20-163 CITY OF CUPERTINO 2020A CERTIFICATES OF PARTICIPATIONNEW ISSUE - BOOK-ENTRY-ONLY RATING:
S&P: “AA+”
(See “RATING” herein)
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California (“Special Counsel”),
under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance
with certain covenants and requirements described herein, interest (and original issue discount) with respect the Certificates is excluded from
gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum
tax imposed on individuals. In the further opinion of Special Counsel, interest (and original issue discount) with respect to the Certificates is
exempt from State of California personal income tax. See the caption “TAX MATTERS” with respect to tax consequences concerning the
Certificates.
$22,040,000
CITY OF CUPERTINO
2020A CERTIFICATES OF PARTICIPATION
Dated: Date of Delivery Due: June 1, as shown on the inside cover
The City of Cupertino 2020A Certificates of Participation (the “Certificates”) are being executed and delivered to (i) provide funds
to prepay the outstanding Certificates of Participation (2012 Refinancing Project) (the “2012 Certificates”); and (ii) pay the costs of issuance
incurred in connection with the execution and delivery of the Certificates. The Certificates represent fractional undivided interests of the
registered owners thereof in certain lease payments (the “Lease Payments”) to be made by the City of Cupertino (the “City”) to the Cupertino
Public Facilities Corporation (the “Corporation”), under a Lease Agreement, dated as of October 1, 2020 (the “Lease”), by and between the
City and the Corporation. Pursuant to the Lease, the City will lease from the Corporation certain real property and the existing improvements
thereof consisting of the City’s City Hall and Administrative Offices, Community Hall/Council Chambers and Quinlan Community Center
(collectively, the “Leased Premises”). See “DESCRIPTION OF THE LEASED PREMISES” and “SECURITY AND SOURCES OF
PAYMENT FOR THE CERTIFICATES” herein.
The Certificates will be executed and delivered in the principal amount of $5,000 and any integral multiple thereof pursuant to a
Trust Agreement, dated as of October 1, 2020 (the “Trust Agreement”), by and among the City, the Corporation and The Bank of New York
Mellon Trust Company, N.A., as trustee (the “Trustee”). Interest represented by the Certificates is payable semiannually on June 1 and
December 1 of each year, commencing on December 1, 2020. See “THE CERTIFICATES” herein.
The Certificates will be executed and delivered in book-entry form only and, when delivered, will be registered in the name of
Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the
Certificates. Individual purchases of the Certificates will be made in book-entry form only. Principal and interest payments due with respect
to the Certificates are payable directly to DTC by the Trustee. Upon receipt of payments of principal and interest, DTC will in turn distribute
such payments to the beneficial owners of the Certificates. See Appendix F“DTC BOOK-ENTRY SYSTEM” herein.
No reserve fund has been established in connection with the execution and delivery of the Certificates.
The Certificates are not subject to optional redemption prior to maturity. The Certificates are subject to extraordinary
prepayment prior to maturity, as described herein. See “THE CERTIFICATES—Prepayment” herein.
THE CERTIFICATES DO NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED
TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF
TAXATION. THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE DOES NOT CONSTITUTE
AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR
FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE CERTIFICATES NOR THE
OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OF
CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR
STATUTORY DEBT LIMITATION OR RESTRICTION.
The purchase of the Certificates involves certain risks which should be considered by investors. See “RISK FACTORS” for a
discussion of certain risk factors that should be considered in addition to the other matters set forth herein.
This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must
read the entire Official Statement to obtain information essential to making an informed investment decision.
The Certificates will be offered when, as and if executed and delivered, and received by the Underwriter, subject to the approval as
to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, and certain
other conditions. Certain legal matters will be passed upon for the City and the Corporation by the City Attorney and by Stradling Yocca
Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, for the Underwriter by Quint & Thimmig LLP, Larkspur, California,
as Underwriter’s Counsel, and for the Trustee by its counsel. It is anticipated that the Certificates will be available in book-entry form for
delivery through the facilities of DTC on or about October 22, 2020.
Dated: September 29, 2020
$22,040,000
CITY OF CUPERTINO
2020A CERTIFICATES OF PARTICIPATION
Maturity Schedule
(Base CUSIP†: 231210)
Maturity
(June 1)
Principal
Amount Interest Rate Yield Price CUSIP†
2021 $2,140,000 4.000% 0.150% 102.340 231210GE9
2022 1,880,000 4.000 0.180 106.132 231210GF6
2023 1,955,000 4.000 0.210 109.853 231210GG4
2024 2,035,000 4.000 0.260 113.423 231210GH2
2025 2,115,000 4.000 0.330 116.770 231210GJ8
2026 2,200,000 4.000 0.450 119.638 231210GK5
2027 2,285,000 4.000 0.570 122.213 231210GL3
2028 2,380,000 4.000 0.700 124.408 231210GM1
2029 2,475,000 4.000 0.820 126.377 231210GN9
2030 2,575,000 4.000 0.950 127.943 231210GP4
† CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the
American Bankers Association by S&P Global Market Intelligence. Copyright(c) 2020 CUSIP Global Services. All rights reserved. CUSIP®
data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute
for the CGS database. CUSIP® numbers are provided for convenience of reference only. Neither the City nor the Underwriters or their agents
or counsel assume responsibility for the accuracy of such numbers.
CITY OF CUPERTINO
COUNTY OF SANTA CLARA, CALIFORNIA
CITY COUNCIL
Steven Scharf, Mayor
Darcy Paul, Vice Mayor
Liang Chao, Council Member
Rod Sinks, Council Member
Jon Willey, Council Member
_____________
CUPERTINO PUBLIC FACILITIES CORPORATION
BOARD OF DIRECTORS
Steven Scharf, President
Darcy Paul, Vice President
Liang Chao, Board Member
Rod Sinks, Board Member
Jon Willey, Board Member
_____________
CITY OFFICIALS
Deborah Feng, City Manager
Kristina Alfaro, Administrative Services Director/City Treasurer
Heather Minner, City Attorney
Kirsten Squarcia, City Clerk
_____________
SPECIAL COUNSEL AND DISCLOSURE COUNSEL
Stradling Yocca Carlson & Rauth,
a Professional Corporation
Newport Beach, California
_____________
MUNICIPAL ADVISOR
Urban Futures, Inc.
Daly City, California
_____________
TRUSTEE
The Bank of New York Mellon Trust Company, N.A.
Los Angeles, California
_____________
VERIFICATION AGENT
Robert Thomas CPA, LLC
Minneapolis, Minnesota
No dealer, broker, salesperson or other person has been authorized by the City or the Corporation to give any
information or to make any representations in connection with the offer or sale of the Certificates other than those contained
herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the
City or the Corporation. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer,
solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers or owners of the Certificates.
Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly
so described herein, are intended solely as such and are not to be construed as representations of fact.
The Underwriter has provided the following sentence for inclusion in this Official Statement:
The Underwriter has reviewed the information in this Official Statement in accordance with, and as
a part of, its responsibilities to investors under the federal securities laws as applied to the facts and
circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of
such information.
This Official Statement and the information contained herein are subject to completion or amendment without notice
and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the City or any other parties described herein since the date hereof.
These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final
form. This Official Statement is being submitted in connection with the sale of the Certificates referred to herein and may not be
reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of
documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such
provisions.
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking
statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United
States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended.
Such statements are generally identifiable by the terminology used such as a “plan,” “expect,” “estimate,” “project,” “budget,”
“intend” or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the
information under the captions “THE CITY OF CUPERTINO” and “CITY FINANCIAL INFORMATION.”
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS
DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES
NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET
FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS
SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING
STATEMENTS.
IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITER MAY
OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY
OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING
AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE
COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY
THE UNDERWRITER.
THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
The City maintains a website; however, information presented there is not a part of this Official Statement and should
not be relied upon in making an investment decision with respect to the Certificates.
TABLE OF CONTENTS
PAGE
i
INTRODUCTION ................................................................................................................................................ 1
General ............................................................................................................................................................. 1
Security and Sources of Payment for the Certificates ...................................................................................... 1
No Reserve Fund .............................................................................................................................................. 2
The Certificates ................................................................................................................................................ 2
Additional Certificates ...................................................................................................................................... 2
Continuing Disclosure ...................................................................................................................................... 3
Professionals Involved in the Offering ............................................................................................................. 3
Financial Statements of the City ....................................................................................................................... 3
Certificate Owners’ Risks ................................................................................................................................. 3
Miscellaneous ................................................................................................................................................... 3
PREPAYMENT PLAN ........................................................................................................................................ 4
DESCRIPTION OF THE LEASED PREMISES ................................................................................................. 4
ESTIMATED SOURCES AND USES OF FUNDS ............................................................................................ 5
THE CERTIFICATES .......................................................................................................................................... 6
General ............................................................................................................................................................. 6
Prepayment ....................................................................................................................................................... 6
Prepayment Procedures .................................................................................................................................... 6
Partial Prepayment............................................................................................................................................ 7
SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES ...................................................... 7
General ............................................................................................................................................................. 8
Lease Payments ................................................................................................................................................ 8
Substitution or Release of the Leased Premises ............................................................................................... 9
No Reserve Fund .............................................................................................................................................. 9
Additional Payments ........................................................................................................................................ 9
Insurance ........................................................................................................................................................ 10
CERTIFICATE PAYMENT SCHEDULE ......................................................................................................... 11
THE CITY OF CUPERTINO ............................................................................................................................. 11
General ........................................................................................................................................................... 11
City Council ................................................................................................................................................... 12
City Management ........................................................................................................................................... 12
Employee and Employee Relations ................................................................................................................ 13
Prior Employee Embezzlement ...................................................................................................................... 14
Risk Management ........................................................................................................................................... 14
CITY FINANCIAL INFORMATION ................................................................................................................ 15
COVID-19 Pandemic Impact ......................................................................................................................... 15
Accounting and Financial Reporting .............................................................................................................. 17
City Blended Component Units and Fiduciary Component Units ................................................................. 18
Financial Policies ........................................................................................................................................... 18
Major Revenues and Expenses ....................................................................................................................... 20
Budget Procedure, Current Budget and Historical Budget Information ......................................................... 20
Comparative Change in Fund Balance of the City General Fund .................................................................. 23
Comparative General Fund Balance Sheets of the City ................................................................................. 24
Capital Improvement Program ....................................................................................................................... 24
Property Taxes ................................................................................................................................................ 25
Sales Taxes ..................................................................................................................................................... 27
Transient Occupancy Tax ............................................................................................................................... 29
Utility User Tax .............................................................................................................................................. 29
Franchise Fees ................................................................................................................................................ 29
Charges for Services ....................................................................................................................................... 30
Licenses and Permits ...................................................................................................................................... 30
Use of Money and Property ............................................................................................................................ 30
TABLE OF CONTENTS
PAGE
ii
Other Revenues .............................................................................................................................................. 30
Indebtedness ................................................................................................................................................... 31
Retirement System ......................................................................................................................................... 31
Other Post-Employment Benefits ................................................................................................................... 35
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS ............ 38
Article XIIIA of the State Constitution .......................................................................................................... 38
Legislation Implementing Article XIIIA ........................................................................................................ 38
Split Roll Initiative ......................................................................................................................................... 38
Article XIIIB of the State Constitution ........................................................................................................... 39
Articles XIIIC and XIIID of the State Constitution ........................................................................................ 40
Proposition 62 ................................................................................................................................................. 41
Proposition 1A ................................................................................................................................................ 41
Proposition 22 ................................................................................................................................................. 42
Proposition 26 ................................................................................................................................................. 42
Possible Future Initiatives .............................................................................................................................. 42
RISK FACTORS ................................................................................................................................................ 43
No Pledge of Taxes or Revenues .................................................................................................................... 43
Additional Obligations of the City ................................................................................................................. 43
Default ............................................................................................................................................................ 44
Release or Substitution of Property ................................................................................................................ 44
Abatement ...................................................................................................................................................... 45
No Reserve Fund ............................................................................................................................................ 45
Natural Disasters ............................................................................................................................................ 46
Hazardous Substances .................................................................................................................................... 47
Cybersecurity .................................................................................................................................................. 47
Limitations on Remedies; Bankruptcy ........................................................................................................... 47
Dependence on State for Certain Revenues.................................................................................................... 48
COVID-19 Pandemic ..................................................................................................................................... 49
THE CORPORATION ....................................................................................................................................... 50
TAX MATTERS................................................................................................................................................. 50
CERTAIN LEGAL MATTERS ......................................................................................................................... 51
LITIGATION ..................................................................................................................................................... 52
General ........................................................................................................................................................... 52
Vallco Claim ................................................................................................................................................... 52
RATING ............................................................................................................................................................. 53
UNDERWRITING ............................................................................................................................................. 53
MUNICIPAL ADVISOR ................................................................................................................................... 53
CONTINUING DISCLOSURE .......................................................................................................................... 54
FINANCIAL STATEMENTS OF THE CITY ................................................................................................... 54
MISCELLANEOUS ........................................................................................................................................... 55
APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING
THE CITY OF CUPERTINO ......................................................................................... A-1
APPENDIX B THE CITY OF CUPERTINO AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2019 ..................................................... B-1
APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ................................................ C-1
APPENDIX D FORM OF LEGAL OPINION ....................................................................................... D-1
APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ......................................... E-1
APPENDIX F DTC BOOK-ENTRY SYSTEM ...................................................................................... F-1
1
$22,040,000
CITY OF CUPERTINO
2020A CERTIFICATES OF PARTICIPATION
INTRODUCTION
This introduction contains only a brief summary of certain of the terms of the Certificates being
offered, and a brief description of the Official Statement. All statements contained in this introduction are
qualified in their entirety by reference to the entire Official Statement. References to, and summaries of,
provisions of the Constitution and laws of the State of California and any documents referred to herein do not
purport to be complete and such references are qualified in their entirety by reference to the complete
provisions. Capitalized terms used in this Official Statement and not defined elsewhere herein have the
meanings given such terms in Appendix C“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein.
This Official Statement speaks only as of its date, and the information contained herein is subject to change.
General
This Official Statement, including the cover page, inside cover page and the Appendices attached
hereto (the “Official Statement”), provides certain information concerning the execution and delivery of the
City of Cupertino 2020A Certificates of Participation (the “Certificates”) in an aggregate principal amount of
$22,040,000. The Certificates will be executed and delivered pursuant to that certain Trust Agreement, dated
as of October 1, 2020 (the “Trust Agreement”), by and among the City of Cupertino (the “City”), the
Cupertino Public Facilities Corporation (the “Corporation”) and The Bank of New York Mellon Trust
Company, N.A., as trustee (the “Trustee”). The Certificates represent fractional undivided interests of the
registered owners thereof (the “Owners”) in certain lease payments (the “Lease Payments”) to be made by the
City to the Corporation under that certain Lease Agreement, dated as of October 1, 2020 (the “Lease”), by and
between the Corporation, as lessor, and the City, as lessee. See “DESCRIPTION OF THE LEASED
PREMISES” and “SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATESLease
Payments.”
The Certificates are being delivered to provide funds to (i) prepay the City’s outstanding Certificates
of Participation (2012 Refinancing Project) (the “2012 Certificates”); and (ii) pay the costs incurred in
connection with the execution and delivery of the Certificates. See “PREPAYMENT PLAN” herein.
The City is located in the County of Santa Clara (the “County”). For more information regarding the
City, see the captions “THE CITY OF CUPERTINO,” “CITY FINANCIAL INFORMATION” and Appendix
A“ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF CUPERTINO.”
Security and Sources of Payment for the Certificates
The Certificates are being executed and delivered pursuant to the Trust Agreement. The City will
lease certain real property and the existing improvements thereon (collectively referred to herein as the
“Leased Premises”) consisting of the City’s City Hall and Administrative Offices, Community Hall/Council
Chambers and Quinlan Community Center pursuant to that certain Site Lease, dated as of October 1, 2020,
between the City, as lessor, and the Corporation, as lessee (the “Site Lease”). Under the Lease, the
Corporation will lease the Leased Premises back to the City. The City is required under the Lease to pay Lease
Payments for the use and possession of the Leased Premises, as further described under the caption
“DESCRIPTION OF THE LEASED PREMISES” herein. The City is also required to pay any taxes and
assessments and the cost of maintenance and repair of the Leased Premises.
Pursuant to that certain Assignment Agreement, dated as of October 1, 2020 (the “Assignment
Agreement”) by and between the Corporation and the Trustee, the Corporation will assign to the Trustee, for
the benefit of the Owners, substantially all of its rights under the Lease, including its rights to receive and
2
collect Lease Payments and prepayments from the City under the Lease and rights as may be necessary to
enforce payment of Lease Payments and prepayments. All rights assigned by the Corporation pursuant to the
Assignment Agreement will be administered by the Trustee in accordance with the provisions of the Trust
Agreement for the equal and proportionate benefit of all Owners.
The Lease Payments are calculated to be sufficient to pay, when due, the principal and interest with
respect to the Certificates. The City has covenanted in the Lease that it will take such action as may be
necessary to include the Lease Payments and other payments coming due under the Lease in its annual budgets
and to make the necessary annual appropriations therefor as required by the Lease. The City’s obligation to
make Lease Payments is subject to complete or partial abatement in the event of the taking of, damage to or
loss of use and possession of all or a portion of the Leased Premises. See “RISK FACTORS—Abatement”
herein.
THE CERTIFICATES DO NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH
THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE
CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO
MAKE LEASE PAYMENTS UNDER THE LEASE DOES NOT CONSTITUTE AN OBLIGATION OF
THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF
TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE LEASE
PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR
ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR
STATUTORY DEBT LIMITATION OR RESTRICTION.
No Reserve Fund
The City has not established a reserve fund in connection with the execution and delivery of the
Certificates. In the event of abatement of Lease Payments, only proceeds of insurance (including rental
interruption insurance) may be available to pay Lease Payments. See “RISK FACTORS—Abatement” herein.
The Certificates
Interest represented by the Certificates is payable semiannually on June 1 and December 1 of each
year, commencing on December 1, 2020 (each an “Interest Payment Date”). See “THE CERTIFICATES —
General” herein. The Certificates will be executed and delivered in book-entry form only and, when delivered,
will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New
York (“DTC”), which will act as securities depository for the Certificates. Individual purchases of the
Certificates will be made in book-entry form only. Purchasers of the Certificates will not receive certificates
representing their ownership interests in the Certificates purchased. The Certificates will be executed and
delivered in the principal amount of $5,000 and any integral multiple thereof. Principal and interest payments
due with respect to the Certificates are payable directly to DTC by the Trustee. Upon receipt of payments of
principal and interest, DTC will in turn distribute such payments to the beneficial owners of the Certificates.
See “THE CERTIFICATESGeneral” and Appendix F“DTC BOOK-ENTRY SYSTEM” herein.
Additional Certificates
Pursuant to the Trust Agreement, the City may cause Additional Certificates to be executed and
delivered without the consent of the Owners of the Certificates if certain conditions precedent are satisfied. In
connection with the execution and delivery of Additional Certificates, the Lease Payments due under the Lease
will be increased to an amount sufficient to pay the principal, premium (if any) and interest payable on all
outstanding Certificates and Additional Certificates. The Certificates and any Additional Certificates will be
secured on a parity under the Trust Agreement by Lease Payments and other amounts held in the funds
established thereunder other than the Rebate Fund. See Appendix C—“SUMMARY OF PRINCIPAL LEGAL
3
DOCUMENTS—DEFINITIONS AND SUMMARY OF THE TRUST AGREEMENT—THE
CERTIFICATES—Additional Certificates.”
Continuing Disclosure
The City has covenanted for the benefit of the holders and beneficial owners of the Certificates to
provide, or cause to be provided, to the Municipal Securities Rulemaking Board for purposes of
Rule 15c2-12(b)(5) (the “Rule”) adopted by the Securities and Exchange Commission certain annual financial
information and operating data and, in a timely manner, notice of certain enumerated events. These covenants
have been made in order to assist the Underwriter in complying with the Rule. See “CONTINUING
DISCLOSURE” herein for a description of the specific nature of the annual report and notices of enumerated
events and a summary description of the terms of the Disclosure Certificate pursuant to which such reports are
to be made.
Professionals Involved in the Offering
The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, will act as Trustee
with respect to the Certificates. The Certificates will be delivered subject to the approval as to their legality by
Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel.
Certain legal matters will be passed upon for the City and the Corporation by the City Attorney and by
Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure
Counsel, for the Trustee by its counsel, and for the Underwriter by Quint & Thimmig LLP, Larkspur,
California.
Financial Statements of the City
Included herein as Appendix B are the audited financial statements of the City as of and for the year
ended June 30, 2019 (the “Financial Statements”), together with the report thereon dated March 6, 2020 of
Crowe LLP, Costa Mesa, California (the “Auditor”). The Auditor has not undertaken to update the audited
financial statements of the City or its report or to take any action intended or likely to elicit information
concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no
opinion is expressed by the Auditor with respect to any event subsequent to its report dated March 6, 2020.
The Auditor’s consent to inclusion of the Financial Statements in the Official Statement was not
requested and the Auditor has not consented to the inclusion of the Financial Statements as an appendix to this
Official Statement. The Auditor has not performed any procedures relating to this Official Statement.
Certificate Owners’ Risks
Certain events could affect the ability of the City to make the Lease Payments when due. See the
caption “RISK FACTORS” herein for a discussion of certain factors that should be considered, in addition to
other matters set forth herein, in evaluating an investment in the Certificates.
Miscellaneous
It is anticipated that the Certificates in book-entry form will be available for delivery through the
facilities of DTC on or about October 22, 2020 (the “Delivery Date”).
The description herein of the Trust Agreement, the Lease, the Site Lease, the Assignment Agreement
and any other agreements relating to the Certificates are qualified in their entirety by reference to such
documents, and the descriptions herein of the Certificates are qualified in their entirety by the form thereof and
the information with respect thereto included in the aforementioned documents. See
Appendix C“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein. Copies of the documents are
4
on file and available for inspection at the offices of the Trustee at 400 South Hope Street, Suite 500, Los
Angeles, California 90071, Attention: Corporate Trust Department.
The information and expressions of opinion herein speak only as of their date and are subject to
change without notice. Neither the delivery of this Official Statement nor any sale made hereunder nor any
future use of this Official Statement shall, under any circumstances, create any implication that there has been
no change in the affairs of the City since the date hereof.
The presentation of information, including tables of receipt of revenues, is intended to show recent
historical information and, is not intended to indicate future or continuing trends in the financial position or
other affairs of the City. No representation is made that past experience, as it might be shown by such
financial and other information, will necessarily continue or be repeated in the future.
PREPAYMENT PLAN
The Certificates are being sold to provide for the prepayment of the 2012 Certificates. Proceeds from
the sale of the Certificates will be deposited in an escrow fund (the “Escrow Fund”) to be established by The
Bank of New York Mellon Trust Company, N.A., as escrow agent and trustee for the 2012 Certificates (the
“Escrow Agent”), pursuant to an escrow agreement (the “Escrow Agreement”) by and between the City and
the Escrow Agent. Amounts in the Escrow Fund will be applied by the Escrow Agent pursuant to the Escrow
Agreement and the trust agreement for the 2012 Certificates, for the sole benefit of the holders of the 2012
Certificates. The amounts in the Escrow Fund will not serve as security or be available for payment of
principal or interest with respect to the Certificates.
The City plans to prepay on October 30, 2020 (the “Prepayment Date”) all of the $27,010,000
remaining outstanding principal amount of the 2012 Certificates at a prepayment price equal to the principal
amount of the 2012 Certificates, plus accrued and unpaid interest to the Prepayment Date, without premium.
Robert Thomas CPA, LLC, acting as verification agent, will certify, in writing, that the amounts so
transferred to the Escrow Agent will be sufficient to prepay the 2012 Certificates on the prepayment date at the
required prepayment price.
DESCRIPTION OF THE LEASED PREMISES
The Leased Premises consist of (i) the City’s City Hall and Administrative Offices and the Cupertino
Community Hall/City Council Chambers, including the approximately 5.6 acres of land owned by the City at
the corner of Torre Avenue and Rodrigues Street, on which such buildings are located, and (ii) the Quinlan
Community Center, including the approximately 7.2 acres of land owned by the City, located at 10185 North
Stelling Road, on which such building is located.
City Hall and Administrative Offices. The City’s City Hall and Administrative Offices building was
built in 1965 and renovated in 1986. The structure consists of a two-story office building of approximately
23,040 total square feet. The insured value of the City Hall and Administrative Offices building is currently
approximately $8 million. The City estimates that the parcel on which both the City Hall and Administrative
Office building and the Community Hall/City Council Chambers building are located has a market value of at
least $17.79 million.
In 2019. the City commissioned a facility condition and use assessment with respect to the City Hall
building which identified seismic and structural deficiencies. Further, although City Hall houses the City’s
Emergency Operations Center (“EOC”), the report found that City Hall does not meet the structural standards
for this use. The City could pursue renovations to City Hall to correct various deficiencies, which might
require the relocation of the City’s EOC and administrative functions during the renovations, or may instead
determine to relocate its EOC and administrative functions from City Hall permanently and use the City Hall
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structure for other purposes. The City could elect to finance any such renovation or rebuilding of the City Hall
and Administrative Office building through the execution and delivery of Additional Certificates, payable from
Lease Payments on a parity with the Certificates. Alternatively, the City could elect to release the portion of
the Leased Premises containing the City Hall and Administrative Office building from the Lease, subject to
satisfaction of the requirements set forth in the Lease. See the captions “SECURITY AND SOURCES OF
PAYMENT FOR THE CERTIFICATES—Substitution or Release of the Leased Premises” and “RISK
FACTORS—Release or Substitution of Property” herein and Appendix C—“SUMMARY OF PRINCIPAL
LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE
LEASE—COVENANTS WITH RESPECT TO THE LEASED PREMISES.”
Community Hall and City Council Chambers. The Community Hall/City Council Chambers
building was built in 2004 and is a one-story multi-purpose building of approximately 6,516 square feet. The
insured value of the Community Hall/City Council Chamber is approximately $2.6 million.
Quinlan Community Center. The Quinlan Community Center building was built in 1990. The
structure consists of a single-story building of approximately 28,695 total square feet, which serves as a
recreation center, with a community kitchen, two meeting halls, a music room, conference room, craft room,
pre-school room, activity room, dance studio, lobby area and offices. The insured value of the Quinlan
Community Center building is approximately $8.9 million. The Quinlan Community Center is located on an
approximately 7.2 acre parcel of land with an estimated value of over $22 million.
Pursuant to the terms of the Site Lease, the City has leased the Leased Premises to the Corporation.
Pursuant to the terms of the Lease, the Corporation has leased the Leased Premises back to the City.
Pursuant to the Lease, the City and the Corporation have agreed and determined that the Lease
Payments required to be made under the Lease represent the fair rental value of the Leased Premises. Under
the terms of the Lease, the City may substitute other property for the Leased Premises, or any portion thereof,
and may release portions of the Leased Premises provided that certain conditions set forth in the Lease are met.
See the captions “SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES—Substitution or
Release of the Leased Premises” and “RISK FACTORS—Release or Substitution of Property” herein and
Appendix C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY
OF CERTAIN PROVISIONS OF THE LEASE—COVENANTS WITH RESPECT TO THE LEASED
PREMISES—Substitution or Release of the Leased Premises.”
ESTIMATED SOURCES AND USES OF FUNDS
The following table summarizes the estimated sources and uses of Certificate proceeds:
Sources of Funds
Principal Amount of Certificates $ 22,040,000.00
Original Issue Premium 3,878,703.75
2012 Certificates Reserve Fund 1,631,187.40
Total Sources $ 27,549,891.15
Uses of Funds
Escrow Fund $ 27,279,117.67
Costs of Issuance(1) 270,773.48
Total Uses $ 27,549,891.15
(1) Includes underwriter’s discount, Special Counsel and Disclosure Counsel fees, title insurance, rating agency and verification
agent fees, and other issuance costs.
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THE CERTIFICATES
General
The Certificates will be executed and delivered in the form of fully registered Certificates in principal
amounts of $5,000 and any integral multiple thereof. The Certificates will be dated their date of delivery and
mature on June 1 in the years set forth on the inside cover page hereof. Each Certificate will be payable with
respect to interest on June 1 and December 1 of each year, commencing on December 1, 2020, at the
respective rates of interest set forth on the inside cover page hereof.
The Certificates will be executed and delivered in book-entry form only and, when delivered, will be
registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York
(“DTC”), which will act as securities depository for the Certificates. Individual purchases of the Certificates
will be made in book-entry form only. Purchasers of the Certificates will not receive certificates representing
their ownership interests in the Certificates purchased. Principal, premium, if any, and interest payments due
with respect to the Certificates are payable directly to DTC by the Trustee. Upon receipt of payments of
principal, premium, if any, and interest, DTC will in turn distribute such payments to the beneficial owners of
the Certificates. See Appendix F“DTC BOOK-ENTRY SYSTEM” herein.
Prepayment
Extraordinary Prepayment from Net Proceeds. The Certificates are subject to prepayment prior to
their respective maturity dates on any date, in whole or in part, from Net Proceeds which the Trustee deposits
in the Prepayment Fund as provided in the Lease at least 45 days prior to the date fixed for prepayment and
credited toward the prepayment made by the City pursuant to the Lease, at a prepayment price equal to the
principal amount thereof together with the accrued interest to the date fixed for prepayment, without premium.
“Net Proceeds” means any proceeds of any insurance, performance bonds or taking by eminent
domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any
expenses (including attorneys’ fees) incurred in the collection thereof.
For extraordinary prepayment of Certificates pursuant to the Trust Agreement, the Trustee will select
Certificates for prepayment so that the Net Proceeds will be applied to prepay a proportionate amount of
Certificates and Additional Certificates based on the Outstanding principal amount and by lot within any
maturity. The Trustee will promptly notify the City and the Corporation in writing of the Certificates so
selected for prepayment by mailing to the City and the Corporation copies of the notice of prepayment
provided for in the Trust Agreement.
No Optional Prepayment. The Certificates are not subject to optional prepayment prior to their
respective maturity dates.
Prepayment Procedures
When prepayment is authorized or required pursuant to the Trust Agreement, the Trustee will give
notice of the prepayment of the Certificates. Such notice will specify: (a) the prepayment date, (b) the
prepayment price, (c) if less than all of the Outstanding Certificates are to be prepaid, the Certificate numbers
(and in the case of partial prepayment, the respective principal amounts), (d) the CUSIP numbers of the
Certificates to be prepaid, (e) the place or places where the prepayment will be made, and (f) the original date
of execution and delivery of the Certificates. Such notice will further state that on the specified date there will
become due and payable upon each Certificate to be prepaid, the portion of the principal amount of such
Certificate to be prepaid, together with interest accrued to said date, and that from and after such date, provided
that moneys therefor have been deposited with the Trustee, interest with respect thereto will cease to accrue
and be payable.
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Notice of prepayment will be sent by first class mail or delivery service postage prepaid, or by
telecopy, to the Depository on the date of mailing of notice to the Owners by first class mail and by first class
mail, postage prepaid, to the Corporation and the respective Owners of any Certificates designated for
prepayment at their addresses appearing on the Certificate registration books, at least 20 days, but not more
than 60 days, prior to the prepayment date; provided that neither failure to receive such notice nor any defect in
any notice so mailed will affect the sufficiency of the proceedings for the prepayment of such Certificates.
Under no circumstances will the Trustee have any liability to any party for any inaccurate CUSIP number.
So long as DTC is the registered Owner of the Certificates, all such notices will be provided to DTC
as the Owner, without respect to the beneficial ownership of the Certificates. See Appendix F“DTC BOOK-
ENTRY SYSTEM” herein.
Notice having been given to the Owners of any Certificates being prepaid as set forth in the Trust
Agreement, and the moneys for the prepayment (including the interest to the applicable date of prepayment),
having been set aside in the Prepayment Fund, the Certificates will become due and payable on the date of
prepayment, and upon presentation and surrender thereof at the Principal Office of the Trustee such
Certificates will be paid at the prepayment price with respect thereto, plus interest accrued and unpaid to the
date of prepayment.
If, on the date of prepayment moneys for the prepayment of all the Certificates to be prepaid, together
with interest to the date of prepayment, are held by the Trustee so as to be available therefor on such date of
prepayment, and, if notice of prepayment thereof has been given as described in the Trust Agreement, then,
from and after the date of prepayment, interest with respect to the Certificates to be prepaid will cease to
accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates
will be held in trust for the account of the Owners of the Certificates so to be prepaid, without liability for
interest thereon.
All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of the Trust
Agreement will be cancelled upon surrender thereof and destroyed.
Partial Prepayment
Upon surrender by the Owner of a Certificate for partial prepayment at the Principal Office of the
Trustee, payment of such partial prepayment of the principal amount of a Certificate will be paid to such
Owner. Upon surrender of any Certificate prepaid in part only, the Trustee will execute and deliver to the
registered Owner thereof, at the expense of the City, a new Certificate or Certificates which shall be of
authorized denominations equal to the unprepaid portion of the Certificate surrendered and of the same tenor
and maturity. Such partial prepayment will be valid upon payment of the amount thereby required to be paid
to such Owner, and the City, the Corporation and the Trustee will be released and discharged from all liability
to the extent of such payment.
SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES
The Certificates do not constitute an obligation of the City for which the City is obligated to levy or
pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation
of the City to make Lease Payments under the Lease does not constitute an obligation of the City for which the
City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of
taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an
indebtedness of the City, the State of California or any of political subdivision thereof within the meaning of
any constitutional or statutory debt limitation or restriction.
8
General
Each Certificate represents a fractional undivided interest of the Owner thereof in the Lease Payments
and prepayments to be made by the City to the Trustee under the Lease. The Certificates are secured under the
Trust Agreement by the respective Lease Payments and other amounts held in the respective funds established
thereunder other than the Rebate Fund. The City is obligated to pay Lease Payments from any source of
legally available funds, and has covenanted in the Lease to include all Lease Payments coming due in its
annual budgets and to make the necessary annual appropriations therefor as required under the Lease. The
Corporation, pursuant to the Assignment Agreement, has assigned all of its rights under the Lease (excepting
certain rights as specified therein), including the right to receive Lease Payments and prepayments, to the
Trustee for the benefit of the respective Owners. By the second Business Day prior to each Interest Payment
Date (if such day is not a Business Day, the next succeeding Business Day), the City must pay to the Trustee a
Lease Payment (to the extent required under the Lease) which is expected to equal the amount necessary to pay
the principal and interest with respect to the Certificates on the next succeeding Interest Payment Date.
The City’s obligation to make Lease Payments will be abated in whole or in part, and to the extent of,
substantial interference with use and possession of all or part of the Leased Premises arising from material
damage, destruction, title defect or taking by eminent domain or condemnation of the Leased Premises.
Abatement would not constitute a default under the Lease and the Trustee would not be entitled in such event
to pursue remedies against the City. See “RISK FACTORS—Abatement” herein.
Under the Lease, the City agrees to pay certain taxes, assessments, utility charges, and insurance
premiums charged with respect to the Leased Premises and fees and expenses of the Trustee. The City is
responsible for repair and maintenance of the Leased Premises during the term of the Lease. The City may, at
its own expense, in good faith contest such taxes, assessments and utility and other charges if certain
requirements set forth in the Lease are satisfied, including obtaining an opinion of counsel that the Leased
Premises will not be subjected to loss or forfeiture.
Should the City default under the Lease, the Trustee, as assignee of the Corporation, may terminate
the Lease and re-lease the Leased Premises or may retain the Lease and hold the City liable for all Lease
Payments thereunder on an annual basis. Under no circumstances will the Trustee have the right to
accelerate Lease Payments. The exercise of the remedies provided to the Trustee is subject to various
limitations on the enforcement of remedies against public agencies. See “RISK FACTORS—Default” herein.
Lease Payments
Subject to the provisions of the Lease regarding complete or partial abatement in the event of loss of
use and possession of any portion of the Leased Premises (see the caption “RISK FACTORS — Abatement”
herein) and prepayment of Lease Payments (see the provisions relating to prepayment under the caption “THE
CERTIFICATES” herein), the City agrees to pay to the Trustee, as assignee of the Corporation, the Lease
Payments as annual rental for the use and possession of the Leased Premises. The Lease Payments are due and
payable on the second Business Day prior to each Interest Payment Date (each, a “Lease Payment Date”).
Any monies held in an account of the Lease Payment Fund on any Lease Payment Date (other than
amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to the Lease
and other amounts required for payment of past due principal or interest with respect to any Certificates not
presented for payment) shall be credited to the payment of the respective Lease Payments due and payable on
such Lease Payment Date to which such account of the Lease Payment Fund applies.
The Trust Agreement requires that Lease Payments be deposited in the Lease Payment Fund
maintained by the Trustee. Pursuant to the Trust Agreement, on June 1 and December 1 of each year,
commencing December 1, 2020, the Trustee will apply such amounts in the respective accounts of the Lease
9
Payment Fund as are necessary to make interest and principal payments, as applicable, with respect to the
Certificates as the same shall become due and payable, in the amounts specified in the Lease.
Substitution or Release of the Leased Premises
The Lease provides that the City shall have the right to substitute alternate real property for any
portion of the Leased Premises or to release a portion of the Leased Premises from the lien of the Lease so long
as the conditions precedent described below have been satisfied:
(A) The City has delivered a written certificate to the Trustee setting forth its findings that the
Leased Premises, as constituted after such substitution or release: (i) has an annual fair rental value at least
equal to the maximum Lease Payments payable by the City in any rental period; and (ii) has a useful life in
excess of the final maturity of any Outstanding Certificates;
(B) the City has obtained or caused to be obtained an ALTA title insurance policy or policies with
respect to any substituted property in the amount at least equal to the aggregate principal amount of any
Outstanding Certificates of the type and with the endorsements described in the Lease;
(C) the City has provided the Trustee with an opinion of Special Counsel to the effect that such
substitution or release will not, in and of itself, cause the interest evidenced and represented by the Certificates
and any Additional Certificates (to the extent such Additional Certificates are executed and delivered as tax-
exempt Certificates) to be included in gross income for federal income tax purposes;
(D) the City, the Corporation and the Trustee have executed, and the City has caused to be
recorded with the Santa Clara County Recorder, any document necessary to reconvey to the City the portion of
the Leased Premises being released and to include any substituted real property in the description of the Leased
Premises contained herein and in the Site Lease; and
(E) the City has provided notice of such substitution or release to each rating agency then rating
the Certificates.
See “RISK FACTORS—Release or Substitution of Property” and Appendix C—“SUMMARY OF
PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF
THE LEASE—COVENANTS WITH RESPECT TO THE LEASED PREMISES—Substitution or Release of
the Leased Premises.”
No Reserve Fund
The City has not established a reserve fund in connection with the execution and delivery of the
Certificates. In the event of abatement of Lease Payments, only proceeds of rental interruption insurance or
net proceeds of insurance may be available to pay Lease Payments. See the caption “RISK FACTORS—
Abatement” herein.
Additional Payments
Under the Lease, the City is to pay such amounts (“Additional Payments”) as are required for the
payment of all administrative costs relating to the Leased Premises or the Certificates, including, without
limitation, all expenses, compensation and indemnification of the Trustee payable by the City under the Trust
Agreement, taxes of any sort whatsoever payable by the Corporation as a result of its leasehold interest in the
Leased Premises or undertaking of the transactions contemplated in the Lease or in the Trust Agreement, fees
of auditors, accountants, attorneys or engineers and any and all other necessary administrative costs of the
Corporation or charges required to be paid by it in order to comply with the terms of the Certificates or of the
10
Trust Agreement, including premiums on insurance required to be maintained by the Lease or to indemnify the
Corporation and its employees, officers and directors and the Trustee.
Insurance
Pursuant to the Lease, the City is required to obtain an ALTA leasehold title insurance policy (with
western regional exceptions) on the Leased Premises in an amount equal to the aggregate principal component
of unpaid Lease Payments. The Lease also requires that the City maintain casualty insurance on the Leased
Premises in amount equal to replacement value and rental interruption insurance to insure against loss of Lease
Payments caused by loss or damage to the Leased Premises covered under the City’s casualty insurance. The
rental interruption insurance is to be in an amount not less than the maximum remaining scheduled Lease
Payments in any future two-year period. The City also is obligated under the Lease to obtain a standard
comprehensive general public liability and property damage insurance policy or policies and workers’
compensation insurance. See “THE CITY OF CUPERTINO—Risk Management” and Appendix C—
“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN
PROVISIONS OF THE LEASE—Risk Management” herein.
The proceeds of any rental interruption insurance will be deposited in the Lease Payment Fund, to be
credited towards the payment of the Lease Payments in the order in which such Lease Payments become due
and payable. The Lease requires the City to apply the Net Proceeds of any insurance award either to replace or
repair the Leased Premises or to prepay Certificates and Additional Certificates, if any, if certain certifications
with respect to the adequacy of the Net Proceeds to make repairs, and the timing thereof, cannot be made. See
Appendix C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY
OF CERTAIN PROVISIONS OF THE LEASE—DAMAGE, DESTRUCTION AND EMINENT DOMAIN;
USE OF NET PROCEEDS.” The amount of Lease Payments will be abated and Lease Payments due under
the Lease may be reduced during any period in which by reason of material damage, destruction, title defect or
taking by eminent domain or condemnation of the Leased Premises there is substantial interference with the
City’s use and possession of all or part of the Leased Premises. The City is not required by the Lease to
maintain earthquake or flood insurance for the Leased Premises and does not make any assurances about its
ability or willingness to maintain such insurance in the future. See “THE CITY OF CUPERTINO—Risk
Management” and “RISK FACTORSAbatement” herein.
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CERTIFICATE PAYMENT SCHEDULE
Lease Payments are required to be made by the City under the Lease on each Lease Payment Date for
the use and possession of the Leased Premises for the period commencing as of the date of delivery of the
Certificates and terminating on June 1, 2030, or a later date if such date is extended as provided in the Lease.
The Interest Payment Dates with respect to the Certificates are June 1 and December 1, commencing
December 1, 2020. The aggregate annual amounts of Certificate payments, comprising interest and principal
payable to the Owners, are set forth below for each annual period ending on June 1 of the years indicated.
Bond Year
(Ending June 1) Principal Interest Total
2021 $ 2,140,000 $ 536,306.67 $ 2,676,306.67
2022 1,880,000 796,000.00 2,676,000.00
2023 1,955,000 720,800.00 2,675,800.00
2024 2,035,000 642,600.00 2,677,600.00
2025 2,115,000 561,200.00 2,676,200.00
2026 2,200,000 476,600.00 2,676,600.00
2027 2,285,000 388,600.00 2,673,600.00
2028 2,380,000 297,200.00 2,677,200.00
2029 2,475,000 202,000.00 2,677,000.00
2030 2,575,000 103,000.00 2,678,000.00
Totals $ 22,040,000 $ 4,724,306.67 $ 26,764,306.67
Source: The Underwriter
THE CITY OF CUPERTINO
General
The City is located in Santa Clara County, at the southern end of the San Francisco Bay Peninsula,
approximately 11 miles northwest of San Jose and approximately 42 miles south of San Francisco. The City is
bordered by the cities of San Jose, Saratoga, Sunnyvale, Santa Clara and Los Altos. The City was incorporated
on October 10, 1955 as a general law city.
The City, located in the heart of the Silicon Valley, was born from a community of farmers. In 1955,
when Cupertino officially became the 13th city in Santa Clara County, its population was about 2,000 and its
geographical area encompassed 3.79 square miles. As of January 1, 2020, the City had an estimated
population of approximately 59,549 and the City limits now stretch across 13 square miles.
The City occupies the geographic center of Silicon Valley. The City is the world headquarters for
major corporations such as Apple, Seagate Technology, Verigy and Durect Corporation, and houses
approximately sixty high-tech firms. The City has thirteen shopping centers. In 2017, Apple opened its new
corporate campus, Apple Park, which includes approximately 2.8 million square feet of office and research and
development space within the City.
City departments include Administration (City Council, commissions, city manager, city attorney);
Administrative Services (finance, human resources, information technology, city clerk, neighborhood watch,
emergency preparedness, code enforcement); Community Development (planning, building, and economic
development); Parks and Recreation; Public Works (engineering, maintenance, transportation, solid waste, and
storm drain management); and Public and Environmental Affairs. Police service is provided by a City contract
with the Santa Clara County Sheriff’s Department, and fire service is provided by a separate taxing entity, the
Santa Clara County Central Fire Protection District. Water service within the City is provided by Santa Clara
12
Valley Water District and the San Jose Water Company and sewer service is provided by Cupertino Sanitary
District.
See Appendix A—"ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE
CITY OF CUPERTINO” for a general description of the City as well as certain demographic and statistical
information.
See Appendix A—GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING
TO THE CITY AND THE COUNTY for a general description of the City as well as certain demographic and
statistical information.
City Council
The City operates under a Council-City Manager form of government. There are five council
members who are elected at-large to overlapping four-year terms. The Mayor and the Vice Mayor are filled
annually by election of the council members. The City Council is responsible for, among other things,
establishing local law and policies through the enactment of ordinances and resolutions, adopting the City
budget, appointing members to advisory municipal activities, and serving on regional committees and boards
whose policies may affect the City. The members of the City Council and the expiration dates of their
respective terms are as follows:
CITY OF CUPERTINO
City Council
Name Term Expires
Steven Scharf, Mayor December 2020
Darcy Paul, Vice Mayor December 2022
Liang Chao, Council Member December 2022
Rod Sinks, Council Member December 2020
Jon Willey, Council Member December 2022
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 Management
A summary of certain City executive staff are described below.
City Manager. The City Manager is responsible for the day-to-day administration of the City. The
City Manager’s office implements policy decisions of the City Council, provides leadership and strategic
direction to the City’s leadership team and organization, as well as ensuring that initiatives and programs align
with the City’s mission and reflect the values of the community. The City Manager’s office provides overall
guidance to all City operating departments and is responsible for the administration of City programs to ensure
the delivery of high quality services in an efficient and cost-effective manner.
The City’s current City Manager is Ms. Deborah Feng. Ms. Feng began serving as City Manager of
the City in June 2019; the City Manager serves at the pleasure of the City Council. Prior to being appointed as
City Manager of the City, Ms. Feng had more than 30 years of management and administration experience
with the National Aeronautics and Space Administration at Ames Research Center in Moffett Field, California,
where her responsibilities included working with city governments, financial management and budgeting,
master planning and facilities construction, information technology, human resources, partnerships and
communications and outreach.. Ms. Feng holds a bachelor’s degree in Mass Communications, Radio and
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Television from the University of California, Berkeley and a master’s degree in Business Administration from
San Jose State University.
City Treasurer. The City Treasurer is charged with investing City funds, producing monthly reports
to identify amounts and types of investment instruments, arranging payments on City bonds and coordinating
financial transactions. The City Treasurer is appointed by the City Council. In 2014, the City Council
appointed Ms. Kristina Alfaro to the position of City Treasurer; Ms. Alfaro also serves as the Administrative
Services Director.
Kristina Alfaro was hired by the City of Cupertino in December 2012 and assumed the responsibilities
of City Treasurer and Director of Administrative Services in November 2014. Ms. Alfaro had previously
served as the Assistant to the City Manager for the City. Her municipal experience also includes seven years
as Associate Management Analyst with the Stanislaus County’s Chief Executive Office. While in Cupertino
Ms. Alfaro has led the effort to modernize the City’s financial and human resource systems by replacing the
City’s legacy system that had been in place for over 15 years. In addition, she led financial transparency
efforts by redesigning the City’s budget document and budget process and adding a financial transparency
portal. She helped to maintain the City’s strong fiscal position by implementing 115 trusts for both retiree
health and pension costs and developing a strong reserve policy. Ms. Alfaro received her bachelor’s degree
from San Jose State University, San Jose, California. Ms. Alfaro has over fifteen years of combined financial
experience in the public sector. Professional affiliations include GFOA and CSMFO.
City Attorney. The City Attorney functions include advising the City Council and City officers in all
matters pertaining to their respective offices, giving advice or opinions on the legality of all matters under
consideration by the Council or by any of the boards, commissions, committees or officers, and preparing
and/or approving all ordinances, resolutions, agreements, contracts, and other legal instruments as shall be
required for the proper conduct of the business of the City and approving the form of all contracts, agreements,
and bonds given to the City. The City Attorney is appointed by and serves at the pleasure of the City Council.
In 2019, the City Council appointed Ms. Heather Minner as a contract City Attorney. Ms. Minner is a partner
with the law firm of Shute, Mihaly & Weinberger LLP. Ms. Minner has extensive experience representing
public agency clients and frequently assists cities and local agencies in land use and administrative matters.
Ms. Minner received a bachelor’s degree in history from the University of California, Berkeley, a master’s
degree in urban planning from the University of California, Los Angeles, and a Juris Doctorate from the
University of California Berkeley School of Law.
Employee and Employee Relations
As of June 30, 2020, the City had approximately 198 full-time equivalent employees. In accordance
with the provisions of California Government Code Section 3500, the City participates in labor negotiations
with its employee associations. The result of the negotiations processes are memorialized in memoranda of
understanding reached between the City and the City employee associations. The table below lists the City’s
two employee associations and the approximate membership as of June 30, 2020, as well as the unrepresented
employees:
Unit/Affiliation
Contract
Expiration
Date
Number of
Members
Cupertino Employee’s Association June 30, 2022 65
Operating Engineers Local No. 3 Union, AFL-CIO June 30, 2022 55
Unrepresented Employees Compensation Program 70
Total 190
Source: City of Cupertino.
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The City has not experienced a strike or work stoppage in the last ten years.
Prior Employee Embezzlement
On September 5, 2018 the Santa Clara County Sheriff’s Office arrested a former City employee for
her alleged role in the embezzlement of public funds. The employee is alleged to have issued and cashed
numerous fraudulent checks between 2000 and 2014 for a total of $791,494. The State Attorney General’s
Office has brought criminal charges against the former employee. The City is working with the Attorney
General’s Office to seek maximum restitution from the former employee through the criminal proceedings.
City staff discovered the fraudulent checks in 2018, during a multi-year, detailed review of the City’s
accounts following the implementation of an upgraded financial system in 2014, which was intended to
strengthen the City’s internal controls.
The new financial system implemented by the City in December 2014 increased the magnitude and
volume of internal controls by establishing multi-layer approvals within the system. In conjunction with the
system upgrade in 2014, the City incorporated a decentralized accounting structure and hired additional
accounting staff to enhance segregation of duties and implemented an internal audit function in fiscal year
2019-20. In addition, the City holds quarterly Audit Committee meetings for purposes of (1) reviewing annual
audit reports and management letters, (2) recommending appointment of auditors, (3) reviewing quarterly
treasurer’s reports, (4) recommending budget formats, and (5) reviewing City investment policies and internal
controls of such policies.
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 Pooled Liability Assurance Network Joint Powers
Authority (“PLAN JPA”) (previously the Association of Bay Area Governments Pooled Liability Assurance
Network (“ABAG PLAN”)). The risk pool consists of 28 agencies within the San Francisco Bay Area. The
stated purpose of the PLAN JPA is to provide certain levels of liability insurance coverage, claims
management, risk management services, and legal defense to its participating members. PLAN JPA is
governed by a Board of Directors, which comprises officials appointed by each participating member.
Premiums paid to PLAN JPA are subject to possible refund based on the results of actuarial studies and
approval by the Board of Directors. Complete financial statements for PLAN JPA may be obtained from their
offices at the following address: PLAN JPA, 1750 Creekside Oaks Drive, Suite 200, Sacramento, CA 95833.
Premiums are revised each year based on the City’s claims experience and risk exposure. For the years ended
June 30, 2019 and June 30, 2020, the City paid PLAN JPA premiums of $482,346 and $639,636, respectively.
Workers’ Compensation Liability. The City belongs to the CSAC Excess Insurance Authority
(“EIA”), a joint powers 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 years ended June 30, 2019 and
June 30, 2020, the City paid EIA premiums of $126,079 and $123,313, respectively.
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,
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including frequency and amount of payouts, and other economic and social factors. Inflation of 2.5%, annual
rate of return of 2.0%, claim severity increase at 2.5% were assumed. In the year ended June 30, 2019,
management used actuarial estimates based on a 90% confidence level.
Settled claims have not exceeded any of the coverage described above in any of the past five fiscal
years. For additional information with respect to the City’s risk management program and EIA, see Note 9 to
the City’s audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.
CITY FINANCIAL INFORMATION
COVID-19 Pandemic Impact
General. 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 have recommended, and some
governments have mandated, a variety of responses ranging from travel bans and social distancing practices, to
complete shut-downs 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 non-essential services.
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, including the 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 was in Tier
1 (“Widespread”). As of September 8, 2020, the County had been moved to Tier 2 (“Substantial”). For
counties in Tier 2, previously re-opened indoor businesses (such as retail stores, shopping malls, hair salons
and grocery stores) may remain open, with certain modifications and increased capacity, and certain additional
indoor business (such as gyms and personal care) may open with modifications, such as limitations on
capacity. While the State allows counties in Tier 2 to re-open indoor dining and movie theaters, the County’s
local health order requires these indoor operations to remain closed. If the County remains in Tier 2 for 14
days, then K-12 schools may re-open for in-person instruction with certain 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
volatility attributed to coronavirus concerns. CalPERS has reportedly lost significant value in its investments
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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. See the
caption “—Retirement System.” The outbreak has resulted in increased pressure on State finances, as
budgetary resources are directed towards containing the pandemic and tax revenues sharply decline. 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 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.
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 have been more
strict in certain respects than federal guidelines and state orders related to COVID-19. The County’s July 2,
2020 order 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).
Impacts on the City. 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.
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 state-wide 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 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 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.
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See the caption “—Budget Procedure, Current Budget and Historical Budget Information” herein for a
discussion of the City’s fiscal year 2020-21 Adopted Budget and the potential impacts of COVID-19 on City
finances.
Accounting and Financial Reporting
The City’s basic financial statements are prepared in conformity with accounting principles generally
accepted in the United States (“GAAP”). 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.
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.
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.
The General Fund is the general operating fund of the City and is used to account for all financial
resources except those that are required to be accounted for in another fund. The City expects to pay Lease
Payments from amounts in the General Fund. Tables 1 through 3 below set forth certain historical and current
fiscal year budget information for the General Fund. Information on the other governmental funds of the City
as of June 30, 2019 is set forth in Appendix B.
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City Blended Component Units and Fiduciary Component Units
General. Under GASB guidelines, component units of a primary government (i.e. the City) generally
include those that are legally separate entities but raise and hold economic resources for the direct benefit of
the primary government. Blended component units, although separate legal entities are, in substance, part of
the government’s operations and their funds are treated similarly to funds of the primary government (other
than the General Fund). Fiduciary component units are those with assets administered through a trust in which
the primary government is not the beneficiary, the assets are dedicated to provide benefits to recipients and the
assets are legally protected.
The City’s blended component units which have or will have outstanding obligations and City’s
fiduciary component units, are described below.
Blended Component Unit. The Corporation was incorporated in May 1986, under the Nonprofit
Public Benefit Corporation Law of the State. 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 other post-employment benefit payments of the City’s other post-employment
benefits plan initiated by the City but reimbursed to the PARS Trust and 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. For discussion of the City’s OPEB Plan, see the caption “—Other Post-
Employment Benefits” and Note 11 to the audited financial statements for fiscal year 2018-19 attached hereto
as Appendix B.
Financial Policies
General. The City has adopted a comprehensive set of financial policies to serve as a guideline for
financial matters as further described below.
Reserves Policy. The City has adopted a committed, unassigned fund balance and use of one time
funds policy (the “Reserve Policy”) for the purpose of meeting the City’s goal of maintaining sufficient
committed and unassigned fund balances in each fund for the ability to meet certain economic uncertainties.
The City has adopted the following reserves: (i) an Economic Uncertainty reserve, to be used in case of
economic downturns and major revenue changes; (ii) a CalPERS Pension Rate Stabilization Program, to assist
in stabilizing the potential impact of pension cost volatility on the City’s operating budget; (iii) an OPEB
Reserve, to assist in stabilizing the potential impact of OPEB cost volatility on the City’s operating budget; (iv)
a Sustainability Reserve with respect to the City’s Climate Action Plan, with funds to be used to provide
residents, business and schools with programs and services focused on energy efficiency, renewable energy,
water conservation, alternative transportation and other sustainable actions; (v) Unassigned reserves to absorb
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unanticipated operating needs or unexpected claims or litigation settlements; and (vi) a Capital Improvements
reserve (the “Capital Reserve”) to meet future capital project needs so as to minimize future debt obligations.
The following table shows the City’s Reserve Policy amounts for fiscal year 2020-21 and the fund
balances as of June 30, 2020 for each of the reserves described above.
Funding
Priority Reserve
Target Reserve
Level
Balance
as of June 30, 2020 Escalator
General Fund
1 Economic
Uncertainty
$ 19,000,000 $ 19,000,000 General Fund budgeted operating expenditures
(exclusive of interfund transfers) and General
Fund budgeted revenues
2 CalPERS $ 12,000,000 $ 12,725,224 Budgeted City-wide retirement costs
3 OPEB N/A $ 29,370,249
4 Sustainability
Reserve
N/A $ 127,891 General Fund budgeted revenue (excluding the
use of reserves)
5 Unassigned $ 500,000 $ 28,420,987 Budgeted General Fund operating expenditures
Capital Project Funds
6 Capital
Improvement
$ 5,000,000 $ 5,000,000 None
Debt Management Policy. The City has adopted a debt management policy (the “Debt Management
Policy”) in compliance with California Government Code Section 8855. The Debt Management Policy sets
forth the purposes for which long-term debt financings may be undertaken (i.e. for projects that will provide
benefit to constituents over multiple years). The Debt Management Policy provides that short-term financings
may be undertaken for operational cash flow purposes and for short-lived capital projects (i.e. equipment
leases). The City’s Debt Management Policy is implemented in conjunction with annual budgeting and the
City’s capital improvement program.
