Dwindling revenues and stalled labor negotiations may force Palo Alto to shelve its emergency-preparation program, eliminate police-department traffic teams and contract out maintenance for its parks and golf course, city officials said Monday night.
The grim news about the city's latest budget figures and its options for closing a structural $10 million deficit was discussed at Monday night's City Council meeting, at which council members and staff warned that the ongoing recession would soon force Palo Alto to start eliminating programs and services.
City Manager James Keene told the council that though the national recession may be coming to an end, the city's precarious financial situation has not improved. Earlier in the year, Keene and the council grappled with a budget deficit of $10 million, but ultimately managed to close the gap through deferred contributions to the capital-improvements program, cost-cutting within departments and eliminating already-vacant positions.
A new staff reported showed hotel- and sales-tax revenues continuing to slip. Sales-tax revenues in fiscal year 2009 fell by 11.2 percent, or $2.5 million, from the prior year: In the first quarter of this year (January to April), sales-tax revenues fell by 14.9 percent; in the second quarter, sales-tax revenues dropped by 7.2 percent. Results from the third and fourth quarters this year "are projected to be relatively weak," the report states.
The report also noted that hotel-tax revenues dropped by 11.3 percent -- or $0.9 million -- from fiscal year 2008 to fiscal year 2009. Documentary-transfer-tax revenues (which are paid when property transfers ownership) fell from $5.4 million in fiscal year 2008 to $3.1 million in fiscal year 2009. The documentary-transfer-tax revenues were also 36 percent lower in September of this year than in September 2008.
Palo Alto's budget difficulties are further compounded by its inability to win concessions from its employees.
The fiscal year 2010 budget, which the council approved in June, banked on saving $3 million through reductions in employee salaries and benefits -- reductions that have failed to materialize because of intense opposition from workers. City officials have been mired in contract negotiations with the Service Employees International Union since May.
The current deficit -- coupled with the city's $450 million backlog in infrastructure maintenance, its bond obligations for the library-renovation project and its growing contributions to the California Public Employees' Retirement System -- means the city will have to rethink what services and programs it can provide, Keene said.
A new staff report points to the infrastructure backlog as a particularly dire indication of the city's teetering financial standing.
"The staggering estimate of $450 million in infrastructure rehabilitation and replacement needs reinforces the severity of the city's 'structural' deficit," states the report prepared by Joe Saccio, deputy director of the city's Administrative Services Department.
As a result, city officials intend to take a fresh look at the programs and services that were on the chopping block during the spring and summer but remained intact. The report identifies a list of "Tier 2" reductions, which include eliminating the current disaster-preparedness program; scrapping the city's shuttle service; contracting out parks and golf-maintenance work; and eliminating the Police Department's four-officer traffic team, a school-resource officer and a crime analyst. Cutting the Tier 2 items from the budget would result in elimination of 21 positions, 20 of which are currently occupied.
"Layoffs could result with these recommendations, which the City has sought to avoid," the report stated.
Keene told the council Monday that staff will return to the Finance Committee in November to discuss which programs and services to eliminate. Earlier in the year, the council chose not to cut programs that would result in layoffs, Keene said. But that may soon have to change.
"If we're not successful on balancing some of these things, we're going to have to be looking at these kinds of issues," Keene said.
Councilman John Barton called the projected deficits "phenomenal" and said he can't imagine a scenario -- short of another dot-com boom -- in which the city wouldn't have to cut services.
"We have to have an obligation, as a city, to prioritize -- to talk to the community and what they value more or less," Barton said.
"We're beginning a formalized, very public process that asks, 'Do you like the zoo more than animal services? Do you like your fire stations and libraries?'"
Vice Mayor Jack Morton said city officials will have to more effectively communicate to the residents the severity of the city's economic predicament. The city, he said, is looking at a grim future and "massive cuts" unless it manages to both control worker compensation and find new revenue sources.
"We're trying to negotiate with, I think, a labor force that does not really understand the predicament the city is in and we're trying to get the community to understand the importance of asking for a business-license tax that every other community needs," Morton said at Monday's sparsely attended discussion. "We're dealing with a crisis the city is facing and there's no audience."