,412
Other assets 17,150 9,851
Capital assets 199,776 195,971
Total assets 381,622 350,766
Deferred Outflows of Resources:
Related to Pension (Note 10) 9,050 8,088
Related to OPEB (Note 11) 2,590 -
Total deferred outflows of
resources 11,640 8,088
Liabilities:
Long term debt 27,010 29,300
Other liabilities 72,819 59,662
Total liabilities 99,829 88,962
Deferred Inflows of Resources:
Related to Pension (Note 10) 774 638
Related to OPEB (Note 11) 1,032 1,685
Total deferred inflows of
resources 1,806 2,323
Net Position:
Net Investment in capital assets 177,128 170,974
Restricted 48,006 45,405
Unrestricted 66,493 51,190
Total net position 291,627 267,569
41
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
8
The City’s change in net position from governmental activities was $24.1 million. The following
significant changes within assets, liability, and net position categories occurred:
The City made an additional $4 million contribution to its Section 115 Trust as part of the
City’s pension rate stabilization program. Cash held by fiscal agents for debt service is also
included in the $17.1 million of restricted cash and investments. In accordance with guidance
under GASB 67/68, the assets in the Section 115 Trust are reported as restricted cash and
investments in the City’s General Fund. While the Section 115 Trust qualifies as a “trust,”
the assets in the Section 115 Trust are not used to directly pay benefits to beneficiaries; rather,
they are used to pay CalPERS via the CERBT Trust and as a result, the activities are not
required to be reported in a fiduciary fund. Other assets increased by approximately $7.3 million, primarily due to the actuarily-derived
Net OPEB Liability of $2.0 million. In FY 2018-19, the City reported a Net OPEB Asset of
$1.1 million; however, during FY 2019-20, the City reduced the discount rate from 7.0% to
6.5% which resulted in an increase to the Net OPEB Liability. Additionally, the City made a
change in estimate for its sales tax accrual. Accruing the full remittance in July and August
2020 contributed to $9.0 million of the increase. Capital assets increased approximately $3.8 million. This consisted of continued significant
capital investment into capital projects dedicated to street and transportation improvements,
storm drain improvements, and maintenance of and improvements to City facilities that was
offset with current year depreciation expense. Other liabilities increased by approximately $13.2 million, primarily due to a $5 million
increase in deposit liability balance resulting from an agreement with San Jose Water
Company to complete infrastructure upgrades. Additionally, the City’s Net Pension Liability
and Net OPEB Liability increased approximately $7.9 million over the previous fiscal year. Deferred Outflows Related to Pension and OPEB increased $3.6 million primarily due to
actuarial changes of assumptions. Deferred Inflows of Resources Related to Pension and
OPEB decreased approximately $517,000 primarily due to actuarial changes of assumptions.
Sources of Revenue, Governmental Activities 2019-20
42
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
9
In 2019-20, the City experienced continued trends toward a return to normalcy, until COVID-19 began
in March of 2020. While program revenues experienced immediate declines in the final quarter, the
City’s general tax revenues remained strong. Revenues decreased $0.1 million from the prior year,
primarily due to decreases in functional program revenues offset with increases in general revenues.
Functional Expenses, Governmental Activities 2019-20
The Statement of Activities presents program revenues, expenses, general revenues, and the resulting
change in net position as summarized in the next table.
43
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
10
Table 2
Condensed Statement of Activities for the Year Ended June 30
(in thousands)
Governmental Activities
Expenses 2020 2019
Administration $7,975 $ 6,849
Law enforcement 14,698 13,381
Innovation & technology 3,637 3,210
Administrative services 5,176 4,290
Recreation and community services 8,763 7,390
Community development 10,286 10,471
Public works 33,339 31,872
Interest on long-term debt 883 949
Total expenses 84,757 78,412
Revenues
Program revenues:
Charges for services 19,911 18,861
Operating grants and contributions 5,794 2,557
Capital grants and contributions 1,047 1,082
Total program revenues 26,752 22,500
General revenues:
Taxes:
Property tax 18,117 17,082
Property tax in-lieu of motor vehicle fee 8,490 8,219
Sales tax 35,657 24,902
Transient occupancy tax 7,286 8,901
Utility user tax 3,182 3,090
Franchise tax 3,419 3,445
Other taxes 1,774 3,300
Intergovernmental, unrestricted:
Motor vehicle license fee 47 29
Investment earnings 5,691 3,259
Gain on sale of capital assets - 4
Miscellaneous 1,922 1,187
Total general revenues 85,586 73,418
Total revenues 112,338 95,918
Excess of revenues over expenses,
before transfers 27,581 17,506
Transfers (Note 4) (3,523) (75)
Change in net position 24,058 17,431
Beginning net position 267,569 250,138
Ending net position $ 291,627 $ 267,569
44
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
11
City-wide Governmental Activities Revenues
Table 2 shows that revenues from governmental activities increased $16.4 million or 17.1% from last
year, finishing at $112.3 million. The increases in functional program revenues are most attributable to
$2.8 million receives from Apple Inc. for Bicycle Transportation Plan projects. General revenues also
experienced a net increase namely, property tax, sales tax, transient occupancy tax, and investment
earnings as further discussed below.
Increases in the City’s general revenues are attributable to a $1.3 million increase in property tax over
the prior year. According to the 2019-2020 Assessor’s Annual Report for Santa Clara County,
Cupertino’s net assessment roll growth increased nearly $831 million, or 3.3%, from the prior year.
Approximately $470 million and $46 million of the increase was attributable to changes in ownership
for single family housing and multifamily housing, respectively. Approximately $58 million and $19
million of the increase was attributable to changes in new construction for single family housing and
multifamily housing, respectively.
Although sales tax declined slightly year over year in FY 2018-19, the City experienced an increase of
approximately $10.8 million, or 43.2% over the previous year. This is attributable to a $9.0 million
change in estimate for sales tax accruals, and also due to a one-time double payment received by Apple.
Additionally, the City experienced declines in many of the sectors including autos and transportation,
building and construction, fuel and service stations, general consumer goods, and restaurants and hotels;
however, these experiences were mitigated by a strong performance in the business and industry and
county pool allocation. The COVID-19 pandemic has brought great uncertainty to the economy and
although the business and industry sector experiences significant increases due to the telework
conversion, the City continues to monitor and forecast these sectors conservatively.
Transient occupancy tax has decreased $1.6 million, or 18.1%, over the prior year due to the COVID-19
and related shelter in place orders. Although the declines in this category are significant, the City has
experienced significant growth in the sales tax category from the pandemic as the State has transitioned
to a work-from-home telecommuting environment. These declines have been incorporated into the
City’s FY 2020-21 Budget and forecast and staff will continue to monitor the activities throughout the
course of the pandemic.
Investment earnings saw an increase of $2.4 million, or 74.6%, over the prior year. This was due to the
City’s portfolio’s total rate of return of 5.52% (net of fee) for the fiscal year.
Program revenues showed an increase of $4.3 million, or 19%, and is primarily attributable to $2.8
million received in project funding donations from Apple Inc. for the Bicycle Transportation Plan
projects.
45
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
12
City-wide Governmental Activities Expenses
City-wide governmental activities expenses increased by $6.3 million, or 8%. The City’s cost allocation
plan created fluctuations from one department to the next and special project and capital outlay spending
fluctuated as well; however, base expenses remained relatively consistent over the prior year with
increases predominantly related to negotiated salary and benefits.
Change in Net Position
The City-wide governmental net position increase of $15.1 million was slightly down compared to the
increase of $17.4 million in 2018-19 and can be best explained by continued relative stabilization in
general revenues paired with consistent and conservative spending.
Business Type Activities
Business-type activities in the City-wide Financial Statements include the City’s four enterprise funds.
Enterprise funds are used to account for recreational and solid waste management operations that are
financed and operated in a manner similar to private business enterprises where the intent is that costs
of providing services and facilities to the general public on a continuing basis be financed or recovered
primarily through user fees. The major proprietary funds section of this report provides more
information on business-type results.
As shown in Table 3 and Table 4, the business-type net position totaled $9.3 million at June 30, 2020,
an increase of $1.2 million, or 14.9%, from the prior year with unrestricted net position increasing $1.4
million and the net investment in capital assets decreasing by $200,000. Business-type activities
transferred in (net) $3.5 million, an increase of $3.4 million over the prior year, which contributed to the
increase in net position. Few capital asset additions offset with $275,000 in depreciation expense
resulted in a net decrease of $200,000 over the prior year. Enterprise activities experienced an overall
increase in assets due primarily to investment income which increased cash and cash equivalents.
Liabilities for business-type activities decreased by $81,000 due to increases in accounts payable, OPEB
liability and net pension liability which were offset by decreases in unearned revenue.
In Table 4, revenues for all business-type activities decreased $97,000 and operating expenses increased
by $562,000, primarily attributable to the restructuring of the City’s waste recovery contract which
eliminated pass-through costs for the entire fiscal year.
46
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
13
Table 3
Condensed Statement of Net Position at June 30
(in thousands)
Business Type Activities
2020 2019
Assets:
Cash and investments $ 11,524 $ 10,396
Other assets 348 407
Capital assets 1,119 1,319
Total assets 12,991 12,122
Deferred Outflows of Resources:
Related to pension 598 539
Related to OPEB 156 -
Total deferred outflows of
resources 754 539
Other Liabilities: 4,365 4,447
Total liabilities 4,365 4,447
Deferred Inflows of Resources:
Related to pension 51 43
Related to OPEB 75 114
Total deferred inflows of resources 126 157
Net Position:
Net Investment in capital assets 1,119 1,319
Unrestricted 8,135 6,738
Total net position $ 9,254 $ 8,057
47
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
14
Table 4
Condensed Statement of Activities for the Year Ended June 30
(in thousands)
Business Type Activities
Expenses 2020 2019
Resource recovery $ 2,213 $ 1,736
Blackberry farm 664 645
Cupertino sports center 2,884 3,036
Recreation programs 3,141 2,923
Total expenses 8,902 8,340
Revenues
Program revenues:
Charges for services 6,114 6,403
General revenues:
Investment earnings 462 270
Total revenues 6,576 6,673
Excess of revenues over expenses,
before extraordinary item and
transfers (2,326) (1,667)
Transfers 3,523 75
Change in net position 1,197 (1,592)
Beginning net position 8,057 9,649
Ending net position $ 9,254 $ 8,057
MAJOR GOVERNMENTAL FUNDS
General Fund
General Fund Revenues
General Fund actual revenues of $101.1 million ended $13.9 million, or 16.0%, above the original budget
and $10.6 million, or 11.9%, above the final budget. Actual revenues were up $12.3 million or 14%
when compared to 2018-19 actuals. Table 5 displays the variations in actual revenues, while Table 6
shows budgeted revenues compared to actuals.
48
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
15
Property taxes increased $1.3 million, or 5%, over the prior year due to continued roll-growth.
According to the 2019-2020 Assessor’s Annual Report for Santa Clara County, Cupertino’s net
assessment roll growth increased nearly $831 million, or 3.3%, from the prior year.
Sales tax increased $10.8 million, or 43%, over the prior year due to strong business and industry and
county pool allocation growth. $9.0 million of the increase was also attributable to a change in estimate
in which the full remittances for July and August 2020 were accrued.
Transient occupancy tax decreased $1.6 million, or 18%, due to the COVID-19 and the related shelter-
in-place orders which brought transient occupancy tax revenues to a near halt beginning in March 2020.
Charges for services remained relatively consistent in total, decreasing by $210,000 over the previous
year. Decreases in refundable deposit revenues of $1.2 million and planning fees of $976,000 were
offset by increases in engineering fees of $220,000 and cost allocation charges of $2.1 million.
Licenses and permits increased $590,000, or 14%, due to increased construction plan check services that
were offset by slight decreases in building inspection and general building licenses and permits.
Table 5
Revenue Changes
General Fund, Fiscal 2020 vs. 2019
(in thousands)
Increase/(Decrease)
Fiscal 2020 From Fiscal 2019
Revenue by Source Amount % of Total Amount Percent
Taxes:
Property $ 26,607 26% $ 1,306 5%
Sales 35,657 35% 10,755 43%
Transient occupancy 7,286 7% (1,615) -18%
Utility user 3,182 3% 92 3%
Franchise 3,419 3% (26) -1%
Other 1,402 2% (258) -16%
Use of money & property 4,078 4% 1,424 54%
Intergovernmental 748 1% 274 58%
Licenses and permits 4,693 5% 590 14%
Charges for services 12,435 12% (210) -2%
Fines and forfeitures 328 0% (183) -36%
Other 1,218 1% 116 11%
Total revenues $ 101,053 100% $ 12,265 14%
Other financing sources:
Transfers in $ 10,012 100% $ 10,008 250200%
Proceeds from sale of land $ - 0% $ (10) -100%
Total other financing sources $ 10,012 100% $ 9,998 71414%
49
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
16
Table 6
Revenue, Budget and Actual Comparisons
General Fund 2019-20
(in thousands)
Budgeted Amounts Over/(Under)
Original Final Actual Final
Taxes:
Property $ 24,703 $ 24,703 $ 26,607 $ 1,904
Sales 25,637 25,637 35,657 10,020
Transient occupancy 9,666 9,666 7,286 (2,380)
Utility user 3,199 3,199 3,182 (17)
Franchise 3,162 3,162 3,419 257
Other 1,181 1,181 1,402 221
Use of money &
property
1,333 1,333 4,078 2,745
Intergovernmental 355 355 748 393
Licenses and permits 2,524 2,524 4,693 2,169
Charges for services 13,826 16,560 12,435 (4,125)
Fines and forfeitures 615 615 328 (287)
Other 882 1,474 1,218 (256)
Total revenues $ 87,083 $ 90,409 $ 101,053 $ 10,644
Transfers in $ 12 $ 10,012 $ 10,012 $ -
General Fund Expenditures
Fiscal 2019-20 overall expenditures, at $64.6 million, were $1.6 million higher than last year. This result
came in 16.7% or $13.0 million under the final budget. Year-over-year and budget-versus-actual results
for General Fund programs are described below and in Tables 7 and 8.
Administration increased $657,000, or 10%, from 2018-19 and is primarily due to the contracting out of
the Economic Development function, increases in City Attorney contract services, and negotiated salary
and benefit increases.
Law Enforcement was higher by approximately $1.0 million, or 8%, which was the automatic increase
in the existing contract with the Santa Clara County Sheriff’s Office triggered by increases in the lease
and CalPERS costs.
Innovation & Technology remained relatively consistent from 2018-19 to 2019-20. Some notable
special projects that commenced included, but were not limited to, ProjectDox Upgrade, Legistar and
Vision Integration, City Facility Security and Video, Laserfiche Data Replication, and Plotter and
Scanner Replacement.
Administrative Services’ expenditures increased approximately $420,000, or 10%, over the prior year
due to negotiated increases in salary and benefits. This increase also reflected the addition of a full-time
benefitted employee.
50
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
17
Parks & Recreation General Fund expenditures experienced a 15% decrease, or $1.3 million, across its
programs. The majority of this decrease was due to COVID-19 and the inability to hold related program
activities and events in the final quarter of FY 2019-20.
Community Development expenditures in the General Fund decreased $131,000 or 2% due to the
reorganization of the Economic Development Division to the City Manager’s Office.
Public Works expenditures increased approximately $1.2 million or 7%. This is primarily represented
by an increase in compensation and benefits. While various divisions and programs fluctuated over the
prior year, the notable special projects and fluctuations include, but are not limited to, Shuttle Bus Pilot
Program, office reconfigurations, field maintenance, and streetlight LED upgrades.
Transfers out of the General Fund increased from $19.4 million in 2018-19 to $30.9 million. This
increase represented a $10 million net transfer of excess fund balance to the Capital Reserve.
Table 7
Expenditure Changes
General Fund, Fiscal 2020 vs. 2019
(in thousands)
Increase/(Decrease)
Fiscal 2020 From Fiscal 2019
Function/Program
Amount
% of
Total
Amount
Percent
Administration $ 6,950 11% $ 657 10%
Law enforcement 14,151 22% 1,042 8%
Innovation and technology 3,223 5% 379 13%
Administrative services 4,618 7% 420 10%
Parks and recreation 7,689 12% (1,306) -15%
Community development 8,423 13% (131) -2%
Public works 18,829 29% 1,162 7%
Capital outlay 705 1% (649) -48%
Total expenditures $ 64,588 100% $ 1,574 2%
Transfers out $ 30,892 100% $ 11,516 59%
51
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
18
Table 8
Expenditure Changes
General Fund 2019-20
(in thousands)
Budgeted Amounts Over/(Under)
Original Final Actual Final
Administration $ 7,548 $ 8,010 $ 6,950 $ 1,060
Law enforcement 14,078 14,081 14,151 (70)
Innovation and
technology
3,231 3,512 3,223 289
Administrative services 4,790 5,085 4,618 467
Parks and recreation 8,574 8,753 7,689 1,064
Community
development
9,605 9,032 8,423 609
Public works 21,513 24,444 18,829 5,615
Capital outlay 221 4,646 705 3,941
Total expenditures $ 69,560 $ 77,563 $ 64,588 $ 12,975
Transfers out $ 10,540 $ 30,892 $ 30,892 $ -
General Fund - Fund Balance
The General Fund carried a June 30, 2020, ending fund balance of $74.5 million, up 26.4% or $15.6
million from beginning of the fiscal year. Loan receivables totaled $449,341 of non-spendable fund
balance. The City committed $19.0 million for general economic uncertainty and $127,891 for
sustainability. The City assigned $3,176,882 for encumbrances. $1,368,789 was restricted for public
access television purposes, $13,193 for CASp certification training, $217,551 for Public safety power
shutoff, and $12,725,224 for the pension rate stabilization program (Section 115 Trust). $34,526,942
was classified as unassigned.
Transportation
The Transportation Special Revenue Fund carried a June 30, 2020, ending fund balance of $5,174,514,
down 48.3%, or $4.8 million from the beginning of the fiscal year. In recent years this fund has
accumulated fund balance year over year. In an effort to reduce the amount of accumulated non-
discretion balance, the City reduced the operating subsidy for FY 2019-20 relied on existing fund balance
and current year non-discretionary revenues to fund the various transportation projects.
Housing Development
The Housing Development Special Revenue Fund carried a June 30, 2020, ending fund balance of $8.5
million, 2%, or $176,000 from the beginning of the fiscal year. The activities in this fund remained
relatively consistent with the previous fiscal year.
52
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
19
Public Facilities Corporation
A transfer of $3,172,838 was made from the General Fund to the Public Facilities Corporation Debt
Service Fund to cover principal and interest on the 2012 Certificates of Participation lease payments.
See Notes 4 and 6 to the Basic Financial Statements and the Debt Administration section of this analysis
for more information.
Capital Improvement Projects
The Capital Improvement Projects Capital Projects Fund carried a June 30, 2020, ending fund balance
of $40,354,087, up 22.2%, or $7.3 million from the beginning of the fiscal year. During fiscal year
2019-20, a $10 million transfer in from the General Fund was received for purposes of fund capital-
related projects. The following capital projects incurred the highest expenditures: Library Expansion,
McClellan West Parking Lot Improvements, and 2016 Bike Plan Implementation.
MAJOR PROPRIETARY FUNDS
Resource Recovery
The City has a solid waste franchise agreement with Recology that shares collection, landfill disposal,
and recycling revenues and costs. This fund receives revenues from Recology with the funds going
toward landfill costs, regulatory fees, and staffing costs that the City incurs to manage its solid waste,
recycling, and household hazardous waste programs. Total operating revenue increased from $1.75
million last year to $1.82 million this year, while expenses increased by approximately $478,000 due to
increased contractual costs as well as the Waste Characterization Study and Franchise Agreement
Request for Proposal special projects on the City Work Program. Net position decreased by
approximately $152,000. The fund ended the year with a $5.3 million in net position.
Recreation Programs
This enterprise operates the Quinlan Community Center, Monta Vista Recreation Center, McClellan
Ranch, Creekside Park building, eight school sites, and various parks. While the economy and enhanced
marketing helped cultural events, youth and teen programs, sports, dance and fitness classes generate
increasing revenues in recent years, fiscal year 2019-20 saw a slight decline. These programs generated
approximately $1.6 million in revenues that were $398,000, or 20% lower than last year. Ongoing
program expenses of approximately $3.1 million included full-time administrative and programming
staff, part-time activity leaders, and class instructors on contract. This resulted in a net operating loss of
$1.5 million as compared to an operating loss of $869,000 a year ago. After the $690,000 transfer, the
fund ended up with a decrease in net position of $783,000. The fund ended the year with a net position
of $1.1 million.
Cupertino Sports Center
Tennis lesson, membership, fitness class and rent revenues of $2.4 million and increased by $16,000 or
0.7% over last year, remaining relatively stagnant over the previous year. In addition, expenses
decreased by $152,134 or 5%, due to decreased activities in the final quarter because of COVID-19 and
53
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
20
shelter-in-place orders resulting in a net operating loss of $518,000. In 2018-19, net operating income
was ($648,000). This fund’s net position was $2.6 million as of June 30, 2020 and increased significant
due to a $948,000 operating subsidy from the General Fund as well as a $1.28 million transfer from the
Capital Reserve to fund its capital improvement program capital project.
NONMAJOR PROPRIETARY FUNDS
Blackberry Farm
City employees, with a teaching professional contractor, staff the City-owned Blackberry Farm golf
course and pro shop. Operating revenues increased 7% in 2019-20 from $317,000 to $338,000.
Operating expenses decreased by $18,000, or 2.8%, to $664,000 this year. The golf course’s operating
loss decreased from $328,000 last year to $325,000 this year. After a transfer in from the General Fund
of $610,000, net position increased $307,000. As of June 30, 2020, this fund’s net position was
$291,098.
CAPITAL ASSETS
At June 30, 2020, the City had $200.9 million, net of depreciation, invested in a broad range of capital
assets used in governmental and business-type activities, as shown in Table 9 and in Note 5 to the Basic
Financial Statements. This reflects the City’s continued investment into capital projects dedicated to
street and transportation improvements, storm drain improvements, and maintenance of and
improvements to City facilities, resulting in an increase in net capital assets of $3.6 million, after
depreciation.
Table 9
Capital Assets, Net of Depreciation, at June 30
(in thousands)
2020 2019
Governmental Activities:
Land $ 62,046 $ 62,046
Easements 19,615 19,615
Construction in Progress 5,530 3,566
Buildings 16,015 17,723
Improvements other than buildings 17,483 18,912
Machinery and equipment 4,793 4,912
Roads, curbs, gutters, sidewalks, medians and bridges 67,713 62,171
Streetlights 1,589 1,489
Storm drain structures and mains 4,263 4,695
Traffic signals 729 842
Total Governmental Activities 199,776 195,971
Business-Type Activities
Buildings 574 634
Improvements other than buildings 437 628
Machinery and equipment 108 56
Total Business-Type Activities 1,119 1,319
Total City $ 200,895 $ 197,290
54
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2020
21
DEBT ADMINISTRATION
The City’s only long-term debt liability at June 30, 2020, comes from $43,940,000 in Certificates of
Participation (COPs) issued in May 2012 by the Cupertino Public Facilities Corporation. The certificates
refunded previously issued COPs that financed Wilson Park, Blackberry Farm, and Creekside Park
purchases, the Memorial Park expansion, the Quinlan Community Center construction, the City Hall
remodel, and the new library opened in 2004. The serial fixed rate debt ranging from 0.35% to 3.125%
requires annual debt payments of approximately $3,170,379 that are covered by the General Fund. The
June 30, 2020, outstanding principal of $27,010,000 is due to be paid off by July 1, 2030. More
information can be found in Note 6 to the Basic Financial Statements and in the Public Facilities
Corporation discussion earlier in this analysis.
On September 29, 2020, the City of Cupertino’s 2020A Certificates of Participation (2020 COPs) were
successfully sold in order to refund the City’s 2012 Certificates of Participation for debt service savings.
The 2020 COPs were very well received by investors due in large part to the well-regarded Cupertino
name, the top-notch AA+ rating, the sizable annual principal amounts and short maturity, and favorable
supply and demand dynamics in the California municipal market. The refunding generated net present
value savings of approximately $3.14 million, 11.61% of refunded par and a True Interest Cost of 0.72%.
Savings to the City’s General Fund amounts to approximately $494,000 per year for the next 10 years,
or almost $5 million in total savings.
CURRENTLY KNOWN FACTS AND CONDITIONS
The COVID-19 pandemic has had significant impacts on the City, both financially as well as
operationally. Although revenues in transient occupancy tax, charges for services, and sales tax are
projected to decline in FY 2020-21, the City has put forth efforts to reduce its operating costs to mitigate
the future impacts. Additionally, preliminary sales tax data indicate for FY 2020-21 indicate a much
more positive experience than originally expected and will also assist in the mitigation. The City’s
reserves remain intact and the City does not anticipate requiring the use of these Committed and
Restricted funds. Lastly, and as discussed above, the COPs refinancing is anticipated to have
approximately $494,000 in annual savings to the General Fund
Aside from the pandemic and subsequent year refinancing, the City is unaware of any other facts or
conditions or decisions that are expected to have a significant effect on net position or results of
operations.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
This Comprehensive Annual Financial Report is intended to provide a general overview of the City’s
finances. Further information can be provided by the City of Cupertino Finance Department, 10300
Torre Avenue, Cupertino CA 95014, phone (408) 777-3280, or by the City website at
www.cupertino.org.
55
This Page Left Intentionally Blank
56
STATEMENT OF NET POSITION AND STATEMENT OF ACTIVITIES
22.
The Statement of Net Position and the Statement of Activities summarize the entire City's financial activities
and financial position. They are prepared on the same basis as is used by most businesses, which means
they include all the City's assets and all its liabilities, as well as all its revenues and expenses. This is known
as the full accrual basis - the effect of all the City' s transactions is taken into account, regardless of whether
or when cash changes hands, but all material internal transactions between City funds have been
eliminated.
The Statement of Net Position reports the difference between the City's total assets and deferred outflows
and the City's total liabilities and deferred inflows, including all the City's capital assets and all its long term
debt.
The Statement of Net Position summarizes the financial position of all the City's Governmental Activities in
a single column, and the financial position of all the City's Business-Type Activities in a single column; these
columns are followed by a Total column which presents the financial position of the entire City.
The City's Governmental Activities include the activities of its General Fund, along with all its Special
Revenue, Capital Projects and Debt Service Funds. Since the City's Internal Service Funds service these
Funds, their activities are consolidated with Governmental Activities, after eliminating inter-fund
transactions and balances. The City's Business Type Activities include all of its Enterprise Fund activities.
The Statement of Activities reports increases and decreases in the City's net position. It is also prepared
on the full accrual basis, which means it includes all the City's revenues and all its expenses, regardless of
when cash changes hands. This differs from the "modified accrual" basis used in the Fund financial
statements, which reflect only current assets, current liabilities, available revenues and measurable
expenditures.
The format of the Statement of Activities presents the City's expenses first, listed by program, and follows
these with the expenses of its business-type activities. Program revenues, that are revenues which are
generated directly by these programs, are then deducted from program expenses to arrive at the net
expense of each governmental and business-type program. The City's general revenues are then listed in
the Governmental Activities or Business-type Activities column, as appropriate, and the Change in Net
Position is computed and reconciled with the Statement of Net Position.
Both these Statements include the financial activities of the City and the Cupertino Public Facilities
Corporation, which is a legally separate component unit of the City because it is controlled by and financially
accountable to the City.
57
CITY OF CUPERTINO, CALIFORNIA
STATEMENT OF NET POSITION
June 30, 2020
See accompanying notes to financial statements.
23.
Governmental Business-Type
Activities Activities Total
ASSETS
Cash and cash investments (Note 2) 147,607,536$ 11,523,616$ 159,131,152$
Restricted cash and investments (Note 2) 17,087,541 - 17,087,541
Receivables
Accounts 12,375,945 348,347 12,724,292
Interest 70,264 - 70,264
Loans (Note 3) 4,701,781 - 4,701,781
Prepaid expenses and other assets 3,884 - 3,884
Capital assets (Note 5):
Non-depreciable 87,190,844 - 87,190,844
Depreciable, net of
accumulated depreciation 112,584,973 1,118,882 113,703,855
Total assets 381,622,768 12,990,845 394,613,613
DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10) 9,049,898 597,721 9,647,619
Related to OPEB (Note 11) 2,589,672 156,328 2,746,000
Total deferred outflows of resources 11,639,570 754,049 12,393,619
LIABILITIES
Accounts payable and accruals 7,849,740 506,751 8,356,491
Accrued payroll and benefits 1,405,342 289 1,405,631
Deposits 11,605,717 - 11,605,717
Unearned revenue 174,811 536,599 711,410
Compensated absences (Note 1):
Due in one year 531,203 52,043 583,246
Due in more than one year 4,616,589 311,475 4,928,064
Claims payable (Note 9):
Due in one year 274,000 - 274,000
Due in more than one year 1,253,000 - 1,253,000
Long-term debt (Note 6):
Due in one year 2,355,000 - 2,355,000
Due in more than one year 24,655,000 - 24,655,000
Net pension liability (Note 10) 43,246,621 2,851,909 46,098,530
Net OPEB liability (Note 11)1,861,871 106,129 1,968,000
Total liabilities 99,828,894 4,365,195 104,194,089
DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10) 773,701 51,346 825,047
Related to OPEB (Note 11) 1,032,473 74,527 1,107,000
Total deferred inflows of resources 1,806,174 125,873 1,932,047
NET POSITION (Note 7)
Net investment in capital assets 177,128,134 1,118,882 178,247,016
Restricted for:
Special revenue projects 37,860,800 - 37,860,800
Affordable housing 8,459,128 - 8,459,128
Debt service 1,685,872 - 1,685,872
Total restricted net position 48,005,800 - 48,005,800
Unrestricted 66,493,336 8,134,944 74,628,280
Total net position 291,627,270$ 9,253,826$ 300,881,096$
58
CITY OF CUPERTINO, CALIFORNIA
STATEMENT OF ACTIVITIES
For the year ended June 30, 2020
See accompanying notes to financial statements.
24.
Operating Capital Business-
Charges for Grants and Grants and Governmental Type
Functions/Programs Expenses Services Contributions Contributions Activities Activities Total
Governmental activities:
Administration 7,974,520$ 2,091,811$ -$ -$ (5,882,709)$ -$ (5,882,709)$
Law enforcement 14,698,130 1,102,888 155,948 - (13,439,294) - (13,439,294)
Public and environmental affairs 3,637,354 - - - (3,637,354) - (3,637,354)
Administrative services 5,175,596 3,889,180 - - (1,286,416) - (1,286,416)
Recreation services 8,763,194 1,309,906 - - (7,453,288) - (7,453,288)
Community development 10,286,317 5,859,847 417,650 - (4,008,820) - (4,008,820)
Public works 33,339,191 5,657,315 5,220,845 1,046,756 (21,414,275) - (21,414,275)
Interest on long - term debt 882,837 - - - (882,837) - (882,837)
Total governmental activities 84,757,139 19,910,947 5,794,443 1,046,756 (58,004,993) - (58,004,993)
Business-type activities:
Resource recovery 2,213,404 1,821,677 - - - (391,727) (391,727)
Blackberry farm 663,663 338,212 - - - (325,451) (325,451)
Cupertino sports center 2,883,903 2,365,667 - - - (518,236) (518,236)
Recreation programs 3,141,225 1,588,576 - - - (1,552,649) (1,552,649)
Total business-type activities 8,902,195 6,114,132 - - - (2,788,063) (2,788,063)
Total 93,659,334$ 26,025,079$ 5,794,443$ 1,046,756$ (58,004,993) (2,788,063) (60,793,056)
General revenues:
Taxes:
Property taxes 18,117,304 - 18,117,304
Property tax in lieu of motor vehicle fee 8,489,541 - 8,489,541
Sales taxes 35,657,214 - 35,657,214
Transient occupancy tax 7,286,083 - 7,286,083
Utility user tax 3,182,086 - 3,182,086
Franchise tax 3,418,908 - 3,418,908
Other taxes 1,774,235 - 1,774,235
Intergovernmental, unrestricted:
Motor vehicle license fee 47,391 - 47,391
Investment earnings 5,690,723 462,387 6,153,110
Miscellaneous 1,922,356 - 1,922,356
Transfers (Note 4)(3,523,000) 3,523,000 -
Total general revenues and transfers 82,062,841 3,985,387 86,048,228
Change in Net Position 24,057,848 1,197,324 25,255,172
Net Position, beginning of year 267,569,422 8,056,502 275,625,924
Net Position, end of year 291,627,270$ 9,253,826$ 300,881,096$
Program Revenues Changes in Net Position
Net (Expense) Revenue and
59
FUND FINANCIAL STATEMENTS
25.
In the Fund Financial Statements only individual major funds are presented, while non-major funds are
combined in a single column. Major funds are defined generally as having significant activities or balances
in the current year.
The funds described below were determined to be Major Funds by the City for fiscal 2019-20. Individual
non-major funds may be found in the Supplementary section.
General Fund: The general fund is the general operating fund of the City. It is used to account for all
financial resources except those that are required to be accounted for in another fund.
Transportation Special Revenue Fund: Accounts for the City's gas tax, vehicle registration fees and grant
revenues and expenditures related to the maintenance and construction of City streets. All revenue in this
fund is restricted exclusively for street and road purposes including related engineering and administrative
expenditures.
Housing Development Special Revenue Fund: Accounts for the Federal Housing and Community
Development Grant Program activities administered through the County. Monies collected from developers
that mitigate the impact of housing needs are also included. Monies in this fund are governed by the
program's rules.
Public Facilities Corporation Debt Service Fund: This fund accounts for the payments of principal and
interest on certificates of participation issued to provide for the financing of the Civic Center, Library, Wilson
Park, Memorial Park, and other City facilities.
Capital Improvement Projects Capital Projects Fund: This fund accounts for activities related to the
acquisition or construction of major capital facilities.
60
CITY OF CUPERTINO, CALIFORNIA
GOVERNMENTAL FUNDS
BALANCE SHEET
June 30, 2020
See accompanying notes to financial statements.
26.
Public Capital
Facilities Improvement
Corporation Projects Nonmajor Total
Housing Debt Capital Governmental Governmental
General Transportation Development Service Fund Projects Fund Funds Funds
ASSETS
Cash and investments (Note 2) 63,176,565$ 5,169,837$ 7,953,120$ 54,974$ 43,497,586$ 18,517,883$ 138,369,965$
Restricted cash and investments (Note 2) 12,725,224 - - 4,362,317 - - 17,087,541
Receivables:
Accounts 11,952,435 191,575 175,586 - - 49,349 12,368,945
Interest 70,264 - - - - - 70,264
Loans (Note 3) 449,341 - 4,252,440 - - - 4,701,781
Due from other funds (Note 4) 539,204 - - - - - 539,204
Advances to other funds (Note 4) 3,000,000 - - - - - 3,000,000
Other assets 3,884 - - - - - 3,884
Total assets 91,916,917$ 5,361,412$ 12,381,146$ 4,417,291$ 43,497,586$ 18,567,232$ 176,141,584$
LIABILITIES
Accounts payable and accruals 4,225,306$ 186,898$ 209,898$ 2,731,419$ 143,499$ 8,659$ 7,505,679$
Accrued payroll and benefits 1,405,270 - - - - - 1,405,270
Advances from other funds (Note 4) - - - - 3,000,000 - 3,000,000
Deposits 11,605,717 - - - - - 11,605,717
Unearned revenue 174,811 - - - - - 174,811
Total liabilities 17,411,104 186,898 209,898 2,731,419 3,143,499 8,659 23,691,477
DEFERRED INFLOWS OF RESOURCES
Unavailable revenue - loans - - 3,712,120 - - - 3,712,120
Total deferred inflows of resources - - 3,712,120 - - - 3,712,120
FUND BALANCES (Note 7)
Nonspendable 3,449,341 - - - - - 3,449,341
Restricted 14,324,757 5,174,514 8,459,128 1,685,872 - 18,361,529 48,005,800
Committed 19,127,891 - - - - - 19,127,891
Assigned 3,176,882 - - - 40,354,087 197,044 43,728,013
Unassigned 34,426,942 - - - - - 34,426,942
Total fund balances 74,505,813 5,174,514 8,459,128 1,685,872 40,354,087 18,558,573 148,737,987
Total liabilities, deferred inflows
of resources and fund balances 91,916,917$ 5,361,412$ 12,381,146$ 4,417,291$ 43,497,586$ 18,567,232$ 176,141,584$
Special Revenue Funds
61
CITY OF CUPERTINO, CALIFORNIA
RECONCILIATION OF GOVERNMENTAL FUNDS
BALANCE SHEET TO STATEMENT OF NET POSITION
June 30, 2020
See accompanying notes to financial statements.
27.
Total fund balances reported on the governmental funds balance sheet 148,737,987$
196,120,886
7,959,447
3,712,120
Long-term debt (27,010,000)
Net pension liability (40,488,773)
Net OPEB liability (1,730,132)
Pension-related deferred outflows of resources 8,478,140
Pension-related deferred inflows of resources (721,803)
OPEB-related deferred outflows of resources 2,403,803
OPEB-related deferred inflows of resources (972,787)
Compensated absences (4,861,618)
Net position for governmental activities 291,627,270$
The liabilities, deferred inflows of resources and deferred outflows of
resources are not related to the current period and therefore are not
reported in the governmental funds:
Capital assets used in governmental activities are not current assets or
financial resources and therefore are not reported in the governmental
funds.
Internal service funds are used by management to charge the costs of
activities such as information technology, insurance, equipment
acquisition and maintenance, and certain employee benefits to
governmental funds. The assets and liabilities of the internal service
funds are therefore included in the governmental activities of the
statement of net position.
Certain receivables are not available to pay for current period
expenditures and therefore are deferred in the governmental funds.
Amounts reported for governmental activities in the statement of net position are different
from those reported in the governmental funds because of the following:
62
CITY OF CUPERTINO, CALIFORNIA
GOVERNMENTAL FUNDS
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
For the year ended June 30, 2020
See accompanying notes to financial statements.
28.
Public Capital
Facilities Improvement
Corporation Projects Nonmajor Total
Housing Debt Capital Governmental Governmental
General Transportation Development Service Fund Projects Fund Funds Funds
Revenues
Taxes 77,553,138$ -$ 39,000$ -$ -$ 333,233$ 77,925,371$
Use of money and property 4,077,882 243,244 311,905 26,612 903,753 695,946 6,259,342
Intergovernmental 747,941 2,938,672 357,527 - 2,844,450 - 6,888,590
Licenses and permits 4,692,847 - - - - - 4,692,847
Charges for services 12,435,382 61,900 1,443 - - 1,439,225 13,937,950
Fines and forfeitures 327,833 - - - - 16,175 344,008
Other revenue 1,217,623 703,218 1,515 - - - 1,922,356
Total revenues 101,052,646 3,947,034 711,390 26,612 3,748,203 2,484,579 111,970,464
Expenditures
Current:
Administration 6,950,041 - - 1,500 - - 6,951,541
Law enforcement 14,151,413 - - - - - 14,151,413
Public and environmental affairs 3,223,185 - - - - - 3,223,185
Administrative services 4,617,787 - - - - - 4,617,787
Recreation services 7,688,935 - - - - - 7,688,935
Community development 8,423,300 - 887,527 - - - 9,310,827
Public works 18,829,328 2,841,815 - - - 774,805 22,445,948
Capital outlay 705,153 6,165,631 - - 5,709,314 64,275 12,644,373
Debt service:
Principal - - - 2,290,000 - - 2,290,000
Interest and fiscal charges - - - 882,837 - - 882,837
Total expenditures 64,589,142 9,007,446 887,527 3,174,337 5,709,314 839,080 84,206,846
Excess (deficiency) of revenues
over expenditures 36,463,504 (5,060,412) (176,137) (3,147,725) (1,961,111) 1,645,499 27,763,618
Other financing sources (uses)
Transfers in (Note 4) 10,012,000 221,000 - 3,172,838 20,705,438 1,097,000 35,208,276
Transfers (out) (Note 4)(30,892,276) - - - (11,400,000) (12,000) (42,304,276)
Total other financing sources (uses)(20,880,276) 221,000 - 3,172,838 9,305,438 1,085,000 (7,096,000)
Net change in fund balances 15,583,228 (4,839,412) (176,137) 25,113 7,344,327 2,730,499 20,667,618
Beginning fund balances 58,922,585 10,013,926 8,635,265 1,660,759 33,009,760 15,828,074 128,070,369
Ending fund balances 74,505,813$ 5,174,514$ 8,459,128$ 1,685,872$ 40,354,087$ 18,558,573$ 148,737,987$
Special Revenue Funds
63
CITY OF CUPERTINO, CALIFORNIA
GOVERNMENTAL FUNDS
RECONCILIATION OF NET CHANGES IN FUND BALANCES –
GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
For the year ended June 30, 2020
See accompanying notes to financial statements.
29.
Total net changes in fund balances reported on the
governmental funds balance sheet 20,667,618$
Amounts reported for governmental activities in the statement of activities
are different from those reported in the governmental funds because of
the following:
Capital outlay 11,317,866
Depreciation expense (7,472,456)
Net retirements (12,380)
2,290,000
Compensated absences (316,029)
Net pension liability (4,579,619)
Net OPEB liability (asset) (2,725,069)
Pension-related deferred outflows of resources 895,881
Pension-related deferred inflows of resources (126,805)
OPEB-related deferred outflows of resources 2,403,803
OPEB-related deferred inflows of resources 605,768
1,109,270
Change in net position of governmental activities 24,057,848$
Internal service funds are used by management to charge the costs of
activities such as information technology, insurance, equipment
acquisition and maintenance, and certain employee benefits to
governmental funds. The portion of the net expense of these internal
service funds arising out of their transactions with governmental funds
is reported with governmental activities because they service those
activities.
Governmental funds report capital outlays as expenditures. However, in
the statement of activities, the cost of those assets are capitalized and
depreciated over their estimated useful lives, which is reported as
depreciation expense. Expenditures for capital assets reported as:
Long term debt principal payments are reported as expenditures in the
governmental funds but are not reported as expenses in the statement
of activities.
The changes in the amounts below do not provide or require the use of
current financial resources and therefore are not reported as revenues
or expenditures in the governmental funds:
The schedule below reconciles the net changes in fund balances reported on the governmental funds
statement of revenues, expenditures and changes in fund balances, which measures only changes in
current assets and current liabilities on the modified accrual basis, with the change in net position of
governmental activities reported in the statement of activities, which is prepared on the full accrual basis.
64
CITY OF CUPERTINO, CALIFORNIA
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN
FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2020
See accompanying notes to financial statements.
30.