Investment Policy. The City invests its funds in accordance with the City’s investment policy (the
“Investment Policy”). In accordance with Section 53600 et seq. of the California Government Code, idle cash
management and investment transactions are the responsibility of the City Treasurer. The City’s Investment
Policy sets forth the policies and procedures applicable to the investment of City funds and designates eligible
investments. The Investment Policy sets forth a stated objective, among others, of ensuring the safety of
invested funds by limiting credit and market risks. Funds are invested in the following order of priority:
Safety of Principal;
Liquidity; and
Return on Investment.
Eligible investments are generally limited to managed investment pools, including the Local Agency
Investment Fund which is operated by the California State Treasurer, U.S. Treasury bills, notes and bonds,
federal agency or United States government sponsored enterprise obligations, medium term corporate notes,
commercial paper rated A1/P1, as applicable, or better, repurchase agreements with counter-party ratings of
“AA” or its equivalent or better, and mutual funds as authorized by State law.
The City Treasurer is required to provide a quarterly report to the City Manager and the City Council
showing the type of investment, date of maturity, amount invested, current market value, rate of interest, and
other such information as may be required by the City Council. At June 30, 2020, the City had an investment
portfolio with a market value of approximately $110 million. As of such date, the City had invested
approximately, 33% of its investment portfolio in federal agencies, 25% in U.S. Treasuries, and 26% of its
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investment portfolio in corporate securities. For additional information with respect to the City’s cash and
investments, see Note 2 to the audited financial statements for fiscal year 2018-19 attached to the Official
Statement as Appendix B.
Major Revenues and Expenses
Revenues. The City derives its General Fund revenues from a variety of sources including ad valorem
property taxes, sales taxes, licenses, permits, transient occupancy taxes, charges for services provided by the
City and other miscellaneous revenues. The City’s total General Fund revenues for selected major revenue
sources for the past five fiscal years are set forth below.
TABLE 1
CITY OF CUPERTINO
SELECTED MAJOR REVENUE SOURCES
Revenue Category 2015-16 2016-17 2017-18 2018-19 2019-20(1) Percentage(3)
Property Taxes(2) $ 18,194,463 $ 20,219,077 $ 22,433,805 $ 25,301,095 $ 26,606,844 29.30%
Sales Taxes 21,350,056 26,932,012 26,164,531 24,901,779 26,651,250 29.35%
Transient Occupancy Taxes 5,852,244 6,023,681 6,810,718 8,901,337 7,286,083 8.02%
Charges for Services 16,848,153 23,708,304 14,972,627 12,644,413 11,955,401 13.17%
Licenses and Permits 3,073,110 2,356,925 2,757,928 4,102,665 4,692,845 5.17%
Total $ 65,318,026 $ 79,239,999 $ 73,139,609 $ 75,851,289 $ 77,192,424 85.01%
(1) Fiscal year 2019-20 amounts represent unaudited actual results. (2) Inclusive of Department of Motor Vehicles license fees. See “—Property Taxes” below. (3) Percentage of total fiscal year 2019-20 General Fund revenues.
Source: City of Cupertino.
Expenses. The City’s major General Fund two largest expenditure categories for fiscal year 2019-20
were expenditures for Public Works and Law Enforcement (which is comprised mostly of the City’s contract
with Santa Clara County to provide police services for the City), which accounted for approximately 29.6%
and 21.9%, respectively, of General Fund expenditures. In fiscal year 2020-21, approximately 32.6% and
20.9% of budgeted General Fund expenditures are for Public Works and Law Enforcement expenditures,
respectively. See the caption “—Budget Procedure, Current Budget and Historical Budget Information”
herein.
Other major General Fund expenditures include administration (which includes the City’s costs
associated with the City’s retirement system and other post-employment benefit plan described under the
captions “—Retirement System” and “Other Post-Employment Benefits”) and expenditures for community
development activities. Administration and community development expenditures comprised approximately
10.8% and 13.1% of total fiscal year 2019-20 General Fund expenditures, respectively, and are budgeted to
comprise approximately 13.1% and 13.9% of fiscal year 2020-21 General Fund expenditures, respectively.
Budget Procedure, Current Budget and Historical Budget Information
The City’s annual operating budget is prepared on a July 1 to June 30 fiscal year basis. However, the
budget process is an ongoing process that occurs throughout the year and includes phases of development,
proposal, adoption, monitoring and amendment.
The budget development phase begins in December with the preparation of budget instructions and
work program development by the City Council and City Manager. During March, departments prepare the
budgets for which they are responsible. These proposed department budgets are reviewed by the City’s
Finance Division using current and prior year trends data. The City Manager then reviews the proposals with
the Director of Administrative Services and departmental staff and makes final decisions which form the basis
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of the City Manager’s proposed budget. The City Manager’s proposed budget is then submitted to the City
Council in May.
During the months of May and June, the City Council considers the budget proposals at a study
session and public hearing. At these times, the Council hears from the City’s boards and commissions,
community groups and the public regarding budget requests and recommendations. The adopted budget is
adopted by resolution in June and takes effect on July 1.
After the annual budget is adopted, the City enters the budget monitoring phase. Throughout the year,
expenditures are monitored by the Finance Division staff and department managers to ensure that funds are
used in an approved manner. Adjustments to expenditures within or between departmental budgets are
accomplished on an as-needed basis administratively throughout the year. The City Manager and department
heads can transfer funds between their line items and/or divisions as needed.
City Council approval is required for additional appropriations from fund balances or from new
revenue sources.
The annual budget for fiscal year 2020-21 was approved on June 16, 2020 (the “Adopted Budget”).
The Adopted Budget projects General Fund revenues in fiscal year 2020-21 to be approximately $79.1 million,
a decrease of approximately $8 million or 9.2% from the fiscal year 2019-20 adopted budget.
The Adopted Budget projects: (i) an increase in property tax revenues of approximately $0.6 million,
(ii) a decrease in sales tax revenues of approximately $4.7 million; and (iii) a decrease in transient occupancy
tax of approximately $2.1 million, in each case as compared to the fiscal year 2019-20 adopted budgeted
amounts. The Adopted Budget projects General Fund expenditures of $80.5 million in fiscal year 2020-21,
which is an approximately $0.4 million increase from the fiscal year 2019-20 adopted budget.
The Adopted Budget also includes certain adjustments to the City’s proposed budget in light of the
impacts of the COVID-19 pandemic, including phasing in an increase of vacant staff positions from five to 20
within a three-year period, which is expected to result in approximately $3.2 million in annual savings;
reducing contingencies by 50%, which is expected to save approximately $850,000; reducing materials by
10%, which is expected to save approximately $670,000 in fiscal year 2020-21; reducing contract services by
$1 million; reducing special projects by $500,000; reducing capital outlays by 60%; and reducing transfers out
by $1.2 million.
Set forth in Table 2 below are the adopted General Fund budgets for fiscal years 2018-19, 2019-20
and 2020-21, the actual audited results for fiscal year 2018-19 and the unaudited actual results for fiscal year
2019-20. The General Fund budgets and actuals shown in Table 2 below do not reflect the application of
GAAP and therefore differ in certain respects to the audited General Fund Statement of Revenues,
Expenditures and Change in Fund Balance shown in Table 3 below.
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TABLE 2
CITY OF CUPERTINO
GENERAL FUND BUDGETS TO ACTUAL COMPARISONS (ON A BUDGETARY BASIS)(1)
Adopted
Fiscal Year
2018-19
Budget
Fiscal Year
2018-19 Audited
Results
Adopted Fiscal
Year 2019-20
Budget
Unaudited
Actual Fiscal
Year 2019-20
Results(2)
Adopted Fiscal
Year 2020-21
Budget
REVENUES
Taxes $ 62,047,000 $ 67,299,302 $ 64,386,061 $ 65,128,267 $ 58,248,207
Use of money and property 692,000 2,654,331 1,330,579 2,865,334 1,246,510
Intergovernmental 326,000 473,942 354,547 747,942 335,567
Licenses and permits 2,685,000 4,102,665 2,524,000 4,692,845 3,139,473
Charges for services 10,269,276 12,644,413 13,233,225 11,955,401 11,091,064
Fines and forfeitures 615,000 511,471 615,000 327,833 425,000
Other revenue 244,200 1,102,320 4,644,740 5,088,017 4,559,304
Amounts available for appropriation $ 76,878,476 $ 88,788,444 $ 87,088,152 $ 90,805,639 $ 79,045,125
CHARGES FOR APPROPRIATION
(OUTFLOWS)
Current
Administration $ 6,883,713 $ 6,292,611 $ 7,554,703 $ 6,957,217 $ 9,218,655
Law enforcement 12,988,353 13,108,632 14,077,937 14,151,412 14,792,448
Innovation and technology 3,397,490 2,843,540 3,378,697 3,556,368 1,981,299
Administrative services 4,606,561 4,197,582 4,790,420 4,652,598 4,955,568
Parks and recreation 10,614,583 8,996,118 8,579,403 7,688,940 6,804,768
Community development 8,332,883 8,554,055 9,604,789 8,443,767 9,801,449
Public Works 17,831,725 17,667,775 21,578,962 19,156,660 23,025,616
Capital outlay 1,625,500 1,353,691 -- -- --
Total charges for appropriations $ 66,280,808 $ 63,014,104 $ 69,564,911 $ 64,606,962 $ 70,579,803
EXCESS OF REVENUES OVER
EXPENDITURES $ 10,597,668 $ 25,774,340 $ 17,523,241 $ 26,198,677 $ 8,465,322
OTHER FINANCING SOURCES (USES)
Proceeds from sale of capital assets -- $ 3,875 -- -- --
Transfers in $ 10,000 10,000 $ 12,000 $ 10,012,000 $ 15,000
Transfers (out) (11,358,912) (19,376,212) (10,539,557) (30,892,319) (9,948,689)
Total other financing sources (uses) $ (11,348,912) $ (19,362,212) $ (10,527,557 $ (20,880,319) $ (9,933,689
NET CHANGE IN FUND BALANCE $ (751,244) $ 6,412,128 $ 6,995,684 $ 5,318,358 $ (1,468,367)
(1) This Table 2 is presented using the budgetary basis of accounting and does not reflect the application of GAAP. Certain actual results for
fiscal years 2018-19 and 2019-20 differ from Table 3 below.
(2) Fiscal year 2019-20 amounts represent unaudited actual results.
Source: Audited Financial Statements for fiscal year 2018-19; the City for fiscal year 2020-21; Adopted Budget of the City for fiscal year
2020-21.
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Comparative Change in Fund Balance of the City General Fund
The table below presents the City’s audited General Fund Statement of Revenues, Expenditures and
Change in Fund Balance for fiscal years 2015-16 through 2018-19 and unaudited actual results for fiscal year
2019-20.
TABLE 3
CITY OF CUPERTINO GENERAL FUND STATEMENT OF
REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE
2015-16 2016-17 2017-18 2018-19 2019-20(1)
REVENUES
Taxes $ 54,786,297 $ 62,648,633 $ 63,459,132 $ 67,299,302 $ 65,128,267
Use of money and property 1,362,393 1,173,095 1,325,814 2,654,331 2,865,334
Intergovernmental 428,992 330,108 1,000,776 473,942 747,942
Licenses and permits 3,073,110 2,536,925 2,757,928 4,102,665 4,692,845
Charges for services 16,848,153 23,708,304 14,972,627 12,644,413 11,955,401
Fines and forfeitures 558,516 593,123 575,032 511,471 327,833
Other revenue 799,587 1,822,766 1,015,227 1,102,320 5,088,017
Total revenues $ 77,857,048 $ 92,812,954 $ 85,106,536 $ 88,788,444 $ 90,805,639
EXPENDITURES
Current
Administration $ 4,052,241 $ 5,936,337 $ 4,919,262 $ 6,292,611 $ 6,957,217
Law Enforcement 10,988,735 11,939,095 12,362,621 13,108,732 14,151,412
Public and environmental affairs 544,718 1,864,746 2,835,768 2,843,540 3,556,368
Administrative services 2,811,117 5,054,539 4,430,300 4,197,582 4,652,598
Recreation services 5,441,200 9,361,934 8,686,076 8,996,118 7,688,940
Community development 5,248,841 6,433,422 8,365,234 8,554,055 8,443,767
Public works 13,115,155 16,484,844 15,820,836 17,667,775 19,156,660
Capital outlay 9,657,394 7,999,577 7,762,733 1,353,691 --
Total expenditures $ 51,859,401 $ 65,074,494 $ 65,182,830 $ 63,014,104 $ 64,606,962
EXCESS (DEFICIENCY) OF REVENUES OVER
EXPENDITURES $ 25,997,647 $ 27,738,460 $ 19,923,706 $ 25,744,340 $ 26,198,677
OTHER FINANCING SOURCES (USES)
Proceeds from sale of capital assets $ 580 -- $ 872,250 $ 3,875 --
Transfers in 36,015 $ 31,411 2,254,183 10,000 $ 10,012,000
Transfers out(2) (13,163,945) (26,609,358) (24,129,372) (19,376,087) (30,892,319)
Total other financing sources (uses) $ (13,127,350) $ (26,343,610) $ (21,002,939) $ (19,362,212) $ (20,880,319)
Net Change in Fund Balances $ 12,870,297 $ 1,394,850 (1,079,233) $ 6,412,128 $ 5,318,358
Fund Balances (Deficits) – July 1 39,324,543 52,194,840 53,589,690 52,510,457 58,922,585
Fund Balances (Deficits) – June 30 $ 52,194,840 $ 53,589,690 $ 52,510,457 $ 58,922,585 $ 64,240,943
(1) Fiscal year 2019-20 amounts represent unaudited actual results.
(2) Transfers out generally include transfers to fund capital projects, annual lease payments with respect to the 2012 Certificates and other
miscellaneous transfers. See Note 4 the audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.
Source: Audited Financial Statements for fiscal years 2015-16 through 2018-19; City for fiscal year 2019-20.
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Comparative General Fund Balance Sheets of the City
The table below presents the City’s audited General Fund Balance Sheets for fiscal years 2015-16
through 2018-19 and unaudited actual results for fiscal year 2019-20.
TABLE 4
CITY OF CUPERTINO
GENERAL FUND BALANCE SHEETS
FIVE YEAR COMPARISON
2015-16 2016-17 2017-18 2018-19 2019-20(1)
ASSETS
Cash and investments $ 54,282,490 $ 62,119,171 $ 63,889,867 $ 57,426,973 $ 62,029,471
Restricted cash and investments -- -- -- 8,109,521 12,725,224
Receivables
Accounts 11,181,310 2,953,906 2,837,425 3,320,100 2,946,471
Interest 52,606 94,152 163,067 363,945 70,265
Loans 868,608 851,714 458,893 454,188 449,341
Due from other funds 450,220 1,400,000 307,056 441,326 441,326
Advance to other funds(2) -- -- -- -- 3,000,000
Other assets(3) 72,657 25,613 3,884 3,884 3,884
Total Assets $ 66,907,891 $ 67,448,052 $ 67,666,192 $ 70,119,937 $ 81,665,982
LIABILITIES
Accounts payable and accruals $ 4,794,690 $ 2,861,179 $ 3,664,488 $ 2,975,447 $ 4,208,314
Accrued payroll and benefits 15,649 224,346 912,107 882,414 1,405,270
Due to other funds -- -- -- -- --
Deposits 9,747,271 10,663,048 10,479,925 7,066,073 11,605,717
Unearned revenue 155,441 109,789 99,125 273,418 205,739
Total liabilities $ 14,713,051 $ 13,858,362 $ 15,155,735 $ 11,197,352 $ 17,425,040
FUND BALANCES
Nonspendable $ 937,381 $ 876,939 $ 464,893 $ 454,188 $ 449,341
Restricted 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 20,500,000 4,638,181 9,963,310 1,979,202 1,979,202
Unassigned 29,869,085 28,057,799 21,704,922 27,896,128 28,359,751
Total fund balances $ 52,194,840 $ 53,589,690 $ 52,510,457 $ 58,922,585 $ 64,240,942
Total liabilities and fund balances $ 66,907,89, $ 67,448,052 $ 67,666,192, $ 70,119,937 $ 81,665,982
(1) Fiscal year 2019-20 amounts represent unaudited actual results.
(2) Represents an advance from the General Fund to the Capital Improvement Program Capital Projects Fund to provide further funding for the
City’s Library Expansion Project. Such advance is scheduled to be repaid to the General Fund within three years.
(3) Includes certain prepaid items for fiscal years 2015-16 through 2017-18.
Source: Audited Financial Statements for fiscal years 2015-16 through 2018-19; City for fiscal year 2019-20.
Capital Improvement Program
The City adopts an annual capital improvement program (“CIP”) that covers the current and next
succeeding four fiscal years and serves as the City’s short and long-term plan for capital projects. Each fiscal
year, the CIP is funded by the Capital Reserve and/or restricted grant and donation proceeds. The fiscal year
2020-21 adopted CIP budgets for expenditures of $2.2 million, or $23.5 million lower than the fiscal year
2019-20 adopted CIP. In addition to uncertainty surrounding the COVID-19 pandemic, this reduction is also
due to a minimal remaining fund balance in the Capital Reserve. While the City’s policy to transfer excess
fund balance in the General Fund to the Capital Reserve remains effective, the impacts from COVID-19 will
create competing interests for use of those excesses.
25
The City’s adopted fiscal year 2020-21 CIP totals approximately $2.2 million, including $2.2 million
in newly adopted appropriations and $52.1 million in remaining appropriations from prior years. The projects
include upgrades and/or new construction of general City facilities, park improvements, storm drain
improvements, sanitary sewer projects and street and traffic projects. A summary of the major projects
included in the adopted fiscal year 2020-21 CIP and the fiscal year 2020-21 appropriated amounts for such
projects are shown in the table below.
Property Taxes
During fiscal years 2018-19 and 2019-20, property tax receipts of approximately $25.3 million and
$26.6 million, respectively, were received by the City, contributing approximately 28.5% and 29.3% of total
General Fund revenues in fiscal years 2018-19 and 2019-20, respectively. The City has budgeted to receive
approximately $25.3 million during fiscal year 2020-21. The City also received a portion of Department of
Motor Vehicles license fees (“VLF”) collected statewide. Several years ago, the statewide VLF was reduced
by approximately two-thirds. However, the State continued to remit to cities and counties the same amount that
those local agencies would have received if the VLF had not been reduced, known as the “VLF backfill.” The
State VLF backfill was phased out, and as of fiscal year 2011-12, all of the VLF is now received through an in-
lieu payment from State property tax revenues. In California, property which is subject to ad valorem taxes is
classified as “secured” or “unsecured.” The secured classification includes property on which any property tax
levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien
against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer.
Every tax which becomes a lien on secured property has priority over all other liens, arising pursuant to State
Law, on the secured property, regardless of the time of the creation of other liens. The valuation of property is
determined as of January 1 each year, and installments of taxes levied upon secured property are due
November 1 and February 1 and become delinquent on the following December 10 and April 10, respectively.
Taxes on unsecured property are due July 1, and become delinquent August 31.
Secured and unsecured properties are entered separately on the assessment roll maintained by the
county assessor. The method of collecting delinquent taxes is substantially different for the two classifications
of property. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the
secured roll is the sale of the property securing the taxes of the State for the amount of taxes that are
delinquent. The taxing authority has four methods of collecting unsecured personal property taxes: (1) a civil
action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in
order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for
record in the County Recorder’s Office in order to obtain a lien on certain property of the taxpayer, and
(4) seizure and sale of personal property, improvement or possessory interest belonging or taxable to the
assessee.
A ten percent penalty is added to delinquent taxes which have been levied with respect to property on
the secured roll. In addition, beginning on the July 1 following a delinquency, interest begins accruing at the
rate of 1 1/2% per month on the amount delinquent. Such property may thereafter be redeemed by the
payment of the delinquent taxes and the ten percent penalty, plus interest at the rate of 1 1/2% per month to the
time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State
and then is subject to sale by the county tax collector. A ten percent penalty also applies to the delinquent
taxes or property on the unsecured roll, and further, an additional penalty of 1 1/2% per month accrues with
respect to such taxes beginning on the varying dates related to the tax billing date.
Legislation enacted in 1984 (Section 75 et seq. of the Revenue and Taxation Code of the State of
California), provides for the supplemental assignment and taxation of property as of the occurrence of a change
in ownership or completion of new construction. Previously, statutes enabled the assessment of such changes
only as of the next tax lien date following the change and thus delayed the realization of increased property
taxes from the new assessment for up to 14 months. Collection of taxes based on supplemental assessments
occurs throughout the year. Taxes due are prorated according to the amount of time remaining in the tax year,
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with the exception of tax bills dated January 1 through May 31, which are calculated on the basis of the
remainder of the current fiscal year and the full 12 months of the next fiscal year.
In the past, the State Legislature has shifted property taxes from cities, counties and special districts to
the Educational Revenue Augmentation Fund. The term “ERAF” is often used as a shorthand reference for
this shift of property taxes. In 1992-93 and 1993-94, in response to serious budgetary shortfalls, the State
Legislature and administration permanently redirected over $3 billion of property taxes from cities, counties,
and special districts to schools and community college districts. The 2004-05 State budget included an
additional $1.3 billion shift of property taxes from certain local agencies, including the City, to occur in fiscal
years 2004-05 and 2005-06. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES
AND APPROPRIATIONS—Proposition 1A” and “—Proposition 22” herein for a description of certain
limitations on the State’s authority over local government revenue sources.
The table below sets forth the secured and unsecured assessed valuations, net of exemptions, for
property in the City for the fiscal years 2011-12 through 2020-21.
TABLE 5
CITY OF CUPERTINO
ASSESSED VALUATION
FISCAL YEARS 2011-12 THROUGH 2020-21
Fiscal Year Local Secured Unsecured
SBE Non-
Utility Total
2011-12 $13,219,574,367 $ 527,310,319 $1,390,000 $13,748,274,686
2012-13 13,882,147,291 738,243,050 1,390,000 14,621,780,341
2013-14 15,391,656,690 813,117,019 1,390,000 16,206,163,709
2014-15 16,133,637,244 965,141,148 -- 17,098,778,392
2015-16 18,308,720,226 1,086,786,901 -- 19,395,507,127
2016-17 20,196,258,418 1,150,311,942 -- 21,346,570,360
2017-18 22,024,906,420 1,114,123,426 -- 23,139,029,846
2018-19 23,402,123,229 1,779,936,377 -- 25,182,059,606
2019-20 24,370,718,536 1,641,863,322 -- 26,012,581,858
2020-21 25,397,331,860 2,423,984,683 -- 27,821,316,543
Source: County Assessor-County Clerk-Recorder.
The County operates under a statutory program entitled Alternate Method of Distribution of Tax
Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”). Under the Teeter Plan local taxing
entities receive 100% of their tax levies net of delinquencies, but do not receive interest or penalties on
delinquent taxes collected by the County. The City’s share of the ad valorem property tax levy is included in
the County’s Teeter Plan. As a result, the City currently receives 100% of such levy and is not impacted by
delinquencies in payment. However, the County may choose to discontinue to the Teeter Plan at any time.
The 10 largest property taxpayers in the City for fiscal year 2018-19 based on total assessed valuation,
the land use and the percentage of the City’s total assessed value attributable to each are shown in the below
table. The information in Table 6 has been obtained from third-party sources and is included for general
information purposes only. The City has not verified the information in Table 6 and does not guarantee the
accuracy of such information.
The largest property taxpayer in the City, Apple, has been based in the City since 1977. In 2017,
Apple opened its new world headquarters campus, representing an investment of billions of dollars into the
City.
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TABLE 6
CITY OF CUPERTINO
TEN PRINCIPAL TAXPAYERS
Property Owner
2019-20 Assessed
Valuation
% of
Total(1)
1. Apple Computer Inc. $ 6,191,911,133 23.80%
2. Main Street Cupertino 396,065,000 1.52
3 Vallco Property Owner LLC 339,916,857 1.31
4. Cupertino City Center 201,051,525 0.77
5. BVK Perimeter Square Retail LLC ET AL 181,321,407 0.70
6. Cupertino Property Development LLC 180,164,643 0.69
7. Mission West Properties LP II ET AL 140,416,937 0.54
8. PR Cupertino Gateway LLC 130,693,479 0.50
9. Markham Apartments LP 104,481,230 0.40
10. Cupertino Hotel Owner LLC 97,799,908 0.38
$ 7,963,822,119 30.62%
(1) 2019-20 Local Assessed Valuation (secured and unsecured): $26,012,581,858.
Source: HdL, Coren & Cone.
Sales Taxes
During fiscal years 2018-19 and 2019-20, sales tax receipts of approximately $24.9 million and $26.7
million, respectively, were received by the City, contributing approximately 28.0% and 29.3% of total General
Fund revenues in fiscal years 2018-19 and 2019-20, respectively. The City has budgeted for sales tax receipts
of approximately $20.9 million to be received during fiscal year 2020-21. A sales tax is imposed on retail
sales or consumption of personal property.
In fiscal year 2020-21, sales tax is budgeted to experience a significant decrease due to COVID-19.
Sales tax revenue projections have been reduced by 18% (approximately $4.7 million) from original forecasts
due to COVID-19. Sales tax is assumed to return to 90% of historical averages across industry groups in fiscal
year 2021-22. Sales tax is projected to grow by an average annual growth rate of 2.2% in the City’s five-year
forecast, using conservative forecasts for business and industry, general consumer goods, restaurants and
hotels and state and county pools. See the caption “—COVID-19 Pandemic Impact” herein.
The basic sales tax rate is established by the State Legislature, and local overrides may be approved by
voters. The current total sales tax rate in the City is 9.00%. The following table shows the sales tax revenues
received by the City for the five most recent fiscal years.
TABLE 7
CITY OF CUPERTINO
SALES TAX REVENUES
Fiscal Year
Total Sales Tax
Revenues
2015-16 $ 21,350,056
2016-17 26,932,012
2017-18 26,164,531
2018-19 24,901,779
2019-20 26,651,250
Source: City of Cupertino.
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Table 8 below shows the taxable transactions by industry type as of June 30, 2019. The information
in Table 8 has been obtained from HdL, Coren & Cone and is included for general information purposes only.
The City has not verified the information in Table 8 and does not guarantee the accuracy of such information.
TABLE 8
CITY OF CUPERTINO
TAXABLE TRANSACTIONS BY INDUSTRY
Industry
Percentage of All
Taxable
Transactions
Business-to-Business 67%
State and County Pools 17
Restaurants and Hotels 6
General Retail 4
Fuel and Service Stations 3
Other 3
Total 100%
Source: HdL, Coren & Cone.
Business-to-business revenue is the largest portion of the City’s sales tax base, and therefore the
City’s sales tax revenue is sensitive to economic forces. In particular, the City’s two largest sales tax
sources—both technology companies—account for a large portion of the City’s total sales tax base. Sales tax
revenue is reported two quarters in arrears, providing the City with approximately six months to react if sales
tax revenue begins to decline.
Table 9 below provides the top twenty-five sales tax payers (in alphabetical order) within the City for
fiscal year 2019-20.
TABLE 9
CITY OF CUPERTINO
TWENTY PRINCIPAL SALES TAX PAYERS
(in alphabetical order)
7 Eleven Chevron Seagate Technology
99 Ranch Market Haidilao Hot Pot Shane Company
Alexander’s Steak House Huawei Enterprise Target
Alliance Insight Direct TJ Maxx
Apple Insight Public Sector Ulta Beauty
Argonaut Window & Door Kura Revolving Sushi Bar Valero
Benihana Lazy Dog Café Whole Foods Market
BJ’s Restaurant & Brewhouse Rotten Robbie
California Dental Arts Safeway
Source: City of Cupertino.
29
Table 10 summarizes the annual volume of taxable transactions within the City for the years 2015
through 2019.
TABLE 10
CITY OF CUPERTINO
TOTAL TAXABLE TRANSACTIONS
(Dollars in Thousands)
Year Taxable Transactions
2015 $2,350,141
2016 2,397,871
2017 2,780,112
2018 2,695,658
2019 2,730,768
Source: Taxable Sales in California, California Department of Tax and Fee Administration for 2015-2019.
Transient Occupancy Tax
A transient occupancy tax is levied on hotels and short-term rentals in the City at the rate of 12% of
room revenues. In fiscal years 2018-19 and 2019-20, transient occupancy tax receipts were approximately
$8.9 million and $7.3 million, respectively, providing approximately 10.0% and 8.0% of total General Fund
revenues in fiscal years 2018-19 and 2019-20, respectively.
Transient occupancy tax receipts in fiscal year 2019-20 were approximately $1.6 million, or 18.2%,
less than the originally budgeted amounts largely due to the shelter-in-place order the Santa Clara County
Public Health Department put into effect in March 2020 to control the COVID-19 Pandemic. In the adopted
budget for fiscal year 2020-21, the City projects transient occupancy receipts to decrease approximately 21.9%
from the fiscal year 2019-20 budgeted amounts. The City has budgeted for transient occupancy tax revenues
of approximately $7.5 million to be received during fiscal year 2020-21. See the caption “—COVID-19
Pandemic Impact.”
Utility User Tax
The City collects a utility user tax, approved by the City’s voters in 1990, on gas, electricity and
telecommunication services provided within the City’s jurisdiction at a rate of 2.4% of billed charges. In
March 2002, the City’s voters approved extending the utility user tax’s sunset date from 2015 to 2030. In
2009, the City’s voters approved a measure to update the utility user tax ordinance to account for changing
technology in the telecommunications services industry.
In fiscal years 2018-19 and 2019-20, utility user tax receipts were approximately $3.0 million and
$3.2 million, respectively, providing approximately 3.4% and 3.5% of total General Fund revenues in fiscal
years 2018-19 and 2019-20, respectively. The City has budgeted for utility user tax revenues of approximately
$3.2 million to be received during fiscal year 2020-21.
Franchise Fees
The City receives franchise fees from cable, solid waste, water, gas and electricity franchisees that
operate in the City. The fees range from 1% to 12% of the franchisee’s gross revenues depending on each
particular agreement. Generally, these revenues are relatively steady and not sensitive to economic
fluctuations.
30
In fiscal years 2018-19 and 2019-20, the City received franchise fees of approximately $3.4 million
and $3.4 million, respectively, providing approximately 3.8% and 3.7% of total General Fund revenues in
fiscal years 2018-19 and 2019-20, respectively. The City has budgeted for franchise fees of approximately
$3.3 million to be received during fiscal year 2020-21.
Charges for Services
In fiscal years 2018-19 and 2019-20, charges of approximately $10.9 million (approximately 12.3% of
total General Fund revenues) and $12.0 million (approximately 13.1% of total General Fund Revenues),
respectively, were collected for services. Charges for services includes the City’s attempts to recover the costs
of services provided by the City, including planning, zoning and engineering permit processing for new
property development, as well as some recreation-related fees. Charges for services also includes an overhead
services fee provided to certain enterprise funds, internal service funds and special funds.
Fiscal year 2019-20 revenues from charges for services were lower than budgeted amounts due to the
impact of the COVID-19 Pandemic causing the City’s recreation facilities to shut down by way of the shelter-
in-place orders of the Santa Clara County Public Health Department. In fiscal year 2020-21, the City has
budgeted revenues from charges for services of approximately $11.1 million, which includes an approximately
$900,000 increase due to increases to City fees which will become effective October 1, 2020 and an expected
$2.1 million decrease due to facility closures. See the caption “—COVID-19 Pandemic Impact.”
Licenses and Permits
Licenses and permits include fees for reviewing building plans, building inspections, construction,
tenant improvements and commercial/residential installations for compliance with state and municipal building
codes. In fiscal years 2018-19 and 2019-20, the City collected approximately $4.1 million and $4.7 million,
respectively, providing approximately 4.6% and 5.1% of total General Fund revenues in fiscal years 2018-19
and 2019-20, respectively. License and permit fees of approximately $3.1 million are budgeted to be received
during fiscal year 2020-21.
Use of Money and Property
The use of money and property category is comprised of General Fund interest earnings as well as
facility and concession rental income of City-owned property. The City’s portfolio is approximately $154.9
million. Fluctuations in the use of money and property is generally the result of investment earnings, as rental
income is generally steady year-to-year. Financial markets have recently experienced a high degree of
volatility due to the uncertainty about the impact of the COVID-19 pandemic. See the caption “—COVID-19
Pandemic Impact.”
In fiscal years 2018-19 and 2019-20, the City received $2.6 million and $2.9 million, respectively, in
use of money and property revenues, providing approximately 2.9% and 2.8% of General Fund revenues in
fiscal years 2018-19 and 2019-20, respectively. Use of money and property revenues of approximately $1.2
million are budgeted to be received during fiscal year 2020-21.
Other Revenues
Other Tax Revenues. Other taxes received by the City include business license taxes, construction
taxes, and property transfer taxes.
Miscellaneous Revenues. Other miscellaneous revenues received by the City include fines and
forfeitures generated from vehicle, parking and miscellaneous code violations, intergovernmental revenues
from federal, state and regional grants and other miscellaneous revenues.
31
Indebtedness
Long-Term Debt. The City’s long-term obligations payable from the General Fund currently consist
solely of the 2012 Certificates. The 2012 Certificates are expected to be prepaid from a portion of the
proceeds of the Certificates. See the “PREPAYMENT PLAN” herein.
Short-Term Debt. The City currently has no short-term debt outstanding.
Retirement System
This caption contains certain information relating to the California Public Employees Retirement
System (“CalPERS”). The information is primarily derived from information produced by CalPERS, its
independent accountants and actuaries. The City has not independently verified the information provided by
CalPERS and makes no representations nor expresses any opinion as to the accuracy of the information
provided by CalPERS.
The comprehensive annual financial reports of CalPERS are available on its Internet website at
www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports
and other information concerning benefits and other matters. Such information is not incorporated by
reference herein. The City cannot guarantee the accuracy of such information. Actuarial assessments are
“forward-looking” statements that reflect the judgment of the fiduciaries of the pension plans, and are based
upon a variety of assumptions, one or more of which may not materialize or be changed in the future.
Actuarial assessments will change with the future experience of the pension plans.
Plan Description and Summary of Balances. The City contributes to CalPERS, an agent multiple-
employer public employee defined benefit pension plan. CalPERS provides retirement, disability and death
benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent
for participating public entities within the State, including the City. CalPERS plan benefit provisions and all
other requirements are established by State statute and the City Council.
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 (“PERL”). 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, 2019, are summarized as follows:
Hire date
Prior to
January 1, 2013
On or after
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%
32
Employees Covered. As of the June 30, 2017 actuarial valuation date (most current), the following
employees were covered by the benefit terms of the Plan:
Inactive employees or beneficiaries currently receiving benefits 213
Inactive employees entitled to but not yet receiving benefits 138
Active employees 188
Total 539
Contributions. Section 20814(c) of PERL 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.
For the year ended June 30, 2019, the City’s required contributions for the Miscellaneous Plan were
$4,447,555. For the year ended June 30, 2020, the City’s required contributions for the Miscellaneous Plan
were $5,089,159. Such amounts were paid by the City and represented approximately 7.1% and 5.3% of
General Fund expenditures in fiscal years 2018-19 and 2019-20, respectively.
Beginning with fiscal year 2017-18 CalPERS began collecting employer contributions toward the
plan’s unfunded liability as dollar amounts unfunded liability as dollar amounts instead of the prior method of
a contribution rate. According to CalPERS, this change was to address potential funding issues that could
arise from a declining payroll or reduction in the number of active members in the plan. Funding the unfunded
liability as a percentage of payroll could lead to the underfunding of the plans. Due to stakeholder feedback
regarding internal needs for total contributions expressed as an estimated percentage of payroll, the CalPERS
reports include such results in the contribution projection set forth in the tables below. These results are
provided for information purposes only. Contributions toward the unfunded liability will continue to be
collected as set dollar amounts.
The table below is derived from the Miscellaneous Plan of the City of Cupertino Annual Valuation
Report as of June 30, 2018 and delivered in July 2019 (the “2019 Report”) and shows the required and
projected employer contributions (before cost sharing) for the next six fiscal years. Projected results reflect the
adopted changes to the discount rate described in the 2019 Report. Such projections also assume that all
actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or
funding will occur during the projection period. The projected normal cost percentages in the projections
below does not reflect that the normal cost will decline over the time as new employees are hired into PEPRA
or other lower cost benefit tiers.
Required
Contribution
Projected Future Employer Contributions
(Assumes 7.00% Return for Fiscal Year 2018-19)
Fiscal Year 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26
Miscellaneous Plan
Normal Cost % 11.306% 11.3% 11.3% 11.3% 11.3% 11.3%%
UAL Payment $3,607,122 $4,056,000 $4,448,000 $4,724,000 $5,001,000 $4,775,000
Total as a % of Payroll* 29.8% 31.6% 32.9% 33.6% 34.3% 32.7%
Projected Payroll $19,490,834 $20,026,831 $20,577,569 $21,143,452 $21,724,897 $22,322,332
* Illustrative only and based on the projected payroll shown.
Source: CalPERS’ 2019 Report.
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No assurance can be provided that the City’s CalPERS plan expenses will not increase significantly in
the future.
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, 2018, using an annual actuarial valuation as of June 30, 2017 rolled forward to June 30, 2018 using
standard update procedures. For a summary of principal assumptions and methods used to determine the net
pension liability, see Note 10 to the City’s audited financial statements for fiscal year 2018-19 attached hereto
as Appendix B.
Changes in Net Pension Liability. The changes in the Net Pension Liability for the City’s
Miscellaneous Plan are as follows:
Increase (Decrease)
Total Pension
Liability
Plan Fiduciary
Net Position
Net Pension
Liability
Balance at June 30, 2017 $ 127,947,594 $ 86,803,192 $ 41,144,402
Changes in the year:
Service cost 3,058,629 - 3,058,629
Interest on the total pension liability 9,065,322 - 9,065,322
Change of Assumptions (847,606) - (847,606)
Differences between actual and expected experience 1,184,340 - 1,184,340
Contribution – employer - 4,263,020 (4,263,020)
Contribution – employee - 1,506,888 (1,506,888)
Net investment income - 7,347,936 (7,347,936)
Administrative expenses - (392,346) 392,346
Benefit payments, including refunds of employee contributions (6,051,845) (6,051,845) -
Net changes 6,408,840 6,673,653 (264,813)
Balance at June 30, 2018 $ 134,356,434 $ 93,476,845 $ 40,879,589
On June 25, 2012, the Governmental Accounting Standards Board approved GASB Statement No. 68
(“GASB 68”) with respect to pension accounting and financial reporting standards for state and local
governments and pension plans. GASB 68 states that, for pensions within the scope of the statement, a cost-
sharing employer that does not have a special funding situation is required to recognize a net pension liability,
deferred outflows of resources, deferred inflows of resources related to pensions, and pension expense based
on its proportionate share of the net pension liability for benefits provided through the pension plan. While the
new accounting standards change financial statement reporting requirements, they do not impact funding
policies of the pension systems. The audited financial statements of the City for fiscal year 2018-19 reflect the
application of the GASB 68. GASB 68 is a change in accounting reporting standards but it does not change
the City’s CalPERS plan funding obligations.
For additional information with respect to the discount rate, deferred outflows/(inflows) of resources,
and recognition of gains and losses, see Note 10 to the City’s audited financial statements for fiscal year
2018-19 attached hereto as Appendix B.
34
Funded Status. The tables below are derived from the 2019 Report and show the funded status of the
Safety Plan and Miscellaneous Plan as of the valuation dates shown.
Miscellaneous Plan
Valuation
Date
Accrued
Liability
Market Value of
Assets
Unfunded
Liability Funded Ratio
Annual
Covered
Payroll
06/30/2014 $104,798,405 $76,439,737 $28,358,668 72.9% $13,111,617
06/30/2015 111,188,031 77,897,977 33,290,054 70.1 13,919,387
06/30/2016 118,489,119 77,919,876 40,569,243 65.8 15,140,909
06/30/2017 127,138,300 86,617,172 40,521,128 68.1 16,359,464
06/30/2018 141,033,621 93,550,299 47,483,322 66.3 17,967,387
Source: CalPERS’ 2019 Report.
AB 340, Public Employee Pension Reform Act of 2013 (PEPRA). On September 12, 2012, the
California Governor signed Assembly Bill 340 (“AB 340”), which implements pension reform in California.
Effective January 1, 2013, AB 340: (i) requires public retirement systems and their participating employers to
share equally with employees the normal cost rate for such retirement systems; (ii) prohibits employers from
paying employer-paid member contributions to such retirement systems for employees hired after January 1,
2013; (iii) establishes a compulsory maximum non-safety benefit formula of 2.5% at age 67; (iv) defines final
compensation as the highest average annual pensionable compensation earned during a 36-month period; and
(v) caps pensionable income at $110,100 ($132,120 for employees not enrolled in Social Security) subject to
Consumer Price Index increases. Other provisions reduce the risk of the City incurring additional unfunded
liabilities, including prohibiting retroactive benefits increases, generally prohibiting contribution holidays, and
prohibiting purchases of additional non-qualified service credit.
CalPERS Plan Actuarial Methods. The staff actuaries at CalPERS prepare annually an actuarial
valuation which is typically delivered in the time period from July through October of each year (thus, the
actuarial valuation dated July 2019 covered CalPERS’ fiscal year ended June 30, 2018). The actuarial
valuations express the City’s required contribution which the City must contribute in the fiscal year
immediately following the fiscal year in which the actuarial valuation is prepared (thus, the City’s contribution
requirement derived from the actuarial valuation as of June 30, 2018 and shown in the report delivered in July
2019 affects the City’s fiscal year 2020-21 required contribution). CalPERS rules require the City to
implement the actuary’s recommended rates.
The CalPERS Chief Actuary considers various factors in determining the assumptions to be used in
preparing the actuarial report. Demographic assumptions are based on a study of the actual history of
retirement, rates of termination/separation of employment, years of life expectancy after retirement, disability,
and other factors. This experience study is generally done once every four years. The most recent experience
study was completed in 2017 in connection with the preparation of actuarial recommendations by the CalPERS
Chief Actuary as described below.
In December 2016, the CalPERS Board approved lowering the funding discount rate to be phased in
over three years: for fiscal year 2018-19 to a rate of 7.375 percent; for fiscal year 2019-20 to a rate of
7.25 percent; and for fiscal year 2020-21 to a rate of 7.0 percent. The funding discount rate includes a
15 basis-point reduction for administrative expenses, and the remaining decrease is consistent with the change
in the financial reporting discount rate. As noted above, there is an approximately fifteen month lag between
the time that CalPERS provides its annual actuarial valuation and the fiscal year in which the required
contribution therein impacts the City.
35
On November 18, 2015, the CalPERS Board adopted a Funding Risk Mitigation Policy that seeks to
reduce funding risk over time. It establishes a mechanism whereby CalPERS investment performance that
significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment
return, and strategic asset allocation targets. Reducing the volatility of investment returns is expected to
increase the long-term sustainability of CalPERS pension benefits for members. In February 2017, the
CalPERS Board revised the Funding Risk Mitigation Policy. The revisions include suspension of the policy
until fiscal year 2020-21, and a decrease of the required first excess investment return threshold from 4% to
2%.
On February 14, 2018, the CalPERS Board of Administration adopted revisions to its actuarial
amortization policy. Major revisions that affect state plans were made to the amortization of investment gains
and losses, as well as to actuarial surplus. For the amortization of investment gains and losses, the
amortization period was reduced from 30 years to 20 years, and the 5-year direct smoothing process was
removed from the end of the amortization period. Amortization of actuarial surplus was eliminated. These
policy revisions will be applied to the amortization of investment gains and losses, and actuarial surplus,
experienced on or after June 30, 2019. These revisions will affect contributions starting in fiscal year 2020-21.
Other Post-Employment Benefits
The Retiree Health Plan. For employees hired prior to April 25, 2010, the City provides certain
healthcare benefits for employees who retire after attaining age 50 with at least five years of service or
disability at any age. For employees hired after April 25, 2010, the City offers a defined contribution post-
retirement healthcare plan and contributes 1.5% of salary to such plan. For additional information with respect
to the benefits offered under the City’s other post-employment benefit plan (“OPEB”), see Note 9 to the
audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.
At June 30, 2018, membership consisted of the following:
Active Plan Members 388
Inactive Employees or Beneficiaries Currently Receiving Benefit Payments 231
Total 619
Source: City Comprehensive Audited Financial Report for fiscal year 2018-19.
Total OPEB Liability. In June 2015, GASB issued Statement No. 75, which became effective for
fiscal years beginning after June 15, 2017. The primary objective of Statement No. 75 is to improve
accounting and financial reporting by state and local governments for postemployment benefits other than
pensions (i.e. OPEB). GASB 75 is also intended to improve information provided by state and local
governmental employers about financial support for OPEB that is provided by other entities. Statement No. 75
results from a comprehensive review of the effectiveness of existing standards of accounting and financial
reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful
information, supporting assessments of accountability and inter-period equity, and creating additional
transparency.
More specifically, GASB 75 requires the liability of employers to be measured as the portion of the
present value of projected benefit payments to be provided to current active and inactive employees that is
attributed to those employees’ past periods of service (total OPEB liability), less the amount of the OPEB
plan’s fiduciary net position. GASB 75 requires the recognition of the total OPEB liability in the Statement of
Net Position. As a result of the implementation of GASB 75, in the City’s audited financial statements for
fiscal year 2017-18, a reconciliation for net position (reductions) was made to the City’s beginning net position
for governmental activities in the amount of $11,525,596 and for business-type activities in the amount of
$80,283.
36
Plan Description. Permanent employees who retire under the City’s CalPERS 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 CalPERS 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.
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 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 the PARS Trust’s annual financial report are
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 No. 74, Financial Reporting for Post Employment
Benefit Plans Other Than Pension Plans, 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; 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; and
The employee is eligible for retirement as defined under the CalPERS retirement system; and the
employee retires from the City.
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
37
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, 2019, the City paid $1,075,908 in healthcare premium payments.
Plan members are not required to contribute to the plan.
Net OPEB Liability of the City. The components of the net OPEB liability (asset) of the City at
June 30, 2019 (expressed in thousands) were as follows:
Total OPEB liability $ 28,073
Plan fiduciary net position 29,218
City’s net OPEB asset $ (1,145)
Plan fiduciary net position as a percentage of the total OPEB liability 104.08%
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.
For more information regarding the actuarial assumptions with respect to the City’s OPEB liability, see
Note 11 to the audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.
Changes in the Net OPEB Liability. The changes in the City’s net OPEB liability (asset) are:
Net Increase (Decrease)
Total OPEB Liability
Plan Fiduciary
Net Position
Net OPEB
Liability (Asset)
Balance at July 1, 2018 $ 28,471,000 $ 28,056,000 $ 415,000
Changes in the year
Service cost 865,000 - 865,000
Interest on the total OPEB liability 2,005,000 - 2,005,000
Change of assumptions (37,000) - (37,000)
Differences between actual and expected experience (1,808,000) - (1,808,000)
Contribution – employer - 1,423,000 (1,423,000)
Contribution – employee - - -
Net investment income - 1,259,000 (1,259,000)
Administrative expenses - (97,000) 97,000
Benefit payments, including refunds of -
Employee contributions (1,423,000) (1,423,000) -
Net changes (398,000) 1,162,000 (1,560,000)
Balance at June 30, 2019 $ 28,073,000 $ 29,218,000 $ (1,145,000)
For additional information with respect to the City’s OPEB plan, see Note 11 to the audited financial
statements for fiscal year 2018-19 attached hereto as Appendix B.
38
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS
Principal of and interest with respect to the Certificates are payable from Lease Payments made from
the City’s General Fund. See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE
CERTIFICATES” herein. Articles XIIIA, XIIIB, XIIIC and XIIID of the State Constitution, Propositions 62,
111, 218, 1A and 22, and certain other provisions of law discussed below are included in this Official
Statement to describe the potential effect of these Constitutional and statutory measures on the ability of the
City to levy taxes and spend tax proceeds for operating and other purposes.
Article XIIIA of the State Constitution
On June 6, 1978, State voters approved Proposition 13, which added Article XIIIA to the State
Constitution. Article XIIIA, as amended, limits the amount of any ad valorem tax on real property to 1% of
the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service: (i) on
indebtedness approved by the voters prior to December 1, 1978; (ii) on bonded indebtedness approved by a
two-thirds vote on or after December 1, 1978, for the acquisition or improvement of real property; or
(iii) bonded indebtedness incurred by a school district, community college district or county office of
education for the construction, reconstruction, rehabilitation or replacement of school facilities, including the
furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities,
approved by 55% of the voters voting on the proposition. Article XIIIA defines full cash value to mean “the
county assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value,” or
thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership
has occurred after the 1975 assessment.” This full cash value may be increased at a rate not to exceed 2% per
year to account for inflation.
Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the
event of declining property values caused by damage, destruction or other factors, including a general
economic downturn, to provide that there would be no increase in the “full cash value” base in the event of
reconstruction of property damaged or destroyed in a disaster, and in other minor or technical ways.
Legislation Implementing Article XIIIA
Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA.
Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay
voter-approved indebtedness). The 1% property tax is automatically levied by counties and distributed
according to a formula among taxing agencies.
Increases in assessed valuation resulting from reappraisals of property due to new construction,
change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the
“taxing area” based upon their respective “situs.” Any such allocation made to a local agency continues as part
of its allocation in future years.
All taxable property is shown at full cash value on the tax rolls. Consequently, the tax rate is
expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is
shown at 100 percent of taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of
taxable value.
Split Roll Initiative
On May 29, 2020, a proposed voter initiated ballot initiative became eligible and subsequently
qualified for the November 2020 Statewide ballot (the “Proposition 15”). If approved by a majority of voters
casting a ballot at the November 2020 Statewide election, Proposition 15 would amend Article XIIIA such that
the “full cash value” of commercial and industrial real property, for each lien date, would be equal to the fair
39
market value of that property. If approved, Proposition 15 would not affect the “full cash value” of residential
property, real property used for commercial agricultural production, or commercial and industrial real property
with combined value of $3 million or less, which would continue to be subject to annual increases not to
exceed 2%. In addition, Proposition 15 would eliminate the business tangible personal property tax on
equipment and fixtures for small businesses and provide a $500,000 per year exemption for all other
businesses. After compensating the State General Fund for resulting reductions in State personal income tax
and corporate tax revenues, and compensating cities, counties and special districts for the cost of implementing
Proposition 15, approximately 40% of the remaining additional tax revenues generated as a result of
Proposition 15 would be deposited into a fund created pursuant to Proposition 15 called the Local School and
Community College Property Tax Fund, with such funds being used to supplement, and not replace, existing
funding school districts and community college districts receive under the State’s constitutional minimum
funding requirement. With respect to the tax revenues deposited into the Local School and Community
College Property Tax Fund, 11% would be allocated by the Board of Governors of the California Community
Colleges to community college districts and 89% of such tax revenues would be allocated by the
Superintendent of Public Instruction to school districts, charter schools and county offices of education.
On July 1, 2020, a legislatively referred constitutional amendment was filed with the Secretary of
State and subsequently qualified for the November 2020 Statewide ballot (“Proposition 19”). If approved by a
majority of voters casting a ballot at the November 2020 Statewide election, Proposition 19 would amend
Article XIIIA to: (i) expand special rules that give property tax savings to homeowners that are over the age of
55, severely disabled, or whose property has been impacted by wildfire or natural disaster, when they buy a
different home; (ii) narrow existing special rules for inherited properties; and (iii) dedicate most of the
potential new State revenue generated from Proposition 19 toward fire protection.
The City cannot predict whether either Proposition 15 or Proposition 19 will be approved by a
majority of voters casting a ballot. If approved, the City cannot make any assurance as to what effect the
implementation of either Proposition 15 or Proposition 19 will have on Pledged Tax Revenues or the assessed
valuation of real property in the Project Areas.
Article XIIIB of the State Constitution
In addition to the limits that Article XIIIA imposes on property taxes that may be collected by local
governments, certain other revenues of the State and most local governments are subject to an annual
“appropriations limit” imposed by Article XIIIB which effectively limits the amount of such revenues that
such entities are permitted to spend. Article XIIIB, approved by the voters in June 1979, was modified
substantially by Proposition 111 in 1990. The appropriations limit of each government entity applies to
“proceeds of taxes,” which consist of tax revenues and the investment proceeds thereof, State subventions and
certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that
such proceeds exceed “the cost reasonably borne by such entity in providing the regulation, product or
service.” “Proceeds of taxes” excludes tax refunds and some benefit payments such as unemployment
insurance. No limit is imposed on the appropriation of funds which are not “proceeds of taxes,” such as
reasonable user charges or fees, and certain other non-tax funds. Article XIIIB also does not limit
appropriation of local revenues to pay debt service on bonds existing or authorized as of October 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with mandates of courts or the
federal government, appropriations for qualified capital outlay projects, and appropriation by the State of
revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990
levels. The appropriations limit may also be exceeded in case of emergency; however, the appropriations limit
for the next three years following such emergency appropriation must be reduced to the extent by which it was
exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and
the expenditure is approved by two-thirds of the legislative body of the local government.
The State and each local government entity has its own appropriations limit. Each year, the limit is
adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to
40
or from another government entity of financial responsibility for providing services. Proposition 111 requires
that each local government’s actual appropriations be tested against its limit every two years.
If the aggregate “proceeds of taxes” for the preceding two-year period exceeds the aggregate limit, the
excess must be returned to the agency’s taxpayers through tax rate or fee reductions over the following two
years.
The City’s appropriations have never exceeded the limitation on appropriations under Article XIIIB.
Articles XIIIC and XIIID of the State Constitution
On November 5, 1996, State voters approved Proposition 218, known as the “Right to Vote on Taxes
Act.” Proposition 218 adds Articles XIIIC and XIIID to the State Constitution and contains a number of
interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes,
assessments and property-related fees and charges. The interpretation and application of Proposition 218 will
ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not
possible at this time to predict with certainty the outcome of such determination.
Article XIIIC requires that all new local taxes be submitted to the electorate before they become
effective. Taxes for general governmental purposes of the City (such as Measure W) require a majority vote,
and taxes for specific purposes, even if deposited in the City’s General Fund, require a two-thirds vote. The
voter approval requirements of Proposition 218 reduce the flexibility of the City to raise revenues for the
General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes
in the future to meet increased expenditure needs.
Article XIIID also adds several provisions making it generally more difficult for local agencies to levy
and maintain property-related fees, charges, and assessments for municipal services and programs, such as
hearings and stricter and more individualized benefit requirements and findings. These provisions include,
among other things: (i) a prohibition against assessments which exceed the reasonable cost of the proportional
special benefit conferred on a parcel; (ii) a requirement that assessments must confer a “special benefit,” as
defined in Article XIIID, over and above any general benefits conferred; (iii) a majority protest procedure for
assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a
public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the
affected party; and (iv) a prohibition against fees and charges which are used for general governmental
services, including police, fire or library services, where the service is available to the public at large in
substantially the same manner as it is to property owners. If the City is unable to continue to collect revenues
of this nature, the services and programs funded with these revenues would have to be curtailed and/or the
City’s General Fund might have to be used to support them. The City is unable to predict whether or not in the
future it will be able to continue all existing services and programs funded by fees, charges and assessments in
light of Proposition 218 or, if these services and programs are continued, which amounts (if any) would be
used from the City’s General Fund to continue to support such activities.
Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local
taxes, assessments, fees or charges. This extension of the initiative power is not limited to taxes imposed on or
after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or
reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional
principles relating to the impairments of contracts. Legislation implementing Proposition 218 provides that the
initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial
owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the
risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of
contractual rights” protected by the United States Constitution. However, no assurance can be given that the
voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes,
assessments, fees or charges currently comprising a substantial part of the City’s General Fund.
41
Although a portion of the City’s General Fund revenues are derived from taxes purported to be
governed by Proposition 218, all of such taxes were imposed in accordance with the requirements of
Proposition 218. No assurance can be given that the voters of the City will not, in the future, approve an
initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges which support the
City’s General Fund.
Proposition 62
Proposition 62 was adopted by the voters at the November 4, 1986, general election and: (a) requires
that any new or higher taxes for general governmental purposes imposed by local governmental entities such
as the City be approved by a two-thirds vote of the governmental entity’s legislative body and by a majority
vote of the voters of the governmental entity voting in an election on the tax; (b) requires that any special tax
(defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity
be approved by a two-thirds vote of the voters of the governmental entity voting in an election on the tax;
(c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax
was imposed; (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities
except as permitted by Article XIIIA; (e) prohibits the imposition of transaction taxes and sales taxes on the
sale of real property by local governmental entities; and (f) requires that any tax imposed by a local
governmental entity on or after July 1, 1985, be ratified by a majority vote of the voters voting in an election
on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988.
