News

Palo Alto budget gap could triple in decade

Flagging sales figures, slumping state economy blamed for city's bleak financial future

Palo Alto's annual budget deficit will more than triple over the next decade if the city doesn't slash its services or find significant new revenue sources, a new financial forecast shows.

The new document, which the City Council's Finance Committee discussed Tuesday night, projects that the deficit in Palo Alto's general fund will balloon from $6.4 million in fiscal year 2011 to $19.6 million in 2020 if the city doesn't reduce costs or find new revenue sources.

The general fund, which pays for most basic city services, also faces a $6.3 million shortage in the fiscal year 2010, which ends June 30. City officials raised the projected 2010 budget deficit from $5.4 million to $6.3 million this month because of continuing decline in sales-tax revenues.

On Tuesday, city officials proposed to close the 2010 gap through a combination of fund transfers, savings from vacant positions and one-time cost reductions. This allows the city to postpone making major "structural" (more permanent) cuts until the next year.

But council members also agreed that bigger structural changes would need to be made in future years to contain Palo Alto's spiraling deficit. Councilman Greg Scharff was one of several committee members to argued Tuesday that program cuts alone won't achieve the balanced budgets -- new revenue sources will be equally critical.

"The cuts you're making in 2012, 2013 through 2020 -- you can't make those kinds of cuts every year and survive as a city," Scharff said. "You can't tax your way out of this. You need some growth in sales tax and property tax."

The new projections assume scant economic growth in the next few years. A new report from the city's Administrative Services Department restates that California's slumping economy and high unemployment rate have walloped the local economy.

In 2009, Palo Alto's sales revenues dropped by $2.9 million, or 14 percent, while hotel-tax revenues dropped by $500,000, or 7 percent. On the upside, the city's share of property-tax revenues rose by $300,000 and its documentary-transfer taxes went up by $200,000 (increases of 1.3 percent and 5 percent, respectively).

Even if Palo Alto's financial fortunes improve city officials will need to rethink its services and employee-compensation packages, the report stated.

"Furthermore, even when the local recovery takes hold, the traditional revenue sources will not sustain the current array of city services, employee salaries and benefits, and extensive infrastructure," Senior Financial Analyst Nancy Nagel wrote in the report.

"Thus the city will need to trim its service offerings, find new sources of revenue, or continue to prune the benefits packages offered to its employees in an equitable manner."

Councilman Larry Klein challenged some of the numbers in the long-term forecast, particularly its assumptions that salaries will continue to climb by about 4 percent even during a dismal economy. Klein said the city should only assume salary growth if it has an accompanying growth in revenues.

"I don't think any City Council will allow those increases at the same time they cut programs," Klein said. "It's much more reasonable to assume if revenues go down significantly, the (salary) payments will go down significantly."

The new long-term forecast shows the city's infrastructure backlog swelling to $510 million. This includes a $302 million backlog in maintenance for existing city structures and $208 million backlog for replacing and updating facilities.

The full council will discuss the long-term budget projections on March 29, at which time staff plans to lay out a list of possible cost-saving measures. City officials also plan to hold a series of community meetings in late March and April to assess community feeling about the city's financial outlook and possible cutbacks or fee increases in services and programs.

City Manager James Keene said he plans to talk to local neighborhood associations in the coming months about possible cuts. The council's Policy and Services Committee also plans to participate in the process of prioritizing the city's programs and services.

Keene is scheduled to present what he called a "trial budget" for fiscal year 2010 to the council on April 26. The budget would then be revised and adopted by the council on June 28.

"It's clear that there's no escape from difficult long-term choices," Keene said.

"That's the whole point of this."

Comments

Posted by Mark, a resident of Stanford
on Feb 16, 2010 at 10:56 pm

Could Palo Alto become a "healthcare hub"...a city focused on delivering quality healthcare, where people come from across the nation to get world class treatment? People will (unfortunately) always get sick compared to tourists who can choose when they will come. Supporting Stanford Hospital and Clinics and other local healthcare agencies like PAMF/Sutter seems like one way Palo Alto can attract revenue. Why not make Palo Alto a one-stop-city for all your major healthcare needs?


Posted by Oldtimer, a resident of another community
on Feb 17, 2010 at 12:33 am

Council can get started by abandoning the money pit called "SAP."


