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Staff Report with attachments PREPARED BY: Gitta Ungvari Finance Director Reviewed by: Town Manager, Assistant Town Manager, and Town Attorney 110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832 www.losgatosca.gov TOWN OF LOS GATOS COUNCIL AGENDA REPORT MEETING DATE: 12/20/2022 ITEM NO: 7 DATE: December 13, 2022 TO: Mayor and Town Council FROM: Laurel Prevetti, Town Manager SUBJECT: Annual Comprehensive Financial Report (ACFR): a. Receive the Annual Comprehensive Financial Report (ACFR) for the Fiscal Year Ended June 30, 2022, and b. Adopt a Resolution Confirming June 30, 2022 Fund Balances in Accordance Fiscal Year 2021/22 Final Audit and Town Council General Fund Reserve Policy RECOMMENDATION: Annual Comprehensive Financial Report (ACFR): a. Receive the Annual Comprehensive Financial Report (ACFR) for the Fiscal Year Ended June 30, 2022 (Attachment 1) as recommended by the Finance Commission, and b. Adopt a Resolution Confirming June 30, 2022 Fund Balances in Accordance with Fiscal Year 2021/22 Final Audit and Town Council General Fund Reserve Policy.(Attachment 2) BACKGROUND: The Town contracts with an independent certified public accountant to examine the books, records, inventories, and reports of all officers and employees who receive, handle, or disburse public funds each fiscal year (FY). The FY 2021/22 audit was performed by Chavan and Associates, LLP an experienced firm specializing in audit services for California public agencies. The firm also compiled the Draft ACFR for the Town of Los Gatos. The information contained in the ACFR provides detailed financial information which the Los Gatos community and others can use to better understand the fiscal standing of the Town. In addition, the financial information contained in the document is one element that the credit rating agencies review annually to affix a credit rating for the Town’s outstanding debt obligations. PAGE 2 OF 4 SUBJECT: Receive 2022 Annual Comprehensive Financial Report DATE: December 13, 2022 BACKGROUND (continued): With the passage of Measure A, the Finance Commission has been tasked with several mandated duties as described in the provisions of the adopted Ordinance. Section 2.50.225. – Duties states that: (a) The Finance Commission shall: (3) Review the Town Manager's draft Annual Comprehensive Financial Report (ACFR) for the preceding fiscal year and provide written comments and recommendations to the Town Manager. (A) The Town Manager shall respond in writing to the Finance Commission providing his or her rationale for accepting or rejecting each of the Finance Commission's comments and recommendations prior to presenting the ACFR to the Town Council for formal consideration. (B) The Town Manager may not present the ACFR to the Town Council for formal consideration unless or until he or she considers and responds in writing to all of the Finance Commission's comments and recommendations. DISCUSSION: On December 12, 2022, the Commission received the Fiscal Year 2021/22 Draft Annual Comprehensive Financial Report (ACFR) for the Commission’s consideration per Measure A including a presentation from the Town’s auditor Chavan and Associates, LLP (Attachment 3). During the meeting, the Commission provided feedback on the Fiscal Year 2021/22 Draft Annual Comprehensive Financial Report (Attachment 1). Of note the Commission requested that given recent inflationary trends, staff should provide language that illustrates the effect long-term inflation could have on the Town’s pension liabilities (pg. 4). In addition, the Commission requested that staff expand Note 15 to include the FY 2020/21 ARPA expenditures of $200,000 (pg. 97). Commissioners also requested that Note 16 make it clear that the potential waste hauler revenue loss is an annual number (pg. 98). On December 15, 2022, the Finance Commission will conclude its review of the Fiscal Year 2021/22 Draft Annual Comprehensive Financial Report (ACFR). Any additional recommendations received from the Commission at the December 15th meeting will be communicated to the Town Council through the addendum process. In addition to the review and input provided by the Finance Commission, staff also provided continuous review and updates to the Fiscal Year 2021/22 Draft Annual Comprehensive Financial Report (ACFR) accordingly (pages 4, 19, 31, 83, and 85). PAGE 3 OF 4 SUBJECT: Receive 2022 Annual Comprehensive Financial Report DATE: December 13, 2022 DISCUSSION (continued): The redline version of the attached ACFR represents the culmination of recommended enhancements and changes based on Finance Commission comments, continued staff analysis, and continued auditor review while maintaining appropriate ACFR presentation based on governmental accounting and municipal standards. Highlights of the draft audited financial results include: Independent Auditor’s Report The auditor has given the Town’s financial statements a “clean” audit opinion for the year ended June 30, 2022 giving reasonable assurance that the financial statements are “free of material misstatement.” (Attachment 3) Management’s Discussion and Analysis (MD&A) The MD&A section of the report summaries for the Town on an entity-wide basis and fund type basis. Information is provided in this section with a year-to-year view, explaining how fund balances have changed between fiscal years ending June 30, 2020, June 30, 2021, and June 30, 2022. Information is also presented on the adopted General Fund budget to actuals and any significant budget adjustments made during FY 2021/22. Statement of Net Position The Statement of Net Position serves as a useful indicator of a government’s financial position. The Town had net assets of $138.4 million at fiscal year-end as compared to $113.5 million the prior year, an overall increase of $24.9 million over the prior fiscal year. The increase was largely attributed to the combined net result of an approximate $37 million decrease in total long-term liabilities outstanding, a $16 million dollar increase in capitalized assets including a $12.2 million historic Los Gatos Theatre contribution and a $3.7 million addition to non- capitalized capital outlay expenses from the prior year The largest portion of the net assets, $127.8 million, represents the Town’s investment in its capital assets and infrastructure. Restricted assets of $10.2 million are resources that are subject to external restrictions on how they may be used. As of June 30, 2022, unrestricted net position is $1.8 million compared to a negative ($4.7 million) the prior year. Basic Financial Statements This section contains basic financial statements, including the “entity-wide” Statement of Net Position and Statement of Activities, financial statements for the fund types including Governmental Funds (such as the General Fund), Proprietary Funds, and the Private Purpose Trust Funds (Redevelopment Successor Agency). The footnotes section provides details on significant items such as the Town’s cash and investments (Note 2), Note 4 which illustrates the new implementation of GASB 87 for leases, its long term obligations (Certificates of Participation) related to bonded debt (Note 7), the net pension liability for both the Town’s PAGE 4 OF 4 SUBJECT: Receive 2022 Annual Comprehensive Financial Report DATE: December 13, 2022 DISCUSSION (continued): miscellaneous and safety pension plans (Note 10), and a discussion of the Town’s other post- employment benefit plan (Note 11). Required Supplementary Information The Schedules of Pension Plan Contributions are provided in this section. Supplementary Information This section provides budget to actual information for “non-major” funds which represent less than 10% of the Town’s total assets/liabilities/revenues or expenditures. Statistical Section This section presents demographic statistics and ten-year historical financial data for the Town, including information on assessed valuations, fund balances, debt, property tax rates, personnel (full-time equivalent) history, principle employers, and other financial and demographic disclosures. CONCLUSION: As noted in the auditor’s opinion, the ACFR fairly presents the fiscal year ending June 30, 2022 financial activity for the Town of Los Gatos. FISCAL IMPACT: There is no fiscal impact associated with this item. Attachments: 1. Draft Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2022. 2. Fund Balance Resolution Establishing June 30, 2022 Fund Balances 3. Independent Auditor Presentation to the Council Finance Commission ATTACHMENT 1 TOWN OF LOS GATOS CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 PREPARED BY THE OFFICE OF THE TOWN MANAGER TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 TABLE OF CONTENTS INTRODUCTORY SECTION: Letter of Transmittal ........................................................................................................................... 1 Organization Chart ............................................................................................................................. 7 Principal Officers ................................................................................................................................ 8 GFOA Award ..................................................................................................................................... 9 FINANCIAL SECTION: Independent Auditor’s Report ........................................................................................................... 13 Management’s Discussion and Analysis ........................................................................................... 19 Basic Financial Statements: Government-Wide Financial Statements: .................................................................................... 40 Statement of Net Position ..................................................................................................... 41 Statement of Activities ......................................................................................................... 42 Fund Financial Statements: Governmental Funds: ........................................................................................................... 43 Balance Sheet ................................................................................................................... 44 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position .............................................................................................. 45 Statement of Revenues, Expenditures and Changes in Fund Balances ............................. 46 Reconciliation of Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities ...................................... 47 Statement of Revenue, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP) General Fund .................................................................... 48 Proprietary Funds – Internal Service Funds: ....................................................................... 49 Statement of Net Position ................................................................................................. 50 Statement of Revenue, Expenses and Changes in Net Position ........................................ 51 Statement of Cash Flows .................................................................................................. 52 Fiduciary Funds: .................................................................................................................. 53 Statement of Fiduciary Net Position ................................................................................. 54 Statement of Changes in Fiduciary Net Position .............................................................. 55 Notes to the Basic Financial Statements ...................................................................................... 58 REQUIRED SUPPLEMENTARY INFORMATION: Schedule of Pension Plan Contributions...................................................................................... 101 Schedule of Proportionate Share of Net Pension Liability – CalPERS Safety Cost Sharing Plan ................................................................................................................. 102 Schedule of Proportionate Share of Net Pension Liability – CalPERS Misc. Agent-Multiple Employer Plan ............................................................................................ 103 Schedule of OPEB Contributions ................................................................................................ 104 Schedule of Changes in Net OPEB Liability ............................................................................... 105 TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 TABLE OF CONTENTS SUPPLEMENTARY INFORMATION: Major Governmental Fund Schedules (other than the General Fund): Schedule of Revenue, Expenditures and Changes in Fund Balance – Budget and Actual (GAAP) Appropriated Reserves Fund ................................................... 109 Nonmajor Governmental Funds: Combining Balance Sheets .......................................................................................................... 110 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ...................................................................................................................... 113 Budgeted Nonmajor Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP) ................................................... 116 Internal Service Funds: Combining Statement of Fiduciary Net Position ......................................................................... 122 Combining Statement of Revenue, Expenses and Changes in Net Position ................................ 123 Combining Statement of Cash Flows .......................................................................................... 124 STATISTICAL SECTION .............................................................................................................. 127 Net Position by Component ......................................................................................................... 129 Changes in Net Position .............................................................................................................. 130 Fund Balances, Governmental Funds .......................................................................................... 132 Changes in Fund Balances, Governmental Funds ....................................................................... 134 Assessed Value and Estimated Actual Value of Taxable Property ............................................. 136 Direct and Overlapping Property Tax Rates ................................................................................ 137 Principal Property Tax Payers ..................................................................................................... 138 Property Tax Levies and Collections ........................................................................................... 140 Ratios of Outstanding Debt by Type ........................................................................................... 141 Direct and Overlapping Governmental Activities Debt............................................................... 142 Legal Debt Margin ...................................................................................................................... 143 Demographic and Economic Statistics ........................................................................................ 145 Principal Employers .................................................................................................................... 146 Full-time Equivalent Town Government Employees by Function/Program ............................... 148 Operating Indicators by Function/Program ................................................................................. 149 Capital Assets Statistics by Function/Program ............................................................................ 151 OTHER INDEPENDENT AUDITOR’S REPORTS: Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ................................................................................................. 153 INTRODUCTORY SECTION This Page Left Intentionally Blank Page 1 December 6, 2022 Honorable Mayor and Town Council, I am pleased to submit the Town’s Annual Comprehensive Financial Report (ACFR) for the fiscal year ending June 30, 2022. In coordination with the Town Manager’s Office, this report was prepared by the Finance Department, which assumes responsibility for the accuracy of the data, the completeness and fairness of the presentation, and all disclosures. The information in this report presents the reader with a comprehensive view of the Town’s financial position and the results of its operations for the fiscal year ending June 30, 2022, along with additional disclosures and financial information designed to enable the reader to gain an understanding of the Town’s financial activities. This report was prepared as prescribed in Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments (GASB 34). This GASB Statement requires management to provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of a Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The MD&A can be found immediately following the Independent Auditor’s Report. This Annual Comprehensive Financial Report is organized into three sections: I. The Introductory Section includes the table of contents, letter of transmittal, listing of elected officials, Town administrative personnel, and an organization chart delineating organizational structure. II. The Financial Section includes the Independent Auditor’s opinion, the MD&A, the basic financial statements, notes to the financial statements, combining statements of non­major funds, and required supplemental information. III. The Statistical Section includes both financial and non­financial data about the Town. The Annual Comprehensive Financial Report is prepared in accordance with Generally Accepted Accounting Principles (GAAP) promulgated by the Governmental Accounting Mayor and Town Council December 6, 2022 Page 2 Standards Board (GASB) and includes the audit report of Chavan & Associates, the Town’s independent certified public accountants. This Annual Comprehensive Financial Report will be submitted to the Government Finance Officers Association for consideration of its Achievement of Excellence Award in financial reporting certification. This award is granted only to entities whose reports meet the highest standards of municipal financial reporting. THE REPORTING ENTITY AND ITS SERVICES Los Gatos is a general law Town, incorporated under the legal framework of California in 1887. The Town is located in the foothills and level terrain of southwestern Santa Clara Valley, referred to internationally as “Silicon Valley.” From the first 100­acre Town site and an 1890 population of 1,652, Los Gatos grew slowly so that by 1963 the area was 6.3 square miles with a population of 11,750. Today Los Gatos covers approximately 15 square miles with a population of 33,062 (California Department of Finance, January 2022). The growth over the last 80 years resulted in a community with vibrant business districts, well-maintained neighborhoods, and lovely parks and open spaces. Preserving the unique charm of Los Gatos as a complete and well-balanced community while meeting its economic and housing needs, has been, and remains a key goal for the Town. The Town maintains a Council­Manager form of government which combines the strong political leadership of elected officials with the strong managerial experience of an appointed Town Manager. Five Council members are elected at large for staggered four­ year terms to govern the Town. The Mayor and Vice­Mayor are appointed by the Council from its own ranks and serve one- year terms. The Town Manager and Town Attorney are appointed and supervised directly by the Council. The Town Manager oversees all municipal services such as Public Safety, Parks and Public Works, Community Development, Library, and Town Administration including Human Resources, Information Technology, and Finance. ECONOMIC CONDITIONS AND OUTLOOK This past year the Town continued to see a modest return to economic normalcy after the initial economic impacts associated with the pandemic. However, the Town’s economically sensitive Transient Occupancy Tax (TOT) remains near historic lows and Sales Tax receipts are still below FY 2018/19 levels. Property Tax revenues remained steady as suburban communities continued to benefit from urban flight and remote work remained viable for certain occupations. General Fund revenues (not including transfers in) increased 8.8% from the prior year. Property tax revenues remain the largest and most consistent source of support for General Fund operations, comprising approximately 45.3% of General Fund revenues in FY 2021/22. For FY 2021/22 property tax receipts of $21.1 million were $1.2 million higher than the prior year’s collection, reflecting the continued desirability of the Town, its environment, culture, and educational opportunities. Mayor and Town Council December 6, 2022 Page 3 The Town also relies heavily on sales tax revenues to support General Fund operations, comprising approximately 18.2% of General Fund revenues in FY 2021/22. For FY 2021/22 sales tax receipts of $8.5 million were $0.6 million higher than the prior year’s collection. Sales tax revenues were supported by significant increases in gas prices, strong auto sales, and the continued resurgence of the restaurant sector. The Town’s 1/8 cent District Sales Tax continued to perform well as the District Tax captures a larger share of the increase in online sales versus the County pool collections. In addition to the Town’s revenue sources the Town continues to benefit from the federal American Rescue Plan Act (ARPA). The Act will allocate $7,229,744 to the Town over a two-year period with the first nonrecurring payment of $3,614,872 received on July 13, 2021. The funding provided critical support for budget stabilization, economic vitality, and social welfare initiatives. For more information regarding the two federal programs please refer to Note 15. As with most municipalities, services are provided directly by employees to the Town’s residents, businesses, and visitors. As a service delivery enterprise, the cost of salaries and benefits are a significant portion of the Town’s expenditures. Salaries are largely dictated by regional market forces as evidenced by fierce competition for talent in the San Francisco Bay Area, and inflationary pressures nationwide. During FY 2021/22, the Town successfully completed negotiations with all bargaining units. While important for the consistent delivery of high-quality services for the Town, these actions exacerbated an already existing imbalance between revenues and expenditures. The Town also continues to adjust and prepare for pension employer costs to continue to be a primary expense in conjunction with salaries. The Town’s pension plans over the past several decades, like all other CalPERS participants, have experienced changes in actuarial assumptions, demographic changes, and volatile investment returns which have outweighed any positive plan experiences. The outcome of these unfavorable economic and demographic conditions is the creation of unfunded pension and Other Postemployment Benefits (OPEB) obligations for the Town. According to the 2021 CalPERS actuarial valuations, the unfunded actuarial liability for pensions was $36.8 million and $5.5 million for OPEB as of June 30, 2021. To address the escalation in pension costs, current and previous Councils have allocated additional discretionary pension funding totaling $10.4 million. These additional discretionary payments will ultimately yield an approximate $12.7 million in pension contribution savings. In addition to the management of the Town’s pension obligations, prior Councils have worked to curb cost escalation in Other Postemployment Benefits (OPEB). In 2009, the Town initiated prefunding of the retiree healthcare benefit and has since established approximately $23.2 million in OPEB assets from zero in 2009. In addition, it should be noted that the net pension obligation varies annually depending upon the plan’s actual investment earnings compared to the assumed rate of return during the plan’s measurement periods. The Net Pension Obligation (NPO) reported in the Town’s ACFRs has experienced a high degree of variability in recent years, with Net Pension Obligation reported in the June 30, 2017 ACFR in the amount of $33.4 million rising to $58.02 million in fiscal year 2020/21. The NPO reported in this year’s financial statements (ACFR 2021/22) has decreased 52.6% to the Mayor and Town Council December 6, 2022 current NPO of $27.48 million. Due to CalPERS preliminary negative returns of 7.4%, staff expects the NPO to rise significantly in the next fiscal year reporting period. It should be noted that CalPERS has recently cautioned in their annual review of funding and risks that recent and current increases in the Consumer Price Index (CPI) are expected to have a material impact on the pension liabilities in future actuarial valuation reports for both retirees (due to cost of living increases) and the active members (due to future salary increases). Readers are cautioned that in considering the amount of the pension and OPEB liabilities and other actuarial data as reported by CalPERS and the Town’s actuary, this is “forward looking” information. Such “forward looking” information reflects the judgment of the Board of Administration of CalPERS, its actuaries, and the Town’s actuary as to the amount of assets which the pension and OPEB plans will be required to accumulate to fund future benefits. These judgments are based upon a variety of assumptions, one or more of which may prove to be inaccurate or that may change with the future experience of the pension and OPEB plans. The actuarial methods and assumptions could be changed by CalPERS and the Town’s actuary at any time based on their professional judgement. Such changes could cause the Town’s obligations to the pension and OPEB plans to be higher or lower in any particular year. This sensitivity to changes in actuarial assumptions is especially evident in changes to the Discount Rate as illustrated in Note 10 and changes to Healthcare Trend and Discount rates as illustrated in Note 11 For detailed information about the Town employees’ retirement plan please refer to Note 10 of the Notes to Basic Financial Statements Section. For detailed information about the Town OPEB obligations please refer to Note 11 of the Notes to Basic Financial Statements Section. In addition, the Town provides extensive information on pension and OPEB information on the Town’s website. Despite revenue constraints and increasing costs associated with unfunded federal and state mandates, the Town has managed to maintain high service levels through increased efficiencies in Town operations and prudent fiscal management. The Town continues its outreach to the community, the League of California Cities, and local legislators to prevent and limit any future revenue losses and mandated cost increases. For example, the Town is currently evaluating a recent California Supreme Court case that could negatively impact the collection of waste hauler franchise fees. For more information see Note 16. MAJOR CAPITAL PROJECT INITIATIVES Major capital asset and infrastructure initiatives were once again the priority for the fiscal year. Approximately $21.4 million in Town infrastructure and other capital asset improvements and contributions were invested in FY 2021/22, including a $12.2 million Los Gatos Theater contribution, a $1.5 million parking lot acquisition, and $3.9 million in Town-wide street projects to improve the pavement condition. In addition, $3.7 million was invested in construction in progress including, roads, bridges, storm drains, park, pathways, building improvements, and downtown revitalization efforts. Additional infrastructure improvements are scheduled in accordance with the Town’s approved Capital Improvement Plan, and will continue into future years. All of these improvements are funded either through grants, or via revenues accumulated from prior year budget savings and/or excess revenues per Town Council Policy. Page 4 Mayor and Town Council December 6, 2022 Page 5 ACCOUNTING SYSTEM AND BUDGETARY CONTROL The effectiveness of internal controls is a primary consideration in the development and evaluation of the Town’s accounting system. Internal accounting controls are designed to provide reasonable but not absolute assurance regarding: 1)safeguarding of assets against loss from unauthorized loss or disposition, 2)accuracy and reliability of accounting data, and 3)adherence to managerial policy. The concept of reasonable assurance recognizes that the cost of internal controls should not outweigh the benefits, and that management must make estimates and judgments in evaluating these costs and benefits. All governmental fund types use the modified accrual basis of accounting. This means that revenues are recorded when measurable and available rather than when received. Measurable means the amount can be determined and available means the cash is received within sixty days after the end of the fiscal year. Expenditures are recorded when the liability is incurred, rather than when paid. An exception to this rule is principal and interest on general long-term debt, which is not recognized by debt service funds until it is due. Proprietary (internal service) funds are accounted for using the accrual basis of accounting, similar to that used by corporations. Proprietary fund revenues are recognized when they are earned rather than when the cash is received, even if the cash is not available and proprietary fund expenses are recognized when they are incurred. With the implementation of GASB 34, the Town prepares its Basic Financial Statements on the accrual basis. Internal accounting procedures have been developed to provide reasonable assurance regarding the safeguarding of assets and the reliability of financial records for preparing financial statements and maintaining asset accountability. An annual operating budget, five-year budget forecast, and five-year capital improvement plan is adopted by the Town Council consistent with generally accepted accounting principles. All budget adjustments and transfers between funds must be approved by the Town Council during the fiscal year. The Town Manager is authorized to transfer unencumbered appropriations within a budget category, within a fund. Appropriations are valid for each fiscal year and lapse at year­end. AWARDS The Town’s Annual Comprehensive Financial Report for the fiscal year ended June 30, 2021 was awarded a Certificate of Achievement for Excellence in Financial Reporting by the national Government Finance Officers Association. This is the 27th consecutive year that the Town has received the award. This prestigious award recognizes the report’s conformance with strict accounting and reporting standards established by the Government Accounting Standards Board Mayor and Town Council December 6, 2022 Page 6 and government finance organizations. This award is annual in nature and valid for one year only. This year’s report will be submitted for award consideration by this organization, as we believe it continues to meet these standards. INDEPENDENT AUDIT State law requires an annual audit of the Town’s accounts by independent certified public accountants. The accounting firm of Chavan & Associates LLP performs this function for the Town of Los Gatos, and their report is included in the financial section of the ACFR. ACKNOWLEDGEMENTS The preparation of this Annual Comprehensive Financial Report, as presented herein, is the result of the combined efforts and dedicated services of the excellent staff of the Department of Finance. Special thanks to Mark Gaeta, Accountant; Melissa Ynegas, Finance Analyst; Diane Howard, Finance Analyst; and Maurice De Castro, Accountant; Wayne Chen, Administrative Technician; Steve Conway, Former Finance Director; and Arn Andrews Assistant Town Manager for their efforts in preparing this report. The Town’s Finance Commission is also recognized for its contributions to strengthening the ACFR through its review, discussion, and comments. Respectfully submitted, Laurel Prevetti Gitta Ungvari Town Manager Director of Finance Page 7 Town of Los Gatos Organizational Structure Page 8 TOWN OF LOS GATOS PRINCIPAL OFFICERS JUNE 30, 2022 TOWN COUNCIL Mayor Rob Rennie Vice Mayor Maria Ristow Council Member Mary Badame Council Member Matthew Hudes Council Member Marico Sayoc COUNCIL APPOINTEES Town Manager Laurel Prevetti Town Attorney Gabrielle Whelan APPOINTED OFFICIALS Assistant Town Manager Arn Andrews Chief of Police Jamie Field Community Development Director Joel Paulson Interim Parks and Public Works Director Tim Borden Library Director Ryan Baker Interim Finance Director Stephen Conway Human Resources Director Salina Flores Page 9 Page 10 This Page Left Intentionally Blank Page 11 FINANCIAL SECTION Page 12 This Page Left Intentionally Blank Page 13 15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com INDEPENDENT AUDITOR’S REPORT To the Honorable Mayor and Members of the Town Council of the Town of Los Gatos Los Gatos, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, General Fund budgetary statement, and the aggregate remaining fund information of the Town of Los Gatos (the “Town"), as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise Town’s basic financial statements as listed in the table of contents. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, General Fund budgetary statement, and the aggregate remaining fund information of the Town of Los Gatos, as of June 30, 2022, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinions We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Town and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Emphasis of a Matter During the year, the Town implemented GASB Statement No. 87, Leases. As a result, the Town recorded lease receivables of $1,826,417 and net deferred inflows of resources of $1,156,412, increasing beginning fund balance and net position by $687,399. See note 4 for additional information. Our opinion was not modified for this matter. Responsibilities of Management for the Financial Statements Town management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Town’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. Page 14 15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS and GAGAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Town’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Town’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with 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. Page 15 15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town’s financial statements as a whole. The introductory section, supplementary budgetary comparison schedules, combining individual non-major fund schedules, combining internal service fund schedules, and statistical data, are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual nonmajor fund financial statements and combining internal service fund schedules are the responsibility of management and were derived from and relate 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 combining and individual nonmajor fund financial statements and combining internal service fund schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory, supplemental budgetary and statistical sections have 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 6, 2022 on our consideration of the Town’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 Town’s internal control over financial reporting and compliance. Chavan & Associates, LLP Certified Public Accountants December 6, 2022 Morgan Hill, California Page 16 This Page Left Intentionally Blank Page 17 Management’s Discussion and Analysis Page 18 This Page Left Intentionally Blank Page 19  MANAGEMENT’S DISCUSSION AND ANALYSIS This section of the Town of Los Gatos’s Annual Comprehensive Financial Report (ACFR) presents  Management’s Discussion and Analysis (MD&A) of the Town’s financial performance during the  fiscal year that ended on June 30, 2022. This analysis should be read in conjunction with the  Transmittal Letter at the front of this report and the accompanying Basic Financial Statements.   FINANCIAL HIGHLIGHTS  •Town assets and deferred outflows of resources exceeded its liabilities and deferred inflows of resources at the close of Fiscal Year (FY) 2021/22 by $138,406,981 (total net position). •The Town’s total net position increased by $24,888,881 during the fiscal year largely as a combined  net  result  of  an  approximate  $37  million  decrease  in  total  long‐term  liabilities outstanding,  a  $16  million  dollar  increase  in  capitalized  assets  including  a  $12.2  million historic Los Gatos Theatre contribution and a $3.7 million addition to non‐capitalized capital outlay  expenses  from  the  prior  year.   Non‐capitalized  project  expenditures  reduce  net position  as  they  are  not  added  back  to  total  assets  as  new  infrastructure  or  capital investments.   Major  non‐capitalized  expense  projects  included  approximately  $849K  in bicycle lane safety improvements, $58K for parking program implementation, and  $77K for traffic  safety.  Depreciation  expenses  allocated  to  all  Town  Departments  increased  by approximately $439K from the prior year reflecting the significant additional  investments and contributions made in the Town’s infrastructure through FY 2021/22. •The  decrease  in  long‐term  liabilities  was  mostly  attributed  to  the  decline  in  net  pension liabilities  of  $30.5  million.  The  decline  was  due  to  each  plan’s  actual  investment  earnings having far exceeded the actuarial return assumptions during the plan’s measurement  periods (July 1, 2020 through June 30, 2021).  Also contributing to the decrease in the net  pension liabilities  were  the  Town’s  additional  discretionary  payments  (ADPs)  in  excess  of  the contractually required contributions in prior fiscal years that are now  recognized in the FY 2021/22 financial statements. •Total pension expense calculated for the Town’s miscellaneous and safety plans is  $3,389,540 after a credit of $3,168,358 as a result of GASB 68 adjustment.  This credit led to  reduced pension expense in both the miscellaneous and safety plans as a result of better  than projected investment earnings versus the projected assumed investment returns on  pension plan investments as of the June 30, 2021 measurement date. A more detailed  discussion of the Town’s unfunded pension liabilities can be found in Note 10. •Reported unrestricted net position is $1,785,294 compared to negative ($4,735,103) the  prior year.  Unrestricted net position represents all resources not included as net  investment in capital or restricted assets. •During FY 2021/22, the Town implemented GASB Statement No. 87 Leases.  As a result, the Town recorded long‐term lease receivables of $1,826,417 and net deferred inflows of leases Page 20  of $1,156,412, increasing beginning fund balance and net position by $0.7 million.  See Note  4 for additional information.  The Town received the first tranche payment of $3,614,872 from the American Rescue Plan Act (ARPA) grant on July 13, 2021.  For FY 2020/21, $200K of ARPA proceeds was recognized as revenue to reimburse the Town for qualifying expenditures under the provisions of the Act including boosting economic recovery and providing rent forgiveness and direct grants to non‐profit and social welfare organizations.  For FY 2021/22, the Town recognized $3.4 million in ARPA revenues related to recovery of revenue loss. Despite the ongoing economic impacts resulting from the nationwide pandemic, the Town’s economically sensitive major revenues of property tax, sales tax, and business license tax were able to record gains from amounts reported the prior fiscal year.  Property taxes collected increased $1.3 million, sales taxes increased $0.6 million, while business license tax increased by a modest $94K from amounts collected the prior year. The economic impacts related to the pandemic and initial travel restrictions continued into FY 2021/22.  FY 2021/22 Transient Occupancy Tax (TOT) revenue collection increased by $840K compared to the level collected in FY 2020/21.  However, the current year proceeds of $1.9 million is still $0.8 million lower than FY 2019/20 level of TOT collection. Total expenses as reported in the Statement of Activities increased $2.2 million from the prior year.  The increase primarily was driven by a one‐time $6.9 million State pass‐through grant payment in General Government for wildfire protection.  Excluding the one‐time payment, total expenses actually decreased from the prior year by $4.7 million primarily due to the $3.1 million calculated pension expense credit, salary and benefit savings, and other miscellaneous operational savings.  As previously noted, the pension expense credit was mostly from actual investment earnings in excess of estimated assumed investment earnings and additional discretionary payments in excess of contractually required contributions. The cost of all governmental activities as presented in the Statement of Activities this year was $52.7 million.    The Town’s governmental program revenues were $41.2 million including charges for services of $12.8 million, operating grants and contributions of $6.2 million, and capital grants and contributions of $22.2 million.  After taking governmental program revenues into consideration, the net amount of taxpayer supported governmental activities was $11.5 million.  The Town paid for the remaining “public benefit” portion of governmental activities from total taxes and general revenues of $35.7 million.  This $11.5 million in net cost of governmental activities is net of the $12.2 million Los Gatos Theatre contribution that occurred during FY 2021/22.  Excluding the theatre contribution, the net cost of governmental activities would be $23.7 million which represents an approximate 32% decrease from the prior fiscal year ($35.1 million).  The decrease reflects reduced costs related to the pension credit and increased governmental grant revenues from the prior year. At the end of FY 2021/22, the General Fund balance was $26,896,789 compared to $23,914,618 in the prior year.  The ending fund balance of $26,896,789 represents approximately 62% of General Fund expenditures for the current fiscal year excluding Page 21  transfers‐out to the Town’s capital projects funds and internal service funds.  The $3.6 million  increase in General Fund ending fund balances was primarily due to the combined effect of  favorable year end increases in economically sensitive revenues coupled with operational  savings, and approximately $3.5 million transfer (including $2.9 million General Fund  Reserves and 50% of the FY 2021/22 Measure G proceeds in the amount of $0.6 million) to  the Town’s capital projects fund to provide resources for Town infrastructure improvements.  Fund balances for all governmental funds at year end were $50,862,138, an increase of approximately $3.0 million or (6.3%) from the prior year.  Governmental fund balances increased primarily due to approximately $3.3 million of excess operating revenues above operating expenditures offset for capital use.  Much of the surplus was due to an increase in property taxes, sales taxes, other taxes, licenses and permits, charges for services and franchise fees of $4.7 million over the prior year.  These increased revenues were partially offset by mark‐to‐market declines which are recognized as negative interest income in FY 2021/22 of $1.2 million versus positive interest income of $300K the prior year. At fiscal year end, the Town’s General Fund restricted cash assets reported a $690K balance in the Town’s IRS Section 115 Pension Trust. As of June 30, 2022, the Town’s investment in capital assets for its governmental activity is recorded at $127,770,566 ($101,704,464 net of accumulated depreciation and $26,066,102 nondepreciable).  During FY 2021/22, the Town’s investment and contribution in capitalized assets were $21.4 million with depreciation totaling $5.0 million.  The Capital asset increased by $16.4 million for the current year. OVERVIEW OF THE FINANCIAL STATEMENTS  The financial section of the ACFR contains the following information:  Independent Auditor’s  Report, Management’s Discussion and Analysis (this section), the Basic Financial Statements, and  the Required Supplementary Information.  The ACFR also includes a Supplementary Information  section, which presents combining and budgetary schedules for individual non‐major funds.  The  Basic Financial Statements are comprised of three components:  1) Government‐Wide Financial  Statements, 2) Fund Financial Statements, and 3) Notes to the Financial Statements.  The  Management’s Discussion and Analysis is intended to be an introduction to the Basic Financial  Statements.  Government‐Wide Financial Statements  The Government‐Wide Financial Statements present the financial picture of the Town from an  economic resources measurement focus using the accrual basis of accounting.  An economic  resources measurement focus is when a body of financial statements report all inflows, outflows,  and balances affecting or reflecting an entity’s net position.  The Statement of Net Position presents information on all of the Town’s assets and liabilities,  with the difference between the two reported as net position.  Over time, increases or decreases  Page 22  in net position may serve as a useful indicator of whether the financial position of the Town is  improving or deteriorating.  The Statement of Activities presents information showing how the Town’s net position changed  during the most recent fiscal year.  All changes in net position are reported as soon as the  underlying event giving rise to the change occurs, regardless of the timing of related cash flows.   Thus, revenues and expenses are reported in this Statement for some items that will only result  in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation  leave).  Both of the Government‐Wide Financial Statements distinguish functions of the Town that are  principally supported by taxes and intergovernmental revenues (governmental activities) from  other functions that are intended to recover all or a significant portion of their costs through  user fees and charges (business–type activity).  The governmental activities of the Town include  public safety, parks and public works, community development, library, community services,  debt service, and general government.  Governmental activities typically include financial data  for all governmental funds.  Internal service funds are typically incorporated into governmental  activities as well.  Business‐type activities typically include financial data for all enterprise funds.  The Town has no enterprise funds and therefore reports no business‐type activities.   Fund Financial Statements   A fund is a grouping of related accounts that is used to maintain control over resources that have  been segregated for specific activities or objectives.  The Town, like other local governments,  uses fund accounting to ensure and demonstrate compliance with finance‐related legal  requirements.  The funds of the Town are segregated into three categories:  governmental funds,  proprietary funds, and fiduciary funds.  Governmental funds – The Town’s basic services are reported in governmental funds, which focus  on how money flows into and out of those funds and the balances left at year‐end that are  available for spending.  These funds are reported using the modified accrual basis of accounting,  which measures cash and other financial assets that can readily be converted to cash.  The  Governmental Fund Statements provide a detailed short‐term view of the Town’s general  government operations and the basic services it provides.  Governmental fund information helps  determine whether there are more or fewer financial resources that can be spent in the near  future to finance the Town’s operations.  Both the governmental fund balance sheet and the  governmental fund statement of revenues, expenditures, and changes in fund balances provide  a reconciliation to facilitate this comparison between governmental funds and governmental  activities.  Proprietary funds – The Town maintains one type of proprietary fund:  Internal Service Funds.   Proprietary funds are reported using the accrual basis of accounting.  Internal Service Funds are  an accounting tool used to accumulate and allocate costs internally among the Town’s various  functions.  The Town uses Internal Service Funds to account for its fleet of vehicles, computer  equipment, risk management activities, and other items.  Internal Service Funds help smooth the  Page 23  variability of certain expenses and insulate the Town from large unanticipated costs.  The Internal  Service Funds are included within governmental activities in the Government‐Wide Financial  Statements.  Fiduciary funds – Fiduciary funds are used to account for resources held for the benefit of parties  outside the Town.  Fiduciary funds are not reflected in the Government‐Wide Financial  Statements because the resources of those funds are not available to support the Town’s own  programs.    Included in fiduciary funds is the Redevelopment Successor Agency private‐purpose Trust Fund  created upon the dissolution of the former Redevelopment Agency (RDA) in 2012.  The Trust  Fund was created to hold the assets of the former Redevelopment Agency until they are  transferred for governmental purposes to other entities or distributed to the underlying taxing  jurisdictions in Santa Clara County after the payment of enforceable obligations.  Additional  information on the dissolution of the RDA and this fiduciary fund can be found in Note 12 in the  notes to basic financial statements.  Notes to Basic Financial Statements  The notes provide additional information to facilitate a full understanding of the data provided  in the Government‐Wide and Fund Financial Statements.    ANALYSIS OF GOVERNMENT‐WIDE FINANCIAL STATEMENTS   The Government‐Wide Financial Statements provide long‐term and short‐term information  about the Town’s overall financial condition.  This analysis addresses the financial statements of  the Town as a whole, utilizing data from throughout the ACFR to describe the changes between  2021 and 2022.  Given the unique nature of the economic impacts of the COVID‐19 pandemic   during the reporting period, 2020 data have also been provided to provide additional context.   Net Position Discussion  As shown below, the Town’s combined net position for the year ended June 30, 2022 was  $138.4 million, reflecting an increase of approximately $24.8 million to the prior year’s net  position of $113.5 million.  In general, net position can serve as an important indicator of  whether the Town’s overall financial condition is improving or deteriorating over time.   Page 24  Current and other assets increased $6.2 million from the prior year, primarily due to an $2.9  million increase in cash/restricted cash and investments, $1.8 million increase in Long Term Lease  Receivable, and $1.2 million increases in Long Term Note Receivable.   Capital assets increased $16.4 million to $127.8 million for the year reflecting current year’s  capital asset additions less the annual depreciation expense.  Capital infrastructure activity  includes the following:   $12.2 million added including $4.3 million to land , building and improvements ($7.7 million) and equipment ($205K) related to the donation of the historic Los Gatos Theatre to the Town; $1.5 million 224 West Main parking lot acquisition added to the to the Town assets.  The parking lot was previously purchased by the Los Gatos Redevelopment Agency to develop below market housing.  The Town reimbursed the Redevelopment financing to acquire the land and placed the funds into the Below Market Housing Program deposit account for future below market housing projects; $3.9 million in street repair and resurfacing and curb and gutter work Town‐wide; and $3.7 million construction in progress. Deferred Outflows for Pension and Other Post‐Employment Benefits (OPEB) decreased $6.5  million primarily due to the difference between projected assumed investment returns and  actual investment earnings on pension and OPEB investments, the change in the Town’s  proportionate share for the pooled safety pension plan, and the fact that the Town did not  contribute additional discretionary payments during FY 2021/22.  2022 2021 2020 Current and other Assets 78,302,210$       72,065,091$    75,995,161$      Capital Assets 127,770,566   111,416,264        111,700,225     Total Assets 206,072,776$     183,481,355$     187,695,386$    Deferred Outflows ‐ Pension/OPEB 13,232,279    19,746,595   17,441,310   Current Liabilities 17,537,678    16,334,887   18,093,199   Long‐Term Liabilities Outstanding 34,368,351    71,339,626   69,465,025   Total Liabilities 51,906,029$     87,674,513$    87,558,224$      Deferred Inflows ‐ Pension/OPEB 28,992,045    2,335,387  2,727,441   Net Position Net Investment in Capital Assets 126,418,275   109,894,936   111,700,225     Restricted 10,203,412    8,269,330     7,117,984     Unrestricted 1,785,294   (4,646,166)    (3,967,178)    Total Net Position 138,406,981$     113,518,100$     114,851,031$    Town of Los Gatos Net Position Governmental Activites For the Year Ended June 30, 2022 Page 25  Long‐term liabilities decreased by $37 million.  The decrease is primarily due to a pension liability  decrease of $30.5 million and a decrease of OPEB liabilities of $6.0 million.  See Note 10 and Note  11 of Notes to the Financial Statements for more information on Town’s pension and OPEB plans.  Deferred Inflows increased by $26.7 resulting primarily from the difference between projected  assumed investment returns and actual investment earnings on pension and OPEB investments.   The pension inflows increased $20.7 million and the OPEB plan increased $4.9 million.  In  addition, the implementation of GASB 87 Leases added $1.2 million of deferred inflows of  resources.   The largest segment of the Town’s net position, representing $126.4 million of net position,  reflects the net investment in capital assets (e.g., land, buildings, infrastructure, and equipment)  less accumulated depreciation and related outstanding debt used to acquire those assets.  The  Town uses these capital assets to provide infrastructure and services to the residents.  Therefore,  they do not represent a liquid financial resource to the Town and consequently are not readily  available for funding current obligations.    Restricted net position totaled approximately $10.2 million representing approximately $8.8  million for capital projects and maintenance, $0.7 million for restricted pension trust, $0.6 million  placed in a special revenue trust accounts for Library services, and $0.1 million for workers’  compensation.    As of June 30, 2022, unrestricted net position reports an approximate $6.5 million increase from  a deficit of approximately ($4.74 million) the prior year to an ending balance of approximately  $1.78 million.    Governmental Activities  Governmental activities are generally financed through taxes, intergovernmental revenues, and  other non‐exchange revenues.  The Statement of Activities is intended to illustrate how the cost  of governmental activities is financed and determine the annual change in net position.    Page 26  Governmental Activities Revenue Discussion  The Statement of Activities shown above details how the $76.9 million in Governmental Activities  revenues and contributions were derived.  As categorized in the Statement of Activities as  program revenues, approximately $12.8 million or 16.6% of the revenues were recorded from  fees paid by residents/businesses who directly benefited from the program or service.  Another  $28.4 million or 36.9% of the revenues were sourced from operating/capital grants and  2022 2021 2020 Revenues: Program revenues: Charges for Services 12,773,746$      11,353,932$     10,288,351$      Operating Grants and Contributions 6,179,842           3,287,564    3,854,188   Capital Grants and Contributions 22,226,206        846,345  850,113    General Revenues: Property Taxes 21,132,098  19,878,835  18,330,426    Sales Taxes 8,483,673   7,933,604    7,531,425   Franchise Taxes 2,822,515   2,499,463    2,495,792   Other Taxes 2,042,580   1,126,887    1,911,774   Motor Vehicle in Lieu 35,624   23,058  24,526   Developer Fee 1,735,571    Investment Earnings (1,278,978)   227,136  2,428,470   Miscellaneous 755,400   1,528,039    323,940    Total Revenues 76,908,277  48,704,863  48,039,005    Expenses: Police Department 15,093,308  19,808,230  20,446,188    Parks and Public Works 12,969,615  13,141,034  11,803,005    General Government 15,681,345  7,452,136    7,405,368   Community Development 5,827,001   6,481,075    5,001,958   Library Services 2,969,954   3,496,153    3,347,523   Sanitation 178,575   185,981  3,041    Total Expenses 52,719,798  50,564,609  48,007,083    Change in Net Position 24,188,479  (1,859,746)   31,922   Net Position ‐ Beginning 113,518,100   115,377,846 114,819,109   Prior Period Adjustment ‐ Principal Payments 13,003          Prior Period Adjustment ‐ GASB 87 Leases 687,399         Net Position ‐ Beginning, Adjusted 114,218,502    Net Position, Ending 138,406,981$    113,518,100$   114,851,031$    Town of Los Gatos Statement of Activities For the Year Ended June 30, 2022 Page 27  contributions.  Significant grants and contributions include the donated $12.2 million historic Los  Gatos Theatre, one‐time $6.9 million State pass‐through wildfire grant contribution, and $3.4  million in recognized ARPA proceeds.  The remaining $35.7 million or 46.5% represents general  revenues of the Town, including taxes, intergovernmental revenues, and other miscellaneous  revenues.     Program revenues increased by approximately $25.7 million from the prior year.  This is largely  due to a $21.4 million increase in capital grants and contributions, $2.8 million increase in  operating grants and contributions, and $1.4 million revenue increases from charges for services.   The Town’s General Revenues related to Governmental Activities increased by approximately  $2.5 million from the prior year.  The increase is attributable to a combination of approximately  $1.25 million increase in property taxes, a $550K increase in sales tax, $824K increases in  Transient Occupancy Tax (TOT), $323K increase in franchise fees, and $86K increase in business  license tax collections.  The increases were offset by $700K decrease in miscellaneous revenues  and nearly $1.5 million reduction in investment earnings from the prior year as result of lower  mark‐to‐market values on the Town’s investment portfolio.   Property tax is the largest individual revenue source for the Town and collections finished the  year $1.25 million higher than the previous year.  This increase was mostly due to an increase of  $596K in general property tax collection, $329K in secured taxes received as a rebate of excess  property taxes collected and available from the State of California’s Educational Revenue  Augmentation Fund (ERAF), $176K increase in VLF Property Tax In‐Lieu fee, and $148K increase  in property transfer tax as strong demand for residential Town property continued.  In addition,  new development helped to drive property values higher.  It is important to note that assessed  valuations for FY 2021/22 were established on the tax roll in January 2021 and collected in FY  2021/22.  At $8.5 million, sales taxes represent the second largest individual revenue source for the Town.  Sales taxes increased $550K from the previous year largely due to significant increases in gas  prices, strong auto sales, and the continued resurgence of the restaurant sector .  The increase  was aided by the Town’s 1/8 cent District Tax which captures a larger share of the increase in  online sales versus those receipts provided by the County pool collections.   Franchise taxes, the Town’s third largest revenue source, finished the year at $2.8 million,  reflecting only an increase of $332K from the previous fiscal year.  As discussed in more detail in  Note 15, a recent California case indicates that jurisdictions may not be able to collect waste  franchise fees in the future.    Investment earnings decreased $1.5 million from the prior year.  The primary factor responsible  for this decline was the lower total mark‐to‐market value above historical investment cost than  the prior year for the Town’s investment portfolio.  These non‐cash or paper gains/losses are  recognized as investment income/loss as a result of the “mark to market value” procedure  required by GASB 31.  Page 28  Governmental Activities Expenses Discussion  The Town provides residents, businesses, and visitors with an array of high quality municipal  services.  General government strategic support is comprised of six departments (Town Council,  Town Clerk, Town Manager, Town Attorney, Human Resources, Information Technology, and  Finance) which provide in information technology, executive management, economic vitality,  legal, records management, risk management, human resources, finance, and accounting  services.  The Town’s Police Department (public safety) provides general law enforcement, crime  prevention, dispatch, and responses to emergency and non‐emergency calls for service.  Parks  and Public Works provides engineering, construction, and maintenance of public streets, street  lighting, Town‐owned buildings, parks, and related infrastructure; as well as traffic engineering  and engineering evaluation of private development proposals.  