On September 28, 1995, the California Supreme Court, in the case of Santa Clara County Local
Transportation Authority v. Guardino, upheld the constitutionality of Proposition 62. In this case, the court
held that a countywide sales tax of one-half of one percent was a special tax that, under Section 53722 of the
Government Code, required a two-thirds voter approval. Because the tax received an affirmative vote of only
54.1%, this special tax was found to be invalid. The decision did not address the question of whether or not it
should be applied retroactively.
Following the California Supreme Court’s decision upholding Proposition 62, several actions were
filed challenging taxes imposed by public agencies since the adoption of Proposition 62, which was passed in
November 1986. On June 4, 2001, the California Supreme Court released its decision in one of these cases,
Howard Jarvis Taxpayers Association v. City of La Habra, et al. In this case, the court held that a public
agency’s continued imposition and collection of a tax is an ongoing violation, upon which the statute of
limitations period begins anew with each collection. The court also held that, unless another statute or
constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition
62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes
received within three years of the date the action is brought.
The City has not experienced any substantive adverse financial impact as a result of the passage of
Proposition 62.
Proposition 1A
Proposition 1A was approved by the voters at the November 2, 2004 election. Proposition 1A
amended the State Constitution to, among other things, reduce the Legislature’s authority over local
government revenue sources by placing restrictions on the State’s access to local governments’ property, sales,
and vehicle license fee revenues as of November 3, 2004. Beginning with fiscal year 2008-09, the State may
borrow up to eight percent of local property tax revenues, but only if the Governor proclaims such action is
necessary due to a severe State fiscal hardship, and two–thirds of both houses of the Legislature approves the
borrowing. The amount borrowed is required to be paid back within three years. The State also will not be
able to borrow from local property tax revenues for more than two fiscal years within a period of 10 fiscal
years. In addition, the State cannot reduce the local sales tax rate or restrict the authority of local governments
to impose or change the distribution of the statewide local sales tax.
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Many of the provisions of Proposition 1A have been superseded by Proposition 22 enacted in
November 2010 and described below.
Proposition 22
On November 2, 2010, the voters of the State approved Proposition 22, known as “The Local
Taxpayer, Public Safety, and Transportation Protection Act” (“Proposition 22”). Proposition 22, among other
things, broadens the restrictions established by Proposition 1A. While Proposition 1A permits the State to
appropriate or borrow local property tax revenues on a temporary basis during times of severe financial
hardship, Proposition 22 amends Article XIII of the State Constitution to prohibit the State from appropriating
or borrowing local property tax revenues under any circumstances. The State can no longer borrow local
property tax revenues on a temporary basis even during times of severe financial hardship. Proposition 22 also
prohibits the State from appropriating or borrowing proceeds derived from any tax levied by a local
government solely for the local government’s purposes. Furthermore, Proposition 22 restricts the State’s
ability to redirect redevelopment agency property tax revenues to school districts and other local governments
and limits uses of certain other funds although this provision no longer has any meaningful impact given the
statewide dissolution of redevelopment agencies. Proposition 22 is intended to stabilize local government
revenue sources by restricting the State government’s control over local revenues. The City cannot predict
whether Proposition 22 will have a beneficial effect on the City’s financial condition.
Proposition 26
On November 2, 2010, State voters also approved Proposition 26. Proposition 26 amends
Article XIIIC of the State Constitution to expand the definition of “tax” to include “any levy, charge, or
exaction of any kind imposed by a local government” except the following: (a) a charge imposed for a specific
benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which
does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege;
(b) a charge imposed for a specific government service or product provided directly to the payor that is not
provided to those not charged, and which does not exceed the reasonable costs to the local government of
providing the service or product; (c) a charge imposed for the reasonable regulatory costs to a local
government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing
agricultural marketing orders, and the administrative enforcement and adjudication thereof; (d) a charge
imposed for entrance to or use of local government property, or the purchase, rental or lease of local
government property; (e) a fine, penalty or other monetary charge imposed by the judicial branch of
government or a local government as a result of a violation of law; (f) a charge imposed as a condition of
property development; and (g) assessments and property-related fees imposed in accordance with the
provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by
a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more
than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those
costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits
received from, the governmental activity. The City does not believe that Proposition 26 will adversely affect
its General Fund revenues.
Possible Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 218, 111, 62, 1A, 22 and 26 were each
adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time
other initiative measures could be adopted, further affecting revenues of the City or the City’s ability to expend
revenues. The nature and impact of these measures cannot be anticipated by the City.
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RISK FACTORS
The following information, in addition to the other matters that are described in this Official
Statement, should be considered by prospective investors in evaluating the Certificates. However, the
following does not purport to be comprehensive, definitive or an exhaustive listing of risks and other
considerations that may be relevant to making an investment decision with respect to the Certificates. In
addition, the order in which the following information is presented is not intended to reflect the relative
importance of any such risks. If any risk factor materializes to a sufficient degree, it alone could delay or
preclude payment of principal of or interest with respect to the Certificates.
No Pledge of Taxes or Revenues
The Certificates do not constitute an obligation of the City for which the City is obligated to levy or
pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation
of the City to make Lease Payments under the Lease does not constitute an obligation of the City for which the
City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of
taxation. Neither the certificates nor the obligation of the City to make Lease Payments constitutes an
indebtedness of the City, the State of California or any of political subdivision thereof within the meaning of
any constitutional or statutory debt limitation or restriction.
Although the Lease does not create a pledge, lien or encumbrance upon the funds of the City, the City
is obligated under the Lease to pay Lease Payments and Additional Payments from any source of legally
available funds (subject to certain exceptions) and the City has covenanted in the Lease that, for as long as the
Leased Premises are available for its use and possession, it will make the necessary annual appropriations
within its budget for all Lease Payments and Additional Payments. The City is currently liable on other
obligations payable from general revenues. In the event of a shortfall in revenues, a court might require that
the City first set aside revenues to pay the other obligations of the City or to make expenditures necessary to
preserve the health and welfare of City residents. See “CITY FINANCIAL INFORMATIONIndebtedness”
herein.
Certain taxes, assessments, fees and charges presently imposed by the City, such as the City utility tax
and the transient occupancy tax, could be reduced or eliminated by initiative pursuant to Article XIIIC of the
State Constitution, and new taxes, assessments fees and charges subject to the voter approval requirements of
Article XIIID of the State Constitution may not be approved by voters. The City does not believe that
Article XIIIC grants to the voters the power to reduce or repeal local taxes, assessments, fees and charges
received by the City to an extent that would prevent the City from performing its existing contractual
obligations. However, it is possible that the initiative power could be exercised in a manner that would have a
material adverse effect on the financial condition of the City, including its General Fund. Although the City
does not currently anticipate that the provisions of Article XIIIC and Article XIIID of the State Constitution
would adversely affect its ability to pay the principal of and interest with respect to the Certificates, as and
when due, and its other obligations payable from the General Fund, no assurance can be given regarding the
ultimate interpretation or effect of Article XIIIC and Article XIIID of the State Constitution on the City’s
finances. See “CITY FINANCIAL INFORMATION—Major Revenues” and “CONSTITUTIONAL AND
STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS” herein.”
Additional Obligations of the City
The City is permitted to enter into other obligations which constitute additional charges against its
revenues without the consent of Owners of the Certificates. To the extent that additional obligations are
incurred by the City, the funds available to pay Lease Payments may be decreased.
The Lease Payments and other payments due under the Lease (including payment of costs of repair
and maintenance of the Leased Premises, taxes and other governmental charges levied against the Leased
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Premises) are payable from funds lawfully available to the City. In the event that the amounts which the City
is obligated to pay in a fiscal year exceed the City’s revenues for such year, the City may choose to make some
payments rather than making other payments, including Lease Payments and Additional Payments, based on
the perceived needs of the City. The same result could occur if, because of California Constitutional limits on
expenditures, the City is not permitted to appropriate and spend all of its available revenues or is required to
expend available revenues to preserve the public health, safety and welfare.
Default
Whenever any event of default referred to in the Lease happens and continues, the Trustee, as the
assignee of the Corporation, is authorized under the terms of the Lease to exercise any and all remedies
available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything
therein or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY
CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY
LEASE PAYMENTS NOT THEN DUE OR PAST DUE TO BE IMMEDIATELY DUE AND PAYABLE.
NEITHER THE CORPORATION NOR ITS ASSIGNEE SHALL HAVE ANY RIGHT TO REENTER OR
RELET THE LEASED PREMISES EXCEPT FOLLOWING A DEFAULT UNDER THE LEASE. Following
an event of default, the Trustee, as the assignee of the Corporation, may elect either to terminate the Lease and
seek to collect damages from the City or to maintain the Lease in effect and seek to collect the Lease Payments
as they become due. The Lease further provides that so long as an event of default exists under the Lease, the
Corporation, or its assignee, may re-enter the Leased Premises for the purpose of taking possession of any
portion of the Leased Premises and to re-let the Leased Premises and, in addition, at its option, with or without
such entry to terminate the Lease as described therein. See Appendix C—“SUMMARY OF PRINCIPAL
LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE TRUST
AGREEMENT—EVENTS OF DEFAULT AND REMEDIES—Remedies On Default.”
No assurance can be given that the Trustee will be able to re-let the Leased Premises so as to provide
rental income sufficient to pay principal and interest evidenced by the Certificates in a timely manner or that
such re-letting will not adversely affect the exclusion of interest due with respect to the Certificates from gross
income for federal or State income tax purposes. Furthermore, due to the fact that the Leased Premises are
needed to provide essential public services to residents of the City, it is not certain whether a court would
permit the exercise of the remedies of repossession and re-letting with respect to the Leased Premises.
In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the
term of the Lease and the Trustee is not empowered to sell the Leased Premises and use the proceeds of such
sale to prepay the Certificates or pay debt service with respect thereto. The City will be liable only for Lease
Payments on an annual basis and, in the event of a default, the Trustee would be required to seek a separate
judgment each year for that year’s defaulted Lease Payments. Any such suit for money damages would be
subject to limitations on legal remedies against municipalities in California, including a limitation on
enforcement of judgments against funds of a fiscal year other than the fiscal year in which the Lease Payments
were due and against funds needed to serve the public welfare and interest.
Release or Substitution of Property
Under the terms of the Lease, the City has the right from time to time to add other real property and
improvements (subject only to Permitted Encumbrances) or to substitute other real property or improvements
(subject only to Permitted Encumbrances) for all or a portion of the Leased Premises or to release a portion of
the real property or improvements constituting the Leased Premises, subject to the conditions precedent to such
addition, substitution or release as set forth in the Lease. No addition, substitution or release under the Lease
will be, by itself, the basis for any reduction in or abatement of the Lease Payments due from the City
thereunder. A release could, however, result in a reduction in the fair rental value of the Leased Premises
which would result in less security for the Owners should it be necessary to relet the Leased Premises to cure a
default in Lease Payments. See Appendix C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—
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DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE—COVENANTS WITH
RESPECT TO THE LEASED PREMISES—Substitution or Release of the Leased Premises” herein.
In connection with a substitution or release, all interests of the Corporation, and its assignee, in the
portion of the Leased Premises released shall terminate and the Corporation and its assignee shall execute and
record with the County Recorder of the County all documents deemed necessary by the City to evidence such
termination of interest. Upon satisfaction by the City of the conditions set forth in the Lease, the Trustee also
will execute a Lease Supplement and will not impose on the City any further conditions or prerequisites to the
requested addition, substitution or release. The City will cause the Lease Supplement, or another document
substantially in the form of the Lease Supplement, to be recorded in the real property records of the County.
All costs and expenses incurred in connection with such addition, substitution or release will be borne
by the City.
Abatement
The City’s obligation to make Lease Payments will be subject to full or partial abatement and could
result in the Trustee having inadequate funds to pay the principal and interest with respect to the Certificates
under certain circumstances related to material damage, destruction, title defect or taking by eminent domain
or condemnation of the Leased Premises which cause a substantial interference with the use and possession of
the Leased Premises. In addition, if Additional Certificates are sold to finance additional improvements to the
Leased Premises, failure to complete the improvements on or before the date to which capitalized interest is
funded on the Additional Certificates could incur an abatement and result in the Trustee having inadequate
funds to pay the principal and interest with respect to the Certificates and Additional Certificates when due.
The Lease obligates the City to obtain and keep in force various forms of insurance for the Leased
Premises in the event of damage or destruction to the Leased Premises (see Appendix C—“SUMMARY OF
THE PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN
PROVISIONS OF THE LEASE—INSURANCE” herein). However, there can be no assurance that specific
losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers,
and the City makes no representation as to the ability of any insurer to fulfill its obligations under any
insurance policy provided for in the Lease. In addition, the City is not required under the Lease Agreement to
obtain earthquake and flood insurance.
In the event the Leased Premises are partially or completely damaged or destroyed due to any
uninsured or underinsured event, it is likely that Lease Payments will be partially or completely abated. Apart
from the proceeds of insurance, the City and the Corporation will have no obligation to expend any funds to
repair or replace such damaged or destroyed property. If the Leased Premises so damaged or destroyed are not
repaired or replaced within the period during which the proceeds of rental interruption insurance are available,
any such abatement could result in the Trustee having insufficient funds to pay the principal of and interest
with respect to the Certificates as scheduled.
See Appendix C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND
SUMMARY OF CERTAIN PROVISIONS OF THE LEASE—AGREEMENT TO LEASE; TERM OF
LEASE; LEASE PAYMENTS—Abatement of Lease Payments in the Event of Loss of Use” herein.
No Reserve Fund
The City has not established a reserve fund in connection with the execution and delivery of the
Certificates. In the event of abatement of Lease Payments, funds available to pay debt service on the
Certificates will be limited to proceeds of insurance (including rental interruption insurance). In addition, if
annual appropriations to pay Lease Payments are not made (for example, due to delay in adoption of an annual
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budget), no funds would be available to pay debt service on the Certificates until such appropriations were
available.
Natural Disasters
The occurrence of any natural disaster in the City, including, without limitation, fire, windstorm,
drought, earthquake, landslide, mudslide or flood, could have an adverse material impact on the economy
within the City, its General Fund and the revenues available for the payment of Base Rental Payments.
Earthquakes. All jurisdictions in California are subject to the effects of damaging earthquakes.
According to the Health and Safety Element of the City’s General Plan, the City is located in the seismically
active San Francisco Bay region, which has several active seismic faults. The San Andreas fault, one of the
longest and most active faults in the world, is located west of the City. Two additional faults closely
associated with the San Andreas fault, the Sargent-Berrocal and Monta Vista-Shannon fault systems, also cross
the western portion of the City. Movement on the San Andreas fault is predominantly right-lateral strike-slip,
where the earth ruptures in a horizontal fashion, with the opposite sides of the fault moving to the right with
respect to each other. Movement on the Sargent-Berrocal and Monta Vista-Shannon faults is more variable in
style. Both of these faults are characterized by “thrust” faulting, where a significant amount of vertical “up-
down” (so called dip-slip) displacement occurs on an inclined plane, and one side of the fault is elevated (i.e.,
thrust over) the other side. Primary geologic hazards in the City are related to landslides and seismic impacts.
Seismically induced ground shaking, surface fault rupture, and various forms of earthquake-triggered ground
failure are anticipated within the city during large earthquakes. These geologic hazards present potential
impacts to property and public safety.
Fire. According to the Health and Safety Element of the City’s General Plan, due to the City’s
geographical location, it is exposed to hazards from both wildland and urban fires. There are approximately 16
square miles of hillsides included in and around the boundary of the City. In 2009, based on vegetation data,
topography and potential fire behavior, the California Department of Forestry and Fire Protection identified
approximately three acres of the City to be in the High and Very High Fire Hazard Severity Zone. The City
adopted this area as its Wildand-Urban Interface Fire Area (“WUIFA”). Properties in the WUIFA are subject
to building and property maintenance standards intended to prevent and manage community safety due to
brush and forest fires. Planning for such areas also requires attention to the availability of access roads and
water for firefighting and evacuation efforts. No portion of the Leased Premises is located within the WUIFA
and the urbanized portions of the City are not exposed to a high risk of fire.
Many areas of northern California have suffered from major wildfires in recent years, including
numerous wildfires burning since August 2020. In addition to their direct impact on health and safety and
property damage in California, the smoke from these wildfires has impacted the quality of life in the Bay Area
and the City and may have short-term and future impacts on commercial activity in the City. The fires have
been driven in large measure by drought conditions and low humidity. Experts expect that California will
continue to be subject to wildfire conditions year over year as a result in changing weather patterns due to
climate change.
Flooding. Portions of the City and surrounding areas have been identified as potentially flood prone
areas. According to the Health and Safety Element of the City’s General Plan, the watersheds in the Santa
Cruz Mountain Range feed into four major streambeds that traverse the City: Permanente Creek, Stevens
Creek, Regnart Creek, and Calabazas Creek. Stevens Creek and its streamside are among the natural elements
that have the most influence on Cupertino’s character. These creeks collect surface runoff and channel it to the
San Francisco Bay. However, they also pose potential flooding risks to the City if water levels exceed the top
of bank as a result of heavy runoff. No portion of the Leased Premises is located within a 100-year of 500-
year flood zone.
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The occurrence of natural disasters in the City could result in substantial damage to the City and the
Leased Premises which, in turn, could substantially reduce General Fund revenues and affect the ability of the
City to make Lease Payments or cause an abatement in Lease Payments. Reduced ability to pay Lease
Payments could affect the payment of the principal of and interest with respect to the Certificates. The Lease
obligates the City obtain and keep in force various forms of insurance, including property casualty insurance
(for losses other than from seismic events) for the Leased Premises in the event of damage or destruction to the
Leased Premises. See “THE CITY OF CUPERTINO—Risk Management” herein. However, there can be no
assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the
applicable insurers, the City makes no representation as to the ability of any insurer to fulfill its obligations
under any insurance policy provided for in the Lease. In addition, the City is not required under the Lease
Agreement to obtain earthquake and flood insurance.
Hazardous Substances
The City knows of no existing hazardous substances which require remedial action on or near the
Leased Premises. However, it is possible such substances do currently or potentially exist and that the City is
not aware of them.
Owners and operators of real property may be required by law to remedy conditions of the property
relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund
Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous
substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to
remedy a hazardous substance whether or not the owner (or operator) has anything to do with creating or
handling the hazardous substance. Further, such liabilities may arise not simply from the existence of a
hazardous substance but from the method of handling it. All of these possibilities could significantly and
adversely affect the operations and finances of the City, may result in the reduction in the assessed value of
property, and therefor property tax revenue.
Cybersecurity
The City, like many other public and private entities, relies on a large and complex technology
environment to conduct its operations. As a recipient and provider of personal, private, or sensitive
information, the City is subject to multiple cyber threats including, but not limited to, hacking, viruses,
malware and other attacks on computer and other sensitive digital networks and systems. Entities or
individuals may attempt to gain unauthorized access to the City’s digital systems for the purposes of
misappropriating assets or information or causing operational disruption and damage. To date, the City has not
experienced an attack on its computer operating systems which resulted in a breach of its cybersecurity
systems that are in place. However, no assurances can be given that the City’s efforts to manage cyber threats
and attacks will be successful or that any such attack will not materially impact the operations or finances of
the City. The City does not carry separate cybersecurity insurance. See “THE CITY OF CUPERTINO— Risk
Management” in herein for more information with respect to the City’s insurance coverages.
Limitations on Remedies; Bankruptcy
The rights of the owners of the Certificates are subject to the limitations on legal remedies against
municipalities in the State, including a limitation on enforcement of judgments against funds needed to serve
the public welfare and interest. Additionally, enforceability of the rights and remedies of the owners of the
Certificates, and enforcement of the City’s obligations under the Lease, may become subject to the federal
bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or affecting the enforcement of creditor’s rights generally, now or hereafter in effect, equity principles which
may limit the specific enforcement under State law of certain remedies, the exercise by the United States of
America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain
48
exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental
bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies
against counties in the State. Bankruptcy proceedings under Chapter 9 of the Bankruptcy Code (Title 11,
United States Code), which governs the bankruptcy proceedings for public agencies such as the City, or the
exercise of powers by the federal or State government, if initiated, could subject the owners of the Certificates
to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail
risks of delay, limitation, or modification of their rights. See “RISK FACTORS—Default” herein.
Dependence on State for Certain Revenues
A number of the City’s revenues are collected and dispersed by the State (such as sales tax and motor-
vehicle license fees) or allocated in accordance with State law (most importantly, property taxes). Therefore,
State budget decisions can have an impact on City finances. In the event of a material economic downturn in
the State, there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues
to local governments (including the City) or shift financial responsibility for programs to local governments as
part of the State’s efforts to address any such related State financial difficulties.
The COVID-19 pandemic is materially adversely impacting the financial condition of the State. In
addition, there are a number of other budget risks that threaten the financial condition of the State, including
the onset of recession and the significant unfunded liabilities of the two main retirement systems managed by
State entities, PERS and the California State Teachers’ Retirement System (“STRS”). The State also has a
significant unfunded liability with respect to other post-employment benefits.
On June 29, 2020, the Governor signed into law the State budget for fiscal year 2020-21 (the “2020-21
Budget”). The following information is drawn from the DOF’s summary of the 2020-21 Budget.
As with the Governor’s May revision (the “May Revision”) to the proposed State budget, the 2020-21
Budget acknowledges that the rapid onset of COVID-19 has had an immediate and severe impact on the
State’s economy. The ensuing recession has caused significant job losses, precipitous drops in family and
business income, and has exacerbated inequality. The May Revision forecast included a peak unemployment
rate of 24.5% in the second quarter of 2020 and a decline in personal income of nearly 9%. The 2020-21
Budget reports that the official unemployment rate exceeded 16% in both April and May of 2020.
The 2020-21 Budget includes a number of measures intended to address a projected deficit of $54.3
billion identified by the May Revision, and occasioned principally by declines in the State’s three main tax
revenues (personal income, sales and use, and corporate). The measures included in the 2020-21 Budget, and
described below, are intended to close this deficit and set aside $2.6 billion in the State’s traditional general
fund reserve, including $716 million for the State to respond to the changing conditions of the COVID-19
pandemic:
Draw Down of Reserves – The 2020-21 Budget draws down $8.8 billion in total State reserves,
including $7.8 billion from the State’s Budget Stabilization Account (the “BSA”), $450 million from the
Safety Net Reserve and all funds in the State’s Public School System Stabilization Account.
Triggers – The 2020-21 Budget includes $11.1 billion in reductions and deferrals that would be restored
if at least $14 billion in federal funds are received by October 15, 2020. If the State receives less than
this amount, reductions and deferrals would be partially restored. The triggers includes $6.6 billion in
deferred spending on education, $970 million in funding for the California State University and
University of California systems, $2.8 billion in State employee compensation and $150 million for
courts, as well as funding for various other State programs. The triggers would also fund an additional
$250 million for county programs to backfill revenue losses.
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Federal Funds – The 2020-21 Budget relies on $10.1 billion in federal funds, including $8.1 billion of
which has already been received. This relief includes recent congressional approval for a temporary
increase in the federal government’s share of Medicaid costs, a portion of the State’s Coronavirus Relief
Fund allocation pursuant to the CARES Act and federal funds provided for childcare programs.
Borrowing/Transfers/Deferrals – The 2020-21 Budget relies on $9.3 billion in special fund borrowing
and transfers, as well as deferrals to K-14 education discussed further herein. Approximately $900
million of special fund borrowing is associated with reductions to State employee compensation and is
subject to the triggers discussed above.
Increased Revenues – The 2020-21 Budget temporarily suspends for three years net operating loss tax
deductions for medium and large businesses and limits business tax credits, with an estimated increase
in tax revenues of $4.3 billion in fiscal year 2020-21.
Cancelled Expansions, Updated Assumptions and Other Measures – The 2020-21 Budget includes an
additional $10.6 billion of measures, including cancelling multiple programmatic expansions,
anticipated governmental efficiencies, higher ongoing revenues above the forecast included in the May
Revision, and lower health and human services caseload costs than assumed by the May Revision.
For fiscal year 2019-20, the 2020-21 Budget projects total general fund revenues and transfers of
$137.6 billion and authorizes expenditures of $146.9 billion. The State is projected to end the 2019-20 fiscal
year with total available general fund reserves of $17 billion, including $16.1 billion in the BSA and
$900 million in the Safety Net Reserve Fund. For fiscal year 2020-21, the 2020-21 Budget projects total
general fund revenues and transfers of $137.7 billion and authorizes expenditures of $133.9 billion. The State
is projected to end the 2020-21 fiscal year with total available general fund reserves of $11.4 billion, including
$2.6 billion in the traditional general fund reserve (of which $716 million is earmarked for COVID-related
responses), $8.3 billion in the BSA and $450 million in the Safety Net Reserve Fund
Current and future State budgets will be significantly affected by the COVID-19 pandemic and other
factors over which the City has no control. The City cannot determine what actions will be taken in the future
by the State Legislature and the Governor to deal with the COVID-19 pandemic and resulting changing State
revenues and expenditures. There can be no assurance that, as a result of the COVID-19 pandemic or
otherwise, the State will not significantly reduce revenues to local governments (including the City) or shift
financial responsibility for programs to local governments as part of its efforts to address State financial
conditions. There can be no assurance that State actions to respond to the COVID-19 pandemic will not
materially adversely affect the financial condition of the City.
Information about the State budget is regularly available at various State-maintained websites. Text of
proposed and adopted budgets may be found at the website of the State Department of Finance (the “DOF”),
http://www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted
by the Legislative Analyst’s Office (the “LAO”) at http://www.lao.ca.gov. In addition, various State official
statements, many of which contain a summary of the current and past State budgets and the impact of those
budgets on cities in the State, may be found at the website of the State Treasurer, http://www.treasurer.ca.gov.
The information referred to is prepared by the respective State agency maintaining each website and not by
the City or the Underwriter, and neither the City nor the Underwriter takes any responsibility for the
continued accuracy of these Internet addresses or for the accuracy, completeness or timeliness of information
posted there, and such information is not incorporated herein by these references.
COVID-19 Pandemic
The COVID-19 Pandemic is materially adversely affecting the local, state and world economies. The
City cannot currently predict the extent or duration of the outbreak or what ultimate impact it may have on the
City’s financial condition or operations, although the City believes it will be material and adverse. See “CITY
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FINANCIAL INFORMATION—COVID-19 Pandemic” herein for a discussion of current and potential
impacts of COVID-19 on the City’s operations and finances.
THE CORPORATION
The Cupertino Public Facilities Corporation is a nonprofit, public benefit corporation duly organized
and existing under the laws of the State of California and is entitled to purchase personal and real property and
to sell or lease such property, to contract for construction and improvements and to execute operating
agreements regarding such property. The Corporation was formed for the purpose of providing financial
assistance to public entities by acquiring, constructing, developing and refinancing certain facilities for the use
and benefit of the public. The board of directors of the Corporation is comprised of the members of the City
Council of the City.
TAX MATTERS
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach,
California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest with
respect to the Certificates is excluded from gross income for federal income tax purposes, and is not an item of
tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the
further opinion of Special Counsel, interest with respect to the Certificates is exempt from State of California
personal income tax.
The difference between the issue price of a Certificate (the first price at which a substantial amount of
the Certificates of a maturity is to be sold to the public) and the stated redemption price at maturity with
respect to the Certificate (to the extent the redemption price at maturity is greater than the issue price)
constitutes original issue discount. Original issue discount accrues under a constant yield method, and original
issue discount will accrue to a Beneficial Owner before receipt of cash attributable to such excludable income.
The amount of original issue discount deemed received by a Beneficial Owner will increase the Beneficial
Owner’s basis in the applicable Certificate. In the opinion of Certificate Counsel, the amount of original issue
discount that accrues to the Beneficial Owner of the Certificate is excluded from gross income of such
Beneficial Owner for federal income tax purposes and is not an item of tax preference for purposes of the
federal alternative minimum tax imposed on individuals. In the opinion of Special Counsel, the amount of
original issue discount that accrues to the Beneficial Owner of the Certificates is exempt from State of
California personal income tax.
Special Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of
interest (and original issue discount) on the Certificates is based upon certain representations of fact and
certifications made by the City, the Corporation and others and is subject to the condition that the City and the
Corporation comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”),
that must be satisfied subsequent to the delivery of the Certificates to assure that interest (and original issue
discount) on the Certificates will not become includable in gross income for federal income tax purposes.
Failure to comply with such requirements of the Code might cause the interest (and original issue discount) on
the Certificates to be included in gross income for federal income tax purposes retroactive to the date of
delivery of the Certificates. The City and the Corporation will covenant to comply with all such requirements.
The amount by which a Beneficial Owner’s original basis for determining loss on sale or exchange in
the applicable Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an
earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the
Code; such amortizable bond premium reduces the Beneficial Owner’s basis in the applicable Certificate (and
the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis
reduction as a result of the amortization of bond premium may result in a Beneficial Owner realizing a taxable
gain when a Certificate is sold by the Beneficial Owner for an amount equal to or less (under certain
circumstances) than the original cost of the Certificate to the Beneficial Owner. Purchasers of the Certificates
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should consult their own tax advisors as to the treatment, computation and collateral consequences of
amortizable bond premium.
Special Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not
occurring) after the date hereof. Special Counsel has not undertaken to determine, or to inform any person,
whether any such actions or events are taken or do occur. The Trust Agreement, the Lease and the Tax
Certificate relating to the Certificates permit certain actions to be taken or to be omitted if a favorable opinion
of a Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to the effect on
the exclusion from gross income for federal income tax purposes of interest (or original issue discount) on any
Certificate if any such action is taken or omitted based upon the advice of counsel other than Special Counsel.
Although Special Counsel will render an opinion that interest (and original issue discount) on the
Certificates is excluded from gross income for federal income tax purposes provided that the City and the
Corporation continue to comply with certain requirements of the Code, the ownership of the Certificates and
the accrual or receipt of interest (and original issue discount) with respect to the Certificates may otherwise
affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax
consequences. Accordingly, before purchasing any of the Certificates, all potential purchasers should consult
their tax advisors with respect to collateral tax consequences relating to the Certificates.
The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-
exempt bond issues, including both random and targeted audits. It is possible that the Certificates will be
selected for audit by the IRS. It is also possible that the market value of the Certificates might be affected as a
result of such an audit of the Certificates (or by an audit of similar bonds). No assurance can be given that in
the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or
interpretation thereof) subsequent to the delivery of the Certificates to the extent that it adversely affects the
exclusion from gross income of interest (and original issue discount) on the Certificates or their market value.
SUBSEQUENT TO THE EXECUTION AND DELIVERY OF THE CERTIFICATES THERE
MIGHT BE FEDERAL, STATE, OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR
REGULATORY CHANGES TO OR INTERPRETATIONS OF FEDERAL, STATE, OR LOCAL LAW)
THAT AFFECT THE FEDERAL, STATE, OR LOCAL TAX TREATMENT OF THE Certificates
INCLUDING THE IMPOSITION OF ADDITIONAL FEDERAL INCOME OR STATE TAXES BEING
IMPOSED ON OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE
CERTIFICATES. THESE CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR
LIQUIDITY OF THE CERTIFICATES. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO
THE EXECUTION AND DELIVERY OF THE CERTIFICATES STATUTORY CHANGES WILL NOT BE
INTRODUCED OR ENACTED OR JUDICIAL OR REGULATORY INTERPRETATIONS WILL NOT
OCCUR HAVING THE EFFECTS DESCRIBED ABOVE. BEFORE PURCHASING ANY OF THE
CERTIFICATES, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS
REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR
INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE
CERTIFICATES.
The form of Special Counsel’s proposed opinion with respect to the Certificates is attached hereto in
Appendix D.
CERTAIN LEGAL MATTERS
Certain legal matters incident to the authorization, sale, execution and delivery of the Certificates are
subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach,
California, Special Counsel. A complete copy of the proposed form of opinion of Special Counsel is contained
in Appendix D hereto. Special Counsel has not undertaken any responsibility to the Owners for the accuracy,
completeness or fairness of this Official Statement or other offering materials relating to the Certificates and
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expresses no opinion relating thereto. Certain legal matters will be passed upon for the City and the
Corporation by the City Attorney and by Stradling Yocca Carlson & Rauth, a Professional Corporation, as
Disclosure Counsel, for the Trustee by its counsel, and for the Underwriter by Quint & Thimmig LLP,
Larkspur, California. Compensation of Special Counsel is contingent upon the execution and delivery of the
Certificates.
Special Counsel represents the City in connection with the execution and delivery of the Certificates.
From time-to-time Special Counsel represents the Underwriter in connection with other financings and matters
unrelated to the Certificates. Special Counsel does not represent the Underwriter or any other party with
respect to the execution and delivery of the Certificates other than the City.
LITIGATION
General
To the best knowledge of the City, there is no action, suit or proceeding known to be pending, or
threatened, restraining or enjoining the execution or delivery of the Certificates, the Trust Agreement, the
Lease, the Site Lease, the Assignment Agreement or any other document relating to the Certificates, or in any
way contesting or affecting the validity of the foregoing.
There are a number of lawsuits and claims pending against the City. In the opinion of the City, except
as described below under the caption “—Vallco Claim,” such suits and claims as are presently pending will not
have a material adverse effect on the ability of the City to make Lease Payments.
Vallco Claim
In 2018, the City approved an application by Vallco Property Owner, LLC (“VPO”), the owner of
approximately 50 acres of real property on which the former Vallco Fashion Mall was located (the “Vallco
Site”), for development of approximately 1,810,000 square feet of office space, approximately 400,000 square
feet of retail, and approximately 2,402 multi-family housing units, 50 percent of which will be affordable
(collectively, the “Vallco Project”). A community group challenged the City’s approval of the Vallco Project
(“Community Group Litigation”).
In August 2019, while the Community Group Litigation was pending, the City approved amendments
to the General Plan and Zoning Code that would be applicable to development of the Vallco Site if VPO does
not build the Vallco Project (collectively, the “Amendments”). Among other things, the Amendments
(1) remove office as a permitted use for the Vallco Site, (2) permit 459 residential units by right on roughly
13 acres of the site, and (3) specify 60-foot height limits and other development standards for the site. The
City did not change existing General Plan policies that (1) allow commercial uses on the Vallco Site, with a
minimum of 600,000 square feet of retail uses, (2) require that 15% of residential units be affordable, and
(3) require construction of specified public improvements in connection with development of the site.
In response, VPO submitted a claim under the California Government Tort Claims Act, asserting that
an alternative development of the Vallco Site under the Amendments would not be economically feasible and
that, with the uncertainty created by the Community Group Litigation against the Vallco Project, the
Amendments had radically reduced the value of the Vallco Site. VPO asserted that the Amendments would
thus constitute a regulatory taking of the Vallco Site, entitling VPO to just compensation under the United
States and California Constitutions. VPO indicated that it would be entitled to hundreds of millions of dollars
in damages against the City for the alleged taking.
In May 2020, the Santa Clara County Superior Court rejected the Community Group Litigation
challenging the Vallco Project. The community group did not appeal the judgement, and the litigation is now
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resolved. The City understands that VPO is currently proceeding with design and construction of the Vallco
Project. It has commenced demolition and other site-preparation activities and has applied for building permits.
The City believes that while VPO continues to develop the Site under the existing project approval,
VPO’s takings challenge to the Amendments would have no merit. However, in the future, VPO could
abandon the Vallco Project if VPO determines it is not economically feasible due to market factors,
construction or financing costs, or otherwise. In such event, VPO may reassert the takings claim outlined
above against the City. In that circumstance, the City would have options to reduce or avoid claimed damages,
including further amendments to the General Plan and Zoning Code. If the City left the Amendments in place
and VPO were to successfully challenge them and recover damages against the City in the amounts alleged by
VPO, it could have a material adverse impact on the City’s ability to pay Lease Payments when due, and a
corresponding material adverse impact on the Trustee’s ability to make scheduled payments under the
Certificates when due.
RATING
S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”) has assigned a
rating of “AA+” to the Certificates. Such rating reflects only the views of S&P and any desired explanation of
the significance of such rating should be obtained from S&P. Generally, a rating agency bases its rating on the
information and materials furnished to it and on investigations, studies and assumptions of its own. There is
no assurance such rating will continue for any given period of time or that such rating will not be revised
downward or withdrawn entirely by the rating agency, if in the judgment of such rating agency, circumstances
so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market
price of the Certificates. Neither the City nor the Underwriter has undertaken any responsibility either to bring
to the attention of the owners of the Certificates a proposed change in or withdrawal of the ratings or to oppose
any such proposed revision or withdrawal.
UNDERWRITING
The Certificates are being purchased by Stifel, Nicolaus & Company, Incorporated (the
“Underwriter”). The Underwriter will purchase the Certificates at an aggregate purchase price of
$25,814,163.16 (representing the principal amount of the Certificates, plus original issue premium of
$3,878,703.75 and less an Underwriters’ discount of $104,540.59). The purchase agreement relating to the
Certificates provides that the Underwriter will purchase all of the Certificates if any are purchased. The
obligation to make such purchase is subject to certain terms and conditions set forth in such purchase
agreement, the approval of certain legal matters by counsel and certain other conditions.
The initial offering prices that are stated on the inside front cover page of this Official Statement may
be changed from time to time by the Underwriter. The Underwriter may offer and sell the Certificates to
certain dealers (including dealers depositing Certificates into investment trusts), dealer banks, banks acting as
agent and others at prices lower than said public offering prices.
MUNICIPAL ADVISOR
Urban Futures, Inc., Tustin, California, has served as municipal advisor (“Municipal Advisor”) to the
City in connection with the Certificates. The Municipal Advisor is not obligated to undertake, and has not
undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or
fairness of the information contained in this Official Statement. The Municipal Advisor is an independent
advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other
public securities.
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CONTINUING DISCLOSURE
The City has covenanted for the benefit of the Owners of the Certificates to provide, or cause to be
provided, annually certain financial information and operating data relating to the Certificates and the City (the
“Annual Report”), and to provide notices of the occurrence of certain enumerated events. For a complete
listing of items of information which will be provided in each Annual Report and further description of the
City’s undertaking with respect to the Annual Report and certain enumerated events, see Appendix E—
“FORM OF CONTINUING DISCLOSURE CERTIFICATE.” The Annual Report is to be provided by the
City not later than March 31 after the end of the City’s fiscal year, commencing with the report for fiscal year
2019-20.
The Annual Report will be filed by the City with the Municipal Securities Rulemaking Board. These
covenants have been made in order to assist the Underwriters in complying with Securities and Exchange
Commission Rule 15c2-12(b)(5) (the “Rule”).
The City entered into a prior continuing disclosure undertaking with respect to the 2012 Certificates.
Within the past five years, the City has timely filed the required information with the following
exceptions: (1) the Annual Report for Fiscal Year 2018 was filed 89 days late and unaudited financials were
not filed in lieu of the audit as required; (2) the document filed as the Annual Report for Fiscal Year 2015 was
not the CAFR and, therefore, operating data was also not filed (the Fiscal Year 2015 CAFR was filed in
September 2020 along with a failure to file notice, but it did not include all required operating data items).
The City has engaged Urban Futures, Inc. to serve as Dissemination Agent to assist with the City’s
continuing disclosure undertaking in connection with the execution and delivery of the Certificates.
FINANCIAL STATEMENTS OF THE CITY
Included herein as Appendix B are the audited financial statements of the City as of and for the year
ended June 30, 2019 (the “Financial Statements”), together with the report thereon dated March 6, 2020 of
Crowe LLP, Costa Mesa, California (the “Auditor”). The Auditor has not undertaken to update the audited
financial statements of the City or its report or to take any action intended or likely to elicit information
concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no
opinion is expressed by the Auditor with respect to any event subsequent to its report dated March 6, 2020.
The Auditor’s consent to inclusion of the Financial Statements in the Official Statement was not
requested and the Auditor has not consented to the inclusion of the Financial Statements as an appendix to this
Official Statement. The Auditor has not performed any procedures relating to this Official Statement.
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MISCELLANEOUS
Included herein are brief summaries of certain documents and reports, which summaries do not
purport to be complete or definitive, and reference is made to such documents and reports for full and complete
statements of the contents thereof. Any statements in this Official Statement involving matters of opinion,
whether or not expressly so stated, are intended as such and not as representations of fact. This Official
Statement is not to be construed as a contract or agreement between the City and the purchasers or Owners of
any of the Certificates.
The execution and delivery of this Official Statement has been duly authorized by the City.
CITY OF CUPERTINO
By: /s/ Deborah Feng
City Manager
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APPENDIX A
ECONOMIC AND DEMOGRAPHIC INFORMATION
REGARDING THE CITY OF CUPERTINO
This Appendix A sets forth general information about the City of Cupertino (“Cupertino”) including
information with respect to its finances. The following information concerning Cupertino, the County of Santa
Clara (the “County”) and the State of California (the “State”) is included only for general background
purposes. It is not intended to suggest that the Certificates are payable from any source other than Lease
Payments.
The City has not independently verified the information set forth in this Appendix A and while this
information is believed to be reliable, it is not guaranteed as to accuracy by the City or the Corporation.
Certain information relating to employment, income and taxable transactions to be released for 2020 can be
expected to be materially different from the historical figures set forth in this Appendix A. See “CITY
FINANCIAL INFORMATION—COVID-19 Pandemic Impact” and “RISK FACTORS—COVID-19 Pandemic”
in the Official Statement.
Population
The City’s population as of January 1, 2020 was approximately 59,549. This represents an increase of
approximately 0.07 percent from January 1, 2019. The following table shows the population for the City, the
County and the State of California from 2016 through 2020.
POPULATION
For Years 2015 through 2019
Year
(January 1)
City of
Cupertino
County of
Santa Clara
State of
California
2016 60,225 1,931,565 39,131,307
2017 60,169 1,942,176 39,398,702
2018 59,709 1,951,088 39,586,646
2019 59,504 1,954,833 39,695,376
2020 59,549 1,961,969 39,782,870
Source: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties, and the State, 2011-2019,
with 2010 Census Benchmark, Sacramento, California, May 2019.
Education
K-8 public education is provided by Cupertino Union School District, which serves over 18,000
square miles in a 26 square mile area that includes the City and portions of five other cities. The Fremont
Union High School District serves 10,000 students in a 42 square mile area covering all of the City and
portions of five other cities. De Anza College, a single-campus community college, is located within the City.
Building Activity
Residential and nonresidential building activity for 2014 through 2018 for the City is shown in the
following tables.
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NEW HOUSING UNITS BUILDING PERMITS
City of Cupertino
For Years 2015 through 2019
2015 2016 2017 2018 2019
Single Family Units 51 52 56 46 53
Multifamily Units 120 0 15 19 12
Total Units 171 52 71 65 65
Source: Construction Industry Research Board and California Homebuilding Foundation.
BUILDING PERMIT VALUATIONS
City of Cupertino
(Dollars in Thousands)
2015 2016 2017 2018 2019
Residential
New Single Family $ 24,772
$ 22,423 $ 24,765 $ 25,773 $ 44,611
New Multifamily 18,207 0 1,700 10,000 12,900
Res. Alt. & Adds 23,849 19,132 18,865 21,394 25,130
Total Residential 66,828 $ 41,555 $ 45,330 $ 57,167 $ 82,641
Nonresidential
New Commercial 284,799 304,150 $ 0 $ 0 $ 0
New Industrial 0 0 0 0 0
New Other(1) 1,019,658 280,485 919,984 844,330 403,547
Alters. & Adds. 54,602 77,924 26,357 62,154 235,214
Total Non-Residential $ 1,359,059 $ 662,559 $ 946,341 $ 906,484 $ 638,761
Total All Building $ 1,425,887 $ 704,114 $ 991,671 $ 963,651 $ 721,402
(1) Includes churches and religious buildings, hospitals and institutional buildings, schools and educational buildings,
residential garages, public works and utilities buildings.
Note: “Total All Building” is the sum of Residential and Nonresidential Building Permit Valuations. Totals may not add to
sum because of independent rounding.
Source: Construction Industry Research Board and California Homebuilding Foundation.
Personal Income
Personal Income is the income that is received by all persons from all sources. It is calculated as the
sum of wage and salary disbursements, supplements to wages and salaries, proprietors’ income with inventory
valuation and capital consumption adjustments, rental income of persons with capital consumption adjustment,
personal dividend income, personal interest income, and personal current transfer receipts, less contributions
for government social insurance.
The personal income of an area is the income that is received by, or on behalf of, all the individuals
who live in the area; therefore, the estimates of personal income are presented by the place of residence of the
income recipients.
The following table summarizes per capita personal income for the City, the County, the State of
California and the United States for the years 2010 through 2018. This measure of income is calculated as the
personal income of the residents of the area divided by the resident population of the area.
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PER CAPITA PERSONAL INCOME(1)
City of Cupertino, County of Santa Clara, State of California, and United States
2010-2019
Year
City of
Cupertino(2)
County of
Santa Clara(3) California(3) United States(3)
2010 $45,828 $ 61,330 $43,634 $40,546
2011 47,756 66,406 46,170 42,735
2012 50,081 72,792 48,798 44,599
2013 51,557 72,927 49,277 44,851
2014 53,311 79,055 52,324 47,058
2015 57,405 86,188 55,758 48,978
2016 59,181 92,505 57,739 49,870
2017 60,246 100,177 60,156 51,885
2018 63,817 107,877 63,557 54,446
2019 69,102 N/A N/A N/A
(1) Per capita personal income is the total personal income divided by the total mid-year population estimates of the U.S.
Bureau of the Census. All dollar estimates are in current dollars (not adjusted for inflation). (2) Based on a fiscal year ending June 30 of each year (3) Based on a calendar year ending December 31 of each year.
Source: U.S. Department of Commerce, Bureau of Economic Analysis and the City of Cupertino.
Median Household Income
The following table shows the median household income for the City, the County, the State of
California and the United States from 2010 through 2018.
MEDIAN HOUSEHOLD INCOME
City of Cupertino, County of Santa Clara, State of California, and United States
2013-2018
Year City of Cupertino
County of
Santa Clara California United States
2010 $120,201 86,850 $60,883 $51,914
2011 124,825 89,064 61,632 52,762
2012 127,534 90,747 61,400 53,046
2013 129,976 91,702 61,094 53,046
2014 158,053 93,854 70,187 53,482
2015 141,953 96,310 61,818 53,889
2016 147,929 101,173 63,783 55,322
2017 153,449 106,761 67,169 57,652
2018 163,954 116,178 71,228 60,293
Source: U.S. Census Bureau, American Community Survey.
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Employment
The civilian labor force in the City totaled 39,200 in 2018, a 1.8 percent increase from 2017. For the
past five years the unemployment rate in the City and the County has been below the State of California’s rate.
The following table summarizes the labor force, employment and unemployment figures from 2014 to 2018
for the City, the County, the State of California and the nation as a whole.
LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
Yearly Average for Years 2015 through 2019
Year and Area Labor Force Employment(1) Unemployment(2)
Unemployment
Rate (%)(3)
2015
City of Cupertino 28,900 27,900 1,000 3.3%
Santa Clara County 1,013,200 971,100 42,000 4.1
State of California 18,896,500 17,724,800 1,171,700 6.2
United States 157,130,000 148,834,000 8,296,000 5.3
2016
City of Cupertino 29,600 28,500 1,100 3.7%
Santa Clara County 1,028,700 989,900 38,800 3.8
State of California 19,093,700 18,048,800 1,044,800 5.5
United States 159,187,000 151,436,000 7,751,000 4.9
2017
City of Cupertino 29,700 28,700 1,000 3.2%
Santa Clara County 1,039,900 1,006,500 33,400 3.2
State of California 19,312,000 18,393,100 918,900 4.8
United States 160,320,000 153,337,000 6,982,000 4.4
2018
City of Cupertino 29,500 28,700 800 2.7%
Santa Clara County 1,048,800 1,021,500 27,300 2.6
State of California 19,398,200 18,582,800 815,400 4.2
United States 162,075,000 155,761,000 6,314,000 3.9
2019
City of Cupertino 29,800 29,100 700 2.4%
Santa Clara County 1,053,700 1,027,500 26,200 2.5
State of California 19,408,271 18,623,900 784,375 4.0
United States 163,539,000 157,538,000 6,001,000 3.7
(1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded
figures in this table.
Note: Data is not seasonally adjusted.
Source: California Employment Development Department based on March 2018 benchmark and U.S. Department of Labor,
Bureau of Labor Statistics.
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The table below summarizes employment by industry in Santa Clara County from 2015 to 2019.
Service Providing, Professional and Business Services and Trade, Transportation and Utilities are the largest
employment sectors in the County.
AVERAGE ANNUAL INDUSTRY EMPLOYMENT 2015-2019
Santa Clara County
2015 2016 2017 2018 2019
Total Farm 3,700 3,900 3,600 3,500 3,100
Total Nonfarm 1,025,200 1,056,700 1,090,100 1,111,700 1,131,800
Total, All Industries 1,028,900 1,060,600 1,093,700 1,115,200 1,134,900
Goods Producing 203,300 209,300 211,200 217,200 220,900
Mining and Logging 200 300 200 200 200
Construction 42,900 47,600 47,900 48,300 51,000
Manufacturing 160,200 161,300 163,100 168,700 169,700
Service Providing 821,900 847,400 878,900 894,500 910,900
Trade, Transportation and Utilities 136,100 137,300 132,000 131,700 129,200
Wholesale Trade 36,800 37,400 32,600 31,900 31,300
Retail Trade 85,100 85,000 84,500 84,400 82,200
Transportation, Warehousing and Utilities 14,100 14,800 14,900 15,300 15,700
Information 70,400 74,500 84,600 92,100 100,700
Financial Activities 34,200 35,200 35,800 36,400 37,400
Professional and Business Services 215,200 224,100 236,200 235,900 241,800
Educational and Health Services 154,900 160,600 167,400 171,900 174,000
Leisure and Hospitality 94,500 97,600 102,000 104,200 104,900
Other Services 26,500 27,000 28,400 28,400 28,700
Government 90,100 91,200 92,700 93,800 94,200
Note: The “Total, All Industries” data is not directly comparable to the employment data found herein.
Source: State of California, Employment Development Department, Labor Market Information Division, Santa Clara County
Annual Average Labor Force and Industry Employment, March 2018 Benchmark.
Industry
The following tables list the largest private and public employers in the City:
MAJOR EMPLOYERS
City of Cupertino
2019
Rank Name of Business Rank Name of Business
1. Apple 11. Insight Solutions Inc.
2. De Anza College 12. Intero Real Estate Scv Inv
3. Seagate Technology Inc 13. Keller Williams Realty
4. Health Care Center at the Forum 14. Sugar CRM Inc
5. Magnet Systems Inc 15. Sunny View Retirement Community
6. All Fab Precision Sheet 16. Target
7. BJ’s Restaurant & Brewhouse 17. Whole Foods Market
8. Coldwell Banker Residential 18. 99 Ranch Market
9. Cupertino Healthcare-Wellness 19. Argonaut Window & Door
10. Forum at Rancho San Antonio 20. Astra Real Estate
Source: City of Cupertino, Comprehensive Annual Financial Report, Fiscal Year Ending June 30, 2019.
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Transportation
The City is served by a network of freeways; Interstate 880 connects the City with the Oakland
International Airport and the Port of Oakland. Interstates 280 and 680 provide access to the peninsula and
eastern regions of the San Francisco Bay Area and State Route 17 serves to connect the City with the Pacific
Coast at Santa Cruz. All of these interstate highways connect to U.S. 101, a major north-south highway
linking San Francisco and Los Angeles.
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APPENDIX B
THE CITY OF CUPERTINO AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2019
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FISCAL YEAR
2018 - 2019
COMPREHENSIVE ANNUAL
FISCAL YEAR
2018 - 2019
FINANCIAL REPORT
CITY OF CUPERTINO, CALIFORNIA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED JUNE 30, 2019
Prepared by the City of Cupertino Administrative Services Department
Finance Division
i.
CITY OF CUPERTINO, CALIFORNIA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
For the year ended June 30, 2019
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 .............. 74
SCHEDULE OF CONTRIBUTIONS — PENSION ............................................................................. 75
SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY AND RELATED RATIOS ..................... 76
SCHEDULE OF CONTRIBUTIONS – OPEB ..................................................................................... 77
SCHEDULE OF INVESTMENT RETURNS – OPEB ........................................................................ 78
ii.
CITY OF CUPERTINO, CALIFORNIA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
For the year ended June 30, 2019
CONTENTS (Continued)
OTHER SUPPLEMENTARY INFORMATION:
SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE —
BUDGET AND ACTUAL - PUBLIC FACILITIES CORPORATION DEBT SERVICE FUND .............. 80
NONMAJOR GOVERNMENTAL FUNDS:
COMBINING BALANCE SHEET ........................................................................................................ 82
COMBINING STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES .................................................................................................... 83
COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES — BUDGET AND ACTUAL ....................................................... 84
NONMAJOR ENTERPRISE FUND:
COMBINING STATEMENT OF NET POSITION ............................................................................... 88
COMBINING STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN FUND NET POSITION .............................................................................................. 89
COMBINING STATEMENT OF CASH FLOWS ................................................................................. 90
INTERNAL SERVICE FUNDS:
COMBINING STATEMENT OF NET POSITION ............................................................................... 92
COMBINING STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN FUND NET POSITION .............................................................................................. 93
COMBINING STATEMENT OF CASH FLOWS ................................................................................. 94
STATISTICAL SECTION
FINANCIAL TRENDS:
NET POSITION/ASSETS BY COMPONENT — LAST TEN FISCAL YEARS ................................... 97
CHANGES IN NET POSITION/ASSETS — LAST TEN FISCAL YEARS.......................................... 98
FUND BALANCES OF GOVERNMENTAL FUNDS — LAST TEN FISCAL YEARS ......................... 100
CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS —
LAST TEN FISCAL YEARS .............................................................................................................. 101
REVENUE CAPACITY:
ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE
PROPERTY — LAST TEN FISCAL YEARS .................................................................................... 102
DIRECT AND OVERLAPPING PROPERTY TAX RATES — LAST TEN FISCAL YEARS ............... 103
PRINCIPAL PROPERTY TAXPAYERS — CURRENT YEAR AND FIVE YEARS AGO ................... 104
PROPERTY TAX LEVIES AND COLLECTIONS — LAST TEN FISCAL YEARS ............................. 105
DEBT CAPACITY:
RATIOS OF OUTSTANDING DEBT BY TYPE — LAST TEN FISCAL YEARS ................................ 106
DIRECT AND OVERLAPPING BONDED DEBT ................................................................................ 107
LEGAL DEBT MARGIN INFORMATION — LAST TEN FISCAL YEARS .......................................... 108
RATIO OF GENERAL BONDED DEBT — LAST TEN FISCAL YEARS ........................................... 109
DEMOGRAPHIC AND ECONOMIC INFORMATION:
DEMOGRAPHIC AND ECONOMIC STATISTICS — LAST TEN FISCAL YEARS ........................... 110
2018 EMPLOYER RANKING ............................................................................................................. 111
OPERATING INFORMATION:
FULL-TIME EQUIVALENT CITY EMPLOYEES BY
FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ................................................................. 112
OPERATING INDICATORS BY FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ................ 113
CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ........... 114
COMMUNITY PROFILE
iii.
March 6, 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, 2019. 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
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 63,344 (based on 2019 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.
Cupertino is the corporate headquarters of several notable companies including Apple Inc., Seagate
Technology, CRC Health, DURECT, Mirapath, Bromium, and SugarCRM Inc., and home to many other
well-known firms, such as Altia Systems, Cinarra, Pepperdata, Panasonic Ventures, and Ducati North
America. Other major employers include DeAnza College, one of the largest single-campus community
colleges in the country, the Fremont Union High School District, and Cupertino Union School District.
Cupertino is excited to have a number of new mixed-use development providing more retail and dining
options, as well as providing additional housing opportunities to meet the needs of the growing community.
The Main Street Cupertino 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!, Pacific Catch, Rootstock Wine Bar, Oren’s Hummus, Lazy Dog, Chef Hung, Philz Coffee,
HaiDiLao Hot Pot Restaurant, Pressed Juicery, Orangetheory, 85 Degree Bakery, Target Express, Steins
Beer Garden, Kula Sushi, Vitality Bowls, Doppio Zero, Koja Kitchen, and Somi Somi. Housing, office,
and a new Residence Inn by Marriott are available to support the thriving area. Benihana, Bowlmore, and
Ice Center Cupertino also serve as anchors to the area.
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 Daiso, Marukai Groceries, Super Cue, La
Patisserie Bakery, Beard Papa’s, Legend’s Pizza, Galpao Gaucho, Merlion Restaurant, Icicles, Garlic
Mediterranean Grill, Rori Rice, and Erik’s DeliCafé.
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, Starbucks, JSJ Street
Kitchen, Creamistry, MOD Pizza, Ten Ren Tea, Fantasia Coffee & Tea, Happy Lemon, Joy Luck Palace,
Kee Wah Bakery, Duke of Edinburgh, and many other restaurants, bakeries, and shops.
Cupertino features many other retail opportunities, including TJ Maxx and Home Goods, Whole Foods,
Stein Mart, Pet Club, Sleep Number, Target, and over 180 restaurants to serve residents and the local
workforce. There are now seven hotels providing over 1,000 rooms, to serve the area: The Aloft Cupertino,
Cupertino Hotel, Hilton Garden Inn, Juniper Hotel operated by Curio, Marriott Courtyard, the Residence
Inn by Marriott, and the newest addition is the Hyatt House.
v.
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 Kinko’s 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
67.0% (includes electronic equipment and software manufacturers and distributors), state and county pools
17%, restaurants and hotels 6%, general retail 4%, and fuel and service stations 3%.
