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Home My WebLink AboutACFR - Fiscal Year 2022 23City of Saratoga, California Annual Comprehensive Financial Report For the fiscal year ended June 30, 2023 This page is intentionally blank. CITY OF SARATOGA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2023 1 T ABLE OF C ONTENTS I NTRODUCTORY SECTION Letter of Transmittal ......................................................................................................... 5 GFOA Certificate of Achievement for Excellence in Financial Reporting ......................... 13 Principal Officers of the City .......................................................................................... 14 Organization Chart ......................................................................................................... 15 F INANCIAL S ECTION Independent Auditors’ Report ........................................................................................... 19 Management’s Discussion and Analysis (Required Supplementary Information) ............. 22 Basic Financial Statements: Government-Wide Financial Statements Statement of Net Position .......................................................................................... 37 Statement of Activities .............................................................................................. 39 Fund Financial Statements Governmental Funds: Balance Sheet ........................................................................................................... 40 Reconciliation of the Government Funds Balance Sheet to the Government-Wide Financial Statement of Net Position ................................ 43 Statement of Revenues, Expenditures and Changes in Fund Balances ......................... 44 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Government-Wide Statement of Activities and Changes in Net Position ............................................. 46 Proprietary Funds: Statement of Net Position .......................................................................................... 47 Statement of Revenues, Expenses, and Changes in Fund Net Position ......................... 48 Statement of Cash Flows ........................................................................................... 49 Fiduciary Funds: Statement of Fiduciary Net Position .......................................................................... 50 Statement of Changes in Fiduciary Net Position ......................................................... 51 Basic Financial Statement Notes: Notes to the Basic Financial Statements ..................................................................... 55 Required Supplementary Information Budgetary Information .............................................................................................. 89 Pension Information .................................................................................................. 91 Notes to Required Supplementary Information ........................................................... 93 CITY OF SARATOGA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2023 2 T ABLE OF C ONTENTS C ONTINUED S UPPLEMENTARY I NFORMATION: Non-Major Governmental Funds Combining Balance Sheets ...................................................................................... 100 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ...... 102 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: Capital Improvements Capital Projects Fund ...................................................... 104 Gas Tax Special Revenue Fund .......................................................................... 105 Landscape & Lighting Districts Special Revenue Fund ....................................... 106 Stormwater Maintenance District Special Revenue Fund .................................... 107 Tree Fines Special Revenue Fund ....................................................................... 108 Park In-Lieu Fees Special Revenue Fund ............................................................ 109 Storm 2023 Special Revenue Fund ..................................................................... 110 Grants CIP Capital Projects Fund ....................................................................... 111 Library Bond Debt Service Fund ........................................................................ 112 Internal Service Funds Combining Statement of Net Position ...................................................................... 114 Combining Statement of Revenues, Expenses, and Change in Fund Balance ............. 116 Combining Statement of Cash Flows ....................................................................... 118 Custodial Funds Combining Statement of Fiduciary Net Position ....................................................... 122 Combining Statement of Changes in Fiduciary Net Position ..................................... 123 Statistical Section (Unaudited) Net Position by Component ..................................................................................... 127 Changes in Net Position .......................................................................................... 129 Fund Balance of Governmental Funds ...................................................................... 131 Governmental Activities Tax Revenues by Source ................................................... 133 Changes in Fund Balances of Governmental Funds .................................................. 135 Property Tax Rates - Direct and Overlapping Governments ...................................... 137 Assessed Value of Taxable Property ........................................................................ 139 Principal Property Taxpayers ................................................................................... 140 Property Tax Levies and Collections ........................................................................ 141 Ratios of Outstanding Debt by Type ........................................................................ 142 Ratios of General Bonded Debt Outstanding ............................................................ 144 Legal Debt Margin Information ............................................................................... 146 Direct and Overlapping Governmental Activities Debt ............................................. 148 Demographic and Economic Statistics ..................................................................... 149 Principal Employers ............................................................................................... 150 Full-Time Equivalent City Government Employees by Function ............................... 151 Operating Indicators by Function ............................................................................. 152 Capital Asset Statistics by Function ......................................................................... 154 3 INTRODUCTORY SECTION 4 This page is intentionally blank. 5 December 08, 2023 To the Residents of Saratoga, Honorable Mayor, Vice Mayor, and members of the City Council We are pleased to present the Annual Comprehensive Financial Report (ACFR) for the City of Saratoga for the fiscal year ended June 30, 2023. This transmittal letter provides an overview of the City’s finances, services, achievements, and economic prospects for readers without a technical background in accounting or finance. Readers desiring a more detailed discussion of the City’s financial results may refer to the Management's Discussion and Analysis in the Financial Section. The ACFR is submitted in accordance with mandated statutes that require the City to issue a report on its financial position and activity, and that an independent firm of certified public accountants audit the report. This annual report was prepared in accordance with accounting principles generally accepted in the United States of America. City Management is responsible for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures. To provide a reasonable basis for making these representations, the City of Saratoga has established internal controls to provide reasonable, rather than absolute, assurance that the financial statements will be free of material misstatement. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and reported in a manner designed to present fairly the financial position and results of operations of the City’s various funds. This report intends to present the reader with a comprehensive view of the City’s financial position and the results of its operations for the fiscal year ending June 30, 2023, along with additional disclosures and financial information designed to enable the reader to gain an understanding of the City’s financial activities. The report was prepared as prescribed in Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management’s Discussions and Analysis for State and Local Governments. To facilitate the public’s understanding and usefulness of the City of Saratoga’s financial statements, GASB Statement 34 requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). In addition, this Letter of Transmittal is provided as a complement to the MD&A and should be read in conjunction with the MD&A. Unaudited sections of this document are presented to supplement the basic financial statements. While not audited, the supplemental information is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for operational, economic, and historical context. THE REPORTING ENTITY AND ITS SERVICES The City of Saratoga (City), incorporated in 1956, is located 40 miles south of San Francisco in the Santa Clara Valley. The City currently covers a land area of approximately 12 square miles and contains a population of 30,567 as of January 1, 2023 (a decrease of 191 people from January 1, 2022), as reported by the California Department of Finance. The City is a general law city of the State of California and operates under a council- manager form of government. Policymaking and legislative authority are vested in the City Council, which consists of a Mayor, Vice Mayor, and three additional Council members. City Council members are elected at large for staggered four-year terms. The Mayor is selected annually by the City Council. The City Council is responsible for, among other things, passing ordinances, adopting the budget, appointing members to the City’s seven advisory commissions and hiring the City Manager and City Attorney. The City Manager is responsible for implementing the policies and ordinances of the City Council and overseeing the daily operations of the City. 6 The City provides a range of services including public safety, development regulation, public works, community and recreation activities and events, and general administrative functions. Some City operations are supplemented with service contracts including law enforcement, traffic engineering services, infrastructure maintenance, and legal services. Several typical city services are delivered through other agencies such as fire protection, sanitary sewer, solid waste and recycling, and water service. The City is also committed to citizen participation in the evaluation and enhancement of services. Saratoga residents who wish to assist the City Council in forming government policy may do so by serving on an advisory commission. The commissions act in an advisory capacity to the City Council, and are comprised of the Planning Commission, Heritage Preservation Commission, Library and Community Engagement Commission, Parks and Recreation Commission, Public Art Commission, Traffic Safety Commission, and Youth Commission. The financial reporting entity (the City) includes all the fund activity of the primary government and all component units. Component units are legally separated entities for which the City is fully accountable. The City does not currently report any component units. Blended component units, although legally separate entities, are in substance, part of the City’s operations and data from these units are combined with data of the City. Accordingly, the operations of the Landscaping and Lighting Assessment Districts, the West Valley Clean Water Program Authority (WVCWP) and the Arrowhead Community Facilities District (CFD) are reported in the City’s financial statements. ECONOMIC CONDITIONS AND OUTLOOK Saratoga is renowned as an appealing residence in Silicon Valley, known for its top-rated schools, picturesque foothill neighborhoods, and close proximity to the technology industry. Primarily residential, the City has minimal commercial or industrial activity within its boundaries. In the immediate future, the City's economic forecast is secure, supported by robust local personal income, steady growth in property values, and consistent revenues from sales tax, development fees, and permits. Property Tax Property Tax stands as the City’s primary revenue source, constituting roughly 67% of General Fund revenues. Over the past decade, there has been a consistent uptrend in property tax revenue. Comprising various property tax assessments, most categories are anticipated to remain stable in the upcoming fiscal year, with the 2023-24 budget incorporating a 5% increase in base property tax. However, Transfer Taxes are expected to decline due to limited properties for sale, and no growth is projected for Excess Educational Revenue Augmentation Fund (ERAF) receipts. Franchise Fees Franchise Fees are assessments on utility services including gas, electricity, water, cable, and solid waste for the right to conduct business within the City of Saratoga. The assessments are determined by easement formulas or a percentage of service costs and are a pass-through fee on the utility billings. Utilities collect the fees from customers and subsequently remit the payments to the City. Generally, these services are considered necessities in an urban setting, leading to minimal fluctuations in the revenue stream year-over-year. Sales Tax Saratoga, predominantly residential with limited retail, generates modest Sales Tax revenue compared to similar- sized cities. In an average year, the City garners around $1.1 million, primarily from restaurants, grocery/drug stores, and gas stations. Sales tax revenues have rebounded, fully recovering from pandemic-related lows. Development Fees Development Fee revenue encompasses charges for planning reviews, applications, building plan reviews, engineering assessments, inspections, and associated permits and costs. These regulatory services ensure legal compliance and community health and safety. While the entire community benefits from regulatory oversight, the service requester, initiating development changes, bears the primary cost burden. The fiscal year 2022-23 budget covered a user fee study and comprehensive cost allocation plan. Concluding in fiscal year 2023, the study informed updated fees effective July 1, 2023, aligning with City Council's subsidy targets for all services. 7 American Rescue Plan Act’s State and Local Fiscal Recovery Fund (ARPA SLFRF) Fiscal year 2021-22 recorded the second half of the ARPA SLFRF allocation to Saratoga totaling $7.2 million over two years. City Council approved a comprehensive clean water program that meets the objectives of the ARPA legislation while addressing needed infrastructure improvements across the City’s stormwater system. The most notable project approved will reduce runoff from the parking plazas in Saratoga Village thereby reducing runoff of surface contaminants into the watershed. External Factors Impacting Saratoga’s Financial Outlook External factors may influence Saratoga's future financial outlook despite its current stability. Ongoing high inflation, elevated interest rates, potential threats to local revenue sources, and the repercussions of extreme weather events pose potential risks to the City's financial position. Rigorous monitoring of these external factors allows for early risk identification and strategic planning to mitigate potential impacts on the City's financial landscape. •Inflation and Economic Uncertainty - High inflation erodes the City's purchasing power, impacting expenditures on office supplies, capital improvement programs, City payroll, and contracted services in the near term. The repercussions of inflation and economic uncertainty are evident in the following: •Cost of goods and services. The high inflation environment in fiscal year 2022-23 increased the cost of bids for public works projects and various contract services have surged at unprecedented rates compared to previous years. Faced with mounting costs, forthcoming decisions will necessitate an evaluation of whether to uphold current service levels at the increased cost or contemplate potential service reductions to ensure the maintenance of balanced budgets. •Employee salaries. The 2023-24 budget includes increases in employee salaries and benefits as outlined in the current labor agreements. The agreements include a 5.6% cost-of-living increase in 2023-24 and a 2.39% increase in 2024-25 as part of a negotiated 2-year contract which increased personnel costs. The impact of inflation on City personnel costs beginning with the 2025-26 budget and beyond is subject to negotiations that commence in January 2025. •CalPERS pension costs. Inflation has also sparked concerns about an economic downturn and is widely credited with significant stock market losses in recent months, most notably in the technology sector. If the recent stock market performance flattens at the current level or worsens, the City’s unfunded pension liability costs could increase in future years. •Public Safety contract services. The City contracts with the Santa Clara County Sheriff’s Office for public safety services and the City of San Jose for animal control services. These contracts combined represent a significant portion of the general fund expenditures. As service organizations, both agencies will experience similar inflationary pressures on employee salaries and benefits as the City. The animal control contract expires at the end of 2023-24, and the public safety services contract expires at the end of 2023-24. The 2023-24 budget includes an adopted budget of $8,192,000 for Public Safety Contract Services. the maximum increase allowed under the current Sheriff’s contract of approximately $500,000 or 7 percent. 8 •Revenue Loss Threats - In 2004, the State permanently reduced the vehicle license fee (VLF) from 2 to 0.65 percent, which reduced funding for cities and counties by approximately $4.4 billion (in 2004 dollars.) To mitigate this impact, the State agreed to backfill the lost VLF revenues dollar-for-dollar by allocating more property tax revenues to cities and counties. The State Department of Finance has added language to the State’s 2022-23 budget that threatens the VLF backfill for those agencies that receive more Educational Revenue Augmentation Fund (ERAF) dollars than required to fund schools up to their minimum state funding levels (“Excess ERAF”). Recent court challenges to the Excess ERAF formula continue to threaten the future growth of this revenue source. Extreme Weather - The impact of drought and severe weather events, including strong winds and atmospheric rivers in wet winter months, has escalated locally and regionally over recent years. The Community of Saratoga faced the repercussions of two intense storms in January and March of 2023. Due to the extensive damages and delays in receiving federal and state disaster relief funds, it became imperative to fully allocate funds from the City’s Working Capital Reserve to cover disaster repairs. The City is actively collaborating with Federal and State agencies to secure reimbursements for storm-related damages. The winter conditions of 2022-23 underscore the significant and ongoing risk and uncertainty associated with weather-related events. As a result of the storms, emergency tree removal costs continue to escalate as the frequency of tree removals have increased and demand for tree removal services is high. •Property and Liability Insurance Premiums. The frequency and severity of natural disaster-related insurance claims in California and across the nation have impacted the cost of maintaining property and liability insurance. The City has experienced significant increases in premiums over the past several years. The rapid escalation of premium costs are projected to continue in the near future. FINANCIAL INFORMATION AND MAJOR INITIATIVES Financial Controls City Management is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft, or misuse, and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed benefits likely to be derived, and (2) the valuation of costs and benefits requires estimates and judgments by management. As a recipient of federal, state, and local financial assistance, the City is also responsible for guaranteeing that an adequate internal control structure is in place to ensure and document compliance with applicable laws and regulations related to these programs. This internal control structure is subject to periodic evaluation by City Management. For cash management, the City practices a passive approach to investments and maintains flexibility by managing a pooled cash system. Under the pooled cash concept, the City invests the cash of all funds with maturities planned to coincide with cash needs. Idle cash is invested in certain eligible securities as constrained by law and further limited by the City’s investment policy. The goals of the City’s investment policy are safety, liquidity, and yield. Cash management is tracked by fund and reconciled monthly. 9 In addition, the City maintains extensive budgetary controls. The objective of these controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Council. Activities of the general fund, special revenue funds, capital projects funds and debt service funds are included in the annual appropriation. The level of budgetary control (i.e., the level at which expenditures cannot exceed the appropriated amount) is at the fund level. The City also maintains an encumbrance accounting system as another method of maintaining budgetary control. Encumbered amounts lapse at year-end except for the Capital Improvement Projects, which are multiple-year projects. On occasion, the responsible department at year-end reviews outstanding encumbrances of a material nature, and if deemed critical, a recommendation is made to the City Council to approve by Resolution the re-appropriation of these funds into the following year’s budget. 2022-23 Major Accomplishments Housing Element Update: The California Housing Element Law requires cities and counties to update their housing element every 8 years. This planning document is subject to review and approval by the Department of Housing and Community Development. In July 2022, the City submitted the initial draft of the Housing Element to HCD for their review. The City received the State’s comment letter in October and a revised draft was resubmitted in January 2023. On March 17, 2023, the City Council approved the responses to HCD’s comments, and a new draft was submitted to the State on May 30, 2023 for a third round of review. It is anticipated that the Housing Element and General Plan update will be reviewed by the Planning Commission in February 2024 and reviewed by the City Council in Spring 2024. Tree Permit and Project Processing: In fiscal year 2022-23 the city received 499 tree permit applications, 112 projects, and 40 tree related code violation permits. On average, tree permits were approved in 21 days during this period. Building Division Automated Solar Permitting Grant: SB379 requires most California cities and counties to implement an online, automated permitting platform that verifies code compliance and issues solar permits in real time. The City of Saratoga Building Division was awarded a $40,000 grant to implement a web-based portal that automates project plan review and produces code-compliant approvals to support building departments in quickly issuing permits for residential solar energy system installations. Extreme Weather Response: City maintenance and engineering staff responded to hundreds of storm related damages resulting from two extreme weather events. California’s 2022-23 winter was one of the wettest in recent records with atmospheric rivers and bomb cyclones damaging roads, paths, and powerlines. That followed a prolonged drought and was one of the wettest and windiest winters in recent years. Tree failures, mudslides, and debris removal resulted in hundreds of extra staff hours by City crews to ensure the safety of the community both during and after the storm events. Comprehensive User Fee Study: The City completed a review of all fee-based services which identified the full cost of providing each service. The study found that general tax revenues subsidize Community Development services by approximately $0.8 million with minor subsidies in business license procession, code enforcement, and public works. Recreation Services Reimagined: In May of fiscal year 2022-23 the City Council approved an expansion of the existing partnership with Los Gatos-Saratoga Community Education and Recreation (LGS-Rec) to include facility and field rental management and administration beginning in October 2023. This expanded partnership reduced 1.0 full-time equivalent personnel which generated a partial-year savings of approximately $0.08 million in 2023-24 and an annual structural savings of $0.14 million thereafter. 