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
Revenues
Taxes 67,548,518$ 67,548,518$ 77,553,138$ 10,004,620$
Use of money and property 1,333,079 1,333,079 4,077,882 2,744,803
Intergovernmental 354,547 354,547 747,941 393,394
Licenses and permits 2,524,000 2,524,000 4,692,847 2,168,847
Charges for services 13,825,725 16,559,545 12,435,382 (4,124,163)
Fines and forfeitures 615,000 615,000 327,833 (287,167)
Other revenue 882,283 1,474,015 1,217,623 (256,392)
Amounts available for
appropriation 87,083,152 90,408,704 101,052,646 10,643,942
Charges for appropriation (outflows):
Current
Administration 7,547,520 8,009,767 6,950,041 1,059,726
Law enforcement 14,077,937 14,080,543 14,151,413 (70,870)
Public and environmental affairs 3,230,880 3,512,186 3,223,185 289,001
Administrative services 4,790,420 5,085,300 4,617,787 467,513
Recreation services 8,574,403 8,753,432 7,688,935 1,064,497
Community development 9,604,789 9,031,527 8,423,300 608,227
Public works 21,512,912 24,443,890 18,829,328 5,614,562
Capital outlay 221,050 4,646,388 705,153 3,941,235
Total charges for appropriations 69,559,911 77,563,033 64,589,142 12,973,891
Excess of revenues
over expenditures 17,523,241 12,845,671 36,463,504 23,617,833
Other financing sources (uses)
Transfers in 12,000 10,012,000 10,012,000 -
Transfers (out)(10,539,557) (30,892,276) (30,892,276) -
Total other financing
sources (uses)(10,527,557) (20,880,276) (20,880,276) -
Net change in fund balance 6,995,684$ (8,034,605)$ 15,583,228 23,617,833$
Beginning fund balance 58,922,585
Ending fund balance 74,505,813$
Budgeted Amounts
65
CITY OF CUPERTINO, CALIFORNIA
TRANSPORTATION SPECIAL REVENUE FUND
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN
FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2020
See accompanying notes to financial statements.
31.
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
Revenues
Use of money and property -$ -$ 243,244$ 243,244$
Intergovernmental 7,192,936 6,423,936 2,938,672 (3,485,264)
Charges for services - - 61,900 61,900
Other revenue 2,198,521 841,855 703,218 (138,637)
Amounts available for
appropriation 9,391,457 7,265,791 3,947,034 (3,318,757)
Charges for appropriation (outflows):
Current
Public works 3,002,883 2,992,268 2,841,815 150,453
Capital outlay 5,035,000 6,197,940 6,165,631 32,309
Total charges for appropriations 8,037,883 9,190,208 9,007,446 182,762
Deficiency of revenues
under expenditures 1,353,574 (1,924,417) (5,060,412) (3,135,995)
Other financing sources (uses)
Transfers in 221,000 221,000 221,000 -
Total other financing
sources (uses)221,000 221,000 221,000 -
Net change in fund balance 1,574,574$ (1,703,417)$ (4,839,412) (3,135,995)$
Beginning fund balance 10,013,926
Ending fund balance 5,174,514$
Budgeted Amounts
66
CITY OF CUPERTINO, CALIFORNIA
HOUSING DEVELOPMENT SPECIAL REVENUE FUND
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN
FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2020
See accompanying notes to financial statements.
32.
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
Revenues
Taxes 3,000$ 3,000$ 39,000$ 36,000$
Use of money and property 14,800 14,800 311,905 297,105
Intergovernmental 361,597 361,597 357,527 (4,070)
Charges for services - - 1,443 1,443
Other revenue - - 1,515 1,515
Amounts available for
appropriation 379,397 379,397 711,390 331,993
Charges for appropriation (outflows):
Current
Community development 1,044,216 986,694 887,527 99,167
Total charges for appropriations 1,044,216 986,694 887,527 99,167
Net change in fund balance (664,819)$ (607,297)$ (176,137) 431,160$
Beginning fund balance 8,635,265
Ending fund balance 8,459,128$
Budgeted Amounts
67
MAJOR PROPRIETARY FUNDS
33.
Proprietary funds account for City operations financed and operated in a manner similar to a private
business enterprise. The intent of the City is that the cost of providing goods and services be financed
primarily through user charges.
The City has identified the funds below as major proprietary funds for fiscal 2019 - 20.
Resources Recovery Fund: This fund accounts for activity related to the collection, disposal, and recycling
of solid waste. A private company has been issued an exclusive franchise to perform these services.
Recreation Programs Fund: This fund accounts for activities of the City's community centers and park
facilities.
Cupertino Sports Center Fund: This fund accounts for the operation and maintenance of the Cupertino
Sports Center.
68
CITY OF CUPERTINO, CALIFORNIA
PROPRIETARY FUNDS
STATEMENT OF NET POSITION
June 30, 2020
See accompanying notes to financial statements.
34.
Governmental
Cupertino Nonmajor Activities -
Resources Recreation Sports Enterprise Internal Service
Recovery Programs Center Fund Totals Funds
ASSETS
Current assets
Cash and cash investments (Note 2) 6,184,319$ 1,796,544$ 3,000,252$ 542,501$ 11,523,616$ 9,237,571$
Accounts receivable 348,287 - 60 - 348,347 7,000
Total current assets 6,532,606 1,796,544 3,000,312 542,501 11,871,963 9,244,571
Noncurrent assets
Capital assets (Note 5):
Nondepreciable - - - - - 214,666
Depreciable, net of -
accumulated depreciation 7,141 664,745 420,459 26,537 1,118,882 3,440,265
Total noncurrent assets 7,141 664,745 420,459 26,537 1,118,882 3,654,931
Total assets 6,539,747 2,461,289 3,420,771 569,038 12,990,845 12,899,502
DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10) 223,874 186,269 127,822 59,756 597,721 571,758
Related to OPEB (Note 11) 58,740 41,283 48,184 8,121 156,328 185,869
Total deferred outflows of resources 282,614 227,552 176,006 67,877 754,049 757,627
LIABILITIES
Current liabilities
Accounts payable and accruals 168,295 299,334 9,420 29,702 506,751 344,061
Accrued payroll and benefits 289 - - - 289 72
Due to other funds (Note 4)- - - - - 539,204
Compensated absences (Note 1):22,630 20,661 8,348 404 52,043 29,530
Claims payable (Note 9)- - - - - 274,000
Unearned revenue - 234,845 278,669 23,085 536,599 -
Total current liabilities 191,214 554,840 296,437 53,191 1,095,682 1,186,867
Noncurrent liabilities
Compensated absences (Note 1) 135,436 123,656 49,963 2,420 311,475 256,644
Claims payable (Note 9) - - - - - 1,253,000
Net pension liability (Note 10) 1,074,514 889,060 612,730 275,605 2,851,909 2,757,848
Net OPEB liability (Note 11) 35,777 29,586 36,031 4,735 106,129 131,739
Total noncurrent liabilities 1,245,727 1,042,302 698,724 282,760 3,269,513 4,399,231
Total liabilities 1,436,941 1,597,142 995,161 335,951 4,365,195 5,586,098
DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10) 19,154 15,159 11,863 5,170 51,346 51,898
Related to OPEB (Note 11) 32,598 20,677 16,556 4,696 74,527 59,686
Total deferred inflows of resources 51,752 35,836 28,419 9,866 125,873 111,584
NET POSITION (Note 7)
Net investment in capital assets 7,141 664,745 420,459 26,537 1,118,882 3,654,931
Unrestricted 5,326,527 391,118 2,152,738 264,561 8,134,944 4,304,516
Total Net Position 5,333,668$ 1,055,863$ 2,573,197$ 291,098$ 9,253,826$ 7,959,447$
Business-type Activities - Enterprise Funds
69
CITY OF CUPERTINO, CALIFORNIA
PROPRIETARY FUNDS
STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN NET POSITION
For the year ended June 30, 2020
See accompanying notes to financial statements.
35.
Governmental
Cupertino Nonmajor Activities -
Resources Recreation Sports Enterprise Internal Service
Recovery Programs Center Fund Totals Funds
Operating revenues
Charges for services 1,796,908$ 1,525,850$ 2,099,163$ 305,525$ 5,727,446$ 4,495,541$
Other 24,769 62,726 266,504 32,687 386,686 -
Total operating revenue 1,821,677 1,588,576 2,365,667 338,212 6,114,132 4,495,541
Operating expenses
Salaries and benefits 746,414 896,130 641,910 159,143 2,443,597 3,543,748
Materials and supplies 225,510 1,150,435 433,912 172,317 1,982,174 1,913,950
Contractual services 1,238,166 883,232 1,753,699 326,168 4,201,265 274,224
Insurance and claims and premium - - - - - 702,266
Depreciation (Note 5) 3,314 211,428 54,382 6,035 275,159 969,469
Total operating expenses 2,213,404 3,141,225 2,883,903 663,663 8,902,195 7,403,657
Operating income (loss) (391,727) (1,552,649) (518,236) (325,451) (2,788,063) (2,908,116)
Nonoperating revenues
Investment Income 239,701 79,759 120,087 22,840 462,387 367,523
Gain on sale of capital assets - - - - - 76,863
Total nonoperating revenues 239,701 79,759 120,087 22,840 462,387 444,386
Income (loss) before transfers (152,026) (1,472,890) (398,149) (302,611) (2,325,676) (2,463,730)
Transfers in (Note 4) - 690,000 2,223,000 610,000 3,523,000 3,573,000
Changes in net position (152,026) (782,890) 1,824,851 307,389 1,197,324 1,109,270
Net position - beginning of year 5,485,694 1,838,753 748,346 (16,291) 8,056,502 6,850,177
Net position - end of year 5,333,668$ 1,055,863$ 2,573,197$ 291,098$ 9,253,826$ 7,959,447$
Business-type Activities - Enterprise Funds
70
CITY OF CUPERTINO, CALIFORNIA
PROPRIETARY FUNDS
STATEMENT CASH FLOWS
For the year ended June 30, 2020
See accompanying notes to financial statements.
36.
Governmental
Cupertino Nonmajor Activities -
Resources Recreation Sports Enterprise Internal Service
Recovery Programs Center Fund Totals Funds
Cash flows from operating activities
Cash received from customers 1,713,201$ 1,177,069$ 2,240,151$ 345,135$ 5,475,556$ 4,488,541$
Cash payments to suppliers for
goods and services (1,305,571) (1,857,210) (2,401,221) (481,458) (6,045,460) (2,079,815)
Cash payments to employees for salaries
and benefits (636,988) (808,137) (581,640) (185,719) (2,212,484) (3,203,921)
Cash payments for judgment and claims - - - - - (728,543)
Net cash provided (used) by operating activities (229,358) (1,488,278) (742,710) (322,042) (2,782,388) (1,523,738)
Cash flows from noncapital financing activities
Transfers in - 690,000 2,223,000 610,000 3,523,000 3,701,660
Cash flows from noncapital financing activities - 690,000 2,223,000 610,000 3,523,000 3,701,660
Cash flows from capital and related financing activities
Acquisition of capital assets - - (75,297) - (75,297) (941,206)
Sale of capital assets - - - - - 76,863
Cash flows from capital and related - - (75,297) - (75,297) (864,343)
financing activities
Cash Flows from investing activities
Interest received 239,701 79,759 120,087 22,840 462,387 367,523
Cash flows from investing activities 239,701 79,759 120,087 22,840 462,387 367,523
Net cash flows 10,343 (718,519) 1,525,080 310,798 1,127,702 1,681,102
Cash and investments at beginning of year 6,173,976 2,515,063 1,475,172 231,703 10,395,914 7,556,469
Cash and investments at end of year 6,184,319$ 1,796,544$ 3,000,252$ 542,501$ 11,523,616$ 9,237,571$
Reconciliation of operating income (loss) to
to net cash provided by operating activities:
Operating income (loss)(391,727)$ (1,552,649)$ (518,236)$ (325,451)$ (2,788,063)$ (2,908,116)$
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation 3,314 211,428 54,382 6,035 275,159 969,469$
Change in assets, deferred outflows of
resources, liabilities and deferred inflows
of resources
Accounts receivable (108,476) 95,858 - - (12,618) (7,000)
Due to retirement system 87,751 83,519 58,727 21,431 251,428 280,530
Due to OPEB system (6,952) (4,886) (5,703) (961) (18,502) (21,996)
Accounts payable and accruals 158,105 176,457 (213,610) 17,027 137,979 108,359
Unearned revenue - (507,365) (125,516) 6,923 (625,958) -
Compensated absences 28,627 9,360 7,246 (47,046) (1,813) 81,293
Claims payable - - - - - (26,277)
Net cash provided (used) by operating
activities (229,358)$ (1,488,278)$ (742,710)$ (322,042)$ (2,782,388)$ (1,523,738)$
Business-type Activities - Enterprise Funds
71
FIDUCIARY FUND
37.
Fiduciary funds account for activities where the City holds related resources in trust for specific purposes
but cannot claim the resources with those that belong to the City.
Other Post-Employment Benefits Trust Fund: This fund accounts for activity related the City’s OPEB plan
administered through a qualified trust.
72
CITY OF CUPERTINO, CALIFORNIA
FIDUCIARY FUND
STATEMENT OF FIDUCIARY NET POSITION
June 30, 2020
See accompanying notes to financial statements.
38.
Other Post-
Employment
Benefits
Trust Fund
ASSETS
Cash and equivalents 910,970$
Investments:
Mutual funds:
Fixed income 18,088,348
Equity 9,519,169
Real estate 851,762
Total assets 29,370,249
LIABILITIES -
NET POSITION
Restricted for post-employment benefits other than pensions 29,370,249$
73
CITY OF CUPERTINO, CALIFORNIA
FIDUCIARY FUND
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
For the year ended June 30, 2020
See accompanying notes to financial statements.
39.
Other Post-
Employment
Benefits
Trust Fund
ADDITIONS
Employer contributions 1,140,063$
Investment income:
Net decrease in fair value of investments (410,344)
Interest and dividends 683,065
Less investment expense (53,326)
Total additions 1,359,458
DEDUCTIONS
Benefit payments 1,140,063
Administrative expense 67,381
Total deductions 1,207,444
Change in net position 152,014
Net position - beginning of year 29,218,235
Net position - end of year 29,370,249$
74
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
40.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting Entity: The City of Cupertino, California (the City) was incorporated on October 3, 1955, under
the laws of the State of California. The City operates under a Council - City Manager form of government
and provides services through the following departments: Administrative Services, Community
Development, City Manager, Parks and Recreation, Public and Environmental Affairs, and Public Works.
Fire services are provided by the Santa Clara County Fire District, and the City contracts with the Santa
Clara County Sheriff’s Department for police services, and with Recology for garbage and recycling
services.
The accompanying basic financial statements include all funds and boards and commissions that are
controlled by the City Council. The basic financial statements include the City's blended component unit
entity for which the City is considered to be financially accountable. A blended component unit, although a
legally separate entity, is in substance, part of the City's operations and so data from this unit is combined
with the City.
Blended Component Unit: The Cupertino Public Facilities Corporation (the Corporation) was incorporated
in May 1986, under the Nonprofit Public Benefit Corporation Law of the State of California. The Corporation
was organized as a nonprofit corporation solely for the purpose of assisting the City in the acquisition,
construction, and financing of public improvements which are of public benefit to the City. The Corporation,
after acquiring certain properties from the City, leases these back to the City. The lease money provides
the funds for the debt service for the Certificates of Participation issued by the Corporation to acquire the
properties. The Corporation does not issue separate financial statements, since it is reported separately in
the City's basic financial statements.
Fiduciary Component Unit: The City participates in the Public Agency Retirement System (PARS) Public
Agencies Post Retirement Health Care Plan Trust Program (PARS Trust), an agent-multiple employer
irrevocable trust established to fund other postemployment benefits. The PARS Trust functions for the
benefit of the employees. The City funds all PARS Trust costs based on actuarial valuations for its specific
portion of the PARS Trust as opposed to the PARS Trust as a whole.
Effective July 1, 2016, the City reported in its fiduciary fund financial statements the PARS Trust that
pertains to the City as well as OPEB benefit payments of the Plan initiated by the City but reimbursed to
the PARS Trust are required to be recognized under applicable standards due to a change in the reporting
entity. With the implementation of GASB Statement 74, Financial Reporting for Postemployment Benefit
Plans Other Than Pension Plans, the City reviewed the PARS Trust separately issued financial statements
and determined that inclusion of the City OPEB Plan component unit financial statements and related
disclosures as a City trust fund were necessary as omission would have been misleading.
Measurement Focus, Basis of Accounting and Basis of Presentation: The City's basic financial statements
are prepared in conformity with accounting principles generally accepted in the United States. The
Government Accounting Standards Board (GASB) is the acknowledged standard setting body for
establishing accounting and financial reporting standards followed by governmental entities in the United
States.
Government-wide Statements: The Statement of Net Position and the Statement of Activities display
information about the primary government (the City) and its component units. These statements include the
financial activities of the overall City government and distinguish between the governmental and business-
type activities of the City. Governmental activities generally are financed through taxes, intergovernmental
revenues, and other nonexchange transactions. Business-type activities are financed in whole or in part by
fees charged to external parties.
75
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
41.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Statement of Activities presents a comparison between expenses and program revenues for each
segment of the business-type activities of the City and for each function of the City's governmental activities.
Expenses include direct and indirect types. Direct expenses are those that are specifically associated with
a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses such
as depreciation, information technology, insurance and equipment replacement are included in expenses
for individual activities and functions. Program revenues include (a) charges paid by the recipients of goods
or services offered by the programs and (b) grants and contributions that are restricted to meeting the
operational or capital needs of a particular program. Revenues that are not classified as program revenues,
including taxes, are presented as general revenues. Program revenues and direct expenses related to
interfund services are included and indirect expenses funded by interfund transfers are excluded from the
Statement of Activities. The Statement of Net Position eliminates interfund balances between governmental
funds and interfund balances between proprietary funds.
Fund Financial Statements: The fund financial statements provide information about the City's funds,
including fiduciary funds and blended component units. Separate statements for each fund category —
governmental, proprietary, and fiduciary — are presented. The emphasis of fund financial statements is on
major individual governmental and enterprise funds, each of which is displayed in a separate column. All
remaining governmental funds are aggregated and reported as nonmajor funds.
Proprietary fund operating revenues, such as charges for services, result from exchange transactions
associated with the principal activity of the fund. Exchange transactions are those in which each party
receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment
earnings, result from nonexchange transactions or ancillary activities.
Major Funds: The City's major governmental and enterprise funds are identified and presented separately
in the fund financial statements. All other funds, called nonmajor funds, are combined and reported in a
single column, regardless of their fund type.
Major funds are defined as funds, which have either assets (plus deferred outflows), liabilities (plus deferred
inflows), revenues or expenditures in excess of 10 percent of their fund-type total and five percent of the
aggregate total for both governmental funds and enterprise funds. The General Fund is always a major
fund. The City may select other funds it believes should be presented as major funds.
The City reported the following major governmental funds in the accompanying financial statements:
The General Fund is the general operating fund of the City. It is used to account for all financial
resources except those that are required to be accounted for in another fund.
The Transportation Special Revenue Fund accounts for the City's gas tax, vehicle registration fees and
grant revenues and expenditures related to the maintenance and construction of City streets. All
revenue in this fund is restricted exclusively for street and road purposes including related engineering
and administrative expenses. Management considers this fund qualitatively major and has elected to
present this fund as such, even if mathematically it does not qualify per applicable GASB requirements.
The Housing Development Special Revenue Fund accounts for the Federal Housing and Community
Development Grant Program activities administered through the County. Monies collected from
developers that mitigate the impact of housing needs are also included. Monies in this fund are
governed by the program's rules.
76
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
42.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Public Facilities Corporation Debt Service Fund accounts for the payments of principal and interest
on certificates of participation issued to provide for the financing of City Hall, Library, Wilson Park,
Memorial Park, and other City facilities.
Capital Improvement Projects Capital Projects Fund Accounts for activities related to the acquisition or
construction of major capital facilities.
The City reports the following enterprise funds as major funds in the accompanying financial statements:
The Resources Recovery Fund accounts for activity related to the collection, disposal, and recycling of
solid waste. A private company has been issued an exclusive franchise to perform these services.
The Recreation Programs Fund accounts for activities of the City's community centers and park
facilities.
The Cupertino Sports Center Fund accounts for activities of the City’s sports center facility.
The City also reports the following fund types:
Internal Service Funds. These funds account for workers' compensation, management information
systems maintenance and replacement, equipment maintenance and replacement, retiree health costs,
accrued leave payouts, and long-term disability coverage which are provided to other departments on
a cost-reimbursement basis.
Fiduciary Fund. The City’s Other Post-Employment Benefits (OPEB) Trust fund is established in
accordance with GASB Statement No. 74 for the defined benefit OPEB plan administered though trusts
that meet the specified criteria.
Basis of Accounting: The government-wide, proprietary and fiduciary financial statements are reported
using the economic resources measurement focus and the full accrual basis of accounting. Revenues are
recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when
the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and the
modified accrual basis of accounting. Under this method, revenues are recognized when measurable and
available. The City considers all revenues reported in the governmental funds to be available if the revenues
are collected within sixty days after year-end. Expenditures are recorded when the related fund liability is
incurred, except for principal and interest on long-term debt which are recognized as expenditures to the
extent the City has provided financial resources to a debt service fund for payment of these liabilities that
mature early in the following year. General capital asset acquisitions are reported as expenditures in
governmental funds. Proceeds from long-term debt and acquisitions under capital leases are reported as
other financing sources.
Unearned revenues are considered on a full accrual basis, while unavailable revenues are based on the
modified accrual measure.
Property taxes, transient occupancy taxes, utility taxes, franchise taxes, interest and special assessments
are susceptible to accrual. Other receipts and taxes are recognized as revenue when the cash is received.
Sales taxes collected and held by the state at year end on behalf of the City are also recognized as revenue.
Sales tax consultant payments which are contingent on revenues collected are netted against the related
revenues.
77
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
43.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Under the terms of grant agreements, the City may fund certain programs with a combination of cost
reimbursement grants, categorical block grants, and general revenue. The City's policy is to first apply
restricted grant resources to such programs, followed by general revenues if necessary. Grant revenues
are recognized after eligibility and billing occurs, but may be a deferred inflow if not received within sixty
days of year-end. Because of the cost-reimbursement and recognition nature of some grants, certain
capital project funds may carry deficit fund balances until billing and receipt of grants. The City may also
front the capital outlays with cash advances from other funds.
Non-exchange transactions, in which the City gives or receives value without directly receiving or giving
equal value in exchange, include property taxes, grants, entitlements, and donations. On the accrual basis,
revenue from property taxes is recognized in the fiscal year for which the taxes are levied or assessed.
Revenue from grants is recognized as described above. Entitlement and donation revenues are recognized
when cash is received.
Budgetary Practices: The budget of the City is a detailed operating plan which identifies estimated costs
and results in relation to estimated revenues. The budget includes (1) the programs, projects, services and
activities to be provided during the fiscal year; (2) estimated revenue available to finance the operating plan;
and (3) the estimated spending requirements of the operating plan. The budget represents a process
through which policy decisions are made, implemented and controlled. The City prohibits expending funds
for which there is no legal appropriation. Operating appropriations lapse at fiscal year end.
In May of each year, the City Manager submits to the City Council a proposed budget for the fiscal year
beginning July 1. Public hearings on the proposed budget are held during the month of June and the
budgets for all fund types are legally adopted by Resolution prior to June 30. Original budget amounts are
presented on the accompanying budgetary statements include these legally adopted amounts.
The City's legal level of budgetary control is at the functional level for the general fund and at the fund level
for other funds. The City Manager is responsible for controlling the City's expenditures in accordance with
the adopted budget. The City Manager is authorized to administer and transfer appropriations between
budget accounts within the operating budget when in his opinion such transfers become necessary for
administrative purposes. Any revision which increases total appropriations must be approved by the City
Council. Requests for additional personnel or capital outlay also require the approval of the City Council.
Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting
principles. Budget information is presented for the general, special revenue and debt service funds only.
Capital projects funds are budgeted on a long-term project-by-project basis and, hence, budgets for these
funds are not presented in the basic financial statements. The Traffic Impact Fund does not have a legally
adopted budget. During the fiscal year, expenditures exceeded appropriations as follows:
Excess of
Expenditures
Fund/Department Over Appropriations
Public Facilities Corporation Debt Service Fund $ 1,499
Cash and Investments: The City pools its cash resources, consisting of cash and investments, of all funds
for investment except for restricted funds generally held by an outside fiscal agent. Cash amounts are
reported net of outstanding warrants. Investments are stated at fair value, except for money market mutual
funds which are reported at amortized cost.
78
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
44.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Capital Assets: Capital assets are recorded at cost or estimated historical cost if purchased or constructed.
Donated capital assets are recorded at their estimated acquisition value on the date donated. Public
domain (infrastructure) capital assets consisting of roads, bridges, curbs, gutters, medians, sidewalks,
drainage and lighting systems have been capitalized and depreciated. Capital assets are defined as assets
with an initial individual cost of more than $5,000 for general capital assets and $100,000 for intangible
assets.
Depreciation is recorded using the straight-line method over the following useful lives:
Buildings 15 – 25 years
Improvements 10 – 15 years
Vehicles 4 – 10 years
Street equipment 3 – 20 years
Water equipment 3 – 50 years
Office equipment 3 – 5 years
Road, curbs, gutters, sidewalks, medians and bridges 30 – 40 years
Streetlights 20 years
Storm drain structure and mains 40 years
Traffic signals 20 years
Major outlays for capital assets and improvements are capitalized as projects are constructed. For
enterprise funds, interest incurred during the construction phase is reflected in the capitalized value of the
asset constructed, net of interest earned on the invested proceeds over the same period. Some capital
assets may be acquired using federal and state grant funds, or they may be contributed by developers or
other governments. These contributions are accounted for as revenues at the time the capital assets are
contributed.
Claims and Judgment Payable: Claims and judgments payable are accrued when the liability is incurred
and the amount can be reasonably estimated. Claims and judgments payable are recorded in an internal
service fund for workers' compensation and long-term disability, and other claims and judgments are
recorded in the General Fund or enterprise funds, as appropriate.
Compensated Absences: Compensated absences comprise vested accumulated vacation and sick leave.
The City's liability for compensated absences is recorded in governmental or business-type activities as
appropriate. The liability for compensated absences is determined annually. For all governmental funds,
amounts expected to be "permanently liquidated," such as what is due to be paid because of a realized
employment action, are recorded as fund liabilities; the long-term portion is recorded in the Statement of
Net Position.
Compensated absences are liquidated by the fund that has recorded the liability. The long-term portion of
governmental activities compensated absences are liquidated primarily by the General Fund, using the
Compensated Absences and Long-Term Disability internal service fund to account for termination payouts.
79
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
45.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The changes in compensated absences for the year ended June 30, 2020 were as follows:
Governmental Business-Type
Activities Activities Total
Beginning balance $ 4,750,470 $ 365,331 $ 5,115,801
Additions 982,983 45,758 1,028,741
Reductions (585,661) (47,571) (633,232)
Ending balance $ 5,147,792 $ 363,518 $ 5,511,310
Current portion $ 531,203 $ 52,043 $ 583,246
Non-current portion $ 4,616,589 $ 311,475 $ 4,928,064
Deferred Outflows/Inflows of Resources: In addition to assets, the statement of financial position or balance
sheet reports a separate section for deferred outflows of resources. This separate financial statement
element, deferred outflows of resources, represents a consumption of net position or fund balance that
applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure)
until then. The City reports differences between expected and actual experience, changes in pension and
OPEB assumptions, loss on pension and OPEB investments, and contributions made subsequent to the
measurement date as well. Differences between expected and actual experience and changes in pension
and OPEB plan assumptions are deferred and amortized over the average of the expected remaining
service lives of employees who are provided with benefits through the pension and OPEB plans. Loss on
pension and OPEB investments are deferred and amortized over five years. Employer contributions made
subsequent to the measurement date and change in proportionate share are deferred and recognized as a
reduction of the net pension and net OPEB liability in the subsequent reporting year.
In addition to liabilities, the statement of financial position or balance sheet reports a separate section for
deferred inflows of resources. This separate financial statement element, deferred inflows of resources,
represents an acquisition of net position or fund balance that applies to a future period(s) and so will not be
recognized as an inflow of resources (revenue) until that time. Under the accrual basis of accounting
differences between expected and actual experience are deferred and amortized over the average of the
expected remaining service lives of all employees who are provided with benefits through the pension and
OPEB plans.
Property Tax Calendar: All property taxes are levied and collected by the County of Santa Clara. Secured
taxes are levied on July 1, are due in two installments on November 1 and February 1 and become
delinquent after December 10 and April 10. Unsecured taxes are levied on July 1 and become delinquent
on August 31. The lien date for secured and unsecured property taxes is January 1.
The City, in fiscal year 1993-94, adopted an alternative method of property tax distribution (the "Teeter
Plan"). Under this method, the City receives 100 percent of its secured property tax levied in exchange for
foregoing any interest and penalties collected on delinquent taxes. The City receives remittances as a
series of advances made by the County during the year.
Interfund Transactions: Transactions constituting reimbursements to a fund for expenditures/expenses
initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses
in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed.
80
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
46.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statement of Cash Flows: For purposes of reporting cash flows for the City's proprietary funds, pooled
cash and investments are considered cash equivalents as the proprietary funds can access pooled cash
and investments in a manner similar to a demand deposit account.
Prepaid Items: Prepaid items are reported under the consumption method, which recognizes the
expenditures/expense in the period associated with the service rendered or goods consumed.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect certain amounts and disclosures. Accordingly, actual results could differ from those estimates.
Implementation of Governmental Accounting Standards Board (GASB) Pronouncements: Management
adopted the provisions of the following Governmental Accounting Standards Board (GASB) Statements,
which became effective during the year ended June 30, 2018.
In May 2020, the GASB issued Statement 95, Postponement of the Effective Dates of Certain Authoritative
Guidance. This Statement postpones the effective date of certain pending GASB pronouncements and
implementation guides due to the impacts of the COVID-19 pandemic. The requirements of this Statement
are effective immediately. As such, the City has implemented this standard for its fiscal year ended June 30,
2020, and has postponed the implementation of certain future standards to comply with this standard.
Fair Value Measurements: Fair value is defined as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. The
City categorizes its fair value measurements within the fair value hierarchy established by generally
accepted accounting principles. The fair value hierarchy categorizes the inputs to valuation techniques
used to measure fair value into three levels based on the extent to which inputs used in measuring fair
value are observable in the market:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are inputs — other than quoted prices included within level 1 — that are observable for
an asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for an asset or liability.
If the fair value of an asset or liability is measured using inputs from more than one level of the fair value
hierarchy, the measurement is considered to be based on the lowest priority level input that is significant to
the entire measurement.
81
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
47.
NOTE 2 – CASH AND INVESTMENTS
Primary Government: The City's pooled idle funds are invested pursuant to investment policy guidelines
adopted by the City Council. The objectives of the policy are to invest funds to the fullest extent possible
and to invest in accordance with the provisions of the California Government Code with the priority of safety,
liquidity and yield. The policy addresses the safekeeping of securities, types of investment instruments,
diversification, maturities, reporting requirements, and internal control. The City maintains a cash and
investment pool that is available for use by all funds. Each fund type's portion of this pool is displayed on
the Statement of Net Position and the balance sheet as "cash and investments."
Policies: California Law requires banks and savings and loan institutions to pledge government securities
with a market value of 110 percent of the City's cash on deposit, or first trust deed mortgage notes with a
market value of 150 percent of the deposit, as collateral for these deposits. Under California Law, this
collateral is held in a separate investment pool by another institution in the City's name and places the City
ahead of general creditors of the institution.
The City and its fiscal agents invest in individual investments and in investment pools. Individual
investments are evidenced by specific identifiable securities instruments, or by an electronic entry
registering the owner in the records of the institution issuing the security, called the book entry system.
Security instruments owned by the City are held in safekeeping by a third party custodian acting as agent
for the City under the terms of a custody agreement.
The City's investments are carried at fair value with the exception of money market mutual funds, which
are carried at amortized cost. The City adjusts the carrying value of its investments to reflect their fair value
at each fiscal year end, and it includes the effects of these adjustments in investment income for that fiscal
year.
Classification: The City's total cash and investments, at fair value, are presented on the financial statements
in the following allocation:
Primary Government
Cash and investments $ 159,131,152
Restricted cash and investments:
Held by fiscal agent for pension 12,725,224
Held by fiscal agent for bond repayments 4,362,317
Total cash and investments $ 176,218,693
82
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
48.
NOTE 2 – CASH AND INVESTMENTS (Continued)
Authorized Investments by the City: The City's Investment Policy and the California Government Code
allow the City to invest its pooled idle funds in the following, under limits and provisions that address interest
rate risk, credit risk, and concentration of credit risk. This does not include the City's investments of debt
proceeds held by fiscal agents that are governed by the provisions of debt agreements of the City.
Minimum Maximum Maximum
Maximum Credit Percentage of Investment in
Authorized Investment Type Maturity Quality Portfolio One Issuer
U.S. Treasury Obligations 5 years N/A None None
U.S. Agency Securities * 5 years N/A None None
California Local Agency Investment
Fund (LAIF) N/A N/A Up to $65 million None
Non-negotiable Certificates of
Deposits (time deposits) 5 years N/A 30%*** 10% of portfolio;
5% of issuer’s net worth **
State of California registered state
warrants, treasury notes, or bonds 5 years N/A None None
California local agency bonds, notes,
warrants, or other obligations 5 years N/A None None
Bond issued by the local agency 5 years N/A None None
Bankers' Acceptances 180 days N/A 40% None
Commercial Paper 270 days A-1+P-1 25% 10% of portfolio; 5% of
issuer’s net worth; 10% of
outstanding paper of
Issuer. **
Negotiable Certificates of Deposit 5 years N/A 30% 10% of portfolio; 5% of
issuer’s net worth. **
Repurchase Agreements 1 year N/A None 10% of portfolio; 5% of
issuer’s net worth. **
Medium Term Corporate Notes 5 years A or better 30% 10% of portfolio; 5% of
issuer’s net worth. **
Money market mutual funds investing
in U.S. Treasury, Government Agency
securities or repurchase agreements
collateralized by U.S. Treasury or
Government Agency securities 5 years Aaa/AAA 20% None
Supranationals 5 years AA or better 30% 10% of portfolio
* Securities issued by agencies of the federal government such as the Government National Mortgage Association (GNMA),
the Federal Farm Credit System (FFCB), the Federal Home Loan Bank (FHLB), the Federal National Mortgage Association
(FNMA), the Student Loan Marketing Association (SLMA), and the Federal Home Loan Mortgage Association (FHLMC).
** Represents restriction in which the City's investment policy is more restrictive than the California Government Code.
*** 30% maximum percent of portfolio if using a private sector entity to assist in the placement of the time deposits. No maximum
for others.
Authorized Investments by Debt Agreements: The City must maintain required amounts of cash and
investments with trustees or fiscal agents under the terms of certain debt issues. These funds are
unexpended bond proceeds or are pledged reserves to be used if the City fails to meet its obligations under
these debt issues. The California Government Code requires these funds to be invested in accordance
with City ordinances, bond indentures or State statutes. The City's Investment Policy allows investments
of bond proceeds to be governed by provisions of the related bond indentures. The following identifies the
investment types that are authorized for investments held by fiscal agents under the terms of the bond
indentures of the related debt issue:
83
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
49.
NOTE 2 – CASH AND INVESTMENTS (Continued)
Minimum Maximum
Maximum Credit Percentage of
Authorized Investment Type Maturity Quality Portfolio
Cash or obligations of the U.S. including U.S. Treasury obligations N/A N/A None
Federal agencies obligations which represent
full faith and credit of the U.S. N/A N/A None
Direct federal agencies obligations which are not
fully guaranteed by the full faith and credit of the U.S. N/A N/A None
U.S. dollar denominated deposit accounts, federal funds and
bankers' acceptances with domestic commercial banks 360 days P-1, A-1+, A-1 None
Commercial Paper 270 days P-1, A-1 None
Money market funds N/A Aaam or AAAm-G None
Pre-refunded municipal obligations that are not callable prior
to maturity or as to which irrevocable instructions have been Highest
given to call on the date specified in the notice N/A rating category None
Municipal obligations or General obligations of states N/A Aaa, AAA, A2, A None
California Local Agency Investment Fund (LAIF) N/A N/A Up to $65 million
Shares in a California common law trust established pursuant
to Title 1, Division 7, Chapter 5 of the California Government
Code which invests exclusively in investments permitted by
Section 53635 of Title 5, Division 2, Chapter of the California
Government Code, as it may be amended. N/A N/A None
Interest Rate Risk: Interest rate risk is the risk that changes in market interest rates will adversely affect
the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity
of its fair value to changes in market interest rates.
Information about the sensitivity of the fair values of the City's investments (including investments held by
bond trustees) to market interest rate fluctuations is provided by the following table that shows the
distribution of the City's investments by maturity or earliest call date:
12 Months 13 to More than
Investment Type or less 24 Months 24 Months Total
U.S. Treasury Securities 2,418,852$ 8,202,760$ 17,421,510$ 28,043,122$
U.S. Agency Notes
Federal Home Loan Mortgage Corporation - 1,550,010 6,140,693 7,690,703
Federal National Mortgage Association 2,211,506 - 11,717,112 13,928,618
Federal Home Loan Banks - 2,049,600 7,034,330 9,083,930
Federal Farm Credit Banks - 1,370,527 4,334,280 5,704,807
Corporate Notes 2,891,546 2,047,960 23,953,184 28,892,690
Local Agency Investment Fund 20,824,714 - - 20,824,714
Municipal Bonds - - 805,487 805,487
Asset Backed Securities - - 10,358,047 10,358,047
Collateralized Mortgage Obligations - - 3,237,400 3,237,400
Money Market Mutual Funds 6,630,849 - - 6,630,849
Total investments 34,977,467$ 15,220,857$ 85,002,043$ 135,200,367
Cash in banks and on hand 28,293,102
Restricted for Pension (PARS) 12,725,224
Total cash and investments 176,218,693$
84
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
50.
NOTE 2 – CASH AND INVESTMENTS (Continued)
The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California
Government Code Section 16429 under the oversight of the Treasurer of the State of California. The Local
Investment Advisory Board (Board) has oversight responsibility for LAIF. The Board consists of five
members as designated by State Statute. The City reports its investment in LAIF at the fair value amount
provided by LAIF, which is the same as the value of the pool share. The balance is available for withdrawal
on demand, and is based on the accounting records maintained by LAIF, which are recorded on an
amortized cost basis. Included in LAIF's investment portfolio are U.S. Treasuries, Federal Agency
obligations, time deposits, negotiable certificates of deposits, commercial paper, corporate bonds, and
security loans. These investments had weighted average maturity of 191 days.
Money market mutual funds are available for withdrawal on demand. At June 30, 2020, money market
mutual funds, used for pooled investment and held by fiscal agent purposes, had a weighted average
maturity of 46 days or less.
Fair Value Hierarchy: The City categorizes its fair value measurements within the fair value hierarchy
established by generally accepted accounting principles. The hierarchy is based on the valuation inputs
used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical
assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant
unobservable inputs.
The following is a summary of the fair value hierarchy of the fair value of investments of the City as of
June 30, 2020:
Investments by Fair Value Level Level 1 Level 2 Total
U.S. Treasury Securities -$ 28,043,122$ 28,043,122$
U.S. Agency Notes
Federal Home Loan Mortgage Corporation - 7,690,703 7,690,703
Federal National Mortgage Association - 13,928,618 13,928,618
Federal Home Loan Banks - 9,083,930 9,083,930
Federal Farm Credit Banks - 5,704,807 5,704,807
Corporate Notes - 28,892,690 28,892,690
Municipal Bonds - 805,487 805,487
Asset Backed Securities - 10,358,047 10,358,047
Collateralized Mortgage Obligations - 3,237,400 3,237,400
Total investments -$ 107,744,804$ 107,744,804
Investments Measured at Amortized Cost:
Money Market Mutual Funds 6,630,849
Investments Exempt from Fair Value Hierarchy:
Local Agency Investment Fund 20,824,714
Cash in banks and on hand 28,293,102
Investments Held in Trust:
Restricted for Pension (PARS) 12,725,224
Total cash and investments 176,218,693$
85
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
51.
NOTE 2 – CASH AND INVESTMENTS (Continued)
Investments classified in Level 1 of the fair value hierarchy include securities valued using quoted prices in
active markets. Federal Agency Securities and other U.S. Treasury Securities, classified in Level 2 of the
fair value hierarchy are valued using matrix pricing techniques maintained by various pricing vendors.
Matrix pricing is used to value securities based on the securities' relationship to benchmark quoted prices.
Fair value is defined as the quoted market value on the last trading day of the period. These prices are
obtained from various pricing sources by the custodian bank. The California Local Agency Investment Fund
(LAIF) is valued using factors provided in the Pooled Money Investment Account (PMIA) Performance
Report by the State Treasurer’s Office. Money market funds and negotiable certificates of deposit are
exempt from fair value measurement and are reported at amortized cost.
Credit Risk: Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of
the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization. Presented below is the actual rating as of June 30, 2020 for each investment type, including
those with fiscal agents, as provided by Moody's ratings:
Investment Type Ratings Total
Money Market Mutual Funds Aaa 6,630,849$
Corporate Notes A1 28,892,690
U.S. Agency Notes
Federal Home Loan Mortgage Corporation Aaa 7,690,703
Federal National Mortgage Association Aaa 13,928,618
Federal Home Loan Banks Aaa 9,083,930
Federal Farm Credit Banks Aaa 5,704,807
Municipal Bonds Aa2 805,487
Asset Backed Securities Aaa 10,358,047
Collateralized Mortgage Obligations Aaa 3,237,400
U.S. Treasury Securities Aaa 28,043,122
Not rated:
Local Agency Investment Fund Not Rated 20,824,714
Total investments 135,200,367$
Concentration of Credit Risk: The City's investment policy contains certain limitations on the amount that
can be invested in any one issuer. In certain categories, these limitations are more restrictive than those
required by California Government Code Sections 53600 et seq. Excluding those issued or explicitly
guaranteed by the U.S. government and investments in the local agency investment fund and mutual funds,
the City had the following investments that represent five percent or more of total City-wide investments:
Issuer Investment Type Amount
Federal Home Loan Mortgage Corporation (FHLMC) U.S. Agency Notes $ 7,690,703
Federal Home Loan Banks (FHLB) U.S. Agency Notes 9,083,930
Federal National Mortgage Association (FNMA) U.S. Agency Notes 13,928,618
86
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
52.
NOTE 2 – CASH AND INVESTMENTS (Continued)
OPEB Trust: The OPEB Trust's pooled idle funds are invested pursuant to investment policy guidelines
adopted by the Plan. The objectives of the policy are to invest funds to the fullest extent possible and to
invest in accordance with the provisions of the California Government Code with the priority of safety,
liquidity and yield. The policy addresses the safekeeping of securities, types of investment instruments,
diversification, maturities, reporting requirements, and internal control. The Plan maintains a cash and
investment pool that is available for use only by the plan and not any other City funds.
Policies: California Law requires banks and savings and loan institutions to pledge government securities
with a market value of 110 percent of the Plan's cash on deposit, or first trust deed mortgage notes with a
market value of 150 percent of the deposit, as collateral for these deposits. Under California Law, this
collateral is held in a separate investment pool by another institution in the Plans name and places the Plan
ahead of general creditors of the institution.
The Plan and its fiscal agent invest in individual investments and in investment pools. Individual
investments are evidenced by specific identifiable securities instruments, or by an electronic entry
registering the owner in the records of the institution issuing the security, called the book entry system.
Security instruments owned by the Plan are held in safekeeping by a third party custodian acting as agent
for the City under the terms of a custody agreement.
The Plan's investments are carried at fair value with the exception of money market mutual funds which
are carried at amortized cost. The Plan adjusts the carrying value of its investments to reflect their fair value
at each fiscal year end, and it includes the effects of these adjustments in investment income for that fiscal
year.
Classification: The Plan's total cash and investments, at fair value, are presented on the fiduciary fund
financial statements.
Authorized Investments: The Plan's Investment Policy and the California Government Code allow the Plan
to invest its pooled idle funds in the following, under limits and provisions that address interest rate risk,
credit risk, and concentration of credit risk. Specifics of the policy are:
Fixed Income Assets - The fixed income investments are to maintain intermediate-term average weighted
duration, between three-seven years. At the time of purchase, no single fixed income issuer shall exceed
two percent of the total market value of the Portfolio, with the exception of U.S. Treasury or Agency
obligations. The direct high-yield portion shall constitute no more than 10 percent of the total market value
of the Portfolio.
