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Tough City Budget Conversations Continue

Learn more about ways to stay informed and share your input

The unprecedented circumstances of this public health emergency paved the way for the tough City budget discussions that are underway. We are in this together and we are seeking community input on the City’s fiscal situation. This week sets the stage for additional budget deliberations as the City continues discussing service level reductions and other budget scenarios. Service impacts are unavoidable when more than 60% of the City’s operating budget is attributed to providing essential City’s services such as police and fire services, community and library services. A new blog provides a summary of the current budget conversations underway and ways the community can stay informed and share input through the series of budge hearings planned and more.

The visual below demonstrates a breakdown of the City’s resource allocation across City Service Areas.

The potential service level options outlined in a recently released staff report provides a roadmap on the proposed budget changes that the City Council is considering balancing against the revised revenue estimates, and will have dramatic impacts on service delivery. The potential budget service level reductions highlighted in this blog post are by city service area with specifics associated by department and by program can be found further here. The potential balancing solutions seek to address the City Council adopted assumptions resulting in $39 million in revenue loss to the City’s General Fund (or operating budget). Given the continued uncertainty of the public health emergency with several unknowns still in front of us, these remain works in progress and based on Council feedback, staff will refine further and bring forward a recommended balancing strategy on May 26, 2020 for further Council input. A revised budget will be presented for final Council approval on June 22 ahead of the City’s start of the new fiscal year on July 1.

Unfortunately, based on the severity of the financial impacts ahead, there will be service impacts. Staff will continue to explore creative solutions to ensure we can provide core services to our community through efficiencies and changes to service delivery where possible. Using reserves will not be enough to balance the budget. The current strategy does not rely on use of General Fund reserves in FY 2020-2021. Staff is expecting to use reserves in FY 2019-2020 to assist in balancing the projected $20 million gap. These reductions, like the expense solutions 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 decision by the City Council to reflect the financial impacts associated represent significant service delivery reductions throughout the organization to balance the General Fund. All service areas will be impacted reducing General Fund expenses by $43.4 million, reducing the General Fund Budget to $195.4 million, a nearly 20 percent reduction.

Citywide, over $66 million will be reduced through elimination or deferrals of capital investment. These actions would result in 91 full-time position reduction, and over 33 part-time position reductions. This balancing strategy reflects a $930,000 surplus between General Fund revenues and expenses. Actions included in this strategy may not be realized and this funding could be used to offset any changes, could be allocated to assist in rebuilding the Budget Stabilization reserve, or be used to reinstate services impacted.

Proposed Balancing Solutions

The proposed balancing solutions seek to address funding needs across the organization. They also seek to balance the City’s liabilities and investments. Should the Council choose not to implement these strategies or go further on these strategies, a direct correlation to the service level reductions would result. We continue 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.

Citywide strategies considered include reducing funding to the Capital fund of $16.5 million, $8.5 due to the decline in TOT revenues and $8.1 million to assist in prioritizing services to the community and balancing the capital needs. Other balancing options include renegotiating the Cubberley Lease and reducing the City’s contribution to their pension Trust Fund by 50%.

City Service Area Balancing Solutions

Other balancing solutions are organized by City Service Area. These are summarized below.

Neighborhood, Community and Library Support City Service Area

Departments in the Neighborhood, Community and Library Support CSA include Community Services and Library.

Community Services Department: Reduce administrative and management staffing; reduce community theatre support; close the Baylands Nature Interpretive Center, eliminate contract rangers; eliminate program support to Youth Connectedness Initiative funding (YCS) and Santa Clara County Unhoused Programs, eliminate teen services programs; reduce recreation staffing; pause Know Your Neighbors Grant for 2 years; reduce special events for two years; increase middle school and adult athletics program fees by 25%, closer to 100% cost recovery; reduce parks maintenance contracts by 50%; increase Junior Museum and Zoo cost recovery model by increasing ticket price to $18 per ticket; reduce operating hours at three community centers and Art Center by one day; reduce programming and temporarily pause exhibitions at the Art Center, seeking to maintain studio classes and programming; and reduce Children’s Theatre productions, maintaining classes and camps.