10 2023-24 Major Initiatives ARPA Capital Improvement Plan Projects: The 2023-24 budget incorporates several capital improvement plan projects that are funded by the American Rescue Plan Act (ARPA), A total of $7.2 million was allocated to Saratoga. This year ARPA money will fund the Saratoga Village Water Quality Improvement project, the Prospect Road Green Infrastructure and the Stormwater Pollution Prevention Program Compliance Project. Electronic Plan and Permit Processing: Technology enhanced business systems which refine and promote online services such as electronic plan and permit processing will be implemented. The City will implement a new online rooftop solar permitting program as well. Business System Improvements: The City continues to evolve in providing services with greater reliance on paperless and electronic systems. Improvements include implementation of a budgeting and forecasting database and a financial system upgrade. Pavement Management Program: City Council expanded funding for the Pavement Management Program CIP allocating $1.337 million from the General Fund’s Capital Reserve to ensure Saratoga roadways are resurfaced and maintained as needed. Distinguished Budget Award & Certificate of Achievement for Excellence in Financial Reporting: In 2022, the Government Finance Officers Association awarded the City of Saratoga the Distinguished Budget Award for the twelfth year in a row, and the Certificate of Achievement for Excellence in Financial Reporting for the twenty-eighth year in a row. These significant awards represent the City’s thoughtful budget development to enhance the quality of life in the community while ensuring financial transparency and stability in present and future years. INDEPENDENT AUDIT The City engaged Moss, Levy and Hartzheim, LLP to express an opinion on the financial statements based on their audit. The audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Generally accepted auditing standards set forth in the General Accounting Office’s Government Auditing Standards were used by the auditors in conducting the engagement. The City’s Annual Financial Report received an unmodified (clean) opinion from the auditors. The independent auditors’ report is presented as the first component of the financial section of this report. In addition to meeting the requirements set forth in statutes, the audit was also designed to meet the requirements of the federal Single Audit Act of 1984, as amended, and the related U.S. Office of Management and Budget’s Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The City’s federal financial assistance program also received an unmodified (clean) opinion from the auditors. ACKNOWLEDGEMENTS The successful completion of the ACFR represents a full fiscal year of dedication and commitment from the entire city organization with Administrative Services taking the primary lead in managing the City’s resources. We thank Moss, Levy and Hartzheim for their diligent work completing the annual independent audit. In addition, we acknowledge the City Council for their ongoing interest and support in planning, conducting, and advising on the operations of the City in a responsible and representative manner. 11 Respectfully submitted, 12 This page is intentionally blank 13 14 ANNUAL COMPREHENSIVE FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30, 2023 CITY COUNCIL Kookie Fitzsimmons, Mayor Yan Zhao, Vice Mayor Belal Aftab Chuck Page Tina Walia APPOINTED OFFICIALS James Lindsay, City Manager Richard Taylor, City Attorney EXECUTIVE TEAM Leslie Arroyo, Assistant City Manager John Cherbone, Public Works Director Bryan Swanson, Community Development Director Ryan Hinchman, Administrative Services Director ACFR PREPARATION TEAM Ryan Hinchman, Administrative Services Director Ann Xu, Interim Finance Manager/Accountant Gina Scott, Administrative Analyst Evangeline Bundang, Senior Accounting Technician Julie Ingram, Accounting Technician Vivian Lu, Accounting Technician Moss, Levy and Hartzheim LLP CONTACT INFORMATION City of Saratoga ꞏ Administrative Services Director 13777 Fruitvale Avenue ꞏ Saratoga, California 95070 ꞏ www.saratoga.ca.us 15 CITY OF SARATOGA ORGANIZATIONAL CHART 16 This page is intentionally blank. 17 FINANCIAL SECTION 18 This page is intentionally blank PARTNERS COMMERCIAL ACCOUNTING & TAX SERVICES GOVERNMENTAL AUDIT SERVICES CRAIG A HARTZHEIM, CPA 8383 WILSHIRE BLVD., SUITE 800 5800 HANNUM AVE., SUITE E HADLEY Y HUI, CPA BEVERLY HILLS, CA 90211 CULVER CITY, CA 90230 ALEXANDER C HOM, CPA TEL: 310.670.2745 TEL: 310.670.2745 ADAM V GUISE, CPA FAX: 310.670.1689 FAX: 310.670.1689 TRAVIS J HOLE, CPA www.mlhcpas.com www.mlhcpas.com WILSON LAM, CPA INDEPENDENT AUDITOR’S REPORT To the Honorable Mayor and Members of the City Council of the City of Saratoga California Opinions We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Saratoga (the City), as of and for the fiscal year ended June 30, 2023, and the related notes to the financial statements, which collectively comprise the City’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, and the aggregate remaining fund information of the City, as of June 30, 2023, and the respective changes in financial position for the fiscal 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 and those 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 City, 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. Responsibilities of Management for the Financial Statements 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 City’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. 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 generally accepted auditing standards and Government Auditing Standards 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 19 OFFICES: BEVERLY HILLS ∙ CULVER CITY ∙ SANTA MARIA MEMBER AMERICAN INSTITUTE OF C.P.A.’S ∙ CALIFORNIA SOCIETY OF MUNICIPAL FINANCE OFFICERS ∙ CALIFORNIA ASSOCIATION OF SCHOOL BUSINESS OFFICIALS 20 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 generally accepted auditing standards and Government Auditing Standards, 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 City’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 City’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. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the budgetary comparison information for the General and major Special Revenue funds, Schedule of the City’s Proportionate Share of the Net Pension Liability, and Schedule of Pension Plan Contributions be presented to supplement the basic financial statements. Such information is the responsibility of management and, 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. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The combining and individual nonmajor governmental fund financial statements and budgetary comparison schedules are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The 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 governmental fund financial statements and budgetary comparison schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Information Management is responsible for the other information included in the annual report. The other information comprises the introductory and statistical sections but does not include the basic financial statements and our auditor’s report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. 21 In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 8, 2023, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Moss, Levy & Hartzheim, LLP Culver City, California December 8, 2023 CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 22 INTRODUCTION The Management’s Discussion and Analysis (MD&A) is a required section of the City’s Annual Comprehensive Financial Report (ACFR), as shown in the overview below. The purpose of the MD&A is to present discussion and analysis of the City’s financial performance during the fiscal year that ended on June 30, 2023. This report will (1) focus on significant financial issues, (2) provide an overview of the City’s financial activity, (3) identify changes in the City’s financial position, (4) identify any individual fund issues or concerns, and (5) provide descriptions of significant asset and debt activity. This information, presented in conjunction with the annual Transmittal Letter and Basic Financial Statements, is intended to provide a comprehensive understanding of the City’s operations and financial standing. Required Components of the Annual Financial Report FISCAL YEAR 2022-23 FINANCIAL HIGHLIGHTS Total net position, or the City's assets plus deferred outflow of resources ($175.77 million) less its liabilities plus deferred inflow of resources ($27.63 million), was $148.14 million as of June 30, 2023. This is a decrease of $4.31 million over the prior fiscal year, which is primarily due to a decrease in grant allocation, 2023 Storm cost, the adverse effect of quantitative tightening on the CalPERS Perf C pension investment pool, and an increase in operating expenses. The City’s Net Pension Liability stands at $9.98 million, reflecting an increase of $9.25 million compared to the previous fiscal year. This change is attributed to the most recent actuarial valuation by the California Public Employees’ Retirement System (CalPERS), which included investment returns for the fiscal year ended June 30, 2022, changes in assumptions, and overall plan experience. Net Position included $116.95 million as investment in capital assets, net of depreciation and related debt, $9.69 million restricted for specific purposes, and $21.51 million in Unrestricted Net Position. Total City-wide revenues of $34.84 million consisted of $27.41 million in general revenue and $7.43 million in program revenue. City expenses totaled $39.14 million. The Governmental Funds fund balances totaled $30.95 million, with $15.16 million in the General Fund, $6.47 million in the American Rescue Plan Act (ARPA) State and Local Fiscal Recovery Funds (SLFRF) fund, $6.32 million in the Capital Improvement Funds, and $2.99 million in Other Governmental Funds. This represents a decrease of $0.92 million from the prior fiscal year. Management’s Discussion & Analysis Government-Wide Financial Statements Fund Financial Statements Notes to the Financial Statements Basic Financial Statements CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 23 General Fund revenues totaled $29.14 million, while General Fund expenditures totaled $25.57 million. THE BASIC FINANCIAL STATEMENTS The Basic Financial Statements are comprised of 1) Government-Wide (City-wide) Financial Statements, and 2)Fund Financial Statements. These two sets of financial statements provide the reader with two different perspectives of the City's financial activities and financial position. The Government-Wide Financial Statements Government-Wide financial statements are prepared on an accrual basis, which means they measure the flow of all economic resources of the City as a whole. The Statement of Net Position and the Statement of Activities present information about the following: Governmental Activities - All of the City's basic services are considered to be governmental activities, including general government, community development, public safety, transportation, and, culture and leisure. These services are supported by general City revenues such as taxes, and by specific program revenues such as development and recreation program fees. Business-Type Activities - This category includes enterprise activities such as water, sewer, and utilities. Unlike governmental services, these activities are meant to be fully supported by charges paid by users, based on the services used. The City of Saratoga currently does not have any business-type activities. Government-Wide Financial Statements provide a longer-term view of the City's activities as a whole and are comprised of the Statement of Net Position and the Statement of Activities. The Statement of Net Position provides summary level information about the financial position of the City, including all its capital assets and long-term liabilities on a full accrual basis, similar to that used by corporations. The Statement of Activities provides summary level information about the City's revenues and expenses, also on a full accrual basis, with the emphasis on measuring net revenues and/or expenses for each of the City's programs. The Statement of Activities illustrates the change in Net Position for the fiscal year. City financial activities are required to be grouped as either government activities or business-type activities. The amounts in the Statement of Net Position and the Statement of Activities are required to be separated into governmental activities or business-type activities in order to distinguish between the two types of activities. In the case of the City of Saratoga, there are no business-type activities as of June 30, 2023. Government-Wide Financial Statements Long-term view, including capital assets and long-term liabilities similar to corporate financial statements. CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 24 Fund Financial Statements A fund represents a grouping of related accounts and is used to maintain control over resources that are segregated for specific activities or objectives. The City, like other local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Fund financial statements provide detailed information about each of the City's most significant funds, called major funds. The concept of major funds, and the determination of which funds are classified as major funds, was established by GASB Statement 34 and replaces the concept of combining like funds and presenting them in total. Instead, each major fund is presented individually, with all non-major funds summarized and presented in a single column. Subordinate schedules present the detail of these non- major funds. Major funds present the major activities of the City for the fiscal year, and may change from year to year as a result of changes in the pattern of the City's activities. The City's funds are segregated into three types: governmental funds, proprietary funds, and fiduciary funds. •The City's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances available at year-end. Financial statements are prepared on a modified accrual basis, which means they measure only current financial resources and uses. Carrying amounts for capital assets and other long-lived assets, along with long-term liabilities are not presented on the balance sheet in the governmental fund financial statements. Unlike the Government-Wide financial statements, Governmental Fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the City's near-term financing requirements. Governmental Funds •Internal service funds are an accounting device used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for liability/risk management, worker’s compensation, office equipment support services, information technology services, vehicle and building maintenance, and vehicle and information technology equipment replacement. Because internal service funds primarily benefit governmental functions, they have been included with the governmental activities in the Government-Wide financial statements. Proprietary Funds •These funds account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or other funds. Fiduciary funds are not reflected in the government-wide financial statements because these resources are not available to support the City's programs. The City reports two fiduciary funds: The West Valley Clean Water Program and the 2018 Arrowhead Community Facilities District (CFD) Bond. Additional information regarding these funds can be found in Note 1 of the financial statements. Fiduciary Funds Fund Financial Statements report the City's operations in more detail than Government-Wide statements and focus primarily on the short-term activities of the City's General Fund and other major funds. The Fund Financial Statements measure current revenues and expenditures and fund balances; they exclude capital assets, long- term debt, and other long-term amounts. Major funds account for the major financial activities of the City and are presented individually, while the activities of non-major funds are presented in summary with subordinate schedules presenting the detail for each of these other funds in the Supplementary Information section. Major funds are explained below. Fund Financial Statements Near-term view, measuring current revenues, expenditures, and fund balances. CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 25 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes can be found immediately following the fund financial statements. REQUIRED SUPPLEMENTARY INFORMATION Required supplementary information, other than presented in this MD&A, follows the Notes Section and includes a budgetary comparison for the General Fund as presented in the Governmental Fund Financial Statements, and information on the modified approach for city streets and infrastructure. SUPPLEMENTARY INFORMATION Combining and individual fund statements and schedules are included to provide additional information on non-major governmental funds including special revenue, debt service, and capital project funds, as well as proprietary internal service fund information and uses of capital assets. An un-audited statistical section provides historical and current data on financial trends, revenue and debt capacity, demographic and economic information, and operating information. CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 26 GOVERNMENT-WIDE FINANCIAL ANALYSIS Net Position serves as an indicator of the City's financial position. The City's Total Net Position decreased $4,305,178 in Fiscal Year 2022-23. The primary reason for the decrease in net position is primarily due to a decrease in program revenue, operating grants, and contributions, and increase in net pension liabilities. The most significant portion of the City's Net Position ($116,948,362 or 79%) accounts for its investment in capital assets, (e.g., land, buildings, general government infrastructure, equipment, etc.) less any related debt used to acquire those assets that are still outstanding. These capital assets represent infrastructure which provides services to the citizens, consequently, these assets are not available for future spending. Of the City’s Net Position, $9,687,949 or 7% is subject to external restrictions on how the funding may be used. The remaining balance of $21,506,946, or 14% of the City's Net Position, is unrestricted and may be used to meet the City's ongoing obligations to citizens and creditors. Table 1 - Net Position 2023 2022 Change Assets Current assets 44,391,010$ 43,363,032$ 1,027,978$ Lease receivable (GASB 87)643,537 643,537 Capital assets, net 123,530,396 124,201,306 (670,910) Total Assets 168,564,943 167,564,338 1,000,605 Deferred Outflows of Resources Pension related 7,204,712 2,422,854 4,781,858 Total Def. Outflows 7,204,712 2,422,854 4,781,858 Liabilities Current liabilities 8,069,495 7,660,499 408,996 Non-current liabilities 17,509,273 7,656,892 9,852,381 Total Liabilities 25,578,768 15,317,391 10,261,377 Deferred Inflows of Resources Pension related 1,418,107 2,241,366 (823,259) Lease related 629,523 629,523 Total Def. Inflows 2,047,630 2,241,366 (193,736) Net Position Net investment in capital assets 116,948,362 117,017,380 (69,018) Restricted for special assessment funds 1,001,132 977,234 23,898 Restricted for public works programs 6,674,320 7,127,589 (453,269) Restricted for debt service 910,655 805,311 105,344 Restricted for community services 1,101,842 1,101,842 Unrestricted 21,506,946 26,520,921 (5,013,975) Total Net Position 148,143,257$ 152,448,435$ (4,305,178)$ CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 27 As shown in the below summary of the Statement of Activities table, program revenues decreased by $6,787,401 from the prior fiscal year for governmental activities, and general revenues increased by $2,089,907 from the prior year. This resulted in a total decrease in revenues of $4,697,494. Expenses increased by $15,566,471 from the prior year primarily due to pension expense adjustments related to changes in assumptions and differences between CalPERS expected and actual investment returns and plan experience. With total program and general revenues for Fiscal Year 2022-23 at $34,836,199 and total expenses at $39,141,377, the net activity resulted in a decrease in Net Position of $4,305,178. Governmental Activities Increase Functions/Programs 2023 2022 (Decrease) Program Revenues Charges for services 4,040,397$ 6,498,905$ (2,458,508)$ Operating grants and contributions 3,178,578 7,381,323 (4,202,745) Capital grants and contributions 208,721 334,869 (126,148) Total Program Revenues 7,427,696 14,215,097 (6,787,401) General Revenues Property taxes 17,694,182 17,427,588 266,594 Sales taxes 2,058,283 1,393,853 664,430 Local taxes 1,588,632 1,054,587 534,045 Other taxes 3,442,530 2,496,572 945,958 Intergovernmental revenues 1,505,587 2,477,479 (971,892) Investment earnings 696,483 (299,911) 996,394 Other revenues 422,806 768,428 (345,622) Total General Revenues 27,408,503 25,318,596 2,089,907 Expens es General and intergovernmental services 8,922,161 4,381,120 4,541,041 Public safety 7,744,567 7,197,048 547,519 Public works 16,597,611 9,309,018 7,288,593 Community services 1,501,159 532,308 968,851 Community development services 4,127,596 1,881,150 2,246,446 Interest on long-term debt (unallocated)248,283 274,262 (25,979) Total Expenses 39,141,377 23,574,906 15,566,471$ Increase / (Decrease) in Net Position (4,305,178) 15,958,787 (20,263,965) Net Position, Beginning of Year 152,448,435 136,489,648 15,958,787 Net Position, End of Year 148,143,257$ 152,448,435$ (4,305,178)$ Table 2 - Statement of Activities CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 28 An analysis and graphical representation of the changes in revenues and expenditures by type of significant events follows: Revenues For Fiscal Year 2022-23, the growth in property tax revenues reflect the ongoing strength of the San Francisco Bay Area economy. The decrease in Capital Grants revenue is due to decreased activity in the activity for grant-funded Public Works and Community Services capital projects in fiscal year 2022-23. General Revenues increased by $2,089,907 from the prior year. The most significant changes include: Property Tax revenue increased $266,594 over the prior year. The increase is due to the continuing demand for housing in the region, which has resulted in higher assessed valuations of property within the City upon turnover, plus the incremental TEA increase in the property tax allocation percentage. Sales tax revenue increased $664,430 due to the economic recovery from the pandemic. Earnings from investments increased by $996,394, attributed to an increase in the LAIF interest rate. Program Revenues decreased by $6,787,401 from the prior year. The most significant changes include: Operating grants and contributions decreased $4,202,745 compared to the prior year, primarily due to ARPA grants received in fiscal year 2021-22. Charges for Services decreased by $2,458,508 from the prior year due to a significant decrease in construction and remodeling. CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 29 Expenses Fiscal year 2022-23 expenses increased by $15,566,471, primarily due to fluctuations in capital outlay activity compared to the previous year. Compared to the prior year, the GASB 68 pension expense adjustment increased expenses by $11,051,781. This adjustment is broken down as follows: The following analysis includes the Net Pension Liability (NPL) adjustment for the four departments listed above. Public Works expenses increased by $7.29 million primarily due to capital outlay activity. General and Intergovernmental increased by $4.54 million primarily due to transfers out of general fund to capital projects and to fund disaster storm costs. Community Development services expenses increased by $2.25 million primarily because of changes in building activity. Community Services expenses increased by $0.97 million primarily due to increased consultant services. Public Safety expenses increased by $0.55 million due to contractual cost increases for services provided by the Santa Clara County Sheriff’s Office and does not include the pension adjustment. Table 3 - Pension Expense Adjustment by Program 2023 2022 Increase (Decrease) General and intergovernmental services 1,257,915$ (2,310,496)$ 3,568,411$ Public works 1,535,104 (3,148,421) 4,683,525 Community services 143,670 (432,005) 575,675 Community development services 1,015,444 (1,208,726) 2,224,170 Total Assets 3,952,133$ (7,099,648)$ 11,051,781 CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 30 MAJOR AND OTHER GOVERNMENTAL FUNDS: CHANGE IN FUND BALANCE A summary of the changes in fund balance of the Major Funds and Other Governmental Funds is presented below: The General Fund, ARPA/SLFRF fund and Capital Improvement Funds are listed as Major Funds in fiscal year 2022-23. The Other Governmental Funds category includes thirty Landscape and Lighting Districts and Storm Drain funds (presented as one combined fund in the financials) and the Library Bond Debt Service Fund. The total net change from fiscal year transactions, including Major Funds and Other Governmental Funds, was a decrease of $920,378. General Fund As shown in the Major Funds table above, the net change in the General Fund's ending fund balance is a decrease of $247,646. General Fund revenue budgets are conservatively based upon prior year experience and revenue specific information. Compared to the previous fiscal year, overall revenues increased by $2,741,856 whereas expenditures increased by $2,337,769. The increase in expenditures surpasses the growth in revenues, raising concerns about the General Fund's diminishing ability to transfer