Equity & Growth Assets - The domestic equity investments are expected to be diversified at all times by
size, industry, sector, and style (Large Cap, Mid Cap, and Small Cap). At the time of purchase, no
individual equity security shall exceed two percent of the total market value of the Portfolio. The
international equity investments (including emerging markets) shall constitute no more than 20 percent of
the total market value of the Portfolio. The real estate investments shall be captured through the use of
diversified mutual funds or ETFs investing in REITs; and shall constitute no more than 15 percent of the
total market value of the Portfolio. The commodities investments shall be captured through the use of
diversified mutual funds or ETFs; and shall constitute no more than 10 percent of the total market value of
the Portfolio.
87
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
53.
NOTE 2 – CASH AND INVESTMENTS (Continued)
Permitted Asset Classes and Security Types
Fixed Income & Cash Equivalent Investments:
• Domestic Certificates of Deposit (rated A-1/P-1 or better)
• Domestic Commercial Paper (rated A-1/P-1 or better)
• Floating Rate Notes
• Money Market Mutual Funds
• U.S. Treasury Bonds, Bills and Notes
• U.S. Agency (and Instrumentality) Discount Notes, Notes, and Bonds
• Treasury Inflation-Protected Securities (TIPS)
• Municipal Bonds and Notes
• Corporate Bonds
• Mortgage-Backed Bonds (MBS)
• Asset-Backed Bonds (ABS)
• High-Yield Bonds (rated B-/B3 or better)
• Dollar denominated Foreign Bonds and Notes
• Bond Mutual Funds
Equity Investments:
• Common & Preferred Stocks
• American Depository Receipts (ADRs)
• Domestic and International Equity Mutual Funds (Open and Closed)
• Emerging Market Equity Funds or Exchange Traded Funds (ETFs)
Alternative Investments:
• Commodities Mutual Funds or Exchange Traded Notes (ETNs)
• REIT Investment or Pooled Strategy or Fund of REITs
• Registered Hedge Funds or Hedge Fund of Funds
Interest Rate Risk: Interest rate risk is the risk that changes in market interest rates will adversely affect
the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity
of its fair value to changes in market interest rates. All of the Plan’s investments are held in mutual fund
securities with a maturity of less than 12 months.
Money market mutual funds are available for withdrawal on demand. At June 30, 2020, money market
mutual funds, used for investment and held by fiscal agent purposes, had a weighted average maturity of
43 days or less.
Fair Value Hierarchy: The Plan categorizes its fair value measurements within the fair value hierarchy
established by generally accepted accounting principles. The hierarchy is based on the valuation inputs
used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical
assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant
unobservable inputs. The Plan’s investments in mutual funds are valued at fair value and are considered
Level 1 investments.
88
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
54.
NOTE 2 – CASH AND INVESTMENTS (Continued)
Credit Risk: Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of
the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization. As the Plan is invested in mutual funds, there are no available credit risk ratings.
Concentration of Credit Risk: The Plan's investment policy contains certain limitations on the amount that
can be invested in any one issuer. In certain categories, these limitations are more restrictive than those
required by California Government Code Sections 53600 et seq. Excluding those issued or explicitly
guaranteed by the U.S. government and investments in the local agency investment fund and mutual funds,
the Plan did not have investments that represent five percent or more of total Plan investments.
NOTE 3 – LOANS RECEIVABLE
Housing Program Loans: On June 30, 1995, the City loaned $821,000 to Community Housing Developers,
a California nonprofit public benefit corporation. The note bears interest at three percent per annum,
compounded annually, payable to the extent of surplus cash, and all unpaid principal and interest due
June 30, 2035. At June 30, 2020, the balance remaining on the loan was $821,000. The loan was issued
using resources in the Housing Development Fund and is considered governmental activities.
On June 6, 1996, the City loaned $320,000 to Cupertino Community Services, a California nonprofit public
benefit corporation. The note bears interest at three percent per annum and due on July 14, 2026. At
June 30, 2020, the balance on the loan was $168,661. The loan was issued using resources in the Housing
Development Fund and is considered governmental activities.
On September 11, 2017 the City loaned $3,672,000 to Stevens Creek, L.P., a California limited partnership.
The note bears interest at three percent per annum for 55 years. After the completion of construction of the
development, no later than April 30th of each calendar year, the Developer shall make repayments of the
loan in an amount equal to the City loan percentage of the lenders’ share of residual receipts. The payments
shall be credited first against accrued interest and then against outstanding principal of the loan, and shall
be accompanied by the developer’s report of residual receipts. At June 30, 2020, the balance remaining on
the loan was $3,672,000. The loan was issued using resources in the Housing Development Fund and is
considered governmental activities.
In addition to these loans, the City has $40,120 in housing and other loans receivable at June 30, 2020.
These loans bear interest at three to six percent and are due by June 30, 2025. The loan was issued using
resources in the Housing Development Fund and is considered governmental activities.
89
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
55.
NOTE 4 – INTERFUND TRANSACTIONS
Transfers between funds during the fiscal year ended June 30, 2020 were as follows:
Fund Making Transfers Fund Receiving Transfers Amount Transferred
General Fund Transportation Special Revenue Fund $ 221,000 (A)
Public Financing Corporation Debt Service Fund 3,172,838 (B,D)
Capital Improvement Projects Capital Projects Fund 20,705,438 (A)
Non-major Governmental Funds 1,097,000 (C)
Non-major Enterprise Funds 610,000 (D)
Cupertino Sports Center Fund 948,000 (D)
Recreation Programs Fund 565,000 (D)
Internal Service Funds 3,573,000 (E)
Capital Improvements Projects
Capital Projects Fund General Fund 10,000,000 (A)
Cupertino Sports Center Fund 1,275,000 (A)
Recreation Programs Fund 125,000 (C)
Non-major Governmental Funds General Fund 12,000 (F)
Total Interfund Transfers $ 42,304,276
The reasons for these transfers are set forth below:
(A) To fund capital projects.
(B) For annual lease payment for 2012 Certificates of Participation debt service.
(C) To support state-mandated activities including complaint response and enforcement programs.
(D) Operating subsidy from General Fund.
(E) To fund IT operations, personnel costs associated with staffing special project, and compensated absences and retiree health.
(F) To fund purchase of trees
Current Interfund Balances: Current interfund balances arise in the normal course of business and are
expected to be repaid shortly after the end of the fiscal year. At June 30, 2020, the Equipment Revolving
Internal Service Fund owed the General Fund $539,204.
Interfund Advances: Interfund advances are balances between funds that are not expected to be repaid
within the current fiscal year. As of June 30, 2020, the General Fund advanced $3,000,000 to the Capital
Improvement Projects Capital Projects Fund for advance funding of planned projects that will be repaid in
subsequent years.
90
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
56.
NOTE 5 – CAPITAL ASSETS
A summary of changes in governmental activities capital assets is as follows:
Balance at Balance at
July 1, 2019 Additions Deletions Transfers June 30, 2020
Governmental activities:
Capital assets not being depreciated:
Land 62,045,969$ -$ -$ -$ 62,045,969$
Easements 19,615,039 - - - 19,615,039
Construction in progress 3,556,011 11,317,866 (12,380) (9,546,327) 5,315,170
Total general government capital
assets not being depreciated 85,217,019 11,317,866 (12,380) (9,546,327) 86,976,178
Capital assets being depreciated:
Buildings 46,154,679 - - 53,248 46,207,927
Improvements other than buildings 57,704,166 - - 853,679 58,557,845
Machinery and equipment 3,705,886 - (26,038) 469,559 4,149,407
Roads, curbs, gutters, sidewalks, medians
and bridges 170,021,047 - - 7,950,226 177,971,273
Streetlights 8,838,715 - - 219,615 9,058,330
Storm drain structure and mains 37,373,158 - - - 37,373,158
Traffic signals 6,418,246 - - - 6,418,246
Total capital assets being depreciated 330,215,897 - (26,038) 9,546,327 339,736,186
Less accumulated depreciation for:
Buildings (28,431,668) (1,762,190) - - (30,193,858)
Improvements other than buildings (38,792,488) (2,283,155) - - (41,075,643)
Machinery and equipment (2,466,624) (355,065) 26,038 - (2,795,651)
Roads, curbs, gutters, sidewalks, medians
and bridges (107,849,619) (2,408,644) - - (110,258,263)
Streetlights (7,350,244) (118,898) - - (7,469,142)
Storm drain structure and mains (32,678,455) (431,927) - - (33,110,382)
Traffic signals (5,575,962) (112,577) - - (5,688,539)
Total accumulated depreciation (223,145,060) (7,472,456) 26,038 - (230,591,478)
Total general government capital
assets being depreciated, net 107,070,837 (7,472,456) - 9,546,327 109,144,708
Internal service fund capital assets:
Capital assets not being depreciated:
Construction in progress 10,045 941,206 - (736,585) 214,666
Total internal fund capital
assets not being depreciated 10,045 941,206 - (736,585) 214,666
Capital assets being depreciated:
Machinery and equipment 10,988,245 - (302,613) 736,585 11,422,217
Less accumulated depreciation (7,315,096) (969,469) 302,613 - (7,981,952)
Total internal fund capital
assets being depreciated, net 3,673,149 (969,469) - 736,585 3,440,265
Governmental activities capital assets, net 195,971,050$ 3,817,147$ (12,380)$ -$ 199,775,817$
91
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
57.
NOTE 5 – CAPITAL ASSETS (Continued)
Balance at Balance at
July 1, 2019 Additions Deletions Transfers June 30, 2020
Business-type activities:
Capital assets not being depreciated:
Construction in progress -$ 75,297$ -$ (75,297)$ -$
Total capital assets not being depreciated - 75,297 - (75,297) -
Capital assets being depreciated:
Buildings 1,006,002 - - - 1,006,002
Improvements other than buildings 2,089,743 - - - 2,089,743
Machinery and equipment 635,822 - - 75,297 711,119
Total capital assets being depreciated 3,731,567 - - 75,297 3,806,864
Less accumulated depreciation for:
Buildings (371,575) (60,461) - - (432,036)
Improvements other than buildings (1,461,742) (191,679) - - (1,653,421)
Machinery and equipment (579,506) (23,019) - - (602,525)
Total accumulated depreciation (2,412,823) (275,159) - - (2,687,982)
Total capital assets being depreciated, net 1,318,744 (275,159) - 75,297 1,118,882
Business-type activity capital assets, net 1,318,744$ (199,862)$ -$ -$ 1,118,882$
Depreciation expense was charged to functions and programs based on their usage of the related assets.
Depreciation expense was charged to governmental activities as follows:
Governmental Activities
Administration $ 183,075
Public and Environment Affairs 15,692
Administrative Services 28,395
Parks and Recreation 162,899
Public Works 7,082,395
Total $ 7,472,456
Depreciation expense was charged to the business-type activities as follows:
Business-Type Activities
Resources Recovery $ 3,314
Blackberry Farm 6,035
Cupertino Sports Center 54,382
Recreation Program 211,428
Total $ 275,159
92
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
58.
NOTE 6 – LONG-TERM DEBT
Cupertino Public Facilities Corporation Certificates of Participation:
Original Balance Balance
Issue June 30, June 30, Current
Amount 2019 Retirements 2020 Portion
2012 Refinancing Certificates
of Participation:
0.350-3.125%, due 07/01/2030 $ 43,940,000 $ 29,300,000 $ 2,290,000 $ 27,010,000 $ 2,355,000
Total long-term debt $ 29,300,000 $ 2,290,000 $ 27,010,000 $ 2,355,000
The Cupertino Public Facilities Corporation issued Certificates of Participation to provide financing for the
construction of the Community Center, improvements of the City Hall and the Library in July 1986; purchase
of Wilson Park in 1989; finance the Memorial Park Expansion in 1990; and purchase the Blackberry Farm
and Fremont Older site in 1991. The Cupertino Public Facilities Corporation, as lessor, leased real property
to the City (under the Lease Agreement with the lessee) and assigned the base rental payments to the
trustee for the benefit of the owners of the certificates of participation. The rental payments which represent
the pledged revenues are scheduled to be sufficient in both time and amount, when the principal and
interest of the certificates are due, which was the case for the year ended June 30, 2020.
On May 9, 2012, $43,940,000 principal amount of 2012 Refinancing Certificates of Participation (2012
COPs) were issued to refund the 2002 COPs, to fund a reserve fund for the 2012 COPs, and pay costs
incurred in connection with issuance.
The 2012 COPs are payable by a pledge of revenues from the lease payments payable by the City pursuant
to the Lease Agreement between the Cupertino Public Facilities Corporation and the City for the use and
possession of the Site and Facility as described in the Lease Agreement. The City also covenanted in the
Lease Agreement to include all lease payments in its annual budget. Total debt service payments
remaining on the 2012 COPs is $31,702,271 payable through July 1, 2030. For the year ended June 30,
2020, the bonds had $2,290,000 of principal and $882,837 interest due.
Annual debt service requirements for the 2012 COPS are shown below:
For the Year Governmental Activities
Ending June 30 Principal Interest
2021 $ 2,355,000 $ 814,138
2022 2,425,000 743,486
2023 2,500,000 670,738
2024 2,575,000 595,738
2025 2,655,000 518,488
2026-2030 14,500,000 1,349,683
Total $ 27,010,000 $ 4,692,271
93
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
59.
NOTE 7 – NET POSITION AND FUND BALANCES
Net Position is measured on the full accrual basis while Fund Balance is measured on the modified accrual
basis.
Net Position: The government-wide and proprietary fund financial statements utilize a net position
presentation. Net position is categorized as follows:
Net investment in capital assets - This category groups all capital assets including, infrastructure, into one
component of net position. Accumulated depreciation and outstanding balances of debt that are
attributable to the acquisition, construction or improvement of these assets reduce the balance in this
category.
Restricted - This category represents net position that has external restrictions imposed by creditors,
grantors, contributors or laws or regulations of other governments and restrictions imposed by law through
constitutional provisions or enabling legislation.
Unrestricted - This category represents net position of the City that do not meet the definition of "net
investment in capital assets" or "restricted."
Fund Balances: As prescribed by GASB Statement No. 54, governmental funds report fund balance in
classifications based primarily on the extent to which the City is bound to honor constraints on the specific
purposes for which amounts in the funds can be spent. Fund balances for governmental funds are made
up of the followings:
Nonspendable Fund Balance - includes amounts that are (a) not in spendable form, or (b) legally or
contractually required to be maintained intact. The "not in spendable form" criterion includes items that are
not expected to be converted to cash, for example: prepaid items, property held for resale and long term
notes receivable.
Restricted Fund Balance - includes amounts that can be spent only for the specific purposes stipulated by
external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be
changed or lifted only with the consent of resource providers.
Committed Fund Balance - includes amounts that can only be used for the specific purposes determined
by a formal action of the City's highest level of decision-making authority, the City Council. Commitments
may be changed or lifted only by the City taking the same formal action (resolution) that imposed the
constraint originally.
Assigned Fund Balance - comprises amounts intended to be used by the City for specific purposes that are
neither restricted nor committed. Intent is expressed by the City Council or official to which the City Council
has delegated the authority to assign amounts to be used for specific purposes. Through the adopted
budget, the City Council establishes assigned fund balance policy levels and also sets the means and
priority for the City Manager to fund these levels.
Unassigned Fund Balance - is the residual classification for the General Fund and includes all amounts not
contained in the other classifications. Unassigned amounts are technically available for any purpose.
In circumstances when an expenditure may be made for which amounts are available in multiple fund
balance classifications, the fund balance in General Fund will generally be used in the order of restricted,
unassigned, and then assigned reserves. In other governmental funds, the order will generally be restricted
and then assigned.
94
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
60.
NOTE 7 – NET POSITION AND FUND BALANCES (Continued)
Fund balances for all major and nonmajor governmental funds as of June 30, 2020, were distributed as
follows:
Public Capital Other
Housing Facilities Improvements Governmental
General Transportation Development Corporation Projects Funds Total
Nonspendable:
Loans receivable 449,341$ -$ -$ -$ -$ -$ 449,341$
Advances to other funds 3,000,000 - - - - - 3,000,000
Subtotal 3,449,341 - - - - - 3,449,341
Restricted for:
Public access television 1,368,789 - - - - - 1,368,789
Debt service 13,193 - - 1,685,872 - - 1,699,065
PRSP Section 115 Trust 12,725,224 - - - - - 12,725,224
Public safety power shutoff 217,551 - - - - - 217,551
Storm drain system - - - - - 3,994,007 3,994,007
Parks and open space - - - - - 12,345,423 12,345,423
Environmental management - - - - - 1,780,980 1,780,980
Streets and road projects - 5,174,514 - - - 241,119 5,415,633
Housing programs - - 8,459,128 - - - 8,459,128
Subtotal 14,324,757 5,174,514 8,459,128 1,685,872 - 18,361,529 48,005,800
Committed for:
Economic uncertainty I 19,000,000 - - - - - 19,000,000
Sustainability Reserve 127,891 - - - - - 127,891
Subtotal 19,127,891 - - - - - 19,127,891
Assigned to:
Encumbrances 3,176,882 - - - - - 3,176,882
Capital projects - - - - 40,354,087 197,044 40,551,131
Subtotal 3,176,882 - - - 40,354,087 197,044 43,728,013
Unassigned 34,426,942 - - - - - 34,426,942
Total 74,505,813$ 5,174,514$ 8,459,128$ 1,685,872$ 40,354,087$ 18,558,573$ 148,737,987$
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Federal and State Grant: The City participates in a number of federal and state grant programs subject to
financial and compliance audits by the grantors or their representatives. Audits of certain grant programs,
including those for the year ended June 30, 2020, have yet to be conducted. The amount, if any, of
expenditures that may be disallowed by the granting agencies cannot be determined at this time.
Management believes that such disallowances, if any, would not have a material effect on the financial
statements.
Encumbrances: The City uses encumbrances to control expenditure commitments for the year.
Encumbrances represent commitments related to executor contracts not yet performed and purchase
orders not yet filled. Commitments for such expenditure of monies are encumbered to reserve a portion of
applicable appropriations. Encumbrances still open at year end are not accounted for as expenditures and
liabilities, but as restricted, or assigned fund balance.
95
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
61.
NOTE 8 – COMMITMENTS AND CONTINGENCIES (Continued)
As of June 30, 2020, the City had the following encumbrances outstanding:
Governmental Funds:
General Fund $ 3,176,882
Transportation Special Revenue Fund 486,221
Housing Development Special Revenue Fund 10,318
Capital Improvements Projects Capital Projects Fund 1,697,733
Other Governmental Funds 93,459
Total Encumbrances $ 5,464,613
Lease Agreement with County of Santa Clara: The City has an agreement (commitment), expired in 2019
but still being honored, to lease a building to the County of Santa Clara for the purpose of providing library
service to the City's residents. The lease requires a minimum annual payment of $120,000 adjusted for
Cupertino's portion of book circulation and increase of assessed valuation. This is an operating lease with
a renewable option. The City is currently negotiating the terms with the Santa Clara County Library District
JPA to renew the operating lease. At June 30, 2020, the cost and carrying value of the building which
opened in October 2004, is $21,952,133 and $8,060,185 respectively, with $13,891,948 in accumulated
depreciation.
Consulting Agreement for Sales Taxes: The City entered into agreements (commitments) with two
companies to provide services consisting of the assessment and creation of new sales and use tax revenue
sources for the City. The City agreed to pay the companies based on a sliding scale payment schedule
dependent on the level of new sales tax revenue realized by the City as defined in the consulting
agreements. These agreements qualify as tax abatements under the provisions of GASB Statement 77.
However, due to legal restrictions per the California Revenue and Taxation Code, Section 7056, additional
disclosures cannot be provided.
Santa Clara County Vehicle Registration Fee (VRF): The City is required to report VRF revenues,
expenditures and fund balances as of the year ended June 30, 2020:
VRF Balance as of July 1, 2019 $ -
VRF Revenue 401,249
VRF Interest -
VRF Expended 401,249
VRF Balance as of June 30, 2020 $ -
NOTE 9 – LIABILITIES UNDER SELF-INSURANCE AND RISK MANAGEMENT
General and Property Liability: The City is self-insured for the first $250,000 of general and property liability
for each occurrence, and the excess (up to $10,000,000 for each occurrence and annual aggregate) is
covered through the City's participation in the Association of Bay Area Governments Pooled Liability
Assurance Network (ABAG PLAN). The risk pool consists of 30 agencies within the San Francisco Bay
Area. The stated purpose of the ABAG PLAN is to provide certain levels of liability insurance coverage,
claims management, risk management services, and legal defense to its participating members. ABAG
PLAN is governed by a Board of Directors, which comprises officials appointed by each participating
member. Premiums paid to ABAG are subject to possible refund based on the results of actuarial studies
and approval by the Board of Directors. Complete financial statements for ABAG PLAN may be obtained
from their offices at the following address: ABAG PLAN, Finance Department, P.O. Box 2050, Oakland,
CA 94604. Premiums are revised each year based on the City's claims experience and risk exposure. For
the year ended June 30, 2020, the City paid ABAG PLAN premiums of $14,150.
96
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
62.
NOTE 9 – LIABILITIES UNDER SELF-INSURANCE AND RISK MANAGEMENT (Continued)
Workers' Compensation Liability: The City belongs to the CSAC Excess Insurance Authority (EIA), a joint
power authority which provides excess workers' compensation liability claims coverage above the City's
self-insured retention of $500,000 per occurrence. Losses above the self-insured retention are pooled with
excess reinsurance purchased to a $50,000,000 statutory limit. EIA was established in 1979 for the purpose
of creating a risk management pool for all California public entities. EIA is governed by a Board of Directors
consisting of representatives of its member public entities. Complete financial statements for ETA may be
obtained from their offices at the following address: CSAC Excess Insurance Authority, Finance
Department, EIA 75 Iron Point Circle, Suite 200, Folsom, CA 95630. For the year ended June 30, 2020,
the City paid premiums of $104,514.
It is the City's practice to obtain biennial actuarial studies for the self-insured workers' compensation liability.
The claims liabilities included in the workers' compensation internal service fund is based on the results of
actuarial studies and include amounts for claims incurred but not reported and loss adjustment expenses.
Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends, including
frequency and amount of payouts, and other economic and social factors. Inflation of 2.5 percent, annual
rate of return of two percent, claim severity increase at 2.5 percent were assumed. In the current year,
management used actuarial estimates based on a 90 percent confidence level.
Settlements have not exceeded insurance coverage in the past three years.
Changes in the balances of workers' compensation and general claims liabilities during the years ended
June 30 are as follows:
2020 2019
Claims liability, beginning of year $ 1,553,277 $ 1,369,165
Incurred claims and changes in estimate 127,471 419,279
Claim payments and credits (153,478) (235,167)
Total claims liability, end of year 1,527,000 1,553,277
Less current portion (274,000) (313,291)
Non-current portion $ 1,253,000 $ 1,239,986
NOTE 10 – DEFINED BENEFIT PENSION PLAN
Plan Descriptions and Summary of Balances by Plan: The City has one defined benefit pension plan. The
Miscellaneous Plan (Plan) is an Agent-Multiple Employer Plan. Benefit provisions under the Plan is
established by State statute and City Ordinance. All qualified permanent and probationary employees are
eligible to participate in the Plan for which they are an eligible member based on their employment position
with the City.
The Plan is administered by the California Public Employees' Retirement System (CalPERS) which acts as
a common investment and administrative agent for its participating member employers. CalPERS issues
publicly available reports that include a full description of the pension plans regarding benefit provisions,
assumptions and membership information that can be found on the CalPERS website.
97
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
63.
NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued)
For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to
pensions, and pension expense, information about the fiduciary net position of the Miscellaneous Plan and
additions to/deductions from the Plan's fiduciary net position have been determined on the same basis as
they are reported by the CalPERS Financial Office. For this purpose, benefit payments (including refunds
of employee contributions) are recognized when currently due and payable in accordance with the benefit
terms. Investments are reported at fair value.
Below is a summary of the deferred outflows of resources, net pension liabilities and deferred inflows of
resources by Plan:
Deferred Outflows Net Pension Deferred Inflows
of Resources Liability of Resources
Miscellaneous $ 9,647,619 $ 46,098,530 $ 825,047
Benefits Provided: CalPERS provides service retirement and disability benefits, annual cost of living
adjustments and death benefits to plan members, who must be public employees and beneficiaries.
Benefits are based on years of credited service, equal to one year of full time employment. Members with
five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are
eligible for non-duty disability benefits after 10 years of service. The cost of living adjustments for each
plan are applied as specified by the Public Employees' Retirement Law. The Pension Reform Act of 2013
(PEPRA), Assembly Bill 340, is applicable to employees new to CalPERS and hired after December 31,
2012. The Plans' provisions and benefits in effect at June 30, 2020, are summarized as follows:
Hire date
Prior to On or after
January 1, 2013 January 1, 2013
Benefit formula 2.7% @ 55 2.0% @ 62
Benefit vesting schedule 5 years service 5 years service
Benefit payments monthly for life monthly for life
Minimum retirement age 50 52
Monthly benefits, as a % of eligible compensation 2% to 2.7% 1% to 2%
Required employee contribution rates 8.00% 6.25%
Required employer contribution rates 23.54% 25.653%
Employees Covered: As of the June 30, 2018 actuarial valuation date (most current), the following
employees were covered by the benefit terms of the Plan:
Inactive employees or beneficiaries currently receiving benefits 227
Inactive employees entitled to but not yet receiving benefits 139
Active employees 196
Total 562
Contributions: Section 20814(c) of the California Public Employees' Retirement Law requires that the
employer contribution rates for all public employers be determined on an annual basis by the actuary and
shall be effective on the July 1 following notice of a change in the rate. Funding contributions for both Plans
are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate
is the estimated amount necessary to finance the costs of benefits earned by employees during the year,
with an additional amount to finance any unfunded accrued liability. The City is required to contribute the
difference between the actuarially determined rate and the contribution rate of employees.
98
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
64.
NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued)
Net Pension Liability: The City's net pension liability for the Plan is measured as the total pension liability,
less the pension plan's fiduciary net position. The net pension liability of the Plan is measured as of June 30,
2019, using an annual actuarial valuation as of June 30, 2018 rolled forward to June 30, 2019 using
standard update procedures. A summary of principal assumptions and methods used to determine the net
pension liability is shown below.
Actuarial Assumptions: The total pension liabilities in the June 30, 2018 actuarial valuations were
determined using the following actuarial assumptions:
Valuation Date June 30, 2018
Measurement Date June 30, 2019
Actuarial Cost Method Entry-Age Normal Cost Method
Actuarial Assumptions:
Discount Rate 7.15%
Inflation 2.50%
Payroll Growth 3.00%
Projected Salary Increase Varies by Entry Age and Service (1)
Investment Rate of Return 7.375% (2)
Derived using CaIPERS' Membership
Mortality Data for all Funds (3)
(1) Depending on age, service and type of employment
(2) Net of pension plan investment expenses and administrative expenses, including inflation
(3) The mortality table used was developed based on CaIPERS' specific data. The table includes 15 years of
mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer
to the CaIPERS 2017 experience study report available on CaIPERS website.
All other actuarial assumptions used in the June 30, 2018 valuation were based on the results of a
December 2017 actuarial experience study for the period 1997 to 2015, including updates to salary
increase, mortality and retirement rates. Further details of the Experience Study can be found on the
CaIPERS website under Forms and Publications.
Change of Assumptions: None in 2019.
Discount Rate: The discount rate used to measure the total pension liability was 7.15 percent for the Plan.
To determine whether the municipal bond rate should be used in the calculation of a discount rate for each
plan, CaIPERS stress tested plans that would most likely result in a discount rate that would be different
from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets.
Therefore, the current 7.15 percent discount rate is adequate and the use of the municipal bond rate
calculation is not necessary. The long term expected discount rate of 7.15 percent will be applied to all
plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed
report that can be obtained from the CalPERS website.
The long-term expected rate of return on pension plan investments was determined using a building-block
method in which best-estimate ranges of expected future real rates of return (expected returns, net of
pension plan investment expense and inflation) are developed for each major asset class.
99
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
65.
NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued)
In determining the long-term expected rate of return, CaIPERS took into account both short-term and long-
term market return expectations as well as the expected pension fund cash flows. Using historical returns
of all the funds' asset classes, expected compound returns were calculated over the short-term (first 10
years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns
for both short-term and long-term, the present value of benefits was calculated for each fund. The expected
rate of return was set by calculating the single equivalent expected return that arrived at the same present
value of benefits for cash flows as the one calculated using both short-term and long-term returns. The
expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded
down to the nearest one quarter of one percent.
Asset Class
New
Strategic
Allocation
Real Return
Years 1 - 10(a)
Real Return
Years 11+(b)
Global Equity 50.00% 4.80% 5.98%
Fixed Income 28.00% 1.00% 2.62%
Inflation Assets 0.00% 0.77% 1.81%
Private Equity 8.00% 6.30% 7.23%
Real Estate 13.00% 3.75% 4.93%
Liquidity 1.00% 0.00% -0.92%
Total 100.00%
(a) An expected inflation of 2.00% used for this period.
(b) An expected inflation of 2.92% used for this period.
The table above reflects the long-term expected real rate of return by asset class. The rate of return was
calculated using the capital market assumptions applied to determine the discount rate and asset allocation.
These rates of return (presented as geometric means) are net of administrative expenses.
Changes in Net Pension Liability: The changes in the Net Pension Liability for the City's Miscellaneous
Plan are as follows:
100
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
66.
NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued)
Total Pension
Liability
Plan Fiduciary
Net Position
Net Pension
Liability
Balance at June 30, 2018 134,356,434$ 93,476,845$ 40,879,589$
Changes in the year:
Service cost 3,324,361 - 3,324,361
Interest on the total pension liability 9,800,245 - 9,800,245
Change of Assumptions - - -
Differences between actual and expected experience 4,144,384 - 4,144,384
Contribution - employer - 4,654,841 (4,654,841)
Contribution - employee - 1,364,731 (1,364,731)
Net investment income - 6,096,968 (6,096,968)
Administrative expenses - (66,707) 66,707
Other miscellaneous income/(expenses) - 216 (216)
Benefit payments, including refunds of employee
contributions (6,193,271) (6,193,271) -
Net changes 11,075,719 5,856,778 5,218,941
Balance at June 30, 2019 145,432,153$ 99,333,623$ 46,098,530$
Increase (Decrease)
Sensitivity of the Net Pension Liability to Changes in the Discount Rate: The following presents the net
pension liability of the City, calculated using the discount rate for the Plan, as well as what the City's net
pension liability would be if it were calculated using a discount rate that is one percentage point lower or
one percentage point higher than the current rate:
Miscellaneous
1% Decrease 6.15%
Net Pension Liability $ 65,372,004
Current Discount Rate 7.15%
Net Pension Liability $ 46,098,530
1% Increase 8.15%
Net Pension Liability $ 30,149,053
Pension Plan Fiduciary Net Position: Detailed information about the Plan's fiduciary net position is available
in the separately issued CalPERS financial reports.
101
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
67.
NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued)
Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions: For the year ended
June 30, 2020, the City recognized pension expense of $9,671,506. At June 30, 2020, the City reported
deferred outflows of resources and deferred inflows of resources related to pensions from the following
sources:
Deferred Outflows Deferred Inflows
of Resources of Resources
Pension contributions subsequent to measurement date $ 5,308,577 $ -
Differences between actual and expected experience 3,500,740 21,459
Changes in assumptions 838,302 363,260
Net differences between projected and actual earnings
on plan investments - 440,328
Total $ 9,647,619 $ 825,047
The $5,308,577 of contributions for the fiscal year ended June 30, 2020 reported as deferred outflows of
resources related to contributions subsequent to the measurement date will be recognized as a reduction
of the net pension liability in the year ended June 30, 2021. Other amounts reported as deferred inflows of
resources related to pensions will be recognized as pension expense as follows:
Year Ended Annual
June 30 Amortization
2020 $ 2,396,183
2021 438,453
2022 566,893
2023 112,466
$ 3,513,995
NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB)
Plan Description: Permanent employees who retire under the City's CaIPERS retirement plan are, pursuant
to their respective collective bargaining agreements, eligible to have their medical insurance premiums paid
by the City. Retirees receive the amount necessary to pay the cost of his/her enrollment, including the
enrollment of his/her family members, in a health benefit plan provided by CalPERS up to the maximum
received by active employees in their respective bargaining unit.
The City contracts with CaIPERS for this insured-benefit plan established under the state Public Employees'
Medical and Hospital Care Act (PEMHCA). The plan offers employees and retirees three CalPERS' self-
funded options, setup as insurance risk pools, or offers various third-party insured health plans. The plan's
medical benefits and premium rates are established by CalPERS and the insurance providers. The City
contribution is established by City resolution. Retirees and active employees pay the difference between
the premium rate and the City's contribution. Premiums and City contributions are based on the plan and
coverage selected by actives and retirees, with the City's potential contribution ranging from zero to $1,605
per month per employee or retiree. The responsibility for benefit payments has transferred to the insurers
and the City does not guarantee the benefits in the event of default by the insurers. A comprehensive
annual financial report of CalPERS, inclusive of their benefit plans, is available at www.calpers.ca.gov.
102
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
68.
NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)
The City participates in the Public Agency Retirement System (PARS) Public Agencies Post Retirement
Health Care Plan Trust Program (PARS Trust), an agent-multiple employer irrevocable trust established to
fund other postemployment benefits. The City Council adopted the PARS Public Agencies Post-Retirement
Health Care Plan Trust, including the PARS Public Agencies Post-Retirement Health Care Plan, to fund
medical insurance costs for its retired employees, effective February 17, 2010. The City Council appointed
the City Treasurer, or his/her successor or his/her designee as the City’s plan administrator. The plan
administrator is authorized to execute the PARS legal documents on behalf of the City and to take whatever
additional actions necessary to maintain the City’s participation in the Program and to maintain compliance
of any relevant regulation issued or as may be issued; therefore, authorizing him/her to take whatever
additional actions are required to administer the City’s PARS Plan. The PARS Trust is approved by the
Internal Revenue Code Section 115 and invests funds in equity, bond, and money market mutual funds.
Copies of PARS Trust annual financial report is available at the City's Finance Department. However, as
the City is the plan administrator and has ultimate responsibility for the plan, the City considered the plan
to be a single employer plan with PARS as the trust administrator only (with no special funding situation or
nonemployer contributing entity). As such, in accordance with the requirements of GASB Statement 74,
Financial Reporting for Post Employment Benefit Plans Other Than Pension Pans , the City has elected to
present the PARS Trust as a fiduciary fund and include the required disclosures and required
supplementary information in its annual financial statements.
An employee is eligible for lifetime medical benefits under the OPEB Plan, along with his/her spouse or
declared domestic partner at the time of retirement, if all criteria listed below are met:
The employee was hired or the City Council member was elected prior to August 1, 2004, and the
employee has five or more full-time years of service and the City Council member has five or more
years of elected service with the City of Cupertino; or
The employee was hired or the City Council member was elected on or after August 1, 2004, and
the employee has ten or more full-time and/or elected years of CalPERS service, five years of
which must be from the City of Cupertino; and
The employee is eligible for retirement as defined under the CaIPERS retirement system; and the
employee retires from the City of Cupertino.
In addition, the eligible employee's dependent children at the time of retirement who are under 23 years old
are eligible for medical benefits. In addition to extending the eligibility of dependents from age 23 to age 26
in accordance with the recent healthcare reform act, effective July 1, 2010, employees that retire or resign
from service with the City of Cupertino and who are not eligible for retiree medical benefits can continue on
the City's medical and dental plans provided that they pay the premiums in full.
Plan membership: At January 1, 2019 (the latest information available), Plan membership consisted of the
following:
Inactive plan members or beneficiaries currently receiving benefit payments 138
Inactive plan members entitled to but not yet receiving benefit payments -
Active plan members 176
314
Contributions: OPEB Plan contributions are set by the adopted budget. The cost of the benefits provided
by the OPEB Plan is currently being paid by the City on a fully pre-funded basis. Based on the actuarial
valuation date of January 1, 2019, the annual required contribution rate is 7.41 percent of annual covered
payroll. For the year ended June 30, 2020, the City paid $1,142,793 in healthcare premium payments. Plan
members are not required to contribute to the plan.
103
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
69.
NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)
Net OPEB Liability of the City: The components of the net OPEB liability of the City at June 30, 2020
(expressed in thousands) were as follows:
Total OPEB liability $ 31,338
Plan fiduciary net position 29,370
City's net OPEB liability $ 1,968
Plan fiduciary net position as a percentage of the total OPEB liability 93.72%
Investment rate of return: The long-term expected rate of return on OPEB plan investments was determined
using a building-block method in which best-estimate ranges of expected future real rates of return
(expected returns, net of investment expense and inflation) are developed for each major asset class.
These ranges are combined to produce the long-term expected rate of return by weighting the expected
future real rates of return by the target asset allocation percentage and by adding expected inflation. Best
estimates of geometric real rates of return for each major asset class included in the target asset allocation
as of June 30, 2020 (see the discussion of the Plan’s investment policy) are summarized in the following
table:
Long-Term Expected
Asset Class Real Rate of Return
Fixed income – core 1.52%
Fixed income – high yield 3.96%
Fixed income – inflation protected 1.96%
Fixed income – hedged 2.59%
Equities – domestic 5.85%
Equities – developed foreign 7.42%
Equities – emerging foreign 8.58%
Real estate 4.17%
Commodities 3.37%
Cash 2.19%
Investment policy: The Plan’s policy in regard to the allocation of invested assets is established and may
be amended by the Plan’s Board by a majority vote of its members. It is the policy of the Plan Board to
pursue an investment strategy that reduces risk through the prudent diversification of the portfolio across a
broad selection of distinct asset classes. The Plan’s investment policy discourages the use of cash
equivalents, except for liquidity purposes, and aims to refrain from dramatically shifting asset class
allocations over short time spans. The following was the Board’s adopted asset allocation policy as of
June 30, 2020:
Asset Class Target Allocation
Fixed income 29%
Equities 62%
Real estate 6%
Commodities 2%
Cash 1%
Total 100%
104
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
70.
NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)
Concentrations: The Plan did not have investments outside of mutual funds that comprise five percent or
more of the Plan’s total fiduciary net position.
Rate of return: For the year ended June 30, 2020, the annual money-weighted rate of return on
investments, net of investment expense, was 4.68 percent. The money-weighted rate of return expresses
investment performance, net of investment expense, adjusted for the changing amounts actually invested.
Actuarial assumptions: The total OPEB liability was determined by an actuarial valuation as of January 1,
2019, using the previously listed actuarial assumptions, applied to all periods included in the measurement,
unless otherwise specified. Mortality rates were based on the CalPERS mortality assumptions.
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as
understood by the employer and the plan members) and include the types of benefits provided at the time
of each valuation and the historical pattern of sharing of benefit costs between the employer and plan
members to that point. The actuarial methods and assumptions used include techniques that are designed
to reduce effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets,
consistent with long-term perspective of the calculations.
The other significant actuarial assumptions used to prepare the City's January 1, 2019 actuarial valuation
include the following:
Valuation date: January 1, 2019
Measurement date: June 30, 2020
Actuarial Cost Method: Entry Age Normal
Amortization Method: Level percent of pay closed
Amortization Period: 10 year
Asset Valuation Method: Market value
Actuarial Assumptions:
Discount Rate 6.50%
Payroll Growth 3.00%
Ultimate Rate of Medical Inflation 4.50%
Mortality (1) CalPERS mortality assumptions
Health Care Trend The annual cost of healthcare is
expected to decrease from
7.0% in 2019 to 4.5% from 2076
and later.
(1) 2017 CalPERS Experience Study, Recipients with attained age of 50
Discount rate: The discount rate used to measure the total OPEB liability was 6.5 percent. The projection
of cash flows used to determine the discount rate assumed that City contributions will be made at rates
equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan’s
fiduciary net position was projected to be available to make all projected future benefit payments of current
plan members. Therefore, the long-term expected rate of return on OPEB plan investments was applied to
all periods of projected benefit payments to determine the total OPEB liability.
105
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
71.
NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)
Changes in the Net OPEB Liability: The changes in the City’s net OPEB liability (asset) are (in thousands):
Net Increase (Decrease)
Total OPEB Plan Fiduciary Net OPEB
Liability Net Position Liability (Asset)
Balance at July 1, 2019 $ 28,073,000 $ 29,218,000 $ (1,145,000)
Changes in the year
Service cost 1,009 - 1,009
Interest on the total OPEB liability 1,985 - 1,985
Change of assumpsions 1,761 - 1,761
Differences between actual and
expected experience - - -
Contribution – employer - 1,490 1,490
Contribution – employee - - -
Net investment income - 273 273
Adminsitrative expenses - (121) (121)
Benefit payments, including refunds of
Employee contributions (1,490) (1,490) -
Net changes 3,265 152 3,113
Balance at June 30, 2020 $ 31,338 $ 29,370 $ 1,968
Sensitivity of the net OPEB liability (asset) to changes in the discount rate: The following presents the net
OPEB asset of the City, as well as what the City’s net OPEB liability would be if it were calculated using a
discount rate that is one-percentage-point lower (6.0 percent) or one-percentage-point higher (8.0 percent)
than the current discount rate (expressed in thousands):
1% Current 1%
Decrease Discount Rate Increase
5.50% 6.50% 7.50%
City of Cupertino’s net OPEB liability
(asset) for the plan $ 6,040 $ 1,968 $ (1,396)
Sensitivity of the net OPEB liability (asset( to changes in the healthcare cost trend rates: The following
presents the net OPEB asset of the City, as well as what the City’s net OPEB liability would be if it were
calculated using healthcare cost trend rates that are one-percentage-point lower (decreasing to 3.5 percent)
or one-percentage-point higher (increasing to 5.5 percent) than the current healthcare cost trend rates
(expressed in thousands):
Current
1% Healthcare Cost 1%
Decrease Trend Rate Increase
City of Cupertino’s net OPEB liability
(asset) for the plan $ (1,772) $ 1,968 $ 6,571
106
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
72.
NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)
OPEB Expense and Deferred Inflows of Resources Related to OPEB: For the year ended June 30, 2020,
the City recognized OPEB expense of $392,000. At June 30, 2020, the City reported deferred inflows of
resources related to OPEB from the following sources:
Deferred Outflows Deferred Inflows
of Resources of Resources
Net difference between projected and actual
earnings on investments $ 1,337 $ -
Differences between expected and actual experience - 1,085
Changes in assumption 1,409 22
$ 2,746 $ 1,107
Amounts reported as deferred inflows of resources related to OPEB will be recognized as OPEB expense
as follows:
Year Ended Deferred Inflows
June 30 of Resources
2021 $ 92
2022 364
2023 478
2024 705
Total $ 1,639
NOTE 12 – CONCENTRATION RISK
The City has an economic dependency on revenues generated directly or indirectly from one company. For
the year ended June 30, 2020, more than 10 percent of the City General Fund's total revenues are derived
from the company. The City's operations would be adversely impacted if there are any significant declines
in taxes received from the company.