Our two largest sales tax payers in the business-to-business category represent a large part of that sector
and therefore can significantly affect sales tax trends. The top tax payer’s 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
FY 2009-10 showed a significant decline due to Hewlett Packard’s move from Cupertino. 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
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
vi.
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.
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 in August 2017: Cupertino Hotel and Cupertino
Village Boutique Hotel. Proposed room counts are 156 and 185 respectively.
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 pension actuarial valuation report of
June 30, 2018 reported a pension unfunded accrued liability of $47.5 million with annual payments to
CalPERS of 29.8% and 28.6% of payroll for 2020-21 and 2019-20, 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,
2019 GASB 74/75 report, the City has a retiree medical unfunded liability of ($1,145,000) with annual
payments to a retiree health plan trust at (5.7%) 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
additional on-going contributions to the trust will be appropriated on an annual basis.
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.
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.
Legislation raising the City’s property tax share, the update of the utility user tax, the increase in the
transient occupancy tax, and refinancing of the City’s debt are past successes to help diversify and balance
revenues and expenditures. The City Council work program underway in 2018-2019 describes economic
development and administrative initiatives to further increase the City’s property tax share; streamline City
web content and permitting for new businesses; continue sponsoring seminars and workshops for new small
vii.
businesses; increase coordination with the Chamber of Commerce and other regional business
organizations; strengthen shop local habits of residents and daytime visitors; and enhance business access
to City services.
ACCOUNTING AND BUDGETARY CONTROL
In developing and evaluating the City’s accounting system, consideration is given to the adequacy of
internal accounting controls. The City’s controls are designed to provide reasonable, but not absolute,
assurance regarding the safeguarding of assets against losses from unauthorized use or disposition and the
reliability of financial records for preparing financial statements and maintaining accountability of assets.
The concept of reasonable assurance recognizes that the costs of a control should not exceed the benefits
likely to be derived and that the evaluation of costs and benefits requires estimates and judgments by
management.
The City’s budget is a detailed operating plan that identifies estimated costs and results in relation to
estimated revenues. The budget includes 1) the programs, projects, services and activities to be provided
during the fiscal year; 2) estimated revenue and fund balance available to finance the operating plan; and
3) the estimated spending requirements of the operating plan. The budget represents a process through
which policy decisions are made, implemented and controlled.
INDEPENDENT AUDIT
City ordinance requires an annual audit of the financial records by an independent certified public
accounting firm selected by the City Council and its audit committee. Crowe LLP audited the City’s Basic
Financial Statements, and their opinion thereon is included in the Financial Section of this report.
FRAUD INVESTIGATION
On September 5, 2018 the Santa Clara County Sheriff’s Office arrested former City of Cupertino employee
Jennifer “Yuen-Cheng” Chang, Senior Accountant, for her role in the embezzlement of public funds. It is
believed that Ms. Chang issued and cashed numerous fraudulent checks between 2000 and 2014 for a total
of $791,494.
The scheme ended in September 2014 right before the implementation of an upgraded financial system in
December 2014 that tightened internal controls. Ms. Chang, who was hired by the City in 1997, retired in
July 2015.
The checks were uncovered earlier this year by staff during a multi-year, detailed review of several
accounts—including payroll, bank reconciliations, and deposits—which began after the implementation of
the new financial system in fiscal year 2014-2015. The checks were found debited against a liability account
and deemed suspicious due to their nature, size, and lack of supporting documentation.
The Santa Clara County Sheriff’s Office submitted its case to the Santa Clara County District Attorney’s
Office for the issuance of a warrant for Ms. Chang. The California Attorney General has brought forward
68 criminal charges against Ms. Chang. The City of Cupertino is seeking full restitution from Ms. Chang
through upcoming criminal and civil proceedings.
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
viii.
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.
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 Yulia Rumalean, Tina Mao, Thomas
Leung, Zeng Wang, Min Zhao, Jumaini Judoprasetijo 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
Citizens of
Cupertino
City Council
Committees and
Commissions
City Attorney City Manager City Treasurer
City Clerk Public Affairs Sustainability
Programs
Law Enforcement
(Santa Clara County
Sherriff – Contract)
Administrative
Services
Community
Development
Recreation and
Community Services Public Works
Innovation &
Technology
Code Enforcement
Finance Building Recreation &
Education
Capital Improvement
Program Transportation GIS Infrastructure
Human Resources Planning Sports, Safety &
Outdoor Recreation
Development
Services
Environmental
Programs Video Applications
Economic
Development
Business &
Community Services Service Center
Code Enforcement
(Zoning & Building)
Grounds Streets Trees & ROW Facilities & Fleet
Housing
ix.
CITY OF CUPERTINO, CALIFORNIA
Fiscal Year 2018-19
CITY COUNCIL
DIRECTORY OF CITY OFFICIALS
Deborah L. Feng – City Manager
Timm Borden – Assistant City Manager
Heather Minner – City Attorney (Contract)
Bill Mitchell – Chief Technology Officer
Kristina Alfaro – Director of Administrative Services
Ben Fu – Director of Community Development
Roger Lee – Director of Public Works
Jeff Milkes – Director of Parks and Recreation
Rod Sinks
Council member
Darcy Paul
Council member
Jon Willey
Council member
Steven Scharf
Mayor
Liang Chao
Vice Mayor
x.
CITY OF CUPERTINO, CALIFORNIA
Fiscal Year 2018-19
COMMISSIONS AND COMMITTEES
BICYCLE PEDESTRIAN
COMMISSION
Erik Lindskog
Gerhard Eschelbeck
Jennifer Shearin
Muni Madhdhipatla
Pete Heller
FINE ARTS COMMISSION
Diana Matley
Janki Chokshi
Rajeswari Mahalingam
Sonia Dhami
Sudha Kasamsetty
HOUSING COMMISSION
Connie Cunningham
John Zhao
Nina Daruwalla
Sue Bose
Vacant
LIBRARY COMMISSION
Amando Wo
Christie Wang
Liana Crabtree
Qin Pan
Rahul Vasanth
PARKS AND RECREATION
COMMISSION
Gopal Kumarappan
Helene Davis
Judy Wilson
Neesha Tambe
Xiangchen Xu
PLANNING COMMISSION
Alan Takahashi
David Fung
Kitty Moore
R “Ray” Wang
Vikram Saxena
PUBLIC SAFETY COMMISSION
Andy Huang
Hymanand Nellore
Neha Sahai
Robert McCoy
Yvonne Chao
SUSTAINABILITY
COMMISSION
Angela Chen
Anna Weber
Gary Latshaw
Meera Ramanathan
Vignesh Swaminathan
TEEN COMMISSION
Emily Chan
Juliet Shearin
Kelly Tung
Krithika Venkatasubramanian
Madhavan Krishnan
Sarah Tan
Tanvi Khot
Varsha Subramanyam
Vanitha Vemula
TECHNOLOGY, INFORMATION
& COMMUNICATIONS
COMMISSION
Arnold de Leon
Ilango Ganga
Naidu Bollineni
Prabir Mohanty
Rajaram Soundararajam
AUDIT COMMITTEE
Darcy Paul
Eno Schmidt
Jim Luther
Mingming (Daisy) Liang
Steven Scharf
DESIGN REVIEW COMMITTEE
David Fung
Vikram Saxena
ENVIRONMENTAL REVIEW
COMMITTEE
Benjamin Fu
Darcy Paul
Kitty Moore
Roger Lee
Deb Feng
LEGISLATIVE REVIEW
COMMITTEE
Liang Chao
Steven Scharf
xi.
Certificate of
Presented to
City of Cupertino
For its Comprehensive Annual
June 30, 2018
Executive Director/CEO
Financial Report
for the Fiscal Year Ended
Reporting
in Financial
for Excellence
Achievement
Text38:California
Government Finance Officers Association
xii.
(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, 2019, 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.
(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, 2019, 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.
3.
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 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
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
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.
2018-19 FINANCIAL HIGHLIGHTS
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 2019 by $275.7 million (net position). Of this amount,
$57.9 million represents unrestricted net position, which may be used to meet the City’s ongoing
obligations to citizens and creditors.
City revenues have decreased slightly in 2018-19 with base governmental revenues showing a $0.1
million decrease, or 0.1%, over 2017-18. The primary fluctuations include a decrease in total cost
allocation charges and operating grants and contributions that were offset with increases in general
revenues. 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 has historically grown year over year, the
City experienced a decrease of approximately $1.3 million, or 4.8% over the previous year. This is
primarily due to the winding down of construction at Apple Park as well as a “cleanup” payment
received in fiscal year 2017-18 that was not received in FY 2018-19. Overall, the City experienced
relatively minor declines over the previous fiscal year in business and industry as well as autos and
transportation sectors; however, saw continued growth in all other sectors. With the opening of the
Marriott and Hyatt House hotels, transient occupancy tax experienced significant growth of $2.1
million, or 30.7%, 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 $860,000, after depreciation. The City’s change in net position was $17.4 million for governmental activities and $15.8 million in
total, reflecting the continued growth of revenues and modest departmental spending.
The City’s Net Pension Liability for June 30, 2019, was $40.9 million, down $0.3 million from June
30, 2018, or 0.6%. The Plan Fiduciary Net Position as a Percentage of the Total Pension Liability
for the City’s pension plan with CalPERS went from 67.8% to 69.6%. During fiscal year 2018-19,
the City Council approved an $8.0 million contribution to the City’s recently established pension
rate stabilization program (Section 115 Trust). Annual contributions to this trust will continue on an
annual basis and as part of the City’s budget process. In accordance with guidance under GASB
67/68, the assets in the Section 115 Trust are reported as restricted cash and investments in the City’s
General Fund. While the Section 115 Trust qualifies as a “trust,” the assets in the Section 115 Trust
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.
Business-type activities contributed $6.7 million to citywide revenues totaling $102.6 million, while
the same activities contributed over $8.3 million to citywide expenses of $86.7 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. As of June 30, 2019, the City reported a Net OPEB Asset of $1,145,000
and Deferred Inflows of Resources related to OPEB of $1.8 million. As of June 30, 2019, the City’s
OPEB plan had a funding ratio or funded ratio or status of 104.0%.
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
5
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.
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.
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
6
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
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.
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
7
Governmental Activities
Table 1
Condensed Statement of Net Position at June 30
(in thousands)
Governmental Activities
2019 2018
Assets:
Cash and investments $ 132,532 $ 133,439
Restricted cash and
investments 12,412 -
Other assets 9,851 8,490
Capital assets 195,971 194,832
Total assets 350,766 336,761
Deferred Outflows of Resources:
Related to Pension (Note 10) 8,088 10,006
Liabilities:
Long term debt 29,300 31,520
Other liabilities 59,662 63,641
Total liabilities 88,962 95,161
Deferred Inflows of Resources:
Related to Pension (Note 10) 638 280
Related to OPEB (Note 11) 1,685 1,189
Total deferred inflows of
resources 2,323 1,469
Net Position:
Net Investment in capital assets 170,974 167,606
Restricted 45,405 32,073
Unrestricted 51,190 50,458
Total net position 267,569 250,137
The City’s change in net position from governmental activities was $17,431,990. The following
significant changes within assets, liability, and net position categories occurred:
The City made an $8 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
$12.4 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 $1.4 million, primarily due to the actuarily-derived
Net OPEB Asset of $1.1 million. Capital assets increased approximately $1.1 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 decreased by approximately $4 million, primarily due to a $3.5 million
decrease in deposit liability balance resulting from the completion and/or progression of
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
8
various projects such as Apple Campus 2. Additionally, accounts payable and accruals
decreased approximately $1 million due to timing and quantity of services rendered and
invoices received from one fiscal year to the next. Deferred Outflows Related to Pension decreased $1.9 million primarily due to actuarial
changes of assumptions. Deferred Inflows of Resources Related to Pension and OPEB
increased $358 thousand and $496 thousand, respectively, also due primarily to actuarial
changes of assumptions.
Sources of Revenue, Governmental Activities 2018-19
In 2018-19, the City experienced continued trends toward a return to normalcy. Revenues decreased $0.1
million from the prior year, primarily due to decreases in functional program revenues offset with
increases in general revenues.
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
9
Functional Expenses, Governmental Activities 2018-19
The Statement of Activities presents program revenues, expenses, general revenues, and the resulting
change in net position as summarized in the next table.
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
10
Table 2
Condensed Statement of Activities for the Year Ended June 30
(in thousands)
Governmental Activities
Expenses 2019 2018
Administration $ 6,849 $ 5,613
Law enforcement 13,381 12,674
Innovation & technology 3,210 3,245
Administrative services 4,290 4,416
Recreation and community services 7,390 9,353
Community development 10,471 16,789
Public works 31,872 28,995
Interest on long-term debt 949 993
Total expenses 78,412 82,078
Revenues
Program revenues:
Charges for services 18,861 23,340
Operating grants and contributions 2,557 4,820
Capital grants and contributions 1,082 272
Total program revenues 22,500 28,432
General revenues:
Taxes:
Property tax 17,082 14,882
Property tax in-lieu of motor vehicle fee 8,219 7,552
Sales tax 24,902 26,165
Transient occupancy tax 8,901 6,811
Utility user tax 3,090 3,146
Franchise tax 3,445 3,564
Other taxes 3,300 1,944
Intergovernmental, unrestricted:
Motor vehicle license fee 29 31
Investment earnings 3,259 916
Gain on sale of capital assets 4 741
Miscellaneous 1,187 1,834
Total general revenues 73,418 67,586
Total revenues 95,918 96,018
Excess of revenues over expenses,
before transfers 17,506 13,940
Transfers (Note 4) (75) 107
Change in net position 17,431 14,047
Beginning net position 250,138 236,091
Ending net position $ 267,569 $ 250,138
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
11
City-wide Governmental Activities Revenues
Table 2 shows that revenues from governmental activities decreased $0.1 million or 0% from last year,
finishing at $95.9 million. The decreases in functional program revenues are attributable to a gross
amount reduction in the City’s cost allocation plan and operating grants and contributions. This decrease
was offset by increases and fluctuations in general revenues, 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 $2.2 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.
Sales tax experienced a decrease of $1.3 million, or 4.8%, over the prior year. primarily due to building
and construction decreases as expected from the completion of the Apple Campus in the first part of
2018 as well as a “cleanup” payment received in fiscal year 2017-18 that was not received in FY 2018-
19. Statewide, July 2019 marked ten years of continuous statewide economic growth which is the longest
period of U.S. economic expansion on record. However, analysts from a variety of economic segments
are reporting signs that we may be leveling off.
Transient occupancy tax has increased $2 million, or 30.7%, over the prior year resulting of the
Residence Inn by Marriott, which opened at Main Street in early 2018, and has continued to experience
growth in occupancy rates. The City’s voluntary collection agreement with Airbnb which began in
August of 2018, continues to show growth. Staff estimate approximately $450,000 attributable to short-
term rental TOT revenues in fiscal year 2019-20. Lastly, the opening of the Hyatt House Hotel in April
2019 has contributed to growth in this revenue category.
Investment earnings saw an increase of $2.3 million, or 256%, over the prior year. This was due to the
City’s portfolio’s market yield increasing from 1.3% as of June 30, 2018 to 2.2% as of June 30, 2019.
Additionally, during fiscal year 2018-19, the City retained a third-party investment advisor to assist with
achieving higher maturity, duration, and market yield while maintaining the overall goal of safety,
liquidity, and returns.
Program revenues showed a decrease of $5.9 million, or 21%, and is primarily attributable to the
completion and winding down of significant construction and development projects resulting in a
decrease in fee revenues. Finally, charges for services experienced a significant gross decrease in cost
allocation plan charges across all funds and resulted in a decrease in revenues.
Operating grants and contributions decreased $2.3 million, or 47%, due to the City receiving a $1.8
million contribution from Apple for the City’s 2016 Bicycle Implementation Plan in fiscal year 2017-18
that it did not received in fiscal year 2018-19.
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
12
City-wide Governmental Activities Expenses
City-wide governmental activities expenses decreased by $3.7 million, or 5%. 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.
Change in Net Position
The City-wide governmental net position increase of $17.5 million was slightly up compared to the
increase of $14.0 million in 2017-18 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 $8.1 million at June 30, 2019, a
decrease of $1.6 million, or 16.5%, from the prior year with unrestricted net position decreasing $1.3
million and the net investment in capital assets decreasing by $279,000. Business-type activities
transferred in (net) $75,000, an increase of $182,000 over the prior year, which helped minimize the
decrease in net position. Few capital asset additions offset with $291,000 in depreciation expense
resulted in a net decrease of $279,000 over the prior year. Enterprise activities experienced an overall
slight decrease in assets due to the addition of an actuarially-determined Net OPEB Asset of $71,000 in
fiscal year 2018-2019 which offset decreases in the cash and cash equivalent classification. Liabilities
for business-type activities remained relatively consistent with prior year.
In Table 4, revenues for all business-type activities decreased $1.2 million and operating expenses
decreased by $777,000, primarily attributable to the restructuring of the City’s waste recovery contract
which eliminated pass-through costs.
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
13
2019 2018
Assets:
Cash and investments 10,396 $ 11,271 $
Other assets 407 526
Capital assets 1,319 1,598
Total assets 12,122 13,395
Deferred Outflows of Resources:
Related to pension 539 665
Other Liabilities:4,447 4,310
Total liabilities 4,447 4,310
Deferred Inflows of Resources:
Related to pension
Related to OPEB
Total deferred inflows of resources
43
114
157
20
81
101
Net Position:
Net investment in capital assets 1,319 1,598
Unrestricted 6,738 8,051
Total net position 8,057 $ 9,649 $
Table 3
Condensed Statement of Net Position at June 30
(in thousands)
Business Type Activities
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
14
Table 4
Condensed Statement of Activities for the Year Ended June 30
(in thousands)
Business Type Activities
Expenses 2019 2018
Resource recovery $ 1,736 $ 2,595
Blackberry farm 645 656
Sports center 3,036 2,634
Recreation programs 2,923 3,232
Total expenses 8,340 9,117
Revenues
Program revenues:
Charges for services 6,403 7,826
General revenues:
Investment earnings 270 76
Total revenues 6,673 7,902 Excess of revenues over expenses,
before transfers (1,667) (1,215)
Transfers 75 (107)
Change in net position (1,592) (1,322)
Beginning net position 9,649 10,971
Ending net position $ 8,057 $ 9,649
MAJOR GOVERNMENTAL FUNDS
General Fund
General Fund Revenues
General Fund actual revenues of $88.8 million ended $11.9 million, or 15.5%, above the original budget
and $4.4 million, or 5.2%, above the final budget. Actual revenues were up $3.7 million or 4% when
compared to 2017-18 actuals. Table 5 displays the variations in actual revenues, while Table 6 shows
budgeted revenues compared to actuals.
Property taxes increased $2.9 million, or 13%, 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 decreased $1.3 million, or 5%, over the prior year 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.
The City’s two largest sales tax payers in the business-to-business category represent a large part of that
sector and therefore can significantly affect sales tax trends. The top tax payer’s corporate and business
technology spending has driven growth in this sector. Overall, sales tax activity has increased across
most sectors with a decrease primarily in construction attributable to the winding down of construction
projects in the City, particularly, the Apple Campus 2 project.
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
15
Transient occupancy tax increased $2.1, or 30.7%, due to the opening of the Residence Inn by Marriott
and Hyatt House hotels. Additionally, the City’s voluntary collection agreement with Airbnb began to
bring in additional TOT dollars that contributed to the increase.
Charges for services showed a decline of $2.3 million, or 16%, over the prior year and due to a gross
reduction in cost allocation plan charges as well as decreased fee revenue from the winding down and
completion of Apple Campus 2.
Licenses and permits increased $1.3 million, or 49%, due to increased plan check and building permits.
Overall continued growth in the local economy as well as the annual increase in business license tax
rates also contributed to the increase.
Table 5
Revenue Changes
General Fund, Fiscal 2019 vs. 2018
(in thousands)
Increase/(Decrease)
Fiscal 2019 From Fiscal 2018
Revenue by Source Amount % of Total Amount Percent
Taxes:
Property $ 25,301 28% $ 2,867 13%
Sales 24,902 28% (1,263) -5%
Transient occupancy 8,901 10% 2,090 31%
Utility user 3,090 3% (56) -2%
Franchise 3,445 4% (119) -3%
Other 1,660 2% 320 24%
Use of money & property 2,654 3% 1,328 100%
Intergovernmental 474 1% (527) -53%
Licenses and permits 4,103 5% 1,345 49%
Charges for services 12,645 14% (2,327) -16%
Fines and forfeitures 511 1% (64) -11%
Other 1,102 1% 87 -9%
Total revenues $ 88,788 100% $ 3,681 4%
Other financing sources:
Proceeds from sale of capital assets $ 4 71% $ (868) -100%
Transfers in 10 29% (2,244) -100%
Total other financing sources $ 14 100% $ (3,112) -100%
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
16
Table 6
Revenue, Budget and Actual Comparisons
General Fund 2018-19
(in thousands)
Budgeted Amounts
Variance with
Final
Original Final Actual
Positive/
(Negative)
Taxes:
Property $ 22,766 $ 23,766 $ 25,301 $ 1,535
Sales 23,637 24,537 24,902 365
Transient occupancy 8,252 8,252 8,901 649
Utility user 3,200 3,200 3,090 (110)
Franchise 3,042 3,042 3,445 403
Other 1,150 1,150 1,660 510
Use of money & property 692 692 2,654 1,962
Intergovernmental 326 326 474 148
Licenses and permits 2,685 2,685 4,103 1,418
Charges for services 10,269 14,773 12,645 (2,128)
Fines and forfeitures 615 615 511 (104)
Other 244 1,356 1,102 (254)
Total revenues $ 76,878 $ 84,394 $ 88,788 $ 4,394
Transfers in $ 10 $ 10 $ 10 $ -
Proceeds from sale of
capital assets
-
-
4
4
Total other financing
sources
$ 10
$ 10
$ 14
$ 4,398
General Fund Expenditures
Fiscal 2018-19 overall expenditures, at $63.0 million, were $2.2 million lower than last year. This result
came in 13% or $9.6 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 $1.4 million, or 28%, from 2017-18 and is primarily due to a reorganization of
the following Divisions: Community Outreach and Neighborhood Watch, Disaster Preparedness, and
Economic Development. These Divisions were previously budgeted in The Parks & Recreation and
Community Development Departments.
Law Enforcement was higher by approximately $746,000, or 6%, 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 2017-18 to 2018-19. Some notable
special projects that commenced included, but were not limited to, the City’s conference room upgrade,
live graphics system upgrade, hyperconverged storage expansion, and printer and wireless upgrades.
Administrative Services’ expenditures decreased approximately $232,000, or 5%, over the prior year.
Despite adding two full-time employees in the Department, the overall decrease was primarily
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
17
attributable to a reduction in contract service charges for the City’s sales, property, and transient
occupancy tax collection, audit, and reporting services compared to the previous fiscal year.
Recreation and Community Services General Fund expenditures experienced a 4% increase, or $309,000,
across its programs. While the department’s program expenditures remained relatively consistent with the
prior year, the majority of the increase is attributable to negotiated increases in compensation and benefits.
Community Development expenditures in the General Fund increased $189,000 or 2% due to salary and
benefit that were offset with decrease in special project spending; namely, the Vallco Specific Plan.
Public Works expenditures increased approximately $1.8 million or 12%. 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, the building and
water system assessment and the Apple Campus 2 Traffic Mitigation Improvements.
Transfers out of the General Fund decreased from $24.1 million in 2017-18 to $19.4 million, with $5.8
million for capital projects in the Transportation Fund, $3.2 million for annual debt service, $8.0 million
for capital projects in the Capital Improvement Projects Fund, $811,000 to subsidize a state-mandated
enforcement program, and $1.6 million to internal service funds.
Table 7
Expenditure Changes
General Fund, Fiscal 2019 vs. 2018
(in thousands)
Increase/(Decrease)
Fiscal 2019 From Fiscal 2018
Function/Program Amount % of Total Amount Percent
Administration $ 6,293 10% $ 1,374 28%
Law enforcement 13,109 21% 746 6%
Innovation & technology 2,844 5% 8 0%
Administrative services 4,198 7% (232) -5%
Recreation and community services 8,995 14% 309 4%
Community development 8,554 14% 189 2%
Public works 17,667 28% 1,846 12%
Capital outlay 1,354 2% (6,409) -83%
Total expenditures $ 63,014 100% $ (2,169) -3%
Transfers out $ 19,376 100% $ (4,753) -20%
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
18
Table 8
Expenditure Changes
General Fund 2018-19
(in thousands)
Budgeted Amounts
Variance with
Final
Original Final Actual Positive/ (Negative)
Administration $ 6,884 $ 7,339 $ 6,293 $ 1,046
Law enforcement 12,988 13,127 13,109 18
Innovation & technology 3,397 3,318 2,844 474
Administrative services 4,607 4,629 4,198 431
Recreation and community
services 10,614 10,306 8,995 1,311
Community development 8,333 12,533 8,554 3,979
Public works 17,831 19,429 17,667 1,762
Capital outlay 1,626 1,897 1,354 543
Total expenditures $ 66,280 $ 72,578 $ 63,014 $ 9,564
Transfers out $ 11,359 $ 19,376 $ 19,376 $ -
General Fund - Fund Balance
The General Fund carried a June 30, 2019, ending fund balance of $58,922,585, up 12.2% or $6.4 million
from beginning of the fiscal year. Loan receivables totaled $454,188 of non-spendable fund balance.
The City committed $19.0 million for general economic uncertainty and $123,397 for sustainability.
The City assigned $1,979,202 for encumbrances. $1,346,167 was restricted for public access television
purposes, $13,982 for CASp certification training and $8,109,521 for the pension rate stabilization
program (Section 115 Trust). $27,896,128 was classified as unassigned.
Transportation
The Transportation Special Revenue Fund carried a June 30, 2019, ending fund balance of $10,013,926,
up 13.7%, or $1.2 million from the beginning of the fiscal year. Activities in this fund remained
relatively consistent from the prior fiscal year 2017-18 with the majority of expenditures incurred on the
annual asphalt project.
Housing Development
The Housing Development Special Revenue Fund carried a June 30, 2019, ending fund balance of $8.6
million, up 1%, or $116,000 from the beginning of the fiscal year. The activities in this fund were down
significantly in comparison with 2017-18 due to Below Market Rate (BMR) Charities Housing Program
expenditures in FY 2017-18.
Public Facilities Corporation
A transfer of $3,169,438 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.
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
19
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, 2019, ending fund balance
of $33,009,760, up 14.2%, or $4.1 million from the beginning of the fiscal year. During fiscal year
2018-2019, an $8 million transfer in from the General Fund was received for purposes of fund capital-
related projects. The following capital projects incurred the highest expenditures: Sports Center Exterior
Upgrades, 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. This agreement was amended during the fiscal
year that significantly reduced the impact for landfill disposal and as a result, the fund experienced
decreases in both revenues and expenses. Total operating revenue decreased from $2.56 million last
year to $1.8 million this year, while expenses decreased by approximately $859,000. Net position
increased by approximately $171,000. The fund ended the year with a $5,485,694 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 in generate
increasing revenues in recent years, fiscal year 2018-19 saw a slight decline. These programs generated
approximately $2.0 million in revenues that were 21% lower than last year. Ongoing program expenses
of approximately $2.9 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 $869,000 as
compared to an operating loss of $700,000 a year ago. After the transfer, the fund ended up with a
decrease in net position of $868,937. The fund ended the year with a net position of $1,838,753.
Cupertino Sports Center
Tennis lesson, membership, fitness class and rent revenues of $2,349,000 decreased by $54,000 or 2.3%
over last year, remaining relatively stagnant over the previous year. In addition, expenses increased by
$402,000 or 15%, resulting in a net operating loss of $687,000. In 2017-18, net operating income was
($230,000). This current year’s operating loss was primarily attributable to increases in contract
services. This fund’s net position was $748,346 as of June 30, 2019.
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
20
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 decreased 8% in 2018-2019 from $346,000 to $317,000.
Operating expenses decreased by $11,000, or 1.6%, to $645,000 this year due to a gross decrease in cost
allocation plan charges. Other expense classification remained relatively consistent. Altogether, the
golf course’s operating loss increased from $310,000 last year to $321,000 this year. After a transfer in
from the Capital Projects Fund of $75,000, net position decreased $246,000. As of June 30, 2019, this
fund’s net position was ($16,291).
CAPITAL ASSETS
At June 30, 2019, the City had $197.3 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 $0.9 million, after
depreciation.
Table 9
Capital Assets, Net of Depreciation, at June 30
(in thousands)
2019 2018
Governmental Activities:
Land $ 62,046 $ 62,046
Easements 19,615 19,492
Construction in Progress 3,566 7,154
Buildings 17,723 19,049
Improvements other than buildings 18,912 20,862
Machinery and equipment 4,912 4,484
Roads, curbs, gutters, sidewalks, medians and bridges 62,171 54,696
Streetlights 1,488 1,409
Storm drain structures and mains 4,695 4,685
Traffic signals 842 955
Total Governmental Activities 195,971 194,832
Business-Type Activities
Buildings 634 695
Improvements other than buildings 628 838
Machinery and equipment 56 65
Total Business-Type Activities 1,319 1,598
Total City $ 197,290 $ 196,430
CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019
21
DEBT ADMINISTRATION
The City’s only long-term debt liability at June 30, 2019, 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, 2019, outstanding principal of $29,300,000 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.
CURRENTLY KNOWN FACTS AND CONDITIONS
The City is unaware of any 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.
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.
CITY OF CUPERTINO, CALIFORNIA
STATEMENT OF NET POSITION
June 30, 2019
See accompanying notes to financial statements.
23.
Governmental Business-Type
Activities Activities Total
ASSETS
Cash and cash investments (Note 2)132,532,102$ 10,395,914$ 142,928,016$
Restricted cash and investments (Note 2)12,412,368 - 12,412,368
Receivables
Accounts 3,697,044 335,730 4,032,774
Interest 363,945 - 363,945
Loans (Note 3)4,712,072 - 4,712,072
Prepaid expenses and other assets 3,884 - 3,884
Net OPEB asset (Note 11)1,073,910 71,090 1,145,000
Capital assets (Note 5):
Non-depreciable 85,227,064 - 85,227,064
Depreciable, net of
accumulated depreciation 110,743,986 1,318,744 112,062,730
Total assets 350,766,375 12,121,478 362,887,853
DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10)8,088,063 538,609 8,626,672
Total deferred outflows of resources 8,088,063 538,609 8,626,672
LIABILITIES
Accounts payable and accruals 6,806,798 368,773 7,175,571
Accrued payroll and benefits 882,486 289 882,775
Deposits 7,066,073 - 7,066,073
Unearned revenue 273,418 1,162,557 1,435,975
Compensated absences (Note 1):
Due in one year 516,355 55,667 572,022
Due in more than one year 4,234,115 309,664 4,543,779
Claims payable (Note 9):
Due in one year 313,291 - 313,291
Due in more than one year 1,239,986 - 1,239,986
Long-term debt (Note 6):
Due in one year 2,290,000 - 2,290,000
Due in more than one year 27,010,000 - 27,010,000
Net pension liability (Note 10)38,329,854 2,549,735 40,879,589
Total liabilities 88,962,376 4,446,685 93,409,061
DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10)637,560 42,980 680,540
Related to OPEB (Note 11)1,685,080 113,920 1,799,000
Total deferred inflows of resources 2,322,640 156,900 2,479,540
NET POSITION (Note 7)
Net investment in capital assets 170,973,897 1,318,744 172,292,641
Restricted for:
Special revenue projects 35,109,484 - 35,109,484
Affordable housing 8,635,265 - 8,635,265
Debt service 1,660,759 - 1,660,759
Total restricted net position 45,405,508 - 45,405,508
Unrestricted 51,190,017 6,737,758 57,927,775
Total net position 267,569,422$ 8,056,502$ 275,625,924$
CITY OF CUPERTINO, CALIFORNIA
STATEMENT OF ACTIVITIES
For the year ended June 30, 2019
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 6,849,046$ 1,319,395$ 1,300$ -$ (5,528,351)$ -$ (5,528,351)$
Law enforcement 13,381,113 889,923 148,747 - (12,342,443) - (12,342,443)
Public and environmental affairs 3,210,343 - - - (3,210,343) - (3,210,343)
Administrative services 4,290,818 3,113,731 - - (1,177,087) - (1,177,087)
Recreation services 7,389,915 1,563,262 - - (5,826,653) - (5,826,653)
Community development 10,470,973 7,470,690 405,309 - (2,594,974) - (2,594,974)
Public works 31,870,165 4,504,104 2,002,114 1,082,243 (24,281,704) - (24,281,704)
Interest on long - term debt 949,438 - - - (949,438) - (949,438)
Total governmental activities 78,411,811 18,861,105 2,557,470 1,082,243 (55,910,993) - (55,910,993)
Business-type activities:
Resource recovery 1,735,885 1,750,279 - - - 14,394 14,394
Blackberry farm 645,469 316,615 - - - (328,854) (328,854)
Cupertino sports center 3,036,037 2,349,468 - - - (686,569) (686,569)
Recreation programs 2,923,336 1,986,781 - - - (936,555) (936,555)
Total business-type activities 8,340,727 6,403,143 - - - (1,937,584) (1,937,584)
Total 86,752,538$ 25,264,248$ 2,557,470$ 1,082,243$ (55,910,993) (1,937,584) (57,848,577)
General revenues:
Taxes:
Property taxes 17,082,005 - 17,082,005
Property tax in lieu of motor vehicle fee 8,219,090 - 8,219,090
Sales taxes 24,901,779 - 24,901,779
Transient occupancy tax 8,901,337 - 8,901,337
Utility user tax 3,089,922 - 3,089,922
Franchise tax 3,445,253 - 3,445,253
Other taxes 3,299,587 - 3,299,587
Intergovernmental, unrestricted:
Motor vehicle license fee 28,844 - 28,844
Investment earnings 3,258,550 270,371 3,528,921
Gain on sale of capital assets 3,875 - 3,875
Miscellaneous 1,187,741 - 1,187,741
Transfers (Note 4)(75,000) 75,000 -
Total general revenues and transfers 73,342,983 345,371 73,688,354
Change in Net Position 17,431,990 (1,592,213) 15,839,777
Net Position, beginning of year 250,137,432 9,648,715 259,786,147
Net Position, end of year 267,569,422$ 8,056,502$ 275,625,924$
Program Revenues Changes in Net Position
Net (Expense) Revenue and
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 2018-19. 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.
CITY OF CUPERTINO, CALIFORNIA
GOVERNMENTAL FUNDS
BALANCE SHEET
June 30, 2019
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)57,426,973$ 9,878,365$ 8,206,022$ 83,413$ 33,547,354$ 15,833,506$ 124,975,633$
Restricted cash and investments (Note 2)8,109,521 - - 4,302,847 - - 12,412,368
Receivables:
Accounts 3,320,100 232,496 78,663 - 63,992 1,793 3,697,044
Interest 363,945 - - - - - 363,945
Loans (Note 3)454,188 - 4,257,884 - - - 4,712,072
Due from other funds (Note 4)441,326 - - - - - 441,326
Other assets 3,884 - - - - - 3,884
Total assets 70,119,937$ 10,110,861$ 12,542,569$ 4,386,260$ 33,611,346$ 15,835,299$ 146,606,272$
LIABILITIES
Accounts payable and accruals 2,975,447$ 96,935$ 195,184$ 2,694,719$ 601,586$ 7,225$ 6,571,096$
Accrued payroll and benefits 882,414 - - - - - 882,414
Due to other funds (Note 4)- - - 30,782 - - 30,782
Deposits 7,066,073 - - - - - 7,066,073
Unearned revenue 273,418 - - - - - 273,418
Total liabilities 11,197,352 96,935 195,184 2,725,501 601,586 7,225 14,823,783
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 454,188 - - - - - 454,188
Restricted 9,469,670 10,013,926 8,635,265 1,660,759 - 15,625,888 45,405,508
Committed 19,123,397 - - - - - 19,123,397
Assigned 1,979,202 - - - 33,009,760 202,186 35,191,148
Unassigned 27,896,128 - - - - - 27,896,128
Total fund balances 58,922,585 10,013,926 8,635,265 1,660,759 33,009,760 15,828,074 128,070,369
Total liabilities, deferred inflows
of resources and fund balances 70,119,937$ 10,110,861$ 12,542,569$ 4,386,260$ 33,611,346$ 15,835,299$ 146,606,272$
Special Revenue Funds
CITY OF CUPERTINO, CALIFORNIA
RECONCILIATION OF GOVERNMENTAL FUNDS
BALANCE SHEET TO STATEMENT OF NET POSITION
June 30, 2019
See accompanying notes to financial statements.
27.
Total fund balances reported on the governmental funds balance sheet 128,070,369$
192,287,856
6,850,177
3,712,120
Long-term debt (29,300,000)
Net pension liability (35,909,154)
Net OPEB asset 994,937
Pension-related deferred outflows of resources 7,582,259
Pension-related deferred inflows of resources (594,998)
OPEB-related deferred inflows of resources (1,578,555)
Compensated absences (4,545,589)
Net position for governmental activities 267,569,422$
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:
CITY OF CUPERTINO, CALIFORNIA
GOVERNMENTAL FUNDS
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
For the year ended June 30, 2019
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 67,299,302$ -$ 159,179$ -$ -$ 1,480,492$ 68,938,973$
Use of money and property 2,654,331 271,320 212,727 75,272 300,642 382,521 3,896,813
Intergovernmental 473,942 2,800,292 344,323 - 50,000 - 3,668,557
Licenses and permits 4,102,665 - - - - - 4,102,665
Charges for services 12,644,413 17,193 29,145 - 119,637 575,310 13,385,698
Fines and forfeitures 511,471 - - - - 22,541 534,012
Other revenue 1,102,320 84,520 901 - - - 1,187,741
Total revenues 88,788,444 3,173,325 746,275 75,272 470,279 2,460,864 95,714,459
Expenditures
Current:
Administration 6,292,611 - - 1,500 - - 6,294,111
Law enforcement 13,108,732 - - - - - 13,108,732
Public and environmental affairs 2,843,540 - - - - - 2,843,540
Administrative services 4,197,582 - - - - - 4,197,582
Recreation services 8,996,118 - - - - - 8,996,118
Community development 8,554,055 - 805,780 - - - 9,359,835
Public works 17,667,775 1,628,957 - - - 658,847 19,955,579
Capital outlay 1,353,691 6,134,167 - - 2,955,717 84,671 10,528,246
Debt service:
Principal - - - 2,220,000 - - 2,220,000
Interest and fiscal charges - - - 949,438 - - 949,438
Total expenditures 63,014,104 7,763,124 805,780 3,170,938 2,955,717 743,518 78,453,181
Excess (deficiency) of revenues
over expenditures 25,774,340 (4,589,799) (59,505) (3,095,666) (2,485,438) 1,717,346 17,261,278
Other financing sources (uses)
Proceeds from sale of capital assets 3,875 - - - - - 3,875
Transfers in (Note 4)10,000 5,800,000 175,000 3,169,438 8,142,175 2,111,000 19,407,613
Transfers (out) (Note 4)(19,376,087) - - - (1,550,000) (135,000) (21,061,087)
Total other financing sources (uses)(19,362,212) 5,800,000 175,000 3,169,438 6,592,175 1,976,000 (1,649,599)
Net change in fund balances 6,412,128 1,210,201 115,495 73,772 4,106,737 3,693,346 15,611,679
Beginning fund balances 52,510,457 8,803,725 8,519,770 1,586,987 28,903,023 12,134,728 112,458,690
Ending fund balances 58,922,585$ 10,013,926$ 8,635,265$ 1,660,759$ 33,009,760$ 15,828,074$ 128,070,369$
Special Revenue Funds
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, 2019
See accompanying notes to financial statements.
29.
Total net changes in fund balances reported on the
governmental funds balance sheet 15,611,679$
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 8,864,425
Depreciation expense (7,356,610)
Net retirements (512,335)
2,220,000
Compensated absences (710,535)
Net pension liability 232,344
Net OPEB asset 1,360,059
Pension-related deferred outflows of resources (1,793,234)
Pension-related deferred inflows of resources (333,889)
OPEB-related deferred inflows of resources (462,073)
312,159
Change in net position of governmental activities 17,431,990$
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.
CITY OF CUPERTINO, CALIFORNIA
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN
FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2019
See accompanying notes to financial statements.
30.
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
Revenues
Taxes 62,047,000$ 63,947,000$ 67,299,302$ 3,352,302$
Use of money and property 692,000 692,000 2,654,331 1,962,331
Intergovernmental 326,000 326,000 473,942 147,942
Licenses and permits 2,685,000 2,685,000 4,102,665 1,417,665
Charges for services 10,269,276 14,772,820 12,644,413 (2,128,407)
Fines and forfeitures 615,000 615,000 511,471 (103,529)
Other revenue 244,200 1,356,457 1,102,320 (254,137)
Amounts available for
appropriation 76,878,476 84,394,277 88,788,444 4,394,167
Charges for appropriation (outflows):
Current
Administration 6,883,713 7,339,279 6,292,611 1,046,668
Law enforcement 12,988,353 13,127,260 13,108,732 18,528
Public and environmental affairs 3,397,490 3,317,395 2,843,540 473,855
Administrative services 4,606,561 4,628,502 4,197,582 430,920
Recreation services 10,614,583 10,305,934 8,996,118 1,309,816
Community development 8,332,883 12,533,470 8,554,055 3,979,415
Public works 17,831,725 19,429,459 17,667,775 1,761,684
Capital outlay 1,625,500 1,897,260 1,353,691 543,569
Total charges for appropriations 66,280,808 72,578,559 63,014,104 9,564,455
Excess of revenues
over expenditures 10,597,668 11,815,718 25,774,340 13,958,622
Other financing sources (uses)
Proceeds from sale of capital assets - - 3,875 3,875
Transfers in 10,000 10,000 10,000 -
Transfers (out)(11,358,912) (19,376,088) (19,376,087) 1
Total other financing
sources (uses)(11,348,912) (19,366,088) (19,362,212) 3,876
Net change in fund balance (751,244)$ (7,550,370)$ 6,412,128 13,962,498$
Beginning fund balance 52,510,457
Ending fund balance 58,922,585$
Budgeted Amounts
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, 2019
See accompanying notes to financial statements.
31.
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
Revenues
Use of money and property 77,500$ 77,500$ 271,320$ 193,820$
Intergovernmental 3,510,939 3,510,939 2,800,292 (710,647)
Charges for services - - 17,193 17,193
Other revenue 185,000 185,000 84,520 (100,480)
Amounts available for
appropriation 3,773,439 3,773,439 3,173,325 (600,114)
Charges for appropriation (outflows):
Current
Public works 2,711,960 1,794,673 1,628,957 165,716
Capital outlay 5,978,379 6,117,818 6,134,167 (16,349)
Total charges for appropriations 8,690,339 7,912,491 7,763,124 149,367
Deficiency of revenues
under expenditures (4,916,900) (4,139,052) (4,589,799) (450,747)
Other financing sources (uses)
Transfers in 5,800,000 5,800,000 5,800,000 -
Total other financing
sources (uses)5,800,000 5,800,000 5,800,000 -
Net change in fund balance 883,100$ 1,660,948$ 1,210,201 (450,747)$
Beginning fund balance 8,803,725
Ending fund balance 10,013,926$
Budgeted Amounts
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, 2019
See accompanying notes to financial statements.
32.
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
Revenues
Taxes 3,000$ 3,000$ 159,179$ 156,179$
Use of money and property 10,910 10,910 212,727 201,817
Intergovernmental 311,942 311,942 344,323 32,381
Charges for services - - 29,145 29,145
Other revenue - - 901 901
Amounts available for
appropriation 325,852 325,852 746,275 420,423
Charges for appropriation (outflows):
Current
Community development 1,143,173 1,471,831 805,780 666,051
Total charges for appropriations 1,143,173 1,471,831 805,780 666,051
Deficiency of revenues
under expenditures (817,321) (1,145,979) (59,505) 1,086,474
Other financing sources (uses)
Transfers in 175,000 175,000 175,000 -
Total other financing
sources (uses)175,000 175,000 175,000 -
Net change in fund balance (642,321)$ (970,979)$ 115,495 1,086,474$
Beginning fund balance 8,519,770
Ending fund balance 8,635,265$
Budgeted Amounts
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 2018 - 19.
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.
CITY OF CUPERTINO, CALIFORNIA
PROPRIETARY FUNDS
STATEMENT OF NET POSITION
June 30, 2019
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)6,173,976$ 2,515,063$ 1,475,172$ 231,703$ 10,395,914$ 7,556,469$
Accounts receivable 239,811 95,859 60 - 335,730 -
Total current assets 6,413,787 2,610,922 1,475,232 231,703 10,731,644 7,556,469
Noncurrent assets
Net OPEB asset (Note 11)30,812 17,214 18,593 4,471 71,090 78,973
Capital assets (Note 5):-
Nondepreciable - - - - - 10,045
Depreciable, net of -
accumulated depreciation 10,454 876,173 399,545 32,572 1,318,744 3,673,149
Total noncurrent assets 41,266 893,387 418,138 37,043 1,389,834 3,762,167
Total assets 6,455,053 3,504,309 1,893,370 268,746 12,121,478 11,318,636
DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10)203,243 166,634 114,015 54,717 538,609 505,804
Total deferred outflows of resources 203,243 166,634 114,015 54,717 538,609 505,804
LIABILITIES
Current liabilities
Accounts payable and accruals 10,189 122,878 223,031 12,675 368,773 235,702
Accrued payroll and benefits 289 - - - 289 72
Due to other funds (Note 4)- - - - - 410,544
Compensated absences (Note 1):19,723 20,564 7,781 7,599 55,667 22,270
Claims payable (Note 9)- - - - - 313,291
Unearned revenue - 742,210 404,185 16,162 1,162,557 -
Total current liabilities 30,201 885,652 634,997 36,436 1,587,286 981,879
Noncurrent liabilities
Compensated absences (Note 1)109,716 114,393 43,284 42,271 309,664 182,611
Claims payable (Note 9)- - - - - 1,239,986
Net pension liability (Note 10)969,052 788,685 542,150 249,848 2,549,735 2,420,700
Total noncurrent liabilities 1,078,768 903,078 585,434 292,119 2,859,399 3,843,297
Total liabilities 1,108,969 1,788,730 1,220,431 328,555 4,446,685 4,825,176
DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10)16,234 12,380 9,909 4,457 42,980 42,562
Related to OPEB (Note 11)47,399 31,080 28,699 6,742 113,920 106,525
Total deferred inflows of resources 63,633 43,460 38,608 11,199 156,900 149,087
NET POSITION (Note 7)
Net investment in capital assets 10,454 876,173 399,545 32,572 1,318,744 3,673,149
Unrestricted 5,475,240 962,580 348,801 (48,863) 6,737,758 3,177,028
Total Net Position 5,485,694$ 1,838,753$ 748,346$ (16,291)$ 8,056,502$ 6,850,177$
Business-type Activities - Enterprise Funds
CITY OF CUPERTINO, CALIFORNIA
PROPRIETARY FUNDS
STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN NET POSITION
June 30, 2019
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 1,658,613$ 1,847,191$ 2,348,650$ 288,126$ 6,142,580$ 5,472,240$
Other 91,666 139,590 818 28,489 260,563 -
Total operating revenue 1,750,279 1,986,781 2,349,468 316,615 6,403,143 5,472,240
Operating expenses
Salaries and benefits 723,529 888,401 583,087 201,744 2,396,761 2,983,802
Materials and supplies 225,450 562,688 437,229 167,273 1,392,640 1,931,290
Contractual services 783,591 1,253,941 1,963,769 258,580 4,259,881 285,819
Insurance and claims and premium - - - - - 840,427
Depreciation (Note 5)3,315 218,306 51,952 17,872 291,445 897,684
Total operating expenses 1,735,885 2,923,336 3,036,037 645,469 8,340,727 6,939,022
Operating income (loss)14,394 (936,555) (686,569) (328,854) (1,937,584) (1,466,782)
Nonoperating revenues
Investment Income 156,670 67,618 38,208 7,875 270,371 200,467
Total nonoperating revenues 156,670 67,618 38,208 7,875 270,371 200,467
Income (loss) before transfers 171,064 (868,937) (648,361) (320,979) (1,667,213) (1,266,315)
Transfers in (Note 4)- - - 75,000 75,000 1,578,474
Changes in net position 171,064 (868,937) (648,361) (245,979) (1,592,213) 312,159
Net position - beginning of year 5,314,630 2,707,690 1,396,707 229,688 9,648,715 6,538,018
Net position - end of year 5,485,694$ 1,838,753$ 748,346$ (16,291)$ 8,056,502$ 6,850,177$
Business-type Activities - Enterprise Funds
CITY OF CUPERTINO, CALIFORNIA
PROPRIETARY FUNDS
STATEMENT CASH FLOWS
For the year ended June 30, 2019
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 2,036,654$ 2,065,128$ 2,603,259$ 332,777$ 7,037,818$ 5,472,240$
Cash payments to suppliers for
goods and services (1,142,360) (1,920,691) (2,396,534) (465,018) (5,924,603) (2,147,474)
Cash payments to employees for salaries and benefits (701,574) (867,380) (554,768) (197,342) (2,321,064) (2,877,076)
Cash payments for judgment and claims - - - - - (656,315)
Net cash provided (used) by operating activities 192,720 (722,943) (348,043) (329,583) (1,207,849) (208,625)
Cash flows from noncapital financing activities
Transfers in - - - 75,000 75,000 1,712,744
Cash flows from noncapital financing activities - - - 75,000 75,000 1,712,744
Cash flows from capital and related financing activities
Acquisition of capital assets - - (12,490) - (12,490) (1,041,176)
Cash flows from capital and related financing activities - - (12,490) - (12,490) (1,041,176)
Cash Flows from investing activities
Interest received 156,670 67,618 38,208 7,875 270,371 200,467
Cash flows from investing activities 156,670 67,618 38,208 7,875 270,371 200,467
Net cash flows 349,390 (655,325) (322,325) (246,708) (874,968) 663,410
Cash and investments at beginning of year 5,824,586 3,170,388 1,797,497 478,411 11,270,882 6,893,059
Cash and investments at end of year 6,173,976$ 2,515,063$ 1,475,172$ 231,703$ 10,395,914$ 7,556,469$
Reconciliation of operating income (loss) to
to net cash provided by operating activities:
Operating income (loss)14,394$ (936,555)$ (686,569)$ (328,854)$ (1,937,584)$ (1,466,782)$
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation 3,315 218,306 51,952 17,872 291,445 897,684$
Change in assets, deferred outflows of resources, liabilities
and deferred inflows of resources
Accounts receivable 286,375 (95,859) (60) - 190,456 -
Prepaid expense - - - - - -
Due to retirement system 52,759 42,431 27,953 10,074 133,217 131,588
Due to OPEB system (27,522) (16,268) (16,626) (3,966) (64,382) (67,630)
Accounts payable and accruals (133,319) (104,062) 4,464 (39,165) (272,082) 69,635
Unearned revenue - 174,206 253,851 16,162 444,219 -
Compensated absences (3,282) (5,142) 16,992 (1,706) 6,862 42,768
Claims payable - - - - - 184,112
Net cash provided (used) by operating activities 192,720$ (722,943)$ (348,043)$ (329,583)$ (1,207,849)$ (208,625)$
Business-type Activities - Enterprise Funds
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.
CITY OF CUPERTINO, CALIFORNIA
FIDUCIARY FUND
STATEMENT OF FIDUCIARY NET POSITION
June 30, 2019
See accompanying notes to financial statements.
38.
Other Post-
Employment
Benefits
Trust Fund
ASSETS
Cash and equivalents 371,864$
Investments:
Mutual funds:
Fixed income 8,475,892
Equity 18,564,242
Real estate 1,806,237
Total assets 29,218,235
LIABILITIES -
NET POSITION
Restricted for post-employment benefits other than pensions 29,218,235$
CITY OF CUPERTINO, CALIFORNIA
FIDUCIARY FUND
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
For the year ended June 30, 2019
See accompanying notes to financial statements.
39.
Other Post-
Employment
Benefits
Trust Fund
ADDITIONS
Employer contributions 1,075,908$
Investment income:
Net increase in fair value of investments 345,977
Interest and dividends 1,635,529
Less investment expense (722,346)
Total additions 2,335,068
DEDUCTIONS
Benefit payments 1,075,908
Administrative expense 97,397
Total deductions 1,173,305
Change in net position 1,161,763
Net position - beginning of year 28,056,472
Net position - end of year 29,218,235$
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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 facilitiy.
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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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.
During the fiscal year, expenditures exceeded appropriations as follows:
Excess of
Expenditures
Fund/Department Over Appropriations
Public Facilities Corporation Debt Service Fund $ 1,500
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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
45.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The changes in compensated absences for the year ended June 30, 2019 were as follows:
Governmental Business-Type
Activities Activities Total
Beginning balance $ 3,997,167 $ 358,469 $ 4,355,636
Additions 1,455,880 16,687 1,472,567
Reductions (702,577) (9,825) (712,402)
Ending balance $ 4,750,470 $ 365,331 $ 5,115,801
Current portion $ 516,355 $ 55,667 $ 572,022
Non-current portion $ 4,234,115 $ 309,664 $ 4,543,779
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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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 November 2016, the GASB issued Statement 83, Certain Asset Retirement Obligations. This Statement
addresses accounting and financial reporting for certain asset retirement obligations (AROs) and
establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding
deferred outflow of resources for AROs. This Statement is effective for the City’s fiscal year ended June 30,
2019. This statement will have no material impact on the City’s financial statements.
In April 2018, the GASB issued Statement No. 88, Certain Disclosures Related to Debt, including Direct
Borrowings and Direct Placements. The primary objective of this Statement is to improve the information
that is disclosed in notes to government financial statements related to debt, including direct borrowings
and direct placements. It clarifies which liabilities governments should include when disclosing information
related to debt. It also defines debt for purposes of disclosure in notes to financial statements as a liability
that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in
one or more payments to settle an amount that is fixed at the date the contractual obligation is established.
This Statement is effective for the City’s fiscal year ended June 30, 2019. This statement will have no
material impact on the City’s financial statements.
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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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 $ 142,928,016
Restricted cash and investments:
Held by fiscal agent for pension 8,109,521
Held by fiscal agent for bond repayments 4,302,847
Total cash and investments $ 155,340,384
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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:
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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:
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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 167 days.
Money market mutual funds are available for withdrawal on demand. At June 30, 2019, money market
mutual funds, used for pooled investment and held by fiscal agent purposes, had a weighted average
maturity of 32 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, 2019:
12 Months 13 to More than
Investment Type or less 24 Months 24 Months Total
U.S. Treasury Securities 5,788,488$ -$ 7,171,286$ 12,959,774$
U.S. Agency Notes
Federal Home Loan Mortgage Corporation 9,953,230 - 3,075,255 13,028,485
Federal National Mortgage Association - 2,984,280 1,562,235 4,546,515
Federal Home Loan Banks 3,997,640 7,808,625 - 11,806,265
Federal Farm Credit Banks 1,992,820 - - 1,992,820
Corporate Notes - 2,863,946 14,412,811 17,276,757
Local Agency Investment Fund 56,954,633 - - 56,954,633
Negotiable Certificates of Deposit 6,000,539 - - 6,000,539
Money Market Mutual Funds 4,434,539 - - 4,434,539
Total investments 89,121,889$ 13,656,851$ 26,221,587$ 129,000,327
Cash in banks and on hand 26,340,057
Total cash and investments 155,340,384$
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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, 2019 for each investment type, including
those with fiscal agents, as provided by Moody's ratings:
Investments by Fair Value Level:Level 1 Level 2 Total
U.S. Treasury Securities -$ 12,959,774$ 12,959,774$
U.S. Agency Notes
Federal Home Loan Mortgage Corporation - 13,028,485 13,028,485
Federal National Mortgage Association - 4,546,515 4,546,515
Federal Home Loan Banks - 11,806,265 11,806,265
Federal Farm Credit Banks - 1,992,820 1,992,820
Corporate Notes - 17,276,757 17,276,757
Total investments -$ 61,610,616$ 61,610,616
Investments Measured at Amortized Cost:
Money Market Mutual Funds 4,434,539
Negotiable Certificates of Deposit 6,000,539
Investments Exempt from Fair Value Hierarchy:
Local Agency Investment Fund 56,954,633
Cash in banks and on hand 26,340,057
Total cash and investments 155,340,384$
Investment Type Ratings Total
Money Market Mutual Funds Aaa 4,434,539$
Negotiable Certificates of Deposit Aaa 6,000,539
Corporate Notes A1 17,276,757
U.S. Agency Notes
Federal Home Loan Mortgage Corporation Aaa 13,028,485
Federal National Mortgage Association Aaa 4,546,515
Federal Home Loan Banks Aaa 11,806,265
Federal Farm Credit Banks Aaa 1,992,820
U.S. Treasury Securities Aaa 12,959,774
Not rated:
Local Agency Investment Fund Not Rated 56,954,633
Total investments 129,000,327$
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
52.
NOTE 2 – CASH AND INVESTMENTS (Continued)
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 $ 13,028,485
Federal Home Loan Banks (FHLB) U.S. Agency Notes 11,806,265
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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
53.
NOTE 2 – CASH AND INVESTMENTS (Continued)
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.
