Palo Alto Budget Adopted Following Seven-Week Review Process

Learn more about the City’s budget which begins on July 1

This past Monday night on June 22 the City of Palo Alto City Council concluded a seven-week budget process by adopting a revised Fiscal Year 2020–2021 budget and several actions necessary to balance the City’s annual budget. This blog post provides a budget update and shares a summary of the actions the City Council took.

Thank you to all the community members who provided input and participated in the City’s budget process. This budget process took collaboration and significant work by all parties including the City Council, the community, labor groups, and staff. Public comment was received as part of the Budget Hearings, via email to the City Council, and as a result of an online survey informing this nearly two-month long process and assisting in guiding the Council decisions on the newly adopted budget.

Read on to learn more about the new FY 2020–2021 operating and capital budgets, which are set to begin on July 1.

FY 2021 Adopted Budget Financial Summary

Overall, the City Council adopted a balanced budget of $796.7 million across all funds. In the General Fund, the Adopted budget of $197.0 million reflects 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. The City’s Capital Improvement Plan reflects a $300.1 million FY 2021 budget, and a $774.6 million plan over the five-year CIP (FY 2021- FY 2025). Of this, the General Capital Fund FY 2021 budget reflects expected expenses of $174.4 million and $298.6 million over the five-year CIP.

Overall, this includes a reduction of 74 full time staff and the equivalent of 26.18 FTE part-time staff resulting in a workforce of 960 full time positions and 81.1 (FTE) part-time positions. The General Fund will remain with staffing of 512 full time positions (a reduction of 62) and the equivalent of 55.6 FTE in part-time staffing (a reduction of 25.7 FTE). Separations of both full time and part time staffing are expected as a result of these changes impacting all departments.

The budget adoption followed a series of budget conversations that began on May 4 when the City Council provided direction to staff to assume a more conservative revenue estimate reflecting a loss of $39 million in General Fund tax revenues in FY 2021 and in response to the the severity of the current public health emergency and its impacts on the City’s financial situation.

Unprecedented Times and Service Delivery Impacts

The unprecedented circumstances of this extended public health emergency forced the City to take a hard look at our operating and capital budgets and the FY 2021 budget reflects tough choices that we would prefer not to be outlining. Service impacts are unavoidable when 63 percent of the City’s General Fund budget is attributed to the outstanding workforce delivering the City’s services every day. The City has been forced to prioritize essential services and pare back discretionary services. As part of this review and prioritization, the organization also looked at what is feasible for completion and service delivery during this time of social distancing and managing the public health and ultimate spread of COVID-19.

Significant service delivery impacts include but are not limited to reductions in:

• Operating hours and program availability at Community Centers including increases in fees to aid in cost recovery levels
• Children’s Theatre productions
• Library hours across the 5 library system
• Police patrol staffing and special teams including investigations and traffic
• Fire staffing by implementing a brownout flexible staffing model for fire services resulting in reduced capacity when staff is out on leave

Other changes also include elimination of shuttle services, restructuring of the residential Preferential Parking Permit Program (RPP) and deferral of capital investments.

The budget reductions are intended to be a two-year strategy to assist in bridging the gap as a result of the current fiscal crisis caused by the public health emergency. The City continues to explore additional cost containment through continuing a hiring freeze and freezing all nonessential travel, eliminating current vacancies (described below in the service impacts section) and reducing future vacancies through attrition, and/or implementing furloughs with corresponding service reductions such as reduced walk-in office hours.

To the extent the City is successful in finding new savings through any of these strategies, some of these service impacts could be reinstated.

Strong Fiscal Management and a Focus on Recovery

While there are significant reductions, the budget 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.

The budget also ensures that the City continues to proactively pay for both the current pension and Other Post-Employment Benefits (OPEB) liabilities (assuming lower discount rates of 6.2 percent for funding levels), continues capital investments into our most critical infrastructure projects, 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.

Adopted Capital Improvement Program 56% Reduction in General Fund Investment

The City’s Capital Improvement Plan reflects a $300.1 million FY 2021 budget, and a $774.6 million plan over the five-year CIP (FY 2021- FY 2025). Of this, the General Capital Fund FY 2021 budget reflects expected expenses of $174.4 million and $298.6 million over the five-year CIP.

The FY 2021 Adopted Budget reduces support for capital infrastructure by 56% or $18.4 million reduction in support to the Capital Improvement Fund. As part of the budget hearing process, the City Manager and Director of Public Works reviewed all General Fund projects in the proposed CIP, and confirmed that with the reduced General Fund transfer, the remaining funding levels reflect investment in essential infrastructure. The revised CIP provides a minimal while responsible investment in the City’s essential infrastructure.

The reduced investment in capital infrastructure assisted in minimizing or even restoring originally proposed service impacts and continued investment to in long term liabilities with the contribution to the Section 115 Pension Trust (PARS) Fund.

Major Projects included in the Capital Improvement Plan:

· Public Safety Building construction, Fire Station 4 design, and 101 Bike & Pedestrian Bridge (under construction)

· Plan Public Safety Building bidding and certificates of participation sales to take advantage of recessionary construction market

· Parks investments such as Boulware Park (including Birch Street) and Byxbee Park

· Train crossings/rail grade separation planning

· Airport Apron Reconstruction prioritized by the FAA grant funding

· 6 of 13 Storm Water Management Fee ballot measure projects planned

· Water Quality Control Plant has $133.3 M of infrastructure investment projects

Maintaining City Services and Low to No Increases in Utility Rates

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 effectively civilian staffing. All five libraries will remain open on reduced schedules. The City will support resident and the business community through minimal to no rate increases in various utility enterprise fees

The City will support resident and the business community through minimal to no rate increases in various utility enterprise fees. The adopted the Utility rate adjustments including zero percent increases for wastewater, water, electric, refuse, a 2% increase in gas and a 2.5% CPI increase for stormwater and fiber.

In light of the changing landscape of this public health emergency and the guidelines set out by the State of California and Santa Clara County, the adopted budget includes $1.2 million in FY 2021 to support continued responses to these efforts. Funding will assist in providing the continued daily updates and coordination with residents and the business community; partial funding for the current unfunded request for contact tracing employees; and workplace alterations to address new social distancing and physical environment requirements.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in the Community Development Block Grant (CDBG) Fund will be assisting in providing rent relief, food assistance, and COVID testing and equipment as outlined in the revised funding plan approved by the Finance Committee on May 5, 2020 (CMR 11148).

Online Resources

For budget related materials, go here.

For the City’s website, go here.