http://paloaltoonline.com/print/story/print/2011/03/18/budget-deficits-forecast-for-palo-alto


Palo Alto Weekly

News - March 18, 2011

Budget deficits forecast for Palo Alto

Despite recent cuts, city struggles to contain long-term costs

by Gennady Sheyner

Recent layoffs and salary freezes will not save the City of Palo Alto from years of budget deficits as health care and pension costs continue to spike across the state, the city's finance officials said Monday night (March 14).

Despite two years in which the city eliminated about 60 full-time positions and privatized various services, Palo Alto is projected to face a cumulative deficit of about $100 million over the next decade, according to a new 10-year financial forecast. The document, which the City Council discussed Monday, indicates that the deficit would climb to about $215 million over 10 years if the council were to add $10 million a year in infrastructure spending, as some have advocated. The city's infrastructure backlog is currently estimated at about $500 million.

The numbers would've been even higher if not for the fact that the council trimmed the city's ongoing expenses by $7.3 million last year and instituted salary freezes on most city workers to close recent budget gaps. But city officials pointed to the new forecast as an indicator that city employees will have to make further sacrifices in the years to come.

"We need additional contributions by our employees," Administrative Service Director Lalo Perez told the council. "It's not going to be possible for us to close these deficits unless we have future participation."

Public-safety workers — notably the firefighters — present a particular concern to finance officials. Perez said if the city's public-safety unions agreed to the same type of concessions that other bargaining groups have accepted, the city would not have a deficit in fiscal year 2012. Under the current projections, Palo Alto is slated to have a deficit of $937,000 in the current fiscal year (which ends June 30) and deficits of $2.3 million and $6.7 million in the next two years, respectively.

"We must have participation by all bargain units," Perez said.

City Manager James Keene pointed to the new forecast as an indicator that the city will have to continue to make cuts in the years ahead.

"What it really means is hard choices and every year that goes by, the hard choices get harder because they got preceded by other choices," Keene said.

The forecast assumes that after three years of salary freezes, city workers would see a 2 percent increase in their salaries starting in 2013. It also assumes that health-care costs would rise by 10 percent every year and that pension costs would go up by 3 percent between 2015 and 2020.

Overall, pension payments are slated to climb from the current level of about $20 million per year to about $29 million in 2015, according to staff projections.

Councilman Pat Burt said rising costs such as health care and pensions are factors other cities are also wrestling with and are largely out of Palo Alto's control. The council had already instituted a two-tier formula that lowers future pension payments for new workers, but while this reform is expected to help the city keep its costs down in the long-term, it will do little to eliminate the short-term deficit.

"We're going to have some of these issues even if we make structural changes beyond what we made in the last two years — which were out ahead of every city in the region," Burt said.

TALK ABOUT IT

What do you think the city should do to deal with budget deficits? Share your opinions on Town Square on Palo Alto Online.

Staff Writer Gennady Sheyner can be e-mailed at gsheyner@paweekly.com.

Comments

Posted by can't go on like this, a resident of Crescent Park
on Mar 15, 2011 at 8:28 am

What would a company do if it was losing money?


Posted by Jo Ann, a resident of Embarcadero Oaks/Leland
on Mar 15, 2011 at 10:25 am

Of course you've got a deficit. Stores are closing due to stupid traffic management like at Town & Country that encourages us to stop elsewhere. Money's being wasted studying "traffic diets" for Cal Ave that will force out even more businesses. You just approved a huge pay increase for the firefighters. You continue to pay over-time to people making huge salaries. You're raising our water rates 12.5% so we'll have even less money to spend.

Rinse, lather, repeat.


Posted by Frank, a resident of Ventura
on Mar 15, 2011 at 10:56 am

I really don't think the deficit can be pinned on traffic policy closing stores. El Camino south of Page Mill has had no changes recently yet has a bunch of closed stores. And the California Ave traffic changes will make more like University Ave - a much more desirable shopping destination.

No, I suspect the closed stores have much more to do with the global economic recession that we have just gone through - perhaps you've heard about it.

But more to the point - we do not have a deficit we have a small projected deficit this year and growing larger in years to come if nothing is done. In fact, it is good work on the part of the city to identify and get in front of the situation. There are tough decisions ahead even for this year but identifying the problems now and looking at the options is exactly what the city council should be doing.


Posted by Max Power, a resident of another community
on Mar 15, 2011 at 11:15 am

Just wait till the Fed prints so much money that the dollar loses it's reserve status. Palo Alto will look back on these days with envy. Folks, things are going to get really bad in a year or too. These estimated deficits are going to balloon out of control.


Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 15, 2011 at 11:23 am

> Councilman Pat Burt said rising costs such as health care and
> pensions are factors other cities are also wrestling with and
> are largely out of Palo Alto's control.

Really? Who makes Palo Alto sign the contracts that have gotten us into these problems? Who makes Palo Alto sit quietly by and do nothing every time CalPERS gets involved in another scandal?

Wonder where Pat Burt is getting his information?


Posted by john, a resident of Another Palo Alto neighborhood
on Mar 15, 2011 at 12:11 pm

It's time the city got a lot tougher with the firefighters. The police volunteered to cut back the firefighters did not. Reduce the budget and give them a choice of lay-offs or cut-backs. I suspect they will go with lay-offs if past behaviour is any guide...


Posted by Wha?, a resident of Another Palo Alto neighborhood
on Mar 15, 2011 at 12:28 pm

Why is it always salary and pension and not drop in revenue? We didn't start the fire, it was always burning since the world was turning...


Posted by Barron Park, a resident of Barron Park
on Mar 15, 2011 at 1:22 pm

@Wha?

You may be confusing cause and effect. Palo Alto's drop in revenues may indeed be the immediate cause of the projected deficits (though long-term, employee health/pension cost growth figure in there as well).

But there appears to be no appetite to raise revenues (aka taxes) to the degree required to fill this hole. Hence, effect: reduce city expense wherever possible. The "cause", about which reasonable people can disagree, is irrelevant unless it can be part of the solution.

