City Budget Deliberations Continue Next Week

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PaloAltoConnect

7 min readMay 23, 2020

Learn more about the City’s ongoing budget discussions and ways to share input

The unprecedented circumstances of this extended public health emergency have forced the City to take a hard look at our operating and capital budgets and tough City budget conversations continue. Thank you for sticking with us through these budget discussions and for all community members who have shared their ideas and thoughts through emails to the City Council, and completed the City’s online survey. An additional budget hearing is planned this coming week on May 26 as the City Council reviews proposed refinements to City service reductions and other budget actions in preparation for final budget adoption currently scheduled for June 22. This blog provides a summary of the current staff report released, outlines budget conversations underway, and next steps to keep you informed.

Public Health Emergency Continues to Impact City’s Budget

In early May, the City Council provided direction to staff to assume conservative revenue assumptions, in response to the severity of the public health emergency and its impacts on the City’s financial situation. This approach assumes a loss of $39 million in General Fund tax revenues in FY 2021 in addition to impacts already being seen this current fiscal year. Service impacts are unavoidable given more than 60% of the City’s operating budget goes to providing essential City’s services such as police and fire services, community and library services.

Service Impacts Refined

In a series of public hearings last week, the City Council met for more than 24 hours reviewing budget details, staff presented budget cuts to meet revenue estimates, and the City heard community testimony. The Council provided tentative approvals, changes, and areas for further follow up. Staff has since made changes following the direction received, and now issued a new staff report shared proposed refinements to the City’s budget balancing strategy for City Council consideration on May 26.

Overall, the City’s General Fund is recommended to have $196.8 million in revenues and $195.9 million in expenses, leaving a surplus of $839,000. These funding levels reflect a nearly 20 percent reduction from the FY 2021 Proposed Budget (released on April 20) and a 15 percent reduction compared to the FY 2020 Adopted Operating Budget.

Through this recommended balancing strategy, the City has been forced to prioritize essential services and pare back discretionary services. However, the recommended balancing strategy ensures that the City continues to proactively pay for long term liabilities, continues capital investments in our most critical infrastructure, provides resources for the City to successfully adapt from ‘shelter in place’ to future service delivery models, and establishes funding to ensure those service delivery transitions. Critical to note, this strategy also anticipates what services can be delivered in light of the current and expected social distancing requirements in the foreseeable future.

For the staff report and other budget materials, go to www.cityofpaloalto.org/budget.

Potential City Operating Budget Service Restorations Recommended

Based on the City Council discussion and guidance and additional time for staff to solidify recommended actions, additional adjustments are proposed including service restorations as a result of $3 million in expense savings due to compensation reductions for Management/Professional employees. This savings coupled with budget strategy refinements, ensure certain service restorations including staffing in Planning and Development Services, the Police Department, Community Services Department, and Library Department. This recommended balancing strategy includes both Council directed changes and some of the short-term parking lot items such as restoration of hours at the College Terrace Library, increased cost recovery and restoration of teen services, Arts Center, and Children’s Theater activities, and staffing to align building inspections with the business community needs. All restorations are focused on how to provide resources economically and effectively to the community while observing the limitations of the current COVID-19 pandemic imposes.

Overall, this balancing strategy would reduce the City’s staffing by 74.3 full-time positions from the FY 2021 Proposed Operating Budget level of 1,033 and 26.2 FTE of part-time staffing. In the General Fund, full-time staffing is recommended to be reduced by 61.8 positions and part-time staffing by 25.7 FTE positions.

Through these potential recommendations under considerations by the Council, the City will focus on maintaining outdoor recreation and open space preserves providing the highest value to the community for the duration of the COVID-19 pandemic when outdoor options are critical during this time. Sworn police officers will focus on patrol and other collateral duties, while administrative procedures are completed through more cost-effective civilian staffing. All five libraries will remain open on reduced schedules — three of the five libraries will operate as “neighborhood” libraries (open 3 days a week) and two libraries will operate as “full-service” libraries (open 6 days a week).