Community Development  provides planning and zoning services; and building plan check and inspection; and code  compliance services.  The Library Department provides library, local history, and cultural services  to the community.    Total expenses of $52.7 million as reported in the Statement of Activities increased $2.2 million  from $50.5 million the prior year.  The increase was primarily driven by the following:  The increase of $6.9 million one‐time State pass‐through grant payment for wildfire protection. Pension and OPEB expense credit of $4.4 million calculated under accounting standards and allocated for the current fiscal year compared to a $2.6 million credit for the last fiscal year.  The calculated pension and OPEB expense credit of $4.4 million was applied across all operating Departments as follows: o Public Safety ‐ $1.7 million o General Government ‐ $1.3 million o Parks and Public Works ‐ $0.7 million o Community Development ‐ $0.5 million o Library ‐ $0.2 million o Sanitation ‐ $16K FINANCIAL ANALYSIS OF THE TOWN’S FUNDS  Governmental Funds  Recognizing the financial resources measurement focus, the Town’s Governmental Funds  provide information on near‐term inflows and outflows, and balances of spendable resources.   This information is useful in assessing the Town’s financing requirements and may serve as a  useful measure of a government’s net resources available for spending at the end of the fiscal  year.  Unlike the Statement of Activities which does not include transfers, the Governmental  Funds Balance Sheet does include transfers in and out.    Fund Balance – As discussed below, the Town’s Governmental Funds Balance Sheet reports the  following fund balances.    Page 29  Restricted Fund Balance – The Town has $10.1 million in fund balance classified as restricted to  indicate that it has an externally imposed restriction on how the money may be spent.  Of the  $10.1 million restricted fund balance, $8.7 million is restricted for capital projects, $0.7 million  for pension, $0.6 million for Library special revenue trust accounts, and $0.2 million for  maintenance and repairs.    Committed Fund Balance – The Town has $12.9 million in fund balance classified as committed  to indicate that the Town Council previously committed how the money will be spent.  Of the  $12.9 million, $12.0 million is for budget stabilization ($6.0 million) and catastrophe response  ($6.0 million).    Assigned Fund Balance – The Town has $27.7 million in fund balance which is not restricted or  committed and is classified as assigned to indicate the Town Council’s intent to be used for  specific purposes.  The largest assignments of fund balance are the Reserve for Capital/Special  Projects with a balance of approximately $11.1 million and the Capital Projects Reserve of $13.6  million which are the primary funding sources for the Town’s five‐year capital improvement plan  and special projects as budgeted by the Town.    Additional information on the Town’s Fund Balance can be found in Note (9) of the Notes to the  Financial Statements.   Major Governmental Funds results for the year included the following:  Page 30  Overall, Total Governmental Funds revenues finished $16.9 million or 35.8% higher than the prior  year, while total expenditures finished $8.2 million or 15.6% higher than the prior year.  One of  the major driving forces in increased revenues and expenditures is the one‐time State pass‐ through wildfire grant in the amount of $6.9 million.  The approximate $3.0 million increase in  total governmental fund balance is the net result.  The majority of excess revenues over  REVENUES 2022 2021 2020   Property Taxes 21,167,722$    19,917,428$              18,368,466$                 Sales Taxes 8,483,673        7,933,604   7,531,425            Other Taxes 1,976,198        1,126,887   1,911,774            Licenses & Permits 6,055,040        5,212,831   4,818,671            Intergovernmental 15,492,982      3,746,587   4,292,453            Charges for Services 6,925,359        6,035,659   5,309,470            Fines and Forfeitures 319,170           103,468      271,117               Franchise Fees 2,822,515        2,499,463   2,495,792            Developer Fees 1,735,571           Interest (1,278,983)       227,940      2,428,453            Use of Property 144,901           40,372        31,039      Other 349,145           423,115      376,922               Total Revenues 64,193,293$    47,267,354$              47,835,582$               EXPENDITURES   Current:     Public Safety 16,451,190$    16,570,836$              15,793,815$                   General Government 15,953,968      14,040,134            13,024,146            Parks and Public Works 8,639,128        8,229,944   8,168,599              Community Development 6,313,511        5,195,302   4,473,790              Library Services 2,827,210        2,847,988   2,700,802              Sanitation and Other 194,969           166,173      162,837               Capital Outlay 10,478,670      5,746,447   7,861,972            Debt Service      Principal 156,034              Total Expenditures 61,014,680$    52,796,824$              52,185,961$               Excess  Revenues over Expenditures 3,178,613$      (5,529,470)$              (4,350,379)$               Proceeds from sales of assets 2,151     1,201,369   1,566       Proceeds from issuance of debt ‐  1,560,336    Transfers in 8,154,307        4,053,535   8,935,260          Tranfers out (8,310,685)       (3,940,015)  (8,628,719)           Total Other Financing Sources (Uses)(154,227)$        2,875,225$                308,107$                    Net Changes in Fund Balances 3,024,386        (2,654,245)  (4,042,272)         Beginning/Ending Fund Balances As Restated 47,837,752$    50491997 54,007,454        Ending Fund Balances 50,862,138$    47,837,752$              49,965,182$               TOWN OF LOS GATOS TOTAL GOVERNMENTAL FUNDS REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2022 Page 31  expenditures  was  due  to  an  increase  in  property  taxes,  sales  taxes,  other  taxes,  licenses  and  permits, charges for services and franchise fees of $4.7 million over the prior year.  This was offset  by  lower  mark‐to‐market  values  which  are  recognized  as  decreases  to  interest  income  in  FY  2021/22.  General Fund revenues totaled $46.6 million or nearly 72.6% of the total $64.2 million in Total  Governmental Fund revenues.    Total Governmental funds revenues increased by $16.9 million, resulting from the net effect of:  •$11.7  million  increase  in  intergovernmental  revenue  including  the  $6.8  million  pass‐ through grant, $3.4 million ARPA proceeds; •$1.8  million  increase  in  development  fees  recognized  for  affordable  housing  loan  and developer fee contributions include the appropriated reserves fund for capital projects; •$1.3 million increase in property tax collections; •$0.9 million increase in charge of services reflecting current development activities; •$0.8 million increase in in licenses and permits; •$0.8 million increase in TOT collection; •$0.6 million increase in sales tax collection; •$0.3 million increase in franchise fees; •$0.2 million increase in fines and forfeitures; •$0.1 million increase in use of property and other receipts; and •$1.5 million decrease in investment income. Governmental Funds expenditures increased by $8.2 million.  General Fund expenditures  represent approximately $43.3 million of the Total Governmental Fund expenditures of $61.0  million compared to $46.2 million of General Fund expenditures and total Governmental Funds  expenditures of $52.8 million in the prior year.    Decreases in public safety expenditures from the prior year of approximately $0.1 million were  due primarily to vacancy savings experienced during the fiscal year.  The $1.9 million increase in general governmental expenditures was attributable to the  combined effect of the one‐time $6.9 million State pass‐through wildfire safety grant, coupled  with salary and benefit cost increases resulting from labor negotiations and mandated increases  in employer pension contribution rates.  Another factor was that the Town only contributed  nonrecurring additional $0.1 million toward the OPEB 115 Trust compared to approximately $5.6  million toward a pension Additional Discretionary Payment and additional OPEB Trust  contributions paid in the prior fiscal year.    Increases in Parks and Public Works were primarily due to salary and benefit cost increases  resulting from labor negotiations and mandated increases in employer pension contribution  rates.  Decreases in Library services expenditures from the prior year of approximately $28K were due  primarily to vacancy savings during the fiscal year.   Page 32  Increases in Community Development were primarily due to expensing the $1.2 million  affordable housing loan through the Below Market Housing program.  In addition, plan check and  building inspection expenses increased moderately from the prior year.  Appropriated Reserves Fund capital projects fund balances decreased $0.9 million from the  prior year reflecting increased capital activity during the fiscal year.  The $4.5 million of general  government and capital outlay expenditures above operating revenues was offset by $3.6  million net transfers.  The one‐time $6.9 million pass through grant payment for wildfire  protection was reported as an intergovernmental revenue with an offsetting general  government expenditure.  Transfers in included $0.6 million in ARPA revenue replacement  funds.  Proprietary Funds  The Town’s Proprietary Funds (Internal Service Funds) presented in the Fund Financial  Statements section basically provide the same type of information in the Government‐Wide  Financial Statements and include individual segment information.   Total net position in the Internal Service Funds increased by $629K a combined effect of GASB 87  increase adjustment of $687K and a $57K decrease in the current year due primarily to excess  expenses over revenues for workers’ compensation and general liability costs including  administration, insurance premiums, and claims expense.    GENERAL FUND BUDGETARY HIGHLIGHTS  Changes to the Original Budget  Comparing the FY 2021/22 original budget (i.e., the Adopted Budget) General Fund expenditures  of $43,641,983 (excluding budgeted transfers‐out and debt payments that are reimbursed) to  the final adjusted budget of $45,416,443 indicates a net increase of approximately $1.8 million.   Additions to the original expenditure budget included adjustments approved by Town Council  throughout the fiscal year.    The increase in General Fund appropriations occurred primarily from the following selected  budget adjustments made during the fiscal year.    $550K expenditure budget increase for Community Grants to recognize Council authorized spending of ARPA in the FY 2021/22. $240K expenditure budget increase to cover the cost for special studies related to Justice, Equity, Diversity, and Inclusion (JEDI) services; the Business Tax Ordinance Review; Council Retreat; and NUMU Antique Map, and compensation study. Original Budget  GF Expenditures  +  Misc. Adjustments &  Mid‐Year Adjustments  =  Final  Budget  $43,641,983 $1,774,460 $45,416,443  Page 33  $220K expenditure budget increase to recognize increased cost related the retiree medical services due to additional recent retirements. $129K temporary salary reimbursement from capital projects. $105K expenditure budget increase for the Urban Forrest Manager position. $100K expenditure budget increase for tree maintenance services. $86K expenditure budget increase for dispatch salary increase based on compensation survey. $80K expenditure budget increase for Chamber Thursday Promenade special event series. $68K expenditure budget increase for executive recruitment services. $55K expenditure budget increase for the Los Gatos Chamber destination marketing. $49K for traffic signalization. $33K expenditure budget increase to recognize the increased construction activities related to underground utility services. $26K for miscellaneous and safety repairs. $14K expenditure budget increase for crossing guard services. $10K expenditure budget adjustments for park benches. $9K to recognize and spend the Public Library Grant proceeds for Library Youth collections. Variance with the Final General Fund Budget  The General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance‐Budget  and Actual (GAAP) for Fiscal Year Ended June 30, 2022 reports an approximate overall favorable  variance with the final budget of approximately $4.9 million.  This favorable variance was created  largely by the net effect of the following factors:     Actual revenues ended the fiscal year at $2.8 million above final budgeted revenues.  The $2.8 million total variance represents a combined effect of $4.6 million favorable variances of the economic sensitive revenues from budget, $1.2 million development revenue used for affordable housing loan, and an unfavorable variance of $1.9 million in investment earnings for year, and an unfavorable $0.2 million variance in sales tax collected. Significant factors affecting actual expenditures include:   Public safety expenditures had a favorable variance of approximately $0.9 million.  $0.8 million in savings is reflective of limited term vacancies in Police Chief, Police Captain, Police Officer, Dispatcher, Police Record Specialist, and Police Records and Communication Manager positions, savings of $62K in miscellaneous operating saving, and $47K salary related internal service charges savings. Community Development expenditures reflected a $0.9 million negative variance.  The main reason of the negative variance is that the $1.2 million loan provided to the Dittos Lane Below Market Housing Developer was expensed through the Below Market Housing Page 34  Program.  The expenditure was fully funded from available developer contributions.  Not  counting the $1.2 million loan expenditures, Community Development operating  expenditures include $349K combined savings on vacancies and miscellaneous operating  expenditures.  Planning Manager, Assistant Planner, Senior Planner, and Permit Counter  Technician positions were partially unfilled during the fiscal year.  The Department utilized  temporary staffing agency contract to provide Building Counter services.    Administrative Services reflected a favorable balance of approximately $524K due to savings in salary and benefits ($184K) due to partial year vacancies in the Emergency Manager, Special Event Coordinator, Administrative Technician, and Finance Director positions, $235K saving on community grant due to timing of the grant distribution, savings in special events cost due to cancellation of events, and decreased travel activity, and other miscellaneous operational savings ($105K). Parks and Public Works reflects a favorable variance of approximately $475K largely due to vacancies savings due to partial year vacancies in the Parks and Public Works Director, Urban Forest Manager, Streets Maintenance Worker, and Administrative Assistant positions and other miscellaneous operational savings. Library services reflected a favorable variance of $310K due mainly to salary and benefit savings from partial staff vacancies in the Librarian, Library Specialist, and Senior Library Page positions and other temporary vacancies. Town Attorney reflected a favorable balance of approximately $40K in large measure due to savings in salary and benefits due to partial year vacancies of the Legal Administrative and Town Attorney positions. Town Council reflected a favorable balance of approximately $13K due to benefit savings, and decreased travel and training activity, and other miscellaneous operational savings. CAPITAL ASSETS  As of June 30, 2022, the Town’s investment in capital assets for its governmental activity is  recorded at $127,770,566 (net of accumulated depreciation).  The investment in capital assets  includes land, buildings and improvements, infrastructure, construction in progress, machinery  and equipment.  Capital assets increased $16.4 million net of depreciation expense, totaling  approximately $5.0 million for the year.  $12.2 million added including $4.3 million to land, building and improvements ($7.7 million), and equipment ($205K) related to the contribution of the historic Los Gatos Theatre to the Town; $1.5 million 224 West Main parking lot acquisition added to the to the Town assets.  The parking lot was previously purchased by redevelopment financing to develop below market housing.  The Town reimbursed the redevelopment financing to acquire the land and placed the funds into the Below Market Housing Program deposit account for future below market housing projects; Page 35  $3.9 million in street repair and resurfacing and curb and gutter work Town‐wide; $3.7 million of construction in progress including: o $835K in street repair in resurfacing; o $813K for Town‐wide traffic signal improvements; o $555K million for downtown revitalization; o $450K for bridges; o $263K for Town’s corporation yard building replacement; o $210K in building improvements Town‐wide; o $196K in parking lots improvements; o $157K pathways improvements; o $118K for curb and gutter work Town‐wide; o $84 K equipment for fire suppression and IT disaster recovery; o $40K for park improvements; and o $26K in storm drain improvements. Additional information on the Town’s capital assets is found in Note 6 of this financial report.  LONG‐TERM DEBT  The Town generally incurs long‐term debt to finance projects or purchase assets, which will have  useful lives equal to or greater than the related debt.  The Town long‐term debt is related to the  PG&E on‐bill financing loan used for facility efficiency project updates totaling $1.2 million at  6/30/2022.  The long‐term debt in the Successor Agency Trust Fund is related to the 2002 COP  and 2010 COP totaling $11.7 million.  Additional information on the Town’s Long‐Term Debt is  found in Note 7 of this financial report.  ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES  A product of an ongoing examination of how the Town provides cost‐effective services, the  Town’s budget emphasizes outcomes or results for the community and allows for longer‐term  financial planning decisions.  Governmental  Activities Infrastructure 61,933,593$      Buildings 29,481,922        Land 26,066,103        Equipment 2,510,873          Construction in Progress 7,778,075          127,770,566$    Capital Assets Town of Los Gatos For the Year Ended June 30, 2022 Page 36  During the development and adoption of the Town’s FY 2022/23 budget, the Town Council and  management considered the following factors:  The FY 2022/23 Budget reflects maintaining high service levels with little to no increases in the employee headcount.  However during FY 2021/22, the Town successfully completed negotiations with all bargaining units.  While important for the consistent delivery of high quality services for the Town, these actions exacerbated an already existing imbalance between revenues and expenditures.    The Town is carefully monitoring its revenue and expenditures and will identify any required modifications at the mid‐year budget discussion. Several Strategic Priorities are not one‐time projects, but rather are ongoing commitments due to their critical significance to ensure the Town’s fiscal and infrastructure stability and the safety and quality of life for Los Gatos residents, businesses, and visitors.  These commitments include continuing to address the Town’s unfunded pension and OPEB obligations; transportation demand management initiatives; exploration of new revenue opportunities, efforts to support community and economic vitality and the enhancement of emergency preparedness and community wildfire resilience. In terms of capital projects, the Town Council affirmed its interest in investing in bicycle and pedestrian improvements and implementing elements of the Comprehensive Parking Study. In addition to capital projects, the Council identified new policy priorities which include community policing and implementing diversity, equity, and inclusion efforts. Other Strategic Priorities should position the Town well for its future.    The Council completed the General Plan update in FY 2021/22 and is preparing the Housing Element update.  These efforts engage the community in land use planning and policies to guide development for the next couple of decades and address environmental sustainability and climate resiliency. Other Priorities included parking study implementation and completing the parklet program. Specific trends affecting the fund balance forecast include: o General property tax collections represent approximately 34.2% (not including the State’s property tax “backfill” shifts) of the Town’s General Fund revenues.  Property tax collections are expected to increase 5.5% in FY 2022/23 from the prior year’s tax collections.  This increase reflects the continued strong property assessment values through the Town.  This forecast is based on data from the Santa Clara County Tax Assessor’s Office.  The Town closely monitors its actual collection and other legislative changes regarding property tax. o The Town anticipates an increase in sales tax for FY 2022/23.  General sales tax estimates of $7.9 million and $1.3 million in dedicated district sales tax revenue for FY 2022/23 were budgeted reflecting a 5.8% combined increase from the prior year’s adjusted sales tax budget.   Page 37  o The Town’s investment portfolio yield was 1.37% as of June 30, 2022 which trended the  same as the average yield of June 30, 2021.  Prevailing interest rates are rising based on  Federal Reserve actions.     o Transient Occupancy Tax (TOT) is expected to increase by 17.3% from FY 2021/22  adjusted budget.  During the pandemic, TOT experienced the most significant percentage  decline relative to historical adopted budgets.  Due to a significant rebound in leisure  “staycation” travel and modest improvements in business travel, current TOT collections  are trending higher than anticipated and average occupancy rates are rebounding as well.   Given the uncertainty around physical business travel resuming at prior levels, as opposed  to a continuation of remote work and online meeting forums, staff believes TOT revenues  will continue to remain below FY 2018/19 levels.     o The Town’s pension plans over the past several decades, like all other CalPERS  participants, have experienced volatile investment returns, changes in actuarial  assumptions, and demographic shifts which have outweighed any positive plan  experiences.  To address this unfunded status, the Town took proactive steps including  initiating the prefunding of OPEB obligations, budgeting and programming additional  discretionary pension payments to accelerate reduction of unfunded liabilities, and  recently partnering with the Town’s employee groups to eliminate the existing retiree  healthcare benefit for new employees.  Even with these proactive steps, the Town  continues to be impacted by the continuing rising cost of pension related benefits. Over  the next five fiscal years, the Town’s five‐year forecast includes increasing pension costs  due to further changes in actuarial assumptions or lowering the discount rate.  The Town’s  net pension liability is $16.7 million for the safety cost sharing plan and $10.7 million for  the miscellaneous plan based upon data from CalPERS as of 6/30/2021.      o To illustrate the sensitivity of the net pension liability to changes in the discount rate,  CalPERS estimates that a 1 % reduction in the discount rate from 7.15% to 6.15% would  increase the total net pension liability for both Miscellaneous and Safety by $28.5 million.   Conversely, an increase in the discount rate from 7.15% to 6.15% would decrease the  total net pension liability for both Miscellaneous and Safety by $23.6 million.      o In addition, CalPERS provides a hypothetical termination liability estimate of the plans  should the contract with CalPERS be terminated.  The plan liability on a termination basis  is calculated differently from the plans’ ongoing funding liability.  Since no future  employer contributions would be made in the hypothetical termination, benefit  payments are secured by risk‐free assets.  For the Miscellaneous plan, a 2.25%  termination return rate results in a $117.7 million termination liability.  For the Safety  Classic and PEPRA plans, a 2.25% termination return rate results in a $124.1 million  termination liability.     o For detailed information about the Town employees’ retirement plan please refer to  Note 11 of the Notes to Basic Financial Statements Section.      Page 38  Requests for Information  This financial report is designed to provide residents, taxpayers, customers, investors, and  creditors with a general overview of the Town’s finances and to demonstrate the Town’s  accountability for the money it receives.  Questions about this report or requests for any  additional information, should be directed to Gitta Ungvari, Finance Director, at 110 East Main  Street, Los Gatos, California, 95030; email at gungvari@losgatosca.gov; or phone at (408) 354‐ 6805.  Page 39 Basic Financial Statements TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 GOVERNMENT-WIDE FINANCIAL STATEMENTS STATEMENT OF NET POSITION AND STATEMENT OF ACTIVITIES Page 40 The Statement of Net Position, Statement of Activities, fund financial statements and the notes to financial statements comprise the Basic Financial Statements of the Town. The purpose of the Statement of Net Position and the Statement of Activities is to summarize the entire financial activities and financial position of the Town. They are prepared on the same basis of accounting (accrual) used by most businesses, which means they include all the Town’s assets and liabilities, as well as its revenues and expenses. The effect of the entire Town’s transactions is accounted for, regardless of when cash changes hands, and all material internal transactions between funds have been eliminated. The Statement of Net Position report the Town’s total assets, deferred outflows of resources, liabilities, and deferred inflows of resources, including capital assets and long-term debt, and presents similar information to the old balance sheet format while focusing the reader on the composition of the Town’s net position (assets minus liabilities). The Statement of Net Position summarizes the financial position of the Town’s governmental activities in a single column. The Town’s governmental activities include the activities of the General Fund, Special Revenue Funds, Capital Projects Funds and Debt Service Funds. These funds are serviced by the Town’s Internal Service Funds; therefore internal service activities are consolidated with governmental activities after eliminating inter-fund transactions and balances. The Statement of Activities reports increases and decreases in the Town’s net position and is prepared on the full accrual basis of accounting, which means it includes all the Town’s revenues and expenses regardless of when cash changed hands. This differs from the “modified accrual” basis of accounting 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 Town’s expenses before revenues and by program. Program revenues (revenues generated directly by specific programs) are deducted from program expenses to arrive at the net expense of each governmental program, which is offset by general revenues as listed before the change in net position. From these components, the change in net position is computed and reconciled to the Statement of Net Position. Both of these statements include the financial activities of the Town. TOWN OF LOS GATOS, CALIFORNIA STATEMENT OF NET POSITION JUNE 30, 2022 Page 41 Governmental Activities ASSETS Cash and investments 69,392,044$ Restricted cash and investments 819,929 Receivables: Accounts 2,319,026 Interest 193,357 Intergovernmental 2,176,777 Other assets 136,908 Long-term leases receivable 1,826,417 Long-term notes receivables 1,437,752 Capital Assets: Nondepreciable 26,066,102 Depreciable, net of accumulated depreciation 101,704,464 Total Assets 206,072,776$ DEFERRED OUTFLOWS OF RESOURCES Pension adjustments 10,598,492$ OPEB adjustments 2,633,787 Total Deferred Outflows of Resources 13,232,279$ LIABILITIES Accounts payable 2,670,371$ Accrued payroll and benefits 1,114,106 Due to other governments 162,804 Unearned Revenue 5,312,407 Deposits 6,893,875 Claims payable 1,384,115 Long-term liabilities: Due within one year Compensated absences 220,293 Loans payable 156,034 Due in more than one year Net OPEB liability 2,491,580 Net pension liabilities 27,486,187 Compensated absences 2,818,000 Loans payable 1,196,257 Total Liabilities 51,906,029$ DEFERRED INFLOWS OF RESOURCES Leases 1,156,412 Pension adjustments 22,132,955 OPEB adjustments 5,702,678 Total Deferred Inflows of Resources 28,992,045$ NET POSITION Net investment in capital assets 126,418,275$ Restricted for: Library 555,253 Capital projects 8,357,393 Lighting and landscape repairs and maintenance 174,239 Pensions 690,000 VTA 296,598 Worker's compensation claims 129,929 Total Restricted Net Position 10,203,412 Unrestricted 1,785,294 Total Net Position 138,406,981$ The notes to the financial statements are an integral part of this statement. TOWN OF LOS GATOS, CALIFORNIA STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2022 Page 42 Net (Expense) Revenues and Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Functions/Programs Expenses Services Contributions Contributions Activities Governmental Activities: General government 15,681,345$ 1,725,857$ 2,766,833$ 12,205,050$ 1,016,395$ Public safety 15,093,308 1,596,313 1,144,226 - (12,352,769) Parks and public works 12,969,615 5,090,014 1,482,896 10,021,156 3,624,451 Community development 5,827,001 4,129,718 670,929 - (1,026,354) Library services 2,969,954 521 114,958 - (2,854,475) Sanitation 178,575 231,323 - - 52,748 Total Governmental Activities 52,719,798$ 12,773,746$ 6,179,842$ 22,226,206$ (11,540,004) General revenues: Taxes: Property taxes 21,132,098 Sales taxes 8,483,673 Franchise taxes 2,822,515 Other taxes 2,042,580 Motor vehicle in lieu 35,624 Developer fees 1,735,571 Investment earnings (1,278,978) Miscellaneous 755,400 Total general revenues 35,728,483 Change in Net Position 24,188,479 Net Position - Beginning 113,518,100 Prior Period Adjustment, Principal Payments 13,003 Prior Period Adjustment, GASB 87 - Leases 687,399 Net Position - Beginning, Adjusted 114,218,502 Net Position - Ending 138,406,981$ Program Revenues TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 FUND FINANCIAL STATEMENTS & MAJOR GOVERNMENTAL FUNDS Page 43 Fund Financial Statements: The Fund Financial Statements only present major funds individually while nonmajor funds are combined in a single column. Major funds are generally defined as having significant activities or balances in the current year. Major Governmental Funds: The Town determined that the following funds were major funds for the year ended June 30, 2022. Individual non-major funds can be found in the supplemental section. General Fund is the general operating fund of the Town and is used to account for all financial resources except those required to be accounted for in another fund. Appropriated Reserves Fund is used to account for resources provided for capital projects not fully funded from other sources. TOWN OF LOS GATOS, CALIFORNIA GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2022 Page 44 Other Nonmajor Total Appropriated Governmental Governmental General Reserves Funds Funds ASSETS Cash & investments 33,524,572$ 17,435,006$ 9,419,042$ 60,378,620$ Restricted cash & investments 690,000 - - 690,000 Receivables: Accounts 1,813,336 396,644 63,244 2,273,224 Interest 193,357 - - 193,357 Intergovernmental 1,938,789 47 237,941 2,176,777 Other assets 136,908 - - 136,908 Lease receivable - 331,696 - 331,696Long term note receivable 1,359,000 - 78,752 1,437,752Total Assets 39,655,962$ 18,163,393$ 9,798,979$ 67,618,334$ LIABILITIES Accounts payable 1,453,060$ 982,744$ 4,450$ 2,440,254$ Accrued payroll and benefits 1,109,010 - 5,096 1,114,106 Due to other governments 62,712 100,000 42 162,754 Unearned revenue 3,240,516 2,007,096 64,795 5,312,407 Deposits 6,893,875 - - 6,893,875 Total Liabilities 12,759,173 3,089,840 74,383 15,923,396 DEFERRED INFLOWS OF RESOURCES Leases - 327,100 - 327,100 Unavailable revenue - 505,700 - 505,700Total Deferred Inflows of Resources - 832,800 - 832,800 FUND BALANCE Nonspendable: Loans receivable 159,000 - - 159,000 Restricted for:Library - - 555,253 555,253 Capital projects - - 8,357,393 8,357,393 Repairs and maintenance - - 174,239 174,239 Pensions 690,000 - - 690,000 VTA - 296,598 - 296,598Committed to: Budget stabilization 5,991,566 - - 5,991,566Catastrophic5,991,566 - - 5,991,566Pensions/OPEB 300,000 - - 300,000 Special revenue funds - - 637,711 637,711 Assigned to: Open Space 410,000 152,000 - 562,000Parking- 100,000 - 100,000Sustainability140,553 - - 140,553Capital/Special projects 11,071,231 13,642,155 - 24,713,386 Carryover encumbrances 33,145 - - 33,145 Comcast PEG - 50,000 - 50,000Compensated Absences 1,519,147 - - 1,519,147Measure G 2018 district sales tax 590,581 - - 590,581 Total Fund Balances 26,896,789 14,240,753 9,724,596 50,862,138 Total Liabilities, Deferred Inflowsof Resources and Fund Balances 39,655,962$ 18,163,393$ 9,798,979$ 67,618,334$ The notes to the financial statements are an integral part of this statement. TOWN OF LOS GATOS, CALIFORNIA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE GOVERNMENT-WIDE STATEMENT OF NET POSITION – GOVERNMENTAL ACTIVITIES JUNE 30, 2022 Page 45 Fund Balance - Total Governmental Funds 50,862,138$ Amounts reported for Governmental Activities in the Statement of Net Position are different from those reported in the Governmental Funds because of the following: CAPITAL ASSETS Capital assets used in the Governmental Activities are not financial resources and, therefore, are not reported in the Governmental Funds.127,770,566 ALLOCATION OF INTERNAL SERVICE FUND NET POSITION Internal service funds are used by management to charge the cost of management of certain activities such as insurance, central services and maintenance to individual governmental funds. The net current assets of the internal service funds are therefore included as Governmental Activities in the Statement of Net Position. 