NOTE 13 – UPCOMING GASB PRONOUCEMENTS
In January 2017, the GASB issued Statement 84, Fiduciary Activities. The objective of this Statement is to
improve guidance regarding the identification of fiduciary activities for accounting and financial reporting
purposes and how those activities should be reported. This Statement establishes criteria for identifying
fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a
government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary
relationship exists. Separate criteria are included to identify fiduciary component units and postemployment
benefit arrangements that are fiduciary activities. This Statement is now effective for the City’s fiscal year
ended June 30, 2021 due to the postponement impacts of GASB Statement 95. Management has not
determined what impact, if any, this statement will have on its financial statements.
107
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
73.
NOTE 13 – UPCOMING GASB PRONOUCEMENTS (Continued)
In June 2017, the GASB issued Statement 87, Leases. The objective of this Statement is to better meet
the information needs of financial statement users by improving accounting and financial reporting for
leases by governments. This Statement increases the usefulness of governments’ financial statements by
requiring recognition of certain lease assets and liabilities for leases that previously were classified as
operating leases and recognized as inflows of resources or outflows of resources based on the payment
provisions of the contract. It establishes a single model for lease accounting based on the foundational
principle that leases are financings of the right to use an underlying asset. This Statement is now effective
for the City’s fiscal year ended June 30, 2022 due to the postponement impacts of GASB Statement 95.
Management has not determined what impact, if any, this statement will have on its financial statements.
In June 2018, the GASB issued Statement No. 89, Accounting for Interest Cost Incurred before the End of
a Construction Period. The objectives of this Statement are (1) to enhance the relevance and comparability
of information about capital assets and the cost of borrowing for a reporting period and (2) to simplify
accounting for interest cost incurred before the end of a construction period. This Statement establishes
accounting requirements for interest cost incurred before the end of a construction period. This Statement
is now effective for the City’s fiscal year ended June 30, 2022 due to the postponement impacts of GASB
Statement 95. Management has not determined what impact, if any, this statement will have on its financial
statements.”
In August 2018, the GASB issued Statement No. 90, Majority Equity Interests—an amendment of GASB
Statements No. 14 and No. 61. The primary objectives of this Statement are to improve the consistency
and comparability of reporting a government’s majority equity interest in a legally separate organization and
to improve the relevance of financial statement information for certain component units. It defines a majority
equity interest and specifies that a majority equity interest in a legally separate organization should be
reported as an investment if a government’s holding of the equity interest meets the definition of an
investment. This Statement also requires that a component unit in which a government has a 100 percent
equity interest account for its assets, deferred outflows of resources, liabilities, and deferred inflows of
resources at acquisition value at the date the government acquired a 100 percent equity interest in the
component unit. This Statement is effective for the City’s fiscal year ended June 30, 2020. Management
has not determined what impact, if any, this statement will have on its financial statements.
In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations. The primary objectives of this
Statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate
diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated
with conduit debt obligations, and (3) related note disclosures. This Statement achieves those objectives
by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is
not a liability of the issuer; establishing standards for accounting and financial reporting of additional
commitments and voluntary commitments extended by issuers and arrangements associated with conduit
debt obligations; and improving required note disclosures. This Statement is effective for the City’s fiscal
year ended June 30, 2022. Management has not determined what impact, if any, this statement will have
on its financial statements.
In January 2020, GASB issued Statement No. 92, Omnibus 2020. The primary objectives of this Statement
are to enhance comparability in accounting and financial reporting and improve the consistency of
authoritative literature by addressing practice issues that have been identified during implementation and
application of certain GASB statements. Upon the City’s adoption of GASB Statement No 95, effective date
for the Statement was delayed for the City until their fiscal year ended June 30, 2022. Management has not
yet determined the impact of this statement on the City’s financial statements.
108
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
74.
NOTE 13 – UPCOMING GASB PRONOUCEMENTS (Continued)
In March 2020, GASB issued Statement No. 93, Replacement of Interbank Offered Rates. The primary
objectives of this Statement is to address those and other accounting and financial reporting implications
that result from the replacement of an IBOR. Upon the City’s adoption of GASB Statement No 95, effective
date for the Statement was delayed for the City until their fiscal year ended June 30, 2022. Management
has not yet determined the impact of this statement on the City’s financial statements.
In March 2020, GASB issued Statement No. 94, Public-Private and Public-Public Partnerships and
Availability Payment Arrangements. The primary objectives of this Statement is improve financial reporting
by addressing issues related to public-private and public-public partnership arrangements. This Statement
also provides guidance for accounting and financial reporting for availability payments arrangements. The
requirements of this Statement are effective for the City’s fiscal year ended June 30, 2023. Management
has not yet determined the impact of this statement on the City’s financial statements.
In May 2020, GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements.
This Statement provides guidance on the accounting and financial reporting for subscription-based
information technology arrangements (SBITAs) for government end users (governments). This Statement
(1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset—an intangible
asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other
than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures
regarding a SBITA. The requirements of this Statement are effective for the City’s fiscal year ended June
30, 2023. Management has not yet determined the impact of this statement on the City’s financial
statements.
In June 2020, GASB issued Statement No. 97, Certain Component Unit Criteria, and Accounting and
Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans . The primary
objectives of this Statement are to (1) increase consistency and comparability related to the reporting of
fiduciary component units in circumstances in which a potential component unit does not have a governing
board and the primary government performs the duties that a governing board typically would perform; (2)
mitigate costs associated with the reporting of certain defined contribution pension plans, defined
contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension
plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial
statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial
reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans)
that meet the definition of a pension plan and for benefits provided through those plans. The requirements
of this Statement are effective for the City’s fiscal year ended June 30, 2022. Management has not yet
determined the impact of this statement on the City’s financial statements.
NOTE 14 – COVID-19 IMPACT
The spread of the novel strain of coronavirus called SARS‐CoV‐2 that causes the disease known as COVID‐
19 (“COVID‐19”), and local, state and federal actions in response to COVID‐19, are having a significant
impact on the economy and on the City’s operations and finances. In response to the increasing number of
cases of COVID‐19 and fatalities, health officials and experts are recommending, and some governments
are mandating, a variety of responses ranging from travel bans and social distancing practices, to complete
shutdowns of certain services and facilities. On March 4, 2020, as part of the State’s response to address
the outbreak, the Governor declared a state of emergency. On March 13, President Donald Trump declared
a national emergency, freeing up funding for federal assistance to state and local governments. On March
19, 2020, the Governor issued Executive Order N‐33‐20, a mandatory statewide shelter‐in‐place order
applicable to all nonessential services.
109
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
(Continued)
75.
NOTE 14 – COVID-19 IMPACT (Continued)
In May 2020, the Governor outlined a phased approach to re‐opening businesses in California. As a result
of State and local actions taken to slow the spread of COVID‐19, a number of businesses have had to close
and other businesses, such as restaurants, have been permitted to stay open subject to certain conditions.
These circumstances, among other market factors, have led to increased unemployment since the
beginning of the COVID‐19 outbreak in the United States. In addition to increased unemployment, financial
markets in the United States and globally have been volatile, with significant declines attributed to
coronavirus concerns.
On July 13, 2020, the Governor issued another order requiring all counties within the State to close indoor
operations in certain sectors, including dine‐in restaurants, wineries and tasting rooms, movie theatres,
family entertainment centers, zoos and museums and cardrooms. The Governor’s July 13, 2020 order also
required certain counties on the Governor’s Monitoring List, which as of August 17, 2020 included Santa
Clara County, to shut down additional industries and activities, including gyms and fitness centers, places
of worship and cultural ceremonies (such as wedding and funerals), offices for non‐critical infrastructure
sectors, personal care services (such as nail salons, body waxing and tattoo parlors) and shopping malls.
On August 28, 2020, the State released further guidance regarding re‐opening certain types of businesses
based on a county‐by‐county approach where each county is assigned a tier based on COVID‐19 case
rates within each County. Based on the initial assessment from the State, Santa Clara County is in the
“Widespread” tier as of September 4, 2020. For counties in the “Widespread” tier, certain non‐essential
indoor businesses are required to remain closed. Consistent with the state‐wide loosening of certain
restrictions, however, certain indoor business operations in the County, including hair salons and
barbershops, shopping malls, retail businesses, and grocery stores, may reopen subject to certain
operating capacity and other restrictions.
While the effects of COVID‐19 may be temporary, the outbreak and governmental actions responsive to it
are altering the behavior of businesses and people in a manner that is having significant negative impacts
on global and local economies. In addition, stock markets in the U.S. and globally have seen significant
declines attributed to coronavirus concerns. CalPERS has reportedly lost significant value in its investments
as a result of declines in the stock market and elsewhere, which could result in a significant increase in the
City’s unfunded pension liability and future pension costs, commencing in Fiscal Year 2022‐23. The
outbreak has resulted in increased pressure on State finances, as budgetary resources are directed
towards containing the pandemic and tax revenues sharply decline. Identified cases of COVID‐19 and
deaths attributable to the COVID‐19 outbreak are continuing to increase throughout the United States,
including the City. The COVID‐19 outbreak is expected to result in material declines in major General Fund
revenues. In addition, Governor Newsom extended the deadline to file and pay first quarter sales and use
tax returns by 90 16 days for all but the very largest taxpayers, and up to 361,000 California businesses
with less than $5 million in taxable annual sales will be allowed to defer up to $50,000 in sales tax and enter
into 12‐month payment plans at zero interest. This will result in delays in the receipt by the City of its portion
of the delayed payments.
In response to the pandemic, the City has taken actions to activate its emergency operations center,
temporarily close all non‐essential City services, introduce teleworking as and where appropriate, and abide
by all federal, state, and regional orders. The City actively monitors the COVID‐19 situation in the
community and acts swiftly to issue additional emergency orders to mitigate both the spread of the virus
and economic impacts to the community.
110
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2020
76.
NOTE 14 – COVID-19 IMPACT (Continued)
Since the onset of the COVID‐19 pandemic, the County Health Officer has issued a series of orders
regulating activities throughout the County, including within the City. The County’s orders are more strict in
certain respects than federal guidelines and state orders related to COVID‐19. The most recent order,
issued July 2, 2020, continues to urge all County residents to stay home as much as possible, requires
workers to do their jobs from home whenever possible, and prohibits indoor dining and bars, but permits
certain indoor gatherings (up to 20 people) and outdoor gatherings (up to 60 people).
In an effort to assist residential tenants and small business commercial tenants, the County temporarily
banned evictions for non‐payment of rent or no‐fault evictions when the tenant has suffered a substantial
loss of income and/or substantial out‐of‐pocket medical expense due to the COVID‐19 pandemic. The
County's eviction moratorium expired August 31, 2020. Based on the County’s evaluation of the State’s
August 31, 2020 statewide eviction and foreclosure protections, the County may extend or revise its
legislation.
The City has also taken certain measures to protect and mitigate impacts to the public and businesses in
the community, including adoption of emergency orders requiring individuals to wear a face covering when
they need to leave their home to work or obtain essential goods and services; allowing outdoor dining and
retail services with a special permit; adoption of an urgency ordinance to extend certain permit deadlines
and requirements; offering loans and grants to income‐qualified Cupertino residents to assist with
residential rental payments; and establishing a small business emergency relief grant program . The City
is considering orders to waive sign fees and permit requirements for retail and restaurant “open for
business” signs.
As a result of COVID‐19, the City forecasts a budget deficit of $2.8 million in Fiscal Year 2020‐21. The City
has also identified significant unfunded needs in its Capital Improvement Program (CIP), including
substantial investments in the City’s capital infrastructure. In response, the City has already implemented
several budget balancing strategies, including: reduced recreation programming; hiring freeze, with limited
exceptions; furloughing approximately 65% of temporary staffing, approximately 80 positions; limiting travel
and training; and reducing various other expenditure categories including materials, contracts,
contingencies, and special projects. Additional measures that the City is considering include: continue to
reduce recreation programming; reduce library hours and/or programming; longer planning, code
enforcement, and public safety response times; fewer community events and grants; reduced or deferred
capital infrastructure maintenance; reduced administrative staff and continued evaluation of staffing needs.
On March 27, Congress passed and the President signed the $2.2 trillion Coronavirus Aid, Relief, and
Economic Stabilization Act (“CARES Act”) that provides, among other measures, $150 billion in financial
assistance to states, tribal governments and local governments to provide emergency assistance to those
most significantly impacted by COVID‐19. The City expects to receive approximately $735,259 in CARES
Act funds through the State by the end of calendar year 2020.
NOTE 15 – SUBSEQUENT EVENT
On September 29, 2020, the City’s 2020A Certificates of Participation (2020 COPs) were successfully sold
in order to refund the City’s 2012 Certificates of Participation for debt service savings. The refunding
generated net present value savings of approximately $3.14 million, 11.61% of refunded par and a True
Interest Cost of 0.72%. Savings to the City’s General Fund amounts to approximately $494,000 per year
for the next 10 years, or almost $5 million in total savings.
111
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
112
CITY OF CUPERTINO, CALIFORNIA
SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY
AND RELATED RATIOS
For the year ended June 30, 2020
77.
Measurement Date 6/30/2014 6/30/2015 6/30/2016 6/30/2017 6/30/2018
Total Pension Liability
Service Cost 2,504,228$ 2,444,939$ 2,525,314$ 2,895,549$ 3,058,629$
Interest 7,349,943 7,789,134 8,253,983 8,619,588 9,065,322
Changes of benefit terms - - - - -
Differences between expected and actual experience - 372,917 696,347 (182,397) 1,184,340
Changes in assumptions - (1,883,633) - 7,125,558 (847,606)
Benefit payments, including refunds of employee contributions (4,351,614) (4,637,005) (5,151,298) (5,346,890) (6,051,845)
Net change in total pension liability 5,502,557 4,086,352 6,324,346 13,111,408 6,408,840
Total pension liability - beginning 98,922,931 104,425,488 108,511,840 114,836,186 127,947,594
Total pension liability - ending (a)104,425,488$ 108,511,840$ 114,836,186$ 127,947,594$ 134,356,434$
Plan fiduciary net position
Contributions - employer 2,891,986$ 3,301,642$ 3,659,170$ 4,183,822$ 4,263,020$
Contributions - employee 1,061,884 1,149,894 1,169,921 1,236,052 1,506,888
Net investment income 11,379,985 1,724,204 466,704 8,749,288 7,347,936
Benefit payments, including refunds of employee contributions (4,351,614) (4,637,005) (5,151,298) (5,346,890) (6,051,845)
Administrative expense - (87,780) (47,536) (115,304) (392,346)
Net change in plan fiduciary net position 10,982,241 1,450,955 96,961 8,706,968 6,673,653
Plan fiduciary net position - beginning 65,566,067 76,548,308 77,999,263 78,096,224 86,803,192
Plan fiduciary net position - ending (b)76,548,308$ 77,999,263$ 78,096,224$ 86,803,192$ 93,476,845$
Net pension liability - ending (a)-(b) 27,877,180$ 30,512,577$ 36,739,962$ 41,144,402$ 40,879,589$
Plan fiduciary net position as a percentage of the total pension liability 73.30% 71.88% 68.01% 67.84% 69.57%
Covered payroll 13,080,327$ 13,504,966$ 14,336,969$ 15,595,136$ 16,809,349$
Net pension liability as percentage of covered payroll 213.12% 225.94% 256.26% 263.83% 243.20%
Notes to Schedule:
* - Fiscal year 2015 was the 1st year of implementation, therefore only five years are shown.
Source: CalPERS Accounting Valuation
Agent Multiple Employer Defined Benefit Retirement Plan - Miscellaneous Plan
Last 10 years*
Benefit changes. The figures above do not include any liability impact that may have resulted from plan changes which occurred after the actuarial
valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes).
Changes in assumptions. In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and
Review of Actuarial Assumptions from December 2017. In 2017, the accounting discount rate reduced from 7.65 percent to 7.15 percent. In 2016, there
were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent
(without a reduction for pension plan administrative expense.) In 2014, amounts reported were based on the 7.5 percent discount rate.
113
CITY OF CUPERTINO, CALIFORNIA
SCHEDULE OF CONTRIBUTIONS - PENSION
For the year ended June 30, 2020
78.
Agent Multiple Employer Defined Benefit Retirement Plan - Miscellaneous Plan
Last 10 Years*
2015 2016 2017 2018 2019
Actuarially determined contribution 3,608,853$ 3,659,170$ 4,183,821$ 4,263,020$ 4,634,414$
Contributions in relation to the actuarially determined contributions (3,608,853) (3,659,170) (4,183,821) (4,263,020) (4,634,414)
Contribution deficiency (excess) -$ -$ -$ -$ -$
Covered payroll 13,504,966$ 14,336,969$ 15,595,136$ 16,809,349$ 19,664,057$
Contributions as a percentage of covered payroll 26.72% 25.52% 26.83% 25.36% 23.57%
Notes to Schedule
Valuation date: 6/30/2013 6/30/2014 6/30/2015 6/30/2016 6/30/2017
Methods and assumptions used to determine contribution rates:
Actuarial cost method Entry age
Amortization method Level percentage of payroll, closed
Remaining amortization period 19 Years as of the Valuation Date
Asset valuation method 15 Year Smoothed Market
Inflation 2.75%
Salary increases 3%
Investment rate of return
Retirement age
Mortality
* - Fiscal year 2015 was the 1st year of implementation, therefore only five years are shown.
Source: City of Cupertino's general ledger and CalPERS Actuarial Valuation
Notes to Schedule:
* - Fiscal year 2015 was the 1st year of implementation, therefore only three years are shown.
Source: CalPERS Accounting Valuation
7.50% Net of Pension Plan
The probabilities of Retirement are based on the 2017 CalPERS Experience Study
for the period from 1997 to 2015.
The probabilities of mortality are based on the 2017 CalPERS Experience Study
for the period from 1997 to 2015. Pre-retirement and Post-retirement mortality
rates include 20 years of projected mortality improvement using Scale BB
published by the Society of Actuaries.
Benefit changes. The figures above do not include any liability impact that may have resulted from plan changes which occurred after the actuarial
valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes).
Changes in assumptions. 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and
Review of Actuarial Assumptions from December 2017. In 2017, the accounting discount rate reduced from 7.65 percent to 7.15 percent. In 2016, there
were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent
(without a reduction for pension plan administrative expense.) In 2014, amounts reported were based on the 7.5 percent discount rate.
114
CITY OF CUPERTINO, CALIFORNIA
SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY
AND RELATED RATIOS
For the year ended June 30, 2020
79.
Single Employer Defined Benefit OPEB Plan
Last 10 years*
Expressed in thousands
6/30/2017 6/30/2018 6/30/2019
Total OPEB liability
Service cost 908$ 1,008$ 865$
Interest 1,781 1,876 2,005
Changes of benefit terms - - -
Differences between expected and actual experience - - (1,808)
Changes of assumptions - - (37)
Benefit payments (1,333) (1,419) (1,423)
Net change in total OPEB liability 1,356 1,465 (398)
Total OPEB liability - beginning 25,650 27,006 28,471
Total OPEB liability - ending (a)27,006$ 28,471$ 28,073$
Plan fiduciary net position
Contributions - employer 1,333 1,419 1,423
Net investment income 2,960 2,365 1,259
Benefit payments (1,333) (1,419) (1,423)
Administrative expense (49) (54) (97)
Net change in fiduciary net position 2,911 2,311 1,162
Plan fiduciary net position - beginning 22,834 25,745 28,056
Plan fiduciary net position - ending (b)25,745$ 28,056$ 29,218$
Net OPEB liability (asset) - ending (a-b) 1,261$ 415$ (1,145)$
Plan fiduciary net position as a percentage of the total OPEB liability 95.33% 98.54% 104.08%
Covered payroll 17,255$ 19,153$ 20,086$
Net OPEB liability (asset) as a percentage of covered payroll 7.31% 2.17% -5.70%
Notes to schedule:
* - Fiscal year 2017 was the 1st year of implementation, therefore only three years are shown.
115
CITY OF CUPERTINO, CALIFORNIA
SCHEDULE OF CONTRIBUTIONS - OPEB
For the year ended June 30, 2020
80.
Single Employer Defined OPEB Plan
Last 10 years*
Expressed in thousands
6/30/2017 6/30/2018 6/30/2019
Actuarially determined contribution 1,117$ 1,362$ 1,300$
Contributions in relation to the actuarially determined contributions 1,333 1,419 1,423
Contribution deficiency (excess) (216)$ (57)$ (123)$
Covered payroll 17,255$ 19,153$ 20,086$
Contributions as a percentage of covered payroll 7.73% 7.41% 7.08%
Notes to schedule:
* - Fiscal year 2017 was the 1st year of implementation, therefore only three years are shown.
Valuation Date 1/1/2019
Methods and assumptions used to determine contribution rates:
Actuarial cost method Entry age
Amortization method Level percentage of pay, closed
Remaining amortization period 12 years as of the valuation date
Asset valuation method Fair value of assets
Discount rate 7.00%
Amortization growth rate 3.00%
Ultimate rate of medical inflation 4.50%
Salary increases
Mortality CalPERS mortality assumptions
3.00% plus merit component based on years of
service
116
CITY OF CUPERTINO, CALIFORNIA
SCHEDULE OF INVESTMENT RETURNS - OPEB
For the year ended June 30, 2020
81.
Single Employer Defined OPEB Plan
Last 10 years*
June 30 June 30 June 30
2018 2019 2020
Annual money-weighted return,
net of investment expense 8.31% 6.32% 4.68%
Notes to schedule
* - Fiscal year 2017 was the 1st year of implementation, therefore only three years are shown.
117
MAJOR GOVERNMENTAL FUNDS OTHER
THAN THE GENERAL FUND AND SPECIAL
REVENUE FUNDS
82.
This section is provided for the presentation of budget-to-actual statements for the Public Facilities
Corporation Debt Service Fund. Although the fund is considered to be a major government fund, budget-
to-actual information in the basic financial statements is limited to the General Fund and major Special
Revenue Funds. All other major governmental fund schedules with such information are therefore included
as Supplemental Information. The Capital Projects Funds are budgeted on a major project length basis
and therefore not comparable on an annual basis.
Public Facilities Corporation Debt Service Fund: This fund accounts for the payments of principal and
interest on certificates of participation issued to provide for the financing of the Civic Center, Library, Wilson
Park, Memorial Park, and other City facilities.
118
CITY OF CUPERTINO, CALIFORNIA
PUBLIC FACILITIES CORPORATION DEBT SERVICE FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
BUDGET AND ACTUAL
For the year ended June 30, 2020
83.
Variance
Final Positive
Budget Actual (Negative)
Revenues
Use of money and property -$ 26,612$ 26,612$
Total revenues - 26,612 26,612
Expenditures
Administration - 1,500 (1,500)
Debt service:
Principal 2,290,000 2,290,000 -
Interest and fiscal charges 882,838 882,837 1
Total expenditures 3,172,838 3,174,337 (1,499)
Excess (deficiency) of revenues
over expenditures (3,172,838) (3,147,725) 25,113
Other financing sources (uses)
Transfers in 3,172,838 3,172,838 -
Total other financing sources (uses) 3,172,838 3,172,838 -
Net change in fund balance -$ 25,113 25,113$
Beginning fund balance 1,660,759
Ending fund balance 1,685,872$
119
NON-MAJOR GOVERNMENTAL FUNDS
84.
All funds not considered as major funds on the Fund Financial Statements are consolidated in one column
entitled "Other Governmental Funds." These non-major funds are identified and included in this
supplementary section and includes the City's Special Revenue Funds and Capital Project Funds.
The Special Revenue Funds are used to account for the proceeds of specific revenue sources that are
legally restricted to expenditures for specified purposes.
Storm Drain Improvement — Accounts for the construction and maintenance of storm drain facilities
including drainage and sanitary sewer facilities. Revenues were collected from developers as a
result of connections to the storm drainage sewer system.
Park Dedication — Accounts for the activity granted by the business and professions code of the
State of California in accordance with the open space and conservation element of the City's
General Plan. Revenues of this fund are restricted for the acquisition, improvement, expansion and
implementation of the City's parks and recreation facilities.
Environmental Management / Clean Creeks — Accounts for all activities related to operating the
non-point source pollution program. A parcel tax provides revenues.
Traffic Impact – Accounts for development impact fees and related that ensure that new
development and redevelopment projects pay their “fair share” to mitigate traffic impacts.
Capital Projects Funds account for the financial resources committed to the construction or improvement
of major facilities.
Stevens Creek Corridor Park Capital Projects Fund — Accounts for the design and construction of
the Stevens Creek Corridor Park projects.
120
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR GOVERNMENTAL FUNDS
COMBINING BALANCE SHEET
June 30, 2020
85.
Total
Storm Environmental Nonmajor
Drain Park Management/ Traffic Stevens Creek Governmental
Improvement Dedication Clean Creeks Impact Corridor Park Funds
Assets
Cash and investments 3,994,007$ 12,339,423$ 1,746,290$ 241,119$ 197,044$ 18,517,883$
Accounts receivable - 6,000 43,349 - - 49,349
Total assets 3,994,007$ 12,345,423$ 1,789,639$ 241,119$ 197,044$ 18,567,232$
Liabilities
Accounts payable and
accruals -$ -$ 8,659$ -$ -$ 8,659$
Total liabilities - - 8,659 - - 8,659
Fund balances
Restricted 3,994,007 12,345,423 1,780,980 241,119 - 18,361,529
Assigned - - - - 197,044 197,044
Total fund balances 3,994,007 12,345,423 1,780,980 241,119 197,044 18,558,573
Total liabilities and
fund balances 3,994,007$ 12,345,423$ 1,789,639$ 241,119$ 197,044$ 18,567,232$
Fund
Capital Projects
Special Revenue Funds
121
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR GOVERNMENTAL FUNDS
COMBINING STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES
For the year ended June 30, 2020
86.
Fund
Total
Storm Environmental Nonmajor
Drain Park Management/ Traffic Stevens Creek Governmental
Improvement Dedication Clean Creeks Impact Corridor Park Funds
Revenues
Taxes 87,233$ 246,000$ -$ -$ -$ 333,233$
Use of money and property 152,484 473,382 57,035 8,947 4,098 695,946
Charges for services - 899 1,403,738 34,588 - 1,439,225
Fines and forfeitures - - 16,175 - - 16,175
Total revenues 239,717 720,281 1,476,948 43,535 4,098 2,484,579
Expenditures
Current:
Public works - - 774,805 - - 774,805
Capital outlay 4,000 51,035 - - 9,240 64,275
Total expenditures 4,000 51,035 774,805 - 9,240 839,080
Excess of revenues over
(under) expenditures 235,717 669,246 702,143 43,535 (5,142) 1,645,499
Other finances sources (uses)
Transfers in 437,000 - 660,000 - - 1,097,000
Transfers out - (12,000) - - - (12,000)
Total other financing
sources (uses) 437,000 (12,000) 660,000 - - 1,085,000
Net change in fund balances 672,717 657,246 1,362,143 43,535 (5,142) 2,730,499
Beginning fund balances 3,321,290 11,688,177 418,837 197,584 202,186 15,828,074
Ending fund balances 3,994,007$ 12,345,423$ 1,780,980$ 241,119$ 197,044$ 18,558,573$
Special Revenue Funds
Capital Projects
122
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR GOVERNMENTAL FUNDS
COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2020
(Continued)
87.
Variance
Original Final Positive
Budget Budget Actual (Negative)
Revenues
Taxes 74,741$ 74,741$ 87,233$ 12,492$
Use of money and property - - 152,484 152,484
Charges for services - - - -
Fines for forfeitures - - - -
Other revenue - - - -
Total revenues 74,741 74,741 239,717 164,976
Expenditures
Current:
Public works - - - -
Capital outlay - 88,828 4,000 84,828
Total expenditures - 88,828 4,000 84,828
Excess (deficiency) of revenues
over expenditures 74,741 (14,087) 235,717 249,804
Other financing sources (uses)
Transfers in 437,000 437,000 437,000 -
Transfers (out) - - - -
Total other financing sources (uses) 437,000 437,000 437,000 -
Net change in fund balance 511,741$ 422,913$ 672,717 249,804$
Beginning fund balance 3,321,290
Ending fund balance 3,994,007$
Storm Drain Improvement
Special Revenue Funds
123
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR GOVERNMENTAL FUNDS
COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2020
(Continued)
88.
Variance
Original Final Positive
Budget Budget Actual (Negative)
Revenues
Taxes 375,663$ 375,663$ 246,000$ (129,663)$
Use of money and property - - 473,382 473,382
Charges for services 21,045 21,045 899 (20,146)
Fines for forfeitures - - - -
Other revenue - - - -
Total revenues 396,708 396,708 720,281 323,573
Expenditures
Current:
Public works - - - -
Capital outlay - 51,395 51,035 360
Total expenditures - 51,395 51,035 360
Excess (deficiency) of revenues
over expenditures 396,708 345,313 669,246 323,933
Other financing sources (uses)
Transfers in - - - -
Transfers (out) 12,000 12,000 (12,000) -
Total other financing sources (uses) 12,000 12,000 (12,000) -
Net change in fund balance 408,708$ 357,313$ 657,246 323,933$
Beginning fund balance 11,688,177
Ending fund balance 12,345,423$
Park Dedication
Special Revenue Funds
124
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR GOVERNMENTAL FUNDS
COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2020
89.
Variance
Original Final Positive
Budget Budget Actual (Negative)
Revenues
Taxes -$ -$ -$ -$
Use of money and property 900 900 57,035 56,135
Charges for services 370,000 370,000 1,403,738 1,033,738
Fines for forfeitures 10,000 10,000 16,175 6,175
Other revenue - - - -
Total revenues 380,900 380,900 1,476,948 1,096,048
Expenditures
Current:
Public works 743,278 905,483 774,805 130,678
Capital outlay - - - -
Total expenditures 743,278 905,483 774,805 130,678
Excess (deficiency) of revenues
over expenditures (362,378) (524,583) 702,143 1,226,726
Other financing sources (uses)
Transfers in 660,000 660,000 660,000 -
Total other financing sources (uses) 660,000 660,000 660,000 -
Net change in fund balance 297,622$ 135,417$ 1,362,143 1,226,726$
Beginning fund balance 418,837
Ending fund balance 1,780,980$
Environmental Management/Clean Creeks
Special Revenue Funds
125
NON-MAJOR ENTERPRISE FUND
90.
Proprietary funds account for City operations financed and operated in a manner similar to a private
business enterprise. The intent of the City is that the cost of providing goods and services be financed
primarily through user charges.
The City has identified the fund below as a nonmajor proprietary fund for fiscal 2019-20.
Blackberry Farm Fund: This fund accounts for activities related to operating the City-owned golf course.
126
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR ENTERPRISE FUND
COMBINING STATEMENT OF NET POSITION
For the year ended June 30, 2020
91.
Blackberry
Farm
ASSETS
Current assets
Cash and cash investments (Note 2) 542,501$
Total current assets 542,501
Noncurrent assets
Capital assets (Note 5):
Depreciable, net of
accumulated depreciation 26,537
Total non current assets 26,537
Total assets 569,038
DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10) 59,756
Related to OPEB (Note 11) 8,121
Total deferred outflows of resources 67,877
LIABILITIES
Current liabilities
Accounts payable and accruals 29,702
Compensated absences (Note 1) 404
Unearned revenue 23,085
Total current liabilities 53,191
Noncurrent liabilities
Compensated absences (Note 1) 2,420
Net pension liability (Note 10) 275,605
Net OPEB liability (Note 11) 4,735
Total noncurrent liabilities 282,760
Total liabilities 335,951
DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10) 5,170
Related to OPEB (Note 11) 4,696
Total deferred inflows of resources 9,866
NET POSITION (Note 7)
Net investment in capital assets 26,537
Unrestricted 264,561
Total Net Position 291,098$
127
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR ENTERPRISE FUND
COMBINING STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN NET POSITION
For the year ended June 30, 2020
92.
Blackberry
Farm
Operating revenues
Charges for services 305,525$
Other 32,687
Total operating revenue 338,212
Operating expenses
Salaries and benefits 159,143
Materials and supplies 172,317
Contractual services 326,168
Depreciation (Note 5) 6,035
Total operating expenses 663,663
Operating income (loss) (325,451)
Nonoperating revenues
Investment income 22,840
Total nonoperating revenues 22,840
Income (loss) before transfers (302,611)
Transfers in (Note 4) 610,000
Changes in net position 307,389
Net position - beginning of year (16,291)
Net position - end of year 291,098$
128
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR ENTERPRISE FUND
COMBINING STATEMENT CASH FLOWS
For the year ended June 30, 2020
93.
Blackberry
Farm
Cash flows from operating activities
Cash received from customers 345,135$
Cash payments to suppliers for
goods and services (481,458)
Cash payments to employees for salaries and benefits (185,719)
Net cash provided (used) by operating activities (322,042)
Cash flows from noncapital financing activities
Transfers in 610,000
Cash flows from noncapital financing activities 610,000
Cash Flows from Investing Activities
Interest received 22,840
Cash flows from investing activities 22,840
Net cash flows 310,798
Cash and investments at beginning of year 231,703
Cash and investments at end of year 542,501$
Reconciliation of operating income (loss) to
to net cash provided by operating activities:
Operating income (loss) (325,451)$
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation 6,035
Change in assets, deferred outflows of resources, liabilities,
and deferred inflows of resources
Due to retirement system 21,431
Due to OPEB system (961)
Accounts payable and accruals 17,027
Unearned revenue 6,923
Compensated absences (47,046)
Net cash provided (used) by operating activities (322,042)$
129
INTERNAL SERVICE FUNDS
94.
Internal Service Funds are used to finance and account for special activities and services provided by one
department or program to other departments of the City on a cost reimbursement basis.
The concept of major funds does not extend to internal service funds because they do not do business with
outside parties. For the Statement of Activities, the net revenues or expenses of each internal service fund
are eliminated by netting them against the operations of the City departments that generated them. The
remaining balance sheet items are consolidated with these same funds in the Statement of Net Position.
However, internal service funds are still presented separately in the Fund financial statements.
Information Technology - Accounts for the activities related to the maintenance and replacement
of the City's technology infrastructure.
Workers' Compensation - Accounts for the activities in support of the self-insured workers'
compensation program.
Equipment Revolving - Accounts for the activities related to the maintenance and replacement of
the City's vehicle fleet and other equipment.
Compensated Absences and Long-Term Disability - Accounts for accrued leave payouts and the
City's long term disability insurance program.
Retiree Medical - Accounts for funds set-aside for other post-employment retirement benefits.
130
CITY OF CUPERTINO, CALIFORNIA
INTERNAL SERVICE FUNDS
COMBINING STATEMENT OF NET POSITION
For the year ended June 30, 2020
95.
Compensated
Absences and
Information Workers'Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total
ASSETS
Current assets:
Cash and investments 2,745,987$ 3,963,239$ -$ 1,193,551$ 1,334,794$ 9,237,571$
Accounts receivable - 7,000 - - - 7,000
Total current assets 2,745,987 3,970,239 - 1,193,551 1,334,794 9,244,571
Noncurrent assets:
Capital assets (Note 5):
Nondepreciable 79,434 - 135,232 - - 214,666
Capital assets, depreciable net
of accumulated depreciation 875,799 - 2,564,466 - - 3,440,265
Total noncurrent assets 955,233 - 2,699,698 - - 3,654,931
Total assets 3,701,220 3,970,239 2,699,698 1,193,551 1,334,794 12,899,502
DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10) 425,237 14,361 132,160 - - 571,758
Related to OPEB (Note 11) 139,122 2,705 44,042 - - 185,869
Total deferred outflows of resources 564,359 17,066 176,202 - - 757,627
LIABILITIES
Current liabilities
Accounts payable and accruals 232,090 - 97,688 14,283 - 344,061
Accrued payroll and benefits - - 72 - - 72
Due to other funds - - 539,204 - - 539,204
Compensated absences 24,882 935 3,713 - - 29,530
Claims payable - 274,000 - - - 274,000
Total current liabilities 256,972 274,935 640,677 14,283 - 1,186,867
Noncurrent liabilities
Compensated absences 216,244 8,132 32,268 - - 256,644
Claims payable - 1,253,000 - - - 1,253,000
Net pension liability (Note 10) 2,085,457 64,724 607,667 - - 2,757,848
Net OPEB liability (Note 11) 95,151 2,547 34,041 - - 131,739
Total noncurrent liabilities 2,396,852 1,328,403 673,976 - - 4,399,231
Total liabilities 2,653,824 1,603,338 1,314,653 14,283 - 5,586,098
DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10) 40,962 1,034 9,902 - - 51,898
Related to OPEB (Note 11) 41,534 789 17,363 - - 59,686
Total deferred inflows of resources 82,496 1,823 27,265 - - 111,584
NET POSITION
Net investment in capital assets 955,233 - 2,699,698 - - 3,654,931
Unrestricted 574,026 2,382,144 (1,165,716) 1,179,268 1,334,794 4,304,516
Total net position 1,529,259$ 2,382,144$ 1,533,982$ 1,179,268$ 1,334,794$ 7,959,447$
131
CITY OF CUPERTINO, CALIFORNIA
INTERNAL SERVICE FUNDS
COMBINING STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN NET POSITION
For the year ended June 30, 2020
96.
Compensated
Absences and
Information Workers' Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total
Operating revenues
Charges for services 2,731,703$ 237,707$ 1,352,200$ 173,931$ -$ 4,495,541$
Total operating revenues 2,731,703 237,707 1,352,200 173,931 - 4,495,541
Operating expenses
Salaries and related expenses 1,891,486 52,162 457,307 - 1,142,793 3,543,748
Materials and supplies 1,467,517 23,142 412,706 4,323 6,262 1,913,950
Contractual services 213,827 - 60,397 - - 274,224
Insurance claims and premiums - 153,748 - 548,518 - 702,266
Depreciation 303,672 - 665,797 - - 969,469
Total operating expenses 3,876,502 229,052 1,596,207 552,841 1,149,055 7,403,657
Operating income (loss) (1,144,799) 8,655 (244,007) (378,910) (1,149,055) (2,908,116)
Nonoperating revenue (expenses)
Interest income 109,151 150,548 - 48,647 59,177 367,523
Gain on sale of capital assets - - 76,863 - - 76,863
Total nonoperating
revenue (expenses) 109,151 150,548 76,863 48,647 59,177 444,386
Income (loss) before transfers (1,035,648) 159,203 (167,144) (330,263) (1,089,878) (2,463,730)
Transfers in 72,000 - - 1,109,000 2,392,000 3,573,000
Change in net position (963,648) 159,203 (167,144) 778,737 1,302,122 1,109,270
Beginning net position 2,492,907 2,222,941 1,701,126 400,531 32,672 6,850,177
Ending net position 1,529,259$ 2,382,144$ 1,533,982$ 1,179,268$ 1,334,794$ 7,959,447$
132
CITY OF CUPERTINO, CALIFORNIA
INTERNAL SERVICE FUNDS
COMBINING STATEMENT OF CASH FLOWS
For the year ended June 30, 2020
(Continued)
97.
Compensated
Absences and
Information Workers'Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total
Cash flows from operating activities
Cash received from customers 2,731,703$ 230,707$ 1,352,200$ 173,931$ -$ 4,488,541$
Cash payments to suppliers for
goods and services (1,655,138) (23,142) (405,233) 9,960 (6,262) (2,079,815)
Cash payments to employees (1,622,143) (44,696) (394,289) - (1,142,793) (3,203,921)
Cash payment for judgment
and claims - (180,025) - (548,518) - (728,543)
Net cash from operating activities (545,578) (17,156) 552,678 (364,627) (1,149,055) (1,523,738)
Cash flows from noncapital
financing activities
Transfers in 72,000 - 128,660 1,109,000 2,392,000 3,701,660
Transfers (out) - fund closing - - - - - -
Net cash from noncapital
financing activities 72,000 - 128,660 1,109,000 2,392,000 3,701,660
Cash flows from capital and related
financing activities
Acquisition of capital assets (186,880) - (754,326) - - (941,206)
Sale of capital assets - - 76,863 - - 76,863
Net cash from capital and related
financing activities (186,880) - (677,463) - - (864,343)
Cash flows from investing activities
Interest received 109,151 150,548 - 48,647 59,177 367,523
Net cash flows from
investing activities 109,151 150,548 - 48,647 59,177 367,523
Net cash flows (551,307) 133,392 3,875 793,020 1,302,122 1,681,102
Cash and investments beginning of year 3,297,294 3,829,847 (3,875) 400,531 32,672 7,556,469
Cash and investments end of year 2,745,987$ 3,963,239$ -$ 1,193,551$ 1,334,794$ 9,237,571$
133
CITY OF CUPERTINO, CALIFORNIA
INTERNAL SERVICE FUNDS
COMBINING STATEMENT OF CASH FLOWS
For the year ended June 30, 2020
98.
Compensated
Absences and
Information Workers'Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total
Reconciliation of operating income (loss)
to net cash flows from operating activities
Operating income (loss) (1,144,799)$ 8,655$ (244,007)$ (378,910)$ (1,149,055)$ (2,908,116)$
Adjustments to reconcile operating
income (loss) to net cash flows
from operating activities
Depreciation 303,672 - 665,797 - - 969,469
Change in assets, deferred outflows of resources,
liabilities and deferred inflows of resources
Accounts receivable - (7,000) - - - (7,000)
Prepaid expenses - - - - - -
Due to retirement system 219,823 5,700 55,007 - - 280,530
Due to OPEB system (16,465) (320) (5,211) - - (21,996)
Accounts payable and accruals 26,206 - 67,870 14,283 - 108,359
Accrued payroll and benefits - - - - - -
Compensated absences 65,985 2,086 13,222 - - 81,293
Claims payable - (26,277) - - - (26,277)
Cash flows from operating activities (545,578)$ (17,156)$ 552,678$ (364,627)$ (1,149,055)$ (1,523,738)$
134
99.
STATISTICAL SECTION
This part of the City’s Comprehensive Annual Financial Report presents detailed information as a context
for understanding what the information in the financial statements, note disclosures, and required
supplementary information says about the City’s overall financial health. In contrast to the financial section,
the statistical section information is not subject to independent audit.
Financial Trends
These schedules contain trend information to help the reader understand how the City’s financial
performance and wellbeing have changed over time:
1. Net Position/Assets by Component
2. Changes in Net Position/Assets
3. Fund Balances of Governmental Funds
4. Changes in Fund Balance of Governmental Funds
Revenue Capacity
These schedules contain information to help the reader assess the City’s most significant own-source
revenue, property tax.
1. Assessed and Estimated Actual Value of Taxable Property
2. Direct and Overlapping Property Tax Rates
3. Principal Property Taxpayers
4. Property Tax Levies and Collections
Debt Capacity
These schedules present information to help the reader assess the affordability of the City’s current levels
of outstanding debt and the City’s ability to issue additional debt in the future:
1. Ratios of Outstanding Debt by Type
2. Direct and Overlapping Bonded Debt
3. Legal Debt Margin Information
4. Ratio of General Bonded Debt Outstanding
Demographic and Economic Information
These schedules offer demographic and economic indicators to help the reader understand the
environment within which the City’s financial activities take place:
1. Demographic and Economic Statistics
2. 2019 Employer Ranking
Operating Information
These schedules contain service and infrastructure data to help the reader understand how the information
in the City’s financial report relates to the services the City provides and the activities it performs:
1. Full-Time Equivalent Employees by Function/Program
2. Operating Indicators by Function/Program
3. Capital Assets Statistics by Function/Program
Sources
Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual
Financial Reports for the relevant year.