This is the same with the teacher reductions across the state for which the groundwork was laid today with notices of possible layoffs. Cause: drop in revenue (sales tax, Prop. 13 et al.). Effect: reduction in the largest single state expense, education.


Posted by The-Devil-Made-Me-Do-I, a resident of Another Palo Alto neighborhood
on Mar 15, 2011 at 1:42 pm

> We didn't start the fire, it was always burning since the
> world was turning...

Labor unions have been effective putting more-or-less automatic pay increases, with guaranteed pensions linked the high-years' salaries, on the backs of the taxpayers since the 1970s (anyway). As long as your expenses keep going up, and there is no off-setting productivity to justify these increased expenses .. then we end up one day with more expenses than revenue. Sadly, the revenues collected from the taxpayers is not clearly linked to the costs of government.


Posted by Walter, a resident of Barron Park
on Mar 15, 2011 at 1:52 pm

There are plenty of well-off people in Palo Alto. If we were to implement a city income tax of 10% on incomes over $100,000, we'd have plenty of money to pay our Firefighters what they deserve as well as give them pensions and healthcare for their golden years. The rich won't miss it and we need it!


Posted by registered user, peter carpenter, a resident of Atherton
on Mar 15, 2011 at 2:19 pm

In December 2008 I wrote the attached Guest Opinion for the Palo Alto Weekly. Now, 2 1/2 years later, in light of the current economic situation I thought it might be useful to update this piece.

First, the Perfect Storm hit exactly as predicted.

Second, even Palo Alto and Atherton were not spared from the decline in housing prices and the resultant impact on property tax revenues.

Third, local governments are only now beginning to realize that not only do they have a deficit but they have a structural deficit. i.e. one that cannot be covered by the use of reserves.

Fourth, while local governments have finally realized that the current defined benefit retirement programs are unsustainable there has been little fundamental change in those programs.

Fifth and most important, it is going to get worse not better. The housing market has not yet bottomed out, there will be further reductions in property values and even more requests for reassessments and property tax revenues will remain flat at best and possibly even decline further.

What needs to be done? Sadly the same things that I urged 2 1/2 years ago:

First, local governments need to recognize that there is a crisis and act NOW. A current deficit which is ignored grows every year until drastic reductions in services become the only alternative. There is no alternative but to insist on balanced budgets which do not assume an increase in property tax revenues.

Second, they need to involve their citizens in a careful look at each of their programs to determine which programs are no longer affordable — however nice or special they might have been in better times, or even how worthy any single program might be. And then the least essential programs need to be eliminated - not reduced but eliminated.

Third, they need to plan now for hiring freezes, elimination of overtime, reduction in services, layoffs, renegotiated labor agreements and, in the extreme, bankruptcy.

Fourth, they should consider accelerating essential capital-improvement projects (the operative word is essential), as construction costs during this downturn will be substantially less than if the projects are delayed until the recovery begins.

Finally, they need to move the review and approval of new labor agreements out from behind the current wall of secrecy from which the public is excluded. Once new labor agreements have been agreed upon by the negotiators then those agreements should be simultaneously submitted to both the union members and to the public that will bear the costs well before the city councils and special district boards meet in public session to vote on those agreements.

Most of the last 2 1/2 years have been spent sunbathing on the deck and in the wringing of hands. Watch out, the second wave of the Perfect Storm is coming.


Peter


*************************************




Palo Alto Weekly Spectrum - Friday, December 5, 2008



Guest Opinion: Economic 'perfect storm' is brewing for local agencies



by Peter Carpenter

For many years I have been directly involved in local government agencies or in federal programs designed to support local and state agencies.
Never in that period have I seen such financial storm clouds as now appear on the horizon of local governments.
For the last eight years I have had the privilege and the responsibility of serving the citizens as an elected director of the Menlo Park Fire Protection District (which serves Menlo Park, East Palo Alto, Atherton and parts of San Mateo County) — one of the finest fire districts in the country.
Previously, I served as a Planning Commissioner in Palo Alto and, many years ago, as the federal official in the Office of Management and Budget who was responsible for coordinating all federal assistance to state and local governments.
With falling property values yielding less property-tax revenues, falling consumer and business spending yielding less sales taxes, increased retirement costs (because CalPERS has suffered significant loss of capital in the current financial downturn), continued demands for well-above-average salary increases by public employees, and the governor declaring a financial emergency, local governments in California are facing a Perfect Storm.
Unless local governments act promptly to respond to these dramatic changes we will see more of them joining Vacaville and Rio Vista in being forced into bankruptcy.
Housing prices and hence property taxes will be depressed for at least another two years — just about everywhere except the Palo Alto area, it seems.
And if a lot of the current homeowners request reassessments the decreases will be dramatic.
Similarly consumer and business spending are forecast to be depressed for the next two years.
And CalPERS, which is obligated to continue to pay out fixed-benefit retirement payments and which has seen huge losses in its capital, can only turn to local governments to make up the difference.
And local governments have no choice but to pay what CalPERS will demand.
And while this is all happening local-government unions are continuing to ask for significant increases in both salaries and benefits.
The total labor costs for most local governments are between 60 and 80 percent of their total budgets. While California's local governments are blessed with very talented and capable employees, the current process of salary-and-benefit negotiation has gotten out of hand.
Local-government employee unions insist that the standard for setting their pay be that they be above the average of other public employees. But if everybody is above average then the average goes up very quickly.
While we have many superb employees working for local government, those employees should not expect to receive salaries and benefits that are inconsistent with those of the citizens whom they serve or that will bankrupt their employers.
And in most cases those inflationary-spiral labor agreements are being approved in secret without any public input or scrutiny.
As an elected member of the Board of Directors of one of the finest fire districts, what do I think should be done to respond to this Perfect Storm?
First, local governments need to recognize that there is a crisis and act now.
Second, they need to involve their citizens in a careful look at each of their programs to determine which programs are no longer affordable — however nice or special they might have been in better times, or even how worthy any single program might be.
Third, they need to plan now for hiring freezes, elimination of overtime, reduction in services, layoffs, renegotiated labor agreements and, in the extreme, bankruptcy.
Fourth, they should consider accelerating essential capital-improvement projects (the operative word is essential), as construction costs during this downturn will be substantially less than if the projects are delayed until the recovery begins.
Finally, they need to move the review and approval of new labor agreements out from behind the current wall of secrecy from which the public is excluded.
Once new labor agreements have been agreed upon by the negotiators then those agreements should be simultaneously submitted to both the union members and to the public that will bear the costs well before the city councils and special district boards meet in public session to vote on those agreements.
The Perfect Storm can be weathered but not by sunbathing on the deck.
Peter Carpenter is a longtime resident of the Midpeninsula who currently is a member of the Board of Directors of the Menlo Park Fire Protection District.


