Facing a growing payroll and a City Council hungry for new garages, bike boulevards and public-safety facilities, City Manager James Keene on Monday unveiled a budget that would raise spending by nearly 7 percent in the coming fiscal year.
The budget paints a picture that is at once bright and bleak. On the one hand, it reflects a local economy that continues to thrive, with revenues rising in nearly every major category.
The budget predicts that hotel-tax revenues will increase by nearly 23 percent (or $4.3 million) in fiscal year 2017, which begins on July 1. Revenues from property tax and documentary transfer tax are expected to rise by 7.9 percent and 9.9 percent, respectively. Overall, the city's General Fund, which funds most services (excluding utilities), predicts $193.1 million in revenues -- up from $165.4 million in the current fiscal year.
But the budget also mirrors a city with a long list of infrastructure needs, rising pension costs and a huge traffic headache. The budget includes $198.1 million in expenditures, $12.3 more than in the current fiscal year. This includes a proposal to transfer $22.8 million into the city's Infrastructure Reserve as part of a five-year strategy for constructing a new public-safety building, rebuilding two fire stations, creating new bike boulevards throughout the city and building a new bridge over U.S. Highway 101 at Adobe Creek.
The biggest component is salaries and benefits, which make up 59 percent of the budget. Spending in this category is slated to go up by 4.3 percent, or $6.9 million, reflecting the city's recent salary adjustments for the workforce, based on the market median. Even with the recent raises, Keene emphasized on Monday that the city is going through a retention crisis and the city's workforce is struggling to keep up with the growing workload. In just the past few weeks, Keene's office lost two key staff members, including the city's economic-development manager.
Even the budget team is reflective of this trend. Two of the team's four staff members will be departing in the next month, while the council's Finance Committee is reviewing the budget, Keene said. And city Chief Financial Officer Lalo Perez observed that only one member of the team who presented the budget document last year is still with the city.
Given the situation, Keene's budget presentation was less a celebration of the booming economy and more an exercise in managing expectations.
"We have an emerging crisis in staffing," he said. "The problems and challenges of our community, naturally, are playing itself out in our ability to recruit and retain people ... the housing costs, the traffic and commute and the demands of our environment.
"The people who work on all these things have to work harder on more complex issues with more public scrutiny than most of their peers."
In the new budget, Keene proposes to add 10 new positions, bringing the city's total employees to 1,052. Among them are four in Public Works (three related to the ongoing upgrade of the Regional Water Quality Control Plant), two-and-a-half in the Department of Planning and Community Environment; a senior librarian; a planning technician in the Development Center; and a senior human-resources administrator who would manage worker-compensation activities.
In recommending the new positions, Keene said he considers the proposal a "very conservative recommendation, given the number of requests I received during the budget process."
"This is a big budget with big demands and we're going to have holes during the course of the year in our ability to respond to them," Keene told the council.
In his transmittal letter, Keene wrote that the overall objective of the proposed budget "is to deliver a high level of service to the community, tackle the most immediate and difficult issues facing our city, move forward on the council's priorities, while maintaining the city's solid financial standing."
"A key component of achieving these aims is to attract and retain talented employees," the budget states. "Since the Great Recession in 2008 and its accompanying personnel reductions, we have asked employees to work harder and become more efficient. This has occurred, but with a thriving labor market, we are now experiencing recruitment and retention challenges which are further exacerbated by high-housing costs, lengthy commutes to work and competitive wage and benefit packages offered in other jurisdictions by other employers."
The proposed budget also includes a $100,000 contribution to downtown's new Transportation Management Association, a nonprofit tasked with reducing traffic, and $1 million for Project Safety Net, a community effort to promote youth well-being and mental health.
The budget is also notable for what's not in it. It does not include funds for revamping the city's animal shelter; acquiring the downtown post office; developing a master plan for Cubberley Community Center; or making a dent in the city's unfunded pension and health care liabilities, which are currently estimated at $447.5 million.
It also does not include any adjustments based on the city's ongoing dispute with Stanford University over fire services, a protracted tussle that could have major ramifications on the fire department budget.
Keene acknowledged Monday that given the high number of unresolved questions, the new budget gives him "no pleasure."
"It's not satisfying to me professionally to not be able to resolve and tie up in a nice package this budget," he said. "It's got a lot of choices and some contradictions in it. I think it's representative of where we are now."
The budget will be reviewed over the next month by the council's Finance Committee before going to the full City Council for adoption on June 13. On Monday, members offered only brief comments about the newly released document.
Mayor Pat Burt stressed the need to focus on the city's unfunded pension liability, which he called the city's "remaining really great challenge." He recommended allocating no less than $1 million for unfunded liability in the coming year. He also lauded the city's recent progress on infrastructure (the budget proposes $170.5 million in capital-improvement spending as part of a $639.5 million five-year plan).
"The city should be proud and the community should be proud that we're doing investment in our capital program and infrastructure that really were discussed for decades as under-invested ... and in recent years we have increased and increased that investment to this point," Burt said.