funds to the Capital Improvement Program. ARPA SLFRF Fund The ARPA SLFRF fund is a new fund to record the City’s allocation from the ARPA SLFRF and has a net decrease of $654,153. The revenue is an operating grant under the US Department of Treasury’s lost revenue allowance under the SLFRF final rules. The City subsequently allocated the full ARPA SLFRF allocation to clean water capital improvement programs consistent with the goals and objectives of the ARPA legislation. Capital Improvement Project Fund The net increase of $40,000 in the Capital Improvement Funds occurred due to General Fund transfers to fund capital improvements offset by current year capital expenditures. Other Governmental Funds Other Governmental Funds fund balances decreased by a total of $58,778 as special assessments continue to exceed public works expenditures and debt service costs. Other ARPA Capital Governmental General SLFRF Improvement Funds Total Revenues 29,142,706$ -$ 1,746,280$ 3,440,524$ Total Expenditures 25,572,201 654,153 4,495,081 4,599,302 Revenues Over (Under) Expenditures 3,570,505 (654,153) (2,748,801) (1,158,778) Transfers in - - 2,789,000 2,170,299 Use of Money and Property 70,849 - - - Transfers out (3,889,000) - - (1,070,299) Net change in fund balances (247,646) (654,153) 40,199 (58,778) Beginning of year 15,410,450 7,127,589 6,284,027 3,043,883 End of year 15,162,804$ 6,473,436$ 6,324,226$ 2,985,105$ Major Funds Table 4 - Changes in Fund Balances CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 31 GENERAL FUND – BUDGETARY HIGHLIGHTS Changes from the City's General Fund original budget to the final budget are detailed in the Required Supplementary Information Section along with a comparison to actual activity for the fiscal year. Changes to the City's budget that increase or decrease appropriations in a fund must be approved by a resolution of the City Council. Modifications to the budget that are a realignment of fiscal activities with no impact on the fund's bottom line may be approved by the City Manager. Significant changes from the City’s original budget to the final budget are summarized as follows: Revenues and Transfers In The General Fund adopted and final revenue budget is shown in the schedule below: Table 5 - Adopted to Final Budget Fiscal Year Ended June 30, 2023 The budget revenues were increased by $875,000 due to an upswing in property tax revenue and LAIF interest revenue. This decision was made to allocate the fund to CIP street projects and the CIP general plan update. Expenses and Transfers Out The original and final General Fund expense budget is shown in the schedule below: Table 6 - Adopted to Final Budget Fiscal Year Ended June 30, 2023 During the fiscal year, the original budget was increased to fund the 2023 storm emergency, cover increased contract costs, and support CIP projects. += Adopted Budget Final Budget Adjustments Budget Revenues 26,236,837$ 875,000$ 27,111,837$ General Fund Revenues and Transfers In += Adopted Budget Final Budget Adjustments Budget Expenses 23,707,952$ 2,771,212$ 26,479,164$ Transfers out 2,509,000$ 1,380,000$ 3,889,000$ General Fund Expenditures & Transfers Out CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 32 CAPITAL ASSETS The City of Saratoga elected to use the "Modified Approach" as defined by GASB Statement No. 34 for infrastructure reporting in which eligible infrastructure capital assets are not required to be depreciated if the following requirements are met: The City manages the assets using an asset management system which requires the City (1) perform an up-to-date inventory; (2) perform condition assessments and summarize the results using a measurement scale; and (3) estimate the annual amount to preserve the assets at the established condition assessment level. The City documents that the eligible infrastructure capital assets are being preserved approximately at or above the established and disclosed condition assessment level. City policy is to achieve a Pavement Condition Index (PCI) average rating of 70 for all streets, at a minimum. The City’s most recent overall rating, in 2019, was estimated to be 66 with 49% of streets rated “Very Good”, 30% rated as “Good”, 15% of streets rated “Poor,” and 6% of streets rated as "Very Poor." While the City Council continues to review infrastructure investment strategies, the City continues to make significant investments into City streets in order to bring the average PCI rating up to the target of 70. It was estimated in the most recent pavement study in February 2020 that the five-year (2019-2023) cost to maintain the street infrastructure at its 2019 level (PCI of 67) would be $21,350,000 ($4.27 million/year). For more detailed information on Capital Assets activity, please refer to Note 4 in the section entitled "Notes to the Basic Financial Statements" and Note 2 in the "Required Supplementary Section." As reflected in the following schedule, the City has $123,530,396 invested in a variety of capital assets as of June 30, 2023. This represents a decrease of $670,910 from the prior year. 2023 2022 Land 20,173,790$ 20,173,790$ Building and structures 13,145,761 13,639,657 Machinery and equipment 698,654 928,166 Infrastructure 78,746,689 80,064,084 Construction in progress 10,765,502 9,395,609 Total Capital Assets, Net of Depreciation 123,530,396$ 124,201,306$ Table 7 - Capital Assets Net of Depreciation Governmental Activities CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 33 The following reconciliation summarizes the changes in Capital Assets. Major capital projects in progress during fiscal year 2022-23 included the following expenditures: Beauchamps Park Playground Improvement - $295,996 Big Basin Way Blaney Trash Can - $72,867 Additional information on Capital Assets is included in Note 5 of the financial statements. Balance Balance June 30, 2022 Additions Retirements Reclassification June 30, 2023 Land 20,173,790$ -$ -$ -$ 20,173,790$ Building and structures 27,455,282 - - 295,996 27,751,278 Machinery and equipment 4,471,239 30,697 - - 4,501,936 Infrastructure 113,718,209 - - 72,867 113,791,076 Construction in progress 9,395,609 1,738,756 - (368,863) 10,765,502 Depreciation (51,012,823) (2,440,365) - -(53,453,188) Total Capital Assets, Net of Depreciation 124,201,306$ (670,912)$ -$ -$ 123,530,394$ Table 8 - Changes in Capital Assets CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 34 DEBT AND OTHER LONG-TERM OBLIGATION ADMINISTRATION The net change in outstanding obligations for the City of Saratoga was a decrease of $645,418. Total long-term bonded debt, including premiums, decreased by $601,892. Outstanding compensated absences decreased by $43,526. The current portion of long-term debt ($580,000 for the refunded 2011 General Obligation Bonds for fiscal year 2023-24) and $21,892 of amortized net original premium are classified as a current liability in the City's Statement of Net Position. General Obligation Bonds On July 14, 2011 the City refunded the 2001 General Obligation Bonds and, in their place, issued 2011 General Obligation Bonds for $11,995,000. Interest rates on the bonds range from 2.0% to 4.0%, and the final payment is due August 1, 2031. Principal of $580,000 and interest of $258,185 were paid during the fiscal year. Compensated Absences Compensated absences are accrued liabilities for vested and unpaid vacation and sick pay. The compensated absences balance decreased during the fiscal year by $43,256 due to a decrease in use of paid time off. An estimated current liability of $686,642 is anticipated for the next fiscal year. Additional information on outstanding obligations can be found in Note 6 of the financial statements. 2023 2022 2011 General obligation bond 6,385,000 $ 6,965,000 $ Net original issue premium 197,034 218,926 Compensated absences 944,910 988,436 Total Outstanding long-term obligations 7,526,944 $ 8,172,362 $ Table 9 - Outstanding Long-Term Obligations Governmental Activities CITY OF SARATOGA MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2023 35 ECONOMIC FACTORS The City of Saratoga is primarily a residential community with limited commercial or industrial activity within its boundaries. Saratoga is considered a desirable place to live due to its highly rated schools, beautiful neighborhoods, fine dining, and proximity to many technology companies. In 2022-23, Saratoga’s assessed property values continued to increase, consumer sales tax and hotel tax recovered to near their pre-pandemic highs, and personal income remained resilient. The following discuss the key economic factors impacting the city’s finances. Assessed values. The assessed value of property in Saratoga continues to demonstrate strength. Through the Great Recession, when many communities experienced assessed value losses, Saratoga remained positive, providing stability in the City’s largest revenue source. The 2023 Santa Clara County Assessor’s assessed valuation for the fiscal year 2023-24 reports an increase in Saratoga’s property values of 5.24 percent, underperforming the countywide valuation increase of 6.65 percent. Sales and transient occupancy/hotel taxes. Unlike many of its neighbors, Saratoga’s consumption-based tax revenues (sales and hotel taxes) center around experiences such as regional and State parks, the downtown Village, Hakone Gardens, fine dining, vineyards, and performance venues. UCLA Anderson Forecast notes that experience-based spending, such as dining, is growing faster than purchasing goods as consumers return to pre-pandemic social activities. The trend works in Saratoga’s favor resulting in the City’s rapid recovery of the consumption-based tax revenues to near pre-pandemic highs. Employment. The City’s unemployment rate is 3.5%, on par with the County’s overall unemployment (California Employment Development Department, September 2023.) In the latest U.S. report in October 2023, the UCLA Anderson Forecast foresees a weak economy in 2024, followed by a return to trend growth rates, albeit below trend gross domestic product (GDP) levels, in 2025, but no projected recession. An additional economic indicator of note by Anderson Forecast is the higher interest rates can have various effects on the housing market in the Bay Area. Changes in interest rates are often linked to broader economic conditions. In spite of the higher interest rates, the continued demand for a limited housing stock, coupled with state policies including new homebuilding, should result in the beginning of a recovery this year followed by solid growth in new home production thereafter. REQUEST FOR FINANCIAL INFORMATION This financial report is designed to provide a general overview of the City of Saratoga's finances for all of Saratoga's residents, taxpayers, customers, investors, and creditors. This financial report seeks to demonstrate the City's accountability for the money it receives. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Administrative Services Director, 13777 Fruitvale Avenue, Saratoga, California 95070. 36 THIS PAGE INTENTIONALLY LEFT BLANK Governmental Activities Assets: Cash and Investments 43,242,035$ Accounts Receivable 1,148,975 Leases Receivable 643,537 Capital Assets, Not Being Depreciated 30,939,292 Capital Assets, Net of Accumulated Depreciation 92,591,104 Total Assets 168,564,943 Deferred Outflows of Resources: Pension related 7,204,712 Total Deferred Outflows of Resources 7,204,712 Liabilities: Accounts Payable 2,763,001 Interest Payable 123,651 Accrued Liabilities 341,669 Deposits Payable 4,709,828 Claims Payable 131,346 Noncurrent Liabilities: Net Pension Liability 9,982,329 Due Within One Year 1,318,534 Due in More Than One Year 6,208,410 Total Liabilities 25,578,768 Deferred Inflows of Resources: Leases related 629,523 Pension related 1,418,107 Total Deferred Inflows of Resources 2,047,630 Net Position: Net Investment in Capital Assets 116,948,362 Restricted for: Debt Service 787,000 Streets and Roads 6,674,320 Community Services 1,101,842 Assessment Districts 1,001,132 Unrestricted 21,630,601 Total Net Position 148,143,257$ CITY OF SARATOGA Statement of Net Position June 30, 2023 The notes to the financial statements are an integral part of this statement. 37 38 THIS PAGE INTENTIONALLY LEFT BLANK Net (Expenses) Revenues and Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Expenses Services Contributions Contributions Activities Primary Government: Governmental Activities: General Government 8,922,161$ 95,319$ 678,240$ -$ (8,148,602)$ Public Safety 7,744,567 21,275 339,166 (7,384,126) Community Development 4,127,596 2,551,079 (1,576,517) Public Works 16,597,611 1,016,411 2,161,172 208,721 (13,211,307) Community Services 1,501,159 356,313 (1,144,846) Interest on Long-Term Liabilities 248,283 (248,283) Total Governmental Activities 39,141,377 4,040,397 3,178,578 208,721 (31,713,681) Total Primary Government 39,141,377$ 4,040,397$ 3,178,578$ 208,721$ (31,713,681) Taxes: Property Taxes 17,694,182 Sales and Use Taxes 2,058,283 Business License Taxes 170,411 Transient Occupancy Taxes 431,270 Other Taxes 3,442,530 Licenses and Permits 986,951 Fines and Forfeitures 59,995 Special Assessments 1,445,592 Investment Earnings 696,483 Other Revenue 422,806 Total General Revenues 27,408,503 Change in net position (4,305,178) Net Position - Beginning of Fiscal Year 152,448,435 Net Position - End of Fiscal Year 148,143,257$ General Revenues: The notes to the financial statements are an integral part of this statement. CITY OF SARATOGA Statement of Activities For the Fiscal Year Ended June 30, 2023 Program Revenues Functions 39 Special Revenue General ARPA/SLFRF Assets: Cash and Investments 21,096,664$ 6,540,225$ Accounts Receivable 638,006 Lease Receivable 643,537 Due from Other Funds 289,523 Total Assets 22,667,730$ 6,540,225$ Liabilities, Deferred Inflows of Resources and Fund Balances: Liabilities: Accounts Payable 1,867,703$ 66,789$ Accrued Liabilities 297,872 Deposits Payable 4,709,828 Due to Other Funds Total Liabilities 6,875,403 66,789 Deferred Inflows of Resources:: Deferred revenue Deferred revenue - lease 629,523 Total Deferred Inflows of Resources 629,523 Total Liabilities and Deferred Inflows of Resources 7,504,926 66,789 Fund Balances: Restricted for: Debt service Community services Streets and roads 6,473,436 District Assessments Committed 1,000,000 Assigned 7,309,000 Unassigned 6,853,804 Total Fund Balances 15,162,804 6,473,436 Total Liabilities, Deferred Inflows of Resources and Fund Balances 22,667,730$ 6,540,225$ The notes to the financial statements are an integral part of this statement. CITY OF SARATOGA Balance Sheet Governmental Funds June 30, 2023 40 Capital Projects Nonmajor Total Capital Governmental Governmental Improvement Funds Funds 6,766,486$ 3,332,406$ 37,735,781$ 66,815 434,865 1,139,686 643,537 289,523 6,833,301$ 3,767,271$ 39,808,527$ 509,075$ 200,312$ 2,643,879$ 297,872 4,709,828 289,523 289,523 509,075 489,835 7,941,102 292,331 292,331 629,523 292,331 921,854 509,075 782,166 8,862,956 910,655 910,655 1,101,842 1,101,842 200,884 6,674,320 1,001,132 1,001,132 6,324,226 7,324,226 7,309,000 (229,408) 6,624,396 6,324,226 2,985,105 30,945,571 6,833,301$ 3,767,271$ 39,808,527$ 41 42 THIS PAGE INTENTIONALLY LEFT BLANK Total fund balances - governmental funds 30,945,571$ In governmental funds, only current assets are reported. In the statement of net position, all assets are reported, including capital assets and accumulated depreciation. Capital assets at historical cost 174,763,462$ Accumulated depreciation (51,549,907) 123,213,555 7,204,712 (1,418,107) In governmental funds, certain receivables are not available to pay for current period expenditures and, therefore, are offset by deferred inflows of resources. 292,331 In governmental funds, only current liabilities are reported. In the statement of net position, all liabilities, including long-term liabilities, are reported. Long-term liabilities relating to governmental activities Bonds payable (6,385,000) Original issue premium (197,034) Interest payable (123,651) Net pension liability (9,982,329) Compensated absences payable (944,910) Internal service funds are used by management to charge the costs of certain activities, such as self-insurance, to individual funds. The assets and liabilities of the internal service fund must be added to the statement of net position. 5,538,119 Total net position - governmental activities 148,143,257$ The notes to the financial statements are an integral part of this statement. Deferred outflows related to pension Deferred inflows related to pension CITY OF SARATOGA Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position June 30, 2023 Deferred outflows and inflows of resources relating to pensions: In governmental funds, deferred outflows and inflows of resources relating to pensions are not reported because they are applicable to future periods. In the statement of net position, deferred outflows and inflows of resources relating to pensions are reported. 43 Special Revenue General ARPA/SLFRF Revenues Property Taxes 17,694,182$ -$ Sales and Use Taxes 1,381,033 Business License Taxes 170,411 Transient Occupancy Tax 431,270 Other Taxes 3,366,868 Licenses and Permits 205,345 Fines and Forfeitures 59,995 Interest 673,332 Charges for Services 3,908,383 Intergovernmental 1,043,439 Special Assessments Other 208,448 Total Revenues 29,142,706 Expenditures Current: General Government 6,491,844 Public Safety 7,724,675 Public Works 7,285,579 654,153 Community Services 1,003,162 Community Development 3,066,941 Capital Outlay Debt Service Principal Interest and Fiscal Charges Total Expenditures 25,572,201 654,153 Excess (Deficiency) of Revenues over (under) Expenditures 3,570,505 (654,153) Other Financing Sources (Uses): Transfers In Use of money and property 70,849 Transfers Out (3,889,000) Total Other Financing Sources (Uses) (3,818,151) Net Change in Fund Balances (247,646) (654,153) Fund Balances - July 1, 2022 15,410,450 7,127,589 Fund Balances - June 30, 2023 15,162,804$ 6,473,436$ The notes to the financial statements are an integral part of this statement. CITY OF SARATOGA Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds For the Fiscal Year Ended June 30, 2023 44 Capital Projects Nonmajor Total Capital Governmental Governmental Improvement Funds Funds -$ -$ 17,694,182$ 677,250 2,058,283 170,411 431,270 75,662 3,442,530 781,606 986,951 59,995 23,151 696,483 3,041 128,973 4,040,397 208,721 1,842,808 3,094,968 1,445,592 1,445,592 208,448 1,746,280 3,440,524 34,329,510 6,491,844 7,724,675 2,743,799 3,508,140 14,191,671 252,227 1,255,389 3,066,941 1,751,282 1,751,282 580,000 580,000 258,935 258,935 4,495,081 4,599,302 35,320,737 (2,748,801) (1,158,778) (991,227) 2,789,000 2,170,299 4,959,299 70,849 (1,070,299) (4,959,299) 2,789,000 1,100,000 70,849 40,199 (58,778) (920,378) 6,284,027 3,043,883 31,865,949 6,324,226$ 2,985,105$ 30,945,571$ 45 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - total governmental funds (920,378)$ Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those capital assets are allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation exceeded capital outlay in the current period. These amounts do not include activities of the internal service funds. Capital outlay 1,751,282$ Depreciation expense (2,270,173) (518,891) In governmental funds, certain receivables are not available to pay for current period expenditures and, therefore, are offset by deferred inflows of resources. This is the net change in deferred inflows.292,331 Compensated absence expenditures reported in the statement of activities do not require the use of current financial resources and therefore, are not reported as expenditures in a governmental fund. This is the net change in compensated absences for the current period.43,526 (3,952,133) Accrued interest is interest due on long-term debt payable. This is the net change in accrued interest for the current period.(11,240) Internal service funds are used by management to charge the costs of certain activities, such as self-insurance, to individual funds. The net revenues (expenses) of the internal service funds are reported with governmental activities.159,715 The amounts below, included in the Statement of Activities do not provide or require the use of current financial resources and, therefore, are not reported as revenue or expenditures in the governmental funds (net change): Repayment of bond principal 580,000 Amortization - premium on bond 21,892 Change in net position of governmental activities (4,305,178)$ CITY OF SARATOGA Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30, 2023 In governmental funds, pension costs are recognized when employer contributions are made. In the statement of activities, pension costs are recognized on an accrual basis in accordance with GASB Statement No. 68. This fiscal year, the difference between accrual-basis pension costs and actual employer contributions was: The notes to the financial statements are an integral part of this statement. 46 Governmental Activities Internal Service Fund Assets Current Assets: Cash and Investments 5,506,254$ Accounts Receivable 9,289.00 Total Current Assets 5,515,543 Noncurrent Assets: Capital Assets: Machinery and Equipment 2,220,120 Less: Accumulated Depreciation (1,903,279) Total Noncurrent Assets 316,841 Total Assets 5,832,384 Liabilities Current Liabilities: Accounts Payable 119,122 Accrued Liabilities 43,797 Claims Payable 131,346 Total Current Liabilities 294,265 Total Liabilities 294,265 Net Position Net Investment in Capital Assets 316,841 Unrestricted 5,221,278 Total Net Position 5,538,119$ The notes to the financial statements are an integral part of this statement. CITY OF SARATOGA Statement of Net Position Proprietary Funds June 30, 2023 47 Governmental Activities Internal Service Fund Operating Revenues: Charges for Services 3,521,774$ Other 143,509 Total Operating Revenues 3,665,283 Operating Expenses: Cost of Services 3,335,377 Depreciation 170,191 Total Operating Expenses 3,505,568 Operating Income 159,715 Change in Net Position 159,715 Net Position - Beginning of Fiscal Year 5,378,404 Net Position - End of Fiscal Year 5,538,119$ The notes to the financial statements are an integral part of this statement. CITY OF SARATOGA Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds For the Fiscal Year Ended June 30, 2023 48 Governmental Activities Internal Service Fund CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Users 3,675,171$ Cash Payments to Suppliers and Contractors (2,572,599) Cash Payments to Employees (856,418) Net Cash Provided (Used) By Operating Activities 246,154 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 246,154 CASH AND CASH EQUIVALENTS, BEGINNING OF FISCAL YEAR 5,260,100 CASH AND CASH EQUIVALENTS, END OF FISCAL YEAR 5,506,254$ Reconciliation to Statement of Net Position: Cash and Investments 5,506,254$ 5,506,254$ CASH FLOWS FROM OPERATING ACTIVITIES: Operating Income 159,715$ Adjustment to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation 170,191 Changes in Assets and Liabilities: (Increase) Decrease in Accounts Receivable 9,888 Increase (Decrease) in Accounts Payable (42,317) Increase (Decrease) in Accrued Liabilities 13,014 Increase (Decrease) in Claims Payable (64,337) Total Adjustments 86,439 Net Cash Provided By Operating Activities 246,154$ The notes to the financial statements are an integral part of this statement. CITY OF SARATOGA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Fiscal Year Ended June 30, 2023 49 Custodial Funds ASSETS Cash and investments 823,677$ Cash and investments with fiscal agent 83,551 Accounts receivable 900 Right to use asset, net of accumulated amortization 97,193 Total Assets 1,005,321 LIABILITIES Accounts payable 55,108$ Accrued liabilities 8,968 Long-term debt, due within one year 45,194 Long-term debt, due in more than one year 1,531,214 Total Liabilities 1,640,484 NET POSITION Held in trust for others (635,163) Total Net Position (635,163)$ The notes to the financial statements are an integral part of this statement. CITY OF SARATOGA FIDUCIARY FUNDS STATEMENT OF NET POSITION June 30, 2023 50 Custodial Funds Additions: Assessments 880,682$ Charges for services 280,337 Interest 13,999 Other 73,931 Total additions 1,248,949 Deductions: Community Development 942,309 Amortization 20,863 Interest Expense 103,409 Total deductions 1,066,581 Change in net position 182,368 Net Position - July 1, 2022 683,057 Prior period adjustment (1,500,588) Net Position, July 1, 2022, Restated (817,531) Net Position - June 30, 2023 (635,163)$ The notes to the financial statements are an integral part of this statement. CITY OF SARATOGA FIDUCIARY FUNDS STATEMENT OF CHANGES IN NET POSITION For the Fiscal Year Ended June 30, 2023 51 52 THIS PAGE INTENTIONALLY LEFT BLANK 53 NOTES TO BASIC FINANCIAL STATEMENTS 54 THIS PAGE INTENTIONALLY LEFT BLANK CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 55 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements of the City of Saratoga, California (the City) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental agencies. The Governmental Accounting Standards Boards (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the City's accounting policies are described below. A. Reporting Entity The City was incorporated as a municipal corporation in 1956 under the general laws of the State of California. The City is a largely residential community located in the foothills of the Santa Cruz Mountains with a population of 30,667 as of January 1, 2022. The City operates under a Council-Manager form of government, with five-elected Council members served by a full-time City Manager and staff. At June 30, 2023, the City's staff was comprised of 57 full-time or part-time employees, and various part-time temporary and seasonal employees. Staff is responsible for the following City services: Public Safety - The City provides around-the-clock police services under a contract with the Santa Clara County Sheriff's office. Emergency management and Fire services are provided by a special district. Code enforcement and inspection services are provided by City employees. Public Works/Maintenance - The City builds and maintains its parks, streets, curbs, gutters, and related public property with a force of 24 employees. Major projects may be contracted out to reduce costs. Community Development - Zoning administration, plan checking, and advance planning services are provided by 16 employees. Culture, Recreation, and Community Support services are provided by a total of 3 employees. General Government services are provided by a total of 15 employees. As required by GAAP, these basic financial statements present the City and its component units, entities for which the City is considered to be financially accountable. The City Council acts as the governing board. In addition, the City staff performs all administrative and accounting functions for these entities and these entities provide their services entirely to the City. Blended component units, although legally separate entities, are, in substance, part of the City's operations and data from these units are combined with data of the City. Discretely presented component units, on the other hand, are reported in a separate column in the government-wide financial statements to emphasize their legal separation from the City. Each blended component unit has a June 30 fiscal year-end. The City has no discretely presented component units. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 56 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity (Continued) The following entity is reported as blended component unit: Landscape & Lighting District - The Landscape & Lighting District (the District) was established in 1980 for the levy and the collection of assessments upon lots or parcels of land in the District, and for the construction or installation of improvements and maintenance. The District is reported as a blended component unit of the City because it has the same Governing Board as the City and the City is financially responsible for the District and its operations. The activity for the District has been included in the accompanying basic financial statements and no separate financial statements are issued. B.Basis of Presentation The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that are comprised of assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Government-wide Financial Statements The City's government-wide financial statements include a Statement of Net Position and a Statement of Activities and Changes in Net Position. These statements present summaries of governmental activities for the City. Fiduciary activities of the City are not included in these statements. These statements are presented on an "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all of the City's assets and liabilities, including capital assets, as well as infrastructure assets, long-term liabilities, and deferred inflows and outflows of resources are included in the accompanying Statement of Net Position. The Statement of Activities presents changes in net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Certain types of transactions are reported as program revenues for the City in three categories: Charges for services Operating grants and contributions Capital Grants and contributions Certain eliminations have been made as prescribed by GASB Statement No. 34 in regarding inter- fund activities, payables, and receivables. All internal balances in the Statement of Net Position have been eliminated. The following inter-fund activities have been eliminated: Transfers in/Transfers Out Internal Service Fund charges Landscape and Lighting District Service Fees Due to/from funds Interfund services provided and used are not eliminated in the process of consolidation, except for the internal service fund charges. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 57 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B.Basis of Presentation (Continued) Deferred Outflow of Resources and Deferred Inflow of Resources Deferred outflows of resources represent a consumption of net assets by the City that applies to a future reporting period. Deferred inflows of resources represent an acquisition of net assets by the City that applies to a future reporting period. Governmental Fund Financial Statements Governmental fund financial statements include a Balance Sheet and a Statement of Revenues, Expenditures, and Changes in Fund Balances for all major governmental funds and aggregated non-major funds. An accompanying schedule is presented to reconcile and explain the differences in net position as presented in these statements to the net position presented in the government- wide financial statements. The City has presented all major funds that met the applicable criteria. The following funds are major funds: The City reports three major governmental funds: The General Fund is used to account for all of the general resources of the City not specifically levied or collected for other City funds and related expenditures. The General Fund accounts for all financial resources of the City which are not accounted for in another fund. The ARPA/SLFRF Fund is for federal grants from the America Rescue Plan Act (ARPA), including the Coronavirus State and Local Fiscal Recovery Funds (SLFRF). The Capital Improvement Capital Projects Fund is for resources used for the major capital acquisition and construction activities. All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the modified accrual basis of accounting. Accordingly, only current assets, deferred outflows of resources, current liabilities, and deferred inflows of resources are included on the balance sheets. The Statement of Revenues, Expenditures, and Changes in Fund Balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Under the modified fiscal basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Accordingly, revenues are recorded when received in cash, except those revenues subject to accrual (up to 45 days after year-end) are recognized when due. The primary revenue sources, which have been treated as susceptible to accrual by the City, are property tax, sales tax, special assessments, intergovernmental revenues, other taxes, interest revenue, rental revenue, and certain charges for services. Fines, forfeitures, licenses and permits and parking meter revenues are not susceptible to accrual because they are usually not measurable until received in cash. Expenditures are recorded in the accounting period in which the related fund liability is incurred. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 58 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B.Basis of Presentation (Continued) Governmental Fund Financial Statements (Continued) Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach of GASB Statement No. 34. Proprietary Funds The City’s Internal Service Funds are proprietary funds. In the fund financial statements, proprietary funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned, and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds are presented using the “economic resources measurement focus”. This means all assets and liabilities (whether current or noncurrent) associated with their activities are included on their balance sheets. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net position. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal value. Non-operating revenues, such as subsidies, taxes, and investment earnings result from non-exchange transactions or ancillary activities. Amounts paid to acquire capital assets are capitalized as assets in the internal service funds financial statements. The City reports the following additional fund types: Internal Service Funds account for charges to City departments for services provided, on a cost reimbursement basis, in the following areas: general liability, workers’ compensation, office support, information technology services, vehicle maintenance and replacement, building maintenance, equipment replacement, and information technology services and replacement. Fiduciary Fund Financial Statements Fiduciary Funds include a Statement of Net Position and a Statement of Changes in Net Position for Trust Funds. The City's fiduciary funds include Custodial Funds which are accounted for on the accrual basis of accounting. The City is reporting the following Custodial Funds: West Valley Clean Water Program. The Cities of Campbell, Monte Sereno, Saratoga, and the Town of Los Gatos, representing the West Valley Communities, joined together to create West Valley Clean Water Program (WVCWP) in 1994. Together they work to control discharge of polluted stormwater into local creeks and the San Francisco Bay. Its mission is to: Reduce pollutants in stormwater and discharges from storm drains into creeks. Maximize the effectiveness of pollution prevention efforts and work toward repair of impaired waters. Help the four West Valley Communities meet State Water Resources Control Board & Federal Clean Water Act goals for clean and healthy local water bodies. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 59 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B.Basis of Presentation (Continued) Fiduciary Fund Financial Statements (Continued) In late 2017, after notification from West Valley Sanitation District that the District would no longer be involved in or provide fiscal agent services for WVCWP after June 30, 2018, the four agencies decided to establish the operation as a legal entity by entering into a Joint Powers Agreement, consistent with what the agencies had already set up for the West Valley Solid Waste Management oversight activities. With this action, the West Valley Clean Water Program is now overseen by the same Board that includes Council representation from each of the four municipalities. The Clean Water Program’s dedicated program staff and contractors carry out the day-to-day operations. The JPA also collaborates with Santa Clara Valley Urban Runoff Pollution Prevention Program, West Valley Sanitation District, and the Santa Clara County Fire District in its operational activities. With the loss of West Valley Sanitation functioning as the fiscal agent for the group, the four cities determined one of the cities would take on this role. Effective July 1, 2018, the City of Saratoga began performing these duties, which are limited to payroll and vendor payment functions, in addition to financial reporting. The City does not oversee operational aspects of the WVCWP and is acting only in a fiduciary function. Arrowhead CFD The Arrowhead Community Facilities District encompasses 39 homes located along the hillside between Rolling Hills Road and Blue Hills Lane, off of Prospect Road. Since 1951, this neighborhood has operated its own private water company (Arrowhead Cooperative Company Inc., aka ACCI). Over the years the number of Arrowhead Cooperative residents and water service meters have increased, to the extent that the water system infrastructure is no longer sufficient for water and fire protection needs. The potential of the fire danger situation prompted the Arrowhead Board to ask the City for assistance to issue a bond for the purpose of financing improvements to the water system. Subsequently, on December 21, 2016, the City Council approved the formation of the Arrowhead Community Facility District (CFD). On May 2, 2017, CFD’s 39 residential parcel owners unanimously approved Measure L, which allowed for the assessment of a special tax levy to finance a bond. On October 17, 2018, the City Council authorized the issuance of the Saratoga Community Facilities District 2016-1 (Arrowhead Project) Special Tax Bonds, Series 2018, with the issue date of December 10, 2018. Debt service on the Special Tax Bond is payable only from special taxes levied annually on taxable properties within the CFD in the manner set forth in the Rate and Method of Apportionment (RMA) approved by the Council in connection with the formation of the District. The 2018 Bonds will not have any impact on the City’s General Fund or Government-wide financial statements, and these special financing district bonds are not assets or liabilities of the City for financial statement purposes. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 60 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C.Assets, Deferred Outflow of Resources, Liabilities, Deferred Inflow of Resources, and Equity 1.Cash, Cash Equivalents and Investments The City pools its available cash for investment purposes. The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturity of three months or less from the date of acquisition. Cash and cash equivalents are combined with investments and displayed as Cash and Investments. Deposit and Investment Risk Disclosures - In accordance with GASB Statement No. 40, Deposit and Investment Disclosures (Amendment of GASB Statement No. 3), certain disclosure requirements, if applicable, for Deposits and Investment Risks in the following areas: Interest Rate Risk Credit Risk -Overall -Custodial Credit Risk -Concentrations of Credit Risk Foreign Currency Risk Other disclosures are specified including use of fiscal methods to present deposits and investments, highly sensitive investments, credit quality at year-end and other disclosures. The City participates in an investment pool managed by the State of California titled Local Agency Investment Fund (LAIF), which has invested a portion of the pool funds in Structured Notes and Asset Backed Securities. LAIF's investments are subject to credit risk with the full faith and credit of the State of California collateralizing these investments. In addition, these Structured Notes and Asset-Backed Securities are subject to market and interest rate risks. 2. 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 "due to/from other funds." Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances”. Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. For each fiscal year beginning July 1, taxes are levied on taxable real (secured) and personal (unsecured) property located within the City as of the preceding January 1. Secured property taxes are payable in two installments on November 1, and February 1 of each fiscal year, and become delinquent after December 10 and April 10, respectively. Taxes on unsecured property become delinquent if not paid by August 31. A 10 percent penalty attaches to delinquent taxes, which have been levied on property on the secured roll. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty of 1 ½ percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and is subject to sale by the County Tax Collector. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 61 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D.Assets, Deferred Outflow of Resources, Liabilities, Deferred Inflow of Resources, and Equity (Continued) 2. Receivables and Payables (Continued) GASB issued Statement No. 87 “Leases” to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease asset and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement a lessee is required to recognize a lease liability and an intangible right-to-use asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. Implementation of GASB No. 87 resulted in the City recognizing 2 property leases that are recognized under GASB No. 87 during the current fiscal year. The City recorded opening lease receivables of $700,372 and deferred inflows related to leases of $700,372 and had balances of $642,537 and $629,523 respectively at the end of the fiscal year. The City’s lease receivables are measured at the present value of payments expected to be received during the lease term. Under the lease agreements, the City receives variable lease payments as each lease has an annual increase in payment of 3% to 4%. 3. Inter-fund Transactions Inter-fund services provided and used are accounted for as revenue, expenditures or expenses, as appropriate. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund are recorded as expenditures/expenses in the reimbursed fund. All other inter-fund transfers are reported as transfers. 4. Capital Assets Capital assets, including land, buildings, improvements, furniture, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental activities in the government-wide financial statements. Capital assets were recorded at historical cost or estimated historical cost if actual cost was not available. Donated capital assets, donated works of art and similar items, and capital assets received in service concession agreement are reported at acquisition value. City policy has set the capitalization threshold for reporting capital assets at $10,000. The City has chosen the Modified Approach for reporting on the streets subsystem of infrastructure capital assets. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows: Buildings and structures 40 Years Machinery and equipment 5 to 10 Years Infrastructure 15 to 50 Years CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 62 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D.Assets, Deferred Outflow of Resources, Liabilities, Deferred Inflow of Resources, and Equity (Continued) 4. Capital Assets (Continued) In accordance with GASB Statement No. 34, the City has included the value of all infrastructure assets in its basic financial statements. The City defines infrastructure as the basic physical assets that allow the City to function, which includes the street system, park and recreation lands, and improvements system; storm water conveyance and drainage system, buildings combined with site amenities such as parking and landscaping areas used by the City in the conduct of its business. Each major infrastructure system can be divided into subsystems. For example, the street system can be subdivided into pavement, curb and gutters, sidewalks, medians, streetlights, traffic control devices (signs, signals, and pavement markings), landscaping, and land. These subsystems were not delineated in the basic financial statements. The appropriate operating department maintains information regarding the subsystems. The City elected to use the Modified Approach as defined by GASB Statement No. 34 for infrastructure reporting of its streets, concrete, and asphalt pavements. The City commissioned a physical assessment of the streets condition as of May 31, 2021. This condition assessment was performed in 2017. A Pavement Condition Index (PCI) was assigned to each street segment. The index is expressed in a continuous scale from 0 to 100, where 0 is assigned to the least acceptable physical condition and 100 is assigned to segments of street that have the physical characteristics of a new street. The following conditions were defined: Condition Rating Very Good 70-100 Good 50-69 Poor 25-49 Very Poor 0-24 The City's policy relative to maintaining the street assets is to achieve an average rating of 70 for all street segments. This acceptable rating allows minor cracking and raveling of the pavement along with minor roughness that could be noticeable to drivers traveling at the posted speeds. For all other infrastructure systems, the City elected to use the Basic Approach as defined by GASB Statement No. 34 for infrastructure reporting. An appraisal determined the original cost, which is defined as the actual cost to acquire new property in accordance with market prices at the time of first construction/acquisition. Original costs were developed in one of three ways: 1) historical records; 2) standard unit costs appropriate for the construction/acquisition date; or 3) present cost indexed by a reciprocal factor of the price increase from the construction/acquisition date to the current date. The accumulated depreciation, defined as the total depreciation from the date of construction/acquisition to the current date on a straight line, unrecovered cost method was computed using industry accepted life expectancies for each infrastructure subsystem. The book value was then computed by deducting the accumulated depreciation from the original cost. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 63 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D.Assets, Deferred Outflow of Resources, Liabilities, Deferred Inflow of Resources, and Equity (Continued) 5. Interest Payable In the government-wide financial statements, interest payable of long-term debt is recognized as an incurred liability for governmental fund types. The City has not allocated the interest on long- term debt to departments. In the fund financial statements, governmental fund types do not recognize the interest payable when the liability is incurred. Interest on long-term debt is recorded in the fund statements when payment is made. 6.Claims Payable The City records a liability to reflect an actuarial estimate of ultimate uninsured losses for both general liability claims (including property damage claims) and workers' compensation claims. The estimated liability for workers' compensation claims and general liability claims includes "incurred but not reported" (IBNR) claims. There is no fixed payment schedule to pay these liabilities. 7.Compensated Absences In the government-wide financial statements, compensated absences are recorded as incurred and the related expenses and liabilities are reported. In the fund financial statements, compensated absences are recorded as expenditures in the years paid, as it is the City's policy to liquidate any unpaid compensated absences at June 30 from future resources, rather than currently available financial resources. Only the amounts which become due at June 30 are reported in the fund financial statements as a liability. 8.Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities. 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. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. 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 another financing source. Premiums received on debt issuance are reported as another financing source while discounts on debt issuance reported as another financing use. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 64 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D.Assets, Deferred Outflow of Resources, Liabilities, Deferred Inflow of Resources, and Equity (Continued) 9. Fund Balances In February 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This standard left unchanged the total amount reported as fund balance, but substantially altered the categories and terminology used to describe its components. Rather than focus on financial resources available for appropriation, the new categories focus on “the extent for which the government is bound to honor constraints in the specific purposes for which amounts in the reserve can be spent.” The components of fund balance are now categorized as follows: “non-spendable fund balance”, resources that are inherently non-spendable from the vantage point of the current period; “restricted fund balance”, resources that are subject to enforceable legal restrictions; “committed fund balance”, resources whose specified use is constrained by limitations the government entity imposes upon itself through formal action at its highest level of decision making and remains binding unless removed in the same manner; “assigned fund balance”, resources that reflects a government’s intended general use of resources, such intent would have to be established at either the highest level of decision making, by a body, or an official designated for that purpose; and “unassigned fund balance”, net resources in excess of what can properly be classified in one of the other four categories. Currently, the City’s fund balance reserves fall into one of the four spendable categories; restricted, committed, assigned, or unassigned fund balance. The City maintains three restricted fund balances constrained by external legal restrictions that can be spent only for the stipulated purposes. Restrictions may effectively be changed or lifted only with the consent of resource providers. These fund balances are: District Assessments – collectively represents fiscal year-end fund balances of thirty Landscape & Lighting and Storm Drain zones which use is restricted to the individual district. Streets and Roads Programs – represents ARPA lost revenue grants restricted to public works programs as well as other funds restricted for street and road projects. Debt Service Fund Balance – represents funding collected for use in the City’s general obligation bond debt. Community Services Fund Balance – represents funding collected for various community services. The committed category, in which fund balance is constrained by limitations that the government imposes upon itself at its highest level of decision making by formal vote on a resolution of the City Council, and remains binding unless removed in the same manner, includes the following: Capital Improvement Program (CIP) Fund Balance – represents the collective balance of funding appropriated for capital improvement projects. Capital Projects are funded through direct revenues or budgeted transfers for improvement work within the following program funds: Streets, Park & Trail, Facility, or Administrative & Technology Improvements. Hillside Stability – funding set aside for use either in emergency repairs or high-cost and non-routine mitigation of hillside or landslide projects. