After publicly declaring its intention to stop paying the Palo Alto school district annual fees in exchange for the district's commitment not to sell or redevelop certain properties, the City Council on Monday night put its money where its mouth is by stripping the payments from the city's upcoming budget.
In tentatively adopting fiscal-year 2015 budget as a whole, which begins July 1, the council largely followed the recommendations of City Manager James Keene and the council's Finance Committee.
But the council also made two last-minute changes: It agreed to not set aside any money for the "covenant not to develop," a contentious provision in the city's long-standing lease of 27 acres of Cubberley Community Center from the Palo Alto Unified School District; and separately, the council added grant money for local nonprofits.
The covenant, originally penned in 1989 as a way to help cash-strapped schools deal with a financial crisis brought on by declining enrollment, essentially transferred city funds to the needy school district in exchange for the district's promise not sell off or redevelop unused school sites throughout the city. Currently, the city pays $1.8 million a year as part of the covenant, even though those school sites now being used as schools or are lucratively leased by the district.
The council's move fortifies its position on the main sticking point in its negotiations with the school district over the lease, which is up for renewal. In February, the council adopted as one of its guiding negotiating principles the abolition of the covenant.
From the city's viewpoint, the covenant is no longer necessary. During the February discussion, Keene said he sees "no public-policy reason why anyone would expressly agree to do something for which they're no longer receiving the intended benefit or result."
A community advisory group, which issued a report on Cubberley last year, also voted 18-0 to scrap the covenant from the new lease.
School district officials, meanwhile, have been loath to give up the provision, which they say is a key funding source for the district. On Monday night, just after the council voted on the budget, Keene told the council that the two sides remain far apart on this issue.
"We have not been able to reach any agreement on the elimination of the covenant not to develop and elimination of that payment under the lease. ... That was our first priority, and we've been unable to come to an understanding, let alone an agreement, on why that is necessary and makes sense," Keene said.
Talks have been more fruitful on other council priorities, including retaining existing child care services and possibly reconfiguring the city-owned 8-acre portion of Cubberley, a sprawling campus at 4000 Middlefield Road made up of playing fields, artist studios and a campus of Foothill-DeAnza College, which plans to leave in two years. The 25-year lease is set to expire at the end of this year.
Keene said he and school Superintendent Kevin Skelly have also been considering a lease with "significantly different terms" that were not within council's direction and had not been publicly disclosed. After the discussion, the council entered into a closed session with Keene to further discuss the status of negotiations.
But even before Keene made his update, the council reasserted its position about eliminating the covenant. Toward the end of a long conversation about the proposed budget, Councilman Larry Klein made a motion to remove funds for the covenant payment. Keeping it in the budget sends a "mixed message," he said, about the city's position on the issue.
"I want to give a clear message that the city will not spend money on the covenant not to develop," Klein said.
Mayor Nancy Shepherd agreed, noting that the council had already adopted as its official position the desire to eliminate the covenant. Council members have offered to instead use the covenant money to spruce up the dilapidated center, a project which staff estimates will cost about $18 million.
"I'd really like to see our capital improvements start to flow into Cubberley," Shepherd said. "That's really important to me -- that we make improvements."
The council voted 7-1, with Greg Schmid dissenting and Greg Scharff absent, not to allocate funding for the covenant after Jan. 1.
The 2015 budget, which the council plans to formally adopt next week, includes $171 million in General Fund expenditures, about 7.3 percent more than in 2014. About $103 million of the new budget will be devoted to salaries and benefits, which are rising despite the council's recent cost-sharing agreements with its labor unions over pensions and health care.
Among the beneficiaries will be local nonprofits. Councilman Marc Berman, who chairs the Finance Committee, recommended raising the funding for the city's grant program, known as the Human Services Resource Allocation Process, by about $68,000, which along with last month's addition of $32,000 brings the total increase to nonprofit funding to about $100,000 in the coming year. The council voted 7-1, with Klein dissenting, to raise the grant allotment and to add another $50,000 into a new reserve fund for human services.
Councilwoman Gail Price said she wished the city could be even more generous with local nonprofits, which often get overlooked for other types of grants because of their location in Palo Alto.
"They are not looked at very sympathetically by the funders," Price said. "It's very clear that the cost of providing services continues to go up and without additional support they will continue to lag behind."
In dissenting, Klein argued that "funding charities is not one of our main purposes." The city has many long-term financial challenges, including employee pensions and retiree health care, and he said increasing the grant program would send the wrong message to the labor unions at a time when the city is involved in negotiations.
"It makes us feel good, but I think it's inconsistent with what our main obligations are," Klein said.