Alarmed by pension costs, city seeks to slash $4M

Palo Alto council committee recommends outsourcing internal audits in proposed 2019 budget

Despite a booming economy and stable revenue streams, Palo Alto is looking to cut $4 million from the city's budget this year as part of its effort to prepare for snowballing pension liabilities.

The direction came from the City Council's Finance Committee, which on Tuesday and Wednesday reviewed each department's budget for Fiscal Year 2019, which begins July 1. The council is scheduled to approve the budget on June 18.

City Manager James Keene proposed a $704.5 million budget in April that eliminates 16 full-time-equivalent positions, including 11 from the Fire Department. The slimmed down department would operate under a new service model, unveiled in January, that relies more on "cross-staffing," in which a three-person crew staffs multiple vehicles.

Keene's proposed budget includes a $214 million General Fund (which pays for most city services, not including utilities), an increase of 1.7 percent from the prior year. This week, however, the committee gave Keene a daunting assignment — by May 23, when the committee is scheduled to wrap up its 2019 budget discussion, identify $5 million in potential savings.

The committee identified its own proposed cut early on Tuesday: the Office of the City Auditor, which would see five out of its six positions eliminated.

Under the recommendation, City Auditor Harriet Richardson would be only person left in the office; most of the performance audits would be outsourced to private companies, using 80 percent of the current auditors' salaries. The restructuring would save approximately $108,000.

The significant shift was prompted by Chair Greg Scharff, who said he was concerned about the office's recent level of productivity. According to the budget document, the department completed 1.2 "work products" per audit staff in the current fiscal year, compared to 1.67 in the prior year.

"I think we're not getting the amount of audits we should get," Scharff said.

His three committee colleagues — Vice Chair Eric Filseth, Greg Tanaka and Lydia Kou — agreed that looking to the private sector is a good way to go. Richardson, meanwhile, didn't offer any objections to Scharff's proposal, noting that it's not uncommon for government organizations to rely on outside firms.

"I will be picky in selecting those firms to ensure we get firms that have actual performance audit experience," Richardson said.

Update: On Wednesday, May 23, the Palo Alto City Council's Finance Committee reversed its recommendation to eliminate five of six positions in the Office of the City Auditor. Read the story here.

Another budget change likely to be implemented is the elimination of the Chief Sustainability Officer position in Keene's office, which debuted in 2013. Gil Friend has held that position and spearheaded the city's adoption of the Sustainability and Climate Action Plan.

Keene and his staff determined that the position is no longer needed because the sustainability plan has been adopted.

"The work that's going to be happening is largely implementation work," Deputy City Manager Rob de Geus said during Tuesday's review. "It's implementing the SIP (Sustainability Implementation Plan), and the work is mostly being done in the departments — Utilities, Public Works, Community Services."

While unanimously endorsing the proposed restructurings, the committee also agreed that the city budget needs to be further trimmed to address an expected rise in pension liabilities. Last year, the Finance Committee commissioned an actuarial study to assess the city's liability should the California Public Employees' Retirement System (CalPERS) reduce its expected rate of return (known as the "discount rate") from its existing projection of 7 percent to 6.2 percent, a rate its own consultant deemed more realistic. The change would add roughly $8 million to the city's short-term costs, the analysis found.

Given this expected rise, Filseth argued that it would be prudent to cut the budget by at least half of that amount and to account for the remaining half in future budgets. To give itself wiggle room in determining what to cut, the committee requested that Keene bring forward $5 million in potential cuts, with the expectation that the committee will ultimately reduce the budget by $4 million.

Keene described the assignment as "not an easy task" and one that will require many difficult conversations with city staff in the next week. But the committee agreed that trimming the budget now, before CalPERS readjusts its discount rate, is the responsible thing to do.

"We do not ask it lightly," Filseth said. "The reality is — we're spending this money, so it's going to be painful and we know that. But it will be more painful the longer we defer doing this kind of thing."