135
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Governmental Activities
Net investment in capital assets 120,724,205$ 117,440,257$ 116,343,918$ 122,081,223$ 131,425,677$ 148,168,074$ 153,239,534$ 167,606,366$ 170,973,897$ 177,128,134$
Restricted 7,721,962 7,572,865 8,351,118 24,232,367 38,327,705 34,861,807 34,991,692 32,073,195 45,405,508 48,005,800
Unrestricted 33,185,903 38,117,361 47,558,701 63,150,548 51,003,950 51,164,063 59,385,309 50,457,871 51,190,017 66,493,336
Total governmental activities net position/assets 161,632,070 163,130,483 172,253,737 209,464,138 220,757,332 234,193,944 247,616,535 250,137,432 267,569,422 291,627,270
Business-Type Activities
Net investment in capital assets 777,521 824,687 762,013 1,110,414 2,079,561 1,708,183 1,972,169 1,597,700 1,318,744 1,118,882
Unrestricted 9,779,087 10,057,331 10,865,479 10,292,210 6,604,578 7,375,444 9,092,584 8,051,015 6,737,758 8,134,944
Total business-type activities net position/assets 10,556,608 10,882,018 11,627,492 11,402,624 8,684,139 9,083,627 11,064,753 9,648,715 8,056,502 9,253,826
Primary Government
Net investment in capital assets 121,501,726 118,264,944 117,105,931 123,191,637 133,505,238 149,876,257 155,211,703 169,204,066 172,292,641 178,247,016
Restricted 7,721,962 7,572,865 8,351,118 24,232,367 38,327,705 34,861,807 34,991,692 32,073,195 45,405,508 48,005,800
Unrestricted 42,964,990 48,174,692 58,424,180 73,442,758 57,608,528 58,539,507 68,477,893 58,508,886 57,927,775 74,628,280
(1), (2)172,188,678$ 174,012,501$ 183,881,229$ 220,866,762$ 229,441,471$ 243,277,571$ 258,681,288$ 259,786,147$ 275,625,924$ 300,881,096$
(1) Represents net assets thru June 30, 2012 and net position after that.
(2) Noted that restatements due to prior period adjustments and changes in accounting principles are not reflected in the prior year balances.
Fiscal Year Ended June 30
CITY OF CUPERTINO
Net Positions/Assets by Component
Last Ten Fiscal Years
(Accrual basis of accounting)
(Unaudited)
100.136
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Expenses
Governmental Activities:
Administration 1,860,451$ 1,837,072$ 2,367,255$ 4,529,539$ 3,286,919$ 3,710,388$ 2,873,744$ 5,612,733$ 6,849,046$ 7,974,520$
Law enforcement 8,434,885 8,776,633 9,274,536 10,062,192 10,705,328 11,316,271 12,528,328 12,674,042 13,381,113 14,698,130
Public and environmental affairs 1,625,876 1,743,151 1,595,982 512,895 649,442 575,260 1,884,165 3,244,846 3,210,343 3,637,354
Administrative services 3,993,654 4,309,503 4,171,440 2,662,008 4,300,336 2,994,611 5,898,479 4,415,647 4,290,818 5,175,596
Recreation services 4,528,968 4,577,243 4,473,861 4,866,974 5,365,282 5,758,194 10,651,557 9,352,551 7,389,915 8,763,194
Community development 5,961,774 4,922,237 4,676,273 9,108,949 5,976,797 6,259,734 13,775,591 16,789,351 10,470,973 10,286,317
Public works 20,224,662 20,387,508 22,149,063 21,143,331 27,893,361 31,313,396 32,491,244 28,995,382 31,870,165 33,339,191
Interest on long-term debt 2,032,464 1,837,655 1,256,922 1,130,428 1,120,138 1,077,538 1,035,738 993,038 949,438 882,837
Total governmental activities expense 48,662,734 48,391,002 49,965,332 54,016,316 59,297,603 63,005,392 81,138,846 82,077,590 78,411,811 84,757,139
Business-Type Activities:
Resources recovery 1,801,599 1,566,229 1,764,993 2,159,047 2,548,461 2,997,200 2,991,177 2,594,511 1,735,885 2,213,404
Blackberry farm 457,065 460,698 463,336 571,000 547,185 576,177 597,406 656,112 645,469 663,663
Cupertino sports center 1,716,741 1,897,611 2,011,483 2,221,703 2,269,420 2,299,210 2,159,243 2,633,748 3,036,037 2,883,903
Recreation programs 1,753,156 1,985,618 2,025,416 2,730,765 2,342,457 3,136,011 2,351,501 3,232,593 2,923,336 3,141,225
Total business-type activities expense 5,728,561 5,910,156 6,265,228 7,682,515 7,707,523 9,008,598 8,099,327 9,116,964 8,340,727 8,902,195
Total primary government expense 54,391,295 54,301,158 56,230,560 61,698,831 67,005,126 72,013,990 89,238,173 91,194,554 86,752,538 93,659,334
Program Revenues
Governmental Activities:
Charges for services:
Administration 15,801 6,454 5,676 1,087,393 322,534 369,069 3,992,716 5,062,988 1,319,395 2,091,811
Law enforcement 797,757 696,498 637,595 725,631 590,378 664,483 603,194 732,544 889,923 1,102,888
Public and environmental affairs - - - - 41,352 41,352 - - - -
Administrative services - - - - 481,616 359,148 3,565,627 2,635,885 3,113,731 3,889,180
Recreation services 1,020,159 1,166,323 970,292 955,081 1,798,134 1,421,185 2,016,159 1,589,134 1,563,262 1,309,906
Community development 4,149,620 4,919,216 6,765,564 6,649,292 8,511,745 10,534,457 10,902,822 8,598,935 7,470,690 5,859,847
Public works 549,065 503,225 593,501 7,916,897 2,869,357 6,358,870 6,873,487 4,720,646 4,504,104 5,657,315
Operating grants and contributions 2,351,287 2,508,917 2,752,493 10,000,131 6,002,617 1,851,282 2,313,632 4,819,696 2,557,470 5,794,443
Capital grants and contributions 1,972,951 780,761 719,880 569,159 4,022,190 362,491 245,288 271,587 1,082,243 1,046,756
Total governmental activities program revenue 10,856,640 10,581,394 12,445,001 27,903,584 24,639,923 21,962,337 30,512,925 28,431,415 22,500,818 26,752,146
Business-Type Activities:
Charges for services:
Resources recovery 1,931,076 1,727,783 1,882,517 2,074,251 2,591,276 2,664,888 2,792,190 2,559,862 1,750,279 1,821,677
Blackberry farm 447,797 411,056 386,753 302,472 388,091 334,529 325,224 345,667 316,615 338,212
Cupertino sports center 1,722,700 1,965,684 2,150,139 2,188,127 2,152,498 2,224,146 2,238,023 2,403,665 2,349,468 2,365,667
Recreation programs 2,260,296 2,325,705 2,409,720 2,480,209 2,532,800 2,466,336 2,778,588 2,516,678 1,986,781 1,588,576
Operating grants and contributions - - - - - - - - - -
Total business-type activities program revenue 6,361,869 6,430,228 6,829,129 7,045,059 7,664,665 7,689,899 8,134,025 7,825,872 6,403,143 6,114,132
Total primary government program revenue 17,218,509 17,011,622 19,274,130 34,948,643 32,304,588 29,652,236 38,646,950 36,257,287 28,903,961 32,866,278
(continued)
Fiscal Year Ended June 30
CITY OF CUPERTINO
Change in Net Positions/Assets
Last Ten Fiscal Years
(Accrual basis of accounting)
(Unaudited)
101.137
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Net (Expense) Revenue:
Governmental activities (37,806,094)$ (37,809,608)$ (37,520,331)$ (26,112,732)$ (34,657,680)$ (41,043,055)$ (50,625,921)$ (53,646,175)$ (55,910,993)$ (58,004,993)$
Business-Type activities 633,308 520,072 563,901 (637,456) (42,858) (1,318,699) 34,698 (1,291,092) (1,937,584) (2,788,063)
Total primary government net expense (37,172,786) (37,289,536) (36,956,430) (26,750,188) (34,700,538) (42,361,754) (50,591,223) (54,937,267) (57,848,577) 66,493,336
General Revenues and Transfers
Governmental Activities:
Taxes:
Property taxes 7,296,970 7,479,132 8,793,110 9,169,183 - 11,864,027 13,251,840 14,881,533 17,082,005 18,117,304
Property taxes in lieu of motor vehicle fee 4,404,795 4,487,412 4,772,355 5,289,476 - 6,330,436 6,967,237 7,552,272 8,219,090 8,489,541
Incremental property tax 1,251,777 202,793 - - - - - - - -
Sales tax 14,539,243 17,326 18,721,193 19,794,036 - 21,350,056 26,932,012 26,164,531 24,901,779 35,657,214
Transient occupancy tax 2,536,501 3,112,934 3,768,504 4,590,156 - 5,852,244 6,023,681 6,810,718 8,901,337 7,286,083
Utility user tax 3,227,942 3,264,896 2,994,526 3,098,639 - 3,370,830 3,082,407 3,146,398 3,089,922 3,182,086
Franchise tax 2,841,344 2,808,136 2,848,950 2,775,892 - 3,478,024 3,409,572 3,563,820 3,445,253 3,418,908
Other taxes 1,491,316 1,377,211 4,561,219 18,791,559 - 2,818,019 3,258,118 1,943,652 3,299,587 1,774,235
Intergovernmental (1)259,289 29,064 30,256 25,294 - 24,111 26,118 31,013 28,844 47,391
Investment earnings 259,217 61,096 176,782 133,243 40,751 807,287 694,730 916,638 3,258,550 5,690,723
Miscellaneous 1,144,429 82,684 126,690 57,005 (2) 219,053 2,004,906 1,834,492 1,187,741 1,922,356
Gain on sale of capital assets - - - - 23,715,897 580 - 740,570 3,875 -
Extraordinary items (2)- (1,130,797) - - - - - - - -
Transfers - fund closings (3)- - - - - - 272,011 - - -
Transfers 15 207,000 (150,000) (401,350) 872,340 (1,635,000) (1,874,120) 107,030 (75,000) (3,523,000)
Total governmental activities 39,252,838 21,998,887 46,643,585 63,323,133 24,628,986 54,479,667 64,048,512 67,692,667 73,342,983 82,062,841
Business-Type Activities:
Investment earnings 71,486 12,338 31,573 11,238 42,531 82,187 59,012 75,663 270,371 462,387
Transfers (15) (207,000) 150,000 401,350 (872,340) 1,635,000 1,874,120 (107,030) 75,000 3,523,000
Total business-type activities 71,471 (194,662) 181,573 412,588 (829,809) 1,717,187 1,933,132 (31,367) 345,371 3,985,387
Total primary government 39,324,309 21,804,225 46,825,158 63,735,721 23,799,177 56,196,854 65,981,644 67,661,300 73,688,354 86,048,228
Change in Net Position/Assets (4)
Governmental activities 1,446,744 (15,810,721) 9,123,254 37,210,401 (10,028,694) 13,436,612 13,422,591 14,046,492 17,431,990 24,057,848
Business-Type activities 704,779 325,410 745,474 (224,868) (872,667) 398,488 1,967,830 (1,322,459) (1,592,213) 1,197,324
Total primary government 2,151,523$ (15,485,311)$ 9,868,728$ 36,985,533$ (10,901,361)$ 13,835,100$ 15,390,421$ 12,724,033$ 15,839,777$ 25,255,172$
(1) The 2006 state take-away of sales taxes, property taxes and vehicle license fees is reported in this category.
(2) Asset transfer to Successor to Redevelopment Agency fiduciary trust in 2012.
(3) Asset and liability transfer from the closed City Channel/Web Internal Service Fund in 2017.
(4) Representes changes in net assets thru fiscal year ended June 30, 2012 and changes in net position after that.
Fiscal Year Ended June 30
CITY OF CUPERTINO
Change in Net Positions/Assets
Last Ten Fiscal Years
(Accrual basis of accounting)
(Unaudited)
102.138
2011 (1)2012 2013 2014 2015 2016 2017 2018 2019 (2)2020
General Fund
Nonspendable 1,023,950$ 1,003,438$ 956,827$ 3,363,065$ 938,245$ 937,381$ 876,939$ 464,893$ 454,188$ 3,449,341$
Restricted 663,254 695,564 725,903 - 761,653 888,374 1,016,771 1,254,578 9,469,670 14,324,757
Committed - - - - - - 19,000,000 19,122,754 19,123,397 19,127,891
Assigned 14,739,394 17,729,297 16,400,000 16,400,000 28,849,679 20,500,000 4,638,181 9,963,310 1,979,202 3,176,882
Unassigned 3,380,279 6,669,379 17,961,579 23,197,378 8,774,966 29,869,085 28,057,799 21,704,922 27,896,128 34,426,942
Total General Fund 19,806,877 26,097,678 36,044,309 42,960,443 39,324,543 52,194,840 53,589,690 52,510,457 58,922,585 74,505,813
All Other Governmental Funds
Nonspendable 615,000 - - - - - - - - -
Restricted 6,314,106 6,877,301 7,625,215 24,232,367 37,566,052 33,973,433 33,974,921 30,818,617 35,935,838 33,681,043
Committed - - - - 1,398,665 1,398,665 1,398,665 - - -
Assigned 4,303,822 3,646,073 5,299,904 7,619,534 20,671,116 15,344,191 25,305,974 29,129,616 33,211,946 40,551,131
Unassigned - - - (2,280,961) - - - - - -
Total All Other Governmental Funds 11,232,928 10,523,374 12,925,119 29,570,940 59,635,833 50,716,289 60,679,560 59,948,233 69,147,784 74,232,174
Total Governmental Funds 31,039,805$ 36,621,052$ 48,969,428$ 72,531,383$ 98,960,376$ 102,911,129$ 114,269,250$ 112,458,690$ 128,070,369$ 148,737,987$
(1) The City implemented GASB Statement No. 54 under which governmental fund balances are reported as nonspendable, restricted, committed,
assigned and unassigned compared to reserved and unreserved
(2) The City established a trust to fund Other Post-Employment Benefit contributions, which is classified as a restriction in fund balance.
Fiscal Year Ended June 30
CITY OF CUPERTINO
Fund Balances of Governmental Funds
Last Ten Fiscal Years
(Modified accrual basis of accounting
(Unaudited)
103.139
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenues
Taxes 37,582,299$ 40,265,944$ 48,382,570$ 72,211,724$ 55,134,238$ 55,462,956$ 62,924,867$ 64,062,924$ 68,938,973$ 77,925,371$
Use of money and property 792,035 661,602 744,196 764,299 915,933 1,654,702 1,425,629 1,543,818 3,896,813 6,259,342
Intergovernmental 3,543,641 2,678,888 2,841,407 3,069,400 7,210,562 2,532,025 2,585,038 5,122,296 3,668,557 6,888,590
Licenses and permits 2,901,944 2,900,936 3,502,617 3,679,943 3,170,445 3,073,110 2,536,925 2,757,928 4,102,665 4,692,847
Charges for services 2,311,216 3,273,946 4,515,066 10,744,113 5,203,371 17,249,123 24,103,167 15,638,247 13,385,698 13,937,950
Fines and forfeitures 695,666 661,899 560,417 616,889 554,002 564,903 603,194 602,934 534,012 344,008
Other 73,881 264,302 57,828 545,052 542,429 1,289,013 2,004,904 1,834,492 1,187,741 1,922,356
Total revenues 47,900,682 50,707,517 60,604,101 91,631,420 72,730,980 81,825,832 96,183,724 91,562,639 95,714,459 111,970,464
Expenditures:
Current:
Administration 1,528,070 1,533,070 2,005,176 3,957,739 3,897,701 4,053,741 5,942,633 4,943,052 6,294,111 6,951,541
Law enforcement 8,434,885 8,445,917 8,783,885 9,626,121 10,283,772 10,988,735 11,939,095 12,362,621 13,108,732 14,151,413
Public and environmental affairs 1,497,263 1,659,856 1,486,910 477,852 624,295 544,718 1,864,746 2,835,768 2,843,540 3,223,185
Administrative services 3,695,076 4,103,982 3,772,714 2,444,670 3,226,164 2,811,117 5,054,539 4,430,300 4,197,582 4,617,787
Recreation services 4,117,477 4,319,983 4,083,822 4,536,519 5,047,548 5,441,200 9,361,934 8,686,076 8,996,118 7,688,935
Community development 5,693,541 4,762,229 4,395,601 8,424,254 5,180,659 6,102,820 7,431,292 12,907,086 9,359,835 9,310,827
Public works 12,234,726 12,528,194 13,996,516 17,469,627 14,625,038 15,078,174 18,623,585 18,191,714 19,955,579 22,445,948
Capital Outlay 5,281,927 3,523,047 4,684,676 7,110,974 21,760,899 26,171,127 18,731,165 23,395,112 10,528,246 12,644,373
Debt service:
Principal repayment 1,500,000 - 1,920,000 2,040,000 2,055,000 2,090,000 2,135,000 2,180,000 2,220,000 2,290,000
Interest and fiscal charges 2,032,464 1,837,665 1,256,922 1,130,428 1,120,138 1,077,538 1,035,738 993,038 949,438 882,837
Payment to refunded debt escrow agent - 44,897,800 - - - - - - - -
Total expenditures 46,015,429 87,611,743 46,386,222 57,218,184 67,821,214 74,359,170 82,119,727 90,924,767 78,453,181 84,206,846
Excess (deficiency) of revenues over
(under) expenditures 1,885,253 (36,904,226) 14,217,879 34,413,236 4,909,766 7,466,662 14,063,997 637,872 17,261,278 27,763,618
Other Financing Sources (Uses)
Bond proceeds - 44,823,839 - - - - - - - -
Proceeds from sale of capital assets 1,055,449 421 - 37,569 23,814,257 580 - 872,250 3,875 -
Transfers in 5,684,483 6,484,426 8,438,707 13,610,304 39,408,990 11,905,724 26,446,090 31,028,218 19,407,613 35,208,276
Transfers in - fund closing - - - - - - 260,374 - - -
Transfers out (7,883,751) (7,692,426) (10,308,210) (24,499,154) (39,177,284) (15,422,213) (29,412,340) (34,348,900) (21,061,087) (42,304,276)
Total other financing sources (uses)(1,143,819) 43,616,260 (1,869,503) (10,851,281) 24,045,963 (3,515,909) (2,705,876) (2,448,432) (1,649,599) (7,096,000)
Extraordinary Item
Asset transferred to Successor Agencies - (1,130,797) - - - - - - - -
Change in fund balances 741,434$ 5,581,237$ 12,348,376$ 23,561,955$ 28,955,729$ 3,950,753$ 11,358,121$ (1,810,560)$ 15,611,679$ 20,667,618$
Debt service as a percentage of
noncapital expenditures (1)8.7%55.6%7.6%6.3%6.9%6.6%5.0%4.7%4.7%4.4%
(1) Noncapital expenditures is total expenditures less capital assets added each year to the statement of net position/assets.
Fiscal Year Ended June 30
CITY OF CUPERTINO
Change in Fund Balances of Governmental Funds
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Unaudited)
104.140
State Board of Total Assessed &Direct
Total Equalization Secured Est. Full Market Tax
Fiscal Year Secured (a)Unsecured (a)Non-Unitary Exemptions Valuation (a)Rate
2011 13,017,910,372 476,332,025 1,390,000 96,704,811 13,495,632,397 6.51%
2012 13,219,574,367 527,310,319 1,390,000 96,081,912 13,748,274,686 6.24%
2013 13,882,147,291 738,243,050 1,390,000 108,468,872 14,621,780,341 6.20%
2014 15,391,656,690 813,117,019 1,390,000 113,744,809 16,206,163,709 5.62%
2015 16,133,637,244 965,141,148 - 119,476,276 17,098,778,392 5.61%
2016 18,308,720,226 1,086,786,901 - 114,223,063 19,395,507,127 5.59%
2017 20,196,258,418 1,150,311,942 - 118,257,368 21,346,570,360 5.98%
2018 22,024,906,420 1,114,123,426 - 122,805,695 23,139,029,846 6.19%
2019 23,402,123,229 1,779,936,377 - 125,245,819 25,182,059,606 6.38%
2020 24,370,718,536 1,641,863,322 - 138,025,761 26,012,581,858 6.50%
(a) Net of exemptions
Source: HdL, Coren & Cone
Data Source: Santa Clara County Assessor 2010-11 - 2019-20 Combined Tax Rolls
This report is not to be used in support of debt issuance or continuing disclosure statements without the written consent of HdL, Coren & Cone
Prepared On 9/4/2020 by MV
CITY OF CUPERTINO
(Unaudited)
Last Ten Fiscal Years
Assessed and Estimated Actual Value of Taxable Property
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
20
1
1
20
1
2
20
1
3
20
1
4
20
1
5
20
1
6
20
1
7
20
1
8
20
1
9
20
2
0
Bi
l
l
i
o
n
s
Secured Property Unsecured Property
105.
141
THE CITY OF CUPERTINO
Direct and Overlapping Property Tax Rates
(Rate per $100 of taxable value)
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018-19 2019-20
Basic Levy¹1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000
Co. Housing Bond 2016 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.01266 0.01050 0.01000
County Bond 2008 Hospital Facility 0.00950 0.00470 0.00510 0.00350 0.00910 0.00880 0.00860 0.00820 0.00720 0.00690
County Library Retirement Levy 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240
County Retirement Levy 0.03880 0.03880 0.03880 0.03880 0.03880 0.03880 0.03880 0.03880 0.03880 0.03880
Cupertino Elementary 0.03080 0.02900 0.05980 0.05250 0.05400 0.05190 0.05090 0.04960 0.03970 0.04150
El Camino Hospital 2003 0.01290 0.01290 0.01290 0.01290 0.01290 0.01290 0.01290 0.01000 0.01000 0.01000
Foothill De Anza College 0.03260 0.02970 0.02870 0.02900 0.02760 0.02400 0.02340 0.02200 0.02170 0.02080
Fremont High 0.03650 0.04150 0.03900 0.04050 0.03960 0.05250 0.04030 0.04640 0.04300 0.04790
Los Gatos-Saratoga High 1998 0.03770 0.03810 0.03680 0.03510 0.05160 0.04230 0.04690 0.04570 0.03040 0.01770
MidPeninsula Open Space 2014 0.00000 0.00000 0.00000 0.00000 0.00000 0.00080 0.00060 0.00090 0.00180 0.00160
Santa Clara Unified 0.05190 0.08360 0.08190 0.07070 0.07040 0.09420 0.08180 0.08280 0.07070 0.11760
Santa Clara Valley Water District 0.00720 0.00640 0.00690 0.00700 0.00650 0.00570 0.00860 0.00620 0.00420 0.00410
Saratoga Elementary 0.04370 0.04440 0.04520 0.04500 0.04580 0.04490 0.04560 0.04580 0.04580 0.04640
West Valley College 0.01390 0.01370 0.02890 0.02550 0.01200 0.02320 0.01960 0.02000 0.01980 0.01860
West Valley-Mission Ccd 2018 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.01100
Total Direct & Overlapping² Tax Rates 1.31790 1.34520 1.38640 1.36290 1.37070 1.40240 1.38040 1.39146 1.34600 1.39530
City's Share of 1% Levy Per Prop 13³0.05644 0.05650 0.05652 0.05626 0.05617 0.05571 0.05962 0.06148 0.06320 0.06531
General Obiligation Debt Rate
Redevelopment Rate⁴1.04840 1.04760
Total Direct Rate⁵0.06507 0.06238 0.06204 0.05623 0.05610 0.05588 0.05976 0.06187 0.06381 0.06499
Notes:
²Overlapping rates are those of local and county governments that apply to property owners within the City. Not all overlapping rates apply to all city property owners.
Data Source: Santa Clara County Assessor 2010/11 - 2019/20 Tax Rate Table
This report is not to be used in support of debt issuance or continuing disclosure statements without the written consent of HdL, Coren & Cone
Prepared on 9/4/2020 by MV
³City's Share of 1% Levy is based on the City's share of the general fund tax rate area with the largest net taxable value within the city.
ERAF general fund tax shifts may not be included in tax ratio figues.
⁴Redevelopment Rate is based on the largest RDA tax rate area and only includes rate(s) from indebtedness adopted prior to 1989 per
California State statute. RDA direct and overlapping rates are applied only to the incremental property values. The approval of ABX1 26
eliminated Redevelopment from the State of California for the fiscal year 2012/13 and years thereafter.
⁵Total Direct Rate is the weighted average of all individual direct rates applied to by the government preparing the statistical section
information and excludes revenues derived from aircraft. Beginning in 2013/14 the Total Direct Rate no longer includes revenue generated
from the former redevelopment tax rate areas. Challenges to recognized enforceable obligations are assumed to have been resolved during
2012/13. For the purposes of this report, residual revenue is assumed to be distributed to the City in the same proportions as general fund
revenue.
Last 10 Fiscal Years
Agency
¹In 1978, California voters passed Proposition 13 which set the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing
agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a
percentage of assessed property values for the payment of any voter approved bonds.
106.142
2020 Percentage of 2015 Percentage of
Assessed Total Assessed Assessed Total Assessed
Valuation Valuation Valuation Valuation
Apple Inc.6,191,911,133$ 23.80%1,596,975,041$ 9.34%
Main Street Cupertino 396,065,000 1.52%--
Vallco Property Owner LLC 339,916,857 1.31%157,741,957 0.92%
Cupertino City Center 201,051,525 0.77%139,849,982 0.82%
BVK Perimeter Square Retail LLC ET AL 181,321,407 0.70%--
Cupertino Property Development 180,164,643 0.69%100,941,770 0.59%
Mission West Properties LP II ETAL 140,416,937 0.54%127,777,488 0.75%
PR Cupertino Gateway LLC 130,693,479 0.50%--
Markham Apartments LP 104,481,230 0.40%--
Cupertino Hotel Owner LLC 97,799,908 0.38% - -
Total 7,963,822,119$ 30.61%2,123,286,238$ 12.42%
Source: HdL, Coren & Cone
CITY OF CUPERTINO
Principal Property Taxpayers
Current Year and Ten Years Ago
(Unaudited)
Taxpayer
107.
143
Percent of
Percent Delinquent Total Total Tax
Fiscal Total Current Tax of Levy Tax Tax Collections
Year Tax Levy Collections Collected (1)Collections (1)Collections to Tax Levy
2011 8,497,119 8,497,119 100.00%- 8,497,119 100.00%
2012 7,681,925 7,681,925 100.00%- 7,681,925 100.00%
2013 8,199,752 8,199,752 100.00%- 8,199,752 100.00%
2014 9,169,183 9,169,183 100.00%- 9,169,183 100.00%
2015 10,178,734 10,178,734 100.00%- 10,178,734 100.00%
2016 11,864,026 11,864,026 100.00%- 11,864,026 100.00%
2017 13,308,884 13,308,884 100.00%- 13,308,884 100.00%
2018 13,172,425 13,172,425 100.00%- 13,172,425 100.00%
2019 16,049,112 16,049,112 100.00%- 16,049,112 100.00%
2020 18,117,304 18,117,304 100.00%- 18,117,304 100.00%
(1) Per the Teeter Plan, the City receives 100% of the tax levy, while the County receives delinquencies and penalties.
Source: City of Cupertino
CITY OF CUPERTINO
Property Tax Levies and Collections
Last Ten Fiscal Years
(Unaudited)
108.
144
Percentage
of Estimated % of
Fiscal Certificates Actual Market Value Personal
Year of Participation of Taxable Property Per Capita Income 2007 49,740,000 0.45%929 1.60%
2011 44,010,000 0.30%755 1.70%
2012 43,940,000 0.27%744 1.56%
2013 42,020,000 0.26%705 1.41%
2014 39,980,000 0.23%671 1.38%
2015 37,925,000 0.20%633 1.28%
2016 35,835,000 0.18%598 1.21%
2017 33,700,000 0.15%579 1.02%
2018 31,520,000 0.12%525 0.87%
2019 29,300,000 0.11%488 0.81%
2020 27,010,000 0.10%451 0.71%
Source: City of Cupertino
CITY OF CUPERTINO
Ratios of Outstanding Debt by Type
Last Ten Fiscal Years
(Unaudited)
109.
145
26,012,581,858$
Total Debt %City’s Share of
6/30/2020 Applicable (1)Debt 6/30/20
Santa Clara County 947,220,000$ 5.096%48,270,331$
Santa Clara County General Fund Obligations 710,539,120 5.096%36,209,074
Santa Clara County Pension Obligations 352,378,882 5.096%17,957,228
Santa Clara County Board of Education Certificates of Participation 4,255,000 5.096%216,835
Foothill-DeAnza Community College District 620,143,886 13.454%83,434,158
West Valley Community College District 635,310,000 1.634%10,380,965
West Valley-Mission Community College District General Fund Obligations 62,200,000 1.634%1,016,348
Santa Clara Unified School District 1,081,495,000 3.813%41,237,404
Santa Clara County Vector Control District Certificates of Participation 2,245,000 5.096%114,405
Fremont Union High School District 562,210,088 29.883%168,005,241
Cupertino Union School District 274,238,303 50.963%139,760,066
El Camino Hospital District 124,490,000 1.056% 1,314,614
Midpeninsula Regional Open Space District and General Fund Obligations 209,910,600 8.134%17,074,128
Santa Clara Valley Water District Benefit Assessment 73,570,000 5.096%3,749,127
Total Overlapping Tax and Assessment Debt 5,660,205,879 568,739,926
Direct Debt: City of Cupertino Certificates of Participation 27,010,000 100.000% 27,010,000
Total Direct and Overlapping General Fund Debt 27,010,000 27,010,000
Totals by Category:(3)
Total Direct Debt 27,010,000 27,010,000
Total Overlapping Debt 5,660,205,879 568,739,926
Combined Total Debt 5,687,215,879$ 595,749,926$
Ratios to 2019-20 Assessed Valuation:
Total Overlapping Tax and Assessment Debt 2.19%
0.10%
Combined Total Debt 2.29%
(1)
(2)Principal amount as of 6/30/20.
Direct and Overlapping Bonded Debt
CITY OF CUPERTINO
Overlapping Tax and Assessment Debt:
(Unaudited)
2019-20 Assessed Valuation
June 30, 2020
The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable
110.
146
Total net debt
Total Net Legal applicable to the
Fiscal Debt Debt Applicable Debt limit as a % of
Year Limit to Limit Margin debt limit
2011 488,171,639 - 488,171,639 -
2012 495,734,039 - 495,734,039 -
2013 520,580,523 - 520,580,523 -
2014 577,187,126 - 577,187,126 -
2015 605,011,397 - 605,011,397 -
2016 686,577,008 - 686,577,008 -
2017 757,359,691 - 757,359,691 -
2018 825,933,991 - 825,933,991 -
2019 877,579,621 - 877,579,621 -
2020 913,901,945 - 913,901,945 -
Debt Limit:
Secured property assessed value, net of exempt real property 24,370,718,536$
Adjusted valuation - 25% of assessed valuation 6,092,679,634
Debt limit - 15% of adjusted valuation 913,901,945
Amount of Debt Subject to Limit:
Total Bonded Debt 27,010,000
Less: Certificates of Participation not subject to debt limit (27,010,000)
Amount of debt subject to limit -
Legal Debt Margin 913,901,945$
Source: City of Cupertino
Last Ten Fiscal Years
Note: The Government Code of the State of California provides for a legal debt limit of 15% of gross assessed valuation. However, this
provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981-82 fiscal year, each parcel is
now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computations shown above reflect a
conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the
time that the legal debt margin was enacted by the State of California for local governments located within the state.
CITY OF CUPERTINO
Legal Debt Margin Information
(Unaudited)
111.
147
Ratio of General
Fiscal Assessed General Bonded Debt Bonded Debt to
Year Population Value Bonded Debt Per Capita Assessed Value
2011 56,431 13,495,632,397 - - -
2012 59,022 13,748,274,686 - - -
2013 59,620 14,621,780,341 - - -
2014 59,946 17,098,778,392 - - -
2015 59,777 19,395,507,127 - - -
2016 58,185 19,395,507,127 - - -
2017 58,917 21,346,570,360 - - -
2018 60,091 23,139,029,846 - - -
2019 59,879 25,182,059,606 - - -
2020 59,549 26,012,581,858 - - -
Sources: HdL, Coren & Cone
CITY OF CUPERTINO
Ratio of General Bonded Debt
Last Ten Fiscal Years
(Unaudited)
112.
148
Fiscal
Year
City
Population
(1)
County
Population
(1)
City
Population
% of County
City Personal
Income (2)
Per
Capita
Personal
Income (2)
**Public
School
Enrollment
City
Unemploy
ment Rate
(%) (3)
County
Unemploy
ment Rate
(%) (3)
Median
Age (4)
% of
Population
Over 25
with High
School
Degree
% of
Population
Over 25
with
Bachelor's
Degree
2010-11 56,431 1,781,642 3.17% 2,586,120,000 45,828 10,365 7.3% - 39.1 96.3% 72.6%
2011-12 59,022 1,809,378 3.26% 2,818,655,000 47,756 10,625 6.3% - 39.2 97.0% 74.7%
2012-13 59,620 1,842,254 3.24% 2,985,829,000 50,081 29,699 4.1% 8.4% 39.5 96.7% 75.5%
2013-14 59,946 1,868,558 3.21% 3,090,636,000 51,557 29,904 3.4% 6.8% 40.0 96.2% 74.2%
2014-15 59,777 1,889,638 3.16% 3,186,772,000 53,311 29,871 4.2% 3.8% 40.0 96.5% 74.6%
2015-16 58,185 1,927,888 3.02% 3,340,132,000 57,405 29,684 3.4% 4.2% 40.2 96.5% 75.6%
2016-17 58,917 1,938,180 3.04% 3,486,805,000 59,181 29,467 3.0% 3.8% 40.6 96.7% 76.0%
2017-18 60,091 1,938,153 3.10% 3,620,255,000 60,246 29,255 3.3% 3.8% 40.7 97.1% 76.6%
2018-19 59,879 1,937,570 3.09% 3,821,320,000 63,817 29,240 2.6% 2.3% 41.1 97.1% 77.2%
2019-20 59,549 1,927,852 3.09% 4,114,967,000 69,102 29,550 2.4% 10.7% 41.1 97.2% 78.1%
Notes and Data Sources:
Population: California State Department of Finance. Unemployment Data: California Employment Development Department
Income, Age, and Education Data: ESRI - Demographic Estimates are based on the last available Census. Projections are developed by incorporating all of the
prior census data released to date. Demographic Data is totaled from Census Block Groups that overlap the City's boundaries
201- and later - Income, Age and education Data - US Census Bureau, most recent American Community Survey
**Reported Public School Enrollment reflects the total number of students in the Fremont Union High School District and Cupertino Union School District.
Previously published reports included Fremont Union High School District only.
City of Cupertino
Demographic and Economic Statistics
Last Ten Fiscal Years
113.149
CITY OF CUPERTINO
2020 Employer Ranking
(Unaudited)
Employer Ranking Employer_________________Ranking
Apple 1 Panasonic Corporation 11
Cupertino Union School District 2 Pleasant View Convalescent Hospital 12
Corinthian International Parking Services, Inc.3 Sunny Retirement Home 13
Synophic Systems Inc.4 City of Cupertino 14
De Anza Community College District 5 Ch Cupertino Owner LLC 15
Target Stores, Inc.6 Zend Technologies Usa, Inc.16
Fremont Union High School District 7 Mist Systems, Inc.17
Forum Healthcare Center 8 County of Santa Clara 18
Whole Foods Market 9 Cupertino Lessee LLC 19
Mobileum, Inc.10 Posh Bakery Inc.20
Source: InfoUSA
114.
150
Function/Program 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Council and Commissions 1.46 1.47 1.52 1.57 1.55 1.60 1.55 2.35 2.35 2.51
Administration 4.85 5.05 5.05 10.75 10.75 10.85 10.57 14.12 15.47 15.15
Innovation & Technology 6.95 6.95 6.90 11.00 10.25 11.40 13.95 14.55 15.05 14.95
Administrative Services 22.34 22.48 22.26 11.00 12.00 12.30 12.30 12.00 14.00 16.00
Parks & Recreation 30.78 29.78 29.53 29.48 31.28 32.18 33.08 35.13 34.80 32.10
Community Development 23.78 23.43 23.90 24.83 24.80 27.30 28.18 28.08 28.13 28.29
Public Works 72.59 73.59 73.59 74.12 77.12 82.12 84.12 84.52 84.95 88.75
Law Enforcement 0.00 0.00 0.00 2.00 2.00 2.00 2.00 2.00 2.00 0.00
Total 162.75 162.75 162.75 164.75 169.75 179.75 185.75 192.75 196.75 197.75
Source: City of Cupertino Budget
CITY OF CUPERTINO
Full-Time Equivalent City Employees by Function/Program
Last Ten Fiscal Years
(Unaudited)
0
50
100
150
200
250
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Public Works
Community
Development
Parks &
Recreation
Administrative
Services
Innovation &
Technology
Administration
Council and
Commissions
115.
151
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Law Enforcement Sheriff Response
Priority One-Respond within 5 minutes 4.49 Min.4.84 Min.3.76 Min.4.30 Min.4.90 Min.4.90 Min.5.07 Min 4.23 Min.3.95 Min.3.96 Min.
Priority Two-Respond within 9 minutes 5.76 Min.6.44 Min.5.98 Min.6.39 Min.6.56 Min.6.56 Min.8.00 Min.7.49 Min.6.33 Min.6.74 Min.
Priority Three-Respond within 20 minutes 9.79 Min.10.62 Min.10.29 Min.10.76 Min.10.52 Min.10.52 Min.15.79 Min 14.79 Min.13.23 Min.12.42 Min.
Public Works
Street Sweeping 696 Curb Miles 575 Curb Miles 575 Curb Miles 575 Curb Miles 575 Curb Miles 575 Curb Miles 534 Curb Miles 534 Curb Miles 534 Curb Miles 534 Curb Miles
Street Maintenance 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call 24 Hrs of Call
Number of development permit applications received 428 434 428
Number of encroachment permits received 121 136 134
Storm Drain Inlets Inspected/Cleaned 815 1063 1638
Roadway Signs Repaired/Replaced 404 721 346
Number of trees planted vs. removed 53/67 155/192 164/190
Parks & Recreation
Number of reservations at Quinlan Center 560 402 526
Number of rounds of golf at BBF Golf Course 28,193 27,205 28,952
Sports Center Memberships 1,598 1,776 1,852 1,950 2,000 1,989 2,015 1,850 1,952 1,802
Number of Senior Center classess offered 246 320 258
Senior Center Memberships 2,387 2,470 2,456 2,623 2,549 2,493 2,094 2,260 2,171 2,171
Quinlan Community Center Rental Revenue $91,000 $133,000 $120,000 $109,342 $110,033 $104,150 $128,778 $72,948 $139,590 $139,590
Community Development
Approved Building Plan Sets 97% Within 5 Days 93% Within 5 Days 92% Within 5 Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days 95% Within 7 Work Days
Discretionary Land Use Applications 100% Within 21 Days 99% Within 21 Days 99% Within 21 Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days 99% Within 21 Work Days
Public Notice of Upcoming Projects 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days 100% Within 10 Days
Number of preliminary reviews 82 90 110
Number of planning applications received 169 138 194
Number of permits received 2,322 2,321 2,534
Number of inspections requested 16,026 13,625 14,596
Administrative Services
Accounts Payable Processing 5 Days 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days
Business License Renewal Certificates 3 Days 3 Days 3 Days 3 Days 3 Days 3 Days 3 Days 3 Days 3 Days 3 Days
Number of regular recruitments 21 21 28
Number of new hires 26 16 14
Number of temporary new hires 101 105 38
Number of personnel payroll changes 702 938 1,094
Number of vendor checks processes 6,793 6,536 5,906
Number of payroll checks process 10,387 10,301 10,802
Number of business license applications 1,294 1,154 1,032
Number of jounral entries posted 2,830 4,521 4,558
Number of receipts processed 9,766 13,913 18,992
Library
Volumes in Collection - - - - 361,817 364,557 369,924 367,979 367,101 368,461
Annual Gate Count - - - - 869,762 880,894 835,073 873,862 904,349 620,007
Annual Circulation Children's Items - - - - 1,474,996 1,544,095 1,448,265 1,453,173 1,535,842 1,192,880
Annual Circulation Adult and Teen Items - - - - 999,766 1,032,326 950,453 980,609 1,049,166 831,114
Adult Classes and Events - - - - 209 215 242 206 207 396
Adult Classes and Events Attendence - - - - 11,860 8,855 9,242 7,622 8,304 9,986
Teen Classes and Events - - - - 52 78 66 79 52 57
Teen Classes and Events Attendence - - - - 3,393 3,135 2,571 2,495 1,283 8,495
Children's Classes and Events - - - - 458 493 440 426 424 477
Children's Classes and Events Attendence - - - - 25,529 28,532 25,857 24,675 22,851 26,032
Volunteer Hours - - - - 11,786 10,000 9,645 10,302 10,191 6,592
Sources: City of Cupertino and Santa Clara County Library District
Function/Program
CITY OF CUPERTINO
Operating Indicators by Function/Program
Last Ten Fiscal Years
(Unaudited)
116.
152
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Public Works
Centerlane Miles of Streets 142 142 142 142 142 142 142 142 142 142
Streetlights 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950 2,950
Traffic Signals 39 39 48 48 48 48 48 52 52 52
Culture & Recreation
Parks and Open Spaces 19 19 19 21 21 21 21 21 21 21
Park and Landscape Acreage 169 169 169 169 169 169 169 169 169 169
City Trails 1 1 1 3 3 3 3 3 3 3
Golf Courses 1 1 1 1 1 1 1 1 1 1
Community Center 1 1 1 1 1 1 1 1 1 1
Community Hall 1 1 1 1 1 1 1 1 1 1
Senior Center 1 1 1 1 1 1 1 1 1 1
Sports Center 1 1 1 1 1 1 1 1 1 1
Swimming Pools 1 1 1 1 1 1 1 1 1 1
Tennis Courts 17 17 17 17 28 28 28 28 28 28
Sports Fields 41 41 41 41 41 41 41 41 41 41
City Library 1 1 1 1 1 1 1 1 1 1
Source: City of Cupertino
Function/Program
CITY OF CUPERTINO
Capital Assets Statistics by Function/Program
Last Ten Fiscal Years
(Unaudited)
117.
153
154
155
156
157
158
159
160
161
162
163
164
165
166
(Continued)
1.
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Honorable Mayor and City Council
City of Cupertino, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, the financial statements of the governmental
activities, the business-type activities, each major fund, and the aggregate remaining fund information of
City of Cupertino, California (City) as of and for the year ended June 30, 2020, and the related notes to the
financial statements, which collectively comprise the City’s basic financial statements, and have issued our
report thereon dated March 6, 2020.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City's internal control
over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in
the circumstances for the purpose of expressing our opinions on the financial statements, but not for the
purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not
express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control such that there is a reasonable possibility that a material misstatement of the City’s financial
statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness,
yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses
may exist that were not identified.
167
2.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether City’s financial statements are free of material
misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts,
and grant agreements, noncompliance with which could have a direct and material effect on the financial
statements. However, providing an opinion on compliance with those provisions was not an objective of our
audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances
of noncompliance or other matters that are required to be reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control over financial
reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness
of the entity’s internal control or on compliance. This report is an integral part of an audit performed in
accordance with Government Auditing Standards in considering the entity’s internal control and
compliance. Accordingly, this communication is not suitable for any other purpose.
Crowe LLP
Costa Mesa, California
March 6, 2020
168
1.
To the Honorable Mayor and City Council
City of Cupertino, California
Professional standards require that we communicate certain matters to keep you adequately informed
about matters related to the financial statement audit that are, in our professional judgment, significant and
relevant to your responsibilities in overseeing the financial reporting process. We communicate such
matters in this report.
