News

Payday at City Hall: What's driving Palo Alto's growing payroll?

Additional staff and higher negotiated wages among reasons

The signs of success are striking: new libraries, a renovated City Hall, a rebuilt Art Center and a new downtown just a mile and a half south of the old one.

Plans for the future are even more ambitious: an iconic bridge, a golf course with a "Wow!" factor, new parking structures, an expanded children's zoo and a state-of-the-art police headquarters.

Projects that just five years ago seemed like pipe dreams are now being designed; ribbons are once again getting snipped by smiling dignitaries; and plans for a new waste-to-energy plant and for universal ultra-high-speed Internet are proceeding apace, obscuring the fact that just five years ago Palo Alto was in financial dire straits.

An equally striking economic resurgence has been taking place behind the scenes in City Hall, in the obscure world of budget amendments, reserve funds, salary adjustments and closed-door labor negotiations. After shedding leaves and branches in the years after the Great Recession, when about 60 positions were trimmed from the budget, the organizational tree in the City of Palo Alto is now regenerating with gusto. In the past month, City Manager James Keene hired two assistant city managers — two more than he has had over the past year — and this week the City Council signed off on a proposal to add a new "principal attorney" position to the City Attorney's office.

Though the city's budgeted workforce of 1,033 remains slimmer than it was a decade ago, when the city had 1,093 full-time workers, the rebound is unmistakable. Last June, with very little discussion, the council approved 14 new positions, including 11 in the General Fund, which pays for basic services like police, fire, parks and libraries. The Enterprise Fund, which includes Utilities and much of Public Works, added three new positions. On Monday night, Keene is preparing to propose a Fiscal Year 2016 budget that will include further staffing increases, the Weekly has learned.

The new positions have contributed to a $9.8-million spike in employee compensation in 2014, compared to the prior year. According to Administrative Services Department data, there were 25 new positions added to the city's budget in fiscal years 2013 and 2014. Other positions that had previously been vacant have been filled. Altogether, there were 52 more people on the city's payroll in 2014 than in 2013.

The additions are responsive to the needs of the city, Keene has said. During the lean years, he used a Swiss cheese metaphor to describe City Hall's staffing challenges, with each hole representing a key vacancy. This year, he switched to an iceberg metaphor and noted that most city workers operate "below the waterline": They are ensuring the city is running, whether by keeping streets safe or keeping the lights on. Only about 66 employees are above the water and available to work on the dozens of strategic initiatives, mostly in the realm of traffic, parking and land use.

Keene began filling the cheese holes last year, when he proposed new positions, including a senior planner, a land-use analyst, a Community Services manager and a metering technician.

The new positions are just part of the explanation for why the city's spending on employee compensation went up by 6.8 percent in one year. Rising salaries are another. After years of wage stagnation, more than 800 of the city's employees have received raises over the past year, with some salaries going up by nearly 20 percent. The Service Employees International Union, which represents more than half of the city's workforce, won in March 2014 an across-the-board salary increase of 4.5 percent spread out over two years. The Management and Professional group, which is not unionized, received a similar pay boost last July 1. Keene and City Attorney Molly Stump, the city's top earners in 2014, each received a 5 percent pay bump in the final month of the year. And in January, the newly reconstituted council voted to raise its own members' monthly stipend from $600 to $1,000.

On top of negotiated salary increases, the city undertook to bring underpaid staff — as determined by a survey of public wages in neighboring cities — up to the median. That led to scores of additional salary adjustments, some on the order of 10 to 20 percent.

The costs are reaching new heights: Overall spending on employee salaries and benefits in 2014 was $149.2 million, nearly $12 million more than the city had spent three years prior.

The trend is expected to further accelerate in the next year, as the city enters into new agreements with two other major labor groups: the Palo Alto Police Officers Association and International Association of Fire Fighters, Local 1319.

A new forecast of the city's long-term finances highlights the problem of the growing payroll. The Long Term Financial Forecast, which the city released earlier this month, projects an increase of more than $5 million in General Fund expenditures on salaries and benefits every year between now and 2025. The total spent on this category is predicted to go up from $107 million in the current fiscal year to $157.2 million in 2025, with benefits taking up an ever-increasing share of the pie.

"Although this Forecast projects healthy revenue growth, the revenue growth is barely keeping pace with the projected expenditure growth," the document states. "Further, the City Council approved Infrastructure Plan is not yet fully funded and does not contain any contingency for higher land acquisition or construction costs; and based on the latest valuation reports, the City's pension and retiree healthcare trust funds have an unfunded liability in the amount of $439.1 million."