Despite its desire to see more cuts, the Finance Committee voted either unanimously or 3-1, with Greg Tanaka dissenting, to move Keene's budget recommendations along. The only departments whose budgets were not approved this week were the Library Department (the committee had some unanswered questions about the costs of extending library hours and other details) and the Public Works Department, which was asked to provide more information about its vehicle-replacement program and its plans for the Urban Forest Master Plan, which would largely go unfunded under Keene's proposed budget.

Tanaka was the sole committee member who voted against the Information Technology budget, largely because he took issue with the city's plan to upgrade the broadcasting system in the Council Chambers (the project is already subject to a separate review later this year). Tanaka also voted against the Planning and Community Environment budget after expressing concerns about an 8 percent increase in salaries in the department.

As part of its budget review, the committee also recommended approving increases to the city's electric and gas rates. Under the proposal, electric rates would go up by 6 percent on July 1 while gas rates would increase by 4.2 percent.


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36 people like this
Posted by Tall Trees
a resident of Professorville
on May 18, 2018 at 10:04 am

The City Auditor wants to cut all positions in her office except her own? Seriously? Something is way off here. What kind of boss recommends eliminating and then outsourcing her own staff? And that's all to save $108,000? Her position alone cost the City more than $200,000. Seems like if they go, she should, too. She doesn't seem to care a bit about putting people out of work - her own people. Because unlike many budget cuts, these are jobs with people in them not empty positions on an org chart.

There were no "productivity problems" until Harriet Richardson became the auditor. Some staff in that office have worked there for years, long before Richardson.And there weren't any problems with them. Looks like we are only hearing her side of the story. Palo Alto has had a proud tradition of an independent City Auditor. The office was created by voters in the 1980s. It has done some excellent work over the years and won many awards.

The taxpayers are not going to get that kind of work with an outsourced audit function. They'll get a drive by/spend as little time as possible and write a one-page memo. The City Council should ask the employees what they think about this and what's really going on. And if the Council wants to eliminate the five positions, they should eliminate Richardson's as well. She is too expensive for just overseeing an outsourced audit function.

39 people like this
Posted by About time
a resident of Professorville
on May 18, 2018 at 10:13 am

Am glad the position of sustainability officer is being eliminated especially given his salary. And seriously, what did he do?
Maybe time to start thinking of eliminating Richardson’s position as well. Just fail to understand how the Dept head stays in position when the entire Dept is gutted because of productivity issues.....

33 people like this
Posted by Midtown Greer
a resident of Midtown
on May 18, 2018 at 10:41 am

Midtown Greer is a registered user.

Thank you Greg Tanaka for attempting to keep salaries and budgets under control.

45 people like this
Posted by Sylvia
a resident of Another Palo Alto neighborhood
on May 18, 2018 at 10:56 am

The MAIN problem with the pensions is paying retired firefighters 90% of their pay after being employed 30 years.

53 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on May 18, 2018 at 10:59 am

Online Name is a registered user.

He wants to cut $4,000,000? We spendmore than that on road "furniture." The city "made" more than charging us a $25 drought surcharge for 6 months AFTER the state had declared the drought officially over. We've spent more than that on redecorating the first floor of City Hall and on "wayfinding" systems for that same first floor.

We all have our pet peeves but the waste here is phenomenal.

26 people like this
Posted by Annette
a resident of College Terrace
on May 18, 2018 at 11:20 am

Annette is a registered user.

I am glad to see that the pension liability issue is getting attention. I think it likely that management level staff could be trimmed more.

Poster "About Time" makes a good point about the proposed cuts to the Audit Department. Admittedly I know little about that department but there is something "not right" about what is known from this article: the department is under-performing, there's a history of low productivity, the staff is slated to be axed, but the department head is retained. As described, that doesn't make much sense.

Kudos again to Tanaka for minding the numbers.

31 people like this
Posted by BP
a resident of Barron Park
on May 18, 2018 at 12:59 pm

More city employee cuts, and hiring freeze across the board, until the ratio of city employees to residents are in line with neighboring cities.