AUDITOR’S RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE
UNITED STATES OF AMERICA
Our responsibility is to form and express an opinion about whether the financial statements that have been
prepared by management with your oversight are presented fairly, in all material respects, in conformity
with accounting principles generally accepted in the United States of America. The audit of the financial
statements does not relieve you of your responsibilities and does not relieve management of their
responsibilities. Refer to our engagement letter with the City of Cupertino, California (City) for further
information on the responsibilities of management and of Crowe LLP.
AUDITOR’S RESPONSIBILITY UNDER GOVERNMENT AUDITING STANDARDS
As part of obtaining reasonable assurance about whether the City’s financial statements are free of material
misstatement, we performed tests of the City’s compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts or disclosures. However, providing an opinion on compliance
with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
PLANNED SCOPE AND TIMING OF THE AUDIT
We are to communicate an overview of the planned scope and timing of the audit. Accordingly, the following
matters regarding the planned scope and timing of the audit were discussed with you on July 28, 2020.
How we proposed to address the significant risks of material misstatement, whether due to
fraud or error.
Our approach to internal control relevant to the audit.
The concept of materiality in planning and executing the audit, focusing on the factors
considered rather than on specific thresholds or amounts.
Where the entity has an internal audit function, the extent to which the auditor will use the work
of internal audit, and how the external and internal auditors can best work together.
Your views and knowledge of matters you consider warrant our attention during the audit, as
well as your views on:
o The allocation of responsibilities between you and management.
o The entity's objectives and strategies, and the related business risks that may result in
material misstatements.
169
2.
o Significant communications with regulators.
o Other matters you believe are relevant to the audit of the financial statements.
SIGNIFICANT ACCOUNTING POLICIES AND MANAGEMENT JUDGMENTS AND ACCOUNTING
ESTIMATES
Significant Accounting Policies: The City Council should be informed of the initial selection of and changes
in significant accounting policies or their application. Also, the City Council should be aware of methods
used to account for significant unusual transactions and the effect of significant accounting policies in
controversial or emerging areas where there is a lack of authoritative consensus. We believe management
has the primary responsibility to inform the City Council about such matters. To assist the City Council in
its oversight role, we also provide the following.
Accounting Standard Impact of Adoption
GASB Statement No. 95, “Postponement of
the Effective Dates of Certain Authoritative
Guidance”
This Statement was issued to provide relief to
governments in light of COVID-19 pandemic by
postponing the effective dates of provisions in
almost all standards and implementation guides
due to be implemented for fiscal years 2020 and
later.
Adoption of this Statement did not have a
material impact on the City’s financial position or
results of operations.
Significant Unusual Transactions. No such matters noted
Significant Accounting Policies in
Controversial or Emerging Areas.
No such matters noted
Management Judgments and Accounting Estimates: Further, accounting estimates are an integral part of
the financial statements prepared by management and are based upon management’s current judgments.
These judgments are based upon knowledge and experience about past and current events and
assumptions about future events. Certain estimates are particularly sensitive because of their significance
and because of the possibility that future events affecting them may differ markedly from management’s
current judgments and may be subject to significant change in the near term.
The following describes the significant accounting estimates reflected in the City’s year-end financial
statements, the process used by management in formulating these particularly sensitive accounting
estimates and the primary basis for our conclusions regarding the reasonableness of those estimates.
Significant Accounting
Estimate Process Used by Management Basis for Our Conclusions
Fair Values of Investment
Securities and Other
Financial Instruments
The disclosure of fair values of
securities and other financial
instruments requires management
to use certain assumptions and
estimates pertaining to the fair
values of its financial assets and
financial liabilities.
We tested the propriety of
information underlying
management’s estimates.
Useful Lives of Capital
Assets
Management has determined the
economic useful lives of fixed
assets based on past history of
similar types of assets, future plans
as to their use, and other factors
that impact their economic value to
the City.
We tested the propriety of
information underlying
management’s estimates.
Loss Contingencies The City consults with legal counsel
to evaluate outstanding litigation,
claims and assessments. Factors
Based on information obtained
from the City’s legal counsel
regarding this matter and
170
3.
Significant Accounting
Estimate Process Used by Management Basis for Our Conclusions
that affect management’s
evaluation of litigation
contingencies requiring disclosure
include the nature of the
contingencies and whether the
outcome could have an effect on
the consolidated financial
statements.
discussions with management,
we concur with management’s
determination that the loss
contingency does not meet
conditions for accrual of being
both probable and estimable,
and, thus, no accrual is
recorded and no specific
disclosures are required.
Pension and
Postretirement Obligations
Amounts reported for pension and
postretirement obligations require
management to use estimates that
may be subject to significant
change in the near term. These
estimates are based on projection
of the weighted average discount
rate, rate of increase in future
compensation levels, and weighted
average expected long-term rate of
return on pension assets.
We reviewed the
reasonableness of these
estimates and assumptions.
AUDITOR’S JUDGMENTS ABOUT QUALITATIVE ASPECTS OF SIGNIFICANT ACCOUNTING
PRACTICES
We are to provide you our comments about the following matters related to the City’s accounting policies
and financial statement disclosures.
The accounting policies to the particular circumstances of the City, considering the need to
balance the cost of providing information with the likely benefit to users of the City’s financial
statements, are appropriate.
Overall, the disclosures in the financial statements are neutral, consistent, and clear.
The effect of the timing of transactions in relation to the period in which they are recorded is
appropriate.
There were no significant risks and exposures, or uncertainties that are disclosed in the
financial statements.
There were no unusual transactions including nonrecurring amounts recognized during the
period.
There were no particularly sensitive financial statement disclosures.
There were no factors affecting asset and liability carrying values, including the City’s basis for
determining useful lives assigned to tangible and intangible assets.
There was no selective correction of misstatements, for example, correcting misstatements
with the effect of increasing reported earnings, but not those that have the effect of decreasing
reported earnings.
CORRECTED AND UNCORRECTED MISSTATEMENTS
Corrected Misstatements: We are to inform you of material corrected misstatements that were brought to
the attention of management as a result of our audit procedures. There were no such misstatements.
Uncorrected Misstatements: We are to inform you of uncorrected misstatements that were aggregated by
us during the current engagement and pertaining to the latest and prior period(s) presented that were
determined by management to be immaterial, both individually and in the aggregate, to the financial
171
4.
statements taken as a whole. For your consideration, we have distinguished misstatements between
known misstatements and likely misstatements. There were no such misstatements.
OTHER COMMUNICATIONS
Communication Item Results
Other Information In Documents Containing
Audited Financial Statements
Information may be prepared by management
that accompanies the financial statements. To
assist your consideration of this information, you
should know that we are required by audit
standards to read such information and consider
whether such information, or the manner of its
presentation, is materially inconsistent with
information in the financial statements. If we
consider the information materially inconsistent
based on this reading, we are to seek a
resolution of the matter.
We read the following items and noted no
material inconsistencies or misstatement of facts
in such information based on our reading thereof.
Management’s Discussion and Analysis
Information in Supplemental Section
Significant Difficulties Encountered During
the Audit
We are to inform you of any significant difficulties
encountered in dealing with management related
to the performance of the audit.
There were no significant difficulties encountered
in dealing with management related to the
performance of the audit.
Disagreements With Management
We are to discuss with you any disagreements
with management, whether or not satisfactorily
resolved, about matters that individually or in the
aggregate could be significant to the City’s
financial statements or the auditor’s report.
During our audit, there were no such
disagreements with management.
Consultations With Other Accountants
If management consulted with other accountants
about auditing and accounting matters, we are to
inform you of such consultation, if we are aware
of it, and provide our views on the significant
matters that were the subject of such
consultation.
We are not aware of any instances where
management consulted with other accountants
about auditing or accounting matters since no
other accountants contacted us, which they are
required to do by Statement on Auditing
Standards No. 50, before they provide written or
oral advice.
Representations The Auditor Is Requesting
From Management
We are to provide you with a copy of
management’s requested written representations
to us.
We direct your attention to a copy of the letter of
management’s representation to us provided
separately.
Significant Issues Discussed, or Subject to
Correspondence, With Management
We are to communicate to you any significant
issues that were discussed or were the subject of
correspondence with management.
There were no such significant issues discussed,
or subject to correspondence, with management.
Significant Related Party Findings and Issues
We are to communicate to you significant
findings and issues arising during the audit in
connection with the City’s related parties.
There were no such findings or issues that are,
in our judgment, significant and relevant to you
regarding your oversight of the financial reporting
process.
Other Findings or Issues We Find Relevant or
Significant
We are to communicate to you other findings or
issues, if any, arising from the audit that are, in
our professional judgment, significant and
relevant to you regarding your oversight of the
financial reporting process.
There were no such other findings or issues that
are, in our judgment, significant and relevant to
you regarding your oversight of the financial
reporting process.
172
5.
We are pleased to serve the City as its independent auditors and look forward to our continued relationship.
We provide the above information to assist you in performing your oversight responsibilities, and would be
pleased to discuss this letter or any matters further, should you desire. This letter is intended solely for the
information and use of the Mayor and City Council and, if appropriate, management, and is not intended to
be and should not be used by anyone other than these specified parties.
Crowe LLP
Costa Mesa, California
<Date>
173
REPORT OF INDEPENDENT ACCOUNTANTS ON APPLYING AGREED-UPON
PROCEDURES
To the Honorable Mayor and City Council
City of Cupertino, California
10300 Torre Avenue
Cupertino, California 95014-3202
Ladies and Gentlemen:
We have performed the procedures enumerated below, which were agreed to by the Honorable
Mayor and City Council of the City of Cupertino, California (the “City”) on the Appropriations Limit
Worksheet (Worksheet), related to the City’s compliance with Section 1.5 of Article XIIIB of the
California Constitution during the period ending June 30, 2020. Management is responsible for
compliance with Section 1.5 of Article XIIIB of the California Constitution. The sufficiency of these
procedures is solely the responsibility of the City. Consequently, we make no representation
regarding the sufficiency of the procedures described below either for the purpose for which this
report has been requested or for any other purpose.
Refer to Appendix A.
This agreed-upon procedures engagement was conducted in accordance with attestation standards
established by the American Institute of Certified Public Accountants. We were not engaged to and
did not conduct an examination or review, the objective of which would be the expression of an
opinion or conclusion, respectively, on compliance with Section 1.5 of Article XIIIB of the California
Constitution. Accordingly, we do not express such an opinion or conclusion. Had we performed
additional procedures, other matters might have come to our attention that would have been
reported to you.
This report is intended solely for the information and use of the Honorable Mayor and the City
Council and is not intended to be and should not be used by anyone other than these specified
parties.
Crowe LLP
Costa Mesa, California
March 6, 2020
174
APPENDIX A – SCHEDULE OF PROCEDURES AND FINDINGS
The procedures to be performed were as follows:
1. Procedure: We obtained the Worksheet provided by the City and determined that the 2019-2020
Limit amounting to $104,753,580 and annual adjustment factors were adopted by Resolution 19-068
of the Honorable Mayor and City Council. We also determined that the population and inflation factors
were selected by a recorded vote of the Honorable Mayor and City Council.
Result: The procedures were performed without exception.
2. Procedure: We recomputed the 2019-2020 Appropriations Limit by multiplying the 2018-2019
Appropriations Limit by the adjustment factors.
Result: The procedures were performed without exception.
3. Procedure: For the Worksheet, we agreed the Per Capita Income, County and City Population
Factors to California State Department of Finance Worksheets.
Result: The procedures were performed without exception.
175
REPORT OF INDEPENDENT ACCOUNTANTS ON APPLYING AGREED-UPON
PROCEDURES
To the Honorable Mayor and City Council
City of Cupertino, California
10300 Torre Avenue
Cupertino, California 95014-3202
Ladies and Gentlemen:
We have performed the procedures enumerated below, which were agreed to by the Honorable
Mayor and the City Council of the City of Cupertino, California (the “City”), on the Investment Policy
of the City. The City’s management is responsible for the Investment Policy. The sufficiency of
these procedures is solely the responsibility of those parties specified in this report. Consequently,
we make no representation regarding the sufficiency of the procedures enumerated below either
for the purpose for which this report has been requested or for any other purpose.
Refer to Appendix A.
This agreed-upon procedures engagement was conducted in accordance with attestation
standards established by the American Institute of Certified Public Accountants. We were not
engaged to and did not conduct an examination or review, the objective of which would be the
expression of an opinion or conclusion, respectively, on the Investment Policy. Accordingly, we do
not express such an opinion or conclusion. Had we performed additional procedures, other matters
might have come to our attention that would have been reported to you.
This report is intended solely for the information and use of the Honorable Mayor and City Council
and is not intended to be and should not be used by anyone other than these specified parties.
Crowe LLP
Costa Mesa, California
March 6, 2020
176
APPENDIX A – SCHEDULE OF PROCEDURES AND FINDINGS
The procedures to be performed were as follows:
1. Procedure: We obtained the Investment Policies (policies), dated May 2019, approved by the
Honorable Mayor and the City Council. We compared the investments authorized by the policy
with the investments listed in the March 2020 Treasurer’s Investment Report to determine if all
investment types are allowed by the investment policy.
Result: The procedure was performed with no exceptions noted.
2. Procedure: We compared the City’s Investment Policy with California Government Code Section
53601 to determine whether the City’s Investment Policy complied with California Government
Code Section 53601.
Result: The procedure was performed with no exceptions noted.
3. Procedure: We compared the March 2020 Treasurer’s Investment Report with California
Government Code Section 53646 to ensure that the March 2020 Treasurer’s Investment Report
complied with California Government Code Section 53646.
Result: The procedure was performed with no exceptions noted.
4. Procedure: We inquired of the Finance Manager whether investment performance statistics and
activity reports were generated on a quarterly basis for presentation to the Oversight (Audit)
Committee, City Manager and the Honorable Mayor and the City Council, as required by the
Investment Policy.
Result: The procedure was performed with no exceptions noted.
5. Procedure: We inquired of the Finance Manager and documented our understanding of the wire
transfer procedures.
Result: The procedure was performed with no exceptions noted.
6. Procedure: We randomly selected three investment sales/maturities from various quarters of
Treasurer’s Reports and performed the following:
• Traced investment type to the supporting broker’s confirmation and the Chandler Report.
• Traced the maturity date to the supporting broker’s confirmation and the Chandler Report.
• Traced the amount of the investment sold to the supporting broker’s confirmation and the
Chandler Report.
Result: The procedure was performed with no exceptions noted.
7. Procedure: We will randomly select two investments purchased (one as of October 2019 and one
as of March 2020) for fiscal year 2020 from the City’s investments files and perform the following:
• Trace the purchased investments to the corresponding Treasurer’s Investment Report for
the month in which the investments were acquired.
• Agree the amount, terms and interest rate to the Treasurer’s Investment Report.
• Verify that the investment type is authorized by the Investment Policy by comparing the
type of investment to the allowable types per the Investment Policy.
Result: The procedure was performed with no exceptions noted.
177
8. Procedure: We obtained the Wells Fargo Bank Market/Cost Value Comparison Report, the City’s
third party investment safekeeping custodian, for March 2020 and traced the following from each
investment listed in the Wells Fargo statement to the City’s March 2020 Treasurer’s Investment
Report:
• Investment description
• Market value
• Purchase date
• Maturity date
• Coupon rate
Result: Per observation of the Wells Fargo Bank Market/Cost Value Comparison report, purchase
dates are not presented and could not be agreed to the City’s Treasury Investment Report. This
section of the procedure could not be performed. The remainder of the procedure was performed
with no exception.
9. Procedure: We traced three randomly selected Federal Agency investments that were purchased
in fiscal 2020 and traced the reported ratings to Moody’s rating online.
Result: The procedure was performed with no exception noted.
10. Procedure: For the March 2020 Treasurer’s Investment Report, we re-computed or obtained
third-party corroborating evidence of the correct listing of
• Average Yield
• Market value
• Purchase date
• Duration
Result: We obtained the March 2020 Treasurer’s Investment Report prepared by Chandler Asset
Management, Inc. and the Wells Fargo Market/Cost Value Comparison. The procedure was
performed with no exceptions noted.
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CITY OF CUPERTINO
TRANSPORTATION DEVELOPMENT ACT PROGRAM
SPECIAL-PURPOSE FINANCIAL STATEMENTS
June 30, 2020
179
CITY OF CUPERTINO
TRANSPORTATION DEVELOPMENT ACT PROGRAM
(A Program of the City of Cupertino, California)
SPECIAL-PURPOSE FINANCIAL STATEMENTS
June 30, 2020
CONTENTS
INDEPENDENT AUDITOR'S REPORT .................................................................................................... 1
SPECIAL-PURPOSE FINANCIAL STATEMENTS
SPECIAL-PURPOSE BALANCE SHEET ........................................................................................... 3
SPECIAL-PURPOSE STATEMENT OF REVENUES AND EXPENDITURES .................................. 4
NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS ......................................................... 5
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING AND ON COMPLIANCE WITH THE TRANSPORTATION DEVELOPMENT
ACT AND OTHER MATTERS BASED ON AN AUDIT OF SPECIAL-PURPOSE
FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS ............................................................................................. 6
180
(Continued)
1.
INDEPENDENT AUDITOR'S REPORT
Honorable Members of the City Council
City of Cupertino, California
Report on the Special-Purpose Financial Statements
We have audited the accompanying special-purpose financial statements of the City of Cupertino (City)
Transportation Development Act Program, as of and for the year ended June 30, 2020, and the related
notes to the special-purpose financial statements, as listed in the table of contents.
Management’s Responsibility for the Special-Purpose Financial Statements
Management is responsible for the preparation and fair presentation of these special-purpose financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of the special-purpose financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these special-purpose financial statements based on our
audit. We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the special-purpose financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
special-purpose financial statements. The procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the special-purpose financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to
the entity’s preparation and fair presentation of the financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the special-
purpose financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
181
2.
Opinion
In our opinion, the special-purpose financial statements referred to above present fairly, in all material
respects, the financial position of the City of Cupertino Transportation Development Act Program, as of
June 30, 2020, and the changes in financial position for the year then ended in accordance with accounting
principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1, the special-purpose financial statements were prepared for the purpose of
complying with the financial reporting provisions of Section 6666 of Title 21 of California Code of
Regulations and the provisions of the Transportation Development Act as enacted in the California State
Statutes. The special-purpose financial statements do not purport to, and do not, present fairly the financial
position of the City, as of June 30, 2020, the changes in its financial position or, where applicable, its cash
flows for the year then ended in accordance with accounting principles generally accepted in the United
States of America. Our opinion is not modified with respect to this matter.
Restriction on Use
Our report is intended solely for the information and use of the City and the State of California and is not
intended to be and should not be used by anyone other than these specified parties.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated March 6, 2020
on our consideration of the City’s internal control over financial reporting and on our tests of its compliance
with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The
purpose of that report is to describe the scope of our testing of internal control over financial reporting and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s
internal control over financial reporting or on compliance. That report is an integral part of an audit
performed in accordance with Government Auditing Standards in considering the City’s internal control over
financial reporting and compliance.
Crowe LLP
Costa Mesa, California
March 6, 2020
182
CITY OF CUPERTINO
TRANSPORTATION DEVELOPMENT ACT PROGRAM
(A Program of the City of Cupertino, California)
SPECIAL-PURPOSE BALANCE SHEET
June 30, 2020
See accompanying notes to special-purpose financial statements.
3.
ASSETS -$
Total assets -$
LIABILITIES -$
DEFERRED INFLOWS OF RESOURCES -$
FUND BALANCE -$
Total liabilities, deferred inflows of resources and fund balance -$
183
CITY OF CUPERTINO
TRANSPORTATION DEVELOPMENT ACT PROGRAM
(A Program of the City of Cupertino, California)
SPECIAL-PURPOSE STATEMENT OF REVENUES AND EXPENDITURES
For the year ended June 30, 2020
See accompanying notes to special-purpose financial statements.
4.
Revenues
TDA Article 3.0 (Note 3) 156,926$
Total revenues 156,926
Expenditures -
Net change in fund balances 156,926
Fund balance at beginning of year (156,926)
Fund balance at end of year -$
184
CITY OF CUPERTINO
TRANSPORTATION DEVELOPMENT ACT PROGRAM
(A Program of the City of Cupertino, California)
NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS
June 30, 2020
5.
NOTE 1 - DESCRIPTION OF REPORTING ENTITY
The City of Cupertino, California (the City), Transportation Development Act Program (Program) includes
the financial activities associated with the projects funded by the State of California Transportation
Development Act (TDA). The State of California created a local transportation fund for each County funded
by one-quarter of a cent of the State sales tax. Article 3 of the TDA permits local agencies to spend a
portion of that money (not to exceed 2%) on facilities provided for the exclusive use of pedestrians and
bicycles.
Section 6666 of Title 21 of California Code of Regulations and the provisions of the Transportation
Development Act as enacted in the California State Statutes, requires the City to present only program-
level financial statements. Accordingly, due to the omission of government-wide financial statements and
related disclosures, including a management’s discussion and analysis, these financial statements do not
constitute a complete presentation of the financial position of the City as of June 30, 2020, and the changes
in its financial position and where applicable, cash flows thereof, for the year then ended, in conformity with
Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements – and
Management’s Discussion and Analysis – for State and Local Governments, but otherwise constitute
financial statements prepared in conformity with U.S. generally accepted accounting principles.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fund Accounting: The Program activities are accounted for in the Transportation Special Revenue Fund.
A fund is a set of self-balancing accounts which comprise its assets, liabilities, fund equity, revenue and
expenditures.
Basis of Accounting: Basis of accounting refers to when revenues and expenditures are recognized. The
projects are accounted for in a governmental type fund and the modified accrual basis of accounting is
used. Under the modified accrual basis, revenues are recognized when they become measurable and
available as net current assets. TDA Article 3.0 revenues are recognized when qualifying project
expenditures are incurred. Expenditures are generally recognized when they are incurred.
NOTE 3 - TDA ARTICLE 3.0 REVENUE
During the year ended June 30, 2020 and, the City received allocation instructions from the Metropolitan
Transportation Commission for the following project:
Project Name Grant Award Revenue
Bike Boulevard Improvement Phase II Project $ 166,259 $ -
In the prior year, the following allocations were received and the revenue was recognized in the current
fiscal year:
Allocation
Instruction #
Project Name Grant Award Revenue
17001018 McClellan Road Sidewalk Construction $106,926 $106,926
17001019 Pedestrian Master Plan $ 50,000 $ 50,000
185
6.
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
AND ON COMPLIANCE WITH THE TRANSPORTATION DEVELOPMENT ACT AND OTHER
MATTERS BASED ON AN AUDIT OF SPECIAL-PURPOSE FINANCIAL STATEMENTS PERFORMED
IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Honorable Members of the City Council
City of Cupertino, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, the financial statements of the City of Cupertino
(City) Transportation Development Act Program as of and for the year ended June 30, 2020, and the related
notes to the financial statements, and have issued our report thereon dated March 6, 2020. As discussed
in Note 1, the special-purpose financial statements were prepared for the purpose of complying with the
financial reporting provisions of Section 6666 of Title 21 of California Code of Regulations and the
provisions of the Transportation Development Act as enacted in the California State Statutes.
Internal Control Over Financial Reporting
In planning and performing our audit of the special-purpose financial statements, we considered the City's
internal control over financial reporting (internal control) as a basis for designing audit procedures that are
appropriate in the circumstances for the purpose of expressing our opinion on the special-purpose financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal
control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control, such that there is a reasonable possibility that a material misstatement of the entity’s
financial statements will not be prevented, or detected and corrected on a timely basis. A significant
deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a
material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses
may exist that have not been identified.
186
7.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City of Cupertino Transportation Development
Act Program’s special-purpose financial statements are free of material misstatement, we performed tests
of its compliance with certain provisions of laws, regulations, contracts, and grant agreements,
noncompliance with which could have a direct and material effect on the financial statements. Our
procedures included the applicable audit procedures contained in §6666 of Title 21 of California Code of
Regulations and tests of compliance with the applicable provisions of the Transportation Development Act
and the allocation instructions and resolutions of the Metropolitan Transportation Commission. However,
providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly,
we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or
other matters that are required to be reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control over financial
reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness
of the entity’s internal control or on compliance. This report is an integral part of an audit performed in
accordance with Government Auditing Standards in considering the entity’s internal control and
compliance. Accordingly, this communication is not suitable for any other purpose.
Crowe LLP
Costa Mesa, California
March 6, 2020
187
CITY OF CUPERTINO
Agenda Item
21-8781 Agenda Date: 2/22/2021
Agenda #: 5.
Subject: Internal Audit Report (Enterprise Risk Assessment) - Moss Adams
Review Internal Audit Report (Enterprise Risk Assessment) and provide input.
CITY OF CUPERTINO Printed on 2/16/2021Page 1 of 1
powered by Legistar™188
This report is intended for the internal use of the City of Cupertino, and may not be provided to, used, or relied upon by
any third parties.
Proprietary & Confidential
FINAL REPORT
City of Cupertino
ENTERPRISE RISK ASSESSMENT
December 10, 2020
Moss Adams LLP
999 Third Avenue, Suite 2800
Seattle, WA 98104
(206) 302-6500
189
Enterprise Risk Assessment Report
FOR INTERNAL USE OF CITY OF CUPERTINO ONLY
Table of Contents
Executive Summary 1
A. Project Scope 1
B. Risk Assessment Framework 1
C. Risk Assessment Results 2
Introduction 3
A. Project Scope 3
B. Methodology 3
Risk Assessment Framework 4
C. Entity Overview 5
City Government 6
Community Characteristics 7
D. Risk Assessment Employee Survey Results 7
Risk Assessment Results 9
A. High Risk Categories 9
Governance 9
Procurement and Contracting 13
B. Moderate-to-High Risk Categories 15
External Environment 15
Human Capital and Resources 20
Information Technology 25
Planning and Strategy 29
Policies and Procedures 31
C. Moderate Risk Categories 33
Capital Improvement Program 33
Compliance and Financial Reporting 35
Ethics and Fraud, Waste, Abuse 38
Funding and Economics 41
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Table of Contents – Continued
Enterprise Risk Assessment Report
FOR INTERNAL USE OF THE CITY OF CUPERTINO ONLY
Internal Controls 43
Operations and Service Delivery 45
Organization and Staffing 47
Risk Programs 49
D. Low-to-Moderate Risk Categories 52
Accounting and Finance 52
Asset Management 54
Management and Leadership 56
Public Safety and Security 58
Reputation and Public Perception 60
Employee Survey Results 62
A. Survey Respondent Profile 62
B. Risk Category Ratings 63
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EXECUTIVE SUMMARY
This enterprise risk assessment provides a way for the leadership of the City of Cupertino (the City) to
measure uncertainty related to the City’s ability to achieve defined strategic objectives and operate
effectively. Risks are identified, analyzed, and measured by the level of inherent vulnerability, the
level of preparedness to mitigate them, and the impact such negative events could have on Cupertino
should they occur.
For each of the risk categories assessed, our risk assessment includes an overview of the risk
condition at the City of Cupertino, including the current risk level, likelihood, impact, preparedness,
and trajectory. Risk mitigation identifies potential strategies to reduce overall risk for each category.
The residual risk level represents the probable risk exposure after risk mitigation efforts are
implemented. The elements below make up the risk assessment framework, which are industry
standards and guided by the Committee of Sponsoring Organizations of the Treadway Commission’s
(COSO) Enterprise Risk Management (ERM) methodology.
RISK LEVEL Level of uncertainty that could impair functions and processes, in the absence of
any actions taken to alter either the risk’s likelihood or impact.
LIKELIHOOD Qualitative assessment of the probability of a negative event occurring, given the
current risk conditions.
IMPACT Level of potential impact of a negative event on strategy, people, operations,
systems, and resources.
PREPAREDNESS Level of preparedness through activities and resources to manage risks and
minimize and limit potential losses.
TRAJECTORY Trajectory of the risk level, given the current risk conditions.
RISK MITIGATION Potential strategies for reducing risk.
RESIDUAL RISK Possible remaining exposure after known risks have been mitigated through
specific actions.
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The risk assessment evaluates the organization’s risks across the following categories, organized
alphabetically for each risk level. The table below presents the summary results of the assessment.
RISK CATEGORY IMPACT LIKELIHOOD PREPAREDNESS TRAJECTORY
High Risk
Governance Moderate-to-High Moderate-to-High Low-to-Moderate Flat
Procurement and
Contracting Moderate-to-High Moderate Low-to-Moderate Increasing
Moderate-to-High Risk
External Environment High Moderate-to-High Moderate Increasing
Human Capital and
Resources Moderate-to-High Moderate-to-High Moderate Increasing
Information Technology Moderate-to-High Moderate Moderate-to-High Increasing
Planning and Strategy Moderate-to-High Moderate-to-High Low-to-Moderate Flat
Policies and Procedures Moderate-to-High Moderate-to-High Moderate Flat
Moderate Risk
Capital Improvement
Program Moderate-to-High Moderate Low-to-Moderate Flat
Compliance and Financial
Reporting Moderate Low-to-Moderate Moderate Increasing
Ethics and Fraud, Waste,
Abuse Moderate-to-High Low-to-Moderate Low-to-Moderate Flat
Internal Controls Moderate Moderate Moderate Flat
Operations and Service
Delivery Moderate Moderate Moderate Flat
Organization and Staffing Moderate Moderate-to-High Moderate Flat
Risk Programs Moderate Low-to-Moderate Low-to-Moderate Flat
Low-to-Moderate Risk
Accounting and Finance Moderate Low-to-Moderate Moderate Decreasing
Asset Management Moderate Moderate Moderate-to-High Decreasing
Management and
Leadership Moderate Low-to-Moderate Moderate-to-High Decreasing
Public Safety and Security Moderate Low-to-Moderate Moderate-to-High Increasing
Reputation and Public
Perception Moderate Moderate Moderate-to-High Flat
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INTRODUCTION
The City of Cupertino (the City) engaged Moss Adams to conduct an independent enterprise risk
assessment to analyze the City’s overarching areas of risk. In order to assess the overall risk level of
the City and its comprehensive risk categories, the enterprise risk assessment process followed
conventional Enterprise Risk Management (ERM) methodology as defined by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and embraced by the Institute of
Internal Auditors (IIA). This assessment was conducted under the oversight of the Audit Committee.
The Moss Adams team evaluated 20 categories of risk, and business processes within each
category, that collectively comprise operations across the organization. Risk assessments include
identifying the current levels of risk, likelihood of occurrence of a negative event, the impact of a
negative event, and the level of preparedness in terms of mitigating negative events. Using this
information, the City can identify the most important areas of risk and prioritize management of these
risks. All City departments were included in the risk assessment process. This assessment includes
information provided by City Council members, Audit Committee members, senior leadership,
managers, supervisors, and staff.
The enterprise risk assessment process reflects a specific point in time: September 2020 to
December 2020. Both the overall risk ratings and trajectory levels are directly connected to this
timing.
The enterprise risk assessment process consists of four phases: 1) planning, 2) fact finding, 3)
analysis, and 4) reporting. Planning included requesting documents and identifying which individuals
to interview and include in the survey process. Fact finding encompassed document review, analysis
of existing data, interviews, and an online survey sent to City employees. Analysis included
assessment of the level of uncertainty associated with each risk factor. Reporting entailed the
development of draft and final deliverables, as well as follow-up discussions with management and
presentation to key stakeholders.
The activities and goals for each phase are described in detail below.
PLANNING
We began planning our assessment by requesting a standard set of
documents from the City, including (but not limited to) prior risk
assessments, audits, public website documents, and financial reports. We
used these documents to identify the first round of individuals to interview
and additional document needs based on business process/functional
areas.
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FACT-FINDING
Fact finding encompassed analyzing received documents, interviewing
employees and City Council members, and soliciting additional employee
feedback via an online survey. During this phase, we gathered information
in order to gain a clear understanding of the City and the way it operates
to achieve its goals and purpose.
ANALYSIS
With the information collected and compiled, we performed a risk
assessment that included a comprehensive review and analysis of the
various categories of risks. This analysis included assessing current risk
conditions and trajectory, the level of preparedness efforts to mitigate
risks, and the probability and potential impact a negative event may have
on the City’s ability to achieve its mission, vision, and strategic goals.
REPORTING
During this phase, we developed a draft report to engage in review and
discussion with senior leadership. Based on feedback, we finalized the
report for delivery to the City Manager and presentation to the Audit
Committee.
The enterprise risk assessment process relies heavily on evidence obtained from City employees. By
design, the assessment process requires access to all senior leadership and many department and
division managers. Full disclosure of information has been assumed in this process.
The process to identify and assess risks considers both internal and external factors. As part of this
risk assessment, Moss Adams used a variety of techniques, both qualitative and quantitative, to
identify external and internal factors that contribute to risk. Risk assessments involve a dynamic and
iterative process to identify and analyze risks to the City’s ability to achieve its objectives, forming a
basis for determining how risks should be managed.
For each of the risk categories assessed, our risk assessment includes an overview of the risk
condition at the City, including the current risk level, likelihood, impact, preparedness, and trajectory.
In addition, risk mitigation identifies potential strategies to reduce overall risk for each category, and
residual risk represents the probable risk exposure after risk mitigation efforts have been
implemented. The elements provided below make up the risk assessment framework, which are
industry standard and defined by COSO’s ERM methodology.
RISK LEVEL
Level of uncertainty that could impair functions and
processes, in the absence of any actions taken to alter
either the risk’s likelihood or impact.
● Low
● Low-to-Moderate
● Moderate
● Moderate-to-High
● High
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LIKELIHOOD
Qualitative assessment of the probability of a negative
event occurring, given the current risk conditions.
● Low
● Low-to-Moderate
● Moderate
● Moderate-to-High
● High
IMPACT
Level of potential impact of a negative event on
strategy, people, operations, systems, and resources.
● Low
● Low-to-Moderate
● Moderate
● Moderate-to-High
● High
PREPAREDNESS
Level of preparedness through activities and resources
to manage risks and minimize and limit potential
losses.
● Low
● Low-to-Moderate
● Moderate
● Moderate-to-High
● High
TRAJECTORY
Trajectory of the risk level, given the current risk
conditions.
● Decreasing
● Flat
● Increasing
RISK MITIGATION
Potential strategies for reducing risk.
RESIDUAL RISK
Possible remaining exposure after known risks have
been mitigated through specific actions.
● Low
● Low-to-Moderate
● Moderate
● Moderate-to-High
● High
Cupertino is a U.S. city of 11.31 square miles in Santa Clara County, California, directly west of San
Jose on the western edge of the Santa Clara Valley with portions extending into the foothills of the
Santa Cruz Mountains. Cupertino is bordered to the north by Sunnyvale, to the east by Santa Clara
and San Jose, to the south by San Jose and Saratoga, and to the west by unincorporated Santa
Clara County.
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The City of Cupertino operates as a general law city with a City Council-City Manager form of government. Five council members serve four- year,
overlapping terms, with elections held every two years. The Council meets twice a month, and once a month during the summer, and is assisted
by several citizen advisory commissions and the Audit Committee.
TABLE 1: CITY ORGANIZATIONAL CHART
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The City outsources multiple functions, including City Attorney, Fire, Police, Sewer, and Water. San
Jose Water Company and California Water Service deliver water utilities to the City, while Pacific Gas
and Electric (PG&E) provides gas and electric utilities.
Over the past three years, City population, income, unemployment rate, and median age (41) have
remained stable. Per capita income has risen slightly up to $63,817 in 2018-19, with unemployment
dropping to an all-time low of 2.3%. However, this data does not reflect recent impacts on
employment and income as a result of the COVID-19 pandemic. The City’s population is highly
educated, with 97.1% of residents over age 25 having a high school degree and 77.2% having a
bachelor’s degree.
We administered a risk assessment survey to provide City staff the opportunity to identify perceived
strengths and weaknesses of the City, which helped us assess potential opportunities for
improvement and identify areas of specific vulnerability. The survey addressed a variety of topics and
included rating scale questions and open-ended questions for each risk category. The confidential
questionnaire was distributed to employees and was open for submission between September 23rd
and October 1, 2020, via the research platform Qualtrics. Out of the 245 employees invited to take
the survey, 112 individuals submitted responses to the survey, a strong participation rate of 45.7%.
In general, staff survey responses are lower than the risk assessment results, which may be partially
attributable to the use of averages in the analysis of employee survey results.
RISK CATEGORY RISK ASSESSMENT
EMPLOYEE SURVEY
RESULTS
Governance High Moderate
Procurement and Contracting High Low-to-Moderate
External Environment Moderate-to-High Moderate
Human Capital and Resources Moderate-to-High Moderate
Information Technology Moderate-to-High Low-to-Moderate
Planning and Strategy Moderate-to-High Moderate
Policies and Procedures Moderate-to-High Moderate
Capital Improvement Program Moderate Low-to-Moderate
Compliance and Financial Reporting Moderate Low-to-Moderate
Ethics and Fraud, Waste, Abuse Moderate Low-to-Moderate
Internal Controls Moderate Low-to-Moderate
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RISK CATEGORY RISK ASSESSMENT
EMPLOYEE SURVEY
RESULTS
Operations and Service Delivery Moderate Moderate
Organization and Staffing Moderate Moderate
Risk Programs Moderate Moderate
Accounting and Finance Low-to-Moderate Low-to-Moderate
Asset Management Low-to-Moderate Low-to-Moderate
Management and Leadership Low-to-Moderate Moderate
Public Safety and Security Low-to-Moderate Low-to-Moderate
Reputation and Public Perception Low-to-Moderate Low-to-Moderate
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RISK ASSESSMENT RESULTS
For each of the risk categories assessed, our risk assessment includes an overview of the risk
condition at the City, including the levels for overall risk, impact, likelihood, preparedness, and
trajectory of the risk conditions. We identified potential risk mitigation strategies intended to reduce
overall risk for each category. The residual risk level represents the probable risk exposure after risk
mitigation efforts are implemented.
The levels and corresponding color coding for each risk condition, impact, likelihood, preparedness,
and trajectory are represented in the table below.
Impact
Likelihood
Preparedness
Trajectory
High High Low Increasing
Moderate-to-High Moderate-to-High Moderate-to-High Flat
Moderate Moderate Moderate Decreasing
Low-to-Moderate Low-to-Moderate Moderate-to-High
Low Low High
Overall Risk Level
High
Impact
Likelihood
Preparedness
Trajectory
Moderate-to-High Moderate-to-High Low-to-Moderate Flat
Risk Mitigation
● Establish a three- to five-year strategic plan that identifies major City goals
and activities (see Planning and Strategy section).
● Consider revisiting the mission and charter of committees to ensure they are
effectively providing support to City operations.
● Provide Council members and Commissioners trainings related to
governance roles and responsibilities.
● Revise the Council Policy Manual and Commissioner Policy Manual as
necessary to better reflect elected and appointed officials’ respective roles
and purview.
Residual Risk
Moderate
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Risk Areas: Risks associated with ongoing oversight; ethics and values; control environment; policy
management; risk management; accountability; performance management; coordination and communication;
and defined roles, responsibilities, and authorities.
Scope: Governance is a process of overseeing an organization’s management of risk and control processes
and is ultimately the responsibility of the City Council. Management is responsible for identifying and
managing risks.
City residents elect officials to provide community leadership and govern the administration of public
services. The City operates under a Council-City Manager form of government, directed by a five-
member City Council. Under this form of government, the City Council controls the administrative
services of the City through the City Manager in order to balance technical staff input with the
collective oversight of elected officials. Under the Council-City Manager form of government, neither
the City Council nor individual Council members can direct any subordinates of the City Manager.
Council elections take place every two years, with Council members serving staggered four-year
terms. The Council has established a Council policy manual to define bylaws and procedures related
to council operations in addition to Council-level policies.
Based on a sample of the last 10 regular City Council meetings, meetings ranged in length from 1
hour and 35 minutes to 9 hours and 40 minutes with an average length of 5 hours and 28 minutes.
Three meetings ended after 12 a.m. including one that ended at 4:25 a.m. This is indicative of a
governing body that is not in alignment with management. When public meetings extend late into the
night, public transparency can be compromised as most community members are unable or unwilling
to attend the full meeting given their other obligations. Extended meetings also impact the workloads
of City staff, who attend meetings in addition to regular duties, and elected officials, who may also be
employed in other capacities.
Meeting Date Duration Meeting Date Duration
9/15/2020 5 hours 6/2/2020 4 hours, 49
minutes
8/18/2020 9 hours, 40
minutes
5/19/2020 5 hours, 53
minutes
7/21/2020 6 hours, 50
minutes
5/5/2020 3 hours, 23
minutes
7/7/2020 5 hours, 8
minutes
4/21/2020 4 hours, 49
minutes
6/16/2020 7 hours, 33
minutes
4/7/2020 1 hour, 35
minutes
Staff and elected officials report potential role confusion related to directing operational matters. As
noted in the Planning and Strategy section, the Council sometimes operates at more of an
operational rather than strategic level, focusing on immediate action items and implementation details
rather than setting long-term strategic goals. This contributes to a reactive environment where staff
priorities can quickly change depending on the Council’s interests. Additionally, within the sampled
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meetings, Council members sometimes spoke on items that were not on the agenda, in violation of
the Brown Act. As noted below, survey respondents reported a variety of experiences and
perceptions of the City Council’s strategic direction for the City. The responses below indicate
opportunities for improvement to strengthen policy governance and prioritization of initiatives within
available resources.
Q: How would you rate the quality of the strategic direction for the City overall provided by City
Council?
The City has established one Board Committee (the Audit Committee) and multiple commissions to
assist and advise the Council and staff on community issues. The purpose and membership of each
commission is detailed in the table below.
Commission/
Committee Purpose
Number of
Members (#)
Audit Committee ● Reviews the annual audit report and management letter
● Recommends appointment of auditors
● Reviews the monthly Treasurer’s report
● Recommends a budget format
● Reviews City investment policies and internal controls
of such policies
4 to -5; 2 from
City Council
Bicycle Pedestrian
Commission
● Reviews, monitors, and makes recommendations
regarding City transportation matters including but not
limited to bicycle and pedestrian traffic, parking,
education, and recreation within Cupertino.
5
Fine Arts Commission ● Fosters, encourages, and assists in the realization,
preservation, and advancement of fine arts for the
benefit of the citizens of Cupertino.
5
Housing Commission ● Assists the Housing Division in developing housing
policies and strategies; recommends policies for
implementation and monitoring of affordable housing
projects; helps identify sources of funding for affordable
housing; and performs other advisory functions
authorized by the Council.
5
Library Commission ● Advises Council on the adequacy of library service
within the community and such other matters relating to
library service as specified by the City Council; and
serves as liaison between the City and the Santa Clara
County library system.
5
3% 27% 30% 24% 17%
Excellent Good Average Poor Terrible
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Commission/
Committee Purpose
Number of
Members (#)
Parks and Recreation
Commission
● Advises the City Council on municipal activities in
relation to parks and recreation, including park site
acquisition and development, recreation program
policy, and expansion of the park program as
development occurs.
5
Planning Commission ● Advises the Council on land use matters such as
specific and general plans, zonings, and subdivisions. 5
Public Safety
Commission
● Advises the Council on all areas relating to public
safety, traffic, and policy, fire, and other matters. 5
Sustainability
Commission
● Serves in an advisory capacity to the City Council and
provide expertise and guidance on major policy and
programmatic areas related to the environmental,
economic, and societal goals noted within Cupertino’s
Climate Action Plan (CAP) and General Plan (GP)
Environmental Resources/Sustainability Element.