Posted by Blake, a resident of Old Palo Alto
on Mar 15, 2011 at 2:26 pm

The budget crisis that the city faces will obviously require sacrifices at many different levels, certainly as it applies to pensions and future retirement benefits. What I urge the city manager and council to consider however is to not further erode our public safety capabilities. Our quality of life and peace of mind will be compromised in the long run if we cut positions in the police and fire department. It is my understanding that the police department for example is operating with less officers today than it did twenty years ago. Palo Alto is not immune from crime and urban problems. As much as we might hate making cuts for other non-essential services, those are the sacrifices that need to be made. What cuts can be made within the library system, arts, or event planning?


Posted by Walter, a resident of Barron Park
on Mar 15, 2011 at 2:35 pm

Atherton and Palo Alto are both fortunate in that they have many people with excessive incomes that can be taxed for the benefit of all the residents. We need not contemplate either reductions in services or the ugly process of attempting to renegotiate sacred labor contracts if we merely tax the fortunate a little bit of the incomes they don't need.

We have plenty of money to keep and even add to the municipal labor force and pay them a living wage with secure retirements and health care if only we implement a small tax on excessive (>$100,000) incomes.

Palo Alto fancies itself a leader in many areas. We can be a leader in protecting the city workforce from the anti-progressive gutting of compensation and pensions we've seen in the private sector. At the same time we can level the savage income disparities that the Regan-Bush years bequeathed to us.

Tax the well-off more and we won't have the problems people are complaining of here!


Posted by Boomer, a resident of Community Center
on Mar 15, 2011 at 2:48 pm

Walter says "there a plenty of well-off people making more than $100,000" who could be taxed more to pay for the firefighters."

There were a lot more well-off people before the economic crash. Many of us aren't working and haven't worked for a long time. These people don't have the security of lifetime pensions and benefits.

The governments -- and many of us -- seemed "well-off" due to capital gains taxes as people sold off their "retirements" to pay Enron, state capital gains taxes, sales tax, rising utility rates, rising health care costs, etc.

A decade ago we had what I called "benefits marriages" because the lucky few with pensions got higher benefits if they were married. Now in the private sector you're seeming "benefits divorces" among boomers where one is too young to qualify for Medicare and the other spouse would be wiped out by a single major health problem.

As I remind my retired govt. worker friends, consider yourself lucky that you've got a pension and benefits. Most of us don't.


Posted by Barron Park, a resident of Barron Park
on Mar 15, 2011 at 3:03 pm

@Walter

Please do take the lead in proposing a new tax for city residents, as you think best constructed. I will donate to your effort and, depending on specifics, may well vote for it. Please do it.

Your and my efforts notwithstanding, the likelihood of passage of any such proposition in the foreseeable future is essentially zero. As a result, responsible city management has to make reductions. They can't delay action pending the success of a hopelessly quixotic venture. IMHO


Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 15, 2011 at 4:01 pm

> "there a plenty of well-off people making more than $100,000"

If you pay taxes, you are probably being taxed at a statutory rate of somewhere around 65% of income (all taxes by all levels of government). This varies of course, but for people making less than $500,000 yearly, it's probably true. Additionally, about 25% of the cost of all goods/services can be attributed to "corporation taxes", which increases the load on those actually paying taxes.

Nationally, only about 50% of US citizens (or working age) actually pay taxes--leaving the bulk of the income tax revenue to be paid by the very rich. At some point in time, these folks will become fewer and fewer, and move to some place where the tax burden is lower. What happens next is chaos.

There really is no reason why the "well off people" should pay for the almost criminally irresponsible legislature's spending madness.


Posted by Darwin, a resident of Another Palo Alto neighborhood
on Mar 15, 2011 at 5:25 pm

Reverse proposition 13.

Problem solved. There are thousands of residents in Palo Alto who are enjoying Palo Alto services that are not paying their fair share due to this ridiculous proposition.


Posted by Sally, a resident of Crescent Park
on Mar 15, 2011 at 5:31 pm

The-Devil-Made-Me-Do-It.

You write "about 25%of the cost of all goods.services can be attributed to "corporation taxes," which increases the load on those actually paying taxes."

But wouldn't that 25% be paid by everyone buying those good/services REGARDLESS of tax status?

Of course only about 50% of working age citizens pay taxes because only 50% of them are working. The unemployment stats are a joke and people who got laid off at years ago are no longer counted.

Old joke: What did you get for your 50th birthday?
Laid off.


Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 15, 2011 at 5:53 pm

> But wouldn't that 25% be paid by everyone buying those
> good/services REGARDLESS of tax status?

Yes .. unless the corporate tax burden were lower.

> Of course only about 50% of working age citizens pay taxes
> because only 50% of them are working.

The Democrats worked very hard over the past four decades to remove people from the taxpayers rolls. Even though the number of people not working at the moment is higher than in the past, and hopefully in the future, the number of people paying is a function of how the tax burden is distributed across the board.