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, 2019, money market
mutual funds, used for investment and held by fiscal agent purposes, had a weighted average maturity of
7.33 days or less.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
54.
NOTE 2 – CASH AND INVESTMENTS (Continued)
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.
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, 2019, 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, 2019, the balance on the loan was $178,952. 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, 2019, 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, 2019.
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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
55.
NOTE 4 – INTERFUND TRANSACTIONS
Transfers between funds during the fiscal year ended June 30, 2019 were as follows:
Fund Making Transfers Fund Receiving Transfers Amount Transferred
General Fund Transportation Special Revenue Fund $ 5,800,000 (A)
Housing Development Fund 175,000 (C)
Public Financing Corporation Debt Service Fund 3,169,438 (B,D)
Capital Improvement Projects Capital Projects Fund 8,017,175 (A)
Non-major Governmental Funds 636,000 (C)
Internal Service Funds 1,578,474 (E)
Capital Improvements Projects
Capital Projects Fund Non-major Enterprise Funds 75,000 (A)
Non-major Governmental Funds 1,475,000 (C)
Non-major Governmental Funds General Fund 10,000 (F)
Capital Improvement Projects Capital Projects Fund 125,000 (A)
Total Interfund Transfers $ 21,061,087
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, 2019, the Equipment Revolving
Internal Service Fund owed the General Fund $410,544 and the Public Financing Corporation Debt Service
Fund owed the General Fund $30,782, for a total owed to the General Fund across all funds of $441,326.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
56.
NOTE 5 – CAPITAL ASSETS
A summary of changes in governmental activities capital assets is as follows:
Balance at Balance at
July 1, 2018 Additions Deletions Transfers June 30, 2019
Governmental activities:
Capital assets not being depreciated:
Land 62,045,969$ -$ -$ -$ 62,045,969$
Easements 19,491,959 106,715 - 16,365 19,615,039
Construction in progress 7,153,861 8,757,710 (512,335) (11,843,225) 3,556,011
Total general government capital
assets not being depreciated 88,691,789 8,864,425 (512,335) (11,826,860) 85,217,019
Capital assets being depreciated:
Buildings 45,726,350 - - 428,329 46,154,679
Improvements other than buildings 57,069,878 - - 634,288 57,704,166
Machinery and equipment 3,211,508 - (15,446) 509,824 3,705,886
Roads, curbs, gutters, sidewalks, medians and bridges 160,397,742 - - 9,623,305 170,021,047
Streetlights 8,646,994 - - 191,721 8,838,715
Storm drain structure and mains 36,933,765 - - 439,393 37,373,158
Traffic signals 6,418,246 - - - 6,418,246
Total capital assets being depreciated 318,404,483 - (15,446) 11,826,860 330,215,897
Less accumulated depreciation for:
Buildings (26,676,669) (1,754,999) - - (28,431,668)
Improvements other than buildings (36,207,680) (2,584,808) - - (38,792,488)
Machinery and equipment (2,268,028) (214,042) 15,446 - (2,466,624)
Roads, curbs, gutters, sidewalks, medians and bridges (105,700,435) (2,149,184) - - (107,849,619)
Streetlights (7,238,244) (112,000) - - (7,350,244)
Storm drain structure and mains (32,249,453) (429,002) - - (32,678,455)
Traffic signals (5,463,387) (112,575) - - (5,575,962)
Total accumulated depreciation (215,803,896) (7,356,610) 15,446 - (223,145,060)
Total general government capital
assets being depreciated, net 102,600,587 (7,356,610) - 11,826,860 107,070,837
Internal service fund capital assets:
Capital assets not being depreciated:
Construction in progress - 10,045 - - 10,045
Total internal fund capital
assets not being depreciated - 10,045 - - 10,045
Capital assets being depreciated:
Machinery and equipment 9,957,114 1,031,131 - - 10,988,245
Less accumulated depreciation (6,417,412) (897,684) - - (7,315,096)
Total internal fund capital
assets being depreciated, net 3,539,702 133,447 - - 3,673,149
Governmental activities capital assets, net 194,832,078$ 1,651,307$ (512,335)$ -$ 195,971,050$
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
57.
NOTE 5 – CAPITAL ASSETS (Continued)
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 $ 180,237
Public and Environment Affairs 15,449
Administrative Services 27,955
Parks and Recreation 160,374
Public Works 6,972,595
Internal Service Funds 897,684
Total $ 8,254,294
Depreciation expense was charged to the business-type activities as follows:
Business-Type Activities
Resources Recovery $ 3,315
Blackberry Farm 17,872
Cupertino Sports Center 51,952
Recreation Program 218,306
Total $ 291,445
Balance at Balance at
July 1, 2018 Additions Deletions Transfers June 30, 2019
Business-type activities:
Capital assets not being depreciated:
Construction in progress -$ -$ -$ -$ -$
Total capital assets not being depreciated - - - - -
Capital assets being depreciated:
Buildings 1,006,002 - - - 1,006,002
Improvements other than buildings 2,089,743 - - - 2,089,743
Machinery and equipment 623,332 12,490 - - 635,822
Total capital assets being depreciated 3,719,077 12,490 - - 3,731,567
Less accumulated depreciation for:
Buildings (311,114) (60,461) - - (371,575)
Improvements other than buildings (1,252,327) (209,415) - - (1,461,742)
Machinery and equipment (557,937) (21,569) - - (579,506)
Total accumulated depreciation (2,121,378) (291,445) - - (2,412,823)
Total capital assets being depreciated, net 1,597,699 (278,955) - - 1,318,744
Business-type activity capital assets, net 1,597,699$ (278,955)$ -$ -$ 1,318,744$
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
58.
NOTE 6 – LONG-TERM DEBT
Cupertino Public Facilities Corporation Certificates of Participation:
Original Balance Balance
Issue June 30, June 30, Current
Amount 2018 Retirements 2019 Portion
2012 Refinancing Certificates
of Participation:
0.350-3.125%, due 07/01/2030 $ 43,940,000 $ 31,520,000 $ 2,220,000 $ 29,300,000 $ 2,290,000
Total long-term debt $ 31,520,000 $ 2,220,000 $ 29,300,000 $ 2,290,000
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, 2019.
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 $38,875,109 payable through July 1, 2030. For the year ended June 30,
2019, the bonds had $2,220,000 of principal and $949,438 interest due.
Annual debt service requirements for the 2012 COPS are shown below:
For the Year Governmental Activities
Ending June 30 Principal Interest
2020 $ 2,290,000 $ 882,838
2021 2,355,000 814,138
2022 2,425,000 743,486
2023 2,500,000 670,738
2024 2,575,000 595,738
2025-2029 14,085,000 1,772,240
2030 3,070,000 95,931
Total $ 29,300,000 $ 5,575,109
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
60.
NOTE 7 - NET POSITION AND FUND BALANCES (Continued)
Fund balances for all major and nonmajor governmental funds as of June 30, 2019, were distributed as
follows:
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, 2019, 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.
Capital Other
Housing Pubic Facilities Improvements Governmental
General Transportation Development Corporation Projects Funds Total
Nonspendable:
Loans receivable 454,188$ -$ -$ -$ -$ -$ 454,188$
Subtotal 454,188 - - - - - 454,188
Restricted for:
Public access television 1,346,167 - - - - - 1,346,167
Debt service 13,982 - - 1,660,759 - - 1,674,741
PRSP Section 115 Trust 8,109,521 - - - - - 8,109,521
Storm drain system - - - - - 3,321,290 3,321,290
Parks and open space - - - - - 11,688,177 11,688,177
Environmental management - - - - - 418,837 418,837
Streets and road projects - 10,013,926 - - - 197,584 10,211,510
Housing programs - - 8,635,265 - - - 8,635,265
Subtotal 9,469,670 10,013,926 8,635,265 1,660,759 - 15,625,888 45,405,508
Committed for:
Economic uncertainty 19,000,000 - - - - - 19,000,000
Sustainability Reserve 123,397 - - - - - 123,397
Subtotal 19,123,397 - - - - - 19,123,397
Assigned to:
Encumbrances 1,979,202 - - - - - 1,979,202
Capital projects - - - - 33,009,760 202,186 33,211,946
Subtotal 1,979,202 - - - 33,009,760 202,186 35,191,148
Unassigned 27,896,128 - - - - - 27,896,128
Total 58,922,585$ 10,013,926$ 8,635,265$ 1,660,759$ 33,009,760$ 15,828,074$ 128,070,369$
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
61.
NOTE 8 – COMMITMENTS AND CONTINGENCIES (Continued)
As of June 30, 2019, the City had the following encumbrances outstanding:
Governmental Funds:
General Fund $ 1,979,202
Transportation Special Revenue Fund 3,962,101
Housing Development Special Revenue Fund 23,196
Capital Improvements Projects Capital Projects Fund 4,135,552
Other Governmental Funds 134,377
Total Encumbrances $ 10,234,428
Lease Agreement with County of Santa Clara: The City has an agreement (commitment), expiring in 2019,
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. At
June 30, 2019, the cost and carrying value of the building which opened in October 2004, is $21,952,133
and $8,938,270 respectively, with $13,013,863 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, 2019:
VRF Balance as of July 1, 2018 $ -
VRF Revenue 370,106
VRF Interest -
VRF Expended 370,106
VRF Balance as of June 30, 2019 $ -
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, 2019, the City paid ABAG PLAN premiums of $482,346.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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, 2019,
the City paid premiums of $126,079.
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:
2019 2018
Claims liability, beginning of year $ 1,369,165 $ 1,682,651
Incurred claims and changes in estimate 419,279 (12,991)
Claim payments and credits (235,167) (300,495)
Total claims liability, end of year 1,553,277 1,369,165
Less current portion (313,291) (262,157)
Non-current portion $ 1,239,986 $ 1,107,008
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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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 $ 8,626,672 $ 40,879,589 $ 680,540
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, 2019, 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, 2017 actuarial valuation date (most current), the following
employees were covered by the benefit terms of the Plan:
Inactive employees or beneficiaries currently receiving benefits 213
Inactive employees entitled to but not yet receiving benefits 138
Active employees 188
Total 539
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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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,
2018, using an annual actuarial valuation as of June 30, 2017 rolled forward to June 30, 2018 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, 2016 actuarial valuations were
determined using the following actuarial assumptions:
Valuation Date June 30, 2017
Measurement Date June 30, 2018
Actuarial Cost Method Entry-Age Normal Cost Method
Actuarial Assumptions:
Discount Rate 7.15%
Inflation 2.75%
Payroll Growth 3.00%
Projected Salary Increase Varies by Entry Age and Service (1)
Investment Rate of Return 7.5% (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
20 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, 2017 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: In 2018, demographic assumptions and inflation rate were changed in
accordance to the CalPERS Experience Study and Review of Actuarial Assumptions from December 2017.
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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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.
New Strategic Real Return Real Return
Allocation Years 1 - 10(a) Years 11+(b)
Asset Class
Global Equity 50.00% 4.80% 5.98%
Global Fixed Income 28.00% 1.00% 2.62%
Inflation Sensitive 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:
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
66.
NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued)
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 $ 58,849,297
Current Discount Rate 7.15%
Net Pension Liability $ 40,879,589
1% Increase 8.15%
Net Pension Liability $ 26,021,191
Pension Plan Fiduciary Net Position: Detailed information about the Plan's fiduciary net position is available
in the separately issued CalPERS financial reports.
Miscellaneous Plan:
Total Pension
Liability
Plan Fiduciary
Net Position
Net Pension
Liability
Balance at June 30, 2017 127,947,594$ 86,803,192$ 41,144,402$
Changes in the year:
Service cost 3,058,629 - 3,058,629
Interest on the total pension liability 9,065,322 - 9,065,322
Change of Assumptions (847,606) - (847,606)
Differences between actual and expected experience 1,184,340 - 1,184,340
Contribution - employer - 4,263,020 (4,263,020)
Contribution - employee - 1,506,888 (1,506,888)
Net investment income - 7,347,936 (7,347,936)
Administrative expenses - (392,346) 392,346
Benefit payments, including refunds of employee
contributions (6,051,845) (6,051,845) -
Net changes 6,408,840 6,673,653 (264,813)
Balance at June 30, 2018 134,356,434$ 93,476,845$ 40,879,589$
Increase (Decrease)
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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, 2019, the City recognized pension expense of $6,793,995. At June 30, 2019, 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 $ 4,634,414 $ -
Differences between actual and expected experience 909,262 75,107
Changes in assumptions 2,934,053 605,433
Net differences between projected and actual earnings
on plan investments 148,943 -
Total $ 8,626,672 $ 680,540
The $4,634,414 of contributions for the fiscal year ended June 30, 2019 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, 2020. 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
2019 $ 3,240,759
2020 1,132,498
2021 (825,232)
2022 (236,307)
$ 3,311,718
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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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, 2019, the City paid $1,075,908 in healthcare premium payments. Plan
members are not required to contribute to the plan.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(Continued)
69.
NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)
Net OPEB Liability of the City: The components of the net OPEB liability (asset) of the City at June 30, 2019
(expressed in thousands) were as follows:
Total OPEB liability $ 28,073
Plan fiduciary net position 29,218
City's net OPEB asset $ (1,145)
Plan fiduciary net position as a percentage of the total OPEB liability 104.08%
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 arithmetic real rates of return for each major asset class included in the target asset allocation
as of June 30, 2019 (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 3.13%
Fixed income – high yield 4.75%
Fixed income – inflation protected 3.03%
Fixed income – hedged 3.18%
Equities – domestic 7.30%
Equities – developed foreign 7.77%
Equities – emerging foreign 8.36%
Real estate 5.79%
Commodities 3.87%
Cash 2.61%
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, 2019:
Asset Class Target Allocation
Fixed income 29%
Equities 62%
Real estate 6%
Commodities 2%
Cash 1%
Total 100%
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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, 2019, the annual money-weighted rate of return on
investments, net of investment expense, was 6.32 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, 2019
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 7.00%
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 7.0 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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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:
Net Increase (Decrease)
Total OPEB Plan Fiduciary Net OPEB
Liability Net Position Liability (Asset)
Balance at July 1, 2018 $ 28,471,000 $ 28,056,000 $ 415,000
Changes in the year
Service cost 865,000 - 865,000
Interest on the total OPEB liability 2,005,000 - 2,005,000
Change of assumpsions (37,000) - (37,000)
Differences between actual and
expected experience (1,808,000) - (1,808,000)
Contribution – employer - 1,423,000 (1,423,000)
Contribution – employee - - -
Net investment income - 1,259,000 (1,259,000)
Adminsitrative expenses - (97,000) 97,000
Benefit payments, including refunds of -
Employee contributions (1,423,000) (1,423,000) -
Net changes (398,000) 1,162,000 (1,560,000)
Balance at June 30, 2019 $ 28,073,000 $ 29,218,000 $ (1,145,000)
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
6.00% 7.00% 8.00%
City of Cupertino’s net OPEB liability
(asset) for the plan $ 2,374,000 $ (1,145,000) $ (4,063,000)
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 $ (4,175,000) $ (1,145,000) $ 2,527,000
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
(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, 2019,
the City recognized OPEB expense of $392,000 At June 30, 2019, the City reported deferred inflows of
resources related to OPEB from the following sources:
Deferred Inflows
of Resources
Net difference between projected and actual earnings on investments $ 1,447,000
Differences between expected and actual experience 323,000
Changes in assumption 29,000
$ 1,799,000
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
2020 $ 614,000
2021 614,000
2022 342,000
2023 229,000
Total $ 1,799,000
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, 2019, 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 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.
CITY OF CUPERTINO, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019
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 effective for
the City’s fiscal year ended June 30, 2021. 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 effective for the City’s fiscal year ended June 30, 2021. 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.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
CITY OF CUPERTINO, CALIFORNIA
SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY
AND RELATED RATIOS
For the year ended June 30, 2019
74.
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.
CITY OF CUPERTINO, CALIFORNIA
SCHEDULE OF CONTRIBUTIONS - PENSION
For the year ended June 30, 2019
75.
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.
CITY OF CUPERTINO, CALIFORNIA
SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY
AND RELATED RATIOS
For the year ended June 30, 2019
76.
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.
CITY OF CUPERTINO, CALIFORNIA
SCHEDULE OF CONTRIBUTIONS - OPEB
For the year ended June 30, 2019
77.
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
CITY OF CUPERTINO, CALIFORNIA
SCHEDULE OF INVESTMENT RETURNS - OPEB
For the year ended June 30, 2019
78.
Single Employer Defined OPEB Plan
Last 10 years*
June 30 June 30 June 30
2017 2018 2019
Annual money-weighted return,
net of investment expense 10.74% 8.31% 6.32%
Notes to schedule
* - Fiscal year 2017 was the 1st year of implementation, therefore only three years are shown.
MAJOR GOVERNMENTAL FUNDS OTHER
THAN THE GENERAL FUND AND SPECIAL
REVENUE FUNDS
79.
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.
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, 2019
80.
Variance
Final Positive
Budget Actual (Negative)
Revenues
Use of money and property -$ 75,272$ 75,272$
Total revenues - 75,272 75,272
Expenditures
Administration - 1,500 (1,500)
Debt service:
Principal 3,169,438 2,220,000 949,438
Interest and fiscal charges - 949,438 (949,438)
Total expenditures 3,169,438 3,170,938 (1,500)
Excess (deficiency) of revenues
over expenditures (3,169,438) (3,095,666) 73,772
Other financing sources (uses)
Transfers in 3,169,438 3,169,438 -
Total other financing sources (uses)3,169,438 3,169,438 -
Net change in fund balance -$ 73,772 73,772$
Beginning fund balance 1,586,987
Ending fund balance 1,660,759$
NON-MAJOR GOVERNMENTAL FUNDS
81.
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.
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR GOVERNMENTAL FUNDS
COMBINING BALANCE SHEET
June 30, 2019
82.
Total
Storm Environmental Nonmajor
Drain Park Management/ Traffic Stevens Creek Governmental
Improvement Dedication Clean Creeks Impact Corridor Park Funds
Assets
Cash and investments 3,321,290$ 11,692,350$ 419,216$ 197,584$ 203,066$ 15,833,506$
Accounts receivable - - 1,793 - - 1,793
Total assets 3,321,290$ 11,692,350$ 421,009$ 197,584$ 203,066$ 15,835,299$
Liabilities
Accounts payable and
accruals -$ 4,173$ 2,172$ -$ 880$ 7,225$
Total liabilities - 4,173 2,172 - 880 7,225
Fund balances
Restricted 3,321,290 11,688,177 418,837 197,584 - 15,625,888
Assigned - - - - 202,186 202,186
Total fund balances 3,321,290 11,688,177 418,837 197,584 202,186 15,828,074
Total liabilities and
fund balances 3,321,290$ 11,692,350$ 421,009$ 197,584$ 203,066$ 15,835,299$
Fund
Capital Projects
Special Revenue Funds
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR GOVERNMENTAL FUNDS
COMBINING STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES
For the year ended June 30, 2019
83.
Fund
Total
Storm Environmental Nonmajor
Drain Park Management/ Traffic Stevens Creek Governmental
Improvement Dedication Clean Creeks Impact Corridor Park Funds
Revenues
Taxes 371,992$ 1,108,500$ -$ -$ -$ 1,480,492$
Use of money and property 81,039 287,688 10,600 1,374 1,820 382,521
Charges for services - 10,086 369,014 196,210 - 575,310
Fines and forfeitures - - 22,541 - - 22,541
Total revenues 453,031 1,406,274 402,155 197,584 1,820 2,460,864
Expenditures
Current:
Public works - - 658,847 - - 658,847
Capital outlay 40,563 17,881 - - 26,227 84,671
Total expenditures 40,563 17,881 658,847 - 26,227 743,518
Excess of revenues over
(under) expenditures 412,468 1,388,393 (256,692) 197,584 (24,407) 1,717,346
Other finances sources (uses)
Transfers in 1,100,000 575,000 436,000 - - 2,111,000
Transfers out - (135,000) - - - (135,000)
Total other financing
sources (uses)1,100,000 440,000 436,000 - - 1,976,000
Net change in fund balances 1,512,468 1,828,393 179,308 197,584 (24,407) 3,693,346
Beginning fund balances 1,808,822 9,859,784 239,529 - 226,593 12,134,728
Ending fund balances 3,321,290$ 11,688,177$ 418,837$ 197,584$ 202,186$ 15,828,074$
Special Revenue Funds
Capital Projects
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, 2019
(Continued)
84.
Variance
Original Final Positive
Budget Budget Actual (Negative)
Revenues
Taxes -$ -$ 371,992$ 371,992$
Use of money and property - - 81,039 81,039
Charges for services - - - -
Fines for forfeitures - - - -
Other revenue - - - -
Total revenues - - 453,031 453,031
Expenditures
Current:
Public works - - - -
Capital outlay 1,500,000 2,181,407 40,563 2,140,844
Total expenditures 1,500,000 2,181,407 40,563 2,140,844
Excess (deficiency) of revenues
over expenditures (1,500,000) (2,181,407) 412,468 2,593,875
Other financing sources (uses)
Transfers in 1,100,000 1,100,000 1,100,000 -
Transfers (out)- - - -
Total other financing sources (uses) 1,100,000 1,100,000 1,100,000 -
Net change in fund balance (400,000)$ (1,081,407)$ 1,512,468 2,593,875$
Beginning fund balance 1,808,822
Ending fund balance 3,321,290$
Storm Drain Improvement
Special Revenue Funds
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, 2019
(Continued)
85.
Variance
Original Final Positive
Budget Budget Actual (Negative)
Revenues
Taxes -$ -$ 1,108,500$ 1,108,500$
Use of money and property - - 287,688 287,688
Charges for services - - 10,086 10,086
Fines for forfeitures - - - -
Other revenue - - - -
Total revenues - - 1,406,274 1,406,274
Expenditures
Current:
Public works - - - -
Capital outlay 1,625,000 1,464,425 17,881 1,446,544
Total expenditures 1,625,000 1,464,425 17,881 1,446,544
Excess (deficiency) of revenues
over expenditures (1,625,000) (1,464,425) 1,388,393 2,852,818
Other financing sources (uses)
Transfers in 575,000 575,000 575,000 -
Transfers (out)10,000 135,000 (135,000) -
Total other financing sources (uses) 585,000 710,000 440,000 -
Net change in fund balance (1,040,000)$ (754,425)$ 1,828,393 2,852,818$
Beginning fund balance 9,859,784
Ending fund balance 11,688,177$
Park Dedication
Special Revenue Funds
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, 2019
86.
Variance
Original Final Positive
Budget Budget Actual (Negative)
Revenues
Taxes -$ -$ -$ -$
Use of money and property 900 900 10,600 9,700
Charges for services 370,000 370,000 369,014 (986)
Fines for forfeitures 9,000 9,000 22,541 13,541
Other revenue - - - -
Total revenues 379,900 379,900 402,155 22,255
Expenditures
Current:
Public works 720,785 658,847 658,847 -
Capital outlay - - - -
Total expenditures 720,785 658,847 658,847 -
Excess (deficiency) of revenues
over expenditures (340,885) (278,947) (256,692) 22,255
Other financing sources (uses)
Transfers in 436,000 436,000 436,000 -
Total other financing sources (uses) 436,000 436,000 436,000 -
Net change in fund balance 95,115$ 157,053$ 179,308 22,255$
Beginning fund balance 239,529
Ending fund balance 418,837$
Environmental Management/Clean Creeks
Special Revenue Funds
NON-MAJOR ENTERPRISE FUND
87.
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 2018-19.
Blackberry Farm Fund: This fund accounts for activities related to operating the City-owned golf course.
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR ENTERPRISE FUND
COMBINING STATEMENT OF NET POSITION
For the year ended June 30, 2019
88.
Blackberry
Farm
ASSETS
Current assets
Cash and cash investments (Note 2)231,703$
Accounts receivable -
Total current assets 231,703
Noncurrent assets
Net OPEB asset (Note 11)4,471
Capital assets (Note 5):
Depreciable, net of
accumulated depreciation 32,572
Total non current assets 37,043
Total assets 268,746
DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10)54,717
Total deferred outflows of resources 54,717
LIABILITIES
Current liabilities
Accounts payable and accruals 12,675
Compensated absences (Note 1)7,599
Unearned revenue 16,162
Total current liabilities 36,436
Noncurrent liabilities
Compensated absences (Note 1)42,271
Net pension liability (Note 10)249,848
Total noncurrent liabilities 292,119
Total liabilities 328,555
DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10)4,457
Related to OPEB (Note 11)6,742
Total deferred inflows of resources 11,199
NET POSITION (Note 7)
Net investment in capital assets 32,572
Unrestricted (48,863)
Total Net Position (16,291)$
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR ENTERPRISE FUND
COMBINING STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN NET POSITION
For the year ended June 30, 2019
89.
Blackberry
Farm
Operating revenues
Charges for services 288,126$
Other 28,489
Total operating revenue 316,615
Operating expenses
Salaries and benefits 201,744
Materials and supplies 167,273
Contractual services 258,580
Depreciation (Note 5)17,872
Total operating expenses 645,469
Operating income (loss)(328,854)
Nonoperating revenues
Investment income 7,875
Total nonoperating revenues 7,875
Income (loss) before transfers (320,979)
Transfers in (Note 4)75,000
Changes in net position (245,979)
Net position - beginning of year 229,688
Net position - end of year (16,291)$
CITY OF CUPERTINO, CALIFORNIA
NON-MAJOR ENTERPRISE FUND
COMBINING STATEMENT CASH FLOWS
For the year ended June 30, 2019
90.
Blackberry
Farm
Cash flows from operating activities
Cash received from customers 332,777$
Cash payments to suppliers for
goods and services (465,018)
Cash payments to employees for salaries and benefits (197,342)
Net cash provided (used) by operating activities (329,583)
Cash flows from noncapital financing activities
Transfers in 75,000
Cash flows from noncapital financing activities 75,000
Cash Flows from Investing Activities
Interest received 7,875
Cash flows from investing activities 7,875
Net cash flows (246,708)
Cash and investments at beginning of year 478,411
Cash and investments at end of year 231,703$
Reconciliation of operating income (loss) to
to net cash provided by operating activities:
Operating income (loss)(328,854)$
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation 17,872
Change in assets, deferred outflows of resources, liabilities,
and deferred inflows of resources
Due to retirement system 10,074
Due to OPEB system (3,966)
Accounts payable and accruals (39,165)
Unearned revenue 16,162
Compensated absences (1,706)
Net cash provided (used) by operating activities (329,583)$
INTERNAL SERVICE FUNDS
91.
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.
CITY OF CUPERTINO, CALIFORNIA
INTERNAL SERVICE FUNDS
COMBINING STATEMENT OF NET POSITION
For the year ended June 30, 2019
92.
Compensated
Absences and
Information Workers' Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total
ASSETS
Current assets:
Cash and investments 3,297,294$ 3,829,847$ (3,875)$ 400,531$ 32,672$ 7,556,469$
Total current assets 3,297,294 3,829,847 (3,875) 400,531 32,672 7,556,469
Noncurrent assets:
Net OPEB asset (Note 11)62,565 520 15,888 - - 78,973
Capital assets (Note 5):
Nondepreciable 10,045 - - - - 10,045
Capital assets, depreciable net
of accumulated depreciation 1,061,980 - 2,611,169 - - 3,673,149
Total noncurrent assets 1,134,590 520 2,627,057 - - 3,762,167
Total assets 4,431,884 3,830,367 2,623,182 400,531 32,672 11,318,636
DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10)373,555 13,021 119,228 - - 505,804
Total deferred outflows of resources 373,555 13,021 119,228 - - 505,804
LIABILITIES
Current liabilities
Accounts payable and accruals 205,884 - 29,818 - - 235,702
Accrued payroll and benefits - - 72 - - 72
Due to other funds - - 410,544 - - 410,544
Compensated absences 19,037 759 2,474 - - 22,270
Claims payable - 313,291 - - - 313,291
Total current liabilities 224,921 314,050 442,908 - - 981,879
Noncurrent liabilities
Compensated absences 156,104 6,222 20,285 - - 182,611
Claims payable - 1,239,986 - - - 1,239,986
Net pension liability (Note 10)1,821,267 57,874 541,559 - - 2,420,700
Total noncurrent liabilities 1,977,371 1,304,082 561,844 - - 3,843,297
Total liabilities 2,202,292 1,618,132 1,004,752 - - 4,825,176
DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10)33,647 844 8,071 - - 42,562
Related to OPEB (Note 11)76,593 1,471 28,461 - - 106,525
Total deferred inflows of resources 110,240 2,315 36,532 - - 149,087
NET POSITION
Net investment in capital assets 1,061,980 - 2,611,169 - - 3,673,149
Unrestricted 1,430,927 2,222,941 (910,043) 400,531 32,672 3,177,028
Total net position 2,492,907$ 2,222,941$ 1,701,126$ 400,531$ 32,672$ 6,850,177$
CITY OF CUPERTINO, CALIFORNIA
INTERNAL SERVICE FUNDS
COMBINING STATEMENT REVENUES, EXPENSES AND
CHANGES IN NET POSITION
For the year ended June 30, 2019
93.
Compensated
Absences and
Information Workers' Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total
Operating revenues
Charges for services 3,753,928$ 498,287$ 1,056,968$ 163,057$ -$ 5,472,240$
Total operating revenues 3,753,928 498,287 1,056,968 163,057 - 5,472,240
Operating expenses
Salaries and related expenses 1,551,595 28,183 328,116 - 1,075,908 2,983,802
Materials and supplies 1,494,401 16,896 409,860 4,388 5,745 1,931,290
Contractual services 203,084 2 82,733 - - 285,819
Insurance claims and premiums - 235,167 - 605,260 - 840,427
Depreciation 246,932 - 650,752 - - 897,684
Total operating expenses 3,496,012 280,248 1,471,461 609,648 1,081,653 6,939,022
Operating income (loss)257,916 218,039 (414,493) (446,591) (1,081,653) (1,466,782)
Nonoperating revenue (expenses)
Interest income 84,018 94,435 113 13,771 8,130 200,467
Total nonoperating
revenue (expenses)84,018 94,435 113 13,771 8,130 200,467
Income (loss) before transfers 341,934 312,474 (414,380) (432,820) (1,073,523) (1,266,315)
Transfers in - - - 447,000 1,131,474 1,578,474
Change in net position 341,934 312,474 (414,380) 14,180 57,951 312,159
Beginning net position 2,150,973 1,910,467 2,115,506 386,351 (25,279) 6,538,018
Ending net position 2,492,907$ 2,222,941$ 1,701,126$ 400,531$ 32,672$ 6,850,177$
CITY OF CUPERTINO, CALIFORNIA
INTERNAL SERVICE FUNDS
COMBINING STATEMENT OF CASH FLOWS
For the year ended June 30, 2019
94.
Compensated
Absences and
Information Workers' Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total
Cash flows from operating activities
Cash received from customers 3,753,928$ 498,287$ 1,056,968$ 163,057$ -$ 5,472,240$
Cash payments to suppliers for
goods and services (1,633,451) (16,911) (486,979) (4,388) (5,745) (2,147,474)
Cash payments to employees (1,457,372) (25,935) (317,861) - (1,075,908) (2,877,076)
Cash payment for judgment
and claims - (51,055) - (605,260) - (656,315)
Net cash from operating activities 663,105 404,386 252,128 (446,591) (1,081,653) (208,625)
Cash flows from noncapital
financing activities
Transfers in - - 159,549 447,000 1,106,195 1,712,744
Net cash from noncapital
financing activities - - 159,549 447,000 1,106,195 1,712,744
Cash flows from capital and related
financing activities
Acquisition of capital assets (625,511) - (415,665) - - (1,041,176)
Net cash from capital and related
financing activities (625,511) - (415,665) - - (1,041,176)
Cash flows from investing activities
Interest received 84,018 94,435 113 13,771 8,130 200,467
Net cash flows from
investing activities 84,018 94,435 113 13,771 8,130 200,467
Net cash flows 121,612 498,821 (3,875) 14,180 32,672 663,410
Cash and investments beginning of year 3,175,682 3,331,026 - 386,351 - 6,893,059
Cash and investments end of year 3,297,294$ 3,829,847$ (3,875)$ 400,531$ 32,672$ 7,556,469$
CITY OF CUPERTINO, CALIFORNIA
INTERNAL SERVICE FUNDS
COMBINING STATEMENT OF CASH FLOWS
For the year ended June 30, 2019
95.
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)257,916$ 218,039$ (414,493)$ (446,591)$ (1,081,653)$ (1,466,782)$
Adjustments to reconcile operating
income (loss) to net cash flows
from operating activities
Depreciation 246,932 - 650,752 - - 897,684
Change in assets, deferred outflows of resources,
liabilities and deferred inflows of resources
Due to retirement system 106,283 2,120 23,185 - - 131,588
Due to OPEB system (52,062) (596) (14,972) - - (67,630)
Accounts payable and accruals 64,034 (13) 5,614 - - 69,635
Compensated absences 40,002 724 2,042 - - 42,768
Claims payable - 184,112 - - - 184,112
Cash flows from operating activities 663,105$ 404,386$ 252,128$ (446,591)$ (1,081,653)$ (208,625)$
96.
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. 2018 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.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Governmental Activities
Net investment in capital assets 120,405,290$ 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$
Restricted 8,692,175 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
Unrestricted 31,087,861 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
Total governmental activities net position/assets 160,185,326 161,632,070 163,130,483 172,253,737 209,464,138 220,757,332 234,193,944 247,616,535 250,137,432 267,569,422
Business-Type Activities
Net investment in capital assets 788,213 777,521 824,687 762,013 1,110,414 2,079,561 1,708,183 1,972,169 1,597,700 1,318,744
Unrestricted 9,063,616 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
Total business-type activities net position/assets 9,851,829 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
Primary Government
Net investment in capital assets 121,193,503 121,501,726 118,264,944 117,105,931 123,191,637 133,505,238 149,876,257 155,211,703 169,204,066 172,292,641
Restricted 8,692,175 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
Unrestricted 40,151,477 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
(1), (2)170,037,155$ 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$
(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)
97.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Expenses
Governmental Activities:
Administration 1,911,665$ 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$
Law enforcement 8,385,476 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
Public and environmental affairs 1,653,034 1,625,876 1,743,151 1,595,982 512,895 649,442 575,260 1,884,165 3,244,846 3,210,343
Administrative services 4,080,134 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
Recreation services 4,444,536 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
Community development 4,351,975 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
Public works 19,320,151 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
Interest on long-term debt 2,076,264 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
Total governmental activities expense 46,223,235 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
Business-Type Activities:
Resources recovery 2,018,147 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
Blackberry farm 457,169 457,065 460,698 463,336 571,000 547,185 576,177 597,406 656,112 645,469
Cupertino sports center 1,478,143 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
Recreation programs 1,854,648 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
Total business-type activities expense 5,808,107 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
Total primary government expense 52,031,342 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
Program Revenues
Governmental Activities:
Charges for services:
Administration 21,873 15,801 6,454 5,676 1,087,393 322,534 369,069 3,992,716 5,062,988 1,319,395
Law enforcement 811,676 797,757 696,498 637,595 725,631 590,378 664,483 603,194 732,544 889,923
Public and environmental affairs - - - - - 41,352 41,352 - - -
Administrative services - - - - - 481,616 359,148 3,565,627 2,635,885 3,113,731
Recreation services 930,773 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
Community development 3,310,355 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
Public works 556,636 549,065 503,225 593,501 7,916,897 2,869,357 6,358,870 6,873,487 4,720,646 4,504,104
Operating grants and contributions 2,042,557 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
Capital grants and contributions 5,511,359 1,972,951 780,761 719,880 569,159 4,022,190 362,491 245,288 271,587 1,082,243
Total governmental activities program revenue 13,185,229 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
Business-Type Activities:
Charges for services:
Resources recovery 2,104,299 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
Blackberry farm 568,770 447,797 411,056 386,753 302,472 388,091 334,529 325,224 345,667 316,615
Cupertino sports center 1,578,330 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
Recreation programs 2,249,191 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
Operating grants and contributions 6,895 - - - - - - - - -
Total business-type activities program revenue 6,507,485 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
Total primary government program revenue 19,692,714 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
(continued)
Fiscal Year Ended June 30
CITY OF CUPERTINO
Change in Net Positions/Assets
Last Ten Fiscal Years
(Accrual basis of accounting)
(Unaudited)
98.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Net (Expense) Revenue:
Governmental activities (33,038,006)$ (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)$
Business-Type activities 699,378 633,308 520,072 563,901 (637,456) (42,858) (1,318,699) 34,698 (1,291,092) (1,937,584)
Total primary government net expense (32,338,628) (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)
General Revenues and Transfers
Governmental Activities:
Taxes:
Property taxes 7,488,701 7,296,970 7,479,132 8,793,110 9,169,183 - 11,864,027 13,251,840 14,881,533 17,082,005
Property taxes in lieu of motor vehicle fee 4,420,912 4,404,795 4,487,412 4,772,355 5,289,476 - 6,330,436 6,967,237 7,552,272 8,219,090
Incremental property tax 1,322,925 1,251,777 202,793 - - - - - - -
Sales tax 9,930,530 14,539,243 17,326 18,721,193 19,794,036 - 21,350,056 26,932,012 26,164,531 24,901,779
Transient occupancy tax 2,142,137 2,536,501 3,112,934 3,768,504 4,590,156 - 5,852,244 6,023,681 6,810,718 8,901,337
Utility user tax 3,271,452 3,227,942 3,264,896 2,994,526 3,098,639 - 3,370,830 3,082,407 3,146,398 3,089,922
Franchise tax 2,597,930 2,841,344 2,808,136 2,848,950 2,775,892 - 3,478,024 3,409,572 3,563,820 3,445,253
Other taxes 1,211,899 1,491,316 1,377,211 4,561,219 18,791,559 - 2,818,019 3,258,118 1,943,652 3,299,587
Intergovernmental (1)166,440 259,289 29,064 30,256 25,294 - 24,111 26,118 31,013 28,844
Investment earnings 295,059 259,217 61,096 176,782 133,243 40,751 807,287 694,730 916,638 3,258,550
Miscellaneous 119,393 1,144,429 82,684 126,690 57,005 (2) 219,053 2,004,906 1,834,492 1,187,741
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)
Total governmental activities 32,967,378 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
Business-Type Activities:
Investment earnings 67,182 71,486 12,338 31,573 11,238 42,531 82,187 59,012 75,663 270,371
Transfers - (15) (207,000) 150,000 401,350 (872,340) 1,635,000 1,874,120 (107,030) 75,000
Total business-type activities 67,182 71,471 (194,662) 181,573 412,588 (829,809) 1,717,187 1,933,132 (31,367) 345,371
Total primary government 33,034,560 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
Change in Net Position/Assets (4)
Governmental activities (70,628) 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
Business-Type activities 766,560 704,779 325,410 745,474 (224,868) (872,667) 398,488 1,967,830 (1,322,459) (1,592,213)
Total primary government 695,932$ 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$
(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)
99.
2010
General Fund
Reserved 2,308,290$
Unreserved 13,622,828
Total General Fund 15,931,118
All Other Governmental Funds
Reserved 5,465,423
Unreserved, reported in:
Special Revenue Funds 5,113,020
Capital Project Funds 3,788,810
Total All Other Governmental Funds 14,367,253
Total Governmental Funds 30,298,371$
2011 (1)2012 2013 2014 2015 2016 2017 2018 2019 (2)
General Fund
Nonspendable 1,023,950$ 1,003,438$ 956,827$ 3,363,065$ 938,245$ 937,381$ 876,939$ 464,893$ 454,188$
Restricted 663,254 695,564 725,903 - 761,653 888,374 1,016,771 1,254,578 9,469,670
Committed - - - - - - 19,000,000 19,122,754 19,123,397
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
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
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
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
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
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
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$
(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)
100.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Revenues
Taxes 30,994,583$ 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$
Use of money and property 774,219 792,035 661,602 744,196 764,299 915,933 1,654,702 1,425,629 1,543,818 3,896,813
Intergovernmental 7,539,835 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
Licenses and permits 2,583,131 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
Charges for services 1,701,157 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
Fines and forfeitures 736,239 695,666 661,899 560,417 616,889 554,002 564,903 603,194 602,934 534,012
Other 689,941 73,881 264,302 57,828 545,052 542,429 1,289,013 2,004,904 1,834,492 1,187,741
Total revenues 45,019,105 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
Expenditures:
Current:
Administration 1,469,004 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
Law enforcement 8,384,310 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
Public and environmental affairs 1,487,265 1,497,263 1,659,856 1,486,910 477,852 624,295 544,718 1,864,746 2,835,768 2,843,540
Administrative services 3,733,414 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
Recreation services 4,003,764 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
Community development 4,125,739 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
Public works 11,961,218 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
Capital Outlay 4,710,360 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
Debt service:
Principal repayment 1,460,000 1,500,000 - 1,920,000 2,040,000 2,055,000 2,090,000 2,135,000 2,180,000 2,220,000
Interest and fiscal charges 2,076,265 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
Payment to refunded debt escrow agent - - 44,897,800 - - - - - - -
Total expenditures 43,411,339 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
Excess (deficiency) of revenues over
(under) expenditures 1,607,766 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
Other Financing Sources (Uses)
Bond proceeds - - 44,823,839 - - - - - - 3,875
Proceeds from sale of capital assets - 1,055,449 421 - 37,569 23,814,257 580 - 872,250 -
Transfers in 7,788,417 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
Transfers in - fund closing - - - - - - - 260,374 - -
Transfers out (10,135,417) (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)
Total other financing sources (uses)(2,347,000) (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)
Extraordinary Item
Asset transferred to Successor Agencies - - (1,130,797) - - - - - - -
Change in fund balances (739,234)$ 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$
Debt service as a percentage of
noncapital expenditures (1)9.1%8.7%55.6%7.6%6.3%6.9%6.6%5.0%4.7%4.7%
(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)
101.
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
2010 12,979,346,158 564,277,611 1,390,000 99,947,559 13,545,013,769 6.51%
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%
(a) Net of exemptions
Source: HdL, Coren & Cone
Data Source: Santa Clara County Assessor 2009-10 - 2018-19 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 10/22/2019 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
0
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
Bi
l
l
i
o
n
s
Secured Property Unsecured Property
102.
THE CITY OF CUPERTINO
Direct and Overlapping Property Tax Rates
(Rate per $100 of taxable value)
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018-19
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 0.00000 0.01266 0.01050
County Bond 2008 Hospital Facility 0.01220 0.00950 0.00470 0.00510 0.00350 0.00910 0.00880 0.00860 0.00820 0.00720
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 0.03120 0.03080 0.02900 0.05980 0.05250 0.05400 0.05190 0.05090 0.04960 0.03970
El Camino Hospital 2003 0.01290 0.01290 0.01290 0.01290 0.01290 0.01290 0.01290 0.01290 0.01000 0.01000
Foothill De Anza College 0.03220 0.03260 0.02970 0.02870 0.02900 0.02760 0.02400 0.02340 0.02200 0.02170
Fremont High 0.03060 0.03650 0.04150 0.03900 0.04050 0.03960 0.05250 0.04030 0.04640 0.04300
Los Gatos-Saratoga High 1998 0.03520 0.03770 0.03810 0.03680 0.03510 0.05160 0.04230 0.04690 0.04570 0.03040
MidPeninsula Open Space 2014 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00080 0.00060 0.00090 0.00180
Santa Clara Unified 0.07010 0.05190 0.08360 0.08190 0.07070 0.07040 0.09420 0.08180 0.08280 0.07070
Santa Clara Valley Water District 0.00740 0.00720 0.00640 0.00690 0.00700 0.00650 0.00570 0.00860 0.00620 0.00420
Saratoga Elementary 0.03880 0.04370 0.04440 0.04520 0.04500 0.04580 0.04490 0.04560 0.04580 0.04580
West Valley College 0.01400 0.01390 0.01370 0.02890 0.02550 0.01200 0.02320 0.01960 0.02000 0.01980
Total Direct & Overlapping² Tax Rates 1.32580 1.31790 1.34520 1.38640 1.36290 1.37070 1.40240 1.38040 1.39146 1.34600
City's Share of 1% Levy Per Prop 13³0.05641 0.05644 0.05650 0.05652 0.05626 0.05617 0.05571 0.05962 0.06148 0.06320
General Obiligation Debt Rate
Redevelopment Rate⁴1.04860 1.04840 1.04760
Total Direct Rate⁵0.06510 0.06507 0.06238 0.06204 0.05623 0.05610 0.05588 0.05976 0.06187 0.06381
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 2009/10 - 2018/19 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 10/22/2019 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.
103.
2019 Percentage of 2014 Percentage of
Assessed Total Assessed Assessed Total Assessed
Valuation Valuation Valuation Valuation
Apple Inc.6,230,181,903$ 24.74%1,324,522,880$ 8.17%
Main Street Cupertino 356,409,129 1.42%737,959,709 4.55%
Vallco Property Owner LLC 333,251,833 1.32%89,929,542 0.55%
Cupertino City Center 199,183,359 0.85%139,150,359 8.60%
BVK Perimeter Square Retail LLC ET AL 177,766,088 0.76%65,823,879 0.41%
Cupertino Property Development 169,923,550 0.73%--
Mission West Properties LP II ETAL 137,663,665 0.59%105,703,542 0.65%
SVF Cupertino City Center Corporation 132,468,803 0.53%122,400,000 0.76%
PR Cupertino Gateway LLC 128,103,411 0.55%--
SI 38 LLC ET AL 117,340,163 0.50%--
Total 7,982,291,904$ 31.99%2,585,489,911$ 23.69%
Source: HdL, Coren & Cone
CITY OF CUPERTINO
Principal Property Taxpayers
Current Year and Five Years Ago
(Unaudited)
Taxpayer
104.
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
2010 8,760,881 8,760,881 100.00%- 8,760,881 100.00%
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%
(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)
105.
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%
2010 45,510,000 0.34%815 1.36%
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 0.13%525 0.87%
2019 29,300,000 0.12%488 0.81%
Source: City of Cupertino
CITY OF CUPERTINO
Ratios of Outstanding Debt by Type
Last Ten Fiscal Years
(Unaudited)
106.
25,307,305,425$
Total Debt %City’s Share of
6/30/2019 Applicable (1)Debt 6/30/19
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 29,300,000 100.000%29,300,000
Total Direct and Overlapping General Fund Debt 29,300,000 29,300,000
Totals by Category:(3)
Total Direct Debt 29,300,000 29,300,000
Total Overlapping Debt 5,660,205,879 568,739,926
Combined Total Debt 5,689,505,879$ 598,039,926$
Ratios to 2018-19 Assessed Valuation:
Total Overlapping Tax and Assessment Debt 2.25%
0.12%
Combined Total Debt 2.36%
(1)
(2)Principal amount as of 6/30/19.
Direct and Overlapping Bonded Debt
CITY OF CUPERTINO
Overlapping Tax and Assessment Debt:
(Unaudited)
2018-19 Assessed Valuation
June 30, 2019
The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable
107.
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
2010 486,725,480 - 486,725,480 -
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 -
Debt Limit:
Secured property assessed value, net of exempt real property 23,402,123,229$
Adjusted valuation - 25% of assessed valuation 5,850,530,807
Debt limit - 15% of adjusted valuation 877,579,621
Amount of Debt Subject to Limit:
Total Bonded Debt 29,300,000
Less: Certificates of Participation not subject to debt limit (29,300,000)
Amount of debt subject to limit -
Legal Debt Margin 877,579,621$
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)
108.
Ratio of General
Fiscal Assessed General Bonded Debt Bonded Debt to
Year Population Value Bonded Debt Per Capita Assessed Value
2010 55,838 13,545,013,769 - - -
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 - - -
Sources: HdL, Coren & Cone
City of Cupertino
CITY OF CUPERTINO
Ratio of General Bonded Debt
Last Ten Fiscal Years
(Unaudited)
109.
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
2009-10 55,838 1,800,876 3.10% 3,350,250,000 59,999 10,350 7.2% - 4050.0% 96.5% 69.3%
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%
Notes and Data Sources:
Population: California State Department of Finance. Unemployment Data: California Employment Development Department
2000-2009 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
110.
CITY OF CUPERTINO
2019 Employer Ranking
(Unaudited)
Employer Ranking Employer_________________Ranking
Apple 1 Insight Solutions Inc 11
De Anza College 2 Intero Real Estate Scv Inv 12
Seagate Technology Inc 3 Keller Williams Realty 13
Health Care Center at the Forum 4 Sugar CRM Inc 14
Magnet Systems Inc 5 Sunny View Retirement Community 15
All Fab Precision Sheet 6 Target 16
BJ's Restaurant & Brewhouse 7 Whole Foods Market 17
Coldwell Banker Residential 8 99 Ranch Market 18
Cupertino Healthcare-Wellness 9 Argonaut Window & Door 19
Forum at Rancho San Antonio 10 Astra Real Estate 20
Source: InfoUSA
111.
Function/Program 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Council and Commissions 1.47 1.46 1.47 1.52 1.57 1.55 1.60 1.55 2.35 2.35
Administration 4.90 4.85 5.05 5.05 10.75 10.75 10.85 10.57 14.12 15.47
Public & Environmental Affairs 6.95 6.95 6.95 6.90 11.00 10.25 11.40 13.95 14.55 15.05
Administrative Services 22.33 22.34 22.48 22.26 11.00 12.00 12.30 12.30 12.00 14.00
Recreation & Community Services 30.78 30.78 29.78 29.53 29.48 31.28 32.18 33.08 35.13 34.80
Community Development 23.73 23.78 23.43 23.90 24.83 24.80 27.30 28.18 28.08 28.13
Public Works 72.59 72.59 73.59 73.59 74.12 77.12 82.12 84.12 84.52 84.95
Law Enforcement 0.00 0.00 0.00 0.00 2.00 2.00 2.00 2.00 2.00 2.00
Total 162.75 162.75 162.75 162.75 164.75 169.75 179.75 185.75 192.75 196.75
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
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Public Works
Community
Development
Recreation &
Community
Services
Administrative
Services
Public &
Environmental
Affairs
Administration
Council and
Commissions
112.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Law Enforcement Sheriff Response
Priority One-Respond within 5 minutes 3.95 Min.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.
Priority Two-Respond within 9 minutes 5.90 Min.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.
Priority Three-Respond within 20 minutes 9.77 Min.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.
Public Works
Street Sweeping 696 Curb Miles 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
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
Recreation and Community Services
Teen Center Memberships 447 492 576 564 684 424 491 388 57*78*
Sports Center Memberships 1,385 1,598 1,776 1,852 1,950 2,000 1,989 2,015 1,850 1,952
Senior Center Memberships 2,287 2,387 2,470 2,456 2,623 2,549 2,493 2,094 2,260 2,171
Local Resident Rentals at Blackberry Farm 91 120 135 141 148 120 107
Quinlan Community Center Rental Revenue $71,000 $91,000 $133,000 $120,000 $109,342 $110,033 $104,150 $128,778 $72,948 $139,590
Community Development
Approved Building Plan Sets 96% Within 5 Days 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
Discretionary Land Use Applications 100% Within 21 Days 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
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
Administrative Services
Accounts Payable Processing 5 Days 5 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
Library
Volumes in Collection - - - - - 361,817 364,557 369,924 367,979 367,101
Annual Gate Count - - - - - 869,762 880,894 835,073 873,862 904,349
Annual Circulation Children's Items - - - - - 1,474,996 1,544,095 1,448,265 1,453,173 1,535,842
Annual Circulation Adult and Teen Items - - - - - 999,766 1,032,326 950,453 980,609 1,049,166
Adult Classes and Events - - - - - 209 215 242 206 207
Adult Classes and Events Attendence - - - - - 11,860 8,855 9,242 7,622 8,304
Teen Classes and Events - - - - - 52 78 66 79 52
Teen Classes and Events Attendence - - - - - 3,393 3,135 2,571 2,495 1,283
Children's Classes and Events - - - - - 458 493 440 426 424
Children's Classes and Events Attendence - - - - - 25,529 28,532 25,857 24,675 22,851
Volunteer Hours - - - - - 11,786 10,000 9,645 10,302 10,191
*Recreation and Community Services is currently rebuilding the membership base through a new registration application. The current year figure does not include non-resident teens.
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)
113.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
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 39 48 48 48 48 48 52 52
Culture & Recreation
Parks and Open Spaces 18 19 19 19 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 1 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 17 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)
114.
History
“This place of San Joseph Cupertino has good water and much firewood, but nothing suitable for a
settlement because it is among the hills very near to the range of cedars which I mentioned yesterday, and
lacks level lands.”
When Spanish explorer San Juan Bautista De Anza traveled through California in 1776, he and
his party documented these words about the land surrounding Stevens Creek, named back then
as Arroyo San Joseph Cupertino. However, first impressions can often be misleading. Underneath
the spiny, overgrown bush was a completely different land waiting to be uncovered. During this
time, the area was populated by Native Americans who hunted and gathered, prospering from
the abundant resources the land had to offer.
It wasn’t until 1848 when the first American settler, Elijah Stephens, a blacksmith from South
Carolina, moved to the area—at this time, named simply ‘West Side’ and primarily owned by the
government. After crossing over the Sierra Nevada in wagons, he discovered the true value of
the land underneath the bush, and proceeded to purchase over 300 acres of farmland to grow
grapes and blackberries. Stephens pioneered the way for farmers, which established West Side as
an agricultural hot spot. The land Stephens owned eventually became Blackberry Farm, and the
road, creek, and reservoir were all named after him, although misspelled.
In early West Side, many of the newest advances in agriculture were being developed. Settlers
were drawn to the land because of its rich earth, where they were able to grow products that
competed on the world market. Once the bush had been cleared, they grew grapes, which covered
the West Valley area with vineyards by the late 1800s. By the 1900s, a plant louse called Phylloxera
spread throughout the vineyards, attacking the roots of the grape vines, killing the grapes and
putting a halt to wine production. As a solution, nearly everything was replanted with fruit
orchards. When the fruit trees blossomed, visitors would come to the orchards for “The Valley of
Heart’s Delight” festivals, which celebrated the prosperous agriculture of the West Valley area.
Apart from the farmland, West Side was primarily known as a crossroads, an intersection
between Saratoga-Sunnyvale Road and Stevens Creek. This served as a way station for travelers
to pass through while going from town to town. As more people came to West Side to take
advantage of the rich farm land, more family holdings gathered around the cross-roads. Starting
off as just a post office and home union store, West Side’s humble cross-roads brought many
diverse communities, all attracted by the preferable climate and profitable market for crops.
As more people were drawn to the area around the cross-roads, the orchards were gradually
replaced with modern houses for workers. The population steadily grew, and the face of West
Side changed, progressing to a more modern town. The community wanted to rename the city,
as to not confuse it with other cities, as well as establish a unique identity. John T. Doyle, a lawyer
from San Francisco, and writer of historical anthologies on the area, chose the name “Cupertino”
after the original name of the creek.
After the post-World War II population boom, the growing community petitioned for Cupertino
to become an incorporated town. Members of the community were worried that the alternative
to incorporation was to have parts of Cupertino annexed by surrounding cities, splitting up the
community and erasing the local culture. To preserve the rural atmosphere, lower taxes for
farmers, start a local government, and prepare for growth, Cupertino voted for incorporation. In
1955, Cupertino officially became the 13th city in Santa Clara County.
By the 1970s, Cupertino once again began to undergo dramatic changes. The growing community
attracted several large technology corporations. Lockheed Martin, HP, Intel, and many other big
names established themselves in the Silicon Valley. Apple Inc. was founded in Cupertino in 1976
and quickly grew into the tech giant it’s known for today.
In the late 20th century, Cupertino and the surrounding areas experienced another surge in
population growth, this time due to the immigration of people from Asian countries. Immigration
laws at the time were in the favor of families looking to move to the Silicon Valley. People
immigrated here for a variety of reasons—whether they were aspiring for career prospects with
major tech companies, or striving for a quality education for their children, everyone who
immigrated here had a common goal: to find opportunities to work hard for a better life for
themselves and their families.
2019 Community Economic Profile
Cupertino, with a population of 64,344 and City limits stretching across 13 square miles, is
considered one of the most prestigious cities to live and work in the Bay Area.
Economic health is an essential component to maintaining a balanced city, which provides high-
level opportunities and services that create and help sustain a sense of community and quality of
life. Public and private interests must be mutual so that success as a partnership is a direct
reflection of success as a community. The cornerstone of this partnership is a cooperative and
responsive government that fosters residential and business prosperity and strengthens working
relationships among all sectors of the community.
Because Cupertino is a mature, 93% built-out city, the City of Cupertino focuses on business
retention and revitalization. Cupertino is world renowned as the home of high-tech giants, such
as Apple, Inc. and Seagate Technologies, and as a community with stellar public schools. De Anza
College, one of the largest single-campus community colleges in the country, is another major
employer and a magnet for attracting local and international students. The City’s proactive
economic development efforts have resulted in an innovative environment for start-ups and
growing companies to thrive. The City strives to retain and attract local companies through active
outreach and a responsive and customer-oriented entitlement process.
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, Chef Hung, HaiDiLao Hot Pot Restaurant, Pressed Juicery,
Orangetheory, 85 Degree Bakery, Target Express, Steins Beer Garden,
Kura Sushi, Vitality Bowls, Doppio Zero, Koja Kitchen, Bishops Cuts & Colors, Capezio,
Howard’s Shoes, and Meet Fresh. Housing, office, and a new Residence Inn by Marriott are
available to support the thriving area. Benihana, Bowlmore, and Ice Center Cupertino also serve
as 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 Daiso, Marukai
Groceries, Super Cue, La Patisserie Bakery, Beard Papa’s, Legend’s Pizza, Aloha Fresh, Merlion
Restaurant, Icicles, Kumino, Garlic Mediterranean Grill, Rori Rice, and Erik’s DeliCafé.