5; including 1
from a
Cupertino-based
educational
institution and, 1
from a
Cupertino-based
business
Teen Commission ● Advises the City Council and staff on issues and
projects important to youth. 9
Technology, Information,
and Communication
Commission
● Advises the City Council on all matters relating to
telecommunications within the City of Cupertino,
including evaluating compliance with any agreement
between the City and a telecommunications provider
and conducting periodic reviews of providers, facilities,
and products.
● Provides support for community access television,
especially public and education access, and gives
guidance when needed for development and
implementation of access channels and programming.
5
These commissions offer an opportunity for residents to engage with and have an impact on their
local government. However, staff report that commissioners do not consistently have a good
understanding of their role in advising, rather than directing, the Council and City staff. The role of the
commissions could be better defined and articulated in the City’s Commissioner Handbook, which
may require revisions. Approximately half (47%) of survey respondents reported that the City’s
commissions and committees are either not effective at all or slightly effective. No respondents
reported that these governance structures were extremely effective.
Q: How would you rate the effectiveness of the commissions and committees currently in place at
the City?
6% 47% 33% 14%
Extremely effective Very effective Moderately effective Slightly effective Not effective at all
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Overall Risk Level
High
Impact
Likelihood
Preparedness
Trajectory
Moderate-to-High Moderate Low-to-Moderate Increasing
Risk Mitigation
● Update procurement policies and procedures to develop a comprehensive
set of citywide guidance for all employees involved in procurement
processes.
● Review the purchasing card program structure, including purchasing activity,
business needs by roles, and program oversight.
● Assess the City’s contract management processes for opportunities to
improve efficiency, streamline communication, and incorporate best practice
elements including equity and sustainability factors.
● Create vendor management procedures, including data entry definitions,
compliance checklists, templates for service level agreements, periodic
review processes, and triggers for removal.
● Review the City’s current procurement structure and evaluate opportunities
for potential centralization.
Residual Risk
Low-to-Moderate
Risk Areas: Risks associated with purchasing processes and contract administration for goods and services,
including cost-savings, efficiencies and effectiveness, transparency, adherence to laws and regulations,
monitoring costs and vendor payments, supply chain risks, and vendor performance and service delivery.
Scope: Procurement and contracting includes purchasing processes (e.g., purchase requisitions, due
diligence, approvals, purchase orders, receiving) and contract administration (e.g., compliance with terms and
conditions, payments, change orders) for goods and services.
In any public organization like the City, procurement processes are the means through which critical
and strategic services, supplies, and construction are purchased to support essential City functions.
The City’s procurement model is highly decentralized, with departments primarily responsible for
conducting and managing purchasing and contracting activity with support from the Finance division
and the City Attorney’s Office (CAO). Currently, most departments delegate responsibility for
procurement activities to their management analyst. A highly decentralized procurement model
requires that central leadership provide strategic direction, clear accountability, and consistent
guidance across procurement-related processes. To operate effectively and efficiently, this should
include having up-to-date comprehensive policies and procedures, regular training of staff involved in
purchasing, and transparency through reporting.
The City’s procurement policy document was last formally updated in 2013; however, the Finance
division drafted but did not finalize an updated version in 2018. When asked about policies and
procedures needed at the City, multiple staff noted the need for expanding the documentation around
the City’s credit card program and procurement practices.
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PURCHASING
Much of the purchasing activity within the City is conducted within the purchasing module of the City’s
enterprise resource planning (ERP) system, Logos. The City is also a participating member of the
California Purchase Card (CAL-Card) Program, in which employees are given credit cards that are
the equivalent of a petty cash fund with various dollar limits that can be used for work-related items.
Purchasing cards are intended to help expedite purchasing for urgent repairs and other items needed
immediately, but they also come with increased risks. The Finance division currently administers the
program and is responsible for ensuring only current employees have active cards. The division
introduced additional checks and balances within the last year, but staff reported the program as one
that the City should assess and review through the lens of internal controls.
Employees report limited training is available for purchasing-related activities (including CAL-Cards),
which currently consists of requiring staff to review the user agreement and the policy. For more
technical training on accessing accounts and reporting, the City may be able to leverage the CAL-
Cards provider for additional resources. The City does not have clear policy requirements or an
accountability mechanism to ensure that individuals in positions with purchasing-related
responsibilities attend both initial training and ongoing refresher courses. Therefore, credit card use,
including users and approvals of purchases, was noted as being not always clear for staff.
CONTRACTING
The City outsources many services, and staff are responsible for managing multiple types of
contracts. The CAO has developed standardized templates that staff can choose from to support
contracting activities. The City recently implemented the use of Cobblestone, an electronic contract
processing software and document repository that is intended to house all City contracts eventually.
The City’s IT team also developed a Bid Management application for publishing City RFPs and
providing capability for vendors to submit bids electronically.
Public procurement processes are complex, and regulation driven. Because the City outsources a
variety of functions and activities, both large and small, it is essential that procurement practices
adhere to public procurement code, well-defined City policies, and best practices. However, staff
report minimal oversight of the contracting process, and limited compliance checks to ensure public
procurement regulations are adhered to by staff. Staff have reportedly not initially chosen the correct
type of contract for a project, and multiple employees reported a lack of citywide contract
management guidance. Employees identified the need for more contract management specific
training, as well as a desire for more detailed guidance on the contracting processes.
Q: How would you rate the contracting process?
8% 38% 36% 18%
Excellent Good Average Poor Terrible
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Additionally, the City’s current procurement policy does not actively incorporate equity and
environmental factors into procurement processes, a growing area of best practice in public
procurement.
VENDOR MANAGEMENT
An effective risk management strategy for local government entities is to establish a process for
assessing and monitoring vendor performance and compliance. The City does not have a formal
vendor management program, although some vendor due diligence is conducted during the current
contracting process. Without comprehensive guidance to staff on how to manage contracts and
vendors, there can be inconsistency between different types of vendors or contracts. Ultimately, this
can result in inadequate contract management oversight, resulting in elevated costs for compromised
products or services.
Finally, a key element for vendor management is conducting a vendor risk assessment for major
vendors. The outcome of a vendor risk assessment should allow the City to rank vendors based on
their access to confidential or sensitive information, the criticality of the product/service they provide,
and the complexity of the product/service they provide. For top-tier vendors, the City’s procedures
should include a request to review the vendor’s disaster recovery and business continuity plans.
Overall Risk Level
Moderate-to-High
Impact
Likelihood
Preparedness
Trajectory
High Moderate-to-High Moderate Increasing
Risk Mitigation
● Develop a housing action to support additional affordable housing units and
retain the character of the community.
● Coordinate with regional partners to address homeless encampments and
dedicate resources to provide support services as necessary.
● Continue to evaluate the impact of COVID-19 on the community and City
revenues.
Residual Risk
Moderate-to-High
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Risk Area: Risks associated with events outside of an organization’s control.
Scope: External risks typically include economic trends, natural disasters, climate change, affordable
housing, political lobbying and legislative changes, and interagency relations.
The City experiences multiple external risk factors that are largely outside of its control. Examples
include natural disasters, climate change, and macroeconomic changes such as interest rates and
industry shifts. Organizations typically cannot influence the likelihood of these events. Mitigating these
risks requires a different approach from the other risk categories identified in this assessment. The
approach for mitigating external risk factors should include risk identification and subsequent scenario
analysis/testing to determine if the City has the necessary resources to mitigate the impact of an
external risk event.
LEGAL AND REGULATORY CHANGES
While the City is subject to many laws and regulations (see the Compliance and Financial Reporting
section of this report), mandates from the State often have significant impacts on the City. For
example, as a result of a housing shortage, California’s housing costs have been rising consistently
over the last few decades.
High housing costs make it difficult for many Californians to find housing that is affordable and meets
their needs. As part of State activities to address this issue, the proposed Regional Housing Needs
Assessment (RHNA) mandates that the City plan for 1,064 dwelling units between January 2014
through October 2022 period. Staff report that these requirements have provoked significant concerns
from community members about how the City will retain the character of the community and manage
the increased infrastructure needs to support these additional units. According to the California
Department of Housing and Community Development, only 308 out of the required 756 dwelling units
have been added to the City’s housing stock, the majority of which apply to moderate or above-
moderate income categories. Only 5% of the City’s allocation of the very low-income unit quota was
addressed, and no low-income units were added to the City’s housing stock. This demonstrates high
risk of noncompliance with State regulations and the Association of Bay Area Governments agreed-
upon housing need allocations. As noted in the Affordable Housing section below, the City reports
that it has approved developer projects that would add additional affordable housing units, but
developers have been slow to break ground.
Q: City risk from state and federal regulations
AFFORDABLE HOUSING
Aside from the challenges posed by RHNA, access to stable and affordable housing within the City
and the greater region is an increasingly difficult challenge. Data from the U.S. Census shows that
both owner and rental costs within the City are significantly higher than the surrounding County
11% 18% 28% 28% 16%
Low Low to Moderate Moderate Moderate to High High
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average and the U.S. national average. For example, the City’s median monthly rental costs (rent
plus cost of utilities) in the City is 41.3% higher than the County average and over twice as much as
the U.S. national average as shown in the table below. This lack of affordable housing increases risks
to the City relative to recruiting and retaining employees.
2018 HOUSING STATISTICS
Cupertino
Santa Clara
County U.S. Average
% diff. from
County
% diff from
U.S.
Value of owner-
occupied housing $1,584,600 $913,000 $204,900 73.6% 673.4%
Monthly owner costs
(with mortgage) $4,000+ $3,229 $1,558 -- --
Monthly owner costs
(without mortgage) $850 $755 $490 12.6% 73.5%
Gross rent – median $3,005 $2,126 $1,023 41.3% 193.7%
Source: U.S. Census Bureau, 2020
The City requires 15% of all new construction be affordable to households below 120% of the County
median income. The City contracts with West Valley Community Services to screen and place
qualified households in most of the city’s below market rate units, and the vendor also maintains a
waiting list due to a shortage of available units.
The City reports that it has rezoned and approved projects, but developers are not building due to the
perception that there is no longer a market for the high cost rental housing needed to make the
projects financially viable. Additionally, State housing bills take away the City’s ability to choose
projects that are right for the community and aligned with General Plan. In the employee survey, 52%
of respondents characterized the risk from insufficient affordable housing as a high risk to the City.
Q: Level of risk due to a lack of affordable housing
Insufficient levels of affordable housing across the State of California contributes to elevated levels of
homelessness. According to the last homeless census, Cupertino’s homeless population grew by
28%—from 127 to 159 people—between 2017 and 2019. The COVID-19 pandemic has resulted in a
growing number of unsheltered persons, with several visible encampments in the City appearing
since March 2020. In interviews and survey responses, City staff noted that the community expects
the City to act on submitted concerns related to homelessness and remove unsheltered people from
illegal encampments. Since both Police and Fire services are outsourced to the County, the only
traditional resource for addressing homelessness at the City is the Code Enforcement function. There
is concern that Code Enforcement lacks clear and consistent guidance on the roles, responsibilities,
and resources necessary to address different complaints, which may vary depending on the location,
4% 6% 15% 23% 52%
Low Low to Moderate Moderate Moderate to High High
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owner, or type of property. As levels of homelessness in the region continue to escalate, the City may
need to evaluate its homeless response and resource dedication.
Q: Level of risk from homelessness in the community
COVID-19 UNCERTAINTY
The COVID-19 pandemic has impacted the City community in new, unprecedented ways. For
example, many small businesses and restaurants in Cupertino have closed temporarily or potentially
permanently as a result of the State-mandated shelter-in-place and subsequent operating
requirements and restrictions. This has a significant impact on the Cupertino community and could
impact the City’s revenues going forward.
While the City has not yet been significantly impacted financially from the pandemic, reduced
revenues are likely due to significantly decreased tourism, events, new development, and business
activity in the community. Additionally, COVID-19 has required businesses, including Apple and the
City itself, to rely heavily on employees working remotely. If continued, this trend could reduce traffic,
housing prices, and commercial activity within City limits as employees that typically would live close
to their offices can reside elsewhere. In the employee survey, responses reflected the uncertainty
related to the COVID-19 pandemic’s impact on the organization.
Q: Level of risk from industry changes and major employers
GROUND TRAFFIC
The Bay Area consistently ranks on national worst traffic lists, and the congestion the City
experiences is reflective of this reality. Many people drive through the City of Cupertino in order to
commute between work and home in the Bay Area, making some main thoroughfares particularly
vulnerable to traffic congestion, especially those routes that help drivers avoid the highway. In 2019,
the City launched Via, an on-demand micro-transit system to all of Cupertino and beyond that
connects the City to regional rail service. This could mitigate traffic concerns; however, the COVID-19
pandemic temporarily shut down the service. The City’s Transportation Manager is actively involved
in regional traffic management, with a focus on implementing viable solutions. Despite the City’s
efforts, 53% of survey respondents reported risk levels from traffic and commuting as high or
moderate-to-high.
13% 27% 27% 18% 15%
Low Low to Moderate Moderate Moderate to High High
12% 14% 30% 24% 21%
Low Low to Moderate Moderate Moderate to High High
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Q: Level of risk from traffic and commuting
NATURAL DISASTERS
According to the City’s General Plan, the City coordinates its emergency planning efforts with federal,
state, and regional resources to ensure a consistent, integrated, and efficient approach to emergency
planning. The City employs an Emergency Manager who coordinates with the Santa Clara County
Sheriff’s Office and Fire Department to plan and react to emergencies.
The City is susceptible to various natural hazards including drought, earthquakes, extreme heat,
floods, wildfire, and other environmental shifts related to climate change. Due to Cupertino’s
geographical location, there are risks related to both urban and wildland fires. Three acres of the City
are in the High and Very High Fire Hazard Severity Zone, which was adopted as a Wildland-Urban
Interface Fire Area (WUIFA). Properties in a WUIFA are subject to additional standards intended to
manage community safety through availability of access roads and water. Research suggests that
wildfire prone regions can anticipate future extensions and increased severity of wildfire season,
including power line shut offs to decrease the risk of fires starting during certain weather conditions.
Additionally, Cupertino is in the seismically active Bay Area, which has several active fault lines
including the San Andreas fault, the Sargent-Berrocal, and Monta Vista-Shannon faults. Seismically
induced ground shaking, surface fault rupture, and various forms of earthquake-triggered ground
failure are anticipated within the City limits, which impacts property and public safety.
Finally, the City and Santa Clara Valley Water District are actively involved in programs to minimize
the risk of flooding in the city, including developing a flood management program for the flood plain of
Stevens Creek between Interstate 280 and Stevens Creek Boulevard. Structural improvement may
eventually be necessary to protect properties from a significant flood event.
CLIMATE CHANGE
Climate change is a complex issue that imposes multiple challenges on public agencies, which
include defining how climate change relates to existing scopes of work and how to develop a plan to
address climate change. While climate change itself is not a distinct hazard, the effects of it can
exacerbate hazards and risks. These include increasing average temperatures, more heat waves and
extreme heat days, more extreme weather, rising sea levels, worsening air pollutions, and more
vector-borne diseases. These changing conditions can have devastating effects on the regional
economy, urban infrastructure, public health, recreation, agriculture, and the environment. As noted
previously, given the city’s proximity to waterways, issues related to sea level change may be highly
impacted. Similarly, increasing levels of wildfires and hazardous smoke conditions present additional
risk to the community as dry conditions persist longer.
In 2015, the City developed a Climate Action Plan designed to reduce greenhouse gas emissions.
According to the 2018 Progress Report on the Climate Action Plan, the City successfully reduced
8% 14% 26% 32% 21%
Low Low to Moderate Moderate Moderate to High High
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greenhouse gas emissions by 24% below 2010 levels, achieving its 2020 goal ahead of schedule
despite an increase in people and jobs in the community. In September 2018, the City declared a
climate emergency that called on government agencies to initiate emergency mobilization efforts to
mitigate climate change. In the employee survey, nearly half (48%) of respondents noted climate
change as a high or moderate-to-high risk to the City.
Q: Level of risk from impacts of climate change
Overall Risk Level
Moderate-to-High
Impact
Likelihood
Preparedness
Trajectory
Moderate-to-High Moderate-to-High Moderate Increasing
Risk Mitigation
● Transition performance appraisals to an online platform and revise the
process to provide a meaningful experience to employees.
● Reevaluate the performance improvement plan process to promote employee
accountability at all levels.
● Develop succession plans for key positions.
Residual Risk
Low- to -Moderate
Risk Areas: Risks associated with labor management/contracts, employee performance, training,
compensation, benefits, turnover, grievances, overtime, resource availability, and communication.
Scope: Human capital and resource practices can span functions including hiring, orientation, training,
evaluating, counseling, career planning, compensation and benefits, and housing the policies that define an
organization’s expected levels of integrity, ethical behavior, and competence.
The Human Resources department at the City has 3.85 budgeted FTEs in the 2020-21 fiscal years.
The positions consist of an HR Manager, two HR Analysts, an HR Technician, and a part-time HR
Assistant. HR appears to be sufficiently staffed. However, recent COVID-19 related regulations have
significantly impacted the workload of HR staff, as laws, regulations, risks, and guidance constantly
14% 15%22% 23% 25%
Low Low to Moderate Moderate Moderate to High High
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fluctuated from the state and federal government. This experience demonstrated the need to increase
skills and staffing in the City’s benefits function. The City collaborates with two bargaining units that
represent 120 City employees; the remaining 70 employees are not represented. Overall, most
survey respondents (78%) reported HR customer service as excellent or good, indicating high levels
of satisfaction with the team.
Q: How would you rate the quality of internal customer service provided by staff in the HR
Department?
In FY 2020-2021, the City had 197.75 authorized positions in its budget. City staff report that
leadership planned to bring new position requests to City Council over the next 3 years, but these
were indefinitely postponed following the COVID-19 pandemic. Existing staff demographics tend to be
moderately reflective of the local community, which consists of a large population from Asian
countries. As of October 2020, two-thirds of staff were men and half of staff were white.
RECRUITING
Unlike other public agencies, the City appears to be able to recruit high-quality talent relatively easily
despite local traffic and high-cost conditions. The City does not have a civil service system, which
helps expedite the overall recruiting process; 86% of survey respondents reported that they receive
average, good, or excellent support during the City’s recruitment process. Additionally, almost two-
thirds (62%) of survey respondents reported that the City’s compensation and benefits
competitiveness was excellent or good. This suggests that the City’s pay scale may help recruit and
retain highly qualified candidate, which provides a cascading benefit to the community.
Q: How would you rate the City’s recruitment process and support?
40% 38% 17% 2%2%
Excellent Good Average Poor Terrible
14% 29% 43% 14%
Excellent Good Average Poor Terrible
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Q: How would you rate the competitiveness of the City’s compensation and benefits?
PERFORMANCE MANAGEMENT
The City currently conducts performance appraisals using a manual, paper-based Adobe system.
This presents challenges in creating a seamless performance management environment that
encompasses employee goals, trainings, and growth over time. Evaluations are conducted on a
rolling basis, rather than on a regular annual calendar, which can decrease the likelihood that all staff
receive appraisals on time. Currently, the content of performance appraisals is also standard for most
municipalities and may not provide a meaningful process for employees and supervisors to set goals
and support employee accountability and growth. Finally, there are no formal opportunities to provide
upstream or 360 evaluations, so management may not receive feedback from the staff that they
supervise. While many survey respondents reported the effectiveness of the performance evaluation
process was at least moderately effective (69%), almost a third rated the process as only slightly
effective or not effective at all. Additionally, 17% of survey respondents reported that they did not
receive constructive guidance from their manager or supervisor.
Q: How would you rate the effectiveness of the current performance evaluation/appraisal process?
Q: How would you rate any constructive guidance you have been provided on how to improve any
performance gaps (clear steps on what needs to be improved and what that improvement looks
like)?
Accountability is also a commonly cited performance management challenge at the City.
Approximately one-third of all respondents (35%) reported that non-supervisory staff are sometimes
or never held accountable for their actions. This perception was approximately the same for
management-level employees. One of the contributing factors to employee accountability is likely the
23% 39% 34% 5%
Excellent Good Average Poor Terrible
6% 21% 43% 19% 12%
Extremely effective Very effective Moderately effective Slightly effective Not effective at all
15% 29% 26% 8% 4%17%
Excellent Good Average Poor Terrible Not received
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process for placing an employee on a performance improvement plan, which was rated as poor or
terrible by almost half (44%) of survey respondents.
Q: How often are non-supervisory employees consistently held accountable for their actions?
Q: How often are management-level employees consistently held accountable for their actions?
Q: How would you rate the process for placing low-performing employees on a performance
improvement plan and take subsequent action if no improvements are made?
RETENTION
In general, the City has a strong track record of retaining employees. Within the past three years, the
City’s turnover rate for FTEs has ranged between 7% and 11%, which is well below the average
turnover rate for local government agencies, which typically falls between 19% and 20%. While some
variation exists between among specific departments and divisions, staff generally report that there is
a positive work environment at the City. This is reflected in the responses to survey questions about
the City efforts to establish a welcoming workplace culture.
Q: How well has the City established a welcoming workplace culture?
16% 39% 10% 32% 3%
Always Most of the time About half the time Sometimes Never
12% 46% 7% 22% 14%
Always Most of the time About half the time Sometimes Never
6% 50% 19% 25%
Excellent Good Average Poor Terrible
24% 43% 26% 5% 3%
Extremely well Very well Moderately well Slightly well Not well at all
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HR recently implemented its first citywide employee engagement initiative, which included an
employee survey and cross-functional work groups to develop action plans. This effort builds on the
City’s strength in creating a high-performing and welcoming workplace culture.
SUCCESSION PLANNING
In general, the public sector is experiencing significant challenges associated with an aging workforce
reaching retirement eligibility. As of October 2020, 42.6% of the FTEs at the City were eligible for
retirement in five years, based on the CalPERS requirement of five years in the California retirement
system and age 50 years. The table below presents the number and percentage of FTEs by
department who are eligible for retirement, which shows elevated risk among Public Works, the City
Manager’s Office, and department heads. Of those eligible employees, 48.8% are in operational or
technical positions; 16.7% are in professional positions; and 34.5% are in supervisory & management
positions.
5 14.9 33.6% 60% 20% 20%
7 16.85 41.5% 14% 43% 43%
11 27.49 40.0% 45% 36% 18%
3 11.93 25.1% 0% 33% 67%
11 30.9 35.6% 64% 0% 36%
44 89.15 49.4% 57% 11% 32%
3 6 50.0% 0% 0% 100%
Total 84 197.22 42.6% 49% 17% 35%
The City has not yet institutionalized succession planning efforts across departments. The HR
department has identified the need to perform additional collaborative work to ensure that there are
strong career paths and cross-training opportunities within all departments. However, without a
deliberate, institutionalized program for effective knowledge management and transfer, a significant
amount of institutional knowledge and technical expertise citywide is at increased risk of being lost.
When staff leave positions, it can create gaps in institutional knowledge, increase stress, and slow
operations. This is particularly true if several members of a team leave the organization within a close
timeframe or team members are not cross-trained. Staff departures also increases the risk of losing
institutional knowledge without strong document management practices in place.
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In order to support both succession planning and employee retention, the City developed a new
program called Building Employee Skills through Training (“BEST”) in the FY 2020-21 budget. In the
employee survey, most respondents (66%) reported that access to training and professional
development opportunities were either good or excellent. While training is a vital component to a
comprehensive succession planning initiative, it will not address all City needs.
Q: How would you rate your access to the training and professional development resources you
need to grow your career?
Overall Risk Level
Moderate-to-High
Impact
Likelihood
Preparedness
Trajectory
Moderate- to High Moderate Moderate-to-High Increasing
Risk Mitigation
● Continue to assess opportunities to connect systems and integrate data
flows.
● Continue to hold all departments accountable to following the IT governance
model.
● Pursue the action items and recommendations identified in the Cybersecurity
section.
● Connect with other local governments and agencies to increase collaboration
and resource-pooling related to cybersecurity best practices.
Residual Risk
Moderate
Risk Areas: Risks associated with the design, development, implementation, administration, operations, and
maintenance of information systems including change management and system development life cycle. Also
includes risks to infrastructure, system performance, data architecture and management, integration, back-up,
security, and controls.
Scope: The importance and pervasiveness of information technology and information systems continues to
rapidly expand, regardless of organization.
Cities rely heavily on hardware, software, and technology equipment to run their operations, and
technology has become part of the backbone of local government operations, as the integration of
28% 38% 21% 11% 2%
Excellent Good Average Poor Terrible
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systems evolves and reliance on technology continues to increase. The City’s Innovation and
Technology (IT) department consists of 12 full-time positions and three part-time positions. There are
three major teams within the department: Applications, GIS, and Infrastructure.
The Applications division supports the City’s enterprise applications like ERP, Land Management
System, Recreation System, Laserfiche, as well as the many e-services custom applications like bid
management, permit parking, business licenses, and the city’s mobile apps. The GIS Division builds
web applications for staff and the public to use as a tool in their daily workflows. The Infrastructure
team is responsible for the acquisition, maintenance, and support of all computer hardware necessary
for the City's network (server, storage, switch, security, appliance) and end user services (PC, tablet,
VoIP devices, smartphones).
Employees across the City consistently rated the IT department highly, and consistently highlighted
how the talented individuals who staff the department have been responsible for the IT-related
success stories, including the relatively smooth transition to remote work in response to the COVID-
19 pandemic.
Q: How would you rate the quality of the internal customer service provided to staff by the IT
support team?
IT GOVERNANCE
IT governance plays an important role in local governments to optimize technology purchases,
systems integration, and access to information to support decision making. The City has created the
Innovation & Technology Administration program, which is responsible for the strategic planning,
governance, and policy setting related to the use of digital services for the City.
Some staff report instances of departments not including the IT department early enough in the
procurement process when acquiring new systems or applications, resulting in increased risks to data
security, successful implementation, and other technical challenges. Additionally, staff report that
when IT is not sufficiently involved, the subject matter expert on the new system tends to reside within
a department. This practice can result in conflicting guidance or inefficient use of the system since
other employees may not be equipped with the appropriate skills or expertise to troubleshoot system
issues.
SYSTEMS AND HARDWARE
Employees report a high quality in the hardware and software systems currently in use at the City.
One of the needs employees identified related to IT was a desire for IT to continue to strengthen
system integration and data flow automation to reduce manual processes. According to information
gathered from interviews, surveys, and document review, the City does lack some key systems that
would increase efficiency and effectiveness. Examples of missing systems include a comprehensive
73% 22% 5%
Excellent Good Average Poor Terrible
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Human Resources Information System, Learning Management System, and performance
management system to automate performance evaluations.
Q: How would you rate the quality of the information technology hardware (computers, accessories,
etc.) that you currently have and use in your role?
Q: How would you rate the quality of the information technology systems (software, applications,
programs, etc.) that you currently have and use in your role?
CYBERSECURITY
Cybersecurity is a known area of high risk, though the City continues to focus on strengthening the IT
Disaster Recovery Plan and other contingency efforts. Because of the growing complexity of
cyberattacks, it will remain an imperative that the City continue to prioritize its cybersecurity resiliency
efforts, including employee training and collaboration with other local governmental agencies. Several
sources, including Interpol, have cited an increasing number of COVID-camouflaged domains,
campaigns, and misinformation initiatives as avenues for cyber-attacks. City leaders across the
country are increasingly being held accountable for protecting sensitive information and preventing
cybersecurity incidents. On October 1, 2020, the U.S. Department of the Treasury released new
guidance on the payment of ransomware that outlines various potential violations of federal law
should an entity choose to pay a cyber- attacker. In a rapidly changing environment, the City is
continually exposed to new and evolving risk areas.
Q: Have you received training focused on cybersecurity (best practices, resources, etc.) provided
by the City within the last year?
46% 36% 18%
Excellent Good Average Poor Terrible
43% 40% 14% 2%1%
Excellent Good Average Poor Terrible
81% 1% 16% 3%
Yes - online Yes - in-person Yes - both online and in-person No - no training on cybersecurity
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Q: Based on this training, how prepared do you feel to identify, report, or manage a cybersecurity
threat?
The City’s IT leadership completed a 45-question survey on the City’s cybersecurity practices, and
the following recommendations emerged from the results.
Develop, document, and implement an information security policy.
Develop, document, and implement an IT governance policy and process.
Develop, document, and implement a systems development life cycle policy that covers the
process of acquiring, developing, implementing, and retiring information systems through a
multistep process including ignition, analysis, design, implementation, maintenance, and
disposal. The policy should outline documentation procedures, roles and responsibilities, and
security considerations.
Establish an information security incident management plan to help provide guidance and
protocol during a possible security breach or incident, with an incident response team that
has members with clearly defined roles and responsibilities.
Formally document change control procedures for changes to applications and hardware that
includes a process for inception, documentation, testing, and approval.
Assigned users unique IDs to access all key systems and applications
Conduct an audit of remote vendor access to the City’s systems.
30% 60% 8% 2%
Extremely prepared Very prepared Moderately prepared Slightly prepared Not prepared at all
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Periodically review the City’s use of secure protocols, such as SFTP or HTTPS, when
transmitting data both within and outside the City’s security perimeter.
Install fire suppression system in the City’s server room(s).
Conduct vulnerability assessment scans of internal and external systems and analyze the
results for weaknesses and false positives on at least a quarterly basis.
Perform penetration testing against all publicly available services and IP addresses on at
least a semiannual basis to identify emerging vulnerabilities and critical risk areas.
For third-party vendors used for IT support functions, request vendors provide a third-party
attestation report, such as an SSAE 16 or SSAE 18 SOC audit report, and thoroughly review.
Overall Risk Level
Moderate-to-High
Impact
Likelihood
Preparedness
Trajectory
Moderate-to-High Moderate-to-High Low-to-Moderate Flat
Risk Mitigation
● Establish a three- to five-year strategic plan that identifies major City goals
and activities.
● Implement a performance measurement strategy that is aligned with the
City’s strategic plan.
● Use the strategic plan priorities to establish annual operating plans for each
department.
● Leverage the strategic plan as a decision-making and prioritization tool as
new opportunities arise.
Residual Risk
Low
Risk Areas: Risks associated with how the organization plans for operations, strategy, and the future,
including both short-term and long-range planning.
Scope: A comprehensive planning framework builds upon the strategic goals, and dives into the next layer of
planning, which looks at the strategic objectives for not only the enterprise, but sets objectives for the
departments, divisions, programs, and individual roles.
The City has defined mission and vision statements, in addition to several other planning-related
documents such as the budget, work programs, innovative technology plan, and the general plan.
The mission of the City of Cupertino is to provide exceptional service, encourage all members of the
community to take responsibility for one another, and support the values of education, innovation, and
collaboration. The City’s vision is “Cupertino aspires to be a balanced community with quiet and
attractive residential neighborhoods; exemplary parks and schools; accessible open space areas,
hillsides and creeks; and a vibrant mixed-use ‘Heart of the City.’ Cupertino will be safe, friendly,
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healthy, connected, walkable, bikeable, and inclusive for all residents and workers, with ample places
and opportunities for people to interact, recreate, innovate, and collaborate.”
On an annual basis, the City establishes Council goals and subsequently develops a work program
that supports those goals. The work programs are highly detailed accounts of projects, next steps,
timelines, budget, staff hours, and department leads. This level of detail supports City staff, but it is
not industry standard for plans of this detailed nature to be approved by City Council. Because the
plans are developed annually, projects can be reprioritized over time as Council priorities shift and
hinder progress toward overarching objectives. These shifts also impact the City’s ability to develop
and adhere to long-range financial plans that would benefit the City and protect it from significant
economic fluctuations. Additionally, these plans are developed by City staff and approved by Council,
which does not provide other community members with the opportunity to formally engage in City
planning processes. In the survey, only 35% of employees reported that the City does an excellent or
very well job in soliciting input from stakeholders, including the community and front-line staff, during
planning processes. Without enough stakeholder engagement, there can be a lack of buy-in, unclear
direction, and shifting priorities that do not align with community desires.
Q: How well does the City solicit input from all impacted stakeholders (employees, community
members, etc.) during planning activities?
Despite the development of highly detailed annual work programs, the City lacks a strategic plan that
would clarify the direction of the City. Without the continuity provided by a high-level plan to guide
decision- making over a multi-year period, there is a risk that work can become diluted, priorities can
be unclear or change, and staff can be left to work in a highly reactive (rather than proactive)
environment as they attempt to respond to multiple new and uncoordinated requests from the City
Council or commissions. In the absence of an overarching strategic plan to outline City goals and
objectives, departments have sometimes developed individualized strategic plans and report a lack of
interconnectedness between functions. The reactiveness inherent in the City’s detailed planning
environment was reflected in staff survey responses, in which only 35% of respondents reported that
the City made excellent or good use of its strategic planning to guide decisions and activities.
Q: How effective would you rate the City’s use of its strategic plan in terms of guiding City
decisions and activities?
8% 27% 31% 20% 7%
Extremely well Very well Moderately well Slightly well Not well at all
9% 26% 39% 20% 7%
Excellent Good Average Poor Terrible
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Additionally, without a strategic plan and associated goals, it is extremely challenging to implement
successful performance measurement to track the City’s progress over time. The City has not
adopted outcomes-based performance measures that would enable Council and City staff to evaluate
their activities and whether they are having their intended impact. Within the budget document, each
department reports on performance measures annually; however, these performance measures do
not necessarily tie to larger, strategic City goals that would better communicate the impact of City
government on the community.
Overall Risk Level
Moderate to High
Impact
Likelihood
Preparedness
Trajectory
Moderate to High Moderate to High Moderate Flat
Risk Mitigation
● Develop a policy framework to help distinguish what needs Council approval
versus administrative policies and procedures
● Inventory, review, and prioritize revisions to outdated policies and procedures
● Institutionalize a simple and ongoing review and update process for all City
policies and procedures.
● Undertake an effort to review and update the Municipal Code to meet modern
operating needs
Residual Risk
Low to Moderate
Risk Areas: Risks associated with policies, processes, and procedures, including efficiency, effectiveness,
and level of documentation.
Scope: Policies and procedures play a critical role in providing the guidance required to ensure all functions
operate efficiently, effectively, safely, and consistently across the organization. A policy establishes what
should be done, and procedures effect the policy. Policies and procedures also play an important role in
protecting against the loss of institutional knowledge.
The City lacks comprehensive policies and procedures in multiple areas across the City, including
procurement, contract management, ethics, and operational policies. For example, departments
including Economic Development, Community Development, Parks and Recreation, and Public
Works noted that operational policies are not comprehensive and/or have not been updated in
several years. In both interviews and survey responses, City staff identified the need to update
policies and procedures from both operational and compliance perspectives, as well as ensure they
reside at the appropriate level (i.e. Council, City Manager, or Department) and encompass users
outside of the policy owner departments. Critically, the City has not yet defined what policies would go
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to Council versus the City Manager for approval, which may also contribute to challenges in defining
governance roles and responsibilities.
Policies and procedures help ensure that management directives to mitigate risks are carried out
consistently at all levels of the organization and at various stages within different business processes
(such as procurement). Overall, staff reported weaknesses in policies and procedures at both the
citywide and departmental level.
Q: How would you rate the quality of the documented operational policies and procedures at the
City overall?
Q: How would you rate the quality of the documented operational policies and procedures for your
department?
The City does not currently follow a standard review process for all policies and procedures, so they
are currently updated on an ad hoc basis. As a result, some policies have not been updated recently;
notably, the Administrative Rules and Regulations of the Personnel Code has not been updated since
2013. Conversely, the City’s financial policies appear to have all been updated in the last two years.
According to best practice, the City should review policies and procedures every one to three years.
Outdated policies and procedures can contribute to reduced efficiency and effectiveness, as well as
communication and accountability challenges. In the absence of up-to-date documented policies, staff
rely on historical practices and verbal directions which requires significant institutional knowledge to
perform and could be inconsistent with management expectations over time. Given the City’s high
proportion of employees nearing retirement, document policies and procedures are critical to
supporting operational continuity as employees leave City employment.
A key component to effectively adopted, updated policies and procedures is ensuring that they are
communicated and accessible to staff. Currently, documentation is intended to be stored on the
internal network drive, although departments report inconsistent storage practices. In some cases,
policies and procedures may be stored on individual hard drives, particularly if they are older. Policies
and procedures should be stored centrally in a searchable format; when new versions are published,
alerts should be communicated, and training should be provided.
6% 37% 43% 14% 1%
Excellent Good Average Poor Terrible
10% 36% 40% 13% 2%
Excellent Good Average Poor Terrible
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Overall Risk Level
Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate-to-High Moderate Low-to-Moderate Decreasing
Risk Mitigation
● Continue to develop a 5- to 10- year long-term Capital Improvement Program
(CIP) plan and budget.
● Conduct a capital project process and program assessment to identify
opportunities to strengthen project oversight and project management.
● Develop a standardized and transparent process to prioritize CIP projects.
● Define and document cross-departmental roles and responsibilities related to
capital projects.
Residual Risk
Low to Moderate
Risk Area: Risks associated with capital improvement program, including planning, financing, construction,
close-out, and capital asset management (including preservation and maintenance), tracking, reporting,
accountability, and inventory.
Scope: In construction, issues of risk are closely tied to schedule, site unknowns, and budget issues. In
addition, construction contracts must be monitored to ensure full compliance with equal employment
opportunity, discrimination, prevailing wage, and fair labor standards laws.
The Capital Improvement Program (CIP) is managed by the CIP Administration group with the City’s
Public Works department, which includes a budgeted staff of 6.20 FTE. The CIP is documented in the
City’s annual plan to provides design and construction administration for all capital improvement
projects. The CIP organizes the projects into five categories: Parks, Buildings, Streets, Traffic
Facilities, and Storm Drainage. The City listed 29 active capital projects in August 2020 across seven
different project phases.
The CIP Program Manager departed the City in early September 2020, in addition to at least one
other staff in the group. The departure of staff in the CIP group presents an opportunity for the City to
re-evaluate the staffing, processes, culture, and performance expectations of the group. The City has
filled two positions since September, including the acting program manager. Employees reported that
the turnover has positioned the City to strengthen the CIP program overall, and is expected to result
in improved relationships with other departments and achievement of the program’s objectives.
Each fiscal year, the CIP is funded by the capital reserve and/or restricted grant and donation
proceeds. The five-year budget denotes funding sources and a description of each project. The City
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Council approves funding of capital improvements on a total project basis but allocates the funding
annually. Funding into the CIP from the capital reserves is capped at approximately $1.5 million
annually. The adopted budget for the Capital Projects Funds for FY 2020-21 is $2.2 million, primarily
due to a reduction in capital project spending resulting from the COVID-19 pandemic and its
unprecedented uncertainty.
Many of the current CIP projects have been identified as priorities in the City’s adopted master plans,
such as the Bicycle Transportation Plan or the Pedestrian Master Plan. However, the CIP funding
process is relatively short-term and prone to change year-over-year, as there is no long-term CIP
plan, although project funding is approved in the first year for multi-year projects. The City does not
currently have a long-term CIP plan, though the City has begun preliminary work on a 10-year plan.
Likely as a result, the pipeline of planned capital projects changes year-over-year, despite
approximately $400 million in unfunded CIP projects already identified. The City’s process for
prioritizing and selecting projects is not standardized and transparent across the CIP projects. Short-
term planning for capital improvement projects can increase risks of higher long-term costs and pose
a threat to health and safety. Many employees reported concerns about the safety of City Hall and the
continued deferral by Council of the City Hall project by the Council in favor of other CIP projects. T;
the building has become a growing potential liability to the City.
Finally, staff that coordinate with the CIP group on design elements of projects sometimes reported
confusion related to their role, responsibility, and hand-off point. Without clarity of everyone’s role and
purview on each project, employees may experience accountability confusion and create
inefficiencies in the CIP process.
Q: How would you rate the processes the City uses to identify and prioritize capital improvement
projects?
2% 20% 54% 24%
Excellent Good Average Poor Terrible
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Overall Risk Level
Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Low-to-Moderate Moderate Increasing
Risk Mitigation
● Develop a process to manage grant funding to ensure compliance with
tracking, reporting, and monitoring requirements.
● Assess the organizational structure related to the City’s management
analysts.
● Conduct an Americans with Disabilities Act (ADA) self-evaluation consistent
with the 1991 federal requirements and track the resulting action -items.
Residual Risk
Low-to-Moderate
Risk Area: Risks associated with compliance with laws, regulations, and requirements. Also, risks associated
with financial reporting (content, distribution, assembly, utilization, frequency, formatting, accuracy, and
reliability).
Scope: Risks organizations face when they are unable to follow internal policies, government laws and
regulations, which may be subjected to legal penalties and financial fines. Financial reporting includes
deliverables such audited annual financial statements. Reliable financial information is fundamental to
planning, budgeting, pricing, evaluating vendor performance, assessing partnerships, and a range of other
operational and strategic activities.
Proactive compliance is characterized by employees being aware of requirements and actively
operating to comply with them. Performed effectively, proactive compliance prevents issues from
occurring before they become problematic. Reactive compliance involves ongoing monitoring, testing,
and reporting. Overall, about half of employees felt that noncompliance issues were extremely or
somewhat unlikely. Approximately the same amount reported that the quality of training/resources
provided to stay abreast of compliance concerns was excellent or good.
Q: What are the chances that the City will experience any issue with compliance (late or missed
reporting; noncompliance with safety requirements; breach of sensitive data, etc.) in the next year?
14% 33% 42% 12%
Extremely unlikely Somewhat unlikely Uncertain Somewhat likely Extremely likely
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Q: How would you rate the quality of resources/training provided at the City about how to remain in
compliance with laws, regulations, and requirements?
FINANCIAL REPORTING
Timely and accurate financial reporting for management decision-making is a key component for
efficient and effective operations. Some employees report that in certain departments, financial
information may only be available through specific employees, adding to the time it may take to get
needed data. Others note that sometimes, reports out of the system are not intuitive for newer or
more infrequent employees or infrequent users of the reports, suggesting that some departments may
benefit from additional training. Overall, employees rated the timeliness of financial information as
excellent (20%) or good (40%).
Q: How would you rate the timeliness of the financial information you receive (e.g. reports,
response time to requests, etc.)?
ADA COMPLIANCE
Employees report that there are numerous facilities they suspect or know that are non-compliant with
their obligations under the Americans with Disabilities Act (ADA). The City last published its ADA self-
evaluation and transition plan in April 2015 and ADA-compliance elements have been identified as
part of other City projects. However, the City does not have a formal effort to track and identify ADA
compliance action plans. It is imperative that once the City has identified an item of non-compliance,
that a subsequent actionable improvement plans is also created. Identifying a problem without an
action plan can lead to further compliance problems. While the City has funding identified for ADA
projects in the CIP budget, prioritization of projects in general has been a challenge, as noted in more
detail in the Capital Improvement Program section.
In 2017, the Ninth Circuit Court of Appeals issued a decision reversing the trial court’s decision of the
Kirola v. City and County of San Francisco, which alleged ADA violations in City facilities, and allowed
the plaintiff to proceed with some claims that the City’s facilities were in violation of the ADA. In the
first year of the lawsuit alone (fiscal year 2020-2011), the City and County of San Francisco paid
$2,285,000 for litigation expenses related to this lawsuit. The decision revealed that even seemingly
minor access barriers in a government facility may serve as the basis for a class action lawsuit
against the City. The U.S. Department of Justice (DOJ) has recently encouraged local government
agencies to conduct a new self-evaluation like the one required by the 1991 federal law. We
10% 38% 36% 14% 2%
Excellent Good Average Poor Does not exist
20% 40% 35% 5%
Excellent Good Average Poor Terrible
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recommend the City take this proactive action to help mitigate and reduce the risk of possible ADA
violations.
GRANT FUNDING
Several employees expressed concerns over grants management, specifically federal grant reporting.
