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New City Budget Focuses on Fiscal Sustainability, Community Recovery & Near-Term Restoration of Services

Learn about the City’s new operating budget funding City services as the fiscal year begins July 1, 2022

The City of Palo Alto is addressing near-term community needs and the long-term fiscal health of the City with the Adopted Budget for Fiscal Year 2023. This blog provides the community with a summary of what’s included in the recently Adopted Budget, which goes into effect starting the new fiscal year on July 1, 2022. The new operating budget funds basic and essential services like libraries, community centers, and public safety services such as fire, emergency medical and police. It is a transition budget that restores some services reduced as a result of the pandemic and economic shifts for two years. Additional sources of revenue are under consideration by the City Council in order to fund these vital resources in the long-term.

Fiscal Year 2023 Adopted Budget Financial Summary

The FY 2023 Budget, adopted by City Council on Monday, June 20, 2022, ensures that the City continues to proactively fund long term liabilities, begins to phase in capital investments that had been reduced in prior years, and uses one-time resources for limited term priority service investments.

Overall, the City’s General Fund, the operating fund which supports basic City services such as police, fire, libraries and community centers, has $247.4 million in revenues and $247.4 million in expenses, and is a balanced budget. This reflects a $38.2 million, or 18.3 percent, increase compared to the FY 2022 Adopted Budget. This includes an increase from the FY 2023 Proposed Budget of 3 full-time staff and one part-time staff, resulting in an overall workforce of 1,017.85 full-time positions and 89.68 FTE part-time positions.

Updates to the Capital Improvement Plan

The Municipal Code requires City Council authorization to reappropriate funds for capital projects from one fiscal year to the next. The FY 2023 budget process continues this procedure, and the FY 2023 Proposed Capital Budget includes approximately $83.6 million in reappropriated funds for project expenditures across all funds. The City’s Capital Improvement Plan reflects a $379.5 million FY 2023 budget, and an $821.9 million plan over the five-year CIP (FY 2023-FY 2027). Of this, the Capital Improvement Fund FY 2023 budget reflects expected expense of $88.1 million and $205.5 million over the five-year CIP, with 77 projects planned.

Key capital projects funded for the coming year include Performing Arts Venues seat replacements ($0.4 million will be used to award a contract to repair the seats at the Children’s Theatre), Ramos Park improvements (an additional $300,000 for this project will be funded by the Capital Improvement Fund Administration), and Substation Physical Security (a $4.4 million budget is expected to cover expenses related to staffing, installation of security walls, perimeter lighting, and cameras at all nine Electric Substations).

Advancing Completion of the Infrastructure Plan Projects

In 2013, the City Council established the Council Infrastructure Committee and tasked them with identifying a funding plan for infrastructure projects that required funding above the base annual General Fund transfer to the Capital Improvement Fund. A list of ten projects and funding were identified in the plan and adopted by Council. All ten projects, except the New Downtown Parking Garage Project which was deferred in February 2019, are now scheduled to be complete within the 2023–2027 CIP.

The FY 2023 budget includes significant funding for ten system improvement capital projects at the Regional Water Quality Control Plant with $186.6 million budget for these projects and $282.5 million over the five-year CIP. A majority of these projects are anticipated to be funded by debt financed revenue such as bonds or State Revolving Fund loans.

With construction on phases 1 and 2 of the Charleston/Arastradero Corridor project completed in early 2020, the final phase will be completed in Fall 2022. The Corridor connects 11 K-12 schools, several parks, shopping centers, community centers, senior living facilities, and a library. The project will enhance safety for students, smoother traffic flow, and streetscape beautification.

The new Public Safety Building (PSB) was awarded in early 2021 and completion is anticipated in Fall 2023. View a time-lapse video of the recently completed “topping off” of the PSB, signifying the completion of a major milestone and beginning of the next phase. The PSB will house the Police Department, 911 Emergency Dispatch Center, the Emergency Operations Center, the Office of Emergency Services, and the administration needs of the Fire Department.

The Fire Station 4 project will continue in the next fiscal year and will provide a new facility. While not final until the Governor signs Senate Bill 178, the City’s state earmark for $5.2M for the replacement of Fire Station 4 is looking promising.

The Bicycle and Pedestrian Transportation Plan update will kick-off in fall 2022. The BPTP will focus on safety and enhancing mobility around the City of Palo Alto for people on bikes or on foot.

Municipal Fee Schedule

The City charges fees for a variety of services provided, such as fees for room rentals, building inspection services, and photocopies. The development of the FY 2023 Municipal Fee Schedule reflects some department service realignments as most fees across the City have been updated to maintain cost recovery levels.

Changes include updates to the park, library, and community center impact fees, which were each calculated at 8.1%, Construction Cost Index pursuant to Palo Alto Municipal Code section 16.58.090. Several other fees were aligned to actual costs, including an 8% increase to Rehearsal Hall fees (from $50.00 to $54.00 per hour for residents) and a 12.7% increase to tennis court fees (from $7.00 to $8.00 per hour for residents).

