Agda Pkt 2026.07.27 Joint SA PFA

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City of Redwood City Notes to the Basic Financial Statements (Continued) For the Year Ended June 30, 2025 71 Note 1 – Summary of Significant Accounting Policies (Continued) M. Compensated Absences/Sick Leave Conversion The City recognizes a liability for compensated absences for leave time that (1) has been earned for services previously rendered by employees, (2) accumulates and is allowed to be carried over to subsequent years, and (3) is more likely than not to be used as time off or settled (for example paid in cash to the employee or payment to an employee flex spending account) during or upon separation from employment. Based on the criteria listed, two types of leave qualify for liability recognition for compensated absences – vacation and sick leave. The liability for compensated absences includes salary-related benefits, where applicable. Vacation: The City’s policy permits employees to accumulate up to two years entitlement of earned but unused vacation benefits, which are eligible for payment at the employee’s current pay rate upon separation from employment. Sick Leave: The City’s policy permits employees to accumulate earned but unused sick leave up to 960 or 1,920 hours depending on the bargaining unit (with the exception that Battalion Chiefs who work 24 hour shifts may accumulate up to 2,400 hours of sick leave). All sick leave lapses when employees leave the employment of the City and, upon separation from service, no monetary obligation exists. However, a liability for estimated value of sick leave that will be used by employees as time off is included in the liability for compensated absences. An employee may elect to receive compensation in lieu of sick leave credits for any calendar year with payment equal to varying amounts from 25% to 50% of the year’s unused sick leave, depending upon the employee’s sick leave usage during the year. In addition to sick leave, payouts are made for unused administrative holidays and accrued compensatory time. If sick leave and vacation are not used by the employee or paid out during the term of employment, compensation is payable to the employee at the time of separation. Such compensation is calculated at the employee’s prevailing rate at the time of retirement or termination. Whereas vacation is compensated at 100% of accumulated hours, sick leave is compensated at 50% of accumulated hours at retirement depending upon varying restrictions of the bargaining units. Upon termination, only accrued vacations are compensated. Government-Wide Financial Statements For governmental and business-type activities, compensated absences/sick leave conversion are recorded as a liability when earned and as an expense when paid. Fund Financial Statements For governmental funds, compensated absences/sick leave conversion are recorded as expenditures in the year paid. A liability for compensated absences is recorded in the governmental funds only if the liability has matured because of employee resignations or retirements. In proprietary funds, compensated absences/sick leave conversion are expensed to the various funds in the period they are earned, and such fund’s share of the unpaid liability is recorded as a long-term liability of the fund. N. Pension Plans For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the plans and additions to/deductions from the plans’ fiduciary net position have been determined on the same basis as they are reported by the plans (Note 12). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with benefit terms. Investments are reported at fair value. 7.C. - Page 103 of 269 122