This will adversely impact the department’s ability to support and respond to City Commissions and public inquiries, reduce capacity for marketing and communications efforts including collateral production, reduce CivicRec oversight and troubleshooting which could impact customer experience. This will also result in fewer ranger patrols, delayed response to maintenance such as trail and campsite repairs, decreased capacity for litter removal and group rental site reservation support, and reduced support for science educational opportunities. Other impacts include reducing the community’s access to, recreation, educational programs, cultural experiences by reduction in operating hours of Mitchell Park Community Center, Lucie Stern Community Center, Cubberley Community Center, and the Palo Alto Art Center for two years. Additionally, reducing or eliminating programs for youth and teens and in-school educational programs. Reductions to park maintenance will eliminate preventative maintenance and only safety-focused maintenance will be performed. ($4.7M General Fund; $4.7M All Funds and 13.25 full-time FTE; 15.19 part-time FTE All Funds)

Library Services: Reduce library hours at the Children’s library and Riconada library by changing the staffing model at Children’s to a neighborhood branch; close College Terrace library for two years; reduce part time staffing and information technology support; reduce training, supplies and materials acquisition impacting book supplies and other items; hold vacant an executive management position for one year; and reduce administrative support. This action reduces operating days and services at the Children’s Library and operating hours at the Rinconada Library. Children’s Library will be open four days per week (down from seven) and evening hours will be reduced at Rinconada Library (closing at 6pm every day, previously open until 9pm Monday-Thursday). Children’s Library will transition to a Neighborhood Branch level of service, which includes fewer programs and special events, like service levels at the Downtown Library. This action will also close College Terrace Library for two years. ($1.7M General Fund; $1.7M All Funds and 7.00 full-time FTE; 10.00 part-time FTE All Funds)

Public Safety City Service Area

Departments in this City Services Area include Fire, Police and Office of Emergency Services.

Police Department: Reduce community engagement events, public relations and outreach; reduce public lobby hours; reduce records management and staffing; restructure dispatch staffing resource; reduce patrol positions, eliminate specialized traffic unit and reduce assignments in investigations; reduce property and evidence hours; reduce funding for Animal Control; reduce funding for Police Reserves at special events and reduce support for the Parent Project. Personnel and Training will be reduced to align with the suspension of recruitment activity and ongoing hiring freeze citywide. Additional reductions include transferring the cost for one School Resource Officer to the school district and moving the costs of one police position to the City Manager’s Office. These reductions will impact non-emergency response and impact the Department ability to be proactive. ($6.2M General Fund; $6.3M All Funds and 29.80 full-time FTE; 2.42 part-time FTE All Funds)

Fire Department: Reduce fire prevention staffing; implement a new medical emergency response fee for first responder and emergency medical services and establish an ambulance subscription program; reduce incident response resources and staffing and move towards a brownout flexible staffing model. This action will temporarily reduce units when firefighters are on leave, rather than staffing units with overtime. This will increase response times and reduce ability to handle concurrent calls on evenings and weekends, resulting in some calls being handled by the County mutual aid partners. Other actions include reduction of administrative and support resources. ($1.3M General Fund; $1.3M All Funds and 7.60 full-time FTE; 0.00 part-time FTE All Funds)

Office of Emergency Services: Eliminate a staff position that will impact the City’s emergency response and reduce intrusion detection (IDS) system. This reduction will result in fewer resources to support the critical infrastructure program, which includes establishing key community contacts, conducting assessments, and maintaining an essential database. Scaling back this program will impact the preparedness of the community. ($0.2M General Fund; $0.2M All Funds and 1.00 full-time FTE; 0.00 part- time FTE All Funds)

Planning and Transportation City Services Area

Departments in this City Services Area include Planning and Development Services and the Office of Transportation.

Office of Transportation: Reduce the administration of the Residential Parking Program and hourly staffing associated and eliminate the Crosstown and Embarcadero Shuttle. This action will reduce free alternative transportation options to residents of and visitors to Palo Alto, including senior citizens and local students. The department’s response times and capacity to review and reconcile parking citation matters will be impacted and delays will occur. Residential Preferential Parking Program changes including phasing the administration of this program to allow for License Plate Recognition (LPR), virtual permits, and other modifications to allow for cost control. Staff will provide greater detail on the program changes including revised financial impacts as part of the Office of Transportation review scheduled on May 13. Savings for this is reflected in the reduction of the General Fund subsidy to the RPP Fund. ($0.6M General Fund; $0.6M All Funds and 0.00 full-time FTE; 0.48 part-time FTE All Funds)