Posted by Another Oldtimer, a resident of another community
on Feb 17, 2010 at 6:45 am

Yes, it all did start with SAP!


Posted by Brian Wilson, a resident of Midtown
on Feb 17, 2010 at 8:23 am

Who wants to move their business to Palo Alto when you have a city manager whose "the glass is half empty" attitude doesn't exactly inspire business confidence. Meanwhile, you have a city council who wrings their hands of offering new or old business's any incentive to stay and only encourages and promotes a business tax. Good grief! Hey Larry, you can question the findings of the Finance Committee on city employee salaries rising 4% all you want, but guess what, when you continue to fill vacant city positions with private contractors and consultants at twice the salary of a full time city employee to give the illusion that the city is reducing employee benefits, well, sooner than later the public will begin to question your financial decisions. Recently, Roseville fired their $250,000 a year city manager and the current interim manager has given notice to all contactors and consultants filling vacant city employee jobs that their services are no longer required. Sounds like good business advice!


Posted by pat, a resident of Midtown
on Feb 17, 2010 at 10:39 am

Mark, you're too logical and are forgetting that the city is constantly putting roadblocks in Stanford Hospital's path. That's how we lost out on the expansion of Stanford Shopping Center.

Council wants more tax revenue, but only if it doesn't generate more traffic!

I'll bet any resident with any business background and common sense could easily go through the city budget and make obvious cuts. For example, when are we going to turn the "beloved" Children's Theater and Jr. Museum over to private management? Why do we need 5 libraries (plus the Children's)?

Let's get real about priorities!


Posted by fireman, a resident of another community
on Feb 17, 2010 at 12:09 pm

Lets not forget all the homes and loans the city is giving it's Manager.. Maybe he should get cut back to an appartment?


Posted by former resident of Palo Alto, a resident of another community
on Feb 17, 2010 at 12:12 pm

The reason for the shortfall is that Palo Alto chased away hotels plus car dealers. Why do you think the Four Seasons is in East Palo Alto as opposed to Palo Alto? Paalo Alto did not want to have a high rise building looking over everyone. It is the same reason you can't have a three story house. People in Palo Alto are reaping what they sowed years ago.


Posted by fireman, a resident of another community
on Feb 17, 2010 at 12:13 pm

Mr Wilson... You are right......again.. City Government is what broke the back of the state. Not the workers........ Their leaders.


Posted by Thomas, a resident of Crescent Park
on Feb 17, 2010 at 2:28 pm

Wow, on one hand I feel blessed to be out of the area this week on business...

On another, I feel a little disillusioned, that one small plane being piloted by someone not too bright, has brought the city I live in to a halt... My, my, my... we sure have screwed up over the years electing City Council Members who argue over fountains downtown, the Senior Games, whether or not our firefighters are overpaid or why we don't have the money to build a proper police station...

My grace protect us from ourselves the next time we have a wide scale natural "disaster" or "terrorist type" event in Palo Alto. Goodness, we can't even protect our children from the stress of going to school in Palo Alto so that they keep lying down on the train tracks.... We live in an area that is prone to flooding, earthquakes, vegetation fires, we have some of the largest 'targets in the Valley.' Examples are the new JCC, and the many buildings and venues at Stanford.

We great planning we have... We're not prepared. We want to take additional funding away from the police and fire departments - they are overloaded when a simple plane crashes in East Palo Alto.

Look at the revenue streams we have chased away; with the companies relocated to East Palo Alto and Mountain View. The vacant businesses in Palo Alto and in the Stanford Industrial Park. The special interests and developers are doing wonderful... Thanks to our support...

Look at the millions and millions of dollars of lost revenue we have given away... We have not been sustainable for many years and we have made and continue to make many poor choices...

Though we can make new choices... Perhaps it's time to take my family and move away...

I feel lucky to be out of the area; seems like most of you are still with out power... Perhaps we should choose to start all over again. Recall these ineffective elected leaders. Develop, implement, and support effective emergency services, schools and develop sustainable revenues! If not now, then when?

May your power come back on soon. Thanks to the people out on the streets who are taking care of our city and East Palo Alto.

Take care; take care of yourselves, seems like we have created a city that can't take care of us any longer.

May grace take care of us all.