Keene hardly needs a reminder of the risk of future hard times. He was hired in August 2008, right before Lehmann Brothers declared bankruptcy, "subprime mortgages" and "credit-backed securities" became common buzzwords and the global economy began its nosedive. Tax revenues began to plummet and, much like every other city, Palo Alto began to cut costs by slashing positions and reducing employee benefits. Between fiscal years 2009 and 2010, the city's expenditures across all funds dropped from $522.5 million to $485 million as pay cuts, position reductions and benefit reforms became the norm at City Hall.

Expenditures fluctuated slightly in the ensuing three years, going to $488 million in 2011, $513.5 in 2012 and $511 million in 2013. Then, in the last two years, they shot up to $527 million and the current budgeted amount of $558 million.

Salaries and benefits aren't the only force driving up the numbers, but they make up roughly a third of the total.

In his first five years at City Hall, Keene has been striving to contain employee expenditures by slashing positions and introducing benefit reforms, one employee contract at a time. Now, he's cautiously trying to right-size.

In May 2014, as Keene was introducing his annual budget to the council's Finance Committee, he noted that the city had given no pay increases during the prior few years. Now, however, the city needed to address that issue with employees by adjusting salaries so that they better match those in comparative jurisdictions. That would ensure the city remains a competitive employer offering attractive compensation.

"I have proposed some funding increases and position increases for the same reasons that years ago we were making the difficult cuts — that they are what the times require, both with our growing population, the demands of our bustling city and bursting economy and actually the expectation of the city and the council on the level of responsiveness you expect," Keene told the Finance Committee.

Those expectations include "what our community expects as far as services and (the) council expects in terms of effective information for policy analysis," Keene said.

The committee proceeded to discuss these changes, requested some more information and ultimately trimmed the position increases from 17 to 14, which includes 11 in the General Fund. The three council members present at the meeting — Marc Berman, Liz Kniss and Karen Holman — proved generally receptive to adding positions, though they requested more information about Keene's plan to also include in the budget a new system of pay bonuses for managers, based on performance.

After a few hearings, the committee gave the budget its blessing. The following month, the full council followed suit. Berman, who chaired the Finance Committee, noted that he was initially skeptical about adding positions but pointed out that the current staffing levels are now far below what they were in the mid-2000s, even as the city's population has increased.

"We still have fewer staff doing more work for more people since the mid-2000s," Berman said on June 9. "It's only responsible that we add staff to meet the needs that exist."

Next month, a new Finance Committee will begin deliberating on Keene's proposed budget for fiscal year 2016, which begins on July 1. Keene has declined to say, or estimate, how many new positions the proposed budget will have, but he made no bones about the fact that the number of employees would once again be going up, not down.

"I'll advance some suggestions so we can have free discussion about tradeoffs," Keene said. "I will be adding General Fund positions for sure. I don't think the demands that the community and the council is putting on the organization have decreased. They have increased and I have to be sure we can respond to the expectations the council has."

Click on the links below to read about each groups' employee compensation:

Management and Professional group

Police and firefighters union

Service Employees International Union, Local 521

Comments

32 people like this
Posted by PAOnline name
a resident of Crescent Park
on Apr 24, 2015 at 8:54 am

What's driving PA's growing payroll? Parasitic public sector employees and their unions drawing sustenance from the improved health of the host. And at top levels such as City Manager and City Attorney, delegating the work of the job, formerly performed by one person, to $200k+ juniors, so the top position holder can meander off to some less tiring activity.


13 people like this
Posted by Me
a resident of Adobe-Meadow
on Apr 24, 2015 at 9:17 am

I think it's a very good idea to pay top dollars for talents. Now the problem becomes how do we Palo Altans get rid of incompetent employees? There ought to be a lean process where poor performers are shown the door rather quickly.


10 people like this
Posted by Me
a resident of Adobe-Meadow
on Apr 24, 2015 at 9:26 am

Same issue they have at Stanford. They have a boat load of tenured employees that are no longer relevant. These people are riding on some old tired research publications that are over 30 years ago and no one cares. Problem here is these people are taking up space that could potentially be used to recruit new smarter talents. I think the same goes for Palo Alto.


30 people like this
Posted by Not a golfer
a resident of University South
on Apr 24, 2015 at 9:32 am

There are plans for a golf course with a Wow factor?

Do people golf anymore? This is Silicon Valley - we make deals in coffee houses, not on golf courses. There's also Stanford golf course a mile away, which already has a wow factor.

Building a new or better golf course in a drought seems like the worst possible way to use the water. I'd rather have the almonds.




27 people like this
Posted by Hate Golf, Too
a resident of Old Palo Alto
on Apr 24, 2015 at 9:39 am

Golf is irrelevant--the game takes too many hours and no one but no one under the age of 70 has that much time anymore, not even on weekends or holidays.

Get real and return the golf course back to wetlands.

Bankroll the money for a rainy day, which WILL come eventually--especially if the Central Banks of China carry out their promise to prosecute their citizens who took out Millions of Dollars in loans and then left for the U.S. ( and have made no attempt to repay those loans).