Planning and Development Services: Eliminate vacant staff positions and substantial reductions in contract and consultant services for planning and building services. Reductions and impacts include long range planning and housing, code enforcement; reduce development services administration and programming assistance, building inspection and plan review, and reductions in development services reserves. Staff’s ability to provide administrative, project management, and customer support will be reduced and responses to public record requests delayed. Significant delays in application processing and customer service response times are expected. Modification to local zoning regulations may be required to streamline application review, reducing the amount of time staff spends on each project and with public engagement. A corresponding reduction is recommended for associated fee revenue. This action also impacts associated housing-related assignments and projects such as North Ventura Coordinated Area Plans (NVCAP), with work substantially curtailed as focus will be primarily given to state housing laws and preparing the new Housing Element. Code enforcement response will focus on highest priority health and safety-related cases, and response times will slow. Other impact will result in longer lead times for inspections, suspended progress on the Energy Reach Code, and less participation in collaborative efforts such as sustainability, waste reduction, and other priorities. Next day inspections will no longer be an option for most projects. ($3.2M General Fund; $3.2M All Funds and 11.30 full-time FTE; 0.96 part-time FTE All Funds)

Infrastructure and Environment

Departments in this City Services Area include Public Works, Sustainability and Utilities.

Public Works Department: Reduce the City’s sidewalk program and capital project management; reallocate staffing from planning to public works; reduce tree trimming program through Urban forestry; defer vehicle replacement and maintenance; and freeze building and facilities engineering staffing. It is important to note that the sidewalk program would continue to address health and safety areas or “trip/fall” areas of concern. In addition, the reduction in tree trimming would not impact the current cycle time of 7 years. The implications of the sidewalk program reductions and deferred maintenance include, increased cost and scope for sidewalk replacement and repairs in the future and a possible increase in emergency repair needs. ($2.6M General Fund; $6.9M All Funds and 3.30 full-time FTE; 0.48 part-time FTE All Funds)

Utilities: Maintain 0% rate increase for the next year to customers; freeze business operations staffing; anticipating a service cost savings due to load loss; defer building electrification; suspend Carbon Neutral Gas carbon offset program; defer replacement of the gas PVC pipes, cross-bore inspections and defer sewer replacement. This has not been adjusted for the current Finance Committee recommendation to raise the gas utility rates by 3 percent which was approved 2:1 on May 5, 2020. Should the Council ultimately approve this rate increase, this savings would need to be adjusted. ($0.2M General Fund; $14.5M All Funds and 5.00 full-time FTE; 0.00 part-time FTE All Funds)

Economic Development and Business Support City Service Area

Work in this City Services Area include efforts from several departments including Planning and Development Services, City Manager’s Office, and Administrative Services Department.

Economic Sustainability and Business Support: There are no reductions recommended specifically for economic sustainability or business support. It is expected that in FY 2020 the City will be aligning resources to provide funding for the Small Business Recovery Grant Program as well as the waiver of business-related fees in the Business Registry Program and the Downtown Business Improvement District assessments. Staff will also be evaluating and returning to the City Council for consideration several recommendations focused on uplifting our business community during this challenging time. Generally, these efforts could include streamlining city processes, revising policy or zoning requirements and other items aimed at providing some relief to storefront and other small businesses as we seek to recover quickly from this public health emergency.

Internal Services/Strategic Support City Service Area

Departments in the Internal Services/Strategic Support CSA include the offices of the Council appointees (City Manager, City Attorney, City Clerk, and City Auditor) as well as the Administrative Services Department, Human Resources Department, and Information Technology Department.

Administrative Services: Purchasing, accounting and revenue reorganization, printing cost reductions, and two-year pause on the production of the City’s annual performance and budget performance reports through FY 2022. These actions would reduce resources in the procurement division, require the review of purchasing policies and requirements to allow for efficiencies and changing the City’s approach and may result in delays and less oversight of the City’s procurements processes. Possible reduction in customer service counter hours and greater wait times may be experienced, including delays in resolving customer service issues. Staff will explore shifting revenue collection functions to electronic or online platforms will to achieve efficiencies where possible. ($0.6M General Fund; $0.9M All Funds and 4.90 full-time FTE; 0.00 part-time FTE All Funds)

City Attorney’s Office: Reduction in legal services support to departments and non- salary costs like travel and training. This will curtail prosecution of municipal citations, code enforcement support, and public records response, and lengthen response times to new initiatives ($0.2M General Fund; $0.2M All Funds and 0.50 full-time FTE; 0.00 part-time FTE All Funds)

City Auditor’s Office: Placeholder reduction of similar internal services reductions due to the current City Council evaluation of audit service delivery. ($0.2M General Fund; $0.2M All Funds and 1.00 full-time FTE; 0.00 part-time FTE All Funds)