Posted by Mike, a resident of Crescent Park
on Feb 17, 2010 at 3:13 pm

So long as we can continue to offer great compensation and retirement programs to our city employees well beyond those in corresponding private sector jobs, we should not mind substantial reductions in city services and accompanying increases in taxes and fees.

We will each have the satisfaction of going to bed every night knowing that we have helped make a city worker (or former city worker)exceedingly happy that day.


Posted by fireman, a resident of another community
on Feb 17, 2010 at 9:36 pm

Thomas, The Fire Department gets plenty of funding. It is the huge amount of waste, like the 2 High Tech fire engines the city paid way more for than any other Fire Engines in the history of palo alto. Not to mention that they where total failures and that was because they where custom built for Palo Alto.
The out of control overtime, Paying the highest paid firefighters Time and a half to fill the position of the lowest paid Firefighters positions

Just think if the plane went down in the Mud in Palo Alto Baylands, even if the people on board lived through the crash, They would most likely die waiting for the coast guard. The FD can't get a women on a walk out of the mud 30 feet away from them. How well do you think they can do with a plane several hundred yards away.

With the terrible map program they most likely could not even find the people who need the help and do you think they even care?
just give them the money and call someone else to do their jobs ,like the coast guard.

Just be ready for the Fire Chief to cry the woes, Hey has anyone see the foothill fire plan, what is it now 11 years and no plan?


Posted by bill, a resident of Barron Park
on Feb 17, 2010 at 10:17 pm

Mr. Klein makes a good point in that if revenues go down, salary increases should go down. But he has served for 14 years and never do I recall him reining in salary increases, let alone costly services. He sounds like a typical politician.

Mr. Scharff says we need growth in sales tax and property tax. The former is higher than almost any other city or state in the nation. The latter means modifying Prop. 13 so that, when corporations sell a property, their tax base is changed exactly as it does when property changes hand by private parties. Corporate lobbying will sink that one.

Prior councils have bowed to some of the older residents and refused to cut programs which benefit a few. Five libraries instead of one or two. A shuttle service that few ride. An airport that continues to lose money and 2/3 or its users are from other communities. A golf course that has always lost money. People want services, but don't want to pay for them.

Reduce our service burdens. One is by selling Foothill Park to the much larger Peninsula Open Space Trust (POST). I doubt if 10% of PA residents visit the park more than once or twice a year. They could still visit, but might have to "put up with" those from other communities. What an unwelcome thought that we should share. There are other properties we hang on to that cost money when they could be sold and earn money. Mt. View has done this several times.

Council. Words, word, words. Please stop acting like politicians who vote to appease and remain in office (as all prior councils have done) and make the tough decisions. Don't put it off so you'll be out of office and can't be held accountable - as do the members of our California Legislature.


Posted by bill, a resident of Barron Park
on Feb 17, 2010 at 10:18 pm

Mr. Klein makes a good point in that if revenues go down, salary increases should go down. But he has served for 14 years and never do I recall him reining in salary increases, let alone costly services. He sounds like a typical politician.

Mr. Scharff says we need growth in sales tax and property tax. The former is higher than almost any other city or state in the nation. The latter means modifying Prop. 13 so that, when corporations sell a property, their tax base is changed exactly as it does when property changes hand by private parties. Corporate lobbying will sink that one.

Prior councils have bowed to some of the older residents and refused to cut programs which benefit a few. Five libraries instead of one or two. A shuttle service that few ride. An airport that continues to lose money and 2/3 or its users are from other communities. A golf course that has always lost money. People want services, but don't want to pay for them.

Reduce our service burdens. One is by selling Foothill Park to the much larger Peninsula Open Space Trust (POST). I doubt if 10% of PA residents visit the park more than once or twice a year. They could still visit, but might have to "put up with" those from other communities. What an unwelcome thought that we should share. There are other properties we hang on to that cost money when they could be sold and earn money. Mt. View has done this several times.

Council. Words, word, words. Please stop acting like politicians who vote to appease and remain in office (as all prior councils have done) and make the tough decisions. Don't put it off so you'll be out of office and can't be held accountable - as do the members of our California Legislature.


Posted by joel, a resident of Midtown
on Feb 17, 2010 at 11:33 pm

Palo Alto's hotel-tax revenues dropped by $500,000 and we still consider the $240,000-a-year "Destination Palo Alto" program a huge success?!?

Did we elect the Three Stooges to run the city or what?