Posted by changeup, a resident of Another Palo Alto neighborhood
on Mar 15, 2011 at 8:10 pm

Peter Carpenter: thank you for your contributions in the past and recently. I hope the Palo Alto City Council is reading this and/or you have resubmitted your comments in a letter, for them to read at one of their "behind the scene" meetings.

Walter: Please stay under your rock and the storm will blow over you. Anyone making or owning real estate >$100,000.00 obviously "earned it" and shouldn't "have" to pay more (10%) taxes for the benefit of others who aren't or don't work but freeload off the system! Really? Is this the USA or China/Cuba/Russia?

I totally agree with Mr. Carpenter's bullet points. Now is the time to restructure and inform all public employees that they can work part time to keep their jobs or lower their salaries so co-workers or themselves won't lose their jobs.

We did this at our small business during 2001-2003 when the dot.com recession hit. We kept all of our employees through that period, no one got raises or bonus' but they kept their job, had health insurance and had the option to contribute to their 401k's.

Having been raised by first born American's and immigrant Grandparents from Europe; I and three siblings were taught to be self-sufficient and live within our means, reuse and recycle in the 60's, 70's etc. before it became vogue, 5 minute showers, two cars at the most, carpool, use public transportation, walk, or bike when possible, grow our own vegetables and fruit, buy from all local stores and shops to keep their doors open (no amazon or discount houses that put small business' out of business). I'd also suggest closing 24 hour stores, so fewer police need to be on patrol. All buildings and homes can install excellent and reasonably priced security systems. Everyone make sure their homes are equipped with smoke detectors and fire extinguishers. Community watch programs in every neighborhood could work wonders in many ways including safety, better communication and general assistance. In the long run watch programs can help the whole community be more responsive to change and aid during crisis.

Let's not ask what Palo Alto can do for you, but ask yourselves what you can do for Palo Alto. Our community must work together and make changes now, discussion, planning and improvements starts with each and everyone of us. BE PROACTIVE INDIVIDUALS AND THEN DO IT COLLECTIVELY.


Posted by Anon, a resident of Another Palo Alto neighborhood
on Mar 15, 2011 at 10:07 pm

The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood, writes:

" > "there a plenty of well-off people making more than $100,000"

" If you pay taxes, you are probably being taxed at a statutory rate of somewhere around 65% of income (all taxes by all levels of government). This varies of course, but for people making less than $500,000 yearly, it's probably true. Additionally, about 25% of the cost of all goods/services can be attributed to "corporation taxes", which increases the load on those actually paying taxes."

Go check your facts. e.g. "Tax Freedom Day", which no one has ever accused of underestimating the tax burden, says that for 2010, Tax Freedom Day was April 9th-- 26.9% (average) for the sum of all taxes at all levels. The latest it has ever been was in the year 2000, when it was May 1 -- 33%, and we had not only a steadily declining Debt/GDP ratio, but, what was widely perceived as "prosperity". I guess you think we are better off now than then-- lower taxes, right? (Heck, even Norway and Sweden don't reach 65%. Where do they get this stuff?)




Posted by paloaltomarino, a resident of Downtown North
on Mar 15, 2011 at 10:35 pm

I love when people talk about those golden pensions and how they need to be cut back. I make less than $60,000 a year, if I work 30 years I will earn 81% of that as a pension, that's about $49,000 a year. I don't get a Social Security check because I don't pay into it so that $49,000 (which I will be taxed on) is it, that's all I'm getting. I certainly won't be able to afford to live in Palo Alto or close to Silicon Valley on that pension. Oh, and any new employees hired now, with the new pension formula, will have that number knocked down to 60% and $36,000 (you can forget retiring anywhere near here comfortably on $36,000 (before taxes).

Do you want me to argue that there aren't too many people making more than $100K at the City of Palo Alto? I won't, in my opinion that's true. You want me to argue that a 9% raise in these ecomonic times isn't insane? I won't. You think that I'll say there isn't *any* waste or redundancy that couldn't be corrected? Again, I won't, like any large organization there is always room for improvement.

What I will say is this, please, don't paint every one of us that has worked for a very long time, with the broad brush of "greedy union member". I am never going to get rich working here, but that was never my goal, I just wanted to work for a community in a way that felt like I was working for more than just myself or just for the almighty dollar. Now though, I'm making less than I was 2 years ago because of contributions that I'm required to make, costs of living seem to be rising ($68 to fill my gas tank, given what I make, is a LOT), and almost equally as bad, the community I chose to work for, thinks that I'm overpaid and greedy. I hope it gets better because right now the atmosphere is often demoralizing.


Posted by Anon, a resident of Another Palo Alto neighborhood
on Mar 15, 2011 at 11:16 pm

paloaltomarino, a resident of the Downtown North neighborhood, writes:

"I love when people talk about those golden pensions and how they need to be cut back. I make less than $60,000 a year, if I work 30 years I will earn 81% of that as a pension, that's about $49,000 a year. I don't get a Social Security check because I don't pay into it so that $49,000 (which I will be taxed on) is it, that's all I'm getting."

I don't know the details for Palo Alto, but, I do know that historically, public pensions were correctly funded-- at least, as long as right-wing politicians were not raiding the pension funds, with the claim that they were "over-funded" (I'm not making that up!)

The main problem is the rising cost of health care-- but, it is easier for right-wing politicians to bash public unions than it is to face the fact that this is an issue that affects everyone -- especially blue-collar workers in manufacturing, who are trying to compete with workers in countries with state-run medical-care. It is easier to blame unions for "unreasonably" demanding health insurance, than it is to actually address the root causes.


Posted by common sense, a resident of Midtown
on Mar 16, 2011 at 12:29 am

Revenue isn't the issue - it's grown about 40% over the past 7 years, from $100 million to $140 million. The problem is that in 2006 the city manager proposed increasing the union's pensions, knowing full well that the city management would then get the same. This has added about $6 million/year in expenses.