Investments in Sustainability/Climate Action Plan (S/CAP) Investments/Programs

The S/CAP is a cross-departmental effort primarily involving the Office of Transportation, Planning and Development Services, Public Works, and Utilities Departments. As the work on the S/CAP update has continued, budget proposals have been included in both the FY 2022 Mid-Year and FY 2023 Budget to reflect the priorities identified through the work of the S/CAP Ad Hoc Committee and the S/CAP’s status as one of the 2022 Council Priorities

It has become clear that reaching the City’s goal of reducing carbon emissions 80 percent from 1990 levels by 2030 (80X30 goal) relies on electrification of transportation, homes, and businesses. As such, utilities added $2.8 million in the FY 2023 budget to support the launch and operation of programs to help residents and businesses electrify equipment and appliances. The programs include analysis, contract management, program administration, program monitoring and improvement, managing customer experience, and sales and marketing.

For more on the City’s S/CAP Ad Hoc and priorities, go here.

Continued Focus on Community Recovery & Fiscal Sustainability

The Palo Alto community has faced significant financial and service disruptions in the wake of the COVID-19 pandemic. The FY 2021 budget reflected many service reductions that were necessary in order to respond proactively to emergency and economic conditions, and FY 2022 saw stabilization at reduced service levels. As the City moves towards recovery, fiscal sustainability remains a top priority. The FY 2023 Budget continues to reflect a recovery period and transition to an endemic state, building on reinvestments made by the City Council in FY 2022. As such, the City Council has adopted several budget strategies, including a two-year funding strategy.

Based on several fiscal reports (FY 2022 Preliminary Q1 Financial Status [Council agenda item 5], FY 2022 Mid-Year Budget Review [Council agenda item 10], and FY 2023–2032 Long Range Financial Report), revenues are expected to exceed prior budgeted estimates by approximately $14 million. One-time funds will assist in the restoration of services for a two-year period. This approach allows the City to continue its plans to restore basic services and maintain the high quality of services that the community expects. However, to sustain these reinvestments beyond the limited term, ongoing revenues will be needed.

Several items have been temporarily restored due to the Adopted budget’s one-time funding. Examples of temporarily funded services include Police units to address safety and outreach to unhoused residents, mental health response, and investigations; 9–1–1 dispatch staffing; Fire/emergency medical response staffing and hazmat services; Community Services including public art, fine arts camps, Twilight Concerts, Junior Museum & Zoo, Children’s Theater productions, and open space preserve staffing; and library hours. While $4 million in reserves is available to pay for services in these areas for the next two years, without ongoing revenue, these services will likely be cut.

Potential Ballot Measures

In order to maintain funding for valued community resources and services, the City Council began community conversations on potential revenue ballot measures in the spring of 2021. These deliberations resulted in two potential revenue ballot measures: affirmation of the current natural gas utility transfer and the establishment of a new business tax.

Affirmation of the Current Natural Gas Utility Transfer

The first ballot measure will affirm the decades-long practice of City gas revenues contributing to general City services. These include police services, fire and emergency medical services, local parks, community centers and libraries. Most municipal utilities in California make similar transfers. Affirmation by voters through this ballot measure would support the continued reinvestment in community services.

On Monday, June 20, 2022, City Council set August 1 as the date to consider a November 2022 ballot measure affirming the natural gas utility transfer.

For the August 1 City Council meeting agenda materials when posted, go here.

Establishing a New Business Tax

The second proposal is a Business Tax which, if passed by voters, will generate revenue that will be allocated towards unfunded needs as identified by the Council.

On Monday, June 20, 2022 City Council moved to return with a resolution on August 1, 2022 to submit a November 2022 ballot measure adopting a business tax to the voters. They also made the following refinements to the proposed Business Tax: exempt the first 5,000 square feet, tax from 5,000–20,000 at $0.06 per square foot, and tax square footage beyond 20,000 at $0.12 per square foot per month (the initial rate would be effective January 1, 2023 at 50% of the above rate for the first 24 months); add in a 35-year sunset; and remove the CPI roll over. Additionally, Council adopted a resolution to inform the public of Council’s spending plan for business tax proceeds and included investments in new/enhanced City services, train crossing safety, affordable housing, unfunded Capital Improvements, and investment in downtown cores streetscape and pedestrian plaza, housing, transportation (railroad crossings), and public safety.

For the staff report and resolution, go here (see page 911).

Looking Ahead

In early August, the City Council will conclude discussion of potential revenue measures the November 2022 election. Then throughout the upcoming year, the City will continue to engage with community members on priorities and service feedback. Collaboration and significant work by all parties, including the City Council, the community and staff, was vital to this budget process. Thank you to all the community members that have participated.

More Online Resources

Learn more about the City’s budget and view related documents here.

Learn more about Fiscal Sustainability here.

Learn more about the Finance Committee and upcoming meetings here.

Learn more about City Council meetings and view related documents here.

View the FY 2022–2023 Proposed Operating Budget here.

View the FY 2022–2023 Proposed Capital Budget here.

View upcoming events and meetings on the Palo Alto City Calendar.

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