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 65 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D.Assets, Deferred Outflow of Resources, Liabilities, Deferred Inflow of Resources, and Equity (Continued) 9. Fund Balances (Continued) In the assigned category, fund balance reflects an intended use as established by Council that is neither restricted nor committed. Use of Assigned Fund Balance is approved by formal vote of the Council or official authorized to assign amounts to a specific purpose, either through specific action, fund balance policy, or through budget direction and approval. This category includes the following reserves: Future Capital & Efficiency Funding - represents General Fund funding set aside for capital and/or efficiency projects but not yet committed for a specific improvement project. Facility Replacement Reserve – represents accumulated funding for the future replacement, major rehabilitation, or new construction of City-owned facilities. This reserve is to be used for funding the construction or to provide for the services of related debt, but is not yet committed for a specific improvement project. Carryforward – represents either prior-year funds designated for one-time operational activities not yet completed by fiscal year-end, or to carryforward prior-year funding for specific activities as directed by Council. Carryforward funds are appropriated for use in the following fiscal year. The Unassigned Fund Balance category represents funding which may be held for specific types of uses or stabilization purposes but is not yet directed to be used for a specific purpose. Reserve amounts are determined by, and align with, fund policy direction. The General Fund is the only governmental fund that reports a positive unassigned fund balance. Working Capital Reserve – Council policy is to maintain $1,000,000 to meet cash flow requirements. As of June 30, 2023, the Working Capital Reserve balance is $1,000,000. Fiscal Stabilization Reserve – Council designates and annually revisits the level of undesignated funding for use at Council direction in case of disasters, emergencies, and economic downturns. As of June 30, 2023, the Fiscal Stabilization Reserve balance is $3,150,000. Compensated Absences Reserve – represents reserve funding for employee payout compensation equal to one-third of the annual liability balance. This funding level is anticipated to be the maximum potential payout in excess of budgeted salary in a fiscal year. As of June 30, 2023, the Fiscal Stabilization Reserve balance is $330,000. Other Unassigned Fund Balance – represents funding not yet appropriated or assigned for use. Council policy is to maintain a minimum of $500,000 in unassigned funds as a buffer for unplanned expenditures or revenue shortfalls during the fiscal year. Flow Assumption / Spending Order Policy – When expenditures are incurred for purposes for which both restricted and unrestricted fund balance is available, the City considers restricted funds to be spent first. When expenditures are incurred for which committed, assigned, or unassigned fund balances are available, the City considers amounts to be spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the City Council has directed otherwise. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 66 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D.Assets, Deferred Outflow of Resources, Liabilities, Deferred Inflow of Resources, and Equity (Continued) 10.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 is 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 including enabling legislation. Unrestricted Net Position – This amount is all net position that does not meet the definition of "invested in capital assets, net of related debt" or "restricted net position." 11.Use of Restricted/Unrestricted Net Position When an expense is incurred for purposes for which both restricted and unrestricted net positions are available, the City’s policy is to apply restricted net position first. 12.Property Tax and Special Assessments County tax assessments include secured and unsecured property taxes and special assessments. "Unsecured" refers to taxes on personal property. These tax assessments are secured by liens on the property being taxed. Revenue is recognized in the period for which the tax and assessment is levied. The County of Santa Clara levies, bills and collects property taxes for the City, the County remits the entire amount levied and handles all delinquencies, retaining interest and penalties. Secured and unsecured property taxes are levied on January 1. Secured property tax is due in two installments on November 1 and February 1 and becomes a lien on those dates. It becomes delinquent on December 10 and April 10, respectively. Unsecured property tax is due on July 1 and becomes delinquent on August 31. 13.Use of Estimates The preparation of basic financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 67 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D.Assets, Deferred Outflow of Resources, Liabilities, Deferred Inflow of Resources, and Equity (Continued) 14.New GASB Pronouncements Implementation of New Accounting Pronouncements GASB Statement No. 96, SBITAs This Statement provides guidance on the accounting and financial reporting for subscription- based information technology arrangements (SBITAs) for government end users (governments). This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in GASB Statement No. 87, Leases, as amended. The City did not report any significant accounting changes from the implementation of this Statement during the fiscal year ended June 30, 2023. Upcoming Accounting and Reporting Changes GASB Statements listed below will be implemented in future financial statements. The provisions for GASB Statement Number 99, “Omnibus 2022” are effective for fiscal year beginning after June 15, 2023. The provisions of Statement Number 100 “Accounting Changes and Error Corrections – an amendment of GASB Statement No. 62” are effective for fiscal years beginning after June 15, 2023. The provisions of Statement Number 101 “Compensated Absences” are effective for fiscal years beginning after December 15, 2023. 15.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 of Saratoga’s California Public Employees’ Retirement System (CalPERS) plans (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. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 68 NOTE 2 – CASH AND INVESTMENTS The City maintains a cash and investment pool, which includes cash balances and authorized investments of all funds, which the City Treasurer invests to enhance interest earnings. The pooled interest earned is allocated to the funds based on average month-end cash and investment balances in these funds. The City has the following cash and investments at June 30, 2023: The City’s Cash and Investments at June 30, 2023, in more detail: A.Cash Deposits The carrying amounts of the City's cash deposits was $4,015,611 at June 30, 2023. Bank balances before reconciling items were $4,444,731 at that date due to deposits in transit and outstanding checks. The total amount was collateralized or insured with securities held by the pledging financial institutions. The fiscal agent deposits are related to the Arrowhead bond and funding activities and are held with BNY Mellon. The California Government Code requires California banks and savings and loan associations to secure the City's cash deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of perfecting a security interest and places the City ahead of general creditors of the institution. The market value of pledged securities must equal at least 110 percent of the City's cash deposits. California law also allows institutions to secure City deposits by pledging first trust deed mortgage notes that have a value of 150 percent of the City's total cash deposits. The City has waived the collateral requirements for cash deposits which are fully insured to $250,000 by the Federal Deposit Insurance Corporation (FDIC). The City follows the practice of pooling cash and investments of all funds, except for funds required to be held by fiscal agents under the provisions of bond indentures. Interest income from cash and investments with fiscal agents is credited directly to the related fund. Primary Fiduciary Government Activities Total Cash and investments 43,242,035$ 823,677$ 44,065,712$ Cash and investments with Fiscal Agent 83,551 83,551 Total Cash and Investments 43,242,035$ 907,228$ 44,149,263$ Cash and cash equivalents: Petty cash 1,379$ Demand deposits 4,015,611 With Fiscal Agent 83,551 Total Cash and Cash Equivalents 4,100,541 Investments: Local Agency Investment Fund (LAIF)40,048,722 Total Cash and Investments 44,149,263$ CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 69 NOTE 2 – CASH AND INVESTMENTS (Continued) B.Investments Under the provisions of the City's investment policy, and in accordance with California Government Code, the following investments are authorized: Securities of the U.S. Government or its agencies. Local agency bonds and U.S. Treasury obligations. Bankers Acceptances. Certificates of Deposit (or Time Deposits) placed with commercial banks and/or savings and loans companies. Negotiable Certificates of Deposit. California Local Agency Investment Fund. Cal-Trust JPA. Mutual funds and Money market mutual funds. Repurchase agreements and medium-term notes. 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. 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 or liabilities. 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. GASB Statement No. 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 quoted prices that are not observable. Level 3 inputs are unobservable inputs, such as a property valuation or an appraisal. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 70 NOTE 2 – CASH AND INVESTMENTS (Continued) C.Investments Authorized by the California Government Code and City’s Investment Policy The table below identifies the investment types that are authorized for the City of Saratoga (City) by the California Government Code (or the City’s investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the City’s investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the City rather than the general provisions of the California government Code or the City’s investment policy. The investment policy allows for the above investments, which have equal safety and liquidity as all other allowed investments. Maturity depends on the cash needs of the City. D.Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustees are governed by provisions of the debt agreements rather than the general provisions of the California Government Code or the City’s investment policy. The table below identifies the Investment types that are authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 71 NOTE 2 – CASH AND INVESTMENTS (Continued) D.Investments Authorized by Debt Agreements (Continued) E.External Investment Pool The City's investments with LAIF at June 30, 2023 include a portion of the pool funds invested in Structured Notes and Asset-Backed Securities. These investments include the following: Structured Notes - debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options. Asset-Backed Securities - the bulk of which are mortgage-backed securities, entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (such as CMO's) or credit card receivables. LAIF is overseen by the Local Agency Investment Advisory Board, which consists of five members, in accordance with State statute. The approved investment policy is listed on the LAIF website, located at http://www.treasurer.ca.gov/pmia-laif/. As of June 30, 2023, the City had $40,048,722 invested in LAIF. In accordance with GASB Statement No. 72, a fair value factor of .984828499 was used to calculate the fair value of the investments in LAIF. GASB Statement No. 72, Fair Measure Value and Application requires investments held primarily for the purpose of income or profit and has a present service capacity based solely on its ability to generate cash or to be sold to generate cash to be measured at their fair value. F.Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the term of an investment’s maturity, the greater the sensitivity to changes in market interest rates. Although the City’s investment policy allows for a broad range of investment instruments with varying terms of maturity, investments are limited to the Local Agency Investment Fund (LAIF) which is managed by the State Treasurer Office and overseen by the Pooled Money Investment Board, the State Treasurer investment committee, and a Local Agency Advisory Board. Included in LAIF’s investment portfolio are U.S. Treasuries, Federal Agency obligations, time deposits, negotiable certificates of deposits, commercial paper, corporate bonds, and security loans. Funds are available for withdrawal on demand and are recorded on an amortized cost basis. At June 30, 2023, these investments had a weighted average maturity of 256 days. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 72 NOTE 2 – CASH AND INVESTMENTS (Continued) F.Disclosures Relating to Interest Rate Risk (Continued) The City had the following invested in LAIF: G.Disclosures Relating to Credit Risk As of June 30, 2023, the City's investments in external investment pools are unrated. The City only invests in LAIF, therefore has no other policy relating to the credit risk of investments. H.Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City did not hold any securities through investment counterparties at June 30, 2023. NOTE 3 – LEASES RECEIVABLE The City has 2 lease agreements in place as of June 30, 2023. Revenue recognition is in accordance with GASB Statement No. 87. Summarized information for each lease is as follows: STC Five LLC In November 2007, the City entered into a lease with STC Five LLC for use of land for the operation of cellular towers at Congress Spring Park (APN 289-02-001) in Saratoga, California. The term was for 5 years and includes three additional optional 5-year terms. If all extensions are exercised, the lease would end in October of 2031. The options to extend are exercised unless written notification of cancellation occurs within 60 days prior to the expiration of the existing term. Initial rent payments were $1,800 a month increasing by 3% annually under the terms of the lease. Payments received during the fiscal year were $2,723 to $2,804 monthly from July 2022 through June 2023. T-Mobile Cell Tower In August 2021, the District entered into a lease with T-Mobile West LLC for use of land for the operation of cellular towers at Congress Spring Park (APN 389-02-001) in Saratoga, California.. The term was for 10 years and includes three additional optional 5-year terms. If all extensions are exercised the lease would end in November of 2032. The options to extend are exercised unless written notification of cancellation occurs within 60 days prior to the expiration of the existing term. Initial rent payments were $1,800 a month increasing by 4% annually under the terms of the lease. Payments received during the fiscal year were $2,804 to $2,888 monthly from July 2022 through June 2023. Investment Maturities Fair Less Than Value One Year State of California - LAIF 40,048,722$ 40,048,722$ CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 73 NOTE 4 – INTERFUND TRANSACTIONS A.Transfers In/Out Transfers for the year ended June 30, 2023 were as follows: The Capital Improvement Funds received $2,789,000 from the General Fund, as adopted in the Budget. Out of this sum, $2,239,000 was allocated for street, sidewalk, and storm drain repair, $275,000 for park and trail improvements, and $275,000 for various administrative projects. Additionally, the Storm 2023 special revenue fund received $1,100,000 from the General Fund for storm-related repairs throughout the City. Within the Park In-Lieu fund projects, $1,070,299 was reallocated. B. Interfund Receivables and Payables During the course of normal operations, numerous transactions occur between individual funds that may result in amounts owed between funds. Those related to goods and services type transactions are classified as “due to and from other funds.” The following presents a summary of current interfund balances at June 30, 2023: The Gas Tax special revenue fund and Grants CIP capital projects fund, due to other funds balances were the result of project costs exceeding currently available funds in each fund. Operations in the following fiscal year will provide funds to repay these interfund balances. Transfer in Transfer out Amount Capital Improvement Fund - Major Fund General Fund - Major Fund 2,789,000$ Storm 2023 General Fund - Major Fund 1,100,000 Park In-Lieu Park In-Lieu 1,070,299 Total Transfers 4,959,299$ Due from other funds Amount Due to other funds Amount General Fund - Major Fund 289,523$ Gas Tax 103,233$ Grants CIP 186,290 Total 289,523$ Total 289,523$ CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 74 NOTE 5 – CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2023 is illustrated in the following table: Depreciation expense was charged to the following departments: In accordance with GASB Statement No. 34, the City has reported all capital assets including infrastructure in the Government-Wide Statement of Net Position. The City elected to use the "Modified Approach" as defined by GASB Statement No. 34 for infrastructure reporting for its pavement system. As a result, no accumulated depreciation or depreciation expense has been recorded for this system. A more detailed discussion of the "Modified Approach" is presented in the Required Supplementary Information section of this report. All other capital assets including other infrastructure systems were reported using the Basic Approach whereby accumulated depreciation and depreciation expense have been recorded. Balance at Balance at Governmental activities:June 30, 2022 Additions Deletions Transfers June 30, 2023 Capital assets, not being depreciated: Land and land improvements 20,173,790$ -$ -$ -$20,173,790$ Construction in progress 9,395,609 1,738,756 (368,863) 10,765,502 Infrastructure: Street pavement system 53,134,778 53,134,778 Total capital assets, not being depreciated 82,704,177 1,738,756 (368,863) 84,074,070 Capital assets, being depreciated: Buildings and structures 27,455,282 295,996 27,751,278 Machinery and equipment Governmental funds 2,269,290 12,526 2,281,816 Internal service funds 2,201,949 18,171 2,220,120 Infrastructure: Bridges 1,563,654 1,563,654 Signs and lights 3,049,976 3,049,976 Drainage system 40,139,949 40,139,949 Sidewalks 15,829,852 72,867 15,902,719 Total capital assets, being depreciated 92,509,952 30,697 368,863 92,909,512 Less accumulated depreciation for: Buildings and structures (13,815,624) (789,892) (14,605,516) Machinery and equipment Governmental funds (1,809,984) (90,019) (1,900,003) Internal service funds (1,733,089) (170,191) (1,903,280) Infrastructure: Bridges (1,233,367) (17,227) (1,250,594) Signs and lights (1,705,772) (112,520) (1,818,292) Drainage system (21,952,978) (802,299) (22,755,277) Sidewalks (8,762,009) (458,216) (9,220,225) Total accumulated depreciation (51,012,823) (2,440,364) (53,453,187) Total capital assets, being depreciated net 41,497,129 (2,409,667) 368,863 39,456,325 Governmental activities capital assets, net 124,201,306$ (670,911)$ -$ -$123,530,395$ General Government 1,252,026$ Public Works 1,041,027 Community Services 102,100 Community Development 45,211 Total Depreciation Expense 2,440,364$ CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 75 NOTE 6 – LONG-TERM LIABILITIES A summary of the City's governmental long-term obligations for the fiscal year ended June 30, 2023, is presented below: General Obligation 2011 Library Bonds - Original Issue $11,995,000 On July 14, 2011, the City issued General Obligation Bonds Series 2011 in the amount of $11,995,000. The bonds were issued to fully refund the General Obligation 2001 Library Bonds. The bonds are payable from and secured by certain property taxes within the City held in the Library Bond Debt Service Fund. Interest on the bonds ranges from 2.0 percent to 4.0 percent and is payable on February 1 and August 1 of each year, commencing February 1, 2012. Principal is due annually beginning on August 1, 2012, in amounts ranging from $455,000 to $790,000, with a final payment on August 1, 2031 of $820,000. The bonds maturing on or before August 1, 2021 were not subject to redemption prior to their respective stated maturity dates. Bonds maturing on or after August 1, 2022 are subject to redemption prior to their respective stated maturity dates at the option of the City at the principal amount of the bonds called for redemption, together with interest accrued thereon to the date of redemption, without premium. The annual debt service requirements on these bonds are as follows: Compensated Absences The City's liability for vested and unpaid compensated absences (accrued vacation and sick pay) has been accrued and amounts to $944,910 at June 30, 2023. The compensated absences liability will generally be liquidated through the General Fund. Classification Balance at Balance at Due Within Due in More Description June 30, 2022 Additions Reductions June 30, 2023 One Year Than One Year Governmental Activities: General Obligation Bonds: 2011 Library bonds 6,965,000$ -$ (580,000)$ 6,385,000$ 610,000$ 5,775,000$ Net original issue premium 218,926 (21,892) 197,034 21,892 175,142 Compensated absences 988,436 679,650 (723,176) 944,910 686,642 258,268 Total 8,172,362$ 679,650$ (1,325,068)$ 7,526,944$ 1,318,534$ 6,208,410$ Fiscal Year Ended Principal Interest Total 2024 610,000$ 234,385$ 844,385$ 2025 630,000 209,585 839,585 2026 655,000 185,523 840,523 2027 685,000 162,073 847,073 2028 705,000 162,073 867,073 2029-2032 3,100,000 391,043 3,491,043 Total 6,385,000$ 1,344,682$ 7,729,682$ CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 76 NOTE 6 – LONG-TERM LIABILITIES (Continued) Debt Without City Commitment A summary of the Fiduciary Fund long-term obligations for the fiscal year ended June 30, 2023, is presented below: Arrowhead Community Facilities District Bond The Arrowhead Community Facilities District encompasses 39 homes located along the hillside between Rolling Hills Road and Blue Hills Lane, off of Prospect Road. Since 1951, this neighborhood has operated its own private water company (Arrowhead Cooperative Company Inc., aka ACCI). Over the years the number of Arrowhead Cooperative residents and water service meters have increased, to the extent that the water system infrastructure is no longer sufficient for water and fire protection needs. The potential of the fire danger situation prompted the Arrowhead Board to ask the City for assistance to issue a bond for the purpose of financing improvements to the water system. Subsequently, on December 21, 2016, the City Council approved the formation of the Arrowhead Community Facility District (CFD). On May 2, 2017, the CFD’s 39 residential parcel owners unanimously approved Measure L, which allowed for the assessment of a special tax levy to finance a bond. On October 17, 2018, the City Council authorized the issuance of the Saratoga Community Facilities District 2016-1 (Arrowhead Project) Special Tax Bonds, Series 2018, with the issue date of December 10, 2018. Debt service on the Special Tax Bond is payable only from special taxes levied annually on taxable properties within the CFD in the manner set forth in the Rate and Method of Apportionment (RMA) approved by the Council in connection with the formation of the District. The 2018 Bonds will not have any impact on the City’s General Fund or Government-wide financial statements, and these special financing district bonds are not assets or liabilities of the City for financial statement purposes. Bond terms are 30 years at 6.05% interest. The payment amounts may change over time if bond holders choose to pay off their share of the debt instead of following the bond’s payment schedule. The annual debt service requirements on these bonds are as follows: Classification Balance at Balance at Due Within Due in More Description June 30, 2022 Additions Reductions June 30, 2023 One Year Than One Year Fiduciary Funds: Special Tax Bonds: 2018 Arrowhead CFD 1,500,588$ -$ (23,374)$ 1,477,214$ 24,787$ 1,452,427$ Total 1,500,588$ -$ (23,374)$ 1,477,214$ 24,787$ 1,452,427$ Fiscal Year Ended Principal Interest Total 2024 24,787$ 89,372$ 114,159$ 2025 26,287 87,872 114,159 2026 27,878 86,281 114,159 2027 29,564 84,595 114,159 2028 31,353 82,806 114,159 2029-2033 187,618 383,177 570,795 2034-2038 251,668 319,127 570,795 2039-2043 337,583 233,212 570,795 2044-2048 452,829 117,966 570,795 2049 107,647 6,512 114,159 Total 1,477,214$ 1,490,920$ 2,968,134$ CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 77 NOTE 7 – RISK MANAGEMENT The City participates in the following public entity risk pool: PLAN Workers' Compensation Shared Agency Risk Pool (SHARP) – covers workers' compensation coverage up to $250,000 and excess coverage provides an employer liability limit of $5 million per occurrence, and workers’ compensation per occurrence limit to $100 million. The City has no deductible for these claims. During the fiscal year ended June 30, 2023, the City contributed $466,212 for current year coverage. The City's contribution equals the ratio of the City's payroll to the total payroll of all entities participating in the same layer of each program, in each program year. Actual surpluses or losses are shared according to a formula developed from overall loss costs and spread to member entities on a percentage basis after a retrospective rating. There have been no significant reductions of insurance settlements that exceeded insurance coverage for the past three years. The workers’ compensation and general liability claims payable of $131,345 reported at June 30, 2023, is based on the requirements of GASB Statement No. 10, which requires that a liability for claims be reported if information prior to the issuance of the basic financial statements indicates that it is probable that a liability has incurred at the date of the basic financial statements and the amount of the loss can be reasonably estimated. Changes in the claims payable amounts were as follows: The General Fund has been used in the prior years to liquidate the liability for claims and judgments. Each risk pool is governed by a board consisting of representatives from member municipalities. The board controls the operations of each risk pool, including selection of management and approval of operating budgets, independent of any influence by member municipalities beyond their representation on the Board. Audited financial information for each risk pool may be obtained from Bickmore at 1750 Creekside Oaks Dr., Ste. 200, Sacramento, California 95833. Year Ended Year Ended June 30, 2023 June 30, 2022 Claims payable, beginning of year 194,533$ 39,849$ Fiscal year claims and changes in estimates 326,723 Claims payments (63,188) (172,039) Claims payable, end of year 131,345$ 194,533$ CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 78 NOTE 8 – RETIREMENT PLANS Defined Benefit Pension Plan Plan Description – All CalPERS qualified employees are eligible to participate in the City’s Miscellaneous Employee Pension Plan (the Plan), a cost-sharing multiple-employer defined benefit pension plan administered by the California Public Employees’ Retirement System (CalPERS). CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by State statute and City ordinance. 