In the end, the voters only need to blame themselves for electing city council members who are fiscally irresponsible.


Posted by David Pepperdine, a resident of Another Palo Alto neighborhood
on Mar 16, 2011 at 7:49 am

The unions control campaign contributions in this town, so the council responds to them. When union issues are up for a vote by the city council, union members turn out in force and residents are scant. That's why we're in this mess.

The current city employment policy is a joke. It imposes liabilities to the city into the 2nd half of this century with no ability to control them. Palo Alto needs to follow the private sector's hire and fire policy, with 401-K style retirement plans and no liability for post-retirement health plans. That way, we only pay for what we're getting right now. It's the fiscally responsible thing to do.


Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 16, 2011 at 9:38 am

> Go check your facts. e.g. "Tax Freedom Day

These folks (God bless 'em) deal mostly with Federal Taxes. The 65% number proposed above is "statutory" (meaning effectively the highest amount in the tax code), as opposed to the "actual" burden after applying all of the exemptions for all levels of government, not just the Feds.

As it turns out, everyone pays a different "total tax", because of their particular circumstances, but let's walk through the basics:

Fed. Income Tax: Base: ~28% + ~10% Marginal - ~38%
State Income Tax: (0%-10+%) .. in CA - ~10%
SS Tax: W2 emps: 7.5%, Self-employed: 15%
Property Tax (varies as a % of income): ~1%-5%
Sales Tax: ?? 1%-3%
Fed. Excise Tax: ?? < 1%
Travel Taxes: (FAA+Local Airport) ?? (~1-5%)
Other Use Taxes: ??

So, let's look at the tally .. 38%+10%= ~50%
SS Tax: 7.5%/15%
All other taxes: 3%-10%

Summing these up, it's not hard to see that the total statutory taxes are in the 65% range (+/-).

Government is very good at finding ways to tax people, but not very good at telling people what there total tax burden is.

BTW -- The Mayor of Miami was booted out of office yesterday--he wanted to raise property taxes ..

Web Link


Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 16, 2011 at 9:41 am

> In the end, the voters only need to blame themselves for electing
> city council members who are fiscally irresponsible.

True .. Democracy is a very fragile thing. Very few democracies have lasted more than 200 years before they collapsed. Unless something happens drastically here in the US, we will probably not be here in 50-75 years.



Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 16, 2011 at 10:01 am

> Fourth, they should consider accelerating essential
> capital-improvement projects (the operative word is essential),
> as construction costs during this downturn will be substantially
> less than if the projects are delayed until the recovery begins

This is not that achievable, in many cases. Some projects move so slowly through the approval process, that it can take upwards of ten years from inception to completion. Even though the suggestion is to "accelerate", it's not clear that such accelerations are actually possible. Moreover, public projects are often not very well monitored for quality/cost (with the exception of schools), so this suggestion opens the door to fraud, and mismanagement.

This kind of idea looks good on paper (particularly in the private sector), but there are few examples of it in the public sector.


Posted by Roll Back Prop 13, a resident of South of Midtown
on Mar 16, 2011 at 11:25 am

Reverse Prop 13. Here's what Warren Buffett has to say about Prop 13 Web Link

Prop 13 has created an unsustainable and unethical redistribution of wealth to the longest term land owners (who are mostly corporations).

It is time to roll back Prop 13. This must be done graually in order not to create chaos in real estate markets.


Posted by registered user, peter carpenter, a resident of Atherton
on Mar 16, 2011 at 11:25 am

Devil states:"Some projects move so slowly through the approval process, that it can take upwards of ten years from inception to completion. Even though the suggestion is to "accelerate", it's not clear that such accelerations are actually possible"

Well managed public agencies can easily accelerate projects - an example was the repair of the LA freeways after the Northridge earthquake. The Menlo Park Fire Protection District is accelerating the installation of a new 100 ft communications tower (which will provide a vital link for all emergency communications in the south bay)in East Palo Alto with the full and speedy cooperation of the City of East Palo Alto.

Where there is a will there is a way.


Posted by Citizen, a resident of Midtown
on Mar 16, 2011 at 11:45 am

paloaltomarino -

Please don't plead poverty to the people of Palo Alto. If you get a 49,000 pension from the city, that is equal to a private sector worker saving $1.225 million in a 401(k) (assuming 4% withdrawal rate). Plus you will be getting retiree healthcare benefits that probably have a present value of $300,000 or more. I don't think any private sector workers who earn $60,000 per year would be able to amass this amount to retire on. The vast majority of the people who pay your salary have never had a defined benefit pension and have none of the employment or retirement security that you have.

Plus why do you think you should be able to retire in Palo Alto? This is one of the most expensive towns in the country with one of the most highly paid and highly skilled workforces in the world. Why does a $60,000 per year worker feel entitled to live here? Plenty of people commute into Palo Alto to work because they cant afford to live here. Why do City workers feel entitled to live here? Do the people who build private jets think that they are entitled to be paid enough to own one?


Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 16, 2011 at 12:34 pm

> Well managed public agencies can easily accelerate projects

We've seen almost $1T flow through the hands of virtually every level of government since the "boy president" took office. There is little evidence of these projects having actually "kick started" the economy, nor that they have been delivered at a less expensive cost than before the porkulus money was made available. If the contention that acceleration was a viable concept, when "scaled up", we would have seen miracles by now.

Maybe one project, or another, might be accelerated successfully, but the public sector is not "well managed"--and it's unlikely it ever will be until there is a fundamental rethinking of how services/projects are managed.


Posted by Walter, a resident of Barron Park
on Mar 16, 2011 at 1:22 pm

Some here seem to want to excoriate paloaltomarino because he wants to live in the place he works among the people he serves. That's admirable, not something to be scorned.

If we would enact a 10% city income tax on those residents fortunate enough to earn over $100,000, we'd have plenty of money to pay paloaltomarino and his hard working, low paid coworkers enough to live in and retire in palo alto.