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,
Starbucks, Gogigo Korean BBQ, Creamistry, MOD Pizza, Ten Ren Tea, Fantasia Coffee & Tea,
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, and over 180 restaurants to serve residents and the local workforce. There are now
seven hotels providing over 1,000 rooms, to serve the area: The Aloft Cupertino, Cupertino Hotel,
Hilton Garden Inn, Juniper Hotel operated by Curio, Marriott Courtyard, the Residence Inn by
Marriott, and the newest addition is the Hyatt House.
The redevelopment of the Homestead Square Shopping Center, located at Homestead Road and
De Anza Boulevard, includes a 24-hour Safeway, Ulta Beauty, Ross Stores, Stein Mart, Pet Club,
Michael’s, Rite Aid, FedEx Kinko’s and numerous restaurants, such as Fish’s Wild, 1000 Degrees
Neapolitan Pizzeria, 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.
2019 City Profile
The City of Cupertino operates as a general law city with a City Council-City Manager form of
government. Five council members serve four year, overlapping terms, with elections held every
two years. The Council meets twice a month on the first and third Tuesday at 6:45 p.m. in
Cupertino Community Hall. The meetings can be viewed on the City website.
The City has 201.25 authorized full-time benefited employee positions. City departments include
Administration (City Council, Commissions, City Manager, City Attorney, City Clerk, Economic
Development, Sustainability, Public Affairs); Administrative Services (Finance, Human
Resources); Community Development (Planning, Building, Housing Services, Code
Enforcement); Parks and Recreation; Public Works (Engineering, Maintenance, Transportation,
Solid Waste, Environmental Programs, Storm Drain Management); and Innovation & Technology
(IT, GIS, Website and Applications, Video). Public safety services are provided by the Santa Clara
County Sheriff’s Department and the Santa Clara County Fire District.
Assisting the City Council are several citizen advisory commissions/committee including:
Audit Committee
Fine Arts Commission
Housing Commission
Library Commission
Parks and Recreation Commission
Planning Commission
Public Safety Commission
Sustainability Commission
Teen Commission
Technology, Information and
Communication Commission
Members of the volunteer commissions are appointed by the City Council and vacancies are
announced so that interested residents can apply for the positions. For more information, visit
cupertino.org/commissions.
Housing
The median sales price for an existing single-family home was $2,130,000 in January 2019. For
housing programs in Cupertino, please see “Programs & Applications.”
Community Health Care Facilities
Cupertino is served by the Cupertino Medical Clinic, NovaCare Occupational Health Services.
Nearby hospitals include Kaiser Permanente Medical Center in Santa Clara, El Camino Hospital
in Mountain View, O’Connor Hospital in San Jose, Community Hospital of Los Gatos, Stanford
Hospital in Palo Alto, and the Saratoga Walk-in Clinic in Saratoga.
Utilities
Gas & Electric Pacific Gas and Electric, 800-743-5000
Phone AT&T residential service, 800-894-2355
AT&T business service, 800-750-2355
Cable Comcast, 800- 945-2288
Solid Waste & Recycling Recology, 408-588-7200
Water San Jose Water Company, 408-279-7900
California Water Service, 650-917-0152
Sewer Service Cupertino Sanitary District, 408-253-7071
Tax Rates and Government Services
Residential, commercial, and industrial property is appraised at full market value as it existed on
March 1, 1975, with increases limited to a maximum of 2% annually. Property created or sold
since March 1, 1975 bears full cash value as of the time created or sold, plus the 2% annual
increase. The basic tax rate is $1.00 per $100 (full cash value) plus any tax levied to cover bonded
indebtedness for county, city, school, and other taxing agencies. Assessed valuations and tax rates
are published annually after July 1.
Assessed Valuation (Secured and Unsecured)
Cupertino: $22,531,311,774 (7/18)
County: $483,246,439,238 (7/18)
Retail Sales Tax
Grand Total = 9.00%.
Breakdown = Cupertino 1.00%, State 6%, County Transportation 0.25%, County General .125%,
Local District (Valley Transportation Authority) 1.625%.
Transportation
Rail: The CalTrain station is four miles north of city. The Amtrak station is 10 miles south.
Air: The San Francisco International Airport is located roughly 30 miles north, and the Mineta
San Jose International Airport is located approximately 11 miles south.
Bus: Cupertino is served by the Santa Clara Valley Transportation Authority. The routes listed
below pass through the City. For Cupertino-specific schedules and maps visit their online
website:
Route 23 San Jose – Mountain View/Palo Alto
Route 25 San Jose – De Anza College
Route 26 Eastridge – Lockheed
Route 36 East San Jose – Vallco
Route 51 Vallco – Moffett/Ames
Route 53 Westgate – Sunnyvale
Route 55 De Anza – Great America
Route 81 East San Jose – Vallco
Express 101 Camden/Branham – Palo Alto
Express 501 Palo Alto – I.B.M Bailey
Car: The City of Cupertino is in the heart of the world-renowned Silicon Valley. The major
highway transportation facilities are Interstate Route 280 and State Route 85 freeways. The City
is linked internally by several principal arterials and Santa Clara County expressways. Principal
arterials are De Anza Boulevard, Stevens Creek Boulevard, and Wolfe Road. Nearby expressways
are Lawrence Expressway and Foothill Expressway.
Sister Cities
City of Cupertino recognizes the value of developing people-to-people contacts by strengthening
the partnerships between the city and its four sister cities of Copertino, Italy; Hsinchu, Taiwan;
Toyokawa, Japan, and Bhubaneswar, India. Cupertino’s Sister City partnerships have proven
successful in fostering educational, technical, economic, and cultural exchanges. Over the years,
there have been many delegations visiting both the cities as well as many local students
participating in annual student exchange programs.
Education
________________________________________________________________________________________________________________ Winners of numerous state and national awards for excellence, Cupertino’s schools are widely
acknowledged as models of quality instruction.
Cupertino Union School District serves over 18,000 students in a 26
square mile area that includes Cupertino and portions of five other
cities. The district has 20 elementary schools and five middle schools,
including several choice programs. Eighteen schools have received
state and/or national awards for educational excellence.
Student achievement is exceptionally high. Historically, district test scores place Cupertino
among the premier public school districts in California. The district is a leader in the development
of standards-based system of education and is nationally recognized for leadership in the use of
technology as an effective tool for learning. Quality teaching and parent involvement are the keys
to the district’s success.
The Fremont Union High School District serves 10,000 students in a 42 square mile area covering
all of Cupertino, most of Sunnyvale, and portions of San Jose, Los Altos, Saratoga, and Santa
Clara. The five high schools of the district have garnered many awards and recognition based on
both the achievement of students and the programs designed to support student achievements.
Many high schools in the district exceed their established achievement targets for the State
Academic Performance Index. District students are encouraged to volunteer and provide service
to organizations within the community. During their senior year, if students complete 80 hours
of service to a non-profit community organization, they are recognized with a “Community
Service Award” medal that may be worn at their graduation ceremonies.
Building on its tradition of excellence and innovation, De Anza College challenges students of
every background to develop their intellect, character, and abilities; to achieve their educational
goals; and to serve their community in a diverse and changing world.
De Anza College offers a wide range of quality programs and services
to meet the work force development needs of our region. The college
prepares current and future employees of Silicon Valley in traditional
classroom settings and customized training arranged by employers.
Several De Anza programs encourage economic development
through college credit courses, short-term programs, services for
manufacturers, technical assistance, and/or recruitment and retention
services.
Programs & Applications
Community Outreach Programs
Leadership 95014
Leadership 95014 is a program designed by the City of Cupertino, Wilfred Jarvis Institute, and
other local sponsors to offer an exciting adult program that is guaranteed to enhance the
participants’ leadership skills. The ten full-day sessions feature inside looks at local governments,
the social sector, local non-profit organizations, and educational institutions. This 9-month
program is offered annually, September to May, and applications can be found online.
Neighborhood Block Leader Program
Good neighborhoods are those where neighbors work together on common issues and look out
for each other. Block leaders take extra steps to connect neighbors and
build community, making our neighborhoods safer and more
harmonious. The Block Leader Program teaches residents how to get
to know their neighbors and how to organize activities so neighbors
can more easily communicate with each other. Block leaders are vital
links between City Hall and the neighborhoods, and leaders gain the
inside track on neighborhood development activities.
Neighborhood Watch
Neighborhood Watch is a crime prevention program that enlists the active participation of
citizens in cooperation with law enforcement to reduce crime in our communities. It involves:
neighbors getting to know each other and working together in a program of mutual assistance;
citizens being trained to recognize and report suspicious activities in their neighborhoods; and
implementation of crime prevention techniques such as home security and operation
identification. To organize a Neighborhood Watch program in your neighborhood, please contact
the Neighborhood Watch Coordinator at 408.777.3177.
eCAP
Email Community Alert Program (eCAP) was created by the Santa Clara County Sheriff’s Office
to prevent and reduce crime by raising community awareness, minimizing opportunities for
crime, and increasing the possibility of solving crimes with the public’s help. Cupertino residents
may voluntarily register their email addresses with the Sheriff’s Office for community alert
messages. Citizens can sign-up at a Neighborhood Watch meeting or log-on to the City of
Cupertino’s eCAP online registration.
Affordable Housing: BMR (Below Market Rate) Program
The City of Cupertino requires 15% of all new construction be affordable to households below
120% of the County median income. Rental units are affordable to very low and low-income
households while ownership units are affordable to median and moderate-income households.
The City of Cupertino contracts with West Valley Community Services (WVCS) to screen and
place qualified households in most of the city’s BMR units. WVCS maintains a waiting list of
interested persons for these BMR units. If interested, please call 408.255.8033. More information
can be found online.
Smart Phone Applications
Mobile 95014
City of Cupertino’s Mobile 95014 app offers latest listing of Cupertino news and events
as well as local parks, schools, and recreation offerings in the city. This app showcases
environmental services and community services such as Block Leaders and Neighborhood Watch
programs. Users can learn about public safety and contact City Council members and City
officials. The app also offers links to Cupertino’s social media sites.
Trees 95014
Trees 95014 is an iPhone/iPad and Android app which provides details about the city-planted
trees in Cupertino. Users can search for trees by street name or by current location. The search
results show the picture of the tree and details such as location, height, diameter, and species.
Cupertino residents can also sign up their tree, name their tree, and request tree service through
this app.
Eats 95014
Eats 95014 is the local restaurant app that showcases Cupertino’s dining options such as
restaurants, grocery stores, farmers’ markets, and vineyards. The app provides information on
the services offered at such eating places including store hours, parking information, noise level,
directions, and website link.
Ready 95014
Ready 95014 is an app that puts safety information into the hands of Cupertino residents.
Steps to prepare and respond to emergencies including earthquakes, floods, fires, and
pandemics are outlined in an easy-to-understand format. The app also streams Cupertino’s own
AM radio station (1670 AM) and has a map of the City’s Area Resource Centers, satellite locations
opened after disasters to provide public assistance.
Website Applications
Cupertino.org/ShopAndDine
This interactive website app offers users mapping features of current Cupertino businesses and
restaurants.
Community Statistics
Facts and Figures1
1 Claritas 2019 Estimates and California Statewide Direct Primary Election June 5, 2018
Population in City Limits 64,344
Average Household Income $228,515
Average Age 40
Registered Voters 28539
Democrats 11,113
Republicans 4648
American Independent 402
Other 218
No Political Party Designated 12,158
Top 40 Sales Tax Producers
Third Quarter 2018, in Alphabetical Order
Apple Cloud Trekkers
Technologies
Lazy Dog Cafe Shane Company
7 Eleven Dental Arts of
California
Marina Food Shell Station
76 Station Dynasty Seafood
Restaurant
Marukai
Supermarket
Sherry Precision
Dental Art
99 Ranch Market Estel Group Mirapath Target
Alexander's Steak
House
Galpao Gaucho Pro Installations TJ Maxx
Alliance Haidilao Hot Pot Ross Ulta Beauty
Aqui Cal Mex Huawei
Technologies
Rotten Robbie Valero
Argonaut Window &
Door
Insight Direct Safeway Vardys Jewelers
Benihana Insight Public Sector Scandinavian
Designs
Vikhar Inc.
BJs Restaurant &
Brewhouse
Kura Revolving
Sushi Bar
Seagate Technology Whole Foods Market
Community and Recreation Services
Blackberry Farm
Blackberry Farm has been upgraded and restored to improve the natural habitat for native trees,
animals, and fish. Improvements to the park include construction of a new ticket kiosk, re-
plastered pools, a new water slide, bocce ball, horseshoe courts, and numerous upgrades to the
west bank picnic area. The park is located at 21979 San Fernando Avenue. Telephone: 408-777-
3140.
The Blackberry Farm Golf Course is located at 22100 Stevens Creek Boulevard. Telephone: 408-
253-9200.
The Quinlan Community Center
The City of Cupertino’s Quinlan Community Center is a 27,000 square foot facility that provides
a variety of recreational opportunities.
Most prominent is the Cupertino Room - a multi-purpose room that can accommodate 300 people
in a banquet format.
Telephone: 408-777-3120.
Cupertino Sports Center
The Sports Center is a great place to meet friends. The facility features 17 tennis courts, complete
locker room facilities, and a fully-equipped fitness center featuring free weights, Cybex, and
cardio equipment. A teen center and a child-watch center are also included. The center is located
at the corner of Stevens Creek Boulevard and Stelling Road. Telephone: 408-777-3160.
Cupertino Senior Center
The Senior Center provides a welcome and friendly environment for adults over age 50. There is
a full calendar of opportunities for learning, volunteering, and enjoying life. There are exercise
classes, computer lab classes, and English as a second language classes, and cultural and special
interest classes. The center also coordinates trips and socials.
The Senior Center is located at 21251 Stevens Creek Boulevard and is open Monday through
Friday, 8 a.m. to 5 p.m. Telephone: 408-777-3150.
Civic Center and Library
The complex has a 6,000 square foot Community Hall, plaza with fountain, trees, and seating
areas. City Council meetings, Planning Commission sessions, and Parks and Recreation
Commission sessions are held in the Community Hall.
The 54,000 square foot library continues to be one of the busiest libraries in the Santa Clara County
Library system. For more information, call 408-446-1677.
McClellan Ranch Park
A horse ranch during the 1930’s and 40’s, this 18-acre park has the appearance of a working ranch.
Preserved on the property are the original ranch house, milk barn, livestock barn, and two historic
buildings: Baer’s Blacksmith Shop, originally located at DeAnza and Stevens Creek, and the old
water tower from the Parish Ranch, now the site of Memorial Park. Rolling Hills 4-H Club
members raise rabbits, chickens, sheep, swine, and cattle. The Junior Nature Museum, which
features small live animal exhibits and dispenses information about bird, animal, and plant
species of the area, is also located at the ranch. The newly opened Environmental Education
Center has Open House hours on Friday, Saturday, and Sunday. McClellan Ranch is located at
22221 McClellan Road. Telephone: 408-777-3120.
Things to Do and See
Euphrat Museum of Art
The highly regarded Euphrat Museum of Art, at its new location next to the new Visual Arts and
Performance Center at De Anza College, presents one-of-a-kind exhibitions, publications, and
events reflecting the rich diverse heritage of our area. The Museum prides itself on its changing
exhibitions of national and international stature emphasizing Bay Area artists. Museum hours
are 10 a.m. – 3 p.m. Monday through Thursday. Telephone: 408-864-5464
Fujitsu Planetarium
The Fujitsu Planetarium on the De Anza College campus is a must-visit Cupertino facility for
stargazers. It hosts a variety of planetarium shows and events, including educational programs
for school groups and family astronomy evenings. For more information, visit the website at
http://planetarium.deanza.edu or call 408-864-8814.
Flint Center
The cultural life of the Peninsula and South Bay is enhanced by programs presented at the Flint
Center for Performing Arts located at 21250 Stevens Creek Boulevard in the De Anza College
campus. The center opened in 1971 and was named in honor of Calvin C. Flint, the first chancellor
of the Foothill-De Anza Community College District. The box office is open 10 a.m. – 4 p.m.
Tuesday through Friday and 1.5 hours prior to any performance. Box office: 408-864-8816;
administrative office: 408-864-8820.
Cupertino Historical Society
The Cupertino Historical Society was founded in 1966 by a group of
177 longtime residents and is dedicated to the preservation and
exhibition of the city’s history. Their museum, located at the Quinlan
Community Center, develops and expands the learning opportunities
that it offers to the ethnically diverse community of the City of
Cupertino. Telephone: 408-973-1495.
Farmers’ Markets
There are two farmers’ markets located in the City of Cupertino. One is held on Fridays from 9:00
a.m. to 1:00 p.m. at Creekside Park, and the other is held every Sunday from 9:00 a.m. to 1:00 p.m.
at The Oaks Shopping Center, 21275 Stevens Creek Blvd.
California History Center
The California History Center and Foundation is located on the De Anza College campus. The
center has published 37 volumes on California history and has a changing exhibit program. The
center’s Stocklmeir Library Archives boast a large collection of books, pamphlet files, oral history
tapes, videotapes, and a couple thousand student research papers. The library’s collection is for
reference only. Heritage events focusing on California’s cultural and/or natural history are
offered by the center each quarter. For more information, call 408-864-8987. The center is open
September through June, Tuesday through Thursday, from 9:30 a.m. to noon and 1:00 p.m. to 4:00
p.m.
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APPENDIX C
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
The following is a summary of certain provisions of the Trust Agreement and the Lease which are not
described elsewhere. This summary does not purport to be comprehensive and reference should be made to
the respective agreement for a full and complete statement of the provisions thereof.
DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS
OF THE TRUST AGREEMENT
DEFINITIONS
Unless the context otherwise requires, the terms defined below will for all purposes have the meanings
defined below, the following definitions to be equally applicable to both the singular and plural forms of any
of the terms defined below. All capitalized terms used below and not defined below will have the meanings
ascribed thereto in the Lease.
“Additional Certificates” means certificates of participation authorized by a Supplemental Agreement
that are executed and delivered by the Trustee under and pursuant to the Trust Agreement.
“Additional Payments” means all amounts payable by the City as Additional Payments as defined in
the Lease.
“Assignment Agreement” means the Assignment Agreement, dated as of the date of the Trust
Agreement, by and between the Trustee and the Corporation, and any duly authorized and executed
amendments thereto.
“Beneficial Owner” means any person which (a) has the power, directly or indirectly, to vote or
consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates
through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for
federal income tax purposes.
“Business Day” means any day other than (i) a Saturday or Sunday, or (ii) a day on which banking
institutions in the State of New York or the State of California are authorized or required by law or executive
order to remain closed.
“Certificates” means the $22,040,000 City of Cupertino 2020A Certificates of Participation to be
executed and delivered by the Trustee pursuant to the Trust Agreement.
“Certificate Year” means the period extending from June 2 each year to June 1 of the subsequent
calendar year, provided that the first Certificate Year will commence on the Delivery Date and end on June 1,
2021.
“City” means the City of Cupertino, a municipal corporation and general law city organized and
existing under the laws and Constitution of the State, and its successors and assigns.
“City Representative” means the Mayor, the City Manager, the Assistant City Manager, the
Administrative Services Director, or any other person authorized by the City Manager of the City to act on
behalf of the City with respect to the Lease or the Trust Agreement.
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“Code” means the Internal Revenue Code of 1986, and the regulations issued thereunder, as the same
may be amended from time to time, and any successor provisions of law. Reference to a particular section of
the Code is deemed to be a reference to any successor to any such section.
“Continuing Disclosure Certificate” means that certain Continuing Disclosure Certificate dated as of
October 22, 2020, executed by the City and acknowledged by Urban Futures, Inc., as Dissemination Agent, as
it may be amended from time to time in accordance with the terms thereof.
“Corporation” means the Cupertino Public Facilities Corporation, a nonprofit public benefit
corporation organized under the laws of the State, its successors and assigns.
“Corporation Representative” means the President, Vice President, Secretary, and Treasurer of the
Corporation, or any other person authorized by the President or Treasurer to act on behalf of the Corporation
under or with respect to the Lease.
“Delivery Costs” means and includes all items of expense directly or indirectly payable by or
reimbursable to the City or the Corporation relating to the prepayment of the Refunded Certificates from the
proceeds of the Certificates, including but not limited to costs provided in the contract of purchase with the
Original Purchaser, filing and recording costs, settlement costs, printing costs, word processing costs,
reproduction and binding costs, initial fees and charges of the Trustee, including its first annual administration
fee and the fees of its counsel, legal fees and charges, financing and other professional consultant fees, fees of
auctioning the Certificates, costs of rating agencies and costs of providing information to such rating agencies,
any computer and other expenses incurred in connection with the Certificates, fees for execution,
transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing.
“Delivery Date” means the date of delivery of the Certificates.
“Depository” means the securities depository acting as depository pursuant to the Trust Agreement.
“DTC” means The Depository Trust Company, New York, New York, a limited purpose trust
company organized under the laws of the State of New York in its capacity as securities depository for the
Certificates.
“Event of Default” means an event of default under the Lease, as defined therein.
“Fiscal Year” means the fiscal year of the City commencing July 1 and ending June 30 of the next
year.
“Government Obligations” means Permitted Investments of the type described in paragraphs (A) or
(B) of the definition thereof.
“Independent Counsel” means an attorney duly admitted to the practice of law before the highest court
of the state in which such attorney maintains an office and who is not an employee of the Corporation, the
Trustee or the City.
“Interest Payment Date” means June 1 and December 1 of each year commencing December 1, 2020.
“Lease” means the Lease Agreement related to the Certificates, dated as of the date of the Trust
Agreement, by and between the City and the Corporation, and any duly authorized and executed amendments
thereto.
“Lease Payment” means any of the Lease Payments required to be paid by the City to the Corporation
pursuant to the Lease.
C-3
“Lease Payment Date” means the second Business Day prior to each Interest Payment Date.
“Lease Payment Fund” means the fund by that name established and held by the Trustee pursuant to
the Trust Agreement.
“Leased Premises” has the meaning set forth in the Lease.
“Letter of Representations” means the letter of the City delivered to and accepted by the Depository
on or prior to delivery of the Certificates as book-entry certificates making reference to the DTC Operational
Arrangements memorandum, as it may be amended from time to time, setting forth the basis on which the
Depository serves as depository for such book-entry certificates, as such letters were originally executed or as
they may be supplemented or revised or replaced by letters from the City and the Trustee delivered to and
accepted by the Depository.
“Moody’s” means Moody’s Investors Service or any successors or assigns thereto.
“Net Proceeds” means any proceeds of any insurance, performance bonds or taking by eminent
domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any
expenses (including attorneys’ fees) incurred in the collection thereof.
“Net Proceeds Fund” means the fund by that name established and held by the Trustee pursuant to the
Trust Agreement.
“Nominee” means the nominee of the Depository, which may be the Depository, as determined from
time to time pursuant to the Trust Agreement.
“Original Purchaser” means Stifel, Nicolaus & Company, Incorporated, as original purchaser of the
Certificates on the Delivery Date.
“Outstanding” when used as of any particular time with respect to Certificates, means (subject to the
provisions of the Trust Agreement) all Certificates or Additional Certificates theretofore executed and
delivered by the Trustee under the Trust Agreement except:
(1) Certificates or Additional Certificates theretofore cancelled by the Trustee or
surrendered to the Trustee for cancellation;
(2) Certificates or Additional Certificates for the payment or prepayment of which funds
or Government Obligations, together with interest earned thereon, in the necessary amount will have
theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date
of such Certificates or Additional Certificates), provided that, if such Certificates are to be prepaid
prior to maturity, notice of such prepayment will have been given as provided in the Trust Agreement
or provision satisfactory to the Trustee will have been made for the giving of such notice; and
(3) Certificates or Additional Certificates in lieu of or in exchange for which other
Certificates or Additional Certificates will have been executed and delivered by the Trustee pursuant
to the Trust Agreement.
“Owner” or “Certificate Owner” or “Owner of a Certificate”, or any similar term, when used with
respect to a Certificate means the person in whose name such Certificate is registered on the registration books
maintained by the Trustee.
“Participants” means those broker-dealers, banks and other financial institutions from time to time for
which the Depository holds book-entry certificates as securities depository.
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“Permitted Investments” means, if and to the extent permitted by law and by any policy guidelines
promulgated by the City:
A. Direct obligations of the United States of America (including obligations issued or
held in book-entry form on the books of the Department of the Treasury) or obligations the principal
of and interest on which are unconditionally guaranteed by the United States of America.
B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by
any of the following federal agencies and provided such obligations are backed by the full faith and
credit of the United States of America (stripped securities are only permitted if they have been
stripped by the agency itself):
1. Farmers Home Administration (FmHA)
Certificates of beneficial ownership
2. Federal Housing Administration Debentures (FHA)
3. General Services Administration
Participation certificates
4. Government National Mortgage Association (GNMA or “Ginnie Mae”)
GNMA-guaranteed mortgage-backed bonds
GNMA-guaranteed pass-through obligations
5. U.S. Maritime Administration
Guaranteed Title XI financing (qualified under the Ship Financing Act of
1972)
6. U.S. Department of Housing and Urban Development (HUD)
Project Notes
Local Corporation Bonds
C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by
any of the following non-full faith and credit U.S. government agencies (stripped securities are only
permitted if they have been stripped by the agency itself):
1. Federal Home Loan Bank System
Senior debt obligations
2. Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac”)
Participation certificates
Senior debt obligations
3. Federal National Mortgage Association (FNMA or “Fannie Mae”)
Mortgage-backed securities and senior debt obligations (excluding stripped
mortgage securities which are valued greater than par on the portion of
unpaid principal)
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4. Student Loan Marketing Association (SLMA or “Sallie Mae”)
Senior debt obligations
5. Resolution Funding Corp (REFCORP)
The interest only component of REFCORP strips which have been stripped
by request to the Federal Reserve Bank of New York
6. Farm Credit System Corp. - Consolidated system-wide bonds and notes
D. Money market funds registered under the Investment Company Act of 1940, whose
shares are registered under the Securities Act of 1933, and having a rating by Standard & Poor’s of
“AAAm-G,” “AAAm” or “AAm” or by Moody’s of “Aaa,” “Aa1” or “Aa2,” including funds for
which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee to
the fund whether as a custodian, transfer agent, investment advisor or otherwise.
E. Certificates of deposit secured at all times by collateral described in (A) and/or (B)
above and having a maturity of one year or less. Such certificates must be issued by commercial
banks, savings and loan associations or mutual savings banks whose short-term obligations are rated
“A-1+” by Standard & Poor’s and “Prime-1” by Moody’s, which may include the Trustee and its
affiliates. The collateral must be held by a third party and the Owners must have a perfected first
security interest in the collateral.
F. Certificates of deposit, savings accounts, deposit accounts or money market deposits
which are fully insured by FDIC (including those of the Trustee and its affiliates).
G. Commercial paper rated at the time of investment “Prime - 1” by Moody’s and
“A-1+” or better by Standard & Poor’s.
H. Investment agreements, including guaranteed investment agreements, acceptable to
the Trustee.
I. Bonds or notes issued by any state or municipality which are rated by Moody’s or
Standard & Poor’s in one of the two highest rating categories assigned by such agencies.
J. Federal funds, banker deposit product or bankers acceptances with a maximum term
of one year of any bank which has an unsecured, uninsured or unguaranteed obligation rating of
“Prime - 1” or “A3” or better by Moody’s or “A-1+” or better by Standard & Poor’s, including those
of the Trustee and its affiliates.
K. Repurchase agreements rated “AA” or better by Standard and Poor’s and that provide
for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee
(buyer/lender), and the transfer of cash from the Trustee to the dealer bank or securities firm with an
agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee, in
exchange for the securities at a specified date or dates.
L. Any guaranteed investment contract, including forward delivery agreements
(“FDAs”) and forward purchase agreements (“FPAs”), with a financial institution or insurance
company which has at the date of execution thereof an outstanding issue of unsecured, uninsured and
unguaranteed debt obligations or a claims-paying ability rated within the two highest rating categories
of Standard & Poor’s or Moody’s. Only Permitted Investments described in clauses A, B or C above
and having maturities equal to or less than 30 years from their date of delivery will be considered
eligible for any collateralization/delivery purposes for guaranteed investment contracts, FDAs or
FPAs;
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M. Pre-refunded municipal bonds rated “Aaa” by Moody’s and “AAA” by Standard &
Poor’s. If, however, the issue is only rated by Standard & Poor’s (i.e., there is no Moody’s rating),
then the pre-refunded bonds must have been pre-refunded with cash, direct U.S. or U.S. guaranteed
obligations, or AAA rated pre-refunded municipals to satisfy this condition.
N. The Local Agency Investment Fund of the State, provided that the Trustee may
deposit and withdraw monies in its own name.
O. Any other investment which the City is permitted by law to make (including
investment agreements and forward delivery or forward purchase agreements).
“Value” of the above investments will be determined by the manner currently employed by
the Trustee or any other manner consistent with industry standard.
“Prepayment” means any payment made by the City pursuant to the Lease as a prepayment of Lease
Payments.
“Prepayment Fund” means the fund by that name established and held by the Trustee pursuant to the
Trust Agreement.
“Principal Office or Corporate Trust Office” means the corporate trust office of the Trustee in Los
Angeles, California, or such other or additional offices as may be designated by the Trustee; provided,
however, that for the purposes of payment, transfer or exchange of Certificates such term means the office or
agency of the Trustee at which, at any particular time its corporate trust agency business will be conducted.
“Project” means the real property and public capital improvements refinanced with proceeds of the
Refunded Certificates and any other project identified in the Lease or any supplement thereto as a Project.
“Record Date” means the close of business on the fifteenth (15th) day of the month preceding each
Interest Payment Date, whether or not such fifteenth (15th) day is a Business Day.
“Refunded Certificates” means the $43,940,000 aggregate principal amount of the City of Cupertino
Certificates of Participation (2012 Refinancing Project).
“S&P” or “Standard & Poor’s” means S&P Global Ratings, a Standard & Poor’s Financial Services
LLC business, or any successors or assigns thereto.
“Site Lease” means the Site Lease related to the Certificates, dated the date of the Trust Agreement,
by and between the Corporation and the City, and any duly authorized and executed amendments thereto.
“Special Counsel” means Stradling Yocca Carlson & Rauth, a Professional Corporation, or any other
attorney or firm of attorneys of nationally recognized standing in matters pertaining to the tax-exempt status of
interest on obligations issued by states and their political subdivisions and acceptable to the City.
“State” means the State of California.
“Supplemental Agreement” means a supplement to the Trust Agreement providing for the execution
and delivery of Additional Certificates pursuant to the Trust Agreement.
“Tax Certificate” means the Tax Certificate, dated as of the Delivery Date, concerning matters
pertaining to the use and investment of proceeds of the Certificates executed and delivered to the City on the
date of execution and delivery of the Certificates, including any and all exhibits attached thereto.
C-7
“Term” means the time during which the Lease is in effect, as provided in the Lease.
“Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association
duly organized and existing under the laws of the United States of America, and any successor trustee.
“Trust Agreement” or “Agreement” means the Trust Agreement, together with any amendments
thereof or supplements thereto permitted to be made under the Trust Agreement.
THE CERTIFICATES
Equal Security. In consideration of the acceptance of the Certificates by the Owners, the Trust
Agreement will be deemed to be and will constitute a contract between the Trustee and the Owners to secure
the full and final payment of the interest, if any, and principal represented by the Certificates which may be
executed and delivered thereunder, subject to each of the agreements, conditions, covenants and terms
contained in the Trust Agreement; and all agreements, conditions, covenants and terms contained in the Trust
Agreement required to be observed or performed by or on behalf of the Trustee will be for the equal and
proportionate benefit, protection and security of all Owners without distinction, preference or priority as to
security or otherwise of any Certificates of a Series over any other Certificates of a Series by reason of the
number or date thereof or the time of execution or delivery thereof or for any cause whatsoever, except as
expressly provided in the Trust Agreement. All of the Certificates of a Series are equally secured, except as
may be otherwise expressly provided in the Trust Agreement.
Transfer and Exchange
Transfer of Certificates. Any Certificate may, in accordance with its terms, be transferred upon the
books required to be kept pursuant to the provisions of the Trust Agreement by the person in whose name it is
registered, in person or by its duly authorized attorney, upon surrender of such Certificate for cancellation at
the Principal Office accompanied by delivery of a written instrument of transfer in a form acceptable to the
Trustee, duly executed. Whenever any Certificate or Certificates will be surrendered for transfer, the Trustee
will execute and deliver a new Certificate or Certificates of the same tenor and maturity, for like aggregate
principal amount in authorized denominations. The cost of printing Certificates and any services rendered or
expenses incurred by the Trustee in connection with any transfer will be paid by the City. The Trustee may
require the payment by the Owner requesting such transfer of any tax or other governmental charge required to
be paid with respect to such transfer, and there will be no other charge to any Owner for any such transfer.
Prior to any transfer of the Certificates outside the book-entry system (including, but not limited to, the initial
transfer outside the book-entry system) the transferor will provide or cause to be provided to the Trustee all
information necessary to allow the Trustee to comply with any applicable tax reporting obligations, including
without limitation any cost basis reporting obligations under Internal Revenue Code Section 6045, as amended.
The Trustee will conclusively rely on the information provided to it and will have no responsibility to verify or
ensure the accuracy of such information.
Exchange of Certificates. Certificates may be exchanged at the Principal Office for a like aggregate
principal amount of Certificates of other authorized denominations of the same tenor and maturity. The
Trustee may require the payment by the Certificate Owner requesting such exchange of any tax or other
governmental charge required to be paid with respect to such exchange. The cost of printing Certificates and
any services rendered or expenses incurred by the Trustee in connection with any exchange will be paid by the
City. All Certificates surrendered pursuant to the provisions of the Trust Agreement will be cancelled and
destroyed by the Trustee and will not be redelivered.
Time for Transfer or Exchange. The Trustee will not be obligated to transfer or exchange any
Certificate after a Record Date and before the following Interest Payment Date, or during the period in which it
is selecting Certificates for prepayment, or after notice of prepayment has been given as provided in the Trust
Agreement.
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Certificate Register
The Trustee will keep or cause to be kept at its Principal Office or another office designated by the
Trustee sufficient books for the registration and transfer of the Certificates which will, during normal working
hours and upon reasonable notice, be open to inspection by the City and the Corporation; and, upon
presentation for such purpose, the Trustee will, under such reasonable regulations as it may prescribe, register
or transfer or cause to be registered or transferred, on said books, Certificates. The City, the Corporation and
the Trustee will be entitled to treat the registered owner of a Certificate as the absolute owner thereof for all
purposes, whether or not a Certificate will be overdue and the City, the Corporation and the Trustee will not be
affected by any notice to the contrary.
Additional Certificates
Subsequent to the execution and delivery by the Trustee of the Certificates, the Trustee will, upon
written request or requests of the City Representative and of the Corporation Representative, execute and
deliver from time to time one or more series of Additional Certificates in such aggregate principal amount as
may be set forth in such written request or requests, provided that there has been compliance with all of the
following conditions, which are conditions precedent to the preparation, execution and delivery of such
Additional Certificates:
(a) The parties to the Trust Agreement have executed a Supplemental Agreement which
sets forth the terms and provisions of such Additional Certificates, including the establishment of such
funds and accounts, which may be separate and apart from the funds and accounts established under
the Trust Agreement for the Certificates, as are necessary or appropriate;
(b) The scheduled principal and interest payable with respect to such Additional
Certificates will be payable only on Interest Payment Dates applicable to the Certificates;
(c) The Lease will have been amended, if necessary, to (i) increase or adjust the Lease
Payments due and payable on each Lease Payment Date to an amount sufficient to pay the principal,
premium (if any) and interest payable with respect to all Outstanding Certificates, including all
Additional Certificates, as and when the same mature or become due and payable (except to the extent
such principal, premium and interest may be payable out of moneys on deposit with the Trustee in
accordance with the Trust Agreement), and (ii) make such other revisions to the Lease as are
necessitated by the execution and delivery of such Additional Certificates (provided, however, that
such other revisions will not prejudice the rights of the Owners of Outstanding Certificates as granted
them under the terms of the Trust Agreement);
(d) There has been delivered to the Trustee a counterpart of the amendments required by
the Trust Agreement;
(e) The Trustee has received a certificate of the Corporation Representative that there
exists on the part of the Corporation no Event of Default (or any event which, once all notice or grace
periods have passed, would constitute an Event of Default);
(f) The Trustee has received a certificate of the City Representative that (i) there exists
on the part of the City no Event of Default (or any event which, once all notice or grace periods have
passed, would constitute an Event of Default) and (ii) the Lease Payments as increased or adjusted do
not exceed in any year the fair rental value of the Leased Premises (as such term is defined in the
amended Lease);
(g) The Trustee has received an opinion of Special Counsel substantially to the effect
that (i) said Supplemental Agreement and said amendments to the Lease comply in all respects with
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the requirements of the Trust Agreement, (ii) said Supplemental Agreement and said amendments to
the Lease have been duly authorized, executed and delivered by the City and the Corporation, as
applicable (provided that said opinion of Special Counsel, in rendering the opinions set forth in this
clause (i), will be entitled to rely upon one or more other opinions of counsel, including counsel to any
of the respective parties to said Supplemental Agreement or said amendments to the Lease),
(iii) assuming that no Event of Default has occurred and is continuing, the Trust Agreement, as
amended by said Supplemental Agreement, and the Lease, as amended by the respective amendments
thereto, constitute the legal, valid and binding obligations of the City and the Corporation, as
applicable, enforceable against said parties in accordance with their respective terms (except to the
extent that enforcement thereof may be limited by bankruptcy, insolvency, moratorium, debt
adjustment or other laws affecting creditors’ rights generally, and except to the extent that
enforcement thereof may be limited by general principles of equity, regardless of whether
enforcement is sought in a legal or equitable proceeding), and (iv) the execution of such Supplemental
Agreement and said amendments to the Lease, and performance by the parties under the Trust
Agreement, will not result in the inclusion of the interest portion of any Lease Payments payable with
respect to any Certificates, including Additional Certificates (to the extent such Additional Certificates
are executed and delivered as tax-exempt Certificates), theretofore prepared, executed and delivered,
in the gross income of the Owners of the Certificates or the owners of any Additional Certificates (to
the extent such Additional Certificates are executed and delivered as tax-exempt Certificates) for
purposes of federal income taxation;
(h) There will have been delivered to the Trustee an endorsement to or reissuance of the
title insurance policy delivered under the Lease providing that the insured amount is at least equal to
the aggregate principal amount of all of the Certificates and Additional Certificates outstanding upon
the execution and delivery of such Additional Certificates; and
(i) Such other conditions will have been satisfied, and such other instruments will have
been duly executed and delivered to the Trustee, as the City or the Corporation will have reasonably
requested.
Upon delivery to the Trustee of the foregoing instruments, the Trustee will cause to be executed and
delivered Additional Certificates of a Series representing the aggregate principal amount specified in such
Supplemental Agreement, and such Additional Certificates of like Series will be equally and ratably secured
with all Certificates of like Series, including any Additional Certificates, theretofore prepared, executed and
delivered, all without preference, priority or distinction (other than with respect to maturity, payment,
prepayment or sinking fund payment (if any)) of any one Certificate of a Series, including Additional
Certificates, over any other; provided, however, that no provision of the Trust Agreement will require the City
to consent to or otherwise permit the preparation, execution and delivery of Additional Certificates, it being
understood and agreed that any such consent or other action of the City to permit the preparation, execution
and delivery of Additional Certificates, or lack thereof, will be in the sole discretion of the City.
PREPAYMENT FUND
Establishment of Prepayment Fund.
The Trustee will establish a special fund designated as the “City of Cupertino (2020A Certificates)
Prepayment Fund,” referred to in the Trust Agreement as the “Prepayment Fund”; will keep such fund separate
and apart from all other funds and moneys held by it; and will administer such fund as provided in the Trust
Agreement. Moneys to be used for prepayment of the Certificates will be deposited into the Prepayment Fund
and used solely for the purpose of prepaying the Certificates in advance of their maturity on the date
designated for prepayment and upon presentation and surrender of such Certificates to the Trustee.
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Surplus
Any funds remaining in the Prepayment Fund after prepayment and payment of all Certificates
Outstanding, including accrued interest and payment of any applicable fees and expenses to the Trustee
pursuant to the Trust Agreement and any other Additional Payments payable under the Lease or provision
made therefor satisfactory to the Trustee, and provision for any amounts required to be transferred to the
Rebate Fund pursuant to the Trust Agreement, will be withdrawn by the Trustee and remitted to the City.
LEASE PAYMENTS; LEASE PAYMENT FUND
Assignment of Rights in Lease
The Corporation has, pursuant to the Assignment Agreement, absolutely assigned and set over to the
Trustee certain of its rights in the Lease, including but not limited to all of the Corporation’s rights to receive
and collect all of the Lease Payments, the Prepayments and all other amounts required to be deposited in the
Lease Payment Fund pursuant to the Lease or pursuant to the Trust Agreement. All Lease Payments,
Prepayments and such other amounts to which the Corporation may at any time be entitled (other than amounts
due to the Corporation under the Lease) are to be paid directly to the Trustee, and all of the Lease Payments
and Prepayments collected or received by the Corporation are to be deemed to be held and to have been
collected or received by the Corporation as the agent of the Trustee and if received by the Corporation at any
time are to be deposited by the Corporation with the Trustee within five (5) Business Days after the receipt
thereof, and all such Lease Payments are to be deposited by the Trustee upon the receipt thereof in the Lease
Payment Fund, all such Prepayments are to be deposited by the Trustee upon the receipt thereof in the
Prepayment Fund.
Security Interest in Moneys and Funds
Under the Trust Agreement, the Corporation and the City, as their interests may appear, grant to the
Trustee for the benefit of the Owners of the Certificates a lien on and a security interest in all moneys in the
following funds or accounts held by the Trustee under the Trust Agreement (excepting only the Rebate Fund
and any moneys to be deposited into the Rebate Fund), including, without limitation, the Lease Payment Fund,
the Prepayment Fund and the Net Proceeds Fund, and all such moneys are to be held by the Trustee in trust
and applied to the purposes specified in the Trust Agreement and in the Lease.
Pledge of Lease Payments and Proceeds
The Lease Payments are by the Trust Agreement irrevocably pledged to and will be used for the
punctual payment of the interest and principal represented by the Certificates (and Additional Certificates to
the extent provided in a Supplemental Agreement). Any proceeds from the re-letting or any other disposition
of the Leased Premises pursuant to the Lease (referred to in the Trust Agreement as the “Lease Proceeds”) are
by the Trust Agreement irrevocably pledged equally to the Certificates and any Additional Certificates.
Except as permitted under the Trust Agreement with respect to Additional Certificates, the Lease Payments
and Lease Proceeds will not be used for any other purpose while any of the Certificates remain Outstanding.
This pledge will constitute a first lien on the Lease Payments and Lease Proceeds in accordance with the terms
of the Trust Agreement.
Establishment of Lease Payment Fund
The Trustee will establish a special fund designated as the “City of Cupertino (2020A Certificates)
Lease Payment Fund,” referred to in the Trust Agreement as the “Lease Payment Fund.” All moneys at any
time deposited by the Trustee in the Lease Payment Fund will be held by the Trustee in trust for the benefit of
the Owners of the Certificates. So long as any Certificates are Outstanding, neither the City nor the
Corporation will have any beneficial right or interest in the Lease Payment Fund or the moneys deposited
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therein, except only as provided in the Trust Agreement, and such moneys will be used and applied by the
Trustee as set forth in the Trust Agreement.
Deposits
There will be deposited in the Lease Payment Fund all Lease Payments and in the Prepayment Fund
all Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein
pursuant to the Lease, or pursuant to the Trust Agreement, which moneys will be applied as a credit towards
any Lease Payment then due.
Application of Moneys
Except as provided in the Trust Agreement, all amounts in the Lease Payment Fund will be used and
withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the
Certificates as the same will become due and payable, in accordance with the provisions of the Trust
Agreement.
On or before each Interest Payment Date, the Trustee will set aside an amount sufficient to pay the
interest becoming due and payable on such Interest Payment Date on all Outstanding Certificates and
Additional Certificates. Moneys so set aside will be used and withdrawn by the Trustee solely for the purpose
of paying the interest with respect to the Certificates as it will become due and payable (including, accrued
interest with respect to any Certificates prepaid prior to maturity).
On or before each Interest Payment Date on which the principal of the Certificates will be payable, the
Trustee will set aside an amount equal to (i) the principal amount of the Certificates and Additional Certificates
coming due and payable on such Interest Payment Date pursuant to the Trust Agreement, (ii) the prepayment
price of the Certificates and Additional Certificates (consisting of the principal amount thereof and any
applicable premiums) required to be prepaid on such Interest Payment Date pursuant to any of the provisions
of the Trust Agreement. Moneys so set aside will be used and withdrawn by the Trustee solely for the purpose
of (i) paying the principal of the Certificates and Additional Certificates at the maturity thereof, or (ii) paying
the principal of and premium (if any) on any Certificates and Additional Certificates upon the prepayment
thereof pursuant to the Trust Agreement.
Surplus
Any funds remaining in the Lease Payment Fund after payment of all Certificates Outstanding,
including accrued interest and payment of any applicable fees to the Trustee pursuant to the Trust Agreement
and any other Additional Payments due under the Lease, or provision made therefor satisfactory to the Trustee,
and provision for any amounts required to be transferred to the Rebate Fund pursuant to the Trust Agreement,
will be withdrawn by the Trustee and remitted to the City.
NET PROCEEDS FUND
Establishment of Net Proceeds Fund: Deposits
The Trustee will establish when required a special fund designated as the “City of Cupertino (2020A
Certificates) Net Proceeds Fund,” referred to in the Trust Agreement as the “Net Proceeds Fund,” to be
maintained and held in trust for the benefit of the Owners, subject to disbursement therefrom as provided in the
Trust Agreement. The Trustee will deposit Net Proceeds in the Net Proceeds Fund as provided in the Lease.
Casualty Insurance. The Trustee will disburse Net Proceeds for replacement or repair of the Leased
Premises as provided in the Lease, or transfer such proceeds to the Prepayment Fund upon notification of the
City Representative as provided in the Lease. Pending such application, such Net Proceeds may be invested
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by the Trustee as directed by the City Representative in Permitted Investments that mature not later than such
times moneys are expected to be needed to pay such costs of repair or replacement. After all of the Certificates
have been paid and the entire amount of principal and interest with respect to the Certificates has been paid in
full, or provision made for payment satisfactory to the Trustee, including provision for all amounts required to
be transferred to the Rebate Fund pursuant to the Trust Agreement, the Trustee will pay any remaining moneys
in the Net Proceeds Fund to the City after payment of any amounts due to the Trustee pursuant to the Trust
Agreement and any other Additional Payments due under the Lease.
Title Insurance. Proceeds of any policy of title insurance received by the Trustee with respect to the
Leased Premises will be applied and disbursed by the Trustee upon the written request of the City as follows:
(a) If the City determines that the title defect giving rise to such proceeds has not
substantially interfered with its use and occupancy of the Leased Premises and will not result in an
abatement of Lease Payments and Additional Payments payable by the City under the Lease (such
determination to be certified by the City in writing), such proceeds will be remitted to the City and
used for any lawful purpose thereof; or
(b) If the City determines that the title defect giving rise to such proceeds has
substantially interfered with its use and occupancy of the Leased Premises and will result in an
abatement of Lease Payments and Additional Payments payable by the City under the Lease (such
determination to be certified by the City Representative in writing); then the Trustee will immediately
deposit such proceeds in the Prepayment Fund and such proceeds will be applied to the prepayment of
Certificates in the manner provided in the Trust Agreement.
Cooperation. The Corporation and the Trustee will cooperate fully with the City at the expense of the
City in filing any proof of loss with respect to any insurance policy maintained pursuant to the Lease and in the
prosecution or defense of any prospective or pending condemnation proceeding with respect to the Leased
Premises or any item or portion thereof; provided, however, the Trustee will not be obligated to take any action
under the Trust Agreement if it is not indemnified to its satisfaction from and against any liability or expense
arising therefrom.
MONEYS IN FUNDS; INVESTMENT
Held in Trust
The moneys and investments held by the Trustee under the Trust Agreement, other than in the Rebate
Fund, are irrevocably held in trust for the benefit of the respective Owners and, in the case of the Rebate Fund,
for payment as required to the United States Treasury, and for the purposes in the Trust Agreement, and such
moneys, and any income or interest earned thereon, will be expended only as provided in the Trust Agreement,
and will not be subject to levy or attachment or lien by or for the benefit of any creditor of the Corporation, the
Trustee or the City, or any of them.
Investments Authorized
By Trustee. Subject to the further provisions of the Trust Agreement, moneys held by the Trustee
under the Trust Agreement will be invested and reinvested on maturity thereof by the Trustee pursuant to the
Trust Agreement. The Trustee will report any such investments to the City on a monthly basis in its regular
statements.
Upon Direction of the City. The City Representative will direct by electronic mail, to the designated
trust officer responsible for the administration of the Trust Agreement, followed by oral notification and
distribution by U.S. Mail or overnight courier service of such notice, such investment in specific Permitted
Investments not less than two Business Days prior to the date that such Permitted Investment is to take effect.
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Such investments and reinvestments will be made giving full consideration for the time at which funds are
required to be available based upon, among other things, scheduled completion of the various components of
the Project. In the event that the City Representative does not so direct the Trustee, the Trustee will hold such
funds uninvested.
Investments purchased with funds on deposit in the Lease Payment Fund and Prepayment Fund are to
mature not later than the Interest Payment Date or prepayment date, as appropriate, immediately succeeding
the investment. Investments instructed by the City Representative to be purchased with funds on deposit in the
Delivery Cost Fund will mature not later than the dates upon which such funds will be needed to be expended
for the payment of Delivery Costs. The Trustee may conclusively rely upon the written instructions of the City
Representative as to both the suitability and legality of the directed investments.
Registration. Such investments, if registrable, will be registered in the name of the Trustee for the
benefit of the Owners and held by the Trustee or its nominee.
Trustee as Purchaser or Agent. The Trustee may purchase or sell to itself or any affiliate, as principal
or agent, investments authorized by the Trust Agreement. The Trustee may act as purchaser or agent in the
making or disposing of any investment. The Trustee or any of its affiliates may act as a sponsor of, or as an
advisor to any provider of, Permitted Investments under the Trust Agreement. The City and the Corporation
acknowledge that, to the extent regulations of the Comptroller of the Currency or other applicable regulatory
entity grant the City and the Corporation the right to receive brokerage confirmations of security transactions
as they occur, the City and the Corporation specifically waive receipt of such confirmations to the extent
permitted by law. The Trustee will furnish the City periodic cash transaction statements which include detail
for all investment transactions made by the Trustee under the Trust Agreement.
Trustee Standard of Care. Except as otherwise provided in the Trust Agreement, the Trustee will not
be responsible or liable for any consequences of any investment of funds or sale of such investment made by it
in accordance with the Trust Agreement or disposition made by it in accordance with the Trust Agreement.
Crediting of Investments
Except as otherwise provided in the Trust Agreement, any income, profit or loss on the investment of
moneys held by the Trustee under the Trust Agreement will be credited to the respective fund for which it is
held.
Accounting
The Trustee will furnish to the City, not less than monthly, an accounting (which may be in the form
of its regular statements) of all investments made by the Trustee and all funds and amounts held by the
Trustee; provided, that the Trustee will not be obligated to deliver an accounting for any fund or account that
(i) has a balance of zero and (ii) has not had any activity since the last reporting date. The Trustee will keep
accurate records of all funds administered by it and of all Certificates paid and discharged.
Valuation and Disposition of Investments
Valuation. Subject to the provisions of the Trust Agreement, for the purpose of determining the
amount in any fund, all Permitted Investments (except investment agreements) credited to such fund will be
valued at the lower of the cost or the market price, exclusive of accrued interest. With respect to all funds and
accounts, investments will be valued by the Trustee not less often than annually or more often than monthly.
In making any such valuations, the Trustee may utilize, and conclusively rely upon such valuation services as
may be available to the Trustee, including those within its regular accounting system.
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Disposition. Subject to the provisions of the Trust Agreement, the Trustee will sell, or present for
prepayment, any Permitted Investment so purchased by the Trustee whenever it will be necessary in order to
provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which
such Permitted Investment is credited.
Commingling of Moneys in Funds
The Trustee may, and upon the written request of the City Representative will, commingle any of the
funds held by it pursuant to the Trust Agreement into a separate fund or funds for investment purposes only;
provided, however, that all funds or accounts held by the Trustee under the Trust Agreement will be accounted
for separately notwithstanding such commingling by the Trustee. The City will ensure that any such
commingling complies with Section 1.148-4 of the Treasury Regulations, and will provide direction to the
Trustee accordingly. In no event will the Trustee have any duty or obligation, at any time and in any manner
to monitor compliance with any governmental regulations relating to commingling of accounts.
Tax Covenants
General. The City and the Corporation have covenanted pursuant to the Trust Agreement with the
Owners of the Certificates that, notwithstanding any other provisions of the Trust Agreement, they will not
take any action, or fail to take any action, if any such action or failure to take action would adversely affect the
exclusion from gross income of interest component evidenced by the Certificates under Section 103 of the
Code. The City and the Corporation (to the extent that the Corporation may have control over the Project or
the proceeds of the Certificates) will not, directly or indirectly, use or permit the use of proceeds of the
Certificates or the Project, or any portion thereof, by any person other than a governmental unit (as such term
is used in Section 141 of the Code), in such manner or to such extent as would result in the loss of exclusion
from gross income for federal income tax purposes of the interest components evidenced by the Certificates.
Use of Proceeds. The City and the Corporation (to the extent that the Corporation may have control
over the Project or the proceeds of the Certificates) will not take any action, or fail to take any action, if any
such action or failure to take action would cause the Lease Payments evidenced by Certificates to be “private
activity bonds” within the meaning of Section 141 the Code, and in furtherance thereof, will not make any use
of the proceeds of the Certificates or the Project, or any portion thereof, or any other funds of the City, that
would cause the Lease Payments evidenced by the Certificates to be “private activity bonds” within the
meaning of Section 141 of the Code. To that end, so long as any Certificates evidencing Lease Payments are
outstanding, the City and the Corporation, with respect to such proceeds, and the Project will comply with
applicable requirements of the Code and all regulations of the United States Department of the Treasury issued
under the Trust Agreement and under Section 103 of the Code, to the extent such requirements are, at the time,
applicable and in effect. The City will establish reasonable procedures necessary to ensure continued
compliance with Section 141 of the Code and the continued qualification of the Lease Payments evidenced by
the Certificates as “governmental bonds.”
Arbitrage. The City and the Corporation (to the extent that the Corporation may have control over the
Project or the proceeds of the Certificates) will not, directly or indirectly, use or permit the use of any proceeds
of any Certificates, or of the Project, or other funds of the City, or take or omit to take any action, that would
cause the Lease Payments evidenced by the Certificates to be “arbitrage bonds” within the meaning of Section
148 of the Code. To that end, the City and the Corporation will comply with all requirements of Section 148
of the Code and all regulations of the United States Department of the Treasury issued under the Trust
Agreement to the extent such requirements are, at the time, in effect and applicable to the Lease Payments
evidenced by the Certificates.
Federal Guarantee. The City and the Corporation (to the extent that the Corporation may have control
over the proceeds of the Certificates) will not make any use of the proceeds of the Certificates or any other
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funds of the City, or take or omit to take any other action, that would cause the Lease Payments evidenced by
the Certificates to be “federally guaranteed” within the meaning of Section 149(b) of the Code.
Compliance with Tax Certificate. In furtherance of the foregoing tax covenants of the Trust
Agreement, the City covenants that it will comply with the provisions of the Tax Certificate, which is
incorporated in the Trust Agreement as if fully set forth in the Trust Agreement. These covenants will survive
payment in full or defeasance of the Certificates.
Rebate Fund
The Trustee will establish a special fund designated the “City of Cupertino (2020A Certificates)
Rebate Fund” (the “Rebate Fund”). Absent an opinion of Special Counsel that the exclusion from gross
income for federal income tax purposes of the interest component evidenced by the Certificates will not be
adversely affected, the City will cause to be deposited in the Rebate Fund such amounts as are required to be
deposited therein pursuant to the provisions of the Trust Agreement and the Tax Certificate. All amounts at
any time on deposit in the Rebate Fund will be held by the Trustee in trust, to the extent required to satisfy the
requirement to make rebate payments to the United States of America (the “Rebate Requirement”) pursuant to
the Section 148 of Code and the Treasury Regulations promulgated thereunder (the “Treasury Regulations”).
Such amounts will be free and clear of any lien under the Trust Agreement and will be governed by the Trust
Agreement and by the Tax Certificate executed by the City. The Trustee will be deemed conclusively to have
complied with the Rebate Requirement and the Tax Certificate if it follows the directions of the City, and will
have no independent responsibility to, or liability resulting from its failure to, enforce compliance by the City
with the Rebate Requirement. The Trustee will have no responsibility to independently make any calculation
or determination or to review the City’s calculations.