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 or copies of these reports may be obtained from its Executive Office located at 400 P Street, Sacramento, California 95811. 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 55. All members are eligible for non-duty disability benefits after 10 years of service. Death benefits include the 1959 Survivor Benefit and the Optional Settlement 2 Death Benefit. The cost-of- living adjustments for the Plan are applied as specified by the Public Employee’s Retirement Law. The Plan’s provisions and benefits in effect at June 30, 2023, are summarized as follows: Employees Covered – At June 30, 2023, the following employees were covered by the benefit terms for the Plan: Contributions – Section 20814(c) of California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers are determined on an annual basis by an actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Miscellaneous Tier 1 Tier 1 PEPRA Benefit formula 2.5 % @ 55 2% @ 60 2 % @ 62 Benefit vesting schedule 5 Years 5 Years 5 Years Benefit payments Monthly for Life Monthly for Life Monthly for Life Retirement age 55 60 62 Monthly ben. As a % of eligible comp. 2.00% 2.00% 2.00% Required employee contribution rates 7.00% 7.00% 7.25% Required employer contribution rates 11.60% 9.30% 7.73% Miscellaneous Active 60 Transferred 40 Separated 36 Retired 122 Total 258 CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 79 NOTE 8 – RETIREMENT PLANS (Continued) For the fiscal year ended June 30, 2023, the employer contributions, recognized as part of pension expense for the Plan were as follows: Miscellaneous Contributions – employer 2,385,075 Contributions – employee 727,697 Total 3,112,772 Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions - As of June 30, 2023, the City reported net pension liabilities for its proportionate share of the net pension liability of the Plan as follows: The City’s net pension liability for the Plan is measured as the proportionate share of the Plan’s net pension liability. The net pension liability of the Plan is measured at June 30, 2022, and the total pension liability for the plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2021 rolled forward to June 30, 2022 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of the contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The City’s proportionate share of the net pension liability for the Plan as of June 30, 2022 and 2023 was as follows: For the fiscal year ended June 30, 2023, the City recognized a credit to pension expense of $1,756,965. At June 30, 2023, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Proportionate Share of Net Pension Liability/(Asset) Miscellaneous 9,982,329$ Proportion - June 30, 2021 0.01345% Proportion - June 30, 2022 0.08642% Change - Increase/(Decrease) 0.07297% Deferred Deferred Outflows of Inflows of Resources Resources Changes of Assumptions 1,022,898$ -$ Differences between Expected and Actual Experience 200,465 (134,263) Differences between Projected and Actual Investment Earnings 1,828,498 Differences between Employer's Contributions and Proportionate Share of Contributions (1,283,844) Change in Employer's Proportion 2,724,234 Pension Contributions Made Subsequent to Measurement Date 1,428,617 Total 7,204,712$ (1,418,107)$ CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 80 NOTE 8 – RETIREMENT PLANS (Continued) The City reported $1,428,617 as deferred outflows of resources related to contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the fiscal year ended June 30, 2024. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Actuarial Assumptions – The total pension liabilities in the June 30, 2021 actuarial valuations were determined using the following actuarial assumptions: The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2021 valuation were based on the results of a January 2014 Actuarial Experience Study for the period 1997 to 2011. Further details of the Experience Study can be found on the CalPERS’ website. Deferred Outflows/ Fiscal Year (Inflows) of Ending June 30:Resources 2024 1,146,800$ 2025 1,304,443 2026 788,374 2027 1,118,371 2028 Total 4,357,988$ Valuation Date June 30, 2021 Measurement Date June 30, 2022 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 6.90% Inflation 2.30% Payroll Growth 2.75% Projected Salary Increase (1) Investment Rate of Return 6.90% (2) Mortality (3) (1)Varies by entry age and service (2)Net pension plan investment expenses, including inflation (3) Derived using CalPERS' membership data for all funds CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 81 NOTE 8 – RETIREMENT PLANS (Continued) Discount Rate – The discount rate used to measure the total pension liability was 6.90 percent for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans ran out of assets. Therefore, the current 6.90 percent discount rate is adequate, and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 6.90 percent will be applied to all plans in the Public Employees’ Retirement Fund (PERF). The stress test results are presented in the detailed report called “GASB Crossover Testing Report” that can be obtained from the CalPERS’ website. According to Paragraph 30 of GASB Statement No. 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 6.90 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. Using this lower discount rate has resulted in a slightly higher Total Pension Liability and Net Pension Liability. CalPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. 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 Asset Class Allocation Years 1 - 10(a) (b) Global Equity - cap-weighted 30.00% 4.45% Global Equity - non-cap-weighted 12.00% 3.84% Private Equity 13.00% 7.28% Treasury 5.00% 0.27% Mortgage-backed Securities 5.00% 0.50% Investment Grade Corporates 10.00% 1.56% High Yield 5.00% 2.27% Emerging Market Debt 5.00% 2.48% Private Debt 5.00% 3.57% Real Assets 15.00% 3.21% Leverage -5.00% -0.59% Total 100.00% (a) An expected inflation of 2.0% used for this period. (b) Figures are based on the 2021-22 Asset Liability Management study. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 82 NOTE 8 – RETIREMENT PLANS (Continued) Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate – The following presents the City’s proportionate share of the net pension liability for the Plan, calculated using the discount rate for the Plan, as well as what the City’s proportionate share of the 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: Pension Plan Fiduciary Net Position – Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS’ financial reports. NOTE 9 – NET POSITION A.Net Investment in Capital Assets As of June 30, 2023, the net investment in capital assets consisted of the following: NOTE 10 – JOINT POWERS AGREEMENTS The City is a member of several Joint Power Agreements, as follows: The Santa Clara County Valley Transportation Authority (VTA) consists of various cities in the San Francisco Bay area. The Transportation Authority was formed in 1985, by a joint exercise of powers agreement between the County of Santa Clara and the cities of Santa Clara County for the purpose of financing highway capital improvements within the County to serve transportation needs. Financial statements may be obtained from the Traffic Authority at 1754 Technology Drive, Suite 224, San Jose, California 95110. The West Valley Solid Waste Management Joint Powers Authority consists of the West Valley cities of Campbell, Los Gatos, Monte Sereno, and Saratoga. The JPA was formed to coordinate efforts in carrying out solid waste collection and disposal activities, and in meeting the mandates of AB939, the States’ Integrated Waste Management Act. Miscellaneous 1% Decrease 5.90% Net Pension Liability 18,659,908$ Current 6.90% Net Pension Liability 9,982,329$ 1% Increase 7.90% Net Pension Liability 2,842,836$ Capital assets, net 123,530,396$ 2011 general obligation library bonds (6,385,000) Net original issue premium (197,034) Net investment in capital assets 116,948,362$ CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 83 NOTE 10 – JOINT POWERS AGREEMENTS (Continued) The Silicon Valley Regional Interoperability Authority (SVRIA) consists of Silicon Valley agencies formed to coordinate the design and implementation of an interoperable public safety communication system. The Santa Clara County Library System JPA consists of various member agencies as a policy making and governing body of the County’s library system. The Silicon Valley Clean Energy Authority (SVCEA) consists of various Silicon Valley agencies formed to address climate change by reducing energy related greenhouse gas emissions and securing energy supply and price stability, energy efficiencies and local economic benefits. The West Valley Clean Water Program consists of the Cities of Campbell, Monte Sereno, Saratoga and the Town of Los Gatos, and works to control discharge of polluted stormwater into local creeks and the San Francisco Bay. These JPA's are governed by boards consisting of representatives from their members. The boards control the operations of each JPA, including selection of management and approval of operating budgets, independent of any influence by its members beyond their representation on the board. NOTE 11 – COMMITMENTS AND CONTINGENCIES A.Lawsuits The City is presently involved in certain matters of litigation that have arisen in the normal course of conducting City business. City management believes, based upon consultation with the City Attorney, that these cases, in the aggregate, are not expected to result in a material adverse financial impact on the City. Additionally, City management believes that the City's insurance programs are sufficient to cover any potential losses should an unfavorable outcome materialize. B.Federal and State Grants Programs The City participates in Federal and State grant programs. In qualifying years, these programs are audited by the City's independent accountants in accordance with the provisions of the Federal Single Audit Act Amendments of 1996 and applicable State requirements. For Federal programs, the City did not reach the level of qualifying cost during the current fiscal year, so no single audit was required. Expenditures which may be disallowed, if any, by the granting agencies, cannot be determined at this time. The City expects such amounts, if any, to be immaterial. C.Commitments The City had outstanding contracts or planned construction projects as of June 30, 2023 totaling $1,270,549 million with an original contract amount of $1,476,963. The entire total of the outstanding commitments are reported within the Capital Projects Fund when expenditures are incurred. In the opinion of City management, there were no additional outstanding matters that would have a significant effect on the financial position of the funds of the City as of June 30, 2023. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 84 NOTE 12 – FUND BALANCES GASB Statement No. 54 requires governmental funds to report fund balance in classifications based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the funds can be spent. As of June 30, 2023, fund balances for governmental funds are made up of the following: Nonspendable – amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted – amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. Committed – amounts that can be used only for specific purposes determined by a formal action of the governing board in the highest level of decision-making authority for the City. Commitments may be established, modified, or rescinded only through resolutions approved by the governing board. Assigned – amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Under the City’s adopted policy, only the City Manager may assign amounts for specific purposes. Unassigned – all other spendable amounts. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the City considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the City considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board (or City Manager for assignments) has provided otherwise in its commitment or assignment actions. The governing board adopted a minimum fund balance policy for the General Fund in order to establish, dedicate, and maintain reserves annually to meet known and estimated future obligations. Council policy is to maintain a minimum of $500,000 in unassigned funds as a buffer for unplanned expenditures or revenue shortfalls during the fiscal year. The General Fund is the only fund that reports a positive unassigned fund balance. Other governmental funds may report unassigned fund balance only when liabilities exceed assets resulting in a negative unassigned fund balance. CITY OF SARATOGA NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 85 NOTE 12 – FUND BALANCES A detailed schedule of fund balances as of June 30, 2023 is presented below. Special Revenue Capital Project Nonmajor Total Fund Fund Governmental Governmental General ARPA/SLFRF Capital Improvement Funds Funds Restricted for: Debt service -$ -$ -$910,655$ 910,655$ Community development 1,101,842 1,101,842 Streets and roads 6,473,436 200,884 6,674,320 District Assessments 1,001,132 1,001,132 Total restricted fund balances 6,473,436 3,214,513 9,687,949 Committed to: Hillside stability 1,000,000 1,000,000 Capital projects 6,324,226 6,324,226 Total committed fund balances 1,000,000 6,324,226 7,324,226 Assigned to: Facility replacement 3,700,000 3,700,000 Future capital & efficiency 3,609,000 3,609,000 Total assigned fund balances 7,309,000 7,309,000 Unassigned 6,853,804 (229,408) 6,624,396 Total unassigned fund balances 6,853,804 (229,408) 6,624,396 Total fund balances 15,162,804$ 6,473,436$ 6,324,226$ 2,985,105$ 30,945,571$ 86 THIS PAGE INTENTIONALLY LEFT BLANK 87 REQUIRED SUPPLEMENTARY INFORMATION 88 THIS PAGE INTENTIONALLY LEFT BLANK Variance with Final Budget Actual Positive Original Final Amounts (Negative) Revenues Property Taxes 17,841,400$ 17,541,400$ 17,694,182$ 152,782$ Sales and Use Taxes 1,324,200 1,324,200 1,381,033 56,833 Business License Taxes 165,500 165,500 170,411 4,911 Transient Occupancy Tax 396,900 396,900 431,270 34,370 Other Taxes 3,098,000 3,098,000 3,366,868 268,868 Licenses and Permits 149,400 149,400 205,345 55,945 Fines and Forfeitures 77,000 77,000 59,995 (17,005) Interest 382,100 382,100 673,332 291,232 Charges for Services 3,482,352 2,907,352 3,908,383 1,001,031 Intergovernmental 741,115 741,115 1,043,439 302,324 Other 259,570 259,570 208,448 (51,122) Total Revenues 27,917,537 27,042,537 29,142,706 2,100,169 Expenditures Current: General Government 6,247,652 6,247,652 6,491,844 (244,192) Public Safety 7,828,887 7,828,887 7,724,675 104,212 Public Works 7,880,730 7,783,498 7,285,579 497,919 Community Services 1,172,416 1,172,416 1,003,162 169,254 Community Development 3,349,479 3,349,479 3,066,941 282,538 Total Expenditures 26,479,164 26,381,932 25,572,201 809,731 Excess (Deficiency) of Revenues Over (Under) Expenditures 1,438,373 660,605 3,570,505 2,909,900 Other Financing Sources (uses): Use of money and property 69,300 69,300 70,849 1,549 Transfers Out (3,889,000) (3,889,000) (3,889,000) Total Other Financing Sources (Uses) (3,819,700) (3,819,700) (3,818,151) 1,549 Net Change in Fund Balance (2,381,327) (3,159,095) (247,646) 2,911,449 Fund Balance - July 1, 2022 15,410,450 15,410,450 15,410,450 Fund Balance - June 30, 2023 13,029,123$ 12,251,355$ 15,162,804$ 2,911,449$ FOR THE FISCAL YEAR ENDED JUNE 30, 2023 Budgeted Amounts CITY OF SARATOGA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL GENERAL FUND See Notes to Required Supplementary Information 89 Variance with Final Budget Original Final Actual Positive (Negative) Expenditures Current: Public Works 7,127,589$ 7,127,589$ 654,153$ 6,473,436$ Total Expenditures 7,127,589 7,127,589 654,153 6,473,436 Net Change in Fund Balance (7,127,589) (7,127,589) (654,153) 6,473,436 Fund Balance - July 1, 2022 7,127,589 7,127,589 7,127,589 Fund Balance - June 30, 2023 -$ -$ 6,473,436$ 6,473,436$ See Notes to Required Supplementary Information FOR THE FISCAL YEAR ENDED JUNE 30, 2023 Budgeted Amounts CITY OF SARATOGA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL ARPA/SLFRF SPECIAL REVENUE FUND 90 91 CITY OF SARATOGA REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2023 Cost Sharing Defined Benefit Pension Plan – City Miscellaneous Plan As of June 30, 2023 Schedule of the City’s Miscellaneous Plan Proportionate Share of the Net Pension Liability – Last 10 Years* Notes to Schedule Change in Benefit Terms: The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2014 as they have minimal cost impact. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a Golden Handshakes). Change in Assumptions: In 2017, the accounting discount rate was reduced from 7.65 percent to 7.15 percent. In 2023, the accounting discount rate was reduced from 7.15 percent to 6.90 percent. *Fiscal year 2015 was the 1st year of implementation, therefore only nine years are shown. Miscellaneous Plan Fiscal Year Ended 2020 2021 2022 2023 Proportion of Net Pension Liability (Safety and Misc) 0.07431% 0.07540% 0.01345% 0.08642% Proportionate Share of Net Pension Liability 7,614,972$ 8,204,013$ 727,447$ 9,982,329$ Covered Payroll 6,156,572$ 6,590,150$ 6,568,081$ 7,196,642$ Proportionate Share of NPL as a % of Covered Payroll 123.69% 124.49% 11.08% 138.71% Plan's Fiduciary Net Position as a % of the TPL 85.36% 85.12% 98.76% 76.68% Fiscal Year Ended 2015 2016 2017 2018 2019 Proportion of Net Pension Liability (Safety and Misc) 0.11163% 0.06216% 0.07322% 0.07620% 0.07510% Proportion of Net Pension Liability (Misc Plan Only) 0.28104% 0.1551% 0.18238% 0.19170% 0.19202% Proportionate Share of Net Pension Liability 6,945,916$ 4,226,268$ 6,335,606$ 7,556,748$ 7,236,672$ Covered Payroll 4,714,858$ 4,856,304$ 6,335,330$ 5,908,831$ 5,692,653$ Proportionate Share of NPL as a % of Covered Payroll 147.32% 87.03% 100.00% 127.89% 127.12% Plan's Fiduciary Net Position as a % of the TPL 81.15% 90.52% 85.60% 84.66% 85.34% 92 CITY OF SARATOGA REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2023 Cost Sharing Defined Benefit Pension Plan – Miscellaneous Plan As of June 30, 2022 Schedule of Pension Contributions – Last 10 Years* *Fiscal year 2015 was the 1st year of implementation, therefore only nine years are shown. Miscellaneous Plan Fiscal Year Ended 2020 2021 2022 2023 Contractually Required Contributions 1,701,847$ 1,733,461$ 1,756,965$ 1,428,617$ Contributions in Relation to Contractually Required Contributions 1,701,847 1,733,461 1,756,965 1,428,617 Contribution Deficiency (Excess)-$ -$ -$ -$ Covered Payroll 6,590,150$ 6,568,081$ 6,951,928$ 7,196,642$ Contributions as a % of Covered Payroll 25.82% 26.39% 25.27% 19.85% Fiscal Year Ended 2015 2016 2017 2018 2019 Contractually Required Contributions 4,203,599$ 1,109,589$ 1,016,197$ 1,289,450$ 1,637,179$ Contributions in Relation to Contractually Required Contributions 4,203,599 1,109,589 1,016,197 1,289,450 1,637,179 Contribution Deficiency (Excess)-$ -$ -$ -$ -$ Covered Payroll 4,856,304$ 6,335,330$ 5,908,831$ 5,692,653$ 6,156,572$ Contributions as a % of Covered Payroll 86.56% 17.51% 17.20% 22.65% 26.59% Notes to Schedule: Valuation Date: June 30, 2021 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 2.30% Investment Rate of Returns set at 6.90% CalPERS mortality table based on CalPERS' experience and includes 15 years of projected ongoing mortality improvement using 90 percent of Scale MP 2016 published by the Society of Actuaries. 93 CITY OF SARATOGA NOTE TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2023 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Budgetary Data Through the budget, the City Council sets the direction of the City, allocates its resources and establishes its priorities. The Annual Budget assures the efficient and effective uses of the City’s economic resources, as well as establishes that the highest priority objectives are accomplished. The Annual Budget serves from July 1 to June 30, and is a vehicle that accurately and openly communicates these priorities to the community, businesses, vendors, employees and other public agencies. Additionally, it establishes the foundation of effective financial planning by providing resource planning, performance measures, and controls that permit the evaluation and adjustment of the City’s performance. The City adopts an annual budget for the capital projects as part of adopting the five-year Capital Improvement Plan. The annual capital budget is adopted on a project-by-project basis. The Governmental Funds include the General Fund, Special Revenue, Debt Service and Capital Projects funds. All funding sources are kept separate for both reporting and the use of money. The General Fund is where most City services are funded that are not required to be segregated. Budgets and Budgetary Accounting The City uses the following procedures in establishing the budgetary data reflected in the financial statements: 1. Prior to June 30 of each fiscal year, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following July 1 as well as a five-year capital improvement plan. The operating budget includes proposed expenditures and the means of financing them. 2.Public hearings are conducted at the City Hall to obtain citizen input. 3. Prior to July 1, the budget is adopted through passage of a resolution and is not included herein but is published separately. 4. The City Manager is authorized to transfer budgeted amounts between departments within any fund. However, any revision that increases the total appropriations of any fund must be approved by the City Council. The appropriated budget is prepared by fund, function, and department. 5. As Capital Projects are adopted on a project basis, the City Council approves increases or decreases of budgeted amounts or changes in project scope. Upon project completion, immaterial amounts are transferred to ongoing maintenance projects within the capital program. If remaining project funds are material, the project balance is brought back to Council for approval to transfer. 6. Formal budgetary integration is employed as a management control device during the year for all funds. 7. Budgets for General, Special Revenue, Debt Service, and Capital Projects Funds are adopted on a basis consistent with accounting principles generally accepted in the United States of America. 