19 people like this
Posted by Tim Buck II
a resident of Downtown North
on Apr 24, 2015 at 9:59 am

We need more employees to watch over all the new consultants.


4 people like this
Posted by 38 year resident
a resident of Old Palo Alto
on Apr 24, 2015 at 10:42 am

@ PAOnlineName.....you have it exactly right. No one could have said it better. Thank You.


25 people like this
Posted by green mom/silvia
a resident of South of Midtown
on Apr 24, 2015 at 10:56 am

"The signs of success are striking: new libraries, a renovated City Hall, a rebuilt Art Center and a new downtown just a mile and a half south of the old one.
Plans for the future are even more ambitious: an iconic bridge, a golf course with a "Wow!" factor, new parking structures, an expanded children's zoo and a state-of-the-art police headquarters".

But NO money for the animal shelter? How come?
Where there is a will there is a way. Lets include it in the wealthy budget and take care of the less protected!


21 people like this
Posted by Craig Laughton
a resident of College Terrace
on Apr 24, 2015 at 11:02 am

>the City's pension and retiree healthcare trust funds have an unfunded liability in the amount of $439.1 million."

Doesn't seem to concern any of those demanding ever more boutique projects in Palo Alto. It just gets dismissed by the kick-the-can-down the road crowd.


18 people like this
Posted by Kim S.
a resident of another community
on Apr 24, 2015 at 11:04 am

The reason the pay keeps going up is because pay is based on what neighboring cities are paying with the excuse that we need to stay competitive. It has nothing to do with performance. It's a racket.


15 people like this
Posted by Me
a resident of Adobe-Meadow
on Apr 24, 2015 at 11:16 am

I truly believe in the concept of "you get what you paid for". The only effective way to usher slugs toward the exit is to institute Pay-for-Performance concept. The largest bureaucracy in the nation, the Federal government, has already adopted this model. Longevity is counted less and less in favor for real actual contribution. This ought to be the way forward for City of PA. Universities will gradually replace the tenure track process for similar performance based model.

As it stands now, there are slugs within the system that are doing the minimum just to get by and they are leeching off precious resources from us.


6 people like this
Posted by Charlie
a resident of Embarcadero Oaks/Leland
on Apr 24, 2015 at 11:20 am

Maybe some of the problem is created by the high salaries in many of the private sector companies -- esp. the hi-tech ones. If anyone in the public sector deserves high salaries, it's the teachers in the trenches.


9 people like this
Posted by parent
a resident of Another Palo Alto neighborhood
on Apr 24, 2015 at 11:34 am

Darn you, Weekly, I thought this was finally an accounting of the payroll for the burgeoning bureaucracy in the school District office!

Can we please have an accounting of THAT?!!


19 people like this
Posted by Me
a resident of Adobe-Meadow
on Apr 24, 2015 at 11:42 am

@Charlie- Private sector is not really an issue since our capitalist model is mostly based on "Survival of the fittest". You run your company poorly, you will eventually go out of business.

Whereas City of PA can run poorly indefinitely without any recourse. If money runs low, no worries.....let's raise property tax or introduce a new parcel tax to take care of the issue.


2 people like this
Posted by Mr.Recycle
a resident of Duveneck/St. Francis
on Apr 24, 2015 at 11:50 am

[Post removed.]


2 people like this
Posted by math guy
a resident of Barron Park
on Apr 24, 2015 at 12:13 pm

Nice article. Your graphic is misleading, in my opinion. Without a zero origin, the graph looks far more alarmist than it should be.


12 people like this
Posted by Bob
a resident of Community Center
on Apr 24, 2015 at 12:44 pm

PULLLEEEZ...COULDN'T THE CITY FIND THE $$$ to FIX THE BAYLANDS - FIX THE BOARDWALK, FIX THE INTERPRETIVE CENTER, PULL THE WEEDS, FIX THE ROADS AND PARKING LOT POT HOLES, CLEAN UP THE PLACE. IT'S A TREASURE AND IT'S BEAUTIFUL, BUT THE CITY NEGLECTS IT BIG TIME. But then most of the employees lives someplace else - and could care less.


16 people like this
Posted by Cat Mom Leonorilda
a resident of Midtown
on Apr 24, 2015 at 2:45 pm

Why doesn't a refurbished or rebuilt animal shelter appear in this list of "accomplishments"? Why does the city have the money to fund these projects, pay more salaries, and yet shirk the responsibility of helping animals? What does this say about our city? I'm still looking for answers... How about you?


15 people like this
Posted by Jane
a resident of Evergreen Park
on Apr 24, 2015 at 3:01 pm

"city's budgeted workforce of 1,033 remains slimmer than it was a decade ago, when the city had 1,093 full-time workers,"

Didn't those 1,093 positions include the janitors, park maintenance workers, and other low paid workers, who were fired in favor of out outsourcing their jobs?