16 people like this
Posted by Mary
a resident of Old Palo Alto
on May 18, 2018 at 1:43 pm

Had we charged East Palo Alto the going price for the water we're transferring to them instead of just giving it away for free, a lot of the $4 Million in cuts could have been avoided. Luckily for East Palo Alto, they can avoid some cuts when their pension obligations rise unsustainably (as almost all cities will see) because they got some of our water for "free".

20 people like this
Posted by Kevin
a resident of Midtown
on May 18, 2018 at 2:20 pm

This pension issue has been known for several years, but little was done...just pile on even more boutique projects (e.g. bike bridge, animal care facility upgrade, city arborist(s) ...the list is long). This city is out of control with respect to unnecessary desires. Greg Tanaka is one courageous leader willing to take it head on.

6 people like this
Posted by Anonymous
a resident of Duveneck/St. Francis
on May 18, 2018 at 3:03 pm

I hope the city of Palo Alto doesn’t have anything similar to the Parkland, Florida case of the “school resource officer” retiring (rather early age) and getting 100k/year after not even attempting to engage the school shooter there. I know the school district and city are separate government entities, and I am not particularly focused on police or security officers, I respect their bravery (with exception of above noted guy), but it is concerning to see incredibly inflated lifetime fully taxpayer paid massive benefits. These are excessive - a change is needed - even a previous San Jose mayor, a Democrat, attempted some sanity and was rebuffed for his fully appropriate efforts. When will someone BE responsible and take reasonable corrective action??
Consider who runs our state legislature and who are the judges. California is not being responsible and improvement is clearly needed. I suggest voting for John Chiang for the next governor, he has some fiscal knowledge.

19 people like this
Posted by Questions
a resident of Charleston Gardens
on May 18, 2018 at 3:41 pm

Fire everyone in the audit dept. except the dept. head and save $108,000? That means these people don't make very much to begin with if you divide $108,000 by 5. It seems to make more sense to fire Richardson and save $200,000. It is really a big question for me to hear that she's willing to throw her entire staff under the bus to save herself. That situation bears looking into. I'm all for cutting unnecessary spending, but fire everyone and keep one person who make more than all of them combined and have her do nothing but oversee an outsourcing group? That makes no sense. I smell a rat. What kind of a boss is she? Glad I don't work for her. But it's typical; the little guys get it in the neck and the big shots get a pay increase.

21 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on May 18, 2018 at 4:28 pm

Online Name is a registered user.

You fire the audit department and hire outside auditors who don't work for free and may actually cost more than existing staff? Everyone knows outside consultants mostly provide the answers their hiring managers want.

Where's the real savings?

We're on our 3d consultant for the rail project for around $3.000.000 already. We've hired a new consultant to tell the 1,000 Ross Road complainants they're wrong. You fire the Chief Sustainability Officer and then probably try to replace him with Cool Blocks consultants counting on the hope that people have short memories? You complain about traffic and then fund the MTA which then funds the cost of the commuters over-runnning us? Who's paying for OUR Uber/Lyft rides??

You want to raise some money? Try taxing big businesses on their head count. Mountain View hopes to raise $10,000,000 that way. It sure beats collecting a measly $250,000 in diddly $30 business licensing fees.

But of course the city would only do that if it were serious. Otherwise this is just another smokescreen.

32 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on May 18, 2018 at 4:33 pm

Online Name is a registered user.

PS: What's the staffing level in the City Manager's Dept.? We've got Mr. Keene, the Asst City Manager Ed Shikada, a Deputy Asst city manager and 3 assistant city managers. Plus support staff. [Portion removed.]

How about basing their raises and bonuses contingent on actually saving some real money?

17 people like this
Posted by No Infrastructure tax needed
a resident of Crescent Park
on May 19, 2018 at 11:23 am

This article misses the most interesting part of the meeting. Apparently staff was able to figure out how to fund ALL of the infrastructure projects ($100M public safety building, $40M cal ave garage, etc.) WITHOUT any tax increases.