94 CITY OF SARATOGA NOTE TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2023 MODIFIED APPROACH FOR CITY STREETS INFRASTRUCTURE CAPITAL ASSETS In accordance with GASB Statement No. 34, the City is required to account for and report infrastructure capital assets. The City defines infrastructure as the basic physical assets that allow the City to function, and those resources utilized primarily by the public which provide future economic benefits for a minimum of two years. Infrastructure can be defined as assets that are immovable and of value only to the government. Major infrastructure includes the street system, park and recreation lands and improvements; storm water conveyance and drainage systems, and buildings combined with site amenities such as parking and landscaping areas used by the City in the conduct of its business. Each major infrastructure system can be divided into subsystems. For example, the street system can be divided into concrete and asphalt pavements, concrete curb and gutters, sidewalks, medians, streetlights, traffic control devices (signs, signals and pavement markings), landscaping and land. Subsystem detail is not presented in these basic financial statements; however, the City maintains detailed information on these subsystems through the budget, the City Council sets the direction of the City, allocates its resources and establishes its priorities. The Annual Operating and Capital Budgets assure the efficient and effective uses of the City's economic resources, as well as establishing that the highest priority objectives are accomplished. The City has elected to use the "Modified Approach" as defined by GASB Statement No. 34 for infrastructure reporting for its Streets Pavement System. Under GASB Statement No. 34, eligible infrastructure capital assets are not required to be depreciated under the following requirements: The City manages the eligible infrastructure capital assets using an asset management system with characteristics of (1) an up-to-date inventory; (2) perform condition assessments and summarize the results using a measurement scale; and (3) estimate annual amount to maintain and preserve at the established condition assessment level. The City documents that the eligible infrastructure capital assets are being preserved approximately at or above the established and disclosed condition assessment level. The City commissioned a physical assessment of the streets conditions with the final report received February 21, 2020. The study assists the City by providing current inspection data used to evaluate current pavement condition. This helps to maintain a City-defined desirable level of pavement performance while optimizing the expenditure of limited fiscal resources. The entire pavement network within the City is composed of approximately 141.1 centerline miles of paved surfaces. The City’s road system can be grouped by function class and includes 24.2 centerline miles of arterial, 23.2 centerline miles of collector, and 93.7 miles of residential. To determine the City’s street condition, a visual survey of all pavement segments is conducted to assess the existing surface condition of each of the individual pavement segments. Upon completion of the study, a Pavement Condition Index (PCI) is calculated for each segment in the City's pavement network to reflect the overall pavement condition. Rating between 0 and 100, a PCI of 0 would correspond to a badly deteriorated pavement with virtually no remaining life. A PCI of 100 would correspond to a pavement with proper engineering design and construction at the beginning of its life cycle. 95 CITY OF SARATOGA NOTE TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2023 MODIFIED APPROACH FOR CITY STREETS INFRASTRUCTURE CAPITAL ASSETS (CONTINUED) The following conditions were defined: The City's policy is to achieve an average rating of 70 for all streets, which is a very good rating. This rating allows minor cracking and raveling of the pavement along with minor roughness that could be noticeable to drivers traveling at the posted speeds. As of May 31, 2022, the City's street system was rated at an estimated PCI index of 66 on average with the detail condition as follows: The City’s expenditures needed to maintain street infrastructure over the previous five fiscal years are as follows: The City expended $5,044,651 on street maintenance and infrastructure for the year ended June 30, 2023. These projects include resurfacing, safety improvements, sidewalks, curbs and gutters, storm drain improvements, beautification projects, and various other routine maintenance projects that help to delay deterioration and beautify the City’s roadway system. Council has established a goal that a minimum of $2,000,000 be budgeted for the CIP Streets program on an annual basis. $10,113,447 was budgeted for various street projects in the five-year CIP cycle beginning Fiscal Year 2022/23. As of April 2023, approximately 17 percent of the City's streets were rated below the average standard of “Fair.” The City will continue to rehabilitate these segments of the streets. Total deficiencies (deferred maintenance) identified in the Pavement Management System Report at the end of a five-year period (2022-2026) will amount to approximately $45,999,062 for all streets. Conditions Rating Very Good 70 -100 Good 50 - 69 Poor 25 - 49 Very Poor 0 - 24 Conditions Rating Very Good 49% Good 30% Poor 15% Very Poor 6% 2023 2022 2021 2020 2019 Street Infrastructure 5,044,651 3,893,895 4,384,022 5,005,649 6,389,281 Fiscal Year End June 30 96 THIS PAGE INTENTIONALLY LEFT BLANK 97 OTHER SUPPLEMENTARY INFORMATION 98 THIS PAGE INTENTIONALLY LEFT BLANK 99 COMBINING STATEMENTS NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. Gas Tax – This fund is used to account for revenues and expenditures pertaining to the maintenance and construction of City streets. Landscape & Lighting District - These funds are used to account for revenues and expenditures associated with maintaining the City’s landscape and lighting zones which were approved by consent of property owners living along or within the boundaries of the zone. Stormwater Maintenance District – This fund is used to account for revenues and expenditures associated with maintaining the City’s storm drain zones which were approved by consent of property owners living along or within the boundaries of the zone. Tree Fines – This fund is used to account for revenues and expenditures associated with tree fines. Park In-Lieu Fees – This fund is used to account for revenues and expenditures associated with park in-lieu fees. Storm 2023 – This fund is used to account for revenues and expenditures associated with storm damage during the year 2023. CAPITAL PROJECTS FUNDS Capital projects funds are used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds and trust funds. Grants CIP – This fund is used to account for projects funded in whole or in part by grant revenues. DEBT SERVICE FUNDS Debt service funds are used to account for the accumulation of resources and repayment of debt from governmental resources. Library GO Bond – Santa Clara County general obligation bond tax revenues are accumulated in this fund to pay annual principal and interest payments on the refunded 2011 Library Improvement Bond. Stormwater Gas L&L Maintenance Tree Park In-Lieu Storm Tax Districts Districts Fines Fees 2023 Assets Cash and Investments -$ 896,116$ 130,058$ 53,141$ 1,074,995$ 270,424$ Accounts Receivable 131,414 66 Total Assets 131,414 896,182$ 130,058$ 53,141$ 1,074,995$ 270,424$ Liabilities Accounts Payable 79,370$ 25,108$ -$ -$ 26,294$ 69,540$ Due To Other Funds 103,233 Total Liabilities 182,603 25,108 26,294 69,540 Deferred Inflows of Resources: Unavailable Grant Revenue Total Deferred Inflows of Resources Total Liabilities and Deferred Inflows of Resources 182,603 25,108 26,294 69,540 Fund Balances (Deficits) Restricted 871,074 130,058 53,141 1,048,701 200,884 Unassigned (51,189) Total Fund Balances (Deficits)(51,189) 871,074 130,058 53,141 1,048,701 200,884 Total Liabilities, Deferred Inflows and Fund Balances 131,414 896,182$ 130,058$ 53,141$ 1,074,995$ 270,424$ June 30, 2023 Special Revenue Funds CITY OF SARATOGA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS 100 Capital Projects Debt Service Fund Fund Total Nonmajor Library GO Governmental Grants CIP Bond Funds -$ 907,672$ 3,332,406$ 300,402 2,983 434,865 300,402$ 910,655$ 3,767,271$ -$ -$ 200,312$ 186,290 289,523 186,290 489,835 292,331 292,331 292,331 292,331 478,621 782,166 910,655 3,214,513 (178,219) (229,408) (178,219) 910,655 2,985,105 300,402$ 910,655$ 3,767,271$ 101 Stormwater Gas L&L Maintenance Tree Park In-Lieu Storm Tax Districts Districts Fines Fees 2023 Revenues: Interest -$ 19,700$ 2,924$ -$ -$ -$ Charges for Services 600 128,373 Intergovernmental 1,478,064 Special Assessments 491,642 10,198 Total Revenues 1,478,064 511,342 13,122 600 128,373 Expenditures: Current: Community Services 252,227 Public Works 1,776,984 492,328 8,235 899,116 Debt Service: Principal Interest and Fiscal Charges Total Expenditures 1,776,984 492,328 8,235 252,227 899,116 Excess (Deficiency) of Revenues over (Under) Expenditures (298,920) 19,014 4,887 600 (123,854) (899,116) Other Financing Sources (Uses): Transfers In 1,070,299 1,100,000 Transfers Out (1,070,299) Total Other Financing Sources (Uses)1,100,000 Net Change in Fund Balances (298,920) 19,014 4,887 600 (123,854) 200,884 Fund Balances - July 1, 2022 247,731 852,060 125,171 52,541 1,172,555 Fund Balances - June 30, 2023 (51,189)$ 871,074$ 130,058$ 53,141$ 1,048,701$ 200,884$ CITY OF SARATOGA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS For the Fiscal Year Ended June 30, 2023 Special Revenue Funds 102 Capital Projects Debt Service Fund Fund Total Nonmajor Library GO Governmental Grants CIP Bond Funds -$ 527$ 23,151$ 128,973 364,744 1,842,808 943,752 1,445,592 364,744 944,279 3,440,524 252,227 331,477 3,508,140 580,000 580,000 258,935 258,935 331,477 838,935 4,599,302 33,267 105,344 (1,158,778) 2,170,299 (1,070,299) 1,100,000 33,267 105,344 (58,778) (211,486) 805,311 3,043,883 (178,219)$ 910,655$ 2,985,105$ 103 Variance with Actual Final Budget Budget Amount Positive (Negative) Revenues: Sale and Use taxes 677,249$ 677,250$ 1$ Other Taxes 82,265 75,662 (6,603) Licenses and Permits 383,992 781,606 397,614 Charges for Services 61,636 3,041 (58,595) Intergovernmental 9,000 208,721 199,721 Total Revenues 1,214,142 1,746,280 532,137 Expenditures: Current: Public Works 8,041,784 2,743,799 5,297,985 Capital Outlay 1,751,282 1,751,282 Total Expenditures 9,793,066 4,495,081 5,297,985 Excess (Deficiency) of Revenues Over (Under) Expenditures (8,578,924) (2,748,801) 5,830,123 Other Financing Sources (Uses) Transfers In 2,789,000 2,789,000 Total Other financing Sources (Uses)2,789,000 2,789,000 Net Change in Fund Balance (5,789,924) 40,199 5,830,123 Fund Balance - July 1, 2022 6,284,027 6,284,027 Fund Balance - June 30, 2023 494,103$ 6,324,226$ 5,830,123$ See Notes to Required Supplementary Information Final CITY OF SARATOGA CAPITAL IMPROVEMENT CAPITAL PROJECTS FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2023 104 Variance with Final Actual Final Budget Budget Amount Positive (Negative) Revenues: Intergovernmental 1,594,112$ 1,478,064$ (116,048)$ Total Revenues 1,594,112 1,478,064 (116,048) Expenditures: Current: Public Works 1,843,645 1,776,984 66,661 Total Expenditures 1,843,645 1,776,984 66,661 Net Change in Fund Balance (249,533) (298,920) (49,387) Fund Balance - July 1, 2022 247,731 247,731 Fund Balance - June 30, 2023 (1,802)$ (51,189)$ (49,387)$ CITY OF SARATOGA GAS TAX SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2023 105 Variance with Final Actual Final Budget Budget Amount Positive (Negative) Revenues: Interest 1,705$19,700$ 17,995$ Special Assessments 491,836 491,642 (194) Total Revenues 493,541 511,342 17,801 Expenditures: Current: Public Works 643,431 492,328 151,103 Total Expenditures 643,431 492,328 151,103 Net Change in Fund Balance (149,890) 19,014 168,904 Fund Balance - July 1, 2022 852,060 852,060 Fund Balance - June 30, 2023 702,170$ 871,074$ 168,904$ CITY OF SARATOGA L&L DISTRICTS SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2023 106 Variance with Final Actual Final Budget Budget Amount Positive (Negative) Revenues: Interest 272$2,924$2,652$ Special Assessments 10,292 10,198 (94) Total Revenues 10,564 13,122 2,558 Expenditures: Current: Public Works 25,762 8,235 17,527 Total Expenditures 25,762 8,235 17,527 Net Change in Fund Balance (15,198) 4,887 20,085 Fund Balance - July 1, 2022 125,171 125,171 Fund Balance - June 30, 2023 109,973$ 130,058$ 20,085$ CITY OF SARATOGA STORMWATER MAINTENANCE DISTRICTS SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2023 107 Variance with Final Actual Final Budget Budget Amount Positive (Negative) Revenues: Charges for Services -$ 600$ 600$ Total Revenues 600 600 Expenditures: Current: Public Works 9,180 9,180 Total Expenditures 9,180 9,180 Net Change in Fund Balance (9,180) 600 9,780 Fund Balance - July 1, 2022 52,541 52,541 Fund Balance - June 30, 2023 43,361$ 53,141$ 9,780$ CITY OF SARATOGA TREE FINES SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2023 108 Variance with Final Actual Final Budget Budget Amount Positive (Negative) Revenues: Charges For Services -$ 128,373$ 128,373$ Total Revenues 128,373 128,373 Expenditures: Community Services 1,272,557 252,227 1,020,330 Total Expenditures 1,272,557 252,227 1,020,330 Excess (Deficiency) of Revenues Over (Under) Expenditures (1,272,557) (123,854) 1,148,703 Other Financing Sources (Uses): Transfers In 1,070,299 1,070,299 Transfers Out (1,070,299) (1,070,299) Total Other Financing Sources (Uses) Net Change in Fund Balance (1,272,557) (123,854) 1,148,703 Fund Balance - July 1, 2022 1,172,555 1,172,555 Fund Balance - June 30, 2023 (100,002)$ 1,048,701$ 1,148,703$ CITY OF SARATOGA PARK IN-LIEU FEES SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2023 109 Variance with Final Final Budget Budget Actual Positive (Negative) Expenditures: Current: Public Works 1,550,000$ 899,116$ 650,884$ Total Expenditures 1,550,000 899,116 650,884 Other Financing Sources (Uses): Transfers In 1,100,000 1,100,000 Total Other Financing Sources (Uses)1,100,000 1,100,000 Net Change in Fund Balance (450,000) 200,884 650,884 Fund Balance - July 1, 2022 Fund Balance - June 30, 2023 (450,000)$ 200,884$ 650,884$ CITY OF SARATOGA STORM 2023 SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2023 110 Variance with Final Actual Final Budget Budget Amount Positive (Negative) Revenues: Intergovernmental 2,435,460$ 364,744$ (2,070,716)$ Total Revenues 2,435,460 364,744 (2,070,716) Expenditures: Current: Public Works 2,305,205 331,477 1,973,728 Total Expenditures 2,305,205 331,477 1,973,728 Net Change in Fund Balance 130,255 33,267 (96,988) Fund Balance - July 1, 2022 (211,486) (211,486) Fund Balance - June 30, 2023 (81,231)$ (178,219)$ (96,988)$ CITY OF SARATOGA GRANT CIP SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2023 111 Variance with Final Actual Final Budget Budget Amount Positive (Negative) Revenues: Interest 750$ 527$ (223)$ Special Assessments 800,000 943,752 143,752 Total Revenues 800,750 944,279 143,529 Expenditures: Debt Service: Principal 565,000 580,000 (15,000) Interest and Fiscal Charges 280,260 258,935 21,325 Total Expenditures 845,260 838,935 6,325 Net Change in Fund Balance (44,510) 105,344 149,854 Fund Balance - July 1, 2022 805,311 805,311 Fund Balance - June 30, 2023 760,801$ 910,655$ 149,854$ CITY OF SARATOGA LIBRARY GO BOND DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2023 112 113 INTERNAL SERVICE FUNDS Internal service funds are used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City on a cost reimbursement basis. Liability/Risk Management Insurance - Accounts for insurance premiums, self-insurance portion of claims, and administrative cost associated with settling claims. Charges made to operating departments are based on liability risk and claim occurrence history. Workers’ Compensation - Accounts for insurance premiums, self-insured portion of claims, and administrative costs associated with settling claims. Charges made to operating departments are based on liability risk and claim occurrence history. Office Support - Photocopy equipment, postage and bulk mail meter expenses are controlled at one source point and expended to the departments as goods or services are utilized. Information Technology Services - Supports the delivery of technology-based services and infrastructure, including desktop support, network systems, technology upgrades and initiatives, community systems, and associated information technology equipment. Vehicle & Equipment Maintenance Fund - Accounts for the cost of operating and maintaining automotive equipment used for service operations in various City departments. Building Maintenance - Accounts for operating costs associated with building maintenance. Expenses include custodial supplies and services, maintenance and repair, utilities, and staffing costs. Vehicle & Equipment Replacement Fund - Established to accumulate funding for the replacement of vehicles and equipment. Replacement costs are charged to program over the asset’s life span, reflective of usage. Information Technology Equipment Replacement - Established to accumulate funding for the replacement of information technology equipment. Replacement costs are charged to departments over the asset’s lifespan, reflective of usage. Facility Furniture, Fixtures, & Equipment Replacement Fund - Established to accumulate funding for the replacement furniture, fixtures and equipment within city facilities. Replacement costs are charged to programs based on that program’s share of asset use over the asset’s lifespan, reflective of usage. Risk Worker's Office IT Management Compensation Support Services Assets Current Assets: Cash and Investments 814,767$ 224,154$ 165,310$ 732,662$ Accounts Receivable 5,325 3,043 921 Total Current Assets 820,092 227,197 165,310 733,583 Noncurrent Assets: Capital Assets: Machinery and Equipment Less: Accumulated Depreciation Total Noncurrent Assets Total Assets 820,092 227,197 165,310 733,583 Liabilities Current Liabilities: Accounts Payable 42,751 891 3,097 8,494 Due to Other Funds Accrued Liabilities 2,788 1,438 14,398 Claims Payable 131,346 Total Current Liabilities 176,885 2,329 3,097 22,892 Total Liabilities 176,885 2,329 3,097 22,892 Net Position Net Investment in Capital Assets Unrestricted 643,207 224,868 162,213 710,691 Total Net Position 643,207$ 224,868$ 162,213$ 710,691$ CITY OF SARATOGA INTERNAL SERVICE FUNDS COMBINING STATEMENT OF NET POSITION June 30, 2023 114 Total Vehicle and Vehicle and IT Furniture and Internal Equipment Building Equipment Equipment Fixtures Maintenance Maintenance Replacement Replacement Replacement 278,031$ 746,170$ 773,157$ 916,041$ 855,962$ 5,506,254$ 9,289 278,031 746,170 773,157 916,041 855,962 5,515,543 1,811,159 110,465 298,496 2,220,120 (1,630,307) (110,465) (162,507) (1,903,279) 180,852 135,989 316,841 278,031 746,170 954,009 916,041 991,951 5,832,384 5,914 32,325 18,174 7,476 119,122 3,729 21,444 43,797 131,346 9,643 53,769 18,174 7,476 294,265 9,643 53,769 18,174 7,476 294,265 180,852 135,989 316,841 268,388 692,401 754,983 908,565 855,962 5,221,278 268,388$ 692,401$ 935,835$ 908,565$ 991,951$ 5,538,119$ Service Funds 115 Risk Worker's Office IT Management Compensation Support Services Operating Revenues Charges for Services 745,264$ 248,421$ 46,559$ 794,948$ Other 124,528 7,348 8,847 Total Operating Revenues 869,792 255,769 46,559 803,795 Operating Expenses Cost of Services 867,987 263,729 39,789 754,263 Depreciation Total Operating Expenses 867,987 263,729 39,789 754,263 Operating Income (Loss)1,805 (7,960) 6,770 49,532 Changes in Net Position 1,805 (7,960) 6,770 49,532 Net Position - Beginning of Fiscal Year 641,402 232,828 155,443 661,159 Net Position - End of Fiscal Year 643,207$ 224,868$ 162,213$ 710,691$ INTERNAL SERVICE FUNDS COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE FISCAL YEAR ENDED JUNE 30, 2023 CITY OF SARATOGA 116 Total Vehicle and Vehicle and IT Furniture and Internal Equipment Building Equipment Equipment Fixtures Maintenance Maintenance Replacement Replacement Replacement 273,263$ 916,476$ 149,053$ 149,053$ 198,737$ 3,521,774$ 2,786 143,509 273,263 919,262 149,053 149,053 198,737 3,665,283 283,192 991,162 3 38,825 96,427 3,335,377 118,432 51,759 170,191 283,192 991,162 118,435 38,825 148,186 3,505,568 (9,929) (71,900) 30,618 110,228 50,551 159,715 (9,929) (71,900) 30,618 110,228 50,551 159,715 278,317 764,301 905,217 798,337 941,400 5,378,404 268,388$ 692,401$ 935,835$ 908,565$ 991,951$ 5,538,119$ Service Funds 117 Risk Worker's Office IT Management Compensation Support Services CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Users 879,464$ 256,216$ 46,559$ 803,564$ Cash Payments to Suppliers and Contractors (847,529) (229,948) (38,537) (397,465) Cash Payments to Employees (62,619) (33,953) (353,490) Net Cash Provided (Used) By Operating Activities (30,684) (7,685) 8,022 52,609 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (30,684) (7,685) 8,022 52,609 CASH AND CASH EQUIVALENTS, BEGINNING OF FISCAL YEAR 845,451 231,839 157,288 680,053 CASH AND CASH EQUIVALENTS, END OF FISCAL YEAR 814,767$ 224,154$ 165,310$ 732,662$ Reconciliation to Statement of Net Position: Cash and Cash Equivalents 814,767$ 224,154$ 165,310$ 732,662$ CASH FLOWS FROM OPERATING ACTIVITIES: Operating Income (Loss)1,805$ (7,960)$ 6,770$ 49,532$ Adjustment to Reconcile Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities: Depreciation Expense Changes in Assets and Liabilities: (Increase) Decrease in Accounts Receivable 9,672 447 (231) Increase (Decrease) in Accounts Payable 20,554 (374) 1,252 1,370 Increase (Decrease) in Accrued Liabilities 472 202 1,938 Increase (Decrease) in Claims Payable (63,187) Total Adjustments (32,489) 275 1,252 3,077 Net Cash Provided (Used) By Operating Activities (30,684)$ (7,685)$ 8,022$ 52,609$ FOR THE FISCAL YEAR ENDED JUNE 30, 2023 CITY OF HUGHSON INTERNAL SERVICE FUNDS COMBINING STATEMENT OF CASH FLOWS 118 Total Vehicle and Vehicle and IT Furniture and Internal Equipment Building Equipment Equipment Fixtures Maintenance Maintenance Replacement Replacement Replacement 273,263$ 919,262$ 149,053$ 149,053$ 198,737$ 3,675,171$ (212,985) (647,184) (86,470) (112,481) (2,572,599) (75,040) (331,316) (856,418) (14,762) (59,238) 149,053 62,583 86,256 148,839 (14,762) (59,238) 149,053 62,583 86,256 246,154 292,793 805,408 624,104 853,458 769,706 5,260,100 278,031$ 746,170$ 773,157$ 916,041$ 855,962$ 5,506,254$ 278,031$ 746,170$ 773,157$ 916,041$ 855,962$ 5,506,254$ (9,929)$ (71,900)$ 30,618$ 110,228$ 50,551$ 159,715$ 118,432 51,759 170,191 9,888 (4,496) 3,073 3 (47,645) (16,054) (42,317) 813 9,589 13,014 (1,150) (64,337) (4,833) 12,662 118,435 (47,645) 35,705 86,439 (14,762)$ (59,238)$ 149,053$ 62,583$ 86,256$ 246,154$ Service Funds 119 120 THIS PAGE INTENTIONALLY LEFT BLANK 121 CUSTODIAL FUNDS Fiduciary funds are used to account for the receipt and disbursement of various taxes, deposits, deductions, and property collected by the City, acting in the capacity of an agent for distribution to other governmental units or other organizations. Custodial Funds WVCWP Agency – The West Valley Clean Water Program consists of the Cities of Campbell, Monte Sereno, Saratoga and the Town of Los Gatos, and works to control discharge of polluted stormwater into local creeks and the San Francisco Bay. Arrowhead CFD – This fund accounts for the activities of the Saratoga Community Facilities District 2016-1 (Arrowhead Project) Special Tax Bonds, Series 2018. West Valley Clean Water Arrowhead Program CFD Total ASSETS Cash and investments 718,000$ 105,677$ 823,677$ Cash and investments with fiscal agent 83,551 83,551 Accounts receivable 900 900 Right to use asset, net of accumulated amortization 97,193 97,193 Total Assets 815,193 190,128 1,005,321 LIABILITIES Accounts payable 55,108 55,108 Accrued liabilities 8,968 8,968 Long-term debt, due within one year 20,407 24,787 45,194 Long-term debt, due in more than one year 78,787 1,452,427 1,531,214 Total Liabilities 163,270 1,477,214 1,640,484 NET POSITION Held in trust for others 651,923 (1,287,086) (635,163) Total Net Position 651,923$ (1,287,086)$ (635,163)$ CITY OF SARATOGA CUSTODIAL FUNDS COMBINING STATEMENT OF FIDUCIARY NET POSITION June 30, 2023 122 West Valley Clean Water Arrowhead Program CFD Total Additions: Assessments 766,851$ 113,831$ 880,682$ Charges for services 280,337 280,337 Interest 13,999 13,999 Other 73,931 73,931 Total additions 1,061,187 187,762 1,248,949 Deductions: Community Development 942,309 942,309 Amortization 20,863 20,863 Interest Expense 4,747 98,662 103,409 Total deductions 967,919 98,662 1,066,581 Change in net position 93,268 89,100 182,368 Net Position - July 1, 2022 558,655 124,402 683,057 Prior period adjustment (1,500,588) (1,500,588) Net Position, July 1, 2022, Restated 558,655 (1,376,186) (817,531) Net Position - June 30, 2023 651,923$ (1,287,086)$ (635,163)$ CITY OF SARATOGA CUSTODIAL FUNDS COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION For the Fiscal Year Ended June 30, 2023 123 124 THIS PAGE INTENTIONALLY LEFT BLANK 125 STATISTICAL SECTION 126 THIS PAGE INTENTIONALLY LEFT BLANK City of Saratoga Net Position by Component Last Ten Years (accrual basis of accounting) (amounts expressed in thousands) 2023 2022 2021 2020 Primary government Governmental activities Net investment in capital assets 116,948$ 117,017$ 117,671$ 117,086$ Restricted 9,688 8,910 1,727 1,689 Unrestricted 21,507 26,521 17,091 16,572 Total primary government 148,143$ 152,448$ 136,489$ 135,347$ Source: ACFR Fiscal Year $100,000 $110,000 $120,000 $130,000 $140,000 $150,000 $160,000 2023 2022 2021 2020 2,019 2018 2017 2016 2015 2014 Net Position by Component Net investment in capital assets Restricted Unrestricted 127 2019 2018 2017 2016 2015 2014 115,250$ 113,053$ 111,241$ 112,030$ 112,092$ 112,116$ 2,718 2,596 2,375 2,242 2,138 2,045 15,825 13,693 13,438 13,837 6,691 15,095 133,793$ 129,342$ 127,054$ 128,109$ 120,921$ 129,256$ Fiscal Year 128 City of Saratoga Changes in Net Position Last Ten Years (accrual basis of accounting) (amounts expressed in thousands) 2023 2022 2021 2020 Expenses: Governmental activities: General and intergovernmental services 9,264$ 4,381$ 7,287$ 7,071$ Public safety 7,725 7,197 6,735 6,355 Public works 15,854 9,309 12,530 11,340 Community services 1,357 532 966 865 Community development services 4,693 1,881 3,263 2,727 Interest on long-term debt (unallocated)248 274 289 308 Total governmental activities expenses 39,141 23,575 31,070 28,666 Program revenues: Charges for services: General and intergovernmental services 95 58 80 57 Public safety 420 573 330 340 Public works 884 3,280 2,404 2,056 Community services 356 282 136 240 Community development services 2,287 2,306 2,396 1,906 Operating grants and contributions 3,178 7,381 564 72 Capital grants and contributions 208 335 1,091 1,595 Total governmental activates program revenues 7,428 14,215 7,001 6,266 Net (expense) revenue and change in net position (31,713) (9,360) (24,069) (22,400) General revenue and other changes in net assets Taxes: Property taxes 17,694 17,428 