Devil figures that some Palo Alto residents pay up to 65% in taxes. Even if we taxed ALL income - not just that over $100,000, these residents would still have a full 25% to spend on private and selfish consumption. Given what a lot of the lawyers, VC's and corporate execs earn around here, the Mercedes and BMW dealers won't be suffering.

It's a privilege to live in Palo Alto, and those who have the means to contribute more, shouldn't complain about doing so. Let's give paloaltomarino and those like him a fair shake on pay and pensions by asking the fortunate to pay a little more.


Posted by pat, a resident of Midtown
on Mar 16, 2011 at 3:19 pm

>"… they should consider accelerating essential capital-improvement projects…"

The city has a $500M infrastructure backlog, so the issue is not WHEN, but how to pay for all the projects.

From Web Link :
"Vice Chair Samir Tuma asked staff what the city plans to do about the staggering backlog in infrastructure maintenance…. 'The infrastructure is in real peril.'

"Lalo Perez, director the city's Administrative Services Department, said … the city might have to consider funding more projects through bond sales. 'We'll probably need to look at a financing mechanism issuing a bond debt,' Perez said."

Also see "Palo Alto eyes bond to fix aged infrastructure" at
Web Link

It should come as no surprise that Mayor Espinosa is now considering a bond issue. (PA DAILY POST 3-16-11)

We've all paid our taxes year after year – foolishly thinking our money would fund road repairs and other high priority infrastructure needs. Instead, our taxes have been spent on narrowing streets ($550K for California Ave.), subsidizing the Children's Theatre (about $1M/year), public "art" and pensions.


Posted by registered user, peter carpenter, a resident of Atherton
on Mar 16, 2011 at 3:30 pm

Somebody needs to tell the City Council that the answer is not more debt via a bond issue. If you already have a structural deficit it makes no sense to add more debt. And the bond market will look closely at Palo Alto's ability to service any new bond debt and price that debt accordingly. Given Palo Alto's structural deficit IF Palo Alto can sell a bond issue the interest rate will be quite high.


Posted by Positive Being, a resident of Embarcadero Oaks/Leland
on Mar 16, 2011 at 4:02 pm

Dear Mr. Carpenter. While it appears that you live in Atherton, you seem to spend a lot of time contributing to blogs about Palo Alto. Have you considered investing your time in more productive community projects like teaching a child to read, use a computer, assisting the elderly, perhaps volunteering at a local charity / community group. Collecting and coordinating relief for Japan...


Posted by registered user, peter carpenter, a resident of Atherton
on Mar 16, 2011 at 4:35 pm

Positive being - you will be pleased to know that I have spent over 20 years serving on various City of Palo Alto committees and am deeply involved in a wide range of community activities.

And you?


Posted by ex-employee, a resident of another community
on Mar 16, 2011 at 5:03 pm

To those of you who begrudge City retirees their pension:

We don't get social security. You do.
We don't get stock options. You do (or might)
We don't get bonuses. You do (or might)

It's a myth that employee pensions are bankrupting the city. It's lack of revenue. Stop griping, repeal Prop 13 and shop locally.

That is all.


Posted by who cares, a resident of Triple El
on Mar 16, 2011 at 7:17 pm

Too funny! Always amazed at posters who claim to be educated and knowledgeable on local city issues but a resident from another city or town. The City of Palo Alto budget is a complex document that really can't be fit into a simple blurb put out by stanford in their anti-union little hoover commission report. With over $300 million in various reserve funds and encouraging city leaders to declare bankruptcy as a viable solution is absurd. What a pity that posters don't read the complete city press release or annual budget report provided to city council prior to offering such comments. Simply being "deeply involved in community activities" would mean more if one would offer educated advice.


Posted by pat, a resident of Midtown
on Mar 16, 2011 at 7:47 pm

Thank you, Peter Carpenter for your thoughtful posts. Too bad the city didn't listen to you back in 2008.

> "Somebody needs to tell the City Council that the answer is not more debt via a bond issue."

Many of us tried during the debate on the library bond. Now we have 5 branches to support and a big debt.

The council doesn't spend nearly enough time digging into that "complex document," the budget.


Posted by simple really, a resident of Crescent Park
on Mar 16, 2011 at 8:59 pm

The only reason there is a deficit is because we choose to have one. Approve a bond and "poof" there goes the deficit.


Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 16, 2011 at 9:09 pm

> Even if we taxed ALL income - not just that over $100,000, these
> residents would still have a full 25% to spend on private and
> selfish consumption.

Hmmm .. if someone were to make $200,000 and be taxed so that they have only 25% left .. that would come to $50,000. Hardly enough to live on, or to justify that much work for so little return.

Under those conditions, there would be only a few options:

1) Quit working and find sign up for enough welfare to match the $50K that would have been left over after taxes. Better for someone else to pay the taxes.

2) Move to another place where the taxes aren't so high.

Given how ridiculous this idea of ultra-high taxation is, one might almost sense that the post is trying to hone his skills in "dry humor" .. but maybe not. This poster seems to think that taxes should be a punishment, not a vehicle to raise revenue for the government's obligations to fund common needs.

Sad .. very sad ..


Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 16, 2011 at 9:15 pm

> The only reason there is a deficit is because we choose to have one.

This is true. For instance, the Children's Theater will cost taxpayers about $50M over the next 30 years. If we were to cut this unnecessary fat, we'd probably see $150M in "extra" revenue over that time frame. Palo Alto has been hobbled by too many special interest groups, that have managed to divert vast sums of public money to their members.

> Approve a bond and "poof" there goes the deficit.

Not true. Bonds would only be used for capital projects, and not for salaries. Although, some governmental agencies are using bonds to pay for post-retirement benefits, like health care. Currently, those costs are coming out of the General Fund, and in contributing to the deficit.

Oh, and spending money on capital projects can lead to bigger deficits in the future, particularly if these projects end up having higher maintenance costs, or require new personnel to be hired to run the buildings/facilities that this bond money is used to construct.