Posted by fireman, a resident of another community
on Feb 18, 2010 at 6:21 am

It starts with waste. If the huge amount of wasted public funding was cut from the Palo Alto budget this huge problem would not exist.

The money for the services has been funded and spent, however, with the poor quality of leadership the services are substandard or only work on paper. The city and it's leaders tell you how great the services are, then when you need them. THEY FAIL.

For example the Water Rescue program. Funded for many years then it was needed and the Citizen stuck in the mud could not be helped let alone rescued.

The Fire Department is over 100 years old and can't find the people needing help? The map program that was funded and called the new map program did nothing but wasted public funding.

The list goes on and on.

Now the sick joke part is the citizens get less and less, almost all the employees get less, however, a few employees at the top get more and more.

Palo Alto is not a large city, 70,000 people but, the city manager gets a home and set for life with great benefits. While the trees get cut down, services get cut and the public's safety goes down. Not from lack of funds, from waste and the people handleing the money being incompotent and greedy.

Cut the waste and treat people like humans for a change.


Posted by Midtown Resident, a resident of Midtown
on Feb 18, 2010 at 7:18 am

We are losing tax revenues because we keep converting business areas such as Hyatt Rickey's, to more houses, which just puts more strains on schools and other services.We need more businesses to get the revenues to sustain this city, not more houses.


Posted by new in town, a resident of Midtown
on Feb 18, 2010 at 8:51 am

We're new here and simply shocked at the amount of effort and cost that goes into keeping PA pristine. Not that we like potholes, but I wonder whether a road rut or dip has even existed here.

The streets in our perfectly smooth neighborhood were re-paved this summer, the trees are constantly being pruned (ever so slowly....lets really work that over-time) and now the near perfect sidewalks are being repaired for slight cracks and a tiny 1/2 inch buckle here and there. Looks like a serious waste of resources. (or perhaps avoidance of petty lawsuits)

Don't get me wrong. We love living in such a country club city. But, do city leaders really grok that these fiscal challenges are not just going to right themselves or cycle out? Has the leadership of la la land ever truly been tested? From reading the above posts and our own basic observations, it is very clear that there is fat to be trimmed just about everywhere. That is, if the city leaders are serious about it.


Posted by John Galt, a resident of Fairmeadow
on Feb 18, 2010 at 10:43 am

Cut spending! If revenues drop, cut more spending!
Don't wring your hands and moan, cut spending!
I'll repeat the "Inconvenient Truth", if you don't have the money, cut spending!
QED.


Posted by Marvin, a resident of Charleston Gardens
on Feb 18, 2010 at 10:51 am

"Mr. Klein makes a good point in that if revenues go down, salary increases should go down. But he has served for 14 years and never do I recall him reining in salary increases, let alone costly services. He sounds like a typical politician."

Of course, Larry Klein also supported giving extravagant bonuses to management personnel for just showing up to work. Maybe he was misled.


Posted by Oldtimer, a resident of another community
on Feb 18, 2010 at 3:11 pm

[Post removed by Palo Alto Online staff.]


Posted by Mike, a resident of Crescent Park
on Feb 18, 2010 at 6:01 pm

"New in Town" must either possess a very droll sense of humor, or mid town is a vastly different place than Crescent Park and Northern PA. Here pot holes and rough streets are common, and the sidewalks have cracks and dislocations from tree roots that make it imperative to pay attention when you walk.

Pristine is not a term that comes to mind on our roads and sidewalks and trees.


Posted by Resident, a resident of Old Palo Alto
on Feb 18, 2010 at 11:08 pm

I couldn't agree more with Mike. Our roads are a mess of potholes for cars and absolutely dangerous even for mountain bikes.... yet cycling/being green is the politically correct thing to do around here. I just don't know how to do my daily life errands on a bike when all the practical kinds of shops are not in town... unless I spend a fortune on buying organic everything in the tiny cramped stores full of cranky people, who are all struggling to be more righteous and green than the next guy.


Posted by Don't fire til you see the whites of their eyes, a resident of another community
on Feb 18, 2010 at 11:58 pm

[Post removed by Palo Alto Online staff.]


