Palo Alto Weekly

News - December 23, 2011

Report: Higher tax, new bond needed to fund city repairs

Task force lays out plan for fixing up Palo Alto's crumbling infrastructure

by Gennady Sheyner

Palo Alto should raise its sales tax, terminate its Cubberley Community Center lease and devote almost a quarter of its annual budget to repairing and replacing the city's dilapidated infrastructure, a specially appointed commission recommends in a highly anticipated report released Thursday.

The Infrastructure Blue Ribbon Commission, which the City Council appointed in May 2010 to address Palo Alto's mounting infrastructure problems, offers in its report a broad range of recommendations, some aimed at raising funds for the needed repairs and others seeking to improve the city's oversight of its crumbling streets, parks and facilities. Its boldest and potentially most controversial recommendations include: ending the lease of Cubberley on Middlefield Road, raising the sales tax 3/8 of a cent and dedicating 23 percent of General Fund revenue to infrastructure every year. Only a supermajority of six council members could reduce infrastructure funding below 23 percent in any given year, the commission recommends. (Infrastructure expenditures have accounted for about 19 percent of the general fund in recent years.)

The 170-page report, titled "Palo Alto's Infrastructure: Catching Up, Keeping Up, and Moving Ahead," is a major milestone for the council, which made "infrastructure" one of its official priorities for 2011. Though the subject rarely rouses the passions of the citizenry, city officials have taken a keen interest in the topic in recent years, with a particular focus on replacing the city's small and outdated police headquarters.

Previous estimates had pegged costs of the city's infrastructure-repair backlog at roughly $500 million.

Ray Bacchetti, who co-chaired the commission along with former Mayor Leland Levy, said one of the commission's main goals was to replace the old estimate with more realistic figures.

"We tried to develop a highly credible set of numbers," Bacchetti told the Weekly. "One of the last things we want is for people to collapse this (infrastructure spending) into one number."

The ambitious report makes it clear that finding the needed funds would not be easy, financially or politically. But it also splits the nebulous topic of "infrastructure" into more concrete and digestible sections and provides numerous options for building new facilities and making the necessary fixes. It proposes different funding mechanisms for replacing the police headquarters and two outdated fire stations than for replacing the Municipal Services Center and Animal Services Center on East Bayshore Road. Deferred and ongoing maintenance of city streets, parks and facilities might be paid for through yet other means.

Perhaps its potentially most controversial recommendation is raising the city's sales tax rate another 0.375 percent, or 3/8 of a cent. Palo Alto's current rate of 8.25 percent is the minimum level required in San Mateo and Santa Clara counties, according to the report. Most cities also have an 8.25 percent rate, though the City of San Mateo and Campbell each have a tax rate of 8.5 percent.

The revenues from the tax would help Palo Alto close a backlog of $41.5 million in what the commission called "catch-up" or "deferred maintenance." This category includes repairs that should have been done in the past but were delayed. The commission had spread out the catch-up cost over 10 years, which means the city would need to spend about $4.2 million to pay for the deferred repairs.

The report maintains that city's infrastructure has been "underfunded" for years. The city's streets, for example, now rank below those of most neighboring communities according to the "pavement condition index."

"As Palo Alto's infrastructure has aged, maintenance needs have become more pronounced," the report states. "At the same time, the City's revenue raising flexibility has diminished. In recent years, despite accounting for almost 19 percent of the City's budget, Palo Alto's infrastructure maintenance has continued to deteriorate."

In addition to this backlog, the city needs to spend $32.2 million annually to maintain existing infrastructure — about $2.2 million more than it currently spends. The tax rate increase and end of the Cubberley lease might pay for both the deferred repairs and for ongoing maintenance, the commission stated.

New taxes could prove to be a tough sell to the community. Palo Alto's attempt to introduce a business-license tax last year got shot down by the voters on Election Day. Half Moon Bay tried to raise its sales-tax rate by 1 percent last year but failed when only 47 percent of the voters supported the change.

A tax increase requires a majority vote if the revenue is used for "general purposes" and a two-thirds vote if it's used for specific purposes. According to the report, 50 cities in California have adopted sales-tax increases ranging from 1/8 of a percent to 1 percent over the past three years.

The commission had also considered a parcel tax (which would require a two-thirds vote) and a business-license tax before recommending the sales-tax increase. The proposed sales-tax increase, according to the report, would bring the city $7.9 million in annual revenues, according to the report.

The recommendation to drop the Cubberley lease is also expected to stir strong emotions in the community. The city currently spends about $6.1 million to lease Cubberley space from the Palo Alto Unified School District — space that includes a Foothill College campus, playing fields and a scattering of offices used by nonprofit groups, day-care centers and artist studios. Palo Alto owns 8 acres of Cubberley and leases the rest from the school district.

The community center is worn down and would need about $18 million in repairs.

"With our city struggling to meet the financial requirements of the General Fund, let alone catching-up and keeping-up with the maintenance of the City's infrastructure demands, now is the appropriate time for the school district to re-establish its management and financial responsibilities of and for the Cubberley site," the report states.

While new revenues and savings from Cubberley could help the city deal with everyday repairs, the commission recommends different funding mechanisms to pay for some of the big-ticket items on the city's infrastructure wish list. On top of this list is a new public-safety building — a project that Palo Alto officials have been struggling with for much of the last decade. The current police building on Forest Avenue shares space with City Hall and does not meet existing building codes and seismic regulations. Five years ago, a specially appointed task force reviewed the city's public-safety needs and recommended "in the strongest possible terms that the City proceed expeditiously to build a new Public Safety Building."

To pay the estimated price tag of $65 million, the commission recommends that the city either ask the voters to pass a bond or issue "certificates of participation." The bond, proposed for 2012, would require a two-thirds vote to pass. The certificates of participation would not require a vote but would come with an interest rate that is 15 to 20 percent higher than in the bond option.

The commission also recommends replacing the small and outdated fire stations near Mitchell and Rinconada parks — a $14.2 million endeavor — on the same bond measure. The two stations, according to the report, are "vulnerable to earthquakes" and "have insufficient space to safely house the larger engines needed to accommodate developments in firefighting, rescue operations, and emergency medical response."

Another daunting project on the city's to-do list is replacing the sprawling and heavily worn Municipal Service Center and Animal Services Center. The commission estimates that this effort would cost about $100 million and recommends using a utility revenue bond to pay for the changes. Because of the scope of the project, the commission recommends that the city further analyze the costs and benefits of both renovating the facility and repurposing of land for other uses, some of which could generate revenue.

Bacchetti said the commission, in its report, was seeking to lay out for Palo Alto residents the choices that the city has to make to preserve its quality of life. The council will have a chance to debate these choices on Jan. 17, when it holds a public hearing on the new report.

"The aim is to not have a recurrence of Palo Alto falling behind in infrastructure," Bacchetti told the Weekly. "It's not going away and the longer you wait, the more expensive it's likely to be."

Staff Writer Gennady Sheyner can be emailed at gsheyner@paweekly.com.

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