Posted by registered user, peter carpenter, a resident of Atherton
on Mar 16, 2011 at 9:16 pm

Pat - It is encouraging to know that at least one PA resident 1) understands the meaning and implications of a structural deficit and 2) appreciates that living in Palo Alto is not a prerequisite for understanding Palo Alto's budget problems.


Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 16, 2011 at 9:46 pm

> structural deficit

Palo Alto's "structural deficit" only exists because the City government refuses to reduce spending, relative to its income, so that they are equal. This is easily done with pink slips, and outsourcing. It is also done by negotiating contracts that have salary reduction clauses, so that during economic downturns, the automatic pay increases which are the source of our problems (big time) are shut off.

The likelihood that the revenue will never come back is an open question. Globalization has been chipping away at the Silicon Valley for a while now. Most local governments refuse to see the shifts from our local economy to foreign shores (India and China at the moment). There has been some talk of "regionalization" of some local government functions, but given how screwed up Palo Alto is perceived by other cities, it's difficult to believe that very many of our sister Cities will be interested in any kind of merger, other than out of desperation.

The City rents out the Cubberley Center at below market rates. By increasing the rentals, more revenue could be booked. The same is true for any number of other "services" the City provides to non-residents--like the Art Center. About 80% of those using this facility have, in the past, been non-residents. Too many of our "services" are consumed by non-residents, who are not expected to pay the full cost of those services.

Our "structural deficit" is simply a failure to manage our common assets intelligently.


Posted by Outside Observer, a resident of another community
on Mar 16, 2011 at 9:47 pm

The budget deficit is just a symptom of a far larger disease.

For all the diverse opinions here, I believe we can all agree on this, and if not, please give an example where it doesn't apply.

The disease:

For the last 20+ years, for City Council, City Department Heads, and Senior managers, whenever anyone leaves, the replacement is always worse.


Posted by paloaltomarino, a resident of Downtown North
on Mar 16, 2011 at 10:43 pm

to "Citizen"

I don't think I "deserve" to live anywhere, I'm just trying to give you some perspective as to some numbers and perhaps a little compassion that we're not all greedy employees looking to milk the citizens to live the high life. I'm just trying to do/and make enough to *survive* in retirement.

It's funny though, you almost make it sound like I'm not good enough to live in this town. I'm sure you wouldn't want someone like me driving down your property value. I wonder if you feel that way about the teachers who teach your children too. Kind of sad.

You compared my position to the private sector employee. Fair enough but, employees in the private sector collect Social Security, often have the possibility to buy into a stock purchase plan and in some instances also get stock options. They have a potential for the "quick hit" that I would never have. And, that's a choice they made too, I chose this route to my retirement.

I do agree with one of the people who commented about health care costs being the problem. If it weren't for the exponential increase in health care costs over the last 7 or 8 years we wouldn't be having this discussion at all.


Posted by Citizen, a resident of Midtown
on Mar 16, 2011 at 11:44 pm

paloaltomarino -

I don't care where you live, I just don't understand why public employees seem to think that they should be able to live in the town that they work for. Its not like Google cares if its employees can afford to live in Mountain View. Over 100,000 people work in Palo Alto, but the population is only around 65,000, obviously not everyone who works in PA can live here.

Also, why do you keep mentioning that you aren't getting social security - its not like you are contributing to it. The rest of us are paying 15% of our salary for a benefit that has much less value that then pension that you barely contribute to.

Stock options are rarely a quick hit - these days they aren't given out nearly as much as they were before FAS 123R was adopted. And anyone who gets stock options is in the private sector and has none of the job security, working hours or benefits of a public employee.

If you want to take some risk, join a startup to get a "quick hit" from your options so you can afford a $1.3 million teardown in Palo Alto. If you don't want to take that risk, don't complain that your employer (the taxpayers) aren't paying you enough to buy a house here.





Posted by solution, a resident of Palo Verde
on Mar 17, 2011 at 2:55 am

PAPD will have to step it up and create more revenue to keep their hefty salaries going...


Posted by The-Devil-Made-Me-Do-It, a resident of Another Palo Alto neighborhood
on Mar 17, 2011 at 9:24 am

> Somebody needs to tell the City Council that the answer is not
> more debt via a bond issue

While avoiding "more debt" always seems to be a good idea, City governments are not private sector operations (as much as many of us would like them to be). They operate on different timelines, with different goals. They have deeper pockets than most companies, and sadly, are badly managed as a result.

If someone were to create a "property book" (or asset inventory) for Palo Alto, one might find that the cost-to-replace value for everything the City owns comes to somewhere between $25B and $30B. Most of this dollar value is in property, but the rest is in buildings and infrastructure. The infrastructure decays at a more-or-less fixed rate, and from time-to-time is destroyed via "acts of god", such as earthquakes.

While the City could use General Fund money to repair infrastructure, and often does, it can not save enough to deal with most of the "big ticket" items. These "big ticket" items need funding that can best be acquired from the bond market--in other words, taking on debt.

There are typically two kinds of bonds that a City might issue--General Obligation Bonds (which are paid for with assessments against the private property of the jurisdiction). This sort of bond requires a 66% vote for approval. There are other kinds of bonds that the City can issue without voter approval, which are not backed by direct tax assessments. One such bond is called a "revenue participation" bond (often referred to as a COP [certificate of participation]). This sort of bond can be issued without voter approval, since the underlying entity (say, a stadium) will generate revenue, which the bond holders have a right to a portion in order to retire the bonds.

In both of these cases, any debt (typically) acquired by the City will not impinge on the General Fund, unless there is some sort of economic downturn and the assumptions for the revenue streams that are required to pay down the bonds prove false (such as a depression). In those cases, the City (aka its General Fund) is on the hook to pay off the bonds. (There is something called "default insurance", which could be purchased by prudent municipal money managers, to avoid this sort of thing--but if they didn't, then that City's finances would indeed be in "distress".)