16,294 16,056 Sales taxes 2,058 1,394 926 1,056 Local taxes 1,589 1,055 869 807 Franchise taxes 3,443 2,497 2,338 2,605 Motor vehicle in-lieu - - 25 Total Taxes 24,784 22,374 20,427 20,549 Intergovernmental 1,506 2,477 2,838 2,602 Investment earnings 696 (300)34 623 Other revenues 422 768 1,912 180 Total general revenues 27,408 25,319 25,211 23,954 Change in net position (4,305) 15,959 1,142 1,554 Net position - beginning of year 152,448 136,489 135,347 133,793 GASB 68 adjustment - - - - Net position - beginning of year, as adjusted 152,448 136,489 135,347 133,793 Net position - end of year 148,143$ 152,448$ 136,489$ 135,347$ Source: ACFR Fiscal Year 129 2019 2018 2017 2016 2015 2014 6,465$ 6,010$ 6,450$ 5,143$ 7,566$ 4,522$ 6,005 5,728 5,444 4,787 4,850 4,491 10,271 7,943 9,164 6,181 6,273 7,379 1,287 1,594 1,557 1,582 1,589 1,586 2,198 2,285 2,906 2,012 1,962 2,179 334 359 367 381 391 400 26,560 23,919 25,888 20,086 22,631 20,557 107 152 153 98 122 120 467 368 327 310 354 330 2,376 2,397 2,462 3,004 2,474 2,768 736 914 1,071 1,114 952 958 1,815 2,343 2,127 2,397 2,234 2,220 95 90 223 165 107 117 3,631 219 1,062 183 785 808 9,227 6,483 7,425 7,271 7,028 7,321 (17,333) (17,436) (18,463) (12,815) (15,603) (13,236) 15,250 14,124 12,264 11,549 10,669 9,737 1,207 1,125 1,185 1,189 1,224 941 896 960 857 898 866 822 2,290 2,166 2,171 2,069 2,070 1,949 15 16 13 12 13 14 19,658 18,391 16,490 15,717 14,842 13,463 1,223 802 589 718 1,023 981 698 319 124 101 67 62 205 212 205 273 237 305 21,784 19,724 17,408 16,809 16,169 14,811 4,451 2,288 (1,055) 3,994 566 1,575 129,342 127,054 128,109 120,921 129,256 127,681 - - - 3,193 (8,901) - 129,342 127,054 128,109 124,114 120,355 127,681 133,793$ 129,342$ 127,054$ 128,109$ 120,921$ 129,256$ Fiscal Year 130 City of Saratoga Fund Balances of Governmental Funds Last Ten Years (Modified accrual basis of accounting) (amounts expressed in thousands) 2023 2022 2021 2020 General fund: Nonspendable -$ 4$7$-$ Restricted - - 63 113 Committed 1,000 1,000 1,000 1,000 Assigned 7,309 7,229 6,518 5,845 Unassigned 6,853 7,177 7,634 7,477 Total general fund 15,162$ 15,410$ 15,222$ 14,435$ All other governmental funds: Restricted Special revenue funds 7,675$ 8,105$ 873$788$ Debt service (376) 805 791 788 Committed Capital project funds 7,196 7,545 5,764 4,717 Total all other governmental funds 14,495$ 16,455$ 7,428$ 6,293$ Source: ACFR Fiscal Year $(1,000) $- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 General - Nonspendable General - Committed General - Unassigned Special Revenue Fund Balances of Governmental Funds 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 131 2019 2018 2017 2016 2015 2014 -$ -$ -$ -$ -$ -$ 163 213 263 313 363 413 1,000 1,000 790 1,000 1,000 993 5,399 3,705 3,272 2,672 2,854 2,648 8,117 8,216 6,659 6,655 5,589 7,782 14,679$ 13,134$ 10,984$ 10,640$ 9,806$ 11,836$ 1,622$ 1,385$ 1,153$ 1,006$ 868$ 734$ 933 998 959 923 907 898 3,252 3,537 5,085 4,716 3,859 3,126 5,807$ 5,920$ 7,197$ 6,645$ 5,634$ 4,758$ Fiscal Year 132 City of Saratoga Governmental Activities Tax Revenues by Source Last Ten Years (accrual basis of accounting) (amounts expressed in thousands) 2023 2022 2021 2020 Tax revenues: Property taxes 17,694$ 17,428$ 16,294$ 15,356$ Special assessments 1,446 - 1,332 1,174 Sales taxes 2,058 1,394 926 1,057 Local taxes 1,589 1,055 869 807 Franchise taxes 3,443 2,497 2,338 2,605 Motor vehicle in-lieu - - - 25 Total tax revenues 26,230$ 22,374$ 21,759$ 21,024$ Source: ACFR Fiscal Year $- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 Property taxes Special assessments Sales taxes Local taxes Franchise taxes Motor vehicle in-lieu Tax Revenues by Source 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 133 2019 2018 2017 2016 2015 2014 14,475$ 13,247$ 12,264$ 11,549$ 10,669$ 9,737$ 1,205 1,333 1,270 1,222 1,220 1,207$ 1,207 1,125 1,185 1,189 1,224 941$ 881 960 857 898 866 822$ 2,290 2,166 2,171 2,068 2,069 2,024$ 15 16 14 12 13 14$ 20,073$ 18,847$ 17,761$ 16,938$ 16,061$ 14,745$ Fiscal Year 134 City of Saratoga Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) (amounts expressed in thousands) 2023 2022 2021 2020 Revenues: Property taxes 17,694$ 17,428$ 16,294$ 15,356$ Special assessments 1,446 1,362 1,332 1,174 Sales taxes 2,058 1,394 925 1,057 Other local taxes 602 1,055 869 807 Licenses and permits 987 3,859 2,764 2,042 Fines and forfeitures 60 113 82 112 Intergovernmental - federal 224 7,251 740 1,035 Intergovernmental - state 1,950 1,933 1,879 1,819 Intergovernmental - other 920 1,010 1,874 2,082 Franchise fees 3,442 927 2,338 2,605 Use of money any property 4,110 2,497 216 916 Other revenues 208 20 2,015 1,394 Current services charges 697 757 960 - Total tax revenues 34,398 39,606 32,288 30,399 Expenditures: Current: General and intergovernmental services 6,492 5,516 5,773 5,261 Public safety 7,725 7,197 6,735 6,355 Public works 14,191 7,516 7,299 6,919 Community services 1,255 1,031 972 962 Community development services 3,067 2,885 2,878 2,545 Capital outlay 1,751 5,397 5,866 7,270 Debt service:- - - Principal 580 565 545 525 Interest and fiscal charges 259 281 298 321 Total expenditures 35,320 30,388 30,366 30,158 over (under) expenditures (921) 9,217 1,922 241 Other financing sources (uses): Transfers in 4,959 3,046 3,467 4,817 Transfers out (4,959) (3,046) (3,467) (4,817) Total other financing sources (uses)- 220 - - Net change in fund balances (920)$ 9,438$ 1,923$ 242$ Debt as a percentage of noncapital expenditures 2.50%2.88%3.00%3.18% Source: ACFR Debt as percentage of noncapital expenditures calculated by dividing total debt service expenditures by total noncapital expenditures Fiscal Year 135 2019 2018 2017 2016 2015 2014 14,475$ 13,247$ 12,264$ 11,549$ 10,669$ 9,737$ 1,205 1,333 1,270 1,222 1,220 1,207 1,207 1,125 1,185 1,189 1,224 941 896 960 857 898 866 823 2,360 2,677 1,908 2,216 1,613 2,023 127 127 171 248 175 196 3,375 181 954 158 651 796 1,777 1,253 1,053 1,182 1,538 1,410 241 136 222 76 97 129 2,290 2,166 2,171 2,068 2,070 1,949 1,148 779 651 647 557 521 2,081 2,397 2,203 2,709 2,589 2,547 - - - - - - 31,182 26,381 24,909 24,162 23,269 22,279 5,205 4,585 4,372 4,246 6,624 3,247 6,005 5,705 5,444 5,226 4,860 4,491 6,535 6,085 6,002 5,701 5,381 5,243 1,397 1,292 1,573 1,475 1,328 1,383 2,309 2,247 2,324 2,193 2,087 2,182 7,458 4,747 3,450 2,591 3,253 3,096 - - 500 485 475 500 495 485 341 362 373 385 395 405 29,750 25,508 24,013 22,317 24,423 20,532 1,432 873 896 1,845 (1,154) 1,747 3,397 3,397 3,580 1,768 785 1,291 (3,397) (3,397) (3,580) (1,768) (785) (1,291) - - - - - 220 1,433$ 874$ 897$ 1,845$ (1,153)$ 1,968$ 3.77%4.29%4.23%4.67%4.20%5.10% Fiscal Year 136 City of Saratoga Property Tax Rates Direct and Overlapping Governments Last Ten Fiscal Years (Property Tax Rate per $100 of Assessed Value) 2023 2022 2021 2020 General 1.0000 1.0000 1.0000 1.0000 County Retirement Levy 0.0388 0.0388 0.0388 0.0388 County Library 0.0024 0.0024 0.0024 0.0024 City of Saratoga 0.0044 0.0044 0.0046 0.0040 Total 1.0456 1.0456 1.0458 1.0452 Campbell School District - - 0.0220 0.0235 County Bond 2008 Hospital 0.0063 0.0061 0.0069 0.0069 Co. Housing Bond 2016 0.0108 0.0127 - 0.0100 Campbell Elementary 2002 0.0270 0.0160 0.0139 0.0146 Campbell Elementary 2010 0.0295 0.0295 0.0153 0.0131 Campbell Elementary 2016 0.0107 0.0217 0.0160 0.0160 Campbell Union High 1999 0.0082 0.0105 0.0097 0.0098 Campbell Union High 2006 0.0085 0.0071 0.0097 0.0100 Campbell Union High 2016 0.0234 0.0245 0.0245 0.0238 West Valley Community College District 2004 0.0074 0.0080 0.0084 0.0081 West Valley Community College District 2012 0.0095 0.0101 0.0104 0.0105 Cupertino Elementary School District - 0.0123 0.0123 - Moreland Elementary School District - - - - Saratoga School District - - - - Campbell Union High School District - - - - Fremont Union High School District - - - - Los Gatos-Saratoga Joint Union High School District - - - - Foothill-DeAnza Community College District - - - - Saratoga Fire District - - - - West Valley Mission Community College District 2018 0.0114 - - 0.0110 Santa Clara Valley Water District - State Water Project 0.0044 0.0051 0.0037 0.0041 Santa Clara Valley Water District - Zone W-1 - - - - Mid Peninsula Open Space 2014 0.0013 0.0015 0.0015 0.0016 Total 0.1584 0.1651 0.1543 0.1630 Total Tax Rate 1.2040 1.2107 1.2001 1.2082 Source: Santa Clara County Auditor data, Avenu Insights & Analytics Fiscal Year 137 2019 2018 2017 2016 2015 2014 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 0.0388 0.0388 0.0388 0.0388 0.0388 0.0388 0.0024 0.0024 0.0024 0.0024 0.0024 0.0024 0.0046 0.0056 0.0060 0.0065 0.0070 0.0074 1.0458 1.0468 1.0472 1.0477 1.0482 1.0486 0.0175 0.0244 0.0294 0.0220 0.0235 0.0264 0.0072 0.0082 0.0086 0.0088 0.0091 0.0035 0.0105 0.0127 - - - - 0.0085 0.0148 0.0258 0.0196 0.0172 0.0288 0.0240 0.0158 - 0.0136 0.0145 - 0.0172 0.0122 - -- - 0.0111 0.0120 0.0126 0.0119 0.0130 0.0134 0.0108 0.0119 0.0126 0.0138 0.0154 0.0156 0.0268 0.0280 - - - - 0.0089 0.0096 0.0096 0.0118 0.0101 0.0125 0.0190 0.0104 0.0100 0.0114 0.0019 0.0130 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 0.0042 0.0062 0.0086 0.0057 0.0065 0.0070 - - - - - - 0.0018 0.0009 0.0006 0.0008 - - 0.1675 0.1671 0.1178 0.1194 0.1112 0.1202 1.2133 1.2139 1.1650 1.1671 1.1594 1.1688 Fiscal Year 138 City of Saratoga Assessed Value of Taxable Property Last Ten Fiscal Years (amounts expressed in thousands) Fiscal Total Year Total Less: Total Taxable Direct Ended Residential Commercial Industrial Other Unsecured Assessed Tax Exempt Assessed Tax June 30 Property Property Property Property Property Property Real Property Value Rate 2023 18,411,360$ 179,011$ 11,428$ 486,416$ 49,376$ 19,137,591$ (303,008)$ 18,834,583$ 1.2040 2022 17,069,857$ 175,367$ 11,204$ 481,442$ 50,249$ 17,788,119$ (292,483)$ 17,495,636$ 1.2107 2023 16,412,783$ 173,142$ 11,089$ 469,087$ 49,306$ 17,115,407$ (295,705)$ 16,819,702$ 1.2001 2020 15,671,996$ 164,159$ 10,872$ 458,536$ 48,661$ 16,354,224$ (236,668)$ 16,117,556$ 1.2082 2019 14,899,703$ 160,219$ 10,658$ 460,375$ 45,669$ 15,576,624$ (233,581)$ 15,343,043$ 1.2133 2018 14,000,116$ 154,592$ 10,449$ 440,188$ 39,751$ 14,645,096$ (244,172)$ 14,400,924$ 1.2139 2017 13,227,811$ 141,391$ 10,245$ 426,257$ 45,838$ 13,851,542$ (232,279)$ 13,619,263$ 1.1650 2016 12,581,463$ 134,321$ 11,143$ 397,318$ 50,193$ 13,174,438$ (232,693)$ 12,941,745$ 1.1640 2015 11,775,973$ 117,466$ 11,737$ 361,202$ 56,354$ 12,322,732$ (242,724)$ 12,080,008$ 1.1671 2014 11,158,775$ 113,915$ 11,684$ 352,830$ 59,684$ 11,696,888$ (238,683)$ 11,458,205$ 1.1688 Santa Clara County Assessor data, MuniServices, LLC Source: Santa Clara County Auditor data, Avenu Insights & Analytics $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 $16,000,000 $18,000,000 $20,000,000 2023 2022 2023 2020 2019 2018 2017 2016 2015 2014 Total Assessed Property Unsecured Other Industrial Commercial Residential 139 City of Saratoga Principal Property Taxpayers Current Year and Nine Years Ago June 30, 2023 (amounts expressed in thousands) % of Total % of Total Taxable Taxable Taxable Taxable Assessed Assessed Assessed Assessed Taxpayer Value Rank Value Value Rank Value Humboldt Fields LLC Et Al 49,214,074$ 1 0.26% SHP Quito Village LLC 37,751,703$ 2 0.20% San Jose Water Works 30,146,680$ 3 0.16% 18,661,366$ 3 0.16% Keller John IV Trustee & Et Al 20,009,605$ 5 0.11% 14,932,232$ 4 0.13% House David L Trustee 18,477,563$ 4 0.10% 7,808,391$ 0.07% Osheanic Capital LLC 15,872,619$ 6 0.08% Zhu Huican Trustee & Et Al 15,162,291$ 7 0.08% HJJ LLC 14,356,807$ 8 0.08% CTR Partnership LP 14,208,498$ 9 0.08% Argonaut Associates LLC 12,771,461$ 10 0.07% 13,194,037$ 6 0.12% Krishnamurthi Ashok Trustee & Et Al 12,667,816$ 0.07% 8,517,100$ 0.07% Kriens Scott Trustee & Et Al 12,617,331$ 0.07% Sordello Steven J And Susan L Trustee 11,829,101$ 0.06% Public Storage Inc 11,459,971$ 0.06% 9,877,056$ 9 0.09% PakYong Kil Trustee & Et Al 11,420,563$ 0.06% Chen Juanping And Shao Yongyi 11,357,834$ 0.06% Wunderling John M Trustee 11,260,490$ 0.06% Fan Colin 11,101,906$ 0.06% Martin Philip M Trustee & Et Al 10,750,000$ 0.06% Hammerwood LLC 10,455,000$ 0.06% Chen Lee Trustee 10,320,659$ 0.05% 7,085,000$ 0.06% Lindholm John E Trustee Et Al 9,785,000$ 0.05% Jain Ashok K Trustee & Et Al 9,498,516$ 0.05% 8,646,040$ 0.08% Huang Qian Trustee 9,495,857$ 0.05% Coyote Properties IV LLC 9,099,532$ 0.05% Cupertino Village Asscs LLC 36,485,515$ 1 0.32% Quito Village Asscs LLC 20,807,998$ 2 0.18% Gregpenn Properties LLC 13,553,900$ 5 0.12% Stormin Norman LLC 12,600,000$ 7 0.11% Balakrishnan Balu And Mohini 10,288,472$ 8 0.09% Morrison Terri E 9,142,957$ 10 0.08% Compacst of California Xi Inc.7,788,781$ 0.07% JF Plaza Partners LP 7,735,762$ 0.07% Klayko Michael A & Patricia A.7,401,294$ 0.06% Harari Eliyahou And Britt M 7,279,254$ 0.06% Duc Daniel A And Lynn K 7,235,183$ 0.06% John & Carole Freitas LLC 7,127,502$ 0.06% MTNRMT LLC 6,936,000$ 0.06% Oak Creek Partners LLC 6,880,000$ 0.06% Stolle Bryan D & Deborah S 6,819,590$ 0.06% Russo Ray A Sr 6,808,824$ 0.06% Singh Gururaj And Anuradha T.6,685,576$ 0.06% Top Ten Total Assessed Value 391,090,877$ 2.09% 270,297,830$ 2.36% City Total Assessed Value 18,834,582,100$ 11,458,205,716$ Source: Santa Clara County Auditor data, Avenu Insights & Analytics 2023 2014 140 City of Saratoga Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year Total Tax Collections in Ended Levy for Subsequent June 30 Fiscal Year Amount Percentage Years Amount Percentage 2023 17,694,182$ 17,694,182$ 100.0% -$17,694,182$ 100.0% 2022 17,427,588$ 17,427,588$ 100.0%-$17,427,588$ 100.0% 2021 16,294,043$ 16,294,043$ 100.0%-$16,294,043$ 100.0% 2020 15,356,471$ 15,356,471$ 100.0%-$15,356,471$ 100.0% 2019 14,475,102$ 14,475,102$ 100.0%-$14,475,102$ 100.0% 2018 13,247,030$ 13,247,030$ 100.0%-$13,247,030$ 100.0% 2017 12,263,575$ 12,263,575$ 100.0%-$12,263,575$ 100.0% 2016 11,549,213$ 11,549,213$ 100.0%-$11,549,213$ 100.0% 2015 10,669,281$ 10,669,281$ 100.0%-$10,669,281$ 100.0% 2014 9,737,144$ 9,737,144$ 100.0%-$9,737,144$ 100.0% Source: City of Saratoga Collected within the Fiscal Year of the Levy Total Collections to Date 141 City of Saratoga Ratios of Outstanding Debt by Type Last Ten Years (amounts expressed in thousands, except per capita amounts) 2023 2022 2021 2020 Governmental activities General obligation bonds 6,385$ 6,965$ 7,530$ 8,075$ Net original issue premium 197 219 241 263 Total primary government 6,582$ 7,184$ 7,771$ 8,338$ Percentage of Personal Income1 0.16%0.21%0.26%0.29% Per capita2 215 234 254 269 Source: ACFR 1US Census Bureau, adjusted for inflation, Avenu Insights & Analytics 2Population information from California State Controller's Office Fiscal Year 142 2019 2018 2017 2016 2015 2014 8,600$ 9,100$ 9,585$ 10,060$ 10,560$ 11,055$ 285 306 328 350 372 394 8,885$ 9,406$ 9,913$ 10,410$ 10,932$ 11,449$ 0.32%0.35%0.40%0.45%0.47%0.49% 283 299 324 344 355 371 Fiscal Year 143 City of Saratoga Ratios of General Bonded Debt Outstanding Last Ten Years (amounts expressed in thousands, except per capita amounts) 2023 2022 2021 2020 General obligation bonds 6,385$ 6,965$ 7,530$ 8,075$ Net original issue premium 197 219 241 263 Less: Amount available in debt service fund (910) (805) (790) (788) Total primary government 5,672$ 6,379$ 6,981$ 7,550$ Percentage of actual taxable value of property 0.05% 0.06% 0.06% 0.06% Per capita1 186 208 229 243 Source: ACFR 1Population information from California State Controller's Office Fiscal Year 144 2019 2018 2017 2016 2015 2014 8,600$ 9,100$ 9,585$ 10,060$ 10,560$ 11,055$ 285 306 328 350 372 394 (933) (998) (959) (923) (906) (898) 7,952$ 8,408$ 8,954$ 9,487$ 10,026$ 10,551$ 0.06% 0.06% 0.06% -3.91% -4.29% 0.10% 253 267 293 314 326 342 Fiscal Year 145 City of Saratoga Legal Debt Margin Information Last Ten Years (amounts expressed in thousands) 2023 2022 2021 2020 Debt Limit 2,866,279$ 2,668,218$ 2,611,667$ 2,453,134$ Total net debt applicable to limit 5,672 6,160 6,740 7,287 Legal debt margin 2,871,951$ 2,674,378$ 2,618,407$ 2,460,421$ Total net debt applicable to the limit as a percentage of debt limit 0.20%0.23%0.26%0.30% Legal debt margin calculation Assessed value 18,881,148$ 17,495,636$ 17,115,407$ 16,117,556$ Add back: exempt real property 303,007 292,483 295,705 236,668 Total assessed value 19,184,155$ 17,788,119$ 17,411,112$ 16,354,224$ Debt limit (15% of total assessed value)2,877,623$ 2,668,218$ 2,611,667$ 2,453,134$ Debt applicable to limit: General obligation bonds 6,385$ 6,965$ 7,530$ 8,075$ Net original issue premium 197 219 241 263 Less: Amount available in debt service fund (910) (805) (790) (788) Total net debt applicable to limit 5,672$ 6,160$ 6,740$ 7,287$ Legal debt margin 2,871,951$ 2,662,058$ 2,604,927$ 2,445,847$ Source: ACFR Fiscal Year 146 2019 2018 2017 2016 2015 2014 2013 2,336,494$ 2,196,764$ 2,077,731$ 1,976,166$ 1,848,410$ 1,754,233$ 1,625,261$ 7,667 8,102 8,626 9,137 9,654 10,157 10,655 2,329,207$ 2,188,662$ 2,069,105$ 1,967,029$ 1,838,756$ 1,744,076$ 1,614,606$ 0.33%0.37%0.42%0.46%0.52% 0.58% 0.66% 15,343,044$ 14,400,924$ 13,619,263$ 12,941,745$ 12,080,008$ 11,458,205$ 10,601,175$ 233,581 244,172 232,279 232,693 242,724 236,683 233,895 15,576,625$ 14,645,096$ 13,851,542$ 13,174,438$ 12,322,732$ 11,694,888$ 10,835,070$ 2,336,494$ 2,196,764$ 2,077,731$ 1,976,166$ 1,848,410$ 1,754,233$ 1,625,261$ 8,600$ 9,100$ 9,585$ 10,060$ 10,560$ 11,055$ 11,540$ 285 306 328 350 372 394 416 (933) (998) (959) (923) (906) (898) (885) 7,667$ 8,102$ 8,626$ 9,137$ 9,654$ 10,157$ 10,655$ 2,328,827$ 2,188,662$ 2,069,105$ 1,967,029$ 1,838,756$ 1,744,076$ 1,614,606$ Fiscal Year 147 City of Saratoga Direct and Overlapping Governmental Activities Debt (amounts expressed in thousands) 2022-23 Assessed Valuation 18,881,148$ Estimated Estimated Share of Debt Percentage Overlapping Outstanding Applicable1 Debt Direct and Overlapping Tax and Assessment Debt: City of Saratoga 6,385$ 100.000% 6,385$ City of Saratoga Community Facilities District No. 2016-1 1,526 100.000% 1,526$ Santa Clara County 1,041,125 3.050% 31,754 Foothill-De Anza Community College District 603,653 1.363% 8,228 West Valley Community College District 694,320 8.946% 62,114 Campbell Union High School District 354,085 5.535% 19,599 Fremont Union High School District 771,685 3.051% 23,544 Los Gatos-Saratoga Joint Union High School District 81,235 37.996% 30,866 Campbell Union School District 205,899 6.752% 13,902 Cupertino Union School District 258,383 5.592% 14,449 Moreland School District 109,784 12.774% 14,024 Saratoga Union School District 15,206 85.849% 13,054 Saratoga Fire Protection District 1,886 97.373% 1,836 Midpeninsula Regional Open Space District 82,680 4.963% 4,103 Santa Clara Valley Water District Benefit Assessment 38,900 3.050% 1,186 Total Overlapping Tax and Assessment Debt 246,566$ Overlapping General Fund Debt: Santa Clara County General Fund Obligations 1,120,040$ 3.050% 34,172$ Santa Clara County Pension Obligations 329,741 3.050% 10,057 Santa Clara County Board of Education COP 935 3.050%29 Santa Clara County Vector Control District COP 1,230 3.050%38 Foothill-De Anza Community College District COP 20,645 1.363%281 West Valley-Mission College District General Fund Obligations 8,160 8.946%730 Campbell Union High School District COP 14,500 5.535%803 Los Gatos-Saratoga Joint Union High School District COP 149 37.996%57 Campbell Union High School District COP 1,575 6.752%106 Saratoga Union School District COP 1,905 85.949% 1,637 Santa Clara County Central Fire Protection District General Fund Obligations 27,755 15.516% 4,306 Midpeninsula Open Space Park District General Fund Obligations 91,570 4.963% 4,545 Total Overlapping General Fund Debt 56,752 Less: Santa Clara County Supported Obligations (320) Total Net Overlapping General Fund Debt 56,432$ Total Direct Debt 6,385$ Gross Total Overlapping Debt 296,933$ Net Total Overlapping Debt 296,613$ Gross Combined Total Debt 2 303,318$ Net Combined Total Debt 302,998$ Ratios to 2022-23 Assessed Valuation: Direct Debt ($6,385,000) 0.03% Total Direct and Overlapping Tax and Assessment Debt 1.31% Gross Combined Total Debt 1.61% Net Combined Total Debt 1.60% Source: Avenu Insights & Analytics and 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 district's total taxable assessed value. 2 Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. 148 City of Saratoga Demographic and Economic Statistics Last Ten Years Per Capita Fiscal City Personal Personal Labor Unemployment Year Population1 Income2 Income2 Force3 Rate3 2023 30,567 3,925,823 128,433 14,900 3.3% 2022 30,667 3,376,774 110,111 14,800 1.7% 2021 30,546 2,928,264 95,864 14,000 5.0% 2020 31,030 2,755,859 88,813 13,600 6.5% 2019 31,407 2,681,900 85,392 15,000 2.0% 2018 31,435 2,597,561 82,633 15,000 2.8% 2017 30,569 2,374,919 77,690 14,600 2.7% 2016 30,219 2,239,926 74,123 14,700 2.9% 2015 30,799 2,248,481 73,005 15,100 2.7% 2014 30,887 2,243,458 72,634 14,200 3.4% Source: Avenu Insights & Analytics 1.) Population Projections are provided by the California Department of Finance Projections. 2.) Per Capita Income Data is provided by the United States Census Data and is adjusted for inflation. Personal Income has been restated from prior years. 3.) Unemployment and Labor Force Data are provided by the EDD's Labor Market Information Division. 10,000 15,000 20,000 25,000 30,000 35,000 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 Labor Force vs. Population Population Labor Force 149 City of Saratoga Principal Employers Last Fiscal Year and Nine Years Ago June 30, 2023 Employer Number of Employees Rank Percentage of Total City Employment Number of Employees Rank Percentage of Total City Employment West Valley Community College 466 1 3.13% 474 1 3.34% Saratoga Retirement Community 315 2 2.11% 272 2 1.92% Saratoga Union School District*232 3 1.56% 240 3 1.69% Our Lady of Fatima Villa 215 4 1.44% 101 8 0.71% Saratoga High School (Los Gatos-Saratoga UHSD)179 5 1.20% 133 6 0.94% Sub-Acute Saratoga Children's Hospital 143 6 0.96% 149 5 1.05% Prospect High School (CUHSD)121 7 0.81% 100 9 0.70% Saint Andrew's Episcopal School 70 8 0.47%- Saratoga Country Club 60 9 0.40% City of Saratoga 57.25 10 0.38%- Mountain Winery 224 4 1.58% YMCA 130 7 0.92% Safeway - 91 10 0.64% Total Top 10 Employers 1,858 12.45% 1,914 13.50% Total City Employment1 14,900 14,200 Source: Avenu Insights & Analytics Source: 2014 data from previously published ACFR Results based on direct correspondence with city’s local businesses. *Includes all personnel, full and part time. 1 Total City Labor Force provided by EDD Labor Force Data. 2023 2014 150 City of Saratoga Full-Time Equivalent City Governmental Employees by Function Last Ten Fiscal Years 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 Function General government 15.75 15.25 14.90 15.15 14.65 14.55 13.65 13.70 13.70 13.65 Public works 23.50 23.50 23.50 23.50 21.75 21.15 20.65 20.65 20.65 20.75 Community development 16.00 15.50 15.50 16.00 12.00 12.50 12.00 12.00 12.00 12.00 Community services 2.00 3.00 3.00 2.25 8.70 8.30 8.35 9.55 9.55 9.60 Total 57.25 57.25 56.90 56.90 57.10 56.50 54.65 55.90 55.90 56.00 Source: City of Saratoga Budget Document Fiscal Year - 10 20 30 40 50 60 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Full-Time Equivalents General Gov't Public Works Comm Dev.Comm Services 151 City of Saratoga Operating Indictors by Function Last Ten Fiscal Years 2023 2022 2021 2020 Function Part 1 crimes1 230 225 241 241 Total incidents 40,758 31,003 37,652 37,652 Police reports 827 832 837 837 Public Works Street resurfacing (miles)9 2 5 5 Street lights repaired 17 15 10 10 Potholes filled (sq. ft.)12,000 12,000 8,000 8,000 Community Development Total permit valuation ($000)169,864 113,151 80,513 80,513 Parks and Recreation2 Classes, trips (enrollment) community events - - - Youth Programs 1,906 1,503 655 655 Adult Programs 669 617 679 679 Sports programs (e.g. Adult basketball, softball)- - - - Preschool programs (enrollment)- - - - Staffed Day/summer camps (enrollment)- 217 146 146 Teen/youth council (enrollment)- -265 927 Senior center (enrollment/attendance days)- -- 24,336 1 Part 1 Crimes are the following as reported to DOJ: homicide, rape, robbery, burglary, assault, theft, auto theft, and arson. 2 Beginning in FY 2019/20, the City outsourced Recreation Services to Los Gatos-Saratoga Community Education and Recreation (LGS). Source: City of Saratoga various records Fiscal Year 152 2019 2018 2017 2016 2015 2014 289 190 301 463 315 408 31,955 32,222 38,893 39,213 40,695 41,228 885 927 1,295 1,334 917 978 8 - - 15.2 2.5 4 12 15 37 33 39 34 11,000 9,000 13,000 21,010 10,500 11,000 82,722 128,062 106,631 75,599 89,929 79,702 3,632 5,769 5,081 5,898 8,390 6,235 1,497 1,072 968 853 791 1,061 731 2,082 2,824 2,099 1,650 2,173 - - - - - - 448 224 221 180 186 274 - 129 71 172 90 160 1,049 848 747 673 605 787 10,063 10,786 12,941 12,269 15,221 14,640 Fiscal Year 153 City of Saratoga Capital Asset Statistics by Function Last Ten Fiscal Years 2023 2022 2021 2020 Function Public safety Police Station - - - - Fire Station Saratoga Fire District 1 1 1 1 Central Fire District 1 1 1 1 Public Works Street Miles - Private 15 15 15 15 Street Miles - Public 142 142 142 142 West Valley Sanitation District Number of Connections 9,128 9,128 9,063 9,060 Length of Sewer Lines 126 126 126 126 Cupertino Valley Sanitation District Number of Connections 2,429 2,429 3,003 3,003 Length of Sewer Lines 42 42 37 37 Parks and Recreation Parks Acreage 148 148 148 148 Parks 16 16 16 16 Source: City of Saratoga various records Fiscal Year 154 2019 2018 2017 2016 2015 2014 - - - - - - 1 1 1 1 1 1 1 1 1 1 1 1 15 15 15 15 15 15 142 142 142 142 142 142 9,058 9,051 8,563 8,488 8,402 8,919 126 126 126 129 128 127 3,003 3,000 3,000 2,999 2,963 2,963 37 37 37 37 37 37 148 148 148 148 84 84 16 16 16 16 15 15 Fiscal Year 155