Posted by Been there, done that, a resident of Evergreen Park
on Feb 20, 2010 at 11:10 am

I still don't understand why we are not better cooperating with neighboring municipalities to ease some of our service and infrastructure problems. Everyone is trying, but we are flummoxed by problems beyond our immediate control. We are no longer a small village; we are part of an urban megalopolis. I don't have the answers, but obviously we need to explore some of these problems from a different angle. City Council is not to blame, nor are City employees. The blame game spreads like wildfire, and is counterproductive. (good social psychological studies on this).

This is a complex environment that requires real innovation - a 'leap of governance', if you will. What I fear is the problem that we all have after having done something for a while; that problem is getting too used to seeing the solutions to problems in the way that we did in the past. The current solutions (taxing, etc.) are certainly part of a mix, but I sense they are band aids.

The challenge is to find a way to break the structural chains of inefficiency that creep into any government over time. My further sense is that we have been looking too inward for this solution. Our neighbor municipalities are having similar problems. Why aren't we in deep dialogue with them - at the policy and operational level? What efficiencies and economies could be wrought through truly well-thought-out and comprehensive regional planning. We are simply not involved in that process as deeply as we should be.

A final word about consultants. Sometimes, consultants are necessary, but I have witnesses many instances here (from up close, through personal involvement) where a consultant was hired because a more "perfect answer" was sought by either City Council or City Administration. Too often the consultants were embedded in part of a process because there was fear about "not knowing enough", even though there was more than enough good information to proceed. We need to look more carefully at this phenomenon and use it as a first clue about how we govern.

There is an element of "governance fear" that permeates Palo Alto policy and operational efforts. I think this comes from the strong and consistent voices that are the primary citizen-based drivers of conversation here.

Thus, we still need to pay more attention to "community engagement" - in fact, far more attention. **we need to listen to new voices**. We need to get out into our community and talk to people who don't show up for City Council meetings, week-after-week, year-after-year. We need to move past established thinking that doesn't work any more. We need more diversity of citizen input.

How to enable that? I'm not sure, but we need to start somewhere, and a good place would be a reaching out within our borders, and without our borders in a far more comprehensive way that awe have prior. And, we don't need consultants to tell us how to do this. We have to solve these problems in the vernacular. It won't be easy, and there will be some angry folk, no matter what path we take.

Diversity via engagement is the key. Let's at least try that to a serious and committed degree. Start there.


Posted by Red Meat, a resident of another community
on Feb 20, 2010 at 6:08 pm

This article is red meat to Marin, Pat, and Fireman.


Posted by chris, a resident of University South
on Feb 21, 2010 at 2:59 pm

The structural deficit is so large that it is going to take all 4 of the following to solve:

1. Cut services
2. Increase fees for services
3. Cut salaries and benefits of remaining workers
4. Raise taxes

Anybody who does not understand that is living in denial that they are not as well off individually and as cities, states, and country
as they thought a few years when everybody was riding high on a debt-fueled bubble.


Posted by NAC, a resident of Old Palo Alto
on Feb 21, 2010 at 9:34 pm

chris from university south, I fear nobody in the state or even the country understands that, let along palo alto. borrow, spend, borrow, spend, inflate and pray.


Posted by pat, a resident of Midtown
on Feb 22, 2010 at 10:15 am

Chris is right! We can't get something for nothing. Some cities are finally getting a clue:

Los Angeles Council cuts 4,000 city jobs
Web Link


Posted by Red Meat, a resident of another community
on Feb 23, 2010 at 10:10 am

Pat is correct. The City of Palo Alto should follow the example of the City of Los Angeles cut 4,000 jobs from its payroll. Marvin and Fireman, please weigh in on this too.


Posted by Resident, a resident of Midtown
on Feb 26, 2010 at 8:31 am

It is time the City considered selling off the Arastra Preserve and Foothill Park to the Peninsula Open Space Trust (POST). Just maintaining these huge open spaces costs the city millions every year. If they were sold to POST they would still remain open space and POST would then undertake to maintain them rather than Palo Alto taxpayers.

Selling Foothill Park and the Arastra Preserve to POST would also solve the problem of whether Palo Alto should open up Foothill Park to residents of neighboring City, POST could make that decision.

Also I would recommend selling Ester Clarke Park to the City of Los Altos Hills since 80 percent of the park is surrounded by large LAH homes. This park is clearly of more benefit to LAH than Palo Alto. How many PA residents have visited Ester Clarke Park?


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