So .. the question of "bond debt" and "structural deficits" are not directly linked. As noted above, if these bonds end up building bigger buildings that require more personnel, then the "bonds" could be linked (loosely) to an increase in a City's deficit over time. (But this linkage would be only metaphorical, at best.)

If this sort of advice is to be taken seriously, it should be directed towards any kind of bonds that do not require voter approval, and which might require General Fund "contributions" to avoid default.

The model in Palo Alto has been to spend, spend, spend, and not to create "reserve funds" which could be used to accumulate money to offset (or possibly pay for) future infrastructure projects. The model has been--pay the highest salaries possible (with lavish pensions) .. and then sell bonds to replace the infrastructure, which is poorly managed in order to secure voter "sympathy". If there were an issue for the Council to be listening to, it would be: "how to break the chain of infrastructure/City Asset mismanagement?"



Posted by pat, a resident of Midtown
on Mar 17, 2011 at 10:09 am

> "spending money on capital projects can lead to bigger deficits in the future, particularly if these projects end up having higher maintenance costs, or require new personnel to be hired to run the buildings/facilities that this bond money is used to construct."

Those of us who were against the library bond pointed this out, backed up by a 2007 library audit which clearly stated that more branches require more staff (no surprise!). Staff costs per capita PRIOR to the bond were $71.65 – much higher than most other cities in the area. (Mountain View's was $48.83.) www.library.ca.gov/lds/librarystats.html

BTW, the library director's salary this year is $202,000.

Re maintenance costs, in a presentation to the city council by Fairbank, Maslin, Maulin & Assoc. on July 7, 2008, Slide 36 said "estimated annual cost for these items [below] could range between $750,000 - $1.1 M pending further evaluation and analysis."

- Custodial/maintenance costs
- Utility costs
- Library collection maintenance
- Furniture and computer replacement
- Additional library, community center and facility maintenance staffing (up to 5 full time positions)

> "For the last 20+ years, for City Council, City Department Heads, and Senior managers, whenever anyone leaves, the replacement is always worse."

Well, not necessarily worse. Think back to Frank Benest, Jim Burch, Yoriko Kishimoto. But yes, no matter who gets elected or hired, they all drink from that big Kool-Aid fountain at City Hall and turn into the Stepford Government.


Posted by danos, a resident of another community
on Mar 17, 2011 at 12:13 pm

Per this comment from Walter:

"Some here seem to want to excoriate paloaltomarino because he wants to live in the place he works among the people he serves. That's admirable, not something to be scorned."

By this reasoning, waiters, landscapers, gas station attendants and other workers who serve the citizenry of Palo Alto should also be praised for wanting to live amongst said citizenry. Shouldn't the city therefore mandate that such workers be paid the sort of salaries that would enable them to do so? After all, they are only trying to do the admirable thing.


Posted by Wha?, a resident of Another Palo Alto neighborhood
on Mar 17, 2011 at 1:38 pm

I think the worker is saying it would be nice to live here, not that they should be paid the salary necessary to do so. They made the choice to work in the public sector, and part of that choice was a reasonable salary and good to great benefit packages. I don't hear them complaining, but trying to explain that they don't get huge salaries or the perks private sector employees can get. It is not the fault of the blue collar worker that the economy took a dive.

Stop being so elitist, it isn't pretty.


Posted by danos, a resident of another community
on Mar 17, 2011 at 1:46 pm

I'm not being elitist. We private sector workers want to live in nice towns like PA too, but most of us can't afford to. And despite what you may think, the vast majority of us aren't enjoying "huge salaries or the perks private sector employees can get".

I'm not even sure what 'perks' you're referring to..


Posted by Deep Throat, a resident of another community
on Mar 17, 2011 at 3:36 pm

"Posted by peter carpenter, a resident of Atherton, 18 hours ago
peter carpenter is a member (registered user) of Palo Alto Online

Pat - It is encouraging to know that at least one PA resident 1) understands the meaning and implications of a structural deficit and 2) appreciates that living in Palo Alto is not a prerequisite for understanding Palo Alto's budget problems."

Pat is not a Palo Alto resident. Pat is a Los Altos resident who used to live next door to Deputy City Manager Steve Emslie.


Posted by pat, a resident of Midtown
on Mar 17, 2011 at 4:55 pm

> "It is not the fault of the blue collar worker that the economy took a dive."

It's not the fault of most white-collar workers, either. First all the manufacturing jobs went overseas. Now a lot of design and engineering jobs are following.

Today's SF Chronicle: Poll: CA public-worker benefits 'too generous'
Web Link


Posted by Anon, a resident of Another Palo Alto neighborhood
on Mar 21, 2011 at 7:30 am

pat writes:

"> "It is not the fault of the blue collar worker that the economy took a dive."

"It's not the fault of most white-collar workers, either. First all the manufacturing jobs went overseas. Now a lot of design and engineering jobs are following.

"Today's SF Chronicle: Poll: CA public-worker benefits 'too generous'


Perhaps we should look at the root causes of these declines.

1) Huge Federal tax cuts for the wealthy, resulting in massive government deficits. This started under Reagan, was somewhat reversed under Bush I and Clinton, and began again under Bush II.

2) Continuing increases in the cost of health insurance, public and private. Example: Just today, a strike at an East Bay parts factory. The sticking point? The company wants to cut health benefits to stay competitive (with, e.g. China).

As a society, we have to figure out how businesses can stay competitive, while *we* (you know, "us"), can have access to decent healthcare. This is affecting both public and private enterprise.


Posted by Walter, a resident of Barron Park
on Mar 21, 2011 at 10:24 am

Anon. is right. We need to increase taxes by substantial amounts (at least 10%)on corporations and the wealthy. Then we need to mandate that health insurance companies reduce rates by at least 25% across the board.

With those two simple acts we can insure that we can afford to pay our valuable public servants the wages they deserve, and can afford the health and other benefits a compassionate society gives to the people who run our government for the benefit of us all.TT