(i) Within forty-five (45) days after the end of the fifth (5th) Certificate Year and each
fifth Certificate Year thereafter, (1) the City will calculate or cause to be calculated with respect to the
Certificates the amount that would be considered the “rebate amount” within the meaning of
Section 1.148-3 of the Treasury Regulations, and (2) the City will transfer to the Trustee for deposit in
the Rebate Fund, if and to the extent required, amounts sufficient to cause the balance in the Rebate
Fund to be equal to the “rebate amount” so calculated.
(ii) The City will not be required to deposit any amount to the Rebate Fund in
accordance with preceding sentence if the amount on deposit in the Rebate Fund prior to the deposit
required to be made under the Trust Agreement equals or exceeds the “rebate amount” calculated in
accordance with the Trust Agreement. Such excess may be withdrawn from the Rebate Fund to the
extent permitted under the Trust Agreement.
(iii) The City will not be required to calculate the “rebate amount,” and will not be
required to deposit any amount to the Rebate Fund in accordance with the Trust Agreement, with
respect to all or a portion of the proceeds of the Certificates (including amounts treated as proceeds of
the Certificates) (1) to the extent such proceeds satisfy the expenditure requirements of Section
148(f)(4)(B) or Section 148(f)(4)(C) of the Code or Section 1.148-7(d) of the Treasury Regulations,
whichever is applicable, and otherwise qualify for the exception to the Rebate Requirement pursuant
to whichever of said sections is applicable, (2) to the extent such proceeds are subject to an election by
the City under Section 148(f)(4)(C)(vii) of the Code to pay a one and one-half percent (1½%) penalty
in lieu of arbitrage rebate in the event any of the percentage expenditure requirements of Section
148(f)(4)(C) are not satisfied, or (3) to the extent such proceeds qualify for the exception to arbitrage
rebate under Section 148(f)(4)(A)(ii) of the Code for amounts in a “bona fide debt service fund.”
Withdrawal Following Payment of Certificates. Any funds remaining in the Rebate Fund after the
payment or prepayment of all the Certificates and any amounts described in the Trust Agreement, or provision
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made therefor satisfactory to the Trustee, including accrued interest and payment of any applicable fees and
expenses to the Trustee, will be withdrawn by the Trustee and remitted to the City.
Withdrawal for Payment of Rebate. Upon the City’s written direction, but subject to the exceptions
contained in the Trust Agreement to the requirement to calculate the “rebate amount” and make deposits to the
Rebate Fund, the Trustee will pay to the United States of America, from amounts on deposit in the Rebate
Fund, (i) not later than sixty (60) days after the end of (1) the fifth Certificate Year, and (2) each fifth (5th)
Certificate Year thereafter, an amount that, together with all previous rebate payments, is equal to at least
ninety percent (90%) of the “rebate amount” calculated as of the end of such Certificate Year in accordance
with Section 1.148-3 of the Treasury Regulations; and (ii) not later than sixty (60) days after the payment of all
Certificates, an amount equal to one hundred percent (100%) of the “rebate amount” calculated as of the date
of such payment (and any income attributable to the “rebate amount” determined to be due and payable) in
accordance with Section 1.148-3 of the Treasury Regulations.
Rebate Payments. Each payment required to be made pursuant to the Trust Agreement will be made
to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is
due, and will be accompanied by Internal Revenue Service Form 8038-T, which will be completed by the
arbitrage rebate consultant for execution by the City and provided to the Trustee.
Deficiencies in the Rebate Fund. In the event that, prior to the time any payment is required to be
made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such
payment is due, the City will calculate the amount of such deficiency and direct the Trustee to deposit an
amount received from the City equal to such deficiency into the Rebate Fund prior to the time such payment is
due.
Withdrawals of Excess Amounts. In the event that immediately following the calculation required by
the Trust Agreement, but prior to any deposit made thereunder, the amount on deposit in the Rebate Fund
exceeds the “rebate amount” calculated in accordance with the Trust Agreement, upon written instructions
from the City, the Trustee will withdraw the excess from the Rebate Fund and credit such excess to the Lease
Payment Fund.
Record Keeping. The City will retain records of all determinations made under the Trust Agreement
until six years after the complete retirement of the Certificates.
Survival after Defeasance. Notwithstanding anything in the Trust Agreement to the contrary, the
Rebate Requirement will survive the payment in full or defeasance of the Certificates.
THE TRUSTEE
Appointment of Trustee
Appointment. The Bank of New York Mellon Trust Company, N.A., a national banking association
organized under the laws of the United States of America, has been appointed Trustee by the Corporation and
the City.
Qualifications. The Corporation and the City agree that they will maintain a Trustee having a
corporate trust office in New York, New York, San Francisco, California, Santa Ana, California, or Los
Angeles, California capable of exercising trust powers in the State of California, with a combined capital
(exclusive of borrowed capital) and a surplus of at least Fifty Million Dollars ($50,000,000), or be a member
of a bank holding company system, which will have a combined capital and surplus of at least Fifty Million
Dollars ($50,000,000), and subject to supervision or examination by federal or state authority, so long as any
Certificates are Outstanding. If such bank, national banking association, corporation or trust company
publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or
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examining authority above referred to then for the purpose of the Trust Agreement the combined capital and
surplus of such bank, national banking association, corporation or trust company will be deemed to be its
combined capital and surplus as set forth in its most recent report of condition so published.
Removal. So long as there is no Event of Default, with 30 days prior notice the City, may remove the
Trustee initially appointed, and any successor thereto, and may appoint a successor or successors thereto.
Resignation. The Trustee may, upon written notice to the City and the Corporation, resign; provided
that such resignation will not take effect until the successor Trustee is appointed as provided in the Trust
Agreement. Upon receiving such notice of resignation, the City will promptly appoint a successor Trustee. In
the event the City does not name a successor Trustee within thirty (30) days after receipt of notice of the
Trustee’s resignation, then the Trustee may petition a federal or state court to seek the immediate appointment
of a successor Trustee and be reimbursed by the City for all costs incurred in connection therewith.
Successor. Any successor Trustee will be a bank, national banking association, corporation or trust
company meeting the qualifications as set forth in the Trust Agreement. Any resignation or removal of the
Trustee and appointment of a successor Trustee will become effective upon acceptance of appointment by the
successor Trustee. Upon such acceptance, the successor Trustee will mail notice thereof to the Owners at their
respective addresses set forth on the Certificate registration books.
Merger or Consolidation
Any company or banking association into which the Trustee may be merged or converted or with
which it may be consolidated or any company resulting from any merger, conversion or consolidation to which
it is a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate
trust business, provided that such company will be eligible under the Trust Agreement, will be the successor to
the Trustee without the execution or filing of any paper or further act, anything in the Trust Agreement to the
contrary notwithstanding.
Protection of the Trustee
Reliance Upon Papers or Documents. The Trustee will be protected and will incur no liability in
acting or proceeding in good faith upon any resolution, notice, telegram, facsimile, request, consent, direction,
waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document which it in good
faith believes to be genuine and to have been passed or signed by the proper board or person or to have been
prepared and furnished pursuant to any of the provisions of the Trust Agreement, and the Trustee will be under
no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such
instrument, but may, in the absence of bad faith on its part, accept and rely upon the same as conclusive
evidence of the truth and accuracy of such statements. In the event the Trustee will make any investigation
into the content of any such certifications, the Trustee will not thereby be deemed to have expanded the scope
of its duties.
Reliance Upon Opinions of Counsel. The Trustee may consult with its counsel or counsel to the City
with regard to legal questions and the opinion of such counsel will be full and complete authorization and
protection in respect of any action taken or suffered by it under the Trust Agreement in good faith in
accordance therewith. Before being required to take any action, the Trustee may require an opinion of
Independent Counsel acceptable to the Trustee which opinion will be made available to the other parties to the
Trust Agreement upon request, which counsel may be counsel to any of the parties to the Trust Agreement, or
a verified certificate of any party to the Trust Agreement, or both, concerning the proposed action and the
opinion of such counsel will be full and complete authorization and protection in respect of any action taken by
the Trustee in reliance thereon and the City will promptly reimburse the Trustee for such costs.
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Reliance Upon Requested Certificates. Whenever in the administration of its duties under the Trust
Agreement, the Trustee deems it necessary or desirable that a matter be proved or established prior to taking or
suffering any action under the Trust Agreement, such matter (unless other evidence in respect thereof be
specifically prescribed in the Trust Agreement), in the absence of bad faith on its part, will be deemed to be
conclusively proved and established by the certificate of the City Representative or the Corporation
Representative and such certificate will be full warranty to the Trustee for any action taken or suffered under
the provisions of the Trust Agreement in reliance thereon, but in its discretion the Trustee may, in lieu thereof,
accept other evidence of such matter or may require such additional evidence as to it may seem reasonable,
provided however that the duties and obligations of the Trustee will not be deemed expanded thereby.
Rights of the Trustee
Ownership of Certificates. The Trustee may become an Owner with the same rights it would have if it
were not Trustee; may acquire and dispose of other bonds or evidence of indebtedness of the City with the
same rights it would have if it were not the Trustee; and may act as a depository for and permit any of its
officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to
protect the rights of Owners, whether or not such committee will represent the Owners of the majority in
principal amount of the Certificates then Outstanding.
Attorneys, Agents, Receivers. The Trustee may execute any of the trusts or powers and perform the
duties required of it under the Trust Agreement by or through attorneys, agents, or receivers, will not be
responsible for the actions or omissions of such attorneys, agents or receivers if appointed by it with
reasonable care, and will be entitled to advice of counsel concerning all matters of trust and its duty under the
Trust Agreement.
Funds and Accounts. In addition to the funds and accounts established or required to be established
pursuant to the Trust Agreement, the Trustee may establish such additional funds and accounts as it deems
necessary or appropriate to perform its duties under the Trust Agreement, and will have the right to close such
accounts in its discretion.
Standard of Care. The Trustee will not be liable in connection with the performance of its duties
under the Trust Agreement, except for its own negligence or willful misconduct. The Trustee will only
perform those duties specifically set forth in the Trust Agreement and no implied duties, covenants or
obligations whatsoever will be read into the Trust Agreement. In the event of and during the continuance of an
Event of Default, the Trustee will exercise such care in performing its duties under the Trust Agreement as a
prudent person would exercise under the circumstances in the conduct of its own affairs. No action by the
Trustee will be construed or deemed to expand the limitation on the scope of the Trustee’s duties. The Trustee
will not be considered in breach of or in default in its obligations under the Trust Agreement in the event of a
delay in the performance of such obligations due to unforeseeable causes beyond its control and without its
fault or negligence, including, but not limited to, acts of God or of the public enemy or terrorists, acts of
government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes,
earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor,
equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration
involving a party or others relating to zoning or other governmental action or inaction pertaining to the Leased
Premises, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or
subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee.
Compensation of the Trustee. As an Additional Payment under the Lease, the City will, from time to
time, pay such amounts as are specified in any written agreement with the City and, on demand, pay to the
Trustee to the extent not covered by such agreement reasonable compensation for its services and the services
of any accountants, consultants, attorneys and other experts as may be engaged by the Trustee to provide
services under the Trust Agreement pursuant to a written agreement between the City and the Trustee. Further,
in the event of a default under the Trust Agreement, the City agrees that the Trustee’s fees and costs will be
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deemed to be a substantial contribution to the trust and bankruptcy estate, if applicable. Upon an Event of
Default, and only upon an Event of Default, the Trustee will have a first right of payment prior to payment on
account of principal of and premium, if any, and interest on any Bond, upon the trust estate for the foregoing
fees, charges and expenses incurred by it, all in accordance with the Trust Agreement. The City’s obligation
under the Trust Agreement will remain valid and binding notwithstanding maturity and payment of the
Certificates or resignation and removal of the Trustee.
Indemnification of Trustee. The City will, to the extent permitted by law, indemnify and save the
Trustee and its officers, directors, agents, and employees harmless from and against (whether or not litigated)
all claims, losses, costs, expenses, liability and damages, including legal fees and expenses, arising out of
(i) the use, maintenance, condition or management of, or from any work or thing done on, the Leased Premises
by the City, (ii) any breach or default on the part of the City in the performance of any of its obligations under
the Trust Agreement and any other agreement made and entered into for purposes of the Leased Premises,
(iii) any act of the City or of any of its agents, contractors, servants, employees or licensees with respect to the
Leased Premises, (iv) any act of any assignee of, or purchaser from, the City or of any of its or their agents,
contractors, servants, employees or licensees with respect to the Leased Premises, (v) the exercise and
performance by the Trustee of its powers and duties under the Trust Agreement or any related document,
(vi) the sale of the Certificates and the carrying out of any of the transactions contemplated by the Certificates
or the Trust Agreement, or (vii) any untrue statement or alleged untrue statement of any material fact or
omission or alleged omission to state a material fact necessary to make the statements made in light of the
circumstances in which they were made, not misleading in any official statement or other disclosure document
utilized in connection with the sale of the Certificates. The indemnification set forth in the Trust Agreement
will extend to the Trustee’s officers, agents, employees, successors and assigns. No indemnification will be
made in the Trust Agreement or other agreements for willful misconduct or negligence by the Trustee, its
officers, agents, employees, successors or assigns. The City’s obligations under the Trust Agreement will
remain valid and binding notwithstanding maturity and payment of the Certificates, or the resignation or
removal of the Trustee.
In accepting the trust created by the Trust Agreement, the Trustee acts solely as Trustee for the
Owners and not in its individual capacity, and all persons, including, without limitation, the Owners,
Corporation and City, having any claim against the Trustee arising from the Trust Agreement will look only to
the funds and accounts held by the Trustee under the Trust Agreement for payment, except as otherwise
provided in the Trust Agreement or where the Trustee has breached its standard of care as described in the
Trust Agreement. Under no circumstances will the Trustee be liable in its individual capacity for the
obligations evidenced by the Certificates.
No provision of the Trust Agreement will require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of its duties under the Trust Agreement or in the
exercise of any of its rights or powers.
The Trustee will not be liable with respect to any action taken or omitted to be taken by it in good
faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount
of the Certificates at the time Outstanding relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee or in the exercise of any right under the Trust Agreement. In the event
of conflicting instructions under the Trust Agreement, the Trustee will have the right to decide the appropriate
course of action and be protected in so doing.
The Trustee is authorized and directed to execute, in its capacity as Trustee, the Assignment
Agreement.
Every provision of the Trust Agreement, the Lease, the Site Lease and the Assignment Agreement
relating to the conduct or liability of the Trustee will be subject to the provisions of the Trust Agreement.
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The Trustee will have no responsibility or liability with respect to any information, statement or recital
in any official statement, offering memorandum or any other disclosure material prepared or distributed in any
respect relating to the Certificates.
The Trustee will not to be deemed to have knowledge of any Event of Default under the Trust
Agreement or under the Lease unless it has actual knowledge thereof at its Principal Office.
Before taking any action under the Trust Agreement at the request of the Owners, the Trustee may
require that a satisfactory indemnity bond be furnished by the Owners for the reimbursement of all expenses to
which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted
from its negligence or willful misconduct in connection with any action so taken.
The permissive right of the Trustee to do things enumerated in the Trust Agreement will not be
construed as a duty and it will not be answerable for other than its negligence or willful misconduct.
The Trustee will not be responsible for or accountable to anyone for the subsequent use or application
of any moneys which will be released or withdrawn in accordance with the Trust Agreement.
The Trustee will have no duty to review, verify, or analyze any financial statements furnished to it by
the District, and will hold such financial statements solely as a repository for the Owners. The Trustee will not
be deemed to have notice of any information contained therein or any default or Event of Default that may be
disclosed therein in any manner.
Trustee’s Disclaimer of Warranties. THE TRUSTEE MAKES NO WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE
CONTEMPLATED BY THE CITY OF THE LEASED PREMISES, OR ANY PORTION THEREOF. THE
CITY ACKNOWLEDGES THAT THE CITY IS LEASING THE LEASED PREMISES AS IS. In no event
will the Trustee be liable for incidental, indirect, special or consequential damages, in connection with or
arising out of the Lease, the Site Lease, the Assignment Agreement or the Trust Agreement for the existence,
furnishing, functioning or the City’s use and possession of the Leased Premises.
MODIFICATION OR AMENDMENT OF AGREEMENTS
Amendments Permitted
With Consent. The Trust Agreement and the rights and obligations of the Owners, and the Lease and
the rights and obligations of the parties thereto, may be modified or amended at any time, with notice to any
rating agency then rating the Certificates, by a Supplemental Agreement or amendment thereto which will
become effective when the written consents of the Owners of a majority in aggregate principal amount of the
Certificates then Outstanding, exclusive of Certificates disqualified as provided in the Trust Agreement, will
have been filed with the Trustee. No such modification or amendment will:
(a) extend or have the effect of extending the maturity of any Certificate or reducing the
fixed interest rate with respect thereto or extending the time of payment of interest, or reducing the
amount of principal thereof or reducing any premium payable upon the prepayment thereof, without
the express consent of the Owner of such Certificates being affected, or
(b) reduce or have the effect of reducing the percentage of Certificates required for the
affirmative vote or written consent to an amendment or modification of the Lease, or
(c) modify any of the rights or obligations of the Trustee without its written assent
thereto, or
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(d) amend the provisions of the Trust Agreement dealing with permitted amendments
without the prior written consent of the Owners of all Certificates then outstanding.
The Trustee will have the right to require such opinions of counsel as it deems necessary
concerning (i) the lack of material adverse effect of the amendment on Owners, (ii) the fact that the
amendment will not affect the tax status of interest with respect to the Certificates or any Additional
Certificates, and (iii) such modification or amendment is authorized or permitted by the terms of the
Trust Agreement. Any such Supplemental Agreement or amendments thereto will become effective
as provided in the Trust Agreement.
Without Consent. The Trust Agreement and the rights and obligations of the Owners, and the Lease
and the rights and obligations of the parties thereto, may be modified or amended at any time by a
Supplemental Agreement or amendments thereto without the consent of any such Owners, but only to the
extent permitted by law and only:
(a) to add to the covenants and agreements of the City under the Trust Agreement,
(b) to cure, correct or supplement any ambiguous or defective provision contained in the
Trust Agreement or in the Lease,
(c) in regard to matters arising under the Trust Agreement or under the Lease
Agreement, as the parties thereto may deem necessary or desirable, will not adversely affect the
interest of the Owners,
(d) to substitute the Leased Premises, or a portion thereof, in accordance with the Lease,
(e) to make such additions, deletions or modifications as may be necessary or
appropriate to assure the exclusion from gross income for federal income tax purposes of the interest
component of Lease Payments and the interest payable with respect to the Certificates,
(f) to add to the rights of the Trustee,
(g) to provide for the execution and delivery of Additional Certificates in accordance
with the provisions of the Trust Agreement.
No such modification or amendment, however, will modify and of the rights or obligation of the
Trustee without its written assent thereto. Any such Supplemental Agreement will become effective upon
execution and delivery by the parties to the Trust Agreement or thereto, as the case may be.
The Trustee will have the right to require such opinions of counsel as it deems necessary concerning
(i) the lack of material adverse effect of the amendment on Owners and (ii) the fact that the amendment will
not affect the tax status of interest with respect to the Certificates or any Additional Certificates. Any such
Supplemental Agreement or amendments thereto will become effective as provided in the Trust Agreement.
Procedure for Amendment with Written Consent of the Owners
In the event the consent of the Owners is required for an amendment to the Trust Agreement, the Trust
Agreement or the Lease may be amended by Supplemental Agreement, subject to the procedures set forth
below. A copy of the form of such Supplemental Agreement, together with a request to the Owners for their
consent thereto, will be mailed by the Trustee to each Owner of a Certificate at his address as set forth in the
Certificate registration books, but failure to receive copies of such Supplemental Agreement and request so
mailed will not affect the validity of the Supplemental Agreement when assented to as provided in the Trust
Agreement.
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Such Supplemental Agreement will not become effective unless there will be filed with the Trustee
the written consent of the Owners of at least a majority in aggregate principal amount of the Certificates then
Outstanding (exclusive of Certificates disqualified as provided in the Trust Agreement) and notices will have
been mailed as provided the Trust Agreement. Any such consent will be binding upon the Owner of the
Certificate giving such consent and on any subsequent Owner (whether or not such subsequent Owner has
notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent
Owner by filing such revocation with the Trustee prior to the date when further notice has been mailed as
provided in the Trust Agreement.
After the Owners of the required percentage of Certificates have filed their consent to such
Supplemental Agreement, the Trustee will mail a notice to the Owners of the Certificates in the manner
provided in the Trust Agreement for the mailing of such Supplemental Agreement, stating in substance that
such Supplemental Agreement has been consented to by the Owners of the required percentage of Certificates
and will be effective as provided in the Trust Agreement (but failure to mail copies of said notice will not
affect the validity of such Supplemental Agreement or consents thereto). A record, consisting of the papers
required by the Trust Agreement to be filed with the Trustee, will be proof of the matters therein stated until
the contrary is proved. The Trustee may obtain and conclusively rely on an opinion of counsel with regard to
such matters.
Disqualified Certificates
Certificates owned or held by or for the account of the City or the Corporation or by any person
directly or indirectly controlled or controlled by, or under direct or indirect common control with the City or
the Corporation (except any Certificates held in any pension or retirement fund) will not be deemed
Outstanding for the purpose of any vote, consent, waiver or other action or any calculation of Outstanding
Certificates provided for in the Trust Agreement, and will not be entitled to vote upon, consent to, or take any
other action provided for in the Trust Agreement.
The City or the Trustee may adopt appropriate regulations to require each Owner, before his consent
provided for in the Trust Agreement will be deemed effective, to reveal if the Certificates as to which such
consent is given are disqualified as provided in the Trust Agreement. Upon request of the Trustee, the City
and Corporation will specify to the Trustee those Certificates disqualified pursuant to the Trust Agreement and
the Trustee may conclusively rely on such certificate.
Effect of Supplemental Agreement
From and after the time any Supplemental Agreement becomes effective pursuant to the Trust
Agreement, the Trust Agreement or the Lease, as the case may be, will be deemed to be modified and amended
in accordance therewith, the respective rights, duties and obligations of the parties thereto and all Owners of
Certificates Outstanding, as the case may be, will thereafter be determined, exercised and enforced under the
Trust Agreement subject in all respects to such modification and amendment, and all the terms and conditions
of any Supplemental Agreement will be deemed to be part of the terms and conditions of the Trust Agreement
or the Lease, as the case may be, for any and all purposes.
Endorsement or Replacement of Certificates Delivered After Amendments
The City may determine that Certificates delivered after the effective date of any action taken as
provided in the Trust Agreement will bear a notation, by endorsement, in form approved by the City, as to such
action. In that case, upon demand of the Owner of any Outstanding Certificate at such effective date and
presentation of his Certificate for such purpose at the Principal Office, a suitable notation will be made on such
Certificate. The City may determine that new Certificates, so modified as in the opinion of the City is
necessary to conform to such Owner’s action, will be prepared, executed and delivered. In that case, upon
demand of the Owner of any Certificate then Outstanding, such new Certificate will be exchanged in the
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Principal Office without cost to such Owner, for a Certificate of the same character then Outstanding, upon
surrender of such Certificate.
Amendatory Endorsement of Certificates
Subject to the Trust Agreement, the provisions of the Trust Agreement will not prevent an Owner
from accepting any amendment as to the particular Certificates held by him, provided that due notification
thereof is made on such Certificates.
Copies of Amendments Delivered to Rating Agencies
Copies of any modifications or amendments to the Trust Agreement, the Lease, the Site Lease or the
Assignment Agreement will be delivered by the City to any rating agency then rating the Certificates at least
10 days prior to the effective date thereof.
COVENANTS
Compliance With and Enforcement of the Lease
The City has covenanted and agreed with the Owners to perform all obligations and duties imposed on
it under the Lease. The Corporation has covenanted and agreed with the Owners to perform all obligations and
duties imposed on it under the Lease.
The City will not do or permit anything to be done, or omit or refrain from doing anything, in any case
where any such act done or permitted to be done, or any such omission of or refraining from action, would or
might be a ground for cancellation or termination of the Lease by the Corporation thereunder. The
Corporation and the City, immediately upon receiving or giving any notice, communication or other document
in any way relating to or affecting their respective estates, or either of them, in the Leased Premises, which
may or can in any manner affect such estate of the City, will deliver the same, or a copy thereof, to the Trustee.
Payment of Taxes
The City will pay all taxes as provided in the Lease.
Observance of Laws and Regulations
The City will well and truly keep, observe and perform all valid and lawful obligations or regulations
imposed on it by contract, or prescribed by any law of the United States, or of the State, or by any officer,
board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and
every right, privilege or franchise owned or acquired by the City, including its right to exist and carry on
business as a municipal corporation, to the end that such rights, privileges and franchises will be maintained
and preserved, and will not become abandoned, forfeited or in any manner impaired.
Prosecution and Defense of Suits
The City will promptly, and also upon request of the Trustee or any Owner, from time to time take
such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Leased
Premises, and will prosecute all such suits, actions and other proceedings as may be appropriate for such
purpose.
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City Budgets
In accordance with the Lease, the City Representative will certify to the Trustee on or before August 1
of each year that the City has included in its annual budget all Lease Payments (other than Lease Payments of
advance rental) and Additional Payments (to the extent the amounts of such Additional Payments are known to
the City at the time its annual budget is proposed) due under the Lease in the Fiscal Year covered by its annual
budget and the amount so included. If the City fails to certify that it has included all such Lease Payments and
Additional Payments in such annual budget, the Trustee will promptly provide the City written notice
specifying that the City has failed to observe and perform its covenant and agreement in the Lease and
requesting that such failure be remedied within 30 days, or such failure will constitute an Event of Default
under the Lease. The Trustee will forward a copy of such notice to the Corporation. Upon receipt of such
notice, the City will notify the Trustee in writing of the proceedings proposed to be taken by the City, and will
keep the Trustee advised in writing of all proceedings thereafter taken by the City.
Further Assurances
The Corporation and the City will make, execute and deliver any and all such further resolutions,
instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate
the performance of the Trust Agreement, and for the better assuring and confirming unto the Owners the rights
and benefits provided in the Trust Agreement.
Continuing Disclosure
The City has covenanted and agreed that it will comply with and carry out all of the provisions of the
Continuing Disclosure Certificate. Notwithstanding any other provision of the Trust Agreement, failure of the
City to comply with the Continuing Disclosure Certificate will not be considered an Event of Default under the
Trust Agreement; however, any Owner or Beneficial Owner may take such actions as may be necessary and
appropriate, including seeking mandate or specific performance by court order, to cause the City to comply
with its obligations under the Trust Agreement and the Continuing Disclosure Certificate.
LIMITATION OF LIABILITY
Limited Liability of the City
Except for the payment of Lease Payments, Additional Payments and Prepayments when due in
accordance with the Lease and the performance of the other covenants and agreements of the City contained in
the Trust Agreement and in the Lease, the City will have no obligation or liability to any of the other parties to
the Trust Agreement or to the Owners with respect to the Trust Agreement or the terms, execution, delivery or
transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee.
No Liability of the City or Corporation for Trustee Performance
Except as expressly provided in the Trust Agreement, neither the City nor the Corporation will have
any obligation or liability to any other parties thereto or to the Owners with respect to the performance by the
Trustee of any duty imposed upon it under the Trust Agreement.
No Investment Advice. The Trustee will have no obligation or responsibility for providing
information to the Owners concerning the investment character of the Certificates.
Sufficiency of the Trust Agreement or Lease Payments. The Trustee makes no representations as to
the validity or sufficiency of the Certificates, will incur no responsibility or liability in respect thereof, other
than in connection with the duties or obligations in the Trust Agreement or in the Certificates assigned to or
imposed upon it. The Trustee will not be responsible or liable for the sufficiency or enforceability of the
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Lease, the Site Lease or the Assignment Agreement. The Trustee will not be liable for the sufficiency or
collection of any Lease Payments or other moneys required to be paid to it under the Lease (except as provided
in the Trust Agreement), its right to receive moneys pursuant to said Lease, or the value of or title to the
Leased Premises.
Actions of Corporation and City. The Trustee will have no obligation or liability to any of the other
parties or the Owners with respect to the Trust Agreement or failure or refusal of any other party to perform
any covenant or agreement made by any of them under the Trust Agreement or the Lease, but will be
responsible solely for the performance of the duties and obligations expressly imposed upon it under the Trust
Agreement.
Recitals and Agreements of Corporation and City. The recitals of facts, covenants and agreements in
the Trust Agreement and in the Certificates contained will be taken as statements, covenants and agreements of
the City or the Corporation (as the case may be), and the Trustee assumes no responsibility for the correctness
of the same.
Limitation of Rights to Parties and Certificate Owners
Nothing in the Trust Agreement or in the Certificates expressed or implied is intended or will be
construed to give any person other than the City, the Corporation, the Trustee and the Owners, any legal or
equitable right, remedy or claim under or in respect of the Trust Agreement or any covenant, condition or
provision of the Trust Agreement; and all such covenants, conditions and provisions are and will be for the
sole and exclusive benefit of the City, the Corporation, the Trustee and the Owners.
Except as expressly provided in the Trust Agreement, the Corporation will not have any obligation or
liability to the Owners with respect to the payment when due of the Lease Payments by the City or with respect
to the observance or performance by the City of the other agreements, conditions, and covenant imposed upon
the City by the Lease or by the Trust Agreement.
EVENTS OF DEFAULT AND REMEDIES OF CERTIFICATE OWNERS
Assignment of Rights
The parties to the Trust Agreement have acknowledged that pursuant to the Assignment Agreement
the Corporation has transferred, assigned and set over to the Trustee for the benefit of the Owners, certain of
the Corporation’s rights under the Lease.
Events of Default
Remedies. If an Event of Default occurs, then, and in each and every such case during the
continuance of such Event of Default, the Trustee may exercise any and all remedies available pursuant to law
or granted pursuant to the Lease; provided, however, that notwithstanding anything in the Trust Agreement or
in the Lease to the contrary, THERE WILL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO
ACCELERATE THE MATURITIES OF THE CERTIFICATES OR OTHERWISE TO DECLARE ANY
LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE.
Actual Knowledge. The Trustee will not be deemed to have knowledge of any Event of Default
unless and until the trust officer responsible for the administration of the Trust Agreement will have actual
knowledge thereof, or will have received written notice thereof at the Principal Office.
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Application of Funds
All moneys received by the Trustee pursuant to any right given or action taken under the provisions of
the Trust Agreement or the Lease, will be deposited into the Lease Payment Fund and be applied by the
Trustee after payment of all amounts due and payable to the Trustee pursuant to the Trust Agreement and the
Lease in the following order upon presentation of the Certificates, and the stamping thereon of the payment if
only partially paid, or upon the surrender thereof if fully paid -
First, Costs and Expenses: to the payment of the costs, fees and expenses of the Trustee in declaring
such Event of Default and in performing its duties and obligations under the Trust Agreement, including
reasonable compensation to its or their agents, attorneys and counsel and then to any such amounts incurred by
the Owners;
Second, Interest: to the payment to the persons entitled thereto of all installments of interest then due
in the order of the maturity of such installment, and, if the amount available is not sufficient to pay in full any
installment or installments maturing on the same date, then to the payment thereof ratably according to the
amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and
Third, Principal: to the payment to the persons entitled thereto of the unpaid principal with respect to
any Certificates which will have become due, whether at maturity or by call for prepayment, in the order of
their due dates, with interest on the overdue principal and interest at a rate equal to the rate paid with respect to
the Certificates and, if the amount available will not be sufficient to pay in full all the amounts due with respect
to the Certificates on any date, together with such interest, then to the payment thereof ratably, according to the
amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference.
Institution of Legal Proceedings
If one or more Events of Default will happen and be continuing, the Trustee may, and upon the written
request of the Owners of a majority in principal amount of the Certificates then Outstanding, and upon being
indemnified to its satisfaction therefor, will, proceed to protect or enforce its rights or the rights of the Owners
by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained
in the Trust Agreement or in the Lease, or in aid of the execution of any power in the Trust Agreement granted,
or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as
the Trustee will deem most effectual in support of any of its rights or duties under the Trust Agreement;
provided that such written request will not be otherwise than in accordance with provisions of law and the
Trust Agreement and that the Trustee will have the right to decline to follow any such written request if the
Trustee will be advised by counsel that the action or proceeding so requested may not be taken lawfully or if
the Trustee in good faith will determine that the action or proceeding so requested would be unjustly
prejudicial to the Certificate Owners not a party to such written request or expose the Trustee to liability. In no
event will counsel to the Trustee be deemed counsel to the Owners, and any communications between the
Trustee and its counsel will be deemed confidential and privileged.
Non-Waiver
Nothing in the Trust Agreement or in the Certificates will affect or impair the obligation of the City to
pay or prepay the Lease Payments as provided in the Lease. No delay or omission of the Trustee or of any
Owner of any of the Certificates to exercise any right or power arising upon the happening of any Event of
Default will impair any such right or power or will be construed to be a waiver of any such Event of Default or
an acquiescence therein, and every power and remedy given by the Trust Agreement to the Trustee or to the
Owners may be exercised from time to time and as often as will be deemed expedient by the Trustee or the
Owners.
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Remedies Not Exclusive
No remedy conferred or reserved to the Trustee or to the Owners in the Trust Agreement is intended
to be exclusive of any other remedy, and every such remedy will be cumulative and will be in addition to every
other remedy given under the Trust Agreement, at law or in equity or by statute or otherwise.
Power of Trustee to Control Proceedings
In the event that the Trustee, upon the happening of an Event of Default, will have taken any action,
by judicial proceedings or otherwise, pursuant to its duties under the Trust Agreement, whether upon its own
discretion or upon the request of the Owners of a majority in principal amount of the Certificates then
Outstanding, it will have full power, in the exercise of its discretion for the best interest of the Owners of the
Certificates, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other
disposal of such action; provided, however, that the Trustee will not, unless there no longer continues an Event
of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law
or in equity, if at the time there has been filed with it a written request signed by the Owners of at least a
majority in principal amount of the Outstanding Certificates under the Trust Agreement opposing such
discontinuance, withdrawal, compromise, settlement or other disposal of such litigation.
Limitation on Certificate Owners’ Right to Sue
No Owner of any Certificate executed under the Trust Agreement will have the right to institute any
suit, action or proceeding at law or in equity, for any remedy under or upon the Trust Agreement, unless
(a) such Owner will have previously given to the Trustee written notice of the occurrence of an Event of
Default under the Lease; (b) the Owners of a majority in aggregate principal amount of all the Certificates then
Outstanding will have made written request upon the Trustee to exercise the powers granted or to institute such
action, suit or proceeding in its own name; (c) said Owners will have tendered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the
Trustee will have refused or omitted to comply with such request for a period of 60 days after such written
request will have been received by, and said tender of indemnity will have been made to, the Trustee; and
(e) there has been a default in the payment of such Owner’s proportionate interest in the Lease Payments as the
same become due.
Such notification, request, tender of indemnity, refusal or omission, and default are, in every case, to
be conditions precedent to the exercise by any Owner of any remedy under the Trust Agreement; it being
understood and intended that no one or more Owners will have any right in any manner whatever by his or
their action to enforce any right under the Trust Agreement, except in the manner provided in the Trust
Agreement and for the equal benefit of all Owners of the Outstanding Certificates.
The right of any Owner of any Certificate to receive payment of said Owner’s proportionate interest in
the Lease Payments as the same become due, or to institute suit for the enforcement of such payment, will not
be impaired or affected without the consent of such Owner, notwithstanding any provision of the Trust
Agreement.
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MISCELLANEOUS
Defeasance
Methods. If and when any Outstanding Certificates are paid and discharged in any one or more of the
following ways:
(i) Payment or Prepayment: by well and truly paying or causing to be paid the
principal, interest and prepayment premiums (if any) with respect to such Certificates Outstanding, as
and when the same become due and payable;
(ii) Cash: if prior to maturity by depositing with the Trustee, in trust, concurrent with
the giving of such notice, an amount of cash which (together with cash then on deposit in the Lease
Payment Fund together with the interest to accrue thereon, in the event of payment or provision for
payment of all Outstanding Certificates) is sufficient to pay such Certificates Outstanding, including
all principal and interest and premium, if any; or
(iii) Government Obligations: by irrevocably depositing with the Trustee, in trust,
Government Obligations together with cash, if required, in such amount as will, in the opinion of an
independent certified public accountant, together with interest to accrue thereon (and, in the event of
payment or provision for payment of all Outstanding Certificates, moneys then on deposit in the Lease
Payment Fund together with the interest to accrue thereon), be fully sufficient to pay and discharge
such Certificates (including all principal and interest represented thereby and prepayment premiums if
any) at or before their maturity or prepayment date;
and all other amounts due under the Trust Agreement have been paid in full, then, notwithstanding that any
Certificates will not have been surrendered for payment, all obligations of the Corporation, the Trustee and the
City with respect to such Certificates will cease and terminate, except only the obligation of the City and the
Corporation to comply with the Trust Agreement and the obligation of the Trustee to pay or cause to be paid,
from Lease Payments paid by or on behalf of the City from funds deposited pursuant to paragraphs (ii) and (iii)
above, to the Owners of the Certificates not so surrendered and paid all sums due with respect thereto, and in
the event of deposits pursuant to paragraphs (ii) and (iii) above, the Certificates will continue to represent
direct and proportionate interests of the Owners thereof in applicable Lease Payments under the Lease.
Surplus Moneys. Any funds held by the Trustee, at the time of payment or provision for payment of
all Outstanding Certificates pursuant to the one of the procedures described in the Trust Agreement, which are
not required for the payment to be made to the Owners, will be paid over to the City, after the payment of any
amounts due to the Trustee pursuant to the Trust Agreement and any other Additional Payments due under the
Lease.
Surviving Provisions. Notwithstanding the satisfaction and discharge of the Trust Agreement, the
Trustee will retain such rights, powers and privileges under the Trust Agreement as may be necessary or
convenient for the payment of the principal, interest and prepayment premium, if any, on the Certificates and
for the registration, transfer and exchange of the Certificates.
Opinions and Reports. Prior to any defeasance becoming effective, the City will cause to be delivered
(i) unless the defeasance is to be accomplished solely through a cash deposit, an executed copy of a report,
addressed to the Trustee and the City, in form and substance acceptable to the City of a nationally recognized
firm of certified public accountants, verifying that the Government Obligations and cash, if any, satisfy the
requirements of the Trust Agreement, (ii) a copy of the escrow deposit agreement entered into or refunding
instructions executed by the City in connection with such defeasance, and (iii) a copy of an opinion of Special
Counsel, dated the date of such defeasance and addressed to the Trustee and the City, in form and substance
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acceptable to the City, to the effect that such Certificates are no longer Outstanding under the Trust
Agreement.
Non-Presentment of Certificates. In the event any Certificate will not be presented for payment when
the principal with respect thereto becomes due, either at maturity, or at the date fixed for prepayment thereof, if
moneys sufficient to pay such Certificate will have been deposited in the Prepayment Fund or Lease Payment
Fund, as applicable, all liability of the City and the Trustee to the Owner thereof for payment of such
Certificate will forthwith cease, terminate and be completely discharged, and thereupon it will be the duty of
the Trustee to hold such moneys, without liability for interest thereon, for the benefit of the Owner of such
Certificate who will thereafter be restricted exclusively to such moneys, for any claim of whatever nature on
his or her part under the Trust Agreement or on, or with respect to, said Certificate.
Any moneys so deposited with and held by the Trustee not so applied to the payment of Certificates
within two years after the date on which the same will have become due will be paid by the Trustee to the City,
free from the trusts created by the Trust Agreement. Prior to forwarding any such moneys to the City, the
Trustee may publish notice of its intention to transfer such funds in The Bond Buyer or another financial
newspaper of general circulation in New York, New York. In addition, Trustee will be indemnified from and
against any and all liabilities to third parties resulting from its actions under the Trust Agreement. Thereafter,
Owners will be entitled to look only to the City for payment, and then only to the extent of the amount so
repaid by the Trustee. The City will not be liable for any interest on the sums paid to it pursuant to the
defeasance provisions of the Trust Agreement and will not be regarded as a trustee or trustees of such money.
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DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE
DEFINITIONS
Unless the context otherwise requires, the capitalized terms used below will, for all purposes of the
Lease, have the meanings specified in the Trust Agreement, together with any amendments thereof or
supplements thereto permitted to be made thereunder; and the additional terms defined in below will, for all
purposes of the Lease, have the meanings specified below. Unless the context otherwise indicates, words
importing the singular number will include the plural number and vice versa.
“Environmental Regulations” means all Laws and Regulations, now or later in effect, with respect to
Hazardous Materials, including, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended (42 U.S.C. Section 9601, et seq.) (together with the regulations
promulgated thereunder, “CERCLA”), the Resource Conservation and Recovery Act, as amended (42 U.S.C.
Section 6901, et seq.) (together with the regulations promulgated thereunder, “RCRA”), the Emergency
Planning and Community Right-to-Know Act, as amended (42 U.S.C. Section 11001, et seq.) (together with
the regulations promulgated thereunder, “Title III”), the Clean Water Act, as amended (33 U.S.C. Section 1321
et seq.) (together with the regulations promulgated thereunder, “CWA”), the Clean Air Act, as amended (42
U.S.C. Section 7401, et seq.) (together with the regulations promulgated thereunder, “CAA”) and the Toxic
Substances Control Act, as amended (15 U.S.C. Section 2601 et seq.) (together with the regulations
promulgated thereunder, “TSCA”), and any state or local similar laws and regulations and any so-called local,
state or federal “superfund” or “superlien” law.
“Interest Component” means the portion of each Lease Payment designated in the Lease as the Interest
Component.
“Leased Premises” means the site described in the Lease and any improvements thereon being leased
to the City by the Corporation under the Lease.
“Permitted Encumbrances” means, as of any particular time: (i) liens for general ad valorem taxes and
assessments, if any, not then delinquent, or which the City may, pursuant to provisions of the Lease, permit to
remain unpaid; (ii) the Assignment Agreement; (iii) the Lease; (iv) the Site Lease; (v) any contested right or
claim of any mechanic, laborer, materialman, supplier or vendor filed or perfected in the manner prescribed by
law to the extent permitted under the Lease; (vi) easements, rights of way, mineral rights, drilling rights and
other rights, reservations, covenants, conditions, liens or restrictions which exist of record as of the Delivery
Date, which the City certifies will not materially impair the use of the Leased Premises by the City; and
(vii) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants,
conditions or restrictions established following the date of recordation of a memorandum of the Lease and to
which the Corporation, the City and the Trustee consent in writing.
“Principal Component” means the portion of the Lease Payments designated in the Lease as the
Principal Component.
APPLICATION OF PROCEEDS
Further Assurances and Corrective Instruments
The Corporation and the City have agreed that they will, from time to time, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such supplements to the Lease and such further
instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased
Premises leased by the Lease or intended so to be or for carrying out the expressed intention of the Lease.
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AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS
Lease
The Corporation has by the Lease leased the Leased Premises to the City, and the City has by the
Lease leased the Leased Premises from the Corporation, upon the terms and conditions set forth in the Lease.
The Lease will not operate as a merger of the City’s leasehold estate in the Leased Premises pursuant to the
Lease and its fee estate in the Leased Premises and will not cause the extinguishment of the leasehold interest
granted to the Corporation under the Site Lease.
Term
The term of the Lease will commence on the date of execution and delivery of the Certificates and
will end on June 1, 2030, unless extended pursuant to the Lease, or unless terminated prior thereto upon the
earliest of any of the following events:
Default and Termination. A default by the City and the Corporation’s election to terminate the Lease
under the termination provisions of the Lease;
Payment of All Lease Payments. The payment by the City of all Lease Payments and any Additional
Payments required under the Lease; or
Prepayment. The deposit of funds or Government Obligations with the Trustee in amounts sufficient
to pay all Lease Payments as the same will become due, as provided in the Lease and the Trust Agreement.
Extension of Lease Term
The Term of the Lease may be extended in connection with the execution and delivery of any
Additional Certificates. If on the final maturity date of the Certificates or any Additional Certificates all
Interest Components and Principal Components represented thereby have not been fully paid by the City as a
result of a default in the payment of the Lease Payments, or because the Lease Payments under the Lease have
been abated at any time as permitted by the terms thereof, then the Term will be extended until all Certificates
and Additional Certificates are fully paid, except that the Term will in no event be extended beyond the tenth
anniversary of the final scheduled maturity of any Certificate or Additional Certificate.
Lease Payments
Time and Amount. Subject to the provisions of the Lease regarding abatement in event of loss of use
of any portion of the Leased Premises, and regarding prepayment of Lease Payments, the City has agreed to
pay to the Corporation, its successors and assigns, as annual rental for the use and possession of the Leased
Premises, the Lease Payments (denominated into components of principal and interest, the Interest Component
of such Lease Payment being paid semiannually) in the amounts specified in the Lease, to be due and payable
in arrears on each Lease Payment Date which are sufficient in both time and amount to pay when due the
annual principal and interest represented by the Certificates. In the event that any Additional Certificates are
executed and delivered pursuant to the Trust Agreement, the City and the Trustee will execute an amendment
to state the Lease Payments due under the Lease as a result of the execution and delivery of such Additional
Certificates.
The obligation of the City to pay Lease Payments will commence on the Delivery Date for the
Certificates.
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In the event the City does not pay a Lease Payment due on the respective Lease Payment Date, the
Trustee will provide prompt written notice to the City of such failure to pay; provided, however, that failure to
give such notice will not excuse any event of default under the Lease.
Credits. Any amount held in the Lease Payment Fund on any Lease Payment Date (other than
capitalized interest, which will be credited in accordance with the Trust Agreement, and other than amounts
resulting from the prepayment of the Lease Payments in part but not in whole pursuant to the Lease and other
amounts required for payment of principal with respect to any Certificates or Additional Certificates that have
matured or been called for payment and have not been presented for payment or interest) will be credited
towards the applicable Lease Payment then due and payable. The City need not transfer additional cash to the
Trustee on any Lease Payment Date if the amounts then held in the Lease Payment Fund (other than those
amounts excluded under the prior sentence) are at least equal to the Lease Payment then required to be paid.
Rate on Overdue Payments. In the event the City should fail to make any of the Lease Payments
required in the Lease, the Lease Payment in default will continue as an obligation of the City until the amount
in default will have been fully paid, and the City agrees to pay the same with interest thereon, to the extent
permitted by law, from the date such amount was originally payable at the rate equal to the original interest
rate payable with respect to each Certificate or Additional Certificate, as applicable, represented by such
delinquent Lease Payment.
No Withholding. Notwithstanding any dispute between the Corporation and the City, including a
dispute as to the failure of any portion of the Leased Premises in use by or possession of the City to perform
the task for which it is leased, the City will make all Lease Payments and Additional Payments when due and
will not withhold any Lease Payments pending the final resolution of such dispute.
Fair Rental Value
The Lease Payments and Additional Payments will be paid by the City in consideration of the right of
possession of, and the continued quiet use and enjoyment of, the Leased Premises during each such period for
which said Lease Payments are to be paid. The parties to the Lease have agreed and determined that such total
rental represents the fair rental value of the Leased Premises. In making such determination, consideration has
been given to the fair market value and replacement cost of the Leased Premises, other obligations of the
parties under the Lease (including but not limited to costs of maintenance, taxes and insurance), the uses and
purposes which may be served by the Leased Premises and the benefits therefrom which will accrue to the City
and the general public, and the transfer of the Corporation’s leasehold interest in the Leased Premises at the
end of the Term.
Budget and Appropriation
The City has covenanted to take such action as may be necessary to include all Lease Payments and
Additional Payments (to the extent the amounts of such Additional Payments are known to the City at the time
its annual budget is proposed), due under the Lease in its annual budget and to make the necessary annual
appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget
throughout such Fiscal Year. To the extent the amount of such payments becomes known after the adoption of
the annual budget, such amounts will be included and maintained in such budget as amended. During the
Term, the City will furnish annually to the Trustee a certificate of the City Representative stating that all Lease
Payments and Additional Payments due under the Lease for the applicable Fiscal Year have been included in
its annual budget on or before August 1 of each Fiscal Year. The covenants on the part of the City contained
in the Lease will be deemed to be and will be construed to be duties imposed by law and it will be the
ministerial duty of each and every public official of the City to take such action and do such things as are
required by law in the performance of the official duty of such officials to enable the City to carry out and
perform the covenants and agreements in the Lease agreed to be carried out and performed by the City.
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The obligation of the City to pay Lease Payments and Additional Payments under the Lease will
constitute a current expense of the City and will not in any way be construed to be a debt of the City, or the
State, or any political subdivision thereof, in contravention of any applicable constitutional or statutory
limitation or requirements concerning the creation of indebtedness by the City, the State, or any political
subdivision thereof, nor will anything contained in the Lease constitute a pledge of general revenues, funds or
moneys of the City beyond the Fiscal Year for which the City has appropriated funds to pay Lease Payments
and Additional Payments under the Lease or an obligation of the City for which the City is obligated to levy or
pledge any form of taxation or for which the City has levied or pledged any form of taxation.
Assignment of Lease Payments
Certain of the Corporation’s rights under the Lease, including the right to receive and enforce payment
of the Lease Payments (including Prepayments), and Additional Payments to be made by the City under the
Lease, have been assigned absolutely to the Trustee, subject to certain exceptions, pursuant to the Assignment
Agreement, to which assignment the City has consented by the Lease. The Corporation by the Lease has
directed the City, and the City by the Lease has agreed, to pay to the Trustee at the Trustee’s corporate trust
office designated in the Trust Agreement, or to the Trustee at such other place as the Trustee directs in writing,
all Lease Payments, or Prepayments thereof payable by the City under the Lease. The Corporation will not
assign or pledge the Lease Payments or other amounts derived from the Leased Premises and from its other
rights under the Lease except as provided under the terms of the Lease, the Assignment Agreement and the
Trust Agreement, or its duties and obligations except as provided under the Lease.
Abatement of Lease Payments and Additional Payments
In the Event of Damage, Destruction, Condemnation or Title Defect. Except to the extent that
proceeds of the type described in the following paragraph are available, the amount of Lease Payments and
Additional Payments will be completely or partially abated during any period in which by reason of material
damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the
title with respect to the Leased Premises there is substantial interference with the use and right of possession of
all or a portion of the Leased Premises by the City. The amount of such abatement will be such that the
resulting Lease Payments, exclusive of the amounts described in the following paragraph, do not exceed the
fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an
employee of the City) for the use and possession of the portion of the Leased Premises not damaged,
destroyed, interfered with or taken. Such abatement will continue for the period commencing with such
material damage, destruction, interference or taking and ending with the substantial completion of the
replacement or work of repair or the removal of the title defect causing such interference with use. Except as
provided the Lease, in the event of any such damage, destruction, interference or taking, the Lease will
continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such
damage, destruction, interference or taking.
Notwithstanding a substantial interference with the use and possession of all or a portion of the Leased
Premises, the City will remain obligated to make Lease Payments which would otherwise be abated (i) to the
extent that moneys derived from any person as a result of any delay in the reconstruction, replacement or repair
of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be
abated; and (ii) to the extent that moneys are available in the Lease Payment Fund to pay the amount which
would otherwise be abated. The Lease Payments will be payable from such amounts paid under (i) and (ii)
above as an obligation of the City payable from a special fund.
Repair or Replacement. In the event of abatement under the Lease, unless the abatement will be
avoided as a result of a prepayment of Lease Payments from Net Proceeds pursuant to the Lease, the City will
use its best efforts to repair or replace the damaged or destroyed or taken portion of the Leased Premises, as the
case may be, from Net Proceeds or special funds of the City or other moneys the application of which would,
in the opinion of Special Counsel, addressed to the Trustee, the City and the Corporation not result in the
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obligations of the City under the Lease constituting indebtedness of the City in contravention of the
Constitution and laws of the State.
Additional Payments
In addition to the Lease Payments, the City will also pay such amounts (“Additional Payments”) as
will be required for the payment of all administrative costs of the Corporation relating to the Leased Premises,
the Certificates and any Additional Certificates, including without limitation all expenses, compensation and
indemnification of the Trustee payable by the City under the Trust Agreement, taxes of any sort whatsoever
payable by the Corporation as a result of its leasehold interest in the Leased Premises or undertaking of the
transactions contemplated in the Lease or in the Trust Agreement, fees of auditors, accountants, attorneys or
engineers and any and all other necessary administrative costs of the Corporation or charges required to be
paid by it to comply with the terms of the Certificates and any Additional Certificates or of the Trust
Agreement, including premiums or insurance maintained pursuant to the Lease or to indemnify the
Corporation and its employees, officers and directors and the Trustee. All such Additional Payments to be
paid under the Lease will be paid when due directly by the City to the respective parties to whom such
Additional Payments are owing.
Net-Net-Net Lease
The Lease will be deemed and construed to be a “net-net-net lease” and the City has agreed that the
Lease Payments will be an absolute net return to the Corporation, free and clear of any expenses, taxes, fees,
insurance premiums, rebate payments, reserve deposits, costs associated with the Leased Premises, charges or
set-offs whatsoever, except as expressly provided in the Lease.
INSURANCE
Public Liability and Leased Premises Damage
Coverage. The City will maintain or cause to be maintained, throughout the Term of the Lease, a
standard comprehensive general public liability and property damage insurance policy or policies in protection
of the City and the Corporation and their officers, agents and employees. Said policy or policies will provide
for indemnification of said parties against direct or contingent loss or liability for damages for bodily and
personal injury, death or property damage occasioned by reason of the use or operation of any City property or
portion thereof.
Limits. Said policy or policies will provide coverage in the minimum liability limits of One Million
Dollars ($1,000,000) for personal injury or death of each person and Three Million Dollars ($3,000,000) for
personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of Five
Hundred Thousand Dollars ($500,000) for damage to property resulting from each accident or event (in each
case subject to a deductible clause of not to exceed Five Hundred Thousand Dollars ($500,000)). Such public
liability and property damage insurance may, however, be in the form of a single limit policy covering all such
risks in an amount equal to the liability limits set forth in the Lease.
Joint or Self-Insurance. Such liability insurance, including the deductible, may be maintained as part
of or in conjunction with any other insurance coverage carried by the City, and, subject to compliance with the
Lease, may be maintained in the form of self-insurance by the City.
Payment of Net Proceeds. The proceeds of such liability insurance will be applied toward
extinguishment or satisfaction of the liability with respect to which the insurance proceeds will have been paid.
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Workers’ Compensation
The City will also maintain workers’ compensation insurance issued by a responsible carrier
authorized under the laws of the State to insure its employees against liability for compensation under the
Workers’ Compensation Insurance and Safety Act now in force in the State, or any act later enacted as an
amendment or supplement thereto (with provision for self-insurance).
Casualty and Theft Insurance
Casualty and Theft Insurance; Coverage. The City will procure and maintain, or cause to be procured
and maintained, throughout the Term of the Lease, insurance against loss or damage to any portion of the
Leased Premises caused by fire and lightning, with extended coverage and theft, vandalism and malicious
mischief insurance. Said extended coverage insurance will, as nearly as practicable, cover loss or damage by
explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by
such insurance, excluding flood and earthquake. The City will not be required to purchase or maintain
earthquake insurance with respect to the Leased Premises.
Amount. Such insurance will be in an amount not less than the replacement cost of the Leased
Premises, subject to a “deductible clause” not to exceed Five Hundred Fifty Thousand Dollars ($500,000) for
any one loss or, in the case of a flood and earthquake rider, ten percent (10%) of the coverage obtained. The
term “full replacement value” as used in this paragraph will mean the actual replacement cost of the
improvements constituting the Leased Premises.
Joint or Self-Insurance. Such insurance may be maintained as part of or in conjunction with any other
insurance carried or required to be carried by the City, and, subject to compliance with the Lease, may be
maintained in the form of self-insurance by the City. Insurance obtained through a California joint powers
authority of which the City is a member will not be deemed to be self-insurance.
Payment of Net Proceeds. The Net Proceeds of such insurance will be paid to the Trustee and
deposited in the Net Proceeds Fund and applied as provided in the Lease.
Rental Interruption Insurance
Coverage and Amount. Upon delivery of the Leased Premises to it for occupancy, the City will
maintain or cause to be maintained rental income or use and occupancy insurance in an amount not less than
the maximum remaining scheduled Lease Payments in any future twenty-four (24) month period, to insure
against loss of rental income from the Leased Premises caused by perils covered by the insurance required to
be maintained as provided in the Lease. Such rental interruption insurance will name the Trustee and the
Corporation as additionally insured parties and the Trustee as the loss payee.
Joint Insurance. Such insurance may be maintained as part of or in conjunction with any other rental
income or use and occupancy insurance carried by the City, but may not be maintained in the form of self-
insurance by the City.
Payment of Net Proceeds. The Net Proceeds of such rental interruption insurance will be paid to the
Trustee and deposited in the Lease Payment Fund, to be credited towards the payment of the Lease Payments
in the order in which such Lease Payments come due and payable if there are insufficient Net Proceeds to pay
all Lease Payments due in any such Certificate Year.