This is in stark contrast to the prior city council and finance meetings where staff insisted that taxes had to be massively raised because of a $76M to $96M infrastructure shortfall.

So do we have an infrastructure funding gap or not? Why is the city wasting more tax payer dollars polling to raise taxes? Is this to give the overpaid city manager and staff an even bigger raise?

The AVERAGE city employee already earn $205k yearly in total compensation. This is well above the average Palo Alto family of $137k (Web Link) . Why do council members waste our tax dollars and then raise our taxes and utility rates? Who's getting kickbacks from the unions??

14 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on May 19, 2018 at 3:44 pm

Online Name is a registered user.

Re the discrepancy between city salaries and private sector salaries, remember all the $60,000 a year foreign contractors packed into the hacker hotels. There's a bill pending to raise that to $90,000.

It's way overdue for the big corporations to start paying their fair share and not passing all their costs on to the residents.

If you haven't already signed the petition to cut congestion and office construction, please do. Web Link

2 people like this
Posted by Steve
a resident of Barron Park
on May 21, 2018 at 7:48 am

Keep taxing business, and they leave,leaving you with much higher taxes until you get fed up and leave. The problem is crazy inflated pensions and no one is willing to take the bold steps to convert everyone to a 401 k like the rest of us.

4 people like this
Posted by Anneke
a resident of Professorville
on May 21, 2018 at 8:40 am

Sylvia: Interesting you should say that firefighters retire with 90% of their pay. I once heard that most firefighters retire on disability, as that increases their pension significantly. If that is true, I don't blame the firefighters, but I do blame the system that allows that.

15 people like this
Posted by BigDog
a resident of Evergreen Park
on May 21, 2018 at 9:41 am

Look I was a fire fighter for 24 years, my pension is not what you think, I receive only $121,000 annually for protecting you idiots for years, not much for the risk. This is not an easy job, even though most of my time was sleeping, cooking and odd jobs around the station we do go out once in a while and take risks believe me!

7 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on May 21, 2018 at 10:38 am

Online Name is a registered user.

Once upon a time, government workers got lucrative pensions and get to retire at 50 because they made less than private-sector workers. Now most of private workers haven't gotten pensions in decades, often get laid off in their 40s or 50s, and now in the "gig" or "sharing" economy don't even get benefits or unemployment since they're contractors.

Not any more. Ain't progress great.

11 people like this
Posted by Sylvia
a resident of Another Palo Alto neighborhood
on May 21, 2018 at 12:33 pm

Anneke: Can the city provide information on how many firefighters retire with a “disability” pension? I bet it’s more than half because disability pensions are not taxed.

10 people like this
Posted by Mary
a resident of Old Palo Alto
on May 21, 2018 at 12:43 pm

"More than half of Palo Alto's police officers and firefighters retired with disability benefits over the past five years, a rate that is far higher than in any other surveyed jurisdiction in Santa Clara County and that is almost double the county average, according to a report released Thursday by the county's Civil Grand Jury." Web Link

7 people like this
Posted by anneke
a resident of Professorville
on May 22, 2018 at 11:15 am

To: BidDog

How unkind and how totally unnecessary your message was:

1. You chose your own profession. We did not push you into it.
2. I assume that you retired after 24 years as a fireman, which may mean you possibly retired in your fifties, an age that most workers cannot retire at.
3. $121,000 as a yearly pension for as long as you live is an outstanding pension. Most people in this country don't even make that as a normal yearly salary.
4. It was terribly rude to call us "idiots." These "idiots" are paying for your income. I would like to hear Palo Alto's Fire Chief's reaction, as it does not reflect well on his department.

1 person likes this
Posted by steve
a resident of Barron Park
on May 22, 2018 at 2:52 pm

Big dog is full of it! After 24 years at 3%, that would put a firefighters salary at $175,000 per/yr. That is impossible when a Palo Alto firefighter makes $37.00 per hour! Don't believe everything you read-

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

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