For more details go here.

Potential Capital Budget and Infrastructure Changes Recommended

The revised proposed Capital Improvement Fund reflects a 56 percent reduction in General Fund support or $18.4 million in FY 2021. These reductions maximize the availability of operating funds to retain services by reducing the General Fund Transfer and the General Capital Infrastructure Fund has been reduced to approximately $1 million in fund balance by the end of the five-year period. Since last week’s budget hearings, the City Manager and Director of Public Works have reviewed all General Fund projects in the proposed CIP, and confirmed that with the reduced Transfer, the remaining funding levels reflect responsible investment in essential infrastructure.

Based on this review, the revised proposed CIP provides a minimal while responsible investment in the City’s essential infrastructure with several specific objectives:

- Reduce carryover funding to “keep up” spending on essential infrastructure rather than fall behind and require new funding sources or levels to “catch up” in upcoming years;

- Position shovel-ready projects to take advantage of the favorable construction market pricing typical of a recession;

- Minimize near-term funding of discretionary projects; and,

- Ensure a steady flow of projects that minimizes peaks and valleys in project delivery staffing needs, as this would reduce efficiency and introduce bottlenecks in productivity.

Included in that $18.4 million reduction is the additional $2.6 million reduction as directed by the City Council in the transfer from the General Fund to the Capital Improvement Fund in Fiscal Year 2021. Of this amount, $1.6 million was allocated for the Section 115 Pension Trust (PARS) Fund, and $1.0 million to restore services for the Police and Community Services Departments, using a 60% and 40% allocation, respectively.

For more details go here.

Economic Relief Efforts Proposed to Electric, Gas, Wastewater, and Water Rates

Due to the current public health emergency, Council aimed to provide economic relief for residential and commercial customers by directing staff to keep rates flat without compromising the safety and integrity of the utility systems.

Through the City Council’s discussions of FY 2021 rate adjustments in the Enterprise Funds, the City Council voted to approve the following rate adjustments:

0% rate change for Wastewater
0% rate change for Water
2.5% CPI increase for Fiber
0% rate change for Electric
0% rate change for Refuse
2.5% CPI increase for Stormwater
2.0% rate increase for Gas

Proposed Revisions to the City’s Municipal Fees

The City Council also reviewed a proposed Municipal Fee schedule and the current staff report outlines a series of changes based on Council review and impacts of various proposed changes in the delivery of services and most specifically, reviewed the plan for the reopening of the Junior Museum and Zoo (JMZ). As a result of the recommended changes in cost recovery of various Community Service programs and the City Council’s direction to explore funding through additional cost recovery and/or partial funding for various Community Services programs, a new fee and a few fee revisions are recommended. Fee changes are recommended for membership to teen programs (up to $10/month), entrance to the new Junior Museum and Zoo (JMZ) (up to $24 per entrant), and the art center programs (up to $50 per workshop). Fee changes at JMZ will enable both a resident and a non-resident rate as well as other rate offerings as outlined in the JMZ staff report and presentation made on May 12, 2020. Currently the JMZ is not expected to reopen until March 2021.

Ways to Join the Budget Conversation and Next Steps

The City Council will review this refined proposed balancing strategy, on May 26 with final adoption of the FY 2021 Budget scheduled for June 22, 2020. The Council meeting will be held via virtual teleconference only on Zoom. Meeting Zoom link can be found here and Meeting ID: 362 027 238 Phone: 1(669) 900–6833.

In addition, the meeting will be broadcast on Cable TV Channel 26, live on YouTube,and Midpen Media Center. Members of the public who wish to participate by computer or phone can find the instructions at the end of the Council Agenda. The community is encouraged to continue to engage with the budget process through the scheduled public meetings or emailing the City Council at City.Council@cityofpaloalto.org. Stay informed by reviewing meeting materials at www.cityofpaloalto.org/budget