In which case comparing the current number of employees of 1,033 to 1093 is comparing apples and oranges, and does not reflect the real increase of high paid employees with salaries that will result in unsustainable pension costs down the road.

But Mr. Keene, like his predecessors and previous council members, will be long gone and never held accountable. It's the rest of us who pay taxes that will be paying the piper.



9 people like this
Posted by This city is unaffordable
a resident of another community
on Apr 24, 2015 at 3:31 pm

" most of the employees lives someplace else - and could care less."

Well, they can't very well afford to live in Palo Alto unless the city raises their salaries, can they???

I mean, please. With private sector salaries going up and up, how do you expect the public sector to attract competent people if they're paying them dirt? And then you complain about the poor level of service you're getting! Palo Alto is a wealthy community and if anyone can afford to pay their city workers a competitive salary, it's you folks. Talk to me when you live in a city that struggles just to retain its employees because they aren't paid as much as they could earn elsewhere.


9 people like this
Posted by perspective
a resident of Another Palo Alto neighborhood
on Apr 24, 2015 at 4:58 pm

Just to add a little perspective and realism. Any successes are specific
projects. The failures are all encompassing, in your face every day-
the drastic decline in quality of life and character of the city with
traffic,gridlock,parking overflow into neighborhoods, unsafe streets, growing visual blight all over the City, ugly streetscapes with sign clutter
and excessive paint,out of scale out of place buildings,loss of local business like Shady Lane,etc. Then ,specific to your article,throw in the fact that while the staff payroll grows, at the same time the consultant contracts keep growing and that pretty much sums it up, the gut level
response to your article. And then there is California Ave.


5 people like this
Posted by Questions
a resident of Community Center
on Apr 24, 2015 at 6:31 pm

City Manager Jim Keene is incompetent and is doing irreversible harm to the city. He will be long gone when everyone wakes up and realizes how he has wasted our tax resources. [Portion removed.]


2 people like this
Posted by Me
a resident of Adobe-Meadow
on Apr 24, 2015 at 7:52 pm

@Questions- if you think or have any evidence against this guy Jim Keene regarding violations on State Ethics Laws, please contact your local FBI Field office below ASAP

Federal Government Office
2479 E Bayshore Rd #820, Palo Alto, CA 94303
(650) 251-9520

There are Statutes both at the State and Federal level + RICO laws to put these corrupt public servants behind bars.


2 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Apr 25, 2015 at 4:12 am

> There are Statutes both at the State and Federal level + RICO laws
> to put these corrupt public servants behind bars.

Corrupt and inept are not the same things. There are no Federal laws that will allow us to put Keene away because the held secret meetings with a big time local developer, and did not keep any minutes so that we could know what was proposed, and what was agreed upon.

The City Council gave Keene two raises after that. Moreover, there was not a peep about Keene from any of the incumbents, or the challengers, during the past Council election.

Getting rid of Keene means getting rid of the insiders who have controlled the business of the City for a long time now. What did Palo Alto voters do? They placed three insiders (Holman, Kniss and Scharff) on the Council so that there would be no chance of Keene's being shown the door any time soon.

There won't be any progress towards better government in this town until we get better candidates running in our Council elections.


2 people like this
Posted by Me
a resident of Adobe-Meadow
on Apr 25, 2015 at 7:17 am

[Post removed.]


Like this comment
Posted by Me
a resident of Adobe-Meadow
on Apr 25, 2015 at 7:57 am

1) RICO is a powerful Federal statue originally aimed at organized crime, now it is used in many criminal and civil lawsuits.
2) Money laundering
3) Embezzlement
4) Fraud to include Wire Fraud and Mail Fraud
5) Theft of a Honest Services

And let's not forget the a Patriot Act.

Just to name a few, we have plenty of laws on the book. Let the pro cast the net and see which one sticks.


3 people like this
Posted by History Buff
a resident of another community
on Apr 25, 2015 at 11:45 am

Re animal shelter: "The greatness of a nation and its moral progress can be judged by the way its animals are treated." ~ Mohandas Gandhi

Keene is far from incompetent. He's extremely competent at self-aggrandizement and getting what he wants, e.g., $4.5M to refurbish City Hall and 2 assistant city managers.

Theoretically, he reports to the city council who theoretically represent us. In practice, it's a different story.


Like this comment
Posted by Joe
a resident of Another Palo Alto neighborhood
on Apr 25, 2015 at 8:02 pm

> Theoretically, he reports to the city council

Per the Palo Alto Municipal Charter--the City Manager does report to the City Council. There is no theoretically about it.


Sorry, but further commenting on this topic has been closed.

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