Title Insurance
The City will obtain and, throughout the Term of the Lease, maintain or cause to be maintained title
insurance on the Leased Premises, in the form of an ALTA leasehold title insurance policy (with western
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regional exceptions), in an amount equal to the aggregate principal amount of the Certificates and Additional
Certificates Outstanding, issued by a company of recognized standing, duly authorized to issue the same,
payable to the Trustee for the benefit of the Owners, subject only to Permitted Encumbrances. Said policy or
policies will insure the City’s leasehold estate under the Lease in the Leased Premises, subject only to
Permitted Encumbrances. All Net Proceeds received under said policy or policies will be deposited with the
Trustee and applied as provided in the Trust Agreement. So long as any of the Certificates and Additional
Certificates remain Outstanding, each policy of the title insurance obtained pursuant to the Lease or required
thereby will provide that all proceeds thereunder will be payable to the Trustee for the benefit of the Certificate
Owners and the owners of any Additional Certificates. The Net Proceeds of such insurance will be applied as
provided in the Lease.
General Insurance Provisions
Form of Policies. All policies of insurance required to be procured and maintained pursuant to the
Lease and any statements of self-insurance will be in a form certified by the City Representative or an
insurance agent, broker or consultant to the City to comply with the provisions of the Lease. All such policies
will provide that the insured parties will be given thirty (30) days’ notice of each expiration, any intended
cancellation thereof or reduction of the coverage provided thereby. Each policy of insurance required to be
procured and maintained pursuant to the Lease regarding casualty and theft insurance, regarding rental
interruption insurance and regarding title insurance will provide that all proceeds thereunder will be payable to
the Trustee for the benefit of the Owners. All required insurance policies must be provided by a commercial
insurer rated A by Best or A- and A3 by S&P and Moody’s, respectively. All policies will name the City, the
Corporation and the Trustee as insureds and the Trustee as a loss payee.
Payment of Premiums. The City will pay or cause to be paid when due the premiums for all insurance
policies required by the Lease, and will promptly furnish or cause to be furnished to the Trustee a certificate to
such effect, as described in the Lease.
Protection of the Trustee. The Trustee will not be responsible for the sufficiency or adequacy of any
insurance required in the Lease and will be fully protected in accepting payment on account of such insurance
or any adjustment, compromise or settlement of any loss agreed to by the Trustee.
Evidence of Insurance. The City will cause to be delivered to the Trustee annually on or before
August 1 a certificate stating that the insurance policies required by the Lease are in full force and effect. The
Trustee will be entitled to rely upon any certificate so provided as to the City’s compliance with the Lease
Agreement, and the Trustee will have no further duties in that regard.
Self-Insurance. The City may only elect to self-insure as permitted by the Lease if and to the extent
such self-insurance method or plan of protection will afford reasonable protection to the Corporation and the
Trustee, in light of all circumstances, giving consideration to cost, availability and similar plans or methods of
protection adopted by other cities in the State other than the City. Insurance provided through a California
joint powers authority of which the City is a member or with which the City contracts for insurance will not be
deemed to be self-insurance for purposes of the Lease. Any self-insurance maintained by the City pursuant to
the Lease will comply with the following terms:
(a) The self-insurance program will be approved in writing by the City’s City Manager
or Assistant City Manager and an independent insurance consultant in accordance with the California
Labor Code and the California Government Code;
(b) The self-insurance program will include an actuarially sound claims reserve fund out
of which each self-insured claim will be paid; the adequacy of such fund will be evaluated on an
annual basis by the City Representative in a certified statement delivered to the Trustee; and any
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deficiencies in any self-insured claims reserve fund will be remedied in accordance with the
recommendation of the City Representative;
(c) The self-insurance fund must be held in a separate trust fund by an independent
trustee; and
(d) In the event the self-insurance program will be discontinued, the actuarial soundness
of its claims reserve fund, as determined by the City Representative, will be maintained.
Cooperation
The Corporation will cooperate fully with the City at the expense of the City in filing any proof of loss
with respect to any insurance policy maintained pursuant to the Lease and in the prosecution or defense of any
prospective or pending condemnation proceeding with respect to the Leased Premises or any portion thereof.
DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS
Application of Net Proceeds
Deposit in Net Proceeds Fund. The City will remit to the Trustee any Net Proceeds received by the
City and the Trustee as provided in the Lease regarding casualty and theft insurance and title insurance
promptly upon receipt thereof, and pursuant to the Trust Agreement, the Trustee will deposit such Net
Proceeds of insurance in the Net Proceeds Fund. The City and/or the Corporation will transfer to the Trustee
any other Net Proceeds received by the City and/or Corporation in the event of any accident, destruction, theft
or taking by eminent domain or condemnation with respect to the Leased Premises, for deposit in the Net
Proceeds Fund.
Disbursement for Replacement or Repair of the Leased Premises. Upon receipt of the certification
described in paragraph (a) below and the requisition described in paragraph (b) below, the Trustee will
disburse moneys in the Net Proceeds Fund to the person, firm or corporation named in the requisition as
provided in the Lease.
(a) Certification. The City Representative must certify to the Corporation and the
Trustee that:
(i) Sufficiency of Net Proceeds. The Net Proceeds available for such purpose,
together with any other funds supplied by the City to the Trustee in a subaccount of the Net
Proceeds Fund for such purpose, are expected to equal at least 100% of the projected costs of
replacement or repair, as demonstrated in an attached reconstruction budget, and
(ii) Timely Completion. In the event that damage, destruction or taking results
or is expected to result in an abatement of Lease Payments, such replacement or repair can be
fully completed within a period not in excess of the period in which rental interruption
insurance proceeds, as described in the Lease together with other identified available moneys,
will be available to pay in full all Lease Payments coming due during such period as
demonstrated in an attached reconstruction schedule.
(b) Requisition. The City Representative must deliver to the Trustee a Requisition
stating with respect to each payment to be made (1) the requisition number, (2) the name and address
of the person, firm or corporation to whom payment is due, (3) the amount to be paid and (4) that each
obligation mentioned therein has been properly incurred, is a proper charge against the Net Proceeds
Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature
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of the obligation. Each such cost requisition will be sufficient evidence to the Trustee of the facts
stated therein and the Trustee will have no duty to confirm the accuracy of such facts.
Any balance of the Net Proceeds remaining after such replacement or repair has been completed and
after payment or provision for payment of all Certificates as provided in the Trust Agreement and all
Additional Certificates as provided in any Supplemental Trust Agreement pursuant to which such Additional
Certificates are executed and delivered will be paid to the City after payment of amounts due the Trustee
pursuant to the Trust Agreement.
Disbursement for Prepayment. If the City Representative notifies the Trustee in writing of the City’s
determination that the certification provided above cannot be made or that replacement or repair of any portion
of the Leased Premises is not economically feasible or in the best interest of the City, then the Trustee will
promptly transfer the Net Proceeds to the Prepayment Fund as provided in the Trust Agreement and apply
them to prepayment of the Certificates as provided in the Trust Agreement and Additional Certificates as
provided in a Supplemental Trust Agreement and prepayment of Lease Payments as provided in the Lease;
provided that in the event of damage or destruction in whole of the Leased Premises and in the event such Net
Proceeds, together with funds then on hand in the Lease Payment Fund are not sufficient to prepay all the
Certificates and Additional Certificates then Outstanding, then the City will not be permitted to certify that
repair, replacement or improvement of all of the Leased Premises is not economically feasible or in the best
interest of the City. In such event, the City will proceed to repair, replace or improve the Leased Premises as
described in the Lease from legally available funds in the then-current Fiscal Year and will make the required
notification to the Trustee pursuant to the Trust Agreement and the Trustee will disburse moneys in the Net
Proceeds Fund to the person, firm, or corporation named in the Requisition as provided therein.
COVENANTS WITH RESPECT TO THE LEASES PREMISES
Use of the Leased Premises
The City represents and warrants that it has an immediate need for, and expects to make immediate
use of, all of the Leased Premises, which need is not temporary or expected to diminish in the foreseeable
future.
Interest in the Leased Premises and the Lease
Corporation Holds Leasehold Interest During Term. During the Term of the Lease, the Corporation
does and will hold a leasehold interest in the Leased Premises pursuant to the Site Lease. The City will take
any and all actions reasonably required, including but not limited to executing and filing any and all documents
reasonably required, to maintain and evidence such title and interest at all times during the Term of the Lease.
Title Transferred to the City at End of Term. Upon expiration of the Term as provided in the Lease,
all right, title and interest of the Corporation in and to all of the Leased Premises will be transferred to and vest
in the City, without the necessity of any additional document of transfer.
Quiet Enjoyment
During the Term, the Corporation will provide the City with quiet use and enjoyment of the Leased
Premises, and the City will during such Term peaceably and quietly have and hold and enjoy the Leased
Premises, without suit, trouble or hindrance from the Corporation, or any person or entity claiming under or
through the Corporation except as expressly set forth in the Lease. The Corporation will, at the request of the
City, join in any legal action in which the City asserts its right to such possession and enjoyment to the extent
the Corporation may lawfully do so. Notwithstanding the foregoing, the Corporation will have the right to
inspect the Leased Premises as provided in the Lease.
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Installation of the City’s Personal Property
The City may at any time and from time to time, in its sole discretion and at its own expense, install or
permit to be installed other items of equipment or other property in or upon any portion of the Leased
Premises. All such items will remain the sole property of the City, regardless of the manner in which the same
may be affixed to such portion of the Leased Premises, in which neither the Corporation nor the Trustee will
have any interest, and may be modified or removed by the City at any time; provided that the City will repair
and restore any and all damage to such portion of the Leased Premises resulting from the installation,
modification or removal of any such items of equipment. Nothing in the Lease prevents the City from
purchasing items to be installed pursuant to this paragraph, provided that no lien or security interest will attach
to any part of the Leased Premises.
Access to the Leased Premises
The City agrees that the Corporation, any Corporation Representative and the Corporation’s
successors, assigns or designees will have the right at all reasonable times to enter upon the Leased Premises or
any portion thereof to examine and inspect the Leased Premises. The City further agrees that the Corporation,
any such Corporation Representative, and the Corporation’s successors, assigns or designees will have such
rights of access to the Leased Premises as may be reasonably necessary to cause the proper maintenance of the
Leased Premises in the event of failure by the City to perform its obligations under the Lease.
Maintenance, Utilities, Taxes and Assessments
(a) Maintenance; Repair and Replacement. Throughout the Term of the Lease, as part of
the consideration for the rental of the Leased Premises, all repair and maintenance of the Leased
Premises will be the responsibility of the City, and the City will pay for or otherwise arrange for the
payment of the cost of the repair and replacement of the Leased Premises resulting from ordinary wear
and tear or want of care on the part of the City or any sublessee thereof. In exchange for the Lease
Payments provided in the Lease, the Corporation has agreed to provide only the Leased Premises, as
more specifically set forth in the Lease. The City waives the benefits of subsections 1 and 2 of
Section 1932 of the California Civil Code, but such waiver will not limit any of the rights of the City
under the terms of the Lease.
(b) Tax and Assessments; Utility Charges. The City will also pay or cause to be paid all
taxes and assessments, including but not limited to utility charges, of any type or nature charged to the
Corporation or the City or levied, assessed or charged against any portion of the Leased Premises or
the respective interests or estates therein; provided that with respect to special assessments or other
governmental charges that may lawfully be paid in installments over a period of years, the City will be
obligated to pay only such installments as are required to be paid during the Term of the Lease as and
when the same become due.
(c) Contests. The City may, at its expense and in its name, in good faith contest any
such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the
taxes, assessments or other charges so contested to remain unpaid during the period of such contest
and any appeal therefrom; provided that prior to such nonpayment it will furnish the Corporation and
the Trustee with the opinion of an Independent Counsel acceptable to the Corporation, to the effect
that, by nonpayment of any such items, the interest of the Corporation in such portion of the Leased
Premises will not be materially endangered and that the Leased Premises will not be subject to loss or
forfeiture. Otherwise, the City will promptly pay such taxes, assessments or charges or make
provisions for the payment thereof in form satisfactory to the Corporation. The Corporation will
cooperate fully in such contest, upon the request and at the expense of the City.
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Modification of the Leased Premises
Additions, Modifications and Improvements. The City will, at its own expense, have the right to
make additions, modifications, and improvements to any portion of the Leased Premises if such improvements
are necessary or beneficial for the use of such portion of the Leased Premises. All such additions,
modifications and improvements will thereafter comprise part of the Leased Premises and be subject to the
provisions of the Lease. Such additions, modifications and improvements will not in any way cause an
abatement of Lease Payments with respect to the Leased Premises or cause it to be used for purposes other
than those authorized under the provisions of State and federal law or in any way which would impair the State
tax-exempt status or the exclusion from gross income for federal income tax purposes of the interest with
respect to the Certificates and Additional Certificates (to the extent such Additional Certificates were executed
and delivered as tax-exempt Certificates); and the Leased Premises, upon completion of any additions,
modifications and improvements made pursuant to the Lease, will have an annual fair rental value which is not
less than the annual Lease Payments.
No Liens. Except for Permitted Encumbrances, the City will not permit any mechanic’s or other lien
to be established or remain against the Leased Premises for labor or materials furnished in connection with any
additions, modifications or improvements made by the City pursuant to the Lease; provided that if any such
lien is established and the City will first notify or cause to be notified the Corporation of the City’s intention to
do so, the City may in good faith contest any lien filed or established against the Leased Premises, and in such
event may permit the items so contested to remain undischarged and unsatisfied during the period of such
contest and any appeal therefrom and will provide the Corporation with full security against any loss or
forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Trustee (as
assignee of the Corporation). The Corporation will cooperate fully in any such contest, upon the request and at
the expense of the City.
Replacements, Redevelopment and Renovation. The City will, at its own expense, or with the
proceeds of Additional Certificates, have the right to make replacements, redevelopment or renovation of all or
a portion of the Leased Premises if the following conditions precedent are satisfied:
(a) The City receives an opinion of Special Counsel, a copy of which the City will
furnish to the Corporation and the Trustee, that (1) such replacement does not adversely affect the
federal income tax exclusion or the State tax-exempt status of the interest with respect to the
Certificates and Additional Certificates (to the extent such Additional Certificates were executed and
delivered as tax-exempt Certificates), and (2) the Lease will remain the legal, valid, binding and
enforceable obligation of the City;
(b) In the event such replacement, redevelopment or renovation would result in the
temporary abatement of Lease Payments as provided in the Lease, the City will notify any rating
agency then providing a rating on the Certificates and will deposit moneys with the Trustee in advance
for payment of Lease Payments from the proceeds of Additional Certificates or from special funds of
the City or other moneys, the application of which would not, in the opinion of Special Counsel (a
copy of which will have been delivered to the Trustee), result in such Lease Payments constituting
indebtedness of the City in contravention of the Constitution and laws of the State;
(c) The City will certify to the Trustee that it has sufficient funds to complete such
replacement, redevelopment or renovation; and
(d) In the case of replacement(s), redevelopment or renovation other than from the
proceeds of Additional Certificates, the City and the Trustee receive an independent appraisal from a
California certified general appraiser that the annual fair rental value of the replacements will be at
least equal to the annual Lease Payments immediately prior to such replacement or redevelopment.
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Encumbrances; Alternative Financing Methods
Encumbrances. Except as provided in the Lease, the City will not, directly or indirectly, create, incur,
assume or suffer to exist any mortgage, pledge, liens, charges, encumbrances or claims, as applicable, on or
with respect to the Leased Premises, other than Permitted Encumbrances and other than the respective rights of
the Corporation and the City as provided in the Lease. Except as expressly provided in the Lease, the City will
promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such
mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same will arise at any
time; provided that the City may contest such liens if it desires to do so. The City will reimburse the
Corporation for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien,
charge, encumbrance or claim.
Alternative Financing Methods. Notwithstanding the foregoing, the City may create or suffer to
create any mortgage, pledge, liens, charges, encumbrances or claims upon the Leased Premises or any
improvements thereto, provided that (1) any such mortgage, pledge, liens, charges, encumbrances or claims
will at any time while any of the Certificates or Additional Certificates remain Outstanding be and remain
subordinate in all respects to the Site Lease and Lease and any security interest given to the Trustee for the
benefit of the Owners and (2) the City will have first delivered to the Trustee an opinion of Special Counsel
substantially to the effect that such mortgage, pledge, liens, charges, encumbrances or claims would not result
in the inclusion of the interest with respect to the Certificates and the Additional Certificates (to the extent such
Additional Certificates are executed and delivered as tax-exempt Certificates) in the gross income of the
owners thereof for purposes of federal income taxation or impair the State tax-exempt status of such interest
payments.
Corporation’s Disclaimer of Warranties
THE CORPORATION AND ITS ASSIGNS HAS MADE NO WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR FITNESS FOR THE USE
CONTEMPLATED BY THE CITY OF THE LEASED PREMISES, OR ANY PORTION THEREOF. THE
CITY HAS ACKNOWLEDGED THAT THE CITY IS LEASING THE LEASED PREMISES AS IS. In no
event will the Corporation and its assigns be liable for incidental, indirect, special or consequential damages, in
connection with or arising out of the Lease, the Site Lease, the Assignment Agreement or the Trust Agreement
for the existence, furnishing, functioning or the City’s use and possession of the Leased Premises.
The City’s Right to Enforce Warranties of Vendors or Contractors
The Corporation has by the Lease irrevocably appointed the City its agent and attorney-in-fact during
the Term of the Lease, so long as the City is not in default thereunder, to assert from time to time whatever
claims and rights, including without limitation, warranty claims, claims for indemnification and claims for
breach of any representations, respecting the Leased Premises which the Corporation may have against any
vendor or contractor. The City’s sole remedy for the breach of any such warranty, indemnification or
representation will be against the vendor or contractor with respect thereto, and not against the Corporation and
its assigns, nor will such matter have any effect whatsoever on the rights and obligations of the Corporation
with respect to the Lease, including the right to receive full and timely Lease Payments and all other payments
due under the Lease. The City will be entitled to retain any and all amounts recovered as a result of the
assertion of any such claims and rights. The Corporation will, upon the City’s request and at the City’s
expense, do all things and take all such actions as the City may request in connection with the assertion of any
such claims and rights.
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Compliance with Law, Regulations, Etc.
Except as described in below, the City has, after due inquiry, no knowledge and has not given or
received any written notice indicating that the past or present use of the Leased Premises or any practice,
procedure or policy employed by it in the conduct of its business materially violates any applicable law,
regulation, code, order, rule, judgment or consent agreement, including, without limitation, those relating to
zoning, building, use and occupancy, fire safety, health, sanitation, air pollution, ecological matters,
environmental protection, hazardous or toxic materials, substances or wastes, conservation, parking,
architectural barriers to the handicapped, or restrictive covenants or other agreements affecting title to the
Leased Premises (collectively, “Laws and Regulations”). Without limiting the generality of the foregoing,
neither the City nor to the best of its knowledge, after due inquiry, any prior or present owner, tenant or
subtenant of the Leased Premises has, other than as set forth in the Lease or as may have been remediated in
accordance with Laws and Regulations, (i) used, treated, stored, transported or disposed of any material
amount of flammable explosives, polychlorinated biphenyl compounds, heavy metals, chlorinated solvents,
cyanide, radon, petroleum products, asbestos, methane, radioactive materials, pollutants, hazardous materials,
hazardous wastes, hazardous, toxic, or regulated substances or related materials, as defined in CERCLA,
RCRA, CWA, CAA, TSCA and Title III, and the regulations promulgated pursuant thereto, and in all other
Environmental Regulations applicable to the City, the Leased Premises or the business operations conducted
by the City thereon (collectively, “Hazardous Materials”) on, from or beneath the Leased Premises,
(ii) pumped, spilled, leaked, disposed of, emptied, discharged or released (collectively referred to as “Release”)
any material amount of Hazardous Materials on, from or beneath the Leased Premises, or stored any material
amount of petroleum products at the Leased Premises in underground storage tanks.
Excluded from the representations and warranties above with respect to Hazardous Materials are those
Hazardous Materials in the amounts ordinarily found in the inventory of, or used in the maintenance of the
City’s City Hall, Community Hall, Quinlan Community Center, or related buildings, the use, treatment,
storage, transportation and disposal of which has been and will be in compliance with all Laws and
Regulations (defined in the Lease as the “Permitted Use”).
No portion of the Leased Premises located in an area of high potential incidence of radon has an
unventilated basement or subsurface portion which is occupied or used for any purpose other than the
foundation or support of the improvements to the Leased Premises.
Environmental Compliance
Other than the Permitted Use, the City will not use or permit the Leased Premises or any part thereof
to be used to generate, manufacture, refine, treat, store, handle, transport or dispose of, transfer, produce or
process Hazardous Materials, except, and only to the extent, if necessary to maintain the improvements on the
Leased Premises and then, only in compliance with all Environmental Regulations, and any state equivalent
laws and regulations, nor will it permit, as a result of any intentional or unintentional act or omission on its part
or by any tenant, subtenant, licensee, guest, invitee, contractor, employee and agent, the storage, transportation,
disposal or use of Hazardous Materials or the Release or threat of Release of Hazardous Materials on, from or
beneath the Leased Premises or onto any other Leased Premises excluding, however, those Hazardous
Materials in those amounts ordinarily found in the inventory of a municipal corporation, the use, storage,
treatment, transportation and disposal of which will be in compliance with all Environmental Regulations.
Upon the occurrence of any Release or threat of Release of Hazardous Materials other than the Permitted Use,
the City will promptly commence and perform, or cause to be commenced and performed promptly, without
cost to the Trustee, all investigations, studies, sampling and testing, and all remedial, removal and other actions
necessary to clean up and remove all Hazardous Materials so released, on, from or beneath the Leased
Premises, in compliance with all Environmental Regulations. Notwithstanding anything to the contrary
contained in the Lease, underground storage tanks will only be permitted subject to compliance with the Lease
and only to the extent necessary to maintain the improvements on the Leased Premises.
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The City will comply with, and will cause all tenants, subtenants, licensees, guests, invitees,
contractors, employees and agents on the Leased Premises to comply with, all Environmental Regulations, and
will keep the Leased Premises free and clear of any liens imposed pursuant thereto; provided, however, that
notwithstanding that a portion of this covenant is limited to the City’s use of its best efforts, the City will
remain solely responsible for ensuring such compliance and such limitation will not diminish or affect in any
way the City’s obligations contained in the Lease as provided in the Lease. Upon receipt of any notice from
any person with regard to the Release of Hazardous Materials other than the Permitted Use on, from or beneath
the Leased Premises, the City will give prompt written notice thereof to the Trustee prior to the expiration of
any period in which to respond to such notice under any Environmental Regulation.
Irrespective of whether any representation or warranty contained in the Lease is not true or correct, the
City will, to the extent permitted by law, defend, indemnify and hold harmless the Trustee, the Owners, the
Corporation and each of their respective employees, agents, officers, directors, trustees, successors and assigns,
from and against any claims, demands, penalties, fines, attorneys’ fees (including, without limitation,
attorneys’ fees incurred to enforce the indemnification contained in the Lease, consultants’ fees, investigation
and laboratory fees, liabilities, settlements (five Business Days’ prior notice of which the Trustee will have
delivered to the City) court costs, damages, losses, costs or expenses of whatever kind or nature, known or
unknown, contingent or otherwise, occurring in whole or in part, arising out of, or in any way related to, (i) the
presence, disposal, Release, threat of Release, removal, discharge, storage or transportation of any Hazardous
Materials on, from or beneath the Leased Premises, (ii) any personal injury (including wrongful death) or
Leased Premises damage (real or personal) arising out of or related to such Hazardous Materials, (iii) any
lawsuit brought or threatened, settlement reached (five Business Days’ prior notice of which the Trustee will
have delivered to the City), or governmental order relating to Hazardous Materials on, from or beneath the
Leased Premises, (iv) any violation of Environmental Regulations or the Lease by it or any of its agents,
tenants, employees, contractors, licensees, guests, subtenants or invitees, and (v) the imposition of any
governmental lien for the recovery of environmental cleanup or removal costs. To the extent that the City is
strictly liable under any Environmental Regulation, its obligation under the foregoing indemnification will
likewise be without regard to fault on its part with respect to the violation of any Environmental Regulation
which results in liability to any indemnitee. The obligations and liabilities under the Lease will survive the
payment and satisfaction of all Certificates and Additional Certificates or resignation or removal of the
Trustee.
The City will conform to and carry out a reasonable program of maintenance and inspection of all
underground storage tanks, and will maintain, repair, and replace such tanks only in accordance with Laws and
Regulations, including but not limited to Environmental Regulations.
Condemnation of Leased Premises
The City has covenanted and agreed, to the extent it may lawfully do so, that, except as described in
the Site Lease, so long as any of the Certificates or Additional Certificates remain outstanding and unpaid, the
City will not exercise the power of condemnation with respect to the Leased Premises. The City has further
covenanted and agreed, to the extent it may lawfully do so, that if for any reason the foregoing covenant is
determined to be unenforceable or if the City will fail or refuse to abide by such covenant and condemns the
Leased Premises, then the appraised value of the Leased Premises will not be less than the sum of: (i) as to
Certificates and Additional Certificates then subject to optional prepayment, the principal and interest
components of such Certificates and Additional Certificates outstanding through the date of their prepayment,
and (ii) as to Certificates and Additional Certificates not then subject to optional prepayment, the amount
necessary to defease such Certificates and Additional Certificates to the first available prepayment date in
accordance with the Trust Agreement.
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ASSIGNMENT, SUBLEASING AND AMENDMENT
Assignment by the Corporation
Except as provided in the Lease, in the Trust Agreement and the Assignment Agreement, the
Corporation will not assign the Lease to any other person, firm or corporation so as to impair or violate the
representations, covenants and warranties contained in the Lease.
Assignment and Subleasing by the City
Assignment. The Lease may be assigned by the City, so long as such assignment does not, in the
opinion of Special Counsel, adversely affect the State tax-exempt status or the exclusion from gross income for
federal income tax purposes of the interest with respect to the Certificates and any Additional Certificates (to
the extent such Additional Certificates are executed and delivered as tax-exempt Certificates) or affect the
validity of the Lease. In the event that the Lease is assigned by the City, the obligation to make Lease
Payments under the Lease will remain the obligation of the City.
Sublease. The City may sublease all or any portion of the Leased Premises, subject to the following
conditions: (i) the Lease and the obligation of the City to make Lease Payments and Additional Payments
under the Lease will remain obligations of the City; (ii) the City will, within 30 days after the delivery thereof,
furnish or cause to be furnished to the Corporation and the Trustee a true and complete copy of such sublease;
and (iii) the City will furnish to the Corporation and the Trustee, an opinion of Special Counsel to the effect
that the sublease will not cause the interest due with respect to the Certificates and any Additional Certificates
(to the extent such Additional Certificates are executed and delivered as tax-exempt Certificates) to be subject
to State personal income tax or adversely affect the exclusion from gross income for federal income tax
purposes of such amounts, provided that no such opinion will be required with respect to the subleases in
effect upon the Delivery Date.
Amendments and Modifications. The Lease may be amended or any of its terms modified with the
written consent of the City and the Trustee (as assignee of the Corporation), in accordance with the Trust
Agreement.
EVENTS OF DEFAULT AND REMEDIES
Events of Default Defined
The following will be “events of default” under the Lease and the terms “events of default” and
“default” means, whenever they are used in the Lease, any one or more of the following events:
Payment Default. Failure by the City to pay any Lease Payment required to be paid under the Lease
by the corresponding Lease Payment Date; and
Covenant Default. Failure by the City to observe and perform any warranty, covenant, condition or
agreement on its part to be observed or performed in the Lease or otherwise with respect thereto or in the Trust
Agreement or in the Site Lease, other than as referred to in the foregoing paragraph, for a period of 30 days
after written notice specifying such failure and requesting that it be remedied has been given to the City by the
Corporation, the Trustee, or the Owners of not less than 20% in aggregate principal amount of Certificates and
Additional Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be
corrected within the applicable period, the Corporation, the insurer of any Additional Certificates or such
Owners, as the case may be, will not unreasonably withhold their consent to an extension of such time if
corrective action is instituted by the City within the applicable period and diligently pursued until the default is
corrected.
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Bankruptcy or Insolvency. The filing by the City of a case in bankruptcy, or the subjection of any
right or interest of the City under the Lease to any execution, garnishment or attachment, or adjudication of the
City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an
agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition
applicable to the City in any proceedings instituted under the provisions of the federal bankruptcy code, as
amended, or under any similar act which may later be enacted.
Remedies on Default
Whenever any event of default referred to in the Lease will have happened and be continuing, it will
be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to
the Lease. Notwithstanding anything in the Lease or in the Trust Agreement to the contrary, THERE WILL
BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR
OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY
DUE AND PAYABLE. After the occurrence of an event of default under the Lease, the City will surrender
possession of the Leased Premises to the Corporation, if requested to do so by the Corporation, the Trustee or
the Owners, in accordance with the provisions of the Trust Agreement.
No Termination; Repossession and Re-Lease on Behalf of the City. In the event the Corporation does
not elect to terminate the Lease in the manner provided for in the Lease, the Corporation may, with the consent
of the City, which consent has been irrevocably given, repossess the Leased Premises and re-lease it for the
account of the City, in which event the City’s obligation will accrue from year to year in accordance with the
Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the
form of credits against its obligation to pay Lease Payments. The obligations of the City will remain the same
as prior to such default, to pay Lease Payments and Additional Payments whether the Corporation re-enters or
not. The City has agreed to and will remain liable for the payment of all Lease Payments and Additional
Payments and the performance of all conditions contained in the Lease and will reimburse the Corporation for
any deficiency arising out of the re-leasing of the Leased Premises, or, in the event the Corporation is unable to
re-lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the
end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency will be
payable only at the same time and in the same manner as provided above for the payment of Lease Payments
and Additional Payments under the Lease, notwithstanding such repossession by the Corporation or any suit
brought by the Corporation for the purpose of effecting such repossession of the Leased Premises or the
exercise of any other remedy by the Corporation.
The City has by the Lease irrevocably appointed the Corporation as the agent and attorney-in-fact of
the City to repossess and re-lease the Leased Premises in the event of default by the City in the performance of
any covenants contained in the Lease to be performed by the City and to remove all personal property
whatsoever situated upon the Leased Premises, to place such property in storage or other suitable place in the
County of Santa Clara, for the account of and at the expense of the City, and the City has by the Lease
covenanted and agreed to save harmless the Corporation from any costs, loss or damage whatsoever arising or
occasioned by any such repossession and re-leasing of the Leased Premises. The City by the Lease has waived
any and all claims for damage caused or which may be caused by the Corporation in repossessing the Leased
Premises as provided in the Lease and all claims for damages that may result from the destruction of or the
injury to the Leased Premises and all claims for damages to or loss of any property belonging to the City that
may be in or upon the Leased Premises.
The City agrees that the terms of the Lease constitute full and sufficient notice of the right of the
Corporation to re-lease the Leased Premises in the event of such repossession without effecting a surrender of
the Lease, and further agrees that no acts of the Corporation in effecting such re-leasing will constitute a
surrender or termination of the Lease irrespective of the term for which such re-leasing is made or the terms
and conditions of such re-leasing, or otherwise, but that, on the contrary, in the event of such default by the
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City the right to terminate the Lease will vest in the Corporation to be effected in the sole and exclusive
manner provided for in the Lease.
The City will retain the portion of rental obtained by the Trustee, as assignee of the Corporation, that
is in excess of the Lease Payments and Additional Payments, the fees, expenses and costs of the Trustee of re-
leasing the Leased Premises, and all amounts payable by the City under the Lease and the Trust Agreement.
In the event that the liability of the City under the Lease is held to constitute indebtedness or liability
in any year exceeding in any year the income and revenue provided for such year, the Corporation, or the
Trustee or the Owners, as assignees of the Corporation, will not exercise the remedies provided in the Lease.
Termination; Repossession and Re-Lease. In the event of the termination of the Lease by the
Corporation at its option and in the manner provided in the Lease on account of default by the City (and
notwithstanding any repossession of the Leased Premises by the Corporation in any manner whatsoever or the
re-leasing of the Leased Premises), the City nevertheless has agreed to pay to the Corporation all costs, losses
or damages howsoever arising or occurring payable at the same time and in the same manner as is provided in
the Lease in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re-lease or
other disposition of the Leased Premises by the Corporation will be deposited into the Lease Payment Fund
and be applied in accordance with the provisions of the Trust Agreement. Any surplus received by the
Trustee, as assignee of the Corporation, from such re-leasing over total Lease Payments will be remitted to the
City. Additional Payments that would have been due under the Lease and the fees, expenses and costs of the
Trustee as assignee of the Corporation on re-leasing the Leased Premises will be remitted to the City. Neither
notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any proceeding
taken by the Corporation to recover possession of the Leased Premises will of itself operate to terminate the
Lease, and no termination of the Lease on account of default by the City will be or become effective by
operation of law, or otherwise, unless and until the Corporation has given written notice to the City of the
election on the part of the Corporation to terminate the Lease. The City has covenanted and agreed that no
surrender of the Leased Premises for the remainder of the Term of the Lease or any termination of the Lease
will be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by
such written notice. No such termination will be effected either by operation of law or act of the parties to the
Lease, except only in the manner expressly provided in the Lease.
Opinion of Special Counsel. The re-leasing of the Leased Premises as provided in the Lease will be
subject to the opinion of Special Counsel that such re-leasing will not cause the interest with respect to the
Certificates and any Additional Certificates (to the extent such Additional Certificates are executed and
delivered as tax-exempt Certificates) to be subject to State personal income tax or adversely affect the
exclusion from gross income for federal income tax purposes of such amounts.
No Termination by the City
Under no circumstances may the City terminate the Lease as a remedy for a default by the Corporation
in the performance of any obligation of the Corporation under the Lease.
No Remedy Exclusive
No remedy conferred in the Lease upon or reserved to the Corporation is intended to be exclusive and
every such remedy will be cumulative and will be in addition to every other remedy given under the Lease
existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default
will impair any such right or power or will be construed to be a waiver thereof, but any such right and power
may be exercised from time to time and as often as may be deemed expedient. In order to entitle the
Corporation to exercise any remedy reserved to it in the Lease it will not be necessary to give any notice, other
than such notice as may be required in the Lease or by law.
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Agreement to Pay Attorneys’ Fees and Expenses
In the event either party to the Lease should default under any of the provisions of the Lease and the
nondefaulting party should employ attorneys or incur other expenses for the collection of moneys or the
enforcement of performance or observance of any obligation or agreement on the part of the defaulting party
contained in the Lease, the defaulting party has agreed that it will pay on demand to the nondefaulting party
the reasonable fees of such attorneys and such other expenses so incurred by the nondefaulting party.
No Additional Waiver Implied by One Waiver
In the event any agreement contained in the Lease should be breached by either party and thereafter
waived by the other party; such waiver will be limited to the particular breach so waived and will not be
deemed to waive any other breach under the Lease.
Application of the Proceeds from the Re-Lease of the Leased Premises
All amounts received by the Corporation under the Lease will, subject to the Trust Agreement, be
deposited by the Trustee in the Lease Payment Fund and credited towards the Lease Payments in order of
Lease Payment Dates.
Trustee and Owners to Exercise Rights
Such rights and remedies as are given to the Corporation under the Lease have been assigned by the
Corporation to the Trustee under the Assignment Agreement, to which assignment the City has consented by
the Lease. Such rights and remedies will be exercised by the Trustee and the Owners as provided in the Trust
Agreement. In addition to the rights and remedies assigned by the Corporation to the Trustee, to the extent
that the Trust Agreement and the Lease confer upon or gives or grants to the Trustee any right, remedy or
claim under or by reason of the Trust Agreement or the Lease, the Trustee is by the Lease explicitly recognized
as being a third party beneficiary under the Lease and may enforce any such right, remedy or claim conferred
given or granted.
PREPAYMENT OF LEASE PAYMENTS
Security Deposit
Notwithstanding any other provision of the Lease, the City may, on any date, secure the payment of
Lease Payments and Additional Payments by a deposit by it with the Trustee of cash and/or Government
Obligations as provided in the Trust Agreement. In such event, and provided that the City has paid any other
amounts due and owing under the Lease and the Trust Agreement, all obligations of the City under the Lease,
and all security provided by the Lease for said obligations, will cease and terminate, excepting only the
obligation of the City to make, or cause to be made, Lease Payments and Additional Payments from such
deposit. On the date of said deposit title to the Leased Premises will vest in the City automatically and without
further action by the City or the Corporation (except as provided in the Lease). Said deposit will be deemed to
be and will constitute a special fund for the payment of Lease Payments in accordance with the provisions of
the Lease. The Corporation will execute and deliver such further instruments and take such further action as
may reasonably be requested by the City for carrying out the title transfer of the Leased Premises.
Extraordinary Prepayment
The City will be obligated to prepay the Lease Payments in whole or in part on any date, from and to
the extent of any Net Proceeds or other moneys theretofore deposited in the Prepayment Fund (at least 45 days
prior to the date fixed for prepayment of the Certificates and any Additional Certificates) pursuant to the Trust
Agreement. The City and the Corporation have agreed by the Lease that such Net Proceeds or other moneys
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will be credited towards the City’s obligations under the Lease (except in the case of such Prepayment of the
Lease Payments in whole) pro rata among Lease Payments so that following Prepayment, the remaining annual
Lease Payments will be proportional to the initial annual Lease Payments.
Optional Prepayment
Subject to the terms and conditions of the Lease, the Corporation has granted by the Lease an option
to the City to prepay all or a portion of the Lease Payments to the extent and on the dates at the prepayment
prices set forth in the Trust Agreement and in any Supplemental Agreement. The City will provide notice to
the Trustee at least 45 days prior to the date fixed for prepayment of the Certificates (or on such later date as
consented to by the Trustee). The City and the Corporation have agreed that such prepayments will be credited
toward the City’s obligations under the Lease corresponding to the resulting prepayment of the Certificates and
Additional Certificates in accordance with the Trust Agreement and any Supplemental Agreement on the dates
and at the prepayment prices provided therein.
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APPENDIX D
FORM OF LEGAL OPINION
Upon the execution and delivery of the Certificates, Stradling Yocca Carlson & Rauth, a Professional
Corporation, Special Counsel, proposes to render its final approving opinion in substantially the following
form:
October 22, 2020
City Council
City of Cupertino
Cupertino, California
Re: $22,040,000 City of Cupertino 2020A Certificates of Participation
Ladies and Gentlemen:
We have reviewed the Constitution and the laws of the State of California and certain proceedings
taken by the City of Cupertino (the “City”) in connection with the authorization, execution and delivery by the
City of that certain Lease Agreement, dated as of October 1, 2020 (the “Lease”), by and between the Cupertino
Public Facilities Corporation (the “Corporation”) and the City. We have also reviewed that certain Trust
Agreement, dated as of October 1, 2020 (the “Trust Agreement”), by and among The Bank of New York
Mellon Trust Company, N.A., as trustee (the “Trustee”), the Corporation and the City. In rendering this
opinion, we also have relied upon certain representations of fact and certifications made by the Corporation
and the City, the initial purchaser of the Certificates (defined below) and others. We have not undertaken to
verify through independent investigation the accuracy of the representations and certifications relied upon by
us. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless
otherwise defined.
Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the $22,040,000 City
of Cupertino 2020A Certificates of Participation (the “Certificates”) evidencing undivided fractional interests
of the owners of the Certificates in certain lease payments (the “Lease Payments”) to be made by the City
pursuant to the Lease. Pursuant to that certain Assignment Agreement, dated as of October 1, 2020 (the
“Assignment Agreement”), the Corporation has assigned to the Trustee the Corporation’s right to receive
Lease Payments from the City under the Lease.
Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we
deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that:
(1) The obligation of the City to pay Lease Payments in accordance with the terms of the Lease is
a valid and binding obligation payable from the funds of the City lawfully available therefore and the
obligation of the City to make Lease Payments under the Lease does not constitute a debt of the City, the State
of California or any political subdivision thereof within the meaning of any statutory or constitutional debt
limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the
State of California or any political subdivision thereof.
(2) The Lease and the Trust Agreement have been duly authorized, executed and delivered by the
City and constitute valid and legally binding agreements of the City enforceable against the City in accordance
with their terms.
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(3) Under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy
of certain representations and compliance with certain covenants and requirements described herein, interest
with respect to the Certificates is excluded from gross income for federal income tax purposes and is not an
item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals.
(4) Interest (and original issue discount) with respect to the Certificates is exempt from personal
income taxes imposed in the State of California.
(5) The difference between the issue price of a Certificate (the first price at which a substantial
amount of the Certificates of a maturity are to be sold to the public) and the stated payment price at maturity
with respect to such Certificate constitutes original issue discount. Original issue discount accrues under a
constant yield method, and original issue discount will accrue to a Certificate owner before receipt of cash
attributable to such excludable income. The amount of original issue discount deemed received by a
Certificate owner will increase the Certificate owner’s basis in the applicable Certificate. Original issue
discount that accrues to a Certificate owner is excluded from the gross income of such owner for federal
income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative
minimum tax imposed on individuals (as described in paragraph (3) above) and is exempt from State of
California personal income tax.
(6) The amount by which a Certificate owner’s original basis for determining loss on sale or
exchange in a Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an
earlier call date) constitutes amortizable Certificate premium, which must be amortized under Section 171 of
the Code; such amortizable Certificate premium reduces the Certificate owner’s basis in the applicable
Certificate (and the amount of tax-exempt interest received), and is not deductible for federal income tax
purposes. The basis reduction as a result of the amortization of Certificate premium may result in a Certificate
owner realizing a taxable gain when a Certificate is sold by the owner for an amount equal to or less (under
certain circumstances) than the original cost of the Certificate to the owner.
The opinions expressed in paragraphs (3) and (5) are subject to the condition that the City and the
Corporation comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”),
that must be satisfied subsequent to the delivery of the Certificates to assure that such interest (and original
issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply
with such requirements of the Code might cause interest (and original issue discount) with respect to the
Certificates to be included in gross income for federal income tax purposes retroactive to the date of delivery
of the Certificates. The City and the Corporation have covenanted to comply with all such requirements.
Except as expressly set forth in paragraphs (3), (4), (5) and (6) we express no opinion regarding any
tax consequences with respect to the Certificates.
Certain agreements, requirements and procedures contained or referred to in the Trust Agreement, the
Lease, the Tax Certificate executed by the City, and other documents related to the Certificates may be
changed and certain actions may be taken or omitted, under the circumstances and subject to the terms and
conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally
recognized in the area of tax-exempt obligations. We express no opinion as to the effect on the tax
consequences on and after the date on which any such change occurs or action is taken or omitted upon advice
or approval of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation.
We have not made or undertaken to make an investigation of the state of title to any of the real
property described in the Lease, the Site Lease, dated October 1, 2020 by and between the City and the
Corporation, and the Assignment Agreement or of the accuracy or sufficiency of the description of such
property contained therein, and we express no opinion with respect to such matters.
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The opinions expressed herein are limited to matters governed by the laws of the State of California
and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any
other jurisdiction.
The opinions expressed herein are based upon our analysis and interpretation of existing statutes,
regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities.
We call attention to the fact that rights and obligations under the Trust Agreement and the Lease are subject to
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or
affecting generally the enforcement of creditors’ rights, by equitable principles, by the exercise of judicial
discretion in appropriate cases and by the limitations on legal remedies against municipalities in the State of
California.
By delivering this opinion, we are not expressing any opinion with respect to any indemnification,
contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-
off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of
remedies, waiver or severability provisions contained in the Trust Agreement or the Lease, nor are we
expressing any opinion with respect to the state or quality of title to or interest in any assets described in or as
subject to the lien of the Indenture or the accuracy or sufficiency of the description contained therein of, or the
remedies available to enforce liens on any assets thereunder.
The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or
not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether
any such actions or events are taken or do occur. Our engagement with respect to the Certificates terminates
on the date of their execution and delivery.
We express no opinion herein as to the accuracy, completeness or sufficiency of the Official
Statement or other offering material relating to the Certificates and expressly disclaim any duty to advise the
owners of the Certificates with respect to matters contained in the Official Statement.
Respectfully submitted,
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APPENDIX E
FORM OF CONTINUING DISCLOSURE CERTIFICATE
Upon execution and delivery of the Certificates, the City proposes to enter into a Continuing
Disclosure Certificate in substantially the following form:
This Continuing Disclosure Certificate, dated as of October 22, 2020 (the “Disclosure Certificate”) is
executed and delivered by the City of Cupertino (the “City”) in connection with the execution and delivery of
the $22,040,000 City of Cupertino 2020A Certificates of Participation (the “Certificates”). The Certificates are
being executed pursuant to a Trust Agreement, dated as of October 1, 2020 (the “Trust Agreement), by and
among the City, The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), and the
Cupertino Public Facilities Corporation (the “Corporation”). The City covenants as follows:
SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and
delivered by the City for the benefit of the Owners and Beneficial Owners of the Certificates and in order to
assist the Participating Underwriter in complying with the Rule.
SECTION 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply
to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the
following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the City pursuant to, and as described in,
Sections 3 and 4 of this Disclosure Certificate.
“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or
consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates
through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for
federal income tax purposes.
“Disclosure Representative” shall mean the City Manager of the City, or their designee, or such other
officer or employee as the City shall designate in writing from time to time.
“Dissemination Agent” shall be Urban Futures, Inc., or any successor Dissemination Agent designated
in writing by the City and which has filed with the City a written acceptance of such designation.
“Financial Obligation” means a (a) debt obligation; (b) derivative instrument entered into in
connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or
(c) guarantee of (a) or (b). The term “Financial Obligation” shall not include municipal securities as to which
a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the
Rule.
“Listed Events” shall mean any of the events listed in Section 5(a) and 5(b) of this Disclosure
Certificate.
“Official Statement” shall mean the Official Statement relating to the Certificates, dated
September 29, 2020.
“Participating Underwriter” shall mean the original underwriter of the Certificates required to comply
with the Rule in connection with the offering of the Certificates.
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“Repository” shall mean the Municipal Securities Rulemaking Board, which can be found at
http://emma.msrb.org.
“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as the same may be amended from time to time.
“State” shall mean the State of California.
SECTION 3. Provision of Annual Reports.
(a) The City shall, or, upon delivery of the Annual Report to the Dissemination Agent, shall
cause the Dissemination Agent to, not later than March 31 following the end of the City’s fiscal year (which
currently ends on June 30), commencing with the report for the Fiscal Year ending June 30, 2020, provide to
the Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure
Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a
package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate;
provided that the audited financial statements of the City may be submitted separately from the balance of the
Annual Report and later than the date required above for the filing of the Annual Report if they are not
available by that date. If the City’s fiscal year changes, it shall give notice of such change in the same manner
as for a Listed Event under Section 5(c).
(b) Not later than fifteen (15) business days prior to said date, the City shall provide the Annual
Report to the Dissemination Agent (if other than the City). If the City is unable to provide to the Repository an
Annual Report by the date required in subsection (a) above, the Dissemination Agent shall in a timely manner
send a notice to the Repository in substantially the form attached as Exhibit A.
(c) The Dissemination Agent shall:
(i) confirm the electronic filing requirements of the Municipal Securities
Rulemaking Board for the Annual Report the name and address of each Repository; and
(ii) (if the Dissemination Agent is other than the City), file a report with the City
certifying that the Annual Report has been provided pursuant to this Disclosure Certificate and stating
the date it was provided.
SECTION 4. Content of Annual Reports. The City’s Annual Report shall contain or include:
(a) the City’s audited financial statements for the most recently completed fiscal year, prepared in
accordance with generally accepted auditing standards for municipalities in the State of California. If the
City’s audited financial statements are not available by the time the Annual Report is required to be filed
pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to
the financial statements contained in the final Official Statement, and the audited financial statements shall be
filed in the same manner as the Annual Report when they become available; and
(b) To the extent not contained in the audited financial statements, updated financial information
and operating data, for the most recent fiscal year only, relating to the City of the type contained in the Official
Statement in the following tables:
(i) Table 5 – Assessed Valuation
(ii) Table 6 – Ten Principal Taxpayers
(iii) Table 7 – Sales Tax Revenues
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SECTION 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of
the occurrence of any of the following events with respect to the Certificates in a timely manner not more than
ten (10) Business Days after the event:
1. principal and interest payment delinquencies;
2. unscheduled draws on debt service reserves reflecting financial difficulties;
3. unscheduled draws on credit enhancements reflecting financial difficulties;
4. substitution of credit or liquidity providers, or their failure to perform;
5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or
final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB);
6. tender offers;
7. defeasances;
8. ratings changes; and
9. bankruptcy, insolvency, receivership or similar proceedings of the City.
Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur
when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated
person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law
in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or
business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental
body and officials or officers in possession but subject to the supervision and orders of a court or governmental
authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or
governmental authority having supervision or jurisdiction over substantially all of the assets or business of the
obligated person.
10. Default, event of acceleration, termination event, modification of terms, or other
similar events under the terms of a Financial Obligation of the City, any of which reflect financial difficulties.
(b) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of
the occurrence of any of the following events with respect to the Certificates, if material:
1. unless described in Section 5(a)(5), other notices or determinations by the Internal
Revenue Service with respect to the tax status of the Certificates or other events affecting the tax status of the
Certificates;
2. modifications to the rights of Certificate holders;
3. optional, unscheduled or contingent Certificate prepayments;
4. release, substitution or sale of property securing repayment of the Certificates;
5. non-payment related defaults;
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6. the consummation of a merger, consolidation, or acquisition involving the City or the
sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry
into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to
any such actions, other than pursuant to its terms; and
7. appointment of a successor or additional trustee or the change of the name of a
trustee.
8. incurrence of a Financial Obligation of the City, or agreement to covenants, events of
default, remedies, priority rights, or other similar terms of a Financial Obligation of the City, any of which
affect Bond Owners.
(c) If the City determines that knowledge of the occurrence of a Listed Event under Section 5(b)
would be material under applicable federal securities laws, and if the Dissemination Agent is other than the
City, the City shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the
Dissemination Agent to file a notice of such occurrence with the MSRB in an electronic format as prescribed
by the MSRB in a timely manner not more than ten (10) Business Days after the event.
(d) If the City determines that the Listed Event under Section 5(b) would not be material under
applicable federal securities laws and if the Dissemination Agent is other than the City, the City shall so notify
the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence.
(e) The City hereby agrees that the undertaking set forth in this Disclosure Certificate is the
responsibility of the City and, if the Dissemination Agent is other than the City, the Dissemination Agent shall
not be responsible for determining whether the City’s instructions to the Dissemination Agent under this
Section 5 comply with the requirements of the Rule.
SECTION 6. Termination of Reporting Obligation. The City’s obligations under this Disclosure
Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the
Certificates. If such termination occurs prior to the final maturity of the Certificates, the City shall give notice
of such termination in the same manner as for a Listed Event under Section 5(c).
SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may
discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The
Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by
the City pursuant to this Disclosure Certificate. The Dissemination Agent may resign by providing thirty days
written notice to the City and the Trustee (if the Dissemination Agent is other than the Trustee). The
Dissemination Agent shall not be responsible for the content of any report or notice prepared by the City and
shall have no duty to review any information provided to it by the City. The Dissemination Agent shall have
no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any
report not provided to it by the City in a timely manner and in a form suitable for filing.
SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate
may be waived, if the City has received an opinion of counsel knowledgeable in federal securities laws to the
effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the
Rule if such amendment or waiver had been effective on the date hereof but taking into account any
subsequent change in or official interpretation of the Rule.
SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to
prevent the City from disseminating any other information, using the means of dissemination set forth in this
Disclosure Certificate or any other means of communication, or including any other information in any Annual
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Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure
Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a
Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have
no obligation under this Disclosure Certificate to update such information or include it in any future Annual
Report or notice of occurrence of a Listed Event.
SECTION 10. Filings with the MSRB. All financial information, operating data, financial
statements, notices, and other documents provided to the MSRB in accordance with this Disclosure Certificate
shall be provided in an electronic format prescribed by the MSRB and shall be accompanied by identifying
information as prescribed by the MSRB.
SECTION 11. Default. In the event of a failure of the City to comply with any provision of this
Disclosure Certificate, any Holder or Beneficial Owner of the Certificates may take such actions as may be
necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City
to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate
shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure
Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to
compel performance.
No Certificate holder or Beneficial Owner may institute such action, suit or proceeding to compel
performance unless they shall have first delivered to the City satisfactory written evidence of their status as
such, and a written notice of and request to cure such failure, and the City shall have refused to comply
therewith within a reasonable time.
SECTION 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent
shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees, to the
extent permitted by law, to indemnify and save the Dissemination Agent, its officers, directors, employees and
agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or
performance of its powers and duties hereunder, including the costs and expenses (including attorney’s fees) of
defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence
or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services
provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses,
legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties
hereunder. In performing its duties hereunder, the Dissemination Agent shall not be deemed to be acting in
any fiduciary capacity for the City, the Certificate holders, or any other party. The obligations of the City
under this Section shall survive resignation or removal of the Dissemination Agent and payment of the
Certificates.
SECTION 13. Notices. Any notices or communications to or among any of the parties to this
Disclosure Certificate may be given as follows:
To the City: City of Cupertino
10300 Torre Avenue
Cupertino, California 95014
Attention: City Manager
To the Dissemination Agent Urban Futures, Inc.
17821 East 17th Street, Suite 245
Tustin, CA 92780
Attention: Wing-See Fox, Manager Director
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SECTION 14. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City,
the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time
of the Certificates, and shall create no rights in any other person or entity.
SECTION 15. Signature. This Disclosure Certificate has been executed by the undersigned on the
date hereof, and such signature binds the City to the undertaking herein provided.
CITY OF CUPERTINO
By:
Mayor
ACKNOWLEDGED AND ACCEPT BY:
URBAN FUTURES, INC.,
as Dissemination Agent
By:
Authorized Officer
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EXHIBIT A
NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Cupertino
Name of Certificate Issue: $22,040,000 City of Cupertino
2020A Certificates of Participation
Date of Delivery: October 22, 2020
NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the
above-named Certificates as required by the Continuing Disclosure Certificate executed by the City on the date
of delivery of the Certificates. The City anticipates that the Annual Report will be filed by _____________.
Dated: Dissemination Agent
By:
[THIS PAGE INTENTIONALLY LEFT BLANK]
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APPENDIX F
DTC BOOK-ENTRY SYSTEM
The information in this Appendix F concerning DTC and DTC’s book-entry system has been obtained from
sources that the City believes to be reliable, but the City takes no responsibility for the completeness or accuracy
thereof. The following description of the procedures and record keeping with respect to beneficial ownership
interests in the Certificates, payment of principal, premium, if any, accreted value, if any, and interest with respect
to the Certificates to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership
interests in the Certificates and other related transactions by and between DTC, the DTC Participants and the
Beneficial Owners is based solely on information provided by DTC.
DTC will act as securities depository for the Certificates. The Certificates will be issued as fully-registered
securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be
requested by an authorized representative of DTC. One fully registered certificate will be issued for each annual
maturity of the Certificates, each in the aggregate principal amount of such annual maturity, and will be deposited
with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New
York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code,
and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues,
corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s
participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post trade settlement among Direct
Participants of sales and other securities transactions in deposited securities, through electronic computerized book
entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement
of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The
Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities
Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC
is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear
through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect
Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on
file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will
receive a credit for the Certificates on DTC’s records. The ownership interest of each actual purchaser of each
Certificate (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial
Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however,
expected to receive written confirmations providing details of the transaction, as well as periodic statements of their
holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction.
Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct
and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the Certificates, except in the event that use of the book-entry system for
the Certificates is discontinued.
To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered
in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or
such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Certificates; DTC’s records reflect only the identity of the Direct Participants to whose
accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect
Participants will remain responsible for keeping account of their holdings on behalf of their customers.
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Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to
Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Beneficial Owners of Certificates may wish to take certain steps to augment the transmission to them of notices of
significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments
to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the
nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In
the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that
copies of notices be provided directly to them.
Prepayment notices shall be sent to DTC. If less than all of the Certificates within an issue are being
redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such
maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Certificates
unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures,
DTC mails an Omnibus Proxy to the Corporation as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Certificates are
credited on the record date (identified in a listing attached to the Omnibus Proxy).
Prepayment proceeds, distributions, and dividend payments on the Certificates will be made to Cede & Co.,
or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit
Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the
Corporation or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records.
Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices,
as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and
will be the responsibility of such Participant and not of DTC, the Trustee, or the Corporation, subject to any
statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds,
distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized
representative of DTC) is the responsibility of the Corporation or the Trustee, disbursement of such payments to
Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners
will be the responsibility of Direct and Indirect Participants.
A Certificate Owner shall give notice to elect to have its Certificates purchased or tendered, through its
Participant, to the Trustee, and shall effect delivery of such Certificates by causing the Direct Participant to transfer
the Participant’s interest in the Certificates, on DTC’s records, to the Trustee. The requirement for physical delivery
of Certificates in connection with an optional tender or a mandatory purchase will be deemed satisfied when the
ownership rights in the Certificates are transferred by Direct Participants on DTC’s records and followed by a book-
entry credit of tendered Certificates to the Trustee’s DTC account. DTC may discontinue providing its services as
depository with respect to the Certificates at any time by giving reasonable notice to the Corporation or the Trustee.
Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required
to be printed and delivered.
DTC may discontinue providing its services as depository with respect to the Certificates at any time by
giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor
depository is not obtained, Certificate certificates are required to be printed and delivered and the registration and
transfer provisions of the Trust Agreement will apply.
The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a
successor securities depository). In that event, Certificate certificates will be printed and delivered to DTC and the
registration and transfer provisions of the Trust Agreement will apply.
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