City Clerk’s Office: Reduction in administrative support and non-salary costs like travel, training, special events and elimination of contract services including advertising, noticing and minutes broadcasting. This will lengthen response times to staff and public inquiries and limit support for Council events and meetings. ($0.2M General Fund; $0.2M All Funds and 0.50 full-time FTE; 0.00 part-time FTE All Funds)

City Council: Elimination of training, travel, supplies and event costs. 25% reduction to the Council Contingency. ($0.1M General Fund; $0.1M All Funds and 0.00 full-time FTE; 0.00 part-time FTE All Funds)

City Manager’s Office: Freeze management support impacting Council directed initiatives and projects, department coordination, and elimination of travel, training and supply costs. This action reduces staff resources in the City Manager’s Office for two years. This will adversely impact the department’s ability to implement, manage, or coordinate initiatives; work on cross-departmental priorities; respond to Council and community requests; or provide support for public outreach. ($0.3M General Fund;$0.3M All Funds and 1.00 full-time FTE; 0.00 part-time FTE All Funds)

Human Resources Department: Reduction of Human Resources contingency, contract services, and staffing. Reductions will impact benefits, recruitment, training, employee relations, worker’s compensation, and workplace safety. ($0.2M General Fund; $0.2M All Funds and 1.00 full-time FTE; 0.98 part-time FTE All Funds)

Information Technology Department: Management staffing reductions; reduce application maintenance, support and replacement services; defer desktop replacements; eliminate training; and defer and seek a different approach to the Council Chambers upgrade and Customer Information System project. This budget impact will result in decreased response time for internal work orders and delays in projects support and management across the organization. ($1.0M General Fund; $3.6M All Funds and 4.00 full-time FTE; 0.00 part-time FTE All Funds)

Capital Improvement Plan Re-Prioritization

In addition to impacts in the Operating Budget, the City Council’s direction also requires re-prioritization of project funding and timelines in the Capital Budget and the five-year Capital Improvement Plan (CIP). In the Capital Improvement Fund, the changes to the revenue came primarily from reductions in the transfer from the General Fund and lower overall Transient Occupancy Tax (TOT) revenues, including the TOT revenue dedicated by Council for infrastructure improvements. In Fiscal Year 2021, the total reduction in revenue from these two sources is anticipated to be $16.5M, with a total reduction of $46.4M over the five-year CIP.

While working to re-balance the fund for the five-year CIP, the goal was to retain the highest priority projects based on criteria such as health and safety issues; Council priorities, including the Infrastructure Plan (IP) projects; and external funding sources while making strategic reductions to lower priority projects and recurring capital maintenance work whose impacts would be acceptable if limited to two years.

As a result, capital maintenance of key City facilities such as fire/life safety and electrical upgrades at City Hall, mechanical and electrical systems and new roofs at the Municipal Services Center (MSC), and streets and sidewalks will continue. In addition, Council’s emphasis on increased infrastructure funding over the last ten years has put the City in a good position with respect to its infrastructure and the significance of addressing “keep up” work while also eliminating much of the “catch up” backlog that was identified by IBRC in 2011, allows for the reduction of some recurring infrastructure work in the short term without significant negative impacts to the City’s facilities.

Join the Budget Conversations

As a result of the current public health emergency and the unprecedented circumstances we face as a City, tough budget discussions are underway, and we are seeking input from the community in several ways and offering different ways to stay informed and up to date.

Watch the Council Budget Hearings: Tune in, watch and share your input directly during budget hearings on May 12 and May 13. Meetings will be held by virtual teleconference only, with no physical location. The meeting will be broadcast on Cable TV Channel 26, live on YouTube, and live on the Midpen Media Center website. Members of the public who wish to participate by computer or phone can find instructions here.

Share Input Through an Online Budget Survey: The City is planning a phased approach to budget engagement including seeking input through an online budget priority tool open now through May 13. Share your input on specific proposed budget reductions beginning May 14.

Stay Informed on the City’s Budget: The City established a dedicated website with additional details on the City budget, including the current budget documents, videos of current budget presentations including yesterday’s May 11 overview and more.

Helpful Online Resources

Sign-up for City updates here.

Check out a flyer summarizing the budget process here.

Watch the budget summary from the May 11 Council meeting here.

Find the current budget proposals outlined in the May 11 staff report here.

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Official communications from the City of Palo Alto. Connect and join the conversation on issues of interest to our community.

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City of Palo Alto

City of Palo Alto

Official communications from the City of Palo Alto. Connect about issues of interest to our community. Follow us on social media-www.cityofpaloalto.org/connect

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