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November 17, 2004

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Palo Alto Online

Publication Date: Wednesday, November 17, 2004

Guest Opinion: Palo Alto's city budget needs reforming Guest Opinion: Palo Alto's city budget needs reforming (November 17, 2004)

by Hillary Freeman

In my opinion, the entire Palo Alto city budget process (both operating and capital budgets, and information-delivery) needs reforming.

The process itself should be reviewed by the Finance Committee well before the next budget cycle begins next spring. We need to work on ensuring early public input, early direction from elected officials and increased transparency in reporting.

There are ample possibilities for improvement, such as the following:

1) More council policy direction is needed. This year, elected officials had no public forum to offer early input into the 2004-2005 city budget.

In previous years, a public meeting was held specifically for City Council members to develop our "Top 5" priorities. This focused staff attention and aligned the budget to council priorities for that year. Even though the 2004-2005 budget represents the second year of a two-year budget, I believe the budget-preparation process must include early input each year directly from the public and elected council members.

If, for example, repair and modernization of our storm drains received a Top 5 priority from the council, it would be reasonable to expect staff to increase the $800,000 transfer from the General Fund to the Storm Drain Fund. But lacking council direction, staff deemed it more important to add $500,000 for a new internal "Document Management Implementation" project.

Without council's agreement on priorities, staff decided to add $700,000 to the $5 million-plus "sunk technology" upgrades instead of funding bicycle and pedestrian paths under Alma Street and the Caltrain tracks in south Palo Alto (an unfunded project).

Without early council direction, the budget becomes disproportionately staff driven. To be driven by the community, in concert with staff, a published budget timeline should include early public and council input.

2) Eliminate selective use of "placeholders." During the early budget-recommendation process, future capital-improvement projects are outlined by staff reviewed with less-detailed analysis and adopted in concept only. But future capital improvements often appear in many budget cycles and sometimes through several council elections before actual projected implementation -- when staff points to the project's long history. But the projects are never actually approved individually, and thus "in concept" capital improvements often receive de facto approval.

For example, the current budget has a "placeholder" for an environmental services center. The cost of the yet-to-be-fully-approved center, through 2009, is budgeted at $12.5 million. Yet there is no placeholder for storm drains or libraries, considered a high-priority capital improvement by some.

This loophole can cause millions of dollars to be earmarked without appropriate public or council review. The procedures used to choose future capital improvements need to be reexamined for necessity, selection criteria and transparency.

3) There is selective reporting. Missing from the 2004-2005 operational budget are department-specific "impact measures." Many such measures were carefully crafted by last year's Finance Committee as a way in which "the value of services can be assessed by council and the public."

An example would be quantifying the times Public Works and Utilities departments coordinate efforts on street trenching to avoid duplication.

This was removed from the second year of the two-year budget to save space and time. But staff eliminated an effective tool for the council to evaluate the current year's budget options.

The performance-based impact measures, as well as results from previous measurements, should remain in the operating budget to facilitate sound decisions and clear assessments of services provided.

4) Transparency is needed -- and expected. Without comparing item by item in four documents totaling more than 1,500 pages, there is no way to trace some items that have "fallen out" of the current budget. Without a lucky catch, the lights on the trees in downtown Palo Alto -- a safety, aesthetic and revenue-inviting feature -- would have been removed from University Avenue.

The lights were not carried over into the 2004-2005 budget because in 2003 they were funded from a contingency fund that must be voted on annually. A simple matrix of all no-longer-budgeted items and reasons is needed for transparency.

5) More General Fund dollars are expended on administration than on public works. Over the past two years, a 5 percent reduction in the overall budget was achieved by staff, without great impacts on public-interface services. Why aren't there more substantial reductions next year?

Some 13.6 percent of our General Fund is spent on administration, compared to 10 percent for public works, 16 percent for fire, 17 percent for community services and 18 percent for police.

It is imperative for the city manager to provide realistic benchmarking comparisons with other cities to either support the ratio of administrative costs or to determine if the city is administratively top heavy. To date, there has been no documented plan forthcoming to correct the low management-to-employee ratios raised by the cityauditor in the "Management Span of Control" report completed at the request of last year's Finance Committee.

Before the next budget cycle, I'd like to see a plan for collapsing the management span and further "restructuring" with emphasis on a thorough review of "Administration" and succession planning.

6) Are the 14 new "enterprise" hires producing positive revenue? After more than 2.5 years, it is not clear if some of the 14 employees hired specifically to create new sources of revenue, over and above costs, have been successful.

Although the Palo Alto City Budget has won awards, and has been on time and balanced, the process has ample room for improvement. A timeline, including a strong mechanism for early public input and council policy direction, represents the tip of needed reforms to our financial-process iceberg.

Dare I suggest zero-based budgeting, in which each activity to be funded must be justified every time a new budget is prepared? We have more work to do.

Hillary Freeman is a member of the Palo Alto City Council. She can be e-mailed at hillary@hillaryfreeman.org.


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