Palo Alto's ongoing quest to balance its books, contain rising pensions and obtain concessions from city workers will hit an annual milestone Monday night when City Manager James Keene unveils his plan for closing a $3 million hole in next year's budget.
But unlike a year ago, city officials don't expect a swell of community opposition.
The city's financial picture has improved since last June, when the City Council wrestled with a $7.3 million budget gap and cut 58 positions to close the deficit. The economy has been slowly but steadily improving, Palo Alto's unemployment rate is a relatively enviable 5.8 percent (compared to 10.8 in Santa Clara County) and according to a new long-range forecast, consumer spending is now rebounding.
But as the city's long-range financial forecast makes clear, Palo Alto is still facing years of snowballing deficits that are driven in large part by slow revenue growth and spiking pension and health care costs. These include annual gaps of $6.7 million, $6.9 million and $7.6 million projected for fiscal years 2013, 2014 and 2015.
Barring structural changes to the city's staff, the cumulative budget deficits are expected to total close to $100 million between fiscal years 2012 and 2022, according to the latest estimate.
The new forecast, the city's Senior Financial Analyst Nancy Nagel wrote in a new report, "brings into sharp focus the necessity for change over the next 10 years to address significant structural deficits. ...
"The increasing cost of employee benefits, above and beyond the growth in revenue sources, means that employees will need to bear a larger proportion of the cost of those benefits," Nagel wrote. "Otherwise the City will either need to cut services or aggressively evaluate outsourcing options for some of those services."
The difficult conversation promises to be more subdued this year than it was last year. Lalo Perez, director of the Administrative Services Department, said the new budget proposal seeks to close the gap by reducing costs in City Hall departments without eliminating city services. Popular programs that were on the chopping block last year, including school crossing guards and the Police Department's traffic team, are not proposed for elimination this year, Perez told the Weekly.
"There are no significant impacts to the community like we had last year," Perez said.
He also said the city plans to balance the budget without dipping into its reserves or sacrificing any infrastructure funding.
"It's going to be mostly adjustments in department budgets," he said.
Among the biggest challenges the city is facing this fiscal year is obtaining concessions from its public-safety workers. The city's negotiations with its main firefighter union, Palo Alto Professional Firefighters, Local 1319, have dragged on for more than a year, and the city is preparing for binding-arbitration proceedings to settle the labor dispute.
The City Council will discuss the status of the city's negotiations with police and firefighters at a closed session on Monday night. The council's Finance Committee, which is scheduled to hold budget hearings throughout May and early June, plans to discuss the proposed budgets for the police and fire departments Thursday night.
Keene has consistently called for public-safety employees to accept the types of concessions that other city workers have agreed to over the past two years. These include a two-tiered pension formula (with less-generous pension benefits for new hires) and health care contributions.
The new forecast similarly calls for greater contributions from police and firefighters in the short-term and for all workers to bear a "larger proportion of the cost of benefits from fiscal year 2013 onwards."