While the volume of dollars coming from federal grants is relatively low, it is critical to maintain
compliance with federal reporting requirements. The City does not currently have a standardized
approach in place to monitor grants and relevant compliance.
As the City continues to explore alternative revenue sources as a result of the pandemic, there will
likely be grant funding opportunities that may be relevant for the City. Pursuing grants will require the
City to first assess and determine how to best approach both grant writing—a specialized skill—and
grant administration.
To help mitigate the impacts of the COVID-19 pandemic on the small businesses in Cupertino, the
City established the Small Business Emergency Relief Grant Program to offer one-time emergency
relief grants of $5,000 to eligible small businesses. The City is utilizing its allocated Coronavirus Aid,
Relief and Economic Security Act (CARES) Act Community Development Block Grant funding
(CDBG-CV) to provide these grants. The Enterprise Foundation, a 501c3 organization, is the City’s
partner to administer this grant program.
Q: How would you rate the quality of systems used to track and monitor grants for compliance
purposes?
REQUIREMENTS FOR AFFORDABLE HOUSING
Across the State of California, moderate-income households struggle to afford rent and mortgages.
The COVID-19 pandemic has further exacerbated this issue. Since Cupertino is in the heart of Silicon
Valley, its community members feel a particular impact on the shortage of affordable housing, as
noted in the External Environment section of this Risk Assessment. In September 2020, California’s
Governor signed a package of housing bills designed to increase affordable opportunities for renters
and homeowners, including incentives for developers to increase the number of affordable housing
units built in the state.
However, state laws are designed to incentivize increased density, while single-family housing
currently characterizes most of Cupertino. In 2018, the Friends of Better Cupertino filed a lawsuit to
stop a development project approved by City staff that would contribute 1,201 affordable housing
units to the community and was approved by City staff. The project was ultimately approved by the
Santa Clara Superior Court and allowed to progress forward in accordance with previous City
approval. State housing officials have put the City on notice, stating that it may be on the verge of
violating State law around regional housing requirements if the City’s housing plan faces further
hindrances or developers do not move forward with construction on projects. This additional scrutiny
7% 20% 40% 13% 20%
Excellent Good Average Poor Does not exist
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applied by the State, in conjunction with escalating State regulations to support increased affordable
housing, places the City at risk of noncompliance with State requirements and potentially community
goals. Ultimately, this can result in loss of funding from state and federal housing programs.
As noted in the External Environment section, State requirements, community desires, and developer
schedules are outside of the City’s control. However, affordable housing shortages present risk to the
City from both a compliance and community characteristic perspective.
Overall Risk Level
Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate-to-High Low-to-Moderate Low-to-Moderate Flat
Risk Mitigation
● Develop and implement a comprehensive fraud, waste, and abuse program.
● Implement an anonymous whistleblower hotline and standardized complaint
management processes.
● Develop and schedule fraud, waste, and abuse training to all City employees,
including mechanisms in place to protect employees from retaliation.
Residual Risk
Low-to-Moderate
Risk Areas: Risks associated with misappropriation of funds, extravagant spending, using one’s position to
accomplish a specific outcome, the intent to deceive, or behavior that is not aligned with the organization’s
ethical values and policies.
Scope: The employees of the organization have a duty to use funds economically, efficiently, effectively, and
ethically. When employees do not honor this obligation, it could result in instances of fraud, waste, abuse, or
unethical behavior.
All City employees share the common purpose of serving the public in an ethical and transparent
manner. When City employees do not fulfill this purpose, it could result in instances of fraud, waste,
or abuse. Fraud, waste, and abuse are defined as:
Fraud: A dishonest and deliberate course of action that results in obtaining money, property,
or an advantage to which employees or an official committing the action would not normally
be entitled.
Waste: The needless, careless, or extravagant expenditure of funds, incurring of
unnecessary expenses, or mismanagement of resources or property.
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Abuse: The intentional, wrongful, or improper use or destruction of resources, or highly
improper practices that does not involve prosecutable fraud.
In 2018, the City discovered a 14-year embezzlement that took place between 2000 to 2014 and
resulted in a loss of $791,494. In response, the City contracted with an independent, third party to
conduct an internal control review. As discussed in the Internal Controls section of this report, the
review assessed the City’s fixed assets, human resources and payroll, order to cash, procure to pay,
and treasury management processes. The City has implemented additional controls for high-risk
areas and is in the process of evaluating additional recommendations to strengthen controls overall,
resulting in an improved internal controls environment. However, the City has not implemented a
robust fraud, waste, and abuse program to educate employees on potential red flags or a
whistleblower hotline to report allegations of wrongdoing that could detect issues sooner.
The City’s Administrative Rules and Regulations of the Personnel Code include some elements
inherent in a comprehensive fraud, waste, and abuse program such as employee protection from
retaliation when reporting concerns in good faith. The Administrative Rules and Regulations of the
Personnel Code also includes a section related to complaint procedures; however, this requires
employees to report the incident to their supervisor, Department Head, or HR Director, which does
not allow for anonymous reporting and may deter some employees from reporting concerns.
However, despite an incomplete fraud, waste, and abuse program, over half (65%) of survey
respondents reported that they knew what action(s) to take if they became aware of unethical or
fraudulent behavior.
Q: Do you know what action(s) to take if you were to become aware of unethical or fraudulent
behavior?
Overall, City employees appear to hold the perception that another instance of fraud, waste, or abuse
at the City is relatively unlikely. However, only 30% of respondents reported that they would definitely
be protected in the event that they reported suspicious or concerning behaviors. When employees do
not feel fully secure in reporting concerns, they may choose to ignore these behaviors, which can
enable and perpetuate inappropriate behaviors and activities in the organization. Multiple survey
respondents noted that the City has had at least one experience where there was a perception of
retaliation for reporting wrongdoing, which may also deter employees from coming forward with
concerns.
65% 29% 6%
Yes - I know what I would do Maybe - I would have to research a bit No, not really sure
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Q: what are the chances that an incident of fraud, waste, or abuse would likely occur at the City
within the next year?
Q: What are the chances that you would be protected from retaliation if you reported wrongdoing?
Finally, just under half (42%) of survey respondents reported that they have not received ethics or
fraud, waste, and abuse training in the last two years. Training is imperative to a robust ethics and
fraud, waste, and abuse program by reinforcing the City’s values, describing suspicious activity, and
providing information on the organization’s reporting environment (i.e., how to report concerns,
complainant protections, complaint responses).
Q: Have you received training focused on ethics or fraud, waste, and abuse prevention provided by
the City within approximately the last two years?
16% 53%28% 4%
Definitely will not Probably will not Might or might not Probably will Definitely will
29% 41% 20% 6% 3%
Definitely would be protected Probably would be protected Might or might not be protected
Probably not protected Definitely not protected
23% 22% 14% 42%
Yes - online (e.g., webinar, class)Yes, in-person (e.g., training session/clasS)Yes-both online and in-person No - no training
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Overall Risk Level
Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Low-to-Moderate High Increasing
Risk Mitigation
● Continue to proactively plan and address California Public Employee’s
Retirement System (CalPERS) obligations.
● Expand the current economic development-related performance measures to
track and assess outcomes of the City’s efforts over time.
Residual Risk
Low-to-Moderate
Risk Areas: Risks associated with revenue sources, funding levels, cash management, liquidity, expenditure
rates and commitments, debt management, and inter-organizational business.
Scope: The funding and economics factors that impact the organization’s ability to maintain operations and
deliver programs and services. Whether within the organization’s realm of influence (or outside of their
control), the funding and economic factors impact the organization’s long-term fiscal stability as well as its
ability to mitigate the negative impacts of extraordinary risk such as regional changes and national economic
volatility.
Revenue growth in the City is primarily driven by sales, property, and transient occupancy taxes.
Because Cupertino is a mature, 93% built-out city, the City primarily focuses on business retention
and revitalization. Supported by the stability of tech-giants like Apple, Inc. and Seagate Technologies,
the City’s economic development activities have focused on creating an environment for start-ups and
growing companies. The Economic Development program resides within the City Manager’s
department and relocated from the Community Development department in FY 2018-19. The
program currently consists of one full-time employee, who is responsible for providing support and
assistance to local businesses, conducting community outreach, and collaborating with City
employees on projects.
The City relies heavily on revenues from the Apple Campus to fuel sales tax, property taxes, and
business travel. Apple either owns or leases approximately 25% of commercial properties within the
City. The top 25 sales tax producers in the City included both Apple and Seagate Technology, and
then was followed largely by retailers and restaurants. However, as a result of the COVID-19
pandemic, small businesses within the community have suffered and closed temporarily or
permanently.
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The City develops medium-term (5-year) and long-term (20-year) forecasts as part of the budget
process and has a long-range financial plan (LRFP) established. The City’s budget includes a
contingency budget that covers maintenance and operational funding for Public Works, as well as
contingency funds for disaster response. However, given the unprecedented levels of uncertainty
stemming from the COVID-19 pandemic, the City may need to re-evaluate its revenues more
regularly. There are several strategies identified in the FY 2020-21 adopted budget aimed at
balancing the City’s budget over the next five to 20 years.
The City currently anticipates the pandemic will result in at least a two-year recession and
subsequent declines in revenue. As a result, the City’s focus for the coming fiscal year is on reducing
expenditures to offset declining revenues. The City prioritized creating fiscal reserves in recent years,
and therefore has the resources to mitigate the short-term looming risks of declining revenues. The
City’s Economic Uncertainty Reserve reached $19 million at the start of fiscal year 2021, representing
approximately 24% of the city’s general fund, and serves as a potential source of mitigating any
shortfalls in future fiscal years.
RESERVE FY 2021 RESERVE LEVEL DESCRIPTION
Economic
Uncertainty $19,000,000 For economic downturns and major revenue
changes. Represents two months of general fund
expenditures plus a two-year 13% drop in total
general fund revenue.
PERS $12,000,000 For pension cost increases
Sustainability $123,397 For future sustainability projects/programs
Unassigned $500,000 1% of general fund operating budget, for mid-year
budget adjustments and redeployment into the
five-year budget
Capital
Improvement $5,000,000 Set aside for future capital projects, calculated
based on the average dollars spent for capital
projects in the last three fiscal years.
Source: City of Cupertino Fiscal Year 2020-2021 Adopted Budget
The City’s proactive responses thus far to the economic impact of COVID-19 included delaying the
planned increase in certain fees, reducing departmental operational budgets, and furloughing some
staff. Additionally, the City’s unassigned fund balance remains healthy, and is expected to be able to
assist in addressing funding gaps as needed. A risk associated with the reduction in revenue is that
the City may need to adjust levels of service accordingly. While reserves are helpful in the short-term,
there are many unknown variables related to how the pandemic will impact the future of local
government revenues and communities. City staff report that levels of service provided to the
community are high and therefore may require ongoing adjustments depending on the City’s
incoming revenues (see Operations and& Service Delivery section for more detail).
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Q: As of mid-September, how much has COVID-19 negatively impacted your department’s operating
budget?
The City has also identified its Section 115 Pension Trust ($12 million) as a potential source to
mitigate any increases to California Public Employee’s Retirement System’s (CalPERS) annual
required contribution rate or further reductions in the discount rate as set by CalPERS.
RETIREMENT BENEFITS
Cupertino provides retirement benefits for its employees through the California Public Employee’s
Retirement System (CalPERS). In mid-2018, the City implemented a Pension Rate Stabilization
Program (PRSP), a Section 115 Trust intended to stabilize pension rate volatility from year to year. A
Section 115 Trust is an investment tool that allows the City to pre-fund pension and retiree health
costs. The City elected to use a more conservative discount rate than CalPERS and allocates more
towards pension funding each year than is required by CalPERS. Given this strategy and the $12
million currently set aside for pension funding, the City is in a strong position to withstand the effects
of pension cost increases.
Overall Risk Level
Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Moderate Moderate Flat
Risk Mitigation
● Continue to strengthen internal controls through regular reviews and
assessment of key programs and processes.
● Develop a mechanism to track and report on recommendations and action
plans that emerge from internal audit and other assessment projects.
Residual Risk
Low-to-Moderate
5% 26% 33% 26% 12%
None at all A little A moderate amount A lot A great deal
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Risk Areas: Risks associated with preventive controls (e.g., tone at the top, policies and procedures,
passwords), detective controls (e.g., segregation of duties, reconciliations, variance reports), and corrective
controls (e.g., changes to policies and procedures, training, and loss of privileges).
Scope: Control activities are the processes and procedures that help ensure that management’s risk
responses are carried out; they are not performed simply for their own sake or because it seems to be the
“right” or “proper” thing to do. Control activities occur throughout the organization, at all levels and in all
functions. They include a range of activities as diverse as approvals, authorizations, verifications,
reconciliations, reviews of operating performance, security of assets, and segregation of duties.
The City’s internal control environment represents the processes designed to provide reasonable
assurance about the reliability of financial reporting, the efficiency and effectiveness of operations,
and compliance with applicable laws and regulations. Internal controls also safeguard the City’s
assets from unauthorized acquisition, use, or disposition. Audit Committee members highlighted the
following functions as desired areas of continued internal control focus based on historical events at
the City:
Cash reconciliation
Vendor approval process
Prior period adjustments
In early 2019, the City conducted an internal control review of its fixed assets, human resources and
payroll, order to cash, procure to pay, and treasury management processes. Many of the
recommendations from the report were noted as in-progress at the time of the internal control review
report’s publication. The City has addressed recommendations pertaining to high-risk areas and
continues to evaluate additional opportunities to strengthen internal controls, though the City has not
yet completed a follow-up to validate the completion of action items committed to in the report. For
example, the City created an Audit Committee and established an internal audit function. Additionally,
internal control matrices are used in order to support the transparency and adequacy of segregation
of duties. In line with best practice, the Finance Manager reviews system access requests to add or
change roles within the City’s ERP, including when new employees are added. The Finance Manager
also reviews with the IT team any updates made to the City’s Active Directory. The Finance Manager
meets with the IT team on a quarterly basis to cross-validate the emails and review the system
access logs. In order to communicate these improvements to the Audit Committee and Cupertino
community, updates on the recommendations included in the internal control review should be
validated and made available on the City’s website.
Cash handling and revenue collection is one area of concern for the City, as employees will continue
to need to be trained on the City’s policies and procedures. The Parks and Recreation department
employs a significant number of part-time employees who are teenagers, so the inherent risk will
always be elevated due to the high-turnover and the lower level of experience in these part-time
seasonal employees.
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Q: How would you rate the City’s overall internal controls environment, including checks and
balances, preventative and detective measures, testing/evaluating internal controls, and monitoring
effectiveness of controls?
Overall Risk Level
Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Moderate Moderate Flat
Risk Mitigation
● Evaluate service levels as needed according resulting from COVID-19
impacts on City revenues.
● Conduct programmatic reviews of Senior Center services, sports venue
management, business license issuance, and other key programs to identify
potential redundancies and efficiencies.
Residual Risk
Low
Risk Areas: Risks associated with community expectations, level of service commitments, scheduling,
program/service delivery, sustainability, quality, process efficiencies, and resource allocation.
Scope: Day-to-day operations across the organization, and efficient and effective delivery of the
organization’s programs and services in alignment with goals, vision, and mission.
At the most fundamental level, the City’s mission is to direct the efficient and effective delivery of
municipal services. The City provides a full range of services to residents, including:
Community Development (planning, building permits and plans, code enforcement)
Finance (billing and payment processing)
Public Works (infrastructure and streets maintenance)
Recreation and senior services
Public information
9% 44% 37% 9%
Excellent Good Average Poor Terrible
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City staff report high levels of service expectations by the community and a constant drive to meet
service demands. Most survey respondents (87%) reported that the City’s overall ability to deliver
core services to the public in an effective manner was excellent or good. As noted previously, over
time, City revenues may be impacted by COVID-19 and existing service levels should be evaluated
accordingly.
Q: How would you rate the City’s overall ability to deliver core services to the public in an effective
manner?
Amidst the COVID-19 pandemic, some City services were required to transition in order to continue
serving the community. Notably, Recreation Services transitioned its programming from in-person to
virtual and saw increased participation from residents, demonstrating a bright spot in terms of City
service flexibility. Additionally, the City’s digital permitting process was expanded and provided
continuity of service for an activity that is traditionally performed in-person. City staff noted the
impacts of shelter-in-place orders in terms of how they deliver services to residents and interact with
colleagues in interviews and survey responses. A virtual work environment poses both opportunities
and challenges that staff embrace, but also express concern about the potential to alter workplace
dynamics and the ability to effectively serve all residents.
There are also opportunities to reevaluate some of the City’s current service offerings to increase
efficiency and effectiveness. The following areas were noted in interviews as well as in survey
responses as requiring potential revisions to better serve the community.
Sports venue management: The City’s Sports Center is operated partially by a private
vendor. Council members noted frequent resident complaints regarding public access to and
use of the facilities. The Blackberry Farm Golf Course, like many municipal golf courses, is
also operated by a private vendor. While municipal venue operators tend to be long-standing,
it is best practice to regularly review vendor contracts to ensure goals for the facilities are
clearly articulated and ensure that performance measures are included in vendor reporting.
Business license issuance: Business license issuance at the City is not integrated into the
permitting process, therefore, some businesses in the community may be operating without a
license. During the COVID-19 pandemic, local, state, and federal resources have been
available to support small businesses; however, because the City has incomplete records of
businesses operating within its limits, it was challenging to reach owners that may have
benefited from these resources. When the City conducted physical outreach to businesses,
staff discovered that some were operating without a license. This also presents additional
liability and lost revenue on behalf of the City.
Senior Case Management program: The City’s Senior Center currently offers a direct service
support program for residents aged 50 and older who require support to stay in their home.
Staff report that this program lacks clear policies, procedures, and internal controls over
expenditures and services provided. Additionally, this program’s services are likely to be
duplicative with offerings provided by other governmental agencies in the region. Typically,
35% 52% 13% 1%
Excellent Good Average Poor Terrible
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cities operate a referral program to direct residents in need to the appropriate resources
rather than providing services directly.
Senior Travel program: The City’s Senior Center also offers a service akin to travel agencies
in scheduling individual and group travel to both domestic and international locations. The
scope of this program extends beyond local or regional travel destinations that cities typically
offer and may be duplicative with private providers.
As the City continues to evaluate the impact of COVID-19 on its revenues and service delivery, these
programs should be evaluated to find potential efficiencies and cost savings.
Overall Risk Level
Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Moderate-to-High Moderate Flat
Risk Mitigation
● Assess outsourced functions to determine whether continued outsourcing is
cost-effective.
● Review decentralized functions to determine if efficiencies can be gained
through increased coordination or centralized guidance, oversight, and
training.
Residual Risk
Low
Risk Areas: Risks associated with how personnel are organized, as well as staffing levels and skills.
Scope: An entity’s organizational structure provides the framework to plan, execute, control and monitor its
activities. Organization and staffing encompass hierarchy, chain of command, span of control, and staffing
levels. Staffing includes specific positions, counts, and capacity. A relevant organizational structure includes
defining key areas of authority and responsibility and establishing appropriate lines of reporting.
The City’s organization structure consists of seven departments: City Council and Commissions,
Administration (includes the City Manager’s Office, City Attorney’s Office, and City Clerk), Innovation
and Technology, Administrative Services, Parks and Recreation, Community Development, and
Public Works. As of October 2020, the City has approximately 190 FTEs on staff. With a few
exceptions, managers’ spans of control are within normal ranges of four to eight direct employees.
Historically, the City Council has been hesitant to add additional staffing, instead relying heavily on
outsourcing for key functions, such as the City Attorney and Police and Fire services. Prior to COVID-
19, the City planned to bring several new positions forward over the next three years to fill key roles;
however, given the uncertainty related to the pandemic, this effort has been postponed indefinitely.
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Outsourcing provides both advantages and disadvantages, such as elevated costs for specialists, but
also the ability to secure and rely upon subject matter experts. Both employees and elected officials
at the City were unsure whether the balance of in-house versus external contractors was in the best
interests of the City. As the Council adds new initiatives to the City’s annual work plan and extends
meetings, staff workloads are impacted and continue to elevate. While the City currently experiences
relatively low levels of turnover and high levels of employee satisfaction with workplace culture,
consistent overwork can contribute to burnout over time.
Employees who responded to the survey reported a variety of experiences related to the adequacy of
current staffing levels, as noted below. This may reflect differences between departments or divisions
in terms of how workload is distributed and what expectations are. Overall, less than one-third (39%)
felt that the current staffing levels across the City were either good or excellent.
Q: How would you rate the adequacy of current staffing levels within your department?
Q: How would you rate the current staffing levels across the City as a whole?
During interviews, some key positions were noted as lacking backup, which could result in significant
operational disruptions if employees leave the City for an extended period or permanently. The
following functions would benefit from support through cross-training of designated backups to
support operational consistency and employee flexibility:
Economic development
Housing
Traffic signal
Management analysis within each department
Like most cities, Cupertino has several functions that are highly decentralized. Some notable
examples include budgeting, procurement, communications, and planning. While decentralized
functions can provide operational benefits, they typically require enhanced coordination to achieve
service efficiency and sometimes result in duplication of efforts.
13% 33% 23% 26% 5%
Excellent Good Average Poor Terrible
3% 26% 50% 21%
Excellent Good Average Poor Terrible
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Overall Risk Level
Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Low-to-Moderate Low-to-Moderate Flat
Risk Mitigation
● Develop a process to analyze trend insurance claims trends and proactively
respond to recurring risks.
● Strengthen controls on access to non-public areas, including employee
areas, across all City buildings.
● Complete the update to the City Continuity of Operations Plan.
Residual Risk
Low-to-Moderate
Risk Areas: Risks associated with the organization’s formal/structured risk management programs, such as
employee health and safety programs, operational risk management programs, and incident response and
emergency management efforts.
Scope: Risk programs include administration of the general liability, workers’ compensation, safety, disability
management and property programs. Risk efforts also include contract/insurance certificate review, insurance
procurement, emergency preparedness programs, and continuity of operations planning.
The Human Resources department is responsible for administering the City’s risk management,
safety, and wellness programs. The department also oversees the City’s self-insured workers’
compensation program. Many risk management functions are outsourced through the City’s
outsourced City Attorney function and Joint Powers Authority (JPA), the self-insurance program. The
JPA provides some reporting related to claims to the City Attorney’s Office, but there has not been a
concentrated effort on proactive risk mitigation by analyzing trends related to claims. The JPA
operates with limited control and risk reporting to the City. Most interactions relate to insurance
requirements on City contracts.
Before the COVID-19 pandemic, the City Attorney’s Office noticed an increase in claims related to
City tree maintenance and requested additional information related to the tree maintenance program.
However, this work has been postponed due to the pandemic, which impacted City operations and
shifted attention to other pressing risk management matters. Ideally, the City would conduct routine
claims analysis to identify potential issues and proactively mitigate risks on an ongoing basis.
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Q: How would you rate the services provided to staff by the City Attorney’s Office?
BUSINESS CONTINUITY
The City’s Office of Emergency Services has one full-time employee who is responsible for leading
and directing the City in prevention, preparation, mitigation, response, and recovery activities focused
on mitigating the risks of emergencies, hazards, incidents, and other negative events. As part of this
responsibility, the office has been tasked with maintaining and updating the City’s Continuity of
Operations Plan (COOP), a core component of business continuity planning.
The City was working with a consultant to revise the City’s COOP in early 2020, but the project was
put on hold as a result of the pandemic. In the absence of this plan, City staff have adjusted to remote
operations; however, 60% report that they have not been involved in any continuity of operations
activities or training in the last year.
Q: Have you been involved in any type of continuity of operations/government planning activity
(work sessions, training, documentation, etc.) at the City in the last year?
Only half of employees reported feeling extremely or very prepared to respond to an emergency
occurring, which suggests that employees are at greater levels of risk in the event of a negative
incident.
Q: How prepared do you feel to respond to or handle an emergency within your department or
office?
32% 32% 24% 12%
Excellent Good Average Poor Terrible
40% 60%
Yes No
7% 47% 40% 6%
Extremely prepared Very prepared Somewhat prepared Slightly prepared Not prepared at all
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EMPLOYEE SAFETY
Most employees (90%) report that they have received training related to emergency preparedness
within the last year. This training is imperative to ensure that employees are aware of the appropriate
course of action to take in the event of different types of emergencies.
Q: Have you received training focused on emergency preparedness provided by the City within the
last year?
However, employees reported concerns about the safety of employees within City Hall in the event of
an earthquake. As noted previously, City Hall continues to be placed on the City’s CIP list, but has not
yet been prioritized for funding due to shifting priorities at the Council level.
Q: How would you rate the overall level of physical security within the facility and/or location in
which you work?
Q: In the last two years, have you experienced an incident or time where you’ve felt physically at
risk or unsafe while working at the City?
14% 35% 41% 10%
Yes - online Yes - in-person Yes - both online and in-person No - no training
8% 33% 34% 21% 4%
Excellent Good Average Poor Terrible
15% 85%
Yes No
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Overall Risk Level
Low to Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Low-to-Moderate Moderate Decreasing
Risk Mitigation
● Continue to develop resources and training related to financial functions,
including examples, checklists, and schedules.
● Align budgeting process to longer- term planning activities.
Residual Risk
Low
Risk Area: Risks associated with fiscal controls, budgeting, ongoing information tracking and management,
revenue capture, and transaction processing.
Scope: The role of accounting and financial functions in risk mitigation is focused on recordkeeping and
compliance through recording, classifying, summarizing, and reporting financial transactions.
The City’s Finance division consists of the Accounting and Business Licenses programs and operates
under the Administrative Services department. The division has a total staffing of 7.95 FTEs and is
responsible for overseeing all financial accounting and treasury functions for the City. In addition to
the Finance division, several finance-related functions are decentralized as a result of the City’s past
leadership style and organizational structure. A Management Analyst is positioned within each
department. This role is meant to serve as the liaison between the department and Finance on
financial matters. While most Management Analysts report a collaborative relationship with Finance,
some department leadership underutilizes the reporting and analytical capabilities of their assigned
Management Analyst. This can result in a disconnect between Finance and department leadership,
since Finance is not responsible for conducting reporting or analysis for each department.
Most surveyed employees rated the customer service provided by the Finance division team as either
excellent (44%) or good (28%).
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Q: How would you rate the quality of the internal customer service provided by the Finance team?
BUDGETING
The City’s annual budget is prepared on a July 1 to June 30 fiscal year (FY) basis, with ongoing
processes throughout the year including budget development, proposals, adoption, monitoring, and
amendments. The City has modified its budgeting process in recent years, shifting to a zero-based
budgeting process for the FY 2019-20 period. The City had planned to convert to a biennial budget
process; however, given the timing and constraints of COVID-19, the City deferred the conversion
indefinitely.
Employees report the changes have been primarily positive, though multiple employees expressed
that the changes at times felt abrupt, potentially due to the high volume of changes that have
occurred. This indicates the City may be at increased risk of inefficiencies and the value-add of
changes to the budgeting process not being fully leveraged by the employees. Surveyed employees
requested more examples of how to complete budget materials and additional training on the process
changes.
Similar to the challenges noted in the Planning and Strategy section, budgeting is often conducted
in a reactionary manner, rather than proactively done in conjunction with long-term planning activities.
This has been exasperated by the impacts of the COVID-19 pandemic, which the City anticipates will
result in at least a two-year recession and subsequent declines in revenue.
Over half of managers (54%) reported via the survey an excellent or good experience with the City’s
budgeting process. Multiple staff requested additional training to empower staff to strengthen their
budgets and monitor spending.
Q: How would you rate the experience of the City’s budgeting process?
44% 28% 24% 4%
Excellent Good Average Poor Terrible
14% 40% 33% 7% 5%
Excellent Good Average Poor Terrible
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Overall Risk Level
Low-to-Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Moderate Moderate-to-High Decreasing
Risk Mitigation
● Transition all operational divisions to Cityworks for asset management.
● Conduct a citywide asset inventory.
● Expand the current tracking assets as appropriate to include small and
desirable items such as tools and equipment.
Residual Risk
Low
Risk Areas: Risks associated with the ongoing maintenance, management, tracking, reporting, accountability,
accounting, and physical safeguarding of assets, including the organization’s assets used in support of
business processes (i.e., facilities/buildings, transportation vehicles, mobile devices, IT equipment, etc.).
Scope: Asset management includes the supply, deployment, and maintenance of the organization’s
resources; it includes physical or logical access to data and locations (offices, warehouses, etc.). Asset
management is inclusive of the connected strategies, processes, people and technology that make up the
foundation of enabling the organization to meet service levels and minimize the overall cost of asset
ownership.
Almost all City operational divisions use Cityworks for asset management, based on a GIS-centric
approach. The City achieved this by rolling out Cityworks use and implementation over the last 10
years. Since 2016, the City has had a dedicated Asset Management Technician to support asset
management activities, liaise with divisions, and provide trainings. However, at least one operational
division—Traffic Signals—continues to leverage alternative asset management solutions. Fully
leveraging the asset management program across all operational units would decrease the City’s risk
of compromised asset performance, human error in inventory tracking, and missed asset
maintenance.
Employees in multiple departments reported concerns that small items (such as tools/equipment) are
being comprehensively and consistently tracked. The City has also not conducted a full asset
inventory in at least three years. Monitoring and tracking assets are key functions of asset
management, and without a robust approach the City is at increased risk of inefficient management of
tools and equipment, as well as increased risk of theft and /loss of City assets.
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Q: How well do you feel the assets of the City are tracked and accounted for?
As the City continues to add programs and assets, it will be increasingly important to leverage the
existing systems and integrate as possible. For example, the carpool and bike fleet services may be
strengthened by being more integrated into the fleet system.
FACILITY CONDITIONS
The City conducted and documented the results of a comprehensive facility condition and use
efficiency assessment in 2018. The goal of this assessment was to provide the City with a long-range
planning tool by identifying the investments needed to keep facilities maintained and functioning
adequately. In the Condition Facility Report, most of the 46 facilities assessed were rated between
two and three on a scale of one (critical repairs needed) to five (excellent condition), with some
exceptions on either end. The assessment also identified space shortages, including a significant
shortage at City Hall and the Senior Center.
Q: How would you rate the condition of the facilities (buildings) used by the City?
The same assessment reported that previous engineering studies have indicated that City Hall’s
structure is deficient in seismic force resistance. As noted in the External Environment section,
Cupertino is in a seismically active region with several active earthquake faults. One of the longest
and most active faults in the world, the San Andreas fault, crosses the western portion of the City.
9% 42% 40% 7% 2%
Extremely well Very well Moderately well Slightly well Not well at all
4% 22% 42% 23% 9%
Excellent Good Average Poor Terrible
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Overall Risk Level
Low-to-Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Low-to-Moderate Moderate-to-High Decreasing
Risk Mitigation
● Continue efforts to institutionalize enterprise decision-making at the senior
leadership team level.
● Develop a cascading communication framework to improve internal
communication.
● Provide additional management training focusing on leadership, change
management, and communication.
Residual Risk
Low
Risk Areas: Risks associated with organizational leadership, management practices, leadership strategic
activities, and operating styles.
Scope: Management's philosophy and operating style affect the way an organization is managed, including
the kinds of risks accepted. The attitude and daily operating style of top management affect the extent to
which actions are aligned with risk philosophy and appetite.
A collaborative management team that can communicate and make decisions through an enterprise
leadership lens is a critical component to operational effectiveness. Staff report that the City’s
leadership collaboration has improved greatly over the last year or two and attribute this improvement
to the leadership style of the City Manager. At the end of 2019, the City Manager arranged a
leadership retreat for Department Directors, which began to break down historical siloes among
operations. Additional opportunities to improve enterprise decision-making remains.
Many of the employees in leadership positions across the City are relatively new to their roles, which
provides an opportunity to enhance enterprise decision-making. Overall, leaders reported being very
supportive of one another and open to opportunities for collaboration which was reflected in survey
responses that fully reported that the senior leadership team works at least moderately well together.
However, the focus on enterprise decision-making represents a cultural shift in the way the City has
historically operated and will take time to be fully realized.
The following positions have either been filled recently or will need to be filled within approximately
the next year:
CIP Manager
City Manager
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Assistant City Manager
HR Manager
Parks & Recreation Director
Asst. Parks & Recreation Director
Parks Manager
In order to support new City leaders, the City offers supervisory and managerial training. Based on
survey results, this training may benefit from a revision. Less than half (41%) of respondents reported
that the management training they have received was either excellent or good. Management training
is imperative to succession planning and strong leadership that supports the City’s values and
workplace culture effectively.
Q: How well do you feel that the senior leadership team at the City works together?
During interviews and as reported in survey responses, internal communication was noted to be
inconsistent across departments. In particular, there is a perception that a knowledge gap exists
between what is shared at the director level and what is communicated to staff. This is exacerbated
by a lack of positions focused on internal communications. Almost one-third (29%) of surveyed staff
reported that the quality of leadership communication was either poor or terrible, with employees in
the Public Works and Parks and Recreation departments giving the lowest ratings. This suggests that
opportunities for improvement in communication exist within these departments.
30% 50% 20%
Extremely well Very well Moderately well Slightly well Not well at all
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Overall Risk Level
Low-to-Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Low-to-Moderate Moderate-to-High Increasing
Risk Mitigation
● Plan to re-evaluate the City’s current public safety agreements and the
current level of service provided at certain levels of growth in the community.
● Evaluate options to resource the City’s growing need for code enforcement
staffing and related activities.
● Evaluate options to resource the City’s desired level of service in delivering
emergency services and related activities.
Residual Risk
Low
Risk Areas: Risks associated with public safety services, including level of services, funding, and community
issues.
Scope: Public safety includes emergency services such as law enforcement, fire, dispatch, and community
disaster response programs.
PUBLIC SAFETY
Cupertino contracts both its Police and Fire services with Santa Clara County, which is a somewhat
unique operating model. The Santa Clara Sherriff’s Office and Fire Department both assign a primary
contact for the City to oversee operations within city limits. One benefit of the regional approach to
police and fire services is the ability for the County to redistribute resources as needed on an ongoing
basis. For example, if a significant event occurs in Cupertino, regional resources can be dispatched to
the scene and vice versa. Both the Sheriff’s Office and Fire Department report a close relationship
with the City, in particular with the City Manager and Emergency Services Coordinator. While
services appear to be sufficient for the current population within the City, with additional development
and changes in the City’s transient population levels, additional levels of service are likely to be
required to maintain public safety.
The table below reflects the number of reported property and violent crimes in the City over the last
three years. Since 2019, violent crime has dropped by 28.6%, but property crimes have increased by
approximately 5%. Overall, levels of crime appear low relative to other communities in the region.
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PROPERTY CRIMES
REPORTED
VIOLENT CRIMES
REPORTED
2017 970 77
2018 956 72
2019 1,018 55
Percent Change +4.9% -28.6%
Source: FBI UCR Data 2019
In the employee survey, levels of the sense of safety were reported as good or excellent by 86% of
survey respondents, which aligns with the reported crime data.
Q: How would you rate the overall feeling of safety in the community?
The Santa Clara County Fire Department noted the impact of traffic on response times, which may
present a need to build another fire station in the future to access emergency situations in a timely
manner. Additionally, there continues to be an elevated risk associated with wildfire season lasting
longer and intensifying in the local area, particularly the foothills of the City. Department
representatives also noted the impact of transient populations on call volume and fire risk, which
could impact future service delivery needs.
Q: How would you rate the effectiveness of the public safety services delivered to the City?
CODE ENFORCEMENT
The City employs 3.5 FTE Code Enforcement Officers who enforce non-emergency and preventative
life-safety issues around zoning, building, housing, and fire code compliance. Code enforcement
functions serve a critical role and are responsible for supporting the health, safety, and economic
well-being of the community. Staff report that this function is under-staffed and unable to adequately
address all necessary concerns. However, jurisdictional issues can also prevent code enforcement
from acting on citizen complaints Therefore, these responsibilities should be clarified, and response
expectations established prior to adding resources into this function.
36% 50% 11% 2%
Excellent Good Average Poor Terrible
33% 52% 15%
Excellent Good Average Poor Terrible
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EMERGENCY RESPONSE
The City’s Office of Emergency Services consists of one full-time employee. The office is responsible
for coordinating emergency response and recovery efforts, including running volunteer responder
programs and community response training. The City runs a Community Emergency Response Team
(CERT) program, which is sponsored by the Federal Emergency Management Agency (FEMA). The
office is also responsible for maintaining, reviewing, and updating the City’s Emergency Operations
Plan (EOP), which was last published in June 2019. While the City has made significant progress in
addressing its emergency operations, the City will likely need to identify additional resources to
support the Office of Emergency Services. One full-time employee is likely insufficient to meet the
rising demands, highlighted in part because of the role the City government continues to play during
the COVID-19 pandemic.
Overall Risk Level
Low to Moderate
Impact
Likelihood
Preparedness
Trajectory
Moderate Moderate Moderate-to-High Flat
Risk Mitigation
● Re-institute the resident satisfaction survey to track public perception over
time and engage a broader potion of the community.
● Secure translation services for ongoing resident communication.
Residual Risk
Low-to-Moderate
Risk Areas: Risks associated with the organization’s reputation and the public’s perception of the
organization, including its competency (financial performance, safety and security, responsiveness),
transparency (openness and integrity), and guardianship (demonstrating care and consideration).
Scope: The reputation of an organization refers to how a broad group of stakeholders perceive the
accumulated decisions, actions, and behaviors of the people within an organization. This social judgement is
influenced both directly and indirectly by interactions with employees, with programs and services, and by
commentary in the public domain (e.g., news stores, press release, social media).
As a local government entity, the City’s reputation and relationship with its residents is the heart of its
success. The operations of a local government like the City are complex and multi-faceted and impact
the lives of residents, either directly or indirectly, every single day. In general, staff report that the City
has built a positive relationship with members of the public. However, some distrust may exist due to
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the embezzlement discovered in 2018, the City Manager turnover, and issues with the prior City
Attorney. The City’s communication team proactively responded to these issues to the extent possible
and reports ongoing strengthening of its function in collaboration with City leadership.
Most survey respondents (74%) reported that the City has a good or excellent reputation within the
community, despite also reporting mistrust between staff and the Council. In both interviews and
survey responses, employees noted that the City strives to be highly responsive to community needs
and operate as transparently as possible. For example, the City website has an Open Government
Portal that provides residents with direct access to meeting minutes and various City records. Almost
half (47%) of survey respondents reported nearly daily interactions with members of the community.
Only 3% of respondents reported that the City was not sufficiently responsive to citizen feedback, with
nearly half (48%) reporting that levels of responsiveness were too high. In interviews, staff noted high
levels of responsiveness to citizens who were active in voicing their concerns to Council members
and City employees, which may also skew community engagement.
Q: How responsive is the City to resident feedback?
Similar to other cities, Cupertino staff report that it struggles to balance its response to the loud voices
of a few over the quiet voices of the many in its community. A primary way that cities seek to engage
and solicit feedback from their broader communities is through resident satisfaction surveys.
Historically, the City conducted resident satisfaction surveys on an annual basis; however, a survey
has not been conducted since 2017. Without this tool to reach citizens who do not actively attend
Council meetings or participate in other forms of ongoing community engagement, these voices can
be lost in the larger community discussion.
Another complexity to Cupertino’s community engagement and communication paradigm is the
number of citizens who do not speak English or speak English as a second language. The City has
not yet defined what documents should be translated into other primary local languages, such as
Hindi and Mandarin, and currently relies on bilingual employees rather than a translation service to
perform this additional work. Given the large number of citizens who require translation services, the
City should ensure that important documents are translated and consider securing contracted
translation services on an ongoing basis. Items such as budget-at-a-glance, strategic plans, meeting
invitations, and the resident survey, at a minimum, should be translated into both Hindi and Mandarin
to support engagement within those communities.
23% 25% 51% 3%
Far too responsive Slightly too responsive Appropriate level Slightly too unresponsive Far too unresponsive
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EMPLOYEE SURVEY RESULTS
Distribution of a risk assessment questionnaire was sent out to City employees, and was open for
submission from September 23 through October 1. Out of the 245 employees invited to take the
survey, 112 individuals submitted either full or partial responses to the survey (a participation rate of
45.7%.
YEARS OF TENURE
EMPLOYEE LEVEL1
1 Only management-level employees were asked to rate overall level of risk for each category.
14%
10%
33%
13%
31%
33%
9%
18%
6%
12%
6%
14%
Tenure in Position
Tenure with Organization
Less than 1 1 to 2 3 to 5 6 to 10 11 to 15 More than 15
23%
40%
77%
60%
Senior Leadership
Management
Yes No
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DEPARTMENT
HOW WOULD YOU RATE THE ORGANIZATION’S LEVEL OF OVERALL RISK?
ACCOUNTING AND FINANCE
ASSET MANAGEMENT
31%
23%
19%
8%
7%
4%
4%
3%
Public Works
Community Development
Parks and Recreation
City Manager's Office
Finance
Innovation & Technology
Administrative Services
Other
19% 43% 26% 7% 5%
Low Low to Moderate Moderate Moderate to High High
23% 49% 19% 2% 7%
Low Low to Moderate Moderate Moderate to High High
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CAPITAL IMPROVEMENT PROGRAM
COMPLIANCE AND FINANCIAL REPORTING
ETHICS AND FRAUD, WASTE, ABUSE
EXTERNAL ENVIRONMENT
FUNDING AND ECONOMICS
19% 36% 26% 12% 7%
Low Low to Moderate Moderate Moderate to High High
18% 38% 38% 3%3%
Low Low to Moderate Moderate Moderate to High High
14% 44% 21% 19% 2%
Low Low to Moderate Moderate Moderate to High High
7% 16% 26% 42% 9%
Low Low to Moderate Moderate Moderate to High High
5% 19% 48% 17% 12%
Low Low to Moderate Moderate Moderate to High High
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GOVERNANCE
HUMAN CAPITAL AND RESOURCES
INFORMATION SYSTEMS AND TECHNOLOGY
INTERNAL CONTROLS
10% 29% 37% 15% 10%
Low Low to Moderate Moderate Moderate to High High
14% 23% 40% 16% 7%
Low Low to Moderate Moderate Moderate to High High
23% 53% 14% 7% 2%
Low Low to Moderate Moderate Moderate to High High
17% 32% 39% 12%
Low Low to Moderate Moderate Moderate to High High
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MANAGEMENT AND LEADERSHIP
OPERATIONS AND SERVICE DELIVERY
ORGANIZATION AND STAFFING
PLANNING AND STRATEGY
POLICIES, PROCEDURES, AND PROCESSES
11% 40% 24% 18% 7%
Low Low to Moderate Moderate Moderate to High High
9% 14% 43% 23% 11%
Low Low to Moderate Moderate Moderate to High High
9% 20% 40% 20% 11%
Low Low to Moderate Moderate Moderate to High High
12% 21% 47% 16% 5%
Low Low to Moderate Moderate Moderate to High High
11% 30% 36% 18% 5%
Low Low to Moderate Moderate Moderate to High High
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PROCUREMENT
PUBLIC SAFETY
REPUTATION AND PUBLIC PERCEPTION
RISK PROGRAMS
15% 33% 36% 9% 6%
Low Low to Moderate Moderate Moderate to High High
34% 32% 17% 12% 5%
Low Low to Moderate Moderate Moderate to High High
19% 47% 16% 14% 5%
Low Low to Moderate Moderate Moderate to High High
9% 30% 30% 19% 12%
Low Low to Moderate Moderate Moderate to High High
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CITY OF CUPERTINO
Agenda Item
21-8782 Agenda Date: 2/22/2021
Agenda #: 6.
Subject: Embezzlement Debrief
CITY OF CUPERTINO Printed on 2/16/2021Page 1 of 1
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