8,240,282 DEFERED OUTFLOWS AND INFLOWS OF RESOURCES The differences from benefit plan assumptions and estimates versus actuals are not included in the plan's actuarial study until the next fiscal year and are reported as deferred inflows or deferred outflows of resources in the statement of net position. Deferred outflows of resources: PERS Miscellaneous Plan adjustments 3,663,900$ PERS Safety Plan adjustments 6,934,592 OPEB plan adjustments 2,633,787 13,232,279 Deferred Inflows of resources: PERS Miscellaneous Plan adjustments (10,235,294)$ PERS Safety Plan adjustments (11,897,661) OPEB plan adjustments (5,702,678) (27,835,633) DEFERRED INFLOWS OF RESOURCES Revenues from grants that are funded in this fiscal year that will not be collected for several months after the Town's fiscal year end are not considered available and are classified as deferreed inflows of resources in the governmental funds.505,700 LONG-TERM LIABILITIES Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the Governmental Funds. Loans payable (1,352,291)$ Net Pension Liabilities (27,486,187) Net OPEB Liability (2,491,580) Compensated absences (3,038,293) (34,368,351) Net Position - Governmental Activities 138,406,981$ The notes to the financial statements are an integral part of this statement. TOWN OF LOS GATOS, CALIFORNIA GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE FISCAL YEAR ENDED JUNE 30, 2022 Page 46 Other Nonmajor Total Appropriated Governmental Governmental General Reserves Funds Funds REVENUES Property Taxes 21,129,082$ -$ 38,640$ 21,167,722$ Sales Taxes 8,483,673 - - 8,483,673 Other Taxes 1,909,816 - 66,382 1,976,198 Licenses & Permits 5,096,318 420,055 538,667 6,055,040 Intergovernmental 1,263,352 9,400,918 4,828,712 15,492,982 Charges for Services 5,460,613 1,464,746 - 6,925,359 Fines and Forfeitures 319,170 - - 319,170 Franchise Fees 2,822,515 - - 2,822,515 Developer Fees 1,200,000 535,571 - 1,735,571 Interest (1,404,527) 34,805 90,739 (1,278,983) Use of Property 32,400 93,001 19,500 144,901 Other 311,040 - 38,105 349,145 Total Revenues 46,623,452 11,949,096 5,620,745 64,193,293 EXPENDITURES Current: General Government 9,053,968 6,900,000 - 15,953,968 Public Safety 16,451,190 - - 16,451,190 Parks and Public Works 8,605,457 - 33,671 8,639,128 Community Development 6,313,511 - -6,313,511 Library Services 2,752,397 - 74,813 2,827,210 Sanitation and Other - - 194,969 194,969 Capital Outlay - 9,570,780 907,890 10,478,670 Debt service: Principal 156,034 - - 156,034 Total Expenditures 43,332,557 16,470,780 1,211,343 61,014,680 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 3,290,895 (4,521,684) 4,409,402 3,178,613 OTHER FINANCING SOURCES (USES) Gain from sale of assets 2,151 - - 2,151 Transfers in 4,047,313 4,074,141 32,853 8,154,307 Transfers (out)(4,358,188) (427,616) (3,524,881) (8,310,685) Total Other Financing Sources (Uses)(308,724) 3,646,525 (3,492,028) (154,227) NET CHANGES IN FUND BALANCES 2,982,171 (875,159) 917,374 3,024,386 BEGINNING FUND BALANCES 23,914,618 15,115,912 8,807,222 47,837,752 ENDING FUND BALANCES 26,896,789$ 14,240,753$ 9,724,596$ 50,862,138$ The notes to the financial statements are an integral part of this statement. TOWN OF LOS GATOS, CALIFORNIA RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE GOVERNMENT-WIDE STATEMENT OF ACTIVITIES – GOVERNMENTAL ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2022 Page 47 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS 3,024,386$ Amounts reported for Governmental Activities in the Statement of Activities are different because of the following: CAPITAL ASSET TRANSACTIONS Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is capitalized and allocated over their estimated useful lives and reported as depreciation expense. Expenditures for capital assets (additions)9,180,716$ Current year depreciation (5,030,087) Donated capital assets 12,205,050 16,355,679 Gains and losses from the disposal of capital assets are not considered current financial resources and are not recorded in the governmental fund statement of revenues and expenditures but are recorded in the government-wide statement of activities because they are economic resources.(1,375) LONG-TERM DEBT PROCEEDS AND PAYMENTS Repayment of debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Position. Certificates of participation 156,034 UNAVAILABLE REVENUE Revenues from grants that are funded in this fiscal year that will not be collected for several months after the Town's fiscal year end are not considered available and are classified as deferred inflows of resources in the governmental funds.23,997 COMPENSATED ABSENCES In governmental funds, compensated absences such as vacations and sick leave are expenditures 261,542 OPEB PLAN CONTRIBUTIONS AND EXPENSE In governmental funds, actual contributions to OPEB plans are reported as expenditures in the year incurred. However, in the Government-Wide Statement of Activities, only the current year OPEB expense as noted in the plans' valuation reports is reported as an expense, as adjusted for deferred inflows and outflows of resources.1,257,776 PENSION PLAN CONTRIBUTIONS AND EXPENSE In governmental funds, actual contributions to pension plans are reported as expenditures in the year incurred. However, in the Government-Wide Statement of Activities, only the current year pension expense as noted in the plans' valuation reports is reported as an expense, as adjusted for deferred inflows and outflows of resources.3,168,358 ALLOCATION ON INTERNAL SERVICE FUND ACTIVITY Internal service funds are used by management to charge the costs of certain activities to individual funds. The net revenue of the internal service fund is reported with governmental activities.(57,918) CHANGE IN NET POSITION - GOVERNMENTAL ACTIVITIES 24,188,479$ The notes to the financial statements are an integral part of this statement. when taken. However, in the Government Wide Statement of Activities, the current year change in the compensated absences liability is reported. TOWN OF LOS GATOS, CALIFORNIA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE FISCAL YEAR ENDED JUNE 30, 2022 Page 48 Variance With Final Budget Original Final Positive Budget Budget Actual (Negative) REVENUES Property Taxes 20,036,156$ 20,138,320$ 21,129,082$ 990,762$ Sales Taxes 8,177,859 8,671,606 8,483,673 (187,933) Other Taxes 927,040 1,482,000 1,909,816 427,816 Licenses & Permits 3,869,779 4,477,907 5,096,318 618,411 Intergovernmental 3,881,836 1,148,993 1,263,352 114,359 Charges for Services 3,882,490 4,385,547 5,460,613 1,075,066 Fines and Forfeitures 203,450 213,450 319,170 105,720 Franchise Fees 2,597,630 2,514,020 2,822,515 308,495 Developer Fees - - 1,200,000 1,200,000 Interest 440,833 440,833 (1,404,527) (1,845,360) Use of Property 32,400 32,400 32,400 - Other 290,898 290,898 311,040 20,142 Total Revenues 44,340,371 43,795,974 46,623,452 2,827,478 EXPENDITURES Current: General Government: Town Council 201,499 202,890 189,569 13,321 Town Attorney 660,229 669,733 629,936 39,797 Administrative Services 5,087,207 5,965,803 5,441,604 524,199 Non-Departmental 3,546,680 3,581,965 2,792,859 789,106 Total General Government 9,495,615 10,420,391 9,053,968 1,366,423 Public Safety 17,239,480 17,390,966 16,451,190 939,776 Parks & Public Works 8,494,629 9,080,666 8,605,457 475,209 Community Development 5,395,864 5,461,713 6,313,511 (851,798) Library Services 3,016,395 3,062,707 2,752,397 310,310 Debt Service: Principal - - 156,034 (156,034) Total Expenditures 43,641,983 45,416,443 43,332,557 2,083,886 EXCESS (DEFICIT) OF REVENUES OVER EXPENDITURES 698,388 (1,620,469) 3,290,895 4,911,364 OTHER FINANCING SOURCES (USES) Gain from sale of assets 600 600 2,151 1,551 Transfers In 633,352 4,047,313 4,047,313 - Transfers Out (2,801,047) (3,833,094) (4,358,188) (525,094) Total Other Financing Sources (Uses)(2,167,095) 214,819 (308,724) (523,543) NET CHANGES IN FUND BALANCE (1,468,707)$ (1,405,650)$ 2,982,171 4,387,821$ BEGINNING FUND BALANCE 23,914,618 ENDING FUND BALANCE 26,896,789$ The notes to the financial statements are an integral part of this statement. TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 PROPRIETARY FUNDS - INTERNAL SERVICE FUNDS Page 49 Internal service funds account for Town operations financed and operated in a manner similar to a private business enterprise. The intent of the Town is that the cost of providing goods and services to other Town funds be financed through user charges to those funds. The concept of major funds does not extend to internal service funds because they are used for internal activities only. In the Government-Wide Statement of Activities, the net revenues and expenses of the internal service funds are allocated to the Town Departments or programs that generated them, thus eliminating internal service funds. TOWN OF LOS GATOS, CALIFORNIA PROPRIETARY FUNDS - STATEMENT OF NET POSITION JUNE 30, 2022 Page 50 Governmental Activities Internal Service Funds ASSETS Current Assets: Cash & investments 9,013,424$ Restricted cash & investments 129,929 Accounts Receivable 45,802 Total current assets 9,189,155 Noncurrent Assets: Leases receivable 1,494,721 Total Assets 10,683,876$ LIABILITIES Current Liabilities: Accounts payable 230,117$ Due to other governments 50 Total current liabilities 230,167 Noncurrent liabilities: Claims payable 1,384,115 Total Liabilities 1,614,282$ DEFERRED INFLOWS OF RESOURCES Leases 829,312$ NET POSITION Restricted for workers compensation claims 129,929$ Unrestricted 8,110,353 Total Net Position 8,240,282$ The notes to the financial statements are an integral part of this statement. TOWN OF LOS GATOS, CALIFORNIA PROPRIETARY FUNDS - STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE FISCAL YEAR ENDED JUNE 30, 2022 Page 51 Governmental Activities Internal Service Funds OPERATING REVENUES Charges for services 3,680,107$ Interest 5 Use of money and property 115,091 Other local taxes 66,382 Other revenue and reimbursements 303,683 Total Operating Revenues 4,165,268 OPERATING EXPENSES Insurance expenses 2,116,969 Services and Supplies 2,262,595 Total Operating Expenses 4,379,564 Operating Income (Loss)(214,296) Transfers in 251,194 Transfers out (94,816) Net transfers 156,378 Change in Net Position (57,918) BEGINNING NET POSITION 7,610,801 PRIOR PERIOD ADJUSTMENT GASB 87 687,399 BEGINNING NET POSITION, ADJUSTED 8,298,200 ENDING NET POSITION 8,240,282$ The notes to the financial statements are an integral part of this statement. TOWN OF LOS GATOS, CALIFORNIA PROPRIETARY FUNDS - STATEMENT OF CASH FLOWS FOR THE FISCAL YEAR ENDED JUNE 30, 2022 Page 52 Governmental Activities Internal Service Funds CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 3,227,027$ Payments to suppliers (4,441,834) Insurance reimbursements 258,472 Claims paid (192,074) Net cash provided (used) by operating activities (1,148,409) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers In 251,194 Transfers Out (94,816) Net cash provided (used) by noncapital financing activities 156,378 Net Increase(Decrease) in Cash and Investments (992,031) Cash and investments - beginning of year 9,447,985 Cash and investments - end of year 8,455,954$ Reconciliation of Operating Income to Cash Flows from Operating Activities: Operating Income (214,296)$ Change in assets and liabilities: Accounts receivables (14,838) Leases receivable (1,494,721) Due from other funds 478 Deferred inflows of resources 829,312 Accounts payable 57,646 Due to other governments (33) Claims payable (311,957) Cash Flows From Operating Activities (1,148,409)$ The notes to the financial statements are an integral part of this statement. TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 FIDUCIARY FUNDS Page 53 Trust funds are used to account for assets held by the Town as a trustee agent for individuals, private organizations and other governments. The financial activities of these funds are excluded from the government-wide financial statements, but are presented in separate Fiduciary Fund financial statements. RDA Successor Agency Private Purpose Trust Fund was established to account for the assets and liabilities transferred from the dissolution of the Town’s former Redevelopment Agency and the continuing operations related to existing Redevelopment Agency obligations. Page 54 RDASuccessorAgency ASSETS Cash and investments 1,920,130$ Restricted cash and investments 1,964,434 Loans receivable 610,418 Capital assets: Depreciable, net of accumulated depreciation 1,220,316 Total Assets 5,715,298$ LIABILITIES Accounts payable 68$ Interest payable 236,521 Long-term debt: Due within one year 1,355,000 Due in more than one year 11,731,235 Total Liabilities 13,322,824$ NET POSITION Restricted for RDA (7,607,526)$ Total Net Position (7,607,526)$ The notes to the financial statements are an integral part of this statement. TOWN OF LOS GATOS FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2022 Page 55 RDA Successor Agency ADDITIONS Property taxes 1,937,791$ Investment earnings 15,562 Total Additions 1,953,353 DEDUCTIONS Program expenses of former RDA 5,200 Interest and fiscal agency expenses of RDA 535,361 Depreciation expense 101,693 Total Deductions 642,254 Gain (loss) on sale of property (5,257,421) CHANGE IN NET POSITION (3,946,322) NET POSITION - BEGINNING OF YEAR (3,661,204) NET POSITION - END OF YEAR (7,607,526)$ The notes to the financial statements are an integral part of this statement. TOWN OF LOS GATOS PRIVATE PURPOSE TRUST FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE FISCAL YEAR ENDED JUNE 30, 2022 Page 56 This Page Left Intentionally Blank Page 57 Notes to Basic Financial Statements DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 58 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A.Description of the Financial Reporting Entity The Town of Los Gatos (the “Town”) operates under a Council-Manager form of government andprovides the following services; public safety (including police and emergency management),parks and public works, community development, library, public improvements, planning andzoning, and general administration services. Redevelopment services were provided primary through the Redevelopment Agency of the Town which was dissolved on February 1, 2012. The Town is largely a residential community located in the foothills of the Santa Cruz Mountainsand was incorporated as a municipal corporation in 1887. The Town’s population as of January 1,2022 was 33,062 (California Department of Finance). As required by generally accepted accounting principles, these financial statements present the Town as the Primary Government and any component units for which the Town is consideredfinancially accountable. B.Description of Blended Component Units The Town did not report any component units as a part of the primary government because theTown Council was not the governing body of any entities and no separate entity provided services entirely to the Town. C.Description of Joint Ventures and Public Entity Risk Pool As described in Note 11, the Town participates in two joint ventures and public entity risk poolactivities through formally organized separate legal entities. The financial activities of the PooledLiability Assurance Network Joint Powers Authority (PLAN JPA) and the Local Agency Workers’ Compensation Excess Joint Powers Authority (“LAWCX”) are not included in the accompanyingbasic financial statements as boards separate from and independent of the Town administer them. D.Basis of Presentation The Town’s Basic Financial Statements are prepared in conformity with accounting principlesgenerally accepted in the United States of America. The Government Accounting Standards Board (“GASB”) is the acknowledged standard setting body for establishing accounting and financialreporting standards followed by governmental entities in the U.S.A. The accompanying financial statements are presented on the basis set forth in GovernmentAccounting Standards Board Statements No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, No. 36, Recipient Reporting for Certain Non-exchange Revenues, an Amendment of GASB Statement No. 33, No. 37, Basic Financial Statements—and Management’s Discussion and Analysis—for State and LocalGovernments; Omnibus, and No. 38, Certain Financial Statement Note Disclosures. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 59 These Statements require that the financial statements described below be presented. Government-wide Statements: The Statement of Net Position and the Statement of Activities display information about the primary government (the Town). These statements include the financial activities of the overall Town government, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. These statements present governmental activities of the Town. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the Town’s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs, (b) grants and contributions that are restricted to meet the operational needs of a particular program and (c) fees, grants and contributions that are restricted to financing the acquisition or construction of capital assets. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the Town'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 funds, each of which is displayed in a separate column. All remaining governmental are aggregated and reported as nonmajor funds. Internal service funds of the Town (which provide services primarily to other funds of the Town) are presented, in summary form, as part of the proprietary fund financial statements. Since the principal users of the internal services are the Town’s governmental activities, financial activities of the internal service funds are presented in the governmental activities column when presented at the government-wide level. The costs of these services are allocated to the appropriate function/program in the Statement of Activities. 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. Non-operating revenues, such as subsidies and investment earnings, result from non-exchange transactions or ancillary activities. E.Major Funds GASB defines major funds and requires that the Town’s major governmental funds be 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 that have assets, deferred outflows of resources, liabilities, deferred outflows of resources, revenues, or expenditures/expenses equal to ten percent of their fund-type total and five percent of the grand total. The General Fund is always a major fund. The Town may also select other funds it believes should be presented as major funds.DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 60 The Town reported the following major governmental funds in the accompanying financial statements: General Fund is the general operating fund of the Town and is used to account for all financial resources except those required to be accounted for in another fund. Appropriated Reserves Fund is used to account for resources provided for capital projects not fully funded from other sources. The Town also reports the following fund types: Internal Service Funds are used to account for services that are provided to other departments on a cost-reimbursement basis.Those services include workers compensation, self-insurance, facilities maintenance, information technology, and equipment fund. Fiduciary Funds include Private-Purpose Trust Funds and agency funds used to account for assets held by the Town as an agent for individuals, private organizations, and other governments. The financial activities of this fund are excluded from the government-wide financial statement but are presented in a separate Fiduciary Fund financial statement. The Town reported the following Fiduciary Funds in the accompanying financial statements: RDA Successor Agency Private Purpose Trust Fund accounts for the assets, liabilities and operations transferred from the dissolution of the Town’s Redevelopment Agency, which includes the following: •Certificates of Participation issued to finance several capital improvement projectsthroughout the Town. •Redevelopment projects and related property tax revenue. •Affordable Housing Set-Aside Program obligations. •Repayment of obligations incurred by the Town’s Redevelopment Agency prior to itsdissolution. F.Basis of Accounting The government-wide and fiduciary fund (except for agency funds) financial statements arereported 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 themodified accrual basis of accounting. Under this method, revenues are recognized whenmeasurable and available. The Town considers property tax revenues reported in the governmental funds to be available if the revenues are collected or are reasonably expected to be collected withinsixty days after year-end. For revenues other than property taxes, the Town generally applies the TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 61 sixty-day period rule but would make exceptions considering the measurable and available criteria. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which is recognized upon becoming due and payable; and except for claims, judgments and compensated absences, which are recognized when estimable and probable. Governmental capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of governmental long-term debt and acquisitions under capital leases are reported as other financing sources. Those revenues susceptible to accrual are property and sales taxes, certain intergovernmental revenues, and interest revenue. Fines, forfeitures, licenses and permits, and charges for services are not susceptible to accrual because they are not measurable until received in cash. Non-exchange transactions, in which the Town gives or receives value without directly, receiving or giving equal value in exchange, include taxes, grants, entitlements, and donations. On the accrual basis, revenue from taxes is recognized in the fiscal year for which the taxes are levied or assessed. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The Town may fund programs with a combination of cost-reimbursement grants, categorical block grants and/or general revenues. Thus, both restricted and unrestricted net position may be available to finance program expenditures. The Town’s policy is to first apply restricted grant resources to such programs followed by general revenues as necessary. Certain indirect costs are included in program expenses reported for individual functions and activities. The Town applies all applicable GASB pronouncements for certain accounting and financial reporting guidance including those applicable to accounting and reporting for proprietary operations. In December of 2010, GASB issued GASB No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This statement incorporates pronouncements issued on or before November 30, 1989 into GASB authoritative literature. This includes pronouncements by the Financial Accounting Standards Board (FASB), Accounting Principles Board Opinions (APB), and the Accounting Research Bulletins of the American Institute of Certified Public Accountants' (AICPA) Committee on Accounting Procedure, unless those pronouncements conflict with or contradict with GASB pronouncements. Pensions - 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 City’s California Public Employees’ Retirement System (CalPERS) plans (the Plans) and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 62 Generally accepted accounting principles require that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: Valuation Date June 30, 2020 Measurement Date June 30, 2021 Measurement Period July 1, 2020 to June 30, 2021 Other Post -Employment Benefit (OPEB) Expense - For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense information about the fiduciary net position of the Town’s Retiree Benefits Plan (the OPEB Plan) and additions to/deductions from the OPEB Plan's fiduciary net position have been determined on the same basis as they are reported by the OPEB Plan. For this purpose, the OPEB Plan recognizes benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value. Generally accepted accounting principles require that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: Valuation Date June 30, 2021 Measurement Date June 30, 2021 Measurement Period July 1, 2020 to June 30, 2021 Cash and Cash Equivalents - The Town’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. State of California statutes and the Town’s investment policy authorize the Town to invest in obligations of the U.S. Treasury, its agencies and instrumentalities, collateralized, non-negotiable certificates of deposits, commercial paper rated A-1/P-1, medium-term corporate notes rated A or its equivalent or better by Moody’s or Standard & Poor’s, asset backed corporate notes, bankers’ acceptances, mutual funds, and the State Treasurer’s investment pool (Local Agency Investment Fund). The Town does not enter into repurchase or reverse repurchase agreements. Restricted Cash and Investments - Certain restricted cash and investments are held by fiscal agents for pension stabilization, worker’s compensation insurance and Successor Agency debt service obligations. Investments - Investments are recorded at fair value in accordance with GASB Statement No. 72, Fair Value Measurement and Application. Accordingly, the change in fair value of investments is recognized as an increase or decrease to investment assets and investment income. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 63 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. In determining this amount, three valuation techniques are available: •Market approach - This approach uses prices generated for identical or similar assets orliabilities. The most common example is an investment in a public security traded in an active exchange such as the NYSE. •Cost approach - This technique determines the amount required to replace the current asset.This approach may be ideal for valuing donations of capital assets or historical treasures. •Income approach - This approach converts future amounts (such as cash flows) into a current discounted amount. Each of these valuation techniques requires inputs to calculate a fair value. Observable inputs have been maximized in fair value measures, and unobservable inputs have been minimized. Materials, Supplies and Deposits (Other Assets) - These assets are held for consumption and are stated at cost using the first-in, first-out method. The costs are recorded as expenditures at the time the item is consumed. Interfund Receivables and Payables - Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “advances to/advances from other funds”. All other outstanding balances between funds are reported as “due to/from other funds." Advances - Advances between funds and due from/to other funds are offset by a nonspendable fund balance in applicable Town funds to indicate the extent to which they are not available for appropriation and are not expendable available financial resources. Capital Assets - Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed capital assets are valued at their estimated fair value on the date contributed. Capital assets, including infrastructure, are recorded if acquisition or construction costs exceeds $10,000. As required by GASB, the Town depreciates capital assets with limited useful lives over their estimated useful lives. The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of these assets. The amount charged to depreciation expense each year represents that year’s pro rata share of the cost of capital assets. The Town depreciates using the straight-line method which means the cost of the asset is divided by its expected useful life in years and the result is charged to expense each year until the asset is fully depreciated. The Town has assigned the useful lives listed below to capital assets: Buildings 25-40 years Improvements 25-40 years Machinery and equipment 2-20 yearsFurniture and fixtures 5-12 yearsSoftware 5-7 yearsInfrastructure 20-40 yearsDRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 64 Major capital outlay for capital assets and improvements are capitalized as projects are constructed. Capital assets may be acquired using federal and state grants, contributions from developers, and contributions or grants from other governments. GASB 34 requires that these contributed assets be accounted for as revenue at the time they are contributed. Leases Receivable - In accordance with Government Accounting Standard Board 87, Leases, the Town’s leases receivable are measured at the present value of lease payments expected to be received during the lease terms. The present value, net of accumulated amortization, is reported as deferred inflows of resources is recorded for leases. Deferred inflows of resources are recorded at the initiation of the leases in an amount equal to the initial recording of the leases receivable, plus incentive payments received. Amounts recorded as deferred inflows of resources from the leases are amortized on a straight-line basis over the term of the lease. Deferred Compensation Plan - The Town established a deferred compensation plan created in accordance with California Government Code Section 53212 and Internal Revenue Code Section 457.The plan, available to all Town employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination,retirement, death, or unforeseeable emergency. Deferred compensation plans are not reported aspart of the Town’s assets or liabilities, as the deferred compensation plan trustees hold those fundsin trust on behalf of employees until the employees are eligible to receive the benefits. Compensated Absences - Accumulated Vacation, Sick Pay and Other Employee Benefits are accrued as earned. Upon termination, employees are paid for all unused vacation at their current hourly rates. Sick leave earned is cashed out based on the following schedule for employees with at least 150 hours accrued and up to a maximum amount as specified under labor contract provisions: For employees under contract 1-59 months 25.0% For employees under contract 60-119 months 37.5% For employees under contract 120 months or more 50.0% The Town’s liability for compensated absences is determined annually. For all governmental funds, amounts expected to be paid out of current financial resources are recorded as liabilities of each fund; the long-term portion is recorded in the Statement of Net Position. The changes of the compensated absences were as follows: Beginning Balance 3,299,835$ Additions 1,487,446 Payments (1,748,988) Ending Balance 3,038,293$ Compensated Absences Current Portion 220,293$ Compensated absences are liquidated by the fund that has recorded the liability. The long-term portion of governmental activities compensated absences is liquidated primarily by the General TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 65 fund. Only compensated absences related to terminated employees are reported in the fund financial statements. Unearned Revenue - Unearned revenue arises when assets are received before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are recorded as deferred inflows from unearned revenue. In the governmental fund financial statements, receivables associated with non-exchange transactions that will not be collected within the availability period have been recorded as deferred inflows from unavailable revenue. Long-Term Liabilities - In the government-wide financial statements and private-purpose trust funds long-term debt and other long-term obligations are reported as liabilities in the applicable statement of net position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Deferred Outflows/Deferred Inflows of Resources - Deferred outflows of resources is a consumption of net position by the Town that is applicable to a future reporting period, for example, contributions to pension and OPEB plans that are after the actuarial measurement date. Deferred inflows of resources is an acquisition of net position by the Town that is applicable to a future reporting period, for example, unavailable revenue. Net Position - In the government-wide financial statements, net position is classified in the following categories: Net Investment in Capital Assets - This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that attributed to the acquisition, construction, or improvement of the assets. In addition, deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt also are included in the net investment in capital assets component of net position. Restricted Net Position - This amount is restricted by external creditors, grantors, contributors, or laws or regulations of other governments. Unrestricted Net Position - This amount is all net position that does not meet the definition of "net investment in capital assets" or "restricted net position." DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 66 Fund Balances - The Town does not have a policy identifying a minimum unassigned fund balance. Because amounts in the nonspendable, restricted, committed, and assigned categories are subject to varying constraints on their use, the remaining fund balances are otherwise unassigned. In accordance with Government Accounting Standards Board 54, Fund Balance Reporting and Governmental Fund Type Definitions, the Town classifies governmental fund balances as follows: Non-spendable includes fund balance amounts that cannot be spent either because it is not in spendable form or because of legal or contractual constraints. Restricted includes fund balance amounts that are constrained for specific purposes which are externally imposed by providers, such as creditors or amounts constrained due to constitutional provisions or enabling legislation. Committed includes fund balance amounts that are constrained for specific purposes that are internally imposed by the government through formal action of the highest level of decision making authority and does not lapse at year-end. Committed fund balances are imposed by the Town Council. Assigned includes fund balance amounts that are intended to be used for specific purposes that are neither considered restricted or committed. Fund balance may be assigned by the Town Manager or the Finance Director. Unassigned includes fund balances within the funds which have not been classified within the above-mentioned categories. The general fund is the only fund that reports a positive unassigned fund balance amount. In other governmental funds it is not appropriate to report a positive unassigned fund balance amount. However, in governmental funds other than the general fund, if expenditures incurred for specific purposes exceed the amounts that are restricted, committed, or assigned to those purposes, it may be necessary to report a negative unassigned fund balance in that fund. The Town uses restricted/committed amounts to be spent first when both restricted and unrestricted fund balance is available unless there are legal documents/contracts that prohibit doing this, such as a grant agreement requiring dollar for dollar spending. Additionally, the Town would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent asset and liabilities at the dates of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting periods. Actual results could differ from those estimates. Subsequent Events - Management has considered subsequent events through November 23, 2022, the date which the financial statements were available to be issued. The financial statements include all events or transactions, including estimates, required to be recognized in accordance with DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 67 generally accepted accounting principles. Management has determined that there are no non- recognized subsequent events that require disclosure other than as summarized in Note 16. Property Tax Levy, Collection and Maximum Rates - State of California Constitution Article XIII A provides that the combined maximum property tax rate on any given property may not exceed 1% of its assessed value unless an additional amount for general obligation debt has been approved by voters. Assessed value is calculated at 100% of market value as defined by Article XIII A and may be adjusted by no more than 2% per year unless the property is sold, transferred, or substantially improved. The State Legislature has determined the method of distribution of receipts from a 1% tax levy among the counties, cities, school districts and other districts. The County of Santa Clara assesses properties, bills, and collects property taxes on the following schedule: Secured Unsecured Valuation/lien dates January 1 January 1 Levy dates January 1 January 1 Due dates (delinquent as of) 50% on November 1 (December 10) March 1 (August 31) 50% on February 1 (April 10) The term "unsecured" refers to taxes on personal property other than land and buildings. These taxes are secured by liens on the property being taxed. Property taxes levied are recorded as revenue and receivables when they are collected during the fiscal year of levy or within 60 days of year-end. Budgets and Budgetary Accounting - The Town follows the procedures below when establishing the budgetary data reflected in the financial statements: 1. The Town Manager must provide budget to the Finance Commission at leasttwenty (20) business days before the first meeting at which the proposed budget is considered by the Town Council. 2.The Town Manager submits to the Town Council a proposed operating and capitalimprovement budget for the fiscal year commencing the following July 1. The budgets includethe proposed expenditures and the means of financing them.3.Public hearings are conducted to obtain taxpayer comments. 4.The budget is legally enacted through adoption of Town resolution by Council. 5.The Town Manager is authorized to implement the programs as approved in the adoptedbudget. Within a specific fund, the Town Manager may transfer appropriations betweencategories, departments, projects and programs as needed to implement the adopted budget,whereas the Town Council must authorize budget increases and decreases, and transfers between funds. 6.Budgets are adopted on a basis consistent with generally accepted accounting principles exceptfor proprietary funds which budget for capital outlays but not depreciation. Budgets wereadopted for the General Fund, Special Revenue Funds, Internal Service Funds and CapitalProjects Funds. 7.Budgeted amounts are as originally adopted or as amended by Town Council. Individual amendments were not material in relation to original appropriations.DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 68 Excess of Expenditures over Appropriations - There were no significant expenditures in excess of budget during for the year ended June 30, 2022. Encumbrances - Under encumbrance accounting, purchase orders, contract and other commitments for expenditures are recorded in order to reserve that portion of the applicable appropriation. Encumbrance accounting is employed as an extension of formal budgetary integration in all funds. Encumbrances outstanding at year-end are reported as commitments or assignments of fund balances since they do not constitute expenditures or liabilities; unexpended and unencumbered appropriations lapse at year end in all funds. Encumbered appropriations are carried forward to the following year. Reclassifications - Certain accounts in the prior-year financial statements have been reclassified for the presentation in the current-year financial statements. G.Accounting and Reporting Changes GASB Statement No. 87, Leases The objective of this statement is to better meet the information needs of financial statement usersby improving accounting and financial reporting for leases by governments. This statementincreases the usefulness of governments’ financial statements by requiring recognition of certainlease 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 thecontract. It establishes a single model for lease accounting based on the foundational principle thatleases are financings of the right to use an underlying asset. Under this statement, a lessee isrequired to recognize a lease liability and an intangible right-to-use lease asset, and a lessor isrequired to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. As of June 30,2022, the Town recognized three contracts as a lease and implemented the applicable accountingand reporting requirements of a lessor under GASB 87. The following schedule summarizes thelease balances and the impact on beginning net position and fund balance: Lease Deferred Inflows Prior Period Description Receivable of Resources Adjustment Initial Net Present Value 2,692,765$ 2,692,765$ -$ Accumulated Amortization - (1,333,252) 1,333,252 Other adjustments - 1,717 (1,717) Principal Payments (644,136) - (644,136) Beginning Balances 7/1/2021 2,048,629 1,361,230 687,399 Current Amortization - (204,818) - Valuation Expense (133,807) - - Current Principal Payments (88,405) - - Ending Balances 6/30/2022 1,826,417$ 1,156,412$ 687,399$ Governmental Funds 331,696$ 327,100$ -$ Internal Service Funds 1,494,721 829,312 687,399 Total 1,826,417$ 1,156,412$ 687,399$ DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 69 GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans The statement (1) requires that a Section 457 plan be classified as either a pension plan or another employee benefit plan depending on whether the plan meets the definition of a pension plan and (2) clarifies that Statement 84, as amended, should be applied to all arrangements organized under IRC Section 457 to determine whether those arrangements should be reported as fiduciary activities. The requirements of this Statement are effective as follows: •The requirements in (1) paragraph 4 of this Statement as it applies to defined contribution pension plans, defined contribution OPEB plans and other employee benefit plans and (2)paragraph 5 of this Statement are effective immediately •The requirements in paragraphs 6–9 of this Statement are effective for fiscal years beginningafter June 15, 2021 •All other requirements of this Statement are effective for reporting periods beginning after June 15, 2021 The Town did not report any significant accounting changes from the implementation of this Statement during the year ended June 30, 2022. H.Upcoming Accounting and Reporting Changes The Town is currently analyzing its accounting practices to determine the potential impact on thefinancial statements of the following recent GASB Statements: GASB Statement No. 91, Conduit Debt Obligations The objectives of this Statement are to provide a single method of reporting conduit debtobligations 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 also clarifies the existing definition of a conduit debt obligation;establishing that a conduit debt obligation is not a liability of the issuer; establishing standards foraccounting and financial reporting of additional commitment and voluntary commitments extendedby issuers and arrangements associated with the debt obligations; and improving required note disclosures. The requirements of this Statement were initially to be effective for financial statements for periods beginning after December 15, 2020 but have been delayed to periodsbeginning after December 15, 2021, pursuant to GASB Statement No. 95. Earlier application isencouraged. GASB Statement No. 94, Public-Private Partnerships and Public-Public Partnerships and Availability Payment Arrangements The primary objective of this Statement is to improve financial reporting by addressing issuesrelated to public-private and public-public partnership arrangements (PPPs). As used in thisDRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 70 Statement, a PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. Some PPPs meet the definition of a service concession arrangement (SCA), which the Board defines in this Statement as a PPP in which (1) the operator collects and is compensated by fees from third parties; (2) the transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services; and (3) the transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement. This Statement also provides guidance for accounting and financial reporting for availability payment arrangements (APAs). As defined in this Statement, an APA is an arrangement in which a government compensates an operator for services that may include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction. The requirements of this Statement are to be effective for financial statements for periods beginning after June 15, 2022. Earlier application is encouraged. GASB Statement No. 96, Subscription-Based Information Technology Arrangements GASB 96 provides guidance on accounting for Subscription-Based Information Technology Arrangements (SBITA) where the government contracts for the right to use another party’s software. The standards for SBITAs are based on the standards established in GASB Statement No. 87, Leases. GASB 96 is effective for fiscal years beginning after June 15, 2022. GASB Statement No. 99, Omnibus 2022 Omnibus statements are issued by GASB to address practice issues identified after other standards have been approved for implementation. Omnibus statements “clear up the loose ends” for recent prior statements GASB has issued. This Omnibus addresses recent pronouncements, including GASB 87 – Leases, GASB 94 – Public-Private and Public-Public Partnerships and Availability Payment Arrangements, and GASB 96 – Subscription-Based Information Technology Arrangements. Effective Date: The requirements of this Statement are effective as follows: •The requirements related to extension of the use of LIBOR, accounting for SNAP distributions,disclosures of nonmonetary transactions, pledges of future revenues by pledging governments,clarification of certain provisions in Statement 34, as amended, and terminology updates relatedto Statement 53 and Statement 63 are effective upon issuance •The requirements related to leases, PPPs, and SBITAs are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. •The requirements related to financial guarantees and the classification and reporting ofderivative instruments within the scope of Statement 53 are effective for fiscal years beginningafter June 15, 2023, and all reporting periods thereafter.DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 71 Earlier application is encouraged and is permitted by topic. GASB Statement No. 100, Accounting Changes and Error Corrections—an amendment of GASB Statement No. 62 This Statement defines accounting changes as changes in accounting principles, changes in accounting estimates, and changes to or within the financial reporting entity and describes the transactions or other events that constitute those changes. This Statement also prescribes the accounting and financial reporting for (1) each type of accounting change and (2) error corrections in previously issued financial statements. The requirements of this Statement are effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter. Earlier application is encouraged. GASB Statement No. 101, Compensated Absences This Statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered, (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means. Leave is attributable to services already rendered when an employee has performed the services required to earn the leave. Leave that accumulates is carried forward from the reporting period in which it is earned to a future reporting period during which it may be used for time off or otherwise paid or settled. In estimating the leave that is more likely than not to be used or otherwise paid or settled, a government should consider relevant factors such as employment policies related to compensated absences and historical information about the use or payment of compensated absences. However, leave that is more likely than not to be settled through conversion to defined benefit postemployment benefits should not be included in a liability for compensated absences. This Statement requires that a liability for certain types of compensated absences—including parental leave, military leave, and jury duty leave—not be recognized until the leave commences. This Statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used. This Statement also establishes guidance for measuring a liability for leave that has not been used, generally using an employee’s pay rate as of the date of the financial statements. A liability for leave that has been used but not yet paid or settled should be measured at the amount of the cash payment or noncash settlement to be made. Certain salary-related payments that are directly and incrementally associated with payments for leave also should be included in the measurement of the liabilities. With respect to financial statements prepared using the current financial resources measurement focus, this Statement requires that expenditures be recognized for the amount that normally would be liquidated with expendable available financial resources. The requirements of this Statement are effective for fiscal years beginning after December 15, 2023, and all reporting periods thereafter. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 72 NOTE 2 - CASH AND INVESTMENTS The Town pools cash from all sources and all funds except Restricted Cash and Investments so that it can be invested at the maximum yield, consistent with safety and liquidity, while existing funds have cash available for expenditures. Cash and Investments Defined The Town includes only cash deposits in banks as cash. Investments in LAIF and government securities mutual funds are net in the order of liquidity, since they may be withdrawn without penalty. U.S. Treasuries, U.S. Agencies and Certificates of Deposit are the Town’s least liquid investments since they must be held to maturity. Cash Deposits with Banks and Custodial Credit Risk California Law requires banks and savings and loan institutions to pledge government securities with a fair value of 110% of the Town’s cash on deposit, first trust deed mortgage notes with a value of 150% of the deposit, or letters of credit issued by the Federal Home Loan Bank of San Francisco with a value of 100% of the deposit as collateral. Under California Law this collateral is held in the Town’s name and places the Town ahead of general creditors of the institution. The Town’s cash deposits are collateralized under this law. The bank balance of the Town’s cash deposits was $18,986,118 and the carrying amount was $19,366,398 as of June 30, 2022. The bank balance and the carrying amount differed due to deposits in transit and outstanding checks. Investments The Town and its fiscal agent invest in individual investments and in investment pools. Individual investments are evidenced by specific identifiable pieces of paper called “securities instruments,” or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system. In order to maximize security, the Town employs the Trust department of a bank as the custodian of all its investments, regardless of their form. Fair Value Measurements GASB 72 established a hierarchy of inputs to the valuation techniques above. This hierarchy has three levels: •Level 1 inputs are quoted prices in active markets for identical assets or liabilities. •Level 2 inputs are quoted market prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other than quotedprices that are not observable •Level 3 inputs are unobservable inputs, such as a property valuation or an appraisal.DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 73 Local Agency Investment Fund (LAIF) The Town invests in the California State Treasurer’s Local Agency Investment Fund. LAIF, established in 1977, is regulated by California Government Code Section 16429 and under the day-to-day administration of the State Treasurer. As of June 30, 2022, LAIF had approximately $232 billion in investments. Of that amount, 99.96% was invested in non-derivative financial products and 0.04% in structured notes and asset-backed securities. These investments are described as follows: 1.Structured Notes are debt securities (other than asset-backed securities) whose cash flowcharacteristics (coupon rate, redemption amount, or stated maturity) depend upon one or moreindices and / or that have embedded forwards or options. 2.Asset-Backed Securities, the bulk of which are mortgage-backed securities, entitle their purchasersto receive a share of the cash flows from a pool of assets such as principal and interest repaymentsfrom a pool of mortgages (such as Collateralized Mortgage Obligations) or credit card receivables. Risk Disclosures 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 the changes in market interest rates. One of the ways that the Town manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the Town's investments to market interest rate fluctuations is provided in the summary of cash and investments table on the following page that shows the distribution of the Town's investments by maturity. Credit Risk is the risk of loss due to the failure of the security issuer. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The summary of cash and investments table on the following page shows the minimum rating under the actual rating of the Town’s investments at year end. Custodial Credit Risk is the risk that in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The Town’s investment in money market fund and LAIF is not categorized as to custodial credit risk. Its U.S. Government Agency Securities investment is held by a third party financial institution under the third party’s trust department’s name and thus not exposed to custodial credit risk. Concentration of Credit Risk is the risk that the Town’s investments are exposed because the types of investments have been too limited. The Town’s Policy states that, with the exception of US Treasury securities and LAIF, no more than 50% of the Town’s total investment portfolio will be invested in one single security type or with a single financial institution. The Town was in compliance with this policy as of June 30, 2022. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 74 The following table summarizes the Towns policy related to maturities and concentration of investments: Maximum Maximum Portfolio Investment Type Maturity Percentage US Treasury Obligations 5 years None US Agency Obligations 5 years None Bankers Acceptances 180 days 30% Commercial Paper 270 days 25% Medium Term Notes 5 years 30% Collateralized CD's 5 years 30% CA LAIF NA $65 million Money Market Funds NA 20% The following is a summary of the Town’s Cash and Investments (stated at fair value) as of June 30, 2022: Available Concentration Time to Weighted for of Credit Input Mature Average Operations Restricted Total Risk Rating Level (Years)Maturity US Treasury Securities 15,212,639$ -$ 15,212,639$ 29.29%n/a 2 0-3 1.35 Government Agencies 15,995,919 - 15,995,919 30.79%n/a 2 0-4 1.52 Corporate Bonds 13,664,652 - 13,664,652 26.31%A3 2 0-3 1.33 Market Mutual Funds 253,599 - 253,599 0.49%Not Rated 2 n/a n/a LAIF 6,816,565 - 6,816,565 13.12%Not Rated n/a n/a n/a Total Investments 51,943,374 - 51,943,374 100.00% Cash Deposits with Banks 19,349,009 2,094,363 21,443,372 Money Market Accounts 17,391 - 17,391 Pension Trust - 690,000 690,000 Cash on Hand at Town 2,400 - 2,400 Total Cash and Investments 71,312,174$ 2,784,363$ 74,096,537$ Description Cash and investments are classified in the financial statements as shown below, based on whether or not their use is restricted by Town debt or Agency agreements. Fiduciary Description Total Town Funds Totals Cash and Investments Available for Operations 69,392,044$ 1,920,130$ 71,312,174$ Restricted Cash and Investments 819,929 1,964,434 2,784,363 Total Cash and Investments 70,211,973$ 3,884,564$ 74,096,537$ DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 75 NOTE 3 - LONG-TERM NOTES RECEIVABLE The Town had the following long-term notes receivable as of June 30, 2022: Interest Rate Maturity Balance General Fund: Rehab Loan to Charities Various Various 159,000$ BMP Loans Various Various 1,200,000 Total General Fund 1,359,000 Housing Conservation 0-5% Various 78,752 Total CDBG 78,752 Total Long-Term Notes Receivable - Government-Wide Statement of Net Position 1,437,752 Project Match Various Various 610,418 Total Long-Term Notes Receivable 2,048,170$ Community Development Block Grant Fund (CDBG): Description Successor Agency Affordable Housing: BMP Loans - The purpose of the Below Market Price (BMP) Housing Program is to provide adequate housing for Los Gatos residents, regardless of age, income, race, or ethnic background. As required by the State, the Town plans and facilitates the construction of housing adequate for future populations consistent with environmental limitations and in a proper relationship to community facilities, open space, transportation, and small-town character. Active Home Loans and Housing Conservation Loans - The Town used Community Development Block Grant Funds (a federal grant) to assist low and moderate income homeowners to improve their homes and to fund low income housing rental properties acquisition and rehabilitation. These loans are secured by deeds of trust. Project Match - The Successor Agency has a loan agreement with Project Match, a nonprofit benefit corporation, to acquire and rehabilitate four or five bedroom single-family homes. The property is to provide affordable housing rental to very low-income senior households. The loan receivable is evidenced by a promissory note and secured by a deed of trust. From inception of the loan through June 30, 2022, no interest or principal payments have been made. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 76 NOTE 4 - LEASES RECEIVABLE In January of 2010, the Town entered into a twenty-year lease with the Los Gatos Saratoga Recreation (LGS) allowing LGS to use the property at 123 East Main Street. Under the lease, LGS paid the Town $19,950 per year at the beginning of the lease. After cumulative CPI adjustments, the payment in the final year of the lease will be $30,216. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 6.6%. The outstanding balance on the lease at year end was $165,056. In January of 2010, the Town entered into a twenty-year lease with the Los Gatos Saratoga Recreation (LGS) allowing LGS to use the property at 208 East Main Street. Under the lease, LGS paid the Town $90,000 per year at the beginning of the lease. After cumulative CPI adjustments, the payment in the final year of the lease will be $243,435. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 6.6%. The outstanding balance on the lease at year end was $1,329,665. In March of 2021, the Town entered into a five-year lease with Tesla Motor Cars (Tesla) allowing Tesla to use the property at 10065 Donner Pass Road. Under the lease, Tesla pays the Town $96,000 per year during the term of the lease. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 2%. The outstanding balance on the lease at year end was $331,696. The following summarizes the leases as of June 30, 2022: Deferred Deferred Lease Inflows Lease Inflows Description Receivable of Resources Receivable of Resources Beginning Balance 420,101 418,384 179,329 109,393 Current Amortization - (91,284) - (12,997) Valuation Expense - -- - Current Principal Payments (88,405) - (14,273) - Ending Balance 331,696$ 327,100$ 165,056$ 96,396$ Deferred Deferred Lease Inflows Lease Inflows Description Receivable of Resources Receivable of Resources Beginning Balance 1,449,199 831,736 2,048,629 1,359,513 Current Amortization - (98,820) - (203,101) Valuation Expense - -- - Current Principal Payments (119,534) - (222,212) - Ending Balance 1,329,665$ 732,916$ 1,826,417$ 1,156,412$ Totals Tesla LGS 123 E. Main St LGS 208 E. Main StDRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 77 NOTE 5 - INTERFUND TRANSACTIONS Inter-fund Receivables and Payables - Amounts due to or due from other funds reflect inter-fund balances for services rendered or short-term loans expected to be repaid in the next fiscal year. Advances to or from other funds are long-term loans between funds that are to be repaid in their entirety over several years. As of June 30, 2022, there were no interfund receivables or payables. Transfers - With Council approval resources may be transferred from one fund to another. Transfers routinely reimburse funds that have made an expenditure on behalf of another fund. Transfers may also be made to pay for capital projects or capital outlays, lease or debt service payments, operating expenses and low and moderate-income housing projects. Transfers between funds during the fiscal year ended June 30, 2022 were as follows: Transfers In Transfers Out General Fund 4,047,313$ 4,358,188$ Appropriated Reserves Fund 4,074,141 427,616 Nonmajor Gov't Funds 32,853 3,524,881 Internal Service Funds 251,194 94,816 Total Transfers 8,405,501$ 8,405,501$ NOTE 6 - CAPITAL ASSETS Changes in the Town’s capital assets during the fiscal year are shown as follows: Balance at June 30, 2021 Adjustments and Additions Transfers and Retirements Balance at June 30, 2022 Capital Assets not Being Depreciated: Land 20,254,950$ 5,811,153$ -$ 26,066,103$ Construction in Progress 5,452,048 3,747,677 (1,421,650) 7,778,075 Total Capital assets not Being Depreciated 25,706,998 9,558,830 (1,421,650) 33,844,178 Capital Assets Being Depreciated: Buildings and Improvements 31,741,121 7,697,000 175,502 39,613,623 Equipment & Vehicle 12,394,588 345,811 (184,782) 12,555,617 Infrastructure - All Other 26,362,567 710,706 461,227 27,534,500 Infrastructure - Streets 77,988,356 3,073,418 130,578 81,192,352 Total capital Assets Being Depreciated 148,486,632 11,826,935 582,525 160,896,092 Less Accumulated Depreciation for: Buildings and Improvements 9,312,289 819,412 - 10,131,701 Equipment & Vehicle 9,619,882 612,396 (187,534) 10,044,744 Infrastructure - All Other 8,013,205 811,283 - 8,824,488 Infrastructure - Streets 35,831,991 2,786,996 (650,216) 37,968,771 Total Acccumulated Depreciation 62,777,367 5,030,087 (837,750) 66,969,704 Net Capital Assets Being Depreciated 85,709,265 6,796,848 1,420,275 93,926,388 Governmental Activity Capital Assets, Net 111,416,263$ 16,355,678$ (1,375)$ 127,770,566$ DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 78 Depreciation expense is charged to functions and programs based on their usage of the related assets. The amount allocated to each function or program is as follows: Depreciation Expense General Government 355,685$ Public Safety 432,622 Parks & Public Works 3,804,766 Community Development 52,600 Library 384,159 Sanitation 255 Total Governmental Activities 5,030,087$ Governmental Activities Changes in the RDA Successor Agency trust fund capital assets during the fiscal year are shown as follows: Balance at June 30, 2021 Adjustments and Additions Retirements Balance at June 30, 2022 Capital Assets not Being Depreciated: Land 5,257,422$ -$ (5,257,422)$ -$ Capital Assets Being Depreciated: Buildings and Improvements 4,067,708 - - 4,067,708 Less Accumulated Depreciation for: Buildings and Improvements 2,745,700 101,692 - 2,847,392 Net Capital Assets Being Depreciated 1,322,008 (101,692) - 1,220,316 Scucessor Agency Capital Assets, Net 6,579,430$ (101,692)$ (5,257,422)$ 1,220,316$ NOTE 7 - LONG-TERM OBLIGATIONS The Town generally incurs long-term debt to finance projects or purchase assets, which will have useful lives equal to or greater than the related debt. The following summarizes the changes in long-term debt in the Town during the fiscal year ended June 30, 2022: Interest Maturity Original Beginning Additions/Ending Long-Term Debt Rate Date Issue Balance Adjustments Deletions Balance Direct Borrowings: PG& Loan 0% 2031 1,560,336$ 1,521,328$ (13,003)$ 156,034$ 1,352,291$ Due Within One Year 156,034 Due in More Than One Year 1,196,257$ DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 79 Future debt service requirements of the PG&E loan were as follows: For the Year Ending June 30,Principal Interest Total 2023 156,034$ -$ 156,034$ 2024 156,034 - 156,034 2025 156,034 - 156,034 2026 156,034 - 156,034 2027 156,034 - 156,034 2028-2032 572,121 - 572,121 Total Debt Service 1,352,291$ -$ 1,352,291$ The following summarizes the changes in long-term debt in the Successor Agency trust fund during the fiscal year ended June 30, 2022: Interest Maturity Original Beginning Ending Long-Term Debt Rate Date Issue Balance Deletions Balance 2002 COP 2.5-5% 2031 10,725,000$ 5,680,000$ 400,000$ 5,280,000$ 2010 COP 2.5-4.25% 2028 15,675,000 8,405,000 900,000 7,505,000 Subtotal COP's 26,400,000 14,085,000 1,300,000 12,785,000 Premiums 753,095 338,892 37,657 301,235 Total Long-Term Debt 27,153,095$ 14,423,892$ 1,337,657$ 13,086,235$ Due Within One Year 1,355,000 Due in More Than One Year 11,731,235$ 2002 Certificates of Participation (2002 COPs) - On July 18, 2002, the Town and the Los Gatos Redevelopment Agency issued $10,725,000 in 2002 COPs, Series A, to finance the acquisition, construction, rehabilitation, equipping and improvement of several capital improvement projects. The Town had pledged lease payments of real property and facilities comprised of the Parks and Public Works Service Center and Baseball Field, as well as Parking Lot No. 1, 2, and 3, as collateral for the repayment of the Certificates. Principal payments are due annually on August 1st, with interest payments due semi-annually on February 1st and August 1st. 2010 Certificates of Participation (2010 COPs) - On June 1, 2010, $15,675,000 of 2010 COPs were issued to finance the acquisition, construction, and improvement of a library on the Town’s Civic Center campus, to be owned and operated by the Town. Principal payments are due annually on August 1, with interest payments due semi-annually on February 1 and August 1. To assist the Town in paying the cost of acquisition and construction of various projects, the Town and its Redevelopment Agency entered into lease and reimbursement agreements in 2002 and 2010. Under the agreements, the Agency will use available net tax increment revenues resulting from the projects’ effect on land values to repay the Town for all lease payments made by the Town to the Agency under the lease agreements for the projects. Net tax increment revenues are all taxes allocated to and paid into the Successor Agency private-purpose trust fund. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 80 Future debt service requirements of the Certificates of Participation were as follows: For the Year Ending June 30,Principal Interest Total 2023 1,355,000$ 538,713$ 1,893,713$ 2024 1,415,000 479,550 1,894,550 2025 1,485,000 417,300 1,902,300 2026 1,550,000 351,850 1,901,850 2027 1,625,000 283,375 1,908,375 2028-2032 5,355,000 486,475 5,841,475 Total Debt Service 12,785,000$ 2,557,263$ 15,342,263$ The Successor Agency must maintain a required amount of cash and investments with the trustee under the terms of the COPs issues. These funds are pledged as reserves to be used if the Successor Agency fails to meet its obligations under the COPs issue and totaled 1,964,434 as of June 30, 2022. The California Government Code requires these funds to be invested in accordance with Town ordinance, bond indentures or State statues. All these funds have been invested as permitted under the Code. NOTE 8 - SPECIAL ASSESSMENT DISTRICT DEBT WITHOUT COMMITMENT Special assessment districts are established in various parts of the Town to provide improvements to properties located in those districts. Properties are assessed for the cost of the improvements. These assessments are payable over the term of the debt issued to finance the improvements and are used to pay debt service on debt issued to fund the improvements. The Town is acting only as an agent and has no legal liability with respect to the payment of any indebtedness of the Downtown Parking Assessment District. There was no non-obligated debt outstanding as of June 30, 2022. NOTE 9 - FUND BALANCES Fund balance for governmental funds is reported in classifications (nonspendable, restricted, committed, assigned, and unassigned) that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 81 As of June 30, 2022, fund balances were classified as follows: Beginning Ending Balance Additions Deletions Balance Nonspendable Loans Receivable 159,000$ -$ -$ 159,000$ Restricted: Library 552,877 77,189 (74,813) 555,253 Capital projects 7,544,097 1,827,186 (1,013,890) 8,357,393 Repairs and maintenance 172,356 40,476 (38,593) 174,239 Pensions - 690,000 - 690,000 VTA 293,323 3,275 - 296,598 Total Restricted 8,562,653 2,638,126 (1,127,296) 10,073,483 Committed: Budget stabilization and catastrophes 5,460,485 531,081 - 5,991,566 Catastrophic 5,460,485 531,081 - 5,991,566 Pension/OPEB Reserve 300,000 300,000 (300,000) 300,000 Special revenue funds 537,892 294,788 (194,969) 637,711 Total Committed 11,758,862 1,656,950 (494,969) 12,920,843 Assigned: Open Space 562,000 - - 562,000 Parking 1,460,210 100,000 (1,460,210) 100,000 Sustainability 140,553 - - 140,553 Capital/Special projects 20,125,734 6,347,187 (1,759,535) 24,713,386 Carryover encumbrances - 33,145 - 33,145 Comcast PEG 50,000 - - 50,000 Sale of property 1,200,000 - (1,200,000) - Market Fluctuations 438,333 - (438,333) - Compensated Absences 1,649,917 - (130,770) 1,519,147 Measure G 2018 District Sales Tax - Residual 590,581 - - 590,581 Measure G 2018 District Sales Tax - Capital 1,139,909 1,306,076 (2,445,985) - Total Assigned 27,357,237 7,786,408 (7,434,833) 27,708,812 Total Fund Balance - Gov't Funds 47,837,752$ 12,081,484$ (9,057,098)$ 50,862,138$ Restricted Library reflects fund balance from donations and bequests held in trust for the benefit of the Town’s library. Capital Outlay funded from storm drain fees, construction taxes and debt proceeds are legally restricted for major capital projects. Repairs and Maintenance reflects legally restricted balances for repairs and maintenance of lighting and landscape property and open space property that are financed with special tax assessments on the benefiting property. VTA are funds provided by the Valley Transportation Authority’s Measure B restricted for the pavement/crack seal rehabilitation project. Pension restricted are amounts paid into a separate legal trust for the Town's Miscellaneous and Safety pension plans administered by CALPERS. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 82 Committed Budget Stabilization and Catastrophic fund balance has been committed per Town Council resolution. The Town Council has established by resolution the budget stabilization arrangement and the catastrophe arrangement. The total balances in these arrangements are to be maintained at 25% of annual General Fund ongoing, operating expenditures, excluding one-time expenditures, divided equally between both arrangements. When either arrangement is used, Town Council will develop a 1 to 5-year reserve replenishment plan to meet the minimum threshold of 25% of General Fund ongoing, operating expenditures, excluding onetime expenditures. The arrangements can be used when: •Unforeseen emergencies, such as a disaster or catastrophic event occur. •Significant decrease in property or sales tax, or other economically sensitive revenues. •Loss of businesses considered to be significant sales tax generators. •Reductions in revenue due to actions by the state /federal government. •Workflow/technical system improvements to reduce ongoing personnel costs and enhancecustomer service. •One-time maintenance of service levels due to significant economic budget constraints •One-time transitional costs associated with organizational restructuring to secure long-termpersonnel cost savings. Should any of the events listed above occur that require the expenditure of Town resources beyond those provided for in the annual budget, the Town Manager or designee shall have authority to approve catastrophic or budget stabilization arrangement appropriations. The Town Manager or designee shall then present to the Town Council a budget amendment confirming the nature of the event and authorizing the appropriation of reserve funds. Pension/OPEB Reserve committed fund balance will be used to fund net pension liabilities for the Town's Miscellaneous and Safety pension plans administered by CALPERS. Town policy provides, to the extent possible, that additional annual deposits be calculated committed with the goal of moving the payment of the unfunded pension liability from a 29-year to a 20-year amortization period. Special Revenue Fund committed fund balance will be used for the activities of the respective special revenue funds. Assigned Open Space assigned fund balance will be used to make selective open space acquisitions. Parking assigned fund balance will be used to mitigate parking issues within the Town. Sustainability assigned fund balance will be used to fund ongoing sustainability initiatives and programs. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 83 Capital/Special Projects assigned fund balance will be used for the acquisition and construction of capital facilities as well as special projects or activities as directed by the Town Council. Comcast PEG assigned fund balance will be used to fund capital improvements linked to the televising of council and planning commission meetings. Sale of Property is intended to be spent on capital projects. Market Fluctuations assigned fund balance is used to represent fund balance amounts for unrealized investment gains that have been recorded as investment income in the financial statements in accordance with the requirements of GASB 31. Compensated Absences assigned fund balance will be used for vacation and sick-pay benefits owed to employees as of June 30, 2022 that were not an obligation of the General Fund because of their long-term nature. Measure G 2018 District Sales Tax assigned fund balances for operational and capital will be used to track receipt and use of the 1/8 cents District tax funds collected by the Town for operational and capital expenditures. NOTE 10 - EMPLOYEES' RETIREMENT PLAN The following summarizes the pension balances as of year-end: Misc Safety Total Deferred outflows of resources 3,663,900$ 6,934,592$ 10,598,492$ Deferred inflows of resources 10,235,294$ 11,897,661$ 22,132,955$ Net pension liabilities 10,723,589$ 16,762,598$ 27,486,187$ Pension expense (credit)$ 703,247 $ 2,686,293 $ 3,389,540 Defined Benefit Plans Plan Descriptions All qualified employees are eligible to participate in the Town’s pooled Safety Plan, a cost-sharing multiple-employer defined benefit pension plan and the Town’s Miscellaneous (all other) Plan, an agent Multiple-employer defined benefit pension plan administered by the California Public Employees' Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and Town resolution. 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. Audited financial statements of CalPERS can be obtained from its website https://www.calpers.ca.gov/page/formspublications. The Town relies upon actuarial and investment data provided by CalPERS for inclusion and analysis in this report. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 84 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 nonduty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, Lump Sum, or the 1959 Survivor Benefit. The cost-of-living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law. The Plans’ provisions and benefits in effect on June 30, 2022, are summarized as follows: Tier 1 Tier 2 PEPRA Tier 1 PEPRA Benefit formula 2.5% @ 55 2% @ 60 2% @ 62 3.0% @ 50 2.7% @ 57 Benefit vesting schedule 5 Years 5 Years 5 Years 5 Years 5 Years Benefit payments Monthly for Life Monthly for Life Monthly for Life Monthly for Life Monthly for Life Retirement age 55 55 62 50 57 Monthly benefits as a % of eligible compensation 2.0% to 2.5% 1% to 2.5% 1.5% to 2.5%3.00% 2-2.70% Required employee contribution rates 8.00%7% to 8%7.25% 9.000% 13.75% Required employer contribution rates 10.37% 10.37% 14.43% 25.59% 13.98% Required payment of unfunded liability $2,515,583 $2,515,583 $2,515,583 $2,317,133 $19,258 Miscellaneous Safety (Police) Employees Covered At June 30, 2022, the following employees were covered by the benefit terms for the Plans: Miscellaneous Safety Active 120 35 Transferred 101 13 Separated 88 2 Retired 247 84 Total 556 134 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 the Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rates are the estimated amount necessary to finance the costs of benefits earned by employees during the year. The Town is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. In addition, the Town is solely responsible for any annual costs associated with payments toward any unfunded accrued liability. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 85 For the year ended June 30, 2022, the contributions recognized as part of pension expense for the Plans were as follows: Miscellaneous Safety Contributions - employer $ 3,472,727 $ 3,072,032 Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions Pension Liability As of June 30, 2022, the Town reported net pension liabilities for each plan as follows: Miscellaneous Safety Total Net Pension Liability/(Asset) $ 10,723,589 16,762,598 $ 27,486,187 The Town’s net pension liability for the Safety Plan is measured as the proportionate share of the net pension liability while the Miscellaneous plan’s net pension liability is a direct calculation based on its actuarial study and is not proportionate. The net pension liability of all the Plans are measured as of June 30, 2021, and the total pension liability for the Plans used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020. The Town’s proportion of the net pension liability for the Safety Plan was based on a projection of the Town’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The Town’s proportionate share of the net pension liability for the Safety Plan as of June 30, 2021 and 2022 was as follows: Safety Proportion - June 30, 2021 0.40751% Proportion - June 30, 2022 0.47764% Change - Increase/(Decrease)0.07012% For the year ended June 30, 2022, the Town recognized a pension expense of $3,389,540. It should be noted that the net pension obligation varies annually depending upon the plan's actual investment earnings compared to the assumed rate of return during the plan's measurement periods. The Net Pension Obligation (NPO) reported in the Town's ACFRs has experienced a high degree of variability in recent years. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 86 The following is a summary of the changes in the total pension liability, fiduciary net position and net pension liability of the Town’s Miscellaneous Plan as of June 30, 2022: Total Fiduciary Net Pension Net Pension Liability Position Liability Beginning Balance 113,816,919$ 82,943,586$ 30,873,333$ Service Costs 2,062,486 - 2,062,486 Interest on Total Pension Liability 7,943,404 - 7,943,404 Difference Between Actual and Expected Experience (581,801) - (581,801) Employer Contributions - 9,160,680 (9,160,680) Employee Contributions - 889,649 (889,649) Net Investment Income - 19,606,360 (19,606,360) Employee Contribution Refunds and Benefit Payments (6,339,615) (6,339,615) - Administrative Expenses - (82,856) 82,856 Net Changes 3,084,474 23,234,218 (20,149,744) Ending Balance 116,901,393$ 106,177,804$ 10,723,589$ At June 30, 2022, the Town reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Deferred Outflows of Resources Deferred Inflows of Resources Changes of Assumptions -$ -$ -$ -$ Differences between Expected and Actual Experience 191,173 339,384 2,863,875 - Differences between Projected and Actual Investment Earnings - 9,895,910 - 9,976,968 Differences between Employer's Contributions and Proportionate Share of Contributions - - - 1,920,693 Change in Employer's Proportion - - 998,684 - Pension Contributions Made Subsequent to Measurement Date 3,472,727 - 3,072,032 - Total 3,663,900$ 10,235,294$ 6,934,592$ 11,897,661$ SafetyMiscellaneous The Town reported $6,544,759 as deferred outflows of resources related to contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the year ended June 30, 2023. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 87 Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Miscellaneous Safety Total (2,551,456)$ (1,423,116)$ (1,423,116)$ (2,399,281) (1,701,049) (1,701,049) (2,383,639) (2,165,414) (2,165,414) (2,709,745) (2,745,523) (2,745,522) - - - - - - (10,044,121)$ (8,035,102)$ (8,035,101)$ 2023 Total 2024 2025 2026 Thereafter 2027 Deferred Outflows/(Inflows) of ResourcesFiscal Year Ending June 30: Actuarial Assumptions The total pension liabilities in the June 30, 2020 actuarial valuations were determined using the following actuarial assumptions: Safety Miscellaneous Valuation Date June 30, 2020 June 30, 2020 Measurement Date June 30, 2021 June 30, 2021 Actuarial Cost Method Entry-Age Normal Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.15%7.15% Inflation 2.50%2.50% Payroll Growth 2.75%2.75% Projected Salary Increase (1)(1) Investment Rate of Return 7.00% (2) 7.00% (2) Mortality (3)(3) (1) Varies by entry age and service (2) Net of pension plan investment expenses, including inflation (3) Derived using CalPERS' membership data for all funds The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2020 valuation were based on the results of a December 2017 actuarial experience study for the period 1997 to 2016. Further details of the Experience Study can found on the CalPERS website. Discount Rate The discount rate used to measure the total pension liability was 7.15 percent for the Plans. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plans, CalPERS stress tested plans that would most likely result in a discount rate that would be DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 88 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. Long-term Expected Rate of Return The long-term expected rate of return on pension plan investments was determined using a building block method in which 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. In determining the long-term expected rate of return, CalPERS 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. The table below 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 are net of administrative expenses. Assumed Asset Real Return Real Return Asset Class (a)Allocation Years 1 - 10 (b) Years 11+ (c) Global Equity 50.00%4.80%5.98% 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) In the System's ACFR, Fixed Income is included in Global Debt Securities; Liquidity Liquidity is included in Short-term Investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities. (b) An expected inflation of 2.0% used for this period. (c) An expected inflation of 2.92% used for this period. In addition to the expected returns by asset class, the table below reflects the short-term, Long-term, and blended expected rate of return for the total PERF asset allocation as of the 2017 ALM. Expected Compound Return (1 to 10 years)6.1% Long Term Expected Return (11 to 60 years)8.3% Blended Return (1 to 60 years)7.0%DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the Town’s net pension liability for the Plans, calculated using the discount rate for the Plans, as well as what the Town’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: Miscellaneous Safety 1% Decrease 6.15%6.15% Net Pension Liability 25,600,877$ 30,483,178 Current 7.15%7.15% Net Pension Liability 10,723,589$ 16,762,598 1% Increase 8.15%8.15% Net Pension Liability (1,563,756)$ 5,492,836 Pension Plan Fiduciary Net Position Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. Payable to the Pension Plans As of June 30, 2022, the Town reported a payable of $14,548 and $14,796 for the outstanding amount of contributions to the Miscellaneous Agent Multiple Employer Plan and the Safety Cost Sharing Plan. IRS Section 115 Trust During the fiscal year ending June 30, 2020, the Town established an IRS Section 115 Trust with the CalPERS California Employers’ Pension Prefunding Trust (CEPPT) program. In fiscal year 2022, the Town transferred $690,000 which is reported as restricted cash with fiscal agent within the General Fund. Per GASB, amounts placed in trusts for CalPERS plans are treated as side trusts that do not directly reduce the net pension liability. NOTE 11 - OTHER POST-EMPLOYMENT BENEFITS Plan Description The Town makes contributions to California Employers' Retiree Benefit Trust (CERBT), an agent multiple-employer defined benefit healthcare plan administered by CalPERS. The purpose of the CERBT Fund is to provide California government employers with a trust through which they may prefund retiree medical costs and Other Post-Employment Benefits (OPEB). The Town uses CERBT 1 as its investment vehicle and requests disbursements on an as needed basis to reimburse the Town for the cost of retiree health insurance benefits. Benefit provisions and all other requirements are established by state statute and Town ordinance. Copies of CalPERS' annual financial report may be obtained from their Executive Office, 400 P Street, Sacramento, CA 95814. Page 89 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 90 In accordance with the Public Employees' Medical and Hospital Care Act (PEMHCA), employees qualify for retiree health benefits upon five (5) years of service if they meet the vesting requirements as set forth by CalPERS and take a service or disability retirement from Town employment. Additionally, the employee must actually draw a CalPERS pension within ninety (90) days of separation from the Town, provided the employee remains with the Town's health plan through COBRA. For employees who retire on or after February 1, 2016, at Medicare eligibility, the Town will align contributions to the full cost of the employee’s enrollment, including enrollment of family members, in a health benefits plan or plans up to a maximum of 100% Single Party and 90% Dependents for Kaiser Bay Area Basic/Medicare/Combo per month. During negotiations in fiscal year 2018/19, the Town’s discretionary retiree medical benefit contribution was eliminated for all future hires. Upon retirement, employees have the option to roll over their sick leave accrual into a Town managed fund. Employees can request reimbursement of medical expenses from the fund up to the value of their sick leave at retirement. Employees Covered by Benefit Terms At June 30, 2022 (the measurement date), the benefit terms covered the following employees: Active employees 150 Inactive employees - receieving benefits 142 Inactive employees - not receiving benefits 42 Total employees 334 Contributions The contribution requirements of Plan members and the Town are established and may be amended by the Town. The required contribution is based on projected pay-as-you-go financing requirements, with additional amounts to prefund benefits as determined annually by the Town Council. For the fiscal year ended June 30, 2022, the Town contributed $1,754,922 from the General Fund. During the measurement period ended June 30, 2021, the Town contributed $2,096,847 to the Plana and benefit payments were $1,494,906. Plan members receiving benefits contributed did not make any contributions. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 91 Actuarial Assumptions The following summarized the actuarial assumptions for the OPEB plan included in this fiscal year: Valuation Date:June 30, 2021 Measurement Date:June 30, 2021 Actuarial Cost Method:Entry-Age Normal Amortization Period:20 years Asset Valuation Method: Actuarial Assumptions: Discount Rate 6.25% Inflation 2.50% Salary Increases 3.00% Investment Rate of Return Healthcare Trend Rate Mortality Retirement Tier 1 Actives in insurance program: 100% Tier 1 Actives in cash allocation program: 80% Tier 2 Actives in insurance program: 60% Tier 2 Actives in cash allocation program: Agency service < 3 months: 60% Agency service >= 3 months: 40% Waived retirees aged <65: 20% Waived retirees aged ≥65: 0% Assumption Changes: Discount rate was updated based on newer capital market assumptions Decreased medical trend rate for Kaiser Senior Advantage Demographic assumptions updated to CalPERS 2000-2019 Experience Study Inflation rate decreased 25 basis points, decreasing discount rate, medical trend, and salary increases Retiree and family participation rates at retirement updated Implicit subsidy added for Tier 1 Medicare eligible Mortality improvement scale was updated to Scale MP-2021 Level percentage of payroll, closed 6.75% CalPERS 2000-2019 Experience Study CalPERS 2000-2019 Experience Study Non-Medicare - 7.25% for 2021, decreasing to an ultimate rate of 4% in 2076 Mortality projected fully generational with Scale MP-2021 Medicare - 6.3% for 2021, decreasing to an ultimate rate of 4% in 2076 Discount Rate The discount rate used to measure the total OPEB liability was 6.25 percent. The projection of cash flows used to determine the discount rate assumed that Town 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 OPEB payments for current active and inactive employees and beneficiaries. 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. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 92 Net OPEB Liability The Town's net OPEB liability was measured as of June 30, 2021 (measurement date) and was determined by an actuarial valuation as of June 30, 2021 (valuation date) for the fiscal year ended June 30, 2022 (reporting date). Changes in the Net OPEB Liability The following summarizes the changes in the net OPEB liability during the year ended June 30, 2022: Fiscal Year Ended June 30, 2022 (Measurement Date June 30, 2021) Total OPEB Liability Plan Fiduciary Net Position Net OPEB Liability (Asset) Balance at June 30, 2021 28,610,428$ 20,115,214$ 8,495,214$ Service cost 1,115,309 - 1,115,309 Interest in Total OPEB Liability 1,956,034 - 1,956,034 Employer contributions - 2,096,847 (2,096,847) Balance of diff between actual and exp experience (2,521,500) - (2,521,500) Balance of diff between actual and exp earnings - - - Balance of changes in assumptions 1,054,638 - 1,054,638 Net investment income - 5,529,824 (5,529,824) Administrative expenses - (18,556) 18,556 Benefit payments (1,494,906) (1,494,906)- Net changes 109,575 6,113,209 (6,003,634) Balance at June 30, 2022 28,720,003$ 26,228,423$ 2,491,580$ Covered Employee Payroll 17,982,237$ Total OPEB Liability as a % of Covered Employee Payroll 159.71% Plan Fid. Net Position as a % of Total OPEB Liability 91.32% Service Cost as a % of Covered Employee Payroll 6.20% Net OPEB Liability as a % of Covered Employee Payroll 13.86% Contributions as a % of Cov. Emp. Payroll 11.66% Deferred Inflows and Outflows of Resources At June 30, 2022, the Town reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Difference between actual and expected experience -$ 2,174,632$ Difference between actual and expected earnings - 2,982,166 Change in assumptions 878,865 545,880 OPEB contribution subsequent to measurement date 1,754,922 - Totals 2,633,787$ 5,702,678$ DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 93 Of the total amount reported as deferred outflows of resources related to OPEB, $1,754,922 were the result of Town contributions subsequent to the measurement date and before the end of the fiscal year. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Year Ended June 30, 2023 (1,158,834)$ 2024 (1,125,775) 2025 (1,134,439) 2026 (1,160,288) 2027 (244,477) Thereafter - Total (4,823,813)$ Rate of Return The long-term expected rate of return on OPEB plan investments was determined using a building- block method in which expected future real rates of return (expected returns, net of OPEB plan 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. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the table below. Asset Class Percentage of Portfolio Long-Term Expected Rate of Return Global Equity 59.00% 4.560% Fixed Income 25.00% 78.000% TIPS 5.00%-8.0% Commodities 3.00% 1.220% REITs 8.00% 4.060% Total 100.00% OPEB Expense The following summarizes the OPEB expense by source during the year ended June 30, 2022: Service cost 1,115,309$ Interest in TOL 1,956,034 Expected investment income (1,357,919) Difference between actual and expected experience (445,555) Difference between actual and expected earnings (808,017) Change in assumptions 18,738 Administrative expenses 18,556 OPEB Expense 497,146$ DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 94 The following summarizes changes in the net OPEB liability as reconciled to OPEB expense during the year ended June 30, 2022: 2,491,580$ (8,495,214) (6,003,634) Changes in deferred outflows (497,143) Changes in deferred inflows 4,901,076 Employer contributions and implicit subsidy 2,096,847 OPEB Expense 497,146$ Net OPEB liability ending Net OPEB liability beginning Change in net OPEB liability Sensitivity to Changes in the Discount Rate The net OPEB liability of the Town, as well as what the Town's net OPEB liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher, is as follows: (1% Decrease )6.25%(1% Increase ) Net OPEB Liability (Asset)5,965,597$ 2,491,580$ (406,616)$ Discount Rate Sensitivity to Changes in the Healthcare Cost Trend Rates The net OPEB liability of the Town, as well as what the Town's net OPEB liability would be if it were calculated using healthcare cost trend rates that are one percentage point lower or one percentage point higher than current healthcare cost trend rates, is as follows: (1% Decrease )Current (1% Increase ) Net OPEB Liability (Asset)170,134$ 2,491,580$ 5,107,398$ Trend Rate NOTE 12 - RISK MANAGEMENT The Town participates in the following public entity risk pools through formally organized and separate legal entities. The Town does not have an equity interest in the joint ventures. These entities exercise full powers and authority within the scope of the related agreements including the preparation of annual budgets, accountability for all funds, the power to make and execute contracts and the right to sue and be sued. Obligations and liabilities of the separate entities are not those of the Town, although the Town retains an ongoing financial interest or an ongoing financial responsibility. Pooled Liability Assurance Network Joint Powers Authority (PLAN JPA) The Town participates in PLAN, which covers general liability claims in the amount up to $5,000,000 plus $25,000,000 in excess liability for total coverage of $30,000,000 per occurrence. The Town has a deductible or uninsured liability of up to $50,000 per claim. PLAN also provides all risk property coverage of $1,000,000,000, excluding flood and earthquake coverage. The Town has a $5,000 deductible for property and vehicle damage. Once the Town’s deductible is met, PLAN becomes DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 95 responsible for payment of all claims up to the limit. Financial statements may be obtained from PLAN at 1750 Creekside Drive, Suite 200, Sacramento, CA, 95833. Local Agency Workers’ Compensation Joint Powers Authority (LAWCX) The Town is a member of LAWCX for workers compensation claims coverage. The Town has a $250,000 self-insured retention level or uninsured liability for all employees. Once the Town’s deductible is met, LAWCX becomes responsible for claims up to $5,000,000. For claims greater than $5,000,000, LAWCX has a commercial policy providing coverage. Financial statements may be obtained from LAWCX at 1750 Creekside Oaks Dr., Suite 200, Sacramento, California, 95833. The Town has not significantly reduced its insurance coverage from the prior year and settlements have not exceeded insurance coverage for the past three years. Liability for Uninsured Claims The Town is required to record its liability for uninsured claims and to reflect the current portion of this liability as an expenditure in its financial statements. As discussed above, the Town has coverage for such claims, but it has retained the risk for the deductibles, or uninsured portion of these claims. The change in Workers’ Compensation and Self-Insurance Service Funds’ claims liabilities, is based on historical trend information provided by its third party administrator and was computed as follows as of June 30, 2022: Workers' Self- Compensation Insurance Internal Internal Service Fund Service Fund Total Claims payable balance - June 30, 2020 1,191,386$ 57,025$ 1,248,411$ Claims incurred 511,800 143,565 655,365 Claims paid (207,704) - (207,704) Claims payable balance - June 30, 2021 1,495,482 200,590 1,696,072 Claims incurred/adjustments - (119,883) (119,883) Claims paid (130,924) (61,150) (192,074) Claims payable balance - June 30, 2022 1,364,558$ 19,557$ 1,384,115$ NOTE 13 - COMMITMENTS AND CONTINGENCIES Federal and State Grants - The Town participates in several federal and state grant programs. These are subject to examination by grantors and the amount, if any, of disallowed expenditures cannot be determined at this time. The Town expects such amounts, if any, to be immaterial. Litigation - The Town is subject to litigation arising from the normal course of business. The Town Attorney believes there is no pending litigation which is likely to have a material adverse effect on the financial position of the Town. Successor Agency - As of June 30, 2022, the Successor Agency trust fund reported a net deficit of $7,607,526. DRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 96 Encumbrances - As of June 30, 2022, the town had the following encumbered balances that were carried into the next fiscal year: General Fund 996,124$ Appropriated Reserves Fund 6,604,021 Nonmajor Governmental Funds 1,676,361 Internal Service Funds 559,151 Total Encumbrances 9,835,657$ NOTE 14 - TOWN/SUCCESSOR AGENCY GRANTS, COOPERATIVE AGREEMENTS Public Improvement Grants and Cooperative Agreements In January of 2011, the Redevelopment Agency entered into a public improvement grant and cooperative agreement with the Town for the purpose of funding the acquisition of public land and designing and constructing various public improvements to be owned by the Town provided that the projects were in accordance with the Redevelopment Agency’s five year implementation plan and redevelopment plan. The improvement plan, as identified in the agreement, called for approximately $24 million to be granted to the Town for the following projects: a.Expansion and improvement of current and new downtown parkingb. Highway 9 improvements from Highway 17 to Monte Serenoc.Almond Grove Area street, sidewalk and other improvements d. Downtown Los Gatos gateways, signage, banners and art e.Storm drain, retaining wall, street and other improvementsf. New Los Gatos library building During the fiscal year ended June 30, 2012, the rights and obligations resulting from this cooperative agreement were transferred to the Successor Agency Trust Fund as a part of the Town’s dissolution of its Redevelopment Agency. Affordable Housing Cooperative Agreement In March of 2011, the Redevelopment Agency entered into an affordable housing cooperative agreement with the Town for the purpose of funding affordable housing projects and programs to be developed and/or administered by the Town in accordance with the Redevelopment Agency’s five-year implementation plan and redevelopment plan. The improvement plan, as identified in the agreement, called for approximately $16 million to be granted to the Town for the following projects: a.Development of affordable housing at 224 Main St.b.Development of affordable housing at Dittos Lanec.Partnership with Senior Housing Solutions for the creation of senior housing in Los GatosDRAFT TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 97 d.Partnerships for the conversion of existing residential developments dedicated to affordable housinge.Grants to the Santa Clara County Housing Trust for the development of affordable housing. During the fiscal year ended June 30, 2012, the rights and obligations resulting from this cooperative agreement were transferred to the Successor Agency Trust Fund as a part of the Town’s dissolution of its Redevelopment Agency. NOTE 15 - COVID-19 PANDEMIC PROGRAMS On March 11, 2021, the American Rescue Plan Act (ARPA) was signed into law by President Biden. The $1.9 trillion package (the Act) provided financial aid to families, governments, businesses, schools, nonprofits and others impacted by the COVID19 public health crisis. Of the $1.9 trillion, $350 billion is being directed toward state and local governments. All 19,000 municipal governments are entitled to a direct, noncompetitive federal formula grant from the U.S. Treasury Department. The portion allocated to cities, towns, and villages totals $65.1 billion of which $19.5 billion is obligated toward cities with less than 50,000 residents. The Act will allocate $7,229,744 to the Town over a two-year period. The first tranche payment of $3,614,862 was received on July 13, 2021, and the second payment no earlier than 12 months after the first payment. Section 603. CORONAVIRUS LOCAL FISCAL RECOCERY FUND of the Act identified four eligible uses for funding, as follows: A.Respond to the public health emergency with respect to the Coronavirus Disease 2019(COVID–19) or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality; B.Respond to workers performing essential work during the COVID–19 public healthemergency by providing premium pay to eligible workers of the metropolitan city,nonentitlement unit of local government, or county that are performing such essential work, orby providing grants to eligible employers that have eligible workers who perform essential work; C.Provide government services to the extent of the reduction in revenue of suchmetropolitan city, nonentitlement unit of local government, or county due to the COVID–19public health emergency relative to revenues collected in the most recent full fiscal year of themetropolitan city, nonentitlement unit of local government, or county prior to the emergency; or D.Make necessary investments in water, sewer, or broadband infrastructure. During the fiscal year ended June 30, 2022 , the Town recognized $3,413,961 as operating grant revenue in the ARPA special revenue fund and transferred $3,413,961 to other funds, reimbursing the Town for qualifying expenditures under the provisions of the Act. For FY 2020/21, the Town recognized the initial $200K of ARPA proceeds as revenue to reimburse the Town for qualifying expenses. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 Page 98 NOTE 16 - FRANCHISE FEES The California Supreme Court recently issued an opinion in a case challenging the franchise fees that the city of Oakland charges to certain waste hauling companies. In Zolly v. City of Oakland, the court concluded that it did not have enough evidence to rule as a matter of law that the fees are exempt from the voter approval requirements that apply to taxes under Proposition 26, Article XIII C of the California Constitution. However, there are several exceptions to the general rule that a tax must be approved by the voters. One exception (Article IIIC, section 1 (e)(1)) is for “a charge imposed for a specific benefit conferred or privileged 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.” In the event the Town is unable to utilize one of the exceptions, the potential impact is a loss of approximately $2.4 million annually. Page 99 Required Supplementary Information TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 BENEFIT PLAN SCHEDULES Page 100 Schedule of Pension Plan Contributions Schedule of Proportionate Share of Net Pension Liability – CalPERS Safety Cost Sharing Plan Schedule of Proportionate Share of Net Pension Liability – CalPERS Misc. Agent-Multiple Employer Plan Schedule of OPEB Contribution Schedule of Changes in Net OPEB Liability TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 SCHEDULE OF PENSION PLAN CONTRIBUTIONS Page 101 Miscellaneous Agent Multiple-Employer Plan Plan Measurement Date 2014 2015 2016 2017 2018 2019 2020 2021 Fiscal Year Ended 2015 2016 2017 2018 2019 2020 2021 2022 Contractually Required Contributions 1,941,765$ 2,223,782$ 2,407,496$ 2,669,133$ 3,049,748$ 3,366,304$ 3,529,373$ 3,472,727$ Contributions in Relation to Contractually Required Contributions 1,941,765 2,223,782 2,407,496 2,669,133 3,049,748 8,146,791 9,160,680 3,472,727 Contribution Deficiency (Excess)-$ -$ -$ -$ -$ (4,780,487)$ (5,631,307)$ -$ Covered Payroll 8,487,940$ 9,198,318$ 9,024,370$ 9,576,157$ 10,211,967$ 11,188,927$ 12,082,520$ 11,970,102$ Contributions as a % of Covered Payroll 22.88% 24.18% 26.68% 27.87% 29.86% 72.81% 75.82% 29.01% Safety Cost Sharing PlanPlan Measurement Date 2014 2015 2016 2017 2018 2019 2020 2021Fiscal Year Ended 2015 2016 2017 2018 2019 2020 2021 2022 Contractually Required Contributions 1,999,757$ 1,586,129$ 1,738,150$ 1,951,711$ 2,325,357$ 2,565,205$ 2,853,764$ 3,072,032$ Contributions in Relation to ContractuallyRequired Contributions 1,999,757 1,586,129 1,738,150 1,951,711 2,325,357 2,565,205 2,853,764 3,072,032 Contribution Deficiency (Excess)-$ -$ -$ -$ -$ -$ -$ -$ Covered Payroll 4,897,104$ 5,022,498$ 4,941,138$ 5,079,440$ 4,445,061$ 4,928,821$ 5,178,418$ 5,831,703$ Contributions as a % of Covered Payroll 40.84% 31.58% 35.18% 38.42% 52.31% 52.05% 55.11% 52.68% Notes to Schedule: Valuation Date:June 30, 2020 Assumptions Used: Entry Age Method used for Actuarial Cost Method Level Percentage of Payroll and Direct Rate Smoothing 3.8 Years Remaining Amortization Period Inflation Assumed at 2.50%Investment Rate of Returns set at 7.00% Fiscal year 2015 was the first year of implementation, therefore only eight years are shown. The CalPERS discount rate was increased from 7.50% to 7.65% in fiscal year 2016, then to 7.15% in 2018. The CalPERS mortality assumptions was adjusted in fiscal year 2019. CalPERS mortality table based on CalPERS' experience and include 15 years of projected ongoing mortality improvement using 90 percent of Scale MP 2016 published by the Society of Actuaries. TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 SCHEDULE OF PROPORTIONATE SHARE OF NET PENSION LIABILITY CALPERS SAFETY COST SHARING PLAN Page 102 Safety Cost Sharing PlanPlan Measurement Date 2014 2015 2016 2017 2018 2019 2020 2021Fiscal Year Ended 2015 2016 2017 2018 2019 2020 2021 2022 Proportion of Net Pension Liability (Safety and Misc)0.28588% 0.14860% 0.22394% 0.22603% 0.23583% 0.24100% 0.24953% 0.30994% Proportionate Share ofNet Pension Liability 17,788,690$ 10,199,904$ 19,377,843$ 22,415,954$ 22,725,267$ 24,695,687$ 27,149,916$ 16,762,598$ Covered Payroll 4,916,535$ 4,897,104$ 5,022,498$ 4,941,138$ 5,079,440$ 4,445,061$ 4,928,821$ 5,178,418$ Proportionate Share of NPLas a % of Covered Payroll 361.81% 208.28% 385.82% 453.66% 447.40%555.58% 550.84% 323.70% Plan's Fiduciary Net Positionas a % of the TPL 75.66% 74.89% 74.89% 73.87% 74.52% 73.61% 72.46% 83.55% Fiscal year 2015 was the first year of implementation, therefore only eight years are shown. The CalPERS discount rate was increased from 7.50% to 7.65% in fiscal year 2016, then to 7.15% in 2018. The CalPERS mortality assumptions was adjusted in fiscal year 2019. TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 SCHEDULE OF PROPORTIONATE SHARE OF NET PENSION LIABILITY CALPERS MISCELLANEOUS AGENT-MULTPLE EMPLOYER PLAN Page 103 Measuement Date 2014 2015 2016 2017 2018 2019 2020 2021 Total Pension liabilityService cost 1,579,547$ 1,491,925$ 1,560,679$ 1,651,550$ 1,700,438$ 1,771,368$ 1,930,090$ 2,062,486$ Interest 6,268,015 6,483,032 6,697,247 6,820,536 7,073,843 7,381,846 7,729,269 7,943,404 Diff. between expected and actual exp.- (623,495) (357,870) (892,479) 994,994 1,082,289 1,465,653 (581,801) Changes of assumptions - (1,513,132) - 5,481,432 (655,541) - - - Benefit payments (including refunds)(4,241,487) (4,748,786) (4,953,756) (5,138,083) (5,448,374) (5,720,232) (5,958,101) (6,339,615) Net change in Total Pension Liability 3,606,075 1,089,544 2,946,300 7,922,956 3,665,360 4,515,271 5,166,911 3,084,474 Total Pension Liability - beginning 84,904,502 88,510,577 89,600,121 92,546,421 100,469,377 104,134,737 108,650,008 113,816,919 Total Pension Liability - ending 88,510,577$ 89,600,121$ 92,546,421$ 100,469,377$ 104,134,737$ 108,650,008$ 113,816,919$ 116,901,393$ Plan fiduciary net position Employer contributions 1,796,079$ 1,941,765$ 2,223,782$ 2,407,496$ 2,669,104$ 3,049,748$ 8,146,791$ 9,160,680$ Employee contributions 668,167 679,796 691,770 682,891 761,705 846,125 834,145 889,649 Plan to plan resource movement - 22,561 (28,866) - (170) - - - Projected investment earnings 4,328,173 - - - -- - - Diff. between est. and actual earnings 5,831,718 - - - -- - - Net investment income - 1,470,873 369,185 7,171,443 5,883,868 4,759,034 3,913,294 19,606,360 Benefit payments (including refunds)(4,241,487) (4,748,786) (4,953,756) (5,138,083) (5,448,374) (5,720,232) (5,958,101) (6,339,615) Administrative expense - (74,706) (40,462) (95,455) (108,582) (52,260) (107,303) (82,856) Adjsutments - -- - (206,199) 170 - - Net change in plan fiduciary net position 8,382,650 (708,497) (1,738,347) 5,028,292 3,551,352 2,882,585 6,828,826 23,234,218 Plan fiduciary net position - beginning 58,716,725 67,099,375 66,390,878 64,652,531 69,680,823 73,232,175 76,114,760 82,943,586 Plan fiduciary net position - ending 67,099,375$ 66,390,878$ 64,652,531$ 69,680,823$ 73,232,175$ 76,114,760$ 82,943,586$ 106,177,804$ Net Pension liability (asset)21,411,202$ 23,209,243 27,893,890 30,788,554 30,902,562 32,535,248 30,873,333 10,723,589 Plan fiduciary net position as a percentageof the total Pension liability 75.81% 74.10% 69.86% 69.36% 70.32% 70.05% 72.87% 90.83% Covered Payroll 8,406,315$ 8,487,940$ 9,198,318$ 9,024,370$ 9,576,157$ 10,211,967$ 11,188,927$ 12,082,520$ Net Pension liability % of covered payroll 254.70% 273.44% 303.25% 341.17% 322.70% 318.60% 275.93% 88.75% Other Notes Fiscal year 2015 was the first year of implementation, therefore only eight years are shown. TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 SCHEDULE OF OPEB CONTRIBUTIONS Page 104 Fiscal Year Ended 2018 2019 2020 2021 2022 Actuarially determined contribution (ADC)2,129,000$ 2,108,000$ 2,172,000$ 1,859,000$ 1,860,000$ Less: actual contribution in relation to ADC (2,935,000) (2,406,636) (2,508,306) (2,096,847) (1,754,922) Contribution deficiency (excess)(806,000)$ (298,636)$ (336,306)$ (237,847)$ 105,078$ Covered employee payroll 16,192,060$ 17,338,201$ 17,406,541$ 17,982,237$ 16,987,042$ Contrib. as a % of covered employee payroll 18.13% 13.88% 14.41% 11.66% 10.33% Notes to Schedule: Assumptions and Methods Valuation Date: Measurement Date: Actuarial Cost Method: Amortization Period: Asset Valuation Method: Actuarial Assumptions: Discount Rate Inflation Salary Increases Investment Rate of Return Healthcare Trend Rate Mortality Retirement Other Notes Discount rate was updated based on newer capital market assumptions Decreased medical trend rate for Kaiser Senior Advantage Demographic assumptions updated to CalPERS 2000-2019 Experience Study Inflation rate decreased 25 basis points, decreasing discount rate, medical trend, and salary increases Retiree and family participation rates at retirement updated Implicit subsidy added for Tier 1 Medicare eligible Mortality improvement scale was updated to Scale MP-2021 Non-Medicare - 7.25% for 2021, decreasing to an ultimate rate of 4% in 2076 June 30, 2021 June 30, 2021 Entry-Age Normal Cost 20 years 6.75% Level percentage of payroll, closed CalPERS 2000-2019 Experience Study CalPERS 2000-2019 Experience Study 6.25% 2.50% 3.00% GASB 75 requires a schedule of contributions for the last ten fiscal years, or for as many years as are available if less than ten years are available. GASB 75 was adopted as of June 30, 2018. TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 SCHEDULE OF CHANGES IN NET OPEB LIABILITY Page 105 Measurement Date 2017 2018 2019 2020 2021 Total OPEB liability Service cost 1,134,000$ 1,168,227$ 1,203,274$ 1,159,152$ 1,115,309$ Interest 1,607,000 1,706,270 1,814,072 1,887,105 1,956,034 Differences between expected & actual exp.- - (149,297) - (2,521,500) Changes of assumptions - - (392,681) (533,825) 1,054,638 Benefit payments (1,269,000) (1,326,313) (1,298,623) (1,399,933) (1,494,906) Net change in Total OPEB Liability 1,472,000 1,548,184 1,176,745 1,112,499 109,575 Total OPEB Liability - beginning 23,301,000 24,773,000 26,321,184 27,497,929 28,610,428 Total OPEB Liability - ending 24,773,000$ 26,321,184$ 27,497,929$ 28,610,428$ 28,720,003$ Plan fiduciary net position Employer contributions 3,878,000$ 2,935,313$ 2,406,636$ 2,508,306$ 2,096,847$ Net investment income 1,049,000 1,082,977 1,009,315 652,656 5,529,824 Benefit payments (1,269,000) (1,326,313) (1,298,623) (1,399,933) (1,494,906) Administrative expense (14,000) (34,261) (11,502) (17,357) (18,556) Net change in plan fiduciary net position 3,644,000 2,657,716 2,105,826 1,743,672 6,113,209 Plan fiduciary net position - beginning 9,964,000 13,608,000 16,265,716 18,371,542 20,115,214 Plan fiduciary net position - ending 13,608,000$ 16,265,716$ 18,371,542$ 20,115,214$ 26,228,423$ Net OPEB liability (asset)11,165,000$ 10,055,468 9,126,387 8,495,214 2,491,580 Plan fiduciary net position as a percentage of the total OPEB liability 54.93% 61.80% 66.81% 70.31% 91.32% Covered Employee Payroll 14,985,716$ 16,192,060$ 17,338,201$ 17,406,541$ 17,982,237$ NOL as a % of cov. emp. payroll 74.50% 62.10% 52.64% 48.80% 13.86% Other Notes GASB 75 requires a schedule of contributions for the last ten fiscal years, or for as many years as are available if less than ten years are available. GASB 75 was adopted as of June 30, 2018. Page 106 Supplementary Information Page 107 This Page Left Intentionally Blank TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 MAJOR GOVERNMENTAL FUND SCHEDULES (OTHER THAN THE GENERAL FUND) AND NONMAJOR GOVERNMENTAL FUNDS Page 108 Schedule of Revenue, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP): Appropriated Reserves Fund is used to account for resources provided for capital projects not fully funded from other sources. Capital Projects Funds: Storm Drain Basin Funds were established to account for fees paid in conjunction with the development in specified drainage areas. Construction Tax Funds were established to account for tax levies on building additions or alterations including capital improvements, underground utilities and parks. Gas Tax Fund was established to account for revenue and expenditures under the State of California Streets and Highways Code Sections 2106, 2107 and 2107.5. The revenues must be used for the maintenance and construction of streets. Special Revenue Funds: Community Development Block Grant Fund was established to account for grant funds received and expended under the Community Development Act of 1974. Non-Point Source Maintenance Fund was established to comply with obligations under the National Pollutant Discharge Elimination system permit issued by the California Regional Water Quality Control Board. Lighting and Landscape Fund was established to account for maintenance of trees, landscaping, irrigation systems and lighting within the boundaries of Tract No. 8439. ARPA Fund was established to account for monies received under the American Rescue Plan Act of 2021 to respond to the COVID19 emergency. LG Theatre Fund was established to account for monies received from rents on donated property and related expenditures. Library Trust Fund was established to provide for the servicing of donations and bequests to the Town's Library Program. Page 109 Variance Original Final Positive Budget Budget Actual (Negative) REVENUES Licenses & permits 160,000 160,000 420,055 260,055 Intergovernmental 1,691,069 16,912,649 9,400,918 (7,511,731) Charges for services 755,676 2,693,556 1,464,746 (1,228,810) Developer fees 20,000 20,000 535,571 515,571 Interest - - 34,805 34,805 Use of Property - - 93,001 93,001 Total Revenues 2,626,745 19,786,205 11,949,096 (7,837,109) EXPENDITURES Current: General government - 7,000,000 6,900,000 100,000 Capital outlay 5,414,872 10,894,632 9,570,780 1,323,852 Total Expenditures 5,414,872 17,894,632 16,470,780 1,423,852 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (2,788,127) 1,891,573 (4,521,684) (6,413,257) OTHER FINANCING SOURCES (USES) Transfers in 2,841,047 3,584,047 4,074,141 490,094 Transfers (out)(427,616) (427,616) (427,616) - Total Other Financing Sources (Uses)2,413,431 3,156,431 3,646,525 490,094 CHANGE IN FUND BALANCE (374,696)$ 5,048,004$ (875,159) (5,923,163)$ BEGINNING FUND BALANCE 15,115,912 ENDING FUND BALANCE 14,240,753$ BUDGET AND ACTUAL (GAAP) FOR THE FISCAL YEAR ENDED JUNE 30, 2022 TOWN OF LOS GATOS APPROPRIATED RESERVES FUND COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Page 110 Page 111 Page 112 Page 113 Page 114 Page 115 Page 116 Page 117 Page 118 Page 119 Page 120 TOWN OF LOS GATOS, CALIFORNIA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2022 PROPRIETARY FUNDS INTERNAL SERVICE FUNDS Page 121 Internal service funds are used to finance and account for special activities and service performed by a designed department for other departments in the Town on a cost reimbursement basis. The concept of major funds does not extend to internal service funds because they are used for internal activities only. In the Government-Wide Statement of Activities, the net revenues and expenses of the internal service funds are allocated to the Town departments or programs that generated them, thus eliminating internal service funds. However, internal service funds are still presented separately in the fund financial statements and include the following funds: Equipment Fund was established to account for the replacement of major Town equipment and all vehicle replacement. Workers’ Compensation Fund was established to account for future claims that may occur related to workers compensation injuries. Self-Insurance Fund was established to account for future general liability claims against the Town. Information Technology Fund was established to account for the replacement of management information computer systems and components. Facilities Maintenance Fund was established to account for preventative maintenance and repair for all Town buildings. Page 122 Equipment Worker's Self Information Facilities Replacement Comp Insurance Technology Maintenance Total ASSETS Cash & Investments 2,237,647$ 2,535,115$ 863,995$ 3,043,739$ 332,928$ 9,013,424$ Restricted Cash & Investments - 129,929 - - - 129,929 Receivables: Accounts 4,553 - - 16,396 24,853 45,802 Leases receivable - - - - 1,494,721 1,494,721 Total Assets 2,242,200$ 2,665,044$ 863,995$ 3,060,135$ 1,852,502$ 10,683,876$ LIABILITIES Accounts Payable 19,805$ 5,302$ 41,146$ 69,204$ 94,660$ 230,117$ Due to Other Governments - - - - 50 50 Claims Payable - 1,364,558 19,557 - - 1,384,115 Total Liabilities 19,805$ 1,369,860$ 60,703$ 69,204$ 94,710$ 1,614,282$ Deferred Inflows of Resources Leases -$ -$ -$ -$ 829,312$ 829,312$ NET POSITION Restricted for: Wokers compensation claims -$ 129,929$ -$ -$ -$ 129,929$ Unrestricted 2,222,395 1,165,255 803,292 2,990,931 928,480 8,110,353 Total Net Position 2,222,395$ 1,295,184$ 803,292$ 2,990,931$ 928,480$ 8,240,282$ TOWN OF LOS GATOS INTERNAL SERVICE FUNDS COMBINING STATEMENT OF NET POSITION JUNE 30, 2022 Page 123 Equipment Worker's Self Information Facilities Replacement Comp Insurance Technology Maintenance Total OPERATING REVENUES Charges for services 540,957$ 896,732$ 366,133$ 998,158$ 878,127$ 3,680,107$ Interest - 5 - - - 5 Use of money and property 3,274 - - - 111,817 115,091 Other local taxes - - - - 66,382 66,382 Other revenue & reimbursements 45,211 258,472 - - - 303,683 Total Operating Revenues 589,442 1,155,209 366,133 998,158 1,056,326 4,165,268 OPERATING EXPENSES Insurance expenses - 1,533,045 583,924 - - 2,116,969 Services and supplies 161,767 - - 878,049 1,222,779 2,262,595 Total Operating Expenses 161,767 1,533,045 583,924 878,049 1,222,779 4,379,564 Operating Income (loss)427,675 (377,836) (217,791) 120,109 (166,453) (214,296) Transfers (in)- - - - 251,194 251,194 Transfers (out)(94,816) - - - - (94,816) Net Transfers (94,816) - - - 251,194 156,378 Change in Net Position 332,859 (377,836) (217,791) 120,109 84,741 (57,918) BEGINNING NET POSITION 1,889,536 1,673,020 1,021,083 2,870,822 156,340 7,610,801 PRIOR PERIOD ADJUSTMENT, GASB 87 - LEASES - - - - 687,399 687,399 BEGINNING NET POSITION, ADJUSTED 1,889,536 1,673,020 1,021,083 2,870,822 843,739 8,298,200 ENDING NET POSITION 2,222,395$ 1,295,184$ 803,292$ 2,990,931$ 928,480$ 8,240,282$ TOWN OF LOS GATOS INTERNAL SERVICE FUNDS COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE FISCAL YEAR ENDED JUNE 30, 2022 Page 124 Equipment Worker's Self Information Facilities Replacement Comp Insurance Technology Maintenance Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 586,745$ 896,737$ 366,133$ 986,495$ 390,917$ 3,227,027$ Payments to suppliers and providers (141,962) (1,550,272) (664,201) (848,854) (1,236,545) (4,441,834) Insurance reimbursements - 258,472 - - - 258,472 Claims paid - (130,924) (61,150) - - (192,074) Net Cash Provided (Used) by Operating Activities 444,783 (525,987) (359,218) 137,641 (845,628) (1,148,409) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers In - - - - 251,194 251,194 Transfers Out (94,816) - - - - (94,816) Net Cash Provided (Used) by Noncapital Financing Activities (94,816) - - - 251,194 156,378 Net Increase(Decrease) in Cash and Investments 349,967 (525,987) (359,218) 137,641 (594,434) (992,031) Cash and investments - beginning of year 1,887,680 3,191,031 1,223,213 2,906,098 239,963 9,447,985 Cash and investments - end of year 2,237,647$ 2,665,044$ 863,995$ 3,043,739$ (354,471)$ 8,455,954$ Reconciliation of Operating Income to Cash Flows from Operating Activities: Operating Income 427,675$ (377,836)$ (217,791)$ 120,109$ (166,453)$ (214,296)$ Change in assets and liabilities: Accounts receivable (2,697) - - (12,141) - (14,838) Leases receivable - - - - (1,494,721) (1,494,721) Due from other funds - - - 478 - 478 Deferred inflows of resources - - - - 829,312 829,312 Accounts payable 19,805 (17,227) 39,606 29,195 (13,733) 57,646 Due to other governments - - - - (33) (33) Claims payable - (130,924) (181,033) - - (311,957) Cash Flows From Operating Activities 444,783$ (525,987)$ (359,218)$ 137,641$ (845,628)$ (1,148,409)$ TOWN OF LOS GATOS INTERNAL SERVICE FUNDS COMBINING STATEMENTS OF CASH FLOWS FOR THE FISCAL YEAR ENDED JUNE 30, 2022 Page 125 Statistical Section Page 126 This Page Left Intentionally Blank Page 127 STATISTICAL (UNAUDITED) This part of the Town of Los Gatos Annual Comprehensive Financial Report (“ACFR”) presents the detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the Town’s overall financial health. Financial Trends These schedules contain trend information to help the reader understand how Town’s financial performance and well-being have changed over time. (Schedule 1, Schedule 2, Schedule 3, and Schedule 4). Revenue Capacity These schedules contain information to help the reader assess one of the Town’s most significant local revenue source, the property tax (Schedule 5, Schedule 6, Schedule 7, and Schedule 8). Debt Capacity These schedules present information to help the reader assess the affordability of the Town’s current levels of outstanding debt and its ability to issue additional debt in the future (Schedule 9, Schedule 10, and Schedule 11) Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the Town’s financial activities take place (Schedule 12, Schedule 13, and schedule 14). Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the Town’s ACFR relates to the services the Town provides and activities it performs (Schedule 15 and Schedule 16). Page 128 This Page Left Intentionally Blank Page 129 Town of Los Gatos Schedule 1 Net Position by Component Last Ten Fiscal Years (Accrual Basis of Accounting) Fiscal Net Investment Total Year in Capital Assets Restricted Unrestricted Net Position 2013 92,558,523 3,949,583 41,480,377 137,988,483 2014 93,251,117 4,485,246 44,393,265 142,129,628 2015 93,687,029 5,663,182 7,180,919 106,531,130 (1) 2016 93,383,855 6,386,014 12,744,637 112,514,506 2017 96,265,652 5,627,707 15,134,420 117,027,779 2018 102,098,729 8,199,598 170,590 110,468,917 (2) 2019 107,542,588 11,918,688 -4,642,167 114,819,109 (3) 2020 111,700,225 7,117,984 -3,967,178 114,851,031 2021 109,894,936 8,358,267 -4,735,103 113,518,100 2022 126,418,275 10,203,412 1,785,294 138,406,981 (1) The decrease in Restricted Net Position GASB 68 Implementation of Unfunded Pension Liability of Statement of Net Position. (3) The decrease in unrestricted net position resulted largely from the use of approximately $8.0 million in unrestricted cash balances in the Town’s GFAR fund during the year to invest in the Town’s infrastructure and (2) Net position was restated for FY 2018 for amounts placed into fiduciary funds, reclassified to General Fund Restricted Asset. -15,000,000-10,000,000 -5,000,0000 5,000,000 10,000,00015,000,000 20,000,000 25,000,00030,000,000 35,000,00040,000,000 45,000,000 50,000,00055,000,000 60,000,000 65,000,000 70,000,000 75,000,00080,000,000 85,000,000 90,000,00095,000,000 100,000,000 105,000,000 110,000,000 115,000,000120,000,000 125,000,000 130,000,000135,000,000 Net Investment in Capital Assets Restricted Unrestricted Page 130 Page 131 Page 132 Town of Los Gatos Schedule 3 Fund Balance, Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 2012/13 2013/14 2014/15 2015/16 2016/17 General Fund Nonspendable -$ -$ -$ -$ -$ Restricted - - - - - Committed 20,019,187 15,129,925 Assigned 20,758,156 23,791,749 24,121,256 9,555,085 14,050,699 Unassigned 7,502,446 1,363,376 - - - Total General Fund 28,260,602$ 25,155,125$ 24,121,256$ 29,574,272$ 29,180,624$ All Other Governmental Funds Nonspendable -$ -$ -$ -$ -$ Restricted 3,949,583 4,485,246 5,663,182 6,386,014 5,627,707 Committed - - - 3,696,000 10,354,584 Assigned 6,097,182 8,191,823 15,346,558 11,099,076 7,928,994 Unassigned 157,208 183,045 206,875 - - Total All Other Governmental Funds 10,203,973$ 12,860,114$ 21,216,615$ 21,181,090$ 23,911,285$ Total Fund Balances 38,464,575$ 38,015,239$ 45,337,871$ 50,755,362$ 53,091,909$ Continued Fiscal Year Page 133 Town of Los Gatos Schedule 3 Fund Balance, Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 2017/18 2018/19 2019/20 2020/21 2021/22 General Fund Nonspendable -$ -$ -$ 159,000$ 159,000$ Restricted 1,206,851 5,015,316 669,978 - 690,000 Committed 12,953,399 15,070,944 15,387,706 11,220,970 12,283,132 Assigned 17,475,285 18,256,895 13,277,813 12,534,648 13,764,657 Unassigned - - - - - Total General Fund 31,635,535$ 38,343,155$ 29,335,497$ 23,914,618$ 26,896,789$ All Other Governmental Funds Nonspendable -$ -$ -$ -$ -$ Restricted 6,992,747 6,903,372 6,448,006 8,562,653 9,383,483 Committed 5,571,087 2,579,997 - - 637,711 Assigned 6,361,403 6,180,930 14,181,679 15,360,481 13,944,155 Unassigned - - - - - Total All Other Governmental Funds 18,925,237$ 15,664,299$ 20,629,685$ 23,923,134$ 23,965,349$ Total Fund Balances 50,560,772$ 54,007,454$ 49,965,182$ 47,837,752$ 50,862,138$ Concluded Fiscal Year Page 134 Town of Los Gatos Schedule 4 Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 2012/13 2013/14 2014/15 2015/16 2016/17 Revenues: Taxes 24,596,799$ 23,475,393$ 23,208,820$ 23,269,892$ 25,945,129$ Licenses & Permits 4,015,871 5,343,265 6,467,771 5,442,133 5,075,503 Intergovernmental 2,615,191 2,440,127 2,921,002 2,573,475 1,715,580 Charges for Services 6,529,234 5,837,581 5,794,386 4,773,001 4,210,174 Fines and Forfeitures 688,125 795,720 868,564 879,277 917,105 Franchise Fees - - 2,215,430 2,258,892 2,366,908 Developer Fees - - - - - Investment Income (133,380) 772,164 428,735 698,308 192,978 Use of Property 38,910 37,741 32,209 31,723 32,096 Other 4,577,584 3,648,277 3,130,975 2,396,992 1,011,939 Total Revenues 42,928,334 42,350,268 45,067,892 42,323,693 41,467,412 Expenditures: Current General Government 8,331,444 8,499,854 8,647,451 9,144,797 8,390,959 Public Safety 13,370,032 13,742,189 13,747,198 13,763,316 13,251,288 Parks and Public Works 5,616,197 5,611,283 5,840,097 6,307,266 6,633,748 Community Development 4,235,832 4,335,599 4,218,500 3,695,504 3,793,930 Library Services 2,055,069 2,131,438 2,268,844 2,332,268 2,508,677 Sanitation & Other 359,725 322,817 411,863 452,726 466,762 Capital Outlay 6,568,653 4,097,662 3,800,478 3,241,657 6,867,034 Debt Service Principal Repayment - - - - - Total Expenditures 40,536,952 38,740,842 38,934,431 38,937,534 41,912,398 Excess (Deficiency) of Revenues Over (Under) Expenditures 2,391,382 3,609,426 6,133,461 3,386,159 (444,986) Other Financing Sources(Uses): Transfers In 2,841,881 3,418,872 8,977,220 3,315,846 7,907,692 Transfers Out (2,463,850) (2,921,409) (7,788,049) (1,284,514) (7,612,012) Gain from Sale of Property - - - - - Issuance of Debt - - - - 4,435 Total Other Financing Sources(Uses)378,031 497,463 1,189,171 2,031,332 300,115 Special Item: Extraordinary Gain (Loss) RDA Dissolution 295,913 - - - - Prepayment of Pension Obligations - (4,534,538) - - - Net Change in Fund Balances 2,769,413$ 4,106,889$ 7,322,632$ 5,417,491$ (144,871)$ Debt Service as a Percentage of Non Capital Expenditures 0.00%0.00%0.00%0.00%0.00% Continued Fiscal Year Page 135 Town of Los Gatos Schedule 4 Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 2017/18 2018/19 2019/20 2020/21 2021/22 Revenues: Taxes 26,253,026$ 28,244,329$ 27,811,665$ 28,977,919$ 31,627,593$ Licenses & Permits 5,937,044 5,173,876 4,818,671 5,212,831 6,055,040 Intergovernmental 2,124,903 2,310,655 4,498,153 3,746,587 15,492,982 Charges for Services 5,395,057 5,584,504 5,309,470 6,035,659 6,925,359 Fines and Forfeitures 676,212 510,266 271,117 103,468 319,170 Franchise Fees 2,474,814 2,475,916 2,495,792 2,499,463 2,822,515 Developer Fees - - - - 1,735,571 Investment Income 332,938 1,809,164 2,428,453 227,940 (1,278,983) Use of Property 32,206 32,960 31,039 40,372 144,901 Other 640,844 579,755 376,922 423,115 349,145 Total Revenues 43,867,044 46,721,425 48,041,282 47,267,354 64,193,293 Expenditures: Current General Government 8,770,082 8,004,254 13,024,146 14,040,134 15,953,968 Public Safety 14,423,554 14,945,407 15,793,815 16,570,836 16,451,190 Parks and Public Works 7,125,686 7,962,135 8,168,599 8,229,944 8,639,128 Community Development 4,192,165 4,577,495 4,473,790 5,195,302 6,313,511 Library Services 2,529,017 2,493,617 2,700,802 2,847,988 2,827,210 Sanitation & Other 521,147 628,240 162,837 166,173 194,969 Capital Outlay 9,778,058 7,888,914 7,861,972 5,707,439 10,478,670 Debt Service Principal Repayment - - - 39,008 156,034 Total Expenditures 47,339,709 46,500,062 52,185,961 52,796,824 61,014,680 Excess (Deficiency) of Revenues Over (Under) Expenditures (3,472,665) 221,363 (4,144,679) (5,529,470) 3,178,613 Other Financing Sources(Uses): Transfers In 3,176,760 4,264,131 8,935,260 4,053,535 8,154,307 Transfers Out (3,880,131) (3,323,756) (8,628,719) (3,940,015) (8,310,685) Gain from Sale of Property 378,219 1,912,316 1,566 1,201,369 2,151 Issuance of Debt - - - 1,560,336 - Total Other Financing Sources(Uses)(325,152) 2,852,691 308,107 2,875,225 (154,227) Special Item: Extraordinary Gain (Loss) RDA Dissolution - - - - - Prepayment of Pension Obligations - - - - - Net Change in Fund Balances (3,797,817)$ 3,074,054$ (3,836,572)$ (2,654,245)$ 3,024,386$ Debt Service as a Percentage of Non Capital Expenditures 0.00%0.00%0.00%0.08%0.31% Concluded Fiscal Year Page 136 Town of Los Gatos Schedule 5 Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years Utility and Total Fiscal Unsecured Percent Secured Percent Total Estimated Direct Year Property Change Property Change Assessed Full Market Tax Rate 2013 211,268,609 -2.77%8,465,420,032 3.84% 8,676,688,641 33,861,680,128 1.0508 2014 224,079,502 6.06%9,238,816,900 9.14% 9,462,896,402 36,955,267,600 1.0493 2015 227,331,042 1.45%9,767,782,505 5.73% 9,995,113,547 39,071,130,020 1.0544 2016 217,035,545 -4.53%10,417,804,357 6.65% 10,634,839,902 41,671,217,428 1.0533 2017 304,443,013 40.27%11,240,554,198 7.90% 11,544,997,211 44,962,216,792 1.0560 2018 330,504,877 8.56%11,969,049,272 6.48% 12,299,554,149 47,876,197,088 1.0659 2019 359,276,665 8.71%12,795,393,103 6.90% 13,154,669,768 51,181,572,412 1.0607 2020 331,517,212 -7.73%13,510,676,336 5.59% 13,842,193,548 54,042,705,344 1.0598 2021 308,749,655 -6.87%14,599,669,332 8.06% 14,908,418,987 58,398,677,328 1.0494 2022 304,460,199 -1.39%15,255,884,284 4.49% 15,560,344,483 61,023,537,136 1.0627 Source: Santa Clara County Assessed Value Report 0 2000 4000 6000 8000 10000 12000 14000 16000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Millions Unsecured Property Secured Property Page 137 Town of Los Gatos Schedule 6 Direct and Overlapping Property Tax Rates Last Ten Fiscal Years Santa Clara School Fiscal Basic County County Bonds Valley Water District Bonds Year Wide Levy and Levies District and Loans Total 2013 1.0000 0.0439 0.0069 0.1523 1.2031 2014 1.0000 0.0423 0.0070 0.1417 1.1910 2015 1.0000 0.0479 0.0065 0.1442 1.1986 2016 1.0000 0.0476 0.0057 0.1381 1.1914 2017 1.0000 0.0474 0.0086 0.1223 1.1783 2018 1.0000 0.0597 0.0062 0.1177 1.1836 2019 1.0000 0.0565 0.0042 0.1006 1.1613 2020 1.0000 0.0557 0.0041 0.0935 1.1533 2021 1.0000 0.0457 0.0037 0.0959 1.1453 2022 1.0000 0.0576 0.0051 0.0902 1.1529 Source: Santa Clara County Book of Tax Rates 0.00 0.25 0.50 0.75 1.00 1.25 Per Hundred $Santa Clara Valey Water District County County Bonds and Levies School District Bonds and LoansBasic County Wide Levy Page 138 Page 139 Page 140 Town of Los Gatos Schedule 8 Property Tax Levies and Collections Last Ten Fiscal Years Value of Redevelopment Agency Value of Town Redevelopment Total Property Value of Town Property Property Property Tax Property Tax Tax Levied Property subject Subject to Subject to Fiscal Levied and Levied and and to Local Tax Local Local Year Collected Collected Collected Rate Tax Rate Tax Rate 2013 8,253,442 - 8,253,442 8,676,688,641 1,167,752,021 9,844,440,662 2014 9,120,626 - 9,120,626 9,462,896,402 1,249,873,303 10,712,769,705 2015 9,787,519 - 9,787,519 9,995,113,547 1,318,214,863 11,313,328,410 2016 10,388,424 - 10,388,424 10,634,839,902 1,395,509,489 12,030,349,391 2017 11,345,588 - 11,345,588 11,544,997,211 1,537,577,241 13,082,574,452 2018 12,060,228 - 12,060,228 12,299,554,149 1,650,746,473 13,950,300,622 2019 12,924,592 - 12,924,592 13,154,669,768 1,717,358,555 14,872,028,323 2020 13,559,587 - 13,559,587 13,842,193,548 1,715,982,555 15,651,922,606 2021 13,864,271 - 13,864,271 14,908,418,987 1,809,729,058 16,718,148,045 2022 14,566,808 - 14,566,808 15,560,344,483 1,891,297,788 17,451,642,271 Sources: Santa Clara County Auditor-Controller Office and the Town of Los Gatos $7.0 $8.0 $9.0 $10.0 $11.0 $12.0 $13.0 $14.0 $15.0 $16.0 $17.0 $18.0 BillionsValue of Property $7.0 $8.0 $9.0 $10.0 $11.0 $12.0 $13.0 $14.0 $15.0 $16.0 $17.0 $18.0 MillionsTax Levied Page 141 Town of Los Gatos Schedule 9 Ratios of Outstanding Debt by Type Last Ten Fiscal Years Total Total Percentage of Fiscal PG&E Governmental Primary Personal Per Year Loan Activities Government Income Capita 2013 - - - 0.0%0.00 2014 - - - 0.0%0.00 2015 - - - 0.0%0.00 2016 - - - 0.0%0.00 2017 - - - 0.0%0.00 2018 - - - 0.0%0.00 2019 - - - 0.0%0.00 2020 - - - 0.0%0.00 2021 1,508,325$ 1,508,325$ 1,508,325$ 56.2% 48.91 2022 1,352,291$ 1,352,291$ 1,352,291$ 44.3% 40.90 Governmental Activities Debt was transferred to the Successor Agency Trust Fund as a part of the RDA dissolution in FY 2011 Page 142 Town of Los Gatos Schedule 10 Direct and Overlapping Governmental Activities Debt As of June 30, 2022 2021/22 Assessed Valuation:$15,560,344,483 Estimated Share of Direct and Total Debt at Overlapping Debt DIRECT AND OVERLAPPING BONDED DEBT:% Applicable (1)June 30, 2022 at June 30, 2022 Overlapping Tax & Assesment Debt Santa Clara County 2.700%1,130,850,000$ 30,532,950$ West Valley-Mission Community College District 9.435%732,500,000$ 69,111,375$ Campbell Union High School District 7.738%371,390,000$ 28,738,158$ Los Gatos-Saratoga Joint Union High School District 36.310%84,030,000$ 30,511,293$ Cambrian School District 0.441%60,969,944$ 268,877$ Campbell Union High School District 7.587%223,499,324$ 16,956,894$ Los Gatos Union School District 74.114%67,035,000$ 49,682,320$ Saratoga Union School District 0.033%17,243,915$ 5,690$ Union School District 20.254%105,359,439$ 21,339,501$ Midpeninsula Regional Open Space District 4.402%84,575,000$ 3,722,992$ Santa Clara Valley Water District Benefit Assessment District 2.700%48,150,000$ 1,300,050$ Total Overlapping Tax and Assesmet Debt 252,170,100$ Overlapping General Fund Debt Santa Clara County General Fund Obligations 2.700%1,210,694,365$ 32,688,748$ Santa Clara County Pension Obligations 2.700%335,638,470$ 9,062,239$ Santa Clara County Board of Education Certificates of Participation 2.700%1,820,000$ 49,140$ West Valley-Mission Community College District General Fund Obligations 9.435%12,000,000$ 1,132,200$ Campbell Union High School District General Fund Obligations 7.738%15,500,000$ 1,199,390$ Los Gatos-Saratoga Joint Union High School District Certificates of Participation 36.310%755,000$ 274,141$ Campbell Union School District General Fund Obligations 7.587%1,890,000$ 143,394$ Saratoga Union School District Certificates of Participation 0.033%2,335,000$ 771$ Santa Clara County Vector Control District Certificates of Participation 2.700%1,505,000$ 40,635$ Midpeninsula Regional Open Space Park District General Fund Obligations 4.402%99,705,600$ 4,389,041$ Total Gross Overlapping General Fund Debt 48,979,699$ Less: Santa Clara County Supported Obligations 488,127$ Total Overlapping General Fund Debt 48,491,572$ Overlapping Tax Increment Debt ( Successor Agency) Town of Los Gatos Certificated of Participations 12,785,000$ Total of Overlapping Tax Increment Debt 12,785,000$ Total Direct Debt $0 Total Gross Overlapping Dept 313,934,799$ Total Net Overlapping Debt 313,446,672$ Gross Combined Total Debt 313,934,799$ (2) Net Combined Total Debt 313,446,672$ Ratios to 2021/22 Assessed Valuation: Total Overlapping Tax and Assessment Debt: 1.62% Total Direct Debt: 0.00% Gross Combined Total Debt: 2.02% Net Combined Total Debt: 2.01% Ratios to Redevelpment Incremental Valuation ( $1,639,262,076): Total Overlapping Tax Increment Debt: 0.78% Source Data: California Municipal Statistics, Inc. (1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the city divided by the distric's total taxable asessed value. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue bonds and non-bonded capital lease obligations. Page 143 Page 144 Page 145 Town of Los Gatos Schedule 12 Demographic and Economic Statistics Last Ten Fiscal Years Personal Income Per Capita Public County Fiscal (thousands Personal Median School Unemployment Year Population of dollars)Income Age Enrollment Rate Ended (1)(2)(3)(4)(5)(6) 2012 29,808 1,854,892$ 62,228 42.64 6,352 8.7% 2013 30,247 2,140,641$ 70,772 45.8 6,420 6.8% 2014 30,443 2,267,912$ 74,497 45.80 6,522 5.7% 2015 30,505 2,197,885$ 72,050 46.10 6,622 3.8% 2016 31,376 2,286,087$ 72,861 46.30 6,646 3.5% 2017 31,314 2,281,569$ 72,861 46.50 6,631 3.8% 2018 30,601 2,290,638$ 74,855 46.81 6,588 2.6% 2019 30,998 2,365,178$ 76,301 46.72 6,544 2.6% 2020 31,439 2,546,748$ 81,006 46.83 6,520 10.7% 2021 30,836 2,686,155$ 87,111 46.83 6,180 5.2% 2022 33,062 3,055,987$ 92,432 46.67 6,000 2.2% Source: (1) California State Dept. of Finance - Population Research Unit (January 2019) (2) California State Dept. of Finance - Estimate equals county per capita average times population (3) US Census Bureau - QuickFacts (4) Claritas demographic snapshot report (5) Los Gatos Saratoga Joint Union and Los Gatos Union Elementary School Districts (6) State of California, Employment Development Dept., Labor Market Info. Div. Page 146 Page 147 Page 148 Town of Los Gatos Schedule 14 Full-time-Equivalent Employees by Function/Program Last Ten Fiscal Years 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 Function/Program General Government 20.40 20.73 20.97 20.97 21.35 21.97 22.16 21.80 21.80 22.06 Police 58.00 57.50 60.00 59.00 59.00 59.00 59.00 60.00 60.00 60.00 Economic Development - 0.50 0.63 0.63 0.63 0.75 0.75 0.75 0.75 0.75 Library 8.60 10.30 10.80 11.00 12.25 12.25 12.50 12.50 12.50 12.50 Planning 17.50 17.50 19.50 19.00 19.26 19.63 20.08 20.08 20.20 20.20 Public Works 31.00 31.50 32.00 33.50 33.50 34.50 34.50 34.50 34.75 34.75 Total 135.50 138.03 143.90 144.10 145.98 148.10 148.99 149.63 150.00 150.26 Full-time equivalent employment is calculated as one or more employee positions totaling one full year of service or approximately 2,080 hours a year. Page C-45 of Town Budget FY 2021/22 Full-time-Equivalent Employees as of June 30 Page 149 Page 150 Page 151 Town of Los Gatos Schedule 16 Capital Asset Statistics by Function/Program Last Ten Fiscal Years 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 Function/Program Police Number of Stations 2 2 2 2 2 2 2 2 2 2 Number of Patrol Units 14 14 14 14 14 14 14 14 14 14 Parking Enforcement Vehicles 2 2 2 2 2 2 2 2 2 2 Other Public Works Streets (miles)132 132 132 132 132 132 132 132 132 132 Streetlights 2,116 2,109 1,609 1,609 1,609 1,762 1,830 1,830 1,830 1,830 Traffic Signals 29 29 29 30 30 30 31 31 31 31 Parks and Recreation Number of Parks 12 12 12 12 12 12 N/A N/A N/A N/A Number of Community Centers 1 1 1 1 1 1 1 1 1 1 Number of Parks & Open Spaces N/A N/A N/A N/A N/A N/A 17 17 17 17 Parking Number of Parking Garages 1 1 1 1 1 1 1 1 1 1 Number of Parking Lots 22 22 22 22 22 22 22 22 22 22 Number of Off Street Parking Garage Spaces 1,126 1,126 1,126 1,126 1,126 1,126 N/A N/A N/A N/A Number of Downtown Off-Street Parking Spaces N/A N/A N/A N/A N/A N/A 1,269 1,269 1,269 1,269 Source: Town of Los Gatos, Finance Department Fiscal Year Page 152 Other Independent Auditor’s Reports Page 153 15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and Members of the Town Council of the Town of Los Gatos Los Gatos, California We have audited, 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, the financial statements of the Town of Los Gatos (the “Town”) as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the Town’s basic financial statements, and have issued our report thereon dated December 6, 2022. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Town’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Town’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Town’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Town’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not Page 154 15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Morgan Hill, California December 6, 2022 1 of 5 Resolution 2022-x Council Meeting Date ATTACHMENT 2 DRAFT RESOLUTION 2022- RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS APPROVING COMMITMENTS OF FUND BALANCE UNDER GASB 54 WHEREAS, the Governmental Accounting Standards Board (GASB) has issued its Statement No. 54, Fund Balance and Governmental Fund Type Definitions with the intent of improving financial reporting by providing fund balance categories that will be more easily understood and to improve the comparability of governmental fund financial statements; and WHEREAS, GASB 54 provides that the Town Council of the Town of Los Gatos classify governmental fund balances as restricted, assigned, or committed fund balances; and WHEREAS GASB 54 provides that restricted reserves are funds that are restricted for externally imposed constraints such as legal contracts or state law, assigned amounts are constrained by the Town’s intent to use them for specific purposes, and committed amounts are dedicated for specific purposes under constraints and formal action taken by the Town Council and these committed amounts cannot be used for any other purposes unless the Town Council of the Town of Los Gatos removes or changes the specific use through the same formal action to establish the commitment; and WHEREAS, there exists a Nonspendable Reserve that is not readily available for expenditure as it represents the outstanding balance of long term notes receivable; and WHEREAS, there exists a balance of $159,000 as of June 30, 2022 in the Nonspendable Reserve; and WHEREAS, there exists a balance of $690,000 as of June 30, 2022 in the Restricted Pension Trust Reserve; and WHEREAS, the Town Council of the Town of Los Gatos has established a General Fund Reserve Policy providing for minimum fund balance dollar target amounts for Budget Stabilization and Catastrophic fund balances and outlines policies and procedures for use and restoration of these balances; and WHEREAS, the Budget Stabilization and Catastrophic Reserve should be maintained at the required minimum 12.5% of Fiscal Year (FY) 2022/23 general fund budgeted operating expenditures of $5,991,566 as specified in the Town Council General Fund Reserve Policy. This 2 of 5 Resolution 2022-x Council Meeting Date ATTACHMENT 2 would increase both Budget Stabilization and Catastrophic Reserves from $5,460,566 by $531,081 from available Capital/Special Projects Reserve; and WHEREAS, in June 2016, the Town Council established the committed Pension/ Other Post-Employment Benefits (OPEB) Reserve to provide additional funding toward pension and OPEB unfunded obligations by placing discretionary amounts to the reserve with formal Council action and transferring available year-end surpluses based on the General Fund Reserve Policy; and WHEREAS, per Town Council General Fund Reserve Policy, $300,000 will be placed to the CalPERS/OPEB Reserve from available year-end savings; and WHEREAS, there exists a balance of $300,000 as of June 30, 2022 in the committed CalPERS/OPEB Reserve; and WHEREAS, the Town Council established the assigned Open Space reserve in the FY 1998/99 to be used for the preservation of open space, connection of open space trails, the definition of the southern boundary of the Town with passive open space, and protection of unique natural features; and WHEREAS, there exists an excess balance of $410,000 as of June 30, 2022 in the assigned Open Space Reserve; and WHEREAS, the Town Council established the assigned Sustainability Reserve in FY 2008/09 by closing the Solid Waste Management fund and placing the initial residual balance dedicated for conservation, recycling, and sustainability; and WHEREAS, there exists an excess balance of $140,553 as of June 30, 2022 in the assigned Sustainability Reserve; and WHEREAS, there exists an assigned General Fund Compensated Absences Reserve allocated to fund 50% of all vested hours of sick leave, compensation, and vacation time with the actual reserve amount of $1,519,147; and WHEREAS, there exists an assigned Market Fluctuation Reserve that represent fund balance amounts for unrealized investment gains that have been recorded as investment income in the financial statements in accordance with the requirements of GASB 31; and WHEREAS, there is a current balance of $0 as of June 30, 2022 in the assigned Market Fluctuation Reserve reflecting negative investment earnings as of June 30, 2022; and 3 of 5 Resolution 2022-x Council Meeting Date ATTACHMENT 2 WHEREAS, there exists an assigned Measure G 2018 District Sales Tax Reserve to track receipt and use of the 1/8 cent district tax funds collected by the Town; and WHEREAS, the Town Council has determined the use of Measure G accumulated and future proceeds to be allocated 50% for operating expenditures and 50% for capital purposes; and WHEREAS, 50% of the current Measure G proceeds dedicated for Capital Purposes was receipted in the General Fund Appropriated Reserve for capital purposes; and WHEREAS, there is anticipated to be an excess balance of $590,581 as of June 30, 2022 in the assigned Measure G District Sales Tax Reserve -Operating Reserve that the Council previously dedicated to balance the FY 2022/23 Budget; and WHEREAS, there exists an assigned Carryover Encumbrances Reserve for material and services on purchase orders and contract which are unperformed in the amount of $33,145; and WHEREAS, there exists an assigned Capital/Special Projects Reserve to fund Council priorities, and key infrastructure and capital/special projects as identified in the Town’s five-year Capital Improvement Plan; and WHEREAS, the remainder of the available year-end savings will be placed to the Capital/Special Project Reserve according to the Town Council Reserve Policy; and WHEREAS, there exists an assigned Capital/Special Project Reserve in the amount of $11,071,231; and NOW, THEREFORE, THE TOWN COUNCIL OF THE TOWN OF LOS GATOS DOES HEREBY RESOLVE that the following fund balances as of June 30, 2022 as restricted, assigned, or formally committed as follows: 4 of 5 Resolution 2022-x Council Meeting Date ATTACHMENT 2 PASSED AND ADOPTED at a regular meeting of the Town Council held on the 20th day of December 2022 by the following vote: COUNCIL MEMBERS: AYES: NAYS: ABSENT: ABSTAIN: SIGNED: MAYOR OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA ATTEST: Other Nonmajor Total Appropriated Governmental Governmental General Fund Reserves Funds Funds Fund Balance Nonspendable 159,000$ -$ -$ 159,000$ Restricted for: Library - - 555,253 555,253 Capital Projects - - 8,357,393 8,357,393 Repairs and Maintenance - - 174,239 174,239 Pension 690,000 690,000 VTA - 296,598 - 296,598 Committed to: Budget Stabilization 5,991,566 - - 5,991,566 Catastrophic 5,991,566 - - 5,991,566 CalPERS/OPEB 300,000 - - 300,000 Special Revenue Fund 637,711 637,711 Assigned to: Open Space 410,000 152,000 - 562,000 Parking - 100,000 - 100,000 Sustainability 140,553 - - 140,553 Capital/Special Projects 11,071,231 13,642,155 - 24,713,386 Comcast PEG - 50,000 - 50,000 Carryover Encumbrances 33,145 - - 33,145 Compensated Absences 1,519,147 - - 1,519,147 Measure G 2018 District Sales Tax 590,581 - - 590,581 Total Fund Balances 26,896,789$ 14,240,753$ 9,724,596$ 50,862,138$ 5 of 5 Resolution 2022-x Council Meeting Date ATTACHMENT 2 CLERK ADMINISTRATOR OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA This Page Intentionally Left Blank Town of Los Gatos JUNE 30, 2022 AUDIT RESULTS ATTACHMENT 3 Standards and Responsibilities A.GAAS B.GAGAS C.Objective a)Express an Opinion on F.S. D.Responsibilities a)Reasonable Assurance b)Risk Based c)Materiality d)Internal Controls Annual Comprehensive Financial Report (ACFR) IntroductorySection 1 •Letter of Transmittal •Elected Officials •Organizational Chart FinancialSection 2 •Auditor’s Opinion •MD&A •Financial Statements and Notes •Required Supplementary Information •Supplementary Information StatisticaSection 3 •Fiscal •Historical •Demographic Information Statement of Net Position $(50,000,000) $- $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 Statement of Net Position 2022 2021 Government Wide Revenues $(5,000,000) $- $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 Charges for Services Operating Grants and Contributions Capital Grants and Contributions Property Taxes Sales Taxes Franchise Taxes Other Taxes Motor Vehicle in Lieu Investment Earnings Miscellaneous Government Wide Revenue 2022 2021 Pensions Misc Safety Total Deferred outflows of resources 3,663,900$ 6,934,592$ 10,598,492$ Deferred inflows of resources 10,235,294$ 11,897,661$ 22,132,955$ Net pension liabilities 10,723,589$ 16,762,598$ 27,486,187$ Pension expense (credit)(2,782,619)$ (385,739)$ (3,168,358)$ Defined Benefit Plans Leases Receivable GASB 87 Lease Deferred Inflows Prior Period Description Receivable of Resources Adjustment Initial Net Present Value 2,692,765$ 2,692,765$ -$ Accumulated Amortization - (1,333,252) 1,333,252 Other adjustments - 1,717 (1,717) Principal Payments (644,136) - (644,136) Beginning Balances 7/1/2021 2,048,629 1,361,230 687,399 Current Amortization - (204,818) - Valuation Expense (133,807) - - Current Principal Payments (88,405) - - Ending Balances 6/30/2022 1,826,417$ 1,156,412$ 687,399$ Governmental Funds 331,696$ 327,100$ -$ Internal Service Funds 1,494,721 829,312 687,399 Total 1,826,417$ 1,156,412$ 687,399$ Audit Results No Exceptions in Audit Opinions No Material Weaknesses No Disagreements with Management No Significant Passed on Adjustments