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City of Redwood City <br />Notes to the Basic Financial Statements (Continued) <br />For the Year Ended June 30, 2025 <br /> <br /> <br />69 <br />Note 1 – Summary of Significant Accounting Policies (Continued) <br /> <br />I. Leases (Continued) <br /> <br />Lessor (Continued) <br /> <br />Key estimates and judgments include how the City determines (1) the discount rate it uses to discount the expected <br />lease receipts to present value, (2) lease term, and (3) lease receipts. <br /> <br /> The City uses its estimated incremental borrowing rate as the discount rate for leases. <br /> The lease term includes the noncancellable period of the lease. Lease receipts included in the measurement <br />of the lease receivable is composed of fixed payments from the lessee. <br /> <br />The City monitors changes in circumstances that would require a remeasurement of its lease and will remeasure the <br />lease receivable and deferred inflows of resources if certain changes occur that are expected to significantly affect <br />the amount of the lease receivable. <br /> <br />J. Subscription-Based Information Technology Arrangements (SBITAs) <br /> <br />The City has a policy to recognize a SBITA liability and a right‐to‐use subscription asset (SBITA asset) in the <br />financial statements with an initial, individual value of $100,000 or more with a subscription term greater than one <br />year. <br /> <br />At the commencement of a subscription, when the subscription asset is placed into service, the SBITA liability is <br />measured at the present value of payments expected to be made during the subscription term. Future subscription <br />payments are discounted using the City's incremental borrowing rate and the City recognizes amortization of the <br />discount on the subscription liability as interest expense in subsequent financial reporting periods. <br /> <br />SBITA assets are measured as the sum of the initial subscription liability, payments made to the SBITA vendor <br />before the commencement of the lease term, and capitalizable implementation costs less any incentives received <br />from the SBITA vendor at or before the commencement of the subscription term. Subscription assets are amortized <br />using the straight-line method over the subscription term. <br /> <br />Key estimates and judgments related to SBITAs include how the City determines (1) the discount rate it uses to <br />discount the expected subscription payments to present value, (2) subscription term, and (3) subscription payments. <br /> <br />- The City uses the interest rate charged by the SBITA vendor as the discount rate. When the interest rate <br />charged by the SBITA vendor is not provided, the City generally uses its estimated incremental borrowing <br />rate as the discount rate for SBITAs. <br /> <br />- The subscription term includes the period during which the City has a noncancelable right to use the <br />underlying IT asset. The subscription term also includes periods covered by an option to extend if it is <br />reasonably certain to be exercised. <br /> <br />- Subscription payments included in the measurement of the subscription liability are composed of fixed <br />payments and purchase option years that the City is reasonably certain to exercise. The City monitors <br />changes in circumstances that would require a remeasurement of a subscription and will remeasure any <br />subscription asset and liability if certain changes occur that are expected to significantly affect the amount <br />of the subscription liability. <br /> <br />Right-to-use subscription assets are reported along with other capital assets and subscription liabilities are reported <br />with long-term debt on the statement of net position. <br />7.C. - Page 101 of 269 <br />120