"Unfortunately, like cities across California, the benefits paid to our employees have risen over the past decade, dramatically in the past several years, and will continue to grow in the years ahead," Keene wrote.
The increasing employee costs are casting a shadow over what has been a relatively strong year for revenue growth in the city. After a three-year slump, sales taxes and hotel taxes have rebounded thanks to strong department-store sales and increased business activity. The budget for fiscal year 2013, which begins July 1, projects $151 million in General Fund revenues, a $4.5 million (or 3.1 percent) increase over 2012.
Expenditures, meanwhile, are slated to grow by $5.6 million between 2012 and 2013. The new budget proposes $152 million in General Fund expenditures, an increase of almost 4 percent from 2012. The main drivers, Keene said, are rising benefit costs, increased infrastructure spending and a lack of concessions from police officers.
"The chief structural issue that the City faces is this simple: Expenditures are growing faster than revenues," Keene wrote in the transmission letter.
He acknowledged the recent good news on the revenue front but stressed the need to get further concessions from city workers. The city is in the process of negotiating a new contract with its largest police union, the Palo Alto Police Officers Association (PAPOA), and with the small union of police managers. In March, the city declared an impasse in its negotiations with PAPOA after five months of negotiations.
If the council were to adopt Keene's proposed budget, the Police Department would face the lion's share of the cuts in the coming fiscal year. Perhaps the most controversial cut in the proposed budget is the elimination of the department's busy and popular animal-services operation. The budget proposes to shutter the Animal Services Center on East Bayshore Road, which has provided services to Palo Alto, Mountain View, Los Altos and Los Altos Hills since 1993.
The proposed cut was prompted by Mountain View's decision last year to opt out of its partnership in the Palo Alto facility and to contract with the Silicon Valley Animal Control Authority. The withdrawal means Palo Alto would no longer receive $450,000 in annual contributions from Mountain View, bringing the city's cost of running the facility from $700,000 to $1.1 million annually.
Though the council has yet to decide on the matter, the proposal has already galvanized intense community opposition, with dozens of residents sending letters to the council urging them to spare the animal shelter and 269 (as of Thursday morning) signing an online petition as part of a "Save our Shelter" drive.
According to Keene's proposed budget, contracting out animal services would eliminate 13 positions and potentially result in about $500,000 in operating costs. The outsourcing proposal would also save the city from having to make major upgrades to the aged facility. The council is also considering alternative uses for the land on which the Animal Services Center and the larger Municipal Service Center, adjacent to the animal shelter, sit. These include welcoming one or more auto dealerships to the site, which has valuable visibility from the highway.
"By contracting out this service, the City avoids the significant capital cost that will be needed to improve the animal-services center facility and provides the opportunity to explore site reuse that could have positive revenue implications for the City," Keene wrote in the budget.
Another area in the Police Department that would see a reduction in service is traffic enforcement. Keene's budget proposes keeping six positions in the department vacant and redeploying six officers from the traffic operation to field patrol, a move that the budget document states would lead to "an overall reduction in the level of proactive traffic and parking enforcement." Keene is also proposing keeping vacant a police captain position.
The Fire Department will also see cuts in the coming year, for reasons largely outside the city's control. The department has been providing on-site services to SLAC National Accelerator Laboratory. Because of cuts in the U.S. Department of Energy budget, the laboratory has recently decided to opt out of its agreement and to sign a contract with the Menlo Park Fire Protection District for off-site services. The decision means Palo Alto will have to close Station 7 at SLAC, reducing expenditures by $1.4 million. Because some of the cost is reimbursed by Stanford University as part of the city's broader agreement with Stanford (an agreement that staff is now renegotiating), the city has yet to determine the actual savings that will result from Station 7's closure.
Keene noted in the budget that public safety has been "largely insulated from cuts over the prior three years" — a period that has seen the city outsource services such as its print-shop operation and park maintenance. He told the council that his budget proposal includes cuts "with generally minimal impact on service levels."
Public safety isn't the only area that would see cuts under Keene's proposal. The Planning and Community Environment Department would eliminate two positions and freeze another one, saving $394,000. Keene is also proposing freezing five positions in the Library Department while Main Library is renovated — a proposal that would save $336,000.
At the same time, Keene is proposing investment of an additional $800,000 in the city's permitting operation, money that would be used to upgrade technology at the Development Center. Another $300,000 would go to the new "Airport Fund," which supports the city's takeover of airport operations from Santa Clara County.
The proposed budget also allocates an extra $2.2 million for maintenance and upkeep of the city's infrastructure, as recommended by the Infrastructure Blue Ribbon Commission.
The council did not discuss Keene's proposed budget Monday night. The council's Finance Committee is scheduled to hold a series of meetings on the document in the coming month, starting May 8. The council plans to adopt a budget on June 18.
The proposed 2012-13 budget is available on the city's website, www.cityofpaloalto.org.
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